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A Monthly Newsletter Source of Financial Sources • You Want to Change Broker/Dealers, but Can’t Stand the Thought of the Transition Hassle • When Women Take the Lead in Choosing a Financial Advisor, • Perfect book for tax time --Paper Clarity at a Glance: What to Keep and When to Let Go by Laura Moore, M.Ed. • Preparation, Rather than Denial, is a Must Before You Need Long Term Care • 2009 Taxes: An Important Year to Remember Tax Loss Carry Forward
---------------------------------------------------------------------------------------------------------------------------- Managed Accounts Performance Proves Target Date Funds Vulnerability as Qualified Default Investment Alternatives (QDIAs) -- What Your Company Needs to Know. Though a popular choice initially in the wake of the 2006 Pension Protection Act, target date funds as a Qualified Default Investment Alternative (QDIA) for 401(k) plans have since had several built-in disadvantages exposed. They are not the panacea the investment industry had held them out to be. One problem is that not all are created equal, and they tend to get less so over time as providers make a deliberate attempt to have their funds stand out from the rest. Losses in the 40% range of account values in 2008 uncovered their largest disadvantage. They are generally fully invested, which means they will experience downside volatility in bear markets, perhaps more so than many 401(k) investors can handle. Even the conservative (2010) target dates lost 25-40% of their account value in 2008 despite an investment profile that presumed a retirement horizon less than 2 years away. Such confidence-shattering declines can cause participants to opt out of target dates, perhaps to an inappropriate choice, such as a money market. This is bad for the plan sponsor in terms of fiduciary liability and bad for the participants in terms of long-term results. An actively managed account, on the other hand, likely provides opportunities for the money managers to take cash positions that mitigate risks in a declining market, thus lowering volatility and preventing the kinds of dramatic losses. There are other concerns unique to 401(k) investors. For instance, they may not understand that life cycle funds are diversified. A single holding (fund) on their monthly statement goes against the gospel of diversification that has been preached to them for years. Of course, the fund may be properly diversified, but that’s not readily evident to the participant. By contrast, managed account statements will exhibit a full list of holdings, as well as show movements in those holdings as they are rebalanced or changed out, thus demonstrating professional managers are actively working on the participants’ behalf. If you took a sampling of 2020 funds, you would find varying degrees of equity exposure. Add to this each manager’s propensity to seek differentiation by building unique portfolios (i.e., international vs. domestic), or allocations of holdings, and you have a recipe that will inevitably result in disparate performances. Services like Morningstar and Lipper are now ranking lifecycle funds just as they rank large cap growth funds. Some will top the performance list and others will be at the bottom. From a practical standpoint, plan sponsors will have a unique problem in this regard -- their choices may be scrutinized by employees whose money is being managed. What action step will a 401(k) plan sponsor take if their QDIA is comprised of target date funds that are in the bottom quartile of their peer group? Will they change 401(k) providers altogether, simply to get a better target date fund? Another crucial consideration is ‘real’ versus ‘relative’ returns. Older participants with larger account balances cannot afford setbacks. Many are now forced to continue working or to lower their retirement income goals. ‘Relative’ performance is unlikely to impress them. In contrast, a properly executed managed account using tactical asset allocation can offer market-like returns with lower volatility. Post-2008, flexibility has become important for investors. Congress has mandated age/retirement date-based account management but there are other factors. What if a younger participant wants less risk? What if an older participant has large non-retirement plan assets and therefore plans to pass plan assets along to the next generation? One final managed account advantage is present if a participant makes the investment decision to change their risk tolerance by selecting a managed account outside the age-based models within QDIA. If that happens, the plan sponsor is still protected from liability for that participant because he or she has made an active decision on their own behalf. The fiduciary liability for the investment decision transfers to the managed account provider, not back to the plan sponsor. Managed accounts offer additional benefits that are an advantage to participants as well. For example, some managed account providers offer services to participants that give them the opportunity to talk, one-on-one with salaried retirement specialists, about their individual situation. The participant can include spousal retirement plans, as well as any other assets that could become available for retirement, during their discussions with the financial professionals. The idea is to help them develop a complete view of their stated retirement goals, where they are currently, and what changes are necessary to achieve them. “The advent of managed accounts as a QDIA challenged plan sponsors to understand the extraordinary differences between managed accounts and lifecycle (or target date) funds. The market’s volatility now favors managed accounts, whose reduced volatility and flexibility make them the best choice of the three investment alternatives approved by the DoL”, says Tim McCabe, Stadion Retirement, leading provider of advice and managed account services to plan participants. Stadion Money Management,
Inc., Watkinsville, Georgia has more than
$3 billion in assets under management. The firm provides tactical asset
allocation money management and managed account services for client and
401(k) plan participants. Stadion has a lengthy history of good risk-adjusted
performance, preserving the value of client accounts in uncertain markets.
