Objective information about financial planning, investments, and retirement plans

Financial Advice and Mini Bottles of Liquor

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Regular readers here know that the inspiration for some of my blog posts comes from non-financial sources such as youth soccer fields and the Rolling Stones.  In that spirit the idea for this post popped into my head while waiting in line to pay for an item at a local gas station.

Financial Advice and Small Bottles of Liquor

I noticed the clerk behind the counter restocking the very prominent display case with mini bottles of liquor of the type you would buy on an airplane.  When I asked if they sell a lot of these she indicated that I would be surprised and I was.  This is the last place that I would think of buying mini bottles of liquor.  My hope is that the contents are not being consumed en route from the gas station.

I liken this to some of the places that people seek financial advice.  Are you getting financial advice from someone best positioned to advise you or simply from where it is convenient to obtain it?  Here are a few thoughts on some of the alternative sources available to you when seeking financial advice.

Insurance companies and agents

We have had our auto, homeowner’s, and person umbrella policies with an agent affiliated with a major insurance company for years.  Our agent is great and has provided outstanding service.  His company made a big push into providing personal financial planning largely to tap into their vast customer base to try to sell various financial products to these customers.  When I asked my agent if he was now going to become a financial planner he just kind of grumbled as he wanted no part of this.

My experience is that insurance companies are looking to sell annuities and other insurance-based products as their answer to your financial and retirement planning needs.  Many of these companies also offer their own proprietary families of mutual funds and other investment vehicles.  As with anything you need to understand the motivations and capabilities of the person trying to sell these products to you.  Is this agent qualified to provide you with unbiased financial advice or do all questions lead to a solution that involves the sale of a variable annuity or a related product?

Banks offering financial advice

Many banks offer investment and financial advice across a number of formats.  It’s not uncommon to have a registered rep at the branch selling various financial products.  The bank may even have their own line of mutual funds and their own brokerage operation.

Other banks have in-house or affiliated investment advisory operations which offer investment and perhaps wealth management services for a fee as opposed to the commission-based services mentioned above.

Again banks view this as a way to expand their service offerings and broaden their revenue streams by tapping into their depositor base.  As with any financial services provider you need to understand what your bank offers, how they offer it, any potential conflicts of interest, and most of all if this type of arrangement is right for you. 

CPAs offering financial advice

CPAs have rightly earned a reputation as a trusted advisor, especially for business owners.  The good ones offer a range of tax and financial advice that is invaluable.  Many CPAs have ventured into the business of offering investment and financial advice as well.  They realize that this is an excellent revenue stream, often a better one than they can generate via their core business.

As with other providers of financial advice you want to understand that if your CPA is qualified to provide financial planning and investment advice as this is a different knowledge base than his or her normal world.  A few other considerations:

  • Does the CPA have specific knowledge or training here?  A designation such as the CFP® or the PFS (the CPA equivalent) can be good evidence of training and commitment to this area.
  • What happens during tax season?  Are they available to answer your questions and monitor your situation?
  • Is the advice offered as an RIA (Registered Investment Advisor) or via a Broker-Dealer type arrangement?  In the latter case the CPA is likely engaging in advice via the sale of commissioned financial and insurance products.   

Financial Planners 

The term financial planner can be used by anyone so you will want to understand a few things about how any financial planner operates before determining if this is the right advisor for you.

  • What are the financial planner’s credentials and training?  Does he/she hold a CFP® or some similar designation?
  • How is the financial planner compensated?  Fee-only?  Commissions?  A combination of fees and commissions?  It is important for you to understand if there will be any conflicts of interest involved in the delivery of financial advice.
  • What type of financial advice does the financial planner offer?  Hourly as needed?  Comprehensive financial planning? Investment advice and wealth management?  More importantly is this the type of advice that you need?
  • Who are the financial planner’s typical clients?  If you are 60 and nearing retirement an advisor who specializes in clients in their 20s and 30s is probably not the right advisor for you.
  • Check out NAPFA’s guide to finding an advisor for some tips on choosing the right financial advisor for you.  

