Author Topic: Any Mustachian Financial Advisors?  (Read 9124 times)

StubbledCPA

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Any Mustachian Financial Advisors?
« on: January 05, 2015, 07:10:21 PM »
As I'm pretty new to these here parts and I didn't see any threads about this in a quick search, do we actually have any forum members that are themselves financial advisors?

My basis for this question comes from my own personal interests at the moment.  I'm a currently practicing CPA with a focus in tax preparation and tax planning and am working on obtaining my CFP.  The reason I'm looking at pursuing a bit of business in the financial planning arena is because I enjoy working with my clients and trying to help them reach their financial goals.  The firm I work for uses an Assets Under Management (AUM) business model, where we charge about 1-1.5% of the client's investment assets.  The primary value proposition, as I see it, is to help them avoid the "big mistake" aka panicing and selling everything and going into cash because they let fear take over.  This more poses the role as a behavioral counselor instead of a stock picker (bad business idea).  The actually asset allocation side is pretty easy stuff to handle if you understand your client's goals.

The one thing that I'm finding slightly more difficult to rationalize at this point is that if you're really trying to cut your client's costs down to save more, you eventually get to where your own fee starts to become a hinderance (unless they are prone to panic / stupid decisions).  I'd also really enjoy working with smaller clients, those trying to fix some of their financial problems or new couples starting out, which my firm wouldn't take on due to very limited investment assets.  We'd end up having to start charging hourly, instead of the AUM model above.

I was really wondering if there are any other people that currently are in the financial advising world and might help share some information to 1) help me get into this new field and 2) try and help me balance my desire to help people of all age and financial spectrums.

innerscorecard

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Re: Any Mustachian Financial Advisors?
« Reply #1 on: January 05, 2015, 09:03:25 PM »
I think Joshua Sheats at Radical Personal Finance probably has a lot of good and interesting things to say about this. He was a practicing financial adviser before quitting his practice to be a full-time podcaster.

goodrookie

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Re: Any Mustachian Financial Advisors?
« Reply #2 on: January 05, 2015, 09:23:12 PM »
Simple answer if you have a low risk tolerance: Buy SPY, sell really OTM call option every 3 months

innerscorecard

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Re: Any Mustachian Financial Advisors?
« Reply #3 on: January 05, 2015, 10:57:52 PM »
Simple answer if you have a low risk tolerance: Buy SPY, sell really OTM call option every 3 months

I really don't think this or any other similar hedged strategies are a good option at all for most individuals.

MustachianMD

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Re: Any Mustachian Financial Advisors?
« Reply #4 on: January 06, 2015, 12:47:43 AM »
Great question, I don't know of any specific Mustachian Financial Advisors. I would imagine the following criteria:

1. Set Fee to develop a financial plan
2. Would give instructions for you, a Mustachian to implement.
3. Any panic/desire to sell emotionally would be treated with a face punch.

MrsOz

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Re: Any Mustachian Financial Advisors?
« Reply #5 on: January 06, 2015, 01:32:36 AM »
Yes. I am a CFP and have been in the industry for about 15 years.  Maybe I'm unclear on your questions but it sounds like you want to know how you/your firm can get paid to work with people that have a small asset base and do it without fees being prohibitive to the intended client.  Is that right?   

If you like your current firm, think creatively about how you can do more work you want and build business too.  Regardless of whether you start charging hourly, most businesses are not after smaller clients.  Unless you can demonstrate a compelling reason to work with people that have little or no assets, I doubt your firm will be any different.  Are the people you want to help potential tax clients too?  Can you systematize to the point that it's cost effective?  Can you find a way to do pro bono work you enjoy that allows you to network with the firm's traditional target market at the same time? (e.g. Classes, joint public lectures, etc.)  Can you develop a program to work with younger relatives of the firm's top clients?

These are just a few ideas off the top of my head.  I'm sure you can come up with more.

