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“And because most of us regard ourselves as ethical and competent, we often fail to understand how widespread and harmful advisers’ conflicts of interests can be.” – Jason Zweig, The Wall Street Journal

This is why it is important to work with an independent, fee-only investment adviser. This type of adviser avoids conflicts of interest by ONLY being compensated by his/her clients. This topic is discussed in the podcast below:

Click here to listen.

Don’t have time to listen? Here’s the Reader’s Digest version:

  • Most people start thinking about hiring a financial professional when they’re approaching retirement. But the lack of a uniform code of conduct among financial professionals allows many glorified salespeople to legally pose as trusted advisors. This episode explains how different kinds of financial advisors work and earn their living–and why these differences matter.
  • Guest pre-retiree Patty starts with the story of a personal finance class she attended with her husband at her local college. The “instructor” was an insurance salesperson who used the class to try to sell them annuities as the solution to their retirement income challenges.
  • Guest Lynne Egan,  the Deputy Securities Commissioner for the state of Montana, attended a similar class and confirms that these “trolling sessions” are both common and legal. It’s the job of investors to understand the differences between a glorified investment salesperson and a fiduciary financial advisors who is committed to acting in your best interests.
  • Guest Phyllis Borzi, former assistant secretary of the Department of Labor during the Obama administration, worked tirelessly to introduce legislation that would have required all advisors to act as fiduciaries. Her efforts were legally thwarted by industry opposition. As a result, there are no uniform standards of care among financial advisors.
  • Registered representatives, or brokers, earn commissions selling products, and only need to meet the “suitability standard,” which means that as long as a product they recommend generally aligns with an investor’s risk tolerance and investment objective, the broker can recommend the product that pays them the highest commission. Investors who want to work with an advisor who puts their needs first need to to ask many qualifying questions, starting with, “Are you a fiduciary?”
  • Legally, investment advisers are required to serve as fiduciaries, which they fulfill, in part, by being paid directly by clients and receiving no commissions for managing their investments. But many investment advisers are also brokers, and can still receive commissions for selling certain products, such as insurance.  Investors who want to hire “100% fiduciaries” should limit their choices to independent, fee-only investment advisers who are not also brokers. Investors should also require the advisor to sign an industry standard fiduciary oath.

 

As you move through different stages of life, you will face new and unique financial situations. Did you just get engaged? Perhaps you are wondering how you and your partner are going to manage your money together. Do you have children? Maybe you are looking for ways to pay for their college education.

When you navigate through these various life events, you might seek professional guidance to help you make sound financial choices.

1. Getting married

Getting married is an exciting time in one’s life, but it also brings about many challenges. One challenge that you and your spouse will face is how to merge your finances. Careful planning and communication are important, since the financial decisions you make now can have a lasting impact on your future.

You’ll want to discuss your financial goals and determine which are most important to both of you. You should also prepare a budget to make sure you are spending less than you earn. Other issues to consider as a couple include combining financial accounts, integrating insurance coverage, and increasing retirement plan contributions.

2. Buying a home

Buying a home can be stressful, especially for first-time homebuyers. Since most people finance their home purchases, buying a house usually means getting a mortgage. As a result, you’ll need to determine how large a mortgage you can afford by taking into account your gross monthly income, housing expenses, and long-term debt.

And if you haven’t already done so, you’ll need to save for a down payment. Traditionally, lenders have required a 20% down payment on the purchase of a home, however many lenders now offer loans with lower down payments.

3. Starting a family

Starting a family is an important — and expensive — commitment. As your family grows, you will likely need to reassess and make changes to your budget. Many of your living expenses will increase (e.g., grocery, health-care, and housing costs). In addition, you’ll need to account for new expenses such as child care and building a college fund.

Having a family also means you should review your insurance coverage needs. Life insurance can help protect your family from financial uncertainty if you die, while disability insurance will help replace your income if you become injured or sick.

