Posts Tagged ‘cfp’

Why should you make a financial plan?

Thursday, August 19th, 2010

comprehensive financial planningIf you have read our previous post on comprehensive financial planning, you will have seen the basic principles on what makes a comprehensive financial plan. Well, this post aims to give you some reasons why you might want to consider making a financial plan.

Getting control over your life
Financial planning is about breaking your financial life into manageable chunks so you can make progress in all of these.  Your plan will allow you to prioritise your needs, so that the most important are dealt with first.
Achieving your goals
Ultimately your financial plan should be about making the most of your life.   We all know we are going to die one day, so why not aim to ensure that you have lived your life to its potential, and have done all the things you set out to do?
A strong financial base will give you the freedom to make choices for you and your family.
What happens to people without a plan?
We all have good intentions, so here are some genuine statistics which might prompt you to some action.  We probably all know people who fit into these categories…
We are all living longer
In 1901 the average life expectancy at birth for a man was 45, in 2002 this was 76.  For those who make it to 65, men can expect to live until 81, women to age 84. Source www.statistics.gov.uk
What this means is that the traditional retirement no longer applies.  We are more active, and live for longer; therefore we need more money and probably want more flexibility.
The state can’t afford to provide for you
People tend to believe, wrongly, that the state will provide for them.  As the population ages, the ratio of working people to retired will only get worse, meaning there will be fewer people available to pay for retirement benefits.
The basic state pension is currently £95.25 per week for a single person.  This increases at a slower rate than average earnings, meaning it loses buying power over time.
The question is whether you would like to live on this amount when you get to retirement.  What would you have to give up?
With an aging population, it is no surprise that the Government is forced to cut benefits and extend retirement ages.  Current proposals aim to increase the state retirement age to 68.
Savings, what savings?
According to a study by the Yorkshire Building Society, the average person’s savings would last only 52 days.  Think about your own outgoings.  How long would your lifestyle last if you lost your income?  Would you have enough put by to cope with an emergency?
I won’t get sick
Hopefully you won’t, but you might.  According to the Department for Work and Pensions in 2007, you had a 1 in 13 chance of claiming on life assurance; a 1 in 8 chance of claiming for critical illness, and a 1 in 5 chance of claiming on an income protection plan.  Yet, according to Mori in 2008, the same amount of people insured their teeth as their incomes! That’s 6% if you’re interested!
If you get sick the Government will give you £89.80 per week (ESA, long term benefit).  If you do not pass the rigorous tests to get this benefit you are deemed to be able to look for work and therefore go on lower Jobseekers benefits.
How many days just to pay your tax bill?
The Adam Smith Institute calculates that you need to work until June 25th to pay your tax.  That means, your money is not yours until you pass this point.  Yet people talk about their income before tax.  If you think of the expense of your tax bills, this puts your disposable income into perspective.
A debt mountain
The average household debt in the UK (excluding mortgages) is £9,180; if you take out those who have no personal loans this rises to £21,355.  If you include mortgages this is £58,290.  See www.creditaction.org.uk
Many people use debt to fund their existing lifestyle, which only serves to feather the nests of those lending money.
As well as this, there is a worrying trend to use interest only mortgages.  This help people to save money and provides flexibility, but many people do nothing to work towards paying off the capital of their loans.  This could lead to severe consequences later in life.
How much money do I need to retire?
Obviously this depends on your expectations in retirement.  As a rule of thumb, you should be able to achieve an income of around 5% a year from your cash assets (pensions, ISAs etc).  Thus, if you have £100,000 this would equate to roughly £5,000 per year.  Of course, this all depends on the age you are, how much risk you want to take and so on.
Want some help?
We work closely with our clients to develop and maintain their financial plans.  If you would like some help in preparing your plan, please contact us.
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What to look for in a true Financial Planner

Wednesday, February 17th, 2010

We often come across financial services firms which call their advisers “Financial Planners”.  They might call themselves Financial Planners, but what most of them offer is financial product sales.  The purpose of this post is to give you an idea of what we do as Financial Planners, compared to other Independent Financial Advisers, who might work for a firm or a bank.

