5 Life Changes to Tell Your Advisor About

The meticulous financial plan your advisor drew up is not Gibraltar, forever solid and unchanging. Altered circumstances require your plan to change, too. 

Here are the five life changes you should tell your advisor about: 

Marital Status. 

The way of the world: People get married, and some get divorced. Either way, joint assets are an issue. Your advisor can walk you through what you need to know and what to plan for. 

When you get married, there are a host of questions. Is it a two-paycheck marriage? You need to look at whether you will combine bank accounts, who will pay for what, will you invest separately or together, how will you handle debt, what are your insurance needs? If you both own a house, what do you want to do with your property, and what are the tax consequences of selling one of the dwellings? 

As you start your marriage, planning for its possible end seems like walking under a ladder. Most divorce proceedings split assets 50-50. A prenuptial agreement, while it seems to blight a romance, is good for special circumstances – say one spouse has children from a previous marriage who need to be looked after, and the other partner is childless. 

Whatever you decide, dividing assets is best done between the divorcing spouses, before lawyers get involved. “If you are on speaking terms, this makes the most sense,” says Craig Poeppelman, a financial advisor with Harper Associates in Upper Arlington, Ohio. “The attorneys have no incentive to settle things. They are on the clock.”

Becoming a Parent. 

As the saying goes, you not only add a child. You also add a future financial commitment to medical care, summer camps, new and ever-larger clothing, braces and college. Kids are expensive. 

Your advisor should provide a checklist of what you need to consider – and how you can afford it. Checking what your health plan covers for pregnancy is the first step. Day care, if both spouses will continue to work, is a pricey proposition, eating up as much as a fifth of a couple’s income. 

College expenses are enormous, so getting ready early is wise. The average cost for tuition and fees at a private four-year college is $25,000, and at public institutions for in-state residents, $6,500.  The most expensive top $35,000. A welter of loan and grant programs exist that an advisor can navigate for you. You need to figure out what part of college costs you, the parent, will pay. “Is it 75%, or 100%?” says Jeffrey Baumert, a partner at Advisor Financial Services in Woodstock, Ga. Very few kids get a free ride from scholarships and grants. 

The best means of getting ready is a 529 savings plan, named after the tax code section creating it. You sock away money now for tomorrow’s college bills. The beauty of this: Every dime your invested money earns in capital gains, dividends or interest is tax-free if used to pay for higher education. Should you invest in the plan your state sponsors, your investments may be deductible on state tax returns. You aren’t locked into your state’s plan, and can adopt another state’s. 

Health Problems.

These could mean higher spending from your own pocket. Your financial plan may need to be readjusted to reflect how much cash you must pull from investments. “The question is how much higher the distribution amount to you will be,” Gartner says. An advisor can help you decipher what your medical plan covers and what it doesn’t. Some have no lifetime maximums, good news if you have a serious illness. Others won’t pay bills over $500,000. 

An advisor should tell you beforehand what coverage you need, should you lack it. An illness or injury may strike at any time without warning. For someone without adequate coverage, says John Orlando, the chief investment officer at Financial Security Advisory, in Virginia Beach, Va., the expense “can destroy your life.” 

Inheriting Assets.

Gaining a sudden lump sum, the temptation is to spend the windfall right away. An advisor can steer you away from that and show you how to invest it so it bolsters your finances. The best plan is to shove the money into a well-diversified group of mutual funds. 

Tax planning is vital. If the money comes from the individual retirement account of your spouse, who just died, the IRA should be retitled in your name. Withdrawing some of the money for your personal use, before age 59 ½, can make all of it taxable. If you inherit an IRA from someone other than your spouse, an advisor can show you that the best course is to open a new IRA in your name and transfer the proceeds directly to it. That way, the money doesn’t run through your bank account, thus making it subject to taxation. 

The best way to regard inherited money, before you’ve received it, is not to count on it, Gartner says. “Your father dies and you believe you will receive his money, but then your mom re-marries” and may alter the will, he says. 

Buying Real Estate.

For many, purchasing a home is the biggest single outlay they will make in their lives. A home also is the largest asset for most, even after the housing bust that started in 2006. Yes, home appreciation won’t skyrocket any longer, as it used to. Prices are still falling in some parts of the nation. Once the housing market stabilizes, you likely can expect home appreciation to revert to its normal rate, which tracks inflation. 

