What can a financial advisor do for me?

I've been struggling for some time with whether I need to hire a financial advisor. Thinking about it more, I've been trying to figure out what one would really do for me. Below are my responses to the various categories of services provided. I assume that there are some flaws in my perceptions, and would be happy to have someone point them out to me.

Thanks.

Taken from the NAPFA website:

Is Your Advisor Comprehensive?
Comprehensive Services Offered:
• Goal Setting (Y/N)
• Cash Management (Y/N)
• Cash Budgeting (Y/N)
• Tax Planning (Y/N)
• Investment Review (Y/N)
• Investment Planning (Y/N)
• Estate Planning (Y/N)
• Insurance Needs (Y/N)
• Education Funding (Y/N)
• Retirement Planning (Y/N)
• Other Services Offered (Y/N)

Goal setting - My goals are to retire as young as possible while living comfortably in the meantime - basically save money for retirement - not too hard to figure out

Cash management - I only have a few thousand in cash; I can't imagine it's much to worry about

Cash budgeting - I spend much less than I make, and don't waste money. What else is there to know?

Tax planning - I'm well within the 15% tax bracket and my taxes are pretty straightforward.

Investment review - I could probably use help here to maximize my returns

Investment planning - Not sure what the difference is between this and the previous term. Seems that they would go hand-in-hand.

Estate planning - I don't see this being a big issue for many years - especially considering my relatively humble net worth

Insurance needs - Call me a jerk, but I feel if something happened to me, my family would be able to take care of themselves. I don't buy lottery tickets, and see no need to play lotto with life insurance. I'm in the military, so disability, etc. is not an issue.

Education funding - I didn't get any help with funding my education. Here's to hoping my kids don't need any. If they do need help, I'll take it out of my current income. I'm barely maxing out my retirement accounts as is.

Retirement planning - I'm saving all I can, and barely maxing out our retirement vehicles. What else is there to plan at this point? A couple decades from now, I can get a better run on the numbers and see how soon I can retire.

My 2 cents...

It's one thing to say you want to "retire as young as possible". It's another to actually attach an age or year to that. That will help you and an advisor determine whether or not you are in fact investing enough, and putting your money in the right place to achieve the necessary rate of return.

As for cash management and budgeting, yes, it's pretty straight forward...for you. For others, not so much. However, a review of your methods doesn't hurt.

Regarding tax planning...hopefully you're not always going to be in the 15% tax bracket. Again, an advisor may be able to refine your tax minimization strategies, or at least help you prepare for potential changes in your tax situation.

Pertaining to investments and planning, as you've already said, having a second set of eyes on your portfolio can't hurt. This will certainly be necessary if you have articulated a particular retirement date as I mentioned above. Further, if you have any other savings goals prior to reaching retirement, an advisor can help you reach them by maximizing your investing efficiency.

As for estate planning, unless you're an attorney, there very well may be things you haven't thought of, financial or otherwise. Any responsible family man doesn't put off exploring estate planning because he feels his net worth may be small.

Insurance needs kind of fits in with the above point in that an advisor is able to help you determine if your family has the protection you desire. If your desire is to have them fend for themselves, great. Many people choose to protect their family. An advisor may offer some suggestions if you do.

With education funding, it simply comes down to your wishes. If you don't want to help with your kids' educations, that's fine. If you do, an advisor will help you plan in advance, while maximizing potential tax benefits and savings to you and the kids. There are more advantageous ways of paying for an education than just taking it out of your "current income".

Remember, an advisor isn't going to force you attack each of the areas you mentioned. You're in the drivers seat. Whatever you want to address, they'll address. There's no harm in consulting with an advisor just to make sure you're not missing anything.

Ask yourself this question: What would you and your family rather have - you consult with an advisor now just in case you are in need of assistance meeting your goals, or consult with an advisor after the damage to you reaching your goals is already done?

Estate planning - I don't see this being a big issue for many years - especially considering my relatively humble net worth.

