Many of us don’t like to open financial statements. You don’t want to be disappointed, especially when the market is down. Frankly, I am not sure which is worse: disappointment or failure.

We can’t make our problems go away by simply ignoring our issues.

It’s okay to be disappointed once in a while. When your health is in jeopardy, you don’t sweep it under the rug or bury it in the sand. A majority of the time, things don’t get better on their own. We all know someone who ignored their health problems for years, if not decades. It can be fatal to your friend who is sick and have a huge impact on their entire family.

For some reason burying our heads in the sand can makes us feel better for a time. But the harsh reality is for those who turn their head away from danger and take no precautions.

The last 12 months have been volatile, mostly on the downside. Watching your assets decline is not pleasant. During these times most people are looking for safety, which begs the question: what is safe?

• Cash in the bank – inflation eats away at it, lowering your purchasing power in the process.
• Real Estate – rising rates will eventually force reductions in equity.
• Fixed Income – rising rates are forcing down prices of bonds.
• Equities – are subject to all of the above.
• Annuities – guarantees are not always what you think they are and can cost large penalties.

So, is there such a thing as safety?

There are a few things prudent investors should consider to avoid failure in retirement:

• Quality is golden.
• Cash flow is king.
• Debt is slavery.

When evaluating investments consider a few things: if a company has quality earnings and sustainability, does it have a healthy balance sheet and ability to weather the storm? The more debt a corporation has, the more it’s subject to other risks which will impact earnings. Finally, cash flow provides the ability to have the freedom to invest and grow in the future.

I try to remind folks: it is not about how much you make; it’s about how much you keep.

I encourage you to open your statements, review them, and talk to your advisors. They work for you, and you have the right to ask questions to keep them accountable.

You can bury your head in the sand, or you can open up your statements and give us a call.

We’re here to answer your questions.

The post What Are You Hiding From? appeared first on AWM.

Sound familiar?

Just last week we had another exhausting encounter with an annuity company.

Our client asked us to help him take money out of his annuity contract and transfer it to his investment account.

Should be easy, right?

Nope.  The annuity company messed up by giving out the wrong information and forms.  They also made our client jump through more hoops. To top it off, they even tried to sell him an additional annuity!

My client was so frustrated; he was willing to pay the penalties to get all his money out.

Our client asked, “Why does it have to be so complicated? There has to be an easier way. How can someone do this on their own?”

So, who is going to help you?

Not the person who sold you the annuity in the first place…

Unfortunately, most annuity salesmen have great incentives to keep your money locked up or even sell you another contract. This protects the insurance company, not you.

Instead, consider a Fiduciary Advisor who can advocate for your best interest.

What will that process look like?

At Ambassador Wealth Management, we break it down into three steps.

1. First, we get to know you, your objectives, and your concerns.
2. Then, we decipher the annuity contact to determine the best course of action for your family.

If it’s best for you to leave your money in, that’s what we’ll recommend. If it’s best for you to take money out, we collaborate on a plan to get it out and examine other investment options.

3. Finally, together we confront the annuity company. We know their lingo and the right questions to ask. We are with you, every step of the way, to help you regain control of your money.

Are you going to try to sell me some sort of contract?

Not us. We don’t sell annuities or illiquid products. We want our clients to be in control of their money.

Ambassador Wealth Management is an independent, fiduciary firm. Our goal is to remove conflicts of interest to better serve each of our clients.

If you feel frustrated and lost with your annuity, we would love to help you.

The post Are you fed up with your annuity? appeared first on AWM.

While Robo-advisors are on the rise, many families still seek a real and personal relationship. If that’s the case, robots won’t make the cut.

Before you begin your search for a Financial Advisor, think about your own expectations and what you’re hoping this professional can do for you. Your money and future should never be taken lightly.

After you’ve done some soul-searching, ask your friends and family for recommendations. You can even reach out to your professional contacts and ask for a few names. Make a list, do some research, and narrow down your candidates.

