New IRS Changes for Retirement Plans in 2019

The IRS announced last month in November cost-of-living adjustments to limits on contributions to retirement plans for 2019. There hasn’t been an increase in some plan types since 2013, which is why now is a great time to take advantage of maximizing retirement contributions. According to a 2017 FINRA study,10% of American retirement savers are contributing the maximum allowed, are you? Here’s the breakdown of the 2019 IRS changes for retirement plans:

2019 IRS Retirement Plan Changes

401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan will rise to $19,000 next year, up from $18,500 in 2018.

IRA contributions (Pre-Tax, Roth, or a combo) rose to $6,000 from $5,500, the limit that has been in place since 2013.

Catch-up contribution limits if you’re 50 or older in 2019 remains unchanged at $6,000 for workplace plans and $1,000 for IRAs.

SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019, based on the amount they can contribute as an employer, as a percentage of their salary. The compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.

SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000

Defined Benefit Plans goes up from $220,000 in 2018 to $225,000 in 2019.

Deductible IRA Phase-Outs for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019.

Roth IRA Phase-Outs for taxpayers making Roth IRA contributions is $193,000 to $203,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $122,000 to $137,000.

If you aren’t contributing the maximum into these types of retirement accounts you can increase what you’re contributing overall. If you have questions about these increases or want meet regarding your overall saving and investing, now is the time to plan for 2019.

Financial Advisor Continuing Education

Continuing Ed: Helping Create Quality Financial Advisors

Continuing education helps financial advisors stay informed of the latest industry and regulation changes while educating them on products and solutions to help their clients. Taking continuing education classes helps them become better at their job, too! Providing quality service by having the product knowledge to present the right solution while following state laws and regulations, is the responsibility of both the advisor and the companies they represent. Continuing education helps to create a quality financial industry through knowledge.

Licenses Renew Every Two Years

Financial advisor licenses renew every two years if the advisor has completed all the continuing education required by their resident state. A financial advisor will lose their ability to advise and recommend financial products and lose their livelihood if they don’t meet their continuing education requirement. Insurance Commissioners in each state are tasked with ensuring advisors have maintained their education requirements and haven’t had any derogatory or legal claims against them. In addition, financial advisors are dually monitored and regulated by the SEC (Securities Exchange Commission)  and FINRA, depending on the advisor’s licensing.

Each state determines how many continuing education credits are required every two to four years and which classes are mandatory, such as 3 hours of ethics training currently required in all 50 states. Advisors that are licensed in multiple states must meet each state’s requirements in order to maintain that state’s license. For this reason, many states have streamlined their class offerings so that each class is approved for multiple-state licenses.

Financial Advisory Specialties

Some advisors have designations or areas of specialty that require them to take additional classes beyond the minimum required. These advisors provide advice in certain areas, offer unique services or financial products and select their classes based on their specialty.

Throughout a financial advisor’s career they take many continuing education classes to help them stay current and advise their clients in the best way possible. If you have questions regarding my special areas of focus or education classes I’ve taken, feel free to ask.

Your ‘To-Do’ List: Schedule a Fall Financial Review

Scheduling a fall financial review is especially important this year due to the Tax and Jobs Act and impending market changes. We’ve been enjoying a robust stock market which makes now a prime time to meet. Fall tends to be when people start thinking about next year and what they want to accomplish financially by reviewing the following:

Your Financial Plan- People with a written financial plan are more likely to follow it when they work with their advisor and monitor the plan’s recommendations throughout the year. If you don’t have one, it’s time to have one done now. Having a financial plan puts you in a better position to start on your plan immediately at the beginning of 2019.

How the Tax and Jobs Act May Impact Your Investments- Along with your tax professional, I may suggest extra contributions into your pre-tax accounts before the end of this year or converting pre-tax investments to after-tax investments. With the income ranges for tax bracket changed for 2018, you still have time to make some strategic changes before the end of the year if you are on the upside of a higher tax bracket. Receiving a Bonus at the end of the year can impact this if you’re trying to keep your taxable income lower and stay in the same tax bracket.

Planning for Next Year- Starting the New Year strong with a financial plan in place after a fall review puts you in a better position to start your plan immediately at the beginning of next year.  People with a written financial plan are more likely to follow the plan when they work with their advisor and can monitor recommendations throughout the year.

Reviewing This Year’s Investment Performance- Reviewing fund and stock performance over 2018 helps us assess what changes are necessary for next year in your portfolio.  At some time the bull market will come to an end, which is why planning for underperformance is critical. If your investments didn’t perform to your expectations it’s time we evaluate your portfolio.

