Listen instead

I often hear: I don’t need a financial planner-I don’t have any money! Well, maybe that’s the problem. This whole money thing can be pretty complicated. A financial planner can not only help to manage and preserve wealth, she can help to create it. A planner can help you to reach your financial goals. You provide the dream and the planner provides the plan to take you there.

Plan your work for today and every day, then work your plan.” – Norman Vincent Peale

I’m Not Sure That I Can Afford a Planner.

While it is true that financial planners do get paid, there are different methods of payment. You may pay a flat fee or an hourly fee to have a financial plan prepared for you. Once you pay the fee you could take the plan and implement it yourself. Working with a fee-for-service or fee-only planner, you could have the adviser implement the plan and you would pay a fee based on a percentage of your assets or the income generated on the investments. There are planners that are paid by commissions. Often their pay doesn’t come directly from you; they are paid by the suppliers of financial products when you make a purchase through your planner. On some products, the client pays the commission on the product purchase. You can also find planners that are paid a mix of fee and commission. Some planners work for a company and are paid a salary. The employer may receive their revenues from fees and/or commissions paid by the client on the purchase of a product or from the suppliers of financial products when a purchase is made. Planners must disclose how they are paid-so don’t be afraid to ask up front!

It takes as much energy to wish as it does to plan.” – Eleanor Roosevelt

Now I’m Really Confused-Fee-For-Service, Commission, Salary-How Do I Decide?

You’re not alone. Many people find this confusing and the debate continues between advisers about which system is best! The bottom line is that someone does get paid and someone does pay: planners are paid, clients pay. The difference is in who writes the check. If you use a fee-for-service planner, you write the check. You receive an invoice, and then you send the payment. This system is very transparent. Whether you pay commissions to purchase a product or pay a fee, you know exactly what you are paying. You can decide if you think the service provided merits the cost. Of course, many people just starting out might choose not to have a financial plan prepared if they had to pay a fee for this service. They may simply procrastinate, losing valuable, and irreplaceable, time. It is important to note that firms that offer a fee-for-service plan often impose a minimum asset level before accepting new clients. It could be $75,000-$100,000 or more. Many investors don’t meet these criteria. On the other hand, when a planner is paid a commission from a supplier of financial products (a mutual fund company or insurance company for example) while the check is written by the institution, the money comes indirectly from the client. There are additional fees build into the price of the product (insurance is a good example of this) or there are management fees that are paid yearly on investments that generate the income used to pay the planner. Ultimately, the costs to you the client may be very comparable in the different models. Obviously, other payment methods are not as transparent as the fee-for-service model. However, when there are no direct costs to the client, anyone can afford to get started on the path to financial independence. This is a very simplified explanation. If you want to understand how your planner will be paid, ask. You should also ask if there is any additional financial benefit to your planner to recommend one product over another. Perhaps the commission is higher or there is another financial incentive to use a particular product. You want all the facts before you make a decision — it’s your right to know.

How Do I Choose a Planner?

Unfortunately, many people call themselves a financial planner even though they don’t have any formal training or education. In Canada and the United States, the designation of Certified Financial Planner (CFP) assures you that this person has completed the required financial courses, has a certain amount of real experience working in the field, and has passed a qualifying exam. You can also check the CFP website to ensure that any planner is in good standing in the organization. CFPs are required to complete continuing education courses each year. There are of course other designations that prove that a certain level of education has been achieved. Check the web, make phone calls, and talk to friends for a recommendation.

Now What?

Grab your papers. Anything to do with money. Income, expenses, insurance, debts, loans, pensions, and investments. Complete and accurate information is needed to put an effective plan together. Now, you see why you have to work with someone you trust!! A Certified Financial Planner will focus on six different areas: cash management, risk management, investments, special needs, estate planning, and tax planning. Don’t worry we’ll go into more detail over the coming year! This is not a one visit process. The first visit is the time to gather information and determine your financial goals. The planner will return with the analysis of your current situation and recommendations in each area. Once you discuss the suggestions and make your decisions it’s time to implement the plan. Then, it’s important to monitor the plan at least annually to make sure that you stay on track. Anything that changes the plan. Marriage, birth, death, divorce, or change of occupation, needs to be discussed with your planner, as these things can affect the plan. Remember, one step at a time. Getting started is the hardest part but you’ll be glad that you did.