Load vs Non Load

[jIM_Ohio]

Jim,

Do you work in the financial world?

I must admit, I have always fantasized about a second career in the financial advising world but I hesitate to think that the job would be 98.5% cold calling sales and 1.5% financial planning/advising.

If you work in the world, could you speak to a career in it, the pros and cons?

(sorry if I hijacked the thread, OP)

I am an enginneer- at some point of my young life I decided I liked numbers.

I am thinking of changing careers, but will probably need to change degree from mechanical engineering to at least an associates in accounting.

In addition I need to pass series 6 and series 63. This covers things like the securities and exchange commission act of 19xx which a friend told me about (he works for a large brokerage here in town).

In addition I would need to be able to do people's income taxes. I do not know what certifications are needed for this (if any).

I would only do "fee based" planning. Charge a flat fee of $500 for whatever help is needed (debt or investing), then come up with the plan to fix the problem.

If I am buying and selling securities for someone (managing their accounts) that is a series 7 (tougher than the 6) and that is where I draw the line.

I also want to avoid needing to get a CPA certification to do only the financial planning aspect. I don't think the big money is in planning, I think it is in insurance or the buying/selling of securities (because those are things rich people need, and therefore can pay commission on).

In addition I want to have my assets be larger prior to doing this, because part of my philosophy will be full disclosure. My first meeting with a client will go over my budget, my paycheck, my investments and tell the client I will never recomend something I did not do myself.

[jIM_Ohio]

Another way to make money - sell mortgages when your clients refinance. Just about all brokerages have banks associated with them and mortgages are cash cows.

PS: With regards to helping people get out debt not being profitable - I agree. However, there's your loss leader as they say in the business. If you hold seminars, have a weekly e-zine/email, on gettign out of debt. . .a certain percentage will come to you for the traditional financial planning.

A seminar entitled:

My Finances are a Wreck: Please help me. I would think would have a draw.

In fact, I think debt reduction is a sore point missing in financial planning. IMO, an extra payment on the mortgage or paying down a chunk of student loan is essentially the same as buying a few bonds. . .however. . .who makes a commission that even though it may make sense?

There are ways to make money on the debt reduction. My wife and I, prior to getting married, took a financial course offered by our church. I knew most of the answers, but it was good for a neutral party to tell my wife (so we didn't get into an argument). The seminar was over 6-8 weeks, 2 hours/week and covered getting out of debt, budgeting and a little investing.

I am sure the financial planner was paid by the church (the class we took was not free). And I'm sure if I told the church 10% of all fees collected from parishoners would be donated to the church, they would be all over that.

[jIM_Ohio]

So if, in the course of my own research, I discovered a load fund that I wanted to add to my portfolio, I would have to pay a sales person in order to get that fund even though that person will have done absolutely nothing for me.

Makes no sense at all. I guess that's why I don't buy load funds.

More than likely you can find a no load fund which is the equivalent.

Load funds are designed for advisors to sell.

Consider the client for a loaded fund-

someone investing between 20k-100k+ per year.
someone which does not have time to manage the investments or asset allocation.
someone which needs tax planning because you cannot put 100k into an IRA or 401k each year. And every extra dollar might get taxed at 33% or 35%, so the little things matter.

So some load funds are designed to simply have no distributions (check the one I linked above). The $.07 distribution was only the second time this fund ever had a distribution (I think). it has a $.01 distribution the year before. Meaning the load fund I listed is designed to keep taxes low and returns above the nominal return for cash and bonds. The investors make money, and do not pay taxes until they sell.

[Scanner]

someone investing between 20k-100k+ per year.

I guess that's another part of becoming a financial advisor - your profitable clientele would have to be middle upper and above.

There's probably little to no money in advising middle and middle/lower clients.

I would imagine, on the downside, this limits your target to 1-2% of the population.

[Scanner]

I would only do "fee based" planning. Charge a flat fee of $500 for whatever help is needed (debt or investing), then come up with the plan to fix the problem.

BTW, this is admirable business structure but let me tell you an initial problem I see with this.

First of all, people don't pay for advice. What they'll pay for is a "fuzzy feeling."

I know there is a lot of Suze Orman haters/detractors here but I think she is instructive on this.

She represents a "feeling" - you feel like you are getting motherly advice sitting down at the kitchen table telling her your problems. Not to mention I think (please correct me if I am wrong) she is lesbian and comes across conservative. So there's that element of the population who will gravitate to her for that reason alone (and an element who will eschew her) - she would represent something that subset of the population would aspire to.

She, of course, is glamorous too, in her own way.

So. . .those are the sort of things people will shell out $500 for. . .not for financial advice.

You have to sell a feeling of some sort.

So. . .what would they be buying for $500, JimOhio?

[disneysteve]

Not to mention I think (please correct me if I am wrong) she is lesbian and comes across conservative. So there's that element of the population who will gravitate to her for that reason alone (and an element who will eschew her) - she would represent something that subset of the population would aspire to.

Not to go off track, but what does her personal life have to do with her investment advice?

[jIM_Ohio]

BTW, this is admirable business structure but let me tell you an initial problem I see with this.

