Financial Rules of Thumb

Financial Rules of Thumb

Do you find it difficult to sort through all the "expert opinions" and confidently know how much to save for retirement, how much debt is appropriate, or how much to set aside in savings for emergencies? You are not alone. To make life easier, I created a list of benchmarks that can be useful for anyone looking for general guidance on whether or not they are on track financially.

Savings - Piggybank.jpg

How to use these rules as a guide

Most of us need more specific direction than a set of arbitrary rules that say you have to save 10% in order to be successful in retirement. My experience with clients has shown that individuals and families often share a common thread when it comes to their types of goals, but the solution to those their problems requires more customization. Why? The answer is simple. We are all human. Humans are very complicated creatures and therefore we frequently require specialized experts, like a doctor, to understand our problems, relate to our needs, and translate complex issues in a way that allows us to make our lives better.

The reality is our emotions frequently drive the decisions we make, and those decisions are sometimes not the most rational. That emotional complexity is further compounded by the fact we all have varying levels of access to financial resources, with differing ideas on how our resources should be used. Situations really begin to get overwhelming when our goals start competing for the same limited number of resources. The stress that follows is often what leads to irrational behavior.

Consequently, the further we drill down into our personal money issues, the problem solving required to meet our needs becomes a lot more complicated than any general guidelines can provide. The various financial trade-offs that are at odds with each other might mean a person cannot afford to achieve every rule of thumb. Additionally, some of us may need more or less than what is generally prescribed. This is where an objective and competent financial expert will bring clarity. Such an expert, whether it be a friend or an advisor, increases your odds of successfully achieving financial independence.

Without further ado, scroll below to review the Financial Rules of Thumb and use it as a way to benchmark your progress, but remember it's not the end all be all.

Coins & Clock.jpg


  • The 50/30/20 Rule
    • Spend 50% of your income on needs, like housing and bills
    • Spend 30% of your income on discretionary wants, like travel and hobbies
    • Save 20% of your income for financial goals
  • Save at least 10% of income for retirement
    • 15% is ideal to ensure a secure retirement
    • Whenever 10% is too much, start off small at 5% and increase incrementally by 1% every 6-12 months until 10% - 15% is achieved
  • Emergency Fund = 3 months of living expenses at a minimum
    • 6 months for less stable incomes or retirees
    • 12 months for nervous types


  • Total of All Debt Payments = 36% or less of monthly gross income
    • Mortgage, car, credit cards, and student loans
    • $100,000 Income Example -- maximum debt payments = $3,000/month 
  • Housing Payments = 28% or less of monthly gross income
    • Applies to owners and renters
    • For owners be sure to include: mortgage, property taxes, homeowners insurance, association dues, and private mortgage insurance (PMI)
    • $100,00 Income Example -- maximum house payment = $2,333/month
  • Consumer Debt Payments = 20% or less of monthly take-home income
    • Includes car, credit cards, student debt, and other
    • $100,000 Income Example (FL Res.) -- net pay = $81,861 --> maximum consumer debts payment = $1,364/month
  • Total Student Debt < Annual Gross Income
    • Coming out of school, a graduate's student debt should be less than their annual salary
    • Whenever the total student debt amount exceeds annual income, the borrower should strongly consider using an Income-Driven Repayment (IDR) plan -- IBR, PAYE, REPAYE


  • 100 - your age = Percentage of Investments to Allocate in Stock
    • Example -- a 40-year old should have 60% in stocks and 40% in bonds and cash
  • At least contribute up to the company match in your 401(k) plan
    • If a company matches 50% up 6%, by following this rule you are getting a total contribution to your retirement of 9%
  • Limit concentrated stock ownership to 10% of investable assets, especially at retirement
    • $500,000 in CSX Railroad Example 
      • A 35% decline similar to what happened in 2016 is a loss of $175,000
      • A 63% decline like what happened in 2008 is a loss of $315,000


  • Retirement income should be 80% of your pre-retirement income
    • Lifestyle dependent
    • Some people spend more when they retire because they want to travel
    • Other may spend less because the mortgage is usually paid off
  • 4% of investments is a safe withdrawal rate to avoid running out of money
    • Highly dependent on retirement age, longevity expectations, risk exposure, and investment performance
    • Bad timing with investment returns relative to when you retire also has an impact
  • It's always better to delay taking social security
    • True for retirees who have longevity in their family
    • Not true for retirees with lower than average life expectancies


  • Life insurance coverage = 6 - 8 times your annual income
    • $150,000 Income Example 
      • 6x Salary = $900,000
      • 8x Salary = $1,200,000
  • Long-term care insurance coverage is an appropriate asset protection strategy for those with a net worth between $200,000 and $2,000,000
    • Anything below $200,000 and Medicaid planning is probably a better alternative
    • Long-term care is best used for low to moderate incomes with a lot of assets to protect
    • The average stay for a man is 1 year and the average for a woman is 1.5 years
    • 70% of people who reach age 65 will eventually need nursing care, however, according to the Center of Retirement Research 50% of men and 39% of women will only stay in a facility for 90 days or less
  • Minimum auto policy coverage
    • Liability per Person = $100,000
    • Liability per Accident = $300,000
    • Property Damage = $50,000

Equifax Data Breach: How to Protect Your Identity

Equifax Data Breach: How to Protect Your Identity

FUBAR! A saying that originates from our military and aptly sums up the recent data breach at Equifax. If you don’t know what the acronym means, I suggest doing a Google search, so that I can keep this blog PG-13. I am tempted to yell every curse word in the book because my wife and I had our information compromised. From what I gather, anyone with a credit history is at risk too. Insane!

If you have been living under a rock, Equifax (EFX) has put 143 million people – 44% of the US population – in harm's way due to their inability to protect customer identities from data hackers. In other words, the odds are your personal information has been compromised. This includes your social security number, date of birth, address, and possibly even your driver’s license number. What this means to you is that the criminals who possess that information can use it to open new lines of credit or file a phony tax refund. In severe cases, the criminal will make every attempt to impersonate you as a means to access your bank accounts.

Based on my experience helping a customer through such an incident when I was a Personal Banker, I saw the consequences of ID theft secondhand, and they are painful enough that anyone affected by the data breach should take what happened very seriously. In fact, I suggest everyone with a credit history verify whether or not his/her information was impacted by the Equifax data breach. To check if your identity was compromised click here. However, knowing you were impacted is just the beginning in terms of protecting your exposed information.

Finger Print.jpg

If you are one of the unlucky 44%, then you should consider the following steps outlined below to protect your valuable personal information:

Enroll in a credit monitoring service, either through Equifax’s free offering (free for 1-year only) or another paid service like LifeLock. LifeLock’s plans range from $10/month - $30/month. What’s advantageous about LifeLock is their reimbursement feature. Before finalizing the Equifax offering (you should get a confirmation email within a week), be sure to opt out of the mandatory arbitration agreement. Doing so allows you to pursue legal action in the event your information was compromised because of Equifax. By all accounts they waived this controversial clause for those affected by the data breach according to this report, but I wanted to offer a word of caution just in case.

Equifax’s product, called TrustedID Premier, provides:

·      $1M in ID theft protection

·      Monitor your credit file with the 3 main bureaus – Equifax, Experian, & TransUnion

·      Copies of Equifax credit report

·      Credit report lock to limit third parties ability to access your credit report

·      Social security number monitoring

Monitor and double-check your account statements. Note, the criminals usually start with smaller transactions across many accounts. Look for anything unfamiliar and if you see suspicious activity shut down the credit card immediately.

