The Why Matters

When we understand why people do things, we have the capacity to change life for the better at its very roots.

This weekend I was read and came across the above quote in Joan Chittister’s book. Made me realize that so much of what I have been doing for decades is to work to have people understand why they handle money the way they do.

The why demonstrates the how to make positive changes. Everyone’s financial changes are different. Some need better organization. Some need to spend less. Some need to spend more.

Change comes when they began to understand their behavior better.

So start asking yourself the “Why” of what you are doing around money.

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Thinking of Going Green: An Environmental, Social and Governance Checklist

Environmental, Social and Governance (ESG) investing is not new. This proactive investing has been around for decades. Often going by the name of Social Responsible Investing (SRI) has evolved and matured. WIth its maturity has come a host of press and headlines. This has also led to much confusion. Many mutual funds and investment companies announcing ESG investing, though they may leave much to desire in practice.

What is one to do?

Here is a quick list to consider when you are looking for an ESG investment:

1.       Understand your own investing priorities.  What issues matter most to you?  What do you absolutely not want to invest in? Don’t invest until you are clear on these personal choices.

2.       Take the time to ask questions and dig deeper before you place your money with a mutual fund or an investment manager.  You can learn the depth of their commitment beyond the gloss of the latest ESG terms and investment returns.  Taking the time to learn more will align your investments with your goals.

3.     Seek out tried and true investment companies with a mission in place.  The companies that have been in the SRI space for the past twenty years have weathered the market swings, the negative press and kept at their ESG mission.  They have the knowledge, expertise and understanding of personal preferences to hold your money to a higher standard, whether you are investing your first thousand in a mutual fund or a million a purely ESG firm. 

Trust a Trust? Understand Your Trust

Like a will, a trust needs to be updated when a life situation changes.  A recent problem came across my desk. Tom, a client,  was left a trust after his parents died.  They had drawn up the trust in the 1950’s, when he was a child. The trust stipulated that the trustees could decide if the child, who is a beneficiary, could take out more than the income it was creating each year.  This was to preserve the trust and protect a young person from having too much money on his own.

The parents died twenty years ago and the money had remained in this trust.  He was grateful to have the added annual income the trust provided and never asked the trustees for more. He thought that is the way it had to be always. He came to me as he was getting ready to retire and wanted to create a plan.  He also wanted to help his children buy houses and pay off his home.  He is still tied to the trustees’ decision-making process. This provision is silly for a grown man or woman who has managed their own money all their life.

So think about a simple life change: update your legal documents. Whether your children have grown up, the needs for a trust have changed, you have remarried, or the laws have changed, these critical documents need to be reviewed every five years if not sooner.  Be sure and spend the time, energy and money to update the documents as appropriate. 

And for those adult children out there: talk to your loved ones.  Your parents may have had good intentions when you were a child.  Now, you may want to remind them to update their own estate planning documents - after you update your own.  This will be for their peace of mind and your ability to use the intended money for what you see fit.

With coaching from me, Tom wrote a letter to the trustees making a request for the money to pay off his mortgage.  With the mortgage paid off and a better understanding of the trustee role, he requested the balance of $35,000 to be paid to him so he could help his children with housing.  He was a happy retiree and grateful he sought out advice.  The end of the trust meant all the money intended for him was in his hands and he trusted himself with money more than a large institution that did not know him.

What is Financial Therapy?

Recently, two different people come into my office. Even when they have similar questions and assets, their answers may be different because finances are personalized. Money decisions must match our understanding and emotions, as well as solid financial principles. There is never only one standard answer.

One just got a job offer.  Marie is delighted that the new company wants her.  She has felt underappreciated in her current company despite having been there for years. The company has been having many financial problems as of late and she has survived many layoffs.

She has the education to figure out the financial details. She cannot make this decision alone. Her anxiety about leaving and making change even for a better salary is preventing her from thinking clearly. She knows it so asks for help.

The second person just got an inheritance. One hundred thousand dollars is the most that he has seen in his life. Yet, as soon as the topic of money comes up – his stress level rises, and his voice is almost shouting:  “How do I know what to do?”

So far, he has been talking about the extreme approach:  put nothing in the stock market and buy insurance. He needs a financial education to understand the implication of each possible decision.

