by Daniel E Stronach B.A., CFP, R.F.P.
President, Stronach Financial Group

I recently met with a physician in his mid 60's to discuss his impending retirement from medicine in the near future. He explained to me that he preferred to practice medicine much more than looking after the details of his financial affairs. So he went to a seminar on financial planning and found someone he thought he could trust to look after his financial needs.

The doctor believed his financial planner would help him understand how much he would need at retirement and how much he would have to set aside on a regular basis. He also assumed his financial planner would review his plan every year and discuss how any unforeseen deviations from the plan would affect his long-range outcome. His financial planner would help him improve the outcome. This was after all, what the articles in the newspaper said a financial planner was.

Instead, his financial planner took over the management of his investments by having him invest 100% of his savings in equity mutual funds with deferred sales charges. His financial planner helped the doctor set up a monthly savings program, phoned him once in a while and invited him to a seminar. And when they met, they discussed his portfolio and the proposed changes - not his financial plan.

Like many professionals, it is likely that you got into business to practice your profession. But, after a number of years, a common complaint is that you wish you learned more about the financial side of running your business and investing than was taught to you at university. It seems that your degree of financial success is dependent on how well the business component is being managed.

To compensate for this knowledge deficit, some professionals have spent enormous amounts of time learning how to deal with the flows of money and its management. They have learned how to do it themselves. Others aren’t interested and look to financial professionals to help them manage their financial affairs. Some rely heavily on these financial professionals.

You would assume that if you invest your time where it's going to make the greatest financial impact, it should be in your own business. By concentrating on doing the job well and increasing the efficiency of your practice, the return is generally expected to be much greater.

But, in reality it doesn't appear to be that way, because there are serious concerns about the quality of financial advice that you have access to.

The most likely candidate for the job as your financial coach, who will help you organize your financial affairs and 'Manage them, is a financial planner. But what is a financial planner today? A mutual fund salesperson, insurance advisor, accountant, banker, stockbroker, or lawyer? Today, everyone's a financial planner. And it seems that few financial planners are willing to take the time to help you understand what you have to do and then make sure you stay focused. It seems they want you to invest your money with them and that's it!

This, of course, is not true of all financial planners. But it appears that there are some serious questions being raised about who should be able to call themselves a financial planner and who should call themselves a financial advisor (or investment advisor).

Most financial planners (about 85%) are commission oriented. This means they sell products and earn commissions based on how much is invested at a given time. The rest are called Fee-Only financial planners, who charge fees for their services or the time spent. Stronach Financial Group is a Fee-Only financial planning firm.

The problem with commission orientation in financial planning is that the interests of financial planners who sell products are often in conflict with their client's interests.

For example, a financial planner could advise his client not to pay off his mortgage using his non-registered investments because the financial planner will lose some of his trailer fees. Or, a financial planner might invest his client's money in mutual funds with deferred sales charges, knowing that the money will be needed to buy a condo in 2 years.

In the case of the physician, it seems his financial planner presented himself as a financial planner and then lost his focus, to become an investment advisor - therefore leaving it up to the doctor to figure out his own financial planning. And the problem became much more significant because the doctor, who admitted that he had no interest in managing his financial affairs, went back to his old habits. And when he finally got around to reviewing his financial plan, we immediately realized that he was seriously under-funded for retirement.

Although I recognize that the doctor has to be accountable for his dilemma, I feel the financial planner did a disservice by convincing the doctor that he was the financial planner he could count on and then jumping ship to chase the higher compensation.

In many ways, I think this is part of the problem with financial planning. Most people who sell mutual funds build their business on the premise that they will look after their client's financial planning needs and also help them manage their money. After a number of years as a financial Planner, the planner usually finds that he can make much more money selling mutual funds.

In the case of the doctor, after investing all his money in mutual funds, what financial incentive would the financial planner have to sit down once a year and analyze whether the doctor is on course to achieving his retirement objectives? The financial planner would benefit more by chasing new money.

It's the wise financial planner who recognizes the importance of long-term relationships and the commitment to follow through with maintaining the client's financial plan. It is quite possible that the doctor would have been in a much better position if he had the benefit of a financial planner with this view and commitment.

You should know and expect the following from your financial planner

• If your financial planner earns his living by selling you investments or insurance, be aware that your interests may be compromised when recommendations are being made. If you want objectivity, seek the services of a Fee-Only financial planner.
• Although, detailed retirement planning may appear to be tedious, somebody should be doing it (i.e., you, your financial planner, or Stronach Financial Group). This is particularly important for those who do not enjoy dealing with their financial affairs.
• Every year, you should review your retirement plan with your financial planner and compare what was forecasted to what actually, happened. Your retirement plan should be kept current.