Should You Hire a Financial Planner and What Can You Expect?

A common assumption is that financial planners are reserved for a certain income bracket. However, financial experts suggest that anyone can benefit from working with a financial planner. But before you hire one, it is critical to understand how they are compensated and to know their background. You should also note that the No.1 factor in your financial planning success is discipline.?

By Helen Harris?

Managing your money is a part of life. You’ll need more of it at some points and less of it at others (i.e., emergencies, retirement, starting a family). And some years the economy will be more volatile than others.?

So, the question is: Do you go it alone, or do you seek out the advice of an expert??

Natalie Taylor, CFP, BFA, head of financial advice at Monarchy Money, fintech consultant and speaker and Madecraft Author, states that ideally, everyone could benefit from having a great financial planner. However, this is not exactly a necessity and unfortunately, not affordable for everyone.?

So how do you know if you truly need a financial planner, and what results you can expect? if you hire one??

Identify Your Candidacy for a Financial Planner

If you’re unsure where you stand on needing a financial planner, Taylor offers the following tips that indicate if a financial planner — or another professional — could be could be a fit for you:?

• If you’re focused on staying within your budget, paying off credit card debt, building an emergency fund and establishing healthy money habits, a financial coach could be a great fit.?

“Financial coaches specialize in those areas and are often more affordable than a financial planner,” said Taylor.?

• If you are juggling multiple short and long term goals, investing for retirement and other goals, making more than $150k per year as a household, within 10 years of retirement or have complexities in your financial life (such as equity compensation from your employer, owning a business or receiving an inheritance), working with a financial planner is likely a great fit.?

CNBC also notes that working with a financial planner can be an invaluable resource for issues such as income management and debt; guidance on student loans, mortgages and auto loans; understanding Social Security benefits and when to take them; Veteran benefits; opening IRAs; risk exposure and insurance planning; long-term care insurance investment recommendations; proper asset allocation; minimizing your tax bill; estate planning; and saving for your children’s future.?

“CFPs can help people who need a strategy to pay off loans or need ways to generate income,” said John Loper, CFP and managing director of Professional Practice at the CFP Board in CNBC Select. “They can also help young families settling down, mid-life individuals who need help maximizing their retirement savings and those who need assistance with tax planning and estate planning.”?

Loper also mentions that CFPs can come into play and provide sound guidance after triggering events, such as large inheritances, divorce and death.

However, it seems that major life events aren’t the only times that people in the U.S. have sought financial help. In fact, many people crave answers to financial problems but hesitate to contact a professional because they believe they can’t afford one or are overwhelmed with the number of options.?

Consider this data from a recent survey conducted online by The Harris Poll in which more than 2,000 U.S. adults were surveyed about their attitudes and behaviors related to financial advice:?

• 71% of Gen Z and 72% of Millennials strongly or somewhat agree that there are financial topics they want advice on but aren't sure how to get it.
• Roughly 32% of Americans turn to registered financial advisors for financial advice, while more than half (52%) turn to family — and more than 41% turn to digital sources.
• 44% of Gen Z, 49% of Millennials and 47% of Gen Xers rely on digital sources for financial advice. This includes social media platforms such as Instagram or TikTok (15%), blogs/vlogs (7%), podcasts (10%) and other online sources (27%).
• 35% of respondents indicated that their top barrier to seeking professional financial help when they want or need it is the belief they can’t afford it.?
• About 68% of Americans say a personalized financial plan based on their goals would be an extremely or very important factor if they were considering a financial professional.

How Can a Financial Planner Help You in a Down Economy??

While hiring a financial planner in any economy can be helpful, Taylor states that doing so when the economy is uncertain can be particularly helpful.?

“The financial decisions you make during those time periods can have bigger repercussions, and it's more challenging to make good decisions when you are fearful, anxious or worried,” said Taylor. “A financial planner can provide both a short-term and long-term perspective and help you decide what the best decisions are based on what matters most to you.”?

Michael McDonald, Ph.D, partner at Morning Investments and LinkedIn Learning Instructor, adds that because the market is in such a volatile place currently, this is exactly the type of time where a financial planner can be very helpful.?

He says that in doing so, you’ll be working with a professional who can create a portfolio allocation that makes sense and then stick with it in a disciplined way in order to weather the economy and still reach your financial goals.

How To Prepare for Success with Your Financial Planner?

It can be intimidating to reveal your financial status to a complete stranger. But that is all the more reason to come prepared with your questions and to fully understand your chosen financial planner’s incentives for helping you.?

“The most important thing when meeting with a financial planner is to understand their incentives and how they compare to yours,” said McDonald. “In practice, that means understanding how they make money.”?

McDonald states some of the following scenarios in which financial planners earn commissions:?

• They earn a commission on trades. (i.e., they are incentivized to see you trade a lot).
• They earn a profit sharing percentage.

“This means they are incentivized to see you take big risks in the portfolio in the hopes that you ‘hit a home run,’ and they get a piece of it,” said McDonald.?

• They charge a flat fee. McDonald says that this can either be a dollar amount or percentage. If this is the case, you can generally rest assured that their incentive is to keep you satisfied as a? customer so you stick around year after year.?

“There are exceptions, but for most people, the flat fee is the best option,” said McDonald.?

In addition to knowing how your planner makes a profit by working with you, McDonald also notes that you also want to cover these other topics:?

• the planner’s experience in industry
• how they select the investments they recommend
• what their process for making changes or rebalancing the portfolio is
• whether they are acting under a fiduciary or suitability standard?

“The fiduciary standard is generally better, all else equal,” said McDonald.?

Taylor echoes McDonald’s advice, noting that it’s generally a good idea to look for someone who is a Certified Financial Planner (CFP) as a starting point.?

