General info

NAPFA Launches Consumer Education Series to Help Americans Better Understand Personal Financial Issues

By admin  |  2009/07/08 12:12 Posted in Financial planning, General info, Investing, Retirement planning  |  Comments (0)

The National Association of Personal Financial Advisors (NAPFA), the country’s leading professional association of Fee-Only financial advisors, is gearing up to further educate people on a variety of topics in an effort to help Americans become educated consumers of financial planning advice and products.

The Consumer Webinar Series is a year-long initiative beginning August 7, 2009 that will provide an opportunity for anyone in the country to learn about a wide range of financial issues from NAPFA-Registered Financial Advisors.  Each month a new session will be conducted live online. Consumers can attend the live session after registering for free, or listen to an audio file after the program.  The instructors NAPFA has recruited for the various sessions are among the industry’s leaders in truly comprehensive financial planning and includes members of NAPFA’s National Board of Directors, past NAPFA national chairs, educators, and authors.

“Each session is intentionally designed to help attendees better understand a specific issue and why it is of particular importance to them,” said NAPFA National Chair Diahann W. Lassus, CFP®, CPA/PFS.  “We want attendees to take something away from the sessions that helps them tackle these issues at home.  As an industry we have done a poor job of helping consumers increase their financial knowledge.  This program, along with the successes of the Your Money Bus Tour, is NAPFA’s way of doing its part.”

The series will include 12, one-hour sessions delivered via the internet.  The individual sessions will be conducted from 1 to 2 pm Eastern time and will include:

August 7, 2009 –         Money 101: Knowing the Basics

September 4, 2009 –    Kids & Money

October 2, 2009 –        What is Financial Planning?

November 6, 2009 –    Protecting What You Have

December 4, 2009 –    Investments: The Basics

January 8, 2010 –        Investments: Advanced Concepts

February 5, 2010 –      Managing Your 401(k)

March 5, 2010 –          Leaving a Legacy

April 2, 2010 -             Women and Money

May 6, 2010 -              Financial Planning and Small Business Owners

June 4, 2010 -             Your Retirement

July 1, 2010 –              Financial Windfalls

Registration for the 2009 sessions is open now.  Learn more about the Consumer Webinar Series by visiting http://www.napfa.org/consumer/ConsumerWebinarSeries.asp

In addition to registering for the sessions, consumers can learn more about the topics and the NAPFA-Registered Financial Advisors who will be instructing the sessions.

“We hope people will take advantage of this opportunity to better themselves and their families.  Only through education will consumers be better capable of addressing their own financial situations,” added Lassus.

Members of the media who would like to learn more about the Consumer Webinar Series can contact Benjamin Lewis of Perception, Inc. at 301-963-7555 or Benjamin.lewis@perceptiononline.com.

About NAPFA

Since 1983, The National Association of Personal Financial Advisors (NAPFA) has provided Fee-Only financial planners across the country with some of the strictest guidelines possible for professional competency, comprehensive financial planning, and Fee-Only compensation.  With more than 2,100 members across the country, NAPFA has become the leading professional association in the United States dedicated to the advancement of Fee-Only financial planning.

For more information on NAPFA, please visit www.napfa.org.

Research Confirms: Now is a Time to be Investing

By admin  |  2009/07/08 09:56 Posted in General info, Investing, My soap box  |  Comments (0)

Recent research shows that investors who begin investing during bear markets do better over the long run than investors who begin in bull markets.  T. Rowe looked at four different thirty-year periods, two of which that started with bear markets (1929 and 1970) and two that began with bull markets (1950 and 1979). They looked at the difference in the outcomes for investors who contributed $500 a month over these periods.  They found, the investors who had begun investing in bear markets had much higher overall returns than the investors who had started investing in during a bull market. Keep in mind this is true for those who stay invested for a long time frame. Is more applicable to young investors then for retirees.

The stock market has always gone up with time but never in a linear fashion. There are times for a rapid increases as well as times when the market drops. Historically, the markets have always rallied and gone to new highs. As a result, purchasing mutual fund shares in a down time for the market is like buying things on sale. You get a great deal for the dollar. Whereas purchasing shares in a bull market is likened to paying top dollar for that item you just have to have now. There is less room for a continued rise and actually an increased chance for a short term fall in value. Just look at the tech boom a few years ago or more recently the housing market.

The best advice for investors is to not try and predict which way the market will go or what sector will be hot but to consistently invest in an appropriate asset allocation to fund your future goals.