Doubleh

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Re: Any Mustachian Financial Advisors?
« Reply #6 on: January 06, 2015, 06:57:52 AM »
I'm keen to see what responses you get, and where you get to with this plan as my own tentative post FIRE plan is along similar lines, ie to qualify as CPA (currently living in UK and hold an equivalent local qualification, eligible for green card via US wife) and work seasonally doing taxes to top up our income.

I see the same issue as you, namely that the financial advice industry does not seem to be well aligned with the interests of investors. Of the services that I've seen they seem to range from the "charge 1.5-2% of assets and invest your money in underperforming high cost active funds" at the worst, to "explain why most people are better off with cheap trackers and invest your funds in cheap trackers, but then charge you 1% of assets to hold your hand" at best. In spite of all this most regular people I speak to, ie not on this board or bogleheads, really do seem to feel the need to have someone to hold their hand.

My thinking with this is, as ScooterKC says the actual input they need in a given year is likely pretty low and limited to initial setup and preventing them from doing anything stupid. Your challenge is that in a charge for time model your fees are very visible where as costs taken front their portfolio are out of sight, out of mind. The idea of combining this with a tax practice seems like it would be beneficial as you have already established a relationship of trust, and already established the mental concept of them paying you for your time.

If you can target high net worth clients and charge them a fee which is way below the percentage they are currently paying a traditional advisor you may be able to get a decent income, but fundamentally the problem seems to me that the conventional industry overcharges for a service that, if you charged more fairly probably wouldn't actually be all that lucrative.

The answer to me seems to be to get to a fire position where you are no longer reliant on taking money from your clients to pay your bills, thereby removing the conflict of interest which is otherwise inherent in the industry. You could focus on less profitable but more satisfying cases, like getting to new graduates early on and helping them into the path to FIRE, and view it as satisfying work that makes the world a better place, while the income you do generate is a nice addition rather than a key driver.

Interested to hear any responses or rebuttals to this idea

Indexer

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Re: Any Mustachian Financial Advisors?
« Reply #7 on: January 06, 2015, 07:34:17 AM »
If you want to have a traditional tax preparation business and add financial planning/investment help for a flat fee that is less than what they would pay in 1.5% of AUM I can see that working, but you will probably still be targeting the higher AUM clients.

A few big firms have tried to roll out fee for service or fee for time planning to target lower asset clients.  To my knowledge basically all of them have failed except for the small online only programs like Betterment. 

Most 25 year olds with 20k are perfectly fine with turbotax, a low cost target date fund, and a conversation about how market volatility is actually a good thing early on because you can buy low and see more long term growth.  Their situations aren't really complex enough to warrant a lot more, they aren't thinking about it that much so they are hard to target, and they probably don't have extra money lying around to pay your flat fee.

I'm going to side with MrsOz.  Its going to be hard to build a successful business with low asset clients.   Keep your day job or something similar, and then teach free classes or create educational pieces targeted for client's children/grand children.  Someone just starting off is going to get a lot more from the education on how to avoid huge mistakes anyway.

BadStache

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Re: Any Mustachian Financial Advisors?
« Reply #8 on: January 06, 2015, 07:42:55 AM »
I primarily do retirement planning with a CRPC, but am working toward my CFP and should get that in November.  I've often pondered this same question.  I'm with Mrs. Oz on this one. 

I read an article yesterday that the younger generation (myself included) doesn't trust the financial industry and representatives.  There is apparently a movement for independent advisors to charge a low monthly fee (with no contract) for financial planning assistance and service.  Interesting idea really.


StubbledCPA

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Re: Any Mustachian Financial Advisors?
« Reply #9 on: January 06, 2015, 11:26:20 AM »
Yes. I am a CFP and have been in the industry for about 15 years.  Maybe I'm unclear on your questions but it sounds like you want to know how you/your firm can get paid to work with people that have a small asset base and do it without fees being prohibitive to the intended client.  Is that right?   

That is indeed essentially my question.  A lot of our tax work is primarily with business client or people with a higher net worth.  This has tended to exclude a lot of my generation (I'm 27) from being really being in our scope of service even though I feel that 1) in the long-run, getting them the information now is highly beneficial 2) these people that are probably W-2 earners now may become decision-makers or business owners in the future or 3) would be beneficial to start building the relationships with them to where they have complex questions, I can be the person they trust to reach out to for advice.

