CIMAPRA19-F01-1-ENG learner - F1 - Financial Reporting Updated: 2024

Janine was born in Venezuela and educated in the United States. She began her career 25 years ago on the foreign equity arbitrage desk, where she took advantage of her language skills—Spanish, French, and Portuguese—to gain insight into emerging markets. She earned her CIMA® and became part of an elite group to receive the qualification as an advanced investment consultant. She has spent the majority of her career advising institutional clients with their investment portfolios—providing industry leading advice, delivering personalized institutional consulting services and ongoing due diligence and reporting. Also, it is Janine’s relationships in the industry that provide access to specialists that keep the group’s financial strategy current with the latest innovations.

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Account balances get the bulk of attention when people approach retirement and are meeting with their financial planners — will the clients have enough to fund those long-desired vacations or to pay for living expenses over the next 20, 30, or 40 years?

But one area not discussed enough is where and in what type of housing clients hope to live during their later years and how their CPA financial planner can help create a plan to adjust housing needs if health problems or other complications arise.

Too often, if they haven’t thought through options in advance, retirees or their families end up making decisions quickly, after, for example, a serious fall, a difficult medical diagnosis, or the loss of a spouse. They may suddenly need to find an assisted living option or move an ailing parent across the country to be closer to family. Making these decisions quickly can put people at a disadvantage as they must navigate the complex options for senior living without having the time to thoroughly research them.

“Things can change very suddenly,” said Brad Breeding, managing partner and co-founder of myLifeSite.net, an informational source on senior living and age-related topics. “All of a sudden, their whole world is turned upside down.”

This is where CPA financial planners can play a key role to helping seniors maximize their chances of living where they want by incorporating questions about housing into their conversations with clients years ahead of retirement.

“We are an aging population, which, for many people, means an aging client base,” Breeding said. “There’s some really important things to discuss proactively and not just reactively.”

Breeding and others who work closely advising people approaching or in their retirement years offered advice on how to discuss the potentially thorny issue of housing options with clients. Following are some of their top tips.

START THE CONVERSATION EARLY

CPA financial planners should bring up questions about housing options in regular check-ins years before it’s time for the client to retire. That way, planners can work with clients to identify their goals and help figure out how best to make them a reality, said James Sullivan, CPA/PFS (retired), a prolific author, elder-care advocate, and longtime CPA financial planner who now serves as president of the nonprofit Paying for Alzheimer’s.

People aren’t always aware that their CPA can help run detailed scenarios on different housing options, forecast some of the costs that could come with moving elsewhere, and anticipate what a move out of state could mean for annual income taxes as well as estate or inheritance taxes down the line.

Sullivan said that when he was actively practicing as a CPA financial planner, he made sure to ask about accurate medical diagnoses and told his clients to inform him of any major changes in their health so he could help them start anticipating future needs.

People, understandably, often don’t initially think of their CPA financial planner as someone they should keep in the loop when, for example, they find out that they, or a family member, have a cancer diagnosis. But having that information lets financial planners provide reassurance and adjust plans so that finances don’t become a source of anxiety.

“The planning shouldn’t wait until there’s a diagnosis,” Sullivan said. “It should have occurred years earlier.”

UNDERSTAND DIFFERENT HOUSING OPTIONS

People have a whole variety of things to think through when it comes to approaching retirement, said Bernard Krooks, a founding partner at the New York law firm Littman Krooks LLP, where he chairs the firm’s elder law and special needs departments.

“In my experience, people are late in the game to analyze what their housing needs may be as they age,” he said.

Seniors can choose from among many housing options to live out their retirement years. It’s important for clients to understand the different types of housing available well before retirement age so they can plan and prepare for different scenarios. Among the housing options to be considered are:

Aging at home: For those clients who want to stay at home, it’s wise to have them assess how well they could adjust if their mobility or cognitive abilities change, especially if it were to happen suddenly, Krooks said. Are the hallways wide enough for wheelchairs? Is there a bedroom and bathroom on the ground floor? Would it make sense to add an elevator or look for a smaller place that could better adapt to changing cognitive and mobility abilities?

If someone decides to make a big move, perhaps to be closer to family or to live in a more temperate location, planners can work out scenarios of buying outright or renting for a bit to make sure they like the area before purchasing property.

