Align Wealth Management – Brian Puckett's Blog

Tools to Help You Make the Most of Your One Financial Life

The typical financial advisor loves to focus on your investments—after all, most earn sales commissions for selling you stocks, bonds, annuities, or mutual funds.

But the team at Align Wealth Management seeks to take care of every facet of our clients’ financial lives, from cash flow to taxes, from insurance to estate planning and charitable giving. Simply put, we believe in treating you as a human being – not as an investment account. And we’re armed with the best tools and technology to make it happen.

Our cornerstone technology for comprehensive planning is a software suite called MoneyGuidePro. MoneyGuidePro helps us gather and consolidate your whole financial life in one place. With it, we—and you—can clearly see your current financial situation 24/7.

MoneyGuidePro clearly illustrates everything from your cash flow to your assets and liabilities. It tracks not just the accounts we manage, but also assets such as bank accounts and loans, all of which can be updated quickly. As a goals based tool, it also records your specific objectives, such as funding college, paying for weddings, buying a home or securing your retirement.

Our clients have direct access to this dynamic tool to ensure that are always on track through the financial planning portal on our website. That’s a big departure from past industry practices, when clients had to call their advisor every time they needed a piece of information. The financial plans themselves used to be paper-based, and often the size of a small phone directory! Now they are electronic and updated in real time. A living breathing plan. Real wealth management.

MoneyGuidePro is full of nifty features. Among them: the “Play Zone,” where you can use sliders to explore the probability of achieving your goals under different scenarios. You’ll see how entering different hypotheticals—saving more, earning different investment returns, retiring earlier or later—affects your statistical probability of success.

You can also learn the impact of higher or lower inflation, different life expectancies, or health-care expenses. In addition, MoneyGuidePro lets us simplify complex calculations to learn, for example, how and when you should claim Social Security in order to maximize your benefits. The more you know about possible future scenarios, the more you can prepare with confidence.

Our investment in technology like MoneyGuidePro reflects our commitment to not only empowering our clients, but also helping them master the many different areas of their financial life. So whether you need guidance on investing, or when to retire, or whether you can afford that big trip or purchase, you can rely on us. We have no financial incentive to focus only on a narrow part of your financial life. Knowing that we can help our clients succeed throughout their entire financial lives is why we love coming to work every day. We are Client Focused. Period.

Giving Clients a Fair Shake

As we’ve previously written, there’s a big difference between stockbrokers and true financial advisors. Brokers are salespeople: Because they’re paid to sell you investments or insurance, they operate under a continual conflict of interest.

True financial advisors, on the other hand, only sell advice, not products. Unlike brokers, they are what’s known as fiduciaries, meaning they must place clients’ interests ahead of their own. Align Wealth Management is a fiduciary firm.

There’s been a major development on this front. Early this month, the Department of Labor ruled that all advisors giving guidance to clients with 401(k)’s or IRAs must adhere to a more stringent “fiduciary” standard. This new rule, which goes fully into effect in 2018, is aimed squarely at brokers. For the first time, brokers will have to act more like true advisors.

At Align, we believe this is a step in the right direction. Consumers should never have to wonder whose interests their “advisor” is putting first. But the fact is that the new DOL rule is riddled with weaknesses. In fact, brokers will be allowed to continue many of the practices that should concern their clients. For example:

Taxable accounts aren’t covered. The DOL’s rule only applies to particular types of retirement plans. That means that brokers can continue to use the old, conflicted approach when advising clients about their taxable accounts.
Sales commissions will continue. Brokers will still be able to earn a payout for each sale they make. They’ll simply have to provide a contract stating that their advice is in their client’s best interests. This compromise allows the old, conflict-prone compensation model to remain in place.
Brokers will be allowed to recommend questionable products. The brokerage industry has drawn criticism for peddling wildly expensive annuities, mutual funds and other more complex products, even if their performance doesn’t merit their cost. Under the DOL rule, they will still be allowed to do this.