Still, the classic benefits of homeownership remain. You can deduct mortgage interest and local property taxes on your federal tax returns. Your capital gains, up to around $500,000, are tax-free should you sell. Typically, house payments are less than rent. And you do build equity, albeit at a slower pace nowadays. 

Buying a second home has traps. If you rent it to tenants, you can treat it like a first home for tax purposes – but only by living in it at least 14 days a year. 

Buying undeveloped land is even tougher. Unless you can rent it out for farming or hunting, it generates no income and plenty of property taxes. You have to hope that you can develop it lucratively, or sell it to a builder. 

An advisor can show you how to work through these complexities. One of Gartner’s clients reported that he had just paid a large sum for several acres of raw land. Gartner thought it was a raw deal. “Fortunately, he had seven days to back out of the deal,” Gartner says. It pays to have someone like Gartner looking over your shoulder.

5 Life Changes to Tell Your Advisor About

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Tips for Financial Wellness: How to Get Organized While Staying at Home

A New Year, A New Opportunity to Work Toward Your Financial
Resolutions

For many people, the New Year is a time for personal reflection, a time to consider commitments, and resolutions for the coming year. This year, why not resolve to make your finances a priority? With proper planning and appropriate guidance, you can begin to build financial stability and prepare for the uncertainties of tomorrow.

Consider the following steps:

1. Get Organized. Gather all your important financial documents—life insurance policies, homeowners insurance, wills, trusts, and other pertinent financial records—and organize them so you can access them quickly and easily.
2. Schedule a Legal Consultation. Arrange a time to meet with your attorney to review or write your will and establish any necessary trusts. Prior to your meeting, discuss with your spouse or other loved ones how to handle property dispositions and guardian appointments.
3. Keep Debt in Check. Pay off high interest debt first, especially if the interest is not tax deductible. Do your best to avoid the minimum payment trap. By making only the minimum monthly payment, the interest that accumulates over time can make even “bargain” purchases costly in the long run.
4. Review Insurance Coverage. Review your life insurance policies to ensure that your beneficiary designations are appropriate to your current situation and that all arrangements are up-to-date. Also, consider repaying any loans you may have against your insurance policies. This can help to reestablish
   an emergency fund for the future.
5. Apply for Scholarships. If your children plan to attend college next year and require financial aid, remember that financial aid forms are due early in the year. The earlier you apply, the better your chances may be for obtaining aid.
6. Prepare a Tax Strategy. Begin to gather your tax information and arrange a time to meet with your accountant, if necessary. It is important to file your income taxes on time and to be aware of any tax changes that may affect your return.
7. Write It All Down. Once you’ve met with your financial, insurance, and tax professionals, write down a few realistic goals that you think are achievable. Make the commitment now to plan your finances accordingly. This is your first step to building a solid financial future.

The New Year offers us a fresh beginning. This year, resolve to make your finances a priority. With proper planning and appropriate guidance, you can begin to work toward financial independence and prepare for life’s
uncertainties.

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Who Needs a Wealth Manager

Wealth managers are professionals that handle complex financial matters on behalf of their clients, typically for an agreed-upon fee. Wealth management services are mainly for high-net-worth individuals and entities. A wealth manager often coordinates services between different experts, such as an accountant and attorney, on behalf of the client.

Wealth management is broader than portfolio management as it offers more encompassing financial planning. Wealth managers provide comprehensive guidance on financial situations that can include investment management in hedge or equity funds, accounting, estate, and tax planning, and retirement planning, as well as legal considerations pertaining to financial matters. Wealth managers may choose to work independently or in larger wealth management firms.

How does one decide whether they need a wealth manager? One indicator is when they outgrow their regular financial advisor and join the ranks of high-net-worth individuals (HNWIs). As an HNWI, one may seek wealth management services to help plan and coordinate their wider financial world. The exact amount of wealth deemed appropriate for wealth management services can vary. The U.S. Securities and Exchange Commission defines HNWIs as those with a net worth above $1.5 million or over $750,000 in investable financial assets.

