Author Topic: Met with an honest Financial Planner...  (Read 2826 times)

ditheca

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Met with an honest Financial Planner...
« on: December 01, 2015, 03:30:08 PM »
Like many of you, I generally look down on the financial planning industry because of the exorbitant fees and bad advice that occur there.  But one of my friends, who I respect as a person of integrity, is a financial planner.   I took him out to lunch to learn what the industry is all about.

We started by analyzing my FIRE plans, and I could tell he was very concerned about how risky it is.  4% planned withdrawal rates, 100% invested in Vanguard's S&P 500 index, etc.  He easily convinced me that I hadn't planned well enough yet for actually getting and using my money before 59 and gave me some good tips about accessing the money.

But to keep this story short, here is the true value he adds; it became obvious that his goal was to eliminate risk.  I'm not entirely sure he knows that is what he does, but it was the underlying theme of every piece of advice I got from him.

Me, I'm trying to optimize my financial affairs for a very early retirement by balancing risk and reward.  If the dice don't fall my way, I'll work an extra couple of years and retire at 46 instead of 43.  I'll do a little freelancing, or even burger flipping, at 55 if the market completely tanks that year.  Eliminating risk is too expensive for me, and doesn't feel necessary.  I feel like I can see the risks and I'm prepared to deal with them when they come, so I don't need to eliminate them.  I'm most likely to end up with too much money rather than too little, and it doesn't break my heart to pay 25% taxes if my 401k grows too big.

But I also learned that there is a useful purpose to financial planning, whole life insurance, and all the other bells and whistles.  It just doesn't mesh with my own goals.  I don't have to look down on the industry anymore; what they are selling can be good, it is just designed for someone else's palate.

Timodeus

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Re: Met with an honest Financial Planner...
« Reply #1 on: December 02, 2015, 05:10:25 AM »
This is generally my view. I'm also in the same boat as you in holding what many financial planners think is "too risky" of a portfolio. Know thyself and what you'll do in a financial crisis helps calm that fear of too much risk. Most people don't think of it this way and want to eliminate risk while maximizing reward, not a bad thought but somewhat impractical at the best of times.

mr_orange

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Re: Met with an honest Financial Planner...
« Reply #2 on: December 02, 2015, 06:39:06 AM »
There is no such thing as eliminating risk.  You can manage it and there is generally a tradeoff in doing so whether it is by hedging or using a less volatile asset allocation. 

In general much of the advice I have seen from the financial planning industry revolves around people that work for a W2 and panic in down markets.  Much of that advice doesn't apply well to small business owners or people that keep their positions and buy more product when the chips are down.  I also think much of the industry rationally steers people to products they know are not optimal for the client because it is in their financial interest to do so. 

I like to think of the financial planning industry like the weight loss industry.  There is nothing magical about losing weight or making your money grow.  You simply need to spend far less than you earn and make the money grow passively or actively given your circumstances.  For weight loss you just need to burn more calories than you consume and supplement this with some moderate exercise and healthy eating.  Neither pursuit is rocket surgery, but the bulk of the population is too undisciplined to follow through on either pursuit. 

Lyssa

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Re: Met with an honest Financial Planner...
« Reply #3 on: December 02, 2015, 06:52:15 AM »
This is very true. Once you have internalized the fact that you can only mitigate but not eliminate risk and the other fact that mitigation always has its price you can make educated decisions how much risk you are willing to bear in order to avoid the certain downsides of more risk mitigation.

For most of my life I severely underestimated how much decision making is driven by fear. The irrational kind mostly.

What I use as a tactic to reduce that factor in my own decision making process is visualize the worst-case-scenario in detail. As soon as I not only think but also feel 'I could deal with that' I'm much calmer and more rational.

So the 1-5 per cent chance I would need to take some odd jobs in my fifties? I can deal with that. Much rather than working for money till 50. That sounds like suicide because of one's fear of dying.

Frugalman19

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Re: Met with an honest Financial Planner...
« Reply #4 on: December 02, 2015, 08:03:06 AM »
I am a financial planner, and our whole business is to minimize risk. Rule of thumb, whole life is a joke, there is never a case for it(except for certain estate planner issues). People who sell whole life or any life insurance other than term don't have the knowledge or expertise to be a holistic financial planner. typically, if the advisor is making a commission, they are a sales man, not a financial planner.

This is my opinion, here's why. To sell a mutual fund or life insurance, there is very little someone has to do to get licenses, life insurance takes 2 weeks. You don't even have to graduate high school. Think used car salesman. A real financial planner, like a CFP or a ChFC, has to have the equivalent of a masters degree and multiple years of experience. Plus they have to do what's in your best interest, have to by law. A sales man, has to do what's in the best interest of the insurance company, has to by law.

My advise, if they offer whole/universal life, run. If they charge an hourly fee or manage assets, you can stick around.

mizzourah2006

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Re: Met with an honest Financial Planner...
« Reply #5 on: December 02, 2015, 10:30:42 AM »
There is no such thing as eliminating risk.  You can manage it and there is generally a tradeoff in doing so whether it is by hedging or using a less volatile asset allocation. 

In general much of the advice I have seen from the financial planning industry revolves around people that work for a W2 and panic in down markets.  Much of that advice doesn't apply well to small business owners or people that keep their positions and buy more product when the chips are down.  I also think much of the industry rationally steers people to products they know are not optimal for the client because it is in their financial interest to do so. 

I like to think of the financial planning industry like the weight loss industry.  There is nothing magical about losing weight or making your money grow.  You simply need to spend far less than you earn and make the money grow passively or actively given your circumstances.  For weight loss you just need to burn more calories than you consume and supplement this with some moderate exercise and healthy eating.  Neither pursuit is rocket surgery, but the bulk of the population is too undisciplined to follow through on either pursuit.

Yup, I see them more of a personal trainer. They are there to push you to save more, walk you through the "exercises" and save you from yourself.

For someone coming to this site I would figure they would know how to "work out" and "eat" right.
« Last Edit: December 02, 2015, 10:32:36 AM by mizzourah2006 »