From CFP Board's Consumer Advocate, Eleanor Blayney, CFP^®

For sheer investment chaos, 2011 would be hard to beat. Markets soaring every time European ministers seemed to be getting along, markets plummeting with each political standoff, both here and abroad. What should have gone down, went up – witness US Treasuries after the credit downgrade. What should have gone up, went down -- witness housing prices, with mortgage rates at all time lows.

When market irrationality prevails, the question is: do financial advisors throw out the playbook? The Certified Financial Planner Board of Standards asked the men and women CFP^® professionals who serve as CFP Board Ambassadors in their communities how they had been advising clients during a year when nothing – be it legislative or economic – was working the way the way they had been trained to expect.

Not all the responses were in agreement, but the differences were more a matter of degree than of kind. One contrarian was alert to the equity market opportunities of a volatile market, where more defensive advisors were having their pre-retiree and retired clients stockpile a bit more cash. A few advisors were rethinking the place of annuities, both fixed and variable with life income riders, in their clients’ portfolios, as a guaranteed source of retirement income. But not a one saw 2011 as reason for clients to throw up their hands and run for cover. Many expressed their conviction that some fundamental investment and planning principles, such as diversification and taking a long-term focus were as relevant as ever, and needed to be re-emphasized.

There was one near-unanimous response from the CFP Board Ambassadors to the volatility and uncertainty of 2011 – consumers need the help of competent professionals to focus on the things they CAN control, as opposed to feeling helpless about the things they cannot. Further, they see a lot of things that need controlling. This advice is a compilation of tips from CFP Board Ambassadors around the country:

Emotions
A collective freak-out happens during times of volatility, it’s a good idea to turn off the TV and look through the short-term to long-term objectives. Stick to objective advice and planning as a way to keep emotions in check.

Portfolio Deposits and Withdrawals
Most pre-70 ½ clients have complete control over the timing of their additions and withdrawals from their portfolios and can moderate the impacts of market volatility on the longevity of their funds. The source of portfolio withdrawals – whether from qualified retirement accounts or after-tax brokerage accounts – can also often be controlled by clients, to take advantage of shifting tax rates.

Taxes
If investment returns have been difficult to find in the market, planners are nevertheless finding returns to careful tax planning both for 2011 and next year. Many advisors are encouraging consumers to see market troughs as opportunities to convert IRAs into ROTHs at a reduced tax cost, and to review their portfolios to consider measures to mitigate the new taxes on investment income that the Affordable Health Care Act will impose in 2013.

Debt
Liability and expense management is as important to consumers’ wealth as asset management – and easier to control in a year like 2011. Professionals have spent time during a disorderly year putting clients’ debts in order of payment priority, and helping them to refinance at lower rates.


If anything, the market tumult of the past year has highlighted one unchanging fact, often overlooked by consumers, about financial planning and financial planners. Namely, advising on investments is only one part of what CFP^® professionals do. When the securities markets seem nonsensical and excessively myopic, as many agree was true for 2011, there are a lot of other areas that financial planners are making sense of for their clients.

A financial planner’s job, as these CFP^® professionals see it, is to pull everything together – taxes, cash flow, risk management, as well as investments – into an action plan that speaks louder and longer to their clients than today’s evening news.

Financial Planning for Your Life Now

Take Advantage of These Year-End Tax Tips to Reduce Your Tax Bill

Financial advisers recommend that taxpayers exploit 2011 tax breaks while they can, because some long-standing deductions may soon vanish as a result of looming tax revisions. "Even if the Bush tax cuts don't expire in 2013 you'll see 'backdoor' tax increases, like limits on deductions," says Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®. "We usually say to save deductions for a high-tax year--but if they may disappear, you want to take them in 2011 or 2012 if you can." There are a number of ways to lower your tax bill, including raising the 401(k) contribution if you are under the limit by calling your plan administrator and asking for an increase in your payroll deduction. Another tip is to contribute to an individual 401(k) plan if you have self-employment income to boost your savings to the full limit. Topping off your health savings account also is recommended, as is making 529 contributions by year's end if you live in a state that offers a tax break for them. A 2011 Roth conversion is advised, particularly if there was a dramatic fall-off in income this year. Charitable contributions made with a credit card this year are deductible on your 2011 return, while taxpayers older than 70.5 years who make a charitable donation directly from their IRA can have that be their required annual distribution without raising their adjusted gross income. Selling losing assets in your taxable investment account is suggested, and a tax deduction for donated household items less than $5,000 in value can be taken without formal appraisal.

