The Value of a Financial Planner

John_Salter2012

John R. Salter, CFP®, AIFA®, PhD Wealth Manager, Principal

Financial planning is the process of determining how you can meet your financial goals by managing your financial resources. Probably you have already thought about your own financial planning. Maybe you have thought about working, or already work, with a professional financial planner. Whatever your situation, we wanted to discuss the value of working with a financial planner.

Financial planners provide advice on how to achieve financial goals. The quality of the advice should be measured by whether you attain those goals. The value of financial planning lies in the development of a plan specific to your goals, but just as important is the guidance you get along the way.

Below are just a few ways financial planners provide value to clients.

Creating a Financial Plan

One well-documented fact about our lives is we are likely to spend more time planning a vacation than planning for our retirement. And why not? The vacation seems much more fun! However, the vacation is a one-time event, whereas issues related to your financial life have a lasting impact on your future (and your ability to take vacations, for that matter!) A financial plan maps out the steps you need to take in the areas of spending, saving, investing, managing risks, and handling bequests in order to attain your financial goals.

A financial planner provides the analysis and can outline the steps needed to meet your current and future financial goals.

Being a Sounding Board

Should you pay off your mortgage? Should you buy or lease your car? What about buying a rental property? Were you pitched an annuity at a free dinner? A financial planner can help you answer all these questions and more, either through an analysis and/or by providing the details you need to make an informed decision yourself. You can probably think back to times you have contemplated a decision, seemingly to no avail, when an objective opinion could have saved you time.

A financial planner is there to help.

Optimal Investing

Investing should be boring. We should focus not only on achieving returns, but also evaluate the risk we are willing to accept to reach those returns. This “risk” refers to how much your portfolio might drop in a short-term bear market, but also the risk that you might not be able to meet your future financial goals. Our investments should be diversified; we should not have all our eggs in one basket. The best portfolio should arise out of the overlap between your risk tolerance, your financial capacity to take risk, and the risk and return needed to meet your future goals.

A financial planner helps determine your optimal portfolio.

Staying Disciplined

Long term, we are likely to be our own worst enemy in terms of keeping our financial plan on track, both in terms of performing the financial planning tasks we need to undertake and sticking with the investment plan. One notable example is estate planning, which seems to be the last item on everyone’s to-do list. Sometimes we need simple “nudges” to make sure these tasks are completed. Financial planners also help stay on track with our investments. When the market’s down, you want to adjust and make it more conservative, and then get back in when it is up. This is the easiest way to lose money long term. Ongoing management includes rebalancing or bringing the investment mix back to target. In general, this is selling the winners and buying more of what hasn’t done as well recently, and of course assumes long-term investment values will rise. Does short-term market volatility get you worried? Why not have your financial planner help you stay disciplined through the ups and downs of the market cycle, which are inevitable, simply by reaching out to you during rough markets?

A financial planner helps you stay disciplined through the financial planning process.

Managing Behavior

We are human, and therefore we are hard-wired to make terrible financial decisions. We want to be in the market when things are going well, and out when things look bad. We should do the opposite. We focus too much on the short term; we want to make decisions based on short-term noise rather than long-term analysis. We want to be in the winners and out of the losers, whereas being spread across winners and losers (being diversified) is the best long-term strategy. We want our investments to be exciting and sexy, but they should be dull and boring. We want to chase the investments that did well in the too-recent past, but they are likely those that will falter in the short-term future. We make decisions based on simple rules of thumb because we cannot perform complex math in our head. Our behavior, based on the emotions tied to our money, prevents us from reaching our future financial goals.

A financial planner helps manage your behavior and separate emotion from your money.

Tax and Cost Efficiency

In a world of lower return expectations, and given that we cannot control the markets, the ability to control and take into consideration tax and cost efficiency becomes even more important. Many financial planners have access to the universe of financial products. This means they also have access to the range of costs of products and may be able to implement a plan more cost effectively compared to a retail solution. If a financial planner can access a mutual fund for 0.5% less, that is 0.5% more staying in your portfolio. Tax savings produce similar benefits. A financial planner can not only make long-term tax-efficient recommendations but can also strategically position your individual investments in certain accounts to minimize current taxable income. A solution which decreases the tax you pay also results in more money accumulated or available.

Keep on Track

A financial plan is important to meeting goals, and maintaining and monitoring the plan are the check-ups required for progress. Annual meetings with your financial planner provide the opportunity to review your goals and see progress toward meeting them. Of course, we all know life can change at any moment, so updating and monitoring financial plans takes account of the ebbs and flows of life.

So, what is the quantifiable value of a financial planner? Many studies have addressed this question. These examples include many of the topics above, such as the financial planning process, portfolio construction and investment selection, rebalancing, and tax efficiency. The answer? Studies have concluded the value of a financial planner and the financial planning process can add an upwards of 3% in returns per year.

Below are links to a few of these studies.

https://www.fidelity.com/viewpoints/investing-ideas/financial-advisor-cost

http://www.envestnet.com/sites/default/files/documents/ENV-WP-CS-0516-FullVersion.pdf

https://www.vanguard.com/pdf/ISGQVAA.pdf

https://corporate1.morningstar.com/uploadedFiles/US/AlphaBetaandNowGamma.pdf

No matter how you might value a financial planner, the true value comes from the benefits listed above and from following and keeping on track with the financial planning process. Value goes beyond simple products or investment choices and returns. A financial planner is your partner in meeting your future financial goals.

Feel free to contact John Salter with any questions by phone 1.806.747.7995 or email: JSalter@EK-FF.com

For more information on financial planning visit our website at www.EK-FF.com.

NewsLetter Vol. 11, No. 3 – June 2018

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Dear Reader:

 

DEPRESSING IF TRUE

“Medicare to go broke three years earlier than expected, trustees say.

Medicare’s hospital trust fund is expected to run out of money in 2026, three years earlier than previously projected, the program’s trustees said in a new report published this afternoon.

“The more pessimistic outlook is largely due to reduce revenues from payroll and Social Security taxes, and higher payments than expected to hospitals and private Medicare plans last year.

“The solvency report is the first since the repeal of Obamacare’s Independent Payment Advisory Board earlier this year as part of a massive spending agreement in Congress. The panel outside experts was designed to tame excessive Medicare spending growth, but costs never grew fast enough to trigger the controversial board, and no members were ever appointed. Social Security faces depletion in 2034, the program’s trustees also said today. That’s identical to last year’s projection.”

https://www.politico.com/story/2018/06/05/medicare-outlook-2026-625908

 

GOOD NEWS? BAD NEWS?

From my friend and long-term care guru, Bill Dyess.

I don’t know if it’s good news that someone needed LTC this long, but it was certainly good news that their insurance covered them. Here are the largest claims as of 12/31/2017 (and they’re still being paid!)

Male Female
Paid to date $1,592,000 $2,600,000
Years claim has been paid 9 years, 10 months 13 years, 9 months
Initial premium/year $4,474/year $2,600/year
Years paid until claim began 6 years, 6 months 13 years, 9 months

 

PITHY THOUGHT

For market timers….

Think about the few times when there was lots of certainty—2000 or 2009. How did that work out?

 

TEST RESULTS

From my last NewsLetter …

A TEST

John Durand wrote Timing: When to Buy and Sell in Today’s Markets, a classic in active investment management. He also wrote How to Secure Continuous Security Profits in Modern Markets, in which he opined: “As this is written, one of the greatest bull markets in history is in progress. People have been saying for several years that prices and brokers’ loans are too high; yet they go on increasing.… People who deplore the high at which gilt-edged common stocks are now selling apparently fail to grasp the fundamental distinction between investments yielding a fixed income and investments in the equities of growing companies. Nothing short of an industrial depression … can prevent common stock equities in well-managed and favorable circumstanced companies from increasing in value, and hence in market price.” When was his book published?

No winners, but here are ones that came mighty close:

Alan Rosoff ……………… 1928

Richard Lorenz………….  1930

Jewell Davis ………….…  1925

The publication date was September 1929.

The Great Depression started October 29,1929.

TIDBITS FROM AARP

  • Only about 37% of couples share financial decision-making equality. For shame!
  • The average parent thinks allowances should begin at age 10.
  • Approximately 29% of women in dual-income marriages make more money than their spouses; that’s up from 16% in 1981.
  • The “average” family in the top 10% of wealth in the United States receives an inheritance of about $367,000, while families at the median level of wealth report an average of about $16,000.
  • The average payout from the tooth fairy in 2017 was $4.13; in the West, it was $6.
  • About 53% of grandparents contribute to their grandkids’ education, and 23% contribute to health and dental bills.

 

FOREWARNED IS FOREARMED

When markets take a dip, it’s not the end of the world (and if it is, who cares about markets?).

06-2018_Market Downturn

Even better, from our perspective, is that corrections are great buying opportunities.

 

GOOD NEWS, BAD NEWS

While the Federal Reserve’s “Report on the Economic Well-Being of U.S. Households in 2017” stated that “overall economic well-being has improved over the past five years,” that optimistic headline masks a lot of sad news.

“Economic Well-Being. A large majority of individuals report that financially they are doing okay or living comfortably, and overall economic well-being has improved over the past five years.

“Even so, notable differences remain across various subpopulations, including those of race, ethnicity, and educational attainment.”

Furthermore:

“Dealing with Unexpected Expenses. While self-reported financial preparedness has improved substantially over the past five years, a sizeable share of adults nonetheless say that they would struggle with a modest unexpected expense.

“• Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money. This is an improvement from half of adults in 2013 being ill-prepared for such an expense.

“• Over one-fifth of adults are not able to pay all of their current month’s bills in full.

“• Over one-fourth of adults skipped necessary medical care in 2017 due to being unable to afford the cost.”

https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf

 

PHEW!

