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The Independent Investor: The Client Comes First

By Bill SchmickiBerkshires Columnist

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.
     

@theMarket: Markets Still on a Roll

By Bill SchmickiBerkshires Columnist

Additional gains propelled stocks higher this week with all three averages closing at record highs once again. Despite the fact that more and more experts are warning of a possible fall in the averages, investors continue to pile into stocks. Should you?

The short answer is no, wait for that decline, unless you have no exposure to the stock market. That would be hard for me to believe if you have been reading my column regularly. My readers also know that the threat of a pullback hangs over the market all the time since we can expect as many as 2-3 declines in the stock market every year.

The economy, however, is still growing enough, and interest rates are still low enough, to justify the present level of stock prices.  Friday's nonfarm payroll data was just another example of the underlying support that is propelling stocks skyward.

The country's official unemployment rate has dropped to 4.3 percent. That is a historically low number and most economists would say we are at full employment now. That's not quite accurate, however, if you look at the "underemployment rate."

That is the number of workers who are presently working part time, but would prefer full-time work. If you add that category of workers with those who have a full-time job, you have an overall unemployment rate of 8.4 percent. That is quite a bit higher than the official rate but is still down from 8.6 percent in April and the lowest reading of the combined employment data since June 2007.

Anecdotal evidence from several CEOs around the country over the past few weeks seems to indicate that Corporate America is having an increasingly tough time filling job positions. And we are not just talking about skilled labor like engineers and IT specialists. Even service sector jobs like fast-food are crying for help.

Corporate America has had its own way when it pertained to hiring for the last decade or so. They could get all the labor they wanted, at the price they wanted. Workers, if they wanted to work, had to take whatever salary was offered, as well as a cut in benefits. Well, times are changing, and it is only a matter of time before business managers wake up to that fact.

I have been watching wage gains in the payroll reports for over two years now. The good news is wage growth has more than doubled from an anemic 1 percent 18 months ago to 2.5 percent today. Granted, the gains are up and down, depending on the time of the year, but the trend is your friend if you are a U.S. worker. And that just adds more support to the markets, since consumer spending is the lynchpin of what makes this country grow. Higher wages means higher spending, everything else being equal.

Enough about economics! The bottom line is that, regardless of what Trump, the Republicans, or the rest of the world is doing, right now the U.S. economy is in pretty good shape. As such, the markets have a cushion under them. That should keep any selloffs contained. So, sure, expect a 5-6 percent pullback any day, week, or month now, but don't let that get you down. It is the nature of investing. In the meantime, enjoy your gains.

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.
     

The Independent Investor: Elder Care in an Age of Confusion

By Bill SchmickiBerkshires Columnist
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.
     
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