The Real-World Advice You Won’t Hear at Any Commencement—But Should

Thanks and a hat tip to Art Sobczak:

The Real-World Advice You Won’t Hear at Any Commencement—But Should

May 12, 2017 / By Art Sobczak

This hard-nosed wisdom will help prepare recent or soon-to-be graduates for how life and work really are. Some of us old-timers could use some reminders, too.

It’s that time of year when kids all over are graduating from college, and for most, entering the world of reality. Not like reality T.V. shows, but the real world of life.

I haven’t been invited to be anyone’s commencement speaker, but over the past 30 years of being in business for myself, I have learned some valuable lessons—sometimes the hard way—that I wish I could have known right out of the gate.

I believe these nuggets of real-world wisdom will be useful for graduates leaving the bubble of the “formal education” environment.

Congratulations Recent Graduate,

Welcome to the 2017 pledge class of “The Way Things Really Work” fraternity and sorority. What you are about to experience may be downright shocking for some of you.

Here are some suggestions on making it through the hazing and beyond. Should you choose to heed them, they will help you become more successful more quickly in the real world—if that’s your goal.

You have spent the past four years or more focusing on trying to impress college professors in order to earn grades. You will now need to impress people who have real control over your destiny: prospects, clients, bosses, co-workers, boards, and committees. These might be old people whom you previously considered to be un-hip. Even the nerds who graduated just a year ahead of you might be in this group. They all have something you don’t: real world experience. Get used to it. Be humble.

You will not be paid proportionate to your GPA, what school you went to, or if you have a graduate degree with letters behind your name. The market does not care. You will be paid in direct correlation to the value you provide other people and organizations. Money always flows to value in a market economy. Your economics professor might have missed that one amid all the charts and graphs and white-noise babble.

No job or work is beneath you, especially if you don’t have a job. What is beneath you is thinking you are owed something, or expecting someone else to take care of you. In addition to trading time for money, you can learn something from every job, regardless how menial it might seem at first glance.

Even if you do have a job, what you likely have right now is more time than money. Invest that time in becoming an expert in one or several areas. Specialists are always paid more than generalists. (Sorry about that liberal arts degree, by the way.)

Volunteer to tackle any task that most others avoid in any organization you become a part of. Become known as the “go-to” person that gets things done.

No one who is truly successful works nine-to-five. Your days of regularly sleeping til noon and staying out late are over, if you plan to be anything other than average. Easy ways to success exist only in spam emails.

You won’t get awards for attendance. There is no grading on the curve here. You will be rewarded for results—and winning. You’ll be rewarded for being better than the competition, whether that’s another company or someone going for the same job, contract, or piece of business.

If you thought staying up late cramming for a test was hard work and now that is behind you because you have a degree, you are wrong. The tests and presentations now have much higher stakes, and will make the difference between getting the job, the sale, the promotion, or whatever else you want.

Speaking of losing, even if you are really trying, you will not get what you want many, many times. That’s OK, and will be valuable if you learn from every experience.

The real world you are entering is not “fair” according to the definition of many of the kids you went to school with, whatever you may have discussed in some woo-woo philosophy class. Whatever. In this real world, breaks are not given, they are created. Opportunities to succeed are not handed out equally; they are earned with a combination of attitude, risk, and massive action.

You, or more likely your parents, have paid—or taken out loans—for a huge sum of money to study lots of minutiae you will never use. (You may have said that to yourself many times while in an insanely stupid lecture from a professor who has never done anything other than profess.) The real learning that you will use now begins. Don’t be hesitant to invest money in advanced education in your career field. It will be more useful and pay off more than any other graduate degree.

If you did not excel at writing in school, do whatever it takes to get better. And the vocabulary you tap out on ur mobile device might be OK with ur friends and on Facebook, but it is not acceptable professional communication. LOL.

Speaking of Facebook, people who can hire you use it, and won’t think the photos of you doing Jäger shots and passing out are hilarious. Actually, they might….And then they will hire someone else.

A perception of a person’s I.Q. goes down a point every time they say “like,” “ah,” “um,” “you guyses,” and “dude.” It’s like, not professional, and makes someone sound immature, ya know? Join Toastmasters or take another speaking course.

