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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. Now that said, please remember this is just to show.
Mike:Everything you hear should be considered informational, as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is my colleague, mister David Fransen. David, thanks for being here today. Pleasure to be here.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. You can always send your questions in by either texting them to (913) 363-1234. That's (913) 363-1234, or you can email them to you, hey, Mike, at how to retire on time dot com. Let's begin.
David:Hey, Mike. What are the benefits of working with a CFP? So a certified financial planner.
Mike:Financial planner. Yeah. So CFP is probably one of the most prestigious educational credentials that a financial professional could have.
David:Okay.
Mike:The only other one that I this is my opinion. CFPs are brilliant. And then CFAs, certified financial analysts.
David:Oh, okay.
Mike:These are two very, very difficult exams to pass. But there's a lot of confusion on what a CFP is and what a CFP isn't. All right. So a CFP, this is like a square is a rectangle, but a rectangle is not necessarily a square. So a CFP technically could be a fiduciary, and they have a code of contact where they are supposed to always act as a fiduciary.
David:Alright.
Mike:But they may not always have a job that is a fiduciary like job. Let me explain. A CFP with a series 65 license would be, in all essence, they would should act as a fiduciary. So they're fee only. So they're either gonna charge 1% or 2% or what whatever the rate is.
Mike:Everyone has different rates or fee structures. Or they're gonna charge you at, like, a fixed rate, like an hourly rate, or they're gonna charge you, like, a membership rate of whatever that is. And they're legally bound to do what's in your best interest.
David:That's what a fiduciary is.
Mike:Fiduciary, the root term is it's Latin based, and it's based on trust.
David:Okay.
Mike:So that's yeah. If you wanna nerd out on etymology there Yeah. Is it etymology for words?
David:Yes. I believe so.
Mike:So, yeah. It's trust. It's Latin root for trust. Uh-huh. Which is a very important thing.
Mike:Yeah. However, you can be a CFP with the series 65 or 66 license, which is kind of the fiduciary fee only supposed to keep everything above board situation, but you can also have a series seven license. Uh-huh. So a series seven license is the broker dealer license. This is where they can get a back end commission for placing a trade.
Mike:So for example, you could buy a mutual fund that gives the series seven licensed person a back end commission, whether it's upfront or it's an ongoing commission for selling that mutual fund. Now there's nothing wrong with someone making a living. Yeah. I really don't wanna harp on people for back end commissions. But the back end commission can compromise the fiduciary position.
Mike:Just like a CFP who offers you an annuity, I'm not saying that it's right or wrong. An annuity is just a tool. Yeah. They're gonna receive a back end commission. It may be right for you.
Mike:It may not be right for you, but there's always these things that can compromise the quote, unquote fiduciary standard. So my point in all of this is there are always going to be conflicts of interest in the financial services space. There is no way that you can humanly get rid of all of it. Can't happen because at the end of the day, people need to make a living. A CFP may have a conflict of interest, and they'll probably disclose it, which is the right thing to do.
Mike:K? So for example, Delaware statutory trust. It's a wonderful strategy for some landlords to sell real estate, k, like, their $5,000,000 apartment complex or whatever it is. Yeah. $510,000,000, whatever.
Mike:They sell it. They move it over to a qualified intermediary, so they don't touch it. And then they will buy a couple of Delaware statutory trust to maintain their cash flow and defer all of their taxes Uh-huh. Which is, you know, 30% or so depending on how much depreciation recapture and all that. So this is an alternative investment.
Mike:It's a more complex situation. A CFP may or may not know it exists. Let's assume that they do. If they have a series seven license, they will probably get around five to five and a half percent kickback as a commission of placing that products with you.
David:Mhmm.
Mike:Is there anything wrong with that? No. There's not. I do not have a CFP. K?
Mike:I've chosen not to go down that route. Mhmm. But I also don't have a series seven license. So when we help people with the Delaware statutory trust, because I don't have a series seven license, I don't get that 5% commission or whatever it is depending on which DST it is. So the money that would have gone to me goes to the client.
Mike:So basically, just there's more money for them working for them, and they just people just pay me an hourly rate to facilitate that transaction. Yeah. And the reason why I wanna explain the nuance here is because some people believe they have to work with the CFP that there's no other option. The CFP is like, okay. Well, they passed a really difficult exam or series of exams, and they know a lot.
David:Mhmm.
Mike:The CFP does not promise a certain strategy. A CFP may argue about doing the 4% rule, which is an income strategy. They may argue that it's better to buy an annuity for cash flow for whatever reason, but you can have different CFPs that completely disagree on how to do things. All that you prove with your CFP d designation is that you passed a couple of really difficult exams. Yeah.
Mike:And so in my mind, it is nice to have if you work with a CFP. But at the end of the day, the question is, do you believe in the strategy that's being proposed to you? You create a plan, and that plan is is your expectation moving forward with those projections, and then the strategies and what is what brings the plan to life. Yeah. Let me say that again.
Mike:You put a plan together, and if the plan makes sense to you and you're comfortable with it, then you implement strategies, the actual application of whatever you're trying to accomplish to make the plan a reality. That is more important than any designation that you could have because you could hire a CFP that says, hey. We should have all equities. Everything in the market is the best place to grow. We're really smart with the markets, and they could be wrong.
Mike:It could be a flat market cycle, and you could destroy your retirement that way because they got it wrong. That's technically a what a CFP could do. A CFP may say, look. Markets are uncertain. We wanna increase your probability of success.
Mike:Let's take no risk for market volatility, so let's just buy an annuity. Those are completely opposite. Yeah. But they're both technically CFPs. Yeah.
Mike:Do you know what a Rhodes Scholar is?
David:Do they go there's some distinction at some university they get? Or Oxford.
Mike:Oxford. Yes. So Rhodes Scholars is one of the most difficult I don't know what you call it, associations or clubs or groups of people. Like, it is near impossible to become a Rhodes Scholar at Oxford. Yeah.
Mike:I've been outside the building. They wouldn't let me in. If I walk past it Yeah. Beautiful. Right?
Mike:Just remember, Rhodes Scholars were the most prestigious groups.
David:Right.
Mike:We're also the guys that, you know, were behind Enron Yeah. Which was a scandal. So it's like, we want I I just I I can't emphasize that. Don't base the credibility of someone based on an educational credential. Vet the plan, vet the strategy.
Mike:Don't even base everything solely on the relationship. It's good to have a relationship based on mutual trust and respect. Yeah. But at the end of the day, is the strategy that's going to bring your plan to life, does it make sense to you? Is it what is right for you?
Mike:That is the most important thing. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist.
Mike:Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.