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!