Trends from Ink&Air

Don't miss this month's timely story ideas, direct dial phone numbers, and E-mail addresses of these accessible experts!

Breadth and Quality of Advice Clearly Distinguishes 401(k) Advice Providers.

Companies providing investment advice and managed account services to 401(k) participants have begun to distinguish themselves by meeting the express needs of the participants and the plan sponsors.

This has come about because of several commonalities among these constituencies that reflect the real issues for those saving for retirement.

1. The majority of 401(k) participants want their financial advice delivered via a one-on-one meeting with an independent, objective financial professional.

2. Most 401(k) participants have no idea if they are on track to meet their retirement goals, and do not use the on-line tools and calculators available to them.

3. Many 401(k) participants value having a professional investment manager make the tough investment decisions for them.

Company's who sponsor 401(k) plans have no real way to measure their plan's effectiveness in helping employees reach their retirement goals. The recent development of "high-touch" services for participants including Internet service delivery, toll-free phone representatives to answer participant questions, regularly scheduled group and individual participant investment advice and financial planning meetings will be the distinguishing characteristics of a successful investment advice and managed accounts provider. Financial advisors have known for many years that their clients who successfully save for retirement are those who have had long relationships with a trusted advisor. Delivering trusted advice, one-on-one, will be the differentiating characteristic that meets the "real" issues facing 401(k) participants going forward.

Tim McCabe is VP of marketing for 401k Toolbox, a service of PMFM, Inc. 401k Toolbox provides discretionary active allocation management of 401k accounts, and is available with no minimum plan size, participant account size or minimum service period, and participants have the option of meeting a representative in person or can speak to a PMFM representative through a toll free number. Tim can be reached at 800-222-7636.

Convert Your Company IRA to a Roth Now: Pay Conversion Taxes from Non-IRA Assets to Protect Tax-Deferred Investments for Future Generations.

A once-in-a-lifetime opportunity has occurred that makes converting your big IRA plan to a Roth IRA, a strategy that must be considered now. Experts believe that the value of conversions of IRA’s to Roth’s are in the category of “best kept secrets” for high net worth investors.

Do it now, they say, before the Government changes its mind and cuts off this “gift”. The benefits are multiple:

Converting to a Roth means paying tax now in what could be the lowest rate of your lifetime.
The Roth conversion allows investors to extend, or stretch a Roth IRA’s tax-free benefits for many years by naming their children and grandchildren as beneficiaries.
The Roth conversion reduces future estate or “death” taxes.
The largest possible amount of assets could be left tax-free for your heirs when you use assets outside the IRA to pay the taxes due at conversion.

It is unlikely that the Roth conversion opportunity will remain intact. The current budget deficit, war in Iraq, and extensive costs of homeland security will soon require this “loophole” be closed, because the government loses taxes with every conversion.

In this example George Gardner, 79, has a Roth IRA valued at $4 million with a growth rate of 7% Roth distributions are not required until death. George wants to leave the Roth to twin sons, Harry and Henry, both 40, so he splits his IRA into separate IRA’s for his sons over their lifetime based on the Uniform Lifetime Table. The Roth continues to grow to a value of $22 million over the son’s lifetimes, each son’s required distribution grows monthly, but the assets are never taxable to the sons. The total distributions during the lives of George, Henry and Harry equal $26,299,541. The growth of $18 million has been tax-free. George could also leave part of his $4 million to his just born great grandchild. If the IRA earned 8% over that great grandchild’s 80-year life expectancy, it would pay an astounding $122,514,435 income tax free. George could leave quite a legacy.

Pearson Financial Services, Dennis, MA, is the author of "The Million Dollar Gift: Dynasty Trusts. Why Leave Your Assets Any Other Way", written for his clients, their families, and his own family. He offers a fully integrated wealth management process, incorporating investment, retirement, financial and estate planning specialists under one roof, serving clients as their family's office, designing and implementing strategies to protect and distribute their wealth and highly appreciated property. Seth Pearson, CFP 800-385-7925

Most people are well aware of the two ways to own a public company. Buy the stock or own the bonds. However there is a third way. You can also own their real estate. That's right, many Fortune 500 firms lease their space and you have the ability through both public and private REITS to own the buildings they occupy.

When the company comes on hard times and can't pay dividends, the stock will probably decline. Or they stop paying bondholders because they are in financial straits and contemplate bankruptcy. Even in the face of these developments, a company must pay its ongoing expenses, specifically, their leases. So while it is common for investors to own stocks and bonds, owning an alternative asset such as the real estate of Fortune 500 firms can deliver a reasonable return with income in the range of 5% to 7%.

You may even believe that today's real estate is overvalued? What if you are correct? This fact alone will not stop the REIT from paying out income from rents received.

