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Archive for March 2011

Your Estate Planning Checklist

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

Here’s a quick checklist, courtesy of Kathleen McBride, Editor-in-Chief of Wealth Channel, AdvisorOne.  Sit down with your estate-planning attorney and review it together.

  1. Check your will and create a `revocable trust’ to avoid probate.  Assets pass easily, much like under a will, but you can avoid the probate process.   Make sure your will is placed inside the trust.
  2. When you meet with your attorney, remember to set-up a review schedule.  Current tax law expires in two years.
  3. Assets should be titled in the name of the revocable trust – that includes your home, car, investment accounts, and other property.  Ask your attorney whether IRAs should be included since there are other factors to consider.
  4. Make sure both the trust document  and will reference the new tax law.
  5. You might want to make sure one or more people have a general power of attorney.  If you get into a car accident, someone has to write checks.
  6. Make sure you have a health care directive.
  7. Discuss a limited power of appointment (LPA) with your attorney so that somebody who benefits from the trust can decide where it goes when they no longer need the income.

This is just a `heads-up’ checklist to discuss with your estate planning attorney.  I am not an attorney and I didn’t even stay in a Holiday Inn Express.  I did watch Perry Mason when I was a kid, but I’m not sure that counts.

Jim

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.

Do You Have a UMA?

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

You might like it!  UMA is short for `unified managed accounts’ and they’re becoming increasingly popular with both advisors as well as their clients.

Scattered Assets

I can’t even begin to tell you how many times over the years I’ve come in contact with people who have multiple accounts, each containing multiple investments, scattered among different institutions with different advisors – all under the misguided and mistaken belief that they are diversifying their risk.  The pity is nothing could be further from the truth.   The only thing they’ve really accomplished is complicating their lives – multiple statements, year-end 1099s and, virtually always, the right hand never knowing what the left hand is doing.   This does not reduce risk.  If anything, it adds to it

The Benefits

The UMA allows investors to combine investments of virtually all types into a single registration.  This reduces the number of accounts per household, also the number of statements, the paperwork, and provides the investor and the advisor with a complete holistic picture of what’s going on making planning more meaningful.   Clients with taxable accounts not only benefit from a more efficient investment process, but can deal with a single 1099 form at the end of the tax year.

UMAs are also well suited to retirement income planning because they allow clients to have many different types of assets in a single account.  Assets can be grown during the accumulation phase of life, then allocations can be easily shifted into the appropriate mix for the distribution phase.  In effect, the UMA account allows investors, with the help of their advisors, to create their own personal pension plan.

Many UMAs platforms today offer only a small number of active managers; so, it pays to work with an advisor who has access to a variety of options beyond those available in-house.

The Drawbacks

There are structural issues within the fixed-income arena that make automated trading for portfolio rebalancing problematic.  Take municipal bonds, for example:  There are more than 50,000 issuers and some of the individual bond issues can be quite small, which limits market liquidity on the sell-side.  However, a good UMA platform allows advisors to see fixed-income positions and will alert them when they may need to rebalance the position.

The Future

I have several clients in UMAs.  The tax-efficiency alone can often make these worthwhile; but, clients do love the fact their lives are no longer cluttered and they’re no longer mistaking duplication for diversification.

Jim

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.

Choosing An Advisor

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

What To Ask – and What NOT to Ask.Having been in the advisory business as long as I have, you can imagine how many people I’ve talked with over the years – either on the phone or in person at various functions, events, and social gatherings.  And, doing what I do for a living, you hear just about everything, particularly since I do this day in and day out.

Last week’s IFG/Morningstar Perspectives Newsletter has a brief item on the last page on how to choose a financial advisor; but, I’d like to give you some tips that weren’t in that newsletter and I think they’ll help you even more.

What many people don’t realize is that not everyone is a good advisory client.    All advisors want new clients, to be sure; but, top advisors are careful who they’ll accept because, after all, we’re talking about what could be a long-term ongoing relationship – my typical client, for example, has been with me for more than a decade and many others more than fifteen years.  Many know my wife and we know their families.    So, since these relationships tend to be, and should be, ongoing, it’s important to make sure the `fit’ is right.

Many advisors who simply sell product may not be so particular; but, top fee advisors who don’t sell products or make commissions know it’s about possibly establishing a long-term relationship.   They’ll likely be as careful in the selection process as the prospective client.  

Here are some things good advisors will listen for in early conversations; things that will tip him or her off about who s/he’s talking with:

First, what NOT to ask.  These are the things I hear from people who truly believe they know what they’re doing but whose questions are simply inconsistent with that belief.  Don’t ever ask these; they will not help your case if you’re trying to impress a `seasoned’ advisor.

