Finding a Fee-Only Financial Planner

We share some investing lessons from listeners and interview Sheryl Garrett, founder of the Garrett Planning Network, about finding the right fee-only planner for your circumstances. And we answer a listener’s question about I bonds and their current 7.12% yield.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on Nov. 9, 2021.

Alison Southwick: [MUSIC] This is Motley Fool Answers. I’m Alison Southwick, joined as always by Robert Brokamp, personal finance expert here at The Motley Fool. In today’s episode, I’m going to enlist the help of a few Fools to share the investing lessons that you, our listeners have learned over the years, and Bro, interviews Sheryl Garrett, founder of the Garrett Planning Network, about finding the right fee-only planner for your circumstances, and how to become a financial planner. All that and more on this week’s episode of Motley Fool Answers. A few episodes back, I asked Motley Fool analysts to share some of the stocks that taught them their biggest investing lessons and then I asked you our listeners to submit your own lessons learned and you responded. I figured we might as well share those lessons with everyone. Our first listener lesson comes from Rich and who better to read it than our own Rich here at The Motley Fool, Rich Greifner.

Rich Greifner: Here’s my lesson from a stock I own. Don’t buy stocks based solely on what you hear. But it may be a good place to start. Classic Motley Fool disclaimer with some extra added on. It was in part thanks to David Gardner’s RBI five-stock samplers that led me to pick MercadoLibre when I did. I simply got tired of hearing how much he gained with each sampler it was a part of. I followed up with my own research and then started a small position. Today, it is one of my top three holdings. Another reason why I’m grateful for the Motley Fool. Keep up the great work. You all are wonderful, foolishly, Rich.

Alison Southwick: Next step we have a lesson learned by Dan. I asked our own Dan, Dan Boyd that is, to read it.

Dan Boyd: In the mid 1990s, my wife and I, in addition to our retirement and other savings, had a modest brokerage account with a major firm. Rhymes with Barrel Finch, our account was so robust that we were entitled to the grand sum of once yearly meeting with an ever rotating cast of brand new brokers assigned to the smallest office in the far reaches of the building. In those meetings, I learned that the individual brokers we were assigned worked very independent in their thought, but simply pushed generic recommendations that came via their corporate researchers. In this absence of any real advice, my hobby became researching stocks on our dial-up Internet service in investing in some individual ones that had what I believed were good catalysts for growth. I often focused on stocks that were secondary in nature. Example, maybe not Apple, but a company that made component parts for them, and in that way stumbled onto Nvidia, ticker, NVDA, which is a local graphic chip manufacturer in Silicon Valley. One night our young kids were winding down to bed time, after the normal routine of bath, etc, they were allowed some time on the respective Nintendo Game Boy devices. As they played their games, I thought to myself that Nintendo must be making a killing selling these. Because it seemed like every one of my children’s friends, classmates and teammates also had one. I began to research the Nintendo company, but ultimately came to the conclusion that their stock was already rather expensive as they were a household name. But in my wanderings, I began to research which companies supplied parts for Nintendo’s games, specifically the Game Boy, as it was among the most advanced at that time. I discovered that Nvidia supplied the graphic chips that powered the Game Boy experience, and they also were making strides in supplying the same for computers and cellphones, which at that time were just beginning to become mainstream. When diving a little deeper into Nvidia, I saw a company that looked to be doing many things right, but with a stock price that I felt didn’t reflect or people hadn’t noticed it’s true value. In the end, I invested money in Nvidia stock, and within short order, it skyrocketed, split, and skyrocketed again as people began to take notice.

When I mentioned it to our broker, the following year, he immediately zeroed in on our impressive gains while admitting he had no idea what Nvidia was. When I told him he suddenly became very stern however, and he gingerly warned me that I could get into serious trouble if someone I knew was working for the company and was feeding me insider information. I assured him, I knew no one who worked for Nvidia and that my only insiders weren’t even 10 years old yet. To this day, we have always maintained a position of some sort in NVDA, once cashing out to help purchase a home, and the next time I saw the same broker, he remembered me as the Nvidia guy and told me he had been recommending the stock to other clients. What I learned. If you’re investing in individual stocks, there is no substitute for doing your own research. Understand the business, develop your own thesis and look for catalysts that you believe will lead to good things for a company. Just because brokers do that work as their full-time job, doesn’t mean they are good or experienced at it. The level of service you will get depends on how much money you have or how much you are paying for that service. In the end, find someone who you mesh with if you are going to be using their advice. Thanks. Dan Anderson.

