A Financial Planner or Personal Financial Planner is a practicing professional who helps people to deal with various personal financial issues in regarding proper planning in the following areas: education, retirement, investment, risk management and insurance, tax, estate and business succession if you happen to be your won boss. This kind of work is commonly known as personal financial planning.
In carrying out the planning functions, the financial planner’s overarching goal is to generate a detailed strategy tailored to a particular client's unique situation. The strategy is designed to achieve a client's specific goals.
Personal financial advisors are also called financial planners or financial consultants. They use their knowledge of investments, tax laws, and insurance to recommend financial options and products to individuals in keeping with the individual’s short term goals and long-term objectives.
But when you do you need to consider the services of a financial planner. The short answer is whenever you have financing, that is cash, and you have no plan or have no idea on how to develop one. If that is you, don’t despair. The world of finance is incredibly complex and a financial planner will help break it down for you.
According to one prominent investment finance director for The Consumer Federation of America the best time for young people to consider hiring a financial professional is when they land their first real job. We take they mean something above the Pizza delivery stint used to make ends meet. But, that does not necessarily mean if you deliver pizzas you don’t need a financial advisor. Wealth, as you will learn, is as much a function oh how you spend your money than how much money you actually make.
The idea is to have a variety of financial issues to consider. You will have your 401(k) plan and your benefits. The financial planner should aim to set you on an appropriate course to see to it they are well stocked. For savers with modest assets, a fee-only planner could generally be the best option.
Typically, these planners run between $100 and $250 an hour, depending on the market. Because they don't pitch products tied to a particular company, it a fee only planner minimizes potential conflicts, according to some advisors.
Additional services mean additional charges.
If you want not just planning, but money-management services, as well, that adds to the cost either through commissions or an annual fee based on a percentage of the assets under management. This can usually run up to 1% or 1.5%.
If you're a buy-and-hold type of investor, paying commissions for money-management services can make the most sense. The theory is if your portfolio typically does not change, then it will save in transactional fees. How many financial planners are there to help?
The answer is quite a lot.
Personal financial planners held 158,000 jobs in 2004 and the number has surely risen since that data has been available. Much like financial analysts, more than half work for finance and insurance industries. Such planners specialize in commodity brokers, banks, insurance carriers, and financial investment firms. In fact, 4 out of 10 personal financial advisors are self-employed, operating small investment advisory firms.
So what sort of education should a good financial planner have? Typically, a college degree and good interpersonal skills rank among the most important qualifications for these workers. Financial analysts and personal financial advisors who have earned a professional designation usually are found in highly lucrative positions in investment banking. But, you should be familiar with what accreditations a financial planner should have.
To avoid amateurs, hire a planner who's earned special credentials. Ideally, you want a financial planner that is a “Certified Financial Planner” or one who has achieved a “Personal Financial Specialist designation” by meeting training standards or having a certain level of experience.
When discussing with your planner how he or she is paid for helping you, it will be helpful to understand the variety of credentials that are offered to financial planners and tax advisors as this will affect how expensive they may be.
The most respected designations that require the most preparation and knowledge and the highest ethical standards are the CFA, CFP, ChFC, CPA and PFS.
Chartered financial analysts must pass a rigorous, three-level test on investment analysis, economics, portfolio theory, accounting, corporate finance and other topics that are administered by the Financial Analysts Federation. CFAs also must demonstrate expertise in a specialized area of investments.
Accredited tax advisors or accredited tax preparers have completed the College for Financial Planning's Accredited Tax Preparer Program and passed an exam administered by the Accreditation Council for Accountancy on Taxation.
Certified financial planners must meet experience and education requirements. They must also pass a 10-hour exam.
Certified fund specialists have completed a 60-hour self-study course and passed an examination on mutual fund investing administered by the Institute of Business & Finance.
Chartered financial consultants are typically insurance agents who have passed collegiate courses in financial planning and other criteria relating to finance.
Certified public accountants are tax specialists who must have a college degree, pass a challenging national exam as well as stay up to date on changes in tax law.
Chartered life underwriters have the highest professional designation for life insurance agents. They must meet extensive experience and education requirements in the life insurance industry.
Chartered mutual fund consultants have completed a 72-hour self-study course on mutual funds administered by the College for Financial Planning and the Investment Company Institute.
Enrolled Agents are tax preparers. They either worked for the IRS for at least five years or passed a two-day test on federal tax law.
Personal financial specialists are CPAs who have met education and experience requirements as well as satisfactorily passed an exam on financial planning.
