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Archive for the ‘Certified Financial Planner’ Category

Why don’t more people go to financial planners?

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Bob Clark, in a recent AdvisorOne article, says the answer is “fear.” Many people are afraid of:

• Being embarrassed by their current financial condition

• learning their financial situation is much worse than they realized

• of getting beat up for not saving more

• of being told to do things they don’t want to do, such as going on a budget, saving more, or buying more insurance.

He’s probably right.  The old adage WIIFM (What’s in it for me) maybe best answers what people really want:  How to get their financial house in order and keep it that way forever; how to achieve their goals with peace of mind; how to minimize risk; how to feel good about what their future!

Jim

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The Independent Financial GroupJim Lorenzen is a Certified Financial Planner® and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors, and retirement and wealth management services for individual investors. IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  IFG also does not provide tax or legal advice.  The reader should seek competent counsel to address those issues.  Content contained herein represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a written plan.  The Independent Financial You can reach Jim at 805.265.5416 or through the IFG website, www.indfin.com, the IFG Investment Blog and by subscribing to IFG Insights lettersfor individual investors.  Keep up to date with IFG on Twitter: @JimLorenzen

How To Calculate Retirement Needs

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

A Sample Case Study

While there is an abundance of software available to help planners and advisors in projecting financial needs for clients, the fact is few do an adequate job in this area.   It pays to know what’s “under the hood” of your software – or maybe better – to be able to do some meaningful calculations yourself, if only to demonstrate you actually do have a prudent process.  Anyone with a financial calculator (HP12-C or HP10B-II, for example) can perform these calculations.  Remember, however, even with these, there’s still some ambiguity.

 A Simplified Hypothetical Case Study Problem

Carl is 50 years old and has $500,000 in his 401(k).  He wants to retire in 13 years with $50,000 a year, in addition to Social Security, and wants his money to last 30 years (he isn’t worried about leaving money to his children).   He believes inflation over that period will average 3.5%.   He feels a long-term target of 6% is a realistic annual target return.   With that target in mind, is his $500,000 enough or how much more will he have to put away?    Note:  Let’s assume Carl is in the 40% (combined state and federal) marginal tax bracket.

Answer:

There are three steps:

  1. Calculate the first-year need ($50,000) in inflated future dollars to protect purchasing power.
  2. Calculate the present value of the total needed for 30 years in retirement, beginning in the fist year, at the assumed investment rate adjusted for inflation and taxes, if additional is to be saved outside a tax-deferred vehicle.
  3. Calculate the annual amount to be saved by the end of each year and convert to a monthly amount.

Step #1.  The First Year Need.

                  $50,000    = PV

                  3.5%  = I

                  13   =  n

                  (solve) FV=  $78,197 This is the amount needed for the 1st year.

Step #2.  Calculate the Present Value of total need at beginning of retirement for 30-year period with earnings discounted for inflation: 

                  Compute after-tax yield:             6% * (1-.40) =    3.6%

                  Compute PV of total need for retirement discounted with inflation-adjusted returns. 

                  (BEGIN mode)

                  [((1.036/1.035)-1) x 100]    =        0.0966 =  i  (Inflation-adjusted tax-deferred rate would be 2.41%)

                  $78,197     =      PMT

                  30   =    n

                  (solve) PV =  $2,313,376  Present value of required amount at retirement.

Step #3.  Calculate the amount to be saved by the end of each year to reach the goal:

                  (END mode)

                  $2,313,376  =    FV

                  – $500,000  =   PV  (HP12-C and HP10-B-II conventions require (-) sign

                  3.6   =  i  (note:  if post-retirement tax-bracket is different, adjust this figure)

                  13  =   n

                  (solve) PMT =  $93,838  (divide by 12 for monthly amount to be saved)

Can Carl really save over $90,000 a year?  Even if the annual amount inside tax-deferred vehicles dropped the annual requirement to $66,036, it would appear some adjustments might have to be made.  This is when prioritization and goal-based planning can be important.

Have You Had Your ‘Stress Test’ Done?

