investment or financial planning

Are You Getting Investment Planning or Financial Planning

I recently stopped a 78-year-old client in Sarasota, Florida from investing $300,000 in two tax-free municipal bond funds that were being offered through her bank. She was being offered an unsuitable, guaranteed loser. Why do I say that? Our country literally has a zero interest rate environment and the Federal Reserve is going to raise rates at some point. When interest rates rise, most bonds lose value. Adding insult to injury, the average maturity rate inside the bond portfolio was 15 years – making her 93 years old at the time of maturity. It gets better. The longer the maturity of a bond, the more volatile it becomes. Can you understand why I was against this investment?

To me, the banking system seems pretty flawed as banking representatives often refer large bank accounts to their wealth management division. I won’t specify the banking institution but please understand this is a common practice among banks looking to gain additional revenue.

Would a true financial advisor make an offering like this? Not in my book. Who could possibly offer a tax-free long-term bond investment with an upfront commission to a 78-year-old that pays little tax? Oh, that’s right, they didn’t even ask about her taxes or look at her 1040 (tax return). Perhaps it has something to do with the upfront commission – this means the advisor gets paid at the time of the transaction.

Thankfully I assisted her through the slick pitch saving her the upfront sales charge and a possible money losing proposition.

The Proper Financial Investments

If a financial advisor is going to offer an investment product, they should really understand who they are talking to. This requires work. Pitching a product is not financial planning it is selling.

And just what exactly is a financial advisor? I see the title everywhere and it can be confusing and misleading. Quite frankly it is a very broad term referring to someone that works in the financial industry such as brokers, investment advisers, accountants, lawyers, insurance agents and financial planners.

Many financial advisors specialize in wealth management and in my opinion, are not truly financial planners. Why – because managing or investing money is only one part of a comprehensive plan. There should be a solid foundation established prior to making investment recommendations as opposed to a one-size-fits-all product offering.

Real Financial Planning

I mentioned that true financial is about work and not selling. What did I mean by that? Well instead of being a salesman a good financial advisor really needs to qualify their potential client by taking them through a financial planning process. This process is of utmost importance in the effort to make a suitable recommendation. Here is some of what goes into the financial planning process:

  • Clearly defining the relationship with you
  • Gathering relevant information
  • Analyzing and evaluating your financial status
  • Developing a suitable financial planning recommendation
  • Implementing the recommended planning
  • Monitoring the financial plan once implemented

This looks simple and easy when viewed in bullet point fashion, but in reality, quite a bit of work goes into a real financial planning process. It would require a 20-page document to cover the details that could apply to each step.

In brief, what the process should tell you is that everyone is unique. What works for your neighbor most likely won’t work for you. It is meant to be a thorough discovery process to understand your individual financial fingerprint and for you to get to know the advisor.

Quite simply – how can a financial advisor provide investment advice without understanding you? Outside of the basic information, further questions should be asked regarding budgeting, income, legal documents, proper titling, years to invest, future income needs, risk tolerance, insurance for different needs, taxes, health and asset protection among others.

Understand that this process does not need to be a dissertation but questions will need to be asked by both planner and client. The process is intended to provide both the financial advisor and the client with clarity, transparency and the foundation needed for the proper recommendations to be made.

Financial Planning Involves Investment Planning

Does that sound like it will be difficult or stressful? Absolutely not when you are working with the correct trained professional. It is the job of the comprehensive financial advisor to guide you through this is an easy and comfortable fashion.

It may feel like a pre-qualification process. Guess what, it really is. Why – because you and the planner need to understand what investments will qualify in your unique situation and which ones will not. Clarity gained through a real financial planning process leads to decision making instead of guessing or using a shotgun approach when choosing investment products. Ideally, you should be comfortable with the decisions made and your financial advisor should be confident that the choices were suitable to align with your goals.

This is a long term relationship and although the foundation is critical so is the follow-up. Please be sure your financial planner stays in contact and does frequent reviews of your investments and your situation. Not only will the economy change but so does your life and the circumstances surrounding it.

As always if there is something that doesn’t feel right or that you don’t understand please seek a reputable second opinion. We are happy to offer this service to those within the state of Florida at no charge and with no obligation. This is our way of hoping that everyone gets the results they deserve with what they have worked so hard to earn.

This is not intended to give specific legal, tax or investment advice.Advisory Services offered through Nepsis Advisor Services, Inc.; An SEC Registered Investment Advisor.

Related Article “Slick Sales Pitch or Comprehensive Financial Planning”

Rick Torrington

Rick Torrington, CFP® has been offering sound comprehensive financial, retirement, asset protection and wealth management advice to his clients in Sarasota and most of Florida for close to 20 years. He is diligent in his efforts to provide clarity and financial knowledge to the public through his articles and ebooks.