Advisors Have Fiduciary Duty to Prospective Clients

unduhan-7During a discussion with a group of financial planners, mostly fee-only “solo-preneurs,” I suggested that many of us would be extremely challenged to serve all clients as their fiduciary and provide all their needed services.

One advisor shared that she had recommended outsourcing the ongoing management of a client’s portfolio to a highly regarded, low-cost money management firm. All things being equal, she said, she couldn’t provide the services for anything close to the price of the outsource firm.

This advisor recognized that her highest and greatest good for her clients was in her financial planning skills and in serving as a catalyst to help them do what was in their best interests. She felt that their portfolio needed ongoing oversight and recommended someone other than herself to provide that service. The advisor acted in her clients’ best interests — just as all fiduciaries are required to do.

The client appreciated the thoughtfulness of the recommendation but elected to keep everything with the planner. With full disclosure and informed consent, the advisor had fulfilled her fiduciary duty.

But what is our fiduciary obligation to prospective clients, as opposed to existing clients? Investment advisors are fiduciaries under the Investment Advisers Act of 1940, not only for our clients, but also in recommendations given to prospective clients, including the recommendation that they work with us and how that arrangement will be structured.

In other words, our fiduciary duty applies at the point where we propose how we enter into the equation. Are we the best choice of advisor to meet a prospective client’s needs? Could we be a great help in most areas and provide outsourcing options for everything else? Are there similar services available for less money?

Some states require disclosures of this type, and many professionals argue that it’s their ethical duty to provide them Most registered investment advisors have standard disclosure language regarding the fact that “like services may be obtained at a lower cost elsewhere,” but many may not be aware of our responsibilities at the point where we make a pitch to a prospective client.

Consider the common scenario of a holistic solo practitioner with multiple service offerings — for example, a retainer for long-term planning engagements, an assets-under-management fee structure for the portfolio, and hourly or project fees for everything else. We have to be equipped to offer these services as promised, yet I’ve found that most solo practitioners and small planning firms are better off if they focus on one, or possibly two, pricing or service-offering options.

Let’s consider an advisor who does primarily project work and charges an hourly or flat fee. The work is limited in scope, and the engagement is complete upon delivery of that work product. But the advisor may also work with a few clients on retainer, who are welcome and encouraged to contact the advisor anytime, day or night, if they have questions or concerns. On top of that, the advisor provides ongoing portfolio management, comprehensive planning and tax return preparation services for clients.

More Than One Way to Deal With It

unduhan-8Financial emergencies come in all shapes and sizes. They are, by definition, obligations that you haven’t planned for and that will be difficult to pay. Whether you should have anticipated an expense is irrelevant once you’re faced with it. If you must pay it soon, and if not paying it will bring serious consequences, then you have a financial emergency.

Many people have an emergency fund — money set aside for no other purpose than to bail them out of a crisis when they have no other cash available. Even if you don’t have such a fund, there may still be ways for you to make room in your budget to accommodate the urgent expense. And if you do have an emergency fund, you can use those same methods to put off having to dip into it, which will make your “rainy day” money last longer — or preserve it for the next unforeseen expense.

Reducing regular expenses

Your first line of defense in a financial emergency should simply be changing the way you spend money. In other words, tighten the belt. Delay, reduce, or do without certain things so more income can be used to meet the emergency. With smaller unexpected expenses, you may take this first step instinctively and not even think of it as an emergency. Perhaps you get a costly parking ticket and, because of it, decide to skip taking your family to the movies. You rent from Redbox instead and pay a few dollars instead of $50 or more.

Redirecting cash saved for irregular expenses

“Flexing” your spending to deal with an emergency between paydays only goes so far. You may need to reduce spending over several pay periods to cover the emergency — but you still you need the money now. Before taking it from a designated emergency fund, look to your next line of defense: savings earmarked for an annual or irregular expense, such as a vacation, home or vehicle maintenance, or a bill that gets paid once a year.

