I'm ending the week with a "Finance Friday" kind of post. I've never been able to make this a regular series as these posts require a lot of work and I'm not sure if they are of interest to anyone! But I've been meaning to talk about our experience of meeting with a financial advisor and finally got around to writing up our experience.
Why did you meet with a financial advisor (FA)?
We've mentioned meeting with a FA to a handful of people and nearly everyone says something to the tune of: 'you both have your CFA. Why would you meet with a FA? What could he help you with?'
There are different reasons to meet with a FA. In our case, it was NOT for investment advice. I work in fixed income and Phil works in equities. We really don't need asset allocation or investment recommendations. But given the fact that our industry continues to shrink and will continue to shrink, we wanted to see if we are saving enough to be ok if one or both of us loses our job in the next 10 years. We forecast that it's nearly 100% likely that one or both of us will lose our jobs. I know that sounds crazy, but our industry is majorly struggling. I've gone through several rounds of layoffs (not personally, but the positions of people I work with have been eliminated). Plus I had to move - to a city I NEVER wanted to live in - in order to keep my job back in 2013. I don't have that kind of flexibility anymore now that I have a family so I would want to be able to make another decision if something similar happened to one of us (i.e. there is no way we are leaving Minneapolis - this is home until we retire).
So the crux of our question to the FA was - at the pace we are saving, do we have enough money to be ok if one of us loses our job by age 50? If one/both of us lose our job by 50, we would get another job because we like to work and need good health insurance thanks to my RA, but we wouldn't want to HAVE to replace our income - i.e. if we had to take a pay cut, would that be ok?
We also wanted to talk about whether it made sense for Phil to get life insurance and we talked about our will/estate planning. In order to answer that 'do we have enough money' question, you need sophisticated software to run countless scenarios (called Monte Carlo analysis) to give us a % chance of us having enough money.
What all did the FA do to form a financial plan?
The first step was filling out a profile that included questions about our risk tolerance, goals, spending expectations (how much do you want to spend on vacations? Do you want to pay for your children's college? Do you want to pay for their weddings? Etc etc) and a summary of our assets and debts. It took maybe 20 minutes. Then we met with the FA (via a video call) to talk more about our goals/concerns. About 2 weeks later, we had another video call to discuss the analysis and his recommendations. So in total we spent about 2 hours with him over the course of 2 calls.
What were his recommendations?
In general, he said we have done a good job saving and are low spenders. I looked at Phil when he said that and said, 'SEE!! I TOLD YOU WE DON'T SPEND MUCH MONEY!' Phil's response was - challenge! But he is super frugal and always thinks we can spend less. But in reality, he's fine with how much we spend. He just wishes we got fewer Amazon packages.
His most useful advice was around estate planning/how to structure our will, whether to get life insurance for Phil, and how to allocate between tax-exempt and taxable accounts. We have decided Phil will get a 10-year life insurance policy. He's been dragging his feet on this, though. He did try to get life insurance through State Farm but they put him into a higher cost bracket BECAUSE HE WEIGHED TOO LITTLE/HIS BMI WAS TOO LOW! Isn't that insane? He was so pissy about this so we will look at another provider. It would be very expensive for me to get life insurance because of my RA. For the investments, he said we are putting enough in 401ks/IRAs/work retirement accounts but we need to put more in our taxable brokerage account.
Did we feel it was worth our time?
100% it was worth going through this exercise. It was helpful to see the % chance that we have enough assets to last if we both live to 95 (statistically very unlikely) under different scenarios such as retire at 50/get lower paying jobs at 50, retire at 60, spending increases substantially from current trend (unlikely), etc. It gave me a sense of comfort to see that we are saving enough.
What did it cost?
This is the head scratcher for us - it cost us $0. We worked with a FA that works for my company's parent company. So maybe that meeting is considered an employee benefit? We were fully expecting the FA to pitch us on moving our assets over to him or to buy certain funds. At the end Phil even said - so are you going to make investment recommendations and all he did was talk about how our asset allocation compared to what it should be based on our risk tolerances. I do wonder if he took a different approach with us because he knows we are both CFA charterholders and work in asset management. I think in most cases, you'd pay a fixed rate for a financial plan or there'd be an expectation that you'd move your assets over to the FA.
