How to Hire a Financial Planner You Trust

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published 10 August 2020

Ryan Ermey: Amid current economic chaos you may be considering financial advice, but who should you hire? How much should you pay them? And how do you know they're on the up and up? I sit down with CFP Board CEO Kevin Keller to get answers to these questions and more in our main segment. On today's show Sandy geeks out over a nationwide coin shortage and I delve deep into the ins and outs of inflation. That's all ahead on this episode of Your Money's Worth. Stick around.

Sandy Block: I love this story, and I had witnessed this story happening because, as I've mentioned before, I've been going back and forth on the road quite a bit for family issues. I stop at Dunkin Donuts often, because I need to caff up, and every time I stop at a Dunkin Donuts or gas station or anything, there's a sign saying, "Please use exact change." It's everywhere. If you get out at all, you'll see this.

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Sandy Block: If you talk to the banking people they'll say, "It is not a shortage. It is a coin disruption." But the fact of the matter is, the retailers do not have enough. They can't make change. It's because people are not spending cash. It's a pandemic thing. First, it was toilet paper. Then it was yeast, Clorox wipes, now it's quarters and dimes and nickels. People are not making cash purchases. They're buying things online or when they do go out, they're using credit or debit cards because they feel like that's safer.

Sandy Block: Right. And so there's several things going on. One is that some retailers are rounding up. If you go to Kroger's and you make a cash purchase, they'll round up the amount and add the excess to a store loyalty card, if you have one or donate it to charity. Now, the U.S. mint actually put out a press release calling on Americans to spend that change, to empty their sock drawers, and couches and be a Patriot. Be a good American and get your quarters and dimes out and spend them and get that money back in circulation.

Sandy Block: So, I'm working on a story about this. As I said, I'm kind of really into it, and I have a few suggestions. One is it used to be if you walked into your bank with a pile of change they would look at you like, "Please leave." But now they want that change, so lots of banks and community banks and credit unions are more than happy to roll up your change. One Wisconsin bank even offered $5 for every $100 in coins. That was so popular that that promotion has ended.

Sandy Block: Oh, yeah, yeah. There were a couple of Chick-fil-As that were offering a free sandwich if you brought in coins, and that's ended too, but keep your eyes out. The bankers tell me there may be more incentives to come if the coins don't materialize, but a couple. So if you go to the bank, turn in this change that's piling up, put it in your emergency account, pay off your credit card or debt or donate it to charity. Put that money to work, because it's not doing anything for you in your couch or your sock drawers. The other thing you can do, and you've probably seen these, Ryan. Have you ever seen these Coinstar kiosks in the supermarkets?

Sandy Block: Well, here's the thing. You still do. If you've just want cash for your coins, they'll charge you 11.9%, which is ridiculous. But if you opt for a gift card, you get 100%, no fees, and they have gift cards from Amazon. That would be the one I would do, because then you can kind of use it anywhere. Lowe's, Home Depot, Starbucks. So if you choose the gift card, you basically get 100%. Coinstar will also let you deposit your change in the account of a participating charity, so we'll put the link so you can do more on that in the show notes. But if you've got a lot of coins sitting around folks, spend that money people.

Sandy Block: I mean, yeah. The larger issue here is that this is indicative of what we've written about in the past that's been accelerated by the pandemic, is that we are moving away from cash in general. This is just another sign, and I think certainly when you talk to younger people, "When was the last time you used cash?" They're like, "What's cash," right? So I think that this is a short-term problem. The long-term outlook is that we're just going to be using less and less cash for purchases and the pandemic has kind of accelerated that trend.

Kevin Keller: Well, Ryan, first of all, that's two questions. The first question, who should be seeking advice? Those of us at CFP Board and the CFP community believe that everybody can benefit from competent and ethical advice. As it relates to kind of the chaos that we're in, the answer is yes. We are seeing more people seeking out advice. You write about this. We've been in a bull market tear for, what is it? 10 years or so now.