This designation simply means they have registered with the Securities and Exchange Commission. To do so, they only needed to pay a registration fee. So this, in and of itself, doesn’t really attest to heir skills or professional expertise.
People enlist the help of a financial planner mostly because of the complexity of the many different financial products on the market today? Additionally, personal life situations affect your financial situation too. For example, how well do you understand a Roth IRA or a College Savings Plan? What are the advantages and disadvantages? What should you do to save for both your children’s education and your retirement? What about seeing a little bit of the world in the meantime?
Knowing how to perform the following task can be daunting: following a wise course when making key financial decisions; understanding how certain financial decisions affect other areas of your wealth; adapting more easily to life’s challenges to achieve peace of mind.
Good financial planners determine how their clients can meet their lifelong financial goals through management of resources. They will invariably examine the financial history of their clients, past and current. They will study their client's assets and suggest exactly what steps the client needs to take in the future if they want to achieve those goals.
Although a segment of professional financial advisors typically focus on one particular area of a client's financial life, the broad approach that financial planners offer separates them form the rest of the profession. In this sense, financial planners are jacks-of-all-trades, but make no mistake about it: they do not work alone.
Financial planners will routinely meet with their client's other advisors: attorneys, accountants, trust officers, investment bankers, etc. They need to do this to more fully understand their client's financial goals. The last thing a financial planner wants to do is create a plan that might not be in alignment with investments that their client may have undertaken with bankers. A good financial planner is a good steward of all your financial interests. They ensure all ladders are on the right wall.
It should go without saying that a financial planner should cover all areas of the client’s financial needs. The net result should be the achievement of each of the client's goals touched upon earlier. However, let us take a little more detailed look at what areas some financial planners will specialize in for their clients.
The financial planner’s job is to manage cash flow risks. They seek to provide sound risk management and insurance techniques to help their clients avoid common pitfalls.
Investment planning involves creating and managing capital wealth to generate profits and cash flows for reinvestment and spending. A good financial planner should know the game of investing and have a track record of success in doing just that, personally or for his or her firm.
Planning to ensure financial independence at retirement is increasingly in high demand especially with the Boomers all coming to the retirement crest. Additionally, retirement planning is even more critical for today’s young investor as it is plainly obvious Social Security will not allow you to continue your lifestyle after you retire.
The specialty here is keeping Uncle Sam happy with as little as your hard earned income as possible. Moreover, planning for the reduction of tax liabilities and the freeing-up of cash flows for other purposes that are of interest to the client is centerpiece of this specialty area.
The skill area here is adroit planning for the creation, accumulation, conservation and distribution of assets to heirs after you pass on. After all, you want to your life’s work to be enjoyed by your offspring and not dictated by the Government as to what constitutes an equitable distribution.
Maintaining and enhancing personal cash flows through debt and lifestyle management is the specialty of the financial planner dealing with cash flow issues. He or she should be able to identify vulnerabilities in your asset portfolio.
The personal financial planning process generally contains the steps outlined below in one form or another:
The idea is to identify what is important to the client and what is their personal vision for their life and finances.
This would include the process of quantifying the client's financial in terms of assets and liabilities.
The information gathered is analyzed so that the client's situation is comprehensively understood. This includes determining whether there are sufficient resources to achieve the client's goals. In this phase, it is important to identify and have a clear understanding of what those resources are and what shape they are in.
Based on the understanding of what the client wants in the future and his current financial status, the financial planner will create a strategy to meet their client’s goals.
Armed with a well crafted and though out financial plan, the strategies outlined in the plan are implemented by carefully allocated the client’s resources.
The implementation process is closely monitored by the financial planner. He or she will strive to ensure the financial plan adheres to the client's goals. To do so, periodic reviews are necessary to check for misalignment and changes as well as changes in the client's situation. Any significant departure from the client's last personal situation could dramatically affect the strategies and goals in the financial plan. They would need revised accordingly.
A relatively young profession, financial planning emerged as a unique discipline about 30 years ago. Financial planning is the process of determining how an individual can meet their unique life’s goals through the proper management of his or her financial resources. A good financial planner takes a "big picture" view of a client's financial situation and makes recommendations based on their needs in areas such as budgeting and saving, taxes, investments, insurance, and retirement planning. With the ever increasing complexity of today’s financial products as well as the increasing demand on everyone’s day-to-day time, it is no wonder that financial planners will continue to enjoy good job growth for a long time to come. People simple don’t have the time to really understand the right course of action, the right products for the right time in life. The financial planner’s job is ultimately helping you manage and attain your dreams.
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