It is not all about you anymore. Be selfless, curious, and grateful. You will be surprised at how it comes back to you.

Emailed “thank you’s” are not acceptable for most things worth thanking for. Get a nice pen and your own stationery and lots of stamps. Yes, some people still use regular mail. The very successful people.

Knowing all about the Kardashians, who’s remaining on The Voice, and what “celebrity” just got picked up for being stupid will not help you in the professional networks you will need to be present in, in order to get ahead. Consume your actual real-world news in whatever form you choose, and be familiar and conversant in local, national, and international politics and events.

Your new social network is LinkedIn. Become as much of an expert at using it as you are with Twitter, YouTube, and any other place you waste time online.

For whatever you want, ask yourself, “Who can give this to me, what do they want and care about, and how and what can I first do for them?”

Even if your formal job title is not sales, become great at sales, as its skills and results are required and used by the most successful people in every area of life. These skills include questioning, listening, recommending, negotiating, handling resistance, persuading, moving processes forward, having a great attitude, and more.

Become indispensable, irreplaceable, and in-demand through hard work, building expertise, and delivering value. You likely know friends of your parents who lost their jobs because they were expendable.

Be obsessively interested in other people. Ask questions. Find out how you can help them. Follow up and stay in touch. Almost everything you achieve will be the result of people you meet and form relationships with along the way.

Always ask for what you want. In all areas of your life. Don’t wish, ask. Few things will be outright given to you without you initiating it first. This alone can make you millions of dollars, and help you become happier than you imagined. Trust me on this one.

Speaking of asking, you will remember the “Yes” answers you hear, and always forget about the “No’s.” If you want to count anything, celebrate your attempts…the “Yes’s” will come in time.

Your attitude accounts for about 80% of your success. And that’s one thing you control totally.

Rejection is not an experience, it is the way you define an experience. Stuff happening is inevitable, rejection is optional. Learn from every experience and you never will look at it as rejection.

Most other people will not do what it takes to be wildly successful, and many would prefer that you don’t either. They will be jealous of your success and secretly hope you fail. Sad, but true. Distance yourself from them because they will pull you down.

Here’s your graduate degree in communication: Pay complete, undivided attention to every individual you communicate with. If face-to-face, make eye contact. Listen as if your life depended on it. Don’t interrupt. Pause after you ask a question and after they answer. Ask another related question. Don’t shift the topic to yourself.

And when you are in the presence of others, put the phone away and turn it off. Please. Paying attention to the phone instead of the person in front of you is the ultimate insult and makes you look like a self-absorbed fool.

Take personal responsibility for everything you do. Never point a finger elsewhere. “Victim” is synonymous with “loser” and “blamer.” Own it. Put your name on it. Act like you control your destiny, and you will realize that you actually do.

Most things you might want to worry about will never happen. If you can control it, act on it, and the potential worry subsides.

Treat everyone you come in contact with as the most important person in the world. You will be surprised who can actually work with you and give you want you want. You might also be surprised who can prevent you from that as well.

Smile more often than you don’t. You feel better, and others react to you more favorably.

Being five minutes early is on time. Showing up right on time or later is late. It shows a lack of respect for the other person or people.

Movement toward any end goal trumps “planning paralysis,” and done is better than perfect.

Be serious about pursuing your success, but don’t take yourself too seriously. Laugh easily and often. Including at yourself. That shows confidence and endears you to others.

Upon close examination, many things that might annoy you are truly petty. Sweating the small stuff makes you a small person. Be quick to let things go. Always apply this question: “In the big picture, does this really matter that much?”

Just as with products, people can be viewed as commodities, and therefore paid the lowest price, if that is how they allow themselves to be perceived. Differentiate yourself. Set yourself apart. Be unique and memorable. In the process you will not please everyone. That’s OK. In fact, if you are not pissing off some people you are playing it too safe and vanilla. Bonus advice: What you dois more important than what you say about yourself.

Compliment often.

Your body is like software, not hardware. Like software you can regularly update and keep it running optimally with proper diet and exercise. Unlike hardware, you can’t trade it in for a newer model. Take care of the only one you’ll ever have.

