How do the services of a financial planner compare with those of an adviser, investment manager or other financial person? What does a financial planner do, exactly?
A seemingly straightforward question, yet the answer may not be simple. I like to refer to my favorite metaphor — food preparation. A financial planner helps you create the recipe for your financial future. Think of planning a special birthday meal years in advance.
Even this, however, is an over-simplification. The goal you are preparing for is not so much an event as it is a period in your life. There are all sorts of financial advisers who market themselves as planners, such as investment managers, relationship managers and “the guy that helps me at Schwab.”
There are differences, not only in what each of these individuals do for you, but also in their backgrounds, training and how they charge for their services.
Remember stockbrokers? Nowadays, more likely to call themselves financial advisers, they help you to invest. They may also want to sell you something, usually a product that earns them a commission. It could be a mutual fund, or insurance. They are probably not taking a big picture view of your future needs. They are licensed to sell you “stuff,” but may not have specific training in financial planning.
An investment manager typically chooses your investments, trades on your behalf and reports the results to you each quarter. He or she usually charges a percentage of the amount of your investments. This person, too, probably will not help you plan for your future in any comprehensive way. The investment manager will be cooking one dish in your birthday meal without regard to the other menu items.
Certified Financial Planner
A Certified Financial PlannerTM, on the other hand, integrates the management of all the ingredients of your financial life — from investments, insurance and taxes to budgeting and estate planning — to make sure they work in concert to serve your needs.
Be selective when seeking advice. Check training and credentials. Ask how compensation is structured. Look for potential conflicts of interest. Is your adviser recommending a fund because it is right for you or because it generates the largest commission? Not to knock a Schwab or TD Ameritrade service, but be aware that their agents actually might not have much training in financial planning. Their main goal is to keep you as a client.
As you prepare for the future, you face many complex questions. When you want an exceptional meal you’re likely to turn to a professional (and well-regarded) chef. If you want an exceptional financial future, look to someone with appropriate credentials and experience . . . a Certified Financial PlannerTM.
Returning to the metaphor, when that birthday dinner arrives it will be closer to what you had imagined than if you had done nothing or received poor advice. Give your financial planning careful thought, because you won’t be able to send it back to the kitchen to do over.