Monthly Archives: July 2013

Financial Planners Save Lives

The July issue of Financial Advisor has an article titled “Financial Planning Saves the World.”    The author, Richard Wagner, makes the case that financial planners make it possible for doctors, lawyers, scientists, engineers, even theologians to have healthy relationships with money so that they can do their jobs effectively and efficiently.  I think he has a case, but it may be a bit overstated to claim that we, in the financial planning business actually save the world.  There are, after all, people who manage to make it through without our assistance.

But there are a lot of people who don’t.  One of the reasons I am happy doing my job is knowing that I am very important to my clients’ lives.  Some are incapable of managing  their financial affairs.  Many don’t have the time and others don’t have the interest.  But they all need to have their finances managed effectively and efficiently.   The alternative could literally ruin their lives.

So while I may not think that I am saving the world, I know that I’m saving the lives of many of the people who look to me for guidance.  That’s good enough.


When should you retire?

People are a lot like cars.  When I was a kid, most cars were used up pieces of junk before reaching 100,000 miles; rusted out clunkers with used up engines.  Today a car with 100,000 miles on it is just getting broken in.  That’s a lot like people.  Years ago most workers performed hard physical labor and when they reached their 60’s were physically exhausted; used up.  The not only wanted to retire, they had to.

Thanks to technology, labor-saving devices and the miracle of modern medicine reaching the sixties is part of “middle age.”  As I often tell people when they ask if I plan to retire, my answer is that I enjoy what I’m doing, there’s no heavy lifting so I expect to continue working until something happens to make me want to quit rather than looking at an arbitrary retirement age.

Of course many people don’t enjoy their jobs as much as I do so they would like to retire and do something they enjoy more.  That’s great, and my role in their lives its to help them reach the point where they can retire and then manage their financial lives so that they can focus on what they want to do.  After all, that was the point, wasn’t it?  i just make sure they have a copy of BEFORE I GO and that they have my number on speed-dial.

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Small business owners neglect retirement savings

Money Watch has an article that reviews one of the biggest financial mistakes made by business owners: failure to put money aside outside of their business.  Business owners seem to view their business not only as the source of their current income but also the source of their retirement income, and that is frequently a costly mistake.

For many small business owners, the golden years aren’t looking so shiny. Many have devoted so much time and money to their businesses that they have failed to plan for retirement. Catch-up plans for these owners usually consist of aggressively putting money aside, or taking another big risk: planning to sell their companies one day to fund their retirement.

[Kari Warberg] Block, 50, who has owned four companies over the years, didn’t start saving for retirement until she was unable to get a loan for Earth-Kind in 2003, three years after she started the company, based in Bismarck, N.D. Her bank asked for a statement showing her personal financial holdings, including savings and investments. She had only an annuity she had purchased when she was 18, and a family inheritance. She had never taken money for her retirement out of the companies she had previously owned, which included bookkeeping and delivery services.

“I looked at the personal finance statement and realized there’s nothing here,” Block says. Bankers want to see an owner’s personal finances because they believe that people who handle their savings and investments well will also do a good job running their companies and be a good credit risk.

 60% of small business owners surveyed by American Express say they are not prepared financially for retirement and 73% said they’re worried about their ability to save for the lifestyle they want in retirement.

Of course a financial downturn, competition or changes in demand can all work to make it impossible for owners to save or even maintain their business.  The recent economic downturn has forced many business owners to use personal assets to keep their companies running.  Some have cut or even eliminated their own salaries to keep their companies afloat.  A survey of small business owners by Pepperdine University and Dun & Bradstreet Credibility Corp. found that 42 percent had used personal assets to fund their companies in the first quarter of the year and nearly 80 percent of those owners dipped into their savings or investments. A year earlier, 46 percent used personal assets, and 68 percent turned to savings and investments.

Businesses in the housing and construction industry were particularly hard-hit.  In some cases a business that may have been valued at millions during the housing boom is worthless.   The owner, unless he has created a nest-egg outside of his business, is penniless.  Most business owners don’t recognize the risk they are taking or are too busy running tier business to prepare their personal financial safety net.  That’s where a good independent RIA (registered Investment Advisor) able to create a comprehensive investment, tax, insurance and estate plan can be worth his weight in gold.

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If a Million Bucks Doesn’t Make You Rich, What Does?

