Friday, December 21, 2012

Economic Resilency

The Fiscal Cliff is way overblown as far as the American Economy is concerned. The people that run businesses in America know what they are doing in most cases. Although, the Fiscal Cliff presents an interesting challenge, you can bet your bottom dollar that these business leaders will adjust to the ultimate outcome.

Think about it. Despite four years of President Obama's leadership or lack thereof, a do nothing Senate and a we cannot do anything House of Representatives, the American Economy continues to purr along. Business leaders adjust to the current environment. Sadly, a lot of this adjustment has been downsizing their companies, running lean inventories and reducing investments in research and development. These strategic business moves, however, have contributed to a great year in the stock market. This despite no tranquility at all.

What does the next 10 days hold? Who knows? However, I know one thing. The American Economy will continue to do well, because business leaders will adjust to the new reality, whatever becomes of that reality.

In talking to family, friends, clients and others, I think we all agree that this Fiscal Cliff thing needs to get resolved one way or the other. It is simply unfathomable that these fools in Washington D.C. do not give a hoot about the American people. They are only in it for a power grab and their own selfish re-election needs. You always hear about the fact that elections have consequences. The American people have let these fools in Washington, D.C. control us. This is a big mistake. We are smarter than this.

The Preamble of the United States Constitution starts out with "We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."

I do not read anything in the Preamble that says we the government, or I the President, or we the Senators, or we the House of Representatives. It says "We the People..." We the people are in control of this country, if we believe a word of the Constitution. I am curious however as to why we allow these idiots in Washington, D.C. to treat us this way. We have no one to blame but ourselves.

I think we need to take these elections in the future a lot more serious and exercise our right to vote in a manner that favors "We the People" of these United States of America, instead of a political party. Further, the Preamble also says..."insure domestic Tranquility." We need some domestic tranquility today, don't we?

Thursday, December 6, 2012

How the rich will avoid taxes

Suppose the worst happens. Congress and the President go over the Fiscal Cliff. You are one of the fortunate 2% people whose income is over $250,000. Someone like, Mr. Buffet for example. How do you think he might deal with the new tax scenario?

Let's take a pool of money, say $500,000 and invest it in a stock portfolio. Qualified dividends are taxed at the rate of 15% right now, until January 1st, when they will go up to ordinary income rates. So, if you are in the highest tax bracket of 39.6%, plus the additional taxes added because of Obama Care, then you are going to 44.7%. Do you really believe that wealthy investors are just going to sit there and not shift their income around?

The capital gains tax rate will go from 15% to a modest increase of 20%. This is significantly lower than 44.7%. Quit a bit lower in fact. Instead of taking dividend income, these investors will simply sell something and pay the 20% capital gains rate, if they have a profit. Most often, they will simply sell their losers and not pay any taxes. Either way, 20% or 0% is a whole lot better than 44.7%.

In a little different tax reduction strategy, people like Mr. Buffet will simply reduce their portfolio of dividend paying stocks to companies who pay little or no dividends.

Let's continue with my example portfolio of $500,000. Keep in mind, that for my example purposes, my investor is in the top tax bracket of 44.7% after January 1st. Suppose my investor's collection of dividend paying stocks paid an overall yield of 3%. This investor's $15,000 of income would owe taxes of $6,705 in the 44.7% tax bracket. Now, consider if they reduce their dividend paying stocks down so that their yield is 1.5% instead of 3%. The taxes owed would drop to $3,352.50. This represents a 50% tax savings.

Further still, what if the investor shifted some of their funds to tax free and AMT tax free municipal bonds? They might be able to eliminate their taxes on dividends altogether. If they are able to limit or eliminate their taxes altogether, then they may be able to do this so that they drop down into even a lower tax bracket.

Another strategy that is tailored for those who need high income with low taxes on that income is to use a Multi-Split Annuity strategy. Instead of investing the $500,000 in dividend paying stocks, you purchase three annuities. One has a 5 year certain payout and the other has a 5 year deferral, then a 5 year certain payout. The other is a deferred annuity that grows for 10 years back to the original principal amount.

The first immediate annuity pays $2,300 a month for 5 years and 87% of it is tax free. You only pay taxes on $299 a month which is 13% of the $2,300.

The second immediate annuity pays $2,600 a month for 5 years beginning after the 5 years of deferral and is 65% tax free. You only pay taxes on $910 a month which is 35% of the $2,600.

The third deferred annuity which is deferred for 10 years starts out at $279,200, but grows back to the original $500,000 that you started with at the beginning of this strategy. The growth of this annuity is tax deferred so there are no taxes due over the 10 year period.

Crunching the numbers we find that for the first five years we had to pay taxes on $17,940 of taxable income. This is on $500,000 of principal, keep in mind. Even in the 44.7% bracket, this is only $8,019.18, but we received $138.000 ($2,300 per month) during this first 5 years. This is a 5.52% yield by the way.

Then, on the next five years, years six through ten, we pay taxes on $54,600. At the 44.7% bracket, this is $24,406.20 in taxes due. However, we received $156,000 in income and our yield has grown to 6.24%.

The total tax rate paid during this 10 year period was 6.49%. This is a whole lot better than 44.7%, wouldn't you agree? It is also better than a 20% capital gains tax rate, too.

Note: This is an example of a Multi-Split Annuity strategy. The actual numbers vary according to interest rates, payout rates, age and tax brackets. A Multi-Split Annuity strategy works better in higher interest rate environments. This is not meant to be tax, insurance or financial advice on a Multi-Split Annuity strategy, but rather simply an example of how sophisticated investors might avoid income taxes.

These are some limited examples of what the rich will do to reduce their income taxes. Like I said, Congress and the President are not going to get the money they think they are from the rich. Oh by the way, they are well aware of this, too. This is just all an issue of fairness. The President believes that the rich need to pay their fair share. He campaigned on it, got elected on it and now he is demanding it from the House of Representatives.

Neither Congress or the President truly care about getting extra revenue from the rich, because they know the rich will rearrange their portfolios to reduce their taxable income. This is all about politics and who ends up getting the blame. Sadly, the American people are the pawns of this chess game. Let's hope somebody in Washington D.C. will come to their senses and do something for the American people, instead of their own political agenda.

Wednesday, November 28, 2012

What the Mortgage Deduction Means to Taxpayers

Can you believe these people in Washington D.C.? They are in absolutely no hurry to solve the fiscal cliff crisis. Imagine running a business the way these people do. They would be out of business in a New York minute.

As part of the fiscal cliff talk, we are hearing some mild talk about getting rid of deductions and credits. One of those is the mortgage deduction that affects everyone with a mortgage. A large part of the Great Recession is the problems associated with the housing market. This shows that these people in Washington D.C. are totally lacking in any financial knowledge. They have no clue about basic finance.

Right now, if you are in the 28% tax bracket and own a mortgage, you can file Schedule A and put down the interest you paid for the year and get a tax deduction. In order to simplify things, this means that you receive a 28% savings on your tax return for the interest that you paid. If you take away this deduction, then this would mean that the prices of houses are now more than 28% over priced when you factor in the interest costs. Therefore, the housing market would be immediately impacted. This means further that if your house was worth $200,000 with the mortgage interest deduction, then it will immediately drop down to roughly $129,000 without the mortgage interest deduction and factoring in the interest costs.

Everyone who owns  a mortgage would be affected. This would crush the housing market and tank the economy like we have never seen before. You think things are bad now. Wait until you see what happens if they take away the mortgage deduction.

Think about it. If you are going to buy a house and you know that you will not have a mortgage deduction, then this means that the net amount that you can afford for housing has to and will go down. Normally, on a $200,000 mortgage with 10% down, a 30 year term with a 4% interest rate, the payment is $859 per month. With the mortgage deduction, the net payment with a 28% tax deduction is only $618 per month. The net effect is that you can buy a bigger house with the mortgage deduction.

If you take the mortgage deduction away and factor in the interest costs of what $618 per month will buy on a 30 year mortgage, then the affordability of what you can buy is now about $129,000. Do you see the potential impact on the housing market? Suppose you are trying to sell a house for $200,000 before they remove the mortgage deduction. If they remove this deduction, then the people who can now afford your home becomes a much smaller group. Someone who previously could have easily bought your $200,000 house with the mortgage deduction can now only afford a $129,000 home without the deduction. I see said the blind man.