When it’s time to meet, here are a few things you should know about the advisor before you hire them:

The Investment Management Process

Discipline and a personalized approach potentially can help you reach your goals. Ask important questions like:

• How will this Financial Advisor invest my money?
• Is your investment approach customizable to my individual needs?
• Does the Advisor consider my needs and risk appetite before investing my money?

Financial Planning Capabilities

Maybe it’s not your top priority, but knowing where you’re going and how to get there is critical in tackling other financial situations.  How your liquid investments fit in with your other assets, such as your business and home, could be critical.  Your Advisor ought to consider your whole financial picture before making any recommendations for you.

Custody Arrangements

Which custodian will hold your assets? A reputable custodian should offer you flexible services economically.

Fiduciary vs. Suitability

This might be the most important question. Fiduciary Advisors are obligated to serve your best interests, even if it benefits you at their expense. Suitability Advisors lack this duty. When in doubt, always go with a true Fiduciary.

Fees

There tend to be three pricing models among advisors: a percentage of the total assets they manage or advise, project-based fees, or commission earned on the products they sell.

At the end of the day, you should choose an advisor whose management process, philosophy, fee structure, and business approach make sense to you. And most importantly, you need someone you can trust.

Get Started Today!

The post What should I look for in a Financial Advisor? appeared first on AWM.

Robo-advisors are becoming a more popular choice for tech-savvy investors. Something to keep in mind, however, is that these bots are strictly mathematical. If you are looking for a relationship with your advisors, these robots won’t make the cut. Bots don’t know how to deal with the loss of a loved one, a child getting married, older parents needing your financial support, or your charitable desires.

Before you begin your search, think through your reasoning for finding an advisor and what you hope they can do for you. Never underestimate the seriousness of this task. Who you trust with your money and your future is a big decision that should never be taken lightly.

Once you’ve done some soul-searching, start off by asking your friends and family for recommendations. You can even reach out to other professionals that you trust and ask for a few names. Make a list, and start your research. Weed out the lousy candidates and prepare to set up a long meeting with each of the remaining prospects.

Here are five important items that you should know about your advisor before you hire them:

The Portfolio Management Process

Look at their asset allocation models and how they execute them. Do they use a home office, customized allocations, or a mix of the two? The more assets you have to invest, the more complicated and unique your plan might be. Think through your own situation. Do you have kids in college? What about a special-needs family member? Some couples have a large exposure to one stock. The more variables you add to your situation, the more customizable you need your asset allocation plan to be. Look for an advisor that will look at your portfolio holistically and one that has handled complex situations before.  

Financial-Planning Capabilities

While this item might not be your top priority, lots of people find it easier to tackle various financial situations once their foundational finances are sorted out. Complexities, like funding college, charitable giving, and planning for retirement can be overwhelming before the basics are taken care of. You don’t need an expert in each of these categories, but your advisor should be comfortable giving recommendations or referrals to others who are.

Custody Arrangements

Who is their custodian? This is an important one. You should know who is going to hold your money.

Registered investment advisors (RIAs) are required to use a third-party custodian like TD Ameritrade, Fidelity Investments, or Charles Schwab. For bigger firms like Bank of America and Morgan Stanley, advisors will use their company’s custodian. In some cases, this can create conflicts of interest as advisors promote and design compensation plans around their companies’ products. 

Fiduciary Versus Suitability Standard

Fiduciary advisors are bound to seek out and act in the best interest of their clients. They are also required to communicate any conflicts of interest that might not be the best option for their client. All RIAs are legally required to acts as fiduciaries, while other firms might choose to follow this standard voluntarily.

Advisors who follow the suitability standard do not have to disclose conflicts of interest to their clients. Nor are they required to mention cheaper or more tax-efficient options that might save their client money and heartache in the long-run.

Depending on your preferences and situation, both can be a viable option. When in doubt, however, always go with a fiduciary.

Fees

Financial advisors tend to use one of three pricing models. Either they will charge a percentage of the assets they manage or total asserts they advise, charge project-based fees, or earn a commission based on the number of products they sell.

