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What Is a Financial Planner, and Do You Need One?

A financial planner takes inventory of your finances, then creates a plan to help you reach your goals. Many financial planners also provide investment management.
Oct. 29, 2019
Advisors, Investing
What Is a Financial Planner, and Do You Need One?
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You’ve got financial questions. The internet’s got answers. So do friends, family members and late-night TV money gurus.

But sometimes you need a professional who can provide money advice that’s tailored specifically to your needs. That’s where a financial planner comes in.

What does a financial planner do?

A financial planner guides you in meeting your current financial needs and long-term goals. That typically means assessing your financial situation, understanding what you want your money to do for you (both now and in the future) and helping create a plan to get you there. Financial planners can help you reduce spending, pay off debt, and save and invest for the future.

But financial pros are like doctors: Some are specialists in defined areas, such as taxes or managing investments. Others, like certified financial planners, are general practitioners, offering advice on everything from budgeting and investing to insurance and retirement planning.

Do you need a financial planner?

Generally speaking, the more complex your financial situation, the more likely you are to benefit from a financial planner.

If your finances are simple, you may be able to get the help you need for free. There are plenty of resources for free and cheap financial advice, including our financial goal planning tool below, which will tell you how and where to save for your goals.

Plug in your age, income and a few details about your goals and time horizon, and we’ll suggest where you should save or invest for those goals based on the information you’ve shared. We’ll also tell you if other priorities, like retirement or an emergency fund, should take precedence.

If you need help beyond what you can find through free tools and content, or you’re faced with a life change or increasing financial complexity — think marriage, a divorce or an inheritance — there are a variety of financial planners available.

Types of financial planners

The type of financial planner that is best for you will depend on your needs, life stage and budget. We’ll outline a few options below.

Robo-advisors

If you’re just starting out, a robo-advisor may be enough to meet your needs. Automation has enabled traditional firms like Vanguard and Fidelity, as well as online-only companies like Betterment and Wealthfront, to substantially lower the price of portfolio management. These companies are ideal if you need investment management, but not holistic financial planning.

Robo-advisors build and manage a portfolio of low-cost investments suited to your financial goal for a small fee — many top choices charge 0.25% or less of your account balance. The investment mix is determined by a computer algorithm and is automatically adjusted when needed. At the basic account level, you can start investing with $500 or even less.

The low-cost, easy-entry nature of robo-advisors reduces barriers to working toward your financial goals. That’s important because avoiding the market can starve your retirement. You can start with a robo-advisor and add a human advisor later on if needed.

Traditional, in-person financial planners

For those with complicated or ongoing planning needs, a traditional, in-person financial planner may be a better fit. A CFP can provide holistic, one-on-one advice for the most complex financial situations. The official CFP designation indicates that a provider has gone through a rigorous formal training and testing process.

A fee-only CFP typically charges by the hour (usually $200 to $400) or by the task (a flat $1,000 to $3,000 fee, for example). Some might charge based on the size of the investment portfolio they are managing for you; this is called an assets-under-management fee and is typically 1% of your portfolio balance per year. The initial consultation to discuss your needs and their services is usually free.

» Learn more about how much a financial advisor costs

Before you enter a relationship, ask whether the person you’re considering is a fiduciary, a term that means they’re obligated to put the client’s best interests first. (Members of the Garrett Planning Network and National Association of Personal Financial Advisors fill both the fiduciary and fee-only requirements.)

Online financial planning services

There are several online planning services that combine computer-driven portfolio management with access to living, breathing financial advisors. In many cases, you’ll get a dedicated financial planner and a comprehensive financial plan, but you’ll meet with that advisor via phone or video conference rather than in person.

Online planning services like this typically charge more than a robo-advisor but less than a traditional financial planner. Examples of companies in this space include Facet Wealth, Personal Capital and Charles Schwab Intelligent Portfolios Premium.

Working with a financial planner

Online financial planners like robo-advisors or online planning services often offer virtual tours, demos and even the chance to test-drive the investment platform before you sign up. With an online planning service, you may be able to meet with your dedicated financial planner before deciding to sign on.

An initial meeting with a financial planner is like a first date: It’s the chance to get to know one another and see if you mesh on a personal and philosophical level. Take this opportunity to find out everything you can, including how much you can expect to pay, how the financial plan will be presented and how often to expect ongoing communication. (Here are 10 questions to ask an advisor to gather information and see whether you click.)

When you work with a CFP or an online planning service, you’ll begin with a review of where you stand. You’ll be asked about:

  • Your goals. What are your short- and long-term financial priorities?
  • Your current financial picture. How much money comes in and goes out? What do you own, and what do you owe?
  • Your risk tolerance. This series of questions about how queasy stock market gyrations make you informs how much of your portfolio should be in stocks versus other investments like bonds.

You can expect any financial planner to be in fairly regular contact with you, though the form that contact takes will vary. Robo-advisors typically send regular emails and account prompts while online planning services and traditional planners will meet with you throughout the year. You should update your planner with any changes to your financial situation.

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