Good thing I went to college a zillion years ago. Here are the statistics for Cornell’s Class of 2022:

Applicants     –           51,000+ (a record high)

Admit rate      –           10.3%    (an all-time low)

Admitted        –           5,288

 

SAD BUT TRUE

Cyberattacks are a reality of life today, and we take the risk very seriously.

2.9% of advisors have faced successful attacks on their firm (not us).

44% of firms with more than one employee require mandatory cybersecurity training (we do).

81% of advisors believe addressing cybersecurity is high or very high on their priority list (we believe it’s very high).

 

IF YOU HAVEN’T SEEN THIS

New York Times

“Hoping to thwart a sophisticated malware system linked to Russia that has infected hundreds of thousands of internet routers, the F.B.I. has made an urgent request to anybody with one of the devices: Turn it off, and then turn it back on.

“The malware is capable of blocking web traffic, collecting information that passes through home and office routers, and disabling the devices entirely, the bureau announced on Friday.”

https://www.ic3.gov/media/2018/180525.aspx

 

TULIPS

As I wrote in my last NewsLetter:

Here’s what Crypto pioneer Mike Novogratz said on Monday on CNBC’s “Fast Money” (12/11/17).

“This is going to be the biggest bubble of our lifetimes.” Which, of course, does not stop him from investing hundreds of millions in the space. While conceding that cryptos are the biggest bubble ever … “Bitcoin could be at $40,000 at the end of 2018. It easily could.” Then, of course, it may not.

Turns out, so far, it’s “not.”

06-2018_Bitcoin USD Price

 

GOOD ADVICE

Also from AARP, an excellent article (as always) by Jean Chatzky: “Planning for the Worst.” Why disability insurance may be a must-have for you and this article is must-have reading for my younger readers.

https://www.aarp.org/work/working-at-50-plus/info-2018/disability-insurance-chatzky.html

 

DISMAL

“Dismal Outlook for Millennials” was the headline in a planadviser article. Why?

67% 66% 47%
Feel they will outlive their savings Have no retirement savings Think they will be unable to retire when they would like to

And, to my amazement,

Only 34% Only 21%
Participate in a retirement plan Are worried about their retirement security

 

THE ANSWER IS “BECOME A CEO”

“Income inequality in the United States has increased significantly since the 1970s, after several decades of stability….”

Wikipedia

The New York Times ran an interesting, albeit depressing, story highlighting this issue:

“Want to Make Money Like a CEO? Work 275 years.

“This year, publicly traded corporations in the United States had to begin revealing their pay ratios—comparisons between the pay of their chief executive and the median compensation of other employees at the company. The results were predictably striking.”

Examples included:

CEO Median Employee Years to Earn
Walmart $22.2 million $19,177 More than 1,000
Live Nation $70.6 million $24,406 2,893
Time Warner $49 million $75,217 651

 

https://www.nytimes.com/2018/05/25/business/highest-paid-ceos-2017.html?emc=edit_nn_20180525&auth=login-email

 

 WHY WE NEED A FIDUCIARY STANDARD

From the Wall Street Journal:

https://www.wsj.com/articles/wells-fargos-401-k-practices-probed-by-labor-department-1524757138

“Wells Fargo’s 401(k) Practices Probed by Labor Department
“Department is examining if bank pushed participants in low-cost 401(k) plans into more expensive IRAs

“The Labor Department is examining whether Wells Fargo & Co. has been pushing participants in low-cost corporate 401(k) plans to roll their holdings into more expensive individual retirement accounts at the bank, according to a person familiar with the inquiry.

“Labor Department investigators also are interested in whether Wells Fargo’s retirement-plan services unit pressed account holders to buy in-house funds, generating more revenue to the bank, the person said.”

It’s important to note that at this stage, it’s just a “probe,” but it’s no secret that these actions are common throughout the financial services world. If you’re responsible for a 401(k) plan, be sure your advisor is a 3(38), not a 3(21), fiduciary.

From the National Institute of Pension Administrators: “A 3(21) investment fiduciary is a paid professional who provides investment recommendations to the plan sponsor/trustee. The plan sponsor/trustee retains ultimate decision-making authority for the investments and may accept or reject the recommendations. Both share the fiduciary responsibility. By properly appointing a monitoring an authorized 3(38) investment manager, a plan sponsor/trustee is relieved of all fiduciary responsibility for the investment decisions made by the investment professional.”

 

WE HAVE A LONG WAY TO GO

“The Securities and Exchange Commission’s enforcement strategy to protect retail investors resulted in the return of a record $1.07 billion to harmed investors in 2017, SEC officials said Tuesday.”

Financial Advisor.

 

“JPMORGAN TO REMOVE SOME FIDUCIARY RULE HANDCUFFS, OTHERS MAY FOLLOW”

“JPMorgan Chase & Co. is telling its brokers and private bankers to prepare for changes to its retirement account policies and products in preparation for the likely repeal of the Department of Labor’s fiduciary rule next week.

“The message, sent in emails from bank executives to advisors at J.P. Morgan Securities, Chase Wealth Management and Chase Private Bank on Wednesday, signals that Wall Street firms are poised to move quickly to reverse restrictions that they imposed to comply with the conflict-of-interest rule that took partial effect last June.”

 

ONE MORE TIME

As I continue to beat the fiduciary drum continually, what can I say? It’s REALLY important. So, below is an excerpt from an interview with Phyllis Borzi in my friend Christopher Carosa’s FiduciaryNews.

FN: Now to the present. It looks like the Conflict-of-Interest Rule has not survived its court challenge and that the current administration seeks to, in essence, rewrite it. Still, the impact of the Rule remains. The term “fiduciary” – in part thanks to your efforts, in part thanks to John Oliver – has been elevated in the minds of the investing public. What aspects of the Conflict-of-Interest Rule are now “baked into the cake” of the retirement industry and would be hard to reverse, formal regulation or not?

Borzi: It’s probably too early to tell. But one of the lasting legacies of the DOL conflict-of-interest rules is in the greater public understanding of the need to seek an advisor who is willing to agree in writing to be a fiduciary. Unfortunately, most consumers are not yet at the point where they can tell for sure whether someone who assures them they are acting in their best interest (and thus using that term as a marketing slogan) is genuinely accepting legal liability as a fiduciary. That’s why consumers must get that acknowledgement of fiduciary status in writing and not simply accept the representations of individuals purporting to be acting in their interest.”

That’s why getting the Committee for the Fiduciary Standard’s oath (http://www.thefiduciarystandard.org/wp-content/uploads/2015/02/fiduciaryoath_individual.pdf) signed by your advisor is so important.

You can read the full transcript of the FiduciaryNews interview here:

http://fiduciarynews.com/2018/05/exclusive-interview-phyllis-borzi-says-original-fiduciary-5-part-test-left-plan-sponsors-holding-the-bag/?utm_source=BenefitsPro&utm_medium=IsthePerfectFiduciaryRuleEvenPossible&utm_campaign=051718z&ct=t(EMAIL_CAMPAIGN_5_15_2018)

 

ROBO PLANNING

The hot story in the planning world is Robo-Advisors: i.e., planning based on computer algorithms. I just heard a quote from an MIT AgeLab presentation that captures my thoughts:

“My life is not an algorithm; my life is a story.”

 

PRINCIPLES

Of course, when discussing fiduciary concepts, it’s important to consider principles, so I thought I’d share the story of “A Man of Principles” from my friend Phil.

“In 1952, Armon M. Sweat, Jr., a member of the Texas House of
Representatives, was asked about his position on whiskey. What follows
is his exact answer (taken from the Political Archives of Texas):

“‘If you mean whiskey, the devil’s brew, the poison scourge, the bloody
monster that defiles innocence, dethrones reason, destroys the home,
creates misery and poverty, yea, literally takes the bread from the
mouths of little children; if you mean that evil drink that topples
Christian men and women from the pinnacles of righteous and gracious
living into the bottomless pit of degradation, shame, despair,
helplessness, and hopelessness, then, my friend, I am opposed to it
with every fiber of my being.’

“‘However, if by whiskey you mean the lubricant of conversation, the
philosophic juice, the elixir of life, the liquid that is consumed
when good fellows get together, that puts a song in their hearts and
the warm glow of contentment in their eyes; if you mean Christmas
cheer, the stimulating sip that puts a little spring in the step of an
elderly gentleman on a frosty morning; if you mean that drink that
enables man to magnify his joy, and to forget life’s great tragedies
and heartbreaks and sorrow; if you mean that drink the sale of which
pours into Texas treasuries untold millions of dollars each year, that
provides tender care for our little crippled children, our blind, our
deaf, our dumb, our pitifully aged and infirm, to build the finest
highways, hospitals, universities, and community colleges in this
nation, then my friend, I am absolutely, unequivocally in favor of it.’

“‘This is my position, and as always, I refuse to compromise on matters
of principle.’”

 

DELAY MAY BE GOOD

If you’ve not yet planned your retirement, the two major contributors to increasing the probability of financial success are delaying retirement and social security. If you have questions, check with us. That’s our forte.

06-2018_How Americans Claim.png

Source: Wealthmanagement.com

 

A GOOD START

https://www.bloomberg.com/news/articles/2018-05-24/carney-and-dudley-urge-banks-to-prepare-for-move-away-from-libor  

“10 Universities with the most billionaire alumni”—a useless but interesting tidbit. Here’s the list:

SCHOOL                               # of Billionaire Alumni

University of Michigan                         26

University of Chicago                           29

University of Southern California       29

Yale                                                         31

Cornell                                                    35

MIT                                                           38

Columbia                                                53

University of Pennsylvania                 64

Stanford                                                  74

Harvard                                                188

 

 

OVERCONFIDENCE

“The overconfidence effect is a well-established biased in which a person’s subjective confidence in his or her judgments is reliably greater than the objective accuracy of those judgments, especially when confidence is relatively high.” ~Wikipedia

Overconfidence (e.g., Lake Woebegone, where all the children are above average) is a classic behavioral heuristic and one that often leads to poor investment decisions.