College Planning Isn’t Just About 529 Plans

There is a growing trend in college planning where families hire an Independent Education Counselor (IEC) to help plan, execute strategies for the ACT or SAT testing and assist in applying to college in hopes of being accepted. IECs start working with families as early as the eighth grade if the family is considering an ivy-league school or grooming the child for a scholarship academics or sports. The earlier the agreement with the IEC starts, the more expensive the college preplanning costs. Unfortunately, preplanning costs are not a qualified expense under a 529 plan as of today.

Most families choose to work with an IEC when the child is a high school junior or senior due to a lack of college counseling in high school. IECs help guide families through the process of determining which college is the best value for the profession the child is considering.  For some professions graduating from an ivy-league school does lead to higher incomes, but for most graduating from an academically competitive school is what determines higher earnings.

A second benefit an IEC provides is that they get to know the child to help determine which colleges will help the young student succeed and graduate. For students paying for college on their own or using financial aid, the student loan process can be confusing. IECs provide counseling on loan options and assist with loan applications.  Additionally, they work with the student on managing their personal spending and their loan money hoping to avoid the spending problems as many young students without financial counseling tend to do.

If you have a desire to discuss setting up a college savings plan for your child or grandchild we welcome your inquiry as it’s never too late to start saving.

Do You Understand Your Employee Benefits?

As we approach the end of 2018 many employers are scheduling their benefits meeting requiring you to select yours before the end of the year. Not all benefit options are the same and understanding each is crucial to making an informed decision. Ask your HR department or the advisor or agent representing the benefit what you don’t understand or ask them to provide you additional information prior to the benefits selection deadline. Many insurance and health benefits don’t allow you to change them once selected. However, employer-sponsored retirement plans allow you to select different funds, rebalance and change payroll contributions at any time  per federal law.

Retirement Plan Options & Employer Match. You may have multiple choices of providers or funds available for you to choose from. Not all employer retirement plan providers provide assistance on fund selection or on-going advice. I can help you with the following:

  • Determining how the retirement plan fund options fit your risk profile
  • Including your company retirement plan assets in your financial plan
  • Monitoring the fund options and offer guidance on rebalancing
  • Rolling over your former employers plan into an IRA

Employer-Sponsored Life Insurance. Life insurance is the most inexpensive way to add protection to your family and your assets if you die. Employer life insurance plans ‘group’ you with other employees to reduce the cost of the insurance. Many times there is a need for additional life insurance outside of their employer plan since the death benefit is usually limited and based on your income. Questions to ask:

  • Is this life insurance portable if I leave?
  • Will I still be insured after age 65 (some plans drop you after this age) if I’m still employed?
  • Can I add more insurance or am I committed to a certain death benefit amount?
  • Can I insure other members of my family?
  • Death can cause the early liquidation of assets if there isn’t adequate life insurance.

Employer-Sponsored Disability Insurance. Not being able to work due to injury can quickly deplete financial assets. Disability insurance replaces lost income from a short-term injury or disability or a permanent disability. Social Security Disability benefits won’t replace 100% of your income. Purchasing additional disability insurance coverage is a good idea if you’re in your prime earning years. Ask, so you understand:

  • Is disability insurance is underwritten based on my profession, age, and my possible risk of injury at work?
  • If I take Social Security Disability Benefits if I’m injured, is my Social Security Retirement Benefit reduced or eliminated in retirement?

Employer-Sponsored Health Insurance Solutions. Your company may provide you with health insurance choices that you are unable to modify. Ask your insurance provider:

  • Are there additional coverage choices for vision, dental, wellness, or indemnity insurance coverage based on my job role?
  • Can I customize a health insurance plan based on my specific needs?
  • Can I insure additional family members?

Part of asset protection is having insurance coverage in place so that you don’t have to prematurely liquidate personal savings, investment accounts or retirement accounts. I am here to assist you in any way I can with the information you’re being provided regarding your employee benefits.

Calling All Investor Types

Some investors are the do it yourself type and manage their accounts with minimal assistance from a financial advisor.  Other people are eager to have an advisor manage their investments for them.  Whatever type of investor you are, no single investor knows everything about the stock market.  Even from time to time, knowledgeable investors ask for advice.

Working with a financial advisor can benefit both types of investors.  An advisor is a resource for what you may not know about your investments, other types of investments or additional information you may need to make an informed decision.  Working with an advisor doesn’t mean you have to hand over control of your finances.  Always be upfront about you expect from working with an advisor.  Open communication is essential for both parties to understand what the preferred way for you to receive investment advice.