Senior communities: Some opt to look at senior communities, where people can live independently in a community of other people in the same stage of life. This can be a chance to downsize to an apartment or condo and be able to connect with others who are similarly entering their retirement years, Krooks said.

Assisted living: For those looking for a combination of individual living space and access to on-premise services such as medicine management and help with daily care activities, including dressing and bathing, assisted living may be a good option. Because this type of facility tends to fill quickly, space might not be immediately available if someone has a medical need arise suddenly or unexpectedly, making prior research and planning all the more important when families are left making decisions quickly about where to move their aging relatives.

Breeding suggests doing research ahead of time on the reputation of facilities and what amenities they offer to residents to get a sense of what’s available and preferable in your area. States typically license assisted living facilities, and the appropriate regulatory agencies may have ways to look up inspections and other related records.

Continuing care retirement communities: Further up in services, and cost, are continued care retirement communities (CCRCs), planned communities where people can access the full continuum of care as they age. Krooks said he has had married clients choose this option when one spouse develops more significant medical needs than the other.

The deciding factors when choosing a continuing care retirement community (CCRC) can be broken down into five main categories: Lifestyle preferences, quality of health-care services, affordability and tax impacts, financial viability of the provider and analysis of which of the four most common types of CCRC contracts would work best for the client.

ASSESS OPTIONS FOR CLIENTS

Changing housing can be a major financial endeavor and is a key opportunity for a CPA financial planner to step in and help clients understand the risks ahead.

CCRCs, for example, can be quite costly, with large upfront payments that could be as high as $1 million for more upscale communities, Krooks said.

In some instances, people have invested in these communities, hoping to have a guarantee of living their later years in a safe and supportive environment, only to see poor financial decisions by a community’s developers and investors unravel their plans. Krooks has seen people put down significant portions of their retirement nest eggs to buy into a community being built, only to have that money swallowed up when the project collapsed.

That’s why it’s important for CPAs to help assess the entity’s financial viability to ensure it’s a smart move, for both financial and well-being reasons.

“There’s a unique opportunity for CPAs to do the due diligence and ensure that the development of the CCRC is on solid financial footing,” Krooks said.

Sullivan recalled looking at one assisted living option for a client, then flagging that they might be in rough shape financially when he saw that the facility was using bake sales and book sales to prop up a charity care fund.

Similarly, CPA financial planners can help show clients how to access public records from regulators about the medical care aspects of these communities, to determine if the care offered at different stages aligns with future needs, Breeding said. It helps demystify the process and gives real insight into a facility’s operations beyond the glossy brochures that facilities produce.

“You should be researching that well before you need any care,” he said.

TALK WITH YOUNGER CLIENTS, TOO

Besides talking with clients on the brink of retirement, financial planners should think about talking through housing considerations with younger clients, many of whom may be called upon to help parents or other older family members navigate changing housing circumstances, Breeding said.

He suggests the financial planners bring up the course during annual or quarterly client meetings. For clients who expect to provide assistance to older relatives, the planner can offer to help break down the tax implications for both the retired person and relatives or assist with financial research of housing options, Breeding suggests.

“Even if those things aren’t needed now, people need to educate themselves on what they are and the differences between the options,” he said.

BE REALISTIC, BUT KIND

It’s important for CPA financial planners to be cognizant and respectful of the emotional impact that discussions about aging and declining health can have on clients, Sullivan said.

Sullivan will often hear from clients about their desire to stay in the homes they raised families in, and he must weigh that with his knowledge gained from years of working with older clients of how viable that will be. The cost and time required to maintain a large house can be significant, and that person may not be ready to hear a blunt assessment that they will eventually need to move.

“They want to maintain their home, which is understandable,” he said. “But in most cases, that’s not going to be the way it turns out.”

Sullivan takes care to run different financial household forecasts, to give awareness of how things could play out with a person staying in their home or if they move. That way, if a person re-evaluates things, the client will already have an idea of what a smaller home or apartment would mean financially.

This can also come up with younger clients, whose parents may have told them, “Promise me you’ll never sell the home and put me in a nursing home.”

That can be an enormous emotional hurdle for clients to overcome if medical problems manifest, and it simply isn’t safe for them to stay in the home, said Sullivan, who frequently helps those dealing with Alzheimer’s or other cognitive diseases.

He suggests an approach that centers on safety, telling clients and their families, “We’ll keep you in the home as long as it’s safe.”

