What Does a Financial Planner Do?

Financial Advisors and Planners Handle More Than Investments

Nov 11, 2009

Financial planners do more than simply help their clients invest money. Other services include risk management, tax avoidance, estate planning, and more.

Financial planners have many titles and provide a variety of services to their clients. The planner may be known officially as a financial advisor, wealth manager, financial consultant, stock broker or even insurance agent. For the investing public, this variety of titles and specialties creates a confused soup of financial professions, nomenclatures and acronyms. Knowing who does what and which services can benefit the consumer is an important first step when assembling a personal financial planning strategy.

What is a Financial Planner?

Many financial professionals embrace a financial planning process, although their title is not “financial planner.” Others are, for all practical purposes, licensed salespeople who market and sell specific financial products, such as stocks, mutual funds or life insurance. One approach is not necessarily superior to another, but consumers should know with whom they are working and be aware of any potential conflicts of interest or hidden costs.

The industry standard for those professionals who hold themselves out as comprehensive financial planners is the CERTIFIED FINANCIAL PLANNER™ or CFP® marks owned and administered by the Certified Financial Planner Board of Standards, Inc. (the CFP Board). Certified Financial Planners are committed to competent and ethical behavior that places the needs of their clients ahead of their own, as required by the CFP Board’s Code of Ethics and Professional Responsibility.

All CFP professionals (and many non-CFP financial professionals) utilize a formal financial planning process to help clients assess where they are now financially and to help them determine future needs and actions necessary to help them achieve their goals. For most people, important financial goals include financial independence in retirement, college funding for children and grandchildren, starting a business, buying a home, and others.

The Financial Planning Process

The financial planning process embodies the concept of using a comprehensive approach to help individuals achieve their various life goals through proper management of personal finances. Many people make individual financial decisions as isolated events and fail to consider how these decisions can interact over time. The financial planning process identifies and considers all major financial decisions as a whole.

When working with a client, a competent financial planner applies all six steps of the financial planning process:

Who Needs a Financial Planner?

Although most people should have a financial plan, not everyone needs the services of a professional financial planner. For example, young adults who are just beginning their careers usually need only a basic plan that includes a savings account for emergency funds, a monthly budget or spending plan, regular contributions to a retirement account, and a modest amount of life insurance and disability income protection.

As one’s career progresses, lifestyle needs and personal finance elements become more complicated and entwined. Major life events, such as promotions, marriage, divorce, job changes, taxes, children, retirement, aging parents, and so forth all interact to compete for one’s time and financial resources. Emerging needs for various forms of risk management (insurance), retirement planning and investment advice, tax mitigation, estate planning, and wealth management create complex personal planning challenges.

Individuals who have an adequate level of expertise in all of these areas can successfully manage their own financial planning. A variety of books, magazines and software tools are available to assist with these disparate planning functions. Those who are without the requisite expertise, time or inclination to perform these tasks on their own will find the services of a professional financial planner to be invaluable.

A financial planner can assist with much more than investment needs. As a trusted advisor, the planner can interact with a client’s attorney, accountant, insurance agent, or other advisors to produce and manage a fully integrated financial plan. As an objective outsider, the planner can help reduce the influence of emotion from major financial decisions, helping clients see more clearly the impact of their decisions. Ultimately, the client benefits from a higher level of personal and financial freedom by handing off the details to one or more trusted financial professionals.

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The copyright of the article What Does a Financial Planner Do? in Portfolio Management is owned by Mark Dennis. Permission to republish What Does a Financial Planner Do? in print or online must be granted by the author in writing.