FPA-NENY Educational Articles

15 Signs You Need a Financial Planner

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You wouldn’t depart for an important trip without a clear idea of how to get to your destination — or at least without a GPS or map to show you how to get there. The same logic applies to your journey through life. You’re likely to get lost without a clear financial plan to get where you want to go, now and well into the future.

 

Financial planning is the process by which a person or family works with a financial professional to set goals, financial and otherwise, and to develop a plan for meeting them. A Certified Financial Planner™ (CFP®) is trained to develop a plan to serve as that map or GPS. And the CFP designation means they must adhere to a code of ethics and a fiduciary standard that require them to put their clients’ best interests first. To find a CFP® in your area, visit the Financial Planning Association’s national database at www.PlannerSearch.org.

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Whatever you’re financial circumstances, it’s probably a good idea for you to consider working with a financial planner if…

 

  1. You just had, or are expecting, a life-changing event: getting married, having a baby, going through a divorce, facing a death in the family, inheriting a large sum of money, starting or selling a business, preparing for retirement, receiving a life-challenging medical diagnosis — the list goes on. A financial planner not only can help assess how that life-changing event may impact your finances, he or she also can help you put a plan in place to handle that change with minimal financial disruption.

  1. You say to yourself, “I’m making plenty of money, but I have nothing to show for it.” A financial planner can help a person map where their money goes, then develop a plan to spend it — and save it — more efficiently, notes Boston-based Certified Financial PlannerEric Roberge.

  1. Just the word “finance” or “money” or “planning” gives you a headache. The cure for that headache often comes with seeing your entire financial picture more clearly, says Elaine King, a Certified Financial Plannerin Miami, Fla. A Certified Financial Planner is trained to provide that clarity.

 

  1. You have major goals you want to accomplish but lack the time and/or the know-how to develop a plan for how to achieve them. “A financial planner can take a holistic view of your financial situation,” explains Melissa Sotudeh, a Certified Financial Plannerin Rockville, Md, “and advise you on whether to focus in on a particular goal, or whether you should be simultaneously working on multiple goals — as well as how you can actually manage to do this.”

 

  1. “You are getting closer to retirement and have never paid attention to the allocation of your investments,” says Certified Financial PlannerJon L. Ten Haagen with Ten Haagen Financial in Northport, N.Y. The proximity of retirement often dictates a shift in how a person’s assets are allocated, so they’re better protected but still positioned to grow and provide income during retirement.

 

  1. You don’t know what is in, or you don’t understand, your investment portfolio(s). A financial planner is trained to simplify the complex world of investing and asset management for their clients, says Sotudeh. “A planner can analyze your portfolio, explain it to you in plain English, and determine whether your current investments are appropriate for your goals and life situation.”

  1. The stock market’s volatility sends you into an extreme state of agitation. This “may mean that you don’t have a real plan for your investments and just pick stuff at random to buy,” says Kristi C. Sullivan, a Certified Financial Plannerin Denver, Colo. “You probably need a financial planner to help create a cohesive, diversified portfolio and keep your focus on long-term goals.”

 

  1. You see the value of your assets dropping and are losing sleep wondering how the drop affects your retirement. Retirement planning is a long-term proposition that has little to do with the day-to-day movements of the stock market. So tune out all those financial shows and, for peace of mind, seek out a financial professional for an honest assessment of your entire retirement picture. They’ll help put market volatility in a proper perspective and help you prioritize what really matters in your financial life.

  1. You’re working with a financial advisor who offers advice on investments but not on such other important aspects of your (financial) life as employee benefits, retirement accounts, college savings accounts, tax efficiency, life insurance and more. Unlike many investment managers and brokers, who may only be trained or inclined to focus on certain narrow aspects of your financial life, a Certified Financial Planneris trained to look at and plan around all aspects of a person’s financial life, notes Certified Financial PlannerMichael McKevitt of Guillaume & Freckman in Palatine, Ill.

  1. You and your spouse don’t share joint goals. Differences over finances are the cause of some 70% of divorces, according to King. Working with a financial planner “can help couples find common ground,” she says, whether it’s goals related to their children, items on their retirement bucket list, charitable inclinations and more.

 

Five more indications you could benefit from working with a CFP® professional:

 

  1. You’re confused by the complex rules around Social Security payments and want strategies to maximize your Social Security benefits.

