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Planning for a Financial Planner Proper steps to take when searching for a professional who meets your needs By Jillian Span Hofbauer
photo: ©2017 thinkstock
Preparing for your financial future is one of the smartest moves you can make to get the most out of your hard-earned money. With enough time, financial acclimation and emotional discipline, anyone can do it. However, sometimes the best action you can take is turning to a professional for guidance. “Money can drive us to make decisions that we wouldn’t otherwise make,” says Jamie Menges, principal at PDS Planning Inc. Having an outside party who can spend time considering your financial well-being on your behalf is critical. Experienced financial advisors can help you get organized when it comes to understanding your cash flow, learning how to manage your risks and making the right decisions for your long-term goals. They can translate complex investment and tax rules and be your voice of reason when the emotional stakes are high. But more than anything, they can be a trusted confidant when it comes to the matters that affect your life. “With our finances—because it’s our money and we care a great deal about it—I think we really want to try to understand that, but there’s just so much [information] out there,” says Menges. Hiring a professional who listens to you and understands your needs can help you navigate your unique circumstances. AUGUST 2017 Columbus Monthly
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From the advisor’s credibility to your ability to connect with them, it’s important to hire someone that you’re comfortable with and can trust. Start by seeking out references from financially savvy people you know, such as your accountant or attorney, or by asking for referrals from friends and family. Online resources like letsmakeaplan.org can help you weed through potential candidates as well. Setting up interviews and being prepared with the right questions about experience and credentials will help you gain the confidence you need to make an informed decision.
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and doesn’t really have an ax to grind with any one company or proprietary product,” says Ric Martin of Bluestone Wealth Partners. This type of advisor typically has your fiduciary interest in mind.
Starting Young It’s never too early to start financial planning, says Krista Cavalieri, owner and senior advisor of Evolve Capital, a firm that specializes in serving young people. “There just isn’t anybody out there, really, wanting to work with millennials … and the reality of it is that young people need help.” She says millennials should seek out advisors that meet their unique needs and suggests the following tips to help them kickstart their financial plan: • Start an emergency fund that covers six months of basic, vital expenses such as rent, utility bills, car payment, insurance, cellphone and groceries. • Contribute to your 401(k), saving at least as much as your employer matches. • Understand student loan debt, and ask for help when needed. • Automate financial transactions for your bills to ensure they’re paid on time. • Consider a side hustle to earn extra money, which can be saved or used to pay down outstanding debts. • Make time for fun! It can’t all be about work, saving and budgeting.
While CFP professionals have abided by this standard of practice for many years, financial advisors were not required to have a fiduciary responsibility to their clients until the U.S. Department of Labor issued the fiduciary rule in June. The new law means that commission-based advisors will now likely have to make drastic changes to extend their due diligence to clients. “Many have scrambled to adjust and comply with increasing regulations and standards as our industry shifts further toward an emphasis on planning and advice,” adds Martin. Regardless of compensation method, talk with the advisor about an estimated cost of the services to be performed before you make a hiring decision. Next, it’s important to ask about the advisor’s approach to financial planning and his or her typical clientele. Advisors can work on comprehensive plans or specific goals using aggressive methods or more conservative ones. Some financial advisors work exclusively with wealthy individuals who have more than $1 million, while others focus on middle-class clients. Spend some time discussing the advisor’s specific tactics. “You want to make sure you’re going to be working with someone who is used to working with people like you and knows what kind of issues people like you have,” says Ruhlin. After you’ve asked about qualifications, compensation and approach, consider other helpful questions such as if the advisor will be the only person working with you, how often you will meet and if you will receive periodic updates on the status of your goals. The CFP Board offers a comprehensive list of ques-
photo: ©2017 thinkstock
Doing Your Research First, ask about the advisor’s professional experience, background and qualifications. “The Certified Financial Planner designation is the gold standard when it comes to giving financial planning advice to clients,” says Peggy Ruhlin, CEO at Budros Ruhlin & Roe. A CFP designation means that the advisor meets advanced industry education, examination, experience and ethics requirements. Along with a rigorous certification and renewal process, the CFP Board’s code of ethics also requires that CFP professionals must always put their clients’ interests ahead of their own. Other professionals who can provide guidance, depending on your needs, may include a Certified Public Accountant (CPA), Certified Public Accountant Personal Financial Specialist (CPA PFS) or Chartered Financial Analyst (CFA). Whether you are seeking assistance with investments, retirement planning, tax planning, estate planning, insurance or other financial matters, do your homework to ensure the prospective advisor has the appropriate experience and offers services in the areas where you need help. Background checks with regulatory organizations such as the Financial Industry Regulatory Authority (FINRA) and the CFP Board will also bring to light any unlawful or unethical actions in the advisor’s history. Second, it’s imperative to understand how the advisor will be compensated and how much he or she typically charges. Fee-only or fee-based advisors get paid hourly or through set planning or asset management fees specifically paid for by the client, whereas commission-based advisors receive payment from the financial products they sell, such as mutual funds, securities or insurance products. Be clear if your potential financial planner has any conflicts of interest that may affect how he or she advises you. “A fee-based financial advisor generally sits on the same side of the table with you
LIVING THE GOOD LIFE isn’t just about the numbers.
tions and a number of other resources to help you in your search at cfp.net. Ultimately, selecting the right financial advisor comes down to your comfort level with the advisor’s professional qualifications and how well you can communicate with him or her. Because you often discuss personal topics beyond finances, the advisor/client relationship can become very intimate, so taking the time to hire the right person is essential. “A great sign of a client relationship is when the beginning and end of a meeting have gone from handshakes to hugs and your clients know that you genuinely care about them,” says Menges.
Doing Your Homework Don’t assume that you can hire an advisor when your finances are in disarray; it’s wise to get them in order before you begin your search, so you know your needs and goals in advance. Whether you sit down with a pen and paper or create an Excel spreadsheet, get a handle on your cash flow and make sure you understand everything that’s coming in and everything that’s going out. Take an inventory of how much you have in saving, investment
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and retirement accounts. Then look at your liabilities, such as how much you owe on your house, student loans and car. Make a plan to eliminate credit card debt, and always pay yourself—that is, contribute to savings—first. Start by building up emergency reserves that will cover three to six months’ worth of bills if possible, says Menges. Finally, start saving money in your retirement plan and take advantage of any employer-matching benefits. “I’ve got clients worth a lot of money in some cases, and not a single one of them has ever said to me as they near retirement, ‘You know what, I think I’ve saved too much money,’” Menges adds. If you are questioning the cost of hiring someone to help you organize your financial needs, it’s important to remember that the value may become clear only over time. “In our business, I always tell people the return on your investment is very lumpy; it’s not linear,” says Menges. An advisor can provide great insight as your life and financial circumstances change. “The thing that becomes most difficult to measure,” he adds, “is what may an advisor stop you from doing that you otherwise would have done if left to your own emotions?”
photo: ©2017 thinkstock
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