Gary Boatman: Beware of scams
Financial consumers, and especially seniors, must be careful of products that they are offered.
Most people do not realize that there different standards that advisors must adhere to. Registered reps (stockbrokers) and insurance sales people have a suitability standard of care. This means that they can defend their actions for similar people. Certified financial planners and investment advisors have a higher standard of care. This is called a fiduciary standard. This means doing what is in the client's best interest. This is the same standard to which CPAs and attorneys are held.
Congress is currently discussing requiring the same standard from all advisors. Large brokerage firms are fighting this requirement. They say they may be able to accept it if the definition is changed. How do you change “Doing what is in the best interest of the client?” Why would they care? Many people call themselves financial advisors or planners. There are no set requirements to use these generic titles. There are more than 170 known designations and certifications. Many of them require almost no training or testing. State securities departments only recognize a few of them.
Some agents are called captive. They are only allowed to discuss products issued by their company. While some of these big-named company products are good, do you think any company has all of the best products? I can tell you that they don't. Some companies own mutual fund companies or get more commissions from certain preferred carriers. These products are what they recommend. Only independent advisors can get almost any product. This one-size-fits-all approach does not act in the fiduciary standard for the client.
Everyone has different needs in retirement. People have different risk tolerance levels, time frames, goals and starting positions. People need some assets to produce a regular income like a paycheck. This covers everyday needs and you need to know that you cannot outlive this income stream. Some assets must produce lump sum funds. This might be used to purchase a car or take a special vacation. Some assets must be used to protect purchasing power from inflation. Without this protection, your standard of living will slowly erode.
There are three distinct asset groups for tax purposes: Qualified money, Roth and non-qualified. Each group must be maintained separately. Each has special benefits and should be maximized for your advantage. Also, there are different choices depending on if it is a lump sum or coming from ongoing contributions. A real advisor will be concerned about a much more comprehensive plan than just handling your investments. You need a distribution plan, medical expense strategy, risk reduction plan and other elements.
Seniors must be very careful to avoid scams. A valuable report, “Financial Self-Defense for Seniors,” is available from the CFP Board. This shows red flags that should be avoided. They warn about scams in which others have lost money. The report offers ways to protect yourself and tells you what to do if you are a victim of abuse. To get your free copy, e-mail your name and address to firstname.lastname@example.org.
Friday, Saturday and Sunday of this week is the MonValley Home Show, sponsored by The Valley Independent. I hope to see many of you there.
Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.