Posts
My Final Post
Loyal readers, you have likely noticed that I have been away from the Living Financially Aware blog for some time. I had to focus on preparing to launch my new financial planning practice, Couples Financial Planning & Coaching, LLC. That took considerable time and did not allow me to blog here.During that time, I also decided that I will no longer be posting on the LFA blog. There are a variety of reasons, most importantly because I want to keep things simple. I will be blogging (although likely less frequently) on my business website. Having one blog helps maintain simplicity. I encourage you to join me at www.couplesfinancialplanning.com to continue the discussion.
I do not intend to remove the content on this blog. Working on this was an important journey for me. It brought me back to financial planning after some very dark experiences. It allowed me to reconnect with the financial planning community and make many new friends. It has been wonderful.
Thank you for reading the Living Financially Aware blog. I hope to see you on my new site.
-Nathan-
SPEND, SPEND, SPEND (It's Your Duty)
Even in the best of times is our economy well-designed? There is an oft-cited statistic about the percentage of our economy that is driven by consumer spending. The percentage is a staggering 70%. I find myself wondering, is this the way to design any economy? Does it make sense for our economic prosperity to be almost entirely predicated on our ability and willingness to spend?
It seems to me that saving is a certain losing proposition in this type of economy, despite its unquestioned importance. We need to spend in order for our economy to prosper so that our savings can compound. But how do we save when we need to be spending? In fact, I can't count the number of times I've heard an expert make a comment to the effect of "get out and spend!" since our current economic malaise began. That might be great advice for our collective economy, but horrible advice for an individual.
I don't have any answers, just questions today. (As if I ever have answers!) How do we find balance? Does it require a social agreement that growth has to be muted so that we have the ability to save for our future selves?
Investing - Why Overpriced May Be Better Than Inexpensive
Are you the type of individual who recognizes you shouldn't trade stocks, mutual funds and ETFs frequently, but simply can't seem to stop? Or are you a financial advisor who trades more often than you would like to? Let me propose an unorthodox solution to provide some negative reinforcement each time you trade.
This is a solution I don't believe many financial advisors would endorse and certainly one I would not use from a pure dollars-and-cents perspective. This is a solution that should only be considered if you have trouble minimizing your trading addiction.
If you are a frequent trader, you are likely using a discount broker who offers trades at very low fees or even no fee in some cases. There is no instant disincentive to trading frequently. When you want to trade, you can do so without giving much pause to the cost of your action.
My solution is the following. Move your investment accounts to an old-fashioned brokerage that charges an arm and a leg for each trade. Instead of looking for the least expensive trading solution, select the most expensive institution that makes the hit you take on each trade as painful as possible. Use this painful, expensive trading expense to make you take pause and think through your trading decision more fully. Allow this pause to give you the time to allow emotion to ebb from your decision-making. Take the time to consider why you think something has changed from your original purchase.
Making good financial decisions is almost entirely about recognizing when our decision-making process runs astray, then putting in place mechanisms and processes to short-circuit those processes. Making trading excessively expensive is one example of doing this and may be a large enough barrier to minimize your trading habit effectively.
Financial Advice - Why Not Put Your Clients' Interests First?
Yesterday a reader sent a copy of the most recent NAIFA newsletter to me pointing out that the last page proudly proclaims that they helped defeat a fiduciary standard in the recently passed financial reform legislation. I've ranted against NAIFA once before and don't intend on attacking that organization again today. But this newsletter did reignite my "clients' interests first" wick!
My position is that anyone offering financial advice (or implying they offer financial advice) should be willing and wanting to put their clients' interests first. An advice-based business where an individual entrusts a professional with skills and training the individual lacks to help them and the professional willingly accepts that trust automatically creates a fiduciary relationship. That is basically the definition of a fiduciary relationship. So, I want to ask the following question and genuinely hope to hear feedback opposing my position.
Can anybody articulate an argument against people offering financial advice putting their clients' interests first?
I have heard the arguments made to date and, in my not so humble opinion, they carry no weight. The primary argument made is that a fiduciary standard will make advice too expensive for most people. That argument is garbage, for a number of reasons. Most important among those reasons is that bad advice, whether affordable or not, is worse than no advice. And that more "affordable" advice is not generally more affordable...it's simply more difficult to understand what one is actually paying.
