Do you need a CERTIFIED FINANCIAL PLANNER™ professional? Is a financial advisor worth hiring? What does a fee-only fiduciary actually do, anyway? We get variations on these questions frequently, and now you can listen to Joe & Big Al’s answers from 2016 to the present, all in a single episode. Plus, how to measure CERTIFIED FINANCIAL PLANNER™ Professional performance, and when it’s time to part ways with your financial planner.
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- (00:43) Why Pay Someone 1% of My Portfolio For Something I Could Easily Do With a Few Simple Tools? (Brian, Knoxville, TN – from episode 202)
- (05:56) Is a CERTIFIED FINANCIAL PLANNER™ Professional Worth Hiring? (Simon, Plymouth, MA – from episode 315)
- (14:28) Is Hiring a Financial Advisor Worth the Money? (John, Salem, MA – from episode 323)
- (24:41) What You Need to Know Before Choosing a Financial Advisor (2016 episode)
- (32:03) Is My Advisor’s Financial Plan For Me Too Set and Forget? (Robert, AL – from episode 245)
- (38:32) Is it Time to Fire My Financial Advisor? (Frank, San Diego – from episode 245)
- (42:24) How Do You Measure CERTIFIED FINANCIAL PLANNER™ Professional Performance? (Pat, Houston – from epsiode 329)
Listen to today’s podcast episode on YouTube:
Do you need a CERTIFIED FINANCIAL PLANNER™ professional? Is a financial advisor worth hiring? What does a fee-only fiduciary actually do, anyway? We get variations on these questions frequently, and today on Your Money, Your Wealth® podcast 333, hear Joe & Big Al’s answers from 2016 to the present, all in a single episode – plus, how to measure CFP® performance and when it’s time to part ways with your financial planner. Visit YourMoneyYourWealth.com and click “Ask Joe & Big Al On Air” to send in your money questions, comments, and stories to be featured on the YMYW podcast. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.
Why Pay Someone 1% of My Portfolio For Something I Could Easily Do With a Few Simple Tools? (Brian, Knoxville, TN)
Joe: All right, Brian from Knoxville, Tennessee. Why should I pay someone 1% of my gross portfolio to do something I could easily do using a few simple tools? Well Brian, I don’t know, why don’t you do it yourself?
Al: Yeah, that’s fine by us but let’s go on.
Joe: All right. Brian, he’s 59 years old and he plans to retire in 13 months at the age of 60. Congratulations. “I have always used a financial advisor. The people I’ve used have spread my money around so if the market goes up, I go up just enough to make it look like I’m doing okay. And if it goes down, it doesn’t go down as much as the market does. My risk tolerance has always been moderate to aggressive. Now that retirement is setting in, I’m looking a little harder at what they have done in the past. It seems that I could just as easily have taken my asset allocation wheel and picked funds, bond, stocks, just like them and done just as well or better. Why should I pay someone 1% of my gross portfolio to do something that I could easily do using a few simple tools?”
Al: Yeah, good question.
Joe: Great question.
Al: And I will say there are much better tools out now than there were a year ago or five years ago or 10 years ago. There’s asset allocation tools that you put in certain variables and it will kind of spit out what your allocation should be. So I do concur. There are decent tools. What we find though happens, in many cases, is when a person manages their own money they get emotional and they tend to buy when things are doing well.
Joe: They chase returns.
Al: When the market’s high. They look at last year. “Let’s do that because it went up,” and they tend to sell when markets correct or crash because they’re fearful. And that’s a recipe for not doing so well because you tend to buy high and sell low.
Joe: But Brian’s going to say, “I don’t do that,” and that’s fine.
Al: Yeah. And maybe you don’t.
Joe: Here’s my answer to Brian: if he’s got the knowledge and the time and the passion to take a look at this, to do it appropriately, to manage it effectively, then by all means, save yourself the money. But there are other things that you should look at besides a simple asset allocation. If someone is charging you 1% to do an asset allocation then yeah, I don’t think that’s worth 1%. It’s probably worth probably 25 basis points.
Al: I agree with that.
Joe: And so you have to receive value for anything that you’re purchasing. If you don’t find value, then don’t buy it.
Al: Yeah. So if you go to a financial planner that’s doing cash flow planning, that’s helping you with your wills and estate, that’s doing tax planning? Then maybe there’s enough value to justify that fee. But you’re right, Joe, if it’s a simple asset allocation, that probably is a little bit high.
Joe: So yeah, but I mean hindsight’s always 20/20 isn’t it?
Al: Of course yeah. Because you always assume that you could have done as well or better. And we know with the behavior gap. Carl Richards. He kind of looks at this and he draws little drawings that shows that people tend to buy when the market’s high because of greed and they tend to sell whn the market’s low because of fear, and then Dalbar, a company back East looks at what’s the actual investment return versus the actual investor return, and the investor return is you and me trying to pick the investments, generally is a fair amount lower because emotions are getting in the way.
Joe: So I have a personal trainer. And I’ve been working out with him for the last couple of years, 3-4 years, something like that.
Al: Yeah. And you look great, by the way.
Joe: Hey thanks. Andi, you like Fat Joe? She’s like, “Oh my God, you were so fat.”
Andi: (laughs) He showed me video from 2012.
Joe: I could go back and say, “you know what, it wasn’t worth it.” I could have done it myself. But no, some people need some sort of coaching, accountability, or different programs so you’re not bored. If I sit there and just lift the same weights, I’d be like, “I don’t wanna do this.” So if someone is there to kind of mix it up? I also have a golf coach.
