Registered Investment Advisors keep clients' interests at heart

By Dr. Jason White
Family Investment Center

The world of investing and managing money can be confusing, frustrating, thrilling and gratifying all at the same time. Some folks have the financial acumen to manage their own portfolios and do quite well, while many flounder in a sea of millions of investment choices and scores of different account types and other arcane rules of the road.

If you have the time, talent and dispassionate experience needed to manage your own money, then this week’s column may not be for you, and that is just fine. The United States capital markets benefit greatly from the liquidity generated by a large number of self-interested investors. But, if you have ever considered handing off the keys to your investments portfolio to a professional, or if you have done so already, then read on.

Essentially, there are two breeds of investment advisors to choose from: Commission earning brokers who charge based on the investment products they sell, and those who work on a flat fee or “commission-free” basis, Registered Investment Advisors. Given today’s increasingly complex and intertwined financial marketplace, some traditional commissioned brokers have begun offering some types of fee-based, straddling the line between both. Yet there is a very important distinction between commissioned brokers and fee-based advisors. In legalese, it is the standard of care provided.

TAKE NOTE – A Key Point Follows

Commission-free Registered Investment Advisors (RIAs) are fiduciaries for their clients. This means that an RIA is legally and ethically bound to provide client investment services that are solely in the “best interest interest of the client.” Further commission-free (a.k.a. fee-only) RIAs must be completely transparant and disclose all fees paid by clients, by research or mutual fund companies, or any others ancillary charges – including.

Commissioned brokers are held to a much lower standard of care – the investments they recommend for customers must simply meet a “suitability” standard. Whether the recommended investment is in the best interest of the client is immaterial in the world of commissioned investment salespeople.

I have been both a commissioned broker and a commission-free (fee-only) advisor in my 20-years at the virtual intersection of the streets of Main and Wall. I will remain a passionate promoter of the commission-free RIA business model until or unless a better investment business model is developed that protects clients better than an RIA, or that is more transparent.

I’m not holding my breath waiting for this to occur.

You see, a fee-only RIA earns larger fee income from a client as that client becomes more and more wealthy. Thus, it is squarely in the best interests of both the client and the commission-free advisor to be invested in such a way as to maximize growth, income and safety over time. Clients and their advisors sleep better at night knowing that they are both on the same team. This is truly one of the best win-win scenarios available in today’s financial marketplace.

Dad's Divorce: Rebalancing your portfolio

Dan Danford regularly provides commentary for Dad's Divorce.com, a web site for men going through the divorce process. Of course, his advice applies really to anyone. You can watch his latest podcast here:

Financial advice from TV experts is a no-go

By Robyn Davis Sekula

I ran across a story this week about Glenn Beck's financial advice. First of all, you need to understand I'm not a fan of his. I think he's theatrical and reactionary. I do think he makes some good points, but I can't get through the drama to listen to what he actually says. It's too much to wade through for me.

It bothers me to read that he's been dispensing financial advice. He has no expertise on this, and his idea about buying gold is just plain silly.

I've heard Dave Ramsey address buying gold a number of times, and his point is always this: when an economy collapses to the point that paper money is not valuable, gold is not helpful, either. He points to New Orleans during the aftermath of Hurricane Katrina as the most recent example of economic collapse. Were people trading gold coins? Not at all. They were bartering for bottled water, tarps, building supplies, generators and gasoline. Those were the things that were desperately needed and in very short supply.

There's also the journalist in me that notes that Beck is paid for his endorsement of gold as a commodity, and he's likely paid very well. It may even be in his contract to endorse it on his "news" show. Therefore, he's not objective.

I asked Dan Danford, Principal and CEO of the Family Investment Center, to weigh in on Beck, and here's what he thinks:

I share Beck's concern that many political policies discourage entrepreneurship and capitalism. And I also believe that investors have suffered at the hands of Wall Street and supportive bureaucrats. But capitalism grows from the basic initiative of people, and no government has ever succeeded is destroying that trait. I believe, strongly, that creative people find ways to make money and build companies even when the government discourages it. Corporations adjust to changing situations and needs. In brief, I don't think capitalism is dead and I don't believe all the doomsayers about the U.S. economy.