So, let me hear it. Why should financial advisors not have to uphold a fiduciary duty? I just don't understand how individuals continue to argue against putting clients' interests first. I want to understand and see the other side. All I see is companies and organizations using the guise of wanting to help and being trustworthy and forthright while fighting against having to do what's right for you in the name of profits.
I've Got My Series 7, Now I'm Ready To Help People
Today I feel like taking on a title and designation I have seen being used by some individuals with the apparent purpose of signifying a high degree of training and education. The title is "registered representative" and the designation is a "Series 7." Your Financial Advisor may list these among their qualifications.
When I began in this industry, the title of this post was my belief.
Being a registered representative or holding a Series 7 license does not provide you the education necessary to dispense good financial advice. These designate nothing more than that an individual has met the minimum requirements to sell financial products. Yes, SELL financial products, not provide advice.
I once held a Series 7 when working for an insurance company. I spent a couple weeks reading a book, than took an exam. I scored a 93% on the exam. When I informed my sales manager that I had passed and provided my score, his first comment was "You studied 23% too much!" Odd. I was trying to learn as much as I could because I thought it would allow me to help people better, and my boss tells me it is a waste of time. This attitude is not isolated to this one individual.
So next time you see a financial advisor who proudly proclaims that he's a registered representative and holds a Series 7 license, understand how little weight that proclamation carries. Not only is the educational material very thin, but the belief is to only do enough to pass because knowing the material well is not important to selling product. Let me say that again...knowing the material will is not important to selling product!
And did you notice that there's nothing in there about helping you?
Northeast Wisconsin - You Deserve Better Financial Advice!
Recently I have been thinking about writing posts designed to help you select a good financial advisor or financial planner. Today I wanted to go through the process I was of finding a few names to interview I was going to outline by using my location as an example to walk through.
Step One
After attempting the first step in the process (looking for independent financial planners on the NAPFA National Association of Personal Financial Advisors website), I had to stop. There were only two advisors listed in my immediate area! Expanding the search area to 100 miles added twelve more firms to the list. A 100 mile radius captures a great deal of Wisconsin...and only twelve NAPFA members. So, using the first filter I was going to suggest in this "Pick A Planner" post yielded only 14 potential firms to work with assuming you are willing to travel.
Northeast Wisconsin, you deserve better than that. I can't even write about my second step because the first step doesn't give you enough choice. Do I think you absolutely must work with a NAPFA member? No, I know you can get good advice outside NAPFA, although I do think it is the place to go for the highest probability of getting high quality financial advice. Nevertheless, let's look at an alternative...let's review the FPA (Financial Planning Association) website, searching for independent financial planners.
Step One (Second Attempt)
A search on that website using my zip code yields fifteen FPA members within twenty miles. A much better start than the two NAPFA yielded. Dig in a bit deeper, and only seven of the fifteen are independent. These seven advisors represented four unique firms. So, here we are on the second best option, and you only have four choices available to you. I believe you will struggle to find good financial advice and an advisor whom you feel comfortable with and offers the services you desire.
Why Is The Selection So Poor?
Why is this the case? I think there are two reasons. First, citizens of Northeast Wisconsin, you continue to pay for financial advice through commissions instead of paying for the advice directly. It's a bad way to pay for advice. Until you demand that financial planners do better for you, there is no incentive to change. Advisors and planners are making plenty of money selling you products and giving you conflicted advice. The second reason falls squarely on planners and advisors. Not enough planners in the area have bothered to learn about alternative ways of delivering advice and better compensation models. This speaks to the quality of advice you are receiving, also.
So, Northeast Wisconsin, you may be happy with the advice you are getting. I don't think it's good enough, however. In fact, I suspect you are often overpaying and having advice under-delivered. You should expect and demand more.
For now, I can't write my post about how to select a financial planner for my local market.
Thinking About Money
How often do you think about money? Once a week, once a day, once an hour...even more frequently? Did you know there is often an inverse correlation between how often you think about money and your level of financial well-being? People who think about their money constantly generally have done more poorly with arranging their financial lives than those who think about their money only occasionally.
If you think about, and more specifically worry about, your money frequently you have not put in place processes that allow you to know with confidence how you stand financially. As is so often the case, the most important tool to help you gain this confidence is a formal budget.