Andi: I hear you need that.
Joe: I definitely need all of the above. I’m not good at certain things and I find value in hiring someone to help me to become better.
Al: Yeah. But that’s a personal choice.
Joe: Right now my laundry…
Al: You’re hiring somebody for laundry?
Joe: Well no, like my dryer – it doesn’t dry clothes and it’s a brand new dryer. So I think it’s clogged up, so I don’t know how to do that, so now I’m gonna have to hire someone to do that. But after he gets done and he goes, “here , here’s that stupid lint, you take that step out, here I want my $500.” What am I going to say? Damn, I coulda done that! That’s five hundred bucks I coulda saved!” Guess what? When it happens again I’m calling him! I ain’t gonna do that!
Al: You’ll forget.
Joe: Anyway. Hopefully that helps Brian.
Is a CERTIFIED FINANCIAL PLANNER™ Professional Worth Hiring? (Simon, Plymouth, MA)
Joe: Simon writes in from Plymouth, Massachusetts. “Hey there, Joe and Big Al. I discovered your YouTube channel about 6 months ago and learned so much from you guys. Just can’t say enough about your show and how much I appreciate all your great free advice. I really love the humor as well. You guys crack me up.” Simon loves the show, Al.
Joe: He loves it.
Al: I’m picturing that, Simon in Plymouth.
Joe: Plymouth Rock.
Al: Yeah, watching our show.
Joe: Little chilly there, too.
Al: Well, that’s why he’s been he’s been- he’s probably binge-watching right now.
Joe: Is it bin watching? Or binge?
Joe: Got it.
Al: Binge binge.
Joe: “I’m 55 years old, married, my wife, 59. My kids are all out of college. No debt, other than a mortgage, which I’ll have paid off in 6 years. I’m starting to look seriously at retirement age, 65, wife, 69. I have a 401(k) with about $730,000 in it, well-diversified with mutual funds and no other investment buckets created yet. I know I can hear you now. Roth conversion.”
Andi: He does know this show.
Al: I was just going to say that.
Joe: Yeah, might as well.
Al: Of course.
Joe: All right, next question. “I plan on doing that slowly over the next 4 years while tax rates are low. Cash in the bank, about $50,000. Company pension projected to be $55,000 a year. Social Security about $77,000 between my wife and I.” Wow, that’s healthy.
Al: Pretty good.
Joe: Healthy. “My question, I’ve never worked with a CFP® before and I’m trying to decide if it’s worth paying 1% or if I should stay with my 401(k) options. He’s got 8.5% average over the last 10 years.” Wow.
Al: Pretty good.
Joe: Simon. Simon says. “Do the Roth conversion myself and be happy or working with an advisor? Also, how much do you think I should keep in the 401(k)? How much in the Roth IRA? Thanks for the advice. I wish you had a branch office out here in Boston.” What do you think? Is the CFP® worth it? Well, that’s a pretty biased – I am a CERTIFIED FINANCIAL PLANNER™. We manage $3 billion of client assets and we do charge a percentage of fee on those assets. So am I worth it? No, don’t do it. The thing’s a sham.
Al: Full disclosure.
Joe: Yes and no. I mean, it depends on what you want to do. I think if you have the knowledge, the time and the wherewithal to not blow yourself up, then absolutely. But I think, does an advisor add value? Without question. I look at a couple of different things. I like to work out with the trainer. So do you think I could achieve my weight loss or weight gain or whatever goals faster, quicker, more efficient with a trainer than me watching a YouTube video? With these two guys that are very hilarious. And they teach me how to do some push ups and pull ups and things like that?
Al: There’s something to be said for being accountable to somebody.
Joe: Now he’s looking at maybe some sophisticated tax planning because he’s asking the right questions, but he just doesn’t know how much. He’s like, I got $750,000. I’m going to have a large fixed income of Social Security and pension. I’m going to retire looking- He’s 59, so he wants to retire in 6 years. So he’s going to have over probably $1,000,000 in retirement accounts depending on what he’s funding it. I don’t know what he’s spending. Probably not a ton. I would imagine his pension and Social Security will cover a lot of his living expenses.
Al: Yeah, very well could be.
Joe: So then he’s like, well, how much money should I convert? Well, then it’s not like just go to the top of the bracket. You probably want to do a little bit of cash flow planning. So here’s what I would do if I were you, Simon. Since I’m a CERTIFIED FINANCIAL PLANNER™.
Al: All right, good.
Joe: I would create a spreadsheet. You take a look at your income coming in, your expenses going out. You would want to make sure that you have the proper taxes that you’re paying on the income from now until your retirement and then from retirement till end of life. Then you could see what tax bracket that you are in today, where you’re going to be in the future. Then you can run assumptions on inflation. You would want to run assumptions on growth rates on the overall portfolio. I would not run 8.5% because the last 10 years is probably one of the biggest bull markets that we’ve ever seen. And if you only did 8.5%, what was your portfolio like? If you were 100% equities, well maybe you have to relook at the overall portfolio. But if you were 50% stocks, 50% bonds at 8.5%, that’s a hell of a good job. So there’s a lot more things that kind of have to go- involved here.
