Teachers: Who is Managing Your 403(b)?

teachers 403b

With autumn just around the corner, many teachers have returned to their classrooms. The end-of-summer teacher ritual of decorating, stapling and contacting parents has made its return. I know from personal experience, though, that teachers would be wise to use any spare time to investigate their retirement accounts and determine whether their money is being deployed as effectively as possible.

My mom was a public school teacher and single mother. You can imagine how slim her finances were. Still, she managed to save up some money despite her paltry salary. After a while, however, she found out that the managers of her 403(b) plan were not investing her money as effectively as they should have been. A lot of her savings were tied up in a high-cost annuity that could have been invested in much cheaper options. These people, who were employed by the county to help her money grow, were actually eroding her savings. (For related reading, see: Do You Need to Change Your Financial Advisor?)

Digging Deeper Into Your Retirement Account

My mom’s experience is what drove me to operate as an independent, fee-only, fiduciary advisor. Those words mean that a fiduciary will never do to clients what my mother’s managers did to her—we are legally obligated to act only in clients’ best interests. Most schools will offer a 403(b) plan for teachers. However, as with the custodians of my mom’s savings, these plans can often be managed by a third party, non-fiduciary advisor who may not act in clients’ best interests. Non-fiduciary advisors are held only to a suitability standard, which means that they are obligated only to make investments that are suitable for you.

These advisors can buy investment products that are the best for their own pockets, not yours. In fact, the Indexed Annuity Leadership Council is one of the many groups suing the Department of Labor over its new fiduciary rule. Additionally, several big insurance companies are projected to see reduced earnings as a result of a predicted decrease in annuity sales when the fiduciary rule takes effect. (For related reading, see: The Conflicts of Interest Around 401(k)s.)

By contrast, fee-only, fiduciary advisors make only the investments that are the most suitable. We aren’t looking for efficiencies or working for sales commissions on the products we recommend to you. Fiduciaries strive to provide the best advice to investors looking to build a strong foundation, like teachers. These advisors grow with you, not at your expense by profiting off the products assembled for you.

Teachers, we encourage you to spend some time finding out more about the practices of your retirement fund manager. It’s vital to find out whether they are a fiduciary, how they make money (fee-based or fee-only), and how personalized their investment strategy is.

READ MORE: Comedian John Oliver recently did a segment on the subject of retirement planning that addresses this. You can check out our 4 quick takeaways from the monologue.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

How to Cut Back on Spending Like a Billionaire

How to Cut Spending

Even the richest few people in the world maintain some financially cautious habits. Warren Buffett (who, by our math, is worth more than all of the NFL’s teams combined) famously still lives in the same Omaha house he bought for $31,500 in 1958. Many of the world’s wealthiest don’t indulge in extravagance, even with billions at their disposal (and when they do, it’s not always a happy ending.)

While this ranges in degrees of neuroticism from simply wanting to give most of the fortune to charity to an Indian tech mogul monitoring employees to track toilet paper usage and make sure they shut off the office lights, wealth is not accumulated by throwing money away. (For related reading, see: The Importance of Personal Finance Knowledge.)

Frugalities of the Rich

While of course most people don’t have $51 billion like Mark Zuckerberg, there are undoubtedly some lessons to extract from the financial behavior of the wealthy. All of them have certain habits where they save money. Dish Network chairman Charlie Ergen packs a brown-bag lunch from home every day and Zuckerberg reportedly drives a Volkswagen hatchback (although this could just be a Peter Gregory-style “Silicon Valley” mannerism).

At the same time, neither of these routines are specific requisites for financial success. But they do indicate the importance of planning expenditures and saving where possible. That’s where a financial advisor can be of help. We don’t believe in telling you to lose your favorite habits. If you enjoy a latte from Starbucks every morning, then by all means you should keep getting that latte. But good financial planning includes understanding trade-offs between keeping things you enjoy and cutting down on things you can live without. (For related reading, see: 6 Questions to Ask a Financial Advisor.)

Planning cash flows goes a long way toward reaching this goal. It is impossible to know how much you need to trim (or have room to grow) without first taking stock of what’s coming in and what’s going out. If your different bank and credit card accounts are the canvas, the actual cash flows are the paint that makes up the picture of overall financial health.