Fee-based advisors generally charge a certain percentage of their client’s portfolios and often give discounts for family referrals or larger accounts. Advisors who use the project-based model generally charge an hourly fee for each project they take on. Commissioned advisors lean towards the salesmen’s side of pricing. Their goal is to sell mutual funds, annuities, and alternatives to generate large commissions.

You should fully understand the advisor’s billing method after your initial meeting with them. If they are unprepared to discuss billing, you should probably walk away and look at different options. If they pass the test in the first meeting, feel free to schedule a second one.

During your second visit, you will want to go over a detailed explanation of your finances. Who will manage your money? Go over any of your family’s financial planning issues. The biggest thing to watch out for is how much they know. Spending time with someone helps you to learn whether or not they are an expert and know what they’re talking about. Ask a lot of questions.

Closing Thoughts

Depending on how you perceive their explanations, you will need to determine if this relationship is going to work long-term. Consider your future generations in this decision. After all, they will need to deal with this advisor once you’re gone. Also, look into the technology and other resources they use. Are they investing in good technology to run their business and manage your affairs efficiently and effectively? Technology should be an important factor. The advisor should be excited about technological advancements and how it can benefit both of you.

The advisor’s approach and view of technology can say a lot about how he/she will approach your portfolio. As advisors age, their adaptiveness to technology is more difficult for them. Just like anyone, advisors also like to be comfortable and stick to methods they know. For advisors who have been successful in their practice, they might be unwilling to tackle your problems with the latest technology.

At the end of the day, you should choose an advisor whose management process, philosophy, fee structure, and business approach make sense to you. And most importantly, they need to be someone you can trust. In order for this relationship to work, you have to be open and honest with your advisor the way you would with a medical physician. Look for someone you are willing to build a deep relationship with and who will help you navigate your life with purpose.

Start the Conversation

The post What to Look For In a Financial Advisor appeared first on AWM.

Advisors can show their added value by focusing on these seven specific topics:

1. Required Minimum distributions (RMDs).
   

   While this annual IRA ritual is well known among financial advisors, it’s just as common to miss distributions or deal with computational errors. Remember, clients who don’t take their required minimums will get hit with a hefty 50% penalty on any distribution amounts they should have taken. This fee in some special circumstances could be waived by the IRS, but why add stress to you or your client.

   Advisors should be aware of every client who is or will be subject to RMDs by the end of the year. Most have the experience with regular clients who are over 70½ years old and are taking their RMDs annually. Even though it’s not obvious, you will have clients who sneak up as newcomers to the 70½ club or sophomores who might need to take two RMDs this year (their first and second) and required distributions for IRAs or Roth IRAs that they inherited (these include trusts that are IRA beneficiaries). Roth 401(k) plans are also subject to required minimum payouts (Roth IRAs owners are not). This is an important conversation to have with clients if a Rollover is appropriate.

2. Qualified charitable distributions.

   The Tax Cuts and Jobs Act of 2017 provided help for taxpayers through an expansion of standard deductions. That being said, clients who do not itemize their deductions will no longer be able to deduct their charitable contributions. If any of your clients have IRAs subject to RMDs, it’s not too late to contact them and suggest the qualified charitable distributions (QCD) provision. They should also consider making their contributions directly from their IRA.

   The amount your client contributes will count towards their RMD amount and be excluded from income. This creates an “effective” tax deduction on top of the standard deduction. The QCD only applies to IRAs—not plans and IRA owners or beneficiaries who are at least 70½ years old. Donor-advised funds and private foundations are not eligible for the qualified charitable distribution and nothing is given in return for the gift. The annual limit per person is $100,000.

   When contemplating a one-time large donation, clients can still do the QCD even though the gift might exceed the RMD amount, so long as the amount is below the $100,000 limit. Giving more than the RMD removes more IRA funds that will then not fall under income and might even lower the RMD amount for the next year. QCDs will lower adjusted gross income, which may help you with other tax benefits or deductions. Qualified charitable deductions lower tax bills and must be completed before year’s end in order to count for the same tax year.

