I recently spoke with an investor who had no idea what his goals were and no idea what the purpose of a financial planner was. This is not completely uncommon. Many people mix up financial planners, asset managers, tax planners, CPAs, estate planners, private equity managers, financial coaches, and others in a similar same vein.
A financial planner’s role is to ensure your quantifiable financial goals are met to the best of their ability, or work with you to get to an achievable goal. Without preparation and transparency, you may not receive the full benefits of working with a planner or even be turned away.
Understand The Role Of A Financial Planner
The role of a financial planner depends on how you choose to engage with them. Financial planning as a broad category can include:
- Budget and cash flow planning
- Retirement planning
- Education planning
- Insurance needs analysis
- Trust and estate planning
- Investment strategies
- Tax mitigation strategies
- Major purchase planning
- Exit planning strategies
Here are the three major types of engagement:
- Fee-based: The planner charges a percentage on the assets they are directly managing for you in exchange for all trading costs, rebalancing services, financial planning, and access to their expertise. This usually will include one or two reviews per year, unless you require greater attention or have a major financial decision to make in the upcoming year.
- Commission-based: You are paying on a per-transaction basis. Financial planning may or may not be included, depending on your planner.
- Fee-only: The planner is engaging on a strictly financial planning basis and not including any implementation in their costs.
Clarify And Quantify Your Goals
The aforementioned investor had some concepts of goals in mind. He wanted to manage his cash flow, reduce taxes, maybe buy a house, and invest in cash flow positive businesses. However, all these goals lacked timelines and specificity.
He had no idea when, where, or what kind of budget he was considering for a home. He had no idea of what type of business he wanted to invest in, how much he wanted, or that timeline. He had an aversion to long-term and thus more tax-advantaged investments. Because all these other goals lacked clarity, we had no idea how to quantify success or understand what to reduce the cash flow to.
Here are some ways he could have improved his goals, and a framework for how you may improve your goals:
- Invest in a cash flow positive business: Accumulate $50,000 to invest in a brick-and-mortar business by June 2027 in any industry that is projected to generate a 6% ROI per year, such as a laundromat or apartment complex.
- Purchase a home: Accumulate enough assets to put 20% down on a $1M home by March of 2028, given that interest rates are 6% or below. Delay goal for greater down payment if interest rates are higher.
- Reduce taxes: Bring our effective tax rate down from 28% to 25% while continuing to build wealth toward our other goals.
- Manage cash flow: Eliminate waste and reduce our monthly expenditures enough to reach our stated financial goals.
Take Stock
Before you speak with a planner, you need to know what assets and debts you already have, along with how you are invested in your respective portfolios. Usually, a planner will have an intake questionnaire to understand what you have, but it’s also a good idea to already have a list of the institutions you are invested with, login information, and amounts. The result is only as good as the accuracy of the data upfront.
Understand Your Spending
While this isn’t vital to do before your first meeting, your spending will be a crucial aspect to understand before a final plan is produced. Many credit cards offer a breakdown of average spending and categories, which can be helpful. Then, you’ll want to understand your fixed expenses, like rent or mortgage, utilities, groceries, and debt servicing. You can also choose to track your spending using an online budgeting tool.
Prepare Questions Relevant To Your Situation
If you are in a unique situation or have specific values you would like your planner to uphold, be prepared to ask questions, like:
- Have you come across many other clients in my situation?
- What would you estimate your average client age is?
- Do you have other clients who prioritize sustainability in their portfolios, and how has that gone for them?
Be Transparent
Working with a financial planner is not a time to be a people-pleaser or look more put-together than you are. We want the messy truth. I once spoke to a couple a few years from retirement, and nothing seemed to add up. The couple made good money, had relatively low expenses, but were having trouble saving for the future and lower asset levels than would be expected. We later came to find out that one of the spouses had an addiction he had been hiding for 20 years. Once that was uncovered, he went to rehab, spending normalized, and they’ve been able to get significantly closer to their goals.
Research The Planner
Most people want to find a planner with years of experience, is relatable to them, has professional designations, low firm turnover, and minimal disclosures.
The financial services industry is heavily regulated so you can find most of that information on https://brokercheck.finra.org/. If the individual has a professional designation, like CFP®, ChFC®,or CFA, you can usually find those designations at the end of their name in their email signature or bio. Certified Financial Planner™ professionals are the gold standard for planning in the industry.
Plan To Interview Multiple Planners
If you’re talking to a perfectly qualified person, there’s always a chance that their firm isn’t the right fit for you, their client roster is full, you don’t meet their minimums, or your values and personalities aren’t in alignment. This is meant to be a life-long relationship in many cases, so it’s valuable to plan to interview multiple planners. If you aren’t sure where to look, it’s possible that your tax-preparer or lawyer might have great recommendations. Some people also look to friends and colleagues in a similar situation to them for referrals.
You can also research Certified Financial Planner™ professionals in your area here.
Conclusion
When preparing to meet with a financial planner for the first time, understanding their role and having clear, quantifiable goals is essential. Clarify your objectives, such as investing in a business or purchasing a home, and gather detailed information on your assets and spending habits. Prepare relevant questions and be transparent about your financial situation. Research multiple planners to find the best fit, ensuring they align with your values and needs.
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This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this flyer. Equitable Advisors, LLC and its associates and affiliates do not provide immigration, tax or legal advice or services.
Securities offered through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-8643292.1 (12/25)(exp. 12/29)