Wicked Left Hook

People who know me know I’m not a very violent guy.

I’ve never been in a fist fight in my entire life, I very seldom ever yell (except when the St. Louis Cardinals would blow a four run lead in the bottom of the ninth), and I cover my face with a pillow when there’s a confrontation on the TV (go ahead and laugh…my wife does, too).

In short, my personality type is one that is constantly smiling, and can be easily labeled as “Joe Cool”.

But, like any human being, there are some occurrences that get me really fired up. One of the biggest things that gets me fired up?  Financial advisors that lie, steal, and cheat.

These are the people in my industry that give financial planning a bad name (Madoff anyone?),  and unfortunately they’re everywhere. I’ve been in the business for almost 10 years, and I’ve had countless run-ins with these types of advisors and despite my laid back personality, I would like nothing more than to punch them in the face, seriously.

I’ll share some financial advisor horror stories that other clients have shared with me, the lessons learned, and let’s just see if you would want to pull a Rocky Balboa on their face, too.

Disclaimer:  No Financial Advisors were actually harmed during the writing of this post.

1 The “12%” Advisor

A few years ago, I was competing for a client’s business. I was one of two other advisors who were being interviewed, and I gave my traditional spiel. It turns out that one of the guys I was up against had guaranteed to the potential client that he could make 12% in the stock market.

Now, keep in mind that this was not before 2008, and even if it was, it wouldn’t matter. The advisor was using basic mutual funds and still had the audacity to claim to my client that he could would net him a guaranteed 12% return.

I was in shock.

Luckily, the potential client saw right through the smoke and mirrors and didn’t choose him, and chose me instead.

Lesson learned: If you ever come across any type of advisor that guarantees you any rate of return, and isn’t quoting you a fixed annuity, a CD, or some type of insured bond – don’t fall for it. It’s too good to be true. Get out of their office fast.

2 The “Surrender Charge Conversation is Optional” Advisor

I once had a person come to me who was very disgruntled with their current financial advisor. They had lost more money than they’d wanted to and really didn’t understand what they had. When I had a chance to take a look at their mutual fund portfolio, I noticed that all they had were B-Share mutual funds.

For those of you that don’t know, B-Shares, for the most part, are now non-existent. Although I can’t be certain why, my hunch is that they aren’t around anymore because too many advisors abused.  If they could still sell them, the advisor could make a handsome commission, and the client would never know.

Now, it’s not the commission on the B-Share that makes them so bad, it’s the fact that most of them had a six to seven year surrender period. That means if you buy the fund, you’re going to have to hold it for at least six or seven years before you can liquidate it without a penalty.

The client in my office had no idea what a B-Share was, and most importantly had no idea that she had a surrender charge attached to it.  So here she is – stuck in investments that had lost more money for her than she had wanted, and she can’t do anything about it because if she did sell it, she’d have to pay a surrender charge on top of her losses.  Talk about a slap in the face.

Lesson learned: Read all the fine print and make sure you understand if your investment product has any type of surrender charge attached to it.

3 The “Telling the Truth is Optional” Advisor

Another time I had a client who was retiring, and we were in the process of rolling over his 401(k) and pension. In our conversations, I had learned that he had purchased a fixed annuity at his local bank a couple years prior. Since they wanted to consolidate all of their investments, they were more than comfortable transferring everything to me – but I knew that they had just taken out the fixed annuity a couple years prior.

My inclination was that there was probably some type of surrender charge attached to it. I inquired about this to the client, and they were under the impression that there was not a surrender charge, and that they could take their money; principal and interest, and walk away at any time.

Why did they believe that, you ask? Because that’s what the advisor had told them. The advisor had told them they could take out the investment, take their guaranteed interest at any time, and walk away with everything without penalty.

Now, once I heard that, as much as I wanted to believe them, I knew something sounded fishy. I had them call the bank and talk to the advisor to clarify how it actually worked. As it turns out, it wasn’t that way at all.

Yes, they could walk away with the principal, but all the interest that they accrued would be forfeited, and in their case, it was approximately $7,000 that they’d be leaving on the table. Obviously, we weren’t about to give up a big chunk of money just for the sake of consolidating, so we left it as-is to revisit when the surrender period expired- which was four years away!

Lesson learned: Just because the advisor tells you something doesn’t necessarily mean it’s true. If something sounds too good to be true, ask for it in writing.

4 The “I Like to Churn”Advisor

And no, we’re not talking about churning butter. I was talking with another potential client who was considering switching advisors and although they lived in a small town in the Midwest, they had somehow started doing business with an advisor out of New York.

They had been with this person for several years, and had a hunch that things weren’t all what they seemed. They thought perhaps the advisor was selling funds and buying other funds just for the sake of earning a commission, and since I was the guy they were considering hiring, they were interested for me to take a look.

After reviewing their account statements and the trade confirmations, it was quickly and easily obvious that was what was being done. Sure enough, the advisor was selling A-Shares; another type of mutual fund, and turning right around and buying other B-Shares, sometimes it was the exact same fund. It made no sense other than the fact that the advisor made a commission on each of those trades.

Lesson learned: If you are using an advisor on a commission-based relationship, be on the lookout for an influx of unusual trade confirmations. If you see a lot of activity, it might be worth inquiring about.

5 The “I Can Use Anything, I Just Happen to Use My Own Company’s Mutual Fund”Advisor

I had just met with some folks that had recently moved in-state from the East coast. They were referred to me because they were unhappy with the advisor that they’d been with. The advisor had worked for one of those big insurance companies that also have their own proprietary mutual funds.

The advisor had always made the claim to them that he could use any type of investments that he wanted. What I found funny about that statement was when you actually looked at their account holdings, over 80% of all their investments were with that company’s mutual funds; their own proprietary product.

What was even more a bunch of crap, was the actual funds themselves were horrible. Their track records were bad, their fees were high, and their performance resembled that of a 16-year-old trying to make it in the NFL; it just wasn’t cutting it.

Lesson learned: If you’re using an advisor that works for a big company, be on the lookout if they always recommend their own company’s funds.

6 The “I Know You’re 80 and Should be in a CD, But Let’s Put You in a Risky Investment” Advisor

This is the type of advisor that deserves more than just a punch; maybe an eye gouge, a knee to the groin, or maybe even a “people’s elbow” from The Rock.

I had a client whose mother was doing business with another advisor a couple towns over. The daughter had a funny feeling about the advisor, so she urged her mom to transfer to me.

When her mom brought in her account statements, I couldn’t believe what I saw. I had asked the daughter and the mother what the intent of their investments was and both agreed that safety of principal was a major concern. The mom had living expenses to meet, and she was going to need to cash in some of the investments in the not-too-distant future.

When I hear an 80-year-old widow tell me that she’s worried about her principal, and she needs access to the money in a short amount of time, immediately I’m thinking CDs, money market, or savings account.

Well, not this advisor. No, this advisor put most of her money into different preferred stocks, and long term bonds.

One of the preferred stocks had a maturity date of 2040. Now, for those of you that don’t understand how preferred stocks work, they resemble a hybrid of a stock and a bond, so they can fluctuate like a stock, and pay interest like a bond.

Well, the time when the mother needed the money, interest rates were fluctuating and in just a few months time span she saw a 30% drop in principal on those preferred stocks.  When she needed to cash out those investments to generate some cash, she was taking a huge loss in principal. Sure, her investments were paying a very high dividend at the time but that was of little comfort after taking such a huge hit on her money.

