LESSON 8: FINANCIAL & TAX PROFESSIONALS
Caveat: It is assumed you are conversant with the information in Lesson 7 so it is advisable to read Lesson 7 first. I am not a financial professional, nor do I play one on TV. This is information I found and gathered for you from the Internet mostly and from experience.
It is important to know what kind of training and certification your guy has who will be helping guide decisions on your wealth and its taxability. This lesson covers some of the types of managers or advisors and the regulatory bodies that will affect performance. There are Financial Advisors and Tax Professionals that will be important in your future. Also discussed is Private Banking and rankings of various international banks.
HOW FINANCIAL ADVISORS GET PAID AFFECTS A LOT!
Please note that some advisors are paid on a commission basis; that means they make money selling you or putting you into specific instruments offered by their "company affiliates"; they don't make money telling you when to get out.
Other advisors are paid on the money managed and its performance.
Choosing which model you employ will be a huge decision for you. DO not make it lightly.
LEVELS OF FINANCIAL ADVISORS:
There area several levels of licensed individuals that may be of interest to you soon:
Investment Advisor: An investment advisor is anyone who receives compensation for providing financial advice. Also known as FInancial Planner, financial advisor. None of these denote specific qualifications, but more generally refer to generic job titles.
Certified Financial Planners: A person providing their clients with comprehensive financial advice and having passed various levels of exams, one the 10 hour CFP exam itself. Study areas of financial planning include:
Employee Benefits Planning
State and Federal Income tax planning
Estate, Gift, and Transfer tax planning
Asset Protection planning
Professional conduct and fiduciary responsibility
Financial plan development (capstone) course
Also required is a bachelor's degree or higher.
See more at: http://www.cfp.net/become-a-cfp-professional/cfp-certification-requirements/education-requirement
Registered Representative: A person who works for a brokerage company that is licensed by the Securities and Exchange Commission (SEC) and acts as an account executive for clients trading investment products such as stocks, bonds and mutual funds.
Registered Investment Advisor: An RR that is also licensed by the NASAA and has passed the Series 6 and/or 7 exam. They normally do not associate themselves with a broker. Based on amounts under management RIAs register with their state or the SEC.
Chartered Financial Analyst: must first be a CFP, complete the prestigious CFA Institute's Program of a rigorous curriculum, pass the series 6,7, and Series 66 exams, pass an additional three 6-hr exams given one/yr over 3 succeeding years, join the CFA Institute, adhere to the CFA code of Ethics and Standards, and have at least 4 years experience. Only 20% of candidates pass all three exams on their first try. Bank of America, UBS, and JP Morgan have the largest number of CFA holders on staff. http://en.wikipedia.org/wiki/Chartered_Financial_Analyst#Requirements
Wealth management as an investment-advisory discipline incorporates financial planning, investment portfolio management and a number of aggregated financial services. High-net-worth individuals (HNWIs), small-business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management.
Chartered Financial Consultant is the "Advanced Financial Planning" designation awarded by the The American College of Financial Services. Charter holders use the designation ChFC on their resumes and are qualified to provide comprehensive advanced financial planning for individuals, professionals, and small business owners. Since 1982, approximately 40,000 people have earned the ChFC through regionally accredited program courses and exams. Exams are proctored for each required course.
Academies that offer Chartered Wealth Management Programs:
American Academy of Financial Management (AAFN) aka International Academy of Financial Management (IAFM): a 5-day program offered twice a year
Wharton School at U of PA
U of Chicago
Institute for PRivate Investors
Large banks offer courses in marketing strategies to sell both proprietary and non-proprietary products and services to high-net-worth individuals (HNWI)
One site gave this advice, "Get your first financial advising job at a bank."
LICENSING AND REGULATION (This helps you understand how your advisor is qualified, so it behooves you to study this part, dry though it is. It also directs you toward the right individual for your needs.)
SECURITIES LICENSES: These include registered representative (RR) or an investment advisor; in either case the first step is obtaining the proper securities license. The license needed is determined by several factors, such as the type of investments to be sold, method of compensation and the scope of services that will be provided.
