In this article we’ll go over a common question many people have: “What does a Financial Planner do?” We’ll talk about everything from CFP’s (certified financial planners) to the cost of a Financial Planner!
What Does a Financial Planner Do (And How Much Do They Cost)
What is a Financial Advisor/Planner?
A financial advisor refers to someone who provides financial advice and services to their clients. They help their clients manage their money, investments, spending, and anything financial related. The term financial advisor is a loose term, under which many specifications fall under. An advisor may specialize in many unique things, such as tax planning, investment management, debt repayment, estate planning, retirement planning, insurance.
A financial advisor’s job is to provide a sense of financial security and comfort to the client. In order to create an investment portfolio for a client, the financial advisor has to be able to take into account a range of information, including regulatory changes, economic trends, and the client’s comfort and situation with risky decisions. As their entire reputation and career stands behind their services, a financial planner has to be extremely careful with the success of the investments or plans they offer.
Overall, a financial planner manages and advises people how to manage their money with the intent of profit or attaining a savings goal. Whether you’re looking to guarantee a smooth retirement or save up for your child’s college, a financial planner is the key.
What is a Certified Financial planner
In the world of financial planning, there are a number of distinctive certifications that enhance and prove the worth of any given financial planner. These certifications show the skill and adeptness of the financial planner to both the customer and to companies. A CFP (Certified Financial Planner) certificate is awarded to financial planners who pass a fairly rigorous set of requirements. Obtaining a CFP requires you to meet 4 different criteria, listed below:
- Anyone attempting to obtain a CFP needs to verify they hold a Bachelor’s or higher degree from an accredited university. You must also have completed a list of specific financial planning courses inside of university. The former requirement is typically waived if the applicant holds a higher business degree like an MBA or certain financial designations such as CFA or CPA.
- All applicants need to pass the CFP Exam, consisting of 170 multiple choice questions that encompass a wide variety of topics. The exam includes things like financial planning principles, education planning, investments, tax planning, retirement planning, and estate planning. The test is fairly difficult with most applicants studying 10-12 hours per week 3 months before the test.
- To obtain a CFP you need a significant amount of work experience. All candidates must prove that they have 3 years ( 6000 hours ) of full time experience or 2 years ( 4000 hours) of apprenticeship experience.
- The final requirement of obtaining a CFP is that you must adhere to the CFP Board’s standards of professional conduct. This requires you to regularly disclose information about involvement in a wide variety of areas.
Becoming a CFP is not an easy task, but it is very helpful in the long run. Most financial planners who have this certification do better generally in their field.
Types of Financial Planners
Just like any other industry, Financial Planners often specialize in certain areas to target a nice or to do something they are better at. Below, I’ll discuss some of the major specialization and types that exist within the world of financial planning:
Investment Advisors:
These individuals focus mainly on investments and portfolio management. The services provided are strictly about investments. Investment Advisors typically decide on a fee with their customers beforehand, and then guide them into making the best investment for them. Investment Advisors typically work for richer clients, with over 65% off clients having over $100,000 in investable assets. Investment Advisors are often paid commission by investment companies, so be sure to get your one to be transparent with you.
Money Coaches:
Money Coaches tend to focus on a more personal plan with their clients. Money Coaches often work with clients to address financial problems and issues in regards to personal habits. Most people hire a Money Coach when they don’t understand much about finance and want someone to help them understand. Money Coaches don’t have specific qualifications or training, so make sure your coach is legit!
Credit Counselors:
Credit Counselors help people who are completely over burdened with debt and are in dire need of help. Credit Counselors help clients set up budgets and payment plans to ease out of debt. Credit Counseling is typically provided by a non profit organization, with the goal of improving your financial situation. Credit Counselors can negotiate debt repayment plans with their clients creditor to ease the burden of debt.
What’s it Like Being a Financial Planner?
Being a financial planner is the dream of many individuals, but not many people know what it’s actually like being a financial planner. A financial planner typically makes around $500,000 a year, a bit more than the national average of $464,800. This means that most financial planners live a very comfortable life. Many financial planners receive commission either form banks or investment firms, these commissions often make up significant portions of some Financial Planner’s salaries but are completely dependent on the Financial Planner.
Financial planners have a work week of around 40 hours, allowing for lots of time available for friends and family. The average American works for around 47 hours a week, which is far higher than that of a financial planner. As a result of these two factors, the life of a financial planner is often very relaxed and calm. However, they often find themselves in stressful situations regarding investments and customers.
