Archive for February, 2009

According to a Wall Street Journal article, here are some of the many reasons why the financial planning process is vital for today’s consumer:


• Health care and education costs are

rising significantly faster than the general

inflation rate.


• Many retirees today will live 25 or more

years in retirement, requiring far more

financial management of resources to

maintain a desired lifestyle.


• Social Security and company pensions

no longer provide the majority of retirement

funds for many people.


• Tax laws change almost annually.


• Downsizing companies no longer provide

cradle-to-grave benefits or job security.


• The average American changes jobs

seven times in a lifetime.


• According to CardWeb.com, the average

American household today has

$9,300 of credit card debt, up from

$5,800 a decade ago.


• The Center for Association Leadership

reported a survey in which 50% of respondents

said they rarely, if ever, use

a household budget to manage their



• There are myriad investment options

available, and not all of them are appropriate choices for you.


Given our very busy lives,  is it very likely that a consumer will be able to evaluate all the options out there on their own without guidance? 

How does a consumer know how to make a proper evaluation of the various options on issues?

Most consumers don’t have a plan but a hope.  Yet hope, as important as it is on any difficult endeavor, is not a strategy.

Having a plan that starts with goals – an end in mind – will help focus one’s efforts and keep one on track even if detoured off course by the occasional pothole or market meltdown.

I want to encourage folks to open up and think about what they want their money to do for them.  It’s not enough to simply say, “I want to be rich.”  That is a relative term.  Being rich means something completely different to someone on Rodeo Drive compared to someone living in a hut in the jungle.

Regardless of where one lives there is common agreement that people almost universally want to be free from want, hunger, disease.  And all want to have a safe home for raising a family.

The trappings surrounding the success we call “being rich” are what may be different.

So how does one get there then?  Wishing alone will not make it so.

So take it one step further.  Be SMART about what you want – have goals that are Specific, Measurable, Attainable, Realistic and have a Time limit.

Having a plan is the first step.  Next is staying on track to get between Point A and Point B.  This is where the right coach can do wonders.  If Tiger Woods can have a coach, shouldn’t you?  A good coach can offer advice with an objective perspective, tell it like it is and be brutally honest. 

It’s a complex world out there – whole life versus term insurance, over 10,000 mutual funds, multiple options for elfer care and medical treatment, tax laws that change constantly.

Are you really sure that you’re prepared to handle these details on your own?  Do you really think that the Web or some talking head on TV is the best source of information for your specific needs?

Maybe it’s time to try something different and sit down with a real money coach, not just someone trying to sell you something.

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After a marriage breaks up, about the last thing most people want to do is sit down with one more attorney. But no matter how old you are or whether you have kids, it’s important to consult both financial and legal experts to make sure you have an updated estate and financial plan for your new life once the divorce decree is final.

It’s also best to blend estate planning with financial planning post-divorce. If you weren’t working with a financial or estate planner during the divorce process, it’s time to do so now. The immediate months after a divorce can be disorienting – even if you don’t move, you are literally starting a new household that you will have to direct yourself, and that means new money issues to face.

This is why the weeks immediately after a divorce are a good time to revisit short- and long-term spending and planning goals. Here’s a general road map to that process:

Start with a financial planner: Whether you plan to stay single, remarry or move in with a new partner, it’s good to get a baseline look at your finances as early as possible after the divorce is final.  Expenses for the newly single can pile up quickly and unexpectedly, and a financial planning professional can help you review your new current spending and savings needs, compare strategies to achieve long-term goals like college and retirement and give you critical tools to protect your assets and loved ones if you die suddenly. Even if you have a good relationship with an ex-spouse and you addressed key issues for your children as part of the divorce proceedings, you need to revisit all these issues as a single individual before you move on to the next stage.

Talk with a trained estate planning attorney about wills and other critical documents: True, there are software programs and other kit solutions available to write basic wills, powers of attorney and certain simple trust agreements. But it makes sense to coordinate the activities of a financial planner with an estate planning attorney who can tailor an overall estate plan specific to your needs no matter how basic they might be right now. Even if you are very young with few assets, it makes sense to get some solid advice in this area so you’ll be able to manage such planning as you age and your finances get more complex.

Particularly if you have kids, such planning is important if you plan to remarry and if you want to guarantee that specific assets are guaranteed for them when you die.  In some cases where a spouse dies unmarried with minor children, an ex-spouse might automatically gain control of assets that were supposed to be earmarked for the kids. If you don’t want that to happen, you need to plan for that legally.

Make a guardianship game plan for your kids: It’s not enough to plan how money and assets will go to your children if you or your ex-spouse die suddenly or are incapacitated.  If your children are minors, it’s particularly important to make sure you and your ex-spouse have a guardianship plan for their upbringing as well as any assets they may inherit. You might completely trust your ex-spouse’s new husband, wife or partner to raise your kids if your ex-spouse dies before you, but there may be others better-equipped to do so – spell that out now.  Also, if there are any trust or wealth issues that will become effective for your children once they reach adulthood, it’s also important to establish an efficient legal structure for distributing those assets as well as appointing a trustee in a will to train and guide your kids through that financial transition.

