Comprehensive Financial Plan - Is it worth the investment??

[Chirurgia magna]

Greetings SDN members,

Today I sat down with a financial adviser that my job provides for free ( a 30 minute meeting). I recently graduated and starting residency in a month and have old 401ks and other issues I needed to address.

After he answered my questions and addressed my other concerns he suggested I invest around $2000 to purchase a comprehensive financial plan. I was wondering if anyone here has any experience with something like this and whether it is worth the lump sum expense. It evaluates all your assets and debt, and creates a budget and also tells you what you need (life insurance, 529 plans for kids etc). I would not mind paying this if it puts all my finances on a cruise control but I don't know if that would be the case.

Any help would be appreciated.

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[dpmd]

Seems like a lot of money and I don't know how much you would gain. Want to roll over your 401K's, you can go to schwab.com or any place like that and do it yourself. Have kids or a spouse who relies of your income-you need life insurance and disability insurance ideally. Yeah it would be good to save for the kid's education, but with your limited income during residency is that really going to be possible? You can go online and find a lot of free budget info (average amounts/percentages you should pay for housing, food, etc). Maybe I'm missing something (or your situation is more complex), but spending 2000 for someone to tell you to spend less than 30% on housing, pay off high interest debt prior to any short term investing, keep a comfortable cushion for emergency expenses, and take advantage of free/discount insurance that might be available through your job or specialty organization seems excessive

 

[Stroganoff]

Smells like a scam to take advantage of upcoming PGY1s. That $2000 is 40% of the $5000 annual max for a Roth IRA. Or you can throw that $2000 into your emergency fund. Or the $2000 can go towards the $2500 annual student loan interest deduction.

It honestly sounds like a scam. For $20 it might be OK. But seriously all that knowledge is free. It's not even guaranteed to be good advice either. I just changed jobs and have a 401(k) with Fidelity that I'll need to move somewhere, so I'm planning on transferring and converting it into my Vanguard Roth IRA.

 

[TexasPhysician]

Being a random advisor you met at a 30 minute meeting, I would walk away. He's just trying to sell you something. That $2000 may give you only 1 hour of his time. It's simple to glance over your current financial plan and tell you to purchase more products with them, insurance, etc.

If you do go with this financial planner, I would hammer out more of the details than you are telling us. What is your money going toward? Could you do it all yourself? How long would it take you to recoup that money with said plan? Be skeptical. Physicians are prime targets to rip-off. Only use an advisor you would trust with you and your family's future. That is a LOT of trust.

Even with the advice, you shouldn't be putting your finances on cruise control through residency. Markets change, tax laws change, etc.

 

[Chirurgia magna]

Thank you for your input. Ironically, I would not pay this adviser for a comprehensive financial plan since because they are hired by our hospital they are not allowed to sell their products to us. It would be through a third party.

I did some research and found that the price sounds about right. Here is a website with explanations and a sample financial plan for a couple:

http://www.centman.com/SampleFinancialPlan.html

And another site I just found showing their prices for a plan:

http://www.bellfinancialplanning.com/bell_services_and_fees_1.php

Like many of you mentioned, I don't know that at this point in my life as a PGY 1 I need to invest that amount of money to tell me something that is very simple (like cut down my debt, put money into my 401k and start a 529 for my child)

My case is a little more involved since I had a career before med school and I am carrying that 401k, my wife and I own a house which we will keep as a rental property, have a child, my wife has her own 401k, etc. My main plan for the next 10 years is aggressive debt reduction, my goal is to graduate from residency with no student loans.

 

[dpmd]

Eh, your situation isn't that complex. I have the same stuff going on (minus the child, but plus another mortgage). I haven't paid anyone to come up with a plan for me. I took just a bit of time to lay out all my debts in an excel spreadsheet, and have been attacking the highest interest rate ones first (it is all student loan and mortgage-I don't have credit card debt). I started this back when I was still a student and when my husband still had student loans (although part of that was because an army deployment left me with income that I could put towards debt since I didn't have tuition that year). I also listed every expense we had during school and used it to create an expected budget for residency. This let me figure out how much rent we could afford (even if we had no rental income-didn't want to be unable to pay the mortgage if we couldn't get it rented out). Then I figured out how much cushion we should have. When boluses of money would come in (such as travel reimbursement) that didn't need to go toward that I sent a payment to the highest interest rate loans. My husband maxes out his 401K. We used to have a mandatory deferred compensation fund so I didn't fund an IRA until that went away. I rolled over my old 401K, but my husband hasn't sat down to do the paperwork to do his (although the investments aren't positioned too badly so we are fine leaving them where they are until he gets around to it). So far we have been able to pay down somewhere around 60K of debt (but like I said there was a bunch of army income in there that most people wouldn't have) in addition to getting a second home (where we live now) and two new cars (one is paid off, and the other will be paid off next month), and living comfortably. I have about 5K left on loans that are above my mortage interest rates (5ish).