“There’s a Big U.S. Gender Gap in Retirement Investing Confidence Wealth Management

“Sixty percent of college-educated, not-yet-retired men say they’re comfortable managing their investments, compared to 35 percent of women.”

It’s that recognition of reality that makes women generally better investors then men.

 

OLD MEN

Given my current age, I kind of liked this:

One evening the old farmer decided to go down to the pond, as he hadn’t been there for a while.
He grabbed a twenty-liter bucket to bring back some fruit while he was there.

As he neared the pond, he heard voices shouting and laughing with glee. As he came closer, he saw it was a bunch of young women skinny-dipping in his pond. He made the women aware of his presence and they all went to the deep end. One of the women shouted to him, ‘We’re not coming out until you leave!’

The old man frowned, ‘I didn’t come down here to watch you ladies swim naked or make you get out of the pond naked.’

Holding the bucket up he said, ‘I’m here to feed the crocodile….’

Some old men can still think fast.

 

Hope you enjoyed this issue, and I look forward to “seeing you” again in a few months.

 

_HRE SIGNATURE

Harold Evensky

Chairman

Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 2 – April 2018

 

 

Buyer Beware: What Do You Get From Your Advisor?

Brett Horowitz

Brett Horowitz, CFP®, AIF® Principal, Wealth Manager

Although I have never been to Thailand, I have read that you cannot go more than a few feet in a typical town market without someone yelling “same same.” It is the vendor’s way of telling you that what they offer is the same as everyone else, thus encouraging you to end yourcomparison shopping and buy from them.

Recently I spoke with a gentleman considering whether to become a client of our wealth management firm, and he asked matter-of-factly how we are different than all the other hundreds of investment firms in the area. It seems that most of the public thinks of all financial firms as “same same,” yet they differ widely. Here are a few of the things that may distinguish one financial advisory firm from the next.

You Don’t Know What You Don’t Know

I cannot tell you the number of prospective clients who sit down to meet with us and have no idea how to answer the following three major questions.

  1. What return do you need in order to meet your personal goals?

If your portfolio is making 20% per year but it is loaded with risky assets that are keeping you up at night and you only need to earn 5% per year to live your current lifestyle, what is the point of taking the extra risk? Is your plan to make as much money as possible or to have the ideal lifestyle with the least amount of risk? If your goals change, shouldn’t the asset allocation (and desired return) be altered as well?

  1. Is your portfolio performing suitably to help you meet your goals?

If you are not receiving performance reports every so often, how do you know if the current advisor is doing a good job in helping you meet your goals? What does this performance tell you about the likelihood that you will meet your goals? Do you have a plan in place for tracking your goals?

  1. How does your current advisor get paid, and what is the total cost of your relationship?

If you cannot determine how much your advisor is being paid, isn’t it vital that you ask, to make sure the fees are reasonable? The US Department of Labor 401(k) fee website (http://www.dol.gov/ebsa/publications/401k_employee.html) compared two investors who started at age 35 with a 401(k) balance of $25,000 and never contributed again. Both investors earned 7% per year before fees, but one paid a 0.5% annual fee and one paid a 1.5% annual fee for the investments. The ending value after 35 years would have been $227,000 for the investor who paid a 0.5% annual fee versus $163,000 for the investor who paid a 1.50% annual fee. The 1 percentage point difference in fees reduced the account balance at retirement by 28%! An advisor cannot control the market, but they do have some control over taxes and expenses.

Out of Sight, Out of Mind

We recognize that you have a lot going on and you do not always get around to completing your tasks. Perhaps you bought a life insurance policy years ago and have never revisited that decision to determine whether it still makes sense. Perhaps you never made a change to your estate documents or IRA beneficiaries after a marriage or divorce. Or perhaps you have not revisited your 401(k) allocation since the first time you made the initial selection.

Is this something that your advisor addresses? Does your advisor even know or want to know about your social security benefits, life insurance, or estate documents? Or have you simply been reduced, in your advisor’s eyes, to “a number?”

There are also certain age milestones that should prompt you to confer with your financial expert to ensure that decisions are made responsibly, such as:

  1. A few months before age 62, we suggest you sit down and go through a social security analysis to determine the optimal age for beginning to collect benefits.
  2. A few months before age 65, we recommend you research and apply for Medicare (as delaying will likely lead to penalties, based on the current Medicare rules).
  3. At age 70½ (or earlier for inherited IRAs) and each year thereafter, you need to decide the best approach in taking Required Minimum Distributions from your IRA.

Tax Brackets

Knowing your tax bracket and working with your accountant can help you achieve the highest after-tax return on your bonds.

Tax Sheltering

Placing certain assets to take advantage of IRAs, where you do not pay taxes on income and gains, can help boost your overall return.

Capital Gain Distributions and Tax Losses

If you are not watching out for mutual fund capital gain distributions at the end of the year, you are likely to get hit with a large tax bill. In addition, one of the ways to lower your tax bill is to take advantage of losses in your account once they take place.

Rebalancing

It is important to keep your asset allocation consistent with your goals by rebalancing between stocks and bonds. This may also lead to higher risk-adjusted portfolio returns over time.

The Devil Is in the Details

At the end of the day, it will benefit you to find a firm that puts a lot of time, effort, and thought into these details. The plan that is put in place on Day 1 should not be “buy and hold” (often described as “set it and forget it”), but rather “buy and manage,” with changes based on research, long-term projections, and unique circumstances. I can assure you that all financial firms are not “same same.” It is incumbent upon you as the buyer to ask the right questions before choosing the firm that’s best for you.

 

Feel free to contact Brett Horowitz with any questions by phone 305.448.8882 ext. 216 or email: BHorowitz@EK-FF.com

For more information on financial planning visit our website at www.EK-FF.com.

Staying the Course No Longer Works!

HRE PR Pic 2013

Harold Evensky CFP® , AIF® Chairman

Ever since the market debacle triggered by the Great Recession, “Staying the Course No Longer Works” and “Modern Portfolio Theory Is Dead” have been popular headlines with the financial media. It sure sounds good; after all, why would any investor willingly subject their portfolio to the massive losses of 2008 and early 2009? They wouldn’t, of course; so does that mean that long-term strategic investing is out the window? One of the core beliefs at Evensky & Katz / Foldes Financial Wealth Management is that to earn market returns an investor needs to be in the market. Is that yesterday’s story? Needless to say, our investment committee takes these considerations very seriously, and we regularly review our investment philosophy and strategies. What we’ve concluded is that a better headline for the critics of modern investment theory would be “The Pot of Gold at the End of the Rainbow.” Unfortunately no one has yet discovered that pot. Here’s our take on the debate.

The critics claim that modern portfolio theory, asset allocation, and buy and hold are all equivalent concepts and all are passé. What surprises me is that the critics seem to believe they have just discovered the truth, when in reality a new group of “gurus” discovers the same truth after every bear market. These critics typically claim that “allocations are solely and simplistically based on projected historical data and traditional methodology that assumes valuation is irrelevant; they are determined at the beginning of the investment process and are never changed, except when they are rebalanced.”

Although unfortunately it is true that many practitioners do in fact develop allocation models based simply on historical data, that is certainly not the case at Evensky & Katz / Foldes Financial Wealth Management. We heed the advice of Harry Markowitz, Nobel Laureate and the father of modern portfolio theory. In his seminal work, Professor Markowitz wrote, “The first stage starts with observations and experience and ends with beliefs about the future performances of available securities.” He is quite clear in rejecting the approach of using historical projections. “One suggestion as to tentative risk and return is to use observed risk and return for some period of the past…I believe that better methods, which take into account more information, can be found.”

We certainly agree. When developing our recommendations for allocations to bonds and stock, we first develop forward-looking estimates for the returns, risk, and relative movement (i.e., correlations) of the various investments we will consider for our portfolios. While there can be no guarantee that these estimates will turn out to be correct, they certainly take into consideration not only the past but also the current market environment as well as expectations regarding future changes. For example, our projections for future returns are modest relative to past returns, our expectation regarding risk is that the markets will remain more volatile than in the past, and finally we believe that we live in an increasingly global world, so markets will move more in tandem in the future than in the past. The result is that the benefits of diversification will be diminished but not eliminated.

Regarding the criticism that allocations are determined at the beginning of the investment process and never changed, except when they are rebalanced—a strategy I call “buy and forget”—again, unfortunately many practitioners do follow this ostrich-like policy. But this criticism should be leveled at the practitioners setting their policies in stone. There is nothing in the literature or in practice to suggest that a policy allocation should not be revisited and revised when and if forward-looking market expectations change. As a consequence, it is our practice to review our assumptions at least annually, and our “strategic” allocations do in fact vary over time as a result of changes in our worldview. Rather than “buy and forget,” our policy is “buy and manage.”

The bottom line is that some may develop allocation models based solely on projections of historical data, but we do not. Some may also ignore valuations; again, we do not. And some may design allocation models and set them in stone; we do not.

Feel free to contact Harold Evensky with any questions by email: HEvensky@EK-FF.com

Visit us at www.EK-FF.com

Are Bonds the Next Bubble to Burst?

Brett Horowitz

Brett Horowitz, CFP®, AIF® Principal, Wealth Manager

Nary a week has gone by in which we don’t get asked this question in some form or other. Newspapers and CNBC trumpet this headline to grab their readers’ attention, and I make no apology for doing the same—although as you will see as you continue reading, the tone of my article will not be quite as alarming. Newsletters tell their subscribers in UPPERCASE BOLD LETTERS the “secret” that only their subscribers can learn as to how to deal with this risk. Never mind the fact that if they actually had the secret, why would they tell you, and why would they need to sell their newsletter to earn a living? Let’s separate fact from fiction and discuss in a clear-headed manner what investors and our clients should do about this supposed impending disaster.

