By Russ Gaiser
I love what I do, so I often find myself talking about all the different ways I help people. Most people don’t understand all that encompasses work. Usually, it is assumed that we only help investments, but it is much more than that. For this reason, I wanted to dive into what comprehensive financial planning looks like and what questions to ask if you’re interviewing potential planners.
It all starts with a plan
Plan first. In order to win with money, you need to have a track record to give yourself the best chance of success. In order to have a plan (roadmap), you must first define where you want to go and understand your goals and objectives. You have to know where you are going if you want to give yourself a chance to get there! As simple as it sounds, many potential clients I meet haven’t put a price tag on what their destination will cost them.
There are three main life phases when it comes to money and I like to think of them as the Hire, Retire and Expiry phases.
The hiring, or accumulation phase, is when you save and invest for retirement, pay off debt, raise a family, and prepare for retirement. From budgeting and cash flow management to investments and insurance, there’s a lot to consider.
The withdrawor harvest phase is when you are no longer working and maintaining your lifestyle with the assets you have accumulated (investments, social security, pensions, etc.).
The expireor estate transfer/protection, the phase is unavoidable for everyone and usually not fun to get into, but it encompasses a lot of things including wills, powers of attorney, health care proxies, trusts, life insurance, etc
Although the three phases occur in consecutive order for the most part, it is important to have contingency plans in place in the event of a tragedy.
Question to ask: How do you get to know your customers and what is your process for helping them achieve their goals?
Cash flow and taxation
Everyone knows we have to pay our fair share of taxes, but many don’t understand the tax treatment of their various savings and investment accounts. There are many investment vehicles available for retirement, including Social Security (yes, you contribute to it!), Pensions, Annuities, 401(k), 457, 403(b), IRA , brokerage accounts, Roth IRAs and Roth 401(k)s. Each account has tax implications on contribution or withdrawal. It is important to have a strategy in place not only to ensure you have enough to live on, but to ensure that you can afford the most flexibility and tax efficiency in the accumulation and harvest phases. . There are even considerations to be made that impact the wealth transfer phase. There is no right or wrong answer here, but these considerations should be discussed and reviewed.
Questions to Ask: What is your process for helping me understand how taxes might affect my plan?
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It’s usually everyone’s favorite topic whether the market is rallying or selling off. It might be fun to discuss the hottest water cooler stocks at work, but this is not the place to build your portfolio! Money is very emotional and markets are volatile. Therefore, your investment strategy, again, will depend on your goals and objectives and your tolerance for risk. No one can time the market (if you’re told otherwise, run!), and big, positive returns happen very quickly and erratically. Therefore, it is important to know what you are investing in, why you are investing in it, and regardless of market conditions, you have a high level of confidence that your plan will succeed. Staying the course is essential. Meetings with your planner are important because your goals and objectives may change over time – and they will change as you move from asset accumulation to asset distribution.
Questions to ask: What is your process for developing and implementing a sound investment strategy? How often will this be reviewed?
This always seems to be on everyone’s mind and your planner needs to be very transparent about how their business makes money (they do this for a living after all!). There are a few common ways companies charge for their services. Some do strictly one or the other, others do a combination.
Fee management is a flat percentage based on the amount of investment assets under management. This may or may not include financial planning services, but the money is managed at the company’s discretion based on the client’s goals and objectives. In this case, the company acts as a fiduciary and is bound to act in the best interests of the client. The business makes more money when the customer does, so the customers and the business are “on the same side of the table.” There are no commissions for funds, transactions, etc., in this model.
Businesses can also make money from commission-based sales of annuities, life insurance, mutual funds, stock trades, and more. What you pay depends on the product, but generally the company makes its money from the sale of the investment or product. Recommendations are usually made to clients for any changes to be made to investments or are directed by the client.
Some companies charge fixed fees (one-time, recurring, or hourly) for consulting, financial planning, or a combination of both. This could be in addition to the other fees previously discussed.
Costs are highly dependent on the business and how it operates. It is important that you understand how the business operates and makes money and that it is independent. Independent businesses are not tied to any product or investment, ensuring you have access to all the best products, services and investments available.
Questions to ask: How are you paid? Are you an independent firm?
There are many misconceptions about what a financial planner really does. While this article won’t touch on all areas of planning, it will hopefully provide details on what your finance professional should consider in order to develop a plan that will help you achieve your financial goals, no matter what. they are and whoever they are. stage of life you are in.
About the Author: Russ Gaiser, III
Russ Gaiser, III, MBA, CPFA®, is a financial advisor at The Financial Guys in Buffalo, NY, where he focuses his practice on wealth building and retirement planning. He is a Certified Plan Fiduciary Advisor and Dave Ramsey Master Financial Coach, helping clients improve budgets, maximize cash flow, eliminate debt and build wealth for the future.
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