Kevin Keller: A lot of people think, "Well, I don't need anybody to help me with advice. The market's going up, I'm going to ride along with the market." But as you recall there in March, earlier this year when there was a fairly sizeable correction, people realized that the market doesn't always go up. And a CFP professional can play an important role in working with his or her clients. One of the things that we know is that those folks who enlist the help of a CFP professional to create a plan, they feel more confident. Our research shows this over and over. They have a higher sense of confidence than those who maybe are working with an advisor who's not certified.

Kevin Keller: Well, if you step back, if we could, Ryan -- let's start with the fact that there is no free lunch and there is no free advice. So let's start with the fact that you're an individual. A lot of people think, "Oh, I'm not paying anything. I make investments and I don't pay my advisor. I don't have to pay anything." There is no free advice. Now, we at CFP Board are compensation neutral, and I would suggest maybe that... you said fee-only, I would suggest that the real F word is not fee-only, but is fiduciary. As you think about when you're selecting an advisor, you want somebody who's going to commit to be a fiduciary for you.

Kevin Keller: Look, financial products are complicated and many of them -- to your point, and I think implicit in your question is that there are embedded fees and it's hard to really know. So that's why we suggest, and the 87,000 people who hold CFP certification in the U.S. have committed to CFP Board to act as a fiduciary to their clients. That's the right F word, not fee-only. There are many fee-only folks out there. They do a great job.

Kevin Keller: You asked about what are some of the pricing models? We're seeing some innovation of late, typically fee-only planners. And even, in fact, others as well charged on assets under management, so clients would pay 1% of assets under management. But as more and more planners out there look at how they want to serve their clients, there are a lot of clients who don't have a big asset base upon which an advisor can provide that advice. So we're seeing monthly subscriptions, we're seeing quarterly fixed arrangements or a fixed annual fee. Certainly there are assets under management, and there are other ways as well. But again, the key being, make sure that you're working with a fiduciary.

Kevin Keller: Well, the FINRA is the regulator for Wall Street, essentially. They maintain a list of designations and certifications. That list, Ryan, has over 200 different designations in financial services alone. And you're right, that not all certifications are the same. Some of these certifications on that site, it's a weekend class in an open book test, but CFP certification is rigorous. It's a high stakes exam. Typically, a person prepares anywhere from 18 to 24 months at a minimum. We have a three year experience requirement.

Kevin Keller: So, what separates CFP from the others, and a couple of those that you mentioned, there are some good, we're not talking badly about all, but look, we have a code of ethics and there are consequences when an individual doesn't live up to that code of conduct. Then their competency requirements, the education, it's essentially like six college level classes along with a rigorous exam that 40% of the people who take actually fail and don't make it through. Then we have the experience requirements. So it's a combination of the competency and the ethics that set CFP apart.

Kevin Keller: That's absolutely right. Yet, some recent research that we did at CFP Board showed that people know they need one. They know they need one, but oftentimes they're not really sure why they need one. Really there are three components of a bonafide fiduciary standard. The first is a duty of loyalty, so when an individual is a fiduciary on your behalf they're pledging a duty of loyalty to do, as you would say, what's in your best interest. But there's also a duty of care that goes along with a fiduciary standard, with that duty of loyalty. That duty of care means that they're going to do the rigorous background, that they're going to be prepared, that they're not going to provide advice on things that they're not qualified to do. So, that's the second piece.

Ryan Ermey: Something that we briefly touched on earlier here was that there are some pricing models that favor young people. This is something that we like to touch on in the podcast, because a lot of young people who might be listening out there may not have a lot of money. They probably feel like they're in need of advice, but they may not think that they're able to afford it. Are planners willing to work with these sorts of clients and help them keep costs low?

Kevin Keller: Some planners specifically target this area. You may be familiar with the XY Planning Network, which largely offers advice on a monthly retainer fee. So depending on the complexity of an individual's financial life, it may be as little as $99 or $149 a month, then you've got somebody you can talk to. These are people typically who are younger, who probably have student loans, just like many younger folks do who might not yet have accumulated wealth, but they may need, and frequently do need advice more than somebody who's more established and may have more means. So there are planners out there who work with these different business models, and people should, our listeners and your readers shouldn't just think because I don't have a big portfolio that an advisor won't work with me.