You can probably handle things yourself for now and consider purchasing a plan when you graduate.

 

[TexasPhysician]

I did some research and found that the price sounds about right. Here is a website with explanations and a sample financial plan for a couple:

http://www.centman.com/SampleFinancialPlan.html

And another site I just found showing their prices for a plan:

http://www.bellfinancialplanning.com/bell_services_and_fees_1.php

Like many of you mentioned, I don't know that at this point in my life as a PGY 1 I need to invest that amount of money to tell me something that is very simple (like cut down my debt, put money into my 401k and start a 529 for my child)

My case is a little more involved since I had a career before med school and I am carrying that 401k, my wife and I own a house which we will keep as a rental property, have a child, my wife has her own 401k, etc.

Just because it is the average cost of a plan, doesn't mean you get good advice. I would have no problem spending $2000 if I knew I would benefit strongly from the help.

For instance, I personally know one of the best advisors in the US. He personally manages the finances of multiple professional athletes whose names almost anyone would recognize. Even then I was skeptical. Look at Madoff.

My point is that you should understand everything done with your money. Even if you hire an advisor, you need to understand everything. What is good advice now, may be poor advice next year. How will you know? Will you pay $2000 every year for more advice? Just things to think about.

 

[michaelrack]

Wait until you are making at least $200,000/yr to pay $2000 for a comp financial plan. Until then, buy some books for $20 from Ramsey, S Orman, etc.

I recently got a comprehensive financial plan for "free" (indirectly paid for through fees for some business/mortgage loans I have taken out). I did get some worthwile suggestions, but I would not recommend a resident paying $2000 for this

 

[Chirurgia magna]

Thanks Michael,

That helps a lot. I too think it's probably overkill at this point. I am getting a free basic plan through someone.

This is what they are recommending:

Budget: 70/20/10
- 70 % expenses including loans, car payments, etc
- 10 % retirement/savings
- 20% aggressive debt reduction (extra payments only)

I am assuming they recommend this since I would prefer to pay all my loans off as soon as I can.

They also recommend I get the following products:

- Life Insurance
- Disability Insurance
- Umbrella Insurance
- Start 529 college savings plan

-Keep my 401k at my old job because they have the lowest fees in the market today and just start a new one at the new place.

- IBR for my loans and add extra payments as described above in the budget.
- Pay down my wife's student loans at standard pace (10 year) with extra payments
- Pay car as scheduled since it has 1.9% interest and it doesn't make sense to pay that when I can pay student loans with 6.5% interest.
- Keep the house as a rental property and rent for the first year of residency. No extra payments on the house for now since the interest is very low as well and it makes more sense to tackle student loans with higher interest.

I think that's about it

Wait until you are making at least $200,000/yr to pay $2000 for a comp financial plan. Until then, buy some books for $20 from Ramsey, S Orman, etc.

I recently got a comprehensive financial plan for "free" (indirectly paid for through fees for some business/mortgage loans I have taken out). I did get some worthwile suggestions, but I would not recommend a resident paying $2000 for this

 

[thesauce]

Not a good plan.

Many institutions will give you a free financial review/plan (Northstar financial, Summit financial, etc.) Some of these groups will even manage your funds for next to nothing ($10-$35/yr) while in residency with the hopes that you'll retain their services (and pay them more) once you're out. But you can simply walk away if you so choose.

 

[ChainStreet]

I never understood the need of financial plan unless situation is very complex. Anyway, I think everyone should spend some time to educate themselves little bit about what to do with their hard earned money or be able to ask right questions to a proxy who manages your money.

There is nothing called auto pilot. It’s at best an illusion. If you really don’t want to spend even few hours each months to think what you should do with your hard earned money then I think index might be second best option. But be ready for negative returns like last decade and average performance in long term. Average is not bad in comparison because 80% active investors cannot beat average. But on absolute basis an average performance might be very useless. Example - negative performance of last decade of index combined with 3% inflation means , index holders lost 50% of money in real terms over 10-11 years. If you hold for 30-40 years you will catch some upswing also so it will work out not great but ok.

 

[michaelrack]

clarity

I never understood the need of financial plan unless situation is very complex. Anyway, I think everyone should spend some time to educate themselves little bit about what to do with their hard earned money or be able to ask right questions to a proxy who manages your money.

