Ahhh . . . New Year’s. It’s that fateful time when we all vow to take control of our bad habits. It is the time each year when we sit, ponder, and reflect on the wrongs in our lives and take action to fix them. For most of us, our resolutions focus on two things: our physical and financial fitness.
I reached out to my good friend Pete Tormey to get his take on New Year’s resolutions. Pete owns Athletic Performance Training (APT), located at the Falmouth Ice Rink. This guy and his crew are amazing and have trained some of the most elite professional baseball and hockey players. On the other hand, are those regular guys, yours truly included—who is turning the big 5-0 in 2017 and has made a commitment to get physically fit as I enter the “back nine” of life.
Pete says, “In the physical fitness industry, New Year’s is like Black Friday. Historically, it is when we see a big influx of people. Most people seem to find New Year’s as a great time to start or renew their fitness goals. I love to help people at all levels to make progress and to become healthier.” (For me, I am glad he references “all levels.”)
When I met Pete for my initial consultation, he asked me things such as, “Do you drink? Do you smoke? How much exercise do you get a week? Are you experiencing any pain? What are your goals? What do you eat?” Those questions, although somewhat simple, are critical to personal training professionals like Pete, to establish a baseline and to build a solid fitness system.
You see, I find that becoming physically fit is quite similar to becoming financially fit. And for those trying to get financially fit, an appointment with your retirement specialist should work the same way. So the following is a list of some questions about your financial life that must be answered in order to build a solid financial system.
What’s Your Goal?
This is the first question that must be addressed. It’s absolutely impossible to create a successful financial plan of action if it’s not clear what you want that future to look like. Be prepared to give specifics of where you want to be, and what you would like to accomplish with your finances in the years ahead. Is there a target figure you want for retirement? Do you want to be able to finance your kids’ college education? Are you looking to leave a legacy? These goals can be just a few years down the road or decades into the future, but be prepared to give a clear picture of what you are looking for.
What’s Your Current Situation?
As they say, tomorrow is a gift, but today is the present! Once the future is laid out, it’s critical to nail down what your current situation is. Before an advisor can work out a plan moving forward, they need to know what you have to work with now. Be prepared to give a realistic account of your total current assets. Be honest about what you are bringing in now in terms of cash flow as well as how you expect that cash flow to change in the future.
A retirement specialist must also understand if you are in the accumulation or distribution phase of your financial life. This is critical, since oftentimes you can take on more risk in the accumulation phase of your life. On the other hand, when we enter those distribution years, well, more risk may not be our friend. The appropriateness of any investment vehicle is based greatly on what you have now, what you expect to have moving forward, and what phase of your financial life you are currently in.
Do You Have A Budget?
All of us run a business. Pete and I are business owners here in town, but just like you, we also each run another business, our households. And every successful business must have a budget. It is our blueprint to success.
Folks, our households are no different. Questions such as, “Do you have a formal budget?” become extremely critical. If the answer is no, take action and create one. Feel free to use the one on my website at http://cutterfinancialgroup.com/recommended-links.
If you do have one, it’s important that you lay out your budget for your advisor. If you are in your accumulation phase, it helps the specialist know what cash you have available to invest each month to help hit your goal. If you are in your distribution phase, it helps the specialist design an income system, so you don’t run out of money. Be straightforward and honest with your planner so that they can be straightforward and honest about what plans and steps are right for you.
What’s Your Role?
It’s also important to have an idea of the role you want to play in any financial planning. In other words: how involved do you want to be in the process? Especially if you are going into the appointment as a married couple, set expectations regarding who the best contact person is. Do you prefer e-mail or phone for the form of contact? What times of the day are you available to chat? Be clear about what type of involvement you want in the planning process and how you want that involvement to be carried out.
What’s Your Standard?
Folks, this is important because there are two basic industry standards and you need to know what side of the fence your retirement specialist is operating from. The two standards are suitability and fiduciary standard of care.
The fiduciary standard requires that an adviser put the clients interest first and is adhered to by Registered Investment Advisors (RIA) and enforced by the Securities and Exchange Commission (SEC). The fiduciary standard offers “best advice”. This best advice must take into account the needs of each individual client . . . period. Common licenses required to operate from this standard will be a Series 65.
On the other hand, the suitability standard requires that a broker make recommendations that are suitable based on a client’s personal situation, but the standard does not require the advice to be in the client’s best interest. Brokers, also known as registered representatives, are held to this suitability standard, which is enforced through a self-regulatory organization called the Financial Industry Regulatory Authority (FINRA). Common licenses required to operate from this standard are a Series, 7, 6, and 66.
Ask your retirement specialist to formally list all the areas in which they and their company can receive commissions and fees. If they cannot or will not, well, you may want to consider whose best interests they have at heart.
Just as an appointment with someone like Pete at APT is critical to starting that journey to become physically fit, making an appointment with a good retirement specialist is critical to becoming financially fit.
Be vigilant and stay alert, because you deserve more in 2017.
By Jeff Cutter
Jeffrey also began his financial and tax career in 1993 at KPMG Peat Marwick in both Providence, Rhode Island and Boston, Massachusetts and later joined ING Financial Partners in Braintree, Massachusetts. He started Cutter Financial Group, LLC in 2001 in Mansfield, Massachusetts. In 2008, Jeffrey left the brokerage world to become independent and earned his Investment Advisor Representative (IAR) designation. As an IAR, together with being designated a CPA and a PFS, Jeffrey is subject to Fiduciary Standards instead of the suitability standards used by brokerage and financial institutions. Jeffrey must put his clients needs first.