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The Independent Investor: One For The Little Guy

By Bill Schmick
iBerkshires Columnist

The retirement world is changing. A long-sought-after regulation by the Department of Labor was released in April. It goes a long way toward protecting retirement savers from brokers and insurance agents. Here is what you need to know.

The new ruling insists that those who advise investors on appropriate investments for their IRAs, 401(k)s and other tax-deferred savings plans must put the client’s interest above their own and the company they work for. In short, they must act as a “fiduciary” rather than simply recommend “appropriate” investments.

You see, an “appropriate” investment for someone with little investment experience might be an annuity or a target retirement fund. The fact that these securities might also have a very high cost (called an expense fee) or perform poorly over time doesn’t matter. They are still an appropriate investment. Most investors do not realize that their broker buddy and his company take advantage of this. It is why he has a new car every year and a swimming pool while savers like you lose over $17 billion a year in unnecessary fees.  

Readers may recall that I have been on a crusade for the last nine years in my columns to change these abuses. Despite enormous protests from their friends in Congress, the DOL ruling is in effect now. Brokers and insurance agents have a year to become compliant with the new regulations.

So what does this mean for you as a saver? It should reduce the fees that you are charged in your retirement plan. Remember, that independent research has revealed that over a 25 year period of savings in these plans, fully a third of the assets is consumed by these fees and expenses.

In past columns, I have written that over a 25-year period of savings in these retirement plans, fully a third of a retiree’s assets are consumed by fees and expenses.The new ruling, plus a wave of successful lawsuits by disgruntled retirees against companies whose plans charge exorbitant fees, have plan sponsors rethinking their plan offerings. As company managements realize that they (and not the brokers who advise them) are on the hook in these large class action settlements, a new attitude is emerging. High-priced mutual funds are being replaced by exchange traded funds whose fees are a fraction of the costs and whose performance is better 85 percent of the time.

This is no secret. We have been investing our clients in these low-cost, better-performing ETFs for years. It is why we are fiduciaries and brokers are not. Now, retirement advisers and their firms are required to acknowledge their fiduciary status, enter into a contract with their clients, and explain investment fees and costs clearly. In addition, they must have policies and procedures in place to mitigate harmful effects brought about by conflicts of interest and keep certain data on their performance. It is what we have been doing for years and, in my opinion, it is the only fair and honest way to do business.

Now, realize that these brokers (turned fiduciaries) can still charge you commissions, revenue sharing and 12b-1 fees (a kick-back from mutual fund companies they are recommending). The difference is that now you need to sign a contract agreeing to all of the above.

If you can’t get a plain English explanation from that person sitting across from you in his silk tie and dark blue suit, say goodbye. You should expect and demand an explanation for every charge and fee that they are proposing and how it compares to the competition. There is absolutely no reason that you should agree to a revenue-sharing scheme or paying 12b-1 fees, in my opinion. If you have any questions on the topic, shoot me an e-mail or call at the numbers below. The onus is on you to make the right decisions.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. 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 inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


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The Independent Investor: How to Avoid the Pitfalls of Multi-Level Marketing

By Bill Schmick
iBerkshires Columnist

So you want to be your own boss, make lots of money and do it all from the comfort of your home? It is the siren song of direct sales that has recruited legions of Americans through the years. Some make it, most do not. Here are some tips to help you in your new adventure.

Whether you want to sell jewelry, vitamins, candles, cosmetics or home products, a healthy dose of skepticism should be applied to the promises these companies make on their websites. Many reports, including those filed with the Federal Trade Commission, warn that almost 99 percent of multilevel marketing (MLM) distributors lose money. In addition, the dropout rate is upwards of 60-70 percent per year. Those are daunting statistics. Consider them well before jumping on board an MLM.

Critics argue that this style of personal retailing is a thing of the past. Retailing directly to friends and family on a one-on-one basis requires people to change their buying habits. The future wave of selling is largely internet based where convenience, price and a myriad of choices are just a keyboard away. Remember too that despite the existence of MLM companies since the Eighties; their combined market share of retail sales in the U.S. is under 1 percent.

Over the years, quite a few of these companies have gone bankrupt. In addition, disgruntled ex-recruits have waged a good many lawsuits against several of these MLM businesses. The chief complaint: that they are simply pyramid schemes or just out-and-out scams. Lawsuits allege these companies promise you the world, but only after you buy your way to success through increasing product purchases. In the end, they conclude, many victims are left with nothing to show for their efforts but a mountain of debt.

Unfortunately, accusations of deceptive marketing against these firms are hard to prove.

The legality of the MLM sector is largely based on a 1979 ruling on one company. There seems to be a lack of government legislation and oversight by state and Federal authorities, nor are they subject to the same rigorous regulations as a franchise might be. Given that many state anti-pyramid statutes are vague or weak, it could take many years and a lot of money to prove guilt.

