Episode Transcript
[00:00:00] Speaker A: Hey, guys, before we get started on this week's episode, I want to tell you about something unique that we are doing in the month of April that you'll be hearing about for the next, I guess, three episodes leading up to April 1. April is financial Literacy Month, and a couple years ago, we put together this video email series called the 30 Money Moves Challenge. And, uh, we worked really hard on it. Took us a couple years to put it together, but it's a 30 day challenge where you sign up, you get a video each day and resources with a 30 minutes or less tip that we feel can radically change your finances over the course of that period. And we have everything ranging from how to establish the right amount of life insurance and purchase coverage to evaluating your employee benefits, opening, uh, your first investment account, establishing a will and estate plan. It is a really wide range of topics that we cover. And while you can always sign up for this challenge, we wanted to, in April, in honor of financial literacy month, have a group that does it together. So we are going to be encouraging, uh, the people in our community, via our newsletter, via our social media channels, via this podcast, to sign up with the other people in our community and get as many people in the group as we can that will be working together, building their finances together, and sharing what they've learned online. So if you want to be a part of that group, we're going to put the permanent link that you can do at any point in time. If you're listening to this, months, uh, down the road after April has passed. But we also are going to put a sign up form for people who want to start with the larger group on April 1. So if you're interested, sign up with the link in the show. Notes for the 30 money moves challenge. Starting on April 1, we're going to be doing giveaways. We're going to be highlighting some of the people who are joining the challenge. So sign up for the list. We'll get into this week's episode starting right now.
[00:01:50] Speaker B: Let's get some money from new money new problems. It's the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation. Purchasing your first investment property. Helping your family with money. The highs and lows of entrepreneurship. New money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison, and this is the new Money New Problems podcast.
[00:02:28] Speaker A: Hello. This is Brenton Harrison of New money, new problems and your host for the new Money New Problems podcast. If you have been keeping up with us, over the past several weeks, we have been alternating between series covering the ins and outs of homeownership and home equity, and also episodes about the process of becoming a financial advisor, the different types of financial advisors. And in this episode, we're going back to that series, and we're going to talk about what it's actually like to work with a, uh, certified financial planner like myself at new money new problems. So, before the break, we're going to talk about what a CFP actually is in terms of the training, the philosophy behind the financial planning process, how that's implemented into a financial plan for a client that they may have, regardless of whom the advisor may be. And after the break, we're going to talk about our particular process at new money new problems, so you can have a feel for what we actually do at our firm. And in my opinion, when it comes to the value that a certified financial planner brings, it's really centered on three different elements. Those elements are education, connectivity, and then lastly, experience. So let's start with the education element. A person who wants to get their certified, uh, financial planner designation has to go through a really extensive amount of education on a really broad range of financial topics. It's almost like you are a generalist in the sense of the amount and the breadth of topics in which you have an expertise, but you're a specialist in the fact that you have an expertise in those areas. The first is professional conduct and regulation. The next element are the general principles of financial planning. That's everything from the process of financial planning, which we'll get into in a second financial statement analysis, cash flow management. And then after that, you get into more specific elements, like risk management and insurance. And then you go into things like investment planning. You go from there into tax planning. And we've talked extensively about tax planning on this podcast because, you know, as you heard from Stephen Jarvis in our episode where we shared some of his expertise, that every decision that you make financially has a tax impact. So it's about, as an advisor, having an understanding of the potential impact. And it's not that you're a CPA or an enrolled agent. It's about knowing just enough to know when to tell a person what you know and when to refer someone who is a specialist in that one particular area. You go on to retirement savings and income planning, estate planning, and then lastly, the psychology of financial planning. And you go through coursework in each of these areas. And once you have passed the requisite coursework, you are now in line to take the CFP exam. The CFP exam is a two part exam, takes place over 6 hours. I think it's about 100 and 6170 questions. And it is a broad range of questions that apply to all of the different concepts that you learn throughout your training. It's making sure that you have enough of an understanding about all of the different things that could impact a person's financial plan. That when it is your level of expertise, you can offer it. But like I said, when it comes to tax planning, you also know just enough to look over the top of everything that's going on in a person's financial plan and have an understanding of how one area of activity impacts the other areas so that if you need to bring in another specialist, you can do so. The CFP kind of acts like a quarterback in that way. And that knowledge of the potential impact to other areas is where the second element of the value of a certified financial planner comes into play. And that is connectivity. And to me, connectivity means that you can take all those different areas of education and you can put them into a framework for a process that allows you to identify clients goals or potential risks. Find a financial plan that works for them, give them recommendations for how to make sure that they're moving in the right direction, making sure that you implement those recommendations and more importantly, as their life changes, monitoring and changing the plan to make