I don’t have to explain why you need an accountant for your business. If you are in business for yourself, you already know. Business is tough, and business bookkeeping is tougher. You already know why you need a lawyer to represent you, and a doctor to diagnose and treat you. You need a marketing expert to get your name and product out there. And you need a social media guru because you don’t know the difference between Facebook and Twitter.
What people are less certain about is the need for a personal financial advisor. That is something of a mystery to me as financial literacy in the U.S. is dismally poor. According to Money-Rates.com,
In a 182-page report released last month, the Securities and Exchange Commission arrives at a stark conclusion: Americans as a group have a weak grasp of financial concepts and lack basic investment knowledge.
That is a harsh indictment. We seem to think that handling our own finances is equivalent to mowing our on lawn. Having seen a lot of lawns, we should probably rethink that one as well. If you have enough money to even be having this discussion, here’s why you need a personal financial advisor:
Personal Finance Needs A Plan
We humans do not seem to be particularly good at long-term planning. We can’t plan far enough ahead to account for heavy traffic when going to work. We have a hard time bringing an umbrella when it is not raining at the moment. We can’t plan for a change in weather on a day that rain is predicted. How can we effectively plan for our financial future. The sad answer is that most simply don’t.
JSF Financial lists elements of a strong financial plan. They include:
- •Managing cash flow and budgeting
- •Understanding liabilities (credit report, ID theft) and risk management
- •Planning to fund a child’s college education
- •Developing a strategy to afford retirement
All of these aspects of a financial plan are crucial. None of them are easy.
Your Advisor has Expertise that You Lack
The reason we go to an advisor is because they know things that we do not. Furthermore, they follow changes in the industry that would simply escape us. The educational and intellectual rigor of a professional financial advisor should be reason enough for us to value their opinion over ours.
To sell annuities, something like a Series 66 license is required. One would also need to pass an exam to become a Certified Financial Planner. About 286 colleges and universities will assist in that pursuit. Useful in getting one’s foot in the door would be a bachelor’s degree in Finance, Economics, Accounting, Business, Marketing, or even Psychology. Let’s face it; they didn’t teach us financial literacy in school. We need someone who took the time to learn it.
They Can Make Less Emotional Decisions
The AMA cites Opinion 8.19 of the Medical Code on treating family members. It advises against the practice as it might compromise objectivity. Emotion is a driver in medical judgement, just as it is in all aspects of life. Doctors who treat family members are even more subject to the loss of objectivity due to emotion.
Spending is another emotional decision that we make everyday. eHow warns that overspending is largely due to our emotional state. This is precisely why a psychology degree is useful for a perspective CFP. When we handle our own finances, our emotions cloud our judgement. A dispassionate assessment from an outside party can go a long ways towards rational investment and planning.
Why do you need a personal financial advisor? Because you have personal finances, and you want to have sufficient resources far into the unforeseeable future, for things you can hardly imagine right now. You do not have the expertise to manage it. And you are too emotionally involved. Oh, and you really might want to look into a lawn service. Just saying.