One of the most frequent questions I get is what does a financial planner actually do? The next most common question is do I need one?
On this episode of Money Mile, we’ll explore these questions in greater detail. You’ll learn the different types of titles that financial professionals might have, the roles they play, the certifications they might possess, and the way financial professionals are compensated.
If you have been wondering what kind of financial planner you need (or if you need one) you won’t want to miss this episode of Money Mile.
You will want to hear this episode if you are interested in…
- What a financial planner is [1:52]
- The certifications financial planners might have [4:12]
- What kind of regulatory oversight planners face [5:33]
- The ways financial planners are compensated [6:12]
- The F word of finance [8:42]
- If you need a financial professional [9:55]
- The homework [14:11]
The various types of financial professionals
It’s hard to tell what a financial professional does simply based on their title. Additionally, there seems to be an infinite number of titles in the industry.
You may see a number of titles in the finance industry: coach, salesperson, stockbroker, wealth manager, consultant, investment advisor, financial advisor, or financial planner.
These titles don’t mean much to anyone but the companies that employ them. What really matters is what they do for their clients.
A financial coach typically helps with budgeting and the basics of personal finance.
A financial advisor or investment advisor helps manage the wealth you have already accumulated.
A financial planner helps you plan for the future. They can do so by also helping to manage your investments.
The financial services industry also has a confusing alphabet soup of professional credentials. Some designations may mean more to you than others depending on your objective.
The Certified Financial Planner (CFP) designation is considered the gold standard in the industry while the rest of the certifications are typically specialty-based.
When choosing a financial service professional, it is essential to look back at their relevant experience. For example, if you are looking for someone to help you plan out your retirement income you may not need an expert in student loans or vice versa.
The 3 compensation methods
We all know that no one works for free, so it is important to understand how a financial professional is compensated. Things to remember when choosing a professional are you get what you pay for and if you are getting something for free, you are the product.
Typically financial professionals are compensated in one of 3 ways.
Commission – Commission-based professionals are compensated only by making sales of products and services. This type of remuneration works well for people who are not interested in paying fees upfront or outside the products or investments they choose.
Fee-only – Fee-only financial professionals are compensated directly by the client. The fees are clearly stated and specifically outlined. This works well for people who place a priority on clarity or objectivity.
Fee-based – These professionals receive a mix of commissions and fees.
Most financial professionals have their clients’ best interests at heart. Even so, it is important to discover if there are any conflicts of interest based on their form of compensation. This is why you should understand upfront how your chosen financial professional earns their money. If there is a conflict of interest you may not be getting the most objective advice.
The financial F word
Fiduciary is the F word of the financial services industry. Don’t worry, this doesn’t make it a bad word–on the contrary, a fiduciary looks out for their client’s best interests.
According to Investopedia, a fiduciary is a person or organization that acts on behalf of another by putting their client’s interests first. Fiduciaries have a duty to preserve their client’s good faith and trust. They are bound both legally and ethically to act in their client’s best interests. One way to understand if a financial professional is looking out for your best interest is to ask them directly if they always act as a fiduciary for their clients.
Financial planners aren’t magicians; they don’t have a crystal ball that predicts the markets. However, they can provide valuable insight and useful strategies that could help you achieve financial independence.
Listen in to learn more about what a financial planner does to weigh whether or not you need one to help you achieve your financial goals. I also encourage you to use this helpful questionnaire to help you decide if a financial advisor is right for you.
Resources & People Mentioned
- Nestor Vargas on Instagram @LatinoMoneyMan
- Green Cards to Greenbacks podcast
- XY Planning Network
- NAPFA’s Comprehensive Financial Advisor Diagnostic
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