Alison Southwick: Our next listener lesson comes from Steve B, and of course I had to ask our own Steve B, Steve Broido that is, to read it.

Steve Broido: Back around 2003, I transferred an old 401K to an IRA with a financial planner. It represented about 10 percent of my total retirement savings. One of the investments recommended by the planner was an unlisted REIT. It held a mixture of residential and commercial properties. It was paying a five percent dividend at the time, and it was being run by a group that had successfully run and ultimately sold off one or more such funds in the past. I only vaguely understood how REITs work, and it sounded like the equivalent of a pre-IPO kind of opportunity. The drawback was that the shares were liquid since they were not listed on any exchange. The expectation was that the fund would have a liquidity event, buyout or exchange listing in about five years. Real estate would also diversify my portfolio. Well, the real estate market crumbled and the shares dropped significantly. The REITs suspended their share buyback plan. It canceled the dividend. The first-time the fund was required to provide an estimated NAV, it had gone from $10 down to about $4. Also, since the market was crushed, there were no feasible liquidity exit strategies. I received a couple of buyout offers from some bottom feeders, about $1 a share, spin forward to today, 15-plus years into a five-year investment. Shares were recently valued at $3.19 by the REIT.

The dividend has been reinstated at about five percent of the greatly reduced value. They spun off a bunch of poorly performing properties into another REIT. Now estimated at $0.25 a share, no dividends. However, they had a plan for a liquidity event. They did a one-for-ten reverse split to bring the price up to a marketable $30 per share range, and were able to list on the New York Stock Exchange this week. It opened at about $24 and is trading between $24 and $25 right now. I stand to have a 75 percent loss, assuming I unload the shares, after 15 years instead of five years. The lesson here is to never invest in something you don’t understand. I thought I understood mutual funds pretty well and assumed that that was enough to branch out into a REIT. I had no idea how REITs and especially unlisted REITs really worked and I didn’t read the perspectives. I didn’t research the company or the principles. Seeing that entry in my brokerage statements keeps the lesson fresh in my mind. I’m fortunate enough that this mistake was large enough to hurt, but small enough to be negligible at this point. By the way, I’ve also bought some stocks that performed almost as bad, and many that have outperformed the market. Thanks Fools. But I do not regret any of the buys on the losers. I understood the companies better and sometimes my conclusions were just wrong. But I don’t blindly buy into an opportunity I don’t understand with the expectation of striking it Rich.

Alison Southwick: But our listener lesson comes from PT. We don’t have a PT at the Motley Fool, but we do have a JP. JP Bennett.

JP Bennett: It was February 2019 and Chipotle was all over the news, I was a longtime fan of the food and was never scared after all I did eat my way through rural India at one point. When I pulled up to a Chipotle in Fort Collins, Colorado and saw a liner around the corner, I was a bit surprised. A few days later in Salt Lake City, I saw another line out the door of a Chipotle. A few days later, you guessed it. The line in Grand Junction, Colorado was out-the-door, I bought five shares at $250, and today it’s just shy of 2000. Lesson number 1, boots on the ground research matters. Wall Street is not main street, and lesson number 2, after more than tripled, I sold two shares, and it’s now about a seven bagger. Let your winners run high. Thanks, David Gardner.

Alison Southwick: Thanks to all of our listeners who submitted their investing lessons. As always, Bro is still waiting for you to send your holiday tradition. [MUSIC]

Robert Brokamp: Long-time listeners know that we think even the most avid do-it-yourselfers might benefit from hiring a fee-only financial planner every once in a while. Just to get an objective second opinion and to make sure you have all your basis covered. While we’ve offered that suggestion we also often point out at one place to find a fee-only planner is the Garrett Planning Network. Today we’re fortunate to be able to chat with Sheryl Garrett herself who founded the network back in 2000, and is regularly recognized by industry, organizations, and publications as one of the most innovative and influential members of the financial services profession. She was also an author of, or a contributor to more than a dozen books, has testified before Congress and has worked with the House Subcommittee on financial services. Sheryl, welcome to Motley Fool Answers.

