What is Financial Planning?
Financial planning is a process that provides you with the steps you need to take, both short-term and long-term, to achieve your goals and dreams. It establishes where you stand now, where you want to go, and how you plan to get there. A complete plan looks at your specific needs and objectives and involves all areas of your financial life such as insurance, estate planning, investments, cash flow, and tax planning. The financial planning process is dynamic. As your lifestyle and the economic landscape change, so will your plan. Having a plan in place, helps you to negotiate the financial barriers that inevitably arise in every stage of life. Remember, financial planning is a process, not a product.
What is a Financial Planner / Advisor?
The term financial advisor or planner is used loosely. Lack of regulation has allowed financial services personnel such as life insurance agents, mortgage brokers, stockbrokers and accountants to use the title indiscriminately. Abuse of the term can lead clients to receive ill-advised and unsuitable financial planning from unethical providers. That’s why it’s extremely important to check the qualifications and credentials of a financial planner before you decide to work with them. One of the most recognized financial planning certification trademarks is the CERTIFIED FINANCIAL PLANNER™ certification, which has gained global recognition because of its active standard of establishing professional activities and its worldwide presence. The certification ensures that the planner adheres to extensive experience, examination, education and ethics requirements.
Why did you become a financial planner?
I grew up in a household where money was very tight. It created a lot of anxiety and pain in the family. I vowed at a young age that I would be financially secure.
As I became older and had to navigate investing on my own, obtain loans, and procure insurance, I realized how vast and overwhelming these financial matters could be. I was both fascinated and intimidated by the financial world, and wanted to better understand it. Determined to grow wealth quickly, I read the Millionaire Next Door by Thomas J. Stanley. It was a particularly compelling read for me as my husband was just starting his medical career. The book contrasts Doctor South versus Doctor North. I wanted us to be like “Doctor North” and his wife. I did not want to keep up with the Joneses, but rather live frugally so that we could maximize our savings. Around that time my father in law also gave me the best advice about investing. He told me to invest my money at Vanguard as they were low cost and owned by the shareholders.
Over the years my husband and I saved at least 30-40% of our income and invested it in a low cost way. By my early 40s, I had reached what I believed to be financial independence. Retirement was on track, we had enough saved for our son to attend a 4 year private school, and our dream home on the lake was paid off. We had no debt and sufficient assets for retirement. I suddenly realized that if we could do this, anybody could. My husband was the son of a window cleaner and my dad was in construction. We had very little in terms of assets when we started out, but were able to build wealth with a disciplined and coordinated approach.
Eager to help others achieve their own version of financial independence I completed my CFP® education requirements and passed the board the first time in the fall of 2007. I wanted to work in the industry, but did not want to sell products or work on commission, so I researched various models in the industry and chose to become a fee only planner who provided objective advice and who charged based on time spent working with clients rather than managing their assets.
It also enabled me be to work out of my home and spend quality time with my son during his tween and teen years prior to sending him off to college. I strongly believe that fee only planning is in its renaissance, because the cost of investment management is declining. Computer models are commoditizing investments, so planning has becomes a more integral and value-added part of what a client wants from their advisor.
I continue to enjoy my job and my diverse set of clients who make me want to wake up in the morning every day to do what I do. Although my husband and I could retire tomorrow, we both want to stay active doing work that we enjoy. I think that engaging in something that excites you, makes you think and learn every day, and allows you to connect with others in a meaningful way is the essence of a happy life.
Why do I need professional advice?
The current economic climate is chaotic and financial products are complex. Most investors don’t have the time to devote to learning the latest tax rules, insurance, and investment products. Financial planning professionals provide clarity and vision. A competent, objective professional can help you understand the economy, and how it impacts your finances. More importantly, he or she can provide the specific direction you need to move forward toward your goals.
I can get low cost advice from Vanguard or a robo-advisor. What value added can you provide?
Most “robo-advisors” do not provide financial planning and the financial plans from Vanguard are quite basic. They only utilize a core number of Vanguard funds, and don’t offer the level of customization and flexibility that an individual advisor can provide. I focus more intensively on tax planning, retirement withdrawal strategies, Social Security maximization, location of investments to reduce long term taxes, pension maximization, and risk management. Adequacy of insurance, titling, and estate plans are also addressed as part of the comprehensive plan. In addition, the cost for hourly, fee-only advice may be lower than Vanguard or many robo-advisors. I am often able to reduce expense ratios going forward which can more than offset my annual fee. More importantly, I take the time to get to know my clients and their dreams and goals. We incorporate life planning into the process and you will have a human being to discuss any ongoing issues with. This is particularly important during emotional time periods like a death, divorce, or even large market correction.