  • “What kind of return do you get for your clients?”.  Seasoned pros don’t have a `return’ number, and here’s why.  Advisors handle a variety of clients from 80-year-old widows who care about income to wealthy individuals who are concerned only with preserving purchasing power and providing for a grandchild’s education.  Some are concerned with taxes while others are concerned with meeting long term objectives.   Anyone who’s truly done any real planning with a professional should know the term `risk-adjusted return’, which means that there is an `optimum’ return for a diversified portfolio for each unit of risk assumed – and everyone has different attitudes about risk.   The question assumes everyone has the same objectives , same tax issues, same time frame, same assets, same income requirements, and has the same risk profile.   The question shows this person thinks everyone is a `broker’ and has never really seen a real plan.
  • “Where do you think is a good place to put my money right now?”  This is absolute proof this person does not have a long-term, written plan with an Investment Policy Statement (IPS) defining a long-term investment discipline designed to meet personal long-term goals.  This question tells me this person does need help and might be a client candidate.    I’ll usually respond by saying, “It depends, what is your purpose for your money?”   Most people don’t even think about that.  Purpose is different from goals.   That answer, plus other things I hear, will generally either confirm or disqualify this person as a serious candidate.  Candidates will answer with a genuine, “What do you mean?”  Most will answer with, “I just want to make more money.”   Clever, huh?
  • “What do you do that’s different?” Different from who?  See the above question.  Compared to some, I could write a book.   Compared to other quality non-conflicted advisors, maybe nothing.  Who knows?  It depends on what and who you’re comparing.  Again, this question tells most good advisors that this person really doesn’t even know what s/he’s looking for.
  • “How do I know you’re any good?” The fact they never ask that of their doctor, dentist, CPA, or estate planning attorney automatically proves they’re not seeing the advisor as providing guidance on a proven long-term disciplined process as much as they see the advisor as an investment provider.  The danger is simple:  If that’s what they’re shopping for, that’s what they’ll get; and, it’s not what they usually need.   Strategic Planning and portfolio guidance is a process far different from picking winning investments – good luck with the latter.  The truth is, they just don’t know what else to ask.   The short answer to the question is (1) experience and (2) credentials.   The CFP, ChFC, and similar credentials both have education and experience requirements, and extensive coursework followed by rigorous exams.  The CFP Board’s exam, for example, is a ten-hour exam given over two days, twice each year on identical dates in a handful of selected cities.  If a quality advisor believes your serious and a good match, s/he will furnish you with a few references, but no advisor wants clients bothered by a lot of calls from people who can’t decide to decide.

That’s enough.  We don’t want this to go on forever.  So, what should you ask?  Here are a few questions that your potential advisor should be willing to answer – in writing – along with my own answers:

  1. Are you held to a fiduciary standard in all dealings with me and my financial affairs?  Will you acknowledge that status in writing?Yes.  The Independent Financial Group embraces fiduciary status and will acknowledge this status in writing.  Fiduciary status is important.  It means will they be legally bound to put your interests first – a higher standard than `suitability’  – and will they accept this status for BOTH the planning process AND the investment selections?
  2. Do you disclose all conflicts of interest, both actual and potential, that exist or might exist in my relationship with you?The Independent Financial Group receives no payment from any investment or other service provider.    Disclosing doesn’t make conflicts right.  Avoiding them does.
  3. Do you forego any type of commission-based compensation in favor of receiving all compensation via fees that are fully disclosed in dollar terms?Yes.   Refer to #2, above.  IFG compensation is `revenue-neutral’, meaning it isn’t affected by the course of the plan or the investments or managers chosen.  Disclosing in dollar-terms is key.  Is there hidden compensation you’re not aware of from other service providers?
  4. Do you provide full service financial planning services as well as investment advisory services?Yes.  A client, however, would be wise to realize that the best comprehensive financial planning is usually the result of a collaborative effort that includes the client’s tax professional, estate-planning attorney, as well as the financial planner, with the client’s involvement at every stage.
  5. If you provide full service, comprehensive financial planning services, are these services performed by individuals that have obtained the CERTIFIED FINANCIAL PLANNER™ (CFP®) certification?Yes.  James Lorenzen is a CFP® , as well as an Accredited Investment Fiduciary™ (AIF®) granted by the Foundation for Fiduciary Studies in association with the Katz Graduate School of Business, University of Pittsburgh.  Experience: 20 years with clients located in New York, Florida, and California.
  6. Have you ever been disciplined by regulatory authorities?  Do you have a clean compliance record.  How can I check?   20th year and never an issue.   I’m proud of having a clean compliance record.  You can see for yourself by searching James M. Lorenzen or The Independent Financial Group at www.adviserinfo.sec.gov.

