Monday, March 28, 2011

Remember When I Said...

Remember when I said that Promissory Notes are bad and on my Do Not Buy List? Once again, proof positive that I am right. If you buy a Promissory Note, then you are essentially giving the person selling it the opportunity to misuse those funds. It is never and I mean never a good idea to invest any of your money (did I say any of your money? Yes, I did, because I mean it.) in a Promissory Note. Never forget it.

 http://www.sec.gov/news/press/2011/2011-72.htm

Be careful out there.

Tuesday, March 22, 2011

New Tag LIne for Our Firm's Logo

We have updated our firm's logo with a new tag line.

The Right Answer. The Right Financial Adviser.™

We are working on a new Brochure too. I have to get my picture made first, though. :)

We hope you like our modified logo.




Tuesday, March 15, 2011

Contrarian Advice on 401(k)'s Investing

Are you one of the myriad of Americans who max out their 401(k)? If so, this article is for you.

The financial media publications that are directed to consumers tell you to max out your 401(k). Perhaps, even your investment guru has told you to do the same. They scream loud and hard that you should sock away the maximum into your 401(k) each and every year. Well, I beg to differ. I will explain why after a little background on the 401(k) landscape.

The majority of Americans try to max out their 401(k)'s, based on my experience. Some 401(k) adviser comes into to your company and tells you to put all you can into your 401(k). Why? Because, the more money that goes into the company 401(k), the more money that 401(k) adviser makes. This is one conflict of interest. But, wait there is more.

What makes matters worse is that the investments that have been offered to company employees have been loaded up with commission splits and revenue sharing from the mutual funds that are recommended. So, these 401(k) advisers not only make money by the total amount invested in the 401(k), they have also structured these 401(k) plans so that they make the most commissions and fees possible. Further, they design them to appeal to the employer. The employer is sold the 401(k) plan so it cost little or nothing to the their firm. Instead, the costs are built into the company's 401(k) plans via additional expenses to the employees.

Keep the faith. The Department of Labor, who is in charge of ERISA based retirement plans, has become keen to these pad the pockets and shift the cost activities. The whole landscape has changed.

I remember when I was the Branch Manager II at Charles Schwab & Co. Inc. in Jacksonville. A 401(k) adviser came in to speak to my team about their 401(k) plan. Of course, you know what they say..."We are the best and to hell with all the rest." My skeptical nature, however, kicked in and I asked a simple question to this 401(k) adviser. "How does the revenue sharing breakdown?" The 401(k) adviser could not answer this simple question. It seemed like a simple enough question to me. How much does a 401(k) participant (employee) have to pay to be in this 401(k)? The answer I got was ..."it is all built in. Its no load to the participant."

What a lie! No Bank, Insurance Company or Wall Street firm is going to sell a 401(k) plan unless they get paid. No third party administrator will do the record keeping for a 401(k) for nothing. No 401(k) adviser is going to work on implementation of a 401(k) which can take a year or more, for nothing. No mutual fund family is going to put their mutual funds into a 401(k) plan for nothing. No attorney who works on the 401(k) is going to do it for nothing. The point is that there are a lot of hands in the cookie jar. Up until now, all of this has been hidden from view. Thanks to the Department of Labor, this is all about to end.

The Department of Labor is going to make all these hands in the cookie jar tell you, the 401(k) participant, how every cent is allocated. How much the Bank, Insurance Company or Wall Street firm gets. How much the 401(k) Third Party Administrator gets. How much the mutual fund company gets. How much the attorney gets. How much the 401(k) adviser gets and if there are any other hands in the coookie jar, then they too will have to disclose how much they will receive.

These changes are all good, but sadly, we will still see the same pad the pockets and shift the costs 401(k) plans. When you see the breakdown of your 401(k) plan, you may want to take a hard look at how much in expenses it is actually costing you.

After a little background on 401(k) plans, I really wanted to show you why maximizing your 401(k) may not be a good idea. Do you have any debt? Like a credit card or two or three? A Home Equity Line of Credit? A Mortgage? Car Loans? If so, then you have absolutely no business putting a nickel into a 401(k) or any type of retirement plan where you cannot get your money out without penalty and taxes.

