8 Questions to Ask BEFORE Hiring a Financial Planner

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When meeting with a financial planner for the first time, many people are hesitant to ask questions because they don’t want to sound “dumb”. But dumb is not asking any questions at all.

Ultimately, you have the opportunity (and responsibility) to interview the planner to see if he is the right person to manage your investments. Before you decide if a particular financial planner is right for you, you should ask him some basic questions.

What will I find on your U4?
Remember when you were younger and you could always hide your grades from your parents? That was until the report card was sent home. The U4 is the “report card” of your financial planner’s background. That means if he’s done anything wrong and a complaint has been filed against him, it will be shown here.

By asking the financial planner if there’s anything on his U4, you’re finding out if he’s committed any wrong-doing.

How much do you charge?
You would think that this would be a common question. But many folks feel that it’s impolite to ask how much a financial planner charges. If you were getting your car worked on, wouldn’t you ask the mechanic how much it was going to cost? Don’t be shy in asking this question.

There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you know exactly what you are paying throughout the working relationship. If she explains but it still doesn’t quite make sense, have her put it on paper so that it’s crystal clear.

Those are the two basic questions. Here are some more in-depth questions you could ask:

How many clients do you have?
Here’s a quick story to help drive this point home.

At my old firm, an elderly gentleman walked into the office to drop off a check. As the elderly man waited, he struck up a conversation with one of the advisors in the office. They were from the same hometown.

After the man left, the branch manager — also from the same hometown — approached the advisor and asked, “How do I know that guy?”

“Well”, the advisor said, “that guy is from our hometown, and he’s actually your client”.

The branch manager had more clients then he knew what to do with. So many, in fact, that he didn’t even recognize one who had walked into the office. This is a prime example of how many advisors take on more than they can handle. Asking your planner how many clients they have will help you understand how much you will be serviced going forward. Do you want to be treated as a person or just a number?

What do you drive?
This is a good question to ask for many reasons.

For one, if you have an issue with working with somebody that drives an exotic foreign car, then maybe this planner doesn’t have the same values that you have. Also, if you’re “green” conscious and want to do green investing and your financial planner drives a large SUV, then maybe you both won’t see eye-to-eye.

Asking what she drives will help understand whether you and the advisor share core values that will enable you to work together successfully over the years to come.

Have you ever been fired?
Ask your planner if he’s ever been fired by a client. In our industry, it’s actually very common to start a relationship with a client but then have things things not work out. Sometimes it could be the planner’s lack of service. Other times it could just be a clash of personalities. Nonetheless, the planner should be very open if he has been fired before.

If the advisor is able to share a few stories, it will help you to understand why a client would have gone elsewhere. It’s an uncomfortable question, and seeing how an advisor responds should give you an indication of the character of the planner.

What’s in your portfolio?
If the planner is describing her investment strategy as implementing proper asset allocation and diversification, yet when you look at her portfolio it contains only technology stocks, will you really want to follow her advice? Shouldn’t she practice what she preaches?

If the financial planner is willing to show you some of the holdings in her portfolio, it might help you to believe in her investment strategy. Would you trust somebody selling Goodyear tires if she had Bridgestone on her car? Exactly.

Are you married?
You need to really know your financial planner. Face it: When you meet with a planner, they get insight into your entire life history. Isn’t it fair to get insight into his life, too? If your planner has (or had) a rocky home life, then maybe he has too many things going on in his personal life to truly service you and your needs going forward.

Does that mean a planner has to be married to be able to take care of you? Of course not. I used to work with a planner who was having marital problems and it strongly affected his business. He wasn’t able to focus on his clients, and because of that he eventually got out of the business. You just want to make sure that a planner can focus on your needs.

How long do you plan to be in the business?
If you search for a financial planner and find one that fits your needs, what happens when she retires? Does she have a sufficient exit strategy plan in place? Maybe a younger advisor that is going to fill her shoes. If so, does that younger financial advisor fit the criteria that you used to hire the first advisor?

Getting a sense of how long your new-found planner will be in the business, and what her plans are after she leaves, may help put you at ease knowing that you made the right decision for years to come.

Have you met with a financial planner? If so, what did you ask before hiring her? Are there other questions you wish you would have asked? Share your thoughts.

