If you’re wondering what does a financial planner do, you’re asking an important question that could transform your financial future. A financial planner is a professional who helps individuals and families manage their money, plan for major life goals, and build long-term wealth. Understanding what a financial planner does can help you decide whether hiring one is right for you and what services you should expect. From retirement planning to investment advice, financial planners offer guidance that helps you make smarter decisions with your money.
Many people think financial planners are only for the wealthy, but that’s a myth. Financial planners work with clients at all income levels, helping them create budgets, pay off debt, save for college, plan for retirement, and much more. Let’s explore exactly what these professionals do and how they might help you achieve your financial goals.
Understanding the Role of a Financial Planner
A financial planner is essentially a guide for your financial life. Just as a personal trainer helps you reach fitness goals or a therapist helps with mental health, a financial planner helps you build financial wellness and security.
The Big Picture Approach
Unlike accountants who focus primarily on taxes or investment advisors who concentrate on growing your portfolio, financial planners take a holistic view of your entire financial situation. They look at your income, expenses, debts, assets, insurance, taxes, and goals to create a comprehensive plan that addresses all aspects of your financial life.
Think of a financial planner as someone who helps you see how all the pieces of your financial puzzle fit together. They understand that your decision to buy a house affects your ability to save for retirement, that having children impacts your insurance needs, and that your career choices influence your long-term wealth building.
Creating a Roadmap
The primary job of a financial planner is to help you create a roadmap from where you are financially to where you want to be. They help you define clear financial goals, figure out what steps you need to take to reach them, and adjust the plan as your life circumstances change.
This roadmap isn’t set in stone. Life is unpredictable—you might change careers, have children, inherit money, face medical emergencies, or experience any number of unexpected events. A good financial planner helps you adapt your plan as life evolves while keeping your long-term goals in sight.
Core Services Financial Planners Provide
Financial planners offer a wide range of services designed to improve your financial health. Here are the main areas where they provide guidance and expertise.
Retirement Planning
One of the most common reasons people hire financial planners is to prepare for retirement. Financial planners help you answer critical questions: How much money will you need to retire comfortably? How much should you save each month? What types of retirement accounts should you use?
Calculating Retirement Needs
Your financial planner will estimate how much money you’ll need in retirement based on your desired lifestyle, expected expenses, healthcare costs, and life expectancy. They consider factors like inflation, which gradually reduces your money’s purchasing power over time.
Optimizing Retirement Accounts
Financial planners help you understand different retirement savings options like 401(k) plans, IRAs, Roth IRAs, and pension plans. They advise which accounts to prioritize based on your tax situation, employer matches, and retirement timeline. They also help you develop a strategy for withdrawing money from these accounts in retirement to minimize taxes.
Social Security Strategy
Deciding when to claim Social Security benefits significantly impacts how much you’ll receive over your lifetime. Financial planners analyze your situation to recommend the optimal claiming age, considering your health, other income sources, and whether you’re married.
Investment Management
While not all financial planners manage investments directly, most provide investment advice as part of comprehensive financial planning.
Asset Allocation
Your financial planner helps determine how to divide your investments among different asset classes like stocks, bonds, and cash. This allocation depends on your age, risk tolerance, time horizon, and financial goals. Younger people typically invest more aggressively with higher stock allocations, while those nearing retirement often shift toward more conservative investments.
Portfolio Diversification
Financial planners help you diversify your investments across different sectors, geographic regions, and investment types to reduce risk. They explain that putting all your eggs in one basket—like investing only in your employer’s stock—can be dangerous.
Investment Selection
Many financial planners recommend specific investments like mutual funds, index funds, ETFs, or individual stocks and bonds. They consider factors like fees, tax efficiency, and how investments align with your overall financial plan.
Rebalancing
Over time, some investments grow faster than others, throwing your asset allocation out of balance. Financial planners monitor your portfolio and recommend when to rebalance by selling some investments and buying others to maintain your target allocation.
Tax Planning
Financial planners work to minimize the taxes you pay over your lifetime, though they typically coordinate with your accountant rather than preparing tax returns themselves.
