Do You Need a Financial Adviser?

Posted on October 27th, 2008 in Investments, Newsletter Articles by wayne

A recent Wall Street Journal article quoted a survey from Prince & Associates showing that “81% of investors, with $1 million or more in investible assets, plan to take money away from their current financial adviser.” Regardless of the amount of your investible assets, you may be considering whether you need a financial adviser or, if you already have a financial adviser, whether you should fire your current adviser and find a new one.

If you have an interest in finances and are willing to invest the time to learn how to comprehensively mange your personal finances, you may require no professional help. If this describes you, learn about the full spectrum of financial planning including tax minimization, risk management, retirement planning, estate planning and of course, investing. I wrote Financial Abundance Guide to help this you identify detailed strategies on how to comprehensively manage your financial resources and secure a prosperous future.

However, when markets are down and the economy is in turmoil, many people begin to question their capability of managing their personal finances. If you have recently felt that you have no idea whether to sell everything or to completely ignore the market and hope that in ten years you will be financially OK, you probably could use professional financial support. If you have concluded that you have neither the time nor interest to manage your personal finances, what kind of financial adviser should you choose?

The first question to consider is what type of financial advice is required. If you only need help in managing your investments, an investment broker or an asset manager may fit your needs. Be sure to determine exactly how the adviser will be compensated before you entrust them with any funds. The following are three types of investment advisers:

1. Commissioned based advisers typically sell both insurance based financial products and load mutual funds. They will often state that their financial planning services are “free” and that you will pay no commissions, as long as you hold the products sold for a period of five years or more.

2. With “fee based” brokerage advisors you pay an annual fee, based on a percentage of the assets in your account. For this fee, you usually may make unlimited trades without paying any brokerage commissions. However, these brokers often collect commissions on mutual funds (such as the 12-b1 annual load) and on other proprietary products as part of their compensation.

3. Fee only asset managers provide professional asset management and offer only products and services with no commissions. Their compensation is based entirely on an annual percentage of the assets that you place with them to manage.

Most investment management firms will offer some financial planning services. However, since they are compensated through the assets that they are managing, they are often not interested in providing comprehensive financial advice to their clients.

Many people require more financial support than just investment management. These clients require comprehensive financial planning to help plan for their children’s educational expenses, prepare for retirement, identify methods of minimizing taxes and financial risks while maximizing their cash flow and their investment income.

If you need more comprehensive help in planning your personal finances, find a fee only, Certified Financial Planner (CFP®) who provides comprehensive financial planning services. A CFP® will have completed extensive financial planning educational training and met both the experience and ethics requirements of the CFP Board of Standards.

Whether you only need investment advice or require a complete analysis of your current financial situation, be sure that your adviser can provide financial strategies that meet your risk profile. Also, be sure that their compensation offers no conflict with your best interests.

If you currently have a financial adviser who is not actively advising you on how to meet your financial goals, you may want to join the 81% of wealthy investors that plan to take money away from their present advisers. If your investment adviser or financial planner is not treating your financial future in the same manner in which they are treating their own, find a financial adviser who will!

Retirement – Are you Prepared?

Posted on October 27th, 2008 in Newsletter Articles, Retirement Planning by wayne

With the market turmoil, I have read several articles about how people are no longer going to be able to retire when they had planned, due to losses in their 401(k) plans and other investments. Last month, I showed you how to test the safety of your 401(k) plan. This month, let’s look at what you can do to help assure that you can maintain financial abundance throughout your retirement .

The biggest mistake that people make with retirement is not adequately planning for this important life event. For earlier generations, retirement often took care of itself. When a person reached age 65, they would retire and live off the income provided by their corporate pension, Social Security and their savings. These sources of income, combined with life spans that seldom reached age 80, provided most people with adequate retirement income.

Today, this approach to retirement is no longer available to most Americans. Not only are corporate pensions a relic of the past, over the past 20 years, Americans have chosen to increase consumption and reduce savings. Thus, only a precarious Social Security payment remains as a staple for retirement.

When I was a business executive, an undisputed business principle was: “failing to plan is planning to fail.” If we did not have a business plan, against which our business was executing, our business venture would likely fail, especially when we went through down business cycles. Today, I see the same problem as people face retirement. The key to a successful retirement is planning. Failure to plan may lead to a retirement that is not the abundant retirement of which you have dreamed.

Let’s look at some of the key questions to consider when planning for retirement:

1. At what age will you retire? Successful retirement planning requires choosing the best age at which to retire. As an employee, this choice is not always yours. However, if you enjoy your work and have the ability to decide how long you will work, working additional years can dramatically increase your financial resources in retirement.

2. Will you work in retirement? Many people wish to have some “employment” activity during retirement. If you can work and still have time to enjoy your other retirement plans, additional income will greatly enhance your retirement years. Decide early on what you might enjoy during your retirement years. If what you wish to do requires special training, begin preparing for it now.

3. When will you begin taking Social Security? Many people take Social Security as soon as they are eligible. This may not be in their best interests. Unless you are in poor health, you are often better off waiting until at least your Full Retirement Age or beyond to begin taking Social Security.

4. How much are your Pension benefits worth? If you are fortunate enough to get a pension, its value will decrease over time unless it is tied to inflation. I recommend spending no more than 2/3rds of your pension and saving the rest. Each year, increase the amount you spend by the rate of inflation.

5. How much retirement income will you need? For an abundant retirement, you will want to maintain your present lifestyle. Determine expense changes you will want in your retirement years. Combine your present expenses with the retirement expense changes. When this amount is inflation adjusted to the year in which you will retire, you will have a good estimate of your retirement income requirements.

6. How much must you save for your retirement? Once you know your required retirement income plus the value of your Social Security and Pension Benefits, you can calculate the required retirement savings. Begin saving now!

7. Will you move to a less expensive home during retirement? You may have a home that was appropriate for raising children. A less expensive home might better fit your retirement needs. If so, the cost difference between your present home and your retirement home can be added to your retirement savings.

While there are other retirement considerations, answering these seven questions will help you begin the retirement planning process. There are many resources to help you plan for retirement. Chapter 9 of Financial Abundance Guide provides a step by step approach to retirement planning. If you want even more detail, I recommend Bud Hebeler’s book, Getting Started in a Financially Secure Retirement.

If you do not have the time or the interest to do your own retirement planning, find a financial adviser, specializing in retirement planning, to help you. If you fail to plan, you are like planning to fail.

As these turbulent financial times are showing, even with good planning our retirement can be precarious. While you cannot control the markets, you can control whether you actively plan for your financial well being. Start you retirement planning today, even if you are already retired!