Fee-based CFP advice

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Topic Author
varoma
Posts: 12
Joined: Wed Jan 10, 2018 11:58 pm

Fee-based CFP advice

Post by varoma » Sun Oct 06, 2019 9:35 pm

Hello everyone,

I'm on my late 30's, one new born kid, wife is for now stay-at-home mom and I make ~150k/year near San Jose, CA. Have about $100k between 401(k) & Roth IRA plus $10k on taxable; about $120k in cash (high yield, regular checking and savings accounts). No debt and pay credit cards fully every month.
I have been poundering the idea of talking to a fee-based CFP regarding a basic check on how we're doing and what would be wise to do from now on (e.g. will, trust fund, invest more on taxable/retirement accounts, etc.).
Is it worth it to look for one for a one-time sanity/guidance check? Not sure exactly what would be the right questions or how much is a fair fee.
Any suggestions are welcome.

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Dale_G
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Location: Central Florida - on the grown up side of 82

Re: Fee-based CFP advice

Post by Dale_G » Sun Oct 06, 2019 10:00 pm

You probably want to look for a fee only advisor who either charges by the hour or for a fixed fee. Fee based usually means the person will want to manage assets and charge an assets under management fee (AUM).

Dale
Volatility is my friend

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Taylor Larimore
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Location: Miami FL

Re: Fee-based CFP advice

Post by Taylor Larimore » Sun Oct 06, 2019 10:03 pm

varoma wrote:
Sun Oct 06, 2019 9:35 pm
Hello everyone,

I'm on my late 30's, one new born kid, wife is for now stay-at-home mom and I make ~150k/year near San Jose, CA. Have about $100k between 401(k) & Roth IRA plus $10k on taxable; about $120k in cash (high yield, regular checking and savings accounts). No debt and pay credit cards fully every month.
I have been poundering the idea of talking to a fee-based CFP regarding a basic check on how we're doing and what would be wise to do from now on (e.g. will, trust fund, invest more on taxable/retirement accounts, etc.).
Is it worth it to look for one for a one-time sanity/guidance check? Not sure exactly what would be the right questions or how much is a fair fee.
Any suggestions are welcome.
Varoma:

I will suggest that you may find the answers to your questions right here on the Bogleheads Forum (for free). If you agree, use this link to get started:

ASKING PORTFOLIO QUESTIONS

Another option: The Three-Fund Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Simplicity is the master key to financial success."
"Simplicity is the master key to financial success." -- Jack Bogle

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Mel Lindauer
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Re: Fee-based CFP advice

Post by Mel Lindauer » Sun Oct 06, 2019 10:29 pm

If you do decide to hire a fee-only advisor, you might want to check out Boglehead Allan Roth, CPA, MBA, CFP.
Best Regards - Mel | | Semper Fi

Soon2BXProgrammer
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Re: Fee-based CFP advice

Post by Soon2BXProgrammer » Sun Oct 06, 2019 10:53 pm

Disclosure: I probably will be affiliated with this company in the future, once I finish my CFP and get my series 65. (which should be pretty soon, not that you asked, it's my post Financial Independence encore career)

I would recommend looking at https://www.xyplanningnetwork.com/ for advisors that match what you are looking for. There are multiple "fee only" types of compensation models and planning arrangements.

-----

But you should really just ask here to start with. There are a ton of very knowledgeable people. Then if you still want professional 1on1 assistance, you'll know more going into the conversation with a planner.

Topic Author
varoma
Posts: 12
Joined: Wed Jan 10, 2018 11:58 pm

Re: Fee-based CFP advice

Post by varoma » Mon Oct 07, 2019 1:08 am

Thanks for your prompt replies and suggestions!
I have in the past and questions and received useful feedback. I will do that again and if I feel I still need that "you're doing it right" validation, I will look for a 1-to-1 advisor.

Thanks to all!

Dovahkiin
Posts: 62
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Re: Fee-based CFP advice

Post by Dovahkiin » Mon Oct 07, 2019 4:34 am

Here's my checklist of things I'd consider for your situation:

1. Do both of you have disability insurance? I highly recommend this coverage for both, even if you have group coverage I recommend supplemental coverage. What happens if you become disabled tomorrow suddenly without any forewarning?
2. Life insurance? What happens if you died tomorrow?
3. Why do you have a large cash position? What's your monthly expenses? Are you afraid of investing it more aggressively? What is your biggest fears for cash? Market? Unemployment? Disability? Or are you saving for a house?
4. What's your financial goals? When do you want to retire? Are you set on Financial Independence, Early Retirement (FIRE), or want to be financially independent as soon as possible? Or do you want the typical age 55-65 retirement?

