Financial planning is something that everyone should do, but many find it hard to make time to come up with a detailed financial plan on their own. Turning to a professional financial planner is a reasonable alternative, especially because a good financial planner can help not only with investing but also with a host of other financial issues, such as estate planning, risk management, and tax planning. Nevertheless, there are many misconceptions about financial planning and the role of professional financial planners, and correcting those erroneous impressions is important if you want to have an unbiased view of the financial planning industry more broadly.
1. "Financial planners will make me do something I don't want to do."
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Wall Street has developed a reputation for being one of the most aggressive sales-oriented environments in the business world. Boiler-room tactics give the impression that every financial professional is out to take advantage of their clients by offering too-good-to-be-true investments that appeal to base instincts like greed. Countless stories of unfortunate clients who've lost everything as a result of following unscrupulous advice only support this idea.
Good financial planners are less concerned about sales tactics than they are with helping you understand all the choices that you have with your finances and guiding you toward making the best decision for your particular situation. In the end, the final decision is always up to you, and you have to assume the responsibility for the consequences of that decision. By seeing the relationship with your financial planner as a collaborative one rather than just doing whatever your planner tells you to do, you'll have a much better experience, and your financial planning will be much more effective.
2. "My accountant can give me good investment advice."
In contrast to brokers and other investment professionals, many people have extremely strong, trusting relationships with their accountants. Because accounting professionals deal with the tax ramifications of investments every day, many accountants develop a working knowledge of how to invest. Some accountants will go a step further, actively urging their clients in one direction or another with their investing.
The danger in relying on an accountant for your financial planning is that unless the person you use also has training and experience outside the accounting profession, the advice that you'll get won't always consider every aspect in making a smart financial decision. For instance, an accountant can tell you that it's a bad idea to sell a stock on which you have a big capital gain because of the tax consequences, but only a financial planner with expertise in investment analysis can tell you about how that the sale of that investment could affect your overall asset allocation, and how your investments overall are positioned to meet your financial goals. Good financial planners bring together accountants, stock analysts, attorneys, and other key professionals to help you put together an all-inclusive financial plan to cover all of your needs.
3. "Maxing out the employer match on my 401(k) is a good enough financial plan for me."
Many people like to keep their financial planning simple, especially when it comes to retirement. Taking advantage of a 401(k) plan at work is generally a smart move, and many follow the strategy of contributing just enough to maximize the 401(k) matching contributions that their employer makes toward their retirement account.
Maxing out your employer match is a great first step, but for most people, it's not nearly enough to make up a comprehensive financial plan. For other needs, such as saving for education or healthcare, other types of tax-advantaged accounts can be helpful to meet your goals. Having outside investments will let you focus on financial needs with shorter time frames than retirement, and using other retirement vehicles like IRAs can give you greater flexibility and supplement your 401(k) saving. A good financial planner will take all of these options into account and help you prioritize your savings to meet your budget while ensuring long-term financial security.
Financial planning can be a formidable task, and there's nothing wrong with admitting that you need help. To get the assistance you deserve, you have to get past these misconceptions and understand that you can find reputable, trustworthy financial planners who take your best interests to heart and will help guide you forward toward a better financial future.