Many people are eager to work with an investment advisor but shy away from financial planning services. Maybe they don’t realize the value of having someone help them with financial decisions like buying a new home, changing jobs and planning for college. Research by David Blanchett and Paul Kaplan of Morningstar in “Alpha, Beta, and Now … Gamma” suggests that individuals working with a financial planner create roughly 29% higher retirement income wealth.
I think everyone should work with a comprehensive financial planner who focuses on your whole financial life, not just your investments. If you’re not sure where to start, here are the basics:
A—Assemble Your Planning Dream Team
To have a great financial planning team, you’ll need to enlist more than just an investment advisor:
- Certified Financial Planner™ professional: CFP® practitioners take a holistic approach to understanding your personal and financial situation. This enables them to make informed recommendations about what you need to save in order to retire at a certain age, how much of your income you can afford to save, what insurance you should buy, and much more. If your advisor has a CFP® designation, you’ll reap the benefits of both investment management and financial planning advice without hiring an additional professional.
- Certified public accountant: Tax law is extremely complex and constantly changing, so having a CPA on your team is a must. In most cases, financial planners will have existing relationships with multiple CPAs that you can leverage. CPAs tend to be more highly focused on a client’s current tax situation (i.e., increasing deductions to minimize taxes) than on long-term tax strategies, so it’s a good idea to have your planner review your tax return before it’s filed.
- Estate attorney: Depending on the complexity of your personal and financial situation, it could be much easier to have an estate attorney create your will, advanced health care directives, trust, etc. They have the most knowledge about current estate laws by state and are a great resource for both you and your planner. If you decide to create your own estate documents using online companies or templates, take advantage of your financial planner by reviewing the documents together.
B—Be Vigilant with Updating Estate Documents and Beneficiaries
One of the biggest mistakes that clients make is not keeping their financial plan, estate documents and beneficiary designations up to date. This can be easily avoided if you’re working with a financial planner on an ongoing basis. At each planning meeting, be sure to keep them informed of any major life changes (e.g., having a baby, getting married). Your planner can ensure that your estate plan, insurance and account beneficiaries, and asset titling are updated. Remember, there are two people in your life you should never lie to: your doctor and your financial planner.
C—Consider the Future of Your Estate
Think about your long-term planning goals. Do you want to leave your entire estate to charity or just a portion? How do you feel about structured gifting over your lifetime to charity and/or family members so that you can enjoy the giving while you’re still alive? Are you concerned with minimizing estate taxes? Would you rather allow yourself to spend more money during your lifetime or have a larger estate to leave for your heirs? Do you want to make sure that your children from a previous marriage receive a preselected inheritance rather than leaving the decision to your current spouse? What do you want your legacy to be?
Your financial planner isn’t just a number cruncher. She can help you find the answers to these questions and then help you work with an estate attorney to execute your vision into the proper legal documents.
The Pitfalls of Do-It-Yourself Financial Planning
Sadly, many people don’t see the value of paying for financial planning until it’s too late. Enlisting the services of both an investment advisor and financial planner (preferably a CFP® professional) is essential to avoiding the pitfalls of do-it-yourself investing and planning. More importantly, a planner will set you on the right path to reaching your financial goals, help you stay on course and free up your time to focus on your passions.
