As of Friday, putting a client's needs first becomes law.
Despite a bitterly contested battle by brokers, banks and insurance companies to kill it, the on-again, off-again Department of Labor fiduciary rule becomes effective June 9, 2017. Investors should cheer the news.
That's right — it is no longer just a slogan that slick marketers use to woo unsuspecting retail investors into their fee-based, commission-based, fee-sharing web of duplicity and immoral behavior. Since I am already a fiduciary, I tried over the years to advise readers on what is in their best interests since their advisers certainly were not. The new law changes all that.
If your adviser, broker, wealth manager, banker, et al provides you retirement advice for a fee, they are required to act in the best interest of their client. This rule covers all tax-deferred investment accounts. Ordinary taxable investment accounts are excluded from the rule.
"But hasn't my broker been acting in my best interest all along?" you might ask.
The simple answer is no. Previously, the law states that as long as he or she puts you in a suitable investment they were within the letter of the law. Suitable does not mean the lowest cost or best performing fund, stock or any other financial security. It just means they can't put a 92-year-old grannie into a two-cent biotech stock that she knows nothing about.
A number of brokers, annuity shops and others have already abandoned ship sending out letters to their customers that they will no longer be managing their IRAs, 401(k)s and other tax-deferred accounts. Some enterprising brokers are trying to get around the law by having their unsuspecting client sign a paper that releases them from acting in their best interests. Why, you might ask would anyone be naive enough to sign something like that?
Many elderly clients, for example, have established long and trusting relationships with their advisers, despite the suitability — only rule. I understand that. There are brokers out there that genuinely do care for their customer's well-being. It is not the individual that you need to worry about; it is the managers that he reports to and the organization he works for those are the real problems.
What do they do when their boss says "get him to sign this form?" Do they quit or do what the boss says?
Balancing the demands of their firm, versus protecting their customer is a dilemma that many in the financial services sector face every day. The new Department of Labor rule makes it easier for some to do what is in their customer's best interests. Yet, others will use the trust they have built up with their clients to have them sign a waiver form. Don't do it!
Studies suggest that over a life time of savings, the typical investor has paid out one third of their saved, retirement assets in fees. From the government's point of view, they are condoning the payment of roughly $4 billion per year in fees by savers on the total $3 trillion in assets that represent the tax-deferred savings pool.
In a world where defined benefit plans and pensions for life have disappeared, it is now the American public's responsibility to save for retirement through government sponsored tax-deferred savings accounts. But most of that public has no financial background or education, and yet they are left on their own to make investment decisions.
Until now, financial advisors, who were not fiduciaries, simply compounded this problem by giving advice and charging fees that were not necessarily in the public's interests. Good advice can make the difference between a satisfying retirements or bagging groceries for income at the local supermarket. Anything that helps savers achieve the former (rather than the latter) has my vote.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
Many Americans confess that they are confused when faced with the myriad Medicare choices available to them. Others are simply not planning, nor saving enough to meet the challenge of health care costs in old age. In response, a whole new industry has sprung up nationwide.
It's called "life care planning," an off-shoot and a natural progression for those practicing elder law. What, you may ask, is elder law and why has it become so important? Attorneys that practice elder law are essentially advocates for the elderly and their loved ones. They routinely handle a range of legal issues that usually accompany an older or disabled person.
Many of these topics have been covered in this column: Medicare/Medicaid planning, Social Security, retirement, long-term care insurance, rising health care costs and more. These lawyers can also help with wills, trusts, special needs, probate proceedings, durable powers of attorney, pet trusts and other estate planning matters. These, too, have been topics of many of my columns.
Life care planning takes this concept a step further. In most cases, when someone becomes disabled or reaches a certain age there is a level of care that is required. Life care planners first identify the level of care an individual needs, locates the appropriate care givers, and then figures out and coordinates the necessary private and public resources necessary to help pay for it. But it doesn't end there.
Once we reach a certain age (or our infirmities escalate) someone needs to both monitor and try to predict the next level of care required and most of the time those responsibilities rest on the shoulders of a family member. Unfortunately, most of us are ill-equipped to make the proper medical and financial decisions required. As a result, our loved ones either don't receive the care they need or if they do they pay an inordinate amount of the family savings to pay for it.
Life care planners remain involved, making those decisions for you and anticipating what you will need down the road. They adjust your life care plan accordingly and pursue the best methods to pay for it.
"We provide what the aging population in this country needs and we do it well," says attorney Paula Almgren, and founder of Almgren Law in Lenox. Almgren is one of the few elder law firms in the country with a registered nurse and a public benefits coordinator on staff. They also provide life care planning, including a veterans benefits coordinator for those who might qualify for aid and attendance and other veterans benefits.
Why should I, a financial columnist and registered investment adviser, be so concerned and involved in this area? After all, the traditional role of a money manager has been to protect a client's money, and when possible, earn a reasonable return, so that our clients can retire successfully. The answer should be obvious.
In my experience, if just one member of a family develops a debilitating illness, or is hospitalized for an extended period of time, or enters a nursing home, or needs 24-hour nursing care, a life-time of savings can disappear in a span of a few years. It is my responsibility to protect my clients from all financial pitfalls, not just the financial markets.