Back in the early 1980s, you could have purchased a 10-year Treasury bond, backed by the full faith of the U.S. government, with an interest rate of just over 15%. During the past 30-plus years, interest rates have decreased, and earlier this year, rates for 10-year Treasury bonds were at 2.5%. Bond prices move inversely to interest rates. If you own a bond with 5% coupon (or interest rate) and rates go up, such that new bonds pay 6%, your bond becomes less attractive, and the price of your bond goes down. However, if you hold that bond to maturity, barring a default, you will get your full money back at maturity. After interest rates falling for 30 years, we’ve already seen them rise this year, and experts have a consensus view that rates will continue to rise going forward, bringing us back to more normal levels. After all, interest rates can’t get much lower!

If you own an individual bond, you may not worry as much about rising interest rates, because if you ignore the interim price fluctuations, you will get back the full value of the bond, absent a default. There is a risk, though, that if you need money before the bond matures, the price may not equal what you paid for the bond, and you may recognize a loss. In addition, as we saw during the Great Recession, there have been times when liquidity for bonds ceased to exist. Investors were having such a hard time selling them that they accepted whatever price was offered. This price anomaly will affect the price of other people’s bonds too, similarly to how a foreclosure in a neighborhood affects the prices of the other homes in that neighborhood. The price is only as good as what someone is willing to offer.

Most people choose to own bond mutual funds, since owning individual bonds can be expensive and mutual funds can be very diversified. If you own a basket of 10 $50,000 bonds and you suffer one default, that’s a 10% hit. If a bond mutual fund holds 2,000 positions, a bond default is not even noticed. Bond mutual funds are a basket of bonds with a fund manager deciding which bonds to buy, which to sell, and which to keep to maturity. Just like individual bonds, the collection of bonds in a mutual fund will lose (gain) value if interest rates rise (decline). The easiest way to quantify the effect of an interest rate change is to view a bond’s duration. Duration is a measure of a bond’s sensitivity to interest rates and the higher the number, the greater the impact. A bond fund with a duration of three years means that for every 1% change in interest rates, the price will move by 3%. A bond fund with a duration of 15 years would have a larger move associated with a change in rates than a bond fund with a duration of fewer years.

If we knew that interest rates would rise tomorrow (there’s the rub!), we would sell bonds completely to avoid this risk. While we expect rates to rise over the coming years, we don’t know how or when they will rise. At the beginning of 2017, 10-year Treasury bonds were yielding 2.45%. Had someone bailed out of bonds and sat on the sidelines all of last year because they expected interest rates to rise, they could have missed out on great returns (the Bloomberg Barclays Municipal Bond Index was up 5.45% for 2017). In addition, rates may move differently for two-year bonds than they would for 30-year bonds. Lastly, who’s to say that the United States won’t slip back into a recession and that bonds will be the best-performing asset class for the next 12 months—or that stocks won’t drop 20% because they have become overvalued, and then suddenly a small bond loss looks like a good deal in comparison? The point is that trying to time this event is tantamount to useless, and anyone who says they can do it is either lucky or is bound to be wrong more than half of the time.

Given all this, should you be worried about bond losses? Yes and no. I’ll first point out that bonds are not guaranteed to make money over any period of time. If you want a guaranteed return, you can buy a CD or stuff your money into a savings account. Both currently earn a pittance and are almost certain to lose money to inflation over time. But when bonds do lose money, the losses are usually modest because the lower volatility protects bond investors. The worst annual return by the Barclays U.S. Aggregate Bond Index going back to 1976 was a 2.92% decline in 1994. Contrast that to the worst annual stock return going back to 1976 (measured by the S&P 500, including dividends)—37% in 2008—and you can see that by dumping bonds in favor of stocks, you avoid the interest rate risk but are simply exchanging this risk for overall market risk, which is far greater. Many of our clients have seen us walk through the long-term modeling in Money Guide Pro and have seen that the results frequently look better the more bonds someone owns. While the average returns each year will be lower (if we assume stocks outperform bonds), the volatility is reduced, and that may cause the probability of a successfully funded retirement to increase. If you had a choice between earning 8% per year with a 50% probability of successfully funded retirement, or earning 7% per year with a 90% probability of success, which would you choose? We think that for a majority of our clients, the probability of retirement success is more important than leaving a larger inheritance.

A number of investors have pointed to dividend-paying stocks, Master Limited Partnerships (MLPs), or Real Estate Investment Trusts (REITs) as appropriate alternatives to bonds. All three investments provide a potentially higher yield than cash and bonds, but without the interest rate risk. Sounds good, right? Unfortunately, investors are again simply avoiding one risk (interest rate) for another risk (market risk), as these investments got hammered in the Great Recession. Here’s a table of their returns from 10/31/2007 through 2/28/2009:

Investment (based on Morningstar Office) Cumulative Return
DJ U.S. Select Dividend TR USD -53.32%
Average of the 20 largest MLPs in the Alerian MLP 50 Index* -31.04%
DJ U.S. Select REIT TR USD -66.14%

* The Alerian MLP Index has only been in existence since 4/2009.

So if we have concluded that market timing does not work, and that many classic bond “alternatives” seemingly have more risk, not less, does that mean we sit back and acquiesce to the bond universe? Not entirely. At our firm, we’ve made a number of changes to our clients’ bond portfolios going back several years. First, we shifted a portion of the fixed-income funds into shorter-duration funds. None of the traditional bond funds in the portfolio currently have a duration longer than five years, and there is currently very little invested in long-term bonds. Should rates rise, this will help mitigate the losses. Second, we have carved out 25% of the bond portfolio into what are called “unconstrained bond funds.” These funds have wide latitude and buy foreign bonds, junk bonds, long bonds, and T-bills, or even short the market and make a bet on higher interest rates. The risk exists that these active funds make wrong bets and underperform the market, but so far, their track record has been very strong. The main reason we are using these managers is to protect on the downside should interest rates rise, as opposed to trying to make a high return with high risk. Lastly, we continue to keep an exposure to inflation-protected bonds. If interest rates rise because investors are concerned about higher inflation, these bonds have the ability to outperform traditional bonds.

If your investment horizon is short-term, bonds may prove to be a low- (or negative-) returning investment. Never assume that bonds will always provide positive returns: if someone is looking out 30 years, they will see ebbs and flows in all markets. Our advice: stay relatively safe in your bond portfolio, stay connected to the annual review of your Money Guide Pro retirement plan, and stay calm. Unfortunately, the headlines are more entertaining than the reality of the situation.

Feel free to contact Brett Horowitz with any questions by phone (305.448.8882 ext. 216) or by email: BHorowitz@EK-FF.com

Visit us at www.EK-FF.com

NewsLetter Vol. 11, No. 2 – April 2018

Dear Reader:

GURU’S SECRET
From the Wall Street Journal:

How Pundits Never Get It Wrong: Call a 40% Chance
Talking heads have learned that forecast covers all outcomes; “I just said it was a strong possibility.”

What are the chances that readers will make it to the end of this article? About 40%.

If you do make it, that prediction will look smart. If you don’t, well, we said the odds were against it.

Brilliant!!

SHELF LIFE
Ever wonder if the food you are about to eat is still good? Here is a website that allows you to check if the date on your food means it can be eaten or should be thrown out.

Still Tasty?

BOY, DOES THIS SOUND FAMILIAR
Wisdom from my #1 son:

As I get older, I realize

1. I talk to myself because there are times I need expert advice.
2. I consider “In Style” to be the clothes that still fit.
3. I don’t need anger management—I need people to stop pissing me off.
4. My people skills are just fine. It’s my tolerance for idiots that needs work.
5. The biggest lie I tell myself is, “I don’t need to write that down; I’ll remember it.”
6. I have days when my life is just a tent away from a circus.
7. These days, “on time” is whenever I get there.
8. Even duct tape can’t fix stupid—but it sure does muffle the sound.
9. Wouldn’t it be wonderful if we could put ourselves in the dryer for ten minutes and come out wrinkle-free and three sizes smaller?
10. Lately, I’ve noticed people my age are so much older than me.
11. “Getting lucky” means walking into a room and remembering why I’m there.
12. When I was a child, I thought naptime was punishment. Now it feels like a mini vacation.
13. Some days I have no idea what I’m doing out of bed.
14. I thought growing old would take longer.
15. Aging sure has slowed me down, but it hasn’t shut me up.
16. I still haven’t learned to act my age, and I doubt I’ll live that long.

I wonder if he’s trying to tell me something!

HEAD SCRATCHER
Excerpts from an article in InvestmentNews discussing the possibility of the SEC mandating the appropriate use of titles for financial service practitioners (i.e., sales titles for brokerage representatives and advisor titles for fiduciary advisors):

“We’re hoping that it will play a significant role because it is an action the SEC could take immediately without going through the whole political process,” said Harold Evensky, chairman of Evensky & Katz/Foldes Financial and a member of the Committee on the Fiduciary Standard. “It’s a commonsense, mom-and-pop solution to the issue of distinguishing the relationship between the professional and the client.”

But nothing is ever as simple as it may first appear.

“If you see the two terms side by side, the ultimate effect is to create a pecking order with a competitive advantage,” said Gary Sanders, counsel and vice president of government relations at the National Association of Insurance and Financial Advisors. “It’s not the regulators’ role to give a competitive advantage to one segment of players over another.”

“Competitive advantage”? Letting the public know the difference between a salesman and a fiduciary? For shame! How naive of me. I thought the regulators’ role was to protect the public, not a business model.

REALLY DEPRESSING
From Financial Advisor:

Advisor, Pastor of One of U.S.’s Largest Churches Allegedly Defrauded Elderly
The pastor of one of the nation’s largest Protestant churches defrauded elderly investors of $3.4 million in an investment scheme involving pre–Communist era Chinese bonds, according to a federal indictment.

Kirbyjon Caldwell, senior pastor at Windsor Village United Methodist Church in Houston, orchestrated the scheme with financial planner Gregory Alan Smith of Shreveport, Louisiana, who was permanently barred from the securities industry in 2010 by Finra, according to the U.S. Justice Department and the SEC.

