Replies

1. 
   toolnut | Feb 27, 2003 02:43am | #1

   How does he, as the advisor/planner, make his money?  

   Everyone is certainly entitiled to make a fair buck and profit but it should be clear.   Flat fee?  Commission on trades he makes on your behalf? etc.

1. 
   JeffBuck | Feb 27, 2003 08:58am | #2

   Is that a question for me to ask...or a question of me?

   I already know that answer.....getting the inside scoop from the wife.

   Might be useful info for others to compare with...

   This guy charges a fee per transaction.....depending on what is bought/sold....sorta like working on commission.....when dealing with small potatos like me.

   For the big hitters.....he trying to sell money managing. Whole lotsa fancy financial words that explain to the wealthy.....Hey, give me all yer loot....I'll give ya back more..and show ya what's what while I'm growning it......and I won't nickle and dime ya broke.....it's all for one up front...(could be yearly) fee.....and that fee....will be less than all the little one's you've been happily paying added up together.

   Appearantly......this fee up front makes big time sense to the big time investors.

   Me...I'll get nickle and dimed...as ya gotta have the bucks to work with before the offer of the one time fee is offered.

   So...I won't be asking that Q.....

   actually...now I will and see what the official answer is!

   but still a good Q for the others....

   JeffBuck Construction   Pittsburgh,PA

    Fine Carpentery.....While U Waite                  

1. 
   toolnut | Feb 27, 2003 11:27pm | #3

   It was meant as a question for him, or any other planner somebody deals with. 

2. 
   stonefever | Feb 28, 2003 03:59am | #4

   O.K., Jeff,  This is what someone should be asking me when they come to ask me for advise:

   1.  How long have you been in the business?   The answer tells you whether you want somewhat of a rookie running your money.

   2.  What type of clients are your preferred types?   If someone concentrates his practice on retirement plans and you are looking for a "stock jockey," it's a bad fit.

   3.  Define his/her credentials.  If he says he's a "financial planner," ask to see his CFP credentials.  A Certified Financial Planner is a must when seeking financial planning advise.  If he says it's not necessary for the type of work he does, ask why since this raises a yellow flag.

   4.  Does he/she work for a bigger firm or is he/she an independent?  I'll get a lot of flak for this, but it matters significantly to you.  As an independent, he/she does not have the backing of someone with bigger pockets when something goes wrong.  An independent does not have the level of supervision and compliance hanging over his/her head that ensures a more appropriate recommendation.  True, there is no guarantee that things will not get similarly messed up with a bigger firm.  However, when I review the disciplinary actions that get passed around to those of us in the industry, I see an awful lot of independents on the list.   Furthermore, that backroom support offered by the bigger firms takes care of the prudent due diligence when certain products are considered.

   5.  Where does he/she get their ideas?  How do they get their continuing education?

   6.  Have you (the planner) ever had a client complaint or compliance related disciplinary action taken against you?  Why and where?   Before you ever write them a check, check out their story.  If he/she is a Certified Financial Planner, a call to the CFP Board of Standards in Denver will have that on record.  If he is not and still sells investments, he/she will have to be registered with the NASD (National Association of Securities Dealers).  The NASD maintains records on anyone ever registered with them.  All complaints become part of that brokers file.  This is public knowledge and can even be accessed via the internet (although I don't have the website for you now).  If he/she claims not to be NASD registered and only sells insurance policies, the state insurance commissioners office will have similar records on the individual.

   7.  Always ask what the fees are.  Every time.  Ask for all fees, even the hidden ones.  Any attempt to hem and haw, or brush the question aside is a red flag.  Now this doesn't mean that something with a relatively higher commission is necessarily wrong (I find that some mutual funds that charge higher commissions seem to return better performance - the ones that are cheap seem to display more problems down the road - kinda like you get what you pay for).  Personally, I'm troubled with the "contractual plans" that another poster mentioned.  And if you ever are going to do over $100,000 in mutual funds, insist on the "A" shares and pool that money with one fund family - you'll get some sizable discounts on the commissions.

   8.  Finally, after the investment is made.  What type of relationship will endure?  Will you be entitled to ongoing consultation or will you have to pay to simply discuss a past investment?  What type of communications will continue?

