I’m Trying, But My Spouse Isn’t

 

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Picture Courtesy of P.C. Vey Readers Digest

 

I can’t tell you how many times I’ve heard a variation of the phrases “I’m trying, but he isn’t”,  “I’m sticking to my budget but she’s not”, and “I’m ready to retire, but he’s not”.  There are many things my spouse and I don’t agree on. As an example, I am a risk-taker and my wife is not.  My wife doesn’t like to look at the budget but I do. She is perfectly fine shopping cheap and I’m not.  The list can go on and on.  But, one thing we do as we navigate through some of life’s most difficult challenges, is talk and come up with a plan.  Marital unity is absolutely critical when making important financial decisions and also dealing with the day to day minutiae of budgeting, shopping & other daily spending decisions.

 

For many of us, we weren’t modeled how to manage money well as children. Worse yet, we weren’t modeled how to talk about money with our significant others. Some of us may even have searing images implanted in our brains of our parents screaming and fighting in the kitchen over money.  So, it’s no surprise that many of us don’t know how to talk with our spouses about money.  For that matter, some of us don’t really know how to talk to our spouses at all. If this is true, how do we begin to have dialogue with our husbands and wives that will be beneficial for the whole family.

It’s no secret to some of you reading this article that I’m going to quote the Bible. And, for some of you who don’t know that I do that…YES!!! The Bible!. 🙂 I think the first thing I will share is that if your spouse “doesn’t want to listen to you”, you should probably consider what you’ve been saying and how you’ve been saying it. Sometimes your spouse just feels too much pressure from you when it comes to accomplishing the goals you’ve set forth. Maybe you come across as a dictator.  Maybe you’re an Ephesians 22-24 guy and you love these verses:

“Wives, submit yourselves to your own husbands as you do to the Lord. 23 For the husband is the head of the wife as Christ is the head of the church, his body, of which he is the Savior. 24 Now as the church submits to Christ, so also wives should submit to their husbands in everything”. 

But, if you’re forgetting Ephesians 5:25 that goes along with these verses, then maybe you should consider re-reading this passage.

25 Husbands, love your wives, just as Christ loved the church and gave himself up for her. 

Last time I checked, Christ’s love is the most absolutely sacrificial kind of love ever demonstrated to mankind. Are you showing your wife this kind of love when “she’s not submitting” to what you say? Just a thought…

Now, maybe your the wife saying “My husband just won’t lead. He should be taking charge of this.”  I find no scripture verse that says your husband has to be perfect at everything and take the lead on every single matter that comes up in your house. As a partner in your marriage you are capable to take the lead in many areas and help manage the finances.  I say finances as that is what I’m writing about today.  What’s the point of all this?  Using the title of a new tv drama…., THIS IS US.  This is how we sometimes relate to each other. This is how we sometimes speak to each other. When it comes to goal planning, I’m quite certain God’s intention wasn’t for one person to handle everything and the other person to be completely in the dark or complacent about matters.

So, what can you do? What can you say? The answer is I have absolutely no idea! I don’t know you. I don’t know your financial situation and I don’t know exactly why “you’re trying, but your spouse isn’t”. But, I could recommend a few ideas that you might find helpful. First, we must speak kindly to each other and not blame one another when things don’t go right. When it comes to making good money decisions and being on the same page as your spouse, it’s important to have clear and peace filled dialogue.  Ask your spouse questions like “what’s important to you right now about our finances?”, “where do you see us in 5 years and how do we get there together?”, “how does this purchase help us with our goal of funding education for our children?” “what do you think about talking to a financial planner?”. I had to throw that one in….;-) Kidding aside, you must find a way to communicate with your spouse about money in a way he or she understands. A couple of resources I could recommend… Find a “Financial Peace University” class in your area. Find a good counselor who can help you process some of the issues you need to address with marriage and finances.  I’m partial to good Christian counseling and I can recommend a few good counselors if you’d like.  Go have a talk with your Pastor.  Read Randy Alcorn’s book “Money, Possessions, and Eternity”.  There is so much you can do.

