Do You Need a Financial Planner When You Aren’t Even a Little Bit Rich?

When is it time for a professional to look at your finances and help you set goals for the future?

Maybe right now. Even if your net worth is, shall we say, unimpressive.

“There’s this stigma that you need a million dollars to invest to work with a financial adviser,” said Shannon Pike, former vice president of Tanglewood Legacy Advisors.

According to Pike, the financial planning industry is evolving to meet a wider range of customer needs.

“Financial advisory practices were born out of a multitude of disciplines,” Pike explains. “You had insurance agents, stock brokers, and these were all very niche services.”

A certified financial planner’s focus is more holistic, he said. They look at the intersection of your life and your money.

Not exactly running out to hire a financial planner? We know, it’s not that easy. Here’s what you need to know about certified financial planners and what they do with your money.

What Is a Certified Financial Planner?

Certified financial planners, or CFPs, are trained professionals who look at your entire financial picture and help you create a roadmap for the future.

They can provide unbiased financial advice on everything from investments to budgeting and cash flow, risk management and insurance coverage, estate planning and retirement, as well as your goals and objectives.

While someone who’s referred to as a financial adviser may be a certified financial planner, not all financial advisers are CFPs.

A CFP has gone through extensive training, either in a degree program or a classroom setting, before sitting for an exam. They also typically need three years of experience before they can become a CFP.

If you see the term “financial adviser,” check the person’s qualifications.

“In our own membership, you’ll see a number of people who are CFPs but just use the ‘financial adviser’ title,” said Geof Brown, CEO of the National Association of Personal Finance Advisors.

It can be confusing for consumers, but some of that confusion comes from financial planners using terms familiar to their customers, he said.

How Do I Pay a Certified Financial Planner?

There are three main ways a certified financial planner can get compensated:

• Percentage of assets under management: This is a fee based on the total amount of money you have managed by the planner. The fee typically ranges between 0.75% and 2% of your total portfolio.
• Flat fee or retainer: You might pay a flat fee or retainer based on how complex your accounts are and what your net worth is right now. This can range from $250 to several thousands dollars.
• By the hour: Some financial planners charge a flat hourly rate. This too varies widely.

If you have a simple portfolio — maybe a 401(k) at work and some student loan debt —  and just started gathering your financial ducks, it may only cost a few hundred dollars to establish a relationship with a certified financial planner and start working toward initial goals.

If you have two cars, two houses, a boat and a business, well, this more complex portfolio will probably cost you more.

If you’re seeking unbiased advice, look for someone who follows the fiduciary standard. The fiduciary rule states that financial professionals, including investment advisers and CFPs, must act in their client’s best interest. The rule prevents pros from pushing investment funds or other products that pay them commission simply for the sake of their own earnings.

Like we said, CFPs don’t work on commission. But some financial advisors, especially those who work for insurance companies, often do work under a commission-based model.

Someone who works commission won’t sit behind a desk wearing devil horns and waving a pitchfork, but you’ll want to do further research before engaging in a relationship with them.

Brown said there’s a “disconnect” with the commission model.

“How can I be serving you but basing recommendations based on what’s going to pay me the highest commission? That’s a sales relationship, rather than an advisory one,” he said.

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What Questions Should You Ask a Financial Advisor?

Make the most of your consultation with a financial advisor by writing down a list of questions you want to ask. Pike suggests asking some of the following questions:

• Who are your clients? Do you typically work with clients like me?
• What’s your experience? Are you certified?
• How do you get compensated?
• How often would we communicate? Do I always communicate with you, or is there a team I might work with?
• What if I invest with your help? Is that charged differently from your planning services?
• Do you have any conflicts of interest I should know about?

“Interview a few of them,” Pike said. He advises against choosing someone to work with simply because they charge the least.

“Compensation is important but shouldn’t be the ultimate driver of who you work with. Work with someone you feel is qualified,” he said.

Meanwhile, Pike said disclosure is an essential factor in discussing compensation. “It’s all relational,” he said. “At the end of the day, make sure all your questions are answered and you’re getting clear direction.”

If you interview someone who won’t disclose conflicts of interest or commission-based product relationships, that’s an egregious red flag.

What About Online Financial Planning Services? Are They Legit?

They’re just as legit as the online budgeting tools you use. As with any online tool or service, you just have to do your research.

Online financial planners and virtual services like Wealthfront, Empower and Betterment have cropped up to meet consumers where they are.

Online financial planning services may have limited offerings, which explains the easier-to-swallow pricing. As you review options, be sure to select a virtual advising platform that offers the services you care about most and are most likely to need as your net worth grows.

You can also find the virtual convenience of an online financial planning service with a local CFP, Pike says. There are planners who serve clients across the country using tools like Zoom and Google Meets.

Pike said you’re not giving up control of your finances when you work with a financial planner; you’re getting an advocate.

“If you can find an advocate you can confidently connect with, that’s a relationship worth growing as long as you’re comfortable with it,” he said.

Rachel Christian is a Certified Educator in Personal Finance and a former senior writer at The Penny Hoarder. She focuses on retirement, investing, taxes and life insurance. Lisa Rowan, a former writer and producer at The Penny Hoarder, contributed to this article.