financial planning some truths
TRANSCRIPT
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myths Commonly Associated with Financial Planning, the Profession & Its
Practitioners
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TODAY’S AGENDATODAY’S AGENDA
Define Financial Planning, The Financial Planning Process
Myths Associated With Financial Planning, The Profession & Its Practitioners
What Financial Planning Can Do For You
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FINANCIAL PLANNING FINANCIAL PLANNING DEFINEDDEFINED
“Financial Planning is the process of examining a client's personal situation, financial resources, financial objectives and financial problems in a comprehensive manner, developing an impartial, integrated plan to utilize the resources to meet objectives and solve problems, taking the steps to implement that plan once approved by the client, and monitoring the plan performance to take corrective action as necessary to assure that results match the
plan projections." - College of Financial Planning
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FINANCIAL PLANNING FINANCIAL PLANNING DEFINEDDEFINED
“Financial Planning is planning for and managing life’s financial outcomes”
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FINANCIAL PLANNING FINANCIAL PLANNING DEFINEDDEFINED
Retirement – “Lifestyles”Family Related Expenses
– Housing, College, WeddingsAsset Protection
– Personal Liability, Heath CareElder Care
– Family– Personal
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FINANCIAL PLANNING FINANCIAL PLANNING DEFINEDDEFINED
How Do You Define Financial Planning?
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FINANCIAL PLANNING FINANCIAL PLANNING DEFINEDDEFINED
Financial Planning is planning for, “executing” and managing life’s financial
outcomes!
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THE FINANCIAL PLANNING THE FINANCIAL PLANNING PROCESSPROCESS
A formal, six-step process, formulated by the College of
Financial in 1972, designed to address, in whole or in part, life’s financial issues and opportunities.
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THE FINANCIAL PLANNING THE FINANCIAL PLANNING PROCESSPROCESS
Step One: Establish the Client/Planner Engagement; You and Your Planner Should
– Discuss your objectives & expectations– Discuss the services available– Clarify responsibilities and time frame– Finalize the scope of the engagement– Determine the fee/compensation arrangement
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THE FINANCIAL PLANNING THE FINANCIAL PLANNING PROCESSPROCESS
Step Two: Gather Data & Determine Goals; Your Planner Should– Obtain information & documents– Help you “refine” or crystallize goals– Develop an understanding of your values
& attitudes
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FINANCIAL PLANNING FINANCIAL PLANNING PROCESSPROCESS
Step Three: Examine Current Financial Condition, Problems & Opportunities;
Your Planner Should– Analyze information– Identify problems & opportunities across each
major financial planning discipline Finance – Asset & Liability Structure, Cash Flows Investment Taxation – Ordinary and Income Risk Management – Insurances & Asset Protection Law – Estate, Charitable & Legacy Planning
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FINANCIAL PLANNING FINANCIAL PLANNING PROCESSPROCESS
Step Four: Develop & Present Financial Plan; Your Planner Should– Prepare & present a personalized financial
plan– Establish a review cycle
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FINANCIAL PLANNING FINANCIAL PLANNING PROCESSPROCESS
Step Five: Implement Your Plan; Your Planner Should– Assist the Client or manage the process as
defined in the Engagement Agreement
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FINANCIAL PLANNING FINANCIAL PLANNING PROCESSPROCESS
Step Six: Monitor the Financial Plan; You and your Planner Should– Review changes in personal circumstances– Review and evaluate impact of changing
tax laws– Review and Discuss changing life
circumstances– Make periodic adjustments or
recommendations as necessary
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FINANCIAL PLANNING FINANCIAL PLANNING PROCESSPROCESS
Hire Planner and set expectations
Gather Data and establish personal goals
Determine and discuss problems and opportunities
Final document, set policy and action plan
Implement as required
Monitor and manage the outcome
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myths Commonly Associated with Financial Planning Issues, the Profession & Its Practitioners
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FINANCIAL PLANNER FINANCIAL PLANNER DEFINEDDEFINED
“Someone who uses the financial planning process to help you reach
your life plan or
lifestyle goals.”
How Do You Define Financial Planner?
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #1 – “All Financial Planners are Certified Financial Planners.”
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Registered Financial Advisor Registered Financial Planner Registered Financial Consultant Registered Investment Advisor Chartered Financial Consultant, Charter Life
Underwriter Personal Financial Specialist
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FINANCIAL PLANNING ASSOCATIONS & FINANCIAL PLANNING ASSOCATIONS & SELF REGULATING ORGANIZATIONS*SELF REGULATING ORGANIZATIONS*
Certified Financial Planner Board of Standards, Inc.* CFP
Financial Planning Association Society of Financial Services Professionals* ChFC National Association of Personal Financial Advisors American Institute of Certified Public Accountants*
PFS International Association of Registered Financial
Consultants Registered Financial Planner Institute
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CERTIFIED FINANCIAL PLANNER CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC.BOARD OF STANDARDS, INC.
