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Financial Self-Defense

Financial Self-Defense

            The average American family has $3,800 in the bank and $2,200 in credit card debt, according to Visual Economics. Furthermore, 25 percent of households have no savings whatsoever and only 18 percent are very confident about their retirement situation. Despite these bleak statistics, there are plenty of financial tips families can use to improve their financial situation.  The Certified Financial Planner Board of Standards, Inc. (CFP Board) recently published a Consumer Guide to Financial Self-Defense. Below are some highlights from this publication:

  • Always verify a financial advisor’s credentials. Ask prospective advisors to identify the organizations that license or supervise them. For example, brokers are regulated by FINRA, investment advisors are regulated by either the U.S. Securities and Exchange Commission or a state securities regulator (depending on the amount of assets they manage), and insurance companies are overseen by insurance departments in the states in which they do business. Certified Financial Planner licensees are overseen by the CFP Board. Two helpful Web sites are www.CFP.net/searchand www.finra.org/brokercheck.

  • Never leave blanks in any document that someone else could fill in without your knowledge or consent. Ask your financial advisor to provide you with copies of final documents that clearly indicate the date that they were completed. Doing this will provide written evidence should a discrepancy arise later.

  • Never make a check payable to an individual financial advisor or leave the payee line of a check blank. If you pay a fee for an advisor’s services, make the check payable to the name of the advisor’s business.

  • Question any situation that gives an investment advisor unlimited access to your financial accounts and/or money intended for investing. This includes granting a full power of attorney over your assets.

  • If you are investing with a small advisory firm, make sure that you receive regular statements about your investments from independent third parties such as a brokerage firm or trust company.

  • If a financial advisor is a sole practitioner, verify that he or she carries professional liability (also called E & O or errors and omissions) insurance.

  • Be suspicious of pressure tactics or sales pitches made during a major life change such as widowhood or divorce. Rather, find a trusted family member, friend, or professional to help with truly urgent matters such as meeting tax or reporting deadlines.

  • Beware of investment pitches that exclude or minimize any discussion of downside risk. An example is the sale of high-expense variable annuities to seniors with the promise of no loss of the funds invested and a high rate of return. An advisor, however, fails to mention that return on the annuities is subject to market volatility and that they have steep surrender charges and limited options for distribution.

  • Always ask for a written description of an investment in writing where you will see words like “guarantee,” “always,” and “completely” are absent, even if they were used frequently in a verbal presentation. Also consider getting a second opinion on an advisor’s recommendations.

  • Give yourself plenty of time to mull over an investment before making a purchase decision. Don’t act until you fully understand what is being offered. Speak up when you fell pressured and consider this a “red flag” and sufficient reason to delay making a decision.

  • Plan for the possibility that you may not be able to handle your own affairs. Give power of attorney to a trusted friend, relative, or professional to make financial decisions in the event that you cannot act on your own behalf.

 

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