Is Your Broker’s Recommendation in your Best Interest?

By Bob Brooks
February 25, 2015

Well of course your broker/advisor has your best interest at heart….right?  Aren’t there laws that protect the individual investor?  Well, actually, not really.  It depends on the type of advisor.

To understand the level of protection you have as an investor, you have to understand two standards.  There are fiduciary responsibility and suitability standards.  The fiduciary standard is the highest standard for an advisor and carries the highest responsibility.  This states that the advisor is required to do what is right for the client.  Securities regulations states that advisors who are part of Registered Investment Advisory firms (fee based firms) are fiduciaries for their clients.   

Commissioned brokers/advisors are not required to meet that standard.  They are only required to make recommendations that are considered suitable.  Suitability is a much easier standard to obtain.  This is where the rub comes. 

Take for example Jack and his client Bill.  Investment Product A and Investment Product B are both suitable for Bill.  Jack, the investment advisor, makes 7% on investment Product B and only 3% on Investment Product A.  Jack knows that the fees are lower on Investment Product A and that the return probability is better.  Yet, he convinces himself that Investment B is better and he gets the higher commission.  Since both investment products are suitable and since Jack doesn’t have fiduciary standards to meet, the only thing keeping Jack from the higher commissions is his conscience versus a requirement.

To be fair, suitability standards do weed out some transactions that are clearly in the best interest of the advisor versus the client.  This is not to say that commissioned advisors are inherently bad and recommending products based on commission size.  Unfortunately, when introducing these higher commission products to advisors, the industry does a pretty good job of convincing the advisor community that they are doing the right thing and getting paid handsomely for doing so.  It removes the need for the advisor to go through the ethical Q and A in their mind.  You commissioned based advisor that you want is one that holds themselves to fiduciary standards even though the law does not require it.  Fortunately, there are many out there who do. 

So what is the moral of the story?  First, investors need to be aware of these two standards.  Second, this just emphasizes that investors need to be extremely careful with who they select to help them on the journey of investing. 

Regulators are currently fighting with the industry to change the rules and make ALL advisors fall under the fiduciary standard.  However, as long as the industry has deep pockets and lobbyists in the pockets of lawmakers, it is going to be an uphill fight. 

What is Your Risk Level? Find Out for Free

By Bob Brooks

February 18, 2015

I believe that understanding your Prudent Money DNA when it comes to risk is critical to long-term success with investments. In fact, I am addressing it thoroughly in my latest book that I am writing. So, I want to make you an offer.

In order to thoroughly research this idea of risk and Prudent Money DNA, I need real time research. So, I created a very quick questionnaire that helps identify your Prudent Money DNA when it comes to risk.

So, if you take a few moments to answer the survey as well as give me any feedback on questions you don’t understand, I am happy to offer this as a ministry resource and send you a written analysis of your risk assessment. This will tell me your tendencies and what could influence your decision making in the future. Understanding your tendencies will help you make better financial decisions.

Further, I will include your financial strengths and weaknesses. It is important to be aware of them. This information will also help you analyze whether or not you are taking too much risk with your retirement money.

From all of this research and your feedback, I can make this writing project a better resource and help further the cause of prudent stewardship.

Just go to this link and fill out the information. It won’t take very long. Incidentally, the only reason we ask for your phone number is in the event we aren’t able to connect with you via email.

CLICK HERE FOR THE QUESTIONNAIRE

Your Prudent Money DNA – A Strength or a Liability

By Bob Brooks

February 17, 2015

There is a psychology that lies underneath investing.  In fact, psychology influences everything when it comes to money and investing.  Why do we make the decisions that we make?  Why do we react either with fear or greed?  Why do we hang onto investment losers?  Everyone has an investment DNA.  At the heart of that DNA is our ability to interpret risk. 

In step 2 of my 5 step approach, I talk about evaluating your strengths and weaknesses and discovering your Prudent Money DNA.  A lot of that has to do with how we interpret risk.  This ability can either be a strength or a weakness.

Some of the key questions:

How do you react to losses and gains?

Most people don’t know that there is such a thing as acceptable losses.  Further you might have a few investments that are losing money in your portfolio and it makes no sense to sell them while there are extremely profitable ones in your portfolio that should be sold.  Do you ever see a gain and experience disappointment?  

Do you look at results with your investments in terms of percentages or dollars?

This is a key question.  You can only effectively evaluate your progress with investments by looking at your investments in terms of percentages.  Dollar gains and losses are only key one time of year.  Percentages are important every day.  By strictly looking at results in terms of dollars, you could be coming away with the wrong interpretation. 

How do you know if the risk you are taking is ultimately effective? 

You might be making money hand over fist and at the same time taking the wrong kind of risk. 

How often do you evaluate your investments?

If you say daily, you need a very high tolerance for risk.  Without the right Prudent Money DNA, daily checking of your investments will create emotional investors.  Evaluation of investments should only occur 4 times a year. 

Do you ignore your investments?

The most conservative investment in the world could turn into an aggressive investment simply because you are ignoring it.  

These questions are just a sampling of the information you need to know about yourself to determine your Prudent Money DNA. Your ability to understand your Prudent Money DNA is either going to help you or hurt you.  Beyond starting this series to help you, I am also going to roll out a Prudent Money DNA Survey.  

This will be a free resource where you can answer these questions and a written analysis will be sent out to you. This analysis will outline potential weaknesses, help you be aware of them, and resources to strengthen your understanding.  

A dramatic shift could be ahead in the investment world. Those who understand their Prudent Money DNA will whether that storm much better than those who do not. 