Opt out of credit offers for 5-years or permanently. One of the many tricks by ID thieves is to intercept pre-screened credit card and insurance offers that were meant to go to you. Click this Opt-Out link or call 888-567-8688 to remove your name from these types of offerings. Personally, I signed up to have my name permanently removed. However, some of you may want to go with the 5-year option because it is more easily completed online and thus takes effect immediately. Permanent removal requires one extra step in that you have to mail the physically signed form, which is generated after electronic submission. 

Freezing your credit with all 3 major credit bureaus. A credit freeze is one of the best ways for consumers to protect themselves from ID theft. Doing so costs $10 each with TransUnion and Experian and is free with Equifax. I won’t sugar coat it, going through the process of implementing a freeze with all three bureaus is a hassle. On the other hand, it is way less burdensome than having to unwind a bunch of phony credit cards. You also need to be mindful that you are required to thaw your credit whenever applying for a new job, obtaining credit, buying a house, shopping for a car, or switching your cell phone service. Therefore, it’s best to wait to freeze your credit until after any pending credit approval is completed. One last tip is to make sure you save your PIN in a secure, easy to remember place. Your PIN is necessary for temporarily unfreezing your credit.

Placing a fraud alert on your credit file with all three major credit bureaus. Alternatively, putting a fraud alert on your file is a decent backup plan if you intend to hold off from doing a credit freeze. A fraud alert requires a business to call and verify your identity before proceeding with a credit application. Typically, a fraud alert is only good for 90 days, but you can request an extension by faxing or mailing an Extended Fraud Alert Request Form with each bureau.

Credit Cards Back Pocket.jpg



·      Online or by mail (sample letter)

·      To unfreeze credit go online, send letter by mail, or call (800) 685-1111

·      Mailing address – Equifax Freeze, P.O. Box 105788, Atlanta, GA 30348

·      To call about delays receiving your PIN – (888) 298-0045


·      Online, by mail (sample letter), or call (888) 397-3742

·      To unfreeze credit go online, send letter by mail, or call (888) 397-3742

·      Mailing address – Experian, P.O. Box 9554, Allen, TX 75013


·      Online, by mail (sample letter), or call (888) 909-8872

·      To unfreeze credit go online, send letter by mail, or call (888) 909-8872

·      Mailing address – TransUnion LLC, P.O. Box 2000, Chester, PA 19016

Financial Lessons from Hurricane Irma's Destruction

Thanks to Hurricane Irma, my wife and I evacuated our family and have been holed up further inland at the Sheraton Hotel for the last 48 hours. In fact, we will be stuck here another 24 hours while we wait for our power to come back. As an Ohio native, I am still getting used to Florida life and adapting to the "hurricane days" instead of "snow days." The entire city of Jacksonville is shut down, and for good reason. I used to think the snow days were bad, but with a fresh perspective, I am thinking those snow storms weren't so bad after all. Based on estimates by AccuWeather, the cost of Irma's devastation to our economy will be somewhere around $100-billion. If that doesn't make your jaw drop, it should. That amounts to 0.5% of the United States' GDP.  

Hurricane - Palm Trees - Risk Management.jpg

risk management planning

Hurricane Irma's destruction is an unpleasant reminder to us all that there are life altering costs associated with such natural disasters. Unfortunately, the financial aftermath will hit some people's wallets a lot harder than others. In fact, only 42% of affected homeowners in the state of Florida have flood insurance, according to the Flood Emergency Management Agency. Worse yet, 80% of home damages caused by Hurricane Harvey were not covered.  

Bad luck is certainly part of the story, but in reality, it boils down to one key component -- sound risk management planning. Any homeowner living near a body of water without flood insurance coverage exposes themselves to thousands of dollars in potential damages. Flood insurance protects the homeowner from damages that result from water rushing through floorboards and walls. On the other hand, a standard homeowner's policy will only cover water damage when it is directly caused by wind breaking a window or ripping the roof off of a home. Even then, the insurance adjuster has to evaluate whether or not the damages were caused by wind or flooding. That process usually takes much longer than the typical 30 day timeframe because the adjuster must properly distinguish the types of damages. 

Forms of relief when you don't have flood coverage

So what should a homeowner without flood insurance do if their home was damaged by flooding? One option is to apply for federal disaster relief benefits. However, those benefits are paid in the form of a low interest rate loan and may result in a 2nd lien on your house. Another form of relief for the homeowner is that some banks will allow for a temporary forbearance period for those in affected areas. What this does is allow the homeowner to postpone their mortgage payment for a period of 60 to 90 days.  

no more excuses

The headline sounds a bit harsh, but it's time for our country to start acting more like a grown up and take responsibility for the decisions we make. Some of the reasons why a homeowner might not have proper coverage might be a result of procrastination, forgetting to renew a policy, or a willingness to assume the risk themselves.

Procrastination should never be an option when it comes to insuring an asset that is worth hundreds of thousands of dollars. Get in touch with your insurance agent today if you have been putting this off. The maximum coverage limits for a flood policy are $250,000 for property and $100,000 for contents. That should put the potential damages into perspective.  

Forgetting is a poor excuse nowadays, especially when there are payment options like auto-drafting from a credit card or bank account (ACH). In fact, if you like earning credit card rewards, linking the payments to your card is a smart way to capitalize on your recurring bills. And, for those who like to feel like they have a little more control, another automated option is to use your bank's bill pay service. In the event your policy is not paid, the good news is that the state of Florida allows for a 10-day grace period until your policy is no longer valid. After 10-days you will get a notice of cancellation and will need to reinstate the policy.  

Lastly, assuming the risk yourself (i.e. no flood coverage) is a major gamble not worth the catastrophic consequences. The cost of a policy depends on where you live, however, the national average for a flood policy is $700. Unless your name is Mark Zuckerberg, there is no good reason I can conjure that justifies self-insuring against an event that can and will cause major losses. So if you live in an area that is at risk, do yourself a favor and apply for a flood policy right away. Acting urgently is especially important because your flood insurance coverage usually takes at least 30 days to take effect after purchasing a policy.

Flood Damage - Financial Planning.jpg

Applying for flood insurance

Flood insurance can be purchased through the National Flood Insurance Program (NFIP), which is managed by the Federal Emergency Management Agency (FEMA). Coverage is readily available to homeowners that live in a NFIP participating community. Check out the state of Florida list to see if your community is a participant. Should you need to directly reach an agent, go to or call 888-379-9531.  

what flood insurance does not cover

Like all types of insurance, your flood coverage has limitations. The following is a list of what your flood policy will not protect you from:

  • Water damage that originated from inside the home
  • Swimming pools and hot tubs
  • Landscaping
  • Damage to a dock
  • Mold or mildew damage that could have been prevented
  • Living expenses resulting from vacating house
  • Business disruptions if you work from home
  • Currency or stock certificates that get destroyed
  • Improvements to a basement 

tips for filing a claim

File your claim as soon as possible. Note, insurers will focus on the neighborhoods most severely affected first. Upon filing your claim be sure to request your claim number and write it down. It's also wise to ask the insurance company how long until you will be contacted by an insurance adjuster, which can range anywhere from 1 week to 6 months. The good news is that any delayed claims require the insurance company to pay interest.  

