Lazy Man and Money

Do I Need a Certified Financial Planner?

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For decades now, I’ve been studying personal finance. It’s gotten to the point that sometimes, I don’t know if I have anything new to add. In fact, one my goals this year is to organize the 2 million words I’ve written… maybe cut it down to a million words that cover all the major points.

(Don’t worry I intend to keep a back-up of my articles around if you are curious about my money thoughts on March 8th, 2007… and I know you are!)

After all of that, that title was surprise, even to me. I think the answer is, “Yes, I do need a Certified Financial Planner.” However, it’s probably not for what most certified financial planners typical do. I have a few advanced questions.

I’ll cover the advanced question that sent me down this rabbit hole in a minute. For now, let’s consider a simple possible conclusion. If I can benefit from a CFP, there’s a strong chance you can too… or maybe not.

Why See a Certified Financial Planner Now?

The simple answer is that my finances were easy. There were a set of relatively basic rules and we had the income to cover them. For example, we maxed out retirement accounts and invested them well. We bought rental properties and built and empire. I’m extremely good at saving money on all sorts of expenses from food to clothes to electricity (solar panels).

It’s all worked out very well, much better than we could have expected…

…and that’s the “problem”

Our finances have gotten fairly complex with the diverse number of income streams we have. It’s made me start to look at things that many people perhaps should not focus on. One of those things is income tax. As our money continues to compound and snowball, we may reach higher tax brackets. I don’t mind paying my fair share, but I don’t want to give them any more than I have to. I’ll play the game that they created to pay less taxes if I can. Also, if the government is going to act like it currently does, well I don’t want any part in funding this absurdity – or any more than I legally have to.

I’d rather:

  • Donate to charities that I believe in – in the best possible way.
  • Leaving behind a financial family legacy
  • Maximizing the amount of sunsets, museums, and any other wonderful things I can fit into this short life

Details of the Financial “Problem”

I keep putting “problem” in quotes because it’s a situation at least 99% would love to deal with. The issue is about optimization. If we make some mistakes with our money, we’ll likely still be in tremendous shape. However, we’ll limit those three things of above and have less money for them than we could have.

I’ve already mentioned my biggest concern. It’s taxes.

Many of the personal finance writers who retire early have saved up a lot of money when they were young and are living frugally off of the investments generated by those savings. They earn a low income, but it’s enough through their frugal activities like travel hacking, geographic arbitrage, and owning a home in a low property tax area. This low income can often be so low that they pay very little in taxes.

(Note: Some criticize them for not paying their fair share, but I’m not going to pass judgment. Don’t hate the players, hate the game, right?)

This is a tremendous plan for them, but it’s not likely to work for us.

My wife’s pension alone is substantial already. There’s no tax trick to make it look lower. We have investment properties and the income from those could be substantial as well. We may be able to reinvest that money in upgrades or further real estate, so that income doesn’t get too substantial. However, we’d like to be able to use that money for things like college expenses.

The biggest thing coming down the road is our investments. We’re 43 now and after years of saving for retirement in those accounts, they are doing quite well. We might not touch them for another 30 years, meaning that they’ll be very big when it comes time to take them. Many are in TSPs, SEP-IRAs, and Rollover IRAs (from 401Ks), so we’ll have to pay taxes on them then. We could be in a high tax bracket.

Most people who retire earn less in retirement, so their tax bill on deferred taxes is less. I have a feeling ours could be more. A certified financial planner could give us a second educated view into all this.

One thing that intrigues me is that the taxation of qualified dividends is very low – potentially even zero. It’s quite possible that it’s better to hold stocks (including ETFs) outside of our tax-deferred accounts. It looks like we’d only pay 15% maximum on the income from these dividends vs. the 28% (or more) that we’d have to pay when it comes out of tax-deferred accounts.

All of this goes into main financial question of the year (so far): Is it okay not to save for retirement?

Of course, we’d still be saving, but doing it in a way that potentially allows us to pay fewer taxes in the future.

This all me a case of me overthinking things. (I have a tendency to do that.) In this case, getting a second opinion can only be seen as a positive thing, right?

And that brings me to my original thought, “If I can benefit from a certified financial planner, there’s probably a good chance you can too.”

