15% off coupon through New Years
Merry Christmas, Happy Hannukah and Best Wishes for the coming New Year from COMMON Financial Advice, where the best advisors give the best advice on the web.
The video offers you a fifteen percent discount for advice sessions, including tax planning.
We will keep the discount up for the next few weeks to give you time to use it. The discount will be credited to you for any advice session completed before the end of January.
Happy Holidays!
Financial advice you can depend on
If you wonder why it is easy to get “free” financial advice on the web, but hard to get “real” (i.e., actionable) advice from a professional at a reasonable price, here are the reasons.
- Most financial advisors are not trained to offer advice in modular, usable amounts to middle income people. Instead, their training and continuing education are designed to help them solve complex problems common to high net worth, high income folks who pay them higher fees. Continue reading
4 Truths about Financial Advice
Recent financial regulation reform, known as Dodd-Frank, has limited the ability of financial advisors to conceal elements of their compensation that are apparent conflicts of interest. With more transparency in this area, there will be a lot of jockeying to find new ways to “help” investors make decisions while influencing them to buy the “right products.” Here’s what you should know about getting financial advice today:
1. Advice can be used to manipulate you.
Financial advice is subsidized in our world today. It is often a loss leader, sometimes a bait and switch candidate. If you’re offered or receive advice as part of your engagement with a financial advisor and don’t get a bill for the time it took to prepare and present the advice, you’d better find out who paid the freight. It may be the advisor himself, using advice to establish trust with you to sell a product or service that you wouldn’t buy without that trust.
Subsidy may be provided by the entity that compensates your access to the advisor or leads you to the “tool” that dispenses the advice. Advisors (and tools) need to be housed or equipped and supported. Who does that? What does it cost? Investment brokerage firms, banks, insurance companies, real estate companies, even charities provide subsidy that uses advice to establish a trusting relationship on which to transact business.
2. Financial advice is NEVER FREE.
The Dodd-Frank bill will lead to regulations that may someday protect you from those who you thought were giving you free advice by identifying all compensation sources that surround the transaction. But until the Department of Labor, IRS and other regulators have done so, you’re on your own.
The next time you get advice, look very closely at how it is paid for. If you can’t figure it out, you are being hustled. If you ask and you get a vague answer, run. There are ways to get inexpensive advice. Look for a “spin free” advice environment and “bookmark” it. Examine the credentials of any person giving you advice. Who pays them and how? Ask them if they will work for you as a “fiduciary advisor”, i.e., will they provide advice that benefits no one but you.
3. Valuable advice must examine the pros and cons of doing nothing.
If the advice you receive is really objective and the advisor takes responsibility for your welfare only, he or she could actually advise against taking any action. This may confuse you, but it should feel like a bracing breath of fresh air. The advice to do nothing is often the wisest counsel. If “don’t do it” occurs to you as a nagging thought, get a second opinion. That gut feeling is acknowledgement that the full set of possible actions might include buy, sell and hold. And, as you might guess, you can make money and lose money taking each of these paths. Good advice will examine all three choices carefully.
4. Good advice by experts using Web and phone is now available, inexpensively.
Use the Web to find good advisors who will work with you. Read their credentials and find out how other online consumers feel about their service and professionalism. Ask for a proposal as to how they would help you solve a problem, including the fee they would charge.
Now that you know free financial advice may be suspect, you also know that as in everything else in life, you get what you pay for. Careful shopping will get you the best price.
Kevin Condon is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a flat fee.His firm, located in Boulder, Colorado, includes a portal through which expert, independent advisors give advice.
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Who Subsidizes Your Financial Advice
The recent financial regulation reform, known as Dodd-Frank, has limited the ability of financial advisors to conceal elements of compensation that are apparent conflicts of interest. With more transparency in this area, there will be a lot of jockeying to find new ways to “help” investors make decisions while influencing them to “buy” “the right” products. Financial advice is subsidized in our world today. It is often a loss leader, sometimes a bait and switch candidate. If you are offered or if you receive advice as part of your engagement with a financial advisor and you don’t get a bill for the time it took to prepare and present the advice, you’d better find out who paid the freight. It may be the advisor himself, using advice to establish trust with you in order to sell a product or service that wouldn’t happen without trust.