Removal of the mortgage deduction will cause a housing market meltdown of nuclear proportions.

Let's hope these people in Washington D.C. come to their senses.

Support your local real estate agent. These folks are our first line of defense.

Tuesday, November 13, 2012

Personal Stats

Some guys that I play baseball with do not like it when you keep track of personal stats. I tend to disagree because if you do not have any goals, then how can you accomplish anything? Baseball is about team unity and reaching goals as a team. However, without some of the best players, then you are not going anywhere as a team.

Last week, I played in the MSBL Fall Classic in Southern Florida. My team was the Triad Jagwires. We are a mix of players from North Carolina, Georgia and Florida. Unfortunately, we went 0 and 5 for the tournament. I batted lead off and got 10 hits in 16 at bats which is a .625 batting average. My personal goal for the week was to get 10 hits. I reached my goal, but it wasn't enough. The majority of the other players did not hit well. Our pitching wasn't very solid either. Only one game was close.

I hit a home run. It was an inside the park home run although I think I hit it about 370 feet to the left center field gap. It hit the warning track and the fence on one hop. Funny thing is that I also played in the MSBL World Series a couple of weeks prior and I also hit an inside the park home run in that tournament. I played with the infamous Arkansas Diamonds. This was one of the best teams that I ever played on. I do not have the final stats, but I think I stole at least 15 bases during that tournament.

My point is that my way to help the team is to have pre-defined goals. If I don't have personal goals, then how do I know how I can help the team? If you want to be sure and not achieve anything, then do not set any personal goals. You will just drift through life without knowing where you are going.

Baseball players have big egos, myself included. However, if I did not believe that I could get 10 hits or steal 15 bases, then why should I even go to these tournaments. I go because achievement of my personal goals is how I become a team player.

Tuesday, October 16, 2012

Sales Presentations That Do Not Work

Generally, I screen my calls at my office, because there are so many calls of people trying to sell something it is ridiculous. Recently, I received a call about a firm that has a unique advertising concept and I agreed to an appointment. When the appointment setter called me, he said that he was offering an "exclusive opportunity" where only one attorney from Rick Johnson Family Office, LLC would get primary exposure with their product.

First of all, I am not an attorney. Secondarily, Rick Johnson Family Office, LLC is not a law firm. Still, I gave the man the benefit of the doubt and politely informed him that I was not an attorney, but he could tell me more. He asked what did I do for a living. I told him that I was a Investment Advisor and Financial Planner. Then, his pitch suddenly shifted to well, "we do not have a Financial Planner in our exclusive territory, so you would be eligible." I also told him that I would consider this for my investment advisory firm, Marian Financial Services, Inc. I agreed to an appointment to hear what they have to say and honestly, if it was worthwhile, then I might consider it.

The lady showed up late for our appointment, but I did not hold that against her. She came in with her presentation book and a sample of the advertisement. In my 28 plus years of experience, I have been through way too many sales training programs, most of which are abject failures. I always joke to my wife that if I wanted an easy job, then I could go sell CEO's on sales training programs. Most companies are suckers for this kind of training. When sales are down, the sales consultants are like roaches. They are everywhere.

Forgive me. I got off track. Back to my story.

I immediately recognized that she was running on a presentation railroad track and she wasn't about to get off of it. So, I let her go through the motions, but was extremely disturbed that this kind of sales training is still taught by companies. This was something from the 1980's. I was stunned to see this kind of "training" still exists.

Here are some of the things that they teach. Put the product in the customer's hands and let them touch, see and feel it. Follow the presentation script, even when the customer tries to jump ahead. Lie and embellish to no end. Show the logos of other big name companies that they do business with. Repeat the exclusivity of the offer over and over again. Exaggerate the market penetration. Finally, make sure that there are no facts or proof to back up their claims in the pitch book.

I was told that this company did a lot of "checking" on Marian Financial Services, Inc. and they discovered that I was one of the most reputable financial services firms in the area. This is absolutely true, but she knew absolutely nothing about Marian. She said this while reading the logo on my shirt. This was an out and out lie. The appointment setter called me at Rick Johnson Family Office, LLC, not Marian Financial Services, Inc. This lady did not do any checking of who Marian was. She was lying through her teeth. She looked me right in the eye while doing it, too.

Secondarily, she tried to tell me that this advertisement was going to be seen by 20,000 people in an area that I know for a fact has less than 5,000 households and half of those are children.

At the beginning of the conversation, she asked me if I was the decision maker and I told her yes. When she got to the end of her script, I had to ask her a couple of times what the price was for this "wonderful" advertisement. Unfortunately, my question did not fit her script, so she delayed on purpose showing me the price. I must say, this kind of ticked me off. She still had some final sales pitches to deliver, before she showed me the price. After lying to me and ticking me off sticking to this sales script, I had already decided that I was not going to do business with this company. I did not care if the price was $100.

Of course, when she finally showed me the price, it was then that I discovered that there were 20%, 40%, 60%, 80% and 100% market penetration prices. If I wanted a 20% penetration of those "20,000" potential customers, then that would only cost around $2,000. If I wanted 100% market penetration, then it would cost close to $9,000. I would get $1,000 discount! What a joke.

By now, I am thinking that I am wasting my time. I tried to explain to the poor woman that I have a marketing budget and I would have to decide if this "wonderful" advertisement is a better use of my marketing dollars, than radio, newspaper or seminars. I told her that I would give it some thought. At that point, I was scolded by her about being the decision maker. She complained..."but you said you are the decision maker and you would make a decision by the end of my presentation." I told her that I did make a decision to consider it, but on my timetable not hers. Boy oh boy, she did not like that at all. While I had her pissed off, I thought I would go ahead and try and help her from a sales perspective. Probably, a mistake on my part.

I went on to challenge her on her 20,000 potential customer figure. I told her that I know the demographics of the area in question and she was totally wrong about the 20,000. The problem was that the 20,000 figure was in her presentation script. In her mind, if it is in the script, then it has to be true. You see? Here is what is wrong with the sales pitch book. They take it to all areas of town, but the same 20,000 figure is in the pitch book no matter what area of town they are in. Boy did I make her mad when I challenged her over this fact. She started closing her presentation book in a "I am pissed off" manner. Not very professional at all.

I did feel sorry for her, because I know that the sleazy people who prey on ladies like this with promises of making lots of money. These companies are the scum of the earth. In this economy, people are struggling to make ends meet. We do not need these sleazy people preying on others, giving them sales scripts filled with embellishments and encouraging them to lie in order to get the sale.

When she realized that she wasn't going to get the sale, she suddenly sprung on me that she had the authority to extend a special discount on the price. How convenient! Of course, there was a catch. I had to decide by Thursday. Another sales tactic by sleazy home office people. Never make an instant decision about anything. I would never ask someone that I just met to invest money with me without me knowing about who they were and what they need to accomplish. Further, I certainly would not try and sell them and close them in 15 minutes with a pitch book. Sleazy with a capital S is their sales process.

What is amazing to me is these companies do any business at all. This was a situation where the emperor has no clothes. Because of my background in sales and sales training, I could see right through their whole sales pitch. In my opinion, they would be better served to get off the presentation pitch book and try and learn about the business of the person that they were talking to. Most of the time, I was being talked down to and told how great their advertisement product was for me. Yet, they had no knowledge of my business. It was all about the sale.

Recently, I met a man who was retiring soon. After meeting with him, I realized that he had absolutely no idea what he was going to do after a long career. He expressed a lot of interest in technical analysis of investments and brought some charts to my meeting with him. I am a student of technical analysis myself, so I was able to discuss his charts without a problem. However, I realized what I had in front of me. Someone who had no knowledge of what he wanted to do in retirement, except perhaps try and find some part time work. Further, he appeared to be interested in technical analysis.

If I had this advertising firm's training, then I should have showed him a pitch book and tried to close the sale in the first meeting. However, what I saw was someone who needed time to discover what he wanted to do. He appeared to me that he might actually be the kind of person who might want to manage money on his own. If he is following technical analysis, then he is in tune with the movements of markets and believes that technical analysis can help him move in and out of the market. He needs to decide whether or not he wants to manage money himself, or hire a professional. I was not about to pressure him to make a decision in 15 minutes.