You Want to Change Broker/Dealers, but Can’t Stand the Thought
of the Transition Hassle. Transitions depend on transfer of a significant percentage of clients and that needs to happen as quickly as possible. Given the complexity of the transition paperwork and the toll it takes on the sales process of a normally functioning office, and the related loss of sales and income, it makes sense to look for help. The faster you get clients enrolled at your new firm, the better. Don’t let anyone fool you, changing broker/dealers really is a big deal. Moving yourself and your clients from one B/D to another takes additional time, energy, focus and expertise that you and your staff may not have, with a particular emphasis on time. Transition tasks, often left to sales assistants and office administrators, bog down an office and there is a very good reason for that. Everyone was busy before the transition and now they are expected to add on a heavy load of tedious tasks to get the transition accomplished. Trusting this task to a company specializing in broker transition and other sales office support is one solution. Here is a list of documents that you need to fill out for each of your clients or…. you can outsource them to a trusted firm:
Then, the crucial task is to get paperwork signed correctly and returned by the client. This requires that the paperwork be prepped so that clients are not intimidated or overwhelmed and can easily see the proper place for their signatures, social security number, date of birth and employment information. This can be done when the forms are initially printed by a specialist outsourcing firm. They can print red arrows on the appropriate lines as well as a yellow line under the signature area or red lines around a key data field. Each instance of a returned form that is signed correctly reduces the time and difficulty of retrieving this information with follow up calls to the client. Paperwork is not complete until every social security number, driver’s license and date of birth is correct. When a client forgets a signature or a small piece of data, it requires extra effort to clean up. Clients must be called and paperwork returned for proper signatures. It is easy for an advisor or his staff to mix up papers and either send the wrong papers or incomplete papers, particularly when the advisor and staff are relatively unfamiliar with the process of transition. Find an experienced outsource service with the in-depth knowledge of a financial professional’s business and paperwork requirements to finalize the transition documents so you can settle into your vision for your practice. Transition expenses range from $.99 to $1.99 per electronic account created. Use the transition to increase your level of service to your clients, uncover new opportunities, and streamline or implement those office procedures you have always wanted to implement. Why stop there! Use the same outsource firm to help with your ongoing sales assistant tasks such as, convert to electronic document management, preparing documents for client meetings, perform the necessary follow through with investment companies. The transition process will have given you a great taste of the outsourcing firm’s competency and capabilities and should have established solid lines of communication. These minor services that interrupt the daily flow of your skilled staff can often be outsourced for less than $100 per month. Glen D. Shepherd,
My Office Gurus LLC, provides the expertise, resources, and solutions
that give the financial professionals the freedom to successfully capitalize
on their own talents and strategically overcome their firm’s challenges.
He can be reached at info@myofficegurus.com or 402-359-1452. Go to www.myofficegurus.com
for further information. When Women Take the Lead in Choosing a Financial Advisor Many women are the high earners in their families and drive financial decisions, including retirement planning. There are specific questions to ask when a woman is searching for or making a change in an advisor. Let's face it, you are looking for relationship with an advisor who pays attention to the questions you ask and the answers you receive must be satisfactory. Here is a checklist of seven questions to ask when you are interviewing financial advisors:
If you are the high earning spouse and drive the financial decisions for your family, spend the time you need to carefully select the financial advisor who is sensitive to your needs and best able to answer all of your questions. The work is worth the effort. Andrew J.
Sohn, MBA, Sohn & Associates, Ameriprise Financial
Advisors, works with individuals, families and small business owners, to
help them achieve their financial objectives through a long-term relationship
based on knowledgeable advice. Sohn & Assoiciates offers financial strategies,
products and services -- and delivers them when, where and how you want
them. It's your choice.. The firm has offices in Boxboro, and Yarmouth,
Massachusetts. Sohn can be reached at ajsohn@gmail.com or 978-263-3336
x202. PERFECT BOOK FOR THE NEW YEAR - MEDIA COPIES AVAILABLE Paper Clarity at a Glance: What to Keep and When to Let Go Above all, this book offers peace of mind by reducing people’s fear of making a mistake, getting audited or wasting time searching for answers. No more frustration plowing through dense, complicated material. No more searching everywhere. Short, yet comprehensive, it’s all here — at a glance. Additionally, the book provides a strong foundation for dialogue between family members and professional advisors. Anyone who wants to bring order and greater security to their lives could use this book, especially during these turbulent times. Possibly for the first time, readers will be able to reduce their piles of paper and worry. Paper Clarity’s added value is in its unique design, carefully selected to ease learning, prevent information overload, and invite readers to approach and understand this otherwise dry material. Its size, color, binding, and feel all help make what is typically dreaded, potentially pleasant. Diagrams, 18 tips, and clarity on storage, taxes and audits all add more ease. The Paper Clarity Chart is the core element of this valuable resource. It includes a comprehensive list of over 100 personal (legal, financial, and medical) documents and records, information on how long to keep each document, and when one can shred or recycle. The book goes beyond getting organized; it helps people make good decisions. Laura Moore holds a Master’s Degree in Education from Harvard Graduate School of Education, and works as a consultant, workshop leader, professional speaker and writer. She is the founding principal of ClutterClarity at Home, teaching clients how to achieve sustainable relief from their clutter, and bring order and more enjoyment to their lives. She can be reached at Laura@ClutterClarity.com or 617-349-1661. To learn more, visit her website http://www.ClutterClarity.com or Blog: http://www.ClutterClarityatHome.com. The book is available on Amazon.com. For your copy of this book, send a request to beth_chapman@inkair.com with “Clarity” in the subject line. Include your mailing address. Preparation, Rather
