Financial Advisors

Ive never worked with a financial advisor before but Mrs. Crappie and i are getting to the point where we want to start consulting with a professional about investing and making a plan for retirement. I have contacted a company called ClearPath Wealth Management. They are an independent group but partner with Ameriprise. My father in law has used them for years so i got the referral from him.

What do i need to know about working with a financial advisor? You hear about horror stories and all – what kind of information do i need to verify about them to protect our funds? Any specific questions i should make sure to ask?

Im sure that the CFI will guide the conversation but i just want to make sure we make an educated decision as much as we can. Any advise you have on choosing and planning with a CFI will be much appreciated.

Thanks

Never forget they are in a business to also make money. There is no such thing as reduced or low fee’s. Always keep some money where you can get at it if something major arises. Sometimes the fee’s and penalties for a early withdrawal will kill you.

Wealth Enhancement Group is who we use. Make sure who ever you go with is a Fiduciary, meaning they do not make money unless you make money. No fees on selling you loaded funds ect. Stay away from banks and such as they sell you front loaded funds and annuities to make them money not you.

We use Counsel Finacial, which recently merged with Larson Capital Management.

IMO, the recommendation of someone you trust–especially someone who is a client, is the gold standard by which you have to judge all others.

Everyone wants to talk about fees when it comes to advisors, but the fact of the matter is that bad advice and missed opportunities will cost you many times more than paying higher fees for more sound advice and experience. Low fees are only good until they turn into penny wise, pound foolish.

Personally, I did not want a firm that was tied to a single fund company. I sought out a practice that was an independent broker and therefore could offer a virtually infinite variety of products, not just those tied to one fund company. However… That’s not to say I have any proof that that decision actually benefitted me, it just made me feel more confident. I think it’s like anything else, it’s more about who works behind the doors rather than the name on the doors.

FWIW, my parents used an Ameriprise-affiliated wealth management firm for years and did very well and were very happy with the advice given.

bigcrappie wrote:

Make sure who ever you go with is a Fiduciary, meaning they do not make money unless you make money.

That’s not what being a fiduciary means.

A fiduciary is legally bound to put their client’s best interests ahead of their own. A fiduciary can certainly make money even when the client does not, so long as they put the client’s interests first with whatever advice they gave or actions they took on the client’s behalf.

There are a few variations on the theme with financial advisers. An ethical adviser will walk you through the alternatives to help you make a choice that fits your situation.

Fees
Pay as you go – hourly or fixed cost vs. pay a percentage of assets under management. My family has used the hourly fee arrangement, our 26 year old son is doing the same. Depends on your needs.

Asset Management
Active vs. client controlled. Do you want your adviser to make the decisions on where your money is invested or do you want to control where it is invested? Some prefer to let the adviser make all decisions and investment changes. Others want to dictate all investments. Many fall somewhere in the middle where the adviser provides strategies and alternatives subject to approval by the client. The time you have available to invest in managing your assets in part dictates the best approach for you.

Expect an in depth inquiry into your financial and personal situation – bank statements, pension statements, IRA statements, 401k statements, brokerage statements, wills, insurance, credit card statements, mortgage statements… you get the idea.

Also expect a discussion about your goal. What retirement age are you shooting for, what lifestyle do you want to lead in retirement, what is your risk tolerance and more.

Grouse’s definition of a fiduciary is accurate. I strongly suggest that type of relationship.

We go to the advisor affiliated with our bank and are very pleased to have them. I was able to retire early thanks to their advise and service. If you have a few accounts with a bank, see what/who they have to offer.

If they try to sell you insurance, WALK AWAY!

We also went the bank way. It’s free and it’s basically seeing if you are on the right track for what you want. A great way to start. If everything’s checking out good, go back and visit in another 3-5 years.

big crappie, nice meeting you on Saturday.

bigcrappie wrote:

Wealth Enhancement Group is who we use. Make sure who ever you go with is a Fiduciary.

X 2

There are many options for financial advisors but have been very happy with them. They just didn’t help set up investments of past and present 401ks and Roth IRAs but answer all kinds of financial questions. Provided good guidance when my wife passed away, referred an attorney who works a lot with their clients to set up a trust, setting up early retirement which I have been enjoying since last December and providing information to me to help me make decisions. I just emailed my advisor today about something and had the response in ~3 hours.

