By Chris Wrenn Financial services professionals go by a lot of different titles these days. Whether you work with an advisor, or a planner, or simply a representative, the basic function is the same. For the sake of uniformity, I will refer to these professionals as “financial planners” for the rest of this piece. In our do-it-yourself society, many people forgo working with a professional in favor of handling the responsibility themselves. While some people can be successful doing this, I find that a well-trained and credentialed financial planner can bring a lot of value, especially in today’s landscape. Note that I worded that last sentence implicitly to exclude the majority of so-called financial gurus that put forth revolutionary strategies such as “save more” and “debt is bad.” Creating and implementing a financial plan is a little more complicated than that.
If you had to condense down a financial planner’s job description into one sentence, it would be the following: Financial planners help their clients put money in smart places in order to achieve short-term, intermediate, and long-term goals. This is a fairly straightforward goal that is complicated by the ever-changing landscape involving taxes and other fiscal policies. Monetary policy and the low-interest environment of recent times have also had a dramatic impact on where to put “safe dollars.” A good financial planner stays on top of these changes. The average working professional has little time to dedicate towards studying how these changes can affect their overall strategy. I’m not talking about actively managing personal funds in a brokerage account which has become somewhat of a hobby for enthusiasts. I’m talking about choosing the buckets in which you save to ensure that from a tax efficiency and liquidity standpoint you are being as effective as possible. A financial planner is also able to look at future value of money to determine how much should be saved today and in what vehicles. Doctors, lawyers, and other professionals certainly have the intellectual capacity to handle these responsibilities themselves. However, they simply don’t have the time or the training. This is where a skilled financial professional adds value.
A good financial planner should also be able to address a client’s risk needs. Insurance is sometimes thought of as an evil, but it is a necessary evil nonetheless. Following the financial markets can be exciting, but I doubt that many people find analyzing cash value insurance portfolios and reading up on disability definitions to be very exciting. Be that as it may, no investment philosophy can remove all the risks that life brings. You should be no less diligent in designing your insurance programs than you are in constructed your equities portfolio. For instance, look at a 35 year-old banker who makes $100,000 annually and has a 401(K) balance of $250,000. This person will earn approximately $3 million over their working years (assuming no increases in pay). Their greatest asset is their ability to earn future monies. Why not protect this asset through effective life and disability insurance programs? A solid financial planner can help you implement these programs as part of your overall strategy. Even as you reach your golden years, insurance is a valuable piece of any sound estate-planning strategy. A lot of money can be wasted over your lifetime if you are not efficient in handling your risk management needs. When selecting insurance, it’s a good idea to review your options to ensure that you are on board with the plan.
The last area I’ll hit on is a little harder to quantify. A good financial planner is like a quarterback. He or she is a leader and a coach. A lot of people have at least a basic understanding of certain personal finance concepts (pay yourself first, use debt wisely, etc.). A good financial planner has knowledge in all areas of personal finance. I engage my clients on everything from Roth IRAs to homeowner’s and car insurance. This allows me to ensure that every single dollar is being used efficiently because I know how hard it is to save money. Most people have an idea of what their financial goals are. However, only a small percentage of people actually have a written financial plan. Sounds small but if you don’t know where you are going, how are you ever going to get there? A top-notch financial planner helps you develop that game plan. Then they help you execute by providing motivation and regular updates on your progress. Most people who use personal trainers do so not because they don’t know how to exercise, but because they need motivation and coaching to ensure they stay the course. The job of a financial planner is as much psychological as it is analytical.
I will write more in the future about what goes in to selecting a financial services professional to be that quarterback. But for now, it’s important to understand that a qualified financial planner can bring tremendous value to anyone. From bank executives, to prop traders, to school teachers, anyone can benefit from the expertise that a well-trained (preferably well-credentialed) professional can provide.
As an aside, I’d like to thank Andrew Nyquist and the entire See It Market family for the opportunity to share and learn on an unbelievable platform. I enjoy sharing ideas and growing in a community of like-minded people. I’ll be writing mainly on topics involving personal finance, but don’t be surprised if I sneak in a piece on the overall economy and maybe even a chart or two. Thank you for taking the time to read this article.
About Chris Wrenn: Chris graduated with a degree in finance from Lenoir-Rhyne University and is currently working as a financial advisor in Charlotte, North Carolina. His practice takes a holistic planning approach, balancing prudent risk management programs with varied wealth accumulation strategies. He is currently pursuing the Charted Life Underwriter designation. Beginning in 2013, Chris will also be pursuing his master’s degree in economics with a focus in quantitative finance. A novice technician, Chris enjoys constructing and analyzing charts in his free time, with the goal of becoming an active trader. He also enjoys traveling, sports of all types, and following political commentary.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.