The correct mix of investments should be based upon your risk tolerance (your mental ability to handle the ups and downs), your risk capacity (your financial circumstances, income, assets and liabilities), as well as your goals, which include your time frame.

If you Invest; There’s One Thing You Gotta Know

By admin  |  2009/07/08 09:54 Posted in General info, Investing, My soap box  |  Comments (0)

If you don’t know anything else about investing, the one thing that is paramount to know is the different legal safeguards and standards of care depending upon from whom you receive your financial advice.

You have three options for receiving investment advice:

1) Registered Investment Advisor (RIA). According to state and federal law anyone providing financial advice for a fee must be registered with his or her State or the federal government as a Registered Investment Advisor (RIA). These individuals are paid a fee by their clients for the advice and are called “Fee–Only” Advisors. They have a legal and ethical requirement to always do what’s in the client’s best interest and is known as the “fiduciary standard” which is based on 5 core principles;

  • Put the client’s best interest first;
  • Act with prudence; that is, with the skill, care, diligence and good judgment of a professional;
  • Do not mislead clients; provide conspicuous, full and fair disclosure of all important facts;
  • Avoid conflicts of interest; and
  • Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.

2) Broker Dealer Representative. Another alternative is to get advice from a broker dealer representative who earns commissions by selling products. Unfortunately, these salespeople’s legal duty and obligation is to their employer (a large for-profit corporation) and not to their clients. There is no fiduciary standard, only the requirement that the salesperson provide products that are suitable. This means if there are three suitable products paying commissions of 7%, 5% and 1% it would be legally permissible to sell the high commission product even thought it was not best for the client. KEEP IN MIND EVERY TIME A COMMISSION IS INVOLVED THERE IS A CONFLICT OF INTEREST BETWEEN WHAT IS BEST FOR THE CLIENT AND WHAT IS BEST FOR THE SALESPERSON AND THEIR COMPANY.

3) Duel Registration. Recently, some advisers are both a representative of a broker dealer (sell products for commission) as well as being an RIA and charging fees for advice. The problem with this situation is the client has an extremely difficult time knowing when the advisor is wearing the hat of a RIA with its fiduciary responsibility to always do what’s right or when the advisor is in fact operating under the lower standard of suitability during the selling process. This has become a greater problem since the federal courts struck down certain SEC guidelines. Many brokerage firms and banks now provide the option of “money management” and collect a fee for referring the client to a RIA to have their assets managed.

76% of investors surveyed did not know the difference in the methodologies and safeguards between using the services of a RIA and broker dealer. As a result, most investors pay more for their investment advice via the commissions and higher costs associated with using commission-based products than if they use the services of an RIA and the use of noncommissioned products.

The only way for you to know that the advice you’re getting is always in your best interest and you have the protection of the fiduciary standard is to use a Fee-Only advisor who does not sell product.

Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek, and AARP all recommend readers use “fee only” advisors who provide advise and do not sell products with the inherent conflicts of interest.

What is Financial Planning?

By admin  |  2009/07/08 09:50 Posted in Financial planning, General info, My soap box  |  Comments (1)

Financial planning is the process of helping you to obtain your goals in life by making better decisions in the management of your finances. Everyone has different goals therefore everyone’s financial plan will differ. However, the process of financial planning is always the same and will include:

1. Defining your goals both short-term and long-term

2. Gathering the necessary information as the basis of the plan

3. Analyzing and evaluating your current status

4. Developing recommendations and alternatives to reach your goals

5. Implementing the recommendations in your financial plan

6. Monitoring and reevaluating your status and goals over time

Your personal financial plan should be tailored to your unique set of circumstances and goals. It should contain a checklist of the recommendations needed to help you reach those goals.

Your financial plan should contain both “defensive elements” such as estate planning and risk mitigation as well as “offensive elements” such as investment analysis and recommendations, retirement planning projections, education funding options, tax strategies as well as basic cash flow analysis.

Your financial plan should be in a written format, which will allow you to go back and reference it over time. Having a written document also makes it clearer with less likelihood of misunderstandings.

If you would like to have a better understanding of the areas that should be addressed in your plan go to http://www.chamberlainfp.com/fp_quiz.html and complete the Financial Satisfaction Survey. It is free and can be very enlightening. It has been said that” it’s what you don’t know that can hurt you most”. The survey is a good way of finding out the areas where you may need help.

The two important points to remember about obtaining a financial plan are:

1. Always go to a Certified Financial Planner practitioner ™. The CFP Board of Standards assures the public that the certified planner has met minimum education requirements, passed a comprehensive test, meets ethics standards, meets continuing education standards and has had at least three years of experience. There is no other certification that ensures the public of this level of the planner’s competency.