Taking the time to put together a solid budget that includes what you value most and your financial goals allows you to stop thinking about money all the time. A budget, which you follow, that really captures what is important to you, gives you the freedom to not have to dwell on and think about each financial decision ad nauseum. You already know your goals are being funded in your budget, other money is designed for other purposes.
A second tool is having an investment portfolio that truly is designed to fund your various financial goals while staying true to your willingness to accept risk. A portfolio that is built to fund your short, medium, and long-term goals allows you to stop worrying about those goals. In fact, with a properly designed portfolio, you may find yourself not paying attention to the stock market at all. Combined with the well-designed budget, financial worries truly begin to melt away.
Other tools that help you think less about your money and focus more on your life include a comprehensive insurance portfolio and estate planning completed to allow you to know those important to you will be provided for.
I don't think there is any magic number for how often to think about your money. The number is likely different for each of us. Certainly it is important to consider your finances occasionally, and to make well-informed financial decisions. But if you find yourself constantly worrying about paying bills or reaching your financial goals or struggling with financial decisions, you are likely thinking about your finances too much.
Are there any additional tools you can think of to help reduce the amount of time needed thinking about money?
My Take On The Financial Alphabet Soup
If you've ever worked with or looked for a financial advisor, you may have noticed a variety of letters following different advisors' names. The financial services industry is littered with a litany of certifications and designations that professionals can earn. Some of these require little more than showing up for a couple hours on a weekend and sitting through a class to begin using the designation. Others require months or even years of study, significant testing, a commitment to a high standard of care, and continuing education.
I want to give you my brief take on the importance of these various letters by answering two questions about designations. First, are any sets of letters meaningful to an individual looking for financial advice? Second, how do you pick between the different designations. My answer to both questions will be very simple.
Do Designations Matter?
I believe they do. While there are many designations and training programs that do not equip a professional to provide financial advice, there are several that do achieve this. I don't believe any program is perfect or even particularly close yet, but some are well on their way.
Does this mean a designation is necessary to be a good financial advisor? No, there are people who have learned the requisite knowledge on their own without a program. But if you're looking for a financial advisor right now, selecting someone with the correct designations gives you the confidence that they have at some point learned the material and hopefully maintained that knowledge.
Designations matter. They help you increase the likelihood you will select a good financial advisor.
What Designations Matter?
Now that you know the right designations can be meaningful, which should you look for? Again, I have a very simple answer, one that a great deal of people will disagree with. Every search for a financial advisor should begin by looking for a CERTIFIED FINANCIAL PLANNERTM certificant (often indicated by the use of the CFP® marks following an advisor’s name.)
Forget about all the other designations and education. I know I wrote above that there are several meaningful designations, but there is plenty of choice within the CERTIFIED FINANCIAL PLANNERTM ranks that you can simply ignore the others. Again, it's about increasing the probability you work with someone with the training necessary to help you and working with a CFP® does this.
Selecting a CFP® does not guarantee you good advice; you still need to interview several potential advisors, determine if they offer the services you are looking for, investigate their histories, and make sure they are a good personality fit with you. But by limiting your search to only CFP® certificants, you increase the chance of working with a good financial advisor. You can feel confident they have the correct training, meet certain continuing education requirements, and are asked to work in your best interest. Whether they live up to these standards is a matter you have to determine for yourself.
Again, there are great financial advisors who do not hold the CFP® designation. If you work with one now, you may want to continue doing so. But if you are looking for an advisor today, I suggest you limit your search to CFP® certificants. Remember one designations. Don't confuse the issue. Many designations are designed to obfuscate the good from the bad. By focusing on only one, it becomes much easier to prevent this from happening.
Where Can I Find One?
The easiest way to locate a CFP® near you is to visit the Certified Financial Planner Board of Standards, Inc. website and use their CFP® Search tool based on your zip code. Select several and begin interviewing. Ask for references, find out what their focus is. Are they providing predominant investment advice, financial planning, life planning, or do they specialize otherwise? Are you similar to their ideal client? Make sure they offer what you are looking for. Check out their backgrounds on www.finra.org or www.sec.gov.
Finding a financial advisor can be a very overwhelming and confusing process. By cutting through the alphabet soup and only focusing on one designation, you can reduce this confusion considerably. Ultimately, you will still need to use your best judgement to determine whom you can trust and who will provide the services you want or need.
