Who needs a financial planner, why, and when?

[Deleted]

My husband and I were talking the other day about reallocating the money in my 401(k), and I kind of got concerned because he was talking about splitting between growth and value funds, and I thought that at my age we should mostly be focusing on growth (isn't value for those closer to retirement?) and I kind of threw my hands in the air again and said that we don't REALLY know what we're doing, so maybe we shouldn't be throwing darts around. 

So I brought up the idea of a financial planner to my husband AGAIN, and he balked at the idea, saying that the 1% fee is too high, ETFs are created to be like financial planners with lower fees, etc.  But if we're picking individual ETFs that we like, the fees in the ETFs may be low, but the portfolio mix may not be appropriate, right?

My husband seems to like finance stuff, and he reads up on it and makes lots of spreadsheets tracking stuff (he's an accountant, so he likes to make complicated spreadsheets of things) but I just don't know that we're doing the absolute best we can do.  And I'd really like to do the best we can do.

That first part was more of a rant than anything else. 

But at any rate, I'd like to weigh the pros and cons of planners (again) and decide whether they're worth it for us (particularly considering that one of us likes to play stock market).

So for those of you familiar with financial planners:

1.  What are the pros compared to trading yourself?
2.  What are the cons?
3.  What kind of couple do you think should have a financial planner?  When do they reach the threshold that they should stop taking care of things themselves and seek professional help?
4.  If we should have one, how do you find a good one if inquiries among friends and colleagues have resulted in one recommendation in Princeton (way too far!) and lots of head scratching and "I am only one half a step above keeping my money in my mattress so I have no idea" types of answers?

Bonus question if you use a financial planner: how did your investments do last year?

Thanks!

[Susie]

I think we'll hire a financial planner as soon as we're financially able to execute all the obvious things that I know how to do: like max both Roths, bump up retirement withholdings at work, etc. I feel like we're kind of on the cusp. Kind of like I know just enough about tax law to recognize that when things get at all complicated, it's time to call somebody who specializes in it.

As far as how to find one... I've found that among associates at my firm I'm probably more proactive than most when it comes to personal finance, so my peers aren't great sources of these kinds of recs. But if you're comfortable asking a partner, an of counsel, somebody who's further down the road than we are, I've gotten recs on this kind of thing from them.

[Deleted]

Why is Princeton too far? Once you set everything up you only need do an in-person review once a year, if that. The rest can be done over the phone. And a good adviser will come to you if need be.

I manage my own IRA, FWIW, but a) personal finance is a hobby (hello, I'm here!), b) my IRA is going to be the "gravy" in our retirement picture, c) my husband, with whom I discuss all of this, is a registered principal and has 12+ years experience in the field and d) at work, we share office space with 2 independent RIAs whose opinions I trust very much and bounce ideas off of all the time.

Pros: Expert opinions, not having to time the market myself (as much as you can do that). For fee-only advisers, they want your $$ to do well. They aren't necessarily interested in selling you some hot product.
Cons: Having to hand the reigns over if you are a control freak. You really have to not micromanage the person you have hired to work for you, and it isn't always easy. It is expensive, but I think the 1% or whatever is worth it. Plus, as your wealth grows, the fees on a percentage basis will be less.

I think at this point, knowing what I do about you and your H, you are approaching the point where finding an adviser is going to be in your best interest. It may not be today/tomorrow, but soon. You are already doing the right thing by investing - both with retirement and outside of it - and you want to build wealth, not just be comfortable, whatever that means for you. The right financial planner can help you make that leap.

I'll admit, my own picks for 2012 didn't do that great. The picks I got from DH and the 2 RIAs I mentioned made close to 18%.

[Deleted]

Thanks spunky!  I have nothing against Princeton, but I figure that chances are extremely good that there is someone just as good in Manhattan

But yeah -- I think we're getting to the point that I'm kind of uneasy with us playing with that amount of money ourselves, and would prefer to talk to the pros.  My husband likes to play around with stocks, so I guess we could put aside some amount of money for him to play with?  The other day he was also talking about how 20% of our portfolio should be gold as a hedge against currency fluctuations.  I have no idea whether that's wise advice or not, but it made me think that we're following some rules but not others, and I suspect that rules like that (a) should be followed as part of following rules about the whole portfolio, and (b) should be left in professional hands?  He also has a bunch of money sitting in a cash position because he doesn't want to invest it yet, but I don't know that we should be trying to time when the market will go down a bit.  I'm just getting nervous.  I don't think we'll do badly, but I suspect an expert could do better for us?

