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imit8him -> RE: Do you use a financial planner or organize and plan your finances yourself? (5/20/2008 10:03:41 AM)
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Hi Raspberry,
This is a wonderful question and also a commonly difficult and confusing one to understand and answer for many people out there, so I'm glad it's been asked here. I personally manage my own finances (because I have experience in the financial industry), but would also not be opposed to having a very good financial advisor work with me if I had a large sum of assets and did not have the time or interest in handling them.
The answer to your question, though, is very much dependent on various factors. The three main reasons/potential client types for seeking out and needing (someone who would benefit significantly from) a financial advisor are:
a.) Someone with very little education and an inability to properly handle their own finances. (In this case, it is all the more important to find a trustworthy and qualified advisor, given how many bad and predatory ones there are.)
b.) Someone who has the education and know-how or ability to learn the financial planning process, but is too busy and/or uninterested to do his or her own finances (much like taxes...a lot of people can do them, but are too lazy to bother with the hassle...going to a tax accountant is convenient, so same with a financial advisor).
c.) Someone who has the education/know-how and has the ability to learn the financial planning process and even wants to do it, but simply cannot, because their asset base is too large and complicated to handle by themselves. (This is a rare case, but usually involves very rich clients, who may be very smart and educated and even have a decent knowledge of the financial industry and an interest in it, but because their millions, if not billions, of dollars is too much to handle, they seek out a team of advisors who are very qualified. Often lawyers or businessmen do this, but they go to the very best firms, such as Goldman Sachs, who charge very high fees.)
The middle ground of people excluded from this list of those who would significantly benefit from a financial advisor are those with an education and ability to learn the financial planning process themselves and who have the time and interest to take care of everything. I actually recommend that most people do this (just like with taxes) if they can, because it saves so much money. And unlike the tax field, where there really aren't any "sleezy" tax accountants (though some are better than others in terms of skill), the financial advising industry is very much inundated with bad advisors and predatory salesmen-like people who are only interested in taking all of your money and meeting their company sales quota. With a bad financial advisor, you can literally lose all of your investment savings, if not more assets, due to greed and/or recklessness and negligence. For the most part, I think if you can take care of your own financial planning with a little help here and there from others (maybe ask knowledgeable friends or even work with a few advisors every now and then - since some of them charge only per visit fees), then it is well worth the effort. And again, unlike taking care of your car...or taxes, or something else that we pay others to do, financial planning is kind of a unique industry of its own and has many pitfalls that can cost one much more than a tax penalty (maybe a couple hundred dollars) or a leaky oil tank (maybe just a rare mechanic error that can be easily fixed), but can cost you your entire personal financial portfolio. And there are many stories of people being bilked out of all their assets from listening to bad financial advisors. So if you can and are willing to take some time to learn the basic financial planning process (something that may take time, but is worth it), you are usually better off doing your own planning. One other general suggestion that I have done myself is to work occassionally with advisors, but not necessarily have a long-standing obligation to one (unless I fit those three categories above or simply found an outstanding one)....This may be difficult at first, because most companies put relentless pressure on advisors to create long-lasting relationships with clients and this may very well be difficult to get out of if you've got complicated long-term investments or arrangemetns with a particular advisor. Switching firms can take time and is a pain. But if you can somehow do your own planning and go to maybe a pay-per-visit type advisor without any pressure of long-term obligations (even then you can just refuse), that'd be another way to handle an ideal situation.
(Personally I believe I have the ability and interest to do my own financial planning, but like I said, it can still be beneficial to seek out a trustworthy and qualified advisor every now and then for help...It costs a lot, but that's just the price you pay for good help.)
Now in terms of more specific pros and cons and the details of the financial planning industry and process, I'll need more time to address those (it's long, but still simple enough). I actually have a great interest in this area, so I like talking to others about it. ....I'll follow up this post tonight with more specifics. I need to take care of some work errands. [:)]
Great question though!
-Imit
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