I’m often puzzled by the process used by many folks in choosing a financial advisor, but I guess it is no stranger than buying mini bottles of liquor at a gas station.  Choosing the right financial advisor can be very rewarding, choosing the wrong advisor can have a devastating impact on your financial life.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

  

Photo credit:  Flickr

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5 Financial Resolutions for 2013

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The news is filled with stories about what happened in 2012 and with financial predictions for 2013.  As I write this the pending Fiscal Cliff and Washington’s inability to reach a compromise also dominates the news.  None the less 2013 is upon us.  Here are 5 timeless financial resolutions to consider for 2013.

An assortment of United States coins, includin...

Get a financial plan in place

A properly constructed financial plan analyzes your current situation, helps you establish financial goals, provides benchmarks against which to gauge your progress, and includes implementation suggestions. If you don’t have a financial plan in place this should be your first step in 2013.  If you don’t have a roadmap for your financial journey how will you know where you are headed and how to get there?  If you do have a plan but haven’t reviewed it lately, now is a good time.  Are you on track?  Are some adjustments appropriate due to changes in your situation?

Take full advantage of your company’s retirement plan

If you are able to do so, max out your 401(k) contributions for 2013 (the limits are $17,500; $23,000 if you are 50 or over at any point during 2013). If you can’t afford the maximum contribution, try to contribute at least enough to get your company’s full matching contribution if one is offered. One way to painlessly increase your contributions is to take any percentage salary increase you receive each year and increase your 401(k) contribution by that percentage. Your retirement plan may not be perfect, but it does offer a vehicle to save for retirement on a regular basis, and over time a properly managed account can grow into a significant retirement asset.

De-clutter your financial life

Take a look at consolidating all of those old 401(k) plans and IRAs. Take a look at your spending and get a handle on where your money is and where it is going. Make sure that your beneficiary designations on retirement plans, IRAs, insurance policies, and annuities are up to date. In general, simplify things to make monitoring your financial situation as easy as possible.

Control what you can, and ignore all of the financial media hype

I received an email from a retiree indicating that he was making several investing moves simply because of his fears about the Fiscal Cliff and the situation in Washington.  While I understand his frustration and perhaps his fear of another recession, short-term moves in anticipation of an event are usually not a good idea.  A well-constructed financial plan should be your guide.  It was my experience that those investors who sold their equity holdings during the 2008-09 market decline ended up being sorry they did.  Remember Y2K?  Much hype not much else.  The markets will fluctuate over time.  We have no control over this and most of us do a poor job of timing the markets.  What you can control is how much you save and how you allocate your investments. You can’t control what the markets and the economy might do in 2013. I’m not advocating that you shut yourself off from the financial media. I am merely suggesting that you step back and rely on your financial planning and investment strategy during periods of market turmoil. It is generally a bad idea to overreact to the crises of the day. 

Hire professional help if you need it

Many very capable people don’t do as good job with their finances as they might for many reasons, including a lack of time. Find a good fee-only financial advisor to provide the help you need, whether for a one-time financial planning review or for ongoing advice

I hope that everyone has a very Happy New Year and a prosperous and healthy 2013.

Please feel free to contact me with your financial planning and investing questions at any time.

Check out our Resources page for links to some services and tools that might be beneficial to you in 2013.

Photo credit:  Wikipedia

 

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Merry Christmas and Thank You

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I want to wish all of you who celebrate a Merry Christmas and to everyone a happy and prosperous 2013.  I also want to thank all of you for your readership and support.

Since moving The Chicago Financial Planner to Word Press from Blogger in June, my readership has steadily increased and again I want to thank you for that.  Here are my top 5 most read blog posts since the conversion:

How much is Financial Advice Worth? was born out of a discussion with a financial advisor colleague about a new 401(k) advice service we were trying to launch for 401(k) participants.  I asked “So how much is competent, unbiased financial advice worth?  Part of the answer lies in the benefit that you expect to receive from spending the money.”

