In February of 2012 the DOL published its final regulations on Fee disclosure for 401k retirement plans.  These laws went into effect July 1st of that year and deal with disclosure of compensation for 401k retirement plans governed by ERISA. There is now a requirement that all compensation is disclosed annually – in writing.  The plan provider is required to make a disclosure to the plan sponsor (employer) and the employer in turn needs to make a disclosure to its participants.

In the past, there was a common practice (or dirty little secret) in the 401k world called “revenue sharing”.  Some slick folks just call it “Rev share”.  It’s a practice whereby a mutual fund or insurance company makes indirect and opaque payments to third-party administrators and/or 401k retirement plan advisers.  They do this by raising the expense ratio in the fund above and beyond the pure cost of fund management, then use the excess fees to provide additional compensation (i.e pay off) to the administrator and/or adviser.

This participate is still legal to the best of my knowledge but not in sync with the new laws.  (It was said that Enron started down the wrong path… by employing practices that were “legal” but “sleazy”)

So a 401k solution that’s starting to gain traction is a fully transparent one. The share class of the funds used in the plan are the lowest share class available, usually called institutional shares. The expense ratios in the funds represent only the pure cost of the funds management.  The fees associated with administration, record keeping and financial advice are disclosed, as line – item debits on each participant statement. Hence, the investor can see clearly who is getting paid and how much.

The 401k plan has earned a bad reputation mainly because of hidden fees. Its still the best way too invest for retirement and will become even better as revenue sharing continues its decline and fees are communicated in a clear and straightforward manner.



2016 Tax Update







While Federal Income Taxes are unchanged from 2015 – there were other tax code changes including adjustments to 401k & IRA limits, Standard deduction, Gift & Estate taxes and more.

My friends at Brokers service sent over this handy chart which covers tax changes as well as social security, IRA distribution tables and more…

I found it helpful and hope you do as well!

Here Are 3 Things Robo Advisors Can’t Do








There’s been much talk lately about the rise of the “Robo-Advisor”.  Firms like Wealthfront and Betterment apparently have attracted  backers and investors.  As a retail financial advisor for the past 27 years, of course this gets my attention.  Will I be replaced by a robot and forced to find a new day job?  My best guess is that there may be a place for Robo advisors in the future – and they will probably press traditional advisors to get  better and perhaps lower  fees – But I doubt they will kill the human advisor.  T.V. changed radio but didn’t kill it, correct?  Here are 3 things Robo Advisors can’t do:

1) Provide Faith: Not to get too deep about his, but when markets correct it can be sudden, severe and upsetting.  As industry speaker Nick Murray puts it – in a bear market you can throw out the charts and it becomes a contest of “Faith vs. Fear”.  Many investors are scared their portfolio will go down and never recover.  The main service the advisor offers at this time is Faith.  The advisor (hopefully) has more experience than the investor and a broader understanding of dividends, earnings and the history of the markets so can provide a certain amount of Faith that the long term plan will most likely work out in the end.  This type of faith can only be conveyed in person.  It can’t be provided by a screen or tablet, believe me.

2) Offer Comprehensive advice: The robo advisor is narrow-minded, only focusing on securities:  stocks bonds & cash.  A good advisor today is comprehensive and has a broad understanding of the clients’ total picture including, Risk, Taxes, Insurance, et. cetera.  To illustrate – it often makes sense to annuitize part of ones portfolio at retirement – but the Robo can’t see that because they don’t comprehend risk solutions.  They also can’t see if the client needs more life or long term care insurance, Right?

3) Develop a relationship: Sometimes it feels like a computer has a mind of its own…  but you still can’t develop a relationship with one like you can with a fellow human.  Sure we’ll buy pots, pans and socks on Amazon – but financial advice is much different.  It’s an invisible service, very complex and visceral.  Like an accountant or estate lawyer – folks with assets or income to speak of need a relationship – which you can’t get from a Robo  Advisor.