The best way to avoid problems is to understand what type of investor you are through your investor profile.  Your Investor Profile or style is determined by:

Objective Traits – Personal or social traits such as gender, age, income, family, even tax situation

Subjective Attitudes – Part of the emotions and beliefs you have

Balancing Risk vs. Reward – Are you able to tolerate more significant risk to have a greater reward or prefer less risk and are content with a reasonable return?

Area of Focus – The types of investments (ex. stocks, bonds) and sectors of investments (ex. Technology) in your portfolio.

Investment Strategies – Help to shape your investor profile by the types of investing you prefer (ex. ethical, growth, index)

Valuation Methods – Help to develop your investor profile through valuation methods (ex. Fundamental analysis, technical analysis, quantitative analysis).

I can help you with specific accounts, or help with your entire portfolio.  It’s really up to you, and you always have choices.

Tariffs and Trade Wars: The Impact into Q3

After months of verbal threats between the EU, China and the US, tariffs, and counter-tariffs started in July 2018, leaving American consumers and investors wondering how much of an impact it will have on them.  Already three months into the trade war, consumers are not swaying from buying imports despite the increasing costs.  In July, the US Trade Deficit increased to $50.1 billion, a 9.6 percent increase from the previous month (according to the U.S. Census) while imports increased .9% to a record $261.2 billion, proving that Americans’ demand for imports remains strong.  August’s data is expected to be out the first week of October and indications are it will be higher than the July’s. It’s notable that the EU and China exported the most goods into the US of any of the trade partners during this time.

What will the impact be as the tariffs continue?  Increased costs of goods (including food, clothing and other necessities) may cause households to have the less discretionary cash to spend on other items considered non-essential, such as electronics, entertainment, automobiles or even events.  If costs continue to rise, Americans may eventually choose to not spend on goods produced in the United States either.

The counter-tariffs imposed to hurt foreign buyers will impact American companies, farmers and workers, and eventually overall company profits as countries impose their tariffs on US goods.  Many retirement savings accounts invest in US-based companies which may see decreased earnings and share values as tariffs apply to their products.  Eventually, this could reflect in the account values of American investors. Retaliation has started from other countries by the US being left out of new trade agreements as the current administration considers pulling out of the World Trade Organization.

Despite the tariffs and trade war, it is positive that the American economy has remained strong  throughout the latest quarter.

Because we are in the early stages of the trade war economists are unable to predict how prices and portfolios will fare in the future.  The trade war landscape is changing day-by-day which is why now may be a good time to review your portfolio if you have concerns.

The Great Wealth Transfer

Over the next twenty years, there will be a wealth transfer that exceeds $30 trillion as the Baby Boomer generation passes the remainder of their wealth to the Millennials and subsequent generations.  The Baby Boomers (born 1946-1964) are considered the wealthiest generation, currently controlling 70% of all the disposable income in the United States. Its imperative families develop a plan to transfer assets since the transfer of wealth is inevitable.  For most families, the transferring wealth was acquired during this lifetime and not inherited from the previous generation.

When starting to plan for wealth transfer pre-retirees should prepare for their retirement first, healthcare costs second, and the remaining transferring assets last.  Although some individuals choose not to involve their family members that will become the beneficiaries of their assets, including qualified tax and legal professionals are important.  But don’t write off including your heirs in all aspects of wealth transfer planning if you’d like more than just one generation to benefit.

Preparing your heirs to take over your estate eventually passing their remaining assets on to their beneficiaries is equally important.  Heirs that are unprepared in managing money, investments or seeking financial guidance from qualified professionals seldom have enough inheritance left over for their heirs.  Some families choose to ‘train’ heirs by teaching how to wisely invest so they can give some away through philanthropy.  Without financial education, frequent investment decision making and a purpose to preserve the inherited wealth, many estate transfers rarely survive.  The complexities of wealth preservation are not taught in school or other institutions and can only demonstrate through modeling, professional guidance, and the generation’s intention to pass their wealth forward.

If the generation set to inherit from the Baby Boomers does a good job preserving what they inherit, it’s possible it could easily provide financial benefits to others for the next thirty to forty years.  And that’s worth planning.

As financial advisors, we spend a lot of time preparing for building wealth, but not passing it on to subsequent generations.  If you would like guidance on The Great Wealth Transfer and my working with your beneficiaries, I welcome a meeting with all of you.