3. Roth conversions.
   

   The biggest change for IRA planning affected Roth conversions. As of January 1, 2018, conversions are no longer allowed to be reversed. They are permanent and taxes will be due as soon as the funds are converted. Roth conversions are still valuable for certain clients, but going forward, conversions need to be carefully and accurately thought through. In order to qualify for a Roth conversion this year, the funds must leave the IRA or plan by year’s end. Some people confuse Roth conversions deadline (year’s end) with Roth IRA contributions which can be made until April 15th of next year.

   Other tax changes should become a factor when projecting the tax on a Roth conversion. This is in addition to the usual items like taxability of Social Security, increases in Medicare Part B and D premiums, student financial aid eligibility, to name a few. Also, be aware that some clients will lose state tax deductions (the cap is now $10,000, also known as SALT) and the increased standard deduction might not make up the difference. All 2% miscellaneous deductions are also gone.

   For business clients, the new 20% deduction for qualified business income (the section 199A deduction) and the effect a Roth conversion should be reviewed carefully. While some might think these are reasons to avoid a Roth conversion, when looking at long-term financial and tax planning strategies, they are short-term bumps as the additional taxes would only be for the year in which conversion takes place. These issues should be considered carefully, Roth conversions no longer can be undone.

4. Check estimated taxes on RMDs.
   

   Double check to make sure any clients that are new to RMDs had enough money withheld or paid in through estimated tax payments to avoid any penalties. If they did come up short, it might be a good idea to withhold taxes from year-end IRA distributions. This would help satisfy the estimated tax payment timing requirement.

   Add this item to your end-of-the-year checklist for clients with RMDs. Some of our clients will even withhold projected taxes due for the year of their required minimum distributions—taking one more step to avoid penalties. We make it a practice to get to know our client’s network of other professionals, especially their tax advisors. This can build trust and loyalty while also providing holistic services for your clients. IRA withholdings can sometimes be used to cover other income items. RMD money is not usually needed for a large number of clients, which is why the IRA withholdings work so well. The required minimum distribution will often go straight into an investment account. Instead of writing checks for taxes owed, use IRA withholding strategy to satisfy tax liabilities.

   It’s easy for older clients (or even the family members caring for them) to forget or make quarterly estimated payments late and trigger penalties. This is where the IRA withholding works. It eliminates penalties and additional taxes during tax season. Do what you can to relieve some pressure from your clients and their families. This is your time to shine.

5. Split inherited IRAs by year’s end.
   

   If one of your clients, who owned an IRA with multiple individual beneficiaries, passed away during 2017, it’s time for you to help their family make sure all necessary paperwork is completed timely. Each named beneficiary can use their own life expectancy to calculate required minimum distributions (known as the stretch IRA) if the inherited IRAs are split into separate shares before the end of this year. It’s important to get this done in order to use the Stretch IRA. If not, all beneficiaries will be stuck using the age of the oldest, named beneficiary—even if they decide to split their shares later on. The split must be completed by the end of the year after the IRA owner’s death. (We strongly encourage our clients to split the IRAs as soon as possible to avoid forgetting and missing the deadline).

6. You should know how to time a 10% penalty exception.
   

   If your client had to take an early withdraw from their IRA, they may qualify for an exception to the 10% penalty. If they do, the payment must be made in the same year as the IRA (or plan) distribution. This is easily missed at the end of the year, which voids the exception and forces the client to pay a huge penalty that could easily have been avoided. This situation usually affects those who need the money and cannot afford the extra penalties on top of their tax bill.

   Here’s a theoretical example: your client is 54 and needs to help her son pay a college tuition bill by the end of the year. She adds the charge to her credit card in December of 2018. In January, when the credit card bill comes in, she takes an early distribution from her IRA—thinking she qualifies for the education exception to the 10% early distribution penalty for IRAs. Only to find out, she doesn’t actually qualify.

   Your client still has to pay the 10% penalty because the tuition payment (made in December 2018) and the January 2019 IRA distribution were not in the same year.

