financial advisors | Financial Planner | Retirement Planning | Korving & Company Suffolk & Virginia Beach

A good Registered Investment Advisor is a “Life Coach.”

People who are not familiar with Registered Investment Advisors (RIAs) too often view them as stock brokers. They are not; they are held to a higher standard and are focused on the client, not the money. RIAs are trusted advisors who put their clients ahead of themselves. They are fiduciaries that are skilled in the art making good financial decisions.

The Financial Advisor as a “Life Coach”

Younger professionals who are building careers would do well to find an RIA as their financial guru, a “Life Coach.” It takes time, experience, and a high level of expertise to manage money well. The young lack that expertise but have the biggest advantage of all: time. They are in a perfect position to build wealth with the least amount of effort if they can lean on experts who can show them how to navigate the risky ocean of investing. Just as important, they need a wise guide who can advise them on managing their income. Too many people, even those with six figure salaries, live paycheck to paycheck. Knowing what to spend and how to save is the role of the advisor.

a life coach can be found in a financial advisor.

This is very important for the independent professional – the doctor or lawyer. Focused on building a practice, they need someone to advise them on managing their money wisely.

For The Business Owner

For the business owner, the entrepreneur, it’s even more important. There is no career track and the challenge of building a business often results in poor money management. Excessive debt can lead to bankruptcy, a common result in many industries that depend on debt financing. A good advisor can help the business owner create a personal portfolio that’s independent of his business. At the same time he can advise the owner the best way of financing his growth.

Once the business is established the owner needs guidance setting up retirement and benefit plans for himself and his employees. This all part of the RIA’s skill set. And finally, as the business matures and the owner starts thinking of retirement, the advisor provides the guidance to transition the individual and his family to life beyond work.

That’s the point at which the coach gets the pleasure of knowing he’s done a good job as part of a winning team.

Conclusion

For more information on how a financial advisor can act as a coach for you, reach out to us through our contact page today.

Getting Financial Help

When people have financial questions, what do they look for? According to a recent survey most people are looking for someone with experience. We want to take advice from people who are familiar with the issues we face and know what to do about them. We all know people with experience, but financial problems, like medical problems, are personal. Most people we know would rather not go into detail about their personal finances with family or friends. They are more comfortable sitting down with a financial professional to discuss their finances, their debts, their financial concerns, and their financial goals in both the short and long term. Professionals will provide advice without being judgmental and are required by their code of ethics to keep your information confidential.

Once people find someone who has a track record of giving good, professional advice, they want personalized advice and “holistic” planning.

No two people have exactly the same problems. A good financial advisor listens attentively to learn the goals, the concerns and personal history of the people who come to him for advice.

People have specific issues and questions. For example: a couple, aged 39, is seeking advice about their path to retirement. They give their financial advisor a laundry list of their assets, their investments, their savings rate, their debts, and the ages of their children and ask if they should be doing something different or are they on the right path. That’s a very specific question and the advisor’s response is going to be personalized for them.

The plan that the advisor comes up with is going to involve much more than money. It’s going to take their personal characteristics into account. This includes personal experience with investing, their risk tolerance, and their closely held beliefs and ethical values. This is what is referred to as “holistic” planning; taking personal characteristics into consideration.

There is a fairly big difference in the advice sought by

“Millennials” (those born after 1980 and the first generation to come of age in the current century),
“Generation X” (the children of the Baby Boomers) and the
“Baby Boomers” (children of the soldiers returning from World War 2)

“Millenials” say that among their top three concerns are saving for a large expense such as a car or a wedding. Too many are saddled by debt acquired to pay for higher education and are finding that their degrees are not necessarily an entry into high paying professional jobs. Their next largest concerns are saving for their kids’ education and putting money aside for retirement.

“Generation X” is primarily focused on saving for retirement. They are married, own their own home and may have children in college. Concerns two and three are tax reduction and paying for their children’s education.

“Baby Boomers” have finally reached retirement age. More than a quarter million turn 65 each month. As a group they are a large and wealthy generation, but a vast number have not saved enough for a comfortable retirement. Many are forced to continue to work to supplement Social Security income. Their number one concern is the cost of health care. Concerns two and three are protecting their assets and having enough income for retirement. The three concerns for Baby Boomers are inter-connected. For many Boomers, Medicare helps them with the costs associated with most medical issues. However, as people live longer, there comes a time when they are unable to care for themselves and live independently. Long-term-care insurance was once believed to be the answer but insurance companies found that costs were much greater than anticipated. The result is that many insurers have stopped offering the policies and those remaining have hiked premiums beyond the ability of many to pay. The cost of long term care is so high that many Boomers are afraid that their savings will soon be exhausted if they are forced into assisted living facilities or nursing homes.

