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Should You Hire a Financial Planner?

If you are like a lot of folks, you would like to work with a financial advisor, but you are concerned about the cost.  Further, you have heard the chatter in the popular press – to maximize your chances of success, keep your investment costs as low as possible.  And that is great advice that you SHOULD follow.  However, simply focusing on cost and cost alone is a foolish approach.  I can give you a no cost financial plan right now – put all your money in a savings account.  Is this plan adequate?  I seriously doubt it.  Similarly, I could tell you to use index funds to invest 60% in equities and 40% in fixed income.  Adequate now?  Again, I doubt it.

Deciding on whether or not you should use the services of a financial planner boils down to four key questions:

  • Do you know where you are going?
  • Do you know how to get there?
  • Do you have the discipline to stay the course?
  • Do you have the required financial acumen?

The four questions address four basic issues:  goals, plan, execution, and knowledge.  Let’s take them one at a time:

Goals – A successful financial plan begins by identifying the end goal or goals.  A comprehensive financial planner will start by making sure that he/she understands where you and your family are headed PRIOR to making any recommendations.  If you decide to “go it alone” the first thing you need to do is clearly define your goals.

Plan – Once you decide on the destination, you’ll need to develop a plan to get you there.  The plan needs to involve a large number of elements.  In particular, it should consider at minimum cash flow, insurance, taxes, investments, and estate planning.  All of these elements need to be combined in to an integrated plan if you want to protect your family’s financial well-being.

Execution – Perhaps the biggest challenge in reaching financial independence is in the area of execution.  The reality is that many individual reading this already know the importance of goals and a plan.  And yet they have not as yet defined the goals, built the plan, or begun the execution.  Others will have built the plan but forgotten to follow through.  Neither of these situations are surprising for two reasons.  First, the process of financial planning falls in to what Steven Covey refers to as “quadrant two” activities.  These are those things that are important but not urgent.  Those things that you’ll do tomorrow.  Those things that never actually get done.  The second reason is emotions.  When it comes to finances, folks rely on their gut more often than there brain.  This often means that even though they know what the right thing is to do, their emotions prevent them from following through on the plan.  That’s normally a recipe for disaster.

Knowledge – Finally there’s the issue of knowledge or background.  As was mentioned above, an appropriate plan incorporates the areas of cash flow, insurance, taxes, investments, and estate planning.  While none of these topics are exceedingly difficult to comprehend, there is quite a lot of complexity that requires concerted time and effort to understand.  Many individuals lack either the time or inclination to develop the requisite knowledge to ensure that their financial life is managed to the degree it should be.

If you cannot answer affirmatively to each of these questions, you likely would benefit from working with a financial advisor. 

That said, many will not do so because of the cost issue raised at the beginning of this article.  Again, penny wise, pound foolish.  Each year DALBAR ( conducts a study to see how the average investor compares to market performance.  Over time they have found find that the average investor UNDERPERFORMS the market by between 2 and 3 percent.  That’s because of the execution component highlighted previously.  The average investor does not display the required discipline to stay the course in turbulent market conditions.  Is this true of all investors?  Absolutely not.  And, as was mentioned previously, if you have clear goals, a defined plan, are able to execute, and possess the requisite knowledge, you can likely do just as well on your own; and, accordingly, may not benefit from the services of a financial planner.  You need to fairly assess your abilities in these critical dimensions in making the decision on whether or not to hire a financial planner.

In summary, financial planners do not have any “black magic” or “silver bullets” that they can provide to you.  They can, however, help you determine your goals, build a plan, and guide you through the execution of the plan while incorporating key knowledge in the areas of cash flow, insurance, taxes, investments, and estate planning.

Ultimately it is more about managing your behavior than managing the technical aspects.  And that’s where a good financial planner can deliver significant value.

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Curt Stowers

Curt Stowers

Curtis Stowers helps individuals and families across the United States grow their financial assets, particularly in the Naperville, IL region. He is a Certified Financial Planner, holds a Ph.D. in Industrial Engineering from the University of Illinois, and is the founder of F5 Financial.