Then, I specifically asked about Glenn's endorsement of gold as an investment. Dan said this:

The time to buy gold is always before people start talking about it. I think Glenn should stick to broadcasting but there are a host of others who disagree!

What it all boils down to is this: if you are taking specific investment advice from someone who is talking to you, and not with you, you're heading down a dangerous path. There are some universal ideas, such as that we all need to save for retirement, and shouldn't have credit card debt. But how to invest that retirement, specifically, is a question Beck isn't qualified to answer, because he doesn't know you.

If you are seeking good, solid financial advice that applies to you, which is what you should want, you need to seek an independent financial advisor who isn't being paid a commission or a fee or anything else to endorse a specific product. That advisor needs to know how tolerant you are of risk, how far away from retirement you are, how many children you have and their circumstances, and whether or not you're divorced, widowed, married or single. All of that is important, as well as 100 other small factors that really change how you save, and what for.

For instance, in my case, I'm self-employed. That fact alone means I probably need a larger cash savings fund than many people, and a qualified investment advisor would tell me that, and NOT tell me to have a bunch of gold sitting around. You can't pay your mortgage with gold if you lose your biggest client.

Listen to Beck, if you like. But take any advice he gives with more than a grain of salt.

You can't afford to skip exercise

We caught this great blog post on Boomer-Living about fitness, and wanted to share it with you. (You can follow Boomer-Living on Twitter @BoomerLivingNow - and of course we're at @family_finances.)

The basic premise is that sometimes folks cut luxuries when times are tight, as they are right now for a lot of people. But exercise is something you really can't afford to cut - and if you aren't in shape, consider starting an exercise routine.

First of all, fitness doesn't have to cost - walking is free, and great exercise for those who may not have had a previous fitness routine. The options that writer Angelena Craig outlines are low cost, and also good choices for seniors, or anyone, really. You can check out a 75-minute segmented video by Angelena outlining yoga using a chair for free right here: http://www.thenewagingmovement.com/

The truth is, if you neglect your health through a lack of exercise, you'll likely spend a lot more later repairing the damage you've done in earlier years. This is preventive - and something you can't afford not to do.

Read on for the whole post.

http://www.boomer-living.com/2010/08/you-cant-afford-not-to/

Investing in your 40s: Stability is your friend

There's lots and lots of articles out there about saving for retirement. And that's a great focus - and probably the most important savings goal anyone should ever have.

But what's often missing is how investing changes with the decades. We ran across this great piece by Jean Chatzky about investing in your 40s, and wanted to share it with you. She asserts that in your 40s, you're established in your career, probably making a steady, dependable income, and may have passed most of the big financial hurdles people typically face in their 20s and 30s, such as starting a family.

If you'd like to read the full story, go here:

http://www.dailyfinance.com/story/investing-basics/investing-in-your-40s-envisioning-the-future/19604306/

McMansions are over

By Robyn Davis Sekula

For most of the first few years of working as a freelance writer, I penned articles on garish homes for a local magazine. Let's just leave it at that and not name the magazine, shall we?

I'm not writing for them anymore, and I'd like to tell you it's because I grew a conscience and disdained the lifestyle these homes represented. That's not why. I stopped writing for them because they stopped calling me.

The houses were interesting when the owners themselves had collected, arranged and chosen the objects inside. They were dull, lifeless, cavernous palaces when the owners had turned over all decorating tasks to a designer. Ho-hum.

What they all had in common, though, short of just a few I saw, was that they were too darn big. In many cases, the homes were occupied by a couple, maybe a grown child and lots of expensive objects. Many would definitely fall under the heading McMansions, buff brick castles that I liked to call of the Something European or Something Else style. To my mind, it's just wasteful, particularly to build a new home that's 7,500 square feet for just two people.

