Tag: RIA

When should you retire?

People are a lot like cars.  When I was a kid, most cars were used up pieces of junk before reaching 100,000 miles; rusted out clunkers with used up engines.  Today a car with 100,000 miles on it is just getting broken in.  That’s a lot like people.  Years ago most workers performed hard physical labor and when they reached their 60’s were physically exhausted; used up.  The not only wanted to retire, they had to.

Thanks to technology, labor-saving devices and the miracle of modern medicine reaching the sixties is part of “middle age.”  As I often tell people when they ask if I plan to retire, my answer is that I enjoy what I’m doing, there’s no heavy lifting so I expect to continue working until something happens to make me want to quit rather than looking at an arbitrary retirement age.

Of course many people don’t enjoy their jobs as much as I do so they would like to retire and do something they enjoy more.  That’s great, and my role in their lives its to help them reach the point where they can retire and then manage their financial lives so that they can focus on what they want to do.  After all, that was the point, wasn’t it?  i just make sure they have a copy of BEFORE I GO and that they have my number on speed-dial.

401(k) Help and Advice

You have to be a certain age to appreciate how retirement planning has changed.  I am, unfortunately, that old.  So for you youngsters, let’s take a walk down memory lane.

Long, long ago, a retirement plan was having enough kids so that you could move in with one of them when you got too old to work.   Then came Social Security and company pension plans that paid you a monthly income for the rest of your life.  Retirement benefits – including medical benefits – got richer over the years until some companies, like General Motors, were described by their financial chiefs as “retirement plans with a car manufacturing subsidiary.”  And so GM went broke, largely under the weight if maintaining a massive retirement pension and medical benefits plan.  Other companies took notice and today the pension plan – known as the “defined benefit” plan – is fast becoming obsolete,  replaced by the 401(k) type plan known as the “defined contribution” plan.

“Defined benefit” meant that you knew what monthly benefit you were going to get in retirement based on some formula that included years of service and salary.  “Defined contribution” meant that you knew what you were putting in, but not what you were going to get when you retired.  The switch from defined benefit to defined contribution means that the responsibility for a secure retirement was switched from the employer to the employee.  That’s why it’s so important to know and understand the investments available in your 401(k) plan.

When 401(k) plans were first introduced the investment choices were fairly simple.  You could pick a stock mutual fund, a bond mutual fund, a fixed fund or put your money into company stock if you worked for a publicly traded company.  Then the federal regulators and the financial wizards of Wall Street came along who said that those basic choices were not enough.  That’s why the typical 401(k) plan today has scores of choices and is so confusing.

The average worker is not an investment expert.  He or she goes to work, collects a paycheck and puts some of his pay into his company’s retirement plan – often without knowing what the choices are or how they may affect his future.  And that’s critical because for many people their 401(k) plan will be their largest single source of retirement income once they quit working.

If they go to the company benefits department for advice, the chances are that they will not get any.   The reason is twofold.  First, if a company employee provides advice regarding investment options, they expose the company to serious liability.  Second, the people in the benefits department are not investment professionals; they do not necessarily have the expertise to counsel people and provide them a roadmap to retirement.

The typical investment firm is little help.  They make their money from fees or commissions on assets they manage in-house.  The 401(k) custodian is also little help.  Some may have some on-line software that people can access, but no one that they can talk to about their plans or dreams.

For those seeking guidance regarding the array of investment choices open to them in their 401(k) plan, independent firms of financial advisors have begun offering advice, for a fee, without requiring employees to open an investment account.  If you participate in a 401(k) plan and wonder whether your investment choices are the right ones for you, you may want to look into this.  It may mean a more informed and better prepared retirement plan.

Why Clients Fire Advisors

We thought we would share these eight reasons that clients fire advisors.  They are provided by a Financial Advisor in Philadelphia.  Clients have the right to expect financial advisors to be honest, but also to care about them as people, not just figures in an account.

  1.  Making claims they can’t keep.  Claims such as, “I can consistently give you above-market returns,”
  2. Giving them the impression that new business is more important than serving current clients.  Clients don’t expect to be ignored once they sign on.
  3.  Letting clients do things that may not be in their best interests just because it is expedient.  Financial advisors are expected to tell people when they are about to make a mistake.
  4. Failure to promptly return phone calls.  There is no excuse for failure to return calls promptly.
  5.  Staff members who have the attitude.  The staff is there to serve you cheerfully and competently.
  6.  Failure to do comprehensive financial planning.  This does not necessarily mean producing a 100 page plan, but to get involved with risk control, cash flow, tax and estate issues.  That’s what planning is about.
  7. Not fully understanding clients.  How can I help you if I don’t know you?
  8.  Placing a priority on the investment portfolio over the client’s life.  A portfolio is the means to a goal, not the goal itself.

An advisor who understands you and helps you meet your goals is a precious asset.  Get to know us.  Get a copy of Before I Go while you’re at it.