At Marian Financial Services, Inc., we do not try and close clients in 15 minutes, especially if we may not be a fit. We want clients who are committed to our firm and our philosophy. This kind of thinking does not fit in a sales pitch book. It does however fit into serving the best interests of the client. Sometimes it means we do not get the client. That is how we approach new customers. We focus on what is best for them.

Our clients value professional money management, visual financial planning and elder care planning, because we offer expertise and assistance that they cannot find elsewhere. More importantly, we do not use a pitch book.

United States of America, Divided States of America?

My mom is a life long Democrat and Bill Clinton fan. She was invited to one of his inaugurations and proudly displays his invitation on her wall. My mom lives in Arkansas and that is where I am from, too.

A long time ago, at then Governor Bill Clinton's 31st birthday, I was the sole bartender at his private birthday party, put on by his staff. One of then Governor Clinton's State Police officers used to come into the bar that I worked at when I was 21 years old. He is the one who put me in as the bartender at that private event.

I can remember how tall he was compared to me back then and also what he drank. He only had one drink that night and it was a gin and tonic. I was real shy back then and unfortunately, I guess I am still shy even today. We didn't talk much back then, the Governor and I. It is not that I was in awe of him or anything. It was more my treatment of popular people. I have always looked at popular people as just like anyone else, except they are popular and have taken steps to achieve what they have achieved. I have never been one to ask for autographs or have my picture taken with any celebrities. In my mind, these popular people would like a break from that kind of stuff, so I left him alone.

During this private party, when he came to the bar to order a drink, it was because he was taking a break from the festivities. He didn't appear to like all the attention, as strange as that sounds. He came to the bar to get away from the attention. Of course, that is totally opposite of the former President today.

When Bill Clinton won the presidency the first time, as an Arkansan, we were all proud of him, regardless whether or not we would admit it in public. Funny thing back then, no one would ever admit that they voted for Bill Clinton around Little Rock, but he always seem to win. Well, with one exception when he raised the license plate fees. People in Arkansas did not like that and replaced him with Republican Frank White. I truly believe that this taught him a valuable lesson as a politician. He learned that he was the Governor of 100% of the people, not just his supporters. When he was President, he reached across the aisle and worked with Newt Gingrich and the Republicans to get some things done.

Today, I look around and see a lot of vitriolic talk. Are we the United States of America or the Divided States of America? I am not sure how this has happened, but I for one, prefer the United States of America.

I am a Conservative, but I vote for the people that I believe are the best for the job. Some of my friends are Democrats and some are Republicans. The same is true of our clients. I respect people for being Democrats and understand perfectly why they are Democrats.

Firefighters, Policemen, Teachers and others have primarily been Democrats in the past and that is just the way it is. My biological father was the Chief of Police when he died. I am sure he was a Democrat. I am Catholic and historically, Catholics have been Democrats primarily because of their belief in helping others through charitable endeavors. I am not so sure if that is the case today, however.

One of my clients is a firefighter and a great friend of mine. He knows that I am a Conservative, but that doesn't matter to him. I respect him for his political position and certainly do not let that mar our friendship. Why should I?

My mom is still a Democrat today. Do you think I should quit speaking to my mom, because she is a Democrat? How silly that would be.

Not too long ago, we had a choice for a new mayor here in Jacksonville, Florida. Since, I majored in Criminal Justice, I have a keen interest in crime and criminal activities in our town. There is a certain area of town, specifically Northwest Jacksonville that is where a lot of crime takes place. Sadly, it is mostly black on black crime over stupid things like one guy looked at another guys girlfriend and got killed for it.

When the race for mayor came about, we had this young black man named Alvin Brown running for the office. In my mind, even though he was a Democrat, I felt that the city of Jacksonville needed a good role model for the blacks in our city. In addition, this man was more of a bipartisan politician. In other words, he would reach across the aisle to get things done. I voted for him. I know his Chief Financial Officer from my former position as Branch Manager at Charles Schwab. Ronnie Belton is a great guy and is in a tough spot. Poor Ronnie has to be the bad guy and present the budget.

Like other cities, counties and states across the country, the City of Jacksonville has to adhere to a balanced budget. In other words, there needs to be some sacrifices from the police, firefighters and teachers. These groups all thought that the status quo would remain the same with Mayor Brown, but boy were they shocked when their department got their pink slips. You should have heard the whining in the local Times Union newspaper.

The days of one group of people getting everything they want at the expense of taxpayers is over, if what is going on in Jacksonville is any indication. Not only are we going to have to tackle the budgets of our cities, counties and states, we must tackle the issue of our national debt. We simply cannot go forward into the future without some sacrifices from everyone. I understand that no one likes changes being forced upon them, but we need significant changes nevertheless.

People on the far left would say since I am a Conservative, then I must be racist and a bigot. No Conservative racist would ever vote for a black mayor. No Conservative bigot would have ever voted for Bill Clinton. No Conservative bigot would have friends that are policemen, firefighters and teachers. The truth is that I am an American in the United States of America and I want what is best for my city, my county, my state and my country, regardless of the fact that I am a Conservative.

Do not let the vitriol sway your opinion.

We need to be the United States of America, not the Divided States of America. Vote accordingly.

Monday, October 1, 2012

Unintended Consequences of Obama Care

The choice between providing health insurance or paying a fine for employers will have unintended consequences. One of these is that older workers will get passed up for jobs over younger workers. The reason for this is that companies are in business to make profits. When you compare the health insurance cost of a younger person with that of an older person, then you will easily see a huge difference in premiums. As an employer, given the choice of hiring someone young with significantly lower health insurance costs as opposed to hiring an older worker with very high health insurance costs, the choice is easy. The employer will hire the younger workers.

Once this activity begins happening over and over again, then you will probably see lawyers jump into the fray with lawsuits claiming age discrimination. Obama Care really puts employers in a total quandary. These employers will have to make the choice of hiring a younger worker to keep more profits over the risk of not hiring the older worker and lawsuits that will surely follow.

Some employers will just pay the fine and let employees fend for themselves. Once several companies start doing this, then they will all fall in line and do the same. The fine, early on, will be significantly lower than the cost of health insurance. What will happen down the road is that the government will have to raise the fine to match the price of health insurance and index it for age and inflation. I believe that this will cause less people to be hired in the future. If an employer knows it is going to cost him plenty to hire a new employee, then they have to know that the new employee will more than offset the cost. Jobs will become harder and harder to obtain. Even harder than they are now, if you can believe that. I think this will make the unemployment rate artificially high for the future. I doubt that we will see full employment again ever unless Obama Care is repealed.

Another unintended consequence of Obama Care is that some employers will just give everyone a cash payment so they can buy their own health insurance. In order not to discriminate, they will give every employee the same cash payment. Herein lies the problem. If they give the same cash payment to every employee, both young and old, then the older workers will again get the short end of the stick. The distribution of an equal cash payment, which would be taxable by the way, would also cause the potential of age discrimination lawsuits. Attorneys would jump on this as age discrimination.

Employers are in a tough spot in regard to cash payments. What if the employer does decide to give some kind of graded scale cash payment to employees based on age? Is this going to be bracketed? If so, then what age brackets are appropriate? What precedent is there for a graded scale cash payment? How much should each age bracket receive as a cash payment? What if the employer decides on a graded scale cash payment, but because of the rising costs of health care and health insurance, it is simply not enough. Will older employees decide to sue for underpayment?

All of these are tough questions for employers who will soon have to deal with these issues. If you are an employer, you had better hire an attorney to help you make these decisions in regard to paying your employees a cash payment. Otherwise, you will risk age discrimination lawsuits.

Another unintended consequence of Obama Care is that people who are going to be hit with the individual mandate will likely not file their taxes on time. There will be droves and droves of people who put off filing their taxes, because they do not want to pay the individual mandate fine. In addition, they may delay filing their taxes at all for a year or more. People do this now without Obama Care. We cannot be naive enough to think that people will suddenly become obedient and file their tax returns, knowing they will be fined.

Consider a younger person in their late 20's that is a landscape assistant for a small employer. They have to buy their own health insurance, because of Obama Care, but fail to do so. They thought they could pay the fine at the tax return filing deadline, but they fail to do so because they lost their job. They are not going to take any savings that they need to survive the job loss and give it to the IRS to pay for the individual mandate or buy health insurance with it for that matter. They will wait until they are in a better position to buy health insurance and file their taxes later. These people will eventually have to pay, but with added penalties and interest from the IRS. This scenario will without a doubt hurt the middle class, which is another unintended consequence of Obama Care.