Normally, our financial planning business has been based on pulling clients from our tax clients.  I think that for the younger generation that have simpler returns right now (honestly not worth paying our fee), the model would flip to being financial consulting work to then tax client.  Have you have any experience with this over your 15 years in the industry?

I do like the idea of creating a program for some of our best clients' children which could also benefit our client retention, bringing in younger clients, and possibly boosting our business valuation / succession planning services.

As for other comments about the AUM model, a lot of firms do seem to really focus on performance chasing (market timing, hedge funds, blah blah blah) but I am at least lucky in that my company really does a great job of focusing on our clients' goals and trying to come up with low-cost, reasonable investments that work towards their situation instead of trying to keep up with the Joneses.  I definitely want to be able to spread knowledge around to help people get ahead, even if it's just some financial counseling or budgeting work (everyone has to start somewhere).  I'll just need to keep working hard towards my FIRE date so I can really get to do this without worrying about money for myself and my, hopefully eventual, wife and kids :)  Thank you all for your comments

kendallf

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Re: Any Mustachian Financial Advisors?
« Reply #10 on: January 06, 2015, 12:49:25 PM »
My wife is a CFP and works for one of the big investment firms.  I wouldn't call her super "mustachian", but among the financial train wrecks who are her fellow employees, she's doing pretty well.  :-) 

Seriously, a large number of analysts/CFPs are salespeople who now sell financial instruments instead of cars.  They are firmly hooked into the consumer treadmill and are saving minimal amounts personally.  In many cases, I think their financial knowledge worsens their situations because they feel like experts and tinker too much, try to market time, buy ridiculous speculative funds, etc.

As a "mustachian" CFP, I think you might try combining FFS counseling with an entrepreneurial bent and do this on the side (if your current company will allow it). 

Slight tangent: I see all of the news articles on the ridiculous payday loan fees and wonder if you could start a financial counseling service where these outfits would refer repeat customers to you for counseling.  The loan people get a PR tool to show they're not heartless dicks, they believe most of the customers will return anyway (and they'd probably be right), you get to try to prove them wrong and help people out.  Win-win.  Too much like bargaining with the devil?  Maybe.  :-)

dungoofed

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Re: Any Mustachian Financial Advisors?
« Reply #11 on: January 06, 2015, 07:33:28 PM »
I read an article yesterday that the younger generation (myself included) doesn't trust the financial industry and representatives.  There is apparently a movement for independent advisors to charge a low monthly fee (with no contract) for financial planning assistance and service.  Interesting idea really.

That sounds like SaaS, except you replace the computers with humans. Life imitating art imitating life....

MrsOz

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Re: Any Mustachian Financial Advisors?
« Reply #12 on: January 07, 2015, 01:26:06 AM »
@StubbledCPA I don't offer tax prep services so I can't speak to the viability of moving investment clients to tax clients. It seems like it would make sense. YMMV but I would anticipate a limited appetite for pay-by-the-hour investment advice in the 20-something age group.  Most have generic needs and lack a compelling sense of urgency.  What they want/need early on is someone like you who will set them on the right path and help them build strong investing habits.  Accountability is a huge factor in this and you can't get it from a one-time meeting or an online allocation tool.  If you do good work and treat people well, you will foster long-term relationships with a high trust factor.

It sounds like you're waffling about whether to use your skill set for career growth or for purely altruistic endeavors.  I'd plan on doing both.  Most good advisors I know have altruistic tendencies and are active in charitable causes they believe in.

