The Traditional Financial Planning Problem
Many investors struggle with managing their own investments, understanding legal and tax matters, and having an overall coordinated financial plan. They are not sure if their asset allocation or the risk tolerance is correct or when to adjust their portfolios and why. Many react to the media and end up overreacting trying to time the market. While this works once in awhile, statistics show trying to time the market does not work…losing opportunity and being subject to one’s own emotions rather than a logical plan.
Even with the use of a broker that you have a good personal relationship with often does not improve your investment returns. Many financial advisors have a conflict of interest by charging transaction fees, commissions, or by selling their own product. They may not be free to truly do what is in the best interest of their client due to licensing or company rules.
In addition, many advisors are trained in a narrow area of competency and expertise involving product knowledge in the areas of investments or insurance only, rather than overall financial and estate planning.
The solution to these important financial issues is to work with an independent financial advisor who has experience and education backed by professional credentials such as CFP®, ChFC®, or MBA that they work on a “fee” basis. Independence provides objective advice rather than what is being influenced by their corporate directors or transactions that generate commissions. A “fee-based” advisor works in your best interest because the value of your account affects their compensation, putting you both on the same page.
One additional consideration in selecting a financial advisor is whether their firm is a Registered Investment Advisor (RIA). This means that they are registered with their state or the Securities Exchange Commission (SEC), and can legally call themselves a financial planner, as well as a fiduciary, and must give you advice that is in your best interest…not just sell you a suitable product. All financial planners must legally give you the required Form ADV Part 2A and Part 2B disclosure about themselves and background, while other advisors don’t necessarily have to give you this disclosure. Only financial planners can legally charge a fee for financial planning advice.
- Independent advice from a professional, experienced financial planner
- Fee-based, fiduciary planning and investment management, rather than transactional suitability commission based
- Credentialed, educated, and experienced professional
- Quarterly portfolio reviews
- Annual personal reviews
- Integrated financial analysis and planning
- Coordination of financial issues with other professionals