What Is a Financial Planner?

by Derrick Handwerk, MBA, CWPP, CAPP

In this article, we will review the different approaches that a financial planner can take when working with a client. From my experience, many people do not realize the important factors in working with a financial professional. This article will give a brief overview of several factors to consider.Suitability vs. fiduciaryMany people do not realize the differences among financial planners. I believe the single most important factor when evaluating a financial planner should be that they are working in your best interest. I think this factor is the difference between a salesperson and an advisor. The lowest level of client appropriateness is suitability. For example, if you are 75 years old and you give $100,000 to a planner and the planner puts you into two stocks, deemed inappropriate for your age, this planner could be determined to be unsuitable. On the other hand, if the planner puts the same client into five stocks and five bonds, that may be suitable. But in the second case, the broker may be getting paid extra commission on the sales due to incentives. The stocks and bonds may not be what is best for the client, but the investments may still be suitable investments.A person that acts as a fiduciary puts the client’s interest first and always functions in a manner that is in the client’s best interest. The Frank Dodd bill which was passed via legislation delves into this dichotomy. Many planners are worried that “fiduciary” status will be imposed. Many of the large financial institutions and brokers are fighting to stop this ruling. I welcome it!Planning vs. a cash-flow projectionI have seen many cash-low projections, but very few plans. From what I have seen, many in the financial industry give their clients nice binders with a lot of numbers in them. The numbers may represent how much money you will have at retirement if stocks increase 10% a year. This is not a financial plan. This is a way of sidestepping the time- consuming issue of really understanding a client’s situation and spending time with the client. This approach may be very damaging in that major issues are not discussed or reviewed. A financial plan requires the planner to read all the financial documents involved in a person’s life. Work with lawyers and accountants when needed to watch over clients. A financial plan is fluid — it changes as the client ages, tax laws change, or major life events occur. I know a number of financial professionals, and some see as many as 300 to 500 clients. They promise to work closely with their clients and meet each quarter or each year with them. When I do the math, I don’t see how you can see 300 clients on a quarterly basis. A financial partnerI believe your financial planner should be able to save you time and act as "advisor" and "liaison" on your behalf by working with your accountant and lawyer to make sure everyone is working toward the same goal. As a wealth advisor, my goal is to save you time, assist you in making better decisions, and bring ideas to the table which are potentially beneficial. I can’t even count the number of estate plans that I have looked at over the years which were improperly structured or out-of-date, thus exposing clients to hundreds of thousands of dollars in estate tax. In closing, a financial planner should do more than take your money and give you a cash-flow projection. You deserve better.

Editor's Note: The information presented is general in nature and should not be considered legal or tax advice. The reader should consult their legal or tax advisor for information concerning their own specific tax situation.

Derrick Handwerk received his MBA from Lehigh University and is a Rauch Business Scholar. He received his certification in wealth preservation and asset protection from the Wealth Preservation Institute. After college, he spent three years in the pharmaceutical industry, and then went on to run and own several businesses, including Handwerk Wealth Advisory. Handwerk Wealth Advisory works with accredited investors and small business owners. He also specializes in working with medical and dental practitioners. Visit his Web site at www.handwerkwealthadvisory.com.