Investing vs. PlanningSubmitted by Larry Frank Sr. on Thu, 03/21/2013 - 12:00pmFinancial planning, investment advice and retirement planning aredifferent services that financial advisors give. They overlap and reinforceone another, and they each are vital. But it pays to know what you get andwhat you need.When choosing an advisor, pay attention to the advisors’ pay structureand also whether they take control of your assets – to make sure that theirwork focuses more on planning for goals rather than just investing.Financial planning is more than just investment advice. It takes you fromwhere you are to where you want to go in the future. It encompasses, taxand estate planning, college savings and any other goal that you want tomeet in addition to retirement planning, which is a common goal foreveryone.Investment advice is structuring your resources toward that goal andmany confuse the investments with the goal. Goals might be: havingenough money for retirement, to pay for your kids’ education, to afford asecond home, to start a business. Without a goal, it is just investing forinvestment’s sake. In these situations, benchmarks like the S&P 500 havenothing to do with you are what you try to beat. Instead, staying on trackor moving toward your personal goal is much more meaningful as a signalof progress.Businesses plan all the time. The problem is that people don’t, but theyshould. Without a plan they end up with random results and wonder whathappened.However, the real goal is managing wealth in such a way that the goal isnot only achieved, but sustainable. For example, the goal of retirementplanning isn’t to just retire. The goal is to afford a decent quality of lifethroughout retirement.
Which type of advice you want to emphasize should guide your choice ofadvisor. When you pick one, think about what kind of control you givehim or her. You may choose an advisor who has discretionary controlover your assets. In other words, you give the advisor authority to decidewhen and how to invest your money and make changes, based onwritten guidelines. Alternatively, you may choose an advisor who has nodiscretionary authority over your assets. They advise and you decide. Inreality, one with no authority is closer to a true advisor.An advisor with discretionary authority is closer to a money manager. Ingeneral, but not always, the non-discretionary advisor has a broaderperspective because the emphasis is placed on goals and the plan andnot just investing.How you pay the advisor also matters. Some are paid commissions fromselling you financial products; others take a fee as a portion of yourassets. Some charge an hourly fee or retainer. To be clear,compensation is not how you distinguish one advisor from another.Generally, an advisor who does not take commissions is more likely toadvise in your interest than one whose paycheck depends on convincingyou to buy products.When you are interviewing someone to help you, keep in mind what kindof planning you are trying to do and what kind of control you are willing togive up. Don’t let an advisor steer you into just investing. Most of theconversation with your advisor should be on the planning topics for youand less on investment advice. Investing is a means to support a plan,not the plan itself.When you are interviewing someone to help you, ask thesehelpful questions from the SEC. The National Association of PersonalFinancial Advisors(NAPFA) also has a list of questions to ask youradvisor. The Securities and Exchange Commission has a list of helpfulresources for finding the right advisor. The SEC’s Investor Alerts websiteis also helpful for separating legit advice from fraud.In addition, AdviceIQ lists local advisors in its system, ranking them byvarious metrics, such as the most clients who are widows or have$250,000 to $500,000 in assets or specialize in doctors. Plus, all of theadvisors that appear on this site have flawless regulatory records.Remember: You aren’t arranging your financial affairs to buy aproduct. You need the service and process of planning as the foundationwhere financial products are almost an afterthought.Follow AdviceIQ on Twitter at @adviceiq.Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California)in Roseville, Calif. He is the author of the book, Wealth Odyssey. He hasan MBA with a finance concentration and B.S. cum laude in physics withwhich he views the world of money dynamically. He has peer-reviewedresearch published in the Journal of FinancialPlanning. www.blog.BetterFinancialEducation.com.
AdviceIQ delivers quality personal finance articles by both financialadvisors and AdviceIQ editors. It ranks advisors in your area by specialty.For instance, the rankings this week measure the number of clients whoseincome is between $250,000 and $500,000 with that advisor. AdviceIQalso vets ranked advisors so only those with pristine regulatory historiescan participate. AdviceIQ was launched Jan. 9, 2012, by veteranWall Street executives, editors and technologists. Right now, investorsmay see many advisor rankings, although in some areas only a few areranked. Check back often as thousands of advisors are undergoingAdviceIQ screening. New advisors appear in rankings daily.Topic:Dealing with Financial AdvisorsCreating Financial PlansHow to Pick Them