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What Return Should You Expect from Investing in a Financial Planner?

What return should you expect from investing in a financial planner? That answer will be as unique for you as your fingerprint. The return you should expect from financial planning depends on what you’re looking to accomplish. 

Maybe you’re changing jobs and need help with employee benefit election. Maybe it’s tax planning that you need help with, or it could be simplifying your financial matters. The potentiality of this list is endless, but so too is the value you'll receive by hiring a planner.

Michael Kitces identifies 6 key value components offered by financial planners 1. They include:

  1. Organization – Financial planners bring order to your financial life 
  2. Accountability   Financial planners help you follow through on financial commitments
  3. Objectivity   Financial planners bring insight from the outside, and help you avoid making decisions based on emotion
  4. Proactivity   Financial planners help you to anticipate, and be financially prepared for, your life transitions
  5. Education  Financial planners provide education necessary to facilitate better decision making with your money
  6. Partnership   A financial planner can help you achieve the best life possible based on your specific goals and objectives

None of these benefits have a specific monetary value attached, yet each is invaluable in its own way. What could you accomplish if you were more organized, educated, and objective in your financial matters? I suppose the answer to that question is entirely based on your potential. 

Financial planners can be the perfect match for helping you reach your potential, whether your goal is long-term wealth or simply making better decisions.  

The return on your investment in a financial planner can be monetary, psychological, or (likely) both. While you could try to calculate the benefits yourself, it’s best to interview the planner first to determine the value they can offer to your situation.  Here are 10 common reasons you may want to hire a financial planner. Use each to reflect on the potential return in your personal life.

1. Your Financial Situation Has Recently Changed 

Around 2,500 years ago the philosopher Heraclitus was quoted as saying “The only constant in life is change.” Change happens all around us, all the time. Often, it’s subtle. Other times it’s sudden. 

Most changes, whether they be in personal taste, family structure, or on the job, directly impact on your financial situation. Take the following for example, and reflect on how these would change the complexity of your financial situation:

  • You get married
  • You have children
  • You get a new job
  • You get a promotion / raise
  • You’re buying a new home
  • You’re selling an old home
  • You’ve received an inheritance
  • You desire more intentionality in your approach to financial matters
  • The tax rates change
  • You’ve graduated from college with student loans

This isn’t an exhaustive list. In fact, these are just a few of the changes my wife and I have faced since getting married 12 years ago. How many other changes could you face in your life? I’d say no one knows for sure, but the possibilities are limitless. 

When something drastic happens in your life — be it a huge windfall or a major catastrophe — it can help to get in touch with someone who isn't so close to the situation. 

A financial planner can provide you with an objective perspective, one that isn’t going to succumb to pre-existing biases and instead can provide clarity on the best path forward. In summary, a financial planner can make it easier to see the situation objectively, so you can manage everything correctly. 

2. You're Consistently Getting a Tax “Surprise” 

Tax refunds can feel like finding money on the ground, and many of us know what it feels like to have to put money back into this proverbial ground. Owing and receiving money after tax season isn’t meant to happen every year.

Restructuring your taxes means you'll get more money to spend throughout the year rather than giving the government an interest-free way to accumulate cash. It also means that you can be better positioned to avoid penalties for taxes due. 

The work you do with your financial planner should include tax planning. Tax planning, at the very least, should include recommendations around the following:

  • Selling investments
  • Contributing to employer sponsored plans
  • Contributing to other retirement plans
  • Gifting money and other philanthropic interests
  • Maximizing deductibility
  • Tax efficient college savings
  • Inherited IRA withdrawals
  • Student loan forgiveness planning
  • Disability insurance structuring
  • Roth conversions
  • Retirement income strategies
  • Social security elections

As “they” say, it’s not about what you make, it’s about what you keep. A financial planner’s role is to help you keep the most of what you have, whereas your CPA's role is to acquire what you’re due. The combined effort between your financial planner and your tax advisor is the best way to avoid future surprises.

3. You're Worried About Retirement 

When you think about your retirement funds, do you cringe just a little bit? Maybe you’re 35 and wondering if you’re making the right moves now to prepare for retirement. Maybe, instead, you’re 58 and wondering about how to best use the assets you’ve accumulated over your life. 

The thought of retirement generates unease in the best of us. Yes, it’s a time where you ease out of the day-to-day responsibilities of work. You get to travel. You get to spend more time doing what you want to do, not what someone else wants you to do. 

But it’s also a time of uncertainty. Will the money last? Will the lack of true planning and execution mean you’ll risk having to re-enter the workforce? 

A financial planner can go far beyond the advice you'll find online to find a strategy that works for you and your income. Whether you’re age 35 or 58, it's helpful to start planning your retirement as soon as you're able to. 

4. You're Account Holdings Feel Overly Complex 

If your accounts are starting to get jumbled together, you might want to consult a financial planner to straighten everything out. You could be paying far more in official-sounding-fees / charges and earning less in interest.

Having too many accounts also yields unnecessary risk. Here are 3 examples of risk you take by keeping too many accounts open:

  • Risk of identity theft
  • Risk of custodial / account fees
  • Risk of making mistakes

5. You Have Student Loans

There are plenty of ways for people to become consumed with debt. One of the most prevalent ways in modern society is via the accrual of student loan debt. This debt can have an impact far beyond money matters, such as negative impacts to your emotional and physical wellbeing. I discuss this topic in more detail HERE

The average student loan debt in 2019 was $31,1722. This average can be misleading, however. Take for example those that graduate from medical school, where the average student loan debt is $196,5203 (six times the national average). I expand on this in my article "5 Best Practices When Paying Off Medical School Debt."