[Deleted]

I wonder if the recommendation you received is either of the RIAs in "my" office. Wouldn't that be a hoot.

If nothing else, I would poke around napfa.org for some good candidates, set up a consultation and see what they say.

[kadams767]

1. What are the pros compared to trading yourself?

The biggest pro for me was letting someone else take over. It eliminated a lot of stress for me. I am a worrier by nature when it comes to money, and I was always afraid that I was going to do something stupid with our money and my husband would blame me (he wouldn't, really, but I am not rational). It was a lot of responsibility on my shoulders that I didn't want. It sounds really stupid, but I feel better letting someone else shoulder the "responsibility" in the event that something tanks. It made it easier for me to take on riskier investments.

Also, I just didn't have the time to adequately research all of my available investment options, or the knowledge to pick them myself. It is easier to have someone else handle it who has familiarity with all of the investment vehicles available.


2. What are the cons?

I am sure that we are paying more in fees than we would be if I was managing our money on my own.

I also sometimes worry about being "in the dark" about our investments, but that goes hand in hand with what I said about being a financial worrywart. I'm kind of just waiting to become the next Madoff victim.

Another con is that it is hard when I might disagree with my FP's strategy. I posted on here previously about his decision to leave a big (to me) chunk of money in cash reserves last year and I felt like I missed some big gains. Trust is hard.


3. What kind of couple do you think should have a financial planner? When do they reach the threshold that they should stop taking care of things themselves and seek professional help?

We realized we needed a FP when I had exhausted my knowledge base of what to do with our extra money. We had a full house DP, fully funded IRAs, efund, healthy 401(k)...other than individual stocks, I didn't know what my other options were and I wasn't comfortable taking the risks on my own. It was really helpful to have someone navigate the options with me, even if ultimately I wouldn't have chosen to use his services. But I feel like if a couple has significant amounts of money leftover each month with no tangible goal for it other than wealth accumulation, it is probably a good time to enlist professional help.

4. If we should have one, how do you find a good one if inquiries among friends and colleagues have resulted in one recommendation in Princeton (way too far!) and lots of head scratching and "I am only one half a step above keeping my money in my mattress so I have no idea" types of answers?

My husband's parents recommended ours.

Bonus question if you use a financial planner: how did your investments do last year? 12.3%!!


Read more: pandce.proboards.com/thread/129717/who-financial-planner-why-when#ixzz2JP2z3ZQ7

[Deleted]

We finally got a financial planner to address that we had funds in four different places outside of our current retirements plans - so really 6 places - AND we had 6 figures in cash. We needed someone to take a comprehensive look at everything, including our current retirement plans, and give us some ideas for the future and how we could best meet our long-term and short term goals. Our FP is a bit more full service than some - they do some tax planning as well - it's all included in the fee. I figure we'll try it for a few years and see how it goes. We can always decide later to back out. And honestly, we don't know enough to know how to invest well or when to move, etc. They take our short term plans (new house in 5 years) into account as well.

[midwest07]

We use a financial planner, though I don't know that we have enough assets to really do so at this point, but our hope is that we will get to that point in the near future and we will be glad to have established a relationship with someone. We also know he is a good person to stick it out with us because we aren't making him much now!

The biggest reason is because we have 6 retirement accounts (both have 401k, both have Roths and both have traditional IRAs), which I know is probably typical but too much for me. I guess I could pick a target date fund for each of those, but that seems a little repetitive and perhaps too risky/not risky enough. Anyway, our planner balances out all of our funds by looking at the big picture. For example, I think my Roth is heavily international and you would look at that and think I am crazy. But in the scheme of things, it makes sense. It's his job to research funds all day long, not mine, so I trust his recommendations. This is also an area my H leaves completely up to me (retirement), so I am happy to hand it over.

Then I also have an H who wants to dabble in day trading. He is allowed to do so in a brokerage account that he is free to take whatever risks he wants to with. It's not part of our long term plan or retirement, so he can do with it what he wants. Hopefully we will eventually have significant non-retirement assets that our planner would handle, but we aren't at that point. Anyway, my suggestion would be to have a planner handle the funds that are important you don't lose, but let your H direct a small portion of assets so he can test out his investment theories.