Obtain documentation of your losses with photos and/or video. Make a list of all items that are damaged, approximate date of purchase, and estimated value at the time of loss.  

Keep your receipts. Be sure to keep receipts related to all necessary immediate repairs. 

Don't discard damaged items until you have checked with the insurance company. The insurance adjuster will most likely need to see the damaged property and items before they are thrown out.

To love, or to hate annuities? That is the question

Why the controversy?

An annuity in its most basic form is a guaranteed income stream from the insurance company. Did you know that the social security check that we all hope is around by the time we retire is an annuity? Remember the glory days of when everyone retired with a secure pension? Those are annuities too.
Then why do advisors and investors have such a serious love or hate relationship with annuities? The reason is a lot of these products have been misrepresented by commission hungry investment reps. The agent sells the "guarantee" without explaining how those guarantees have a tradeoff. Most annuity products often carry consequences like loss of liquidity, higher fees, and penalties. However, when used properly annuities can be a useful income solution to take pressure off of withdrawing a higher percentage of money from growth-oriented assets that often carry higher volatility and drawdown risks. TV personality and self-proclaimed industry guru, Ken Fisher, is flat out wrong when he says annuities are bad for everyone. Keep in mind, Mr. Fisher wants your money just like every other advisor eager to grow their business. He's a great marketer and is selling to a specific niche -- people who distrust annuities or people who distrust the agent who sold them their annuity.

Actually, annuity products were created to help investors who want to take a more conservative approach and value certainty in their lives. In other words, annuities offer peace of mind and protections not offered with most other investment strategies found in the securities markets. However, before making a long-term commitment to an annuity, it is highly advisable to do your proper due diligence. Annuities are bad when a broker pushes an annuity that the client never asked for. Unfortunately, many clients will often find out their annuity was a bad fit after it is too late.  

Shakespeare agrees... The answer for annuities is, it depends.

Shakespeare agrees... The answer for annuities is, it depends.

How to Shop an Annuity

If you are not sure where to start with your due diligence, an independent fee-only financial planner is usually a good place to begin. On the other hand, if you prefer to do it yourself, the following tips about the various types of annuities should help you determine how and when an annuity might suit your needs. Also as a general rule, most investors shopping for an annuity should consider doing so once they are in their late 40s at the earliest. The sweet spot age for annuities applies when an investor is at or nearing retirement (ages 50 - 70). Keep in mind, there are always exceptions to the rule. The ages given are meant merely as basic guidelines.

At a high level, there are 5 common types of annuities available to investors. However, many of these can have other bells and whistles (i.e. riders) that affect how the income or deferral strategy will benefit you, the investor. To help you understand which one might be right for you, the following is is a summary of the features and benefits associated with the 5 most common types of annuities.

1) Single Premium Immediate Annuity (SPIA)

Lump sum payment goes towards providing the annuitant (person benefiting from income) an immediate guarantee of income specified over a set time period or for that person's lifespan (or joint lives). The income stream is based on the age of the annuitant(s), dollar amount invested, the time period being guaranteed, and current interest rate. The advantage is that an annuitant can create an income stream that will last their entire life. The primary disadvantage is you have very little to no liquidity. Meaning you lose access to the sum of money you just invested.

2) Single Premium Deferred Annuity (SPDA) 

Similar features to the SPIA, but the main difference is that the income distributions begin at a later date. The date at which income is to begin is typically specified at the time of purchase. Make sure to read your terms and conditions carefully before signing the dotted line. A commonly used strategy here is referred to as a QLAC (Qualified Longevity Annuity Contract), which allows the investor to exclude up to $125,000 in qualified IRA money from counting towards RMDs (Required Minimum Distributions).  

3) Fixed Annuity (FA) 

An effective tax-deferred strategy for more conservative investors. Similar to a CD in terms of overall protection features. The primary difference being that a fixed annuity is NOT backed by FDIC insurance. However, these annuities are backed by the full faith and credit of the insurance company, so make sure you pick a company with good ratings. Basically, a fixed annuity is a deferred annuity investment that pays a fixed interest rate for a specific number of years and protects the principal against loss. Typical contracts range from 5 to 10 years. Longer term contractual commitments usually mean a higher interest rate to the investor. Be aware that during the contract period when the interest rate is guaranteed is when penalties could be imposed (surrender charges) to access your money. Keep in mind, most insurance companies provide a 10% liquidity feature. So an investor with $100k in an annuity could pull $10k without incurring a penalty. The liquidity option can be a one-time deal, or on an annually renewable basis. Withdrawals that are the result of RMDs typically avoid being penalized as well. Note, the deferred sum of money can be annuitized into a guaranteed income and converted to SPIA. Lastly, some insurance companies force annuitization once the annuitant reaches age 95.  

4) Fixed Indexed Annuity (FIA) 

A hybrid between a fixed and a variable annuity. Also, offers tax-deferral for after-tax dollars invested or transferred cash value from life insurance. Provides the principal protection desired by the fixed annuity investor, but offers the upside potential of a variable annuity, up to capped level. So there are limits placed on the growth of the account because of the downside protection feature. In other words, the investor is giving up the unlimited upside available in the stock market. It's common to have the index linked method like the S&P 500 be used to generate the upside performance. For example, say a fixed indexed annuity has a point-to-point participation cap rate of 6% that is tied to the S&P 500. In scenario A the market goes up 10% -- here the investor is credited 6%. In scenario B the market goes up 3% -- this time the investor gets 3%. In scenario C the market is down 20% -- thankfully the investor doesn't lose any money and sees a flat account value year over year. More recently, a lot of new fixed indexed annuities offer other customized features that you can add to the contract called riders. For instance, a Fixed Indexed Annuity with a guaranteed income rider is a way to provide the investor a better liquidity alternative than the SPIA or SPDA, while still offering the contract owner income certainty. The disadvantage is that the guaranteed income stream will be less than what is provided with a SPIA or SPDA.    

5) Variable Annuity (VA) 

VAs originally came about as a way to provide tax-deferred growth for extra savings lying around. The sub-accounts available through these types of annuities are essentially the insurance companies version of a mutual fund. High-net-worth investors and investors who have maxed out all other retirement vehicles (IRAs & 401ks) stand to benefit the most from the tax-deferral feature. Also, an income rider can be used (like the FIA) for guaranteeing an income stream while offering the contract owner partial liquidity. Other riders you might see are a death benefit guarantee, "10-year put" that protects the principal from any losses in 10-years, or guaranteed return of principal in the form of lifetime income distributions. These products more than the others get a bad rap because of all the confusing options that the investor has to select from. Actually, sometimes the advisor doesn't understand what they are recommending. Whoa! However, that is where a good financial advisor that holds themselves out as a fiduciary can help bring some clarity. The biggest challenge for a lot VAs is that they can be very expensive. On the low-end, a VA with no riders might cost the client 1.25% per year, whereas a VA with every bell and whistle can cost the client as much as 4% per year. Needless to say, 4% is a mega hurdle to overcome. At the same time, the guarantees offered by that VA contract just may be worth paying such a high price to some investors.

Selecting the right annuity can be an overwhelming task if you aren't armed with the right information.

Selecting the right annuity can be an overwhelming task if you aren't armed with the right information.

Bottom Line

Choosing the right annuity ultimately boils down to what safety features an investor values or needs. A well thought out financial plan is the foundation for making such decisions come into focus.

