My Experience with a Certified Financial PlannerRecently, I decided that I wanted a second opinion on my game plan.  Although I’m pretty confident on how to make things work, I decided that this is important enough to warrant bringing in someone else to look everything over and give some unbiased input.  So I recently hired a certified financial planner.

I thought this would be a great opportunity to take you through the process from start to finish to give you a better idea if this is something that you might want to pursue for yourself.

 

What is a Certified Financial Planner (CFP)?

Anyone can say that they’re a financial planner or financial advisor.  There’s not really a lot of governance on this term.  However, to become a Certified Financial Planner (CFP), you must be recognized by the Certified Financial Planner Board of Standards, Inc.  This involves fulfilling a lot of requirements on continued education as well as passing a rigorous exam.

They are also expected to follow a code of ethics and have a fiduciary responsibility to their customers.  In other words, Certified Financial Planners are expected to do what’s in their client’s best interest and not their own.  That fiduciary duty should be the biggest thing you look for when dealing with anyone in the financial realm.  Otherwise, they can sell you investments that they say are good for you even if they’re actually only pushing them on you because they make more money off of that particular investment.

As a side note, that above paragraph is how you would expect your fiduciary to act in a perfect world.  However, just because they say they have a fiduciary responsibility toward you doesn’t mean that you’re guaranteed that’s the case.

There’s a certain level of trust implied, but you still need to take some responsibility in understanding your choices and making the actual decisions with your investments.

 

How and why I chose my CFP

Because there are actually standards in place, I wanted to ensure that I went with a CFP instead of just a Google search for a financial advisor.  I started with a search on The National Association of Personal Financial Advisors (NAPFA) website.  This gave me a list of a few CFPs in my area and I actually dug into each profile for each one to try to determine (or guess!) who might be a good fit for me.  Since there weren’t a ton of results for my area, this wasn’t too difficult.

There was one guy who looked to have a lot of good credentials, but he just seemed too stuffy for me.  I wanted to make sure that the guy (or gal!) that I worked with was easy to talk to and matched my charming personality!

I found one whose bio said that he wasn’t the typical suit-and-tie kind-of-guy and was very outdoorsy.  He looked about my age and was actually wearing a hoodie in his picture.  I was intrigued because I can’t stand that people feel the need to wear a suit to be able to do their job.  So I called him and had a good 45-minute phone call, I decided this was the guy for the job.

Now, in all actuality, I should have called everyone in the list and interviewed each of them… I didn’t.  The CFP I talked to was easy to converse with and we seemed to be on the same page right off the bat.  So I chose him and now I can tell you that I’m glad I did.  He was in tune with my goals and asked all the right questions.

Speaking of goals, here were my goals that I had with this go-around:

  • Am I correct in my thinking that I can comfortably quit my job in just under 9 years?
  • Are there things I could be doing to set myself up for a cleaner position once I quit (e.g. for tax purposes)?
  • Are there any other suggestions or recommendations you might have?

 

CalculatorCost

The cost of a CFP can vary greatly depending on your needs.  Not only because prices can vary, but you also need to find someone who gets paid in a way that works for you.  Their pay can be commission-based, fee-based, or fee-only.

Commission based means they get a commission off of what they sell you – that’s likely not going to be in your best interest and probably something you’re not going to find if you have a good fiduciary Certified Financial Planner.

Fee-based and fee-only are generally the choices in the CFP world.  Fee-based CFPs usually get paid a percentage of your investments they manage.  Obviously, the better your investments do, the more they get paid, so it’s in their best interest to make sure your portfolio does well.

The third option, fee-only, is exactly that – the CFP gets paid a flat rate to perform the work specified for you.  This can end up being a larger amount than fee-based in the short-term, but it’s done and over with for each session and you can budget for the specific amount it will cost you with each visit.

If you need some ongoing guidance, fee-based might be a good option for you.  Because I already have a very specific plan in place and was just looking for a review and a second opinion on if my plan will work, I went with a fee-only agreement.

We were able to settle on a price of $1,000.  This was a little bit unusual as he has a typical format he usually follows with his clients, but we set this based on the goals I presented and the process that I wanted to follow.