A good financial planner shouldn’t act like a strict parent that never lets their kid eat dessert or play outside. Their goal should be to work with you to understand your financial situation, both in broad strokes and the details of monthly spending. That way, they can help you make decisions about where best to deploy your spending money. This isn’t always easy—sometimes trade-offs have to be made. But when even billionaires are bringing lunch from home, we all owe it to ourselves to thoroughly examine our spending habits. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

The Importance of Personal Finance Knowledge

Financial Knowlege

For years, the Financial Industry Regulatory Authority (FINRA) has tracked American personal finance knowledge through a survey about saving habits and basic financial principles. FINRA recently released the results of its 2015 survey, which includes the fact that only 37% of those who took the survey could answer four of the five questions on a basic financial literacy quiz. Four out of five is FINRA’s baseline for high financial literacy. Back in 2009, 42% of the respondents were considered to meet this level of financial literacy. (If you’re curious, you can take the quiz here.)

We’ve previously written about biases in financial habits and the desolate state of personal finance education in high school and college, and this study re-confirms our suspicions. Way less than half of the American population has a sufficient understanding of the basic ideas necessary for successful saving and financial planning! That is nearing crisis levels.

Make no mistake–an ignorance of personal finance, while probably unintentional, has serious consequences. Just over half of respondents said they are worried about running out of money in retirement, only one in five are willing to take risks when investing, and 57% say they set long-term financial goals. But, when taken together with those statistics, the most concerning part is that 76% have a high self-assessment of their financial literacy.

As finance writer Jeff Sommer points out in his recent column, this means that Americans don’t know very much about personal finance and saving, but think they do. The positive self-perception is also the only figure to have significantly increased since 2009.

Improving financial conditions can create a false sense of security for many savers who think their current status makes them recession-proof. This is a huge reason why I decided to start my own firm. I recognized the alarming lack of awareness about saving, spending and the markets, and noted many common bad habits that can lead to trouble in an economic downturn. (For related reading, see: Behavioral Finance: How Bias Can Hurt Investing.)

The lack of education is compounded by the unavailability of many big-name institutions who offer financial advice and wealth management services to many. Traditional wealth management practices often have high account minimums that make their financial advice unreachable for most people. Moreover, even if you can open an account with a wealth manager, they may not be required by law to act in only your best interest, which can lead to inefficient investments for you that pay them commissions.

The reality is that many people are scared by the thought of investing. Since many Americans are mostly in the dark, they may not know where to go or how to start. That’s why it’s important to use online resources and educate yourself on all aspects of personal finance. (For related reading, see: 6 Questions to Ask Your Financial Advisor.)

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Summer Interns: Time to Focus On Long-Term Gains

Summer Intern

The light at the end of the tunnel is nearing for America’s summer interns. Full-time offers will be tendered, sighs of relief exhaled and paychecks cashed. Interns who receive offers will be bright-eyed with lofty visions of moonshot careers at their new place of employment. As these interns begin to accept the end of college and pivot towards the start of the rest of their lives, we strongly encourage them to start considering a long-term financial plan.

Sure, it is tempting to put most of your extra cash earned this summer in your checking account for drinks, trips to visit friends or to buy yourself something nice. The decidedly less glamorous option is to put a chunk of that cash into a Roth or Traditional individual retirement account (IRA). But, almost certainly, that is the option for which your future self would pat you on the back. (For related reading, see: The Conflicts of Interest Around 401(k) Plans.)

Early Planning Is a Tough Sell

We know this is a tough sell for most college students. Salaries and long-term financial security aren’t big concerns for today’s generation as it has been before. Even on Wall Street, where compensation is high, interns seek other qualities in a company. For example, interns at investment bank Jefferies said they valued relatable leadership, a family atmosphere and inclusion. So we get that saving for retirement may not be where your mind is at—especially if you received an offer and want to celebrate. (Which, by all means, you should.)

We aren’t here to suggest you start living a life of austerity now that college is almost over. But you must consider that right now is the best time in your life to put a bit of money away for retirement. The power of compound interest means that the earlier you start saving, the greater your returns will be. It doesn’t matter how small the amount—money invested in the stock market can grow exponentially over time because it compounds year over year.

In our experience, many college-aged people don’t know where to start, even if they are interested in opening an IRA. The choice between, for example, a Roth or Traditional IRA can be opaque and intimidating. And then, once an account has been opened, where do you actually invest the money? How can it be monitored? (For related reading, see: 6 Questions to Ask a Financial Advisor.)

To pile on top of that, as you graduate and find a new pad, start work and are presented with options for employer-sponsored retirement plans, you might be forced to consider trade-offs. Should you work on paying off your student loans or invest that money into growing your retirement account? Or, you might ask yourself, why invest at all when I can just keep my earnings in cash?

