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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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There are cases where a person should be paying off credit card, mortgage, or other debt rather than saving and investingSuddenly independent, I decided to do a permanent career disconnect from institutions so that I would not be forced to sell their proprietary products or services. I wanted to be able to pick and choose investments freely, without coercion, pressure, quotas, or misdirected incentives such as fees or even trips. Thats when I started charging fees to do planning and money management. Over the years I have kept my securities registration active. Currently Im with the securities firm of the Financial Network Investment Corporation, a member of the Securities Industry Protection Corporation and a member of ING Advisors Network. Heres an example of what this change meant. When I was with the insurance company and a client told me she had $100,000 she wanted to keep in cash because it gave her the comfort of security, my first thought was: What can I sell her for that hundred grand that would make a commission? As I started charging fees to manage money, my focus shifted to helping clients create and work objective investment game plans. If they wanted that $100,000 in cash, then that was where it belonged. With fees, the basic idea is that if clients make money, so do I. Conversely, if they lose money, I am paid less. Now the relationships are truly synergistic. To be sure, there are cases where a person should be paying off credit card, mortgage, or other debt rather than saving and investing. Those moves would not enrich the advisor. You must count on the integrity of the advisor to ensure you are meeting your basic financial needs. Professional Skills If youre using an advisor, its generally because you think theres someone out there who knows what theyre doing better than you do in this arena. So skills matter. Skill levels among financial advisors vary wildly. The alphabet soup of registrations and designations they trot out often doesnt offer much clarity. Here are some key factors to look for to make sure your advisor knows what he or she is doing. First, understand the difference between stockbrokers and financial planners. Full-service stockbrokers can be primarily transaction oriented and will recommend stocks, mutual funds, and other investments and help you put together a portfolio. Online discount brokers also increasingly offer advisory services. Though the onliners rarely go so far as to pick stocks, they might help you create an asset allocation plan, select mutual funds for it, and purchase those funds for you. When it comes to planners, there are two kinds, Certified Financial Planners (CFPs) and noncertified financial planners. I dont want to totally rule out planners that are not certified, because I know of a few good ones. Many of these are in the process of obtaining their CFPs. But besides a few exceptions, I strongly favor going with a CFP. In fact, former SEC chairman Arthur Levitt has also recommended CFPs. I favor this route based on personal experience with it. I was enrolled in the first class of CFPs back in 1970. I dropped out because I didnt think it would amount to anything and saw it as just another marketing gimmick. By 1978, I was convinced otherwise, so I completed the requirements and became a CFP that year. I even taught a couple of the courses of the CFP curriculum. Each year the curriculum improved and it got harder for people to get a CFP. In 1985, the CFP Board of Standards was created to help assure the proper ethics, training, and professionalism of CFPs. This board grants the CFP designation and manages a postcertification process. It sets stringent enforcement measures, and many bad apples have lost their licenses. I was on the board of the College for Financial Planning for five years, chairman for two of those. I was also on the CFP Board of Standards for three years (1994 to 1996). I say all this to assure you that there are extremely bright and ethical people in this profession. Here are the requirements they need to meet to obtain a CFP: Education. Complete an approved curriculum of six courses, which normally takes anywhere from 18 to 36 months. There are currently about 200 institutions approved to offer these courses. Examination. Pass a comprehensive 10-hour, two-day examina tion. Only about 55 percent of the people who have taken this exam have passed it. In the 1990s the CFP Board of Standards provided for a group of financial journalists to take a shorter version of the exam. None of them passed it. Experience. Work full-time at least three years in this field, that is, in a bank, brokerage, or other financial services operation. The individual is expected to have done counseling, planning, or advisory work with people on a one-on-one basis for compensation. Ethics. The person must sign and adhere to a professional code of ethics each year. CFPs are also required to complete 30 hours of approved continuing education every two years to keep their licenses. As of 2002, there were more than 40,000 CFPs in the United States. Licenses have been taken away from about 150 people to date. In addition to the CFP license, ask the planner about his or her education. The CFP Board of Standards requires a college degree. Ask whether the person has a subspecialty in some area of planning. If so, how does that work? Does the task fall to you to find other experts or will your planner do that, and in that case what are the financial arrangements? Find out if the planner can coordinate with your attorney or CPA when necessary. If the planner manages money, find out how much is under management. The three years of work experience required to qualify for the CFP license is a good baseline. But I recommend you find someone with five or more years of experience. Planning is an experienced persons game. Veterans will not only have a better feel for the markets, how investing works over the long term, and how to meet the needs of clients, but theyll also have a track record to speak of. Financial planners dont have standard performance records like mutual fund managers do, because they gear each plan to the needs of a spe Tip: Double-Check on Your Planner If a planner tells you he or she is a licensed CFP and you have any doubt about it, you can check by calling 888-CFP-MARK. For more information check the web site for the CFP Board of Standards, www.cfp-board.org. cific individual. But you can get a sense of a planners performance by asking for client references. Request at least three, and ask these clients: Did the planner help the person establish