By understanding the risks as well as the advantages of all the available options, CPA financial planners can play a key role in helping their clients figure out where they’d like to live during their retirement years.

About the author

Sarah Ovaska is a freelance writer based in North Carolina. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.

LEARNING RESOURCES

The Adviser’s Guide to Financial & Estate Planning: Vol. 3-14th Edition

The 14th edition includes annual updates as well as checklists, planning pointers, and questionnaires to simplify the planning process.

PUBLICATION

Guide to Retirement & Elder Planning: Healthcare Coverage Planning-6th Ed

This guide explains the basic rules of Medicare and paying for long-term care while adding planning advice to assist the adviser in discussing these Topics with their clients. The 6th edition adds a new Medicare quick reference guide in Chapter 1. The full guide is exclusive to Personal Financial Planning Section members but an excerpt is available to AICPA members.

PUBLICATION

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June 3–6, 2024, Las Vegas

CONFERENCE

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AICPA & CIMA RESOURCES

Articles

“How to Talk About Long-term Care With Clients,” JofA, Feb 1, 2023

“What All CPAs Should Know About Elder Planning,” JofA, July 1, 2017

“Best Places to Retire? It’s Complicated,” CPA Insider, Jan. 9, 2017

“Understand Senior Housing Options,” JofA, Aug. 1, 2016

Our experts answer readers' investing questions and write unbiased product reviews (here's how we assess investing products). Paid non-client promotion: In some cases, we receive a commission from our partners. Our opinions are always our own.

• A financial advisor can help plan for retirement, build an investment portfolio, or budget to reach your financial goals.
• When hiring an advisor or planner, make sure to consider their specialties and certifications.
• Also consider how they charge: a flat fee, hourly rate, retainer, percentage of assets, or commission.

Hiring a financial advisor or a financial planner can help you achieve your short- or long-term goals — like having a comfortable retirement, funding your child's college tuition, or buying a house. 

These professionals aren't one-size-fits-all, though, and finding the right one is critical to your success. Here's what you need to know about financial advisors and planners, and how to zero in on the best one for your goals and budget.

How to find a financial advisor

To choose the right financial advisor or planner, you first need to understand what you're trying to achieve. Are you looking to maximize your retirement funds? Do you want to make more from your investments? Is planning your estate and legacy top of mind?

Financial professionals typically have specialties, so you'll want to choose one that aligns closely with your goals. Common financial planning specialties include:

• Estate planning
• Investing 
• Retirement planning
• Business planning 
• Debt management
• Budgeting
• Tax planning
• Insurance

There are also advisors and planners who specialize in specific life stages, demographics, or even people with certain occupations. 

"When looking for a financial planner, it is important to understand exactly what you're looking for," says Jay Zigmont, a CFP® planner and founder of Childfree Wealth, which focuses on financial planning for adults who choose not to have children. "You will find planners who specialize in just about every group, job, and life stage, so find one that fits you."

Choosing a financial planner who's a fiduciary is also important. This means they must avoid conflicts of interest and always put your interests first.

"A planner that operates under the fiduciary standard is required by law to always keep your financial best interests ahead of theirs," says Jason Steeno, president of financial advisory firm CoreCap Investments in Southfield, Michigan. 

Steps to choose a financial advisor

1. Search for financial advisor options in your area 

There are many ways to find a financial advisor or planner near you. Asking friends, family members, and colleagues is often a good place to start, as they can recommend local professionals they've had personal experience with. 

You can also use one of these online resources, all of which allow you to filter by geographic area:

• Financial Planning Association: FPA's tool lets you search for CFP® professionals in your area, and you can filter by specialty, compensation type, and certification. 
• National Association of Personal Financial Advisors: With NAPFA's search tool, you enter your ZIP code and can filter planners based on their distance from you. There's also a map you can use to view all your options in one place.
• Let's Make a Plan: This is the Certified Financial Planner Board of Standards' search tool. You can search by location, services offered, or both. All planners listed are CFP® professionals. 
• XY Planning Network: XY's tool lets you search for fee-only financial advisors (more on this below) in your area. You can look by location and filter results using various keywords and specialties.

Once you've shortlisted a few names, cross-check them on BrokerCheck.com and with the Securities and Exchange Commission (SEC). There, Steeno says, "You can see how long they've been in business or if they've had any disciplinary history."

2. Review a financial advisor's credentials

There isn't a single "financial planner" or "financial advisor" license or certification. As Steeno puts it, "Just about anyone can call themselves a financial planner."