 

You probably noticed I didn’t spend a lot of time on experience, etc..    Even though I’ve been doing this for twenty years, there are many less experienced advisors who are very good – and others more experienced who I wouldn’t trust with pocket change.   Some newer advisors may lack experience; but, they have access to others with vast experience, while at the same time bringing a strong desire to truly be of help as they begin their careers.  I wouldn’t reject anyone on experience alone.  Besides, if they have credentials, most of the prestigious ones have experience requirements built-in.   Let’s  face it, newer doctors can be very good, why can’t advisors?

Hope this helps!

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.  He’s been a headline speaker at conventions throughout the United States, Canada, and the U.K. and has appeared in `The Journal of Compensation and Benefits’, as well as in The Profit Sharing Council of America’s `Insights’.    Jim has also appeared on American Airlines’ `Sky Radio’, heard on more than 19,000 flights.  IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.

Own or Loan – Choose Carefully!

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

I remember when I first entered the business of financial advice in 1990, I went through `broker 101’ training with what was in those days Dean Witter.   One of the first things we learned was that there was only three things someone can do with their money:  They can own, loan, or consume.  Maybe the #2 thing was that every financial instrument in the world essentially is a stock or a bond.

When you loan money, you don’t get growth.  You get income, and a fixed one at that!

The choice is simple:  You can loan your money and collect interest and get the same dollar units back at a later date (worth less due to inflation), or you can acquire ownership in something that fluctuates but historically moves higher over time.   Real estate and ownership of quality companies are examples.

Nick Murray, in his book, Simple Wealth, Inevitable Wealth – a book I consider a `must read’ for anyone who truly wants to understand what the real path to wealth is, requiring of course that you turn off the `white noise’ of the idiot box – uses the postage stamp example.  Advisors have been using the postage stamp as a proxy for inflation for years; but, Mr. Murray’s example is one of the best:

Realizing that the average retirement age today is 62 and the average life expectancy is around 92 for a non-smoker, it’s today very reasonable to plan on thirty years in retirement!  

Well, in 1980 (okay, that’s 31 years, but you’ll still get the message), a first class stamp sold for 15-cents.  Suppose that 15-cent stamp was the only thing you had to buy from your retirement income (it represents your expenses in your first year of retirement), and the income from your CDs and bonds was 30-cents.  You’d be VERY happy.  Your CD and bond income would be TWICE what you need to live on.

Flash forward 30 years to 2010.  Even if interest rates had stayed the same – and we know they didn’t; your income would have declined to almost nothing – your 30-cents wouldn’t even buy a first class stamp today!  The first class stamp, our proxy for inflation, went up to 44-cents.  That’s about TRIPLE! 

In the meantime, far from your 30 cents income  providing you with  twice your cost of living, it’s now well below your costs – again IF rates had stayed the same – requiring you to cut back your living standard by almost a third!

But, of course, rates aren’t the same.  Your income from interest would have gone down to practically nothing –  you’d have been using principal just to pay expenses.  That’s how people run out of money.

But, aren’t stocks risky? 

Hey, what’s risk?  The example above shows inflation is the real risk.  In fact, it’s virtually a sure bet!  The next real risk isn’t our investments, it’s our own behavior.

Mr. Murray in his book points out that from 1990 through 2009 – a period that includes one of the greatest decades for stocks in history, followed by one of the worst – the average U.S. equity mutual fund produced an average return (with dividends and capital gains reinvested) of 8.8%; but, during that same period, the average equity investor earned an average annual return of 3.2%.

The best equity mutual fund in the `lost decade’ of 2000-2009, he points out, earned an average annual return of 18.2% per year , but the average investor in that same fund during the same period managed to LOSE 11% per year!   Reason:  Buying high after the run-up, probably based on the fund making all the `best-dressed’ lists in the media, then bailing out after the downturn.

Again, it’s about owning vs. loaning.  It’s about the long term.  It’s about our behavior.

People thought real estate was safe until the meltdown; then no one wanted to buy even with rock-bottom rates!   My first home cost me $62,000 in 1978.  It’s now valued at $325,000, even in this terrible real estate market.

All good financial planning begins with four basic questions:

  1. How much monthly income will you need to take from your investments during the first year of your retirement.
  2. When do you plan to retire?
  3. How much do you have set aside now (retirement plans, other accounts, etc.)?|
  4. How much do you feel you’ll be able to contribute on a monthly basis until you retire

It’s only a starting point.  But, that’s where all journeys begin.  And, how you get there from here is what counts.