Al: Yeah, I agree with that. Morningstar did a study to try to figure out how much value does an advisor add? And they came up with 3%. And that’s based upon a bunch of assumptions that may or may not apply to the average person. But I think the single biggest factor in that 3% was that people have a tendency to buy and sell emotionally, buy and sell at the wrong times. And it’s kind of like a trainer. A trainer forces you to come to the gym every Wednesday or twice a week or three times a week. A financial planner kind of forces you to stay in your seat and not overreact when markets are too high or too low. Because when they’re too high, we tend to want to buy more. In other words, we’re buying high. And when they go down, we tend to get fearful. We want to sell, which is actually when we should be buying. So and that’s probably the biggest value add. But if you are asking a question- and then there’s tax loss harvesting and all kinds of other things that they can add, certainly what you just said Joe, a good financial planner will do cash flow planning with you not only now, but through the rest of your life. But if you’re asking the question, is it worth paying 1% because the CFP® is going to have a better investment strategy? Well, maybe so. Maybe not. It depends upon your knowledge. If you’re pretty knowledgeable, then no, you’re not going to find advisors are going to make you an extra percent. I mean, they might say they will, in my opinion.
Joe: No, I agree with that. I think if they’re just managing the overall assets and not doing anything else. Yeah. Simon’s in kind of a really good position. We don’t know how much he’s spending. If we just knew that nugget, I think we could probably- if he doesn’t need the money, let’s say. His fixed income is going to be fine. He could basically blow up his investments. So his value add for an advisor is probably not the overall portfolio, as long as it’s globally diversified and low-cost funds. It’s looking at more of an income tax strategy or wealth transfer play, protecting it in case he passes. And what’s his wife going to do? So there’s all different things that you would want to look at that an advisor value add has.
Al: And I would also say to Simon and anybody, nowadays with Zoom, your advisor doesn’t necessarily have to be in your same town. And that-
Joe: Sales pitch.
Al: – that’s not a pitch for me. That’s actually that’s a pitch for anybody.
Joe: Sales pitch.
Al: Because I think that’s true now. I don’t think it matters as much as it used to.
Joe: Got it.
Andi: I was waiting for that.
Joe: You could call Al. 1-800-BigAl. One last thing too is what- and I also have a golf coach, professional that I go to. And I think if I never had a lesson, I would probably look at Rory McIlroy and say, OK, copy that and I’ll go to the range. And I would be coming over the top and slicing the hell out of the ball. And I would continue to practice that movement over and over and over again and doing the wrong thing. And I’m just getting worse. Without direction to say, you know what, hey, maybe you should do this or that or tweak this or that. I mean, that adds value.
Al: It does.
Joe: If your advisor’s not adding value, then don’t pay. But a really good advisor shouldn’t cost you anything. You should be making more dollars or having more value in your overall wealth because you have a team of professionals working for you.
Al: Yeah, and I think right and going back to my first point, I think the value of the advisor is all the intangibles. It’s not that they’re going to earn you an extra half a percent. That’s just my opinion.
Joe: All right. Thanks for the question, Simon.
Is Hiring a Financial Advisor Worth the Money? (John, Salem, MA)
Joe: John, he writes in from Salem, Massachusetts. He’s hiring a financial manager, “worth of money?” is his question.
Al: Yeah. So he wants to know is it- is hiring a financial manager worth the money? What- do they do anything, Joe?
Joe: I don’t know. So here we go. “He’s been looking and found two firms that will manage my $1,000,000 for 1% of the total assets. It’d be nice to have one- to have someone with expertise to take care of my investments while I was in the backyard with the BBQ and beer. Still, $10,000 sounds like a lot of money. Well, Vanguard charges only .3%. Is Vanguard less good to charge only .3%? In case you’re wondering, I’d be working with the same person at Vanguard, not the person who answers the phone that day. I would have to put all my money in Vanguard funds. I have also found fee-for-service people that tell me how to rearrange my investments to meet my goals for only $1500 dollars. With this arrangement, I would have to check things out and make sure that I’m keeping my investments balanced appropriately. So this would involve work on my part. I can handle market fluctuations without panicking. And I have two years of funds in a totally liquid TIAA traditional GRSRA, not the restricted TIA traditional GSA.” So he’s got a guarantee account that’s liquid.
Al: Got it.
Joe: “Details: I’m 70 years old, retired. My wife, 62, is a piano teacher. She plans to never completely retire. She owns her $500,000 and we each manage our investments independently. Both of us have money in our 401(k)s and about 10% in Roth IRAs. Our 2019 taxable income was $110,000. I’m pulling 3% out of my $1,000,000, drawing Social Security and not touching my $100,000 Roth. My wife is not taking money from her $500,000 investment and not taking Social Security. We owe $50,000 on the house. It will be paid off in 3 years and living pretty comfortably. The juicy bits, I drive a 2013 Camry. My wife drives a 1996 Accord.”
Al: We don’t know what color though.
Joe: Yeah. “Since 1996, she commutes from one side of the house to the other. No dogs, just a cat. Very cute, but kind of stupid. I found your podcast two weeks ago while searching for the Retirement Answer Man podcast. I like your podcast better.”
Al: So looking for someone else but found us.
Joe: Roger Whitney is the Retirement Answer Man, and I hope that you like our show a little bit better. They’re polar opposites. I mean, if you like Hey, Scooby Dooby doers-
Al: We could sell like that I suppose.
Joe: What does he say again?
Joe: In the go zone and the relaxing zone-
Andi: Oh, the go-go and the no-go and the slow-go-
Joe: – go-go-?
Al: – slow-go, yeah.