Most importantly, you aren’t alone. I’m writing about this topic today because it’s been a recurring theme in my practice lately.  I’ve sat with couples as tears have overflowed because one spouse has plan A while the other spouse is focused on plan B. I’ve sat and heard stories of marriages on the brink of divorce because the two couldn’t agree on a financial direction. It doesn’t have to be that way. There are things you can do to make your marriage and your financial situation better!  If you need help, please don’t hesitate to reach out and ask.  Please share with us a story of how your marriage and finances have improved! We’d love to hear it.

Jose Cuevas
Vice President
Wisdom Investments
847-290-0753
jose@wisdominvestments.com
www.wisdominvestments.com

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10 Books to Help You Make Smart Choices With Your Money

 

money book

Books are valuable, expecially books about money.

 

When you think about successful money management, what comes to mind? Where do you receive good information? How do you know what books to read to help guide you down the right path?  Most people don’t just obtain wealth out of the blue sky.  If you were to ask most successful people how they obtained their money, they would tell you they worked hard, had some luck/blessing, and they read voraciously. When I first entered the financial planning business, my mentors assigned me a list of books to read to help me understand more about money and how it works.  Since that time 15 years ago, I’ve come across many great financial books and I’d like to share ten books to help you make smart choices with your money.  I’m sure 15 years from now, I’ll have a different list of books that every successful investor should read, but for now, please enjoy.

Disclosure: While I find these books helpful, I don’t agree with every concept illustrated in every book. On your quest for knowledge, you need to determine what works for you and your family.  These book recommendations are not considered to be a solicitation of advice.

If you need help making smart choices with your money, please email me at jose@wisdominvestments.com

Visit our website at www.wisdominvestments.com

 

10) Rich Dad Poor Dad By Robert Kiyosaki:

This was the first book I read when I entered the financial planning industry. Robert Kiyosaki describes how he had two dads. He takes the time to describe each father’s financial and life philosophies and how each dad is deemed with the names Rich Dad and Poor Dad.  The book does a great job of detailing financial ideas and concepts that allow Rich Dad to be rich and Poor Dad to be poor.  The book would be great for the person who is paying their bills first and feels like there is nothing left to save at the end of the paycheck.

RichDadPoorDad

9) The 7 habits of highly effective people By Stephen Covey:

While this book isn’t necessarily about money, I believe this book gives a great blueprint of how to achieve success in your life.  The 7 habits help you to obtain structure to achieve the goals you are looking to achieve in life.  I have found that while the 7 habits aren’t necessarily financial principles, they can be used in almost any financial situation.

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8) The Millionaire Next Door By Thomas Payne

The Millionaire Next Door is one of the best books I’ve read that smacks American Consumerism right in the face.  This book details for you what a normal Millionaire looks like, what she might drive, and how he might live.  With today’s images of what it looks like to be a millionaire, this book is a breath of fresh air describing how most millionaires are made and live.

millionairre next door

7) The Investment Answer By Daniel Goldie & Gordon Murray

The Investment Answer helps give every investor an idea of what they should be looking for when they invest money. The book addresses concerns such as how to understand the markets, how to pick a financial advisor, & how to make great financial choices. We love to give this book to potential clients.  Even if a client doesn’t choose to work with us, this book will help them make the best decision possible about whom they should hire.

The Investment Answer

6) How to Think Like Benjamin Graham and Invest Like Warren Buffet By Lawrence Cunningham

This again is one of my personal favorites. This book showcases some of the great ideas of Benjamin Graham and Warren Buffet.  If you don’t have time to sit down and read the 725 page book Security Analysis by Benjamin Graham, then this book is for you. This book challenges some of the stereotypical types of investing methods and dives into value investing.  We again like this book because it compliments some of our own investment management philosophies.

How to think like benjamin graham and invest like warren buffet

“Wisdom Investments has been helping individuals and businesses make smart choices with their money since 1999”.

5) Values-Based Financial Planning By Bill Bachrach

This book describes the need for financial planning according to your unique values. Investing according to your unique values allows you to determine what is really most important to you when planning for your future. We all have values that are important to us. Why would you not consider those values when you are planning for your most important goals in life?

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4) Total Money Makeover By Dave Ramsey

Dave’s advice focuses on living a life free of debt and investing money for the long-term. Many people focus on utilizing debt to achieve the things they want in life.  Dave’s radical concepts of approaching all situations without debt can help the individual who has become too reliant on credit cards and bank loans.