2. Never go to a financial planner who sells insurance or investments. Whenever there is a sale of a product there is a commission paid which creates a conflict of interest between what is best for the buyer vs. what is best for the seller. Regardless of how ethical the salesperson seems you never know if the sales recommendation is truly best for you or is best for the salesman. By going to a “ fee-only” planner (do not sell products) the recommendations will always be 100% objective since the planner has no vested interest in the recommendations because there is no benefit to the planner with the sale of a product. Numerous publications recommend that you should go to the following sites to find a list of “fee only” planners in your area. www.garrettplanningnetwork.com/ or www.napfa.org/

Reasons to Avoid Financial Advice At a Bank

By admin  |  2009/06/24 14:10 Posted in Beware - Horror stories, General info, Investing, My soap box  |  Comments (1)

In the good old days a bank was a bank. It was where you deposited your paycheck, had a savings account and got a car loan. Laws were changed (due to heavy lobbying by the banks) to allow them to sell investment and insurance.

Most banks now have a subsidiary company/partner that is a Broker Dealer (BD) and the financial advisors at the branches are employees of the BD.

Here are some reasons why it may not be in your best interest to buy investments from a bank.

1. All financial advisors in the banks have a legal loyalty to their employer not the client. They do not have a responsibility to disclose conflicts of interest, or to do what is in the client’s best interest. The only two requirements are to “know your customer” and provide products that “are suitable”. Suitable does not mean what is “best” long for the client but could be what is best for the bank.

2. Banks are publicly traded companies who answer to Wall Street. The Board of directors and CEO’s are charged with increasing stock value for the shareholders. The Board sets policy, which affects the products that can be offered for sale and what not to sell. Would it surprise you that they are more likely to approve high commission products and encourage sales?

3. Banks are under tremendous pressure to fatten up the bottom line. Increasing profits from the sale of investments and insurance is a quick way to do that in this low interest rate environment and that many banks must begin the repayment of the federal bailout money with interest. There is a lot of pressure to increase income. This can lead to the sale of products with higher commissions as well as inappropriate sales which is may not to be beneficial to the customer

4. Allowing investments to be sold in a bank has resulted in confusion for many clients. One client reported going to her bank to acquire a CD. When she expressed disappointment at the low rate she was directed to a financial adviser who sold her an Equity Index Annuity, which provided the bank and a representative with the commission of up to 7%. The client was not aware that she could not get all her money back without penalty for 10 years. The lady was 83 at the time.

5. There is a higher average turnover of financial advisers in banks then elsewhere. This can result in dealing with less experienced salespeople or those that have not been successful elsewhere.

6. The integrity and ethics of some banks can be questioned.

a. Wells Fargo was recently sued by the State of California for selling investments to clients as being safe when there was risk and failing to disclose the inherent risk. Other banks did the same thing but at least provided some form of restitution.

b. Bank of America was sued for involvement in a Ponzi scheme.

c. Bank of America sued for not disclosing the true facts related to the purchase of Merrill Lynch that resulted in the Government granting BoA 20 Billion and later to guarantee another 90+ billion.

d. Several banks recently went bankrupt due to poor management with the changes in the economy.

e. U.S. government’s stress tests results revealed that nine out of the 19 banks tested do not need additional capital including; B of A. wells Fargo and Citicorp

In reality, many of the same situations exist when dealing with for-profit corporations such as Morgan Stanley, Edward Jones, Smith Barney and other of broker-dealers.

A better option would be to use the services of a Registered Investment Advisor (RIA) who does not sell product. RIA’s have a legal fiduciary duty to disclose potential conflict of interest and to keep the clients interest foremost at all times. When there are no sales of product and no commission, there is no worry.

Bank of America is at it again!

By admin  |  2009/05/28 16:24 Posted in Financial planning, General info, Investing, My soap box  |  Comments (1)

A client recently called me and was shocked that the annual interest rate on the money market sweep account at Bank of America Investment Services is currently at 0% interest. Most other money markets are currently paying less than 1% interest.

Banks, and credit unions and mutual fund companies offer money market accounts.  These accounts consist of very short-term debt securities.  The investments are highly liquid and considered safe because of the short maturities of the underlining obligations. Last year there was some concern when some money markets held debt from companies in question such as Leman brothers. People and institutions use the accounts to park funds that they intend to use in the near future.