Subsidy may be provided by the entity that compensates your access to the advisor or leads you to the “tool” that dispenses the advice. Advisors (and tools) need to be housed or equipped and supported. Who does that? What does it cost? Investment brokerage firms, banks, insurance companies, real estate companies, even charities provide subsidy that uses advice to establish a trusting relationship on which to transact business.
Financial advice is NEVER FREE. The Dodd-Frank bill will lead to regulations that may, someday, protect you from those who you thought were giving you free advice by identifying all compensation sources that surround the transaction. But until the Department of Labor and the IRS and other regulators have done so, you’re on your own.
The next time you get advice, look very closely at how it is paid for. If you can’t figure it out, you are being hustled. If you ask and you get a vague answer, run. There are ways to get inexpensive advice that you pay for. Look for a “spin free” advice environment and “bookmark” it. Examine the credentials of any person giving you advice. Who pays them and how? Ask them if they will work for you as a “fiduciary advisor”, i.e., will they provide advice that benefits no one but you.
And remember, if the advice you receive is really objective and the advisor takes responsibility for your welfare only, he or she could actually advise against taking any action. This may either confuse you or it may feel like a bracing breath of fresh air. The advice to do nothing, though it may bring you up short, may be “wise” counsel, establishing a trusting relationship that will bring you back with future questions and advice sessions.
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Don’t bleed in front of a shark
A surgeon friend of mine was asked by a patient if he should “do” the surgery. In all honesty, my friend said, “don’t you realize that you’re bleeding in front of a shark?” The surgeon has one tool: surgery. If he sees a problem, he fixes it with a knife. In his eyes, a potential opportunity to use his knife may blind his or her holistic judgment in answering the patient’s question.
Similarly, the provision of viable personal financial advice to an individual or family is not the same as a buy or sell suggestion, especially if the person making the suggestion is compensated when you take his advice.
For this reason, the “fiduciary” advice issue proposed in federal regulations is very controversial. Brokers and insurance agents don’t want to become “fiduciaries”. Registered investment advisers already are. The former earn commissions for themselves and their companies from those who TAKE their “advice”. The latter, true “fiduciary” advisors, give advice for the benefit of their advisee, ONLY. They get paid to give you good advice. They don’t get paid ONLY IF YOU TAKE IT, like a broker or an insurance agent.
In seeking advice, it is important to know when you are “bleeding in front of a shark”. Ask your “adviser” how she/he is paid. Ask him if he or she is an adviser to you alone, i.e., a fiduciary. If they are not, your decision to take the offered advice may be your adviser’s next meal. If, on the other hand, you pay him for advice only, he will earn his fee, but he will also be solicitous of your present and future good will and hopeful that your gratitude for any good advice he gives you will bring him referrals and an enhanced referral business from his reputation as an adviser.
Where do you find an adviser like this? There are a bunch. Look at them here.
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HSA Advice Boosts Participation
Health Savings Accounts, though damaged somewhat by healthcare reform, have not only survived, but are considered to have been oddly favored by legislators according to a recent online comment by Kevin McKechnie of the American Bankers Association. The reason is that under the new law, employers are going to be required to provide health insurance for everyone in their workplace and they will want to minimize the cost of doing so. Increasingly, employers may prefer High Deductible Health Plans, since their premium costs are lower and they are also a pre-requisite to HSA account ownership. HSAs are given beneficial tax treatment and create additional cost savings through involving account holders in “consumerism”. Ten million HSA accounts are already opened for workers across the country. With the unintended consequences of post-reform cost pressure on employers, many, many more should be opened in coming years.
