Financial Planning Guide

Like playing an instrument or mastering a trade, financial planning is a skill. A natural interest and aptitude helps, but there is no substitution for education, time, and experience.

In this guide, we’ll discuss what financial planning entails, the process we take with financial planning, and how professionals like financial advisors and wealth managers can help.

Financial planning starts with assessing where you are financially, pinpointing your ideal future state, and figuring out what milestones you need to reach to get there. You need to consider your savings, debts, benefits, investments, and anything else that could impact your financial state now or in the future, but you can't stop there.

Some talk about a financial plan as if it is a simple one-page document that you put together once and never need again. The reality is your financial plan is not a static document — just as your life changes, so too may your financial plan.

Along with unexpected detours or pivots, positive changes like career progression and starting a family are things your plan needs to take into account. All of these factors are related. 

Your employee benefits may impact how you tax-optimize your income and what savings rate you can withstand. Your savings rate will influence your investment strategy and therefor your retirement plan, and so on and so forth.

In short, these are all inter-dependent factors that a simple one-time plan can miss. In fact, some will sell you a 'plan' but in reality it's a financial statement. It outlines what you have and where, but it's not actionable or able to help you make more complex decisions. For that, you'll want to create something with an advisor who can bring it to life.

Working with a good partner ensures your plan is comprehensive, appropriately matrixed, and regularly reviewed, increasing it's resiliency and therefore the likelihood you're able to do what you want with that wealth.

A point of clarification if this is sounding overwhelming: having a solid financial plan does not mean you’re planning every last detail of your life.

You can't predict the future, but a good financial plan can be used as a guide while making decisions to build confidence you aren't inadvertently putting big goals like retirement at risk while dealing with a short-term issue. A great financial plan does that while also helping you make the most of every opportunity along the way.

A great advisor will use the following to help you answer big financial questions with a bit more confidence:

1. Knowledge of things like investments, tax strategy, insurance, estate planning, and more. Ideally, they’ll be certified in their understanding of financial planning with a CERTIFIED FINANCIAL PLANNER (CFP) designation.
2. Data, not just on individual pieces of your plan like investment performance, but a comprehensive look at the likelihood you’ll be able to achieve your goals given what we know today, typically in the form of a financial independence analysis.
3. Context from their experience with other clients and colleagues, working with your other professional service teams (CPA, Attorney, etc.), knowing who your stakeholders are, and larger market and economic trends. 
4. A deep understanding of your goals, preferences and vision for life. This is the key to moving from cookie cutter advice that AI could deliver to a truly bespoke plan that leaves your mind at ease.

Financial planning gives you an understanding of your current spending and budgeting habits to help you feel in control of your income, expenses, and investments. But once you reach a certain level of stability, your plan will start to elevate into long-term optimization.

That's where many get stuck in the basics, like never moving from planning for your next tax bill to minimizing your lifetime tax burden. A solid high-net-worth financial plan should:

1. Give you a comprehensive look at everything you own, owe, and your average cash flow
2. Outline your goals, big and small, and show your progress toward them
3. Align your investment portfolio with your individual timelines and risk tolerance 
4. Minimize your tax liability for the next decade, not just the next year
5. Incorporate any equity, business interests, and inheritance into your tax and investing strategy
6. Increase confidence when you make big purchases or experience a big life change
7. Define an action plan to achieve goals
8. Establish a clear legacy that follows your wishes without undue risk
9. Feel personalized to your preferences and leave you feeling confident, even when the market drops or something unexpected comes your way

If the plan you have in place now isn’t inspiring all of the above, it’s time to go back to the drawing board because you could be missing out on opportunities that cost you or your future generations.

There is access to more information and great software individually than ever before meaning financial planning on your own is absolutely possible. Many choose to do this, especially early on.

But with a financial advisor or wealth manager as your co-pilot, your financial journey will be less stressful and time consuming, and you’ll have an unbiased third party to turn to when considering tough decisions even as your finances get more complex.

If you answer yes to any of the following questions, meeting with an advisor to learn more about their services might be a good option:

• You're within 10 years of retirement
• You are in one of the top income tax brackets
• You receive equity or stock options from your employer
• You are a business owner with many business assets
• You have a spouse and/or children

Even if you're in a different stage of life, consider this question: When the market drops, how confident are you that your plan is still on track?

If volatility is stressing you out or you're not entirely confident you're making the most of your opportunities, chatting with an advisor is more than worth your time.

• What is your monthly income?
• What are your expenses?
• What does your savings look like?
• Do you have any investments?
• What debts are you paying off?
• What are your short-term goals?
• What are your long-term goals?
• What large expenses are you anticipating? (college, new home, retirement, etc.)

Once your advisor better understands your life and your goals, they can start with goals-based financial planning. You’ll start to attach specifics to your goals — rather than saying, “I want to retire,” you’d say, “I want to retire at 55 with enough money to travel with my family every year.”

Other specific goals:

• I want my house to be paid off in 10 years.
• I want to retire early, and I want to travel for a year.
• I want to pay for my child’s college expenses and not worry about what’s in my bank account.
• I want to make sure healthcare as I age doesn’t impact my family.
• I want to make investments that will help me retire early.
• I want to pay off my student loans.
• I want my family to be cared for when I’m gone.

With current inputs, future goals, and data that takes a variety of situations into account, your financial planner can help assess the likelihood of success using planning software that can synthesize income, savings, taxes, and more.

