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Todd's Tax Service LLC

Choosing A Planner:

It seems like everyone sells investments now. I don't know what questions to ask when deciding who to trust with my money?  The investment field is comprised primarily of commission based securities representatives. This can result in "sales pressure" if you select the wrong individual to work with. Interview prospective investment professionals and don't buy anything on your first visit! Take a trusted friend or family member.  Ask prospective brokers or registered representatives how they will be compensated. Ask how long they have been in business. Ask for a reference, someone you can call from home and ask questions to about how they have been treated. You worked hard for your money, so it is worth taking some time before investing it.

Who should I stay away from? In general, avoid sales people without permanent and long standing ties in your community. Annuity salesman often travel by car and don't have offices. All too often, they sell products with underrated insurance companies and can involve long surrender periods. They are usually dressed very well and become instant friends with you. These are the most dangerous types, because they are trained sales people, and nothing else. There's a reason they drive better cars than you and I. 

Would you like to join me for dinner at your favorite meal? I'm going to pick up the tab.  Many financial advisors send out invitations for a free dinner to get you in front of their sales force.  These dinners often involve techniques designed to gather your information and get you positioned for the "big one". Hint:  for $100 you can take you and yours out for the best meal you ever had and avoid this potential trap. DO NOT GO TO FREE DINNERS. (People who accept these invitations are known as "plate lickers" in the industry.)

How can I select someone who will have my interests in mind, even if they do get compensated via commissions or fee?  A good advisor will ask you questions about your goals and risk tolerance. A good advisor will lay out a variety of scenarios and help you choose one that fits with your goals and is consistent with your tolerance for risk. 

How can I save money by paying less in commissions and fees?  Keep a portion of your IRA or other savings away from your broker in bank IRAs or other savings accounts. Do not buy annuities. Do not buy advisory or wrap accounts that charge an annual fee. Stick with reasonably priced mutual funds for the best deal. Even "load" funds that compensate your broker for his time offer a good value relative to the other options out there. They (mutual funds that may include a commission) are easier to understand and transfer to a different broker if you decide to switch brokers. "In house" brokerage accounts with proprietary funds and complicated fee structures are much more difficult to move.

Can I do some of this over the phone?  If you are willing to work with someone over the phone, you can probably save a few bucks in fees.  Most large financial services firms have excellent brokers and advisors available by phone, and they usually don't work on a commission basis. So there may be less likelihood of a "front end load" or "deferred sales charge", both of which can eat into your potential returns.

What is a front end sales charge?  This is the traditional way most mutual funds are sold at a retail level. The  sales charge was less of an issue back in the day of fat returns.

What is a "deferred sales charge" (or surrender charge)?  The charge is taken out on the "back end" , usually if you fail to maintain the investment or insurance contract for a specified period of time.

What are the big mistakes people make when investing their money?    You should at a minimum have a basic understanding of what you own, what is at risk, and what is not at risk. Failure to thoroughly understand what you own is probably mistake #1. And this error is not reserved for the clients of brokers. Many do it yourself investors make this mistake without any help!

Who have your clients had good success with in general terms?  Firms have different cultures, some place heavy emphasis on sales quotas and this results in the client feeling pressured to make decisions and buy products. A good firm won't pressure you to make instant decisions but will help educate you and even include your children (if you are a senior) in the investment process. If you are not happy with your current broker, we will give you a recommendation or two upon request.

What are the different types of "planners" or investment representatives?

A series 6 or "registered representative" is licensed to sell mutual funds.

A series 7 or "general securities representative" is what has traditionally been called a "stock broker".

A Registered Investment Advisor (RIA) is yet again a different license, usually working
on a percentage of portfolio basis.

An insurance agent (Life and Health) sells annuities and insurance products.

A bank employee sells F.D.I.C. insured products like CDs.

A "CFP" is a Certified Financial Planner. This credential indicates a high level of commitment to providing comprehensive financial planning services. 

There are major differences between the above, we can give you some tips based upon knowledge of your tax and financial situation, regarding who you may need to help you.
For example, if you are simply trying to open an IRA, any of the above will work fine. 

What is a fee only planner?  Some CFPs charge for their services by the hour or by the plan. This might be a good deal for someone with a complex financial situation, especially if you prefer to manage your own investments but need help with financial planning beyond the general help you can receive through Todd or another tax professional.  
Suggestions when working with a commissioned financial services rep...

When setting up appointments, explain that you will be collecting information and taking it home to read before you make any investment decisions. 

Ask who will be at the meeting and refuse to any meeting with more than 1 representative. The highest pressure sales representatives and licensed insurance agents often bring peers or managers to the meetings to pressure you into buying product and making on the spot decisions. Use the law of numbers against the rep by bringing a spouse or trusted family member to the meeting and again insist on meeting with only 1 person from the firm. 

Ask for recommendations from friends and family.

Educate yourself about personal finance as much as you can so that you make informed decisions. Remember, most financial services reps work on commission and have their interests set as #1. You are #2.

Most of the "financial planners" you see on Main Street are called producers by their brokers. Firms monitor "production" above all else - how much money does the rep or agent bring in? There is tremendous competitive pressure in the industry to "gather assets" and produce (commissions). Truthfully, the best planner might be the one you don't hire. Consider working with your tax professional who in most cases will be more than happy to explain the different types of accounts and help you with tax planning. Utilizing a low cost provider (there are many)  you can obtain investment information and  advice at much lower cost without the "producer' trap.

Most financial planners are salespeople in disguise.