Why the World Needs Financial Planners

Several weeks ago I rang a client to arrange a review of his investment portfolio. He and his wife have been retired for a few years now and are enjoying a comfortable retirement in a quiet seaside town. Like all good financial planners we have been keeping clients up to date with regular reports and newsletters.

The fallout from the global financial crisis and continued uncertainty has made most clients nervous about the security of their investments. It’s made financial planners even more nervous with falling investment values and fear of losing clients in such volatile markets.

You will gather from my previous posts and articles that I am a strong advocate for financial education. I believe a financial planner’s role is not just about managing investments on behalf of clients but more about teaching clients to take responsibility for their own financial future through proper financial education.

Financial education is important because the aim of most people is to lead a full and rewarding life culminating with an affordable retirement lifestyle that has been years in the making. For most people, that means making the right investment decisions along the way, or at least minimising the bad ones, and the secret to that is about having the knowledge to make as many of those ‘right’ decisions as possible. It is not about handing over that responsibility to a third party or trusting someone else to make those decisions for you. It’s about having control of your own finances and understanding what, why and the risks of any investments you are in. Nicolas Cage will attest to that. He lost everything by handing control of his investments over to his financial manager.

But, I’m transgressing, so let me get down from my bandwagon about financial education and get back to my client and the reason why the world needs financial planners.

On speaking with the client we enjoyed the normal pleasantries and general discussion about the upcoming Christmas period. My desire to keep the clients informed on their investments and what was happening in the finance world was the motivating factor for my phone call and request to meet before Christmas. We’re not talking about a small investment here either. This is the culmination of a lifetime’s work and savings all rolled together to provide an ample passive income for the rest of their lives.

To my dismay, Ted (I’ll call him Ted, but that’s not his real name) declared that he was too busy leading up to Christmas to have any meeting to discuss his investments. He went on further to suggest that unless I was recommending any changes, he could do nothing about the world or the financial markets so was happy just to leave discussion on his investments until his next formal review in April next year.

It was at that point why I understood the reasons why the world (and Ted) still need financial planners.

Apathy and fear.

We can preach all we like about the need for people to take control and responsibility of their own finances but there will always be people who can’t be bothered, or choose to adopt a blase approach to their investments. For many, it may be they feel the finance world is too complicated, so they pass control of the decision making process over to their financial adviser or third party. Perhaps they feel more comfortable because they’ve got someone to blame when things go wrong.

Whatever the reasons and despite my desire for people to take control of their own finances through proper financial education, there will always be people who don’t care, don’t want to care, or are too afraid to care and that’s the reason by the world will always need financial planners.

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Tips on Finding a Financial Planner

The time and research you should put in to finding a financial planner is no different than the time and research you should put into finding a good family doctor. You are looking for someone you can trust and guide your financial health, after all. But how should you start your search? According to the National Association of Securities Dealers (NASD) there are no fewer than 69 different financial credentials that you may run into. This article will attempt to help you narrow down your search before you even pick up the phone and start calling prospective planners.

As with a family doctor, the best place to start your search is referrals from friends and family and ask who they work with. The best planners out there will tell they get the majority of their new clients from referrals. You can also use the internet to look for planners in your area. A few websites out there provide good starting points. The Financial Planning Association (FPA) website includes planners who are fee-only, fee-based, or commission-based. The National Association of Personal Financial Advisors (NAPFA) website only includes those planners who adhere to a strict fee-only compensation model. All three compensation models will be explained below.

When deciding what type of planner best fits you and your family’s finances there are four areas to consider: credentials, experience, how they are compensated, and to what regulatory standards must they adhere to.

Credentials

Of all the credentials in the financial world, the four most common are CFP, CPA-PFS, ChFC, and CFA.

1. Certified Financial Planner (CFP) – Awarded by the Certified Financial Planner Board of Standards, or CFP Board, to individuals who meet the CFP Board’s education, examination, experience and ethics requirements. A professional with a CFP designation should have a broad knowledge of all aspects of financial planning including investments, estate planning, retirement planning, insurance and taxes. The designation means the person has passed rigorous examinations and met certain requirements.

2. Certified Public Accountant – Personal Financial Specialist (CPA-PFS) – CPAs, by trade, have a more extensive background in tax issues. A PFS designation is awarded by the American Institute of Certified Public Accountants to CPAs who have taken additional training or already hold a CFP or ChFC designation.

3. Chartered Financial Consultant (ChFC) – Earned through The American College in Bryn Mawr, PA, and designees tend to work in the insurance industry. A professional with the ChFC designation should have a broad knowledge of all aspects of financial planning, including investments, estate planning, insurance and taxes. The designation means the person has passed rigorous examinations and met certain requirements.

4. Chartered Financial Analyst (CFA) – Awarded by the CFA Institute to experienced financial analysts who successfully pass three examinations covering economics, financial accounting, portfolio management, securities analysis, and ethics. CFAs are more likely to work for mutual fund companies, institutional asset management firms, or pension funds. CFA charter holders are annually required to affirm their commitment to high ethical standards.