I believe that as time goes by, more advisors will realize that the biggest risk to our client's retirement and well-being is not a downdraft in the stock market. It is the far more serious potential downdraft created by a lack of planning in elder care, estate planning and all of the other areas I mentioned and write about.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
As the stock market makes new highs, investors tend to get greedy. They also begin to believe that what has happened in the recent past will continue to happen in the future. Actually, history shows the exact opposite. It is time to give the potential downside some thought.
Hope burns brightly in the equity markets right now. Many on Wall Street believe that the Republican-dominated Congress, led by Donald Trump, "The working man's president," will usher in a golden era of strong economic growth and robust financial markets. The problem is that politics and investments make for strange bedfellows.
At some point, I expect that the two will part ways and when they do, look out below.
Now, with that in mind, have you given any thought to what you are going to do when the inevitable correction does occur? When your $1 million tax-deferred portfolio loses $120,000 in less than a month, will you panic and sell or will you hang in there or buy more?
This is the time to plan your strategy — not when the markets are down eight days in a row and pundits are predicting the end of the world. Many indicators I watch are predicting that somewhere up ahead, investors should expect a substantial pullback. Stock market volatility, a sure contrary indicator of market strength, has been declining for the past 15 months. The Volatility Index is at historical lows right now.
Then there is the law of physics. What goes up must come down. We are in our eighth year of a bull market. Memories of the 2008-2009 financial crises have faded. It took many investors at least five years after the crash to be willing to dip their toes back in the stock market.
Those who have done so have been rewarded. Now that many of us have our entire foot, leg and neck immersed in equities, it is time to expect some downside ahead.
Before you ask, no, I don't know when it will happen. If I did, I could retire on my tropical island where I would "buy low and sell high." That said, an exit plan, if that is what you want to do, should be percolating in that head of yours.
For most of us, however, any attempt to sell at the top will be met with frustration, lost opportunity, and in many cases, an emotional decision to re-enter the market at even higher prices. The fact is that major declines are part and parcel of investing in the stock market. Most long-term investors who plan to go to cash may succeed, at first, but they almost always fail to re-invest, or if they do, they re-invest too early or too late.
Sure, you will always hear about this guy or that woman who trades the market. The myth is that these "uber kans" almost always sell at the top, (in the nick of time) and buy back at the lows when everyone is running for the exits. Don't believe it. Rest assured that the majority of day traders who are constantly buying and selling lose more money than they make and would have made more money if they had simply stuck with the markets.
That does not mean you have to simply take your lumps, although some lump-taking should be expected and it is painful. One can always dial down your risk, become more conservative, shift your investments into more bonds etc. There are risks in that strategy.
Take the run-up to the presidential elections, as an example. Several of my clients were convinced that a Trump presidency would usher in a financial meltdown, WW III, and all sorts of evil developments. They wanted to sell everything and go to cash.
I resisted, convincing many of them to stay with the markets. Several insisted, however, that they wanted to reduce their risks and become more defensive. I obliged their requests. The results: they made about half of what they could have if they had stayed fully invested, but still made more than if they had simply exited the markets and gone to cash. Each investor must
decide how much risk they are willing to take and act accordingly.
Before you hit the panic button, however, I see no indications that we will incur anything more than the normal sell-off. Price declines are simply the cost of doing business in the stock market, like paying taxes or insuring your home.
Neither am I predicting a decline is right around the corner. But when it does occur (and it will), be prepared. Understand and plan for it now. If you don't know, give me a call.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
Recently, none other than the Sage of Omaha, Warren Buffet, has sounded the alarm on what he sees as the number one threat to American businesses — rising health care costs. His advice is that we better do something and do it quickly.
While Congress bickers over how to repeal and replace Obamacare, there is still a large body of American politicians who believe we should simply return to the good old days. While they fiddle with adjusting insurer's premiums, or gutting Medicaid, the entire healthcare system surrounding them continues to burn. While they debate whether you should be responsible for your own medical insurance and how much Medicare should cover, health care costs rise at the rate of hyperinflation.
Our legislators and president are strangely silent on what happens to those whose employer does not provide health insurance because they can't afford it; (which is the case for many in small businesses). And by the way, small businesses happen to be the main employer of American labor.
They are also silent on what happens to those of us whose Medicare insurance premiums, plus uncovered medical expenses, become higher than their retirement income. Recent estimates put uncovered medical costs at $260,000 for these same retirees. Of course, there is always Medicaid for the impoverished among us. But even that program, if the House has its way, will be reduced by $1 trillion this year.
The politicians are focusing on the symptoms and not the cause of our health-care problems.
Buffet, a Democrat, in his recent shareholder meeting, took time to address what he called the real problem for American business, and it wasn't taxes. The cost of health care, he maintained now represents about 17 percent of this country's Gross Domestic Product (GDP). That's up from just 5 percent of GDP 50 years ago.
In comparison, corporate taxes, the supposed blain of Corporate America represents just 2 percent of GDP and that is down from 4 percent of GDP in 1960. Our country's global competitiveness has fallen, not because of corporate taxes, but because health care costs have diverted business spending from more productive uses like investing in new plant and equipment.