She also cautions that most planners who offer "free" financial planning get compensated by selling commission-based insurance and investment products, which aren't a great fit for most people.?

“Look for a financial planner who is a fiduciary in 100% of their business relationship with you, which means they are required to put your needs first above their own interests,” said Taylor. “Look for someone you connect well with, that really listens to you and that you feel you can trust and open up to.”?

Financial Resources in Lieu of a Financial Planner?

Make Financial Discipline a Habit?

If you aren’t quite ready to seek the help of a professional or are even keen to use the many budgeting resources available to help you stay on track, McDonald and Taylor both agree that this can be done — but the key to success is discipline.?

“If you are going to forgo a financial planner, the key you need to focus on is discipline,” said McDonald. “... the primary benefit of a financial planner is helping the investor ‘stay in their seat’ through the market's roller-coaster ride. It sounds silly, but many people simply have trouble mentally dealing with the ups and downs of the market, and a financial planner can help with that.”?

McDonald believes one of the best ways to make a habit of diversifying your portfolio is by buying a broad market exchange traded fund (ETF) that tracks either the S&P 500 or Russell 2000.?

To expand on this further, Charles Schwab notes that ETFs are funds that trade on exchanges. And these funds generally track a specific index.?

“When you invest in an ETF, you get a bundle of assets you can buy and sell during market hours — potentially lowering your risk and exposure, while helping to diversify your portfolio,” reported the source.?

And in regard to the Russell 2000, Forbes reports that this index tracks the 2,000 smallest public companies by market cap in its parent Russell 3000 stock index. The remaining 1,000 companies are grouped in the Russell 1000 large-cap stock index.

The companies in the Russell 2000 represent approximately 10% of the U.S. stock market’s total market capitalization, and as of June 2022, the source notes the following as top 10 Russell 2000 companies by market cap:

1. Ovintiv Inc. (OVV)
2. Chesapeake Energy Corp (CHK)
3. Biohaven Pharmaceutical Holding Ltd (BHVN)?
4. Antero Resources Corp (AR)
5. BJ's Wholesale Club Holdings (BJ)?
6. Avis Budget Group (CAR)
7. Southwestern Energy Co. (SWN)
8. Willscot Corp. (WSC)
9. Performance Food Group Co. (PFGC)
10. Tetra Tech Inc. (TTEK)

McDonald stresses why portfolio diversification is so important in his LinkedIn Learning course, where he explains that diversification is essentially holding a broad basket of stocks to insulate you from the ups and downs of the market.?

He furthers that by putting money into your broad market ETF every month — regardless of whether the market is up or down — you are creating a disciplined investment approach regardless of which specific investments you choose.??

“When you understand the value of diversification, you're on the road to building a more secure and profitable long-term financial future,” said McDonald.?

Find Money-Management Tools That Work for You?

When it comes to other habits that can be helpful (whether you hire a financial planner or not), Taylor suggests that using automatic transfers and autopay can simplify financial life.?

Additionally, she says if you're working toward a big goal like retirement, you should start small if you need to (but still saving enough to get your employer match) and look to increase the amount you're saving by 1% per year until you're fully on track.

“Split windfalls like tax refunds, bonuses, restricted stock units (RSUs) and cash gifts between your goals and some fun,” said Taylor. “For example, spend 10% of every windfall on something fun, and use the rest to make progress on your highest priority goals.”?

She also suggests using a personal financial management tool, such as Monarch Money, which can help you not only track your spending and manage your budget but also help you see all of your finances in one place, track your net worth and investments and track progress toward your financial goals.

You may also want to consider any of the following personal finance software options, depending on your unique needs:?

• Mint: This free app is hard to beat and great to try if you’re just getting started with your budget. Mint lets you easily link your accounts, budget and track your spending.?
• YNAB: Short for “You need a budget,” this option is great for those who need to work on building a habit of budgeting. It gives helpful tutorials designed to keep you motivated, as well as detailed budgeting and spending reports.
• Personal Capital: This option offers both budgeting and investing tools to help you stay on track with your day-to-day spending and long-term financial goals. You can look forward to Managing all your accounts in one place as well as personalized financial advice.
• Tiller: If you like seeing all your accounts in one place and learn via visuals (i.e. a well-crafted spreadsheet), this may be the option for you. Tiller gives you a high-level view of all your accounts at a relatively low cost.
• Future Advisor: This platform is best for those who appreciate the option of getting investment advice while managing their portfolio independently. It has a relatively low investment requirement as well as helpful recommendations.?

You likely can’t go wrong with hiring a financial planner. However, if you’re currently unable to hire one, there’s no need to worry. You can lay a solid foundation for financial success on your own by building healthy financial habits and learning how to invest and grow your assets. Above all, it takes discipline and the will to save money through all economic situations.?

Top Takeaways?

Should You Hire a Financial Planner and What Can You Expect??

• People of any income bracket can benefit from a financial planner, but there are also ways to successfully manage your finances on your own.?
• In particular, financial planners are helpful if you are juggling multiple short and long-term goals, investing for retirement, making more than $150k per year as a household, within 10 years of retirement, or have complexities in your financial life (such as equity compensation from your employer, owning a business or receiving an inheritance).
• Be cautious of financial planners offering "free" financial planning, as they often get compensated by selling commission-based insurance and investment products, which might not be in your best interest.?
• Make sure you know how your financial planner gets paid, their experience, how they select the investments they recommend, their process for making changes or rebalancing the portfolio, and whether they are acting under a fiduciary or suitability standard.?
• Whether you are managing your financial portfolio on your own or with a professional, financial discipline should become a habit in order to best reach your goals.?