MILLIONS OF MILLIONAIRES
The number of millionaires in the United States climbed to over 11.5 million by the end of 2017! (MarketInsights)

WHERE DO SOME COME FROM?
From Kiplinger’s:

CEO Pay Hits the Stratosphere
Pay for the average large-company CEO has risen 46% since 2009, versus 2.2% for the average worker.

2016: $15.6 million

IMPORTANT LIFE LESSONS
From Christo, a Lubbock friend:

• I never make the same mistake twice. I make it five or six times, just to be sure.
• The secret of enjoying a good wine:
1. Open the bottle and allow it to breathe.
2. If it doesn’t look like it’s breathing, give it mouth to mouth.
• “It’s true, I do sh*t in the woods.” [the bear]
• Dear Optimist, Pessimist, and Realist,
While you three were busy arguing about that glass of water, I drank it!
• Every box of raisins is a tragic tale of grapes that could have been wine.

DON’T FEEL BAD
If you don’t get to play with the “Big Boys” on Wall Street. From Bloomberg Markets via my partner, Lane:

One of John Paulson’s hedge funds has plunged about 70 percent over the past four years, marking a dire stretch for the billionaire plagued with investor redemptions…

The performance marks yet another setback for Paulson, whose claim to fame was his bet a decade ago that the U.S. housing market would collapse. But his Paulson & Co. has failed to keep up such money-making wagers and instead shuttered a fund last year and made wrong-way trades on gold, U.S. banks and drugs stocks.

Investors lost patience. The firm’s assets nosedived from a 2011 peak of $38 billion, when clients contributed about half the capital. Now the firm runs about $9 billion, and roughly 80 percent of that is Paulson’s own money.

Paulson Partners also follows a merger arbitrage strategy, which typically bets that a target company’s shares will climb toward the offer price while the bidder’s will fall. Since the fund started trading in 1994, it has produced a 9 percent annualized return, while the levered version has gained 7.5 percent since its inception in 2003 [as of early January 2018]. Last year the funds lost money on their pharmaceutical stocks, the person said.

By way of comparison (S&P 500)
January 1994–January 2018: 9.8% (dividends reinvested)
January 2003–January 2018: 10.2% (dividends reinvested)

TOOT HIS HORN
From AARP Bulletin:

The Kentucky Derby doesn’t start until Steve Buttleman blows his bugle call. Mr. Buttleman has been the bugler, playing his 32-inch herald trumpet, at Churchill Downs for 23 years.

FROM MY LITTLE BROTHER
Control Tower Repartee
Tower: “Delta 351, you have traffic at 10 o’clock, 6 miles!”
Delta 351: “Give us another hint! We have digital watches!”

Tower: “TWA 2341, for noise abatement turn right 45 degrees.”
TWA 2341: “Center, we are at 35,000 feet. How much noise can we make up here?”
Tower: “Sir, have you ever heard the noise a 747 makes when it hits a 727?”

A student became lost during a solo cross-country flight. While attempting to locate the aircraft on radar, ATC asked, “What was your last known position?”
Student: “When I was number one for takeoff.”

A DC-10 had come in a little hot and thus had an exceedingly long roll-out after touching down.
San Jose Tower Noted: “American 751, make a hard right turn at the end of the runway, if you are able. If you are not able, take the Guadalupe exit off Highway 101, make a right at the lights, and return to the airport.”

Tower: “Eastern 702, cleared for takeoff, contact Departure on frequency 124.7.”
Eastern 702: “Tower, Eastern 702 switching to Departure. By the way, after we lifted off we saw some kind of dead animal on the far end of the runway.”
Tower: “Continental 635, cleared for takeoff behind Eastern 702, contact Departure on frequency 124.7. Did you copy that report from Eastern 702?”
Continental 635: “Continental 635, cleared for takeoff, roger; and yes, we copied Eastern. We’ve already notified our caterers.”

One day, the pilot of a Cherokee 180 was told by the tower to hold short of the active runway while a DC-8 landed. The DC-8 landed, rolled out, turned around, and taxied back past the Cherokee. Some quick-witted comedian in the DC-8 crew got on the radio and said, “What a cute little plane. Did you make it all by yourself?”
The Cherokee pilot, not about to let the insult go by, came back with a real zinger: “I made it out of DC-8 parts. Another landing like yours and I’ll have enough parts for another one.”

The German air controllers at Frankfurt Airport are renowned as a short-tempered lot. They not only expect one to know one’s gate parking location but how to get there without any assistance from them. So it was with some amusement that we (a Pan Am 747) listened to the following exchange between Frankfurt ground control and a British Airways 747, call sign Speedbird 206.
Speedbird 206: “Frankfurt, Speedbird 206! Clear of active runway.”
Ground: “Speedbird 206. Taxi to gate Alpha One-Seven.”
The BA 747 pulled onto the main taxiway and slowed to a stop.
Ground: “Speedbird, do you not know where you are going?”
Speedbird 206: “Stand by, Ground, I’m looking up our gate location now.”
Ground (with quite arrogant impatience): “Speedbird 206, have you not been to Frankfurt before?”
Speedbird 206 (coolly): “Yes, twice in 1944, but it was dark—and I didn’t land.”

SAD BUT TRUE
Excerpts from The Death of the Fiduciary Rule Is Bad News for Your Retirement.

The Fiduciary Rule is one step closer to death, and that means it’s once again A-ok for your retirement planner to scam you.
I’m sure they’d take issue with the phrasing, but effectively it’s what they’re doing. For many financial planners, there’s no requirement that the advice they give you is in your best interest—it only needs to meet a “suitability” standard. Instead, they can suggest products and funds that give them a kickback, even if the products don’t perform as well as others or have higher fees attached to them. In fact, the White House Council of Economic Advisers found that non-fiduciaries cost retirement investors (AKA you and me) $17 billion per year.
Do you know who does have to work in your best interest? Fiduciaries. There are plenty of them out there—you can search for one here—and these advisors pledge to do what’s best for you, their client. Certified Financial Planners (CFPs) and Registered Investment Advisors (RIAs) are fiduciaries, for example. They don’t get kickbacks from certain products, and they don’t tack on extra fees. Instead they help you make a financial plan that works for you….
The Fiduciary Rule, crafted by the Obama Administration, would have required that all financial professionals (like brokers and insurance agents) to adhere to the “fiduciary” standard—meaning they’d have to work in your best interest if they were advising you on your retirement investments. Simply, they would have had to put your needs before theirs.
Naturally, the financial industry was not happy. How could they continue to turn such enormous profits if they’re not able to scam the average investor out of his or her retirement savings?
… a federal appeals court ruled that the Department of Labor overstepped its authority when it wrote the rule. The opinion did say that Congress or another “appropriate” state or federal regulator could act to institute it, though…that isn’t going to happen anytime soon.
Who else is held to a fiduciary duty? Lawyers are a typical example. Would we all be fine with some lawyers breaching client-attorney privilege or cutting a deal with the defense to receive a portion of their client’s payout on the backend, if they charged the client slightly less upfront? No?
So what can you do? Well, of course be aware that this is happening. If it’s possible, hire a “fee-only” planner to advise you on your investments. And lobby your state government to institute its own version of the Fiduciary Rule. And maybe get a little riled up about it.
You might also ask your financial advisor to sign the Committee for the Fiduciary Standards Oath (http://www.thefiduciarystandard.org/fiduciary-oath/). At least then you’ll know your advisor is committed to your best interest. If they refuse? Consider a change.

HANDY TO KNOW
Also from Kiplinger’s:

When It’s Safe to Shed Your Tax Records
In most cases, the IRS has three years after the due date of your return (or the date you file it) to do an audit. You should keep some records even longer than that, and it’s a good idea to hold on to your tax returns indefinitely.

Three Years—W-2s, 1099s, 1098s, cancelled checks, and receipts for charitable contributions. Records relating to HSAs and 529 Plans. Contributions to tax-deductible retirement accounts.

Six Years—Receipts for business income and expenses, if you’re self-employed.

THIS IS VERY COOL!
The U.S. Postal Service has a new service called “Informed Delivery.” It provides a picture of the exterior, address side of letter-sized mailpieces and tracks packages that are scheduled to arrive soon! You can also check back for the prior week. Sign up for free at https://informeddelivery.usps.com/box/pages/intro/start.action.
LITTLE HAROLD
From my friend Ron:

04-2018_Little Harold

A new teacher was trying to make use of her psychology courses. She started her class by saying, “Everyone who thinks they’re stupid, stand up!” After a few seconds, Little Harold stood up. The teacher said, “Do you think you’re stupid, Harold?”

“No, ma’am, but I hate to see you standing there all by yourself!”

Harold watched, fascinated, as his mother smoothed cold cream on her face. “Why do you do that, Mommy?” he asked.

“To make myself beautiful,” said his mother, who then began removing the cream with a tissue.

“What’s the matter?” asked Harold. “Giving up?”

Harold’s kindergarten class was on a field trip to their local police station where they saw pictures tacked to a bulletin board of the ten most wanted criminals. One of the youngsters pointed to a picture and asked if it really was the photo of a wanted person. “Yes,” said the policeman. “The detectives want very badly to capture him.”

Harold asked, “Why didn’t you keep him when you took his picture?”

The math teacher saw that Harold wasn’t paying attention in class. She called on him and said, “Harold! What are 2 and 4 and 28 and 44?”

Harold quickly replied, “NBC, FOX, ESPN, and the Cartoon Network!”

I like Little Harold.

A TEST
John Durand wrote Timing: When to Buy and Sell in Today’s Markets, a classic in active investment management. He also wrote How to Secure Continuous Security Profits in Modern Markets, in which he opined: “As this is written, one of the greatest bull markets in history is in progress. People have been saying for several years that prices and brokers’ loans are too high; yet they go on increasing.… People who deplore the high at which gilt-edged common stocks are now selling apparently fail to grasp the fundamental distinction between investments yielding a fixed income and investments in the equities of growing companies. Nothing short of an industrial depression … can prevent common stock equities in well-managed and favorable circumstanced companies from increasing in value, and hence in market price.” What year was this book published?

