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Financial Advice and Mini Bottles of Liquor

June 9, 2014 by 4 Comments
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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 with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.

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Choosing the Right Financial Advisor – Key Considerations

January 28, 2013 by 6 Comments
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Happy young couple in discussion with a financ...

With the holidays behind us and taxes on the horizon, many folks are looking to find a qualified financial advisor who is right for their situation.  Maybe getting your finances in order was a New Year’s Resolution.  Perhaps you’ve realized that retirement is getting closer.  Whether you will be looking to work with a financial advisor for the first time or feel that your current advisor isn’t meeting your needs, here are some issues for you to consider in your process of choosing the right financial advisor for your situation.

Understand yourself first 

The first question that I ask a perspective client is:  What prompted you to seek the services of someone like me?  While you may not be totally sure of all of the areas in which you need help, thinking about what you want from a relationship with a financial advisor up-front will help you to find the right advisor for your unique situation.

Some common answers to my initial question over the years:

  • Retirement is looming and I want to make sure that I have everything in order.
  • We inherited some money and want to know how to best invest it.
  • Our investments are all over the place and we have no plan.
  • We want an independent review of our situation and a financial plan to help us move forward. 

How would you and the advisor interact? 

What is the advisor’s communication style?  How often would you meet?  Will the advisor be proactive about bringing relevant ideas and suggestions to your attention?

There is no right answer here, but you should be sure to ask about this so that should you enter into a relationship with this advisor your expectations are realistic.

Does the advisor work with clients like you? 

An advisor who focuses on clients who are retired might not be the right advisor for you if you are in your 30s with small children for example.  Does the advisor have a minimum level of net worth or investible assets?  Where does your situation fall in comparison to these minimums?

If, for example, you are a corporate employee seeking advice on how to best manage the stock options granted to you by your employer does the advisor have experience helping clients deal with their stock options?

Advisor or product seller? 

Does the prospect advisor focus on selling financial products?  Do they offer financial planning services?  Are they compensated on a fee-only basis or do they depend upon commissions from the sale of financial products for all or part of their compensation?

It is important that you fully understand how the advisor is compensated so that you understand if there are potential conflicts of interest that might be driving their advice.

What are this advisor’s qualifications? 

There are an increasing number of designations in the financial advice world.  The two that hold the most weight as far as financial planning goes are the CFP® designation and PFS designation.  The latter is the personal finance designation awarded to CPAs who qualify.

Make sure to ask about the designations held by a prospective advisor and also about their education and experience.  While none of these ensure that the advisor is right for you the answers to these questions will give you a sense of their commitment to gaining the knowledge needed to address your financial planning and advice needs.

Do some checking 

Check on the prospective advisor’s record.   FINRA’s Broker Check database of federally and state registered investment advisers allows you to search by name, and lets you check up on firms as well. Several private services, such as BrightScope, have services to check an adviser’s regulatory record. If the adviser is a Certified Financial Planner you can also look up their information at the CFP Board’s website. None of this is a guarantee, but it is a great starting point.

The right financial advisor can help you build the wealth you need to reach your various financial goals.  Take the time and put in the effort to select the right advisor for your unique needs.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner.

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

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Is Your Financial Advisor Like a Replacement Ref?

September 26, 2012 by 6 Comments
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By now you’ve all seen the replay of the horrible call at the end of Monday night’s football game that gave the Seattle Seahawks a “victory” over my beloved Green Bay Packers.   In the interest of full disclosure I am a lifelong Packer fan.  This love affair with the Pack began towards the end of the 1966 season (I was nine) a season in which they won the first Super Bowl; Vince Lombardi was the coach; and Bart Starr and eight other players from this team would end up in the Pro Football Hall of Fame.  I’ve seen some great wins and some disappointing losses over the past 45 years.   Beyond the botched call on Monday, the whole tone of the games with these unqualified replacement refs is just hard to watch.

Update as of late September 26, 2012 the NFL announced that a tentative deal with the real refs had been reached and hopefully we will never see anything as shameful as this episode again.

Unqualified and incompetent referees in the NFL are discouraging, but an unqualified financial advisor can cause some real harm to you.

Is your advisor qualified?  The ref who signaled touchdown on that last play clearly was not.  He had never officiated a game above the junior college level before this NFL season.  Typically an NFL official must have at least five years experience at the college level.  As far as your financial advisor, ask yourself if she is qualified to advise you on your situation.  Does she take a holistic view of your financial situation or does she simply try to sell you more financial products?  Moreover does your advisor have the proper credentials such as the Certified Financial Planner (CFP®) designation?