And I'd caution you about assuming people in your age group don't have money.  Many are beginning to increase their incomes substantially and some will be starting to get traction in their own enterprises.  At that point the pressure to piss away money becomes very strong without long term goals in place. You may just need to expand your network to find more of them.

former player

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Re: Any Mustachian Financial Advisors?
« Reply #13 on: January 07, 2015, 01:43:56 AM »
There have been a lot of posts on the forum about the bad/non-existent financial advice given to employees of large firms, military and government organisations.  If you could set up a program of offering free financial planning seminars to new arrivals at those organisations you would be disseminating good advice and getting your name out there as someone for those people to contact for advice either now or in the future (hand out cards to everyone present).  It's a bit of a long-term strategy, but it gets your name and your ideas out there and could pay dividends in the future.

dungoofed

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Re: Any Mustachian Financial Advisors?
« Reply #14 on: January 08, 2015, 03:26:14 PM »
There have been a lot of posts on the forum about the bad/non-existent financial advice given to employees of large firms, military and government organisations. 

I concur. Seems like organisations put to tender their company's retirement options and HR just chooses the cheapest and most hassle-free option with the quote-unquote most options available for the employees. I think if HR realised the importance of the decision they were making, how the fee structure and unnecessary options (life insurance as a default option for a 21yo?) of the default plans offered was going to retard growth and therefore affect the livelihood of all the people within the organisation then they might take a bit more time to put together something more tailored.

EDSMedS

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Re: Any Mustachian Financial Advisors?
« Reply #15 on: January 08, 2015, 03:35:08 PM »
I work in accounting, am one of the "young persons" that doesn't trust Financial Advisors, and am interested in new models of FA!

Looking at new passive asset management sites like Betterment (which holds ~20% of my wealth), I am hard pressed to generate a REASON for switching to something like Personal Capital, which still relies on the opinions of individuals as to when to buy/sell/rebalance.  I understand that Betterment works on a code, and a code is written by individuals, but for some reason I trust an algorithm over some lady trying to pay for her upcoming vacation.

BarkyardBQ

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Re: Any Mustachian Financial Advisors?
« Reply #16 on: January 08, 2015, 05:47:11 PM »
I work in accounting, am one of the "young persons" that doesn't trust Financial Advisors, and am interested in new models of FA!

Looking at new passive asset management sites like Betterment (which holds ~20% of my wealth), I am hard pressed to generate a REASON for switching to something like Personal Capital, which still relies on the opinions of individuals as to when to buy/sell/rebalance.  I understand that Betterment works on a code, and a code is written by individuals, but for some reason I trust an algorithm over some lady trying to pay for her upcoming vacation.

Except you pay Betterment for it's code, while Personal Capital is free (if you don't use it's Advisors and there opinions). Personal Capital shows you your balances, asset allocations, expense ratios of all your accounts, and weighs that against cash, loans, assets and spending for a whole financial picture (net worth). I rebalance manually, at no additional cost.

StubbledCPA

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Re: Any Mustachian Financial Advisors?
« Reply #17 on: January 08, 2015, 06:25:08 PM »
I work in accounting, am one of the "young persons" that doesn't trust Financial Advisors, and am interested in new models of FA!

My response would be that there is always judgement involved in most any financial process.  I haven't spent too much time looking into Betterment, but I would say that if you leave the option for an undisciplined or unskilled investor to sell out of funds at any time, then you are giving an opportunity for them to make the "Big Mistake."



Too many people give into fear when it comes to their investments which leads their "investor return" to come nowhere near their "investment return" even when they primarily invest in index funds.  I would assume though, that most the people here on the forum have a better understanding of how to stay invested and only rebalance versus giving into fear and making downward volatility into a real loss. 



I personally lean towards recommending low-cost index funds, especially as these are what I personally choose to invest in.  I have no interest in recommending any investment to a possible client unless it really does match up with their long-term goals. 

randommadness

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Re: Any Mustachian Financial Advisors?
« Reply #18 on: January 08, 2015, 07:01:32 PM »
The one thing that I'm finding slightly more difficult to rationalize at this point is that if you're really trying to cut your client's costs down to save more, you eventually get to where your own fee starts to become a hinderance (unless they are prone to panic / stupid decisions).  I'd also really enjoy working with smaller clients, those trying to fix some of their financial problems or new couples starting out, which my firm wouldn't take on due to very limited investment assets.  We'd end up having to start charging hourly, instead of the AUM model above.