First of all, people don't pay for advice. What they'll pay for is a "fuzzy feeling."

I know there is a lot of Suze Orman haters/detractors here but I think she is instructive on this.

She represents a "feeling" - you feel like you are getting motherly advice sitting down at the kitchen table telling her your problems. Not to mention I think (please correct me if I am wrong) she is lesbian and comes across conservative. So there's that element of the population who will gravitate to her for that reason alone (and an element who will eschew her) - she would represent something that subset of the population would aspire to.

She, of course, is glamorous too, in her own way.

So. . .those are the sort of things people will shell out $500 for. . .not for financial advice.

You have to sell a feeling of some sort.

So. . .what would they be buying for $500, JimOhio?

The radio shows are a way for someone to make money doing what we talk about. Then the radio host becomes more of a cult of personality, even if the advice being given by Dave Ramsey or Suzie Ormon is less than good.

For example, if they make investing advice, do they tell you what investments they have -now- and what they are buying -now- and why they bought it, are holding it and when they will sell it?

I would.

For $500. Three one hour sessions (really 55 minutes, so I can go to can between clients). Session 1 review issues and I present my portfolio. Session 2 presents the plan. Session 3 is a follow up if plan implementation did not work. Also provides 2 hours of work off line by me to research specifics of problem. I will also throw in a one year tax return for free.

For a higher fee ($2000) I would provide ongoing support, so you get the initial 5 hour plan, plus ongoing recomendations for portfolio. Would also do tax returns each year for free.

For highest fee ($4000), do all tax returns, do detailed retirement planning (withdrawing), tax planning and ongoing financial planning (rebalancing recomendations) and tax returns each year for 10 years.

My thought is I need about 120 clients at first level each year to stay in business. The 10 year limit on plan 3 is because I might be retired in 11.

In addition I would charge around $1000 for a seminar of 2 hours to any size group, plus a 10% referal bonus (save 10% on any of above if you refer someone who pays). Meaning if my church paid me $1000 to run a seminar, and 5 people signed up from that, I would write church a check for $250 if everyone paid for base plan. If referral came from a 401k seminar, I could either buy $50 worth of company stock, or send it to charity of companies choice.

Word of mouth referrals need to be encouraged.

[Scanner]

Not to go off track, but what does her personal life have to do with her investment advice?

Nothing. . .her advice is fairly sound, leans conservative. And actually, I think she has always kept her personal life private for the most part.

But her personal life has nothing to do with it. . .and in a way, everything to do with it when it comes to marketing her.

Just like Bill Clinton - you can't seperate the private and the public figure as much as you may like.

And that's what I am talking about - marketing her/JimOhio.

She is very astute in all shapes and manners.

[Scanner]

My thought is I need about 120 clients at first level each year to stay in business. The 10 year limit on plan 3 is because I might be retired in 11.

That's about 2.5 clients/week with 2 weeks of vacation.

[jIM_Ohio]

My issue is advice from the radio personalities is more based on a policy or philosophy, instead of truly solving a problem.

An example- Ramsey suggesting only 15 year mortgages.
Another example- only recomending index funds.
Another example- not encouraging people to use annuities, permanent life insurance or other.

A true financial planner will use all resources at disposal to solve clients problems, not steer towards things based on policy, sales loads, or other.

[Scanner]

I wonder if buying a business already established may not already be a better idea.

Why start from scratch? I could feel the pressure of trying to get 5 clients every 2 weeks.

You'd have a loan but goodwill is a transferrable asset.

I do like the idea of "bundling" financial advice with tax preparation. . .it's a natural time per year when clients are ready to talk shop about money.

[jIM_Ohio]

That's about 2.5 clients/week with 2 weeks of vacation.

120*$500=$60k

I was shooting for an income level, not a given work week schedule. More than likely I would only work 3 days per week to begin with.

More than likely when I do this, my retirement accounts will be more than I need already, so I just need to get mortgage paid off prior to retirement.

[disneysteve]

My issue is advice from the radio personalities is more based on a policy or philosophy, instead of truly solving a problem.

A true financial planner will use all resources at disposal to solve clients problems, not steer towards things based on policy, sales loads, or other.

I think everyone brings some personal bias to the table. Also, nobody can be an expert and totally well-versed in every area and every financial instrument. So I would think that any planner or advisor would have products and services that he or she focuses on because those are the ones that he/she is most familiar with and most comfortable with.

[jimmyengland]

So for the most part people here will not buy load funds?

[Scanner]

More than likely I would only work 3 days per week to begin with.

Unrealistic - remember what you are selling - a fuzzy feeling.

You'll spend 90% of your time selling yourself and 10% actually doing the work.

A better way I think would be for you to buy an established business, work at retaining it, and then "expanding it" (tax preparation).

Most businesses of that sort (goodwill) sell for about 2X the gross.

So. . .if a financial planner is grossing 100K per year. . .he/she would sell the business for 200K.

You'd have to float a 5 year loan (business loans typically have terms of 5-7 years) so you'd have a good healthy loan payment but at the same time, you'd have cash flow and referral sources (esp. when you did something new like expand to tax preparation).

I thought you had to be a CPA to prepare taxes (or work for one) but I could be wrong.