Kevin Keller: Yeah. Well, thank you for that question. I think I should mention that, certainly one way to start that search is with the CFP website, LetsMakeAPlan.org. A little plug there, but look, let me tell you what you shouldn't do. You can ask your friends and neighbors for recommendations, but that's probably a place to start, not a place to stop right? Don't end there, because I'll tell you, my mother-in-law, she had an advisor. I don't get involved obviously, but my mother, they had an advisor, Jerry. Their guy was Jerry, and Jerry was from church. Jerry sold them products that were completely inappropriate. They didn't understand the complexity.

Kevin Keller: Jerry from church did. So look, word of mouth is important. CFP, letsmakeaplan.org, Brokercheck, these are all important things that folks should take a look at before they engage that planner. My last suggestion is don't just talk to one person, feel free to shop around and find somebody who you think fits your circumstances or somebody who you feel like understands and works with clients like you.

Ryan Ermey: I'll tell you what, shop around might as well be the tagline of this podcast. Well, we will have links to all of the sites that Kevin mentioned, as well as to the story that he is quoted in about finding advice that Sandy wrote in Kiplinger's Personal Finance. It's up on the website now. I miss you, Sandy. And in the meantime, Kevin, thank you so much for coming on and we'll have to have you back on soon.

Sandy Block: That's right. And it's also very controversial, because whenever we write a story saying that inflation is historically low we'll get a ton of e-mails from people saying, "Hey, I just went and bought some hot dogs and they've gone up a lot." So to some extent it's in the eye of the beholder, but I think there are a lot of really macro issues effected with inflation that you're going to tell us about. Right?

Ryan Ermey: I will tell you about it. And I'll tell you about your hot dogs, too. And before I get into it, might I just say a little bit of inside journalism baseball. I wrote one of my favorite leads ever for this story. So I likened investor's relationship with inflation to the relationship between Diahann Carroll and Joan Collins on "Dynasty." A lot of animosity there, but my editor didn't think that people would get the reference, but the conceit of that... and I changed it to "Dallas," which I suppose more people...

Ryan Ermey: It was a humongous deal back in 1980, I think that was the record when inflation crested 13% year over year. These days it's been much, much lower. So let's start with the five-year-old basics here. Inflation is basically just the rising cost of goods and services over time. It's generally expressed as a percentage, as we just pointed out there. And the yardstick that most people use is called the consumer price index (CPI), which tracks the price of a basket of various consumer goods. So if we're talking about a 13%, that's a 13% year over year gain in the CPI, the main causes of inflation either demand increases faster than production, which drives up the cost of goods and services, or for whatever reason, production prices in the economy go up and then businesses pass those prices through to consumers.

Sandy Block: That's right. And a lot of retirees aren't getting raises like workers. There's this theory that inflation actually benefits workers, because you get raises. This doesn't account with journalism, but with other people you get raises when prices go up. But a lot of retirees are living on fixed incomes, so maybe they have a pension that doesn't change or an annuity that doesn't change, so the value of those things declines as prices go up. So believe me, from the mail I get, retirees know how much everything costs.

Ryan Ermey: So over the past 15 years, annual inflation has averaged about 1.9%, which is well below the 3.4% average annual increase since 1950. So inflation has been low for a while, and no one really quite understands the full picture for why this is happening but there are a few factors that are definitely contributing. One is that there is an aging population and older folks are less likely than younger people to pump money into the economy, and advances in technology, which have made businesses more productive while labor costs have remained relatively low. Plus e-commerce, if you think about how you shop for things these days, now that everything is available for sale online there's a lot of pressure on businesses to keep prices low.