Each generation has its own problems and at a time when the world has gotten much more complicated. Getting experienced, personalized and holistic financial advice is more important than ever.

The Trouble with 401(k) Plans

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The 401(k) plan is now the primary retirement plan for employees in the private sector and Ted Benna isn’t happy. Benna is regarded as the “father” of the 401(k) plan but now he calls his child a “monster.”

There are several problems modern with 401(k) type plans.

They are too complicated. The typical 401(k) plan has dozens of investment options. These are often included to satisfy government regulatory demands for broad diversification. For the plan sponsor, who has a fiduciary responsibility, more is better. However, for the typical worker, this just creates confusion. He or she is not an expert in portfolio construction. Investment choices are often made when an employee gets a new job and there are other things that are more pressing than creating the perfect portfolio. Which leads to the second problem.

Employees are given too little information. Along with a list of funds available to the employee, the primary information provided is the past performance of the funds in the plan. However, we are constantly reminded that past performance is no guarantee of future results. But if past performance is the main thing that the employee goes by, he or she will often invest in high-flying funds that are likely to expose them to the highest risk, setting them up for losses when the market turns.

There are no in-house financial experts available to employees. Employee benefits departments are not equipped to provide guidance to their employees; that’s not their function. In fact, they are discouraged from providing any information beyond the list of investment options and on-line links to mutual fund prospectuses. Doing more exposes the company to liability if the employee becomes unhappy.

What’s the answer? Until there are major revisions to 401(k) plans, it’s up to the employee to get help. One answer is to meet with a financial advisor – an RIA – who is able and willing to accept the responsibility of providing advice and creating an appropriate portfolio using the options available in the plan. There will probably be a fee associated with this advice, but the result should be a portfolio that reflects the employee’s financial goals and risk tolerance.

Single Women Investment Resources

Women are in charge of more than half of the investable assets in this country. A recent Business Insider article claims that women now control 51% of U.S. wealth worth $14 trillion, a number that’s expected to grow to $22 trillion by 2020.

Single women, whether divorced, widowed, or never married, have been a significant part of our clientele since our founding. Widows that come to us appreciate that we listen and take time to educate them, especially if their spouses managed the family finances. Once their initial concerns are alleviated they’re often terrific investors because they are able to take a long-term view and don’t let short-term issues rattle them very much.

Unfortunately, we have had women complain to us that other advisors that they’ve had in the past did not want to discuss the details of their investments and the strategy employed. Other women have come to us with portfolios that were devastated by inadequate diversification.

Our female clients are intelligent adults who hire us to do our best for them so that they can focus on the things that are important to them. We are always happy to get into as much detail on their portfolios as they require. Our focus on education, communication, diversification and risk control has led to a large and growing core of women investors, many of whom have been with us for decades.

Our book, BEFORE I GO, and the accompanying BEFORE I GO WORKBOOK, is a must-have for women who are with a spouse that handles the family finances. Men who have always handled the family finances should also grab a copy and fill out the workbook. If something were to happen to them, it would be a tremendous relief to their spouse to have such a resource when taking over the financial duties.

Questions to ask when interviewing a financial advisor

A previous post referred to an excellent article on CNBC about financial advisors . You first have to consider what kind of financial advice you want or need.

Once you determine the kind of advice you’re looking for, here are some key questions to ask when interviewing the financial advisor.

What are the services I am hiring you to perform?
What are your conflicts of interest?
Identify for me all of the ways you or your firm are compensated by me or by any other party in connection with services rendered to me or my assets.
Do you have a fiduciary duty to act in my best interests?
Describe your insurance coverage.

We’ll add a few more of our own:

What is your investment philosophy?
Do you do your own investing or do you use outside firms?
What kind of experience do you have?
Are your other clients similar to me?

If you don’t get straight-forward answers to these questions, go on to your next candidate.

Is your money going in the right direction?

An acquaintance recently asked me how his money should be invested. With banks paying virtually zero on savings, it’s a question on everyone’s mind. Should he invest in stocks or bonds? If it’s stocks, what kind: Growth, Value, Small Cap or Large Cap, U.S. or Foreign? The same can be asked of bonds: government or corporate, high yield or AAA, taxable of tax free? That’s a question that faces many people who have money to invest but are not sure of where.