To ensure you're choosing an experienced and knowledgeable professional, look for professional designations like CFP®, CFA, or CIMA. These are just a few credentials a financial advisor can seek, each indicating a different specialty or skill set.

Here's a look at some of the credentials you might see:

• CFP®: A CFP® is a CERTIFIED FINANCIAL PLANNER^TM. These professionals must have a bachelor's degree, three years minimum in full-time financial planning, and complete a board-certification program. CFP®s also must take 30 hours of continuing education every two years.
• CFA: CFA professionals must take a three-part test focusing on investment tools, assets, wealth planning, and portfolio management to be certified.
• CIMA: Professionals with a CIMA designation are Certified Investment Management Analysts. CIMAs are required to have three years of experience in financial services and enroll in a CIMA education course at the Yale School of Management, The Wharton School at the University of Pennsylvania, the University of Chicago Booth School of Business, or the Investment Management Research Program in Australia.
• MRFC: An MRFC is a Master Registered Financial Consultant. These professionals need at least four years of full-time financial planning experience, have a bachelor's degree in accounting, economics, or finance, and complete 40 hours of continuing education every year. 
• ChFC: ChFCs are Chartered Financial Consultants. They must have at least three years of full-time business experience, complete 27 credit hours of courses, and receive 30 continuing education credits every two years.
• CRC: This one is a Certified Retirement Counselor. They must have two years of professional retirement planning experience, pass a specialized certification exam, and take 15 hours of continuing education courses annually. 

You can usually find a planner's credentials listed after their name — both in the online search resources under Step 1 and on their professional profile or LinkedIn account. 

3. Review fee structures 

There are many ways a financial advisor may charge you, so be sure you understand how they charge before working with them. Some services are charged based on the assets or investments the planner manages, while others charge flat fees or receive commissions. How they charge can influence how much you'll end up spending to work with a financial planner so it's always important to research this part beforehand.

Here's a look at some of the various fee structures financial planners use:

• Fee-only: Fee-only planners are paid for the services they provide. This might mean an hourly rate, a flat fee, or a retainer of some sort. Fee-only planners do not receive commissions or kickbacks from the products and policies they recommend.
• AUM: Assets Under Management is another fee-only approach. With this fee structure, you'll pay a set percentage of the total assets your planner manages. 
• Commission: Commissioned financial planners get compensated based on the products they sell to you. This can cause a conflict of interest, as it motivates them to recommend certain products, even if they're not best suited to your needs.
• Fee-based: A fee-based model is a combination of fee-only and commission structures. You may pay a fee for the planner's service, and they also may receive a commission for certain products they recommend to you. 

Generally speaking, most professionals recommend seeking someone who is fee-only, as this ensures they have your best interests at heart. This includes AUM-based models, which motivate the planner to grow your assets (and avoid losses).

"It ensures the advisor's interests are in line with yours," Steeno says. "They want your assets to increase in value just as you do."

Online financial advisors vs. traditional advisors 

You don't have to meet with a financial advisor or planner in person to get professional help. Many financial advisors offer online services that allow you to get the guidance you need without leaving your home. These usually include phone and video calls, in which you "meet" your planner virtually over Zoom, Skype, or another similar service.

These can be a good option if you want faster, more convenient service or to work with a planner not in your geographic area. 

There are also robo-advisors, which can be used for building and managing your investment portfolio. They're typically more affordable than using a real-life advisor and have low starting balance requirements, but they're also less comprehensive and personalized. Robo-advisors typically won't help with budgeting, estate planning, tax planning, or other non-investment services.

As Rob Burnette, an MRFC and chief executive officer of Outlook Financial Center in Troy, Ohio, explains, "Robo-advisors are only useful for the investment part of a financial plan."

In some cases, robo-advisors may include interactions with a live advisor (sometimes for an added fee). But it's usually not a dedicated account professional, and you may be limited on how many times you can interact with them. This means less consistency and personal guidance than you'd get with a financial planner you hired directly.

"Robo-advisors generally offer a one-size-fits-most solution," says Kris Maksimovich, a CRC and president at Global Wealth Advisors based in Lewisville, Texas. "They lack personalization and input and don't offer hand-holding during periods of market volatility."

A financial advisor or financial planner can help you achieve your long-term goals but choose yours carefully. There are many types of financial planners, and their specialty, costs, credentials, and services should all play a role in your decision. 

