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Don't miss this month's timely story ideas, direct dial phone numbers, and E-mail addresses of these accessible experts!
INVESTMENTS AND WEALTH MANAGEMENT
Important Documents Need to Change When a Grandchild is Born. Lives change forever when a grandchild is born. The joy for most families is immeasurable. Unfortunately, one thing that should be automatic and triggered by a birth, often is ignored -- reviewing important beneficiary designations and wills. Your lawyers and financial advisors rarely know when you become a grandparent. If you do not discuss this with them, you may unintentionally disinherit your beloved new grandchild. Lawyers and financial advisors don’t know when you become a grandparent. A long-term relationship with an advisor who does review important documents periodically is highly recommended. This relationship will ensure that you will change your will and beneficiary designations on your insurance policies and retirement plans to include the new generation. Experts in the field of beneficiary designations categorically state that the forms filled out on life insurance policies and retirement plans are seldom adequate for a three generation family, particularly on the contingent beneficiary lists. For instance, if you make your wife your beneficiary for your retirement plan and insurance policy but do not fill out the contingent beneficiary forms, and she pre-deceases you, it may simply be overlooked that your assets are not scheduled to go to your children or grandchildren in turn. If you do sign a contingent beneficiary form, make sure it says of multiple beneficiaries, equally per stirpes, which determines that the children of your children will get their fair share. In reality, our largest assets (insurance policies and retirement plans) travel outside the will so it does not distribute the assets held within those instruments. Therefore, the will does not necessarily direct the distribution of assets where you may wish them to go. Celebrate the birth of your first grandchild with a proper review of your beneficiary designations and make sure they are welcomed fully into your family and can share in the distribution of your family's assets in the future. Mark Kaizerman, CPA, CFP, is the author of “Beneficiary Directory: Your Personal System to Organize Your Important Documents and Guide Your Beneficiaries. www.beneficiarydirectory.com, a new book that offers a broadened concept of client fact-finding during the initial discovery process, He can be reached at 508-647-0830 x 13, or for a copy of the book, contact the author at mark@beneficiarydirectory.com.
Housing Bubble: Fact or Fiction? Many people are under the assumption that we are experiencing a bubble in the real estate markets that is set to burst just like the stock market bubble of the late 1990s. While fluctuations in real estate values are primarily a local phenomena, the assumption of a general US real estate “bubble” is more fiction than fact. The stock market bubble, like all bubbles, was caused by speculative activity. In other words, stock prices went up in the late 1990s for no good reason other than the fact that investors were gambling that stock prices would continue going up and they would make a profit. Contrast this with the real estate market of the last several years. As interest rates came down from the abnormally high levels of the 1970s and 1980s, a record number of first-time homebuyers entered the market. In fact, just in the last few years, the home ownership rate in the US has gone up from 65% to 70%. This is a 5% increase in the homeownership rate in just a few years! This equates to, literally. millions of new homeowners entering the market, increasing the demand, and lowering the supply of available housing on the market. At the same time, the general population has experienced considerably more wealth than previous generations. The homeowners who sold their homes to the first-time homebuyers have all bought or built more expensive homes to fit their higher living standards now that they are in their prime money-making years. Furthermore, people who only owned one home, now own one or several vacation homes. The dramatic increase in property values over the last several years is not the result of people speculating on property values. It is simply the result of supply and demand in the real estate marketplace. A real estate bubble, like any other bubble, must be a by-product of excessive speculative activity and unsustainable prices. Otherwise, it is simply sustainable price adjustments reflective of the actual levels of supply and demand in the real estate marketplace. Here are five questions homeowners should ask to determine whether local real estate values are sustainable or whether they will likely come down as a result of a “bubble” effect in price appreciation:
Once homeowners and buyers are able to intelligently answer these questions, they will likely discover that price appreciation may either level off or increase at a slightly slower pace than the past several years. However, it is unlikely that home values will actually decrease in value unless local market conditions are indicative of unsustainable values due to excessive speculative activity. Gibran Nicholas is the President and founder of Nicholas & Co. Mortgage Planning Solutions, a private mortgage planning firm based in Ann Arbor, MI specializing in helping affluent families maximize wealth by successfully managing the equity in their home and other real estate properties. Phone: 888-608-9800 Email:Gibran@NicholasCity.comWeb Site: NicholasCity.com.
