The Future of Financial Planning
 

This question is aimed at Dien but anyone can jump in. There seems to be a lot of interest in investing on this sight recently and with the ups and downs of the market, new technologies coming out daily, information at your finger tips, etc., I was wondering where everyone felt the future of financial planning was heading. You see I am very close to obtaining my CFP Certified Financial Planner designation and was exploring what direction I should head in for developing a financial planning business. There are tons of so called advisors, representatives, consultants, brokers, etc. who are just selling their hot product of the moments just looking for the transaction to make a buck. Then you have the fee based planners who are only looking for individuals with $500,000 minimum to play with. What are some thoughts on a financial process which provides the knowledge but leaves the individual alone, if he wishes, to invest without all the fees and expenses? What are your thoughts on how this should be done?

Mitch Austin

Re: The Future of Financial Planning
 

Hi Mitch,

Congratulations on almost obtaining your CFP! Sounds like a good direction to take (it may sound a bit weird, but I actually find the finance world exciting!) :)

I don't know what is the best way to go, however.... Personally, if I were to go into "selling" my services here, I would probably stick with forming an investment company, and looking for shareholders. I'd only pay myself as an investment manager out of the profits which were generated from the investments (so that I would only get paid if I made profits for the other shareholders).... But that's partly due to legal reasons, since I'm limited in what kind of financial advice I can legally give, as I'm not a CFP!

This is similar to what Warren Buffett did early on in his career, except he used a limited partnership structure rather than a Limited Liability Company structure. It's also good for the shareholders because they only pay you if you actually make money for them.... UNLIKE mutual funds, where you still pay them even if they lose money for you.... But back to your situation....

Mitch, as you point out, one option is to charge for your time, which is a good option to consider.

Perhaps another alternative you may not have thought about is to produce a subscription newsletter -- I think this could be quite lucrative. You could give monthly or weekly advice on what should be done financially....

Another option is to start a membership web site, where people pay to join and then benefit from your regular advice....

There are a lot of options outside of the standard things that people do.... I'm sure with more time we could think of many other possibilities too.... :)

- Dien Rice

We used a financial planner (works with American Express)
 

You might consider joining one of the large companies and working there for awhile. It will give you a steady stream of clients and a chance to build up contacts in the industry. Financial planners have saved many a marriage and many a family from financial ruin with their advice.

My husband and I took a gamble and used American Express' financial planning services. The counselor was just amazing! We had bailed my husband's mother out of bankruptcy (and helped with some medical expenses) and had helped his sister out of financial difficulties -- and then we had a house fire (and were underinsured). We suddenly found ourselves nearly $350,000 in debt -- and then the IRS came after us. We were at our wits' end.

This guy sat down with us, showed us some strategies, helped us adjust our income, showed us what to quit wasting money on and what to pay off first -- and three years later we've managed to whittle it down to a manageable $50,000 in debt and we've built up good cash reserves.

He was worth every penny we paid him!

Financial planners can do amazing things -- and grateful clients usually come back as things improve! Let a firm (like American Express or whomever) do your scouting for you in the first few years or so, until you build up a good client base (and get additional certifications on THEIR nickel.) Then step out on your own.

At least, that's my recommendation. Your mileage may vary, eh?

The number one talked-about topic among married couples is....
 

Hi Mel,

Thanks for sharing your experiences.... :)

> Financial planners have saved many
> a marriage and many a family from financial
> ruin with their advice.

Wow, this is a good point I didn't think of....

I was watching a program last night on a similar topic.... It was a British documentary, but I didn't catch the title. One thing they said on this documentary was that the NUMBER 1 topic talked about among British married couples was MONEY. (It was talked about even more than sex, according to the program....) I bet this probably holds true for most married couples everywhere.

It's an important issue. As you said there are probably many marriages which have been saved, or which COULD have been saved, with the advice of a good financial planner....

- Dien Rice

My .005 cents
 

>

Something to consider:

1) Lots of baby boomers have not
done responsible financial planning and
are now about to enter retirement; one
statement I hear from my co-workers(90%
boomers around the age of 48-50 ): "I'd like to retire by 55"...
most are people who have not saved very
much: go figure...
( Seminars for this age group might prove
lucrative)

Re: My .005 cents
 

A small point that might interest you:

With the current financial debt cycle of most Americans (and I believe, Australians), by the age of 65, 95% of them will be broke, disabled, or dead.

