What are the benefits of having professional financial advice?
Some benefits of having professional financial advice could be the peace of mind that comes from knowing you have a well thought out plan and strategy, having a better overall big picture view of your financial situation as a result of having a financial plan that can be monitored, reviewed and changed to fit changes in your lives and situations, simplifying your lives, being more organized and better prepared for the future and any problems that may arise, and with contingency plans, if needed; and by knowing that your short-term, medium-term and long-term needs have a better chance of being fulfilled if there is a plan.
Financial advisors and planners can also act as financial counselors, coaches and mentors to help educate, motivate, and enable clients to live the lives they dream of and aspire to.
Advisors can also prevent clients from derailing themselves by keeping them focused on their individual and unique goals and objectives and by providing a cushion and soundboard from the fear-based media that is focused on the short-term and day to day movements and reactions to world events and crises.
Another benefit could be by offering clients the option of investing your money more aligned with your values and ethics, as well as having more impact in the world with your investments, by further enhancing environmental and social justice in the world, or whatever causes and values you cherish and believe in, and the possibility of conversely working to eradicate things you would like to see reduced or ended, such as violence, poverty, prejudice, war, child labor abuses, inequality, global warming and climate change, discrimination, unfair and/or unsafe labor practices and products, etc.
Financial advice and financial planning mean much more than just guidance for investing. Now, more than ever, planning professionals are an essential resource. From budgeting to planning for retirement, to saving, to planning for educational funding, to managing your taxes and insurance needs, financial planning by a CFP® professional brings all the pieces of your financial life together.
Once a financial plan is developed, an individual is able to make financial decisions with the knowledge of how the decisions may impact the financial big picture. Financial choices become easier with the understanding of their effects on the overall plan. Additionally, once a financial plan is developed, the individual is able to review specific, financial options with the financial professional who understands the goals, objectives and resources of the client. Financial confidence and security can be greatly enhanced.
A professional planner who holds the CFP® designation has completed extensive financial services work experience in addition to educational requirements in the fields of tax, investment, insurance, retirement and estate planning. A professional planner understands the complexities and interactions of the changing financial climate and is equipped tol make recommendations in the best interest of the individual.
Professional financial advisors have years of training, tools, and experience working with many different clients and situations. Because of their broad experience, professional advisors can quickly assess your needs and offer advice that reflects the best practices of the financial industry and is appropriate for your particular needs. In addition, and probably most importantly, a financial advisor can help you avoid mistakes.
Mistakes can be incredibly destructive to your financial health. Not having a long-term investment strategy, not having adequate insurance protection, paying too much in fees or taxes unnecessarily, having the wrong beneficiary on retirement accounts, failure to set up a will; the list goes on and on. What they all have in common is that they are all very costly and all very avoidable. A professional advisor will look for gaps in your financial strategy and help you correct them.
Professional advice helps you plot a financial course with the confidence that you are using your resources wisely while avoiding the common pitfalls that so many fall prey to.
A professional financial advisor can help you in two key areas: financial planning and investment management. During the planning process, an advisor should help you collect the information required to establish a financial baseline, and should understand all of the variables that might affect your household wealth. For example, an advisor should be able to explain how inflation, your savings rate, investment returns, and taxes will affect your financial plan. And while no one can guarantee that a financial plan will be successfully realized, a good advisor will articulate specific recommendations to improve your expected outcome. Some people worry about the cost of professional advice, without considering the cost of inefficient or poor planning. During an initial meeting with a prospective client, we can generally make one or two recommendations that will produce more than enough savings to pay for the entire cost of a comprehensive financial plan.
Investment management is the other area where high-quality advice produces major dividends. Most individuals do not have expertise in investment management, even if they are experienced investors. A fee-only advisor with investment expertise should be able to improve the expected return of your portfolio, without increasing risk, by making three important changes.
The first is to review your strategic asset allocation. Individuals typically do not allocate their investments strategically. Portfolios tend to be over-allocated to U.S. equities and under-allocated to global investments and risk is often concentrated in a particular style or even a handful of individual securities. A professional advisor will establish your risk tolerance and develop a strategic asset allocation to a broadly-diversified portfolio of assets with a suitable risk budget.
The second change is choosing better investments. Self-directed investors may believe that their investments are performing well, but they usually do not have an appropriate framework for evaluation. A professional advisor can review a portfolio and evaluate the return and risk of an investment compared to an objective benchmark and comparable alternatives. This review process is designed to reveal under-performing investments that should be upgraded.
The third area for making improvements is in reducing fees and expenses. Fee-only advisors have an incentive to reduce the cost of investing in order to improve the net return of a portfolio. There are a number of ways to achieve this, such as accessing institutional funds that are significantly less costly than their retail equivalents, negotiating fee discounts with separate account managers, and utilizing tax-efficient investment vehicles. We have saved tens of thousands of dollars in investment expenses for our clients by employing these techniques.