What are the benefits of an hourly, fee-only planner?
An hourly fee-only advisor is compensated solely by the client based on services provided and charged on an hourly basis similar to accountants or lawyers. Ascend Financial Planning, LLC receives no compensation from any other sources. We do not receive commissions, kickbacks, or referral fees of any kind. You can access advice on an as needed or ongoing basis. Because there is no long-term commitment, you have access to advice when you need it. In the long run, this approach can be very cost effective. Â Most importantly, a fee-0nly advisor has a fiduciary obligation to you and must at all time act in your best interest. A traditional broker has a different standard called the “suitability standard” which means that he or she merely needs to do what is suitable for you. Most people do not realize that not all financial advisors have the same standard, so due diligence is important.Â Ask a prospective advisor if he or she is held to a fiduciary standard if you want to ensure that he or she is, in fact, providing advice that is in your best interests.
Why is comprehensive financial planning so important?
A financial plan provides you with peace of mind and helps you find cost-effective, efficient ways to fund your important life goals. A small investment now will provide you with future benefits, and you’ll feel better knowing that your family is protected against unforeseen events. You’ll be on track to reach your retirement goals and your finances will be properly diversified in a low cost manner. Statistics suggest that most Americans are doing a poor job of preparing for the future. In 2009, fewer than 50% of surveyed workers thought about or put together a retirement plan. Most people only guess about how much they will need in retirement. In addition, most people do not carry sufficient insurance and do not have a will or updated estate documents in place. Ongoing checkups provide you with further confidence that you are staying on top of your financial life and are on track to reach your important goals.
How does your fee structure compare with other financial advisors?
Some financial advisors charge commissions on the products they sell to you. These commissions can be front loaded, charged on the back end when you sell the product within a certain time-period, or charged as an annual ongoing fee. These charges can be quite onerous, with some funds charging 5%+ of your investment.
Other advisors charge based on a percentage of the money they manage for you (asset management fees). This fee generally ranges from 0.6% to 2%.
Fee-based advisors receive commissions from products sold in addition to asset management fee. A fee-based advisor is NOT the same as a fee-only advisor!
It is estimated that only a small percentage of financial planners, roughly less than 5%, are truly fee-only.
Do you work with people who are young and just starting out?
Yes. There are no minimum income levels or net worth requirements. Everyone has financial needs. In fact, it is often best to see a financial planner early in your life so you can start planning your path to financial freedom with a solid framework for success. Too often people seek out advice when it is too late.
I am proud to work with people from all income levels, of all ages and stages of life. In fact, for folks with limited assets or who are just starting out, I have a very affordable real-time Financial Fitness Session that provides you with a 10-step evaluation of your financial life and specific action steps for the areas of asset allocation, insurance, tax planning, education planning. It is a quick assessment of the basics like how to maximize retirement savings at work, take advantage of tax savings and start preparing for the unexpected.
I already have substantial assets and am doing well financially. Can you still help me?
Yes. People who have substantial assets often think they only need investment advice, not financial planning advice, or they may work with several different professionals in a piecemeal fashion at different times in their lives. Hourly, financial planning can be very smart choice for you, as it can ensure that all areas of your financial life are working symbiotically and efficiently. Ascend Financial Planning can help you define an appropriate asset allocation consistent with your unique risk characteristics. I can also help you focus on your goals and objectives and determine if your plan aligns with the future you have planned. If you have multiple retirement and brokerage accounts in different places, I can help consolidate and streamline your portfolio. If you are looking for a second opinion of your current investment mix, I can provide that as well. If you want someone to manage your assets, I can provide referrals to low cost portfolio managers. In most cases we are able to provide you with significant savings by switching to low cost funds or money managers.
How do I start my financial planning process?
If you are interested in my services, download and fill out the client Confidential and Risk questionnaires and contact me to schedule a complimentary “Get Acquainted” meeting.
Our first complimentary Get Acquainted meeting is generally an hour to an hour and a half long and allows us to discuss your goals and objectives. It enables me to better gauge the scope of your particular project. If you decide to engage with me, a client agreement form is signed with an initial deposit.
The fees are determined based on the complexity and scope of your current financial status. During our first meeting a fee range will be quoted based on an estimate of the time it takes to explore the areas of your financial life where you need assistance.
What do you charge for your financial plans?
The cost of a typical comprehensive financial planning project is approximately $2,300-$3,500, which you can purchase with one full payment or spread out by completing the plan in stages. I often find that as a result of our analysis, I am able to produce cost savings for you to help offset this fee. When compared to brokerage accounts with high load products or asset management fees, hourly planning advice can be far more cost-effective in the long run. Thereafter, you can pay by the hour for as needed advice. Annual Financial Check-ups are encouraged which run roughly $750 to one-half the cost of your original plan but it depends on how much of your Action Plan you were able to implement and how often you come in for a “Check up”.