> Something to consider:

> 1) Lots of baby boomers have not
> done responsible financial planning and
> are now about to enter retirement; one
> statement I hear from my co-workers(90%
> boomers around the age of 48-50 ): "I'd
> like to retire by 55"...
> most are people who have not saved very
> much: go figure...
> ( Seminars for this age group might prove
> lucrative)

Fortunately, there's an answer to money worries....
 

Hi Chris,

> With the current financial debt cycle of
> most Americans (and I believe, Australians),
> by the age of 65, 95% of them will be broke,
> disabled, or dead.

Fortunately, it doesn't have to be that way....

One of the simplest answers to money-management is just keeping a budget.

I made my first personal budget about 4 years ago.... I made it because I couldn't figure out where my money was going! And after a few weeks, when I looked at the results, I was surprised!

What I did was every day I wrote down EVERYTHING I spent money on. That means food, drinks, bills, magazines, transport, everything....

During the day, whenever I bought something, I'd try to write it down. (If I was doing it now, I might record it on a small pocket-sized tape recorder instead, since it would probably be easier....)

Then, every night when I got home, I'd enter the results in my computer. I just put it down in a very simple Word document, just listing everything I bought....

I would sum up the amount I was spending each day. Then, at the end of the week, I'd sum up each day's tallies to get a final weekly figure for how much I was spending....

I'd also categorize my purchases. So food and drink would be categorized under "food." Books would be another category (I spend a ridiculous amount on books). Then there was transport, electricity, rent, etc.

After a few weeks, I had a look at my records. What I discovered shocked me! I had NO IDEA I was spending SO MUCH on both food and books! These were two huge items on my expense list!

I was eating out practically all the time, which can be expensive.... So the first thing I attacked was my food spending. I prepared more of my own food, and ate out less.... Since I was eating out so much, this made a significant difference in how much money I had.

I also reduced my book spending (but didn't cut it out entirely).... This also made a difference. I finally got my finances manageable again....

It pays to do this. If you've never done this before, you could be surprised where your money is going (like I was).... I honestly had no idea such a large chunk of my income was being spent on books and eating out!

Doing this will tell you exactly where your money is going. And it's only once you know what the problem is that you can start to tackle it....

Budgeting isn't usually a considered very "exciting" topic, but it can really be a life-saver.... :)

Some people have literally earned millions in income -- and a few years later, it's all gone. They've squandered it. You hear about this happening every now and then to actors, sports stars, etc. Where did their money go?

My bet is that these people NEVER made a budget. They probably have no idea where the money exactly went to. Now you know the effective technique which they didn't know.... Even if you only do it once, keep a budget! You'll learn a LOT about your own spending habits by doing it....

- Dien Rice

I should also mention....
 

...that I'm still budgeting, in a way....

What I do now is I calculate my assets every week, using a spreadsheet (I use Excel). This is not that hard to do, really....

This keeps track of my various assets.... my "chatteling", my stocks, and other income I have (which has found its way into a bank account or my wallet).... Then I subtract my "liabilities" (the money I owe) from my "assets" (the money I have plus the worth of my investments) to get my "net worth"....

Your "net worth" is how rich you are.... My goal is to increase my "net worth" every week, compared to the previous week. I don't always succeed (sometimes I make a bad purchase, sometimes I just spend a lot of money, sometimes the value of my stock holdings fluctuate).... But it gives me a good idea where I'm heading!

Another thing I wanted to mention with the budget idea is you can do this in conjunction with what Robert Kiyosaki teaches in "Rich Dad Poor Dad"....

Robert Kiyosaki defines an "asset" as something which "puts money in your pocket," and a "liability" as something which "takes money out of your pocket."

Using this definition, how much are you spending on assets, and how much on liabilities?

Probably most people are spending most of their money on liabilities.... However, try to change your habits and spend some of your money on things that put money IN your pocket. Chatteling is one way, good solid stock investments is another way, real estate, REITs (real-estate investment trusts), bonds, and there are plenty of other ways too.... :)

- Dien Rice

One of my sons IS with American Express
 

He's a Financial Planner with American Express. In fact he now MANAGES the Vancouver, WA office.

And he's only been with them for 3 yrs. He plans on getting his own office in the next 12 mos.

Am Ex gives excellent training...BUT, the REAL money is made by those who have their own deal.

He just bought his first house and his mother and I told him he may, within the next few weeks he may find the female joggers increasing around his home when word gets out that he's SINGLE, STRAIGHT and LOADED. We'll see.