The 5 Step Plan for Financial Success and why People Aren’t Successful

By Bob Brooks

February 12, 2015

Through hosting the radio show and advising people, I have had the opportunity to see what works and what does not work when it comes to money.  Due to that history, I have developed what I feel is a 5 step plan that would serve anyone willing to follow it.  The process involves prioritizing, evaluating, planning, implementing, and monitoring.

(1)   Prioritize

Most people whether loosely or clearly defined have goals.  It could run the gambit between sending your child to college to getting out of debt to retiring someday. 

Unfortunately, success is not achieved because of two key mistakes.  First, goals are not clearly defined.  They aren’t goals.  They are wishes.  Second, the biggest mistake that most people make is not having a system of priorities in place.  The emphasis on particular goals ebbs and flows with the seasons of your life.  Understanding this is critical.

(2)   Evaluate

Once clear and defined goals are set and prioritized, the next step is determining where you are in relation to accomplishing those goals.  It is critical to understand where the gaps and weaknesses are in your financial situation that would prevent you from accomplishing those goals.

Unfortunately, success is not achieved because the process is rushed.  ALL weaknesses and gaps have to be flushed out and accounted for.  

(3)   Plan

After understanding where you are, now you have to figure out the strategies to fix those gaps and eliminate the weaknesses.  This is a process.  There are a tremendous amount of options that can be implemented. 

Unfortunately, success is not achieved because the often times the wrong options are selected and it sets the person up to fail.  It has to be a fit from a risk and implementation standpoint.

(4) Implement

You have done all of the work, now it is time to implement. 

Unfortunately, success is not achieved because believe it or not, more and more people will take the trouble to go through steps 1 through 3 and not take the step of implementation.  For a number of reasons, procrastinations will set in.  The main reason this happens is that step 1 did not create a compelling vision.  Step 1 has to be powerful and motivating enough to inspire one to act.

(5)   Monitor

Once 1-4 is in place, a monitoring system is implemented to insure #1 is achieved.  This might be the most critical step in the process.  If you don’t monitor your progress, you don’t know if you are on track or not.  A strong monitoring system will help you know when you have to make changes. 

Unfortunately, maybe the most critical component is a step rarely taken.  It takes discipline and a small investment of time to chart your progress.  I can only chalk it up to human nature. However, this is why so very few achieve financial success. 

With my financial advisement practice, I can take you through this process.  The initial assessment is always at no cost and can be done over the phone or in person. After we have done a general assessment of your situation, then you can decide if my solutions are valid enough to work in a client/advisor relationship.  Be confident that you are on track.   For once, get some advice and some solutions.  Feel free to email me atbob@prudentmoney.com or call me at 972-386-0384.

If You Have Anthem Insurance, Take Action

This is old news because it happened last week.  Since Anthem is telling those that might be affected to just sit tight, I thought I would write about it.

In what looks like the biggest data breach on record, an estimated 80 million people have had their personal information stolen in a data breach at Anthem, Inc.  We are talking everything from social security numbers to just about every piece of personal data was hacked. 

Interestingly enough, they did state that no credit card information was compromised. Usually, that is the main information stolen and the social security number is not stolen.

Remember there are two different types of potential theft that can occur as a result of a data breach.  First, there is credit card theft.  This is mistakenly referred to as identity theft.  An authorized charge is simply fraud and not ID theft. 

Then there is the worst theft of all – social security information.  This is where a thief can do the worst of all damage to a consumer. The concern should be potential identity theft.  What’s worst, this is a problem that can last for a lifetime.  It is not like you can change a social security number like a credit card number. 

It is mind blowing that this has happened to 80 million people. 

Anthem had this to say:

“What to do if you’re a customer: If you have Anthem insurance, there’s not much you can do but sit tight for now. Anthem has set up a website, anthemfacts.com, with information about the hack.

In the next few weeks, Anthem will inform you by mail if your information was compromised. All impacted Anthem customers will receive some form of identity fraud protection, the company said.”

If you are with Anthem, take action now.  It is beyond me that their advice would be that “there is not much you can do but sit tight for now.”  Identity thieves love the fact that they have a few weeks to start illegal activity while consumers are “sitting tight.”

How to Eliminate Financial Stress

By Bob Brooks

February 4, 2015

 

According to the American Psychological Association, almost three-quarters of Americans are experiencing financial stress at least some of the time, and nearly a quarter of us are experiencing extreme financial stress.  That is not surprise.  Since the Financial crisis of 2008, finances have just become so complicated.  After giving financial advice now for almost 23 years, I have come to a conclusion.  First, most of what people are worrying about never comes to pass.  Second, people are worrying because they are operating out of a set of assumptions rather than facts.  Said another way, they are assuming something could happen because they haven’t taken the time to assess their situation and their options.

 

It ends up being a two edged sword.  People don’t want to look at their situation out of fear.  Yet, they stay stressed and worried because they are not assessing their situation.  Well, there is good news.  I have found that things aren’t as nearly as bad as it seems.  Further, I have found that solutions are created and stress goes away when you allow someone from the outside to assess your situation. 

 

Take Paul for example – Paul came to me thinking that he could not even remotely retire.  After I showed him some changes to make and how to look at his situation differently, he discovered that he could actually retire at some point.  Mary thought she was on the brink of financial disaster because of debt.  I showed her another way to deal with it and she was soon relieved to find out things weren’t as bad as she thought. 

 

I have been solving problems for a long time and would like to talk to you about yours.  With my financial advisement practice, the initial assessment is always at no cost and can be done over the phone or in person. After we have assessed your situation, then you can decide if my solutions are valid enough to work in a client/advisor relationship.  Financial stress is not worth it.   For once, get some advice and some solutions.  Feel free to email me at bob@prudentmoney.com or call me at 972-386-0384.

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