Does your financial advisor collaborate with other professionals on your behalf?   One of the comments made by several of the experts on ESPN and other networks is that the head referee never called over the two officials who made the conflicting calls in the end zone to hear their explanations.  One of these experts is a former league referee and he indicated this should have occurred as a matter of course.  As a financial advisor I often tap the expertise of financial advisor colleagues and other professionals in areas like estate planning and insurance on behalf of my clients.  I consider myself a financial planning generalist, but I also know what I don’t know.  The key is doing the best job that I can for my clients.  Does your advisor take this approach?  If not why not?

Does your advisor place your interests first?  Clearly the NFL doesn’t really care about its fans or for that matter its players.  Why else would they put out such a cheapened product for the first three weeks of the season and put their players potentially at greater risk of injury?  It’s all about the money and the NFL is raking it in.  Likewise many financial advisors are all about the sale of financial and insurance products.  They are strictly out for the money; their client’s interests come second.  For many commissioned and fee-based advisors this is both the norm and perfectly legal as they are not held to a Fiduciary standard.  I’m biased, look for a fee-only advisor who holds him or herself out as a Fiduciary and who puts their client’s interests first.

Let’s hope the NFL settles their labor differences soon.  But more importantly, make sure that you have a first stringer as your financial advisor.

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

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

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4 Tips for Setting and Achieving Financial Goals

August 27, 2012 by 5 Comments
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IRVING, TX - JANUARY 31: Quarterback Aaron Ro...

With the start of the college and pro football seasons upon us, coaches and players are in the process of setting goals for themselves and for their teams.  On defense this may mean improving the number of yards allowed (I hope this is at the top of the list for my beloved Green Bay Packers).  For the offense a goal might be to lower the number of quarterback sacks allowed by 20%.

Most of us dream of things we’d like to do in the future or perhaps what we would like our lives to become. When it comes to the world of financial planning, these aspirations need to be translated to goals in order to determine how best to achieve them.

One of the initial discussions most financial advisers have with a new client centers on the client’s goals for their money. Typical aspirations for clients might include funding their children’s education or saving for their own retirement. Goals might also center around a certain lifestyle, both now and perhaps later on during retirement.  In order to translate these aspirations into goals, the following must be attached to these aspirations:

Set a time frame. A goal must have a time frame by which it needs to be achieved. For college, it is generally near the child’s 18th birthday. Retirement is typically at a certain age. If the time frame is open-ended, how will you know when the money is needed? How will you track your progress? How will you know how much you will need to save over time?

Over the course of time, the time frame for some goals might change.  Retirement is a prime example.  Perhaps you had planned on retirement at age 63, but your investments took a major hit during the 2008-09 market decline.  You are now back on track, but new calculations tell you that age 66 is more realistic in terms of being able to generate the type of annual cash flow to support the lifestyle you’d like to enjoy during retirement.  

Goals need to be quantified. It’s not enough for a football player to say they want to improve; they need to quantify what improvement means.  For the college student-athlete this might mean improving their average yards per catch by 10% and improving their classroom GPA by half a grade point.  Saving for retirement is the same. What is a comfortable retirement? How much will it take annually to fund a comfortable retirement? Start out by looking at your current level of savings, and try to quantify how much you will need annually to live comfortably in today’s dollars.

Take this annual amount and subtract things like a pension or social security that will provide you with monthly income. The balance is what you need to fund. Translate this “gap” into an amount that you need to accumulate by some date, and now you have a retirement accumulation goal that is quantified and has a time frame. Keep in mind you will also need to factor in the impact of inflation.

For example, you might determine that $1 million is needed in 20 years to fund your desired retirement lifestyle. Armed with this information, you can start looking at where you are and what you need to do to achieve your goals.

Monitor your progress. Establishing quantifiable, measurable financial goals with a set time frame is just the first step. Now for the real work. You need to monitor your progress on a regular basis, because things change. For instance, the stock market may rise or fall rapidly, you might lose your job, an illness could occur, or you might find yourself ahead of schedule in terms of the amount accumulated.

Adjust and adapt.  It is important to monitor your progress and adjust your goals when needed. It is also not uncommon for goals to change over time. This is often because life changes.  Are you expecting another child years after you thought you were done?  Did you suffer a job loss?  Get married?  Get divorced?  These and innumerable other situations arise in our lives.  Curveballs like these can throw a wrench into the best laid financial plans.

While there are no guarantees that doing all of this will lead to achieving your financial goals, in my experience those who fail to plan their financial futures are simply planning for failure.

Remember: Financial planning is an ongoing process, not a one-time event.

Please feel free to contact me with your financial planning questions.

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The Similarities Between Buying Coffee and Choosing a Financial Planner

January 17, 2012 by 8 Comments
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Choosing a Financial Planner

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.

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.

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