End of Year Money Moves

It’s that time of year again; kids go back to school, the election season is near, fall holiday planning starts, and suddenly we all move closer to the end of 2018.   As we approach the last quarter of the year, remember these ‘money moves’ that you still have time to make:

  1.  Add to Your 401K.  Now is the time to make additional contributions if you are not already maximizing.  Some companies include bonuses in the last paycheck of the year.  Consider giving yourself the ‘gift’ of the bonus down the road with a higher balance retirement account.
  2. Rebalance Your Investment Accounts.  Meet with me to rebalance your accounts and reassess your financial plan with updated information.
  3. Check Your Budget.  Analyze saving and spending, and readjust if necessary.  Finish this year by updating your budget to start next year with a spending plan.
  4. Make Purchases With Cash.  If you spend on holiday gifts, plan to pay with cash (or debit cards) and keep credit card balances low.  Cash purchases are often less than credit purchases per item.
  5. Meet With Your Tax Professional.  Discussing options to off-set taxes you will need to pay for 2018 can save you money.  It’s better to be prepared and have time to make some changes then be ‘shocked’ at filing time.  This year will see the Tax Cuts and Jobs Act takes effect in full force.
  6. Complete a New Risk Assessment and Financial Plan.  If you haven’t done either of these in a few years, now is the time to update all information and update your financial plan.

Regardless of how busy you may be at the end of the year, procrastination can hurt your progress toward your goals.  Financial planning is for everyone irrespective of age or income and is about your financial situation today so that you can plan for your financial future.

I highly recommend doing these simple steps before 2018 is over and look forward to working with you.

Contact a Financial Advisor in Las Vegas.

Why it ‘Pays to Be Nice’ When Divorcing

Divorce is a common occurrence in the US, with 50% of all first marriages ending in divorce. According to the American Psychological Society, that is even higher for those marrying a second time.  Marriages end for many reasons from infidelity, stress, personality changes, and financial.  They are not only devastating to the children and extended family but devastating to your assets and ability to accumulate future assets. Divorce requires assets to be divided, attorneys to receive payments (on-going sometimes), and the divorcing couple soon finds themselves having to live on less to make ends meet.  Studies find that the divorced spouses need more than a 30% increase in their income to maintain the same standard of living they had before divorcing.

When emotions come into play, divorces often turn into battles to take assets, leaving a financial battle scar on the other spouse.  Divorce doesn’t have to be this way. Uncontested divorces cost hundreds of dollars, whereas divorces taking months or even years can end up costing thousands of dollars- usually paid from the settlement of assets.  The cost of ending a marriage, having to live on less, and decreased income (for those paying alimony or child support) from becoming a single-earner household, can make divorce almost as destructive to your retirement savings as the Great Recession was.  Aside from the above reasons, retirement assets are usually divided to ‘equalize’ the retirement savings of each spouse.

When marriages are going well, couples participate together in financial planning, developing personal budgets, and savings and spending plans.  The same should happen when anticipating a divorce, during divorce proceedings, and after the marriage ends.  Financial advisors are in a position to discuss with both spouses (at the same meeting if amicable) the effects of fighting over assets, a plan to maintain retirement savings going forward, and keep the couple on track to retire as planned.  If solutions can happen without fighting between attorneys, the couple stands to win by ‘playing nice,’ saving what they worked so hard to achieve before the marriage fell apart.  The impending divorce now becomes ‘business,’ but understanding what you want and why can have positive financial outcomes for both parties.

Financial advisors can’t provide legal advice when it comes to divorce but can provide financial guidance regarding the liquidating of assets, effects on retirement accounts and future retirement savings, budgeting for a single-earner household, and other economic questions you may have.  During this time joint investment accounts, personal investment accounts, and all financial records must be disclosed to the other party.  Our Financial Advisory office will remain impartial as we view each client as vital while we continue advising both of you.

Donor-Advised Funds: A Solution to Itemized Deductions Loss While ‘Doing Good’

For families who previously used itemized deductions for charitable giving when filing their taxes, The Tax Cuts and Jobs Act (TCJA) will remove this benefit, resulting in default to the standard deduction for their 2018 filing.  This effects a household choosing to use charitable giving as a tax deduction, increasing the tax cost to them by 7%.  The change has charities anticipating that donations may be down since the new act is likely to discourage charitable giving.  TCJA also caps state and local tax deductions.  The act of giving to better society is the prime reason many families choose to donate; the tax deduction is a bonus.

There is a solution to the tax benefits of giving through Donor-Advised Funds (DAF)s.  Donor-Advised Funds allow the donor to bunch more substantial contributions together instead of making yearly contributions, helping to push their itemized deductions above the standard deduction level.  Some features of DAFs:

  • Most or all of the DAF contribution is tax-deductible when moving money into it at the time its set up.
  •  The DAF doesn’t need to indicate the charity
  •  The DAF allows for multiple charities to benefit, not just one as required when setting up a foundation.
  • If invested effectively, the funds can grow tax-free, resulting in considerable donations later.
  •  Donations from the fund issue as ‘grants’ to a charity, or multiple charities

Critics of DAFs argue that in extreme cases, donors don’t have to distribute money to charities until their death.  They also feel that if one wants to donate, they should without a DAF, and not in a way that creates more expense.  However, for those that do donate, DAFs ensure not only a tax benefit but a human benefit as well.

