CFP Board eNewsletter
January 2009
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CFP Board eNewsletter |
| A “Fidu - Who?” CFP Board’s fiduciary standards for CFP® Professionals go into effect |
This is the first article by CFP Board’s Consumer Advocate, Eleanor Blayney, CFP®. Eleanor is the kind of financial advisor people need to hear from now. A holder of the CERTIFIED FINANCIAL PLANNER™ certification and a financial planning practitioner for more than 20 years, Eleanor has seen it all. Recognized as one of the pioneers in the profession, Eleanor helped to shape the Financial Planning Practice Standards that guide the work of the more than 58,000 CFP® certificants across the U.S. Within her own firm, Eleanor focuses on helping women bridge the gap between financial capacity and confidence, which she believes is essential to good financial health. Eleanor strongly believes that families of all income levels should have access to professional financial planning assistance and that the financial world is too complex to shoulder alone. She makes financially complex ideas and strategies accessible and understandable. And she understands the critical importance of enforceable ethical standards to foster the trust needed to provide financial advice. Consider this scenario: Your mother asks for your advice in an area in which you are expert, but about which she knows relatively little. She does not know what she doesn’t know, but you do. She needs your help in making a decision, and she relies on your judgment. She feels no need to second-guess your informed opinion because ... well, she trusts you. For your part, you are going to give her your very best advice, because ... well, she is your mother. Mom probably refers to you simply and proudly as her son or daughter, but in the financial advisory world, you would have a fancier, legally sophisticated title. You are, in fact, a fiduciary: someone who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. There is a lot of talk about financial fiduciaries these days, what it means to be one, and under what circumstances a financial planner is required or expected to act as one. So far, most of the talk has taken place within the financial planning and investment advisory professions. Consumers have not yet worked the fiduciary-word into their Starbucks or water-cooler conversations, but it may not be long before they do. Or, perhaps, before they should. Those feeling a sense of outrage after reading recent headlines involving the alleged crimes of Bernie Madoff or other Wall Street hustlers might wish to vent their anger, not just by claiming that these bad actors betrayed investors’ trust, but by stating that they violated their fiduciary responsibility. In the court proceedings to come, it is likely that the term “fiduciary” will be invoked many times. In today’s environment in which just about the only thing lower than the consumer’s confidence is the return on his or her 401(k) account, fiduciary standards for financial advisors are more important than ever. Fortunately, there is good news for the consumer who wonders how to find advisors who practice such standards. In May 2007, Certified Financial Planner Board of Standards, Inc.—the organization that awards the CFP® marks to CERTIFIED FINANCIAL PLANNER™ professionals who meet its rigorous practice and education standards – issued its revised Standards of Professional Conduct. These standards, which took effect July 2008 and are enforceable as of January 2009, require CFP® professionals who provide comprehensive financial planning to do so with the duty of care of a fiduciary. For the lion’s share of the 58,000 CFP® professionals in this country, this new fiduciary standard means business as usual. Because of the ethical and practice requirements of their CFP® certification and their choice of a profession which emphasizes relationships and a comprehensive understanding of their clients’ needs, many CFP® practitioners have already embraced their fiduciary responsibility toward the individuals they advise. Indeed, the call for this higher standard of practice came from the profession itself: the revised Standards were developed by practitioners and broadly circulated to the financial planning community for comment and input. Consumers also have a role to play in making these fiduciary standards an integral and visible component of the financial planning process. They need to become educated as to what they can and should expect from their CFP® professional. They should, for example, expect clear communication and explanation of the advice they receive, full and fair disclosure of all material facts relating to the advisor’s services, the form and amount of compensation, and any potential conflicts of interest that might affect the advisor’s recommendations. Consumers should also know what questions to ask when interviewing a prospective advisor to determine whether the advisor considers himself a fiduciary. For a list of these questions, visit CFP Board’s Checklist for Interviewing a Financial Planner. Finally, the consumer should be aware that CFP® professionals are subject to enforcement actions, including revocation of their CFP® certification in the event they are found to have violated not just these fiduciary standards, but other standards related to ethical and professional principles. CFP Board’s Search for a CERTIFIED FINANCIAL PLANNER™ Professional function allows consumers to see if a CFP® professional has ever been publicly disciplined. While the question of “what is a fiduciary?” has inspired intense and highly technical discussion among regulators, legislators, and financial service providers, CFP® professionals and consumers know that the answer is pretty simple. Just ask a mom. While the question of “what is a fiduciary?” has inspired intense and highly technical discussion among regulators, legislators, and financial service providers, CFP® professionals and consumers know that the answer is pretty simple. Just ask a mom.