The resulting “consumerism” will reduce healthcare costs and will bend the cost curve down. Partly prompted by the commission revenues that accompany traditional health plans, some employers resent the money contributed to HSAs, and so prefer the use of an HRA in their Consumer Driven Health plans. But, magical cost reductions are much more likely to originate from employees who understand that the money that they keep in their HSA belongs to them. Properly educated and coached, employees take a personal interest in growing and conserving “their money”, so they will insist on cost transparency and will bargain hunt to get the best price for what they buy and this will lower claims costs. That’s the payoff.
To impart gut-level employee ownership of HSA account balances requires both education and coaching. Proper education opens minds to potential participation in high deductible health plans and HSAs. Adoption will still be scary to many. But, with the personal support of an HSA advice session, adoption and participation can increase enormously among any employee workplace. We have experience and case studies to show your company how to increase adoption and proper use in your HSA plan. Read about it here.
Are there other ideas that work as well as our approach? Tell your success stories or your problems by commenting below.
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How to Disperse Financial Fog
I lived in San Francisco for three years, from ’68 to ’71. It was a wonderful climatic fit for me. I don’t like the heat. No worries. In San Francisco, fog comes in about 5 PM and stays until 10 AM the next morning. Mark Twain famously remarked that the coldest winter he ever spent was one summer in San Francisco. In the fog, San Francisco looks moody and dark and cold. In the sun, San Francisco is gorgeous, crisp and clear. If San Francisco were only clear, it would be perfect. That would make it the most attractive city in the world, in my opinion. Everyone would move there. Not so. The fog keeps the adulation and the population manageable.
It is impossible to see well in the fog. Fog is a word that we all use for other kinds of occluded vision. Money fog is everywhere on the web, for example. Most online financial sites contain a wealth of information and news on all things financial. But, though they may clarify a concept, they don’t lend themselves to action, because the information is not actionable. Much information is about investments. But family decision makers consider most investment jargon and investment details confusing. Business news seems to be popular. There are lots of opinions about the economy on the web. It’s recovering. It’s not recovering. Unemployment is going up, or maybe down. Business sectors are in a recession, or in a recovery. Most families don’t know what to do with this information. How does it help them? Actionable advice to resolve real family problems seems to be too mundane for economists and too personalized for brokers.
When can we retire? Are we saving enough for our kids education? How can we pay less taxes? Do we need an emergency fund? Families want help in answering these questions, then setting goals to make them happen. But, all family planning decisions are confused, not helped, by financial blather. This is where the fog has its worst effects. Confused and afraid of the consequences of making wrong decisions, many of us don’t navigate well in this fog. We either abandon our goals or move along cautiously, delaying decisions until things “feel” right, a formula for failure.
What does success look like? Successful financial planning sets family goals and objectives, then seeks help from an advisor who can speak the languages of both “family” and “finance”. An expert advisor helps families make good decisions that can’t hurt them. Investment decisions must be tax wise and safe; insurance decisions must protect assets rather than consume them with premiums; benefits selections must preserve and protect life and health, setting aside funds and programs for future use.
Only your family can set family goals, and pursue them until achieved. But effective steps to achieve family goals may require specialized knowledge, constant re-assessment attention, timely adjustments and regular review. For this you can pay an advisor. Your advisor’s commitment to you should be to deliver objectivity, fiduciary care (that puts your family first), ethical practice, competence and discipline. In short, a professional advisor can help you navigate through financial fog. A goal is a destination. Achieve your goals safely. Good advice and better decisions clear the fog and reveal the beautiful life you envision.
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The Cato Institute report on public sector wages
Government risk is getting to be a major risk category again, perhaps exceeding market risk and investment risk in 2010. It is always the intention of professional advisors to lessen portfolio risk by diversification. However, some risks are hard to manage. Government risk is the risk associated with government action that may spoil an otherwise solid portfolio return through taxes, inflation, or unintended negative consequences of proposed legislation.
