A Financial Planning Story

In a recent newsletter I shared a personal story about how financial planning has informed a decision.  A lot of readers responded positively so I am sharing it here. Let me know what you think.  Do you have a story about how financial planning impacted you?


     Recently, my wife and I were making a significant financial decision. We had been looking at making a large purchase, the largest of our lives.  It has been on the radar for a while and the time had seemingly come.  We had many conversations. We talked about what we wanted, what we hoped for, what could be. 

    As you might expect, I ran numbers and we revisited our own financial plan.  We looked again at our financial goals, some of which had changed, some which had become more acute.  I ran various scenarios to model the consequence of such a purchase.  I talked to others both financial experts and trusted loved ones to ensure my interpretations were not overly emotional.   

    Together we wondered, how could such a purchase impact our retirement security? What about our current cash flow?  Would the need to finance the purchase cause us undue stress?  Could we continue to save for the kid's college?  How does it impact our charitable intentions? The questions rained down unrelentingly.  

   These are not easy questions, but the answers we give them are important.  Once again we found ourselves going through the financial planning process, not for the first time mind you, but here we were. Again clarifying our values, revisiting our goals, measuring our progress and letting those things help guide us in our decision making.  

   The numbers, while not a slam dunk, were positive.  We could do it. We talked some more.  Numbers are not life.  We recognized the role that emotions and desire were playing.  Together we considered risk, stress, health, the kids, the future. 

     We made an offer, uneasy, but buoyed confident by the a couple of months of running projections.  I pressed send, the email sent, the offer made, and then we waited. 

    I share this with you because I was reminded why financial planning is important. It is a dynamic, unending process, one stretching well beyond investments and returns. In fact, it could be argued that divorced from one's plan, returns are nothing more than numbers anyway.                

    Financial planning is life and the acknowledgment in life we have to make financial decisions.  It is about making intentional choices. It is about being proactive so when opportunities come along we can take advantage of those opportunities.  It is being moored to something and not cut adrift in ceaseless seas beckoning for our consumption. It is waiting, as well, the practice of patience.

Financial planning is not about guarantees it is about possibilities. 

     I was grateful. We learned alot about us as a couple.  We marveled at how our situation had changed over the course of our marriage.  We recognized such a purchase would have been impossible to even imagine just a few years back. It wasn't income that changed things, it was years of making small choices, putting way small amounts, avoiding debt, and doing those things over and over and over.  

    I now had demonstrative proof that planning matters. It wasn't about investments, or insurance but rather intention. In this area (financially), we had acted responsibly and making that offer was testament to our efforts and sacrifice.  

    The offer was rejected.  Financial planning is not about guarantees it is about possibilities.  We didn't fight back.  We are okay with that decision.  While we didn't get what we wanted or could afford.  We were more confident. Confident that whatever disappointments life may bring we are better equipped to face them.

Attempting to Quantify the Value of Financial Advice

It is difficult sometimes for folks to grasp just how valuable financial advice is when look at the dollar amount associated with getting that advice.  Sometimes I have likened it to me visiting my preventative health doctor.  What is it worth in dollars to "not get sick."  It is hard to know but safe to say, that it is substantial.  

That said, there have been some good efforts and quantifying it, most notably, a study by Vanguard. They unfortunately called it, Advisor's Alpha, which means nothing to most folks.  They claimed that the value of the financial advisor was worth 3% a year net of fees.  If that is true, that is big.  You can download the study for yourself by clicking here.

One of the advisory community's thought leaders is Michael Kitces of the blog Nerd's Eye View He also took a stab at quantifying the value a while back.  Michael gave us permission to share a summary with you.  Check out this chart and let us know what you think. Is this compelling to you?  

Snarky Answer to Important ?

It took ten years, but I was finally asked the question.  I am really surprised it took that long.

When I first wrote my business plan, I was attempting to evaluate my competition and where my business would fit into the advisory landscape. I originally thought my biggest issue would be the size of the firm. I didn't have millions to "brand" my services.  How could I compete with Merrill Lynch, Morgan Stanley and the Fidelity's of the world?  

After all, you don't have to watch much television to find a celebrity cajoling about a brokerage firm, or see a nicely produced ad of an attractive couple grappling with financial decisions that will undoubtedly be solved if they just put their money with a major wirehouse or insurance company.  How, I thought, could I penetrate a marketplace that had so many big players, throwing so many resources at branding.  

It turns out that often these big players are among my best client sources, and as I continued in the business, I began to worry less and less about them. That is until recently when I was asked the question. The question I long ago feared.  Last week, a prospective client asked how I could compete with so and so (a name any of you would recognize).  

My old canned response that I had practiced and perfected but never got to use was forgotten.  I paused for a second, and replied truthfully, I can't compete. I added, I am not even trying to compete. I acknowledged to the prospect that it was a good question, and one that he must answer for himself.  If he thinks a big "name" will provide better service or inspire more confidence, then ColeFP is probably not the right firm for him. To date, I haven't heard back from him so I assume he found his answer, but it got me to thinking about the decision to hire a financial advisor. I am not generally snarky in business, but had I wanted to be this is what I would have said.

We aren't "big", but we didn't drive the economy off a cliff either

It wasn't independent Registered Investment Advisers that froze credit markets and wrecked our economy for years and years.  It was some of the most recognizable financial firms in the country. It was many of the same companies who have spent millions and millions of dollars to convince you that they are trustworthy because of their size and longevity.  They may be bigger but does that mean they are smarter with your money. Outside of hiring a celebrity spokesperson or increasing their ad budget, what have they done to warrant your invesment or earned your confidence. 

I answer to my client not shareholders

If a company is publicly traded, then its responsibilty is to its shareholders not to its customers and clients.  There is nothing wrong with answering to shareholders per se, but it is safe to assume that the interest of the client is not going to take priority over the interest of the shareholder. This is one reason the fiduciary standard of care is fought by so many of the big players in financial services.  You can't put the interest of the client first when you have shareholders who demand their own interest be served. And for the actual advisor servicing you. If they are on salary, then they have a manager to answer to, if they are on commission, well, you know how that is going to go (see below).  

You work for who pays you

Follow the money and you will know where the loyalty resides.  It is as simple at that.  If an adivsor is getting income from an insurance company or a mutual fund then they are working for them not you.  ColeFP has been from the beginning, a fee only firm.  One hundred percent of our revenue comes from our clients.  We can recommend anything we think is in the client's best interest because we don't get paid to recommend one product over another. There are no "in house" products that a manager tells us to promote, no trips to win if we meet productions quotas.  The only salary we make is the one that our clients pay us.  

Planning matters most but pays the least

This is true and why the big guys in the industry view planning as a losing proposition only begrudgingly doing it to keep client assets.  Planning is labor intensive and there is very little economic incentive for big box financial service firm to offer it unless they can tie it to the sell of a product and then you have to question the motive of the planning.  

While it doesn't make a lot of money for the big boys, it makes a world a difference for the client.  The goals and objectives of the client should drive any investment decision.  That is why we say, ColeFP is a planning centeric investment advisory firm. When it comes to personal finances, planning matters most.