   9.  One last thing.  Who's his/her boss?  Meet him or her.

   10.  The chemistry of communication is important.  This is not a question to be asked, but something you get a feeling for while you talk.  If the person is somewhat intimidating, move on.  If they make you feel foolish for asking a dumb question, they don't get your business.  Note how clear and consise the answers are to your questions.

   You brought up the issue of "money managers."  These are not the wonderful thing some people say.  They have high fees and are complicated.  Especially if you're dealing with an independent.  These managers MUST be regularly inspected and evaluated.  The marketing material put out by some of these managers is not exactly honest when performance is discussed.  But most importantly, commonly these guys have little or no "sell discipline."  They are commonly marketed as being more protective of the assets in bad times.  Bull.  I ain't seen it.  Even among the ones that claim they have good discipline.  When the tide goes out, all boats go with it.

   Another thing - for you specifically.  Since your wife will be an employee, is she, or you, entitled to the "employee" discounts offered by the various investment sponsors?  If so, those expensive top performing mutual funds are available to you with NO commission.  If the guy is keeping her as an independent contractor, she won't be.  Furthermore, depending on exactly what she does and where, he could be skirting employment laws with the independent contractor issue.

   Best wishes.  To you, but more importantly, to your wife.  This business is not as glamourous as it's made out to be.

1. 
   jimblodgett | Feb 28, 2003 06:09am | #5

   I'd ask the person for ten random references. 

   I probably wouldn't call them all, but I'd call a few, just to see how the service is.  If you are giving this person your money, how good an eye can you expect them to keep on it?  Ask that of the customers you call.  Does the person keep in touch with advice on how and when it's best to move from one type investment to another?  Or are they always trying to sell, sell, sell.

   Hey stonefever - you know how a lot of retirement funds get sold as a way of reducing taxable income every year?  Where they deduct the 2k/year you can invest from "taxable income"?  But then you have to pay capital gains on the interest that investment earns when you cash it in, right?  Aren't there annuities where you pay the income tax on the money you invest, but you don't get taxed on the money you take out of the account later?  Could you please explain that...in lay terms?

1. 
   stonefever | Feb 28, 2003 06:43am | #6

   Jim,

   A couple of clarifications.  The reference issue sounds great, but...   If someone needs to give out references, that deck of reference cards has been stacked.  As nice as it sounds, personal experiences by friends and acquaintances seems more effective. 

   Not to appear picky, but your use of the term, "capital gains" needs to be carefully used.  In your application, the more correct term is, "investment earnings."  Capital gains taxes refers to the gain made when (or if) an item (stock, mutual fund, real estate, car, coins, guns, whatever) is bought and later sold at a profit.  The amount of profit from the gain of capital invested is taxed under the "capital gains rates," which if held longer than 365 days, can be much less than "ordinary income" or unearned income (such as interest, dividends or rents).

   Your question about annuities or something else...   There USED to be such a creature, but they (congress) stopped that break maybe 20 to 25 years ago.  I believe what you're thinking of is what is called "non-qualified" annuities.  These are very similar to non-deductable IRA's in which some savings (that has already been subjected to income taxes) is invested and grows without having income taxes imposed upon the earnings until taken out and spent.  But the closest thing I can think of that matches your description is the Roth IRA.  After tax money goes in and comes out free from taxes.

   But these can be confusing beyond this brief explanation.  Whether the annuity is fixed (like a CD) or variable (like mutual funds) can cause surprising results.  Different annuity companies have very different investment performance.  They have high (somewhat) hidden fees.  The strategies involved with taking money from the annuity sometimes can take a Philadelphia lawyer to figure out.  Some can be advantageous, others almost criminal.  But from experience, I haven't see many situations where it is best to let the money stay in the annuity until you die.   But WAIT!!   These annuity companies have now created something else where it does make more sense to leave it - a bonus of 40% of the earnings paid upon the death of the owner!  But there is a cost.

   If this is not clear enough, I'll try again.  Let me know where I've confused you.

1. 
   jimblodgett | Feb 28, 2003 07:01am | #7

   Yeah, what ARE "Roth IRAs"?  I think that's the one. Remember a few years ago when they were letting everyone switch over with no penalty or something? 

1. 
   stonefever | Feb 28, 2003 08:06am | #8

   Named after that Senator Roth hisself, the idea was to stimulate savings.

