The FINAL Pillars of Financial SUCCESS

Two episodes ago, we covered the first 4 Pillars of Financial Success, and in the last episode, we covered the Fifth Pillar. Today, we will cover the Final Two Pillars of Financial Success. Action and Partnership.

Pillar VI – Action

Knowledge is important. Belief is essential. Action is critical. No amount of knowing, or believing, for that matter, will matter if you don’t act. You need to act on everything you need to do. 

You don’t save on lifetime taxes because you know and believe in Roth Conversions; you save on lifetime taxes by doing them. 

Act! Do! Get it done! 

The pillars all support one another. Maybe this is the one you are missing. Or, perhaps you have the propensity to act and are ready to believe, but you lack a plan and the proper knowledge of what to do. Get those first. Then act. 

Get your will, power of attorney, health directive, beneficiaries, transfers on death, and trust done. Act. Get it done. You know you need it. What is stopping you? 

Get your 401(k) looked at so you can get it appropriately invested. Then reallocate it! Get it done. Act. 

Knowledge, Belief, and Action are a winning trifecta, especially on the foundation of Planning. Add discipline and patience to your action and plan, and you are creating a powerful formula for success.

All of this can be overwhelming. Knowing everything you need to know, creating a plan, and acting on the plan continually for decades is tough even for the smartest and most disciplined people. Most people will not be successful at the first six pillars without the seventh.

Pillar VII – Partnership

Financial success is a marathon, not a sprint. If you want to go fast, go alone. If you want to go far, go together. Choose far over fast. 

You can hire someone to do just about anything these days. And many of those tasks and projects can also be done without help. YouTube has made it possible to learn how to do just about anything yourself.

I used to mow my grass because I like the exercise outdoors. I shoveled my driveway for the same reasons. In addition, I can install an electrical outlet, a light fixture, and a toilet myself. Now, I could have certainly paid a service to do these activities for me. But I was more of a “do-it-yourselfer” with these tasks.

But I would never perform my own open-heart surgery. Nor do I correct my own vision with Lasik. The stakes are too high, and the training required to do it successfully is too great for me to think I can do it myself after reading a couple of books and watching a few YouTube videos.

I don’t recommend that people create their own financial plan or manage their own investments. I realize I am completely biased in that opinion, as are surgeons. We both get paid to perform our specialty on others. But I stand by it.

You can make too many mistakes with financial planning, such as buying insurance you don’t need and paying taxes beyond what is required. There are too many opportunities you could miss. You can try to save some money by not hiring a financial planner, but any good one will make or save you far more money than you’d pay them.

The same is true with investing. Your portfolio funds your plan. The Four Horseman steal hundreds of thousands of dollars over their victims’ lifetimes. Many fall prey because they do not want to pay for help.

The greatest risk to your finances is not market volatility. It may not even be inflation. It is likely to be your behavior—opportunities missed and mistakes made. I meet with potential clients all the time who have been managing their own finances for years and who would have been far better off if they had worked with the right partner from the start. And they agree. The most common refrain I hear after going through the planning process is, “I wish I had known this earlier.”

The stakes are too high to go it alone.

Partnering with a professional does not mean you hand everything over and take no interest or responsibility for your finances. It’s still your money and your life. You are still the hero of your story. But you need a guide.

Luke Skywalker had Yoda. Frodo Baggins had Gandalf. The heroes of the best stories all had a mentor or guide to help them overcome the obstacles and teach them the way. Seeking guidance, advice, and planning doesn’t make you weak, naïve, or dumb. It makes you wise, confident, and smart.

It’s not amateur athletes who hire coaches. It is the professionals. Pro athletes are the best in the business, and yet they all have coaches and guides to make them better. If you want to get to the next level with your finances, partner with a planner to be your guide, mentor, and coach.

If you are someone who believes you can learn enough and have the right temperament to create and stick to a comprehensive plan for decades on your own, feel free to skip to the next chapter. For the rest of us, we need to know how to find the right partner. Not all financial advisors are created equal.

You need an independent fee-only fiduciary financial planner. What does that mean? We we’ve done a few episodes on the financial planning industry and you can find links in the description. But let me point out one key differentiator. 

Fiduciary vs. Suitability

There are two standards that financial professionals are held to: the Fiduciary Standard and Suitability Standard.

The Fiduciary Standard requires recommendations to be in the client’s best interest. If a professional is evaluating two options and Option A is better for the client than Option B, they must recommend Option A.

The Suitability Standard allows any recommendations if they fit the client’s situation. But they do not have to be in the client’s best interest. If Option B pays the professional more than Option A and fits the client’s circumstances, the professional can recommend Option B and ignore the better option altogether. Professionals must follow one or the other depending on a few factors, which we will get to in a minute.

You might be thinking to yourself, “Wait a minute. Why would anyone want to work with a professional under the suitability standard? I don’t want any recommendations that are worse for me just because they pay the professional more.”

I agree. You would think that all financial recommendations would have to be in the client’s best interest. But they’re not all held to that standard. You, however, should insist that the recommendations you’re getting are in your best interest alone and not in the interest of someone else’s pocketbook. How do you know which standard a professional is under?

All commissionable financial products fall under the suitability standard. If a professional recommends a product that pays a commission, it only needs to be suitable for you. A professional cannot recommend that a 25-year-old buy a retirement income annuity. It’s not suitable. But they can recommend that a 55-year-old buy one, even if it is a fixed income amid rising costs.