Experience

With the impending onslaught of baby boomers nearing and entering retirement, the financial planning profession has become a second-career choice for many planners out there today. You will want to keep this in mind when you interview potential planners. Ideally, the planner has been in the profession for more than five or ten years and has an educational background in the profession. The number of colleges actually offering degrees in Personal Financial Planning and Counseling has exploded over the past decade. One of the most well-known programs today is right up the road in Lubbock, TX at Texas Tech.

Compensation

Understanding how – and how much – a planner is paid is an important part of establishing the relationship. Always consider whether a planner’s compensation requirements will interfere with their objectivity when it comes to your financial plan.

There are three general compensation categories that a planner will fall into: commission-based, fee-based, or fee-only.

1. Commission Based – Planners in this category earn their paycheck through commissions on sales of products, such as stocks, bonds, mutual funds, and insurance. Some commission-based advisors associated with banks or brokerage firms may have sales quotas they need to fill in order to keep their jobs, and the products they are recommending may not be the best option for you. If the planner is paid a commission it does not necessarily mean they are not looking out for your best interests. But the potential for conflict of interest is greater.

2. Fee-Based – Planners in this category usually have their compensation based on a flat fee or percentage of money under management as well as commissions on sales of products such as stocks, bonds, mutual funds, and insurance.

3. Fee-Only – Planners in this category do not sell any commission-based product, instead charging an agreed-upon flat fee or a percent of assets under management. It is argued that removing any incentive to buy or sell a particular investment for a client also removes any conflict of interest and the planner is making their recommendations based on what is best for the client, not the planner.

Which compensation model is the best? I’m willing to guess that planners in each category will make their argument as to why theirs is more advantageous to their clients. In the end, you must be not only comfortable with how your planner is compensated, but you should have an understanding as to how much they are being paid for each recommendation they make. If they do not volunteer that information to you, simply ask! If they value you as a client they will have no issues in providing that information.

Regulatory Standards

Financial planners will fall under one of two standards with their clients. These two standards are “suitability” and “fiduciary”.

Brokers, also known as ‘registered representatives’ may call themselves financial planners but they are basically employees of a stock exchange member firm who act as account executives for their clients. These brokers fall under the jurisdiction of the self-regulatory Financial Industry Regulatory Authority (or FINRA) and are held to a less stringent “suitability” standard. This means their recommendations must be “suitable” to their clients (e.g. be in line with the client’s risk tolerance and long-term goals). Therefore, a broker is legally free to recommend an investment that pays his firm (and himself) a higher commission over a similar lower-cost fund as long as the investment is suitable to the client’s situation.

In stark contrast, planners held to a “fiduciary” standard could not do that. If held to a fiduciary standard the planner, by law, must place the client’s interests first. CFPs and Registered Investment Advisors (RIA) are held to the strict fiduciary standard. (Registered Investment Advisors are simply planners who are not employed by, nor have any affiliation with, brokerage firms or other financial institutions, and must register with the U.S. Securities and Exchange Commission and/or state regulators)

If you are comfortable with your planner not being held to a fiduciary standard, at least ask them to explain precisely the reasons for their recommendations, including what’s in if for them.

In Summary

Finding a financial planner for your family ultimately comes down to trust. Regardless of the planner’s association to a certain firm, their compensation structure, or experience you must feel a strong connection between the two parties. Your relationship with a financial professional is, above all things, a partnership. It is worth taking the added time to find the right planner upfront because you want this relationship to last a lifetime.

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Become a Top Wedding Planner – 8 Questions to Ask Before Investing in Wedding Planning Certification

I get a lot of questions about wedding planning and bridal consultant certification courses. You don’t need a certification to be a wedding planner in the United States or many other countries. Most brides look first for wedding planners who have had experience planning the type of weddings that they want and who have a network of high-quality vendors.

But if you want to enroll in either an online or offline certification program, here are 8 questions you need to ask before you invest your time, energy and sometimes well over a thousand dollars of your money:

1) Are you ready to commit to attending classes or do you have the self-discipline and motivation it takes to complete online or home study training?

Before you do anything else, decide if you will take the time to complete a certification course. You will need to get to classes, work on online projects, read chapters in books, do homework and take tests. You probably already have work and family commitments so be sure you can take the time to commit to this also.

Doing classes online might be an advantage for you if your schedule is unpredictable, because you can complete the work according to your own schedule. Just make sure you can finish the course within the allotted time, usually six months.

2) Is the course by a reputable school or wedding planner and bridal consultant association?

In the United States, there are online and home study wedding planner schools that are accredited by the Distance Education and Training Council (DETC), a legitimate accrediting agency which is recognized by the Council for Higher Education and the US Department of Education. However, that doesn’t mean that any of the courses will be approved by your local colleges if you are also trying to get a regular degree. Check first, if this is important to you.

Other online and home study courses are offered by wedding and event planner and bridal consultant associations and although they may not carry accreditation, many are well respected in the industry.

