Unit 10

 

Selecting Your Team of Financial Professionals

 

 

Review Questions

 

 

1.         List the team of professionals that may help you plan your financial future.  Who might provide investment advice?  (See page 10-1)

 

The following professionals may contribute to your financial plan:

·        Banker

·        Tax preparer

·        Attorney

·        Insurance agent

·        Employee benefits counselor or human resources professional at work

·        Stock broker

·        Financial planner

 

Initially your employee benefits counselor may help you select your retirement investments; however, these individuals are generally not licensed to sell investments and can offer only education and general advice.  Ultimately, you are responsible for making the final choices.  Stock brokers, financial planners, bankers, and even some insurance agents can help with investment choices for retirement plans not provided by your employer or for other investment goals.  Insurance agents can also provide access to investment products through cash value life insurance products or variable annuity products.

 

 

2.         List sources of information that can help you learn about investment products and strategies. Identify two unbiased sources that are available to everyone.  (See page 10-2)

 

Investment information sources abound for the novice as well as the more knowledgeable investor.  To learn more, regardless of your level of expertise, check the following:

·        Investment reference section of the local public library

·        Internet or World Wide Web 

·        Local bookstore(s)

·        Newspapers, magazines, and other periodical publications

·        Cooperative Extension Service (CES) personnel and publications available in every state

 

The Cooperative Extension Service and the U.S. Securities and Exchange Commission (SEC) are two unbiased sources of investment information that are available to everyone.

3.         Given the variety of investment education print and Internet resources provided by companies associated with the securities industry, what criteria might a consumer use to evaluate business-sponsored materials?  (See page 10-2)

 

When evaluating business-sponsored, or other, investment education materials check to see that they are:

·        Complete:  Omitting information can make a source just as misleading as actually providing misrepresentations of information.  Until you learn enough to judge the information provided, always check a source against others, particularly ones that you know are unbiased.

·        Objective and unbiased:  Are different points of view presented?  Unlike some products, “one size does not fit all.”  Different investment products can be matched, successfully, to different situations and investment goals.  Make sure that different perspectives, as well as advantages and disadvantages are considered.

·        Accurate:  Again, check a source against other publications; particularly ones that you know are unbiased. 

·        Understandable:  Technical terms and other jargon are kept to a minimum and fully defined. The idea is to educate; not to confuse you to the extent that you feel compelled to seek expert advice.

·        Free of corporate references:  Brand names, trademarks, or product names are not included in the text or illustrations. 

 

 

4.         Under what circumstances might it be prudent to contact a financial advisor?  (See page 10-3)

 

Developing a trusted, working relationship with a financial advisor can be an important step for anyone who would like assistance with financial issues.  Advisors can offer expert advice and information in a timely manner, thus saving the individual time, money or anxiety.  Others choose to independently manage their finances, except for some critical life junctures when they need help to:

·        Develop a plan to improve their current financial situation;

·        Assess and confirm a plan they have developed; or

·        Handle an immediate need or unexpected life event with financial consequences (e.g., severe illness or handicap, birth or death of a family member, an inheritance, a divorce, etc.).

 

 

5.         Your financial knowledge and confidence, as well as the complexity of your situation, will guide the need for professional assistance.  List the 10 professionals who might be involved, noting the service(s) each provides.  (See pages 10-3, 10-4, and 10-5)

 

Although duplicate products and services may be available from the same professional, the following 10 professionals may be involved in your financial team:

1.      Bankers (or their counterpart at a credit union or savings and loan) assist with accounts for cash management needs, and may provide investment or insurance products as well.

2.      Real estate agents assist with housing, and perhaps, mortgage lending choices.

3.      Lawyers may assist with real estate, partnership, or small business investments.  They assist with financial and medical power of attorney documents as well as estate planning needs.  Some provide financial planning services. 

4.      Accountants and highly qualified tax preparers offer advice on the tax consequences of investments or retirement plans, in addition to preparing tax forms.  Some provide financial planning services.

5.      Employee benefit counselors offer information on employer-provided retirement accounts as well as other insurance benefits or savings options (e.g., U.S. Savings Bonds) available through your employer.

