What is a financial consultant?
A financial consultant is a professional whose calling in life is to work with you, the client, to manage the many financial aspects of your life while working toward specific financial goals. Good consultants provide high-quality financial guidance, help design strategies for safeguarding and growing your assets, identify your risk tolerance, and work to create a personalized investment plan and any other financial planning needs without compromising your values.
While you are trying to manage your finances, inflation continues to undermine buying power, higher interest rates suddenly boost the cost of borrowing, talks of tariffs or the possibility of a recession or some other economic issue could send the market into a collection of ups and downs and trying to keep everything in order can be daunting. A financial consultant is somebody who can help you navigate the ever-growing complex world of personal finance.
According to Fidelity, industry studies estimate that professional financial advice can potentially add up to 5.1% to portfolio returns over the long term, depending on the time period and how returns are calculated.[i]
If you have never had the experience of working with a financial consultant, you may be wondering what they can do for you. Let’s dig a little deeper into what you can expect.
What does a financial consultant offer?
Financial consultants generally work for a firm, or they are self-employed and can service individual clients or entire organizations. Their services may vary slightly depending on their background and experience however, typically they will examine your financial situation – including your assets, debts and expenses, and all other financially related documents and work with you to come up with strategies and create a financial plan that aligns with your goals.
There are many different reasons why people seek the help of a financial consultant. Most consultants will be able to advise on the following topics:
Retirement planning
Cost estimation
IRAs, 401(k)’s (and other retirement accounts), Pension plans
Retirement spending
Benefit adjustments
Income planning
Annuities
Social Security
Structuring an investment portfolio and identifying products that may be helpful
Creating strategies for saving and budgeting
Professional career development
Goal setting and how bonuses and raises could impact you financially
Networking in the financial industry
Mentorship through professional financial development
Risk exposure and management
Tax planning
Tax-loss harvesting
Tax-smart withdrawals
Education planning
529 plans
Accelerated gifting
Estate planning
Creating trusts
Powers of attorney
Beneficiary designations
Guardianship
Wills
Charitable contributions
Asset distribution
Life insurance policies
Health finance management
Health savings accounts (HSA)
Medicare
Medicaid
Affordable Care Act
Generational wealth transfer planning
Creating communication channels with family members
Managing future wealth distribution and the financial impact
Managing and paying down debt
Debt snowball
Debt avalanche
Creating repayment strategies
Debt consolidation
Budgeting
How to create and manage an emergency fund
Working with a financial consultant can help to create a documented financial and investment plan that helps to highlight your short-term needs, long-term goals, and your values. You are not only making plans now, but you are also establishing a foundation for future decision-making and creating a map of sorts to help you stay the course, especially during times of volatility in the market or within your personal life.
The longer you work with a financial consultant, the easier it will be for them to start pinpointing areas that need improvement, allocating assets, and sharpening your focus in ways that impact your objectives and avoid unforeseen obstacles.
They are not only financial consultants, they can encourage you when times are unpredictable. They can help to curb unnecessary spending and fine-tune your approach to cash flow management. They can also intervene when you are grappling with an emotional decision-making scenario, and a much-overlooked aspect of having a financial consultant as an ally, they are an extra set of eyes on your finances to help thwart potential scammers and hackers. According to Bankrate, at least 1 in 3 Americans have faced a financial scam or fraud in the past year.[ii]It is helpful to have someone else monitoring your finances along with you, especially if you don’t have a great deal of experience.
When should I seek the advice of a financial consultant?
There really isn’t a wrong time to meet with a financial consultant to assess your financial situation and discuss measures you can take to work toward improvement. Here are several life incidents that you may experience in your own life that may encourage you to want to change the way you manage your finances, including:
You find yourself struggling to manage your finances day to day.
You want to save for retirement but don’t know where to start.
You are tired of living paycheck to paycheck and wish to seek ways to budget and save.
You don’t have much money to invest but want to learn how to do it.
You have money invested but aren’t happy with your progress and want to modify your current portfolio to benefit a changing market.
Maybe you have a date when you think you may want to retire and want to get a head start on preparing for that moment.
If you receive an inheritance and want to invest and manage it instead of watching it disappear which historically is a common problem.
You want to see if your tax planning strategy can be revised to provide enhanced returns.
A financial consultant generally has the educational background, experience, and knowledge, as well as being a neutral third party who can assess your financial interests and concerns without making emotionally driven decisions. You might think you don’t manage your money based on how you are feeling, but a study conducted by Nobel Prize-winning psychologist Daniel Kahneman indicated that we make financial decisions based on 90% emotion and only 10% based on logic.[iii] That is a staggering statistic which only highlights the importance of getting help from a financial consultant.
Do all financial professionals who call themselves financial consultants hold a certification?
There are cases where individuals with no professional certification or training still call themselves financial consultants, so it is important to always inquire about the professional designations held by the financial consultant you are considering and to do your own research. Individuals who complete a financial planning program through the American College of Financial Services earn a designation called the “chartered financial consultant” (ChFC®). The ChFC® is a certification the college has offered since 1982, and they are the only institution to do so.[iv] Successful candidates complete a rigorous program that provides the skills and knowledge to offer more specialized holistic services covering a broad range of financial topics including divorce planning, retirement planning, and other business issues. Another accredited designation in the field of financial planning is the certified financial planner (CFP®) certification. To become a certified ChFC® or CFP®, candidates must complete a rigorous program, that includes both classroom study and real-world experience.
