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What Does a Financial Planner Do?


By Kevin L. Matthews II

Financial planners help you save, invest and grow your money. You might hire one for help with a specific goal — readying yourself to buy a house, for example — or to give you a bird’s-eye view of your financial health. Many have an alphabet soup’s worth of letters behind their names while others have none, but one of the most significant credentials is administered by the Certified Financial Planner Board of Standards or CFP Board.

What is a certified financial planner?

A certified financial planner has earned between 4,000 and 6,000 hours of experience, passed the CFP exam, completed a series of educational requirements and maintains high ethical standards.

What does a financial planner do?

Your financial planner may start by asking questions and gathering information to get a holistic understanding of your current finances. He or she may ask for bank statements, tax documents, insurance policies and other financial documents. With this information, the planner will assess your financial goals and compare them with the documents and information you’ve provided. At this point, the financial planner may inform you that changes need to be made or that you’re on track.

If you and your planner agree that changes need to be made, he or she will likely begin implementing some of the items in the plan. This could happen over several meetings, depending on the detail and depth of your situation. If your plan includes creating a will or trust, this could also include consulting an attorney.

Finally, you and your planner will determine how often the plan will be monitored and when changes will be made. Most financial planners meet with their clients annually or quarterly. For clients who have a more complex plan, you might meet more often during the year. Planners also suggest meeting when a major life event occurs: marriage, the birth of a child or a significant change in income.

How much does a financial planner cost?

Financial planners earn their living either from commissions or charging you hourly or flat rates for their services. You might balk at giving someone a percentage of your annual assets to manage them, but advisers who receive a commission may be giving you the most biased advice.

The Department of Labor’s fiduciary rule was an attempt at protecting consumers by requiring that financial planners who provide advice on retirement accounts put their clients' interests ahead of their own. Though the rule has been contested, its effects have already been felt by both financial planners and consumers. Some larger firms have blocked financial planners from earning a commission on retirement accounts altogether, or restricted them to fee-only services. Other companies have allowed for more flexibility, allowing a mix of commission and fee-only, while some have forced consumers to manage their investments on their own.

“What the financial planner is paid will depend on the client’s particular needs,” said Dan Drummond, CFP Board’s director of communications. “The planner should be able to provide the client with an estimate of possible costs based on the work to be performed.”

Here’s a closer look at what the terms mean:

Fee-only: Fee-only financial planners are paid — as the name suggests — a flat fee for their services. This could also be a flat percentage of your total assets or income, known as Assets Under Management (AUM). Or, the fee could be hourly or based on retainer, similar to a lawyer.

Fee-based: These planners charge a flat fee for some of the services they offer but can also earn commissions from the products they sell.

Commission-based: These planners only receive payments through commissions on products they sell. This might present a conflict of interest as some planners may suggest a product that puts their interests ahead of yours.

The difference between a financial planner and a financial adviser

Anyone can hang out a shingle as a “financial planner” or “financial adviser.” With nearly 170 different financial credentials out there and little regulation, advisers can use the terms financial planner, consultant, specialist, or a host of other titles, interchangeably.

“The SEC specifically defines phrases like that as marketing terms,” said Kali Hawlk, founder of Creative Advisor Marketing.

Some people who use the "financial adviser" title are often brokers or sales representatives for big companies you know by name. Many of them are true advisers, but they may be focused on investment management rather than the big picture of your overall financial goals.

Not every person who calls him or herself a financial planner or financial adviser has the CFP credentials, as the designation is optional and not required to practice. Only those who have completed the education, experience, exam and ethics requirements are considered “certified financial planners.”

The important thing is to ask the person you’re considering about their fee structure, experience and any specialties that they may have. Your goal isn’t necessarily to find the person with the right title but the person who is the right fit.

How to find a financial planner

If you’re looking for a financial planner in your area, here are a few places to help you get started.