Lesson learned: If you think you need to access the money in your investments short term, don’t let an advisor con you into buying anything other than a CD.

7 The “My Products Don’t Have Fees” Advisor

This is the kind of guy that I don’t actually want to punch in the face, I’d rather just have a good chuckle with him. One time, I was competing with another advisor who was offering a fixed annuity as their only investment solution. They were a pure insurance agent, and apparently that was all he could offer.

When the client chose me as their advisor over the insurance agent, they were not happy, to say the least, and they were so disappointed in my client’s decision that they were compelled to tell them (in a condescending tone)  that their products had no fees, whereas mine did, and that they (my clients) were making a horrible decision.

No fees, huh? Well, yes, if you buy a fixed annuity that guaranteed you 3%, you do get 3%. For someone to use the argument that their products have no fees is ridiculous. There’s a fee for everything; there is no such thing as a free lunch.

Lesson learned: If your advisor tells you that their products have no fees, I would suggest you first prevent yourself from bursting in laughter.  Then kindly remove yourself and sprint out of their office.

Have you ever had a bad experience with a financial advisor that you wanted to punch in the face? Break out your boxing gloves and share in the comments below.

Potato, potahto. Tomato, tomahto. Fee Only Vs. Fee Based. The same difference, right?

Not quite.

If you’ve ever interviewed or hired a financial advisor, chances are you you have no idea how you are paying them. Advisors can get paid way in many different ways.

Mainstream media loves the “fee only” advisor. No conflict of interest, no commissions, certainty of what you are paying.

But then you have the “fee-based” advisor. The fee-based advisor earns a fee, but then can also earn a commission. Say what? Yes, it’s all together confusing and that’s why I attempt to explain it here:

Definition of Fee-Only Vs. Fee-based Advisors

If you’re looking for a true fee-only advisor, then check out this article about NAPFA which is an association of true fee-only financial advisors.

Another good resource is an article on Moolanomy.com where they interview me on the difference between a fee-only vs. fee based advisor. Miranda did a good job explaining the differences (much better than I can. )

And finally, you can read about PT’s experience of meeting with a fee-only financial planner. PT (Phil Taylor) does an awesome job giving you a play by play of meeting with a fee-only planner. You almost feel like you are in the meeting with him.

What Type of Advisor am I?

I thought that you would never ask….:)

Well, here’s how it can get even more confusing. When I first started the blog, I still held my Series 7 license so I was definitely “fee-based”.

Last year, I dropped my Series 7 and I could have been considered a “fee-only” advisor, but have chose to continue to refer to myself as fee-based.

Why? Even though I can longer earn a commission off the sale of a security (stock, bond, mutual fund, variable annuity, etc), I have kept my Illinois life insurance license open. That means I can still earn a commission off of an insurance product (term insurance, whole life, fixed annuity, etc). Even though I haven’t sold any since the transition, I’m a big believer in insurance so my assumption is that one day I will use it.

So keep that in mind when interviewing advisors. Even though they don’t have a Series 7, they can still potentially earn a commission off selling you an insurance product.

Have you met with a fee-based or fee-only financial advisor? What was your experience?

Jeff Rose is a Certified Financial Planner and co-founder of Alliance Investment Planning Group.

Get your budget on

In these tough economic times, many recognize the importance of financial planning.

You want to ensure that your resources are directed to best effect, and that means creating a spending plan that works well for your situation, and helps you prepare for the future.

Good budgeting software can help you take charge of your finances.

Happily, a large number of free online budget tools exists. You can get help for nearly any budgetary need you have.

Here are some of the best free online budget tools that can help you chart a course to financial freedom:

Mint.com

This is the online budget tool that started a revolution. You can link your financial accounts — savings, checking, credit cards — to Mint. Your information is automatically updated as it appears in your accounts. In many cases, categories are automatically assigned to your spending. You can also track your progress toward retirement goals, as well as use Mint to create a debt pay down plan. Visual tools, including graphs and reports, clearly illustrate your situation, and help you chart a course.

BudgetPulse

If you are wary of allowing an online app access to your accounts, you might consider BudgetPulse. You don’t give away your account usernames and passwords, and you can track your spending and set goals. The ability to visualize your money is available with charts and graphs. On top of that, you can create financial goals to share with your friends and family. The social aspect can keep you accountable, as well as provide an opportunity for your loved ones to contribute to your objectives via PayPal or Amazon Payments.

Gnu Cash

Not only does Gnu Cash work on your Mac or PC operating system, it is also compatible with Linux. This free accounting software is based on true accounting practices, and is designed to allow you to receive accurate financial reports. Gnu allows you to track investments, savings, checking and other accounts. It’s a great way to get a comprehensive financial picture, as well help you keep track of your current progress. You can enter scheduled transactions, as well as make a number of financial transactions.

Buxfer

Monitor your spending, and keep track of your upcoming bills with the help of Buxfer. This online budgeting tool is aimed at 20-somethings interested in getting their finances under control and starting out right. You can project your earnings and savings interest into the future, and use the information to plan your finances. You can break down your goals, setting short-term and long-term goals, and working toward them. Additionally, Buxfer helps you manage group expenses. You can split different bills up, figure out who owes what, and even make payments online, taking care of IOUs with ease.

moneyStrands

The threads of your financial life meet together with the help of monneyStrands. This software is one that can important your financial information from your banking institutions and credit issuers. Create a 12-month spending plan, and then use this software to keep you on track. Schedule upcoming bills, and view projections of what your money should look like going forward. You can also use moneyStrands in different languages, and it comes with the ability for you to manage your finances in multiple currencies — something that is handy for the frequent traveler, or if some of your income comes from foreign sources.

Moneytrackin’

Once you know where your money is going, it’s easier to spot money leaks and change behaviors. Moneytrackin’ helps you see where it all goes. It also provides help with tracking and dividing shared expenses, and creating shared budgets. Moneytrackin’ also includes helpful tools for small business accounting. If you have a home business, this software can help you keep track of relevant income and expenses. It’s a great tool that can help you manage various aspects of your finances.

My Spending Plan

You can put together a budget to help you better live within your means. Quickly create a plan that helps you with long-term goals, as well as with short-term goals, including special events and more. This software makes use of the envelope system to help you plan your budget. My Spending Plan also sends you emails and alerts, and reminds you of bills that need to be paid. On top of that you can personalize your settings to see your own big picture. My Spending Plan also includes coupons and promotions that can help you save money and live within your means.

Personal Capital

For those who want to add investing to various aspects of the budget, Personal Capital is an option. Your financial dashboard allows you to see everything that is going on in your financial life. You can see the big picture, and track your progress as you work toward your goals. On top of that, you can track your investment portfolio, and even receive objective investment advice. If you want help actually managing your investments, you can get personalized ideas, as long as you are willing to pay a 1% fee. However, the regular service is free, and you can manage your finances — and investments — with the help of this budgeting tool.

BudgetSimple

If you are looking for something straightforward and simple, BudgetSimple might be helpful. The main point of this budgeting tool is to help you get out of debt. You track your expenses, manage your bills, and learn how to live within your means. There are no frills with BudgetSimple, but it is one of the easiest ways to create a budget. Plus, you can view your progress with the help of charts and other visuals.

