Young Professionals Mistakenly Put Off Financial Planning
Most young professionals put off serious financial planning until they’re older, which is a mistake, says a certified financial planner (and young professional).
Most rising professionals avoid making financial decisions, or worse, make bad decisions because they lack good information or professional help, says Anthony Criscuolo with Palisades Hudson Financial Group in Fort Lauderdale, Fla.
“This is the time to put your financial house in order,” he says. “The decisions you make from about 30 to 40 may have the most significant impact on your future financial success.”
Once you’re making enough money to set some aside, you’ll need an investment plan with a sensible asset allocation, he says. Too many young professionals go to the extremes of either keeping everything in cash or betting aggressively on a few stocks.
“We see 50-year-olds come to our office with $500,000 parked in cash because they feel they had to wait until they were wealthy enough to get financial advice and start investing,” he says. “If they had received good investment advice years ago, they could have accumulated two or three times as much.”
It’s more than just investment advice. Young professionals often gloss over insurance. Besides car and home or renters’ insurance, most married professionals need term life insurance. Disability insurance is important for all professionals. Selecting the best insurance coverages can be complicated, and it takes research and sometimes outside advice, Criscuolo says.
While tax and estate planning may seem premature at this stage, it’s important to lay the groundwork early for more complicated planning later in life, he says. For instance, if you have children, you’ll need a will to specify who’ll take care of them in case both you and your spouse die.
How to Get Unbiased Advice
Knowing where to look for help isn’t always easy. Most young professionals either take a do-it-yourself approach or find a transaction-focused, commission-based advisor who pushes his firm’s products.
While you may be working with ethical and competent people, they’ll usually steer you to products that produce big commissions, according to Criscuolo.
“It’s not that their advice is always bad or wrong, but it can be biased,” he says.
Furthermore, most brokers, agents and bankers don’t provide comprehensive, integrated financial planning. They know just their piece of the pie.
A comprehensive, fee-only financial advisor can address investments, taxes, estate planning, insurance and retirement planning together rather than in isolation. But the best full-service financial planning firms are usually only interested in working with clients who have a lot of money to invest.
“This creates the false sense that financial planning is only for those who are already well established in their lives and careers,” he says.
So, where can a rising professional turn?
Not all fee-only planning firms will show you the door. Some are willing to waive their minimums and work with a young professional on a limited basis, he says. For instance, the advisor may recommend a one-time meeting to create an investment plan that the client can self-implement.
“Find a firm that’s willing to see the value in building a long-term relationship and working with you now and throughout your career,” Criscuolo says.
As the professional matures, he or she can turn to the advisor for additional services over the years and eventually become a full-service client.
“Waiting until you consider yourself ‘established’ will hamper your long-term success,” he says.
An advantage of starting early with a top-notch, comprehensive advisor is that you’ll be able to keep that firm for many years, Criscuolo points out. If you start out with a smaller or less sophisticated advisor, you’ll need to switch when you’re older and have more complex and diverse needs.
“You want an advisor that you can grow with,” he says.
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