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-- Financial Planning - Choosing a Financial Advisor --
Financial Advisor Looking For Financial
Peter Merrick BA, FMA, CFP,
Monday December 5, 2005
The certified financial planner receives training in what is referred to as the six step financial planning process:
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The financial industry is constantly evolving. For many years, people turned to stockbrokers for
money matters. Then, insurance agents entered the picture. Stockbrokers are now called financial
advisers and insurance agents are sometimes financial planners.
There are independent financial planners, fee-only money managers and you can even have your
accountant invest your money for you at some accounting firms. It can be difficult to know what you
are really dealing with. Most people start by acknowledging they need some help with their money.
That much we know for sure. What is less certain is what sort of help they need.
To make things simple, help falls into two categories: financial planning and money management.
Financial planning is valuable and important. The key elements of good financial planning are
retirement forecasting, tax analysis, insurance analysis and estate planning. Note that I didn't say
investing. We haven't gotten to that yet.
When you usually meet with an investment advisor, they will have assumed your goals are set and
their primary function is to create alternatives and make recommendations specific to those financial
A certified financial planner is a ‘financial psychologist' who understands the life you want to create
for yourself in the future and the life you currently live today. A certified financial planner will look at
your current cash flow and expenditures as well as your net worth and be able to tell a great deal
about you not only financially, but personally. Under the financial planning process, the certified
financial planner continuously directs and monitors specific goals that you have. The investment
advisor is only going to monitor the performance of the product, but not connect it into the specific
plan that was associated with the goal-setting process developed by the certified financial planner.
When you initially meet with a certified financial planner, you will find that some of the questions will
not be financial. For example, when you are talking about financial independence and/or retirement
the certified financial planner might ask you things like:
• How do you spend your time?
• What would you really like to do if you were financially independent?
• How will you stay motivated if you don't do the type of work you do now?
• How will you react to not having a job?
• How would your family be affected by your retirement and health issues that may have to be
considered within the plan, such as your personal life expectancy due to previous disease or
The certified financial planner is really the quarterback or facilitator of the architectural plans created
for your present and future. In essence, what separates an investment advisor from a certified
financial planner is the certified financial planner receives training in what is referred to as the six
step financial planning process:
Step one: The certified financial planner works with you to clarify your present situation by collecting
and assessing all your relevant financial data such as lists of assets and liabilities, tax returns,
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records of securities transactions, insurance policies, wills, pension plans, etc.
Step two: The certified financial planner will help you identify both your financial and personal goals
and objectives as well as clarify your financial and personal values and attitudes. These may include
providing for children's education, supporting elderly parents, or relieving immediate financial
pressures which will help maintain your current lifestyle and provide for retirement. These
considerations are important in determining your best financial planning strategy.
Step three: The certified financial planner will identify financial problems that create barriers to
achieving financial independence. Problem areas can include too little or too much insurance
coverage, or a high tax burden. Your cash flow may be inadequate and may need to be reviewed.
These possible problem areas must be identified before solutions can be found.
Step four: The certified financial planner will then provide written recommendations and alternative
solutions. The length of the recommendations will vary with the complexity of your individual
Step five: A financial plan is only helpful if the recommendations are put into action. Implementing
the right strategy will help you reach your desired goals and objectives. The certified financial planner
will assist you in the actual execution of the recommendations, and in co-ordinating their
implementation with other knowledgeable professionals, if necessary which might include investment
advisors and insurance agents.
Step six: The certified financial planner will provide you with frequent reviews and revisions of your
plan to assure that your goals are achieved. Your financial situation should be reassessed at least
once a year to account for changes in your life and current economic conditions.
The problem I have with the investment firms or insurance agencies that pretend to provide financial
planning is that there is little connection between the financial plan and the investment decisions.
A financial plan is an important ingredient to success, but it is not the only tail that should be wagging
the dog. Whether or not all these plans come true is almost entirely dependent on whether or not
money is saved and invested wisely.
If you are shopping for a financial planner, take heed of one important fact. If your choice of planner
works for an insurance company, the plan will conclude that your best investment strategies are the
insurance and mutual fund products offered by the insurance company.
If your planner works for a brokerage firm, you should know in advance that the plan will conclude
with a recommendation that you get rid of your current investments and buy some new ones at the
brokerage firm. This is not merely a cynical observation on my part; it is how financial planning
courses are taught in the real world.
I once read a popular financial planning course book that actually closes a chapter on presenting
results to a client with the instruction to, "... and then explain why your insurance policy/annuity/
mutual fund/managed account program will best serve the client's future needs." The esteemed
authors of the textbook apparently saw no irony in suggesting that the most appropriate investment
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strategy depends on who wrote the plan and what they are selling.
If you are about to search for financial advice of some kind, take a moment to consider whether you
are looking for a new plan, or for the fulfillment of your existing plan. If you are still working and need
to know how much to set aside for the kids' college and for your retirement and whether you can
afford a vacation home, then a financial plan is probably a good idea.
Just keep in mind that financial plans are generally written by people that then want to also manage
your investments. You will need to decide if the planner that you chose is also the best person to
manage the actual dollars.
If you are nearly or already retired, I doubt that a plan is the key to your success. If the fulfillment of
your expectations is what you really want, then perhaps you should be shopping around for the best
investment advice you can get.
The best plan in the world is just a plan. Entrepreneurs and business people understand this
intuitively. The key to success is not the plan; it is in the execution of the steps to reach the goals.
I once read an interview with Warren Buffett, founder of Berkshire Hathaway Inc., and someone I
believe is the world's greatest investor. The interviewer asked Buffett if he was willing to share any of
his personal investment strategies. Buffett laughed and said that everyone knows his strategy and
his plan. It's been public knowledge since the beginning. He said that the reason he and his company
are successful is that they execute the day to day details so that their plan becomes reality.
I am regularly asked; why should someone employ a certified financial planner? Why can't they
simple study the fundamentals and execute their own financial plan by using the tools that are readily
available? These same questions could be asked of professionals including doctors, lawyers,
engineers, and accountants.
Today there is very little human knowledge that can not be found in a book or on the Internet,
awaiting those that have the time, interest and desire to learn, however, no one person can
understand and successfully apply the total of this knowledge. The person who is sick might die
before they find the information that can cure their illness. While a trained doctor, through specialized
knowledge and experiences can recognize your symptoms and cure you within a matter of hours or
A Certified Financial Planner can provide you with sound information and effective advice to ensure
your financial health. Life is to short too find the right financial way through trial and error. Most
people do not notice the symptoms of their financial illness until it is too late for them to affect their
Peter Merrick is a professor of financial planning and employee group benefits at George Brown
College and is also president of Merrick Wealth Management Inc. a fee-for-service financial planning
firm in Toronto. He can be contacted at: 416.677.6611 or at: email@example.com.
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