Sheryl Garrett: My delight to be here.

Robert Brokamp: Let’s start with the story of how you founded the Garrett Planning Network.

Sheryl Garrett: Once upon a time, in a land long [laughs]. Actually, I was a certified financial planner working with individual clients. I started out the traditional ways. My first job in the industry was with I.D.S, now called Ameriprise. I just hated the concept of having to sell a product. I bounced around in the financial planning, financial advice, trying to find what would fit for me. What I felt the need for, what I would want if I were the consumer, was I would want to be able to go in and say, here’s what I want going on, or what I’ve got going on. Here is my question. I want you to tell me what you would do as an expert. But I didn’t want to give control over to somebody. I started offering my services on an hourly basis, like charging for my time. I didn’t sell me-products, I sold time and advice, and lo-and-behold, people thought it made sense [laughs]. They liked it, if you build it, they will come thing.

Robert Brokamp: Right.

Sheryl Garrett: In a matter of about one year, my business had exploded. I was getting calls from all over my community, referrals from other financial advisors who didn’t want to work with somebody who is a “do-it-yourselfer”, your community of The Motley Fool.

Robert Brokamp: Yeah.

Sheryl Garrett: That’s the kind of people I like to talk to. I like to deal with people who don’t want to bury their head in the sand. I enjoy talking to people who say, what do you think about this, or would that make sense for me? I found that there was a whole lot of people out there that needed somebody like me who said, we don’t want to turn over control, we just want somebody who can help us. That spends more time at this maybe like all their time, and does this full time and has a lot of training and can give me some objective advice from the outside to say, given your circumstances and what you’re trying to accomplish, is that the most efficient way to get there? Having some separate eyes to look at it and potentially ask them some pressing questions that maybe haven’t been thought of. That was really critical, and so I just said I want to build an advisory shop that would fit a person like me. Within about 12 months, I was getting as many telephone calls from financial planners around the country, as I was from people in my community saying, I need financial advice. I talked to somebody at work, and he said that he talked to you about what we should do with our new 401K options. These were like, hey, I’ve got a question, what do I do? Call Sheryl? So simple. But in the olden days, in my prior incarnation as a wealth manager, somebody might say, I’ve got some questions about my 401K. If they said call Sheryl, my minimum then, or our firm’s minimum was $4000 a year. That is insane for some guy who wants to have feedback about his 401K options.

Robert Brokamp: Right. I often say that. I think once every 5-10 years is a good guideline, and certainly before you make a major financial decision, especially as you get closer to retirement. It’s helpful to know that maybe you are considering everything in terms of social security, Medicare, withdrawal rates, Roth versus traditional, where do you take the money? There’s so much to know. It would make sense to just pay somebody to say, am I making the right decisions, is there anything I’m missing?

Sheryl Garrett: One of the biggest things is when you have something going on in your life, something changes. Job opportunity, you’re going to relocate or you’re wanting to relocate, or changing a relationship. You get married, you lose a spouse, you get divorced. Anytime there’s a change in your world, your life, oftentimes that is a really good time to stop and take account of where you’re at.

Robert Brokamp: Sure many people listening to this will have a range of needs. Some people might like idea of, give me almost the whole kit and caboodle; retirement planning, collage planning, insurance analysis, maybe even asset management. Some people might just have a single question. How should people find the right financial planner for what they’re looking for?

