How To Find A New Advisor

August 01, 2018

If after evaluating your financial advisor, you find that you are no longer comfortable working with him or her, then what? I’m convinced that one of the reasons so many people stay with someone they aren’t crazy about is simply because they don’t know what else to do. (kind of like the reason you might put off certain home maintenance needs if you don’t know who to call)

The good news is that there are lots of different options out there. The bad news is that it will take time and some extra energy. However, if we’re talking about preserving your hard-earned savings and possibly your retirement, wouldn’t you say it’s worth it?

Options for finding a new financial advisor

Hire a new financial planner who aligns better with your goals

  • Ask your friends or colleagues for referrals.
  • If you’re looking for a CFP® professional, consult letsmakeaplan.org and search for planners in your area.
  • If you’re looking for someone who may also offer tax services, consider a CPA/PFS, which is a certified public account who has also demonstrated expertise in personal finance.
  • Interview 2 or 3. Don’t be afraid to ask the right questions.
  • Use the questions here as a guide to your interviews.

Do it yourself

Depending on your free time and interest in following the markets, you may find it to be worthwhile to take it on yourself.

  • If you’re a “hands-on” investor who likes to pick your own investments, make trades and re-balance as necessary, there are several online brokerage firms that offer platforms. Most have very low trading costs and little to no incidental fees.
  • If you’re not hands-on, there are still platforms that provide hands-off people with allocated portfolios according to risk tolerance and time horizon. Some of these come with a personal online advisor for an additional cost, so make sure you understand this cost.

Go hybrid with a robo-advisor

While these types of investing platforms haven’t really been tested yet by a bear market, they are increasingly popular with people who want some advice toward how to allocate their funds, but don’t feel like they need customized guidance from an actual human. Make sure you understand the pros and cons. These are a few of the more-established robo platforms out there, although this is not an exhaustive list by any stretch (nor is this a recommendation of a specific platform):

Contact your employer’s financial wellness partner for guidance

Lastly, if you have access to an unbiased financial wellness coach, take advantage by running your ideas past a coach. At Financial Finesse, we don’t make specific recommendations nor do we have any type of ties to any companies that could profit from your choice, but we are always happy to talk employees through their choices and help them to find the best fit for them.

There are lots of different ways out there to manage your money — there isn’t really a right or wrong one, just the one that’s best for your personal situation. Finding that takes time, but it’s worth it.

How To Evaluate Your Financial Advisor

July 24, 2018

There are a lot of advertisements and radio shows by financial advisory firms trying to convince you that their company is the best and the most trustworthy. I recently saw one that compared two advisors: theirs being a trustworthy, honest guy and the other a person who is only interested in charging you commissions and fees.

Ironically, the next day, I was solicited by the former company on LinkedIn and the job didn’t include anything about having the client’s best interest at heart – the only qualifications they were looking for were skills in asset gathering and sales.

I spent almost 18 years as a financial advisor and know a lot of planners that I would trust my mom’s financial future with. Financial planners offer a lot of value to their clients by providing expert advice and peace of mind. But how do you know how to determine the value of the services you are receiving? How do you know if your advisor is doing a good job?

Determining value

Like any service you pay for, you need to know what the total cost is. Some advisors prefer to talk in percentages instead of dollars, say a 1% fee on the assets they are managing for you. This might be a fair rate – 1% doesn’t seem like a lot – but it may not include all the costs involved.

Ask about money management costs and incidental fees, which can bring the total to 2% or higher. If you are transferring a $500,000 IRA account to this advisor, the total cost (at 2%) is $10,000 per year. You’ll want to know this and what you receive in return to determine if the cost is worth the service.

Remember, you’re a team

No one, I repeat no one, can or will have more interest in your financial success than YOU. Your advisor is just that, an advisor on your financial team. Your team can (and often should) include a tax consultant and attorney. You don’t have to know all the ins and outs of investing and tax laws, but you should know what and why you are planning and investing.

A good financial team also provides a system of checks and balances: as an advisor, I often had client’s tax preparers question their investments. This provided them confirmation that they were invested properly or opened up discussions to explain the reasons for certain investments.

What to look for and how to find it with your advisor

Here are some traits of a good planner and questions you might ask at your next check-in:

Trust and transparency

An honest and transparent planner will have no problem disclosing total costs information.

Question to ask: “Can you provide me with a total sum of fees, commissions, expenses and other costs I paid last year and what I can expect to pay this year?”