6.      Life insurance agents sell insurance products that include investment options within the insurance product.  Some are licensed to sell other investment products as well.

7.      Estate planners advise you on the management of assets after your death, but cannot prepare legal documents without the assistance of an attorney.

8.      Investment advisors advise you on investments, and may sell them as well.  To sell, the individual must pass the NASD-administered securities exams and be registered with the state securities agency as well as the NASD maintained Central Registration Depository (CRD).  Once an advisor has $25 million dollars under management, he/she must register with the SEC to secure the RIA, or Registered Investment Advisor, designation.

9.      Stock brokers advise you on investments and sell them.  Generally, you will get more advice from a full-service than a discount broker.  The latter simply buy and sell per the orders of the individual investor. Brokers must pass NASD-administered securities exams and register with the NASD maintained Central Registration Depository (CRD) and the state securities agency. 

10.  Financial planners advise on your total financial situation, and may or may not sell financial products necessary for the financial plan.  Unique to financial planners is their ability to assess, and to offer advice, on an integrated, comprehensive financial plan that considers present and future resources and goals.  Most planners work cooperatively with specialized experts such as attorneys or accountants.

 

 

6.         Review the list of professionals who might make up your financial team.  Beyond the obvious requirements for professional practice, what additional designations might you consider?  (See pages 10-3, 10-4, and 10-5)

 

The following designations suggest more specialized training or experience:

·        accountant                                    CPA, Certified Public Accountant

PFS, Personal Finance Specialist

·        life insurance agent           CLU, Chartered Life Underwriter or

ChFC, Chartered Financial Consultant

·        estate planner                   AEP, Accredited Estate Planner

·        financial planner               CFP, Certified Financial Planner or

ChFC, Chartered Financial Consultant

 

Note: Other financial services providers (e.g., attorneys, accountants, bankers, insurance agents, stock brokers, etc.) can meet the education, examination, experience, and ethical practice requirements to gain the CFP designation. 

 

 

7.         How might a financial professional be compensated for the products, services, or advice provided?  (See page 10-5)

 

Several methods of payment to financial professionals are commonly found throughout the industry.  In addition to understanding the cost, be sure to ask about limitations or biases in terms of the financial products sold or serviced, as well as any other company policies that might prejudice the individual’s advice or recommendations.  Typical methods of compensation include:

·        Salary.  Paid directly by the company to the professional.  Fees and commissions paid for the products purchased fund the company, and the salary.

·        Fees. Compensation based on an hourly rate, a flat rate of $X depending on the complexity of the financial situation, a percentage of assets invested and managed, or a percentage of the client’s income.  “Fee-only” planners are often members of the professional association, the National Association of Personal Financial Advisors (NAPFA).  As the name implies, you are paying for advice instead of products.

·        Commissions. Paid on the basis of the products sold (e.g., insurance or investments) and the value of the insurance or investment product(s).

·        Fees and commissions.  Payment based on a combination of fees for the services or plan provided, in addition to the commissions generated from the sale of financial products.

 

 

8.         Summarize the six-step process for locating a financial professional that best meets your needs.  (See pages 10-6 and 10-7)

 

Trust and mutual respect are essential elements for a successful and satisfying relationship with your financial professional.  Consider the following steps as you select the individual or firm that best meets your needs.

1.      Develop a list of names by asking others you know, as well as professional organizations, for local referrals.

2.      Contact the individuals to inquire about their services and references from other clients. Be sure to consider your reactions to this initial interaction with the individual or company.

3.      Check on the professional practices of the individual or firm by inquiring with government, trade, regulatory, or professional associations regarding any disciplinary actions.

4.      Schedule a meeting and ask questions about professional experience, credentials, and affiliations; investment or planning philosophy; client relationships and services, including sample plans, if applicable; costs; and registration with state or federal regulators.

5.      Assess your personal level of comfort and “fit” with the individual.  Are you similar, or very different, from the typical client?

6.      Make a decision and secure a written agreement outlining the services to be provided.  Recognize that you must accurately and completely divulge all information to assist the professional to best meet your needs.