Changed Social Security Rules Demand Changed Strategies
What is it?
A donor-advised fund allows donors to make public charity contributions while enabling the donors to take immediate tax deductions. One such charity is Fidelity Charitable. Donors who contribute can make recommendations regarding how funds are disbursed to qualified, non-profit, organizations such as the United Way. There are numerous benefits to a donor-advised fund, including the opportunity to stay anonymous when donating. Those who donate to the fund can take a maximum tax deduction after they have made an irrevocable contribution.
Responsibility of the Charity
The charity is responsible for performing due diligence to verify that every organization recommended to receive a grant is an IRS-qualified public charitable organization. The charity is also responsible for ensuring that other restrictions specified by the sponsoring organization’s policies with a donor-advised fund program are met.
Time to Face the Music
Once your financial advisor has completed the data gathering and analysis portion of the financial planning process, it's time to review the plan. Make no mistake, many people don't even begin things because they know the results will not look good. Is ignorance bliss here? It can't be; you can always improve your situation but you without a financial plan, you are aiming at nothing. And when you aim at nothing, you usually hit it!
Sitting down with your CERTIFIED FINANCIAL PLANNER™ and taking a look at your entire financial situation can seem daunting, but you don't have to cover all of the bases in one sitting. The best approach is to explore those areas in greatest need of attention, and go after the low hanging fruit first. In my experience, some of the biggest areas of risk for clients are the following:
- Goals are not clearly understood and defined
- Lack of consistent strategy across investment and retirement accounts
- High-fee investment products that are not aligned to financial goals
- Lack of adequate life insurance
Once you know where the problems lie, it's time to look at fixing those issues one-by-one.
Financial Plans Don't Just Make Themselves
Once you have selected a financial advisor with a CERTIFIED FINANCIAL PLANNER™ designation, the hard work is done, right? Not exactly. Choosing a partner is one of the biggest steps in the process, but it takes one more big one to get the job done -- commitment. Yes, the dreaded word that no one seems to want to say anymore. We can't commit to something nowadays because a better opportunity could be just around the corner!
This sounds facetious, and it is. However, for your financial plan to be any good, you have to commit to the process and follow through. This is true for just about anything, but when it comes to getting all of the benefits you deserve from your efforts, you have to be willing to prioritize the mundane tasks that lie ahead. After 16 years in the business, I've seen even the most well-organized and well-intentioned individuals fail to commit to the financial planning process and then it never happens. They know they need it, but can never quite find the time to do their part. The unfortunate result is that they languish around, never quite sure if they will be able to retire on time, send their kids to a good college, or afford that dream home in the mountains.
The bottom line here is, know your role in the process may be boring, frustrating, and the last thing you want to do on a Saturday afternoon, but you have to dedicate yourself to doing your part with the confidence that the juice will be worth the squeeze.
Why Create a Financial Plan in the First Place?
Imagine, if you would for a moment, being on the cusp of building your dream home. You've pictured what the house will look like, the setting, furnishings, your family enjoying the space and many happy memories yet to be had. Then, you roll down to Home Depot, pick up some concrete, lumber, nails, etc., and away you go. No blueprints or planning, you just start building. Sounds pretty ridiculous to me!
Unless you are a real-life Bob Villa, I don't suppose the home would turn out very well. Probably not for Bob, either. You would be fool-hearty to begin such a complex endeavor without first meeting with a trained architect to develop an in-depth blueprint from which a seasoned builder could create your home. You have one chance to get it right, and you can't afford to screw it up! (more)
The dilemma: Greater Need and Less Human Capital
There's an interesting dilemma brewing in the personal financial advisory space. The demographics indicate that, as baby Boomers retire, they will need quality advice on how to live the lifestyle they desire in retirement without running out of money to do so. However, even with this strong and growing need, the industry serving these clients finds itself at a crossroad; the barriers to entry into the business are continuing to get higher as competition increases and fees drop. Additionally, the average age of a financial advisor continues to climb, and by some measures is approaching 60 years old. This does not bode well for the future of the industry.
WealthManagement.com recently reported on research about how most people view their long-term financial well-being. The short answer is, they don't; they think short-term. In an ideal world, investors simply keep investing and everything falls into place. Unfortunately, successful planning and investing isn't that easy. It's difficult and fraught with risks of severe failure. Enter the true professional financial advisor. If worth their salt, they help clients to focus on more than just the here-and-now; they bring the whole picture together which fosters success.
