Monthly Archives: May 2015

Are you feeling financially vulnerable?

The 21st Century is still a teen-ager but it’s already seen tremendous disruption. The financial picture for many families is particularly scary. Large numbers of people are living paycheck to paycheck. Those that saved for retirement experienced the “Tech Bubble” bursting in 2000 and the real-estate based financial melt-down of 2008. That left a mark.

In real terms it meant that retirement had to be postponed, living standards were reduced, homes were repossessed and lots of people came to imitate the “cat on a hot stove.” The series of panics left a lot of people sitting on a pile of cash, earning virtually nothing. Like the cat that jumped on a hot stove and burned himself, he won’t jump on a hot stove again. But he won’t jump on a cold stove either.

At times like this, when every action seems fraught with danger, it helps to have someone who’s an expert to guide you to your financial goal. If you’re not quite sure who to talk to, give us a call. We may be the ones you have been looking for.  We’re a fiduciary.  That means we are legally and morally obligated to put your interests first, ahead of our own.

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Protecting Elderly Clients

Much has been written about the vulnerability of the elderly to scams that are perpetrated on them. Because seniors are concerned about health care, con artists prey on the elderly to get them to buy fraudulent products or services. Home improvement scammers prey on the elderly by providing shoddy or unnecessary repairs. Stories about unscrupulous financial advisors are frequently in the news. Funeral homes have been known to get the elderly to spend more than they want or need. Some scammers will read the obituaries and pretend that the deceased ordered products or owed a debt to try to get money from the surviving spouse.

Very often the people preying on the elderly are relatives. Because most of us trust our relatives, it gives them an opportunity to take advantage. Children have been known to move back into the family home and physically abuse their elderly parents. They may employ emotional blackmail. They may threaten to stop visiting or calling.  They may tell their parents that not giving them money means that they don’t love them. Often a demand for money is disguised as help with bills, or presents to grandchildren.

Of course parents make gifts to children and grandchildren all the time. But there is a line beyond which it becomes clear that children are looking to get their “inheritance” early. This can lead to an impoverished parent who loses his independence, or even his home.

It can be very difficult for a concerned financial advisor to protect his client from predatory relatives.  Often the parents want give money to their children and may be unaware of the financial consequences.  As fiduciaries we have to keep in mind that our obligation is to our client; not her children, grandchildren or any other relatives. You may have to tell your client “I know you love your son, but you should not give him the house because you may need to sell it so that you can move into a senior living facility.” Of course this can create a conflict with the relatives who will not appreciate what you are doing.

At some point it may be necessary to get an attorney involved, one who specializes in elder care. This is particularly important if the heirs don’t get along. If the elderly become incapable of managing their own affairs they can assign power-of-attorney to a third party.  If the children are not competent, or if there is a conflict, appointing an attorney as the executor of the estate may be preferable to appointing a relative.

Providing financial guidance to the elderly is much more than managing their portfolio. There is often much more going on that is critical to the well-being of the client, and avoid the chance that they run out of money before they run out of time.

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Survey says: do-it-yourselfers prefer guidance.

A J.D.Powers survey of self-directed investors asked them to rank their investment platform in order of preference. Schwab took the top spot and Merrill Lynch and Wells Fargo vie for the bottom spots.
What I found most interesting is that about one-third of all self-directed investors would prefer guidance.

Meanwhile, at least a third of independent investors polled in the survey would prefer some sort of guidance, such as additional financial planning tools or access to a live FA, and those who feel that they received that guidance are overwhelmingly happier with their broker and feel more knowledgeable about the value of the service they get.

So if investors want guidance and are happier when they get it, why don’t they seek it out? We’re not sure of the answer. But if you happen to be one of the people seeking guidance and want to see if we’re the ones for you, please let us know.


Giving a Client Bad News

I saw an article recently about how doctors give patients the bad news that they are not going to get better. It has to be difficult, but it also has to be done.

Financial Planners also have to be prepared to tell people that they can’t get there from here. It’s particularly difficult when people who are close to retirement come in and want to know how they can retire like a millionaire when they have almost no savings. It means that they have not put a retirement plan in place.