Caution, Detour Ahead: My Journey to Starting a Fee-only Financial Planning Firm

This marks the last segment of my four part series, titled, My Journey to Starting a Fee-only Financial Planning Firm. Part IV, Caution, Detour Ahead examines how a chain of events at Frank Wealth Management Group (FWMG) put me on a collision course towards starting Mellen Money Management. Here you will learn more about what brought me to FWMG and the factors that forced me to pursue a world of even greater uncertainty than ever before – owning a business. Similar to previous installments in this series, I hope to impart my wisdom upon other advisors and young entrepreneurs interested in learning from my experience.  

Nail shoe.jpg

Part IV: Caution, Detour Ahead

Most of my readers probably never heard of the last firm I worked for, Frank Wealth Management Group (FWMG). Not because FWMG is unworthy of recognition, but because most people outside of the investment management and financial planning community pay no attention to independent financial practices. For those that don’t know, FWMG is a family-owned wealth management firm based in Powell, OH. FWMG cleared all its business through an independent-broker dealer (IBD) called Commonwealth Financial Network (CFN).  This type of arrangement meant CFN retained 10% of the company’s revenue in exchange for compliance oversight, custodying client assets, technology integration, and operational support.

Back up this story for a moment… My entire career prior to joining FWMG, I had worked for larger publicly traded companies. However, starting in the year 2015, while I was working for Huntington Bank, I began to notice that smaller independent firms were gaining traction in the advisory marketplace. Whenever I competed against an independent firm for a prospective client, I frequently lost the business. These were $500k - $1M clients that were choosing a “lesser-known brand.” Keep in mind my prospect-to-client conversion ratio was on the higher end, so it was a bit of a shock to me that I was losing these large dollar opportunities.

Often times when I recognize a pattern it provokes me to think, 'why?' Therefore, I went directly to the source and asked my former prospects why they chose the smaller independent firm over working with Huntington or me. Their responses were overwhelmingly consistent. “We like you Scott and your recommendations were very insightful, however, we want to work with someone who holds themselves out as a fee-only fiduciary.”

Interesting. It sounded like I did everything right; yet the client chose to work with someone else. I then thought, there must be something to this whole fiduciary thing... So I started doing my homework and looked up what it meant to be a fiduciary. The basic definition of a fiduciary is, an agent who acts in a way that puts the best interest of their clients ahead of his/her own. My initial reaction to this statement was, 'of course I put my client’s best interests before my own. That is just common sense! I would never intentionally put my own self-interests ahead of my client’s.'

However, upon a closer look I learned there are more layers to the definition of what it means to be a fiduciary than simply believing you are doing the right thing for your clients. Often times it is the ecosystem itself that creates the conflict between client and advisor. In order to REALLY be a fiduciary, an advisor’s compensation structure should be aligned in such a way that it does not muddy the waters. In other words the advisor’s compensation should be the same when deciding to go with Annuity A vs. Annuity J vs. Mutual Fund Z.  This is an example of a level fee structure, commonly referred to as fee-only. Unfortunately, my Registered Representative position at Huntington Bank did not meet the level fee criteria of the fiduciary definition. In fact, my compensation plan encouraged me to generate as much commission upfront as possible. What’s even worse is, as the advisor, I could choose Annuity A over Annuity J without the client knowing that Annuity A generated $10,000 more in commission for me. The moment I really understood the truth I was mentally checked-out of the commission-driven world at Huntington.

This inherent conflict within me coincided at a time when a financial advisor position at Frank Wealth Management Group (FWMG) came across my radar. Based on my long-term career aspirations, FWMG looked good “on paper” because the owner, Mr. Frank, was 5-10 years away from selling all or a portion of his business. So it was an opportunity for me to eventually become a partner at a successful wealth management practice with well over $100M in asset. More importantly, Mr. Frank and I shared a similar philosophy when it came to client transparency and level fees.

Specifically, Mr. Frank’s firm specialized in working with 401(k) retirement plans. The 401(k) focus of his business afforded me a chance to learn an entirely new skillset. So worst case, if the job didn’t work out I received a “free education” about corporate retirement plans. Even though there were a few red flags prior to joining, I came to the conclusion that there were enough positives to jump ship from Huntington to FWMG. The hardest part is that I decided to leave a relatively steady income for one that started off paying me 60% less. I am pretty sure my Dad thought I was a little crazy at the time, but he still supported me. I made it clear that I only wanted to work for a company that was either fee-based or fee-only. Unfortunately advisors interested in making a similar transition, the math works out very unfavorably the first couple of years. This is a consequence of a one-time commission at 7.5% on every dollar managed being significantly more (6 times higher) than 1.25% of every dollar earned on a fee-based account. Therefore, it is next to impossible to avoid taking a step back in pay.

So what happened? Why did I last only 1 year at FWMG? About 4 months in I soon recognized FWMG was not the opportunity I expected. In fact, leaving Huntington started to feel like a mistake (it wasn’t). However, unlike when I worked at A.G. Edwards, I was more prepared to handle a potential career setback. I learned my lesson from that experience to follow my instincts more swiftly in the future. Essentially a chain of events and a few too many bad arrangements motivated me to brainstorm my next career move before it was sprung upon me. So in the winter of 2016 I decided that I needed to hedge my bets due to the lack of stability I was feeling at FWMG.   

Wrong Way Sign.jpg

Before my resignation from FWMG, there were two professional development avenues I used to protect myself. The first step was signing up to take the five courses I needed to eventually sit for the CFP® test. No matter what happened, it was important for me to have the CFP® designation before I either: A) went looking for another advisor job, or B) stayed on at FWMG. Honestly, I didn’t think I would be starting my own firm at this point. It was merely a dream and I certainly didn’t think it was something I could afford. My second action step was signing up to take Heather Jarvis’ Student Loan workshop. I came across her course while I was tuning in to XY Planning Network’s podcast, which I listened to during my daily commute.

I should note that my reason for taking Heather's course was prompted by one of my clients who came to me inquiring about his fiancé’s $196,000 debt load. I quickly understood the disruptive nature of student loans when I reviewed their problem. His fiancé was being charged an interest rate of 6.8%. Under a standard repayment plan she would have to pay this loan back in 10 years at a clip of $2,255 per month. That is higher than a lot of young family’s first mortgage payment. Also keep in mind she originally borrowed $160,000 and was making a modest income of $35,000 during her veterinary fellowship. Consequently her debt was snowballing in the wrong direction. Quite frankly, when I learned how our Federal student loan system actually worked it pissed me off.  And, I wasn’t even the one who held the debt. I simply could not believe our government and educators were so easily willing to bury a young person in debt for a majority of their adult life. As a result, I felt a compulsion to learn how to confidently advise my clients whenever they found themselves overwhelmed with the task of paying back their student debt.

After I took Heather's course I began strategizing a way to incorporate my student loan planning expertise into a corporate wellness program and leverage that as a way to grow 401(k) business for FWMG. However, my idea never really gained traction because my relationship with Mr. Frank quickly deteriorated for several reasons that are not worth airing out on a blog. Let me be clear, I don't blame Mr. Frank and I don't blame myself for the failed partnership. Sometimes that is just business. Relationships don’t always work out. The arrangement was a bad fit for both of us in terms of culture, personalities, and expectations. At the same time, I can sincerely say that I am a better advisor for having worked at FWMG and am thankful for the opportunity Mr. Frank provided.

