Student Loans

• Part 1 covered the license designations an FA can and should have.
• Next, Part 2 covered how FAs should get paid.
• Then, Part 3 explored what real financial planning is.
• In Part 5, I discuss why I fired mine.

Today is Part 4 – How to find and vet a financial planner. I will also share how I found and vetted mine.

How to Find a Financial Advisor

You want to find a financial advisor, but you've got a question. Where do I start?

A personal recommendation is always helpful, but you'll still need to do your own vetting.

Step 1 – Do Your Initial Vetting

If you're convinced that a fee-only FA is the only way to go, a good place to start is NAPFA – the National Association of Personal Financial Advisors. They are a leading organization of fee-only advisors. Now, just because someone isn't listed here does not mean they are not good. To make the list, members must:

• Be CFP’s
• Sign a pledge to serve as their clients’ fiduciary
• Submit a financial plan for review and approval (they are not rubber stamped)
• Complete 30 hours of approved CE annually

Now, what if there isn't anyone in your location?

In my opinion, your FA does not need to be local. You can conduct meetings in the comfort of your own home via video conference. Personally this seems much more convenient than scheduling in person meetings, but I do understand that some folks prefer the one-on-one meetings.

Many FAs also have a blog or a podcast. This is a great way to peruse their content and to see if their philosophy and personality meshes with you.

Step 2 – Review Form ADV

Let's say you have a few names of FAs. After browsing their website and reviewing their fee structure and what is included, you're now ready to for the next step. Review their Form ADV. Form ADV is the informational document that the SEC (Securities and Exchange Commission) requires all investment advisors to file and update annually. It contains a lot of information and you'll need to know what to look for.

My former FA wrote an excellent post on how to decipher a Form ADV. Go ahead, take your time to read it. Did your potential FA pass?

Step 3 – Set Up a Consultation

Now you're ready to set up a consultation. Almost all FAs will conduct a consultation for free. This is your chance to “meet” (virtually, phone call, or in person) and get your other questions answered.

Step 4 – Take Your Time

After this meeting you should have enough information to make a decision. Take your time – this decision will affect you – your net worth, positively or negatively.

What I Did to Find a Financial Advisor

Now that you know the basic steps, you're probably wondering how I found my financial advisor. I first heard of Johanna through the White Coat Investor Forums. I was a semi-active member and found her posts not only helpful but she clearly knew what she was talking about. When I found out she was going to be in NYC for a conference, I private messaged her if we could meet.

At that time, I was not really thinking of hiring her let alone any FA. But I wanted to take the opportunity since she was in town. So M and I got to meet her in person at one of my favorite bars in Brooklyn, Hotel Del Mano.

Afterwards, she sent us a copy of Nick Murray's Simple Wealth, Inevitable Wealth. I skimmed it. Then I had questions.

At this time, I did not know what a Form ADV was (nor did I know such a thing existed), but I knew that fee-only was the way to go.

I emailed her these questions:

Are you a fiduciary?

Yes and we sign a statement to that effect for every client.

Is the portfolio you recommend to your clients (I know you rec 1/6 each to 6 categories) also YOUR personal allocation?

We use this portfolio for myself, Michelle, my mom and my sons, along with the rest of our clients. I would not recommend something that I wouldn’t do for my own family.

How long have you been recommending this?

For the last 7 years, at least.

How long have you been doing this allocation for yourself?

Almost that long. Like some, I had trouble giving up on funds that I was in love with (YACKX, in particular). I finally got rid of the others except for YACKX and just worked it into the portfolio as part of my LC Value funds. As I tell Michelle, we eat our own cooking here and practice everything we tell our clients. (Well, I’m better at planning for my clients than I am for myself, but that’s a different story, kind of like the doctor who can’t quit smoking).

And what is the past performance of this?

I looked up the client who has been with us the longest and her average annual return is 10.31%. Of course, this has been during a bull market, with only 1 down year (2015 although 2016 hasn’t been exactly fabulous so far) so I can’t take a lot of credit. We don’t benchmark and we tell our clients to expect about 8% during the long term and to have no expectations during the short term (next 5 years).

How did you handle 2008?

I began my business in 2008/2009 (had only the CPA firm before that) and so I had only my own and kids’ funds in the bear. I did nothing different. However, I didn’t hear Nick Murray speak for the 1^st time until (I think) 2009, and my world changed at that point.

Personally and for your clients, how did you handle clients who panicked and sold?

N/A.

Did you lose a lot of clients during this time?

N/A. Btw, I was investing for myself in the dot.com crash in 2000. I made all of the mistakes that could be made on my own account during that crash. Truthfully, I am so thankful that I have not done anything like that for our clients and never will. Unlike many investment advisors, we don’t experiment with our clients’ accounts.

Can you talk about the last 2 clients that left and why?

The only large client we have lost (about $400k) was 1.5 years ago. She decided to use the trust department of a bank because her family’s trust was there and she wanted to consolidate. A couple of years ago, a client (<$100k) moved to Edward Jones because her cousin owns the office. Because we handle SIMPLE plans for a few CPA clients, employees periodically leave and cash out, but it is a relief to lose a small account. We only handle these plans because the business owners have large accounts and as a convenience for them.

