“Wait a minute. You have a financial planner? Why?!”
I was standing in my neighbor’s kitchen, having just mentioned something about “our financial planner” to her. My neighbor is a retired CPA, sharp as a tack, and a dedicated do-it-yourself investor.
Like a lot of people, she was surprised when I told her that my husband and I pay a financial planner, given that I spend a lot of time on financial, tax, and investment planning in my day job. I found myself feeling a bit defensive. Maybe we should be doing it all ourselves?
But as I ticked through the key reasons we have a financial planner, they still hold water. In fact, since we started the relationship, we’ve picked up on even more benefits than we expected going in. We’ve gotten a good “return” on the money we’ve spent, and having a relationship with a planner has helped deliver a return that can’t be quantified: peace of mind.
Here are some of the key reasons we pay for financial advice.
1) We wanted a second opinion on a few important decisions.
The key reason we went down the road of seeking financial advice is that I wanted a different perspective on a few topics that weren’t directly in my wheelhouse, at least not at the time. For example, I had let some employer stock build up, which I knew was adding risk to our plan, but I was worried about triggering a big tax bill as we lightened up, especially because we’re in our peak earning years. And because both of my parents had required paid long-term care at the end of their lives, I found myself wondering if we should purchase long-term care insurance, possibly a hybrid policy, to address that contingency. Could we have confronted both issues on our own, without the help of a professional? Probably. Did having professional guidance help us move forward more confidently? Absolutely.
2) We found a business model that makes sense for our situation.
Relatedly, given that our advice needs were quite targeted and we were happy managing our portfolio on our own, we were delighted to find a financial planning firm that was willing to work with us on an hourly basis to address our specific questions; we weren’t signing on for ongoing portfolio management or financial advice in perpetuity. To be clear, I’m not recommending the hourly model for everyone. Paying for financial advice on an ongoing basis, via an assets-under-management fee or some other arrangement, can be the right call for some people. But I would urge consumers to shop around to hit on a business model that fits with the type and level of service they need. A key aspect of finding the right fit is getting clear on what you’re looking for.
What I didn’t fully understand when we initially sought out a financial planner is that most holistic financial planners, including the one we work with, won’t be comfortable answering a narrow set of questions without fully understanding your financial situation. My question about long-term care insurance seemed straightforward and specific, for example. But our planner could only really answer it with confidence if she had her arms around our retirement assets, expected payouts from Social Security, and anticipated in-retirement spending, among other factors. So just to set expectations: Even if you think your advice need is focused, a good-quality planner will need to spend some hours reviewing your total situation before you get answers. (In fact, I consider it a red flag if a planner is willing to provide you with targeted advice without doing a comprehensive review.) That can mean more fees than you might have imagined.
3) It gave us an impetus to get, and stay, organized.
Also in the realm of setting expectations: A holistic financial planner will require you to share a lot of information, including statements for all of your financial accounts, your tax returns, pay stubs, and so forth. And if you’re paying on the clock, as we do, it’s in your best interest to gather up all of that documentation yourself rather than turning over piles of disorganized paperwork. It’s not a light lift: I remember that I tackled the paperwork gathering/uploading process on a couple of days during sabbatical, grumbling all the way through. But the silver lining is that I was also able to cull a lot of financial paperwork through that process; we were organized, but saving more than we needed to. That initial organization blitz, prompted by sending our planner what she needed, has continued to pay dividends: We maintain just a small sheaf of financial documents and can readily put our hands on anything we need.
4) We love having a succession plan.
This has been one of the unexpected side benefits of working with a financial planner. Thanks to the aforementioned document share, our planning firm has current information on every financial relationship my husband and I have: our bank accounts, company retirement plans and IRAs, and insurance policies. Our accounts are linked to the firm’s financial planning portal and software so that our planner can see what’s happening with them in real-time, without us having to supply fresh documents. And because the firm we use employs multiple planners, it too has a succession plan in place: Any of the planners in the firm could also access our information in a pinch. If something happened to my husband and me, our loved ones would have a one-stop resource to help them sort things out. Of course, it’s possible to keep scrupulous records and develop your own succession plan, but having all of our documentation stored with a third party helps alleviate worries about things like our records being destroyed in a natural disaster or mislaying documentation on account of cognitive decline.
5) A third party can help give us “permission to spend.”
Finally, I’ve previously noted that I’m probably going to be one of those people who struggles to spend in line with what we could reasonably spend in retirement. My husband and I don’t deprive ourselves, but we’ve spent our lifetimes earning money and socking it away. We know that turning the spending switch “on” could be a psychological challenge. But seeing the detail of our planner’s retirement projections (including stress tests for big market downdrafts and tax-law changes) has helped provide tremendous peace of mind. So has hearing her reassurances about how much we could reasonably spend each year without the possibility of running out. There could be other avenues to help with the “permission to spend” problem”—purchasing a fixed annuity, for example—but for me a living, breathing financial planner can provide a lot of value in this context. For our own peace of mind as we age, it’s a relationship we plan to maintain.