than Denial, is a Must Before You Need Long Term Care The onset of a long term care event can come so suddenly that there’s little time to research and fully understand one’s options, identify the best way to take care of someone, and then vet the professional or informal caregivers for quality and safety. We believe that we are all going to live a healthy long life, be able to say heartfelt goodbyes before we die, and then pass on without any pain or discomfort and without lingering. If only it were so easy. But life is unpredictable. When it comes to the aging process, it’s far easier to go through life with blinders ignoring the signs and hoping nothing bad will happen to us or our love ones. But the consequences of failing to plan for our old age can be devastating to us, but more importantly for our likely care givers -- spouses/partners, families and friends. When you face reality and open the blinders just a little bit wider, you can begin the conversation of taking control of the care you want, where, and how you will pay for it. In this manner, you give your caregivers the role of supervising your care rather than providing necessary hands on day-to-day physical care. Daily physical care by an unequipped family member is not something we expect to be called upon to do. It can strain or even break the best of relationships. You have a friend who has paid the toll on their emotional, psychological and financial wellbeing never envisioning it would be so difficult. No one trains for this or takes courses. Important conversations need to be held within families when you are in your 40’s ideally, but definitely by your 50s, about how you want to be taken care of and how you plan to pay for your care long before you’ll ever possibly need it. In essence, develop a plan of long term care and identify what resources are earmarked to be utilized in the event you need long term care. These conversations are extremely important if you have family histories of long term chronic illnesses like Parkinson’s Disease, Alzheimer’s, Diabetes, Dementia, Strokes, and other Cardiovascular histories. When it comes to paying for the care, there is no one size fits all approach. Everyone’s financial and family circumstances can put a different spin on how best to fund the care. For many who struggle to set aside enough for retirement and have more limited reserves, and whose income sources might be smaller or more uncertain, the solutions are difficult at best. The government in many cases serves as provider of last resort for nursing home care through Medicaid though one typically has to spend down their assets to $2,000 for countable assets and $109,560* for the community spouse. Most states also require that a large percentage, if not most, of the ill spouse’s income be devoted to the nursing home care. This can leave the community spouse in desperate financial shape. Facing this now is a woman who had to find nursing home care two years ago for her husband, afflicted with Parkinson’s Disease. She could no longer continue to provide his care at home. She was exhausted and the cost of privately paid home care providers was seriously depleting her resources. They spent down what they had to do to qualify for Medicaid support and things seemed to be going along okay under the circumstances until the financial market meltdown caused even more hardship for her. The most recent conversation we had was what changes she could make to her own long term care insurance policy because she now feels as though she can’t afford it anymore. Her husband did not have long term care insurance so his care had been largely privately paid until they applied for and were successful in their Medicaid application. She is frustrated and desperate. She has carefully considered and chosen not to ask any of her three children for help as she doesn’t feel they are in the position to help out enough to make a difference and wouldn’t want them to feel guilty if they didn’t step up. It’s a story that plays out time and again in our country. For many of the vast middle class in America, this spend down process can be very painful. The changes that came in the Deficit Reduction Act in 2006 made it even more difficult for people to give away assets to qualify for Medicaid. The impetus for planning ahead is greater than it ever was. If one chooses to give assets away, find an attorney who specializes in Elder Care Law and a qualified Financial Planner, preferably a CFP® practitioner who understands the trade offs, so you or you and your spouse can develop a plan that works best for you. Determine how you might pay for the care
if needed, and whether purchasing long term care insurance is a good move
for your financial situation. Keeping blinders on about the possibility
you or a loved one will need long term care could lead to devastating consequences.
Planning in advance for that care, where you want to be, who will provide
the care, and how you are going to pay for it cannot be left to chance.
Stuart H. Armstrong,
CFP®, CLTC, a John Hancock Life Insurance Company (U.S.A.) agent with Centinel
Financial Group, a Boston Massachusetts area firm. He can be reached at
617-424-0005 or sharmstrong@jhnetwork.com 2009 Taxes: An Important Year to Remember Tax Loss Carry Forward April 15th is just around the corner. People are beginning to scramble to get their tax information together. While 2009 was a good year for most investors, we are still recovering from the disaster of 2008. Many people sold investments at a loss towards the end of 2008. They may not have used up all of their realized losses from 2008. Don't forget how much loss carry forward you may have to use in 2009. A taxpayer can use their realized losses to offset realized gains. If their net realized losses exceed their realized gains, they can further offset income up to $3,000. If they still have remaining realized losses, they can carry those losses forward into the following year. Any remaining realized losses from 2008 can be used to offset realized gains from 2009. Please consult your tax preparer for more details on the appropriate use of realized 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. 952-835-9000 - pfshim@usinternet.com. |
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