Addressing student loan liability is no small feat. Considerations include, but aren’t limited to:

  • Income-Driven Repayment Plan election
  • Tax consequence of potential forgiveness
  • Strategically managing your Adjusted Gross Income (AGI)
  • Advantages and disadvantages of refinancing
  • Advantages and disadvantages of consolidation
  • Tax filing status

There are few who have said it quite as well as Roy T. Bennet in his recent book "The Light in the Heart." Roy says "There is no more profitable investment than investing in yourself. It is the best investment you can make; you can never go wrong with it. It is the true way to improve yourself to be the best version of you and lets you be able to best serve those around you.” This investment can be in the form of time, sacrifice, or money. For those with student loan debt, it's likely all three. 

6. You Want to Create a Legacy

Wills and trusts ensure your accumulated wealth make it to the people who need it the most, but it doesn't just automatically happen. According to AARP, a study in 2017 found that 6 out of 10 people don’t have a will. 

The percentage of those without a will creeps higher the younger the generation. For example, “78 percent of millennials (ages 18-36) and 64 percent of Generation Xers (ages 37-52) do not have a will,” according to the AARP study 4.

The role of a financial planner isn’t to help draft your will, nor is it to provide legal advice. Instead, their role is to help you plan for the creation, and an easy transition, of wealth from you to your heirs. This may include philanthropic planning, or simply ensuring that the remaining spouse is able to receive assets in the most efficient and less costly manner possible. 

7. You Don't Have Time to Invest 

Investments can make anything possible. Unfortunately, “anything” can be in the context of anything good or anything bad. 

Creating and maintaining an investment strategy requires depth of knowledge, discipline, and the ability to remove emotion from the decision making. These are the basics, anyway. A good investment strategy also requires knowing where you’re going and how you’re going to get there, considering the many roadblocks you’ll face and the strategy to mitigate their impact. This includes factors such as tax planning, risk management, and asset protection.

For many, the dedication required to manage an investment strategy is far beyond their available time, expertise, or inclination. A financial planner can suggest a personalized investment strategy, so you stand a better chance of accomplishing your goals. 

Don't hire a financial planner just to manage your investments though. There should be more value than that. Check out "Hiring a Financial Advisor For Your Investments...Is It Worth It?" to learn more.

8. There are Changes in Your Family 

Divorces, marriages, and new children all call for a shift in the way your personal finances are managed. Take getting married for example:

  • Will cash flow and cash flow needs change? 
  • Will one spouse inherit the debt of the other?
  • Have investment goals changed as a result?
  • Will you end up buying/selling a home?
  • Are there student loans to consider?
  • Are there credit history issues to manage?
  • Will you go on one health care plan, or remain separate?
  • How will your employee benefit elections change?
  • Do you have enough life and disability insurance?
  • What changes need to take place in your estate plan?
  • How will joint filing impact your tax planning strategies?

If you’ve been married, or plan to marry soon, you’ll know what I’m talking about here. These questions just scratch the surface of those that need to be addressed when saying “I DO.”

Financial planners can make it easier by bringing simplicity, clarity, and intentionality to the process. 

9. You’re changing jobs

Starting a new job or switching careers can be both exhilarating and downright scary. The impact on your financial position is of no exception. A few questions that need to be addressed relatively soon include:

  • How does the change of income impact your ability to reach your goals?
  • Are there significant changes in employer benefits?
  • How does your health insurance coverage change?
  • Will you have access to an HSA?
  • What do you do with your old 401k or 403b?
  • How do you best structure the investments in your new 401k or 403b?
  • How does the change of income and benefits affect your tax planning?

A financial planner can assist in helping with all of these questions, as well as the questions that have yet to be asked. Once the planner understands the goals and objectives you and your family have, they can provide guidance on making the right investment choices in your 401k or 403b, suggesting tax planning strategies, and ensure you’re getting the most bang for your buck with employee benefit elections.

10. You Have Questions 

Even the smartest people in the world have questions about their finances, but there is no one-size-fits-all solution. As helpful as standard advice may be, a financial planner will personalize the questions and tailor a solution that best fits you as an individual, with your individual goals based on your specific situation. 

The goal, of course, is to build more confidence in where your money is going on both a short- and long-term basis. 

 

Closing Thoughts

A recent study by Morningstar.com concluded “Of the four sources of financial information we studied, we find that households working with a financial planner made the best overall financial decisions. Meanwhile, those households working with a transactional advisor made the worst financial decisions of the group.”

This isn’t to negate the value of a transactional advisor, though I recommend you choose a fiduciary and fee-based financial planner over any other alternative. 

So, what return should you expect from investing in a financial planner? 

If you’ve read all the way to this point, my hunch is you already have a good idea. There is no better investment than to invest in yourself. Fortunately for you, a fiduciary is always required to act in your best interest, so think of your financial planner as an extension of yourself.

I wish you the best in your journey towards financial freedom. 

Warm regards, 

 Jeff Stewart


Contact Jeffrey Stewart directly if you’d like to discuss this information in more detail or determine its application to your situation specifically. Lucid Wealth Planning offers consultation via student loan analysis, budgeting, as well as comprehensive financial planning and investment strategies.

 


1 https://www.kitces.com/blog/6-key-value-propositions-a-good-financial-planner-can-provide-for-clients-seeking-a-better-return-on-life/

2 https://www.credit.com/personal-finance/average-student-loan-debt/

3 https://www.nerdwallet.com/blog/loans/student-loans/average-medical-school-debt/

4 https://www.aarp.org/money/investing/info-2017/half-of-adults-do-not-have-wills.html


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