Credentials You Should Care About

Talk about confusing, there are hundreds of financial designations those in finance can put after their name. How do these letters help or hurt the consumer? Unfortunately, many designations lack high standards of knowledge, experience and on-going requirements. In fact, some designations only require a few hours of study over the weekend and then a quick exam.

Below are the top designations for each category in the finance industry: Accountant, Financial Planner, Investment Analyst. Use this guide to help you evaluate finance professionals and how the credential can help your particular situation. 

Certified Financial Planner (CFP): They provide complete advice in all areas of personal finances. From insurance and taxes to investments and estate plans, they have extensive knowledge to help you better manage your finances. 

• Education: CFP practitioners develop theoretical and practical financial planning knowledge by completing a comprehensive course of study at a college or university offering a financial planning curriculum registered with the Certified Financial Planner Board of Standards.

• Examination: CFP practitioners must pass a comprehensive two-day, 10-hour CFP Certification Examination that tests their ability to apply their financial planning knowledge in an integrated format. Based on regularly updated research of what planners do, the CFP Board's exam covers the general principles of financial planning, insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning and estate planning.

• Experience: CFP practitioners must have a minimum of three years' experience working in the financial planning process prior to earning the CFP mark. As a result, CFP practitioners have demonstrated a working knowledge of counseling skills in addition to their financial planning knowledge.

• Ethics: As a final step to certification, CFP practitioners must pass an ethics review and agree to abide by the CFP Board's Financial Planning Practice Standards and a strict code of professional conduct, known as the CFP Board's Code of Ethics and Professional Responsibility. The Code of Ethics states that CFP practitioners are to act with integrity, offering professional services that are objective and based on client needs.

• Re-certification: It is also necessary for every CFP certificant, once certified, to complete a re-certification every two years. Those seeking to maintain their certification must attain a minimum of 30 hours of continuing education in order to stay current with developments in the financial planning profession and to better serve their clients. Two of these hours must be spent studying the CFP Board's Code of Ethics and Professional Responsibility or Financial Planning Practice Standards.

Certified Public Accountant (CPA): A CPA license is the accounting profession’s highest standard of competence, a symbol of achievement and assurance of quality.More than just income tax preparers, CPAs help business owners value their company, audit financial statements, devise strategies to lower taxes and provide general advice personal finances. 

The requirements, which are set by each state board of accountancy, include: 

• Degree: Most states require 150 semester hours of instruction – which is 30 hours beyond the typical four-year bachelor’s degree.

• Exam: The CPA exam consists of four separate exams, which are taken one at a time. Candidates may take the exams in any order; but once you pass the first exam, you must pass the other three within 18 months. Exam topics are Audit and Attestation; Financial Accounting and Reporting; Regulation; and Business Environment. 

• Experience: Most states still require 2 years of on the job audit and or tax experience.

• Continuing Education: Again, each state is different but most require at least 120 hours every 3 years with a minimum of 20 each year.

Chartered Financial Analyst (CFA): This credential is known for its rigorous focus on current investment knowledge, analytical skill, and ethical standards. Most jobs held by CFAs are portfolio managers for mutual funds or investment advisor firms. 

To become a CFA a person needs to:

• Hold a bachelor's degree from an accredited institution or have equivalent education or work experience. 

• Pass three CFA exam each of which is 6 hours long. 

• Have 48 months of acceptable professional work experience in investment decision making. 

• Provide professional reference statements. 

• Agree to adhere to and sign the Member's Agreement and the Professional Conduct Statement.

Password Management and Protection

Keeping our documents and information safe in the digital age can be a burden. With viruses, hacking, and lost/stolen devices our information is more susceptible than ever. To help protect our information we have to create passwords for websites, files, computers, bank accounts, debit cards, etc. It becomes nearly impossible to remember all the combinations of letters, numbers and characters to access the information we need.

Digital password management systems secured by a single ultra-strong password, something you can remember but nobody else would guess, are available to store your passwords and automatically recall them as needed. The best password managers also function as automated Web form fillers. These services encrypt your data, create strong passwords, and protect against unauthorized users.