Five Questions to Ask When Your Broker Changes Firms. There is an aggressive recruiting effort underway in the brokerage industry and many clients may be informed that their broker is leaving one firm for another. Anecdotal evidence shows that clients are usually more loyal to the broker than they are to the firm. In addition to offering your congratulations, clients with accounts of any size will want to ask the following five questions:
If a broker has a good relationship with you, there is little reason to fear his move. He has a very high motivation to make arrangements with his new firm that allow him to improve his services and to keep your business. 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
New Comparability Plans Allow Firms to Classify Employee Groups and Enrich Qualified Assets for Highly-Compensated Workers. Discrimination is inherent in how highly compensated executives may contribute pre-tax dollars to a qualified retirement plan, unless they structure what are called "New Comparability" plans, an option around since 1986 and vastly underutilized. Such plans are available in both defined contribution and defined benefit modes. They allow professional practices and business owners to place a percentage of deposits into a qualified plan in a much more flexible manner. This gives them the ability to give retirement benefits to the people who deserve such a contribution through merit, rather than through typical testing rules required by the Federal government. Most people are familiar with the long-term benefits of investing pre-tax dollars into a qualified retirement plan. In fact most people, when cash flow allows, will make a contribution into a company-sponsored plan to the maximum extent that is allowed. Testing rules penalize the highly compensated. A worker earning $93,000 a year may contribute $14,000 or approximately 15% of their income, an unreasonably large amount for most workers in that income bracket, so few contribute at that level. But at the same time, the owner of the firm earning $500,000 is limited to the same dollar figure or only 3% of income. There is good news though. Retirement plans exist that allow the highly compensated professional or business owner to increase not only the amount deposited but to do so without having to increase the non-highly compensated group to any great degree. One such plan called New Comparability, around since 1986, allows the professional/business owner earning $500,000 to put away up to $42,000 with little increase for other lower-paid employees. In fact, if the person is over age 50 he can add another $4,000 for catch-up provisions or $46,000. The New Comparability structure creates a designation of "classes" of employees. By classifying employees by their position and tenure you can "give" the more productive, long term, committed employees a disparate percentage and still pass all testing requirements For professionals and business owners unenthusiastic about their 401(k) plans because of ERISA rules, take heart. A better approach is at hand, in fact its been in existence since 1986! Ask an investment professional to compare your existing plan with a New Comparability plan, and decide whether you and your firm can benefit from this very powerful retirement plan option. 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.
Low
Cost 401(K) Advice May Prove Devastatingly Expensive. CNN Money recently published an article on their website in which the author, Penelope Wang, suggests that sponsors should "think twice about managed accounts charging more than 0.3%." In a December 6th article in Investment News titled "Is Asset Allocation in Danger of Becoming Asset Relocation", they referenced that "costs generally fall in the 0.5% to 0.7% range" and suggest that anything higher is a poor value. The other side of the story - the value of actively-managed accounts at a higher fee - is not being presented. The Competitive
Marketplace Retail investors are routinely charged as much as 2% or more for a similar level of service for their IRA's or taxable investment accounts. An active manager may charge 1.50% for active account management services (with discounted fees of 1.25% for plans with greater than $3 million in assets). Commodity
Pricing for Strategic Asset Allocation Active vs
Passive Management You've read
about the Brinson study that found more than 90% of investment
returns can be explained by asset allocation, and that security
selection, expenses, etc. are relatively insignificant factors.
Yet, many investors pay management fees for security selection,
and at the same time, ignore the most important aspect of portfolio
management, asset allocation. If the greatest impact comes
from asset allocation, a premium fee for good advice is justifiable. Value Is
In the Eye of the Beholder Adoption
Percentage Investment
Performance Track Record Cost Does
Not Equal Value Jud Doherty is CFO of PMFM, Inc., founders of 401k Toolbox. 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. Jud can be reached at 800-222-7636.
