Justin's Financial Musings
What I've Been Up To.
You might have noticed, or maybe you didn't... I've been posting a little less frequently. Been busy. I'm partnering with my boss at the Garrett Planning Network, Sheryl Garrett, to start up a new financial planning firm.
Currently, financial planners can pay a flat licensing fee to join the Garrett Planning Network and we help them start and run their own independent state-registered financial planning and investment advisory firm. We coach them on everything they need to run a Fee-Only, hourly financial planning business, but ultimately the responsibility falls on them to run the day-to-day operations of their firm.
We're creating a new, additional service for members of the Garrett Planning Network. Sheryl and I are creating a new nationally-registered (SEC) financial planning and investment advisory firm. Now financial planners (who are also members of the Garrett Planning Network) can choose to join our larger firm and we take some of the compliance/regulatory, operations, billing, software/tool selection functions off their plate so they can focus more on financial planning and less on the day-to-day operations of their firm. At the same time, they will still be able to do business as (d/b/a) their own firm name, they can still build their own brand, keep their own clients, etc. For example, I'll still do business as Nichols Financial Advice, but I'll technically be part of our new larger firm called Garrett Investment Advisors, LLC.
Thought some of you might find that interesting so I wanted to share that with you all. It's a very exciting venture and will be quite unique in the financial planning world.
Have a fantastic weekend!
Currently, financial planners can pay a flat licensing fee to join the Garrett Planning Network and we help them start and run their own independent state-registered financial planning and investment advisory firm. We coach them on everything they need to run a Fee-Only, hourly financial planning business, but ultimately the responsibility falls on them to run the day-to-day operations of their firm.
We're creating a new, additional service for members of the Garrett Planning Network. Sheryl and I are creating a new nationally-registered (SEC) financial planning and investment advisory firm. Now financial planners (who are also members of the Garrett Planning Network) can choose to join our larger firm and we take some of the compliance/regulatory, operations, billing, software/tool selection functions off their plate so they can focus more on financial planning and less on the day-to-day operations of their firm. At the same time, they will still be able to do business as (d/b/a) their own firm name, they can still build their own brand, keep their own clients, etc. For example, I'll still do business as Nichols Financial Advice, but I'll technically be part of our new larger firm called Garrett Investment Advisors, LLC.
Thought some of you might find that interesting so I wanted to share that with you all. It's a very exciting venture and will be quite unique in the financial planning world.
Have a fantastic weekend!
"Good luck mourning me and figuring all that stuff out."
That was my tongue-in-cheek response to my wife yesterday after she said, "I'm not planning on you dying tomorrow, but if you do I don't know how to do any of the financial stuff."
For a number of years I've had some sinus issues and I'm having endoscopic sinus surgery later today. It's an outpatient procedure and, although I signed a waiver saying it could result in leakage of brain fluid and even death, it's a fairly routine procedure and I don't anticipate any problems. But it got my wife thinking, huh?!?
We have all our estate planning documents in place and an appropriate amount of life insurance and such. However, it's been some time since my wife and I sat down and went through it all.
So, Edee and I are going to sit down and do this very soon and I encourage you to do it as well. Here's a great article from my friend Robert Brokamp, at The Motley Fool, that lays out Instructions for the Afterlife: Preparing for the Inevitable.
Have a great Thanksgiving!
For a number of years I've had some sinus issues and I'm having endoscopic sinus surgery later today. It's an outpatient procedure and, although I signed a waiver saying it could result in leakage of brain fluid and even death, it's a fairly routine procedure and I don't anticipate any problems. But it got my wife thinking, huh?!?
We have all our estate planning documents in place and an appropriate amount of life insurance and such. However, it's been some time since my wife and I sat down and went through it all.
So, Edee and I are going to sit down and do this very soon and I encourage you to do it as well. Here's a great article from my friend Robert Brokamp, at The Motley Fool, that lays out Instructions for the Afterlife: Preparing for the Inevitable.
Have a great Thanksgiving!
1-Page Financial Plan.