Why do Americans still pay far more for medical care than any other Western nation?
The U.S. ranks dead last (and has done so for 15 years) in struggling to pay for medical care when compared to other developed countries, according to the Commonwealth Fund. We, or the companies who pay for our insurance, spend roughly $9,523 per person each year on medical expenses. That comes to roughly $3 trillion/year, for a family of four, medical insurance coverage by our employers amounts to $12,591, which is up 54 percent since 2005.
But Buffet isn't the only one who is sounding the alarm. Bill Gates, the respected and visionary founder of Microsoft, in a TED Talk presentation last year, also warned of the devastation rising health care costs were having on our economy.
Wherever you look, he said, rising healthcare costs are siphoning off money that should be spent on things like education, building bridges, airports and paying down our debt.
Governmental and private organizations, combined, are forced instead to divert more and more of their spending to health care costs.
Pundits decry America's low rate of savings, but do not take into account how much of that potential savings rate is now being swallowed up by heath care costs. Economists say the typical American consumer is not spending like they used to; how can they when so much of that paycheck is now going to prescriptions, co-pays and deductibles? The truth is that whatever wage raises our workers received over the last few decades have not nearly kept pace with the hyperinflation of our medical costs.
I agree with both men. It is time for all of us—corporations, small business, Republicans, Democrats and Independents — to identify the real crisis in this country and do something about it. The health-care sector requires a complete overhaul from top to bottom. Forget this sparring over symptoms and not the cause. If, as a nation, we don't know how to turn the tide, there are plenty of examples among our foreign neighbors. What in God's name are we waiting for?
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
As the clash between brick-and-mortar retail enterprises and the mighty Amazon escalates, the internet shopping colossus is laying waste to one store or mall after another. One of the few areas that has not only staved off the internet shopping giant, but has actually turned the internet and social media to its advantage, is the cosmetics industry.
There is a combination of fortuitous developments, some peculiar to the makeup industry, and others the result of adept marketing that has allowed the beauty trade to grow unencumbered. Social media, as you might imagine, has played a big part in growing an industry that has revenues of $62 billion and climbing.
For decades, women would pay a visit to their local department store, drugstore, or shopping mall and head for the cosmetics counter. They did so because most women consider makeup a necessity of life. They received a quick lesson in cosmetics application from the clerk or salesperson. At the same time, they could also see and experience these products on their own skin. The only alternative to the beauty shop was to sign up for a cosmetology class, hire a makeup artist or rely on a girlfriend who knew her way around makeup.
Today, social media has become both the new beauty counter as well as a place to show off the results. Just check out the number of YouTube tutorials available on makeup. Now that the industry can post videos on Instagram as well, industry experts can hawk their wares easily and directly, but can also show consumers exactly how a new product is intended to be used as well.
A whole new industry has sprung up around selling cosmetics on social media. There is now what are called "beauty vloggers," enterprising women who are internet businesses in their own right. Some are models or ex-models; others come out of the makeup industry and set up shop as beauty gurus. They dispense beauty advice as well as tutorials on how to apply specific types and kinds of makeup.
Another new phenomenon is the "haul girls." These are women who take the viewers on an extreme shopping spree and explain on camera what products are "hot," while giving their opinion of the products. Today, fully 95 percent of consumers looking for beauty products will search out YouTube first. Some of these beauty mavens have millions of subscribers and can make or break a brand. In the beauty business, influencers like these vloggers and haul girls carry a great deal of weight.
And with the popularity of posting photos on Facebook, Twitter and other social media, more and more women don't want to be caught "naked" when it comes to makeup. That simply fuels more and more demand for cosmetic products.
While women use social media today for cosmetic instruction and to learn about the latest products offered, many still need to "test-and-trial" as the industry calls it. Video is fine, but how do you really know what that new blush or nude lipstick is going to look like on you? Buying many cosmetic products online is tricky. The subtlety of shades and colors abound and once it arrives in your mailbox, it is too late.
Unlike clothes or that DVD player, cosmetics, once opened, cannot be returned. This becomes problematic, especially at some of the price points these products command. Sure, some products that a woman will use over and over again can be ordered over the internet, but styles and new developments in cosmetics change rapidly.
That's why testers and samples are a large part of any brick-and-mortar beauty store's inventory. Many, if not all, of the basics undergo a revamp every so many years, so most women will check out the newest offerings on a fairly regular basis. And even your most hard-bitten internet buyer will succumb to buying a new product, especially after using the free consultation or makeup classes offered by these beauty centers. Unlike other industries, the beauty store still manages to deliver an "experience" as well as a place to buy products. Remember too, that there are no seasons in makeup, it has year-round fashion demand.
Discounts are also not high on the list of cosmetic company marketing tactics. Prices remain relatively stable, which is anathema to what usually occurs to a product once incorporated into the Amazon fold. So far, few, if any, of the luxury beauty brands have developed relationships with the internet giant. For now, the beauty business is thriving despite Amazon, and they hope that continues, at least until they can build their own e-commerce presence.
Bill Schmick is registered as an investment adviser representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill's forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.
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