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Met With A Financial Planner

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So my friend Perry met with a financial planner named Andrew, as a favor because Andrew was his father’s friend’s son I think, and sold me out to him when the planner asked for some names of his friends who were interested (don’t worry, when it was my turn I didn’t give out any names). Anyway, I met with this financial planner (really, he was like a trainee or something, I met with this other guy Brian) the other day in a Baja Fresh and we got to talking about what it was he could do for me. He wasn’t an independent, he was part of some larger company that I hadn’t heard of until that day, and so he gave me his usual financial planner talk and we got to discussing my particular financial situation and what he could do for me.

Our talk first began with a look at my retirement assets and his eyes basically bugged out of his head when I told him how much I had saved in my 401K and Roth’s (A mixture of fortuitous emerging market fund performances, diligent saving, and starting a Roth [thanks Dad] when Ito meet face to was in college resulted in a larger than average for my demographic amount in my retirement savings, heavy emphasis on emerging market fund performances) and he told me I was probably doing okay and didn’t need much help there. I’m not anecdotally telling you this because I want you all to think I’m this wonderful retirement planner and I’m super responsible and awesome, I was just surprised that the guy didn’t have much to offer short of “save for retirement” and “save for retirement, here are a few funds you might want.” (none of which were offered by his firm, they were American Century funds) You would think that a financial planner would have something else to tell you outside what mainstream media already tells you, but I suppose a person telling you is better than a newspaper article.

The second part revolved around insurance policies, he told me that getting disability insurance was crucial because you never know what’s going to happen. He did offer one good nugget of information, that you should get your disability insurance from someone other than your employer in the event that you leave your job because then you won’t have to change insurers. I listened attentively but, like all brash twenty somethings, I pretty much dismissed the idea of disability insurance or life insurance because I didn’t see it as really necessary for someone as young as me. Is it foolish? Perhaps. Is it irresponsible? I don’t believe so.

So, that was my first experience meeting with a financial planner who didn’t even buy me lunch and it’s probably the last time I’ll meet with a financial planner unless something drastic happens.

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25 Responses to “Met With A Financial Planner”

  1. Dukes County says:

    Twenty years ago I was urged to see a CFP about investing a chunk of retirement rollover. I went to a guy who was a professor at a large university…the guru of their CFP curriculum. He had a plush office…did the interview thing….generated a slick report with my name embossed on the cover. I threw in with him, and he got me into a bunch of junk (mostly limited partnerships which were attractive at the time.) I didn;t lose much money before I jumped out of his boat and sought the wisdom of a highly reputable brokerage house. More bad advice. This time I was sucked into annuities – within an IRA.
    Having lost more money, I started directing my IRA. I worked hard at learning the ropes, and I have done very well with common stocks.
    Since then, I have negative views on CFP’s and all the other three-letter experts. As I used to hear sailors say, “If you’re so smart, why ain’t you rich?”

  2. Him says:

    Interesting what you say about disability insurance. I think that at at your age (and mine, since I think we’re around the same age) disability insurance is more important than life insurance. Sure if you get hit by a bus and don’t make it you don’t really have anything left behind to take care of (unless you would like your fiancee to be a little more comfortable). But if you get hit by a bus and live, but have a disability that prevents your from working, how are you going to pay for stuff?

    My employer goes through a company that allows us to take our plan with us if we leave, solving the problem of having to find a new company.

  3. Tinyhands says:

    The story you describe is exactly why I’m NOT a financial planner, and believe me when I say that I’ve done my homework on the profession. Many of them spend 80 hours a week on the phone “prospecting” and maybe another 10 hours a week meeting with people. Many of them are only licensed to sell insurance products and that’s the only way they make money. Many financial planners have no financial education other than their corporate training program. I met one financial planner who used to be a high-school gym coach and another who used to be a chemist.

    (Note: I intentionally used the word ‘many’ — not all FPs are alike. It was my first-hand experience that led me to write the above. Don’t get me wrong, some people need insurance and some people need to be insurance salesmen, but it ain’t for me.)

    Maybe Andrew didn’t buy you lunch because he knew it was a negative investment for him.

  4. Tinyhands says:

    Oh yeah, I could also point out one financial planner I met with who was proud of the fact that he barely finished high-school himself and now has two homes, boats, cars, etc all from “financial planning” and signing up others to work as FPs under him… but I won’t mention it because it might give you a bad impression of him. :)

  5. Moneymonk says:

    Wow, I met with the same guy, LOL but his name was not Andrew. Same story and same delivery. Retirements and disability insurance.

