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Answer: A
Question: 270
The options for securities that insurance entities own and can deliver if the options are
exercised by the option buyers are called:
A. concealed transactions
B. covered-call options
C. financial servicing
D. safekeeping
Answer: B
Question: 271
Insurance entities usually write covered-call options because they consider the premium
received for writing the options to be either:
A. an economic hedge between a decline in market price and security
B. a decrease in yield on the underlying risk security
C. Both A & B
D. Neither A nor B
Answer: D
Question: 272
What encompasses investment income and gains and losses, as well as custody of
investment and recordkeeping?
A. Valuation data
B. Verification note
C. Transaction cycle
D. Investment evaluation
Answer: C
Question: 273
The evaluation and subsequent purchase or sale of investments is based on the judgment
of the entitys investment and finance committees.
A. True
B. False
Answer: A
Question: 274
The price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date is called:
A. face value
B. fair value
C. market value
D. transaction value
Answer: B
Question: 275
___________ is the price in a hypothetical transaction at the measurement date in the
market in which the reporting entity would transact for the asset or liability
A. Feasible financial price
B. Asset/Liability price
C. Principal price
D. Exchange price
Answer: D
Question: 276
The market in which the reporting entity would sell the asset or transfer the liability with
the greatest volume and level of activity for the asset or liability is known as:
A. Transfer market
B. Transport market
C. Principal market
D. Turn-around market
Answer: C
Question: 277
The highest and best use of the asset is ___________, if the asset would provide
maximum value to market participants principally on the standalone basis.
A. in-exchange
B. in-use
C. in-market
D. in-sale
Answer: A
Question: 278
The risk that the obligation will not be fulfilled and affects the value at which the liability
is transferred is known as:
A. performance risk
B. nonperformance risk
C. hypothetical risk
D. relocation risk
Answer: B
Question: 279
Valuation technique should be used to measure fair value and is consistent with:
A. market, income and risk approach
B. market, performance and cost approach
C. security, income and risk approach
D. market, income and cost approach
Answer: D
Question: 280
What uses valuation techniques to convert future amounts to a single present amount?
A. Risk approach
B. Market approach
C. Income approach
D. Cost approach
Answer: C
Question: 281
The amount that currently would be required to replace the service capacity of an asset is
A. Risk approach
B. Market approach
C. Income approach
D. Cost approach
Answer: D
Question: 282
A change in __________ or its application is appropriate if the change results in a
measurement that is equally or more representative of fair value in the circumstances.
A. Valuation technique
B. Value technique
C. Investment approach
D. Accounting corrections
Answer: A
Question: 283
To avoid double counting or omitting the effects of risks factors what should reflect
assumptions that are consistent with those inherent in the cash flows?
A. Economic flow
B. Nominal flows
C. Discount rates
D. Inflation effect
Answer: C
Question: 284
What technique uses a risk-adjusted discount rate and contractual, promised, or most
likely cash flows?
A. Asset/Liability weighted
B. Fair value
C. Present value
D. Discount rate adjustment
Answer: D
Question: 285
Fair quoted techniques used to measure fair value should maximize the use of observable
inputs and minimize the use of unobservable inputs.
A. True
B. False
Answer: B
Question: 286
What is made on an instrument-by-instrument basis, generally when an instrument is
initially recognized in the financial statements?
A. Election
B. Disclosure
C. Eligibility
D. Discount
Answer: A
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The U.S. financial industry does not have a full disclosure law, and reportedly over 80 percent of financial professionals are not fiduciaries. (A fiduciary is a high legal standard that requires the financial advisor provide full disclosure of all material facts with the client, including any conflicts of interest.) There is one category of financial advisors who are required to be fiduciaries at all times. These are called Registered Investment Advisors (RIAs). An RIA is an independent financial advisor registered with the Securities and Exchange Commission (SEC) or state securities regulators.

Most investment brokers and brokerage firms work under a standard that is lower than a fiduciary, called “suitability” or “best-interest.” If the financial industry had a full disclosure law — or required all advisors to be fiduciaries — consumers would be better protected from the unethical sales tactics that are too common in the industry.

Let me provide an example. When readers of my column contact me with questions, I often schedule a phone call with them. A reader recently told me about his experience with a national discount brokerage firm in early 2023. This brokerage firm manages many 401(k) retirement plans for corporations, and, when he retired, rolling over his 401(k) from his employer to an IRA at the brokerage firm was a simple process. His IRA was worth slightly over $1 million. He also recently inherited $1 million after his mother’s death, which he deposited into a taxable account at the brokerage firm. When he met with a “financial consultant” at the firm, he explained that he did not want a lot of risk in his investments.

The financial consultant recommended he buy two five-year fixed annuities for $500,000 each; one for his IRA and one for his taxable account. He was told the annuities are similar to a five-year Certificate of Deposit (CD), and the fixed rate would be 3.7 percent for five years. When he shared this with me, I was stunned. I explained that I have always been a fan of investors keeping control of their money. Buying an annuity requires signing a contract with an insurance company, which involves giving up control to the insurance company. He said he believes he will regain access to the money in five years, but he is not certain.

So, is there a problem here? Maybe not, if the investor is pleased with his decision. However, this conversation led me to do some research. The type of fixed annuity he bought is called a “multi-year guaranteed annuity (MYGA). It is designed to be similar to a CD. So, in retrospect, what questions could he have asked the financial consultant before agreeing to buy the annuities?

1. What other low-risk investments should he consider other than an annuity? Were there better choices available?

In my view, CDs would have been a better choice. When he bought the annuities (paying a fixed rate of 3.7 percent), there were five-year CDs available with yields of 4.5 percent. Brokerage firms can access what are called “brokered” CDs from banks across the US, and they are insured by the FDIC up to $250,000 per depositor, per bank. Brokered CDs typically have much higher yields than those offered by “brick and mortar” banks. The financial consultant could have recommended two $250,000 CDs for his IRA and another two for his brokerage account (from four different banks). (As I submit this article on May 30, there are five-year brokered CDs available at brokerage firms at 4.9 percent. However, many of them are “callable,” and I recommend you look for a CD that is non-callable, meaning it is a fixed, guaranteed rate for the entire five years. There are currently non-callable five-year CDs available at 4.55 percent.)

The fixed annuities with a yield of 3.7 percent (which he purchased for a total of $1 million) will pay him $37,000 per year, which will total $185,000 over 5 years. If he had bought CDs with yields of 4.5 percent, he would have earned $45,000 per year, for a total of $225,000 over five years. The CDs would have paid him an additional $40,000 over 5 years (as compared to the annuities), they would have been FDIC insured, and he would know he will have complete access to the $1,000,000 when they mature in 5 years. Tax ramifications are identical between the annuity and CDs in his IRA. For his taxable account, the earnings on the annuity are likely tax-deferred, but that is a minor benefit when tax rates are expected to go up in 2026 and he would have earned more each year from the CDs.

2. How much did the financial consultant earn in commissions from selling the annuities to him?

It is impossible to know for certain, but online research suggested he probably earned 2.5 percent of the $1 million invested. (Another source suggested the commission rate was likely 4 percent.) If we accept the 2.5 percent estimate, he earned $25,000 for selling the annuities. It is possible the brokerage firm also paid him bonuses for selling annuities. Is this relevant? The financial consultant (and the discount brokerage firm) may argue the investor did not directly pay the $25,000, so it is not relevant. I would argue it is very relevant, because the investor indirectly paid for the commission by accepting a lower yield on the annuities.

The financial consultant did not disclose how he was being paid for selling the annuities, and he did not discuss other low-risk investments that may have been more attractive to the customer. Another benefit of the CDs is that the early withdrawal penalty (if the investor needed to unravel the CD in less than 5 years) is typically less than on an annuity. Between 1-5 years, the withdrawal penalty on the annuity is often 7 percent, whereas a typical early withdrawal penalty on a CD is 6 months of interest. On a CD earning 4.5 percent, this would be 2.25 percent.

This example conveys the impact of the lack of a fiduciary standard and a full-disclosure law. The financial consultant did not break any laws because the brokerage firm is held to a lower standard. There was clearly a conflict of interest present, because the financial consultant knew that CDs were likely a better choice for the investor than the annuities. There may have been other investments (such as treasury notes, bond funds or ETFs) that could have been discussed with the investor for the taxable account. For the traditional IRA a bond (or CD) ladder to support potential Roth conversions over the next few years (that the investor is considering) may have been a good choice, or a bond ladder designed to provide estimated RMDs (Required Minimum Distributions) that will begin in a few years could have been discussed.

Is there a “Buyer Beware” message here? I recommend you ask lots or questions of anyone giving you financial advice. This pertains to financial advisors, financial planners, investment advisors, wealth managers, and many other titles frequently used in the financial, banking, and insurance industry.

