How does this financial firm founder approach college financial planning with his clients?
This article features an interview with Peter D’Arruda, President and Founding Principal of Capital Financial & Insurance LLC. Based in Cary, North Carolina, and founded in 1992, Capital Financial & Insurance LLC is a fee-only registered investment advisor that specializes in financial planning and managing client portfolios. Peter is also the president of the International Association of Registered Financial Consultants, and has been the host of “Coach Pete’s Financial Safari” radio show for the past 12 years which gets nationally syndicated to over 100 stations across the country. In the past year, the radio show has launched the “Financial Safari TV Show”, as well as a radio show titled “Tax Guys Radio” for CPAs and Tax Coaches. Building upon his experience with clients and radio production, he has published six books on finance covering a range of topics including “7 Baby Steps to a Ridiculously Reliable Retirement Income.” Together, Peter provides customized and proprietary financial planning by leveraging and integrating the three core areas of money management, retirement planning and wealth management. You can learn more about Peter and his firm at the website of https://www.capitalfinancialusa.com/. Last but not least, thank you Peter for your time, insight and support in working with me on the article. Please read the question and answers to learn about his perspective on integrating college financial planning and retirement planning into a holistic approach to financial planning, and hope that the article provides you with an opportunity to learn more from your peers.
Question 1 (Paul Curley, Editor of the 529 Dash): How and why did you first get started in helping clients with financial planning?
Answer 1 (Peter D’Arruda, President and Founding Principal of Capital Financial & Insurance LLC): I got started in financial planning working with teachers in the early 90’s helping them get started saving for retirement by utilizing the 403(b) program to save some money pre-tax for retirement. It quickly blossomed into full-fledged retirement planning as some of my older teacher clients started to retire and we both found that there was a lack of accurate information on how to prepare for and make money last throughout retirement.
Question 2: Based on the Strategic Insight 529 Industry Analysis 2017, 19% of parents intentionally save for their children’s higher education with 401(k)s, and they contributed an average of $2,826 last year with a total balance of $14,500 at the end of last year into their 401(k)s for college financial planning. Why should parents think twice before planning to use 401(k) funds to cover the cost of higher education?
Answer 2: The 401(k) is for retirement and should be treated as such. It is a crime against your future self to tap into the 401(k) for things other than retirement. Not only will you lose the compounding aspect on the money you “steal” from your future self, many times, the money is never replaced. It is a fairy-tale to assume that your children will pay you back.
Question 3: How do you work with your everyday clients differently in terms of college financial planning than your private wealth clients?
Answer 3: For everyday clients, there is no better tool than a properly funded and allocated 529. Private wealth clients have their own sets of problems but they are usually worried about “keeping up with the Joneses” as far as sending their children to a place they can brag about.
Question 4: The Center for Retirement Research at Boston College recently reported in “The impact of raising children on retirement security” that saving for their children’s education resulted in a 14.3% reduction in retirement risk. Given the symbiotic relationship between the two goals, should retirement and college financial planning be integrated in a holistic financial plan?
Answer 4: They are both part of a balanced plan. Making sure the children not only have a college savings account like the 529, but that the diversification and risk models are in line with the age of the children, not the age of the parents or grandparents funding it. A common problem I see is the parents and grandparents don’t take enough risk with a child age 0-12. Around age 12 is when the taming down of risk should happen, not before.
Question 5: How can product partners and state agencies better support you now in your current role?
Answer 5: Better products, ideas, and strategies are always welcome. In this age of over-regulation, innovation has been stifled. I know the government regulators are trying to help, but how much regulation is too much. Would you want a stoplight at every intersection? Me either. The governing body would argue that traffic deaths would reduce, but the time to get anywhere would triple.
Question 6: Are there any questions that I overlooked?
Answer 6: People need to be realistic in what their expectations are. I had a client call the other day complaining about “only getting” a 16% return on a fixed index annuity with no market risk this year. Talk about irrational exuberance!
Editor’s Final Note: Thank you Peter D’Arruda for your time and insight in working with me on the article, and much appreciated. Also, I would like to provide a special thank you to the readers of the article for learning from your peers, for your support and your engagement. Have the college financial planning discussion with your clients today.