June 20, 2024
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June 20, 2024
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Introduction to Financial Planning

We all appreciate the value of maintaining a financially stable home. We budget our income, expenditures, and save for future expenditures, milestone family events, eventual retirement, and maintain an emergency fund to cover unplanned expenses in case of serious illness, disability, surgery or possible unemployment. In this series of articles, various topics of personal financial management will be discussed.

Personal and family financial planning can conveniently be divided among the following areas:

  1. Budgeting and basic record-keeping
  2. Insurance, including health, life, liability and disability insurance
  3. Tax planning
  4. Asset management
  5. Management of IRA, 401(k) and other retirement accounts
  6. Estate planning
  7. Financing education

Personal financial management has become complex and usually requires time for regular maintenance, modification or periodic upgrading. Use of and familiarity with computer-generated spreadsheets is very helpful. For many it is desirable to engage the services of a professional financial planner. The purpose of the financial planner is to act as a captain or quarterback and assist or organize the major financial areas described above to obtain the most value from one’s limited financial resources.

Selecting the proper financial planner is essential. It is valuable and advisable to go to the office of the planner and forgo the convenience of having the planner come to your office or residence. This provides an opportunity for you to observe the planner’s workspace—particularly regarding the planner’s orderliness and method of functioning. You might be reluctant to work with a planner whose office is chaotic or disorganized.

The planner should be concerned with more than simply your total financial assets, and should be interested in many other relevant aspects of your life—family structure, health, religious needs, goals etc. While anyone can call themselves a financial planner, the Certified Financial Planning Board certifies individuals who have had required education, passed a certifying examination, have had experience with a financial planning firm and adhere to the organization’s prescribed ethical standards, with a CFP designation. The College for Financial Planning also certifies other retirement specialists with the degree of Chartered Certified Planning Counselors (CRPC). The CRPC® program comprehensively covers all aspects of the retirement process.

Compensating financial planners for their time and effort is of course very relevant in the decision to engage such an individual and in evaluating its cost effectiveness. There are two well-known standards of compensation for financial advice. These are the fiduciary standard and the suitability standard. Traditionally, Registered Investment Advisors (RIAs) were known for their adherence to the fiduciary standard—brokers and employees of brokerage firms typically adhered to the suitability standard. The fiduciary standard demands that advisors always act in the best interests of their clients, and put their clients’ interests above their own. The suitability standard means that as long as an investment recommendation met a client’s defined need and objective, it is deemed appropriate. The Department of Labor issued a ruling that all financial advice regarding retirement accounts adhere to the fiduciary standard. This is slated to go into effect on June 9, 2017. It is expected that those who work on commission, such as brokers and insurance agents, will be impacted the most by this change. Annuity vendors also will have to disclose their commissions to clients, which could significantly affect sales of these products. Annuities have been a source of controversy, as they usually involve high commissions and many have other charges and fees that can reduce the returns to their purchasers. The new rule could therefore eliminate many of the existing commission practices.

Financial planners are most often compensated on an hourly fee basis. When the planner will also be managing one’s asset portfolio, the fee may as well be based on a percentage of the assets under management. The planner’s fee structure should be clearly understood before agreeing to become a client. A Registered Investment Advisor (RIA) is regulated by state or federal authorities and must adhere to rigid standards. RIAs adhere to the fiduciary principles. This means they have a fundamental obligation to provide appropriate investment advice and must always act in their clients’ best interests.

We always have financial needs so planning is always relevant and present. These change as we age. In our 20s and 30s, we may be concerned with financing our children’s education and saving for their higher education or professional training. As we approach our late 30s, 40s and 50s we are concerned with financing our children’s education or professional school, their marriages, and gifting grandchildren. While retirement planning should begin when earnings commence, as we approach our 50s this becomes more urgent. When we get over age 60, planning retirement, retirement financial goals, possibly moving to a new home or locale and estate planning achieve paramount importance. In this series, many of these areas will be covered in depth. In this first article in this monthly series, I am soliciting readers’ comments and criticisms as well as questions and suggestions for future articles.

Norman Sohn received his MD degree from New York University and his MBA from Fairleigh Dickinson University. He completed a 15-month course in financial planning. Since his retirement from his position at Lenox Hill Hospital in 2010, he has been working at Beacon Wealth Management, LLC — a financial planning and wealth management firm in Hackensack. He completed his Series 65 examination, which qualifies him as an investment professional and allows him to operate as an Investment Adviser Representative. He also passed the Chartered Retirement Planning Counselor examination, which provided him with the designation CRPC®. He lived in Englewood for over 40 years and for the past four years has been married to Lois Blumenfeld and living in Teaneck. Together, they have seven children, 26 grandchildren and a host of great grandchildren. He is an active member of Congregation Bnai Yeshurun. He can be reached at [email protected].

By Norman Sohn



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