4. Paying for college

Paying for college is a major financial undertaking and usually involves a combination of strategies to help cover costs — savings, financial aid, income during the college years, and potentially other creative cost-cutting measures. Hopefully, you’ve been saving money on a regular basis to amass a healthy sum when your child is ready for college. But as college costs continue to rise each year, what you’ve saved may not be enough.

For this reason, many families supplement their savings at college time with federal or college financial aid. Federal aid can include student and parent loans (need-based and non-need-based), grants and work-study (both need-based), while college aid consists primarily of grants and scholarships (need-based and merit-based). In fact, college grants and scholarships can make up a significant portion of the college funding puzzle, so exploring the availability of college aid is probably the single biggest thing you can do after saving regularly to optimize your bottom line. In addition to financial aid, you might take out a private college loan or borrow against your home equity. Or you might pay college expenses using your current income or other savings or investments.

5. Saving for retirement

You know that saving for retirement is important. However, sometimes it’s easy to delay saving while you’re still young and retirement seems too far off in the future. Proper planning is important, and the sooner you get started, the easier it will be to meet your retirement income needs. Depending on your desired retirement lifestyle, experts suggest that you may need 80% to 100% of your pre-retirement income to maintain your standard of living. However, this is only a general guideline. To determine your specific needs, you’ll need to estimate all your potential sources of retirement income and retirement expenses, taking taxes and inflation into account.

Once you’ve estimated how much money you’ll need for retirement, your next goal is to save that amount. Employer-sponsored retirement plans like 401(k)s and 403(b)s are powerful savings tools because you can make pre-tax contributions (reducing your current taxable income), and any investment earnings grow tax deferred until withdrawn, when they are taxed as ordinary income. You may be able to enhance your savings even more if your employer matches contributions. IRAs also offer tax-deferred growth of earnings.

Broadridge Investor Communication Solutions, Inc. Copyright 2019

Photo by Drew Hays

Brian is excited to be teaching a new course at Colorado Mountain College this fall:

For more information or to sign up, please visit the CMC website and type “retirement” in the Search box.

Brian recently spoke with KMTS’s Gabe Chenoweth about the class he teaches at Colorado Mountain College. You can listen to the interview here.

Brian will be teaching his next class, Retirement Income Planning, on September 25th. You can learn more about the class by clicking on this link and typing “retirement” into the Search field.

Saving enough to fund 30+ years of retirement can be tough, especially when there are lots of other demands on your cash flow. Here are some tips that can help you build the nest egg you need:

  • Minimize the fees you pay on mutual funds and/or ETFs you hold within your accounts. Consider using Vanguard mutual funds and ETFs to achieve this objective.
  • Make catch-up contributions (currently $6,000) if you’re age 50+.
  • Contribute at least the minimum amount needed to get full matching contributions from your employer.
  • As account contribution limits increase over time, increase the amount you sock away.
  • Don’t get divorced. Getting divorced may subject your retirement plan balance to a QDRO (Qualified Domestic Relations Order). A QDRO can decimate your retirement savings.
  • Pay your federal taxes on time and in full. Otherwise, Uncle Sam could start withdrawing the amounts you owe him from your retirement accounts.
  • Work for your employer until their contributions to your account vest. At that point, you’ll own them and be able to withdraw them from your account.
  • Hire a qualified professional (like a CFA® charterholder) to manage the investments within your retirement plan accounts. New software programs allow portfolio management pros to manage virtually any type of retirement account on your behalf.
  • Ensure you’re taking the right amount of risk in your retirement accounts. See the previous bullet on CFA® charterholders.

 

Brian Littlejohn, MBA, CFP®, CFA is a fee-only financial advisor serving clients in Glenwood Springs, CO and beyond. His firm, Sherwood Investment Management, provides investment management, retirement planning, and comprehensive financial planning to help clients organize, grow, and protect their assets. Sherwood Investment Management is completely independent, acts as a fiduciary for its clients at all times, and never accepts commissions of any kind.