Send me an email at hevensky@ek-ff.com with your guess. No fair looking it up on the web. I will publish the names of the first 5 people who guess correctly in my next newsletter.

Hope you enjoyed,

_HRE SIGNATURE

Harold Evensky
Chairman
Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s previous NewsLetter:

NewsLetter Vol. 11, No. 1 – February 2018

My loved one passed away. What now? A financial advisor may be a valuable resource.

 

Roxanne Alexander

Roxanne Alexander, CAIA, CFP®, AIF®, ADPA® Senior Financial Advisor

My dad recently passed away, and a month prior, a very dear client passed away. Both left their spouses to handle the finances, and although they left their affairs organized, extensive detective work was still necessary. Once the initial shock of losing someone subsides and the ceremonial procedures are over—what do you do now financially? After losing a best friend and loved one, thinking about money and handling the red tape required by financial institutions may be the last thing someone wants to face. In the best cases, it can take months to navigate through insurance policies, trusts, wills, bill payments and account transfers to beneficiaries. Tremendous pressure is lifted off the family when they have someone they can trust to reach out to—which could be a financial advisor.

Knowing the total picture

A family working with a financial advisor when a loved one passes away has several advantages. Financial planners and advisors usually know the total financial picture and may have clues to accounts of which you may be unaware. For example, another client who recently passed away had several annuities bought 30 years ago that were held at various insurance companies. The trustees of the trust had no prior details on these policies, so working with those annuity companies was very time consuming and difficult, as each company had their own requirements. One company wanted original documents and another accepted faxed copies, one wanted a long-form death certificate and another accepted photo copies, while some companies required a letter of acceptance for qualified account rollovers. Since the trustees worked long hours, it was hard for them to find the time to spend on the phone with the insurance companies navigating all the paperwork. A financial advisor knows the right questions to ask, which can speed up the process considerably.

The advisor may also be familiar with family dynamics—in some cases the client may have discussed personal matters about the family, such as one child not being financially responsible or wanting gifting to continue to a certain charity, which may help the surviving family members make decisions.

Knowing the technology

My mom inherited a bank account abroad—not only did she not speak the language, but that bank’s technology was very complex and required several passwords and barcodes. This was confusing for her, and having someone to walk her through the process was very helpful.

A cellphone or computer can be a valuable resource—it contains a plethora of information such as emails, passwords and other financial information. Having the deceased’s cellphone or computer can be crucial for logging in to accounts, resetting passwords, etc. Information in emails can also give clues to other accounts and bills that need to be cancelled. While working with one client, we realized there were several apps on the spouse’s phone that needed to be cancelled to avoid a monthly fee. It is important to keep in mind that although the intentions may be good, accessing these devices without permission could cause potential liability. It makes sense to talk to an estate attorney about what should be in place in advance before taking this approach. Having a legal document in place allowing you to access the phone, email, social media and other financial accounts of a deceased love one may prevent any potential legal disputes. Another option could be to discuss passwords beforehand, but accessing someone’s account after that person has passed away may also have legal ramifications.

Knowing the process

An advisor can help you through the process of dealing with retirement accounts, pension companies and insurance companies, as this can be confusing when it comes to rolling accounts over to the beneficiary due to the complex tax and transfer rules. Advisors have experience in what to look for and can facilitate the process more quickly, avoiding issues the client would not have expected.

Advisors can act as a liaison between family members. They can explain the process and expectations with respect to time and requirements by account custodians. The advisor can be a neutral third party that can discuss the best course of action between beneficiaries. Consulting a professional can ensure that accounts are set up correctly, avoiding potential tax penalties or premature tax payments. Discussions with beneficiaries regarding the best course of action could save them time and money in the long term—for example, issues like taking a lump sum versus leaving the account invested or knowing the tax consequences if they liquidate the account.

Many advisors will gladly work with heirs to open new accounts as a courtesy to the client. In many cases, retirement accounts must be split at the current custodian before they can be moved. IRAs and inherited IRAs have complicated account rules for tax purposes, so correct accounts should be opened to avoid any type of tax penalty.

 

Knowing the professionals

The financial advisor may have relationships with the client’s CPA, estate attorney and insurance agents. A client may change estate attorneys and not inform the beneficiaries, but the advisor may still have several revisions of the estate documents and beneficiary update forms on file. Financial advisors can also work as a team with the other professionals to brainstorm the most efficient plan for taxes and future estate planning. The advisor can coordinate obtaining trust tax IDs, facilitate the update of estate documents with the attorney or make sure any trust accounting is in place after consulting with the CPA.

Planning for the future

A financial advisor can reevaluate your risk tolerance, goals and expenses going forward, especially if your financial plan was created when you were married. Usually the portfolio is anchored to the spouse with the lower risk tolerance. Have the goals changed? Have the expenses changed? Should the portfolio still be invested in the same allocation?

Links to other related blogs:

Navigating the Death of a Loved One

Estate Planning for Online Accounts & Digital Media

Estate Planning Proceed with Caution

 

Feel free to contact Roxanne Alexander with any questions by phone 305.448.8882 ext. 236 or email: RAlexander@EK-FF.com

For more information on financial planning visit our website at www.EK-FF.com.

Intergenerational Planning: Time to Start Planting Seeds

Brett Horowitz

Brett Horowitz, CFP®, AIF® Principal, Wealth Manager

It takes the average recipient of an inheritance 19 days until they buy a new car.1

                Over the past several years, some of our clients have participated in client advisory boards in which they tell us what they want and what keeps them awake at night. One of the biggest challenges is bringing up finances and financial planning with their children. They are not alone. Intergenerational planning, in which families look at long-term financial needs together, is sorely missing. But to the surprise of many, it’s not just the parents who want this connection—it’s the kids as well. A study from MFS Investment Management reports that more than one-third of those in the “sandwich generation” (people ages 40 to 64) worry about aging parents’ financial issues in addition to their adult children’s financial issues.2 It’s about time to get everyone involved.

                According to the same study, less than half of the sandwich generation has prepared a list of assets, created a durable power of attorney or living will, purchased long-term care insurance, or established a trust. Further, even if they have checked off the boxes for these basic estate-planning tools, many have not communicated this information to their children.

Given that the older generation has been reluctant to have needed discussions, should we be surprised that the sandwich generation is concerned about their parents’ finances, yet hasn’t done anything to prepare their own children for what’s to come? All too often, the burden of managing a parent’s deteriorating health or financial situation falls to an adult child, who must step into a parent’s shoes at the last minute and try to cobble together information to form a basic plan. If a parent doesn’t discuss their specific assets with their adult children, and if no one knows they exist, those assets may not be used for their care. Assets may wind up being claimed by the state or federal government, adding to the more than $58 billion in abandoned property. Recent statistics suggest that 70% of families lose control of their assets when an estate is transferred to the next generation and 90% of the wealth is spent by the third generation. Why? About two-thirds of high-net-worth individuals have disclosed little about their wealth to their children, with the most common reason being that they do not feel that the next generation is financially responsible enough to handle an inheritance. Parents can head off this asset transfer problem, while at the same time avoiding divisive and costly family feuds, by taking the lead in these transformative conversations.

                The good news is that many of our clients have become more organized while working with us, and a lot of this information is in one place. But unless this information is disseminated to adult children, it remains stressful for everyone involved. Parents should suggest a family meeting with all their children at the same time to help ensure that their message is received uniformly. Having these conversations one-on-one may cause family members to fight, harbor grudges, or get confused, with the result that the discussion has the opposite of the intended effect.

For instance, parents may choose to leave money to their children in a trust, much to the dismay of the children, who may believe that this is being done to prevent them from having unfettered access. But perhaps the parent is trying to protect the children from creditors, due to having litigious jobs. Another reason could be a desire to protect money from a child’s former spouse. There could be estate or income tax reasons to form the trust in a certain way. Or it could be as simple as wanting to make sure that their frivolous-spending children do not run out of money within the first few years of receiving the inheritance. Parents may think that they are encouraging hard work by not disclosing their financial situation to their children, but they may in fact be fostering ignorance and anger.

These joint meetings may help a parent spell out their reasoning for how they are dividing their assets (including the house and personal belongings) and how they have decided who will be the estate’s executor, have durable power of attorney, or be the primary caregiver for minors. It’s much easier to understand what a parent wants to accomplish with their estate plan if they’re still around to explain it to their family. This doesn’t mean that specific numbers have to be included and that full disclosure be given, but it’s up to the parents to start the conversation and share what they are comfortable sharing.

In other cases, the parent is more interested in handing down values than money. Perhaps all that’s needed is a simple conversation about the importance of having a financial team—consisting of a financial planner, estate attorney, and accountant—establishing a financial plan, saving and investing money, and giving back to charity. So often we hear from clients that a discussion early in their childhood about money formed the foundation for their lifelong financial habits. If the situation is more complex, a family facilitator might need to be hired, someone who can broach difficult, personal, and possibly painful subjects, with the end result being a unified family that is more aware of each other’s feelings and goals. These conversations can be done at the 30,000-foot level if not everyone is comfortable sharing information, or they can be very specific. No one wants a child to feel entitled to expect a large inheritance, but as a parent, do you want your children completely left out of the loop?

                Our firm can help parents review their long-term financial plan with their children, discuss where accounts and important documents are located, and provide contact information for the parents’ financial team. The family should review the will/trust and communicate their wishes about health care preferences to avoid squabbles (who will ever forget the Terry Schiavo situation?). Getting everyone in the same place keeps the message consistent and unequivocally removes any doubts that may have been building. It’s not going to be the easiest of conversations, and all parties may start off anxious, but reticence about the subject will surely backfire. If parents are concerned about their children and children are concerned about their parents, doesn’t it make sense to get everyone together in a room to talk?