Insurance needs - Call me a jerk, but I feel if something happened to me, my family would be able to take care of themselves. I don't buy lottery tickets, and see no need to play lotto with life insurance. I'm in the military, so disability, etc. is not an issue.

If you love your family, this is a non sequitur. In fact, I would argue that the more humble your net worth, the more you need to plan for the future. If your family no longer has your income, how long until the house is repo'd? The cars? How long until your wife goes on food stamps? Life insurance replaces your income for a certain amount of time (the amount of time should be realistically based -- if, say, your wife is a stay-at-home-mom, then she needs your income replaced for as long as it takes her to learn a skill and get a job....or insurance can be set to pay off a large debt that, once retired, makes the day-to-day living affordable on her income. And what about replacing HER income, if she is lost?).

Insurance isn't "lotto", since your chances of winning are slim, but your chances of dying, sometime in the future, are 100%. YOU WILL DIE! Term is the only way to go -- anything else is a poor investment.



Education funding - I didn't get any help with funding my education. Here's to hoping my kids don't need any. If they do need help, I'll take it out of my current income. I'm barely maxing out my retirement accounts as is.

Make it clear to your kids, FROM DAY ONE, that there is no college fund, and that they will be paying for their own education. That's the only way to ensure that they will try their darndest for top academic honors, or for superior sports scholarships.

I agree that too many parents jump on the "oh my god, I must save, or I'm a bad mommy/daddy" bandwagon. College is a really expensive gift to give, one that ensures virtually no return. Kudos to those parents who can pay for it, but beggaring the family to do so (or raiding the retirement fund, or mortgaging the house to do so) is a fool's game.

BTW, I teach at university, and (naturally) took several degrees at several universities across this nation. I can say with absolute authority that students whose parents pay for their educations don't do as well as students who fund their own programs of study. The education is more highly valued if you have to work for it, than if it's handed to you fully funded.

These issues are straying off topic, but I might as well address them.

Matching up my retirement to a date isn't realistic in my opinion. I can't save any more than I already am without sacrificing things I'm not willing to sacrifice. I will to retire when I can retire. I see a financial advisor being useful in 20 years or so when I'm trying to decide how much longer I have to work, but not before then in this aspect.

I love my family very much.
My wife was working and supporting herself before we got married.
I was working and supporting myself before we got married.

If one of us dies, I don't think that's a reason for the survivor to expect a big windfall from an insurance policy and be able quit his/her job. We have no large debts.

Regarding school, I got the military to pay for my schooling. That's not something I'm going to force on my kids, but it's a possibility.

About my statement of using current income to fund college if needed, it just makes sense to me. I know there are tax advantaged plans available to fund college. If I were able to save more than $23,500 this year, I'd consider it. I'll max out my retirement accounts now. If I have to cut back or stop contributions to retirement accounts when my kids go to college, so be it. I'll work for a couple extra years at the end while my nest egg grows to make up for it.

Assuming I have a will and have designated the appropriate beficiaries on all my accounts, what else is there to worry about? Again, with a modest sized estate, I don't see any necessity in strategizing because it would be well below the level where significant tax would come into play. Perhaps this is an issue I could touch on with a financial planner, but I don't see it as being significant.

Getting a financial planner for investment review/planning seems to be the main thrust of what I would be doing. What's the cost/benefit of doing this?

domingo, i was surprised to see your OP on this. in the interest of being clear (not insulting, just clear), i wouldnt have you as a client. your comment in the OP about "Call me a jerk, but I feel if something happened to me, my family would be able to take care of themselves. " is about the most immature thing i can imagine a grown male to say. i assume this also means that you have declined SGLI - is that correct?

sticking to insurance for a moment, to equate insurance to lotto is again ... an immature and or ignorant (meaning no knowledge, not stupid) comment.

the reason anyone (who is mature enough to appreciate the time involved) should hire a financial planner is because the person likely doesnt know what they dont know. your first comment about planning shows us that you dont even understand the question. thanks sadale for taking the time to elaborate on what having a "goal" really means. you were much more kind than i would have been.