DAFs allow the donor to make contributions from their IRAs (donor must be over 70 ½ years old), up to $100,000 per year to charity.  DAFs can satisfy the required minimum distribution (RMD) from IRAs, but can’t accept contributions from a 401(k) account.  The IRS has guidelines on DAFs to follow, or consult your tax professional for the latest changes.

If you have questions on DAFs and how they may fit into your charitable giving plan we welcome your inquiry.  DAFs are an integral part of giving to help make the world a better place.

The Value of Planning for Life’s Messes

Planning is valuable for many reasons and helps to ‘normalize’ things when you find yourself in the middle of an unexpected life event.  A death, a critical illness, job loss, new family member, an inheritance, divorce, or a catastrophic event that can cause a major financial detour.  How you plan will help determine how you survive and normalize after these events.

Planning can be as simple as making sure you have the right insurance coverage, from personal insurance such as medical and critical illness insurance, property insurance and an emergency fund.  All insurance is to offset risk, cover expenses, and to protect other assets such as retirement accounts that you’ve accumulated.  An additional item is to have a will in case something happens to you so that your loved ones carry out your wishes.

Some people consider financial planning to include risks that are health related.  If you or a family member had a major medical event or condition, would you have the financial assets to cover all the expenses and cover your loss of income related to the medical event?  How would it impact your portfolio and ability to accumulate assets?  Which assets would you choose to liquidate first?

With life’s always changing events, planning for the unexpected when experiencing a significant life event is essential.  It is possible to run scenarios within a financial plan to see outcomes of specific circumstances and how they may impact you.  If you get detoured by an event or wrong investment decision, planning can help you to recover quickly to a ‘new normal.’  Life can be messy and what you do now will make the difference in what may happen later.  No one can predict the future, but it helps to prepare ourselves now as much as we can.

If you would like to visit regarding planning for potential risks and how it may impact your portfolio, please contact our office.

Fiduciary Financial Advice

One thing that has plagued the financial services industry is ‘trust’ of the industry.  Unfortunately, there are many reasons that some people have developed a distrust of financial companies and the individuals that work for them.  It may be due to the media, entertainment (movies), or a personal situation that has happened in the past.  When advisors work with clients, they take on the role of a Fiduciary, which involves acting in the best interest of all clients. Serving as a fiduciary helps clients reach their financial goals.

Working within our business model, we take ‘fiduciary relationships’ seriously.  A ‘Fiduciary’ is a company or a person who holds a legal or ethical relationship of trust with one or more parties (person or group of people).  A Fiduciary has a legal responsibility to take care of money or other assets for another individual.  Part of being a fiduciary and working with clients involves transparency, full disclosure, and 24/7 access for clients to have all relevant information regarding their assets at any time.  It also includes giving clients information that advisors have access to prior to making an investment decision.

Part of the ‘distrust’ that has plagued the industry can be summed up with the storylines of two movies, The Big Short and The Wolf of Wall Street,in which clients are taken advantage of for a ‘salesman’ to profit.  Unfortunately, this happens in real life when there is no disclosure and no ‘fiduciary standard’ enforced at the firm, or by the individuals working for the firm.

Our processes are client-centric, and based on a conflict-free financial advice model.   We welcome your inquiry, as well as you questioning and understanding our advice as we work with you.

Why the Technology (and Person) Managing Your Money Matters

Money and technology are so closely related that if a financial advisor isn’t employing the latest technology, how will it equate to risk for you and your money?  When it comes to managing your money, you expect your financial advisor to have the best technology resources available to do the job.

Since the last recession, the financial services industry is leading the way in technology development, with healthcare second and other sectors closely following.  Among the new technologies, Artificial Intelligence (AI) and machine learning are in first place for the top development trend in financial services.  The acceptance of AI at large financial companies has still deemed a threat to the old system of money management, but continues to be widely accepted by established advisors (ages 35-44) even more so than advisors that are new to the industry.  New technology is helping clients and advisors to be more efficient in managing assets and their risk.

One of the new developments using AI is in behavioral finance software that determines client behaviors and their adversity to risk before selecting funds, ETFs and other assets to be managed inside portfolios.  No longer should selection be done manually when AI can search funds with precision based on client behavioral perimeters.  Without an assessment of client behaviors before market activity, potential losses may impact the client and be more difficult to recover.

When behavioral finance software combines with risk profiling, the assessment of misaligned investment choices can be overridden helping to build better portfolios based on scientific data and not solely on past performance.  Without behavioral considerations, misaligned investment choices aren’t just possible, but likely.

