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The Financial Planning Revolution: A Beginner’s Guide to Working with a Financial Planner

The Financial Planning Revolution: A Beginner’s Guide to Working with a Financial Planner

September 18, 2018

A Beginners Guide to Working with a Financial Advisor

Ever thought about working with a financial planner? How much do financial planners cost and are they worth it? This week's post will answer these questions and several more, like:

How do you know if you need a financial planner?

What's the difference between a financial planner and a financial advisor?

What does a financial planner do, anyway?

I've been planning on writing this particular blog for about six months. But each time I got ready to write it, another, easier topic would spring up, and I would write about that instead. So much for tackling things head-on. The topics of financial planning and financial advice in general have been very important to me over the years, so I wanted to make sure that I didn't write this particular piece until I thought I could write it to the best of my ability.

Financial Advisors: Start Your Day on The Beach

My morning started at about 5 AM. I don't normally get up this early but I'm studying for my certified financial planner exam in November—so duty calls. After a bit of study my wife and I got my nine-year-old son ready for school.

While getting him ready I decided that I would crank up a little cardio in between dropping him off at school and coming back to work. My mind got creative and I ended up throwing the families longboard into the back of the trunk and hightailing it to Wrightsville Beach after I dropped my son off at school.

Since moving to Wilmington, NC just four years ago I've been enamored with learning to surf. The best surfing in the area however, is about 300 yards away from Wrightsville Beach, on Masonboro Island Reserve. 300 yards may not sound that far away, but this island can only be reached via boat or via a long swim. So, getting their and back can be challenging for a man of my years.

Like I said, all I wanted was a little cardio. My plan was to paddle about half the distance and then turn around and come back. I'm trying to build paddling strength, so this just sounded like a good way to have a quick workout.

Everything was going great. I had my longboard and had just walked about 200 yards out to the southern tip of Wrightsville Beach, and began to enter the water. Before I could do so, a guy heading towards the shore in a small boat to pick up one of his friends, asked me if I would like a ride over to the island.

I had only planned on a quick cardio workout. In addition, it was 7:52 AM when I left my car, and I had a conference call at 9:30 AM. Not a very big window.

If I took the boat ride, I would actually want to surf when I got to Masonboro. Even if just for a few minutes. But then I would have to do the short hike to the northern tip of that island, and then paddle the entire 300 yards with full commitment. I'm not in that good of shape, and there can be a very strong current that separates the islands. Long story short— I had a lot more to lose than just being late for my 9:30 AM appointment if the tide carried me in the wrong direction.

If you're already thinking about working with a financial planner or a personal financial advisor, and you've never done it before, then you may feel like you are in the position that I was in on this particular morning.

You want to go forward, but you have some reservations. So, my goal for this article, is to provide you with some useful information that can make your decision the right decision for you.

Financial Planner or Personal Financial Advisor

One of the things that I do not like about my chosen profession is that we don't have a more succinct title. If you tell people that you are a construction worker, a doctor, a teacher, or a lawyer, they generally know what you mean.

In my profession however, there are various titles that sometimes all mean the same thing, and sometimes mean very different things.

Here are a few titles we go by:

Personal Financial Advisor

Financial Planner

Investment Adviser

Wealth Manager

Private Wealth Advisor

Financial Consultant

There are others as well, and this could be an article in and of itself. But for the sake of today's conversation, let's stick with what I believe are the two most popular financial titles.

1) Personal Financial Advisor

2) Financial Planner

For the sake of simplicity, I'll say this. Generally speaking, I believe that some personal financial advisors do not perform comprehensive financial planning. Their focus is not broad. I believe they tend to lean a little too heavily on investments, and not quite so thoroughly on a few other areas that the Certified Financial Planning Board of Standards think are just as important. Here are some of the fields covered in the financial planning process as seen by the board:

1) Cash Flow management

2) Retirement Planning

3) Investment Planning

4) Employee Benefits Planning

5) Estate Planning

6) Insurance Planning

7) Income Tax Planning

I would probably add the following to the boards list:

8) Real Estate Planning (to include 1031 exchanges)

9) Business Planning 

And while some professionals that call themselves Financial Advisors do perform a comprehensive examination of all the elements mentioned above, many do not.

What Does a Financial Planner Do?

Financial Planning from 30,000 feet 

Let's talk about working with a financial planner. Generally speaking, my personal opinion is that most financial planners do perform comprehensive financial planning. He or she seeks to look at a client's entire financial health from 30,000 feet.

During an initial financial plan, a financial planner may spend one or two hours going over your employee benefits package at work. He or she may also spend one or two hours reviewing last year's income tax return. That disability or life insurance policy that you purchased a few years back that you can no longer remember the details about— your financial planner would typically review these contracts for you so that you can remember why you bought them in the first place.