   Check to make sure your clients who took, or are planning to take an early withdrawal will actually qualify for an exception and not run into similar situations with this “same year” rule. This is a more common issue than most people realize and as advisors, it’s our job to protect our clients.

7. Check the state of lump-sum distributions for the net unrealized appreciation tax break.

   Don’t forget about net unrealized appreciation (NUA) in employer securities. This can dramatically cut your client’s tax bill down. This tax break is for clients who own a share of their companies’ stock through their 401(k). Depending on the stock’s appreciation, it might qualify for the lump-sum distribution tax break on NUAs. Generally, this is triggered by an event: the employee leaves the company, they reach the age 59½, they pass away, or becomes disabled. Under any of these situations, the company funds must be distributed within one year of this life-altering event taking place. If any of your clients qualify for this tax break, check with them to make sure all their plan funds have been withdrawn before the year’s end.

   Non-company stock funds can be rolled over, tax-free, to an IRA, while the company stocks go into a taxable account. Tax (ordinary income) is only paid on the cost of the stock. The appreciation is not taxed until the stock is sold. When it is sold, the NUA is taxed at a lower, long-term capital gain rate—regardless of how long the stock was held.

Here’s a free extra tip: while you are checking these items off your list, check your client’s beneficiary forms. Make sure they exist and are updated with your client’s latest wishes. Beneficiary form errors are rampant, costly, and far too frequent. Do your client a favor and show your added value. When you go the “extra mile”, your clients will notice that you truly have their back and will reciprocate with their loyalty and trust. They will also know that you have their back and are helping them to live their lives with purpose.

Start the Conversation

The post Retirement Planning Strategies: 7 Year-End Mistakes to Avoid appeared first on AWM.

Checking your client’s beneficiary forms can be one of the highest levels of service you give them. Not only will this deepen your relationship with the client, but also communicates that you are seeking out their best interest. This simple but crucial form can open the doorway to many discussions about your client’s loved ones and dreams.

Not keeping up-to-date with these forms can quickly turn into a costly legal battle and hurt your client’s family. Missing or incorrect beneficiaries are an irreversible mistake. Because it’s only discovered once the client has died, this problem is rarely fixed.

This is where legal, tax and financial advisors are brought into the picture. They must decide how to distribute the inheritance without clear instructions and many legal obstacles. This frustrating process quickly leads to very long and expensive family disputes. This mistake is so easy to avoid by simply checking the beneficiary forms before your client passes away.

As a financial professional, the last thing you want to do is have your client’s family waiting for their money or to find out they have been disinherited altogether because no one checked the proper forms. This is bad news for both of you—even if this wasn’t your fault.

The best times to review and update beneficiaries’ information are at annual meetings and around major events such as:

• A birth
• A death
• A marriage
• A divorce
• A remarriage
• A new grandchild
• A change in the tax laws
• Charitable inclinations
• Any other changes that influenced your client to select certain beneficiaries in the first place.

Any of these situations (or others) could prompt your client to change their mind and wish to eliminate a listed beneficiary or add a new heir to their IRA. You should have the kind of relationship with your client to know when these life-changing events occur and proceed to follow-up on their intentions.

The area’s most prone to problems with the beneficiary forms are divorce and IRA trusts.

Divorce:

A great example is the U.S. Supreme Court Case of Kennedy Vs. Plan Administrator.

The court ruled that a $402,000 401(k) should be paid to the ex-wife because she was never removed as a beneficiary after their divorce—even though she had reneged her claims for those assets during the settlement. This eight-year court battle ended with the daughter losing the inheritance her father had intended to give her all because the beneficiary form was not updated after the divorce was settled.

IRA Trusts:

1. Name contingent beneficiaries. Here’s what happens when you don’t:

   Your client’s children could potentially lose their inheritance to their step-family.

   A man and a woman, with children from previous marriages, joined their lives together. The father names his new wife as the primary beneficiary while neglecting to add his own children or a trust as a primary or, at least a contingent beneficiary. This scenario could go in one of two ways:

   Option A: The new wife dies first and he doesn’t change beneficiaries before he dies. Since the new wife was named the legal beneficiary for his IRA, his kid’s inheritance goes to his second wife’s estate.