American employers have always focused on making profits. I do not believe that will ever change, because if they do not make profits, then they are out of business. What will they do? They will seek out loopholes or work arounds. They will look for possible solutions to these issues. I doubt that they will fall in line and comply.

I would be really surprised if the Obama Care in place today survives five years from now. The employers and employees of America will get out their pitch forks and demand change. This is the Hope and Change that we need.

Do not forget to vote!

Tuesday, September 11, 2012

It Will Not Happen to Me

When I was a senior in High School, I did not think that my father would die of a heart ailment at the age of 39. When I had my first son, I did not think he would die three months later of Sudden Infant Death Syndrome. My wife and I could not believe that we had not one, not two, but three miscarriages. I never fathomed that my little brother would get killed in a car accident. Nor, did I ever imagine that my best friend would be murdered and my adoptive father, the only father that I ever knew would die in the same week. It all happened like it or not.

How does someone respond to such tragedies? Each person responds differently. As I grew older, I reached out to my aunts for pictures and stories about my father that I never knew. I met my other brother, Jon and my two sisters Tami and Kelly. We all shared something in common, albeit a tragedy.

When my son Reese was born, my wife and I had dreams not unlike any other parent for our newborn. Those dreams were shattered when Reese died. My wife and I stumbled into a group of bereaved parents that met ever so often. We ended up leading the group for a time. Every parent in there had lost their child, or in some cases children. I remember one lady who lost three boys in a fire. When I heard her story, I quit feeling sorry for myself. There is always someone worse off than you.

Once Reese died, we decided to try to have another child and we were blessed with our son Marshall. He is truly an amazing son. I am so proud of him.

My brother David lived on the same street as me. He had the best yard in the neighborhood. Hunting was his passion and he was a big boxing fan. Anytime there was a boxing match on television, he would have everyone over at his house to watch it. In 1978, he bought a Emerald Green Camaro. Over the years, he tinkered around with it and added some glass packs. Whenever he drove up our street, I always knew it was him. After he died, that Camaro sat in my mom's driveway for years. She could not bear to part with it. However, when my son Marshall turned 16 years old, I offered my mom a dollar for the Camaro. Her eyes lit up knowing that David's Camaro would stay in the family. Marshall and I worked on it for a time and brought it back to life. It still needs some work, but it is a beautiful car.

After the third miscarriage, my wife and I watched a little movie called "Rudy." We decided right then and there that we were not going to give up. Our child was going to be named Rudy if it was a boy and Rudi if it was a girl. We were blessed with our daughter Rudi. God takes care of you even in the most difficult circumstances. Rudi is proof positive of that fact.

My best friend, Mike Rowland was murdered when he was 39. His poor mother had already lost her daughter to a murder. She never imagined that she would lose a daughter and a son to murder. I still exchange Christmas cards with his mom. After Mike's death for a few years, we had a Circle of Friends golf tournament to raise money for the Arkansas Deaf and Blind School which was where his murdered sister Kelly went to school. Mike Rowland was the greatest. You will probably find at least a dozen other guys who will say that he was their best friend, too.

Recently, I read a book entitled Divine Alignment. It is a book about God's plan for us and something the author referred to as Godwinks. Godwinks are little things that happen that make you think of how God is working in your life. Little affirmations that he is there or your lost love ones are there watching out for you.

The other morning, I was milling around in my closet. I have a box of hats up on a high shelf in the closet. For some reason, I dropped the box and all the hats fell out. I quickly gathered all the hats and put them back in the box. I threw the box up on the high shelf, but it fell again and hats went everywhere. Once again, I piled them all back into the box and this time made sure that the box made the shelf. As I looked down on the floor, there was one hat laying there. It was a Michael Rowland Circle of Friends golf hat. I picked it up, smiled thinking of my friend and put it on the shelf by itself.

Later that day, my wife called me and told me that I got a card from Mike Rowland's mom saying she had moved to Dallas near her daughter. What are the odds, I thought to myself?

Later that night, a friend of mine called me from Arkansas. He was having a beer with a friend of Mike Rowland's. He handed the phone to the guy and we chatted for a moment. I told him that I had just received a card from Mike's mom that very day.

One of Mike's favorite sayings was "he was having a hay day" which meant he was having fun. I think on this day, he was having a hay day messing with me! Certainly, a Godwink in my direction.

My dad, Hillman died of cancer at the age of 57, the same week as Mike. I went to two funerals that week. Hillman was the funniest guy you would ever meet. He had all kinds of quips and sayings. When people would ask how he was doing he would say that he was "hitting the ground in high places and looking down on everyone else." This is what he is doing now in heaven. I know, because he accepted Jesus on the last weekend of his life. I witnessed it.

Last year, I did several seminars with people who had concerns about health issues as they aged or had loved ones with health issues. The smart ones came to see me and my attorney friend, R. Kellen Bryant. We were able to help several families with some much needed Elder Care Planning.

Sadly, most of the people that came to our seminars had the attitude that "It will not happen to me." These people simply did not want to face reality, or they thought that they could do better with another attorney or another financial advisor. I know for a fact some of them went to other financial advisers. Of course, if another financial advisor can shoot you down, then they will do it. The problem is that the families still needed the help that we offered. Their financial advisor had no clue about Elder Care Planning and Veteran's Benefits. In the aftermath, these families did not get the help that they so desperately needed. Their assets will evaporate as a result.

Another couple went to two different attorneys for a second and yet a third opinion. The third attorney told them to "go back and talk to Kellen Bryant. He was the best in town." This couple had been sold all kinds of garbage in their portfolio. Annuities and other loaded commission products, yet moving their accounts to me to help them out of the clutches of an unethical advisor was not in the cards.

When I interact with people like this, I often wonder what are they really searching for? Is it the cheapest financial advisor? The Right Financial Adviser was standing right in front of them, if they could have only noticed. The reason they did not notice was because their focus was on material things, instead of being focused on what truly matters.

Something that I know from experience is that it can happen to you. Will you do business with someone who has been there, understands what it means to lose a son, a brother, a best friend or a father, or will you settle for the cheapest financial advisor? Will you still be focused on material things that will not make you happy? Will you go with the financial advisor who is a smooth talker, takes your head off in commissions and puts you in products that are not liquid? For your sake, I truly hope not.

Perhaps, the next time you meet me in person, you can share some of your stories. I am a good listener, because it has happened to me.

Our firm tag line is... The Right Answer. The Right Financial Adviser. Think about those stories above, then you will know why.

Friday, September 7, 2012

Recessions Compared Historically

One of the blogs that I follow is the Calculated Risk Blog. This graph really tells the story of how this recession compares to prior recessions.

Do you see the problem? Look how quickly historically, we were able to recover from prior recessionary periods. The current jobs recession that we are in is the worst in history.

Policy decisions impact this chart more than anything, or the lack thereof. Since the 2008 election, pretty much nothing has been accomplished to add jobs to this economy by the President or Congress.

I believe what bothers most Americans is this fact that nothing is being done. The Democrats say it is the Republicans fault and the Republicans say it is the President and the Democrats fault. I say they are all guilty. These people are playing chicken with the economy by letting it languish as they have done for the last four years.

This November, it is more important than ever that you go cast your votes for what you believe to be the best candidates for the monumental task at hand. We have to turn this around. It starts by exercising your right to vote. Be smart and make the correct decision in the voting booth for the people you believe will accomplish the task of getting our economy going strongly in the right direction.

Thursday, September 6, 2012

Why College Tuition Does Not Go Down

Have you ever wondered why tuition at colleges and universities does not ever seem to go down? There is a reason for it. The reason is the availability of student loans. At first glance, having money readily available for student loans appears to be a good thing. However, once you peel back the onion, then you will discover it is actually a bad thing.

When you think critically about this issue, then that is when you have the "ah ha!" moment. If you are a college and you know that anyone that wants to attend your institution can get a student loan, then why would you ever have to worry about competition from other colleges and universities? Now, I understand that there is some competition, but with a guaranteed pool of money flowing into the college from student loans, this minimizes the competitive effect.

From the college's perspective, why would you ever have to lower your tuition, if you know that there is an ever increasing pool of funds to keep your tuition high? Why should there be any accountability to your teachers and professors? Their poor performance does not matter. They will get paid no matter whether they are a good teacher or a bad teacher, because of the flow of student loan money.