Eleanor Blayney, CFP®
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Love and Money: Financial Planning Tips for Couples |
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Valentine’s Day is coming up, a time when our thoughts naturally turn to romance. If you’re planning a traditional candlelight dinner with your significant other, there may be no better time to pop the question: ‘Honey, have you thought of setting up an emergency fund?’ Whispering sweet nothings about emergency funds may not sound very romantic, but money is often the biggest source of conflict in relationships. During uncertain economic times like these, levels of financial stress are sure to be even higher. But, in one of the stranger side-effects of the current crisis, some lawyers and financial advisers report that fewer couples are getting divorced. Why? Because, with house prices falling, they can’t afford to sell their homes and split up. Times are tough enough without money squabbles adding to the tension. To keep Valentine’s Day—and every day—free of fights over finances, Ginita Wall, CFP® suggests making money talks a regular part of every relationship. “Schedule meetings to talk about money,” says Wall, founder of the financial advisory firm Plan for Wealth in San Diego. “Discuss your financial situation, dreams, and goals, and generate ideas to improve your future. Then do something fun afterwards!” Many couples find themselves having to readjust their expenditures and their expectations as a result of the economic downturn. Relationships become strained under the pressures of plunging stock prices, falling home values, and rising unemployment. The key to keeping lines of communication open, Wall says, is to avoid blaming the other person: “If you have plenty of money, you can manage to rock along pretty well. But if money is scarce, people start playing the blame game. So it’s important to remember, it’s nobody’s fault.” Wall suggests staying well away from ‘if only’ scenarios: ‘If only he hadn’t run up so much credit card debt, we would be fine’ or ‘If only she got her bonus last year, this wouldn’t have happened.’ “Don’t sling the blame,” Wall advises. “Accept where you are and then explore what you need to do now. Take a look at your finances and re-examine the ways you spend. If you’ve always operated in a certain way, maybe that way has to change.” Wall tells the story of one couple who were in the habit of going shopping at a specific store once or twice a week and buying $20 or $30 worth of stuff they really didn’t need. She stocked up on cosmetics; he came home with golf accessories. As part of an effort to stick to a budget, they simply decided to stay out of that particular store. Another couple was very devoted to eating out three times a week. When they realized they could no longer afford three restaurant meals every week, they decided to cut it back to two, saving upwards of $120 a month. “Don’t leave it to chance,” Wall urges. “It needs to be a conscious plan.” She suggests “spot budgeting” for couples like those described above who know they are overspending in certain areas. If there are three or four areas in which you know you’re spending too much—whether it’s dining out, buying clothes, or collecting golf accessories—cut back in those areas and keep track of everything you spend. “Control what you can,” says Wall, “and deal with reality, not unreality. People often don’t know where their money goes. When they see how much they’ve been spending, they say things like, ‘Oh my god, I had no idea we spent that much on eating out.’ Remember you’re not sacrificing your lifestyle forever; you’re just tightening your belt for a while.” Wall says it’s crucial to understand your partner’s money habits, too. She describes one couple who had about $10,000 in savings. She took that money and paid off their credit card debt. He was furious. The couple’s net financial situation hadn’t changed, but for her financial security meant being debt-free and for him it meant having money in the bank. “Contradictory money habits are not a problem as long as there is enough money,” Walls say. When money is tight, though, “couples need to work together, otherwise you get back into the blame game.” Wall also suggests involving children in finding ways to save money, as long as their roles are appropriate to their age. “If you have to economize, explain the situation and ask the child to think of areas in which to economize, too,” Wall says. “Otherwise, they might feel like they are being punished. Involve younger kids in clipping coupons. Kids can learn some money management skills at the same time.” Talking straightforwardly about financial issues with children can even be good for a family. A recent decade-long study of San Francisco families found that their happiness depended more on how open they were in discussing financial issues than on their level of income. If financial pressures are starting to take a toll on your relationship, Wall suggests getting some professional advice. “Many people find it hard to think these issues through on their own,” she says. “Sometimes answers to questions like ‘Are we on the right track?’ and ‘Are we on the same page?’ are best done in a mediation session. Sit down with a financial professional who will take the best interests of both parties into account.” If you would like professional advice, you can locate CFP® professionals in your vicinity through the Search for a CERTIFIED FINANCIAL PLANNER™ Professional page on CFP Board’s Web site. Wall suggests staying well away from ‘if only’ scenarios: ‘If only he hadn’t run up so much credit card debt, we would be fine’ or ‘If only she got her bonus last year, this wouldn’t have happened.’ “Don’t sling the blame,” Wall advises. “Accept where you are and then explore what you need to do now. Take a look at your finances and re-examine the ways you spend. If you’ve always operated in a certain way, maybe that way has to change.” “The worst thing couples can do,” Wall says, “is just get divorced. That is sure to cause more financial distress than anything.” James Geary Online Resources Wall’s Plan for Wealth Web site features an excerpt from Love & Money: 25 Financial Tips for Couples, which offers practical advice for dealing with finances in the context of different kinds of relationships. For tips on taking control of your financial situation, see Managing Your Money in Tough Economic Times in the March 2008 issue of It’s Your Turn. For more on how having a financial plan can help, see When the Going Gets Tough, Stick to the Plan in the October 2008 issue of It’s Your Turn. And, if you want some tips on how to pop the emergency fund question to your significant other this Valentine’s Day, see In Case of Emergency, Use this Fund! in the September 2007 issue of It’s Your Turn.