I use Apple products including their Mac computers. Their Safari web browser has a "Key Chain" application that, once enabled, offers to save user names and passwords. There are similar functioning products for PCs. You simply enter the information one time and each time you return to the site it will automatically fill in the right information. A small problem I have experienced is with two different accounts for the same company/website. In those cases the program remembers info from the very first time you visited the site and doesn't allow you to choose a different user name. You do have to worry about other users of the computer logging in so it is best to set up different user accounts on the computer with password protection.

If you are on the go and need to access information on multiple computers, platforms, and locations look for web/cloud based applications. Your data is encrypted and stored securely online. Be aware, as additional security, if you forget your login information for the password manager, there are no password hints or others ways to access and recover your data. 

Password management applications with various features and services include Kaspersky, Last Pass, RoboForm, and Sticky Password. Currently, there are only a few premium services for mobile and tablet devices.

Old School Notebook/Binder: One non-digital way is to have a small notebook with all your account numbers, user names and passwords. Information can be crossed out or covered with white out and replaced with updated information. This is convenient and easily accessible when you are at home or on the road. You won't have to worry about a computer program or hacker accessing your information. The obvious problem is a notebook can be left behind, stolen, or destroyed. If you do keep your information written down it is best to hide it in a safe or drawer that can be locked.

We all have heard that using the same username/password for everything is a bad idea but few heed the warning. To help you protect your information and stop the cycle of "Password Resets" consider these ideas for managing your passwords.

Costco Your Investments

"How may I take your order?" I have family members who freeze up when they pull up to a drive-thru restaurant. Their eyes become overloaded with choices and they get tense and even upset when they can't decide in a quick moment. Adding shouts of orders from throughout the car multiplies the confusion.

Numerous academic studies and books about consumer choices have shown shoppers find it difficult to edit down the selection of everything from toothpaste, to jelly, and to cars. Researchers found that more sales were made when fewer choices were presented. Some companies realized this and gained market share by having fewer options compared to the competitor.

Many people are finding that the investment world offers too many choices leaving them to make bad choices or not investing at all.

According to Morningstar, there are 22,689 mutual funds and 1,457 ETFs. How is someone expected to decide which investments to use with their hard earned money? Cutting through all the marketing material, media pundits, and star ratings is a daunting and confusing task. This could be a reason why so few people are financially prepared for retirement.

When you do invest, some negative consequences can pop up from having too many choices. These include excessive trading, constantly changing allocation strategies, higher taxes, overlapping investments, and not enough or too much diversification.

With 401(k) plans, studies have shown that as more mutual funds are offered, fewer people participate. And, participation rates are highest among employers who automatically enroll associates in the company 401(k) rather than giving them the option to enroll.

I like to shop Costco for its selection and value. I like that they carry one or a couple of items in each category. The inventory at a Costco is around 4,000 different products where a typical Wal-Mart has 125,000. We trust that Costco has done the research and is providing the best product in the category and is selling it to us for a fair or discounted price. They have done the editing allowing us to save time, money and frustration.

Working with a Certified Financial Planner can be the Costco to your investments. Our expertise and knowledge allows us to evaluate investment choices, select ones that are appropriate for our clients and manage a financial plan for a low fee. I have helped clients go from 20+ funds down to nine or 10 and at the same time provide more diversification. There are others who had no idea what they owned or that they were paying up to 4% a year in fees. I created transparent investment plans and cut their costs by using low cost index funds.

There are many other areas of personal finance besides investments that a financial planner, like myself, can help simplify such as insurance, estate plans, taxes and retirement. I will do the research, edit the choices, select the ones that are in your best interest and manage it all for a fair fee. This will help you decide to save and be financially prepared now and in the future.

Election: What Now?

We now know the political landscape for the next two years in Congress and four years for the Presidency. What are the expectations for our finances and investments? Here is a quick run down:

• Fiscal Cliff: Mass spending cuts and tax increases will take effect in January if the President and Congress can’t agree to stop it. That could mean a tax hike for some 90% of Americans, and perhaps another economic recession in the first half of 2013. Spending cuts are concentrated on national defense but also include some other areas including Medicare reimbursements. Compromise will probably not come easy or fast. Strategy: either way taxes are going up and spending will come down. Bad for stocks and other "risky" assets.
  
