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How To Select A Financial Advisor: The Least You Should Know (Part 22 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 22 In eBook Series)

Chapter 22: CONCLUSION

Receive Complimentary Copy Of eBook (Includes All Graphic Charts)

Thank you for taking the time to read this book. It is designed to help you develop a relationship with an investment advisor that puts you on an equal footing.

If you don’t know what to expect from your advisor, then you will be unable to direct him to fulfill your needs. You must come prepared with an understanding of what your advisor can do for you, as well as what he is legally obligated to do for you. Don’t be afraid to ask questions—or to ask them again if you don’t understand the answer.

RECOMMENDED READING

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How To Select A Financial Advisor: The Least You Should Know (Part 21 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 21 In eBook Series)

Chapter 21:Questions To Ask Your Financial Advisor

The following is content from NAPFA’s “Pursuit of a Financial Advisor Field Guide.” Used with permission from NAPFA.

THE PURSUIT BEGINS
Finding qualified, independent financial advice should not be difficult, but it is for many hard-working Americans. With so many people claiming to be financial planners, financial advisors, financial counselors or wealth managers, how do you know when you’ve found someone who can really help you?

The National Association of Personal Financial Advisors (NAPFA), the country’s leading professional association of Fee-Only financial planners, is pleased to provide you with this field guide to assist you in your pursuit for a qualified, independent financial advisor.

The Pursuit of a Financial Advisor Field Guide is set up to help you with every aspect of your quest, including:

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How To Select A Financial Advisor: The Least You Should Know (Part 20 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 20 In eBook Series)

Chapter 20: Important Questions

If you are concerned about how your financial matters are being handled, or you just want assurance that you are on the right track, you should seek a second opinion of your portfolio and an analysis of the arrangement you have with your financial advisor. You should consult a Fee-Only investment advisor—a full-time fiduciary who is not compensated by commissions.

Resources for finding a Fee-Only advisor are The National Association of Personal Financial Advisors (www.napfa.org), Vanguard Group (www.vanguard.com), The Garrett Planning Network (www.garrettplannning network.com), and ClientFirst Wealth Management (www.clientfirstwealthmanagement.com).

What if you already own a variable annuity?

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How To Select A Financial Advisor: The Least You Should Know (Part 19 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 19 In eBook Series)

Chapter 19: Retirement Accounts

Most of the information in this book regarding diversification, fees, and working with a fiduciary can be applied to retirement accounts, such as 401(k)s, 403(b)s and IRAs. The following brief discussion identifies a few other things to keep in mind.

For many, retirement accounts represent a very large portion of their investment portfolio. Deferred taxation, as well as generous company- matching opportunities through which to acquire company stock, make vehicles such as 401(k)s very attractive.
There are, however, many rules governing retirement accounts that you and your financial advisor should be aware of. For instance, the rules regarding required minimum distributions (RMDs):

1. What if your spouse passes away and you inherit their 401(k)?

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How To Select A Financial Advisor: The Least You Should Know (Part 18 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 18 In eBook Series)

Chapter 18: ODDS AND ENDS

Two investment vehicles which have not been discussed thus far:

1) Exchange-traded notes

2) Non-traded Real Estate Investment Trusts (Non-traded REITs)
Exchange-traded Notes

Exchange-traded notes (ETNs) can be easily confused with exchange-traded funds (ETFs). ETNs appear to be very similar to ETFs. They are traded on an exchange just like an ETF; however, an ETN is simply a contract between the issuer and the purchaser. The return of the investment may be designed to track the stock or bond market as a whole, certain segments of the stock or bond markets, certain commodities or currencies. The purchaser typically accepts credit risk or counter-party risk from the issuer—a bank or brokerage firm, for instance.
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How To Select A Financial Advisor: The Least You Should Know (Part 17 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 17 In eBook Series)

Chapter 17: Alternative Investments “Alternatives”

What are alternative investments? Alternatives are those investments other than traditional investments, such as stocks and bonds. Examples include private equity funds and hedge funds. Both funds are typically structured as partnerships, and have a high barrier to entry due to the large minimum investments. A common structure may feature an asset-based management fee amounting to 1.5 to 2.0 percent per year as well as a bonus amounting to 20 percent of the profits.

Private equity funds usually have a longer-term focus, often purchasing companies to unlock value later through some liquidity event—such as a sale or public offering—or they may be focused on taking a publicly-traded company private.

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Ask Ed: Financial Planning Questions And Answers (Complimentary Gift Book With This Post)

Ask Ed: Financial Planning Questions And Answers

Ask Ed:  Financial Planning Questions And Answers

These are questions you should ask any financial advisor you are working with or considering retaining to handle your money. These questions and answers can be found in a valuable book written by Ed Mahaffy titled “How To Select A Financial Advisor: The Least You Should Know”. At the bottom of this post you can request a complimentary copy to download this 170 Page book as our gift to you. It is a valuable book we recommend EVERYONE READ!