Let’s Make a Plan: This site was created by the CFP Board and features a database entirely of CFPs. The database also provides some key information such as compensation model and minimum assets needed. Some planners cater to the wealthy. Don’t take it personally — if you’re a beginner client, find someone who is interested in growing with you.

XY Planning Network: XYPN is made up of fee-only financial planners who specialize in serving Gen X and Gen Y clients. All XYPN members can work virtually, which means you can choose the best person for you regardless of physical location.

Garrett Planning Network: GPN’s planners are fee-only advisers who offer their services on an hourly basis.

National Association of Personal Financial Advisors: NAPFA is the largest organization of fee-only advisers who meet the highest standards in the financial planning industry.

Questions to ask your planner

Once you have selected a planner, you’ll probably want a more detailed understanding of how they work, what they will charge you and how their expertise can help you achieve your goals. Here are some questions to get you started:

  1. Are you a fiduciary? If your financial planner is a fiduciary, it means he or she acts solely in your best interest. If your planner is not a fiduciary, they may have several conflicts of interest that may affect the advice you receive.
  2. What are your qualifications? You’ll want to be aware of any other designations they may have — this could indicate an additional area of expertise that you may need. For example, a financial planner holding the Certified Public Accountant (CPA) designation might be more attractive if you have a complex tax situation.
  3. What financial planning services do you offer? You need to be clear in what your planner can and cannot do for you. Unless your financial planner is also an attorney, for example, they are not able to draft estate documents, such as a will or trust.
  4. What clients do you typically work with? Some planners choose to work with certain groups of people — military families, for example. Others may require you to meet a minimum amount in total net worth or investable assets.
  5. How are you compensated? As we’ve mentioned, your financial planner should be able to provide an estimate of possible costs for his or her services. “Costs should include the planner's hourly rates or flat fees, or the percentage of commission received on products you may purchase,” according to the CFP Board.
Comments
Rosedala
Rosedala   |     |   Comment #1
Most helpful article! I suppose for people who prefer to do their own investment but not the taxes, a CPA would be more fitting?
PlannerQuestions
PlannerQuestions   |     |   Comment #2
Questions to ask your planner, those 5 numerated questions will never be answered honestly by any planner, period, otherwise they will have no interest in you, unless they can cheat you left or right. Fiduciary and financial planer can never be put together, they scam people more if you interrogate the person who will take your money and tell you: Just trust me and do not wary, you will get our annual statement for fees and commissions, see we work openly and disclose all our charges (after the fact).
Bozo
Bozo   |     |   Comment #3
If your retirement funds are plopped in Vanguard balanced funds, and you have ten years or so socked away in your CD ladder, you probably don't need a retirement planner.
gregk
gregk   |     |   Comment #4
Educate and do it yourself everyone is my advice. It's just not that hard, and only you can take care of your own best interests first and foremost. Financial planners almost inevitably work as apologists for and agents of the investment industry, if not formally then necessarily by virtue of the advice they dispense and products they recommend. To admit or even question the whole rotten collusion they participate in would put them all out of business. It's very similar in principle to the illicit relationship that obtains between the psychiatric profession and Big Pharma. Beware.
Nothing
Nothing   |     |   Comment #5
Let me try to summarize one aspect in view of (some) the comments regarding Keesler Federal Credit Union. Why isn't a due diligence inquiry to various degrees important in all transactions...e.g. most seem to think (on this blog alone) that merely b/c there is "insurance" one can (my words) put their guard down. Why is there any different analysis than for safeguards in connection with a FA? Appreciate the article.
67me
67me   |     |   Comment #7
Yes, "b/c there is "insurance" one can (my words) put their guard down.", because of the limited options in this current investment environment. Ten years ago many people lost money. Since then debt has actually increased. Two of three corporate/business loans are unsecured debt. The unsecured debt is offered as an investment option to the broad public via unsecured money market funds. The big banks and investment houses that offer these funds are making a lot of money while passing the risk on to the investors. Why would you take that risk when you can fall under the umbrella of insured CDs?