   After-tax dollars go into them, the earnings are allowed to accumulate tax-deferred, and then upon the intended reasons, allowed to be withdrawn free from taxes.  If withdrawn for reasons other than intended, the contributions can come out without taxes, but the earnings get taxed as well as any penalty.

   These can be terrific savings vehicles.  However, the contributions are limited. 

   Your point about conversions is partially true.  The first year they became available, some were allowed to convert traditional IRA's into Roth's.  The special thing about the first year was that the monies moved from the regular IRA were considered to be taxable income, yet the taxpayer was allowed to spread that tax over 4 years.  Conversions are still allowed (for those who qualify), but that 4 year payment period no longer exists.  Those taxes are due in full that tax year.

   I've heard some talk about extending this Roth concept to 401(k)'s.  But it's not here yet.

   This Roth concept also brings about other issues that can bring out those Philadelphia lawyers again.  For instance, regular IRA's require distributions after age 70 1/2.  Roth's don't have this requirement.  That simple thing can cause different strategies to be played when setting up an "Estate Plan."  Which means your will, trust or other transfer mechanism.

   It also has caused some to rethink the concepts surrounding life insurance policies.  We've probably all heard the line, "buy term (insurance) and invest the rest."  Well, some sharp insurance agents had some good reasons to challenge that thought (based upon internal rates of return and taxation issues).  But if the "rest" is invested in a Roth IRA, the math can really turn towards the term insurance vs whole life.

   The regular IRA has it's best applications when your current tax bracket is higher or the same as what it will be after retirement.  The Roth works best the other way - your current tax bracket is lower than what you expect after retirement.

   Hope that helps.  Keep coming back if I'm not clear.

2. 
   jimblodgett | Feb 28, 2003 05:11pm | #9

    

   "After-tax dollars go into them, the earnings are allowed to accumulate tax-deferred, and then upon the intended reasons, allowed to be withdrawn free from taxes." 

   Yeah, that's the one.  Thanks, you explained it perfectly.  I sure wish my ex financial advisor had explained these to me before my current one did.  At first glance many of us see the tax deduction of the traditional IRAs.  But those of us who have taken money back out of the market realize what a tax hit investments can take. 

3. 
   JeffBuck | Mar 01, 2003 09:21am | #10

   Just a summary of the meeting. Don't think anything we discussed could be useful to anyone else.

   As I said before....they have a new computer program. Helps prompt the discussion along...and as ya answer....your info get's entered into their program....and ya get all these custom charts/graphs/info.

   We went to get ourselves started..and so the boss could practice his way thru the slide show a bit more. Says he needs to get faster at putting the right info into the right slots...click on the right buttons......so people aren't sitting ther all day with him making corrections or looking for the "next" button. Lotsa info to input...I can see the need to practice. Just like filling out any new forms.

   Never been to a finance planner before....didn't really know what to expect....and was pleasantly suprised at what we did.

   Basically....it was a whole meeting about our future goals. Discuss what savings we already had....and what we needed to get to where we wanted to be.

   Like Piffen said somewhere around here....just get our head headed in that direction.

   He asked lots Q's...individually...to see what our goals were.....then combined them....then we talked goals and plans some more. Said the whole idea there...was to really get to know where we wanted to head...and..to see if the customer was someone he wanted to work with. The guys a top producer, a VP, and in the biz for like over 25 yrs..said he'll only work with people willing to work with him.

   When someone starts lying...which they say some will do.....he ends it quickly. He wants people that are going to put thought into their investments.

   Thru the graphs and charts..we saw there was a "gap" between the savings we had..and the projected savings we'd need to maintain our lifestyle after retiring.

   Then...he showed us by lowering some tax rates..and by slightly increasing some rates of return....how easily we could eat up some of that gap.

   The rest.....he'll work up a coupla of options and we'll go thru a second presentation. No figures or specific investments were discussed. As it was..the first meeting was plenty long. Lotsa prompting and proding to get us to open up and understand the basics. The whole time was basically spent getting us to think...admit....and think thru...our future goals.

   And he said he'd never recommend one specific way to get there. He'd offer options. It's our money....it's our decisions. Said he'd fully explain every last detail over and over again until we fully understood those options...but in our stage of investing....he requires involved and educated clients.

