Message from CFP Board

Americans are fierce about their freedom. We've fought wars, left homelands, protested, marched, and even been jailed in our determination to acquire and defend what we believe is an inalienable human right. This past weekend, we celebrated for the 234^th time the day we declared our national identity as a free nation.

But how many of us have saved or planned for freedom? In the financial planning profession the term "financial independence" is frequently discussed by planners and clients. Often a synonym for "retirement" where an individual is free from the necessity of working, financial independence can also be a goal for the young adult who is eager to be on his own, or the wife who has always relied on her spouse to manage the financial affairs of the family.

Financial freedom can mean different things to different people, but it has a few characteristics in common. First, it is rarely, if ever, about the amount of money an individual has. Extremely wealthy people can be slaves to their money, while individuals with modest means consider themselves to have more than enough to meet their needs. Second, financial freedom entails a sense of security about one's money and a feeling of control. When we are not worrying about money - where it comes from and where it goes - we are indeed free to live our best lives.

CERTIFIED FINANCIAL PLANNER™ professionals focus on several key steps to help their clients gain this sense of freedom:

• Know what you have: By preparing a balance sheet of your assets and liabilities, and further categorizing these items in terms of their liquidity, maturity, tax treatment, and purpose, your planner can help you get a realistic understanding of your financial opportunities and constraints. All too often, people worry about money because they simply do not know or understand what resources they have.
  
• Manage risk: Unexpected occurrences, such as death, illness, lawsuits, and even excessive market volatility can wreak financial havoc for most people. A CFP^® professional can help you assess strategies for managing these risks, through insurance, diversification, or the creation of reserves.
  
• Manage debt: To the extent that your assets and income are encumbered by debt, you lose control over the use of your money. Too much debt, and your financial independence disappears. A financial planner can develop strategies to set you free from the demands and constraints of unnecessary debt.
  
• Plan today for tomorrow's needs: Financial independence does not come automatically or instantly. For most people, it must be built over time. This involves conserving and growing some of the resources you have available today for needs and wants in the future. A CFP^® professional can help you make decisions about the appropriate amounts to set aside, the types of accounts for saving and investing, and the choice of asset classes and securities for these accounts.

As you celebrate our country's independence this month, give some thought to your own financial independence. It's a way of living certainly worth fighting for. Once achieved, however, it's probably not an occasion for parades, flags and fireworks. Those who attain financial freedom generally celebrate far more quietly by enjoying simple peace of mind.

-Eleanor Blayney, CFP^®, CFP Board's Consumer Advocate

Top News Stories

A Solution to Debt, or More Trouble?
USA Today (06/08/10) P. 1A; Block, Sandra

Debt settlement companies are facing increased scrutiny on both the state and federal level. These companies say they negotiate directly with creditors to lower borrowers' debts, but they often charge upfront fees. A study of 20 debt-settlement firms by the Government Accountability Office indicates that in some cases, money was devoted to settling debts only after the company pocketed four months' of monthly payments. There also are concerns about debt-settlement companies informing consumers that they should cease bill payments and not answer calls from collectors, which experts say can damage consumers' credit. Others believe debt-settlement firms are unnecessary, given that creditors often are willing to negotiate with consumers directly. While some consumer advocates encourage consumers to seek credit counseling as an alternative to debt settlement, there are concerns about conflicts of interest because counseling agencies generally are funded by creditors participating in debt-management plans. On the federal level, Sen. Charles Schumer (D-N.Y.) has proposed a bill that would require debt-settlement firms to wait until settlements have been reached before collecting fees; the Federal Trade Commission also seeks to limit debt-settlement fees. Meanwhile, Oregon's attorney general forged a settlement with Credit Solutions of America that forces the company to close up shop in the state for three years.

Personal Finance News

Midyear's the Perfect Time to Get Your Financial Ducks in a Row
Dallas Morning News (TX) (06/12/10) Yip, Pamela

Conducting a midyear financial assessment helps consumers enhance their finances in the second half of the year and beyond. Thomas Murphy, CFP^® observes that many people are no longer "trying to acquire the big house or the lake property, they are taking comfort in their current home with no mortgage and spending quality family time." Many people are modifying their goals, such as by retiring earlier or later or diverting funds to buy a home before the birth of a child. Rick Salmeron, CFP^® says it is beneficial to examine how a person spends his or her money and to adjust certain categories if necessary. "Examples include premium cable you don't watch, health-club memberships you don't use, or your twice-a-day coffee habit," he says. Many financial experts say consumers should place the equivalent of three to six months of living expenses in an emergency fund, but the current weak job market warrants an extension to 12 months. Experts also say it is essential to pay off or pay down credit card debt and rebalance investment portfolios by buying or selling assets to maintain the desired level of asset allocation. Accounting firm partner Hunter Nibert recommends that consumers max out contributions to their retirement plans because "higher tax rates will make the current deduction for contributions to these vehicles more valuable."


6 Key Questions to Ask Before You Hire a Financial Adviser
U.S. News & World Report (06/15/10) Marquardt, Katy

Before paying for professional financial services, consumers should meet face-to-face with a prospective broker, planner, or investment manager. This includes asking the adviser what his or her qualifications are, how long the adviser has been in the business, and the length of employment at each firm. Consumers should confirm such information with national organizations that issue credentials, such as the Certified Financial Planner Board of Standards. The Financial Industry Regulatory Authority (FINRA) provides BrokerCheck, an online tool that lets users verify the backgrounds of FINRA-registered brokerage firms and brokers. It is also important to ask advisers what their area of expertise is, such as estate planning, investment management, retirement, or tax to ensure that the consumer's needs are met. It is also essential to check what investment products the adviser specializes in, such as mutual funds, stocks, individual bonds, or 529 plans. Consumers should additionally check how the adviser is to be compensated and to get it in writing. Some charge by the hour, charge commissions on the securities sold, charge for a portfolio or other plan, or charge a percentage of the value of the client's assets. Another key question is how frequently meetings should occur and whether the same adviser will be present. Some companies prefer to use a team approach rather than assign a single adviser. Finally, consumers should determine if advisers get any incentives and whether a particular business relationship or partnership could have an impact on their recommendations.


