Financial Planner - Lesson learned

azmomMay 14, 2007

A while ago we posted a question about getting a financial planner. We received many valuable feedbacks from this forum.

We finally find one group with several experts specialize in different areas; we have transferred 3 accounts over for them to manage, and made an appointment to make estate planning.

Since this is our first time having some one to manage our fund, we have a couple of questions for you,

1. What will you do differently with your investment adviser if you may start all over again?

  1. What lessons you have learned from the experience?

3. What services you like the most?

Thank you so much for any advice you may give to us.

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1. What will you do differently with your investment adviser if you may start all over again?

I honestly don't know. I am happy with our advisor.

2. What lessons you have learned from the experience?
That having an advisor does not remove responsibility from us (DH and myself) for tracking our spending, for understanding how our nest egg is invested, and for staying activly involved.

3. What services you like the most?
The company has online services - I can download our account transactions directly into Quicken.
I can email or set up an appointment anytime with our advisor anytime we have a financial question or decision. He has provided us with an objective perspective whenever we've needed advice.
He is not pushy. He respects our risk tolerance.

    Bookmark   May 14, 2007 at 1:44AM
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We discovered it was a waste of money in our case -- because we are retired and have a very conservative portfolio. (We can "ladder" bonds and CDs all by little selves, although that is an over-simplification.)

Right now, I would be doubly conservative, as it seems to me we are already IN Recession in the USA.

    Bookmark   May 14, 2007 at 10:43AM
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A few days ago we attended a financial planning seminar aimed at retirement planning. There was a meal at a nice restaurant and we were impressed with the speaker, who stated that he had no product to sell, only recommendations to offer.

However, after returning home, I Googled a couple of the products that he recommended and it seems that while he may not directly have a product to sell, both of these products come with hefty management fees and he no doubt stands to gain something by selling these. Specifically, equity-indexed annuities and single payment life care policies.

We decided instead to take advantage of our no-load mutual fund's advisory service. For a fee of $250 they will make recommendations. As we have dealt with this company for 30 years, we don't mind if they recommend their products.

My advise would be to make sure that the "planner" is not really a "salesman". This is one reason we have never used a financial planner as our one and only contact with a planner in the past was actually an aggressive broker.


    Bookmark   May 14, 2007 at 3:09PM
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Hi Nancy,

We decided instead to take advantage of our no-load mutual fund's advisory service. For a fee of $250 they will make recommendations. As we have dealt with this company for 30 years, we don't mind if they recommend their products.

Careful... don't be misled into thinking the so-called "no load" mutual funds are cheaper than more transparent accounts with upfront cost disclosures...

See this article;
Why I Dont Invest in Mutual Funds
(Link below)

By Al Jacobs
On the Money Trail

Article SNIP;
A variation on the redemption fee is a deferred charge when shares are redeemed within a certain number of years, known as a deferred load. Another contrivance approved in 1980 by the Securities and Exchange Commission is known as the 12b-1 plan that permits a fund to annually confiscate up to 1¼ percent of the fund's assets for marketing purposes. At this rate, a participant in such a no-load fund over ten years contributes 12½ percent of the investment in such fees. You may add to the list of undesirables those funds that debit portions of reinvested interest, dividends, and capital gains  known as reinvestment loads  as well as other less than obvious ways some no-load funds separate client from asset.

As is rarely a surprise... what you can see is actually usually better than what you cannot.

Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   May 14, 2007 at 4:38PM
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There are financial planners who really are just that - they charge a fee for their time, and are usually not linked to any one fund company or investment group. You can find one near you by going to the website of the National Association of Personal Financial Advisors.

    Bookmark   May 14, 2007 at 5:39PM
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>>My advise would be to make sure that the "planner" is not really a "salesman". This is one reason we have never used a financial planner as our one and only contact with a planner in the past was actually an aggressive broker.This is an excellent point, and one many folks do not understand. Heck, I didn't until I went to work for an independent CFP and saw how different it was for clients using someone with an impressive (and deserved) reputation, offering comprehensive financial and estate planning advice, via fee-based services.

First off, only go with certified advisors. This does NOT mean your local stockbroker, who is paid on trading commissions. This means you want someone who has the FIDUCIARY legal responsibility to put your interests first.

Note that some brokers try to get around this, offering financial planning because "the brokerage is licensed to sell broader advisory services." Nope, don't be fooled - if they call themselves a "financial planner", you can sic the NASD on them. It's illegal to call yourself a financial planner UNLESS that broker has the actual individual credentials to back it up!