You will rarely regret risks you take, and saying “Yes” to opportunities unless they are potentially physically harmful, immoral, unethical, or illegal. Ask yourself, “What’s the worst thing that could happen if I pursue this?” Then compare that to the best possible outcome.

Maybe you’ve heard size matters. It does, as it relates to your thinking, and subsequent actions. Think and act big. Huge. Whatever you think you can’t do is likely a self-imposed limitation.

Don’t wait for things to happen. Make things happen. Movement opens doors, creates opportunities, and gets results. Take massive action. Every day.

Welcome to the real world, newbies. Some of you will be wildly successful, and others will fail miserably. Your choice.

Now go out and attack life.

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Social Security Benefits Bump Up Every 4 Months You Wait

SS Benefits Increase Every 4 Months You Wait

Full retirement age for Americans born between 1943 and 1954 is 66 years old— here’s how benefits rise or fall if they retire anytime between 62 and 70.

Americans born between 1943 and 1954 can claim 100% of their Social Security benefits at age 66. If they retire early, at age 62, they get 75% of the benefit amount, but waiting until age 70 yields 132% of their full-retirement-age monthly payments. Benefits increase incrementally at four-month intervals between age 62 and 70.

Source: The Motley Fool

When to begin drawing Social Security can be a more complex decision than you might think. Certain decisions can result in substantially higher lifetime benefits.

Call as at Financial Freedom Planners…we’re here to help!

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On guard against fraud

Fraud is a reality that we must constantly guard ourselves against. There are those who can be considered trusted advisors and there are those who will always be unscrupulous. We know and understand that. Yet, by nature, many of us want to trust and open up to the friendly and seemingly knowledgeable folks we meet. It’s always important to exercise a reasonable amount of caution.

Seniors can be particularly susceptible to abuse. Many want to trust those that seem willing to provide assistance, and the proliferation of complex products can leave us open to fraud by those exploiting that complexity.

I have seen or heard too many heart-wrenching stories of outright fraud, or financial products that were sold to an individual that simply didn’t make sense, except for the dishonest person peddling their wares.

Never hesitate to reach out to us at Financial Freedom Planners if you ever have any questions about our recommendations or why we believe they are best for your particular situation. Or for that matter, call us if you’ve come across something else and just don’t think you know enough about the product to ask the right questions. We are here to assist you in any way that we can.

10 Ways to beef up your defensive line

As we near the end of football season, here are some excellent steps you can take. Reviewed by the Federal Citizen Information Center and the U.S. General Services Administration, the Certified Financial Planner Board has put together this list of steps, which you can implement immediately to alert you to potential fraud red flags and help protect you.

1. Look beyond the designations on a business card.

There are over 170 known designations and certifications used by financial professionals. Some require rigorous testing. [You may choose to share your own experiences here.] Others are little more than marketing tools, with no real education needed—much less an exam. Be certain to ask them if they act as fiduciaries on your behalf.

2. If you don’t understand what is being said, don’t buy it.

This one is pretty simple, but we can still fall victim to promises that are really too good to be true. I strive to keep an open line of communications with you. Always feel free to pick up the phone and call me if you come across something that sounds good on the surface but leaves you with an uneasy feeling.

3. There’s no such thing as a free lunch.

You may get a tasty meal, but be wary of the pressure to make an immediate buying decision. There’s nothing wrong with sleeping on it or getting a second opinion.

4. Just because a so-called expert recommends it doesn’t mean it’s right for you.

I have repeatedly emphasized that your specific situation and circumstances dictate the best course. Think about it–an aggressive stock fund might be just what’s needed for a 28-year-old who is saving for retirement. That same fund might not work for someone who is 90 years old and needs income.

5. It’s a tried and true axiom. If it sounds too good to be true, it’s probably not legitimate or safe.

It’s human nature to want to find the magic bullet that easily solves a problem. But be very wary of promises that seem too good to be true.

6. Don’t confuse familiarity with trust.

We know plenty of good people in our community, but please do your homework and check anyone out before entrusting your finances to them.

