I’ve written before about all the different areas of your life that a financial planner can help with, but how can you judge the value of what you’re getting? Almost anyone has experienced situations where they could use a second opinion, or advice on a particular topic. Many financial planners even have their own financial planner to help them think about things differently or manage difficult business decisions. Some benefits are easy to see, like finding an extra tax deduction you could take advantage of during a yearly meeting to review tax planning. Others are more emotional or behavioral and harder to put a price tag on, such as remaining calm during market fluctuations and helping clients stick to their plan. Everyone has a unique situation and different goals to pursue, so how can you determine if working with a financial planner on an ongoing basis is right for you?
My brain always goes straight to the facts, so the first thing I think about whenever I make a significant purchase or investment is comparing the price I have to pay against the tangible value I expect to receive in the future. For financial planning this would mean looking at the fees you would pay an advisor, and then comparing that to the quantifiable dollar benefits the planner provides. In many cases a good planner can find enough areas to optimize and save money that it can more than cover the yearly fee a client pays. Depending on your perspective, all the other benefits a financial planner can provide are a bonus on top of the monetary savings that can be found. What are some of the areas where financial planners commonly find ways to save clients money?
- Tax Planning – This is one area where almost anyone can make changes to provide tax savings now, or in the future. Reviewing employee benefits to make sure you are taking advantage of everything your company has to offer is very important for tax reasons, as well as coordinating them with other tax advantaged accounts outside of the company. A yearly review of taxes can help identify any additional credits or deductions you could be thinking about, whether it’s during tax filing season or not. The tax area also crosses over heavily with investing when we think about different ways to manage the tax implications of investment decisions that are made over time.
- Investment Management – When we think about fees, this is an area where I am very conscious about keeping things as low cost as possible and making sure the value matches what is being paid. The asset management service I provide is meant to be very affordable, and only uses low fee funds to create portfolios that are tailored to each client. It also has features that can produce further tax savings when we get into taxable accounts through things like tax loss harvesting and coordinating with IRAs to hold different assets in the account types where they are most beneficial.
- Estate Tax – This mainly applies to the higher net worth individuals, and has also been somewhat mitigated by the increasing thresholds that are subject to estate tax, but it’s good to keep an eye on since laws can always change in the future. Even if you aren’t on the higher end of the net worth spectrum having a good estate plan in place can save a lot of money for beneficiaries by reducing the costs of probate and settling the estate.
- Retirement Planning – Once you reach retirement age there are many strategies that can be used to save money as you start to use your assets to provide your income. People always think about what age to take Social Security, and how to plan for Medicare, but there are also major savings to be found by making sure withdrawals from accounts are coordinated and planned for.
- Delegation and Time Savings – Is your time worth money? If so, maybe it makes sense to have someone assisting you with your financial life so you can spend time on other things you’d rather be doing. For me personally, I’m capable of doing lawn care, but that doesn’t mean I wouldn’t rather have someone else do it for me!
When we talk about risk management in regard to finances, we’re usually thinking about insurance. Even though I don’t sell insurance, it is absolutely something I review with clients and provide advice and recommendations to make sure they are properly covered. Managing against worst case scenarios in a cost-effective manner is extremely important to any plan. Risk management also comes up when thinking about investments. I balance a client’s risk tolerance with their risk capacity to create a well-diversified portfolio that aligns with their goals and time horizons. It’s important to revisit this at least yearly to make sure nothing has changed and to rebalance the portfolio when necessary to make sure it stays on track.
These things are hard to quantify and have different meaning to different people. Being confident in an estate plan to ensure assets go to their proper beneficiaries, figuring out when you can retire, protecting against disastrous financial losses and freeing up your personal time. These are all things planners assist with that can provide emotional security or comfort from your financial life.
Behavioral finance is its own huge topic to consider, but planners provide assistance here by partnering with clients to ensure they don’t make big mistakes. We all know it’s not a good idea to panic when markets drop and sell assets, but sometimes you might need some reassurance or guidance on what you should do. Budgeting and planning retirement spending also has a major behavioral component that some people need to work through as they’re trying to balance their finances. Just having someone to talk to and bounce ideas off can provide real benefits when you work through tough financial situations.
In the end there still isn’t an easy way to say my advisor gives me $___ of benefit per year, but hopefully when you look at the full picture like this it’s easy to see all the different ways a planner can make a positive impact. The chart below summarizes all the different categories and ways we can look at the value I’ve talked about, so you can see there’s a lot to think about. If you would like to see how this might fit with your own personal situation, send me a message (firstname.lastname@example.org) or schedule a complimentary intro meeting with me here.