401(k) Fee Disclosure and the American Funds was written on the heels of the initial fee disclosures for 401(k) participants mandated by new regulations this year.  I used the multiple retirement plan share classes offered by the American Funds to illustrate the need for plan participants to understand these fee disclosures and the details of the funds offered in their plan’s lineup.

Why Financial Planning is Important-An Illustration is based upon and excellent infographic offered by NAPFA a professional organization of fee-only financial advisors of which I am a member.  The infographic does a great job of diagramming the need for financial planning and how the process works.  The statistics are sobering and illustrate the need for many Americans to seek the help of a qualified financial planner.

Target Date Funds-A Look Under the Hood looks at the composition of the “Big 3” Target Date Fund families:  Vanguard, Fidelity, and T. Rowe Price.  Together these three families control about 80% of the assets invested in Target Date Funds.  Target Date Funds are a staple in 401(k) and similar retirement plans.  They are frequently used as the default option for participants who don’t specify an investment choice.  However, like any investment, it is important that you understand how these funds will be investing your money and if their approach is right for you.

Can I Retire?  is the question that I am most often asked by perspective clients.  Can I Retire?  This is not a simple question to answer.  Moreover it’s not just about being able to retire, but rather can you retire “in style?”

Again I want to thank you my readers for your support and for your readership.  My question to you is how can I be of help?  What questions are on your mind?  Please use the contact form to let me know and I will do my best to answer them.

Also please feel free to let me know what you like or don’t like about The Chicago Financial Planner.  Your thoughts are important to me.

We will continue to evolve the blog into 2013 and look for ways to offer you more information about financial planning, investments, retirement plans, and related topics.

I hope that all of you have a wonderful holiday season.

Photo credit:  Wikipedia

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Friday Finance Links August 3, 2012

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LONDON, ENGLAND - JULY 28: Sue Bird #6 of Unit...

A week of getting some work done in the office and following the Olympics on TV, to say we are Olympic junkies is an understatement.  Our daughter will be coming home for the weekend to relax and watch the Olympics on a real TV vs. her computer.

Here are some articles and blog posts that I suggest for your weekend personal finance reading:

Personal Finance Blogs

Len Penzo offers an interesting take on the Olympics and life in The Olympics: More Proof Those Given Everything Appreciate Nothing at Len Penzo dot com. 

Josh Brown at the reformed Broker calls out the head of an alternative investment firm for his sales tactics in The World Series of Bullshit, Game 3.

The Canadian Finance Blog posted Is Pet Insurance Worth It?  As the owner of three dogs I can relate to this one.

The Novel Investor wrote All Index Funds Are Not Created Equal and I couldn’t agree more. 

Posts from Fellow NAPFA members

Jean Keener shared some New Updates on Social Security.

Michael Garry explains that Financial Planning Is All About Trade-Offs. 

Other articles from around the web

CNNMoney featured this excellent piece The truth behind target-date funds.

Morningstar’s Christine Benz asks Do You Have a Viable Plan for Long-Term Care? 

Jon Chevreau wrote The rose colored retirement dreams of the young.  While geared to his Canadian audience, Jon’s article is equally relevant to us here in the U.S.

In case you missed it here is a link to my latest post for the US News Smarter Investor Blog A Financial Planner’s Reflections on the Past Four Years.

Thank you to Tom Drake for including my blog in his ongoing blog round-up Money Index (on the investing tab).  Money Index can also be accessed from his Canadian Finance Blog by clicking on Personal Finance Links.

 

Bobofest (our annual mini high school reunion) this past Saturday was a lot of fun, always great to see the guys.  One new attendee who I literally have not seen since high school made an appearance.

Here’s wishing everyone a great weekend.

