Your retirement might depend on it.

2022 has been a rough year.  2023 might not be much better.

You cannot control what the market gives. But there is one important decision you have control over.

Can you still trust the professionals who are managing your money?  Ask them these tough questions:

1. 1. What did you do to cushion my gains from a market pullback?
      

      It seemed easy to “fall in love” with the bull market.

      Yet 2022 has been a bit different.  Not only were stocks expensive, but bonds also were overvalued.  Neither did a good job of protecting your nest egg from falling markets.

      Most advisors were scripted to tout “buy and hold” and not “think outside the box”, be it traditional stocks and bonds or being wed to too many mutual funds.

      If your nest egg fell like the stock market (regardless of how many investments you had), then your investments are not diversified.  Having “too many eggs in one basket” can damage your family’s future.

   2. Why am I paying so much tax even though my nest egg has declined?

      Too many mutual funds in a down market might be a double whammy. Mutual funds can decline in price, yet pay out capital gains that make you pay more in taxes. (Remember 2008.)

      It is not about how much money you make; it’s about how much money you keep.

   3.  Does the person managing my money know who I am (and do they really care)?

      Do they know you don’t have forever to wait for your money to bounce back? Do they call to give you ideas before problems arise in your family?

      Or is your advisor simply a “stock jockey” who ignores the big picture of your family’s needs?

      Does your advisor give you ideas on how to lower your taxes and care for yourself and your heirs? Does your advisor care enough about you to be honest about the challenges ahead?

Don’t be afraid.  Open your statements, review them, and ask your advisor (or yourself) the tough questions.  Hold them accountable.  Accountability can help you have a successful retirement.

If they are not giving you answers that satisfy, it might be time to consider a change. Don’t fall in love with certain investments or advisors. Do what is best for your family.

Give us a call if you want some straight answers and ideas to help.

The post When Should You Fire Your Advisor (Or Yourself)? 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.

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.

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.

The advisor has a responsibility to advise and act in the best interest of the client. Astute clients know they need to be active in driving value from the relationship as well.

So how can you realize the maximum benefits of working with a trusted finical planner? Put these 7 things into practice:

1. Share information.

   More often then not, prospective clients and even current clients choose to withhold information from their advisors. They are afraid or embarrassed to talk about the decisions they have made, how much money they have, or even what their goals are.

   Think about your doctor.  You want your doctor to give you the best advice to improve your health and your life.  In order for that to happen, you need to confide to your doctor details about your life, even if at times it might feel uncomfortable.  Your health history, current problems, how you live, what you eat, and future concerns are vital for your doctor to know.

   The more your doctor knows about you, the better job your doctor can do to take care of you.

   It’s the same with your fiduciary advisor.

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2. Be honest.

   Relating back to number one, many times people will come in and share information. However, that information might be exaggerated or simplified at best.

   If you’re not being honest about your financial state, how can your wealth advisor accurately know how to help you? The answer is they can’t.

   You should expect your advisor to be honest with you, even when it might hurt in the beginning.  For that to happen, you need to be honest, too.

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3. Have reasonable expectations (for outcomes).

   While a fiduciary will act in your best interest, they are not miracle workers. You have to be realistic about your situation, your investments, and the opportunities and risks of the current market environment (which can and does change).

   Astute clients collaborate with their advisors to set reasonable expectations over realistic timeframes.

   Another aspect of expectations is being real about what your advisor can and cannot do. Your advisor needs to clearly understand what you expect out of the relationship and their services. This opens the door for honest and realistic conversation. Your advisor can take the information you have provided, and help you better understand what you should be expecting with your outcomes.

   Clients and advisors who are intentional about defining expectations tend to succeed the most.

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4. Be open to change.

   Because a financial advisor is one who gives advice, clients should be willing to make changes. Now, at the end of the day, you can choose what you’d like to do with your money. But if you are going to take the time to seek out expert advice, be open and willing to consider your advisor’s recommendations.

   A true fiduciary advisor cares about their clients enough to make sure they make appropriate adjustments, especially when their own lives undergo change.

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5. Be engaged – care about your own success!

   Our best clients are those who have a true desire and commitment for us to work with them.  Conversely, clients most apt to suffer disappointment are those who do not really care themselves.

   A true fiduciary cares more about the client than their own paycheck. Advisors expect their clients to be as interested and engaged in these financial conversations as they are.

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6. Listen to reality, not emotion.

   Your actions are not the only thing that should change. A lot of times, we need our clients to change the way they bring emotions into financial decisions.

   There are so many ways we can feel pulled by our money. Fear, envy, and love are the three emotions that drive most of the decisions we make. We encourage our clients to set their emotions aside when talking about investments and big financial decisions.

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7. Have an open mind and don’t jump to immediate conclusions.

   If you walk into your financial planner’s office knowing you have already made up your mind, you’re not fulfilling your role as a client. You have hired your advisor to fill a role. If you resist information that goes against your preconceived biases, it will be difficult to help you.

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When you’re feeling sick and meet with your doctor, they will follow a process of testing, questioners, physical exams and past health history to determine the best course of action. A prescription will only work for a condition that is properly diagnosed and appropriately carried out.

Your fiduciary financial advisor works the same way. They will do everything they can to help you, as long as you also know what your roles are.

Schedule appointment

The post How Doing Your Part in a True Fiduciary Partnership Benefits You appeared first on AWM.

According to the American College of Financial Services [source], nearly 1 out of 2 people were unaware or indifferent if their advisor was a fiduciary [term] or not.

Whether your advisor is a fiduciary or not makes a big difference in how that advisor works with you.

Fiduciary Is the Standard for Advisors Who Care about Relationships

Fiduciary advisors can choose to work with clients in one of two ways.

1. Advisors working as a fiduciary to put their clients’ best interests ahead of their own.
2. Advisors under a fiduciary standard seek to understand the full picture of their clients and base their advice on it.  Clients expect advice to consider their unique goals and situations and implemented at a reasonable cost.  The advisor receives no extra compensation if a client chooses one product over another.

Suitability Enables Broker-Advisors to Sell You Products

In contrast, suitability [term] places much less emphasis on relationship and more on a product.  In other words, can an advisor justify selling a client a product?

Under suitability, advisors can act more like brokers (or salespeople) than trusted advisors.  They simply need to show that a recommended investment is “suitable” for a given client.  There is much less emphasis on the client’s total financial picture.  Instead, products are allowed to be sold to clients so long as they are deemed not to harm their clients’ goals and circumstances.  “Suitability” permits those advisors to earn commissions on their product sales.

Ambassador Is a Fee-Only Fiduciary Trusted Advisor

Our approach at Ambassador is to focus on clients’ total picture (financial and personal priorities).  We are passionate about our clients’ success.  We seek to help you to the best of our abilities.

Yet, we are indifferent as to the solutions that might help our clients.  We do not make more or less money based on one solution versus another.

This is why we have chosen not to sell any commission-based products.  We prefer to care for our clients proactively by minimizing potential conflicts of interest.

There are other ways we strive to go beyond a minimum fiduciary standard.

Sometimes, our loyalty to our clients might even cost us potential further business.

For instance, there have been times when we have advised some clients not to invest additional money with us in order to pay down debt.  We thought it would be better for these clients to reduce their cash outflows to a manageable level before investing more funds.  Our concern for our clients’ well-being outweighs the opportunity for earning additional revenue.

Other situations might arise where a prospective client might want to work with us, yet we believe it is in their best interests to go elsewhere.

Learn more about what makes us stand out in caring for clients like you.

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The post Why Ambassador Works as a Fiduciary Advisor Only appeared first on AWM.