Passive VS. Active Account Management:

Ever since the inception of the first “index fund” – a fund that tracks a particular index, such as the SPY ETF that seeks returns equal to the returns from the S&P 500 index – the debate over “active” versus “passive” asset management continues to rage on. 

“Active management” refers to any portfolio management strategy in which the manager “makes specific investments with the goal of outperforming an investment benchmark index.”

Picking individual stocks, for example, represents “active management.”

“Passive management,” on the other hand, refers to investment strategies that seek to match a particular stock or bond index – the idea being that by investing directly in index funds, trading costs are minimized, and there is essentially no risk of “underperforming” relative to the corresponding.

Many financial advisors take a stance on this issue, and there are compelling arguments on both sides.

On the passive management side, proponents point out that, “Over the last ten years, 82% of all money managers in the large-cap universe under-perform the market averages.”

Several advisors that support passive management believe that picking individual stocks, or investing in actively-managed mutual funds, is futile; they cite the relatively high management costs that come with actively managed investments, as well as the fact that approximately half of all mutual funds do not outperform their respective benchmark every year.

On the “actively managed” side, advisors will point out that, “the returns of funds with well-known managers that have outperformed the market significantly, and may argue that there are inefficiencies in the market that make certain stocks more appealing than others.”

They may also point to the recent recession, during which “passively managed” funds typically plummeted.

So how does one choose between “active” and “passive” financial advisors?

1) First of all, costs and fees are very important; even if a certain fund outperforms the market consistently, it most likely charges high fees that aren’t reflected in its return figures.

2) Secondly, the line between the two camps doesn’t have to be absolute; financial advisors may invest directly in indexes (passive investing), as well as picking individual stocks and funds as well.

Asking a potential advisor about his or her view on this topic is always a useful indicator of their investment philosophy and strategy.

We hope this helped.  Thanks for visiting AllFinancialAdvisors.com

We are now in a New Era of Investing and Money Management

Every day, there are more and more products, services and companies pushing the idea that you should be your own financial advisor. 

Do-it-yourself brokerages like Scottrade, TD Ameritrade and E*Trade lure you to “discover how millions of customers are taking control of their future with one of the most powerful investing and trading machines” (an actual quote from the E*Trade website).

Such marketing tactics – while great for corporate profits – are often dangerous because they make us feel like we should all be managing our own money and investments.

Let’s step back a minute.  Financial advisors and asset managers dedicate their entire careers, and often lives, to managing investments and financial plans for their clients. 

How would you feel if your money was being managed by someone who “moonlights” as a financial advisor, finding time apart from their day job to look after your finances and retirement?

Probably the same way you’d feel if it were suddenly your responsibility to manage all your personal investments, savings, and retirement funds. 

So don’t be fooled by brokerages and research services claiming that you can instantly become your own professional, market-outperforming financial advisor; be realistic about the time, training and especially experience necessary to securely and effectively manage your assets. 

Best wishes in your search to find the right financial advisor for you.

It is recommended to choose 2-3 financial advisors to contact before you select one to work with.  This will allow you to see the various expertise each advisor has and give you choices to base this very important decision on. 

This decision will most likely be one of your major ‘partnering’ decisions in your business life…

We hope you have a great weekend.  The AllFinancialAdvisors.com team.

 
There is an ongoing debate in the securities industry about the extent to which insurance agents are qualified (and should be sought out) to provide investment advice.

Because of products like annuities – which are financial products that accept investors’ money in exchange for securing a steady future (or immediate) cash flow, and are often used for retirement saving – fast-talking insurance agents have been known to blur the lines between financial advisory and insurance.

While annuities can be an excellent addition to any investor’s retirement plan, let’s face it – insurance is a business driven by sales commissions.  Insurance agents are definitely NOT financial advisors. 

Insurance agents will often tout and/or promote the insurance products that charge the highest fees and generate the greatest sales commissions – NOT products that an independent advisor would likely recommended, especially if those financial advisors are bound by a fiduciary duty and are seeking the best interest of their clients.