We All Own Public Equities








We all own equities.  Even if you’re not “In the Market” you get up in the morning and wash your face with soap (hopefully).  Perhaps you bought that bar of soap from one of the leading soap makers? (Colgate Palmolive founded by William Colgate in 1806/ticker symbol CC).

We put on our sneakers – for many of us they are NIKE (ticker symbol NKE).

Then you get in your car and drive to work.  Maybe it’s a Ford? (Founded by Henry Ford, revolutionizing transportation in 1806/ticker symbol F) – or a Toyota? (ticker symbol TM).

We can go on and on with this.  If you live in America – or any developed nation – you are wholly intertwined with public equities every day regardless of your 401k allocation.  Like it or not, you are invested in public companies, run by ordinary people, cranking out products you use to live on a daily basis, while trying to turn a profit.

For 27 years as a financial advisor and planner, I have heard time and time again why people don’t want to invest in the “Market”… because they don’t trust the system or they are “bearish” or “pessimistic about the future”.  What they are really saying is they don’t trust people and they don’t trust the lives they are living every day.

So they keep their money in CD’s earning 2% while the bank invests for them earning  5% or 6% and the bank keeps the difference and they feel safer because they “didn’t invest”.

If you are considering investing in public equities, you may want to maintain a proper perspective and time horizon. Consider this chart – courtesy of Returns 2.0









But in the end remember that if you don’t own public equities, you are still investing…. when you wash your face, put on your sneakers and drive your car.. you’re just missing out on long term appreciation and dividends.

Good luck!


Alternatives to what? Sometimes genius fails







If you are investing in the public markets for retirement income, the “traditional” asset classes you can select from include stocks, bonds and cash.  These asset classes have credible historic data going back to around 1929.

More recently, we have witnessed the promotion of “Non-traditional” asset classes, which include names like “Convertible”, “Private Equity”, “Absolute Return”, “Managed Futures” and others.

These “hedge-fund like” investments are touted as diversifiers to traditional equity and fixed income asset classes (i.e stocks and bonds) and they became popular with smaller retail investors and advisors after the 2007 – 2009 crash. From my experience, they tend to just increase cost and complexity without adding value.  While there may be a place for these funds in very large or institutional portfolios, in my view they make no sense for accounts under around 500k.

Very smart folks that run the endowments at Harvard, Yale and other smart institutions added these investments – in reaction to the events of 2007 – 2009 leading to under-performance.

A recent article from the WSJ examines this topic which can be found here.

Your Dentist, In-Laws and Life Insurance







Going to the dentist.  Visiting your in-laws…. Some things just aren’t that much fun.  And we can add to the list…. Life Insurance!

Who wants to think about death?  And then… have multiple meetings with a talkative salesperson, fill out a plethora of forms, be examined by a stranger and divulge all of your personal  financial & health information.  And after all of that, wait weeks for a “decision”.

Makes the dentist visit look easy!

Perhaps that’s why a recent survey indicates 98% of Americans are under-insured.  So if you can muster the strength to review your life insurance situation, here are some considerations:

  • Life insurance is protection – not savings.
  • Term life is the most inexpensive by far – but will not carry you into retirement.
  • Whole life is the most expensive, but covers you for your entire (whole) life and builds lots of cash value.
  • Universal life is sort of a combination of term and whole life.
  • You’re probably under insured.

While we all  like to poke fun of insurance people and companies – it is true that when someone passes away all of the professional send bills:  Accountants, lawyers, Rabbis, Priests and tax collectors.  Only the insurance company brings a check – all the more reason to keep your insurance up to date.

401k Investment Menus: Research Summary






While mutual fund companies are in the business of growing and managing their funds – not record-keeping and administering 401k plans – they continue to play a significant role in the 401k business, offering a “bundled” approach where they serve as fund manager as well as record-keeper and third party administrator.  This can create a conflict of interest because they are hired by the plan sponsor to manage the plan in a fashion that serves the best interest of its participants – yet the fund company has a clear incentive to offer their own “Proprietary” funds which generate greater margins for the mutual fund family.  As John Bogle said of the fiduciary debate “No man can serve two masters”.