Donna Skeels Cygan, CFP®, MBA is the author of The Joy of Financial Security, and her upcoming book Sage Choices After 50. She owned a fee-only financial planning firm in Albuquerque for over 20 years before recently retiring. She welcomes emails from readers at Prior columns are available at

Mon, 05 Jun 2023 01:15:00 -0500 Donna Skeels Cygan/Invest in Joy en-US text/html
‘Should I even bother?’ I pay $3K a year for my financial adviser. Is that worth it?

Question: I currently pay a little over $3,000 a year for a financial adviser. I’ve been thinking of switching advisers to a less expensive one or even dropping the expense altogether until I’m much closer to retirement. Should I even bother shopping around? Why should I keep paying someone right now to help me with something that’s so far down the road? (Looking for a new financial adviser? This tool can help match you with an adviser who may meet your needs.)

Answer: The very short answer is that whether the $3,000 is worth it depends on what you get for that money, and whether you even need financial help at all. Doing it yourself, after all, is free — unless you make a costly mistake. We assume when you say “something that’s so far down the road” that you mean retirement, and planning for that is a process that starts decades ahead of the genuine date you want to quit working. Whether you use an expert to help you with that or not will depend on your needs — though in this case it sounds like your adviser might not be meeting them. 

Have an issue with your financial adviser or looking for a new one? Email

“$3,000 could be a high fee or it could be a great fee, your adviser should be open to discuss what services are included in the relationship,” says certified financial planner Harrison Hinz at Spark by First Pacific Financial. 

And certified financial planner Charles Thomas III at Intrepid Eagle Finance says: “To determine what’s worth it, it’s important to consider what value you are receiving with a current provider or what you hope to receive from a prospective new provider.” Even if your retirement is 20+ years out, an adviser shouldn’t be solely focused on selecting investments, they should be offering regular reviews and discussing changes to your plan and making adjustments when needed. 

Adviser or no adviser, this much is true: Making smart decisions now, even small ones, can set you on the right path for the future. “These decisions are magnified with the power of compound interest working for you for years or even decades. The opposite is also true; poor decisions can really snowball and will take time to unwind if you make mistakes with your money now,” says certified financial planner Alexis Hongamen at Total Financial Planning. 

To gauge whether you’re in good company in terms of working with an adviser, Jim Hemphill, certified financial planner at TGS Financial, says “Our most common new clients are folks in their mid-50s to early-70s who would like to retire and want to know if they can afford it. When we run the numbers, we commonly find one of two fact patterns; the prospective retirees have been massive savers, careful spenders and prudent investors. They have more than enough to retire and our Monte Carlo calculations show a result of 80% or higher confidence they won’t ever run out of money, even if they live deep into their 90s.”

Meanwhile, he adds: “The other fact pattern is that the prospective retirees have been average savers at best, have expensive lifestyles in relation to their incomes and may have made one or more serious investment mistakes along the way. When we run the numbers, they confirm the obvious — there’s no way these folks can retire and keep it all going.”

Have an issue with your financial adviser or looking for a new one? Email

What should a financial adviser cost?

Financial advisers vary in cost depending on where they’re located, how much experience they have and the scope of work they do. There are three common fee structures that advisers typically work under: assets under management, hourly, or project-based.

Advisers who charge an assets under management fee generally charge 1% of assets under management, hourly advisers can charge between $150 and $400 per hour and project-based advisers typically charge between $1,500 and $10,000. Of course, these are general estimates that can vary based on a variety of factors, but these guidelines should provide you an idea of what to expect when retaining an adviser’s services.

Remember that as you search for a financial planner, you shouldn’t always go for the cheapest option; instead, you should pay for the option that will benefit you the most. “My grandfather used to say, there’s nothing more expensive than buying cheap paint. What I take from that is that there is so much work to prep and apply the paint, it’s not worth applying paint that will only last a few years. If you’re taking the time to paint, use the good stuff that will last,” says certified financial planner Don Grant. 

DIY or go the financial adviser route? 

You may be the person who is knowledgeable about money and likes to manage their own. In that case, DIY, or even use a robo-adviser, which can be a fraction of the cost of a human adviser. 

Or it may be that you simply need a new adviser.  “If your adviser only meets up to discuss your portfolio and doesn’t do much else, you can and should find a better adviser,” says certified financial planner Blaine Thiederman at Progress Wealth Management . 

Make a list of what you’d want out of an adviser, and what you’re actually getting. Have a conversation with your current adviser about all of that, and then assess how you feel about the relationship. Remember that an adviser can do “everything from helping you more thoughtfully manage risk, renegotiate and increase your salary, better manage your debt, reduce your taxes and budget more carefully,” says Thiederman. 

By the time retirement is near, if you haven’t saved enough or if you’ve made bad investment decisions, it’ll be far too late to adjust course and achieve a favorable result. “A good financial adviser’s job is to keep you on track, saving enough, making sure your savings are optimally tax-efficient, keeping you sensibly invested and helping you avoid excesses of panic in bear markets or greed in bull markets,” says Hemphill. 

If you feel a major disconnect with your adviser or you’re looking for additional planning services, then it can make sense to explore other options. “Good advisers are transparent with their services and fees before signing any agreements and by knowing what you’re going to receive, you’ll gain confidence in your adviser moving forward,” says Hinz. (Looking for a new financial adviser? This tool can help match you with an adviser who may meet your needs.)

Questions edited for brevity and clarity.

Have an issue with your financial adviser or looking for a new one? Email

Mon, 05 Jun 2023 01:40:00 -0500 en-US text/html
How To Choose A Financial Advisor

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

Are you seeking assistance with your financial management? If so, you’re not alone. Many Americans could benefit from financial guidance. In fact, according to the National Financial Education Council, the average American incurs a cost of $1,200 per year due to a lack of personal finance knowledge.

Choosing a good financial advisor can help you avoid these costs and focus on your goals. Financial advisors aren’t just for rich people—working with a financial advisor is a great choice for anyone who wants to get their personal finances on track and set long-term objectives. To find the ideal financial advisor for your requirements, consider following our 5 key steps.

Related: Find A Financial Advisor In 3 minutes

Step 1: Decide What Part of Your Financial Life You Need An Advisor For

Before you speak to a financial advisor, decide which aspects of your financial life you need help with. When you first sit down with an advisor, you’ll want to be ready to explain your particular money management needs.

Keep in mind that financial advisors provide more than just investment advice. The best financial planner is the one who can help you chart a course for all your financial needs. This can cover investment advice for retirement plans, debt repayment, insurance product suggestions to protect yourself and your family and estate planning.

Depending on where you are in life, you may not need comprehensive financial planning. People whose financial lives are relatively straightforward, like young people without families of their own or significant debt, might only need help with retirement planning.

People with complex financial needs, however, may need extra assistance. They could be looking to establish college funds or trusts for their children, navigate aggressive debt payment situations or solve tricky tax problems. Not all types of financial advisors offer the same menu of services, so decide which services you need and let this guide your search.

Step 2: Learn About the Different Types of Financial Advisors

There’s no federal law that regulates who can call themselves a financial advisor or provide financial advice. While many people call themselves financial advisors, not all have your best interest at heart. That’s why you have to carefully evaluate potential financial advisors and make sure they are good for you and your money.

Part of learning about the different types of advisors is understanding fiduciary duty. Some, but not all, financial advisors are bound by fiduciary duty, meaning that they are legally required to work in your financial best interest. Other people who call themselves advisors are only held to a suitability standard, meaning they only must suggest products that are suitable for you—even if they’re more expensive and earn them a higher commission. (The SEC is trying to regulate this, though, by limiting the use of “advisor” to those who hold themselves to a fiduciary standard.)

Regardless of which kind of advisor you choose, you should make sure you know how they earn money. This helps you determine if their recommendations are actually better for you—or for their wallets.

Here’s how to think about these four types of financial advisors:

1. Fee-Only Financial Advisors

Fee-only financial advisors earn money from the fees you pay for their services. These fees may be charged as a percentage of the assets they manage for you, as an hourly rate, or as a flat rate.

Almost all fee-only advisors are fiduciaries. Generally speaking, they have chosen to work under a fee-only model to reduce any potential conflicts of interest. Because their income is from clients, it’s in their best interest to make sure you end up with financial plans and financial products that work best for you.

2. Financial Advisors Who Earn Commissions

Some financial advisors make money by earning sales commissions from third parties. Among financial advisors that earn sales commissions, some may advertise themselves as “free” financial advisors that do not charge you fees for advice. Others may charge fees, meaning they derive only part of their income from third-party commissions.

Either way, financial advisors who earn third-party sales commissions derive some or all of their income from selling you certain financial products. If you choose to work with a financial advisor who earns sales commissions, you need to take extra care.