All of this “adulting” can be overwhelming, and unfortunately often leads to poor financial decisions. (For some guidance, we highly recommend John Oliver’s take on saving and financial advice.) But one thing you can be confident of is that starting to save now has almost no downside. If you aren’t totally sure of your ability to open an account and invest on your own, follow John Oliver’s advice and contact a low-cost, fiduciary financial advisor who can work with you to grow your investment.

We recognize that putting a chunk of your income towards retirement at such a young age isn’t sexy. But it has enormous benefit and will set you on a path of financial wellness. It’s the right thing to do. (For related reading, see: Why Playing It Safe Could Hurt Your Retirement)

 

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Donald Trump Takes a Stand on 401(k) Investments

Head in the Sand - Trump 401k

GOP presidential nominee Donald Trump has had one of the most hectic campaigns in recent memory. He has made so many newsworthy remarks that it is hard to keep up. One day last week was particularly impressive as he made over 10 news-making assertions in under 24 hours. These included initially refusing to endorse House Speaker Paul Ryan, doubling down on his feud with Gold Star parents Khizr and Ghazala Khan and predicting that the election will be rigged. (For more, see: The Conflicts of Interest Around 401(k)s.)

Whether you support him or not, simply finding the time in the day to make all those remarks (and more) is impressive. But there was one opinion in particular that caught our eye, via CBS’s Sopan Deb. Trump made the below statements during an interview with FOX Business Network’s Stuart Varney:

Varney: For the the small investor, the average guy, right now, would you say, yes, put your 401(k) money into stocks?

Trump: No, I don’t like a lot of things that I see. I don’t like a lot of the signs that I’m seeing. I don’t like what’s happening with immigration policies. I don’t like the fact that we’re moving tremendous numbers of people from Syria are coming into this country and we don’t even know it. Thousands of people, thousands and thousands of people. There’s so many things that I just don’t like what I’m seeing. I don’t like what I’m seeing at all. Look, interest rates are artificially low. If interest rates ever seek a natural level, which obviously would be much higher than they are right now, you have some very scary scenarios out there. The only reason the stock market is where it is—is because you get free money.

Trump’s Approach

Even if you are his number one fan, please don’t hire Donald Trump to manage your 401(k). First of all, setting aside the economic truth of what Trump is saying and whether his fears will ultimately influence the market as much as he thinks, every factor that he mentions in his response is short-term. As Trump is 70 years old, focusing on what’s coming immediately down the line is understandable. But most investors have longer to go until retirement and therefore need to be invested in the stock market’s long-term gains, particularly those investors without Trump’s level of wealth. (For more, see: Why Playing It Safe Could Hurt Your Retirement.)

As Bloomberg points out, Trump’s strategy basically amounts to timing the market. We believe that in the long run, due to the efficient market hypothesis, you can’t beat the returns of the market through individual stock selection and market timing. Therefore, the safest thing to do is to stick with the market, while of course monitoring constantly and rebalancing.

Trump’s approach could be a recipe for long-term disaster. Fidelity Investments has compared how investors who pulled out of the market near its bottom in 2008-09 fared versus those who stayed. Those investors who stuck with the market ended 2015 $82,000 richer than those who withdrew, on average. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

So even if Trump is completely correct, it is not a good strategy for a long-term retirement saver, which is the demographic he was asked about. If Donald Trump applied his advice to your 401(k), you’d probably do worse than if you ignored him, even in the case of a market correction.

Asked about alternatives to the stock market, Trump would likely point to real estate (we wrote about that here), which is where most of his dealings have been. The answer is somewhere in between a diversified portfolio with investments in real estate (if you can afford it), but also stocks, bonds, the money market, etc. If a market correction really is coming as Trump predicts, then the best hedge against it isn’t to pull all your money out of equities. Rather, for most savers, we think the best protections are a long-term financial plan and a diversified portfolio, both of which account for short-term market volatility.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

 

Why Playing It Safe Could Hurt Your Retirement

playing it safe

A new survey from Bankrate indicates that many Americans hold quite a low view of the stock market. In answering what was the best way to invest money unneeded for at least 10 years, real estate (25%) and cash (23%) took the top spots, followed by the stock market and gold (16% each) in a tie for third. This comes on the heels of Bank of America finding that cash levels in portfolios are at their highest since November 2001.

In a time of volatility in the market, many Americans, particularly those who are young and/or without a huge amount of money to invest, are hesitant. They prefer the certainty of a house or even cash under the mattress to the unpredictability and seeming inaccessibility of the public markets. On the surface, this seems like the safer option, and we understand why many people feel this way. Loss aversion is countered by having a tangible stack of cash that will always be there.