finally, an aside to puck. your advice about "Term is the only way to go -- anything else is a poor investment." is 100% off the mark. it couldnt be more wrong! first off, if you need insurance, get insurance ... then the insurance is insurance and NOT an investment. if you are in a position to use insurance as an investment (and very few americans are in this position), then it is one of the most phenomenal investments (for its risk category) that you can get hold of. so, you are doubly wrong. term is not the only way to go ... and ... as an "investment" insurance rocks the house (though again, few americans should use it as such).

i am in the business and i do not "sell" to any clients or place any "product". my company carries term (our biggest cash-cow), universal variants, and several whole life options. i carry both straight term and straight whole life.

if you want us to take your experience as expert status (that you have several degrees from several universities and that those who pay for their own college value it more than those to whom it is given), then accept my "expert status" when i tell you you dont know of that which you speak.

1MO

1MO,
I'm glad that you replied.

I believe that I came across wrong on my comment about my family and insurance. My attitude is not, "I'm dead, so screw 'em!" I have used several online calculators that show I do not need insurance. If I do pass on, my family would inherit my assetts, my wife has good income potential, and they would do well. I do have opinions against insurance, and I'll admit that some may be a bit extreme and/or ignorant. If we ever did meet face to face (and you didn't kick me out of your office :)), I think you'd find I'm not as far off as it first might seem.

I still have issues with the need to set a target date for retirement. If I picked a date for retirement, no matter what the calculated results said, I would not save more. I'd choose to delay retirement. If you knew how I lived, you might see my point. Also, no matter what the calculated results said, I would not save less. I'd choose to retire sooner. I have exactly what I want right now. I want to maximize potential return, and I have a fairly long time horizon. I will work until I can retire. What's the point of analyzing a situation if the results of the analysis do not result in a decision?

As far as the "you don't know what you don't know" comment, I agree partially. You probably don't know what information you might get from a full body CT scan. That doesn't mean you should run out and get one, although there's a disturbing trend of this going on. That analogy isn't quite perfect, but I can't come up with a better one right now.

I will in all likelihood find a financial planner eventually. Maybe then I'll be less ignorant. It's just hard for me to take that leap for some reason.

Just a "for instance", but what good is trying to retire early without clear goals going to do for you if you are most likely putting all of your savable income into tax deferred vehicles (maximum contributions) that can't be efficiently accessed prior to 59.5?

A question like this is something to think about and it is "tax planning" that has virtually nothing to do with your "straight forward" return. Distribution seems to be the one part of finance that everyone ignores until they find themselves in a pigeonhole.

Domingo3,

From just reading this post (which means I don’t really know squat about you) I would say you understand enough to handle you current needs on your own.

I agree with you about retirement calculators. I spend time everyday working on my financial education but have never once filled one of those calculators out. Way too many variables for them to have any use at all unless you have a very short timeframe you are looking at. Simple excel spreadsheets can show you how the major things will trend out, if you even care. The rest of it could change at any given time. You need to balance today’s needs/wants with tomorrow’s goals. Sounds like you understand that without a calculator. For people that do not understand the balance the calculators can be an eye-opening tool.

It always amazes me how people talk about insurance like it’s free. “It’s only $75 a month and you can sleep easy knowing your family is set for life”. They act like that $75 doesn’t have any value in today’s world. That $75 may be the difference in what neighborhood you live in, or if your kid can join that after school program, or a family camping trip, whatever. The $75 month can have life changing implications in TODAYS world. Don’t misunderstand me. I carry term myself. It is often a very good thing. You have to decide. I think it’s a shame that many try to push people to insuring for extreme amounts. It does not have to be an all or nothing deal. Term does not have to take care of your family for the rest of their life’s. In my case I carry enough so my wife could continue to be a stay at home mom until my son is out of High School. You might want to check out the rates on a small policy so your family would have time to deal with your departure. 100k can be pretty cheap and provide a bridge for them to move on. Many sales people will push you to higher policies but know what you want the money to accomplish if anything and stick with that number.