  
• Taxes Go Up: Taxes on capital gains, dividends, and income taxes are scheduled to go up on January 1st. Rates are supposed to reset to pre-2001 levels with the highest rate on income and dividends shooting up to 39.6%. We have already started to see special dividend distributions by corporations to get ahead of the higher dividend tax. Expect to see more before the end of 2012. Additionally, if you will receive less money from an investment it is worth less. Dividend stocks should fall in value to reflect the higher tax. Strategy: use a comprehensive asset location strategy. Shift income producing investments such as dividend stocks and treasury/corporate bonds to tax protected accounts like your 401k, IRA, etc. In taxable accounts use municipal bonds. Max out retirement contributions.

• New Taxes: A new 3.8% Medicare tax on regular income above specified levels and "unearned income" begins in 2013. The tax is applied to income above $200,000 for single filers and $250,000 for married couples. What is considered unearned income? Unearned income is very broad and includes: taxable interest, dividends, net capital gains, annuities, rents (non-trade/business), and royalties. Strategy: Contribute or convert to Roth IRA/401k accounts. Distributions, required and otherwise, from traditional IRA/401k's are figured into adjusted gross income and subject to the new Medicare tax.

• Growth will be harder: With higher taxes, more regulations and slower economic growth corporate earnings and revenues corporations will suffer. Companies will cut costs to stay profitable leading to layoffs and creating more efficient ways to do business through technology. Higher unemployment will put a strain on household finances. Strategy: Lower your expectations, save more, review your asset allocation to stocks.

Investing is Not Financial Planning

Do you know there is a difference between financial planning and investing? For most people, an inordinate amount of time and focus is on their investments and the returns they produce. Financial planning places equal importance on all areas of your finances including taxes, insurance, estate, retirement, and investments.

Taking planning a step further, fee-only financial planning is goal oriented and unique to the client. The focus is on determining individual financial goals and why those goals are important.

Say your goal is to accumulate $2,000,000 in 10 years. Is it more important what your rate of return is or that you accumulate $2,000,000? Financial planning says the latter is more important. What does it matter if you earned 10% on $200,000 of investments if you are spending an extra $20,000 each year? Financial planning will help you prioritize and delay gratification.

Financial planning will consider how much life insurance you need and what type of policy is in your best interest. It will consider the tax consequences of selling an investment (stocks, rental property, or business). It will look at the long-term consequences of buying a $300,000 house versus a $600,000 house.

If investing and rate of return are the singular focus then buy and sell decisions become influenced by emotions. And emotions are the biggest obstacle to achieving long-term financial success.

Personal finances is more complicated than ever. That is why it's important to have an expert team in place to help you develop, execute, and achieve your financial goals. This team should include a CPA, an estate attorney, and a fee-only Certified Financial Planner. Get them to coordinate your plan so they are all working to achieve your financial goals.

Ignore the inconsistent results of investment returns. Focus on your goals and why they are important.

Social Security: Now or Later?

Deciding when to start taking social security benefits can be hard to determine. We have to decide the value of waiting versus the value of taking the money now, are expected years, if we are still working, etc.

Generally, people say they will wait until full retirement but most start benefits early. In 2009, about 42% started social security at the earliest age possible, 62. Many feel that they have been paying into the system for so long and they just want to get some of their money back. The drawback to taking social security early is benefits are reduced. A benefit is reduced 5/9 of one percent for each month before normal retirement age, up to 36 months. If the number of months exceeds 36, then the benefit is further reduced 5/12 of one percent per month.

Taxes: If you are working and receive benefits before full retirement, $1 of benefits will be deducted for every $2 earned above $14,640. Taking money from IRAs and 401k's between 62 and full retirement can ensure you receive 100% of your benefits and potentially lower your future taxes. With lower account values after age 70 1/2 you will be required to take less in IRS required minimum distributions each year. The less income you receive the lower your potential tax bracket.

Waiting past full retirement offers greater benefits adding thousands of dollars to your benefits each year. For each full year you wait past your full retirement age until age 70, you receive bonus "delayed retirement credits"which increases your annual payments 8%. This strategy is referred to as file and suspend. This can be enacted at full retirement age even when you started receiving benefits early but later decide you don't want to. Credits will accumulate on the reduced benefit you were receiving.

Strategies for spousal benefits can also be enacted to maximize benefits. One person can file and suspend while the other draws on spousal benefits. This allows you to earn the 8% retirement credits while still bringing in some income to pay bills and decrease withdrawals from IRA accounts.

The take away is social security benefits can be tailored to your circumstances to maximize benefits and potential taxes.