 

The Process

Intro call

We scheduled a time for the intro meeting.  We decided to do this as a phone call as my wife and I had time off together already and would be heading home from an overnight casino stay from a couple of hours away… how’s that for financial irony? 🙂

During our hour-long intro call, we talked about our goals.  And not just our financial goals, but are life goals.  He asked us questions about us individually and as a family, what our plans are for the future, where we planned to live, what kind of financial support we had in mind for our daughter (e.g. college), and a slew of other stuff.

It was an informative call and I felt good about how it went.  When we hung up, Mrs. R2R also said that this made her feel better as well.  She relies a lot on me to make the financial goals and hasn’t ever felt a need to question much of it, but talking to a financial planner was reassuring.

Even just in this intro call, he actually brought up one valuable piece of information that might be worthwhile…

Does my long-term disability cover X% of my entire salary or just my base pay?  And would I be taxed on the income?

After checking into it later, it turns out that my disability coverage only covers a total of $36,000 max for the year and at only 60%.  On top of that, I would be taxed on the money.  Ouch!  This is something I need to dig into a little more and consider extra coverage.

MeetingThe first meeting

A little over a week later, our financial planner came to our house for a meeting.  We went through every detail about our accounts – bank accounts, mortgages, yearly expenses, rental properties, retirement goals, etc.

This, of course, was the most boring part of the process, but it needed to be done.  The meeting was close to an hour and a half.

The good thing is that we had a couple of beers throughout the process – it’s a little more laid back in the R2R household than it might be in a stuffy office somewhere!

The second meeting and results

A couple of weeks after our first meeting, we met at my house again.  In the time between the meetings was where the pressure was on our CFP to do all the work.  When he got to our house, he brought us a couple six packs (I knew I liked this guy!).  We discussed the results of my game plan and some recommendations he had.  Here’s some bullet points on the scoop:

  • My plan has a 100% chance of success rate if left as is… woo-hoo!  This was the biggest reason for bringing in the planner in the first place.  He ran the Monte Carlo simulations to determine if the plan would work even in the worst case scenarios like if the market crashed right as I’m ready to retire.
  • Then we looked at some different scenarios such as if we added more rental properties, changed our investments, or a bunch of other possibilities.  We re-ran the simulations on these as well.
  • He then gave us some recommendations.  Most of what we have planned was on track with his thoughts.  A few of the changes he recommended included:
    • Don’t pay extra on our mortgage and instead put more toward liquid cash.  This was something I talked about in my post Do I Cut Back on My Roth to Reach FI Sooner?.  Since our plan is to do a Roth IRA Conversion Ladder once I quit my 9-5, the first 5 years will require us to live off our savings, rental income, and the money currently in our Roth IRA.  We won’t be able to touch any of the income in my 401(k) for five years.  I agree with this sentiment (and the many of you who commented on this as well) and have already made the change.
    • Change our investments in our Roth IRAs.  Our Roth accounts are a mess – particularly mine.  Ok, maybe not a mess, but definitely a mish-mosh.  Before I knew better, I used to just buy stocks that I thought would do well.  I actually have a few great picks in there – I bought Amazon at $67 for example.  However, those kind of picks are useless if the company falters.  His recommendation was to move everything over to low-cost index funds such as the ones Vanguard runs.  I’m probably going to do that, but I might hang onto a couple of my individual stocks just because I still believe in the companies and it gives me a little bit of fun as well.
    • Raise the rents!  I’ve been pretty lax on raising the rent on my first rental house since I’ve been able to keep the same tenants for over 7 years now.  Sure, I’ve raised it a little bit, but not much.  There are a couple of sides of thinking on whether or not this is a good idea, such as the idea that it’s better to have a tenant paying a little less than having no tenant at all.  However, our CFP’s plans go under the assumption that we continue to raise rents 2% every year on our current properties as well as on future properties.  In other words, it’s time for me to start making more money on the rentals!
  • He provided us with some ideas regarding future taxes, health insurance, our daughter’s college education, etc.  Most of these things are subject to change based on the laws constantly changing, but there were still some good ideas.  For example, we had planned on the possibility of Mrs. R2R switching her position to volunteer work once I quit and started the Roth IRA Conversion just to keep us in a low tax bracket.  My wife though is part-time at a non-profit and doesn’t make a ton of dough.  His suggestion was that she could just continue with what she’s doing and throw everything into her 401(k)… that’s genius!

