Financial Planning Jargon Series – What is a Financial Planner, Anyway?

Advice quote

Ladies and gentleman, watch carefully as I perform a magic trick.  Before your very eyes, I will unmask for you the confusing and veiled language used in the financial services industry.  These words make sense to a very few in who work in this business.

This can lead to unsuspecting purchases of financial products that you don’t understand, are expensive, or are inappropriate for your needs.

In order to prevent a common side effect of reading financial blogs called Eyes-Glazeth-Over-From-Boredom, I will limit the unveiling of jargon to 1-2 terms per blog.

First up, what is a financial planner, anyway? Well, that is a matter of opinion, but here’s what I think.  Many people in financial services bill themselves as financial planners, they are not.  For example:

  • If a person sells only insurance products for any financial need, they are not a financial planner. That would be an insurance salesman.  Now, insurance is a VERY important part of an overall financial plan, but it’s not the whole enchilada.
  • If a person only talks to you about investment products, they may not be a financial planner.  They may be a salesperson of mutual funds or other products.

A financial planner is a person who is willing to listen to your life goals, help you prioritize them and then run the numbers to make a plan to reach those goals.  The plan will often include an annual retirement savings goal, annual college savings goals, ideas on getting out of debt, advice on whether or not you should buy that second home in Bermuda, or help clarifying whatever money questions you have.  Notice, no investment products were mentioned here.

Now, a financial plan won’t work without investment products, so you need advice on buying those, too.  But, if the conversation starts and ends with what investments you will be buying, you may not be dealing with a true financial planner.

Money out the Wazoo

Keep in mind that a person who is doing a plan for you and not selling you investment products still needs to get paid.  That’s where you might find yourself looking for a fee-only or fee- based financial planner.  Plan to write a check for this advice just as you would pay a CPA to do your taxes or an attorney to draft a will.

Some financial planners do sell products for commissions and will include the planning in those commissions that you pay.  That’s fine, just make sure you understand the costs of your investments and what advice you will be getting for those fees.

Next week, making investment terminology understandable.

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