Commission-only advisors are not fiduciaries. They work as salespeople for investment and insurance brokerages and are only held to suitability standards. In contrast, some fee-based financial advisors are fiduciaries, though it’s important to determine if they’re always acting as fiduciaries or if they “pause” fiduciary duty when discussing certain types of products, like insurance.

Related: Find A Financial Advisor In 3 minutes

Keep in mind, commissions aren’t bad in and of themselves. They’re not even necessarily red flags.

Some financial products are predominantly sold under a commission model. Take life insurance: A fee-based planner who receives compensation for helping you purchase a life insurance policy may still have your best interests at heart when advising on other financial products.

“To be clear, there’s nothing wrong with paying the commission for life insurance,” says Karen Van Voorhis, a fee-based certified financial planner (CFP) and Director of Financial Planning at Daniel J. Galli & Associates in Norwell, Mass. “That’s how the structure of that industry works.”

Purchasing financial products via financial advisors that earn commissions may be a matter of convenience, especially if someone will receive a commission regardless of where you buy the product. What’s important is understanding the difference. And if you work with a fee-based financial advisor, understand when they are acting as a fiduciary, especially when they help you purchase financial products.

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3. Registered Investment Advisors

Registered Investment Advisors (RIAs) are companies that provide fiduciary financial advice. RIAs employ Investment Advisor Representatives (IARs), who are bound by fiduciary duty. An RIA may have one or hundreds of IARs working for it.

IARs may call themselves financial advisors and may be fee-only or fee-based. Some may have additional credentials, including the certified financial planner (CFP) designation.

“The certified financial planner designation is really the gold standard in the financial planning industry,” says Van Voorhis. A CFP designation indicates a financial advisor has passed rigorous industry exams covering real estate, investment, and insurance planning as well as has years of experience in their fields.

Because of their wide range of expertise, CFPs are well-suited to help you plan out every aspect of your financial life. They may be particularly helpful for those with complex financial situations, including managing large outstanding debts and will, trust and estate planning.

4. Robo Advisors

Robo advisors offer low-cost, automated investment advice. Most specialize in helping people invest for mid- and long-term goals, like retirement, through preconstructed diversified portfolios of exchange-traded funds (ETFs).

“For younger people who are really tech-savvy, a robo advisor just to manage retirement funds could be a perfect solution,” says Brian Behl, a CFP at Behl Wealth Management in Waukesha, Wisc. “I don’t think they’re going to get as in-depth advice on insurance and retirement and taxes.”

People with complex financial needs should probably choose a conventional financial advisor, although many robo advisors provide financial planning services a la carte or for higher net-worth clients.

“While the robo advisors have really disrupted the industry…I do think there’s still a place for human advisors right now,” says Corbin Blackwell, a CFP at robo advisor Betterment.

Betterment, for example, allows clients to purchase individual financial advising sessions, and Personal Capital, Wealthsimple, and Betterment provide regular financial planning for clients with higher account balances for a management fee.

Step 3: Choose What Kind of Financial Advice You Need

Services offered by financial advisors vary from advisor to advisor, but they may provide financial advice on any of the following topics:

  • Investment advice: Financial advisors research different investment options and make sure your investment portfolio stays within your desired level of risk.
  • Debt management: If you have outstanding debts, like credit card debt, student loans, car loans, or mortgages, financial advisors will work with you to chart a plan for repayment.
  • Budgeting help: Financial advisors are experts in analyzing where your money goes once it leaves your paycheck. Advisors can help you craft budgets so you’re prepared to reach your financial goals.
  • Insurance coverage: Financial advisors may examine your current policies to identify any gaps in coverage or recommend new types of policies, like disability insurance or long-term care coverage, depending on your financial situation.
  • Tax planning: Tax planning involves strategizing ways to decrease the amount of taxes you may pay, like by large charitable donations or tax-loss harvesting. Keep in mind that not all financial planners are tax experts and that tax planning is different from tax preparation. You will probably still need a CPA or tax software to file your taxes.
  • Retirement planning: Financial advisors can help you build funds for the ultimate long-term goal, retirement. And then, once you’re retired or nearing retirement, they can help ensure you’re able to keep your money safe.
  • Estate planning: For those who wish to leave a legacy, financial advisors can help you transfer your wealth to the next generation, whether that’s family, friends, or charitable causes.
  • College planning: If you hope to fund loved ones’ educations, financial advisors can craft a plan to help you save for their higher education.

In addition to investment management and financial planning, financial advisors also offer emotional support and perspective during volatile economic times. During the beginning of the coronavirus pandemic in March of 2020, for instance, client demand for financial advisor contact increased by almost 50%.

Related: Find A Financial Advisor In 3 minutes

“I think that during these times, we can be a source of reason,” says Blackwell. “We can weather the storm. We’ve built this portfolio for a reason.”

When choosing a financial advisor, make sure they offer the services you’re looking for in your financial and non-financial lives.

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Step 4: Decide How Much You Can Pay Your Financial Advisor

It used to be that financial advisors charged fees that were a percentage of the assets they managed for you. Today advisors offer a wide variety of fee structures, which helps make their services accessible to clients of all levels of financial means.

  • Commission-only financial advisors may seem free on paper, but they may receive a portion of what you invest or purchase as a payment. These “free” financial advisors typically are available through investment or insurance brokerages. Remember, these advisors may only be held to suitability standards, so they may end up costing what you would pay for a similar financial product suggested by a fiduciary financial advisor—or more.
  • Fee-only and fee-based financial advisors may charge fees based on the total amount of assets they manage for you (assets under management) or they may charge by the hour, by the plan, through a retainer agreement, or via a subscription model. Common average financial advisor fee rates are listed in the table below:

Step 5: Research Financial Advisors

Financial advice comes in many forms, and there are a variety of different kinds of financial professionals, so you need to do your homework. Make sure the advisor guiding your financial decisions is trustworthy and capable.

There are a few good ways to find a financial advisor. Ask friends, family and peers for recommendations when trying to find a financial advisor near you. Alternatively, look for financial advisors online. Many professional financial planning associations provide free databases of financial advisors:

When evaluating advisors, be sure to consider their credentials as well as research their backgrounds and fee structures. You can view disciplinary actions and complaints filed against financial advisors using FINRA’s BrokerCheck. And remember, just because someone is part of a financial planning association, that doesn’t mean they’re a fiduciary financial advisor.

Key Questions to Ask When Choosing a Financial Advisor

When meeting a financial advisor for the first time, it’s important to obtain the answers to these questions and ensure you’re satisfied with their responses:

  • Fiduciary Status: Are you a fiduciary, committed to acting in my best interest?
  • Compensation Structure: How do you make money? Understand their fee structure and any potential conflicts of interest.
  • Consistency of Fiduciary Duty: Do you always act as fiduciaries, even when selling commission-based products?
  • Financial Planning Approach: What is your approach to financial planning? Learn about their strategies and methodologies.
  • Available Services: What financial planning services do you offer? Ensure their offerings align with your specific needs.
  • Client Profile: What kind of clients do you typically work with? Confirm if they have experience catering to clients similar to you.
  • Account Minimums: Do you have any account minimums? Determine if their requirements match your financial situation.
  • Conflicts of Interest: Do you have any conflicts of interest in managing your money? Ensure transparency and alignment of interests.
  • Required Information: What information do you need me to provide to develop my financial plan? Gather relevant documents.
  • Meeting Frequency: How many times and how often will we meet? Establish expectations for ongoing communication.
  • Collaboration with Advisors: Will you collaborate with your other advisors, such as CPAs or attorneys? Coordinate efforts for comprehensive financial management.

Related: Find A Financial Advisor In 3 minutes

The Bottom Line

Because of the ambiguity in the industry, you have to exercise caution to make sure you get the right financial advisor who meets your fiduciary and financial needs. That said, when you choose the right financial advisor for you, they can help you achieve your financial goals and financially protect your loved ones and their futures.

“So much of what I do in a life-centered approach to financial planning and wealth management is walk out life with people,” says Wes Brown, a CFP at CogentBlue Wealth Advisors in Knoxville, Tenn. “I think there’s value in an ongoing relationship where somebody can help you walk through the various waypoints you’re going to come to.

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Financial Advisor Frequently Asked Questions (FAQs)

What is a financial advisor?

Financial advisors are personal finance experts who provide you financial advice and manage your money. Some—but not all—are fiduciaries. A fiduciary acts only in your best financial interest.

“A financial advisor is like a coach,” says Matt Chancey, a certified financial planner (CFP) at Dempsey Lord Smith in Tampa, Fla. “It helps to have someone keep you accountable to your goals and make sure that you aren’t making any major missteps.”

What can a financial advisor do for you?

A good financial investment advisor can evaluate your current situation and develop a comprehensive plan to guide you through your financial life.

