Should You Hire a Financial Planner?

Many people do not understand their own finances.  They work hard, try to save and hope for the best.  Meanwhile they see those around them making seeming fortunes buying houses, stocks or real estate.  They want to make the tremendous returns it seems like those around them are making, but they really don't have a "head for finance."

Outsourcing Your Financial Decisions

The obvious solution is to outsource your financial decisions.  Simply hire a financial planner and let them make the decisions for you.  It seems natural that they would be able to get much better returns than you could get on your own.  Paying them a fee seems like a reasonable way to make your money work for you without having to go back to college for a degree in finance.

The Underlying Problems

There are two fundamental problems with trying to turn over your decision-making to another person:

First, no matter what he may tell you, your planner does not have the same interests as you.  He wants to make you money to some degree, but more than that he wants to charge you fees.   Also because he is using your money, he will quite possibly wind up with a higher tolerance for risk than you.

Secondly, when you outsource these decisions you are not learning anything.  Because you're making the decision to try to avoid having to learn, you have no way to audit or assess these decisions.  You don't have a good basis to know if he is taking advantage of you.  Also, if for whatever reason you want to change planners, you don't have a great basis for making a sound decision.

The Best Way to Make Use of a Planner

Despite all this, financial planning professionals do have an important role to play.  They can help educate you, acting as your professor in personal finance.  You shouldn't see them as an outsourcing option, but instead an education option.  You should not authorize any moves that don't make perfect sense to you and push back on what your planner says.  If he's not comfortable with that then you shouldn't be using him in the first place.  This will both help you make better decisions and improve your knowledge at the same time.