Setting aside cash for these irregular expenses is part of any solid budget. Of course, if you tap such funds in an emergency, you’ll need to pay yourself back before these bills come around. Do that by continuing to flex your spending over multiple pay periods until the reserves are restored.

What happens when you fully flex your spending and drain your cash reserves? Will you have to sell off belongings, liquidate investments or compound the problem by borrowing money? You can avoid pawnshops and payday lenders if you have an emergency fund on top of your earmarked cash reserves. Selling stuff is usually the last line of defense.

Objective financial advice

unduhan-9Finding quality financial advice can be a chalenge, especially if you’re already very wealthy. And offers of “free advice” almost certainly turn out to be sales pitches. But there are accessible, affordable financial advisors for the not-yet-wealthy.

Every day, members of the Garrett Planning Network provide truly useful financial advice, not cleverly disguised sales pitches, to people from all walks of lives. And who couldn’t use a little bit of competent, objective financial advice from time to time?

Hourly-based pricing

Garrett Planning Network members are bona fide financial planners who tailor services to your specific needs and circumstances. You pay for advice based on the amount of time involved. Services and costs are always agreed on in advance providing you with simple transparency.

To help minimize potential conflicts of interest all Network members are Fee-Only, which means the only compensation these financial planners ever receive comes from clients, no commissions, no referral fees. Garrett planners work solely for and always in the best interests of their clients.

Truly accessible

With affordable advice and over 300 Network members across the United States, anyone can find and hire an actual financial advisor. No financial planners located near you? Many Garrett planners provide long-distance advice by telephone, email, and virtual meetings on-line. Good financial advice often pays for itself many times over, and cost or geography should not prevent anyone from accessing such advice.

The 5 Rules of Funds And How Learn More

Helpful Information To Quick Personal Loans

Personal loans are simply the debts that can be considered by anybody when there is a lack of financial support or in times of crisis. In life, there will be situations which occur like you are in need of money such as when it is necessary to have home repair, settle bills or for children’s tuition or car repair. There are numerous banks, organizations, and moneylenders which offer credits to the general population who are in need. These credits are based on specific terms and conditions between two gatherings, one who need the advance and the other giving the advance. Depending on the kind of loans you are seeking for, the credit rate will be different.

For personal loans, you can get a secured type or an unsecured type of credit. A secured a personal loan is one which is advanced on the premise of property or another form of asset claimed by the individual requesting the increase. Such credits are considered low-risk loan because the interest rates are low and you get an extended time frame for the payment period. Unsecured credit is what one can avail of on the assumption of his record of loan repayment and the capacity to pay it back. It is called as high risk loans because companies or lenders require high interest charges and the refund period is short.

The Personal Loans can likewise be recognized on the premise of financing costs, the altered rate individual advances and the variable rate individual progress. The set rate lending operations are those where the interest remains the same throughout the date of the loan, however in variable rate options, the interest rate can change depending on the total amount, credit problems and more.

If you are in the position of wanting financial assistance, here are a few tips for getting credit with sensible expenses:

Research the Internet. Even at this point, some people have the tendency to turn first to their current bank or loan providers when they need a credit. It can limit your chance of getting the best offer possible. What you need to do first is to look online. By all methods give your bank shot, however just on the off chance that they can rival the area of different alternatives out there.

Make a comparison before applying. Since your credit rating is affected when you apply for credit so do some comparing of lenders and interests first before you give your financial information.

Inquire for rates in your credit history. When you have determined which lenders seem to be most competitive, begin asking for details on what offer they could provide from someone with a credit history much like yours. If you do not have good credit, you may not exactly qualify for the best rates a lender advertises.

Consider your job situation as it has a significant bearing on how your personal loan will turn out.

Source: your personal guide to loans and credit

How to Highly Successful Savers

With the utmost respect and honor to Stephen Covey for my very similar title (Covey’s “7 Habits of Highly Effective People” is on my recommended reading list), I’d like to talk about habits. Specifically, good saving habits that could put you in a position to retire on your schedule — early, if that’s what you want to do, or whenever you’re ready to exit the workaday world.