 

  1. You’re struggling to manage a mounting burden of debt and accumulated bills but haven’t changed your spending habits.

 

  1. Only one person in the family has a handle on household finances, retirement accounts, key financial documents, etc.

 

  1. You’re consistently short of cash to cover your expenses.

  1. You’re concerned about leaving a legacy for family members.

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

What It Means to Work With a Financial Fiduciary

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Financial professionals — the people we hire to handle various aspects of our financial lives, from managing investments to planning for retirement and much more — come with a head-spinning variety of monikers, specialties and areas of expertise. A title like “financial planner,” “investment advisor” or “wealth manager” on their business card might by accompanied by a string of acronyms representing the professional licenses or credentials they earned along the way.

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As a consumer who entrusts their money and their financial well-being to a professional advisor, it’s important to read between the lines of that business card by asking an essential question that cuts to the very nature of the services they provide and the relationships they cultivate with clients:

 

As an advisor, are you required to always put the best interests of me, the client, first — above your own business interests?

Advisors who answer “Yes” to that question are considered fiduciaries. Being a fiduciary means they are obligated under the terms of their professional license or designation to always put the interests of their clients first, above their own interests and those of their firm or the company (or companies) whose products and services they represent. The Committee for the Fiduciary Standard, a group that supports holding financial advisors to certain ethical standards in their dealings with clients, outlines five core principles for a fiduciary:

 

  1. Put the client’s best interests first.
    2. Act with prudence; that is, with the skill, care, diligence and good judgment of a professional.
    3. Do not mislead clients. Provide conspicuous, full and fair disclosure of all important facts.
    4. Avoid conflicts of interest.
    5. Fully disclose and fairly manage, in the client’s favor, unavoidable conflicts.

 

“Fiduciaries are held to the highest standard of the law when making recommendations for products and services,” explains Laila Marshall-Pence, a Certified Financial Planner in Newport Beach, CA. “In addition, the best fiduciaries will often leverage subject matter experts by tapping an entire industry for knowledge, not just the offerings of one company. This helps to ensure you receive the best advice and recommendations.”

 

Not all financial professionals are held to a fiduciary standard. Indeed, today only a

a handful of designations and licenses come with an explicit requirement that designees/licensees meet a fiduciary standard. Those include:

 

  • a Certified Financial Planner™ (CFP) professional, a designation earned by financial and insurance professionals and conferred by the Certified Financial Planner Board of Standards. The CFP™ designation carries a fiduciary responsibility under which the advisor must act solely in the client’s best interest when offering personalized financial advice, and must adhere to rigorous ethical standards. It also means the advisor has completed an extensive course of study in comprehensive financial planning.
  • a Registered Investment Advisor (RIA), who is bound to a fiduciary standard established and enforced by the U.S. Securities and Exchange Commission. The license to work as an RIA carries a duty of loyalty and care under which an advisor must act in the best interests of his or her client.
  • an Accredited Investment Fiduciary®, a designation conferred by the organization fi360 under which advisors must adhere to a Code of Ethics that applies to personal and professional conduct.
  • a Certified Financial Analyst (CFA), a designation awarded by the CFA Institute under which the analyst must give undivided loyalty to their clients and must place client interests before their own, while adhering to a code of ethics and standards of professional conduct.

 

Advisors who aren’t subject to a fiduciary requirement, such as brokers, instead are apt to be subject to a less stringent set of requirements called a suitability standard. Most brokers and advisors who work under a suitability standard are regulated by the independent body FINRA. The standard requires them to recommend products that are “suitable” to the client — that is, that the recommended security or product fit the client’s investing objectives, needs and circumstances.

 

Unlike with fiduciaries, the allegiances of advisors who operate under a suitability standard ultimately lie first with their firm and/or the company whose products they’re recommending and selling. So while they’re required to recommend “suitable” products to their clients, the products they recommend might not be the most suitable in light of factors such as fees, commissions, etc. Just because a product is suitable doesn’t mean it’s the best fit for the consumer.

 

For example, an advisor to whom only the suitability standard applies may recommend a suitable product that happens to carry a higher cost to the consumer and a higher sales commission for the advisor, instead of a nearly identical but lower-cost, lower-commission product. The advisor opted for one suitable product because of the opportunity to earn a higher commission, even though another, more suitable (less costly) product for the client was available. Whose interests did the advisor put first in this case? Probably not the client’s.

 

Working with an advisor who’s a fiduciary removes these degrees of suitability and these potential conflicts of interest from the equation. When evaluating products that are identical except for their fees, the fiduciary is obligated to recommend the lowest-cost product to the client, even if it means a lower commission in their pocket.

 

The distinction is important, and one that can make a material financial difference to the consumer, as the money an investor pays in fees could instead have gone toward the investment, where it would have the opportunity to grow over time. This can mean hundreds, even thousands, of dollars of appreciated investment value over the long term.