Euro Rallies Vs Dollar Ahead US Bank Earnings

Thin holiday trade and a late-day bounce in U.S. stocks helped the euro retrace all of its losses against the dollar from the previous week.
The Dow Jones Industrial Average finished above its intraday low, supporting the risk appetite trade out of the dollar, a funding currency. The euro had already strengthened overnight, ahead of key U.S. first-quarter earnings releases expected later this week. In the coming days, JPMorgan Chase (JPM), Citigroup (C) and others are scheduled to report earnings.
Technical trading was also likely a major factor in allowing the euro to advance more than two U.S. cents over the course of Monday's session. More traders hopped on as the currency broke through technically important levels, further extending the euro's rally.
But currency movements were likely exaggerated with many markets, including much of Europe, still shut for the Easter holiday. Thin trading conditions often result in volatility.
The euro gained as high as $1.3395 and Y134.02, its highest levels since last Tuesday.
The dollar was also sold against the yen. It fell to a two-session low of Y99.86.
U.S. data that could swing currencies again on Tuesday include March retail sales and the producer price index.
Monday afternoon, the euro was at $1.3376, well above $1.3142 late Friday. The dollar was at Y100.04, down from Y100.38, according to EBS. The euro was at Y133.82, up from Y131.95. The U.K. pound was at $1.4869. Data for the pound were unavailable Friday due to the holiday. The dollar was at CHF1.1314, down from CHF1.1579.
Sentiment on the euro-dollar pair have been in flux since late March on equally uncertain economic outlooks for both the euro zone and U.S. This had led the pair to fluctuate back and forth inside a range without any clear direction yet.
Meanwhile, the Australian dollar, another risk-positive currency that has been rallying for more than a month, rose to its highest level since October at $0.7323.
Besides technical positioning, the Aussie dollar was also aided by a report that showed Chinese lending rose to a record high in March. China is a major trading partner of Australia.
China's broadest measure of money supply, M2, surged 25.51% at the end of March from a year earlier as new yuan loans hit a new monthly record high, government data showed Saturday.
China's central bank on Sunday said it would ensure there was enough credit to meet the needs of the economy. While the PBOC said it was sticking to a moderately loose monetary policy, it wants the credit to go to the right sectors and said it would control loans going to the wrong ones.
The Canadian dollar also mounted a significant advance Monday, rising to its highest level since the beginning of February on the rebound in riskier trades in a thin market.
The U.S. dollar fell to C$1.2166 from C$1.2256 late Thursday.

