What Is a Financial Planner?
A financial planner is a professional who helps individuals and families manage their finances by creating comprehensive financial plans. In this article, Steven Rowe explains how financial planners work with clients to understand their goals and develop strategies to achieve them. They consider all aspects of a client's life, including income, expenses, assets, liabilities, and risk tolerance, to provide personalised advice and solutions.
What Does a Financial Planner Do?
Financial planners offer a variety of services aimed at helping clients manage their finances effectively. These services typically include
Creating a Comprehensive Financial Plan: A financial planner develops a detailed financial plan tailored to your goals and circumstances. This includes assessing your current financial situation, setting short-term and long-term objectives, and outlining strategies to achieve them.
Investment Management: Financial planners provide investment advice and management services to help grow your wealth. They assess your risk tolerance, investment horizon, and financial goals to recommend appropriate investment strategies. This includes selecting suitable asset classes, diversifying your portfolio, and regularly reviewing and adjusting your investments to optimise returns while managing risk.
Retirement Planning: A financial planner helps you prepare for retirement by estimating your future income needs, setting retirement savings goals, and choosing suitable retirement accounts. They provide strategies to maximise contributions, take advantage of employer-sponsored plans, and optimise extra income from other properties or investments. Ongoing monitoring ensures your retirement plan stays on track and adjusts to any changes in your circumstances.
Tax Planning: Effective tax planning is a crucial service provided by financial planners. They analyse your financial situation to identify tax-saving opportunities, such as utilising tax-advantaged accounts (e.g., ISAs, pensions) and making strategic charitable donations. Planners also help with tax-efficient investment strategies and ensure you take advantage of available deductions, credits, and allowances to minimise your tax liabilities.
Estate Planning: Financial planners assist with estate planning to ensure your assets are distributed according to your wishes and to minimise potential estate taxes. They help you draft wills, set up trusts, and designate beneficiaries. Planners also advise on strategies to transfer wealth efficiently, protect your estate from creditors, and provide for your loved ones, ensuring a smooth transition of assets.
Risk Management and Insurance Planning: A financial planner evaluates your insurance needs to protect against unforeseen events that could impact your financial stability. This includes assessing your current insurance coverage (e.g., health, life, disability, property) and recommending additional policies if necessary. Planners ensure you have adequate protection to safeguard your assets, income, and family’s financial security against potential risks.
What’s the Difference Between a Financial Planner and Financial Advisor?
While the terms are often used interchangeably, there are key differences between financial planners and financial advisors. Watch our short video to learn more.
Types of Financial Planners
There are various types of financial planners, each specialising in different areas of financial planning. Some focus on retirement planning, helping clients prepare for their post-working years. Others specialise in tax planning, estate planning, or investment management. Understanding the different types can help you choose a planner that best fits your specific needs.
Do Financial Planners Have Fiduciary Duty?
In 2021, the Financial Conduct Authority (FCA), announced that they would not adopt the legally binding fiduciary standards used in the USA. Instead, they introduced their own Consumer Duty guidelines to protect consumers. According to these guidelines, all financial advisers and firms should:
Treat clients with the same care as they would family and friends.
Aim to achieve the best outcomes for their clients.
Provide clients with all necessary information to make informed financial decisions.
Disclose and avoid any conflicts of interest.
Act in good faith and present all relevant facts to the client.
While these are not legal requirements, they serve as a behavioural code. The FCA can take action if a breach of fiduciary duty is found.
What Are the Different Types of Financial Planners?
Financial planners come in various specialisations, each offering unique expertise and services to meet different financial needs. Understanding the types of financial planners available can help you choose the right professional for your specific situation. Here, we explore the two main types of financial planners:
Chartered Financial Planners: Are highly qualified professionals who have completed rigorous education and training requirements. In the UK, they hold the Chartered Financial Planner designation, which is awarded by the Chartered Insurance Institute (CII). This designation indicates a high level of expertise and commitment to ongoing professional development. Chartered planners are well-equipped to provide comprehensive and sophisticated financial advice.
Wealth Managers: Typically work with high-net-worth individuals and families, offering a range of services beyond traditional financial planning. These services may include investment management, estate planning, tax planning, and even concierge services. Wealth managers take a holistic approach to managing their clients' wealth, ensuring all aspects of their financial lives are coordinated and optimised.
When Do You Need a Financial Planner?
Whenever you face a complex financial decision or want to ensure you're on track to meet your long-term goals, consulting a financial planner can be advantageous. These are the usual scenarios that benefit from professional financial advice:
Major Life Events: When experiencing significant life changes such as marriage, the birth of a child, buying a home, or starting a business, a financial planner can help you navigate these transitions and ensure your financial goals align with your new circumstances.