Joe. He’s a really nice guy. He’s just- Yeah, he’s Roger Whitney, the Retirement Answer Man.
Al: Got it. Well, what do you think? Are financial advisors worth it?
Joe: Well, it really depends, John. He’s pulling 3% out of the overall portfolio. So there’s work that’s being done.
Al: Yeah, like where do you pull it from?
Joe: Where do you pull it from?
Al: Which asset classes? Or do you have the right asset classes in the first place?
Joe: Well, how are you rebalancing? How do you tax managing? So I look at it a couple of different things. If you have the knowledge, if you have the know-how, if you have the passion and the time, then by all means, do it yourself. Just like with anything. If you like to fix your car, fix your car, don’t hire mechanic. If you like to fix your sink, do that. Mow your own yard, not have a gardener. Is $10,000 expensive? Well, it depends on the value.
It shouldn’t cost you anything. If the advisor is not adding appropriate value to outweigh the cost, then, again you don’t hire. How- other ways that- I put it in different terms. I love to play golf. I have a golf pro that I pay to teach me how to play better. I could buy a video or I could do a one time deal for $1000.
Al: Yeah. $1500 one time.
Joe: One time, one shot. Or does it make more sense- do you think I will become a better golfer if I had consistent lessons from this person? Or how- I could buy an Apple phone for $1500 that tells me my weight and it tells me my calorie count and my steps. But if I hired a physical trainer that’s going to help me with a workout regiment and my diet and keep me accountable, do you think I’d do a better job? I don’t know. So I think he feels that oh, I can withstand the dips. But that doesn’t mean anything. What are you going to do when the dips come? How do you rebalance the overall account at that point?
Al: I think I would tend to agree with you. So Morningstar has put out their own analysis, trying to figure out what’s the value of a financial advisor in terms of, what are you saving percentage points per year? They came up with about 3%. And of course, there’s 1,000,000 ways you could look at it. So for you, John, maybe there’s very little value. It’s hard to say. But to me, a good financial advisor is more than an investment manager. They’re also a financial planner. They’re helping you with cash flow. They’re helping you with decisions. They’re helping you with tax planning, with insurance planning, with estate planning, all these things which are constantly changing. Not only are the laws changing, but likely your goals change and so forth. So I would look at it that way. And I agree with what you said Joe, a good advisor really should be making you money. In other words, they should be saving you more than the fee that you’re paying. Now on the other hand, if the advisor that John’s talking to is simply an investment manager and John could do it himself and likes to do it, maybe there’s not a ton of value. Actually, when you break down that 3%, probably the biggest single percentage factor is the advisor helps keep you in the seat. In other words, invested. It’s kind of like your coach, like you said, because people have a tendency to get excited about buying more stocks when the market’s too high and then getting fearful when the market’s too low and they sell, which is not a great recipe. So another factor, John, you might consider is since you’re a little bit older than your wife, does she like investing? If she does, great. If not, then you might want to have an advisor just in case something happens to you. And maybe not with all your portfolio, maybe with some. So just think about those things.
Joe: Your advisor needs to be looking at several key areas, not just the investments. The investments is a small component of what the advisor’s actual job is.
Al: Yes, that’s right.
Joe: So it’s figuring out, how much money needs to come from the portfolio? You’re pulling 3%. Should you be pulling more? Should you be pulling less? Your wife is not pulling any money from the overall portfolio. She’s not claiming Social Security. When should she claim Social Security? What is the taxation of your Social Security going to be given your withdrawal strategy? Your taxable income is $110,000. Should you be pulling more out of the retirement accounts to maximize that overall bracket, given the fact that you’re older, John, than your wife and you will probably pass before she does? And then all of a sudden her required minimum distribution is going to be based on both of the accounts on her age, which could pop her up into a lot higher tax bracket. What is the investment mix on her account versus yours? How much overlap is in there? What are the fees that you’re actually paying internally? It’s not always about the fees. It’s about strategy.
Al: Should you be doing a Roth conversion? If so, how much? Should you do Roth conversions after your required minimum distribution kicks in? Or not?
Joe: Looking at risk management, how about if you go into a nursing home? How are you going to afford that? Where are you going to pull the money from? Do you have long-term care insurance? Is it even worth it? What does your property and casualty insurances look like? Things of that nature. And then finally, do you have an estate plan? Who’s the beneficiary? And so on. Looking at all of those items on an ongoing basis is key to make sure that your financial house is in order. But if you’re just looking to have someone rebalance your overall portfolio, it’s probably worth a .3%. But if you want a true comprehensive advisor, I think it’s well worth the 1%. But of course, we’re extremely biased because that’s our business, John.
Al: That’s how we make money.
Joe: That’s our firm. That’s how we pay our employees. That’s how you listen to us. So if you want to do it yourself, please do it yourself. If you think it’s worth the hiring of advisor, don’t call into an advisory show that gets paid advisory fees.
Andi: He was looking for Roger Whitney first, too.
Joe: Yeah, go big Rog. I don’t know, because he’s going to probably tell you the same thing. But I think everyone needs a financial plan. Everyone doesn’t necessarily need a financial advisor.
Al: That’s probably a good way to say it.
Joe: And so if you know all the components that are in truly a comprehensive strategy that is fit for you and your wife, and you could do all the things, do them yourself and save the money.