Sheryl Garrett: Great question, and it’s not easy folks. Hang on with me as I explain how I go through it. First of all, a little lecture from the soapbox. Finding an advisor or listening to advice. Presume that when you find one, this would be somebody you would listen to, [laughs] not like a doctor or whatever. When you find one, you’re going to go to them and listen to their advice. Don’t short cut yourself. You’re making a big investment. If you had some health issues, you’re going to do some research on a physician or who’s available in your area, in your insurance plan, how are they rated? What kind of feedback do they have? Do they have the hours you’re looking for? etc. Spend that kind of time in stealth mode as you’re doing a search for financial advisors and do Google searches or however you want to, you can use our organization as one of them, I recommended it [laughs] I know that sounds surprising. One of the reasons I recommend our organization, one of the reasons I started it, is I wanted a place for advisors who provided time-based billing. They charge by the hour or for the time they have rather than the amount of money that you turnover for them to manage or the amount of commissions that they can make off of selling insurance or investments. We sell time and advice, so I’m a big fan of that and that’s a form of fee-only compensation. Back to my soapbox, first-off, it’s a big decision, don’t rush it. I’ve been an expert witness on the other side working on behalf of investors who’ve been harmed by financial advisors and there’s not very many protections in the law. If you do not work with a fiduciary, bottom line is, the buck stops with you. You are 100 per cent responsible for whatever a salesperson does to you or encourages you to do, whatever and so definitely work with a fiduciary. One way to know if they by law must meet the definition of a fiduciary of an investment advisor, that was from the Investors Act of 1940. If someone is a registered investment advisor, they are a fiduciary by law. People want to get advice from somebody they trust and rely upon, that’s what we all do. But yet, the majority advisors, we can’t rely and trust upon because they are salespeople. I’m not saying there’s anything wrong with salespeople. It’s just that in the law of investment advisors, those individuals that are in the salespeople department are not fiduciaries.

Robert Brokamp: I often say that you use something like Garrett Planning Network, NAPFA, find three to five people that look like they might suit your needs, generally, they will offer you a free session, a free get-acquainted meeting I should say. When you’re talking to potential advance planners, what are some important questions to ask when interviewing them?

Sheryl Garrett: Thanks for that. I suggest pretty much the same thing. I like a certified financial planner, I want a fiduciary, and I want fee-only and that helps narrow down your list a lot, but not immensely but a lot. NAPFA, the National Association of Personal Financial Advisors, napfa.org, is a great spot. Most or many of our members are also NAPFA members, I’m a longtime member, and that’s the large group of fee-only advisors. The XY Planning Network is also an organization like the Garrett Planning Network, they cater to the XY community and the planners often times are XY themselves, the millennials, and the last one, the largest one would be the CFP board. I wouldn’t start there but it’s not a bad place to start. NAPFA, our organization, any of the others I mentioned and do talk to at least three people.

Robert Brokamp: We at the Fool have been mentioning the Garrett Planning Network for years and after we’ve mentioned it I often hear from people say, “I love the idea but I check the website and no one is in my area.” But nowadays, especially since the pandemic, is it possible to work with a finance planner who doesn’t live in your town or maybe not even in your state.

Sheryl Garrett: Yes. I did a slow yes, and the reason I hesitate a bit is I would say it’s probably best to find somebody in your state but not necessarily, and the reason I say that simply is because of the regulations of investment advisors. Most of us are state registered and so if you live in my state, I can work with you. We might be all the way on the other ends of the state but I’m already registered in your state. Let’s say like when I lived in Kansas City, one would want to be registered in Kansas and Missouri, so that will happen. But I would say start with somebody in your state but don’t worry about the locale. I worked in Kansas City when I was working with individual clients and most of my clients came from about a 20-minute drive of my office. Even though Kansas City metro area is about 1.7 million, they were all coming from the same area [laughs] for the most part. But after a while, I started working with my clients over the telephone. This is prior to Zoom, [laughs] like in 19 or maybe 2000, 2005 time frame. We used a phone and people just said this is so convenient. I also have a questionnaire on our website that I would encourage people to use to ask questions of advisors. It’s generic, you can use it to send to people via email, and just email it back to you, no calls. That’s like that, just fill out this form and send it back to me and get their feedback. That would be something that would be helpful or they can use that questionnaire, it’s called the Financial Advisor Interview Questionnaire. These are questionnaires like a cheat sheet, these are some questions that Sheryl would want to ask or have answered by an advisor that you’re interviewing. When you are calling and talking to at least three different people, and I do like the Zoom idea. You can be convenient at your office or at your home wherever is best, maybe your spouse, you can’t be there at the same time but you could dial in at the same time. It’s just more convenient, less traffic issue.