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How America Saves Week Can Help You Save |
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America Saves Week takes place next month—from February 22 to March 1—so, to get you in the saving spirit, here’s a pop quiz on personal finance. How much loose change is currently hiding away in old jars and under sofa cushions in American homes? According to the U.S. Treasury, about $15 billion. There’s no such thing as free money, right? Wrong. Some employers will match, dollar for dollar, employees’ contributions to workplace retirement plans like 401(k)s, up to certain limits. How much do you need to save to be assured of an annual income of $50,000 in retirement, provided you have no other money coming in? Men should save $620,000 and women should save even more—$665,000—because they tend to live longer. You can test your knowledge further by taking the America Saves Savings Quiz, but the answers to all these questions are based on a single fact: Americans need to save more to secure their long-term financial futures. According to From Middle to Shaky Ground: The Economic Decline of America’s Middle Class, a study published last November by the non-partisan policy research group Demos, 75% of the families surveyed said they wouldn’t be able to get by for three months on their savings alone. Which is precisely why America Saves is launching its third annual America Saves Week. America Saves Week is an initiative of America Saves, a nationwide campaign to support individuals in saving money, reducing debt, and building wealth. America Saves Week involves hundreds of local, state, and national groups, and this year the event is designed “not just to inform people about the importance of saving,” says Rose Garr, communications director for the America Saves campaign, “but to get them to take action as well.” To that end, banks and credit unions across the country will be offering low or no-fee savings accounts, employers will be promoting greater participation in workplace retirement plans, and community organizations and universities will be organizing personal finance seminars and workshops. Saving is hard enough in the best of times, but in the current economic situation it can seem almost impossible. One goal of America Saves Week is to drive home the point that savings are even more crucial when times are tough. “We want to make sure America Saves Week addresses the concerns and fears people have now,” Garr says, “and that consumers know that saving is part of the answer to the current economic situation. If you can live within your means and make good financial choices, you will be better placed to weather the economic storm.” To get that message across, America Saves promotes the basic principles of smart money management—spend less than you earn, keep an emergency fund to pay for unexpected expenses, save regularly for long-term goals like education and retirement. “There are spenders and savers in all income categories,” Garr says. “We hope America Saves Week will encourage people to take a hard look at their finances, identify their wants versus their needs, and then act on that.” To enroll as an American Saver, go to the Enroll Now section of the America Saves Web site. As an American Saver, you will receive a free newsletter with information on saving as well as e-mail access to free financial planning advice. The America Saves Week Web site also has information on how organizations and individuals can take part in this year’s event. The America Saves site also has Saver Resources and Savings Strategies to help you get started. The America Saves site also allows consumers to keep track of how they are doing in meeting their savings goals. Assess Your Savings Progress features a list of key questions to evaluate your savings plan and links to further sources of information. If, for example, you want to know if you’re putting aside enough money for retirement, the Ballpark E$timate Worksheet can help you figure out how much you need to save. If you want to learn how to avoid “payday loans”—short-term loans that come with excessive fees and very high interest rates—check out AARP's Payday Loans Don't Pay. “The most successful savers, the people who are able to sustain savings over time, are the ones who treat saving as a bill that needs to get paid every month,” says Garr. One way to do that is to instruct your bank to automatically deduct a certain amount from your paycheck every month and deposit it into a savings account. Making savings automatic in this way can serve as a solid foundation for a financial plan. And if you’re wondering whether having a plan really helps, here’s one last quiz question. How much more do families with a savings plan save than those without a plan? About twice as much, according to America Saves. So the answer is clear: Start saving now!
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Financial Alerts |
Foreclosure Filings Up 81% in 2008, Mortgage Relief Scams Up Too
IRS Expands free online filing program
Social Security unveils new online application for benefits Read more financial alerts.
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About This eNewsletter |
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CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.
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