Those credentialed people include CFAs, as in liz_h's link to NAPFA, or Certified Financial Planner (check or, or Chartered Financial Consultant.

Such advisors are always broker licensed, often sell insurance as well; BUT go through extensive training of three years plus another three years of internship, difficult exams (the pass rate on the CFP exam averages 40% in a good year and is often less) and required annual training for all certifications - in other words, they need to take regular insurance classes if they are an agent, separate from the financial advisory classes as a broker/advisor.

They may sell on commission but the better ones are fee-based, and will have minimums you must meet - anywhere from $250K to $2M in investable liquid assets, not including RE. You are looking for a good "fit" on personality this person will know a LOT about you, and you must be comfortable with that.

Usually a fee-based advisor will be able to offer stock/fund purchases at NAV (Net Asset Value) plus a set brokerage fee. A good advisor will not chase today's hot pick for you. If that's what you want, use a Schwab or Merrill broker.

A good advisor is after consistency for you - a well diversified portfolio that will withstand the ravages of inflation - if a CD is paying 4.25% but inflation is running 2.78% (figures for Jan-April 2007), then you haven't gained very much, obviously.

You can certainly diversify your portfolio yourself. But most people don't know how, and aren't interested in doing the work anyway.

An advisor takes care of that for you. They are looking ahead for you, taking excess profits that are unbalancing your portfolio and putting it into sectors that look promising in the 3-12 month future.

You will not gain spectacularly during great years, but a good advisor will hopefully prevent your portfolio from falling like the proverbial rock during bad years. You want a decent five year average of around 7-8%, and that's on a moderate risk portfolio. Now remember, we're coming off some really good years in the market, so many people whether using advisors or just plain brokers, have done much better than that! But if your portfolio includes the "dog years" 2000-2002 and you add those minuses to balance out the "hot years" since, most good investment pros are right around that 7-8% range over the extended period.

zone_8grandma has it right on. Having a good advisor is like having a good lawyer - the need for oversight and direction is still on your own shoulders. They make it EASIER, but they do not eliminate all work. They cannot, by the simple fact that a good advisor is working on a non-discretionary basis - they cannot do anything without your written or telephone approval. Nada. Zip.

It is up to you as a client to keep your advisor informed of any life-changing event. They can't help you if they don't know what's happening in your life. You don't need to "report in" to them, just remember they are there to help you in any way you need. Need to buy a car? My ex-boss loved cars, he was a hobbyist racecar driver - nothing made him happier than to research used car listings and help you find the best price. Want to take early retirement? Run the numbers by your advisor, s/he will help you figure it out. Is that 'golden handshake' package really worth taking? Let your advisor check it out. Looking at a new job offer but don't know how to negotiate the best executive pay/benefits package? Not in the job description of a financial advisor but my ex-boss loved negotiating and happily did this for several clients.

What I learned from working with a CFP, and liked the most, is understanding the complete package of professional services that can be incredibly useful in handling a taxable portfolio. I have more than decent skills in handling my DH's retirement portfolio - I've gotten better than average results over the 25 yr period - but taxable accounts? No way!

We took my MIL's house proceeds ($1M) to a CFP firm recommended by my ex-boss. They have set up a moderate risk, balanced portfolio and next year when she starts taking distributions, will keep an eye on the tax consequences when selling funds. Her tax advisor will be able to download her financial data from an encoded website, we won't even need to visit him any longer. Note, BTW, that the advisor fees are deductible on her tax return.

There are 2 things I appreciate most:
1) Knowing if we need financial advice it's there, and knowing that if we need to find another legal or tax referral, they have extensive contacts of trustworthy names
2) Knowing that if something happens to DH (only child) and me, his mother has someone trustworthy and competent to handle her money in the future. There is absolutely no one in her family, my family, or my DH's family, that I would trust to wisely invest a $1M portfolio on their own. They would have no idea how to find a competent professional, how to judge their competency, or how to direct the investments for long-term risk.

Having chosen a good investment firm for his mom takes a big worry away as we plan for our own retirement.

    Bookmark   May 14, 2007 at 7:55PM
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chisue (and others),

If you'd bought Canadian dollars four or five years ago, I'm not sure how many you'd have received, as I don't know the reciprocal of 69 cents. But if I bought U.S. Dollars a few years ago, my CAD$1.00 bought 69 cents U.S.

Now, my CAD$1.00 buys about 90 cents U.S..

