Before you entrust your finances to a professional planner
Financial planning, as a profession, has something of an identity problem. As Christopher Croft found out when he met a former high school friend for the first time in years. ''What are you doing now?'' the friend asked.Skip to next paragraph
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''I've become a financial planner,'' replied Mr. Croft, executive vice-president at Bailard, Biehl & Kaiser Inc., of San Mateo, Calif.
''So have I,'' said the friend; ''I'm selling insurance.''
For a lot of people ''financial planning'' sounds like a fancy term for coming to grips with their bank statement, or for going onto a rigorous savings program that is the budgetary equivalent of the dry-toast-and-grapefruit diet. And at its worst, ''financial planning'' is seen as a euphemism for a high-powered sales pitch.
Trendiness has confused the issue further. As Thomas McFarland of the New England Financial Planning Group in Burlington, Mass., puts it, ''Two years ago, people would say, 'A financial planner? What's that?'
''Now they say, 'I don't know what a financial planner is, but I think I need one.' ''
Strictly speaking, financial planning is a very specific process whereby the planner analyzes the client's resources, helps him or her articulate goals, and then hammers out a strategy whereby the resources will be used to reach those goals. Financial planning should be long term and comprehensive. Although the planner may not be directly involved in executing those plans, they do get pretty specific. A client may be told to put $10,000 into growth-oriented mutual funds, for example, or to set up a Clifford trust for the children's education.
Financial planning considers the client's earnings (current and aspired to), tax situation, insurance coverage, investments, retirement plans, and estate planning. The planner is a generalist rather than a specialist, and usually has a background in a specific area of the financial industry - accounting, insurance, securities, tax law, or banking - but is conversant with the other specialties.
And most planners recommend a team approach including an expert in each of these fields, with the planner himself as the quarterback.
''Beware the 'Lone Ranger' - the one who tries to do it all by himself,'' says W. Thomas Porter, partner in the Seattle office of Touche Ross & Co., and national director of their personal financial planning service. Whether these fields of expertise are represented from within the planner's own firm or from outside depends generally on the size of the firm.
The ranks of planners range from those who specialize in millionaires down to those with annual household incomes of $25,000 to $40,000; few people below this level have enough discretionary income, assets, and tax liability to need or to benefit from the services of a financial planner.
As you talk with planners, suggests Philip N. Gainsborough, president of Associated Planners Securities Corporation in Los Angeles, you should ask:
* How long have you been at this?
* What are your professional affiliations? Are you a member of the International Association for Financial Planning (IAFP) or the Institute of Certified Financial Planners? Are you on the Registry of Financial Planning Practitioners?
* Do you specialize in certain market segments? The IAFP (5775 Peachtree Dunwoody Road NE, Suite 120-C, Atlanta, Ga. 30342) can put you in touch with a local chapter in your area which can suggest planners serving your income group. The IAFP will also send you names of planners near you listed in the Registry (not all of them IAFP members).
Another group is the National Association of Professional Financial Advisers (8140 Knue Road, Suite 110, Indianapolis, Ind. 46250), whose members work only for fees, not commissions.
* Do you have the CFP - certified financial planner - designation? Or the ChFC - chartered financial consultant? These are not college degrees, and lots of good planners don't have them, but it can still be comforting to see those letters after someone's name.
* What references can you give - of satisfied clients and of other professionals in the community?
Mr. Gainsborough further suggests asking prospective planners for examples of plans they have worked out for clients. ''Walk around the office. Check things out. Ask him, 'What civic organizations do you belong to?' 'Who's your broker-dealer?' ''
Anyone can hang out a shingle as a financial planner. But any planner you consider should be a registered (with the Securities and Exchange Commission) investment adviser, required to publish a brochure (comparable to a prospectus), which you should ask for and scrutinize for in-depth information on the background of the planner and his or her colleagues.