Financial Planning Some Truths


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  • Littlefoot ran into the wilderness, a creature destined for prosperity. Unknowing was contagious and the whole school yard followed. They journeyed through trees, the jumped over stumps, they reached a place to catch their breath and wondered amongst each other, ’Here we are amonst ourselves, catching our breath. Shouldn’t we be catching our time, the school bell is going to ring’ Littlefoot was more interested in bigger things ’I’m more interested in the bell of freedom, the bell of justice, and the bell of equity ringing true all together as one. Can you help me find this?’
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  • Good Morning! Last November I was invited to speak to you on the subject of Financial Planning, an industry which traces its beginnings back to the late 1960’s. Generally, when having the opportunity to speak on this subject I’ve addressed specific areas or disciplines of financial planning from the perspective the group I’m addressing. This morning I’m going to take a different direction. Within the general public and the industry itself there are a variety of perceptions and opinions about financial planning, the profession and its practitioners. In many respects this industry itself has contributed to this situation. Standing here today I have little doubt there is a mixed bag of opinions within the audience, which were formed by personal experiences or what one has seen, heard or read from trade publications, financial service companies or our friends in the press. This afternoon I’m going to enlighten you from my perspective. It’s an opportunity I rarely have. My hope is to empower you with information that will position you to make an informed decision about financial planning, the industry and those who practice in it. Now I don’t know what brings you here this afternoon. We are approaching the end of a long day of meetings and I don’t believe you are required to be here. So I’m going to assume you have a genuine interest in this topic. You may be at a point in your life when you believe some action on your part is necessary to achieve your life plan or lifestyle objectives. If you leave this session compelled to take action upon your return home then our time together would have been a good investment for each of us.
  • Financial Planning Some Truths

    1. 1. FINANCIAL PLANNING MYTHS Myths Commonly Associated with Financial Planning, the Profession & Its Practitioners
    2. 2. TODAY’S AGENDA <ul><li>Define Financial Planning, The Financial Planning Process </li></ul><ul><li>Myths Associated With Financial Planning, The Profession & Its Practitioners </li></ul><ul><li>What Financial Planning Can Do For You </li></ul>
    3. 3. FINANCIAL PLANNING DEFINED <ul><li>“ 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.&quot; - College of Financial Planning </li></ul>
    4. 4. FINANCIAL PLANNING DEFINED “ Financial Planning is planning for and managing life’s financial outcomes”
    5. 5. FINANCIAL PLANNING DEFINED <ul><li>Retirement – “Lifestyles” </li></ul><ul><li>Family Related Expenses </li></ul><ul><ul><li>Housing, College, Weddings </li></ul></ul><ul><li>Asset Protection </li></ul><ul><ul><li>Personal Liability, Heath Care </li></ul></ul><ul><li>Elder Care </li></ul><ul><ul><li>Family </li></ul></ul><ul><ul><li>Personal </li></ul></ul>
    6. 6. FINANCIAL PLANNING DEFINED How Do You Define Financial Planning?
    7. 7. FINANCIAL PLANNING DEFINED Financial Planning is planning for, “executing” and managing life’s financial outcomes!
    8. 8. THE FINANCIAL PLANNING PROCESS 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.
    9. 9. THE FINANCIAL PLANNING PROCESS <ul><li>Step One: Establish the Client/Planner Engagement; You and Your Planner Should </li></ul><ul><ul><li>Discuss your objectives & expectations </li></ul></ul><ul><ul><li>Discuss the services available </li></ul></ul><ul><ul><li>Clarify responsibilities and time frame </li></ul></ul><ul><ul><li>Finalize the scope of the engagement </li></ul></ul><ul><ul><li>Determine the fee/compensation arrangement </li></ul></ul>
    10. 10. THE FINANCIAL PLANNING PROCESS <ul><li>Step Two: Gather Data & Determine Goals; Your Planner Should </li></ul><ul><ul><li>Obtain information & documents </li></ul></ul><ul><ul><li>Help you “refine” or crystallize goals </li></ul></ul><ul><ul><li>Develop an understanding of your values & attitudes </li></ul></ul>