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Financial Planning Really Does Make a Difference

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Calculating Savings

According to a joint survey by the Consumer Federation of American and the CFP Board, households with a financial plan in place felt a higher level of financial well-being than those without a plan.  According to the survey of 1,508 financial decision makers in households nationally:

  • Those with plans are more likely to feel they are on pace to meet all of their financial goals, such as saving for retirement or for emergencies, by a margin of 50% to 32% and for all but the lowest income bracket (those making less than $25,000 a year);
  • Those with plans are more likely to feel “very confident” about managing money, savings and investments, by a margin of 52% to 30% and across all income brackets;
  • Those with plans are more likely to describe themselves as living comfortably by a margin of 48% to 22%. In addition, as many people who plan and who make $50,000 to $99,999 a year say that they live comfortably as non-planners in the $100,000 and above income bracket;
  • Among respondents in the two highest income brackets, those with plans report saving a higher percentage of income and having built greater wealth than those without them. For example, people with plans who have incomes between $50,000 and $99,999 are more likely to report they save 10% or more of their income (57% vs. 39%) and to have accumulated at least $100,000 in investments (37% versus 19%);
  • For those in the two lowest income brackets, people with plans who use credit cards report being much more likely to pay credit card bills in full. That is true both for those who make $25,000 to $49,999 – 46% for people with plans and 26% for those without them – and for those with incomes under $25,000: 41% for people with plans and 16% for those without them; and
  • Overall, only 31% of respondents said they have a comprehensive financial plan, while about two-thirds or 65% indicated they follow a plan for at least one of their savings goals.

(Bullet points taken from an article on financial-planning.com Financial Planning Critical Regardless of Wealth: Survey) 

In the interest of full disclosure, I hold the CFP® certification and the Certified Financial Planner Board of Standards is the group that regulates those of us holding or seeking to obtain this designation.

None the less, the findings of this study and others clearly show that having a financial plan in place is a key element in achieving your goals.  Financial planning typically encompasses areas such as:

  • Saving for College
  • Insurance
  • Tax Planning
  • Estate Planning
  • Retirement Planning
  • Employee Benefits
  • Investing

Some financial planning best practices (via the CFP Board) include:

  • Setting measurable financial goals.
  • Understanding the effect of each financial decision.
  • Re-evaluating your financial situation periodically.
  • Start planning as soon as you can.
  • Be realistic in your expectations.
  • Realize that you are in charge.

As a practicing financial planner I believe in the value of hiring a trained financial planner to help you through this process.  However there are many web sites that have financial planning tools that might be of help to you if you choose to do this yourself.  Among them:

  • T. Rowe Price has a number of tools and calculators on their site.
  • Morningstar.com has several planning tools; some may fall under their inexpensive premium umbrella.
  • If you participate in a retirement plan through your employer, many plan provider sites have a number of calculators and planning tools.
  • Mint.com has a number of budgeting and planning tools.

If you are seeking the help of a professional, you can find someone in your area here:

  • NAPFA is the largest professional organization of fee-only financial advisors in the country.  (Full disclosure I am a NAPFA Registered Advisor)
  • The Garret Planning Network is a group of fee-only advisors who mostly work on an hourly basis.  Many Garret members are also members of NAPFA.
  • The Financial Planning Association (fpanet.org) has a find a planner function on their site.
  • The CFP Board site has a link to help you find a Certified Financial Planner™ as well.

Whether you do it yourself, hire a professional to help you, or some combination of the two, the best time to get started is now.  In my experience, your investment strategy should be an outgrowth of your financial plan, not the other way around.

Please remember this:  Financial planning is an ongoing process not a one-time event.  

Please contact me at 847-506-9827  to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.   

Photo Credit:  Flickr

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Dad’s a Financial Planner I’m Scarred for Life

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Father's Little Dividend

My wife and I firmly believe that our mission in life as responsible parents is to embarrass our children as often as possible.  By this measure we are great parents.  In all honesty (no bias of any kind here) we are blessed with three fantastic kids.  They range in age from 18-23, one is out of college, one will be a senior, and our youngest will be a college sophomore in the fall.

With Father’s Day almost upon us I was reflecting on what, if any impact having a Financial Planner as a father has had on them.  I have no idea what the answer is but I thought I’d share some stories about my kids related to this topic over the years.