1. Pay yourself first

Highly successful savers maximize their retirement plan at work, or they create one if they’re self-employed. Some self-employed people manage to put away more than $50,000 a year in a Solo 401(k). They also frequently enable and fund spousal IRAs, Roth IRAs and/or non-deductible traditional IRAs that convert to Roth IRAs.

2. Practice frugality

Many successful savers grew up in households that clipped coupons, bought things only when on sale or used, and practiced group discount behavior (multiple families sharing things). They continued these practices as adults, mirroring their parents or even taking things to a higher level.

3. Track expenses

People who closely track where their money is going can see where a change might have the biggest impact. Bloated cellphone, cable/satellite and Internet service plans are perfect examples of where families might be able to cut spending and save the difference. In my own case, I bought a new life insurance policy to replace a more expensive older policy after contacting my agent to see how I could lower this expense.

4. Attack debt

Paying off debt to free up more cash to tuck into savings is a wonderful tactic because it’s easy to see progress and ultimate success. Even when financing with very low or no interest for cars, for example, the habit of paying off quickly puts savers on track for larger savings. I like the “snowball” method of debt elimination — ordering your debts from smallest to largest (or from highest interest rate to lowest), and then knocking them out one by one.

5. Draw up a financial plan

Yes, this may sound a little self-serving, as I’m a financial planner. But successful savers usually have a road map so they can follow their progress. By putting saving goals in writing and knowing where they are in relation to those goals, savers can recognize when changes are necessary — or can celebrate being ahead of schedule.

The kind of investment risk

I recently attended the Garrett Planning Network conference near Denver, CO. What a nice break from the Texas summer heat! One of the sessions highlighted an issue many of us are dealing with right now: frame of reference risk.

We usually think of investing risks as external events that could impact performance. But frame of reference risk refers to the possible negative impact on investing performance of something we might do to ourselves!

Think about what your frame of reference is. For most of is, it’s the US stock market. It’s the Dow Jones or the S&P 500. But then think about what’s in your portfolio. Hopefully, it’s a lot more diversified than just the US stock market.

When the US stock market is doing poorly (like during 2007 – 2008 or the early 2000s), you’re really happy to be diversified. You’re hearing horrible reports on the news about how the Dow is down 10%, 20%, or more. You’re looking at your portfolio, and it’s down, but not that much. So you feel wise, and you’re happy to commiserate with your friends about the market’s performance and your diversification strategy.

But now think about what we’ve been living through over the last 6 years. Or in the second half of the 1990s. The US stock market has been going gang-busters. US stocks were the top performing developed market country for the last 2 years in a row. And how is your diversified portfolio doing now? Less well. If it includes some bonds, some international stocks, and possibly some other diversifiers, those holdings have been a drag on your performance. So when you hear another stellar report about the the S&P 500 or the Dow, you feel a little sheepish. It’s one thing to have your diversified portfolio under-perform for 1 year or 2 years, but when it becomes multiple years in row, it becomes a little hard to take.

And this is what frame of reference risk is.


It’s the risk that we might abandon our diversified portfolio strategy at exactly the wrong time because we just can’t stand to not do as well as the benchmark against which we’re judging ourselves.
 It’s human nature to compare. And human nature to want to act on that comparison.

But this is a time when we need to let science and history be our guide. Remember back to those that abandoned their diversified strategy in the late 1990s and went all-in to US stock just before the dot-com bubble burst. Their portfolios were massively damaged.

You Should Know About Investors

There is one question every investor should ask when faced with any financial decision: What will this cost me — all expenses considered? Yet I can’t remember ever being asked that question in 40 years in the financial services industry.

Instead, I hear from clients, “How much does it yield?” Or, “What kind of returns has it produced?” Or, when they’re told I charge by the hour, “What is your hourly rate?”

That last question sounds like it’s about cost, but it’s really about price, which is not the same thing. To understand the difference, consider another question: Who is more expensive — an experienced, effective advisor who charges $300 an hour, or an advisor who charges $150 an hour but may take twice as long or is less competent?