Unfortunately, it’s wrong and can be dangerous in the long term.

What many cash-focused savers don’t realize is that because of inflation, the value of cash fluctuates over time—just like a stock. As Alex Gurevich, CIO of HonTE Investments, points out, that means that cash is subject to bubbles similar to tech in 2000 or the mortgage crisis. Moreover, saving only cash eliminates access to the market’s long-term returns; $10,000 invested in the S&P 500 in 1980 would yield $166,600 at year-end 2015, adjusted for inflation. Even with the ups and downs, in the long run the stock market remains the best place to invest for retirement. (For related reading, see: Why Investors Can Be Their Own Worst Enemy)

Saving cash is still important for short-term emergency funds. But if simply stockpiling cash is your long-term plan for retirement, you probably have no shot unless you’re very wealthy.

Many people may avoid the stock market out of a fear of the bad days when the market tumbles. Some people panic when the market dips (for example, in the event of a major world event like Brexit) and sell most or even all of their stock. Besides the fallacy of panic-selling at play here (you’d be selling low rather than buying low and selling high), by withdrawing from the stock market you miss out on the good days as the price of shielding yourself from the bad. Reporter Spencer Jakab points out in the Wall Street Journal that a couple good days a year produce the entire year’s returns, on average. (For related reading, see: Behavioral Finance: 8 Common Investor Biases That Impact Investment Decisions)

“Investors sit out on some really good days by trying to avoid bad ones,” Jakab writes. “Nearly all of those happen around scary episodes such as October 1929, October 1987 and in 2008 following the collapse of Lehman Brothers. Pretend, for example, that you took your money out of the market following the choppiest episodes over the last 20 years and wound up missing the epic rebounds that made up the 40 best days. You actually would lose money.”

The stock market can be threatening and, sometimes, punishing. But the solution isn’t total withdrawal; on the contrary, find an advisor you trust and create a plan that makes you more comfortable about investing. As Ben Carlson writes, “The alternative for stepping out into the unknown is the known of never building your wealth.”

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Fear Keeps Millennials on Investing Sidelines

Millennials are nervous about investing. Recent surveys have shown that 70% of millennials keep their savings in cash rather than invest it in the stock market.

But by not investing early on, these people in their 20s and early 30s miss out on the key advantage they have at a young age: time. Because your investment returns are compounded, the earlier you start investing the more — and longer — will the returns add up, ultimately leaving you with more money in the bank.

So what are millennials waiting for? Many of the concerns holding them back from the market boil down to a lack of information about investing. Some of the most common fears are:

‘I have no idea where to start’

Many potential young investors have no idea where to start even if they wanted to buy just one stock. And then they don’t know how to choose which stock or fund to invest in. Since most people don’t get personal finance education as part of their schooling, investing can seem enormously daunting and precarious.

A little online research can demystify many of the basic investing concepts, such as how compounded interest works, how patience can be beneficial, and how to not overreact to temporary dips in the market. Working with a financial advisor to develop a plan and ease into an investing strategy also can help reduce your stress and anxiety about entering the stock market.

‘I haven’t even paid off my loans — I can’t start saving’

Concern about debt, particularly student loans, is understandable and widespread among millennials. Student loan borrowers have an average debt of almost $30,000 for undergraduate loans. The question of whether to pay off student loan debt more aggressively or use the extra money to start saving is a tough one because people don’t have the same financial situations. Your debt, cash flow and spending circumstances are unique and will require a plan that’s customized to you.

Keep in mind, however, that your years as a young professional are your prime saving period. If you can stomach not using all your extra money to pay off loans, you could reap the long-term benefit of investing early. Paying down a high-interest loan is a priority. But if the interest is low enough, consider creating a financial plan that allots some of your savings to an IRA or 401(k). Over time, the return on that investment, with the help of compounded interest, can make the trade-off worthwhile.

If you don’t have high-interest loans, creating a long-term, comprehensive financial plan that includes saving and investing is the best way of making sure you’ll have the funds you’ll need in the future, whether it’s to pay down debt, buy or rent a house, or make any other important expenditure. If you live on a tight budget, controlling and mapping out your spending becomes even more important.

‘I don’t trust, or can’t afford, financial advisors’

Many advisors require high asset minimums that may be well out of reach for young investors. And even then, the advisor could put your money in inefficient investment products that could generate commissions and other hidden fees for the advisor and inflate your investing costs.