[niq]

Jan 29, 2013 15:18:39 GMT -5 v said:

So for those of you familiar with financial planners:

Are there any flat-fee financial planners near where you live? Like, you & H go in with your financial paperwork, two weeks later you go back & they give you a binder with your investment plan (allocate your 401k this way, put $X into this Vanguard fund and $Y into that one, etc.), you write them a four figure check and come back to them again whenever you feel like it, like 3 or 5 years later or 1 year later if H wants more handholding. The going rate is $200-300/hour and it's about 8-10 hours of work for them unless there's something about your finances that's complicated.

1.  What are the pros compared to trading yourself? I mean, I'm not a mattress type, but I'm a buy-and-hold type of person. My wife is a mattress type. Going to a planner helped convince her that we could be more aggressive with investments and that in the long run equities are worth, since it was an outside voice and not her spouse.
2.  What are the cons? Most of them charge a percentage of assets under management. 1.0% is pretty common where we are. I would never use someone who charged me a percentage of AUM above 0.50%. Once you get financial professionals with that low of an expense ratio, many of them are incredibly debt-risk averse. We have a line of credit with a 6.5% interest rate that we leave untouched, but would use if my mom had a big medical emergency or car accident. The planner she encouraged us instead to look into having her take out a reverse mortgage (!!!) rather than us have an LOC. Also a lot of planners have big investment minimums like $250K or $500K, and that's outside of retirement.
3. 
What kind of couple do you think should have a financial planner?  When
do they reach the threshold that they should stop taking care of things
themselves and seek professional help? I think once your retirement savings plus other assets hit six figures it starts to make sense. If you have something that's about to complicate your finances, like the birth of a child, you just bought a home, are taking care of a relative (this was us), or even just one of you is finally done with school and now you want to figure out how to juggle everything, it can be helpful.
4.  If we should have one,
how do you find a good one if inquiries among friends and colleagues
have resulted in one recommendation in Princeton (way too far!) and lots
of head scratching and "I am only one half a step above keeping my
money in my mattress so I have no idea" types of answers? We found our planners on Angie's List.
I think they charged us $2800 insted of the more typical $2000-2400
because the planner needed more time to factor in how we should manage my mom's finances. That's about 1.5% of our liquid assets, but we
don't have to talk to them again for 5 years, so it amoritizes to something like .3% of AUM or less. Basically once they told us their usual advice is to stick with Vanguard and other low-fee funds, rather than sell us on actively managed mutual funds or other products, I was sold.

Bonus question if you use a financial planner: how did your investments do last year? 1 year is too short a horizon, but since the S&P was up 15 and change I think we're up about 14%.

[ReenaP]

Jan 29, 2013 15:18:39 GMT -5 v said:

My husband and I were talking the other day about reallocating the money in my 401(k), and I kind of got concerned because he was talking about splitting between growth and value funds, and I thought that at my age we should mostly be focusing on growth (isn't value for those closer to retirement?) and I kind of threw my hands in the air again and said that we don't REALLY know what we're doing, so maybe we shouldn't be throwing darts around. 

I'll throw in some MM 201 comments on your statement here. Value funds are definitely not just for those closer to retirement (unless you thinking about a stable value fund, which is different).  Value funds invest in companies that are by nature, distressed or in financial peril.  This is unlike growth funds, which invest in sexy fast-growing companies.  Distressed companies are risky, and as an investor, you are supposed to be rewarded with a risk premium.  And this is the case- over long-term periods, value funds actually outperform growth funds.  The outperformance is especially large in the small-cap arena (over the past 80 years+, Small Cap Value is the highest performing asset class). 

[SJ]

RNV, If an adviser could outperform every index, every year, in all kinds of markets, I promise you they would be world-famous, rich beyond belief, and not meeting with any of us.

Yet I fully agree that if an adviser is not outperforming over the short or long-term, you would do better to buy the index.

I have more to say, but no time, so I will come back!

[FWP]

Jan 29, 2013 15:18:39 GMT -5 v said:

So for those of you familiar with financial planners:

1.  What are the pros compared to trading yourself?
2.  What are the cons?
3.  What kind of couple do you think should have a financial planner?  When do they reach the threshold that they should stop taking care of things themselves and seek professional help?
4.  If we should have one, how do you find a good one if inquiries among friends and colleagues have resulted in one recommendation in Princeton (way too far!) and lots of head scratching and "I am only one half a step above keeping my money in my mattress so I have no idea" types of answers?

Bonus question if you use a financial planner: how did your investments do last year?

Thanks!