So, if you took those dollars back home now, you'd have made over 25% on your money, in addition to whatever your money had earned while resident here.

Maybe having bought some stock in those oil sands out on the north-western prairies, where there's more oil than the Saudis have (and they ain't tellin' how much that is).

Or a pipeline that hauls the stuff down to the U.S. of A.

Or a Canadian bank - they've done well in recent years.

On the other hand ... there's Europe.

Or the Far East.

Or South America.

Have you checked exchange rates for some other currencies relative to the U.S. Dollar in recent years?

Good wishes for wise investing ... and the rate of gain that one earns is only part of the equation.

More important is how much is left in one's hand after the income tax people get their partnership share of your personal financial business.

Or ... even more important is the portion of that amount that you have left in hand after allowing for inflation.

If you own stocks or equity mutual funds, many (but not all, by any means) go up in value, the erosion of value of your dollars by inflation may not be such a big deal, but if you put them into the bank, where their number is guaranteed, you need to take part of your annual earnings to put with the principal in order to maintain your purchasing power.

If I put $10,000. into the bank fifteen years ago and they paid me rent on the money through the years between, if I draw it out now, I benefit from their guarantee that they'll give back every dollar that they got ...

... but they don't give me one dollar more, either. I get precisely $10,000.

That $10,000. would have bought a decent car, 15 years ago ... not now. Inflation chewed off a corner of each of those dollars, every year that I let the bank use them (to earn more on each than they paid me).

Learning how money works ... an interesting hobby - *that pays well*!

It's very important also to learn how tax works.

Not only do I need to add part of annual earnings to principal each year to offset inflation ... the only earnings that such dollars will ever make relative to that year 15 years ago, and the next, 14 years ago, was made then.

And ... it was taxed then.

Some stocks that I bought 30 years ago paid me a decent, if rather small, return over the years, but they've developed a nice capital gain, over those years.

I haven't had to discuss that, and share it, with the income tax people, up till now.

And I won't, until I either sell them ... or die. Don't plan to do either, this week or next.

Hopefully not prior to year end, which will mean that I can avoid talking to the income tax people about them relative to this year, as well.

When I sell them (or die) I'll have to pay tax on part of that capital gain ........

... but I deferred the liability for many years.

And, in my country, I pay tax on only half of that gain (at regular rates ) ... but I get half of it free of tax.

Yes, learning how tax works is wise, as well ... have you heard my story here a few weeks ago how some Canadians who had a certain type of income could have developed $25, - 27, - 30,000. in 2005 tax free? And how that amount grew by over 60% last year, so that a single "taxpayer", lacking a low-income spouse, or charitable or political contributions to have pushed the figure even higher, could have earned $49,850. last year before s/he became liable to pay $1.00 of income tax (but would have been required to pay $600. health sevices levy, if resident here in Ontario)?

Necessary to have substantial investable assets, have only one kind of income ... and can't work.

Well, if the person in that situation feels morally obligated to work, to pay his/her way in society, fine, but don't take pay for the work!

If that (up till then non-paying) "taxpayer" chooses to take pay for his/her work ... or if I choose to accept the pensions due me, the credit that I referred to still works for us ...

... but we don't avoid paying income tax entirely.

ole joyful

P.S. Original poster,

Choose your planner carfully.

Someone who has a good deal of life experience, I hope.

Who has expereinced the vagaries and fluctuation of the markets for many years.

Who has a good deal of professional training, and carries out ongoing training, as well.

Who can offer advice and, if selling financial goods, offer a variety of financial goods. Many who hold themselves out as planners are compensated only by commission on stuff that they sell ... and are licensed to sell only mutual funds.

They can't sell you individual stocks, and aren't authorized to talk about them, in any case.

Learn how that person is compensated.

I prefer someone whom you pay directly, who doesn't benefit personally, regardless of what type of system s/he recommends. Whether according to the time that you spend with him/her, or by a percentage of the assets, though that may be negotiable if you tend to buy quality stuff and hold on to them.

One person that I knew a few years ago asked for 10% of the growth that he developed for each client, annually. No gain - no pay! Said he'd been able to bill every client, every year. I don't know how many clients ... or how many years. Sorry ... I'd like to claim that I know it all, but can't!

I like that concept better than the idea of 1 - 2% of the entire asset ... whether or not the advisor produces well.