You can’t avoid risks – get that out of your head – but you can manage them.

Hope this helps!

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.

The Truth About Market Commentaries: They’re `Financial Junk Food’ – Meaningless to the Long-Term Investor.

Jim Lorenzen, CFP®
Jim Lorenzen, CFP®

This is really an apology to all of my current clients.   The rest of you can hopefully benefit.

It just dawned on me.  I’ve been railing against all the media gurus for generating financial pornography disguised as information and packaged as entertainment for most of my twenty years advising clients.

I’ve told everyone who would listen just how meaningless all that `white noise’ was; how no one knows what the market will do, much less any given investment.    No one ever has.    No one ever will.  

I am still telling them – including you right now – that the only reason the media puts out all that financial junk food is simply because the only content they can sell on a daily basis is something that’s constantly changing.    It’s like MTV in suits.  Their stock-in-trade must appear to be timely and packaged as information in an entertaining format.

They have to.  It’s all they can do!   They need you to tune-in every single day!  They must have a new story every day!    That’s why all the charts, all the statistics, all the daily analysis.  If they cram enough data into your head, it begins to sound like wisdom!

“Data isn’t information.   Information isn’t knowledge.  Knowledge isn’t wisdom.”    – Nick Murray

Information is easy.   Education is hard.   It’s not as much fun.  If they were to truly educate the public, they’d be stuck with a single show in reruns for years.   It would sound something like this:

“No one can predict the stock market and no one knows what’s going to happen tomorrow.   All we do know from history is if you don’t quit, you will succeed.”  End of story.  Show’s over.  Stay tuned for Chopper Dave.”

Their information may sound timely; but truth is timeless.

Investment success is not now, nor has it ever been, about economic or market prognostication.   It’s not about investment selection.   It’s not about market `timing’.   It’s about planning.  It’s about persistence.  It’s about focus and commitment.

It’s not about being smart.  It’s about not being dumb.

That’s the truth.

It’s that simple.

Why is what’s so obvious so hard to believe?

“I’ve never met anyone who could predict the stock market.”

–        Warren Buffet

 

But wait!   Who am I to be on that soap box?  I’ve been part of the problem!  

On a somewhat regular basis for twenty years, I’ve been foisting my own all-knowing pontifications on my more than politely accepting clients – grandly bestowing upon them all my cumulative wisdom which, when all the dust settles, is little more than more than my own `white noise’  (Don’t listen to their white noise! Listen to mine!).

It’s time I enter a program.   My apologies to all – clients and anyone else unlucky enough to have been subjected – for both the infliction and the infections that may have resulted.

No more.  I’m in remission.

No more preaching long-term thinking out of one side of my mouth while yakking about meaningless short-term events which simply won’t matter in two weeks out of the other side.

Does that mean I will no longer discuss the economy or it’s implictions?   Not likely.  I’m bound to have a relapse.  But, I’m going to go out of my way to tell whoever’s listening just how meaningless it all is.

After all, what could today’s news event possibly have to do with your future thirty years from now?  After all, when you go out to buy a new car, food at the grocery store, or simply need to pay your utility bill, those prices will certainly be higher, just as they’re higher today than they were in the ’60s, ’70s and ’80s.  The people who didn’t plan back then because of  the nuclear arms race, hyper-inflation, the shortage of Mid-East oil, and all those other `crisis’ points simply let the news keep them from doing what they needed to do – and didn’t – because they didn’t believe someone who told them they should. 

Financial planning and advice isn’t about fortune telling or reading tea leaves.   What it IS about is helping people succeed through life –  avoiding bad investment behaviors.  It’s about helping people achieve a rising stream of income for two lives through three decades of retirement allowing them to maintain their independence.  

And, that has little – even nothing – to do with the news.

World War II took fifty-five million lives (an average of 26,000 war deaths per day); the Cuban Missile Crisis threatened world peace; but we’re still here and the Berlin Wall is gone.  Terrorists today threaten Mid-East Oil supplies, but the world has twice the oil reserves it had in 1970.   The credit crunch has destroyed home values; but my first house, a 3-bedroom, 2-bath, purchased in 1978 for $62,000 in Simi Valley is valued at $325,000 today!

The moral:  Events are temporary.  The future is permanent.

As an advisor, my focus should never have been on `what’s happening’, but on what’s ahead:  Decades of inflation and tax law changes – and a realization that we do NOT know what’s going to happen in either the economy or the markets.

