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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
Underutilized Retirement Calculators Could Create Future Liability for Plan Sponsors. Very few 401(k) plan participants know whether they are on target to retire or not. Most 401(k) plan providers offer online calculators to help participants figure out their account status, and they could do that very well if they were not virtually unused by the majority of plan participants. These powerful tools have the ability to provide the participant with a full understanding of their situation because their projections are based solely on assets saved in the plan, and do not include rollovers, real estate, taxable savings, inheritances, and any other assets available for retirement. But, industry statistics suggest that less than 10% of participants avail themselves of these tools. The way that the 401k industry suggests that plan sponsors measure the success of their retirement plans normally may be missing a key component of what the participant would consider the real success of a 401k plan - what percentage of their employees are on track to retire or not. What is normally measured is a pie chart of how the company plan is split between different investment options, then within the pie, the employees' deferral percentages, and the average account balance by age. All of which give no indication to the percentage of participants who are on track for their retirement goals. Plan sponsor who have the ability to measure the percentage of employees on track for retirement may be able to reduce their fiduciary liability. Likewise, a plan sponsor can set reasonable expectations with employees who they know are not on track before they leave the company, protecting the company against future claims of inappropriate investment choices, Most financial advisors will tell you that their most successful clients are those who start planning early and consult regularly with a financial professional about their progress. Until the 401(k) participant's full financial picture is drawn, there is no way for the participant to understand their likely financial success during retirement. In a best case scenario, with the help of an independent advisor, participants may be more willing to share the necessary outside asset information that can put their 401 (k) savings success into perspective and help the participants determine their ability to retire comfortably or not. Greater effort needs to be made to encourage the use of existing tools, or new tools and strategies need to be developed to entice participants to better understand their likelihood of a comfortable retirement. Tim McCabe is VP of marketing for 401k Toolbox, a service of PMFM, Inc. 401k Toolbox provides discretionaery 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.
INVESTMENTS AND WEALTH MANAGEMENT Investors Have a Hard Time Finding an Educated, Coordinated Team to Manage the Real Estate Exchange Process for Them. It takes educated and smart investors who can filter information for themselves to find a coordinated team qualified to advise them on exchanging existing real estate and saving capital gains taxes using alternative strategies that allow reinvestment in options other than real estate. Isolated professionals working in their particular practice silos neither trust or know other professionals integral to the process of setting up a 1031 exchange, which is just one option available to the investor. It is this product-specific reluctance that eliminates a 1031 from inclusion in multiple discussions with an attorney, CPA, financial advisor, or real estate professional. Add to that the inherent mistrust of one financial professional for another, and the fear that the professional invited to assist with the 1031 will ultimately try to steal the client. The 1031 exchange design and implementation does take an integrated team and a "Qualified Intermediary" designated by the Federal government. However, many investors will find their "silo" professionals quite disinterested and negative about this option, a stand that is greatly to their financial detriment. The 1031 Exchange can save investors significant capital gains taxes when a property must be sold. Investors will also find that their advisors do not understand that they may use the exchange dollars from a real estate sale to invest in residential, single family property in resort or retirement locations of the investor's choice, private annuities, or charitable remainder trusts, in addition to investment real estate. Look for an advisory firm that positions itself as a family business office, where the expertise needed for all investment transactions are located under one roof, and where all of the professionals function as a team, working together to achieve the best after-tax outcome for their client. 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
If You Think Your Estate Planning is Complete, You Might Need to Think Again. Many people are reluctant to review their financial and estate planning, believing that once done, it does not need to be revisited. Unfortunately, old wills and trusts often do not stand up to scrutiny when matched against current situations and financial objectives. Even more startling, a PNC Advisor's study showed that 37% of Americans worth at least $10 million, don't have a valid will. Any number of errors or omissions become apparent when a trained financial professional performs a forensic review, or "gap" analysis. Here are a few of the common problems that surface:
Estate planning is not a static thing, it's an ongoing process. Things are always changing. Periodic review of your financial/ estate planning is essential when there are tax law changes, health changes or simply, when you change your mind," says Gary Hager, President of Integrated Wealth Management, Edison, N.J. “And remember, ongoing estate review and planning is not designed to make your children or grandchildren rich," "but to prevent others from making them poor." 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.