Investment managers must continuously upgrade their technology infrastructure  to keep up with client expectations and best practices to continually improve the client experience and make advisors better at their jobs.  While robo technology, or portfolio automation, continues to become an accepted part of the investment equation for younger clients with fewer assets, to clients transferring wealth to future generations, artificial intelligence and machine learning are the next great frontier.

The New Senior Safe Act: S$A Provides Immunity for Reporting

On May 24th, 2018 President Trump signed The New Senior Safe Act into federal law, encouraging financial professionals to report senior financial abuse.  Since financial advisors and bank employees are usually the first to witness clients making money withdraws that are not common, the law rewrites protocol and protection for those that report abuse.  The old law left loopholes citing ‘customer privacy’ when reporting to authorities the suspected fraud.  Bank employees and financial advisors had their ‘hands tied’ even if reporting was in the client’s best interest; previously reporting suspected financial abuse or fraud required obtaining the client’s permission to report it.

The new S$A Law  moves the reporting to the federal level, over-riding the 25 states that still have customer privacy laws preventing the financial professional or company from reporting without client consent.  Although not a mandate, the new law encourages and protects the individual reporting abuse or fraud from scrutiny or termination by their employer due to company client privacy rules.

To have protection under the new law, the financial company is required to have a training program that addresses identifying, documenting and reporting protocol. The new law is a positive step in protecting financial professionals and their employees as well as financial clients.  Since most seniors view their financial professional as someone they can trust, many disclose information about a person, transaction, or scam unknowingly to the professional, who now is in a position to help stop it.  Regular conversations with seniors about their finances may reveal abuse or concerns they have about a family member or friend asking for money.

The most common ways scammers get to seniors is through telemarketing (phone), the internet, or through personal contact of a stranger forming a new ‘friendship’ with the senior, or through their family member.  As people age, their ability to decipher fraud becomes less likely to happen, making them easier targets.

If you or someone you know has concerns they may be a victim of

Questions Every Investor Should Ask Their Advisor

Many investors evaluate not only their portfolio performance but also their relationship with their financial advisor from time to time.  Many times people base their evaluation of their advisor on their portfolio performance, but there are other components to consider.  Asking these questions can help you determine if you and your advisor are mutually aligned:

Question #1: Are you a fiduciary? 

A fiduciary has a legal and moral responsibility to take care of your assets and act in your best interest.  A fiduciary is a financial advisor (person) who receives compensation for the management of your assets and the financial advice they give.

Why is this important?  There is a critical distinction between being a steward of a client’s assets vs. pitching products to generate a sale.

Question #2: What fees do I pay?

There is no such thing as an investment that doesn’t cost you anything.  You should always ask so that you know what you’re paying for.

Fees that are a part of the assets under management include fund management fees, portfolio management or asset-based fees, platform fees, charges on commissions, trades, M&E fees, and rider fees.  All costs associated with your portfolio are dependent on where the funds sit.  We welcome your inquiry on what your specific fees are for each fund in your portfolio.

Question #3: How are you compensated, and by whom?

Advisor compensation can be very complicated when it involves commissions.  Many times there is compensation for advice as well that may not include commissions.  In reality, commissions are usually how an advisor makes their income, by selling you investment products. The commissions are paid to the advisor who sells you a product from the fund-company or broker-dealer; if they don’t sell you something they don’t get paid. 

Understanding advisor compensation is essential for determining an investment’s true cost.

Question #4: Where do my portfolio and investment recommendations originate at your firm?

Many times when you purchase investment products, the product itself sits with the broker-dealer or at the wirehouse.  Sometimes the firm, not the advisor, often is responsible for creating portfolios.  The recommendations advisors give you in these circumstances originate from the broker-dealer or wirehouse based on the portfolios they’ve designed.  There may be other recommendations or products that ensure the client’s portfolio meets their situation, timeline, or risk tolerance.

Question #5: Who handles my account?

Depending on your situation, your account may sit at a broker-dealer or with a wirehouse.  You may need to have one person assist you with one transaction while another helps you with something different if you rely on customer service if you don’t work directly with a financial advisor.

In other business models, the advisor will focus on specialties they each have.  They will help you because each client is a client of their firm.   You have access to each member of their team depending on your circumstances, which may change from time to time and require individualized help or advice.

Asking questions of your advisor is your right; after all, they work for you.  If you have questions about our relationship or your investments, please don’t hesitate to ask.

Financial Literacy: The Best Strategy for Preserving Wealth

How did you learn to manage money and understand the value of investing?  Did your parents relay to you what they knew about money or did you read books on budgeting and investing in figuring it out yourself?   The reality is that many of us did learn through trial and error.

