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Boatman: Good financial planning is not 'one size fits all'

| Tuesday, May 14, 2013, 8:18 p.m.

Did you ever wonder how an advisor decides what products to recommend to you?

The answer depends on what type of advisor you are talking to. Most advisors are employees of companies. They may work for an insurance company, stock broker or a bank. Like most employees, they have bosses. If you walk into a chain hardware store looking for a particular brand of hammer that they don't carry, do you think you will be offered one that they do stock? Of course you will. Now, while all 16-ounce claw hammers may drive nails equally well, all mutual funds or annuity will not perform exactly the same or have the same features.

Stockbrokers work for broker dealers. They decide what product their registered representatives may sell. It is a violation for a representative to present something not on the approved list. Products may be proprietary to the company, which means they are products created by their company. This means the company earns higher fees and income. Management does not want a competitor's product sold by their sales force. Most brokers have a preferred list of products. These are products that are offered to almost all clients. They may be getting special concessions or trying to win a contest trip. This can happen because they have a suitability standard, which basically says have similar clients purchase this product.

Many people have been sold REITs, limited partnerships and other exotic products because they were preferred products that produced high commissions. Often the purchasers did not understand the risk or lack of liquidity.

Insurance company employees are either captive or independent. Captive employees work for one company. They may be provided office space or some exclusivity. Often the company name will be on the door. Guess what company's products are going to be the solution to your problem? Bank representatives have a similar dilemma. They are highly controlled by headquarters. These advisors also have a suitability standard. While there are a number of really good companies in the industry, do you think any company is the best at everything? Of course not. Good financial planning is not one size fits all. This does not mean that these planners would not like to help you get a better product; they are not allowed by their employer to do so.

Advisors are only allowed to talk to you about the type of products that they are licensed to sell.

For instance, someone who has only an insurance license is not allowed to talk about registered investments such as stocks and bonds. Likewise, an advisor who is only security-licensed is not allowed to offer insurance products. So, what type of product will solve your needs? Often a proper asset allocation will require some of each to provide guaranteed income protection, offer liquidity and growth to offset inflation. Most people are surprised that although these people can tell you about their products they are not licensed to give financial advice. This line is often blurred.

Investment advisors are licensed to give financial advice by either the SEC or state security commission. Because of this, they are held to a much higher standard of acting as a fiduciary. This means that their recommendations must be in the client's best interest.

Investment advisors will consider a wide variety of companies and consider all of clients' objectives. No planner should offer a product without asking many questions to the client. People need some income that is guaranteed and arrives regularly like a paycheck. You will also need some money available as lump sums to buy things such as a car or major vacation.

Also, timing is very important. Different products have different time frames and investment risk. These all must be coordinated into a comprehensive plan and not helter skelter. This plan will consider all of the things that can affect your financial life so as to reduce the chance of major financial surprises.

Do your research and choose carefully. After all, it is your money.

Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.

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