The Certified Financial Planner Board of Standards, Inc. clearly explains and illustrates what a CFP® professional could do for a client. From “starting out, settling down, entering midlife, near retirement, and enjoying retirement” by following a plan and consulting with a qualified advisor individuals conceivably should reach their financial goals
. Unfortunately, recent statistics report less than 50% of individuals utilize the professional services of a financial advisor. In September 2015 a CFP Board survey shared, “Consumer use of financial advisors has increased significantly in the last five years from 28% in 2010 to 40% in 2015 with 7/10 indicating they work with a CFP® professional.” Additionally, CNBC reported in April 2015, “Some 58% of Americans believe their financial-planning efforts need improvement, but 34% of us have done nothing to plan for our financial futures
Financial Designations and Investing
The term financial planner or advisor remains an enigma to many and without clear understanding of the assorted financial consulting options available. In reality, many of us remain flummoxed by the financial title hyperbole
! Most individuals have no clear idea as to the credentials, experience, or knowledge of whom they may choose to consult with or hire as their financial professional!
Whether fear of the unknown, facing one’s financial reality, perceived cost of advice, hesitance to share personal information, laziness, or a whole host of other reasons or excuses, the reality is that indecisiveness can be expensive. “With the effects of the financial crisis still being felt today, some investors may be understandably wary of the financial planning process,” says Michael McAdam, CEO of McAdam. “It’s important to recognize that meeting with an advisor can significantly improve your financial health
Thinking that inaction is safer than taking an action step may be the costliest non-investment decision one can make. Remember the story of keeping cash at home in a mattress
? Although not exposed to the clutches of a bank, the mattress could be lost to a storm or fire, stolen, discarded, or exposed to value decrease because of inflation risk (loss of purchasing and re-investing opportunities).
Vanguard, in a March 2014 news release
, reported a client might potentially increase his portfolio return by 3% when consulting with a financial advisor vs. doing it alone. An advisor can offer services, which include and are not limited to: effective communication and financial perspectives with a combination of discipline, ongoing objective strategy, awareness of investment costs, purposeful savings and spending, maintaining proper asset allocations, and periodic rebalancing.
Welcome to Confusing and Conflicting Information Access
People have vast amounts of information at their disposal and often at the click of a button. What is it that motivates someone to contact an advisor vs. making often tough and complex financial decisions on his own? What about investors who decide to go with Robo-investing and hope the non-human component will not be necessary until it is? Will someone be there to speak with if the market turns negatively?
With all the financial news and differing pundit opinions, it is becoming frustrating to differentiate what is objective vs. opinion; what is financial noise and what is truly important. Having a financial professional to call and ensure a meaningful, open dialogue about your concerns and filter out the static may be one primary reason to consider working with an advisor. Carl Richards, CFP® in a recent article
to advisors summed it up best, “Asking questions, listening more than we talk, and acting as a news filter to separate the valuable from the useless.” An advisor, who is engaged with his client should be attentively listening and processing what the client is asking and wants, then offering objective advice and an action plan.
If market gyrations have taught us anything, it is to prepare for the best, but be realistic of the potential worst. Investing in the collective market – all segments considered – always has an element of the unknown. If it were a sure thing, none of us would need to work and instead would be enjoying ourselves on a beach, boat, or mountain enjoying our good fortunes via constant positive returns. Realism of positive gains at an acceptable risk, but with the possibility of an equal or greater loss is what pragmatic investing is about.
It Should Be About You
Importantly, know your risk tolerance, have your short-, mid-, and long-term goals written down and review them periodically, as you should your investments and rebalance as necessary. Be prepared for the unexpected by maintaining an adequate amount in your emergency fund, obtain sufficient life, long term care and other insurances, consistently fund and save for your retirement, have your estate plan up-to-date, etc. There is no excuse for lack of preparation, as you may not have time to recoup losses if your plans do not work out as planned. Time can be your friend or nemesis; it depends on when you begin your journey.
Remember the story of the ostrich
that sticks its head in the sand leaving the rest exposed? The truth is the ostrich is carefully watching and caring for their hidden and protected eggs or symbolically their investment for the future. Ostriches’ appearance of risk avoidance is actually an important cultivating scenario ensuring their future investment reaches fruition. Be proactive, ask questions and carefully listen to the answers. Ask yourself if it passes the smell test
? Whether doing it alone or asking for professional guidance, you are ultimately responsible for your investment decisions, choices made and final net return.