So You Want to Be a Certified Financial Planner (CFP)?

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The other day I was thinking about how to make some extra money on the side. As much as I love frugality, making more money is a great thing too. One idea that may seem completely obvious to you, but slipped by me, was to formally help people manage their money. I’ve been writing here for 7 years about my own money and occasionally answering reader questions (hint: mail me your questions). If I can parlay this knowledge to looking at a person’s finances directly and helping them out, why not? It would be a win for them and perhaps I could make a couple of hundred dollars in the process.

In a strange way, this would almost piggyback on my computer science degree as I love to optimize systems. (In this case, the system would just be the other person’s finances.)

So the first thing that I did was research what I’d need to be a Certified Financial Planner (CFP). It looks like there are three main parts:

  • Take the Classes
  • Pass the Exam
  • Meet the Experience Requirement

Taking the classes wouldn’t be a big deal to me provided I can take them online. You could even get an accelerated business degree online if you had enough time. Honestly, I didn’t get too far into this one due the third item on the list. It did look like most of the things that you’d expect like classes in retirement planning, investment planning, estate planning, etc. Investopedia says that the average student will spend 1,000 hours on the coursework. That’s about a half year presuming that you do it full-time, 40 hours a week.

In addition to the coursework, you must have a Bachelor’s Degree or better. So you are pretty close to a 5 year Master’s level program, perhaps a little less.

After that you have pass the exam. That makes sense, I’ve got no problems with that.

Then you get to the back breaker, the experience requirement. After you have done all that work, you then have to report your experience to the CFP board. There are two main ways to get experience, the 3-year (6,000 hour) plan and the 2-year (4,000 hour) plan. The 2 year way requires an apprenticeship under a licensed CFP. The 3-year plan allows you to do your work without a licensed CFP watching over you. One thing that hurts from my perspective is that I have to do all the prior work before knowing if my extensive work as a personal finance blogger counts as any experience. I’m not trying to be negative, but I imagine that they laugh at it, despite my following. It’s clearly not individual planning experience like they are looking for, but it’s not like I am the Average Joe who is looking to be a CFP.

The experience requirement also has to be completed within 5 years of taking the test, so if you wanted to take some time in between to pursue other endeavors, you risk having to start all over again (or at least having to pass the test again).

So adding it all up, it’s a 3.5 year full-time commitment (I’m going to be conservative and assume that I can’t find a CFP to be an apprentice under). If I wanted to put that much time into something, I’d go with business or law school. There’s even a pharmacy school option for those who excel at that kind of thing. The median CFP salary of around $67K simply doesn’t warrant spending nearly 8 years of education. I guess there’s a difference in that you can still make money while you are getting experience. I’m not sure how much money you can make while you are getting your experience.

Given the requirements, I can’t understand why anyone would pursue the career. Maybe he/she had a Bachelor’s Degree that isn’t in demand? Even so, why not going into some of the above professions if you are looking to maximize your income potential.

At this point, I probably don’t need to put this in writing, but this clearly not the kind of thing that I can do part-time to earn some extra money. As a software engineer with around 10 years of experience (admittedly I’m rusty since I’ve been focusing on personal finance), it would be kind of foolish to put this effort into something that would pay me less than I made 2 years out of college and far less than I could expect today. I suppose this is why I see some of my favorite personal finance gurus like Clark Howard label himself as a “Money Coach.” Jean Chatzky and Suze Orman don’t have the designation either. If you look at famous personal finance gurus, it’s rare to find one with a CFP degree.

To a certain degree I understand the need to be stringent with the requirements. You are dealing with people’s money and (not that) indirectly their livelihoods. It’s a huge responsibility. However, the rewards don’t seem to match the requirements. Not to be complete jerk, but I’ve listened to generic (not individualized) advice from many CFPs and found myself amazed by their advice. I’ve seen some suggest that managed mutual funds are worthwhile based on their past performance. I’ve seen others suggest that they saved a couple of thousand of dollars in their 20’s and suggest that is definitively going to be worth hundreds of thousands of dollars later in life. It might be, but they are certainly make a ton of assumptions about investing performance (and almost always ignore to point out inflation).

This isn’t to say that all CFPs are giving out questionable advice, but their extensive requirements are certainly not in keeping my own self-education, standards, and ethics.