It’s important to note that the brokerage and insurance industries fought hard against the Department of Labor’s effort to impose its fiduciary rule. Complying with it will be expensive, and it will no doubt cut into their profits. Make no mistake, brokerage firms will adopt a higher standard of client care not because they want to, but because they’ve been forced to.

Align Wealth Management has always been a fiduciary firm. We chose this consumer-friendly model because we believe it’s important for clients to trust their advisors. Acting in clients’ best interest isn’t something we’re doing grudgingly, it’s our privilege. Caring for our clients in the most objective, ethical way possible is our core value proposition and our business mission.

Brian Puckett | JD, CPA, PFS, CFP®
13921 Quail Pointe Drive | Oklahoma City, OK 73134
T: 405.607.4820 | F: 405.294.3340
125 5th St. S. Suite 201 | St. Petersburg, FL 33701
T: 727.455.0033
Toll Free: 800.401.6477

Maximize Your Returns by Minimizing Your Taxes

Everyone loves earning money, including investment gains—but what’s most important is how much you keep after taxes.

And as you know, taxes are becoming a higher hurdle. The top rate is now 39.6%, plus a 3.8% Medicare surtax on investments for high earners. And that doesn’t include state taxes.

Minimizing taxes, then, is essential for those who want to build real wealth. That’s especially true if we experience more moderate market returns over the next few years. Every dollar counts—and that’s true whether you have a taxable investment account or a tax-deferred account. Eventually, Uncle Sam will want his cut.

At Align Wealth Management, we weave tax management into our investing advice and services. We use the following strategies to help ensure that our clients accrue as little in tax liabilities as possible.

Asset location. If you hold taxable and non-taxable investment accounts, you can gain a tax edge by strategically distributing your investments across your respective accounts. A simple example: Since tax-exempt municipal bonds have built-in tax protection, putting them in a tax-deferred account like a traditional IRA would be redundant. It can be wiser to tuck those munis into a taxable account, and use your tax-advantaged account to house investments that would otherwise be exposed to taxes. Asset location is no minor matter: Researchers at Vanguard have determined that it can boost your net returns by up to .75%.
Tax-loss harvesting. Capital gains from your investments are subject to tax. But losses in your portfolio can be used to offset those taxes. Tax-loss harvesting allows us to use realized losses in order to offset taxable gains, and then to reduce ordinary income, up to $3,000 per year. If you harvest losses in excess of $3,000 in a given year, you can use the remaining losses to neutralize gains in future years.
Long-term investing. When an investment is sold for a profit less than a year after it was purchased, investors are faced with short-term capital gains taxes of up to 43.4%, depending on their tax bracket. It’s vastly preferable from a tax standpoint to hold investments for at least a year, because long-term gains are taxed at a rate no higher than 23.8%. Disciplined, long-term investing is a cornerstone value at Align Wealth Management.

Tax management can also continue to have a significant impact once you’re retired. For example, the order in which you take withdrawals from different kinds of accounts—taxable, tax-deferred and tax exempt—can reduce your annual tax liabilities by thousands of dollars. Research, again from Vanguard, has shown that smart withdrawal strategies can add extra net returns of up to .70% a year.

No one can control the market. But controlling the things that we can—like taxes—can have a powerful impact on our long-term wealth. Please don’t hesitate to get in touch if you’d like to learn more about how to boost your effective gains by lowering your taxes.

What Drives Market Returns?

By Brian Puckett, JD, CPA/PFS, CFP®
Align Wealth Management
www.alignmywealth.com
800-401-6477

In last month’s blog, “Get Along, Little Market,” we discussed the benefits of diversifying your investments to minimize avoidable risks, manage those that are unavoidable when we’re seeking market gains, and better tolerate market volatility along the way.

Our next topic: understanding how to build your diversified portfolio to effectively capture market returns. To do that, we must understand where those returns actually come from.

