How to Find a Financial Planner Who Understands Real Estate

In Episode 14, I’m talking about how real estate investors can find an experienced financial planner who actually understands real estate.

“Choosing a financial planner is like choosing any other advisor; there has to be a good personality fit, and they have to offer you what you are looking for.” -Cynthia Meyer

This week on Real Life Planning Podcast:

Takeaway Quotes: 

“Tax optimization is a big component of the financial planning engagement, especially for real estate investors.” - Cynthia Meyer

“Financial planning is a collaborative process that helps you make wiser and more comfortable financial decisions that move you toward your goals.” - Cynthia Meyer

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• Email: cynthia@reallifeplanning.com  

About the Real Life Planning Podcast

Host Cynthia Meyer welcomes fascinating guests to share real life stories of how they are realizing their financial potential. Each episode explores practical, realistic steps to create results.

TRANSCRIPT for Episode 14

[00:00:11] CYNTHIA MEYER: Welcome to the Real Life Planning Podcast. This is episode 14. Today, we're going to be talking about how to find a financial planner who understands real estate. And I'm Cynthia Meyer, your host here on the Real Life Planning Podcast where we explore practical steps for real estate investors to build the financial freedom and make working for somebody else optional.

[00:00:33] Today's a topic that I feel pretty strongly about and I'm trying to work in my industry in personal finance to make a little bit easier for the real estate investor and so I'll tell you about that during the course of this conversation.

[00:00:47] Let's start with thinking about how you know if you need a financial planner. I invite you to think about the process of financial planning. I think about it as a process. A process that is collaborative between you and your planner or you and your spouse or partner and your planner that helps you make wiser and more comfortable financial decisions that move you towards your goals and help you eventually achieve them.

[00:01:18] Now for many of us, those goals are shared goals, right? We want to retire comfortably. We call that if you want to be financially independent at a younger than typical retirement age, we'd like to call that working towards being work optional. Some people call it financial freedom. But the freedom to maybe not stop working, but the freedom to have life on more flexible terms and to know that your income is covering your basic expenses. Now, many people choose to incorporate real estate into that process so that they can live in part or in whole off their real estate income before they have to tap into their retirement accounts later on, which have some time constraints to them.

[00:02:01] We want to send our kids to great colleges and maybe provide them with an excellent education sometimes private school before they go away to college, or we want to provide them with training and opportunities and experiences if they're not going to go to college. We may want to create multi generational wealth, so we may want to pass something on to our kids and our grandkids that is sustainable and that they can build on over time. Real estate is great for that. We want to know if our assets are protected if we're managing risks appropriately with insurance or legal structure. Questions around estate planning,

[00:02:42] do we have everything that we need in place to make sure that our heirs, our kids or others can live comfortably if they rely on us for their income? And that you've appropriately decided how things get passed to the next generation and you've planned for healthcare contingencies, for example.

[00:03:00] The other thing that's really common in the financial planning process for real estate investors is tax optimization. The financial planning engagement, in my opinion, as somebody who does this every day is a really tax planning focused engagement. There are all sorts of great benefits to being a real estate investor on your taxes, but you have to plan for them in advance. You can't look in the rear view mirror and execute on some of these strategies. You need to think far in advance, sometimes multiple years in advance, but certainly before you do a transaction like buying or selling a property. You need to think through it in advance and try and to maximize or to optimize your income for tax purposes. Your financial planner is going to need to work in conjunction with your tax planner to help you through those processes. That's a big component of the financial planning, engagement, tax optimization.

[00:03:58] Then looking at your overall investment strategy. Seeing how all those pieces fit together. That includes securities like what you have in your retirement accounts, 401k or Roth, et cetera. It could include entrepreneurial investments that you've made. Maybe you have your own business or you're thinking about starting one or thinking about purchasing a business or a side hustle.

[00:04:21] Some people have other kinds of alternative investments, like syndication, or maybe they have a little crypto, right? All those pieces are in a puzzle and how do they fit together? It's helpful to have somebody give a helicopter level view of your whole investment picture. Look at the risk. Look at how those things fit together during different market conditions, and give you some guidance about minimizing the volatility.

[00:04:47] Another common thing that clients come to us for in terms of financial planning, is just the day to day cash management. Is everybody on the same page about goals and how you make and spend money? How you use credit. What's an appropriate use of leverage? Like how much mortgage are you going to take as you're building your business, for example.

