What Is a Financial Planner and How Do They Help Manage Your Finances?
Learn how financial planners support your long-term goals, offer specialized advice, and collaborate with other experts to help manage your overall financial life.
Managing money can feel overwhelming, especially when balancing saving for the future, handling debt, and planning major life events. Many people turn to financial planners for help making informed decisions that align with their goals. Professional guidance can provide a clear strategy, simplifying complex financial choices.
Understanding how financial planners support individuals is helpful when deciding whether working with one makes sense for you. Let’s examine what they do and how they fit into your broader financial picture.
Role and Responsibilities
A financial planner helps individuals manage their finances and work towards achieving their objectives.1U.S. Bureau of Labor Statistics. Personal Financial Advisors This process typically begins with assessing the client’s current financial situation, gathering details about income, expenses, assets, liabilities, insurance, and investments. Planners also work with clients to define short-term and long-term goals, such as saving for education or retirement, managing debt, or planning major purchases.
Using this information, the planner analyzes the client’s financial status and develops personalized strategies. This involves creating budgets, setting savings targets, and devising plans for managing expenses and debt. The result is often a comprehensive financial plan, a roadmap designed to guide the client toward their goals, outlining steps regarding asset allocation, investment selection, or risk management.
Beyond creating the initial plan, financial planners often assist clients in implementing the recommended strategies, which might involve selecting specific financial products or services. Their role extends to ongoing monitoring of the client’s financial situation and progress. Since circumstances and goals can change, periodic adjustments to the plan are necessary. Planners typically meet with clients regularly to review performance, discuss life changes, and update the strategy.
Financial planners adhere to specific standards of conduct. Investment advisers registered with the U.S. Securities and Exchange Commission (SEC) or state regulators owe a fiduciary duty to their clients, legally requiring them to act in the client’s best interest and place the client’s interests above their own.2U.S. Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers This includes duties of care and loyalty, requiring suitable advice and disclosure of conflicts.
Broker-dealers, when making recommendations, must comply with the SEC’s Regulation Best Interest, requiring them to act in the retail customer’s best interest at the time of the recommendation and not place their interests ahead of the customer’s. Both types of professionals are subject to oversight by regulatory bodies like the SEC and the Financial Industry Regulatory Authority (FINRA), enforcing rules designed to protect investors.
Types of Specialties
While financial planners offer comprehensive guidance, many develop deeper knowledge in particular areas. This specialization allows them to provide more nuanced advice tailored to specific life stages or complex situations.
Retirement
Planning for retirement is a common reason people seek financial guidance. Specialists help clients envision their desired retirement lifestyle and estimate the income needed, considering inflation and healthcare costs. They analyze savings, project investment growth, and evaluate income sources like Social Security, pensions, and retirement accounts (e.g., 401(k)s, IRAs).3U.S. Department of Labor. Top 10 Ways to Prepare for Retirement
Retirement planners assist in developing contribution strategies to maximize savings, potentially using catch-up contributions for those eligible (currently, individuals age 50 and over can contribute extra to plans like 401(k)s).4TIAA. IRS Announces Plan Contribution and Benefit Limits They also guide clients on withdrawal strategies during retirement, aiming for a sustainable income stream while managing tax implications, including Required Minimum Distributions mandated by the IRS for certain accounts.
Estate Planning
Financial planners often contribute to estate planning by focusing on the financial strategies needed to manage and transfer assets according to a client’s wishes. While attorneys draft legal documents like wills and trusts, a planner helps organize the client’s finances to inform these documents. They analyze assets, liabilities, and potential tax implications, aiming to structure finances to minimize estate taxes and facilitate wealth transfer.
This might involve strategies related to gifting within annual exclusion limits set by the IRS or utilizing the larger lifetime gift and estate tax exemption (currently over $13 million per individual). Planners can also advise on asset titling and beneficiary designations for accounts like IRAs and life insurance policies to align with the estate plan and potentially avoid probate.
Insurance
Integrating insurance into a financial plan is another area for specialization. Planners focusing on insurance help clients manage risk by identifying coverage gaps and recommending solutions. This involves analyzing needs for life insurance, disability insurance, and long-term care insurance.
They assess existing policies to ensure coverage levels, terms, and costs suit the client’s situation and goals. The objective is to prevent unforeseen events from derailing the financial plan. Regular reviews ensure coverage remains adequate as circumstances change.
Credentials and Designations
Understanding the qualifications behind titles like “financial planner” is important, as the term itself isn’t uniformly regulated. Consumers should look at specific credentials, which signify that an individual has met standards set by professional organizations regarding education, experience, ethics, and examination success.
One widely recognized designation is CERTIFIED FINANCIAL PLANNER™ (CFP®), awarded by the Certified Financial Planner Board of Standards, Inc.5FINRA.org. CFP This mark indicates completion of a comprehensive curriculum, passing a rigorous exam, holding a bachelor’s degree, accumulating relevant professional experience, and adhering to a code of ethics.6CFP Board. The Certification Process7CFP Board. CFP Board Ethical Duties Brochure Maintaining the certification requires ongoing education.8CFP Board. Continuing Education Requirements
Another established designation is Chartered Financial Consultant® (ChFC®), from The American College of Financial Services.9The American College of Financial Services. ChFC® Chartered Financial Consultant® Program The ChFC® program covers a broad range of financial planning topics through multiple courses and exams. Requirements typically include relevant business experience and ongoing professional development.
