News From Our Blog

Help Your Kids Understand Personal Finances

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While Financial Capability Month reminds us all that we could do a little bit more to be in charge of our finances, it is also a good time to talk to your kids about how they too can begin to understand finances and how it affects your family. Kids.gov has smart money sections for kids of all ages, and tips for parents and teachers on how to teach kids about understanding money.

Useful tips include:

  • Get your kids to write down where they spend their money or allowance so they can see how it adds up

  • Talk to your kids about “used” versus “new” and how borrowing a book from the library, or a game from a friend, is smarter than buying something new every time

  • Teach your kids to take good care of their games, books, DVDs and other purchases because it costs money to replace these items

Kids.gov also has a series of comic strips to teach younger and older children about how they can help their parents save money. Children can follow along in a fun and engaging way to learn simple tips such as turning off lights or helping clip coupons to help save money in the long run.

View the comic strips here.

Things to Think about when Choosing a Financial Advisor

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I often speak to consumers on all sorts of financial planning issues – budgeting, debt management, saving and investing for retirement, financing education, and estate planning.  But no matter the topic, there is one question always asked:  “How do I find a good financial advisor?”

Frequent as the question is, it’s not asked nearly enough. Many individuals who might benefit from financial advice do not seek out an advisor, believing it will be too expensive or they can do it themselves. Those wanting to work with an advisor often do little more than ask their friends for a name. Choosing a financial advisor may be one of the most important decisions you make for yourself and your family, but most consumers spend less time looking for an advisor than they do deciding where to go on vacation!

It’s important for consumers to understand they’re in the driver’s seat when choosing an advisor.  They need to determine what’s most important to them – do they want a long-term relationship, or do they simply have a few immediate questions? Are they willing to pay commissions, an asset management fee, or an hourly fee?   Individuals often think they are not the “right” clients for financial advisors, perhaps because their net worth is low, or they’re not looking for investment advice.  But that’s the wrong approach.  It is not whether they are the right clients, but who is the right advisor?

When looking for that right advisor, remember this phrase — I COME FIRST!  This is an acronym for the ten most important things to be thinking about.

I = INTERVIEW  

Be sure to interview at least 2, preferably 3 advisors, even if your first contact with an advisor has you convinced that he or she is “The One.” By talking to several advisors, you will learn how various advisors work, and will appreciate the differences between them.  It is customary for these interviews to be complimentary.  Make certain you ask, however, if there is any fee associated with this meeting.

C = CREDENTIALS

Find out what the prospective advisor “brings to the table” in terms of training and experience.  There are many advisory designations and certifications.  Some are primarily for marketing purposes.  Others, such as the Certified Financial Planner certification, carry some real heft, in terms of the requirements to earn the credential.  You may want to know, for example, if the advisor had to go through an extended course of study and/or take an examination.  Ask, too, if the advisor is required to abide by a code of professional ethics and standards.

O = ORGANIZATIONS

Ask potential advisors what organization regulates them.  For example, brokers are supervised by FINRA (Financial Industry Regulatory Authority) whereas investment advisors are under the eye of the SEC or their state securities commission, depending on their size. Those licensed to sell insurance are regulated by their state insurance commission. Some advisors are dually registered and are supervised by more than one authority.  Certified Financial Planner professionals are regulated by CFP Board – the non-profit organization responsible for their certification that imposes public disciplinary sanctions, including suspension and revocation, to those CFP professionals who are found to have violated its code of professional conduct. Contact these organizations to ascertain whether the advisor is in good standing.   

M = MINIMUMS

If you are looking for an investment advice, be aware that some advisors take clients based on the size of the client’s investment portfolio. Ask about this up front.  If you don’t meet an advisor’s minimum, don’t assume there is no one who will take you.  Keep looking for those advisors offering advice on a different basis.

E = ENGAGEMENT

What would an engagement with the advisor entail?  Find out not only what services would be provided – such as tax prep, retirement planning, investment management – but also how you would work with the advisor.  Will you be working with one advisor, or are there other team members you may be interacting with?  How often will you meet?  Can you call the advisor whenever you have questions without creating a new and separate engagement?  Will the advisor be calling you when there are changes in the economic or tax environment?

F = FIDUCIARY

A financial fiduciary puts a client’s interests ahead of his own when providing advice, and makes full disclosure of any potential or existing conflicts of interest that could influence the basis of his advice. For example, Registered Investment Advisors (RIAs) are legally required to be fiduciaries; CFP professionals providing financial planning are also required to act as fiduciaries as a condition of their certification.  But there are many financial practitioners who are not held to this standard.  The simplest, most direct way to find out if your advisor will be acting as a fiduciary in his engagement with you is to ask:  “Are you a fiduciary?”  You can also ask to see this in writing.

