Last week I posted my thoughts on when I would and wouldn't use a financial planner. I received a lot of good comments on the posts, ones I thought were worth sharing with everyone. Here's the first one:
I've never used a financial planner. Neither my friends, my family, my family's friends, my friends' families.
Most of us do very well for ourselves, and have pretty high net worth. It's this simply, when you are born and raised certain way, you learn to manage your money as something pretty natural. You know what to do with your money just like you know a good education will get you a higher paying job.
Your theory can extend to stock brokers etc... I've never used a broker. Neither my friends, my... you get the drift. Why pay the fat fee when YOU can pick better than they do?
My point exactly. If you can do it yourself, why do you need a planner? Especially when they can do you a great deal of financial harm:
Your analogy about the fat doctor cracks me up! I had a free consult with an Amex financial planner a while back and he actually scared me. There was no way I was taking any advice from him, he was unprofessional and I felt that I knew a lot more than he did. I'm sure they are not all like that.
I'm sure they all aren't. But many are.
I noted in my post that I wouldn't use financial planner who wasn't better off financially than I was. It sparked this comment:
Point 2 reminds me of my dad. He would ask stock brokers who solicited him to compare results. If their net worth was higher, he'd consider them. No one ever took him up on his offer.
Me, I just hang up on 'em. He would engage, and even argue. His other favorite response, to those calling from distant cities, was "I don't do business with someone whose throat I can't get my hands around if necessary". That scared off more than a few too.
Ha! I never thought of that approach, but I may use it in the future. ;-)
And just when we were having fun, someone with a level head shows up and makes a sensible comment:
I think this all depends on your definition of managing money. Most would think of that as investment management, or picking stocks and other investments. However, a true (not an Amex, now Ameriprise FP disguising as a product pusher), Financial Planner can review and foresee financial problems before they arise (and help take corrective action for things that happened in the past). This would be in the areas of insurance, investments, retirement plans, income tax, and estate planning.
While it is true that most can plan for their retirement and pick passively managed funds, it is the overall knowledge to anticipate issues with regards to the rest of the list above that will keep TRUE Financial Planners in business a long time. Besides, I would say the common consumer is not like us (bloggers and blog readers), in that we want to learn and read as much as we can about Personal Finance, so we have a complete head start in this area.
It's probably true that the common consumer is not like us. I didn't post on that though, I posted on what I did/do. Also, the common consumer can learn these principles if he/she wants to -- though many don't take the time/effort to do so. Point taken, however.
The next comment piled on to a previous comment -- but added a bit more perspective:
I agree with poster #1 above. The only thing I personally could maybe see a need for is a CPA's advice for tax consequences and planning. No one in my family has used a financial planner either. I think a lot of knowledge on money and wealth is learned from cultural or family experiences. My friend and his brother on the other hand both do use a planner, and in talking with them I don't see what they gain from it. Perhaps they gain from the structure and formality of having a 'plan' and investments that have been pre-cleared for them. It seems to me that their planner just dollar-cost averages their money into a few funds that he has selected (and that he has a relationship with). I believe that most larger planning firms (AMEX?) have a list of investor categories which their planners used to allocate money into the currently favored funds on the list. I'd imagine you'd need quite a bit of cash (and fees) before you could expect really personalized (trust-company style) portfolio management.
I commented in response to this post that I do use a tax professional to do my taxes each year. It costs me a bit over $500 but saves me 25-30 hours of work, so it's well worth the investment. Plus, they always find some obscure deduction I didn't know about. ;-)
Our final comment was a really good one:
I think a lot of this comes down to how much of a do it yourself type you are and how cultivated you are in terms of investment intelligence. For one person, paying for advice or giving the broker 1% is a good return if they are basically investing on auto pilot (meaning, no goals and little monitoring).
A USA Today article I recently read discusses the difficulty for small investors to get personal advice without high fees. Many first-generation wealth builders face an awkward situation where they may have tens of thousands to invest, which is a relatively large sum for them, but is table scraps to financial planners.
I've enjoyed lurking on FMF for a while, but I think this would be an excellent topic to raise for further discussion. Namely, at what point does it behoove a first generation investor to work with financial planners and/or brokers?
This is a good topic for discussion. My 2 cents would be that the first generation investor needs to learn for himself/herself how to manage their money and do it without a planner. What do you think?
Update: Linking to the Beltway Traffic Jam.
With so many insurance and investment salespeople calling themselves "financial planners", I'm not surprised that there are so many misconceptions about financial planning. Anyone interested in learning more about the profession should go to the CFP Board's website.
http://www.cfp.net/default.asp
Posted by: thc | September 19, 2005 at 07:07 PM