“Call me a jerk, but I feel if something happened to me, my family would be able to take care of themselves. " is about the most immature thing i can imagine a grown male to say.”

Obviously given what I have already wrote it is no surprise that I think 1MO is off the mark with this statement. If you and your family understand what will happen in the event of your death and everyone understands what will be needed if anything at that point then your statement is rather direct but just fine.

It always amazes me how people talk about insurance like it’s free. “It’s only $75 a month and you can sleep easy knowing your family is set for life”. They act like that $75 doesn’t have any value in today’s world.

I guess for some of us, though, it IS practically free. I pay $90 a year for a $150k policy through my employer (I could pay nothing, and get a year's salary as insurance, but I opted for more, so the house can be paid for in case of my death -- that's the one thing that could beggar my husband, if my income went missing). Check out what your own employer offers, before going out into the public sector to find insurance.

Sorry, 1MO, but I still say anything but term is a poor investment. You may be the professional, and there may be people out there who don't care if they get a sorry return, and that's their business. But I think in this person's case -- a person so clearly against life insurance as a concept -- it would only heighten the feelling of being "taken".

geesh! you guys are killin me!

PUCK - INSURANCE IS NOT AN INVESTMENT (for most Americans). when you continually state that it is and it gets a poor return (WHICH IT DOES NOT) then you either clearly do not understand it or you are outright trying to confuse others! on the chance that you dont understand it, perhaps you should limit your advice to that of which you do know.

now, for those who do use it for an INVESTMENT (which i am not recommending), where else can you get about 7% return on investment with NO MARKET RISK? of course, this assumes you are using an "investment grade insurance company" - most companies are not investment grade.

1MO

Pricespector,
I have some money in taxable accounts and real estate. At my tender age (31), it makes sense to put all the money I can into tax advantaged accounts. Many years from now, if it looks like I can retire before 59.5, I can look at my assetts, and divert more of my savings into taxable accounts if needed to "bridge the gap".
I'm sure there are many things I don't know about distribution, and I will probably find a financial planner sometime in the next decade. It seems like that will be in plenty of time to work out any issues.

Thank you for the comments everyone. Sometimes I may come off as a little blunt, but I am learning from all of you and I appreciate your responses.

There is another way to look at life insurance as an "investment", regardless of whether it's permanent or term. Life insurance is typically not there for the insured. It's more often there for the beneficiaries, in case something happens to the insured. Take Puck's example: $90/year for $150K. Let's say Puck dies after year 1. His beneficiary just realized more a 166,000% return on Puck's money. What a poor investment. Not only that, but his death is guaranteed. It's guaranteed to happen at some point. Since nobody knows when someone is going to die, the smart ones buy a little bit of permanent insurance, just so it's always there. The smart consumer understands that life insurance is the only way possible to buy dollars for cents, with the possible exception of a lottery. Often, they do it early in life too, when there's technically no "need". They do that in order to lock in insurability. Online calculators love to tell you how much life insurance you need, however, they do that with the assumption that you're insurable, which may not always be the case. Permanent life insurance insures insurability, if that makes any sense. This personally hit home early in my life, when heart disease crippled my abilility to buy more life insurance, at least at a reasonable cost by any stretch of the imagination. Same thing happened to my father.

I don't think any agent or adviser should push anyone to overinsure, however, the numbers don't lie. There is value in life insurance for just about everyone, in some way, shape, or form.

For the record I was only speaking about term in the above post.

Permanent insurance most definitely does have a place for a select market. If you search on 1MO or SADALE’s posts you will find where they have explained in generalities the type of individuals who fall in this market.

1MO I understand your frustration but this is a heavily abused product. It’s the abusers you should aim your frustrations at, the mis-lead simply need more perspective, that’s why you’re here right?

Puck, Are you able to continue your insurance if your current employment ceases? I too have term as a perk of my company but there is no continuation clause after employment ceases, thus I bought term(while it is still cheap) outside of my company as well.

