The Old One-Three

Past Performance Does Not Guarantee Future Results

Charity Assessment

Quiz

 
Click here for the Quiz

Remember Her - Part 2

Be Careful Out There

Gratitude

Every working day I switch-on the computer to check my tasks, schedule and what’s happening in the world.  Before I even get to those, I look at my Gratitude List.

Gratitude is a powerful, positive emotion.  Reminding myself of all my blessings is the perfect way to start the day.  In this season of gratitude, I’d like share some of the things for which I’m so grateful:

• For the courage, kindness and patience of the woman I love,

• For a job I enjoy and the ability to help people who like me,

• To live in a country where I can be as much as I can make of myself and

• To benefit from others who made the most of their opportunities,

• To live in a time of health where things that would have killed me in previous generations were better in a week (although slightly less grateful for the cost of insuring care lately 😊),

• For dear friends and family, both here and gone, who lit my way and

• Parents who taught me to love learning.

There are others.  Thanks so much for the chance to reaffirm just how much I appreciate being right here right now.  

Enjoy all the blessings of the season with the ones you love, sh  

The Best Laid Plans

The Best Laid Plans   December 2016

A solid financial plan can make life easier.  It informs how you spend, save, invest and even imagine your future.  It’s a support system.

That’s what makes them so risky when done poorly or with the wrong intentions.

Wall Street offers financial planning for two reasons.  The first is to learn enough about a client to cross-sell them as many products as possible.  The nobler reason is to learn as much as you can so you can do what’s right for them.

The printed reports look the same.  If clients even notice, it will be through their planner/advisor’s constant commitment.  A plan isn’t a one-time presentation.  It’s a process.

Advisors need to update these plans frequently.  Your life will change.  Your money will change.  If he (or she) doesn’t keep track, you won’t know how you’re doing.

The plans themselves need periodic maintenance.  I reprogram the interest rates in my bond and cash forecasts.  That’s critical because the default interest settings in these software packages are two to three times higher than we can find in the market today.  Even new plans are much too optimistic out of the box.

This year I’ll stress-test everyone’s plans with a bond bear-market scenario.  That’s item one on our next meeting agenda – and every meeting from then on.  It makes for a long day but the most important thing I can ever do for the people I serve is keep them from trying to retire on income they won’t get.

Which brings us to your advisor. 

Interest rates are as low as they have ever been.  If he hasn’t dragged you in the office lately to explain how he recalculated your lifetime income estimate, reread paragraph 3 above.  It’s a conversation focused on the goal of not running out of money.   

You’d remember it. 

I review a lot of plans for folks who suspect their advisor hasn’t kept-up.  They’re almost always right.  I can usually tell them if their plan has any hope of hitting their goals very quickly.  Explaining why doesn’t take very long either.

The hard part is getting them to bring their plan in.

These impressive volumes still have defenses long after they are doomed.

·        It was a reputable firm,

·        He has credentials,

·        I paid four grand!

·        I’d introduce you but she already has a planner,

·        I’m sure my investment firm monitors my plan,

·        Wall Street will take care of me.

Have I mentioned paragraph 3 lately?

If your plan isn’t getting much love, bring it by the office for a quick check-up.  I can probably tell if you are on-track before you finish your coffee.  There will be no charge or obligation.  Spouses are encouraged and welcome.

Thanks for reading and please forward this to someone who has a neglected plan of their own.  sh

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The Qualifying Charitable Distribution

Using the Qualifying Charitable Distribution (QCD) for IRA’s

There is a tax provision that allows people over 70 ½ to transfer up to $100,000 a year from their IRA to a qualifying charity as a direct pass-through.  It usually doesn’t affect your other taxes and can be used to satisfy your Required Minimum Distributions.  In other words – the state and federal governments never see a dime.  

I’d like to come at the opportunity from two different angles.  The first is for people who are both generous to charity and to their family.  The second is for leaders (or soon-to-be leaders) in those charities.

For families: think of this more as succession planning than current tax planning.  

Your family inherits your assets in three buckets.  Bucket one has things like real estate, securities and personal possessions.  Your heirs may get a step-up in the cost basis so all capital gains are forgiven.  Assets pass at 100 cents on the dollar.

Bucket two has life insurance.  Structured correctly, your family gets those benefits income tax free.

Bucket three has assets that are always taxable like annuities and retirement accounts.  If you don’t pay the tax, your heirs will.  Your children (the employed ones) could lose up to 40% of the value to the government.

Bucket three is the low-hanging fruit for charitable giving.  If you want to do right by your church or cause, give them assets with limited value to your taxable heirs.  Leave your family the assets they can keep.  The QCD is a good start.

At your annual financial planning review, make a list of what’s in your three buckets.  You may also find things in the first two you can do without now and enjoy the deduction.  Some gifts are best given from a warm hand.

For inspiring charitable leaders:  This isn’t about using the QCD – it’s about selling it.