It isn’t surprising that investors don’t ask about total costs when it comes to fees for investment advice or management. Some won’t even bring up the subject to avoid seeming impolite or, worse, cheap. But the whole subject of cost (and price) is loaded with behavioral and framing biases.

We are also vulnerable to pricing manipulation. Gimmicks like 99-cent pricing and “buy one, get one free” convince us we’re getting a good deal when we may just have been conned into paying more or buying more.

The manipulation may not even be deliberate. Our own human nature can lead us to misperceive or miscalculate costs, and the way we pay for goods and services can cause misunderstandings. This is particularly true with investment advice because of the difficulty in comparing commissions (which are transaction-based) to annual asset fees (for ongoing engagements) to hourly rates (which can be both).

Commissions and “markups” are often included in a product’s price (for example, with load mutual funds or municipal bonds). Commissions must be noted in the prospectus, and the salesman is required to disclose costs, but that detail can get lost in the sales pitch. Unsophisticated buyers could assume that they’re not being charged or that the salesman is paid by a third party.

Even sophisticated buyers might think they’re getting a “freebie” if they don’t have to see the bill. Dan Ariely, author of “Predictably Irrational,” asks whether, after eating at a nice restaurant, you feel better if your spouse pays with his or her credit card instead of you paying with yours. People generally do — even when the money is coming out of the same joint account.

Asset management fees on brokerage accounts are charged quarterly and deducted automatically. Clients see only one-quarter of the annual fee on a single section of every third monthly statement. An example of out of sight, out of mind?

Hourly or project fees, on the other hand, are usually paid in a lump sum, and no one likes to write a big check — to an advisor, to the IRS or to anyone else. Ariely calls this “the pain of paying.” So while you may pay less to an hourly advisor, you could feel greater pain.

What Kind of Investing is Better

One of the most dangerous investment attitudes (along with “this time it’s different”) is the complaint that “my investment isn’t doing anything.” The observation says more about the speaker than it does the alleged short-comings of the investment.

Of course this isn’t about lack of activity at all. Last week the market was really active – actively tanking. I’m pretty sure this isn’t the activity those people had in mind. If the alternative is being trapped in a nose-diving market, “doing nothing” can seem pretty attractive.

When people say the investment isn’t doing anything what they mean is “it isn’t making enough money.” There’s an old Wall Street sales pitch: “Your money isn’t working hard enough for you so hire me and I’ll fix that.” When I was a stockbroker, hearing that phrase always made me imagine the speaker physically whipping the client’s portfolio to make it pick up the pace like some poor galley slave in a Cecil B. DeMille movie.

I remember a revealing cartoon of a broker telling his client “Yes, your money was working for you but it quit and now it’s working for me.”

How to Plan Finances for Your First Baby

If you’re getting ready to welcome your first baby, you probably recognize that your financial situation is going to change. With diapers, wipes, baby furniture,doctor visits and so much more, you’ll have to account for some new expenses. And if one parent will be staying home with the baby, even if it’s just a temporarymaternity or paternity leave, you may be facing a reduction in income at the same time.

It’s enough to stress anyone out. But there are some simple ways to plan ahead to make the transition as smooth as possible.

Here are four steps to help get you ready.

1. Track your current expenses

The first step in preparing for the future is knowing exactly what the present looks like. Having a handle on how much money is currently coming in and what it’s being spent on each month will provide the baseline you need to make educated decisions going forward.

You can go over your expenses yourself by looking at receipts and bank statements, or you can use tools like GoodBudget.com and You Need a Budget.They make budgeting easier by automating most of the process, pulling in transactions from bank accounts and credit cards and helping you categorize them.

2. Estimate your new expenses

Having a baby will add some expenses to your monthly budget, but you can get a handle on them ahead of time.

Babycenter has two great tools for estimating the overall costs of raising a childand the specific first-year costs. Use them to get a ballpark figure for baby’s first year, then divide that number by 12 for a monthly amount you can plug into your budget.