7. The final sign-off should always be yours.

Don’t leave spaces in account applications or contracts before signing them.

8. Make sure the money others are making isn’t yours.

We’ve all heard of the classic Ponzi scheme. Be very careful that you don’t throw your hard-earned money into a scam.

9. Get the full story.

What is the cost of the investment? Who will benefit from your decision? Is it you or the person making the recommendation?

10. You have rights as a homeowner. Know them.

Know your rights as a homeowner. If you are considering tapping equity via a reverse mortgage, let’s talk and discuss the benefits and any possible pitfalls.

These crimes are all too common today—please take these steps to heart and protect yourself.

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Presidential Election – What Do Soccer & Investment Strategy Have In Common?

Resist the temptation to react, as difficult and counter-intuitive it may be.

Sometimes, the best reaction is no action at all!

Consider the following soccer strategy:

During a penalty kick, a soccer goalie must make a split-second decision to stay put in the center of the goal, jump left, or jump right.

Behavioral economist Ofer Azar collected data on more than 300 goalies and discovered that goalies who jumped left stopped just 14.2% of the shots, those who jumped right stopped a mere 12.6%. But goalies who stayed put in the center of the goal were able to prevent goals 33.3% of the time. Amazingly, only 6% of the goalies chose that option.*

Azar interviewed the goalies about their decisions and found that emotions played an important role. The goalies revealed that they felt worse if the goal was made and they were standing still. In fact, taking action, even if it’s certain to lead to failure, was considered better than taking no action at all.

Azar applied his soccer research to the behavior of investors and found that when the markets are in turmoil, we have a powerful urge to “do something” even when that “something” doesn’t make a lot of practical sense. In the 2008 market meltdown, many investors gave in to the instinct to sell because it satisfied their desire for action. But those who stayed put benefited in the long run as the market recovered.

The bottom line: During times of market stress, it can be difficult and even seem counter-intuitive to stay put, but that’s often exactly the best decision. Historically, the stock market delivers far more often than not. Working together, we can increase the chances for investment success by resisting the temptation to “jump” to one side or the other when markets erupt in turmoil.

While we’re not advocating doing nothing, what we are advocating is to work with a CFP® to HAVE A GOOD PLAN, and stick to it. At Financial Freedom Planners we can help you with planning with no conflict of interest. Not only are we your advocate, we are fiduciaries as well. If you’re not in our area, we recommend our colleagues at the Garrett Planning Network.

* Wray Herbert, 2010. “On Second Thought: Outsmarting Your Mind’s Hard-Wired Habits.” New York: Broadway Paperbacks.

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The short answer is YES! We have heard some FedSpeak in the last week or so that gives me cause for concern, and ergo the title of this post. It appears we may be facing a future when a government “independent” entity takes over the free market.

Last week, Fed Chair Janet Yellen floated the idea that the central bank should buy stocks and other long-term assets to mitigate a downturn in the economy. Taking a page out of the Bank of Japan and Bank of Israel, the Fed now appears to be considering whether it is a good thing to directly intervene in equities. Apparently central bank insanity knows no bounds. Even though these “techniques” have been attempted in Japan for a considerable period, not only has there been no discernible economic benefit, there are some that believe the policies are detrimental to the economy.

Toward the end of summer in #ZeroInterestRatesMatter – Party Like It’s 1999, we discussed the risk the Fed is taking in our economic structure (unintended consequences) by keeping interest rates so low for so long. I remain very skeptical about where we are in the capital markets….near highs in both the stock and bond markets. In our investment recommendations, we are encouraging appropriate portfolio balance in terms of risk, and very cautious on the average maturity of bonds.

In his October Investment Outlook, Bill Gross equates monetary policy with gambling with our economy, and talks about the “Martingale System” approach. He goes on to illustrate that ” that low/negative yields erode and in some cases destroy historical business models which foster savings/investment and ultimately economic growth.” In other words, these policies are actually hindering economic growth, not stimulating it.

All one needs to do is examine the results of the Japan “experiment,” both in terms of their attempts at monetary and fiscal policies…they are simply NOT WORKING! However it seems to be the default philosophy of policy makers and economists to say we haven’t done enough – we need to do MORE! We all know the definition of insanity authored by Albert Einstein:

“Insanity: Doing the same thing over and over again and expecting different results.”

