DIY or planner
Question: I’d like to think I’m relatively savvy with financial planning (in no small part thanks to your show) and have a growing portfolio that is mostly in work 401k’s but will be rolled over very soon. My concern/question is that being relatively young, and with a ever growing portfolio, are financial planners worth their commission or their 1-1.5% fees (depending on who you pick)? On a sizable portfolio that is a decent amount of money and I’m not sure who much more guidance they are giving me on top of what I get from reading Kiplinger’s, the Wall Street Journal and listening to your show. What are your thoughts? David, Rockville, MD
Answer: As readers of these blog posts know I am a big fan of DIY money management for most people, especially when they’re willing to take the time to follow Kiplinger’s, the Wall Street Journal, and Marketplace Money.
Fact is, good financial planners are hard to find at a reasonable cost for the average middle class family with a home, a retirement plan, an emergency savings account, and a handful of other common financial products. It usually doesn’t make sense to work with a planner unless there’s considerable wealth, little time, and tax complexity.
In addition, it’s a recipe for disappointment to turn your money over to a financial planner and assumes they’ll do all the work. I always liked the ad line from the New York discount clothing store Syms, “An educated consumer is our best customer.” The same is true for financial planning.
However, if it doesn’t make sense to work with a financial planner now it might be a savvy move in the future. Where money professionals are particularly helpful is during major transitions, such as retirement. In that case, I would look toward working with a fee-only certified financial planner (CFP) to go over your household finances and make suggestions.
The other compelling reason for hiring a professional is if time is so short that you’ll lose control of your money without a professional beacking you up.
That’s my quick reaction to your question. For some more insight on thinking through the financial planning question, let’s turn to Ross Levin, head of Accredited Investors Inc. and one of the nation’s top financial planners. He suggests three questions to think about before deciding to go with a planner.
1) What is the triggering event that makes you feel you need a planner? Are you changing jobs, inheriting money, or do you just feel like you want more financial controls in your life?
2) What type of person will you feel most comfortable with discussing issues that are very personal for you? A good financial planner will spend a lot of time trying to understand you; you need to make sure that you are comfortable with the personality of the professional.
3) What would have changed in one year with your financial life if you were working successfully with a planner? Would you have drafted a will? Would you have saved tax dollars? Would you feel more comfortable with your investment philosophy?
I have a feeling after you’ve thought over these questions that you’ll embrace going without a planner, at least for this stage of your life.