What is the common denominator in these stories? Fear.  Fear of doing the wrong thing.   Fear of making a mistake and regretting it. What appears as indecision is a lack of confidence and information because they think there is only one right answer.

Taking the time to talk through decisions financially and emotionally, along with laying out multiple options is helpful to everyone. When the fear diminishes, the financial decision making can begin.

Financial Therapy cannot solve all the problems of the financial world, but it does make for happier and informed clients. With more understanding of themselves,  they make better decisions and are prepared to consider all the options. They understand their past behavior with money and how to address their fears.

This process takes a little bit longer and the questions have to be different. Yet, for those willing to look at all sides of money behavior, they become more contented savers, investors, and spenders. The goal of financial therapy is to

Do You Know Where Your Money Is?

In casual conversation, someone told me that they were great with their investments because they had someone they trust at a big firm taking care of all that. I said terrific, how is it invested?  The look they gave me was the look most people do, confusion, misunderstanding and discomfort.  If I already knew what big company it was at, doesn’t that mean I know where and how it is invested? 

If someone I loved was in Mercy Hospital, that would tell you one thing. But if you wanted to know more because you were close to your loved one, you would ask who the doctor is and what they were doing to them and what the diagnosis was.  Yet, an established financial firm seems to be the cover for many financial questions. 

There is so much more.  You want to keep your money close to you and understand where it is invested or saved. You are the only one responsible, no matter who is managing the money for you. You have given them the power to manage it, but still your job is to be sure they are doing what you want. You want to communicate your needs and goals. Then, be sure they educate you and communicate with on how they are working towards your wants: where the money is invested, how risky it is and how much they are charging you to make all this happen.

Then, you will truly know and can state that your investments are doing well. The details demonstrate the truth of your money, the investment company name does not speak to your individual situation.

Fiduciary

Certified Financial Planners must abide by the fiduciary standard.  Not all financial advisors do.  What is it?  What does it mean?

Terminology: “Fiduciary.”

One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. A CFP® professional must at all times act as a fiduciary when providing Financial Advice to a Client, and therefore, act in the best interest of the Client. In this regard a CFP® professional must:

Duty of Loyalty:

1. Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm;

2. Seek to avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict;

3. Act without regard to the financial or other interests of the CFP® professional, the CFP® Professional’s Firm, or any individual or entity other than the Client, which means that a CFP® professional acting under a Conflict of Interest continues to have a duty to act in the best interest of the Client and place the Client’s interest above the CFP® professional’s.

Duty of Care:

A CFP® professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances.

Duty to Follow Client Instructions:

A CFP® professional must comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client

In honor of Jane Bryant Quinn

Jane Bryant Quinn has been a personal financial journalist I have admired and respected over the years. This month she has retired. I thought I would share some of the resources she recommends as a tribute to the woman who has meant so much to me:

Here are links to free resources that Jane Bryant Quinn has found to be helpful:

• Social Security Administration - Frequently Asked Questions https://faq.ssa.gov/en-US/

• Medicare https://www.medicare.gov/

• IRS - Information about saving for retirement in an Individual Retirement Account (IRA)

• Answers to basic IRA questions, https://www.irahelp.com/faqs.php

  1. IRA contributions and withdrawals https://www.irs.gov/pub/irs-pdf/p590a.pdf

• Bankrate.com - Directory of high-rate certificates of deposit (CDs) https://www.bankrate.com/cd.aspx 

• Securities & Exchange Commission - Investment Adviser Public Disclosure (for checking the background of a broker or financial adviser) https://www.adviserinfo.sec.gov/

• FINRA - Information about investing and avoiding fraud, from the securities industry’s regulatory body  http://www.finra.org/investors

• NASAA - Contact information for your state’s securities regulator http://www.nasaa.org/about-us/contact-us/contact-your-regulator/

• NAIC - Contact information for your state’s insurance commissioner https://www.naic.org/state_web_map.htm

• 529 College Savings Plans - Directory of inexpensive plans that help families save for higher education https://www.savingforcollege.com/

Have You Checked Your Estate Plan? Details Matter...

The teller handed me the paperwork and I left the bank with a smile.  Mission accomplished.  I was taking care of the details in life.

I felt great.  I was at the bank to set some money aside in a certificate of deposit.  They had a special interest rate.  The term was just about the time I would be buying a new car so this was a great opportunity for me. 