REITS offer the potential for growth as well. If the underlying portfolio of properties appreciates, that appreciation will be passed on to the investors when the property is sold, or in the case of a private REIT, goes public. Long-term real estate has averaged 3% returns over the last 65 years, notwithstanding the recent vertical ascent in prices.

Many of the wealthiest Americans got that way through real estate. Before you buy a company's stock or its bonds, take a closer look at becoming a landlord.

Gary K. Hager, CFP, Founder and President, Integrated Wealth Management, Edison, New Jersey, a full service wealth advisory firm, serves as the primary financial resource for affluent families and closely-held business owners, providing state of the art planning solutions which effectively integrate the disciplines of Wealth Accumulation and Wealth Preservation. Contact:ghager@iwmco.com, 732-510-1611.

The Difference Between the Income Tax Rate and Capital Gains Tax Rate is Significant When High Net Worth Investors Compare Taxable Accounts with Annuities.

Highly compensated individuals may be tempted to use a variable annuity as a tactic to achieve tax deferred growth. The benefit of the variable annuity is that it allows the owner to escape paying taxes on the growth of the account until the owner takes assets from the account.

The annuity owner will report the assets taken out of the annuity as income. It is assumed that the owner's tax bracket will be lower when the assets are drawn from the account, lessening the tax bite.

Experience shows, however, is that it is more likely the owner's tax status remains unchanged at the point when the investor begins to draw down the annuity amount. If an investor is in a high tax bracket when the annuity is created, that investor is likely to remain in that high bracket.

Instead of using an annuity, an investor can choose to put their assets in a taxable account, particularly one that employs tax efficient strategies. The investor will pay taxes on realized gains at the lower capital gains rate. For highly compensated individuals, the difference between the income tax rate and the capital gains tax rate is significant.

Donald L. McCoy, J.D., CMFC -- Planners Financial Services, Inc., 952-835-9000. Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk.pfshim@usinternet.com

Your Broker's Suggestions May Be Driven by Corporate Policy,Not Your Best Interests.

Brokerage firms have always decreed how brokers should do business and have become heavy handed of late. These changes bear scrutiny by investors, because there is no guarantee that what is best for the broker is best for you. What is certain is that the brokerage industry prefers fee-based business such as managed accounts because it creates a more predictable revenue flow and fewer compliance issues. There are fewer compliance issues because there is less advice given on the purchase and sale of individual stocks and bonds.

In addition, when a broker makes a decision to change firms, he will receive a much larger incentive payment to make the move if he brings his new firm a book of business that is largely fee-based. Further, the greater his annual sales (sum total of the commissions and fees he has generated) the more attractive he is to a new firm.

Long before your broker tells you he is changing firms, he may be trying to change how you invest, moving you from buying and selling individual stocks and bonds to managed account packaged products. He may be changing his recommendations to you for the wrong reasons, not because it is best for you, but because it is best for the broker and his compensation.

To further bring the point home, brokerage firms offer both incentives and disincentives to brokers to force them to do business according to the corporate plan. Wachovia charges a $15 ticket charge and UBS a $12 ticket charge, taken from their net pay, every time he buys or sells a stock or bond, but when the broker advises a client into a managed account, there is no ticket charge. Merrill Lynch and Morgan Stanley, in 2005, will not pay brokers for clients served with investable assets at the $50,000 level and below. Investors at those levels will end up with service from a brokerage call center, or be turned down as a client of the firm.

Merrill is offering bonuses this year of 20 to 50 basis points for brokers who bring in assets from clients who have in excess of $1.5 million to invest. In addition, Merrill will reduce compensation to brokers who generate less than a certain amount of sales a month. UBS pays a 4-point premium for the sale of wrapped fee and managed accounts. Raymond James pays 6% to 9% more to advisors who sell mutual funds, insurance, annuities and managed accounts.

Bottomline, make it your business to know what lies behind your broker's recommendations. If your broker suggests a transition from an all-stock portfolio to a managed account, make certain the explanation makes sense for you, intellectually and financially.

Mindy Diamond is President of Diamond Consultants, Chester, New Jersey, a search firm specializing in recruiting wirehouse and regional firm brokers with trailing 12-month's production between $200,000 and $5 million. Her firm assists these financial consultants in evaluating opportunities in the industry and introduces them to other wirehouses, regional firms, banks, or independent broker-dealers. Mindy can be reached at 908-879-1002, or mdiamond@diamondrecruiter.com

Lease Option Strategies Help Consumers Buy Homes Even When They Have Temporary Credit and Cash Flow Problems.

Lease option strategies are ideal for homebuyers with temporary credit and cash flow problems. These homeowners must be willing to become tenants before they can become owners. Finding the right mortgage professional, someone with experience in qualifying the tenant/buyer and working with real estate investors is essential. Consider this example:

John Doe is an executive who has had recent financial difficulties such as a foreclosure, bankruptcy, unpaid large medical bills or a messy divorce. Although his income is substantial, his credit is shattered and he has little or no money for a down payment on a home. John is unable to qualify for a mortgage on a new home with little or nothing down until he re-establishes credit over the next 12-24 months.

