What is the value that people get when
they work with an objective, client-focused financial planner?
Most planning firms are reluctant to
toot their own horns—partly out of modesty, and partly out
of a conviction that you probably have better things to do than read about how
they help you with your financial life.
But every once in a while, it’s
a good idea to stop and think about what you get for what you pay.
This list is organized in rough order
of value, and if you feel you aren’t
getting any of these benefits, please let us know immediately.
1) An independent financial planner
helps protect you from financial predators.
It’s
a touchy issue in the profession whether advisors who put their clients’ interests first should be “bashing
the competition,” but in fact the Wall Street firms that
pretend to offer financial planning guidance are seldom (if ever) looking out
for the best interests of their customers.
When you work with a broker (also known, on the business card, as a “vice president of investments,”) you will be presented with
separately-managed accounts that look like mutual funds except they share their
fees with the brokerage firm, plus a lot of investments that have to pay people
to recommend them—never a good sign for the end
investor.
And since the investment markets are
extremely complicated, it’s usually hard for a layperson to know
when there are much better alternatives than the “opportunities” being presented.
2) An independent financial planner
helps you keep track of--and make more efficient--your financial affairs.
It is not uncommon for financial
planners to talk with clients who once had a will drawn up, but they’re not sure exactly when. Now that you mention it, they’re curious about what, exactly, it
says. There’s an insurance policy in a drawer
somewhere, and it may be term or it may be a cash value contract; all the
client knows for sure is that he writes a check to the insurance company every
year. Upon inspection, it turns out the
auto insurance policy he happens to own is way more expensive than the lowest
rate available in the market, and the homeowner’s policy hasn’t been updated since the Clinton
Administration.
And the investments are not uncommonly
a hodgepodge of what a broker sold the client based on what he was told by his
bosses to recommend at different times during the relationship.
Hopefully, this was never you. But it does offer a certain peace of mind to
know that everything is organized, in one place, and that somebody is paying
attention to the details. Because in
your financial life, the details matter.
3) An independent financial planner
will stand between his/her clients and the dysfunctional emotional decisions
that everybody makes with their own investments.
Do you remember how it felt when
Lehman Brothers went down, and the U.S. government was bailing out General
Motors? Many people sold everything at
the bottom, and then waited, and waited, and waited to get back into the
markets until it was “safe.” They never dreamed that the markets
would go on a six year bull run that would take us to new record highs.
The Morningstar organization has
calculated the difference between investment returns and investor returns—that is, between the returns people
get vs. what the markets (or individual mutual funds) have delivered. Results?
It is not unusual, during various time periods, for individual investors
to get about half the returns of the market.
How is that possible? They may be
moving the portfolio around, or buying an attractive-looking hot fund or
selling a great fund that’s going through a rough patch. They may sell out at the bottom of a scary
period, or go all-in when the markets are about to take a nasty tumble.
For many of us, the best approach is
to find good, solid investments and stay the course through thick and thin, ups
and downs. But it’s very hard to do those things on your
own. An independent advisor provides a
dose of objectivity right when you need it.
4) An independent financial planner is
a strong advocate for your future.
You know the statistics about the
savings rate in America (the 2000-2008 numbers hovered around 0% of income,
spiked briefly after the Great Recession and are now back in the 1% range again). But the keepers of these statistics don’t tell you that they probably overstated
the actual rate, because they didn't include things like increasing credit card
balances or home equity loans. When
people put money in their savings account, and at the same time run up more
debt, it counts as an increase in their savings.
The problem for most consumers is that
there is no voice in their environment advising them to pay themselves a fair
percentage of the income they earn.
Instead, they’re bombarded by messages which make
powerful arguments to do the opposite: to buy this, that or something
else. The entire advertising community
conspires to take those dollars out of their hands before they ever hit an
investment account.
Advisors become that rare voice
speaking out in favor of saving. And in
some cases, they help identify expenditures that are not in line with your
stated future goals. Which leads us to:
5) An independent financial planner
helps people identify what is important in their lives and prioritize their
goals.
How many people do you know who have
taken the time to identify what they really want out of life?
The incredibly sad truth is that the
vast majority of people in our advanced, prosperous society have not taken the
time to figure out what they really want out of the all-too-brief time they
will spend on this planet. And because
they don’t
know their destination, they will never reach it. They are, in a very real sense, at the mercy
of whatever agenda others have for them.
An independent financial planner will
ask questions in your initial interview which help you recognize what you don’t know about what you want, and help
you identify your most personal goals and desires. That, alone, can be a priceless service.
6) An independent financial planner
can help people turn seemingly impossible goals into a routine that can achieve
them.
After years of running retirement
planning spreadsheets, and working with successful individuals in the
community, advisors eventually master one of the truly magical lessons of life:
that any enormous goal can be broken down into manageable, monthly increments,
and achieved by routine and persistence.
You save X amount of dollars every month in a portfolio that gets
something close to what the market offers, and you will retire with a sum of
money that seems impossible to you now.
Clients who have goals that they don’t believe they can achieve are put on
a schedule that will get them there as a matter of routine.
Of course, this list doesn’t include specialized services like
making retirement planning projections, charitable planning, creating special
needs trusts for a disabled child, evaluating disability and long-term care
insurance—and it doesn’t mention the comfortable knowledge
that you can call an expert for advice on virtually any financial subject, and
you’ll get an answer that is not tainted by a
sales agenda.
The point is that the services offered
by an independent financial planner can have enormous value to people who are
motivated to enjoy successful, prosperous lives. An independent planner’s only goal is your success and
prosperity, which should not be—but is—unusual
in our financial world.
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