Questions about cash flow planning? When is the last time you set down with your spouse and did a complete inventory of what's coming in the front door and what's going out the back? As a financial planner, this is a discussion they would have with you. As I wrote in one of my earlier articles, even high- income earners that make upwards of $200,000 per year can benefit from this process. They just don't know it yet!

When it comes to investments, a financial planner can typically perform the same function as a financial advisor when it comes to designing, implementing, and monitoring your portfolio(s). Investments are a component of what a financial planner does— not the whole show. I believe that there are many financial planners out there that are content allowing, even encouraging their new clients to leave assets under management with their current financial advisor, if that financial advisor is doing a great job.

When this is the case the financial advisor gets to be the hero with the portfolio, and the financial planner continues to navigate the ship when it comes to the bigger picture of all things financial.

Please keep in mind that these are generalizations. When interviewing a prospective financial planner or financial advisor, simply ask them if they are going to put in the time and energy to work comprehensively, or, if they prefer to just focus on one or two elements of your financial plan.

Despite some of the negative press that my peers and I receive and even deserve on occasion, the vast majority of men and women that I have met over my career are incredibly talented and trustworthy. I would trust them with my retirement savings in a heartbeat. And I stand by this no matter what they call themselves.


In a recent article I read, Brian Thompson, CFP® sums up some of his thoughts as to what a comprehensive financial professional does. He says that financial planning is both an art, and a science.

Here is the art of what he does:

  • Celebrating successes and working through challenges that come up.
  • Listening to both spouses' viewpoints and developing a plan that works for both.
  • Discussing topics, including family history, and figuring out how that has influenced current spending habits.
  • Navigating discussions and walking through the steps towards creating a prenuptial agreement.
  • Guiding clients through emotional, difficult conversations about end of life planning so that they can address estate-planning issues.
  • Breaking big goals into smaller steps to ensure continued progress.
  • Providing client notes for reference and to help with retention.
  • Helping a client go after and get a dream job.
  • Quelling anxiety over moving across the country.

Here is the science:

  • Gathering information to file previous year returns.
  • Amending previously filed returns that are either missing information or filed in a way that negatively affects other parts of their plan.
  • Taking advantage of deductions like the adoption credit, charitable contributions for board expenses and suspended losses on rental real estate.
  • Reconstructing basis in a S-Corporation.
  • Diversifying an investment portfolio that was invested heavily in company stock.
  • Developing an investment policy statement that you can refer to when making investing decisions.
  • Maximizing access to Restricted Stock Units (RSUs) and Employer Stock Purchase Plans (ESPP).
  • Balancing a couple's overall portfolio based on each person's access to different savings vehicles.
  • Increasing life insurance to make sure all obligations are covered.
  • Obtaining renters insurance.
  • Adding retirement protection riders on current disability policies.
  • Helping retitle assets to fund trusts.
  • Updating beneficiary designations on different assets.
  • Connecting clients to trustworthy estate planners.

How Do You Know if You Need a Financial Planner?

I'm going to go out on a limb here and say this: if you have already made it this far in reading this article, you probably could benefit from working with a financial planner or financial advisor. Going to see a financial professional is like going to see a doctor. You probably need to go before you actually go.

In another article I read during my research for this article, author Selena Maranjuan writes that you may not need financial advice if you already do an excellent job managing your investments as well as all of your other areas of the big picture. Here are a few of her examples:

-If you have been saving for retirement diligently and investing effectively.

-If you have devised a sound retirement plan that would generate sufficient income in your golden years.

-If you got just the right amount of insurance to protect your home, your car, your life, your income, and anything else that needs protecting.

-If you have your debt under control.

-If you have an estate plan that minimizes taxes and headaches for your beneficiaries.

In another article from U.S. News & World Report, author Kelley Campbell provides Five Signs You

Need a Financial Advisor:

  1. You received a tax refund every year.
  2. You don't know how much you pay for your investments.
  3. You don't have a strategy for down markets.
  4. You are not sure if you are saving enough money.
  5. You have not set up a survivor or legacy plan.

Financial planners can help you elevate your financial game. I can't say it any more concisely than that. I believe if you want to get better at just about anything, you need a coach.

How Much Does a Financial Planner Cost?

One of the best questions I receive by prospective clients is “How much does it cost?” When I get this question, I know that someone's interest has risen to a point of possibly taking action. And taking action can often be a very good thing when it comes to personal finance.

First of all, let's put things into perspective. Most families pay over $1,200 a year for cable television, $3,000 a year eating out, and the average family vacation for a family of four is about $4,500.

The reason I say this is because just about anybody can afford a solid initial financial plan, and at least one annual review per year.

