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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
Souped-up Education Versus Professional Money Management in 401(k) Plans. No matter how you describe financial education for 401(k) participants, it is still just education. No existing studies confirm that the majority of 401(k) participants want to become educated. Their company's management and the 401(k) plan provider, be it a mutual fund or insurance company, or others, have long supported the idea that participants want to make vital financial decisions for themselves, but that is changing with the availability of professional money management for assets within a 401(k) plan. For some participants, managing their own assets is a great and interesting challenge and they rise to that challenge and are comfortable with their decisions. For others, being required to make their own financial decisions, even with education is viewed as a frightening, life impacting event, with dire results if the wrong decisions are made. This seems particularly to be the feeling of older participants with larger balances, women who are not financially comfortable, and younger workers who are just beginning to grasp the responsibilities of planning for retirement. In the go-go days of the tech boom and dot.com bust, many 401(k) portfolios lost 40% or more in value, playing to the fears of many 401(k) participants who never wanted to manage their own money in the first place. Now, there is a more practical option for many 401(k) plan participants. The un-financially savvy 401(k) participant can choose a professional money manager to handle making all of the asset allocation and re-balancing decisions required to protect their assets in down or sideways markets and take advantage during up markets. The plan sponsor will make the services of a professional money manager available to participants, who then can choose to sign a contract with that money manager if they so choose. Then, it is the portfolio manager's responsibility to determine the participant's risk tolerance and invest their money accordingly. The long held assumption that robust, online education was what the majority of participants need does not hold up under scrutiny. Happy are the participants who can delegate the money management duties required by their portfolio to the professionals. PMFM, Inc. -- Since the early 90s, PMFM has managed assets for a wide ranage of clients, including individual investors, trust accounts, and qualified retirement plans. PMFM is a registered investment advisory firm located in Athens, GA. They offer separate account management services, proprietary mutual funds, and is the advisor to 401K Toolbox, one of the leading 401(k) investment advisory services in the nationa. PMFM manages approximately $650 million in assets as of September 30, 2004. Contact Tim Chapman, Managing Partner, 800-222-7636.
Keeping Assets Under the Control of the Family is Important in Estate Planning: But are the kids ever ready to take on that responsibility? Ninety percent of the time, parents ready to do serious estate planning have children, grown adults, who have formed their own financial opinions and professional relationships. In fact, studies show that moral and ethical values are established by the time a child is 9 or 10. Time takes care of the rest. So just how much education - or coercion - can parents try to impose with estate planning? The bottom line in estate planning is the preservation of family wealth. Some families have children in very bad marriages and anticipate messy divorces. Some children are addicted to drugs, alcohol or even spending. Education is not going to impact these family situations. Estate planning lends itself to extremely specific customization so that it can reflect the needs and status of individual beneficiaries. Most kids grow into responsible adults with little or no knowledge about preservation of assets. Parents who create a dynasty or generation-skipping tax trust (GSTT) and introduce their children to the advisors who helped them create this trust, are offering their kids a way to preserve assets from generation to generation. The children also have the option of closing the trust and making their own, independent decisions. However, leaving a structure for preservation of your assets and asking the children to discuss your reasoning will go a long way toward helping them retain assets, the overarching goal of most parents. 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
Why Every Investor Needs a Pre-Nuptial Agreement. Pre-Nuptial Agreements are often used to secure the financial well-being of a marriage. In simplest terms, the Agreement is a joint expression of the betrothed couple’s wishes for the growth and preservation of the union’s assets. You may be surprised to learn that Pre-Nuptial Agreements exist within the world of investment advisory as an Investment Policy Statement (IPS). This straightforward, yet powerful, statement can spell the difference between a long, satisfying partnership with your investment advisor and a nightmare. Needless suffering can occur when the parties to the investment advisory relationship fail to use this vital tool. A foundation that has just recognized an unanticipated level of losses in the capital earmarked for its mission, or an individual investor for whom an advisor’s ill-conceived, and largely undisclosed, investment strategy has effectively postponed retirement by a decade, have a common missing link --the Investment Policy Statement. The IPS establishes and documents the understanding between the Client and the Advisor with respect to the expectations, objectives, and management guidelines for investing the portfolio. It covers critical ground by:
Don’t delay. Contact your investment advisor and request a copy of your portfolio’s IPS. If this request is followed by a long pause, respectfully request that a Statement be drafted before any further fees are paid to the advisor. A Statement is likely to follow in short order. Paula Chauncey , CFA, Managing Partner, être llc,617-716-0257works with individuals, and their closely held businesses, to develop and execute wealth-building strategies. pchauncey@etrellc.com .