Tax-Efficient Strategies
Your financial planner might suggest contributing to tax-deferred retirement accounts to reduce current taxable income, timing investment sales to minimize capital gains taxes, or using tax-loss harvesting to offset gains with losses.
Charitable Giving
If you donate to charity, financial planners can suggest tax-efficient giving strategies like donating appreciated stock instead of cash or using donor-advised funds to maximize your tax benefits while supporting causes you care about.
Tax Bracket Management
Financial planners help you understand how different financial decisions affect which tax bracket you fall into. They might suggest strategies to keep income below certain thresholds to maintain eligibility for tax credits or deductions.
Estate Planning
Estate planning ensures your assets go where you want them after you die and that your wishes are honored if you become incapacitated.
Will and Trust Guidance
While financial planners aren’t attorneys and can’t draft legal documents, they help you understand what estate planning documents you need, such as wills, trusts, powers of attorney, and healthcare directives. They typically work alongside estate attorneys to ensure your financial and legal plans align.
Beneficiary Designations
Financial planners review beneficiary designations on retirement accounts, life insurance policies, and other financial accounts. These designations override what’s in your will, so keeping them current and coordinated with your estate plan is crucial.
Wealth Transfer Strategies
For clients with significant assets, financial planners suggest strategies to transfer wealth to heirs tax-efficiently. This might include gifting strategies, trust structures, or charitable planning.
Insurance Planning
Insurance is a critical part of protecting your financial plan from unexpected disasters. Financial planners evaluate your insurance needs across multiple areas.
Life Insurance
Financial planners help determine how much life insurance you need based on your family’s financial needs if you die. They explain differences between term life insurance (coverage for a specific period) and permanent life insurance (coverage for your entire life), helping you choose what’s appropriate for your situation.
Disability Insurance
Your ability to earn income is often your most valuable asset. Financial planners help you understand disability insurance, which replaces a portion of your income if illness or injury prevents you from working.
Long-Term Care Insurance
As people age, many need assistance with daily activities or nursing home care. Long-term care insurance helps cover these potentially devastating costs. Financial planners advise whether this insurance makes sense for you and when to purchase it.
Property and Casualty Insurance
Financial planners review your home, auto, and umbrella insurance policies to ensure you have adequate coverage without paying for unnecessary protection.
Education Planning
For parents and grandparents, saving for children’s education is often a top priority.
College Savings Strategies
Financial planners explain different education savings vehicles like 529 plans, Coverdell ESAs, and custodial accounts. They help you understand the tax benefits, contribution limits, and restrictions of each option.
Financial Aid Planning
Your financial situation affects how much financial aid your child might receive. Financial planners can suggest strategies to position assets favorably for financial aid calculations, though this must be balanced with overall financial health.
Education Funding Balance
Financial planners help you balance education savings with retirement savings. A common mistake is prioritizing kids’ college over retirement, but the reality is you can borrow for college—you can’t borrow for retirement.
Debt Management
Many people struggle with debt, and financial planners help create strategies to pay it off efficiently.
Debt Prioritization
When you have multiple debts, financial planners help you decide which to pay off first. High-interest credit card debt usually takes priority, while low-interest mortgage debt might be addressed later.
Refinancing Analysis
Financial planners evaluate whether refinancing mortgages, student loans, or other debts makes financial sense based on interest rates, fees, and your timeline.
Good Debt vs. Bad Debt
Not all debt is equal. Financial planners help you understand the difference between debt that helps build wealth (like mortgages on appreciating property) and debt that erodes wealth (like high-interest credit cards).
Cash Flow and Budgeting
Understanding where your money goes is foundational to financial success.
Budget Creation
Financial planners help you create realistic budgets that align spending with values and goals. They analyze your income and expenses to identify opportunities to save more or redirect money toward priorities.
Emergency Fund Planning
An emergency fund protects you from going into debt when unexpected expenses arise. Financial planners typically recommend saving three to six months of expenses in an easily accessible account.