According to FINRA, to acquire a ChFC® designation, candidates must have:
Three years of full-time business experience within the five years preceding the awarding of the designation; and
A high school diploma or equivalent
There are eight online, self-study courses
Closed-book, proctored final course exams
Client-facing designees: 30 hours every two years, including one hour of ethics continuing education (CE)
Non-client-facing designees: one hour of ethics CE every two years.
In comparison,
According to FINRA, to acquire a CFP® certification, candidates must have:
A bachelor’s degree (or higher) from an accredited college or university and
Three years of full-time personal financial planning experience or the equivalent part-time experience (2,000 hours equals one year full-time).
Candidates must complete a CFP-Board registered program, or hold one of the following:
Certified Public Accountant (CPA)
Chartered Financial Consultant (ChFC)
Chartered Life Underwriter (CLU)
Chartered Financial Analyst (CFA)
Ph.D in financial planning, finance, economics, or business administration
Doctor of Business Administration
Attorney’s license
CFP certification from outside the United States
Must pass the proctored final certification exam
Get 30 hours of continuous education every two years.
In comparison, both ChFC® and CFP® professionals provide full-service financial guidance on subjects such as wealth management, investing, retirement, and more. Non-officially, however, the ChFC® is considered more difficult to obtain than the CFP®, along with being more expensive.
Financial consultants are professionals who provide individualized guidance to help people work to manage and preserve their wealth. They also help with financial planning, investment management, navigating the complex world of insurance, tax management, and other more specified situations that require financial decision-making.
How should I prepare to meet with my financial consultant?
When you first meet with a financial consultant you can view it as an opportunity to conduct an interview allowing you to learn about them just as they are trying to learn about you as a prospective client. You can ask them about their credentials, experience, educational background, fee structure, and investment philosophy.
Just as you expect your financial consultant to be organized and prepared, it will be beneficial if you are as well. Consider these suggestions on how to prep for your initial meeting:
Have a list of your questions such as,
How are you paid? What is your fee structure?
What are your credentials?
What is your investment philosophy?
How often do you communicate with your clients?
Are you a fiduciary at all times?
A list of your assets and liabilities
Assets – Cash, investments, property, gold, and others.
Liabilities – Mortgages, auto loans, student loans, credit card debt, medical bills, and outstanding taxes.
Retirement plan account statements
401(k)s, IRAs, profit-sharing plans, defined benefit pensions, and others.
Your tax returns
Bank statements
Insurance information
Brokerage statements
Legal financial documents like child support and alimony payment schedules
Other relevant financial documents you may have
What are the challenges some people face when searching for a financial consultant?
Finding a financial consultant for you may be time-consuming and expensive with high fees. Some consultants charge a flat fee while others charge hourly, monthly, or an annual rate and the cost varies significantly depending on, for example, the type of service you seek and where you live.
However, a high-quality financial consultant can be worth the price tag if you are able to cut your expenses, save money, and create a beneficial financial strategy that works toward your long-term goals. This in turn creates a more secure financial situation for you and your family and helps to alleviate some of the financial stress and concern that impacts so many people.
I have heard that only rich people need a financial consultant, is that true?
No, that is not true. A financial consultant can be beneficial for anybody looking to change the way they manage their finances. They can help with many different financial and professional questions, and it doesn’t necessarily have to break the bank. According to NASDAQ, there is no standard fee for financial consultants. Some may earn commissions, some charge an hourly rate or an annual fee, and others charge separately based on specific services. Just like comparison shopping for a new car, you can do the same when searching for the financial consultant you feel will benefit you and your family.[viii]
Not everybody needs a financial consultant, however, if you earn money and you hope to retire someday, you have a reason to consider talking to one.
Make an appointment today to start changing your life tomorrow
Taking action is the first step toward getting your financial situation in order. It can be a stressful decision regardless of your income level though particularly unnerving if you are experiencing a financially leaner time in your life. You may be behind on bills, have lingering debt, problems with budgeting and saving, all the while still dreaming of one day retiring and it can feel suffocating. This is exactly when hiring the services of a financial consultant can help.
Based on a survey conducted by the American Psychological Association, as many as 8 out of 10 Americans are stressed over concerns about money. Along with that, 75% of households live paycheck-to-paycheck, and credit card debt is growing.[ix]
The benefit of a financial consultant goes beyond immediate money issues. Money-related stress isn’t just about the dollars and cents, it can impact other aspects of a person’s personal life including their relationship with their children and partner, and this can touch those across different socio-economic classes including blue-collar workers, professional workers, and even executives in an equally diverse range of industries.
Do your research and find a financial consultant who is affordable for you and someone whose knowledge, background, and experience align with your wants, needs, and values.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by LPL Marketing Solutions
LPL Tracking #727063
Sources:
[i]Why hire a financial advisor | Fidelity
[ii]Survey: 1 in 3 Americans have faced a financial scam or fraud in the past year | Bankrate
[iii]What Is True About Emotions and Financial Decisions? | City National Bank
[iv]What Is a Chartered Financial Consultant (ChFC)?
[v]ChFC | FINRA.org
[vi]CFP | FINRA.org
[vii]Top Questions to Ask a Financial Advisor | The Motley Fool
[viii]To the Middle Class: Financial Advisors Aren’t Just for the Rich | Nasdaq
[ix]Money-Related Stress | Personal Assistance Service