“You don’t know what you don’t know,” says Marianela Collado, a CFP and certified public accountant (CPA) at Tobias Financial Advisors in Plantation, Fla. “By opening your finances up, a good financial adviser can suggest a wide range of opportunities that the client probably never thought of or wouldn’t even know to ask for.”

Who needs a financial advisor?

Though some people may think they don’t need a financial advisor until they’ve amassed at least $1 million, the amount of assets you hold shouldn’t be the sole determining factor. In fact, financial advisors work with clients of all tax brackets and backgrounds.

How much does a financial advisor cost?

Financial advisor fees can vary widely. This is due to there being different methods for a financial advisor to generate their income. Some advisors are fee-only. Other advisors are commission-based. Some advisors even work on a hybrid model between the two.

It’s recommended that you research how the individual advisor you’re choosing generates their income before starting to work with them.

When should I get a financial advisor?

Financial advisors become most helpful when your financial life becomes complex. That might be when you get married, have children, get divorced, are managing many competing debts, come into an unexpected windfall or are navigating end-of-life financial decisions.

Thu, 01 Jun 2023 02:22:00 -0500 John Schmidt en-US text/html
4 Key Questions in Estate Planning

By Michelle Muhammed CFP®, ChFC®

Over the next few decades, Americans are expected to pass down trillions of dollars to family members and other beneficiaries, making estate planning an essential part of the overall wealth management process. Like many important money matters, however, there is often a disconnect between good intentions and taking the right actions. A accurate survey, Everyday Wealth in America, conducted by my firm, Edelman Financial Engines, found that while 85 percent of parents intend to leave an inheritance, only 37 percent reported having an genuine plan for doing so.

Deciding how to distribute wealth when you’re gone is understandably a difficult and undesirable task and thus gets neglected. The planning is often complicated and emotionally charged. People do not want to think about their own mortality; parents and their children may have very different expectations regarding how money and assets are ultimately divided. These discussions over a “fair” outcome can also reopen old wounds and family conflict.

Michelle Muhammed © Provided by Retirement Daily on The Street Michelle Muhammed

But a lack of planning can create bigger issues down the road and leave many families in an unfortunate — and even contentious —predicament. In fact, our same survey confirmed that one in five respondents admitted to arguing over an inheritance. These disputes were not just about how assets were being divided (39 percent) but also about who was in charge of making the decisions (38 percent). For example, unclear instructions can result in a great deal of wrath toward the executor and irreparable harm to family relationships. Greed and control – two of the more unflattering human behaviors – seem to invariably escalate when money is at stake! Hope is not a strategy and not having a plan can be extremely detrimental to your legacy and how much your loved ones ultimately inherit.

Having a clear and concise plan to distribute your assets helps your loved ones navigate a stressful time and can mitigate potential family disputes. So, what should you consider when it comes to legacy planning?

You need to ask yourself four key questions:

Question #1: Do I even need an estate plan? Won’t it just go to my family when I die?

Surprisingly, this question comes up frequently, even for people who have amassed significant assets. We’ve all seen news reports of stars who died intestate, meaning they did not have a will. It happens all too often with people who do not consider themselves wealthy but have amassed hundreds of thousands, if not millions, of dollars.

Not having a will, a power of attorney, or a healthcare power of attorney created for yourself can lead to confusion, actions not in line with your values, and unnecessary court costs. In addition, your estate can be eroded by the unintended and unanticipated costs that can be the byproducts of no estate plan or an inadequate/outdated plan.

I have seen multiple cases where people are paralyzed and take no action on estate planning because they do not want to make difficult decisions related to family fractures, estrangement, etc. In some cases, they want to avoid thinking about who would care for them in cases of incapacitation. I assure them that having a plan, even if it’s just a placeholder, is better than none at all. Sometimes a friend or charitable organization would be the best beneficiary to inherit your property. For incapacitation, you might choose a friend or a professional to make medical, financial, and caretaking choices.

Question #2: What assets will I transfer?

After you pass, the executor of your will must know what property you have, and where they can find it, to distribute everything to your heirs properly. While it may seem hard to believe, state governments hold billions in unclaimed property, often because no one knew about the decedent’s financial accounts and other valuables.

That means one of the first important steps is to make sure you have a plan that lays out what assets you will give, including account details and who will receive them. Consider making this list even if you don’t plan on leaving an inheritance. That way if you still have property left over after passing away, it goes to the people you want. Also, keep this list in a secure place, like a safety deposit box, to help prevent theft and identity fraud.

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Another consideration is taxes. The types of assets you transfer matter greatly for tax purposes. For example, stocks and mutual funds held outside a retirement plan could be more valuable for your successors to inherit versus pre-tax funds in a 401(k) or IRA, thanks to a tax break known as the step-up in basis. Additionally, due to the SECURE Act distribution rules, it is often better for a spouse to inherit retirement assets than children or others. By taking inventory with an estate planning professional with tax expertise, you can best determine what assets to spend during your lifetime and what to leave behind.

In many cases, setting up a trust can be a helpful wealth preservation mechanism. A trust is a legal relationship in which a grantor gives a trustee the right to hold assets for the benefit of others. Often you are the original trustee, and a successor trustee takes over when you die or are incapacitated. A trust can protect your heirs’ interests and assets while avoiding probate, an often lengthy and costly court process.

Question #3: When should I transfer assets?

You can transfer assets as gifts during your lifetime or wait until you pass away to leave them as an inheritance. There are pros and cons to both approaches. If you make gifts while still alive, you can see your loved ones enjoy the property. It can also minimize future estate taxes, a tax on inheritances, as you can transfer assets out before they further grow in value.

You must balance the option of giving these gifts today against your own financial needs. In addition, transferring property could lead to gift taxes if you provide someone more than the $17,000 annual exclusion, depending on how much you’ve already given away throughout your life. Finally, consider the current situation of your loved ones. For example, if they are still in school, giving assets now could cost them their eligibility for financial aid.

Alternatively, transferring property as an inheritance may allow your heirs to receive the step-up in basis tax break, which can reduce capital gain taxes paid when those assets are sold or reallocated. It is also impossible to transfer retirement accounts during your lifetime.

An expert can help to navigate these complexities and make informed decisions about the timing and manner of asset transfers. Ultimately, with proper guidance and planning, individuals can help maximize their benefits and minimize potential risks.

Question #4: How can I communicate my plan with family?

Like many other aspects of financial planning, being transparent about your wealth transfer intentions can also lead to a smoother transition. You should have conversations with your family early and often to avoid surprises. Yes, it can be a difficult and uncomfortable conversation. Based on our Everyday Wealth in America Survey findings, 27 percent of respondents reported that money and finances had caused disagreements between them and their parents and siblings. Yet 83% also said talking about finances helps resolve disputes.

There’s a good chance that the recipients of your generosity will appreciate the advance notice to prepare their financial plans and for any taxes they may owe on future inheritances. An inheritance’s relative benefit or disadvantage can vary greatly depending on personal circumstances, individual tax brackets, and other factors. By discussing ahead of time, you can determine who would benefit most from different types of property.

Failing to Plan is Planning to Fail

With its mix of personalities, family dynamics, and overall complexity, estate planning can no doubt be a challenge to navigate. Even so, by delaying or neglecting it altogether, there’s a good chance it will be an even more stressful undertaking with unintended consequences for your loved ones. By working with the right experts (your financial planner and an estate planning attorney) and getting ahead of the tough questions, you can help put your family and other beneficiaries in the best position possible as you live out your life with peace of mind.

About the author: Michelle Muhammed

Michelle Muhammed, CFP®, is a wealth planner, Director, Financial Planning at Edelman Financial Engines. Michelle’s specialties include developing comprehensive financial planning and retirement strategies that can help clients build, grow, protect, and preserve their wealth. With over 20 years of industry experience, Michelle has had the privilege of helping her clients and their families achieve their financial, retirement, and investing goals. Outside of work, Michelle gives back by helping women and underrepresented groups find their paths in the financial services industry.

  • Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

The information regarding estate planning should not be construed as tax or legal advice and is for general informational purposes only.

Neither Edelman Financial Engines nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances.

All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. 

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Tue, 30 May 2023 03:01:00 -0500 en-US text/html
Ask the Financial Expert: Part 1 No result found, try new keyword!Ken Peavy, from Max Credit Union, is back and ready to answer your financial questions for our 'Ask the Financial Expert' segment of Alabama Live! Mon, 05 Jun 2023 10:12:00 -0500 en text/html What is a financial consultant and what do they do?

Financial consultants can help clients develop an overall financial strategy and address specific needs such as retirement planning, tax strategy and more. Here’s what you should know about financial consultants including when it’s best to hire one and how to find a financial consultant in your area.

What is financial consulting?

