The Best Financial Planners in Dallas

HERE ARE THE NEW, UPDATED INSTRUCTIONS FOR opening your quarterly 401(k) statement: turning head to right, take envelope in left hand. Extend left arm as far as possible, and, with right hand, tear open envelope and extract statement. With document partially unsheathed, turn head to left just enough to peek at contents. Note amount of contribution, note amount of loss. Groan. Discard statement in nearest trash receptacle.

The time has finally come when we admit we need a financial adviser. The market may have fallen, but somehow expenses have managed to stay the same. College tuitions, for example, don’t seem affected by the stock market. Nor do real estate prices, especially for that second home that was so enticing only a few months ago. And the idea of early retirement vanished with the dot-coms. If there’s going to be any retirement at all, it looks much further down the road.

Now is the time for radical financial surgery, and there are very few of us capable of operating on ourselves. We have a CPA. We have a life insurance agent. We may also have an estate attorney. Now we need the person who can tie all these elements together into a strategy. This person comes in three basic models:

The asset manager is appropriate for a person with liquid assets of $5 million or more (although some companies will accept clients with less). Also known as “wealth managers” and operating under the umbrella of institutions such as U.S. Trust, Merrill Lynch, or Bank of America, asset managers work with individuals and families to do estate planning and to reach financial goals.

The financial planner works with an income-earner to draw up a financial plan based on the client’s goals and then—the hard part of the job—holds the client to it. The key elements involved in the process are tax planning, risk management, investment goal-setting, retirement options, and estate planning.

The industry expert advises clients on particular financial instruments, such as life insurance or municipal bonds.

According to New York-based demographic firm Mediamark Research Inc., D Magazine’s readers have an average income of $224,000 and net assets of $1.3 million. While asset managers may be appropriate for the upper portion of our audience, the vast majority would do better with a financial planner.

Why a Financial Planner Makes Sense

The fact is successful people who are most in need of financial planning often do the worst job of it. We’ve all heard of the estate attorney who died without a will or the CPA whose family was stuck with the huge inheritance tax. It’s the modern equivalent of the shoemaker whose children had no shoes.

And it doesn’t matter how far under that D average of $224,000 you may happen to fall. “It’s a mistake to think that only people with a lot of money need a financial planner,” says Alan Goldfarb, a Certified Financial Planner with Weaver & Tidwell Financial Advisors, who has been in the industry for more than three decades. “In fact, the less money you have, the more important a financial planner is.”

John Kvale, a CFP and owner of JK Financial, uses the quarterback comparison, acknowledging that he leans on many other players—in this case, other financial advisors, CPAs, and attorneys. “You can get to your financial planner, and he can relay the play or the message to all the other people involved,” Kvale explains. “He’s the one that, at the end of the day, you’ll be held accountable to. He’ll treat you like a parent. He’ll keep score.”

Financial advisers report seeing more and more clients in their late 20s and early 30s. The sooner you start, the richer you’ll be. You’ll have longer to accumulate capital (meaning you can put less away each month) and you’ll have a longer period of time to learn (meaning the mistakes you make early on won’t be as devastating).

You can begin the process yourself by first paying off all credit card and other debt. Everyone should have at least $10,000 put away for emergencies. The need for a financial adviser begins as one exceeds that mark.

Who They Are and How They’re Paid

The term “financial planner” is not regulated. It’s what “tax advisor” is to a CPA. But the term Certified Financial Planner (CFP) is trademarked. Most people in the profession believe that any list of candidates for financial planner should start with those who have earned their CFP mark. (Asset managers, on the other hand, usually come from the money-management side of the business and do not have specialized degrees.)

The CFP certification was first offered in 1972, and the exam became much more difficult in 1992. Around that time, the CFP Board of Standards was created, giving the CFP designation some disciplinary teeth. The University of North Texas was one of the pioneers in developing the CFP program. Today, Baylor, Texas Tech, and the University of Dallas also offer the program.

Different titles abound in the industry. Chartered Life Underwriter (CLU) is the highest credential in the insurance industry, certifying a course of study at the American College, a nonprofit institution founded by the insurance industry to promote higher standards. As the financial industry began to grow, American College began offering a course of study called Chartered Financial Consultant (ChFC). And, in a move that shows the trend in the larger world, the American College also recently began offering courses for the CFP.

The importance of the CFP designation is one of those issues on which everyone in the industry has an opinion. There are many practitioners—mostly independents—who began before the certification became important and who do fine jobs. There are, as we noted, asset managers whose roles entail more the selection of money managers and private equity investments than actual financial planning. And there are insurance industry specialists who have their own specialized degrees.