Should you do a Roth conversion, and if so, exactly how much? How should you be invested, given your risk tolerance and your retirement goals? And how do you reach those goals from where you are right now? Plus all those intangibles. These are all reasons to contact Joe and Big Al’s team of CFPs at Pure Financial Advisors for a financial assessment. The number to call is actually 888-994-6257, or go to YourMoneyYourWealth.com and click Get an Assessment to sign up for a video conference call with a CERTIFIED FINANCIAL PLANNER™. You’ll come away with suggestions for your specific financial situation, you’ll know whether a CFP® is worth it for you, and it doesn’t cost anything and there is no obligation. Visit YourMoneyYourWealth.com and click Get an Assessment. Why choose Pure Financial Advisors? Joe and Big Al explained why back in 2016 – take a listen.
What You Need to Know Before Choosing a Financial Advisor
Joe: We are fee-only registered investment advisor. We don’t sell any products. There’s never a commission generated to our firm. We’re a true fiduciary fee-only, 100% of the time. There’s a ton- we’ve been doing this 10 years, and it seems like all these new little radio show, financial shows keep popping up. And then they kind of disappear, then they keep popping up. I, for some reason this Friday, I was driving somewhere. And then I hear a couple of ads right here on this lovely radio station.
Al: Sure, OK.
Joe: And then I’m like, what? What? Who the- ? I’ve never heard of these people. So go online. Have a look. Huh? Listen to a couple of minutes of their podcast. It was awful. I shut it off. It’s like they all kind of trying to sound the same. But then you have to take a deeper look, because all of those individuals, they’re selling product. It’s either commissioned annuities, things like that, that are paying up fairly high commissions. But hey, they kind of talk the talk. And I’m here to help you to become successful financially, which is great. I love the profession that we’re in and there’s a lot of phenomenal advisors. But just, I guess word to the wise, is that just because you hear Al and I on the radio or anyone else, do due diligence. I’d find out, how are they compensated? What types of products are you selling? How long you’ve been around? How many employees do you have? Who does the- ? Are you a one-man shop or how many- ? Because there’s a lot of work involved when you are helping an individual, I guess, manage their wealth. We have different departments at our firm, and I don’t really want to talk about our firm in a commercial, but I think it’s important for people to get. Because I had an individual, several million dollars is working with an advisor, a one-man shop. And I was like, well, how is he managing the portfolio? How is he making sure that he’s tax loss harvesting or she’s tax loss harvesting? How is the rebalancing? Where is the overall financial strategies? Where is the tax plan involved? What’s this and what- there’s a list of several different questions. Then they were kind of thinking about it. It’s like, yeah, yeah. That’s a good point. You come to our office, we have different departments. We have chartered financial analysts. That’s all they do is manage our portfolios. So they look at the portfolios, they make sure it’s rebalanced, tax loss harvest, getting the income out. There’s no way one or 5 people could do it. I mean, we have 52 employees and we’re a small company. And we don’t have millions of clients, but we want to make sure that the wealth is taken care of. And there’s zero commissions. We don’t believe that, here pay me a commission. Let me sell you a product. No, our clients pay us a fee for the services that we provide. And if the services that we provide are not in line or there’s no value there, they would fire us. So that’s just like anything in life. I mean, you get value for what you purchase. If you don’t have value there, well, then you stop purchasing it. But on the commission side, you don’t even know that you’re paying the commission and you don’t even know what the value is. It sounds good on the surface. Hey, how would you like a guaranteed income for the rest of your life? How would you like to never lose money in the stock market and get equity-like returns and all this other BS? There is no free lunch. So the more educated that you are, I’m glad that you’re listening to the radio. I’m glad you’re trying to get educated to figure out exactly what you should be doing with your money. But just, I guess, be careful in a sense where you want to work with a fiduciary 100% of the time where there’s no other licenses. So if they have a broker/dealer affiliation, that means they sell products. So if they’re under FINRA, that means they sell products. So if they’re just a straight fee-only, our boss is our clients. We’re not tied to another company to say, hey, sell this product, sell that product. Hey, we package this, why don’t you distribute it to your clients? No, we have the full universe of everything. We work as a fiduciary to make sure that we go out and find the absolute best, the best for our clients. If we don’t, we’re held liable and we take that very, very seriously.
Al: Joe, it’s very important- I like what you just said about anyone you listen to on the radio or TV or you read an article or you get an advertisement, check them out, check us out, check anybody that you hear out. I was reminded about this on Friday. I went and got a hearing test up in-
Joe: You what? You deaf?
Al: – Encinitas. Well, I can’t hear as well out of my right ear as my left. I already knew that. I got the test. Oh, you can’t hear as well out of your right. Yeah, I know that. Third time in a row.
Joe: What’s that? Pardon?
Al: Anyway. You know what, Joe? So this particular place that I went was in Encinitas, and sure enough, I looked up and it was somebody that you and I met years ago, a dentist. And if you recall, this dentist said to us when we were talking about what he should do, he and his wife should do is, and they were behind, like a lot of people are behind. And he was with- he had his assets with another advisor who was on the radio.
Joe: I know exactly who you’re talking about. That got barred from the industry?
Al: Yes. And so this dentist told us ‘well Joe and Al, you don’t understand. I got to take more risk because I’m behind’. And we cautioned him we don’t think this is the best course of action, but he stuck with it. Anyway, this advisor that was on the radio, in fact, for a while followed us on this same radio station. He is now barred from the FCC and is no longer in business. I don’t know what the losses were, but there were significant losses to those investors and clients. And it just makes me sad and mad that there’s people like that out there. And Joe, I think it’s- you’re right. Most advisors are great, are fine. But, boy, you certainly want to check out who you’re listening to, particularly if you’re getting glossy ads or it’s a free steak dinner or even the people on the radio like-
Joe: – you and I.
