Selecting a Broker or Financial Planner
Are Boomers Winging Their Retirement Plans?
My husband is an engineer and I am a CPA (not in public practice), so we are relatively savvy when it comes to financial matters. Does everyone need a financial planner? We're not millionaires, but have amounts in IRA accounts, investment accounts and 401k accounts. It just seems like the accounts are scattered everywhere and should be more centralized. Can you help us?
Janice in Tulsa, OK
Janice asks a good question. Managing our financial affairs is getting more complicated even if you don't have a lot of money. The truth is that everyone needs someone to manage their financial affairs. But, it's equally true that many people can be that manager for some or all of their affairs. Let's see if we can't create some guidelines to help decide when you need to call in a financial planner.
The first thing is to understand what a financial planner does. It is not the same as a stock broker or investment adviser. A planner will help you define your goal and then work with you to assemble a plan to achieve that goal.
For instance, your goal might be retirement. The planner would want to know at what age you'd like to retire and what you'd like to do during retirement. From there, he'd determine how much money it would take to afford that lifestyle and then create a strategy to accumulate enough money.
In some cases, the planner will need to call in other experts. Many planners started out in specific fields (accounting, law, investments, insurance) and will handle transactions in their field, but outside of their expertise, they'll need to call in other professionals.
A financial plan can be for a specific goal like college education for your kids. Or it can be for all of the financial goals throughout your life.
Now that we have an idea of what a planner does, let's see if we can determine whether Janice can do it. Like many do-it-yourself projects, you'll need to answer a couple of questions before deciding whether to tackle the job.
The first question: will you know when a plan is required? Needing to plan and not doing one could cause serious problems later. Some appropriate times might be marriage, birth of children, opening and closing a business, and retirement. You'll also want to do some preplanning for retirement and for your estate.
Next question: can you define your goal accurately? Putting Junior through college isn't specific enough. You'll need to consider public vs. private schools. Will Junior work? Live on or off campus? Knowing the right questions to ask is important to defining your goal.
Once you have a goal, it's time to create a strategy for attaining that goal. Our college example would require calculating how much money would be required. You'll need to estimate how much prices will change in the intervening years. The plan will use savings and investment tools. It also could include tax strategies and possibly even legal documents.
Since most of us have fairly common goals, there are many resources to help Janice. She'll find books and websites dedicated to helping the do-it-yourselfer. Most of the information is understandable, but it often requires study.
Now that Janice understands the goal and has some feel for the plan and what resources are available, she can consider whether she's capable of doing the job herself.
The first thing that might disqualify her from a do-it-yourself plan is competence. Some legal documents, investment vehicles or tax strategies really require training to understand and complete successfully. Other things can be done by the average person.
The second question for Janice to consider is does she have the time and temperament to do the job. It takes time to complete a financial plan. There are a lot of 50 year olds who have been meaning to put a retirement plan together for over 20 years and still haven't gotten it done.
Janice might also find that she has the wrong temperament for the job. You'll need to enjoy doing research and math to complete many portions of a financial plan.
Ultimately, no one is qualified to do every step of the different financial plans you'll need in your life. Even professional planners refer clients to specialists when it's appropriate.
In fact, that might be one reason to use a planner. They will have a network of professionals. The planner will know their strengths and weaknesses. And should be able to make a good recommendation when a specialist is needed.
For most people, financial planning is a combination of do-it-yourself and call the professional. Some planners are unwilling to work on anything short of a complete financial plan that encompasses everything. But, most are comfortable helping clients complete the portions that they can't do themselves.
Janice may also find that something that she thought she could do turns out to be beyond her capabilities. That's alright as long as she realizes that soon and goes to get the proper help while there's still time to meet her goals.
Ultimately, only Janice can decide how much help she needs in managing her finances. But, having some idea of what the task is should make it easier for her to come to a good decision.
Gary Foreman is a former financial planner and purchasing manager who currently edits The Dollar Stretcher.com website and newsletters. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report and he's a regular contributor to US News Money and CreditCards.com. You can follow Gary on Twitter or visit Gary Foreman on Google+.
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