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

No, I’m not talking about getting on the treadmill; I’m talking about a financial stress-test!

Most people – okay, just the smart ones – get a routine annual physical every year simply to make sure if anything is wrong, they can catch it in time!  But, if you’re like most people, you haven’t taken a financial stress-test in years… even though many suffered the consequences of this neglect back in 2008.

During the Great Depression, market investors saw a 23% hit in one year followed by a 21% slide the year after!  While everyone would like to have a “bullet-proof” retirement strategy, the one most likely to help people realize their life goals during uncertain times – when have the times ever been certain? – may simply be the common sense approach most of us can easily accept as an intuitive truth:

It begins with this basic 4-prong philosophy:

  1. It’s not about managing investments; it’s about achieving goals.
  2. Managing risk is more important than reaching for higher returns
  3. You can’t control markets or interest rates; but you can control tax exposure and investment costs
  4. Monitor everything, revise as needed, and keep your plan current.

Did you notice #4?  It begins with a plan.  Your plan for financial health begins just like a plan for physical health:  It begins with a ‘physical’ – an assessment of your current situation and an understanding of the lifestyle you envision in the future.  You also have to take into consideration your limitations, whether physical, financial, and/or emotional.

But, don’t be like the person who buys the gym membership and never uses the facilities.  A financial physical, whether annual or semi-annual, can keep your plan ‘on track’ and, even better, prepare you for those not unexpected detours you’ll surely find along the way.

Jim

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Jim Lorenzen is a Certified Financial Planner® and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Smart Investors Think Long Term – And Know What Questions To Ask

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

According to a Morningstar study I saw that was conducted in 2010, the odds for those trying to `time the market’ didn’t look too good – and I doubt they’ve improved much – but there are still a lot of financial tv shows picking stocks for all of us.  Are they doing us a favor? 

Anyway, the study I saw analyzed the cost of market timing using the S&P Index over the 10-year period of 1990-2009 inclusive, which comprised 5,044 trading days.

An investor who stayed invested during the entire period would have experienced an average annual return of 8.2%.  Hmmm, didn’t that include the period of the 2008 market meltdown?   But, I digress.  Here’s what the study found:

· Missing only the 10 best days reduced that percentage to 4.5% – almost in half!

· Missing only the 20 best days meant realizing only a 2.1% average annual return for the entire ten-year period!  Returns were cut in half again… and 75% less than the investor who stayed invested!

· Missing the 30 best days meant an average annual return of only 0.1% – for the entire 10-year period!!!  It’s worth noting that those 30 best days may not—and probably didn’t—run consecutively, which makes it even more problematic.  Can YOU guess those 30 days—in advance?

· Missing the 40 best days meant a return of –1.8% as an average annual return for the entire 10-year period; and missing the 50 best days took that percentage down to –3.5%

Other studies I’ve seen show that individual investors do underperform indexes by a wide margin!  The reason seems to be because they react to current events.   One CFO I talked with told me he constantly sees people ‘get out’ after drops only to be left there during rebounds!

Why do they do this?  Maybe because they simply don’t have an investment discipline.  It becomes too easy to react to headlines.   The next time someone tells you they manage their own portfolio, ask them, “If you had a choice of ten managers – nine professional institutional money managers and yourself, would you pick you?  Would anyone else?”

Oh, well.   But, choosing an advisor can be dicey, too.   Smart investors, however, do ask smart questions. 

Here’s a sample set of screening questions you can use.   Ask your potential advisor to answer them in writing before you begin your discussions.   For example:

  • Are you a registered investment advisor, a registered representative, or both?

       Note:  A registered investment advisor (RIA) works for fees.  A registered representative works on commission.   Some `advisors’ are `dually’ registered.   A registered representative (broker) is free to operate under a `suitability’ standard while an RIA is legally required to work under a `fiduciary’ standard, which means the client’s best interest must be paramount.   `Dually-registered’ representatives will often adopt the fiduciary standard for the planning process, then adopt the `suitability’ standard when it comes time to select investments.  Under that standard, an investment may not be in the client’s best interest; but, if it’s suitable, it passes.

