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.

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.

http://www.youtube.com/embed/19m0Q_CsuWs

Thanks for watching.

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.

RJ

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.