Those of you who attended college will recall your own experiences. I am sure that you, like me, had teachers who simply did not care about how you performed in their class. They were just going through the motions, sometimes not even showing up for their class. These teachers could care less whether you passed their course. There was no scrutiny for their performance and because of readily available student loans, they never had to worry about getting paid.

I recall one Economics teacher who made me so mad, that I actually complained to the Dean of the department about him. When the course began, I went to him and asked him if it would be helpful to buy the study guide and CD that were companions to his text book. He told me "Absolutely. Feel free to purchase them," he said.

As the first test of the semester approached in his class, I studied my tail off because I wanted to make an "A" in this class. When I sat down for the test, I looked at the questions and realized that this test had no relationship whatsoever to the chapters we were told to study in our textbook. Come to find out, the teacher used a different textbook than the one he told us to study. What? Are you kidding me? I am studying chapters 1 through 5 in one textbook and he is giving us a test on chapters 1 through 5 in another text book. I was incensed. Why didn't this idiot for a teacher tell us to use the other text book? His answer was..."economics is all the same no matter what text book you study." Yes, you idiot, but if the subject matter on the test is not the same material as the subject matter in the book then that is an unfair advantage for students.

I was so incensed over this idiot, I wrote to the Dean complaining. Of course, not a response from the Dean. No accountability whatsoever. I took four courses that semester and I made three "A's" and a "B" in the Economics class. If I had the right text book, I am certain that I would have made an "A" in Economics. However, this idiot for a teacher eliminated any opportunity that I had at that achievement by pulling the switcheroo with the text books. As you can see, I am still ticked off about it many years later. Teachers like these have no accountability, no fear of losing their jobs and simply do not care how well their students perform. The easy availability of student loans is a major contributor to these problems.

There is starting to be some cracks in the armor of these colleges and universities. Parents and students alike are rethinking this student loan fiasco. Smarter parents are sending their kids to community colleges for the first two years, then on to the big name college the final two years. This saves a lot of money in tuition.

Other parents, who have the ability, are paying as you go, instead of defaulting to getting a student loan. Why saddle your kid with all that debt? It simply is not worth it.

Life insurance policies are being used in unique and novel ways to pay for college. There are a few whole life insurance policies out there that have special 100% cash riders on them. They work in this manner. The whole life insurance is applied for on a parent and the death benefit covers the risk of a premature death and having the funds available for college. The 100% cash rider is added to the whole life policy where parents can dump in money that can be withdrawn at any time for college expenses. The whole life policy with the 100% cash rider acts as the parent's own student loan pool. The parent is in effect borrowing from themselves and paying themselves back. These policies work for any kind of debt, but are especially appealing for college education expenses.

We will not see any real changes in tuition at colleges and universities until the student loan funds dry up. Colleges and universities can raise tuition year after year as long as the student loan money keeps flowing. Perhaps, it is time for parents to rethink this madness. Perhaps, it is time for a different plan of attack.

Perhaps, it is time to see a Certified Financial Planner®.

Wednesday, August 22, 2012

The Three Villains

Who are The Three Villains? Banks, Wall Street firms and insurance companies. Why? Because they do not care about anything but making revenue off of your money. Do not be fooled into believing anything otherwise.

Often as part of our services to new clients, we run an analysis on their existing investments. If I know that they do business with one of The Three Villains, I can almost predict what they are going to hold in their portfolios. Typically, they will own things on my Do Not Buy List. (Search this blog for my Do Not Buy List.) Things like UIT's that pay 2.95% commission. Things like variable annuities with guaranteed withdrawal benefits. Variable annuities with 10 year or sometimes longer surrender charges that pay 6 - 10% in commissions. Let us not forget Non-Publicly Traded REIT's (Real Estate Investment Trusts) that pay around 8 or 9% in commissions. Of course, last but not least, the Class A share Mutual Funds that pay as much as 5.75% in commissions.

I can literally close my eyes and write those four investments (don't make me laugh) down on a piece of paper and I would be able to check off at least three of these every time someone does business with one of The Three Villains. Usually, I can guess which of the four investments they own, by virture of which one of The Three Villains that they have their accounts with.

By the way, approximately 85% of every investor out there does business with one of The Three Villains. Yes, that means there is an 85% chance that you are a victim of The Three Villains.

It all boils down to one thing that guarantees that the deck is stacked against the average investor. Any registered representative that works for one of these Three Villains has to produce enough revenue to keep their jobs. In other words, they have a Quota to hit. If they do not hit their Quota, then they can be fired. These Quotas can be as much as $250,000 to $300,000 per year! This means that these registered representatives need to produce that much in commissions and fees for their Villain firm each and every year!

Now, ask yourself this question. How does my advisor, who works for one of The Three Villains, look out for my best interests? Do not tell me that your advisor is different. The truth is, like or not, that your advisor, who works for one of The Three Villians is most likely raking you over the coals.

Another critical point.

The liquidity factor is very important, in my opinion. Why do you want to invest in something that is not liquid? In this economic environment, that would be foolish. Let me repeat that. In this economic environment, that would be foolish. Three of the four investments mentioned above are illiquid, have penalties for early withdrawals, or have surrender charges.

Can it get even worse?

Sadly, it can. The typical variable annuity today is sold with roughly 2.6% in expenses and charges. Then, when you add on multiple guaranteed-withdrawal and guaranteed-stepped-up death benefit riders, you are adding probably another 1 or 2% on top of that. I routinely analyze variable annuities with these riders and in almost all cases, the expenses are north of 4% and closer to 5%. It is easy to make money when you are paying out 4 or 5% in expenses, isn't it? (I am being facetious.) Why in the world do you want to keep a variable annuity that is going to cost you 4 or 5% each year?

Think about this fact. If you give them your money and they charge you the laughing low figure of 4% in expenses and invest that for 20 years, the odds are they might be able to give you a guaranteed-withdrawal benefit of 5%. They are doing it WITH YOUR MONEY!!!

By the way, do not tell me that the reason you will stick with your variable annuity is because of the guaranteed-withdrawal benefits. Insurance companies are under pressure and some of them are writing their clients asking to be let go of those guranteed obligations in exchange for cash. I would not count on your guarantees, if I were you.

Non-Publicly Traded REIT's are built like Ponzi schemes. They take your money then generally, take a big chunk off the top for management and commissions. Then, they pay you back your capital as a "income stream". What a joke. You cannot sell these investments once you buy them for anything close to what you put in. Typically, you have to wait 10 years or more to even have a chance at getting some of your money back. Lots of times, the failing Non-Publicly Traded REIT's are rolled up into another REIT and you had no idea that this could even happen. I have seen people who thought they were going to get an 8% dividend, suddenly find after a roll up that their dividend is cut in half. Would that make you mad? Mad enough to want your money back? Sorry, you have to wait 10 years or more to hope and I do mean hope that you might get 80% of it back.

You are probably thinking that your advisor would not do that to you. Think again. They have that Quota, remember? If your advisor is like most, the only thing he or she really knows about a Non-Publicly Traded REIT is that it pays him 8.5% commissions. They do not know all the bad stuff I just described.

Mutual funds are okay, aren't they?

Sorry to disappoint you, but after your advisor makes his cut of your 5.75% commission, then you have ongoing 12(b)-1 expenses and management fees that can be north of 1% per year. I have seen instances where registered reps have made their 5.75% commission, then months later come back to you and put you in an assets-under-management account for 1.5% a year. So, now, you have paid the 5.75%, you are paying 1% plus in fund management fees, then on top of that, you are paying your advisor 1.5% a year. So, after two years, you may have paid 8.25% or more to be with your advisor.

Is this picture getting any clearer for you? I hope so.

Unfortunately, 85% of the people walking around out there are getting advice from The Three Villains.

You can stop the madness. Here is how. We can run an analysis on your investments to show you the truth. Feel free to contact me if you are in FL, IN, KY or TX. I can prove it to you.


Tuesday, July 10, 2012

A Lick and a Promise Audit

Peregrine Financial Group, the holding firm for PFGBest is alleged to have used their customer's segregated funds which is a big no-no. It has only been nine months or so since MF Global allegedly also used their customer's segregated funds. Apparently, PFGBest had been showing more than $200,000,000 in a segregated account to regulators via allegedly fabricated bank statements. Early word is that they may had only had about $5,000,000 while claiming to have more than $200,000,000.