Everybody, if not everyone in our network does work virtually with clients now, even before COVID [laughs] and we’re finding that it’s extremely popular. I found it does tend to keep the meeting a little tighter, a little more efficient, people show up on time, we get down to business faster and when you are billing for time, that matters. A lot of times people like to come in maybe once in a while and then we would do our inter-meetings over the phone. Once you have a relationship established or even before, but you want to be able to talk to somebody over the phone and the reason I like people when they’re searching for an advisor to talk to more than one is I want you to find out if you can talk to one. Visit. Do they listen or are they busy asking you questions and writing stuff down? I don’t want somebody just be gathering data from me. What’s your name? What’s your address? What do you want to accomplish in life? That’s a robot. I want to talk and see if I connect to the human being that I’m going to share my fears, and my aspirations, and my concerns, and my opportunities, and all that stuff with. The most important thing of an advisor, I said, I want a CFP. I want to see only fiduciary. But after that, I want somebody that I can talk to and that listens and hears me. That might take a different conversation. Well, what’s your name? What do you want to do? What’s your goal? Retirement? If somebody starts out like that, you might as well end the call and you move on [laughs].

Robert Brokamp: Final question. Every once in a while, we get questions from readers or listeners who have an interest in becoming financial planners. What suggestions do you have for people interested in entering the field?

Sheryl Garrett: I love you [laughs]. That’s me 30 years ago. No, actually longer than that. But yes, that’s what most financial planners, we all felt the same way at one point because financial planning, financial advice, it didn’t exist for me some years ago. I think it’s fabulous. I love do-it-yourself person, people who love to get into this field. I’m 59. Anybody around my age or older, you had to make a career change to come into this field. I was 24 when I started in this field. That was like unheard of. Anybody older than me changed careers, just like some of the listeners. I think it’s phenomenal. This is one of the very best career fields to be in, in my imagination. We help people. We had to do something that matters. It actually makes a difference in people’s lives, and It feels good. I would, if you haven’t thought about it, check-in to the CFP program, the Certified Financial Planner program. There are colleges and universities over 200 around the country that have certificate programs. There are virtual programs. You can do the CFP program and take a university virtual certificate program. One of the things that I found about the people who have come and joined this Garrett Planning Network as financial advisors, they were all self-taught for the most part initially.

They would do-it-yourself first. They have always been do-it-yourself first when it comes to personal finance. What they recognized was there’s a lot more they wanted to learn. That’s where a lot of us come from. Checkout the Certified Financial Planner program through the college for financial planning, or even just go straight to the CFP Board website, and they have a listing of all of the college or certificate programs available through colleges and universities around the country. Actually, there may be closer to 300 and 200 programs. That will be a great way to go as a way to start, and you may just get into one program. They do have the fundamentals of financial planning, which is a paraplanner, like a paralegal, someone who as I said, a lawyer. Someone who is just a financial planner.

The very first course of the CFP curriculum is the paraplanner course. That gives you a pretty holistic but very not deep look at the whole program. One of my colleagues in the Garrett Planning Network, my right hand man Justin Nichols, has been teaching that course at the Kansas State University for a number of years and just loves it. Checkout a course for the certificate program in your area, or it might be an hour or two away at a nearby university. Talk to the instructor. It often times is a professional financial advisor who also teaches. If you would like to talk to a professional, a teacher, a professor, we have a few that are members. You can email us at staff@garrettplanningnetwork.com, and that’ll come to our entire team. If you want to know names of teachers of CFP program, just to chat with them, I’ll be happy to put you in touch. But a lot of folks enjoyed teaching. That’s actually a great number of advisors come from a teaching or a consultative background. Then there’s a whole lot that come from a more analytical or IT background, engineering types. Those are the two biggest areas that we see. There’s also a couple of outstanding books. The first offer I recommend is Jeff Rattiner, R-A-T-T-I-N-E-R. Anything he’s written on getting started in financial planning are outstanding references. He’s taught in the university settings and the CFP preparatory exam world for probably 20 years. He is in an excellent resource to go to.