Plan for special needs kids: If one of your children is disabled and is expected to need lifetime assistance of some type, then you should consult a qualified attorney to help you create a special needs trust. It will help protect your child from having to give up any public or social financial assistance as well as access to special doctors, medical help, special prescriptions or treatments that could be taken away if they were to personally inherit assets that would disqualify them for these programs. When such assets are held in trust, they are not counted as the child’s assets. The advantage is that those inherited assets may still be used to support their housing or other personal living needs without adversely impacting qualifying for government aid programs.

Get solid protection in place:  Most people focus on what may happen to their health insurance if they get divorced, but insurance issues like life, property/casualty and disability insurance are sometimes put on the back burner.  If you’re newly single, you definitely need the best health coverage you can afford for yourself and your kids, but life, property, liability and disability insurance becomes doubly important, particularly if you failed to address those needs during the divorce.  Even if your ex-spouse is cooperative with financial support, it’s wise to insure yourself as if they weren’t. A financial planner should be able to go through those options in detail.

Review all your investments for primary ownership and beneficiary information: Even if you were advised correctly to change the names on assets you and your spouse were dividing between yourselves, it still makes sense post-divorce to review that the names are indeed correct on those assets, and most important, to make sure all beneficiary information is correct.

Manage Your “Windfall”:  People may mistakenly believe that that as smart as they are in other areas in life that they can make investing decisions after going through an emotionally-trying event like divorce.  It’s important to not be blinded by the suddend windfall one might receive.  There are long-term issues to consider.  And as tempting as it may be to blow off some steam with a vacation, a new car or truck or even a wardrobe, people have to think about the day after tomorrow.

That’s why it’s important not to go overboard with a little needed R&R but stash the majority of what may be received into cash to help supplement the emergency fund, cover debt service and any future moves in career or home. By meeting with a financial planner professional soon after the divorce, one can outline short- and longer-term goals to get prepared. Save any drastic changes to investment allocations or decisions to when things get settled down (maybe 3 or 6 months after the divorce is final).

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Elbert Hubbard (early 20th century writer, artist and philosopher) wrote

“Many people fail in life, not for lack of ability or brains or even courage but simply because they have never organized their energies around a goal.”


Personal goals that are specific, measurable and tangible are real.  They exist to a person.

By focusing on the long-term picture, knowing what one really wants, a person is less likely to be deterred or swayed by the constant whine of talking heads. “Goals provide the reason to stay on course” and avoid committing financial suicide by wild changes in asset classes or over-concentration in the hot stock, asset or trend.

Unfortunately, most people I come across have no specific goals, no specific road map or compass (what I call an Investment Policy Statement) so they are like a leaf blowing in the wind susceptible to whatever blows by next.  Their non-goal is unlinked to their specific need; there is no strategy in place. So they become susceptible to the Siren’s Song.  They hear their neighbor made a killing in real estate or that there is this Hedge Fund genius named Madoff so get on board or lose out.

We live in an age of 24/7 communications, always connected and always on.  So the slightest hiccup is telegraphed and becomes a trend.  All of this makes investors more like lemmings in a herd instead of rational beings.

In a recent issue of the Journal of Financial Planning (January 2009, http://www.fpajournal.org), Dr. Conrad Ciccotello, a financial planning professor, reviewed the various recent bubbles and how they impacted the assumptions of many of his graduate students.  He noted the Tech Bubble and Real Estate Bubble as examples. 

Throughout each of these periods, he observed that otherwise smart people tend toward a “herd” mentality and even more so than those not so well-trained or “in the know.”  During the boom years, assumptions were always made that the gravy train would last forever, “things are different this time” and all one had to do is sit back and figure out how to spend the millions one would have by the age of 30. 

On the other side of the roller coaster ride, doom and gloom prevailed.

We see this outside the classroom, too.  Just look at professional portfolio advisors.  With their compensation tied to benchmarks, their almost required to be fully invested even if things look like their ridiculously priced.  Waiting with cash on the sidelines might be the smartest thing to do but would ruin one’s tracking with the index for instance. 

Whether a “Master of the Universe” or the “Do-It-Yourself” Investor, we see short-term horizons displace long-term goals.  Being a slave to the constant “financial pornography” that proliferates as white noise means that one can easily lose sight of guiding principles.  Even “experienced” investors have been ruined by bubbles … being in the wrong place at the wrong time, trying to squeeze out the last 1/8th of profit.

Research has shown that most people fear loss and want certainty.  (Why else would most people opt for fixed rate mortgages even if they are likely to relocate and sell a property sooner than 30 years?).