Those things are constantly changing and will always be changing.  But, there is one thing we do know.  There has never been such a thing as a `new low’ and there have always been `new highs’.  The long-term trend always has, and always will be, up.    Now, I can’t prove that.  Nor can I prove the sun will rise tomorrow or that snow will appear on the Rockies next winter; but it’s something I accept without hesitation or reservation.  So should you.

It’s how we navigate that counts; not our prognostications, investment selections, or how we try to `time’ our buys and sells.  None of that  – NONE of it – matters.  What matters is how we plan for the easily forseeable risks we intuitively know do exist.    

We know that everything we buy will cost more next year.   We know the average retirement age is 62 and the life expectancy of a non-smoking couple is around 92; so we can assume that increasing prices will be a factor in retirement for two lives over an average of thirty years.

That’s risk.  It’s real.  It’s forseeable, even predictable!   What  bearing does today’s news have on your plans for three decades of inflation?  Zero, zilch, nada, nothing.   Events are temporary.  The future is permanent (sorry, but it’s worth saying twice).

So, while I’ll continue to forward my clients various Insights and Commentaries from the various money management, reporting, and custodial institutions, I’ll keep my own to a minimum.  After all, `.. is not my yob, man.’    My job is to help people make sure they’ll have a rising stream of income in retirement they’ll never outlive and to help them make sure their plan stays on-track.

That’s what they’ll notice thirty years from now, after they’ve forgotten the commentaries from thirty years ago.

                                                                                                                  Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, http://www.indfin.com.

Choosing An Advisor Can Be Difficult

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

Believe it or not, the general public really has no method available to distinguish between planners/advisors who put the client’s interest first and those who are simply using planning as a vehicle for generating product sales and high commissions.

Not everyone who uses the term `planner’ is a CERTIFIED FINANCIAL PLANNER® , and not all financial professionals who call themselves `advisors’ are actually registered investment advisors.  To make matters worse, some financial professionals are dually-registered as both registered representatives of a broker-dealer – they operate under a `suitability’ standard which only requires investment products are suitable – and as registered investment advisors which requires operating under a fiduciary standard, putting the client’s interest first.  Those that are dually registered often wear the `fiduciary hat’ for planning but take it off and put on the `suitability hat’ when it comes to choosing the investments.

One advisor shares the story of one client who came to him when he researched his old advisor’s background through FINRA, only to discover he’d been terminated twice for cause from broker-dealers in the past, only to be hired from a third!   On paper the client looked like he had enough to find his retirement comfortably; but, in addition to his IRA, all his money was tied-up in limited partnerships, annuities with large surrender charges, and private equity investments.   With all these investments sitting in relatively illiquid positions, the client had to make taxable withdrawals from his IRA to pay his expenses – and of course, the additional taxes only increased his expenses.

Why would an advisor have a client invest the majority of his money in illiquid investments when s/he knew the money would be needed in a short time?  Take your best guess.

Another advisor tells the story of a young couple, with a 2-year-old child and one on the way, who needed life insurance and called an agent.  Since they had a limited budget, they told the agent they could afford only $100 a month.  The agent recommended $100,000 of whole life.  Since his family was young and growing, it would seem a death now would require far more than that to fund living expenses and possibly college, yet the agent stressed the savings element of the policy.  This young family could have purchased a $1 million 30-year term policy for the same money!  Why did the agent sell the whole life?  It was suitable, yes; but, was it in the client’s best interest?  You tell me.

Then there’s the story of a school teacher who retired at age 60, accumulating substantial assets over her career; but all of it was in either her 403(b) plan or in tax-deferred annuities.  Incidentally, most of her 403(b) investments were in annuities, too.  Why would an advisor suggest annuities, with their additional insurance expenses of 1.4% to 1.5%, for her 403(b) plan when the money inside the plan is already tax-deferred?   What was wrong with plain old every day mutual funds with lower expenses and no additional insurance costs?   Your guess IS as good as mine.

All investments can be suitable, depending on the situation.  But, `best interest of the client’ is something else.   It’s good to know if your advisor operates under a fiduciary standard when it comes to actually implementing – choosing investments for – your plan.  And, s/he should be willing to say so in writing.

Jim

Note:  I’ll be doing a special 60-minute online session on March 9th entitled,  Why Most Investment Plans Will Probably Fail.  You can learn more about it here.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained herein should be regarded as tax or legal advice and the reader is urged to seek competent counsel to address those issues.   The above represents the author’s opinion and should not be regarded as investment advice which is provided only to IFG clients upon completion of a formal financial and investment plan.   For questions or comments, you can reach Jim at 805.265.5416 or through the IFG website, www.indfin.com.