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How to Pick a Financial Planner

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How to Pick a Financial Planner here are many misconcep- matter how much income or savings you have, there is al- tions about the term “finan- ways a benefit from having a clear plan for your finances. cial plan.” At some point in Think about this. If you were building a $1 million our lives, we may have pur- home, would you need an architectural plan? Of course. chased a life insurance poli- What if you were building a $100,000 home? Do you still cy after some discussion with need a plan? Again, the answer is yes. an insurance agent. We may We all need a financial plan to help us achieve our goals T have discussed with a stock in both our business and personal lives. Financial plan- broker our needs to invest ex- ning takes the guesswork out of managing your financ- tra savings. In fact, we may have gone to a financial ad- es and helps you understand the implications of each de- viser who provided a 40-page document labeled “Your Fi- cision you make. And because we all have different goals, nancial Plan.” it’s important to have a unique plan that works for you But these aren’t the only parts of financial planning. Fi- and your financial situation, both now and in the future. nancial planning is a process, a living, breathing service A holistic financial plan not only involves investing Charting the Course 2020 VISION that integrates both short- and long-term financial goals money and building wealth but also optimizing credit and such as funding a college education for our kids, buying tax obligations, everyday spending, family planning, set- a home or a second home, planning for a comfortable re- ting up your home, saving for your children’s education tirement, succession planning for a business, and legacy fund and saving for retirement, as well as protecting your- and estate planning. Along life’s ever changing path, fi- self and your family with suitable insurance policies and nancial planning also provides mitigation of risks from arranging your estate. Business succession planning is liability and property damage and seeks to provide tax ef- also an important component of financial planning. All of ficiency. Financial planning’s primary function is to inte- these facets of a financial plan are interconnected. grate your financial life along its many and varied chan- As business operators, you are well acquainted with nels, and respond to life changes along the way. successfully creating a roadmap for success – your busi- As business owners know, a solid business plan is criti- ness plan. In developing your business plan, you have cal to the long-term viability of a business, and that same assessed available resources, planned for growth and attention should be given to your personal financial se- tracked your progress. Personal financial planning re- curity. Now that you have your business plan in place, it’s quires similar thinking and advice. time to focus on your, your family’s and your business’ fi- nancial security. How to Pick a Financial Planner While it might sound like something only the very rich Finding the right financial planner/adviser takes a lit- need, everyone can benefit from financial planning. No tle time and legwork. Good planners will be fiduciaries, 42 May 2019 THE DIRECTOR meaning they are legally obligated to act in a client’s best your needs, assessing your tolerance for risk and under- interests. Their financial advice is geared for your benefit standing what impacts your current financial picture, rather than their own. such as income, expenses and savings. Focusing too many Several reputable national organizations (not affiliat- resources in one area may put your overall financial suc- ed with our firm) require members to earn credentials cess at risk. by passing exams and also require continuing education. Remember, time and energy are two of your most im- Each offers a searchable database with state-by-state con- portant resources and you need to direct them to succeed tact information: National Association of Personal Finan- both in your business and personal financial spheres. cial Advisors (napfa.org), Financial Planning Associa- tion (plannersearch.org) and Certified Financial Planner 2. Collect Your Board of Standards (cfp.net). Financial Information It’s important for people to interview at least three plan- Inventory your current assets, including ners to pick the one who’s right for you. Compare creden- savings and investments. Determine your tials, look at how they are paid (fee-based, commission or current and long-term liabilities. Charting the Course No matter how much income or savings you have, there’s always a benefit to having a clear plan for your finances. Tips on meeting with a financial planner for your business and personal lives. BY VICTORIA FILLET both), do a background check, check for any disciplinary Assets can be classified into three distinct categories: actions and, of course, ask the tough questions. The CFP Board of Standards provides the following six steps to a.) Liquid Assets: Liquid assets are those things you own prepare you for meeting with a financial professional. that can easily be sold or turned into cash without los- ing value. These include cash and checking, money mar- Before Meeting With the ket and savings accounts. Some people include certifi- cates of deposit (CDs) in this category, but the problem is Financial Planner that most of them charge an early withdrawal fee, causing 1. Identify Your Goals your investment to lose a little value. It’s important to know what you are plan- ning for, and remember, managing day- b.) Large Assets: These include such things as houses, to-day expenses should always come first. cars, boats, artwork and furniture. When creating a per- Then consider the short- and long-term sonal balance sheet, make sure to use the market value of goals for you and your family. The key is to set realistic the items. If it’s difficult to find a market value, use recent goals and then prioritize. sale prices of similar items. Your personal financial planner will create a roadmap c.) Investments: These include bonds, stocks, CDs and to help you understand your financial goals and how to mutual funds in both qualified retirement accounts and achieve them. This means identifying and prioritizing your personal investment account. All real estate proper- www.nfda.org May 2019 43 ty owned should be included. You should record invest- much money you’ll need to retire comfortably and man- ments at their current market values as well. age your wealth to cover expenses in later years. Investing Liabilities are merely what you owe. Liabilities include also plays an important role in the development of your current bills, payments still owed on assets like cars and retirement plan as a way of helping you achieve financial houses, credit card balances, student loans and other security in retirement. loans. You can allocate remaining cash flow for investing after you deduct necessary spending and savings from your in- Insurance covers unexpected incidents or emergencies in come. A well-planned portfolio can help you ride out the life, such as accidents, illness and death, all of which can ups and downs of capital markets and adjust your risk ex- deplete your savings and erode your assets. Having ade- posure to achieve long-term growth within your risk tol- quate insurance coverage for these eventualities should be erance level. Investing is a process to maintain a portfo- a key component of your financial planning. A good plan lio that suits your risk appetite, with a mix of investment will make sure you have adequate coverage for health, life products to keep your portfolio afloat in any economic and property. climate. That is why evaluating your risk tolerance is an 3. Figure Out Where You Stand important part of investing. Your risk tolerance changes over time, and your holdings must adapt. Do a cash flow analysis to see how much Remember, investing is for long-term goals that are money comes in and how much goes out. more than five years away. Savings is for shorter-term Is there any left over? If so, is it being used goals – less than five years – since these assets must be wisely? kept liquid. Think about your expenses in three categories: fixed A note on emergency funds: Everyone needs an emer- (must be paid every month), variable (we need to spend gency fund, which consists of the cash or cash-equivalent money on these, but are we spending too much?) and dis- assets held specifically for unexpected expenses. The rule cretionary (can we live without these expenses and put of thumb is that your emergency fund should equal ap- some of that money toward our goals?). proximately six months’ of living expenses. This is yet an- The purpose of determining your cash inflow and out- other reason to do a cash flow analysis – so you know how flow is to find your net cash flow, which is simply the re- much money you’ll need to cover expenses in a cash flow sult of subtracting your outflow from your inflow. A pos- emergency. itive net cash flow means you’ve earned more than you’ve spent and have some money left over from that period. On 5. Put Your Plan to Work the other hand, a negative net cash flow indicates that you As simple as it may sound, implementa- spent more money than you brought in. If you current- tion is the most challenging step in finan- ly have a negative cash flow or want to increase your pos- cial planning for many people because al- itive net cash flow, you must assess current spending hab- though they have their plan developed, it its and adjust accordingly.
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