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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 • Inaction is Costly When You Ignore the Generation-Skipping Tax Exemption. • Perspective is Everything in a Sideways Market. • Interest-Only Adjustable Rate Mortgages Are in Consumer's Best Interests. • Health and Desire should be Deciding Factors in Once-in-a-Lifetime Trip Planning, Not Finances. • One Top 20 Insurer Announces Exit from Long-term Care Market, Citing High Risk. • Tax Time Will be Complicated for Massachusetts Same-Sex Married Couples. • 401(k) Plan Investments Must Align With Both the Plan Investment Strategy and the Different Investment Sophistication of the Employees. • Managed Account Platforms Provide Tools to Help Meet Compliance Regulations. • Media: Sign Up for Free Subscription to In-Depth, Financial Education Resources.
Inaction is Costly When You Ignore the Generation-Skipping Tax Exemption. In the U.S., we have two tax systems. One for "Those Who Plan" and one for "Those Who Don't Plan". With planning, you and your spouse can pass on a little more than one million dollars per spouse to your family, without taxes, using the generation-skipping tax exemption. The catch is that you need to prepare to use this exemption by understanding everything there is to know about Dynasty Trusts, also known as Generation Skipping Trusts. You can protect your assets and their appreciation from both lawsuits and transfer taxation. You can help your family retain access to and control over your money for ninety-nine years after your death -- or longer. Significantly, if you do not use this exemption, you lose it when your assets pass to the next generation. Also, your family stands to lose 50 % of the value of your assets every time ownership transfers to the next generation. So, it's not only when your children inherit your estate that you lose 50%, but when their children inherit, and so on, until your "legacy" has been whittled away within a few generations. The U.S. government levies estate taxes at death when assets change ownership through inheritance. Congress has traditionally used estate taxes to pay for wars. While estate taxes have been abolished numerous times, they keep coming back, as do the wars. You can protect your wealth from this greedy estate tax by understanding and creating a Dynasty Trust. Create security for your family's assets during your lifetime, extend that protection into perpetuity. Provide your family with privacy -- trusts are not probated and do not become public record. Trusts help sustain family values because explaining your trust to your children requires an open discussion of your plans for your money. Proper trust development and administration helps family members who are not trained in the investment, legal, or accounting fields. Trusts are all too often ignored by families who believe their assets are too insignificant to warrant such a legal hassle. Keep in mind, that even if you do not have $1 million in assets, your appreciated home, a life insurance policy, pension account, and savings could add up to a significant sum. Don't ignore the possibilities of a Generation-Skipping Trust and related tax exemption. Be one of "Those Who Plan." For most investors, it is the right thing to do. 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
Perspective is Everything in a Sideways Market. Many investors have been frustrated this year with their investment portfolio "going nowhere". Sideways markets are very frustrating. A trending market (either up or down) is more interesting than a trading market that expends a lot of energy but goes nowhere. Perspective is everything. In 2004, the
most volatile market has been NASDAQ. You will notice that at some
points, late January for instance, the NASDAQ was way up. Yet,
eight weeks later in mid-March it had dropped significantly. The
first week of April it was back up, mid-May back down, and just
recently back up. This six-month period encapsulates what a management
style that reduces volatility is all about. However, even more importantly, look at the when the NASDAQ was under water and compare to an investment adviser who contains volatility. They would have reduced your exposure to the market because of the overall weakness and increasing risk. Risk averse managers, In fact, cannot tell if a market heading down is a 10% correction or the next leg of a devastating bear market. They hope it is a correction, but always act as though it could be more. The most common refrain from unhappy investors is that "it worked really well when the market was going up, but was horrible when the market was going down". Look for a manager who did not sustain major losses between 2000 and 2004 because they kept a balance between safety and return. Investors enjoy racking up nice gains as much as the next person, but need to realize that the key to long-term wealth is in not losing. And yet, the very model that allows investors to grow their portfolios in the long-term can create short-term frustrations in a sideways markets. No market goes up forever, down forever or sideways forever. Regardless of the direction, find a manager whose first goal is to protect your assets, while garnering the best possible result. It is worth the search. PMFM, Inc. principals are Tim Chapman and Don Beasley, near Athens, Georgia. Jud Doherty, CFA, manages the marketing and distribution of 401k Toolbox, a service that provides discretionary management as part of its advice product. PMFM, Inc., has nearly $1 billion in assets under management, and has been named 2004 Advice Provider of the Year by Defined Contribution News, a national trade publication covering the defined contribution industry. 