The main rub was my lack of success in growing the 401(k) business. It wasn’t as though I was failing. Actually, by the end of my time at FWMG I brought in enough fee-based revenue from personal clients that it was generating $38,000/year for the company. Mind you I was able to accomplish this while I honored a 1-year non-solicit agreement from Huntington. Meaning there was an even better opportunity to bring in additional revenue right around when Mr. Frank and I decided to part ways. However, I saw no point in staying at FWMG once Mr. Frank decided to stop paying me a salary, and yet I was still required to share 30% - 50% of my client revenues with his firm. Our arrangement sure seemed like a one-sided affair. Bye Felicia!

Around the same time I was struggling to figure out my next career move, my wife, Emily, was entertaining a very enticing job offer. The catch, we would have to relocate from Columbus, OH to Jacksonville, FL. The obvious drawback for me was I had to figure out how I could help us pay the bills while running a new company. Fortunately, enough of my loyal clients were more than okay with me relocating. Therefore, I owe a great deal of thanks to every one of those clients who put their faith in a company no one had ever heard of. Like me, they took a risk. However, that was the most important lesson I learned during my journey. Personal relationships are everything. 

Grandma & Scott.jpg

Before I let my readers off the hook, there is something else worth mentioning – my grandma, Marybeth Mellen, passed away the same year I started my company. She was the last of my living grandparents. Actually my grandma and grandpa helped pay for my college education. The fact I was planning to incorporate student loan planning into my business inspired me to name my firm after them and honor their legacy. Right around Labor Day weekend, somehow through all the chaos in my life, everything began to converge in a way that I knew I had something. Then on October 17, 2016 my company, Mellen Money Management was born. It has proven to be one of my better decisions. I am excited about what Mellen Money Management can be. I am especially looking forward to someday growing this into an organization that is able to hire and develop the next generation of financial planners. I must give credit where credit is due. Without my experience at Frank Wealth Management Group, Mellen Money Management ceases to exist. In fact every step of my journey contributed to the values and mission of my company. I am happy to say that I offer the kind of financial planning that would make my grandparents (and parents) proud. And, as Frank Sinatra once sang, “I did it my way!”

Email Scott a Question

Schedule Meeting

One-step Back, Two-steps Forward: My Journey to Starting a Fee-only Financial Planning Firm

Welcome to Part III of my series, My Journey to Starting a Fee-Only Financial Planning Firm, titled, One-Step Back, Two-Steps Forward.   This part of the journey is a 50-foot overview of my 6.5 years spent at Huntington Bank.  In this segment, I focus on my reasons for joining Huntington, what I gained from my experience, and what prompted me to eventually look elsewhere. 

iPad Tablet .jpg

Part III: One-step Back, Two-steps Forward

Huntington Bank, a mid-sized regional bank, was founded in my hometown, Columbus, OH.  So having grown up in Columbus I knew all about their excellent reputation within the community.  Huntington’s customer service focus was something that really attracted me to their organization. Granted, I was looking at joining a bank right after the financial crisis hit, so it was a time of transition for our banking system.  However, that wasn't the part that scared me.  What scared me was not having a stable income.  I looked at a handful of independent agencies and even thought about going back to Smith Barney, where I had interned.  However, none of those opportunities provided a stable salary.  They were 100% performance-based and that freaked me out after my experience at A.G. Edwards.  However, my prior failures helped me with my next decision in that I knew what I did and did not want.

My game plan for finding gainful employment started with a narrow list of criteria.  The following were the primary drivers:

  • Stable income
  • Company reputation
  • Opportunity to learn and collaborate
  • Ability to move up
  • Hands-on management
  • Surrounded by good people

Huntington checked off every one of my boxes.  The only drawback, at least from an ego standpoint, was that I was taking a perceived step back with my new position. The first opportunity I was given at Huntington was as a Senior Personal Banker at a retail branch in a fairly affluent area – Dublin, OH.  Being a “senior banker” meant I wore many different hats and that I was licensed to sell investments.  I opened checking accounts, took loan applications, refinanced mortgages, helped businesses get started, etc.  However, due to all the various responsibilities, my passion for investments had to take a back seat.  Ironically, it’s that very experience that laid the foundation for my company today.  Without that experience, I would not have the real-life perspective about personal finance that I have now.  Being a banker allowed me to learn the fundamental basics, as well as how to apply that knowledge with the soft skills that are needed to help clients through difficult decisions.

More importantly, Huntington was (and still is) an organization full of great people.  I will forever be thankful for the mentors, coaches, managers, and friends I had during my time there.  Having a team around me also made it easier to get the answers I needed without having to learn the hard way.  At any rate, what I discovered is that an inexperienced young professional, like myself, needs to be surrounded by good people in order to be successful.  Seems obvious, but it was an aha moment for me.  I used to think I could will my way into being successful.  I was especially lucky in the sense that I was able to learn from experienced Financial Advisors in a very hands-on manner.  As a banker, my job was to find opportunities and then pivot those customers to the senior investment advisor.  It was a win-win scenario because it gave me the chance to sit in on those meetings and watch the Advisor work their magic.

As a result of my invaluable exposure, I quickly became successful and moved up the ranks within the retail-banking channel.  I went from Senior Banker to Assistant Branch Manager in a matter of 18 months.  It then took me another 18 months to go from Assistant Branch Manager to Financial Advisor.  Best of all, I joined the #2 producing investment team in the entire company.  Keep in mind, I was 28 years old.  Meaning, I was very fortunate to be in that kind of position having only worked at Huntington for 3 years.  Both of the senior advisors on the team each did $1M in revenue on an annual basis!  They were truly some of the best Huntington had to offer and I got to be a part of it.  Looking back I often wonder, was I just in the right place at the right time?  Regardless, I was on cloud nine for my first couple of years as a Financial Advisor.  I continuously exceeded my goals year after year and was a part of something special.  However, the honeymoon phase eventually wore off and I started seeing the financial planning world a little differently.  Noticeably, the job started to lose its luster once I got over the excitement of, ‘I can’t believe I am in this position.’

Young Professional - Laptop.jpg

So what variables actually played a role in my decision to leave a great income, a highly successful team, and say goodbye to the best boss I ever had?  In the end, too many aspects related to my job were totally outside my control and eventually my boss'.  So when no improvements seemed imminent, I decided it was time for a change.  Quite frankly, I felt like I needed something fresh in order for my career to continue growing. 

In situations like these, I think it helps to understand a person’s thought process because there is often wisdom to be gained.  To that end, some of the factors that contributed to my departure were:

  • Declining focus on customer service
    • Too many clients to effectively service all accounts
    • Several clients were “dead money” but still required attention
  • Frequent organizational changes made the work environment feel unsteady
    • Sales quotas increased every year – never enough
    • Micro-management from the executive and management level
  • Overwhelming number of restrictions
    • Not allowed to buy stocks for clients
    • Limited investment funds to offer clients
    • Compliance and processing roadblocks
  • Regulatory environment
    • Fiduciary standard
    • Commission based compensation vs. fee-only

It was tough for me to arrive at the conclusion that my great paying job was no longer offering the kind of career path I desired.  In fact, I saw a ceiling -- it was going to be awhile before I could make that next leap forward. Working on such a great team made it even more difficult to say goodbye to them (and my former clients).  Even though my next stop, Frank Wealth Management Group, turned out to be a bad fit; I recognized it was time to move on to a new challenge for all the reasons previously mentioned.  So while I miss Huntington, it was the right decision for me and my family.