SavvyMoney

For those looking for a proactive approach to debt pay down and accelerate savings, SavvyMoney can help. The idea is that you start out by understanding your current situation. After putting together a picture of your current situation, you create a debt repayment plan based around what works best for you. SavvyMoney can help you stay on track, as well as keep up with your progress. You can even receive on tips on accelerating your pay down.

How to become a Certified Financial Planner

Commonly I get asked what are the requirements to become a Certified Financial Planner™ professional and what I went through to achieve the designation.

Knowing that there are over 800,000 people that can be considered “financial advisors”, I knew that I had to differentiate myself.  But it wasn’t about being different, it was also about having a deeper understanding and appreciation of the financial planning process.

I knew that becoming a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) was the answer to enhance my career.  I found it fitting to not only share my experience, but to have a few other CFP® professionals chime in with their experience’s, too.

1 | Complete the Education Requirement

Before you can even apply to the CFP® program, you have to satisfy the preliminary education requirements.  At the point in my career that I decided to pursue the CFP® certification, I was more than  five years removed from college with my Bachelor’s in finance, so I easily satisfied the education requirement.  Currently, the CFP Board allows three different paths to achieve these requirements. Taken directly from the CFP.net website:

Complete a CFP Board-Registered Education Program

• There are more than 300 academic programs at colleges and universities across the country from which to choose.
• These programs include credit and non-credit certificate programs, undergraduate and graduate degree programs.
• They use various delivery formats and schedules, including classroom instruction, self-study and online delivery.
• Many of CFP Board’s Registered Programs also offer in-house educational programs for individual companies.

Academic degrees and credentials that fulfill the educational requirements include:

• Certified Public Accountant (CPA) – inactive license acceptable
• Licensed attorney – inactive license acceptable
• Chartered Financial Analyst® (CFA®)
• Doctor of Business Administration
• Chartered Financial Consultant (ChFC)
• Ph.D. in business or economics
• Chartered Life Underwriter (CLU)

Request a Transcript Review
Certain industry credentials recognized by CFP Board, or the successful completion of upper-division level college courses, may satisfy some or all of the education requirements set by CFP Board.

Bachelor’s Degree Requirement
A bachelor’s degree (or higher), or its equivalent,1 in any discipline, from an accredited college or university2 is required to attain CFP® certification. The bachelor’s degree requirement is a condition of initial certification; it is not a requirement to be eligible to take the CFP® Certification Examination. After you pass the CFP® Certification Examination, you will be required to provide evidence (official transcript from the degree-granting institution) that you hold a qualified bachelor’s degree or higher degree.

Jim Blakenship, CFP® and author of Getting Your Financial Ducks in a Row, shares his experience on achieving the CFP® designation:

I took the American College Chartered Financial Consultant (ChFC) course which fulfilled the education prereq.  The ChFC course was provided by my employer at the time (an insurance company).  I followed that up with a CFP self-study course from Dalton.  Then I went to a two-weekend live review from Dalton.  The Dalton courses were much more useful than the American College course, in my experience.

2 | Pass the CFP® Certification Examination

photo credit: DrWurm

Wholey moley what an exam! The CFP® Certification Examination was by far the most challenging exam I’ve ever taken and hopefully ever will take.  The two day, 10-hour exam applied all the key areas of comprehensive financial planning.  Although all questions are multiple choice, they are arranged in a way that every question “almost” sounds right.  That’s what makes the test so challenging.

The exam is administered three times a year – generally on the third Friday and Saturday of March, July and November at about 50 domestic locations.  I took mine  at the University of Missouri-St.Louis in November 2007.  The application deadline is approximately seven weeks prior to each exam date (e.g., February 1, June 1 and October 1). To apply to take the exam, complete the online application, download an application or call 800-487-1497 to have one mailed to you. Completed applications, including payment of the $595 fee, must be received by the deadlines printed on the applications – there are no exceptions.

How I Prepared For the Exam

My previous firm had an arrangement with Kaplan University that offered a “boot camp” style class.   Once a month for nine months, I traveled to St. Louis to sit in on a four day (8 a.m.-6 p.m.) lecture.  I’ve never drank more Diet Coke and coffee in my life!  Our instructor was insanely smart and help us trudge our way through all the concepts.  Imagine learning about estate planning for 9+ hours a day.  Are you jealous? After all the sessions, we then had a final recap with a different instructor a month before the actual exam.

Reflecting back, I really don’t know another way that I could have absorbed that much information in that short of time.  If I had to do the CFP program by self study, I would probably still be without the designation.

Richard T. Freight, CFP® who also authors the blog Think Beyond the Numbers, confirms my suspicions by sharing his experience with the CFP self-study program:

After failing to discipline myself with self study, over the course of 3 years I took the individual courses (5 in 1998) at 3 different community college and universities, often traveling an hour each way twice a week to pass the exams. Then I took Ken Zahn’s “blitz” 3 day course to pass the overall exam. I know it sounds like the old walking uphill both ways to school in the snow, but it wasn’t a cake walk by any means. My overall exam had a pass rate of 49% across the U.S.

Test Results

I sat for the exam in November 2007 and didn’t receive my test results until early January.  Talk about suspense.  I just happened to be home that day when the mail came.  I remember seeing the thin, little white envelope from the CFP Board and my heart sank.  Why was the envelope so thin?  Was that a bad sign?  I nervously paced inside and finally just ripped the envelope open….Congratulations you passed.  I screamed with excitement and then called my wife to share the good news.

Typically, each testing period has about a 50% pass rate and that was about the same with my group.  That is why I was so thankful that I passed.  When you receive notice that you passed, you then have to satisfy the remaining requirements.

photo credit: NinJA999

3 | Meet the Experience Requirement

In March of 2007, I began the Kaplan University CFP® course.  At that time, I had been a financial advisor for already five years, which satisfies the experience requirement.    The CFP Board requires that you have at least three years of qualifying full-time work experience.

According to the CFP.net website, experience can be gained in a number of ways including:

• the delivery of all, or of any portion, of the personal financial planning process to a client.
• the direct support or supervision of individuals who deliver all, or any portion, of the personal financial planning process to a client.
• teaching all, or any portion, of the personal financial planning process.

Joe Pitzl, CFP® shares how he got a head start in completing his experience requirement:

To get a head start on fulfilling my experience requirement, I held three financial planning internships and filed tax returns in a tax firm for two years while in school (it counted for about a year collectively). I then worked for a year as a full-time financial planner before taking and passing the exam. Six months later, I had officially fulfilled the 3-year requirement and became a CFP®.

4 |  Background Check…Do You Pass?

Applicants for CFP® certification must pass CFP Board’s Candidate Fitness Standards, which describe conduct that will or may bar an individual from being certified.  That’s one of the aspects that makes being a CFP® professional that much more prominent; we are held to a higher standard that your typcial financial advisors. The board will conduct a background check as you make your commitment to adhere to the CFP Board’s Code of Ethics and Professional Responsibility and Financial Planning Practice Standards.

Brian Plain, CFP® shares a similar accelerated approach to achieving his designation:

“Apparently I’m a glutton for punishment as I fulfilled my education requirement through the accelerated 9-month program at Northwestern and then did a 4-day live review course prior to taking my exam…for the first time. Getting that “fail” letter in the mail was deflating, but it was also made me appreciate the experience that much more when I received my “pass” letter the next time I sat for the exam. Needless to say, I still have that letter!”

5 | Time to Pay Your Dues

After you verify those three steps, it’s time to pay up.   You’ll have to pay a one-time, non-refundable initial certification application fee of $100 for the background check.  In addition, you will be responsible for a biennial certification fee of $360.  To me, that cost is minimal, compared to the amount of knowledge I have gained through the whole process.

