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Social Security Spousal Benefit Calculation Before FRA
10 months ago
Which Financial Planners Work For Me?
Now that I have spent a great many words warning you about the financial services companies that do not work in your best interest and that set up systems and compensation structures to take money from you, I am setting out to give you some tips on how to find a financial planner who does work in your best interest. I find this topic to be particularly difficult to write about because I spent several years working for a financial planning firm which I would have listed among those trying extremely hard to work for its clients and trying to improve their lives with every piece of advice. Despite that belief, which I continue to hold today, things went very wrong and clients have likely been negatively impacted to an unimaginable degree.
The following pointers are not a comprehensive list of items to look for in a financial planner. This is only the beginning salvo. These questions and observations are designed as a first step to weed out those individuals not working for you so that you can focus your real effort on determining which of the remaining financial planners fits you well. On to my thoughts.
1) 1) Pay close attention to how your first introduction with a financial planner begins. Do they try to get to know you as a person: your goals, your dreams, you past money experiences? Or do they dive immediately into discussion about your money: how much you have to invest, what type of investments do you currently own, how much money you want to make? Or do they not ask you questions? Do they instead discuss themselves, their track record, the products they can provide that will help you? Or do they provide you a presentation which ultimately leaves you feeling frightened and emotionally on edge?
A great planner will begin by trying to get to know you. They will foremost want to understand you as a person, what concerns you, what type of issues you want to avoid and what goals you hope to achieve. During this discussion, they may also want to determine what your current net worth and investments are, but this should be secondary to a discussion about you. If this is not the focus of the discussion, you may want to move onto a new planner.
If an individual you meet with discusses products and solutions before learning about you, or worse yet, provides a presentation which is designed to create fear in you, move on as quickly as possible. Firms who work against you use fear and emotion to create a sense of need for the products they want to sell to you. If they provide literature discussion products which play on your fear about losing money, or running out of money before you die, or any other fearful scenario, do not work with them. These people and firms are not looking to work in your best interest. They are using sales tactics which are designed to get you to make poorly thought out, emotional financial decisions.
2) 2) Ask the planner if they must always act as a fiduciary to clients. Double check the “always” portion of this question. There are planners who are required to act in your best interest when providing financial advice, but they can switch to a salesperson role when proposing financial products to you and no longer have to work in your best interest. Once they change their role from fiduciary financial planner to product salesperson, they move to a suitability standard and do not have a requirement to tell you that they have made this change. If you are considering hiring a financial planner, read your customer agreement carefully. The fine print will sometimes outline whom the professional has to work for and may provide details about this switching of roles scenario. It’s a pain to read through the document, but a great deal can be learned about where a financial planner’s loyalties legal lay by doing so. In my opinion, you are best served by using a financial planner who must always act as a fiduciary. It does not guarantee that the advice you receive will always work out. It does ascertain that legally that financial planner is required to put your best interest first, putting all other interests aside.
3) 3) Who does the financial planner you are interviewing work for? Are they a representative of an insurance company or investment brokerage? Or are they an independent financial advisor? In my opinion, independence is key here. Someone working for an insurance company or investment brokerage will have sales quotas in order to maintain health insurance and other benefits. They will often have a legal duty to their employer ahead of clients. They are placed in a system where the sale of product is put before a client’s best interest. Independence allows a financial advisor to take more control of how they work. They may still need to sell products in order to feed their families if they receive commissions, but many of the other incentives are removed.
The difficulty is determining whether a professional truly is independent or not. Often agents of insurance companies will set up pseudo-practices known as a dba (doing business as.) While considered independent contractors of the insurance or investment firm and allowed to use a different firm name than the company they represent, in most ways these professionals do not have true independence. They continue to be placed in a system designed to work against clients. They may inform you that they can provide products from many different companies. But they generally receive the highest commissions and the most credit toward benefits by selling their company’s products. Simply asking a financial advisor whether they are an agent or representative of a particular company is the best way to get at this answer. Except in a case of fraud, they should honestly answer the question. Secondarily, reviewing the materials they provide (product brochures, client agreements, business cards) can point to any legal relationship they have with an insurance or investment firm.
