As a fee-for-service financial planner it’s not unusual to be approached for a “quick” portfolio review. “Can you just look over my investments?” or “Can you tell me if I’m saving enough?” As much as it’s in my nature to want to help people, it would be unethical and unprofessional to advise someone without due diligence. Much like building a legal case, a financial plan takes a comprehensive understanding of the whole situation and the desired outcome.
Individuals and couples that earn upwards of $150,000 a year are able to create a lifestyle and retirement that is tailored to their vision. That means there is no one-size-fits-all investment strategy. Along with their various goals, they will all have different life circumstances (for example, some people may have family in distant locations, others have no children, others have health concerns and still others have various complexities in their personal and business lives). All this information is vital to a financial plan.
There are perils in making investment choices outside of a comprehensive financial plan. For example:
- If you aren’t clear on your goals, or haven’t considered all your needs, how do you know if you are over-saving or under-saving?
- You may feel guilt going on vacation if you aren’t sure you are saving enough for the future.
- You may fret over market volatility unnecessarily
- One size fits all balanced funds may be appropriate to save for the long term but not for savings intended to send your teenager to University next year
- Fees – fees – fees. Are you aware of all the fees associated with your investments? How do you reduce these fees?
- Do-it-yourself investing becomes more of a game rather than a deliberate journey
The idea that investments are priority one is a by-product of how traditional financial advisors are paid – commission on investment sales. It’s important that we turn the conversation around, take the focus off investments and put it on planning first. An effective planning program takes time. When creating a plan you should meet with your advisor several times over a three to four month period to fully understand your challenges and financial situation. Once you have established goals and have a framework to reach them, the focus then moves to investing as a way to support the plan.
A fee-for-service advisor is not licensed to sell products and thereby not permitted by securities regulators to give advice on what specific stocks, bonds and mutual funds you should hold. But they can guide clients in investment advisor selection and asset allocation balance (ETFs, stocks, mutual funds, bonds), along with long term tax planning advice, estate planning, cash flow and debt reduction help.
Once you have established a life and financial plan, you are able to make investment choices with confidence.