Al: – you and I. Check us out. I mean, that’s really, really important.
Joe: Yeah, absolutely. Once you check me out, you’ll probably never listen to me again.
Al: Well, that’s OK, too.
Joe: That’s all right. But no, I’ve been doing this close to 20 years, never ‘knock-on-wood’ a complaint. We try to make sure that we come up with the most advantageous strategies when it comes to taxes, when it comes to mitigating risk, to creating income, mitigating fees and costs, as much as we can. And it’s not, hey, we have this strategy to get you a 10% rate of return with very little risk. That doesn’t exist. It just doesn’t exist. But it sounds good. It sells. And I guess, I don’t know, just be forewarned is, I guess, my only statement there.
Is My Advisor’s Financial Plan For Me Too Set and Forget? (Robert, AL)
Joe: We got Robert from Alabama. He’s writing in. “Currently I have both a rollover IRA and Roth IRA with one of the larger investment firms. I’m 61 but I have no plans to retire in the immediate future” He’s “willing to be more aggressive rather than conservative”. All right I get that. “Yet we agreed to use a retirement age 70 for planning purposes. My adviser has now established an investment plan based upon my hypothetical retirement date and advises against changing anything. This feels very cookie-cutter, akin to set it and forget it. Where’s the planning? Or the adjustments to large market changes? I don’t want to day-trade or play the marke, but should there be a strategy for changing allocations of stocks and bonds or something other than a fixed date in the future?” All right let me see. So Robert from Alabama is going to retire here at age 70 for planning purposes – ten years from now.
Al: He has no current plans to retire but just kind of threw out 70.
Joe: I’m 61, got some cash, wanna retire at 70. And then “my advisers now establish an investment plan based upon this hypothetical retirement date and then advises against changing anything”. So first of all, when did you put the plan together? So is Robert doing this: he meets with his adviser, they say when do you want to retire? I want to retire at age 70. OK. Here’s this, here’s your allocation. Let’s put this in play and then a week later Robert goes, hey why aren’t you changing anything? What the hell are you doing? What am I paying you this money for?
Al: I don’t wanna day trade, but let’s at least trade each week.
Joe: There’s movement in the markets. Let’s move with them. Or was it like 5 years ago. So there are timeframes here. Because of course, you want to adjust it, adapt your plan as you get closer to retirement. Because if I have a 10-year allocation towards my overall goal and then I’m getting now to 3, or 4, or 5 years in those allocations need to change because the demand for the money is going to be needed shorter.
Al: Well I would say potentially. Because what if you don’t even need those assets. So then it doesn’t have to change. Because maybe then it’s a longer-term allocation for your kids or your grandkids. I think the first thing I would say is your retirement date is important in financial planning but it’s not the only thing that you consider. It’s what your need is for the dollars invested. And maybe you’ve got a good pension plan and good social security and you need very little of your assets, which would mean you could go one of two ways. You could go actually pretty aggressive because you’re not going to need to have access so you can sort of ride out the market swings. Or you could go pretty conservative because you don’t need a lot of great returns. It just depends on what your longer-term goals are. Some people if they don’t really need their funds, they want to grow for their kids grandkids and or charity, and some people it’s like you know what I don’t have kids and I don’t really want to take the risk.
Joe: I think Robert needs maybe a little bit more education on what the hell the plan is all about. Because if the advisor’s telling him no, let’s stay the course, that can get frustrating to people when they think that there should be movement. And so what are they doing? How are they managing the overall assets in a sense? Are they rebalancing? Are they tax managing it? What types of trades are they doing? Is the portfolio set up appropriately to begin with? And if you’re asking this kind of seems a little bit cookie-cutter, I don’t know. It might be very elaborate or it could be very cookie-cutter. Could be just kind of an asset allocation that they throw on and you call him and ask him something and oh, who the hell’s Robert? Yeah, just hold the course. Thanks, Robert.
Al: You’re good.
Joe: Yeah you’re good.
Al: So to continue on that theme I would say we have seen decades and decades of research that talked specifically about this. Should you make changes in your portfolio based upon market changes? And the data would suggest that that’s a fool’s game. That if you try to predict the market in the future by getting in and out or by making big allocation changes you end up worse than if you had done nothing. So in some cases holding the course is a better way to go. But I wouldn’t say you want to hold and forget. And I think that’s what a lot of people think. I mean you’ve got to figure out what’s the right allocation for your goals. You want to kind of stick to that regardless of what the market’s doing. But then you want to take advantage of market changes if stocks go down, your bond portfolio has kind of held the course, then you want to use some of that extra bond money to buy into stocks while they’re lower that helps improve your rate of return. Or if stocks have gone down in your non-retirement portfolio you want to tax manage you want to sell those positions buy something similar. So you’re still in the market but now you’ve created a tax loss on your return. So you’re looking at this constantly but you’re not necessarily trading every day. Those that tend to trade all the time tend to not do as well. And that’s not always. That’s not to say you can’t do better. But the data suggests that if you find the right allocation and rebalance and stay the course you do better longer term.
Joe: I think you just need to identify the philosophy of what you want your investment strategy to look like and then adhere to the principles of the philosophy. It’s called an investment policy statement. So where people stray, I don’t care people are active, if you want to actively trade make sure that you have a process in place that you continue to actively trade the same way in any type of market conditions.
