So, you hit your mid-40s and realize your finances have been planning your life rather than you planning them. Knowing it’s not too late to make some strategic moves, you’ve hired a financial planner to get your monetary house in order.
As a financial planner, here are five questions I suggest you ask to ensure your planner understands your financial goals and expectations.
What’s Your Cut?
An important first question for any financial planner: how, and possibly how much, will he get paid? In today’s market, compensation plans vary and include hourly rates, annual retainers, and commission-based fees. How you want to pay for services will highly depend on the types of services you need. If you feel you have the savvy to do your own investing once you have a game plan, you may want to pay for advice rather than products. Consider the impact of fees on your overall monetary position and how commissions may create a conflict of interest (i.e. encouraging churning).
Can I Meet My Goals?
For any existing or future financial planner, a most important question to ask is: Am I on track to meet my financial goals? Understanding how much you will need in retirement and the various methods of getting to that goal is the first step in the journey. Whether it be strategies to earn more, a strategy to spend less, or some combination, it is important that your financial planner gets you to your goal in a way that best suits your lifestyle and needs.
How do I Protect my Estate?
In addition to a plan for your future, a financial planner should guide your steps in protecting any remaining assets after your death. For example, a surviving spouse may want to put a child’s name on an Individual Retirement Account (IRA) to make them a co-owner rather than a beneficiary. Depositing assets in a trust account may curtail expensive administrative costs. Again, make your ultimate desires known so the planner can make the appropriate suggestions.
What About Debt Repayment?
There are many methods to paying off debt, but, just like other financial planning matters, no one strategy fits every scenario. Debt repayment, however, is as important a component of adequate financial planning as savings and investment. Any good financial planner should address debt as part of a comprehensive evaluation.
Where is my Money Going?
Location is as important as allocation. Question your financial advisor as to where your money is going to go: tax advantaged accounts, investment accounts, local banks, internet resources, insurance products. There are many ways to deposit your money, and location should be tied to your individual situation and, again, needs and goals. High rate accounts may lose their advantage if early withdrawal penalties are incurred. Paying taxes on current dividends in some cases may be more advantageous than deferring those earnings until a later date. Know the risks and rewards of each account.
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