The requirements are so restrictive that they exclude a lot of very obviously qualified candidates. I’m reminded of the famous Groucho Marx’ quote “I don’t care to belong to any club that will have me as a member.” Except in this case, I wonder if I should employ someone to give me financial advice who chooses a profession that seems to vastly undervalue his/her time in relation to the education required to give such advice.

[Editor’s Note: This title is a nod to Hero’s Quest, one of my favorite Sierra On-line games… and yes, I don’t recognize the copyright lawsuit that made them change the name. Since they had previous hits with King’s Quest, Police Quest, and Space Quest franchises, Hero’s Quest was a natural name.]

Greed or No Greed

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Jeff Rose
Jeff Rose
Today’s guest post comes from Jeff Rose who is an Illinois Certified Financial Planner and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.

On NBC you may have seen the game show called “Deal or No Deal” starring Howie Mandel and 26 wonderful ladies with their respective briefcases. The premise of the show is for the contestant to select random briefcases holding dollar mounts from $.01 to $1,000,000, trying to eliminate cases without picking the higher amounts. As the cases dwindle and depending on what amounts are left, the “banker” will offer the contestant a dollar amount that contestant must accept (Deal) or not accept (No Deal). If the contest chooses “No Deal”, they keep selecting cases that will either increase or decrease the banker’s offer. Pure entertainment flourishing at its finest.

The Greed That Lies Within

What I find appealing of the show is that it brings out the greed that exists in most all of us. I have seen contestant after contestant fumble their way from a sum of money that would have literally changed their life to an amount that barely made the whole experience even worth it.

My most memorable contestant was the single mom whose only goal was to win enough to pay for her son’s college education. She was cruising right along and the highest offer was well above $150,000.00; far exceeding her goal before the show. All she had to do was say “Deal” and her life would have been forever changed. She did not and ended up walking away well under $10,000. It’s a sad story, but how do you really feel sorry for somebody like that?

Are Stock Buyers Greedy?

Relating the show to stock investors is quite easy. Many times I have had clients that have purchased a stock with the goal of making let’s say 20%. When the 20% is reached, they want to hang a little bit more to get to 30%, 40%, or maybe even 100%. The outcome is usually not pretty.

Instead of locking in the gain, we’ll watch the stock drop back to its original purchase price. Upset that they didn’t lock in the gain, they decide to wait it out until we get back to the 20% gain and then they are “definitely getting out“. Then the stock drops below the purchase price. Even further upset, the client decides to wait to hang on and wait till they can sell to break even. I think you see what direction we are heading.

Remember Your Goal

Sometimes we have to remember what our goal was in purchasing the stock. If your goal is to make 10% then that’s when you sell, no matter what. If you can’t stand to lose more than 10%, then the same rule applies. Get out when you said you would get out.

Can’t Control What Happens Afterwards

Sometimes the stock will go up in value after you sell it. It just happens. Do not get frustrated about what you “could have had”. It’s impossible to predict when the exact time to sell it. Be grateful that you actually made money, especially with the recent crummy market. And always remember that selling a stock at a profit, no matter how small, is a better “deal” than going home with an empty briefcase.

Money Magazine July 2008 Highlights

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When I was going through my mail last week, I noticed something interesting. It seemed like I got a flier that was thicker than usual. Wait, it was this month’s Money Magazine. It feels like the slimmest edition of Money Magazine I’ve seen… yet, I happen to have the July 2007 copy handy and they are both the same 128-pages. So much for my conspiracy theory that advertisements were down and Money Magazine might be undergoing some financial issues of their own. Either July is just a light month in general or I’m just crazy thinking this copy was thin.

Anyway, here are some of the highlights from this months issue. If you have a copy, you can follow along with me. If you don’t, here are some of the things you might be missing.

