Thursday, July 16, 2009

Tips On Finding A Financial Planner

The time and research you should put in to finding a financial planner is no different than the time and research you should put into finding a good family doctor. You are looking for someone you can trust and guide your financial health, after all. But how should you start your search? According to the National Association of Securities Dealers (NASD) there are no fewer than 69 different financial credentials that you may run into. This article will attempt to help you narrow down your search before you even pick up the phone and start calling prospective planners.

As with a family doctor, the best place to start your search is referrals from friends and family and ask who they work with. The best planners out there will tell they get the majority of their new clients from referrals. You can also use the internet to look for planners in your area. A few websites out there provide good starting points: and The FPA website includes planners who are fee-only, fee-based, or commission-based. The National Association of Personal Financial Advisors (NAPFA) website only includes those planners who adhere to a fee-only compensation model. All three compensation models will be explained below.

When deciding what type of planner best fits you and your family’s finances there are four areas to consider: credentials, experience, how they are compensated, and to what regulatory standards must they adhere to.

Of all the credentials in the financial world, the four most common are CFP, CPA-PFS, ChFC, and CFA.

1. Certified Financial Planner (CFP) – Awarded by the Certified Financial Planner Board of Standards, or CFP Board, to individuals who meet the CFP Board’s education, examination, experience and ethics requirements. A professional with a CFP designation should have a broad knowledge of all aspects of financial planning including investments, estate planning, retirement planning, insurance and taxes. The designation means the person has passed rigorous examinations and met certain requirements.

2. Certified Public Accountant – Personal Financial Specialist (CPA-PFS) – CPAs, by trade, have a more extensive background in tax issues. A PFS designation is awarded by the American Institute of Certified Public Accountants to CPAs who have taken additional training or already hold a CFP or ChFC designation.

3. Chartered Financial Consultant (ChFC) – Earned through The American College in Bryn Mawr, PA, and designees tend to work in the insurance industry. A professional with the ChFC designation should have a broad knowledge of all aspects of financial planning, including investments, estate planning, insurance and taxes. The designation means the person has passed rigorous examinations and met certain requirements.

4. Chartered Financial Analyst (CFA) – Awarded by the CFA Institute to experienced financial analysts who successfully pass three examinations covering economics, financial accounting, portfolio management, securities analysis, and ethics. CFAs are more likely to work for mutual fund companies, institutional asset management firms, or pension funds. CFA charter holders are annually required to affirm their commitment to high ethical standards.

With the impending onslaught of baby boomers nearing and entering retirement, the financial planning profession has become a second-career choice for many new planners out there today. You will want to keep this in mind when you interview potential planners. Ideally, the planner has been in the profession for more than five to ten years and has an educational background in the profession. The number of colleges actually offering degrees in Personal Financial Planning and Counseling has exploded over the past decade. One of the most well-known programs today is right up the road in Lubbock, TX at Texas Tech. Although having a college degree in financial planning is preferable, it shouldn't be a reason to disqualify a prospective planner.

Understanding how – and how much – a planner is paid is an important part of establishing the relationship. Always consider whether a planner’s compensation requirements will interfere with their objectivity when it comes to your financial plan.

There are three general compensation categories that a planner will fall into: commission-based, fee-based, or fee-only.

1. Commission Based – Planners in this category earn their paycheck through commissions on sales of products, such as stocks, bonds, mutual funds, and insurance. Some commission-based advisors associated with banks or brokerage firms may have sales quotas they need to fill in order to keep their jobs, and the products they are recommending may not be the best option for you. If the planner is paid a commission it does not necessarily mean they are not looking out for your best interests. But the potential for conflict of interest is greater.

2. Fee-Based – Planners in this category usually have their compensation based on a flat fee or percentage of money under management as well as commissions on sales of products such as stocks, bonds, mutual funds, and insurance.

3. Fee-Only – Planners in this category do not sell any commission-based product, instead charging an agreed-upon flat fee or a percent of assets under management. It is argued that removing any incentive to buy or sell a particular investment for a client also removes any conflict of interest and the planner is making their recommendations based on what is best for the client, not the planner.

Which compensation model is the best? I’m willing to guess that planners in each category will make their argument as to why theirs is more advantageous to their clients. In the end, you must be not only comfortable with how your planner is compensated, but you should have an understanding as to how much they are being paid for each recommendation they make. If they do not volunteer that information to you, simply ask! If they value you as a client they will have no issues in providing that information.

Regulatory Standards
Financial planners will fall under one of two standards with their clients. These two standards are “suitability” and “fiduciary”.