Financial consulting involves developing an overall financial plan including retirement planning, estate planning, tax strategies, debt management and more. Financial consultants are very similar to financial advisors and the two terms are often used interchangeably.

A financial consultant may also hold the chartered financial consultant (ChFC) designation, but the designation isn’t required to call yourself a financial consultant. Be sure to understand the education and professional certifications of a financial professional before hiring them.

Financial consulting may also refer to management consulting, where consultants are hired by a company or organization to work on specific projects or develop solutions to financial challenges.

What do financial consultants do?

A financial consultant will first get an overall picture of a client’s financial situation. They’ll work to understand your assets and liabilities, your short- and long-term financial goals, as well as your risk tolerance.

From there, financial consultants can help you come up with a plan that addresses your needs and goals. They may help you set up retirement accounts, determine how much you need to save in order to meet your goals, or identify suitable investments for your portfolio.

You’ll likely experience a variety of financial needs during your life and financial consultants can assist with many of them. Everything from saving for retirement to estate planning to dealing with unexpected job loss may be areas that financial consultants can assist with.

Financial consultant vs. financial advisor: How they differ

Financial professionals use different terms to refer to themselves, so there is often little difference between a financial advisor and a financial consultant. However, just like in other professions, just saying you’re a financial consultant or advisor doesn’t make you a good one. You’ll want to understand the training and education of a financial consultant before hiring one, paying particular attention to the professional certifications they hold.

Financial consultants may hold the ChFC, chartered financial analyst (CFA), or certified financial planner (CFP) designations. They may hold additional licenses that allow them to sell investments. One of the best questions to ask a financial consultant is whether they’re a fiduciary, which means they’re legally required to put a client’s interest before their own or their firm’s.

When to get help from a financial consultant

Hiring a financial consultant comes down to your individual circumstances and needs. In general, the smaller your investment portfolio is and the simpler your financial life operates, the less likely it is that you’ll need a financial consultant. You may benefit from using a robo-advisor, which automates the investing process based on your goals and risk tolerance for a lower cost than traditional advisors.

However, if you have a more complicated financial situation or need help with specific areas such as tax strategy or estate planning, a financial consultant could be particularly helpful to you. Some consultants may require a certain amount of assets before agreeing to take you on as a client, so you may need to wait until your portfolio has reached a certain level to start working with one.

You also may be able to schedule one or two sessions at an hourly rate if you have a handful of questions about the financial impact of specific life events such as marriage, having children or receiving an inheritance.

How to find a financial consultant

One of the best ways to find a good financial consultant in your area is by asking friends and family for referrals. They’re most likely to provide unbiased advice on who may be best to hire and whether they’ve worked with consultants in the past that they’d recommend. You may also be able to find consultants and advisors by searching websites such as CFP’s

Thu, 01 Jun 2023 08:47:00 -0500 en-US text/html
Financial tips for new college grads

Photo courtesy DepositPhotos

For new college graduates, receiving that first post-degree paycheck can be almost as exciting as getting the diploma itself. But it also presents a challenge: Given the many demands on a young person’s budget, how should those funds be managed?

We asked five money experts to share their best personal finance strategies to help this year’s college grads successfully launch their financial lives. Here’s what they said.


To figure out how to allocate your money toward needs, wants and everything else, Erin Lowry, author of the “Broke Millennial Workbook,” says that instead of following the latest budgeting trend on TikTok, it’s helpful to just sit down with a pen and paper. “Write down what your big expenses are,” she says.

After accounting for large items like rent, car payments and food, you can then see what nonessentials also fit. “You might want to go out to dinner with friends, build up new work attire or adopt a dog,” Lowry says. Writing out the budget helps you figure out what you can afford and when, she adds.

“We conceive of budgets as restrictive things that keep us from having fun, but you should be thinking of it as a way of controlling how your money is spent. If you don’t know, you’ve sacrificed all control,” Lowry says.


Melissa Jean-Baptiste, a financial educator and the author of the book “So… This Is Why I’m Broke,” says it’s easy to forget to account for taxes, so you might have less take-home pay than you anticipated. Retirement contributions and other deductions can further lower that amount.

Jean-Baptiste suggests setting aside some time to really understand your first paycheck and all those deductions. “Take yourself on a money date so you understand how much you’re bringing home and how much you have left to save and invest,” she says.


Even if they’re paying off debt, Alex Rezzo, a certified financial planner and the founder of Andante Financial in the Los Angeles area, urges new grads to start saving for retirement right away. “There will always be a more immediate excuse to delay saving for retirement,” he says, but he urges people to find a way to save at least 1% of each paycheck and to increase that amount over time.

He also suggests parking your direct-deposited paycheck funds in an online bank that offers a competitive high-yield account and is backed by the Federal Deposit Insurance Corp. That way, the money likely will earn more than it would sitting in a traditional bank’s checking or savings account.


As you build your independent financial life, making at least the minimum payments on your student loan and credit card accounts can help protect your credit. Missing a payment, Lowry says, could damage your credit score. She suggests focusing on paying down any high-interest debt first to reduce the total amount going to interest.

Lowry also suggests freezing or locking your credit, which makes it much harder for identity thieves to apply for new credit in your name. Just remember that if you freeze your credit, you’ll also have to thaw it if you want to apply for credit yourself, she says, adding, “you might want to wait until you’re through a period of time when you’re applying for new accounts.”


Kennedy Reynolds, chief education officer at Acorns, a financial services company, says mistakes are part of the learning process, whether it’s overspending or accruing credit card debt, but the key is to learn from the experience. “If you have debt to pay down, take that paycheck and split it up” toward those bills until they are paid off, she says.

“Try to picture yourself later and know that the choices you’re making now will have a long-term impact,” she adds.


Linda Whiteman, a personal finance teacher at Outschool, an online learning platform for kids, teaches her students to think entrepreneurially. After all, she tells them, most millionaires are business owners.

“You don’t have to work for someone,” she says. She asks her students to consider what they can teach others, whether offering piano lessons online or creating digital art. Pursuing additional income streams outside of a paycheck can help grow wealth, she adds.

Jean-Baptiste found success doing exactly that: She used her experience as a teacher to create and sell lesson plans online. “I was bringing in $10,000 a year that I could put toward debt,” she says. Her lesson plans eventually turned into the financial literacy business that she operates today.

Earning additional income outside of a paycheck, she says, “can be a game-changer” — financial wisdom that applies at any age.

This column was provided to The Associated Press by the personal finance website NerdWallet. Kimberly Palmer is a personal finance expert at NerdWallet and the author of “Smart Mom, Rich Mom.” Email: [email protected] Twitter: @KimberlyPalmer.

Mon, 05 Jun 2023 08:02:00 -0500 en-US text/html


Melinda Perez, a financial educator, still remembers the first time she felt financially confident. She had recently started investing money outside of her employer-sponsored retirement account because she was finally earning more than she spent.

"It was exciting because, for once, I had what felt like extra money," recalls Perez, who lives in San Antonio, Texas.

Financial confidence , or the belief in one's money-related abilities, might not come up as much as financial literacy, but money experts say it's often the hidden ingredient behind savvy money decisions.

"If there's no financial confidence, there is no willpower to succeed. We translate that to financial self-efficacy," says Perez, who also studies financial confidence as part of her research as a doctoral candidate in organizational leadership.

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But confidence with money can be hard to come by. According to a NerdWallet survey in January, three-quarters of Americans say they do not feel confident about their personal finances for 2023, and many of them cite the uncertain U.S. economy.

There are, however, ways to boost your financial confidence. Here's how to get started:

1 Seek financial education

Learning essential lessons around budgeting, saving and investing helps boost financial literacy, Perez says, which can positively impact actions.

"To increase financial confidence, we need to increase education so you know what tools you need," she adds.

Those seeking financial education should start with local organizations and community groups that provide information for free, she adds. Finding financial-literacy-focused groups on Facebook or searching for "financial education resources" for your area can lead to helpful resources. The U.S. government's Office of the Comptroller of the Currency also offers a helpful Financial Literacy Resource Directory.

"Find your community that talks about finances in a nonjudgmental way" so you have a safe place to ask questions — that community might include friends and social media groups, Perez says.

Your financial institution can also help, says Jennifer White, senior director of banking and payments intelligence at J.D. Power, a consumer research company. Banks and credit unions often provide online tools to help customers visualize their cash flow and see how they can Improve their savings and credit.

2 Watch out for overconfidence

Confidence plays a big role in day-to-day money and debt management, says Lucy Delgadillo, professor of family finances at Utah State University's College of Agriculture and Applied Sciences. But creating positive outcomes depends on having the right amount of it.

"When you have overconfidence and low knowledge, that's the worst situation. You're more likely to get into high-risk behaviors such as overextending credit and overly risky investing," says Delgadillo, who researches financial confidence.