Jason McGarraugh, CFP® gives a detailed account on his path to becoming licensed:

I went the Degree Plan rout.  After spending 4 years getting a BBA in Corporate Finance at Texas Tech I graduated without any of the Financial Planning knowledge that I wanted.  Circa 2000 I discovered that Texas Tech actually had a Masters program in Financial Planning.  I spent 2 1/2 years working on my Master of Science in Personal Financial Planning which included the necessary CFP® courses with additional classes to round out the degree plan.  After graduating I spent a semester working for a private school in Singapore that taught the CFP® courses there.

I moved back to Lubbock in May of 2003 and began the two month live review with the professors at Tech to prepare for the July exam.  I made enough money In Singapore to pay for the review and a few months of rent with some friends that were also taking the review.  I studied 6 days a week for two months and passed the exam on the first go round.  I probably put in about 250 hours of study and class time.  I made it a point to take one random day off a week to relax.

It took about a month to get the results back and during this time I was interviewing for jobs.  By early October 2003 I was fully licensed for insurance and securities and working with Waddell & Reed in Fort Worth, TX (plan B).  I reached my 3 years in October of 2005 thanks to 12 months of experience as a Peer Financial Counselor with Tech’s Red to Black program.

6 | Congratulations ! You Are Officially a CERTIFIED FINANCIAL PLANNER™ Professional

Once everything is complete, you will get notice that you are officially a CFP® and you can refer to youself as one.  After making it this far, you deserve it.  Now it’s time to order new business cards and make the appropriate updates to your website.   I never thought I would be so excited over “three little letters”, but all the time invested to achieve those letters makes them extra special.

I have a secret...

I have a little secret for you.

Your broker might not have your best interest in mind when they make recommendations to you.

In fact, brokers can legally put their interests ahead of yours. 

Did you catch that?  

Translated that means that your broker can get a speeding ticket for going 75 mph on the interstate, but won’t get punished for selling you a crap investment that makes them a bunch of money.

This is because most brokers operate under what’s called the suitability standard, which simply means the securities they recommend must be appropriate for you given your financial profile; however, many of the securities that can be considered suitable may be far from the best investment options available at a particular time.

How do you like them apples?

You may be surprised to learn that brokers working under the suitability standard are not legally obligated to find the best prices or the best investment options available at a particular time. As a result, your broker may offer you securities that provide lower returns and carry more significant risks than other alternatives as this may be more profitable for the broker. The suitability standard can apply to brokers that sell insurance, stocks, annuities, or other investment types.

1. Brokers Make Money Even if You Don’t.

This is because of the commissions-based compensation model presently used by many brokerage firms. Let’s say your broker convinces you to buy into XYZ stock at $50 per share. If the price subsequently increases to $60, than your broker may call you and advise you to buy more of the same security because of the 20% appreciation in price. This transaction would then generate a commission for your broker.

On the other hand, let’s say that the same investment in XYZ stock instead dropped to $40 per share. In this case the same broker might call you and still tell you to buy more of the same security because it is now less expensive than it once was and should therefore be considered a bargain. This transaction would also generate a commission for your broker.

Great for them.  Not so much for you.

As you can see your broker’s success can have little relation to your own. This represents a misalignment of interests that may cause your broker to benefit at your expense.

2. High commissions are a good thing right?

Brokers may choose to offer you only those investments which pay the highest commissions. To illustrate this point let’s consider another example. Let’s say that investment 1 is the best investment for you, but it offers no commissions to your broker.

On the other hand investment 2 is a worse investment, which pays 5% commission. Under the suitability standard your broker is not obligated to offer you investment 1 and may instead sell you investment 2 in order to collect the commission on the transaction. This conflict of interest is currently permitted under the suitability standard, which is applicable to many brokerage firms.

Isn’t that special?

3. Looks good on paper.

Your broker may sell you an investments that is illiquid or highly risky. This is due to the fact that brokers are often associated with particular issuers of securities or certain investment companies.

As a result they may be limited to offering only the proprietary products sold by their affiliates even though other more attractive investment options may be available in the market. They may also be restricted to particular list of securities and may be compensated to offer one investment over another at any time.

One of the worst examples that I witnessed this was with a portfolio of a friends mom.  Her broker had sold her what he called a “safe investment” which was a limited partnership.  While some limited partnerships could be considered good investments, this particular one was Medical Capital Holdings.

What’s the big deal about that?  Well, this particular limited partnership ended up being a fraud and most investors lost everything that they invested into it.   What makes the story even worse, is that this particular broker thought it was “suitable” to put over 1/3 of her portfolio into it.

4. Their commissions can eat away your returns.

If you’re paying commissions on a per-trade basis, you may be spending more than you might expect.

For example, if you’re charged 2% per trade, then making just three trades per year could result in you paying 6% of your overall portfolio in commissions annually.

5. Alphabet jumbo soup.

Brokers may be using deceptive titles to give you the wrong impression about their compensation model and qualifications. Currently, the shear abundance of professional designations being used within the financial services industry is confusing even to the most experienced investors. However, understanding the differences between these titles could have a dramatic effect on your long-term investment results and overall satisfaction.

As an example, the term financial advisor is one of the most used terms in the industry; however, many of the individuals using this title are sales people looking to meet quotas by selling financial products. They may in some cases sell non-marketable securities, which include long-term commitments, excessive fees, and a high level of risk.

Titles with the word “senior” — Certified Senior Advisor (CSA) and Certified Senior Consultant (CSC), for instance — have come under a great deal of scrutiny.   I get offers in the mail all the time to buy designations.   Don’t let the alphabet soup impress you.  The only one that should in the financial planning profession is the CFP® designation. Other notables are the CFA and CPA designation.

6. I have a sales quota.

I love when I get a statement from a competitor that is sponsored by a mutual fund or insurance company.  The broker claims to them that they have their clients best interest at heart and  can utilize all types of investment choices, except that they only investments I see are from that companies proprietary products.

Hmmm……now whose best interest is first?  I assure you not the client.

7. My records clean….kind of

Your broker is not obligated to tell you if there’s anything on his or her record.  And why they should they?  It’s reported that 70% of prospective clients do not do a background check on the broker before hiring them.

Want to make sure that your broker doesn’t have a record like Bernie Madoff?  Head over to FINRA BrokerCheck to see what’s on your brokers record.

8. It could be better somewhere else.

With a broker you’re dealing with a sales person who may or may not have your best interest in mind. On the other hand, registered investment advisors, also known as RIAs are firms which operate under the fiduciary standard, which means that they are legally obligated to put their client’s interests first at all times.

As an independent registered investment advisor, Alliance Wealth Management, LLC was founded as a welcome alternative to the traditional brokerage model so many investors have become accustom to. We are compensated only by management fees paid directly by our clients.

How do you pay you broker?  If you don’t know, maybe it’s time to find out.

Today many consumers are faced with a tough choice when it comes to who will manage their money.

This choice is made harder with the plethora of financial advisors out there. Some of these people, posing as financial advisors, give you an overload of information as well as a sales pitch for a product that may not be for your benefit. These “self-serving” advisors that are out for their own interest is why NAPFA was created.

NAPFA, which stands for National Association of Personal Financial Advisors, is a professional association for fee-only financial advisors. Founded in 1983, NAPFA has sought to help consumers seek conflict-free financial advice.

