ptg This is important: All that said, there are many good commission-based financial advisers that would do a fantastic job for you. I just think the built-in conflict of interest is too important to overlook. Conversely, just because an adviser is fee-only doesn’t mean he or she is any good. Once you have a short list of fee-only advisers, schedule an in-person interview, which should be free of charge. That might seem time consuming, but it’s worthwhile. Come prepared with your financial infor- mation, such as how much income you have and all your investment balances. As you set out to choose an adviser, think about what specific help you need. Do you feel helpless in choosing mutual funds? Don’t know what to do with stock options you received at work? Are you worried you don’t have the right insurances or financial docu- ments, such as a will, living will, and medical power of attorney? Do you need advice on spending an inheri- tance? Do you want a comprehensive plan to cover all aspects of your money life? Before setting up the interview, make sure the plan- ner hasn’t been in trouble. Find out about disciplinary actions by going to the U.S. Securities and Exchange Commission Web site at www.sec.gov or calling 1-800- SEC-0330. Look for a link like “Check Out Brokers & Advisers.” You can also contact your state agency that oversees investment advisers. For advisers who sell investments, otherwise known as stockbrokers, you can conduct a BrokerCheck at the FINRA Web site, brokercheck.finra.org, or call 1-800-289-9999. 255 How to Save Money From the Library of Wow! eBook ptg 2. Ask Questions and Listen to Your Gut Choosing the right adviser breaks down into three basic tasks: Assessing the adviser’s technical competence, trustworthiness, and compatibility with you. Here are six questions that will help you judge an adviser, whether they are fee-only or not: ● How are you paid? This might be an uncomfort- able question to ask. But it is fundamental and important. If you’re using a fee-only planner, the answers should be straightforward. Ask the plan- ner for his or her Form ADV, a document that describes the fee structure. ● What are your qualifications? Choose a planner who has been in the business for several years and has a certification, such as Certified Financial Planner or CFP. (See sidebar for other certifica- tions.) Ask about work history. 256 The 1-2-3 Money Plan ABCs of Financial Certifications The financial services industry has an alphabet soup of acronyms that represent certifications for financial advisers. Unfortunately, none assures you of a competent or ethical adviser. Designations are awarded by private organiza- tions that don’t answer to government regula- tors. However, an official designation after an adviser’s name at least signals he or she proba- bly passed a test of basic financial concepts and is staying current on changes. The following are a few of the more meaningful certifications: From the Library of Wow! eBook ptg 257 How to Save Money ● CFP: Certified Financial Planner. Among the most popular of financial planning certifica- tions, CFPs must have at least five years of planning experience or a bachelor’s degree plus three years of financial planning experi- ence. They must also complete a five-course program, pass a 10-hour comprehensive exam, complete 30 hours of continuing edu- cation every two years, and adhere to ethics standards. ● ChFC: Chartered Financial Consultant. ChFCs must complete three more courses than the CFPs but only have to pass individ- ual topic exams, not a comprehensive exam. They must have three years of experience in the financial services industry and adhere to ethical standards. They must also complete 30 hours of continuing education every two years. ● CFA: Chartered Financial Analyst. A designa- tion geared more toward the specialty of investing and portfolio management than broader areas of personal finance. CFAs must pass three rigorous exams covering econom- ics, financial accounting, portfolio manage- ment, securities analysis, and ethics, and have approved work experience. From the Library of Wow! eBook ptg ● What is your financial planning philosophy? Here, you’re fishing for a comfort level. The adviser should talk about his or her planning process and not about hot stocks or unusual investments. If a prospective financial adviser says he or she can beat the market and promises big investment returns, end the meeting. Nobody can predict market movements. The adviser is either a fool or a liar, and probably a cheat. A good finan- cial adviser will make sure you’re well-diversified, so you can limit risk and maximize returns. As the adviser explains his or her philosophy, ask yourself: Are you being coached or sold to? And get a feel for how rushed the adviser is. If he or she doesn’t have time to attract you as a client, the adviser might not have time for you after you become one. Finally, note the words and tone the adviser uses. Is he or she speaking in financial 258 The 1-2-3 Money Plan ● CPA-PFS: Certified Public Accountant- Personal Financial Specialist. The PFS desig- nation is awarded to CPAs who have a minimum of 1,400 hours of financial plan- ning business experience, completed continu- ing education within the last five years, passed an exam, and adhere to a code of ethics. For brief information on other designations, go online to Finra.org and click “Investor Infor- mation,” then “Professional Designations.” From the Library of Wow! eBook ptg jargon, knowing you won’t understand? It actu- ally takes greater skill and knowledge to explain things simply. Is the tone condescending or supportive? ● What services do you offer? If you need a broad spectrum of advice, make sure the planner can help with insurance, tax planning, investments, estate