• Investor Bill believes that real estate is a great investment and is ready to put some of his cash to work.

• Realtor Jane, after discussions with Investor Bill, who is approved to purchase an investment property with a 10% down payment, talks to mortgage professional Joe.

• Mortgage professional Joe has been working with John Doe and has checked his financial situation and found his financial and credit difficulties to be temporary. Joe introduces John to Jane.

• Realtor Jane takes John Doe shopping for a home that he finds and hopes to purchase.

• Investor Bill agrees to purchase the home of John Doe’s choice as a real estate investment and signs a purchase agreement with mortgage professional Joe.

• Investor Bill signs a “lease option” agreement with John Doe giving John Doe the right to purchase the home anytime over the next two years for a price that is fair enough for John Doe, but greater than Investor Bill's initial purchase price. In the meantime, John Doe will pay investor Bill rent that will be enough to cover Investor Bill's mortgage payments, taxes and insurance on the property, as well as supply Investor Bill with a few hundred dollars per month in cash flow.

In this scenario, the executive gets into the home that meets his family's needs, the mortgage professional makes her commission, the realtor makes his commission, and the investor makes a fair return on his investment. This is a classic win-win-win-win!

Homes in the $200,000 and higher range, including new construction, located in good areas with a reasonable expectation that the homes will appreciate in value, are ideal for lease option strategies. An investor with good credit and a 10% down payment can reasonably expect to earn solid investment returns in the 15-30% range. Call mortgage professionals until you find one with the experience to present investors with this viable investment opportunity. The mortgage professionals will take responsibility for evaluating the tenant/buyer's ability to actually fulfill the terms of the lease option and ultimately buy the house from the investor. The defined entrance and exit strategy is compelling for investors and solves a short-term problem for the executive.

Gibran Nicholas is the President and founder of Nicholas & Co. Mortgage Planning Solutions, a mortgage lender and broker based in Ann Arbor, MI. Gibran has developed the Wealth Equity educational course to help consumers transform real estate equity into wealth through various real estate investment strategies and mortgage planning techniques. www.WealthEquity.com, 734-531-0180, gibran@nicholascity.com.

High Profile Celebrities and Regular Folks ALL Face the Same Difficulties in the Impending Beneficiary Crisis.

Missing and outdated information played an important role in the well-reported and high profile difficulties surrounding the deaths of Terri Schiavo, Ted Williams, and Howard Hughes. Terri Schiavo was missing a Living Will (health care proxy). Baseball great Ted Williams was missing "clearly defined burial instructions". Howard Hughes lacked a will. The documents change but the effect of missing, outdated or incomplete documents is always the same, namely a crisis for beneficiaries. Individuals need a system to identify "the" documents they need.

The impending beneficiary crisis, for most families, will be characterized by stress, emotional pain and financial difficulties that will occur because there has been little or no care given to organizing critical documents and strategies for transferring them from one generation to another.

There are dire consequences when a family has not gathered important documents in one file, in one location, that is readily accessible. Incomplete documents and incomplete information, outdated documents, and missing documents complicate life for those trying to preserve the dignity of someone who needs long term care, or for those beneficiaries to an estate.

Many parents prefer not to share information about their assets with their children, and by not organizing their important information, the kids may never really know - either what to do, or how best to complete their parents final wishes. The children have no idea of the final wishes, no idea where to find all the assets, and never have the certainty that they have uncovered all of the accounts and account numbers. Assets are lost every year as witnessed by the long lists most states publish of “unclaimed property”. Anyone who has settled a disorganized estate has some inkling of how to get started on their own organization, but unbelievably, most put it off.

Here is a list of steps to take to prevent an important document crisis in your family:

Most folks assume that if they have a will, their work is done. That could not be further from the truth. A will is a necessary beginning point. One document cannot do what good organization of many important documents can do to create the smooth transition of wealth from one generation to the next. Take simple steps to avoid the impending beneficiary crisis.

Mark Kaizerman, CPA, CFP, is the author of “Beneficiary Directory: Your Personal System to Organize Your Important Documents and Guide Your Beneficiaries, a step-by-step to putting the most significant documents in your life in order. www.beneficiarydirectory.com, Kaizerman can be reached at 508-647-0830 x 13, or for a copy of the book, contact the author at mark@beneficiarydirectory.com

A Couples Contract is Rarely Included in Estate Planning Packages for Unmarried Couples.