Without having answers to your questions I'd recommend these things if you haven't done so already:
1. Max out disability insurance, you want an own occupation policy from one of the "big 5" insurers. White Coat Investor has a GREAT guide here:
https://www.whitecoatinvestor.com/what- ... insurance/

I recommend a to age 65 policy, 90 - 180 day elimination period (I greatly prefer 90 day), cost of living adjustment rider (max this out at your age), future purchase option rider, and any enhanced residual disability riders, recovery benefits, etc. Read up on the Boglehead's disability insurance wiki: https://www.bogleheads.org/wiki/Disability_insurance

Even if you have group coverage I recommend supplemental. I'd recommend one of the insurance agents/brokers that sponsors White Coat Investor.

2. Get 20-30 year term life insurance, ideally enough that your wife can be financially independent should you pass away. At minimum I'd get 10x of salary as a policy. Historically getting that payout and throwing it into a 50/50 stock/bond portfolio you can draw-down up to 20 years of salary replacement with about a 75% chance of success. You can "ladder" life insurance, say get a $1m 20 year term, and a $1m 30 year term to save money, as by 30 years you should be self insured.

I'd recommend a policy for your wife as well even though she is a stay at home mom. Most companies will easily do 200k-300k. I recommend at least 2-3 years of your income on her or as much as the insurance company will allow. There is several reasons for this. If she passes you may be stricken with grief for 1-2+ years and be unable to work. Even if not, who's going to take care of the kids then? Daycare or a nanny adds up quickly. Any housework she does you'll either need to do more or hire housekeeping services. Same with dinner/food/etc. Stay at home moms can easily provide $60k+ year of "sweat equity" that would cost that much to hire professional services for. Of course there are options like an au pair, etc., that are cost effective, but it will still be costly.

3. I recommend investing more heavily into equities and longer dated bonds, even if we're at record low interest rates. We still have positive interest rates here vs Europe. I'd stick to a very heavy Bogleheads like portfolio and maybe consider a 5% equity allocation to deep in the money LEAP call options that expire in 2-3 years, especially if you stick with the cash position. With low interest rates this is pretty safe leverage, and call options are one of the better plays in a rising interest rate environment (Rho in option greeks.)

For instance the $225 strike SPY call option on the S&P 500 ETF SPY that expires in January 2022 is currently trading for $7,600 per contract. You'd control 100 shares of SPY at $293/share for a 3.85x leverage ratio. It's delta is 80, so for every $1 SPY increases you'd see an $80 increase, which on $7,600 invested would be a 1% gain for SPY only increasing by .34%. If SPY were to crash suddenly and lose 50% of value then the call option would be worth $0, but had you invested $29,300 for the 100 shares equivalent it'd be sitting at a $14,650 unrealized loss. So this play has some built in protection too.

It's break even right now is $303 a share, so there is $1,100 of "time premium". With 837 days of expiring if SPY was still $293 at that date the option would be worth $1,100 less. But since you're effectively "borrowing" $23,900, less spy's dividends, for 2.3 years, you're effectively borrowing at a 1.5% interest rate to invest in the S&P 500. ($29,300 in 2.3 years with a 1.5% interest rate compounded 365 times annually will be ~$30,300.) (it'd be 3.7% if you throw on SPY's 2.2% dividend yield as call option holders aren't entitled to dividends.)

Like I said - it's highly speculative, but at your age, income, and net worth, it's worth considering around 5% or 1-2 contracts. So instead of sitting on $100k investments and $120k cash, you could be sitting on $100k investments, $14k for two contracts controlling $58.6k of stock, and $106k cash. Or you could go to 10% and match your cash position with equity through call options, but no matter what I don't ever recommend exceeding 10% of any "play" portfolio or position.

4. For financial goals - I'd try sweet talking you into FI/RE. :) If you can save 50% of your take home pay and you can retire within 15 years. Even if you want to go the more traditional route - just knowing you can retire after 15 years gives you a lot of financial independence and "FU" money.

5. Estate planning is VERY important. I highly recommend Patrick Etchebehere. He's in San Jose and he has a comprehensive estate package. www.etchlawgroup.com If you have any sort of legal plan like with Hyatt he accepts that fully too. He worked with me with some really awesome custom trust provisions that I'm super happy with that no other estate lawyer really wanted to touch or deal with. He also does everything over Skype too if you don't like in office visits, which I found really convenient.