However, according to Financial Planning Association president Bryan Lee, the CFP designation is the minimum you should begin with on your search for a financial planner. “It’s not easy to figure out who’s doing planning and who’s not these days,” Lee says. “The best way to determine that is through the CFP certification. It’s just like in the accounting industry. You can find lots of people who will do your taxes—from H&R Block to your brother-in-law—and they all call themselves accountants. But when you’re working with a CPA, there is a different level of quality and commitment. The CFP certification is one means of separating the quality planners looking out for their clients from those who are more interested in selling a product.”

Tait Cruse, a CLU at Northwestern Mutual Financial Network, offers a different perspective. “The financial product is crucially important,” he says. “And who puts you into that product is just as important. A larger company has standards and enforces compliance on its agents. It makes sure that what you are promised is what you will receive. The company has a reputation to protect. It is concerned about liability. Therefore, its people are well-trained and are kept up-to-date on the latest and safest products available in the marketplace. A planner who is working on his own might tie you into all sorts of things, and when they go bad, there is nobody to turn to.”

The next question to ask, after you determine what credentials are important, is how and how much your financial planner is paid. There are basically five ways:

1. Straight salary with benefits (rare for experienced financial planners).

2. Straight commission (also fairly rare).

3. Assets under management (meaning the financial planner gets an annual fee based on a percentage of funds under management, which is an incentive to do a good job so that you will allocate more for them to manage).

4. Fee only (an hourly rate like a CPA or an attorney).

5. Fee-based, with some commission (the planner estimates the fee it will cost to make up your financial plan—sometimes, if that fee is, say, $2,000, and he makes $1,300 in commission off the products he recommends and you buy, he’ll reduce your bill by that much, meaning you pay only $700).

Many in the business prefer the fee-based or assets-under-management programs, which are the most common form of billing in the industry. “What I like about those two is that what I make is directly related to how well the client does,” says Randy Guttery, the CFP program director at the University of North Texas. “With an hourly rate, I’m still making $200 an hour whether I gave you good advice or bad advice. Clients like risk-sharing.”

Lee, on the other hand, prefers fee-only, which is how he runs his business. “If I were going to refer my mother, for example, to a planner, I would be more comfortable knowing she was working with a fee-only CFP, knowing that they are independent, not tied to any broker dealer or any particular company that sells something,” he says.

Not surprisingly, insurance people raise a red flag. “Complete independence may be an ideal that is not always reached,” says Cruse. “There are plenty of people willing to give perks to get sales, and financial planners are their targets.”

How to Select a Financial Planner

Some people may be surprised to learn that a financial planner has already been selected for them. It’s not unusual—in fact, it’s altogether standard practice—for banks to assign a private banker to customers whose bank accounts grow above a certain amount. The banker’s role is to make sure the customer is fully aware of all the services available to him, i.e., to sell the bank’s products.

A private banker is a fine thing to have, and the bigger the institution, the finer it can be, because the banker’s role in many cases is to cut through the bureaucracy. But a private banker is also a sure sign that you need a financial planner.

The best way to pick one is to follow these simple steps:

1. Consult our list of the Best Financial Planners or ask your CPA or other trusted adviser, including your private banker, for recommendations.

2. Meet with the planner at his or her office—not yours—so you can get a sense of how the operation works. Ask for client references.

3. When checking client references, remember that everyone has strengths and weaknesses, even you. So ask the reference about the planner’s strengths and weaknesses. This approach often reveals more.

4. If you are considering an asset manager or someone to serve as both a financial planner and partial asset manager, be sure to get third-party records of the performance of his investment vehicles to compare against the market in general. Nobody’s record will look particularly good for the last two years, but how it compares to the overall market performance is what counts.

5. Hold the next meeting in your office. See how comfortable you feel with the planner: his manner, his approach, his personality. You will be revealing your personal finances to this person, so make certain you feel comfortable.

The final step is the most important of all: don’t procrastinate. It’s bad enough to have suffered a down market and a significant decline in your personal asset base. While you still have the income and flexibility, you should take steps to get your house in order, something only a financial planner can help you do.

FINANCIAL PLANNING DEFINED

Financial planning is the process of meeting your life goals through the proper management of your finances. Life goals can include buying a home, saving for your child’s education, and planning for retirement. The financial planning process consists of six steps that help you take a big picture look at where you are financially, including: gathering relevant financial information, setting life goals, examining your current financial status, and coming up with a strategy to meet your goals given your current situation and future plans.