Okay, I admit it's a bit of a stretch to condense an entire, meaningful financial plan to 1 page, but I think I'm fairly close with my 1-Page Personal Finance Snapshot.
(click graphic for full-size image)
As I mentioned in my last couple posts I've long been a fan of "shorter is better". I'm not going to re-read a 25-page financial plan so I'm pretty sure my clients, who might not have as great an interest in these issues, won't either. And for some financial planners, 25 pages is just getting started, believe me!
I wanted to provide as much information as I could about a client's personal financial situation and keep it to 1 page. Overall net worth at the very top, followed in a fairly logical order by the main areas of personal finance, with simple stoplight indicators along the way to show the status of each item (red means action is needed, yellow means could be better, green is on target).
Certainly there's a lot of conversation and additional explanation that's provided verbally to go along with this, but I think it's a pretty neat tool that contains kind of an executive summary of the key parts of one's personal financial situation. My goal would be to update this about annually for clients to help show them the progress they're making.
As my 7th grade math teacher would say, Keep It Simple Stupid.
(click graphic for full-size image)
As I mentioned in my last couple posts I've long been a fan of "shorter is better". I'm not going to re-read a 25-page financial plan so I'm pretty sure my clients, who might not have as great an interest in these issues, won't either. And for some financial planners, 25 pages is just getting started, believe me!
I wanted to provide as much information as I could about a client's personal financial situation and keep it to 1 page. Overall net worth at the very top, followed in a fairly logical order by the main areas of personal finance, with simple stoplight indicators along the way to show the status of each item (red means action is needed, yellow means could be better, green is on target).
Certainly there's a lot of conversation and additional explanation that's provided verbally to go along with this, but I think it's a pretty neat tool that contains kind of an executive summary of the key parts of one's personal financial situation. My goal would be to update this about annually for clients to help show them the progress they're making.
As my 7th grade math teacher would say, Keep It Simple Stupid.
Back-of-the-Napkin Simple.
This is my inspiration to be even more simple and direct in my financial planning. Carl Richards is a financial planner from Utah who, a couple years ago, began illustrating complex financial ideas in simple, easy-to-understand sketches. I started following him soon after he began doing this and he's become quite popular (NY Times blog, speaking engagements, new book, etc.).
I heard him speak at a large financial planning industry conference a few weeks ago and he was very good. He commented, for example, he's a bit overwhelmed when the CFO of a Fortune 500 company comments on a sketch that has only: INCOME >= EXPENSES
I'm going to keep this musing simple and stop right here. Check out more of these cool sketches at Carl's website.
Simplify Your Financial Life.
I think that's going to be my new tagline. My current mission statement / vision statement / tagline / slogan is:
"Fee-Only, Hourly, Fiduciary financial advice to help you strike a balance in your life between enjoying today and planning for tomorrow."
I still like that phrase and wholeheartedly believe it, but it's kind of also, "blah, blah, blah... find balance... blah, blah, blah... enjoy today, but plan your future." Maybe too corporate-sounding or pie-in-the-sky or something.
And heck, maybe "simplify your financial life" is too cliché or maybe it's trademarked. (Quick Google search shows some bank in WA state using it, but it doesn't appear to be trademarked. I should probably do some more due diligence there, huh. Seems somebody would have already picked that up.)
I think, and, of course, I could be wrong, that clients really just want me to help them simplify their financial life. "Hey Justin, I have these seven old 401ks from former employers, what should I do with them?" Or, "I have 39 investment options in my retirement plan at work, which ones should I choose?" I think people just want help making sense of it all. They want to streamline it and make it more manageable.
This has always been my goal as a financial planner, but now I want to be a little more direct about it.
Over the next couple musings I'll tell you more about my inspiration to be more direct and I'll show you an example of this effort to simplify.
"Fee-Only, Hourly, Fiduciary financial advice to help you strike a balance in your life between enjoying today and planning for tomorrow."
I still like that phrase and wholeheartedly believe it, but it's kind of also, "blah, blah, blah... find balance... blah, blah, blah... enjoy today, but plan your future." Maybe too corporate-sounding or pie-in-the-sky or something.