Finding a financial advisor can be a very overwhelming and confusing process. By cutting through the alphabet soup and only focusing on one designation, you can reduce this confusion considerably. Ultimately, you will still need to use your best judgement to determine whom you can trust and who will provide the services you want or need.
The Financial Mis-education of Our Country
Did you receive financial education as a child or young adult? Did you learn financial basics in school or from your parents? I certainly did not. I entered college with no concept about how to spend or save money, no concept about budgeting, no ideas about planning for the future. Worse yet, I was bombarded with misinformed financial lessons from every direction. Television and other media taught lessons of materialism and that success was defined by becoming rich.
I spent the past four weekends meeting with hundreds of individuals to provide basic financial advice. I spent countless hours discussing budgeting and the importance of setting financial goals and an emergency fund. I spent more time helping individuals try to dig out of financial emergencies, save their homes, and get control of their financial lives. Over and over, people told me they had virtually no financial education. Worse yet, they had never had anywhere to turn to get that financial education.
How can this be? How can financial education be left entirely to chance in our country? Money is one of the most powerful forces in society, yet we head into the world with only the mis-education we received from media and our parents to guide us. We are not even given the choice to seek good financial education.
Our education system and financial industry are failing in this regard. We must introduce financial education at a young age, the force money plays is simply too powerful to continue to ignore. Poor money knowledge destroys marriages, destroys lives and destroys our country.
The Best Credit Card Ever
Are you like the majority of Americans and carry a credit card balance? Do you use credit cards for both regular spending and impulse purchases? Last week,as I prepared for the day in my hotel room, I overheard a credit card commercial on the television that sounded great. This credit card company offered to help you reduce the amount of interest you paid and to give you control of your credit card. It was also a huge pile of baloney.
This commercial was wonderful. The company made a great presentation about their credit card. They offered nice features to help you try to pay less interest. They did everything in their power to make it sound like they were on your side, not on the interest-receiving side. It was a super job of marketing and salesmanship.
And it was all useless. Credit card companies are not trying to save you money! That would mean they are making less money. Do you really think that's the business they are in...saving you money? They may put tools in place to "help you avoid interest", but you can feel certain they are making up that lost money elsewhere such as in an annual fee, or late charges, or some other fee. Credit card companies are not on your side. Nothing could be further from the truth.
Don't, don't, DON'T fall for this type of credit card marketing.
Using credit cards and other debt instruments will have a profound, negative impact on your financial wellness. Deciding to use these cards is entirely under your control, and I would advise you not to use them. Debt kills reaching financial goals, particularly bad debt like credit card debt. Grab control, ignore the marketing and don't use credit cards.
Credit cards...great marketing, horrible product!
Financial Wellness Is About Understanding Your Financial Behaviors
I thought for today's blog post I would try something a bit different. I have become increasingly convinced that financial wellness is entirely a matter of understanding one's financial behaviors and strengths, then creating a boundaries and systems to help make well-informed financial decisions.
So for my blog post today, I'd like to challenge each of my readers to take the following steps:
First, recall a time when you made a financial decision which you recall fondly and makes you feel pride. Really let the memory and feelings fill you. Re-experience that moment.
Next, think about what led to that decision and what was in place that allowed you to make that decision. What were the circumstances. What types of boundaries had you set for yourself. Take a moment to really consider what had freed you to make that decision.
Finally, commit to allowing yourself to make financial decisions in this manner more regularly. Put in place the same circumstances that allowed you to make that initial financial decision that brought you pride.
Financial wellness is all about allowing yourself to make good financial decisions more frequently. This requires deep consideration about your financial behaviors and patterns, then creating boundaries and processes that allow you to make good decisions more frequently.
For me, this meant using primarily cash for day to day spending and forcing myself to physically go to the bank when choosing to spend extra money. The act of having to drive to the bank has often been enough to give me pause about a financial decision and make me consider more fully how much I valued the purchase I wanted to make.
What types of systems would help you make better financial decisions? Give it a try and commit to a financial behavior change. Commit it to paper, or as a comment below. Often telling others your plans can create a stronger commitment to the plan.
##
Photo by: qthomasbower
Some Top Financial To-Do's That You Are Probably Not Doing
I have a very simple post for you today. There are several financial to-do's that a great many people are not doing. You may be one of those people. There is nothing difficult here, nothing that takes a tremendous amount of work or sacrifice, nothing you have not heard before. Yet each of these items will improve your financial well-being. Start doing them.