 

“As fiduciaries, our mandate is to monitor and control the expenses our clients incur [for financial and advisory services], and to be open and transparent about fees and costs,” explains Mark Johannessen, CFP, managing director at Sullivan, Bruyette, Speros & Blayney, Inc., in McLean, Va.

 

More advisors soon could be subject to a fiduciary standard, as efforts are underway in Washington, DC, to extend fiduciary requirements to brokers who now operate under the suitability standard and to advisors who handle retirement accounts. Later in 2016, the SEC is expected to propose a rule to implement a uniform fiduciary duty for investment advisers and broker-dealers, while the U.S. Dept. of Labor has proposed a rule that would require more retirement investment advisors to put their clients’ best interests first.

 

Posing a few questions to an advisor with whom you work or are considering working should help you find out if he or she is obligated by a fiduciary standard to protect your interests first and foremost:

  • Are you obligated to act under a fiduciary standard, and can you please spell out, in writing, the fiduciary responsibilities to which you must adhere?
  • Which licenses and designations do you have, and which of those do and do not include a fiduciary standard?
  • Are you willing to fully disclose all potential conflicts of interest as well as the compensation you may receive as a result of products you recommend, and your rationale for recommending them.
  • If you do not hold a license or designation that carries a fiduciary responsibility, have you chosen to adhere to a fiduciary standard anyway, and if so, can you please describe, in writing, the fiduciary responsibilities to which you have chosen to adhere?

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

How a Health Savings Account Can Help You Now — and Later

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As befuddling, frustrating and financially taxing as it can be for consumers to navigate the world of healthcare coverage and benefits, the Affordable Care Act (ACA) era also has given Americans a uniquely versatile and potentially very valuable tool.

 

It’s called the health savings account, a highly tax-favored vehicle that, when paired with a high-deductible health plan (HDHP), can be used not only as an account from which to pay for a wide range of near-term medical expenses, but also as a place in which to invest money that may grow over time, for use later, whether for medical/healthcare expenses or otherwise.

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“Most people know you can use your HSA to pay for co-pays, deductibles, prescriptions and other medical expenses not covered by your health insurance, including expenses for dental and vision care,” observes Certified Financial PlannerTM Scott Stratton, president of GoodLife Wealth Management in Dallas, Texas. “But fewer people are aware of some of the longer-term benefits of an HSA that make it a very attractive tool to help fund your retirement.”

 

An HSA is a dedicated savings account (typically offered and held by a bank) that houses funds to pay for qualifying medical and healthcare expenses, both immediate and in the future. An HSA must be linked to an HDHP that meets certain government parameters (such as minimum deductibles of $1,300 for an individual; $2,600 for a family).

 

“It’s really important for consumers who want an HSA to confirm that the health plan they’re enrolled in or considering enrolling in is HSA-compatible,” Stratton emphasizes.

 

Here’s a rundown of benefits, both immediate and long-term, to which HSA owners can gain access:

 

  • It’s about as tax-friendly as a financial vehicle can be, allowing funds to be contributed pre-income-tax (in the form of an income tax deduction) and withdrawn income-tax-free to pay eligible expenses. “It’s like combining the best features of a traditional IRA and a Roth IRA,” says Stratton.

 

Those benefits come with limits, however. For example, HSAs carry annual contribution limits of $3,350 for an individual and $6,750 for families (limits are $1,000 higher in each category for HSA holders 55 and older).

 

  • People who contribute to an HSA via an automatic payroll deduction through their employer not only enjoy the income tax break on both ends, they also get a payroll tax deduction, according to Stratton. Meanwhile, a person who contributes to an HSA directly (such as by transferring money into the HSA from a personal checking account) rather than by payroll deduction still gets the federal income tax breaks, but not the payroll tax deduction.

 

  • HSA funds can be used for a wide variety of healthcare and medical expenses, including those not covered by a person’s health plan (such as dental, vision and the like).

 

  • Money deposited into an HSA in a given year that goes unspent can be carried in the account from year to year going forward, according to Stratton, unlike with flexible savings accounts (FSAs), which often have a use-it-or-lose-it policy where unused balances don’t carry over from one year to the next. So by carrying over funds from year to year, you’re essentially accumulating money on a tax-free basis to pay future medical/healthcare expenses.

 

  • The value of funds inside an HSA may grow over time, as many such accounts apply interest (albeit at a very low rate, particularly in today’s low-interest-rate environment). Others actually function similar to a retirement account, giving account holders investment options such as mutual funds in which they can choose to put their assets in order to gain greater growth potential than typical interest-bearing accounts provide. If you choose to invest money inside an HSA, Stratton suggests taking a conservative approach with those funds to protect against losses.