It’s a dilemma because we can’t be sure what the future holds. Is this the time to put money into stocks or will the market go down? If we invest in bonds will interest rates go up … or down? How about investing in some of those Asian “Tigers” where economic growth has been higher than in more developed countries?

There is no perfect answer. We are not gifted with the ability to read the future. And what is this “future” anyway? Next week? Next year? Or 20 years from now when we will need the money for retirement?

We know that generally, people who own companies usually make more money that people put their money in the bank. Another word for “people who own companies” is “stockholders.” That’s why, over the long term, stockholders do better than bondholders. On the other hand, bonds produce income and are generally lower risk than stocks. So my first answer to the question I was asked is: invest in both stocks and bonds.

Choosing the right stocks and bonds is a job that is best left to professionals. That’s the benefit of mutual funds. Mutual funds pool the money of many investors to create professionally managed portfolios of stocks and bonds. They are an easy way of creating the kind of diversification that is important for reducing risk.

To circle back to the original question our friend asked: the answer is to create a well diversified portfolio. We know that some of the time stocks will do better than bonds, and vice versa. We know that some of the time foreign markets outperform the U.S. market. We know that some the time Growth stocks will do better than Value stocks. We just don’t know when. So we select the best funds in each category and measure the over-all result. With so many funds to choose from, the smart investor will get help from a Registered Investment Advisor like the folks at Korving & Company.

Call us for more details.

How does your financial advisor get paid?

No one expects their professional service provider to give their services away for free. Doctors don’t, lawyers don’t, CPAs don’t nor do financial advisors. However, in the financial services industry often what you actually pay is not clear.

Cerulli Associates surveyed investors and found that most investors wanted to understand how their advisors were getting paid. They wanted “transparency.”

“Helping investors understand the full extent of an advisor’s potential revenue streams has been a persistent challenge for both advice providers and advisors, and has become even more complicated with the ongoing evolution of integrated wealth management conglomerates,” Smith explains.
“The financial industry was built around the premise that investors understand the fees they pay and sign documents affirming their awareness,” Smith continues. “Cerulli’s research indicates that investors who truly comprehend the entirety of their costs are more the exception than the rule. The overall expenses of pooled investment vehicles, including management fees and other embedded fees such as 12b-1s, are essentially nonexistent to many investors-if they do not see a line item deduction from their accounts, they do not recognize a transfer of wealth from themselves to their advisor or provider.”

Even that last sentence can add to the confusion if you aren’t very familiar with the terminology of the investment industry, with terms like “pooled investment vehicles,” “embedded fees,” and “12b-1s.” To better understand how (and from where) financial advisors are paid, here’s a brief list:

• “Commissions:” when you buy of sell a stock, bond, or fund, you pay the broker a commission. This also applies to insurance products such as life insurance and annuities. Broker commission formulas for stocks are often based upon the stock’s price and trading volume. Commissions for insurance products and annuities are generally a fixed percentage of the size of the policy being sold, but they can be as high as 10{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}-15{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} for some products. Commissions for bonds are discussed below.

• “Mark-up” or “mark-down:” this typically applies to the purchase or sale of bonds, and is the difference between the market price of a bond and what an investment firm offers an investor. In other words, it is the difference between what the bond is actually worth and what you can buy or sell it for. The mark-up or mark-down formula is based upon the number of bonds being bought or sold, their price and their bond rating.

• “Load:” a sales charge that is assessed when purchasing a mutual fund. Some load fees are charged up front (referred to as a “front end load,” often seen with A share class mutual funds bought or sold via a broker), when sold (referred to as a “back-end load,” often seen with B share class mutual funds bought or sold via a broker), or as long as the fund is held (referred to as a “level load,” often seen with C share class mutual funds bought or sold via a broker). The load you pay is passed along to the broker. Front end loads are usually between 3{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} – 8{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}, with 5{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} being fairly typical. Back end loads are the most confusing, and (thankfully) are being eliminated by many fund companies. In very general terms (for the sake of this article), they don’t charge you a front end load, but if you want to sell the fund within 5 or 6 years of purchasing the fund, they will hit you with a fee (called a “deferred sales charge”) of between 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} – 5{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}, depending on how soon you sell it (with the higher fee coming the earlier you sell it). Oh, and on top of that, they typically also charge you a 12b-1 fee (discussed next) of 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}. Level loads typically don’t charge a front end load or a back end load, but they do maintain a 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} 12b-1 fee for as long as you own the fund.