And heck, maybe "simplify your financial life" is too cliché or maybe it's trademarked. (Quick Google search shows some bank in WA state using it, but it doesn't appear to be trademarked. I should probably do some more due diligence there, huh. Seems somebody would have already picked that up.)
I think, and, of course, I could be wrong, that clients really just want me to help them simplify their financial life. "Hey Justin, I have these seven old 401ks from former employers, what should I do with them?" Or, "I have 39 investment options in my retirement plan at work, which ones should I choose?" I think people just want help making sense of it all. They want to streamline it and make it more manageable.
This has always been my goal as a financial planner, but now I want to be a little more direct about it.
Over the next couple musings I'll tell you more about my inspiration to be more direct and I'll show you an example of this effort to simplify.
The Quality of the Unquantifiable.
This post is unapologetically plagiarized from Scott Cole. Scott is a CFP® friend of mine who runs Cole Financial Planning in Bessemer, AL. I've thought about writing on a similar subject before, but I can't write it better than Scott did so I asked his permission to re-blog his great post. Enjoy!
There are many things in life that are just difficult to quantify. This is a convoluted truth to reckon with for those of us who work in a profession accustomed to speaking in terms of rates of returns, expense control and savings rates, but is it possible that the most valuable part of an advisory relationship is found in those things that are not quantifiable?
Let’s see if we can get a handle on this concept. I have two young daughters and therefore we have an immunization schedule we must follow. It requires all the parental effort necessary to get them ready, take them to a doctor’s office, get their progress checked and, of course, get shots. This is not inexpensive.
Most every parent does this, but it is not a source of consternation. We take on the added expense in part because we know the costs of not doing these things would be far more considerable. What is the value of them not getting a disease? How do you quantify something that doesn't happen? How do I price peace of mind that my child is healthy? It is unquantifiable.
When you have a relationship with a financial advisor, there are certainly costs involved and there are some quantifiable results, but that is not the whole story. What about mistakes avoided, mistakes that could result in higher costs or in the worst cases financial catastrophe.
How about peace of mind? Truly that is difficult to value, but when you know you have an expert working on your behalf, you can be free to enjoy other things, you can feel more confident knowing you are not on your own. As someone said to me recently, it is hard to quantify the value of being able to sleep at night.
What is interesting to me is that people are paying a great deal of money through a variety of financial products but getting none of these non‐quantifiable benefits. Prospects come to us all the time overpaying through expenses, commissions and poor product placement and they aren’t getting any advice, they simply get sold.
I am as subject as anyone to being too cheap at times, but there are some things too valuable to cut corners on and often times those things can’t be quantified into dollars. Peace itself is priceless.
There are many things in life that are just difficult to quantify. This is a convoluted truth to reckon with for those of us who work in a profession accustomed to speaking in terms of rates of returns, expense control and savings rates, but is it possible that the most valuable part of an advisory relationship is found in those things that are not quantifiable?
Let’s see if we can get a handle on this concept. I have two young daughters and therefore we have an immunization schedule we must follow. It requires all the parental effort necessary to get them ready, take them to a doctor’s office, get their progress checked and, of course, get shots. This is not inexpensive.
Most every parent does this, but it is not a source of consternation. We take on the added expense in part because we know the costs of not doing these things would be far more considerable. What is the value of them not getting a disease? How do you quantify something that doesn't happen? How do I price peace of mind that my child is healthy? It is unquantifiable.
When you have a relationship with a financial advisor, there are certainly costs involved and there are some quantifiable results, but that is not the whole story. What about mistakes avoided, mistakes that could result in higher costs or in the worst cases financial catastrophe.
How about peace of mind? Truly that is difficult to value, but when you know you have an expert working on your behalf, you can be free to enjoy other things, you can feel more confident knowing you are not on your own. As someone said to me recently, it is hard to quantify the value of being able to sleep at night.
