The profession of personal financial planning has existed for over four decades by now, yet it still has not been as well known to general public as other professions such as accounting or law. The Financial Planning Association (FPA), an industry organization, is recently stepped up efforts to raise the awareness of the profession among general public. There are, however, from my reading and personal experiences, still some misconceptions about this profession. I summarized five common myths or misconceptions about financial planning services, and I will explain them in the rest of this article.
1. Financial Planning is about how to invest your money.
There are more to financial planning than just what and where to invest your money. Investment planning is only a subset of financial planning that a financial planner does for clients. A financial planner can help you turn your dreams and hopes for life into concrete, measurable goals and monitor and evaluate their progresses. A financial planner can teach you how to choose and leverage the latest financial technologies to simplify and manage your personal finance. A planner can also help you cope with financial aspects of life events such as health issues, divorce, change of employment status, aging parents, special needs children, etc.
2. Financial planning is for rich people, or high net worth folks
In fact, there are thousands of financial planning professionals out there who serve all walks of lives in our society. They serve traditional family, single parent, same-sex couples, blended family or widowhood. They serve ultra-high net worth, high net worth, mass affluent, emerging affluent, or mass market. You will find a professional that can help you based on your individual needs and/or family status, net worth/income level.
3. Financial planning is for someone that is still years away from retirement. I am already in my 40s (50s), and it is too late for me to save or plan.
A financial planner helps clients in their various life/professional stages: student, starting a career, career transition, pre-retirement, or retirement. A financial planner helps clients find resources and solutions to address the needs and challenges whether they are in their 20s ,40s, or60s. So, it is never too late to save or plan.
4. I have a CPA, why do I need a personal financial advisor?
Certified Public Accountants (CPA) are professionals that mainly advise clients on tax and accounting issues. A financial advisor helps clients with all aspects of their personal finances including tax planning. In fact, financial advisors often work with CPAs of clients who have very complicated tax issues. So, these professionals play different roles and both have useful places in a person’s financial life.
5. There is nothing a human advisor does that a robot advisor can’t do.
These days, artificial intelligence is being touted and used in many fields ranging from industrial manufacturing to financial services. A robot advisor is such an example. It utilizes mathematical rules or “algorithms”, for example, your age, income, savings, etc. to formulate investment portfolio, or create financial plans. By doing so it can quickly produce plans for the masses. But, how do you quantify a person’s pride, value, fear or sense of security? In that sense, I would argue that financial planning in most part is half science, half art. When constructing a financial plan, a financial planner considers not only those hard, quantitative aspects of a client’s life: assets, liabilities, income, but also his/her emotional side: personal values, priorities, and dreams. Even if two clients have identical jobs, family status, income, education level, their financial plans including their investment portfolios could be very different.
Does that mean that robot advisors and human advisors are mutually exclusive? Of course not. The future of personal finance will probably be a mixture of robo advice and human advice. In fact, many financial advisors are already utilizing technologies to streamline their jobs and better serve their clients.