Those who intend to hold themselves out to the public as Registered Investment Advisors (RIAs) must register with the state they do business in if their assets under management are less than $25 million ($100M in some states), or with the SEC if the assets exceed $25 or $100 million. Registered Investment Advisors do not need to associate themselves with a broker-dealer.
The Financial Industry Regulatory Authority (FINRA) oversees all securities licensing procedures and requirements. This self-regulatory organization administers many of the exams that must be passed to become a licensed financial professional. It also performs all relevant disciplinary and record-keeping functions.
FINRA offers several different types of licenses needed by both representatives and supervisors. Each license corresponds to a specific type of business or investment. While there are several licenses geared toward specific types of securities, there are three general licenses that the majority of representatives and advisors usually obtain:
The Series 6 license is known as the limited-investment securities license. It allows its holders to sell "packaged" investment products such as mutual funds, variable annuities and unit investment trusts (UITs). The Series 6 exam is 135 minutes long, and covers basic information regarding packaged investments, securities regulations and ethics.
This license is also required for insurance agents that sell variable products of any kind, because securities constitute the underlying investments within those products. Principals who supervise representatives holding a Series 6 license must obtain the Series 26 license in addition to having already obtained the Series 6.
The Series 7 license is known as the general securities representative (GS) license. It authorizes licensees to sell virtually any type of individual security. This includes common and preferred stocks; call and put options; bonds and other individual fixed income investments; as well as all forms of packaged products (except for those that also require a life insurance license to sell). The only major types of securities or investments that Series 7 licensees are not authorized to sell are commodities futures, real estate and life insurance.
The Series 7 exam is by far the longest and most difficult of all the securities exams. It lasts for six hours and covers all aspects of stock and bond quotes and trading; put and call options; spreads and straddles; ethics; margin and other account holder requirements; and other pertinent regulations.
Those who carry this license are officially listed as "registered representatives" by FINRA, but they are generally referred to as stockbrokers. Many insurance agents and other types of financial planners and advisors also carry the Series 7 license to facilitate certain types of transactions inherent in their businesses. Principals of general representatives must also obtain the Series 24 license.
The Series 3 license authorizes representatives to sell commodity futures contracts, which are generally considered the riskiest publicly traded investments available. Representatives that carry the Series 3 license tend to specialize in commodities and often do little or no other business of any type.
The Series 3 exam is approximately 120 minutes long and covers all forms of commodities transactions, options, hedging, margin requirements and other regulations. An offshoot of this license is the Series 31 license, which allows representatives to sell managed futures (pooled groups of commodities futures similar to mutual funds).
Not all securities licenses are administered by FINRA. The North American Securities Administrators Association (NASAA) oversees the licensing requirements of three key licenses:
The Series 63 license, known as the Uniform Securities Agent license, is required by each state and authorizes licensees to transact business within the state. All Series 6 and Series 7 licensees must carry this license as well. The provisions of the Uniform Securities Act are tested on the 75-minute exam.
The Series 65 license is required by anyone intending to provide any kind of financial advice or service on a non-commission basis. Financial planners and advisors that provide investment advice for an hourly fee fall into this category, as do stockbrokers or other registered representatives that deal with managed-money accounts.
This Series 66 is the newest exam offered by NASAA. In essence, it combines the Series 63 and 65 exams into one 150-minute exam. This test contains no investment material, as the Series 66 license is only available to candidates that are already Series 7 licensed.
A NOTE ON PRIVATE BANKING
Private banking is banking, investment and other financial services provided by banks to private individuals who enjoy high levels of income or invest sizable assets. The term "private" refers to customer service rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers. It does not refer to a private bank, which is a non-incorporated banking institution.
Private banking forms an important, high-level and more exclusive (for the especially affluent) subset of wealth management. At least until recently, it largely consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. Taking a largely passive approach to financial decision making, most clients trust their private banking relationship manager to ‘get on with it.’
Private banking is the way banking originated. The first banks in Venice were focused on managing personal finance for wealthy families. Private banks became known as ‘Private’ to stand out from the retail banking & savings banks aimed at the new middle class. Traditionally, Private Banks were linked to families for several generations. They often advised and performed all financial & banking services for families.