Most supposed victims have failed to receive any satisfaction in the courts.

Armed with those facts, if you still want to embark on a career (part time or otherwise) in individual selling, there are some obvious questions you should ask before joining an MLM.

Where is this company's focus? Is it on recruiting rather than selling? If so, it is an immediate warning sign.

Are you given any training by the company? Do they provide you with actual business techniques to increase product sales? Do they offer any support, or is it all about convincing new recruits to join?

How much product inventory are you required to buy? Watch out for "fast track" purchasing deals or buying expensive business packages to pay for "extra training."

High-pressure sales pitches by your company rep should also be a warning sign. You should never have to make a decision "right now" in order to get a great deal or a special price.

Most legitimate companies allow you to discuss their proposals with family or take a few days to decide if their proposition makes sense to you.

Finally, as in most things, if it seems too good to be true, than it probably is. If you are promised outsized rewards for little effort than buyer beware. Are the products truly as good as they promise and if so, ask for proof. If you are promised back-up and support, once again ask for details.

A good dose of healthy skepticism should keep you out of trouble. Not all MLM companies are scams. Just do your homework because who knows, you may actually make a little money and have fun while you are doing it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. 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 inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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The Independent Investor: Let's Have a Jewelry Party

By Bill Schmick
iBerkshires Columnist

Contrary to all the present and future trends in retailing, multilevel marketing (MLM) is still alive and well in this country. Exactly what is MLM and why are so many Americans enamored with hitting up their friends and relatives in an effort to succeed at personal retailing?

MLM is a marketing strategy in which the sales force is compensated not only for what they sell but for the sales of other people they recruit. These new recruits in the chain are referred to as the participant's "downline" and, if done right, can provide multiple streams of compensation.

Most readers are familiar with these companies. Amway, Avon and Mary Kay come to mind, as does Herbalife, a company most recently accused of being nothing more than a pyramid scheme. Many of these companies have been around since the late sixties and have never accounted for more than 1 percent of retail sales in the United States. And yet, every day hundreds, if not thousands, of new recruits are happy to shell out money, time and effort in order to win the golden ring of promise so aptly portrayed in MLM advertising.

A look at just one jewelry website gives one a flavor of the sales pitch. Not only will you create lasting friendships, make your own hours and get rewarded every step of the way, promises the company, but "a consultant holding just 1 average party a week, earns $850/month," while "a leader holding two parties a week with a team of three consultants will earn about $3,000/month,"

For someone sitting at home as a house spouse or looking to make some part-time money, these offers can be irresistible.

"I wanted to make some extra money," said one newly-minted saleswoman/social worker, who also happens to have a master's degree in psychotherapy and a private practice in the same field. "It is part time, a different kind of work and it's fun, besides I don't have to go back to school or retrain to sell jewelry."

She has only been doing it for a month and has already made $1,000 plus $700 in free jewelry. All she was required to invest was $139 for a starter kit of forms, brochures and jewelry. So far she has held four parties. The guests have been all her family and friends in the area, which is typically how new salespeople get started. But what happens when she runs out of people she knows?

"I haven't really thought that far ahead," she confesses. "I'm a little obsessed with it all. I'm having fun with it, but really haven't thought about how things will turn out down the road. I guess I could move out of my region if I wanted more clients."

Barbara, my wife and president of Berkshire Money Management, has attended four of these events and hosted one of them. Twelve of her friends showed up and bought over $1,500 in merchandise. She received $500 in free jewelry for hosting the event.

"It's really an excuse to get together with my women friends and have fun. I guess I've spent $100 per party so far, but for most of us who have attended there will come a time where we won't buy any more. For example, I am committed to attending four more parties but at most I plan to buy only one piece."

Granted, these are only anecdotal incidents, but clearly both buyers and sellers seem to be enjoying the process. It is these attractions which make the MLM business so enticing to so many. In my next column, we will look at the pitfalls to avoid if you are thinking of entering personal retailing on your own.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. 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 inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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The Independent Investor: Giving Up Control in the Event You Need To

By Bill Schmick
iBerkshires Columnist

The more successful you are, the more difficulty you face in wrestling with one inescapable fact. In preparing to pass the torch to your heirs, you need to give them the power to decide what happens to you and your estate in the event you can't.

That's not an easy thing to get your arms around if you have been the go-to guy or gal that the family depends on when life's hard knocks come visiting. How do you entrust your own health and wealth to others? Even if you love them to death, are they really capable of taking care of you in your time of need?

No question, it is a problem that you need to deal with and resolve before that family meeting I have been writing about in this series. Specifically, there are three documents you must create and complete: a durable power of attorney (DPOA), a living will and a health-care proxy.

Let's begin with the DPOA.

