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

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.

16 thoughts on “Is Suze Orman Right, Can You Be Your Own Financial Planner?”

  1. 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 …

  2. 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 many people in their 30s and 40s who are “accumulators”. Generally the advice is simple, spend less than you make, save your money, invest it in low cost index funds, educate yourself in matters such as home buying, car buying, etc.

  3. 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.

  4. 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 themselves.

    Will be doing a review of the eFin plan sometime this month, looking forward to the findings:)

  5. 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.

  6. 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 a bigger stake in my financial prosperity than any paid planner. I mostly figure out things myself but if I have a question, I often ask him what he thinks. I trust him more than a stranger and I feel lucky to have a trusted family member with the right kind of expertise.

  7. 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 turn of the century most funds and advisors are happy to omit their returns during those years – but you should insist on seeing them! It’s important for an active strategy to preserve assets in a protracted down market, then kick it in the pants when the bull returns. Is this possible? Yes it is. See for yourself at http://www.blueprintfinancialservices.com and click the link “why we’re special”. I’m all for people doing their own planning, and I encourage it, but i’ve not found any individual that has been able to achieve the same results on their own when it comes to investing. Want to be your own planner and delegate the investment strategy? We can help.

  8. @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 to explain why active investing strategy rarely beats a passive one:


  9. 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 them are not valid? No. It means that you need to verify, verify, verify. And, as you say, ignore all the financial pornography on the radio and TV, and in the news.

    Another common misconception is that investors actually get “average” results. According to Dalbar, most investors only get about 25% of the return of the funds they invest in. A good advisor following a well devised index strategy will get them average returns, which is better than most of them will get on their own. Adding tactical managment to the equation, if driven by a solid strategy, can indeed add alpha. And for the record, I’m not talking about or advocating market timing – I don’t believe in it.

    For my part, my real-time numbers don’t rely on picking a good fund manager that will beat an index for the next 5, 10, or longer years, so personally I could care less if they beat their index over the long haul – my rule #29 doesn’t require it. And for the record, I use index funds in my strategy – i just don’t think they’re a panacea. If an advisor can’t do better than average, my thinking is “Why have one then?” And you’re right – many of them can’t. That’s why investors should require evidence that an advisor’s strategies actually produce real-world results.

    Now, it’s my turn to take issue with YOU on your Rule # 6! Unless an investor has expertise in an industry, I think buying individual stocks and bonds is a recipe for disaster. First of all, most investors lack the capital to achieve true diversification; they will almost invariably end up over concentrated in an area. Second, the time required to research industries, sectors, economies, and then individual stocks requires a lot more analytical capability and time than most people possess, whether they have desire to learn or not. Third, individual assets are frequently much more volatile than a basket of comparable securities. There is safety in numbers.

    I’m sorry this is so long and rambles a bit – i didn’t have time to write a shorter response.

  10. @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 you agree?

    * “most investors only get about 25% of the return of the funds they invest in” — I believe I read this somewhere as well. It has to do with how long these investors hold the fund and either buy when things look good (chasing performance) or sell when things look bad.

    * “I think buying individual stocks and bonds is a recipe for disaster” — There’s no issue here, because I happen to agree with you 100% on this. I admit that I was an individual stocks investor at one point, but I have matured since. Now, my preference is to invest in low-cost ETFs and passive funds

    Thank you for your very well thought out comment.

  11. 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 proficient or an expert without investing a lot of time. Is it worth it? YOU BET IT IS. Does everyone have the ablity and desire to do it? And in that journey you realize that some things you thought you knew were wrong, others are confirmed is true. The world, the markets, and technology change. Things that were not possible years ago are possible now. The future will have additional possibilities.

    Yes finding a good advisor can be as daunting as finding a good strategy. It takes time and some critical thinking skills. There’s a lot of good info in the e-universe; and there’s a lot of crap – probably more so. That’s why people need to verify, verify, verify. In my opinion, people should avoid financial/investment professionals who are primarily compensated by commissions, and also those who are not will to express in writing that they will acknowlege that they are a fiduciary – IN WRITING. A fiduciary is one in a position of trust that MUST place your interests above their own. Many planners/advisors cannot or will not. A good place to start is the Paladin Registry of Financial Professionals.

    Dalbar published a report in 2005 with the 25% statistic i referred to earlier. The reason most people fail miserably is because they act on emotion and without a clear strategy. They buy high and sell low. It does not have to be short term either, though often it is.

    Let me pose this scenario: The S&P 500 hit all time highs in 2000, lost half it’s value over the next couple years, and finally regained it’s previous highs only last year. How many people do you know that have 7 year’s worth of patience? Whether they know they should or not, people question the validity of their strategy in a protracted downturn. And worse, if you’re only 10 or 15 years from retirement, you’ve missed 7 years of compounding that figured into your retirement plans. If you understand compounding that means you’ve missed a double. I happen to believe that we’re in a secular bear market still and that we may have more volatile years ahead. Secular trends tend to extend from about 13-20+ years. Passive strategies do well in a secular uptrend. I think you need a little more maneuverability in flat and down markets characterised by a bear market.

    I could go on and on, but again, time is a limit. Best of luck in your journey.

  12. 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?

  13. 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.

  14. 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? We try to find a bargain on everything else.

    Finally, look at a 10 year chart of the S&P500. That is why I don’t believe in indexing. I still use index funds, but blind adherence to a buy and hold strategy requries a VERY long time horizon – longer than most investors can stomach.

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