    At the end he wanted $600 for his services to get started, when I declined – he then asked for 5 names and numbers to my closest friends.
    Im like huh? …..

    No sir you are not going to sucker them. I love my friends.

  6. jim says:

    The guy never really got into numbers because he probably sensed my lack of interest but he did want 5 names and I told him that I wasn’t going to give out the contact information of my friends without their consent, I’ll just have them contact the FP if they wanted to.

    I don’t think financial planners are inherently bad, I just though that in this particular case the offering was a lot thinner than I expected and was surprised this is such big business. That’s not to say that I think I’m hot shit, it’s just that all his advice is freely available on CNN Money or Yahoo Finance.

  7. Dustin says:

    I recently pulled my one out of my account at a PF firm. They were too hands on. In fact I had to call them (not always getting through) just to trade. I opened an online account, and now I don’t even have to talk to people. I also don’t have to pay somebody else to invest my money poorly.

  8. Debt Hater says:

    These guys don’t sound like real financial planners. But different firms (Citigroup for one) have these “pf” operations that are basically uncertified guys trying to drum up business for them. I’ve been stopped in supermarkets by these guys handing out their blue cards with the red umbrella. But I could tell they knew NOTHING about financial planning. If you ever decided you need a planner I’d start with http://www.cfp.net

  9. I think that FP really have a benefit towards some people, perhaps a majority of people. However, they probably don’t have a lot of benefit to people like you and I. I think his disability insurance is a good idea and I’ve been meaning to get some, but I’ve always been too Lazy. I don’t have life insurance because I have no dependants and my assets can more than pay off my funeral expenses. My fiancee actually makes more money than me, so she’d be financially fine in the case of my death.

  10. I have met with a few financial planners. If they want to go through the trouble to talk to me I’ll be willing to listen to their pitch for an hour or so. As with you most of them often are flabbergasted by how much I know and how well I’ve prepared my financial situation (again I’m not a genius I just read fool, yahoo, and blueprint).

    That being said no matter how much more I may know than the actual financial professional I usually end up taking at least one nugget of information away from the conversation and no matter how confident you feel of your financial prow less, it never hurts to sit down and explain your situation to someone else and get feedback. Probably main reason why I blog.

    Anyway disability insurance is usually very inexpensive (I believe I was paying like $8 /month at previous employer and now my new employer picks up the tab). Also seeing as how you are getting married and maybe/possibly starting a family down the road it wouldn’t hurt to get a chunk of term life insurance (also should be pretty cheap at your age). Only reason I say so is that you are young and hopefully healthy so you should be able to lock in at some really good rates. You never know what the future may hold and God forbid you get some kind of health complication and become uninsurable and/or disabled you’ll probably wished you spent a couple $$ a month to lock in that piece of mind for your family.

  11. MossySF says:

    Not totally unexpected. The FP field — like everything else — mirrors the real world. 90% of the people you run into are average by definition and hence won’t have much to offer anybody who is proactive about their personal finances and investing. Are there some services a top-tier FP could provide that I would have trouble with? I can think of the following:

    Detailed portfolio analysis and simulations. I could easily write such programs myself but I don’t have access to the historic data necessary to run simulations. Sure you can get simple DJIA or S&P500 data but to run all the possible permutations by detailed asset classes require shelling out money to get the data.

    Farther into the future when my portfolio gets totally chaotic, yearly adjustments to keep my asset allocation on track in the most tax efficient manner. This year, I spent at least 50 hours looking at all the numbers. While it may get simpler the next few years now that I’ve built a bunch of spreadsheets and my own web-based portfolio tracking tool, it may get more complicated again as my portfolio continues to grow — not just in amount by in number of accounts.

    And access to DFA funds. If I’m going to pay a CFP to manage my money, they’d better have access to the top mutual fund companies.

  12. Shadox says:

    A couple of comments:

    (1) Not all FP are bad and not all are hacks. One in particular went with me to business school and offers me a lot of great advice. I don’t invest my money with his firm because of the high costs and my personal belief in indexing, but none the less, I can see why some people would find the service useful.

    (2) If you don’t have any kids or other dependants, life insurance is a waste of money. For the very same reason though, disability insurance is crucial. Who will take care of you if some bad happens and you cannot support yourself? In any case, disability is a bigger risk for young folks, hence the cost of disability insurance is typically substantially higher than the cost of life insurance.

