Variable Annuities Seeing Changes

Posted on April 20, 2013 by admin

We at White Oaks have not been fans of Variable Annuities generally. Now the marketplace is seeing changes which seem to “change the deal” and annuity holders should be aware of what is going on in this space. The Wall Street Journal article today entitled “They’re Changing Our Annuity” shares some important information investors in these products should know.

Estate Planning Challenges

Posted on April 15, 2013 by admin

Few people would put the topic of Estate Planning high on their list of fun things to do but virtually all would agree that its better to have a plan in place than not. Yet, at the same time, contemplating the “end” and the impact it will have on our loved ones when it occurs is about as much fun (apologies to our Dentist clients) as a having a root canal done. Still, we all have heard stories of estates that were not planned and the horrible outcomes that happen on a way too often basis.

Several issues must be considered when considering options. The items below are things we see way too often but should not be viewed as an all inclusive list.

No wills or trust in place: People who say they don’t have a will are technically incorrect. Each state has Laws of Intestacy to govern outcomes when an individual did not make their personal wishes known through a will and/or trust. In the state of Minnesota when there is a spouse and two children the spouse is entitled to 1/3 and the children 2/3. Issues with who will take care of the children is also a court decision. With blended families the issues can get very complicated. Better to state your choices than to let the decision in the realm of the court system.

Beneficiaries not updated and current: Life Insurance policies, retirement plans and other employee benefits often pass by beneficiary designation. A common belief is that the will or trust will trump the beneficiary designation on the policy or benefit plan. Nothing could be further from the truth. The beneficiary designation is considered a contract under the law and passes outside the will and/or probate system. Many would be shocked at some of the beneficiary designations we’ve discovered through the planning process. Examples include former boy/girl friends, previous spouses, relatives who long ago have passed on.

Trusts that have been established but not funded: One of the great planning tools available include the revocable living trust. Properly set up it can avoid probate, maintain family privacy, provide a vehicle for assistance in the event of disability and the need for assistance and create a vehicle when properties are owned in multiple states. Revocable Trusts often cost more than a simple will but are worth it if the need is present and properly funded. Properly funded in simple terms means that assets are titled in the name of the trust. In way too many cases this simply has not been done.

Overuse of Joint Tenancy: When assets are titled in Joint Tenancy with right of survivorship the assets passes to the joint tenant without probate cost. For smaller estates this might be appropriate but it also can subvert the design of the wills and or trusts and in effect nullify the planning done. Titling of assets is a significant portion of estate planning and the easiest and cheapest solution could end up be the most expensive in the long run.

Lack of adequate liquidity: For the record, as a fee-only wealth management firm we’re am not a big insurance fans and want to use life insurance when only absolutely necessary. Yet the families needs for income and the payment of estate settlement costs fall into the necessity category.

Everyone should seek personal input since the issues can go further than this piece can go due to its length. As part of the wealth and financial planning process the subject of estate planning is a vital component that should not be delayed and ignored. Fortunately the recent tax legislation gives a reasonable platform for developing a sound and effective plan.

White Oaks Wealth Advisors Inc can help you address your estate planning needs.

White Oaks First Quarter 2013 Market Update

Posted on April 14, 2013 by admin

The US markets got off to a fast start in the 1st quarter of 2013 once again defying most people’s expectations. Passing the 2007 highs for the S&P 500 and the Dow Jones Industrial Average has new levels of optimism about the US recovery. For virtually everyone the nagging question is: Is this the perfect time to invest (after the market has risen over 100% in the last few years) or will the other shoe drop? Yes, there is always the possibility of yet another shoe! The curious thing is that there has been little resolution to issues such as the budget deficit, European Monetary Crisis, sequester driven economic drag and world geo-political risk.

There have not been any sustainable secular bull markets that have started with 10 year normalized earnings at the 17+ multiple of earnings which is the lowest we have been since the secular bear market started in 2000. Currently the 10 year normalized earnings number is in excess of 22 times. For that reason we remain a bit skeptical and have portfolios aligned in a reasonably defensive manner.

Long-term equity returns have averaged approximately 9% since the early 1900’s. During secular bull markets the returns are higher and lower in secular bear markets. So the question we need to get an answer to is: Are we in a cyclical (relatively short term) or secular (long-term) trend? A key clue we look to is valuations (mentioned above). So far the clue is not there and we still have some issues to work out on a political/economic level.

Yet, our decisions about investing need not be binary. Either we do or we don’t. We have multiple assets classes to choose from and can make good long-term strategic decisions. For that reason we have allocated to areas like real estate where our yield alone is near what we might expect from equities. Other categories like mortgages are also giving high yields. Emerging Market economies are growing faster than the US but the markets have ignored them in the short term. This is very unlikely to persist over the long term.

