“One good analogy is worth three hours discussion.” -Dudley Field Malone
We need to purchase a refrigerator. When we head over to the home appliance store, we need to keep a few things in mind.
What does a refrigerator do and what value does it provide? This we know, it’s obvious. We’re going to shop for groceries to feed ourselves and our families. This appliance is going to prolong the life of our food, keep it from spoiling, and allow us to stretch our food dollar further.
Do we need it? Absolutely. There are other means to keep things cold. Most of them are not ideal or practical refrigerator alternatives.
What price are we willing to pay for it? It’s hard to say. Coming up with a raw cost would be tough. Fortunately, competition has established a baseline of price points. For simplicity’s sake, let’s say that they range from $200 up to $1,000. The first decision becomes, are we willing to pay a price within this range to get to bring home a refrigerator? The answer is likely an overwhelming yes.
How is that price compared to other refrigerators? The comparables are really the options within the price range. We may decide to be moderate and buy in the middle of the range, say $500. We’d look at how the features and options of this model compares to the lower $200 models as well as the higher $1,000 models. But, we couldn’t say….”well, I just think I should be able to get this $500 refrigerator for 50 bucks.” It doesn’t work that way. If you want to spend 50 bucks, you buy a cooler. It’s similar, in some ways, to a refrigerator. However, it doesn’t provide nearly the value a refrigerator does.
As different as we may initially think, purchasing financial planning service must follow a similar line of thinking. This line of thinking helps ensure that we seek and receive the highest value per cost for the service we seek.
What does a financial planning do and what value does it provide? We’ve discussed at great length the planning process, the increase in peace of mind and security. The process increases the probability of achieving our most important life goals and values. It provides a track to run on and keeps us from veering off track. All of this while establishing an investment process that fits within the construct of the plan so we can diversify properly, rebalance over time, and minimize overall cost.
Do we need it? It would be near impossible to find a situation where someone would not gain value above the price paid. We need a dentist. We need a doctor. We need a financial planner in the same way.
What price are we willing to pay for it? It’s hard to say. This is a personal decision and really based on the type of service desired. If it’s short term, it might be a few hundred bucks for a project limited in scope or some price per hour mutually agreed upon. If it’s a long term relationship being sought, then it will depend on what the client sees as fair and desirable. All options are possible. Disclosure and full understanding are what is imperative.
How do we compare financial service options? The only way to know is to do some comparison shopping. Do the necessary research. There are differences in what is being charged, what service is being provided, and how it’s being paid.
Your #1 responsibility is to make sure you aren’t paying for a refrigerator and receiving a cooler.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” -Warren Buffet