1) Contribute enough to your company's retirement plan to receive the full employer match. If you are not doing this, you are returning a portion of your paycheck to your employer. This should be an absolute priority, even if your budget is very stretched. Is there any other instance where you would turn down a paycheck your employer hands you? You've earned that money...take it!
2) Speaking of a budget, create one. Do it now. Stop procrastinating. Creating a formal, planned budget is the single most important thing you can do to positively impact your financial well-being. Even if you never look at it again, the simple act of putting all your expenses to paper will help you become more aware of how you use your money and may spur you to make changes, if necessary.
3) Stop buying stuff. I'm not asking you to stop buying things you need or things you want and have planned for. Stuff is made up of the purchases you make that end up being used once or never used, that don't bring value to your life and that you made for some reason other than because it was important to you. Maybe that stuff was on a great sale. Or maybe there was a great commercial that made you really want that stuff. Maybe you don't know why you bought that stuff. Stop using your money to buy it.
There's nothing difficult here. Putting together a formal budget requires the most work, but will also have the greatest impact. These are all steps you can take on your own at little or no expense to you. Get started on each of these today, and you'll have already improved your financial well-being significantly with very little effort.
Couples Financial Concerns and Needs Survey
I am currently running a survey to determine the financial concerns and needs of newlyweds and other young couples. I plan to use the data collected to help me create a financial planning practice best positioned to truly help these couples. Your participation in this survey is greatly appreciated. I would also love if you would share this survey with others.
Poor Financial Decisions & Money Regret
We've all made poor financial decisions. You have, I have, and every other person out there has. What's more, each of us will continue to make poor financial decisions from time to time, regardless of how knowledgeable we are about finances. Last week, I discussed the money taboo in our society. Today I am going to discuss poor financial decisions and shame around those decision that are exacerbated by that taboo.
Making a poor financial decision is nothing to feel shame about. All of us act emotionally at times and make financial decisions colored by emotion. This can lead to bad results. Allowing the money taboo to prevent you from seeking help can create far more negative consequences than the initial poor decision, however. The period following a poor financial decision is exactly the time to seek advice from others; whether that be a financial professional, a parent, or a friend.
If you find yourself in a position where you have made a poor financial decision that is large enough that you need to make another decision about how to deal with it, don't go it alone. Seek help. Speak with a friend. Call a financial advisor. Talk to someone close to you. You will likely feel some embarrassment admitting your initial poor decision, but that is a small price to pay to prevent long-term severe financial damage.
Your asking for advice will also help others. They will see you as an example of someone willing to discuss their mistakes and talk about money openly. This may make them more willing to seek help when the time comes that they make a poor financial decision.
Regretting a financial decision is not harmful, but allowing the money taboo to prevent you from seeking help can be very harmful. The money taboo in our society impacts us in many ways. Exploiting our money regret is one of the most powerful.
Budgets and Financial Plans Are About Balance, Not Sacrifice
Having a good budget and financial plan does not mean giving up everything important for you today to plan for later. Often when I have discussed budgeting with people, they have indicated they don't want to budget because they don't want to give up many of the things they value now for an uncertain future. A good budget, by which I mean a budget you will be committed to and brings you toward your goals, does not require you to give those things up that you value most. A good budget offers a tool to help you balance your present financial self and your future financial self.
If you have put together a budget that takes into account your values and your goals, you are already on the path to achieving this balance. The way you have built the budget will force you to prioritize what you value more. Do you prefer to have every television station possible available to you now, or would you prefer to purchase a new, fancy car in five years? You get to make that decision when you establish your budget. The budget itself does not judge your spending, it only forces you to decide what you value more.
A financial plan provides the exact same mechanism. A financial plan does not judge your decisions, although your financial planner may do so. A financial plan provides a tool to help you decide whether you value a current expense more or less than a future expense. It's your choice to decide which to pursue.
Budgets and financial plans help you create balance between the present and the future. They offer tools to help you prioritize what financial goals you value most. Don't buy the misconception that a budget or financial plan is about giving up what you value today. Budgeting and financial planning are about balancing today and tomorrow.
Financial Empowerment or Financial Advice?
In the next couple weeks I am going to be publishing a post about financial empowerment. Before I gave away my view on financial empowerment, I thought it would be interesting to poll my readers about what you would value more.