What is the investment philosophy of Ascend Financial Planning?
I started my firm because I believe that it is essential for individuals to have a long-term plan for their finances that drives the investment policy statement. I strongly believe in an investment strategy that focuses on diverse asset allocation implemented in a cost effective way. I choose a mix of securities–mutual funds or ETF (Exchange Traded Funds), fixed income (bonds), cash or cash equivalents to ensure diversification. The estimated long range expected rate of return for your investment portfolio is based on your attitude toward risk.
Market timing and tactical asset allocation are a fool’s game. Research indicates that the majority of active managers consistently underperform their benchmark, so the goal is to simply strive to achieve benchmark returns. I do this by selecting appropriate market indexes for each desired asset class. Through proper asset allocation and a strong focus on keeping costs low, I help ensure that more of your money is working for you. Finally, I select the appropriate location for your assets, either taxable or tax-deferred accounts to better minimize taxes.
The result is a highly customized yet practical, cost effective and tax efficient portfolio that meets your short term as well as long range goals.
How do you keep my investing costs low?
Your investment portfolio is primarily constructed with passive index funds or exchange trade funds, but active funds can be included where they will add value and incremental risk-adjusted return. The primary focus on passive funds and ETFs reduces costs and minimizes taxes so that more of your money is compounding and growing for you.
How do you select investment products for a client?
Before recommending any investment, I consider current economic conditions, the outlook of a particular asset class or type of security, and how the investment fits within your portfolio given your objectives and tolerance for risk. I work within the framework of your company’s retirement plans to find appropriate products that meet our investment philosophy. I also take into account where your investments are held so we can keep costs low by utilizing funds within a no-load mutual fund family. We also consider where these assets will be located (either a tax deferred account or taxable account) to attempt to keep taxes at a minimum.
As a fiduciary for my clients, I strive to obtain the most appropriate investment vehicles to meet your objectives, while being very conscious of total expenses and risk exposure. Â In the end, this results in a highly customized portfolio at an extremely affordable cost.
What if I want help executing my plan? How will you assist me?
While fee-only advisors don’t sell products, they do offer specific recommendations of various products and services. We work with you to find a suitable no load custodian such as Vanguard or Fidelity or a low cost broker like Charles Schwab or TD Ameritrade. In addition, we work with national low-load insurance brokers to provide you with quotes for insurance products such as life, disability and long-term care. We provide you with detailed instructions for plan implementation and while some of our clients are comfortable executing our recommendations others may need some additional guidance. If you request help with implementation, assistance is provided and billed at the hourly rate based on the time to complete. If access to an estate attorney or tax professional is needed we provide you with referrals to trusted professionals. Since we are not compensated by commissions on products, you can be assured that their recommendations are based on what they truly believe is in your best interests.
What if I prefer to have my investments managed by someone on an ongoing basis?
A portion of our clients, particularly those nearing or in retirement, choose to hire an independent third-party to handle the routine administration related to their ongoing portfolio management. For clients who are looking for low cost money management, I can refer you to trusted professional money managers who charges low fees (0.24%-0.45%) for managing assets. We would then work with this investment manager on an ongoing basis to ensure that your investment plan aligns with your financial planning goals.
Am I obligated to purchase the products you recommend?
Absolutely not! I offer recommendations to meet your needs and objectives, but you are under no obligation to purchase or proceed with anything. I also recognize the importance of shopping around for the best available product or service. If you need life or disability insurance, for example, I will suggest the type of policy, various riders or additions, and the amounts that best fit your situation. I will provide you with several competitive quotes from an independent broker. You are free to proceed or find additional quotes on your own. My goal is to make it as easy as possible for you by providing you with turnkey solutions to your financial needs.
How will we work together after the initial engagement is complete?
The financial planning process relies on a solid relationship between the planner and the client. I encourage clients to contact me – at no charge – for thirty days after the initial plan to ask questions. You can also schedule a complimentary half hour meeting after the presentation to answer any questions and help you determine the next steps to proceed with your plan. Afterward, you can contact me as needed, based on situations that arise in your life. Time is billed in 6 minute increments at an hourly rate of $190/hour. Financial check-ups are crucial to ensure that you are on track with your plan and to evaluate changes that are needed. These are generally scheduled at least annually, more for clients who are experiencing major life changes in their personal or financial lives. The cost of these checkups ranges from $750 to approximately 50% of the original plan but really depends on the amount of changes you are experiencing and the complexity of your finances.