Every time someone refers to me as a financial advisor, I cringe.
The reason I back away from this description is that financial advisor is usually not an earned title; there is generally no standard to be met to put that on a business card.
True financial planners have a set of fundamental skills, training and expertise that set themselves apart from others in this profession, and it’s important to know that the person clients are entrusting with their financial well-being has them.
Why? Because financial planning is more than just investments or insurance. While offering investments is on the menu of what many financial planners do for clients, I have yet to determine how to recommend an investment portfolio to someone without first looking at their goals, risk tolerance, retirement forecast, cash flow needs, tax situation and asset protection issues, for starters.
My analogy is simple (since I’m married to a doctor): If a physician were to start writing a prescription without fully examining a new patient, running tests and making a full diagnosis, that may be considered malpractice. Why wouldn’t it be the same with investments?
Certified Financial Planner practitioners must be trained and have demonstrated competency in many areas of finance: cash flow, investments, retirement planning, tax/estate planning, risk management/insurance and education funding.
And they should be willing (as good doctors do) to recognize when a planning issue may be beyond their expertise and refer the client to other professionals for additional help.
Here are some questions to ask your financial professional to determine if he/she is really offering you true financial planning services:
1. What information about my situation will you gather?
CFP professionals should be asking about your income sources and expenses, tax returns, investment statements, estate documents, account titling, and all kinds of insurance you may have.
This is in addition to your history with investments, tolerance for risk and current needs from your portfolio.
2. What is involved with your financial planning process?
Financial planning is a process — not a product. A good financial planner should have a well-defined process for looking at your whole financial picture, help you define your goals and deliver a written comprehensive plan to help meet those goals.
This is important at any age, whether new to a career or several years into retirement.
3. Will you work with my other professionals to develop/execute my financial plan?
If you are the one coordinating the exchange of information between your CPA, attorney or other professionals, then you are not working with a financial planner.
True financial planners are experts at coordinating/collaborating with your team of professionals to help meet your goals.
4. What’s your specialty and how will you help me in areas where you don’t specialize?
As noted earlier, good financial planners know their limits and usually have access to networks of professionals who can help meet your specific financial planning needs.
5. How will you help me understand my financial plan?
Financial planning can be a complex process, and therefore it’s critical that your financial planner clearly explain what they’re recommending and why — and the related costs.
If they use a lot of jargon and can’t explain their strategies in an understandable fashion, go somewhere else.
Be cautious about those who provide lip service to the financial planning process without really doing it.
To learn more about Certified Financial Planners, go to letsmakeaplan.org/why-choose-a-cfp-professional.
If you need more information about financial planning for life events, go to plannersearch.org/financial-planning.