Do You Need a Financial Planner?

When you have an investment talk show on the radio, you get emails like this one on a pretty regular basis:

 

Dear Ms. Snider-

 

I have heard your advertisements on KRLD for many months and FINALLY had a chance to look at your web site, briefly.

 

My husband and I are in our 50's. Neither one of us has a financial background and this is a second marriage for both of us. We have only been married for five years. It is PAST time for us to really start financial planning for retirement and thus the reason that your ads have intrigued me.

 

[...] I am not sure where to start. We desperately need to get a retirement plan going, and, we each have some investments (401K, husband & IRA, wife) with some money but we need to get much more aggressive in our plan, immediately.

 

I think we need a financial planner (or maybe not) to help us that we can trust and believe in, and where do we find such a person????

 

Many of you may be thinking about consulting with a financial planner. After all, this market is very confusing. The news tells you the Dow is hitting all-time highs. So, how come your portfolio is still down from its 2001 highs? Is this the top or is the market going higher? How do I provide for my family? How am I ever going to retire? Do I have enough saved to live on? Or maybe you are already working with a planner.

 

Do you really need a financial planner?

 

Do you really need a financial planner? For most people, I believe the answer is no! Very few people actually need a financial planner because most of you don't have enough money to make anything about your financial plan so complicated that it requires a planner.

 

What most people need instead are education and discipline - and a financial advisor can't and won't give you either one.

 

I have no problem with the financially educated person who goes to a planner as a partner in the process, who is educated enough to contribute to the process, express what he or she wants to achieve specifically, and already has a pretty good idea of how to get there but simply wants a different perspective in case he or she hasn't thought of something.

 

Are you substituting advice for education?

 

Where I think people are making a tragic mistake is in substituting an advisor for an education. The thinking goes, "I don't have to really understand this stuff. That is what I pay the advisor for."

 

Let me tell you how to know if there is a problem. If you just automatically rubber stamp what your advisor proposes, then you have a problem. If you can't have a meaningful conversation with him or her, on an equal footing, about the different investments, how they contribute to your objectives, their pros and cons, costs and implications, then you're not investing, you're betting - you're betting that your advisor knows what he or she is doing and that they will put your interests before their own. Now how good a bet do you think that is?

 

You are the only one that can fix your mess!

 

Here is the other thing I see. Half the people who write me asking for advice on a financial planner write because they are in trouble. They have credit card debt up to their eye balls and they want someone to figure out a way to get them out - preferably a painless way that they don't have to give up anything. Or they didn't save enough for retirement and now with ten years to go, they are looking for a professional, who surely through their infinite wisdom and knowledge can make up for the last twenty years by pulling a rabbit out of a hat.

 

Well, I have bad news for you. Knowledge alone won't do it. You also have to have discipline and it is a lack of discipline that got us all into these scrapes in the first place.

 

Believe me, I know. I have been in every financial mess known to man. When I was younger, (and I might add - dumber and more impulsive), I had debt up to my eyeballs. There were long periods in my life where I had zero savings even though I made a nice income. Retirement planning? Ha! Forget about it!

 

So I know of what I speak.

 

In fact, many years ago, I sought out a CPA in hopes that she could tell me how to bring my expenses in line with my income. When she told me I should start by selling my polo ponies, I fired her! That wasn't what I wanted to hear. I wanted magic - not sacrifice!

 

Wealth requires sound character

 

In the end, the only way I got out of debt, and cleaned up my credit report and began to put away money to invest, was I had to learn discipline. You can know more about investing than anyone else in the whole wide world but without discipline it is useless, because it takes discipline to resolve your former sins - not a financial advisor - and it takes discipline to save, and it takes savings to seed real wealth.

 

It is not an exaggeration to say that to build financial security requires you to look deep inside yourself and find the discipline of character to exercise sound judgment, moderation, and restraint. Without those character traits, you will never be financially secure.

 

It isn't just saving that takes discipline

 

By the way, discipline isn't just necessary for fixing past sins, or saving up enough so you can invest and live well happily ever after. Discipline is the single hardest part of the investing process.

 

It takes discipline to stay the course, to not get impatient, to not sell every time you get fearful and to not change horses in mid stream or buy something you shouldn't because you are feeling greed and avarice. Discipline is an integral part of investing and no financial planner can create that in you.

 

While I will concede there are some, (maybe even many), good and honest financial planners out there, I cringe when someone wants to go visit one, for three reasons:

 

1. As I have already discussed, people often seek out planners for the wrong reasons. Often we are looking for something that needs to be found within ourselves, not externally. 2. Most people don't have situations complex enough to require a financial advisor, in which case, you are just wasting money. With a little education, you should be able to figure out what you need and then go to individual providers such as an insurance broker or attorney to get the pieces you can't do yourself. 3. Most of them will sell you crap products you don't need.

 

Wolves in sheep's clothing

 

Most financial advisors cloak themselves in respectability by calling themselves financial planners or financial advisors when in fact, they are simply commissioned salespeople, who are paid to sell the mutual fund, stock, annuity, or insurance policy their company wants them to sell. If you go to an advisor with no prior knowledge or understanding, you are then unable to distinguish between a good investment and a good sales pitch - and let me tell you the good sales pitches outnumber the good investments about a hundred to one. Most of what gets sold is garbage, but you end up buying it because you don't know the difference.

 

If you doubt me on this, you need only look at the companies involved in recent regulatory investigations, prosecutions and settlements. You would be hard-pressed to find a large financial services company that has not been implicated in the fleecing of investors. They include, but are not limited to: Merrill Lynch, Morgan Stanley, Bear Stearns, CS First Boston, Goldman Sachs, Lehman, JP Morgan, Citigroup, Solomon Smith Barney, UBS Warburg, Charles Schwab, TD Waterhouse, Edward Jones, Piper Jaffray, Putnam, Strong, Scudder, Janus, Alliance Federated, Franklin Templeton, INVESCO, PIMCO, Bank of America, Bank One, Waddell & Reed, Prudential, Wachovia, Prudential ... I could keep going because this is just a partial list. You get the point?

 

Fee only is the only way to go

 

If you really do think you need a planner, then by all means, make sure that you only work with fee-only financial planners. A fee only financial planner is one who gets paid by the hour, rather than by accepting commissions on the products they sell you. That is the only way you can know that there is no conflict of interest.

 

You may hear some people use the term fee-based. Don't be fooled. Fee based and fee only are not the same thing. Fee-based take your money and the commissions! Make sure your planner is fee only.

One way to find a fee only planner is through the National Association of Personal Financial Advisors (NAPFA). For a planner to be a member of NAPFA, they must be fee-only. They have a search tool on their site for locating fee only planners in your area. Their web site address is feeonly.org.

 

So if you are working with an advisor now, or thinking about working with one in the near future, my advice would be to stop for a minute and ask yourself, "Why?" What is your reason for seeking out help? If it is because you don't know enough or because you hope someone else will instill the discipline to get you out of a mess, you might want to re-think your situation.

 

Best-selling author and financial journalist Jane Bryant Quinn puts it this way in Making the Most of Your Money:

 

"Most of us don't need professional planners. We don't even need a full-scale plan. Conservative money management isn't hard. To be your own guru, you need only a list of objectives, a few simple financial products, realistic investment expectations, a time frame that gives your investments time to work out, and a well-tempered humbug detector, to keep you for falling for rascally sales pitches."

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk including possible loss of principal.