After 10 years of investing with a money manager and then a stockbroker, a physician discovers that his advisers have not only lost thousands of dollars of his money, but one may have cost him tax penalties for unsubstantiated losses in limited partnerships. Plus, the doctor may no longer have enough money to retire when he wants to.
A man approaching his mid-50s wonders if he should take his employer's early-retirement buyout offer. If he does, will he have enough to live on until the business he plans to start makes a profit?
A dentist is getting a divorce and wants to keep the house he and his wife owned together. But to make ends meet, he may have to refinance the 15-year mortgage into a 30-year loan. However, he's not sure how that will affect his tax deductions.
These are real-life situations, people who are all candidates for the services of a financial planner, rather than an accountant or lawyer. While an accountant or lawyer can answer specific financial questions, such as the best way to claim a tax deduction, a financial planner can help put these and other issues into a larger context.
In most cases, however, the issue of when to consult a financial planner is first raised by a specific event, not gnawing worry that it's time to get one's financial life in order.
To find out when a financial planner might be needed, we asked accountants, lawyers and other non-planners to discuss situations where they thought recommending a planner would be appropriate.
"There's usually a triggering event," says Robert Miller, vice president for retirement planning at Massachusetts Financial Services. "It could be an inheritance. Or these days, 'baby boomers' may have to provide for their own parents' care."
Since the financial planning profession grew out of the efforts of stockbrokers and insurance agents to give their customers more comprehensive advice -- and often to sell more products -- planners have emphasized their ability to draw up a "lifetime" plan that includes investments, taxes, saving for college and retirement, insurance and estate planning.
"We want to help clients in a broad and comprehensive way," says Gregory Englund, a Boston lawyer specializing in estate planning. "But we recognize there are areas where we are not experts. While we can create a complex estate plan, a financial plan involves a broad understanding of several areas."
Recently, he recommended a financial planner to a woman whose husband had died a few weeks before, to help her with investment and money management decisions.
It's possible, though, that you don't need a financial planner. If you have a tax question, a tax accountant can probably answer it. If it's a legal issue, a will or an estate plan, you'll have to see a
lawyer anyway, and that may be enough. If you simply need to save money, you can start an automatic-deposit program with a no-load mutual fund that charges no sales commissions.
"I'm not quite sure what people mean by financial planning," says Paul Donovan, a Boston lawyer. "In my experience, many of the things planners do can be done by someone wearing one of the more conventional hats: accountant, attorney or trustee."
Planners can, of course, help with the large picture. "If people can use a planner to get onto a program and start saving some money, they may not reach the whole goal, but they'll be better off," says Paul McLaughlin, an accountant in Braintree, Mass. "Many people are kind of living on the money they make, even if they're making $150,000. They're just not saving."
Before working with a financial planner, find out how he or she is paid. If it's a fee-only planner, ask about the hourly rate. If you need to keep within a budget, tell the planner what it is. If the planner is receiving commissions, they should be disclosed, including up-front commissions, back-end loads, ongoing commissions and prizes and incentives.
It is possible to get a free plan from a commission-based insurance agent or stockbroker. But these plans include recommendations to purchase investments or policies they are selling.
Fee-and-commission planners charge a flat fee or by the hour but also receive commissions for selling products. About 90 percent of planners receive commissions, which the client pays. While the up-front fees may be low, commissions can add up to several thousand dollars over the years.
Also, some of the most egregious investment scams -- particularly involving limited partnerships -- have been sold by people who called themselves financial planners and earned huge commissions for peddling these deals.
Then there are fee-only planners, who charge only for their time, or charge a flat fee depending on the complexity of the plan. Many people consider them more objective, since they are not trying to sell clients investment products.