Financial Planning

Beware Phony Credentials When Selecting a Financial Advisor

Last Updated (Friday, 12 September 2008 10:45)
Written by Hank Brock, CPA, MBA, CLU, ChFC

“Investors should beware of salespersons claiming credentials, such as ‘Certified Senior Advisor’ (CSA) that sound impressive, but require little training or skills,” so says the Utah Division of Securities (Division Newsletter, Oct., 2007.)

Credentials, expertise, education, experience and ethics matter, which is why those that work for years to achieve legitimate credentials scoff at those that attempt a short-cut to credibility.

The most popular legitimate credential in the financial planning industry is the Certified Financial Planner®, or CFP®.  A much older, lesser recognized, but accredited college offers the Chartered Financial Consultant, or ChFC. Both require years of experience and adherence to a strict code of ethics. The ChFC actually requires the same six courses required for the CFP, plus two more. Those who’ve taken both the CPA and ChFC exams often comment that the tax exam for the ChFC is actually more rigorous than the CPA exam’s tax questions.  

The Certified Retirement Financial Advisor, or CRFA, focuses on financial issues for seniors, and holders of both the CFP and ChFC may take the pre-approved CRFA courses to meet their continuing education requirements.

The complaint against other credentials, such as the CSA, is that they often may be “bought” with a fee, a quick 3-day class, and only a few hours focused on financial issues of seniors.

The Division warned against other ways a financial advisor may attempt a short-cut to trust, “Other times [trust] is implied because the promoter and investor both belong to the same church…”  Many are especially vulnerable when they are impressed by someone’s church connections. Reputable planners don’t “wear their religion on their sleeve.”

 

Nine Issues to Consider

First, is the consultant experienced? Ask about how many years he has been in business, what has been the nature of his practice and the types of problems he has solved, his existing clients, and the breadth and depth of experience.  You may not think your issues are complex, but you are likely not aware of some of the strategies that could benefit you most, nor are they be understood by a novice. For example, it may take years of apprenticing to be ready to address the myriad issues facing seniors, so don’t be someone’s guinea pig.  This is especially true in the area of tax and estate planning, where many novices present public seminars with only a basic understanding of complex issues. 

Second, as mentioned earlier, what is your advisor’s educational background? Look for bonafide credentials such as ChFC, CFP, CPA, CLU, JD, or other legitimate credentials. These signify background in investments, taxation, estate planning, finance, business, insurance, law, economics, etc. and require comprehensive examinations from accredited educational institutions, years of experience, and advanced continuing education requirements.  Beware of those that solely have one of the many “quickie” designations proliferating these days.

Third, does the advisor have a commitment to high ethical standards? Look for membership in at least one industry association (such as NAIFA, Society of FSP, FPA, IBCFP, etc.) that enforces a code of ethics.  Of particular concern in ethics are those that not-so-subtly use their church affiliation in advertising.        

Beware of those that resort to “announcing” their high ethical standards by implying some religious or church connection. A person will usually find that the advisor is relying on an “implied endorsement” or “short-cut” to gain trust and cover-up other deficiencies in his educational background.  Members of the LDS faith have been cautioned by their leaders about this “short-cut” to trust, but all could benefit from this counsel. One’s church affiliation should not have anything to do with one’s competencies or ethics, so beware of someone that uses their church affiliation to promote their business.  Unfortunately, many seniors look to church affiliation as a sign of trustworthiness, and fall prey to inferior services, and too often scams.   

Fourth, is there a commitment to continuing education? Complex laws are ever-changing and the economy never holds still. How many hours are spent each year keeping skills sharp?  Are the continuing education hours at a beginning, intermediate, or advanced level?

Fifth, what services do you need? Comprehensive retirement, tax strategies and estate planning? Solely tax advice? An investment advisor? Real estate advice? Or, is he just an insurance salesman? Identify an advisor that emphasizes the services you need.

Sixth, is your advisor a solo-practitioner? Or is your advisor part of a team that he can turn to for strategizing on complex issues? Or to bring an additional perspective? Is his firm large enough to provide the extensive resources as a large firm of pros?  