Cash Flow Optimization
Financial planners look for ways to optimize your cash flow, such as adjusting tax withholding to avoid large refunds (which essentially give the government an interest-free loan) or timing big purchases strategically.
Different Types of Financial Planners
Not all financial planners are the same. Understanding different types helps you choose the right professional for your needs.
Certified Financial Planner (CFP)
The CFP designation is the gold standard in financial planning. CFPs complete extensive education, pass a comprehensive exam, meet experience requirements, and commit to ethical standards. They must complete continuing education to maintain their certification.
CFPs are trained in all aspects of financial planning, including retirement, investments, taxes, insurance, and estate planning. If you want comprehensive planning, look for someone with CFP credentials.
Fee-Only Financial Planners
Fee-only planners charge directly for their services through hourly rates, flat fees, or a percentage of assets they manage. They don’t earn commissions from selling financial products, which reduces potential conflicts of interest.
This compensation structure means their advice isn’t influenced by commissions they might earn from recommending certain investments or insurance products. Many people prefer this model for its transparency and reduced conflicts.
Commission-Based Financial Planners
Commission-based planners earn money primarily through commissions on products they sell, like insurance policies, mutual funds, or annuities. While this doesn’t automatically mean they provide bad advice, it creates potential conflicts of interest.
When working with commission-based planners, ask questions about how they’re compensated on any products they recommend. Understand that their financial incentive might not perfectly align with your best interests.
Fee-Based Financial Planners
Fee-based planners charge fees for planning services but may also earn commissions on some products. This hybrid model falls between fee-only and commission-based planning.
With fee-based planners, understand exactly how they’re compensated for each aspect of their service. Some charge planning fees but earn commissions on investment or insurance products they recommend.
Robo-Advisors
Robo-advisors are digital platforms that provide automated financial planning and investment management based on algorithms. They typically offer low-cost portfolio management but limited personalized comprehensive planning.
Robo-advisors work well for people with straightforward situations who primarily need investment management. They’re less suitable for complex situations requiring nuanced advice on taxes, estate planning, or insurance.
How Financial Planners Work With Clients
Understanding the financial planning process helps you know what to expect when working with a planner.
Initial Consultation
Most financial planners offer a free initial consultation where you discuss your situation, goals, and concerns. This meeting allows both parties to determine if they’re a good fit. Come prepared to discuss your financial situation openly and ask questions about the planner’s experience, credentials, services, and compensation.
Data Gathering
If you decide to work together, the planner will gather detailed information about your financial life. This includes income, expenses, assets, liabilities, insurance policies, tax returns, employee benefits, and estate planning documents.
Be thorough and honest during this phase. Your financial planner can only provide good advice if they have accurate, complete information. Everything you share is confidential.
Analysis and Planning
The financial planner analyzes your information, identifies issues and opportunities, and develops recommendations. This might include running projections to show how different strategies affect your long-term financial picture.
Plan Presentation
Your financial planner presents a written financial plan explaining their recommendations and why they’re appropriate for your situation. This plan typically covers all relevant areas: retirement, investments, insurance, taxes, and estate planning.
Good financial planners explain complex concepts in plain language, answer your questions patiently, and ensure you understand the rationale behind each recommendation before moving forward.
Implementation
Once you approve the plan, implementation begins. This might involve opening new accounts, adjusting investments, purchasing insurance, or making other changes. Some financial planners implement everything for you, while others provide guidance for you or other professionals to execute.
Ongoing Monitoring and Adjustment
Financial planning isn’t one-and-done. Your financial planner schedules regular reviews to monitor progress, adjust strategies as needed, and update your plan when life circumstances change.
Annual or semi-annual meetings are common, though you can contact your planner between scheduled reviews when major life events occur, like marriage, divorce, job changes, or inheritances.
When Should You Hire a Financial Planner?
Many people wonder when it makes sense to hire a financial planner. While anyone can benefit from professional financial advice, certain situations particularly call for expert guidance.
