Tuesday’s need-to-know money news

Today’s top story: 5 wrong ideas you might have about financial planning. Also in the news: Bringing retirement savings goals closer, tips for back-to-school shopping, and how to kick your adult child out of the house.

5 Wrong Ideas You Might Have About Financial Planning
It’s not just for rich people.

If You Can’t Picture Retirement, Bring Savings Goals Closer
Saving for freedom.

Cross Items Off Your Back-to-School List With These Tips

How to Kick Your Adult Child Out of the House
Placing limits on your generosity.

Q&A: Where to find financial planner fiduciary oath

Dear Liz: You often mention that a financial planner should be “willing to sign a fiduciary oath to put your interests first.” Is there a form or formatted letter available to financial planners who are willing to sign said oath?

Answer: There is. The Committee for the Fiduciary Standard, a group that promotes the idea that advisors should put their clients’ best interests first, has just such a form letter at www.thefiduciarystandard.org/fiduciary-oath.

Tuesday’s need-to-know money news

Today’s top story: The 4 best times to file taxes. Also in the news: What’s different in this year’s tax filings, 5 traits shared by the best financial planners, and could this be the year to buy a house?

The 4 Best Times to File Taxes

Never Mind Tax Reform — What’s Different When I File This Year?

The Best Financial Planners Share These 5 Traits

Is 2018 the year to buy a house?
Could this be the year?

Q&A: CPA vs. financial planner

Dear Liz: I read your recent response to the lottery winner. You made some really good comments and suggestions. However, you suggested that the person seek out a trustworthy, fee-only financial planner.

I am a certified public accountant. As you know, CPAs have historically been one of if not the most trusted advisors. I do get defensive when I read articles such as yours because never do people suggest that a CPA be consulted in situations such as these. In my opinion, financial planners do not have the overall breadth of experience and knowledge of the income tax and estate tax ramifications of decisions that need to be made.

Answer: If you’re holding yourself out as an expert in financial planning, you’d better be one.

There’s no question that CPAs are tax experts. But how knowledgeable are you about investments? Insurance, including life, health, disability and long-term care? Retirement savings and income planning? Education planning and funding? Social Security, Medicare and Medicaid? Employee benefits, retirement plan selection and business succession planning?

Those are only a few of the dozens of topics that a certified financial planner is required to know. CFPs are expected to look at clients’ entire financial picture and understand how the pieces should best work together. They are supposed to know that taxes may be a factor in many financial planning decisions, but taxes shouldn’t be the only or even the driving factor in any of them.

CFPs may not be able to match your breadth or depth of knowledge in your area, but that’s why they would refer clients to certified public accountants for detailed help with those issues. They also would know when to get estate-planning attorneys involved, and insurance agents and so on.

Some CPAs do become comprehensive financial planners by earning the personal financial specialist or PFS credential, which is similar to the CFP. The additional training and experience helps them understand how taxes fit into their clients’ larger financial picture. It also helps them know what they don’t know, so they know when to consult more knowledgeable experts for help.

Q&A: Fee-only financial planners

Dear Liz: When you recommend a “fee-only adviser,” do you mean an adviser that charges customers by the hour for advice or one that charges a percentage of the customer’s portfolio that the adviser manages?

Answer: Fee-only planners charge their clients in a number of different ways. What distinguishes them is the fact that they are only compensated by their clients; they don’t accept commissions from the products or services they recommend.

Some fee-only planners charge by the hour, which is helpful for people just starting out or those who need targeted help, such as advice on their retirement portfolios. You can get referrals to fee-only planners who charge by the hour from the Garrett Planning Network at www.garrettplanningnetwork.com.

Many fee-only planners charge a percentage of your assets that they manage or a percentage of your net worth. Another popular method is to charge a quarterly or annual retainer fee. You can get referrals to these types of planners from the National Assn. of Personal Financial Advisors at www.napfa.org.

It’s a good idea to interview a few planners to discuss what they can do for you and the expected costs before making a decision. In addition, the Financial Planning Assn. has tips on choosing a financial planner at www.plannersearch.org.

