CPAs and Financial Advisors

[Justin Wright]

I'm an active duty military investor just starting out. We just purchased a SFH at our next duty station that we intend to live in then rent. I've got big plans and strategies for the future and my journey to financial independence.

In “The Millionaire Next Door,” Stanley and Danko mention that the one thing prodigious accumulators of wealth don’t skimp on is financial advise. For someone just starting out, when is the right time to seek professional financial advise and tax services? How much should I pay? And, how did you find your advisor?

I appreciate any guidance and advise! Thanks!

[Chris T.]

@Justin Wright

Hey there!

So a couple things to unpack here.

'For someone just starting out, when is the right time to seek professional advice and tax service?'

This is going to depend on each person. And I say that from the perspective of everyone having different goals. I run an articles page and one of my most popular articles is one titled 'You Don't Need a Financial Planner'.

The context is that many of the formulas used are fairly easy calculations, such as TVM, ratios, percentages, etc. And that given enough time, effort, and research, most people could probably figure out how to create a plan for their goals.

Having said that, most don't. And not for a lack of wanting to - it's mainly a time constraint. Applying them is the hardest part. What I would witness is that roughly half of clients either have a rough idea of where they're going, and how they want to get there, and really just need someone to bounce ideas off of or need some re-assurance about their path. The other half have some sort of 'event-related problem' they need to figure out - large inheritance, gifting, education planning, taxes, etc.

In both cases, a planner can add value. The initial meeting should include them telling you what they can offer you, and also getting a big picture of your current financial situation, while also identifying your financial goals. The main value they add is by bridging that gap from point A to point B. Often, they can provide valuable insight about things you might not have otherwise considered or known about.

Not all financial planners are the same. Some are licensed to sell various products and services. They should disclose this, since it may limit the ability to serve your best interests. They may receive commission on insurance, investment products, referrals, annuities, soft dollar compensation, etc.

What you really want is a fiduciary. Financial planners, surprisingly, are technically NOT regulated. However, many are - since their financial plans often cover investments. It just depends on whether the planner is held to a fiduciary standard, or a suitability standard. Very different things.

Now, a registered investment adviser (RIA) is required by law to act as a fiduciary. Given the natural flow the need to have investments managed upon completing a financial plan, many RIAs offer FP services. Details can be found in what is referred to as their 'ADV Part 2' about fees, commissions, DISCLOSURES, etc,

Most RIAs charge a 'fee-only' basis. Usually, an hourly fee, or a percentage of assets under management. A comprehensive financial plan can cost around $1,000-$3,000 (ballpark) depending on the complexity of your situation. They may also offer segmented services (such as retirement planning only) for a lesser price. These fees vary and are legally required to be disclosed before a contract is signed.

It's true that some planners may guide you from RE to products and investments, so you really should focus on finding a planner that is held to a fiduciary standard. At a minimum, a registered investment advisor should have a Series 65 financial license and be registered at the State or SEC level.

Also, you can research the company and individual on FINRA's BrokerCheck online function for disclosures and history. Hope that helps, feel free to PM with any questions!

Source: BA, MBA (finance emphasis), and I own an RIA firm.