Don't be afraid to interview a few candidates. Set up introductory meetings with two or three professionals, and use the time to ask questions, understand their processes and fees, and make sure they're a good fit before moving forward.

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“The best investment you can make, is an investment in yourself... The more you learn, the more you’ll earn.” —Warren Buffett

Financial literacy refers to your grasp and effective use of various financial skills, from budgeting and saving to debt management and retirement planning.

It equips you with the knowledge to make informed decisions, leading to greater monetary stability, less stress, and a higher quality of life.

Financial literacy empowers you to take control of your finances and navigate the challenges and opportunities that arise.

It is a crucial element in achieving financial health.

Key Components Of Financial Literacy

Budgeting And Expense Management

Effective budgeting requires clearly understanding your financial inflows and outflows, setting realistic goals, and monitoring spending habits.

Expense management is about making conscious decisions to eliminate unnecessary expenses and prioritize essential ones.

By mastering budgeting and expense management, you can live within your means, avoid accumulating debt, and save for future goals.

Saving And Investing

Saving is setting aside a portion of your income for future use, while investing is putting that saved money into assets or ventures that can potentially yield returns.

While saving provides a cushion, investing allows your money to grow. Maximize the effects of compounding and the importance of diversification.

Debt Management

Being financially literate is about recognizing the impact of your credit score on interest rates, familiarizing yourself with the terms of debts, and creating a strategy to pay them off efficiently.

It also entails differentiating between good debt (such as student loans, which can be seen as an investment in your future) and bad ones (such as credit card bills for that latest iPhone, a luxury).

Retirement Planning

Financial literacy involves understanding pension plans, 401(k)s, and other retirement savings options, as well as Social Security, and how delaying benefits can increase monthly payouts.

A comprehensive retirement plan considers your expected lifespan, desired retirement lifestyle, and potential healthcare costs.

Insurance And Risk Management

Different products, such as health, life, auto, and property insurance, offer protection against various risks. Ensure adequate coverage based on your specific circumstances.

Other risk management strategies include creating an emergency fund and building your nest egg.

Understanding Financial Products And Concepts

Strengthen your knowledge of various financial products, from simple savings accounts to complex derivatives. You should also be familiar with basic concepts, such as compound interest, inflation, and taxation.

This knowledge ensures you can navigate the financial landscape, making informed decisions aligning with your goals and risk tolerance.

Strategies For Improving Your Financial Literacy

Self-Study And Online Resources

Numerous online platforms, websites, and apps offer courses, articles, tutorials, and tools related to financial education.

From understanding the basics of budgeting to diving deep into investment strategies, you can pace your learning based on your comfort and needs. Podcasts, webinars, and video tutorials offer diverse formats catering to different learning styles.

However, it is essential to ensure that the sources of information are credible and up-to-date.

Accessing Formal Education And Awareness Programs

The foundation of financial literacy often begins with structured education. Schools, colleges, and universities offer basic money management, economics, and personal finance courses.

Beyond formal education, governments or financial institutions initiate awareness programs that target specific demographics, such as low-income families or senior citizens.

Nonprofits, such as the Financial Literacy Coalition, also provide resources to promote financial education. Maximize these resources to Excellerate yourself.

Seeking Professional Advice

Financial advisors, planners, and counselors bring expertise and experience. They can offer personalized advice, considering your financial situation, goals, and risk tolerance.

Whether planning for retirement, investing in the stock market, or buying a home, professional advisors can help you navigate complex decisions. Moreover, as financial landscapes evolve, professionals can provide updated insights, ensuring you stay ahead.

Networking And Learning From Peers

There is immense value in shared experiences. Networking with peers, whether informally or through structured groups, can offer fresh financial management perspectives. Hearing about others’ financial successes and challenges can provide practical insights and lessons.

Moreover, peer discussions can lead you to new financial tools, products, or strategies you might not have encountered otherwise. In a world where financial trends and products evolve rapidly, staying connected with a network can keep you updated and informed.

Conclusion

Financial literacy is an indispensable skill in today’s world. Beyond financial health, it empowers individuals, reduces stress, and fosters a sense of security. It involves budgeting, savings, investments, retirement planning, debt and risk management, and understanding financial products and concepts.

You can Excellerate your financial literacy through self-study, formal education, seeking professional advice, and networking with peers.