Many of our readers have been happy to provide details of their holdings for our weekly portfolio review. However, I am often surprised by how little detail they provide about their investment objectives, while providing details of their holdings in full. It could be shyness about revealing too much about themselves in public. but I suspect that it is because they haven't thought things through properly.
It is not enough to simply choose the best investments for the short or long term, using whatever is left after the bills are paid. You need a proper financial plan. Whether you want to put this together yourself or pay someone to come up with it is a question of preference.
It is worth paying for a financial planner if:
•You want an objective, outside perspective.
•You have a complex financial situation.
•You don't have the time, or you devote all the time you have to choosing investments (this is usually the biggest obstacle for 'do it yourselfers').
Anyone considering paying for a financial plan should use a Certified Financial Planner (CFP), a gold standard awarded by the Institute of Financial Planning to around 1,000 individuals in the UK. The CFP tests the practical application of technical knowledge under case study conditions. An equivalent qualification that has more emphasis on technical knowledge is Chartered Financial Planner status awarded by the Chartered Insurance Institute.
Some elite professionals hold both qualifications, which really helps them to stand out from the crowd. One is Alan Dick, owner of Forty Two Wealth Management in Glasgow. He says: "I have passed numerous professional exams over the years, but the Certified Financial Planner qualification stands head and shoulders above them all in terms of value to myself, my business and most importantly my clients."
Nick Cann, chief executive of the Institute of Financial Planning, says: "Not to be confused with financial advisers, or the person at your local bank urging you to buy their products, the role of the financial planner is about much more than just helping you to decide what you should do with your money. They'll help you to work out all your priorities and goals in life, attach costs to them and then start to work out a plan so that you can achieve them."
If you have the time and knowledge - and your financial situation is not too complicated - you may be able to do a lot of it on your own. In this case, it makes sense to understand the role of a financial planner so you can replicate it yourself.
This planning process starts with a CFP spending quite a bit of time helping you to work out your goals and aspirations in life, working out the likely costs of those goals and also prioritising what you want to happen and when. "This is a really powerful exercise," says Mr Cann. "Usually for the first time in that person's life, they can see in print what the rest of their life is meant to look like."
The process shows what kind of return would be required on assets in order to reach goals. It also shows how much someone might need to set aside and save each month in order to amass the capital required to achieve certain goals - for example, fund a child's university education, pay off your mortgage or retire at 60.
If you haven't set such goals and worked out the returns required then do so now. You may find it is a 'eureka' moment when everything about your money falls into place and you know exactly what you need your investments to do for you.
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The Institute of Financial Planning's national consumer awareness campaign Financial Planning Week is taking place from 26 November – 2 December. Find out more at http://www.financialplanning.org.uk/financial-planning-week-2012