Couple with a financial advisor

How A Certified Financial Planner Can Help Improve Your Financial Wellbeing

One of the hardest things about being a Certified Financial Planner™ Professional (CFP®) is explaining what we are all about. After all, the term “financial planner” is vague. It is easier to start by saying what we are not: stockbrokers! Still, when we meet a prospective client for the first time, the first questions are often investment related. For example:

  • How did your portfolios do last year?
  • How do you perform compared to your benchmark?
  • What is your investment philosophy?

These questions are important, but from the perspective of a financial planner, they are off target. Taken out of the context of life goals, risk tolerance, and unique personal circumstances, these queries are insufficient. They are only a small part of a much larger picture. So why do people see us primarily as investment managers?

One answer can be found in our history as a profession. Financial planners trace their genesis to a meeting called by Loren Dunton in Chicago in December 1969. At that meeting 13 financial industry leaders discussed the creation of a new profession dealing with financial counseling. Prior to this, financial professionals mostly sold financial products and were paid commissions—proto planners were effectively salespeople. Even though many planners no longer sell products, that impression has remained in the psyche of many consumers, and as is often the case for first impressions, has stuck.

Today, CFPs® choose the investments that are in the client’s best interests, and we provide counsel in many more areas, and in more depth, than when the profession was first taking flight over 40 years ago. Many of us spend significant time on issues such as:

  • Taxes
  • Insurance and Risk Management
  • Estate Planning
  • Budgeting
  • Retirement

While some financial planner professionals still charge commissions, and others charge by the hour, most of us tie our fees to the investment portfolios under our care. This link reinforces the idea that the value we bring to the table is solely related to investment management. This is misleading.

So, what do we bring to the table? Where is the value we provide as wealth managers? Bob Seawright put it well when he said that financial planning is about:

  • Increasing wealth
  • Protecting wealth, and
  • Smoothing consumption

The first point, “Increasing wealth”, is not solely about investment performance. We try to help clients increase wealth in many ways not directly related to investment returns, for example, by:

  • Devising tax efficient strategies that maximize savings that otherwise would be lost
  • Choosing the best social security withdrawal strategy
  • Efficiently converting taxable assets to tax deferred or non-taxable assets
  • Recommending the best immigration status when you move abroad
  • Budgeting

Referring to Seawright’s second point, we are also wealth protectors. It does a client no good to amass a million dollars only to lose it in a legal debacle, or a natural disaster. We devise strategies to protect assets from creditors, predators, unnecessary taxation, unforeseen events, and even the clients themselves.

Of the three areas mentioned by Mr. Seawright, the third one, “smoothing consumption,” is more compelling because it speaks to influencing behavior. Clients often think the only thing that matters for retirement is the value of their portfolio. In fact, a client’s spending habits are as important as their level of assets. If the portfolio value is not adequate to meet client’s goals, the client may need to change their spending behavior. The tasks of a financial planner are in some ways like those of a doctor, except that we deal in the science and art of financial health. We too develop deep and lasting relationships with our clients and often are able to influence decisions and hopefully assist in creating habits that will have a positive financial impact on a client’s quality of life.

Mitch Anthony has tried to define the value proposition of financial planners in terms of ROL or “return on life,” and as part of his process he has identified six key value propositions that planners provide:

  • Organization
  • Accountability
  • Proactivity
  • Education
  • Objectivity
  • Partnership

Planning for people or assets moving across international borders is particularly complex and fraught with challenges that can increase risk of financial loss. For those who want to lead the wonderful life of an expat, financial planning is critical for a successful experience.

So how do all these other matters—technical and qualitative—relate back to investments? Multiple independent studies have shown that working with a financial planner has a positive correlation to improved investment returns!  Financial planners can help people make better financial decisions, which in turn can result in an improved financial standing.

I am not enamored with the term Certified Financial Planner™ Professional, or CFP®. I kind of like the term “Super Dream Protector.” I wonder if it is trademarked?

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