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The financial planning business is only about 40 years old. Before there were financial planners, advice came from many different sources: insurance agents, stockbrokers, trust companies, accountants, lawyers and banks.
If you seek financial planning advice from someone in any of these professions, you’re going to pay for the service, as you would expect. Those who say they’ll do your financial planning for free sell financial products and earn commissions.
There is still some confusion over what financial planning is exactly. It is is not working with a broker who tests your risk tolerance and designs a portfolio to suit your needs. It is also not working with an insurance agent who figures out how much life, disability or long-term care insurance that you need and then sells the appropriate policies.
Financial planning should holistically integrate the areas of income and expense management, risk management, tax planning, retirement planning and estate planning. It is helping you get your financial house in order and keep it in order, so that whatever happens in the world, you are aware of how your goals are affected and can take the appropriate action to keep you on track.
This is very different from simple product sales.
Part of the problem is that the public doesn’t think this kind of holistic advice is necessary. Many people think they can coordinate the advice of specialists themselves. They think they can adequately evaluate the advice received from their insurance agent, accountant, broker and lawyer. And when the advice from one or more of their experts’ conflicts, the decision is left in their hands or influenced by the most persuasive of their advisers.
Many investors will never learn what could have been done to get their financial house in order. For the most part, that will be fine until an issue arises that wasn’t properly addressed. It may be a lawsuit, health issues, poor beneficiary elections, a lousy will or a host of other potential problems.
So the next time someone tells you they’ll do your financial planning for free, do yourself a favor before you accept and insist that the plan include all financial matters that can aid or derail your dreams and vision for the future.