So when making your retirement decisions, or if you’re considering purchasing an annuity product, we recommend you work with independent financial advisors whose primary goal is to protect and grow your wealth.

While insurance or annuities may be a part of your financial plan or investment portfolio, your finances and retirement planning should not be left to an insurance salesman.

In addition to investment expertise, and ideally objective advice, financial advisors will be able to advise you on the most appropriate insurance or annuity products, and can often provide insight regarding those products that are safest and have the lowest fees.

We also recommend choosing 2-3 financial advisors to interview before selecting one to work with.  This will allow you to see the various expertise each advisor has and give you choices to base this very important decision on.  A decision that will most likely be one of the major ‘partnering’ decisions in your retirement years… 

We hope this helps!  Thanks.  The AllFinancialAdvisors.com team.

Getting Started and Taking a Step Back: Financial Planning

In our world of ubiquitous financial information, it is easy to get caught up in short-term trends when thinking about our money:
* What are the hottest stocks?
* Which mutual fund managers have the best performance this year?
* What is Jim Cramer telling me to sell today?
* What is Suze Orman telling me to do this week?

However, turning your hard-earned cash into more cash is only the tip of the iceberg. 

Knowing how to manage and budget your spending, income and saving is crucial, and in the long run trumps returns of any size.  This is where financial planning comes in. 

Think of stars like M.C. Hammer, Michael Jackson, and Mike Tyson.  Each of these individuals made tens (if not hundreds) of millions of dollars, and had access to high-end investment solutions – yet managed to wind up broke and bankrupt before the middle age of 40.  Why? Because of a lack of financial planning!

Contrary to popular belief, the easiest way to become rich is not to start a company or win the lottery, but instead to start saving from an early age and create a financial plan that maximizes tax efficiency and suits your lifestyle needs.

If you begin saving for retirement at 25, putting away $2,500 per year, you will have an astonishing $700,000 by age 65 (assuming annual growth of 8%).  By contrast, if you put away $2,500 per year, but wait until age 35 to start, you will have only $306,000 by age 65 (assuming the same growth rate). That is the magic of compounding and saving – or as Warren Buffet likes to call it, the “snowball” effect.

So… instead of chasing the latest financial trend, start by choosing a financial planner or a financial advisor who provides this service.

Financial advisors or a financial planner will examine your situation individually, create a customized financial plan, and help you achieve the future you desire.  Financial planners typically charge an hourly or fixed fee for their services; some financial advisors offer financial planning solutions in-house as well. 

Don’t expect this kind of personalized help and service from a mutual fund!

NOTE: Experts recommend contacting 2-3 financial advisors or financial planning firms, in order for an individual to contrast and compare each financial advisor or firm; thus making the best-qualified choice for their unique situation.

AllFinancialAdvisors.com is an online resource of financial advisors, financial planners and wealth managers.  It is a independent 3rd party directory of Registered Investment Advisors (RIAs) managed by FINRA and the SEC (United States Securities and Exchange Commission).

Financial Advisor Accountability and Incentives: Performance-Based Fees

Performance-based fees have always been a staple of the hedge fund industry, providing wealthy investors with the comfort of knowing that their money managers have a personal incentive to outperform the market.

The famous “two-and-twenty” fee structure refers to hedge fund managers taking 2% of assets under management as a base fee, and in addition taking 20% of all returns that exceed or outperform a given benchmark (such as the S&P 500) or a “high water mark”  (the highest net asset value previously seen at the end of the fiscal year). 

Mutual funds and financial advisors, for the most part, do not embrace the performance-based fee structure, and simply take a fixed fee based upon clients’ assets under management [AUM] – meaning they charge the same fee regardless of whether their fund (or investment) tanks or beats the market.

Given the obvious and mutually beneficial value of employing such a fee structure, more and more investors are seeking out financial advisors and investment advisors that offer performance-based fees.

Why shouldn’t ordinary investors be able to invest the way the wealthy do?

After all, there is a certain feeling of injustice in knowing that your financial advisor or money manager is raking in the same amount of fees win or lose. Performance-based fees help ensure that your financial advisor is sharing the profit – and the pain – of the investments they are making on your behalf.

