Short Guide to Financial Planning

By Robert Bartley, CPA, CFP™

final puzzle pieces being placed with words financial planning on them

Managing our finances can be time-consuming and tedious. Saving money for retirement, creating a budget, having a tax strategy, or investing are nice ideas in the abstract, but many people fall short when it comes time to put those ideas into action. Plus, money is a complex and emotion-riddled topic – so many people prefer to avoid thinking about finances altogether.

That’s where financial planning comes in. A financial plan helps crystalize your long-term goals by providing a road map to achieving them. And not just a road map, but a series of techniques and strategies that will enable you to turn your abstract goals into reality. Whether you worry about money and foresee a stressful financial future, or simply want to continue to grow the wealth you’ve already amassed, a solid financial plan can assuage your worries and provide actionable advice to improve your outlook.

Chapter 1

What Is Financial Planning?

Financial planning is a bit of a catch-all term referring to the different ways personal finance influences our everyday lives. Financial planners don’t limit themselves to a single feature or aspect like budgeting or investing. A good financial planner will wear several different hats while working with clients to meet their monetary goals. 

When you hire a financial planner, it’s not just to open an investment account or to figure out how to split an inheritance. Financial planning should encompass your full financial life, from budgeting to retirement planning, investment management, tax planning, college savings, and more. 

A financial plan will include not just goals and wishes for the future, but the strategies that must be enacted in order to make those goals a reality. It’s a process that can begin as early as young adulthood and last through retirement. In fact, your financial plan will likely outlive you – unless you want the courts deciding which heirs control your assets. 

Financial planners aren’t just limited to individuals or households either. Corporations, non-profits, and even government offices need the skills of professional financial planners for purposes like taxes, spending, budgeting, and investing. 

Chapter 2

Why Is Financial Planning Important?

Finance brings out a range of emotions in people. Discussing money can be a hot button issue and figuring out the best way to manage our income can be stressful. Money can make people act irrationally, like chasing big gains in the stock market without assessing the risk or blowing a windfall on creature comforts. In fact, there’s an entire academic field devoted to understanding why people behave the way they do when confronted with monetary decisions.

Financial planning helps remove the emotions from our financial decisions, which can translate either to better choices or to the simple comfort of not having to think about money. A good financial planner doesn’t just develop a step-by-step instruction list and send clients on their way. No, a good financial planner is an active and ongoing participant in clients’ financial lives.

For example, let’s say you get a bonus at work you weren’t expecting. The temptation to splurge can be great with found money, especially if it’s something like a bonus you earned from grinding hard at work. A financial advisor can look at your goals and help allocate your windfall where you need it most. 

Perhaps you’re behind on investing goals and can use the windfall to boost your 401(k) or prefund a monthly goal with a lump sum. Or maybe you’ve done well sticking to your plan and treating yourself as a reward isn’t a bad idea. Oftentimes, you may need to do a little of both. After all, to remain emotionally invested in your long-term plan, you’ll need to have some fun in the short-term. 

Either way, financial planning keeps emotion in check throughout the decision-making process.

 

Chapter 3

How Can a Financial Planner Help Me?

Not all financial planners have the same background and skills. Certified Financial Planners™ (CFPs), Registered Investment Advisors (RIAs), stockbrokers, and insurance agents can all adopt the title “financial advisor” or “financial planner.” It’s important to understand who, specifically, you are working with, so you can better understand what to expect from them.

Certified Financial Planners™  best fit modern-day use of the term “financial advisor,” because they are usually better equipped to provide a comprehensive financial plan for their clients. They can help with any of the following endeavors:

Saving

Everyone wishes they could save more money for a rainy day, but developing the capacity to save is tricky. It requires consistency and sacrifice and (most importantly) a game plan. Financial advisors can even help clients navigate 401(k)/403(b)/457 plan savings to meet your goals as well as minimize your taxes.

Budgeting

Budgeting can be especially important for people transitioning into and through retirement. At this life stage, most people begin to rely on a fixed, finite income that is usually less than income generated during earning years. 

Retirees may seek the services of a financial planner to understand how expenses will be different and gauge how much they can spend while remaining on track for budgeting their life savings. Most people forget about less recurring expenses such as home improvements or purchasing a vehicle. In addition, a retiree has to calculate how their health insurance costs will differ if they leave an employer-sponsored plan. There is a lot to account for, so working with a professional can be a wise choice.

Investing

Capital markets have been a source of wealth appreciation for centuries and investing allows the average Joe to get a slice of American economic innovation. 

Of course, there’s no get rich quick scheme with investing. It’s not as simple as investing in a company and waiting for it to turn into Amazon. Instead, a quality investment approach requires economic expertise, ongoing market research, and a thorough understanding of your risk tolerance. 

Risk tolerance is a fancy couple of words that just mean how aggressively you can invest without succumbing to pressures to sell when your plan tells you to stay invested. This can also be accomplished by installing defense in your portfolio to protect against big losses during market downturns. 

Insurance and Risk Management 

Many financial advisors assist clients in obtaining insurance because they are uniquely positioned to understand their clients’ needs- whether those needs pertain to funding their goals in case of premature death or disability, estate planning, or arranging spousal benefits. 

In addition, a good financial advisor will review all of your risks – not just portfolio risks – in order to protect your properties, vehicles, business, and more. 

Retirement Planning

One of the cornerstones of personal finance is planning for the eventuality that is retirement. With foresight and planning, retirement can be a relaxing, joyful time filled with traveling, grandkids, and everything that makes your golden years wonderful. Without proper retirement planning, life after work can be a stressful experience or can come well after the intended age.

