Estate Planning Strategies & Mistakes

At some point during your life, you may start thinking about issues including transferring money to your heirs and protecting your assets from becoming subject to unnecessarily high taxes when you die. In my experience, people with up to 2M generally are satisfied with having a Will along with annual reviews of their beneficiary elections and checking the registration and titling of investment accounts and real estate. Most of that can be done with a financial advisor with add-on services from an estate planning attorney – usually the “Will package” which includes a Will, Living Will, Health Proxy and Durable Power of Attorney. What happens when your net worth balloons to 5M, 10M, or 100M? Estate planning gets a bit more complicated and you need to be extra cautious, as we will discuss below:

Continue reading

Financial Advisor Compensation

People often wonder about the different ways financial advisors get paid. The issue is discussed not only by investors but also within the industry by professionals as compensation methods have been hotly debated over the past decade. I thought this would make an interesting post because I’m in touch with many different advisors and have a good knowledge of how they earn a living and what the average fee schedules look like. Let’s start with the first important breakdown: fees vs. commissions.

Continue reading

Retirement and Systematic Portfolio Withdrawals

Retirement planning is certainly one of the most debated and important areas of financial planning. Each advisor and firm has a different approach when it comes to how they plan for retirement and how they help clients in retirement ensure that they have adequate income to last the rest of their lives. At its core, the components needed to plan for retirement are fairly clear: what are your guaranteed income sources during retirement and what are your variable sources? Similarly, what will your fixed expenses be and what will vary? Most retirees have social security, some have pension income, and most have financial portfolios from which they can take withdrawals over the course of several decades to complement those other income sources. That last point is our focus for today’s blog article: How much does one need to save and at what rate can one safely withdraw? Also, what is the ideal asset mix during those retirement years?

Continue reading

Why is Generation Y Ditching Retirement Plans Including the 401K?

Most of my clients embrace payroll deduction retirement plans including the 401(k) and 403(b) which offer the benefit of tax deductible contributions and tax-deferred growth. However, once in a while I’ll meet someone who prefers not to participate in these sorts of plans because they don’t like the idea of giving up liquidity until they are much older. Also, tax-deferral still means paying tax when that money is withdrawn, creating a tax headache which often requires careful planning during retirement. According to research firm Hearts and Wallets, short-term goals and financial independence take precedence over traditional tax-deferred retirement savings accounts for many of the more affluent Generation Y investors.*

Continue reading

Debating the Capital Gains Tax

It’s exciting when you buy a stock which goes up. Some of that excitement dies down when you sell the stock and realize that you didn’t hold it for at least 1 year and therefore are paying a 40%+ tax rate on your gain, especially if you live in a place like New York or California. The Capital Gains tax has been a volatile and debated tax going back nearly 100 years. Because the majority of capital gains taxes collected are on assets held more than one year, the long-term capital gains rate is at the center of this tax debate. Up through 2012 we had a somewhat friendly rate of 15% due on long-term capital gains. However, that amount jumped to 20% recently and is even higher (23.8%) if you earn a decent living and are subject to the Affordable Care Act surcharge. Capital gains taxes are collected at the state level as well, adding another layer of pain if you live in a state which imposes this tax. At the heart of the capital gains debate is the question: do capital gains taxes harm economic growth and reduce the rate of savings and investment?

Continue reading

Creating Personal Financial Statements

My clients know that one of the first steps in my financial planning process is creating personal financial statements – specifically a net worth statement. I think that knowing and accepting your current financial situation is a necessary step in the path to making it better. The easiest way to view your current financial situation is to lay out your assets, liabilities and current net worth on a sheet of paper or screen and save it. If you do this every few months, it will reveal patterns about what is going right and what is going wrong in your financial life. I can’t tell you how much people enjoy this exercise and how few people have thought to do this on their own. Occasionally people think they are rich because they live in a 1.5M home, but then they reveal a 1.2M mortgage and 200K in student loans. When the net worth statement is barely positive, it reflects a very different reality.

Continue reading

Financial Advisors and “Dual Registration” – Understanding the Jargon

When people ask me what I do, it’s easy enough to respond “I’m a financial advisor.” But the technical explanation as to how my organization operates is more complicated. I figured why not write an article about it because it reflects an industry trend and may be interesting to my clients and other readers. My firm (Premier Wealth Advisors, LLC) is an RIA (Registered Investment Advisor) which provides fee-based advisory services. However, we are also licensed as registered representatives of First Allied Securities, Inc., an independent broker/dealer firm. Through First Allied we are able to offer an additional array of commission-based products including life insurance and annuities. While fee-only advisors are the rage these days, I thought it was important to be dually registered so that I can continue to offer a full slate of investment and advisory products and services to my clients. Why send my clients to another advisor to buy insurance when we can do it here? As a comprehensive wealth management firm, our clients should be able to get everything they need here from investment and insurance services to tax and estate planning.

Continue reading

The Financial Planning Process

Many people want to develop a relationship with a financial planner but don’t really know what that relationship entails. It will likely vary a bit from advisor to advisor but here is a general idea of how it works. I learned this process in the first module of the Certified Financial Planner program several years back and, for the most part, I’m still using it. The only differences would include that the process has become more electronic and also a bit more ‘holistic’ in the past few years, something I’ve written about on this blog.

Continue reading