Based on all of my research, most financial planners charge anywhere from $1000-$3000 for an initial financial plan. Ongoing cost are typically a fraction of that. Higher net worth individuals can spend more due to the complexity of their financial situation. But they usually garner a greater value as well.

I love what Arthur Laby, a professor at Rutgers Law said in an article from CNBC Personal Finance:

“There is a common misconception that financial advisors are only for the wealthy. Many advisors will work with individuals who do not have significant sums to invest.”

I couldn't agree more. I believe that there is a financial planning revolution going on—even if it's in the early stages. And yes, financial planners can help people even if they have no money to currently invest!

In an article written by Becca Stanek CAPF®, here is a breakdown of her fee research regarding what financial planners and financial advisors charge for their services:

Note that fixed fees for financial planning are in line with the numbers that I mentioned above, and that asset management fees can run 1% to 2% per year. If you just need some hourly work Ms. Stanek has that range from $100-$300 per hour. While this may sound expensive, keep the perspective that we mentioned above.

True story, I had a plumber come to my house the other day for one hour. Actually, just shy of it. The bill? $100 just for the labor. Was it worth it? Yes, every penny. He has a skill set and an educational background that I do not have.

It's important to understand that asset management fees (AUM) are not the same as financial planning fees. Typically, when people do business with a financial advisor, the financial advisor works with them primarily on their portfolio, and the only fee he or she charges is anywhere from 1% to 2% per year according to Ms. Stanek's research.

I will share some research with you from very reputable sources towards the end of this article regarding ROI (return on investment), which most research has found to be about 3% on average when you evaluate the research from all the sources mentioned just below. (You can also find them in the footnotes of this article).

That being said, I believe that most AUM fees are for just that— managing assets.

A sweeping and comprehensive financial plan is typically not included in that 1% to 2% AUM fee. If you want a comprehensive financial plan, you would typically pay $1,000-$3,000 for the initial financial plan based on an average of 12 hours of planner time, plus 1%-2% AUM fee to have your money professionally managed and monitored in a custom portfolio of stocks and bonds.

* Most of the data in this post was originally published in 2018. However, the research that some of the financial planning fees are based upon on were from 2012 through 2016.

In other words, fees may have risen substantially since then. For example, Mark Berg, a financial planner from Wheaton, Illinois, occasionally charges upwards of $20,000 for more complex financial plans. In a recent interview he shared a real-life example of a Chicago business owner who paid $60,000 for his initial plan. However, only about 40% of Mark's plans cost more than $7,000.

Mark believes that fees should be based on complexity and the amount of time involved, which can on occasion run upwards of 30 hours in the first year alone. Explore the podcast and blog discussing Mark's methodologies in Mike Kitce's post from Nerd's Eye View.

Working with a Financial Planner: Is it Worth the Cost?*

I'm excited about the financial planning revolution. I think it's going to change the world for the better. Every year more and more younger people are asking the right questions. The millennial and gen-x generation are not afraid to ask for help. And with technology and finance bringing quality advice closer to their reach than ever, many are wondering if they should start earlier than their parents with professional financial guidance.

Maybe working with a financial planner could help you elevate your financial game.

But what is the ROI? I mean, quantitatively, after you are charged a fee for an initial financial plan and then another asset under management (AUM) fee for your investment assets, are you really going to be that much better off?

In some recent research by Russell Investments, Russell has a strong belief that financial professionals can add a .75% of value per year for financial planning alone. If the advisor is using a tax-aware approach they add another .80%. Regarding the benefit of financial behavioral coaching, this was the biggest ROI with a 2% per year value.

While few investors admit it, they tend to buy high and sell low when making emotional decisions during times of market volatility. I've seen it happen numerous times with highly intelligent and wealthy people. It happens. But with good behavioral coaching emotional mistakes like this can be minimized. And, apparently Russell Investments agrees.

Quantitatively speaking Russell puts the total value of professional financial advice at about 4.08% per year.

PMC's Quantitative Research Group, Envestnet, also did some research on the value of professional financial advice. They noted the following as pillars of financial planning:

1) asset class selection and allocation

2) investment selection

3) systematic rebalancing

4) tax management

Based on their research they believe the value of professional guidance, vs. John Smith doing all of this on his own, was about 3% per year. This is a bit lower than Russell's 4.08%

Vanguard Weighs In

Vanguard has researched the value of working with a financial planner as well. I find some irony in Vanguard's research. When I first entered the business in 1999, Vanguard seem to have a very do-it-yourself approach to financial planning.

However, it wasn't but a few years later when some of their wholesalers were calling my office not only to get me to utilize their investments, but to explain to me the value of the services that I was delivering to my clients. Funny how times change.