First of all in Minnesota, they are required to be a fiduciary. Secondly almost all of the private financial advisors use a higher level service to manage your investments as it helps spread the risk. The questionnaire they give you about your retirement goals and income is simply a major software program that takes your inputs and uses an algorithm to spit out a strategy. Not that it is bad but understand how it works from a higher level. The other thing I have found out over the years is money talks. My neighbor worked for American Express and at the young age of 30 I started investing. Never really had much money and kept getting new account managers, usually the young just starting. I went to Dain with the same results. Today I am retired, have developed a nice account and use Northwestern Mutual as my money manager and they use Pershing as their investment vehicle. They help facilitate my strategy and manage the account to maximize the return. It really comes down to who you are comfortable with and trust. Make sure that whomever you pick, they are comfortable managing X amount of money because the big boys get all the attention, as well you might want to ask how much money do they manage? I have heard good things and bad things about Wealth Management which tells me that it depends on your agent and what your expectations are. I don’t like to micromanage my finances at that level rather look for common sense strategies that make sense.

ClownColor wrote:

If they try to sell you insurance, WALK AWAY!

We also went the bank way. It’s free and it’s basically seeing if you are on the right track for what you want. A great way to start. If everything’s checking out good, go back and visit in another 3-5 years.

Looking for more comments on this one. I met with an FA from Northwestern Mutual a few months ago who seemed to really put a lot of emphasis on getting whole life insurance as a part of my overall strategy. It kind of threw me the wrong way after reading similar comments here in the past and I haven’t talked with them since.

Not to steer this the wrong way, but is whole life insurance an important piece to overall retirement strategy for most of you? I have a term policy through work.

We started with an advisor about 25 years ago. Best decision we ever made!! We’re just working folks, savers, and are completely debt free and set for a very nice retirement. It took time, but regular investing over time is the answer.

Some of the things we did is never borrowed money for toys, boats, wheelers etc. cash only. Pay credit card every month, no exceptions!! Paid off cars ASAP, and that’s only when needed. Last car payment we had was in 2001.

Ya, it take some discipline, had some crappy cars, old boats, very used toys, but we did just fine, no regrets.

Dave Ramsey’s
SmartVestor
You will get several local people that you can evaluate and choose from.

311hemi wrote:

Not to steer this the wrong way, but is whole life insurance an important piece to overall retirement strategy for most of you?

my uncle spent a lot of time in the finance game. he retired at the age of 42 and he was never a rich man – just prudent with his money. he said his whole life plan was one of the best investments he ever made. Hes always trying to push me to get one. I still don’t fully understand how they work

Also he is a huge advocate of NW Mutual. He said he would never work with any other insurance company

311hemi wrote:

Not to steer this the wrong way, but is whole life insurance an important piece to overall retirement strategy for most of you? I have a term policy through work.

crappie55369 wrote:

he said his whole life plan was one of the best investments he ever made. Hes always trying to push me to get one. I still don’t fully understand how they work

311 you don’t have a term policy thru work, your work offers some term insurance as part of their benefits package. Those are a great perk of employment, but it’s an important distinction bc if you leave, are fired, or they choose to terminate it as part of the benefits package you no longer have that coverage.

I work for the big red insurance company, so I am biased. But my permanent life (I have a Universal Life policy, similar but different than Whole Life), has been great and allows for a ton of financial flexibility while still covering a large lump sum if I died unexpectedly. They are not investments, and anyone selling it to you as one is not being 100% honest. To summarize how they work, you pay a certain amount, a portion of that goes to the insurance company to cover the cost of insurance and overhead, and a larger portion goes into the cash value. The cash value is reinvested by the company and earns a return which enables it to take advantage of the time value of compounding interest. I’m a huge proponent of all life insurance, particularly ones that grow into a significant asset. But you need to have other retirement vehicles well funded before looking to Life Insurance as an investment vehicle (which it is not), and it will always pail in comparison to open market investments that don’t have the costs associated with it that permanent life does.

NW Mutual is a good company with a very strong presence in MN. They (like my organization) have a ton of great agents and some not so great ones. The biggest knocks on NW Mutual I see/hear from clients is over promising permanent life insurance returns, and setting up 1 year renewable terms which hide the true cost of the insurance as the rate adjusts every year. They are similar to the 5/7 year ARM’s that caused the housing bubble, they show you a super low premium on the front end but not what happens down the road and should be avoided unless you know exactly what you are getting and the associated premiums required to keep coverage in force 10/20/30 years down the road. Feel free to PM with any more specific questions!

crappie55369 wrote:

Ive never worked with a financial advisor before …
What do i need to know about working with a financial advisor? You hear about horror stories and all – what kind of information do i need to verify about them to protect our funds? Any specific questions i should make sure to ask?

