Category Archives: financial advisors

FIVE FACTS THAT PROVE AMERICANS ARE TERRIBLE AT MANAGING MONEY

I read this headline recently and wanted to share it with you.  Here’s the short version.

  1. About 1 in 4 literally have no emergency savings.
  2. We are more worried about paying for our next vacation than about saving enough for retirement.
  3. Millions of us hide money from our spouses and partners.
  4. We prioritize paying the wrong bills first.
  5. We’ve racked up $1 trillion in credit card debt — and that’s just a fraction of what we owe.

That’s troubling.

Very few of our clients suffer from these five issues, but we have had people coming through our doors who are searching for help to get out of debt and on the path to financial stability.

But even people who save and invest and have given serious though to retirement are not necessarily good at making investment decisions.

Having the right instincts and putting money in an investment account doesn’t mean that you are making the best decisions.  Navigating the complex world of modern investing is both a skill and an art that most people do not have the time or patience to learn.

That’s why more and more people are turning from brokers to independent Registered Investment Advisors (RIAs), fiduciaries who manage portfolios for a fee.  Turning the selection of investments over to an RIA, receiving regular reports of progress toward their financial goals, makes sense to people who understand the benefits of using professionals to accomplish complex tasks.

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Planning makes a difference

Happy senior couple walking on beach

Do you want to have fun in retirement?  Planning can make the difference and it doesn’t have to be difficult.  Working with a financial professional that understands your retirement goals can help you create a plan to make the most of your money – now and in retirement.

The partners at Korving and Company are Certified Financial Planning™ professionals – fiduciaries – who specialize in retirement.  We help people plan their retirement and continue to work with them during retirement.

There are 5 reasons why you should work with a financial professional to create a retirement plan.

  1. Focus on your goals in retirement and how you will pay for them.
  2. Address your concerns and expectations for retirement.
  3. Identify things that could pose a threat to your retirement and manage them.
  4. Feel more educated, confident and in control of your financial future.
  5. To help you navigate the complexity of financially moving into retirement.

 

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7 Services that a Registered Investment Advisor (RIA) Provides

Investing is serious business.  How well you manage your investments can make the difference between a comfortable retirement and working ‘till you drop.  Most people use a financial advisor of some kind.

Back in the day, people opened an account with a major investment firm and used a broker who would call and make recommendations to buy or sell.  They were essentially stock and bond salesmen whose loyalty was to their firms.

That has all changed.

The trend now is away from the major firms and toward Registered Investment Advisors – RIAs.  RIAs are fiduciaries whose duty is to put their clients’ interests ahead of their own.  They help people plan their future and take over the every-day investing decisions for them.

What can an individual expect from an RIA?

  • Asset management. This means creating a portfolio appropriate to the client, making changes in the best interest of the client, and reacting to market conditions.
  • Financial planning. Organizing a client’s financial affairs.  Determining the best way of achieving the client’s objective.  Reviewing the client’s insurance and estate planning needs.
  • Reporting and record keeping. Maintaining the organization of finances.  Performance reporting.  Maintaining cost and purchase data.
  • Life planning. Helping the client uncover what they really want to accomplish and creating a roadmap to getting there.
  • Retirement planning. Providing a path to living well once the paycheck stops and people are dependent on fixed income sources and their personal savings.  Retirement is a major life change.  RIAs typically offer comprehensive retirement plans that help people decide when to retire and what how well they can live.
  • Estate planning. Leaving money to heirs and charities must be carefully planned or large portions of an estate can go to taxes or the wrong individuals.
  • Concierge services. This can include attending meetings with attorney, accountants or bankers.  It can include services such as buying cars, arranging for travel or hiring someone to pay bills.  Relations between an RIA and a client are often so close that they are even consulted on issues such are marriage or divorce.
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Aunt Jennie’s Talents

Image result for image of older woman giving money

The Parable of the Talents is known to everyone who ever attended Sunday school.  A man prepares for a long journey by entrusting three servants with heavy bags of silver (talents) while he is gone.  In those days coins were weighed and a “talent” was about 75 pounds.  He gave 10 talents to one, five to the second and one talent to the third.  The first two servants invested the silver.  The third, being fearful. dug a hole and hid the money for safekeeping.  When the man returned, the first two gave the man twice what had been entrusted to them.  But the third just gave the man his money back.  For this poor stewardship the third servant was cast out.

