While attending a local car show I was admiring a new Corvette Z06 that a gentleman had brought to the show. We started talking. He told me that after he retired from a career in the automotive industry (I live in the Detroit area so this is very common) he told his wife that he wanted to buy his dream car.
And what a dream car it is. A 2015 Chevrolet Corvette Z06 with a Z07 package. We talked a little while about the car. He then asked me what I do for a living. I told him that I am a Fee Only Financial Planner. He then asked me a question that I rarely get. He said, “Do you really need a Financial Planner?” Usually I get the questions like “What is the market going to do?”, “What is the hot stock right now”, or “Which is better, a regular IRA or a Roth IRA”.
The gentleman said that he feels that if he knows everything about financial planning that he would probably do ok just handling his own financial planning.
I let that sink in a few seconds and then agreed with him. He kind of looked shocked. He said that he definitely did not expect that answer coming from a financial planner. I said that if someone is willing to spend the time and make the effort to learn everything that a CFP® practitioner is required to learn plus keep up to date with continuing education then yes you can be your own financial planner. If not, then I, selfishly, recommend seeing a financial planner at least for an occasional check-up. I then let him know that most people do not have the time or do not want to go through the education process to learn.
So what does a CFP® have to learn before they are allowed to call themselves a CFP®. There are officially 72 principal knowledge topics and those are inside of 8 different topic categories. I will not bore everyone with what each topic is but will lay out each category as well as touch on a few learning points that need to be known in each of them.
The categories are as follows
- Risk Management and Insurance – Having a knowledge of Risk Management will allow someone to explore the risks they are taking with their life and their finances and determine if they will need to insure those risks or if they can cover it themselves. Insurance types that are covered in the course work should include Life, Health, Disability, Long Term Care, and Property and Casualty. You will also gain knowledge about annuities, life settlements, and
- General Principals of Financial Planning – These are the basics but they are, in my opinion, of the greatest importance. Topics will include Cash Flow planning, Debt Management, and Statement Analysis. In order for people to do their own financial planning they must understand these concepts because these principals are relevant to everyday life. Where money comes from and where it goes is the cornerstone to any financial plan. I work with a client who has this piece down to a science. It makes their other planning very easy for me. It is so easy that I recommended that she could do it on her own if she took time to learn everything she needed to. She eventually did that, but still will check in with me 2 times a year (like going to the dentist).
- Professional Conduct and Regulation – If someone is doing their own financial planning they likely do not need to worry about a lot of this as they will not be working with clients, except they should remember that it is not ethical to hold oneself out as a CFP® professional if they have not completed all the steps that are entailed in becoming one. I would also caution those that do it themselves to refrain from offering general or specific advice to friends and family unless you know that person’s situation completely.
- Education Planning – Topics that are relevant include determining how much to save for education, where to put the savings, gifting, and financial aid. Some people may not need this information if they have no children grandchildren, or are planning to continue educating themselves, but those people who have children going to college will agree that this information is very helpful to the overall financial plan.
- Investment Planning – Covered topics should include investment risk, asset allocation, portfolio evaluation, alternatives, and taxation on investments. A decent piece of this section will also touch on economics concepts and fiscal decisions by governments.
- Retirement Savings / Income Planning – Of all the classes that I had this one was my favorite. For a lot of people this is what they think of when they think of financial planning, though it is much more. Topics to understand include the retirement needs calculation, Social Security and Medicare planning, Retirement Plans for Individuals and Small Business Owners, distribution rules and taxation as well as retirement income strategies and development.
The next two sections I saved for last because I personally feel even if you have completed the CFP coursework, without working daily in financial planning it will be hard to go it alone, especially if your situation is more complex (self-employed, small business owner, blended family, etc). In addition, regarding legal documents unless you are an attorney you will not be able to draft documents on your own anyway (unless you use an online solution). Don’t get me wrong though, if you have finished the CFP® required education coursework you will have a very vast knowledge of these two topics but not in practice.
- Taxes and Tax Planning – Topics covered include tax law, the AMT, taxation of trusts and estates, passive activity rules, taxation of property transactions as well as exemptions, standard or itemized deductions, etc. Tax planning is extremely important to the overall success of a financial plan. In my opinion tax planning is one of the most important aspects of an overall financial plan because taxes is involved in some way with all of the other aspects of financial planning not to mention other aspects as well.
- Estate Planning – A lot of people think that having a will means their estate plan is complete. Actually true Estate Planning is much more than a piece of paper with instructions. To me, estate planning is much than designing a model investment portfolio. Estate Planning is much more personal. The decisions that we make effect our spouses, our children, and grandchildren. In fact, most of us have made (or unfortunately not made) Estate Planning decisions when we decided on our beneficiary designations on our retirement accounts. In addition to these topics and the importance of them, different trust types and tax avoidance strategies are discussed, estate liquidity, and more.
So, are you ready to complete the education needed to truly do your own financial planning. If so, then I recommend taking the courses through a CFP® program from a reputable provider. Most of these are at colleges and universities around the country. You can find one here. http://www.cfp.net/become-a-cfp-professional/find-an-education-program.
You will likely come out of the education process in one of two camps. The first camp is the do it yourself camp which is great. At least now you have more tools and information at your disposal. Or, you will figure out that seeking help is a good thing, at least in areas in which you are not as strong or do not have an interest in.
Olympia Ridge, LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.