People always seem to be surprised then Christmas comes around and find out that they have not bought any presents. But why the surprise? You know it’s coming; it’s always December 25th. My wife is one of those people who buy presents throughout the year and puts them away for holidays and special occasions. By the same token, most people have a goal of retiring at some point. A successful retirement plan has a goal in mind and a plan to reach that goal.

Unless you win the lottery or inherit enough money, the way to get the retirement you want is to have a plan and save over your working life. If you do, you will never have a financial planner give you the bad news that your goal is out of reach.

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Homes for the Super-rich are Springing Up Like Mushrooms After Rain


“Private Wealth” reports that the newest condo for multimillionaires and billionaires – 53W53 – is almost ready to open its doors.  Located next to the Museum of Modern Art in Manhattan, prices start at $3 million but if you want a 6,643-square-foot duplex you’ll have to come up with more than $70 million.  For the engineers among us, the small condos go for about $2000 per square foot, the duplex for about $10,000 per square foot.

For that you’ll get access to a movie theater, private dining room and a temperature controlled wine vault.  Of course if you have that kind of money you will want your household staff nearby.  Residents can buy studio apartments on the 14th through 16th floors for their servants.

The project was stalled for years after the real estate bubble burst in 2008.  But the interval since then has created a whole host of people with extraordinary amounts of cash.  Billionaires don’t keep their money in cash.  The part that does not go into stocks and bonds goes into real estate, art, sports teams,  and “toys” like yachts and airplanes.  This explains, in part, the reasons that art auctions are reaching extraordinary heights and the very wealthy are buying properties which they may not ever live in.

The people buying these properties come from all corners of the world.  In many cases, they are seeking diversification, not just in the kind of assets they own, but also as a refuge in case they need to flee their home countries.  For some, a place in Manhattan may be just the ticket.

Image courtesy of 53w53.

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The Human Element of Financial Planning

Much of what I read in the Financial Planning press is based on statistics. Some of it is even useful. But much of it does not take the human element into consideration.

Humans don’t have a single goal. Would you rather have a lot of money in the bank, or a bigger house? If you’re like most people you can’t have both.

Life is a series or compromises. The husband may want a sports car; his wife may prefer a min-van to haul the kids around.

John Lennon once said “Life is what happens while you are busy making other plans.” How many people started out life planning to travel the world ended up finding the love of their life, settling down and having kids?

The New York Times quotes Barnaby Riedel “Every single financial decision is moving you toward or away from your ideal life.”

Most amateur investors, even high-net-worth people, require guidance from investment and planning professionals to fully understand the trade-offs they are making when they make financial decisions. Without informed analysis deciding to buy a new house, take expensive vacations, funding college, and a long list of other financial decisions all interact and can eventually force people to make trade-offs.

Many people take a seat of the pants approach and end up either spending too much or depriving themselves of things they can afford. To get a better idea of whether your financial decisions are moving you toward or away from your ideal life, call a financial advisor. 

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The right time to invest?

time to invest

Is this the right time to invest?  Good question.

Here’s another good question:  when is the best time to plant a tree?
The answer:  “Now.”
Here’s a better answer:  “When you were a child.”

Time is our most precious resource.  A wasted moment is lost forever.  Trees take time to grow.  The same is true for wealth.

We are often asked “is this a good time to get into the market?”  The answer is that there is no better time.

Here’s why.

If you put your money in a savings account you might get about 1%.

At that interest rate it takes 70 years to turn $100 into $200.

If you could grow your money an average of 5% per year, that $100 would grow to $200 in 15 years.
If you can get 6%, it would take 12 years to grow to $200.
If you can get 7%, 11 years would get you to $200.
If you can get 8%, 10 years would get you to $200.

At 15% your money doubles every 5 years.

We are big advocates of people working hard for their money.  But we are just as insistent that money should work hard for them.  Why be a hard worker with lazy money?

