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Hiring Out
or, do you really need a financial planner?
what makes someone go to a planner in the first place? At what point in
your financial doings do you decide that a planner is right for you. I
personally can't imagine that time, and I'm pretty sure you shouldn't have
any problem either. I'll tell you why, and with any luck, I won't raise
the hackles on those subscribers who ply their trade with this profession.
We break down like this. As consumers we will do either one of two things
when faced with a decision to buy something. That something is probably
irrelevant except for the fact that there are so many more of those
"somethings" than there were twenty years ago. It wasn't that long ago
that television was VHF and UHF. The choice of phone was Ma Bell.
These choices have turned us into either one type of consumer or another.
Some of us are enjoined by the challenge. We want to make the right choice
and will use all our faculties to do it. We will educate ourselves and make
intelligent choices. We want not only the right one, but maybe the best
one. And we feel that with enough of the right stuff, we will get it.
Then there are those of us who seek criteria. We want cereal, we want
it to be healthy, and we figure that one mueslix is as good as another. We
seek only standards and apply a criteria method of choosing. If it fits a
certain criteria, then it's probably as good as another choice in the same category.
Neither of these methods has any more attraction than the other. You
probably even know in which group you comfortably reside. And for those
that can't decide, that find the whole world a mind boggling array of
choices, for those that stand in the supermarket of life dazzled like an
immigrant from a third world land, I give you the planner.
The planner, our advisor, analyst, or whatever buzzword is currently
popular has come to the rescue of those that just can't take the challenge
or set a criteria. These folks are the anti-choosers.
Somehow they gravitate to these folks, as one Vice President of a
national firm told me, "mostly from referrals". They come, I imagine with a
bewildered look in their eyes, ready to bear their financial soul to a
stranger whom they think wants to help.
My dear departed Uncle Jack, who rated as one of my favorite people of all
time, once told me that "it didn't matter what you were selling, be it
widget or locomotive, it is always about the salesman." Do these dazed
victims of too many choices in a confusing financial world know going in
how this all works. I don't think so.
The BlueCollarDollar is something I created for the anti-chooser. It was
for the person that sets criteria, and for the person challenged by
choices. Financial planners are strictly for those that have thrown in the
financial towel.
A subscriber, one of the aforementioned planners, wrote me shortly after
the last newsletter was published. I won't go into details but after
several exchanges, she had me making arrangements to meet with a colleague
in my city. My wife wanted me to make sure I didn't lead this man on, so
during our conversation, I told him about the BlueCollarDollar.com. Sort
of like full disclosure.
He insisted we meet. Here's what he does. He will give a potential
(referred) client a complete financial analysis. He mentioned that
American Express
will charge potential clients $500. His look at your financial soul was
free. He showed it to me, and it was very slickly done. There was no way
the packet was designed to paint a rosy picture of your finances. It would
in fact, expose what you had done wrong.
The planner would then look at your debt situation. You could probably do
the same, but the look at restructuring as a possible way to either lower
your current interest rate and/or find enough equity in your property to
pay off your high interest debt and roll into one payment against your
house. If you are under the umbrella of a company that has a host of
financial services, you are directed to their choice of bank and the loan
is written. Add the cost of the new loan which includes their fee also.
Then they might look at your insurance. They are steadfastly against whole
and universal life insurance preferring the cheaper coverage of term. They
claim the high agent premiums for whole/universal policies (which are
usually paid for in the first five years or so) make those policies highly
unattractive. Their term policies, also written by a company within the
group, are suggested as a way of freeing up additional money to pay down
your debt, or to invest.
Investing is just another of those choices that can boggle the average
mind. From the information that they had gathered they have determined
your risk level and set you up with an investment with a company that pays
them a brokerage fee for the sale.
In just those three innocent moves, three fees have been racked up by your
friendly caring personal advisor. You have been set up in a plan that
appears to be the very thing you were lacking towards attaining financial help.
Like liposuction solves the diet problems of obese folks, these financial
saviors do little to change your habits. Finding hidden opportunities
within your budget is well and good. But they can be found without the
help of an outside professional. Putting yourself on a financial diet of
your own is low cost and requires the same patience and fortitude.
Debt takes time to reduce. It also takes diligence. As long as you are
paying any interest at all on debt outside of things such as your home and
car, you should forget about investing. It has a subtractive effect
canceling out any chance of making gains. If your interest is 12%, 15%,
18% or higher, this cancels any return on any investment you make unless
you get more than 12%,!5%, or 18%. In a situation where the return on your
mutual fund is 10%, and your debt is 18%, you have a negative growth of -8%.
Using equity in your home to fix this situation is not only economically
dangerous but also spreads the length of the loan over many more years and
also jeopardizes your home. Should any kind of economic downturn effect
you directly and you need to liquidate, your equity has been compromised.
We have a tendency to look at our homes as unused cash, optimistically
thinking that real estate values will continue to rise. Worse, we believe
our homes are usually worth much more than reality.
I told the gentleman who met with me that I couldn't sell those kinds of
notions to folks with desperate financial problems. I valued my need for sleep at night and couldn't sacrifice that for the way they made money.
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