   Option B: The man dies, leaving his IRA to his second wife. She then proceeds to write out his kids despite his original intentions.

   Again, this would have been easily avoided if the current forms had been kept up to date, the advisor understood the intentions of the client, and chose to make the proper recommendations.

2. A will does NOT replace the IRA beneficiary form.

   A common example is when a client assumes their IRA beneficiary is covered in the will. They go ahead and name one child (who is helping out with the paperwork or caring for the aging parents) with the intent of having their IRA split evenly between their three children.

   He states his wishes for the split assets in his will, but after he dies, the IRA beneficiary form overrides and the entirety of the IRA goes to the named beneficiary.

   Knowing the true intent of her parents, the named beneficiary wanted to make sure the inheritance was split fairly among all three siblings. This process exhausted time, legal fees, tax advice, nerves, and disclaiming other assets to make things even out. This chaotic situation could have easily been avoided.

3. Losing a Stretch IRA.

   IRA beneficiaries can easily extend Required Minimum Distributions (RMD’s) over their lifetimes with something called a “Stretch IRA”. However, a Stretch IRA is only valid if the heir was specifically named as an IRA beneficiary on a current form.

   If the heir receives the IRA through the estate, they forfeit the benefit of the Stretch IRA since the estate is not a designated beneficiary.  Thus, the heir is likely to end up paying higher taxes on the inheritance.

As you consider a new approach to helping your clients, remember that simply writing down a name and social security number is not all that an IRA beneficiary form includes. Consider the recommendation of a fiduciary financial advisor within your network to make sure all of these issues are covered:

• Keeping documentation that is current and accessible in the event of the loss of the account holder.
• Tracking primary and/or contingent beneficiaries (“beneficiaries of beneficiaries”) is also vital to client due diligence.
• Specifically designate the name of the beneficiary as an individual or qualifying trust. Make sure the estate is NOT named as a beneficiary.
• Make sure the most current IRA or retirement plan beneficiary form is on file and is up to date with current information.
• Finally, ask the client to update beneficiaries for investments (example: 401k, pension assets) not directly held with the advisor. Truly fiduciary advisors care about the client’s whole being, not just where they have a direct business relationship.

Don’t make this mistake. Show your client’s that you have their back.

Schedule appointment

The post Where’s the Beneficiary Form…? appeared first on AWM.

The State of Massachusetts fined SII, a broker-dealer, over $5 million both in restitution to clients and regulatory fines.[1]  The reason?  Ripping off people with expensive, inappropriate investments in non-traded REITs and annuities.

Here is one very tragic case study cited in the article:

“The Massachusetts Securities Division became aware of the violations when a 63-year-old nurse complained about the suitability of the products she was sold by SII in 2016. The nurse said she told SII agents she and her adult daughter had significant health issues and she anticipated needing immediate access to her funds. SII sold her three annuities with high surrender fees and lockup periods of five to 10 years, accounting for 72% of her net worth. She was then sold a non-traded REIT, which “far exceeded 10 percent of her liquid net worth,” the Massachusetts charges against SII stated.

When the nurse became unemployed and suffered from medical issues she had disclosed to SII agents, she was unable to access most of her funds without paying significant penalties.”[2]

Why would a broker engage in such rogue behavior with vulnerable people?  Based on the article, “Follow the money”[3] might come to mind.

Could these poor people have had a better outcome had they worked with a fiduciary advisor who should care more about their interests?

Defend the financial health of your family.  Learn how to tell whether your advisor is truly a fiduciary who is on your side or not.