    11. 11. FINANCIAL PLANNING PROCESS <ul><li>Step Three: Examine Current Financial Condition, Problems & Opportunities; </li></ul><ul><li>Your Planner Should </li></ul><ul><ul><li>Analyze information </li></ul></ul><ul><ul><li>Identify problems & opportunities across each major financial planning discipline </li></ul></ul><ul><ul><ul><li>Finance – Asset & Liability Structure, Cash Flows </li></ul></ul></ul><ul><ul><ul><li>Investment Taxation – Ordinary and Income </li></ul></ul></ul><ul><ul><ul><li>Risk Management – Insurances & Asset Protection </li></ul></ul></ul><ul><ul><ul><li>Law – Estate, Charitable & Legacy Planning </li></ul></ul></ul>
    12. 12. FINANCIAL PLANNING PROCESS <ul><li>Step Four: Develop & Present Financial Plan; Your Planner Should </li></ul><ul><ul><li>Prepare & present a personalized financial plan </li></ul></ul><ul><ul><li>Establish a review cycle </li></ul></ul>
    13. 13. FINANCIAL PLANNING PROCESS <ul><li>Step Five: Implement Your Plan; Your Planner Should </li></ul><ul><ul><li>Assist the Client or manage the process as defined in the Engagement Agreement </li></ul></ul>
    14. 14. FINANCIAL PLANNING PROCESS <ul><li>Step Six: Monitor the Financial Plan; You and your Planner Should </li></ul><ul><ul><li>Review changes in personal circumstances </li></ul></ul><ul><ul><li>Review and evaluate impact of changing tax laws </li></ul></ul><ul><ul><li>Review and Discuss changing life circumstances </li></ul></ul><ul><ul><li>Make periodic adjustments or recommendations as necessary </li></ul></ul>
    15. 15. FINANCIAL PLANNING PROCESS <ul><li>Hire Planner and set expectations </li></ul><ul><li>Gather Data and establish personal goals </li></ul><ul><li>Determine and discuss problems and opportunities </li></ul><ul><li>Final document, set policy and action plan </li></ul><ul><li>Implement as required </li></ul><ul><li>Monitor and manage the outcome </li></ul>
    16. 16. FINANCIAL PLANNING MYTHS Myths Commonly Associated with Financial Planning Issues, the Profession & Its Practitioners
    17. 17. FINANCIAL PLANNER DEFINED “ Someone who uses the financial planning process to help you reach your life plan or lifestyle goals.” How Do You Define Financial Planner?
    18. 18. FINANCIAL PLANNING MYTHS Myth #1 – “All Financial Planners are Certified Financial Planners.”
    19. 19. FINANCIAL PLANNING MYTHS <ul><li>Registered Financial Advisor </li></ul><ul><li>Registered Financial Planner </li></ul><ul><li>Registered Financial Consultant </li></ul><ul><li>Registered Investment Advisor </li></ul><ul><li>Chartered Financial Consultant, Charter Life Underwriter </li></ul><ul><li>Personal Financial Specialist </li></ul>
    20. 20. FINANCIAL PLANNING ASSOCATIONS & SELF REGULATING ORGANIZATIONS* <ul><li>Certified Financial Planner Board of Standards, Inc. * CFP </li></ul><ul><li>Financial Planning Association </li></ul><ul><li>Society of Financial Services Professionals * ChFC </li></ul><ul><li>National Association of Personal Financial Advisors </li></ul><ul><li>American Institute of Certified Public Accountants * PFS </li></ul><ul><li>International Association of Registered Financial Consultants </li></ul><ul><li>Registered Financial Planner Institute </li></ul>
    21. 21. CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC. <ul><li>Established in July of 1985 by the College of Financial Planning </li></ul><ul><li>Took Ownership of CFP marks in 1986 and established Disciplinary Rules & Procedures </li></ul><ul><li>CFP Board established a single comprehensive examination in 1991 </li></ul>
    22. 22. Financial Planning Myths Myth #2 – “Financial Planners are primarily investment advisors.”
    23. 23. FINANCIAL PLANNING DISCIPLINES <ul><li>FINANCE – Asset & liability analysis, cash flow analysis and budgeting </li></ul><ul><li>TAXATION – Ordinary and investment income tax planning </li></ul><ul><li>SECURITIES – Investment analysis and portfolio construction </li></ul><ul><li>RISK MANAGEMENT – Insurance & asset protection analysis and planning </li></ul><ul><li>LAW – Estate, charitable & legacy planning </li></ul>Financial Planners Should Be Competent Generalists
    24. 24. FINANCIAL PLANNING MYTHS <ul><li>An Investment Advisor </li></ul><ul><ul><li>“ 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 </li></ul></ul>
    25. 25. REGISTERED INVESTMENT ADVISOR <ul><li>Federal or state registration required </li></ul><ul><li>Activities are supervised by the Securities and Exchange Commission per the 1940 RIA Act </li></ul><ul><li>Form ADV, Part 1 & 2 updated annually </li></ul><ul><li>Periodic Audits </li></ul><ul><li>Full disclosure required </li></ul><ul><ul><li>Part 2, Form ADV and / or </li></ul></ul><ul><ul><li>Provide firm brochure disclosing Form ADV, Part 2 information </li></ul></ul>
    26. 26. FINANCIAL PLANNING MYTHS Myth #3 – “Financial Planners are the same as stockbrokers or other financial salespeople.”
