Last Updated: May 9, 2011
It may seem like a challenge — you’re in your first job, you’re paying your own living expenses for the first time and, like many college graduates, you may be dealing with massive college and credit card debt. So why add the expense of a financial planner?
Indeed, many people don’t make that choice. Here are some things to know about financial planners:
They don’t do all the thinking for you: A financial planner is not a substitute for your own final decision-making. Planners serve as guides, editors and strategists. Sometimes they offer investments you may want to buy, but they need to be licensed to do that. They should begin by asking questions of you — plenty of them. Their purpose is to find out all the goals you have right now — and maybe determine a few you haven’t thought of. Some of these dreams might include buying a home or business, saving for college education for your children, taking a dream vacation, reducing taxes or retiring comfortably. Financial planning is the process of wisely managing your finances so that you can achieve your dreams and goals — while at the same time helping you negotiate the financial barriers that inevitably arise in every stage of life.
They specialize: Planners, like any professionals, tend to specialize in certain areas of interest, and they may receive continuing education in more than a dozen areas of expertise. Financial planners can earn continuing education credits in asset management, employee benefits, commercial real estate, insurance, investment management, estate management, retirement planning, 401(k) administration and health topics, among others. People in their 20s might want to look for a planner who specializes in “life planning.”
They don’t all charge the same amount or in the same way: Planners charge for their services in a variety of ways. Some “fee only” planners charge for a consultation, plan development or investment management, and they may charge on an hourly or project basis depending on the client’s needs or as a percentage of assets under management. Some charge commissions for the sale of financial products they are licensed to sell, and others have hybrid structures mixing fees and commissions. Younger people may want to discuss advisory services first before they commit to buying any particular products.
They can talk about your personal investments as well as the ones at work: One of the best advantages to working with a financial planner is the chance to have a second set of eyes look at your wages, investments and benefits at work vs. what you’ll be investing on your own outside work-based retirement and other savings plans. Be prepared to bring both sets of finances into the discussion.
Trust is key: Choosing a financial planner is as important as choosing a doctor or lawyer. Money is one of the most intimate aspects of our lives, and consequently, working with a financial planner is a deeply personal relationship. As you go through the process of finding and selecting a planner, keep in mind that trust and comfort will be key factors.
They should be able to answer your questions: When interviewing a potential financial planner, it’s not about just what they think. Particularly if you’re learning your way with money, a financial planner should be someone who takes any and all questions in a format you both agree upon. Planning should be an educational process above all.