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3) The Financial Wisdom of Ebenezer Scrooge By Ted Klontz, Rick Kahler, & Brad Klontz

The Five principles to transform your relationship with money” will help you understand the love affair you’ve had with money and how to change it.  Some people tend to focus on attaining more of this and more of that. This book suggests that if we are constantly seeking for more when it comes to money, we may need to start doing some things differently.

financial wisdom of ebeneezer scrooge

2) The Treasure Principle By Randy Alcorn

Where is your treasure? What kind of riches are you seeking? We’ve all heard it is better to give than to receive. The Treasure Principle seeks to show you how to experience joy through the giving of your money.  Maybe many of us haven’t thought about giving as being a gift, but some people have an inborn desire to give of their resources. How much better could your life be if you decided to “Discover The Secret of Joyful Giving”.

the treasure principle

1) Master Your Money By Ron Blue

Ron’s book shows individuals how to manage their money with a Biblical perspective in mind. Many of us who believe in the teachings of Christ already know the Bible has a great blueprint for money management. Master Your Money looks to describe those concepts in detail while giving real world applications and scenarios to help you understand how you can Master Your Money.

Master Your Money

 

I hope you make time to read some of these great books about money.

“My people are dying because of lack of knowledge”.    

If you need help making smart choices with your money, please give us a call.

Jose Cuevas
Vice President
Wisdom Investments
http://www.wisdominvestments.com
847-290-0753

Retirement Plans for Small Businesses

retirement-plan

Retirement Plans for Small Businesses

As a business owner, you should carefully consider the advantages of establishing an employer-sponsored retirement plan. Generally, you’re allowed a deduction for contributions you make to an employer-sponsored retirement plan. In return, however, you’re required to include certain employees in the plan, and to give a portion of the contributions you make to those participating employees. Nevertheless, a retirement plan can provide you with a tax-advantaged method to save funds for your own retirement, while providing your employees with a powerful and appreciated benefit.

Types of plans

There are several types of retirement plans to choose from, and each type of plan has advantages and disadvantages. This discussion covers the most popular plans. You should also know that the law may permit you to have more than one retirement plan, and with sophisticated planning, a combination of plans might best suit your business’s needs.

Profit-sharing plans

Profit-sharing plans are among the most popular employer-sponsored retirement plans. These straightforward plans allow you, as an employer, to make a contribution that is spread among the plan participants. You are not required to make an annual contribution in any given year. However, contributions must be made on a regular basis. With a profit-sharing plan, a separate account is established for each plan participant, and contributions are allocated to each participant based on the plan’s formula (this formula can be amended from time to time). As with all retirement plans, the contributions must be prudently invested. Each participant’s account must also be credited with his or her share of investment income (or loss). For 2017, no individual is allowed to receive contributions for his or her account that exceed the lesser of 100% of his or her earnings for that year or $54,000 ($53,000 in 2016). Your total deductible contributions to a profit-sharing plan may not exceed 25% of the total compensation of all the plan participants in that year. So, if there were four plan participants each earning $50,000, your total deductible contribution to the plan could not exceed $50,000 ($50,000 x 4 = $200,000; $200,000 x 25% = $50,000). When calculating your deductible contribution, you can only count compensation up to $270,000 in 2017 ($265,000 in 2016) for any individual employee.