We do this because we feel that the role of a Financial Planner is actually distinct from that of the rest of the financial services profession.  By consequence, we believe that it is very difficult for you to determine the differences between the various services on offer – we would prefer for the role of a Financial Planner to be enshrined and protected, just like that of a Chartered Accountant or Solicitor.

Much of this information is cribbed from the Institute of Financial Planning website, which is aimed at promoting the Certified Financial Planner qualification and standards (to which we subscribe).

What is Financial Planning?
Financial Planning is the process of developing strategies to help you manage your financial affairs so you can build wealth, enjoy life and achieve financial security. Financial Planning is an effective way of ensuring you are fulfilling your life ambitions without having to worry about your finances.  Financial planning is about building towards financial independence, and is not focused on goals, income, assets, expenditure etc.  This process is not about product sales (although obviously, products would be used towards the end of the process to achieve the goals set).  Financial Planners tend to be fee-based because they charge for the creation and maintenance of a plan rather than selling a product.  This means you get what you pay for – advice rather than sales.

What is Financial Advice
Financial advice is what is supplied by the overwhelming majority of UK financial advisers.  This tends to be bespoke, targeted, transactional advice leading to a financial product sale.  As most financial advisers are commission based, they rely on selling you a product to get paid for their work.

What are Financial Planners?
The role of a qualified professional Financial Planner is to look at all aspects of your lifestyle, goals and requirements and develop a financial strategy suitable for you. To make sure you are receiving the best financial planning advice you should search for a CERTIFIED FINANCIAL PLANNERCM professional in your area. A CFPCM professional is someone you can trust and know has completed a high level of qualification.  Naturally, we are only telling you about this because we fit this criteria!
By contrast, financial advisers are well trained, but generally not to the level of a Certified Financial Planner.
Questions to ask a financial professional (whether they call themselves Financial Planners or Financial Advisers)
  1. What is their experience?
    Obviously, this is important; but as important is to ask their experience in dealing with situations similar to those faced by you.
  2. What are their qualifications?
    This is more important than many financial advisers will lead you to believe.  Having advanced and specific qualifications shows a technical expertise, and a commitment to keeping up to date with the current trends.  After all, would you go to a doctor who only had a basic level of qualifications, and hadn’t kept up to date in 20 years?
  3. What services do they offer?
    They should be able to easily define the services they offer to clients so you can decide if these are right for you.  You need to decide whether a comprehensive ongoing review is right for you, or you just want transactional advice on a one-off basis.
  4. What is their advice process?
    How they go about delivering their service is also important – after all, you want to ensure that you will get a robust and consistent delivery of your service.  Our advice is to avoid advisers who cannot easily articulate their process.
  5. How are they paid?
    This is important to your pocket, but also to know if you need to watch out for signs of bias.  You also need to know up-front the extent of your liabilities.  Our preference is for a fixed fee agreement, but many people prefer to operate on commission.
  6. What is the typical cost of their services?
    This will help you to decide if the service is affordable and fits in with your expectations.  Ultimately, you want to avoid an open-ended commitment on your side.
  7. Who else benefits from their recommendations?
    This is a question often missed.  You may have been referred to the adviser following a recommendation.  Does the introducer receive any payment from this arrangement?  We are aware of some local independent financial advisers who regularly pay out up to 50% of their income to professional introducers such as accountants.  While this is fine if the client agrees, we would be concerned that the client is not aware of the arrangement.  If you think about it, if the introducer receives payment (of such a large amount), your adviser will be forced to increase the fees or commission charged to you to achieve their profit margins.
  8. Have they ever been disciplined by the Regulator?
    You would probably want to avoid advisers who have been sanctioned by their professional body, but you can actually check this out yourself by searching for the firm or adviser on the FSA Register.  All financial advisers must be on this register to be able to off you financial advice.  If they are not registered, then you are not covered (and the ‘adviser’ should be reported).
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Posted in Business, Financial planning, General, Inheritance tax, Investment, Mortgages, Pensions, Portfolio management, Protection | No Comments »

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