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Getting financial guidance should be straightforward. But, in my experience, the process of seeking expertise can take me down the wrong path if I'm not careful.
In a meeting with a financial professional, I may freeze up when quizzed about financial goals, fret that I haven't accumulated a fair amount of money based on my age and income, or fear being judged for past mistakes. Worse, I may get frustrated if a professional establishes financial targets that are out of sync with my capabilities or recommends products that seem pricey or not aligned with my expressed needs.
I have written about what shouldn't happen in a financial advisory relationship. But knowing how things should proceed is equally useful. Recently, I spoke with Peter J. Creedon, CFP (Certified Financial Planner), ChFC (Chartered Financial Consultant), CLU (Chartered Life Underwriter), and founder/CEO of Crystal Brooks Advisors, a Registered Investment Advisor (RIA) in regard to common misperceptions about financial planning.
He dispelled common myths and explained how the planning process ought to proceed. Here are five myths and truths about financial planning and planners:
- Myth: Financial planners pressure you to buy financial products so they can generate a commission.
Truth: The mission of a financial planner is to help you get the life you want to live, not to get the life he wants through you.
The financial planning process should involve developing an actionable financial plan with realistic goals, motivating me to take positive steps, monitoring progress, updating the plan as my circumstances and goals change, and continuing to guide me in improving my financial position.
In some cases, a financial planner will recommend a financial product or service to help me meet a specific goal and/or deal with a what-if or worst-case scenario that could prevent me from achieving my dreams. He may sell me the product or make a referral among a network of relationships that may include estate attorneys, insurance representatives, CPAs, and mortgage brokers.
Generally, he should give advice on multiple ways to reach a goal, not just recommend one product that he happens to sell.
- Myth: Financial planners will judge you or, worse, they will laugh at you.
- Myth: Financial planners dictate decisions, and wreck your life.
Truth: The purpose of financial planning is to educate and empower you so that you can make informed decisions, and can enjoy your life.
After meeting with a planner, I should feel more in control of my finances, not overwhelmed or stranded in sorting through any financial messes. All sessions may not be perfectly pleasant but the process should be fulfilling and move me closer to achieving realistic dreams.
The financial planner should ask questions to facilitate goal setting, reveal any flaws in my logic, challenge my assumptions, point out problems (e.g., show me how much I'm really paying in investment fees, illustrate how many years I'll have a credit-card balance if I make minimum payments only, etc.), and break down the steps to deal with concerns and improve results.
As I work through the planning process, I should get better clarity on how to spend, save, and invest money in ways that make sense to me and are aligned with my goals.
- Myth: You need to have a lot of money to get a financial plan (or an estate plan).
Truth: Financial planning can be useful no matter how much or little money you have, whether you are just getting started or have accumulated significant amounts of wealth.
Peter also contends that you don't need to be rich to have an estate plan. Whether my investable assets are large or small, I'll still need to answer the question, “what should I do with my stuff when I am unable or not around to enjoy it?”
- Myth: Financial planners give stock answers to everyone.
Truth: A good financial planner will provide you with creative solutions to your unique needs and situation, not one-size-fits-all, canned advice.
He should be able to a) formulate a plan with recommendations on a variety of topics that may include college planning, methods of improving my credit score, and tax strategies or b) let me know quickly that he does not have background in a certain area and, if possible, refer me to a professional with relevant expertise.
A planner should be able to adapt his communication style and the complexity of discussions to my current level of understanding and preferences. Ultimately, he should be able to impart knowledge that enables me to do better financially and help move me to the next level in financial sophistication.
Truth: The role of a planner is to assess your current financial state and develop a plan to achieve your desired future state (that is realistically achievable).
Again, the process of financial planning should involve establishing where I financially, clarifying goals, and devising a route to help me get where I want to go.
Peter tells me that many people delay a visit to a financial planner because they are embarrassed about past mistakes or current problems. A good planner is sensitive to this discomfort.
Almost no one is alone in having made financial mistakes; we've all spent too much and not saved enough.
Further, financial planners are likely to have met people who have tens of thousands of dollars in credit card debt, earned a great salary but have no retirement savings, gambled away the children's college fund, etc. The idea of financial planning is not to regret mistakes, but to resolve any problems, empower me to move forward, and help me achieve my financial goals.
A planner can't work miracles (or help me win the lottery), but should be able to guide me in developing action steps that improve my financial situation.
In summary, a planner should help me live the life I want: understand where I am now on my financial path, devise a plan to take me where I want to go, break down the steps to achieving me goals, motivate me, and keep me on track.