  • Do you work for fees only, commissions only, or a combination?

       Note:  If a combination, you want a breakdown on each.  When does the `fiduciary hat’ come off and the ‘suitability hat’ (commissions) go on?  Some adopt fiduciary status for planning but switch to the ‘suitability’ standard when it comes to the investment process.

  • Do you accept fiduciary status and are you willing to put it in writing?

       Note:  If your candidate isn’t willing to accept fiduciary status in writing – for both planning and investments – one has to wonder just what you’re paying them for.  Chances are it might be simply product sales.

  • Who provides the reporting on my account?

       Is it his own firm?  That’s not necessarily bad, but it’s worth knowing.

  • What firm will serve as custodian of my assets?

       His own firm again?  Again, not necessarily bad, but again worth knowing.  If it’s one thing all the `bad guys’ have in common, it seems to be the lack of an independent custodian.  If a firm has custody of your assets, does the managing internally, and also provides the reporting, where are your checks and balances?  Where is your independent verification?   All those so-called sophisticated investors who lost money to Bernie Madoff and every other crook could have asked this simple question.

  • Are the managers you recommend in-house managers or outside managers?

His own firm again?  Hmmm.  Be careful.  Sometimes a ‘proprietary’ solution won’t transfer so easily if you decide to move to another advisor.  When was the last time an `in-house’ manager was fired in order to use an outside manager?  Thankfully, this isn’t as much of an issue today as it used to be – I don’t think; I’ve been away from that environment for some time now.

Spotting a good advisor shouldn’t be too hard:  A good one will focus on you and not the markets.  S/he will talk about process and risk management and take time to learn about your issues and concerns.

A bad advisor – or worse, a rogue – will focus on investments, returns, and markets.  And, s/he’ll love if you should ask, “What kind of return do you get for your clients?”  That’s a question Bernie Madoff loved to hear.   Only novices and `marks’ would ask it.

Smart investors take a high-level view of portfolio makeup, knowing an 80-year old retiree has a financial and risk profile completely different from a 45-year-old high-earner who’s trying to accumulate assets for the future. 

Remember, success isn’t about being brilliant; it’s about being smart –  and the definition of smart is not being dumb.

 

Jim

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Jim Lorenzen is a Certified Financial Planner® and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Longevity Risk Now A Major Concern

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Social Security’s estimated life expectancy is 79 years for men and 83 years for women, despite the fact that life expectancy has been rising about 2-1/2 years every 10 years since 1900!   My wife and I have both our mothers living with us – one is 97 and the other is 90!     When it comes to taking care of elderly parents, we’re not alone!  

Some advisors estimate the Social Secuity tables may be off by six or seven years.

With longevity risk on the rise, you would think more pension recipientss would choose the lifetime annuity income option – fewer than 10% do, according to the December issue of Investment Advisor – but, it seems people have other issues they’re concerned about, like health care.

With longevity risk becoming more important, the proper management of retirement assets has never been a more important concern our nation’s elderly – I saw a stat somewhere this past week that indicted 7,000 people are turning age 65 every day!  

Hopefully, they’re getting help from competent advisors.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Want To Be A CFP®?

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Here are ten schools worth a look.

Believe it or not, I actually knew what a CERTIFIED FINANCIAL PLANNER® was back in 1984.   I had just sold my weeklies and was finishing my two-year transition into a career in speaking and management consulting… a career that involved a lot trips to LAX and baggage claims all over the U.S., Canada, and even the U.K. 

Even then, the thought of a consulting career with less travel – and particularly one with recognized credentials and barriers to entry – became quite attractive.   But, what attracted me most – and I suspect most others – was that this was a career where you actually make a difference in other peoples’ lives.   It was the chance to live a ‘life of significance’ beyond simply making a living.

Many individual investors were just beginning to learn what a CFP practitioner was back in those days; but, even today, many don’t know…. Or do they?

