How can a Fee-Only Financial Planner help me?

A Fee-Only Financial Planner is basically an expert financial consultant who doesn’t sell anything but advice. Your planner will take a cold, hard look at your current situation, work with you to define the goals you want to reach in life, and then build a plan to help you achieve those goals. Your personal plan will guide you in saving, investing, and using your money as a vehicle to reach your desired goals.

Most people don’t need a financial planner for managing their day-to-day finances; they know how to write the rent check or pay the credit card bill. But there are times in life where hiring an objective expert can be of tremendous help:

•    You’re getting married and/or having kids
It can be stressful to blend two financial lives. Add kids to the mix, and you may find yourself pulling out your hair trying to figure it all out. A financial planner can help you address issues of insurance, assets, money management, college savings accounts and more.
•    You’re planning for retirement
Investments are a big part of retirement saving. A financial planner can help you decide how to invest, along with the best ways to withdraw funds upon retirement. Proper planning ensures you’ll pay the least amount of taxes as possible and that your funds will last as long as you need them to.

•    You’re facing a financial crisis
Nobody wants to be in this position. But whether the crisis is caused by job loss, illness, legal problems or any other misfortune, a planner who isn’t trying to sell you anything can be a great asset in helping you make sound financial decisions.

•    You’re buying or selling a home
Any sort of home-sale transaction can be scary. Consulting a planner for advice can provide you with recommendations and information on everything from your loan, household expenses beyond the loan, and the tax implications of becoming a homeowner. Knowing what you can really afford when shopping for a home can be more important than knowing how much of a loan you can qualify for.

•    You’ve received a financial windfall
If you’ve come into some unexpected money, a financial planner can manage your larger nest egg and help you figure out the best ways to invest. Whether it’s an inheritance, a large pension payout, insurance settlement, or even lottery winnings, a financial planner can help you plan for how to use some of it, as well as save and invest the rest.

•    You’ve lost a spouse
The death of a loved one is often followed by hurried financial decisions. A financial planner will be able to look at the situation with a calm and critical eye, and offer you advice that will benefit you in the long run. Talking to a financial planner early on can help you avoid the chaos entirely by making sure all the proper paperwork is done in advance, sparing the ones left behind a great deal of headache and heartache.

This list isn’t comprehensive by any means, but these are frequently reasons why someone will seek out a financial planner. Keep in mind, a plan is just a static document, a guidebook, and life changes all the time. Once a plan is created, a good planner will ask you to come back in, generally on an annual basis at least, so they can see if your progress is on course and to make necessary alterations. Even without major changes like those noted above, all plans will “drift” as time goes on. It’s important to revisit yours periodically to make sure you stay on track. 

“Budget” and “Cash Flow”: Why these should not be considered dirty words

It seems to happen every time. In any given conversation with people who aren’t in money-related professions (accountant, financial advisor, bookkeeper, tax preparer, etc.), when the words “budget” or “cash flow statement” come up, they get a look on their face as if someone shoved a handful of Sour Patch Kids™ in their mouth.

Even when talking with someone in money-related fields, when it comes to their own personal budget or cash flow, they get that same look. They KNOW the value of these things and they know the difference between them, but when thinking about them in their own personal lives, they get the screaming heebie-jeebies just like everyone else. Well, except perhaps for the really nerdy among us that like that sort of thing.

Why is that negative reaction the most common? Let’s take a closer look at these two important financial statements to make it easier to understand why they’re so useful and not as frightening as people think.

Cash Flow

A cash flow statement, either personal or business, is merely a breakdown of what money came in, what money went out, and what it was spent on during a given period. Notice the past tense used in all those; that’s on purpose. A standard cash flow statement is simply a historical record of what actually happened to the money for a particular period of time. It passes no judgements, it should tell no lies; it merely says, “this is what YOU did with YOUR money, good, bad, or indifferent”.

Knowing what your money got spent on and where it came from is critically important. If you don’t know your true situation of where it came from and where it went, you have no way, other than gut instinct, to guide your own money behavior. When it comes to money, human gut instinct is notoriously bad.

I’m not suggesting that you track every penny that comes and goes every day for the rest of your life. I would be the world’s biggest hypocrite if I said that. But sometimes doing exactly that for a month or two, or even a quarter, IS necessary to see just what’s happening with your money and if it lines up with what your instinct told you.


Budgets are the tool we use to (hopefully) tell our money where it should go and what it should do so that it behaves in a constructive manner. We want our money working for us, to do things like pay off debt or save for a future expense, and of course pay our regular monthly living expenses like food, utilities, entertainment and dining out.

The budget is an aspirational document and it looks to the future. It’s what we want to happen with our money and our lives going forward. It’s something we use to remind ourselves when we’re considering blowing a pile of money on an impromptu weekend trip to the beach, that we have other uses and goals for that money and maybe we shouldn’t be blowing it. If we really want a trip to the beach, we should introduce it in the budget and allocate some money towards a savings goal that is earmarked for that sort of thing.

