Why My Financial Planning Process Is Different?

If you have ever worked with a “financial advisor” (someone who sells products), but later had a “financial life coach”, you have already experienced the drastic differences. It’s like night and day! This is for those of you that are caught in the rut of traditional financial planning methods.

Like most, I started out on the sales side of the financial services industry. Firsthand, I saw many well-known, “so-called” financial advisors in my community take advantage of trusting people (knowingly or ignorantly). The reason most financial advisors are led to do more harm than good is because they are compensated by selling, NOT advising. When it comes down to an advisor providing for his own family by selling a product that could harm you financially VERSUS acting in your best interest, what will be their choice? If you haven’t been taken advantage by someone selling financial products… REJOICE!   

I became fed up with the shortcomings in my industry, and decided to create a better process to grow and protect wealth that begins with you! NOT selling products to generate commissions.

Financial Life Coaching is a process focused on asking the right questions and being able to engage clients in meaningful conversations about important life events, situations, and goals. Ultimately, it is the level of competency, care, and integrity that I provide that truly differentiates me from traditional Financial Advisors. 

I focus on what makes you tick, financially. I call this your financial personality. Your financial personality is why you are, where you are. Some people are spenders, savers, givers, do-nothings, over-analyzers, risk takers, or know-it-alls. Some suffer from multiple financial personality disorder! Without knowing your behavioral tendencies, developing the correct financial action plan is a “crapshoot.”

Next, I uncover your “real” financial goals. Not someone else's! Most traditional advisors will ask you things like, “When would you like to retire?” “Where do you want to send your kids to college?” These questions are great, but your answers will have ZERO meaning behind them. Our culture has ingrained in all of us pre-determined answers to these questions. Without really figuring out what it is that you want for your life, and most importantly WHY you want it, you will continue to run like a rat in a wheel. Don’t believe me? What was that last big goal that you didn’t achieve? Why didn’t you reach it? Most of us claim we want to be rich, be swim suit models, etc.! So why aren’t most people anywhere near where they want to be? They haven’t figured out the “WHY”? The “WHAT” isn’t enough! I also bet you have set the same 1 or 2 goals year after year, but have never made any headway. Once I have helped you discover your real financial goals, you will be more likely to get where you want to go! 

Lastly, my process is different because I know my craft! I have a Bachelor’s Degree in Finance, a MBA in accounting, I hold the Certified Financial Planner designation, and the CLU designation. But I give more weight to MY experience! I came from modest means but quickly reached a level of personal income in my twenties that most don’t see by age 60. I have started 4 small businesses, sold 2 of them, and had one of them totally collapse due to my own stupidity! Most financial advisors have only read about sound financial principles. I not only have Degrees in these principles, but I have put them into action! Regrettably, I have also personally felt the pain from not following them.  I have helped people who were struggling reach success, and also dozens of multimillionaires. I haven’t seen it all, but I personally have experienced more in the last 10 years than most financial advisors will see in a lifetime. But they will sure tell you a great story that makes it appear they know what they are talking about.

I hate clichés (cuz I always get them wrong)! But this is “just the tip of the iceberg.” A Financial Life Coach is an invaluable member of your team. I strongly believe you can't get the same results elsewhere.

For more about me and my process go to www.jasonwqualls.com or call me at 615-878-2134.

Paying Cash For A Car

One of the things you will hear almost every day on one the most popular cookie-cutter financial talk radio shows is that you should always pay cash for a vehicle. Is this always a smart idea?

Well, maybe but maybe not! I have financed cars and I have paid cash, so what I am about to share with you comes from real world experience. I will not get into philosophical views on debt because if your methodologies are based on religious beliefs, nothing will trump that no matter how the math adds up. This article is solely based on simple mathematics.

Let’s say you have $15,000 you have set aside and you want to buy a $15,000 new ride! Should you pay cash or finance it? 

Option 1: Pay Cash

NADA present value of the car: $15,000

Annual interest cost: $0

Monthly car payment: $0

Value of the car in 1 year: $12,750 (based on 10% depreciation per year)

In 2 years: $13,500

In 3 years: $12,150

In 4 years: $10,935

In 5 years: $9,841

Result in 5 years: $0 cash and a vehicle worth $9,841. That’s a loss of $5,159!