– Save money on drug prescriptions with the advice on p. 19. The hint: go shopping at Wal-Mart.
– Women want to talk more about money (p. 20). True.com survey says that 33% of women want to talk more about money while only 21% of men do. This goes against almost every female I know who would rather have a root canal than talk about money. My wife fits in that group. What do men wish the talked more about… big suprise, but it’s sex.
– Frank Boucher, certified financial planner learned he could save money on baseball games by bringing his own food (p. 20). He could have learned this months earlier if he read my article on Saving Money at Baseball Games
– It’s only a good idea for a select minority to get the $100 unlimited cell phone plans that some providers are making available. (p. 26)
– Jean Chatzky says driving a little greener can save you money on gas (p. 28). Five Cent Nickel found out the same thing first hand.
– Interesting article about taking care of your finances for couples always on the run (p. 33). Maybe it’s just me because I’m experienced, but much of my finances take care of themselves most of the time. Online banking shifts money into almost all the right places. I pay credit card bills online, but I have a back-up set up with Chase so that they would get paid in full if I forget. About the only thing that I remember is to write the rent check.
– The Right Way to Take a Pension (p. 40). What’s a pension ;-).
– Are you paying your financial adviser 3% (p.44)? It seems that many are. This is one reason why I spent time to learn to invest myself. By limiting expense ratios and diversifying with exchange traded funds, I often pay closer to 0.5% in expenses. That adds up to a lot of money compounded over the years.
– Walter Updegrave says that your retirement number is a moving target. I came to this conclusion with my My Ever Expanding Retirement Goal.
– Inspiring entreprunal highlight (p. 53). I love reading about people starting their businesses and the troubles they have with them.
– How do you protect your idea from being stolen by a big company (p. 53). I’m surprised to see that it doesn’t mention anything about writing out your idea and sending it to yourself via certified mail. You’ll get a date stamp on the sealed envelope. If it has to go to court, handing the judge the envelope should be great evidence.
– Learn how artificial materials can be better than the real thing in your home (p. 62-64). If I was to redo my home, I would definitely heed all these suggestions. It looks like they’ll last longer and in some ways cost less to begin with.
– Invest globally with one fund (p. 69-70)? I say no, but I like reading about investments. You might not be like me.
– Invest in networking companies (p. 78)? Is it 1999 again?
– Six pages on Inflation (83-89), this is a major article in the issue. This is one my biggest financials fears. If I had to guess it’s probably yours as well.
– Pages 91-95 – Feature on People Living Without Plastic… This was the article that featured two personal finance bloggers I previously mentioned.
– Do you know your spouses finances? This a 5-page feature.
– College Loan article that I won’t read from pages 102-105
– Page 106 – OMG, full size, close-up picture of Suze Orman… If I had a mustache like the one she’s showing, I wouldn’t allow a close-up like that to be published.
– Page 107 – This Suze Orman article is the first one I’ve read of hers that was good. Check it out.
– A family looking for a simpler life quits their high paying jobs and moves out to the farm. What about their finances? Page 109-113
– Looking for a Home Security system? See the review on page 115-117.
– Getting a lightweight PC? Look for the round up on 118-119. They left out my Asus EEE.
– The last page is an article on carbon offsets. I didn’t find it that interesting.

Finovate Demos – Part 1

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Here are some updates from the first batch of demos at Finovate.

Authentium – Safe Central makes keystroke loggers or screenshot grabbers “blind.” Runs on top of Firefox. Prevents man in the middle and phishing.

Credit Karma – Free credit score tracking using their proprietary scoring system. Cons are that you need to give up your social security number. This seems to not be a problem, because 86% of people who try to join complete the registration. Credit pulls are “soft pulls” – a very good thing. Credit Karma gives you percentile vs. general population. Makes money by pitching offers tailored to users of a specific credit score.

WorkLight – Allows you do banking from portals like iGoogle or Facebook securely. The premise is that people would rather bank in these applications.

Prosper – You should know this company by now. Their presentation was a general walk-through with a focus on endorsements which typically have 35% less default rate.

Andera – Does banking accounting for other third parties. It does this in real-time by verifying your identity with (*I think*) a credit pull. You can then log into an existing bank (with help from Yodlee) to fund that account.

BoulevardR – Provides financial planning advice through a Certified Financial Planner. Updates your goals over time.

Diversinet – Use your cell phone to bank and send money securely. Makes money through a transaction fee similar to an ATM.

Facilitas – Allows you to search for a better bank based on your personal preferences. Once you find that bank, allows you to quickly switch from your old bank to your new bank ““ including porting your online scheduled payments.

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