Overconfidence can originate from a bad source of information, like a misinformed social media influencer.

"With social media, you learn so much more, but that doesn't mean you learn the whole picture," Perez says. She recommends checking information gleaned from social media with other sources before acting on it, especially when it comes to investing or trendy syllabus like cryptocurrency.

White also notes that many Americans struggle with basic financial literacy around core syllabus like compounding interest and investing risk.

"There's a gap between what people think they know and what they actually know," she says.

3 Continue to learn and improve

Like Perez opening up her first investment accounts, heightened confidence can help lead to smarter money decisions.

"It's like an athlete practicing and knowing everything about a sport. Once you have that knowledge, you become a better participant," says Clark Kendall, certified financial planner and CEO of Kendall Capital in Rockville, Maryland.

That working knowledge is especially important today.

"We are more responsible for our financial successes and failures than our grandparents," he adds, given the need to save for retirement in the absence of work-provided pensions.

When Kendall asked his daughter, who is finishing her master's in business administration, if her degree was worthwhile, she responded that it was — mostly because it gave her confidence. Adds Kendall: "Education in general gives people confidence to follow their dreams and aspirations."

Financial confidence, or the belief in one's money-related abilities, might not come up as much as financial literacy, but money experts say it's often behind savvy money decisions.

Sat, 27 May 2023 21:01:00 -0500 en text/html
A financial planner reflects at 50

By Lazetta Rainey Braxton
For Next Avenue

I’m turning 50 this year. As a financial planner, I rehearse in my mind conversations with my Gen X clients about reaching and surpassing this beautiful milestone in their lives. I recall their bundled emotions — fear and excitement — about decisions made and future opportunities for living their best lives.

One would imagine that I would show the same care to myself as I extend to my clients. I have some work to do, and I hope my confession transforms into wisdom for you and me. Let’s explore my realizations as an approaching half-centurion through the lens of the financial planning journey.

Where are you financially?

Each year during tax season, my husband and I update our Lifestyle Plan (income and expenses or budget) and our Net Worth Statement (all of our assets and liabilities) as we compile our tax forms and statements for our tax professional.

We reflect on how our decisions during the year show up in our checking, savings, investment balances and property values based on how we spent and saved money. We discuss many competing goals: managing household expenses, paying for our daughter’s education, redeploying capital for my growing businesses, covering estimated taxes, saving for retirement and finding funds for college visits and vacations.

It’s not clear, however, if our financial habits and one-year reviews afford us the peace that we’re on track for a comfortable future. We’re fortunate to know the rules of thumb, such as living within our means, paying off credit cards each month, saving with high-yield savings accounts, investing in brokerage accounts, maxing out deposits to our 401(k)s (including catch-up contributions) and Health Savings Accounts (HSA), getting a state tax deduction on contributions to a 529 college-savings plan and securing insurance and estate-planning documents.

Real-life circumstances — job transitions (including my season as a Chief Family Officer, stay-at-home mom or domestic engineer), residing in high-cost-of-living areas and founding businesses — consistently challenge our intent to maintain these financial best practices.

Hire a financial planner

If I’m honest, I fear knowing the answer to these two looming questions: What is the cumulative effect of our financial circumstances and decisions, and where do we go from here? Assistance with answering these questions with confidence and assurance is one of the many valuable attributes of a financial planner.

A survey by MagnifyMoney in March 2021 found that 76% of Gen Xers haven’t hired a financial planner, and I confess that my husband and I are in that majority.

The good news is that it’s never too late to act on your financial planning journey. I believe this mantra and will hire a financial planner as one of my 50th birthday gifts to myself.

Ideally, I will find a planner who shares my family’s values, possesses cultural competency, believes in holistic financial planning and values leading with EQ (engaging our humanness) to enhance the IQ (knowing the craft).

While these characteristics reflect my revered team at my firm, 2050 Wealth Partners, I desire a new partnership that will provide me fresh perspectives on what I believe to be true for my family, my team and the people we serve.

Making this investment in me and my family is worth it. I am no longer hesitant about adding this recurring line item to our Lifestyle Plan.

Lazetta Rainey Braxton (left), with her husband and their daughter. (Photo courtesy of Lazetta Rainey Braxton)
Lazetta Rainey Braxton (left), with her husband and their daughter. (Photo courtesy of Lazetta Rainey Braxton)

Health is wealth

In my quest to be wealthy, as I define it, I realize that physical health holds a significant piece to the financial health puzzle. As my husband and I advance to our retirement years, I acknowledge that Fidelity’s 2022 Retiree Health Care Cost Estimate suggests that we may need approximately $315,000 saved (after tax) at age 65 to cover health care expenses in retirement. We’re not that far away! This figure does not include long-term care costs to support our activities of daily living (ADLs) if needed, as we age.

I confess that I neglected my health as the stress of balancing life and career as a wife, mom, sandwich-generation daughter, employee and entrepreneur grew over the years. While I celebrate these roles — and being among the 1.9% of 94,968 Certified Financial Planners who is Black, according to the 2022 CFP Board of Standards — I realize that advice about staying healthy is as significant as guidance on financial matters.

My focus on improving my physical health as a proactive way of managing my medical costs includes addressing my mental health. Life and workplace trauma often weigh down one’s ability to maintain good physical health while also affecting one’s financial health.

I’m proud to be among the 26% of Gen Xers who, as reported by the American Psychological Association, have received treatment or therapy from a mental health professional, and I have extended this wealth opportunity to my Gen Z daughter.

While I’m turning 50 this year, my confessions and reflections assure me that anyone can achieve the life and legacy we desire and deserve. Focusing on the right mindset, securing the right team and doing the work will serve us all well as we navigate the opportunity to live longer and better.

Lazetta Rainey Braxton is a certified financial planner and co-founder of 2050 Wealth Partners and CEO and founder of Lazetta & Associates. She was named a 2021 Crain’s New York Business Notable Black Leader and Executive as well as one of the Top 10 of Investopedia’s 100 Top Financial Advisors in 2020 and 2021. 

Sat, 27 May 2023 23:00:00 -0500 Next Avenue en-US text/html
Stress Test transcript: How climate anxiety is shaping small and large financial decisions

You had your best-laid plans and then COVID-19 came along and hammered the entire economy. But you’ve got this – if you have the right information. Join Rob Carrick and Roma Luciw on Stress Test, a podcast guiding you through one of the biggest challenges your finances will ever face.

ROMA: Every day we make money decisions. Veggie burger or beef? Staycation or holiday overseas. Bargain hunt online. Or buy something brand new.

ROB: But it’s not just finances driving these choices. For a growing number of Canadians, concerns about the climate impact both small choices like what to eat and big choices like where to live.

ROMA: Welcome to Stress Test, a personal finance podcast for millennials and Gen Z. I’m Roma Luciw, personal finance editor at the Globe and Mail.

ROB: And I’m Rob Carrick, personal finance columnist at the Globe. Today, we’re talking about how financial decisions are being affected by climate anxiety, the fear of looming environmental doom.

ROMA: It’s something young people, in particular, are panic about. Some are questioning where they should live, what they should be saving for, and how they should invest. Others wonder whether they should even bother planning for the future.

ROB: After the break, we’ll speak with a financial planner about this issue.

ROMA: Shannon Lee Simmons is a Toronto-based author and certified financial planner. She works with a range of clients, including millennials.

ROMA: Shannon, when you meet with your clients to talk about financial plans, how often do worries about climate change and the environment come up.

SHANNON: Every day. And it, and I’ll tell you this, it didn’t five years ago, and it comes up because there are things like, let’s say that they want to buy a home and they can’t really afford it, but they’re like, maybe, you know, maybe in ten years I can. The comment will be something like, okay, well, will anyone even have a job in ten years? Like, what about if climate change is shifting everything? Like, who knows if there’s even going to be jobs or an economy? Now, whenever I’m talking about investment advice, and this is also for people who are retiring like people who my clients are like 55 are like ten. Is a balanced portfolio something that still holds up because of what happens with climate change, and if the world is on fire in 20 years, how does that affect my risk? Like you don’t like actually. And so I really feel like it’s top of mind, and it seeps into the day-to-day conversation because so much of personal finance is projecting out in the long run. And that’s very uncertain these days.

ROMA: What specifically are they panic about?

SHANNON: Like what I’m hearing in my meetings, there is a lot of discussion around capitalism as we know it, as in investing in a stock buying ETFs, broad sweeping market, that kind of thing. In 15 to 20 years, it will just not exist. They don’t nobody knows what it might be, but it’s just not sustainable in the way that it is and that so is investing even a good idea. And compounded on that I don’t want to invest my money into something that is adding to the problem. I am so disgusted to put my money into something that might benefit me in the short run but is causing this long-term issue. So there’s also that piece around. Like, I want my money to do something. I want to keep up with inflation. I want to do all those things on a personal level. But I can’t shut my blinders off on the broader strokes here. And so that kind of social awareness is beautiful and also something to navigate. So there’s a lot of anxiety about the future. There’s so much to mine here.