Bill Gross goes on to suggest “at some point investors – leery and indeed weary of receiving negative or near zero returns on their money, may at the margin desert the standard financial complex, for higher returning or better yet, less risky alternatives.” If this begins to occur, you may see some vulnerability in both the stock and bond markets.

What does this mean to you, your 401 (k), and other investments you have? While our crystal ball is as cloudy as everyone else’s, there are a number of actions you can take:

  1. Take an objective looks at your risk positioning across your portfolios and review your balance. Consider reducing equity exposure in your Asset Allocation.
    • Many people within 5 – 10 years of retirement I see have relatively aggressive risk postures. It’s critical to be prepared for another potential downdraft like we experienced in 2000 and 2008 if your time-frame is in this area.
    • This is not a forecast, just common sense. The closer you get to the need to draw on retirement funds, the more caution you should employ.
  2. Reduce Interest-Rate Risk – pay close attention to the maturities of bonds and fixed income in your portfolios – reduce the length of maturity to reduce interest rate risk.
  3. Maintain greater than normal Cash positions.
  4. In a very recent Grant’s Interest Rates Observer conference in New York City, another very well-known money manager, Jeff Gundlach, had an interesting observation: he ‘thinks the world of monetary and fiscal policy is about to pivot. He decided that the narrative that benchmark interest rates around the world would stay lower for longer was “getting quite old.”’
    • He cited several reasons: inflation is picking up, the dollar did not strengthen after the Federal Reserve raised rates the last time. Also there’s this:“In the investment world when you hear ‘never’,” ( as in rates are ‘never going up’), “it’s probably about to happen,” said Gundlach, who is CEO of DoubleLine Funds.
    • For the first time in a very long time Gundlach is looking at “TIPS,” or bonds that benefit from inflation (Treasury Inflation-Protected Securities). Something to consider for your portfolio.

If you don’t have a trusted financial advisor to help you with this, we recommend a professional with the Garrett Planning Network.

Of course we are always happy to help at Financial Freedom Planners in an objective, fiduciary manner without conflict of interest!

“It doesn’t take a fortune to build one”

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How Do Financial Advisors Get Paid? Glad You Asked!

This is an article recently published on the Wealthminder blog. The topic is on the minds of more and more consumers, and this post does a great job explaining a rather complicated subject. Not only is it well written, informative, and educational, but I would encourage you to check out their website if you’re looking for a Financial Advisor.

How do financial advisors get paid?

One of the bigger hurdles people face when hiring an advisor is answering the question “How do financial advisors get paid?” If you can’t figure out how—and how much—your advisor gets paid for the work he or she is doing for you, it’s virtually impossible to determine whether or not you are getting good value from their services and from your money.

You would think understanding an advisor’s compensation would be fairly straight-forward, but a multitude of compensation options, combined with a lack of transparency and lots of industry jargon make this a more difficult proposition than it should be—and even modest fees can significantly impact your investment portfolio’s potential over time.

To help cut through the clutter, we’ll walk you through the most common compensation models financial advisors use and give you a set of questions you can ask prospective advisors to ensure you understand how you would be paying them.

There are three general types of advisor compensation models: commission only, fee-only, and fee-based (or hybrid).

Commission Only Advisors

Commission only advisors get paid on the financial products they sell you. These commissions can come in many different flavors, some of which are less obvious than others. The most common types of commissions include:

Trade Commissions

Some firms charge you a fee for each securities transaction you make. For example, if you buy or sell $10,000 shares of a stock, you may pay between $50 and $150 in commission to process the trade. Trade commissions can work well for people who trade infrequently, but can be more expensive for investors who add money to their accounts regularly or who execute a lot of trades. The one concern you should have with this model is its potential to create an incentive for your advisor to recommend more frequent trades, which could increase his or her compensation while decreasing how much of your money actually makes it into your investment portfolio.