Monday’s need-to-know money news

Today’s top story: Beware of new estate planning laws. Zemanta Related Posts Thumbnail Reducing your financial stress, what you need to know before buying your first home, and five credit card hacks that can save you money.

Your estate plan: Be aware of new laws
Introducing portability.

3 Ways You Can Reduce or Remove Your Financial Stress
Prioritizing what’s important.

3 Things to Know Before You Buy Your 1st Home
Time for a reality check.

5 Credit Card Hacks That Can Save You Money
The good kind of “hacks”, of course.

10 Money Mistakes a Financial Planner Can Find in 10 Minutes
Learning from the pros.

Monday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: The most common reasons people visit financial planners. Also in the news: Money lessons to learn by age 50, when you should use a credit card, and how to get your credit score above 800.

4 Common Reasons People Go to Financial Planners
Help with life’s major events.

3 Essential Money Lessons You Need to Know by Age 50
Never stop learning.

When to use a credit card and when to leave it in your wallet
The pros and cons of paying with credit.

5 Ways to Get Your Credit Score Above 800
Reaching the magic number.

How planners get paid–and how that can, should and will change

iStock_000014977164MediumThe best way to pay a financial planner is directly through fees you pay, rather than indirectly through commissions. That way, you don’t have to worry that the advice you’re getting is influenced by how much your advisor stands to gain by selling you certain investments.

But most fee-only planners have adopted the “assets under management” approach, where the fees you pay depend upon how much you invest with them. And people who think deep thoughts about the industry wonder if that’s the best way to go.

One of those deep-thought-thinkers, Bob Veres of the trade information resource Inside Information, moderated a panel exploring “alternative fee structures” yesterday at the annual conference of the National Association of Personal Financial Advisors, the biggest group of fee-only planners.

There are several problems with the AUM model. One is that the planner’s compensation is tied to the whims of the market—income goes up when the market’s up and down when the market’s down, something that’s beyond a planner’s control. While the complexity of planning tends to increase the more money someone has, planners can still wind up doing a lot for a client who isn’t charged much and “charging a lot and doing not a lot” for another, as one panelist put it.

Another issue is that the planner may be tempted to hoard assets, encouraging you to keep your money invested even if paying down your mortgage, buying rental real estate or investing in a start-up may actually be a better deal.

“AUM has too many conflicts of interest to be the long-term solution for the profession,” Veres declared. He qualified the statement saying it was only his opinion, but he’s got a pretty good track record of predicting financial planning trends.

For planners, the biggest hazard with AUM is that they are charging for what is essentially a commodity—investment management—and throwing in the real value, comprehensive financial planning, for free.

“We are the ones training clients to focus on investment management instead of financial planning” through the AUM model, said panelist and CFP Carolyn McClanahan, who charges a flat fee based on the complexity of a client’s situation. Other panelists based their fee on a client’s net worth or charged by the hour.

Investment management fees are about to get squashed, thanks to so-called “robo-advisors” that use computer algorithms to invest and rebalance portfolios. Start-ups such as Betterment and Wealthfront, as well as established players including Vanguard and Schwab, offer digital advice services for about 30 basis points, or .3 percent. That compares to the 1 percent or so charged by many investment managers (and fee-only planners). Yes, some people will still want a human to manage their portfolio, but in the future fewer and fewer will be willing to pay that premium for it, said McClanahan.

I still hear a lot of scoffing from planners who don’t think robo-advisors will affect their business. A conversation I had with a couple of women who aren’t planners, but who use them, will illustrate that many planners are more vulnerable than they think.

Both women acknowledged that their planners did a lot of work up front, setting up their portfolios and advising them on other aspects of financial life: insurance, taxes, estate planning and so on. But neither felt they were getting enough on-going service to justify their AUM fees, and both were thinking of jumping ship to a cheaper solution. After all, if all they were going to get was investment management, why pay three times more for it? That 30 basis point fee starts to look pretty good. Increasingly, those who charge more will face the burden of proving they’re worth it.