Al: Yeah that’s probably a good way to say it.
Joe: Because as soon as markets kind of turn, your gut or emotion comes into play and you’re not following a strict discipline. That’s where people blow themselves up.
Al: Because the emotions take over and then you tend to buy at the wrong times. You buy while the market’s going up-
Joe: You’re not following the discipline that you put into place.
Al: You’re excited, right? And you tend to sell when markets go down – the smart money does just the opposite. They start taking some profits off the table when the market’s zooming up and they buy when it’s down.
Is it Time to Fire My Financial Advisor? (Frank, San Diego)
Joe: Frank writes in from San Diego. “Hi, Joe and Al. I think your show is great”. Thanks, Frank. “I’ve been listening to the podcasts now for a while and have been wanting to send you guys all my questions. I’ll start with this one. Is it time to fire my financial adviser and close my brokerage account?” Oh Boy. Here we go. It’s getting again heavy. “Since August of 2010 I’ve opened a brokerage account with a large institutional bank. I opened the account with about $6000 and after the first year, I began adding $200 a month into the account. It has grown to $29,000 as of today. I know the account is small compared to the rest of the accounts the bank has but I should be treated any differently. I was always skeptical of my advisor’s advice since he would always put me in their own bank’s mutual funds. However, he seemed to be good. Seemed to give me sound advice based on the performance of the account. I would try to check in with him once a year but it was always difficult to schedule an appointment to get 30, 45 minutes of his time. At times it would take multiple phone calls over a span of a few weeks to get ahold of him. I found this to be very unprofessional and frustrating as even though I have a small account I feel that I don’t ask for much of his time. Recently the bank sent me a letter-” a little Dear John letter it sounds like here huh?
Andi: Dear Frank.
Joe: Dear Frank letter. That’s good, Andi. “They are replacing my advisor with a centralized team of investment adviser representatives that are available over the phone. I know my account is small but I think this is unacceptable and makes me upset over the fact that the bank has now given me less than personal services. What do you think? Should I give these telephone guys a chance or should I fire them and close my account? Any suggestions are greatly appreciated”. Thanks again. Frank” from awesome San Diego, California.
Andi: You got one minute.
Joe: I would use the call center. Check them out because you could call all the time. They’ll answer your question. There’ll be more than helpful. I would give them a shot.
Al: So I would fire them.
Al: Because I did a little math. Based upon what you said Frank which as you put it $6000 about 9 years ago. And then he added $200 a month starting at the end of year one. And it came out to about 2.5% rate of return. That’s not very good. I think you need to do a little bit better than that.
Joe: $200 a month.
Andi: Joe’s checking your math.
Al: I just did $6000 upfront and I did $2400 a year for 8 years because that’s roughly the same.
Joe: There’s probably fat commissions if he’s in the old bank’s fund, so I would have to do a little bit more. But I would not be disgruntled of a call center because those people are eager. On $30,000 I think they could probably-
Al: Here’s the advantage in the call centers, you probably get answered.
Joe: You’ll get answered. You’re not going to be playing phone tag with your-
Al: But I don’t like the rate of return.
Joe: Neither do I. Good job Al.
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How Do You Measure CERTIFIED FINANCIAL PLANNER™ Professional Performance? (Pat, Houston, TX)
Joe: I got Pat from Houston, Texas. “Hey, Andi and those two other guys.”
Andi: Thanks, Pat.
Joe: Look at Big Pat.
Al: Yeah. We’re just a couple of guys. I like that.
Joe: That’s all right. I’m going to lose my voice here. “I love to listen to the show and appreciate your humorous and straight-shooting approach. Very informative. A recent question you guys answered reminded me of a question I have asked other CFP®s, but really never got a great answer. The question you answered was from a listener that wanted to know if he should hire a CFP®. I agree that CFP®s have value and I work with one now and plan to continue in the future. My question, how do you measure the performance of CFP®? It does not seem fair to look at portfolio performance alone as a big chunk of what the CFP® does is advising during market downturns. But seems that CFP®s or anyone managing money should be measured by some kind of performance standard against a market benchmark or my thinking about this wrong? FYI, here’s the responses I have obtained-”
Al: Oh, so Pat’s been asking this question a lot.
Joe: So far.
Al: She’s categorizing all the answers even.
Joe: Pat could be a male too.
A: Yeah, it could be.
Joe: Just like Rikki.
Al: I know. I shouldn’t say that. I should say ‘they’, shouldn’t I?
Joe: “Number 1) A list of factors that should not be used to evaluate performance. If I think I’m receiving value-” Yeah, OK, so these are the responses that he’s getting. So he’s asking the CFP®s, he’s like, hey, how do I know if you’re worth a grain of salt? And the responses- is he getting? Is this what he’s doing here?
Al: Yeah, he’s categorizing. He must have- he or she- they, they-
Al: Pat. I’ll just say ‘Pat’. Pat has asked a number of CFP®s I’m guessing, because-
Joe: And then here’s the categories that the responses fall into.
Al: Yeah. Yeah. So we would probably have 10 or 15. So they fall into these 3. So he or she is looking for a better-
Joe: Just call it ‘Pat’.
Al: Pat. I can’t help it.
Joe: So Pat receives an answer. And it’s like a list of factors that should not be used to evaluate performance.
Al: That’s one thing.
