Charting Your Financial Course

Question of the week:I'm determined to make a fresh financial start this year, and a friend has suggested that I see a financial planner. I wonder it that's really necessary--what do you think? --Susan F.

Dear Susan,

I believe that any family with multiple sources of income, different kinds of assets (for example, IRAs, a house, company investment plans), or diverse goals (like a secure retirement and sending the kids to top-notch colleges) could benefit from working with a financial planner in some way.

According a recent survey by the Certified Financial Planner Board, building a retirement fund is far and away the top reason that people create financial plans, but numerous other goals also spur folks to working with a financial planner, including building an emergency fund, managing debt, buying a home, paying for travel and saving for college, to name but a few.

When we asked members of the Armchair Millionaire community about how they'd been helped by financial planners, we received a number of very positive responses. This one is typical:

"My wife and I sat down with a planner about four years ago and it was the best thing we ever did. We were in our early 30s, with two kids, no insurance, no plan, lots of debt, and no savings. We were on a bad road going nowhere. We are now debt-free (other than our mortgage), and I watch our plan monthly to make sure we stay on track." --David

A good planner will help coordinate all the different aspects of your financial life: saving, spending, investing, tax planning, insurance and estate planning. Depending on the complexity of your situation, a planner can also work with your other professional advisors, such as a stockbroker, accountant or attorney, to ensure that you have the best overall strategies in place. If you decide that a planner can help you, my guide will tell you what to expect when working with a financial planner.

The Armchair Millionaire Guide to Finding and Using a Financial Planner

• Ask about credentials. Anyone can call himself or herself a financial planner, so find one who has credentials from a recognized authority. Perhaps the best known is the Certified Financial Planner (CFP) credential awarded by the Certified Financial Planner Board of Standards. CFPs must take a series of specialized courses, pass a comprehensive exam, and keep current through continuing education.

• Find a good match. You want a planner who has plenty of experience working with people like you in terms of goals, income and assets. Often the best way to do this is to get referrals from friends or co-workers who have similar financial situations. Before you agree to work with any planner, ask to see a sample of the plans they typically produce to see if it would meet your needs.

• Understand what it will cost. Planners are compensated either by fees (an hourly fee or a flat fee), by commissions (on products they recommend you buy), or a combination of the two. Planners who manage your assets on an ongoing basis may charge a percentage, typically in the neighborhood of one percent of the assets. If you only need a comprehensive financial plan but want to implement the plan yourself, then paying a flat fee or by the hour may be your best choice.

• Know what to expect. To begin, your planner will ask you to provide a variety of financial records and will ask detailed questions about your goals. He or she will then use this information to prepare a comprehensive plan that will typically include an overview of your financial goals, an assessment of your current situation (including income, spending, and investments), and recommendations to reach your goals (including investment mix, insurance and estate planning). Your planner will then meet with you to review the plan and help you implement it.

• Keep your plan current. I suggest meeting with your planner once a year at a minimum to review your progress and make any changes as needed. In addition, work with your planner to make adjustments any time there is a major change in your life, such as marriage, a job change, or an inheritance.

THE BOTTOM LINE: Working with a financial planner to chart your financial course takes a lot of work, a bit of expense, and a commitment to sticking with the plan. But the rewards are well worth it-you'll begin moving towards what you really want and earn some financial peace of mind.