The average investor may not think there is a significant difference between an investment manager and a comprehensive financial planner. Both manage money and help you retire, right? Right – to an extent.
There are some striking differences that may make you think twice before choosing the person you would like investing in your future. While both offer advice on investments, investment managers generally focus on a rate of return (e.g. how much money they can make you), not necessarily taking into consideration your goals, time frame, or even your desires for the money you are investing with them. Financial planners on the other hand, make sure they are investing in your future just as much as you are, placing you and your goals for investment growth at the forefront of the planning process.
There are many areas where a comprehensive financial planner can add value. Here are what we believe to be three little-known values of choosing a financial planner.
- A Financial Plan
Having a written financial plan is one of the most valuable items a client can receive from an advisor. More than just the financial plan, the process (ours is called WealthGuard™) of creating one is where the true value lies. Sometimes clients have difficulties creating realistic and manageable goals for their investments, and a good advisor can help create and monitor a path on which to grow those investments. Additionally, should the plan begin to venture off course, a financial planner will be there to adjust the plan to help a client continue to meet his financial goals. It is important to maintain long term goals, instead of focusing only on short term concerns, to help ensure that a client’s desires are achieved over time.
- Behavior Management
A financial advisor can help manage behavioral tendencies that often result in poor investment choices. These choices can result in an overall decrease in lifetime returns of one’s investment in order to satisfy a short term urge, such as avoiding market volatility. This is just one mistake that a good advisor can help a client to avoid — guiding a client through the highs and lows of the market with a level head. Emotions dictate many investors’ investment strategies and can result in an investor losing a substantial return on their portfolio. It can be helpful to talk to someone who is not emotionally involved with your investment to advise you on the ideal course of action when emotions are running high.
- Tax Planning
Pretend for a minute you have invested in a superior fund. You are earning returns that are slightly higher than average and life seems great. However, what you may not realize is that with those great returns, you are likely also paying significantly higher than necessary taxes on your investments. You are essentially spending more to earn more – which may result in you “breaking even” in the long run. An advisor who offers tax planning would draw your attention to the taxes involved with your investments and alert you to situations where it may appear you are about to make significant returns on your investments, but in reality, may have a lofty tax liability lurking in the shadows. Minimizing tax implications will incrementally increase your return over time, and advisors who offer tax planning can add a great deal of value over the life of your financial plan. Just having the right types of investments in each account alone may make it worth your while to consult a comprehensive financial advisor.