Choosing a Financial Advisor and the 4 Rules of Financial Institutions

When choosing a financial advisor, it is very important to understand that financial advisors represent financial institutions. These institutions are the insurance companies, banks, mutual fund companies, stock brokerages, mortgage companies, etc. They are simply the companies that provide the product your financial advisor will be using in building your financial plan. Since financial advisors are heavily influenced by these institutions it is important to know the 4 basic rules by which they all operate. This information will help dramatically when you are choosing a financial advisor.

The 4 rules are:

1. Get Your Money

2. Get It Often

3. Keep It As Long As Possible

4. Give Back As Little As Possible

At first glance this list may seem offensive, like you are under attack by these institutions. In reality, they are simply running a business and trying to make a profit, and if you were in their shoes, you would follow the exact same list. So let’s look at each of these a little more closely and discuss how you can use this knowledge when choosing a financial advisor.

1. Get Your Money

Imagine you opened a bank today. What is the first thing you would need to do to get your bank up and running? You would need deposits, right? And how do you get those deposits? By offering your prospective clients something they want in return for their money.

All financial institutions rely on getting clients to place their money with the institution. All of their advertising and sales are based on attracting people’s money. The financial advisor is part of the sales arm of the institution and his primary role is to get money for the institution.

This is not a bad thing. Done properly, every party in the transaction wins. The institution gets your money to work and profit with, you get a higher interest rate or higher possibility of gain than you had previously, and the financial advisor makes a commission for finding a new client.

Just be aware of that dynamic when choosing a financial advisor. The advisor represents the financial institution and will get paid by them for bringing you in as a client, but he also must be truly acting in your best interests and do what is right for you. A good financial advisor understands that by doing what is truly right for you, he also is doing what is in his own and the financial institutions best interest.

2. Get It Often

Imagine again that you are the bank president. How often do you want people to deposit their money into your bank? As often as possible, and on a very regular basis, right? How do you accomplish this? What if you could create a way where people automatically deposited their money with you every single month on a regularly scheduled basis?

That is why direct deposit and automatic billing were created. It is also why the IRS has automatic withholding for your income taxes. And you thought it was simply created as a convenience for you.

Yes, these things are convenient, but their true intention is to get your money on a regular basis every month without you having to put a lot of thought into it.

Understanding this puts you more in control of the situation when choosing a financial advisor and when working with financial institutions. You do not have to blindly do what they tell you. You can use this convenience to your advantage when you understand its underlying philosophy and purpose.

3. Keep Your Money As Long As Possible

Think like the bank president again for a moment. Once clients have put their money in your bank, when do you want them to take it out? Never, if possible, correct? The longer you, the bank, keep their money the more opportunity you have to make a profit with it.

This is the reason all of your qualified plans (like the 401k and IRAs, as well as many Annuities, and Variable Life Insurance policies) have long withdrawal penalty periods. The qualified plans, with very few exceptions, cannot be touched without penalty until age 59 and a half. It is not uncommon to have 15 year withdrawal penalty periods in the Variable Life Insurance and Annuity contracts.

These long withdrawal penalty periods are in place simply so the financial institution can use your money longer.

Be aware of this rule when choosing a financial advisor. Make sure you know the exit provisions of any financial product you are discussing.

4. Give Back As Little As Possible

Think like the bank president again for a moment. When it comes time to actually return the money to your depositors, how much do you want to give back to them? As little as possible, right? What would you do to discourage them from withdrawing that money in one lump sum, or better yet, to leave the money in your bank even longer? Create rules for withdrawal? Tax it? Penalize it?

The way many of these plans are taxed is designed to keep the money inside the plan for as long as possible, thus allowing the financial institution to keep using that money indefinitely.

Financial Institutions want to keep your money as long as possible. Recently there has been a surge of new ideas and products about passing the money inside qualified plans on to succeeding generations to avoid paying the taxes on the money. Essentially, you leave the money locked inside the plan forever.

Great idea, but for whom?

There you have it, the 4 Rules of Financial Institutions. All financial institutions, and thus the financial advisors who represent them, operate on these rules. They are not necessarily bad rules. When you were thinking as the bank president in each of the examples, you too would have acted in the same manner and followed the same rules.