You Promised Yourself that You Would Not Leave a Financial Mess for Your Children Like the One You Inherited from Your Parents. So…..What Have You Done About It? Think back. Remember the overwhelming emotion, chaos and frustration when you were met with an urgent need to locate important documents necessary at the time of the death of a parent, and vital to settle their estate. You swore you would not leave a mess for your heirs. But you have been distracted. No one gave you a system to use. Everyday life simply takes over and the mess continues in your own important document life. If you are married or have been married, the most important thing you need is the original marriage certificate or a replacement issued by the municipality in which the couple was married. If you or your parents don't have one, the time to get it is now. It is the key to accessing spousal defined benefit plan retirement assets and spousal social security, as well as transferring title to cars, RVs, or motorcycles now in the deceased's name. What you experienced with your parents will be nothing compared to what your children will need from you to settle your affairs. Today, Boomers have more complex financial estates than their parents. You have multiple IRAs, mutual funds at many different fund companies, trusts your parents may not have had, multiple pieces of real estate, and probably a collection unappraised antiques. Despite good intentions, the system has not existed that provides the structure to allow you to do what you promised to do. Here is a starting game plan to create a structure that step-by-step helps you put your documents in order. Categorize your documents into major categories:
It is the documents we don't think about very often whose absence will cause, for your children, the same kind of chaos and emotional trauma that you promised you would not do to your own children. The time to get organized is now. You promised. 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
Roth
IRA Opens to High Net Worth Individuals!
Converting
your existing Traditional IRA to Roth status delivers two key
benefits: The upshot: A Roth IRA lengths the period of tax-deferred
growth for your investment dollars and gives heirs the opportunity
to benefit through tax-free distributions of the accumulated capital. Your
kids will love you for that! Roth vehicles do require contributions to be made on an after-tax basis creating some short-term pain. Balancing this "ouch" against the benefit of extended tax-deferred growth, until your death if you so elect, provides the long-lasting sweetness of tax-free distributions to you and your heirs. 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 .
Evaluating Sole Proprietor and Small Business Owner’s Insurance and Asset Protection is a Financial Planner’s Obligation. A financial planner has the obligation to review and inspect a client'sinsurance coverage. Clients may feel wary when discussing insurance becausethey don't want to be sold unnecessary coverage. Individuals, particularlysole proprietors and small business owners carry more risk than they may realize - and that risk can be managed with the right kinds of insurance coverage.
A financial planner should also review all areas of insurance with you, including life, health, disability, long-term care, builders' risk insurance, renters insurance and umbrella coverage. Another vital area worthy of discussion is disaster recovery both from a personal perspective (extended illness or bulding fire) and a community perspective (earthquake or hurricane). Other issues that might need review depending on the client include succession planning professional liability, product liability, environmental issues, creditors and uninsured and under-insured losses. 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.
Consumers Must Fill the Gap in Their Basic Education About Mortgages, Home Ownership and Real Estate Investments. Announcing
www.WealthEquity.com. Media
may request a free copy of the WealthEquty
DVDs by e-mailing josephinen@wealthequity.com. For many, the appreciation in real estate investments may generate the income depended upon in retirement to pay for property taxes, property maintenance, and long term care costs. Consumers and investors can no longer ignore the failure of the American educational system to provide the basic information needed by every American family. It is much too important a factor in creating long-term financial security. Consumers must learn how to build wealth through equity, how to qualify for mortgage financing and how to discern between good and not favorable financing opportunities for their mortgages. Page SevenConsumers can save thousands of dollars by understanding negotiating points, fees and closing costs on mortgages. How real estate is taxed and what is tax deductible is equally important to learn. Home equity lines of credit can be a boon or a bust for consumers depending on their understanding of leverage. Most consumers assume that a fixed-rate mortgage is their best choice when it may not be true at all. Building life equity with home equity impacts your ability to build your dream home, your ability to survive divorce and your ability to generate tax-free income during your retirement through reverse mortgages and other real estate-based alternatives. Real estate investment portfolios and successful commercial real estate investment strategies are an important investment sector that many consumers overlook. Investors will need $25,000 to $100,000 to diversify their portfolios into investment real estate. Real estate investments, whether for a primary residence, second home, or real estate investment portfolio require that consumers become educated. Do not let your lack of education hold you back in your efforts to build your family's wealth through real estate equity. Gibran Nicholas is the President and founder of Nicholas & Co. Mortgage Planning Solutions, a private mortgage brokerage and mortgage planning firm based in Ann Arbor, MI. Nicholas & Co. specializes in helping affluent families manage the equity in their home, vacation homes and investment properties to enhance wealth. Gibran serves on the board of directors of the Financial Planning Association (FPA) of Michigan, and he has created the ARM Planner education program to help loan originators across the country integrate financial planning concepts into the mortgage process. Gibran has also created Wealth Equity, a 5 1/2 hour DVD course designed to help consumers transform real estate equity into wealth through various real estate investment strategies and mortgage planning techniques. Gibran has been featured in various national publications including the Wall Street Journal, Investor’s Business Daily, Investment News, Financial Advisor Magazine, National Underwriter Magazine, Builder Magazine, Mortgage Originator and Broker Magazine.