An alarming statistic is that in the US only 14 states require a class in personal finance and 20 states require a class in economics to graduate from high school.  If you aren’t teaching your family about money management and investing, they aren’t getting it.  One of the ways families maintain wealth and pass it to future generations is through financial literacy. Financial education will preserve the wealth of the current generation and onward if you adopt it as part of your family’s legacy to educate versus becoming a statistic.

If you don’t consider yourself an expert in financial literacy, we would like to help take some pressure off of you.   Understanding how money works and learning to resist the temptation of spending more than one earns should start at an early age and be reinforced through the teen and college years.

Even children at a young age understand their purse or wallet being empty and not being able to buy a treat when they go to the store.  Not giving in when they have no money and purchasing it anyway doesn’t teach them anything.  Even in a crowded store with your child throwing a temper tantrum, some lessons will last their entire life, if you take the time to teach them.

How do you start the conversation with children?  By asking them what they think investing is, naming types of investments, and what they want to learn about money and investing.  Teaching concepts and terms related to investing, its importance, and managing their money is part of the conversation.  If you think about it, this is very similar to how we start the discussion with adults after our initial meeting; what do you know about investing, why is it important to you, and how should we invest so that you can live a more fulfilled life?

Focusing on the importance of math, giving the next generation a look into the world of investing starts with basic Finance 101; the bank accounts for spending and saving, brokerage accounts, and the ‘why’ behind investing.  Children don’t always equate that an investment can be anything from a house to a brokerage account being used to save for retirement.  If we give our children the basics of money management, we help them develop the best strategy to preserve their wealth, the wealth of their children, and so on.  There’s no better strategy to preserve wealth than financial education for this and the next generation.

Suitable Investments and You

suit·a·bil·i·ty:  The quality of being right or appropriate for a particular person, purpose, or situation.

The definition of suitability seems quite easy to understand and should be clear when it comes to investment recommendations to clients.  However, many times when clients come to our firm the investments they have are not suitable for them.  We base this conclusion on a set of objectives to consider.  Determining suitability includes an examination of the client’s demographics such as age, income, willingness to take on risk, and aversion to risk.  Additional factors include how long until the client liquidates the investment, likelihood of recovery from loss, and current financial health including personal debt, and tax considerations.  A suitable investment for a forty-five-year-old will look very different than an investment for someone entering retirement.

Only after getting to know our client through these objectives, or ‘facts’ can we start to develop an investment strategy.  Suitability is not always clear-cut and is often in flux.  What seems like a suitable investment one day can change with the correction of the stock market, suddenly becoming an unsuitable one.  For this reason, constant monitoring of investments coupled with performance and the ever-evolving circumstances of the client make suitability critical to an overall investment strategy.  We ask a lot of questions during our meetings for this reason.

The client has a crucial role in their suitability as investor knowledge and understanding come into play inside their portfolio.  However, this doesn’t that mean that if an investor understands the investment and all associated risks, is it a suitable one.  Unsuitable investments can ruin a portfolio and can be a source of on-going stress for the investor.  Our recommendations consider suitability, but for those investors that execute an investment on their initiatives outside our advice, there is not much the securities regulators, or we can do.  Advice and suitability must come first, asset allocation second, and the execution of the investment last as a continuous process.

Suitability is part of fiduciary standards.  We operate our business in this manner and are legally bound to recommend only suitable investments to our clients.

Tariffs, Trade Wars, and Your Investments

Since President Trump announced his intention to impose tariffs on all countries the stock market has been reacting-based on investor concerns in reaction to the media.   All indications at the time of this writing are that the tariffs would be applied to all countries, although that remains unknown.  This development has risen the speculation of a trade war with the US’s major trading partners including the EU, China, Canada, and Mexico. Trump has softened his stance by indicating that countries that treat the US fairly would get relief from the tariff, although that remains unknown.  A global market doesn’t avoid harm from the strategic targeting of tariffs; international fallout may follow.

But is the possibility of a trade war and tariffs on imports as dramatic as it sounds?  Consider that the relationship between the US and its trade partners is quite frankly, lopsided.  The US imports four times more than it exports to the trade partner countries.  Political retaliation from other countries toward the US can negatively impact imports coming into the US resulting in increased costs on items such as clothing, food, and lifestyle items such as electronics.  Agricultural exports will suffer additionally after experiencing a decline the past two years.  We can only assume we are in for a bumpy ride if this ‘tariff talk’ continues.