How comfortable are you with discussing finances? Do you know differences between IRA, 401K, Roth? Are you familiar with what a mutual fund is?

Before working with an advisor, I’d recommend that you start reading some of the many financial pages that are available on the web. Two options I would recommend would be the Dave Ramsey material and Mr. Money Mustache blog. I don’t agree with either one entirely, but both will help you understand finances. If you can understand some of the basics, your conversation will be more productive and you will have greater confidence in your decisions.

When you actually meet with the advisor, take your time and make sure that they explain every question you have so that you understand. If they try to rush through things, or don’t want to explain, they aren’t a good advisor. I wouldn’t sign up with an advisor at the first meeting, I’d want to understand their strategy and make sure they are a good fit.

If you don’t want to fully understand everything or can’t invest the time to do so, bring someone with you who you trust AND has a record of good financial decisions (this does not mean the friend who has the brand new of everything, as many people are financed up to their eyeballs).

My wife has zero interest in anything financial, which works out okay because she is a natural saver and finances are a small hobby of mine. Any time she has a meeting with the advisor that manages her employer’s SIMPLE IRA, she has me come with because I’ve spent the time to read about saving/investing strategies. That is the only account which has an “advisor”, as I prefer to manage the rest of our funds separately.

In regards to whole life insurance, I can’t seem to comprehend how it is a good idea. Term life insurance is cheaper, which allows you to invest more in your retirement, and it naturally ends when you no longer need it (AKA self-insured). Life insurance is there to replace your income to support your dependents once you die. In my case, my wife and I each have a 30yr term policy at $1mil each, to keep us covered until we are 56. By that time, our home will be paid for and our savings/investments will be funded to an appropriate level to be self insured for the surviving spouse.

For any adviser you consider, check them out at http://brokercheck.finra.org/. Their past history is there. We were with an advisor many years ago, relationship started out great. Several years in things felt off. We’d checked FINRA when we started with him and he had a clean slate. When we rechecked he had started to run in to regulatory oversight issues. We left for another advisor (referral and deep check), checked back a couple years later. Old advisor had been suspended by the SEC, had a criminal vehicular operation-substantial bodily harm DUI, was a mess. There are a lot of resources out there to check out advisors, use them.

ClownColor wrote:

If they try to sell you insurance, WALK AWAY!
/quote]

I would not say that is 100% true. There are a lot of financial advisors that believe some life insurance should be a part of your folio.
If you want to read a good book on financial management read the POWER of Zero. This is a short excellent book. It is a bit dated but still some real sound advice in it.

311hemi wrote:

Not to steer this the wrong way, but is whole life insurance an important piece to overall retirement strategy for most of you? I have a term policy through work.

I’m by no means an expert in this, but the consistent message I’ve heard and read on financial sites like Dave Ramsey, Fool.com, etc all say that whole life insurance is NOT a good product for most people. These policies also are notorious for generating high commissions and fees for the sellers and agents, which make their value even more suspect. The biggest fans of WL–just my observation–seems to be the people selling it.

First off, your #1 asset in life is your ability to work. The main point of life insurance is to replace the income you would have generated for your family, especially during the expensive younger / family-raising years of your life. These are the years when you are paying a mortgage, feeding and clothing kids, saving for college, etc.

Once you get to a certain age, say age 60-something for the sake of it, your kids are through college and on their own, your mortgage is paid off, your retirement nest egg is presumably in the nest and growing, etc.

There simply isn’t the risk to your family should you die after the age of retirement. Your spouse is taken care of with your retirement nest egg and most of your major assets like your house are now paid off. So what real benefit is an expensive life insurance policy that insures you well past the point where you should really need it?

The so-called “cash value”, if you look at it as an investment, really is a poor investment at that. You would do far, far better by buying a cheaper term life policy and investing the rest of the money that a WL policy would have cost them in an S&P index fund. Just do the math on what an 8% return on the premium difference between a TL and WL policy would generate over 25 or 30 years. Yeah.

As with everything, there are some exceptions. I know for example that WL is sometimes used as a “death tax payoff” by people who have estates or assets that will be subject to inheritance tax or where added money is needed to equalize the distribution of assets between multiple heirs. Basically, my understanding is these are highly specialized situations where it makes sense to carry life insurance all the way to the end of life so there is a payout for some specific expense.

When I was in my 30s, I bought a term life for both Mrs. Grouse and I that covered us to my probable retirement. The premium when bought at that age was very affordable.