Family law provides a systematic way to equitably divide marital assets in the event of a couple's divorce. Since family law does not apply to unmarried couples, these individuals may be vulnerable to financial devastation if a relationship dissolves. One option is for unmarried couples to use contract law to divide their assets. Sounds simple, but what you are asking couples to do is to discuss their potential break up and additionally decide how their assets will be divided. You have probably already experienced clients' procrastination about getting their wills done. Many people have a psychological barrier about discussing their death. Imagine the difficulties of getting your unmarried client couples to discuss breaking up in a formal document. Your job as an advisor is to get past that resistance.

A couples contract provides a systematic way to acknowledge that both parties of an unmarried couple contributed to the family's assets. If one partner has stayed home to raise the children, there is no legal way for that partner to say, "I've contributed," without a contract. If the higher earner has been paying all of the mortgage payments as an income tax planning strategy, a couples contract can give the other partner a legal stake in the home they share.

Advisors should consider including a couples contract in the multitude of estate planning documents you would recommend to your married couples. All couples benefit from a will, possibly a trust, a durable power of attorney and living wills (health care proxy) for one another, as well as a homestead declaration. Now, for unmarried couples, it is important to create a couples contract. It can and should detail financial aspects of the breakup including homes and retirement assets. In reality, your unmarried couples can contract for nearly everything.

When an advisor chooses to ignore the possibility of a future breakup, it is a significant disservice to the couple, as difficult and emotionally-charged a discussion as it is likely to be.

Dana Levit, CFP, Paragon Financial Advisors, 617-938-3864. dana@paragonfeeonly.com . Dana is President of PridePlanners, a national organization whose mission is to educate financial professionals about planning for unmarried couples. See information below about PridePlanners, April, 2005 national conference.

Media Alert: Ed Sherman, J.D. founder of NOLO Press and author of "Legal Essentials for California Couples," has introduced the Couple's Contract and will present a session titled "Couples Law and the Couples Contract in a Financial Planning Practice," at the April 28-30, 2005, PridePlanners Conference -- Navigating Through New Landscapes: "Financial Planning for Nontraditional Clients in Changing Times, at the Wyndham Palm Springs Hotel, California.

The 2005 national conference for financial advisors serving the unmarried singles, couples, gay and lesbian markets will offer up-to-date information on serving their Unmarried clients, now representing 42% of the workforce and 40% of homebuyers.

Web Provides Customer Relationship Management on a "Budget" In the late 80s, numbers of small businesses discovered the value of QuickBooks and the control it gave them over their financial data. Now the software has matured, offering inventory management and other vital, indispensable services for small businesses. Today, entrepreneurs understand the power of financial data.

Today we have something similar happening with customer relationship management (CRM) software. CRM has become a very misused acronym. Simply put – it is any piece of functionality that uses a database to help you manage customers; its real power comes from the integration it allows you to make of data.

So if a CRM system is just a database that supports forms and queries – what does that really mean? A database is not hard to understand – records for each customer such as their address , phone number and other information. “Forms” means an interface to work with this information – a screen to enter that address or other info. “Queries” is literally the ability to ask the system questions, and this is where the real power lies. You can inquire "Show me customers who bought something in the last 60 days who live in Massachusetts" or "Show me employees who were late to work more than once per week in the last month," or "Show me the purchases a particular customer made last month. " The retrieval capacity of the software is potentially endless.

CRM is the real killer application (app) of the Internet this decade, no question. Salesforce.com is a good example of a commercial model. The web eliminates the problems associated with running software on your own computer (crashes, etc) and provides at least equivalent capabilities versus desktop software.

The open source nature of the web is part of what makes the possibilities so powerful – custom-built applications can be created for you for comparatively small dollars. Online apps formerly were not very stable and were unproven. This is hardly the case anymore. Even the back end of a shopping cart system is technically CRM – you are processing orders, sending e-mails, doing all sorts of lovely integrated stuff.

Account Info – keeps track of client names, addresses, phones, last activity dates, and other neat stuff like that, customizable to each business.

Products/Services – stuff clients bought from the user firm. Keep in mind that when you know which products have been purchased by which clients, you can easily create specific sales campaigns of related merchandise or products to the same buyers.

Calendar and Administrative Functions -- The calendar system is the central place where you set internal meetings and client visits can be scheduled. Administration functions track leads, time cards, job logs, billing function including the ability to charge customer credit cards, shared documents on procedures, renewal systems, and the day log. The dashboard is the screen showing the day's calendar, the “to do” list at a glance, the time clock status, and the day log.

Search -- The search functionality will allow you to ask the system any question, and if it is something you ask often it can become a “report” - essentially a saved question.

Entrepreneurs need to be familiar with this category of application and what it could do for your business. Consider a custom web-based solution to provide your company the amazing integration of information that will fuel growth.

KISS Computing is full-service web strategy firm, providing design, implementation, long term evaluation, and action steps for change that keep web site profitability above $5000 a month for small and mid-size companies.
Ross Lasley, KISS Computing, Eastham, Mass., 508-255-9550 x401, ross@kisscomputing.com.