choosefi annual cfp roundtable

058 | Annual CFP Roundtable 2017 | Kyle Mast and Danny Kenny

A roundtable discussion with two CFPs, Kyle Mast and Danny Kenny, on what financial planning looks like in practice, the importance of talking to a CFP and managing different types of risk.

On today’s episode we cover:


  • Roundtable Q&A with two Certified Financial Planners
  • Kyle and Danny’s backstory
  • How they learned about FI
  • Why you should use the services of a CFP
  • How they act as an educator and therapist between spouses
  • What financial planning looks like in practice
  • The different CFP models
  • Why everyone should talk to a CFP
  • How to find a CFP
  • Why it is important that your CFP is a fiduciary and how to make sure
  • The changes with the new tax bill
  • The steps between the accumulation and draw-down phase
  • Biggest mistakes clients make
  • How to get both spouses on the same page
  • The importance of keeping records
  • How to deal with people who panic
  • Risk management outside of investments
  • Why it’s worth getting long term disability insurance
  • When should someone consider index funds
  • Importance of mixing US and international investments
  • Hotseat questions


Links from the show:


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13 thoughts on “058 | Annual CFP Roundtable 2017 | Kyle Mast and Danny Kenny”

  1. Interesting episode. I would love the guests to answer the following questions:

    1.) How does any fiduciary legally justify a 1% AUM fee? If the market provides a real return of 5% (7% nominal – 2% inflation), this 1% fee will devastate returns over a long investing horizon. Take $1 invested today at a 5% real return (no AUM fee) or 4% real return (after accounting for 1% AUM fee). Assume 30 year investing horizon. No-fee scenario results in $4.32 (=1.05^30). 1% AUM scenario results in $3.24 (=1.04^30). The seemingly small AUM fee destroys 25% of the client’s real returns (=(4.32-3.24)/4.32)). This is a remarkable transfer of wealth from the investor to the advisor. I cannot fathom how any fiduciary (who is not delusional or alternatively bad at basic math) could honestly defend this theft.

    2.) What percent of AUM financial advisors understand the magnitude of the AUM theft, which is exasperated through the additional layer of advising to investing in high expense ratio mutual fund fees? My experience with financial advisors has been very underwhelming. Most are mathematically inept, and as a result I suspect that most financial advisors don’t truly understand the extent to which they are taking wealth from their clients (“the tyranny of compounding costs” in the words of John Bogle).

    3.) What are your thoughts on target date retirement funds, which essentially negate your main job function of picking fund for clients, and do so for about 0.15% at Vanguard? Do you view the proliferation of such funds as an existential risk for financial advisors?

    4.) Assuming you kick the bucket tomorrow and therefore wouldn’t be able to provide free financial advice to your children throughout your lives, would you advise your children to utilize AUM financial advisors? Why or why not? If so, how would you justify so in light of the math behind question #1 above?

  2. Hello, this is Danny.

    To answer #1, I think it comes down to the amount that you are paying your advisor. If you are paying $10,000 out of pocket, isn’t that really the same as paying 1% of $1m? Using AUM and billing automatically is just an easier model administratively, especially for higher net worth and older clients. It may be a model that doesn’t work for all clients, especially younger folks. Considering the amount, it goes back to the value we are providing and the value that the clients perceive we provide.

    #2 I’m sorry you’ve had experiences with subpar advisors, all of the advisors I have worked with and most of the advisors I’ve interacted with are intelligent enough to understand this math. We don’t advise clients to invest in high fee funds, our diversified portfolio recommendations are in the 17-18 basis point fee range.

    #3 As I said in the podcast, we believe there is some value in certain areas of the market where inefficiencies exist that fund selection does provide value. Given that our recommendations are .02% higher in cost, I don’t think there’s much of an argument against our choices. I don’t view these as a risk to advisors since I’d like to think we provide a lot more services and value than simply picking funds. If you wanted a fund picker you can go to your local brokerage firm and have them do so on a commission basis, you’d likely pay much less for those funds but would you be getting unbiased advice?

    With that said, I think target date funds would likely be a great option for investors who don’t want to do anything on their portfolio. These funds change their allocation to be more conservative as you approach your retirement date, but there is a significant variance among these funds as to what the appropriate allocation would be. For example, Vanguard’s 2030 fund may be 60% stocks whereas Schwab’s 2030 fund is 55% stocks. You should research the underlying holdings to make sure they’re doing what you expect. With that said, I think a DIYer would get more value out of building their portfolio themselves and actually control the allocation, likely at a lower cost.

    #4 As I said in #1, I think that the AUM model is one that wouldn’t be best for my family. I mentioned the net income/net worth model on the podcast which is a model that a lot of new firms are using, and I think that works better for younger clients and families. If my family needed advice that cost $20,000 per year, it would likely be easiest to have that billed on an AUM basis and withdrawn directly from the account.

    Thanks for listening and commenting!