Financially, such a home makes little sense. Such a house often has a high level of debt, and the energy bills would be predictably high. Don't try to tell me you're building a green McMansion. Ridiculous. Building new is not green. We've grown addicted in America to larger, bigger, and presumably better homes and cars, and it's to our detriment.

CNBC heralded the news recently that the McMansion era is over. Well, thank God. I'm glad to hear it. Read on for the full funeral details.

http://www.cnbc.com/id/38757287//

Columnist warns against college debt; Dan disagrees

By Dan Danford
Family Investment Center

Michelle Singletary's column often preaches against debt. Any kind of debt. She's a product of her upbringing by a conservative grandmother who saw the ravages of the Great Depression.

I sometimes agree with her - but this latest column has me steamed.

She suggests in her column that it is not worth the debt to get a college degree.

Here's what she asserts:

I hate it when people say a student loan is good debt. There is no such thing as good debt. There is only debt. With that in mind, of course I side with the growing number of experts who are boldly arguing that racking up a lot of debt for college isn't such a great investment after all.

Totally absurd and irresponsible. Education is a good value, no matter how you get it. (And, incidentally, not all debt is bad.)

Having said that, you should use your head before borrowing for school or anything else. If you are going to be a teacher (noble, but not necessarily high paying), choose a college you can afford. Many regional or community colleges offer tremendous value and you'll get every penny back from the education investment you make.

On the other hand, an Ivy League school may not be the best choice for an education degree, especially if you have to borrow $200,000 to attend there. Probably shouldn't borrow $200,000 to satisfy your or your parents' ego, either.

This kind of column just makes me cringe. Education isn't a product, it's a life-time process. You don't earn a job along with your diploma, and - even if you did - smart people wouldn't spend $200,000 for a $30,000 per year job. Who makes that kind of decision? Where were the parents and school counselors, and financial aid advisors? And journalists, for that matter?

Of course, it's worth borrowing to get an education if that's the only way your can afford it. All the studies say so and millions of us prove the case. Don't let a few anecdotal stories lead you astray. Just use your head.


http://www.washingtonpost.com/wp-dyn/content/article/2010/08/19/AR2010081902753.html

Bankruptcy filings rising

Bankruptcy filings are up - but this isn't necessarily dire economic news. The Economist used this chart to show the trend. See the spike in 2005? That was right before bankruptcy reforms were introduced. Many people rushed to file prior to that in anticipation that they would not be able to file later. Well, it's taken some time, but we're really just right back where we used to be. It takes any industry - and in this case, the bankruptcy industry - time to recover from reforms. Believe me, bankruptcy attorneys and businesses have spent the past five years researching ways around the new reforms, and it's taken five years, but they've apparently found them.

Here's what The Economist says about this:

BANKRUPTCY filings rose 20% in the year to June 30th compared with the previous 12-month period, according to statistics released on August 17th by the Administrative Office of the US Courts. This takes quarterly filings to their highest point since tougher bankruptcy laws were introduced at the end of 2005. That change brought a spike of bankruptcies, as companies and individuals rushed to declare themselves broke under the more lenient old regime. The data suggest that an older trend is reasserting itself. This could be more bad news for America—or it could just mean that creative destruction is alive and well.

We're agreeing with that last part of The Economist's post: creative destruction is alive and well.

And, as always, let this serve as a reminder not to amass too much debt, even when times are good.

http://www.economist.com/node/16843119?story_id=16843119&fsrc=rss

Identity theft targets children

If you have children or grandchildren, particularly of a young age, you need to think about guarding their financial information. Increasingly, those who steal Social Security numbers and other identifying information are targeting information from children, since it will likely be years before they ever access a credit report.

GOOD NEWS, though, according to Kiplinger.com's Cameron Huddleston: you CAN protect that information, and their latest article outlines how to do it.