5 New Investing Rules for Retirement

Many of the old rules for retirement investing no longer apply. Facing longer life spans, increasing healthcare costs, and a market in crisis, retirees will need more growth in their portfolios during the coming years and decades. At the same time, they need the assurance that a 37 percent market drop--as we saw in 2008--won't completely devastate their remaining nest egg. A growing number of financial planners are rethinking the conventional wisdom. (Remember the old adage that you should subtract your age from 100, and devote that percentage of your portfolio to stocks?) Here are five new rules to consider:
Separate your investments into different pots. Often, investors in retirement lump all of their money together, with which they pursue one strategy, says Eric Bailey, managing principal of Captrust Advisers in Tampa. His firm, which works with pensions, endowments, and high net-worth individuals, takes an approach ripped straight from the institutional investors' playbook. Clients' money is separated into three categories: Short-term funds reside in very low-risk investments, such as high-quality bonds; intermediate-term money goes in a balanced mix of stocks and bonds--such as a 50-50 or 60-40 split; and long-term investments starting with five-year time horizons are heavier on stocks. "This way, you can take advantage of a market sell-off with your long-term investments and you'll avoid needing to liquidate investments when stocks are down," Bailey says.
Don't reach too far for yield. Cash may be king in this market, but decent yields are hard to find. Treasuries present the ultimate in safety, but the pay is meager: The one-year bill currently yields just 1.1 percent and the five-year 2.2 percent. Unfortunately, if you're looking for a bigger payout, you'll have to take on some risk. Says Oliver Tutt, managing director of Newport, R.I.-based Randall Financial Group: "You'll have to make a trade-off somewhere, particularly if you're dealing with large amounts of money." Stick with quality: If you're considering a bond fund, for example, be sure to look under the hood at its various holdings and review the fund's prospectus to see what types of bonds--and credit ratings--it targets. "Quality is always important, but more than ever it is now," says Bill Walsh, chief executive officer of Hennion & Walsh, an asset management firm based in Parsippany, N.J. "Know what you're buying."
Make it a muni. Government bonds are airtight when it comes to safety, but their yields are near all-time lows. As an alternative for retired investors in the upper tax brackets, municipal bonds are worth considering. With munis, investors get the benefit of tax-free income, less volatility than corporate bonds, and, theoretically, more safety. "Right now, there's more value in munis than almost every other area. But be sure you know the issuer," says Walsh. Among munis, he recommends high-grade, general-obligation bonds and essential-purpose bonds such as the sewer authority. "Stay away from things like nursing home bonds, which could go out of business," he says. Walsh prefers single-issue bonds over bond funds, which "will work, but you have to be careful," because there is no set maturity date, no set yield, and managers can sometimes buy outside of that asset class.
Go for dividends. It's a no-brainer that quality matters in a market like this. But how do you know if a stock is "quality"? Dividends are one indicator. That's because dividend income--which is essentially a portion of company profits paid out to shareholders--helps offset fluctuations in a stock's share price, creating a cushion during turbulent markets. "During trying times, dividend-paying stocks tend to do well," says Paul Alan Davis, portfolio manager of the Schwab Dividend Equity Fund. Davis also looks for companies on solid footing, which have plenty of cash and aren't in "financial straits." During the first 11 months of year, Davis says, the S&P's dividend-paying stocks fell by roughly 36 percent; meanwhile, nondividend payers were down about 45 percent. You'll find those dividend payers in more developed industries such as consumer staples, utilities, and healthcare. Examples include Philip Morris, Coca-Cola, General Mills, Bristol-Myers Squibb, and Pfizer.
Consider "alternatives": This asset class, which is used most often by pensions and other institutional investors, runs the spectrum from commodities and annuities to real estate. But individual investors can also use them to dramatically reduce volatility in their portfolios, says Gary Hager, founder and chief executive of Integrated Wealth Management in Edison, N.J. He likes real estate investment trusts, or REITs, which have historically provided a smooth ride for investors. A sample portfolio from 1978 through 2007 shows that putting 10 percent of equity holdings in U.S. REITs improved returns by 0.3 percent and cut volatility by 0.9 percent, compared with investing in stocks alone, according to The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly. Other alternative investments to consider include commodities and inflation-protected securities, both of which are offered in ETF form.

