Do I Need a Financial Planner?

What Is a Financial Planner?

"Financial advisor" is an umbrella term for financial professionals who specialize in tasks like wealth management, estate planning and investment guidance. Financial planners fall under this umbrella. They specialize in providing personalized guidance to help people meet their short- and long-term financial goals.

Certified financial planner (CFP) is a special designation. It shows that the planner adheres to the standards of the CFP Board and participates in mandatory continuing education. They also have a fiduciary duty to their clients. That means they're bound to prioritize their clients' best interests over their own. A CFP can provide help with:

• Financial basics like budgeting and debt management
• Making plans to meet your financial goals
• Investment planning
• Retirement saving and income planning
• Tax and estate planning
• Risk management and insurance planning

Keep in mind that anyone can call themselves a financial planner, but a CFP is an advisor who has completed required training and will work on your behalf as a fiduciary. Instead of providing one-off advice, financial planners typically provide long-term guidance.

Pros and Cons of Hiring a Financial Planner

Hiring a financial planner comes with its benefits and some important drawbacks.

Pros of Hiring a Financial Planner

• They can make financial planning less intimidating. Their job is to take stock of your financial health, listen to your goals and create a personalized plan for helping you get where you want to be.
• They specialize in financial services. The average person may not be well-versed in things like investing or tax planning. Financial planners specialize in complex financial matters. They should be able to answer all your questions and help you move past your blind spots.
• They can hold you accountable to your financial goals. It's one thing to say you want to buy a home or put money away for your children's college education—it's another thing to actually do it. A financial planner can take large financial goals and break them down into actionable steps that feel more manageable. Meeting with them periodically can hold you accountable.

Cons of Hiring a Financial Planner

• Their fee structures can vary. Some financial planners charge a fee based on a percentage of assets they manage. Others may charge an hourly rate, a fixed rate on a per-service basis or a monthly or quarterly retainer fee. These costs can vary widely from one financial planner to the next.
• Not every financial planner is a fiduciary. If you decide that a financial planner is right for you, you'll want someone who will serve your best interests. Some financial planners receive a commission for steering you toward certain financial products. That can present a conflict of interest.

Do I Need a Financial Planner?

Here are some scenarios when working with a financial planner might make sense.

You've Experienced a Life Change That Affects Your Finances

Life changes quickly, and with it can come major shifts to your financial situation. Some major life changes where you may want the help of a financial planner include:

• Getting married or divorced
• Welcoming a new child
• Coming into an inheritance
• Getting a significant raise or work bonus
• Experiencing a loss in income
• Making a career change

You Want Help Managing Your Finances

Financial planners are more than just advisors for your savings and investments. They can also help with:

• Budgeting
• Managing debt
• Tax planning

You're Thinking About Your Financial Future

Whether you're looking at saving for a goal that you plan to reach in a year or one that's still decades off, a financial advisor can help you gain the perspective you need to make the right money moves. That may include:

• Retirement planning
• Saving for short- and long-term financial goals
• Investing
• Estate planning
• Insurance planning

How to Choose a Financial Planner

You ultimately want a financial planner who understands your needs and how to help you. The CFP Board has a search tool you can use as a jumping-off point. Once you have some candidates in mind, consider the following details when choosing a financial advisor:

• Their credentials and prior experience
• Their fee structure and pricing
• Whether or not they're a fiduciary
• The services they offer
• How they approach financial planning
• Their availability
• Whether they seem to understand your financial status and goals

Alternatives to Traditional Financial Planning

If you're not ready to make the investment in a financial planner just yet, here are a couple of alternatives to explore.

• A robo-advisor: This can be a cost-effective alternative to working with a financial planner. A robo-advisor uses algorithms to choose investments on your behalf based on your age, risk tolerance, income and goals. The platform will monitor your portfolio and rebalance it automatically as needed.
• Relying on managed retirement accounts: Some 401(k)s and IRAs are relatively hands-off investment vehicles, especially if they're structured as target-date funds. These are age-based investment accounts that are linked to your expected retirement age. As you get closer to retirement, they automatically rebalance to be more conservative. You can always dial up your contributions along the way.

One thing to remember about the above options when compared with a financial advisor is that these options are strictly for investments; you won't be able to get any help with budgeting, choosing insurance or paying down debt, for example.

The Bottom Line

Whether you should hire a financial planner depends on your unique needs and budget. Your personality also comes into play. While some people like managing their own finances, others prefer professional guidance. If you do decide to work with a financial planner, be sure to vet your options and go with an accredited professional who feels right for you.

No matter what you choose, keeping your credit health strong is always important. Free credit monitoring with Experian can do the heavy lifting for you. It will notify you whenever something new pops up on your credit report, allowing you to head off conditions that could damage your credit.