It is wise to have a financial plan, but not everyone needs a financial planner. Whether you read money magazines, the newspaper’s business section, or scour the Internet, there is plenty of information related to financial plans and financial planners.
To decide whether you need a financial planner, know what you want to gain from his or her expertise. If you have investments and assets, you need to know your risk-tolerance level. Can you survive swings in the stock market or will they keep you up at night with worry? If your financial goal is to preserve capital, you don’t want a financial planner who specializes in junk bonds.
Fees may help you decide whether you need a financial planner. You don’t want one who profits from recommending a particular investment since that planner will not be considering your own best interests, but his. A financial planner who is straightforward about compensation gives you the information you need to make smart financial decisions. Do not consider hiring a financial planner who will not disclose how he or she is compensated.
The International Association of Registered Financial Consultants (IARFC) puts the cost of a financial plan between $250 for a basic plan and $4,000 and up for a complex one. The IARFC identifies four methods of compensation for financial planners: fee only, fee plus commission, commission only, or salary. Generally, fee plus commission or commission-only financial planners work with people of modest means.
– Fee-only financial planners charge an hourly rate, which includes research, reviews of plans, and discussing implementation options. The fee for helping select and monitor investments is typically 1% to 2% of the assets per year, paid quarterly or monthly.
– Fee plus commission involves assessing your financial situation and making recommendations. Financial planners earn a commission on the sale of their recommendations, which should be disclosed to you.
– A commission-only financial planner will develop recommendations for you, and only receives compensation if you choose to buy the products and/or services offered.
– Banks and credit unions may offer financial planning services and employ financial planners who are paid by salary.
When deciding whether you need a financial planner, consider your overall comfort level. If you aren’t comfortable telling your financial planner everything about your finances, you aren’t really benefiting from financial planning.
Education, credentials, rapport and the compensation method are imperative when deciding whether you need a financial planner. As a client, you must understand what you are buying and how much it costs. Ask questions of your financial planner until you are satisfied that he or she will work for your best interests.