ULIPs vs Mutual Funds

Unit Linked Insurance Policies (ULIPs) as an investment avenue are closest to mutual funds in terms of their structure and functioning. As is the case with mutual funds, investors in ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis.
Similarly ULIP investors have the option of investing across various schemes similar to the ones found in the mutual funds domain, i.e. diversified equity funds, balanced funds and debt funds to name a few. Generally speaking, ULIPs can be termed as mutual fund schemes with an insurance component.
However it should not be construed that barring the insurance element there is nothing differentiating mutual funds from ULIPs.
How ULIPs can make you RICH!
Despite the seemingly comparable structures there are various factors wherein the two differ.
In this article we evaluate the two avenues on certain common parameters and find out how they measure up.
1. Mode of investment/ investment amounts
Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house.
ULIP investors also have the choice of investing in a lump sum (single premium) or using the conventional route, i.e. making premium payments on an annual, half-yearly, quarterly or monthly basis. In ULIPs, determining the premium paid is often the starting point for the investment activity.
This is in stark contrast to conventional insurance plans where the sum assured is the starting point and premiums to be paid are determined thereafter.
ULIP investors also have the flexibility to alter the premium amounts during the policy's tenure. For example an individual with access to surplus funds can enhance the contribution thereby ensuring that his surplus funds are gainfully invested; conversely an individual faced with a liquidity crunch has the option of paying a lower amount (the difference being adjusted in the accumulated value of his ULIP). The freedom to modify premium payments at one's convenience clearly gives ULIP investors an edge over their mutual fund counterparts.
2. Expenses
In mutual fund investments, expenses charged for various activities like fund management, sales and marketing, administration among others are subject to pre-determined upper limits as prescribed by the Securities and Exchange Board of India.
For example equity-oriented funds can charge their investors a maximum of 2.5% per annum on a recurring basis for all their expenses; any expense above the prescribed limit is borne by the fund house and not the investors.
Similarly funds also charge their investors entry and exit loads (in most cases, either is applicable). Entry loads are charged at the timing of making an investment while the exit load is charged at the time of sale.
Insurance companies have a free hand in levying expenses on their ULIP products with no upper limits being prescribed by the regulator, i.e. the Insurance Regulatory and Development Authority. This explains the complex and at times 'unwieldy' expense structures on ULIP offerings. The only restraint placed is that insurers are required to notify the regulator of all the expenses that will be charged on their ULIP offerings.
Expenses can have far-reaching consequences on investors since higher expenses translate into lower amounts being invested and a smaller corpus being accumulated. ULIP-related expenses have been dealt with in detail in the article "Understanding ULIP expenses".
3. Portfolio disclosure
Mutual fund houses are required to statutorily declare their portfolios on a quarterly basis, albeit most fund houses do so on a monthly basis. Investors get the opportunity to see where their monies are being invested and how they have been managed by studying the portfolio.
There is lack of consensus on whether ULIPs are required to disclose their portfolios. During our interactions with leading insurers we came across divergent views on this issue.
While one school of thought believes that disclosing portfolios on a quarterly basis is mandatory, the other believes that there is no legal obligation to do so and that insurers are required to disclose their portfolios only on demand.
Some insurance companies do declare their portfolios on a monthly/quarterly basis. However the lack of transparency in ULIP investments could be a cause for concern considering that the amount invested in insurance policies is essentially meant to provide for contingencies and for long-term needs like retirement; regular portfolio disclosures on the other hand can enable investors to make timely investment decisions.

ULIPs vs Mutual Funds

Investment amounts

ULIPs - Determined by the investor and can be modified as well

Mutual Funds - Minimum investment amounts are determined by the fund house


ULIPs - No upper limits, expenses determined by the insurance company

Mutual Funds - Upper limits for expenses chargeable to investors have been set by the regulator

Portfolio disclosure

ULIPs - Not mandatory*

Mutual Funds - Quarterly disclosures are mandatory

Modifying asset allocation

ULIPs - Generally permitted for free or at a nominal cost

Mutual Funds - Entry/exit loads have to be borne by the investor

Tax benefits

ULIPs - Section 80C benefits are available on all ULIP investments

Mutual Funds - Section 80C benefits are available only on investments in tax-saving funds

* There is lack of consensus on whether ULIPs are required to disclose their portfolios. While some insurers claim that disclosing portfolios on a quarterly basis is mandatory, others state that there is no legal obligation to do so.
4. Flexibility in altering the asset allocation
As was stated earlier, offerings in both the mutual funds segment and ULIPs segment are largely comparable. For example plans that invest their entire corpus in equities (diversified equity funds), a 60:40 allotment in equity and debt instruments (balanced funds) and those investing only in debt instruments (debt funds) can be found in both ULIPs and mutual funds.
If a mutual fund investor in a diversified equity fund wishes to shift his corpus into a debt from the same fund house, he could have to bear an exit load and/or entry load.
On the other hand most insurance companies permit their ULIP inventors to shift investments across various plans/asset classes either at a nominal or no cost (usually, a couple of switches are allowed free of charge every year and a cost has to be borne for additional switches).
Effectively the ULIP investor is given the option to invest across asset classes as per his convenience in a cost-effective manner.
This can prove to be very useful for investors, for example in a bull market when the ULIP investor's equity component has appreciated, he can book profits by simply transferring the requisite amount to a debt-oriented plan.
5. Tax benefits
ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds good, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits.
Maturity proceeds from ULIPs are tax free. In case of equity-oriented funds (for example diversified equity funds, balanced funds), if the investments are held for a period over 12 months, the gains are tax free; conversely investments sold within a 12-month period attract short-term capital gains tax @ 10%.
Similarly, debt-oriented funds attract a long-term capital gains tax @ 10%, while a short-term capital gain is taxed at the investor's marginal tax rate.
Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. As always, it is vital for investors to be aware of the nuances in both offerings and make informed decisions.