Schedule appointment

[1] Tracey Longo, “Firm LPL Acquired Slapped With Fine for Unsuitable REITs”, Financial Advisor FA., September 7, 2018 on https://www.fa-mag.com/news/firm-lpl-acquired-slapped-with-fine-for-unsuitable-reits-40725.html?utm_source=FA+Subscribers&utm_campaign=d0b7357802-FAN_FA_News_PNC_Webcast_090718&utm_medium=email&utm_term=0_6bebc79291-d0b7357802-222638641  accessed on September 18, 2018.
[2] Idem.
[3] Quoted in the 1976 movie “All the President’s Men”.  See https://en.wikipedia.org/wiki/Follow_the_money  accessed on September 18, 2018.

The post Another Example of Why Suitability Fails to Protect Clients appeared first on AWM.

There is a major difference between price, cost, and value.  This blog will focus on price vs. cost.

There is a big difference between “price” and “cost”. 

“Price” is just advertising – it is only a part of what you are really paying.

Advisors can advertise cheap fees – but they can make money off you in plenty of other ways, such as:

• Using their own firm’s proprietary funds (and making more money)
• Investing your account in stock deals sponsored by their own firm (and getting rewarded with extra compensation)
• High commission products (annuities, REITs, alternatives)

Think of the cheap plastic 2-liter soft drink specials advertised by supermarkets.

Supermarkets advertise “cheap Coke” as “on sale” to get you into the store.  Yet, the supermarket still makes money on you!  When you come inside and buy other, more expensive products, the supermarket still wins.

“Price” is only what you see coming out of your account.

Other money might be coming out of your account, but you just do not realize it. 

Why do people have problems with credit cards?  Isn’t it easier and more tempting to spend money by swiping a card than it is to physically lay out the cash for the cashier?  Yet, you still pay money in both instances.

“Cost” is what you actually pay.  Let’s find out what is included in cost:

1. Advisory Fees

   Advisors often advertise their advisory fees as their “price”.  Depending on what type of advisor you are considering, that may or may not be the full “price” they will charge you.

   Fee-only advisors like us charge only 2 types of advisory fees directly to clients:

   • Management fees (quarterly and assessed directly from investments managed or advised by the advisor)
   • Consulting fees (billed only for projects and plans you request, typically on an hourly basis)

   As we will see later, advisors who are not “fee-only” can charge you money in other ways.

2. Trading Costs

   Whenever you request to take money out, invest money, or the advisor decides to reallocate your account, you incur trading charges.

   Some advisors (or their firms) charge you an additional annual fee for trading regardless of how much, or if, your account is traded or not!

   Our approach is different.  We do not receive any money for the amount of trades you make. (If your account has no need to trade at all, you pay no trading commissions.) You only pay to our custodian bank TD Ameritrade on whatever trades are made during the year.  We believe this better serves our clients in several ways:

   • Reduces the risk of conflict of interest – advisors who charge annual trading fees face a potential temptation not to trade your account as often as they should and make more money off you by not trading.
   • You only pay for the trades you need.
     • We believe it keeps costs down for you.
     • While our general philosophy is to trade sparingly, in the event your accounts require trading, it gives us flexibility to trade them as necessary.
     • For trades in certain investments, your costs might be less (or cost you nothing in some cases) compared to what you might otherwise have paid at other custodians.

3. Expense Ratios for Fund Companies

   Depending on how your accounts are invested, you might be paying expense ratios on pooled investment vehicles (examples: mutual funds, ETFs, other exchange traded products).

   For investors in managed accounts, they might incur an additional direct management fee paid to the manager (not the advisor).

   Pooled investment vehicles like mutual funds and ETFs charge investors an expense ratio.  The expense ratio is an annualized figure that is deducted from the daily performance of the underlying fund positions.  This expense ratio goes toward paying the manager or sponsor running the fund.

   While individual stocks and bonds in theory are a cheaper way to invest than funds and ETFs, many investors end up assuming greater risk and give up diversification benefits that a pooled vehicle can offer.  Larger investors might benefit from individual holdings because they can buy more positions and diversify.

   While pooled investment vehicles incur additional cost versus individual holdings, they can offer advantages that might offset the cost.  Access to certain asset classes (international equities and bonds) in which most US investors cannot invest directly and lower single position risk (more diversification benefits) are two examples.

