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Financial planning, according to the Financial Planning Association, is a, “Long-term process of wisely managing your finances so that you can achieve your goals and dreams, while at the same time helping to negotiate the financial barriers that inevitably arise in every stage of life.”
The financial planning process can be carried out in two ways: One, as an individual and independent investor; or Two, as an investor who uses the guidance of a single or a number of financial advisors to assist in his or her decision making.
There is nothing wrong with following either approach when embarking on a financial planning process. However, investors should consider six factors when deciding whether or not to financially plan their futures independently or with the guidance and assistance of a team of financial advisors.
These six factors are as follows: Complexity, Need, Quality, Cost, Time, and Review.
Complexity is the focal point that affects any investor’s decision-making. All investors, throughout life, are affected by complex and often large and overbearing situations. Investors must determine whether or not the assistance of a financial advisor could be useful to help guide them through these complex situations.
Jane Schuchardt, PhD, a professor at Rutgers University, explains that having, “Someone to call at the right time, for the right purpose, who is familiar with your situation, and can lead you to an informed decision, is invaluable.” (Investing For Your Future, a Basic Investing Home Study Course, Sponsored by Rutgers Cooperative Extension)
Although it is entirely an individual investor’s choice, having the right team of financial advisors can be extremely beneficial to investment decisions.
Need refers directly to the services that an investor is expecting to receive from an advisor. This is based upon the situations that are affecting the investor and the aspects of the investor’s life that are in need of guidance and assistance from an advisor.
The Financial Planning Association provides investors with 14 reasons why they, “May Need a Financial Planner.” These reasons are:
Once investors are able to determine their needs, they can then determine what types of advisors to search for and how many are right for them.
Quality determines the value that a financial advisor’s services will have upon future investment decisions. Financial advisors, based upon their credentials, qualifications and experience can provide a number of useful and helpful services to their investors.
Certified Financial Planner Board of Standards Inc. provides a number of questions that investors can ask financial advisors, when determining the quality of an advisor, including the following:
All of these questions will help an investor determine what type of advisor they are working with, what to expect from this advisor and whether or not they feel comfortable with this advisor on their team. We recommend that you look at the complete Checklist for Interviewing a Financial Planner. Consider printing it out, to better organize your notes, while interviewing prospective financial advisors.
Cost will always be a major factor when hiring advisors to a financial planning team. Cost can be broken up into two parts: Price and Affordability. Similar to a cost/benefit analysis, investors must determine if the price will outweigh the affordability, or the benefits that an advisor will bring to an investor’s financial plan.
Certified Financial Planner Board of Standards Inc. stresses the importance of asking the following questions to determine the “price” of an advisor:
As Jane Schuchardt, PhD. describes, payment can be in one of three forms or a combination:
It is not always easy to reach all of your investment objectives and goals in an affordable manner and, as an investor, openness to change must be taken under consideration when the cost/benefit of an investment plan is not as beneficial as one would expect.
Time, with all planning activities, is a crucial factor. When developing a financial plan, you must determine, based on your everyday lifestyle, how much time you have to put towards the financial planning process.
After investors determines how much time they have to devote to this process, they can then determine where a team of financial advisors will fit into the planning process and what services they will be expected to provide.
As Jane Schuchardt explains, “Financial advisors can save you time. Searching through the maze of investment options may take too much of your time. Financial advisors can get specialized information for you quickly.”
Obviously, this is a major benefit at any point in the planning process but it is especially useful when sudden and, at many times, unexpected events occur in an investor’s life. Schuchardt provides some examples such as, “Severe illness, birth, death in your family, or an inheritance.”
Review focuses upon the developments that occur in an investor’s lifetime. As changes occur or an investor’s needs grow over the investor’s lifetime, it is necessary to review the investor’s financial plan.
Schuchardt suggests that, “Just as most people need an annual physical exam, at least an annual review of your financial situation, including your investment portfolio, is a good idea.”
However, as lifestyles change and major situations or events affect an investor’s future and investment plans, it may be necessary to review the financial plan more often than normal. Developing a team of trustworthy and devoted financial advisors will be beneficial when a financial plan is in need of more attention and review
All in all, developing a team of financial advisors is only one step in a series of many steps that must be followed when making investment decisions. It is important to note that there is no specific way or rules to follow when developing your team.
You must determine what you expect from your advisors and then you must feel comfortable in your decision-making. Always remember, no matter how big or small your team is, once it is formed, it is imperative to build up strong relationships with all of your advisors. This will prove to be valuable in all of your investment decisions.
For additional information, check out these sites:
Chris McGee is a student at Fairfield University, class of 2005, where he is studying Finance and Marketing as a double major. Chris is also Internal Executive Assistant of the Fairfield University Student Association, trumpeter in the Fairfield Jazz Band, and a volunteer organizer for the publicity board of the Fairfield University Annual Hunger Cleanup Project. You may contact Chris through email.