We then discontinued the policy because our house is paid off and we have retirement savings well taken care of, so really our major life risks are covered should I pass. The savings are routed to provide a little extra into the kid’s 529s, and IMO this is a better “insurance” than continuing to pay for TL.

Grouse

Brad Dimond wrote:

For any adviser you consider, check them out at http://brokercheck.finra.org/. Their past history is there.

Excellent advise. I would also steer clear of any advisor with less than 10 years experience. IMO that is the minimum amount of time it takes anyone to get the big picture knowledge needed to be an effective advisor.

-J.

It’s been sort of said, but the first thing I want to know is how are they compensated.

Not that one way is better or worse than another. However it may really help to understand why they are presenting certain options to you.

ex. If they only make money by selling products, not advising, and all they do is pitch you products that should make you think. Maybe the product is still a good idea for you but then who is advising you on total picture?

TheFamousGrouse wrote:

all say that whole life insurance is NOT a good product for most people.

I would tend to agree that Whole Life coverage is not a great product. Not many WL policies are sold these days. Remember, the underlaying cash value in WL is sitting in a fixed (guaranteed) account earing 4% or less annually.

There are many other life products where the cash value is invested in variable sub accounts (Like an IRA or 401K) or invested index funds. The returns can be unlimited and perform quite well over time. The cash grows tax free and can be taken out after age 59 1/2 tax free. I would consider life insurance an important part of an overall financial plan. Insurance coverage during your working years, income at retirement.

Personally, I cringe when folks tell me they have kids and no life insurance. It’s a must have during the years they rely on you. IMO.

-J.

Jon Jordan wrote:

<div class=”d4p-bbt-quote-title”>TheFamousGrouse wrote:</div>
all say that whole life insurance is NOT a good product for most people.

I would tend to agree that Whole Life coverage is not a great product. Not many WL policies are sold these days. Remember, the underlaying cash value in WL is sitting in a fixed (guaranteed) account earing 4% or less annually.

There are many other life products where the cash value is invested in variable sub accounts (Like an IRA or 401K) or invested index funds. The returns can be unlimited and perform quite well over time. The cash grows tax free and can be taken out after age 59 1/2 tax free. I would consider life insurance an important part of an overall financial plan.

Personally, I cringe when folks tell me they have kids and no life insurance. It’s a must have during the years they rely on you. IMO.

-J.

Agreed! My wife and I have always said that our life insurance policies need to be capable of paying off any existing debt and ~4-5 years of your own salary. For people with kids, a mortgage, and some expensive toys and vehicles…it doesn’t take much for the math to add up to a million dollar life insurance policy. It’s shocking when talking to some friends and family that they do not take more than a small $50,000 policy that their employer tosses out for free. It’s one thing to gamble on yourself and your future, but not on the rest of your family’s futures.

I wrote this in the “Investors” thread from last month.

For bare minimum starters:

Max out your 401k. Max fund a Roth IRA. (Funds invested in S&P500 index accounts) Accumulate 6 months to one year after tax annual salary in cash. Ok to have this sitting in a bank money market fund. This is you emergency fund and should remain liquid.

The though process on 6 months of cash is to cover the typical 6 month wait for social security if you were to become injured/disabled from work.

If your financial advisor does not start here, I’d be giving him/her the stink eye….

-J.

TheFamousGrouse wrote:

So what real benefit is an expensive life insurance policy that insures you well past the point where you should really need it?

The so-called “cash value”, if you look at it as an investment, really is a poor investment at that. You would do far, far better by buying a cheaper term life policy and investing the rest of the money that a WL policy would have cost them in an S&P index fund. Just do the math on what an 8% return on the premium difference between a TL and WL policy would generate over 25 or 30 years.

Passing assets to your kids/church/whoever tax free and exponentially more funds than you paid into it are the one of the main reasons it’s attractive. You buy dollars with pennies on permanent life. Guaranteed interest floors on the cash value make it much safer than open market investments, especially if you fear another recession or depression. And utilizing the cash value while you are alive are much more flexible and advantageous than open market investments. There’s a reason why the wealthiest people (Gates, Buffett, Welch etc.) have astronomical amounts of permanent life, and why more and more high profile coaches take their pay in permanent life premium payments than in regular pay.

Jon Jordan wrote:

I wrote this in the “Investors” thread from last month.

For bare minimum starters:

Max out your 401k. Max fund a Roth IRA. (Funds invested in S&P500 index accounts) Accumulate 6 months to one year after tax annual salary in cash. Ok to have this sitting in a bank money market fund. This is you emergency fund and should remain liquid.