Let me break this down for you. Forget about your first mortgage for a minute. Let's assume that you have $50,000 in debt and $50,000 in your 401(k). What is your net worth? It is zero. Yes, I know. You are real proud of yourself for saving the $50,000 in your 401(k). I hate to say this, but this is a big mistake.

You need to see my quick slide show on The Taking Control Plan.

Go to my web site  at http://www.marianfs.com/ and click on Services, then the link for the Taking Control Slide Show.

Look at this issue. If you have $50,000 in your 401(k) and $50,000 in debt, then what if you got laid off from your job? You may need to access your 401(k). If you are under 59 1/2, guess what? You have to pay penalties and taxes on the 401(k) withdrawal. Do you really have $50,000 saved when you may have to pay penalties and taxes on the money? Ten percent of that is $5,000. If you are in the 25% tax bracket, then that is another $12,500 off the top. Depending on what state you live in, it might cost you another 3 to 10%. The $50,000 that you saved in your 401(k) is now down to at least $32,500 and possibly more. You are not so proud of saving that $50,000 in your 401(k) now are you?

If I may borrow a line from AFLAC. "What if you got sick and couldn't work?" Again, if you had to access your 401(k), then you are going to be penalized with a 10% penalty and taxes to boot.

If on the other hand, you had saved $50,000 in cash and you were laid off or sick and couldn't work, then you would be much better off. You would have a net $50,000 (instead of $32,500 or less) to help you get through a job loss or a sickness. Sans the fact that you might want to buy some disability income insurance to cover the sickness issue.

The bottom line is that every Bank, Insurance Company and Wall Street firm wants to convince you to max out your 401(k). Now that you know the contrarian viewpoint of yours truly, is this the right thing to do? If I might borrow a line from a Microsoft phone commercial, "Really?"

Tuesday, March 8, 2011

What Do You Expect From Your Financial Adviser?

Last week, a friend that I know who has a successful business came into my office to talk to me about his investment options. He told me about the risk adverse nature of his spouse and how she was scared to lose money. He currently was invested in CD's at the local credit union and wanted to know if I could do anything better than the 1% or so he was currently receiving. I told him "No. I cannot offer anything that is risk free and pays better than 1% and is relatively short term in maturity."

He was surprised at my honesty. He went on to talk about wanting to pay off his mortgage and asked for my advice on the best way to pay it off. I referred him to a chapter in my book that shows how to use a home equity line of credit and your checking account together to pay off the mortgage without any additional out of pocket. It is a strategy whereby you deposit your paychecks into the home equity line of credit, then twice a month, you move the money out of the home equity line back into your checking account to pay bills. It takes a little discipline, but the end result is that your money is working all the time. Most people do not realize that home equity lines of credit are charged interest that is compounded daily. Therefore, when you put money into a home equity line of credit account, you are credited daily also. So, instead of having your money sit in a checking account earning nothing, you are putting 100% of your income cash flow to work reducing debt.

This strategy works like a charm. It just takes some discipline and you need free check writing that is also unlimited check writing without any fees. In addition, you need to have the ability to move money instantly online between your home equity line of credit and your checking account. If you can do this, then you are all set. For more details, see my book, Keep Your Assets. Take My Advice.

Back to my story. The end result of our meeting was that I did what was in this person's best interest. This is what I do. An unethical adviser would never pass up the opportunity to open a new account. They would have said anything to get this person to open an account and make promises around risk that they could not keep. I am different however. I heard him say that his spouse does not want to lose or risk their money. My response was a honest response related to his needs.

A few days later, this same person came back to see me again. He wanted to thank me again for being honest with him and telling him the truth. He also said that I was exactly the kind of person that people need to be their financial adviser. To me, this was a real compliment. It is great to receive validation that there are some things more important than making money at the expense of others. I suspect that I may receive a referral or two from this person in the future as a result of our interaction. Before he left, he said that "we will do business together in the future."

This is an example of what I mean when I describe the differences between registered investment advisers who do things in a client's best interest and banks, Wall Street firms and insurance agents who are bound by their contract to sell products that benefit their firm and themselves. A registered representative or insurance agent would not have done this with this person. Why? Because they have to generate revenue to keep their job, so they will say whatever it takes to get a new account that they can generate revenue on.

Is this sinking in yet? There is a difference in financial advisers. Can you see it?