Would you prefer to work with a financial planner who's goal it is to financial empower you to make well-considered financial decision on your own? Or would you rather work with a financial planner who offers financial advice to help you work through the financial decision-making process?
Would You Rather Hire a Financial Planner Who Offers:
5 Simple Steps To Improve Your Financial Well-Being Now
Finances and financial planning can become very complex and intimidating. Often I believe large financial institutions intentionally make finances appear even more complex than necessary to convince you to seek help from one of their salespeople. There are some very important things you can do to dramatically improve your financial well-being that are extremely simple, however. Below I have listed a few steps you can take that will have great impact on your finances.
1. Spend half an hour today writing down (don't just think about it, but write it) what your perfect life would look like. Where would you live? What would you do for work? Whom would you share your life with? Include details.
2. Make a budget. Detail how you use your money now. It doesn't matter if this is a pencil and paper budget, a spreadsheet you set up, or an online budget like www.mint.com. Make a budget that works for you. It can change your life.
3. Look at that "perfect life" you wrote down, and create two or three goals you will pursue beginning today that bring you closer to reaching the perfect life.
4. Review your budget. Is there anything that surprised you or that you wish you spent more money on or that you were very uncomfortable with? Decide if there is anything you spend money on now that would be better served to reach one of the goals you've written down. Adjust your budget to reflect that changed priority. Make sure to include your goals in your budget, this will create commitment to using your budget.
5. Consider your goals and "perfect life" before each major purchase. Does it help reach your goals or perfect life? Does the purchase represent a new goal of higher priority than what you've written down?
Making certain you are aware of how you are using your money and that it is in alignment with your goals and values will change your life. Keep pursuing your perfect life and recognizing what your priorities are, your financial well-being will improve.
Why You Should Fight the Money Taboo
Are you willing to talk to others about money questions or difficulties you have? Do you find yourself ashamed by your financial situation? It is my belief that money is the one great taboo in our society. And I believe that this taboo is a cause of many financial problems.This afternoon I am going to be meeting with many people to discuss financial issues they have and provide whatever advice I can in a very unusual situation. I will only be meeting with each person or couple for a few minutes and a part of the expectation of me is to get beyond that taboo to discover financial issues. My advice is being offered at no cost to these individuals and it is a great opportunity for them to begin setting a course to improve their financial well-being.
Unfortunately, much of the time I have with each individual will be spent trying to get them to open up about any financial issues they may have. And I feel certain that I am often unable to reach the people with the greatest difficulties because of the shame they feel about their situations.
So I sit here wondering this morning how different might many of our financial situations be if we were comfortable speaking about and seeking help with our finances. How much more full might our lives be if we stopped secretly worrying about our money and instead got help and dealt with our money issues? How much more time would we have to pursue fun and joy versus thinking about our finances?
I plan to explore money taboo more in future posts. Now I have to prepare to break through that taboo in order to help people.
A Political Lesson Finances Can Teach Us
I believe there is one very important lesson that can be taken from what finances have taught many of us and be extended in the political world. That lesson is that we are no better at predicting the outcome of political and legislative action than we are of predicting the direction of the stock market.
I have only been involved and aware of the political discourse in our country for the past decade and a half, but I am blown away by the hyper-political atmosphere of the United States of America. Has it always been this way? Have we all been political prognosticators and zealots about our positions forever? Why do we think we have the ability to predict the future in politics when we recognize we cannot predict it anywhere else?
I realize I am treading on dangerous ground with this discussion. I tend to stay away from political discussions and work very hard to be politically agnostic, but thought this a worthwhile discussion. I was raised in a very liberal household and find myself agreeing with liberal ideals and rhetoric. However, upon reflection this attachment to liberalism has little to do with knowledge that these policies will work out better, but more with a deep faith akin to religious faith. Without proof or factual basis, I am generally sure liberal policies plot the correct course and are the most likely to benefit citizens the greatest. I predict the future about these positions based on emotion and a limited belief-set. I am likely often incorrect and believe this to be true of many others, as well.
Many people I like and respect and believe to be very intelligent act in similar manners. They realize they are unable to predict the future of the stock market or anything else, but lose this knowledge when it comes to politics and legislation. They are certain of their political position and seem to know the result simply by the position it takes. When they make their arguments for a position, they cite history and statistics and analyses which can provide insight to an issue, but really offer no long-term predictive value. I contend that they are no better about telling the future of legislation than they are about anything else.