  13. plonkee says:

    I’m with Him on the disability insurance. Unless of course you don’t need to work to live, your most important asset (in terms of requiring protection) is your ability to earn money. If you lost that you’d be in a pickle to put it mildly.

    Life assurance necessity depends on who would need your income after you’re dead and other than paying for a funeral certainly that won’t include you and so may include no one (this applies to me).

    Disability insurance necessity depends on who would need your earned income after you’ve become disabled and will almost always include at least you.

  14. rcd says:

    OK just chiming in here as someone in the “Biz’

    While as a 20-something you may see yourself as not needing insurance, by purchasing a plan now, any plan you will save yourself money over the long run because you are healthy. If you purchase insurance now it will be easier to have insurance later in life because you may not have to prove insurability later in life when your health may not be as good as it is now. Insurance is a tricky thing, because no-one wants to think they may need it, however when you do need it, the insurance companies won’t insure you, IE: after you are diabled or when you are dying. Insurance is a required pain-in-the-”A” of life because when you does come down to actually using the plan, you know you had a bad day.

    The younger you are, the better your rates will be, an if you go with a good company your rates can be guaranteed never to increase for your entire life. Plus there are ways to use insurance to help fund or leverage retirement, find a good agent and discuss your options.

    As far as mutual funds, most firms are able to offer you any of the 8000 Mutual funds out there, while thier own firm may have 10-30 different funds, I commend the guy for not offering a fund manage by his own firm, He probably did his homework regarding your situation and offered a fund that best met your financial goals, risk tolerence, and hopefully offered one with minimal expenses and tax liabilites. If a CFA offered me only funds managed by his firm I would be a little hesitant what his motivations are regarding Comission structures, nomally comissions are better if you offer a fund managed by your firm, because the firm does not have to pay out-of-pocket expense loads.

    And one last thing on the insurance…look into Long Term Care, if not for you than perhaps your parents, structured care can cost up to $1,000 a day, the exorbitant costs of daily health care can put a tremendous strain on families. We all work hard saving for retirement, youre lucky to have started early. It would be shameful if a bad day or someone else’s negligence destroyed all that you had worked for.

    may you have continued good health…rcd

  15. Phil says:

    As a Gen-Xer, here’s my take on situations like yours/(ours):

    1. Life insurance — and, specifically, term, not whole — is good in cases where one is married (I am) and/or has kid(s) (I have 1). The question to answer here is, “Who else am I providing for?”

    2. Disability insurance — I see this purely as a way for an investment house to make money. While it is true that it’s probably smarter to get this type of insurance from a third party and not one’s employer, having recently interviewed with dozens of employers, every one of them had some form of disability. Key question: “What are my chances of getting hurt to the point that I can’t work for X period of time, in light of being a knowledge worker?”

    3. Certified Financial Planners — These people are nothing more than folks who have access to the same financial publications everyone else does and they took the time for someone to say, “I certify that you have read X, Y, and Z publications.” If you don’t know how to budget your income or know what a mutual fund or exchange-traded fund is, consult with them or with Yahoo! finance; Yahoo! finance will probably be cheaper. If your liquid net worth is north of $500k — and preferably $1 million — they’re probably worth the time. Key question: “Do I have enough in liquid assets to where I need to open a ‘private account’ at a brokerage house?”

    The financial marketplace is so egalitarian that it really doesn’t make a whole lot of sense to pay someone to look at the Internet for you. Granted, there are some folks who have absolutely no clue about money; CFPs are great for them.

    -Phil

  16. Matt says:

    I don’t have a financial planner at the moment and I probably won’t for a while. Realistically financial planners like every other profession contains people good at what they do and those that well should be doing something else. I think it’s a challenge finding a good one, but if you do it’s worth your while. Kind of like finding a really good real estate agent; they work with you and for you and not just for their commission.

  17. RootAnn says:

    There are other things to consider with disability insurance through your employer – like how much (% of income) does it cover if you are disabled? When does it kick in (days/weeks/months after the disability)? When does it stop (when medicare kicks in, for example)? Will the money be pre-tax or post-tax?

    On the CFP topic, my husband came home with a story about a CFP-led seminar sponsored by his employer. Among other topics covered in the first of two sessions was umbrella insurance and what to do with your minimum required distribution (RMD). From what my husband heard, he was pro-umbrella (which most people don’t need until their net worth goes over a certain amount) and told the people to take your RMD and invest it in an annuity. (!!)