    27. 27. FINANCIAL PLANNING MYTHS <ul><li>FINANCIAL SERVICE COMPANIES </li></ul><ul><ul><li>Manufacture & Distribute Financial Products </li></ul></ul><ul><ul><li>Business Purpose Almost Always Evolves Around a Financial Transaction Occurring </li></ul></ul><ul><ul><li>Planners Who Are Affiliated With A Financial Services Company May Be Compelled To Focus On A Transaction Solution vs. A Procedural Solution </li></ul></ul>
    28. 28. FINANCIAL PLANNING MYTHS Myth #4 – “Financial Planners only serve the affluent.”
    29. 29. FINANCIAL PLANNERS <ul><li>Financial Services Company Affiliation </li></ul><ul><ul><li>Banks, Broker/Dealers, Insurance, Investment Companies </li></ul></ul><ul><li>Independent – Industry Definition </li></ul><ul><ul><li>Broker/Dealer or Insurance Co. Link </li></ul></ul><ul><li>Totally Independent Firm </li></ul><ul><ul><li>General or Specialized Orientation </li></ul></ul>
    30. 30. FINANCIAL PLANNING MYTHS Myth #5 – “Financial Planners only do big plans.”
    31. 31. Financial Planning Process <ul><li>Focused or “Segmented” Planning </li></ul><ul><ul><li>Finance oriented (Put financial house in order, develop an operating budget)‏ </li></ul></ul><ul><ul><li>Planned expense (College, wedding, etc.)‏ </li></ul></ul><ul><ul><li>Portfolio Construction, Inv. Policy Statement </li></ul></ul><ul><ul><li>Risk Management & Asset Protection </li></ul></ul><ul><ul><li>Retirement Income Planning </li></ul></ul><ul><ul><li>Estate or Legacy Planning </li></ul></ul>
    32. 32. FINANCIAL PLANNING MYTHS Myth #6 – “Legitimate Financial Planners only charge fees.”
    33. 33. FINANCIAL PLANNING ASSOCIATIONS <ul><li>Professional Fee Only – 22%* </li></ul><ul><li>Professional Fee-Based Compensation </li></ul><ul><li>Professional Fee & Commission – 61% </li></ul><ul><li>Commission Only </li></ul>*College of Financial Planning – 2003 Survey of Trends in The Financial Planning Industry
    34. 34. FINANCIAL PLANNING IS <ul><li>ADVICE CENTERED </li></ul><ul><li>PROCEDURIALLY ORIENTED </li></ul><ul><li>A CONTINUOUS PROCESS </li></ul>
    35. 35. FINANCIAL PLANNING MYTHS Myth #7 – “Financial Planners aren’t worth the expense.”
    36. 36. Financial 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.”
    37. 37. FINANCIAL PLANNING MYTHS Myth #8 – “Most people don’t need a Financial Planner.”
    38. 38. U.S. Savings Rate Remains Low
    39. 39. U.S. Consumer Debt
    40. 40. Personal Net Worth Median net worth through October 2002 was only $80,700 Median net worth for 55-64 age group is only $181,500
    41. 41. RETIREMENT CONFIDENCE “ A Nation of Optimists” <ul><li>Only 24% of Americans fear outliving their savings* </li></ul><ul><li>Forty-seven percent of workers NOT saving for retirement are somewhat confident of having enough money at retirement* </li></ul><ul><li>32% of baby boomers don’t spend any time on retirement planning** </li></ul><ul><li>Source: 14 th Annual Retirement Confidence Survey, Employee Benefit Research Institute, American Savings Education Council, Mathew Greenwald & Associates ** ING U.S. Financial Services </li></ul>
    42. 42. Longevity Increasing <ul><li>Someone age 65 today had a life expectancy of age 64 at birth </li></ul><ul><li>Someone age 65 today has a life expectancy of age 83 </li></ul><ul><li>Life expectancy increased 30 years between 1900 and 2000 </li></ul>
    43. 43. WHAT FINANCIAL PLANNING CAN DO FOR YOU <ul><li>Organize your finances </li></ul><ul><li>Improve cash flow </li></ul><ul><li>Lower personal income taxes </li></ul><ul><li>Plan for retirement </li></ul><ul><li>Plan for college expenses </li></ul><ul><li>Improve investment performance </li></ul><ul><li>Lower investment risk </li></ul><ul><li>Reduce insurance costs </li></ul><ul><li>Minimize estate settlement costs </li></ul>
    44. 44. WHAT FINANCIAL PLANNING CAN DO FOR YOU? <ul><li>Put You In Control of Your Financial Situation </li></ul><ul><li>Provide Clarity and Purpose Toward Fulfilling Lifestyle Goals </li></ul><ul><li>Provide Financial Peace of Mind </li></ul>