Here's a statistic that will likely shock you - and hopefully prompt you to take some action:

About 400,000 children a year are victims of identity theft... They become victims when criminals get their Social Security numbers from medical records, mail tampering, computer searches or a stolen wallet with the child's card in it.

Click here to read more:

http://www.kiplinger.com/columns/kiptips/archives/protect-your-kids-from-id-theft.html

Partnership Agreements: Necessity in Small Business

By Dr. Jason White
Director of Investments, Family Investment Center

Many of us at one time or another during our careers are bitten by the entrepreneurship bug. Some will be successful, while others will not. Nationally, the sobering statistics are more than 60 percent of small business start-ups fail within the first five years of operation. The most common reason for failure is that the firm/owner runs out of working capital (money) before the business begins to make a profit.

Forming a partnership can help ease the individual burden of working capital contribution, as two or more partners can fund a business start-up with less personal financial pain than a single owner.

That said, anytime a business partnership is being contemplated, prospective partners should never go into business together until the details of their partnership have been hammered out. The document to accomplish this is commonly know as a partnership agreement.

Most attorneys with business law experience are easily able to provide prospective partners with a template outlining their rights and responsibilities to the business, and one another, for a reasonable fee. In my experience, you should NEVER enter a business partnership without first making such an agreement. Unfortunately, this is something I have learned from the school of hard knocks. The following is a list of basic items that should be covered in most every general partnership agreement.

Of course, the agreement should list all the “particulars” about the owners of the prospective business, including spousal information. The document should list the name, address and social security number for each partner, along with any other aliases, maiden names, etc.

The partnership agreement should discuss generally the purpose of the business partnership; the date of formation of the partnership; and the anticipated duration of the partnership, especially if it is to be for a finite period.

The agreement should nail down exactly how profits and losses will be shared by the partners, and how much capital each partner is contributing to the enterprise. It is a good idea to also codify how additional capital contributions will be treated. Will these be treated as loans from partners, or will additional contributions change the ownership structure of the firm?

The agreement should address what happens in the event of major changes to the partners, such as death, divorce and disability. What if one partner wants to sell his/her interest a few years down the road? What is the method for calculating the value of that interest, and do the remaining partners have first rights to buy the exiting partner’s interest before it is offered to an outside party?

The agreement should also be as clear as possible regarding the duties of each partner to the partnership, and how business disputes are to be resolved in the event of disagreement.

Dealing with these sorts of issues is much easier to do before a new partnership is formed than somewhere down the road when a pitfall occurs. I have seen, and been involved in, partnerships where the partners began the business as the best of friends and ended up as mortal enemies. A solid up-front partnership agreement can provide a road map to partners having to navigate these sorts of trying times.

This week: Retailers release quarterly reports

For those of you who keep some money in the market, take note that this week, many retailers will be releasing their quarterly earnings reports. The Kansas City Star's Dollars and Sense blog had a nice post today quickly and neatly outlining who will be making reports on which days. To see the list, go here:

http://economy.kansascity.com/?q=node/7983

Today (Monday) Lowe's opened with its earnings, which were up. Reaction was mixed in the market, with Lowe's keeping its thoughts on the matter cautious but optimistic. Here's that report on Market Watch: http://www.marketwatch.com/story/retailers-open-mixed-on-lowes-report-2010-08-16

And here's Lowe's own press release: http://investor.shareholder.com/lowes/releasedetail.cfm?ReleaseID=499393

What's your number? Part Two

Dr. Jason White
Director of Investments, Family Investment Center

This is a continuation of my last column discussion of the best-selling book "The Number" by Lee Eisenberg. I previously indicated that the book itself was primarily a moral and philosophical examination of the process of monetary accumulation. Eisenberg asks us some difficult questions regarding our motives for saving; our future plans, be they in retirement or otherwise; and the most difficult financial question of all – how big must our “number,” that is our annual income generated in retirement, be.

