When to Hire a Financial Planner

I don't care how smart you think you are about money! It doesn't matter if you are "rich" or "broke" or somewhere in the middle. Everyone can benefit from sound financial advice from a qualified, trained professional Financial Planner.

But when exactly is the right time to hire a financial planner? I don’t think anyone should hire a financial planner until they can answer two questions:

1. What do you want from the relationship?
2. Are you ready to take advice?

What do you want from the relationship? This may seem like a really basic question, but it really isn’t.

Do you want an advisor who will beat the market every year?

If this is your real motivation, forget about it! It’s impossible. No financial advisor or planner can beat the market year in year out. There are investment strategies that work, but nothing works all the time. So, don’t hire an advisor based simply on investment performance. They will likely let you down at some point.

Are you looking to hire an advisor because you need a financial plan?

If so, you need more than an “investment manager”. Hire someone who can look at your situation objectively and has been trained in all aspects of personal finance. Also, hire someone who doesn't receive their compensation based on the recommendations they make. Financial Planning is a process, not an event. If you need a financial plan, only hire a Certified Financial Planner (CFP).

Great Reasons to Hire a Financial Planner

First, you can admit that you don’t know everything and you need direction.

Second, you need financial discipline or someone to hold you accountable. In other words, you need to be saved from yourself. This may sound crazy but for those of you who really understand what I’m talking about, you know it’s true.

Most of us are our own worst enemy when it comes to investing or spending. And just having someone hold you accountable is worth many times the price you will pay. Think about the last stupid investment you made. What if you could have avoided it? Think about the all the money you wasted last year because nobody scrutinized your spending. How much would you have saved if you had someone to help you stick to a budget?


But… Are you ready to take advice?

Be honest with yourself. If you’re not willing to take direction, don’t bother hiring a financial planner. You’ll spend a lot of time and money for nothing.


For more about my unique Financial Planning process called "Financial Life Coaching", go to www.jasonWqualls.com

Buying The Right Type of Life Insurance

Let's start off with the basics. There are two main types of life insurance: Term and Permanent.

Both are conceptually easy to understand. Term Life Insurance covers you for a specified period or term, like 20 years for example. Permanent Life Insurance covers you permanently or for your entire life, or at least it's supposed to. Permanent Life can have many sub-names like whole life, variable life, universal life or single premium life which all work differently.

When you buy Term insurance, you are only paying for the cost of insurance which is usually very inexpensive. In a Permanent policy, premiums are usually substantially higher than term. Some of the premium goes towards the cost of insurance and the remainder builds in an account called the "cash value". Cash values typically grow tax deferred.

You have probably heard all the media "hubbub" about which type of life insurance you should buy. Radio show pundits and magazine articles tell us to only buy term, or whole life is a bad investment, or buy term and investment the difference.

Are those things really true? Is it really that simple? What's the truth?

Well, honestly the type of life insurance you should buy depends on many things. Some people only need term but others may need permanent.

Tell me exactly how long you will need life insurance and when you will die, and I can tell you the correct type you should own. But like most other financial planning decisions, we must make some assumptions or best guesses about the future. But it's very difficult to know when you are 20, 30 or even 40 what your financial life will really be like at age 60.

Here are some truths:

1. Most permanent policies are junk! But not all.
2. Any type of life insurance is usually better than NO life insurance.
3. Most people should buy life insurance for protection only NOT as an investment.
4. Most people that end up buying the wrong type of life insurance got their advice from a insurance agent, not an objective financial planner.

This issue is way to complex for me to cover every detail in a blog post. My hope here is to get you to understand the basics so you can go hire a professional to help you that isn't a financial sales person.

You most likely need Term if:

• You are just starting out
• Have no discretionary income and/or low net worth
• Its very easy to forecast the length of your insurance need (10 years left on a mortgage for example)
• Have a very limited amount of savings left over for retirement
• You simply can't afford permanent insurance, even it were a good deal

When Permanent Life may be a fit:

• Very strong, predictable cash flow
• High income earner
• You have exhausted all possible retirement savings vehicles (401k, Roth, etc.)
• Will have Estate Planning liquidity issues
• Its very hard to predict the age you will no longer need life insurance
• You just want your life insurance to be there when you die! 
• You have done your research! Not all life insurance policies are equal!
• You understand all the workings of the policy (expenses, interest rate, etc)

Why does Permanent Life insurance get such a bad rap? I believe most people fear what they don't understand. And Permanent insurance can be extremely difficult to understand. Also, most Permanent Life policies have too many internal expenses which can make them a terrible deal. But some companies do a pretty good job of keeping internal costs down, therefore increasing the internal rate or return on your "cash value".

