A standard financial plan will help you know where your finances are now, where you want (0r need) to be in the future, and how to get there.
Financial plans come in a few varieties.
First, there is the traditional financial planning model where you go in and visit with a financial planner who will work to understand your key goals. For example, you may want to pay off debt and retire at a certain age. This experience is a lot like working with an accountant or a family attorney.
There are many people who use the title Financial Planner but who are more focused on selling a particular financial or investment product. For example, a lot of sales of insurance products are done this way. If the person you’re thinking of working with fits into this category, the person’s advice will be limited to what they can sell you.
In addition to insurance sales, many stock brokers use the Financial Planner title but their guidance will typically be limited to mutual funds or stocks that they earn a commission from.
The other type of a financial planner is a fee-only financial planner. When you work with a fee-only planner, the planner gets paid for their time rather than the product they sell. This often means the planner can be a little more objective in the products they recommend since they can guide you toward investments that do not charge sales fees or have commissions attached.
Some fee-only planners also work as investment advisers. In this model, you would go to the planner and they would write a financial plan for you. During the planning process, you would figure out what average return you would need to make in order to reach your financial goals. Once the plan was complete, the planner would work on building an investment portfolio that would help you meet that average return.
In the planner/investment advisor practice, you will likely pay the planner a fee of about $200 an hour for the financial plan and about 1% per year ($1,000 for every $100,000 managed) for the assets managed under the investment advising part of their business.
If you’re comfortable online, you can look at some of the lower-cost options for financial planning. Ranging from free to about $100, options such as thrive.com provide you with a financial plan generated by a web server. The challenge with these plans is that they don’t provide any professional oversight of the plan. They leave the assumptions of investment growth and the like up to the user.
Finally, there’s the site that is one of the sponsors of FrugalPod: PennyPuddle. PennyPuddle charges $375 for a plan that is written by a professional financial planner. The site walks you through a series of questions about your current situation and goals. Once you’ve filled out the information, you submit your plan and a person reviews your information, writes a report, and then goes over the report with you on the phone.
LINKS
To find a fee-only planner, you can check out NAPFA at this link.
PennyPuddle is found at PennyPuddle.com
Questions to ask a potential financial planner:
How do you get paid? Do you get a commission based on what you recommend?
What is your training or background?
Do you have a list of references?
How long does the financial planning process take?
This podcast can be downloaded through this link or by visiting our page at iTunes through this link.
{ 0 comments… add one now }