Ryan Ermey: So some things are going on now that are interesting. In the wake of the pandemic, which of course brought record unemployment, a recession, a destruction of consumer demand, we're not likely to see a big acceleration in inflation anytime soon. June was a year over year increase of just 0.6% in the CPI. So that's really not a whole lot, but, and this is a big but, Sandy, we think that you should still probably hedge if you're an investor. We think that you should prepare your portfolio for the possibility of inflation. There are a couple reasons for that. If you're a five-year-old and you understand everything you need to know about inflation, now you can walk off, but we still-

Ryan Ermey: That's right. So first of all, historically inflation has reared its ugly head at unexpected times, and there are some times that inflation could be coming a couple of years down the line. For one thing, the Fed does want it to pick up. The Fed is going to make efforts. They want about a 2% per year inflation target. They want that to be like a long-term average is sort of the best and most easily understood way to put it. So if we have it really low for a while, like let's say it's at 1% for a while, they won't mind a few years at 3% to offset it. The other big thing is that the Fed has been pumping a ton of money, the US government's been pumping a ton of money into the economy in order to maintain or drive up demand. Generally, an influx of money into the economy is thought to be inflationary.

Ryan Ermey: Now, this didn't necessarily play out in the years following the global financial crisis. That's because they flood the economy with money and that goes to the banks, and the banks were reluctant to lend, and consumers and businesses were reluctant to spend. So how this all plays out remains to be seen. But the bottom line is, it never hurts over the longterm, especially if you're a longterm investor, to protect your portfolio against inflation. So a couple of quick hits here on how you can do that.

Ryan Ermey: One is called TIPS or Treasury-Inflation Protected Securities. Now, the value of these notes rise in step with CPI, and because the market is currently pricing in low inflation expectations, TIPS are really cheap right now. So right now the way that you determine if it's cheaper, the way that you determine expectations is what's called the break-even point, the difference in yield between a 10 year treasury and 10 year TIPS. Right now, the difference is 1.6 percentage points, implying that investors expect 1.6% annual inflation over the next 10 years.

Ryan Ermey: Floating rate debt as another thing. Inflation and rising interest rates tend to go hand in hand, floating rate loans are pegged to short term interest rate benchmarks that rise along with interest rates. These can pay off in an inflationary environment. I mean, they're a little bit risky sometimes are generally sub investment grade credit rating on these loans, but still worth looking at. The Invesco Senior Loan ETF (BKLN) is one of the Kiplinger ETF 20, that's our list of our favorite ETFs.

Ryan Ermey: Yeah, I know. Well, the deal is, if the dollar is getting weaker, then you get more dollars for your profits in foreign currencies, so that's a good thing. A couple more quick ones. Real estate. Generally, if things are inflating, if you own REITs, if you own real estate landlords can raise rents right alongside inflation, so those are generally considered one second rise alongside it.

Ryan Ermey: Gold is often touted as an inflation play. It's certainly been on a tear recently, but the longterm record against inflation is only kind of so-so from enrolling periods from 1973 through May 2020 gold only beat the CPI about 51% of the time. So kind of whatever. Then Fidelity Strategic Real Return (FSRRX) is the last hedge I'd want to recommend. It's sort of a one stop shop. It holds TIPS, footing rates, commodities, real estate, all in one basket. They tested it back to 1973, and it would have beaten inflation 80% of the time.

Sandy Block: But a lot of seniors really reject the way that we measure costs and how it affects the annual raises they get in Social Security, because they say the things they spend on are not average. They don't drive that much, but they spend a lot on healthcare, which has always moved a lot faster, so there's this very interesting discussion, whether they should have a whole different CPI for seniors because of the things that they spend money on. They're not really benefiting from the fact that you can get a TV for a whole lot less than you used to, or that computers are cheaper. The things they spend money on, which tend to be mortgages and healthcare, go up much faster than the regular rate of inflation.

Ryan Ermey: That'll wrap things up for this episode of Your Money's Worth. For show notes and more great Kiplinger content on the topics we discussed on today's show, visit kiplinger.com/podcast. You can stay connect with us on Twitter, Facebook or by e-mailing us at podcast@kiplinger.com. And if you liked the show, please remember to rate, review and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

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Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.

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