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Is Suze Orman Right, Can You Be Your Own Financial Planner?

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If you watch Suze Orman’s TV programs you will hear her comment that people can be their own financial planner. Before I answer this question, I think I need to clarify what type of financial planner I believe Ms. Orman is referring to.

There are several types of financial planners, but for simplicity I will group them into two categories: Fee-only planners and “commission planners” who earn commissions by selling a wide range of investment and insurance products and provide financial plans and advice.

Within the fee-based category, there are 2 types of financial planners, those that help advise clients on every financial detail, and those that specialize in areas such as investments or retirement planning.

The type of financial planner that Ms. Orman seems to be referring to are fee-based planners who meticulously advise clients on every financial matter year-in and year-out for a fee. These planning firms use sophisticated planning and investment software, and are staffed by a wide range of highly educated people in many areas of financial topics. Professional planners providing this high level of service charge between 0.5% and 2% every year. There is a wide range of fee structures, but if you have less than $1,000,000, you should expect to pay over 1% of the value of your investment assets, depending upon the firm’s minimum fee and the size of your assets. Usually the fee percentage is smaller for larger amounts. Examples: a 1% on $500,000 would be $5,000. A 0.75% fee on $5,000,000 would be $37,500.

Suze Orman writes:

“we’ve become a nation addicted to contract labor. What past generations did for themselves, we now ‘outsource’ to someone else without a second thought.”

In order to answer the question “Can you be your own financial planner?” Three questions must be addressed:

  1. Can you afford a financial planner?
  2. Who ultimately is your real financial planner?
  3. Can you go at it alone?

Can you afford a financial planner?

The Financial Planning Association answered this question in their May 2007 Journal of Financial Planning article that said only about 2-3% of middle income people have credentialed financial planners, and one of the main barriers is cost. Most firms have required client asset minimums of about $500,000, therefore they target the top 5% wealthiest people.

In order to determine whether you can afford a planner you must consider whether you accumulated enough money to meet their minimums, whether you can afford to pay them out of your budget, and whether you can justify the cost. Will the fees be offset by increased investment performance (higher rate of return or less volatility) or will their advice save you money by better decision making and helping you spot possible problem areas with their educated eye?

Who ultimately is your real financial planner?

Ms. Orman further writes:

“I think it’s imperative for you to do as much of the work as possible, rather than turning control over to someone else: your finances.”

I completely agree with Ms. Orman on this point. Ultimately we are responsible for our own financial future, whether we hire a financial planner or not. It is our decision to hire someone, to implement their recommendations, and to choose to what degree you will be engaged in the process. So whether or not you hire a planner you are still ultimately responsible for your finances. You are your own financial planner by default unless you give complete responsibility over all of your finances to someone else.

How can you be your own financial planner?

Start by learning about financial matters by reading, books, blogs and taking classes. Secondly, manage your finances by budgeting, balancing your checkbook and organizing your records. Lastly, create a written financial plan. All of these are made simpler and cheaper than ever today through financial planning softwareand the internet. It also takes courage to get started. Many people are afraid of financial matters, but if you can earn a paycheck you are intelligent and capable enough to become very financially literate.

I really appreciate the fact that Ms. Orman empowers and equips women to take control of their financial lives, because the research that we have done indicates that women are at a particular disadvantage when it comes to financial planning and retirement.

Can you go it alone?

Do we need professional trusted advisors: financial, investment, tax, legal, and insurance? I believe the answer to this question is yes, but not everyone can afford to put them on retainer and pay them fees every year.

It is my belief that you should do as much as possible of the managing, planning and self-education about finances on your own. When it comes to implementing and reviewing your financial, investment, insurance, estate and tax plans you should hire advisors to help you — but you probably won’t need each of them every year. You should also revisit your plan at least once a quarter, when thinking about buying a car or home, or if you are facing a significant life change.

To find the best financial, investment and insurance advice, ask friends and relatives for referrals. Then determine their experience, service, credentials, fees or commissions, complaints/regulatory infractions, and personality. There are some good financial planners that will advise you and charge you only an hourly rate, and there are some good commission based planners that can help you as well.

When should you hire a financial planner?

There are several situations which probably require the need to hire a financial planner. If you are going through a death or divorce, have a special needs child or spouse, or retirement is soon approaching consider hiring a planner. In addition if your financial life has many moving parts, large investment assets, high income, you own a business or real estate, have a blended family, you probably need the advise of a financial planner. I often meet couples that both have very healthy incomes and are extremely busy between working over 50 hours a week, traveling, and going constantly to children’s activities — they probably need a financial planner.

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JamferrisVictor Guettlein, CFPPinyoVictor Guettleinkentuckyliz Recent comment authors
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AJC
Guest

Absolutely! I have never used a financial planner, but I have used many advisors … why? Because I only want people to teach ME who have made at least 10 times what I want to make out of the field that they are teaching me in. Even for the ordinary investor, that ‘prices’ most financial planners out of the picture …

Eric Toya
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Eric Toya

I am a fee-only certified financial planner. I definitely agree that most people can be their own financial planner. Most of the people whom we work with are high net worth, and we deal a tremendous amount with their estate planning, and communicating with the CPA. Our fees for those with $2 million or more investable assets become quite reasonable. There are far more complexities involved in the $2 mil+ camp. In fact, all costs included it is cheaper than most no-load funds, and worlds cheaper than load funds. The exception, of course, being low cost index funds. We meet… Read more »

GBlogger
Guest

We’re a couple with those busy jobs and the kids…. but we do not use a planner. So far, it is very much our preference to “act as our own.”

