A financial planner is a professional who helps individuals and businesses meet their long-term financial goals by analyzing their financial situation, developing a comprehensive financial plan, and implementing a financial strategy. Financial planners might work independently, in a financial institution, or as part of a broader financial planning firm.
Here are some of the tasks a financial planner might perform:
- Assessing Financial Goals: Financial planners meet with clients to discuss their financial goals, which might include saving for retirement, buying a home, financing their children’s education, or expanding a business.
- Evaluating the Financial Situation: The planner will evaluate the client’s current financial situation, including income, expenses, assets, liabilities, and existing insurance or investment portfolios.
- Developing a Financial Plan: Based on this information, the planner will develop a comprehensive financial plan that sets out a strategy for meeting the client’s goals. This might include a budget to manage expenses, a savings plan, an investment strategy, tax planning, insurance needs, retirement planning, and estate planning.
- Implementing the Plan: The financial planner helps the client implement the plan. This might involve setting up and managing investment accounts, referring the client to an insurance broker, or helping the client set up automatic transfers to a savings account.
- Ongoing Review and Adjustment: Over time, the financial planner will review the plan with the client to ensure it’s still aligned with their goals and adjust as needed. This might be due to changes in the client’s circumstances, like a new job or the birth of a child, or due to changes in the economy or investment markets.
Certified Financial Planners (CFPs) have passed rigorous exams in the areas of financial planning, taxes, insurance, estate planning, and retirement, and adhere to a code of ethics in their practices. Choosing a financial planner who is a CFP can provide an added level of confidence in their competence and ethical standards.
Example of a Financial Planner
Let’s consider a hypothetical situation to understand the role of a financial planner better:
Imagine that Sarah, a 45-year-old woman, just received a significant promotion at her job. With this promotion, her annual income has increased substantially. Sarah realizes this is an excellent opportunity to plan for her retirement, but she isn’t sure how to handle this increased income efficiently.
So, Sarah decides to hire a financial planner. During their first meeting, Sarah tells the financial planner about her financial situation, her goals (she wants to retire comfortably at 65 and plans to travel extensively during retirement), and her concerns (she’s worried about inflation and rising healthcare costs).
The financial planner reviews all of Sarah’s information, including her new income, her expenses, her current savings and investments, and her risk tolerance. Using this information, the planner develops a comprehensive financial plan.
The financial plan includes:
- Budgeting and Saving: Given Sarah’s new income and regular expenses, the planner suggests an amount Sarah should aim to save each month.
- Investment: The planner proposes an investment portfolio that aligns with Sarah’s risk tolerance and growth objectives. This portfolio includes a mix of stocks, bonds, and mutual funds.
- Retirement Planning: The planner calculates how much Sarah will need for her retirement, considering factors like inflation, estimated living expenses, healthcare costs, and desired travel.
- Insurance: The planner suggests Sarah obtain life insurance and long-term care insurance to protect herself financially.
- Tax Planning: The planner provides advice on tax-efficient investment strategies to minimize Sarah’s tax burden.
Once Sarah approves the plan, the financial planner helps her implement it by setting up the necessary accounts, guiding her on investing in the proposed portfolio, and coordinating with an insurance agent and a tax advisor.
Over time, the financial planner continues to meet with Sarah to review the plan, make necessary adjustments based on changes in her life circumstances, and ensure she remains on track to achieve her financial goals.
This is a simplified example, and the scope of services a financial planner provides can be broader based on the specific needs of the client.