Remember, good advice doesn’t cost, it pays
Many people seeking financial advice are not sure what a good financial plan should do or how to determine whether an advisor is bringing value for the money she’s charging. Why not just go to the bank and have a free plan drawn up? In fact, a good advisor can bring six key benefits to your financial life. And remember, like anything else, you get what you pay for.
Financial plan basics
To ensure your financial plan meets your financial objectives, at a minimum it needs to contain the following information in detail:
- The amount of money that you need to save each year.
- The asset allocation that would give you the highest probability of maximizing your return with the least amount of risk.
- Tax planning strategies to minimize your overall tax.
- Judicious use of credit.
- Plans for a pre-retirement lifestyle that allows you to achieve the financial goals to fund the retirement lifestyle that you want.
As an advisor who charges a fee for financial planning services, I’ve lost count of the number of times that someone has told me that they could get a financial plan done for “free” at their bank or other institution. Well, perhaps. Usually that involves a 15-minute meeting with the bank’s designated planner, who will typically enter your basic financial details into the bank’s in-house “planning” system, which will then spit out a number of colorful tables, charts, and graphs showing you how long your savings will last in retirement. That might work for some people, but it’s not my idea of a solid financial plan. My motto is, “Good advice doesn’t cost, it pays.”
Actually, I would never think of recommending that someone engage me to draft a financial plan for them unless I can clearly detail how the benefits of such a plan (developed over in-depth meetings and a comprehensive set of questionnaires) were far greater than the cost.
How an advisor brings value
As for how to determine whether an advisor brings value, to begin with, ask your advisor or prospective advisor for a Client Service Agreement that outlines the fees charged for each service. Every fee should come with a list of deliverables that will be provided. It is important that both you and your advisor know what is expected of each other. A frank and open discussion of objectives, expectations, and costs goes a long way to determining whether you are getting “value” for your money.
Here are the six basics that all financial advisors and planners should provide, at minimum.
- Financial planning – all about trust. Your advisor wants to get to know you – your life goals, values, investment goals, and financial objectives. Likewise, you want to get to know your advisor. It’s all about trust. Only then can a planner provide you with an action plan and specific recommendations to suit your needs.
- Investment services – active guidance. A competent planner should review your portfolio, create a detailed statement of investment objectives, define the optimal allocation of your investment assets, and provide a detailed strategy for the investment management team.
- Risk management – protecting what’s important. A planner with insurance training will analyze your current life, health, and disability protection, including all employment coverage and benefits, assess your true needs, and create a cost-effective plan.
- Tax planning – keeping what’s yours. A well-connected financial planner will have access to tax expertise to analyze your current family tax situation and recommend any major tax-planning opportunities you might have missed. This includes specialized tax-minimization planning for those who are business owner/managers, professionals, senior executives, and self-employed.
- Higher education – giving your kids a head start in life. A four-year university education is starting to edge up to the $100,000 mark. Do you really want to saddle your kids with that kind of debt on graduation? Of course not! A financial planner should be able to show you a variety of education savings plans and strategies, including RESPs and TFSAs.
- Estate planning – where there’s a will, there’s a way. Wills, trusts, registered accounts, and insurance policies are just some elements that go into creating an estate plan. A financial planner should have access to expert legal help to create a tax-efficient estate plan that most effectively carries out your wishes.
© 2015 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited. This article is for information only and is not intended as personal investment or financial advice.