What is a Fiduciary?

These fee-only advisors serve in a fiduciary manor. “What is a fiduciary?”, you may ask. A  fiduciary is a person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the “benefit” of the other person rather than for his or her own profit (investopedia.com). This differs from a normal financial advisor in the fact that some advisers do not always invest for the benefit of the client. Most financial advisors are paid fully or partially by commissions, this means they have an incentive to promote products that maximize their income.

NAPFA prides itself in the fact that this association looks out for the best interest of the client. Saying this, NAPFA only takes advisors that meet their organizations highest standards. Those standards are:

Fee Only Financial Planner Definition

It’s these high standards that NAPFA-Registered Financial Advisors adhere to that is making people take notice.

What exactly defines that a financial planner is fee only?

These registered advisors do not sell any product on commission, and therefore have no outside conflict of interest. They are compensated directly from the clients.  NAPFA advisors have one common goal, to look out for their clients best financial interest.

One thing that I’ve noticed about NAPFA advisors is that they are very proud of their organization and take it very seriously.  A fellow blogger and CFP® professional, Roger Wohlner, is very active in the NAPFA community.   I asked him to share why NAPFA membership is so important to him.   Here’s what he had to say:

NAPFA is an organization of fellow fee-only advisors who are uniformly committed to doing what is best for our respective clients and each of us state this via signing a fiduciary oath which we reaffirm annually.

Moreover, the organization is made up of a very diverse group of advisors who have a wealth of knowledge and experience which they are willing to share with fellow members. If I have a question about a client issue, I frequently will post that question in the NAPFA discussion forum and will always receive a number of useful responses. In other cases I will contact a fellow member directly and have always found them to be generous with their time and expertise.

In short I find that my membership in NAPFA allows me to leverage the knowledge of my fellow members in order to benefit clients. This extra knowledge base is especially important for those of us who are solo practitioners.

You can see more about Roger on his blog Wohlner Financial or his firm Asset Strategy Consultants.

How to Find a NAPFA Advisor

Find an Advisor

If you’re interested in hiring a NAPFA advisor, the best thing to do is first visit their main site.  NAPFA.org.  From there you’ll see the Find an Advisor spot on the homepage (see above).  You can search either by address, zip code or name and after selecting “search” you’ll have a list of the closest NAPFA registered advisors in your area.

NAPFA Resources

On the NAPFA website, http://www.napfa.org, they have many helpful links and resources. They can help you locate a NAPFA qualified advisor in your area. They also have helpful educational materials to help you select the financial advisor that is right for you. NAPFA has educational webinars, from qualified advisors, on many different topics.

NAPFA also hosts educational conferences. These conferences have classes for advisors wanting to join NAPFA, as well as classes for advisors that want to refine their skills.

Through NAPFA and Kiplinger’s Personal Finance magazine, the website hosts free financial advise several times a year. You can check for upcoming dates or watch the live video chat through their website as well as NAPFA and Kiplinger’s Facebook page.

Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Never Forget

Welcome to the November 11, 2011 Edition #210 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security.

This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

The Skilled Investor, Editor

Budgeting and Economics

Super Saver presents Leftover Halloween Treats posted at My Wealth Builder, saying, “For this year, we assumed that we would need to eat leftover treats. So we bought treats that we would be OK with eating: pretzels.”

Corey presents How I Got 4 Movie Tickets for $9 posted at 20′s Finances, saying, “Find out how I got 4 movie tickets for $9. It’s possible that you can too!”

David Leeman presents Christmas On A Budget – Best Ways to Save Money During the Holidays posted at Financial Freedom Advantage, saying, “With a little thought and planning, Christmas on a budget can be fun as well as festive. Here are some great ideas for frugal Christmas decorations, cheap stocking stuffers, and frugal Christmas gifts.”

Matt presents 085 Financial Excellence: Money & Military ? A Tribute to our Troops posted at Living In Financial Excellence, saying, “Today Matt talks about the financial challenges faced by our military men and women and offers some tips for them to avoid financial problems while serving our country.”

DJ presents POS Fees ? An Explanation posted at The Family Wallet, saying, “There’s no reason you should ever have to pay POS fees, but you may not have known how to avoid them. With this information, you may be able to avoid those fees by choosing to use your debit card as a credit card.”

Rogan Seager presents Retirement Savings Calculator posted at Retirement Savings Calculator, saying, “Valuable future investment portfolio assets and future investment returns slip through many people’s fingers at the checkout stand every day, because they spend beyond their long-term means.”

Lisa presents Stick to a Budget: Rockin’ It Like Russell Brand | posted at Thriftability, saying, “As my own freelance career and blog sites continue to grow, I find myself reminding myself to save more – which is sometimes hard to do, especially after toughing it out through a hard couple of years following the economic downturn. Read on to consider ways in which we can live comfortably, without compromising our budgets.”

Financial Planning

Jon Elder presents Set Your Financial Life to Automatic posted at Free Money Wisdom, saying, “Consider these ways to automate your savings and bring order to your financial life:”

Paul Vachon presents Are Your Finances Prepared for a Cyber Attack? posted at The Frugal Toad, saying, “In 2010 an Iranian Nuclear Facility was damaged in a cyber attack by a virus called Stuxnet. This type of cyber attack could cause wide spread electrical outages in the U.S. Are you prepared to manage your finances during an extended power outage?”

Janet presents Credit Utilization: An Important Part of Your Credit Score posted at Credit Cards Canada, saying, “You want to make sure that you keep your credit utilization in mind as you work to improve your credit score.”

Darwin presents MAJOR Financial Miscalculations We’re All Making posted at Darwin’s Money, saying, “Darwin bares his soul and shares 6 MAJOR Financial miscalculations over a lifetime that you may be making as well. From salary assumptions to investment returns, everything you thought you knew might be wrong.”

Flexo presents 5 Reasons You’re Unhappy With Your Career Progress posted at Consumerism Commentary, saying, “Not everyone works at their dream job (few actually) but if you’re unhappy with your career progress, you’re not alone. ”

Larry Russell presents Identity theft protection and prevention posted at Personal Investment Management and Financial Planning, saying, “As a threat to your financial security, you should take the potential for identity theft very seriously. Identity theft sometimes entails a loss of your money, but whether or not you lose money, it can take a very large amount of your time to rectify. Taking these steps to prevent an occurrence is prudent.”

Jill presents 7 Financial Consequences When You Say “I Do” posted at My Dollar Plan, saying, “This is a must-read for anyone planning on tying the knot soon!”

Frank Knight presents Investment Asset Allocation posted at Retirement Planning Software, saying, “When you are already there and invested in an asset class, you are following a passive asset allocation strategy. Tactical asset allocation strategy advocates suggest that you can anticipate the crowd, but flow-of-funds studies show that almost all tactical asset allocation fund flows are late money flows that chase performance after valuations have already moved.”

Aloysa presents Where Not To Go Cheap posted at My Broken Coin, saying, “Even the most frugal have a breaking point. Quality is more important for certain items than finding a great deal. Find out what this personal finance blogger refuses to go cheap on.”

Mike Piper presents When to Use a Financial Advisor posted at The Oblivious Investor, saying, “Given that investing is (for the most part) fairly simple, under what circumstances does it make sense to use a financial advisor?”