sure that it adjusts to those changes. You're looking on screen, you're actually looking at the seven step financial planning process that a CFP is required to adhere to if they want to keep their CFP marks. And that connectivity that I'm talking about, applying the principles of the education to the actual financial planning process. I want to be clear that there are people who are listening to this, who are not in the camp where they are trying to find an advisor. There are plenty of people who say, I don't want to pay for advisors. I will figure out how to do this stuff myself. I'm, um, a Diyer, I can educate myself enough. And even if I need to follow that financial planning process for my own finances, that's what I'll do. And I want to be completely clear, you can do that if you have the time. Now, I would argue that nine out of the ten people with whom I work who have tried to do it themselves don't have as much time to attain that level of education as they think. But there are people out there who are skilled enough and can understand these topics enough where they can go through the amount of education that a CFP has gone through to understand all the different elements at play. Maybe they do even have the ability to apply that to an actual process where they are aware of how different actions in their financial life impacts other areas of their finances. So it is possible, although statistically unlikely, for a DIyer to be able to accomplish step one and step two, or part one and part two, element one and element two. But element three, that experience element is to me the differentiating factor between working with an advisor who is trained and knowledgeable and trying to do something on your own. You see, you can't just take the courses that are required to become a certified, uh, financial planner and then sit for the exam and pass the exam and get your CFP marks. You have to take the coursework, pass the exam, and you also have to have a requisite amount of experience in the actual financial planning process or observing the process. If you're following along on screen, you'll see that there are two ways for candidates to fulfill the experience requirement for CFP certification. The 6000 hours standard pathway or the 4000 hours apprenticeship pathway. And what this means is even if you have a person who decided in college that they wanted to become a certified, uh, financial planner and they took the coursework in school, and there's a degree that you can get in financial planning at many institutions where you get all of your coursework while you're studying for your bachelor's degree and then they immediately after graduating can take that CFP exam. And if they pass the exam, then they have met two out of the three requirements. But even if they've passed the exam and taken the courses, they do not get to actually call themselves a certified, uh, financial planner until they have put at least 6000 hours in the financial planning process or observed it as an apprentice for 4000 hours. And the value in that to me is immeasurable. There's a concept or phrase called paying tuition to the school of experience. And to me that phrase is all about the fact that you are not going to do things perfectly and there's only limited value to reading about things that others did that you haven't experienced for yourself. So if you were to take that coursework and not actually do financial planning, then yeah, you've read a lot about financial planning, but you haven't seen or implemented any of the recommendations to see the fruit. And some fruit is sweet, some fruit is not so sweet of those recommendations. But with that experience requirement, you have to understand the difference between you putting in place a decision for your finances versus what a financial advisor does. When you make a decision for your finances, it impacts your finances only maybe at most the finances of your extended family if you're responsible financially for some extended family members. So you make that decision, it impacts your finances. That's all that you get to observe. And in some cases, that impact is not fully seen until years, if not decades, down the line. And because you can't always see the consequences of that decision in a short period of time, it can lead to a lot of false confidence when it comes to a DIY planner. But a financial advisor has the ability to work with clients of all ages, and they make recommendations, not just one time, but dozens if not hundreds of times. And they actually get to see, because they might work with a wide range of ages, the consequences, both good and bad, of the recommendations that they made playing out in the lives of dozens, if not hundreds of clients. And it allows them to take that education and that connectivity and now use the experience of watching all of those things come to fruition to implement a plan in your situation that says, I know enough to know what needs to be done. I know how to integrate this into a process where we can give you a financial plan. I'm going to implement that financial plan, and I've seen this play out enough times to at least statistically have a better idea of how it will work out than what you don't know will happen 1020 or 30 years down the line. So anybody can accomplish step one, having the education in various areas. A smaller group will be able to accomplish step two, which is being able to integrate all of that education into a structured and repeatable financial planning process. But that third element, having the experience to know what is likely based on the actions that you're taking now, can only be accomplished by paying that tuition into the school of experience. That's the value of working with a certified financial planner. And after the break, we'll tell you how we integrate those three principles and those three elements into our process at new money new problems.
[00:12:02] Speaker C: This is the new money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen. We'll be right back.
[00:12:21] Speaker B: Are you wondering what new money problems you might be overlooking in your financial life? If so, we've got great news.
[00:12:28] Speaker A: We've crafted the new money new problems.
[00:12:30] Speaker B: Gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investments, insurance, and even the threat your extended family's finances could pose to your household. Please head to newmoneynewproblems.com gapfinder to complete it today. Again, that's newmoneynewproblems.com gapfinder.
[00:12:53] Speaker A: To take the assessment.
[00:12:59] Speaker C: You'Re listening to the new Money New Problems podcast. Subscribe now at newmoneynew problems.com. Welcome back.
