One of the biggest challenges most of us face is managing our finances. We want to make sure we have enough money to live well past retirement, to raise our children through college and to enjoy some of the finer things in life. But how do you know if you’re making the right financial decisions? Who can you ask? At what point does it makes sense to hire someone to help you plan?
I sat down with Stacy Francis, CFP®, CDFA™, CES™, President & CEO of Francis Financial to get some clarity on these issues.
There are various types of financial professionals that can support you in different areas. Different professionals who may do the same thing often call themselves by different titles: Financial Advisor, Wealth Manager, Portfolio Manager, Broker, etc. The most important thing to look out for is the individual’s certifications or designations. Those should be able to give a sense of their qualifications. For purposes of this article, I’m focusing on financial planning. The definitions below are my interpretations; www.finra.org offers a more comprehensive guide to financial advising and investing.
What credentials or designations should my financial professional have?
CFP® – The CFP or Certified Financial Planner is the most well respected designation, and is the industry standard for financial planners. Advisors with this designation:
➩Allows the individual to help with holistic planning, investments, insurance and taxes
➩Is required to complete on-going continuing education annually
➩Should be well-rounded and can help you create an overall financial plan
➩May offer additional services beyond financial planning such as tax planning, as an example
CFA®- The CFA or Chartered Financial Analyst focuses specifically on investments. This is the person to whom you would give your money to invest it for you. They should be able to advise you on how to invest, based on your financial goals, but they are not necessarily versed in all the intricacies of planning your financial future. A CFA® may partner with a CFP®, in that case.
CDFA™ – In recent years, more financial planners who work with divorcing clients are adding this designation: Certified Divorce Financial Analyst. A CDFA™ should understand the nuanced differences of someone going through divorce such as:
➩Changes they need to think about as a single person
➩Tax implications, alimony, child support related to putting together a settlement
In addition to having the CDFA™ designation, these individuals must keep up with the ever- changing field of divorce. They must be up to date on legal changes and financial concepts at any given time. Keeping this designation current involves much more ongoing education than some other designations, like the CFP®.
How do most Financial Planners charge?
- Percentage of assets: Most financial advisors will tell you that they charge as a percentage of liquid assets. That means assets that can be invested. The number can range but is usually in the area of 1%. This number can be very deceiving! If you’ve got cash in the bank that can be invested but you need to leave it in cash, your advisor shouldn’t be charging you to hold it since it’s not being invested. There are also fees that they may not tell you about up front.
- Some products may also have hidden fees that could amount another 1-2% fee regardless of gain or loss. For example, if you have $100 in Mutual Fund x and the return is 5% or $5, if there’s an embedded fee of 1%, you will only get $4. If there’s a loss, you will still pay the $1 fee. Make sure you ask about the products your investment advisor recommends and what the actual costs are.
- Transaction fees: These fees can be charged on individual transactions when they buy you a stock (or any investment vehicle) and/or when they sell it. They can be based on the size of the transaction or a fixed fee for every transaction.
Beware, all these fees add up to more than 1% of your assets!
Are you better off with a large public institution or with an independent planner?
There are complexities to this answer. Both have advantages but there is one clear distinction that you should understand; the concept of “fiduciary standard.” The basic explanation is that if your advisor’s firm is a public company, and not beholden to the fiduciary standard, your advisor can put the interests of the company ahead of your interests.
For example, at a public company, if there are two products that essentially do the same thing and your investment advisor gets a bigger commission selling you one over the other, they are not required to disclose that to you. They are required to do what’s best for the company they work for, although it doesn’t necessarily mean it’s not a good product. If you are an independent advisor, you must disclose any commissions and always do what’s best for your client.
That’s a huge simplification of the concept and I encourage you to learn more Is your financial advisor a fiduciary?. The laws are changing in favor of the consumer and this distinction may no longer exist in its current form.
Do you need a Financial Planner?
So, how do know if you need a financial planner? “Who doesn’t?” was Stacy’s answer. You may not need the most sophisticated planner. However, if you find yourself at a point where you need to answer some more sophisticated questions than “What’s the interest rate on my checking account?” you might want to get some advice. Saving for the future, buying a home, and investing, are all good issues to bring up with a financial professional.
Advice may come in the form of receiving weekly market reports and reading them while reviewing your finances, or hiring a financial coach that can work with you for a few hours, and then send you on your way (more information on independent advisors in your area is available at: http://www.garrettplanningnetwork.com).
There’s a lot to think about when it comes to your financial well-being. Take the time to ask the right questions. Interview a few different people and make sure they are in tune with your financial goals. This is your money – manage it wisely!
For a more comprehensive look at your financial picture, please contact Stacy Francis, Stacy@Francisfinancial.com.
Karen Bigman works with individuals going through divorce. If you would like some support in understanding your financial challenges through your divorce or hiring the right financial professional, please contact her at: Karen@TheDivorcierge.com.