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GOING SOLO

TOOLS OF THE TRADE Bruce Cohen points out that, in Canada, anyone seeking advice from financial planners should be aware of these points: Financial advisors use more than two dozen designations, but the most common one is Certified Financial Planner (CFP). The major professional bodies in Canada's financial planning world are the Canadian Association of Financial Planners and the Canadian Association of Insurance and Financial Advisors. Quebec is currently the only province that regulates financial planners, although others are considering regulation. Advisors must, however, be licensed with the provincial securities commission if they sell investments, and with the provincial insurance commission if they sell insurance products. Licensing is not required for financial institution staff who take deposits, which include Guaranteed Investment Certificates (GICs).

“The financial world has changed enormously in the last couple of decades,” says Jonathan Clements, a columnist for The Wall Street Journal and author of 25 Myths You've Got to Avoid -- If You Want to Manage Your Money Right: The New Rules for Financial Success. “Brokerage fees used to be fixed,” explains Bruce Cohen, former Financial Post columnist and author of The Money Adviser. “There were very few mutual funds, and it was quite difficult to get information about them.” In short, you couldn't save money by investigating on your own. Now, with plentiful opportunities to save money with discount brokers, low- and no-load funds, and online trading and other web-based financial services, it can make good sense to do it yourself.

Even so, there may be circumstances when you can benefit from professional advice. These may include:

• If you're very busy and are willing to pay for the convenience of having a professional help you.
• If you panic over short-term market performance. Emotions play a major part in the financial decisions we make, notes Clements.
• If you're planning for something big, such as retirement, it might be helpful to get a “financial checkup.”
• If you come into an inheritance or have some other type of financial windfall.
  

Don't use a professional just because you think financial planning is complicated. “It's not rocket science,” says Jonathan Clements. And whatever path you choose, you can't avoid educating yourself and being involved in the process: “You have to supervise your investment advisor.”

GOAL SETTING

MYTH -- You don't have enough personal income to start saving for the future. FACT -- P.Y.F. -- pay yourself first, say the experts, and invest it immediately in a rainy-day fund or tax-deferred plan. If you take money for savings off the top, you'll never miss that extra 5 or 10 percent of your gross monthly income.

If you want to win the Olympics, you need a coach. The same is true if you want to reach your financial goals, says Eileen Michaels, a financial planner in New York City who plays financial coach to her clients. She is the author of When Are You Entitled to New Underwear and Other Major Financial Decisions.

There are three major factors Michaels takes into consideration when developing a financial “blueprint” with her clients:

• Where are you now financially?
• Where would you like to see yourself?
• How much time do you have to reach your goals?
  

Time, she says, is the operative factor. It's not only a question of whether you'll be able to reach your goals, but when you'll be able to reach them. A timeline can help you put your goals in perspective:

Short-term goals are where you'd like to see yourself in a few years. For instance, perhaps you want to buy a home.

Intermediate goals might include sending children who are young now to college in the future.

Long-range goals are your plans for retirement and your estate.

Financial well-being starts with a solid foundation: Make sure you and your family are properly insured. Also, “level the playing field” by paying off high-interest debt, such as credit cards.

REALITY CHECK

THE RIGHT WAY In Canada, some commissioned financial planners charge a fee for developing a financial plan. Once you've decided on your financial plan, you can have the advisor implement it or you can go elsewhere to get it done. If, however, your financial advisor implements the recommended plan, his or her fee should be reduced in whole or in part.

Making a financial plan is full of tough choices, says Judith Martindale, a financial planner who works with middle-income clients. People who don't have a lot of disposable income have to prioritize. They can't necessarily have everything they aspire to, whether that means the house of their dreams, a new car every three years, or a higher education for their children. Sometimes, people have to be willing to make trade-offs.

Less-affluent people also tend be more conservative investors. It's important, Martindale says, to strike a balance between growing your money for the future and getting the sleep you need now. She favors index funds -- funds that track an index of a particular market -- for people on a tight budget because they provide lots of diversification and are more cost-efficient than those funds that are actively managed, which often have higher fees and generate lots of capital gains. Here are some other tips from Martindale to get you and your family started on the right financial path:

• If you can't afford a financial planner with whom you feel comfortable, find a money buddy -- a good friend or relative who has similar financial goals and with whom you can learn about financial planning and investing.
• Track your expenses, advises Martindale. She recommends any one of the many excellent software programs, such as Quicken, that can help you organize and consolidate your finances and financial records.
• Aim to save at least 10 percent of your take-home pay and increase that slowly to 10 percent of your gross pay. If that seems too ambitious, start with 2 percent and gradually increase.
• Whether you go solo or seek professional help, involve other members of your family whose financial lives are in any way intertwined with yours.

A HOLISTIC APPROACH

SMART MOVES Bruce Cohen offers seven tips for evaluating a prospective financial planner: What is the advisor's level of experience and education? Does he or she belong to any professional associations with a code of ethics and professional insurance? Does the financial advisor offer the kinds of products and services that meet your particular needs? Is the advisor used to dealing with clients at your stage of life and financial level? Does he or she prefer aggressive or conservative clients? How often does the advisor intend to communicate with you? In what ways? What does he or she do to educate clients? When does the financial advisor feel you will be able to fairly evaluate his or her service? How will you go about making this evaluation? Do you understand what the advisor is talking about? Does he or she appear to understand you? Do you understand how the financial advisor is compensated?

“Financial planning is a process,” says fee-only planner Evelyne Yang in Potomac, Maryland, who takes a holistic, comprehensive approach. In her opinion, a person can only be in peak financial health if they are doing well on all financial levels. Here are some of the factors she takes into consideration with her clients:

• Are you financially well organized?
• Are you maximizing tax shelters, write-offs, and deductions?
• Do you have clearly defined financial goals?
• Are your goals realistic, and are you making financial provisions to meet them?
• Is your lifestyle appropriate to your income and your mid- and long-term financial goals?
• Are you maximizing returns on your investments while minimizing your risk?
• Are you properly insured at the minimum cost?
  

When Yang has reviewed a client's financial situation, she invites them in for a goal-setting session. This, she says, is the most important part of the process. “Success means different things to different people,” says Yang. For some, it might mean owning their own home or early retirement. For others, it means having the time and financial independence to enjoy intellectual pursuits, volunteer work, hobbies, or travel. Knowing what's most important to you will help you structure a plan to meet your goals -- and needs.