10 Mistakes Gen Y Makes with Advisors

1. Not Having an Advisor Help with Big Financial Decisions

Keep in mind that you are dealing with a financial advisor, not a stock broker.  If you can’t tell the difference you’re dealing with the wrong person.  Big financial decisions affect your plan, your investments and your future.  The role of a financial advisor is to advise you on all the important financial decision you make.

2. Not having a spending plan in place

As Dave Ramsey is fond of saying: every dollar should have a name.

3. Not “paying themselves” first rule

First pay yourself by putting some money aside.  If it’s hard , have it done automatically so you don’t have to do it yourself every payday.

4. The Ones who Make Less Money Can be Less Receptive to Advice

Poor people are poor for a reason, and that reason is often that they don’t want to take advice.

5. Not Appreciating their Long Time Horizon in Investments

The biggest asset that a young person has it time.  They may not have much money but the magic of compounding turns a small amount into a big amount over time.

6. Itching to Get Ahead Professionally

It takes time and patience to get ahead.  An advanced degree does not necessarily let you skip rungs on the ladder of success.

7. The Budget Cliche

If you don’t know where you’re money’s going it’s impossible to know where to economize.  There are several good computer programs that can help you keep track of where your money is going.

8. This Generation Struggles with Insurance

It’s the young professional who is most in need of insurance and who is apt to put off getting it until it’s too late.

9. Working with “Old School” Advisers

The old school advisor is really a stock jockey who doesn’t bother to listen to your needs but promises to “beat the market.”  This person is not an advisor, he just wants to manage your money.

10. Planning too far out

Too often people get a lengthy, expensive “financial plan” that projects the future 40, 50 or 60 years out.  That’s nonsense and a waste of time and money.  Simple plans of a few pages are better and should be reviewed annually and updated with new information.  Keep in mid the old saying: the map is not the territory.

What do You Risk by Foregoing Professional Financial Advice?

What’s the first thing people think about if they need a will?  Which lawyer should I call?  If they get sick or think they need a physical exam, do they ask their brother-in-law?  No, not unless the brother-in-law is a doctor.  Yet so many people handle their own investments, rather than use an advisor.  Why?  Did they or a family member have a bad experience?  Are there cost concerns? It appears that neither one is the answer for most do-it-yourselfers, according to a survey for the Deloitte Center for Financial Services.

Many have a “higher comfort level in handling retirement planning on their own” and a “belief that they don’t need professional advice.”

The survey of over 4,000 households found that nearly two-thirds don’t ask the advice of a professional investment advisor for their retirement needs. The younger you are the more apt you are to do it yourself.  According to the survey, 75{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of those who were 15 years or more from retirement did not use an advisor.

Of those not getting professional advice only 13{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} mentioned they had a negative experience with an advisor and only 12{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} mentioned cost. The two leading reasons for self-managing personal finances were the comfort level people had doing it themselves and the belief that they didn’t need professional investment advice.  There are other factors at work.  Too many people have not bothered to put any money away for a “rainy day,” much less retirement.  Those who have begun saving for retirement often mistakenly believe they have too little money to interest a professional advisor.  I have had people come to me and ask if they qualify to be a client of mine since they “only have $100,000 to invest.”  While some advisors have minimums of as much as $1 million, most advisors are willing to work with people who don’t have that much.

What these do-it-yourselfers don’t realize is that the old model of providing financial advice and investment management is broken.  Twenty years ago people looking for advice opened an account with one of the huge brokerage firms.  These firms made a lot of their money by encouraging their brokers to trade stocks, bonds and mutual funds in their clients’ accounts and to charge commissions on each transaction.  There was rarely much in the way of true “planning” offered; often it was nothing more than a stock idea by a firm’s analyst that got pushed to the broker’s customers.  Today, a whole new generation of advisors exists who have broken the old mold.  These are the Registered Investment Advisors (RIAs).  They are quite often experienced advisors and financial planners who have left the major firms and established their own advisory firms.  Their objective is to help their clients succeed in achieving their life goals.  They offer a range of services all the way from advice and guidance on investments held at other places, like 401(k) accounts, to complete active portfolio management.  For people who want to remain in control of their own finances, these advisors can act as facilitators, enabling them by providing the tools and experience that the typical individual investor does not have.  There is value in having expert advice, whether it’s dealing with the complexity of law, medicine or family finances.

An advisor should bring more than expertise and experience; they should provide peace of mind.  According to the Deloitte survey, the people who get professional advice on managing their money were almost two times as likely to feel very secure about their retirement versus those who forego professional advice.

The chances are that if you work with an advisor, you will be much more likely to have a “flight plan” to guide you to a safe landing for a financially secure retirement.

Working with Widows

Advisors who work with widows know that there is often a great deal of confusion after a spouse dies.  Widows are often told not to do anything for a year.  This is terrible advice.  First of all, assets held in joint name have to be transferred into the name of the surviving spouse.  Beneficiaries have to be updated on retirement accounts and insurance policies.   Trusts and wills have to be reviewed.  And investments that were made and understood by the deceased are often not appropriate for the survivor.

The best advice for the widow is to find a trustworthy financial advisor, explain the situation and allow the advisor ro guide the widow through the process of getting on with life.  Of course, it’s easier if the has a copy of the Before I Go Workbook to help.