The though process on 6 months of cash is to cover the typical 6 month wait for social security if you were to become injured/disabled from work.

If your financial advisor does not start here, I’d be giving him/her the stink eye….

-J.

While I agree with the sentiment on this, if you’re currently carrying a bunch of credit card or other high interest debt, you might be better off to fund your 401K to get a full match and pay down that debt. Once that has been paid, then focus on maximizing these accounts. One of the biggest things in gaining control of finances is to create a budget, track your spending, and keep focused on your goal. Too many people follow lifestyle inflation and end up working long after they should have been able to retire.

Where to look for a reliable financial advisor? Ask people you personally know to be financially stable who they use. Or if you work for a company, ask the CFO if he/she has any recommendations. I worked with a few younger advisors when I was younger, and I think I simply added to their portfolio rather than them adding to mine. Finding somebody you can trust might mean asking somebody you trust who they use or can recommend.

Personally I would pay close attention to overall fees for everything. I don’t know how old you and your wife are, but unless you are either completely unfamiliar with any and all life planning (which tons of people are, and I’m not trying to be insulting by any means) or you have a large amount of cash sitting on the sidelines and not sure what to do with it, they may not be incredibly helpful. Once close to retirement (5 years away maybe) or have a good amount of excess money outside employer plans, the adviser can be very useful.
Those dollars paid in fees could be dollars spent on additional mutual fund shares!

Good Luck to you on whatever you decide!

Just a few things that I’ve learned.

– Most people will recommend to you their advisor. most people have no idea whether their advisor is actually good. If you don’t know anything better exists, you are likely satisfied with what you got.

– Banks used to be crap for investing, but they’ve gotten way better. our credit union will actually put you into a good plan if you want to pay them.

– Whole life insurance is something that is often shoehorned into a situation where it doesn’t belong. There are places where it is definitely prudent. And there are places where it isn’t. If you are not maxing out your tax advantaged spaces (401k, roth, hsa, etc etc) you likely can find better tax advantaged value and term life elsewhere.

– get a gauge of all fees you will paying. Also depending upon what your goals are, if you are paying someone to manage your financials, front loads aren’t always bad.

– ask questions. take control of the conversation. you can google lists of questions to ask. but even after you sign on with someone, continue to ask questions about the funds. whats in them, what about overlap with these other funds, who manages these funds, what do you know about them? Before i buy any fund, index, managed, etc, i learn as much as humanly possible about it. and if i’m having someone manage my money, they better know it all too.

– in the end, you should be getting your match at work, investing in roths for you and your spouse (if you qualify) and then heading back over to your 401k or whatever unless your 401k is a pile of garbage (some are). any other investment plan IMO is mostly designed to earn an advisor money. They will come at you with insurnace products, real estate trusts, all sorts of crap.

– Fiduciaries are the word of the day in the financial world. Its not the magical thing that makes an advisor truly care about you. all lawyers are technically fiduciaries. (blink blink)

BigWerm wrote:

<div class=”d4p-bbt-quote-title”>TheFamousGrouse wrote:</div>
So what real benefit is an expensive life insurance policy that insures you well past the point where you should really need it?

The so-called “cash value”, if you look at it as an investment, really is a poor investment at that. You would do far, far better by buying a cheaper term life policy and investing the rest of the money that a WL policy would have cost them in an S&P index fund. Just do the math on what an 8% return on the premium difference between a TL and WL policy would generate over 25 or 30 years.

Passing assets to your kids/church/whoever tax free and exponentially more funds than you paid into it are the one of the main reasons it’s attractive. You buy dollars with pennies on permanent life. Guaranteed interest floors on the cash value make it much safer than open market investments, especially if you fear another recession or depression. And utilizing the cash value while you are alive are much more flexible and advantageous than open market investments. There’s a reason why the wealthiest people (Gates, Buffett, Welch etc.) have astronomical amounts of permanent life, and why more and more high profile coaches take their pay in permanent life premium payments than in regular pay.

the wealthiest people have tons of permanent life because there is no where else for them to defer taxes. its a way of avoiding estate taxes on the excess of the estate tax exemption. something most people will ever have to worry about. Also most people accumulate that wealth in later stages of life where even term insurance is pretty costly so they opt for the guaranteed death benefit.

I shy away from advisors and do it myself to avoid costly fees and expense ratios. I can be invested in the same exact fund as someone with a FA but earn substantially more because I’m not dumping 1% (minimum) of my investments back to the FA every year. It may not seem like a lot, but it really adds up.

Check out the bogleheads forum for more help with investing on your own.