401(k) plans

A type of deferred compensation plan, and now the most popular type of plan by far, the 401(k) plan allows contributions to be funded by the participants themselves, rather than by the employer. Employees elect to forgo a portion of their salary and have it put in the plan instead. These plans can be expensive to administer, but the employer’s contribution cost is generally very small (employers often offer to match employee deferrals as an incentive for employees to participate). Thus, in the long run, 401(k) plans tend to be relatively inexpensive for the employer.
The requirements for 401(k) plans are complicated, and several tests must be met for the plan to remain in force. For example, the higher-paid employees’ deferral percentage cannot be disproportionate to the rank-and-file’s percentage of compensation deferred. However, you don’t have to perform discrimination testing if you adopt a “safe harbor” 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees’ contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3% and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested immediately. You can also avoid discrimination testing by adopting a qualified automatic contribution arrangement, or QACA. Under a QACA, an employee who fails to make an affirmative deferral election is automatically enrolled in the plan. An employee’s automatic contribution must be at least 3% for the first two calendar years of participation and then increase 1% each year until it reaches 6%. You can require an automatic contribution of as much as 10%. Employees can change their contribution rate, or stop contributing, at any time (and get a refund of their automatic contributions if they elect out within 90 days). As with safe harbor plans, you’re required to make an employer contribution: either 3% of pay to each eligible employee, or a matching contribution, but the match is a little different–dollar for dollar up to 1% of pay, and 50% on additional contributions up to 6% of pay. You can also require two years of service before your contributions vest (compared to immediate vesting in a safe harbor plan). Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs (see below), but can also allow loans and Roth contributions. Because they’re still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven’t become a popular option. If you don’t have any employees (or your spouse is your only employee) an “individual” or “solo” 401(k) plan may be especially attractive. Because you have no employees, you won’t need to perform discrimination testing, and your plan will be exempt from the requirements of the Employee Retirement Income Security Act of 1974 (ERISA). You can make pretax contributions of up to $18,000 in 2017, plus an additional $6,000 of pre-tax catch-up contributions if you’re age 50 or older (unchanged from 2016). You can also make profit-sharing contributions; however, total annual additions to your account in 2017 can’t exceed $54,000 (plus any age-50 catch-up contributions). A 401(k) plan can let employees designate all or part of their elective deferrals as Roth 401(k) contributions. Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. Unlike pretax contributions to a 401(k) plan, there’s no up-front tax benefit-contributions are deducted from pay and transferred to the plan after taxes are calculated. Because taxes have already been paid on these amounts, a distribution of Roth 401(k) contributions is always free from federal income tax. And all earnings on Roth 401(k) contributions are free from federal income tax if received in a “qualified distribution.” 401(k) plans are generally established as part of a profit-sharing plan.

Money purchase pension plans

Money purchase pension plans are similar to profit-sharing plans, but employers are required to make an annual contribution. Participants receive their respective share according to the plan document’s formula.
As with profit-sharing plans, money purchase pension plans cap individual contributions at 100% of earnings or $54,000 annually (in 2017; $53,000 in 2016), while employers are allowed to make deductible contributions up to 25% of the total compensation of all plan participants. (To go back to the previous example, the total deductible contribution would again be $50,000: ($50,000 x 4) x 25% = $50,000.) Like profit-sharing plans, money purchase pension plans are relatively straightforward and inexpensive to maintain. However, they are less popular than profit-sharing or 401(k) plans because of the annual contribution requirement.

Defined benefit plans

By far the most sophisticated type of retirement plan, a defined benefit program sets out a formula that defines how much each participant will receive annually after retirement if he or she works until retirement age. This is generally stated as a percentage of pay, and can be as much as 100% of final average pay at retirement. An actuary certifies how much will be required each year to fund the projected retirement payments for all employees. The employer then must make the contribution based on the actuarial determination. In 2017, the maximum annual retirement benefit an individual may receive is $215,000 ($210,000 in 2016) or 100% of final average pay at retirement. Unlike defined contribution plans, there is no limit on the contribution. The employer’s total contribution is based on the projected benefits. Therefore, defined benefit plans potentially offer the largest contribution deduction and the highest retirement benefits to business owners.

SIMPLE IRA retirement plans

Actually a sophisticated type of individual retirement account (IRA), the SIMPLE (Savings Incentive Match Plan for Employees) IRA plan allows employees to defer up to $12,500 for 2017 (same limit as 2016) of annual compensation by contributing it to an IRA. In addition, employees age 50 and over may make an extra “catch-up” contribution of $3,000 for 2017 (same limit as 2016). Employers are required to match deferrals, up to 3% of the contributing employee’s wages (or make a fixed contribution of 2% to the accounts of all participating employees whether or not they defer to the SIMPLE plan). SIMPLE plans work much like 401(k) plans, but do not have all the testing requirements. So, they’re cheaper to maintain. There are several drawbacks, however. First, all contributions are immediately vested, meaning any money contributed by the employer immediately belongs to the employee (employer contributions are usually “earned” over a period of years in other retirement plans). Second, the amount of contributions the highly paid employees (usually the owners) can receive is severely limited compared to other plans. Finally, the employer cannot maintain any other retirement plans. SIMPLE plans cannot be utilized by employers with more than 100 employees. Other plans The above sections are not exhaustive, but represent the most popular plans in use today. Current tax laws give retirement plan professionals new and creative ways to write plan formulas and combine different types of plans, in order to maximize contributions and benefits for higher paid employees.

