A recent article by Jason Zweig in the Wall Street Journal, based on an analysis of data from the Federal Reserve’s Survey of Consumer Finances by Sherman Hanna of Ohio State University, noted that 25% of U.S. households currently use a financial planner, up from 21% in the late 1990s. The bad news is that willingness to take investment risk appears to be one of the key factors in determining who seeks out financial planning advice. Hanna found that while 28% of families willing to take “average” levels of investing risk and 33% of those comfortable with “above average” risk use a financial planner, only 11% of risk averse households hire one. Investment risk, in this case, means investing in stocks or equity mutual funds. Are those who could most benefit from professional advice the least likely to seek it out?

To answer this question, it helps to understand just what a financial planner does. According to the Certified Financial Planner Board of Standards, financial planning is the process of meeting your life goals – such as buying a home, saving for your child’s education, or planning for retirement – through the proper management of your finances. The financial planning process enables you to work out where you are now, what you may need in the future, and what you must do to reach your goals. Financial planning provides direction and meaning to your financial decisions and allows you to understand how each financial decision you make affects other areas of your finances. By viewing each financial decision as part of a whole, you can consider its short and long-term effects on your life goals. Financial planning also enables you to adapt more easily to life changes and feel more secure that your goals are on track.

There is nothing in the above description that suggests one should invest in stocks, or for that matter any other type of investment. Investment recommendations for each person should be based on, among other things, that person’s goals, current financial situation, and risk tolerance. So why does there seem to be a perceived association between financial planners and investing in stocks?

The answer may lie in the ambiguity of the financial planning profession itself. The Wolfram/Alpha Knowledgebase (sourced from the U.S. Bureau of Labor Statistics) identifies over 150,000 people as being personal financial advisors in the U.S. However, the CFP Board reports that there are only about 60,000 Certified Financial Planners™. Who are the other 90,000 financial advisors? Many are stock and mutual fund salespeople that provide only investment recommendations rather than comprehensive financial planning advice. But surveys consistently show that the public cannot differentiate between investment/financial advisors and financial planners. For this very reason, the CFP Board has embarked on a campaign to increase public awareness about CFP® certification as the recognized standard of excellence for personal financial planning. (For more information, go to www.letsmakeaplan.org).

Most families simply cannot earn and save enough during their working years to build a portfolio large enough to support them throughout their retirement by investing it in nothing more than CDs or money market funds. They will need to invest at least some portion in assets such as equities that, while riskier than CDs, have the potential to generate much higher returns. But professional financial planners can help even risk-averse investors manage the risk to a level with which they are comfortable. Plus there’s a wealth of other advice that a financial planner can provide them – such as strategies to improve tax efficiency – that may be especially valuable for their situation.

In the end, improvement in public financial literacy, whether through self-education or by the increased utilization of professional financial planners, will help people make better financial decisions in their lives. And that will benefit all of us.