Do you actually mean that the regulators went in to audit this firm and accepted dubious paperwork as "proof of funds"? Are you stinking kidding me? It doesn't take a smart person to figure out that this is not an audit of any kind. An audit means that you go to the clearing firms and the banks in question and ask for audited proof of funds in those accounts that matches exactly what the futures firm is claiming. Apparently, the 70 or so futures firms that were "audited" (don't make me laugh) were given this type of audit after the MF Global fiasco. The emperor has no clothes now. Their lick and a promise audit was a joke. Who are these regulators? They need to be fired. They are incompetent.

As the great coach Vince Lombardi once said, "What the hell is going on around here?"

The regulators tried to alleviate everyone's fears after the MF Global fiasco by sending out their regulators to audit roughly 70 futures firms. If these 70 firms were audited this way by these regulators, then we have no idea whether these futures firm have properly segregated their customer's funds.

Bernie Madoff, when audited, simply gave the regulators made up statements that they accepted as authentic. Apparently, the regulators in charge of auditing these 70 futures firms did the exact same thing. They took the firms word for it. This is no audit.

Sadly, more employees are probably going to be out of work as a result of this fiasco.

Now, you will hear cries for insurance to protect customers and the need for more regulation. I promise you. We do not need any more of this kind of regulation. The entire industry has already proved without a shadow of a doubt that they only held the 70 firm audit to satisfy the cries of MF Global customers. Think about this from an ethical standpoint for a minute. These regulators are the ones in charge of protecting customers. They performed lick and a promise audits to satisfy their critics. However, they now have egg on their face. They have proved without a shadow of a doubt that they were just going through the motions. Is this ethical behavior? I for one do not think so.

Heads need to roll over this.

Be careful out there.

Thursday, June 28, 2012

States Win Interesting Powers in ACA

The highly anticipated Supreme Court decision regarding the Affordable Care Act has come down as a split decision. The individual mandate is upheld not under the Commerce Clause but as a tax. By 2016, the tax will be 2.5% of gross income. So, for a household income of $150,000, you can expect to pay $3,750 if you go without health insurance. This figure is less than the cost of today's health insurance for a family of four. However, what about a single person working in Silicon Valley? If they are young, single, and make $150,000 a year, plus do not feel the need for health insurance, then they will be required to pay a tax of $3,750. The question becomes whether this $3,750 can be levied or not, because the tax cannot be more than the cost of insurance in the zip code where this person resides. For example, if the average health insurance cost in this person's zip code is $2,400, then the tax is limited to this $2,400 amount. I have a question. Who is going to figure this out for every person in America? I presume the IRS.

The second part of the decision that was struck down was that the States risk losing 100% of their Federal funds for Medicaid. The Supreme Court held that this clause was unconstitutional and termed it was like "holding a gun to the head" of the states to comply. This brings up a very interesting predicament. What if a state says that they do not want to expand Medicaid to allow those under 133% of the poverty level to obtain Medicaid coverage? What is the potential effect of this? It would seem that it would keep the status quo as it is now. These people would continue to go to the Emergency Room for their minor illnesses and continue to clog up the system.

Also, how would "everyone" obtain health insurance coverage if these people, those under 133% of the poverty level were in a state that refused to expand Medicaid to cover them? This certainly presents an interesting dilemma.

Other factors of this Affordable Care Act are some taxes that go into effect, because of it. There is a 3.8% tax on capital gains. If the current tax rates are allowed to expire at the end of this year, then the capital gains rate will climb at the highest level to 43.4%. It is 20% today.

An interesting quote from the opinion was this one. "But the Court does not express any opinion on the wisdom of the Affordable Care Act. Under the Constitution, that judgment is reserved to the people."

Perhaps the most telling quote in the decision is this one, however. "It is not our job to protect the people from the consequences of their political choices."

The voters voted for their elected officials and the ACA is the result of those voters decisions. Look on the bright side. Voters can choose a new direction this November.

Tuesday, June 26, 2012

ERISA Fee Disclosure Rule Fails Smell Test

Everyone was waiting with bated breath over the Department of Labor fiduciary ruling that came down recently. I for one actually thought the tide might have been turning against Wall Street firms and insurance companies, but boy was I wrong. I was foolish to believe that the Department of Labor was going to level the playing field in the retirement plan area when it came to fee disclosure. This just didn't happen.

I recall when I was the Branch Manager II for Charles Schwab in Jacksonville, (almost 8 years ago now) we had a retirement plan guy come in to speak to my team about their retirement plan services. The spill was the usual non-speak..."we are the best and to hell with all the rest." However, I wasn't quite convinced. So, I began to question the young fellow as to how much the fees were inside their 401k plan that they wanted us to sell. He replied that "there was no fee to the plan participants." I knew this was not true because of revenue sharing offered by mutual funds. You see, mutual funds have 12(b)-1 fees which they use to pay firms to market their funds. In the retirement plan arena, fees have long been hidden from participants, but make no mistake they exist.

Typically, the sales pitch is made to the employer that "you can save on your administration costs by taking the revenue sharing from the mutual fund 12(b)-1 fees as an offset." So, when that young man was telling me that there was no fee to the plan participants, what he really meant is that he could reduce or eliminate the fees to administer the retirement plan by utilizing the 12(b)-1 revenue. The plan participants would never see any fees and the employer could possibly not have to pay any administration fees. It was a win-win situation for both.

Fast forward to the recent ruling by the Department of Labor on fiduciaries and fee disclosure. Retirement plan advisers who charge fees will have to disclose their fees to plan participants and employers. However, if you can believe this, 12(b)-1 fees can continue to be hidden from view! Wall Street firms and insurance companies win again!

As a result of this ruling, it will be business as usual for Wall Street firms and insurance companies who use 12(b)-1 revenue sharing arrangements to sell their retirement plans to employers. What has changed for them? Absolutely nothing.

However, retirement plan advisers who charge fees will now have to disclose their fees in writing, while the Wall Street firms and insurance companies do not have to disclose their 12(b)-1 fees. Are you getting this picture? Wall Street firms and insurance companies want to squash their fee based competitors and it looks like they have succeeded.

If this is any indication of the power and influence that these groups have over registered investment advisers, then I shudder to think how the SEC will come down with their interpretation of fiduciary rules. In my mind, this is proof that nothing will change for Wall Street firms and insurance companies. It is likely that registered investment advisers will be subject to more onerous rules, costs and requirements. The goal of course is to squash the competition. Sadly, the competition, registered investment advisers, are the best choice for retirement plans, in my opinion, yet they will not appear that way to employers and participants.

Thursday, June 7, 2012

Testing Investor Discipline

The last six weeks has been a nail biter for a lot of people in regards to the overall stock markets. We started May 1st with $140.74 closing price on the S&P 500 SPDR ETF (ticker symbol SPY). Barely a month later, on June 4th, the SPY was down to $128.10. That is almost a 9% drop in about 30 days. If you go back another month to April 1st, then you are looking at a 10% drop in price for the SPY. They say that a 10% drop in price signals a bear market.

I can tell from my technical analysis charts that I follow that there were several investors who threw in the towel the first few days of June. Sadly, those that did would have pretty much picked the low point for the year. This is typical investor behavior. They sell when their fear gauge goes up.

Those investors who stayed the course would have been rewarded, because the last three days the SPY has climbed back from $128.10 to over $133.00 a share. That is a 4% bounce back from the low and that 4% gain happened in just three days. Did you stay the course?

As I describe in my book, Keep Your Assets. Take My Advice, investors tend to look at the high point for the year as a measuring stick. In other words, they would look at their account as of the April 1 or May 1 price of around $141 and surmise that they are down 6% on SPY, since SPY is trading at $133 or so today. However, they would be totally wrong. The first day of the year, the SPY opened at $127.76. So, even though an investor would "feel" as if they had lost money and were down 6%, the truth is that they would actually be up on the year! They would be up over 4% on the year!

Think about all that is going on right now with Greece, Spain, unemployment, political contests and loads of other uncertainty. Yet, through it all, the SPY is up over 4% on the year. Can you imagine what the market may do when there are good times ahead? Suppose the SCOTUS over turns Obama's Health Care legislation. Suppose we not only get a new POTUS, but also a major change in the do-nothing Congress. This is what appears to me to be headed our way. If some or all of this happens, then I suspect the investors will be well rewarded for staying the course.