As Dr. Ciccotello notes, “The client will be less likely to abandon the strategy which is aimed at maximizing the probability of success for a riskier one during good times (or a lower risk one during poor times).  Would an investor like to risk their kid’s college fund, their down payment for a second home or the source of income for retirement by being right “on average” following a benchmark?  Or would they want to meet their goals with absolute certainty?  Most people opt for certainty.  Wouldn’t you?

Ultimately, herding mentality leads to rationalization about valuation (Pets.com at $400? No problem). Then the band wagon effect follows, the asset bubble explodes and the wagon goes over the cliff.

It may seem safe in the pack.  But actually having one’s own strategy, discipline to follow it and a tangible goal is actually less risky than trying to follow the short-term horizon of a benchmark.

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Separating the Wheat from the Chaff …

Trusting a Financial Advisor


How can a client trust a Financial Advisor? There are over 650,000 folks with registrations to sell products of one kind or another. It is awfully confusing for a consumer to figure out which person is best suited to help them and has the consumer’s interests (and not the advisor’s pocketbook) at heart.  


Consider the source of the advice and follow the money.  For comprehensive advice, it’s best to be working with someone working on your side .

The results of various industry surveys can be sobering.


In a poll of 1,200 individual investors, more than 83% admitted to not knowing how to determine the quality of a financial advisor.  More than 88% noted that they did not know the critical difference between advisors and financial sale representatives.  Nearly 85% base their selection of an advisor on some subjective criteria. These investors rely on an emphasis on personalities, brand names and advertising slogans.


A major source of investor confusion lies in the titles used by those in the industry. Financial planner, advisor, wealth manager, advisory representative titles mean very little to lay people.  And there is a virtual alphabet soup of credentials out there.  Some are issued by nothing more than “credential factories” earned in a weekend in a crowded hotel ballroom.


Consumers may assume that just because someone has initials after his name or passed a regulatory exam that that conveys some sort of expert status onto the advisor.


Since we live fast-paced and complex lives, it is sometimes difficult to have the time to do our own due diligence and we rely upon short-cuts to fill in the blanks here. As consumers we look to other trusted outlets to help in the comparison of products.  Think here of Consumer Reports and their monthly reviews of various products.  We are all familiar with Morningstar’s famous star rating system for mutual funds.  But there has rarely ever been an independent rating service for financial planners and advisors.  Consumers should consider the industry trade organizations as a resource.  Another non-affiliated third party trying to bridge the gap is the Paladin Registry (www.paladinregistry.com) , a four-year old firm that invites advisors to submit their information for review.  Those who meet their stringent list of criteria and background checking are rated as five-star advisors and featured as part of their network.


Whether a consumer decides to rely on a third-party organization, a trade group or a referral from a friend, I think that it is imperative that a consumer have a process in mind to selecting an advisor.


I would suggest that a consumer needs to consider at the very least:

·         Education

·         Credentials

·         Experience

·         Compensation Methods

·         Fiduciary Status

·         Background Checks


Anyone can hang out a shingle to be a “financial planner” or “financial advisor.”  There are minimal requirements to be licensed to sell securities.  But there is more to financial planning than just investing.


This is why the industry, trade groups and the media have been gravitating toward the CERTIFIED FINANCIAL PLANNER ™ designation as the standard.  This designation requires a commitment to education covering six major areas of financial planning ranging from insurance to retirement to estate and tax issues.  There is a rigorous multi-day, multi-part exam which has an average 50% pass rate of the typical 6,000 test takers each year.  Even if one passes, one can only use the CFP ® marks by passing an equally rigorous personal and professional background check including demonstrating a minimum of three years of related work experience. And there is an additional requirement for on-going professional education.


To learn more about the CFP ® marks or how to interview a prospective advisor, please visit the CFP Board of Standards web site at http://www.cfp.net/learn/knowledgebase.asp?id=8.


To access the regulatory agencies to check on a licensed sales professional, please visit http://www.cfp.net/learn/knowledgebase.asp?id=16.


Beyond the knowledge, skills and experience to do the job, consumers should consider if the advice they are given is compromised by the method of advisor compensation.  For a carpenter with only a hammer, all problems may look like a nail.  For someone who just represents life insurance, then all solutions will center on using insurance.


Working with an advisor should not be dictated by the size of one’s investment portfolio. 


I think it is imperative that an advisor be like other professionals and act as a fiduciary. Most do not. Acting as a fiduciary requires the advisor to act in the best interests of the client.  Advice has to be the best available for the client’s situation.  It is more than the standard that brokers must adhere to in their business of financial product sales. For a more complete discussion, you may want to check out the organizations I cited above or the independent rating service at www.paladinregistry.com.