Final thoughts
I want to emphasize here that we are incredibly lucky to be in this position and I feel a bit of a sense of shame in mentioning that we are in a good position financially because I know that is not the case for so many people. But it's important to remember that our income level is higher because of the volatility of our income. If we worked in a more stable industry, it probably wouldn't even be necessary to meet with an FA because there would be a high level of certainty that we could keep our jobs until we decided we wanted to retire. Also, we definitely live well below our means. We are just not big spenders, aren't big on possessions, don't derive joy from shopping or buying things, don't drive fancy cars (we have a Toyota Corolla and Camry), and take pretty modest vacations. So we are making spending decisions that ensure we are financially stable.
Why did you meet with a financial advisor (FA)?
We've mentioned meeting with a FA to a handful of people and nearly everyone says something to the tune of: 'you both have your CFA. Why would you meet with a FA? What could he help you with?'
There are different reasons to meet with a FA. In our case, it was NOT for investment advice. I work in fixed income and Phil works in equities. We really don't need asset allocation or investment recommendations. But given the fact that our industry continues to shrink and will continue to shrink, we wanted to see if we are saving enough to be ok if one or both of us loses our job in the next 10 years. We forecast that it's nearly 100% likely that one or both of us will lose our jobs. I know that sounds crazy, but our industry is majorly struggling. I've gone through several rounds of layoffs (not personally, but the positions of people I work with have been eliminated). Plus I had to move - to a city I NEVER wanted to live in - in order to keep my job back in 2013. I don't have that kind of flexibility anymore now that I have a family so I would want to be able to make another decision if something similar happened to one of us (i.e. there is no way we are leaving Minneapolis - this is home until we retire).
So the crux of our question to the FA was - at the pace we are saving, do we have enough money to be ok if one of us loses our job by age 50? If one/both of us lose our job by 50, we would get another job because we like to work and need good health insurance thanks to my RA, but we wouldn't want to HAVE to replace our income - i.e. if we had to take a pay cut, would that be ok?
We also wanted to talk about whether it made sense for Phil to get life insurance and we talked about our will/estate planning. In order to answer that 'do we have enough money' question, you need sophisticated software to run countless scenarios (called Monte Carlo analysis) to give us a % chance of us having enough money.
What all did the FA do to form a financial plan?
The first step was filling out a profile that included questions about our risk tolerance, goals, spending expectations (how much do you want to spend on vacations? Do you want to pay for your children's college? Do you want to pay for their weddings? Etc etc) and a summary of our assets and debts. It took maybe 20 minutes. Then we met with the FA (via a video call) to talk more about our goals/concerns. About 2 weeks later, we had another video call to discuss the analysis and his recommendations. So in total we spent about 2 hours with him over the course of 2 calls.
What were his recommendations?
In general, he said we have done a good job saving and are low spenders. I looked at Phil when he said that and said, 'SEE!! I TOLD YOU WE DON'T SPEND MUCH MONEY!' Phil's response was - challenge! But he is super frugal and always thinks we can spend less. But in reality, he's fine with how much we spend. He just wishes we got fewer Amazon packages.
His most useful advice was around estate planning/how to structure our will, whether to get life insurance for Phil, and how to allocate between tax-exempt and taxable accounts. We have decided Phil will get a 10-year life insurance policy. He's been dragging his feet on this, though. He did try to get life insurance through State Farm but they put him into a higher cost bracket BECAUSE HE WEIGHED TOO LITTLE/HIS BMI WAS TOO LOW! Isn't that insane? He was so pissy about this so we will look at another provider. It would be very expensive for me to get life insurance because of my RA. For the investments, he said we are putting enough in 401ks/IRAs/work retirement accounts but we need to put more in our taxable brokerage account.
