Magazine article Personnel

Planning for Financial Security

Magazine article Personnel

Planning for Financial Security

Article excerpt

Planning for Financial Security

Many employers are expanding their benefits package to include service perks designed to meet the lifestyle needs of their employees. One such perk, financial planning services, can be particularly valuable to the busy executive or professional who must juggle the demands of career and family life. Too often, these employees find themselves saving and investing on what amounts to an ad hoc basis.

Moreover, the Tax Reform Act of 1986 and recent changes in qualified pension and savings plans have altered the financial planning orientation of many employees. Because of lower tax rates and restrictions on the amount of money that can be protected in personal pension and savings plans, greater emphasis is being placed on investing and less emphasis is being placed on minimizing tax exposure.

These factors--along with the realization by employers that employees' nagging financial concerns can hinder job performance--have helped create a boom in financial planning services. According to the International Association for Financial Planning, approximately 250,000 people now claim to be financial planners. The problem for employers that want to implement a financial planning program is selecting a financial planner with the proper temperament, background, and training for sound investment counseling.

Accounting firms are an often overlooked source of qualified investment expertise and resources. During recent years, for example, many accounting firms have broadened their expertise beyond that of traditional tax and auditing services and now offer investment counseling on an individual basis or as part of employer-sponsored financial planning programs. Typically, these firms stress a long-term management approach to investment success rather than "get-rich-quick" schemes.

Maximizing Investment Returns

According to a study by Ibbotson Associates, 85% of an investor's return depends on the allocation of resources and less than 15% depends on the specific investments purchased. With this in in mind, employers should be wary of financial planners who emphasize the placement of an investment rather than the succesful performance of the investment over time. Instead, they should look for financial planners who advocate asset allocation, or the diversification of a client's financial resources among various investment categories.

The goal of all money managers, of course, is maximizing their clients' investment return while reducing financial risk. The asset allocation model accomplishes this goal most effectively because it measures investment return and risk over an extended time frame of four to six years. The longer the time allowed to achieve a predetermined set of investment goals, the greater the level of risk reduction will be.

The asset allocation model, then, is the key to successful investment counsel. It helps prevent overconcentration of clients' investments and demonstrates the value of investing over the long term. The end result is a balanced portfolio for the client.

Some Important Considerations

In addition to practicing asset allocation, the effective financial planning firm must have competitive resources and qualifications. The most important qualifications to assess are the company's personnel, payment methods, and software technology.

Personnel. Investment advisors and financial planners do not have to meet any federal qualification standards, testing requirements, or continuing education requirements. Nevertheless, there are standards by which financial planners can be evaluated. …

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