The following information is
excerpted from the AARP Website (www.aarp.org).
The opinions expressed may or may not reflect
those of the SIP Committee.
WORKING
WITH FINANCIAL PLANNERS
A good financial planner will
review your total financial picture and offer
advice about what might make your money work for
you in the most advantageous ways - given your
income, goals, objectives, and attitudes toward
financial risk.
Between 250,000 and 400,000 people in this
country call themselves financial planners. Many
of these people have professional experience as
life insurance agents or stockbrokers. Others
have professional careers such as bankers,
accountants, investment advisers, tax and estate
planning lawyers, or bookkeepers. Only some of
these people, however, have taken specialized
courses in all aspects of financial planning.
As with any individual you pay for advice, you
need to carefully check credentials. There is
little regulation of the financial planning
industry and, in most states, anyone can claim to
be a financial planner - with or without valid
training. In addition to the risk inherent in
almost any investment, consumers lose millions of
dollars in fraudulent investment schemes every
year. Some of these fraudulent schemes have been
sold by individuals calling themselves financial
planners.
A further note of caution: most financial
planners earn all or part of their living from
the commissions on the products they sell. If you
visit a financial planner, you probably will be
asked to consider purchasing some financial
products as part of your overall financial plan.
Although an overwhelming number of financial
planners are dedicated, responsible, and
competent, many still are in the position of
advising you to purchase investment products from
which they receive a commission. Be wary of
planners who promise quick riches or instant
financial gain. Building a secure financial
future is not accomplished overnight or with one
single investment. Financial planning is a
process that requires diligent yearly attention.
DECIDING IF
YOU NEED A FINANCIAL PLANNER
Although financial planners can
help you make investment decisions, hiring a
planner presumes you have discretionary income to
invest. Experts say most investments should not
be made until you have financed some very basic
living items, such as housing, insurance, a cash
reserve fund for emergencies, and retirement
plans available through your employer. If you
find you cannot meet these (and other) necessary
financial requirements, you may decide you need
help not in investment planning but in basic
money management. The right planner may be able
to help you set up a budget and monitor it so
that you can move from short-term spending to
saving for future goals.
SETTING
LONG-TERM GOALS
It's hard to make long-term
financial commitments if you don't know your
long-range financial goals.
So, before you consider any specific investments,
you may want to think hard about what is
important o you. It may be saving for retirement,
buying a special house, paying for a child's
college education, cutting back work to spend
more time with your family, taking exotic
vacations every year, or any number of things.
If you have a spouse, you will want to do this
thinking first alone and then together.
This may take hours - or weeks. But knowing why
you want to save money is a very important step.
For when you know what's most important to you,
you are in much better shape to tackle your
financial future.
For help setting long-term goals use these
worksheets (available through AARP (www.aarp.org)
or from the SIP Office):
Organize Your Important Papers
Figure Out How Much You Own and Owe
Where Does the Money Go?
WHAT TO
EXPECT FROM A GOOD FINANCIAL PLANNER
A good financial planner should
assist you in the following ways:
* Assess your
relevant financial history, such as tax returns,
investments, retirement and estate planning,
wills, and insurance policies.
* Review your net
worth statement, examine your debts, and
determine if any should be consolidated, paid off
from other available funds, or refinanced.
* Help you develop a
financial plan, based on your personal and
financial goals, history, preferences, and
psychological investment risk-level.
* Identify areas
where you may need help, such as building up a
retirement income, improving your investment
returns, buying or selling an insurance policy,
tax saving suggestions, etc.
* Write down and
discuss an individualized financial plan and work
plan (timetable) that you both understand and are
willing to sign.
* Help you implement
your financial plan, including referring you to
specialists, such as lawyers or accountants, if
needed.
* Review your
situation and financial plan periodically and
suggest changes in your program when needed.
UNDERSTANDING
FEES
Financial planners are paid in a
variety of ways. Ask specifically how the fee is
calculated and what it will be. Explore some of
the following arrangements to see which fee
option serves your interests best:
* Fee-only planners
charge for gathering your financial data,
analyzing it, recommending a plan of action, and
helping you implement it. They do not earn income
from the financial products they might suggest
you buy. You may pay come costs to unaffiliated
companies for investment and insurance products.
Your planner should be able to estimate these
costs.
Hourly or flat fees are most common. Payment is
required whether or not you implement the
suggested plan.
* Commission-only planners charge
no fee for service to their clients but make
their money through commissions paid by the
marketers of the investment products they sell.
For example, if a client buys insurance on the
advice of a financial planner, the planner will
not charge the client for that advice but will
receive a commission from the insurance company.
If you planner earns a commission, make sure you
get a disclosure of the commission you will pay
before recommended investments are implemented.
Since commissions are often not disclosed, it is
difficult to know how much you are paying your
adviser and whether, for example, the fee was
necessary at all. (Commissions on mutual funds
can average about 5%; commissions on insurance
can be 50% or more of the first year's premium.)
Generally, higher risk products offer the highest
commissions. Some commission-only planners might
be inclined to direct your financial plan toward
the purchase of products that provide them with
the best commissions. Until you develop a
trusting relationship with a planner who knows
your complete financial picture, you should
exercise caution in following the advice of
someone who works solely on commission. As a
prerequisite for doing business, make a written
agreement to disclose yearly total commissions
earned by the planner and planner's broker/dealer
on recommendations made to you.
* Some financial
planners receive payments from both sales
commissions and fees. If the planner receives a
commission from the company that sells the
product you purchase, the fee you are charged may
be less.
No matter which fee structure you work with, make
sure you get a written estimate of what services
you can expect for what price. Compare this
estimate with others and select the package of
services that best meets your needs at a
reasonable cost.