The Way You View Money Depends on Your Personality
Montgomery Advertiser (06/15/10) Sievers, Van

When working with a CERTIFIED FINANCIAL PLANNER™ professional for the first time, it is important to conduct a risk analysis questionnaire. Risk analysis is useful for determining a person's risk tolerance when investing. The questionnaire also helps provide insight into how a person's handling of money informs the monetary decisions he or she makes in the future. CERTIFIED FINANCIAL PLANNER™ professionals can help consumers think through their choices and ensure that the resulting portfolio is a good fit. CERTIFIED FINANCIAL PLANNER™ professionals can also help develop emergency funds and disaster plans. A risk analysis questionnaire typically asks such things as: What is important about money? What do you do with your money? Has the way I made my money affected the way I think about it in a particular way? Am I more concerned about maintaining the value of my initial investment or making a profit from it? What does retirement mean to me? If I have kids, do I expect them to pay their own way through college or will I pay all or part of it? What kind of shape am I in to afford their college education? and How are my health and my health insurance coverage?


Combat High College Costs With a Savings Plan
Mercury News (06/19/10) McGuire, Kara

Paying for college is expensive for most families, yet many cannot depend on income-based financial aid. Families should first estimate their cost by using online calculators like collegeboard.com, dinkytown.net, and savingforcollege.com. Mark Kantrowitz, publisher of finaid.org, recommends that parents with babies born in 2009 should save $220 per month if they want to pay for one-third of a public, four-year college, or $417 per month for a private school. "I chose one-third savings because I figured one-third should come from past income (savings), one-third from current income and financial aid, and one-third from future income (loans)," he explained. "It also meshes well with college tuition inflation, which increased by a factor of about three over any 17-year period." Financial adviser Laura Kuntz will require her three children to pay for a portion of their college costs while offering incentives for making good financial choices. For her oldest child, who starts college this fall, Kuntz agreed to pay three-quarters of tuition, room, and board up to $25,000 annually, and any leftover money could be used toward a graduate program. Financial adviser Ginger Ewing says clients who now pay for day care could consider placing half of that money toward college savings after their children are enrolled in public school. She also says families should rely on things like tax credits, work study, summer jobs, and small student loans.


529 Plan Strategies for Beginners
SmartMoney (06/16/10) Andriotis, AnnaMaria

Over the past two years, many 529 college savings plans have experienced significant losses followed by large gains and a return to volatility. Even so, many financial firms, independent CERTIFIED FINANCIAL PLANNER™ professionals, and investors like the plans. The total number of 529 plan accounts reached 9.4 million as of the first quarter of 2010, up from 8.4 million during the fourth quarter of 2007, according to the Financial Research Corp. Assets under management totaled $123.4 billion partially due to market gains, reflecting the highest level in more than two years. Investors who open a 529 plan while their child is a newborn or in elementary school typically fare better than investors who open a plan when their child is older because they have more time for the markets to potentially offset any significant losses. However, planning for investments is crucial because the timeframe will span 18 years or more. Investing strategies for a child up to age 10 include starting early, examining tax perks and fees, investing in equities, mulling age-based portfolios, and focusing on preserving capital. Investors who wish to avoid market risk should seek out 529 plans that include a certificate of deposit or savings account. However, high returns will not be likely as long as the federal funds rate remains near zero percent. Investors will likely need to add more cash to these investments to correspond to rising tuition costs, says Stuart Ritter, CFP^®.


Stretch Your Retirement Savings by Moving
CNBC.com (06/17/10) Epperson, Sharon

Moving to a less expensive part of the country offers seniors an opportunity to stretch their retirement savings. Noreen Booth sold her 50-year-old split level home in northern New Jersey for $561,700 last year, and moved into a spacious, contemporary house outside Charlotte that cost about a third of that price. Moreover, the cost of living in Charlotte for the 69-year-old widow is about 37 percent less than in northern New Jersey. "The chances are that wherever you live, you could immediately compound your retirement savings and lifestyle if you are willing to move," says Tim Maurer, CFP^®. "When you take a lifetime of savings, pension, Social Security, and real estate from one area to another, you could reasonably go from barely making it financially to being quite comfortable." Seniors should not move if they do not want or have to, but it can help those in financial trouble leverage their financial standing, according to Maurer.


Six Estate Planning Questions for Women
Forbes (06/22/10) Jacobs, Deborah L.

When it comes to estate planning, women should consider a number of issues. It is recommended that women have a durable power of attorney, appointing a family member, friend, or adviser as an agent to act on their behalf in financial and legal matters in the event that their mental state deteriorates as they get older. The choice of person must be made carefully, and the best candidate is typically a close relative, preferably one who lives nearby. Another issue demanding of consideration is who would raise the decedent's children, while the acquisition of life insurance is preferable in the event a household's primary earner dies, or the decedent's estate is subject to state or federal estate tax. Individual ownership of assets is an issue that applies to spouses or others in relationships with commingled funds, and it is recommended that women look over their balance sheet to see whether any property should be transferred from one spouse or partner to the other or out of joint ownership into the name of one person individually. Couples ought to make sure when dividing assets that there is sufficient money to pay for immediate expenses should one of the partners suddenly die, while being aware that spouses will likely not have immediate access to a decedent's individual account. Finally, anyone considering saving on estate taxes must determine whether completely ceding ownership and control over assets is affordable.

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