Tell me about a client that you let go and why?

I don’t know of any we’ve let go. We are extremely careful about who we work with and try to ensure that they deselect themselves by educating them on what we do at the beginning of a relationship.

Who is your ideal client?

Flat-fee doctor planning clients. We just started this model about 6 months ago and it is proving pretty popular. I like this (rather than our AUM model that the clients who started with us before this year are under) because it focuses on the plan and it doesn’t focus on performance, which is aligned with our values. Since we model the stock market, returns are going to be similar to long-term market returns.

How many do you take on a year?

Can’t say at this point. I’ve been bad about enforcing minimums in the past and we are going to have to let some clients go in the next year to focus on doctors. We are planning ahead to add another team member next year.

What will happen if something happens to you?

(Michelle is 16 years younger and the main reason I asked her to work with me and eventually become partner was for succession planning.

How long have you been doing this?

See above. I had been making recommendations to clients as a CPA for many years, but sending them to brokers. The reason I decided to become a CFP was because I did not like the way our CPA clients were treated and the results. I thought I could be a better advisor than what they were getting. When I first began, I did not know what fee-only was or how important it was to be a fiduciary. I found out soon after starting and knew I’d found my home (same as with Nick Murray).

Have you been sued by a client or have had any legal action against you from a client?

Never.

What is the average size portfolio you manage?

Around $75k because of all the SIMPLE accounts. Our sweet spot is $400k – $750k.

Smallest?

Because of the SIMPLEs, a few hundred dollars.

Largest?

Around $3M. Please note that the size of the portfolio is really not an issue except for AUM clients. With flat-fee planning, we concentrate on your plan and build a portfolio that will sustain the plan rather than the other way around. A portfolio is not a plan – big difference. Think about it – some people prefer to invest in their businesses or real estate as part of their retirement. Their stock market portfolios will be smaller, but they will not be “smaller” clients (actually more complicated).

What is the average length of a time a client stays with you?

I don’t have those figures. If we took out the SIMPLE accounts (which I have nothing to do with), it is pretty much since they have begun with us.

Are you able to provide any references that would be willing to talk to me?

Maybe. I guard my clients’ privacy and have only asked once for someone to give a referral. The prospect decided to keep managing his own money at the time (although he took a recommendation I made that kept him from making a huge mistake) so I bothered a busy client business owner needlessly.

I know you are not the biggest fan of Vanguard, so which funds do you prefer and why?

The funds we prefer are those that stick to the terms of their prospectuses and have really good managers. The prospectus is the rule book for how a fund manager or committee is to allocate the dollars that flow into and out of the fund and run the fund. Because we have such definite terms on our client portfolio allocation, it is important that we can trust the manager to play by the rules he was hired to follow. Not all do.

Have they outperformed similar funds in Vanguard?

I have no idea and I don’t care. We are not in a performance game. If we can mirror long-term market performance, using behavior management (which is most important – proper investing is really quite simple), then our clients will be quite successful. I hate to keep saying this, but low-cost funds do not guarantee you a successful portfolio.

The cost is but one aspect of investing. Yes, if everything else is equal, we will choose the lower cost fund. But a fund can’t simply hire a manager and tell him/her to keep the costs down and expect the fund to perform up to its peers. I think that is overemphasized on WCI and is actually a detriment to the investing results of many doc’s. It sets up a false premise – that cost is 90% of results. The examples that are given of the long-term extra costs of a fund that has a quarter of a point more cost over 20 years assume everything else is equal. It never is.

My job is not to outperform. Instead, my job is to ensure that our clients build optimal wealth over the long term given their resources, goals, and life events. It is a bit more complicated than “Let’s go to Vanguard and choose low-cost funds.” We use a few Vanguard funds, but I am not of the opinion that Vanguard is the absolute best fund family to the mutual exclusion of all others. That’s just not rational.

Does working with you/firm also include discrete events like death of a spouse? buying a home? etc? Or is that extra?

Clients never pay extra unless there is a reason to change the engagement and prices don’t go up without notice. Being someone’s financial planner means that I am integrated into his/her life. Everybody has a different path.

I mentor several people and was telling a young man yesterday that it is important to have processes that make planning consistent, keeps us accountable, and surpasses our clients’ expectations while maintaining the individual experience for each client. So, yes, specific life events are what I am here for. Everyone is unique – we don’t do cookie cutter planning here. Not every doctor is paying down student loans.

And finally, is there anything else you think I should know about you?

Like I yelled at my dog this morning? Seriously, there probably is. I’m not hiding anything, but I don’t know what else to tell you right now – may think of something later.

I will tell you that I’ve seen a lot of the crap that passes for financial planning out there and you could do a lot worse than to hire someone who has 35 years of experience as a CPA combined with 9 as a CFP who is also fee-only and works with doctors. I’m not even sure if I’ve run across myself before.