From there, they can make recommendations of what to change (if necessary) or help you build confidence you can do something like fund an education, buy a second home, or retire early.

As we mentioned above, your financial plan is not a static document. It's a compilation of multiple components like a net worth summary, investment reporting, estate plan summary, tax projections and more.

When you begin with a financial planner, they’ll likely conduct a financial independence analysis, which includes the following: 

• Monthly cash flow (income, expenses, benefits etc.)
• Plan(s) to pay off debt
• Plan to build an emergency fund
• List of insurance coverage
• Savings breakdown (simple savings accounts, 401(k), IRA etc.)
• Investment portfolio
• Plan to pay taxes
• Retirement savings
• Estate planning

While we discuss what's included in a plan and what it looks like, it's also important to consider who the partners are that help make it happen. You may hire out a team of professional services without connecting them, and be missing out on possible synergies.

You might occasionally need a CPA, estate planner, broker, etc., but miss the opportunity to have one central financial advocate who understands you best and a team of experienced professionals behind them for added support.

A great financial planner (often called a wealth manager) will proactively connect all aspects of your goals and financial life together for a cohesive plan that reduces duplication.

So, what does a financial plan look like? It looks like a life led with confidence that you're making the most of your opportunity, avoiding unnecessary risk, and considering the legacy you'd like to leave.

• Financial Planner/Advisor: A planner may be the one helping put your plan to paper, and an advisor may be answering questions along the way. 
• Registered Representative: Works for a client-facing financial firm like a brokerage company and helps clients with trading investment products and securities 
• Financial Consultant: Works with corporations to provide financial advice 
• Wealth Manager: Handles complex financial situations with a holistic approach, similar to an advisor, but more proactive.
• Investment/Portfolio/Asset Advisors: An individual or company that is paid to provide financial investment advice
• Brokers: A person or company that buys and sells stocks or other investments on an investor’s behalf
• Financial coach: Teaches clients money management skills but may not be allowed to offer investment advice 
• Robo-advisor: Provides digital investment services based on algorithms 

How to Find an Advisor

As you begin your search for an advisor, there are two important designations to keep in mind: CERTIFIED FINANCIAL PLANNERs™ (CFP) and fiduciaries. If you want to go the extra mile, look for a CEFEX-certified firm, meaning they are certified in their their dedication to always do what is right for their client.

Fiduciary advisors are tasked with working in their client’s best interest rather than the firm’s. Not all financial planners are fiduciaries. A fiduciary financial advisor is legally required to operate in your best interests, not theirs. They are typically compensated in a fee-based way and will charge you a fee and act based on your needs, regardless of where you invest your money. 

On the other hand, brokers and some investment advisors may make commissions if they sell certain products to their clients, presenting a conflict of interest. Some see this brokerage model as tainted because it de-incentivizes the client relationship.

CERTIFIED FINANCIAL PLANNERS (CFP) are required to complete courses in topics such as investment planning, saving for retirement, and education planning. Then, they must pass a two-day board exam and complete three years of related professional experience or two years of apprenticeship. To maintain CFP status, they regularly refresh and update their skills to make sure they’re staying up to date to best serve your needs in a rapidly changing world. 

From there, it's important to evaluate credentials, experience,  and any reviews available to ensure you're choosing someone you can trust. This is also a great time to make sure they are experienced with whatever your key interest may be. If your main focus is retirement, ask how many clients they've helped successfully retire. Curious about equity or stock options? Ask how many executives they work with today and if they're experienced with a plan like yours. 

As you search for a planner, here are some questions you could ask in the interview process:

• Will you put your fiduciary commitment in writing? Do you have a certification?
• Will you run a tax projection to support your recommendations?
• Will you review my estate planning documents? 
• If something happens to you, who will take over my account?
• How are you paid?

How Do Financial Planners Get Paid? 

Knowing how your financial planner gets paid can be crucial to the hiring process. After all, you want someone who works for YOU and in your best interests, not their own. 

Commission planners: May charge a commission based on transactions, trades, or for purchasing annuities, mutual funds, or insurance policies within your larger financial plan. Because they earn a cut, the potential for bias is ever-present.

Flat, hourly, or service-based planners: Charges a set level of service for a flat fee, no matter what. This service is perfect for one-off projects like creating an estate plan. Because the fee is set, everyone receives the same level of service.

Advisory fee: Often charged based on the percentage of assets under management with a tiered fee schedule, similar to a retainer fee. These advisors aren’t paid to recommend specific products, so their advice is less prone to conflicts of interest and therefore likely independent.

Commission planners: May charge a commission based on transactions, trades, or for purchasing annuities, mutual funds, or insurance policies within your larger financial plan. Because they earn a cut, the potential for bias is ever-present.

Stages of Financial Freedom

There are seven stages of financial freedom:

1. Dependence: Relying on someone else to pay your living expenses 
2. Solvency: Meeting your financial obligations on your own (even if you live with a partner) 
3. Stability: Solvency plus an emergency fund and the ability to still live within your means   
4. Security: You’re eliminating debt regularly, have a nest egg, and could comfortably navigate a period of unemployment 
5. Independence: You can retire at any time without worrying about the cost of living
6. Freedom: You have more than enough money to cover your needs, and you can begin making riskier investments with money you’re willing to lose

Plancorp is a registered investment advisor with the Securities and Exchange Commission ("SEC") and only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not imply a certain level of skill or training. Please refer to our Form ADV Part 2A disclosure brochure and our Form CRS for additional information regarding the qualifications and business practices of Plancorp.