Investing is one of those things that people put off.  But doing so wastes their most valuable resource:  time.

If you’re not happy with the way your money’s working for you, check out our website or give us a call.

No sales pitch, no pressure. Just good advice. That’s the reason we won the 2015 Suffolk Small Business of the Year award from the Hampton Roads Chamber of Commerce.

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Are You an “Affluent Worker?”

Forbes magazine recently had an article about some of our favorite clients. They call them the “High Net Worker.” These are people who are successful mid-level executives in major businesses. They range in age from 40 to the early 60s. They earn from $200,000 per year and often more than $500,000. They work long hours and are good at their jobs.

According to the Forbes article, many have no plans to retire. Our experience is different; retirement is definitely an objective. But many have valuable skills and plan to begin a second career or consult after retiring from their current company.

At this time in their lives they have accumulated a fair amount of wealth, own a nice home in a good neighborhood, and may be getting stock options or deferred bonuses. That means that at this critical time in their lives, when they are focused on career and have little time for anything else, they have not done much in the way of financial planning.

When it comes to investing, most view themselves as conservative. But because of their compensation their investments are actually much riskier than they think. It is not unusual for executives of large corporations to have well over 50% of their net worth tied to their company’s stock. Few people realize the risks they are taking until something bad happens. For example, the industrial giant General Electric’s stock lost over 90% of its value over a nine year period ending in 2009. The stock of financial giant UBS dropped nearly 90% between May 2007 and February 2009. These companies survived. There are many household names, like General Motors and K-Mart whose shareholders lost everything.

The affluent worker’s family usually includes one or more children who are expected to go to college. Many of these families have a 529 college savings plan for their children. Most have IRAs and contribute to their company’s 401k plan, but because many don’t have a financial planner they do not have a well thought out strategy for this part of their portfolio.

At a time when many less affluent families are downsizing, many families in this category are either looking to upgrade their homes, buy a bigger home, or buy a second – vacation – home. They may even help their adult children with down-payments.

If you are an Affluent Worker, give us a call and see what we can do for you. If you already have a financial advisor, it may be time to get a second opinion.

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Business Owners Often Neglect Their Own Finances

Entrepreneurs spend a lot of time figuring out how to succeed in business. But when it comes to their own personal financial situations, they tend to let things go.

… a new survey of business owners … concludes. Nearly half of poll respondents — 667 owners of firms with revenue of $5 million or less — say they lack a personal financial plan. Furthermore, about a quarter of participants who built a company from the ground up plan to fund their retirement by closing their business.

However, the survey also found that some of the business owners would not have enough to cover their retirement needs.

Owning a small business involves much more risk than business owners often realize. It’s like planning for your retirement by owning a single stock. What happens to the retirement plan if the stock drops?  The same thing happens if a small business falls on hard times.  It’s called putting all your eggs in one basket.  Unfortunately lots of things can go wrong, and many of them are outside of the business owner’s control.

Small business owners need to realize that depending on the business to provide for their retirement income needs is too uncertain.  They should think of themselves as employees who need to plan for their eventual retirement independent of their business. That way, if the business succeeds they can walk away with even more money.   And if it does not, their basic retirement plans are secure.

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When Some Clients Want to Go DIY

What does an advisor do when a good client wants to manage some of their own money? There are a number of different answers depending on the advisor.

We have some clients who want us to do it all and some who want to make some of their own investment decisions. Let’s face it, picking stocks can be fun, like going to a casino and see if you can win the jackpot.

Our answer is to make sure that there is a clear distinction between accounts in which we have discretionary trading authority – in other words, we manage these accounts on our own – and accounts which we do not manage; one where the client makes the investment decisions.

We will open a “play” account in which the client can trade to his heart’s continent. We provide all of the standard portfolio and performance reports on these DYI accounts, but we have clear documentation that we are not responsible for the outcome.

We recognize that DIY investors earn substantially lower returns on average than those who work with an advisor. We recommend that the client puts only a small percentage of his assets in these accounts so that mistakes will not have a meaningful impact on his net worth.

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