I had withdrawn funds right from my checking account to open the cd. So I was thinking it was more a transfer. Then, I signed the prepared paperwork and headed home.

Here is the thing.  None of us are perfect.  And certainly I include myself in that fact.  So it was not until an hour later when I was telling my husband what I did, that I pulled out the paperwork to look more closely.  The cd was opened in my name.  My name alone.  Oops!  That was wrong for two reasons.

First, no one but me could access it if I was to get injured, die or disabled and needed the money.  This was not a good plan for the realities of life which I discuss often.

Second and most important, if I did die, this money would go through probate court, delaying my estate settlement.  I can hear someone now saying: “Who cares? You will be dead.”  But I do care.  You see, my husband and I spent money and time making sure our estate plan and the documents were in order.  All of our bank accounts were either in joint name or the name of our irrevocable trusts.  Now, there was one outlier and I had caused the issue.  This Certified Financial Planner had goofed.  I signed documents without thinking it through and confirming the title of the new certificate of deposit.  I saw my name and signed.  I had also made an assumption that the new account would be in the same title since I just transferred the money in.  I know better.

Verify. Verify.  Verify.  I tell clients to do this every day.  And yet, here I was.  Luckily, I had done this mid-day and the bank was still open and I called. Ellen, the teller, was very helpful when I explained the name on the account was incorrect.  She offered to redo the paperwork and call me later in the day to sign it. 

I knew she had the trust documents – so important if a bank or investment company is to put your assets in a trust name.  So at least, I knew it could be simple from there.  Or so I thought. 

Remember, the bank consolidations that have been going on and on over the years since the Great Recession?  Well, this bank had merged five years or so ago.  So now, I got a call from Ellen, telling me the paperwork would take a few days because the system had to be updated at many stages to open the cd on every level.  I almost said I would take the money out and put it in my other bank!  But that was the impatient me speaking.  The part that also was mad at herself for doing wrong.  So I told her to keep me posted. 

That was Friday.  This is Monday.  My task is still not checked off as done.  I’m deflated but grateful to have this opportunity to remind you that if you have an estate plan, be sure you have all your financial business aligned with the estate plan.  If you do not have an estate plan with documents drawn up by a lawyer, get on it.  Sometimes we can all stray, just when we think we are on track. 

A Trip to the Actual Bank Anyone?

Is Your Credit Report Information Breached? Follow These Steps:

What do we need to know about Equifax?

On September 7, 2017, Equifax, one of the largest credit reporting agencies in the US, announced a massive data breach.  The breach had gone on from May thru July of this year.  Personal information of 143 million persons was stolen from Equifax, including 240,000 Vermonters.

Why does it matter?

The pirated data included names, social security numbers, birth dates, addresses, and, in some cases, driver's license numbers.  This is information that could be used to open accounts or file fraudulent tax returns in victims' names.

What can we do?
Everybody –

Step One   Equifax.com

Check if you are affected   Equifaxat www.Equifax.com

The call center is available at 866-447-7559

For more information and backgroundwww.equifaxsecurity2017.com

Those affected-  Enroll in the free Equifax Identity Theft Protection and Credit File Monitoring Services 

Why Fiduciary Responsibility Matters To You.....

After years of debate and refinement, a Department of Labor ruling was signed last year and ready to go for April 1st.  This ruling was to expand  the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA) – the rules governing all retirement plans and the investment advisors to the plans. On February 3, 2017, President Trump signed a Presidential Memorandum directing the Department of Labor to examine the Fiduciary Duty Rule, delaying the implementation.

The delay is set to be released as of June 9th.  At least that is how it looks today. 

What does the ruling mean to you? This ruling would mean that all retirement advisors would have to act by Impartial Conducts Standards, which is: providing best interests advice, for reasonable compensation, and make no misleading statements. 

I hear you…What do you mean? They are not acting on my behalf now?  Maybe.  Depending who is advising you.  Here is the low-down:

·         Registered investment advisors regulated by the Securities and Exchange Commission or state securities regulators are already held to a fiduciary standard of conduct under which they must act in their clients' best interests.

·         Securities brokers, however, are regulated by the Financial Industry Regulatory Authority under a "suitability" standard. The investments they recommend must be suitable for investors, but they are not required by law to act in their clients' best interests.