There’s an intriguing article in Financial Advisor magazine asking if you are rich if you’re a millionaire.  I guess it depends.  But you can run through a million dollars pretty darn quick, as lottery winners and sports stars have found out.

  • Most three-bedroom homes in Manhattan currently cost at least $1 million
  • A top-of-the-line BMW or Mercedes costs over $100,000.
  • A weeklong trip for two from Chicago to Hong Kong goes for about $5,000 — before shopping — according to Expedia.

If a 40-year-old couple were to buy that kind of home, get new luxury cars once a decade and take two such trips annually, they would shell out nearly $4 million over the course of the next 40 years. Before inflation. Presuming they died at 80.Here’s a simpler way to look at it: A quality yacht can easily cost $10 million. So if your clients can’t afford to set sail in style, maybe they aren’t that rich.There was a time when $1 million felt like $10 million does today. That was in 1947, according to the U.S. Bureau of Labor Statistics’ online inflation calculator. In 1976 it felt like $4 million. As recently as 1987 it felt like $2 million.

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Major Brokerage Firms May Not Want You.

Virtually all of the major brokerage companies are pushing their representatives to offload their “smaller” clients to call centers.  Smaller accounts take up more time than they are worth to the big guys and they have designed a system to get rid of them.  Some firms will not pay their reps on accounts under a certain amount; say $100,000 to $250,000.  That means the rep has no financial incentive to keep in touch or provide any service.  In addition, these firms have set up “call centers” with toll free numbers and are actively pushing their reps to move their smaller accounts to the call center where the personal touch is lost.

What do you do if you find yourself one of the red-headed stepchildren of a major firm?  You may find that your account is very welcome at a smaller local firm or independent RIA.   If you find yourself getting the cold shoulder from the “big box” stores, look around and find someone who appreciates you.


Raffles Singapore

Raffles Hotel Singapore

1887 – Raffles Hotel Singapore opens, offering 10 rooms in an old bungalow-style building overlooking the beach and the South China Sea. It soon becomes – and remains – the most fabled hotel in the Far East, with a guest list that reads like a Who’s Who.

The hotel’s legendary Long Bar is where the famous cocktail, the “Singapore Sling” was created in 1915. Other exclusive drinks added to the menu include “personality cocktails” inspired by Somerset Maugham and James Michener, writers who stayed at the Raffles. The playwright, novelist and actor, Noel Coward was a guest at Raffles several times beginning in 1931. However, the hotel’s literary tradition is believed to date back to 1888, when Joseph Conrad was a guest, and Rudyard Kipling dined there. The Writers Bar in the hotel’s lobby honors these writers. During the 1950s, Hollywood stars, Ava Gardner and Elizabeth Taylor were Raffles guests.

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Wealthy Investors and Financial Advisors

According to STAT BANK in the Journal of Financial Planning

  • 45% of ultra-high-net-worth investors say friends and family are the biggest influence on helping them find a financial advisor.
  • 75% of millionaire investors say working with a financial advisor improves their knowledge of investing.

Both of these statistics is borne out by our experience.

Referrals are the primary means by which advisors of any kind get clients.  This is true whether it’s a doctor, lawyer or financial advisor.

A good financial advisor is an educator.  Some clients don’t care to understand the process of investing, but most people would like to understand the rationale behind the decisions that are made with their investments.  It is a mistake to think that people with a lot of money are “smart” about investing.  The fact is that the opposite if often the case.  People can accumulate a lot of money by earning it, inheriting, or via a windfall.  None of these require people to be smart about stock and bond investments.  A successful business owner, for example, may be great at building a business, but outside of that area of expertise may not know much about managing the money he has made.  However, he runs the risk of confusing success in one area with knowledge in another.  The wealthy sports star who ends up broke after he retires is a great example.

Like other professionals in law, medicine, engineering or rocket science, expertise in investing is best left to the experts.

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Your Own “Fighter” Jet

If you already have everything and are looking for a little excitement, how about a two-seater sportscar of the sky?

The Saker S-1 is a private jet inspired by fighter jets and will be capable of hitting a top speed of Mach 0.99 and have a normal cruise speed of Mach 0.95.  Its cruise speed is a few knots higher than the fastest private jets currently available.