Did we feel it was worth our time?
100% it was worth going through this exercise. It was helpful to see the % chance that we have enough assets to last if we both live to 95 (statistically very unlikely) under different scenarios such as retire at 50/get lower paying jobs at 50, retire at 60, spending increases substantially from current trend (unlikely), etc. It gave me a sense of comfort to see that we are saving enough.
What did it cost?
This is the head scratcher for us - it cost us $0. We worked with a FA that works for my company's parent company. So maybe that meeting is considered an employee benefit? We were fully expecting the FA to pitch us on moving our assets over to him or to buy certain funds. At the end Phil even said - so are you going to make investment recommendations and all he did was talk about how our asset allocation compared to what it should be based on our risk tolerances. I do wonder if he took a different approach with us because he knows we are both CFA charterholders and work in asset management. I think in most cases, you'd pay a fixed rate for a financial plan or there'd be an expectation that you'd move your assets over to the FA.
Final thoughts
I want to emphasize here that we are incredibly lucky to be in this position and I feel a bit of a sense of shame in mentioning that we are in a good position financially because I know that is not the case for so many people. But it's important to remember that our income level is higher because of the volatility of our income. If we worked in a more stable industry, it probably wouldn't even be necessary to meet with an FA because there would be a high level of certainty that we could keep our jobs until we decided we wanted to retire. Also, we definitely live well below our means. We are just not big spenders, aren't big on possessions, don't derive joy from shopping or buying things, don't drive fancy cars (we have a Toyota Corolla and Camry), and take pretty modest vacations. So we are making spending decisions that ensure we are financially stable.
Have you ever met with a financial advisor or is it something you've considered doing? Any suggestions for future finance posts? Or do these bore you to tears? ;)
You know that we tend to align on financial matters (for example, aggressively paying down a mortgage).
ReplyDeleteWe're in a slightly different situation as we had NO money for almost a decade (literally living below the poverty line) as we started two small businesses - bootstrapping them completely. Then in the last 5 years, after an aqui-hire and my husband assuming a senior executive role at a then-small/now-large startup, we've had a lot more financial flexibility.
We do both have life insurance and purchased this years ago when we were so financially strapped.
We don't invest as much as we should, I suppose. But we have purchased a number of vested shares so that is our big investment, have registered retirement savings, and make good use of a Canadian savings vehicle that is tax free. And we have AGGRESSIVELY paid down our mortgage. We own a single, used vehicle that is 10 years old and are just very, very frugal - while still enjoying things like travel. We have always been careful to live within our means. That said, I will agree with something a reader once commented that is takes money to live frugally. It is, in many ways, easier to save money when you have money and that makes me empathize with people who WANT to save and live frugally but can't (for example, lower income earners might not have insurance or might be stuck in high-rent markets, but can't afford to buy etc).
Phew, that was a tangent!
All that to say, I love financial posts. I'd love more posts about frugal living. I find everyone's little hacks so interesting and love to incorporate some when I have aha moments.
All the best on your trip. Hope you get some decent hotel sleep. I'm sure you'll be amazing <3
I love these posts; I always love hearing about what other people do vs what I do or what I know. It doesn't mean one is wrong or right, but it is nice to see what other people's norm is or what tips they have or tricks I can use.
ReplyDeleteThis post is very timely as my Dad just asked me to help him with something very similar. We sat down with an estate guy and basically suggested that my Dad run the same exercise that you guys run. So, I am actually running it, but this is not something that our team generally did before, so it will also be a learning experience for me. I mean, as you said, with a CFA you do understand how it all works, but having never seen it in action, I am excited. Our firm also does not charge for this service, and does not necessarily even press people to buy a product or use their other services. I will have to update you once it's been completed.
I do think you are fortunate to have made/saved enough to be in a good place, but you have also been smart, and your advice is precious. I have had conversations with some of my running friends and many of them have welcomed my advice or information, so even though it can seem boring, everyone has to deal with managing their finances, so it applies to many! Also, even if you get through to one person and they start to save and they get the advantage of compounding, that is a win in my book!