You’ll find offline programs offered by colleges and experienced professional wedding planners. Some local colleges have partnerships with online schools and you get a combination offline and online education.

Find a few schools and courses that interest you then do some research and investigation. Call and ask questions and get references. Google the school or course names and look for testimonials and complaints.

Caution – be careful when doing research, some names of wedding planner schools and associations are very similar. Make sure you are getting information on the correct one.

3) Who are the instructors?

You want instructors who are or have been wedding and event planners or are in the industry, for example, florists and caterers, who might give special training in their areas of expertise.

4) What level of support do they offer to you?

If you are someone who likes to ask a lot of questions and you are thinking of taking an online or home study course, find out if the program allows you access to an instructor or professional wedding planner when you want help. If not, check sites such as Facebook to see if there are any active online forums with students who offer each other support during the learning process.

5) Does the course cover the subjects that you need?

Some wedding planning courses are specific to one area of wedding planning, such as design or green weddings. Or, I’ve seen courses that include classes not only about planning weddings but also children’s parties, sweet sixteen parties, almost any celebration you could name. Read course descriptions carefully and take notes to compare one to another. Make sure you will be getting the education that you want.

6) Do they offer hands-on experience, internships, and apprenticeships or support you after you have received your certificate?

Both offline and online courses with ties to local professional wedding planners may offer the opportunity for you to get experience. Wedding planner associations may give you membership after you complete your course so you can take advantage of some of their member benefits and attend their conferences.

7) Does it have a payment plan?

This might be a deciding factor for you. Some schools allow you to make payments as you complete the course, others may ask for your investment upfront.

8) Do they have a refund policy?

Find out if they allow you to change your mind after you have enrolled. Some may allow you to do it within a short period of time, if you have not yet utilized any class materials.

There are no regulations regarding wedding planning certification courses. Decide the type of training that you want to receive then take the time to do thorough research before you make your investment. And, don’t forget, a certification is not a substitute for experience.

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5 Things to Consider While Selecting a Financial Planner

Unlike someone calling himself a CPA or a physician, just about anyone can call himself a “financial planner” or a “financial advisor” regardless of their educational background and professional experience. Moreover, not all of them are unbiased in their advice and not all of them always act in their clients’ best interests.

To ensure your financial planner is well-qualified in personal finances and impartial in his advice, consider the following five things:

1. Planning Credentials: Having a highly-regarded credential in financial planning, such as Certified Financial Planner (CFP) or Personal Financial Specialist (PFS), confirms that the professional you intend to work with has acquired the education and experience necessary to serve as a financial planner. CFP and PFS credentials are awarded to only those individuals who have met the certification requirements of education and experience in planning for personal finances. In addition, they have to pass the certification examinations and agree adhere to the practice standards and continuing education requirements.

2. Subject Matter Expertise: Financial planners are planning professionals, not necessarily subject matter experts. For example, a financial planner will be skilled in tax analysis and planning,but unlike a Certified Public Account (CPA) or an IRS Enrolled Agent (EA) he might not necessarily be a subject matter expert when it comes to tax rules Similarly,a he could be skilled in chalking out an investment plan, but unlike a Chartered Financial Analyst (CFA) he may not be an authority in the subject of investments. Work with a financial planner who is also a subject matter expert in those areas of personal finance that are important in achieving your financial goals.

3. Client Specialization: Not all financial planners serve all types of clients. Most specialize in serving only certain types of clients with specific profiles. For example, a personal planner may build his expertise and customize his services to serve only those individuals and families who are in certain professions, or a particular stage of life with specific financial goals and net worth. Ask whether the planner specializes in serving only certain types of clients with specific profiles to determine whether he is the right fit for your situation and financial goals.

4. Fee structure: The fee structure largely determines whose interests he serves best – his client’s or his own. A Fee-Only professional charges only fees for their advice whereas a Fee-Based professional not only charges fees but also earns commissions, referral fees and other financial incentives on the products and solutions they recommend for you. Consequently, the advice from a fee-only one is more likely to be unbiased and in your best interests than the advice from a fee-based financial planner. Work with a professional whose fee structure is conflict-free and aligned to benefit you.

5. Availability: He or she should be regularly available, attentive, and accessible to you. Ask the planner how many clients he currently serves and the maximum number of clients he is planning to serve in the future regularly. This clients-to-planner ratio is one of the key factors in assessing your planner’s availability to you in the future. Also, ask which planning activities are typically performed by the planner and which ones are delegated to a para planner or other junior staff members. Lastly, make sure the planner is easily accessible via phone and email during normal business hours.

Once you have shortlisted a few well-qualified and unbiased financial planners in your local area, consult the ones who offer a FREE initial consultation first. During the initial consultation, assess the planner’s availability and any other professional attributes you are seeking in your financial planner.

Having a well-qualified and unbiased financial planner by your side is extremely important in your journey towards your financial goals. When searching for one, consider the planner’s professional credentials, client specialization, subject matter expertise, fee structure, and availability to select the right financial planner for your needs.

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