"According to a study by the deVere Group, more people without financial advisors are thinking about their long-term finances than they were a few years ago. The bad news is that 71 percent of the 648 people surveyed still only are looking one year out, regardless of age, income or nationality. According to Nigel Green, the CEO and founder of deVere Group, it’s never been more important to plan for the long-term, and procrastination can be costly for investors. “Governments are being forced to cut age-related benefits, meaning that in the future most people will not be able to rely on governmental support to the same extent they have done in the past, so we have to be more financially self-reliant in retirement,” Green said. “If you’re serious about reaching your big, life-enhancing financial objectives, you must think and plan with a perspective that’s longer than 12 months.” www.wealthmanagement.com
"There's no such thing as a free lunch." goes the popular saying widely attributed to economist Harley L. Lutz around 1942. In the financial services industry, nothing could be more true. Unfortunately today, many advisors are selling high fee products under the guise that they are a "good deal," that the investor is getting something they don't deserve for the cost. You get what you pay for, make no mistake about it! Here are the four most oversold and costly investment products that fee-hungry advisors are selling today:
1) Structured Notes
"What are these things?" is a question we get quite often when we speak to an investor who has purchased a structured note based on a recommendation from their advisor. It's a very good question because the answer is elusive to say the least. Technically, a structured note is an IOU from a large bank (usually), many of which are in the cross-hairs of governments around the world. Upon further investigation, structured notes can be very costly too, as investors may pay a 3% commission or more at the time of purchase! When a financial advisor makes such a large fee upfront, the only party guaranteed to win is them and not you. Always get a second opinion from a non-commissioned advisor before buying a structured note.
This may be the most oversold and misrepresented financial instrument on the planet. The reason: an insurance agent of broker stands to make upwards of 6% commission on the sale of an annuity to you! As you can imagine, when the compensation is so large, many financial advisors go out of their way to sell various forms of an annuity to their clients. In the right situation, an annuity can be a perfect fit. In our opinion, however, somewhere in the range of only 5-10% of investors should consider an annuity. Again, these investments are rarely fully explained and the fees are largely hidden from plain view. Back-end sales charges also sting buyers of annuities who close the contract before it's completed. This lock-in period can range anywhere from 3 to more than 8 years! Any investment that takes more than one page to explain is probably too expensive and complicated to be a good deal (annuity contracts can be dozens of pages), so tread very carefully before committing to buy any form of annuity.
3) Universal, Variable or Whole Life Insurance
Life insurance mitigates the risk of your untimely death and provides financial security to your loved ones who have lost you as a bread winner for the family. Always use insurance for this reason and you will be in good shape. Buy insurance as a investment as well, and get ready to be socked with fees upwards of 4-6% annually to maintain the contract! "Buy term and invest the rest" is an old adage and it rings true today. Term insurance is usually very affordable yet that's what makes it so unappealing to sell -- the insurance agent would starve if he or she only recommended term! Far too many investors are sold universal, variable, or whole life policies when they really don't need them. Look before you leap into one of these products and have a financial advisor with a Certified Financial Planner™ credential review any insurance proposal before you buy.
4) In-house College 529 Savings Plans
Saving for a child's college education can be a daunting challenge for many families. The 529 college savings account is an awesome vehicle that warrants serious consideration when trying to tackle this huge financial burden. But buyer beware here, because high fees can eat away at your returns and leave your child short-handed once the college years are upon them. Some plan fees can exceed 2% when you consider the commissions and annual expense ratios of the underlying funds. Additionally, a broker who is tied to their company's investment platform typically only has one or two options to chose from, yet all 50 states plus the District of Columbia offer 529 plans. Because so many are offered directly to consumers, do your own homework here and skip the expensive middleman.
At Infinium Investment Advisors, our Denver financial advisors' goal is to provide you with unbiased advice and an objective opinion. If you would like us to run a complimentary review of your financial advisory relationship, please click the link below to schedule an introductory call:
At Infinium, we believe in providing you original research and thoughts on the world of personal financial services. Nothing of what you see on our site is canned or produced by a 3rd party. Take some time to explore the following resources:
- 3 Mistakes a Trusted Financial Advisor Never Makes
- Top 3 Traits of an Honest Financial Advisor
- History of Financial Advisors | Denver [white paper]
Ranked as one of America's fastest growing cities, Denver, Colorado is the gateway to the Rockies. A unique combination of thriving metropolis and the wild outdoors, the city is literally one mile high above sea level. Talk to anyone on the street and more than likely they are not a "pioneer," or someone who's family arrived in the state prior to 1861. They are most likely an import from another part of the country, or even outside of the Unitesd States. The pioneers and the new entrants have a few things in common, though, including a love for the Mile High City and all that it has to offer. Here are some of the top reasons that make Denver one of America'a greatest cities:
- 300 Days of Sunshine, more than Miami Beach or San Diego, CA
- 32 Moutain Peaks Higher than 13,000 ft.
- Boasts the largest city park system in the country with more than 200 parks with in the city limts and an additional 14,000 acres of mountain space nearby
- Sits within a 2-hour drive to world-class ski resorts such as Vail, Breckenridge, Keystone, Beaver Creek- Hosts the Great American Bear Festival, the largest of its kind with more than 1,300 breweries and 50,000 attendees
- Hosts the National Western Stock show, the largest of its kind with more than 600,000 vistors annually
As financial advisors in Denver, we feel very fortunate to call the Mile High City our home base from which to serve our clients. If you are ever visting our great city from out of town, be sure to look us up and stop by!
At Infinium, we believe in providing you original research and thoughts on the world of personal financial services. Nothing of what you see on our site is canned or produced by a 3rd party. Take some time to explore the following resources