Fee-Only Financial Planning

Q & A

Note to readers: A few months ago, I began an exchange with Justus Morgan, a fee-only financial planner in Mount Pleasant, Wisconsin. His interest in learning struck me as special. I live in an academic world where learning is a student’s full-time job. It is not Justus Morgan’s full-time job. Yet he is curious, engaged, and with the wisdom to turn learning into a comparative advantage. Active enrichment is a personal choice with natural barriers. Mr. Morgan leaps those barriers, at least with respect to growing intellectually to benefit his profession and clients. It made me feel good and hopeful about the profession, and below, I offer a Q & A we undertook. In football parlance, Mr. Morgan brings the wood.

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1. PFE: How would you describe Financial Service Group’s (FSG) practice?

“We’re an employee-owned, independent, fee-only financial life planning firm with three Certified Financial Planners. Our clients pay us directly for our advice (versus commissions tied to specific types of products such as investments or insurance).

Our goal is to align clients’ lives with their money by addressing various topics to help them live the best lives possible. Besides the usual retirement planning and investment advice is our depth of knowledge around tax strategies, allowing clients to manage their careers and elder life planning (for late-life transitions).

Most of our clients are retired or close to the point where they want to work less to pursue other goals. They tend to have “Millionaire Next Door” habits of living below their income, which allows them to do what they want on their terms.”

2. PFE: Why does FSG adopt a fee-for-service model?

“When our firm was founded in 1983, like most firms at the time, we were commission-based; we were not paid unless clients bought an insurance or investment product. Starting in the 1990s, we transitioned to a “fee-only” model, which meant clients paid fees based on the size of their investment portfolio. This helped us reduce the conflict of interest associated with product sales.

A little over a decade ago, we transitioned to a relationship fee based on the complexity of each client’s situation (measured by their net worth & annual income), reducing the emphasis on investments as the sole determinant of fees paid by clients. This is also better aligned with our more holistic financial planning model.”

3. PFE: Describe the strength you bring to your clients.

“We work with individuals and families who are concerned about their financial well-being and want to live their best life possible with the resources they have. Our strength is bringing meaning to the numbers in our clients’ financial lives by blending the quantitative side of money with the qualitative side of being human. 

Our clients want someone who can combine all aspects of their financial lives into a coherent model. Think of all the investment statements, insurance policies, estate documents, and tax forms stuffed into a filing cabinet. Who’s taking the time to review them and whether they’re the best for you? I’m the guy who delights in sifting through client’s financial lives to create order and coherence.”

4. PFE: You are one of those rare individuals, regardless of industry, who use the word “theory” to present themselves to the outside world. As I read it, you are proud that you bring a mix of theory and practice to clients.   How is that a market niche for you?

“Our clients worked hard and made difficult decisions to accumulate what they have, so it’s important to them to get competent financial advice that transcends what you can learn with a quick Google search. I enjoy the theoretical side of personal finance but find it’s most impactful when I can share it with others and apply it to real situations.

One of our core values is “we never stop learning,” so each advisor spends dozens of hours each year attending conferences and other professional development opportunities. I completed the Elder Planning Specialist program through the Financial Planning Association earlier this year. I also have a never-ending stack of books on topics relevant to our work. Our clients appreciate the level of expertise we can rely upon to guide them in important financial decisions.”

5. PFE: How did you become aware of Personal Finance Economics on Substack?

“I saw one of your posts on the NAPFA message board for fee-only financial planners and was excited to see someone referencing life cycle economic theory. I’ve been intrigued by this approach for the last 10-15 years based on articles and books I’ve read by other academics and practitioners (Zvi Bodie, Moshe Milevsky, & Paula Hogan in particular).”

6. PFE: Could you describe conventional financial planning and your training as a CFP and contrast it with economics-based financial planning?

“Conventional financial planning (including the numerous courses required to become a CFP practitioner) is fairly segmented by individually focusing on different aspects of personal finance. For example, there’s a course on investment management, another one on insurance, and a third one on estate planning.

What I find intriguing about economics-based financial planning is its more unified framework combining many of these areas. For example, using human capital as the starting point leads to different decisions about portfolio construction and life insurance needs. Focusing on a sustainable standard of living also impacts the choices for financial products and when those choices should be made.”

7. PFE: We met after you asked about my academic textbook, which I co-authored with Aaron Stevens.   The book’s market is a university student, so I was amazed you expressed interest.   After studying a few chapters, can you give me three takeaways to help serve your clients?

“Three takeaways include the observation that households possess a lifetime balance sheet, the concept of diversification should be expanded beyond traditional financial assets, and the explanation of the fallacy of time diversification for reducing stock risk. Regarding the lifetime balance sheet, expanding the assets to include quantifying the future earnings potential from work, future Social Security, and pension benefits highlights the significance of these income streams.

The section on the fallacy of less risk in stocks, when held for a more extended period, explained something regularly disregarded in personal finance literature. In particular, the magnitude of potential ending values is pretty amazing, especially with more volatile assets such as stocks. But, then, when you expand the concept of diversification beyond stocks and bonds, a household with a stable wage income may be able to increase their stock exposure.”

8. PFE: Some subscribers to Personal Finance Economics may be surprised to learn a fee-for-service model exists in our world today.   If a subscriber is sitting in San Diego or Boston, how do they find a fee-for-service provider?

“Sadly, true “fee-only” planners are still not the norm, but there are more now than when I started 20+ years ago. There are a couple of national organizations for fee-only planners I would recommend to those seeking guidance, including:

• National Association of Personal Financial Advisors (NAPFA) (www.napfa.org)

• The Garrett Planning Network of hourly financial planners (www.garrettplanningnetwork.com)

• XY Planning Network (www.xyplanningnetwork.com)

9. PFE: My subscribers know how I feel about financial rules of thumb.   Truly, do you use them, and if so, which ones?

“Of course, I use them as I’m human too. Heuristics are helpful shortcuts for making decisions. I think what’s more important is acknowledging their use and knowing when it’s appropriate to deviate from the rule of thumb, which happens frequently. This is one benefit of working with a professional advisor who knows when a rule of thumb may be sufficient versus when it needs to be further refined.

For example, sustainable withdrawal rates from portfolios are one of the more interesting topics to me since they’re relevant to the clients I work with who are mostly retired. There’s a variety of approaches that sometimes conflict with each other and focus on different variables—starting with Bill Bengen’s research in the early 1990s and the Four Percent Withdrawal Rate, which led to Jonathan Guyton’s Guardrails Framework, then Michael Kitces’s withdrawal rates based on equity valuations and some of the more recent work by Wade Pfau. I don’t think any clients are taking 4% from their portfolio and automatically increasing it each year based on the previous year’s inflation. However, it’s a reasonable starting point for many people.”

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