investment goals, and did the investments meet those goals? References are the best way to size up whether a planner has the professional skills this task demands. Honesty and Integrity While youre on the phone with those references, ask the planners current clients about his or her honesty and integrity. By honesty and integrity, I mean not only basic decencythat the person isnt a crook. I also mean candor. If you are with a planner long-term, youre inevitably going to hit on some tough situationseither rough market conditions or your own personal financial stumbles. You want a planner who can be frank about your circumstances and choices. Ask the current clients: Does the planner avoid discussing bad results? Is the person more concerned with his or her own ego than the portfolio? Is the person candid about problems and forthcoming when a change is needed? Remember, youre looking for an advisor, not a salesperson. Honesty and integrity are key to that role. You want someone you can trust. Cost Theres the old saying that some people know the price of everything and the value of nothing. Its not just the pure fee or the pure performance that matters with a financial planner. Its the value that the planner brings to your total situation. If youre a low-risk investor, the performance of your portfolio established by your planner may not match the S&P 500. But perhaps youre making steady progress toward your goal without incurring the risk the broader market poses. That is a real value conferred by a planner charging a fee. How much are those fees? Fee-only financial planners generally charge a percentage of assets under management, typically from about 1 percent to 3 percent of assets being managed. Those that charge a percentage generally have a minimum asset requirement ranging from $100,000 to $500,000. Hourly fees for financial planning can range from $100 to $250. Some planners and stockbrokers still work on a commission basis from products they sell. The commissions generally range from 2 to 6 percent of the amount being invested. What do you do if dont have enough money to get a financial planner to take you on? There are several ways to get per-session help. First there are the planners who charge by the hour. Next, discount brokers increasingly are offering advice on asset allocation out of their branches or over the phones. These brokers, like Schwab and Fidelity, have computer programs that generate plans tailored to your needs, based on a series of informational inputs (your age, income, etc.). These advisory services are often available for free or for a minimal fee. The main downside of per-session help is that the resource delivering it has no stake in or ongoing responsibility for your investments. With per-session advice, the monitoring task falls to you. But if you cant afford to pay someone to manage your money, then hourly sessions or the discount brokers offer a viable alternative. Just take the persons card and try to remember to go back for a checkup on a quarterly basis. Chemistry Personal chemistry isnt enough reason to hire someone. In fact, sometimes if youre too friendly with a person, that can affect your ability to evaluate just how strong an advisor the person is. But chemistry is a necessary criterion. Even if all the other factors alignobjectivity, professional skills, honesty and integrity, and costyou must have chemistry with an advisor for the relationship to work. Chemistry is important for any successful personal or professional relationship. But its critical with your advisor because its your money. Even though you might not want to be responsible for your investments on a daily basis, youve got to have a comfort level with the person who is. If you need to confide fears, calm jitters, express disappointment with results, its not going to work if youre intimidated by the advisor or put off. What does chemistry mean exactly? Most of all, you need to be sure your advisor listens to you. Pay close attention in the initial session: Is the advisor doing more talking or more listening? Is he or she respecting your desires or trying to talk you out of them? Is he or she promoting an off-the-shelf plan or one that will work for your particular needs? Is he or she trying to understand your values and priorities? How often does the advisor propose to meet with you? When I establish a relationship with a client, I want to meet at least quarterly, ideally in person. After the first year, when were in a rhythm and have built up some mutual understanding, meetings can be twice a year. But no less often than that. Finally, I want clients to meet my staff. Ask your advisor to introduce you to the other people in the office youll be working withyou want to have comfortable relationships with those people, too. Nearly anyone can profit from good advice. But to enjoy the fruits of good advice, you need to make a conscious choice to seek out a worthy advisor. Dont just go with a friend. Dont just rely on one recommendation. I suggest you use a CFP but dont plunge ahead without interviewing a few people first. Once you select someone, the responsibility for day-to-day decisions will be theirs. But the hiring, monitoring, and, if need be, firing responsibilities are yours. Take them seriously and it can pay off. Epilogue Money is never my client. Real people are. Thats who I wrote this book for: you. I hope it helps you to get a game plan, to work it, and to win it. But most of all, I hope it gives you three things to feel good about: 1. Feel good about making and keeping a commitment. It is a great achievement to take the steps toward crafting your own game plan and to stay your own course. Market movements and sales pitches will inevitably threaten to distract you, to challenge your values. Your commitment to your game plan is your commitment to your beliefs. Take satisfaction and pride in the way you maintain your commitment to yourself. 2. Feel good about how your game plan affects the quality of your life. Ultimately a game plan isnt just about crunching numbers or analyzing mutual funds. Its about creating the means by which you can provide for yourself, for your loved ones, and for the endeavors in life that are meaningful to you. 3. Feel good about helping yourself financially. It requires self respect to understand that you deserve a game plan and the financial stability and wealth that it can foster. In developing a game plan, youve employed your feelings, your intelligence, and your values in service to yourself. Thats a wonderful and worthy accomplishment, one that will help position you financially and emotionally to fulfill all the potential you hold. My hopes are your hopes. |
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