Red flag: If their answer is vague or they hesitate to answer, it could be a sign that you’re with the wrong advisor.

No conflicts of interest

It is not uncommon for some advisors or insurance agents to have incentives for promoting and selling certain products. That does not mean that these products are not appropriate, but you should know this and ask about alternatives if these products are suggested to you.

Questions to ask: “Do you have quotas? Do you have proprietary products you are required to sell or get paid more for selling? Do I own any of those? What are the alternatives?”

Red flag: If they are unwilling to explain alternatives or when they do, it seems that their product always comes out on top. It’s also a red flag if you only hear from your advisor toward the end of the month or to discuss a “new and exciting” product – that’s a strong indication they’re just trying to meet a quota rather than provide the best solution to you.

Competence (not just credentials)

There are so many credentials an advisor can obtain today (CFP®, AAMS, ChFC, CFA, etc.). While these show that the person has taken the time to study and pass the tests, they don’t necessarily show that they are good at providing you with personalized, expert advice. You are hiring an advisor to fill the gap of knowledge that you don’t have.

Question to ask: “What is your investment philosophy? How are my investments allocated according to this and my goals?”

Red flag: He/she is unable to explain their investment philosophy to you in terms you understand or doesn’t have one. Also watch out for defensive or uncertain behavior when you question the ‘why’ behind certain things – that can be a sign that he/she does not yet have adequate experience to deal with your situation.

Performance

Let’s face it, you are hiring an advisor because you expect them to get better results than you would on your own. One way an advisor can show value is by delivering “alpha” – the excess return of an investment relative to the return of a benchmark index. This outperformance is often a way to justify the fees being charged.

Question to ask: “How are WE going to measure the performance of my portfolio?”

Red flag: Any promises of consistent market outperformance – this is the goal, but no one can promise this. If your advisor ever uses the word “guarantee,” unless he or she is referring to an insurance product, that could be a sign of fraud. Finally, keep in mind that it’s unfair to compare the performance of your account to anything other than the benchmark that you and your advisor set. You actually SHOULD have different performance than someone who is significantly younger, older or in a different life situation than you.

All advisors should be investing according to your personal risk tolerance, so if you tell your advisor that you are uncomfortable with risk and yet you’re being pressured to allocate more toward riskier investments, that’s a red flag too. (as long as your performance expectations are also aligned with the level of risk you are willing to tolerate)

Candor

When I was a brand new advisor, I didn’t have the confidence or experience to tell my clients what they really needed to hear. I was afraid they would leave me. Everyone has to hear bad news once in a while, whether it’s a poor investment choice, market correction or a warning that you are spending too much money. A good advisor discloses underperformance and challenges you when you are getting off track in your planning.

Question to ask: “When I am going off track of my goals or my investments aren’t performing as planned, how are WE going to address it?”

Red flag: If your advisor does not return calls during turbulent markets or avoids discussing anything negative.

Services offered

Does your advisor offer other services besides money management? Holistic financial planning, which looks at all areas of your financial picture (and not just investments) can be a way that a good planner delivers value. On the other hand, if they are also performing a variety of disjointed services that you don’t need, they may be too distracted to provide you with the service you expect.

Question to ask: “What services besides money management do you offer to your clients? How often will we be reviewing my plan?”

Red flag: If you’re looking for someone who will be incorporating your goals, tax situation and other circumstances into their services, but he/she only wants to discuss investing and market performance, you may not be working with a holistic planner. On the other hand, if you’re strictly looking for investment advice, but your advisor is repeatedly pushing insurance or other products, that can be another red flag.

Many people start off working with their advisor due to the recommendation of a friend or family member, but it’s not unusual to outgrow each other. Your advisor may be perfectly great at what they do, but not great for you. By asking these questions, then following up to make sure that the answers fit with what YOU need, you can help to ensure you’re getting the most value for the fees you’re paying.

How One Financial Decision Changed Everything For This 35-Year Old Single Mom

June 06, 2018

As a financial wellness coach, I have the unique opportunity to dive deep into the finances of many different types of people with many different situations. Most financial advisors don’t have this perspective because they only work with “qualified prospects,” people with enough investable assets for them to manage. Because of our business model, we are able to deliver guidance to employees on every aspect of their finances from crisis situations to wealth building.

I want to share a recent client story about re-thinking your assumptions about the best way to handle what may appear to be a “little thing” that turns out to be a really big thing.

Borrowing from retirement to buy a car – good idea or bad?