Joe: OK, “if I think I’m receiving value.” I wonder, well Pat, do you feel like you’re receiving value? “Or a kind of vague developing a relationship based on trust? Seems like there should be more defined way to evaluate whether or not my CFP®’s performance has declined over time. So it would be interesting on your take what would be a reasonable and objective way to measure performance.”
Al: So what do you think? How would you respond to that?
Joe: That’s a really good question.
Andi: Does it fall into one of those 3 categories?
Joe: No, it doesn’t. Not at all.
Al: It’s kind of like Pat’s trying to do a quantitative analysis on a qualitative factor. How do you like that? Is that clever?
Joe: Yes, I agree with you.
Andi: You’re using big words and Joe actually understands them. That’s pretty good.
Al: It’s like, should I evaluate my spouse? How can I measure the performance over the last 33 years?
Joe: I don’t know.
Al: Let’s see, if I list the factors that I shouldn’t use or I’m receiving value-
Joe: I don’t know. Are you?
Al: I am, by the way.
Joe: So yeah. There you go. I think it- the answers are this, is if you’re hiring an advisor and if all they’re doing is managing your money and if they’re using a globally diversified portfolio, it’s really hard to measure anything else because they’re not really doing a lot for you.
Al: Yes. So that is your measure, in that case.
Joe: Right. Then you would measure that CFP® based on a certain benchmark on performance. So if they’re not doing anything else but managing your money, then for sure measure them on a benchmark. Look at what is a globally diversified? Or is it more domestic? Is it international? Or whatever, and then just gauge it on the benchmark. And if they’re outpacing the benchmark, then keep them. If they’re not outpacing the benchmark, then fire them.
Al: And if that’s all they’re doing for you and you’re the type of person that you don’t really care if the market goes up and down, you’re going to stay put, then maybe there’s not a ton of value for you, because once you’ve got the portfolio, you might just maybe once or twice a year look at the portfolio and rebalance it. But you’d be in a pretty similar situation. But for most people, they freak out when the market is going down or they get too optimistic when the market’s going up and they buy and sell at the wrong times.
Joe: And this whole thing based on trust and all that, that’s just a BS way to avoid the question ‘well do you trust me?’ But the person’s got to be somewhat smart in this industry. They have to understand tax law. They have to understand how to create income. You have to understand rebalancing, tax-loss harvesting, asset location. There are so many different things that they should be doing for you on an ongoing basis. If you call them and they don’t respond within 24 hours, then if you have an issue that they can’t explain to you in a way that you totally understand and feel comfortable with, there are all sorts of ways that you can measure this, but it really depends on what they’re doing. There’s a lot of people out there that call themselves CERTIFIED FINANCIAL PLANNER™s. No offense to any CERTIFIED FINANCIAL PLANNER™ out there, but Al and I have interviewed a lot of them and they don’t really understand financial planning. They were able to take a very difficult test, but they’re not really applying it in their day-to-day or work. It is hard to evaluate.
Al: And I’m going to add this, Joe, so we help a lot of our clients save taxes over their lifetime. But that’s very hard to compute in a percentage. Because it’s like I want you to do a Roth conversion because you’re going to save more taxes in retirement, which is like 18 years from now. So it’s like I want you to pay more taxes this year, more taxes next year. So if you just look at that, it’s like I’m actually going backward now.
Joe: I’m not- I’m losing money.
Al: I’m losing money. But if you look at over a lifetime, and that’s the best way we can think about it, is you run projections over a lifetime and look at how much better you’re in the situation. But it’s hard to put that in terms of a rate of return.
Joe: Another thing too, Al. There are ways that CERTIFIED FINANCIAL PLANNER™s or any advisor could do that going through financial planning software, let’s say. Because we’ll run through ‘what if’ scenarios. Here’s where your current situation is since today and use the same assumption as rate of return, inflation, death, blah, blah, blah. And if you follow our recommendations in regards to this for your cash flow, this for income generation, this for tax strategies and so on, pay off your mortgage, don’t pay off your mortgage, things like that. You can see a drastic change in the overall net worth of the overall client. So that’s probably one way to do it. But it’s hard to gauge that against any other advisor. If I was with a different advisor, would I be in a different situation? Here’s my answer. If you’re not with me, the answer is yes, you would be in a lot worse situation. So, Andi, then throw out our number and ask them to call us.
Al: So here’s another little wrinkle on that. So a lot of times we’ll sit down with an individual or couple and show them that you’ve got plenty to retire, spend more. And so they spend more. So they actually end up in a worse spot, but they had a better quality of life and that’s- how do you measure that?
Joe: I think Pat has an advisor that Pat doesn’t necessarily like. And it’s like, how do I gauge this advisor? There’s got to be a matrix. How do I give this person a grade? Because we’ve been graded our whole life. ‘A’ through ‘F’. I got a ‘C’ on that one, but you know who got an ‘A’? Well, I would rather go with the person that got the ‘A’ than the ‘F’. So I guess we should start-
Al: Maybe you’re on to something. Maybe we should all have 10 advisors. Then we could grade them all ___.
Al: And then after 5 years, we pick the ones that get “A’s.
Joe: I guess it goes back to kind of your question, that’s why I’ve been single forever. It’s like, well, man, well, this one’s nice, but is there something better out there? Is something better out there? I don’t know.
Al: You haven’t figured out how to do that quantitative analysis yet.
Joe: I haven’t found out yet. So that’s why I have got to test it.
Al: Got it.
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