1) Reassurance, second opinion, tax efficiency advice
2) Cost, warped incentives
3) It depends on how much you're investing, how much time you are willing to put into it, and your "what makes you lose sleep" factor
4) IMO, you should go with a fee-based (not commission-based) financial planner.

I had a (commission-based) FA for awhile and he made some shady recommendations (some of which I realized too late). H and I read a great book, "A Random Walk Down Wall Street," and a few other books and websites. We feel comfortable and empowered to invest based off what we've learned (we have ~*poof* in non-retirement accounts; much more and I will be seriously considering getting outside help, especially b/c of the tax efficiency thing). We looked at a fee-based adviser and the first-pass plan was going to be ~1-2k.

To clarify some other things - growth vs value is not as straightforward as you are thinking. Value stocks can provide good returns too, and especially good in tax-advantaged accounts. In general, low fees + diversity + rebalancing seems to be a well-supported recipe for investing success. That book will help you wrt figuring out a portfolio of ETFs/low-fee MFs.

[mushmouse]

I would not use a commission based person. I would go the way niq recommended - with a fee only advisor. I would also look for a CFP. Many people claim to be planners but really just sell whatever the company is pushing at the time.

[FWP]

Jan 29, 2013 16:09:03 GMT -5 v said:

But yeah -- I think we're getting to the point that I'm kind of uneasy with us playing with that amount of money ourselves, and would prefer to talk to the pros.  My husband likes to play around with stocks, so I guess we could put aside some amount of money for him to play with?  The other day he was also talking about how 20% of our portfolio should be gold as a hedge against currency fluctuations.  I have no idea whether that's wise advice or not, but it made me think that we're following some rules but not others, and I suspect that rules like that (a) should be followed as part of following rules about the whole portfolio, and (b) should be left in professional hands?  He also has a bunch of money sitting in a cash position because he doesn't want to invest it yet, but I don't know that we should be trying to time when the market will go down a bit.  I'm just getting nervous.  I don't think we'll do badly, but I suspect an expert could do better for us?

Uh yeah, that would make me nervous too. I would say that if you guys do not use an FA (or heck, even if you do), you're going to need to do some research so that you at least feel comfortable with the plan. Those two things would make me extremely nervous.

If it helps, you can PM me and I can send you some portfolios we considered and what we chose. Short answer - mostly low-cost index funds; mix of stocks, bonds, REITs, etc with special attention paid to global (as in, location) allocations.

We are buy-and-hold investors, although I do get my risk-fix by timing the sale of my company stock. I've also considered doing more active trading in my Roth IRA, just for funsies, since it's a relatively small part of our portfolio and I wouldn't have to worry about taxes/cost-basis/blah-blah.

[SJ]

Yes, always go with a fee-based adviser. You don't want anyone who gets any incentives, bonuses, or gain from putting you in certain products or using certain methods. It is an inherent conflict of interest.

[Deleted]

leftover, my husband just started reading A Random Walk Down Wall Street this week!

Thanks everyone!

[FWP]

Jan 29, 2013 21:04:01 GMT -5 v said:

leftover, my husband just started reading A Random Walk Down Wall Street this week!

Thanks everyone!

It's a good one. He has tons and tons of supporting research. It's a pretty boring repetitive read but it definitely hammered home some good points.

[CloudBee]

Jan 29, 2013 20:53:44 GMT -5 SJ said:

Yes, always go with a fee-based adviser. You don't want anyone who gets any incentives, bonuses, or gain from putting you in certain products or using certain methods. It is an inherent conflict of interest.

This x100.

[SJ]

RNV- I really think you get it. I agree with you that it makes no sense to pay management fees to mirror an index. You can easily do that yourself.

I apologize if my comment seemed flippant; that was not my intention.

I guess another piece I'd like to add is that it is important to remember that in a sense you are cherry-picking when trying to compare returns. It is easy to say "I would have done x y and z myself" with hindsight. Especially in good years! But when emotions are involved, it's just not as simple as buying an index fund. So many retail investors abandon their plans when things get scary. They sell at the wrong times, they panic, etc. When the S&P is up 14%, we love SPY. But I don't know many DIYers who were bragging about holding their entire portfolio in SPY when it was down 40% in 2008. And remember that when you see underperformance in strong years, it doesn't necessarily mean the manager did "poorly" or picked bad stocks. It may be because the strategy is designed that way- to be steady and cushion- in order to provide comfort and long-term growth of assets, among other goals. Maybe they had cash or fixed income for other reasons (tax efficiency? Age bracket? Lifestyle needs?) that wouldn't have been met using an index fund.