The US may stand to benefit from buying more goods from its own home-based companies if imports become too expensive.  Although certain imports are deemed necessary, such as food not grown in our climate, is a trade war stand-off enough to bulletproof the US economy?  For now, the trade war and tariff talk is merely a war of words as the proposed tariffs will not go into effect until June 2018.  Factors to consider:

  • Tariffs and trade wars typically lead to higher inflation and lower economic growth which has a negative impact on the markets.
  • While trade restrictions will create headwinds for the equity markets, ultimately it is high valuations that have a bigger long-term impact.
  • Inflation protection strategies should benefit from potentially higher inflation if this policy shift does materialize.
  • Limited duration of fixed income should buffer from rising rates driven by higher inflation caused by these policies.

These factors may not apply to all investors which is why we welcome your questions regarding your portfolio and how it may impact.

Personal Training Advice Style

For those of you that have ever hired a personal trainer–you know what that experience is all about.  The first day is the one that you will never forget because it was hard both physically and mentally.  You probably found out that you weren’t as strong as you thought you were or maybe that you didn’t prepare well enough.  But it made you stronger in the long run.

Working with a financial advisor, believe it or not, can be a similar experience.  It is common for most people to have some level of emotional duress when thinking about money.  The stress compounds when investors come seeking to break their bad investing habits or when they’re emotionally recovering from a bad experience with their former advisor or broker.  A financial advisor should work with you to correct mistakes made by offering on-going advice, as painful as it may be.

There are benefits to getting ‘personal training’ regarding your investments. By helping you break down bad habits and recover from poor financial relationships, your financial plan can be a form of ‘financial therapy. This sets you up for long-term prosperity that is more self-sustaining. In other words, you grow to be more empowered to manage your day-to-day finances.  Providing more strategic advice is often of higher value in the long-term.

Perhaps the most significant difference between an actual physical personal training and a financial advice personal training is the fact that we must listen to you more than a personal trainer ever would.  By us asking you the right questions and listening, you’re able to accurately reflect upon what went right or wrong in your previous financial relationships. This element of critical thinking is the personal training aspect that allows an investor to break down so they can be built back up with a financial plan.

The sting of financial pain can lead investors to a better place. The first step towards improving an investor’s well-being, however, is through asking questions and listening intently. This type of personal training sets the stage for financial empowerment and well-being for investors. Financial advisors experience divorce, death, business success (and failure), and personal growth from the front row seat of their clients’ lives, all by bringing each client through their training.

updating your portfolio annually

Why You Should Always Keep Your Beneficiaries up to Date

Now that tax season is done for the most part and everyone who could and wanted to contributed to their IRA’s for 2014 have completed that I would like to really focus on a piece that many of us overlook. Many of us are just so busy we forget to do the little things like make sure our beneficiaries are up to date. This is a big issue and can dramatically effect what your “plans” may have been or even cause additional tax issues for someone without knowing.

Just to give you a real example I had a colleague go through:

Mr. Smith (not his real name) had an old 401k that he left behind at his old employer (I never recommend this, for many reasons, I can go in to details at a later time). At the time, Mr. Smith was married Mary (not her real name) . Well eventually Mr. Smith and Mary get divorced. Mr. Smith remarries and marries a lady name Beth (not her real name). Mr. Smith died and when Beth went to claim his old 401k, to her surprise Mary was still named as beneficiary. Mr. Smith had even gone as far as having a Trust and Will so Beth thought there would be no issue. Here is where the problem arises. 401k are monitored by ERISA which has federal oversight. The clients trust and Will are drafted and valid in the state of residence for the most part. Federal law trumps State and local laws. As you can see, Beth was very disappointed and this was not the intention of Mr. Smith.

Let me help you review your portfolios but also make sure your beneficiaries are correct and up to date.

If you want to setup a consultation with Richard London CFP® or if you want more information on beneficiaries and portfolios, please call (702) 318-1376 today!

Advice on IRA Contribution for Las Vegas Residents

Richard London’s Quick Reminder About IRA Contributions

Just a reminder, this is IRA season and below are some key numbers to pay attention to.

For 2014, here is the max contribution limits:

Traditional IRA – $5,500 ($6,500 if you are 50 and older)

Roth IRA – $5,500 ($6,500 if you are 50 and older)

SEP IRA – $52,000 (is up to 25% of your total income or 20% of adjusted income, up to a maximum of $260,000 in income)

For some other information, max income for 2014 for social security wage base is $117,000.

There is some stipulations on whether or not your Traditional IRA contribution for 2014 is deductible. Please contact me to find out if you are able to contribute to your IRA by April 15th for a 2014 tax deduction. I can speak to your CPA to make sure your contribution makes sense.

For a consultation with Richard London CFP® or for more information on IRA contributions, please call (702) 318-1376 today!