A recent coaching relationship, Susan, originally contacted me because she was looking to take a loan from her 401(k) account to purchase a new car. Susan (35) works for a large corporation and earns around $80,000 annually plus bonuses. She is a divorced single mom with an 11 year-old daughter.

She was planning to buy a new brand Buick Enclave, which is a very nice SUV that would provide reliable, safe transportation for her and her daughter. It can carry up to 7 people, ideal for soccer carpool duty. Sticker price after trade-in: $40,000.

Susan’s plan was to take the $40,000 as a loan from her 401(k) because she would get a low interest rate, pay herself back the interest instead of to a bank, and have cash to buy the car, which would enable her to negotiate with the dealer for a better price. She had calculated the loan payment of $375 per paycheck (Susan is paid bi-weekly) for 5 years. On the surface, that sounds like a good plan. But I wanted her to dig a little deeper.

What’s your 5 year plan?

I asked Susan if we could take a step back for a minute to discuss her other financial goals and she agreed. Here’s how our conversation went:

Me: “What does your ideal financial situation look like in 5 years?”

Susan: “I haven’t really thought about it.”

Me: “Let’s break it down to make it more tangible and talk about some other common goals:

  • How much would you like to have in an account in case an emergency comes up?
  • Would you like to be debt-free besides your mortgage?
  • Do you want to put some money away for your daughter’s education?
  • You should have a plan to be on track for retirement some day.
  • How about travel or vacations?”

Setting 5 year goals

After discussing further, Susan decided to put her 5 year goals down on paper:

Me – “How does the car fit into this plan? Can you afford to be your ideal 40 year-old Susan if you buy this car?”

That got her thinking.

Financial psychology side note

As humans, we are constantly making intertemporal choices (inter – between, temporal – time periods), basically deciding to act on impulses (instant pleasure) or for the future (delayed gratification). The brain is an amazing organ. It has the ability to learn and remember, but that can work both ways. The more we make impulse decisions, the more inclined we might be to act on impulses in the future. The more we stop and think about how decisions impact our future, the stronger this part of brain gets.

The more we make impulse decisions, the more inclined we might be to act on impulses in the future. The more we stop and think about how decisions impact our future, the stronger this part of brain gets.

Why visualizing your future makes a difference in today’s choices

If we can’t visualize what we want the future to look like, we don’t have the context for what we could be giving up in the future. Susan’s car decision was impulsive — she was thinking about how it would make her feel good in the present but she wasn’t considering how it would impact her future. After understanding what she would have to give up (retirement preparedness, her daughter’s college plans, the trips she loves), her impulse turned into a thoughtful decision.

What she decided to do

So, what did Susan decide to do? After researching Consumer Reports and other publications, she purchased a 3 year-old Honda CRV for a little under $18,000. She gave up the dream car with room for the entire soccer team, but her new car rated better in safety ratings with less than half the payment.

She weighed the financing options with facts. The dealer offered her a better rate than her local bank with the option to make extra payments. Because her 401(k) loan did not allow this pre-payment option, she decided to use the dealer financing.

Now, she is able to fund her other goals. With the remaining $380 she would have paid every month, she did the following:

  • Opened an emergency fund and set up a $150 auto-deposit per month
  • Opened a separate vacation fund at the same online bank with another $150 going in each month
  • Opened up a College Savings account for her daughter with a monthly contribution of $50
  • Signed up to increase her 401(k) contributions every year by 1% to get her on track for retirement

It’s amazing how one seemingly small choice to drive a different car can make such a huge difference, but it did. What are you giving up in your future with the choices you’re making today?

The Science Behind Spending Habits & How To Break Them

November 07, 2017

I crave ice cream before bedtime. I know the high, empty calories are not good for me, but it’s still like a WWE fight in my brain every night – the good guy (don’t eat it) is on his back while the bad guy (go for it) has him in a figure 4 toe hold trying to convince him to surrender. The good guy is throwing counters at him – “this stuff is going to make you fat!” “you’re going to regret it tomorrow!” — while the bad guy keeps the pressure on – “you deserve it!” “it will make you sleep better!” Sometimes the good guy wins, but most nights I eat the ice cream and regret it in the morning.

What’s happening in your brain when you make a decision

What’s going on in my mind is called an intertemporal choice or decision. This part of our brain weighs the immediate versus delayed gratification, or how current decisions affect future opportunities. Marketers use our intertemporal utility function against us when they advertise. Being aware of what’s going on during this decision process can help us make better decisions, especially financially.