Why are we so certain about ourselves in this arena? I think we need to extend the lesson finances have taught us and recognize that we really have no idea how legislation will turn out. We cannot predict the future. We don't know which politicians will act in our interest most.
I'd love to hear your reaction and feedback in the comments. Am I way off base...do I need to hold a position? Are we more politically vocal than in the past? Are we more partisan? Is political agnosticism taking a position?
Many people I like and respect and believe to be very intelligent act in similar manners. They realize they are unable to predict the future of the stock market or anything else, but lose this knowledge when it comes to politics and legislation. They are certain of their political position and seem to know the result simply by the position it takes. When they make their arguments for a position, they cite history and statistics and analyses which can provide insight to an issue, but really offer no long-term predictive value. I contend that they are no better about telling the future of legislation than they are about anything else.
Why are we so certain about ourselves in this arena? I think we need to extend the lesson finances have taught us and recognize that we really have no idea how legislation will turn out. We cannot predict the future. We don't know which politicians will act in our interest most.
I'd love to hear your reaction and feedback in the comments. Am I way off base...do I need to hold a position? Are we more politically vocal than in the past? Are we more partisan? Is political agnosticism taking a position?
On Why Good Financial Decisions Are Often Wrong
While beginning my day some time ago, a local news station played on the television in the background. As I sipped my coffee and discussed the day with my wife, I overheard a story begin to play with a title similar to "home renovations that pay off now." This story, which on the surface seemed to make perfect sense, presented a clear opportunity to discuss why good financial decisions are often wrong.
The premise of the story was pretty straight-forward. It was the type of story media outlets recycle often and seem to use as filler when they are short on news. The newscaster discussed the amount someone could expect to pay for a certain home renovation (e.g. kitchen remodel, home expansion, etc.) and the amount that each renovation might increase the value of the home. Finally, the story was wrapped up with a comment about which renovations returned the most money for your investment and then concluded by listing which renovations were the best to make.
I have found when talking to people that often financial decisions are approached in this manner. They are reviewed primarily from a "maximize return" perspective and the highest expected return equals the "good" financial decision. There is good reason to consider the return to expect from some financial decisions, but it is my opinion that generally this is not the best way to make decisions. Far more important is the value you receive by choosing either side of the decision. What is important to you? How much are you willing to pay or give up to choose a certain path?
Take the home renovation example, a kitchen remodel may return more than an in-ground swimming pool addition, but if your goal is to swim in your backyard every day and you never cook, the kitchen really does not make much sense. You may get more money back if you choose to sell the house in the future, but you get no return from the kitchen while you still own the home. The kitchen remodel might be the good financial decision but entirely wrong for you.
Other examples of this type of decision-making include maintaining a mortgage for a tax deduction when you could pay it off and you are debt-averse or taking more investment risk to maximize return at the expense of sleeping well at night.
Don't forget yourself and what is important and valuable to you when making financial decisions. Don't allow someone to convince you to make a choice that does not represent your values simply because it has the highest expected return. Well-considered financial decision are made by considering the expected return, long-term impact and what is important to you, then balancing those factors to reach the decision. A good financial decision according to the experts could be entirely wrong for you.
Who Should You Trust With Your Money?
Maybe nobody.
For several years I worked for an financial planning firm that I would have been comfortable recommending to anyone and using as a model for the type of firm to look for. The firm was fee-only, the culture had a true focus on financial planning and believed strongly in acting as a fiduciary. Employees were well-trained and asked to maintain and expand that training. Everything you would think to look for in a financial planning firm was in place.
Unfortunately, despite all the right signals being there, clients and employees of the firm were ultimately harmed in very dramatic ways. Former clients no longer have a concept about the amount of wealth they have, are unsure how they will pay next month's bills, and have had their financial well-being forever harmed. Former employees most important asset, their earning power, has been hurt immeasurably. They have been stained by association with the firm despite no knowledge of alleged wrongdoings. It is an all-around bad story.
The question I have often asked myself about the experience is "who can I recommend people use as a financial planner when the indicators here were positive but ultimately resulted in such harm?" The more I have considered this question, the more I have begun to believe that I cannot recommend people who handle your money and act as investment advisors and financial planners. There is simply no need to trust somebody to handle your money.