Actually, here’s something: you won’t work exclusively with me. You would work mostly with me, but you would also meet sometimes with Michelle. She trains clients how to use our software, eMoney, and handles all investing functions. And that’s a good thing because we back each other up. You should also know that we custody with TD Ameritrade (which is not the same as TD Bank).

Here is Our Process page. I’ve also attached a draft copy of our Expanded Agenda page. It’s not ready to go online yet but I thought you might find it useful to read. That’s it for now. Thanks for asking some good questions. I haven’t proofed for errors, so please be lenient lol. Let me know if you have any other questions.

This is part 3 in a series of posts on Financial Advisors.

Part 1 covered the license designations an FA can and should have. Part 2 covered how FAs should get paid. Part 4 – How to find and vet a financial advisor Part 5 – I fired my financial advisor Today, we’re going to discuss another area of confusion – when you think you want a financial advisor but what you really need is a financial planner. Wait, aren’t they the same thing? All financial planners are financial advisors. But very few financial advisors (FAs) are financial planners (FPs). Most FAs don’t do much but manage your retirement funds. A financial planner incorporates your savings and retirement funds into your overall plan, but only as one of the necessary components needed to help you meet your goals. In other words, your portfolio is not a financial plan! The term Financial Advisor is part of the problem. Most people are looking for a Financial Planner, not an FA. It’s partially semantics, but most FAs seem to be mainly portfolio managers ± commissioned salesmen. Building a proper portfolio and managing it is actually quite simple and takes little time once a year once set up. Really. It boggles me that people are paying someone 1% or more to do this and nothing else. OK, so maybe you don’t understand how to invest (index funds, stocks, real estate, etc.) – you won’t do badly  by following a simple portfolio that the Bogleheads recommends or try one of these portfolios until you learn more. Let’s look at it in familiar terms:

• A typical financial advisor is like a doctor who always writes the same prescription to every patient. No history, no vitals, no work up and no follow up.
• A financial planner, on the other hand, never prescribes without a complete history (your money history and habits – your psychology) and work-up. Expect to spend the first several meetings with your FP to delve into you and your goals and then together, develop the right plan for you.

To break it down into more detail, what can you expect when you hire a fee-only financial planner? Here is what s/he will do for you:

• Clarify goals. Sure, we all want to retire at some point but, what about between now and your retirement? What happens after you retire? What does “being retired” mean to you? A financial planner will help you have these conversations and ask the “what if?” questions such as “What kind of lifestyle do you plan in retirement?”, “How much do you plan to save for your kids’ college?”, “Do you plan to work part-time at some point?” and so forth.
• Coordinate your financial decisions with your taxes. A financial planner, especially one who is a CPA, is trained to help you minimize taxes as they include tax planning in your ongoing plan.
• Make sure your assets are PROTECTED. This includes a review of not just your insurance policies but a discussion about other areas in your life that may be exposed, such as side businesses, your legal documents, things your kids may be involved in, property, etc.
• Discuss your cash flow (a fancy term for budgeting). If you find that you and your significant other are having trouble seeing eye-to-eye with your spending habits, having an impartial planner to mediate can help you work on a realistic spending plan. Seeing as many arguments between significant others revolve around money this also will help the longer-term health of your relationship.
• Help you adjust for course corrections. How often does living in the now distract one from their goals? Financial planning is not a report you get once a year. Your planner is engaged in your life so that when you get pregnant, change jobs, buy a new house, move your parents into assisted living, etc. your planner is there to adjust your projections and help you absorb the impact on both your short- and long-term plans. This allows you to make course corrections early when it can make the most difference for the long term. Taking a few extra shifts now or driving your car a couple of years longer while you’re in your 30s and 40s is a lot easier to swallow than finding out you’re way behind on your retirement goals when you’re bumping up on age 60!
• Remind you of your goals when you start to veer off course. Almost all (or ALL?) investing mistakes are due to behavior (selling during market corrections for example) and having an FP there to stop you is priceless. Almost all of us will want to veer off course at some point.
• See into the future! Yes, a financial planner will take a look at how you are spending your money today, your goals, your savings habits, your work habits and your retirement benefits and project your chances of being able to have that bungalow on the beach with the little umbrella drink at age 55. Sure, it’s an educated guess, but having a guide is very motivating.
• You and the FP will create a financial plan that will guide you on decisions. Of course, the plan is dynamic and will change over time. Circumstances and goals change more often than you think.

To sum things up, a good financial planner will go over your financial house with a fine-toothed comb. Real financial planning is not cheap and you must be willing to dedicate time and energy to the process – it is your money and your future, after all! I consider full service financial planning a luxury service. I see a lot of people asking isolated questions such as “Should I max out my 401(k) or pay down my loans?” “Should I pay down my student loans first or buy a home?” This is a symptom that there is no financial plan. They are asking for a temporary Band-Aid instead of a true assessment of their needs and a well thought out prescription or financial plan. A good FP will teach you as well instead of blindly taking care of your finances. You need to have a baseline knowledge base to get the most out of this relationship. Here is a sample start-up agenda that a good FP will go through with you. Next, is the the next part of this series. What do you think? Did you know that financial planners did all this and more?