Interview with a Certified Financial Planner

I recently had a great conversation with my friend Mike Heatwole. He is a Certified Financial Planner who helps teach the Social Security workshop at Willow Creek. I thought sharing our conversation might be a helpful introduction. Enjoy!


Thanks for taking some time to chat with me. So what exactly does it mean to be a Certified Financial Planner (CFP)?

A CFP is a designation that is given after going through a program for 9 - 24 months that covers everything from cash-flow, insurance, investments, tax planning, retirement planning, and estate planning. Once you've done the 6 courses, worked in the industry for 3 years, and taken the exam, you get your CFP certification.

When you first meet with a client, what is the first question you ask them?

The first question I ask is what prompted them to meet with me. It helps me get a clear picture of what they're hoping to cover, and gives an idea of their past struggles and history with money.

What seem to be the biggest concerns for your clients?

A lot of it depends on their stage of life. For those closer to retirement, they ask questions like "when do I file for Social Security?", "how does Medicare work?", "when can I retire?", and "will I have enough money when I retire?". Most questions are about the need for stability once they no longer have an income from employment.

For younger individuals, the questions tend to be more Cash Flow based. Questions like "what kind of home can I afford?", "what type of accounts should I invest my additional cash flow in?", or "which of my employer benefits should I utilize?"

You mentioned a few complex topics like Medicare and Social Security. Is that something all Financial Planners are familiar with?

No, Financial Planners each have their own specialties. Some may specialize in retirement, so they'd be more familiar with Medicare and Social Security. Others may specialize in Executive Compensation, so they'd be familiar with Stock Options. Others focus on younger professionals, so they'd have a better understanding of student loans. The CFP indicates that you have a broad understanding of many financial topics, but not to the depth you'd have if that was your specialty. For instance, I have done over 100 seminars on Social Security, so I've heard almost every question on this topic. I've also done a lot of research and keep up to date with changes to this program, but other CFPs may not be as well versed in that area.

Shifting gears a bit, the market has consistently gone up for the last 7-8 years, do you have any concern about a market crash?

When it comes to the direction of the market, nobody has a crystal ball. Nobody can tell you where it will go in the next 3-6 months, but what I can tell you is that the market has shown a resilience over many, many years. With a long term perspective, the market has shown to be one of the best options for building wealth. That being said, a lot of what matters with investments is your time horizon. If you need the money in the next year or two, that isn't money that should be invested.

What are some things people can do to help protect their investments, if the market does indeed fall?

Cash flow is a great way to protect your long term investments. This might be referred to as an emergency fund of 3-6 months of cash savings. This money is intentionally left outside of the market to protect you against a change in the market.

You can also use vehicles likes cd's, money markets, and annuities to help give you a lower level of volatility.

This is all helpful information, and great coming from a Financial Planner. That being said, it seems like most advisors have a minimum threshold for taking on clients. Why is that?

Often times, an advisor can only handle a certain number of clients. If an advisor has a small staff, or runs the operation by themselves, they may only be able to handle 100-150 households before they are overwhelmed. As a result, they tend to increase their minimum asset level over the course of many years to continue to provide a comprehensive level of support to their clients while also being adequately compensated for their time.

What people tend to run into is that most advisors who are in their 50s & 60s have clients in a similar demographic. Planners tend to work with people who have higher assets and as they raise their minimum asset levels, many people may not be able to pay the fee required to work with a professional.

That being said, some advisors focus on people in a younger demographic. Though they don't have the minimum thresholds, they charge in a different way because the planner believes they'll be a good long term client.

To build on that idea, how are most advisors paid?

Most clients are charged based on Assets Under Management, meaning they charge a percentage fee based on the amount of assets the planner is managing. As an example, if there are $1 million dollars under management and the planner charges 1% per year, the client will pay $10,000 a year for the services provided. The fee charged generally includes both financial planning and investment management which is also referred to as wealth management. That being said, it is important for the client to understand what services they will be provided because there are advisors out there who charge these same fees and are not providing financial planning.

Other planners, who may focus on a younger demographic or not have minimum requirements, may charge a monthly retainer. This might mean they charge you $2,000 for a financial plan and then charge an additional $200 per month for additional planning services.

The third way planners may charge is through a consulting fee so they'll have an hourly rate and bill the client based on the time and work they agree to.

What if someone is just getting started and has little to no savings? What advice would you give them?

If you are just getting started, you might want to sign up for a class at your church or the library. They often offer basic financial planning literacy classes. When you're first getting started, you're generally not going to be a good fit for a planner using the Assets Under Management model. That being said, if you are looking for advice in a few key areas, you can find a planner who charges hourly to provide that advice.

What about saving for kids' college vs saving for retirement? Any thoughts on the order?

Typically we're going to recommend saving for retirement first, and then saving for your kids' college. The main reason is that there are other options for funding education if we are not able to fully pay the costs. In retirement, we no longer have the income to supplement those costs, so there are a lot less options.

Any other pieces of wisdom you want to close with?

One of the things we like to talk to our clients about is being disciplined and understanding their time horizon. If you've got 20 years for your money to be invested, there is no reason to be watching the financial media or worrying about the movement of your portfolio on a daily, weekly, or monthly basis. If, however, you need that money in the next year or two, that money shouldn't be in the market. By thinking through your financial goals, you can stay disciplined when the market is volatile or when the media tells you to be afraid. Your time horizon helps you stay focused.

A big thanks to Mike for sharing some of his thoughts. If you're interested in going deeper into many of these topics, check out the upcoming Financial Stewardship classes here. You can also always reach out to us directly at [email protected]

See all posts