Choosing a financial advisor is no small matter. Interacting with the financial institutions behind the financial advisor is no small matter either.

If you understand the rules of financial institutions you can use them to your advantage because you know the game they play. You will also choose a financial advisor and products that are in line you’re your goals and ambitions for life.

You must understand and use the 4 Rules of Financial Institutions to create a financial model that truly benefits you.

I am a recovering financial planner. After being in the industry for several years and being very successful as a traditional financial planner, I had an experience in 2004 that changed everything. I lost a big client. Oh yeah, this was a big case. And I lost big time. I was working with a client friend of mine who owned a successful business that was just starting to turn the corner into really big profits. The short version of a long story is that another guy in the industry got the business and blew me away. And he did it using the same products I was trying to sell my friend. He was just using those products, and coordinating them in ways I hadn’t ever dreamed of. The first thing I did after losing the case was to call the other agent and ask him what he was doing. That set off a big learning experience, and now here I am 5 years later teaching my clients the same lessons the other agent used to beat me so soundly with my client. Just financial principles that work. That’s all.

Financial Planning – A Fascinating Career Option

Dreaming about a career that gives you a secure job, fame, money, career growth and satisfaction? A career as a financial planner can be your ideal career option. As a financial planner you need to work with numbers and with people. A course in financial planning teaches you how to save, spend and invest intelligently.

History of Financial Planning

The financial service sector has come a long way since the last decade. Earlier there were distinct divisions within the industry such as banks, brokers, agents, mutual fund agents and so on. So an individual needed to go to the bank for taking loans, consult brokers for investments. Mutual funds were a completely different sector.

This made people long for a holistic approach towards financial planning. There was need for planning for children’s education, retirement, emergencies etc. Thus, financial planning, a relatively young profession, emerged.

Professional financial planning takes a holistic approach towards managing an individual’s financial resources. Financial planners make recommendations for growing and preserving wealth, minimizing tax, retirement benefits, insurance, investment planning – and more, depending on the client’s financial status.

Financial Planning – an Overview

“Financial Planning is the process of managing the financial resources of an individual in a manner that helps him save and invest wisely.” As a financial planner you need to interact with people and find out about their needs.

Based on each individual’s financial strength, you will need to plan for their savings, taxes, retirement planning, investments and so on. Financial Planning equips you to create a comprehensive strategy to manage the financial resources.

A good financial planner has a deep understanding of investments, taxes, retirement issues, insurance, benefits and more. One of the most important assets of a financial planner is the ability to listen.

Job Profile

A Financial Planner helps his clients figure out their financial needs and work out a strategy to fulfill those needs. The various responsibilities include:

Defining client-planner relationship
Establishing the client-planner relationship
Gathering data for clients
Analyzing the financial resources
Evaluating client’s financial status
Developing and presenting Financial Planning Strategies
Reviewing of Financial strategies
Implementing the strategy
Monitoring the growth level of funds
Giving advice about investment and savings

Financial planners need to constantly interact with advisors, attorneys, accountants, trust officers, investment bankers, and tax officers.

Financial planning is an intensive research-based and stressful profession. Many financial planners device comprehensive plans for their clients, handle a specific interest and financial goal, planning for retirement, buying a home, investments, taxes etc.

A financial planner uses questionnaires and personal interviews to put together a client profile. The profile includes details on major issues like financial objectives, current income, investments, risk, expenses, tax returns, insurance coverage, retirement programs, estate plans, inheritance, benefits and more.

Educational Qualifications

Though no formal criterion is set for becoming a financial planner, a bachelor’s degree in business administration, accounting, statistics or finance is considered good. An in-depth knowledge of statistics, economics, accounting procedures, budgeting, financial analysis and business is essential.

Interpersonal Skills

A qualified financial planner, apart from being knowledgeable should also have certain basic interpersonal skills:

He/She should be a good listener
Self-confident, mature and understanding
Should be able to work independently
Ability to work under pressure
Diplomatic & energetic
Good conversational skills

Career Prospects

The US News and World Report rate the career of a financial planner as one of the ten top-most professions today.