• “12b-1 fee:” an annual fee, usually 0.25{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}, paid by the mutual fund to the broker to help the fund market its products. It’s often referred to a “trailer.” As mentioned above, for B and C share class mutual funds, this fee is typically a much higher 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}.

• “Management fee:” this is the fee that an investment manager charges for creating and managing a portfolio of securities.

A “Fee Only” investment advisor’s only compensation is the management fee. This eliminates the conflict of interest inherent in the other types of compensation such as commissions, loads and trailers. It provides an incentive for the Fee Only advisor to shop for the lowest cost investment products for his clients.

Avoid These Common Retirement Account Rollover Mistakes

If you are one of the people who are uncertain of the basic financial steps to take when you retire, you are not alone. Author and public speaker Ed Slott recently recounted how little most people really know about what to do with their 401(k)s, IRAs and other retirement assets when it comes time to leave work.

Most people do not know what to do with their retirement plans (commonly referred to with obscure names like 401(k), 403(b), 457, and TSP) once they retire. Many people simply leave the plan with their former employer because they don’t know what else to do. But that could end up being a mistake. Others know they can roll their plan into a Rollover IRA, but are not aware that if they don’t do it exactly right, they could be faced with a big tax bill.

Handling IRAs is often fraught with danger. There is a big difference between a rollover and a direct transfer. Rollovers are distributions from a retirement plan. Sometimes they are paid directly to you via check. You then have 60 days to move the assets into a new IRA or you will be taxed. If the rollover is paid directly to you, it is customary to have 20% automatically withheld for taxes. Counter-intuitively, you have to replace the 20% withholding when you fund the new IRA or that amount will be considered a taxable distribution and you will owe tax on the amount withheld. You can only make one rollover per 12 month period. If you make more than one rollover per year, you will be taxed.

A direct transfer is one where your IRA assets are moved from one custodian to another without passing through your hands. Under current law you can make as many direct transfers per year without triggering a tax penalty and there is no withholding.

When you are retired and reach the age of 70 ½, you will encounter Required Minimum Distributions. If these are not handled correctly, they can trigger huge tax consequences. If an individual fails to take out the Required Minimum Distribution (RMD) from a retirement plan, there is a 50 percent penalty tax on the shortfall.

Even many people in the investment industry do not understand the rules well. Slott notes that many financial companies do not provide advice on these topics because they are so focused on accumulating assets that they do not train their advisors on “decumulation.” Decumulation is a term that applies to retirees once they begin to take money from their retirement plans to supplement their other income sources.

“Every time the IRA or 401(k) money is touched, it’s like an eggshell; you break it and it’s over…. You mess up with a rollover and you can lose an IRA.”

Retirement is a time when people want to relax and pursue their leisure activities. Unfortunately, the rules actually get even more complicated. Make sure that you take time to learn the rules, or find a professional that does, before you move money from a retirement account.

Women and Financial Advice

Glass ceilings continue to be broken! Two women are currently vying for the office of President of the United States. More women are attending college than men, and those women are graduating in larger numbers. Affluent women are handling more money than ever before and are becoming their families’ primary breadwinner in increasing numbers.

Women are willing and able to hire financial advisors. However, according to a number of studies, many women are unhappy with their financial advisors because of disrespectful and condescending attitudes from many in the advisor community.

Many women do not feel they are getting what they need or want because their advisors don’t listen. Women don’t necessarily need different or unique investments. But they do want to have more detailed conversations about their goals and their concerns. Women want a “deep, meaningful advisor relationship” according to one major research study of affluent women. Women are generally more willing to share their personal information and concerns. These things actually allow financial advisors to do a better job! For instance, women who have family members battling medical problems or drug addiction may find that these issues can have long-term financial implications on themselves and their families.

These women owe it to themselves and their families to interview a number of financial advisors until they find the right fit, depending on what they value most. We work with a large number of affluent women clients. Generally these women value that we listen to truly understand their aspirations, concerns, and fears; come up with solutions that address those issues; continuously monitor and manage of their portfolios; and provide proactive outreach.

Setting Realistic Financial Goals

How realistic are your goals? Some people work hard and exceeded the goals they had when they were young. Others find their goals forever out of reach. For example, most people want to retire in their mid-sixties. That’s a goal, but is it realistic? Are they going to have a pension when they retire and, if so, how much is it? When are they going to apply for Social Security, and how much are they going to get? Will they need a retirement nest egg, and how much will be in it?