Brokers, also known as ‘registered representatives’ may call themselves financial planners but they are basically employees of a stock exchange member firm who act as account executives for their clients. These brokers fall under the jurisdiction of the self-regulatory Financial Industry Regulatory Authority (or FINRA) and are held to a less stringent “suitability” standard. This means their recommendations must be “suitable” to their clients (e.g. be in line with the client’s risk tolerance and long-term goals). Therefore, a broker is legally free to recommend an investment that pays his firm (and himself) a higher commission over a similar lower-cost fund as long as the investment is suitable to the client’s situation.

In stark contrast, planners held to a “fiduciary” standard could not do that. If held to a fiduciary standard the planner, by law, must place the client’s interests first. CFPs and Registered Investment Advisors (RIA) are held to the strict fiduciary standard. (Registered Investment Advisors are simply planners who are not employed by, nor have any affiliation with, brokerage firms or other financial institutions, and must register with the U.S. Securities and Exchange Commission and/or state regulators)

If you are comfortable with your planner not being held to a fiduciary standard, at least ask them to explain precisely the reasons for their recommendations, including what’s in if for them.

In Summary
Finding a financial planner for your family ultimately comes down to trust. Regardless of the planner’s association to a certain firm, their compensation structure, or experience you must feel a strong connection between the two parties. Your relationship with a financial professional is, above all things, a partnership. It is worth taking the added time to find the right planner upfront because you want this relationship to last a lifetime.

Tuesday, July 7, 2009

The New Credit Card Law & How It Affects You

On May 22nd of this year, President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act. Known simply as the Credit CARD Act (why do they do this??), the provisions attempt to provide more protection for the consumer and rein in some of the more flagrant practices in the credit card industry. Most, but not all, of the provisions favor the consumer.

Below are areas in which major changes will take place as a result of the law.

1. Restriction on Interest Rate Increases
  • Prior to this Act, credit card companies could increase your interest rate if you were even one day late on your payments. With the passage of this Act, credit card issuers may not raise rates on your existing balance unless you are more than 60 days late.
  • If the cardholder does go beyond the 60-day time frame and has his interest rate increased, the credit card issuer MUST restore the lower rate if the cardholder makes on-time payments for six consecutive billing cycles. However, this provision does not take effect until August, 2010.

  • Unless the card is issued under a promotional rate, rates cannot be raised in the first year of issuance (unless you go beyond the 60-day period mentioned above). Promotional, or teaser, rates must now last at least six months. Currently, there are no time limits for these rates to last.

  • Under the current Truth In Lending Act, card issuers can give cardholders as little as a 15-day notice of rate increases and key contract changes. With the new Act, cardholders must now be given a minimum of 45 days notice of those changes. This provision takes effect August 20th, 2009.
Where the Act falls short of further protecting the consumer is on capping interest rates charged by the issuer. The new rules do not cap interest rates. Thus, having a credit card with an interest rate of 25% - 35% is still a possibility for some consumers out there. Additionally, the provisions above do not apply to credit limit changes. Issuers can reduce your credit limits with little or no notice, unless the reduction triggers penalties such as over-the-limit fees.

2. Restriction on Fees
  • As a way of avoiding over-the-limit fees, cardholders can instruct their credit card company to decline any charge that would put them over their limit. If the cardholder does not do this and goes over their stated credit line, the credit card company may not charge more than one over-the-limit fee per billing cycle.

  • Fees for taking payments over the phone or internet are eliminated with the passage of this Act. However, fees may be imposed for expediting a payment.

  • Late fees will not be imposed on payments received by the due date, or the next business day if the bank does not accept mailed payments on the due date. If you make a payment at your local bank branch, your payment must be posted and credited on that same day.

  • For those who only qualify to receive sub-prime cards (i.e. those who are considered high-risk to credit card issuers), non-penalty fees cannot account for more than 25% of the credit limit. Currently a card can be issued, say by Capital One, with a $500 credit limit to a high-risk individual. Before the card is even used, it is not uncommon to have the annual fee and even a 'card processing' fee charged to the account. Before the cardholder even signs the back of the new card, that $500 limit is only $375. This new provision limits this practice.
3. Restriction on Credit Card Issuance
  • Consumers who fall into the ages of 18 to 21 who do not have adequate income or a co-signer, or who do not complete a certified financial literacy course, will not get approved for a credit card. Last year the average college student carried a balance of over $3,000 on their credit card(s), according to a recent Sallie Mae study. This is a record high since the first study was done in 1998. This new provision attempts to protect young adults from becoming a statistic in this study.
4. Restriction on Allocating Payments
  • Currently, credit card companies have full control over how they apply any excess payment received on an account. If you have an account with split rates (for example, you took advantage of a special balance transfer rate and you have a separate rate for normal purchases) more times than not they will apply the excess to the balance that is subject to the lowest interest rate first. The Act will require that all excess, or above-the-minimum, payments to be applied to the highest interest rate balance first.
5. Allowing More Time To Pay
  • Card companies must mail statements 21 days before a payment is due. Currently the law requires 14 days. This new provision is set to go into effect August 20th, 2009.