College Planning 

The price of college tuition has risen steeply over the last 30 years. Now, most Americans need to save strategically for years in order to afford college. A financial planner can not only help keep saving on track but also direct those savings into efficient vehicles like 529 plans. 

Moreover, when the time finally comes to send your loved one to their college of choice, top financial planners can advise clients on how to maximize financial aid. For example, a client might be able to defer bonuses, make early contributions to retirement funds, or increase HSA contributions to decrease the amount of income in years when FAFSA forms must be completed. 

If you are a business owner you have more flexibility in regards to accelerating expense and decelerating revenue recognition. 

Lastly, if one spouse is considering a career change, taking the leap when your children are in college can pay financial aid dividends. 

Tax Planning

We know that Uncle Sam and many state governments will take a portion of your income and assets. But working with a financial advisor, especially one with one or more CPAs on staff, can translate to big tax savings. The right financial planner can use their knowledge of a client’s financial landscape to reduce their tax burdens, allowing them to keep a higher percentage of their income.

Estate Planning 

Speaking of inevitabilities like Uncle Sam, estate planning is an uncomfortable but necessary part of the financial planning process. The bell eventually tolls for all of us and leaving our loved ones in the best possible shape to carry on when we’re gone is the least we can do. 

Estate planning will divide your assets and belongings in accordance with your final wishes and can help prevent long and messy battles in probate court. A good financial advisor can also help you write a document that memorializes your family values from former to future generations. 

Caution: Not all CFPs provide these services, so be sure to ask whether your financial advisor does so. 

Chapter 4

Fiduciary vs. Suitability Standards of Financial Planners

As mentioned above, not all financial planners have the same skills. Relatedly, not all advisors have the same legal and ethical obligations to their clients. 

A CFP must act as a fiduciary when providing financial advice. Acting as a fiduciary means they are held to a strict standard of conduct. They are required to act in the best interests of their clients and disclose any conflicts of interest they may have. Even if your advisor is a fiduciary, it’s important to make your own determination about whether they’re not only qualified but also trustworthy.

Brokers and insurance agents, on the other hand, are held to a suitability standard, rather than a fiduciary standard. The investments and recommendations under this standard must be “suitable” for the client’s needs, but not necessarily the best possible option. 

For example, suppose one financial product best serves a client’s needs and costs less, but another serves the client’s needs well enough and pays a higher commission. The advisor held to a suitability standard is free to recommend the latter product, which may cost the client more but pay the advisor a higher commission. 

To further complicate matters, some financial advisors are both a CFP and a broker. Thus, the same professional may be held to different standards depending on the service they are providing.  If, for example, they are selling you a product and not providing financial advice, they don’t have to act as a fiduciary. 

Chapter 5

How Are Financial Planners Compensated?

 The compensation structure for financial planners varies depending on the type of advice being given and the assets the planner is managing. But compensation structures usually fall into one of two buckets: fee-only and fee-based. 

Fee-Only Advisors 

When an advisor claims to be “fee only,” what they mean is that the only compensation they receive comes directly from the client. The fee may be determined as a percentage of assets under management (AUM), as an hourly fee, or as a retainer fee, but the only way the advisor gets paid is through the client, no commissions. 

This type of compensation structure can put investors at ease, and rightfully so. Since the client is the only source of income, fee-only advisors who act against clients’ best interests won’t find themselves employed for very long. 

Fee-Based Advisors 

A fee-based advisor will still be paid by their clients, but they also receive payment from their firm or investment group for selling particular products to those clients. A fee-based compensation structure doesn’t necessarily mean that an advisor will not act in your best interest, but it does mean that there is a greater potential for the advisor to stray from what’s best for the client.  

Chapter 6

Key Takeaways of Financial Planning

The truth is, due to the myriad of finance professionals that can call themself a “financial advisor” or a “financial planner,” there can be little federal and state oversight when it comes to financial planners. For that reason, it’s up to the client to determine whether a financial planner’s knowledge and code of ethics are sufficient.

      Financial planning is financial management on an individual level, where specialized plans are developed for clients to meet their specific goals.

      Financial planners come from all different backgrounds and different types of advisors focus on different aspects of finance.

      Some common disciplines a financial planner helps with include saving, budgeting, investing, risk management, estate planning, college planning, tax prep, and retirement planning.

      Financial planners held to a fiduciary standard must act in their clients’ best interests. A non-fiduciary advisor only has to make “suitable” recommendations.

      Financial planners have two main sources of compensation – fees and commissions. Fee-only advisors only accept compensation from clients. Fee-based advisors accept compensation from clients, but also commissions from brokers, mutual funds, and insurance companies for selling products, policies, or shares.

Chapter 7

Financial Planning with Bartley Financial

At the helm of Bartley Financial is Robert Bartley. Robert, who is a Certified Public Accountant (CPA) and a Certified Financial Planner (CFP®), has over 30 years of business experience and over 20 years of experience as owner of his own financial planning firm. He applies his expertise to the betterment of his clients, whether that means managing their investment portfolios, planning for retirement, strategizing taxes, or executing any other initiatives in pursuit of optimum financial health and minimal financial stress.

At Bartley Financial, Robert has built a cohesive team where professionalism is valued alongside integrity. The Bartley Financial family strives to provide unmatched service to clients in Bedford, NH and Andover, MA. They employ a fee-only compensation structure, so clients know that, at Bartley, they come first.