I was reminded of this story when a lady came to us after receiving an inheritance from her Aunt Jennie.  After being grateful for her good fortune she wondered what to do.  Banks today are paying a pittance on deposits, so putting it in the bank was not all that much different from digging a hole to hide the money from thieves.  She wanted to be a good steward of her inheritance.

She wanted to honor Aunt Jennie by taking care of her money wisely and not squander it.  Aunt Jennie worked hard for her company, spent a lifetime being frugal and made wise investments.  My future client knew her own limitations. She was not an experienced investor.  She had to decide if she wanted to spend her time learning investing from the ground up.  With all the information out there, which expert or school of thought do you listen to?  Did she want to spend her time reading fine print, studying balance sheets or did she want to continue doing those things she enjoyed by finding an experienced professional she could trust to shepherd the money for her.

She chose us because of our caring professionalism.  We listened carefully to her objectives.  We explained the risks and rewards involved in the investing process.  We explained our investment process with the key focus on risk control and wide diversification.  We believe in wise investing, steady growth, and the assurance that your money will keep working for you. With over 30 years’ experience we have weathered all kinds of markets successfully.  Our knowledge and experience allows our clients to focus on those things they enjoy.  They know that their investments will be there for as long as they need them and beyond to help their children and grandchildren.

Aunt Jennie’s talents have grown and our client is happy.  Aunt Jennie would be proud.

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The most common investment mistake made by financial advisors

Bill Miller beat the S&P 500 index 15 years in a row as portfolio manager of Legg Mason Capital Management Value Trust (1991-2005), a record for diversified mutual fund managers.  He was interviewed by WealthManagement.com about active vs. passive management.

We have written a number of articles about the mistakes individual investors make.  But what about mistakes that financial advisors make?  We are, after all, fallible and make errors of judgment.  And like all mortals we cannot predict the future.

Here’s Bill Miller’s assessment about traps that financial advisors fall into:

One problem is how they deal with risk. There is a lot more action on perceived risks, exposing clients to risks they aren’t aware of. For example, since the financial crisis people have overweighted bonds and underweighted stocks. People react to market prices rather than understanding that’s a bad thing to do.

Most importantly, most advisors are too short-term oriented, because their clients are too short-term oriented. There’s a focus on market timing, and all of that is mostly useless. The equity market is all about time, not timing. It’s about staying at the table.

Think of the equity market like a casino, except you own it: You’re the house. You get an 8-9 percent annual return. Casinos operate on a lower margin than that and make money. Bad periods are to be expected. If anything, that’s when you want more tables.

We agree.  That’s one of the reasons we are choosy about the clients we accept. One of the foremost regrets we have is taking on clients who hired us for the wrong reasons.  One substantial client came to us as the tech market was heating up in the late 1990s.  He asked us to create a portfolio of tech stocks so that he could participate in the growth of that sector.  We accepted that challenge, but it was a mistake.  When the tech bubble burst and his portfolio went down and we lost a client.  But it taught us a valuable lesson: say no to clients who focus strictly on short-term portfolio performance.  Our role is to invest our clients’ serious money for long term goals.

Like Bill Miller, we want to have the odds on our side.  We want to be the “house,” not the gambler.  The first rule of making money is not to lose it.  The second rule is to always observe the first rule.

To determine client and portfolio risk we use sophisticated analytical programs for insight into prospective clients actual risk tolerance.  That allows us to match our portfolios to a client’s individual risk tolerance.  In times of market exuberance we remind our clients that trees don’t grow to the sky.  And in times of market declines we encourage our clients to stay the course, knowing that time in the market is more important than timing the market.

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At what age are you too old to manage your money?

I was fascinated to read an article with the above title that was published recently.  It was accompanied by a picture of an elderly couple and their caregiver walking with canes.

The article reflects many of our own observations.  We have been managing money for people for over thirty years.  During that time we have seen the effect of age and ill health on the people we work with.

Here’s the good news:

“Most people who don’t suffer from cognitive impairment can continue managing their money in their 70s and 80s, according to a report just published by the Center for Retirement Research at Boston College (CRR). But of course some older Americans, and especially financial novices who take over money management after the death of a spouse, will need help …”

Here’s the bad news:

As we get older our ability to process information slows down.  As a result, the elderly are more likely to be defrauded or abused by financial scams.  They may not open their mail regularly, have problems paying bills and fail to read and understand their financial statements and reports.

