Financial planning is a complex process. Just the components of a balanced financial plan are intimidating: budgeting, saving, retirement planning, investing, tax planning, purchasing insurance, and estate planning. As a result, many Americans turn to professional financial planners to help them plan their financial futures. There are pros and cons to using a financial planner, including the following:
Pros
Professional Expertise. When you hire a financial planner, one of the things you are paying for is expertise about a wide range of financial subjects. As a result she can advise you about all the key aspects of your financial plan, enabling you to make better financial decisions than you could on your own.
Big-Picture View. A financial planner can help you take a comprehensive view of all aspects of your financial situation. As a result, she can help you balance both near-term financial needs and long-term financial goals.
Time and Focus. Since a financial planner’s only job is to help her clients create and successfully complete their financial plans, she can spend more time analyzing and managing your financial assets than you can.
Special Situations. Even if you are competent when it comes to personal financial planning, a financial planner might be able to help you deal with unexpected changes that result in a more complex financial situation. For example, if you come into a very large sum of money or if a family member becomes disabled and you need to plan for his long-term care when you are gone, a financial planner’s professional help could be invaluable.
Cons
Expensive. Financial planners can be expensive, so unless you have substantial income or assets, the cost of hiring a financial planner could be prohibitive.
Complicated Fee Structures. There are a number of ways that a financial planner may charge for her services. Her fee could be a percent of the assets managed, a flat fee, an hourly fee, a commission on financial products sold, or some combination of these methods. As a result, it may be difficult for you to estimate how much hiring a financial planner will cost.
Risky. There is no guarantee that the investments recommended by a financial planner will perform as expected or that you will make money based on those recommendations.
Not Always Objective. There also is no guarantee that the recommendations that a financial planner makes will be the best ones for you. Be especially wary if she only recommends a few financial products on which she receives a commission or other remuneration.
If you are considering hiring a financial planner, do plenty of homework first. Before you select a financial planner, get recommendations from others who have used financial planners; check credentials, references, and regulatory records thoroughly; and arrange for an interview (which should be free).
Sources:
www.mooladays.com, Pros and Cons of a Financial Planner
www.sec.gov, Investment Advisers: What You Need to Know before Choosing One
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