 

NoteA Final Note

As a side note, if you’re interested in meeting with a financial planner, be aware that I found out from a co-worker (on the day of my final CFP meeting, of course) that I could have gotten a similar service from my 401(k) provider… for free.

Now, they wouldn’t have provided everything that I got for my money, but they would have taken in all my accounts and provided some recommendations.

I don’t know if this is a common service, but I’ve had a 401(k) plan with them for over 15 years and never knew this.  Might be worth looking into seeing if they offer this with your plan if you have one.

 

Working with a financial planner is sometimes a sticky subject.  Some people might argue that if you know enough about finances, you don’t need to waste your money on a financial planner.  However, I tend to somewhat disagree.  When you stare at your numbers every day – tracking every detail and trying to figure out every tweak that can be done to optimize your plan – you can sometimes lose track of the big picture.

A financial planner can help you see some other possible options that exist that you might not have known about.  I probably won’t follow every recommendation that was provided, but I agreed with most of them and it was great to have a second opinion.  It also gives me a better sense of confidence going forward.

Although I won’t be utilizing the services of my financial planner on a regular basis, I do plan to come back to him every few years (at least until retirement) just to help ensure that I’m not missing anything.

Have you used a financial planner before?  If so, what was your experience like?  If not, is that anything on your radar to do?

Thanks for reading!!

— Jim

Enjoying what you're reading?  Subscribe via email!

You can unsubscribe at any time and your email address will NEVER be shared.

My Experience with a Certified Financial Planner

20 thoughts on “My Experience with a Certified Financial Planner

  • September 6, 2016 at 8:18 am
    Permalink

    That’s great, thanks for sharing your experience! And awesome to know you are sitting well. I’ve thought about doing something like this as well, not super excited about that price figure though!

    Reply
    • September 6, 2016 at 9:25 am
      Permalink

      Yeah, the $1k is a good chunk of change for sure, but it was actually a little less than I was expecting based on what I was reading out there when I first started digging into it. I was actually expecting to hear around $1,200-$1,500 so maybe if I think that I got a deal it will help take the sting out a little bit! 🙂

      — Jim

      Reply
  • September 6, 2016 at 11:09 am
    Permalink

    I think the key point here is that you won’t be using his services on a ‘regular basis’.

    Sure, it’s good to have a second opinion, but once you have a plan in place it shouldn’t need adjusting.

    Mostly I think of CFP’s as an additional ‘fee’ that tacks onto all investments.

    Reply
    • September 6, 2016 at 4:25 pm
      Permalink

      It can definitely add up and that’s why I didn’t want this to be a regular event. However, I’m really starting to struggle with being at the office lately and needed the reassurance that I can get out, so this was worth the cost to me.

      — Jim

      Reply
  • September 6, 2016 at 1:19 pm
    Permalink

    Always a good thing to cross-check on a DIY plan for FIRE with an objective third party expert. We have a financial planner that we’ve used for more than 10 years. We’re charged a % fee on assets, but his firm only holds a fraction of our total assets. Each year, I compare the value of the advice we get from him with the cost. So far, he has been able to regularly counsel us in ways that yield a positive cost/benefit analysis (even though I’ve been reading/studying personal finance for more than 30 years!)

    Reply
    • September 6, 2016 at 4:29 pm
      Permalink

      That’s good to hear that you’ve had someone that’s done well for you for 10 years. Smart move evaluating the cost against the value you’re getting – sounds like it’s been worthwhile!

      I’m somewhat confident in a lot of the financial planning, but sometimes I question myself so this was really helpful.

      — Jim

      Reply
  • September 6, 2016 at 5:56 pm
    Permalink

    Yes, if your employer provides a CFP for the employer’s 401(k) plan, you can definitely utilize that person at no cost to you.

    Reply
    • September 6, 2016 at 6:19 pm
      Permalink

      Nice – thanks for the info, TJ! That could definitely be helpful for others out there.

      — Jim

      Reply
  • September 8, 2016 at 5:30 am
    Permalink

    Curious as to why you are contributing to a Roth in lieu of standard IRA? I’d imagine you are at a 25% or more tax bracket. Why not take the reduction in taxable income & tax free growth savings now and just pay taxes & the 10% penalty on an as needed basis in retirement. I’m assuming in retirement you would fall into the 15% tax bracket + the 10% penalty so a worst case scenario is you would be taxed at 25% again except you enjoyed a few years of the tax free growth.