A recent study by the center for retirement research found that additions and deletions from the investment lineup often favor the company’s own family of funds (i.e proprietary) adversely affecting the retirement income security of participants.  The study can be found here.


Estate Planning Smarts Book Review








Deborah L. Jacobs just published the 4th edition of her widely recognized book “Estate Planning Smarts”.

Thoughtfully and thoroughly Jacobs bridges the gap between abstract theory and practical application on a subject very few of us like to think about – which I guess is why about half of American adults with children have not made a will!  According to Jacobs, the book is not designed to replace an estate attorney – but rather to give us background and context before meeting with one.

Out of the gate in chapter one, Jacobs sets the tone by imploring us to draft the 5 “Essential Documents”:

  • Will(s)
  • Durable power of attorney(s)
  • Health Care Proxy(s)
  • HIPAA release(s)
  • Living will(s)

Do you have these documents in place?  If not, it’s a good idea to find an attorney and get them drafted – it could save your loved ones a lot of time, money and difficulty.

Chapter 3 enlightens us how recent changes in tax law have helped:  We can currently transfer 5.43 Million during lifetime or death before either gift or estate taxes kick in (known as the applicable exclusion).  However… a quirk that complicates planning today is that (at last count) at least 19 states have state estate tax on top of the Federal.

And in many states the state tax exemption is not unified with the federal.  Jacobs reminds us that this requires careful and creative planning and several ideas are described in the book.  Separately, the folks at PRW wealth management have put out a nice chart to find out what the 2015 exemption is in your state – which can be found here.

There is a lot more in the book covering:  trusts, retirement accounts, life insurance, gifting, creditor protection etc.

In the end the best approach is probably to hire a financial advisor – along with an estate planning attorney – but for those who like to start with books, I have found none better on the topic of estate planning than Estate Planning Smarts by Deborah Jacobs.


How America Saves







For better or worse – time will tell – the 401k and 403b plan has become the centerpiece of our private sector retirement plan system.  Today, over 90 million Americans participate – with assets totaling about 6.5 trillion.

One of the leaders in this market is Vanguard – overseeing more than 670 Billion in retirement plan assets.  And every year since 2000 they have been publishing a report called “How America Saves” – dissecting their 401k and 403b data.  The 2015 report just came out and here are three highlights:

  1. Professionally Managed Accounts continue to rise in prominence:  45% of all Vanguard retirement plan participants are now invested in either a single target date fund, balanced fund or managed advisory service.
  2. High level savings remains steady:  Plan participation was 77% in 2014, with the average participant deferring 6.9% of income to their retirement plan.
  3. Automatic (“auto”) features are growing:  The adoption of auto features has grown by 50% since 2009, 30% of Vanguard plans now use auto – enrollment.

There is more in the report including the Rise of the Roth option (56% of Vanguard plans now have a Roth option – with 14% of participants electing the option) and lots of other information – which can be found here.


Is She Better Than Him









It was the darkest hour of my career as a financial adviser.  Somewhere around April or May 2009 – ….. I am sitting with my retired clients and have to give them the bad news.  Their portfolio (mostly Equities, long only, a lot of index funds) is down about 50%.

He is getting nervous and starts to cough.  She doesn’t blink an eye and calmly says… “it’s only a paper loss – it will come back!”

We stay the course and six years later we are ahead of where we started – by far.  It was interesting to observe how  a man reacted differently to the news than a women.  And more evidence about this pattern continues to come in:  Women make better investors than men! 

Women tend to view money more holistically and – in general – focus more on long term goals while men tend to emphasize transactions.  Some research indicates that men trade 45% more than women!  A 2009 study by Vanguard found that during the 07-09 crisis, accounts led by women went down less than accounts led by men.

Why are women better investors?

  • Men are more competitive:  They try to “beat their rivals” … and are less apt to take outside advice.
  • Men are more overconfident:  This can lead to more risk
  • Men have more testosterone:  And there are connections between testosterone levels, estrogen levels and trading/investing with reason.

So what can men learn from women about investing?  Trade less, be more realistic, take outside advice…and stick to a long term plan and strategy.