planning, and retirement planning. This is the time to ask whether the adviser will be the only person you deal with, or whether you’ll be shuffled off to a junior associate. And ask about how the adviser will communicate, by e-mail or phone, for example. Will you receive regular reports and periodic reviews about your financial status? ● Tell me about your typical client. You want an adviser accustomed to working with people like you. If the adviser typically works with multimil- lionaires and you have total assets of $100,000, how much attention do you think you’ll get? You should also ask for a sample financial plan for a client in similar circumstances to yours—with the client’s name removed, of course. ● Can I contact referrals? Granted, an adviser is only going to refer you to his happy clients. Ask the client, “If you had to do it again, would you pick this planner?” and “What is the downside of working with this planner?” You want to gather factual information, but trust your gut, too. That doesn’t mean you should judge whether you like the adviser as a person or whether you hit it off in idle chitchat. That’s irrelevant. This is a busi- ness relationship, not a personal one. 259 How to Save Money From the Library of Wow! eBook ptg Although some people are more gullible than others, your gut should guide you, especially if you go into the meeting with a bit of skepticism. It will tell you if the adviser is being evasive or is snowing you. 3. Never Agree to an Investment You Don’t Understand If you can’t explain it to your teenager or your elderly mother, don’t do it. This is a great rule because it can keep you out of harm’s way. For example, there are few average Americans who can thoroughly and accurately explain what a variable annuity is. They’re wildly complicated. And that works out fine. They’re not good investments for most people anyway. That’s not to say you shouldn’t endeavor to learn more about finance basics. You shouldn’t shy away from stock mutual funds because you’re not quite cer- tain what they are. There are many good resources for investing basics, including books and Web sites. One free resource is at the Los Angeles Times newspaper Web site. It has a “Money Library” with a host of finance topics, includ- ing investing. It’s at www.latimes.com. All this due diligence in hiring a financial planner might seem daunting, but don’t let it deter you from get- ting the help you need. Starting on the right financial track, even using a mediocre but ethical planner, is bet- ter than doing nothing. And remember, you can always switch financial advisers later. 260 The 1-2-3 Money Plan From the Library of Wow! eBook ptg Endnotes 1. On October 3, 2008, Congress temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009. As of this writing, it is uncertain whether the raised limit will become permanent. Learn more at www.fdic.gov. 261 How to Save Money From the Library of Wow! eBook ptg This page intentionally left blank From the Library of Wow! eBook ptg Succeeding with Money I n the introduction of this book, I promised to help you navigate the world of spending and saving money. I said this book would be like a GPS device that helps you with driving directions. I wanted to get you from here to there safely and with the fewest has- sles. I’ve touched on the vast majority of money issues that you will probably encounter in your life. Did I cover every detail of every money topic? No. Few books do. And I didn’t even try. What I wanted to do is to make money simple. I did that by breaking down common money topics to their three most-important tasks. I gave you very specific advice. And granted, it might not be the absolute best advice you could possibly receive. But it’s darned fine advice for almost everybody. It nudges you toward money decisions that are “good enough.” That allows you to make money decisions and get on with your life. You can take comfort in the fact that you’re doing smart things with your hard-earned cash. 263 Chapter 8 Putting It All Together From the Library of Wow! eBook ptg We even had some fun along the way. What other personal finance book tells you how to make razor blades last longer, how to get the best deals on video cables, and how to spend $20 a year on phone service? I hope you’ll go through the topics in this book and methodically address each area of your money life— after all, each contains just three steps. Throughout this book, I used a 1-2-3 format, which defined tasks for each money topic. But what if I were to give you just one more 1-2-3 list? This would be a super–Cliff Notes version. It would be three steps to succeeding with money. If you did nothing else in this whole book, doing these three things will give you a shot at being a finan- cial winner. Based on my knowledge of money topics and based on feedback from literally thousands of readers over the years, that list would look like the following: 264 The 1-2-3 Money Plan Succeeding with Money, 1-2-3 1. Never buy a new car until you’re a millionaire. 2. Buy a home that you can afford. 3. Care about spending. I briefly mentioned cars and houses in other chap- ters. They are the largest single purchases most people From the Library of Wow! eBook . such as Certified Financial Planner or CFP. (See sidebar for other certifica- tions.) Ask about work history. 256 The 1-2-3 Money Plan ABCs of Financial Certifications The financial services industry. a client, the adviser might not have time for you after you become one. Finally, note the words and tone the adviser uses. Is he or she speaking in financial 258 The 1-2-3 Money Plan ● CPA-PFS:. tax planning, investments, estate planning, and retirement planning. This is the time to ask whether the adviser will be the only person you deal with, or whether you’ll be shuffled off to a