    I hope if I need a CFP someday, I will find a good one. . . . somewhere.

  18. dong says:

    While I’d agree with the life insurance bit, I think disability is exactly what a young gen x knowledge worker shoudl be getting. Disability insurance is insurance to protect yourself. When you’re young, and at a desk job it’s relatively cheap as well. It’s insurance you appreciate when you have it and need it. Also the benefit of going outside of work to get it beyond just losing your job and not being covered is that you’ll pay with after tax dollars instead of before tax dollars (in the case of most employer sponsored plans) which means your benefits are not taxed. And don’t discount your chances of needing disability just because you have a desk job, and getting it earlier. I wish I had gotten it a few years ealier before I had pinched nerve in my back – no my insurance won’t cover that preexisitng condition. Back problems, carpal tunnel etc strike desk workers. Also mental issues such as depression etc are under the umbrella…

  19. Good feedback from the guy. I have disability insurance through my employer but now you scared me into nagging my husband into making him get disability insurance. He just quit his job recently (late last year) to do a startup and really needs to beef up on insurance now!

    I’m also wondering what caused the financial planner’s eyes to bug out. ;)

  20. JimmyInGreatLakes says:

    I’m good with disability insurance from my employer and would worry about it only if and when I would change jobs. I (well, my family) would also get about $140,000 life insurance from my employer; that’s the only policy I have. On the surface (and according to the “formulas”) that sounds like outrageously low protection for my family (wife and kids 17, 15, and 11), however, my family would also qualify for about $3,000/month in SS benefits (would go down as each kid became “independent”) and an immediate life pension (getting rare these days) for my wife of about $1,900/month (and health benefits). With less than $50,000 left on our mortgage, I figure we are set pretty well if I kick over. My retirement assets aren’t too bad either as another future stream of income for my wife. I suppose the experts would still try to convince me to have more life insurance but I like to do things my way and think we are set.

    As for financial planners, I really like doing it myself and have been semi-succesful so far. Certainly not perfect but see no reason to pay anyone to do what I feel I can do on my own. I would like to retire in 8-10 years (I’m 45) and do a little financial consulting myself (all because I enjoy doing it). If all goes as planned, I would be in NO need of extra income so any consulting I would do would be low-fee and no pressure, hopefully just friends of friends of friends and word-of-mouth. Strictly review of financial situation and straight forward advice on their investment mix and strategy. Probably most advice would be steering them to invest themselves in low-fee funds such as Vanguard.

  21. Salmon says:

    Re: disability. My sister-in-law’s husband’s father is a dentist, who recently cut his hand deeply, such that he can’t do much real work for months. It was with a wood chipper, if I recall–so it could have turned out much worse! How easy would it be to do “knowledge work” without one arm or hand?

    Re: FPs. If your FP even mentions whole life insurance as an investment, I’d cut and run quick. I met with a FP once who only seemed to be interested in selling various forms of insurance. Also not what I’d recommend. Check selectquote et al, read up on finances, and forget the FP.

  22. Duane says:

    A good planner will take into account you life ambitions and help you to see if your rate of savings and asset allocation is well matched to your goals. For most people who don’t frequent personal finance web sites this stuff is boring and distracting, but we all sense its importance. The planner fills a service to coach a person into following a plan. Such a service may not be of much use to the diligent.

    That said, when you deal with financial advisors (fee based advisers who tend to work with clients with over 1 million in assets) the relationship is quite different. Your advisory relationship connects you into a network of other high net worth individuals and business opportunities.

  23. Christopher Clepp says:

    On the topic of disability coverage, very few agents or fps sell this because of the great deal of moving parts that they are as clueless about as people not in the industry. Also for all of those who depend on work coverage and believe your employer paying for it is a good thing you might want to rethink that. While there are some exceptions here are some of pitfalls.

    1) Salary is the only part covered.l Bonus and commissions are not included.
    2) Max coverage is 60% up to 5k a month which means if your salary is 100k+ you are getting 0 coverage after 5000
    3) If your company pays for it the benefits are taxable but if you pay they are tax free.
    4) They usually provide a max of 24 months but 12 month is not uncommon for their
    “own occupation” coverage and there is usually 6-12 months of residual disability.