[00:13:10] Speaker A: Before the break, we talked about the financial planning process and the seven steps that are involved to build and repeat that process. But you have to understand that each financial planning firm, each certified financial planner is going to implement those steps in a way that's unique to them, unique to their client base, unique to, um, who they choose to serve. And we're no different. We have our own spin on the financial planning process that we think works for our clientele. And if you keep in mind the fact that we're working mostly with first and second generation high income earners, these are people who are not just looking to implement financial steps, they're also looking for some education. So we probably go a little further than most in terms of educating during our meetings, as opposed to saying, just send us these documents, we'll send you back the stuff that you're supposed to do. So if you're looking on screen, you will actually see, uh, a layout of what it's like for year one of our clients who choose to work with us in the first year of working together. Depending on the structure of the client household, we typically have six to eight meetings at minimum. I know that's a lot, but there's a lot to cover. In year one, there's a welcome meeting, and in that welcome meeting, we're typically going through a cash flow analysis and also a goals questionnaire. We want to get an idea for what a person does or does not have to spend, and we also want to know, in terms of their order of preference, what are the things that they want to accomplish throughout our time together. If they looked back after the year, what would need to happen for them to look back and say that it was a productive year? We then go into a discovery meeting. And in that discovery meeting, we're getting into the nitty gritty of things like analyzing tax returns and looking at employee benefits, to making sure that we have the right life insurance and disability insurance policies in place outside of the employee benefits. And we go through this to not only educate the client on the employee benefits they may not be maximizing or even signed up for in the first place, but also to show the difference between those types of coverages and what they would implement outside. In meeting three, we tackle tough questions like, if something were to happen to you, what amount would you want to replace for your loved ones? Do you have an estate plan in place? We also ask questions like, if you were to retire on, what amount of monthly income would you want to live at what age do you want to retire? If you have children, what school would you like for them to go to? What percentage of their tuition are you planning or not planning to cover when they go to that schooling? All of those questions go into the process of us putting together recommendations that exist in a formal financial plan and analysis that we give. In meeting four, we give a financial plan that shows your progress towards retirement, your insurance needs and your estate planning needs, as well as any education planning. We give you a one pager of recommendations that says, here are the bullet list action items, separated by category, that we want to make sure we take care of. In meeting one, we also give you a tax analysis so you have an idea of how some of these things are going to impact the taxes that we discussed in an earlier meeting. We have a follow up meeting where we talk just at a broad level as to what comes next when it comes to implementing some of those recommendations. And that implementation actually takes place in targeted meetings. We have one in meeting six. That's an investment and insurance meeting where we establish any investment accounts. We roll over any old retirement plans, we sign up for your insurance applications, for life and disability insurance if needed. And then we have an estate planning and college planning meeting where we talk about do we need a will in advance? Medical directives. If we already have a will, do we need to have a revocable trust? When should you and should you not have some of these items in place? And anything beyond these meetings is all about working until we've accomplished the things that we've laid out in that one year plan that we give. In the financial analysis meeting. In year two, it's different, and we'll talk about in the next episode why we charge, what we charge, and how that comes into play in year one versus year two. But in year two, we don't meet six to eight times. We meet two to four times because remember, we have implemented the plan. Now we're in the stage where we are monitoring and changing the plan as life changes. So we have different things and touch points that we work through with our clients in quarters one and quarter three, but we actually meet with them in quarter two and quarter four to go through things like a credit check updating their balance sheet, reviewing their investments and any loans that they may have. Uh, in the fall, we talk about employee benefits. We make sure that we give end of year tax recommendations, and we check the progress towards the goals that they set at the beginning of the process in year one, or anything that they change to those goals starting in year two and beyond. All of this exists to put a framework to the financial planning process we discussed and also to make sure that we are compensating for what I mentioned in the first half of the episode. There are plenty of people who may be smart enough to understand these things. There is a smaller group of people who have the time to make sure that their finances are working while they're working. And a big benefit to working with a financial advisor is having the structure, having the framework, having the education, the connectivity, the experience, and also the accountability of saying, we are going to meet with you to talk about this thing. We are going to have our semiannual review and our annual review. Here are the things that we are going to discuss. We're going to talk about taxes every year. We're going to talk about employee benefits every single year. We're going to ask you some of the things that have occurred in your life. Because as your life is busy and things are just happening, you don't say, oh my goodness, XYZ happened. Now I might need to go update my estate plan. That's step number two. That's not a natural thought to have, but it is for a financial advisor that's overseeing your finances and making sure that all things, both good and bad, are adjusted and implemented into a plan to make sure you're constantly moving in the right direction. So that's what it's like. And that's the value of working with a planner that offers fee based or fee only advice, education, connectivity and experience. In a couple of weeks, we're going to go back to this series and we're going to talk about pricing for certified, uh, financial planners, why we charge, what we charge, and the value that certain clients can have in signing up for a limited time engagement or an ongoing engagement with a certified financial planner. Talk to you then, from new money.
[00:19:24] Speaker B: New problems this was the new money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen close.