Seventh, what’s the average client like? If your net worth is $500,000, and your advisor primarily deals with people with a net worth of $3-10 million, will you get the attention you need?  Are there other advisors in the office that would give you better attention while still benefiting from the firm’s resources? Does the advisor primarily work with senior citizens, professionals, business-owners, or whom? Will your unique needs be addressed?

Eighth, how is the advisor compensated? Is he/she paid by fees only, commissions, or both? More about planner compensation in an upcoming article.

Finally, is your advisor a professional? Be wary of persons who are merely part-timers working out of the trunk of their car, lack membership in professional societies, omit commitment to continuing professional education, and criticize others who do commit to high standards. Often they will downplay the need for education, or boast they “know more about estate planning than most attorney’s out there.”  Smooth salespeople are often very charming, and may even present a charismatic public seminar—but they may also be dangerous because they don’t know what they don’t know.

When you find an advisor you feel comfortable with and there is a philosophical “fit,” consult thoroughly, be loyal, and have fun. A successful advisor has excelled in his profession for the same reason anyone has excelled in theirs: because he loves what he does, and because of the people with whom he is privileged to work and help.  He enjoys his rewarding relationships, and sincerely wants his clients to achieve the success they want.  For more information on selecting a financial planner, check out our post "11 Keys to Selecting a Financial Planner."  

Hank Brock is President of Brock and Associates, a local fee-based financial consulting firm that celebrates its 30th Anniversary in 2009.

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The 25 Biggest Mistakes Seniors Make

Tuesday, 09 September 2008 09:12

Print this page out and put a check-mark next to any mistake you may be making or have not fully explored.

1. You have not taken all steps legally allowed you to protect your assets, especially your home, from frivolous lawsuits or creditors. (A Living Trust provides no protection.)

2. You have not taken all steps legally allowed you to transfer your assets from a taxable environment, to an environment that can generate a tax-free retirement income to you and pass income and estate tax-free to your heirs.

3. You are not aware that IRAs and annuities are the two assets that are subject to double taxation upon death, and have not taken all steps possible to avoid this.

4. You have not done adequate IRA Distribution Planning, with the objective to minimize or avoid taxes on the dollars distributed from your IRAs. You have not explored ways that may result in distributing part or all of your IRA tax-free.

5. You have merely postponed or deferred taxes on highly appreciated assets, such as real estate or stocks, through 1031 exchanges, thereby leaving assets subject to high income or estate taxes to yourself or heirs, versus using legally allowable means to by-pass capital gains taxes upon the sale of an appreciated asset (Capital-Gains By-Pass Trust). "A bird in the hand is worth two in the bush."

6. You consume non-IRA dollars first while leaving IRA dollars to grow, taking only the "required minimum distribution," when working the numbers often yields that you should be consuming IRA dollars first.

7. You have not taken steps to assure that unintended persons do not unwittingly become the beneficiaries of your estate, in spite of the traditional use of wills, living trusts, and the customary beneficiary designations on IRAs, annuities, and life insurance policies.

8. You are paying taxes on income you are not using (on interest that is being reinvested annually), rather than using all steps legally allowed you to avoid those taxes and only pay taxes on dollars you are using.

9. You have not taken the steps legally allowed you to avoid taxes on your Social Security Income.

10. You do not understand that income tax rates are as high as 65% on much of your retirement income, not 25%-35% as you supposed, or how to legally avoid this.

11. You have not taken steps legally allowed you to avoid state income taxes on investment income, state sales taxes on major purchases, or state property taxes on major personal property items (i.e., autos).

12. You have not taken steps to earn interest that participates in growth-type investments, i.e., the stock market indices, while insuring your accounts against any downside market risk or losses. Every year all gains are locked-in.

13. You have too many of your dollars tied-up in so-called "safe" assets (such as CDs) such that, after subtracting taxes and after-inflation, you are actually losing dollars. You feel paralyzed without choices, and are not aware of the safe alternatives.

14. You do not understand why inflation is the #1 enemy of longevity, nor the devastating long-term effect of inflation on investments, especially bonds, whether or not you hold the bonds to maturity.

15. You do not understand how to manage away each of the various types of risks out of your investment portfolio: default or fundamental risk, market risk, inflation risk, interest-rate risk; and how you are most vulnerable given the most probable future world economic conditions.