Front-End Loads

Most often seen with mutual funds, a front-end load is a commission or sales charge that takes the form of a percentage transaction fee that the product provider takes out of your investment up-front. These charges can be as high as 8%, though most are in the range of 3-6%. Front-end loads reduce the amount of your initial investment. If the fund charges a 5% load, for example, and you invest $10,000, only $9,500 get invested and the rest goes to the firm and your advisor. The biggest advantage of front-end loads is that they often come with lower on-going annual fees than other mutual funds. Over the very long term they can be less expensive than a no-load fund. On the other hand, it may take several years for you to overcome the initial up-front cost and many alternative investment options have lower costs than mutual funds.

If your advisor recommends mutual funds, be sure to ask him or her whether sales charges and expenses factor into the funds that he or she selects for client portfolios. Some advisors can create a conflict of interest here, because advisor compensation is higher for products with larger front-end sales charges.

Back-End Loads (Or Deferred Sales Charges)

Another concept seen in mutual funds is a back-end load or deferred sales charge. These come in many different flavors, but the basic idea is that instead of charging you the commission up-front, the product provider will charge you if you sell the fund before a predetermined time period. This time period can be as long as six years, after which you can sell the fund without penalty. Whether this is better or worse for you than a front-end or no-load fund will depend on the specific terms / rules of the investment and how long you hold the investment.

12(b)-1 Fees or “Level Loads”

Again, this type of fee comes in many different flavors, but regardless of what it is called, it is an on-going fee paid out of your investment to your advisor in the form of a higher expense ratio. Unlike front and back-end loads, 12(b)-1 fees are more-difficult to understand because you do not see them removed explicitly from your investment value. In the case of a mutual fund, it simply affects the share price over time.

Embedded or Hidden Commissions

These types of commissions are most often seen in insurance or insurance derivative products. In these cases, the exact costs, both initial and on-going, are often hidden in the fine print of a legal document, which can be long and complex. Worse, the way they are marketed and sold often leaves the buyer (and in my experience many times the advisor too) with a very misleading impression of the underlying costs.

Are Commissions Inherently Bad?

If you do a lot of searching online you will discover almost religious debates on this topic. The primary argument you will hear against commissions is they create an inherent conflict of interest between the advisor and the client. Advocates of commissions, on the other hand, argue they are actually less expensive in many cases than fee-only advisors who often charge an on-going fee for advice regardless of what services are performed.

If you do decide to go with a commission-based advisor, it’s critical you understand how they get paid for their services and recommendations. This will help you determine whether or not you believe he or she has your best interests in mind, rather than making recommendations that might favor his or her financial interests over yours.

Fee-Only Advisors

Fee-only advisors are those whose entire compensation comes directly from you. They do not accept commissions or other incentives from product providers. Advocates of this approach point to its increased transparency and lack of inherent conflicts.

Within the fee-only world, there are many different business models. Here are the most common ones.

Assets Under Management (AUM)

This is currently the dominant compensation model amongst advisors. In this model, your advisor charges you a percentage of the assets you have him manage, typically 1-2% a year. Oftentimes, they roll any and all services they provide you (like planning and non-investment advice) into this fee. Advocates of this model point to the synergies with the client. As you make more money, so does your advisor. Conversely, if your investment value goes down, you pay less. Detractors would argue, however, that you may be paying more than you should depending on your level of activity and that the value of the services doesn’t necessarily grow in proportion to your account growth. In addition, an AUM-based advisor has an economic incentive to not make recommendations that might reduce the size of your portfolio, such as paying off a debt or making a major purchase.

Hourly Consulting

If you have ever hired a lawyer, you are familiar with this model. You simply pay an hourly rate for whatever you ask your advisor to do. One of the biggest proponents of this model is Sheryl Garrett of the Garrett Planning Network. The advantage of the hourly is the costs are crystal clear and you only pay for what you need. However, those costs can really add up if you want to delegate most of the work to an advisor.

Fixed Fee

Some advisors will create a comprehensive plan for a one-time fixed or project-based fee. This is very similar in concept to an hourly model, but is a flat rate and is mostly used in the case where someone wants one-time advice they will then execute on their own.


A retainer model is one where the consumer pays the advisors a yearly or quarterly fixed fee for a set of services. As with AUM, this often includes planning as well as investment management with the difference being that the fees are fixed rather than being a percentage of the customer’s investment assets.