Increased investments by businesses and individuals are expected to result in faster-than-average employment growth for financial planners through 2012. In addition, quality of life has improved and people have started planning about retirement.

Financial planners can earn in several ways. Some in the form of fees charged to individual clients, some earn commissions on the investments; some receive a salary from their employer. However, a qualified planner can earn by all three of these ways i.e. a combination of fees, commission and salary.

Salaries for financial planners can vary widely, from $18,000 for entry-level planners to $1,20,000 for established ones. According to a recent financial survey, certified financial planners are earning average salaries of around $70,000 per year.

Methods of the Financial Statement Analysis

The variety of methods can be used to evaluate the current position and effectiveness of the company, based on the financial statement data. Most important are ratio analysis, vertical and horizontal analysis, year-to-year change analysis, competitors comparison, etc. These methods are used to discover the turning points, which are specific events and trends that signal changes that can influence future financial performance of the company.

Ratio analysis is an efficient method of the firm’s performance evaluation, making it possible to approach the company’s financial condition from different angles. Depending on the needs of an analyst, financial ratios may be a tool of measuring the company’s liquidity, financial sustainability, activity or profitability (these are the main existing ratio categories). Applying ratio analysis to the company’s financial statements can be a base for different conclusions on the business health, as well as for the prediction of possible future development trends. It is useful for a wide variety of users: from the company’s owners, searching for the ways of improving their business efficiency, to the existing and potential investors, considering the ratio analysis as their risk management tool.

Liquidity ratios provide the measurement of the company’s ability to meet its current obligations. Objects of the liquidity ratio analysis mainly are the company’s current assets and current liabilities. The ability to pay the short-term debt is an important indicator of the financial stability of a business. The main ratios included to this group are cash ratio, quick ratio, current ratio and others.

To measure the financial sustainability of a firm, debt ratio analysis is being applied. It indicates the ability of a firm to carry its debt in the long run. Normally greater debt means greater bankruptcy risk; that’s why it is important to understand if the company has enough sources of finance to meet its long-term obligations. The main ratios of this category are the debt ratio, times interest earned, debt to equity ratio, etc.

Activity ratios measure the efficiency of the company’s asset utilization. It indicates the level of the company’s asset management efficiency. If the company’s use of its inventories, fixed assets and accounts receivable is effective enough, the activity ratios will reflect the positive trends. This group of ratios includes total asset turnover, accounts receivable turnover, cash conversion cycle and others.

One of the most important measures of the company’s performance is a group of profitability ratios. These ratios measure the ability of the company to earn profit, which is the key goal of the business. Most commonly, profitability ratios are being divided into margins (showing the firm’s ability to transform money from sales into profits) and returns (measuring the ability of the company to generate returns for the stockholders). Key ratios of this category are net profit margin, return on assets and others.

All the data needed for the above-mentioned ratios computation can be obtained from the company’s financial main statements (balance sheet, income statement, etc.). Normally, even if a set of the same ratios calculated for the different periods doesn’t provide enough information for a precise analysis, it still will reflect a positive or negative trend in the firm’s development. To avoid misleading conclusions, it is necessary to compare all the computed ratios with main competitors and with industry averages.

Vertical and horizontal analysis provide insight into the structure and dynamics of the company’s assets, sources of financial resources and financial results. Vertical analysis shows the weight of different elements and helps to understand if they are well balanced. For example, the high share of trade receivables means that clients are distracting part of capital from the operational process. This can lead to the rise of cost of the attraction of additional financial resources. Vertical analysis of the equity and liabilities helps to understand if creditors are well protected. Given a high share of equity, one can assure that in case of insolvency providers of financial resources will receive their money back. Vertical analysis of financial results shows how important different revenues and expenses are for the company and what their role in a profit earning process is.

Horizontal analysis presents the change of the same element value over the period under review. As a part of the horizontal analysis, year-to-year change analysis helps to predict future performance based on the financial information of prior years. Considering industry and macroeconomic trends, an analytic can assess financial risks of the company. For example, year-to-year shortening of working capital can lead to the liquidity loss. A strong trend of losing equity means that company may become a bankrupt.