16. You do not realize that your life expectancy is longer than you think, and you have not made provisions to guarantee that you cannot outlive your income.

17. You do not understand the most common mistakes made by owners of annuities and life insurance, and what your insurance agent did not do when establishing those policies, or why you could end-up paying more than 50% of those annuities and/or death benefit proceeds in taxes.

18. You do not understand why transferring your home from Joint-Tenancy into your revocable living trust could have devastating implications, or how to rectify.

19. You do not take advantage of many tax breaks available for retirees simply because you are not aware of them, and you have not re-structured your assets and income to take maximum advantage of potential tax breaks.

20. Because of a lack of planning, your heirs receive a fraction of what they could receive without any additional significant effort, or complexity.

21. Because of a lack of planning, assets are passed to your heirs via the typical living trust in a manner that aggravates or creates ill feelings between heirs and weakens their character, rather than passing assets in a way to strengthen family togetherness and strengthen character.

22. You do not take advantage of special provisions of the tax code that could allow you to: increase your retirement income, plus pass twice as much to your heirs as currently, plus pass an equal amount to a church or charities of your choice, and get the IRS to essentially pay for the strategy. (Give your estate away twice and have IRS pay for it.)

23. Your estate plan consists of the usual components: Wills, Living Trust, Power-of-Attorney, Health Care Directives-Living Wills-but 9 times out of 10 you have unknowingly left one of your largest (if not your largest) asset to pass outside your estate plan and be excluded from your wishes for how your estate is to be distributed.

24. You have selected the wrong trustees for your revocable living trust and other trust(s).

25. You have left yourself or heirs vulnerable to higher fees that could otherwise have been avoided, in the areas of: asset or portfolio management fees, trust administration fees, legal fees, accounting and tax preparation fees, charges and loads on acquiring annuities or life insurance policies, and probate fees-fees and expenses that could have been avoided or minimized.

If you are making any of these mistakes, we urge you to schedule a time to come in and meet with one of our qualified financial advisors here at Brock and Associates.

Brock and Associates is a Utah based financial consulting firm specializing in retirement, estate, and tax planning. Copyright Brock Financial Network, LLC, 2006 – All Rights Reserved.

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The Measurable Benefits of Having a Financial Plan in Place

Last Updated (Tuesday, 19 August 2008 09:10)
Written by Hank Brock

You hire a planner. You pay a fee. What do you get in return? You get two very different kinds of benefits. You get psychological benefits, and you get monetary benefits.

The psychological benefits are yours. You keep them. They include things like increased peace of mind, progress toward reaching your goals, without worry about unfinished business.

What about the monetary benefits? This is how most planners must justify their existence, their employment. For now, don't even consider the long-term strategic benefits of having a plan. For now, look at just the first couple of years. The typical client will usually see a cash-an-cash measurable, identifiable return of anywhere from eight to 30 times the fee. In other words, if your fee is $1,000, you will see anywhere from $8,000 to $30,000 in identifiable returns within the first 24 months. What kinds of returns? Income tax savings. Improved returns on investments. Savings on legal fees. Savings on insurance premiums. Increased cash flow.

Can your planner guarantee that return? No, of course not! That would be most unprofessional. But a good planner can guarantee that, regardless of what you see during the first few years, you will absolutely benefit in the long term from a solid, well-thought out financial plan designed by a professional planner.

And a good planner should be busy enough with an already active clientele that he will guarantee that, if at the conclusion of the exhaustive data-gathering interview, he doesn't feel he can accomplish something for you that will be very meaningful, then he will bow out of the engagement.

No planner worth his salt wants to do busy work. You don't want to hire him to do busy work, and he doesn't want to do it. He is in his career because he loves what he does. He knows that his clientele only grows when he has satisfied clients, and they refer him to their colleagues and neighbors. To do that, he's got to have meaningful long-term client relationships, where they get ahead financially.

Only then, do all prosper. Only then, does your planner stay employed by his employer: you. Only then, do you introduce him to neighbors and colleagues.

And that is as it should be, because like all laws governing money happiness, everyone benefits from complying.

Hank Brock is president of Brock and Associates, LLC, a St. George, Utah based financial consulting firm.  To learn more about the benefits of having a financial plan, please schedule a time to meet with Brock and Associates.

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