Many advisors are not legally obligated to act only in their clients’ best interest; they merely have to suggest “suitable” investments. In many cases this means investments for which they are paid a commission. But those who uphold the fiduciary standard are required to put their clients’ interests first. And fee-only advisors are paid solely for the advice they give you, and not through commissions on the products they recommend.

Millennials are right to be wary of the industry, but there are advisors who won’t put their profit goals ahead of yours. Look for a fee-only fiduciary advisor. You may also want to work initially with a fiduciary advisor who charges by the hour if advisors with asset-management minimums are out of reach.

You need a financial plan that’s customized for your own situation and goals. But that doesn’t mean you can afford a delayed start. The sooner you map out a financial plan and start saving and investing, the bigger the payoff will be down the road.

This article was originally published on Nerdwallet.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

The Conflicts of Interest Around 401(k)s

401k

A new study in the Journal of Finance has found that conflicts of interest in 401(k) plans can lead to serious losses for individual investors. More specifically, the 2,500 funds surveyed were less likely to eliminate underperforming funds that were their own rather than another provider’s fund. This can be very costly to retirement savers. Clemens Sialm, a professor of finance at the University of Texas at Austin and one of the study’s authors, explained that the bottom 10% of funds continued to underperform by about 4% if kept on the menu of funds available to investors.

With all of the attention lately focused on reducing these conflicts of interest where financial managers invest your money in their own funds (among individual financial advisors rather than institutional), it is surprising to see the bias getting coverage on an institutional level. As of June 2015, $4.7 trillion were invested in 401(k) accounts, plus another $2.1 trillion in non-401(k) defined-contribution plans. As John Oliver recently detailed, these conflicts of interest can cost millions over the course of a single retirement plan’s life. (For related reading, see: Financial Failings of NBA Legend Antoine Walker.)

Why the Conflicts Exist

The reason for the existence of these conflicts of interest is simple. Managers are prioritizing the profits of their institution over the success of the retirement plans they oversee. And there is no question that it is a raw deal for the investor. We’ve previously covered how many actively managed funds don’t even beat the market in the first place, and this study confirms that failing funds aren’t even taken off the menu of options. Imagine if your local restaurant kept undercooking their chicken and everyone was getting sick, but they refused to change the recipe.
Many employees at big asset management firms are now suing their own companies to liberate their own retirement plans from management. These people know it’s a scam, and God forbid that their own money gets caught up in it, but by and large they are OK with selling you inefficient funds. (For related reading, see: 6 Questions to Ask a Financial Advisor and Do You Need to Change Your Financial Advisor?)

These current events—and the study—indicate that conflicts of interest are pervasive in all aspects of the retirement planning industry, whether it’s a 401(k) through your employer or via traditional financial advisors. Dealing with this reality requires vigilance on your part. To return to the analogy of the undercooked chicken, it would be an easy case to deal with since everyone could tell that the chicken was making them sick. But what allows traditional asset companies to get away with conflicts of interest is that many people are simply too busy to monitor their accounts—that is, to find out if they are sick or not. If the undercooked chicken gave you an illness that was hard to detect, it would be much easier for the restaurant to get away with it.

Luckily, the tide is beginning to turn, and you can impact change, even with your 401(k). You should become an advocate for your own money. Contact your HR department and ask to see the performance of the menu of funds. See who’s managing it, how the menu has changed and evaluate the extent of conflicts of interest.

Ultimately, independent, conflict-free advice and management is the best cure for the industry’s problem. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Financial Failings of NBA Legend Antoine Walker

Former NBA All-Star forward Antoine Walker possessed a varied skill-set that enabled him to play both inside and outside. A big man who also shot the three, Walker was notorious for his hilariously erratic shot selection and, later in his career, an aversion to running that led to lazy play.

The quality of financial advice Walker received throughout his career was evidently very close to the quality of his shot attempts, as he filed for bankruptcy in 2010, two years after he retired from the game. In a recent column in the Players’ Tribune, Walker writes a letter to his younger self detailing what went wrong and what he could have done better.

Surprisingly, there are a few money management lessons that anyone—NBA star or not—can apply. (For related reading, see: Do You Need to Change Your Financial Advisor?)

Actively Screen Advisors
Screen advisors before you hire them, and after you do, make sure you know where your money is going. Walker frames his letter with the importance and difficulty of saying “no,” whether to friends asking for money or, most crucially, a friend of a friend who asked for money to start a real estate venture.