Finding a plan that’s right for you

If you are considering a retirement plan for your business, ask us to help you determine what works best for you and your business needs. The rules regarding employer-sponsored retirement plans are very complex and easy to misinterpret. In addition, even after you’ve decided on a specific type of plan, you will often have a number of options in terms of how the plan is designed and operated. These options can have a significant and direct impact on the number of employees that have to be covered, the amount of contributions that have to be made, and the way those contributions are allocated (for example, the amount that is allocated to you, as an owner).

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
http://www.wisdominvestments.com

 

Three ways to lower your taxable estate

estate-tax

Three ways to lower your taxable estate:

The financial planning cycle is an all-encompassing process that includes Investment planning, Insurance Planning, Tax Planning and Estate Planning among other areas. In one form or another your investment planning affects your estate planning which affects your tax planning which affects your insurance planning.  Clients tend to think about these areas separately. Clients tend to think in terms of going to their Lawyer for their estate planning, their financial planner for their investment planning, their CPA for their tax planning and their insurance person for their insurance.  A good financial planner will be able to direct clients to the professional who makes the most sense for their situation, but a financial planner can be viewed as the Quarterback for this process.  Financial advisors who provide comprehensive financial planning services need to identify areas of a client’s financial picture that require more attention and in-depth analysis.  Such is the case for clients looking to lower their taxable estate. These clients will certainly need the help of the financial planner, the insurance sales-woman, the CPA and the Attorney at all once.  Knowing which professional to employ could have a significant affect on your assets.  Without further ado, here are three ways you can lower your taxable estate:

Gifting Money to your Children and Grandchildren:

Current tax laws allow you to give away $14,000 per year to anyone you would like. However, most people aren’t interested in giving their money away to just anyone. A majority of clients will leverage the tax code to gift money to their children and grandchildren. Whether through cash or investment vehicles such as 529 plans, a parent can gift money to as many people as they would like for as many years as they would like. If your adult child is married, you can double the $14,000 and give $14,000 per year tax free to your children.  If both Mom and Dad are giving money away, you can double that number again to $56,000 if giving to both the Adult child and the spouse.  $56,000 might not be a large enough amount of money on it’s own to make a difference, but over a ten year period of time, that is $560,000.  If you have another married child, over a ten year period of time you and your spouse can give away over $1,000,000. 

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Upfront gifting to a 529 plan:

529 plans offer a special feature that allow you to gift 5 years of assets all at once. Using the numbers from above for planning for one child’s education, you can upfront gift up to $140,000 for a married couple.  For a single individual, again the gift amount is $14,000 per year multiplied by five and you get a $70,000 upfront gift to your child’s 529 account.  Assuming you and your spouse have three grandchildren you’d like to help pay for college, that’s $420,000 you can eliminate from your estate in one year.  Now we are talking significant assets being eliminated from your taxable estate. The cherry on top for this option is you are able to deduct the contributions to the 529 plan from your state taxes. With a tax rate of 5% in Illinois, contributions to a 529 plan could be a considerable deduction to consider. There are some caveats if you pass away before the 5 year period is over. We recommend you work with us and your CPA to understand the full ramifications of this option.

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Establishing an Irrevocable Life Insurance Trust:

Establishing an Irrevocable Life Insurance Trust (ILIT) will require the help of an Estate Planning Attorney.  An ILIT can be used to purchase a life insurance policy or transfer the ownership of an existing policy to the ILIT. The first word of this product/strategy is Irrevocable. That’s an important word.  When you transfer assets into an ILIT, you lose control of managing those assets and making changes to the assets.  By assigning the assets to the ILIT, you are saying “This money no longer belongs to me”.  ILIT’s allow you to pass a significant sum of money to the next generation and avoid estate taxes.  After the life insurance is purchased or transferred, the trust becomes the beneficiary of the policy.  Upon your death, the life insurance proceeds are paid out and held in trust for the trustees of the trust.  For more information, we recommend you talk with us an estate planning attorney.

