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While I subscribe to Gourmet Magazine, I can assure you the Russian Tea Room won't be serving my Chicken Kiev anytime soon. Oh, I use the freshest ingredients and follow the recipe precisely, but to no avail. When it comes down to dinner, Jacques Pepin I'm not. And that's okay.
It's often the same with financial planning: You follow the directions you've been told or you think will work for you, but you end up with a burnt mess rather than a picture of perfection. Perhaps your tax bite seems unusually painful, or you've just received a lump sum of cash. Maybe you've started a new job or are planning a wedding. Most likely, you're just a little confused and not sure where to begin. These are all good reasons why you should consider working with a financial planner or an investment advisor.
Who needs 'em? Well, it doesn't take a master's degree to buy a mutual fund, and even a 6-year-old can pick a stock. But sound financial planning or investment advice constitutes more than just watching CNBC or opening an E*TRADE account. Most individuals of moderate assets could benefit from the professional touch.
Let's look at the lexicon: Although the terms are often used interchangeably, investment advisors and financial planners actually perform decidedly different roles. A financial planner will help you develop a comprehensive approach to your money. Stocks are just the start; good planners cover everything from budgeting to insurance, retirement and real estate. While they might also be involved in actually helping you choose specific investments, most planners opt to defer to investment advisors, whose jobs solely focus on security selection.
One of the main advantages of working with a financial planner is the simplicity. With literally thousands of investment options available, most people with real jobs find the do-it-yourself route to be less of a convenience and more of a curse. The best planners, which carry the designation Certified Financial Planner (CFP), take a comprehensive approach toward helping you meet your goals and will ask a lot of questions. Like a therapist, a planner will want to know about everything: Careers, relationships, and your health are just as important as your tolerance for risk.
Beyond financial planning, good investment advice is equally important. Even individuals who enjoy following the stock market could use guidance from time to time, especially as they begin to build a portfolio. A professional opinion just makes sense.
The same idea applies to your finances. Whether it be your health or your wealth, getting a second opinion is a sound idea. Investment advisors will buy and sell stocks, bonds and other securities on your behalf, often working closely with a financial planner to help determine a client's asset allocation, risk tolerance and tax landscape. If you have an investment idea, a good advisor will help you evaluate the risks and rewards.
Don Meade, an investment representative at Edward Jones and Co. in Charleston, South Carolina, highlights experience as one of the major advantages of using a trained advisor. "Most of today's investors have yet to see a down market or even a major correction in the market. Only then will they begin to see the benefits of a financial professional."
But remember to consider the cost. Generally, financial planners and investment advisors are compensated in one of three ways: fees, commissions or as a percentage of assets under management. Expect to pay for good service, but also make sure you're getting it. Good financial planning sometimes involves George Soros-style trading.
When you first sit down with an investment professional, come equipped with a list of questions. You'll want to know his or her background and compensation structure, and be sure to check their credentials with one of the major professional associations or regulators; call the SEC (800-732-0330) or the National Association of Securities Dealers (800-289-9999) to check up on an investment advisor's disciplinary history, and call the Certified Financial Planner Board of Standards (303-CFP-MARK) to check planners' credentials.
Jonathan Hoenig is a radio personality, market commentator and principal at Capitalistpig Asset Management in Chicago.