Jeff Paul made money as a Financial Planner then made a small fortune selling courses to the Financial Planner "niche". A rather small "niche" of only about 25,000 prospects. But, when you learn HOW to sell "information"...you can do so at the rate of $4,000 A DAY...selling 7 $600 Kits a day.

Right now...Sept of 2001...there is a HUGE need for Financial Planners. My son needs 7 in his office immediately. WHY? Because of the downturn the market has taken MANY people who were NOT WORRIED about their investments...are NOW! And...they are looking to Financial Planners to help them KEEP WHAT THEY HAVE!

One RULE to remember when you are thinking about how to approach how to sell your info product or program;
It's OK to tell people How Much they can make with your info product BUT...people will CRAVE and HUNGER for things that will help them KEEP WHAT THEY HAVE!

The "FEAR OF LOSS" is greater than the "Hope Of Gain!"

REMEMBER THIS RULE!!!!

Don Alm


Some of My Unique money-makers

Re: The Future of Financial Planning
 

Mitch,

I think the future of financial planning is in providing complete overall solutions for your clients' needs. By this, I mean a financial planner should have an excellent knowledge of budgeting, the various investment vehicles and financial theory, as well as some tax knowledge.

For example, it would be good if your financial planner could look at your situation, help you work out a budget, a savings plan, assist you in allocating your investments if you wanted the assistance, as well as offer advice on paying off the home loan and borrowing to purchase investments, in order to make the interest costs deductible.

Another choice is who you want to deal with. If you want to deal with high net worth clientele, then no doubt you'd look more at trusts, income splitting, perhaps issues with buying businesses, and the like, whereas most middle-income clients would probably have less complicated situations.

I'm not sure of your current experience, but if you're looking to work as a financial planner, then essentially there are 2 options presented -- working for an established firm, or setting up your own practice, and each has advantages and disadvantages.

If you work for an established firm, then your income will be regular, you'll gain experience, and if your knowledge isn't that great in some areas or you lack experience, there are usually others around you can ask.

Setting up your own practice has the benefits of higher potential rewards in terms of profits (and probably satisfaction), but brings with it the risk that it could not work out, plus probably an initial capital investment. In addition to higher potential earnings from growing the business, you'd also be able to structure your affairs better to reduce your tax bill and claim more expenses. If you're unsure of certain areas, though, this particular avenue can cause problems unless you have some good contacts or want to spend a lot of time reading and learning to find the correct answers.

So what's better? Well, in my opinion, in the long term the second option is definately better. And in the short term? Well, it really depends on your experience, financial situation, and ability.

If you don't have much experience, and wouldn't know where to start practicing on your own, then by all means you should get the experience. But if you've been in the industry for a while, and you know your stuff pretty well, then I'd suggest seriously considering your own practice. Or possibly partnering with other able financial planners you know.

On to the specifics of a financial process which provides the knowledge but leaves the individual alone, if he wishes...

Well, to be honest, I don't know how most financial planners work. Is the majority of their income derived from commissions on products that are sold? If so, and you don't want to do that, some alternatives you could look into are:

- Charging set amounts for certain services, such as assistance in preparing a budget, or reviewing a client's investment portfolio, or advising on tax minimisation strategies; or
- Charging an hourly rate, and billing your clients for the time on the phone, the time they come in, and the time you work on their particular projects when they want things done.

I'm not sure how possible or workable those options are, but they leave room for independent advice where client's know that your main interest is providing them with good service, rather than receiving commission income.

Apart from that, my only other suggestion would be to (if you haven't already) master the areas of tax planning, portfolio allocation, and investment analysis.

I'm not really sure if what I said is relevant to your question, but I hope something helped!

- Thomas Rice.

> This question is aimed at Dien but anyone
> can jump in. There seems to be a lot of
> interest in investing on this sight recently
> and with the ups and downs of the market,
> new technologies coming out daily,
> information at your finger tips, etc., I was
> wondering where everyone felt the future of
> financial planning was heading. You see I am
> very close to obtaining my CFP Certified
> Financial Planner designation and was
> exploring what direction I should head in
> for developing a financial planning
> business. There are tons of so called
> advisors, representatives, consultants,
> brokers, etc. who are just selling their hot
> product of the moments just looking for the
> transaction to make a buck. Then you have
> the fee based planners who are only looking
> for individuals with $500,000 minimum to
> play with. What are some thoughts on a
> financial process which provides the
> knowledge but leaves the individual alone,
> if he wishes, to invest without all the fees
> and expenses? What are your thoughts on how
> this should be done?

> Mitch Austin