Major Life Transitions
Significant life changes often warrant professional advice. This includes getting married or divorced, having children, receiving an inheritance, selling a business, changing careers, or approaching retirement. These transitions involve complex financial decisions with long-term consequences.
Feeling Overwhelmed
If managing your finances feels overwhelming and you don’t know where to start, a financial planner can bring order to chaos. They help you prioritize competing goals and create actionable plans.
Accumulating Wealth
As your assets grow, financial decisions become more complex. If you’ve accumulated significant wealth through savings, investments, or business success, a financial planner helps you preserve and grow that wealth while managing taxes efficiently.
Preparing for Retirement
The years leading up to retirement and the early retirement years are critical. Making mistakes during this period can significantly impact your retirement lifestyle. Financial planners help ensure you’re prepared and guide you through the transition.
Wanting Peace of Mind
Even if you’re financially comfortable, you might want professional confirmation that you’re on the right track. Financial planners provide reassurance and catch potential problems you might overlook.
Complex Situations
If you have multiple income sources, own a business, have stock options, plan to retire early, support elderly parents, or have other complexities, professional guidance is especially valuable.
Questions to Ask Before Hiring a Financial Planner
Choosing the right financial planner is important. Ask these questions before making a decision.
What are your qualifications and credentials?
Look for credentials like CFP, CFA (Chartered Financial Analyst), or ChFC (Chartered Financial Consultant). Ask about their educational background and years of experience.
How are you compensated?
Understand exactly how the planner earns money. Are they fee-only, commission-based, or fee-based? What do they charge for services? Are there any conflicts of interest you should know about?
What services do you provide?
Some planners offer comprehensive financial planning covering all aspects of your financial life. Others specialize in specific areas like retirement or investment management. Make sure their services match your needs.
What is your investment philosophy?
If investment management is part of their service, understand their approach. Do they prefer active management or passive index investing? How do they select investments?
Can I see a sample financial plan?
Reviewing a sample plan (with client information redacted) gives you an idea of what you’ll receive and whether the planner’s communication style works for you.
How often will we meet?
Understand how frequently you’ll have review meetings and how accessible the planner is between meetings. Can you call or email with questions?
What is your client retention rate?
High client retention suggests clients are satisfied with the planner’s service. Don’t be afraid to ask why clients leave.
Can you provide references?
Speaking with current clients gives you insight into what working with the planner is really like.
The Cost of Hiring a Financial Planner
Financial planners use several fee structures. Understanding these helps you evaluate whether a planner’s services fit your budget.
Percentage of Assets Under Management (AUM)
Many financial planners charge an annual fee based on a percentage of the assets they manage for you, typically ranging from 0.5% to 2%. For example, if you have $500,000 invested and your planner charges 1%, you’d pay $5,000 annually.
This model aligns the planner’s success with yours—as your portfolio grows, they earn more. However, it can become expensive as your wealth increases, and it might not be suitable if you need planning but don’t have significant investments.
Hourly Fees
Some planners charge by the hour, with rates typically ranging from $150 to $400 per hour depending on location and experience. This model works well for people who need specific advice rather than ongoing management.
Hourly fees are predictable and pay only for the time you need. However, costs can add up if your situation is complex or you need frequent consultations.
Flat Fees
Many planners charge a flat annual fee for comprehensive planning services, regardless of your asset level. Fees might range from $2,000 to $10,000 or more annually depending on complexity.
This model can be more affordable for high-net-worth individuals compared to percentage-based fees, and it’s accessible for people who need planning but don’t have large investment portfolios.
Project-Based Fees
For one-time planning needs, some planners charge a project fee. This might be $1,000 to $5,000 for creating a comprehensive financial plan without ongoing management.
Project-based fees work well if you want professional guidance but prefer to implement and manage the plan yourself.
Commissions
Commission-based planners don’t charge direct fees but earn commissions when you purchase products they recommend. While this might seem free, commissions are built into product costs, and conflicts of interest can be higher.
DIY Financial Planning vs. Hiring a Professional
Some people successfully manage their finances independently, while others benefit greatly from professional help. Consider these factors when deciding.