The Holiday Table Is a Good Place to Discuss Financial Matters With Your Family

Some families use the holiday dinner table as a time to talk openly about financial issues such as estate planning, wills, investment, and philanthropy. According to financial advisers, families can gain a greater sense of connectedness, cooperation, and shared vision with a little preparation and a lot of nonconfrontational goodwill. A family member who feels cornered in front of the whole family might misinterpret innocuous statements, and listening will help prevent outbursts, according to experts. The "financial" facts of life for younger adults, the needs of aging parents or grandparents, and the pressure boomers face to support adult children and elderly parents might be awkward and difficult to discuss. "But it's important to open up about your goals and aspirations, and then ask people in the family what their situation is," says Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®. "You model the conversation by sharing where you are." The sum total of distractions, such as watching television, answering the phone, and texting or looking at mobile devices, will determine how much gets done at these financial summits.

You Need to Weigh Several Factors Before Investing in Alternative Funds

Investors seeking alternatives to traditional asset classes must understand several things before choosing alternative funds, such as whether they comprehend how such funds operate. An experienced, fee-only adviser should be chosen to explain and watchdog such investments, rather than someone who earns sales commissions. The level of trust in a fund manager also must be determined prior to fund selection, and Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^® cautions that most hedge fund strategies are poorly suited to the retail market. "It troubles me that you're not just picking a strategy, you're choosing the genius behind it," she says. "How good will you be at choosing a genius?" The cost of alternative funds, which is high, is another factor to weigh, and it is difficult to ascertain how well those funds can be reasonably expected to perform, given their short track records, lack of traditional benchmarks, and spotty performance. Investors must additionally keep in mind that alternative funds are intended to work with, rather than replace, traditional funds. Financial expert Ross Levin recommends that owners of alternative funds use them for risk mitigation.

Tips to Help You Deal With Challenging Times

Ty Pendergrass, CFP^® writes that investors should not be panicked by headlines of the European debt crisis and the political gridlock in Washington. Instead of panicking, investors should be prepared for challenging times, since every generation has had its own share of difficulties to endure, Pendergrass contends. One way that investors, or anyone for that matter, can prepare for economic uncertainty is by hiring a CERTIFIED FINANCIAL PLANNER™ professional to help them develop an individualized plan for dealing with market turmoil. In addition, consumers should be sure to spend less than they earn. Consumers should also be sure to avoid using consumption debt, and should keep three to six months worth of living expenses in savings in case of an emergency. Finally, consumers should create long-term goals and take steps toward achieving them.

Prepare Now for the Possibility Your Paycheck May Shrink in 2012

Wes Moss, CFP^® says that unless Congress intervenes to extend the 2 percent payroll tax deduction for employees, slated to expire on Dec. 31, paychecks could be 2 percent smaller in 2012. For someone earning $50,000, this would mean $1,000 less in-pocket in 2012. According to estimates, the looming 2 percent reduction in net pay will cost the average U.S. household close to $83 per month, roughly a week's worth of groceries, or nearly two tanks of gas for a car. On top of that, the loss of this temporary tax cut will take money out of the consumer's pocket, causing people to spend less, and businesses to sell and earn less. This could exacerbate problems in the stock market and retirement savings plans. Moss estimates that over the next two years, the return of the full 12.4 percent payroll tax will cost the economy more than $140 billion. That could trim nearly 0.75 percent off the country's gross domestic product each year. On the flip side, Social Security is already in dire straits, with some analysts saying the program could be insolvent in as few as 25 years. Permanently reducing employee contributions to Social Security would not be a fix to that problem.

