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.
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.
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.
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 initial deposit fee is $1500 with a monthly retainer fee charged based on the complexity of your current financial status.
What do you charge for your financial plans?
The cost of our retainer arrangement will be a $1,500 upfront fee with a monthly fee of $200 to up to $500 a month which can be debited from your bank as an ACH transfer. You can also pay annually if you prefer. The monthly fee will be based on the complexity of your finances.
What is the investment philosophy of Ascend Financial Planning?
I strongly believe in an investment strategy that focuses on investing in a diverse mix of assets 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 on your investment portfolio is based on your attitude toward risk.
Primarily, I utilize passive indexing or active low-cost funds to minimize costs
Whenever possible, broadly diversified mutual funds and ETFs (or Exchange Traded Funds) will be recommended to minimize costs such as expense ratios and tax cost ratios. We will also locate your assets in the areas that make the most sense long term to reduce the tax burden on your portfolio.
- This means, for example, that it may make sense to place more of your stocks funds in the taxable portion of the portfolio (non-retirement accounts)and less tax efficient vehicles like fixed income(taxable bonds, TIPS, etc.), REITS, and commodities in tax-deferred or retirement accounts like IRAs and 401Ks.
- In taxable accounts, investment selection will focus on growth or tax-advantaged investments, such as exchange-traded funds, index funds, and municipal bonds.
- Roth Accounts should be the last accounts you tap; and therefore, should hold your investments with the longest time horizons. Where possible, these would include the growth, more volatile market sectors such as small companies and those in emerging markets.
We invest in several asset categories including international equities, as well as some of the non-traditional asset classes such as real estate (other than your home), and commodities. These classes tend to have comparatively low correlation with traditional equities. The combination of these assets in a portfolio can help reduce portfolio volatility over time.
Categories of Equities
Large, medium, and small company domestic stocks
- Large, medium, and small company international stocks
- Emerging markets international stocks
- Real estate- Publicly-traded REITS or Real Estate Investment Trusts
- Commodities- such as precious metals, materials, oil, natural gas and grains.
General Principles of Allocation among Equities
- Invest a larger portion of the assets in larger companies, and a smaller portion in medium and small companies.
- Invest a larger portion of the assets in domestic companies as compared to international.
- Within the international portion, the bulk of the assets, in general, should be invested in developed markets with a smaller portion in emerging or developing markets.
General Principles for Allocation among Fixed Income Investments
- In general, relatively more of the fixed income portfolio should be invested in short and intermediate term securities, and high and medium quality (investment grade) securities. A relatively smaller portion, if any, should be invested in longer maturities or below investment grade securities.
- For the most part, the fixed income investments should be on the domestic side rather than international, for safety reasons.
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. Most importantly, it is essential that you stick with this all-weather portfolio over a long period of time as some asset classes will underperform for several years. The benefits of diversification require patience.
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.
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 for 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 will be 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.