QUESTIONS TO ASK A FINANCIAL PLANNER

•••Are you a Certified Financial Planner?
•••Do you work independently?
•••If with a big firm, exactly how does the firm work?
    Whom will I be dealing with?
•••How many years have you been doing this?
    (The answer should be more than five years.)
•••What kind of clients do you work with? 
    (You don’t want  to bring your $10,000 to a firm that generally handles clients with millions.)
•••What is your financial planning philosophy?
•••How do you stay current with changing laws and trends?
•••Do you have a specialty?
•••Do you only refer to others in your company?
•••What does a financial plan from your firm look like?
•••Have you ever been sued? Can I have references?

A SIMPLE PLAN: TWO CASE STUDIES

We sent two brave women for a top-to-bottom financial planning workup with one of the best in the business, BILL CARTER, founder of Carter Financial. After spending hours meeting with the women, going through their financial information, and studying their personal goals, here is what he and JOANNE GALBRAITH, senior vice president at Carter, came up with:

THE SINGLE WOMAN: Claire Jones*, 28, is single and works in advertising sales. She believes she takes too many financial risks with her income—which is substantial. Claire’s net worth is $282,000 ($122,000 in investment assets and $160,000 in personal use assets). She earns $180,000 a year—and saves $86,000 annually, with living expenses of about $45,000.

GOALS: Claire’s main goal is to be financially independent by age 40, spending $10,000 a month in her early retirement.

THE PLAN: At her age, Claire’s financial future is in excellent shape. Unfortunately, even at her current rate, she can’t retire at age 40—not if she hopes to do it on $10,000 a month. She could retire at age 40 and earn about $6,500 a month, or she could wait until age 48 to earn her $10,000 goal. Along those lines, Carter recommends she contribute the maximum to her 401(k), currently $11,000, and contribute $3,000 to a non-deductible IRA.
Claire’s investments are too diversified—27 different mutual funds, Carter found. She should simplify. To lower income taxes, Carter recommends she keep cash reserves in a tax-free money market account, use municipal bonds in her investment portfolio, and hold appreciated investments longer than one year before selling them (paying 20 percent capital gains tax instead of 35 percent).

OTHER ADVICE:

• Keep an emergency cash reserve of at least $12,000 (or three month’s expenses).

• Meet with an estate-planning attorney to prepare a will, execute a power of attorney, and review her plan every three to five years.

• Purchase additional disability insurance (because her current insurance would not allow her to save for retirement should she need it) and additional life insurance (because life insurance is cheap for the young and healthy).

THE MARRIED MOM: Margaret Smith*, 45, is married to her second husband and works in sales. Her husband Bob is 50 and is building his business as a self-employed insurance agent. Their annual income, which is expected to grow considerably over the next few years, is $170,000. They have six children, from ages 12 to 27 (four of whom are dependent). They are helping put two children through college ($1,000 a month), with two more coming up behind them (they’d like to foot the entire bill for these, about
$16,000 a year). Two sons are getting married next year ($6,000). And they want to buy cars for two other sons in the next few years ($20,000). Margaret and her husband’s net worth is $199,000 (personal use assets worth $141,000 and liabilities of $345,000), and they consider their risk tolerance for investment to be moderate.

GOALS: The Smiths’ goals revolve around their children. They would like to be semi-retired (earning $60,000 a year) in 10 years and fully retired (spending $8,000 a month) five years later. They would like to be able to spend $8,000 a month should they become disabled. Should Bob die, he would like to have enough life insurance to give Margaret time to sell the house and downsize her standard of living, yet still pay for half of the kids’ college tuition.

THE PLAN: The Smiths’ situation is a complicated one. They will be fine, but they must really watch their expenses from now until retirement. First, the Smiths need to get out of debt, which they should plan to start paying down at $1,000 a month. Currently, they make more than they spend and expect both salaries to increase. In the meantime, they need to cut discretionary spending. They need to accumulate additional retirement capital of at least $1.3 million ($90,000 to $120,000 a year) over the next 10 years. As their salaries increase, they will need to save all of their projected excess cash flow to achieve their retirement goal. Carter strongly recommends they prepare a spending and savings plan and monitor actual spending and savings against the plan monthly for the next few years—then annually if they generate excess cash flow. Achieving their financial goals will depend on their ability to adhere to their plan. They will probably need to postpone retirement, extend the semi-retirement phase of their plan, and/or reduce their retirement spending goal.

OTHER ADVICE:

• When their credit card debt is paid, they should build a minimum emergency cash reserve of $50,000 (three month’s expenses).

• Because Bob is self-employed, they should meet with a CPA quarterly to determine the need to adjust Margaret’s withholding or make estimated tax payments.

• With medical expenses of $6,000 a year, Margaret should contribute to a health-care spending plan, making such expenses tax-free.

• Get a 529 Plan, which allows for tax-free growth over the years and tax-free withdrawals to pay for qualified higher education expenses in the future.

* Clients’ names have been changed to protect their anonymity.