Certified Public Accountants (CPAs) specializing in personal financial planning can earn the Personal Financial Specialist (PFS™) credential from the American Institute of Certified Public Accountants (AICPA). This builds on the CPA license, requiring additional education and experience in personal financial planning, along with passing an exam or holding certain other credentials.
Numerous other designations exist, sometimes indicating specialization in areas like investment management (e.g., Chartered Financial Analyst® or CFA®) or insurance (e.g., Chartered Life Underwriter® or CLU®). Regardless of the specific letters, it’s wise to verify a planner’s standing and check for disciplinary history through resources provided by regulatory bodies and credentialing organizations.
Common Fee Structures
Understanding how a financial planner is compensated is part of evaluating the relationship. Planners use several methods to charge for services. One model involves charging a fee based on a percentage of the assets they manage (Assets Under Management or AUM). This percentage often ranges from 0.5% to 2% annually, sometimes decreasing as assets increase. For example, a 1% fee on $500,000 managed would cost $5,000 per year, typically deducted from the client’s accounts quarterly.
Some planners charge fixed or flat fees for specific services or a comprehensive financial plan. This might be a one-time fee for plan creation (perhaps $1,000 to $3,000) or an ongoing annual retainer for continuous planning (potentially $2,000 to $7,500 or more, depending on complexity). Flat fees offer cost predictability.
Another approach is charging an hourly rate, often between $150 and $400 per hour, suitable for clients needing advice on specific issues or a second opinion. The total cost depends on the time spent. Some planners might combine structures, like an initial flat fee plus an ongoing AUM or retainer fee.
Planners may also receive commissions from selling financial products like insurance, annuities, or mutual funds. In this model, the company pays the planner, not the client directly via fees. “Fee-based” planners might use a mix of client-paid fees and commissions, differing from “fee-only” planners who are compensated solely by client fees and accept no commissions.
Regulations require financial professionals to disclose compensation methods and potential conflicts of interest. Investment advisers must provide clients with Form ADV Part 2A (the “brochure”), detailing services, fees, compensation, and conflicts.10Investor.gov. Investor Bulletin: Form ADV – Investment Adviser Brochure and Brochure Supplement Broker-dealers must comply with disclosure obligations under Regulation Best Interest regarding fees, costs, services, and conflicts associated with recommendations. Understanding these disclosures helps clients grasp the costs involved.
Selecting a Professional
Choosing the right financial professional requires a methodical approach. Start by clarifying your financial objectives and the type of assistance needed. Are you focused on retirement savings, investment management, estate matters, or a comprehensive roadmap? Defining your needs helps identify planners with relevant expertise.
Identify potential candidates through referrals from trusted sources or by using search tools from professional organizations. The CFP Board and the Financial Planning Association (FPA) offer online tools to find credentialed individuals, allowing filtering by location or specialty, though information should be independently verified.
Thoroughly vet potential planners. Verify credentials directly with the issuing organization. Check the planner’s regulatory background using FINRA’s BrokerCheck for information on brokers and firms, including registration, employment history, and disciplinary records. For investment advisers, the SEC’s Investment Adviser Public Disclosure (IAPD) website provides access to Form ADV filings detailing business practices and disciplinary history. State securities regulators often link to their databases through IAPD as well.
Interview several candidates. Ask about their experience, investment philosophy, approach to planning, and communication style. Inquire about their regulatory obligations—whether they operate under a fiduciary standard or adhere to Regulation Best Interest when making recommendations. Assess whether you feel comfortable discussing sensitive financial details and if their explanations are clear.
Selecting a planner involves finding someone qualified, trustworthy, and compatible. Since financial planning is often long-term, rapport is valuable. Before committing, carefully review any proposed agreement, ensuring it clearly outlines services, responsibilities, and termination terms. Clarity from the outset helps build a solid working relationship.
Typical Collaboration with Other Advisors
A client’s financial life often intersects with legal, tax, and insurance matters, leading financial planners to work alongside other specialists. This teamwork ensures a comprehensive strategy, with each advisor contributing their expertise. The planner often coordinates efforts to align advice with the overall financial plan.
Collaboration with attorneys is common in estate planning. While the planner helps organize financial data and articulate legacy goals, considering factors like the federal estate tax exemption, the attorney provides legal counsel and drafts documents like wills and trusts. They coordinate to ensure asset titling and beneficiary designations align with legal documents.
Planners regularly coordinate with tax professionals, like CPAs, to address tax implications. A planner might develop investment or retirement distribution strategies, then consult a CPA to analyze tax consequences (e.g., capital gains, tax-loss harvesting). This integrates tax planning into the financial strategy. The CPA typically handles tax return preparation using information coordinated by the planner.
Interaction with insurance professionals focuses on risk management. The planner identifies needs for life, disability, or long-term care insurance within the financial plan. A licensed insurance agent then assists in selecting products and navigating the application process. This allows the planner to provide objective advice on the need for insurance, while the specialist handles product specifics.
Effective collaboration requires clear communication and client permission to share information among advisors. Clients typically consent for their planner, attorney, CPA, and insurance agent to exchange relevant data. This coordinated approach helps prevent conflicting advice and ensures all elements of the client’s financial, legal, and tax strategies work together, often facilitated by the financial planner.