Most money markets invest in similar types of short-term investments but the big difference in yield is in the expense ratios.  See some examples below:

Vanguard prime money market              0.28%

TIAA CREFF                                                 0.25%

AARPMMF                                                   0.33%

Fidelity cash reserves                                 0.44%

HSBC Prime MMF                                        0.80%

Columbia cash reserves                            0.85% (This is the fund that BoA uses)

You will note that the BoA expense ratio is 3 times higher than what others charge. No wonder B of A Investment services money market is paying 0% when they pay out of line fees to themselves and their vendors.

It just goes to show that you need to look out for your self or have help watching out for you by some one who is not selling you a product!

Suze Orman: The Good, the Bad, But the Never Ugly

By admin  |  2009/05/22 11:04 Posted in Beware - Horror stories, General info, My soap box  |  Comments (0)

Okay, so I modified the title of a Clint Eastwood movie, but it sort of fits.

Her books are top sellers, she is often on TV, she markets “kits” to help, and she is seemingly everywhere so we all know that she is an attractive lady (certainly never ugly). 

Everyone knows Suze Orman but many do not know her background. She went from being a waitress in Berkeley (1973), to becoming an account executive (stock broker) at Merrill Lynch. She then moved to Prudential Bache Securities in1983 and in 1987 opened her own company Suze Orman Financial Group. She stepped down in 1997 as head of her firm to work on her books, appearances and other products.

“The Good” about Suze is that she raises the public’s perception as to the importance of making good financial decisions such as, not overspending, proper use of credit, having a good credit score, mitigating risk properly, having your affairs in order, investing for the future and on and on.

“The Bad” about Suzie is that she is still a sales person. Rather than “selling” stocks and bonds (when she was an employee of a broker dealer) it is now books and kits. (Go to http://www.suzeorman.com/and take a look there is seemingly something for everyone.) The issue I have is that her “one-size fits all” approach does not fit all and could in fact hurt some folks.

On her website, Suze said “If you are at least 20 years away from retirement, I think having 80% or more of your money in stocks makes sense. If you are within 10 years of retirement, you might want to keep 30% in stocks with the rest in bonds.” I am sorry, but that is just plain WRONG! One’s asset allocation should be based on your risk tolerance, your risk capacity and your goals (which include the time frame). This one size approach will negatively impact many people.

In her “Wills and Trusts Kit” where she says the kit contains “all the estate planning documents you need”. “It’s like having your own financial planner and personal trust attorney at your finger tips” Neither of these statements is true. It’s the kind of language that salespeople use to hype their product and for those that are buying the kit I’m sure it sounds good.

In the kit, she states that the information provided is of general nature and for specific advice see your attorney. Yet the CD allows the buyer to produce legal documents, which to me is very specific.  The instructions also say to take the forms that are produced to your attorney for review. Yeah, like that’s going to happen.

By the way on the “test” forms that were produced for me, the notary block on each document were incorrect for California and it would be illegal for a notary to notarize such a document.

On balance, the good of increasing the public’s awareness to the importance of financial planning over whelms the bad associated with her “one-size fits all” sales approach and she is pleasant to look at.

10 Tips for Retirees in These Difficult Times

By admin  |  2009/05/20 21:38 Posted in Financial planning, General info  |  Comments (0)

The recent economic changes impact everyone and particularly those who are retired. Whether it is a drop in value of your retirement account or decrease in interest rates at the banks, everyone has noticed.

The question is what can retirees do now? Some things are fairly obvious, such as delaying a vacation or just spending less on trips.  Putting off major purchases as long as you can is helpful.  But for more subtle hints a professional opinion is useful.

Here are 10 things retirees can do in these difficult economic times.

1.     Shop your insurance program.  There can be large differences in premiums from one company to the next and it is wise to re-shop your insurance package (home and car, etc.) with several companies every few years.  The savings are often in the hundreds of dollars.

2.     Do not take retirement plan distribution if you do not need them. A new  law allows retirees to avoid taking a minimum distribution from certain retirement plans. The concept is to allow the values of the account to come back up and then resume distributions.

3.     Get professional advice based on you and your situation. If you are unsure as to what areas where you could benefit from financial planning go to http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf and complete the Financial Security Survey. It’s free and will be revealing.

4.     Saving a dollar is easier than making one. Keep track of it on a monthly basis. You can do this with pencil and paper, computer programs such as Quicken® or Excel and there are several online versions such as www.mint.com.  This is an easy way to help identify those areas you might be able to cut back on without impacting the quality of your life.