Meet With Your Spouse Monthly to Discuss Financial Matters, and Other Ways to Include Your Spouse in Financial Planning

Although both husband and wife should be involved in a family's financial planning and decision-making process, sometimes one spouse is more involved than the other. However, there are a number of steps that can be taken to ensure that both spouses are equal partners when it comes to dealing with family finances. For instance, couples should see a financial planner together. A CERTIFIED FINANCIAL PLANNER™ professional can be useful in developing a comprehensive financial plan that is based on the financial goals of both spouses, and can help educate the couple on their investment options. In addition, a financial planner can explain financial issues to a spouse who may need some extra help in understanding certain financial concepts, and can act as a neutral party who is seen as being more credible on financial issues. Couples should also sit down together once a month to discuss the family's financial situation, including what the family's net worth is and how investments have performed. Financial goals, financial challenges, and short- and long-term financial plans should also be discussed. Finally, spouses should be sure to set financial goals together, since failing to do so will make it more difficult to determine that the family's financial plan is moving forward in the right direction.

Hiring a CERTIFIED FINANCIAL PLANNER™ Professional

You Should Meet With at Least Three Advisers Before Selecting One

Elise Spadavecchio was cautious about seeking the help of a financial adviser after the interest rate on her variable rate certificate of deposit dropped to 0.5 percent from 4 percent last year. So 26-year-old Spadavecchio, who works in public relations in Chicago, chose an adviser willing to explain to her the nuances of what he was doing with her limited savings. And his advice extended beyond investing: He helped Spadavecchio build up her credit history and convert her individual retirement account into a Roth IRA. "He helped explain why he was putting certain parts of my portfolio into mutual funds or bonds or stocks. And with the turmoil in the economy, he walked me through his strategy," she says. Financial advisers do not work only with people with thick portfolios. An adviser can help young workers maximize their limited income as well as show them how to steadily accrue savings and manage debt. Fledgling investors will want an adviser who takes on clients with relatively few assets, is willing to teach them the basics of investing, and whose fees will not drain their assets. Meet with at least three advisers before deciding on one to work with, suggests Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP^®. This introductory meeting will usually be free of charge, she says.

The CFP Board's Web Site Is a Useful Tool to Use When Selecting Your CERTIFIED FINANCIAL PLANNER™ Professional

Investing is risky enough, but Americans also have to worry about investment scams, such as the Bernie Madoff Ponzi scheme. During the 12 months ended Sept. 30, the Securities and Exchange Commission filed a record 735 enforcement actions. Investors should find a reliable broker, adviser, or financial planner, but experts note that they sometimes fail to check the background of the financial professional or buy investments they do not understand. Investors should watch out for persuasion tactics such as affinity fraud by a salesperson of the same race, nationality, or religion; reciprocity scams that make them feel they owe something for a small favor; and pressure to invest quickly or the opportunity will be gone. When looking for a good adviser, Americans should remember their investment goals, comparison shop to see who meets those goal, and then check out their backgrounds. "Some designations only take two or three hours of study," but the CERTIFIED FINANCIAL PLANNER™ professional designation is much more rigorous, says financial expert Mike Alfred. Investors should go to the Certified Financial Planner Board of Standards web site if they are considering a financial planner. Investors should ask their financial planner about their experience, qualifications, licenses, products and services they recommend, compensation, regulatory organizations, and should ask for a written agreement that details the provided services and fees.