Money is just one of the resources at your disposal to help you live the life you want to live. Ultimately, life is about the pursuit of happiness, whatever that looks like to you. Some of your financial plans might include putting kids through college, having a successful career, retiring with freedom and choices, travel, and finally maintaining the financial ability to make choices—rather than having them be made for you.
So, over your lifetime, financial planning will look like a series of course corrections. You can never be expected to know all the choices—forks in the road—you will face. And in moments of choice is when you need financial wisdom to ensure that your choices will ultimately lead you to achieve your goals and the things that are important to you. Some choices are irreversible and some can be unraveled, but it is your choices that will give you your quality of life.
And, any subject that has been studied by experts has a body of best practices. For complex subjects like financial planning and investments, the ability to deliver those best practices involves a combination of both technical knowledge and experience. You can certainly take the time to educate yourself if you prefer to manage your financial planning on your own, but what you can never replicate is the experience most advisors have in dealing with dozens, if not hundreds, of clients before you.
And for some things in life, either because it is critical to get them right or because they have such high potential upside, chances are good that hiring an expert will ultimately add far more value to your life than it costs.
For example, I recently made a strategic choice for my business to establish an online presence as a way to increase visibility of my firm and services, and to communicate with my clients and the world. I created multiple websites and social media profiles as the structure of this online presence. In the first year, I spent countless hours poring through websites, books, articles, podcasts, Youtube videos and discussion forums trying to find best practices to help me achieve my goals. Yet, even for the most well-received articles, I still had to question whether the author had the same goals, priorities, resources and intentions as me. I gave up hours of my precious time and was left confused and frustrated. Worse—the results I produced from my efforts weren’t satisfying to me and I didn’t know how to improve them.
This year I hired an internet marketing coach—an expert who has more than 15 years of experience and vast success in building an online reputation for himself and his clients. Now when I have a question about anything related to my websites or online marketing, I contact him and his team and they give me advice that is customized to my goals, has a history of being successful, is easy to implement because they’ve already worked out the problems, and they stand behind what they do. My results have improved greatly and the income I’ve generated from online activities has more than doubled. Yes, there was a financial cost to hiring him, but it has saved me time, increased my peace of mind, I’ve made more money than I spent, and it has moved me closer to achieving my own financial goals. I call that a win-win!
Getting your financial advice from other people who don’t work for you is very similar to how I spent my first year trying to learn online marketing by groping around looking for good, free advice. You will be forced to spend hours curating advice, which people love to give, and ultimately you alone must be responsible for the outcomes. A woman who is a client of mine now once took advice from her colleague on company stock options and cost herself over $85,000 in taxes—and of course her well-meaning friend didn’t pay that bill!
How will you know if the strategy being recommended to you is successful? How will you know if their situation is the same as yours? How will you know that you aren’t setting yourself up for an unforeseen problem in the future? And, if you ask enough people for advice, you will most certainly get conflicting advice. So, then whose advice will you take? And how will you know whether you are on track to achieve your ultimate financial goals? The task could be quite daunting.
A good financial advisor can act as your personal team member. An advisor will take the time to get to know you well enough that she can help you make choices that will move you closer to achieving your goals. She can help you synthesize the advice you receive from your other advisors—estate attorneys, CPAs, insurance agents and the like—to ensure that all of your financial moving parts are moving together to serve you and the people you love. A good financial advisor will add value to your life, and will serve you greatly in your own pursuit of happiness.
The critical difference lies in the distinction of information vs. advice. In the information age the information is readily available from multiple sources. A financial advisor's job is to distill the wealth of information through the filter of his or her experience to present you with advice that is actionable, relevant, saves you time and makes you money in the long haul.
Not everyone needs an advisor, but Because Money Doesn’t Come with Instructions, most people will benefit by receiving financial advice from a competent professional, even if they feel they have their financial house in order. The average American simply doesn’t have the time to commit to in depth learning about personal finances.
For those who ARE NOT financially savvy or don’t have the time to focus on their personal finances, it may mean a thorough review of their financial life to show them the gaps that exist. We recently worked with a business owner who is so busy working “in the business”, that he has not had time to attend to his personal finances. As a result of receiving professional advice, we were able to help him identify appropriate retirement plans which allowed him to start diversifying away from his business. We also helped him understand the risks of not having disability insurance, since he is the primary source of income for his family. Finally, we helped him increase his understanding about what would happen if he did not have a proper estate plan in place, including documents for what happens to his business in the event of disability or death. This is just one of the many examples of how our financial advice helps clients tie up loose ends, which greatly reduces their stress level.
