Interview with a Financial Planner

A professional financial advisor shares his insight on how to plan your financial future.

For many of us, when it comes to planning our financial future, the right answers seldom come easy. Fortunately there are professionals like Gregory Smith, a senior financial advisor with American Express Financial Advisors, who can help make sense of the confusion.

Mr. Smith, just what does a financial planner do?

A financial planner, or financial advisor, looks at what his, or her, client hopes to accomplish from a financial standpoint – that person’s goals and objectives – then helps that person achieve those objectives. The classic examples are planning for a comfortable retirement, providing an education for the children and making sure loved ones are taken care of after death. Clients may also want to make sure debt is properly managed, tax savings are realized and their estate transfers to heirs without being lost to taxes or depreciation.

How does the financial planner work with a client?

The advisor takes into account everything a person is doing in life that makes an impact financially, and then helps them map out ways that can make their financial lives more efficient – more in line with what they’re hoping to accomplish. Sometimes an advisor even helps a person define what they hope to accomplish. Lots of folks, for instance, are putting money into 401(k) plans without having a clear idea of what they want that money to do. In fact, I find many people lack a clear idea of just where they want to go financially. There’s an old saying – a goal is nothing more than a dream with a deadline. An advisor helps put parameters to that.

Why go to a financial planner?

Well, anyone can certainly plan for themselves – and there’s no lack of financial advice out there. In fact there’s a glut of it. What’s hard is sifting through all that information to make reasonable choices that will positively impact a person’s financial future. What the advisor brings to the table is his, or her, professional know-how, knowing which information is worthwhile and which is not. The financial business is a mystery to most people. Helping clients sift through the glut to make reasonable choices is, in essence, what we do.

At what point in life should one seek out a financial planner?

As soon as you begin making an income. The common misconception is that you have to be rich to work with a financial advisor. In fact, just about anyone who earns an income can use advice on how to sort through benefits, retirement plans or medical plans offered by their employer. In most cases, hiring an advisor pays for itself. Now, whether or not we can give advice that’s going to get them on improved financial footing depends, of course, on what that person has to work with. Someone who barely makes ends meet and has a lot of debt we can certainly help but that’s really not the most effective use of a financial planner – that’s more the job of a debt counselor.

With so many financial advisors out there, how do you know who to trust?

You have to be careful. There are many folks out there who call themselves financial planners but really aren’t, like insurance agents, stock brokers or investment counselors at banks. In most cases these people are not developing an overall financial plan for a client, they’re trying to sell a product.

Essentially there are three types of financial planners working in the field: fee only, commission only and a combination of the two. Fee only planners charge you, up front, for their services but don’t take commissions on products you buy – like, for instance, mutual funds. Planners on commission work for free but, of course, make their money on product sold. The last category is the most common – planning for a fee and earning commissions on product.

There are some who feel that a fee only planner is the only one without an axe to grind. I don’t agree with that. If the planner has a wide variety of product to offer and different ways of paying for that product, I believe it takes quite a bit of the bias away. Of course, if you’re working with a planner who has only one product to offer then that would definitely be suspect. Make certain the advisor offers product outside his, or her, company.

What’s the best way to locate a financial planner?

By looking through the phone book, searching online or contacting the Financial Planning Association. Limit your search to people who have credentials like the CFP (Certified Financial Planner), CHFC (Charter Financial Consultant) or CLU (Certified Life Underwriter). These titles signify the planner has an extensive education on the subject and experience within the industry. I would caution, however, that just because a person has the credentials, doesn’t necessarily mean you should work with them.

Financial planning is a service business so you have to feel comfortable with the person you’ll be working with. This means you should conduct an interview – and be sure you’re the one doing most of the talking. Make sure the person has stability, find out how long they’ve been at the location. Ask how they get paid, find out where they’re coming from. What you really want to learn is whether, or not, their financial philosophy matches your own. Ultimately you should walk away with a feeling that the advisor understood what you were looking to accomplish and that they have the ability and expertise to help you with it.

Okay, you’ve found a financial advisor. What happens next?

Essentially you provide the advisor with financial data specific to your situation. The advisor will want to see documents supporting your income like pay stubs and W2’s, investment statements, et cetera. They’ll go through the cash flow, identify spending leaks and excess income. They’ll listen to your financial goals, help you define them and do an assessment to see where you stand in relation to those goals. Once that’s done, the advisor’s job is to help you get on track financially to realize those goals by developing a plan that’s well within your tolerance for risk and ability to fund.

What I typically do is sit down and talk strategy with the client and then implement that strategy. What comes out of this process is the “to do” list. This list might include investing in a company retirement plan, putting money aside each month for the children’s education, updating a will, taking out additional life insurance or recommending one or more products we offer.

By the way, not all clients are first-timers. I’ve taken on many clients who have been long-time investors. In those instances, I perform extensive portfolio analysis to make sure their portfolio is in line with their tolerance for risk. For example, it’s not uncommon for folks more than halfway through their career to have accumulated money, have the house close to paid off, the kids already in school and maybe ten to fifteen years before retirement. This is a great time to find out where you stand, financially, in relation to retirement. The questions a client typically asks are, “am I putting enough money away, taking advantage of the tax law changes, using my IRA correctly?” An advisor takes a look at his, or her, client’s current financial picture and makes recommendations that can keep them on track toward achieving their goals.

So the financial advisor-client relationship is an ongoing one?

Absolutely. I typically see my clients a couple of times a year and the vast majority also have products with my company so I’ll end up servicing those products – like mutual funds, stocks and bonds, insurance. I become the point of contact on that product instead of some 800 number somewhere. Also, there’s often portfolio rebalancing because changes may occur in their lives. Maybe they change jobs, get laid off, have another baby – it’s a dynamic process that must continually be monitored, updated and upgraded as we go along.

Another thing. Not only is the relationship ongoing, it’s personal. When you’re working with someone’s financial life you’re getting very close to the rest of their life. In fact what we do, some folks call life planning. I’ve joked that sometimes I feel like I should put a couch in my office. In some ways I suppose this is appropriate because, when you’re working with a good advisor, the interaction should always feel like a conversation. There should never be a feeling of pressure.