You know people who could contribute a lot more than they have.  Next time you ask for a donation, DO NOT ask for cash!

Try this instead:

Hello Jeff, It’s campaign time again.  Will you be using the new IRA direct transfer this year?

Huh?

It’s a loophole that allows folks to transfer money directly from their IRA to charities like us without paying any taxes.  You can use it to avoid taxes on your required distributions too.  It’s limited to a hundred thousand dollars a year – but we can work around that.  Handy estate gift too …

Er, uh ….

Why don’t you and Helen join us for lunch next Thursday?  I can tell you how we’re taking advantage of the opportunity.

See you then.

Let’s break this down:  In a few sentences, you significantly raised the bar, brought new assets into the conversation, broached death and taxes tactfully, let him know he’s not alone and closed for the “ask” appointment.

Does it matter if he isn’t 70 ½ yet?  No.  Taking money from an IRA and deducting it works about the same as the pass-through for most people in their sixties.

Does it matter if he doesn’t even have an IRA?  No. There may be things in buckets one and two that offer nice write-offs.  

What does matter is you just started a peer-to-peer conversation about his serious money.  Cash is a byproduct of assets.  Go for the source!

BTW, big checks like this make nice challenge grants to help other contributors find their wallets.  Leverage them.  Maybe Jeff can make a couple calls.

Your pancake breakfast isn’t going to restore the chapel.  Be inspirational!  

If I can help explain this to friends who serve, just say when and where and I’ll be there.

As always, the opinions expressed here are mine and don’t necessarily reflect the views of LPL Financial or anyone else.  This is generic information so definitely run this by your tax and legal advisors for your specific situation.  They may have even better ways to have your cake and eat it too.  sh   

Things Get Sticky at Wells Fargo

Last week I watched my former CEO squirm under questioning from the Senate Banking Committee.  The senators wondered why Wells Fargo defrauded over two million customers for no apparent financial gain. 

I’ll tell you why:  Sticky Money!

Studies show that cross-selling multiple business lines increases profitability, customer loyalty and name recognition. 

Nobody’s going to forget their name anytime soon. 

Front-line employees were threatened with termination if they didn’t open unrealistic numbers of new accounts.  When customers didn’t buy, some of those employees forged millions of new accounts to postpone getting kicked out in the street.  Others quit rather than commit federal crimes. 

When the stink-alarms went off, 5,300 employees were fired – but the big-shots kept their bonuses for the imaginary business. 

We haven’t heard the last of it.  Class-action suits from fired and abused employees are springing up like toadstools in a feedlot.

I left Wells about the same time this started for some of the same reasons.  The 2012 compensation package penalized my regular commissions if I didn’t sell bank products.  Every bank-broker I’ve talked to since tells me the pressure keeps getting worse where they work too.

I knew I was leaving so I blathered, “Yeah, gotta get on that..” and then didn’t.

One helpful suggestion from the brass still sticks in my craw.  I got a list of four clients who were pre-approved for lines-of-credit on their securities.  None of them were a day under 70 – people who would pound the desk in pride that they didn’t owe a darned dime (usually something more colorful).

I was supposed to talk them into hocking their stocks to pay for their granddaughter’s wedding or take a pay cut.

Welcome to sticky money. 

When you owe on your account – when your mortgage rate is contingent on your securities business – when your credit cards are tied to your brokerage account, it’s harder to leave.  You stick to the firm.

I couldn’t have brought grandparents who owed on Chelsea’s wedding with me.  They’d be stuck.  With enough clients like that, I’d be stuck too.  When your deferred compensation depends on selling things your clients don’t need (and, as it turned out, wouldn’t even know they had), you’re double stuck.  And every new conflict-of-interest is tougher to refuse.

I saw this coming.

Maybe not swindling millions of customers – but I smelled something rotten the day Wells Fargo told me my clients weren’t profitable enough doing what was in their best interests.

My clients deserve better.  I deserve better.  At this shop, everyone is treated with respect and dignity.  It’s how I was raised.

If that’s how you want to be treated, I hope you’ll give me a call. 

It’s a long shot.  You probably don’t know me from Adam.  But if you hate feeling sticky, we’ve already got a lot in common.  

-SH

Related note:  I watch golf on TV hoping I’ll learn something. TV golf comes with lots of financial commercials targeting affluent investors – people I serve.  Towards the end of the ad, you often see a list of other things the company does – things like: private banking, underwriting, trading, commercial lending and international finance.

I suppose viewers are supposed to think they are solid and diversified. 

Some of them. 

My take is that their other clients are more important than mine. The big ones eat the little ones in this business.  If somebody has to burn for a greedy mistake, make sure you have a chair when the music stops. 

See, it works!  Keep your eye on the ball and avoid the hazards! 

The opinions expressed here are those of Skip Helms and do not necessarily reflect those of LPL Financial or anyone else. Investing involves risks, including the loss of principal. Past performance does not guarantee future results. Please consider potential transactions carefully and read all appropriate materials before investing or sending money. Securities offered through LPL Financial, Member FINRA/SIPC

Visit to OLLI - Part 2

Welcome back.