401kToolbox won over Schwab and Financial Engines. The firm provides tactical asset allocation money management services for its own clients, for assets held by 401(k) plan participants, and for other asset managers' clients. PMFM has a lengthy history of good risk-adjusted performance, preserving the value of client accounts in uncertain markets. Tim Chapman, 800-222-7636, timchapman@pmfm.com, www.401ktoolbox.com
Interest-Only Adjustable Rate Mortgages Are in the Consumer's Best Interests. A recent Federal interest rate hike that has increased short term interest rates for the first time in four years has the news media buzzing about the impact of Greenspan's most recent action on mortgage rates and other consumer financing. With interest rates on fixed rate mortgages already 1.5% higher than last year at this time, consumers would do well to look at loan strategies other than traditional 15 or 30-year mortgage available on the mortgage marketplace today. The Interest-only ARM is a loan strategy that can help many homeowners dramatically increase cash flow and afford homes that would be unaffordable. Even if the Fed triples short term interest rates from their current levels, interest rates on interest-only ARMS will still be less than today’s 30-year mortgages. Typically, these loans last for 30 years, and allow homeowners to make interest-only mortgage payments for the first 5 to 15 years of the loan, after which time the payments will consist of principal and interest. The loans come in many versions. The interest rates can change monthly, or you can lock in the rate for 3, 5, or 7 years at a time. The interest rates range from about 3.125% on the monthly ARMs to about 5.75% on the 7-year fixed versions. If you start out with a $200,000 mortgage at 3.125%, the minimum interest only monthly payment would be $521. When compared to a traditional 30-year loan at 6.25% with monthly payments of $1,231, the cash flow savings run $710 per month. You can choose to take the $710 per month and apply it toward paying down principal on the mortgage, paying down other higher-rate debts (car loans, credit cards), or for investment or other purposes. Another benefit of these loans is that they are not subject to the higher “jumbo” rates; the rate would be 3.125% whether the loan amount is $200,000 or $1mm. In most cases, the home appreciation on a more expensive home will result in the homeowner building the same equity, if not more, when compared with a less expensive home and a traditional 30-year loan. If your mortgage originator does not understand these loans, keep interviewing brokers until you find someone who understands these instruments and can explain them to you clearly and confidently with actual spread sheets showing the differences between Interest-only ARMS and 30-year traditional mortgages. Gibran Nicholas, President and founder of Nicholas & Co. Mortgage Planning Solutions, a mortgage lender and broker in Ann Arbor, MI can be reached at 734-531-0180 or at gibran@nicholascity.com. The firm specializes in working with certified financial planners (CFPs), CPAs and attorneys, as well as builders with high-end clients.
Health and Desire should be Deciding Factors in Once-in-a-Lifetime Trip Planning, Not Finances. Recently, a comfortably retired, but not wealthy, woman was concerned that a special trip she was planning had become several times more expensive than originally anticipated -- four times more in reality. She consulted with her financial adviser about the reasonableness of her desire to spend this kind of money in retirement. Her adviser suggested that the deciding factors should be health and desire for this very exciting vacation option. Should she do it every year? No, her budget could not sustain a such a hit every year. Once, or even twice, while she had the health and interest and excitement to travel was certainly within reason. For many retirees, knowing whether they can afford to spend significant chunks of their assets requires assistance. Whether it is for elder renovations for a bathroom, a new car, or an expensive vacation, checking in with a financial adviser is a sound move. Many advisers find they are the deciding factor in helping their clients spend money as well as save it. Clients need someone to tell them that saving for a rainy day in the future must be tempered with living well and enjoying life today. Henry I. Montgomery, CFP -- 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.