Option 2: Finance the car over 5 years at a 4% interest rate 

And invest your 15k in a 5 year Tax Free Government Insured Bond Paying 2% per year.

In 5 years, this would be the result:

Loan Balance: 0.00    
Car’s Value: $9,841 (same as above)        
Cash from Bond at Maturity: $15,000  
Bond Interest Earned: $1,500
Car Interest Paid: $1,575

Your car payment would be $276.25 for 60 months = $16,575

You would pay $1,575 (16,575-15,000) in interest but earn $1,500 on your Tax Free Bond = basically a wash!

BUT now you have a paid for car worth $9,800 and you still have your 15k!

I don’t know about you, but I like Option 2 over Option 1! 

It is really this simple? Of course NOT! But you CAN use leverage to your advantage even when buying a car. The major argument you hear against option 2 is that its too risky, so just pay cash. That's stupid! I would argue there is more risk of putting your money in a depreciating asset that turns 15k into 9k all to avoid paying $75 in interest. When people usually evaluate leverage they use mutual funds. That is too much risk. But in my example I use an insured tax free bond only paying 2%. There is virtually no default risk since its insured!

Another, statement I hear made against using leverage to buy a car is..."Rich people don't finance cars." Well, the stupid rich people may not use leverage BUT the smart ones who understand money and can add & subtract DO! I want to be rich, BUT I don't want to be a stupid rich person.

Important things to consider here… Cash flow levels: if it is not extremely likely you could easily make the monthly car payment then paying cash may be your best option. Also, if you are an extremely disciplined saver (most people are NOT), you could pay cash for the car now and pay yourself back over the next 5 years by saving $250 per month. 

The real point of all this is to get you thinking! There is more than one way to skin a cat in financial planning. Everyone’s situation is different! Don’t believe everything you hear or read when it comes to your money! Most people are ignorant on the subject. Most financial pundits want to “dumb” it down so they can sell you a book or a seminar. 

For more on how I can help you manage debt and risk, call me at 615-878-2134 or click www.jasonwqualls.com

What Is Your Financial Advisor Costing You?

If your “Financial Advisor” gets paid by selling you financial products, like mutual funds and insurance policies, how do you know what they are recommending is in your BEST interest or theirs? You don’t!!! This is a major problem within the financial services industry. But you do have another alternative!

Traditional financial planning is the source of most of the stress that people feel in their financial lives. The term "Financial Planning" is often used by self-proclaimed Financial Advisors as a marketing tool to sell financial products and generate commissions on the recommendations. The individual working with the Financial Advisor generally has almost no way of knowing whether the recommendations are in their best interest or the best interest of the advisor. They also have little way of knowing whether the products could have been obtained elsewhere at lower cost. This is because the majority of Financial Advisors actually work for a mutual fund broker/dealer or an insurance company, and don't really work for the client. The brokerage firms and insurance companies actually control what products can be recommended!

Most believe that if you want to work with a Financial Advisor, that you must work with someone that ultimately gets paid by selling you mutual funds and insurance products. That is completely FALSE!

A better alternative to remove conflicts of interest is to work with a Fee-Only Financial Advisor. Fee-Only advisors do NOT sell financial products or accept commissions. They work for the client and usually are fiduciaries. Meaning they must only make recommendations that are in your best interest.

You will also get more comprehensive advice from a Fee-Only Advisor. Why? Because the commission guys only get paid by selling you investments and insurance policies. Their advice will always relate back to the products they want to sell you! They have ZERO incentive to help you with your budget, your estate plan, your tax return, reducing your debt etc. All they care about is telling you that you have done everything wrong up to meeting them, and they can solve all your problems if you just buy the products they recommend. A fee-only advisor will help you with your entire financial life and be your coach along the way.

So what is the cost of working with someone that gets paid a commission versus someone who only gets paid a fee? Well, I know firsthand because I started out on the commission side of the business in 2001. I was always fighting an ethical battle with my employer’s management. I quickly realized that there is NO way to avoid conflicts of interest when you work for a broker/dealer or an insurance company that makes its money by their advisors selling financial products. 