I = INCOME

All financial advisors earn income, one way or another, but it is important that you understand how the various compensation arrangements work.  Generally speaking, advisors are distinguished as either being “fee” or “commission,” or some combination of the two.  Commissions are earned on product sales or transactions.  These commissions are sometimes paid by the client, sometimes by the product provider.  Fees can mean an hourly fee for advice; a set fee for a given project; such as preparing a financial plan; a retainer fee; and asset management fees, wherein an advisor is paid to build and manage a client’s portfolio as a percentage of the client’s portfolio.

R = REFERENCES

When interviewing an advisor, by all means ask if you might speak to some of the advisor’s clients.  Be aware, however, that few, if any, advisors will give you the names of dissatisfied clients.  Further, maintaining the confidentiality of clients is an important practice, so the advisor may be unwilling to ask his clients for permission for you to contact them.

S = SPECIALTY

Financial expertise covers a wide array of topic areas: cash flow and debt management; risk management; tax, education, investment, retirement, and estate planning, to name some of the most common.  Discuss with a potential advisor which areas he or she may specialize in, and whether referrals are given to outside professionals for advice in areas where the advisor is not expert.

T = TYPES OF CLIENTS

Some advisors focus on particular types of client:  divorced clients, retirees, professional women, doctors and attorneys.  Sometimes the focus is defined by levels of wealth, such as middle income, affluent, or mega-affluent.  Find an advisor for whom you are the “norm” — right in his or her sweet spot of practice.  You do not want to be the advisor’s biggest, nor smallest, client, nor do you want to have a life situation or profession that the advisor is unfamiliar with.

Yes, there is a lot to think about when choosing an advisor, and there are many, many different styles of practice and business models.  Nevertheless keep the focus on yourself, remembering that you and your financial needs COME FIRST.   

Visit www.LetsMakeaPlan.org to find a Certified Financial Planner professional who fits your needs and for additional consumer resources on financial planning. 

What to Know if You Plan to Trade Commodities

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If you’ve ever traded in precious metals, you’ve traded in commodities. Commodities are physical products that people trade in the marketplace. If you’ve been thinking about trading commodities, the Commodity Futures Trading Commission (CFTC) recommends you follow some basic principles and be on the alert for possible fraud.

Always follow these basic principles before you trade in the commodities markets:

  • Ensure that you can lose all of your investment and still be financially secure because it is “risk capital”
  • Check to make sure you have your risk disclosure documents
  • Determine if you will rely on advice from a broker or make your own trading decisions
  • Understand your financial obligations in commodity futures and option contracts

There is a great deal of fraud in the commodities markets. Fraudsters steal money from unsuspecting investors and traders. These are a few ways that fraudsters try to beat you out of your money:

  • Downplay the importance of the disclosure statement
  • Tell you to borrow money to invest
  • Guarantee profit or boast about past performance
  • Promise profits due to “predictable” seasonal or market cycles
  • Make “can’t miss claims” based on information already known to the public

You can beat the fraudsters by checking their registration status and background at the National Futures Association’s Background Affiliation Status Information Center (BASIC).

If you have questions, are aware of suspicious activities, or believe you have been defrauded, please let the CFTC know immediately at www.cftc.gov/TiporComplaint.

Learn more about protecting yourself before trading commodities.

Facing the Financial Capability Month Facts

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April is Financial Capability Month. You probably won’t find any greeting cards celebrating that fact, but don’t let that stop you from taking a closer look at your personal economic situation.

It’s always fun to see how we stack up against our peers, and the NFCC’s hot-off-the-press 2013 Financial Literacy Survey is a great way to do that.

This year’s survey results provided somewhat of a mixed message. More than one in four respondents indicated they are spending more than last year, yet 77 percent admitted to having financial worries, listing insufficient savings as their top financial concern. Yes, you read that correctly. Americans (that means you) are spending more, but at the same time are worried about a lack of savings.

Taking a closer look at consumers’ top financial concerns, check out the following. (Respondents were allowed multiple responses, so don’t worry about the percentages not adding up to 100.)

  1. Not enough savings – Overall, 57 percent of Americans indicated they are worried over a lack of savings, including 43 percent who are concerned about not having enough “rainy day” savings for an emergency, and 38 percent concerned about retiring without having enough money set aside. Although fairly evenly divided, the data suggest that having enough money to resolve daily emergencies takes precedence over the longer term retirement planning.
  2. Not being able to pay financial obligations – A total of 26 percent of those responding, or roughly 61 million people, were worried about servicing their debt commitments, including concerns around paying credit card debt (13 percent), repaying student loan debt (8 percent), an inability to make monthly vehicle payments (7 percent), and not being able to pay off existing medical debt (6 percent).
  3. Health insurance – One in four (25 percent) are worried about health insurance – either not being able to afford it (19 percent) and/or not having any (17 percent).
  4. Credit – While 19 percent were worried about their credit score and/or lack of access of credit overall, 16 percent were anxious about their score, with 9 percent concerned over their lack of access to credit, suggesting that consumers continue to realize the importance of credit in their lives. However, most adults have neglected to review their credit report (65 percent) or score (60 percent) in the past year.
  5. Job loss – Eighteen percent, or more than 42 million Americans indicated fear of job loss as a major concern, a number that is disturbingly high.
  6. Foreclosure – As the least of consumers’ concerns (among those listed), a comparatively small 4 percent of Americans are worried over losing their home to foreclosure, undoubtedly a positive signal for the housing industry and the economy as a whole.