While performance-based fees appeal to all investors seeking a financial advisor, there are currently restrictions on what types of investors can be charged such fees.

Under the Advisers Act of 1940 (the Advisers Act), RIAs (Registered Investment Advisors, which include most financial advisers) can only charge performance-based fees to “Qualified Clients.”

“Qualified Clients” are currently defined (under Rule 205-3) as clients who have assets under management with the RIA of $750,000 or more, and clients who have a net worth of $1.5 million or more.

However, as the demand for performance-based fees increases among investors of all types, we can expect that in the future, performance-based fee investments may become available to a wider range of investors.

We hope this helps.  Let us know. 
Thanks — The All Financial Advisors Team

Differences Between Stock Brokers and Financial Advisors: Fiduciary Duty 
There has always been a certain appeal of having a personal stockbroker. Someone at the “front line” of the global marketplace, an industry insider, ready to offer investment opportunities that the ordinary investor may miss, never hear of or even have access to.

Brokers develop relationships with their clients, often providing them with a sense of security, representation and access.  Brokers do well when their clients’ investments do well, and giving bad advice is simply bad for business.  So surely, as financial representatives, brokers are required to give the best investment advice possible, and to put the interests of their clients ahead of their own.  Right?

Astonishingly, NO.

Because “broker-dealers” are regulated far less strictly than “investment advisors” under SEC law, brokers do not have a fiduciary duty to clients.  A fiduciary duty is the highest standard of care at either equity or law. 

A “fiduciary” (such as a financial advisor) is expected to be extremely loyal to the person to whom he owes the duty (the “principal”); fiduciaries must not put their personal interests before the duty, and must not put themselves in a position where their personal interests and their fiduciary duties may conflict.  If a broker recommends a client buy a given stock – and receives a commission from their firm for selling that stock – there is an inherent conflict of interest.

Brokers will often push investment products upon clients not because they are best for the client, but because the broker has a financial incentive to sell that product. 

Because brokers are not bound by fiduciary duty, such conflicts of interest are not only legal, but also quite common.

Many financial advisors and investment advisors, on the other hand, are bound by fiduciary duty.  They are legally bound to put their clients’ interest above their own, and to avoid conflicts of interest – often resulting in more objective advice than one would receive from a stockbroker pushing certain products upon clients for their own benefit. 

Ensuring that your financial advisor, financial planner or investment advisor is bound by fiduciary duty is a very important distinction to make – if you are seeking this degree of care, conscientious advice and objectivity, don’t expect it from your broker.

NOTE: Experts recommend contacting 2-3 financial advisors or financial planning firms, in order for an individual to contrast and compare each financial advisor or firm; thus making the best-qualified choice for their unique situation.

This online resource of financial advisors is a directory of independent, Registered Investment Advisors (RIAs) managed by FINRA and the SEC (United States Securities and Exchange Commission).

DO YOU HAVE A FINANCIAL QUESTION????
Ask us via our blog post [comments section] and…
we will post your question & answer in the next day or so…
Thanks.  The AllFinancialAdvisors.com Team

 
Financial advisors have varied educational backgrounds, work experiences, and specializations.  Finding the right financial advisor, wealth manager, money manager and/or financial planner takes the right research. 

It requires Trust in the source. 

We are an independent 3rd party database of high-quality financial advisors and financial planning firms and if you have noticed… there is NO advertising on this directory.  That’s not what we are about.  We are about helping our consumer base find the best financial advice for their particular situation.  That’s you!

Every person has uniqueness to their financial landscape along with their unique goals.  Financial advisors gain credentials in a wide variety of specialized areas in order to serve their client’s specific needs.  We feature select financial planning professionals, wealth managers and financial advisors across the US from which to choose. 

The AllFinancialAdvisors directory is a “matching service”  so that consumers and investors alike can find the right match for their unique situation.

It’s really easy.  Just Start by entering your Zip Code.

NOTE: Experts recommend contacting 2-3 financial advisors or financial planning firms, in order for an individual to contrast and compare each financial advisor or firm; thus making the best-qualified choice for their unique situation. 