The S-1 will be a tandem two-seater including the pilot’s seat.  It is powered by a pair of Williams FJ44-4 engines.  Its 500 gallon fuel tank gives it a range of about 1,390 nautical miles. The standard range can be increased to about 2,000 nautical miles by adding two external 100 gallon tanks.

Saker is currently taking pre-orders for the S-1, which is expected to cost between $5 million to $7 million.  The jet will have an operating cost of about $2 per nautical mile.  Deliveries will not start until 2019.

I’m not sure if it includes flying lessons.

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One of the biggest problems executives have is a lack of time to set their own houses in order, Even those that have financial expertise don’t tend to take care of their own personal business. . It’s like the classic plumber with a leaky sink. This is especially true with executive stock options.

 A big risk for executives is that they don’t think about how to exercise their options appropriately. Many exercise when they need the cash. Instead, they ought to be considering the stock’s possible growth or the amount of time until expiration.

 Often people doing either one of two things, they either need money for a major purchase so they exercise options, or they are going to wait to the last minute until the options are about to expire. The answer is to get executives to think more strategically about their options—consider tax ramifications with other income and avoid waiting until the last minute to exercise, which could mean being forced to exercise at the current price, however good or bad it is.

Diversification is also obviously a huge problem for corporate executives, whose portfolios are often concentrated with a single stock. But it’s a sensitive topic for them, since selling out of positions is often the prudent course financially, but not always good for public relations.

It’s especially a problem for the top executives at a company. They are often under the microscope if they sell a stock or exercise an option. It’s public knowledge and viewed negatively by the public who wonder if the CEO is selling because there’s a problem.

 Getting the advice of an unbiased financial advisor who integrates stock option exercise with an over-all investment plan is very often the best answer.

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Financial Accounting, part 2 (BEFORE I GO- chapter 4)

This is the second of a multi-part series from the chapter on Financial Accounting from BEFORE I GO, by Arie J. Korving.

To better allow you to understand some of the more technical issues involving estates, what follows is a brief description of some of the issues that you may be required to address at death. It is not a complete review of the topics covered and does not address the legal or tax consequences associated with the topics discussed, nor is it an endorsement or recommendation on my part of the particular strategies discussed. This information is believed to be current as of this printing, but proper legal advice is always recommended since changes are frequent.

Estate tax

The estate tax is a tax imposed on an estate at death. The amount of the tax depends on who inherits and the size of the estate at death.

Property transferred at death

Assets owned by a decedent can be passed on to beneficiaries in a number of ways. For example, life insurance passes to beneficiaries that are named in the policy. Other assets that are transferred by beneficiary designation include annuities, IRAs, employee retirement plans, and payable-on-death and transfer-on-death accounts.

Assets held as joint tenants with right of survivorship will pass to the surviving joint tenant or tenants immediately upon the death of a joint tenant. These assets are not subject to probate and are not subject to the terms of a will.

Other assets you own when you die will be controlled by your will or, if you do not have a will, by the law of the state in which you reside at the time of your death.

Property in trust is discussed later.

Allowable deductions and credits

Currently, you may pass an unlimited amount of assets to your legal spouse, if he or she is a U.S. citizen. If your assets are passed to your spouse, they become part of her or his estate. Because estates above a certain level can be subject to high estate taxes at death, it may benefit you to consult with an attorney to determine if there are ways of minimizing the estate tax on the death of the second-to-die.

Keep in mind that the way property is titled often determines who receives the assets at death without regard for wills or trusts.

Jointly held property

If spouses hold property jointly, one-half of the value of the property will be included in the estate of the spouse who is the first to die. All of the property will automatically pass to the surviving spouse estate-tax free due to the marital deduction. Generally, the surviving spouse will receive a step-up in tax cost basis to fair market value for only one-half of the property.

In some cases, property is owned jointly with someone who is not a spouse. Consult an attorney to determine how this affects any taxes owed.

Property may also be titled as “tenants in common.” Property owned in this manner will pass under the terms of the decedent’s will and not by operation of law.

Some states also have some form of a community property system to determine the interest of husband and wife in property acquired during marriage. Generally, under a community property system, all property acquired during marriage is deemed owned one-half by each spouse, regardless of the titling of the property. Consult your attorney to see if this applies to you and what this means at death.

For a copy of BEFORE I GO and the accompanying workbook, contact Korving & Company.

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