If you’ve never made investment decisions, paid the bills, balanced the family checkbook or reviewed the investment accounts you are especially vulnerable.  This if often true of older couples in which the wife managed the household and the husband managed the family finances.

As we get older, there are a few basic things that we should do to protect ourselves and our loved ones.

  1. Have a spending plan for your retirement years.
  2. Make sure that your spouse and your financial advisor knows about the plan and knows where your accounts are so that they can be monitored for fraud or abuse.
  3. At some point you or your spouse should agree to transfer your responsibility for managing your investments, and make sure that both members of a couple should know how to run the household finances.

For guidance on these issues, we suggest ordering a copy of BEFORE I GO and BEFORE I GO WORKBOOK.

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Why do smart people use financial advisors?

What is the real value to hiring a financial advisor, and who uses them?  What is the value proposition?  What makes one car with four doors and wheels worth $300,000 and other $30,000?  Although we might have an answer, the answer differs from person to person.

People use financial advisors for many reasons.  Some use them because they absolutely need them, others because they want them. Paying a fee for advice and guidance to a professional who uses the tools and tactics of a CFP™ (CERTIFIED FINANCIAL PLANNER™) and an experienced Registered Investment Advisor who is a fiduciary can add meaningful value compared to what the average investor experiences.

Many middle-class investors are anxious about their finances and are not interested in learning the details of managing their money.  This anxiety often results with money left on the sidelines because they don’t know what to do or are afraid of making mistakes. That means earning a fraction of 1% at the bank when the Dow Jones Industrial Average (DJIA) is up over 25% in the last 12 months.

There are others who are interested in learning about investing and may want to hire an advisor to “look over their shoulder.”  They want to hire an “investment coach.”

A third category are people who hire professionals because they are busy doing things that are more important to them: building a career or a business, being with family, or living an active retirement.  They hire an expert to manage their money the same way they hire a lawyer for estate planning, a CPA to prepare their taxes, and a doctor to keep them healthy.

A fourth category is people who were making their own investment decisions but ended up making a huge financial mistake.  This leads me to a story about a really smart, highly paid high tech executive who is very knowledgeable about investing; but he hired an advisor:

It’s not because he lacks the knowledge or interest, obviously. Rather, he figured out he had behavioral blind spots and understood he was at risk of great financial loss. He’s paying someone just to take that risk off his plate.

Determining your goals, controlling risk, managing portfolios well, and knowing your limitations – knowing you have “blind spots” – has led many smart people to hire an advisor.

Vanguard, the hugely successful purveyor or no-load mutual funds (that appeal to do-it-yourselfers) estimates that a financial advisor is worth about 3% net in annual returns.  They attribute this to the seven services that a good advisor provides:

  1. Creating a suitable asset allocation strategy.
  2. Cost-effective implementation.
  3. Rebalancing
  4. Behavioral coaching
  5. Asset location
  6. Spending strategy.
  7. Total return versus income investing.

If you have an advisor but he is not meeting your objectives, ask us for a second opinion.  If you don’t have an advisor but may want one, we offer a free one-hour consultation to see if we are compatible.

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A good Registered Investment Advisor is a “Life Coach.”

more photos the 2016 nfl draft in pictures more nfl best of beast mode ...

People who are not familiar with Registered Investment Advisors (RIAs) too often view them as stock brokers.  They are not; they are held to a higher standard and are focused on the client, not the money.  RIAs are trusted advisors who put their clients ahead of themselves.    They are fiduciaries that are skilled in the art making good financial decisions.

Younger professionals who are building careers would do well to find an RIA as their financial guru, a “Life Coach.”  It takes time, experience and a high level of expertise to manage money well.  The young lack that expertise but have the biggest advantage of all: time.  They are in a perfect position to build wealth with the least amount of effort if they can lean on experts who can show them how to navigate the risky ocean of investing.  Just as important, they need a wise guide who can advise them on managing their income.  Too many people, even those with six figure salaries, live paycheck to paycheck.  Knowing what to spend and how to save is the role of the advisor.