    Reply
    • September 8, 2016 at 8:37 am
      Permalink

      Great question! I agree with you on the standard IRA for tax savings, but now it’s becoming a non-issue because I’m actually planning on not adding much to the IRA (Roth or traditional). I’ve had the Roth for a number of years before I really knew too much of what I was doing. I kind of used it more as a playground for stock picking. Obviously not a good idea, but basically what I was talking about was shifting my existing equities into index funds.

      As far as future investments go, I’m actually going to shift contributions from my Roth to focus more on liquidity even if it’s just building up my online savings up more because those first 5 years of during the Roth IRA Conversion Ladder are going to be tight for us.

      — Jim

      Reply
    • September 9, 2016 at 4:09 pm
      Permalink

      Thanks, Laura! It’ll always be a work-in-progress as things will always be changing, but it definitely gave me some reassurance for the time being.

      — Jim

      Reply
  • September 10, 2016 at 7:12 pm
    Permalink

    This is such a great post. I’ve had some experience with financial planners (although in Australia) and they really are a mixed bag. I think you hit the nail on the head early – it’s incredibly important to find someone that you are a) comfortable with and b) is happy to work on your goals. I’ve found a lot of financial planners are more interested in having you conform to what they think you should do, rather than acting as a trusted advisor. Sounds like you got a good one!

    I know it can be nice to have a second opinion sometimes. And to have someone independent validate your strategy is great! But for people at the start of their journey, I would always suggest educating yourself first rather than relying on a financial planner. The cost of educating yourself early on in your financial journey pays off in spades over time.

    Reply
    • September 11, 2016 at 2:30 pm
      Permalink

      Thanks so much! I so agree with educating yourself, especially in the beginning. Even when you do use a financial planner, it’s good to understand what they’re talking about and being able to call them out if you sense they’re not looking out for your best interests.

      — Jim

      Reply
  • October 12, 2017 at 8:32 pm
    Permalink

    Looks like I’m a little late to this party. I love this post though. The standard advice is that a Financial Advisor is a waste of money and I tend to agree. However, if you are paying a reasonable one time fixed fee for a second opinion I think there is a good chance you can get an acceptable ROI on it. One good tip can easily return 10x that $1K fee.

    Reply
    • October 14, 2017 at 11:23 am
      Permalink

      Thanks, Jason – definitely true about getting a good tip or advice. The return can make a tremendous difference that makes your cost pale in comparison.

      — Jim

      Reply
  • January 2, 2018 at 1:43 pm
    Permalink

    Thanks for that article. This was very informative. I like the idea of using a CFP as a doublecheck on your current plan.

    Reply
    • January 2, 2018 at 7:14 pm
      Permalink

      Thanks, Nick – definitely was worthwhile, but it also depends where you are in your FI journey. I think the further along you are, the more useful it can be for some reassurance or ideas.

      — Jim

      Reply
  • January 29, 2018 at 6:40 am
    Permalink

    From the early education I have done, it seems like the important ingredient to overall success is making sure the assets allocation and overall portfolio planning is crucial, so I tend to think as much as it’s valuable to do a periodical check, the beginning is even more important.

    Now, something I’m not sure about it if I would be able to rebalance on my own and not make the most common decision of selling when it’s low and buying when it’s high. And if it’s work to pay a % or flat monthly fee to get CFP to manage/look after your assets. After all, the rebalancing should not happen much more often than 2-3 times a year in normal circumstances (no major volatility) – so assuming I simply would trust CFP and stick to his/her advice, what extra value can they bring if the planning (including tax optimization) is an initial effort?

    Thoughts?

    Reply
    • January 29, 2018 at 11:04 am
      Permalink

      If you’re selling or buying just to try to time the market, that’s when you can run into problems. However, rebalancing your portfolio is a whole different ball game and something I’m seeing a lot of analysts recommending. That can help you sell more of the investments at a high price and buy other investments at a lower price to get you back to your desired asset allocation. Jim Collins talks about that in this post as part of his Stock Series.

      You shouldn’t have to pay someone for that unless you aren’t sure what you want your allocation to be in the first place. You can use services like Personal Capital for free to help evaluate all your accounts all at once to easily see where you’re currently weighted.

      — Jim

      Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.