There is nothing called auto pilot. It's at best an illusion. If you really don't want to spend even few hours each months to think what you should do with your hard earned money then I think index might be second best option. But be ready for negative returns like last decade and average performance in long term. Average is not bad in comparison because 80% active investors cannot beat average. But on absolute basis an average performance might be very useless. Example - negative performance of last decade of index combined with 3% inflation means , index holders lost 50% of money in real terms over 10-11 years. If you hold for 30-40 years you will catch some upswing also so it will work out not great but ok.

What you describe is only a small part of a comp finan plan. A comp finan plan would not only advise a person on which funds ( and index is fine- of course there are a wide variety of indices) to pick, but also where to put the funds- SIMPLE IRA, SEP IRA, 529 (if u have kids),etc. I agree that in simple situations (a resident with access to a 401k or 403b) a comp financial plan is not necessary.

 

[ChainStreet]

clarity

What you describe is only a small part of a comp finan plan. A comp finan plan would not only advise a person on which funds ( and index is fine- of course there are a wide variety of indices) to pick, but also where to put the funds- SIMPLE IRA, SEP IRA, 529 (if u have kids),etc. I agree that in simple situations (a resident with access to a 401k or 403b) a comp financial plan is not necessary.

I don't think index is great idea in general but for majority of people it's best option. I was not necessarily putting any plan or part of plan. I was making general statements.

In fact if you think about it - 529, sep, traditional , roth , 401(k) etc are pretty simple to understand for anyone if they take some time to read and think. Once they understand, it's very easy to think where to put money in which order.



So unless someone has complicated trust or some very specific tax situation which is complicated, I don't see much issue. Anyway, I am not an expert in financial planning so take my comments accordingly. I was just sharing what I think and also why I think that way.

 

[michaelrack]

I don't think index is great idea in general but for majority of people it's best option. I was not necessarily putting any plan or part of plan. I was making general statements.

In fact if you think about it - 529, sep, traditional , roth , 401(k) etc are pretty simple to understand for anyone if they take some time to read and think. Once they understand, it's very easy to think where to put money in which order.



So unless someone has complicated trust or some very specific tax situation which is complicated, I don't see much issue. Anyway, I am not an expert in financial planning so take my comments accordingly. I was just sharing what I think and also why I think that way.

You're advice is fine for a typical resident. For a prosperous private practice physician the choice of retirement plan can be quite complex and depends on such factors as the structure of his practice and wether he has any employees (if a doctor has low-paid employees, this limits the amount that he can put in certain retirement plans). Certain retirement plans are better for asset protection (considered "qualified") than others. Although a SEP is relatively simple, a defined-benefit plan is also worthwhile for a high-earning doc to look into.

Any doc who has more than $15,000 per year to put into retirement funds should probably at least talk to an accountant about the best type of retirement acct to use for his situation.

I like index funds, but do not limit myself to S and P 500 funds- I currently have a lot in a high yield bond index fund.

 

[TexasPhysician]

I found this while doing a web search this morning. It may help if you go the financial planner route. I have no interest or knowledge of this company/website. Follow its advice at your own risk.

http://www.freemoneyfinance.com/2011/05/ten-questions-to-ask-a-financial-advisor.html

 

[The White Coat Investor]

Greetings SDN members,

Today I sat down with a financial adviser that my job provides for free ( a 30 minute meeting). I recently graduated and starting residency in a month and have old 401ks and other issues I needed to address.

After he answered my questions and addressed my other concerns he suggested I invest around $2000 to purchase a comprehensive financial plan. I was wondering if anyone here has any experience with something like this and whether it is worth the lump sum expense. It evaluates all your assets and debt, and creates a budget and also tells you what you need (life insurance, 529 plans for kids etc). I would not mind paying this if it puts all my finances on a cruise control but I don't know if that would be the case.

Any help would be appreciated.

$2K? Seriously? I'd do it for $200. I probably can't charge you to do it since I don't have the required licenses. But I could do it for free I suppose. Or you could learn to do it yourself here: http://whitecoatinvestor.com

$2000 suggests it would take him 20 hours at $100 an hour. In reality, it probably takes 1 or 2 hours. Is he really worth $1K an hour?

You can get your finances on cruise control, but you still have to look out the window every now and then.

 

[The White Coat Investor]

I never understood the need of financial plan unless situation is very complex. Anyway, I think everyone should spend some time to educate themselves little bit about what to do with their hard earned money or be able to ask right questions to a proxy who manages your money.