Read Brian’s article on retirement planning here.

Brian will be teaching a retirement planning seminar at Colorado Mountain College (CMC) in Glenwood Springs on April 23rd from 6:30-9:30pm.


 
For more information or to sign up, please visit the CMC website.

On April 1st, Brian participated in a financial advisor panel held at Pitkin County Library in Aspen, CO. A transcript of Brian’s remarks can be found below.

MODERATOR: How long have you been in the business?

BRIAN: I’ve been a financial advisor for the past 12 years. I started out working at a wealth management firm down the road in Boulder. Before that, I was an Air Force officer for 8 years.

MODERATOR: Why did you choose line of this business?

BRIAN: This line of business exists at the intersection of two of my favorite pursuits: helping people and personal finance.

MODERATOR: What are your credentials?

BRIAN: I have two Master’s Degrees in Finance and have earned both the CFP (Certified Financial Planner) and CFA (Chartered Financial Analyst) designations. The first designation is pretty much self-explanatory, but the latter designation, the CFA, pertains to possessing a certain level of expertise in investment management.  

MODERATOR: Do you have a minimum account size?

BRIAN: Nothing that’s carved in stone, but it’s generally about $500,000 in investable assets.

MODERATOR: Do you act as a fiduciary for your clients?

BRIAN: Yes and at all times. Only about 10% of financial advisors can say that. In my experience, that’s a figure that the investing public is really surprised to hear. Most mistakenly believe that all advisors have to act in their clients’ best interests at all times. 

MODERATOR: How do you stand out from the competition?

BRIAN: My firm is completely independent; I’m not attached to, employed by, or affiliated with a larger financial institution somewhere else. Why is that important? It means I’m not pushing their products and services on clients in order to satisfy a corporate boss in Miami or NYC. My bosses are my clients and no one else. Additionally, I act as a fiduciary at all times for my clients, not just when I’m providing certain services. As we mentioned previously, that sets me apart from about 90% of the other advisors out there. Lastly, I specialize in retirement planning. I currently teach the subject as an adjunct professor at two different universities. 

MODERATOR: Are financial advisors worth it?

BRIAN: That’s kind of like asking, “Are cars reliable?” They definitely can be. If they’re a competent advisor with a steadfast moral compass, I would say that they become more and more worth it as a client’s or family’s financial situation increases in complexity.

MODERATOR: What services do your provide your clients?

BRIAN: The two major services I provide are financial planning and investment management. Those two services, when combined and provided on an ongoing basis, are usually termed wealth management. I provide all three services.  

MODERATOR: Tell us about your investment philosophy and how you get paid.

BRIAN: I adhere to the notion that financial markets in advanced economies are largely efficient. Therefore, I typically employ passive investing strategies by using tax-efficient, low-cost index funds in client accounts. Where financial markets are less efficient, I’m more apt to use active investing strategies.

I only get paid in two ways: either hourly fees for financial planning or a percentage of the assets I manage for investment management and wealth management. I do not sell financial products nor do I receive commissions for putting my clients in certain financial products. My goal isn’t just to find products and services that are suitable for my clients, it’s to find the best products and services for them.

 

 

Monday, April 1, 2019 – 12:00pm

A panel of four Financial Planners will illustrate how different or similar their services are. If you have been wanting to get financial advice but felt you did not have the knowledge or the wealth or the guts, this panel is for you! Come and ask your questions! No fooling…

Before investing in any crypto-related offering, consider…

(1) the three “U’s” (untraceable, uninsured, unregulated),

(2) the substantial volatility and liquidity risks, and

(3) the very real potential for fraud.

This NASAA video highlights that, unlike deposits made to a bank account, deposits into a digital wallet for cryptocurrency transactions are uninsured in case of adverse events such as fraud or insolvency. Cryptocurrencies are often traded on unregulated digital platforms lacking consumer protections. Buyer beware!

Photo credit: André McKenzie