Diversified portfolios are for the people whose money is critical to their long-term financial security. Speculators and the Uber wealthy can afford to take speculative risks but we would rather take an approach that over time will offset inflation and provide a high probability of better returns over the long run.

View our recording: White Oaks 1st Quarter 2013 Market Update

Succession Planning

Posted on April 8, 2013 by admin

Recently I was honored to be asked to do a guest post on the Vistage Minnesota site. Here is the link to the site. Vistage Minnesota

Developing a Contemporary Financial Strategy

Posted on April 2, 2013 by admin

When I started my career almost 40 years ago the term financial planning was not a common term in the public domain. It was often used to “dress up” the sale of financial products such as life insurance, and expensive mutual funds, structured as contractual plans with first year commissions as high as 20%. Those early days could be likened to the early days of the medical profession that was made of barbers who practiced blood letting or traveling hucksters selling patent medicines out of the back or a wagon.

Today the medical field has professionalized dramatically with credentialed practitioners, accepted processes and research-backed ways to treat and cure patients. The vast majority of the medical field studies hard, works long hours and care that they deliver effective treatments and health care advice to their patients. Yet at the same time there continues to be those hawking miracle treatments promising weight loss or cures of horrible diseases in exchange for your cash.

For those seeking financial advice, there has been a growing and serious minded segment of the financial services world that, in many ways, parallels the medical profession. There still are the “wolf is sheep’s clothing” types that are, for the most part, more interested in selling a financial product or gaining assets under management than delivering objective financial advice. Just like the medical practitioner who needs to be aware of the “patent medicine hucksters” the more professional, advice based financial advisors are in competition with those who purport to provide great advice while at the same time have other objectives in mind.

So how can the consumer, the one seeking professional financial advice, separate the sheep from the goats? White Oaks Wealth Advisors, Inc. believes there are four key criteria to be asked about and evaluated for consideration. They are credentials, compensation, experience and process.

Credentials:

A good friend of mine once remarked, “A Certified Financial Planner designation is the outward manifestation of someone’s seriousness about providing advice to the public”. While not so true 20 years ago, there is little reason not to seek out someone who has demonstrated “their seriousness” about what they do.

The CFP designation requires a course of study in the following areas:

General principles of Financial Planning
Insurance planning
Investment planning
Income tax planning
Retirement planning
Estate planning
Interpersonal communication
Professional conduct and fiduciary responsibility
Financial plan development

In addition, an applicant for the CFP designation must have earned a Bachelors degree from an accredited instituting, passed a comprehensive exam on the areas of study, experience of 6,000 qualifying hours of hands on experience, agree to and complete ongoing continuing education of 15 hours per year and agree to the CFP Boards Standards of Professional Conduct. The CFP Board details background checks on all candidates.

While there are MANY smart people who have skills the CFP designation has the demonstrated educational experience and professional standards that are key to the financial planning process.

Compensation:

As described above the giving of financial advice, like other professions, has a colorful past with many stories of bad products being “sold” to consumers. Upon further evaluation, in way too many cases, there existed a direct, adverse correlation between the amount of commissions and the quality of the advice. As all professions have progressed, so has the compensation issue in the delivery of financial advice. The introduction of “advice for a fee” came about 25 years ago and the concept was quite simple. Pay for the advice and implement the most effective way possible. Cost of implementation would be lower and the advisor would not be tempted to offer a product that maximized their paycheck.

Like most really good ideas the idea has drawn a lot of imitators using the term “fee based”. While sounding like fee-only it is very different in its application. A “fee based” firm/organization has other sources of compensation, as well as, from the client. These compensation sources include underwriting income, finder’s fees, due diligence fees, 12-B1 fees (annual marketing or distribution fees) and many others. These additional compensation sources have the opportunity to present “additional considerations” to the question of which products to implement. There are many ethical, client-centered advisors who receive these forms of compensation but the additional conflicts can, and do, exist. That’s the reason White Oaks went Fee-Only in 1997. It was an interesting challenge to be an early adopter in this “new idea”. Yet, it was the best thing for our clients as it simplified our marketing message and made our internal decision making process clearer and focused.

Experience:

The only ones who seem to dismiss experience are those who don’t have it. As a young advisor I needed to “borrow” the experience of the large firm I was then associated with to obfuscate my youth and inexperience. I worked sometime. Now having worked in this field for nearly 40 years and lived through many a bull, bear and lack luster market I clearly see the world of delivering financial advice differently than my early years.

