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First, I think it is important to acknowledge that the term “financial planner” is not a regulated term. Many stockbrokers and insurance agents will call themselves financial planners and may actually do some basic financial planning.
Gary Logan
Wes Shannon
The problem with stockbrokers and insurance agents doing financial planning is that they get compensated by commissions, so, they are most likely to guide the client to an investment product that pays them a commission. The law requires that they direct and recommend you to any “suitable “investment for your situation.
Suitability standard is different from the fiduciary standard. A fiduciary must act in the client's best interests. The fiduciary — a person or entity that is legally and ethically bound to act in the best interests of another party — must prove in a dispute that what they recommended and did was in the client's best interests.
Someone who is subject to the suitability standard only must prove that what was recommended was suitable for the client. An example: An 80-year-old single person who should be invested in bonds may be directed to a bond mutual fund that pays a 3% commission instead of an exchange traded fund for bonds or individual bonds that don’t pay a commission. Both are suitable but the mutual fund has higher fees and thus lower returns over time.
The best financial planner is someone who is a Registered Investment Advisor (RIA) which is upheld to the fiduciary standard because of the Investment Advisors Act of 1940. Also, anyone with the Certified Financial Planner™, CFP® marks by their name are required to act as a fiduciary.
Getting back to the question at hand, how much money do you need to hire a financial planner? The answer is not a particular dollar amount in all cases. Some RIA firms have minimums of $1 million or $500,000 and other firms have a minimum fee from $1,500 annually to $10,000 annually. Some firms only do financial planning and do not manage assets. If you are the son or daughter of a financial planner’s existing clients, the firm will most likely waive their minimum fee or investment amount to start working with you.
The overall answer to this question is “as soon as possible.” If you are serious about improving your financial situation and achieving your goals, the quicker you can start with a comprehensive plan the better. Financial planners want clients to achieve their goals. It doesn’t matter if the client starts at age 25 or 50. Planners want to see success. Naturally, the earlier one starts in the process the sooner they reach their goals. When you, the client, are sincere about wanting to reach financial goals and are living below your means, a good financial planner will want to work with you.
No planner can help you save and invest in the future if you are spending all or more than you make. A financial planner can help you with budgeting and learning tricks to help you start saving.
If you are a business owner, I would suggest you start a relationship with a financial planner who works with business owners sometime after you have been in business for three years or more.
None of us know what we don’t know and while you may be great at your business, know that an experienced financial planner is equally knowledgeable about their business, too. Financial planners can help business owners find tax strategies and cash flow management strategies that will improve your success.
Here are some links to some sites that can help you match up with a financial planner: Home - Find a Fee-Only Financial Planner - FeeOnlyNetwork.com; Find an Advisor | NAPFA Financial Advisors & Planning Professionals | CFP - Let's Make a Plan.
Wes Shannon CFP® is a Certified Financial Planning Professional for Brazos Wealth Advisors in Fort Worth.