This is really interesting -- it's something I should have done when I was your age.
ReplyDeleteThis is so interesting! We've been thinking about consulting a financial adviser and this was super helpful. We're both employed, no kids, no debt, but other than retirement and some index funds we haven't been super aggressive with investing/managing our finances. I think this is the kick in the pants I needed to make an appointment and get some professional help!
ReplyDeleteYes, my husband and I met with a financial advisor a few years ago and it was helpful. Among other things he discovered that my 401k wasn't invested properly. Overall he basically told us we need to make more money, ha ha... but sometimes you need to hear stuff like that.
ReplyDeleteI'm definitely interested in finance posts, and also like Elisabeth I'd love to hear some frugal living tips.
Have a great weekend!
I hope your work trip and presentation go well! I never, ever have to travel for work- the idea is kind of comical...where would I go? Ha! Just not the nature of Nursing, I suppose. Unless I were a "travel nurse", but that's a whole other story.
ReplyDeleteThat's interesting about the uncertainty of your jobs. Why is that, exactly? Just sort of doing away with your roles?
I like the financial posts! Admittedly, I'm not super into reading about financial stuff normally, though I probably should be. It's an area I never feel overly well versed in, likely because it kind of intimidates me. And often confuses me sometimes. Lately I've been thinking I should actively seek out and read/ listen more on financial stuff, because it kind of bothers me when I see mention of financial or investing topics that I just feel totally clueless about.
We met once with a financial advisor also offered through my husband's employer (he works in the banking industry). It was interesting to lay everything out there! Like I said, talking about all those different types of accounts and whatnot tend to overwhelm me, so I wasn't looking forward to it, but it was fine!
Everyone's experiences and preferences with money are fascinating to me. I do meet with a financial advisor, but technically don't meet the asset requirements for the company (I had an "in"). Jeff and I will eventually meet with a financial advisor, and may eventually shop around for someone new, but as long as this company will keep me as a customer, and I like their services, I don't mind the fees they charge on the investment side, because they also do my taxes at a decent rate and it is all an easy experience. I have a life insurance policy that has 10 years left, and we will need to do estate planning, but I'm going to wait until I've changed my name so that all the docs will be legit, and I don't have to worry about validity with a different name. I have no clue what age Jeff and I will be able to retire, and I assume a few of my friends will retire earlier than me, but we will just see where life takes us. I wouldn't be able to be married to someone overly frugal because I was raised by a spender and a maximizer (my mom will spend money, but only when its really really worth it).
ReplyDeleteThis was so fascinating to me! I don't find these posts boring AT ALL. And so what if they are? If you want to write about stuff like this, you should! :)
ReplyDeleteI know you feel a little guilty for being in a well-compensated industry but you also manage your money really, really well. There are people who make as much (or more!) money as you guys do, but are mired in consumer debt, house-poor, etc, because of making poor financial decisions. You live a privileged life, yes, but you also live VERY frugally and prioritize smart financial decisions like aggressively paying off your mortgage. That's not something most people with your salary will do! So take pride in that.
Don't even get me started on BMIs and life insurance taking those into account. Nope, nope, nope! That's ridiculous.
Thank you for this! It's helpful to know how they worked with you and what you focused on. I might see if I can somehow contact you through email - I need to meet with someone, as I'm recently divorced and want to get a handle on my finances, now that I'm on my own. Is there a way to identify CFAs who specialize in this type of advising? An association? I kind of don't know even where to start!
ReplyDeleteNever stop sharing financial posts, Lisa. I appreciate your financial posts so much, even though you always point out that your situation is different because you work in a well compensated industry... there's much to learn from your posts.
ReplyDeleteIt's definitely true that sometimes it's easier to make good financial decisions if you have money to begin with, but as Stephany pointed out, not everyone with a great salary is making smart financial decision so it's great that you explain how you're really conscious about the volatility of your jobs and planning ahead.