   Then said...everything we said today...will change!

   It'll be an on going review of goals and stratagies. As our lives change...so will the investing.

   Learned one thing..."risk" in investing is a matter of time, and amount gained...

   not amount you are willing to lose.

   Hard to describe without that chart...but the safest thing, a T-Bill.....is the "safest" over the short term. The most risky..the stock market....will out perform a T-Bill many, many times over a 15 yrs span. Any 15 yr span. Over the last 60 or so yrs. Even when using the all time low of the stock market as the base multiplier...against the all time high of the T-Bill.

   Over the short term...the t-bill way out performs ....then...there's others to consider over 5 and 10 yr periods.

   I'm probably explaining that wrong.....but over time......stocks are better. Thru wars.....thru depressions..recessions...all of that bad economy stuff.

   Guess that's why they always say......stocks are for the long run...now I can picture why..and if I get confused....refer back to my handy dandy chart!

   We also learned to not look at the wifes little 401K and IRA and get depressed..we gotta consider that there's 30 yrs of interrest yet to compound before it get's touched.

   Suddenly..we ain't looking so bad. Not good.....but there's definitely a way to make comfortable retirement happen.

   Sorry I can't offer anything for anyone's situation.......this was all about us!

   Jeff

   Buck Construction   Pittsburgh,PA

    Fine Carpentery.....While U Waite                  

3. 
   MajorWool | Mar 01, 2003 11:35am | #11

   This was actually something I brought up a few months back when we were discussing work trucks. Guess who will be better off in 20 years, the guy who bought the $20K truck that was adequate for his needs and put $20K into investments, or the guy who bought the $40K truck to impress his friends.

   The better educated you are, the better off you will be. Those who put *all* of their faith in someone are more likely to get reamed in the end. Its your money, and it is your responsibility to know what is happening with it. Show me someone who got 100% reamed with Enron, and I'll show you someone who wasn't paying attention. It is a good sign you asked for info. Most people don't until it is too late. Just don't jump in or commit with everything at first. Also look for free seminars put on by local brokerage firms. These are done by local investment guys so you can get some exposure to them. Even books like "an idiots guide to managing your money" are a wealth of information. Similarly, JK Lassers big yellow tax book is a great investment. Keep thinking where you want to be in X years, and then find out how to do it and take the steps to get there.

   Also, remember that there are fun things which cost money and fun things which make money. Part of my wife's trip this weekend is looking at properties on the coast. While completely unintentional, one of the best (and easily the most fun) investments over the last 5 years has been machineguns. Nearly every type has tripled in value. But in other cases, rental is best. What is that old saying, "if it f%&#s, floats, or flies, rent it."

   Also, do you have kids and are you planning for their education? If so, now is the time to start a Coverdell or 529 plan. The Coverdell is like a Roth IRA. You can put up to $2K per kid into it each year till they are 18, you can self direct the investment, and it grows tax free until taken out for education expenses. The 529 plans are state run, you can put more than $2K in a year, you get some sort of tax break (in our state it is state tax free up to $2K), but it is usually limited to investing in one of a half-dozen available mutual funds, and the federal tax exclusion sunsets in 2010 unless renewed.

   Keep in mind that a child can have investment income up to $750 a year that is tax free, and is taxed at 15% for the next $750. Above $1500 a year is taxed at the parent's rate. But still, that is $1500 income for which only $110 tax is due. Also, when they turn 14, capital gains on their investments is taxed at 8 and 10%. With a little planning, your kid can actually buy his first car with the tax savings from his own investment income.

   Other things to consider are life and liability insurance. We are set up so that if either of use dies, the house gets paid off and the kid makes it through college. While a life insurance plan through work might be cheaper per $1K per year now, that rate isn't guaranteed as it is with an independent term plan of 10, 15, or 20 years. And once you accumulate wealth, make sure it is protected. For about $150/yr you can get a million dollar umbrella personal liability policy. Also, never tell your kid how much you are insured for. ;-)

   And if you have anything, get a decent will.

   As my dad always told us, if you want to be rich, just do the opposite of what poor people do. Another gem of advice was from a guy who did a financial planning seminar for my wife's company. He said, "don't plan your life to minimize taxes. Plan to maximize your income." His example, people who didn't sell when the market peaked because they would have paid short term capital gains of 28%. Instead, they held onto investments that decreased to 1/3 of their value, so they could only pay a 20% long term tax. DUH!