They must be figuring it out, because the number of schools meeting the demand for professional education is rising.  According to Financial Planning’s November 2011 issue, there are now 333 CFP board-registered programs in the U.S.  183 are certificate programs, 103 are undergraduate programs, 41 are master’s programs and 6 are Ph.D. programs!

Financial Planning’s list is not a ranking.  It’s just a list of 10 schools are appear to be stand-out schools based on feedback from some industry leaders.  Interestingly, The American College, which has been providing education to financial professionals for more than 80 years, was omitted.  So were some pretty well-known schools with strong academic standards, including Pepperdine University. 

Nevertheless, if you have a son, daughter, niece, or nephew who’s thinking about a career in financial planning, here are some schools they might want to consider.  Remember, though, there are many excellent highly-regarded programs at schools not on this list; it’s a just a ‘starter’ that may help.

The College for Financial Planning

Greenwood Village, CO, 2 Programs – Online certificate program; Online graduate program for MS degree in Personal Financial Planning

University of Georgia

Athens, GA, 5 Programs – Undergraduate degree program; Masters program; Doctoral program; Terry College of Business, 2 programs (online and classroom)

Boston University

Boston, MA, 2 Programs – Online and classroom certificate programs

Kansas State

Manhattan, KS, 4 Programs –  undergraduate, master’s, Ph.D., and graduate certificate

Kaplan

Online + classrooms in New York and San Francisci, 2 Programs – Self-paced and accelerated/virtual certificate programs

San Diego State University

San Diego, CA, 3 Programs – B.S. in Financial services with certificate in personal financial planning; M.S. in Business Administration with concentration in financial and tax planning; Executive financial planner advanced certificate

William Patterson University

Wayne, NJ, 2 Programs – Undergraduate B.S. in Business Administration/financial planning; Certificate program

Texas Tech University

Lubbock, TX, 11 Programs – From undergraduate to Ph.D., including minors and dual graduate degrees in financial planning and business or law.

Utah Valley University

Orem, Utah, 1 Program – Undergraduate major in personal financial planning

Virginia Tech

Blacksburg, VA, 2 Programs – Undergraduate B.S. in either finance or applied economic management

 

Happy hunting and Good luck!

Jim

 

 

 

 

Jim Lorenzen is a Certified Financial Planner® and an Accredited Investment Fiduciary® in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG provides investment and fiduciary consulting to retirement plan sponsors and selected individual investors. Plan sponsors can sign-up for Retirement Plan Insights here.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Written by Jim Lorenzen, CFP®, AIF®

November 29, 2011 at 8:05 am

Individual Investors Gravitating To RIAs

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Just as many brokers (registered representatives of broker-dealers) have been moving from their brokerage houses to become independent registered investment advisors over recent years, it appears many individual investors seeking advice are learning who these people are and are following them.

According to TD Ameritrade’s latest RIA survey, trust and customer service are the most important reasons why clients opt to work with registered investment advisors (RIAs) instead of commissioned brokers.

TD Ameritrade’s quarterly query of 502 RIAs, appearing in this month’s issue of Financial Planning,  found that 29% of clients using RIAs said that the RIA’s  fiduciary responsibility to work in the best interest of clients was the No. 1 reason they got their business.    Placing second at 21% was more personalized service and a competitive fee structure, just ahead of dissatisfaction with their current or former full commission broker (19%).

Tom Bradley, president of TD Ameritrade Institutional, said in the report, “The survey results support what we believe is a long term trend of investors gravitating to the fiduciary model… Investors may increasingly seek the confidence that can come from working with independent RIAs who sit on the same side of the table and are required by law to put their clients’ interests first.”

According to the survey, 55% of new business coming to RIAs are coming from traditional full-commission firms.  Not much of a surprise, since that’s where most RIAs came from themselves, including yours truly.

It appears the trend is due to the fact that responsible practitioners want the same thing their seem to desire:  A high level of professionalism characterized by a `client-first’ fiduciary standard coupled with a non-conflicted environment.  

Frankly, it was the reason I began my journey to independence back in 1992; and, it’s gratifying to see that individual investors are finally catching on.