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A couple of year after retiring from a career in translation and the organization of international conferences, I enrolled in a graduate program for Financial Planners at Rice University and subsequently passed the CFP exam. I didn’t intend to go back to work, and I haven’t. What motivated me was an interest in learning how to manage my own finances better. In the process, I gained an appreciation for financial planning as a profession and would consider it seriously if I were starting out again. Alas, I’m 76 years old.
I have the impression that many Humble Dollar readers take pride in managing their own finances and investments – that’s kind of the premise of Humble Dollar, isn’t it? That it’s not rocket science. Financial literacy comes down to a few basic principles, and financial success to clear goals and discipline.
Nevertheless, it seems to me that that simple message – and the good outcomes it leads to – isn’t reaching the people who would benefit most, if one is to judge by the average person’s readiness for retirement.
So, I have two questions for you: First, have you personally benefitted from access to financial planning, and if so, how? And second, why aren’t financial planners reaching those who need it most?
I have other questions, as well, but I’ll start with those. I welcome any comments on financial planning, financial planners and how they could be of value to the average household.
Javier, I was fortunate to attend a session with a financial planner at my first employer when I signed up for the 401(k) there. Years later, Vanguard still offered a free financial plan to account holders who had a certain balance or more. Lots of reading (including HumbleDollar) supplemented those two financial planning tent poles and gave me the fortitude to stay the course when the markets looked bad.
As for your second question, I’m no expert but I have a few ideas why financial planning may not reach a lot of folks: There is a cost involved and many employers don’t pay for the sort of session I mentioned above. Planners often earn more on larger portfolios so there is little incentive to market to those starting out with small balances. Some people associate financial planners with the wealthy and don’t recognize how they might benefit from such advice. Another barrier is probably lack of confidence and trust: You almost have to know a thing or two about finances to ensure you can properly vet the advisor you hire. Lack of urgency might be another factor: Rather than use an advisor proactively and strategically, folks might not seek advice until they have a pressing need.
Way back when, my employer paid for an annual session with a “financial planner”. Fortunately, a few years later, I discovered Vanguard, and realized that these planners had steered me to expensive, managed funds. I did visit them a few more times, telling them upfront that I was not buying from them, I simply wanted to know what the numbers looked like. Since I retired, I have visited a couple of fee-for-service planners, again, just to check that the numbers looked good. In a few years I might look for a “daily money manager”, but I have no interest in paying AUM fees.
The people who need financial help the most are unlikely to be able to afford it – or to have enough money to be of interest to most planners.
Javier: I enjoyed reading your post and you shared some good questions. The “benefit” I will share regarding our personal finances is about 99% from reading Humble Dollar and Bogleheads forums. Great information in those sites and FREE! As for your second question, my opinion is that financial planners are looking too much at those with heftier asset amounts, thus missing a lot of potential clients. Some do their learning on these sites, so are DIY. Other potential clients may not be disposed to read Humble Dollar and/or Bogleheads, so that may not be inclined to seek out financial planners. Again, just my opinion, certainly not based on any validated statistics.
Javier, my relationship with a financial advisor is indirect — through my wife. Left to my own devices, I’d never use one. My background is in business and finance (albeit a somewhat dated degree), and having run my own business, I’ve always been comfortable managing my money and investments myself.
As for your second question, I may have a particular perspective worth sharing. I grew up in economic deprivation and still have close ties to many people in similar circumstances. The answer is straightforward: it comes down to lack of money and the very real barrier that the costs of engaging with the financial services industry pose for people with limited means.
Javier, good post and valid questions. Here is my take on your post and questions.
First, as a CPA as my professional training and working in finance in the insurance industry for most of my career, I was not engaged in financial planning on a personal level. I was engaged in financial controls for businesses that I worked in (and audited). I had no training in investments nor was this an area that I practiced in for the businesses I worked for. My area of expertise was more in the area of generating cash flow and budgeting, managing expenses, etc. All important factors for business that had application to personal finance, but far from the type of planning that was useful for retirement investment and planning.
I was fortunate to have access to great employee benefits at the companies that I worked for most of my career, including a company provided non-contributory pension plan upon retirement and a generous 401k plan that included a company match of 117% of the employees contribution after x number of years (and for most of my 34 year career at this one employer). The investment options were the usual Vanguard Mutual funds as well as company stock during much of my career. Even without the investment return, I was making over 100% return on my contributions.
As my wife and I were getting closer to retirement (about 7 years ago) we decided to look for and after interviewing several, we engaged with a financial planner who followed the philosophy of the Bucket Plan which made a lot of sense to us. We were both free to transfer portions of our 401k assets to the planner who put these funds into various investment products that fit into the NOW, SOON and LATER buckets leading up to our retirement, 3 years ago. We are very happy with the relationship we have built with our advisor and consult with him as needed. The investments have done very well and we have barely had to touch any of our assets due to our other income sources of Pensions and now Social Security.
As for the 2nd question, many people like to learn about and invest their assets on their own and feel they don’t need (or want to pay) a financial planner. We had no interest in taking on this responsibility of learning about investment options and risking our hard earned assets via Do It Yourself. There are plenty of planners out there (probably not all great) but if individuals aren’t interested in engaging them or doing the work to vet them to find a good one, they will not be assisted. You can lead a horse to water…