·         Certified Financial Planners, CFPtm   have been required to maintain this fiduciary standard since 2007.

So because every advisor follows different rules, depending who you talk to, the regulation is either long-overdue or going to cause all sorts of expenses and problems. Proponents of the fiduciary rule believe it is needed to protect retirement savers from conflicted advice and reign in high commissions and kickbacks in sales of retirement products.  The naysayers say the problems will include more expensive litigation and will limit retirement options.

Knowing who your investment advisor works for and what standards they follow is critical.  And knowing that as the ruling stands, this fiduciary standard requirement will only apply to retirement advising.  Your money outside of retirement may still be advised by the suitability standard.  This leaves you needing to ask lots of questions of your advisor so that you know not only the investment, the fees and the rules they follow.

If you like the small print and want to read here : http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=28806

What is the bottom line on Fiduciary Responsibility? Whatever company the professional represents, you want to be sure they have your best interests in mind. If the advisor has fiduciary responsibility legally, there will be no conflict of interest when working with you.

Ask the question.  Maybe even get the answer in writing to protect yourself and your financial interests no matter how many times the ruling gets delayed.  You want to know that the advice you are getting is in the “best interest” for you.

College is Coming: How do you help your College Senior?

Here is a great article on college and how to help your child before they are committed to a school.  Help them understand their financial decisions.

The important thing is to start this conversation early - like freshman year in high school for they are saving and preparing for the responsibilities of college.  In my role as college instructor, I see too many graduating Seniors not ready to take on their financial loans because they do not know even how much they have.  

http://www.reuters.com/article/us-money-education-college-idUSKCN0XM1EZ

April 15th is Tax Day...Breathe and Relax...Or Not?

Today is April 15th.  Well known in our country for tax day.  By now, your taxes are done and you are relaxed.  However, if they are not done, this year you have a weekend extension.  Due a Washington DC holiday which falls on Saturday, you have until Monday April 18th to file.  So those procrastinators out there get a couple of extra days.

What if you have filed?  Should you rest and relax?  Not yet!  Studies show that the average tax payer takes 16 hours to gather information before income tax forms can be prepared.  So while the time and energy you used to get organized is still in your mind, set aside two or three hours this weekend.

Then, use this time to review your filing system and checkbook to see where you can simplify for next year.  You may want to start by gathering your tax deductible information from January 1st to March 31st of this year.  Then consider these tips:

Use one checkbook and one credit card for all tax deductible expenses.  These include real estate taxes, medical expenses and charitable deductions.  Then, when time comes to total the numbers from 2016, everything is in one place.

Make all your charitable donations in a designated month, say November.  Gather all solicitations and requests in a folder and review at that time.  No more wondering if you already gave, your donations are recorded and predictable.  Knowing how much you have to give and giving it all at once, assures you have a plan and are more conscious in your giving.

Set up a financial filing system.  You want to do this in hard copy and on your computer to make it easier to access the information when you need it next year.  No need to recreate the wheel each time.  When tax documents show up, you want to have a designated place to put them.  No more digging or calling for copies of documents misplaced.

Time is money.  Take the time now to save money and even more time in the long run.

Happy Spring! 

Financial Myths: The Car Lease

Just found this article on-line regarding buy versus lease a vehicle.  This has lots of great information. The steps at the end to calculate the cost of leasing against buying I found a bit difficult to follow.  But even if you do not want to run the numbers, review the comments as they have more good information.

http://www.boston.com/cars/news-and-reviews/2016/02/14/buy-lease-the-math-make-the-call/8A30TNLK43oyPq4hMYHTjI/story.html?p1=story_hp#comments

Financial Myths: Your 401k Loan

The financial myth around 401k loans is purely based on emotions and not facts.  Yes, sounds good if you are going to take a loan I hear, "May as well take it from yourself."  Yourself being your 401k.

However, what employees miss is that the money in your 401k is pre-tax money.  When you pay the loan back, you use after tax money.  So you have paid taxes on that money already and will pay taxes again when you withdraw the money in retirement.   

So before you calculate in the potential growth of investments or the downside risk of not being able to pay the loan back, consider simply the tax issue.  A loan is a loan.  But who and where you take it from matters.  

Listen to the numbers not your co-worker.  Even if the new fun car is calling.....