What Does a Financial Planner Do?

You may think of Financial Planners as professionals who help with investing. Whilst investing is a really big part of what every Financial Planner does, it's not where they provide the most value. 

Financial Planners help with loads of different areas of your financial situation including tax planning, retirement planning, insurance, cash flow projections, and inheritance and estate planning. Importantly, they make sure that you're following all the regulations, making sure your finances are managed as efficiently as possible and provide you with guidance and a trusted third party, which is particularly valuable when investment markets are volatile.

In today's article, we're going to answer, in detail, the question, “What does a Financial Planner do?

Investment Management

This tends to be what most people think of when they think of Financial Planners. In reality, investment management is something that Financial Planners can assist with, but it's not where you are going to get the most value for your ongoing financial advice fees. 

Most financial planners will tend to recommend external funds and ETFs rather than managing individual stocks and shares themselves. At the end of the day, Financial Planners expertise is more around personal financial planning, rather than investment management. 

They spend the majority of their day speaking to clients and reading reports, and they are in and out of meetings or phone calls all day. This kind of schedule doesn't lend itself to effective investment management. There could be news happening that requires investment changes to be made, whilst a Financial Advisor is sitting in a two hour client meeting. This is why most financial advice firms have either an in-house investment team who don’t see clients, or they use external investment managers such as ETFs for their clients' investments.

One area where Financial Advisors do help with investment management is making sure that the level of risk you're taking aligns with your long term objectives and your own thoughts and attitudes. This is something that needs constant monitoring as your circumstances change and the world around you does as well.

Tax Planning 

One of the best ways to grow your long term wealth is to make sure you're minimising how much tax you pay. This is one of the main areas where financial advisors can provide a huge amount of value. It's not uncommon for financial advisors or financial planners to save their clients £1,000’s, £10,000’s or even £100,000’s in tax by making the right decisions as to how to structure the finances of their clients.

The type of tax planning that financial planners do includes managing income tax, capital gains tax, inheritance tax, and even sometimes things like taxes for the businesses of the self-employed or company directors. Ongoing financial advice is really important here because the tax system is always changing.

Retirement Planning

When most people look at their finances, the main focus is on building up as much in the way of assets as possible. Many people spend their whole working lives putting more money into their retirement savings accounts, into investment accounts and just generally trying to accumulate as much wealth as possible. 

Whilst this makes sense, what a lot of people don't think about as much is the best way to access these funds once they hit retirement. This can be equally important when it comes to making sure the funds last as long as possible. 

Different accounts have different tax rates when you withdraw the funds. Sometimes there are penalties for withdrawing money early and generally you can waste a lot of money on unnecessary taxes and charges if you're using the wrong assets to fund your retirement income. Financial advisors provide a lot of assistance in this area to make sure that you use your assets as efficiently as possible, when you're looking at needing to access the money to fund your living costs.

Inheritance and Estate Planning 

Part of this process is also looking at what happens to your money when you pass away. Different assets are treated differently for things like inheritance tax, and so looking at the types of assets you should access for your own income also needs to consider what happens to the leftover assets when you pass away. 

Taking a long term view of this can mean you can make decisions to reduce things like inheritance tax, it can mean that you're able to pass on assets to your children in an efficient way, and it can also allow you to maintain control of those assets throughout your own life.

Financial planners can also help with things like ensuring your will is up to date through connection with a solicitor and putting in place various trust structures that align with your objectives.

Insurance and Risk

This is one area of a  Financial Planner’s work that is often overlooked. It's very important to grow your assets, grow your wealth and grow your income over your lifetime. But it's also important to look to manage the risk in your life as well. Financial Advisors can assist with things like life insurance, income protection, to make sure that your family is protected, if things go wrong.

They can ensure that the cover finds the right balance between level and affordability, and they can make sure that the policies are structured in the right way. For example, sometimes holding the policy in trust is the best long term option for certain client’s circumstances.

Summary

A Financial Planner’s job is to be your trusted advisor for all areas of your finances. They make sure that all the different parts that make up your assets and net worth are aligned with your long term goals and objectives. They ensure that everything is being managed as efficiently as possible, so that you’re not wasting money on things like tax when you don’t need to be.

In short, they ensure that your money is being used to support the life that you want to live. They take the time to understand your long term objectives, what you want your life to look like and how you want to pass your assets to your children, and they match your financial arrangements to these objectives.