Let’s look at an everyday married couple as an example:

75k of Household Income

50k of Investable Assets (IRA’s, College Plans, Non-qualified Accounts)

Costs of the Commission Model:

·         On $50,000 of investments you will typically pay a sales commission of 4.5% = $2,250

·         Mutual funds also usually cost you more each year when working with a commission advisor because they have NO incentive to make sure your mutual funds are cost effective. The 2010 industry average mutual fund expense ratio was 1.15%. Vanguard, a top NO Load mutual fund company, had a 2010 average expense ratio of 0.21%. Let’s not forget that load or commission mutual funds have what’s known as a 12b-1 fee that the commission advisor gets paid each year. All this equates to an additional $595 per year.

·         How much more in taxes will you pay since the commission advisor has no incentive to help you with tax planning? And probably knows nothing about tax planning! Let’s assume you only miss just 1% in overlooked deductions each year = $750

·         How much more will you spend because no one has helped you develop a realistic budget? Commission advisors are only paid when you buy financial products. What incentive do they have to help you budget? NONE! If you had a coach to hold you accountable could you save at least another 2%?  = $1,500

      How much are you wasting on unneeded insurance premiums because you don’t have an advisor that examines all your insurance needs? (auto, home, life, disability, liability, id theft etc.) Let’s assume just $15 a month = $180 

Lastly, what is the cost of bad advice? The last two are unquantifiable! 

·         What will it cost you or your family if you currently don’t have all the appropriate insurance coverage’s in place because your advisor can’t or won’t advise you in all risk management areas?

·        If you go to www.CFP.net, there are only 7 Certified Financial Planners in Murfreesboro, TN (my home town). There are about 110,000 people in Murfreesboro! That’s 7 people that have been through the proper training to help you with every aspect of your financial life! If you aren’t working with someone that has been properly trained in financial planning, you DON’T get to wonder why you aren’t receiving good advice. You wouldn’t go to a medical doctor who was NOT an M.D.! So don’t trust someone with your money that isn’t a CFP!

Total Cost of Working With a Commission Financial Advisor in our example = $5,275 +

And more than likely the commission advisor is NOT helping you with every area of your financial life. Only your investments and life insurance if you’re LUCKY! 

Cost of Working With a Fee-Only Financial Planner:

Well, this will vary from advisor to advisor, but my fee for someone in our example would only be about $2,000 to help them with everything! Including budgeting, investments, risk management, retirement planning, debt management, and estate planning. And it also would include quarterly meetings to re-evaluate their plan.

And you would get someone who is coaching you in every area of your financial life. Not someone trying to sell you a financial product! It makes NO sense to over pay especially for inadequate advice! 

If you would like a free 2^nd opinion of what your current Financial Advisor is doing, give me a call at 615-878-2134 or go to www.jasonwqualls.com. I’ll tell you like it is… which is also the TRUTH, because I hold fiduciary responsibility to my clients. I don’t sell financial products or accept commissions! I only work for my clients!

Your Financial To Do List Before Year End

1. Find a financial adviser. Find a qualified professional that is client focused not sales driven. The qualification to look for is the marks of a Certified Financial Planner™. Go to CFP.net to search for someone in your area. Also, consider how the advisor is compensated. Someone that derives most of their income from selling financial products may not be able to act in your best interest.

2. Review your credit history. Go to AnnualCreditReport.com and you can get a free copy of your credit history.

3. Take of advantage tax deductions. The window for some tax advantages closes at the end of the year. Can you add more to your 401k plan at work? Can you take a deductible loss on an investment? Make a charitable donation?

4. Rebalance your investments. Take a look at how your investments are performing. It may be time to make sure you aren’t taking on too much risk.

5. Max out retirement contributions. The annual limit for IRA’s is $5,000 for those under 50 on Dec. 31 and $6,000 for those older. Your tax filing deadline is the time frame for IRA’s, but not your 401(k). You only have until Dec. 31 to contribute the max.

6. Spend your FSA. If you’ve set aside money in a flexible spending account, it’s gone after Dec. 31.
7. Budgeting and Cash Flow. Now’s a good time to look at your spending habits versus your projections over the past year.
8. Get a Will. This is one that you just can’t wait until the last minute. It will be too late!