There were so many tremendous opportunities in the last few years though the market volatility. Remember the "flash crash" day? We made an enormous amount of money for our clients before many of them were even awake because we have the capacity, flexibility, and expertise to do so. What about all the tax law changes? Can people with FT jobs in other industries really keep up with all the nuances and manage it all themselves? Some can, but some can't or don't want to or don't have time or energy to.

In my opinion, you are ready to pay someone when:

-you do not have the time or expertise or desire to actively monitor and manage your wealth
-you want a team of professionals working together on your behalf (this should include investment, tax, and legal professionals- sometimes at one firm, but I think better if not)

Also a note that any performance figures should be displayed net of fees and expenses. So the firm is expected to make up for their fees and then some. If they show you numbers before fees, that is ok, but ask for it the other way too.

[scout8]

Honestly, it never even crossed my mind not to use a FP. I would have no idea what to do! I started using one when I first set up a SEP and then later for non retirement investments.

I had a hard time finding a FP that I thought was truly acting in my best interests. I am now on my third one and really like him. He was a referral from my accountant.

[Deleted]

Sarajoy and others - when you say fee based do you mean someone who charges a flat fee or a hrly fee, or is percentage OK as long as it's not based on particular funds?

[rentorbuy]

We "private bank" with a large institution. We pay a quarterly fee based on a specific percentage that is applied to our overall balance/net worth in the accounts. We are not "sold" any products. We are able to choose from different levels, 1-5 that focus on different things. For example, level 5 is high growth/risky/biotech stocks whereas level 2 is more dividend focus/less risky/Dow30 stocks. Then once we choose a level it's applied to our account and that financial "model" is used with our funds. 

We can contact our banker as much or as little as we want. We tend to let them do their thing and call if we have questions. But I have another family member who is in retirement and speaks to their banker almost every day on what is happening in the market. 

Personally, I would stay away from any person/company that makes money off the products they sell you. A fee based program is a win-win for everyone --- the more money they earn your account the more money they earn in fees!

[SJ]

Jan 30, 2013 0:20:53 GMT -5 BirdGirl said:

Sarajoy and others - when you say fee based do you mean someone who charges a flat fee or a hrly fee, or is percentage OK as long as it's not based on particular funds?

Either one! I am more familiar with the percentage model, but that is for total/active discretionary management. In this case, their incentives are aligned with yours- to grow your assets!

The hourly fee works best if it is just a FP who meets with you to set up a plan and/or check in with you, but you are responsible for implementation. This strategy was described well by an earlier poster.

[kwynn]

I got one because I'm unable to get dressed some days and I don't have the time to manage my own money. I really, really wanted to manage it because my husband did and he wouldn't have wanted to pay for someone to manage our money. But I am beyond stressed and needed someone to take the burden off me.

SaraJoy here really seems so wonderful and knowledgeable that after reading her posts, I was like "Yeah, I'm getting someone like that" to take things over for me.

[SJ]

Jan 30, 2013 6:42:40 GMT -5 kwynn said:

SaraJoy here really seems so wonderful and knowledgeable that after reading her posts, I was like "Yeah, I'm getting someone like that" to take things over for me.

This is so nice to hear.

I am so glad you found someone you trust who can walk you through this hard time. There is nothing wrong with outsourcing the management. It will be so much better if you can focus on taking care of yourself and eventually on growing your own business, instead of pressuring yourself to manage everything just as your husband did.

If you ever have any questions or if I can help in any way, please let me know.

[sm12]

Jan 30, 2013 6:37:21 GMT -5 SJ said:

Jan 30, 2013 0:20:53 GMT -5 BirdGirl said:

Sarajoy and others - when you say fee based do you mean someone who charges a flat fee or a hrly fee, or is percentage OK as long as it's not based on particular funds?

Either one! I am more familiar with the percentage model, but that is for total/active discretionary management. In this case, their incentives are aligned with yours- to grow your assets!

The hourly fee works best if it is just a FP who meets with you to set up a plan and/or check in with you, but you are responsible for implementation. This strategy was described well by an earlier poster.

I think we are at a point where we need a FP, and this thread has been incredibly helpful.

I have a very basic MM101 (MM-101?) question about percentage model.  Is this a percentage of the AUM, or a percentage of gains, or ....?  

Thanks!  

[sm12]

Thank you, RNV.