Gifting, With Strings Attached. Most people are familiar with using the unified credit exemption of $1 million per parent at death, but it may be more advantageous to consider using the credit during life. The IRS gives us both a "cold water" and "hot water" spigot in which to make gifts. This allows each parent to make an $11,000 annual gift per child/grandchild (cold water tap) and the ability to gift $1 million per parent in a lifetime exemption (hot water tap). Gifting usually occurs when parents are determined to see the maximum amount of their hard earned assets escape estate taxes. Gifting or peeling off assets from their estate while alive may make good sense. For example, by gifting a $1 million asset out of the estate while alive, the parents are, in essence, giving away all of the growth on that asset. Assume that the $1 million appreciates at 7.2% over 20 years. The rule of 72 says this gift will double twice to $4 million. Giving away the credit amount today, results in removing $3 million from the taxable estate, and at a 50% estate tax rate, may provide a potential savings of $1.5MM. In larger estates there are many additional strategies to "leverage up" this credit amount. For example:
Removing assets today essentially removes the growth of a valuable asset from the estate, thereby reducing future estate taxes. The use of trusts can shelter assets from adversaries, including divorce, death and remarriage, liability, and creditors. Trust creation should be built to suit the specific, customized needs of individuals and their families. For anyone concerned about giving away money that may be needed later, any gifting strategy should be very carefully scrutinized. Another cutting edge approach families are starting to use is the SLAT or spousal lifetime access trust. A typical approach has Dad creating a trust for Mom and the kids, Mom gets the proceeds of the trust first, then they go to the kids. Mom creates the same trust with Dad as the first beneficiary and then the kids. Here's how it works. Each parent can place assets into the other's trust. Assume four children at 11,000 each from two parents = $44,000 x 2 = $88,000) plus both parents can gift their $1 million exemption. Then, if they wish, they can give away $ 2,088,000 in the first year. But since Mom and Dad are beneficiaries to the other's trust, the assets have not really been given away and can still be called upon for health care, long term care, real estate maintenance, general needs, and the assets can still grow. They can pass to the beneficiaries free of estate taxes. In addition this strategy effectively protects assets from all adversaries. Gifting while we are still alive, rather than waiting until death is a powerful desire on the part of some parents. The issue is that many parents do not want to lose control or access to this money, therefore many do not participate in what could prove to be an economic home run for their estate plan. The use of a SLAT allows parents to gift, while maintaining a certain degree of control and almost unlimited access until the death of one spouse. It is also a practical approach. A wealth preservation specialist with gifting experience can offer numerous scenarios of interest to couples doing their estate planning. 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. New Consumer Booklet Aids Those in Long-Term Care Crisis. Marilee Driscoll , author of “Complete Idiot’s Guide to Long Term Care Planning” has written a 42-tip booklet“Long-Term Care Planning Tips When There’s No Time to Plan,” a user friendly guide to help family members start the journey when they are in an elder care. Many American consumers are grappling with a long-term care crisis and their numbers will only increase as the Boomer’s parents age. In fact, most elderly people do not plan for their long-term care. The logistical, legal and financial decisions often land, by default, on unprepared family members. The family needs information and perspective, but does not have time to read the many good books on the topic when they are in crisis. Here are some sample tips.
Consumers may order the book at www.ltc123.com. Media: E-mail your request for a free booklet – a valuable addition to any story on long term care, to md@marileedriscoll.com Marilee Driscoll , President, Long Term Care Learning Institute, (508) 641-9393, Plymouth, Mass., www.ltc123.com, is the author of "The Complete Idiot's Guide to Long Term Care Planning. She is the nation's leading consumer authority on strategies to pay for long term care. She is also the founder of national Long-Term Care Planning Week, October 1-7.
The Truth You Need to Know About Real Estate Appraisals In many high-end markets where homes are not selling as fast, consumers are often frustrated because their perception is that the appraised value of their home is far less than what it is actually worth. In many cases they are right! This does not change the fact that real estate appraisers must adhere to very specific rules and guidelines bestowed upon them by the lender. There are three common problems that appraisers are facing in many of the higher-end markets:
On a refinance, if the appraisal comes in at a lower value than what you expected, you may need to change the loan amount or the mortgage structure. On a new home purchase, if the appraisal comes in at a lower value than the purchase price, you need to do one of three things:
In all cases, you should be working with a mortgage broker who can creatively work for your best interests and advise you on the proper financing strategies whether your home appraises above value, at value or below value. 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.com Web Site: NicholasCity.com
