I love what I do, so I frequently find myself talking about all the different ways I help people. Most people don’t understand all that encompasses the job. Usually, it is an assumption that we are only helping with investments, but it is so much more than that. Because of this, I wanted to dive into what comprehensive financial planning looks like and what questions to ask if you are interviewing potential planners.

It Starts with a Plan

Plan first. In order to win with money, you need to have a roadmap to give you the best chance of success. In order to have a plan (roadmap), you need to first define where it is you want to go and understand your goals and objectives. You need to know where you are going if you want to give yourself a chance of getting there! As basic as this sounds, many prospective clients I meet have not put a price on what their destination will cost them. There are three main life phases when it comes to money, and I like to think of them as the Hire, Retire, and Expire phases:

The Hiring

The accumulation phase is where you are saving and investing for retirement, paying off debt, raising a family, and setting yourself up for retirement. From budgeting to cash flow management and to investments and insurance, there is a lot to consider.

The Retire

The harvesting phase is when you are no longer working and are maintaining your lifestyle with the assets that you have accumulated (investments, Social Security, pensions, etc.).

The Expire

The wealth transfer/protection phase is inevitable for all and usually not fun to talk about, but it encompasses a lot, including wills, powers of attorney, healthcare proxies, trusts, life insurance, and more.

While the three phases happen in consecutive order for most, it is important to have contingency plans in place in case tragedy strikes.

How do you get to know your clients, and what is your process for helping them to achieve their goals?

Cash Flow and Taxation

Everyone knows that we have to pay our fair share of taxes, but many do not understand the tax treatment of their different savings and investment accounts. There are many investment vehicles available to use for retirement, including Social Security (yes, you pay into this!), pensions, annuities, 401(k)s, 457s, 403(b)s, IRAs, brokerage accounts, Roth IRAs, and Roth 401(k)s. Each account has tax implications upon the contribution or withdrawal.

It is important to have a strategy in place to not only ensure you have enough to live on but to ensure you can allow yourself the most flexibility and tax efficiency in the accumulation and harvesting phases. There are even considerations to be made that impact the wealth transfer phase. There isn’t one right or wrong answer here, but these considerations should be discussed and reviewed.

What is your process to help me understand how taxes might impact my plan?

Investments

This is usually everyone’s favorite topic, whether the market is rallying or selling off. It might be fun to discuss the hottest stocks at the water cooler at work, but that isn’t the place to construct your portfolio! Money is highly emotional, and markets are volatile. Therefore, your investment strategy, once again, will depend on your goals and objectives and tolerance for risk. 

No one can time the market (if you are told otherwise, run!), and big, positive returns happen very quickly and erratically. Therefore, it is important to know what you are invested in, and why you are invested in it, and, regardless of market conditions, you have a high level of confidence in your plan succeeding. Staying on the course is paramount. Meetings with your planner are important because your goals and objectives can change over time – and they will change as you move from the accumulation of assets to the distribution of assets.

What is your process for developing and implementing a sound investment strategy? How often will this be reviewed?

Cost

This always seems to be on top of everyone’s mind, and your planner should be very transparent about how their firm makes money (they do this for a living, after all!). There are a few common ways in which firms bill for their services. Some strictly do one or the other, others do a combination.

Fee-based management is a flat percentage fee based on the number of investment assets under management. This may or may not include financial planning services, but the money is being managed at the firm’s discretion based on the client’s goals and objectives. The firm, in this instance, acts as a fiduciary and is obligated to act in the client’s best interest. The firm makes more money when the client does, so clients and firms are on “the same side of the table.” There are no commissions for funds, trades, etc., in this model.

Firms can also make money on commission sales of annuities, life insurance, mutual funds, stock trades, etc. What you pay depends on the product, but usually, the firm makes its money on the sale of the investment or product. Recommendations are usually made to clients for any changes to be made to the investments or are directed by the client.

Some firms charge a flat fee (one-time, recurring, or hourly) for consulting, financial planning, or some combination of the two. This could be in addition to the other fees discussed prior.

Costs are highly dependent on the firm and how they conduct business. It is important that you understand how the firm operates and makes money and that they are independent. Independent firms are not tied to any one product or investment which ensures you have access to all the best products, services, and investments available.

How are you compensated? Are you an independent firm?

Final Thoughts

There are a lot of misconceptions about what a financial planner truly does. While this article doesn’t touch all the areas of planning, it will hopefully provide some detail into what your financial professional should be looking at in order to develop a plan that will help you achieve your financial goals, no matter what they are and what stage of life you’re in.

Check out Russ’s other article’s article; How Does Insurance Play A Role In A Solid Financial Plan? & Your Investments During A Recession.