I will admit that the month of May was pretty much a downhill slide, but you cannot invest in America without being willing to take some ups and downs in the market. I can empathize with the fact that 2008 is still very vivid in a lot of investors minds. However, the solution to investing cannot be to jump in and out of the market every time that your fear gauge goes up.

You have to be brave to be rewarded.

Wednesday, May 30, 2012

Are you having any fun?

The television is full of negatives these days. Greece, Spain and the rest of Europe are struggling to figure out how they can calm their markets. The US markets seems to have a knee jerk reaction to every bit of news out of Europe. Sometimes you have to step back and take a different view of things.

Can you or I really control what is going on in Europe? Can we control what is going on in the US markets? No, so why worry about it? Jesus taught us how foolish it is to worry. He said look at the birds in the sky. God takes care of them and he will take care of you also. There is no need to worry.

Can we control what we watch on television? Yes we can. Think about this. If the Dow Jones goes up 100 points or down a 100 points should that really make you happy or sad? Where are your priorities if your happiness, (or sadness for that matter) is dictated by what happens to the Dow Jones Industrial Average?

If this sounds like you, then you need to step out and have some fun. What is it that you really like to do? Is it walking, volunteering, teaching or mentoring others, spending time with your kids or grand kids? Whatever it is, then go do it and that is an order!

In my case, my stress release is baseball. As crazy as it seems, I am turning 56 this year and I play baseball. For me, it is a great outlet to have some fun. This Memorial Day Weekend, I drove 6 hours to Atlanta to play baseball with some baseball buddies from Savannah, GA. Who do you know that drives 6 hours to play baseball?

The Savannah guys were kind enough to allow me to play with them, when I have not done so in the past on this particular team. One of my friends, threw me right into the frying pan by telling the coach that I was a lead off hitter and left fielder. When the line up card came out, I was playing left field and batting lead off. In case you do not know, batting lead off is a very key position in baseball. You are the one that has to start the game off with a bang. Your teammates are depending on you to get a hit, lay down a bunt or do whatever it takes to get on base. In my case, I had the added pressure of performing for my friends sake. I could not let him down, so I didn't.

In the four games that we played, I had a triple, three doubles and three singles, plus I got on base two other times. I hit .467 with a .600 on base percentage, scored several runs and had a few RBI's. Two of my hits were close to going out of the park. (I need more muscles!) I had seven hits in four games which ended up being one of the most hits on the team. Not bad for an old guy. Now that is how you have some fun!

Life is short. Go have some fun and quit living your life watching television.

Wednesday, May 9, 2012

Visual Financial Planning?

Wouldn't it be nice to visualize all the important financial aspects of your life? With our firm, that is entirely possible.

Let's face the facts. No one wants to look at 73 pages of financial jargon that is hard to get your arms around. Instead, it makes a lot more sense if you could truly visualize your financial plan.

Here is a quick snapshot video (4:53) of the Visual Financial Planning offered by yours truly.

Thanks for watching.

Friday, April 20, 2012

The Gravy Train Looks Like it Will Continue

It is beginning to look like Wall Street is going to win the battle over a fiduciary standard. Registered Investment Adviser firms like ours have always been subject to a fiduciary standard. It is the Banks, Wall Street firms and Insurance companies who have not been subject to the fiduciary standard.

For those of you who do not know, a fiduciary standard of care is one where the adviser must put the interests of the client ahead of their own. Banks, Wall St. firms and Insurance companies have been subject to a much more lax standard called suitability. This basically means if they think it suits you at the time of sale, then that is all that is required. It doesn't matter if it has a 10% commission and 10 years of surrender charges as long as it is suitable for you.

Banks, Wall Street firms and Insurance companies control most of the power and influence in Washington, primarily because they generate a tremendous amount of revenue from selling products to consumers. Registered Investment Advisers or RIA's as we are known, sell advice, not products. The problem with RIA's is that we are all independent people with independent ideas. There is no one association or group that represents us.

There is a consortium of organizations grouped under the name of the Financial Planning Coalition that would like me to believe that they represent me. However, this is simply not true. This group consists of the CFP Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors. The CFP Board regulates CFP's. The Financial Planning Association is an organization that includes CFP's, but also ChFC's and other professionals who hold themselves out as financial planners, but are not necessarily CFP's. The NAPFA is a very small organization of Fee Only advisers who have a requirement that their members are purely fee only and sell no commission based products. NAPFA is the best of the three by far.

Of these three groups, the CFP Board only has say over CFP's. There are a ton of individuals out there calling themselves financial planners, but who are under no supervision at all. I have seen numerous cases of insurance agents and bank employees who say they do financial planning, but are not registered to do so. Somebody needs to regulate ANYONE who claims to be a financial planner or who holds themselves out as a financial planner or claims to provide financial planning services. Sadly, the runaway train of bogus financial planners keeps right on rolling down the tracks.

The CFP Board is made up of CFP's who work at guess where? Banks, Wall Street firms and Insurance companies. A very small percentage are independent Registered Investment Advisers with absolutely no employment affiliation with any Bank, Wall Street firm or Insurance company. It does not take a smart person to figure out that if the primary revenue source comes from the financial advisors affiliated with these behemoth firms, then that in all likelihood is where their loyalty will lie. I have been a CFP for almost 20 years and they have yet to prove otherwise to me.

The Financial Planning Association is comprised of a similar makeup of professionals. Most all of them have employment affiliations with Banks, Wall Street firms or Insurance companies. Very few are independent Registered Investment Advisers. Again, it does not take a smart person to figure out where their loyalty lies, either.

The NAPFA is a very select and small group of professionals. The last time that I read about them, they had less than 3,000 members nationwide. I believe that the CFP Board and the FPA have close to 30,000 each. Although NAPFA is a good organization, their sheer lack of numbers probably minimizes their influence in Washington.

This Financial Planning Coalition is up against two major Wall Street organizations in SIFMA (Securities Industry and Financial Markets Association) and FINRA (Financial Industry Regulatory Authority). Both of these organizations want FINRA to oversee Registered Investment Advisers as the regulator of choice.

Somehow when most of the fraud and deceit in the financial services arena comes from Banks, Wall Street firms and Insurance companies, these powerful organizations have managed to turn the tide in their favor and portray RIA's as the enemy in Washington. When the reverse is actually true.

If you get nothing else in this article, understand this point. Registered Investment Advisers are subject to a fiduciary standard already and have been for a long time. Banks, Wall Street firms and Insurance companies have been subject to a suitability standard for also a long time. However, the Dodd-Frank legislation mandated that all financial advisers be subject to the fiduciary standard. The problem is that you cannot sell products and sell products from inventory and meet the legal definition of a fiduciary. As a result, Banks, Wall Street firms and Insurance companies are scrambling to re-write the definition of a fiduciary so it allows them to keep selling their products. In other words, they want the status quo. In addition, they want to gain control of Registered Investment Advisers. We are not the problem (RIA's.) The Banks, Wall Street firms and Insurance companies are the problem. They are the ones selling consumers all these high revenue, high commission, and no liquidity products. They do not want their gravy trains to end. Consequentially, they are lobbying hard to change the legal definition of a fiduciary and gain compliance supervision over Registered Investment Advisers.

It is all about money, power and more importantly control. They want control of the competition which are RIA's. Once they gain control, then they can exert burdensome compliance rules that make the cost of being a Registered Investment Adviser much more expensive. This is the end game in my opinion.

Unfortunately, as a group, Registered Investment Advisers are left to rely on the ethical morals of the people in Washington to protect us. Fat chance that will happen. Sadly, RIA's are the ones that are in the best position to protect consumers. If FINRA ends up in control of RIA's and succeeds in changing the definition of a fiduciary, then consumers will be the ones who lose.

As with everything else in life, we will adapt and move forward. However, it does not mean we will like it. As a consumer of financial services, you had better be very wary of anyone who is affiliated with a Bank, Wall Street firm or Insurance company. They are out to sell products and make as money as possible from consumers. Damn be the consequences.


Tuesday, March 20, 2012

Should You Pay the Taxes and Liquidate Your IRA?

