Unlike most professions, the Financial Planning Profession can identify a precise founding in December 1969 when a group of financial services executives met to discuss possibilities for delivering financial advice. Today the profession has the Certified Financial Planner (CFP) Board and the Financial Planning Association (FPA), and extends into Wealth Management.
So, what’s the big deal and why should one care? Well, prior to this gathering, individuals would have to go to three or four different advisors and that advice was myopic…tax focused, or insurance focused or investment focused. Today, individuals, families and businesses can receive from one advisor financial statement analysis, tax planning, time value of money, portfolio optimization and risk management techniques. That said, I still see that many folks are still getting their financial services from many entities, as was the case 50 years ago. I believe the big deal here is that there is no integrated solution, and many inefficiencies could, and mostly likely will, exist.
Financial planning and wealth management is a process and not a product. Fifty years ago, this was not the dominant feature on the financial landscape. The actual process involves collection of a client’s financial information; discussion of their goals and concerns; observations of their current status relative to their goals and concerns; recommendations and options that seek to improve their financial status, again relative to their goal and concerns; implementation of any recommendations the client chooses, in the most cost effective manner available at the time; and, once implemented, periodic review and analysis. A true process, which in most cases, involves coordination with their attorney and accountant. If they do not have an attorney or accountant, recommendations may be made as well.
Much is written and advertised about compensation. Planners and wealth managers are compensated in three ways. 1) Fees: based on the value of their assets and/or income, or by an hourly planning project rate. 2) Fees and commission: fees, as stated above, additionally there may well be products the client chooses that the planner may earn a commission. 3) Commissions: some financial planners are compensated solely on the basis of insurance and or investment products they sell as part of a financial plan.
I believe the bottom line in selecting your financial planner and wealth manager is their level of competence and ability to do the job you require-not their method of compensation.
Happy Anniversary to the Financial Planning Profession.
The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice.