For amateur investors putting their hopes in investment experts and prospects that are “sure things” on paper, the moral of the elaborately told story is simple: Caveat emptor.
Although the economy turned a corner in 2013 and several Philadelphia-area financial planning professionals interviewed for this story agree that things are looking promising for 2014, investors new to the game still need to do their homework on the investments themselves, and also on the people most qualified to help them make the right investments. They also need to determine how much they can afford to invest, and realize that the old maxim, “slow and steady wins the race,” holds true.
“For the small, medium and large investor, smart investing often revolves around goals,” says Jerry Lezynski, managing director of marketing for the SEI Advisor Network, an international financial services company headquartered in Oaks, Pa., serving private and corporate clients.
“Working with a financial adviser, an investor needs to determine what his/her long- and short-term goals are, and what results does he need to have today, versus what he needs to have in the future,” Lezynski says. “This is why advisers play a critical role, to help investors better understand what those goals are before the money is invested.”
Lezynski and other advisers stress that picking an adviser is as important as picking the stocks or the industries. You could argue it is not just common sense, but also common cents.
“From an investment standpoint, it looks as if 2014 is going to be a transition year in terms of interest rates going up,” says Andrew Aran, a chartered financial analyst at Regency Wealth Management in Ramsey, N.J.
“However, to understand what that vast declarative statement means for you as an investor, you may need to get a financial adviser to help you make sense of it all.”
As a fee-only adviser, Stephen Craffen, founder of Stonegate Wealth Management in Fair Lawn, N.J., not only looks out for his clients’ needs, but is the Eastern Regional Chair of the National Association of Personal Financial Advisors and has been an active member of the organization since 1989. He explains that the reason why the organization was formed back in the 1980s was that many ethical financial planners did not like the investment firm business models that existed in those days, or the pathways in which average people got financial advice.
This was a perfect storm for predatory salesmen like the ones depicted in The Wolf of Wall Street to get rich on other people’s naivete, he explains.
“There was nobody looking at a holistic view of a client’s circumstance,” recalls Craffen. “There were so-called planners trying to sell as much of their product as possible, whether their client needed it or not. Those of us who genuinely cared about our clients realized we needed to develop a variety of standards in terms of comprehensively evaluating an individual client’s circumstances and the brokers’ ethics.”
Through his association, “we act on behalf of the client and not third parties. Therefore, when researching a planner or agent, a prospective client would know that this person was not accepting any commission from third parties and acting as a fiduciary for the client.”
Mark Reitsma, a certified financial planner and Aran’s partner at Regency Wealth Management, says a planner under consideration should have a widely recognized professional designation or affiliation with organizations such as the Certified Financial Planner Board (www.cfp.net )or the Commercial Finance Association (www.cfa.com ). Beyond that, he cites other research tools that consumers can utilize, including NAPFE (www.napfa.org ), which, like the CFP, has a highly navigable website.
He also suggests visiting the web site of Financial Industry Regulatory Authority (www.finra.org ).
“Some commission brokers will try to sell or encourage customers to buy things that are inappropriate, or buy and sell too often. With a fee-only adviser, it is much easier to see how much investing services are costing him or her,” he explains.
“Unfortunately, there will always be scams out there because it is human nature for somebody to come up with a scam of some kind.
“While it is tough to predict the next big investment thing, a smart investor will stick to the fundamentals of good investing, which mostly means investments that have worked successfully over a longer period of time. While this prospect seems boring, a lot of the common denominators for scams is finding people looking to get rich quick. As a firm we tend to focus more on get-rich-slow schemes.”
Simply put, if the economy continues to grow, it will likely improve the unemployment rate, and increase consumer demand for products and services produced by companies publicly traded on the stock market. This trend will potentially result in greater earnings for companies.
“If our expectation of an accelerating economy in the United States is correct, those industries that are more cyclically sensitive and less interest rate sensitive should do better,” says Aran.
Lezynski says that “our whole investment philosophy involves selecting the appropriate investment managers, and how they structure and manage portfolios. When a strategy is selected for a given client, we think of it as a continual process, and make sure the strategies are revised regularly to ensure that a pre-defined mix of assets are rebalanced accordingly to reduce risk and keep the investment plan on course.”
Joel Goodhart, a 38-year industry veteran and managing partner at Bire Financial Services in Plymouth Meeting, says he and his colleagues advise their diverse base of clients based on the notion of “time horizons.” Although the stock market has its ups and downs, the ultimate direction it is heading is up.
He uses the analogy of spinning a yo-yo while climbing a flight of stairs. At the top of the stairs, the “low point” of the yoyo will still be higher than its highest point at the bottom of the stairs. In terms of numbers, the market trends up 60 percent of the time and falls 40 percent of the time.
“If you have the money to invest without putting your livelihood at risk, the market is the place to be right now,” he says. “Short-term investors, meanwhile, should have most of their money in the bank where it will be secure and liquid if they need to get to it.
“If you are saving up for something that is 20 years in the future, it should be invested, as it is not earning interest in the bank.”
Elyse Glickman is a writer based on the West Coast. This article originally appeared in the special section, "Financial Health."