Private banking and wealth management rankings
According to Euromoney's annual Private banking and wealth management ranking 2013, which consider (amongst other factors) assets under management, net income and net new assets, global private banking assets under management grew just 10.8%YoY (compared with 16.7% ten years ago).
"Best private banking services overall 2013". This table displays results of one category of the Private banking and wealth management ranking over two years. Only Goldman Sachs moved into the top 10 between 2012 and 2013; the others had already been there.
Merrill Lynch Wealth Management
More Information at: http://www.investopedia.com/articles/financialcareers/07/securities_licenses.asp
Different Kinds of Tax Professionals
Before you start your search, you might be wondering about all the different kinds of tax pros out there or who can do your taxes. Basically, anyone can call himself a tax preparer and file your return for you. There are two types of tax professionals, though, that are probably most appropriate for you and most people: certified public accountants and enrolled agents. Both types can represent you before the IRS in case you get audited.
Certified public accountants or CPAs are accountants who have passed qualifying state exams and met specific education and experience requirements for that title. Not all CPAs are experts on income taxes, though, so when looking for someone to prepare your return, you'll want to ask about the CPA's experience in handling individual taxes. A benefit of going with a CPA is these financial pros may be able to help you with other financial situations like estate planning or financial planning in addition to doing your taxes.
Enrolled agent or EA is a tax professional licensed by the IRS through a special enrollment exam or after working for the IRS for five years. EAs may specialize in specific tax areas, so be sure to ask what his or her area of expertise is. The benefit of using an enrolled agent is that these people live and breathe taxes (they're required to take continuing education courses in taxes every three years), and, generally speaking, may charge less than CPAs.
OTHER Tax Preparers
You have two other main choices for tax preparers--tax attorneys and tax preparation chains such as H&R BLock,—but I don't believe they make sense here. Tax attorneys are best for handling complex tax disputes and corporate matters, rather than preparing individual returns. They are also good at ferreting out the legal issues of tax questions. Your CPA will likely have a referral for you.
When Do You Need a Tax Attorney? Tax attorneys are lawyers who specialize in the complex and technical field of tax law. Tax attorneys are best for handling complex, technical, and legal issues.
You definitely need a tax attorney if:
You have a taxable estate, need to make complex estate planning strategies, or need to file an estate tax return.
You are starting a business and need legal counsel about the structure and tax treatment of your company.
You are engaging in international business and need help with contracts, tax treatment, and other legal matters.
You plan to bring a suit against the IRS.
You plan to seek independent review of your case before the US Tax Court.
You are under criminal investigation by the IRS.
You have committed tax fraud (such as claiming false deductions and credits) and need the protection of privilege.
What you should look for Tax attorneys must have a Juris Doctor (J.D.) degree and must be admitted to the state bar . Those are the minimum requirements for practicing law. Additionally, tax attorneys should have advanced training in tax law. Most will have a master of laws (LL.M.) degree in taxation.
Some tax attorneys also have a background in accounting. If you are facing a complex accounting as well as legal matter, you might want to looking for an attorney who is also a Certified Public Accountant.
Questions to ask
Is the attorney admitted to the state bar?
What does the tax attorney specialize in?
How much does the attorney charge?
Can the attorney help you with your tax case?
If not, can the attorney refer you to another tax attorney who can help you?
An Estate attorney is also known as a Probate Lawyer. A probate lawyer is a type of state licensed attorney who, through years of mentoring, continuing legal education and experience, understands how to advise Personal Representatives, also known as Executors, and the beneficiaries of an estate on how to settle all of the final affairs of a deceased person, known as a decedent.
Hopefully none of us will need an Estate Attorney any time soon. However, Estate attorneys also frequently also do Estate planning from a taxation vantage point so they know how to set things up properly to avoid Probate issues upon death. It is a small community so Tax Attorneys typically know the Estate Attorneys in your area.
Get a referral because there are many "ambulance chaser" type probate lawyers who use cookie cutter plans, not one devised for your needs & objectives.
Link to Lesson #1 Dinar Rates and Contracts:
Link to Lesson #2 Choosing a Bank and Accounts:
Link to Lesson #3 Your Appointment
Link to Lesson #4 Taxation Consideration
Link to Lesson #5- Protections