It was February 12, 2002 and as a young Army officer I was sitting on my tank top listening to the radio.
Donald Rumsfeld, the US secretary of defence, was known for being decisive and confident.
He was talking about Afghanistan.
"There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. These are things we do not know we don’t know."
Think about it for a minute.
Here is the man charged with guiding the war efforts during a time of instability arguing that there are risks we know about (those can be managed) and there is this other category of risks that we don’t know about.
In fact, we don’t even know that we don’t know about them.
16 years later, I’d argue the same is largely true of finance.
But the problem is that most people don’t know how to identify a financial salesperson from a financial planner.
They just don’t know what they don’t know.
So much confusion, misdirection and miscommunication exists around this topic.
But to most people, ‘finance’ people all look the same, sound the same and do the same.
Regardless of the vast amount of information now available online, including the ability to become a DIY investor, your situation is no doubt unique.
And often if can help to get professional advice.
So, when does it makes sense to hire a financial planner?
And when not?
Hire a financial planner if…
1. You’re a high earner
If you’re a high earner (£100,000 pa+), chances are you are time poor.
You may have the ability to save a lot of money but not know the right way to take advantage of the various structures and facilities available to you.
Private banking, Lombard lending, cashflow planning and evidence-based investment – can all protect and multiply your wealth.
2. You have a high net worth
Higher-net-worth individuals (£1 million+) also have a unique set of financial issues.
From co-ordinating large balances spread across different types of accounts, to advanced estate and tax planning strategies, there’s a unique skill set involved in efficiently managing an especially large amount of money.
A boutique, fee-only financial planning firm dedicated to helping high-net-worth individuals should be your first port of call.
3. You’re nearing or in retirement
There are big financial questions that retirees and near-retirees have to answer.
These might include
1. Am I financially ready to retire?
2. What’s the best strategy for withdrawing from my various retirement accounts in order to both meet my needs and make my money last as long as possible?
All of these questions have a big impact on your retirement lifestyle.
None of them are easy to answer on your own.
Each has a number of nuances and strategies that can be difficult to understand or implement without the help of a professional who knows this stuff inside and out.
Most people in this stage of life could at least benefit from a one-time consultation with a financial planner who specialises in retirement planning.
4. You’re starting a family
Getting married and having kids both introduce a lot of new financial challenges.
From joining finances, to managing the new costs of having children, young families have a lot of financial responsibilities on their plate.
Then there is estate planning, life insurance, university…
A good financial planner will help you navigate and prioritise all of these responsibilities so that you can create a secure and enjoyable life for your family both today and in the future.
5. You have a very specific planning need
Certain situations call for specialised knowledge that many people, and for that matter many professionals, don’t have.
Expert witness, divorce, borrowing a lot of money etc.
Caring for a family member with long-term care needs involves a much different set of planning strategies than most people encounter, for example.
If you find yourself in a unique situation like this, finding a financial planner with specialised knowledge in that specific situation can help you make the right decisions.
You don’t need a financial planner if…
1. They aren’t a financial planner but a financial salesperson
Financial services has an ‘outer’ and ‘inner’ game.
Most people ‘inside’ understand the widely different operating models, nuances and practices.
But to people outside – even well-informed observers – it’s very hard to tell the difference because professional planners and salespeople can both be labelled ‘financial advisers’.
The unsuspecting public often assume that financial services operates like other professions.
I’m talking about lawyers, accountants etc.
In other words, professionals who charge for their time.
They don’t understand the differences that often make self-employed commission-only roles more like double glazing, photocopier and car sales.
This is because the key to success for financial salespeople is not selling their time or expertise, but the distribution of company-approved products instead.
Their job is to find people who will buy ‘products’
If your ‘adviser’ is paid by commission (you think the advice is free) – you may be better on your own!
2. Your budget is tight
If your income is just barely enough to cover your basic expenses, you don’t need a financial planner.
Avoid tying yourself into a long-term savings plan.
It’s simply not going to benefit you.
The truth is that it’s hard to fit the cost of a financial planner in an already limited budget, and that products sold to the sub-£250,000 market can often be expensive.
3. You’re drowning in consumer debt
This may sound like the ideal scenario to hire a financial planner.
If paying off credit card debt or other consumer debt is your biggest financial need, you’re better off working with a qualified credit counsellor than a financial planner.
There are many non-profit organisations genuinely focused on helping their customers, unlike a lot of the not-so-reputable debt management companies out there.
4. You’re a DIY’er with a simple situation
The truth is that most financial advice is fairly straightforward.
Pay off debt.
Build an emergency fund.
Invest in index funds.
If your situation is fairly simple and you enjoy learning about personal finance, there are lots of helpful resources out there that you can take advantage of to get yourself in good shape.
There’s never been a better time to be a DIY’er given the wealth of information and the quality of the tools available to you.
The real value of a good financial planner is in helping guide you around life’s obstacles and secure a better life.
They can help you make better financial decisions and take full advantage of the opportunities available to you.
And on top of that, there’s the peace of mind that comes from knowing that your finances are on the right track.