A One-Time Financial Plan: Valuable or Dangerous?

A financial adviser shakes hands across her desk with a client couple.

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Money flows through almost every aspect of your life. Whenever your job, your family or your property changes, for better or worse, your financial picture changes. That means your financial plan has to continually evolve.

That begs the question, what does a financial plan actually do for you? Do you even need a financial plan? Or, do you need financial planning?

It’s smart to recognize there’s a difference between getting a one-time financial plan and hiring a financial adviser to provide ongoing financial planning. Understanding that distinction can help you avoid costly mistakes and get the right level of guidance.

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What a one-time financial plan is and is not

Let’s first discuss the purpose of a one-time financial plan and its benefits.

At its core, a one-time financial plan is intended to provide a detailed picture of your current financial situation. Think of a plan as a snapshot of one point in time showing the status of your overall financial health. Having an accurate, updated and detailed picture of your finances can be very useful.

A one-time financial plan can be especially valuable when you’re facing a life-changing or complicated money decision, such as claiming Social Security benefits, buying a home in a high-interest-rate environment, deciding whether to fund a Roth IRA or boost your 401(k) contributions, investing in a rental property, evaluating your insurance needs or selling your business.

For those preparing to exit the workforce, having a plan is essential to determine whether you can even afford to retire. Further, it can guide you through various retirement decisions, such as choosing a pension payout, evaluating long-term care options and planning around RMDs and Roth IRA conversions.

So, a one-time financial plan is most valuable when confronted with a big financial decision. But it is an assessment limited to only your current situation. And that’s where the danger lies.

People get into trouble using a one-time financial plan because they think it will help guide their financial future. It’s not a roadmap. A one-time financial plan is a snapshot, whereas your life is a movie.

The danger of a one-time financial plan

Unlike a static financial plan, ongoing financial planning is dynamic. Your personal financial life is constantly changing and so is the overall market and economy. As a result, your one-time financial plan has a shelf life. After a while, it gets stale.

If you consult an old financial plan, you risk making misguided decisions based on outdated information. You may also miss opportunities that have arisen since your plan was created. Your outdated financial plan no longer reflects your life circumstances or addresses the decisions you should make for your new life. For example, investments recommended to you in your old plan may no longer be the best options for you.

If you're considering getting a one-time financial plan, carefully weigh the benefits and drawbacks. And if you do decide to go ahead with it, consult a qualified fee-only financial adviser who can provide a plan based on your (and your family’s) entire financial picture.

People often ask advisers for a “financial plan,” which, again, even when it includes investment advice, serves as a current assessment. But what you may really need is guidance with advice, something one-time plans can’t provide.

Retirement planning, for example, requires periodically stress-testing all your cash-flow assumptions now and into the future, using various what-if scenarios so you can course-correct knowing your circumstances are changing. Engaging with a fiduciary adviser for comprehensive ongoing financial planning (and investment strategy) helps make sure you stay on track to reach your desired outcome. (My company, Wealthramp, can recommend an adviser who fits your priorities.)

One-time financial plan vs. ongoing financial planning

What most people need as they move further along their financial journey is a planning process that adjusts as you go. Whether you do the planning yourself or seek help from a professional, the key is being able to see for yourself how you won’t run out of money after you stop working.

Whereas a one-time financial snapshot usually means paying an adviser a one-time fee, ongoing financial planning involves a living plan that comes with investment advice for an annual fee. Think of it as the difference between 2-D and 3-D views of your financial life.

Ongoing financial planning means you have a partner in your financial decision-making and a dynamic financial plan that adapts to changes in your cash flows, interest rates, investments, taxes, incomes and home life. Beyond the numbers, an experienced financial adviser can help you manage change and avoid emotional decisions when the markets are down. For couples, an adviser can be a valuable third party to help them communicate and get on the same page money-wise.

Financial planning is especially valuable for people with complex financial situations. This includes people nearing retirement, those who have significant tax planning needs or those going through a major life change like an inheritance, marriage, divorce or the birth of a child. Robust and detailed financial planning, when done correctly, should give you a sense of confidence and peace of mind.

The biggest misconception about ongoing financial planning is that you must be wealthy to afford it. There are highly qualified financial advisers working with clients of all income and asset levels. They can spend a few hours a year collaborating, educating and talking through your investing and planning decisions. Many of them work with clients for just a few hundred dollars a year.

If you're thinking about hiring a financial adviser, be sure to choose one who is a fiduciary and fee-only, which means that they are legally obligated to act in your best interests and do not get paid commissions (or kickbacks) from third parties. Your adviser should work only and directly for you. (To find out more about advisers’ fees, see my article Should I Pay a Financial Adviser an Assets Under Management Fee?)

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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With more than 25 years in investor advocacy, Pam Krueger is the founder and CEO of Wealthramp, an SEC-registered adviser matching platform that connects consumers with rigorously vetted and qualified fee-only financial advisers. She is also the creator and co-host of the award-winning MoneyTrack investor-education TV series, seen nationally on PBS, and Friends Talk Money podcast.