Established in July of 1985 by the College of Financial Planning
Took Ownership of CFP marks in 1986 and established Disciplinary Rules & Procedures
CFP Board established a single comprehensive examination in 1991
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Financial Planning MythsFinancial Planning Myths
Myth #2 – “Financial Planners are primarily investment advisors.”
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FINANCIAL PLANNING FINANCIAL PLANNING DISCIPLINESDISCIPLINES
FINANCE – Asset & liability analysis, cash flow analysis and budgeting
TAXATION – Ordinary and investment income tax planning
SECURITIES – Investment analysis and portfolio construction
RISK MANAGEMENT – Insurance & asset protection analysis and planning
LAW – Estate, charitable & legacy planning
Financial Planners Should Be Competent Generalists
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
An Investment Advisor“Any person who, for compensation, engages in the
business of advising others, either directly or through publications or writings, as to the value of securities or
as to the advisability of investing in, purchasing, or selling securities, or who, for compensation and as part of a regular business, issues or promulgates analyses
or reports concerning securities.” – Registered Investment Advisor Act, Section 202 - Definitions
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REGISTERED INVESTMENT REGISTERED INVESTMENT ADVISORADVISOR
Federal or state registration required Activities are supervised by the Securities
and Exchange Commission per the 1940 RIA Act
Form ADV, Part 1 & 2 updated annually Periodic Audits Full disclosure required
– Part 2, Form ADV and / or– Provide firm brochure disclosing Form ADV, Part 2
information
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #3 – “Financial Planners are the same as stockbrokers or other
financial salespeople.”
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
FINANCIAL SERVICE COMPANIES – Manufacture & Distribute Financial
Products– Business Purpose Almost Always Evolves
Around a Financial Transaction Occurring– Planners Who Are Affiliated With A
Financial Services Company May Be Compelled To Focus On A Transaction Solution vs. A Procedural Solution
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #4 – “Financial Planners only serve the affluent.”
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FINANCIAL PLANNERSFINANCIAL PLANNERS
Financial Services Company Affiliation– Banks, Broker/Dealers, Insurance,
Investment CompaniesIndependent – Industry Definition
– Broker/Dealer or Insurance Co. LinkTotally Independent Firm
– General or Specialized Orientation
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #5 – “Financial Planners only do big plans.”
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Financial Planning ProcessFinancial Planning Process
Focused or “Segmented” Planning– Finance oriented (Put financial house in order,
develop an operating budget)– Planned expense (College, wedding, etc.)– Portfolio Construction, Inv. Policy Statement– Risk Management & Asset Protection– Retirement Income Planning– Estate or Legacy Planning
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #6 – “Legitimate Financial Planners only charge fees.”
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FINANCIAL PLANNING FINANCIAL PLANNING ASSOCIATIONSASSOCIATIONS
Professional Fee Only – 22%*Professional Fee-Based CompensationProfessional Fee & Commission – 61%Commission Only
*College of Financial Planning – 2003 Survey of Trends in The Financial Planning Industry
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FINANCIAL PLANNING ISFINANCIAL PLANNING IS
ADVICE CENTERED
PROCEDURIALLY ORIENTED
A CONTINUOUS PROCESS
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #7 – “Financial Planners aren’t worth the expense.”
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Financial PlannersFinancial Planners
“You should have an expectation of getting what you are willing to
pay for.”
“Define the expectations and parameters at the onset of the
engagement.”
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FINANCIAL PLANNING FINANCIAL PLANNING MYTHSMYTHS
Myth #8 – “Most people don’t need a Financial Planner.”
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U.S. Savings Rate Remains LowU.S. Savings Rate Remains Low
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U.S. Consumer DebtU.S. Consumer Debt
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Personal Net WorthPersonal Net Worth
Median net worth through October 2002 was only$80,700
Median net worth for 55-64 age group is only $181,500
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RETIREMENT CONFIDENCE RETIREMENT CONFIDENCE “ A Nation of Optimists” “ A Nation of Optimists”
Only 24% of Americans fear outliving their savings*
Forty-seven percent of workers NOT saving for retirement are somewhat confident of having enough money at retirement*
32% of baby boomers don’t spend any time on retirement planning**
Source: 14th Annual Retirement Confidence Survey, Employee Benefit Research Institute, American Savings Education Council, Mathew Greenwald & Associates ** ING U.S. Financial Services
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Longevity IncreasingLongevity Increasing
Someone age 65 today had a life expectancy of age 64 at birth
Someone age 65 today has a life expectancy of age 83
Life expectancy increased 30 years between 1900 and 2000
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WHAT FINANCIAL PLANNING WHAT FINANCIAL PLANNING CAN DO FOR YOUCAN DO FOR YOU
Organize your finances
Improve cash flow Lower personal
income taxes Plan for retirement Plan for college
expenses
Improve investment performance
Lower investment risk
Reduce insurance costs
Minimize estate settlement costs
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WHAT FINANCIAL PLANNING WHAT FINANCIAL PLANNING CAN DO FOR YOU?CAN DO FOR YOU?
Put You In Control of Your Financial Situation
Provide Clarity and Purpose Toward Fulfilling Lifestyle Goals
Provide Financial Peace of Mind