Robert Brokamp: Dear listeners, if you’d like to learn more about the Garrett Planning Network and download a free financial advisor interview questionnaire, there’s it, garrettplanningnetwork.com. That’s Garrett with two R’s and two T’s Sheryl, thanks so much for joining us.

Sheryl Garrett: My pleasure.

Alison Southwick: It’s time for answers, and this week’s question comes from Juan. I have a question about I bonds. One possible way to use them in the short-term are like very high yielding one-year CDs. Here’s my reasoning. Currently, the fixed rate is zero percent and variable rate is over seven percent, which will last for six months, yielding a composite rate of seven percent. After six months, the variable rate can change, and the worst-case scenario is that the composite rate goes to zero. Hence, after a year, the worst possible effective return is over 3.5 percent. After a year, the bonds can be redeemed and even taking off the last three months of interest, which is the worst-case scenario, are worth nothing anyways, which still means an effective return of over 3.5 percent. Is there something wrong in my logic or some key piece of information I’m missing here?

Robert Brokamp: Sometimes a listener has a question and sometimes a listener already understand something really well, and they just want to make sure they’re not missing something. This question from Juan falls into that latter category. One is asking about series I savings bonds from Uncle Sam, most commonly known as I bonds. The I, stands for inflation because the interest rate on these bonds is based on two components. The first is a fixed rate, which since May of 2020 is a big fat zero. If you buy today, that won’t change as long as you own the bond. But the second component is based on the consumer price index and adjust every six months with the new rates announced each May and November. If you go to treasurydirect.gov, which is where you go to buy bonds, you’ll see the current annual rate is an eye-popping 7.12 percent, the second highest rate since I bonds were first issued in 1998. However, that 7.12 percent is a little bit misleading because it’s actually 3.56 percent for the next six months. You’d only earn 7.12 percent for the year if inflation is exactly the same when the Treasury Department does the next adjustment in May of 2022. Of course, this is extremely unlikely. Inflation could be higher or could be lower, but it likely won’t be exactly the same. You’ll likely won’t earn exactly 7.12 percent over the next year. But as one points out, this can still be a great deal. The interest rate on I bonds could never fall below zero. Even if the inflation rate plummets between now and the next adjustment, which by the way, no one is expecting, you’ll still earn at least 3.56 percent over the year.

Which these days is pretty darn good since it’s nearly impossible to get a CD paying even one percent. Now, you have to own I bonds for at least one year. If you redeem before five-years, you’ll pay a penalty of three months worth of interest, which is another point that Juan is making. Some other benefits to consider. You can choose to not pay taxes on I bonds until you redeem them. Like all treasury bonds, I bonds are free from state and local taxes. Also, you won’t pay any taxes if you use the proceeds to pay for qualified higher education expenses. Now this benefit begins to phase out for single taxpayers with modified adjusted gross income above $83,200, and married taxpayers with MAGIs of 124,800. Now a couple of downsides. The amount you can invest in I bonds is limited to $10,000 per person per year, with an additional $5,000 if you use your tax refund to buy I bonds. Also, if inflation does eventually level off and it goes back to where we were a couple of years ago, then I bonds won’t look nearly as good. To answer Juan’s question, which was whether someone could use I bonds as a higher-yielding one-year CD, the answer is yes, as long as you’re cool with paying the penalty of three-months interest for redeeming before five-years. To learn more about I bonds and really any other type of bond issued by Uncle Sam visit treasurydirect.gov.

Alison Southwick: Well, that’s the show. It’s edited inflatingly by Rick Engdahl. [MUSIC] Our email is answers@fool.com for Robert Brokamp. I’m Alison Southwick. Stay Foolish, everybody.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Alison Southwick has no position in any of the stocks mentioned. Robert Brokamp, CFP(R) has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Chipotle Mexican Grill, MercadoLibre, and Nvidia. The Motley Fool has a disclosure policy.

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