There are many other resources available to help you pick a good financial planner available on the internet. I do recommend using a CERTIFIED FINANCIAL PLANNERTM (or CFP®) as they have had a significant amount of education and testing so you can feel comfortable knowing they have at minimum the basic amount of knowledge to provide good financial advice. They are also required to act as fiduciaries by the Certified Financial Planner Board of Standards, Inc. You can locate a CFP® near you at www.cfp.net. I would also recommend using a financial planner affiliated either with the Financial Planning Association (www.fpaforfinancialplanning.org) or the National Association of Personal Financial Advisors (www.napfa.org). Both organizations require their members to hold to a fiduciary standard. While this does not constitute a legal requirement, many of the planners I have met affiliated with both organizations take that requirement very seriously.
Picking a good financial planner, one who works for you and delivers exceptional service, can be very tricky. There are very large forces at work trying to confuse you. Many of the professionals working for those organizations honestly do not recognize the position they are in nor understand alternative and better ways of providing financial advice. It is up to you to make the determination about who is working for you and who is working for their organization.
Financial Reform Debate Continues Today & A Financial Awareness Thought
U.S. Senators will be returning to the Senate floor today to continue debate on financial reform legislation. There is not much new to report since last Friday. However, there have now been a couple Senators who have discussed bringing amendments to the floor which would require a fiduciary standard of all individuals giving financial advice. I have not yet seen record of these amendments submitted, but this news is encouraging. I will continue to monitor the proceedings and report on relevant legislation.
A Brief Return to Financial Awareness
I spent the following weekend providing financial counseling services to members of our armed forces returning from warzones abroad. During this weekend, I had the opportunity to truly reflect on the work I have done with individuals in the past, my educational experiences and what I have realized personally in terms of financial awareness. I have become increasingly convinced that being aware of one’s spending and budgeting habits is the single most powerful financial tool to becoming more financially aware and toward reaching one’s goals.
The impact of investment returns, tax management and income potential together do not equal the power of a well-considered spending plan. I have worked with clients who made a great deal of money yet never moved toward achieving their goals because they spent money frivolously and without a significant amount of awareness about their actions. Conversely, I have seen individuals who never earned a large income yet, because of very deliberate spending habits, were able to amass a large amount of financial wealth and live a comfortable retirement in a manner they hoped to. The difference in reaching goals in these cases was not income nor investment return nor any other factor other than spending habits. No other single factor in a person’s financial live dictates the likelihood of being financially comfortable and financially aware.
As my conviction has increased, I have also begun to believe that any financial planner or financial advisor providing comprehensive planning services but not spending a great deal of time with clients tracking expenses and creating a budget is failing those same clients in a powerful way. And, in my opinion, providing this service requires more than a simple preparation by the planner of a cash flow statement based on guesstimate numbers given by the client. It requires a tracking and review of expenses over a couple months by the client and planner together. The budget created is not what creates the financial awareness around spending. It is the actual process of reviewing expenses and adding up the total amounts spent in various categories that can show the surprises to clients and help facilitate financial change, if necessary.
The goal of a deep review of spending and creating a spending plan is not to limit the spending of an individual. The process of creating a spending plan is to help this person become more aware of his or her spending habits, help them recognize areas where they are spending more than they believed, and recognize areas which they value highly were they may be able to spend more of their resources. The goal is to help people make well-informed spending decisions by providing the awareness and freedom to spend on items of greatest value and reduce unconscious spending on items not so highly valued.
If your financial planner or advisor is not doing this type of work with you, ask them why. It is truly important and can have dramatic impact on your financial well-being. Remember, a spending plan or budget is not intended to make you cheap, but to help you use your money in ways you value most. That process will likely help you save more, feel better about your finances and more quickly reach your goals.
If you are a financial planner or advisor reading these and not providing this service, please consider doing so. It is simple work and requires virtually no additional training or tools on your part. There is a time commitment involved, but the time spent is well worth the impact this will have on your clients’ lives.
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