What is interesting to me is that people are paying a great deal of money through a variety of financial products but getting none of these non‐quantifiable benefits. Prospects come to us all the time overpaying through expenses, commissions and poor product placement and they aren’t getting any advice, they simply get sold.
I am as subject as anyone to being too cheap at times, but there are some things too valuable to cut corners on and often times those things can’t be quantified into dollars. Peace itself is priceless.
Rate This.
If you hadn’t heard of rating agencies before, you heard about them a few weeks ago during the great debt ceiling debates.
The "Big Three" rating agencies (oligopoly anyone?): Standard & Poor’s, Moody's and Fitch, are a source of information for investors who are trying to determine the creditworthiness of borrowers. That means rating agencies offer their opinions about the quality of bonds issued by corporations, mortgage securitization firms and governments. AAA is the best rating, AA is next, then A… all the way down to DDD, the junkiest of junk bonds (and there are pluses and minuses attached to these ratings as well).
Bond credit rating agencies used to be paid for their work by investors who wanted impartial information on the credit worthiness of securities issuers and their offerings. Makes sense, right?
Then, in the early 1970s, the "Big Three" rating agencies began to receive payment for their opinions by the securities issuers themselves. Bad news. Obviously, this creates a huge conflict of interest.
For example, say I want to issue a bond called Justin’s Bond. Potential investors in Justin’s Bond want to be assured that, if they invest in my bond, they’ll get their money (plus interest) back. So my potential investors will look to a credit rating agency for guidance. After all, they don’t want to spend the time or money themselves to research Justin.
The odd thing is that I, the issuer of Justin’s Bond, actually pay a rating agency to rate my creditworthiness. Maybe I get the sense that S&P will only give me a AA rating so I shop around a bit and find that Fitch will give me the coveted AAA rating, which will make my bond much more attractive to potential investors. I’ll take the AAA rating, thank you. Conflict of all conflicts!
Granted, for large borrowers like the US government, all the rating agencies provide their opinion, so my "Justin’s Bond" example doesn’t necessarily apply to that exact situation. However, if you dig into the whole rating agency situation a bit more you’ll find a number of other issues as well.
So, who knows, maybe we did deserve to be downgraded, but I think investors also deserve less conflicts of interest and more transparency from the rating agencies.
The "Big Three" rating agencies (oligopoly anyone?): Standard & Poor’s, Moody's and Fitch, are a source of information for investors who are trying to determine the creditworthiness of borrowers. That means rating agencies offer their opinions about the quality of bonds issued by corporations, mortgage securitization firms and governments. AAA is the best rating, AA is next, then A… all the way down to DDD, the junkiest of junk bonds (and there are pluses and minuses attached to these ratings as well).
Bond credit rating agencies used to be paid for their work by investors who wanted impartial information on the credit worthiness of securities issuers and their offerings. Makes sense, right?
Then, in the early 1970s, the "Big Three" rating agencies began to receive payment for their opinions by the securities issuers themselves. Bad news. Obviously, this creates a huge conflict of interest.
For example, say I want to issue a bond called Justin’s Bond. Potential investors in Justin’s Bond want to be assured that, if they invest in my bond, they’ll get their money (plus interest) back. So my potential investors will look to a credit rating agency for guidance. After all, they don’t want to spend the time or money themselves to research Justin.
The odd thing is that I, the issuer of Justin’s Bond, actually pay a rating agency to rate my creditworthiness. Maybe I get the sense that S&P will only give me a AA rating so I shop around a bit and find that Fitch will give me the coveted AAA rating, which will make my bond much more attractive to potential investors. I’ll take the AAA rating, thank you. Conflict of all conflicts!
Granted, for large borrowers like the US government, all the rating agencies provide their opinion, so my "Justin’s Bond" example doesn’t necessarily apply to that exact situation. However, if you dig into the whole rating agency situation a bit more you’ll find a number of other issues as well.
So, who knows, maybe we did deserve to be downgraded, but I think investors also deserve less conflicts of interest and more transparency from the rating agencies.
V-o-l-a-t-i-l-e.