If you’re not sure if the product is commissionable, look for the explicit fee the professional is being paid. You can see the fee on a financial planning fee. You can see the line-item on an investment advisory account that gets paid to the firm. If you can’t see the fee, it pays a commission. And you can always ask, “Does this product pay you a commission? What is that commission, and what percentage goes to you and to the firm?”

Be wary of any commissionable products. Insurance, annuities, and A- and C-share mutual funds all pay commissions, and none of them need to be in your best interest. The reason they don’t need to be best for you may be because they seldom are.

All financial advice falls under the fiduciary standard. You’re not buying a product; you’re paying for advice. It follows that the advice must be in your best interest.

Investment advisory is the most prominent version of the fiduciary model. You are paying for advice on your investments, and that advice must be in your best interest. The professional doesn’t make any additional commissions and is agnostic from one fund to another from a compensation standpoint.

One problem is that someone can claim to be a fiduciary if they offer fiduciary services. The question, “Are you a fiduciary?” does not go far enough. They may be a fiduciary on your investments in their advisory accounts, but not on your insurance or even the annuities they recommend outside that account. You should ask, “Are you a fiduciary 100% of the time you are working with me and in 100% of the recommendations you give me?”

In my opinion, you should only accept advice that is in your best interest. You must be willing to pay for it since paying for advice directly is the only way to ensure it is in your best interest. You’re paying the professional anyway, whether directly or indirectly via commissions. You might as well see precisely what you’re paying and know that the recommendations are best for you.

Let’s look at two more elements of the professional you may work with: Compensation and Competence.

Compensation

Insurance companies and broker-dealers produce and sell products that pay their representatives large commissions and can be recommended even if they aren’t best for you. Furthermore, insurance-based professionals usually must sell a quota of insurance products to keep their jobs or benefits. This provides a massive conflict of interest between you and the professional. Even if the professional offers fee-based planning and advice, they still have a quota to fill. This can skew their perception of what is best for you.

Insurance-based professionals are subject to an enormous amount of internal sales training on their products, and they can come to sincerely believe that their products are the best strategy. They are not malicious, greedy, or callous. They likely genuinely believe their recommendations are best. But their internal conflicts of interest can be difficult for even the most ethical person to overcome.

Commissioned products pay far more. A professional can recommend you put $6,000 into an advisory Roth IRA that pays them 0.25% per quarter, and they will earn $15 right now. Or they can recommend you put it into a permanent life insurance product to get paid an 80% commission and earn $4,800.

$15 or $4,800. Do you think that might skew their belief about which is better for you? Do you think the discrepancy might cause them to look at all the benefits of permanent life insurance and ignore the downside while simultaneously exaggerating the “risks” of an equity Roth IRA?

Or suppose you have $300,000 to roll over, and they must recommend something in your best interest. They can recommend an advisory IRA and earn $750 or put it into an annuity that pays $21,000. I could see how that representative could convince themselves that the product is in your best interest.

When you must sell a product, and it will pay you thirty to three hundred times as much now, that is a whole lot of incentive to find every reason why the commissioned product is in the client’s best interest. 

What if you need commissionable products? What if you think you might need insurance or an annuity? How do you know if you truly need it or not? Pay for a comprehensive financial plan covering those topics from someone who doesn’t sell the products.

Fee-only Financial Advisors and Planners do not and cannot sell commissionable products. If you genuinely need the insurance, the financial plan will recommend it. And if you truly need an annuity, they can recommend an advisory version of it that pays them the exact same as an investment account. It erases the compensation conflict of interest.

Fee-only advisors and planners aren’t affiliated with any insurance company or broker-dealer. If you want to avoid those conflicts of interest, skip any professional affiliated with a broker-dealer or insurance company and look for a fee-only Registered Investment Advisor.

Competence

You’ll also want a certain level of competence. The licensing process to become a financial professional is a low bar to climb over. Look for more than a professional’s mere existence.

Financial designations are a quick and easy way to see competence levels. Those are the letters behind and professional’s name. But understand what the designation means. You might see “John Smith, CLU^®” and think he could help you with your financial planning as a fiduciary. But then you realize that it stands for Chartered Life Underwriter^TM and means that he is an expert at recommending permanent life insurance. Perhaps that wasn’t what you were looking for.

The Certified Financial Planner^TM (CFP^®) designation is the gold standard in comprehensive financial planning. CFP^® Professionals must pass a rigorous education course and a six-hour exam and have the required experience. They are also held to a higher standard of ethics. You can find out more at CFP.net.

Look for financial planners with the CFP^® marks. They will have the required competence to give you advice across all personal finance. If they have other relevant designations, that is a bonus, but minimally they should have the CFP^®.

Partner with a Certified Financial Planner^TM through a Fee-Only Firm. That way, you ensure that you get independent, comprehensive fiduciary advice and planning.

The easiest way to find a planner of this caliber is to go to FeeOnlyNetwork.com. All financial advisors and planners registered there are fee-only fiduciary Certified Financial Planners who work for fee-only independent RIA firms.

A partner helps you build and stick to the plan. Understanding and believing in the plan help you to act on the plan. Discipline and patience enable you to keep acting for decades.

The Seven Pillars of Success are Planning, Discipline, Patience, Knowledge, Belief, Action, and Partnership.

Incorporate these into all the areas of your financial life, and you will find greater success. Ignore them at your extreme peril. 

If you want more content like this, subscribe to the YouTube channel or podcast feed. If you found this helpful, drop us a like and a positive review. And, if you want guided education on retirement income, you can get my book 3D Retirement Income on Amazon or for free at https://RetireMentorship.com. Links are in the description. Otherwise, we’ll see you on the other side. Cheers.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.