Top Five Financial Planning/Wealth Management Myths

1.  All Financial Advisors Act As Fiduciaries Myth: The suitability standard has been the industry standard for decades. And the industry has been fighting to keep it. Under the suitability standard, the broker’s responsibility is to their employer, not you.  80% of the industry uses this standard.

The fiduciary standard is what Certified Financial Planners (CFP®) are required to use. A CFP® must always place his or her interest after the client. And they must disclose any potential conflicts of interest to put the client’s interest ahead of the advisor’s.

2.  DIY (Do It Yourself) You Can Do It Better Myth: Successful people recognize their talents, expertise and they know their weaknesses. Most people are timed starved and do not spend the time necessary to manage their financial plan at an optimum level. .

Successful people see the value in outsourcing their financial planning needs to experts who provide value above any cost of services. They use a Certified Financial Planner (CFP®) to handle their financial planning needs.

3.  You Can Only Withdrawal 4% Per Year Myth: For decades, the wealth management industry has told you that you can only take 4% per year from your portfolio, or you run the risk of outliving your money. 

Traditional 20^th-century portfolio management of a 60/40 or 50/50 allocation of equities to bonds is a mainstay for most wealth managers. These portfolios are married to the 4% withdrawal limit.  If you want $100,000 per year of income, you will need a portfolio of $2,500,000.

A 21^st-century solution to the 4% withdrawal limitation is to use covered call options to provide income significantly exceeding 4% per year. This means you can retire sooner or have a better lifestyle. This strategy could allow an income of $120,000+ per year with a portfolio of only $1,000,000 without encroaching on the principal.  

4.  A Financial Planners Who Over Use Jargon And Industry Speak To Prove How Smart They Are Myth: Many financial advisors believe that they must use industry language and terms to convey competency. This lack of understanding does not create a synergistic and value-added relationship.

Caring CFP® financial planners pride themselves on explaining financial planning terms and concepts that your grandparent would understand. Some have training in Behavioral Finance that improves communication with a client.

5.  Annuities Are Great Investments/Pension Replacements Myth: The industry has told you that annuities make great retirement investments to replace the pension plans that most companies used to offer. The suitability advisors love them.

The reality is that annuities often have high hidden costs and fees that act as a drag on growth. Plus, they are complex investments that many do not understand. Most often, they have high surrender charges to exit from for many years. The surrender charges are often tied to the high commission paid to the advisors who sell them.   They also have some tax adverse features that can be a negative surprise when you take money from the annuities.

Exchange Trading Funds (ETFs), individual stocks, and bonds provide diversification, low costs, liquidity, no surrender charges, and the ability to use options (ETFs & stocks) to enhance returns and cash flow that annuities cannot provide.