We build the budget when we’re in our logical, thoughtful, and down-to-earth mode so that we can use it to reinforce our goals of saving for tomorrow, rather than spending for today. It’s ok to dream while budgeting; it is an aspirational document after all. But those dreams should be grounded in the reality that there is only so much money to go around and there are priorities to be addressed.

Not such dirty words

Maybe it’s the tedious nature of tracking money to build a cash flow statement that makes people hate it. Maybe it’s the guilt that may occur when realizing just how much has gone to impulse buys or inconsequential purchases.  Perhaps it’s the Peter Pan feeling of not wanting to grow up and make rational, sometimes sacrificial, decisions about how to budget our money that keeps people from doing it with any seriousness.

I can only speculate on why budgeting and cash flow awareness aren’t a bigger thing in people’s financial lives. I can, however, give you one cold, hard truth: those people that do a budget and keep an eye on their cash flow have a much better chance of achieving their goals and generally end up wealthier than the ones who don’t do it.

Saving and Investing Tips for the Control Freak

Hello, my name is Ronnie and I am a control freak ...

<insert chorus of "Welcome Ronnie" from the rest of my assembled control freak brethren>

If there were such a thing as Control Freaks Anonymous (I don't think there is but I could be wrong), we would begin by reciting the Serenity Prayer:

"God, grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And the wisdom to know the difference." 

As a recovering control freak, I have to constantly be on guard for letting my desire to control things outstrip my ability to actually do so. This is seldom more true than in the world of saving and investing, where there is much beyond my control and very little (comparatively) within it.

When swimming in the sea of our financial lives, the ability to recognize that which we cannot control is key and sometimes there are nuances to that recognition. For example, I can't control market interest rates, as I am not in sole control of the Federal Reserve. I can however control, through research, where I put my money in order to get the best interest rate available to me.

Given what's been going on the last few weeks and months in the global economy, I thought the timing might be right for reminding myself and my fellow control freaks about a few of the things we can and cannot control in our saving and investing activities. Let's begin with the things we can't control, since those are the most unpleasant and we want them out of the way first:

What We Can't Control

  • Market volatility - The market and its corresponding indices covered in the media (Dow, S&P, NASDAQ, etc.) are going to change every minute of every hour of every trading day and there's not a thing we can do about it. Like a perpetual roller coaster, we must resign ourselves to the ride if we're going to be in the market at all. Whether you should be in the market at all is a topic for a different day...
  • Interest Rates - See previous example. The savers among us would love to see higher interest rates, the borrowers want to keep it lower. Suffice to acknowledge that we can't control the prevailing rates and move on as best we can.
  • Wall Street and Corporate Behavior - The big banks, investment firms, corporate CEO's, and their executives are going to do what they're going to do, which is to do their best to squeeze as much money out of the system (and us) for themselves as possible, in any way they can come up with. It may be illegal or immoral, but they're going to do it and we won't know about it until after the fact.
  •  Taxes, Now and in the Future - Taxes are a necessary evil of modern life and you're going to have to pay them. Sooner or later and in some form or another, you'll pay them and you can't let avoiding taxes control your every decision. What rate you might pay for a given circumstance, particularly when thinking about a retirement horizon that might be 30 years away, is ridiculous to consider since nobody knows what the situation will be then. Remember, you can be guided by tax implications but your actions should not be dictated by them.

 Now that is by no means an exhaustive list of what we cannot control (feel free to add your own in the comments below) but it's a few highlights. The trick is to truly realize we can't control them and not let that get in our way emotionally or psychologically. Now let's shift to the more pleasant things, that which we can control.

What We Can Control

  • Spending - All spending is discretionary to one extent or another. Sure there are expenses you can't avoid like food, clothing, shelter, etc., but you can control how much you spend on them. Some expenses are fixed in the short term but can be changed later, like being 6 months into a 12 month lease on an apartment; you can't control it for the remaining 6 months but you could move somewhere less expensive later. You don't need the latest iPhone and you won't die of starvation if you don't shop at Whole Foods. Spending is something you have a great deal of control over.

    *Side Note: never,ever, be ashamed or embarrassed about clipping and using coupons. Whether things are very tight for you or you're rolling in money, coupons are awesome if you can use them for the things you want, particularly groceries and meals out.
  • Saving - When combined with changes in Spending, our ability to save is our most powerful investment tool. We control what we do with our savings in terms of our emergency fund and where we put it to have easy access but still get a decent interest rate. We control where and how much we devote to retirement savings, our kid's college fund, or just saving for a new car or improvements to the home.
  • Income - We have a degree of control over our income, whether that's asking for a raise in our current job, a promotion, changing companies, getting some extra education and changing careers, or, in a pinch, getting a 2nd job delivering pizza. One way or another, we do have some control over our income and using that control will impact other areas of our lives, notably Saving and Spending.
  • Taxes - Yes, you read that right. Taxes shows up in both categories because while you can't control them to the point of never paying them, you do have some degree of control over when and how much you might have to pay, depending on your individual circumstances. Deferring income to a subsequent year, using a ROTH IRA instead of a Traditional IRA, judicious use of an FSA or an HSA for healthcare expenses, etc. Your accountant or financial planner can give you some advice on this sort of thing but there is some control to be had. It's not ultimate control, but it's better than nothing.

