What I Believe: My Financial Planning Core Values

“People don't care how much you know until they know how much you care."
― Theodore Roosevelt

Wouldn’t it be nice if every financial firm laid out its priorities, and every financial blogger and author shared with us their biases? Perhaps one of the reason’s the Department of Labor is in the process of implementing the new fiduciary laws is for this very reason: it’s hard to know where people stand. So, let’s just start here.

With this blog now past it’s one-year anniversary, I first want to thank you for coming along on this journey over the last 14 months. I'd like to use the opportunity to share the values that underpin and drive my thoughts and writing. The following eight are my core beliefs about financial planning. They shape what I share on this blog and how I approach the planning process.

1. Fiduciary Duty.

Financial planning and advice should be delivered by a fiduciary who is unwaveringly committed to the best interest of those they serve and is compensated for the advice they give rather than products they sell. While I know good people whose vast majority of compensation comes through insurance, annuities, and mutual fund trailing commissions, I simply don’t see these sales structures as an appropriate way of doing financial planning. True planning always puts the client’s best interest first and provides a candid accounting of how, and how much, the advisor is being paid.

2. Market Efficiency.

Markets are for the most part efficient. Overwhelming research has shown that over time stock picking is a loser’s game and costs investors more than it is worth. Market efficiency allows investors to harness the market’s growth in a disciplined fashion. Research by Vanguard in 2012 indicated that over a 5-year period only 34% of actively managed funds beat their benchmarks. This worsened to 20% over 20 years, and moved down to just 12% over 40 years. However, certain segments of the market (for example, Small Cap & Value) outperform the market as a whole over long periods of time. A well constructed portfolio will take advantage of aspects of the market that historically overperform and balance appropriate risk and volatility with expected return.  

3. Value of Professional Financial Planning

A fee-only financial planner providing comprehensive financial planning and wealth management provides significant financial value. Based on an updated Vanguard report in 2016, an advisor can potentially add 3% in annualized net returns over the lifetime of a client. Some of the most significant opportunities for an advisor to add value happen intermittently, characteristically around major life decisions or periods of either market distress or euphoria. Vanguard’s updated study is available here: I recommend it highly to both consumers and advisors.

While the S&P 500 Index averaged 9.85% annually for the 20 year period leading ending in 2015 the average equity investor earned just 5.19%. In a world where much has been written on the drag of fees, it’s important to ask, “Do the fees of a financial advisor actually produce positive investment results?” If so, maybe they aren’t always so evil after all? Perhaps the discussion needs to shift from cost to value. This, of course, necessitates that your advisor is out for your best interest (see belief #1).

I believe there is also significant non-monetary value found in good financial planning relationship. This value comes from having someone care about you and welcoming with patience and genuine concern discussion that delves into the non-financial issues that make up a lot of what you care about. Honestly I think goals and a "financial plan" without that element has very little real life value. The “why” matters as much, or more than the “what.”

4. Building Wealth

Regular savings and proper risk protection is the fundamental path to building wealth. Getting rich slowly isn’t glamorous, but it provides time-tested results. Habits are powerful. Understanding our savings rates and growing them over time, along with properly insuring against the risks that could decimate our wealth provides both financial security and peace of mind.

5. Taxes

Taxes are many people’s largest and most complex expense and active tax planning is a crucial element to truly valuable financial planning. In 2018 a San Francisco family making $250,000 per year would find themselves in the 9.3% California marginal tax bracket along with being subject to a 33% marginal Federal tax rate, and might easily find themselves paying $80,000 in taxes. Managing equity compensation and the Alternative Minimum Tax, proper use of deductions, charitable contributions, real estate interest and depreciation, and the coordination of pre-tax and post-tax retirement contributions and rollovers all benefit from a financial and tax planner’s experienced input.

6. Action

Financial planning is a process that requires action for success. It’s subtle, but knowing what to do isn’t the same as doing it. Having an investment plan, or a savings strategy, or a plan to get earthquake and personal liability insurance isn’t valuable. But, implementing them is. As humans, we wax and wane. Despite our good intentions, the busyness of our lives takes over. We grow interested in a topic, take interest for a while, but then may move on before we take serious action. Success lies in taking and sustaining appropriate actions over the long term.

7. Evidence-Driven

If you’ve spent any time reading this blog, you’ve likely gathered that I have a research driven bent. Curiosity is important, and data improves decisions. I want to hold my beliefs strongly, but with an open hand, willing to change them as new evidence compels rethinking. My commitment is to provide readers with more comprehensive topical discussions than your average internet fluff piece. To that end I devote time each week to ongoing learning, research, and writing.

8. People

Relationships are the most important thing. In the words of Theodore Roosevelt, “People don’t care how much you know until they know how much you care.” At its heart, that’s why this blog exists: to help you by providing real knowledge that improves your life. It’s also the reason I solicit topics from my readers. I want to write about what you care about. While there isn’t time to discuss each topic presented here with everyone I would want to reach, I trust it provides you real value.

There you have it. As always, thanks for taking the time to read. How do these core beliefs resonate with yours?