[00:05:10] And just, making sure that you've constantly created some space between what you bring in and what your lifestyle spend is so that you have capital available for the next property or the next project or expansion. So those are common things that people see financial planners for.

[00:05:30] And obviously there's a lot of specific things, too. If you inherited a property or you're trying to help an aging parent; that sort of thing. But those are the big areas. Whether you need a financial planner or not is a function of whether you want somebody to be hands on or hands off with you in different areas of your financial life.

[00:05:51] For us at Real Life Planning, we're collaborative financial planners. We understand that real estate business owners are often very DIY, right? To do a lot of things themselves. That's why they got into real estate in the 1st place and they're looking for somebody to be a thought partner in thinking about different strategies and then possibly executing on those strategies either independently or in conjunction with their advisor.

[00:06:17] As a real estate business owner, think about, are you looking for somebody to give you advice? Are you looking for somebody to give you coaching? Are you looking for someone to give you mentorship? Are you looking for somebody just to execute on a few things for you, but not be In a more collaborative relationship. There are people that can help you in any of those categories.

[00:06:40] There are people who will actively coach or mentor you. There are people that will just give you advice about a certain area of your financial life. There are people who can help you execute transactions, or you can find folks who are a combination. Before you even start interviewing people, what kind of relationship do you want to have with a financial planner? Look for somebody whose model supports that. Choosing a financial planner is like choosing any other advisor like choosing a personal physician or choosing an accountant or choosing a hairdresser or barber, right? There has to be a good personality fit and they have to offer you what you're looking for.

[00:07:20] Now, I've often heard stories over and over again, I've heard it in my own practice, as I teach other financial planners how to do what I do through the Real Estate Financial Coach course. I've heard this over and over again, that they see potential clients who say, "Oh, I saw a financial advisor and my financial advisor told me to sell my real estate."

[00:07:43] It happens all the time.

[00:07:45] While it may be at some point, it could be that you're in a property that's not profitable, for example, that should be a red flag to you that if you go to see a potential financial advisor and they say, "Oh, you should sell all your properties and put it in securities," for example, there may be another motive behind that. You should be very cautious about that, right. Look for a financial planner who understands that even though real estate is treated as passive income in most cases on a tax return, it isn't a passive endeavor. There's a lot of activity that goes into having a real estate business and look for a financial planner who's going to treat your real estate, whether it's part-time or full-time in your financial life, treat it like a business. A good financial planner is going to approach the financial planning engagement like they would with any other business owner.

[00:08:33] So when you're searching around for financial planners, whether you're looking at my website or you're looking at anyone else's website, you're going to see a lot of initials. Sometimes those initials start with C. There's this whole alphabet soup of financial planning and financial advisory credentials. And how do you make sense of them? Which are the ones that are the most important? So, number one, must have under all circumstances, CERTIFIED FINANCIAL PLANNER®. A CERTIFIED FINANCIAL PLANNER® is a trained financial planning professional. They have gone through an educational curriculum. They have sat for a board examination. They've had an ethics review and they agree to adhere to certain ethics guidelines. They are always a fiduciary in the financial planning engagement. So make sure, no matter what, that your financial planner is actually a financial planner. They're a CERTIFIED FINANCIAL PLANNER®.

[00:09:32] You may also look for some additional credentials depending on what's important to you. For example, if you're looking for help with your securities portfolio, or you have a lot of alternative investments, you might look for somebody who is a Chartered Financial Analyst®. Again, that's a rigorous investment management certification. You may look for somebody, particularly if you have a large securities portfolio that you want to help with, you might look for somebody who has the CFA® Charter.

[00:09:59] If you are looking for somebody to do life insurance planning, you might look for somebody with the CLU®, the Chartered Life Underwriter®. You might look for some, if you're looking to do more complex estate planning scenarios, you might think about somebody with the ChFC®, the Chartered Financial Consultant® which is a credential that kind of builds on the more complex estate planning and insurance planning issues.

[00:10:25] You may look for somebody who is a CPA PFS™, so that's a Certified Public Accountant who has a personal financial planning certification and similar to the CFP®. That's somebody that is trained to approach tax planning from the personal finance standpoint.