 

  • Funds from an HSA can be used to cover IRS-qualified medical expenses during retirement, when those expenses can be particularly burdensome. After age 65, for example, a person can withdraw HSA funds tax-free to pay for Medicare premiums for parts A, B and D, and Medicare HMA, according to Stratton. Funds also can be withdrawn tax-free to pay long-term care insurance premiums. What’s more, he notes, people who are working beyond age 65 can use HSA funds to pay (or reimburse) the costs they incur as employees for their employer-sponsored health plan.

 

  • HSAs can function as a pure tax-favored investment vehicle. People who have maxed out their contributions to tax-favored retirement accounts [such as a 401(k) or IRA] in a given year can put money in an HSA on a tax-favored basis, up to the allowable annual HSA contribution, effectively increasing the annual amount they can contribute to tax-favored plans. And if housed in an HSA with investment options, that money functions much like funds would inside a tax-favored retirement account.

 

For example, people with higher incomes may choose to max out their HSA contributions each year, while paying medical/healthcare expenses with money from outside that account, leaving the money inside the HSA untouched. If eventually they withdraw that HSA money to cover qualifying medical/healthcare expenses, it comes out tax-free. If it’s withdrawn for other non-qualifying reasons, it’s taxed as ordinary income, like funds distributed from a traditional IRA or 401(k).

 

All these features and benefits make HSAs a compelling option for many consumers, for the short term and the long haul. But HSAs aren’t suited for everyone, notes Stratton. For example, families that consistently meet their HDHP’s annual deductible might be better off with a low-deductible plan that lacks an HSA.

 

Given the variables in play with such a determination, it makes sense to talk with a healthcare plan expert (such an independent health insurance agent or broker, or someone in the HR department at work who has a strong knowledge of health plans) for help finding a plan — and perhaps, an HSA — that’s well suited to your circumstances and needs.

 

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

April 4 – 13, 2016 is National my Social Security Week

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For more than 80 years, Social Security has helped secure today and tomorrow with information, tools and resources to meet our customers’ changing needs and lifestyles. April 4 – 13, 2016 is National my Social Security Week.

The convenience and safety of doing business online with Social Security is another way we’re meeting the changing needs and lifestyles of our customers. With a my Social Security account, you can:

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  • Keep track of your earnings and verify them every year;
  • Get an estimate of your future benefits, if you are still working;
  • Get a letter with proof of your benefits, if you currently receive them;
  • Manage your benefits;
  • Change your address;
  • Start or change your direct deposit;
  • Get a replacement Medicare card; and
  • Get a replacement SSA-1099 or SSA-1042S for tax season.

 

In some states, you can replace your Social Security card online using my Social Security. Currently available in the District of Columbia, Michigan, Nebraska, Washington, and Wisconsin, it’s an easy, convenient, and secure way to request a replacement card online.

To take advantage of this new service option, you must:

  • Have or create a my Social Security account;
  • Have a valid driver’s license in a participating state or the District of Columbia (or a state-issued identification card in some states);
  • Be age 18 or older and a United States citizen with a domestic U.S. mailing address (this includes APO, FPO, and DPO addresses); and
  • Not be requesting a name change or any other changes to your card.

 

We plan to add more states, so we encourage you to check with us later in the year.

During my Social Security Week, we will hold “Check Your Statement Day” on April 7, and you can join the millions who regularly check their Social Security Statement. It’s important that you check this document every year because we base your future benefits on your recorded earnings. Your Statement can help you plan for your financial future. We encourage you to go online to my Social Security to access your Statement whenever you have a change of employment or wish to verify any changes in your benefit estimate.

Week after week, we provide you with world-class customer service, much of which is online. During my Social Security Week, you can join the more than 23 million people who have opened their own my Social Security account at www.socialsecurity.gov/myaccount.

Help secure your today and tomorrow. Open a my Social Security account today by visiting www.socialsecurity.gov/myaccount.

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

Crystal Ball Gazing: Factors That Could Impact Your Finances in 2016

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Some things in your financial life you can control, like your spending habits, how much money you put aside toward retirement, having a financial plan and sticking to it, etc. But your finances in 2016 also are impacted by factors largely out of your control, whether it’s the behavior of the stock market, changes in government policy or fluctuations in the price of energy and consumer goods.