This is very important for the independent professional – the doctor or lawyer.  Focused on building a practice, they need someone to advise them on managing their money wisely.

For the business owner, the entrepreneur, it’s even more important.  There is no career track and the challenge of building a business often results in poor money management.  Excessive debt can lead to bankruptcy, a common result in many industries that depend on debt financing.  A good advisor can help the business owner create a personal portfolio that’s independent of his business.  At the same time he can advise the owner the best way of financing his growth.

Once the business is established the owner needs guidance setting up retirement and benefit plans for himself and his employees.  This all part of the RIA’s skill set. And finally, as the business matures and the owner starts thinking of retirement, the advisor provides the guidance to transition the individual and his family to life beyond work.

That’s the point at which the coach gets the pleasure of knowing he’s done a good job as part of a winning team.

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The Financial Planner as a Healer

[This is the most popular post we have published; it’s worth posting again]

Money is a significant source of stress for most people.  In many studies, it ranks above issues such as work, children and family.  Chronic financial stress is often the leading cause of family break-ups.

Chronic stress is also associated with all sorts of health problems, psychological problems, marriage conflicts and behavior issues such as smoking, excessive drinking, depression and overeating.

Men and women under stress have often relied on medical and mental health professionals.  However, financial planners are uniquely positioned to help people address what is likely the number one source of stress in their lives – their relationship with money.  Dealing with these issues head-on with a financial planner can lead to improved emotional and physical health, an improvement of work-related problems and improved relationships with family and friends.

A competent and caring financial planner does a great deal more than manage investments or create a financial roadmap.  He listens and empathizes with the conflicting issues that people face when attempting to manage their personal finances.

Discussing the issues that cause worry with a financial planner can lead to setting realistic goals, analyzing alternatives, prioritizing actions and implementing an easy-to-follow plan.  Just as important, it allows the client and the planner to review progress on a regular basis.

As a result the client gets a sense of personal control over his or her finances.  Someone who is in control of their life has much lower stress than someone who feels that events and outside agents control them.

For a relationship between a client and a financial planner to work well together, they must have shared views and expectations of financial planning, financial markets, investment philosophy, and managing risk.  An initial meeting between a client and a financial planner should establish a comfort level and determine whether the planner is actually interested in the client, or just the client’s money.

The planner’s goal should be to help their clients organize their financial affairs, and to discuss the client’s past, present and future – including death.  The planner should create a level of trust that allows him to keep the client from self-injury, which often results from fear surrounding money.  The financial planner should provide a sort of reality check to the client, reducing both excessive pessimism and irrational optimism.  A client should feel able to discuss money honestly and openly with their planner without a fear of judgment.

In many ways, a financial advisor can be the confidant to whom you can take your financial concerns … and make it all better.

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Who do you trust?

The latest issue of Wealth Management magazine dealt with the upcoming election.

One of the more interesting things about our recent presidential election (and it’s a long list) is that the traditional political battle lines have not only moved, they’ve been decimated—broken into such unrecognizable shapes that the head spins.

What the Editor found interesting is that neither candidate projects warm feelings toward Wall Street for different reasons.

For both parties and their supporters, Wall Street, and by extension financial services, is to be viewed with deep suspicion and skepticism.

The editor finds this troubling.  We’re not so sure.  When you turn your financial affairs over to another there has to be a certain level of trust.  However that trust must be reinforced over time and “Wall Street” has done enough damage to the trust that people have placed in it that it deserves to be viewed with suspicion and skepticism.

Trust is generated when promises made are promises kept.   The problem is that too often the promises that the major Wall Street firms have made were deceptive.  Wall Street firms like to pretend that they have the best interests of their clients in mind.  The truth is that the firms view their clients as customers and their brokers as the sales force.  The object is to generate commissions via the sales of products created to generate profits for the firm.  And if it benefits the client, that’s nice but it’s a by-product of the sales effort.

That’s why the growth of independent Registered Investment Advisory firms has been a good thing for people seeking investment advice that they can trust.  RIAs who charge fees for their services are not compensated for selling Wall Street products.  Because they work for their clients, not for Wall Street firms, they do not have divided loyalties.  They are supposed to be fiduciaries, not salesmen.  Not to say that there are no bad apples in the basket, but the vast majority of them will work to earn your trust.

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