Is a Fee-Only Advisor the Best Choice?

As with most important decisions, the right answer will largely be predicated on your situation and your needs. With a fee-only advisor, you won’t have to worry about whether their recommendations are affected by how much a product provider is paying them. However, you also won’t be able to use them as a one-stop shop because certain financial products, like insurance, are only sold on a commission basis.

Fee-Based Advisors

People often get fee-based and fee-only advisors confused. This is not surprising since the two terms sound nearly the same. However, there are significant differences between the two types of advisors. Fee-based advisors are essentially a hybrid of fee-only and commission-only advisors. They can charge both fees and commissions, depending on the services they provide.

Advocates of this model would claim they offer the best of both worlds and can offer pricing that best fits the customer’s needs. In addition, they can be a one-stop shop, including handling the client’s insurance needs.

Detractors would say this model suffers from all of the same conflicts that arise in a commission-only model and has the potential for even less transparency (or at least clarity).

So, Which Type of Advisor is Right for You?

There are pros and cons to each compensation model. Picking the right advisor for you will depend on your specific needs and circumstances. The most important thing is finding an individual advisor you trust and fully understanding exactly how he or she will be compensated so you can make an informed decision.

Here are a few questions to ask prospective advisors to help you understand all the ways they will be compensated by working with you.

  1. “Are you a fee-only, fee-based or commission-only advisor?”

  2. For commission-only advisors

    1. “Can you provide me with details on how I will be charged for the different products you recommend, including costs that may be embedded in the products and any other sales incentives you receive?”

    2. “Do you provide financial planning, and if so, how are you compensated for this work? What do you provide as part of your financial planning?”

    3. “If you receive payment from product providers, how do you approach and resolve the inherent conflict?” If the advisor replies that they are a fiduciary (meaning they have to act in your best interests), confirm that this is a legal obligation for them and not simply a standard they say they hold themselves to.

  3. For fee-only advisors

    1. “Please explain your pricing model in detail. What is covered? What is not covered?”

    2. “Are there any other fees you would charge beyond what we just discussed? If so, how much are those fees and what are they for?”

    3. If you are hiring an advisor for more than just investment management, clarify with them how they will help you with determining appropriate insurance policies, coverage levels, etc.

  4. For fee-based advisors

    1. Once you’ve agreed on the types of services they will provide you with, drill down on whether they will be charging fees, commissions or both. If it’s both, you’ll definitely want to understand what the fees are for and what the commissions are for. “Which services and products will be paid for through fees and which serviced and products will be paid for through commissions?”

    2. Where commissions will be involved, ask the same questions you would ask a commission-only advisor.

    3. If fees are involved, ask the questions we recommended for a fee-only advisor.

Now that you know what to ask, get started on finding the right financial advisor for you today, or contact us at Financial Freedom Planners.

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#ZeroInterestRatesMatter – Party Like It’s 1999

What should an investor do? Markets are confounding.  They appear to be almost predictable. Until they’re not!

We are in an investment environment that reminds me of the technology bubble 16 years ago, and the markets are partying like it’s 1999. Today rather than focusing only on the technology sector, perhaps we should examine both the bond market and the equity markets in their entirety.

We have been trained and told over and over and over again since the 2008 financial crisis the Federal Reserve has our backs. Indeed they have engaged in unprecedented monetary policy never in my lifetime would I have thought possible.

In addition to the Fed taking on dual mandates established by the U.S. Congress of full employment and stable prices, it appears they have created numerous other policies: creation of a minimum of 2% inflation; not raising interest rates due to (fill in the blank) Brexit, various and sundry economic data, negative monthly payroll reports, concerns about foreign economies such as China, currency issues, etc.; controlling the stock market upward – Chairman Bernanke called it “The Wealth Effect.”

As a result we have been at near-zero interest rates (ZIRP) for eight years, seen the Fed buy 4.5 Trillion bond securities from money creation through various schemes called Quantitative Easing, Twist, etc. In addition we have seen major banks, both domestic and foreign, bailed out with unprecedented amounts of money. They’re even open to the possibility of NEGATIVE interest rates!