A true planner is not expected to know everything but if you look in the text books you’ll note that the visual used is one of a quarterback – someone who can call the plays, leads the team and coordinates with other professionals. At the very least, a planner knows the client and can marshal resources and other experts.  

Planning is a process that requires full cooperation by the client, too.  A client has to also understand his responsibilities in the relationship. They can’t abdicate. They must be actively involved in the decision process. This means being truthful with the advisor and providing complete documentation. (Heck, if the same client went under the knife and didn’t disclose all the meds they take, can the doctor really be at fault if something goes wrong?).

With consumers burned by bad advice or inappropriate products offered by salespersons, it is no wonder that there is a lack of confidence.  But that is no reason to ignore taking action and working with someone qualified to lead through the financial jungle. Finding a qualified advisor does not have to be like searching for a needle in a hay stack. Using some common sense and the resources from reputable industry resources will help in finding the right person with the right approach for you.



CHARTERED RETIREMENT PLANNING COUNSELOR and CRPC® are registered service marks of the College for Financial Planning. CERTIFIED FINANCIAL PLANNER™ and CFP® are registered with the Certified Financial Planner Board of Standards, Inc.

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With Valentine’s Day just around the corner and the celebration of love and fidelity, it is somewhat incongruous to think about divorce.  But every ‘good-bye’ leads to a new ‘hello.’  And it is all the more important for smart individuals to prepare correctly with proper advice ahead of time so that each party can have a fresh start.

When love goes wrong, there are a host of money pitfalls and potholes on the road to and from the courthouse. 

Soon-to-be singles will benefit greatly by adding a financial planning professional to the team, especially one with special training in the area of divorce planning.

Too often individuals are caught up in the emotions of a love gone wrong and are too distracted by grievances to see the bigger picture.

Regardless of who gets the house, there are issues that neither the court nor your attorney may be skilled enough to address with you.

Consider how poor credit decisions, a job loss of an ex-spouse or medical problems during or after the divorce might impact you.  Otherwise smart people can make big mistakes that will haunt them as they try to start over.

Key points for you to consider:

  1. Get your own financial advice:  Just as you should not rely upon your spouse’s attorney, you should not rely upon his or her financial advisor.  Saving a little money on advice now may hurt you later.  In most cases, attorneys and courts are not skilled enough in the area of financial planning to adequately evaluate settlement offers to determine if they are equitable and in the long-run best interests of each party.  This is where an experienced planner will pay off in spades. Good planners experienced in this area will be able to identify financial issues unique to the situation and help evaluate the financial impact of settlement offers as well as outline the action steps to take to make sure your credit is preserved so that you are not adversely impacted later.
  2. Review each other’s Reports: While credit issues may be the least of one’s concerns when dealing with a risk of physical danger, it’s important to not lose sight of its importance in the big scheme of things. Before the divorce is finalized, negotiate to inspect each other’s credit reports for a period prior to and just after the divorce is finalized. Trouble can surface and it’s helpful to identify potential issues ahead of time.  If both sides haven’t already obtained their annual free credit reports from the three major credit agencies (TransUnion, Experian and Equifax), the place to go is www.AnnualCreditReport.com.
  3. Remove your ex-spouse from your accounts immediately: Call all lenders on joint credit accounts to arrange to remove the ex-spouse’s name as an authorized party. Terminate joint asset accounts as well. This will need to be coordinated with the ex-spouse or his/her attorney to make sure that there is a proper division of liabilities.
  4. Consider refinancing joint debts you keep after the divorce: Whether it is for a mortgage, equity loan or auto, it is a good practice to arrange to refinance these debts to remove the ex-spouse. This might be easier said than done given the realities of each household’s new cash flow situation, but it will make things easier if possible.  If it’s not possible to do so immediately, it is important to arrange for a credit-monitoring service to alert you about negatives impacting your credit report and consumer credit score. This will lessen the likelihood that erratic or even fraudulent credit activity by a former spouse will go unchecked and severely impact your own good standing.
  5. Update your beneficiaries and estate plan documents:  In the daily rush of life, it is all too common to forget to update beneficiary designations on asset accounts, retirement accounts or life insurance.  Contact your employer to arrange changes to delete your ex-spouse from benefits if permitted by the divorce decree. Nothing can be more painful than to have an unfortunate or untimely death result in your ex-spouse receiving your assets or insurance.  It happens all too often and is far from amusing to the loved ones who depend on you. Ideally, you should also consult with an attorney when your divorce is final to update estate planning documents like your Will, Power of Attorney and Health Care Proxy as well. Those who own a business or investment property interests have other special considerations.


A divorce is far more involved than simply signing a final divorce decree.  As I’ve tried to highlight here there are a range of financial issues that will impact each party and their children.

For a more complete checklist of the types of issues you may need to be aware of if planning a divorce, please call me directly for a complimentary copy of the Divorce Planning NewStart Checklist.

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