Another reason one may need a wealth manager is the desire to leave a financial legacy. Legacy planning is complex and aims to protect assets in a tax-advantaged, structured vehicle such as a family trust. When well planned, such a vehicle ensures a thriving and secure future for the family and the charitable causes one supports.

The ever-rising cost of living, including medical care for the elderly and longer life expectancies, have made some people doubt their ability to maintain their standard of living while in retirement. People are keen to secure their retirement, and a wealth manager has the expertise and tools to help such people secure their future.

The strategies used by wealth managers also tend to be more holistic, covering most aspects of a client’s life, not just investments. Wealth managers may guide a client in tax planning, philanthropic giving, and setting up a family or private foundation. The work involves coordinating a comprehensive set of services needed to manage the client’s assets, creating a strategic plan for current needs, and planning for future needs; this may include creating a business succession plan or providing will and trust services. Some wealth managers also provide banking services, while others advise on philanthropic activities.

To illustrate the work of a wealth manager, consider a client worth $2 million in investable assets, with a family trust but has an investment partner who has passed away recently. In such a situation, a wealth manager would invest these investable funds in a discretionary account for the client. Then they would provide the will and trust services necessary for tax minimization. The manager will also guide on estate planning.

A wealth manager understands that a higher-net-worth individual has more complex financial and investment needs than an ordinary investor, which demands a more complex and holistic planning strategy that involves diverse areas. Conversely, for one with a rich and diversified portfolio or a more complex financial and personal situation, it's critical to ask the right questions before picking a wealth manager. It would be best to have someone equipped to help create a comprehensive strategy that covers all needs, from portfolio management, investments, and estate and tax planning.

Trends in Portfolio and Asset Management

The COVID-19 pandemic has highlighted the potential for technology to reshape the finance and investment industry. Data harnessing, insights from analytics, automation, and personalized customer experiences are some of the initiatives that asset management firms have adopted to remain relevant in an increasingly digital world. Firms that cannot keep pace are at risk of becoming obsolete.

Today, investment and portfolio managers are engaging with clients in innovative ways not possible before. They utilize technology for client interaction through digital channels, organizing virtual meetings, handling queries through chatbots, building remote relationships, and providing customized reporting. Asset management firms that use technology to better client engagement are likely to grow faster and be more successful in the future.

Although automated gated processes remain pivotal for success, asset management companies are now looking for something more than speed. Companies need to manage their new and growing product portfolios for a more dynamic environment. The financial and money markets are no longer as stable as they were previously. The dynamics are shifting constantly.

COVID-19 has taught the world that change can happen extremely fast. In response, asset management companies must actively manage their product portfolios to be ready to change strategic direction when the circumstances demand it. The bottom line is to remain vigilant and move quickly when necessary.

The most relevant single metric in portfolio management has traditionally been return on investment. Recently, however, there has been a gradual shift from investment projects to product portfolios and from products to services. With asset management firms rethinking how to add and deliver the most value to their clients, they must also consider objectively measuring that value. The challenge facing many firms is how to shift toward a progressive model of adaptive portfolio management focused on value delivery while taking advantage of the traditional and agile approaches.

As digital assets increasingly become mainstream, asset managers are getting more inquiries from their clients about including these emerging assets in their investment mix. The bitcoin wave has altered how investors look at cryptocurrencies, marking a striking change from just several years ago, when digital assets were looked at with suspicion. But individuals seek to capitalize on the new frontiers, and portfolio managers will have to find ways to incorporate them.

As with any industry today, asset and portfolio managers must grapple with cybersecurity and risk management issues related to the security of customer information and their business. A breach or the actual loss of sensitive client and employee data can be disastrous to the reputation of an asset manager’s brand, not to mention a severe blow to clients’ trust. If investors are to continue working with an asset manager, the latest technology must be employed to protect sensitive data, including encryption and other security measures.

In the future, it will be critical to control asset management costs if profitability is to be maintained. That means adopting new technologies, particularly those that can help automate specific tasks that people previously managed. Also essential is acknowledging what an asset manager can do well and efficiently. The rest can be outsourced to those better equipped to handle it.

Managers should explore using robo-advisors and billing by the hour rather than charging clients monthly or annual retention fees. That will lead to a business model that allows the asset manager to control costs while passing the savings to clients in an increasingly competitive environment.

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