Financing a Home

misst presents Rent to Own Homes | Prairie Eco-Thrifter posted at Prairie Eco-Thrifter, saying, “The right move for a homeowner with a buyer who can’t get a mortgage might just be a rent-to-own agreement. The seller is able to move and has income coming in, while the buyer gets a place to live and a chance to become a homeowner.”

Jason P. presents Should I Pay Off My Mortgage Early? posted at One Money Design, saying, “Lot’s of arguments against doing so, but this make sense financially and for peace of mind.”

B.B. presents Making an Offer on a House posted at Beating Broke, saying, “In my opinion, buying a house is a lot more complicated than it really should be. Making an offer on a house plays it’s part in that complication.”

Financing Education

Hank presents Top Ten Money Questions People Always Ask posted at Money Q&A, saying, “Find out the most popular financial questions that are on people’s minds today.”

Income

BIFS presents October 2011 Blog Statistics and Income Update posted at Budgeting In the Fun Stuff, saying, “It has been a heck of a month! Long story short, I now have more than 90 client sites for my advertising business and had a record month.”

Jonathan from Debt Loans presents Six Steps to Self-Employment: Starting a Home Based Business posted at Frugal Living, saying, “If you’ve been considering leaving the rat race in order to work from home, starting a home based business may be one of the top items on your mind these days. If this idea sounds appealing to you, chances are that one of the first questions you find yourself asking is, “How do I get started?” The following six steps may help to point you in the right direction.”

The Financial Blogger presents October Monthly Income Report Or How I Make $218.15 an hour posted at The Financial Blogger, saying, “The income from the last month.”

Kevin presents When Can You Talk About How Much You Make? posted at Invest It Wisely, saying, “Could there be times when it’s a good idea to tell someone how much you make? Some situations are straightforward, while some can be tricky.”

MoneyCone presents Confessions of a Lazy Blogger posted at Money Cone, saying, “If you are a blogger, you’ll find this post curiously entertaining; if you are reader, you’ll get a behind the scene sneak peak at what keeps a blogger awake at night!”

Jim Tolley (aka Kidgas) presents Hondurans Know How to Hustle posted at Cash Flow Mantra, saying, “There is no real social safety net in Honduras so everyone must figure out some way to put food on the table. The entrepreneurial spirit is alive and well mainly out of this necessity.”

Investing

Investor Junkie presents Are Those Long Term Capital Gains, or Short Term Gains? posted at Investor Junkie, saying, “How long you have been holding an investment matters. If you haven’t held it long enough, you could end up paying more in capital gains taxes. As you prepare your portfolio for the end of the year, don’t forget to consider the length of time you have had a stock.”

Intelligent Speculator presents Choosing Between An Annuity And A Dividend Portfolio posted at Intelligent Speculator, saying, “We look at these two investment options.”

DGB presents What is Your Investing Horror Story posted at The Dividend Guy Blog, saying, “Do you have an investing story?”

Dividends For The Long Run presents Understanding Return on Equity posted at Dividends For The Long Run, saying, “Return on equity is often mentioned but rarely understood. I show how it can be used to determine a company’s profitability when compared to competitors.”

My Journey presents No Research Reasons Why I Like Mature Dividend Paying Stocks posted at My Journey to Millions, saying, “While most people don’t talk about it in this manner anymore, when you buy a share of a company you are buying into the business. If I am to buy into any business I want to know revenue, profit, and how I am going to share in those amounts.”

Lazy Man and Money presents Prosper Looking for a P2P Rate of Return Industry Standardization posted at Lazy Man and Money, saying, “The P2P industry needs to have an industry standard. This way Joe Average Investor won’t just default to mutual fund rather than getting scared off by all the ugly math.”

Kanwal Sarai presents Why I Started Investing On My Own posted at Simply Investing Blog, saying, “Here’s my story on how I went from being dependant on others to independent, from losing money to making money.”

Mittoo presents Battle 1: Our investments, or potential lack there of? posted at Its Raining…Pennies!, saying, “I raise an issue that many young couples will encounter. How to save and invest as a couple/family when each person has their own views on how to invest.”

Janet Russell presents The illusion of superior professional mutual fund manager performance posted at Personal Investment Management, saying, “If investment mutual fund managers were truly skilled at beating the market, then you would expect mutual fund manager performance prowess to persist over time. The effort to find those few supposedly superior money managers willing to sell their services sufficiently cheaply is a costly, time consuming, and futile, “Where’s Waldo?,” searching exercise for the individual investor.”

Glen Craig presents What is DRIP Investing and How Can it Grow Your Wealth? posted at Free From Broke, saying, “We hear how dividends can grow your wealth. One way this is done is through a dividend reinvestment plan. But what is a DRIP and how exactly can it grow your wealth?”

Frank Bertin presents Index Funds posted at Top Index Funds, saying, “Top ten no load index funds that track the Standard and Poors 500 composite index in terms of lowest costs.”

Ken Faulkenberry presents 6 Fundamental Principles of Investing posted at AAAMP Blog, saying, “If you can embrace these fundamental principles of investing you will be miles ahead in meeting your goals and providing the kind of retirement you desire.”

Mirelle Rowden presents Fixed Income Funds posted at Best Bond Mutual Funds, saying, “Vanguard dominates this low cost United States bond mutual funds marketplace for direct purchase accounts with both low and high minimum deposits.”

Dividends4Life presents 15 Dividend Stocks With A 15% Yield In 15 Years posted at Dividend Growth Stocks, saying, “Who wouldn’t like to earn a safe 15% on their original investment? Normally double-digit returns are the fodder of con artists or associated with extraordinarily risky investments. In either of these cases, the person is usually left holding despair in one hand and an empty wallet in the other. However, I have discovered that you can actually enjoy high yields with minimal risk…”

Managing Credit and Debt

Peter presents Should You Reveal Your Debt To Family And Friends? posted at Bible Money Matters, saying, “If you want to take concrete steps to get out of debt, take the time to determine how much debt you have, make an action plan to pay it off, and tell at least one person you love and trust how much you owe and how you plan to pay it off.”

Mr. Money Smarts presents Bank Of America Drops Plans For New $5 Debit Usage Fee After Other Banks Do The Same posted at Smart On Money, saying, “While the big banks aren’t charging the new fees at this juncture, my guess is that they’ll find a way to institute new fees somewhere at some point soon. My suggestion is to just take your money and vote with your feet – by taking your money to a better bank.”

Sustainable PF presents Credit Card Jargon Buster posted at Sustainable Personal Finance, saying, “Applying for a credit card can be a fairly simply process, but what does all the jargon mean? This guide deciphers the top 10 most common credit card terms.”

J.R. Weber presents Chase Slate 0% APR No Fee Balance Transfer Credit Card Offer posted at Smart Balance Transfers, saying, “Many consumers balk at the idea of paying a 3% balance transfer fee in order to obtain 0% rates. This often results in higher long term interest expenses. A no fee card like Slate removes the hurdle that prevents consumers from utilizing low rate cards.”

Melissa Batai presents Debt Free Journey, Update #2 posted at Mom’s Plans, saying, “We did many different activities this week to find money to snowflake on our debt, and the result was that we were able to snowflake $369 this week! In the two weeks since we have gotten gazelle intense, we have “found” $701.56 to snowflake!”

Super Saver presents Good Debt Myth Debunked posted at My Wealth Builder, saying, “Home mortgages and student loans are no longer viewed as good debt. Now they are just debt, as they always should have been.”

