Signs You Need a Financial Plan, and How to Select Your Planner

If your car starts making a strange noise, would you try to fix it by watching a YouTube video? If you began experiencing harsh chest pain, would you try to diagnose your problem through WebMD and get your own medicine? In both these circumstances, the obvious answer is to go to either a mechanic or a doctor. Getting professional help for something that you do not have expertise in is part of life. Why then, do most people avoid getting help for one of the most important aspects of their lives (their finances)?

The most common misconception about financial planning is that the only people who need a planner are those who have more money than they can spend. While it is true that with more money comes additional planning techniques, there are many circumstances which require a financial planner. Below are several circumstances that would warrant assistance.

1. You are nearing retirement.

Retirement is a monumental decision that will affect the rest of your life. If you retire too soon or too late, you could find yourself unable to enjoy the full benefits of retirement. One common misstep that we often see is that people will come to a financial planner after they have already retired and made all their big decisions. While a financial advisor can help someone who recently retired, having a professional on your side before you take the plunge can further help set you up for success, whether it be through income tax management, investment choices, or retirement timing decisions.

2. You have company related benefits

Many businesses offer different incentives to their employees outside of regular salary and bonuses. Often, these take place in the form of insurance benefits, profit sharing plans, or company stock. Unfortunately, employees often will mismanage some of these benefits available to them, or worse yet will entirely miss out on these benefits due to not knowing they are available to them. Mismanagement can show in many forms, including selecting an insurance policy that is not the right fit, overweighting your investments by holding too little or too much company stock, or missing out on company match or other free benefits.

3. You make good money, but can’t seem to make ends meet

This one may seem a little contradictory, but when you are making good money and have an annual household income of $175,000 or more, it may make sense to see if a financial planner can come alongside to see where you are being inefficient. Although advisors have an arsenal of tools to provide value to their clients, two irreplaceable tools are the budget and the balance sheet. Having someone consistently reviewing these two schedules with you can help open additional planning opportunities. While some money issues may be as simple as keeping certain budget items in check, others may require further work from an advisor, such as properly caring for your tax burden or retirement savings.

How to Select Your Advisor

Going back to the original example, maybe you recognize that you need help with your finances, but you also find going to an advisor is equivalent—or worse—than a trip to the dentist or visiting a used care salesman. Unfortunately, the title of “financial advisor” has been tainted by too many individuals looking to sell a less-than-beneficial product that leaves you riddled with hidden fees and lengthy lock up times.

Regulations and certifications have helped to begin cleaning up the industry from those bad stereotypes, as long as you know what to look for in an advisor. An easy way to spot an individual is with their credentials. The industry standard for financial planning is the Certified Financial Planner. The individual that passes the exam and can use the marks has shown expertise in the fields of general financial planning, tax planning, insurance, estate, investing, and taxes.

Another important aspect to consider is your full financial plan. Your full financial plan consists of everything from your stocks and bonds, your tax liability, and even your goals and dreams. At Monotelo, this is what we call your Durable Cohesive Plan of Action. Many advisors are concerned with just one aspect of your full financial plan. For example, consider the following:

Your full financial plan, or Durable Cohesive Action Plan, can be broken up into 4 distinct pieces.

The first is your asset allocation. This is the piece that most people are often hung up on. This is where you encounter the used-car-salesman advisor who tells you to buy this or that, without telling you the fee you’ll pay for said investment. While those individuals are a detriment to the industry, overall, we would estimate 85% of advisors are able to do a good job of handling this level one need for their clients. Often, this will consist of clients filling out a survey, which will determine their risk comfort level. The client comfort level will determine the correct allocation for their assets, usually some derivation of a 60% stocks, 40% Bonds model.

Level one advisors deal with risk, but it is primarily market driven risks. This means they are covering you in case interest rates rise, a recession occurs, or something similar to affect the stock and bond markets.

The second level of your full financial plan is called risk management. These are risks that are not market driven. Examples of this type of risk are loss of job, needing to take care of elderly parents or adult children on hard times, or even extremes such as death or disability. When it comes to this level of risk, we say that roughly 50% of firms do a good job of preparing you for non-market risk. The advisors that most often prepare you for this risk best is insurance salesman. This is because unknown events are most often solved through some type of insurance policy (health, disability, and life insurance).

As we move up the triangle, we get less efficient. The third level of the triangle refers to tax expertise and asset productivity. Often, individuals will receive help in this level through a CPA that prepares their tax return. The problem with this method is that when a CPA receives your taxes at the end of the year, assuming they have a thorough understanding of the tax code, there is not anything they can proactively do to save you on taxes. To be truly efficient in this area, you need someone who is telling you which movements you should make before the end of each year, as well as effectively balancing where you hold your investments. Too often, investors are too concerned about what they are invested in. As we described above, the problem with this method is that 85% of all advisors can property take care of what you are invested in. In our experience, only 15% of advisors can effectively manage levels 1, 2, and 3 well.

The final level, level 4, is what makes up your Durable Cohesive Plan of Action. This is taking all three of the above aspects of planning (asset allocation, risk management, and tax expertise and asset productivity) and combining them into one streamlined plan that not only is the best plan, but is also the right plan for you.

Ultimately, making sure that someone is caring for your entire financial plan is the most efficient use of both your time and your money. With the information in this article, you should have the knowledge to know not just when to seek help with your financial plan, but also who should be guiding you along in your plan.

This article is a general communication being provided for informational and educational purposes only and is not meant to be taken as tax advice, investment advice or a recommendation for any specific investment product or strategy. The information contained herein does not take your financial situation, investment objective or risk tolerance into consideration. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting or tax advice from their own counsel. Any examples are hypothetical and for illustration purposes only. All investments involve risk and can lose value, the market value and income from investments may fluctuate in amounts greater than the market. All information discussed herein is current only as of the date of publication and is subject to change at any time without notice. Forecasts may not be realized due to a multitude of factors, including but not limited to, changes in economic conditions, corporate profitability, geopolitical conditions, inflation or US tax policy. This material has been obtained from sources believed to be reliable, but its accuracy, completeness and interpretation cannot be guaranteed.

LEGAL, INVESTMENT AND TAX NOTICE. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice.

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