1 The source for cited statistics is a Time article, available at: http://time.com/money/3925308/rich-families-lose-wealth/

 

2 The source for cited statistics is an MFS study available at: http://www.mfs.com/about/news/press_080296.html

 

Feel free to contact Brett Horowitz with any questions by phone 305.448.8882 ext. 216 or email: BHorowitz@EK-FF.com

For more information on financial planning visit our website at www.EK-FF.com.

Could a reverse mortgage be right for you?

John_Salter2012

John R. Salter, CFP®, AIFA®, PhD Wealth Manager, Principal

If you are up late at night, you might have seen the TV commercials with your favorite stars of yesteryear and thought that reverse mortgages were only needed if you had nothing left—a last resort whenever every other option has been exhausted.

Changes to the FHA insured Home Equity Conversion Mortgage, or HECM, have changed the face of the reverse mortgage we once knew, opening the mortgage up to many more possible uses. In fact, the HECM program has been the focus of my research for the past few years as a faculty member of Texas Tech’s Personal Financial Planning program, where we have been searching for its possible uses in retirement planning to make sure you are able to sustain your standard of living for the rest of your life.

The HECM program can provide three main ways to utilize the equity built up in your home:

  • Line of Credit – The unused credit line actually grows over time, allowing a higher benefit in later years. The credit line can be borrowed against, and paid back with flexibility.
  • Monthly Payments – These payments, known as tenure payments, essentially convert home equity into annuity-like payments for as long as the owners remain in the home.
  • Lump Sum – A larger distribution from the home equity, often used for issues such as large home maintenance, paying off a traditional mortgage, etc.

Payback of the mortgage is flexible; the loan can be paid back at any time, but any borrowed funds plus interest are ultimately due upon sale or death of the homeowner (the owner or owners on the mortgage). The portion of the upfront fee to FHA and ongoing charges if funds are borrowed are used to make the loan nonrecourse, meaning that upon sale or death the amount due will not exceed the market value of the home. Beware, of course, that any funds used are a debt and have to be repaid at some point—it is, after all, a loan.

So how can this help you? If you and your spouse or co-borrower are over 62, you are eligible to qualify. Even if you feel you are wealthy, the program can contribute to your future financial well-being. I will outline a few quick ideas we have researched and find credible—we are working on many more. (Note that the program has changed to allow a second borrower to be under age 62 and be on the loan, but understanding and care must be taken before making this decision.)

Replace a home equity line of credit (HELOC) – A traditional home equity line of credit, although “free” to set up, has a few drawbacks. For one, the lender can reduce, call, or cancel the line of credit at any time; this cannot happen with the HECM program. In addition, payback with an HEMC is flexible and voluntary and the unused line of credit actually grows over time.

As a last resort, rather than waiting to establish a reverse mortgage later, do it today and let it sit. The interest rate environment is such that you can have a larger line of credit today compared to what it would likely be in the future. You may never use it, but you won’t be mad that you paid for home insurance all these years and never had to use it either.

Refinance your mortgage – Provides flexibility in repayment or stop payments altogether, or to refinance a resetting HELOC.

Increase income – The monthly payment option allows you to draw monthly payments for the rest of your life.

I would encourage you not to automatically dismiss the idea of a reverse mortgage. Take the time to learn more about it and find out how it may fit your needs. The program is complex, so there is no way to fit all of the details in this column, but you can find a lender that is more than happy to help educate you—there are many out there.

By John Salter, PhD, CFP®

John is a partner and wealth manager at Evensky & Katz/Foldes Financial Wealth Management and associate professor of personal financial planning at Texas Tech University. He can be reached at john.salter@ttu.edu.

References and Supplemental Reading

Pfau, Wade D. 2016. “Incorporating Home Equity into a Retirement Income Strategy.” Journal of Financial Planning 29 (4): 41–49.

Pfeiffer, Shaun, C. Angus Schaal, and John Salter. 2014. “HECM Reverse Mortgages: Now or Last Resort?” Journal of Financial Planning 27 (5): 44–51.

Salter, John R., Shaun A. Pfeiffer, and Harold R. Evensky. 2012. “Standby Reverse Mortgages: A Risk Management Tool for Retirement Distributions.” Journal of Financial Planning 25 (8): 40–48.

 

NewsLetter Vol. 11, No. 1 – February 2018

Dear Reader:

DEJA VUE ALL OVER AGAIN?
From a Barron’s article:
“That we are having a major speculative splurge as this is written is obvious to anyone not captured by vacuous optimism.”

“There is here a basic and recurrent process. It comes with rising prices, whether of stocks, real estate, works of art, or anything else. This increase attracts attention and buyers, which produces the further effect of even higher prices. Expectations are thus justified by the very action that sends prices up. The process continues; optimism with the market effect is the order of the day. Prices go up even more.”

Bitcoins anyone?

This was written by economist John Kenneth Galbraith in 1997.

TULIPS
This is going to be interesting. I’m writing this in mid-December, but the NewsLetter will not be going out until around March, so we’ll know more by then how this all shakes out. In the interim…
Have you heard of Tulip Mania? Well, in the early 1600s the price of tulip bulbs reached extraordinarily high levels. According to Wikipedia, at its peak in February 1637, some bulbs sold for more than ten times the annual income of a skilled craftworker. Unfortunately, by May of that year prices had collapsed to close to zero. Until now, Tulip Mania has been the poster child of financial manias. Well, Convoy Investments has created a chart to include the recent Bitcoin price movement just in case we may have a new financial mania king. Of course, even if it is a mania, there may be money to be made if you’re quick enough to hop off the merry-go-round before the bubble pops. Here’s what Crypto pioneer Mike Novogratz said on said Monday on CNBC’s “Fast Money” (12/11/17).

“This is going to be the biggest bubble of our lifetimes.” Which, of course, does not stop him from investing hundreds of millions in the space. While conceding that cryptos are the biggest bubble ever, he also said, “Bitcoin could be at $40,000 at the end of 2018. It easily could.” Then, of course it may not.

Stay tuned (unless something has already happened).

[As I write this, it’s hovering around $10,000 having bounced back from a low of about $6,000.]

It’s Official: Bitcoin Surpasses “Tulip Mania”, Is Now The Biggest Bubble In World History

02-2018_Rise & Fall of some famous asset bubbles

IT WAS A BUSY YEAR
I know because American Airlines sent me a summary of my travels.

• 90 hours in the sky
• 1.5 times around the world
• 12 destinations

That didn’t even include the trips I took on carriers other than American (e.g., Cape Town).

WHO WOULD HAVE GUESSED?
From David, my #1 son, via the Wall Street Journal:

U.S. Oil Output Expected to Surpass Saudi Arabia, Rivaling Russia for Top Spot

THIS WAS A BIT DIFFERENT
I’ve done a lot of interviews over the years, but this was a bit different. The interview was with “Goldstein on Gelt,” an Israeli radio show. I was certainly in good company as Mr. Goldstein has interviewed every living Nobel Laurent in Economics.

Does Your Financial Planning Account for the Worst-Case Scenario?

FOUR YEARS! THEY MUST BE KIDDING
From Barron’s:

Citigroup Must Pay $11.5 Million Over Ratings Glitches

“In a news release, the regulator says that from February 2011 through December 2015, the Citigroup brokerage unit displayed to brokers, retail customers and supervisors inaccurate research ratings for more than 1,800 equity securities. That’s more than 38% of those covered by the firms’ analysts.
In some cases, the firm displayed the wrong rating for securities its research team covered, saying, for example, that a stock was a “buy” when it really was a “sell.” In other cases, ratings appeared for stocks that CGMI analysts did not in fact rate.”

VERY PROUD!

02-2018_DBK Keynote speaker

 

SMART, NOT BRILLIANT
JP Morgan Guide to the Markets 1Q 2018

02-2018_JP Morgan Guide to the Markets 1Q 2018

AVOID A SEAT THAT DOESN’T RECLINE!
If you fly, be sure to check out SeatGuru (www.seatguru.com). SeatGuru.com is a website that features aircraft seat maps, seat reviews, and a color-coded system to identify superior and substandard airline seats.

ROBOs — DÉJÀ VU ALL OVER AGAIN
July 1, 2016
Automated investment advisor Betterment suspended client trading amid Friday’s market turmoil.

February 6, 2018
The websites of two of the country’s biggest robo-advisers — Wealthfront Inc. and Betterment LLC — crashed on Monday as the S&P 500 Index sank. Complaints quickly spread across Reddit and other Internet sites from people who had trouble logging in to their accounts.

MORE PROUD
In its New Year’s letter, the Coral Gables Community Foundation very graciously highlighted the community efforts of our firm.

02-2018_CGCF Happy New Year

The Evensky & Katz / Foldes Financial Charitable Fund was created by David Evensky, Principal and Chief Marketing Officer of the Evensky & Katz / Foldes Financial firm based in Coral Gables. The Fund serves as the central source of the company’s philanthropic giving in the community.

The Fund is one of the most active and charitable at the Foundation. Evensky & Katz has made a positive difference throughout Coral Gables and Greater Miami by generously donating over $500,000 to a myriad of organizations and causes such as Big Brother Big Sisters of Greater Miami, St. Alban’s Child Enrichment Center, Coral Gables Art Cinema, Miami Children’s Hospital Foundation, Coral Gables Museum and many more.

This year, Evensky & Katz / Foldes Financial hosted the 13th Annual Charity Classic in partnership with the Foundation and the Coral Gables Chamber of Commerce to benefit local non-profit organizations. David Evensky and his team have been generous supporters of the Foundation for many years. Currently, Michael Walsh, a Financial Advisor at the firm, serves on the Community Foundation Board and David served on the Foundation Board from 2008 to 2012.
The Community Foundation commends David, Michael and the entire Evensky & Katz / Foldes Financial team for their commitment to service and philanthropy in our shared community.

