My relationship with money has been one of intimacy. From the moment I began earning it, I preferred to keep my precious dollars where I could see them: easily accessible in my wallet or a bank, no cent left unaccounted. I probably would’ve stored all of my money in a sock under my mattress if such a practice wasn’t frowned upon. It should come as no surprise that I did not have a retirement account nor a credit card until well into my 20s.
Recognizing my relatively unsophisticated attitude toward saving, my tax preparer suggested I work with a financial planner in 2020. I wasn’t the stereotypical high-earning professional who I suspected frequented these financial experts; I was a full-time freelancer, one who did not make a ton of money, at that. But I wasn’t saving for retirement. Whatever cash I did have in savings wasn’t earning any interest.
Three years later, I have a SEP IRA, a brokerage account — both set up and managed by my financial planner — and a home, whose down payment came from the funds (and accrued interest) from the brokerage account. While I am still far from the savviest with money, working with a financial adviser helped bolster my confidence. If you’re considering the assistance of an expert when it comes to your cash, here’s what I wished I knew before sitting down with a financial planner myself.
What do financial planners do?
There are two commonly used terms for financial professionals: financial advisers and financial planners. Financial adviser is a generic term for anyone who gives financial advice, says wealth adviser and certified financial planner Leo Chubinishvili. Financial advisers could be insurance brokers, stock or bond brokers, or a financial coach.
Financial planners look at a client’s finances more holistically and help them manage their money and set financial goals for the future through detailed plans. They can assist with investing, retirement planning, life insurance, and budgeting. They are often certified by the CFP Board and will have passed an exam. “Some people may not know what to do with their money,” says Elizabeth Ayoola, a personal finance expert at NerdWallet. “That’s where a financial planner can come in and guide you along that process and give you advice about how to invest, advice on how to protect your money.” Ayoola recommends working with a financial planner over an adviser.
The financial planners will look at their client’s cash, assets, debt, and budget, ask them what their goals and values are, evaluate their financial well-being, and develop a plan, which may include investment, retirement savings, or life insurance planning. They’ll provide specific recommendations like “your investment portfolio should be invested this way because your time horizon is this long and your risk tolerance at this level,” Chubinishvili says. Financial planners will then monitor the plan and suggest adjustments based on changing goals and life circumstances, like buying a house, having children, or even, in my case, a pandemic. You’ll give them access to bank accounts to make trades or move money into different accounts.
Do I need a financial planner?
Perhaps you aren’t sure what your financial goals are or, like me, feel you don’t make enough money to warrant paying a pro for assistance. If you’re young and have fairly straightforward financial goals, like saving for retirement and have a retirement plan through your employer, you might not need to work with a financial planner, Ayoola says. Maybe you don’t want to actively invest and are looking for a lower-cost option. Robo-advisers — an automated digital investment platform, like Betterment and Wealthfront — can also be a good option, according to Ayoola. “You can put in what your goals are, what you want to achieve, and it automates everything for you and does all the work for you,” she says. “For people who don’t want to stress, don’t want to think about or keep checking their portfolio, robo-advisers can be a great alternative.”
But for people who are closer to retirement, have more complex finances (maybe you’re a freelancer or are combining finances with your spouse), or need a little assistance investing, a financial planner can help. “It’s not always just about having money,” says certified financial planner Stacy Miller of Bright Investments and a member of the National Association of Professional Finance Advisors Advisor Bureau. “It’s about a prospect not having the knowledge that they need. They need the advice. They need the expertise and the experience, and the planner is going to show them how to get that future financial security.”
Age and income shouldn’t deter anyone from working with a financial planner. While most of his clients are older, Chubinishvili recently began working with a woman in her early 20s, developing a plan to allocate money to retirement savings, another savings account, and a brokerage account.
How do I find a financial planner?
Experts agree the best way to find a financial planner is through a referral. Ask your family and friends if they work with a pro they’d recommend. My accountant referred me to my financial planner.
To help narrow down a search, decide if you want to work with a planner of a specific race, ethnicity, or gender. Always read reviews and check their qualifications as well: that they’re, ideally, a CFP, that they don’t have any disciplinary actions against them, and their investing strategy. You can find this info online by searching the individual and the firm on the Financial Industry Regulatory Authority’s BrokerCheck program and the Investment Adviser Public Disclosure website.
Chubinishvili suggests working with a financial planner who is a fiduciary, meaning they have a legal responsibility to act in your best interest, not their own. If you can’t determine if they’re a fiduciary from their website, just ask them. Chubinishvili also recommends independent advisers who don’t work with bigger companies who may have products or services they’re trying to sell.
Before entering into an agreement with a financial planner, schedule an introductory call to determine their style and whether it aligns with your goals — and your gut feeling. Ask them about their investing philosophy and how they’ve worked with other clients. After your first meeting, evaluate how well they were able to answer your questions or break concepts down into digestible terms. Did their investment strategy align with your financial goals? Do they have a process for ending relationships with clients? Can you trust and connect with them? Because they have access to your money, this should be a person you can have faith in.
How do financial planners get paid?
Financial planners get paid in one of two pay structures: fee-only and commission-based. Fee-only planners charge a flat fee for an hourly rate or a consistent percentage of the assets they manage for you, Ayoola says. Commission-based planners earn money when they sell a product, like insurance packages and mutual funds. “That can add up over time,” Ayoola says, “and the ideal thing is to keep costs low, because that money that you are paying extra on commissions could go towards investing or saving.”
Some financial planners may say they are “fee-based,” which Miller says is not the same as fee-only. Fee-based advisers may charge a flat fee but they can also receive commissions. “which means that the likelihood that they are also a fiduciary is very unlikely,” she says. “It’s hard to do what’s in the best interest of your client if you’re getting commission for making that choice.”
How involved should I be with my financial planner?
Your financial needs will dictate how often you’ll want to meet with your planner. If you’re nearing retirement or you came into an inheritance, you might want to meet with your financial planner more than someone who is at the beginning of their career and wants to start investing, Ayoola says. At the minimum, you should check in with your financial planner once a year to review your investments, budget, and how close you are to meeting your goals.
If you’re a more hands-off client, you can choose a financial planner solely for their advice, not the implementation of it, Miller says. “They say, here’s your advice, here’s what you need to do for investments, for retirement, or tax planning, estate planning.” You take that advice and run with it.
Should you want to end the relationship, check your contractual agreement with your planner to ensure you’re following proper protocol, Ayoola says. If there’s no set process, Chubinishvili says you can simply find another adviser and let your new one handle the transfer of information and accounts. You can also call your adviser and ask them to remove themselves as users authorized to move money from your accounts. “Now you just have a brokerage or retirement account,” Chubinishvili says. “And it’s self-managed.”
Just make sure you have a plan and advice for separating from your financial adviser, Miller says; you don’t want to face any taxes or penalties because you weren’t aware. For example, if you’re under 59-and-a-half years old and you pull all of your money out of a retirement account managed by an adviser you no longer want to work with, you will be taxed on that money and receive a penalty from the IRS.
Ultimately, these financial pros take a big-picture look at your financial life and goals and make suggestions based on where you are and where you want to be. Whether you’re a fledgling freelancer like I was, or an established professional with multiple investments, there’s utility in having a money person in your corner to answer all your calls and emails about interest and down payments.