The good news is that 20 percent of U.S. adults indicated they do not have any financial worries, a strong sign of consumer confidence.

Remaining stubbornly consistent over the past three years, 40 percent of adults gave themselves a grade of C, D, or F on their knowledge of personal finance. How would you grade yourself? Should you put yourself in financial time-out?

Based on this poor report card, it is not surprising that nearly four in five (78 percent) agree that they could benefit from additional advice and answers to everyday financial questions from a professional.

Know that there is ample opportunity for you to improve your level of financial literacy and take steps to resolve any financial problems. Not surprisingly, most adults indicated that if they were having financial problems related to debt, they would first turn to their friends and family for assistance (28 percent). A similar number (27 percent) also said they would reach out to a professional nonprofit credit counseling agency for help, demonstrating a high level of confidence in the value of credit counseling.

So, how did you fare? If any of this data hits too close to home, take action. Ignoring a financial problem rarely solves it, and looking the other way only makes the problem harder to solve. To get started, consider renaming April My Financial Capability Month and resolve to make positive changes that will move you into a more stable financial future. Then start planning your Financial Capability Month 2014 party!

Now is the Time to Plan for Retirement

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Day in and day out, we go to work, pay the bills, take care of the kids, and manage all of the other demands of daily living. Considering all these responsibilities and that the average American works 91,520 hours in their lifetime, it’s understandable that a comfortable retirement remains the American dream.

With emerging challenges and obstacles making a secure retirement seem more difficult to attain, it’s more important than ever to take the time to think about long-term financial needs so that our retirement dreams can become a reality.

Understandably, the process may seem complex and time consuming. Fortunately help is here.

National Retirement Planning Week, a nationwide effort to remind Americans of the necessity to consider their financial needs in retirement, takes place this week. Let National Retirement Planning Week be the motivation you need to set aside the time, roll up your sleeves and create a comprehensive retirement plan.

Why plan?

Let’s consider the facts. The retirement boom is underway. Approximately 79 million Baby Boomers will reach retirement age by 2030, with approximately 10,000 Boomers turning 65 every single day. For many, the challenges during retirement will be more complex than those facing prior generations.

During the last two decades many employers stopped providing traditional pensions. According to the Bureau of Labor Statistics, only 19 percent of workers in 2012 had access to a defined benefit. Instead, most employers now offer defined contribution plans, such as 401(k) plans. In the process of shifting to these plans, greater risk has been transferred to individual workers.

At the same time, we have seen vast growth in the cost of health care. In fact, the latest research from the Insured Retirement Institute shows that a healthy 65-year-old female will spend on average at least $417,000 on cumulative health care expenses including premiums during her retirement years.

Her male counterpart will pay in excess of $369,000. Life spans also continue to increase, and so future retirees will need to have additional retirement assets to pay for basic expenses—for a longer period of time—in retirement.

The Unknowns

And then there are the unknowns. One potent unknown is the future rate of inflation. A period of high inflation has the potential to increase the cost of expenses in retirement and erode the purchasing power of savings.

And there’s investment risk. Without access to a fortuneteller’s crystal ball, it’s virtually impossible to predict the performance of financial markets.

Creating a Retirement Plan

Intimidated yet? The challenges may seem vast, but they can be manageable so long as you are prepared. A solid retirement plan will help protect against foreseeable risks and hedge against the unknown variables.

If you are having trouble getting started, assistance from a financial professional is only a phone call away. There also are a number of resources available on the Internet to help as you think about your retirement needs.

The National Retirement Planning Coalition, organizer of National Retirement Planning Week, maintains an educational website— www.retireonyourterms.org— offering resources to help Americans stay focused on long-term financial goals.

One last thought—new research shows that Americans who have the highest levels of confidence in attaining a financially secure retirement are working with a financial advisor and have developed a targeted savings goal. So don’t delay and start planning today.

Use the resources available, set a goal, make a plan, save, and seek help from financial professionals when you need it. Now is the time to think about your retirement needs.

Use National Retirement Planning Week as the nudge needed to make the commitment to set aside time from your hectic day-to-day routine and put together a plan for a financially secure retirement. With a solid plan in place, your secure retirement dream could be on the horizon.