The advisor, who Walker met at a dinner with NBA colleagues, started Walker Ventures with bank loans guaranteed by Walker’s personal portfolio, an incredibly risky move. Walker let the advisor have complete control of managing the properties since he was playing basketball nine months of the year. Ultimately, Walker Ventures was forced to close after the housing crash with $20 million of debt. The advisor went to jail, and Walker was forced to file for bankruptcy.

There were a couple ways this could have been prevented. First, Walker didn’t do much due diligence before making the deal. He could have run it by another advisor, who probably would have told him it was structured as an extremely risky venture. Second, because of his schedule, Walker did not adequately check up on the investments.

Many people, particularly young investors, share Walker’s desire to make some money outside of their main job, especially to save for retirement. Finding a financial advisor who is trustworthy, and right for your unique needs, is very important. (For related reading, see: 6 Questions to Ask a Financial Advisor.)

The Upside of Having Someone Say No
Walker’s trouble with the real estate venture was compounded by his reckless spending. While he confesses that he spent lavishly on himself, including a $350,000 Maybach car, it appears that what took the biggest bite out of Walker’s wallet was his spending on family and friends. “I gave them whatever they wanted and spoiled them. You can’t do that,” Walker said in a CNN/Money interview. “It ended up being an open ATM throughout my career.”

While most of us don’t take our friends to a Gucci store and let them buy whatever they want—as Walker has said he did—spending without at least an idea of what is manageable is a problem many people encounter. For young professionals in particular, overspending can seriously hinder retirement saving.

A good financial advisor will do more than simply invest your money. They will incorporate periodic spending goals, major expenditures like vacations, and life events like a new home or wedding into your comprehensive financial plan. Sometimes, this could mean advising against a big purchase for the sake of a long-term goal.

Obviously, we don’t all have $110 million to blow like Antoine Walker. But lackadaisical spending control and being too busy to check on our investments or advisors are traps anyone could fall into. Ensuring that your money is in the right hands is a universally important objective. (For related reading, see: Which Investor Personality Best Describes You?)

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Advisors Repapering Your Account: What to Know

repapering

The White House’s report on conflicting financial advice estimates that there is a staggering $1.7 trillion invested in products that generate conflicts of interest for advisors—meaning products that advisors earn a commission for selling to clients—leading to a loss of 12% in a retirement account’s value over 30 years.

To combat this, the Department of Labor is enacting a new rule requiring advisors to be held to a fiduciary standard, meaning they need to always act in your (the client’s) best interest. If an advisor still desires to sell conflicted products, they will be required to have you sign a Best Interest Contract Exemption (BICE). This contract also gives you the right to partake in a class-action suit against your advisor if the conflicted product is not ultimately in your best interest. (For related reading, see: Do You Need to Change Your Financial Advisor?)

What to Ask Before the Switch

If you employ a traditional financial advisor who was not previously bound to a fiduciary standard, there is a very good chance your money is part of the $1.7 trillion losing returns because of conflicted advice. And when your advisor comes to you to “repaper”, i.e. have you sign a BICE or any other paperwork related to their switch to a fiduciary, you should find out how much your advisor was making from commissions on products that may not have been in your best interest.

Traditional advisors are worried about you saying, “hold on a second” when they begin compliance with the fiduciary rule. As this AdvisorHub article points out, “brokers who are heavily concentrated in retirement accounts may delay moving until they determine if they will have to “repaper” commission accounts into fee-paying accounts because of the rule.” Paul Reilly, CEO of traditional financial advisory company Raymond James, said that “Raymond James itself is looking closely at each prospect’s book to determine how much it is flavored by IRA accounts that could become less profitable.” During the campaign against the DoL rule, Reilly encouraged Raymond James employees to help oppose the  DoL’s fiduciary proposal. Additionally, if an advisor is planning to transition, many are scrambling to do so before November 11th, after which FINRA will notify all of their clients of the transition and encourage clients to ask what it means for them financially.

Now that the fiduciary rule is going into effect, firms like Raymond James are sweating the switch to fee-only fiduciary accounts and increased oversight of their activities by regulators. Make sure you’re prepared for that conversation with your advisor by reading my previous article, 6 Questions to Ask Your Financial Advisor. If you learn that you are one of the many, many investors losing 12% due to conflicted advice and want to work with an advisor who will work only in your best interest, you may want to schedule an appointment with an advisor that doesn’t have such conflicts. (For related reading, see: Going the ETF Route? What You Should Know.)

This article was originally published on Investopedia.com

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.