But - be careful that such an advisor doesn't get into highly risky stuff .. I'd prefer that you not only be able to sleep nights, but avoid having your hair stand on end, as well.

o j

    Bookmark   May 14, 2007 at 8:09PM
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Just to reiterate what jkom and liz said - if you are considering using a financial planner, DO make certain they are a Certified Financial Planner.

Our guy does not make $$ from commissions. He charges us a fee for his services. I consider it well worthwhile for us.

jkmom described better than I could the services he performs. In addition, DH will listen to him rather than me, so..... when I feel we need to make a major financial decision, we go to our guy - he simply has more influence on DH than I do.

    Bookmark   May 14, 2007 at 8:11PM
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Can anyone tell me the difference between a CFA and a CFP?

    Bookmark   May 15, 2007 at 12:57PM
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Hi Liz,

CFA = Chartered Financial Analyst

Generally an industry analyst, not a specialist in private planning.

CFP = Certified Financial Planner

Generally a specialist in private financial planning.

Dave Donhoff
Strategic Equity & Mortgage Planner

    Bookmark   May 15, 2007 at 2:04PM
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Tried the line Liz provided and it asks for name and address. Why not just zip-code?

    Bookmark   May 21, 2007 at 1:06AM
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Jane, that's a good question. What I do when I don't want to give my name and address is fill in the form with some nonsense - like Mickey Mouse, 125 Main Street, right city and zip.

By the way, NAPFA isn't just CFA's, though I can see how the name would make someone think that.

    Bookmark   May 23, 2007 at 12:35PM
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Yesterday, I re-discovered just how invaluable a good Financial Planner can be.

I was looking at DH's pension estimate; there were nine different ways for him to take his pension. The options ranged from a single lump sum, to a single life annuity, to a 50% and and 100% joint and survivor annuity. Also an "immediate increasing" 50% and 100% joint annuity, plus a "immediate life annuity with 10 years certain", and a "deferred single life annuity payable at 65.


Once he makes a decision, it can't be changed. Ever. He needs to get this right the first time.
I faxed the info over to our financial planner and sent him an email asking him what those terms meant and what the implications were for us. Several hours later, he called back, explained each option and made his recommendation. (And he explained his reasoning).

    Bookmark   May 23, 2007 at 1:28PM
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zone_8grandma, that is a great example of the value of using a Financial Planner over just a broker. My husband also has several ways to take his pension, but fortunately the State of CA pension fund (CalPERS) runs regular, intensive series of classes on all aspects of retirement planning. We've taken them for the past four years and have really found them useful, but most people working at private companies don't have this kind of resource, which is a real shame.

It is so critical for people to learn to handle money, preferably sooner rather than later, and we do such a poor job of teaching it, since we...don't.

    Bookmark   May 24, 2007 at 12:05AM
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Read jkom51's message of May 14 carefully.

Tha gives a full, comprehensive and accurate description of the whole situation.

Follow it and you won't go wrong.

The guy who sold what used to be Dad's farm, that was in our family for 30 years and sold to his Dad 60 years ago, recently sold it ... for 2.4 million.

I suggested to him a couple of ideas, about possibly arranging the deal to get a bigger tax benefit ... and his reply was that his accountant would take care of it.

Accountants have some skills, and are highly trained and usually reputable, but in the accounting field ... they may not be capable financial advisors.

Many are quite conservative, possibly more so than using a somehat more aggressive plan that many/a number of investors would feel comfortable with.

As I've said before ... I prefer to use someone with wide training and experience, and who isn't selling (usually a limited number of) types of investment. Preferably someone who doesn't sell any investments ... just advice, that you pay for directly.

Good wishes for skillful investing ... and for teaaching your kids how to manage money effectively, both income and assets ... one of the best gifts that you can give them (provided that you know what you're talking about).

ole joyful

    Bookmark   May 24, 2007 at 2:06PM
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A true no-load mutual fund like Vanguard doesn't have any hidden anything. For a flat rate they will give you an investment/retirement analysis. They will consider funds held with other companies in their analysis and will suggest repositioning across your entire portfolio. I have done this twice and both times the results have been solid - I became better exposed to international investing the first time around, and substantially decreased the portfolio volatility the second time around without loss of return. My 'invest advice' costs over 12 years have been $750.00. My sister and bro-in-law have used two different advisers over the years, they are not quite sure how these guys make a living (commissions), they have been nicely positioned to take a bath (dot-com) were it not for cash-outs to fund college educations (of course this makes the planners look smart not stupid), and they have no control over tax consequences because the advisers buy and sell to chase return, thereby significantly eroding their true after-tax return. If you really really need a financial advisor to help you sleep, find one who is strictly fee-for-service and tell him in advance that you will not purchase any funds with loads (of any sort) or 12-1b costs, nor will you purchase a fund with an expense ratio > 1% unless specifically justified (like, you have a taste for gold futures or something). Also, don't let him trade on your behalf; rebalance once a year, paying him his small annual tweak-fee. None of this "percentage of assets under management" nonsense. The best way to increase return is to decrease costs.

