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Interview with a Financial Advisor – JLP

Today I have the distinct honor of posting an email interview I had with JLP of AllThingsFinancial [3]. I befriended JLP through the course of writing this blog and I’m thoroughly impressed with his extension knowledge of all things financial, which is why I approached him. He was kind enough to agree to answer all my questions and I’ve printed them in their entirety without any alterations whatsoever. And if you haven’t been to AllThingsFinancial, I suggest you stop on over and read his daily postings because they’re extremely informative.

jim: Would you give us a little information about your background and what qualifies you to be a financial advisor?
JLP: I graduated from college with a finance degree in 1996. I worked a year at PaineWebber (now UBS), found out that I didn’t like the traditional brokerage side of the business. Left there and went to work with my father-in-law in his insurance business. I actually left the financial planning aspect of the business to take on a totally different job working with auto dealerships. That didn’t work out and I came back to the planning business about two years later.

Starting in about 2001 I started rethinking the planning business and what it meant. I didn’t like the traditional commission-based sales method. I thought it was misleading to clients. I started reading about fee-only financial planning and decided that was the way I wanted to go. I set up my own practice about a year ago and things are starting to look good.

I’m currently enrolled in the CFP program and hope to be a CFP next year.

jim: What does a financial advisor do?
JLP: That depends. There’s different ways of working with people. Some people like to do everything themselves and just want a second opinion. A planner can take their information and tell them whether or not they are on the right track. That’s why I like the fee-only platform because the planner gets paid to tell the client what’s BEST for THEM. There’s not a lot of commission-based advisors who would advise a person who just wants a second opinion.

There are people who just don’t like to do stuff on their own but they know they need to do something. They can go to a planner for a complete financial plan and then return to that planner every year or so to get a “checkup.”

Then there are people who may just want help with one aspect of their financial lives. Perhaps it is college planning for their kids or greandkids. A planner can just take that one aspect and help the client understand what needs to be done. This is called modular planning.

jim: Why would the average working adult need a financial advisor?
JLP: Not everybody needs a planner. But, most people probably need a planner for some area of their lives. A good planner can keep people from making serious mistakes with their money and may also help them overcome preconcieved ideas about money. There are lots of people out there in their 30s with all their 401(k) money in bonds.

jim: What three books related to personal finance would you recommend every person read and why?
1. The Road to Wealth by Suze Orman [4]. I’m not a big Suze fan, but this is a good book with lots of questions and answers about various financial topics.
2, 3. Stocks for the Long Run [5] and The Future for Investors [6] by Jeremy Siegel. These two books will give a person a firm foundation in how the stock market works.

jim: What should I look for in a financial advisor?
JLP: Are you comfortable with them? Do you think they are shooting straight with you? They should be able to tell you without wincing how much they will make from your business. What’s their educational background? Things like that.

jim: How much should a financial advisor cost and what should I get out of it?
JLP: Some planners charge by the hour ($120 – $250). Some planners charge by the plan ($1,600 – $10,000 for really big cases). Some planners get a commission off what you end up buying from them.

Hourly planners can probably split work up for you so that you don’t have to pay for a lot of time right off the bat. In other words, if you have 5 action items that need attention, a planner should be able to prioritize them for you and help you knock them out one-by-one.

jim: I want to give you $100,000 and have you manage it, what would you recommend… if I was 25? 45? 65?
JLP: The answers depend on your tolerance for risk. If you are 25 and have a very low tolerance for risk, I would try to educate you as to what risk really is. If you are 25 and have a low tolerance for risk, which keeps you from investing in the stock market, then there’s a good chance you won’t meet your long-term goals.

In general, the younger you are, the more you should have invested in stocks. So, generally speaking, I would advise a 25 year old to be 100% in stocks. The volatility of stocks makes dollar-cost averaging work beautifully. A 45 year old would probably want to ease up on the stocks just a bit. Maybe consider a 80-20 split between stocks and bonds. A 65 year old still needs stocks, but I would pare it back to say 60-40 or even 50-50, depending on their needs.

jim: What is the one financial mistake nearly everyone makes?
JLP: They don’t save enough money.

jim: What is one misconception about financial advisors you would want to refute?
JLP: That they are all the same. There are lots and lots of differences between the different types of planners.

jim: What would you recommend someone who has no personal finance “headaches” and is looking to increase their wealth? (They fully fund their Roth IRA, they contribute to a 401k, all their portfolio’s are diversified, they have zero revolving credit card debt, they have an emergency fund in an ING Direct account, and own their home outright)
JLP: I would recommend they focus on the big picture. Make sure they have their assets properly titled, make sure they have enough insurance, make sure they have a good asset allocation plan, and then tell them to continue onward!

jim: Can you do my taxes? 🙂
JLP: NO, but I know someone who can!

jim: Thanks JLP!
JLP: You’re most welcome, jim!

If you have any questions you’d like to ask, you can visit AllThingsFinancial [7] and leave him a comment, or you can leave one here and I can pass it on to him (or he may read it and answer it here). I hope you’ve found this interview as informative as I did!

Clarification: I, and I assume JLP did as well, used the terms financial advisor and financial planner interchangeably.