Wristwatch - Time.jpg

The last and final stop in this series is Part IV, titled, Caution, Detour Ahead.  This part of my journey takes place at a locally based independent firm, Frank Wealth Management Group.  A place that, in a way, nudged me in the right direction, as in it spurred me to launch my own fee-only financial planning practice.  So without this experience, Mellen Money Management is never born. 


Locked Door.jpg

Backdoor Roth IRA

Raise your hand if you like paying more in taxes than you need to?  Yeah, I didn’t think so… If your answer is like most Americans and you make a sizable income, then a backdoor Roth IRA is a strategy you may want to consider.  However, before explaining how to unlock this financial planning tool to your advantage, it is important to know the following Roth IRA phaseout limits set forth by the IRS:

  • Single = $117,000 - $132,000
  • Married = $184,000 - $194,000

In addition, one needs to know that when an active participant in a company sponsored retirement plan exceeds the income limits listed above, then that person (in most instances) is disqualified from making deductible IRA contributions.  The alternative for that person is to then contribute to a nondeductible IRA.  Meaning a nondeductible IRA is funded with after-tax dollars.  Therefore, the only advantage to the owner is that their money will grow tax-deferred until distributions begin at normal retirement age (59 ½).  Any growth is taxable and pulled first whenever the owner starts making withdrawals.  A Roth IRA, on the other hand, allows the owner to grow their after-tax contributions on a tax-deferred basis and take tax-free withdrawals at full-retirement.  Translation, a Roth IRA is always better than a nondeductible IRA!  

You are probably wondering how does a backdoor Roth IRA fit in with all this financial mumbo jumbo?  Think of the concept this way, the “backdoor” is a smarter entry point for a person who intends to sneak in undetected.  Inserting this into the IRS’ world, an investor who exceeds the Roth IRA phaseout limits is able to use the backdoor Roth as means to bypass these limits without being accessed the typical IRS penalties

So how does a disqualified Roth investor actually slip past the IRS?  Their “backdoor way in” is, in a basic sense, a 2-step process.  The first step is to contribute to a nondeductible IRA, followed by eventually converting those funds to a Roth IRA. The timing of when that conversion occurs is important to make note of, because the IRS might take you to court and challenge your contribution if you are too careless.

2 Caveats

Okay then… How does one avoid setting off the IRS alarms?  Actually there are two hurdles to consider when deciding whether or not a backdoor Roth strategy is appropriate for you. The first roadblock you need to evaluate is the IRA Aggregation Rule, and the second one is called the "step transaction doctrine." 

The IRA Aggregation Rule

Red alert to any investor who owns multiple pre-tax IRAs.  All of your pre-tax IRAs are treated as one account when calculating the tax consequences of a Roth conversion. In other words, the IRS’ aggregation rule requires an owner of multiple IRAs to include a proportionate amount of any pre-tax IRA balances (Traditional IRAs) with their after-tax IRA balances (nondeductible IRAs) whenever performing a Roth conversion.

Example.  An attorney, Atticus Finch, currently exceeds the IRS’ income limits to be able to contribute to a Roth IRA and also has a Traditional IRA worth $100,000.  Atticus is considering whether or not he should convert his recent nondeductible IRA contribution of $5,500 to a Roth IRA. Unfortunately, for Atticus his $5,500 nondeductible amount gets rolled in with the $100,000 of pre-tax IRA funds when he goes to complete the Roth conversion. Meaning only 5% ($5,500 / $105,500) of the conversion is sourced from the nondeductible IRA, and the other 95% comes from the Traditional IRA.  Needless to say, Atticus isn't happy because he just paid income taxes on 95% of his $5,500 after-tax conversion. While it's technically not double taxation, it sure feels like it... Yikes!  

What can Atticus do to prevent this problem? One answer is to rollover all of his Traditional IRA funds to his law firm's 401(k) retirement plan. This is because 401(k), 403(b), and other employer sponsored retirement plans are excluded from the IRA aggregation rule.  However, employer sponsored SIMPLE IRAs and SEP IRAs are truly IRAs, and therefore included for the sake of this rule.

The Step Transaction Doctrine

Another issue to be considered is the "step transaction doctrine," which allows the Tax Court to review what are, in fact, two separate steps of a transaction to be deemed one integrated tax event. The key to avoiding this is the timing element.  So when an investor deposits money into a nondeductible IRA and then converts those funds into a Roth IRA within a matter of days, the IRS may consider this a single integrated tax even.  The consequences of this are that the IRS disallows it as an excess Roth contribution and assesses the investor a penalty tax of 6%.  Keep in mind that 6% penalty accrues each year the money remains in the Roth account.  

The safest way to get around the IRS disallowing a backdoor Roth contribution is to wait at least 1-year to convert the nondeductible IRA funds to a Roth IRA.  And, a way to reinforce that both transactions are independent of one another is to invest the nondeductible funds while you wait to do the Roth conversion.  Any gains from the nondeductible IRA are taxable the following year you convert them.  However, the tax benefits of the Roth more often offset this one-time taxable event. Plus having investment gains in your account is a good thing!

Helpful tip.  NEVER put anything in writing that states what you are doing is a backdoor Roth IRA. Doing so gives the IRS ammunition if they ever question your transactions as being singular in nature.  

Summary Guide to Performing a Backdoor Roth

  1. Confirm there are no other pre-tax IRAs
  2. When there are, rollover funds to a 401(k)
  3. Contribute to nondeductible IRA
  4. Invest funds in nondeductible IRA
  5. Keep money in nondeductible IRA for 1 year
  6. Convert to Roth IRA

The Adventure Begins: My Journey to Starting a Fee-only Financial Planning Firm

Sand Footprints.jpg

With my first blog post out of the way, instead of waiting another 6 months, it only took a little less than 4 weeks to publish Part II, The Adventure Begins. This is the second installment of my 4-part series, My Journey to Starting a Fee-Only Financial Planning Firm.  Actually, I fully intend to make this blog thing more of a weekly occurrence.  In due time!  The challenges of managing a business, establishing roots in a new city, traveling for the holidays, planning a 15-year high school reunion, and raising a 6-month old have taught me to cherish whenever there is a break in the action.  So 4 weeks doesn’t seem so bad when I frame it that way. 

Part II: The Adventure Begins

My first full-time job out of college began with a well-respected brokerage firm, A.G. Edwards & Sons.  Today it is better known as Wells Fargo Advisors by way of the bank bailout of Wachovia Securities back in 2008.  Yeah, I went through a merger, a bailout, and began my career as an advisor during the Great Recession.  Exactly how I envisioned it for myself!

As a once stereotypical Millennial, I spent a good part of my 20s wrestling between adulting and seeking a good time.  In other words, I really wanted to be an adult.  Yet I felt like an imposter because I had other priorities.  Pre-wife, I was perfectly content going out with the guys and getting into a bunch of nonsense.  Responsibilities?  Sure, when the mood struck me.  I did buy my first home at the age of 25.  Thank you, First-time Homebuyer Tax Credit!  So a part of me was trying to be an adult, but honestly, beer-thirty was way up on my list of to-dos every weekend.  It’s quite possible I had some maturing to do.