Last week I re-answered a question I received at the OLLI class at UNC Asheville.  Most of the attendees were people who make their own financial decisions.  Maybe not a brilliant marketing strategy for HelmsWealth but I love talking about finance and usually learn something myself.  We can swap yarns in good fellowship because none of us risks our trust.

Before the bell, I said that investors with full-service financial advisors didn't need to know anything about portfolio mechanics.  Instead, they absolutely must answer these three questions about their advisor:

          1)  Do I like this person?

          2)  Do I trust this person? and

          3)  Will he (or she -- usually he) do what I need?

You need three confident "yes" answers whether you are interviewing a prospective advisor or have known him for 12 years.  If you get all three right, managing the money is his job from them on.

After class, I was asked to expand on that statement.  I’m glad of the opportunity because it comes down to the trust I think is the hallmark of the essential family advisor.

"Trust" and "like" are separate questions for a good reason.  When it comes to money or family, trust is the higher standard. 

President Reagan famously said, "Trust, but verify."  Verifying trust with your financial advisor can be daunting.  But you have to do it.  You are the only one who can.  I can't give you much emotional support from a blog page but I can share some ideas how to start your search.

Investors are between a rock and a hard place.  On one hand, Wall Street sells investments.  Sales incentives can include rewards or pressure depending on how much freedom advisors have to choose what you own.

On the other hand, financial advisors have an ongoing fiduciary duty to place their clients' interests above those of their firm.

How your advisor and his firm handle those competing forces determines where their loyalties lie. 

That’s also the easy (and discreet) place to look for conflicts-of-interest.  If you really want to know where you stand, test the integrity of your advisor's product supply chain.

My personal favorite fiduciary responsibility is maintaining the transparency of the investments in my clients' accounts -- both what they are and how they get there.  We shop hundreds of investment sources using a fee-based platform so none of the vendors have any economic leverage to force their way into the portfolio.

That's crucial because part of that essential duty is to intervene in the product flow when I see strategic threats or opportunities.  As things change, there is always a Plan B without duress from suppliers.

It's not so simple when firm-wide revenues depend on favoring one vendor.  Plan B means a one-sided talk with your boss about being "a team player".  If you distribute for a single-line manager, Plan B means looking for another job.

Let's do some verifying in your best interests:

Start with the low-hanging fruit.  Does your advisor's firm or parent corporation frequently pay huge fines for stealing?  That's a clue. 

Can your advisor only sell (or does he only sell) products or strategies his company manages?  That's another clue – although not a deal-killer if they're competent.

My big red flag is when advisors are paid to keep you on their company's glide-path (last week's blog).  Funds, wrap accounts, annuities – the platform doesn't matter if you are just a dot on the chart.  Managing one big account is more profitable than managing 80,000 little ones.  That doesn't mean it's better for you – or even cheaper.

Case-in-point:  Last week I said I think rigid asset models are a strategic threat for retirees when used instead of on-going vigilance.

I've been wrong before.  Maybe I'm just the only advisor who can't squeeze 6% out of a 3% bond.  Right or wrong, markets create plenty of other dangers without my help.  When I spot one, I can act without someone breathing down my neck.

If you haven't done the 5-minute exercise at the bottom of last week's blog, please do that now.  You need to know your asset allocation before you ask why you have it.

Innocently ask your advisor how he would change your investment strategy if he felt you, his portfolio process or even his firm was on the wrong track.

Then listen.  He has one chance to get this right.

A good answer is that he constantly monitors client portfolios and chooses investments from independent sources without duress.

A bad answer (stated or unavoided) is that he hasn't had any portfolio input since your account was opened.

The bad answer means there is no Plan B if his firm implodes, uses self-serving products or forces him to sell you things you wouldn't touch with rubber gloves. 

They may never happen – but you are trusting him to tell you if they do.

Sometimes I imagine investors embracing these truths and flocking to my door.

That doesn't happen very often.  Trust is deeply personal.  Verifying it can be uncomfortable.  Many investors won't even risk the pain of learning (or finally admitting) their trust has been misplaced.  If they get that far, they have to find somebody new without any idea how to look.

One of the reasons I've made my practice so transparent is to save clients the embarrassment of asking if I'm honest.  I explain how I handle those conflicts-of-interest early in the conversation so they always know it's OK to hold me accountable.  If you advisor has earned your trust, he won’t mind either.

Find the courage to verify the trust your advisor must earn every day.  It makes everything better.  You may even like him more.  sh

PS-  Or just come see me!  

The opinions expressed here are those of Skip Helms and do not necessarily reflect those of LPL Financial or anyone else. Investing involves risks, including the loss of principal. Securities offered through LPL Financial, Member FINRA/SIPC. OLLI, Helms Wealth Management, and LPL Financial are separate entities.