The thing we control freaks must admit and adjust to is that much of life is beyond our direct control. We must accept that fact and let it go, being content to control what we can to achieve our desired outcomes. In saving and investing, like many other things in adult life, there is no option to take our marbles and just go home, refusing to play the game. To have any chance at things like a reasonably comfortable retirement, a decent roof over our heads, etc., we must play the game the best way we can. This sentiment is summed up very succinctly, at least for me, by one of my favorite movies in the following line:

"There's no sense asking if the air's good when there's nothing else to breathe ..." Henry II, "The Lion In Winter"

Your Actively Managed Fund May Be Costing You More Than You Think

You think your mutual fund investment is a good deal because it only has an Expense Ratio of say 0.9%? Maybe or maybe not. You might actually be paying a good deal more than that and you don't know it...

All mutual funds have to tell you how much participating in their fund will cost you and you'll generally find that information in a "Fees & Expenses" section of a prospectus or the fund profile on Yahoo! Finance. In addition to the Expense Ratio, there are also potential sales loads, 12b-1 fees, etc., but the focus of this article is an implied cost and can only be hinted at in something known as the "Turnover Ratio".

The Turnover Ratio is a measure of how many times the total value of the portfolio in the fund gets traded during the year. A Turnover Ratio of 150% means that the total value of the fund will "turn over" 1.5 times during the year. The higher the turnover ratio, the more trading the manager is doing in pursuit of investment returns.

Trading is done by the fund manager in an attempt to buy low,sell high, find bargains, and ultimately to "beat the market" or at least beat the index by which the fund measures itself, like say the S&P 500. The costs of these trades can't realistically be disclosed up front like the Expense Ratio or other fees because you never know how much trading will be done, with which trading partner, and what those costs might add up to. Make no mistake however, trading costs are a drag on your return and some are worse than others.

For an example, let's randomly choose a fund to examine, say the Schwab Large Cap Growth fund at the following link:

In the "Fees & Expenses" section you'll find that this fund has a Prospectus Gross Expense Ratio of 1.04% (as of this writing). There are no sales load fees or 12b-1 fees associated with this fund, so you might expect that your costs would only be that 1.04% per year, roughly $104.00 per $10,000 invested. 

In the "Fund Operations" section, you'll see the "Annual Holdings Turnover" of 82%. So at that level, just 18 points shy of a 100% turnover, there is definitely some serious trading going on. We know they're paying something to make those trades, but what is that costing you in terms of your total return?

Research from the Financial Analysts Journal (link below) published in 2013 indicates that trading costs can reach levels equal to or even greater than the stated expense ratio. You are of course welcome to read the research yourself but a summary table can illustrate the point: 


Link to original research:

Continuing with our example of SWLSX and consulting the table above, a Large Cap Growth fund from the study has a Turnover Ratio of 89.3%, which is fairly close to the 82% of SWLSX. That same category has an Average Trading Cost of 0.97%, which is in addition to the stated Expense Ratio of 1.04%, for a total potential expense of +/- 2.01%, which is not quite double what you thought you were paying in expenses.

So, generally speaking, the higher the turnover rate in a fund, the higher the trading costs will be. In specific categories those costs can be little more or a little less but it's an easy to understand idea and the costs to the investor are real. It may not sound like much for any one year but remember we're talking about investment horizons that can be 30+ years out, so those costs compounded over time can cut very deeply. The larger your portfolio, the larger these costs will be and the greater your compounded returns will suffer.

None of this is meant to dissuade you from using an active management strategy but to give you more information to inform your decision. This data doesn't cover all categories and of course the last of the data set was from 2006. Things have changed since then, expenses have come down, markets have changed, etc. Just know that trading incurs costs and those costs come out of your investment returns, either explicitly or implicitly. As I was reminded by an old cartoon from my childhood: Knowing is half the battle. That sentiment is particularly true of investing. Know what you're getting into before you get into it, so you can more accurately gauge your expectations.

How do you avoid these costs and keep more of that money for yourself? Different people and advisors will have a different opinions of course, so your mileage may vary. For myself, I recommend an index fund approach, which keeps both the expense ratio and turnover to a minimum. I do give up the chance that my index fund will ever beat the market but I always know I won't really be much below the market either; such is the nature of index funds. That however is a subject for a different day.