As a result of all this we have arguably the most distorted stock and bond markets in history! Both bonds and stocks are at all-time highs, and the stock market made another historic high as I write this article.

What should an investor do, and what’s not to like you may ask?

The distortion created by effectively zero interest rates can result in many unseen consequences.  The Mises Institute in “The Unseen Consequences of Zero-Interest-Rate Policy” names a number of them:

  • Conservative investors by nature come under increasing pressure with respect to their investments and take on excessive risks in light of the prospect that interest rates will remain low in the long term. This leads to capital misallocation and the emergence of bubbles.
  • The sweet poison of low interest rates leads to massive asset price inflation (stocks, bonds, works of art, real estate).
  • Structurally too low interest rates in industrialized nations due to carry trades lead to the emergence of asset price bubbles and contagion effects in emerging markets.
  • Changes in human behavior patterns occur, due to continually declining purchasing power. While thrift is increasingly mutating into a relic of the past, taking on debt comes to be seen as rational.
  • As a result of the structurally too low level of interest rates, a “culture of instant gratification” is created, which is among other things characterized by the fact that consumption is financed with credit instead of savings. The formation of wealth becomes steadily more difficult.
  • The medium of exchange and unit of account function of money increases in importance, while its role as a store of value declines.
  • Incentives for fiscal discipline decline.
  • Zombie banks are created: Low interest rates prevent the healthy process of creative destruction. Banks are enabled to roll over potentially non-performing loans practically indefinitely and can thus lower their write-off requirements.
  • Newly created money is neither uniformly nor simultaneously distributed amongst the population. This results in a permanent transfer of wealth from later receivers to earlier receivers of newly created money.

What does all this mean to investors? In my view there are two critical takeaways in analyzing these issues:

  • Extremely high stock valuations: Many corporate share buyback plans and dividend issuances have been done through the use of cheap debt, which has led to increases corporate balance sheet leverage. This will eventually end. Financial engineering like this has also reduced the amount of capital investment that results in growing companies in favor of elevating the stock price, reducing the outstanding share count, and showing better Earnings Per Share. However the dirty little secret not being discussed is we have seen 5 consecutive quarters of LOWER earnings in the S&P 500. Here is a chart from “Q3 EPS Expectations Just Turned Negative: Six Consecutive Quarters Of Declining Earnings” at Zero Hedge:

q3 eps factset_0

As a result of this distortion, the Debt-to-Earnings ratios are at the highest point of the CENTURY:

debt to ebitda ratio

  • Historically high government debt, corporate debt, and personal debt in this country. As any financial planner knows, the more debt one has the less flexibility one has in many ways, even beyond financial. That’s where we are today. I won’t bore you with a chart of U.S. Government Debt, but here’s a chart that shows the credit created since the financial crisis in “What Happens When Rampant Asset Inflation Ends?” by Charles Hugh Smith:


As a result of record high valuations, we look to place more emphasis on the return of your money than a significant return on your money. While there are many ways to reduce risk, here are five to consider:

  1. Reduce equity exposure in your Asset Allocation
  2. Reduce risk in the equity allocation you continue to own – some techniques are large-cap stocks vs. small-cap, reduce emerging or international markets, etc.
  3. Reduce credit risk in the bonds/fixed income you own – we already have begun to see signs of stress in the fixed income markets – we are VERY wary of any positions below Investment Grade
  4. Reduce Interest-Rate Risk – pay close attention to the maturities of bonds and fixed income in your portfolios – reduce the length of maturity to reduce interest rate risk
  5. Maintain greater than normal Cash positions – while rates are still ridiculously low, remember we are focusing on a return of your money

If you have a trusted financial advisor, we recommend reaching out to them before the end of the summer. If you’ve been partying like it’s 1999, at least get a designated driver. It’s time to reassess where you are in your own financial journey in context with where we are in the markets. If you don’t have a trusted financial advisor, we recommend a professional with the Garrett Planning Network.

Of course we are always happy to help at Financial Freedom Planners in an objective, fiduciary manner without conflict of interest!

“It doesn’t take a fortune to build one”

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