ROMA: Shannon I want to start with one of the first things you said, which is that they are concerned about the structure of capitalism and the investment element. They’re specifically coming to you for help with that. How do you handle that? What kind of advice can you provide someone like that?

SHANNON: I’m basically just honest. I don’t know. I don’t have the answers. I have no idea. I don’t have a crystal ball. We basically work through it together. I share that anxiety, too. I have it. I’m also a millennial. I’m an elder millennial. I feel like I need like a scroll to say that. But I feel like my big thing is I don’t have the answers. Nobody does. How much have we ever known about? It was always just the past and projections and everything like that. And we’ve always been working towards an uncertain future because the future is never in our control. So that actually is an element that’s constant in investing, is that it’s like you just try. But what I try to say is like, okay, so you’re afraid of that in 20 years. I get it. Are you afraid of that for the next five years? Well, no. Okay. So let’s operate on a very micro timeline. Let’s operate in the next five years, and then we’ll reassess which is the best that any of us can do. Truly, like nobody, nobody has a crystal ball on how this is going to play out. It’s a weird time.

ROMA: Shannon, what kind of questions are you hearing from clients that come see you that do want to invest, but want to do that in a responsible way for the environment?

SHANNON: So I think this is a big conversation around, you know, socially responsible investing and everything like that. And so there are lots of products out there that are, quote, socially responsible or sorry, but they still have, you know, they’re still holding fossil fuels in them. And so it really depends on how hardcore you want to be about it. I think that’s like the there’s a spectrum, right? So there is a spectrum of people who are like, I just want to vote with my dollars in the sense that I want to send a financial institution a message saying, Hey, you’ve made this socially responsible product, I’m going to buy that and nothing else, because I want you to know that there’s a demand for that’s cool, that’s important. Even though you might still be investing in certain industries that make you feel icky, there might be. There’s still power and empowerment in that because you are sending a message to the company is like, Oh cool, let’s make more of these, or let’s really dive deep on this. There’s money to be made there. The other pieces on the other end of the spectrum are like; I want completely out. That is a real DIY situation or almost DIY. Situation. Two to opt-out out completely of certain industries or fossil fuels or whatever. So often, I’ll find those people looking for alternative ways to invest. They often are trading there in their own brokerage accounts, for sure. And they are still buying. You know, I think it’s I think the smart way to do that is if you’re going to DIY that and try to like to forgo some in certain industries is to still use like broad-based ETFs, but maybe sector specific so you can kind of pick and choose what sectors. And then you’re not necessarily just stock selecting on your own out there. I really have seen that blow up again with some of the stock market volatility that we’ve had because it’s just not diversified. Right. So I do think that if you’re going to opt out, which I think is also great totally, just make sure that you’re thinking about the diversification piece holistically in your portfolio.

ROMA: Climate change could be compared to the pandemic in that it’s a form of collective trauma, and it’s impacted everyone to some degree. Do you think that living

through a accurate event like, you know, the pandemic that’s collective trauma has changed people’s approach to money?

SHANNON: 1,000%, Yes. I feel like even at the top of the call, numbers said like, oh, I only heard a smattering of this kind of chat like five years ago. And now everybody, including people who are like retired or about to retire, who maybe, you know, their alarm wasn’t as on before. It really woke people up that life is ridiculously unpredictable. And I think I think it scared people in a way to say, well, I didn’t see that coming. Nobody saw that coming. What else is lurking down the pipeline? And I think that was the negative part of it that injected uncertainty into our lives. Right. We took a lot of things for granted as far as assumptions on what is going to happen going forward. And now, in much of the world, we’re faced with like really high inflation, interest rates that rose really aggressively after like, oh, over a decade of low-interest rates, which are really messing with people. The only silver lining about that I think it’s made people more conservative going forward. And I mean, conservatives are like, okay, well, bad things could happen, so how do I kind of protect myself against that? So not as leveraged, not as much. Debt is now becoming a conversation that is like; I’m too scared even though I could do it. I’m too scared to now because I don’t want to get it. I don’t want that to sink me later. Whereas a healthy attitude towards money that I think was distorted actually for like a decade.

ROMA: Do you ever have clients that come see you who sort of are handling or, I guess, struggling to handle their climate anxiety fears, among other worries, by sort of the bury your head in the sand approach? What’s the purpose? Because it’s all going to go up in a ball of flame anyway, So no planning is required. What do you do when someone like that is sitting in front of you?

SHANNON: Roma, they don’t come to see me.

ROMA: Yeah, fair enough.

SHANNON: So I know they’re out there. I know they’re out there from like social communities that I have and that person’s and especially cause I’m fee for service, they have to pay money. So nobody who believes that there’s no point in planning is going to pay me money to plan something that I want to plan. But if they’re listening to this, what would your thoughts for them be? I mean, obviously, I’m biased, and I think sometimes, if you believe that there is no hope, it can become a self-fulfilling prophecy. I have been saying that for years. That’s not a new thing that has to do with climate change. I’ve just seen it firsthand. When you provide up or assume the worst, then every action that you take becomes that, and then the outcome is also that. So I would hate just make sure that you’re not making decisions that you’ll look back on and regret. Honestly, that’s it. And so I would often say, What’s the harm? It’s cheaper than therapy, right? Coming into one session, it’s cheaper then, and then a few therapy sessions, see what someone has to say. And if it didn’t help, then at least you know. And then you’re like, okay, I’m firm on my plan to do nothing. Or maybe it was the right thing at the right time. That could just be one habit or one shift that might just in case things end up being okay and be fine down the road. Like we figure something out, and it’s wonderful, and it’s everything that we’re all hoping for that you’re also okay in that timeline, too?

ROMA: Well, in many ways, living an environmentally friendly lifestyle can complement living economically. A smaller house? Fewer cars, potentially. Travel or more local travel. So in some ways, making these decisions can empower someone.

SHANNON: Yeah, I think so too. I think that there’s so much to be empowered about, and we do vote with our dollars. And I think that using your money in a way that aligns with your values on every front, so not even on your day-to-day transactions but on the major decisions of your life. How, how, and where am I going to live? How and where am I going to get around? What am I going to do for money? These are all decisions you make with your money that say something about what’s important to you. And so if you’re in a situation where you’re scared, and you don’t know what to do, even just like. Thinking about those kinds of things as being like voting with your dollars and like it is empowering to think about what you’re doing with your money matters. It does everything that we do with our money matters because that’s how right now the system is. The system is set up.

ROMA: Thanks to Shannon for these insights. After the break, we hear from a millennial who puts climate concerns at the forefront of his decision-making.

ROB: Our guest today considers the climate in every financial decision he makes.

DAN: So my name is Dan. I am 36 years old, and I live in downtown Toronto.

ROB: There is behavior is shaped in part by his career as a high school science and biology teacher.

DAN: When I began my teaching career in earnest, the first time I taught Grade ten science, there was actually an entire unit devoted to climate and climate change and to do the best job possible for my students. I really delved into the information, the research that was out there. Understanding the causes, the effects, and of course, the consequences of climate. And I think that was definitely a tipping point for me because I really fully began to appreciate just how serious the issue is. And I began to see how, you know, each and every one of us as individuals do have, albeit a small role to play in sort of doing our part to mitigate, to prepare, and to sort of respond to climate change and how that’s going to continue to only get more exaggerated in the future.

ROB: He didn’t always prioritize the climate in his financial decision-making.

DAN: Like many people sort of in their mid to late twenties, just having a reliable, steady income and just, you know, paying the bills, paying rent. Was sort of my priority for quite a long time. But as my, you know, income became more consistent and reliable, I did begin to sort of really focus on how I was spending that money. I think I’ve always been a fairly eco-conscious consumer, but in the last several years, and especially somehow, it’s been sort of amplified by the pandemic, I’ve really thought, you know, how I spend my money and what the impacts of that are on my finance. And so to the point where, you know, all of the decisions I’m making around money are in one way or another sort of impacted or shaped by how I feel about what we are or what I as an individual need to do to play my part in making a more or making a sustainable future here on planet Earth.

ROB: Dan grew up on a small farm in rural Ontario. When he moved to Toronto 12 years ago, he had no intention of staying for the long haul. But now he can’t see himself leaving, in part due to environmental concerns.