  3. Frugal Professor –

    Excellent points! I did a double take when I heard the 1% AUM fee and had to go back to that section of the podcast to ensure that I heard it correctly. There are a couple of points which were made by both Danny & Kyle which, in my opinion, made sense. I believe Danny stated and I am paraphrasing, but sometimes he acts a mediator for spouses which either have differing opinions or where one spouse may come up with the financial game plan but the other spouse isn’t on board. I just don’t believe that you can achieve all of your goals unless both spouses are working as a team.

    In a situation where one spouse may pass away I can definitely see the value of having someone on your team that is familiar with your financial game plan and can help guide the surviving spouse. I know in my own situation, my spouse is totally on board with achieving FI. We have a conversation about where our money is going and we agree on it, together. She is extremely frugal and an excellent saver and shopper but she wouldn’t know that VWIGX is up 43% in the last twelve months. So, I can see the value with having someone familiar with our financial plan being able to assist either myself or my spouse in a time of need.
    It was also nice to hear someone say that VTSAX isn’t the be all, end all. If you want to lower risk, standard deviation, volatility and increase returns, you need to invest in International funds.

  4. Good podcast but one criticism: they were commenting on the new tax law, specifically an earlier version than what was adopted and may have led people to think some changes have occurred (specific example – 2/5 rule for housing profits did not change to 5/8 as was proposed). Recommend you address this in the R if not too late. Thanks, Glen

  5. Thanks Glen – of the main points we discussed, a few did not make it into the final version of the bill:
    – As you mention, if live in a house for 2 of the previous 5 years, the gain exclusion rule is still intact.
    – FIFO treatment of capital gains – this change did not make it into the final bill.

    Areas we discussed that did make it into the final bill:
    – Roth Recharacterization – this change did go through, there is no ability to do a Roth recharacterization going forward.
    – 529 Plan distributions – this change did go through, you are allowed to distribute $10,000 per year to cover education expenses before college (private elementary school etc). A planning opportunity here is to run funds through a 529 plan if you are paying for private school to get your state income tax break on those contributions – if applicable in your state.

  6. I am hoping to find some of the questions/methods Kyle uses for his yearly planning retreat. I feel like the practice of a planning retreat would help my wife and I. We both work multiple part-time jobs (by choice) to optimize our flexibility, but with that we sometimes feel like we are drifting since we aren’t on the hamster wheel of career advancement. We also let the opportunities come to us instead of pursuing the opportunities and goals we want (to a certain extent). A planning retreat might help us solidify our direction, but I want to do it well if we are going to set aside the time.

  7. I am with you, JP. I just took these notes from the podcast, but any direction anyone has for a planning retreat agenda or keys to guide discussion would be great. Any recommended resources for making the most of the retreat? Thanks in advance!!
    Word Doc
    Update Budget, Finances
    Life in general – hours spent with business, with family
    1, 5, 10, 20 year goals udpated
    Buying House
    Starting Business

  8. Great podcast overall! As someone who previously was a Financial Advisor I just shake my head when I hear people in the FI community slam advisors and planners over…and over…and over. I think as a group we in the FI world tend to band together to challenge the social norms around us without civilly challenging each other’s ideas in the spirit of improvement (although ChooseFI does an excellent job of this).

    I do have one question: I understand the value of index funds. I also understand that most actively managed funds lag their indexes. But some don’t. In the hypothetical you mentioned you’d sell the 20 year old American funds to go into an index. Why? Despite what many believe to be unjustifiable fees, every single equivalent American Fund has outperformed the S&P500 over that time frame, often with less volatility. No tricks, no survivorship bias, etc. Do you think that the next twenty years will be different? Or is it something else?

    Again, thanks for another great podcast and also thanks for showing a clear light on the financial planning industry!

    • I think the point is that most actively managed funds overall tend to lag their indices and a reasonable projection forward is that most funds will continue to lag the index.
      However, it’s important to consider the tax cost of liquidating that position and compare that to the savings in management fees. It may make more sense to keep the legacy position even if it has somewhat higher fees and therefore lags the index.

  9. I was a little disappointed that this episode came off as the “CFP: defend yourselves” episode. It was an opportunity to learn about what a CFP can offer, not to find all the reasons they aren’t useful. A growth mindset is helpful. There is a large swath of people for which a money coach would probably be very useful. Everywhere you look, wealthy and successful people are exactly the ones willing to pay for professional help and coaching. Michael Jordan had a team of coaches, and it wasn’t to save time on reading about basketball online.

    I’m not an advisor but I think that topics under-discussed in the FI world include: entrepreneurship, long-term disability insurance, and estate planning. For those last two items, a financial advisor (whether CFP-designated or not) would probably be very helpful.

    For those asking about discussion prompts for retreats: check out Montana Money Adventures (this one and many other posts/email classes):
    and also Joshua over at Radical Personal Finance — episode 116 if you can find it, I couldn’t with his new web site. JD Roth writes about this as well at Get Rich Slowly.

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