There is nothing called auto pilot. It’s at best an illusion. If you really don’t want to spend even few hours each months to think what you should do with your hard earned money then I think index might be second best option. But be ready for negative returns like last decade and average performance in long term. Average is not bad in comparison because 80% active investors cannot beat average. But on absolute basis an average performance might be very useless. Example - negative performance of last decade of index combined with 3% inflation means , index holders lost 50% of money in real terms over 10-11 years. If you hold for 30-40 years you will catch some upswing also so it will work out not great but ok.

I'm not sure you understand index investing. You seem to think/suggest that index investors ONLY own an S&P 500 index fund.

 

[Chirurgia magna]

$2K? Seriously? I'd do it for $200. I probably can't charge you to do it since I don't have the required licenses. But I could do it for free I suppose. Or you could learn to do it yourself here: http://whitecoatinvestor.com

$2000 suggests it would take him 20 hours at $100 an hour. In reality, it probably takes 1 or 2 hours. Is he really worth $1K an hour?

You can get your finances on cruise control, but you still have to look out the window every now and then.

ActiveDutyMD, got it! Thanks for your offer. I had someone do one last week for free. I spend the last couple of weeks educating myself through your website, other sites, my company's financial knowledge website (surprisingly it has online classes and articles and such), and read two books. The first one was Tyson's book Finance for dummies recommended by you and the second one was Suze Orman's. I got a clear idea now of what I need to do and where to invest and how to pay debt down.

My plan for autopilot included automatic bill payment, automatic payments to our student loans, and direct payroll deductions for our retirement accounts and 529 plan. I plan on adding two more automated deductions for two saving accounts.

Thanks

 

[Stroganoff]

One change I just made was to make my savings deductions straight out of payroll rather than peeling them off of my checking account. Depends on your HR department. My last company let me direct deposit to like 5-10 accounts. Current company is 3... But with online savings accounts that take 2-3 business days, that's lost interest + an extra 10 minutes of time it saves me with each paycheck.

 

[ChainStreet]

I'm not sure you understand index investing. You seem to think/suggest that index investors ONLY own an S&P 500 index fund.

Care to explain why did you that impression? You can own this or that or xyz index but basic idea is owning bunch of companies(if equity index) be good or bad at random price and them participating in the growth of all companies taken together. As i have said many times, if you can not seperate good from bad and also can not estimate the true worth of companies then index is the best option.

If you decide to rebalance time to time to adjust various indexes then effectively you are trying to time the whole market or market class. People can employ the dollar cost averaging etc to avoid timing but basic idea of an index is same.


Now coming back to question - Care to explain why did you get that impression? At least in future I will avoid giving the impresion to anyone unknowingly that S & P 500 is the only index.

Adding later:

I think I missed the quoted part earlier. If you took the example of 50% inflation adjsuted loss as me saying index means S&P 500 then I should have been explicit. But if you look then most of the equity index(Dow, s&p 400 etc) would have not done so well. You can chose and pick but even if you take 5 different index , idea is same. I was using 50% inflation adjusted negative returns because most of the widely held equity index will convey more or less same point. There can be offcourse some less popular , bonds or some esotoric index which might have done better in same time but I was trying to convey the idea of realistic expectations with an index due to inherent mixture of some good and some bad companies at random price.

If something different gave you the impression that I think all index holders hold only S&P, then I will appraciate you pointing out because I can avoid giving that impression to anyone in future.

 

[The White Coat Investor]

If something different gave you the impression that I think all index holders hold only S&P, then I will appraciate you pointing out because I can avoid giving that impression to anyone in future.

I think it was mostly your statement that index investors had a negative return in the last decade. I invest in a handful or two of index funds and most of them had a positive return in the last decade. Some examples:

Total Stock Market Index (includes mid-cap and small caps in addition to S&P 500 stocks): Ten year return 3.71%/year
Value Index (most "valuey" half of large and mid caps): Ten year return 2.76%/year
Small Value Index: 7.87%/year
REIT Index: 11.6%/year
Emerging Markets Index: 15.42%/year
Total International Index 6.77%/year
Intermediate Bond Index 6.55%/year

You can see why when you suggest that index investors had a negative return over the last decade why I would make assumptions like I did. US large cap stocks had some rotten returns, but lots of other stuff did great.

 

[ChainStreet]

ActiveDutyMD - Thanks for taking time to point out. I was using mostly for an example because US large cap index is one of the most widely held. I should have been more explicit to avoid giving that impression. Cheked your site, good starting point. Keep up the good work.

Cheers,