Funny how times have changed now that my wife, Emily, and I have a daughter.  I actually feel like we finally sit at the “grown ups table” now.  In fact, I don’t consider myself a fraud anymore. Nowadays I am not the least bit intimidated providing very critical financial advice to someone twice my age.  So I finally did mature.  However, I was much less confident at the beginning stages of my career. 

In total, I spent 2 years with A.G. Edwards, at first as an apprentice, and then about 6 months after Wachovia Securities acquired A.G. Edwards, I was forced into the Advisor Trainee Program and lasted for another 18 months.  The trainee program was a 2-year contract that started out paying $3,000/month for 6 months, then stepped down to $2,000/month for the next 12 months and $1,500/month for the remaining 6 months.  Eventually, after 2 years your monthly production was your income.  So if you didn’t produce you made $0.  Living on that kind of income, I racked up quite the credit card balance, especially with all those fun nights out.  Oh, by the way, be sure to read your contract carefully.  Mine stipulated that if I ever left A.G. Edwards for another competitor that I owed the company up to $60,000 in trainee costs for all that invaluable sales training I received.  Interestingly enough, once I moved over to the wonderful world of retail banking, I received a very welcoming note from my former employer courtesy of Fed Ex.  I was so excited to open my package.  And then, I opened it.  WTF?  They want me to pay back $60,000 in training costs.  Clearly, a large profit-making machine, like Wells Fargo, needed to protect their interests from a 25-year old financial advisor.  No doubt my uniquely developed talents would allow me to earn the kind of living that could easily pay back a $60,000 lump sum.  $1,200 later and a letter from my attorney, the problem went away.  That was hard lesson number…. I think I lost count by about this point in my career.  I took a lot of lumps back then.

Looking back I have to laugh.  I was a young fearless boy who thought he was ready to conquer the mountain.  Why not?  I worked for a well-respected brokerage firm with my very own downtown office.  However, as time went by my ego began to wither with every little setback, and eventually, I left A.G. Edwards feeling like a scolded dog with his tail tucked between his legs.  Most people think a financial advisor is naturally confident and can just will their way into success.  It’s the fable many of us are told by the top salesperson in the office.   Sure that guy can do it.  He makes it look so easy.  It gets you thinking maybe there is something wrong with me.  It’s no wonder I was insecure.  Quite frankly the training I received was subpar at best.  The lack of on the job coaching and skills development might help explain why the youth barrier in the financial services industry is such a huge problem.  All I have to say now is thank God for organizations like XY Planning Network.  

Unfortunately, most of the big brokerage firms and insurance companies still emphasize outdated client acquisition strategies in today’s quickly evolving digital age.  Outbound telemarketing, networking at organizations where there are already 4 other advisors, begging friends and family for referrals, or glad-handing everyone at a cocktail party is not a very efficient way to get the number of clients needed shooting out of the gates when you have production quotas.  Many of those prospecting strategies take several years to produce any meaningful results.  It’s even longer for a recent college grad.  Yes, there are superstar exceptions to the rule, but even the brightest most charming people often need to join an established team or family business as a way to break into financial planning. 

Let’s be honest about why that is.  Who wants to trust a 20-something year old with their life savings?  Well, I thought everyone did.  Although I had good reasons to think I could be successful.  At the age of 20, I got my foot in the door as an intern at Smith Barney.  I was originally hired to cold call 10 hours a week for 1 advisor, but after 2 summers I finished my internship assisting 5 advisors and working 40-hours a week.  During that time it seemed prospects were very receptive to my pitch over the phone.  In turn, I believed my early success would translate to even greater success once I became an advisor.  Besides, everyone I knew would want to work with me because I am such a great guy.  Wait, you mean other financial planners know the same people I know and are way more qualified and experienced?  Oh, shit….  There goes about half of my original 200 friends and family target list.  Things all of a sudden just got a lot harder.  Of course my friends and family will refer me all sorts of business.  That’s weird.  Apparently, they aren’t as confident in my ability to manage money.  Go figure.  Okay, so….  Now my list just got cut down to about 40 people.  Maybe if I pester enough of my parents’ friends I can convince some of those people to do business with me.  It’s all about networking.  Didn’t you read “Never Eat Alone?”  Plus it is all just a numbers game.  Right?  Wow, I sure burned through those names quickly.  I must be really bad at overcoming objections because my opportunities are shrinking by the day.  This job is A LOT harder than I thought.  Time to smile and dial!  Now that I am a “financial expert,” cold calling should be a piece of cake.  Am I the only person that loves hearing the click of someone hanging up on them?  About 5,000 names later, cycling through every list you can think of, and hearing the phrase “not interested” more than I care to remember, I had a handful of appointments to show for it.  The fruits of all those efforts yielded $2M in assets under management, which is not enough when that generates a $30,000 revenue stream and the company you work for takes 65% of it.  Netting me $10,500 annually.  Woof!

My evolution went from young promising advisor to a completely deflated unemployed job applicant.  I am ashamed to admit it, but about 5 weeks before my departure from A.G. Edwards I began scheduling “off-site appointments.”  This allowed me to go home, update my resume, apply for any job that had a stable income, and interview whenever the opportunity presented itself.  I wasn’t too far off from how my branch manager saw things going.  Actually one week after the first interview with my eventual employer, Huntington Bank, my former manager gave me two choices: 1) try to hang on for dear life at Wells Fargo and get paid jack squat, or 2) get a 2-week head start to look for another job while still on the company payroll.  My choice was simple.  Door number 2, please!

The point I wanted to drive home with Part II of this series is that being young and naïve is where most of us begin our careers.  The challenge is overcoming the first time the real world smacks you square in the face, and then kicks you again while you are down, in areas you really don’t want to be kicked.  Quite frankly it can be a jarring experience.  Especially to any college grad that is accustomed to ongoing success their whole life.  Those school years are a time when teachers and coaches provide constant feedback about how great you are.  However, as many wise adults will attest to, the real world operates much differently.  Feedback? You are lucky to ever get it, and if you do, it’s rarely the type you want.  Fortunately, the growth and learning from failing at my first job gave me the grit and determination I needed to start being successful.  I am of the belief that we all have a life-long journey to fulfillment.  It’s unfortunate that more of us don’t take the time to pause and reset our course.  No path is created the same and it is unfair to think otherwise.  I also learned the magic bullet we all crave doesn’t exist.  The closest thing to a secret formula I can impart upon any struggling professional is to be able to recognize when your life is at a crossroads, and then take decisive action when the moment matters.  Perseverance, a strong desire to learn, and passion will pay dividends when the timing is right.  Yet, not every decision is going to be “right.”  Doing nothing is far often a greater failure than taking a turn down an unfamiliar path.  So rather than let the grips of fear paralyze you, take a chance and learn from a life full of mistakes.  Use your failures to make you stronger.  Sounds easy enough. I wish it were.  It’s why I share my journey.  As cheesy as it sounds, if I only inspired just 1 young financial planner to follow their own path, then I accomplished my goal in paying it forward.   

Hanglider Siloet .jpg

Up next, Part III of this series, titled, One-Step Back, Two-Steps Forward.  A bird's eye view of the 6.5 years I spent at Huntington Bank.  A place I owe a great debt of gratitude. 