It’s important to notice that financial conditions differ among industries. For example, the automation software industry is on its rise, while gas-extracting companies have problems related to the low price of fuel on the global market. That’s why the comparison with its major competitors is needed. Companies are working in the same conditions, so it helps better to understand management effectiveness. Better performance on the same market means higher financial effectiveness. An analytic can also compare indicators of the studied company with industry averages.

Overall findings of the company’s financial analysis should reflect the result of every used method. An analytic can emphasize financial strengths and weaknesses and give its opinion on the prospects of the company. Depending on the financial statement analysis goal, one can answer following questions:

1. How effective is a company?
2. How strong is its current position?
3. What is a value of the net assets?
4. How well are the creditors protected?
5. Are there any threats to the company’s financial sustainability?
6. Are there any changes that will influence future performance?

Las Vegas Financial Planners

Financial markets are, by nature, volatile, and their movements cannot be predicted with any degree of certainty. While prudent investment decisions may lead to considerable profits, a beginner in these markets may suffer losses as well. Hence, potential investors should ideally seek the advice of professional financial advisors, who possess considerable experience in dealing in finance markets. An expert Las Vegas financial planner can help investors arrive at correct, informed decisions. Ideally, anyone from Los Angeles (L.A.) interested in making investments should hire the services of a Las Vegas financial planner.

In order to decide which projects to invest on, clients need to be aware of all potential gains and losses associated with them. Finding a financial planner is hence, of utmost importance, since (s)he is the correct person to gauge such pros and cons related to investment. Las Vegas financial planners can also help clients in analyzing IRAs, SEP-IRAs, similar tax-deferred retirement savings accounts and other self-employed retirement plans. However, there is one condition which needs to be fulfilled to ensure that a financial consultant can perform optimally – clients must explain their current financial positions in detail to their respective financial advisers.

In case any Las Vegas investor wants to hire an adviser, and wishes to know how to find a financial planner, the solution is simple. There are plenty of professional financial adviser firms offering their services in Las Vegas. Some of the top Las Vegas financial planners are:

a) Raymond James Financial Services,

b) Country Insurance and Financial,

c) Hall-Fame Financial Planning,

d) Dube & Associates Ameriprise Financial,

e) Ameriprise Financial,

f) Primerica Financial Services,

g) Wachovia Securities Financial Network,

h) Financial Planning and Network Corporation, and

i) Northwestern Mutual Financial.

Financial advisors are, generally, a wealth of resource regarding investment and wealth-building decision making. An expert Las Vegas financial planner can provide sound, logical suggestions about the investment projects which should be undertaken. Projects recommended by financial advisors, broadly speaking, prove to be profit-making in the long-run.

Different investors have different needs regarding their targeted rates of return from their investments. Hence, they need to choose a financial planner who would be ideally suited for his/her requirements. According to the exact needs, investors can hire certified financial planners, chartered financial consultants, chartered financial analysts, personal financial analysts or registered investment advisors.

The financial laws in California are also somewhat removed from those in other US states. Many circumstances call for special attention and application of specifically defined laws in California. Some such special cases that have separate laws related to them are:

a) Bankruptcy: This calls for application of Chapter 7 or 11 of the Bankruptcy Code,

b) Financial Hardship: A person can opt for monthly installment payments if (s)he is unable to file the entire tax return at one time. Such installments are, however, subject to extra interest charges,

c) Audits,

d) Casualties, Disasters and Thefts,

e) Death and/or Disability,

f) Divorce,

g) Fraud,

h) Social security and unemployment insurance,

i) Offers in Compromise, and

j) Gifts.

A potential investors needs to have a clearly designed estimate about the rates of return from investment (s)he desires. Once such a concrete investment plan is in place, the services of financial planners can be hired in Las Vegas. Las Vegas financial planners would help their clients meet their investment goals and make the investment projects an overall success.

Sambit is a professional writer and a widely published author on a variety of topics including finance, stock market, investments, insurance & accounting. He has shown countless Americans the best way to find a financial planner or adviser to solve some of their financial headaches, reviewing all the good and the not-so-good offers that are available today. Sadly, there are simply too many promises that never really deliver and end up just wasting people’s time and money. And yet, there are some really good ones.

5 Reasons Why Financial Education Is Important

It’s important that we keep on educating ourselves financially.