I was really wondering if there are any other people that currently are in the financial advising world and might help share some information to 1) help me get into this new field and 2) try and help me balance my desire to help people of all age and financial spectrums.

And this is why I realized midway through college financial advising wasn't going to be for me haha. Free advice to all!

dungoofed

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Re: Any Mustachian Financial Advisors?
« Reply #19 on: January 08, 2015, 08:08:05 PM »
The only way I can see this business model working is something like this:

"Pay me xxx now and I'll be your financial adviser for LIFE"

You guys all get the joke - there is a bit of effort at the beginning, but then very little for the remainder, if any. The only problem is that these people are the least likely to have the money initially to pay you. So you'd need a contract or credit card payment from them.

Unfortunately this is already borderline scummy. I see the need for financial advisers as per StubbledCPA's pics but the moment you charge you're in conflict with mustachian principles.

randommadness

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Re: Any Mustachian Financial Advisors?
« Reply #20 on: January 08, 2015, 08:21:36 PM »
unnecessary options (life insurance as a default option for a 21yo?)

People are always flabbergasted I don't take part in the life insurance... for who?? lol

StubbledCPA

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Re: Any Mustachian Financial Advisors?
« Reply #21 on: January 08, 2015, 08:30:30 PM »
I see the need for financial advisers as per StubbledCPA's pics but the moment you charge you're in conflict with mustachian principles.

^True story.  One would think that the financial advisory business would cease to exist if everyone was mustachian.  (Could be fun playing the "What jobs would no longer exist if the world were mustachian" game, lol)

EDSMedS

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Re: Any Mustachian Financial Advisors?
« Reply #22 on: January 09, 2015, 04:18:40 AM »
I work in accounting, am one of the "young persons" that doesn't trust Financial Advisors, and am interested in new models of FA!

Looking at new passive asset management sites like Betterment (which holds ~20% of my wealth), I am hard pressed to generate a REASON for switching to something like Personal Capital, which still relies on the opinions of individuals as to when to buy/sell/rebalance.  I understand that Betterment works on a code, and a code is written by individuals, but for some reason I trust an algorithm over some lady trying to pay for her upcoming vacation.

Except you pay Betterment for it's code, while Personal Capital is free (if you don't use it's Advisors and there opinions). Personal Capital shows you your balances, asset allocations, expense ratios of all your accounts, and weighs that against cash, loans, assets and spending for a whole financial picture (net worth). I rebalance manually, at no additional cost.

True.  I was referencing the PC FA services.

BarkyardBQ

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Re: Any Mustachian Financial Advisors?
« Reply #23 on: January 09, 2015, 09:07:58 AM »
I work in accounting, am one of the "young persons" that doesn't trust Financial Advisors, and am interested in new models of FA!

Looking at new passive asset management sites like Betterment (which holds ~20% of my wealth), I am hard pressed to generate a REASON for switching to something like Personal Capital, which still relies on the opinions of individuals as to when to buy/sell/rebalance.  I understand that Betterment works on a code, and a code is written by individuals, but for some reason I trust an algorithm over some lady trying to pay for her upcoming vacation.

Except you pay Betterment for it's code, while Personal Capital is free (if you don't use it's Advisors and there opinions). Personal Capital shows you your balances, asset allocations, expense ratios of all your accounts, and weighs that against cash, loans, assets and spending for a whole financial picture (net worth). I rebalance manually, at no additional cost.

True.  I was referencing the PC FA services.

Ahh, thought so but wasn't sure. I fall in the category of trying to learn before paying anyone to do anything for me. But free tools to make something easier are just tools.

Back on the topic. In learning all that is involved in personal finance, early retirement and investing, people keep telling me I should consult and charge people for this advice. Except I cannot put a price on the free information that I've received and the wealth it is going to provide me, so who am I to charge anyone else. I definitely wouldn't pay for this advice or management. I had a friend who worked for Waddell & Reed several years ago and after meeting with them they wanted to charge me +1% for management, I had no assets but immediately knew this was a high price to pay, so don't think I could feel good about charging someone else to teach them even the basics. I'd be happy with a free beer or hot wings.