Tom
Guest
Tom

I truly believe you can plan your retirement. It’s like anything though, you’re going to have to do your research before you actually know what you’re doing. I think with some dedication and time, you can plan for a healthy retirement.

Phil Taylor
Member

Great info. Nice to learn some of this stuff.

Ciaran
Guest
Ciaran

I agree with much of this article and think most financial planning (especially for those in their 30’s and 40’s) can be done by people on their own, much like Eric stated above. But there are many factors that make it easy for some to do and not so easy for others. I’d say the biggest thing keeping most from doing their own planning is motivation. The majority of people with financial planning on the brain are probably capable of doing it, it becomes a question of whether they are willing to put the time and effort into doing it… Read more »

Adfecto
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Adfecto

I think it is good to have multiple perspectives on financial topics. You can do a lot of things yourself but I think you should at least find a friend who is knowledgeable and trustworthy to bounce ideas off of. In some cases you need someone who will hold you accountable to you goals and keep you on track. That is part of why I blog but I also have a few friends who like to talk about pf topics and it seems to help me a lot.

kentuckyliz
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kentuckyliz

I think a lot of people don’t trust financial planners because they’ve been sold bad crap over the years. A lot of snakes use the term financial planner as cover for salesman. It’s a controversy in the financial planning profession: do we have a fiduciary responsibility toward our clients? Do we always legally have to put their interests first? The fact that this is a controversy is chilling and would keep me away from a financial planner. My Dbro is a CPA, ChFA, and several other initials I can’t remember. He is also a beneficiary, PoA, and executor–so he has… Read more »

Victor Guettlein
Guest

A good investment advisor should be able to help you earn more than you are likely to do for yourself. If you want to go it alone you should follow a passive indexing strategy. If you want more than “average” results, which is what you’ll get with indexing – it’s all you can get, then you need proven strategies not rhetoric. You should insist on a strong track record of returns in up and down markets to verify the advisor’s claims – otherwise it’s just rhetoric. Now that we’re more than 5 years past the massive bear market at the… Read more »

Pinyo Bhulipongsanon
Member

@Victor — I have to disagree with your notion that good investment advisor could provide more than “average” result when the majority of professionals underperform the S&P500 every year. Sure, there are some professionals that beat the market with long track record, but that’s just probability. If I do enough coin tosses, I could end up with heads 20 times in a row too. And using Warren Buffett as an example wouldn’t be legitimate argument either since he’s not only investing, since he influence the management and leadership of companies he “invests” in. In fact, I wrote a post today… Read more »

Victor Guettlein, CFP
Guest

Hey, suit yourself, I’m easy! Stick with indexing or whatever you do. I’ll stick with what I’ve been doing too – it works. In your “35 Rules” you talk about sticking to your strategy and your magic formula. I agree. I just happen to believe that there is more than one winning strategy/formula out there. In fact, I tell people there are approximately 386,592 really good ways to make money in the (broad) markets; but you can only become an expert and really good at only one, or two, or a handful of them. Does that mean the rest of… Read more »

Victor Guettlein, CFP
Guest

You raise another good point – I’ve learned what I’ve learned doing this for 15 years full-time. I learn from others. I’ve made mistakes. I’ve had successes. I have other ideas I havent had time to confirm and test. I have people suggest “improvements” to my strategy all the time. Most of the time it involves timing, which I don’t believe in. If I do find a “tweak” that makes sense I have to validate it – and that takes a lot of time and objectivity to do. Anyone attempting to be their own planner should not expect to become… Read more »

Victor Guettlein, CFP
Guest

Let me clarify what I mean about why maneuverability is needed in the comment above. If we’re in a 13-20 year secular bear market, and the major indices go nowhere, how much compounding do you lose? Can you afford no growth in your portfolio for 13-20 years?

Pinyo Bhulipongsanon
Member

@Victor — A lot of good points you’ve made here. The 35 rules was written before I fully gain the appreciation for simple strategy of investing in globally diversified passive funs. May be I should go back and put a disclaimer on that article or revise it completely. I didn’t mean to “put down” your strategy in my last comment. And I happen to agree with a lot of what you said here in the second comment. * Verify, verify, verify — Absolutely. But finding the right advisor could be just as challenging as finding the right investment strategy, wouldn’t… Read more »

Jamferris
Guest
Jamferris

I came across this article during a search… I wonder how many opinions have changed during the recent weeks? I am a financial consultant and I am amazed at the lack of knowledge there is in the general public. I agree there’s no need for an advisor to do basic stuff like getting good terms on a loan or car insurance. But in constructing a portfolio… if you can’t explain what “alpha” or “beta” means to me, you need an advisor.

Victor Guettlein, CFP
Guest

Actually, I still believe in everything I said in my previous posts. I have also watched Dalbar statistics proven again by people that bail out at the bottom. For the record, my strategy didn’t do very well in 2008 either, and nothing really did, because of the global meltdown in Oct/Nov. About the only thing that would have worked is a timing strategy that put you all in cash. Unfortunately I don’t know anyone who consistently succeeds at timing the market, and I don’t try. I also find it fascinating how nobody wants to buy stocks at 50% off. Why?… Read more »

Is Suze Orman Right, Can You Be Your Own Financial Planner?

by Kent Irwin time to read: 4 min
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