The average job is predicted to have grown 7% by 2024, but Financial planners have a growth projection of around 15%. Financial planners have a higher than average growth rate for this job, so the market is more than ready to accommodate new planners. Most Financial planners say that the job is more than investments and numbers, it’s about building strong relations.
Financial planners are often overseeing the future of many people, so there’s no room for error. Building a powerful relationship with your customers is the key to being a good Financial Planner. Financial planners usually don’t have a set routine, so their day is usually filled with interesting events. Overall, being a financial planner is a good job targeted more towards extroverts that are good with investments and numbers.
How Do You Become a Financial Planner
It’s not easy to become a financial planner, as you will face many hurdles during your quest for the job. To be a financial planner, you need more than just the education. A financial planner has to be a people person. You will spend much of your time meeting face to face with people and if you can’t behave professionally, you won’t last long. You need to build long lasting and powerful relationships to keep you reputation high. You also need to be honest, some people have impossible goals and you need to be upfront and frank with them.
Aside from these qualities you also need education to get the job. A bachelor’s degree is required for this job, and you have some options regarding majors. Finance, economics, statistics, and business are some of the more popular ones. Once you graduate from university with a related major, you will preferable want to land an internship to gain real world experience. After you have some experience, you will need some certifications or licenses. A few of the more popular ones are listed below:
- Certified Financial Planner (CFP)
- Personal Financial Specialist (PFS)
- Chartered Financial Consultant (ChFC)
- Chartered Financial Analyst (CFA)
These certifications look good on your resume, but can also help you specialize if you choose to later down the road. After you’ve completed the above steps, you need to develop a good resume and apply for entry level positions. After this, you can return to school and pursue a higher education (MBA, etc.) or just stay with you job. Overall, becoming a financial planner is a fairly lengthy process but is well worth it in the end.
Should I Get a Financial Planner?
In a perfect world, everyone would have a financial planner who they would consult often. Whether it’s a house or a new T.V, you would consult them before a large purchase. If everyone would do this, you’d see a drastic drop in general debt and bankruptcy. Sadly, some people can’t keep up with their own finances, and require someone to consult with. Financial planners are very important for parents, as children are a big responsibility. Most parents want to set aside a reasonable amount of assets for their kids to go to college. Many people often end up putting all their money in bank accounts or risky investments, both poor decisions.
A financial planner allows you to manage your money in a way which maximizes increase and keeps risk down. Anyone looking to retire needs to put thought into assets which allow them to retire comfortably. When you’re 80 year olds and broke, life isn’t very fun at all. A financial planner can help you make smart investments and goals to guarantee a smooth and relaxing retirement. Financial planners aren’t only for parents or old people, many young people could benefit them. Many people are left with large inheritances, but young people often can’t manage wealth properly. A financial planner would help you in making secure investments to maximize your wealth. Generally, most people can benefit from the use of a financial planner but you should think about the cost/benefit ratio before you pay for one.
How Much Do Financial Planners Cost
Cost is extremely important when finding a financial planner that meets your needs. When you have someone dealing with your money, you don’t want them to be the person that uses up most of it. There are 3 main ways you end up paying financial planners, and I will list and explain them below:
Fee Only: A financial planner that advertises this form of payment charges a flat fee for their services. This flat fee allows you to completely understand what you will be paying, and guarantees you the same rate as the next guy. This form of payment also lets you compare financial planners easily. Financial planners often charge $1,000 to $4,000 flat or charge an hourly fee ranging from $200-$500.
Percentage: Percentage based pricing allows financial planners to get a relevant payment depending on the project. Financial planners will usually charge 1-2% of the assets they manage, so $1,000,000 worth of assets would cost $10,000 a yearly. This method often ends up being expensive long term and even more so when you have large assets.
Commission: Many financial planners receive commission from banks or investment firms when they sell you specific plans. These are the type of financial planner you would find within a bank, often giving free advice.
In general, financial planners are fairly expensive so you should definitely consider the affordability of one before you attempt to purchase their services.
Final Thoughts
A financial planner can help you with many things from investment to wealth management. As this is a basic framework of what a financial planner does, make sure to ask a financial planner around what they specialize in and details that you might want to know. Hope you enjoyed this article on “what does a financial planner do”, and if you have any feedback let us know in the comments below.