   With a new kid in the house, I realized that I'm going to be watching more TV, so I got cable again. So here it is, Friday night, wife is at the coast with the kid visiting a friend, and I'm watching Louis Rukeyser on CNBC. Funny thing, when I was a kid, I did the same thing when my dad watched it on PBS. I have become my father. Aggghhhh!

1. 
   JeffBuck | Mar 01, 2003 12:01pm | #12

   Lotsa good ideas in there.

   We're planning all the stuff for us..and the kid(s).

   We're going with this guy...not only because he's the wife's boss.....but because after asking around....looks like we stumbled blindly onto just about the best in the area.

   Pure blind luck. Also pure blind luck the wife stumbled into her job.

   As it happened....he's been her parents broker/planner for years. Her Mom worked for the bank for many years before, and asked all the right Q's before going 100% thru him. He's done then right on every aspect. When her Mom died of cancer.....he's one of the reasons they were positioned for her untimely death..and one of the reasons her Dad made it thru things. Both professionally and personally.

   Just an on the ball guy always looking to improve his business. Hence, the new program and Harry Dent system.

   The way the wife got hired.....after her Mom passed..her Dad calls the kids to the brokers office...so he can transfer some stock they'd been planning on passing along. Cath was collecting unemployment at the time(laid off after 9/11), and going to school on weekends for a marketing degree. While in his office....he excuses himself to take a call.

   Finishes and says...as soon as I find my new assistant...I won't have to field those calls myself. Well....my father in law..never being the shy type when it comes to getting his kids working..says....That's funny..U need help and Cath needs a job!

   She sticks around after the papers are signed and talks about the job and does a quick impromptu interview.

   It's for a PT helper...mostly data entry..but what he's really looking for is someone that can move to FT and help run his seminars. Which is exactly what Cath did as an account rep/sales manager in the airlines......then he says......he really plans on getting things up and running and starting a little PR and marketing department.

   What was that degree again? Oh yeah.....Marketing and Corp Communications!

   It was like this ground floor position was created just for her.

   Pure luck. And like I told her...at the very least..we'd come out of it knowing lots more about investing for the future. That's another reason he wants us both to understand each and every step fully. Cath has to set up his appointments..so the more she knows...the better she can sell them on coming in.

   And I've already casually discussed "the wife's boss" with a few clients.....and the more I know....the more I can "casually discuss".

   Investing in the future is a common discussion when people are pouring money into their homes. It's a natural opening for a recommendation.

   We lucked into this guy....most others around the country probably aren't gonna have their leg work done for them.

   JeffBuck Construction   Pittsburgh,PA

    Fine Carpentery.....While U Waite                  

1. 
   rez | Mar 01, 2003 06:59pm | #13

   For what it's worth I'd recommend a book for anyone interested in investing. Titled 'Crash Profits' by a 'Martin Weiss'.

   I like to read a wide variety of opinions to cover pros and cons to help get an as unbiased view as possible. This guy blew me out of the water.

    

    

1. 
   BruceM16 | Apr 01, 2003 08:28pm | #15

   Hey guys

   Finally, I can make a meaningful contribution to a discussion!! I feel I owe it...I've taken so much information from this site!

   I'm a Certified Financial Planner, Fee-Only (I don't take any commissions, finders fees, kickbacks, referral fees, etc)....I charge clients an hourly rate or % of assets under management. I'm on the faculty of the College for Financial Planning and teach the retirement planning and introduction/insurance modules required to qualify to sit for the 2 day CFP exam.

   With that in mind, I'd be happy to address any general or specific financial questions for you or your business, to help get you pointed in the right direction. Can't promise I know everything, but I'll be happy to take a look!

   Bruce C. Miller, CFP

    (check out my credentials if you wish on CFP Board of Standards web site at http://www.cfp.net/default.asp )

4. 
   RussellAssoc | Apr 01, 2003 07:10pm | #14

      My wife is unexpectedly taking me on one of her business trips.  It's to Las Vegas.

   I understand there are extensive investment opportunities there, craps , blackjack, etc.  Send me a brown paper bag with what ever cash you want me to invest, I'll contact you in a week on how we did.