Financial planning is NOT an event, it’s a process. To contact me call 615-878-2134 or click http://jasonwqualls.com

Are You Diversified?

Asset allocation is about more than just diversification. Each type of asset or asset class inside your investment portfolio serves a very different function. But most Financial Advisers don’t understand these functions and your money suffers.

Assets should be divided into four main categories:

1.      Interest-Earning

2.      Real Estate

3.      Commodities

4.      Equities

Most advisers never even discuss commodities or real estate. I believe that all portfolios should contain all four categories. How much you should own of each category will depend on your unique situation. All four categories are important and serve totally different purposes.

Purposes:

1.      Interest-earning assets such as cash and bonds give you access to capital on a short-term basis. If you need access to liquidity, bonds and cash are the first place you should look. Bonds are also hedge against deflation.

2.      Real Estate is one of the best ways to protect you from inflation. It is one of the most inflation sensitive assets you can own. Inflation decreases your purchasing power as the prices of goods and services increase, and it is a major risk to your long term financial goals. Usually owning your primary residence is enough to have at least a third of your assets in real estate. However, if you have built up a bit more wealth, you might need to purchase real estate beyond your home in order to keep your portfolio balanced.

3.      Commodities are actual physical goods like corn, soybeans, gold, crude oil, etc. In years past, using this asset class was done only by professionals. But since the addition of commodity based mutual funds and exchange traded funds, this is no longer the case. Recently we have all been hit by rising prices at gas stations and grocery stores. By adding commodities to your mix, it provides a hedge against rising prices of goods.

4.      Equity Investments should be held long term, and typically outperform all other asset classes during periods of economic growth. Equities are broken down into large cap, small cap, international stocks, and emerging markets. Each area of equities also serves a different purpose and amount of ownership should be based on you and your goals.

As I mentioned earlier, most Financial Advisors do NOT understand functional asset allocation. Understanding the function of each type of asset is critical to tailoring your investment strategy to your specific needs, rather than using a one- size-fits-all approach. If you need a second opinion on your investments from someone who understands risk and asset functionality, call me at 615-878-2134 or click www.jasonwqualls.com.

Why Is Fee-Only Financial Planning A Better Way

My unique approach to investing and financial planning stems from a strong belief that most financial advisors are often driven more by how to sell you financial products than by sound financial principles.

A Fee-Only Financial Planner is someone who does NOT sell financial products OR accept commissions. They are compensated ONLY by providing you with unbiased, objective advice regarding your finances.

The way in which a financial planner is compensated can directly affect the advice he or she gives clients. A relatively small percentage of the individuals offering financial advice actually get paid exclusively for giving such advice. The majority earn some or all of their income selling mutual funds, annuities, insurance, and other financial products to implement their recommendations. “Advisors” who are also salespeople, however, inevitably face a conflict of interest and will almost certainly be tempted to steer clients into products in which they have a financial interest. The greater the advisor's dependence on commission income, the greater the conflict. In the end, that conflict could cost you both in out-of-pocket expenses and in the quality of advice you receive.

Achieving your life goals is easier when your financial planner focuses on all areas of your financial life and is accessible when your circumstances change. Financial planning is a process, not an event. 

If you have questions or would like a complimentary initial consultation call 615-878-2134 or click http://jasonwqualls.com

Accountants Selling Financial Products? You're Joking Right?

Over the last month I have met with 4 different CPA's (Certified Public Accountant). Every one of them is now selling mutual funds and insurance products to their clients. Can you say conflict of interest?!

Now, I realize that there are many large CPA firms that offer wealth management services separately to their accounting clients. That is NOT what I'm talking about here. These guys have a small, independent CPA practices where on one side of the fence they are claiming to offer objective tax advice, AND on the other side trying to sell financial products.

I don't know about you, but I find that simply ridiculous! Do these guys care more about properly advising you on taxes? OR about getting a commission from selling you a mutual fund?

If you wanna be a financial sales person, go do that! If you want to help individuals and businesses with their taxes, go do that! But don't leverage your tax planning client base to sell financial products!