Chelsea Prescotti presents How To improve Your Credit Score posted at CreditScore.net, saying, “Your credit score plays a vital role in whether you can apply to acquire further credit, obtain reasonably priced car insurance, or take out a small business loan for example is a bit of an understatement. It plays an enormous role and it is something that shouldn’t be taken lightly. In short, a credit score helps lenders and credit card and insurance companies, for example, determine the risks involved in lending a borrower/applicant money, credit, or insurance respectively. It also helps lenders and other agencies determine the specific amounts, rates, and terms and conditions to offer a borrower/applicant.”

SteveR presents Mortgage and the Emotional Costs Associated With It posted at Debt Consolidation, saying, “Home ownership is a really big responsibility and many people still see owning their own place as a primary goal in life, which can be both a wonderful and a dangerous idea.”

Marie presents What is A Chapter 7 Bankruptcy? posted at Money Spending Mommy, saying, “While it may seem ideal to wipe away all of one’s debts and start fresh, Chapter 7 bankruptcy is not a perfect solution for many people.”

David J presents Top 5 Checking Account Returns posted at CardViews Blog, saying, “With an increasing number of bank fees, it’s time to look elsewhere for our banking needs. But what banks and credit unions should we look to for our checking needs? Who provides the greatest return on our money? Let’s find out.”

Marjorie presents How can stay at home parents get credit cards? posted at CardHub.com, saying, “Prior to October 1, individuals were able to apply for credit cards using their household income; however, this is no longer the case. If you are a stay-at-home parent, it’s understandable if you’re now concerned about your ability to build credit under your own name. Luckily, this is neither what the new rule regarding individual income was intended to bring about, nor its ultimate effect.”

John presents Secured Credit Cards: The Expected, The Surprising & The Best For Your Needs posted at Wallet Blog, saying, “Think all secured credit cards are the same? It’s ok, you can admit it. Interestingly though, our most recent study helps reveal some important differences between secured credit card issuers.”

Marjorie presents Charge-off Guide posted at CardHub.com, saying, “I explain what a charge-off on your debt is as well as how it can affect you and your credit.”

Miscellaneous

Jonathan presents Four Tips for Saving on Transportation Costs posted at Wallet Watcher, saying, “Driving a car has never been cheap, but it seems especially bad for drivers who have to foot the entire cost of petrol, maintenance, registration, and other costs all by themselves. For people who have places to go but don’t want to spend an arm and a leg to maintain a car, there are several great alternatives to traveling alone in your car:”

Tripp Danner presents No Load Funds posted at No Load Fund, saying, “There are over 60,000 different mutual fund investment share classes sold worldwide. Some mutual funds and ETFs must be better than others, but which ones are they? How can you tell before the fact?”

YFS presents Is Raising a Dog Like Raising a Child? posted at YourFinancesSimplified, saying, “YFS answers the age old question. Will getting a pet prepare me for a child?”

Joe Plemon presents Three Ways to Minimize Your Vehicle Depreciation Expenses posted at Personal Finance By The Book, saying, “All cars will depreciate. The challenge is to keep that depreciation at a minimum. This post tells how.”

The Skilled Investor presents Market Timing Does Not Work posted at Personal Financial Management, saying, “Always stay invested to earn risk premiums. You must have your money invested and at risk to get risk premium returns. Jumping out and in or “timing the markets” doesn’t work.”

Kyle Taylor presents Weird Business #10: “Selling Manure Online” posted at The Penny Hoarder, saying, “This week’s weird business feature is not only weird, it’s a little bit gross. Like – selling poop on the internet – gross. Hold your nose though, because your going to love this one…”

Retirement Planning

Jeremy presents Are Annuities A Good Investment? posted at Personal Finance Whiz, saying, “I’ve seen a lot of popular financial advisers and finance bloggers preach the evils of this vehicle. For some people, that advise is solid. But for others, annuities might actually be useful. So are annuities a good investment?”

Brockton Eaton presents Long Term Investment Strategies posted at Retirement Investment Strategy, saying, “The investment research literature repeatedly demonstrates that a fully diversified, low cost investment strategy is superior.”

FMF presents The 10 Hardest Retirement Decisions posted at Free Money Finance, saying, “10 decisions you must make in order to have a great retirement.”

Walter Binkle presents Large Cap Mutual Funds posted at Mutual Funds, saying, “Retirees can save a lot by paying attention to mutual fund expenses. Each of these S & P 500 index funds is among the least costly on the market.”

Consumer Boomer presents Social Security Benefits Increase for 2012 posted at Consumer Boomer, saying, “The Social Security announced changes for 2012 that will affect Social Security beneficiaries and retired persons receiving a retirement income. Here’s a look at those changes.”

Risk Management and Insurance

Echo presents 11 Steps To Financial Freedom – Review Your Insurance Coverage posted at Boomer & Echo, saying, “The rule of thumb for life insurance is to get enough to pay off your debt, plus cover 10 times your income if you have kids under 10 years old, and five times your income if you have kids over 10.”

FMF presents Financial Strategy #8: Planning Your Legacy posted at Free Money Finance, saying, “Balancing insurance costs and needs at the end of your life is a tricky path to follow.”

Savings

Will presents Bank Transfer Day Is A Win-Win-Win posted at Former Banker, saying, “Bank Transfer Day will probably not have the tidal wave effect most people have anticipated”

Jason P. presents How Does a Savings Account Work? posted at Childrens Savings Accounts HQ, saying, “The most commonly opened bank account in the world is a savings account so you need to know how it works.”

Bradson Oakley presents Bond Mutual Funds posted at Best Bond Funds, saying, “Higher bond fund expenses tend to mean lower net returns to individual investors. It is not worth paying higher bond fund fees.”

SB presents Get Into Debt Now, Before Time Runs Out posted at One Cent at a Time, saying, “I encourage you to read this article and try to find the intention and the true meaning. By the comments received so far, readers have different opinion. The article is about frugality vs spending.”

Ciana Locke presents Market Index Funds posted at Best Index Mutual Funds, saying, “The dominant issue in choosing among passively managed index mutual funds and ETF funds benchmarked against the S & P 500 is that securities industry management and trading fees are all over the map from reasonably low to shockingly high.”

J.B. presents Saving Money At The Gym posted at My University Money, saying, “So what do you really need when it comes to getting in shape, and where can you cut financial corners without feeling guilty?”

Taxes

Jim R. presents Track and Value Your Donations for Tax Deductions posted at Free By 50, saying, “Intuit has a free tool on its TurboTax.com site called It’s Deductible that you can use to track and value the charitable donations you make. If you make a fair amount of charity donations in a year then such a tool can be helpful.”

Finley Merriwether presents Retirement Planning Calculator posted at Retirement Plan Calculator, saying, “Tax-advantaged retirement savings plans give you the opportunity to make investments with deferred taxes in 401k, 403b, 457, Keogh, Simple, or other employer sponsored retirement plans.”

That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: carnival of financial planning, blog carnival.

Managing money is a lot like dieting. It all works in theory, but it’s the application that’s so difficult. When we begin saving, budgeting, or investing, it’s often to overcome pain or frustration. Then, if we fail, the disappointment is worse than the original discomfort we were trying to overcome.

Our parents, friends, neighbors, coworkers, and the media, surround us with messages that turn money into a measure of self-worth and perceived happiness.