This online resource of financial advisors is a directory of independent, Registered Investment Advisors (RIAs) managed by FINRA and the SEC (United States Securities and Exchange Commission).

Many of the financial planners within our directory explain how their financial planning process works within their profiles.  Our financial advisors take fiduciary oaths and pledge to uphold the highest standard of ethics. 

After reviewing their profile pages, you can request more detailed information, their fee schedule and/or a meeting.   You can have us make that match if you prefer.

Many of our advisors are members of the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning) and the Financial Planning Association (FPA).

Excerpts written by Ara Oghoorian, CFA: ACap Asset Management
(Beverly Hills, CA).

If you’re like most Americans, ringing in the New Year also means resolving to change old habits, or start new ones. Year after year, getting one’s personal finances in order consistently ranks as one of the top 5 New Years resolutions.  As with any resolution, the hard part is not making the promise, but actually putting it into action – consistently.   

Monitor Your Credit Rating / Credit Scores
A good credit score is the single most important factor in getting a bank loan to buy a home or a car, among many other things. Therefore, it is crucial to check your credit report; one overlooked mistake can cause havoc when you least expect it. Under current laws, you are entitled to a free copy of your credit report each year. Put a reminder on your calendar to check your credit every January.

Put Your 401K and Other Savings on Auto-pilot
If your employer has a 401k (403b, 457, etc.) plan, contribute the maximum amount while still maintaining a manageable lifestyle.  If you have maxed out your 401k and can still save some more, open either a Roth IRA (if you qualify) or a non-deductible IRA and contribute any additional savings. While your current income is finite, your future needs are infinite. If you would like to save for your child’s college education, only do so after you have saved for your own retirement. As I tell my clients, you can always borrow for college, but you can never borrow for retirement.

Pay Off Credit Cards
If you carry a balance on one or more credit cards, select the one with the highest interest rate and begin aggressively paying down the balance. If you can only make the minimum payments on your credit cards, begin cutting non-essential monthly expenses to devote more funds to paying off the debt.

Meet with a Fee-Only Financial Advisor
You don’t need to be a millionaire to benefit from working with a competent financial advisor.  A Fee-Only financial advisor can help you: identify or sharpen your financial goals; develop a detailed written plan to help keep you on track; identify an appropriate asset allocation that is commensurate with your circumstances; minimize your taxes; and most importantly, put your plan into action and provide you with detailed updates.  A Fee-Only financial advisor is like a doctor for your finances.

SUMMARY: Executing on all four (4) of these steps and you are certain to see tangible improvements in your financial health.  May your 2011 be a prosperous and healthy year for you and your family.
***

AllFinancialAdvisors.com: Many of our advisors are members of the National Association of Personal Financial Advisors (NAPFA: the nation’s leading organization promoting Fee-Only comprehensive financial planning) and the Financial Planning Association (FPA).  Using the services of a qualified financial advisor and/or Wealth Manager (to help you identify the strengths and weaknesses in your financial picture) will ensure you can retire comfortably!  NOTE: Experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

What are you thankful for today?

In honor of the Thanksgiving holiday, let’s look at five reasons to be thankful you have a financial advisor:

5. You don’t have to spend your day clicking around at do-it-yourself stock trading sites, because your financial advisor has carefully created an investment plan tailored to your unique financial situation and future goals.

4. As others are retiring without any savings to speak of, your financial advisor has made sure you have a workable savings plan . . . and by following it, you know your retirement goals are within reach.

3. You can sleep at night knowing the estate plan your financial advisor helped create will safely pass your assets on to your family, reduce your estate’s tax liability, take care of your loved ones, keep your business running without you, and more.

2. While the average household’s debt is growing, yours is either rapidly dwindling or nonexistent, thanks to the financial plan your advisor developed for you to follow.

1. No matter what the economy is doing or what the national political landscape looks like, you know your financial advisor is on top of things and will guide you safely through any rough financial waters to come.

If you don’t already have a financial advisor, take the time now to search the All Financial Advisors database to find one in your area. And on behalf of everyone at All Financial Advisors, have a safe and happy Thanksgiving!