At a minimum I'd recommend a revocable living trust for your marital property (and separate RLTs if your pre-marital assets are above $50k.) I'd also recommend power of attorneys and living wills as well. Estate planning at this age is critically important, not so much for passing on assets and avoiding probate (which sucks in CA), but for things like if you go into a coma what do you want to happen? What about if you're in a situation where you can't take care of your own finances? Having these documents will prevent court appointed people from stepping in for those situations. What happens if both you and your wife are in a car accident? Who do you nominate to take care of your children? Without a nomination perhaps your parents are in line next and maybe you prefer they don't take care of your children/etc.

jima
Posts: 24
Joined: Wed Aug 15, 2012 4:40 pm

Re: Fee-based CFP advice

Post by jima » Mon Oct 07, 2019 6:22 am

Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
Here's my checklist of things I'd consider for your situation:
Great post, but it shows exactly why the OP may want some help navigating things, especially when starting out. The number of hours required to decipher the acronyms, study up on options, and execute one or more of them can be overwhelming to someone who is already maxed out on time. Many find managing a simple investing plan doable, but there is a market for a turn-key planning service for "everything else".

NotWhoYouThink
Posts: 2799
Joined: Fri Dec 26, 2014 4:19 pm

Re: Fee-based CFP advice

Post by NotWhoYouThink » Mon Oct 07, 2019 7:29 am

Dale_G wrote:
Sun Oct 06, 2019 10:00 pm
You probably want to look for a fee only advisor who either charges by the hour or for a fixed fee. Fee based usually means the person will want to manage assets and charge an assets under management fee (AUM).

Dale
Fre only just means they don't charge comissions on trades.

You want advice only, which means they don't manage you money at all.

Topic Author
varoma
Posts: 12
Joined: Wed Jan 10, 2018 11:58 pm

Re: Fee-based CFP advice

Post by varoma » Mon Oct 07, 2019 11:27 pm

Dale_G wrote:
Sun Oct 06, 2019 10:00 pm
You probably want to look for a fee only advisor who either charges by the hour or for a fixed fee. Fee based usually means the person will want to manage assets and charge an assets under management fee (AUM).

Dale
That's correct, Dale. Thanks for the clarification. I meant a fee-only.

Topic Author
varoma
Posts: 12
Joined: Wed Jan 10, 2018 11:58 pm

Re: Fee-based CFP advice

Post by varoma » Tue Oct 08, 2019 12:18 am

Dovahkiin,

Thank you for your time in writing this outstanding post. I really appreciate all the details you mentioned and the suggestions you provided. Let me see if I can answer your questions below.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
Here's my checklist of things I'd consider for your situation:

1. Do both of you have disability insurance? I highly recommend this coverage for both, even if you have group coverage I recommend supplemental coverage. What happens if you become disabled tomorrow suddenly without any forewarning?
Only me through my employer.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
2. Life insurance? What happens if you died tomorrow?
Through my employer, wife gets 100% of $250k. Have considered additional.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
3. Why do you have a large cash position? What's your monthly expenses? Are you afraid of investing it more aggressively? What is your biggest fears for cash? Market? Unemployment? Disability? Or are you saving for a house?
Checking has about $10k to pay automatically for credit cards and move monthly amount to savings. Savings has about $60k, Roth and High yield gets its monthly deposit from here. High yield has about $40k. I'm wondering if putting monthly amounts to taxable. Checkings, savings, Roth, and taxable are on the same institution to maintain perks. Concerns are unemployment, not having liquidy. I love the Bogle philosophy but I like to balance it with not only saving money for retirement but also enjoy it now. With prices in my area, renting seems a better investment. Monthly expenses usually less than $5k.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
4. What's your financial goals? When do you want to retire? Are you set on Financial Independence, Early Retirement (FIRE), or want to be financially independent as soon as possible? Or do you want the typical age 55-65 retirement?
Nothing wrong with it but I'm not sold on the FIRE idea. I love my job and it seems that people look for FIRE as an early escape from their jobs so they can have a safety net to rely on when they want to start a business. Wouldn't mind having enough money to just do whatever at an earlier age.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
Without having answers to your questions I'd recommend these things if you haven't done so already:
1. Max out disability insurance, you want an own occupation policy from one of the "big 5" insurers. White Coat Investor has a GREAT guide here:
https://www.whitecoatinvestor.com/what- ... insurance/

I recommend a to age 65 policy, 90 - 180 day elimination period (I greatly prefer 90 day), cost of living adjustment rider (max this out at your age), future purchase option rider, and any enhanced residual disability riders, recovery benefits, etc. Read up on the Boglehead's disability insurance wiki: https://www.bogleheads.org/wiki/Disability_insurance

Even if you have group coverage I recommend supplemental. I'd recommend one of the insurance agents/brokers that sponsors White Coat Investor.
This sounds reasonable. Great resources, thanks for sharing!
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
2. Get 20-30 year term life insurance, ideally enough that your wife can be financially independent should you pass away. At minimum I'd get 10x of salary as a policy. Historically getting that payout and throwing it into a 50/50 stock/bond portfolio you can draw-down up to 20 years of salary replacement with about a 75% chance of success. You can "ladder" life insurance, say get a $1m 20 year term, and a $1m 30 year term to save money, as by 30 years you should be self insured.