I LOVE GURUS
January market predictions for the year end:

Goldman Sachs 2300
Credit Suisse 2300

Market close 12/29/17 2673.61

I’m still looking for the gurus who called the early February volatility; so far, I’ve had no luck.

FOOD FOR THOUGHT
Speaking of gurus, there is an interesting article in the Journal by Mark Hulbert. Mark is the author of the Hulbert Financial Digest that he founded in 1980. The Digest tracks the performance of investment advisory newsletters. It’s now owned by Dow Jones and is published as MarketWatch. In his recent column Mark wrote, “Consider the performance of a hypothetical portfolio that each January invested in the recommendations of the investment newsletter at the top of the previous calendar year’s performance ranking. According to a study by my company, this portfolio created from each year’s winners has lost almost everything [my emphasis] — incurring an 18.0% annual loss since 1991. So $100,000 invested in this portfolio back then would today be worth just $471 today.”
The Year’s Fund Returns Are In. Do They Matter?

BEST JOBS FOR THE FUTURE 2017
From Kiplinger:
10 Best Jobs for the Future
I knew that. I’m pleased Kiplinger does also.

As Americans age and pensions become a thing of the past, the value of good investment advice will only grow. Baby boomers, especially, could need more professional help as they plan for and enter retirement. You usually have to be a college grad to get on this career path. A bachelor’s degree in finance, economics, accounting, or a similar field would best prepare you for dealing with money matters, but most employers don’t specify a required major. Certification from the Certified Financial Planner Board of Standards — which requires you to earn a bachelor’s degree, have at least three years of relevant work experience and pass a rigorous exam on a wide range of financial issues — adds to your credibility. Licensing is required to sell certain types of insurance and investment products.

Personal Financial Adviser
Total number of jobs: 251,715
Projected job growth, 2016-2026: 23.8%
Median annual salary: $86,780
Typical education: Bachelor’s degree

Be sure and tell all your younger children, grandchildren, nieces, and nephews.

SICK WORLD
As my readers know, I’ve long been involved in the fight for a fiduciary duty for anyone providing financial advice. It turns out the battle is getting dirty. Here’s a report from FinancialAdvisor IQ

“A large proportion of comments criticizing the fiduciary rule seem to be fake, an investigation has revealed.
“The Department of Labor’s fiduciary rule purports to require retirement account advisors to put clients’ interests first. While it went into partial effect in June, the rule’s final implementation date, originally scheduled for next month, has been pushed back by 18 months. In the meantime, the DOL has been taking public comments on the rule to help the department understand the rule’s effect on advisors and investors.
“According to analysis by the Wall Street Journal and research firm Mercury Analytics, some 40% of supposed commenters didn’t write posts ascribed to them.
“For instance, Robert Schubert, a salesperson from Devon, Pa., supposedly wrote: “I do not need, do not want and object to any federal interference in my retirement planning.” But he tells the Journal the comment was a fraud and not only did he not post it, but also doesn’t agree with it…”
CLIENTS’ INTEREST FIRST?
Wonder why my friends and I are so passionate about regulators enforcing fiduciary standards?

Excerpts from an Administrative Complaint by the Enforcement Section of the Massachusetts Securities division of the Office of the Secretary of the Commonwealth.

Scottrade, a Massachusetts-registered broker-dealer, has knowingly violated its own internal policies designed to ensure compliance with the United States Department of Labor (DOL) Fiduciary Rule by running a series of sales contests involving retirement account clients…. Prior to the Fiduciary Rule, Scottrade employed a firm-wide culture characterized by aggressive sales practices and incentive-based programs. For example, between December 2015 and April 2017, Scottrade ran a series of call nights and sales contests, in part to drum up additional business in light of an upcoming merger with TD Ameritrade…

Notwithstanding the implementation of certain elements of the Fiduciary Rule on June 9, 2017, Scottrade launched two sales contests between June and September 2017 that ran in violation of its own internal policies designed to ensure compliance with the Fiduciary Rule. Scottrade launched the first of these two contests, the Q3 Win and Retain Sales Contest … on June 5, 2017. The Q3 Sales Contest came on the heels of predecessor sales contests, placed an explicit emphasis on generating net new assets, including retirement assets, and offered $285,000 in cash prizes. Almost immediately after the Q3 Sales Contest ended on July 31, 2017, Scottrade launched the Q4 Dials and Referral Contest … which was nearly identical in scope and structure….

Scottrade encouraged its customers to bring new assets to the firm, while failing to inform them of the conflicts arising from the sales contests. To appraise the performance of its agents, Scottrade frequently circulated internal metrics and rankings during the Q3 and Q4 Sales Contests. Under the Q3 Sales Contest, Scottrade required its agents to achieve a call penetration of at least 80% in order to qualify for particular prizes. Under the Q4 Sales Contest, Scottrade required its agents to make recommendations and referrals to its investment advisory program in order to qualify for particular prizes. These contests could reasonably be expected to cause Scottrade agents to make recommendations in their own best interests rather than the best interests of their customers, including those with retirement accounts.

MERE SALE ACTIVITY
Eugene Scalia, a partner with Gibson Dunn who represents the nine plaintiffs suing the Labor Department over its fiduciary rule, told the U.S. Court of Appeals for the 5th Circuit on Friday that Massachusetts’ action Thursday against Scottrade for allegedly violating the fiduciary rule’s Impartial Conduct Standards is “without merit,” and will spark “private plaintiffs … to exploit the rule to concoct state law claims.”

Scalia said that the Massachusetts’ complaint asserts that “Scottrade has failed to act in good faith to comply with the fiduciary rule,’” and argues that “this gives rise to multiple violations of state law.”
“As Appellants warned …, a fiduciary breach is alleged to have occurred through mere sales activity.” [my emphasis]
Lawyer Fighting DOL Rule Blasts Scottrade Fiduciary Charges
From my friend Ron Rhodes, here’s more on the “mere” sales effort:

The facts are pretty damning. Internal-use materials instructed agents to target a client’s “pain point” and emotional vulnerability and training sessions lauded the use of emotion over logic in getting a client to bring additional assets to the firm. The firm distributed weekly net new assets reports and closely tracked progress during these sales contests. The firm used internal quotas that ranked agents during the contests. The firm frequently used performance metrics to rank the different branches and agents in order to incentivize them to make recommendations to retirement account clients.
One branch manager stated, “This … is honestly the most interested I have ever been in one of our contests. We are going to make a concerted effort to win this thing.” A Divisional Vice President stated in email, “The first week of the Q3 ‘RUN-THE-BASES’ contest is done, and we have a few regions off to a SCREAMING start! You certainly knocked the cover off the ball! Some would say you knocked it out of the park! Very soon, we will get an official count on how we did, and more exciting, a chance to see where we stack-up against our peers on our official scoreboard! […] Happy Selling.”

I’m obviously living in an alternative universe from Mr. Scalia.

SPEAKING OF A SICK WORLD
• Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other. ~Oscar Am ringer, “the Mark Twain of American Socialism”
• I offered my opponents a deal: “if they stop telling lies about me, I will stop telling the truth about them.” ~Adlai Stevenson, campaign speech, 1952
• “A politician is a fellow who will lay down your life for his country.” ~Texas Guinan, nineteenth century American businessman
• “I have come to the conclusion that politics is too serious a matter to be left to the politicians.” ~Charles de Gaulle, French general & politician
• “Instead of giving a politician the keys to the city, it might be better to change the locks.” ~Doug Larson (English middle-distance runner who won gold medals at the 1924 Olympic Games)
• We hang petty thieves and appoint the bigger thieves to public office. ~Aesop, Greek slave & fable author
• “Those who are too smart to engage in politics are punished by being governed by those who are dumber.” ~Plato, ancient Greek Philosopher
• “Politicians are the same all over. They promise to build a bridge even where there is no river.” ~Nikita Khrushchev, Russian Soviet politician
• “Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.” ~John Quinton, American actor/writer

WONDER WHY RETAIL INVESTOR INTEREST COMES LAST?
From InvestmentNews via my friend Skip:
2016-2017 Campaign Contributions

02-2018_2016-2017 Campaign Contributions

ICI, NAIFA, SIFMA, IRI, FSI are all financial service firm organizations
IAA and FPA represent fiduciary-oriented practitioners.

OK, OFF MY SOAP BOX
On to a more positive note, this week, my partner, Katie Salter, who is President of our Lubbock Rotary, arranged for a true American Hero to appear as the lunch speaker, Hershel Woodrow “Woody” Williams. Mr. Williams is a retired United States Marine Corps warrant officer who received the United States military’s highest decoration for valor — the Medal of Honor — for heroism above and beyond the call of duty during the Battle of Iwo Jima in World War II. He and three soldiers are the only living Medal of Honor recipients from that war. In addition, he is the only surviving Marine to have received the Medal of Honor during the Second World War, and is the only surviving Medal of Honor recipient from the Pacific theater of the war. To say his talk was inspiring is a gross understatement. You may recognize his picture as he tossed the coin at the Super Bowl.

02-2018_Hershel Woodrow Williams

ROBOS — DÉJÀ VU ALL OVER AGAIN
July 1, 2016
Automated investment advisor Betterment suspended client trading amid Friday’s market turmoil.

February 6, 2018
The websites of two of the country’s biggest robo-advisers — Wealthfront Inc. and Betterment LLC — crashed on Monday as the S&P 500 Index sank. Complaints quickly spread across Reddit and other Internet sites from people who had trouble logging in to their accounts.

John’s query:
I wonder if they sent robo-calls to comfort their clients?

Hope you enjoyed,

_HRE SIGNATURE.jpg

Harold Evensky
Chairman
Evensky & Katz / Foldes Financial Wealth Management

 

Check out the link below for Harold’s last NewsLetter:

NewsLetter Vol. 10, No. 5 – December 2017