Here is one concept:
Most term polices never pay a death benefit because people out live them or cancel them. Let's say you compare 2 options: 1.) invest money in a taxable investment OR 2.) buy permanent life insurance where your policy builds cash value. If the cash value of your life insurance net of expenses could earn more than your investment account net of taxes, then you would have more money inside the cash value. OR vice versa. Sounds simple, right? Not exactly!

You want to make sure you are comparing apples to apples. If the cash value grows at a fixed rate, then compare it to fixed income assets in your investment account. If your investment account is invested in stock mutual funds, compare it to a comparable allocation in Variable Life. This is where the media falls short on helping you understand Permanent life insurance. They try to compare fixed rate cash value insurance to the stock market over the long term. That's like comparing a Porsche to a Subaru!

But its not all about the cash value rate of return. What about the rate of return on the death benefit? Like I mentioned earlier, this issue is far too complex to cover all the points here!

Here is your take away. Term Insurance is right for many Americans. Some types of Permanent policies may be a fit for others. It just depends on the unique situation of the individual. This can be a very confusing area. Seek out unbiased, objective advice from a Fee-Only Certified Financial Planner. www.jasonWqualls.com

How Much Life Insurance Do You Need?

Do you need 5 times your income? Or should you buy 10 times your income?

In my experience, if you ask stupid questions you tend to get stupid answers.

The real question you should be asking yourself is... If I die tomorrow, what do I want financially for the loved ones I will leave behind?

Will your spouse need an income? How much? For how long?
If so, how much money does it take today to provide that amount of income?
What assets do I have to help offset that number?
Are there any debts that must be paid off?
Will your kids need money to pay for college?
Is there a parent or another family member that depends on you?
Do you want to leave money to your church or Alma Mater?

Once you know the answers to the above questions, work with a qualified, unbiased professional like a Fee-Only Certified Financial Planner who can help you determine the correct amount of life insurance you really need.

Don't use rules of thumb to plan your financial life! Here's why:

Let's assume you die tomorrow, and you need to replace your current income of $50,000 for the next 20 years to allow your husband/wife and kids to keep their same lifestyle without having to struggle. If you used the "rule of thumb" of 10 times your income when you bought your life insurance, your surviving spouse and kids will most likely run out of money in 15 years or less. Feel free to email me and I would be happy to send you the hard data.

Get a real financial plan! Work with a CFP!

In my next post I will discuss what type of life insurance to buy. www.JasonQuallsCFP.com

What Your Real Estate Agent Has to Tell You, But Your Financial Advisor May Not

The financial services industry should take a page from the real estate industry when it comes to transparency with clients. When you are a customer, a salesperson’s job is to sell you a product or a service. While salespeople have a duty to be honest and fair with you, they don’t have a duty to put your interests ahead of theirs. It’s your job to evaluate their claims and products, then to make an informed decision whether or not to buy.

A client relationship is much different. In this case you are typically buying the wisdom and services of an advocate. This is similar to the relationship you have with people in the legal and medical professions. It’s the job of the professionals to put your needs above theirs. When professionals call you their “client,” it means they have a fiduciary duty to put your best interests first and be your advocate.

In some cases, like buying or selling a house, you get to choose whether to be a customer or a client. About thirty years ago the real estate industry was where the financial services industry is today. Many buyers or sellers were unclear, when they retained a real estate agent, as to the agent’s fiduciary duty. Even though an agent might show a buyer lots of houses, the agent technically worked for the seller. This was confusing, especially to buyers who often thought of the agent who hauled them around for days showing them houses as “their” agent. It was equally confusing to real estate agents, who often worked “for” the buyer even though their fiduciary duty was to the seller. That is no longer the situation in most states today. Real estate agents must give you the choice of having the real estate agent work for you (where you will be the client) or work for the other party (where you will be the customer). In some cases the agent is allowed to work for both buyer and seller, meaning the agent doesn’t work for either party. The agents are required to fully disclose whether you are the customer or the client. If you are the customer, you have the opportunity to retain and become the client of your own agent.

Ironically, despite the recent proposed reforms in the financial services industry, there is very little to no transparency or disclosure required of financial salespeople.

Most investors are confused about which financial professionals are held to a fiduciary standard. Some 75% of consumers believed “their” financial advisors had a fiduciary duty to put their interests first. In actuality, less than 20% of the advisors were fiduciaries. Most consumers thought they were clients, but they were actually customers. This is especially serious, since most people are left thinking they are getting unbiased financial advice when they are actually getting a sales pitch.
Why is the financial services industry so far behind the real estate industry when it comes to transparency and disclosure? Probably because the financial services industry is far more consolidated than the real estate industry and has a lot of influence on Capitol Hill.

Don’t assume you are a client rather than a customer. Demand clear answers, and go elsewhere if you don't get them. Demand the same level of disclosure from a financial services professional that you would get from a real estate professional.

Contributed by Rick Kahler, CFP