I am not saying financial advice is unimportant. In fact I believe the need for good, objective financial advice is extremely high. What I think is unneeded is someone to physically handle your money, whether that be managing an investment portfolio for you, being able to make distributions of money out of your accounts, etc... Yes, someone providing these services can deliver a lot of convenience and take work off your shoulders, but there is great risk involved as well. Despite controls that are in place, you just cannot be quite sure what is happening with your money. Is that risk worth the convenience?
I think it makes more sense to seek out a financial planner that would provide advice without touching your money. You will end up having to do some of the work yourself, but you eliminate one risk on your financial well-being. And it should make the cost of advice much less expensive and much more accessible to you if investment advice is not provided.
So, who should you trust with your money? I am beginning to think you should only trust yourself with your money. Seek someone out to provide financial advice and financial planning service, but don't let them touch your money. Why assume that risk?
Forget the Fiduciary Fight
It appears the U.S. Congress is set to fail the American public and allow major financial services companies to continue to provide the public bad financial advice. The Senate continues to fight against a fiduciary standard apparently unwilling to make difficult political decisions which could cost them major campaign contributions.
But why are those of us who would consider ourselves financial planners fighting to have other professionals act as fiduciaries? Why are we lumping ourselves together with the entire financial services industry when we should be working to separate ourselves? I say, let them have their conflicts of interest and their lack of focus on clients and their confusion. Let's take this opportunity to create true separation from the product distribution industry.
People are desperate for good, honest financial advice. Let's grab the mantel as financial planners. Let's band together and work with one another to create a profession dedicated to serving people. Let's move to a different sandbox and leave the financial services people alone.
Let's find a place where we can sit around a table and decide what financial planning is and what it means to be a financial planner. We can welcome everyone who wants to put their clients interest first as the base qualification for admittance, then begin hashing out a definition. We can invite the Certified Financial Planner Board of Standards, Inc., the Financial Planning Association, and the National Association of Personal Financial Advisors to join and be integral to this movement. Let's finally make this break and plant our flagpole. Let's lay claim to being the true profession to help people with their financial well-being. If you don't like what we decide, you will certainly have every right to leave and return to the financial services industry.
I like to occasionally ask myself my assumptions might be wrong. I asked myself this question about the fiduciary issue, and came to the conclusion I have outlined above. Now I ask you to take a moment and consider whether your assumptions might be wrong also.
Maybe It's Time For a Free Financial Plan
The following post has also been posted on my other blog, Blogged Business Planning, and the discussion about this idea has been in full swing. I encourage you to visit this post on that blog to get the full comment thread.
You've already read about my beliefs on free financial plans in an earlier blog post. Now I am going to make an argument against that post.
You've already read about my beliefs on free financial plans in an earlier blog post. Now I am going to make an argument against that post.
Yesterday, financial planner Rick Kahler, CFP® posted a great piece titled "Study A "Test Drive" For Financial Planning" on his blog which does a wonderful job quantifying the benefits of financial planning. I applaud him for this "test drive" concept, but I think it's time to challenge the financial planning profession to take that a step further and offer a true test drive.
I believe it is time for those of us who provide true financial planning - meaning planning focusing on a client's overall financial well-being, not just investments - to offer a true test drive. It's time we teach the public the true value of financial planning so they can learn for themselves why it has so much power and why investment management is not the true value financial professionals deliver.
What I propose is to take prospective clients through the financial planning process for free! Agree on a fee in advance, but allow these prospects to decide if they believe there is value in the financial planning process after they have had the opportunity to see for themselves. If you are delivering a valuable financial planning service focused on a strong promise and deep relationship with clients, I suspect many prospects will understand the value and agree to continue the relationship in a for-fee arrangement.
We can begin teaching more people about the benefits and power of financial planning if we show more people why it is so powerful. Removing cost commitment up front will allow us to reach more people. Sure you'll be taken advantage of by some people, but even in these people you may build goodwill and good word-of-mouth if the situation is handled respectfully.
So let's really start showing the public the value of financial planning. Give them a taste of financial planning for free. Consider it a contribution to the profession and as a marketing cost, if that makes the loss experience more palatable. This is what I plan to do as soon as I begin engaging with clients again.
Subscribe to:
Posts (Atom)