Many Surprises Ahead for Brokers Looking to Change Firms. Brokers think they understand the nuances of hiring and firing in their industry. But the industry landscape has changed and some of the changes may be surprising. Here are a few realities that brokers find when they put their toe in the water and test the temperature: Importance of Fee-Based Books Broker/dealers insist there is a place for successful transactional brokers, but from a compliance standpoint, fee-based books are far more desirable to any recruiting broker dealer. Fee-based brokers need far less management oversight. Any broker looking to change firms should know that the most aggressive transition packages are going to those brokers who meet the benchmark of a book that is at least 40% fee-based. Dropping TROs, Increasing Scrutiny Some wirehouse firms have a adopted a Broker Recruitment Protocol which in essence has created a hands-off pact with each other, agreeing to cease slapping Temporary Restraining Orders (TROs) on brokers when they leave. These large firms came to the conclusion that the TROs were not in the best interests of the clients, the broker dealer or the broker, and really only benefited the lawyers. As a result, however, firms are becoming tougher on brokers who may be suspected of looking around, even though it is common practice and advisable for all brokers. While it makes absolute good sense to explore options and become educated on what the competition is offering and what sort of opportunities exist in the marketplace, the requirement for discretion is now even greater. Recently, two brokers were fired from different firms in different parts of the country because their managers suspected that they were looking to leave. As a result, their U5 record states that they were terminated, and they will be scrutinized more carefully by the hiring firm. Best practice dictates that you make sure you schedule meetings after hours, talk on with recruiters from other firms on your cell phone, and absolutely take no client files home with you. Once you make up your mind that you need to move -- just go – the longer you delay the greater the chance for problems. Geographic Options and Speed of Change Brokers living near large cities may believe their careers require an address in the city and that transition packages will be greater there. The truth is, brokers can be just as successful in the suburbs and the transition package depends on qualities you bring to the table, not your geographical location. However, in negotiations for a new job, you may be able to work in the suburbs and meet clients in your firm’s offices in the city. Unless you have been terminated, or are going to be terminated, take your time in making a decision, talk to the hiring firm's legal counsel about how best to resign and transfer clients, and make decisions that are in the best interests of both you and your clients. Bank Brokerage Brokers are still surprised at the opportunities available at large national bank brokerages today. Bank brokerages are being run by former brokerage firm managers, not bankers, and have become a viable alternative and real competitor to the wirehouses. Brokers are able to tap into all of the products and services of the bank, such as credit and lending programs, mortgages, as well as a full suite of investment products and services, such as separately managed accounts and managed money. Bank brokers experience no sacrifice in serving their existing clients, and can potentially tap into a handsome transition package, and gain access to a prospective network of high net worth clients. You can avoid unexpected surprises when you understand changes in the recruiting landscape. 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 at908-879-1002, or mdiamond@diamondrecruiter.com.
Implementing 21 st Century Technology Boosts Online Sales Dramatically for 18 th Century, Hand-crafted Copper Lanterns Company enjoys $100, 000 in online sales in the first year. Michael Joly, owner of the Nauset Lantern Shop, Orleans , Mass. , www.nausetlanternshop.com hadn't made a single online sale, ever, from his previous three web sites over three years. A new web consulting firm, KISS Computing, Eastham , Mass. , developed a strategy for Nauset Lantern Shop that dramatically changed his online sales profitability, landing more than $100,000 in online sales the first year. The challenge was to design and develop a system that would allow for ordering customized, hand-made, high end copper, brass and pewter lantern styles, including choices of glass, finish and caging. KISS met the challenge by designing a web site that presented the eighteenth century craft appropriately (antique textures on background and sepia tone photos) while still giving the prospective buyers complete control over elements of their lanterns, all on one page and at the same time. It was important to differentiate this hand made product from those that are mass-produced replicas. Particular attention was given to using carefully written copy from previous web efforts, plus providing appropriate keyword density for effective search engine indexing. The use of a clear and consistent navigation, detailed photographs and architectural renderings of each lantern, and supportive pages explaining a coppersmith's work in layman's terms, all helped achieve the differentiation sought. The front-end. single page interface, a non-traditional shopping cart feature, was developed specifically for Joly, allowing not only for the customization of features, but also for the visual display of all custom features. A visitor never leaves that design/order page until the decision to buy is made, and then it's a simple check-out process thereafter. Nauset Lantern’s shopping cart was built with an extensive administrative back end that allows the coppersmith to manage it himself. The back end is password-protected, and he can make edits himself, including price changes, the addition of customization features, and order management. The system automatically sends a confirmation email to the customer upon the placement of an order, and notifies Joly by an e-mail containing all the order information, including customization features. These e-mails are editable in the back end as well. KISS started of a marketing campaign by implementing a Search Engine Rank Analysis Report for Joly. With that documentation in hand, a campaign was undertaken that involved paid inclusions (Yahoo Business Express, Inktomi) and cost-per-click efforts. An integral part of this campaign was search engine optimization (SEO) site work. The site was launched the first week of May, 2003, and marketing continues monthly. KISS prepares and delivers to Joly and all clients, a quarterly Executive Summary-style consulting report that presents recommendations for change-based data that is important in managing the site. Change recommendations include ways to improve functionality, customer ease of shopping and lantern customization, and the effectiveness of copy in providing a word diet rich in keywords. Joly identified a sales goal for the first year of online commerce, and KISS accepted his challenge. The stated goal was $5,000 per month in online sales, or, $60,000 for the first year. KISS was pleased to present him with a year-end consulting report that identified actual first year sales in excess of $100,000, bettering the goal by more than 65%. 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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