EDSMedS

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Re: Any Mustachian Financial Advisors?
« Reply #24 on: January 09, 2015, 09:36:53 AM »
I cannot put a price on the free information that I've received and the wealth it is going to provide me, so who am I to charge anyone else. I definitely wouldn't pay for this advice or management.

Have you considered teaching a class at your library?  I asked and they told me that when I have the class together, they will review it and schedule/promote it.  As long as you're not pitching a "product" they should be supportive.  It may not be your specific target audience - they will likely be more poor, less organized, with less income - but you may learn more about your community's needs and therefore be able to develop your FA style accordingly.

I'm very interested in this thread b/c personal finance is powerful.  I want to help spread that power to my neighbors.

BarkyardBQ

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Re: Any Mustachian Financial Advisors?
« Reply #25 on: January 09, 2015, 09:58:05 AM »
I cannot put a price on the free information that I've received and the wealth it is going to provide me, so who am I to charge anyone else. I definitely wouldn't pay for this advice or management.

Have you considered teaching a class at your library?  I asked and they told me that when I have the class together, they will review it and schedule/promote it.  As long as you're not pitching a "product" they should be supportive.  It may not be your specific target audience - they will likely be more poor, less organized, with less income - but you may learn more about your community's needs and therefore be able to develop your FA style accordingly.

I'm very interested in this thread b/c personal finance is powerful.  I want to help spread that power to my neighbors.

That's a good idea. I've started with the 20 year old interns in my office.

cuethebrew

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Re: Any Mustachian Financial Advisors?
« Reply #26 on: January 11, 2015, 08:11:51 PM »
I am also a young CPA in public practice. Being a personal finance nerd, I have often wondered if getting into the financial planning side of things would be a rewarding career path. Unfortunately, I've realized that it doesn't take a lot of time or effort on my part to tell a fellow 20 something to max out his 401k, contribute anything extra to a ROTH IRA that includes Vanguard's Target Retirement fund, and then anything on top of that should be DCA'd into an S&P or Total market index fund..

Generally speaking, of course.

I always make sure to incorporate long term retirement planning into my tax planning discussions.

mxt0133

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Re: Any Mustachian Financial Advisors?
« Reply #27 on: January 11, 2015, 08:55:25 PM »
Reading through the thread, it seems like people are equating financial advisoros with investment advisors.  Financial advisors cover a lot more than investments and includes, various insurance needs, taxation, estate, financing and credite and retirement planning.

Yes most of this stuff can be learned on the internet but as I am slowly learning*, the "personal" in personal finance makes it really hard to give blanket advice to people without really learning about their individual circumstances.  The value that financial advisors provide is taking a holistic view of an individual's financial position and plan a course of action based on their needs and goals.

I think having a financial advisor (which could be a parent, friend, mentor, or paid advisor) would be valuable to individuals that don't necessarily have the a large amount of invest-able assets, I think this is where a fee based advisor would be more appropriate. An advisors' value can also come in the form of an educator and counselor.



*Disclaimer I am currently enrolled in a CFP certification course

Todge

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Re: Any Mustachian Financial Advisors?
« Reply #28 on: January 20, 2015, 04:58:56 AM »
The problem is that you will need to earn money - that generally means either taking a cut of client assets under management or 'for fee' paying advice - one is derived by volume of the money you manage, the other is dependent on the volume of clients you see. I guess another option is to look for some public service job where you are paid by government to assist people in financial planning.

Markywalberg

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Re: Any Mustachian Financial Advisors?
« Reply #29 on: January 31, 2015, 04:10:09 PM »
Hello great post i just wanted to post this link to show an article on how Financial advisor are compensated.
http://www.wsj.com/articles/SB10001424052970204554204577024152103830414
also what are everyones thoughts on what is the fairest means of compensation

dungoofed

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Re: Any Mustachian Financial Advisors?
« Reply #30 on: January 31, 2015, 07:25:53 PM »
They forgot one in that article:

DO IT YOURSELF. Use Google and your local public library to educate yourself. Place the trades yourself.