    Lets take 1.)a sales guy who is 75 base and another 40 in bonus & Commission adn pays his own di 2.) A regional manager who makes 130k with the company paying and 3) A line foreman making 84k that can go back to work on limited schedule on a desk job, which he never wanted to do, making 50k

    The sales guy went from grossing 115k a year to a monthly take home of 3750 if he pays for di. His take home is now 39% of gross
    The regional receives goes from almost 11k per month gross down to 3900 take home assuming a 22% tax rate his take home is 36% of gross
    The line foreman goes from from 7k/month gross to 4200k after 12 months doing a job he does not like

    3 everyday situations that a good di professional could have helped avoid and those who say my work di at work is good enough probably didn’t review because they were so sure of themselves

  24. Andrea says:

    Phil,

    As another Gen-Xer who has been in the financial services industry for 15 years and with all due respect, I have a couple of issues with your comments.

    1. Life insurance – Term insurance has a place for some people, but so does whole life insurance. You imply that term is the only way to go and that is irresponsible. There are no bad products, just inappropriate recommendations.

    2. Disability insrance – You see it as a way for investment houses to make money, I see it as a way to prevent the loss of investment. The chances of you becoming disabled at your age (generally speaking, X-er) are greater than your chances of being killed. How long could you pay your bills without having to dig into your retirement funds? Why not protect those funds?

    3. CFP’s – These people are not folks with magazine subscriptions. That statement does not even make sense, so I assume you have no idea what the requirements are to become a CFP. You suggest using the internet to research investment options, I would suggest you do the same to research the process for becoming a Certified Financial Planner.

    Everyone should take a certain amount of responsibility for understanding basic financial matters, but it’s wise (and not a sign of weakness) to seek some professional feedback and advice as well. The only foolish action to take would be to blindly hand over your money to the first planner you talk to. There should be an interview process, just like if you were looking for any other professional to do work for you – a contractor, an attorney, a real estate agent, etc.

  25. FH says:

    This is really refreshing. What an array of opinions.

    Well, here is mine.

    1. Life Insurance.

    Everyone needs it (they just don’t know it yet).

    Like with any other kind of insurance, life insurance is a protection of a value that already exists. Ask yourselves how much are you really worth?

    In a common sense – we are all worth beyond imagination. Simply because when a human dies, a whole universe of creativity, ideas, warmth, love, emotions and any number of other things that he or she brings into the lives of other human beings goes away.

    In pure economic sense, we all have a dollar value. How much money can each of us earn during the life time? A lot! Literally millions of dollars. Therefore, having a million or two on your life would never hurt anyone.

    It is not about who depends on you now, it is about who will ever depend on you. Children, siblings, parents, charities… you name it. So my question is, why not secure it now when you are young and it costs less than what you paying for your auto and home coverage?

    However, keep in mind that eventually you will need a serious insurance. Whole life is absolutely the best I know (thanks to one smart man that helped me to get educated). You may want to crusify me, but I repeat, WHOLE LIFE IS THE BEST!

    “Buy Term and Invest” is one of the most misleading myths ever. DO NOT listen to Primerica Life Insurance Company agents, Suze Orman or others (there are armies of them out there). They all have opinions, what they will not give you is facts. Why? Honestly, I don’t know. Maybe they need to get more or better education on the subject.

    2. Disability.

    Yes, and yes. Good thing to have, smart thing to have. Your employer plan may only be a part of the answer.

    Read the fine print.

    a. Who is paying? If it is covered 100% by your employer you maybe screwed later when – God forbid – you need a benefit. Here is why. Typical employer paid plan will cover you for 50 or 60% or your income. Not bad to start with. However, if they pay the entire premium, the benefit is taxable. Now, take sixty percent of your paycheck multiply by .75 (if you are in 25% tax bracket) all of a sudden if is about 45% of your pre tax income. Still enough to live on?

    b. What is covered? Base salary only? What about the bonus? What is the cap?

    c. How long do you have to wait? 60 days, 90 days or 180 days?

    d. Is it portable? If your employer pays for all of it, then most likely it is not.

    Be aware of what you have. That is the key.

    As to the rest of your comments… yes there are CFPs who are punks, and there are good guys out there. If you sit down with someone and they start with the insurance review, then – like it or not – this guy might be one of the better ones. Protection always comes first. It does you no good to stash away few thousand bucks, then become disabled and really have no serious income to live on… Oops! You are in trouble now.

    Don’t mean to scare you, but I know someone who actually had that happen to them. Thirty six year olds have heart attacks too…

    Thank you everyone. Enjoyed everyones opinions, even wrong ones.

    Sincerely,

    FH


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