A Road Less Traveled: My Journey to Starting a Fee-only Financial Planning Firm

Hi, I'm Scott Snider, founder of Mellen Money Management LLC, a fee-only financial planning practice that started in Columbus, OH and relocated to Jacksonville, FL.  Welcome to my first ever blog post. Given the amount of content, I am breaking up my first topic into a 4-part series called, My Journey to Starting a Fee-only Financial Planning Firm, which focuses on how my career path brought me to start my own firm. Part I, A Road Less Traveled, tells more about why I started a fee-only firm, while the other sequels provide a deeper look into the 3 places I worked prior to Mellen Money Management and how those experiences shaped my company's mission.  The purpose of this series is to give entrepreneurs a peek into how an idea can turn into a profitable company.  My path is full of twists and turns, and I surely tripped many times along the way.  More importantly, I hope my experience provides some teachable moments for anyone out there thinking about betting on themselves.  If you have a plan, quite honestly it's the best decision you can make. 

Part I: A Road Less Traveled

Being the procrastinator that I am with certain areas of my life, I am about 5 months behind schedule from when I intended to start posting content on my blog.  Let's just say I am slow to try new things.  A perfect example, I never ate seafood until my wife and I recently moved our family to Jacksonville, FL, where I was basically forced into liking it.  How do you live by the ocean and not eat seafood?  I didn't want to be "that guy" everyone had to plan dinner around because he didn't eat seafood.  For about 33 years.... I was that guy!  My wife is probably rolling her eyes as she reads that last sentence.  The funny thing is I actually like seafood now.  I draw a similar parallel to how I feel about writing.  I was absolutely terrible at it until my mom forced me to take summer tutoring sessions going into my Freshman year of High School.  Seriously, what young boy wants to spend his summers writing?   Once again, being a semi-decent writer is something I have grown to appreciate as I get older.  Thanks, Mom!  I sincerely mean it.  

So how does this all fit in with my career journey you ask?  Well, if you told the 22-year-old version of me, you will be starting your own business by the time you are 32 years old, I would have looked at you crossed eyed.  In other words, my journey to a fulfilling career was not the path I thought it would be.  Similar to how I felt about seafood and writing, my career journey was at times very painful until I was able to arrive at a place where I now genuinely enjoy it.  

Like many typical naive college grads, I thought I was going to be a big-shot stockbroker at Smith Barney (now Morgan Stanley) earning six-figures by the time I was 30.  Why not?  I interned there for two years and made a lot of great impressions.  I was told I would be successful by all my mentors.  Making a lot of money was my goal.  Help clients?  Of course, but I was really going to make it big.  Hey, I had my priorities in order.  Today I am 33 years old, nearly 7 months into launching a firm, and definitely not making six-figures, yet!  Given the growth rate of my practice, I am confident I will be there soon enough.  But that kind of thinking is missing the point.  The thing is I could easily be making that kind of money today.  Unfortunately, that would have meant putting my heart and soul into something I was losing confidence in.  After spending 6.5 years at a large regional bank I eventually realized, no amount of money is worth pursuing if it goes against your value system.  More about that in Part 3 of my series.  I'm sure we can all agree that having money is nice, but what I learned over the years is that making a lot of money is not THE priority.  Pretty ironic coming from someone who gives money advice, right?  Instead, doing work that I love and doing it for people I genuinely enjoy helping is, and will always be, my number one motivator when I wake up in the morning to go to work.

Starting a business is really tough, especially in an ultra-competitive field that is the world of financial planning.  Where the average age of an advisor is 51 years old.  Why would a 32-year old planner be crazy enough to try and build a company that has to compete with the likes of Merrill Lynch?  And does so while accepting the fact they are going to be making less money for a couple of years!   Ultimately, my overall fulfillment won out.  My work happiness will always be more valuable than any amount of money I could have made selling investments.  The key word is selling.  Instead, I chose a different path.  A road less traveled.  One where the advisor is directly compensated based on their advice, and not 100% by how much money does the investor have, or which investment product I can steer them into to make more money.  

To put this problem into perspective, I used to generate a 7.5% commission on annuities during my 6.5 years working for a large regional bank.  With an A-share mutual fund, it was 5.5%.  Now I charge an average monthly retainer fee of $150 for actual financial planning and 0.75% against any assets being managed by my firm.  Notice the emphasis of my fee is on the planning and not how much money my client has invested with me.  That is because the real value an advisor brings is in the financial planning decisions which can help a client save hundreds of thousands over a lifetime.  The investments are a component of what an advisor does, however, the planning is the true value-add.  Therefore, I felt it was in my client's best interests to charge for my services in a way that better aligned with their needs and value received.  It is the very reason I charge a straightforward fee.  Seems pretty obvious, doesn't it?  Unfortunately, most banks, insurance companies, brokerage firms, and even some independents do not charge their fees in this manner.  It's how we arrived at a DOL Fiduciary Rule for retirement accounts.  Our government needed to put some controls in place to protect the consumer from the greed based incentive system that has been in place for too many years. 

Quite frequently, a fee-based or commission advisor attaches an upfront fee to the product they sell you.  For example, say you have a $500,000 401(k) that you rollover into an annuity IRA that pays the insurance agent 7.5%.  That agent and the firm they represent just made a one-time commission of $37,500.  Guess what?  The agent typically doesn't make anything thereafter.  Under that type of incentive structure do you really think the advisor is going to give you $37,500 worth of attention over the next 5 years?  Actually, there is an unspoken incentive to push you into another annuity once a "better product" comes along.  Allowing the agent to generate another large commission.  Now, let's evaluate my firm's fee structure using the same example above and measure it over a 5-year period: $150 x 60 months = $9,000 and $500,000 x 0.75% x 5 years = $18,750.  Added up together that is $27,750 paid for 5-years worth of high level service that emphasizes a continuous relationship and not a one-time transaction.  At the end of the day, how your advisor gets paid matters.  Every client deserves to know and understand what they are paying for.  Period.  

Mellen Money Management started because I saw an opportunity to offer financial services in a more honest and straightforward way than what the big name brands have been pushing upon investors for several decades.  Do you have a financial problem that is gnawing away at you, but you are not sure you have enough investments saved to make it worthwhile?  It doesn't matter, my firm will get to the bottom of it because our monthly subscription model for on-call financial planning creates a win-win scenario for both the client and advisor.  As a former banker, I can recall having to turn customers away when they stopped in asking for advice on their student loans.  Student debt is a big problem in our country right now.  So why did I turn them away?  First of all, I didn't have the knowledge to answer their questions.  Unfortunately, the financial services industry does nothing to teach advisors about the ins-and-outs of student loans.  In fact, I had to pay for a professional development course with my own money to learn what is considered to be a very specialized skill.  Mind you this skillset can save borrowers thousands of dollars.  Secondly, if a big financial institution can't package something into a widget and make money off of it, then it's not worth their time.  It's all about high transaction volume and getting cheeks in the seat.  At most big financial institutions, quality relationships are a thing of the past unless you fall within the top 20% of their clientele.  Rather than selling investment products my whole life, I decided I wanted a genuine relationship with my clients.  Whereby I help families make the right decisions at key moments in their life when everything feels a little more stressful.  You can't put a price tag on the thank you's and friendships I have developed from my business.  That kind of value is worth taking the risk of following a road less traveled.  

Stay tuned for Part II of my series, titled, The Adventure Begins.  Here you will learn more about my time as an intern at Smith Barney and my 2-years as an advisor with A.G. Edwards (now Wells Fargo Advisors).