Here's The Secret!

After reading through the numerous articles and analysis done on this new Act to post this entry, I think I may have stumbled on the secret to avoiding all of this, and I'm willing to share it with everyone reading this......Want a way to totally become immune from all of this? The solution is quite simple: don't use credit cards!! If you discipline yourself (and your spouse, if married) to adhere to a cash-only mentality, Congress can pass whatever legislation they want in regards to consumer credit card protection and your pocketbook won't feel a thing.

Contrary to popular belief, credit cards are not a necessity in life. Somehow our grandparents found a way to survive in the pre-credit card era. If they could do it, so can you.....nothing has changed except the mentality that credit cards are necessary to survive these days. This is a warped mentality that can easily be changed by actually living within your means and paying cash for everything. Try it out's pretty cool!

Monday, July 6, 2009

What Topics Would You Like To See Blogged?

Blogging....I can easily see this becoming a new addiction for me! After publishing my first entry last week I have started drafting numerous articles for future postings.

I plan on posting something out here on a weekly basis at least. Most of my blogging will be on topics that attempt to educate the reader and spark interest in learning more on those topics. They may be as simple as 'How Do I Find A Financial Planner' to more advanced areas such as 'How To Utilize Trusts In Your Estate Plan'.

If there are certain areas of personal financial planning you would like to see discussed, please reply here or contact me via email. My contact information can be found on my website at I will be more than willing to post a blog on those topics as soon as possible.

Thank you, in advance, for your ongoing support to this site, and I look forward to hearing from you!

I hope everyone had a safe and enjoyable 4th of July holiday! Now if we could just get some rain......

Thursday, July 2, 2009

Family Finances – A Role For Both Spouses

Dad mows the yard, cooks all the meals, and handles all repair jobs. Mom does all the grocery shopping, is in charge of taxiing the kids to their ‘practice du jour’, and takes care of the laundry.

Division of household duties such as these sounds all too common these days. In most cases, the handling of family finances falls to a particular spouse as well. However, when it comes to the family finances, it is imperative that both spouses play a role. If not, the result could be a devastating blow when a spouse is left to pick up the pieces.

The primary risk faced by a household which has one spouse managing the family financial affairs alone is that the other spouse is left completely in the dark. Being the financial decision maker in the family, if something were to happen to you would your spouse be able to step in and manage the family wealth?

More times than not, the death of a spouse is the immediate situation people think of. But the same can be said about being a spouse of a soldier being sent half way around the world for the next year, or someone who is too ill to continue handling the family finances. Even if you expect your spouse will turn to a financial planner or advisor for help when you’re not available, will your spouse even know where to look for such help much less what questions to ask?

Taking a proactive approach to bringing your spouse up to speed on your family’s finances will pay huge dividends in case the time comes when you are not around to assist. Most financial advisors will agree that there are six questions your spouse needs to be able to answer regarding your family’s financial picture.

1. Who Do I Need To Contact?
o This first step is the most critical. Your spouse needs to have a well prepared list drawn up for him or her listing your important contacts.

2. Where Is Everything Located?
o Your next step is to outline what assets are held and where they are held. In addition to your investments, there are other important documents which must be located.

3. How Are We Doing Financially?
o Your spouse doesn’t need to know about every trade you make and every stock you may own; however, you should sit down as a couple from time to time and review your current financial picture.

4. In What Order Should I Access Our Assets?
o While some of your assets can be accessed at any time, drawing on other assets may result in unnecessary fees, penalties and taxes. Your spouse needs to know which accounts and assets to tap into first should the need arise.

5. Who Do I Turn To For Help?
o It can’t hurt to assume the possibility that your spouse will be in need of a financial planner or advisor.

6. Where Can I Learn More?
o Even with a financial planner or advisor in the wings, it is important for your spouse to know where to turn to build a basic foundation of financial literacy.

For more details on each question above please visit my website at and click on the Free Reports link on the Home page. You will be directed to the full report which you can print and read at your leisure.

Nobody wants to think about life without their spouse. Not having your financial ducks in a row, along with a financially-educated spouse who will be able to pick up the baton and run, will only make the transition that much more difficult......both emotionally and financially. Take the time to sit down together and start this indispensable process.