There are many other ways financial professionals work to lower your estate tax liability. These are just three ideas to help you on your journey.  For more ways to lower your estate tax liability, please call us at 847-290-0753.  You may email me at jose@wisdominvestments.com. 

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
http://www.wisdominvestments.com
847-290-0753

Professionally Managed Mutual Funds or Index Funds? What if that’s not the question?

barrons

CONVENTIONAL INVESTING & INDEX INVESTING VS. EVIDENCE BASED INVESTING
Should you utilize actively managed funds (conventional investing) or use index funds (passive strategy)? This has been a debate for quite some time. For decades, conventional investing is all we knew. Indexes on the other hand weren’t supposed to be the investment. Indexes were designed to be the measurement for conventional investing. After the indexes were created, it was discovered that most of the professionally managed funds couldn’t beat the index. What we’ve learned through years of history and study is that only about 15% of the actively managed mutual funds available have beaten the indexes. So, as an investor if you knew you had an 85% chance of making less money than your designated index, what would you choose? Yes, 15% of those mutual funds did beat the index. The problem is you had no idea before hand what mutual fund was going to beat the index and how much risk they were going to take to do that.

From this explanation, you might say “Great. Thanks. I’ll go buy that index fund now”. And, you might be ok if you did that on your own. Chances are you would be better off if you bought the index fund and held onto it than if you had invested conventionally. However index funds have their own set of problems. These are problems you don’t hear advertised due to the massive amount of inflows into index funds right now. Plus, you have billionaire investor extraordinaire Warren Buffet telling you to buy index funds. A downside of utilizing index funds are the Hidden Costs. One of the hidden costs of owning an index fund is something called “Reconstitution day”. An index fund must follow an index or else it’s not an index. If a stock is no longer part of an index, what happens? The stock is moved out of the index. What happens when a stock is performing well and has increased in size? It moves into the index. The problem is this all happens on the same day. Everyone knows it’s coming. So, what happens? The stocks being sold decrease further in value and the stocks added to the index increase in value. By the time this happens, you have lost money on both ends.

There’s a third approach. This third approach was designed by noble prize winners from the University of Chicago and is implemented through Dimensional Fund Advisors. Unfortunately, the average investor can’t walk into Dimensional funds and use this approach. But, we will gladly help you incorporate this strategy! We believe this third approach is a better option. Actually, it’s been proven to be a better investment. Rather than trying to predict what’s going to happen in the market, we embrace the market pricing. We say, “You know, most of those guys on Wall Street are pretty smart and they have way more information than we do”. So deciding that most of the analysts have it right, we move to consider expected return. We know that not all stocks are going to have the same return. The same is true in the real estate market. The value of a Beverly Hills  home is going to grow faster than homes in Cleveland. Even though you know the Beverly Hills home is going to appreciate faster, you might still want that Cleveland home because it’s also going to appreciate. We may not want to own every home in Cleveland, but we know we want some of them. Translate this to stocks and you have an idea of why we think certain stocks should and shouldn’t be in our portfolio. As fund managers at DFA pick these stocks they start to discern, “is the stock too expensive?”, “is it right for the portfolio?”, “can we get the stock cheaper tomorrow”?  Then by eliminating stocks that are too expensive or have appreciated too much, a basket of stocks is created for clients to invest. In addition, it’s been proven over time that value stocks outperform growth stocks with less risk. Knowing this, portfolios are created with a tilt towards Value. A quick note: 82% of Dimensional Funds have beaten their index.

This is just one of the many reasons you should choose to work with our firm. We’d love to introduce you to evidence-based investing. Email me today to learn more about how this approach can help you with your goals.

Best,

Jose Cuevas
Vice President
Wisdom Investments
jose@wisdominvestments.com
847-290-0753

 

 

Investment advice or sales pitch? New rule will make it clear

THIS POST WAS WRITTEN BY GAIL MARKSJARVIS OF THE CHICAGO TRIBUNE
The original content can be found at http://mobile.digitaledition.chicagotribune.com/infinity/article_popover_share.aspx?guid=6092dd31-3a55-45c1-9a0b-fe075af7fa3f

Investment advice or sales pitch? New rule will make it clear

Gail MarksJarvis

On Money

 

Should you trust the adviser who’s telling you what to do with your money?