Here’s another example:

The case of the shopaholic

My daughter is a self-admitted shopaholic. I bet she has over 100 pairs of shoes. (don’t worry, she knows I’m writing this) She and I discussed what goes on in her mind when she makes the decision to purchase yet another pair.

What’s going on in her mind

She tells me that she sees herself wearing them with a particular outfit and getting compliments on how she looks. She has created an image around her shoes where her peers identify her as the “shoe princess.” When I asked her how she feels later about owning so many pairs, she says she has mixed emotions – she loves her title of the Shoe Girl, but she laments the amount of money she has wasted.

Conflicting priorities

At 23, she is starting to think about bigger financial decisions like getting her own apartment and purchasing a new car. With these new obligations, it will be very difficult to keep her title.

How she got to this point

The problem is that she has actually created a habit out of shopping, the same way other people pick up habits like smoking, checking their phone, or eating ice cream. Her brain has built in a craving for the next purchase. If she continues to let this habit control part of her financial life, she will struggle to accomplish her long-term goals.

Reversing the habit

So, what actions can she take to curb this craving and reverse the habit? The first thing she can do is recognize it as a habit. The awareness that her current behavior has negative consequences on her future is a good place to start. And understanding that seemingly small amounts of money spent or saved today, can have big impacts in the future.

Here are some concrete things you can do when facing an intertemporal choice around spending:

  • Create a budget line item for purchases. Some people go as far as opening a separate checking account and giving themselves an allowance every paycheck they can spend on discretionary items. If they have their eye on an expensive item, they wait until their allowance accumulates.
  • Have someone to run your purchases by. If you have a spouse, parent or friend whose opinion would be helpful in analyzing a purchase, make it a rule to call them before you pull the trigger.
  • Set some rules for yourself. Set a dollar amount for purchases that need to have a 24-hour waiting period before you can buy it. Many times, a day removed can make the impulse less favorable.

It’s working!

I have already seen progress in my daughter’s positive financial habits — these days she calls me when she wants to make a large purchase and plans out every paycheck. Now I need to take my own advice and start changing my own habits, like cutting out the bedtime ice cream snacks.

BTW – This blog is really about whiskey, not ice cream.

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How To Enjoy Your Money Today Without Sacrificing Your Financial Future

October 27, 2017

I have a confession: I am having a legitimate mid-life crisis. See, I recently turned 50 and as I approached this milestone age, I did the math and figured out that I basically only have 10 more summers to do the things I want to do while I still can. It’s not that I don’t think I’ll still be around at 60, but the reality is that I might not be able to physically do what I can today — my dad retired at 65 and died from pancreatic cancer less than a year later, so I’m seriously feeling the squeeze of my mortality.

I have had the opportunity to enjoy some great adventures, but my bucket list isn’t complete. Time is ticking and I’m getting busy on that bucket list.

Making trade-offs

Much of financial planning focuses on the distant future. And while it is necessary to plan for those long-term goals, I talk to people every day who are just as much, if not more, concerned about the near-term, just like I’m thinking more seriously about the next 10 summers.

Adventures and travel take time and money, neither of which I have a lot of by any means. Plus, I have other goals that I would like to accomplish, like retiring comfortably in my mid-60’s for instance. To do it all, there are trade-offs I must make – most of us do. If we spend all our pennies today, we won’t have any for the future.

Balancing the long term against the short term

In order to check as many things off my list over the next 10 summers without compromising my longer-term goal of retiring comfortably, I have basically two choices:

  1. I can increase my income (maybe take a bar-tending job a couple nights a week) or
  2. Decrease my expenses.

Because I value my evenings and weekends, I’ve decided to cut back on discretionary spending. My wife and I figured out the limit we wanted to set on things like groceries, dining out, gas and shopping so that we could direct the rest toward travel throughout our 50’s.

How we are limiting our spending

To stick to our limit, we set up a separate checking account with a debit card (our only one) and fund it with a defined amount each paycheck. I don’t have the patience or desire to constantly edit an online app to track each category. In fact, I don’t care which category it goes to, but when it’s gone – it’s gone, and we have to live the rest of the pay period without.

It happens almost every time, sometimes our balance gets down to less than $5, but that’s by design. It wasn’t easy at first but now that we are used to it, we feel less stress about our finances. At the end of the day, we are able to check the bucket list while addressing our other financial goals such as staying on track to retire when we’re ready.