INVESTMENTS AND WEALTH MANAGEMENT Your Existing Portfolio Costs May Depend on Your Financial Sophistication. Some registered reps counseling sophisticated investors may steer them to products with lower cost structures that are entirely different than the products they may recommend for the less sophisticated, and perhaps more vulnerable, clients, Fee-only investment advisors are seeing unhappy clients of wirehouses and regional brokers with aggressive marketing programs. These brokers recommend that their less sophisticated clients accept relatively high cost variable annuities, B-Shares and high commission equity index annuities. The same registered rep will compete for sophisticated clients and their assets by offering discount fees and commissions to get the client. Brokers are also more likely to look at the assets of their less sophisticated clients who have been on their books for some time, determine where there are gains, take those gains and reposition the portfolio, generating fees and transaction costs. In addition, the repositioning may not be in the best interest of the client or the advice is given in a vacuum not tied to a client-specific goal or future liability. In reality, the broker has no legal responsibility to the client after the sale and the sale is all about products. In contrast, the registered investment advisor is held to a higher standard and must act, only and at all times, in their client’s best interests – a requirement that causes the fee-Only Registered Investment Advisor to constantly evaluate the best solution for clients. Be wary of registered reps from brokerage firms offering financial counseling. Their ads may say “comprehensive financial advice”, but their actions may indicate something entirely different. Objective advice means that the consumer should have access to the best investment in each investment sector, not only proprietary products that the brokerage firm is pushing. Fee-only registered investment advisors do not move money to create commissions. They are paid a fee that depends on the success of their long-term investment strategy designed specifically for each individual client. They have an obligation to follow a plan that meets the agreed upon goals and objectives of that client. Be sure to include a visit to a fee-based registered investment advisor when you are shopping for financial help. Their view on fees, costs, and commissions are guaranteed to open your eyes and add to your financial education. Grunden Financial Advisory, Inc., Denton, TX, is a full service investment management and financial planning firm specializing in offering financial strategies that support a high net family’s meaningful life and generational influence. Ricky Grunden, CFP, 940.591.9007 or e-mail at rgrunden@grunden.com.
Conflict Free Financial Advice Comes Into Its Own in 2005. The financial services industry is filled with smart people who understand that the trend to offering investors conflict free advice is here to stay. Consumers are driving this trend in their search for conflict-free advice. No longer will deals that favor the financial product providers be hidden beneath layers of subterfuge. It has been obvious for years that Wall Street has become a massive conflict of interest. Smart financial advisors are now choosing product where there are no commissions, no payments, no trips, no gifts and very low management fees and transaction costs. These advisors will depend on client fees, and when their asset grows, their revenues grow. Advisors want to be on the same page with their clients, and that requires offering products with the lowest expenses, the chance for the best returns. Investors do not need to pay an expensive middleman who can now be completely cut out of the equation. Wall Street never wanted investors to know that it is very easy to invest retirement money. Financial advisors moving to a conflict-free practice would have avoided the mutual fund scandals by investing in ETFs, and the current insurance company scandals by scrutinizing what insurance products are the cleanest in terms of benefit to the investor. Staying out of conflict with your clients will not be easy. When an investor calls Vanguard, they are offered a variety of Vanguard Funds that may not always be the best or lowest cost option. The same thing happens at Fidelity. The phone representatives at these companies charge up to 1% for their phone services in helping callers determine their asset allocation between Fidelity and Vanguard Funds. The conflict is apparent. Conflict goes far beyond the investment products themselves, including:
The first question every investor should ask a financial advisor is “What is your conflict-free approach to working in the best interests of your clients?” It should be very obvious when an advisor has thoughtful answers to this key question that is at the heart of a long-term relationship. 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
How Much is Your Cash Costing You? A recent article in the financial press touted the benefits of parking cash in ultra-short bond funds (average maturity of one year or less), as an alternative to the current “paltry” yields on money market funds. The following data for five top-performing mutual funds in the ultra-short bond category was provided:
Compared to the less-than-1% average money market yield in 2004, the data appears heartening. Let’s take a step back, however, and look at the actual return on the funds, the one that you receive after factoring in inflation and the fees paid to those who manage the funds. The picture shifts slightly:
Alas, even in the best-performing fund (selection D), you would have ended 2004 with less cash in your account than you began. Why? The certainty of inflation and fund manager fees, and we haven’t even gotten to the taxman’s take. The moral of this story: Cash costs — never more so than in the current rock-bottom rate environment. Along with everything else you’ve scheduled in the first month of the New Year, make the drafting of your 2005 budget a priority. Commit to developing a budget (you wouldn’t run your business without one … why should your life be any different!), determine how much you need in a liquidity fund (6 months of living expenses is a good rule of thumb), and put your excess cash to work with a solid investment strategy. It has been said that the journey of a 1,000 miles begins with the first step. So it is with the securing of your financial future. Begin now and leave no stone unturned. Paula Chauncey, CFA, Managing Partner, être llc, 617-716-0257 works with individuals, and their closely held businesses, to develop and execute wealth-building strategies. pchauncey@etrellc.com.
Marketing Professionals are Behind the Curve in Creating Web Sites that Drive Business. Most marketing professionals don't have a clue how to use their websites to drive qualified customers to pick up the phone. Your websites often take on the resemblance of a brochure on steroids. Many of your sites have paid no attention to the most desired response (MDR) you are trying to achieve – that is, effectively generating qualified clients who are pre-sold when they make their first call to your consulting practice. The current state of most websites is not going to allow this to happen and the Web is a unique medium that must be learned. It’s all about content. Content drives comprehension, but we are a fickle society and spend increasingly shorter amounts of time with considerably less patience as we surf to find what we want on the web. Your prospective clients are no different. Writing copy for the web is a different skill than possessed by most good writers. Make certain your writers understand the medium and constantly are looking at new research about what works on the web. Keep your copy, particularly on the home page, very short and very heavy in the key words your market would use to search for you. It’s all about the graphic image. Because we have become such impatient information gatherers, it is important to design your consulting practice web site using graphic images that conspire with the text to drive your visitor to action. Unfortunately, many of you are still working with your first site and you are three generations away a graphic image and content that will drive your visitors to qualify themselves and move to action. It is all about search positioning We all think of websites as ads, which is a reasonable mindset. Search engines are the circulation of your ad and it is very important to think of it in that way. Getting your ad circulated well costs money, but it then results in more prospects so it balances out. Search engines are rapidly changing their rules on how sites rank, what is relevant to achieving high rankings – it can be maddening and it is prudent to expect this trend to continue. The most important thing to do is leave this technical bit to a professional and focus on what is really important, your measurable results. Search position doesn't mean anything if it doesn't translate into visitors. Without wasting your time on technical knowledge you don't really need. Focus instead on the specific number of visitors you need to generate the necessary prospects – so your “circulation purchase” can determine if the budget is meeting the goal. Something for everyone It is estimated that a web site will need revision every 18 months or sooner. We know that no matter how great your web site design, you are going to get lots of people who are not potential clients. The smart thing is to expect these visitors, and give them something to do, such as sign up for a newsletter, or to download a white paper on a hot trend in your industry. Collecting these e-mails helps you create a list for a blast e-mail campaign when your next book hits the press. Updating is Essential You would like to think that once built, you don’t have to pay attention to your site again, but that simply does not hold up under scrutiny. The web has become a pervasive influence on our lives and the technology that drive sites and the psychology that makes sites successful is changing and morphing. Expect qualified leads from your web site. It is a technology well suited to do that for you. If it is not happening, budget for a web consultant’s services. It may be the most valuable business expense you make this quarter. 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 and Amy Lasley KISS Computing, Eastham, Mass., 508-255-9550 x401, ross@kisscomputing.com.
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