Unfortunately, many should not. The sad story is that if you are like most Americans, you are easy prey for the money advice business that’s involved with over $14 trillion of Americans’ retirement savings.

Typically, people seek out professional advice about their money because they don’t have a clue about how to proceed. But investing properly is a mystery, the fine print that goes with products like annuities is overwhelming, and finding the right person to help can be just as perplexing.

Too often, Americans end up in the arms of advisers who aren’t really there to protect and help them. They are salesmen or saleswomen, not true advisers who put clients’ needs first. These brokers aren’t rewarded by their employers for steering you into top-quality investments or insurance at the lowest price. They are hired to sell, just like the guy on the car lot. And that means many will sell what’s most lucrative to them and the firms that keep them on the job — not necessarily what’s best for you.

These so-called “advisers” may have titles like “financial consultant.” They may devote time to little league, community organizations or religious institutions. They may have clients who are rich or famous. But what they often won’t tell you — unless you probe for it — is that they aren’t paid to give you the best advice. And amid the naivete of some clients, their sales behavior can be like taking candy from babies. Americans are wasting about $17 billion a year on unnecessary fees in connection with investment advice that isn’t aimed at their best interests, according to the government.

Faced with the prospect that millions of Americans will run out of money in retirement and become a burden on government, the U.S. government took action last year to try to take some confusion out of the advice business. The Department of Labor is imposing what’s known as the “fiduciary rule” to improve the chances that when an adviser gives money advice it’s actually untainted advice — best for you, and not a disguised sales pitch. Numerous investment and insurance firms, plus business organizations ranging from the U.S. Chamber of Commerce to the Insured Retirement Institute and the Securities Industry and Financial Markets Association, sued to stop the new rule.

Those fighting the fiduciary standard claim that tightening rules around advice will lead firms to stop helping clients, especially people with little money in individual retirement accounts and workplace plans such as 401(k)s. The stakes are huge for the industry: There is about $25 trillion in U.S. retirement assets, including about $14.4 trillion in IRAs and plans such as 401(k)s, that would be subject to the fiduciary standard.

The industry’s fight continues, with U.S. Chamber President and CEO Tom Donohue noting in a recent blog post, “we are urging immediate action to undo the Department of Labor’s Fiduciary Rule.” With the Obama administration leaving office, and new Republican leadership promising less government regulation, the fight against the fiduciary rule goes into a new phase.

Fearing an overturn of the fiduciary standard, the Consumer Federation of America in the last days of the Obama administration circulated a report that takes aim at investment business lobbying efforts.

Barbara Roper and Micah Hauptman of the federation examined the websites of over a dozen brokerage firms and found that they emphasize “advice” and help “planning” for retirement. Yet the report said the lobbyists for those same firms have been fighting the fiduciary rule by claiming that they don’t promise advice and that clients know the consultant sitting across the desk from them is only a salesperson.

“Their marketing is grossly deceptive and securities and insurance regulators have an obligation to step in and bring a halt to the misrepresentation,” the report said.

As it now stands, when April arrives the new fiduciary rule will start being phased in with investment professionals having to live under tougher controls if they want to give advice on IRAs and 401(k)-type plans.

Under the fiduciary rule, brokers will have to make it clear that they are salespeople. People who give advice will have to declare themselves “fiduciaries” on paper.

But don’t take comfort in these new protections yet. First, know they aren’t in place now. So if you want to determine if you can trust an adviser now, you must ask if he or she is a fiduciary and examine their two government-required forms: ADV Forms I and II. Certain credentials — such as a certified financial planner or registered investment adviser designation — will help you spot fiduciaries. But also check out the person on BrokerCheck (www.brokercheck.finra.org) to see if your adviser or the firm has been in trouble with regulators. On the ADV form, also examine whether the person gets commissions — a business arrangement that could mean the adviser collects a fee based on what he or she sells you.

To see if your adviser has been picking solid or weak mutual funds for you, type in the name of your fund at http://www.finance.yahoo.com. Then go to “performance” for that fund and scroll to “trailing returns benchmark.” See one year, five year and 10-year performance. You want a fund that consistently has had a return at least as strong as the “category” return for more than a year.