Why Advisors Leave the Major Firms to Become Independent

As a general rule, most Registered Investment Advisors (RIAs) start out working for a major brokerage firm (commonly referred to as “wirehouses”) before leaving to establish independence.  There are a number of reasons, but here are the most common ones:

•Service levels for the advisors at the wirehouses have deteriorated drastically, from cutbacks in the number client service associates (CSAs) in local offices to severe pruning of back-office support and operational staff who act as informational resources to advisors.  These cutbacks increased dramatically in the aftermath of the housing bubble burst in 2008, when most wirehouses teetered on the verge of bankruptcy.

•Managing thousands (or tens of thousands) of representatives has always been a challenge for wirehouse management.  To reduce liability, wirehouse management will generally say “no” to any initiative that is not pre-approved.  As a result, wirehouse representatives are prevented from offering their clients services that are common in the RIA field.  Examples of this include advising clients on assets not held at the firm, advising clients on investments not offered by the firm and providing seminars or public statements that have not been scripted by the firm.

•Wirehouses only offer their clients investments that allow them to gather fees.  For this reason, many of the big firms will not allow their representatives to offer “no load” or load-waived funds.  Typically, unless the entire account is managed under a fee wrap, clients are charged commissions to buy and sell stocks and bonds and must pay a front-end load via A share mutual funds or be subject to higher internal expenses via C share mutual funds.  In the end it’s typically more expensive to be a client of a wirehouse advisor because not only are you paying your advisor, you’re also paying the firm he or she works for.

A look at 5 unusual ways to boost income in retirement

In the Retirement Planning section of the Wall Street Journal we found some “different” ideas about generating retirement income.  Frankly, some of these, like the wood lot, probably require more physical effort than most retirees are prepared to spend, but we bring them to you for your enjoyment.

1. Grow Trees 

If you live in an area where people routinely burn wood to heat their homes, you might consider buying some woodland. Not only can you use the wood to heat your home, you can sell logs to others.

2. Make Loans

You’re probably getting less than 1% on your bank deposits—but your bank, using your money, can get as much as 15% for an unsecured loan. Suddenly lending seems appealing.  The problem is that the people who typically want to borrow your money are probably your relatives, and relatives are notorious for not paying back the money they have borrowed, even if you have a signed note.

3. Rent Out a Room

If your kids have left the nest, you might have a spare room. Instead of downsizing to a smaller home in a weak housing market, consider renting out a room to a lodger.  But are you really ready to have a stranger live in your house after you have finally said goodbye to the last child?

4. Tutor Students

Anyone who has reached retirement age should have amassed a wealth of knowledge on a variety of topics, all of which could provide the basis for a part-time career.  This may actually be a good idea.  I know someone who retired and went on to teach classes in using computers.  Teaching math classes to students struggling in school may be a good part-time job for retired engineers.

5. Preferred Stock

Buying preferred stock is not at all unusual, but like any investment you have to know what you are doing and what the pitfalls are (and there are many).   The preferred stock market is a specialized area of the financial universe that you should only explore with the help of an experienced RIA.

 

Five key benefits of independent Registered Investment Advisors

More education from Charles Schwab on RIAs.

1) Get advice based on what’s best for you.
Whether it’s your retirement planning, tax situation, estate planning or assets at multiple places, it’s fundamentally important that your advisor truly understand you, your goals and your situation. Many independent registered investment advisors (RIAs) are in a position to do that and pride themselves on strong personal interaction with their clients and dedication to their needs. They believe that their independence is key to offering investment advice based on what’s best for their clients.

2) Understand exactly what you’re paying for.
Independent RIAs typically charge a fee based on a percentage of total assets managed. This fee structure may have advantages. It’s simple and easy to understand, helping to avoid surprises. It also gives your advisor an incentive to grow your assets—when you succeed, your advisor succeeds.

3) Get advice for your complex needs.
Many independent RIAs provide services that address a variety of complex investment needs that often arise when you accumulate significant wealth, such as assisting you with the sale of a business, complicated tax situations, trusts and intergenerational issues. Some advisors are specialists in certain investment strategies. Others can assist you with comprehensive services, such as estate planning or borrowing. Given the rich diversity of specialization throughout the industry, no matter how complex your individual needs, you will likely find an independent RIA who can provide advice that’s right for you.

4) Enjoy a different kind of relationship.
The goal of an RIA is to help find solutions that are closely aligned with client needs and objectives, and many independent RIAs enjoy a deep, personal relationship with their clients. This often takes regular, ongoing interactions. And because many independent RIAs are entrepreneurial business owners, the buck stops with them, so to speak, and they frequently have a strong sense of personal accountability to their clients.

5) Know where your money is held.
RIAs typically use institutional custodians—generally large brokerage firms or banks—to hold and safeguard their clients’ stocks, mutual funds and other assets.  These custodians also provide important infrastructure services such as executing trades and preparing monthly brokerage statements for clients. This helps an RIA focus on understanding your needs and providing the best advice possible.

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