Preparing for Retirement: If you’re approaching retirement, a financial planner can help you set retirement goals, estimate your future income needs, and develop strategies to ensure you have sufficient funds to maintain your desired lifestyle.
Managing Investments: For those seeking to grow their wealth through investments, a financial planner provides tailored advice on asset allocation, risk management, and portfolio diversification to optimise returns and minimise risks.
Tax Planning: A financial planner can assist with tax-efficient strategies to reduce your tax liabilities, such as utilising tax-advantaged accounts, making strategic charitable donations, and ensuring you take full advantage of available deductions and credits.
Debt Management: If you’re struggling with debt, a financial planner can help you create a repayment plan, consolidate high-interest debts, and balance debt reduction with saving and investing, ensuring a path to financial stability.
Estate Planning: When planning for the distribution of your assets, a financial planner can ensure you draft Wills, go about setting up trusts, and developing strategies to minimise estate taxes, ensuring your wishes are fulfilled and your loved ones are protected.
Financial planning is not just for the wealthy; it's essential for anyone who wants to achieve financial stability and growth. A comprehensive plan covers all aspects of your finances, from budgeting to retirement planning.
How Much Does a Financial Planner Cost?
The cost of hiring a financial planner varies significantly based on the services offered and the planner's fee structure. Some planners charge a flat fee for specific services, while others may bill hourly or take a percentage of assets under management (AUM). Understanding these costs and what they include is essential for making an informed decision. Here are some of the key components that you will be charged for when seeking advice from a financial planner:
Financial Plan
A comprehensive financial plan typically involves a one-time fee, which can range from a few hundred to several thousand pounds, depending on the complexity of your financial situation. This plan includes a detailed analysis of your finances and tailored recommendations.
Financial Review
A financial review is usually less expensive than a full financial plan. It involves an assessment of your current financial status and may provide recommendations for improvement. This service is ideal for those who already have a financial plan but want to ensure they are on the right track. Consider this a ‘second opinion’.
Financial Advice
Receiving specific financial advice, such as investment recommendations or retirement planning, may be billed on an hourly basis. Rates can vary but typically range from £100 to £350 per hour, depending on the planner's experience and qualifications.
Implementation
Some financial planners also charge for implementing the recommended strategies. This could involve setting up investment accounts, purchasing insurance, or executing estate planning documents. The fees for implementation can be a flat fee or a percentage of the assets involved. In the UK, it’s common for planners to charge a 3% initial fees on the value of the investment. However, some may charge fixed fees ranging from £1,000 to £5,000 or higher, depending on the complexity and duration of the planning services provided.
How Much Does a Financial Planner Cost for Ongoing Advice and Management?
For ongoing advice and management, financial planners often charge a percentage of the assets under management (AUM), typically ranging from 0.5% to 1% annually. This fee structure aligns the planner's interests with yours, as their compensation grows with your portfolio. Some planners may also offer a retainer fee arrangement, where you pay a fixed amount regularly for continued access to advice and management services.
"Working with a financial planner not only enhances your finances, but also enhances your mental well-being through the reduction in anxiety of knowing you will be OK and giving you the ability to spend your time and money on doing the things you really want to do."
How to Choose the Right Financial Planner
Selecting the right financial planner involves several considerations:
Qualifications and Certifications: Look for financial planners with relevant qualifications and certifications, such as Chartered Financial Planner or Certified Financial Planner (CFP). These credentials indicate a high level of expertise and adherence to professional standards.
Experience and Specialisation: Consider the planner’s experience and areas of specialisation. Ensure they have a track record of helping clients with similar financial goals and needs. Specialisation in areas like retirement planning, tax planning, or estate planning can be particularly beneficial.
Fee Structure: Understand the planner’s fee structure, whether they charge a flat fee, hourly rate, or percentage of assets under management (AUM). Choose a fee arrangement that aligns with your budget and provides good value for the services offered.
Personal Rapport and Trust: Choose a financial planner you feel comfortable with and can trust. Personal rapport is crucial for a successful long-term relationship, as you’ll need to openly discuss your financial situation and goals.
Client References and Reviews: Check client references and online reviews to gauge the planner’s reputation and client satisfaction. Positive testimonials and high ratings can provide confidence in your choice, while any negative feedback may warrant further investigation.
Purchasing Your Planner’s Mind: Not all minds are the same, regardless of qualifications. The ability to link your personal goals and objectives to your money and then to legislation, tax and a future of billions of possibilities can not be achieved by everyone.
What Are the Alternatives to a Financial Planner or Adviser?
