Patricia Foster and David Peartree
BridgeTower Media Newswires
Among those participants who indicated that they would make financial resolutions for the new year, the top ten resolutions were to: (1) spend less money (38%); (2) save more money (35.2%); (3) create a will, a trust or an estate plan (30.4%); (4) meet with a financial professional (28.4%); (5) create an emergency savings account (24.3%); (6) follow a personal budget (23.9%); (7) pay the full credit card balance each month (19.3%); (8) create or update a personal budget (17%); (9) file tax returns early (16.4%); and (10) save more money for retirement on a pre-tax basis (13.8%).
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Identify, formulate and implement your resolutions
Nearly 29% of the survey participants who indicated that they would make financial resolutions seemed committed to meeting with their financial advisors in the year ahead. Most investors recognize that maintaining regular contact with their financial advisor is critical to the success of the relationship. However, many of them may not realize that there is much that they can do to prepare in advance for a meeting with their financial advisor and much that they can do thereafter in pursuit of their financial goals.
Before the meeting: Whether you have an advisory account or a brokerage account, we encourage you to review, in advance of the meeting, your advisor’s “Client Relationship Summary” (Form CRS). Form CRS is a new, two-page document that investment advisers and broker-dealers delivered to their clients and customers for the first time last summer. It can also be found on the websites of these financial professionals.
Form CRS is a user-friendly document. It includes information that is important to your relationship with your financial advisor, e.g., the types of services provided and the fees to be paid, information about conflicts of interest, information about your advisor’s disciplinary history. It also includes “conversation starters” which will help you formulate questions to ask your advisor in advance of the meeting. It’s one thing to be aware of your advisor’s fee schedule, but it’s another thing to understand the aggregate fees that will be deducted from your account during year ahead and how those fees are calculated. Don’t be afraid to ask your advisor where to find this information as you review your account statements. For example, fees derived from management of advisory accounts are typically deducted from the account on a quarterly basis. It’s important that you understand the “all in” cost of the relationship from year to year.
During the meeting: Be an active participant during the meeting. You will come away with a better understanding of your account and how it is managed. Most advisors will ask you questions relating to your investment goals, your investment time horizon, your risk tolerance and any changes in your circumstances that would necessitate adjustments in the management of your account. These protocols, which are implemented by most financial advisors, are a carryover of the long-standing “know your customer” rule in the brokerage industry. In the context of an advisory account, the obligations of a registered investment adviser to its clients derive from its fiduciary obligation to its clients. If you find that there is an investment in your account that you do not understand fully, ask questions. Regulators have found that some financial professionals are including certain investments in client accounts that they do not fully understand themselves, e.g., inverse and leveraged exchange traded funds, certain exchange traded notes, digital asset securities.
After the meeting: Make a checklist of any follow-up items that were discussed during the meeting and check items off as you complete them. Review your account statements on a regular basis and ask questions as they arise. Read prospectuses and proxy statements that you receive. Maintain contact with your financial advisor.
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Regulatory resources
The Securities and Exchange Commission (SEC) provides an abundance of educational resources to investors. You can visit Investor.gov to read, in their entirety, the “Top 10” resolutions crafted by Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. We were pleased to see that in her introductory remarks to the “Top 10,” Schock stated that “informed investors make better investing decisions (emphasis added).” She encourages investors to visit Investor.gov to check out the free financial planning tools and calculators, investing basics, and much more to help you create an investment plan that best meets your financial goals. She also encourages you to conduct a background check on investment professionals, to sign up for investor alerts and take monthly quizzes to test your knowledge of investments.
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Additional thoughts
If you are considering making financial resolutions in the year ahead, it’s important to formulate resolutions that are both realistic and specific. It’s also important to establish metrics to measure your success. For example, if your goal is to spend less money, you will want to review spending patterns, construct a budget and measure your success at regular intervals. Because the focus of this column is investing, we encourage our readers to read the SEC’s new Form CRS carefully before interviewing a prospective financial advisor, to choose a financial advisor carefully, taking into account his or her disciplinary history, and to develop a long-term investment plan. Caveat Emptor!
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Patricia Foster is a securities law attorney whose experience includes representation of clients in both registered and exempt securities offerings, as well as in various sectors of the financial services industry, including broker-dealers, investment advisers and investment companies. This column is a collaborative work by Patricia Foster and David Peartree. David Peartree is an adviser with Brighton Securities Capital Management, Inc., a registered investment adviser offering fee-only investment and financial planning advice. The information in this column is provided for educational purposes and does not constitute legal or investment advice.
Our inspiration for this first column of the year comes from firms in the financial services industry and their regulators. As a result of their efforts, many investors have been encouraged to incorporate financial resolutions into their goals for the New Year. As we begin 2022, we consider some of the resolutions considered, and offer suggestions for formulating and implementing them.