One
Top 20 Insurer Announces Exit from Long-term Care Market, Citing
High Risk. The company has said that they will not notify policyholders of this change. Existing policyholders‚ contracts remain unaffected, since the company will still retain those policies.A July 2003 LTC survey reported: „∑a record number of companies exited the LTCI market last year‰ (Broker World, July 2003). A recent survey by LIMRA noted a change in insurance executive‚s perspective on the LTCI market. Gone is the bullish sentiment of past years. There is also a general acknowledgement that many older LTCI products are grossly underpriced. This means either eventually raising premium prices or facing losses as claims are paid. Neither scenario is attractive to insurance companies. The potential PR nightmare of raising premium rates on vulnerable seniors (many who live on fixed incomes) is likely a factor for insurers who are choosing to stop writing LTCI. As stock companies, most insurers face ongoing scrutiny of their financial performance, and have little appetite to stick with a product line that does not show promise quickly. Despite aging baby boomers and the attractiveness of private pay LTC options such as assisted living, total new LTCI premiums for private policies have declined two of the last three years. Marilee Driscoll, President, Long Term Care Learning Institute, 508) 641-9393, Plymouth, Mass., www.ltc123.com, author of "The Complete Idiot's Guide to Long Term Care Planning," is the nation's leading consumer authority on strategies to pay for long term care. She is President of the Long Term Care Learning Institute
Tax Time Will be Complicated for Massachusetts Same-Sex Married Couples. Now that same sex couples can marry in Massachusetts, many are finding that this new status brings complications. One example is in the area of income tax. Same sex couples who marry and are Massachusetts residents must now file their state income taxes as married (filing jointly or separately.) However, from the IRS's perspective, they are still legal strangers and must file their federal taxes as single (or head of household if qualified.) Massachusetts tax returns pick up a number of calculations from the federal return, so these taxpayers, in addition to preparing their federal return to file with the IRS as single or head of household taxpayers, will need to then prepare it again using a married status so they can create the calculations to carry over to their state return. PridePlanners, a professional organization for financial advisors working with the gay and lesbian community (www.prideplanners.org) also recommends that Massachusetts same sex couples who are married attach a letter of declaration to their federal return. Since they are filing a federal return as single (or head of household) when in fact they are legally married, even though the federal government does not recognize that marriage, these couples should attach a letter declaring that they are legally married in MA, but that because of the federal Defense of Marriage Act, they must file their federal return as if they were single. This prevents any possibility of being accused of filing a fraudulent return, as well as preserves their claim of married status if federal or other state laws change in the future. Susan Moore, CFPR, Moore Financial Advisors, Ltd., Watertown, MA, provides fee-only financial planning and investment management services for individuals and families, specializing in services for same sex couples and non-traditional families, as well as individuals in all stages of divorce. She is also President of PridePlanners. She can be reached moore@mooreadvisors.com or 617-393-9999.
401(k) Plan Investments Must Align With Both the Plan Investment Strategy and the Different Investment Sophistication of the Employees. Employers have an obligation to clearly articulate investment objectives for their 401(k) plan in a comprehensive, written investment policy statement, and the creation of this statement should be done in coordination with the plan provider. Whatever the strategy, plan sponsors should have access to a nearly unlimited list of funds from which they may select the funds to be offered to their participants. Plan sponsors need to scrutinize the screening process employed by the plan’s service provider. Does the plan provider offer comprehensive and stringent evaluation of the funds that are candidates for the plan? Is there a rigorous, quarterly review process that monitors the funds chosen for the plan. Does the provider actively support changes to the fund lineup when they are needed? While this process of selecting, monitoring and replacing funds is extremely important, it is still not enough. In addition, a plan must meet the diverse needs of all its employees. Look for a program that provides services for the following types of participant-investors: * Manage It For Me Meeting the needs of plan participants allows plan sponsors to fulfill their fiduciary duties. The right plan provider will be a partner in this effort. For a .pdf version of the ABN AMRO Retirement Plan Services 401(k) Plan Investment Options, e-mail beth_chapman@inkair.com, with "investment brochure" in the subject line. ABN AMRO Asset Management has multiple options for 401(k) plan participants who want assistance with how to invest their savings. ABN AMRO Asset Management an enviable and long history in investment management in the U.S. since 1887. Formerly known as Chicago Trust, ABN AMRO Retirement Services has managed retirement assets since 1947 and has been active in the defined contribution business for 21 years. Mark Metz, Director, Sales & Marketing, Retirement Plan Services Group, ABN AMRO - 312-884-2578. Mark.Metz@abnamroUSA.com
Managed Account Platforms Provide Tools to Help Meet Compliance Regulations. Your managed account platform provider is - and should be - your partner in protecting you and your institution from the time-eating and reputation-wrecking compliance issues that regulators are scrutinizing this summer. Appropriate compliance-ready forms and reports from a managed account provider are important for the executives, sales directors, and branch supervisors who oversee any managed account program as well as for the investment representatives who are selling from the program. Every institution wants to convince the regulators that it is carefully scrutinizing the actions of its investment consultants. A good managed account platform will help protect the institution and keep its reps on their toes. How an institution’s management monitors its representatives' trades is a key issue for regulators. Your managed account platform trade monitoring reports should display all activity of a specific representative, or all activity in a specific security, and do either for a specific period of time. Unauthorized trades have been in the news forefront for some time. In a managed account platform, trades of funds not on an approved or recommended fund list, or trades done outside the platform must be easily identifiable and examined by the institution’s managed account supervisor. Take compliance into account when choosing an independent managed account platform for your investment representatives. It is crucial for success. To reach Ron Mastrogiovanni, FundQuest, Boston, call Sarah Anderson at 617-526-7391. FundQuest is the leading provider of customized Web-based managed account platforms for financial institutions interested in moving their representatives from commission-based to fee-based product sales. Sarah_Anderson@fundquest.com.
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