But why is it important to have financial education anyway? What impact does it have in our life that its important for people to take the time and effort to learn and keep on improving its financial education?

There are actually a lot of good reasons why having financial education is important but I’ll be enumerating five (5) reasons why we need to have it.

You’re In Charge of Your Financial Well-Being – This I believe is the most important reasons why people need financial education. Your own financial well-being rests in your own hands, not your broker’s, wealth manager’s. financial adviser’s or financial planner’s. They might say that they have your best interest at heart, but at the end of the day you’re just another client to them that will give them commission when you purchase several financial tools from them. The risk is still yours, its not their money that they’re taking care of, so why do they have to do a good job making sure it keeps on growing and not lose money at all. Not all advisers, planners and brokers are like that, but most of them are. And its really hard to find someone whom you can trust. So it’s still up to you to make sure that you’re finances are well taken cared of. So take the time to build up your financial education. This will allow you to properly assess the advises that you receive and see if they fit into your overall plans. Time to take charge of your own financial well-being.

There’s No Such Thing As Job Security Anymore – Have you ever been laid off or do you know someone who has been laid off? Not a pleasant experience isn’t it? Especially if the lay off caught you by surprise. In today’s modern world, job security no longer exist (unless you work in the Philippine government), you’re only as good as your last sale or last performance. What if you’re suddenly laid off, do you have enough money to support your needs while you look for a new job? How long will it last? What if it took you longer than you expected to find a new job? With financial education though, you’ll be able to figure out what to do if you suddenly got laid off. There are other ways to earn money than just getting a job. In fact the stuff that you’ll discover once you’re financially literate, will allow you to earn more than any job can offer. Don’t let job security fool you, be financially literate and open your mind to a wealthier possibility.

Your Company Won’t Take Care of You After Retire – Gone are the days where you work hard all your life for a company then they’ll take care of you after you retire. Now companies have cheaper options for their employees. Robert Kiyosaki called it defined contribution plan, wherein companies just match whatever amount their employees put in their retirement plans such as 401k in the US or Social Security System (SSS) here in the Philippines. Some companies provide a lump-sum cash for their retiring employees, equivalent to the number of years working for that company, aside from the SSS. Now these plans and benefits are good, but should not be the only thing employees will rely on for their retirement. Chances are, the amount you saved up using these plans won’t be enough to cover for all of your needs when you retire. But with proper financial education, people will be able to invest properly their earnings and make sure that they won’t end up depleting their retirement account earlier than they expected.

Making Money Work For You – You work because you need to earn money. In short you work for money. Do you think the rich work for money? Probably those who are greedy, yes. But what makes them rich anyway? Money inherited from their family? greed and corruption? Maybe, but what about those who are honest? What makes them rich? The rich has money working for them. They don’t just work hard, but they also work smart. They have money working for them so they continue to earn even when they are not working at all. They earn when they’re on vacation, they earn when they’re asleep, heck they even earn while their in the bathroom. It’s their money that’s doing all the work. Again this is because of financial intelligence. Financial intelligence allows you to invest your money in assets that earns you money. In short, money working for you.

To Be Rich and Wealthy – I’m sure most of you dreamed of becoming rich and wealthy. But how do you do it? Get a job and work your way up? Well that can work, but it will take you longer to get there and not everyone can get rich with this method. Win the lottery? Well if your lucky, but this won’t also guarantee that you’ll really end up rich. Chances are you might just spend all your money in less than a year. Own a business? That’s also a good idea, but do you know how to establish a business that will make you rich? Being rich and wealthy will require hardwork and dedication from an individual, but more than that it requires financial intelligence. It’s actually easy to make money, the hard part is to make sure that you keep that money. That’s why winning the lottery is not the answer to riches, because if you don’t know what to do with your money, you’ll end up spending it all. Same with inheriting money. Without financial intelligence, you’ll be burned with expenses here and there and before you know it you’re money will be gone. But if you have financial intelligence, you can get rich, even if you are deep in debt. This is the secret of the rich and wealthy. Being financially literate is the key that makes them who they are today.

Being financially literate is important. It is what separates the successful people financially from those who aren’t. So take time educate yourself financially and take control of your future.