Since 2008 the regulations for credit unions and banks to be able to invest in more risky instruments have been loosened. If they choose to invest in these uninsured pools then so be it. They take the risk, we give them our cash (CD), and we are now insured by proxy.

So, yeah, that's all we need to know is that our cash is insured. It's about capital preservation when you allocate part of your money to 'insured CD's'.
common cents
common cents   |     |   Comment #9
Nothing, of course there is due diligence.

For instance, when Sharonview was available, nobody who opened an account online received the disclosure statement, because it would not provide a copy online. So, some people cared about that, some ignored it.

With any credit union, it is easy to check NCUA coverage and understand those coverage limits.

Researching individual credit unions for a minor increase in CD rates is a waste of time and resources. People capable of that will be buying and shorting stocks and bonds, not buying CDs.
67me
67me   |     |   Comment #11
Right! We just need to understand the insurance coverage. And to further your point, Credit Unions and banks do not offer a prospectus for their CDs.
common cents
common cents   |     |   Comment #12
67me, there is a difference between a prospectus and a disclosure statement, and all banks and credit unions provide a disclosure statement when a CD is opened.
deplorable 1
deplorable 1   |     |   Comment #16
My father in law is always bragging about his great financial adviser so I tell him to ask him about my top 10 monthly dividend paying stocks that are commission free and have been paying 8-25% yields for 2 decades. His financial adviser tells him they are risky junk(some are utility companies!) and tells him to invest in 10% FRONT END LOAD mutual funds! I don't even waste my breath telling him he is getting scammed anymore because he just argues with me and thinks I'm a dumb kid.
gregk
gregk   |     |   Comment #6
Who is Kevin L Matthews II BTW?
kcfield
kcfield   |     |   Comment #8
Kevin: Thank you for posting this helpful and informative article. It would be enhanced by two additions: First, by discussing Chartered Financial Analysts (CFA) as an additional option to Certified Financial Planners, especially as many consider the training more rigorous and extensive. Second, by talking (as one person mentioned) the difference in purpose between a financial planner and CPA, and when each (or both) is needed. As a specific example: My CPA also offers financial planning services; however, we only use his CPA services as we handle our own investments.
Planner
Planner   |     |   Comment #10
You are correct, a financial planner is not for smart and financially independent persons. A planner is for someone who inherited a lot of money and never cared about it. For persons who worked and saved their money, they will never allow anyone else to attach and share their wealth with someone called a planner, why, because the profits of that portfolio becomes common basket for anyone who has put their paws to share it with you. Instead making 4%+ on your own portfolio, you limit yourself to 2% or less after all of the fees and commissions are deducted from it.
boston02116
boston02116   |     |   Comment #13
Warren buffet has good advice. The average person doesn't need a fancy portfolio. Index funds do well for long term investment.
DCGuy
DCGuy   |     |   Comment #14
Probably similar to what a divorce lawyer would do. Pick apart every nook and cranny of your assets so that a worthwhile amount of commissions and fees can be extracted.
deplorable 1
deplorable 1   |     |   Comment #15
He takes your money for guiding you into investments that earn him the highest commissions. I have a great financial planner and he is totally free.
BadPlanners
BadPlanners   |     |   Comment #17
That is not the worst part, just ask the planner to liquidate your portfolio and see how much back you can get out of that million, consider yourself lucky if 50% is given back to you. A planner is like a tick, once attached to you, there is no way to get rid of it. A planner plans how he/she to get rich out of you and not to make you rich, I have never heard of someone praising a planner or celebrating a big income coming back to the investor. The yearly statements (year after year) are showing down year of 20-30% just to discourage you to liquidate the lousy investments you have been put into.
Nothing
Nothing   |     |   Comment #18
Does your planner make it on volume?
Bozo
Bozo   |     |   Comment #19
Deplorable 1 (re comment #15): As noted above, few financial planners can equal or beat a Vanguard index fund. Moreover, when it comes to fixed income, Vanguard has trouble keeping up with a garden-variety CD ladder.

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