When DIY Might Work
If your financial situation is relatively simple, you’re comfortable with numbers, enjoy researching financial topics, have time to devote to managing your finances, and are disciplined about sticking to plans, you might successfully handle financial planning yourself.
Numerous online tools, calculators, and resources can guide you. Books, podcasts, and courses can build your financial knowledge. Many people start with DIY planning and hire professionals as their situations become more complex.
When Professional Help Makes Sense
If your situation is complex with multiple income sources, business interests, or significant assets, if you lack time to properly manage your finances, if you find financial topics confusing or overwhelming, if you’re approaching major life transitions, or if you want objective advice free from emotional decision-making, professional help likely makes sense.
Financial planners bring expertise you’d take years to develop yourself. They’ve seen countless financial situations and know what works and what doesn’t. They keep emotions out of financial decisions, which is surprisingly difficult to do yourself.
The Hybrid Approach
Many people use a hybrid approach, hiring financial planners for specific needs like retirement planning or investment management while handling day-to-day budgeting and simple financial decisions themselves.
This approach balances the value of professional expertise with cost considerations and personal involvement in your financial life.
Common Misconceptions About Financial Planners
Let’s clear up some myths that prevent people from seeking financial planning help.
“I Don’t Have Enough Money for a Financial Planner”
Financial planners work with clients at all wealth levels. Some specialize in helping young professionals, people paying off debt, or families just starting to save. Fee-only planners who charge hourly or flat fees can be accessible regardless of your assets.
Good financial habits matter more when you have less money, not less. Professional guidance early in your financial journey can prevent costly mistakes and accelerate wealth building.
“Financial Planners Are Just Trying to Sell Me Something”
While some financial professionals do earn commissions on products, fee-only financial planners have no financial incentive to recommend particular products. Their compensation comes from planning fees, not sales.
CFPs are bound by fiduciary duty, meaning they’re legally required to put your interests ahead of their own. Ask about compensation structure and fiduciary status to understand any potential conflicts.
“I Can Just Do It Myself With Online Tools”
Online tools are helpful, but they can’t replace personalized advice from someone who understands your unique situation, goals, and concerns. Financial planning involves more than calculations—it requires judgment, experience, and understanding of how different strategies interact.
A financial planner spots issues automated tools miss, asks questions you haven’t considered, and helps you avoid common pitfalls.
“Financial Planning Is Only About Investments”
While investments are one component, comprehensive financial planning addresses retirement, taxes, insurance, estate planning, education funding, debt management, and more. It’s about your entire financial life, not just your portfolio.
“Once I Have a Plan, I’m Done”
Financial planning is an ongoing process, not a one-time event. Life changes, laws change, markets change, and your plan needs to evolve accordingly. Regular reviews and adjustments are essential to staying on track toward your goals.
The Value a Good Financial Planner Brings
Beyond specific services, financial planners provide intangible value that’s difficult to quantify but enormously important.
Objectivity
You’re emotionally connected to your money. Financial planners bring objective perspective, helping you make rational decisions instead of emotional ones. They prevent you from selling investments in a panic during market downturns or making impulsive decisions you’ll regret.
Accountability
Having someone review your progress regularly keeps you accountable to your goals. It’s like having a personal trainer for your finances—you’re more likely to follow through when someone’s monitoring your progress.
Expertise
Financial planners stay current on tax laws, investment strategies, and planning techniques. They bring years of experience and education to your situation, saving you the time and effort of becoming an expert yourself.
Confidence
Perhaps most valuable, a good financial planner gives you confidence that you’re making smart decisions and on track toward your goals. This peace of mind has real value in reducing financial stress and anxiety.
Time Savings
Managing finances properly takes significant time. Financial planners free you to focus on your career, family, and interests while they handle the complex financial work.
Finding the Right Financial Planner for You
With thousands of financial planners available, finding the right one requires some effort.
Start With Referrals
Ask friends, family, or colleagues if they work with financial planners they’d recommend. Personal referrals often lead to good matches, though remember that someone else’s ideal planner might not be right for you.