A survey conducted last year by Principal Financial Group found that 71% of the survey participants said that they intended to make financial resolutions in the year ahead. The demographics are important. Respondents, who ranged in age from 19-85, were almost evenly divided between retired individuals (51%) and individuals in the workforce (49%). Over half of the respondents (56%) were Baby Boomers, while the remainder were divided among members of the Silent Generation (17%), Generation X (14%), Generation Y (7%) and Generation Z (5%). Nearly two-thirds of the respondents (63%) were married, while just over one-third (37%) were either single or declined to specify their marital status.
Among those participants who indicated that they would make financial resolutions for the new year, the top ten resolutions were to: (1) spend less money (38%); (2) save more money (35.2%); (3) create a will, a trust or an estate plan (30.4%); (4) meet with a financial professional (28.4%); (5) create an emergency savings account (24.3%); (6) follow a personal budget (23.9%); (7) pay the full credit card balance each month (19.3%); (8) create or update a personal budget (17%); (9) file tax returns early (16.4%); and (10) save more money for retirement on a pre-tax basis (13.8%).
—————
Identify, formulate and implement your resolutions
Nearly 29% of the survey participants who indicated that they would make financial resolutions seemed committed to meeting with their financial advisors in the year ahead. Most investors recognize that maintaining regular contact with their financial advisor is critical to the success of the relationship. However, many of them may not realize that there is much that they can do to prepare in advance for a meeting with their financial advisor and much that they can do thereafter in pursuit of their financial goals.
Before the meeting: Whether you have an advisory account or a brokerage account, we encourage you to review, in advance of the meeting, your advisor’s “Client Relationship Summary” (Form CRS). Form CRS is a new, two-page document that investment advisers and broker-dealers delivered to their clients and customers for the first time last summer. It can also be found on the websites of these financial professionals.
Form CRS is a user-friendly document. It includes information that is important to your relationship with your financial advisor, e.g., the types of services provided and the fees to be paid, information about conflicts of interest, information about your advisor’s disciplinary history. It also includes “conversation starters” which will help you formulate questions to ask your advisor in advance of the meeting. It’s one thing to be aware of your advisor’s fee schedule, but it’s another thing to understand the aggregate fees that will be deducted from your account during year ahead and how those fees are calculated. Don’t be afraid to ask your advisor where to find this information as you review your account statements. For example, fees derived from management of advisory accounts are typically deducted from the account on a quarterly basis. It’s important that you understand the “all in” cost of the relationship from year to year.
During the meeting: Be an active participant during the meeting. You will come away with a better understanding of your account and how it is managed. Most advisors will ask you questions relating to your investment goals, your investment time horizon, your risk tolerance and any changes in your circumstances that would necessitate adjustments in the management of your account. These protocols, which are implemented by most financial advisors, are a carryover of the long-standing “know your customer” rule in the brokerage industry. In the context of an advisory account, the obligations of a registered investment adviser to its clients derive from its fiduciary obligation to its clients. If you find that there is an investment in your account that you do not understand fully, ask questions. Regulators have found that some financial professionals are including certain investments in client accounts that they do not fully understand themselves, e.g., inverse and leveraged exchange traded funds, certain exchange traded notes, digital asset securities.
After the meeting: Make a checklist of any follow-up items that were discussed during the meeting and check items off as you complete them. Review your account statements on a regular basis and ask questions as they arise. Read prospectuses and proxy statements that you receive. Maintain contact with your financial advisor.
—————
Regulatory resources
The Securities and Exchange Commission (SEC) provides an abundance of educational resources to investors. You can visit Investor.gov to read, in their entirety, the “Top 10” resolutions crafted by Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. We were pleased to see that in her introductory remarks to the “Top 10,” Schock stated that “informed investors make better investing decisions (emphasis added).” She encourages investors to visit Investor.gov to check out the free financial planning tools and calculators, investing basics, and much more to help you create an investment plan that best meets your financial goals. She also encourages you to conduct a background check on investment professionals, to sign up for investor alerts and take monthly quizzes to test your knowledge of investments.
—————
Additional thoughts
If you are considering making financial resolutions in the year ahead, it’s important to formulate resolutions that are both realistic and specific. It’s also important to establish metrics to measure your success. For example, if your goal is to spend less money, you will want to review spending patterns, construct a budget and measure your success at regular intervals. Because the focus of this column is investing, we encourage our readers to read the SEC’s new Form CRS carefully before interviewing a prospective financial advisor, to choose a financial advisor carefully, taking into account his or her disciplinary history, and to develop a long-term investment plan. Caveat Emptor!
—————
Patricia Foster is a securities law attorney whose experience includes representation of clients in both registered and exempt securities offerings, as well as in various sectors of the financial services industry, including broker-dealers, investment advisers and investment companies. This column is a collaborative work by Patricia Foster and David Peartree. David Peartree is an adviser with Brighton Securities Capital Management, Inc., a registered investment adviser offering fee-only investment and financial planning advice. The information in this column is provided for educational purposes and does not constitute legal or investment advice.
