Part of putting a financial plan in place means knowing what’s right for you – how much or how little planning you need, and how active you want to be in the planning process. While a CFP® professional can help you create a plan and provide guidance, YOU ultimately have to be in charge of the decisions that impact your life and your financial situation. Taking control of those things you can control is an important first step.
One area that many people outside the investment industry struggle with is the jargon and terminology. What’s the difference between planning and or guidance? There are advisers who are planners and planners who act as advisers. There are some who only provide planning for a fee, and some who do only the advisory work, leaving the planning piece for the investor to navigate.
As you decide what type of financial service will best meet your needs, there are a few things to understand about planning and guidance.
1. Financial “Planning” is often a separately paid fee engagement that focuses on information gathering, understanding your goals and objectives, looking at the entire financial picture (not just investments, but insurance and long-term care, among other components), and then creating a plan that is customized for your situation. As part of this process, I believe the professional should go even deeper by looking at who you are as a person and why you care about what you do. This may lead to incorporating goals that are sometimes non-financial in nature.
2. Financial “Guidance” is mostly focused on giving guidance and direction on which investments are best for your situation. There are two types of advice: Discretionary and non-discretionary. “Discretionary” means the adviser retains control, and while he or she may update the investor, the adviser makes the final investment decisions. “Non-discretionary” means the adviser offers the advice but the investor makes the final buy-and-sell decisions for their own portfolio. The advice most often focuses on risk tolerance and portfolio allocation, and may not take into account other aspects of the investor’s situation.
When both planning and guidance are combined, it is often called comprehensive wealth management. This is where the planning focus and discipline is brought together with the adviser’s investment acumen and expertise. Of course, understanding the investor, and listening to his or her needs and concerns, is a key element of the comprehensive approach.
So how do you decide which approach is right for you? Here are some questions you should ask yourself:
- Are you clear on the “why?” behind the choices you have made to date – do you have a process for deciding which financial decisions will work best for you?
- Are you saving enough to meet your goals such as retirement?
- Should you contribute to a Roth IRA or a Traditional IRA?
- Do you want to be actively involved in the investment process?
- Do you like to “watch” the markets and direct investments?
- Do you only want to know how to invest your money?
- What services do you actually need? Investment management only? Planning only? Both, also known as comprehensive wealth management?
- Is having a holistic view of your financial picture important?
If a holistic approach is indeed what you are looking for, a CFP® professional is uniquely qualified to help. They are trained comprehensively in six specialty areas to assist clients in pulling their whole financial lives together: retirement, estate planning, taxes, investments, budgeting and insurance. Use the “Find a CFP® Professional” tool on this page to find a CFP® professional in your area.