For those who ARE financially savvy or do have the time, they can still gain a greater financial peace of mind by having a professional review their personal finances. We met with an individual who was a do-it-yourselfer and was very passionate about his personal finances. He even went so far as building his own Monte Carlo simulation to test his retirement plan. He and his wife came to our firm looking for confirmation of his financial plan. While he did a fairly good job in his own planning, we were still able to uncover areas that he had never considered – such as taking earlier IRA withdrawal distributions in lower-income years before a pension started, setting up a charitable entity in a large tax year to help reduce taxes, and how to maximize the total amount of Social Security he and his spouse will receive over their lifetime. The recommendations further enhanced his already detailed planning efforts.
While the “numbers” are important as part of the financial advice, we often hear from our clients that it is the awareness they receive going through the financial planning process that is the most important part. Whether the results are good or bad, they now know what they have to do to reach their goals and enjoy their life. At our office in San Diego, we have a picture of a frayed rope in the lobby that says “Financial Planning – We Take Care of the Loose Ends.” The poster sums up the biggest benefit our clients receive as a result of financial advice.
The benefits of using a financial advisor are tangible and significant in the following circumstances:
There are special characteristics and benefits to the advisory relationship that are hard to recreate in the other relationships in your life.
a. have an investment portfolio over 100k and you do not want to manage it
b. are in a transition stage of life like having children and saving for educational expenses and an estate plan become more important, or changing jobs where you will have a 401k/403b rollover to manage.
c. in preparation for retirement.
d. inherit assets.
e. earn a combined income of $150,000 or higher.
f. have employer issued stock options or restricted stock units
g. own a profitable business so you can pay the advisor through your business.
h. you feel you need to set up an individual retirement plan or a company sponsored plan.
i. have a dependent that you will have to support for an extended period of time
j. you have a special needs child eligible for government benefits.
k. if you intend to sell a business.
l. one of the biggest benefits of consulting an advisor is to prevent yourself from shooting yourself in the foot.
1. It is helpful and necessary to discuss personal finances and life goals with your spouse or partner. The framework they offer to helping you make necessary decisions is useful but biased.
2. A discussion with friends is also important. There can be some information that you might be reluctant or might be inappropriate to share for some reason so that might present limitations to the advice or counsel they are providing.
3. Most of the information and education about personal finances comes from our parents. The reason is personal finances are not taught in school curriculums at any level. You really have to seek out educational opportunities in this area. Also your parents behavior in regard personal finances might have or not have worked for them. No matter how it turned out for them their behaviors might not work for you. Also looking for advice from your parents can work well or be problematic.
4. If your financial resources are limited then having a one to one ongoing relationship with a financial advisor might be unrealistic because of cost. So where to go? I recommend taking classes and reading on line. Then maybe you can access a one time consultation with an advisor-maybe charging hourly-to make sure you are headed in the right direction.
5. One of my business goals for the near future is to offer a one day financial planning class to a group of 20 students for a moderate fee. The goal for the end of the class is to develop a framework for the basics of financial planning and a decision making process to assist with future decisions. This would include a meeting one to one with the instructor (planner) me. This approach would leverage the group process to lower fees and offer an education as well as the beginnings of an advisory relationship that would accomplish some goals:
a. receive some basic objective information about personal finances and how they relate to your life goals.
b. establish a relationship with an advisor.
c. understand what makes a successful financial plan.
d. begin to track spending.
e. do this in a group where students can help each other as well as using the instructor.
f. the group also provides a forum where you might see you are not along. Other students might ask questions you have not thought of that benefit you.
g. contact me if you are interested in participating in this type of class.
The main benefit to having professional advice is working with a professional that is giving you advice based on what’s best for you. It is important to understand what type of financial advice the professional will be providing to you. It is also important that the advisor you work is willing to take a comprehensive approach to your financial situation. Not everyone needs a comprehensive financial plan but everyone can benefit from the process. Working with a CERTIFIED FINANCIAL PLANNER™ professional is beneficial. A CFP® professional is dedicated to using the financial planning process to serve your financial needs. A CFP® professional can help you:
- Identify and set realistic goals and objectives.
- Evaluate your current financial situation by examining your assets, liabilities, income, insurance, taxes, investments and estate plan.
- Develop a comprehensive plan to meet your financial goals.
- Implement your plan.
- Monitor the plan to help you stay on track to meet your long term financial goals.
In addition, there are four key benefits of having professional advice in establishing an investment plan once your financial plan is in place. The professional can:
Build a portfolio
tailored to your needs and goals
Help you understand the
Adjust your portfolio and
investments when necessary
Help you keep a long term
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