A Client’s Opportunity for a Meaningful Life and Generational Influence is Driven by an Advisor’s Ability to Educate about Risk. Meeting clients for the first time, it is not uncommon for advisors to discover that client’s reaction to the risk tolerance questionnaire becomes far more conservative than they are currently invested. In many cases, they stuck it out with volatile investments and sat on the sidelines because they did not know what else to do. Or they sold into a declining market and have sat on the sidelines missing the recent good stock market years. Their takeaway is that risk hurts emotionally and financially. Period. This flies in the face of what advisors know – that some risk is necessary to achieve portfolio growth. Yet, the first question many prospective clients ask is how you, their financial advisor, intend to help them reach their financial goals. They have had little education on how to quantify risk and return. Without some risk, investing for a meaningful life that allows families to achieve influence on future generations will not happen. Ultra conservative prospects are not likely to meet their goals unless their attitudes toward equity investments and risk can be changed. There is certainly no single answer. The portfolio suggestions can and should range from the very conservative to the less conservative, depending on the risk tolerance of the client. Page Eight The suggestion that retirees should be in a 100% growth portfolio until death died in the tech wreck of 2000 – 2003, when safety became more important than growth. However, for the last four years, growth portfolios have suffered significantly as value investments have gained. Secure investments with little or no risk such as money market funds and certificates of deposits have not even kept up with inflation, nor can they provide an income stream. It is the advisor’s job, now, to educate these prospective clients and discuss portfolio strategies that help clients meet their financial goals. A stable income stream is necessary for every family to achieve their goals and support their legacy ambitions. The Grunden Ten-Year Risk Return Filter sm* is an educational tool developed with data from Dimensional Fund Advisors’ statistical returns program (see chart). It allows clients to see a graphic representation of what loss looks like. The comparisons offer clients an opportunity to visually and viscerally experience what the loss might look and feel like. In order to sort the strategies that will work for the client, the Risk/Return Filter shows the likelihood of positive annual returns on a 100% equity structured portfolio, and a 60% equity/40% bond structured portfolio, when compared to the S&P 500 returns. Discussing the different graphs (representing results that occur 68%, 95%, or 99% of the time) with clients will allow the advisor to gauge their risk tolerance for the probabilities of return. Through this process, they may discover that they feel comfortable accurately estimating rates of returns 9 out of ten times which equates to 95% of the time as it relates to the graph. The question for the advisor to ask the client becomes, “How much total portfolio loss could you bear in any one year unconditionally?” If the advisor explains the differences between the expected performances shown on the graph and elicits questions from the clients, the advisor has determined the maximum amount of loss acceptable to the client, Page Nineas well as the total maximum amount of loss that the client can bear -- two very important variables. If our hypothetical client responds to the second question by saying the maximum loss they can bear is 6% loss in any given year, then automatically the advisor will look to the investments that fit their risk tolerance. In this scenario that equates to recommending an investment portfolio that will return above 6% for 95% of the time. Using the two portfolio choices above you can rule out the Structured 100 portfolio and recommend the Structured 60 portfolio. The rates of returns for the Structured 60 portfolio have been between -5.86% and 27.11% in any given year 95% of the time over the last ten years. This tool and the dialogue that it makes possible with clients opens eyes and minds to the possibility of risk in the context of what can be accepted, rather than avoiding risk altogether and never reaching financial goals. Many people "feel" loss and only understand gains as something expected. The Grunden Ten-Year Risk/Return Filter SM puts investment track records into perspective allowing investors to move ahead with their choices expecting the same good result as the track record they are evaluating. When sudden short term losses occur, the advisor can point to the Risk/Return Filter SM and show the client that this loss is normal for this specific investment or portfolio and is not something to be feared. 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.
