It is the main responsibility of the financial planner to help his client with planning that will yield the best results possible.
First of all see that you get an accredited planner. He/she must be able to show a professional qualification obtained through a recognized association. Almost all countries have accreditation associations for Financial planners nowadays.
A sincere professional person will not mind at all if you ask for proof of membership and or qualification.
The Financial planning profession, in many respects, suffer the same maladies that the legal profession suffered in the late 1800’s and early 1900’s, credibility. The biggest problem with many financial planners is that they have to be specialists in more than one area of expertise: A kind of super general practitioner.
When you accept the Financial planner’s advice you “buy” an idea from him and as a result invest your money through him/her.
Having said the above, let’s look at how a financial planner can assist you. We will also later look at how to avoid bad or inappropriate advice.
Before we look at how the financial planner can help you, you must make an honest evaluation of yourself. Not only your financial position at present, but how do you accept advice. Are you one of the 80% of the population who buys what they desire or one of the 20% who buys what they need? The aforementioned is the financial planner’s greatest problem to overcome. Many people buy what is popular or what makes them feel good (ego).
Are you able to honestly communicate your wishes and needs as well as dislikes to such a person? The single biggest problem the “buying” public has is the popular TV and radio programs that create a specific kind of perception. Many clients, who don’t have the kind of disposable income or capital available, will often insist on an investment plan that does not suit their financial profile. Financial planners are just human and also have staff to pay and families to feed and cars to maintain. They don’t have 26 hours a day to their disposal; they often budge to pressure by a client and sign the client up for the wrong plan or product. Instead of doing what they know is technically correct, they give the client what the client demands. This is seldom to the client’s advantage and neither to the advantage of the Financial planner; valuable repeat business is simply lost.
At the risk of being boring; and short of writing a complete manual, the steps that’s required must be looked at to give a reasonable summary of what is needed. They are, briefly, the following:
1 A proper survey of the client’s financial status
– His/her estate value
– Assets; fixed and liquid
– Liabilities; short term and long term
– Finances available at death or disability
2 An assessment of existing provision for retirement
– Under this heading can be grouped: all kinds of investments with
growth potential, a pension or retirement fund and more..
– Needs analyses are more academic in nature than of practical present value.
It still remains an exceedingly important exercise.
3 A risk profile analysis. Is the client conservative or aggressive (financially), what
is his/her income profile and more. A high risk, high growth-potential investment is
definitely not recommended for a rank conservative. Neither is a savvy investor going
accept a safe investment that does not have high growth potential.
Having done the aforementioned steps, the Financial planner will, at his/her next appointment, present the client with a written summary of his findings of the present situation as well as recommendations on what he/she thinks will fit the profile of the client.
If the client was honest in answering the Financial planner’s questions and accurately gave all relevant information needed, the Financial planner should be able to make a recommendation that suits the client’s profile and circumstances. Much depends, of course, on the client’s ability to understand and fund (“pay for”) the recommended plan.
Let us take a quick look at what the recommendations could contain and how the client can more or less do some math to determine whether the Financial planner is “in line”. It must be remembered that Financial planner’s use actuarial type of formulas on which they base “forecasts” (estimates). The client’s maths will, therefore, seldom be similar to that of the Financial planner. The client’s own calculations are just meant to prevent the Financial planner from being too enthusiastic with his assumptions.
It is nowadays generally accepted that the cheapest possible life cover should be taken so that more cash can be directed towards retirement provision. However, beware, the cheapest is not necessarily the cheapest. An anomaly?; not really. Compare things like guaranteed term (5 years, 10 years 15 years etc). What happens if for some reason your bank’s computer bounces your debit order? Get all possible information out of the Financial planner and make notes of it. You are not only planning your financial situation for specific occurrences, you will
want to educate yourself. Don’t waste the time of the Financial planner, but be businesslike in your assessment.
The chances are that if you waste his/her time you will not get the best value for your money; as I’ve stated previously, time is money and time is scarce.
Let’s do some maths: It is an accepted fact that to provide for a decent retirement a household has to save an average of 20% of after tax income for retirement. Some people are able to save more and some are not able to save anything, but that’s life. To calculate the needs for family maintenance at death of any of the joint breadwinners, many things must be taken into account. The least, however, should be to provide safe and reasonable shelter (house etc) and provision for supplemental income for the surviving spouse to maintain a reasonable living standard for her/himself and any children. Let us say that this supplemental income is estimated at $1000 per month.
If you are a math genius, you can do all kinds of intricate calculations, but let us rather look at very basic calculations. The required monthly income ads up to $12000 per year, plus a little extra for the festive season. Let’s say $13000: If a term annuity is purchased from an insurer for 10 years, a capital amount of about $99000 will be necessary. Term annuities are like sinking funds, their capital diminish over time and eventually die. Many people do not like this idea and have to provide more capital to invest so that the available capital does not diminish.
In the latter instance, the calculation of need becomes easier and most laymen can do a straightforward calculation of the annual income required at a given interest or annuity rate. The insurance companies and banks all employ actuaries who can do all kinds of complicated calculations to determine capital needs. These actuaries are also available to private brokers. The client should thus get the same or even better service from an independent financial adviser. The independent adviser is supposed to be unbiased as far as investment institutions are concerned, but are sometimes, for practical reasons, biased towards companies where he/she gets better service. The better service enables him/her, in turn, to serve the client better.
This article is, of necessity, cursory as one can hardly give a decent summary of such a complicated subject, as financial advice, in a short article.