    Bookmark   May 30, 2007 at 3:57PM
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If all I needed was investment advice, that's what I'd do. But we need much more than just investment advice. Vanguard won't look at our portfolio, income/outgo, and run a monte carlo simulation to try to predict whether DH can retire comfortably or not. They won't read the different pension options available to him, explain in detail to me what each option actually does and whether it's a good one for our own situation based on our financial picture AND our risk tolerance.

It doens't sound like your sis & bil had a Certified Financial Planner - but rather a "investment advisor".

A Certified Financial Planner cannot buy or sell anything without your specific instructions. I agree that minimizing costs is very important - but it's not the only consideration.
I'd refer back to jkom's excellent post of May 14.

    Bookmark   May 30, 2007 at 4:45PM
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Comprehensive financial planning involves a lot of issues - legal, familial, financial. If you are comfortable handling EVERY aspect of your lifestyle situation, then by all means go to a 'specialist', e.g., a broker or investment advisor for your financial affairs. There is nothing wrong with this; I do all the integrated estate planning for my DH and I. But the time I spent working in the CFP's office, as I mentioned, made a BIG difference in my understanding of the various issues that clients and their families face at various stages of their lives.

However, many people are not knowledgeable or interested in integrating all their affairs in a comprehensive and wholistic manner. As has been often proven, a little knowledge is a dangerous thing, as is doing things half-way but not thinking things through to their logical conclusion.

And even if you are comfortable handling every aspect, is your spouse? Are each one of your children? Do they all work together well?

Be honest with yourself about these questions. So many people accumulate a sizable estate, only to have the family fight over it, or waste the assets because they really don't understand the various tax/legal implications of their inheritance.

There are still way too many people in this world who are less than 60 and think that having a million dollars means they are on Easy Street for the rest of their life. My MIL, for instance, thinks that if she wins the lottery for $3M, that's more than enough money for all three of us - she, my DH, and me - to take early retirement and live in comfort the rest of our lives.

By the time you take Cash Value instead of Annuity Payments, that $3M is down to $1.6M. Taxes will take another 40% between Fed and State. Hmm, she's down to $960K already, and even just the dividends off that have popped her up 2 tax brackets in annual income. Nope, not a lot of money at all, in reality.

This is why I insisted we find a CFP to handle her affairs. Her financial knowledge is nada/zip/non-existent. Her DH left her financially secure, but completely ignorant. And at age 79, she isn't about to learn how to handle her affairs. She is the poster child for an elderly person ready to be swindled by the first smiling, friendly, respectable-looking broker who's introduced to her by one of her 'friends', who are as sophisticated as she herself is - which is to say, not at all.

For instance, do your children and spouse know how to handle an inherited IRA? Do they understand the difference between an IRA that has never been drawn down, vs one where RMDs (Required Minimum Distribution) have started?

Do they understand the tax implications of selling out of mutual funds? Do they know where to go to get the cost basis?

A good CFP has the fiduciary responsibility to see that your assets are passed along in the best possible manner and that your heirs have all the information they may need to make their own decisions about what to do with their inheritance.

This is why only certified planners can do "financial planning". It isn't a simple "nuts and bolts" affair for everyone, although it can be for some people. But the more assets you accumulate, the more value comprehensive financial planning advice is likely to give not only you, but your heirs.

If the shoe fits, you can wear it but you don't have to. However, there's no doubt that a sizable amount of $$$$ has gone to lawyers, state and the Federal governments, from estates that could have benefited from the original owners spending a relatively small percentage on their assets on quality professional advice.

    Bookmark   May 31, 2007 at 3:53PM
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We are in the process of doing what rileysmom has done. But then I have long had an interest in mutual funds and have done well enough over the years. We just needed someone to assist us with diversification and we are comfortable going with an advisor from the mutual fund company that we have invested with for the past 30 years.

For those who have no interest in attempting to manage their money, it is worth the 1% charge to a financial planner to take charge of their money and invest it for them.

    Bookmark   May 31, 2007 at 7:42PM
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