1. Investing vs. Planning
Submitted by Larry Frank Sr. on Thu, 03/21/2013 - 12:00pm
Financial planning, investment advice and retirement planning are
different services that financial advisors give. They overlap and reinforce
one another, and they each are vital. But it pays to know what you get and
what you need.
When choosing an advisor, pay attention to the advisors’ pay structure
and also whether they take control of your assets – to make sure that their
work focuses more on planning for goals rather than just investing.
Financial planning is more than just investment advice. It takes you from
where you are to where you want to go in the future. It encompasses, tax
and estate planning, college savings and any other goal that you want to
meet in addition to retirement planning, which is a common goal for
everyone.
Investment advice is structuring your resources toward that goal and
many confuse the investments with the goal. Goals might be: having
enough money for retirement, to pay for your kids’ education, to afford a
second home, to start a business. Without a goal, it is just investing for
investment’s sake. In these situations, benchmarks like the S&P 500 have
nothing to do with you are what you try to beat. Instead, staying on track
or moving toward your personal goal is much more meaningful as a signal
of progress.
Businesses plan all the time. The problem is that people don’t, but they
should. Without a plan they end up with random results and wonder what
happened.
However, the real goal is managing wealth in such a way that the goal is
not only achieved, but sustainable. For example, the goal of retirement
planning isn’t to just retire. The goal is to afford a decent quality of life
throughout retirement.

2. Which type of advice you want to emphasize should guide your choice of
advisor. When you pick one, think about what kind of control you give
him or her. You may choose an advisor who has discretionary control
over your assets. In other words, you give the advisor authority to decide
when and how to invest your money and make changes, based on
written guidelines. Alternatively, you may choose an advisor who has no
discretionary authority over your assets. They advise and you decide. In
reality, one with no authority is closer to a true advisor.
An advisor with discretionary authority is closer to a money manager. In
general, but not always, the non-discretionary advisor has a broader
perspective because the emphasis is placed on goals and the plan and
not just investing.
How you pay the advisor also matters. Some are paid commissions from
selling you financial products; others take a fee as a portion of your
assets. Some charge an hourly fee or retainer. To be clear,
compensation is not how you distinguish one advisor from another.
Generally, an advisor who does not take commissions is more likely to
advise in your interest than one whose paycheck depends on convincing
you to buy products.
When you are interviewing someone to help you, keep in mind what kind
of planning you are trying to do and what kind of control you are willing to
give up. Don’t let an advisor steer you into just investing. Most of the
conversation with your advisor should be on the planning topics for you
and less on investment advice. Investing is a means to support a plan,
not the plan itself.
When you are interviewing someone to help you, ask these
helpful questions from the SEC. The National Association of Personal
Financial Advisors(NAPFA) also has a list of questions to ask your
advisor. The Securities and Exchange Commission has a list of helpful
resources for finding the right advisor. The SEC’s Investor Alerts website
is also helpful for separating legit advice from fraud.
In addition, AdviceIQ lists local advisors in its system, ranking them by
various metrics, such as the most clients who are widows or have
$250,000 to $500,000 in assets or specialize in doctors. Plus, all of the
advisors that appear on this site have flawless regulatory records.
Remember: You aren’t arranging your financial affairs to buy a
product. You need the service and process of planning as the foundation
where financial products are almost an afterthought.
Follow AdviceIQ on Twitter at @adviceiq.
Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California)
in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has
an MBA with a finance concentration and B.S. cum laude in physics with
which he views the world of money dynamically. He has peer-reviewed
research published in the Journal of Financial
Planning. www.blog.BetterFinancialEducation.com.

3. AdviceIQ delivers quality personal finance articles by both financial
advisors and AdviceIQ editors. It ranks advisors in your area by specialty.
For instance, the rankings this week measure the number of clients whose
income is between $250,000 and $500,000 with that advisor. AdviceIQ
also vets ranked advisors so only those with pristine regulatory histories
can participate. AdviceIQ was launched Jan. 9, 2012, by veteran
Wall Street executives, editors and technologists. Right now, investors
may see many advisor rankings, although in some areas only a few are
ranked. Check back often as thousands of advisors are undergoing
AdviceIQ screening. New advisors appear in rankings daily.
Topic:
Dealing with Financial Advisors
Creating Financial Plans
How to Pick Them