As I describe in my book, Keep Your Assets. Take My Advice. It is Easier to Climb Out of a Shallow Hole, there is a way to pay the taxes on an IRA at a lower cost when used in conjunction with a Home Equity Line of Credit or an existing Life Insurance Policy with enough cash values. You are probably thinking...Huh?

Here is how it works:

I like to keep it simple, or as the late, great Steve Jobs said:

Simplicity is the ultimate sophistication.

Suppose we have a $100,000 IRA. If we either convert it to a Roth IRA or just plain cashed it in, then we would likely owe taxes of $25,000 or more. However, let's keep it simple and assume $25,000 is our tax bill for this transaction.

What are some of the ways that we could pay this $25,000 tax bill?

  1. We could pull the $100,000 out of the IRA and just put it in a bank account and write a check from the proceeds for $25,000. This would net us $75,000 and our cost would be a simple 25%. You're not fired up about this idea, are you? Neither am I.
  2. Or, we could convert the $100,000 IRA to a Roth IRA and pay the taxes from the Roth IRA. You can always pull your cost basis out of a Roth IRA. Since, we just put $100,000 into it, we can pull out $25,000 as part of our cost basis contribution and pay the taxes. However, we would be in the same boat as number one above. We would owe $25,000 or 25% in taxes. Okay, Rick...when are you going to get to the point?
  3. Instead of numbers one or two above, we could take advantage of a Home Equity Line of Credit and leverage these funds to pay our taxes at a lower rate. You borrow the $25,000 to pay the taxes at an Interest Only Rate of say 4%. The $100,000 that you pulled out of your IRA is either now in an Investment Account or a Roth IRA. Either way, it grows for the next 5 years at a rate of at least 4.564%. At the end of 5 years, the $100,000 has grown into $125,000. (My trusty HP12c Platinum Calculator says so!) We take a withdrawal of $25,000 and pay off the Interest Only Loan. What did it cost us to do this?
    1. It cost us 4% interest on $25,000 spread out over 5 years, or a total of $5,000. So, to get our $100,000 IRA out of IRA status and either turn it into an investment or a Roth IRA, we paid 5% total on the $100,000 IRA withdrawal. Is 5% spread out over 5 years better than $25,000 or 25%? You bet it is.
    2. How easy would the decision to cash in your IRA be if you knew you could do it at 5%?
  4. Another alternative is if you have an existing Life Insurance Contract with loanable values of more than $25,000. Most Whole Life and Universal Life policies allow you to borrow money from the policies at either a net 2% or even a net 0% rate. So, what you do is borrow the $25,000 to pay the taxes from the Life Insurance policy. Pay an interest only amount back into the policy for 5 years, like $1,000 a year. (Okay. I know what you are thinking. Why don't I just pay it at the 2% rate or $500? Because you are cheating yourself. That's why.) Then, at the end of 5 years, after your formerly $100,000 IRA has grown either as an investment or as a Roth IRA, then you take a withdrawal and pay back your Life Insurance Policy. The difference using this approach is that instead of the bank keeping the $1,000 in interest, you have paid it into the Life Insurance policy and depending on the policy you have, you may have actually paid yourself interest.
    1. Wait a minute. If you paid yourself back the $1,000 a year for 5 years and you had a zero net cost loan rate on your Life Insurance policy, then what did that cost you? Now you are thinking! Instead of costing you 5% to cash in the $100,000 IRA, it cost you 0%!!
    2. The truth is that there is some minute costs related to how much your insurance policy is crediting your $1,000 that you are paying back in interest, but it is still a great way to leverage money that you already have to make your IRA into a Non-IRA or better yet, a Roth IRA that grows tax-deferred with tax free withdrawals.
There are some life insurance policies that are structured to do this exact scenario, but I cannot tell you unless you come see me. Their lawyers would kill me if I named the companies without their legal approval. Keep in mind that it may be easier to do this with a Home Equity Line of Credit, because not everyone has over $25,000 laying around inside the cash values of their Life Insurance policies.

Of course, each strategy described here should not be done on your own without fully understanding the entire consequences. Further, I would be able to show you the real numbers and how this all works being the Certified Financial Planner® extraordinaire that I am.

The thing to realize is that any money in an IRA account is taxable when it comes out. If you let your IRA continue to grow, then your tax liability also continues to compound. So, the sooner you can eliminate your IRA by paying the taxes with leveraged money, then the better off you will be.

These strategies take careful planning and analysis and should not be done on your own. If you need help, or want to see how this would work in your situation, then give me a call at 904-547-2913.

Later my friends.

Monday, March 12, 2012

My New Re-Affiliation with the Paladin Registry

I have been a member of the National Ethics Association and its predecessor since 2006. However, I think that I am going to let my membership go by the wayside. In these last 6 years, I can honestly say that not one single person has ever even mentioned that fact that I was a member. Nor, has anyone said that they primarily came to be my client because of my affiliation with the National Ethics Association. Therefore, I am going to let my membership in this organization expire.

I have recently re-joined the Paladin Registry which I think will be more beneficial. The Paladin Registry is located at They help investors find pre-screened financial advisors. Even though the Paladin Registry costs more for me to affiliate with than the National Ethics Association, I think it will be more worthwhile in the long run. Potential clients can check my background via the Paladin Registry and make an evaluation before they call me. This is a smart thing to do by the way.

It is easy to find me by just typing in my office zip code 32259 in the Find a Local Advisor box at Then, you can click...Read more about Richard.

Tell you friends about me. Thanks.

Friday, February 10, 2012

It is Tough to Compete Against Unethical Advisors

I do not mind competition, but when the competition is flaunting the laws of Florida, then I have a problem with them. I always like to look up the background of people who use the term "Financial Planner" on their web site. Especially, when I know that they are an insurance agent.

Here is a news flash. An insurance agent, who is not securities licensed with a broker-dealer or who is not licensed with a registered investment adviser, cannot advise people to sell their investments and buy annuities.

In addition, insurance agents cannot hold themselves out to the public as a "Financial Planner" unless they are registered with a registered investment adviser firm. There are some exemptions to this rule, but trust me, insurance agents cannot promote themselves as a "Financial Planner" without being affliated with a registered investment adviser.

There is an insurance agent that I heard about that is working with seniors no less, who gives advice on qualifying for Veteran's Aid & Attendance Benefits and Medicaid. He has no securities licenses, thus he cannot advise clients to sell any securities whatsoever. Plus, he is not an attorney.

In a nutshell, his advice is to sell all your investments out of the senior's name and transfer the money to their adult children. Once it is transferred to their adult children, then he will sell them annuities. By doing this, he claims to have helped them qualify for government benefits. There are so many pitfalls to this advice that I would love to go into more detail about, but for purposes of this blog, let us stick to the unethical nature of the advice.

Not only is this insurance agent flaunting the securities laws of the State of Florida, they are also putting themselves on a slippery slope as it pertains to the Unauthorized Practice of Law. Recommending clients to implement asset transfers to qualify for government benefits without the advice of an Elder Care Attorney is tantamount to Unauthorized Practice of Law in my mind.

This particular insurance agent also mentions on their web site that their career started as a CPA. The implication of course is that this insurance agent is also a CPA. A quick license check on the Florida Department of Business & Professional Regulation web site shows no record as a CPA.

Not only is this insurance agent violating securities laws advising clients to sell their securities to buy his annuities. In addition, he is holding himself out as a Financial Planner which is also a securities violation. Further, he is dancing around the Unauthorized Practice of Law issue with his questionable advice that happens to be the same for everyone he meets. Last but not least, he is implying that he is a CPA when he is not. Yet, people still do business with unethical advisors like this insurance agent.

If you do business with anyone in the financial services business, including myself, you need to know their background. More importantly, you should know whether the advice that they are dispensing is ethical and legal.

Be careful out there.

Tuesday, January 10, 2012

New Office Phone Number

Apparently, the FCC doesn't like it when you move from one county to another, even if it is only down the street. As a result, I now have a new Office Phone Number. Please make a note of my new Office Phone Number:

(904) 547-2913.

If you are in the area, (see prior post) be sure and drop by.


Rick Johnson

Friday, January 6, 2012

New Home Office Address

I recently moved to a new office. Please make a note of our new home office address.

Marian Financial Services, Inc.
1637 Racetrack Road, Suite 136
St. Johns, FL 32259

Our phone number has also changed effective January 9th. An update on our new phone number will follow.


Rick Johnson