I'd recommend a policy for your wife as well even though she is a stay at home mom. Most companies will easily do 200k-300k. I recommend at least 2-3 years of your income on her or as much as the insurance company will allow. There is several reasons for this. If she passes you may be stricken with grief for 1-2+ years and be unable to work. Even if not, who's going to take care of the kids then? Daycare or a nanny adds up quickly. Any housework she does you'll either need to do more or hire housekeeping services. Same with dinner/food/etc. Stay at home moms can easily provide $60k+ year of "sweat equity" that would cost that much to hire professional services for. Of course there are options like an au pair, etc., that are cost effective, but it will still be costly.
Good points. However didn't quite understand what you meant with "you can draw-down up to 20 years of salary replacement with about a 75% chance of success."
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
3. I recommend investing more heavily into equities and longer dated bonds, even if we're at record low interest rates. We still have positive interest rates here vs Europe. I'd stick to a very heavy Bogleheads like portfolio and maybe consider a 5% equity allocation to deep in the money LEAP call options that expire in 2-3 years, especially if you stick with the cash position. With low interest rates this is pretty safe leverage, and call options are one of the better plays in a rising interest rate environment (Rho in option greeks.)

For instance the $225 strike SPY call option on the S&P 500 ETF SPY that expires in January 2022 is currently trading for $7,600 per contract. You'd control 100 shares of SPY at $293/share for a 3.85x leverage ratio. It's delta is 80, so for every $1 SPY increases you'd see an $80 increase, which on $7,600 invested would be a 1% gain for SPY only increasing by .34%. If SPY were to crash suddenly and lose 50% of value then the call option would be worth $0, but had you invested $29,300 for the 100 shares equivalent it'd be sitting at a $14,650 unrealized loss. So this play has some built in protection too.

It's break even right now is $303 a share, so there is $1,100 of "time premium". With 837 days of expiring if SPY was still $293 at that date the option would be worth $1,100 less. But since you're effectively "borrowing" $23,900, less spy's dividends, for 2.3 years, you're effectively borrowing at a 1.5% interest rate to invest in the S&P 500. ($29,300 in 2.3 years with a 1.5% interest rate compounded 365 times annually will be ~$30,300.) (it'd be 3.7% if you throw on SPY's 2.2% dividend yield as call option holders aren't entitled to dividends.)

Like I said - it's highly speculative, but at your age, income, and net worth, it's worth considering around 5% or 1-2 contracts. So instead of sitting on $100k investments and $120k cash, you could be sitting on $100k investments, $14k for two contracts controlling $58.6k of stock, and $106k cash. Or you could go to 10% and match your cash position with equity through call options, but no matter what I don't ever recommend exceeding 10% of any "play" portfolio or position.
Quite a bit to chew on. Will have to read more on leverage and get back to you as I thought that was quite risky.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
4. For financial goals - I'd try sweet talking you into FI/RE. :) If you can save 50% of your take home pay and you can retire within 15 years. Even if you want to go the more traditional route - just knowing you can retire after 15 years gives you a lot of financial independence and "FU" money.
Hahaha... I'm always open to new ideas. But i also like a balanced life. Do give it a try.
Dovahkiin wrote:
Mon Oct 07, 2019 4:34 am
5. Estate planning is VERY important. I highly recommend Patrick Etchebehere. He's in San Jose and he has a comprehensive estate package. www.etchlawgroup.com If you have any sort of legal plan like with Hyatt he accepts that fully too. He worked with me with some really awesome custom trust provisions that I'm super happy with that no other estate lawyer really wanted to touch or deal with. He also does everything over Skype too if you don't like in office visits, which I found really convenient.

At a minimum I'd recommend a revocable living trust for your marital property (and separate RLTs if your pre-marital assets are above $50k.) I'd also recommend power of attorneys and living wills as well. Estate planning at this age is critically important, not so much for passing on assets and avoiding probate (which sucks in CA), but for things like if you go into a coma what do you want to happen? What about if you're in a situation where you can't take care of your own finances? Having these documents will prevent court appointed people from stepping in for those situations. What happens if both you and your wife are in a car accident? Who do you nominate to take care of your children? Without a nomination perhaps your parents are in line next and maybe you prefer they don't take care of your children/etc.
Good questions and again great resource. I'll look into Patrick's website.

knightrider
Posts: 616
Joined: Fri Jun 06, 2014 11:20 am

Re: Fee-based CFP advice

Post by knightrider » Thu Oct 10, 2019 9:00 am

varoma wrote:
Sun Oct 06, 2019 9:35 pm
Is it worth it to look for one for a one-time sanity/guidance check?
I've also thought about seeing someone for a sanity/guidance check. Unfortunately, it seems the consensus is that such people do not exist. Or if they exist, it will be easier to figure it out yourself then spend time finding such a person.. Very strange as seems there is indeed a market for such advice..

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