What Type of Financial Advice Do I Need?

Financial Planning, Retirement Planning and Investment Advice are Different

Father and son reading their savings account statement.
••• Over the years, professional financial advice has become more advantageous. Archive photos / Getty Images

As a financial planner, when I meet someone new, and they ask me what I do, when I tell them I'm a financial planner they often reply with "Oh, what do you think I should be investing in right now?" This question drives me nuts. Financial planner does not mean stock broker, market timer, economics guru, or investment advisor. It also does not mean I have a working crystal ball.

There are distinct service offerings in the financial services world and if you think you might need financial advice you'll want to spend time understanding what types of advice can be bought, and who offers it.

Let's take a look at the three primary types of financial advice that you might seek; financial planning, investment advice, and retirement planning.

Financial Planning

Financial planning involves looking at your entire financial situation and laying out a plan to take you in the direction you want to go.

It involves looking at the type of mortgage you have (as well as all types of debt you may have), your insurance needs and current coverage, company benefits such as 401(k) plans, stock options or deferred comp plans, family situation, career stability, spending habits, legal documents, retirement plans; basically anything that has to do with you and your money.

A financial planner then shows you what types of accounts to contribute to, and how over time, that should lead to a targeted net worth or account value size as you near retirement.

Investment Advice

Investment advice is just one small piece of financial planning.

It has to do with where you put your money and can include picking funds inside your 401(k) plan, choosing stocks and bonds, and evaluating the risks of putting your money into a new business venture.

Investment advisors usually have a speciality such as managing bonds, managing stocks, managing options strategies, or managing mutual funds using an asset allocation approach.

Some investment advisors specialize in doing due diligence and screening other advisors to pick the right type of advisor for each category. Always ask an investment advisor what their speciality is before hiring them. No investment advisor can be good at everything - so be cautious of someone who says they do it all. A good investment advisor knows when to seek outside expertise for certain parts of the portfolio.

Retirement Planning

Retirement planning involves a skill set that goes beyond basic financial planning or providing investment advice.

A retirement planner must have a clear understanding that the financial assets you are accumulating, as well as other resources you have such as pensions, Social Security, part-time work, home equity, etc. are all pieces of a puzzle that must be put together in a way that will result in the delivery of reliable monthly paychecks to you once you are retired.

A retirement planner will project out how much retirement income you may expect to have at what date, and which accounts to draw out of. They can show you how much you'll expect to pay in taxes and for health care costs. They show you how inflation may affect your spending needs, and what decisions will help put the future 80 year old you in a more secure position.

Someone who just tries to sell you a product or tell you what to do with your money is not a retirement planner. As you get near retirement you'll want to have a detailed projection of where your future income will come from.

Can I Have All Three?

Just because someone offers financial planning does not mean they offer investment advice and/or retirement planning, or vice versa. Make sure you understand the differences before you search for the service you need.

Some firms (often fee only advisory firms) have expertise in all areas because they have a large enough staff, or resources with outside consultants, or expert advisors who have niche topic areas, which allow them to be competent across all areas. This type of firm can be a long-term home that will meet your financial planning, investment and retirement planning needs without you needing to make a change later in life.