[00:10:45] You may, if you're looking for a planner who's both a CFP® and a CPA, for example, they may often have this PFS™ designation. Those are just a few of them that you might look at. Another common one that you'll see particularly in the broker dealer world is CIMA®, CERTIFIED INVESTMENT MANAGEMENT ANALYST®. That is that is a type of investment planning credential.

[00:11:07] Those are some of the credentials that you might look for. Just make sure you are picking somebody that is a CFP® that has some experience in personal financial planning.

[00:11:18] Another initial that you'll hear a lot is RIA. That stands for registered investment advisor. Now your planner may or may not be a registered investment advisor.

[00:11:29] That's probably a good segue into thinking about whether or not there's a best fee model to pay your financial planner. So there's a couple of biggies and I want to invite you to think about how you pay your financial planner is in part dependent on what you need from them.

[00:11:51] So if you're looking for holistic financial planning where you want somebody to look at all the moving parts of your financial life and help you construct an effective strategy to move towards your goals, my guidance to you is to choose somebody who is a Fee-Only financial planner. What a Fee-Only financial planner is somebody like we do at Real Life Planning and like my financial advisor network, which is called the XY Planning Network or the National Association of Personal Financial Advisors.

[00:12:23] You want to pick somebody who is paid directly by clients. That means they don't charge commissions. They don't have to charge brokerage fees. They're not getting fees to distribute insurance or mutual funds or anything like that. So a Fee-Only planner aligns your interest as a client with the interest of a planner.

[00:12:44] Now, lots of different ways to pay Fee-Only planners; different business models. You might pay somebody what's called assets under management. If they're a Registered Investment Advisor, you may pay them a percentage of the securities that they manage for you. That's called an AUM model; assets under management. There are some real estate financial planners who work under that model. There is what's called a fee-for-service model. That's what we use in our practice, Real Life Planning. So in our practice, there's an upfront planning fee, and then there's a monthly subscription. That's pretty common also in the real estate financial planning space. Some folks use a net worth fee model, and some people bill particularly, advice only planners where they don't manage securities portfolios; just bill either on a flat fee or like a flat annual retainer. Sometimes paid quarterly, or could be just an hourly model which is a good fit for somebody who has a short term engagement. Lots of different ways to pay your planner in the Fee-Only space.

[00:13:49] Outside of the Fee-Only space, know what you're getting into. Make sure that if you're working with somebody that works for a big financial services firm or a broker dealer, for example, that they are transparent about the fees that you will pay.

[00:14:04] Sometimes, financial advisors present themselves as fee based. What that means is that in part of the transaction, they may charge a fee like a Registered Investment Advisor. In other parts of the transaction, they might earn commissions for selling insurance or placing a mortgage or something like that. So fee based means that's a combination of fees which would include commissions and brokerage fees. But maybe the right person for you. You just have to do your due diligence and make sure that person has fully disclosed how they get paid and if there are any conflicts of interest, right? That's a requirement for all financial planners.

[00:14:44] The other thing is somebody that's just strictly you pay them a fee for products, like the upfront fee on the mutual fund or the commission on an insurance sale, for example. I would encourage you to think if somebody says, "Oh, you don't pay any fees," that's probably a run away fast in the other direction, because there's always fees. If somebody says, Oh, like an insurance person, for example, says, "Oh, you don't pay a fee." I'm sure there's a fee. It's not free. So, make sure that you ::understand and that your planner is going to be super transparent with you about how they get compensated for the work that they do.

[00:15:20] Again, just to sum up here, some good places to look for a Fee-Only planner- National Association of Personal Financial Advisors, napfa.org. You can search for people who have real estate experience. You can also go to the xyplanningnetwork.com. You can search for planners and you can search by real estate and see who's got real estate experience.

[00:15:43] Different people to look at different parts of the country. You can also go to find someone who has been through the Real Estate Financial Coach course. This is a continuing education course that I and some other real estate financial planners have put together to try and increase the number of planners who are skilled in providing financial planning that is customized to real estate investors. So if you see somebody that's been through the Real Estate Financial Coach course, know that they've had not just their CFP®, but they've got a basic level of real estate financial planning expertise.

[00:16:19] Let's talk a little bit about questions to ask when interviewing planners. We talked about compensation models, but even more important than that is how do you figure out if your financial planner actually understands real estate? I think the first thing you want to know about them is whether they have walked their talk. Do they actually, at this time, own investment real estate or have they owned investment real estate in the past? Does their experience match your need? Now, you may own say small multifamily properties and your financial planner maybe owns apartment buildings, for example but you want somebody who has personal experience owning investment real estate.