Market returns represent something deeper than the ups and downs of stocks and bonds. They are our compensation for providing the financial capital that feeds the human enterprise going on all around us.

When you buy a stock or a bond, your capital is ultimately put to work by businesses or agencies that expect to succeed at whatever it is they are doing, whether it’s growing oranges, running a hospital or selling virtual cloud storage. You, in turn, are not giving your money away: You mean to receive your capital back, and then some.

A company hopes to generate profits. A government agency hopes to fund its work with money to spare. Investors hope to earn generous returns. Now,
even if a business is booming, you cannot necessarily expect to reap the rewards simply by buying its stock. By the time good or bad news is apparent, it’s already reflected in share prices.

So what does drive expected returns? One factor is the acceptance of market risk. Stocks, as you may know, are often riskier than bonds. When you buy a bond:

• You are lending money to a business or government agency, with no ownership stake.

• Your returns come from interest paid on your loan.

• If a business or agency defaults on its bond, you are closer to the front of the line of creditors to be repaid with any remaining capital.

On the other hand, when you buy a stock:

• You become a co-owner in the business, with voting rights at shareholder meetings.

• Your returns come from increased share prices and/or dividends.

• If a company goes bankrupt, you are closer to the end of the line of creditors to be repaid.

In short, stock owners generally face higher odds of not receiving an expected return and of losing their money. While stocks are considered riskier than bonds, they have also tended to deliver higher returns over time. This outperformance of stocks is called the equity premium. The precise amount of the equity premium, and how long it takes to be realized, is never certain.

As the chart below shows, stock have handily outperformed bonds over time. However, they also have exhibited a bumpier ride along the way:

Exposure to market risk is among the most important factors contributing to premium returns. But it’s not the only factor. Next month, we’ll continue to explore market factors and expected returns, and discuss why our evidence-based approach is so critical to that exploration.

When a Broker is Your Retirement Nightmare (Part 1), By Align Wealth Management

We at Align Wealth Management have long preached the importance of choosing to work with a “fiduciary” advisor—one who is legally bound to act in your best interests.

Now, it doesn’t take a genius to understand that taking financial advice from someone with a conflict of interest is a bad idea. But a recent Bloomberg report made clear just how great the damage can be when conflicted advisors “help” clients invest their retirement savings.

The multiple brokers referenced in the article allegedly talked clients into “rolling over their 401(k) nest eggs into unsuitable IRA investments.” Those brokers persuaded clients to buy investments that arguably don’t belong in any retirement portfolio—and they pocketed jaw-dropping sales commissions in the process.

Now, there’s certainly nothing wrong with IRAs. In many situations, they’re a fine vehicle for retirement saving and investing. Unfortunately, too many unscrupulous brokers persuade new retirees to set up an IRA and fill it with investments that are dubious if not downright unsuitable.

What sorts of bad investment recommendations were peddled to new retirees? Examples from the Bloomberg article include Puerto Rico municipal bond funds, which are extremely risky due to Puerto Rico’s shaky finances. Another highly questionable investment: non-traded real estate investment trusts, which are especially risky because of their illiquidity. And then there were variable annuities: Because annuities are tax-advantaged to begin with, placing them in an IRA is typically redundant and unnecessarily costly. Incredibly, one brokerage team referenced in the article advised clients to allocate up to 70% of their IRA to variable annuities, with the balance made up by non-traded REITs.

To be sure, these brokers made a bundle on the sales of these investments: The Puerto Rico bond funds carried a 3% up-front sales fee in addition to a 1% annual management fee. The team that sold the non-traded REITs pocketed commissions of up to 7% of the total assets invested. Clients who bought the variable annuities paid similar commission rates–in addition an annual charge of up to 3% for the mutual funds within those variable annuities. To add insult to injury, brokers’ parent companies can and do reward their highest sellers with prizes and trips.

As detailed in the Bloomberg story, poor results and high fees resulted in the sort of losses that can completely derail an investor’s retirement plans.