Page 251 of the Eisenberg primer describes for us what he calls “The Number, Quick and Dirty.” Despite the rule-of-thumb nature of the title of Eisenberg’s number calculation, his formula is actually quite elegant and comprehensive. If you are nearing retirement, or a prudent long-term planner wanting a comfortable retirement, consider plugging your financial information into the following formula.

A) Total all of your investments account balances for retirement.
B) Multiply line A by .04, which represents a safe and reasonable 4 percent rate of savings withdrawal in retirement.
C) Divide your total home equity by the number of years you plan to live in retirement. When I do such financial planning, I automatically assume a client lifespan of 100 years. If you run out of money at age 100, you probably won’t know or care anyway!
D) Divide any anticipated inheritance monies your expect to receive by the same number of years you used in part C.
E) Add the anticipated annual Social Security payment you expect to receive.You get a statement from the Social Security Administration every year showing this amount, so it shouldn’t be too tough to find.
F) Add in your annual anticipated pension or annuity payments (if any).
G) Add in realistic earnings you expect to possibly receive from part-time work, consulting, etc., if any.
H) Total lines B through G. This total represents the annual dollar amount you can reasonably and safely expect to have available to meet expenditures during your retirement years.

See, that wasn’t too horribly complex. So, how did you come out? Were you pleasantly surprised? Were your intellectual gut-feeling “number” guesses close? Are you shocked and terrified that you won’t have enough money in your golden years?
Take a deep breath.

Now you know the facts of your situation and can begin to tweak the savings or expenditure side of your personal balance sheet as you and your financial advisor see fit, especially if it appears you may be short (as most of us probably are). If you have a number of years left to retirement, or can delay retirement a few years longer than you had planned, you may be able to make up the difference with more aggressive savings. Note: I do NOT recommend more aggressive investing for folks nearing retirement for fear of principal loss and a worsening of the situation. Sometimes macroeconomic timing is just lousy. Still, even a prudent investor, with an understanding of portfolio risk, should likely never drop their stock allocation to less than 25 percent of investable assets.

The other side of the coin to examine is your anticipated retirement expenditures. Maybe regular golfing at Mozingo makes more sense for you that at St. Andrews. A reasonably priced Ford is probably nearly as reliable and comfortable as that coveted BMW. You get the idea ...

I hope you found this exercise helpful and informative. Call me if I can be of assistance to you in fulfilling your long-run dreams.

How much money would make you feel wealthy?

By Dan Danford

We've often tossed around the word wealthy in our offices, with some of our folks saying we shouldn't use it, because those who are don't like to talk about it, and sometimes, they don't even feel wealthy, even though they may be. And those who aren't wealthy are jealous. It's a tainted word, really, wealthy, and all the various subsets of it - wealth, etc.

So this story caught my eye today, even though it's from a few days ago. CNN Money did an interesting story on how much money it takes for us to feel wealthy, complete with a handy calculator to tell us where we fall for our income and age. It's a fascinating story, and the calculator is particularly intriguing. Plug in your age and annual salary and it will tell you what the median net worth is for your age, and then the median net worth for your salary. Take a look and see where you fall.

And you tell us: how much would it take for YOU to feel wealthy?

http://money.cnn.com/2010/08/09/news/economy/wealth/index.htm

Event: Impact of the Recession on Non-profits

By Dr. Jason White
Family Investment Center

In a few weeks, I'll be speaking to Mainstream, Inc. and the Kansas and Missouri Non-Profit Associations on "Future Impact of the Recession on Non-profits." The event is set for Thursday, August 26, from 1 to 4 p.m. at Cabela's in Kansas City, Kan.

It's a timely topic, as the Recession that we're currently enduring has hit them twice as hard. Many non-profits have seen an increase in requests for assistance, as many people have lost their jobs, but they've also seen a decrease in donations and, if they're living off endowment interest, a decrease in the amount of income from their endowments. It's incredibly stressful.

What I hope to do is present non-profits with strategies that can help them weather this time. I plan to cover the following points:

• Economic stress on non-profits, and how they are coping.