3. Build a cash cushion

Take that estimated baby budget and start setting the monthly amount aside insavings account now — before the baby gets here. This will do two big things for you:

  1. It will help you adjust to your new budget before you have the additional stress of caring for a newborn.
  2. It will help you build up a cash cushion to handle unexpected expenses that come up after the baby is born, so you won’t have to resort to credit cards.

 

4. Keep the lines of communication open

Having a baby is a huge change, and no matter how well you plan, there will be plenty of ups, downs and surprises.

Do it Yourself Project

As Jimmy Durante said, “Everybody wants to get into the act!” You can’t turn on the TV or read the paper or view a website these days without somebody offering retirement planning guidance from an expert. Most of these ads are sponsored by investment or insurance companies. They want you to invest with them but the guidance they give is superficial at best and hardly personal.

That’s not all. Recently, a web site opened up offering women an on line financial plan prepared by a CFP® for around $600. There are low cost on line “ROBO” advisors and there is even an APP that professes to do your retirement planning for a modest fee. These might be okay for younger folks to get them started in the right direction but if you are one of the many who want to retire in the next fifteen years, do you really think you should trust an APP to guide you on one of your most important life events?

Retirement planning is not just about investments. In fact, when I prepare a retirement plan, investments are the last thing I talk about. Planning for retirement is complicated and there are a lot of opportunities to make mistakes. If you screw up, it can cost you a lot of money and potentially ruin your retirement. A few years ago, I wrote an article for the Financial Planning Association that they posted it on their web site. You can read it right here.

A value of saving in my kids

We don’t make our kids eat their vegetables before having dessert. Shocking, isn’t it? I’m probably going to get in trouble with a lot of parents and nutritionists for saying this, but yes, we do not make our kids eat their vegetables before having dessert. Wait, you say, isn’t this is a blog about personal financial planning? What does saving have to do with kids eating vegetables?


I’ll get to that in a minute, but first let me tell you how dinnertime goes at our house.


Dinner at Our House


Almost every night (no one is perfect), our kids get a plate of healthy food in front of them.


We talk about how we value eating foods that make us strong inside and out. We even have a vegetable garden so they can see where healthy food comes from and have the pleasure of helping to grow it.


Beyond what goes on their plates, though, we stay out of their eating decisions. They are pretty good about trying things, but they don’t always like what we serve, and they don’t always eat it. That’s okay. If we happen to be having dessert that night, they still get some.


There’s research out there that says kids have innate mechanisms for knowing what their bodies need and when to stop eating. Limiting sweets can actually lead to kids eating a lot more of them later in life. Our goal is simply not to mess up their internal regulation by telling our kids what to eat.


And guess what? They like vegetables and are really proud of eating them!


Kids and Eating / Kids and Money


So what does all this vegetable talk have to do with money? We wonder if a similar approach might work for money lessons. Right now, the kids are six and four years old. The most important thing we want them to internalize at this age is “spend less than you make,” “live beneath your means,” or in other words, “Save!”


So, what is our job as parents?

  • Put healthy choices in front of the kids. First, we limit the amount of advertising and shopping that makes it on to their “plates.” And we do things such as hitting neighborhood garage sales to stock up on gently used toys. They are comfortable leaving some of their money in their piggy banks when we go, because they know they are going to have a little fun spending too, and it’s easy for them to see that their money goes further than it would at the store.
  • Give them a window into how we make grown-up decisions with money, using lessons they can understand. “Yes, I can just pay for that library book you can’t find, but that is money we won’t be able to spend going to the water park.”
  • Talk to them about our value of saving. We value having reserves that give us choices and flexibility. Saving is setting aside money to spend later on something more important than whatever is in front of us right now. Like the vegetables, it makes us strong and healthy, even though it might not give us the same immediate pleasure as dessert.
  • Use Money Savvy Pigs so they can see and touch what it means to make goals, set aside money for different goals, and have the pleasure of reaching goals. This is their money vegetable garden!
  • Stay out of their spending decisions and let them have dessert (i.e. spend money on something frivolous), even if they don’t always save exactly the way we want them to save.