If you happen to be one of these CPA's who also wants to be a Financial Advisor, then go about it in a way that doesn't have obvious conflicts of interest. Like offering Fee-Only Financial Planning to your clients (meaning you don't sell products or accept commissions).

And to continue on my rant! I'm a Certified Financial Planner. That doesn't qualify me to be an accounting expert. And just because someone has the Certified Public Accountant designation doesn't mean they are qualified to be a financial planner!

The 2 things I want you to learn from this post: 

1.) Demand Full Disclosure from anyone wanting to advise you on your investments. Make them tell you every detail about how they are paid, and what conflicts of interest they may have before doing business with them.

2.) Ask any so called "Financial Advisor", CPA or otherwise, to share with you what qualifies them to give financial planning advice. What education do they have? Are they a Certified Financial Planner or are they a PFS (Personal Financial Specialist, a great designation for CPA's wanting to give financial planning advice.)

True Financial Planning is objective, unbiased, and covers every part of your financial life. To learn more about what "Real" Financial Planning is go to my website http://www.fortitudewealthmanagement.com or listen to my radio show on WGNSRadio.com called "The Financial Doctors".

I already have a Financial Planner... Do you?

I hear this many times in the marketplace. Someone will ask me what I do for a living and I usually say "I'm a Financial Planner." Their response typically goes something like this, "That's great. My Guy is with XYZ Bank, Insurance, or Investment Company.

The first thing that pops into my head is, Do They Really Have a Financial Planner?

When most people think of Financial Planning they usually think of someone that sells stocks, bonds, or mutual funds. And maybe even someone that handles their life insurance.

The Financial Planning Association defines it as: "A long-term process of wisely managing your finances so you can achieve your goals and dreams, while at the same time minimizing the risks that inevitably arise in every stage of life."

What most people really have are financial sales people that call themselves Financial Advisors or  Financial Planners.

If your Medical Doctor was compensated by how many Prescriptions he wrote or by how many Prescriptions his patients took, would you still take his advice?

So why do we take our financial planning advice this way?

Financial Planning is a process, not a product.

4 things to look for when seeking a REAL Financial Planner:

1.) Are they a Certified Financial Planner? Go to www.CFP.net
2.) What is their process? Planning covers every area of your financial life and real financial planners will be able to quickly explain their process
3.) What conflicts of interest do they have? If they are paid by selling you a financial product you will have to decide if they can really act in your best interest
4.) Will they take on Fiduciary Duty? This means they legally must act in your best interest. Brokers and insurance agents are not fiduciaries.



If you have any questions, go to http://www.fortitudewealthmanagement.com

Financial Planning "Rules of Dumb" Part 2

Rule of Dumb 3: It's best to use a 10 question form to determine your Risk Tolerance

Seriously? If it were that easy why not just hire a trained monkey to handle your investments? Determining risk tolerance is a difficult task. Everyone is motivated by Fear and Greed. When the markets are doing well everyone tends to get more aggressive. After the last few years no one has much of a stomach for volatility. The typical Risk Tolerance Questionnaire you fill out from most financial services companies is designed for mainly one purpose. CYA! or should it be CTA. To COVER THEIR ....., well you get the picture. These forms help them minimize lawsuits so they can say "Our recommendations were suitable for the client, we invested their money based on their risk tolerance." Give me a break! Those things are highly unlikely to get anywhere close to your real risk tolerance. Dan Ariely wrote an article for the Harvard Business Review (http://hbr.org/2011/09/what-was-the-question/ar/1) where he surveyed people with similar questions from a typical Risk Tolerance Questionnaire. No matter how he asked the questions everyone came in about average.

It is better to dive into past behavior to determine your real risk tolerance. How did you think, act, feel, and react the last time your investments took a big drop? Past behavior is a big indicator on how you will react the next time we see another 2008. Risk Tolerance is purely psychological and different people have different "financial personalities." Some people are Gamblers and some are Misers (and anywhere in between), and these personalities have been developed over many, many years. It takes more than a simple one page questionnaire to figure out what makes someone tick regarding their investments.