DAN: I look at the lifestyles of people that I, you know, went to high school with, even my family that do still continue to live the in the country. And just the amount of space that they occupy and that they feel that they need. Their constant complaints about their energy consumption always make me chuckle because, well, yeah, you have this massive building or this home that you, you know, you’re heating and, you know, feeding electricity to all these rooms that you don’t even occupy. So, you know, living in the city, you don’t have a lot of choice about how much space you have. I do not subscribe to this Canadian obsession with home ownership. And I’m happily renting, and I could see myself doing so for the rest of my life. I, I enjoy sort of sharing a space with other people so that you can better utilize it, whether it’s a house or, you know, a condo building. And so I’m very content to live in a smaller space, but in a community where you have access to parks and all of the amenities, restaurants, bars, shopping, etc., like I can do everything I need within my, you know, within my five-kilometer radius. And so that’s something that, you know, we in the cities have to our advantage. But I also think it’s like it’s really valuable and important for the environment that we live a little bit more. You know, local on a smaller scale.

ROB: He’s also staying more local when he travels.

DAN: I would say that my travel, especially in the last few years in light of the pandemic, has become very eco-conscious. I have not left Canada, and I feel fairly confident that, I would be perfectly happy never leaving Canada again. I know that sounds very sort of, almost like close-minded, but we have this incredibly beautiful country, and I’m perfectly happy to travel domestically. I you know, I mentioned the Rocky Mountains, which I have you know, I have made my one trip each year, you know, two weeks to the mountains to get lost in Banff for Jasper National Park. Previously, I’ve gone to Vancouver and Vancouver Island, which is beautiful, on the east coast of Canada, the Cabot Trail. So there are so many places within Canada that although the world is a big and beautiful place, I don’t ever want to say that traveling and seeing more of the world is something that I would sort of do. Actively, you know, say that people shouldn’t do. But I personally now feel that I can get that wanderlust, and I can be satisfied with domestic travel here in Canada. And even, you know, without getting on a plane, you can drive, you know, an hour and a half north of the city, and you can be in very rugged, not natural beauty in northern Ontario.

ROB: It isn’t just changing where he travels, but also how he gets around when he arrives.

DAN: So the first couple of times that I went out West, it was sort of a no-brainer to rent a car to get around. The very first time I went out west, I remember clocking like 3000 kilometers on the rental car that I had for two weeks. The second time I went back, I kind of thought about that, and I was just like, Well, maybe it would be better to just sort of stay a little bit more local and explore a particular region. I still rented a car, but I think I traveled a fraction of the distance. And then last summer, and I’m honestly, I’ve never had an experience. I’ve never had a trip that I’ve enjoyed more. I actually opted not to rent a car, and I was able to rely entirely on public transit, which can more and bounce in Lake Louise. They’ve done an amazing job of investing in their local little public transit system. But you can get around to all of the major attractions. And I think other places are sort of catching on because they don’t just want those like those full parking lots of rental cars. Right. That’s not great, for that’s not good for the environment. And it takes away from the beauty of the natural environment. And so now, going forward, I’m trying to think about, well, how can I travel? And, you know, again, still reduce my ecological, environmental footprint by relying on public transit, supporting, you know, very local small businesses like B&Bs and things like that. I try not to stay in big hotels. I do occasionally camp, but I know that’s not for everyone. So even when I travel, I’m trying to think of ways to sort of reduce my impacts.

ROB: Another big way Dan tries to reduce his environmental impact is through his diet.

DAN: I’ve been sort of an on-again-off-again vegetarian for the better part of like 15 years. I’ve been taking that more seriously, trying to find ways to reduce the consumption of animal products, particularly beef, pork, dairy, and things like that. And so, on the one hand, I feel like I’m actually saving money, right? I hear about people spending, you know, their grocery bills on, you know, eggs and meat. And I can only imagine how expensive that is. I don’t know, because I don’t buy those products. But all of these companies that are trying to cater to people like me and are coming up with these plant-based products are not cheap. And so when I go, and I buy Beyond Meat burgers, or I try vegan cheese to put on a pizza, I mean, that definitely is not cheap. And that definitely adds to my grocery bill and my living expenses. So I don’t wonder if I probably come out more or less the same when it comes to the finance financial side of how much money I’m spending on my grocery bill. But I can feel good about that expense because, again, I feel very strongly that that not necessarily being vegetarian but being a flexitarian and reducing animal and meat consumption is an absolute no-brainer when it comes to the environment because big ag has a disproportionate effect and contribution to greenhouse gas emissions. And climate change is something like 20% of all emissions come from agriculture, particularly energy-intensive sectors like beef consumption.

ROB: He also changed how he shops.

DAN: I went almost two years during the pandemic without buying absolutely anything new. So I’m a huge fan, and I’m a proponent of repurposing, reusing. I know that with Facebook marketplace and with Kijiji and with so many others where like, there’s no real reason to buy new things, to be perfectly honest. There are so many people that are trying to get rid of perfectly good stuff. And so I’m thinking about that when it comes to the clothes that I’m wearing, when it comes to the furniture that I’m buying, even plants, you can find entire websites where you can like get people’s plants because they have too many of them by now.

ROB: You won’t be surprised to hear that Dan invests in ESG stocks again.

DAN: I made that decision purely because I believe it’s the right thing to do. But in the long term, I also think it’s an economically valuable thing to do. I think we are again, we are slowly, far too slowly. We are transitioning to a greener economy. And so I think by choosing to invest in environmentally conscious stocks and bonds and things like that, I think that the long-term perspective for those returns, in the long run, will likely. We’ll likely soon exceed sort of more traditional or standard investing practices.

ROB: Diet, shopping, and even investing are minor considerations compared to family planning. That’s a massive financial and personal undertaking that Dan has shelved due to climate concerns.

DAN: I love children. I’ve chosen a profession where I get to work with children, but I can say with some degree of confidence that I never plan to have children of my own. And part of the reason is that children have a massive impact on the environment. They change our entire lifestyles. Yes, we need them. But I personally feel that having children is something that I wouldn’t want to do. I’m also legitimately concerned for the world. A child born today is coming into I don’t know what this world is going to look like ten years from now, 25 years from now, 100 years from now. And, you know, without being too cynical, like I’m a little bit panic about what that world looks like. And I don’t think that we are doing our children’s generation any favors in how we are continuing to sort of live our modern-day lives. And so, yes, I would be very concerned about bringing children into this world. And so I’m choosing not to do it.

ROB: It’s not an exaggeration to say climate concerns factor into every decision Dan makes. So how does he grapple with climate anxiety and his own hopes for the future?

DAN: There are certainly days where I do feel very, very cynical and pessimistic, and I see people around me living, you know, lavish lifestyles and not environmentally, you know, making not making environmentally conscious decisions. And I want to throw my arms up and say, well, why don’t I do that, too? Why don’t I just, like, live in the moment and, you know, let it burn, right? I mean, why can’t I enjoy it while I’m here? But I don’t agree with that. That doesn’t align with my values. Like I do believe that I’m a prudent person. I do think very carefully, and I want to be a role model as a teacher, as a family member, an uncle, etc. I want to model what I believe is good behavior when it comes to consumption and when it comes to appreciation of the natural world. I wouldn’t say that I’m an optimist, but I am slowly coming on board. I understand that you know, we humans are extremely adaptable. And I don’t wonder if when this crisis becomes sufficiently severe, we will meander our way out of it. I’m not an I’m not a technophile. Some of my best friends is a technophiles. He thinks we’re going to come up with some sort of creative solution to get out of this. I think it’s going to be a little bit more nuanced than that, but I wouldn’t put it past, you know, our species to, like, figure out a solution that allows us to continue to live for better or for worse, the way we currently are. I fear the damage that we’re going to do to the natural world in getting to that place when it comes to our oceans and our rainforests and all of these naturally beautiful species that, you know, are going extinct, that, you know, record-breaking pieces; there are already severe consequences of our behaviors. And those will only get worse. But somehow, I think we humans will probably be okay.

ROB: Dan clearly prioritizes the climate when he’s making financial decisions, big and small. I know most of us don’t do that, but it is prudent to think about risks when you’re planning for the future. And climate change does inject risk into all of our lives. Roma, what are your takeaways from today’s conversations?

ROMA: 1) No one knows what the future holds, but taking even small steps like starting an emergency fund or building up some savings can provide you a greater ability to make choices that align with your values. 2) When it comes to investing, where you allocate your money can make a meaningful contribution to the fight against climate change. Investments that target companies doing well in environmental, social, and other areas are easy to find today. 3) With the COVID pandemic, high inflation, and soaring housing, we’ve all been through a lot. But one way to alleviate your worries is to come up with a plan when you can adjust every five or ten years. That would help me sleep better at night.

ROB: Thank you for listening to Stress Test. This show was produced by Kyle Fulton and Emily Jackson. Our executive producer is Kiran Rana. Thanks to Shannon and Dan for joining us.

Wed, 31 May 2023 23:42:00 -0500 en-CA text/html

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