When the kids were very young I trained them to scream “Evil” every time a commercial for one of the major brokerage houses appeared on TV.  This firm had an office here in Arlington Heights.  They would scream “Evil” whenever we drove past.  Can you say proud (fee-only) Dad?

I’ve officed at home as often as not since my career change to this profession in the mid 90s.  The TVs around the house always had CNBC on during the business day.  I never thought the kids noticed until one day our son Mike (now 18) was talking about the dismal performance of the NASDAQ with his soccer coach.  The coach mentioned to us that he was bemoaning the performance of his investments to Mike until he realized that he was talking to a 9 year old.

Our daughter Jennifer (now 23) was 11 or 12 when she asked my wife what to do with some cash she had accumulated from gifts over the years.  My wife suggested that perhaps she might talk to me about investing it.  Her response was to ask if I was any good at that and if I would make her whole on any losses.

Our daughter Jordan (who is 21) is a liberal arts major (Anthropology and Religion).  She is interested in helping to alleviate human suffering.  None the less she has a good head for business.  She was the Treasurer of her sorority and established a budget and a budget tracking system that she was able to pass on to her successor.  She will be a Trade and Investment Intern at the British Consulate here in Chicago for the summer.  She has law school aspirations and gives me very dirty looks when I suggest going for an MBA.

Jennifer graduated from USC in 2010 and landed a great job with the USC Institute for Creative Technologies in PR and web design.  I called one Saturday shortly after she had graduated and had started working.  I asked her what she was doing and she indicated that she was updating her information in the budgeting and tracking program Mint.com.  I was expecting a different answer from a 21 year old in LA.

Hopefully you haven’t found these stories to be overly dull; they always bring a smile to my face as do my kids. Happy Father’s Day to all of the Dads out there.

If you have financial questions or would like to learn more about how I help my clients achieve their goals please contact me.

The Similarities Between Buying Coffee and Choosing a Financial Planner

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English: A photo of a cup of coffee. Esperanto...

A couple of years ago my family bought me a Keurig single cup coffee maker. I love the ability to make a freshly brewed cup on-demand; the convenience has served to fuel my already robust coffee addiction.

Our local Sam’s Club sells a variety of K-Cup brands; they typically are boxes of 80 for around $37. Starbucks recently entered the K-Cup market so when I saw their box for sale at Sam’s I bought one. It wasn’t until I opened it a few days later that I noticed there were only 54 individual units for the same $37 price. It was clearly marked on the box, but I was so used to boxes of 80 that I never noticed.

When looking for a financial planner it is also important to know what you are getting for your money before entering into any sort of relationship.

First you need to understand that anyone can call themselves a financial planner. This is no requirement that they have any particular training or credentials in order to hold themselves out as a financial planner.  Do they hold the CFP® certification or perhaps the PFS certification (the CPA’s financial planning certification)? There are an ever increasing number of certifications and designations in this field. Some are more meaningful than others so be sure ask many questions here.

Understand the services offered. Do they provide comprehensive financial planning; investment advice; or advice on an ad hoc basis? More importantly does the planner offer services that match your needs?

Understand how the planner will be compensated. Is this person truly a financial planner, or do they simply sell financial and insurance products? Are they paid an hourly fee, an ongoing retainer or percentage of the investment assets they will be managing for you, or some sort of fixed project fee? Is their compensation all or in part based upon the sale of financial products?

Understand the planner’s value proposition. What does he or she bring to the table that makes their services unique and right for you?

Just like my coffee buying experience, it is important that you fully understand who you are hiring as a financial planner, what they will and will not do for you, the benefits of hiring that person, and how much you will be paying for their services.

NAPFA (the largest professional organization for fee-only financial advisors) has published a guide to finding an advisor. Full disclosure I am a member of NAPFA.

As always please feel free to contact me  if I can be of help.

Check out our Resources page for links to some tools and services that might be beneficial to you.

Photo credit:  Wikipedia

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