Career choices will have a big impact on these answers. A financial plan will also provide many of these answers. But a plan is only as good as the assumptions we put into it. As the old saying goes: “Garbage in, garbage out.”

The rate of return you get on the money you put aside has a huge impact on whether you reach your goals. Studies have shown that many people have an unrealistic expectation of the returns they can expect on their savings and investments. With interest rates near zero percent, putting your money in the bank is actually a losing proposition after taxes and inflation. Investing in the stock and bond markets may lead to higher returns. But the long-term returns that many people assume they can get often leads to taking unreasonable risks.

There is nothing wrong with having high goals. The best way to check to see if your goals are high, but attainable, is to talk to a fee only financial advisor. Preferably one that is a CERTIFIED FINANCIAL PLANNER™. They have the experience and the expertise to let you know if your goals are reasonable and what you can do to reach them.

Lifestyle and Financial Success – Some Examples

I read an article recently about a woman with a PhD from Harvard, held a high government position in the Treasury Department and worked at the Federal Reserve. You would think that this person would be smart about finances and investments.

You would be wrong. She messed up, but was able to recover.

Academic skills and executive level jobs – in or out of government – don’t automatically translate into wise lifestyle decisions and certainly not wise investment decisions. Having a high paying job provides you with the opportunity to save for retirement. But for too many people it provides for an extravagant lifestyle.

You may never have heard of Curtis James Jackson III, but if you are familiar with the current music scene you may have heard of “50 Cent.” He is reputed to have earned about $30 million a year but he just filed for bankruptcy claiming he owes between $10 and $50 million to his creditors.

How does this sort of thing happen? Some of it could be the result of poor investment decisions. But lifestyle is the primary reason that highly paid entertainment figures, athletes and the like go broke. They spend money on expensive things – homes, cars, planes – entertainment, and on “posses” (friends and hangers-on) who they support not realizing that their money is not literally endless.

Of course “50 Cent” is not typical, but the woman who we discussed at the beginning of this essay had the same problem, on a smaller scale. She and her husband had a huge home that absorbed a lot of their income. There was a big mismatch between their current lifestyle and the savings that were supposed to support them in retirement. In addition, they kept too much of their savings in cash or cash-equivalents because, while they were educated, they were not investment experts.

We have met too many couples who are in their 50s, are earning $150,000 to $350,000 a year, and want to retire in about a decade. But they have not really focused enough on asset gathering. Their lifestyle absorbs most of their income and their investment decisions have lacked a plan.

Does this mean that retirement for them is bleak? No. But it requires facing some facts about lifestyle, savings and investing that will require some smart decisions. This is the point at which a good financial planner and advisor can help people get their financial life in order, before it’s too late.

If this sounds like someone you know, give us a call. We may be able to help.

Protecting yourself against financial fraud.

Bernie Madoff isn’t the only fraudster preying on the unwary. There are a number of scam artists in the financial services business.

There’s the case of Malcolm Segal. According to the SEC:

Segal allegedly promised his clients 12{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} returns on CDs bought through Aegis. But he’s alleged in some cases to have either bought the CDs but redeemed them early or not bought them at all. Citing the SEC, the Philadelphia Business Journal says he raised about $15.5 million from at least 50 investors in this fashion.

It puzzles me how people can actually fall for something like this. Perhaps I have been in the investment business so long that I have seen too many of the ways people are fleeced out of their money.

How do you protect yourself against financial fraud? The first thing to do is to be suspicious of offers that are too good to be true. No actual, legitimate bank is offering 12{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} CDs in a 1{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} interest rate environment.

Another thing to do is to make sure that your assets are held in custody be a third party; a custodian like Charles Schwab, Fidelity or a major bank trust department. The reason that Madoff was able to fool his clients for so many years is that he printed his own statements. These statements “showed” that he was trading for them and that they were making money. In reality, he was not trading and their account statements were fabrications.

At Korving & Company we use Schwab as our custodian and our clients receive trade confirmations and statements from directly from Schwab. We encourage our clients to view their accounts on-line at Schwab.

We had an experience with a client who had an account with another advisor. He suddenly dropped his custodian and began producing his own account statements. That’s a wake-up call. They asked us to look at their statements and when we noticed that their end-of-year tax reports did not include taxable income from CDs that he claimed to have bought for them, we knew he was defrauding them.

If you have any concerns about your financial advisor, feel free to contact us for a second opinion.

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Category: financial advisors