Common Financial Planning Questions

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This page compiles a list of the most common financial planning questions being asked by consumers in the market today. The answers provided will give you an overview of some of the common terms and concepts used in the discussion of financial planning.

Who can use the term “financial planner”?

A financial planner is a general term used to denote professionals who help clients initiate and structure their financial future through strategic planning in major areas of concern. These include planning for retirement, education, investments, estates, taxes, insurance, risk management, and business. Financial planners focus on the overall life and personal goals of their clients they serve to develop a strategy that suits their unique circumstances in providing a secure financial future for themselves and their families.

In the best of situations, a Certified Financial Planner holds a professional accreditation certificate and is a member of one or more official industry organizations, such as the Financial Planning Association or the Institute for Financial Planning.

Why should I choose a financial planner over another type of financial adviser?

Financial planners are trained to view the overall financial picture of their clients, not just individual types of investments. Accountants, insurance agents, stockbrokers, and other financial advisors focus on their specific services only, and have little advice to offer in terms of analyzing and assessing your unique finances and how to apply them to achieve the most financial security and purchasing power.  Financial planners are also privy to certain market conditions and local economies that make their long-term strategies more effective.

What is the best age to start financial planning?

A person of any age can benefit from financial planning, although younger people will have an advantage by starting early in their financial lives to make changes for the future. Even so, the circumstances of any person’s life may change and laws regarding personal allowances and finances change periodically as well. In particular, certain investments, as well as plans for disability and your estate make planning important at different stages of life.

Do I have to pay a financial planner for the first interview?

Most financial planners provide up to a one-hour  meeting to discuss the reasons you might want to enlist their services. This is also an opportunity for financial planners to decide whether they can help, and in what specific ways they would would work with you to improve your financial outlook.

How much does a planner typically charge?

Rates for financial planners depend on certain factors related to the level of services they provide, your specific needs, as well as their experience and geographic location. In general, however, Certified financial planners charge fees in one of three ways: either an hourly or fixed based on specific services rendered (called fee-only); a commission earned on the products you purchase from the planner; or a combination of a set fee for planning processes and commissions on the cost of the products themselves.

What is financial planning process?

The International Organization for Standardization (ISO) establishes a formal process for financial planning that involves six basic steps:

Step 1 is to determine a client’s specific goals and to establish the nature of a professional working relationship, with an overview of what specific services might be utilized and how they would be used.

Step 2 involves gathering the necessary information, documents, and details of the client’s life and finances to help develop a firm financial plan of action.

Step 3 is to analyze this information to assess the available resources for implementing the goals you and your planner have in mind. This includes a study of cash flow, current investments, assets, and liabilities.

Step 4 involves constructing a formal plan based on the information gathered and offering recommendations on what components that plan might include.

Step 5 is to implement that plan by applying the allocated resources to the strategies discussed in Step 4.

Step 6 is the monitoring phase, where the planner monitors and reviews the results to ensure they meet the requirements and specifications of the client. This is also a time for making adjustments if something isn’t performing well or the client’s needs change over time.

Who can benefit most from your services?

Any person seeking greater financial security and peace of mind can benefit from the services of a financial planner, since they are typically available either on a one-time, as needed, or ongoing basis to solve specific problems or provide complete and comprehensive financial assistance.

What is “Fee-Only” financial planning and why should that be important to me?

Although the ways in which planners are compensated may differ, a “fee-only” financial planner receives compensation solely from their clients, not from mutual funds, brokerages, insurance, or any other source they establish for individuals. There is a standard of interest indicated here, since a planner’s loyalty might be swayed to sponsor a specific fund or investment. Even so, only some planners are “fee only.”

What is Wealth Management?

Wealth management combines financial planning with an investment portfolio and other financial services aimed at managing a client’s total worth. This view of planning generally incorporates things like private banking, legal and estate planning, and asset management. This advisory method is particularly well-suited for small business owners, families and high-worth individuals with diverse portfolios.

What is Retirement Planning?

Retirement planning involves allocating financial resources for the period of life after a person retires.  Defining a comfortable standard of living requires a careful determination of how much money a person needs when they retire. This usually involves making contributions or investments in 401K plans, pension plans, or personal savings accounts designed to earn long-term interest over the life of the accounts.

What is a Registered Investment Advisor?

In the U.S., the informal description of a Registered Investment Advisor (RIA) is a person registered with either the U.S. Securities and Exchange Commission or one or more state regulatory agencies. This person is thus qualified by the agency to give advice on financial securities like stocks, bonds, mutual funds, and similar investments.

What is a Certified Financial Planner Professional?

Certified Financial Planners adhere to a code of ethics recognized by the Certified Financial Planner Board of Standards Inc. and other organizations like the Financial Planning Association. The title involves formal guidelines and programs of instruction that include education, ethics, examination, and experience.

Thus, the designated title is the mark of an accomplished professional that demonstrates a level of experience and technical knowledge with regard to financial planning.

What is Investment Risk?

Investment is an important component of making investments. It represents the potential volatility of the value of any investment with an assumed rate of return. There are different types of investment risk, but this general term applies to the principal as well as additional funding on investments like mutual funds, stocks, and other ventures in a typical portfolio.

What does AWMA® mean?

AWMA stands for Accredited Wealth Management Advisor, and refers to a formal program of study offered by many educational institutions to train potential financial planners on a broad range of topics and aspects related to financial planning.

Is a shorter term bond safer than a long term bond?

In general, short term bonds are less risky than long-term bonds, since there is a greater probability that an interest-rate hike over the longer term of a bond will devalue its market price. Overall, investment risk for bonds is determined by several factors, including inflation, callability, interest rate, reinvestment rate, and credit risk.

Are financial planning fees tax deductible?

You can deduct the money you pay for investment counseling and advice for investments that produce taxable income. This includes any amounts you pay for advisory services and also applies IRAs, if they are traditional accounts. These would need to be listed as a miscellaneous itemized expense, and would only be deductible if your total miscellaneous expenses exceeded 2% of your adjusted gross income.

Can I still control my own finances?

Certainly. You still retain ultimate control over the decisions and the amounts you invest in specific securities. What’s more, any strategies you develop will be based on your needs, values, goals, and levels of risk you’re comfortable with.

By engaging the services of a financial planner, however, you are including a full-time professional who can offer suggestions and research opportunities you won’t have time to discover on your own.  Their support will give you more security and allow them to apply their expertise to your needs more easily and quickly than if you were “flying solo.”