If your adviser is picking stocks for you, ask the adviser to show you how your stock portfolio has performed compared with a benchmark like the Standard & Poor’s 500 index for large company stocks or the Russell 2000 index for smaller companies.

gmarksjarvis@chicagotribune.com

Twitter @gailmarksjarvis

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What exactly does financial planning entail?

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For many, the idea of financial planning is simply investing.  While investing is a large part of financial planning, it is just one of the many services we provide to help our clients.  Financial planning can best be described as an all encompassing approach to managing your finances.  While many advisors call themselves financial planners, many are not.  This is one of the reasons why some people believe financial planning is only about investing.

For us, we take a comprehensive approach to financial planning. That means we look at your investments, debt, taxes, insurance, wills, trusts, & physical assets to determine your likelihood to attain your goals and to determine what your future cash flows could look like. We serve our clients as their life advisor, with a belief that financial planning is an ongoing process in which we help and coach clients to reach their personal financial objectives, including, financial independence, estate preservation, and a legacy of wealth, significance, and values.

The financial planning process itself involves multiple steps. First we gather all of the pertinent information to see your entire financial picture. We then draft a financial plan.  Our financial plan will tell us how your investments should be allocated and what types of investments are best for you. The plan will also address your current insurance needs. Do you need long term care? Do you have enough life insurance? Next, we’ll address your estate planning needs and help you find an attorney you can work with whom you’ll trust. We then look at your taxes to ensure you are not paying Uncle Sam more money than is necessary. During this time, we’ll also address any other goals you might have in mind.

The next step is ongoing portfolio management. We work with well known companies like Fidelity, VanGuard & Dimensional funds to help you manage your assets. Constructing your portfolio is just the first part of the process. We must continuously analyze your portfolio to ensure you are positioned appropriately for current market conditions as well as ensure you are invested according to your current risk tolerance.  Portfolio rebalancing is crucial to ensuring your investment allocation is appropriate.

From there we’ll meet with you periodically to review your investment performance and monitor your financial plan. As humans, we typically have at least 2 life events per year that could affect our financial plan.  Think about your last year.  Did you start a new job? Get promoted? Experience family loss? Have a baby? Buy a home? Get Married? Get Divorced?  Have a family member get sick? Send a kid to college? These are all examples of life events that would arouse a need for change with your financial plan.  Once we’ve met to determine what changes have happened in the last year, we update your plan to outline the necessary changes to stay on course.

A little bit about Wisdom Investments: We have a FIDUCIARY responsibility to act in the best interests of our clients. What matters most to us during the financial planning process is that we focus on what matters most to you. We help you align your desires with your goals to accomplish your financial objectives and stay true to your values. You can expect our highest level of commitment to this approach as when it comes to your money there is nothing more important than your goals and your values.

Do you know someone who needs our services? Please email us!

We provide financial planning & investment management advice for a fee.  We use the most technologically advanced financial planning software available.  We use Fidelity as your custodian to hold your assets. Wisdom Investments is a privately owned, independent financial planning company. We are not a broker. We are not compensated by third party companies to provide Investment advice. We have been serving Arlington Heights and the Northwest suburbs since 1999. We have a reputation built on helping successful individuals achieve their financial planning goals. In addition to providing Comprehensive Financial Planning advice, we provide a full range of services including, but not limited to, Retirement Planning, Investment Planning, College Planning, Estate Planning, Insurance Planning, and Tax Planning. Our Founder and President, Bill Kmiecik leads the organization with more than 30 years of financial services experience. Mr. Kmiecik is a resident of Arlington Heights and belongs to several organizations, some of which include, The American Institute of Certified Public Accountants, The Illinois CPA Society, The Arlington Heights Historical Society, The Arlington Heights Chamber of Commerce (member of Financial Review Committee), Rotary Club of Arlington Heights (Past President).

We would love the opportunity to show you how we are different than most financial companies. In this business, trust is important.  Trust is not automatically given. Trust is earned.  Come see why clients have been working with Wisdom Investments since 1999.

Blessings,

Jose Cuevas
847-290-0753

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Jose Cuevas                    VP Financial Planning Wisdom Investments