Rule of Dumb 4: Asset Allocation Lowers Your Risk

I am a believer of asset allocation if it is done correctly. Most advisors manipulate what asset allocation really is and use it as a sales tool. Example, you get a call (or a knock on your door) from your local investment guy. His company spends alot of money on national advertising so you feel like he is creditable. You meet with him and he does a FREE review of your investments. He comes back with a very fancy report from Morningstar and you are impressed. He goes on to show you how you are not properly diversified by talking about sectors and styles. And if you would have been a client of his and followed his asset allocation model for your investments you would not have lost as much over the last few years. Maybe so but high-in-sight is always 20/20!

Many people are not properly diversified and are taking way too much risk but it is a more complicated issue that cannot be addressed from only a Morningstar Report. There are many asset classes: Stocks, Bonds, Real Estate, Emerging Markets, International, Fixed Income but for your allocation to be correct it must be based on 3 things. What is the return necessary to meet your goals? How does that line up with your tolerance for risk? And what is the functionality of each asset class you own? You can look at styles, sectors, and mutual fund mangers all you want but you will never have the proper asset allocation model until these 3 things are addressed. By addressing these 3 things you lower risk on 2 levels. The risk or volatility of your investments and the risk that you won't meet your goals.

Rule of Dumb 5: You Need a Financial Plan

This one might confuse you since I am a Certified Financial Planner but let me explain. A financial plan is something that you prepare only once before you start investing your money. What people really need is Financial Planning, an ongoing process that assures clients are on track to reach their goals. It is a process NOT an event. You need someone that understands you and your goals. Someone that can hold you accountable and steer you away from making mistakes with your money.

Hopefully this post will make you realize that Financial Planning can be more complex than some try to make it. Everyone's situation is different and using rules of thumb may not work for you. Radio and TV personalities have made themselves very rich by dumbing down financial planning so they could market it to the masses. But don't fall into the trap of believing everything you hear applies to your unique situation. If you have any questions please visit my website at http://www.fortitudewealthmanagement.com

Financial Planning: "Rules of Dumb" Part 1

"Rules of Thumb" are dumbing down the financial planning profession. What may be the correct advice for one person could be totally wrong for another.


Rule of Dumb 1: You need an emergency fund of 3-6 months of expenses

This is what most financial pundits in the media say everyone should have for emergencies. Well, that is a great goal but for most of middle-America that is simply a pipe dream. In financial planning we must be honest and realistic with our clients. Cash reserve amounts should be based on the needs of the individual not some formula.

Example: Someone who is self employed may need 6-9 months of expenses so they are not living out of their cash register in the event of an emergency. On the other hand, a 59 year old nearing retirement that has accumulated plenty of other accessible assets may only need a couple months worth of cash.


Rule of Dumb 2: You need 8-10 times your income in life insurance

This one just infuriates me. The rationale behind this is that if you died, your heirs could take that money invest it at a 10% return and the interest would replace your income. If your advisor believes that consistent 10% returns are that easy to come by and is willing to bet on it with the financial future of your surviving spouse, you should fire him or her ASAP. Then run far, far away!

So how did the pundits form this crazy opinion? Well, they look at the average lifetime return of the stock market and see that it has an average annual return of about 10%. Then they some how think that anyone can earn that average return easily year in and year out by buying "good growth stock mutual funds." It just doesn't work that way!

Example: Lets say your husband earns $50,000 per year and he died in 2007 with a $500,000 life insurance policy (10 times his income) and you following this advice expect a 10% return so you can live off the interest. Lets see how it really could really play out:

Year                   S & P Return             Principal Balance + Gain - $50k withdrawal
2007                          +3.5%                                     $467,500
2008                         -38%                                         $239,850
2009                         +24%                                         $247,414
2010                          +13%                                        $229,577
2011                           +10%                                      $202,535
2012                           +10%                                       $172,789
2013                           +10%                                       $122,790

In this example, the money you thought would provide for you for your lifetime runs out pretty quickly if you follow the "Rule of Thumb". The market's history has an average of 10% but that in no way means that it is likely you will earn that each year. Heck, the S & P Index for the last 10 years has only earned about 3%.

If you are investing money for income you have to invest it in a way that gives you the best chance to meet your income needs while minimizing the risk of running out of money. If a widow needs my help to ensure she doesn't run out of money, I will not be basing my advice on a "Rule of Thumb" that ensures failure.