 

So with 2015 now history, what does 2016 hold in terms of the trends that may impact your wallet, the value of your assets (investments, home/real estate, etc.) and other areas of your financial life? Here, the personal finance professionals at the Financial Planning Association offer a glimpse at some of the financial and economic trends that could shape your finances in the year ahead.

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Interest rates: The Federal Reserve Board’s decision in December 2015 to raise short-term interest rates for the first time in several years (by a very modest 0.25%, to between 0.25 and 0.50%) is expected to only minimally increase the interest rates consumers pay for mortgages, auto loans, credit card balances and the like. However, according to a report from Reuters, many economists expect the Fed to further increase rates in 2016, perhaps to 1.25%. Any such increases likely will make it more expensive to borrow money (through a bank loan) or carry credit card debt.

 

Borrowing money: The potential silver lining to higher interest rates is that they may encourage banks to more readily loan money to consumers through mortgages and the like. “Banks can make more money with loans when interest rates are higher, so they may be more inclined to lend people money,” explains Theresa M. Rosen, a Certified Financial Planner™ with Prudence Financial in Sudbury, Mass.

 

Inflation: This measure of the price of goods and services has held at relatively low levels for several years (including below 1% for 2015) and the consensus among economists is that the inflation rate likely won’t increase much in 2016, unless interest rates increase more than expected (because inflation and interest rates tend to correlate positively). So the prices you pay – in 2016 aren’t likely to change much from 2015, predicts Rosen.

 

Investing: Market observers like Rosen expect the stock market to continue its rollercoaster ride in 2016. Despite the volatility, most observers agree a well-diversified portfolio of equity investments (stocks, mutual funds, exchange-traded funds and the like) is still among the most reliable vehicles for delivering long-term growth to investors.

 

Real estate: Residential property values are strong in many areas of the country, according to Rosen, as is demand for rental housing. She expects those trends to continue in 2016, which bodes well for residential property owners.

 

Taxes: Changes to the tax code are inevitable, and 2016 is no different. For example:

 

  • Higher earners will be on the hook to pay a new 0.9 percent Medicare tax.
  • Income tax rates remain unchanged from 2015, ranging from 15 to 39.6%; however, tax brackets have been adjusted slightly for inflation.
  • The estate and gift tax exemption for 2016 is $5.45 million per individual, up from $5.43 million in 2015. The annual gift exclusion remains at $14,000.
  • The Child Tax Credit of $1,000 per qualifying child has been extended permanently and now includes a new refund provision for low-income families.
  • The Earned Income Tax Credit was also permanently extended, with an expansion for families with three or more children made permanent as well.
  • The U.S. Congress also permanently extended and expanded tax credits for college expenses. The American Opportunity Tax Credit provides a $2,000 credit for tuition and qualified expenses.
  • Congress also approved an extension to the provision allowing people over age 70-and-a-half to directly transfer up to $100,000 from an individual retirement account to a qualified charity without penalty.

 

Some of the aforementioned tax breaks may be reduced or unavailable to higher-income individuals and households.

Social security: The “file and suspend” strategy that for years helped married couples maximize Social Security benefits will be phased out 2016. The spousal benefit claiming option is also being eliminated. Meanwhile, the Social Security Administration announced there will be no increase in monthly Social Security benefits in 2016, and that the maximum amount of wages subject to Social Security taxes will also remain unchanged at $118,500.

Retirement plan contribution limits: The annual contribution limit holds steady in 2016 at $18,000 for employees participating in 401(k), 403(b) and most other types of plans. The catch-up contribution limit for employees age 50 or older in these plans also remains at $6,000 this year. Likewise, the $53,000 contribution limits remains the same for participants in SEP IRAs and Solo 401(k)s. No change in the $5,500 or $1,000 catch-up limits on annual contributions to an IRA either.

 

Energy prices: The prevailing low price for oil (and oil-derived fuels such as gasoline) puts money back in consumers’ pockets — money they can put toward savings and other goals.

 

Financial protections for consumers: As the calendar turned to 2016, the U.S. Congress and the Obama Administration were moving toward establishing new policies designed to require all retirement advisors to put the interests of their clients first — i.e. to act as fiduciaries for their clients. While the details of these policies had not been finalized as of this writing, Rosen says she expects new rules to take hold sometime in 2016. Whether they accomplish the goal of further protecting consumers remains to be seen, however.

 

This column is provided by the Financial Planning Association® (FPA®) of Northeastern New York, the principal professional organization for Certified Financial PlannerTM (CFP®) professionals. FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process. Please credit FPA of Northeastern New York if you use this column in whole or in part.

The Financial Planning Association is the owner of trademark, service mark and collective membership mark rights in: FPA, FPA/Logo and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.