Letting someone else manage your money

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Q. I don’t like the idea of letting someone else manage our investments, but my husband wants to use a financial planner. We probably need one, so how can I get myself comfortable with the idea?
— Unsure

A. Not everyone needs a financial advisor, but most people could benefit by working with one.

There are two ways you can engage a financial advisor or financial planner.

First, you can work with an advisor who offers a financial plan for a fee.

“He or she can put together a financial plan and make their recommendations in the financial areas that are being analyzed and the client can take the finished plan and recommendations and implement the recommendations themselves,” said Brian Power, a certified financial planner with Gateway Advisory in Westfield. “If nothing else, this could be a good way to have a third party objective advisor take a look at where you are financially and if you could be doing things differently or better.”

Your other choice is to hire a financial planner who creates a plan for you, and then also helps to implement the plan.

There would be an annual fee that you would pay to the advisor for ongoing advice and investment oversight, Power said.

“While overseeing your investments, the advisor will take an active role in coordinating and facilitating the other parts of your financial life that needed to be addressed,” Power said.

For example, if it was recommended that you should get insurance, the advisor would help facilitate having that insurance placed either with his or her firm or with a third party referral, Power said. If there were suggestions that would impact you from a tax standpoint, the advisor would facilitate a conversation with your accountant to make sure everyone was on the same page and your other professional was in agreement with the advice.

Make sure you understand how a potential advisor gets paid.

So you said your husband feels you need an advisor and you said, “We probably need one,” but why?

If it’s because you don’t have the time to pay attention to your money, you’ve made some bad decisions or you’re at the point in your life where you could not recover from a major financial mistake, then paying an advisor for ongoing advice could make sense, Power said.

The key to getting comfortable with the idea of using a financial planner is in getting a good handle on what you need, said Diahann Lassus, a certified financial planner and certified public accountant with Lassus Wherley in New Providence.

She said managing investments involves a considerable amount of skill, time and knowledge about your actual goals and objectives. The skills involved in investment management include the ability to evaluate potential holdings, the ability to develop a strategy for risk allocation, and the ability to weigh the impact of economic, political and emotional factors on the value of your holdings.

“Using these skills you must select investments, determine an allocation mix and assess the timing and factors which will lead to the various purchases and dispositions of your holdings,” Lassus said. “A professional planner utilizes significant resources, computers and software applications to perform these tasks.”

If you and/or your husband have these skills and resources, great. Next you have to consider your time.

Many people who work in the financial services industry — as well as in other jobs and professions — turn the management of their investments over to a financial planner, Lassus said.

“Often it’s the time that is needed to perform all the tasks of monitoring, evaluating and taking action at the appropriate times that just isn’t available,” she said. “In addition, having independent, objective involvement goes a long way in making sound decisions about the management activities.”

If time and objectivity aren’t factors, then the most important consideration is knowing your goals and objectives and the role your investments must play to achieve them.

“Only you and your husband can articulate these goals and objectives but few of us can truly navigate the issues and opportunities in our lives and translate them into targets relevant to an overall investment program,” Lassus said.

This is an area where a financial planner can be truly valuable.

Developing a long term plan requires a lot of questions, dialog, what ifs, and contingencies, Lassus said. Having someone who can be a sounding board, make suggestions and show you the potential impact of alternatives will be invaluable. And a financial planner can help with much more than your investments. An experienced financial planner can help you with evaluating cash flow, establishing your retirement plans and more.

If, after evaluating these considerations, you are becoming more comfortable with the idea of hiring a planner, Lassus said you shouldn’t stop there.

Many people call themselves financial planners or investment advisors. It is important to gain a solid understanding of what planners or advisors do, how they are compensated, how they are regulated and what you need to do to select the right advisor for you, Lassus said.

She recommends you start with the National Association of Personal Financial Advisors (NAPFA).  It provides a publication called “Pursuit of a Financial Advisor: A Field Guide” on its website, which includes important information such as what questions you need to ask when you interview an advisor.

Lassus said a critical credential for an advisor is that he or she is a certified financial planner practitioner, which assures that the advisor has the education to assist you in many different areas of your finances and not just investments.

Another helpful website is the Certified Financial Planner Board site, and the Financial Planning Association’s site.

When you look at advisors, Lassus said you should make sure he or she works with individuals that have similar finances to yours.

“They should be willing to sign a Fiduciary Oath which states that they will always put your interests first,” Lassus said. “Advisors that sell products are held to a lower standard called a suitability standard. This standard does not require them to put your interests first.”

After you understand more about what planners do and what qualifications to look for, Lassus said, you should begin the interview process.

Identify several advisors in your area and schedule an appointment. Most offer an initial consultation at no charge.

“This meeting is your opportunity to become more comfortable,” she said. “Don’t be in a hurry to hire the first advisor you meet with. Make sure you meet with several and listen to your intuition when making a decision on the advisor you want to work with.”

You want to be totally comfortable with the individual you hire so you can develop a long-term relationship, Lassus said.

If the financial planner asks a lot of questions about you and actively listens, you may be in the right place.

“Don’t buy a strong sales pitch. Make sure they can deliver what you need,” she said. “Do your homework, hire the right financial planner, and over time your comfort with a planner and the process will increase.”

Power said you also need to make sure you see the value in the services you’ll be paying for.

“If you hire somebody just to do it but never really see the value in what is being provided, you’ll never be comfortable with the relationship and you’re better off trying to handle things on your own,” Power said.

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This story was first posted in December 2015.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.