This document allows someone to act on your behalf or allows you to act on someone else's behalf, such as your parents. That means you can sign checks for them and other legal documents like tax returns, etc. Bottom line: the DPOA allows someone to control your money, so you better be sure whoever you pick is trustworthy, responsible and knows something about managing money. It is best to name one person and have another as a back-up just in case.

In addition, it is important that you or your parents have a durable power of attorney for each other. I had a client who failed to do so and created for his wife endless problems. She could not change investments for him in his tax-deferred accounts when the markets took a dive, nor could she draw money from his checking account to pay bills.

A living will is different than a will, which I covered in a prior column. While a will explains to your heirs who gets what, the living will is all about advance directives. These are legal directions you want followed in the event you require serious medical care. Your living will would address questions such as the kind of medical treatment you want (or don't want), which person can make medical decisions for you when you can't, or how comfortable you want to be and what, if anything, you want your loved ones to know.

For those interested, you can actually purchase a copy of something called "Five Wishes" from Aging with Dignity based in Florida for a nominal sum. It addresses all of the above concerns and can act as a legal document as long as it is witnessed and notarized. Take a look at it on the Internet.

The second advance directive is familiar to many of us — the health care proxy, also called a health-care power of attorney. The person who holds this power is equally as important as whoever you trust with your DPOA. The health care proxy holder has the responsibility of making certain that the doctors and medical staff carry out your wishes specified in your living will.

In the event of a life and death decision, it is this person who has the authority to make that call. Your child may not be the best person for this job. I know my wife had that responsibility when her father became ill and it is not a pleasant task. You may want to select a close friend instead and never select more than one person.

I realize that this has not been the most uplifting of columns. The sober subject matter can certainly be a downer, but it is necessary. It will be a big elephant in the room when your family meeting gets started. You may even want to pass this column along to your prospective heirs before discussing you or your parents' thinking on these subjects. The point is to begin the conversations now rather than wait until it may be too late.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. 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 inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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The Independent Investor: What Do Prince, You and a Will Have in Common?

By Bill Schmick
iBerkshires Columnist

What do Prince, you and a will have in common? The short answer is maybe nothing, unless, like so many of us, you still have not finalized such a document. If you haven't, get on the phone with a lawyer and get it done.

The passing of Prince was a sad day, but even sadder is the fact that this week his sister just opened a probate case in Carver County, Minn., the home of the late rock star.

"I do not know of the existence of a will and have no reason to believe that the Decedent executed testamentary documents in any form," Tyka Nelson wrote in her filing.

Prince had no spouse or children but he does have several siblings and an estate valued at $300 million. There is also the supposed treasure trove of unreleased musical material, a sizable estate tax bill (if no estate planning was in place) and who knows what else. One thing is sure; there will be plenty of time, effort, controversy and expense necessary to resolve a settlement through probate court. All of which was unnecessary if Prince had lived long enough to read this column.

You may not have the wealth of Prince, but you do have an estate. Don't leave the courts to decide who and how much of your assets your family members will receive. If you do, you are leaving your loved ones needless expense, confusion and possibly bad feelings. That is not the kind of legacy you want to leave.

If you don't leave a will, the courts will name an executor who will oversee the settling of your estate and they charge a large fee to do so. In addition, every state has its own rules and regulations covering estates and without a will, your assets are subject to the whims of whatever state you happen to be residing in when you pass.

For the most part, many of us never drafted a will. A document like that would force us to emotionally acknowledge that someday we are going to die. What we draft in that will, after all, is final. Then there are those among us who, like Prince "thought he'd live until he was one thousand nine hundred and ninety-nine years old," according to his former attorney and close friend, Londell McMillian.

Each of your parents and/or you and your spouse should draft individual wills because your spouse may have different personal desires than you. Every nitty-gritty object or item does not necessarily have to be spelled out, but rather your will should explain who receives what among your tangible property. A letter of instruction can be attached to your will outlining and identifying specific items that will go to certain individuals.

No one likes to pay lawyer's fees, but in this case I suggest you hire an attorney to help draft your will. It is imperative that the will is considered a legal document in the state where you claim residency. I would also look for a lawyer who is familiar with estate planning rather than real estate or some other area.

Not every asset you own needs to be included in the will. Life insurance policies, annuities, IRAs and other retirement plans, for example, should have had your heirs (beneficiaries) listed at the time you purchased or opened those investments. Those listed on the beneficiary statement of these investments takes precedence over anything you may direct in your will. If, for example, your insurance policy of 30 years ago lists your now-deceased parents as beneficiaries and your will states your spouse, sorry to say that your parent's estate receives the insurance money. If you haven't done it already, it would be a good idea to gather all your investment and insurance policies in one place and check that all the proper beneficiaries are in place.

In my next column, we will discuss additional tools you will need in order to pass from this world into the next without worrying about your heirs. In the meantime, take hold of your destiny today and call an estate planning attorney.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. 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 inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

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Bill Schmick is registered as an investment advisor 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 and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.




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