These powerful messages lead to misguided emotions—fear, anger, resentment, and frustration—that revolve around money. However, it’s common to ignore these feelings and focuses on interest rates, stocks, bonds, and taxes. Like money, these are simply tools to get you where you want to be, and should not be the end goal.

Happiness and fulfillment should be the goal when dealing with our money, but we often lose sight of that.

Reactive

Financial planning often begins with a specific problem. It might start when struggling to pay your bills, or after changing jobs realizing you need to do something with your retirement plan. It might be that retirement is on the horizon and it’s time to get things in order. And sometimes it begins with an intimidating notice from the IRS.

When financial planning begins with a specific problem, the focus naturally revolves around core financial planning topics like stocks, bonds, interest rates, taxes and retirement plans. When there is a problem, it only makes sense to get to the point and solve it.

The problem with this approach is that it is reactionary and misses the point of financial planning—quality of life.

Proactive

A better approach is to be proactive instead of reactive. This lets you change your approach to finances from problem solving, to lifestyle design.

Instead of beginning with mutual funds and tax rates, consider planning your ideal life. You can do this through goal setting or visualization exercises, but it doesn’t have to be very complicated.

One approach is to envision your perfect day. Think about every aspect of that perfect day and what it would be like. The more detail you include, the better. Here are some questions to answer about your perfect day.

• Where are you?
• Who, if anyone, is around you?
• What are you doing?
• What is the weather like?
• Are you active or relaxing?
• What are you wearing?
• What are you driving?
• What do you see?

These are only examples to get you thinking in the right direction, and depending on your personality, there are different ways to do this. Some people create storyboards by cutting out photos from magazines. Others open a word processor and start typing, while some like to meditate.

Interpretation

It’s tempting to assume your vision is the life you need to create. This may or may not be the case. For example, I had a client envision being alone at her home, that was unusually clean.

After a lot of brainstorming, she discovered she was longing for short breaks. She didn’t want to be without her children, because she loved being a stay at home mom, but she needed the occasional break. They budgeted for one day a week of child care and a housekeeper and it made a huge difference for the entire family.

This is what financial planning is about. It’s about finding what will make you most happy and then using tools like stocks, bonds, and budgeting to make that lifestyle happen. When planning your finances, remember that money is only a tool to get the stuff we want and need, but accumulating it is not the end goal.

Hire me please

You knew one day it would come.

Retirement planning has been something you have postponed for too long but knew that you would eventually have to face the music.

That time has finally arrived: you need to choose a financial planner/adviser to guide you through the complex maze of investing. It can be an overwhelming process trying to choose the best financial advisor to hire for you–and that’s the key: “For You“.

The absolute most important item is making sure you can find someone you can trust.  But is it really that easy?   How do you avoid hiring the next Bernie Madoff? . Given recent headlines about Ponzi schemes and fraud, you may be wondering – how can you avoid getting duped by a shady financial advisor?  The key is being better informed and doing some homework. Here’s some tips on helping you choose the best financial advisor for the job.

1. Find out how long they have been in the business

I don’t know about you, but I’m not extremely comfortable letting a newbie handling my retirement dreams. You don’t need a 20 year seasoned veteran, but you want somebody who has some experience in financial planning matters. Somewhere in the 3-5 year range should suffice, but also get an understanding of what they’re upbringing is. If they are a third generation financial advisor, then it might just be in their blood.

2. Make sure they are CERTIFIED

The financial services are laden with alphabet soup after their names. Even I have three certifications, but only one that really matters. If you are looking for a serious financial planner, then make sure you find one that has the CFP® designation. One who has taken the extra effort to become a CERTIFIED FINANCIAL PLANNER™ are held to a higher standard that your typcial financial advisors. A CFP® must adhere to the CFP Board’s Code of Ethics and Professional Responsibility and Financial Planning Practice Standards.

In the summer of 2009, there were more than 60,000 CERTIFIED FINANCIAL PLANNER™ certificants. In an average year, the Certified Financial Planner Board of Standards, Inc. conducts about 80 ethics code investigations. This means 99.9% of CFP® practitioners are abiding by the Board’s ethical and behavioral standards.

3. Do a background check

Remember when you were younger and you could always hide your grades from your parents? That was until the report card was sent home. The U4 is the “report card” of your financial planner’s background. That means if he’s done anything wrong and a complaint has been filed against him, it will be shown here.

By asking the financial planner if there’s anything on his U4, you’re finding out if he’s committed any wrong-doing. The best part is that if you don’t believe the financial planner’s answer, you can always log on to finra.org to find out if the financial planner is telling you the truth.

It’s amazing the percentage of people that don’t do a background check on a financial advisor before they hire them. If you want to check out an investment advisory firm, visit the SEC’s website. That is the website at which the Securities and Exchange Commission keeps Form ADVs – the forms which reveal disciplinary actions taken against that advisory firm and/or its key employees. You can also make sure a firm is properly registered there.

If you want to check up on a specific investment adviser, go to the FINRA BrokerCheck website tool. Here you can learn about the professional backgrounds of advisers and firms through the Financial Industry Regulatory Authority.

Now that we’ve mentioned that, let’s accentuate the positive. Visit the websites of the Financial Planning Association and the National Association of Personal Financial Advisors. Search functions on both sites will allow you to find a respected independent financial adviser near you.

4. Find out their investment philosophies

Do you want an advisor that believes in a buy and hold strategy or someone that has more of tactical approach?   Maybe you have a interest in a socially responsible investing and want someone to keep you abreast of its everyday happenings.  If that’s the case, then you better make sure you find the right person for the job. Ask specific questions on the investment strategies that they have implemented in good times and bad.  They should be able to show you some examples of portfolios that have been used with other clients in a similar situation.   The interview process is all about fact finding, so find out as much as you can.

5. Completely comprehend how they are compensated

You would think that this would be a common question. But many folks feel that it’s impolite to ask how much a financial planner charges. If you were getting your car worked on, wouldn’t you ask the mechanic how much it was going to cost? If you go see a lawyer or CPA, you know how much you are being billed.  Why is hiring a financial planner any different? Don’t be shy in asking this question.

There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you know exactly what you are paying throughout the working relationship. If she explains but it still doesn’t quite make sense, have her put it on paper so that it’s crystal clear.

Lean Towards Choosing Independence

When you search for an independent adviser, you have a better chance of finding someone who gets paid for their advice and/or their fee-based asset management, instead of deriving the bulk of their income from trades or product sales. Many of these independent advisors set flat or hourly fees for specific services. Some earn a fee that corresponds to a small percentage of the invested assets they manage for you. If your portfolio does well, they do well.  Once again, make sure you completely understand how how they get paid.

7. Know how important you are to them

If you have an annual check up from your doctor, would you expect the same from your financial advisor? How about twice a year? Every quarter? One of the biggest breakdowns in any relationship is communication and this is no different. If you expect to hear from them a least once a month, then let them know that. That way your expectations are clear from the onset. If they over promise and under deliver, it’s time to starting looking for another financial advisor.

Choosing The Best Financial Advisor

A good and conscientious financial advisor will meet with you at regular intervals and assist you to adjust your financial strategy in response to life changes and changing objectives. He or she will communicate with you in a forthright, open way – and that includes returning your calls or e-mails within 24 hours.

Readers from the blog that are considering hiring a new financial advisor are often very hesitant. They are intimidated and frankly don’t know what to say or ask. Ever feel like that?

When someone asks me what is the #1 question that should be asked when interviewing a financial advisor, this is what I tell them…(Watch the video to find out)