   ETFs tend to have lower expense ratios than mutual funds.  In some situations, mutual funds offer more benefits than ETFs.  At Ambassador, we use both types of vehicles in many of our investments.

4. Back-end Compensation for Advisors

   Fee-only advisors such as Ambassador Wealth Management receive no outside compensation.

   However, other advisors can and do find other ways to profit off of your investments.  Indeed, unless you investigate carefully, you might never know about them.  You will not see them on your quarterly statements.

   Some ways these other advisors can get paid by you include:

   • Additional annual fees from mutual fund companies they invest client money with (12b-1 fees)
   • Additional annual trailing fees from products advisors sell their clients (annuities, REITs, other products)
   • Commission overrides/bonuses for hitting revenue targets set by broker-dealers for whom the advisor works

5. Commissions for Advisors

   Fee-only advisors such as Ambassador Wealth Management receive no commissions.

   However, other advisors can receive commissions on products they have sold you.

   Examples of products from which other advisors might profit from you include:

   • Annuities
   • Non-Traded REITs
   • Illiquid Alternatives

6. Account Fees Charged by Custodians

   Ambassador Wealth Management receives no additional account fees.  Neither does our custodian bank, TD Ameritrade, charge additional account fees.

   That may or may not be the case depending on the custodian with which your advisor does business.

We value transparent relationships. How about you?

The post Do You Really Know What You Are Paying Your Advisor? appeared first on AWM.

Who are the clients we work with best? 

Below we provide 2 sets of descriptions of clients who might work well with us – along with those that might be better served elsewhere.

Choose a Trusted Fiduciary Advisor if you care about these issues:

• You need help but don’t know what to do.
• You want someone to be there to give advice, implement, and make adjustments well after your first meeting.
• You value a relationship where the advisor cares about you first and foremost.
• You are willing to invest in a strategic relationship.
• You are open to having “heart to heart” conversations and making adjustments.

To be fair, there might be certain clients who might benefit from working with a broker held merely to a standard of product suitability.  As mentioned before, such a relationship is more like working with a product salesperson.

Choose a Salesperson if these issues concern you most:

• You are confident you know the specific product you want to purchase.
• You know how to use the product and need no one else’s help.
• You see no need for further “service” beyond when you make a purchase.
• “Good deal” to you means lowest price, not a relationship of meaningful value.
• Not ready to make other serious changes to achieve your goals.

Schedule appointment

The post Simple Checklist for Choosing to Work with a Fiduciary Advisor or a Suitable Salesperson appeared first on AWM.

How about your current advisor?  Is your current advisor also going deeper with you as a fiduciary?  Or is your advisor merely standing still?

Would you know the right questions to ask to find out?

Here are 10 ways to interview your advisor and see if the advisor really is a true fiduciary – or else someone who just says so.  (You can also ask us these same questions.)

1. How do you build a relationship with my family? What sort of information do you seek from me in order to help me?
2. Are you paid simply based off the fee that I pay you on this relationship? Do you or your firm make additional compensation that I do not directly pay for?
3. How much more money will you make off me if you give me one type of recommendation versus another recommendation?
4. If you make a recommendation and I accept it, how can I come back and ask you questions? Or are you going to spoon me off to some junior advisor and never speak with me again?
5. How often will you update me not just on the recommendation, but also see how I am doing (and if any big changes in my life have occurred)?
6. Do you care enough to discourage me from investing more money with you if you think it would benefit me not to put more money with you for now?
7. Who are the types of clients that you best work with? How do you know I am one of them?
8. Are you concerned about my prosperity enough to have “hard conversations” when my financial strategy will not work with my lifestyle?
9. I don’t have a lot of money.  How do I know you will treat my account fairly compared to other accounts for your larger clients?
10. How are you protecting my personal information?

Click here to see what we would consider as “green light” (good answers) and “red light” (bad answers) to these critical questions.

The post How to Know If Your Financial Advisor Is a Real Fiduciary? 10 Questions appeared first on AWM.