Use Professional Directories
Organizations like the CFP Board, NAPFA (National Association of Personal Financial Advisors), and XY Planning Network maintain directories of qualified financial planners you can search by location and specialty.
Interview Multiple Planners
Don’t hire the first planner you meet. Interview at least three to compare services, personalities, and approaches. Most offer free initial consultations.
Check Credentials and Background
Verify credentials through issuing organizations. Check for any disciplinary actions through FINRA’s BrokerCheck or the SEC’s Investment Adviser Public Disclosure website.
Trust Your Gut
Beyond qualifications and services, you need to feel comfortable with your financial planner. You’ll be sharing intimate financial details and relying on their advice for important decisions. If something feels off, keep looking.
The Bottom Line
Financial planners help you make smarter decisions with your money by providing expert guidance on retirement, investments, taxes, insurance, estate planning, and more. They create comprehensive plans that address your entire financial life and help you work toward your goals with confidence.
Whether you’re just starting out, navigating a major life transition, or approaching retirement, a good financial planner can be an invaluable partner in building and protecting your wealth. The key is finding someone whose services match your needs, whose compensation structure you understand and are comfortable with, and who has the credentials and experience to guide you effectively.
While hiring a financial planner involves cost, the value they provide through better returns, tax savings, avoiding costly mistakes, and peace of mind typically far exceeds what you pay. For many people, professional financial guidance is one of the best investments they can make.
Frequently Asked Questions
1. What’s the difference between a financial planner and a financial advisor? The terms are often used interchangeably, but financial planners typically take a comprehensive approach to your entire financial situation, while financial advisors might focus more narrowly on investments. Look for specific credentials like CFP to ensure you’re getting comprehensive planning services.
2. Do I need a certain amount of money to work with a financial planner? No. While some planners have minimum asset requirements (often $100,000 to $500,000), many work with clients at all wealth levels. Fee-only planners who charge hourly or flat fees often have no minimums and can help people just starting their financial journey.
3. How do I know if my financial planner is trustworthy? Look for credentials like CFP, check their background through FINRA BrokerCheck or SEC’s Investment Adviser Public Disclosure, ask if they’re a fiduciary (legally required to put your interests first), understand their compensation structure, and trust your instincts during initial meetings.
4. Can a financial planner help me get out of debt? Yes. Financial planners help create debt payoff strategies, prioritize which debts to tackle first, evaluate refinancing options, and develop budgets that free up money for debt repayment while still working toward other goals.
5. What’s a fiduciary, and why does it matter? A fiduciary is legally required to put your interests ahead of their own. All CFPs are fiduciaries when providing financial planning services. This means they must recommend what’s best for you, not what earns them the highest commission. Always ask if a financial professional is acting as a fiduciary.
6. How often should I meet with my financial planner? Most financial planners recommend annual or semi-annual review meetings, though you should also contact them when major life events occur like marriage, divorce, job changes, inheritances, or other significant changes that affect your financial situation.
7. Can financial planners guarantee investment returns? No, and any financial planner who guarantees specific returns should be avoided. Investments carry risk, and no one can predict market performance with certainty. Legitimate financial planners discuss realistic expectations based on historical data and your risk tolerance.
8. Will my financial planner prepare my taxes? Most financial planners provide tax planning advice but don’t prepare tax returns. They typically work alongside your CPA or tax preparer to ensure your financial plan and tax strategies are coordinated. Some planners have tax preparation credentials and offer both services.
9. What if I disagree with my financial planner’s recommendations? A good financial planner explains the reasoning behind recommendations and addresses your concerns. If you disagree, discuss it openly. Your planner should listen to your perspective and either explain why their recommendation stands or adjust their advice. Ultimately, all decisions are yours to make.
10. How do I know if my financial planner is doing a good job? Evaluate whether you’re making progress toward your goals, if the planner communicates clearly and responds to questions promptly, if they proactively suggest adjustments as your situation changes, and if you feel more confident and less stressed about your finances. Regular progress reviews should clearly show whether strategies are working.