Understatement of the year: "the market’s a bit uncertain right now." But remember, the market always comes back. It always recovers.
If you're young and you believe in the resiliency of America, this market meltdown should actually work to your benefit. For example, the dollar cost averaging you're doing by purchasing additional shares every month in your work retirement plan and your IRA means right now you're buying stuff at a lower price. So as long as the market comes back by the time you retire, you bought low and you can sell high (... the point of investing)!
If you're older and you're really nervous, please scroll down and read the posts from May and June of this year. You might need to adjust your asset allocation.
If you look at a graph of the market over a long time horizon, the trend is up. I believe it will come back. Come on, this is the U S of A.
Oh, and will someone please buy the S&P guys a new calculator… $2,000,000,000,000 seems a bit more than a fat finger on the old number cruncher!
And also turn off CNBC.
If you're young and you believe in the resiliency of America, this market meltdown should actually work to your benefit. For example, the dollar cost averaging you're doing by purchasing additional shares every month in your work retirement plan and your IRA means right now you're buying stuff at a lower price. So as long as the market comes back by the time you retire, you bought low and you can sell high (... the point of investing)!
If you're older and you're really nervous, please scroll down and read the posts from May and June of this year. You might need to adjust your asset allocation.
If you look at a graph of the market over a long time horizon, the trend is up. I believe it will come back. Come on, this is the U S of A.
Oh, and will someone please buy the S&P guys a new calculator… $2,000,000,000,000 seems a bit more than a fat finger on the old number cruncher!
And also turn off CNBC.
Mortgage Mess.
With all the recent focus on the debt ceiling talks and US Women's Soccer kicking it all the way to the World Cup Finals and the fact that most of you reading this live in the largely unaffected midwest, you probably haven't heard much lately about the mortgage mess. No, it's not 2008 any longer, but it's still quite a mess. Check out these stats...
Based on data published by CoreLogic the first quarter of 2011 (sorry, no Q2 data out yet that I've found) about 23% of all residential properties with a mortgage were underwater (meaning, they're upside down, they have negative equity, they owe more on their mortgage than their home is worth). Almost 28% were underwater or had less than 5% equity. That's 1/4 of all residential properties with mortgages in the country! Yikes.
States in the worst shape include:
I won't rehash the thousand ways we got into this mess and I'm not a 1-man think tank, but I will suggest one thing that might help...
Instead of big lenders making a mortgage to anyone with a heartbeat and then reselling that mortgage fifteen times before the buyer makes their first mortgage payment, we need more old school banking. Local banks lending local money to locals they know and keeping those mortgages in-house. Local, personal relationships are better for everyone involved. If bankers know the people they're lending to and they're required to keep the mortgages (or at least a decent percentage of them) in-house, you can bet your rear they're going to be more careful about who gets a mortgage and under what terms.
Solving the world's problems 1 musing at a time (heh, heh)!
Based on data published by CoreLogic the first quarter of 2011 (sorry, no Q2 data out yet that I've found) about 23% of all residential properties with a mortgage were underwater (meaning, they're upside down, they have negative equity, they owe more on their mortgage than their home is worth). Almost 28% were underwater or had less than 5% equity. That's 1/4 of all residential properties with mortgages in the country! Yikes.
States in the worst shape include:
- Nevada - 65% of all mortgaged properties underwater
- Arizona - 51%
- Florida - 47%
- Michigan - 36%
- California - 32%
I won't rehash the thousand ways we got into this mess and I'm not a 1-man think tank, but I will suggest one thing that might help...
Instead of big lenders making a mortgage to anyone with a heartbeat and then reselling that mortgage fifteen times before the buyer makes their first mortgage payment, we need more old school banking. Local banks lending local money to locals they know and keeping those mortgages in-house. Local, personal relationships are better for everyone involved. If bankers know the people they're lending to and they're required to keep the mortgages (or at least a decent percentage of them) in-house, you can bet your rear they're going to be more careful about who gets a mortgage and under what terms.
Solving the world's problems 1 musing at a time (heh, heh)!