Community Bank Broker's Long-Term Client Service Models Will Win Out Over Brand Name National Banks and Wirehouses in Competition for Investor Assets. The brokerage services in community banks have become formidable competitors to the large national banks and wirehouses. There is no question that community bank brokerage services are more personal and service oriented than those offered by competitors. To keep their depositor's assets, many community banks are successfully offering robust one-stop shopping for their depositors. The key to these asset retention efforts are the carefully recruited bank brokers. At a wirehouse or other major firm, the broker focuses his selling efforts on the investor. At the bank brokerage, the broker must offer competency and investment acumen, first to their referral source, the banking partners, as a way of gaining introductions to a potential investor, and then to the client. It is the financial counselors in the commercial banking, business banking and private banking divisions, for example, who introduce their clients to the broker in a cross-selling effort to capture more of the bank client's investable assets. These referral sources for the broker enhance the long-term relationships that are possible in bank brokerage. Both the community banks and large national banks look to recruit wirehouse or large firm brokers who have strong existing client relationships and a portable book of business. In addition, they recruit brokers who have track records for providing excellent financial counseling and maintaining long term relationships. Ironically, banks do not recruit brokers from other banks, because they feel that depositor's assets are more loyal to the bank than the broker. Page Ten It is a common assumption that the large banks like JP Morgan Chase, Bank of America, and Wells Fargo would have the lion's share of assets in any given market, but ultra high net worth investors often prefer trusting their assets to community banks because of the long-term relationships they are able to develop with their personal advisors. Community banks are not saddled by the personnel changes so prevalent in the large national banks where customer service representatives are moved every year or so. Community banks offer a depth of products and services that are highly competitive with their national bank counterparts, such as investment, credit and lending, trusts and estates, and overall wealth management. The managing director at a very successful New York City community bank says they are more nimble, more flexible in compensation, make decisions faster, and offer its brokers better hours than the large national banks. "If we don't have a certain investment vehicle or product that a bank broker needs to offer his client, after due diligence of the product, we can make it happen quickly," he says. Terry Kors, RVP for Raymond James Financial Services Financial Institutions Division, who recruits brokers for community banks says, "If a community bank has a third-party marketing agreement contract with a broker dealer with a seat on the New York Stock Exchange, such as Raymond James, then they can provide any customer with the same capabilities offered by any large money center bank such as investment banking and alternative investment capabilities. Even better, the community bank should be able to offer a broker a greater referral base because the broker can reach the bank's various divisions accessing referrals, creating better teamwork, enhancing service capabilities to the customer and providing a better response time." In competing for the best brokerage talent, large national banks and wirehouses should worry about client service winning out over heavily financed brand name recognition campaigns. 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 .
Inadvertent Gifting Between Unmarried Partners Creates Complexities. A common issue for unmarried couples involves gift taxes arising from inadvertent gifting between the partners. It is not uncommon for couples who cannot legally marry to want to create joint assets. If one partner owns a house and changes the ownership to joint tenancy, a completed gift has occurred and a gift tax return should be filed if half the market value of the property is higher than the annual exclusion. In its most unromantic sense, legal marriage is the creation of an economic unit. There are over 1,100 federal rights and responsibilities that serve to strengthen the economic survival of the family. However, many families fall outside of this structure and planners need to be prepared to handle these complexities. The 2000 census showed that almost half of the adult U.S population is unmarried and this number is expected to grow significantly as the population ages. The strategies for planning for unmarried couples can be significantly different than those used for legally married partners. Since unmarried couples are effectually “legal strangers,” planners must be aware of many potential pitfalls and also be prepared to utilize creative techniques to effectively serve this client population. Dana Levit, CFP, Paragon Financial Advisors, 617-938-3864 and Jill Hollander, CFP, Financial Connections, 510-849-4667. Dana is President and Jill is conference chair of the upcoming PridePlanners April, 2005 national conference. See Below.
MEDIA ALERT: 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. PridePlanners will hold its 2005 national conference for financial advisors serving the unmarried singles, couples, gay and lesbian markets. “Unmarrieds represent 42% of the workforce and 40% of homebuyers. Financial advisors should to be up to date on the strategies for serving this large market whose needs require complex and rigorous legal and financial solutions,” says Jill D. Hollander, Conference Chair. For updates on Conference, or to register online, go to www.prideplanners.com .
Pricing Web Sites - How Much is that Doggie in the Window? One of the most commonly asked questions in the world of the web is how much a web site ought to cost. Here is a cost rule of thumb: $500 = Do it mostly yourself $500 - $2,000 = Basic "brochureware" site, what most local web development firms produce $2,000 - $5,000 = "Serious" brochureware that usually include shopping carts and other features, maybe some room for copywriting and photography. $5,000 - $25,000 = Usually heavy duty e-commerce, defined as a site with specific sales goals in mind when launched. Everything you need, including Internet marketing, is usually included. $25,000 or more = Income-generating machines with costs calculated as a percentage of expected sales. Not your first website, this includes all that you need and serious plans for ongoing work 1.
Price of Admission 2.
Design 3. Content and Production 4.
Functionality 5.
Marketing 6.
Make it Better All The Time The bottom line on cost of a website is a combination of your vision and your wallet. It's simple math that your web consulting firm should be able to calculate to the penny. 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.
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