The Cato Institute has released a video report and some interesting data points on the “Two America” problem posed by real income disparity between public and private sector employees, for example. Given these data, it is no wonder government costs seem only to rise. If government costs rise, revenues must rise to meet them, or costs in other areas must decrease to balance them, or money must be printed to inflate them away.
As the Cato report is summarized by PowerLine blog editor John Hinderaker,
There are, indeed, two Americas: the increasingly straitened world of the private sector, where jobs are competitive, money is scarce, and job security is, for many, nonexistent; and the lush world of the government employee, where competition is more or less unknown, salaries and benefits often double those available to private workers, retirement is ten or more years earlier than in the private sector, and it may take a felony to get fired. This is the central economic conflict of our time, between lavishly compensated and ever more gluttonous government employees, and wealth-creating private citizens who are increasingly unable to support their public-sector masters in the style to which they have become accustomed.
Has the current political move to reduce the size of government come too late? The new administration’s enacted healthcare program has reportedly added 146 new federal agencies to the federal bloatocracy. According to the Cato Institute study, it is both nearly impossible to fire federal employees and they retire about ten years earlier than private sector employees with larger retirement annuities.
It has been observed that current political environments may mean that more industries than ever go to Washington to get their deals made rather than to New York, since Washington permission or denial has become central to national economic activity. A political step in the process may weaken deals, or strengthen them if politically favored (e.g. “green” iniatives).
How will we plan for these additional government risks? I believe that our collective financial future is now linked to how we solve the size of our government and what cost extensions we accept or reject. Without the addition of the dreaded, European-style “value added” tax, there is a low probability of actually paying these costs from present revenues. If Bush tax cuts are allowed to expire, of course, they will increase federal revenues while burdening our weak economy even further. We may even elect some reformers to congress this fall. But, as always, congress doesn’t have a good track record of reducing expenditures, no matter who is in power. Congress also does not seem to be able to terminate unneeded federal agencies; it only extends and enlarges them.
Whatever we do or don’t do, it looks like the biggest “risk” to our financial future today is “government risk”. The present administration is empanelling a bi-partisan commission to study this problem and make some recommendations very soon. I wonder who will serve on that panel? I’m guessing the commission will be composed of public sector folks: heavy on academics, former congressmen, environmentalists and internationalists.
What could go wrong?
Do you understand the problem posed by government risk better now?
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NOT “buy” or “sell” or “hold”
FINRA and SEC are two financial services regulatory agencies. But their regulators, who are mostly lawyers and politicians, don’t really understand why financial planning is different than investment advice and why it should be regulated differently. Most of the financial services industry is transaction and securities oriented and fits into these agencies just fine. If you already know how to solve an investment problem, you may need a broker (FINRA) or a securities analyst (SEC) to transact or understand an investment. But most American families have a different problem. They are trying to figure out their lives and their money, not just their investments.
Most American families are not worried about buying, selling or holding. They want help with a financial problem that concerns NONE of these things? They need advice about budgeting, benefits selections, tax treatment, healthcare, debt, cashflow, inflation and perhaps even how to deal with their fear that retirement will never come? None of these problems are about buying, selling or holding; they are about planning.
This great cartoon by Shillerstrom from Investment News illustrates the point clearly. Why is this “investor” contemplating the unthinkable? Who can help him? Not the Wall Street types inside the window. They can buy and sell for him. That’s not his problem (It’s presumably too late to sell, for example). But, the guy stepping out on the ledge with him, if he’s a CFP® professional (i.e., a financial planner) can help. He knows that our poor soul’s problem is not whether to buy, sell or hold, but “how do I accomplish my family’s goals now?” His hopelessness is more likely about paying his bills and how to manage a multi-faceted family financial crisis. He needs a financial generalist to help him understand his life and money options, not a securities analyst to help him understand an investment or a broker to trade.
In brief, this is the difference between financial planning and other areas of financial services expertise. When you have a life crisis in family finances, better get a financial planner, who’ll act as a fiduciary (giving advice only for your benefit), if you can find one.
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Ron Peremel
Kevin Condon