“I don't think any agent or adviser should push anyone to overinsure, however, the numbers don't lie. There is value in life insurance for just about everyone, in some way, shape, or form.”

In general I agree with the above statement. What is sad is in my little world I have seen many associates get talked (guilted) into quoting out 1 million in insurance. I don’t know why I guess that just seems like a cool number. They decide it’s too expensive, and end up getting nothing. If you can afford to set your family up for life then awesome but that does not have to be the only goal.

Distribution seems to be the one part of finance that everyone ignores until they find themselves in a pigeonhole.
I couldn't agree more, price. This is where many hopeful retirees (and advisors, quite frankly) miss the boat - although, I know that this situation is going to change very quickly as more and more boomers begin to take distributions...

Life insurance or for that matter any insurance should be to insure against catastrophic accidents. If you buy insurance to replace all that someone might need is a matter of big dollars. I can't afford to replace my earnings and insure to pay for my kids to go thru 4 years of college. I can insure to help my family for a several years and hope that they can get on their feet. The same goes for disability insurance, if you can afford it you can get many years of coverage but I can't afford it and a few years will have to do for my protection.
Term life is to insure against high needs early in life and often is not needed in the big amounts later in life for protection. Term life becomes expensive and usually ends at age 80 after which the cash comes out of your estate hopefully. to pay for your burial etc. A small whole life policy will be with you forever and so if you go on to live until 90ish you can have this benefit available to your loved ones or even use the cash buildup to help out.
They all have a place if used within reason.
Just my 2 cents.

PUCK - INSURANCE IS NOT AN INVESTMENT (for most Americans). when you continually state that it is and it gets a poor return (WHICH IT DOES NOT) then you either clearly do not understand it or you are outright trying to confuse others! on the chance that you dont understand it, perhaps you should limit your advice to that of which you do know.

All right, I'll admit, maybe I don't know much about Whole Life, but let's just say I've never heard it referred to in terms OTHER THAN "life insurance that's an investment, too". Probably because every single insurance agent who ever tried to sell me Whole Life touted it as an INVESTMENT.

I'm not stupid -- I listen, and I learn. And what I've learned is you cannot trust a life insurance agent who says insurance is an investment. Because I agree with you completely -- it's NOT an investment.

great, now that we are on the same (general) page of music. i am happy to explore this next stanza a little more in depth - if you choose to. as i understand it, the next stanza of our conversation is whether or not whole life is a melody that rings true or whether it is just an unnecessary buzz that detracts from the full score.

puck, i appreciate your admission that perpaps you "dont know much about whole life". that said, i challenge anyone in the industry or who is just a talented and articulate amature to explain why one is better than the other. i am a STRONG proponent of whole life. it rocks! but i always hear all the pipers a piping about how no cash value insurance should ever be used: now is your time. ill warm up my fiddle for a measured response.

1MO

Sorry, 1MO, but I'm not going to dance to your fiddle.

I'm a relative investment/financial newbie. As a daughter of a paternalistic father and a traditional housewife mother, I was taught that some man would come along and save me from all this, and that I needn't worry my pretty little head about it all. As such, my financial education began just eight years ago, when I finished graduate school and got my first professional-level job, in my field (I'm 39).

Simply put, whole life never made sense. The premiums were higher than term, and as a relatively young (but very healthy) person, I didn't see the need to pay significantly higher premiums, for the same pay-out.

(When I borrowed money to start a business some years ago, I was required to carry a minimum of $150,000 in life insurance by the lender. The term quote was around $100 a year, and the whole life was around $800 a year. This was with a firm whose name rhymes with "Great Harm".)

