Do you know the difference among the following: Financial Planner, Financial Advisor, Investment Advisor, Broker-Dealer, Wealth Manager, and Financial Consultant? If not, don’t feel bad – neither do most people. In fact, these terms are frequently used interchangeably by the public, financial journalists, and even the advisors themselves. For example, I’m technically a Fee-Only Certified Financial Planner™ , but I also answer to Financial Advisor, Investment Advisor, and Wealth Manager. What can a “real” financial planner do for you and do you need one?
When most people reach out to me for an initial consultation, the conversation frequently includes phrases such as “I don’t like a lot of risk” or “What can you put me in?”, or “I know you’re the expert and my 401k doesn’t seem to be doing so well, so…” They come to the meeting with an investment-based mindset. But I can’t help people invest appropriately unless I know why they are investing, which is a totally different conversation.
You see, the problem in our industry is that everyone but the “real” planners write prescriptions without taking the time to diagnose the problem. Let’s say you go to your doctor with what you believe could be a broken arm. Rather than taking x-rays, reviewing your medical history, and asking about activities you have engaged in, she simply treats your symptoms by writing you a prescription for pain medicine. In addition, your break could cause other complications and will not heal properly until you are prescribed the correct course of treatment. When your prescription is always investing, your goal of getting to where you want to go is not explored and articulated for an accurate diagnosis.
“Real” financial planning, on the other hand, begins with a conversation about where you are today, and what you would like your life to look like in the future, three, five, ten, or twenty years from now. A lot of exploration is involved. Investing may not be a part of the conversation for several meetings, if ever. A real financial plan should be the map that drives your financial decisions. A financial planner is your co-planner who discusses course corrections and redraws the map for changes in your goals and resources.
So if a real planner isn’t primarily focused on investments, what do we do? With thanks to Carl Richards’ recent series, Why I Hired a Real Advisor, financial planners serve three purposes:
- We clarify your goals. While I’ve never had a prospect start a meeting by saying, “I need you to help me clarify my goals”, that’s the first step in planning. What you want and what you need may be two entirely different things. Most people want me to invest for them, but I must first understand what is important to them. We back into this by looking at where you are today and where you want to go. Once people experience real financial planning, they have no idea how they did this “investing/money management thing” without it. It’s possible you don’t know how to articulate what you want or even that you want it until you experience financial planning.
- We remind you of what you said your goals were when you’re about to make a mistake. This means we shift the conversation from investment performance and benchmarks to values and goals. I’m like the little angel looking over your shoulder, saying, “Whoa, time out! This isn’t what we talked about in our last meeting. Are you sure?” When you’re in a relationship where the use of your resources is aligned with what really matters to you, it’s easier to make choices that agree with your values and goals.
- This will sound harsh, but I am That Person standing between You and Stupid. Investing mistakes usually result from emotions bulldozing over our logic. Our biggest personal behavioral mistakes are based upon blind spots in our thinking. It’s very easy to see our spouses’ blind spots but, by definition, we can’t see our own. It’s like your doctor telling you that you need to get a biopsy. He is making an impartial recommendation based upon knowledge and understanding of your situation and his medical training. You, on the other hand, may let fear cause you to do something stupid, like ignore his advice. I don’t know what your Big Mistakes will be but, if I can keep you from making even one a decade, it can have a tremendous positive impact on the likelihood you will get to where you want to go between now and dead.
Of course, financial planning involves lots of technical expertise like tax planning, coordinating your estate and trust plans, college savings, insurance reviews, and, yes, managing investment portfolios. But all of these activities are wrapped in a package labeled “Financial Planning”.
Are you working with a financial planner or an investment advisor? My partner, Michelle, shares some tips in her vlog, Financial Planner or Investment Advisor: How to tell the difference.