There are several alternatives to working with a financial planner or adviser. For those who prefer a DIY approach, numerous online resources and tools can guide financial planning. Robo-advisors offer automated investment management services at a lower cost. Additionally, financial coaching can provide guidance on budgeting and basic financial management. However, these alternatives may lack the personalised, comprehensive approach that a dedicated financial planner provides, particularly for complex financial situations.
Benefits of Working with a Financial Planner
Working with a financial planner offers numerous benefits. They provide expert advice tailored to your specific financial situation, helping you make informed decisions. Planners can identify and mitigate risks, optimise tax strategies, and ensure your investment portfolio aligns with your goals. They also offer accountability, helping you stay on track with your financial plan. Ultimately, a financial planner can provide peace of mind, knowing that your finances are being managed professionally and strategically.
Common Misconceptions About Financial Planners
There are several misconceptions about financial planners that can deter people from seeking their services:
Financial Planners Are Only for the Wealthy: Many believe that financial planners only serve high-net-worth individuals. However, financial planners can provide valuable advice and strategies for individuals at all income levels, helping them achieve financial stability and growth.
Financial Planning Is Only About Investments: While investment advice is a key component, financial planning encompasses much more, including budgeting, saving, tax planning, retirement planning, and estate planning. It’s a holistic approach to managing all aspects of your financial life.
Financial Planners Control Your Money: Some think financial planners take control of their money. In reality, planners provide advice and recommendations, but you retain full control over your financial decisions and accounts.
You Don’t Need a Financial Planner if You Have a Simple Financial Situation: Even those with straightforward finances can benefit from professional advice. A financial planner can help optimise your savings, plan for future goals, and navigate tax-efficient strategies, ensuring you’re making the most of your resources.
Financial Planning Is a One-Time Event: Financial planning is an ongoing process that evolves with your life circumstances. Regular reviews and updates are necessary to adapt to changes in income, expenses, goals, and market conditions, ensuring your plan remains effective.
All Financial Planners Are the Same: Financial planners have different qualifications, areas of expertise, and fee structures. It’s important to choose a planner whose skills and approach align with your specific financial needs and goals.
It’s Too Expensive to Hire a Financial Planner: While there is a cost associated with financial planning, the benefits often outweigh the expenses. A financial planner can help you save money, make informed decisions, and achieve your financial goals more efficiently, providing long-term value.
How to Prepare for Your First Meeting with a Financial Planner
Preparing for your first meeting with a financial planner involves gathering all relevant financial documents, such as income statements, expense records, investment accounts, and insurance policies. Clearly define your financial goals and priorities, whether they involve saving for retirement, buying a home, or funding education. Be ready to discuss your current financial situation openly, including any debts and liabilities. Preparing a list of questions can also help you understand the planner’s approach and ensure they align with your needs. Being well-prepared will make the initial meeting more productive and set a solid foundation for your financial planning journey.
What to Expect During the Financial Planning Process
The financial planning process typically begins with an initial consultation where the planner gathers information about your financial goals, income, expenses, assets, and liabilities. The planner then conducts a thorough analysis and develops a comprehensive financial plan tailored to your needs. This plan includes specific recommendations for budgeting, saving, investing, and risk management. Once the plan is implemented, the planner will monitor your progress and make adjustments as needed. Regular reviews ensure the plan remains aligned with your evolving financial situation and goals. Throughout the process, clear communication and collaboration between you and the planner are essential for success.
Regulation and Accreditation of Financial Planners in the UK
In the UK, financial planners are regulated by the Financial Conduct Authority (FCA), which ensures they adhere to high standards of professionalism and ethics. Planners can earn various professional designations, such as the Chartered Financial Planner, which is awarded by the Chartered Insurance Institute (CII) and signifies a high level of expertise and commitment to ongoing education. Other recognised designations include Certified Financial Planner (CFP) and Personal Finance Society (PFS) membership. Ensuring your financial planner is properly accredited and regulated provides confidence in their ability to offer reliable and competent advice.
Summary
Engaging a financial planner can provide numerous benefits, from setting and achieving financial goals to managing investments and planning for major life events. By understanding the role of a financial planner, the types available, and the costs involved, you can make an informed decision that aligns with your financial needs and goals. Whether you choose a fiduciary planner, a chartered professional, or a wealth manager, the key is to find someone who can provide tailored, expert advice. Start your financial planning journey today to ensure a secure and prosperous future.
This article does not constitute financial advice. We recommend that you speak to a qualified financial adviser for advice tailored to your individual circumstances and goals. Financial markets may go up or down, and you are not guaranteed a return on your investment. Past performance is not necessarily a guide to future performance.
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