Friday, July 03, 2009

When do you need a financial planner?

I haven't written about financial topics in a while. A lot of this is because to some extent, I've written about all that I wanted to about the topic and pretty much stuck to my strategy. When all you do is Asset Allocation, it's really boring stuff and unlike a newspaper columnist, I don't have to repeat myself because I trust that readers know how to search.

I met with Brian recently. If you recall, he collaborated with me on the Concentrated Portfolio Problem way back in 2006. He was lamenting to me that someone he knew well still had done nothing with his highly concentrated portfolio, which obviously was damaging during the recent financial meltdown. He said he's this far from tossing this person to a financial planner, even though it went against his ethos.

At this point I said, Financial Planners basically are a way for you to dis-intermediate your emotions from your investing life. If you're the kind of person who has a hard time investing a large lump sum amount of cash, or if you have a hard time selling company stock, having a financial planner or advisor do it for you is necessary, and it's worth paying someone a fixed fee to do so. (A percentage of assets for someone to baby-sit you and tell you to push the sell button is too much!)

As an example, I knew of folks who could not bring themselves to sell company stock when it was at an all time high, but then also could not bring themselves to hold even when things were at a 4 year low! Folks like that could use a financial advisor. I know other folks who sold at a decent price, but then could not bring themselves to invest over a 4 year period. While cash is king right now, over the long term, inflation eats away an all-cash portfolio. So those people could use a financial advisor to give them a kick in the butt. A friend of mine once could not bring himself to open a Vanguard account without me sitting next to him and telling him what to do, which buttons to push, and what funds to buy. He knew intellectually what to do, but he literally could not do it by himself. This man obviously needed a financial advisor, and I was dumb enough to do it for him for free when I obviously should have charged a percentage of assets (joking!).

Do I have a financial planner? Sort of. I have one that I use to gain access to DFA funds, and I pay him a fixed fee. My condition for using him was that he would just behave like a broker --- take buy and sell orders, and not sell me on anything. Actually, he's been doing a bit more than that, since he's financially sophisticated enough for me to tell him to "sell this fund for tax-loss harvesting, and then buy it back after the wash sale rule no longer applies." Nevertheless, I keep a tight rein on my financial affairs. However, colleagues of mine have used his real financial services and don't seem unhappy.

Nevertheless, I can't endorse him or anyone else, since I haven't really done any serious interviewing of what his capabilities are, and at this point nobody's about to pay my hourly wages to interview anyone that way. (After all, I'm going to pocket the fee regardless of whether or not the guy knows what he's doing or not! And even then there are no guarantees --- there are plenty of smart, knowledgeable crooks --- just visit Wall Street!)

Hence, even if you are intellectually capable of doing your own financial planning (it's no harder than programming C++, I promise!), the last few years have taught me that you might still find a financial planner useful and necessary. Just don't overpay and make sure he's not a crook. How you would go about doing that, I don't know.
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