5.     Beware of “its too good to be true”.  Clients frequently call asking about an invitation for a “free lunch” to learn about an “investment that can never go down”, “earn extra money from your home” “Long term care without paying for it” etc. Remember there is often fine print or a hook.  If you don’t understand it, avoid it or it least get a professional second opinion

6.     Understand your investments costs. When you’re making a high amount of interest and the stock market’s going gangbusters, overpaying on fees may not seem too important.  But in this environment, where every ½% counts it’s crucial that you have a firm understanding of all the fees (commissions, sales loads, deferred charges, redemption fees, exchange fees, surrender fees, account fees, management fees, distribution fees, account charges, and even statement fees).  Depending upon the size of your portfolio this could save you thousands of dollars a year.

7.     Do not let salesmen take advantage caused by the recent economic havoc. An 83-year-old client was recently sold an annuity at her bank where she cannot get all her money back until she’s 93, which is totally inappropriate.

8.     Having the proper asset allocation in your portfolio is dependent upon your risk tolerance (a mental state), your risk capacity (your financial state) and your goals, which includes your timeframe. The people that felt the most pain with the recent drop in the market had the incorrect asset allocation.  Now is a good time to make sure your asset allocation is correct.

9.     Reevaluate your Medicare part D program every November 15th.  For some of my clients this has saved them over $1000 a year.   Never assume that the program you currently have will be best for you in the coming year.  Each program changes every year as far as deductibles, copayments, preferred drugs as well as changes in the drugs that you take.

10. Know your options as to where you can seek financial advice.  You have three choices:

a.     Free information in publications, in the news or on the Internet as well as from friends or family.  None of these sources are specific to your circumstances or come from inexperienced individuals.

b.     Bank representatives, insurance salesman, and stockbrokers provide advice but are dependent upon selling you product to generate commissions. Whenever commissions are involved, conflicts of interest exist between what’s best for the client and the salesmen.

c.      Registered Investment Advisors are required by the government to always keep the client’s interest first and disclose conflicts of interest and their compensation. According to numerous publications and financial writers, using a fee-only planner is the best way to get objective advice that is not influenced by the conflict of interest that takes place in a sale situation.

While these 10 tips will not undo the effects of the changes in the economy, they may well help. 

Seven Estate Planning Documents Tips

By admin  |  2009/05/20 21:31 Posted in Estate planning, General info  |  Comments (2)

Your state planning documents are designed to safeguard you when incapacitated as well as to efficiently pass on your assets when you’re gone.  Unfortunately, you should not “do them once” and forget about them.  Here are some tips that can help.

1.     Review your powers of attorney and verify those agents listed represent your current ideas on who you want to handle your affairs when you can’t.  Perhaps your children have grown old enough and they would now be appropriate.  Maybe you had listed parents who have since died.

2.     Store your documents in a safe and secure location, protected from fire, theft or flood.  With the new scanning capabilities it is recommended that you keep an electronic copies.  Having photocopies of the original documents stored elsewhere is still a good idea.  Paying your attorney’s office to store your documents is often not really necessary.

3.     During the next year, be aware of changes the estate tax exemption.  With the higher limits expected, it may be appropriate to change the form of your trust. AB trusts will be less common than they used to be.  They can add a layer of complexity that you may not any longer need.  In general its the simpler the better.

4.     If you own real estate, it is probably best that you have a living trust rather than a will.

5.     Many people who had estate planning documents drawn up more than several years ago probably do not have a HIPAA Release form that is now needed to allow your representatives to assist you with medical information issues should you become incapacitated.

6.     Your adult children (over 18) should have an Advanced Health Care Directive, as well as a Durable Power of attorney and a HIPAA release authorization so that if they are injured, you are in a position to make sure their wishes are carried out.

7.     Do not make hand written notes on your documents without consulting your attorney. Fees can be very confusing and may call into question the validity of your wishes in the time of need.

As always, see an attorney who specializes in estate planning for legal advice and documents.

So why a blog?

By admin  |  2009/05/15 11:10 Posted in General info  |  Comments (0)

No one should care more about your financial well-being than you.  Having
objective financial information empowers you to make better decisions that
can improve  the quality of your life.

In a recent study, only 28% of people trust information from a company that
is trying to sell them something.  The other 72% have good cause to be
skeptical.

The Wall Street Journal found 92% of folks have more confidence in
information they find online than from a company source.

The intent of this blog is to be an objective source of information to help
you make better financial decisions without the worry for someone trying to
sell you a product.

The postings that you will find here will hopefully cause you to think,
perhaps motivate you to change some patterns, provide tips to improve as
well as refer you to other sources for other great ideas.

Feel free to leave a comment or ask a question.

Thanks for stopping by.

Mike Chamberlain