Do You Need a Financial Adviser?
When it comes to making your money grow, an accountant won't cut it
For Sakina Spruell Cole, the decision to get serious came when her son turned 3 and she and her husband planned a birthday party. The budget: $1,000. At the time, their son "didn't even have a college fund," Cole said. With that realization, the family sought help from a financial adviser.
Although most people want to improve their financial goals, many don't understand the basics of budgeting, investing and saving for retirement, etc. Enter financial planners. Not to be confused with accountants, financial advisers create a customized blueprint for your personal financial growth, which extends well past balancing a checkbook.
“People have a misconception about what financial planning is. They think it's some 200-page document and it’s not. It’s advice,” said Leslie T. Beck, vice president and financial planner with Compass Wealth Management LLC in Maplewood, N.J.
But when does it make sense to look for a financial planner and how can one assist you? As with most major financial decisions, that depends on your situation.
Beck and other financial planners Loop 21 interviewed agree that there are no "typical" clients—one said her clients ranged from Wall Street bankers with six-figure salaries to recent college graduates—and no thresholds at which people tend to come in for counseling or advice. What prompts people to turn to advisers, they said, are significant life changes like pregnancy, unemployment, the death of a family member or retirement.
"Just about everyone over the age of 18 has a financial plan," said Beck, whose services start at $200 per hour or $1,200 for a comprehensive financial plan. "The real issue is whether the financial plan they are living is a conscious, deliberately selected one, or a random one at the mercy of life's twists and turns."
It's an extremely lofty goal that illustrates how critical it can be to map out your finances if you want to be successful. According to the U.S. Census Bureau, the median net worth for people under the age of 35 is only $6,974. That rises in subsequent decades of life but tops out between ages 65 and 69, when the median net worth of Americans is $180,980, far short of Coles' goal. Women of color, especially, need to get better at planning and building their portfolios. A recent study by the Insight Center for Community Economic Development found that women of color between the ages of 36 and 49 have a median wealth of $5.
Nina M. Benton, a financial planner with New Providence Financial LLC in Edison, N.J., agreed that it can be difficult to choose a financial planner, especially for people who already have limited financial literacy. Many young people, or those with low incomes, for example, could benefit from financial planning to help them identify opportunities to save—from opening a bank savings account to using a 401(k)plan or IRA for retirement savings—or create a budget. But they often forgo professional assistance because they believe financial planning is complicated and expensive, which isn't necessarily the case.
"It's a shame that we do not get that sort of education in our school systems at some point in time," Benton said.
People deciding whether to use a financial planner should consider a few things, she added.
Look for a planner who has the Certified Financial Planner (CFP) designation, a title that planners must earn by taking specific coursework and following stringent ethical guidelines. Also, understand how financial planners work. Some specialize in helping recent graduates or young couples, whereas others deal mainly with high-net-worth individuals. Planners also use different fee structures; some charge flat fees and others have more complex fee structures based on the amount of assets they handle or the complexity of the plan they are creating.
The most important consideration, though, is your own financial situation. Planners' services and fees can vary widely in part because every individual has a different financial situation. For example, if two recent college graduates were the same age and earned the same salary, one of them might have thousands in student loan debt while the other got through school on scholarships or had parents able to foot the bill. The former would need to allocate more money to debt reduction while the second student would have more income available for saving and investing.
Even those with very similar financial situations are likely to plan differently, based on their financial goals. If both college graduates had the same income and neither had student loan debts, their financial plans would differ if one wanted to save for a home and family in five years and the other wanted to get an early start on retirement saving.
The Financial Planning Association, based in Washington, D.C., has chapters around the country which often offer affordable or pro bono services for people with low incomes. Almost anyone can benefit from working with a financial planner, Beck said.
"The simple answer to 'who needs a financial planner' is this: everyone," she said. "Some people have the time and knowledge to do it [themselves], but based on the current state of our economy, I would bet those folks are few and far between."
In 2010, Cole (pictured here with her children) created her own personal finance blog, "Keeping It Rich," and recommends that people contact a planner as soon as they graduate from college or begin their career. Finding a planner who understands your goals is difficult but important, Cole said.
"I went through two other advisers before I landed with the one I have had now for about seven years," she said. “The first two only wanted to sell me insurance policies, whereas the one I have now understood my long-term goal of building millions."
Don't know where to start in your search for a financial adviser? Check out these sites for tips.