[00:17:09] Let's say you want to be a hard money lender, you want somebody who has some personal experience being a hard money lender . This is very helpful to have a financial planner who has walked the path that you are trying to walk. Now, if you're just getting started as a real estate investor, you don't necessarily need to work with a financial planner who's got hundreds of doors and has, already become work optional themselves.

[00:17:34] But you do want somebody who has been through this rodeo a few times and can give you guidance about getting started. If you are somebody who has a lots of commercial properties and you're doing a complicated 1031 exchange to a Delaware Statutory Trust, or you want somebody who has been through this themselves or with clients before so that you get somebody with an appropriate level of expertise for your situation.

[00:18:02] Think of your real estate as a business. You want somebody who has some business experience in that area. I think and I say this to my students is that don't try and coach above your level. This is an area that the consequences of not being right are pretty significant. So you want somebody who has owned some real estate in the past, they have some actual practical real estate experience in some way.

[00:18:29] So you want to ask about their financial planning process. Are you looking for somebody to do a lot of work behind the scenes and not meet that much and then just present you with recommendations and you get to take those recommendations and go ahead and implement them? Or are you looking for somebody who is more of a collaborative, a coach or mentor who is going to take that second look at what you're doing, give you their opinion about it, and coach you for better decisions.

[00:18:58] There's nothing good or bad about it. There's nothing inherently better about either model. What's important is that it's the right model for you and what you're looking for. Some real estate investors are looking for more of a mentorship/coaching relationship in which the client remains expert and the financial planner is like their board of directors, giving them some guidance about what they're doing or not doing. And some people just want a list of things to do. They don't want to spend a lot of time in conversation. They just want somebody to hand them a financial plan, if you will, and then they'll go implement the parts of it that they want to.

[00:19:34] Think about where on that continuum you fall and what you're looking for in terms of an engagement. Do you want a time constrained engagement? Do you want something that goes on over multiple years, maybe decades? That's another thing to think about. Obviously you're going to ask somebody about their credentials and their fee models.

[00:19:52] You want to ask them what resources they have to help you if you need referrals. Can they introduce you to Realtors® in your target market? Can they introduce you to lenders, to a real estate savvy CPA? Can they help you find somebody to do a cost segregation study, for example? What's their network like? Can they help you build your team?

[00:20:13] You also want to ask them questions about how they manage securities portfolios, if that's something that you're looking for. So do you want somebody who can give you guidance but not management of your securities accounts ?

[00:20:27] Give you advice about what's in your taxable brokerage or your 401k, and then you go off and trade it yourself? Or do you want somebody who is going to manage your securities accounts for you on a discretionary basis or in collaboration with you where they have the right to trade your account.

[00:20:43] Think about what you need before you start interviewing planners so you can find somebody that checks those boxes for you.

[00:20:51] The other question to ask a planner that you're interviewing is do they have spreadsheets and analysis tools that they use that they're willing to share with you, so that they can help you do deal analysis if that's something that you're looking for, right?

[00:21:06] Particularly, the newer or the scaling investor is looking for a second pair of eyes on whether a property purchase or sale makes sense in their particular financial situation. So you want to understand a little bit more about your financial planner's process for evaluating changes in your real estate portfolio and how can they help you look at your property individually and also all of your properties collectively as a portfolio so that you're tracking and monitoring that over time so that you can maximize it.

[00:21:42] Lots of things to think about when you're looking for a financial planner. Again, I want to invite you to interview many people. It's a personal relationship which hopefully that person will be a trusted partner for you over many years or even decades. So you want to find a good personality fit, not just a skills fit. You want somebody that you're going to be comfortable talking to on a regular basis, that you will seek their guidance and counsel before you make a big financial decision. You want to be comfortable with them. If you're married or in a partnership, your spouse or partner needs to be comfortable with them. You're going to be sharing a lot of personal information with this person. So really you need to be super comfortable with them on your team. Feel free to take folks for a test drive to find the person that is the right fit for you. There's no one person that's the best financial planner for all real estate investors. It's who is going to be the best financial planner for you as a real estate investor.

[00:22:44] So I hope I've given you some things to chew on today.

[00:22:47] And as always leave your comments or questions down below and we look forward to seeing you in the next conversation. Thanks.

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