A few years back, Nora and I decided we needed to see an independent financial advisor. We’d been putting it off, because Nora gets really basic guidance from a retirement specialist who drops by her school on occasion, and we had very little cash. Probably because we’d blown it all on tuition.
Once we made the decision to consult a pro, I was determined to see a fee-only advisor. But when I told friends it would cost $2,000 for a basic consult, they tried to talk me out of it. “You know what you can buy with TWO THOUSAND DOLLARS?” was a typical response.
I tried for a witty one-liner comeback, but all I could think of was: “You know you end up paying way more than two thousand dollars in commissions and fees if you use a non-fee-based advisor, right?” Which didn’t feel half as snappy or satisfying as something that started with: “Oh yeah, well your momma…”
As my informal friend survey revealed, there is something more painful about a known up-front cash payment, versus a hidden down-the-road payment of unknown size. Regardless, we were determined to go fee-only.
I googled and asked around and settled on a fee-only Financial Planning and Registered Investment Advisory firm located nearby in Towson, Maryland. The firm and its principal boasted all the requisite acronyms: CFP, NAPFA, FPA, NATP, GPN, RLP.
They sent us a ‘Financial Goals’ worksheet to get started. It broke down goals into short term, intermediate, and long term. We listed these goals:
- Short term (1-2 years): Determine what to do with various retirement accounts and investments
- Intermediate (3-5 years): Generate savings, retirement and otherwise
- Long term (5+ years): Get kids through college and independent
Then we supplied all the other up-front info they’d need:
- Estate planning docs
- Social Security earnings & benefits statement
- Expected retirement age
- Assets and liabilities
- Tax return
- Credit score
- Expected inheritance (giggle)
- Expected large upcoming costs
- Answers to questions that gauged our risk tolerance
Once their principal had a chance to review everything, we went into the office for a sit down. That all went well, then we went home and waited for his recommendations.
A few weeks later, we were called back in for a presentation of his 57-page ‘Financial Life Plan.’ Nine of these pages were ‘Important Disclosures,’ AKA disclaimers.
In the remaining 48 pages there was:
- ‘Needs’ Summary (retirement, auto replacement, house maintenance)
- ‘Wants’ Summary (travel, college for kids)
- Resources Summary (investments, home, insurance, SS & other retirement income)
- Risk Assessment (we notched a household risk score of 60, with 54 as average – see above)
- Net Worth Calculation
And finally, an exploration of whether our Needs and Wants are reachable given our resources and expected future. Any discussion of the future is complicated, naturally, by unknowns like investment performance, so these assumptions are made:
- Average return of 8.6%
- No ‘bad market timing’
With these assumptions and a retirement age of 70 for me and 65 for Nora (no early retirement in the cards for us), our probability of success using a Monte Carlo Simulation is 85%, which is in the green ‘Confidence Zone.’
To understand how impactful these assumptions are, he also ran a scenario that assumed the same average returns, but with ‘two bad years’ starting at Nora’s retirement (-6.7% return in 2038 and -10.8% in 2039). Under that scenario, the probability of success drops to 48% (smack in the red zone). ‘End of Plan Value’ (euphemism for when Nora dies at age 95 in 2067) drops a whopping $8.3M, down from $21.8M.
Either $13.5M or $21.8M sounds like plenty of cash to me, but neither total is assured. When he ran 100 Monte Carlo Trials, the difference between the best End of Plan Value ($216.9M !!) and worst ($0 !!) is an impossibly-wide gulf.
He explained that the probability of success percentages are actually based on a mathematical simulation equivalent to 10,000 Monte Carlo Trials, so that’s a relief. I think.
To increase our probability of success, he recommended we delay retirement by one year and reduce total spending to $3.1M, which is 8% less than our targeted spending.
It all mostly made sense, but we asked him to make adjustments to a few things that seemed out of whack. No problem, he said, we’d receive the final Plan by email. Hearty handshakes and we were off.
I didn’t think anything more of it until a month later when Nora inquired about it. I sent a friendly reminder email and left a voice mail.
Still nothing. How odd. I reached out again. No answer at the office, no response to my emails.
Eight months later, I’m sitting on my parent’s couch when I receive a “Happy Thanksgiving” e-blast from the firm on my phone. “Nora,” I shouted across the house, “he lives!”
I peck out a terse reply:
Thanks for the holiday wishes.
Why don’t you return my calls and emails? We paid in full, but have not received your final report. Contact me within 1 week or I will file a complaint with the state.
I never do this sort of thing, you can ask Nora. If I find a hair in my soup in a restaurant, I quietly put it in my napkin. If a retail associate starts a long, distracting flirtation with a co-worker while waiting on me, I’ll bite my tongue. If I discover a broken part on something I just bought new, I’ll usually glue it up instead of returning it.
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But even I have my limit.
Within 10 minutes my phone rang. He was so sorry, he had had personal issues combined with company issues. What could he do to make things right?
Ummm, how about taking the 60 minutes to finish the report?
And maybe a discount for all the time and anguish I spent following up with him? We agreed on a $500 refund.
Of course, he could have strung me along for months for free if he could have bothered with some basic communication. I’m a very understanding person, but not if there is nothing to understand.
The next week, we received that final report…and a $500 check. Maybe that will help us retire a tiny bit earlier than projected.
Simon | Vistafolio.com says
Interesting story about your attempt to get some financial advice. I think financial advice and investment management are two very different areas and it’s best to seek a specialist for the area you really need.