• Why some non-profits are weathering the storm, while others are bankrupt or headed
in that direction.

• The combined impact of lower revenues; higher costs; declining endowment values; and slower cash flow collections.

• The "nimbleness" of some non-profits that have mitigated financial damage.

• Suggested coping strategies to survive, and even thrive, this Great Recession we are enduring.

If you want to attend, you can register here: http://bit.ly/cWYW6x

Hope to see you there!

Social Security changes can affect retirees wallets

By Robyn Davis Sekula

Ask anyone in their 30s if they expect to receive Social Security upon retirement, and you'll find that almost all of us think it won't be around for us. Some of us, like me, are saving aggressively for retirement to make up for it.

Statistics actually show that Social Security may be around, just not at its current levels. Even those currently on Social Security (or getting ready to retire) are affected by the changes to the program.

It's a great idea to keep abreast of developments and changes in Social Security. Here's a great piece we found from Fidelity.com, posted on Yahoo.com, about Social Security income and how seniors will be affected by raising the eligible age to 70.

Here's an excerpt:

Social Security will, according to the last annual report from its trustees, be able to pay full benefits through 2037. Then, if there are no changes in the program in the meantime, the taxes collected will be enough to pay out only about 75 percent of benefits through 2083.

So while Social Security's finances are stable in the short term, most experts agree that the program needs to be bolstered for the long term. Among the proposals circulating is one from Representative John Boehner of Ohio, the House Republican leader, who recently suggested raising the retirement age to 70 for people at least 20 years from retirement.

Read the full article here:

http://finance.yahoo.com/focus-retirement/article/110241/social-security-jitters?mod=fidelity-readytoretire&cat=fidelity_2010_getting_ready_to_retire

Billionaires give back

By Dan Danford

In our society, it's fashionable to villify the wealthy, particularly those who are extremely rich. We tax them more heavily - and few have a problem with that.

But often, those who are wealthy are the ones who help our society the most. They build businesses and provide jobs to those around them, and sometimes to people around the globe. And many of them turn into philanthropists who fund charitable causes, year after year. The Bill and Melinda Gates Foundation is among the best examples of this.

The Wall Street Journal recently reported that Gates and Warren Buffett have challenged fellow billionaires to follow their example and give away the majority of their fortune, and some are following in their footsteps. It's extremely admirable.

Here's an excerpt from the story:

Mr. Buffett and Mr. Gates in June had asked the individuals and families to publicly commit to give away at least half of their wealth within their lifetimes or after their deaths.

The pledge stemmed from a series of dinners the two men held for the nation's billionaires over the past year to discuss the effects of the recession on philanthropy.

Read the full story here:

http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704017904575409193790337162.html

Credit card issuers get sneaky

Didn't we all know this would happen?

As soon as the government cracked down on the credit card industry, card companies found new ways to bilk the unsuspecting public.

Those bulky Card User Agreements that they send you once a year or so with lots of tiny, tiny print? You need to read that.

You also need to read this story from The Wall Street Journal detailing some of the card companies' newest tricks.

Read this excerpt to get an idea of how the companies are getting sneaky:

The Card Act also stipulates that issuers can't jack up rates on existing balances unless a cardholder is at least 60 days late. But there is a creative maneuver around that: the so-called rebate card.

Citibank rolled out rebate-card offers to some of its customers last fall, offering to refund up to 70% of finance charges when customers pay on time. The problem: Rebate offers aren't governed by the Card Act, and an issuer can revoke them suddenly and hit cardholders with high charges.

The net result is the same as raising rates—and because it is perfectly legal, customers have little recourse. "Rebates on finance payments may seem like a good deal, but you could end up with a very high interest rate suddenly," says Mr. Frank, of the Center for Responsible Lending.

Read on for the full article:

http://finance.yahoo.com/banking-budgeting/article/110213/the-new-credit-card-tricks?mod=oneclick