Financial Planning for Your Retirement

Robust Savings and a Stable Life Are the Best Recipe for Your Secure Retirement

It is a rare treat for a financial adviser to talk to a client who is actually prepared for retirement, but it need not be, writes Nancy Anderson, CFP^®. In today’s economy it is difficult for many to find retirement security, and only 14 percent of employees say they will be able to replace 80 percent of their income in retirement. But it does not take winning the lottery or inheriting a lot of money to create a secure retirement, as there are a few simple but smart steps that can put anyone on the right track. The first is to work for a company with excellent benefits and to stay there--companies like Chesapeake Energy Co. offer a 100 percent match on their 401(k) up to 15 percent, and some companies even pay 100 percent of an employee’s health care contributions. Another trick to retirement security is staying married. A study from the Ohio State Center for Human Resource Research found that divorce cuts a person’s wealth by 77 percent compared to a single person, while being married nearly doubles it. Being married brings a 4 percent increase in wealth per year, the study found. Other steps to a secure retirement include having a plan to buy a home and pay off the mortgage, and saving a high percentage of income. Ultimately it seems that remaining the same is the key--staying with the same company, the same spouse, and the same house, all while saving a high percentage of income, are much better for one’s financial health than giving in to society’s trends toward change and newness.

Make Sure You Don't Fall for Early Retirement Seminar Retirement Scams

The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority have published a document warning consumers about the danger of scams that promise them the ability to retire early. The document, which is entitled "Early Retirement Seminars 101: Smart Tips for Spotting Retirement Scams," explains how early retirement scams work and how to identify them. For example, the guide notes that consumers should be skeptical when they hear at a retirement seminar that anyone can retire early. This is not true, the SEC says, particularly for workers who have failed to sufficiently save for retirement and those who have little chance of obtaining other types of employment. Another tell-tale sign of an early retirement scam is one that promises workers the ability to make just as much money by retiring as they would by remaining at their jobs. The SEC notes that such promises are often based on an assumed rate of return on investments that is unrealistically high, as well as large annual withdrawals from investment income that are unsustainable. Some early retirement scams promise consumers the ability to withdraw at least 7 percent of their retirement savings each year and never run out of money, though experts say that annual withdrawal rates should be in the 3 percent to 5 percent range. In addition to including tips that aim to help consumers identify early retirement scams, the guide also advises workers to know how much they will need for retirement before they sign up for any retirement seminar.

Financial Planning for Women

Women Learn to Trust With the Help of a CERTIFIED FINANCIAL PLANNER™ Professional

Most women want to understand, and this innate desire plays a role in their investing approach. Most women realize they can make decisions without being the smartest person in the room. However, they want to understand the facts underlying the decisions they make. To that end, many women are willing to hire a professional financial adviser to help them with their investment decisions, and they learn to trust via that process. There are a number of different factors that need to be considered when selecting a financial adviser. For instance, women should consider whether or not the adviser is a CERTIFIED FINANCIAL PLANNER™ professional. If the adviser is not a CERTIFIED FINANCIAL PLANNER™ professional, women should ask why they are not. In addition, women should check to ensure that the financial adviser is listed on the government Web site for registered financial representatives. This Web site allows prospective clients to see the status of the adviser and whether or not any complaints have been filed against them. After selecting an adviser, women should set up a meeting, observing details such as who did the most talking, whether the adviser asked questions and verified answers, and whether the adviser listened well. Choosing a financial adviser who is trustworthy is important because the adviser can help develop a tailored long-term investment portfolio. Developing such a portfolio increases the likelihood that the investor will stick with the investment plan and the adviser, which in turn will help the investor become more knowledgeable about the investment process.

Financial Planning for Your Children

Tap Into Your Child's Excitement to Make Investing More Appealing to Them

Financial expert Rich Rosso, CFP^® says there are a number of things parents can do to teach their children about investing. For instance, parents should talk to their children to find out what kinds of brands they like. These brands could be good companies for children to invest in, Rosso says, since investing in companies that kids like can help make the investment process more exciting for them. After coming up with a list of five companies the children like, parents should buy one share of each company and obtain a stock certificate for the share in the company the children like the most. Obtaining a stock certificate is important, Rosso says, because children relate better to tangible items. Rosso notes that parents should then help their kids track the performance of their stocks, either with a spreadsheet or through a money diary in a five-subject notebook. Once children start growing less excited about the investment process or the stock they own, parents should consider selling their shares, Rosso says.

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