Question: Is your firm a Registered Investment Advisor(RIA), a broker-dealer or both?

Answer: NAPFA believes that any financial advisor offering comprehensive financial planning services should be registered as an investment advisor with either the Securities and Exchange Commission(SEC) or with the state regulatory agency within the advisor’s state. Information pertaining to both SEC Registered Investment Advisors (and the vast majority of state registered investment advisors) is set forth on Part I of the advisors Form ADV(see www.sec.gov). Unlike other investment professionals, only Registered Investment Advisors owe a fiduciary duty under law to their clients. Employees of broker-dealers do not owe the same duty of client care.

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How To Select A Financial Advisor: The Least You Should Know (Part 16 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 16 In eBook Series)

Chapter 16: Separately-Managed Accounts

Separate accounts—also known as separately-managed accounts or “separates”—are segregated individual accounts with one or more investment managers. Unlike mutual funds, your investment is not co-mingled. Many investment managers participate in the separate account programs offered through major brokerage firms and other institutions.

It is expensive to access investment managers through a brokerage firm. A brokerage firm directs your money to one or more investment managers who manage a separate account for you. The investment manager charges an ongoing management fee, perhaps 0.75 percent. Then the brokerage firm charges what is known as a “wrap fee,” which is an ongoing fee that is wrapped around the investment manager’s fee (the folks who you are already paying to actually manage your money). The brokerage firm collects both fees each quarter, pays the investment manager, and keeps the rest.

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Ask Ed: Financial Planning Questions And Answers

Ask Ed: Financial Planning Questions And Answers

Once I read Ed Mahaffy’s book titled “How To Select A Financial Advisor: The Least You Should Know”, interviewed him, reviewed his video library, I knew we had the right person for this special financial planning series. On Fridays, TaxConnections presents questions often asked of a Financial Planner.

Kat Jennings, TaxConnections, CEO

Ask Ed:  Financial Planning Questions And Answers

Question: What personal financial issues will your services address for me?

Answer: Many financial professionals loosely use the term “comprehensive” to describe their range of financial planning services. At its best, comprehensive financial planning covers a wide range of both short-term and long-term financial issues and addresses your personal goals, objectives, and significant life cycle events, but many advisors who say they are comprehensive do not really offer more than investment advice. Find out, in detail, what services your advisor is offering, because the broader the range, the more likely you will be getting truly comprehensive financial planning.

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How To Select A Financial Advisor: The Least You Should Know (Part 15 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 15 In eBook Series)

Chapter 15: Actively-Managed Mutual Funds

As we learned in Chapter 6, investment fees can make a huge difference in your long-term success. Management fees, sales charges and administrative fees are strong headwinds for all shareholders to overcome.

Actively-managed mutual funds may have annual expenses of 2.0 percent or more. This does not include friction costs—any commissions as well as price slippage—incurred when large buyers or sellers move a stock up or down when buying or selling stock.

However, if you read a fund’s prospectus, you are more unlikely to see the true annual expenses because such friction costs are not included. Also, you will not see an estimate of the short-term capital gains liability that you face from the “turnover,” or frequent buying and selling of securities in the fund’s portfolio. The following illustration depicts the annual turnover experienced in various categories of mutual funds.

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How To Select A Financial Advisor: The Least You Should Know (Part 14A In eBook Series)

How To Select A Financial Advisor - Ed Mahaffy, Little Rock, Arkansas

Chapter 14: Variable & Equity-Indexed Annuities

An annuity is the generic term for a financial product that will make a series of payments to an individual over time. These are known as fixed annuities. The level of payments, the amount of time, and the rate at which payments will increase (if at all) are part of the offer of the specific annuity. They are unique for each individual, but they are based on factors such as how much is invested in the annuity, the annuitant’s health and age (that is, anticipated years of receiving the annuity). Annuities meeting this description
are a source of steady income (cash flow) during a time when the stock market has been very volatile.

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How To Select A Financial Advisor: The Least You Should Know (Part 14 In eBook Series)

How To Select A Financial Advisor: The Least You Should Know (Part 14 In eBook Series)

Chapter 13: Bonds and Bond Funds

Most individual investors include bonds as part of their investment portfolios. Typically, bonds are the “safer” (or less risky) part of the portfolio. Essentially, bonds are loans to the government or a corporation, which are then paid back to the lender or bondholder over time. To simplify, a buyer of a bond has a contractual right to interest payments on a regular basis, and then the return of the principal. An exception would be a zero coupon bond (zeros), which has no coupon. Zeros are purchased at a discount to the par or face value. Upon maturity, the bonds are worth par or 100. The difference between 100 and the purchase price is your return. By purchasing bonds from highly-reliable issuers, a bondholder can have a very safe stream of income in the future.

Bondholders are protected. Usually, if a corporation goes bankrupt, bank debt is paid first, then secured bondholders, then unsecured bondholders. Only after those obligations are paid will excess funds be distributed to the holders of preferred and finally common stock.

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