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Business
is good these days for many financial planners. Do-it-yourself
investors, burned by the declining stock market, are turning to planners
for investment advice. Persons shaken by the terrorist attacks of
September 11, the faltering economy, and the Enron scandal are engaging
planners to put their financial houses in order. But many people have
yet to turn to a professional, perhaps held back by the question, “Why
should I hire a planner for something I could do on my own, with the aid
of a computer, or by hiring a financial specialist?” Good question.
Here are some reasons why you should seriously consider seeking the
advice of a qualified financial planner.
Financial
planning is more than about money. At its core financial planning is
about effectively managing financial resources so that individuals can
lead happier, more fulfilling lives today and tomorrow. One of the very
first steps in a financial planning relationship is to help clients
define their life goals. Do you want to start your own company, have
more time to volunteer, change careers, live at the beach? How do you
balance competing goals, such as saving for retirement while putting
children through college and help out elderly parents?
Take
the example of the Certified Financial Planner™ professional in Texas
who asks all her clients, “If you could create a perfect world, what
would it be?” When she asked that question of a local university
professor, a man known for his sour, depressed mood, he told her he
wanted to live on a farm, far from where he was teaching. The more he
talked about it, the more excited he became, and the more his wife and
the planner realized it was a dream he could make a reality. Within a
year and a half, they were happily settled on a farm in Iowa.
In
a good financial planning relationship, the planner and the client
periodically reassess the client’s goals and strategies already in
place to achieve them, especially as life circumstances change. No
financial planning or investment software can effectively come up with
those kinds of questions-let alone the right answers.
Financial
planning sees the whole, not just the parts. Many financial specialists
provide valuable services to people for a specific financial need, such
as buying property and casualty insurance or drafting a will. A
financial planner, however, typically provides the overview in order to
make sure the various parts are working in harmony and not against each
other. For example, one professional’s strategy to save on income
taxes may undermine another professional’s investment strategy. A
computer might provide investment advice (although usually not tailored
to individual needs), but a financial planner can help you find ways to
free up additional money for investing. It also is the planner who might
discover that your computer- designed investment plan could be seriously
undermined by a costly medical crisis because you don’t have adequate
disability insurance or health care coverage.
Planners
motivate. Sure, you probably know you need a will, better insurance, a
budget, and a better handle on your investments and assessment of a host
of other financial issues. Perhaps you could do some of it adequately on
your own. But there is nothing like going to a financial planner to
motivate you to finally take the actions you’ve been putting off. For
example, a recent retirement study by TIAA-CREF Institute found that
people who planned more thoroughly for their retirement experienced
fewer financial surprises when they actually retired.
Planners
provide checks and balances. Beyond the financial expertise and the
motivation to take action, the planner can provide a much-needed
objective perspective. Numerous studies show that investors who work
with financial advisors trade less often and average better returns than
those who invest on their own. Planners can filter out the financial
“noise” that so often clouds financial judgement. The independent
perspective is especially critical when a person is under stress such as
from a job loss, divorce, or a major market decline.
Ideally,
it’s better to create a financial plan before a crisis occurs. One of
the greatest benefits of financial planning is its ability to prepare
you to better handle the inevitable financial roadblocks thrown up in
life that can detour you from achieving your life goals.
This
column is produced by the Financial Planning Association, the membership
organization for the financial planning community, and is provided by
Alexander G. Yearley, CFP, a local member in good standing of the FPA.
Mr. Yearley runs Community Pride Financial Advisors at 39 Baltimore
Ave., Rehoboth Beach, DE and offers securities through Cambridge
Investment Research, Inc. Member NASD and SIPC.
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