Vanguard, like many other companies in the industry, have come to a place where they believe that personal financial advice is very important. While you can do things on your own, you can also get yourself into a heck of a lot of trouble if you overlook something— or if you make a poor decision based on emotions. Here is a breakdown of Vanguard's quantitative value of professional financial advice:

Of course, there are no guarantees. If you are incredibly well read, financially astute, and investment savvy, then you may want to do all of your financial planning on your own. But even if you had the ability, is that really what you want to do with your spare time?

Here's another thought. Usually it's the male in the relationship that feels he's mastered all aspects of financial planning. Sometimes he has, but sometimes he hasn't, and he is what I classify as an “overconfident” personality.

But let's say that he does have this financial mastery. What if he builds up this tremendous net worth, has everything humming smoothly, and then he dies 15 years before his life expectancy.

What does his female counterpart do then? Does she have the same skill sets? Does she want to learn a new and complicated skillset in her last season of life? Stop and think about that.

I've seen it happen and it can be incredibly unpleasant, even downright stressful for a widow with enough grieving on her plate to last a lifetime. Let alone to have to take on huge financial burdens she may be ill-equipped to handle. Having a financial planner along for the ride, even as a wingman, can make the death of the primary financial lead more palatable for your loved one.

What About Qualitative Benefits of Working with a Financial Planner

Michael Kitces is an industry leading thought leader among other things. He has also done tremendous research in this area, here are some of his thoughts:

… several research studies have tried to assess the economic impact of financial advice. Morningstar dubs the value of advice as “Gamma” and estimates it to be 1.59%/year for retirees. Vanguard calls it “Advisor's Alpha” and pegs the value at upwards of 3%/year. Envestnet labels it “Capital Sigma” and also estimates advisors can add as much as 3%/year of value.

Michael even mentions some qualitative benefits of planning that are hard to put a number on, but important to note. These are things that a financial planner can help with that you may have never thought about:

  • optimizing insurance coverage
  • preventing financial catastrophes
  • setting spending policies and budgeting
  • determining when you can stop working
  • helping you maximize your free time
  • ensuring things get done

Quantitatively or otherwise, for many, hiring a professional to keep your financial game elevated doesn't seem like such a bad idea after all. Even if you do have to pay for it. (Remember my plumber?)

Is it Worth It?

Brian Thompson, the CFP® I mentioned earlier sums it up best when asked if his financial plans are truly worth the money.

“While I think it's an extremely valuable service and have seen some amazing progress and transformation, whether it's worth it is actually up to you. I try not to convince people that they need financial planning because real change won't be effective unless you're ready for it.”

Back to the Beach

Two surfers negotiating the crossing to Masonboro Island Reserve/ Photo by Jeff Headrick

I took that boat ride mentioned earlier. I didn't relocate to the beach to sit on the beach, but to live life to the fullest. On this particular morning, that's what I did.

After a short boat ride across the inlet and around the jetty, my new favorite captain had us jump off the starboard side and into the water. I only spent 15 or 20 minutes actually surfing after I got there, but it was one of those days where the waves were constant. Not a lot of waiting involved which is rare.

Once I knew my time was running low due to my upcoming meeting, I hiked around to the northern tip of Masonboro and evaluated the current. It was as smooth and tranquil as it could be—or so I thought.

I spent a couple of minutes determining my point of entry and angle across the inlet, then off I went. The paddle across seemed to be going easy, maybe too easy, but I wasn't going to complain about it. And then about 80 yards from shore I hit the incoming current. Knowing that the incoming tide was preferred, I really had nothing to lose. But it did create a small amount of anxiety until I worked my way through it.

Once I made it to the shore back on Wrightsville Beach, all was well. I even made it back to my car before 9:00 AM. I was beside myself at my good fortune.

I think more often than not, most of my clients over the years have experienced my financial planning services with a similar level of anxiety, which eventually turned into a deep peace. It takes a lot of faith and trust to open yourself up to the financial planning process.

I truly hope this article has provided some new insight in to the world of financial planning. If there is anything that I should've covered better, or maybe that you enjoyed, please do not hesitate to let me know via the comment section after this post. Thanks for reading.

About the Author

Jeff Headrick is a financial planner with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Dave Ramsey, Warren Buffett, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.


* Vanguard Advisor's Alpha®: Quantifying your value to your clients, 2016.

*Why Advisors Have Never Been So Valuable: 2017 Value of An Advisor Study, Russell investments.

*The Kitces Report: Evaluating Financial Planning Strategies and Quantifying Their Economic Impact, Michael Kitces, 2015.

*Capital Sigma: The Return on Advice (based on research developed by Envestnet/PMC's quantitative research group, 2016.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.