You say you're the professional and as I said, I'm willing to be educated -- so you tell me. Why should I choose whole life over term, when (at what age) should I do it, and when is the additional cost worth it? At what point in their lives should this teacher and her cop husband (whose combined salaries will probably never top $80k) choose a more expensive form of life insurance, and what are the benefits of doing so?

no need to dance to my fiddle, i offered you (or anyone else) the opportunity to discuss the situation - at the end of your post you seem to be asking me to rosin the bow. so here are some thoughts.

first off, thanks mostly to marketing in addition to ignorant do it yourselfers online, this is a product that is widely misunderstood by the middle class. those in the upper middle and upper classes take advantage of professionals in many fields (lawyers, cpa's, financial advisors, etc.). since they have the benefit of individualized advice and education, they usually make a very smart decision in regards to insurance as well. this likely explains why much more whole life is sold to those in the top 20% of income earners than in the lower 80% combined.

the time to buy this type of insurance (if it is needed) is exactly when you said, "a relatively young (but very healthy) person". in fact, i believe in it so strongly that each of my two children carry two separate whole life policies each. of course i also carry it (and a bunch of term too). my wife carries a lesser but still substantial amount of whole life.

people want the BEST (as in company), most guaranteed (as in whole life), and highest coverage when they know they will need it ... ie, they are sick --- and thus can't qualify or afford it.

if you would have gotten your whole life lets say, 7 years ago, you would likely be paying NOTHING for it by now. especially at the rates you mentioned. this does not mean you should have used whole life, if you only needed it for a few years, term was the way to go. even moreso since your business apparently didnt make it.

when do you NEED whole life and nothing will substitute:

1. When you plan on living past 65 and want to:
- minimize taxation in wealth transfer from generation to generation.
- when you own a business that is successful.
- when you want to ensure that your family does not have to liquidate assets to pay for your final expenses (medical and burial).
- when you want to ensure insurability of yourself or someone else.
- when you want to leverage your retirement savings and other less expensive options are no longer available.
- when you are a well to do grandparent and want to provide a grandchild an unparallelled gift (education, wedding gift, even a pension when the grandchild retires).
- if you are a principal in a business, especially a family held business.
- when you want to ensure your assets are protected from others in a lawsuit.

and about 50 other spectacular reasons.

when to buy is when you don't need it. just like when it is time to buy almost anything. it is best to buy gasoline when it is at a normal price. not when there is a war in the gulf and OPEC is getting together to tighten supply.

1MO

I found an investment advisor who takes care of of my investment needs such as tax planning, estate planning, stocks, bonds, etc... the advisor actually found me through a company called (advertisement deleted by Athena53). They get there leads and then provide those to the advisor where he can follow up on them. They are online at (advertisement deleted by Dingobiscuit)

Subtle..........

Hee-hee. Leadsco...never heard of 'em. Where can I learn more?

for "vetting" a potential advisor?

I have talked with several this week and they make my head spin.

I would love to know if they are rated by someone, or if there is a source for getting some decent candidates. I have Googled and googled...

aloha

for "vetting" a potential advisor?

I have talked with several this week and they make my head spin.

I would love to know if they are rated by someone, or if there is a source for getting some decent candidates. I have Googled and googled...

aloha

cat808,

You can find fee-only advisors through these sites who can provide you with solid advice and planning:
http://www.garrettplanningnetwork.com/pages/splash/index.htm
http://www.napfa.org/

Rookie

Finding an experienced financial advisor is very important before making any desicsion regarding your financial future. (advertisement deleted by Dingobiscuit) can help you by matching you up with an experienced financial advisor. (advertisement deleted by Dingobiscuit) generates leads of prospective clients that are looking and open to meet with an advisor so that they can work out a plan in regards to there investments. (advertisement deleted by Dingobiscuit) has many advisors so finding a match is not a problem. They will meet with you at a time of your convience and even ask you how you take your coffee!!

The above post is so sad, I do not even want it deleted.

I changed my mind, since tomeradv is so persistant.

catherine808,

I have never heard of anyone Googling for an advisor before. Maybe Wikipedia would work (no). You can look in your Yellow Pages and talk to some in your area directly and ask for their credentials, experience, etc.

Anyway, www.moviefone.com is a much better source for finding local advisors and financial planners. Just kidding!