Updated on Tuesday, August 18, 2020
Financial planners are professionals who have the skills and experience to help you map out a healthy financial future and course-correct along the way as needed. They can help you develop a strategic financial plan that takes into account your assets and goals in order to build and maintain your financial health.
When it comes to your finances, just winging it could cost you big time, so a financial planner could prove helpful. Hereâ€™s what you need to know about what they offer, how much they cost and how you can find one to work with.
As their title suggests, financial planners help people develop financial plans. These plans can range from simple budgets to more complex plans that include investments, retirement strategies and beyond. While each financial plan is unique, the goal is the same: to help clients achieve their financial goals both in the short and long term.
Financial planners start by evaluating a clientâ€™s current financial situation, helping them set realistic goals and then mapping out strategies to help them achieve those goals. Typically a holistic approach to oneâ€™s overall financial health, these plans may involve a variety of components including the following:
While some financial planners can help you with any of these components, not all financial planners have the experience or credentials to provide some services. For example, if you want your plan to include estate or retirement planning, you want to make sure you hire a planner who can adequately guide you in these areas.
Also, not all financial planners can provide investment advice. Only those who have registered with the SEC or their state securities regulator are allowed to do so. To check a financial plannerâ€™s background, visit investment.gov.
Almost anyone can benefit from working with a financial planner. That being said, the importance of hiring a financial planner can vary depending on a number of factors, including your age, income, assets and level of comfort with handling financial planning yourself.
In general, the older you are and the more assets you have, the more you may want to consider working with a financial planner. On the other hand, the sooner you have a financial plan, the sooner you can start reaching your goals, so itâ€™s never too early to start.
There are also some significant life events that may make financial planning a priority. They include milestones such as:
However, thereâ€™s essentially nothing that a professional financial planner does that people canâ€™t do themselves â€” especially with the plethora of free financial advice and online tools widely available today. Of course, doing so requires the time and willingness to learn, but some do it successfully.
In most cases, however, the years of education and experience that professional planners have can offer a valuable advantage to clients, particularly when they have more assets at stake or their circumstances are more complicated.
The difference between a financial planner and a financial advisor is subtle, but important nonetheless. A financial planner is, in fact, a type of financial advisor â€” financial planner is just a more-specific designation.
Services offered: In general, a financial advisor focuses primarily on investments, while a financial planner takes on the entire scope of a clientâ€™s finances, including components like retirement planning, estate planning, budgeting and more. If you just want to put some money in the stock market or make other investments, then a financial advisor can likely meet your needs, but if you want to take a look at your entire financial picture and map out a course for the future, which may include investments, then you likely want to seek out a financial planner. After a financial planner maps out that course, then you may want to hire a financial advisor to help you navigate the investment portion of the plan or you can choose to do so yourself.
Certifications and licenses: There are also differences in the certifications they hold. While a certified financial planner (CFP) designation is the gold standard for financial planners, financial advisors must have a license through the Financial Industry Regulatory Authority (FINRA) in order to process investments.
Itâ€™s important to understand the difference between titles and licenses when it comes to financial professionals. Thereâ€™s nothing stopping anyone from calling themselves a financial planner. Itâ€™s the licenses, however, that tell you how much training they have and the standards to which theyâ€™re held. While some licenses are awarded by trade groups or other private entities, there are legal protections that are only afforded to you if your advisor is registered with federal or state authorities.
There are several certifications that financial planners can earn, but the CFP certification is the main one to look for when youâ€™re considering financial planners.
Becoming a CFP requires passing a rigorous test and agreeing to continued financial education on an ongoing basis. CFPs are also held to a fiduciary standard, which requires them to put their clientsâ€™ best interests before their own. CFPs are governed by the CFP Board, which is an independent group rather than a government agency. While the CFPs are ultimately overseen by the U.S. Securities and Exchange Commission (SEC), the CFP Board may set standards that are even higher than what federal law requires.
Aside from the CFP designation, other certifications that financial planners have may include:
Each governing organization has its own set of standards that individuals must meet in terms of testing and education to receive their credentials. While some organizations require their members to meet a fiduciary standard, none are overseen by a government agency.
There is a call by many in the industry for the SEC to adopt a fiduciary standard for all financial advisors but currently there isnâ€™t one. That means itâ€™s important to thoroughly investigate the background of a financial planner. For a complete list of professional financial designations and what they mean, check out FINRAâ€™s Professional Designations tool.
|Average Financial Planner Cost By Fee Type|
|Fee Type||Average Rate|
|A percentage of assets under management||0.50% to 1.25%|
|Fixed fee||$1,500 to 7,500|
|Hourly fee||$100 to 400|
The cost of professional financial planning can range widely according to the scope and complexity of the services provided.
Some people may just need one-time financial planning services to help them create a plan that they will then execute themselves. In this case, financial planners typically charge either a one-time fixed fee, which can run from $1,500 to $7,500, or an hourly rate ranging from $100 to $400 per hour, depending on the work required.
Other clients may hire a financial planner to provide ongoing support on a limited basis or more extensive support on an ongoing basis. These types of services are typically billed either at an hourly rate or as a percentage of the assets youâ€™re asking them to manage, with the rate usually ranging from 0.50% to 1.25% of assets under management. Some financial planners may receive a commission, typically between 3% and 6% of the price of the financial products they sell or recommend to clients.
Another key distinction when it comes to financial plannersâ€™ fees relates to the ways in which they are compensated. There are two basic camps: Fee-based financial planners and fee-only financial planners.
Fee-only financial planners receive payment in fees only from their clients. Fee-based financial planners, on the other hand, receive payment from their clients as well as from other sources, which may include commissions from products they sell to their clients.
Since fee-based planners are incentivized by commissions, itâ€™s possible for them to encounter conflicts of interest and, potentially, put their own financial gain ahead of their clientsâ€™ best interests. For example, fee-based financial advisors may be financially incentivized to recommend a higher-priced product to you to increase their earnings when an equally good, yet less-expensive, product may be available.
|Comparison of the Different Types of Financial Planners|
Type of financial planner
|Typical services||Best for…|
|Traditional financial planner||Full range of services||Those who like a more personal experience and have more robust and/or complicated financial needs|
|Robo-advisor||Primarily handles investments||Those who are comfortable with technology and donâ€™t need a personalized experience; also for those who want to save on fees|
|Online financial planning||Full range of services||Those who want a bit of personalization but donâ€™t mind working online|
When it comes to choosing a financial planner, you shouldnâ€™t just settle on the first name you come across. Beyond the types of certifications the planners have and how they charge clients, youâ€™ll also want to consider the way in which you want to interact with them. In particular, there are three primary types of financial planning services to consider:
While all three types of financial planners can help you map out your financial future, your unique financial circumstances and personal preferences will help you choose the right one for you. Beyond that, you want to make sure your planner has adequate qualifications and abides by fiduciary duty, and that you understand their means of compensation. Checking these boxes is a good way to ensure youâ€™re working with a financial planner who can help you plan your best financial future.