At the same time my experience, though I believe to be valuable, pales in comparison to a team of professionals that have interesting and varied experience to offer. For that reason we developed a team approach at White Oaks. Each financial strategy that is presented is worked on and reviewed by, not one CFP but, our team of three CFP’s and our CPA. Our CPA is also working on his CFP as well.

This team experience totals over 80 years of combined experience and is not dependent on any one individual for its continuity.

Process:

Often a prospective client will call and want an answer to a specific question that’s pressing them and their decision-making. Sometimes the answer is obvious but, in many situations, the answer may depend on a number of inter-related issues that need to be considered to offer the “best” advice. The medical profession has a phrase” prescription before diagnosis is malpractice”. Giving advice prior to a complete understanding of the goals objectives and overall financial makeup is seldom a good idea.

For that reason a solid process that everyone is clear on is the best way to imagine, develop and put a good plan into place. As the financial planning profession has grown and developed six specific, and distinct, steps have emerged to provide a solid foundation to build a solid plan.

Establishing and defining the client planner relationship.
Gathering client data and goals
Analyzing and evaluating current financial status
Developing and presenting financial planning recommendations and alternatives
Implementing the financial planning recommendations
Monitoring the financial planning recommendations.

How does one know if they are getting a plan that is practical and will fit their needs? A planner/planning firm needs to articulate the process they follow and how the outcome of that specific process will lead to a reasonable outcome. Spewing out random ideas and advice may indicate that the advisor knows some concepts and potential solutions but, it does not reliably lead to a solid plan that will be acted upon.

Summary:

The development of a financial strategy that will fit a family’s or individual’s needs, and be acted upon, is a highly personal process. Personal chemistry between the advisor and you as the client is certainly a big part to building a level of trust appropriate to implement and make part of your daily lives. Demonstrable evidence of competence via credentials is a key component but without the experience and process may leave one short of the desired outcomes. Objectivity is also measured by experience but, when combined with client centered compensation strategies, the confidence should build in reaching a desired level of satisfaction with the end work product.

Ultimately the accomplishment and realization of accomplishing your life’s goals and dreams brings the highest level of personal satisfaction. By developing and following solid, well thought out strategies can bring your dreams into reality. The probability of a successful outcome is greatly enhanced with a thoughtful and diligent process powered by credentialed, experienced, process-oriented team whose compensation aligns with your interests as a partner. The puzzle pieces to a great outcome are identified and putting them in place with a great team will complete the picture.

Deceptive Marketing Practices Exposed

Posted on April 1, 2013 by admin

Investment companies, brokers and even financial advisors have pioneered clever ways to make themselves look far better than they actually are. Recently, in an article in the Journal of Financial Planning, a financial advisor laid out some of the most deceptive practices that he’s run across–practices which, to the untrained eye, can make an ordinary investment company or advice-giver look like a genius.

Such as? Suppose an advisor says that he has the rare ability to hand-select terrific investment opportunities for his customers. To prove it, he shares with you the names of the mutual funds and private asset managers that he has in client portfolios today. He shows you their track records, and indeed their long-term returns are impressively above average. Where do you sign?

The problem is that you have no way of knowing when he selected these investments. He may have chosen them last week or last month, cherry picking the best long-term track records he could find. Showing you what he’s invested in today doesn’t tell you what funds he was recommending last year or over the last twenty years. Chances are, any loser investments the advisor has recommended in the past have been weeded out of the portfolio–safely out of your sight.

This pitch should tell you to run for the hills. Picking hot funds often leads to disappointment. Hot managers have a tendency to cool off, regress back to the mean (AKA, deliver returns as low as the previous returns were high) and reduce your wealth.

Another sly trick you’ve probably seen over and over again is the classic “mountain chart” graph, which shows the total dollar value of $1 invested in an index (often the S&P 500) slinking along the bottom of the page, while the total cumulative value of a dollar invested in the fund, graphed year by year, forms impressive mountains in the sky near the top of the graph.

What can possibly be wrong with that? Every mountain chart shows comparative performance over a carefully-selected time period. If a fund had one really good year, chances are that’s what its marketing department will pick as the starting point, because every year thereafter, the fund portfolio will have more money invested in the markets than the benchmark index, so even if it runs about even with the index from there on, or even loses ground, every return it does bring in boosts the total dollar value that much more. Mountains are made out of one-year molehills.

The article actually shows an example of this clever trickery, by graphing the S&P 500 index against emerging market stocks over two time periods. The chart at the top shows clearly that emerging markets are the true path to wealth–over a carefully-selected time period starting at the end of 1998.

The chart at the bottom looks at more recent data, from the start of 2008 to the end of last year. Same two indices as the top chart, but emerging markets don’t look nearly as impressive in the lower graph.

There’s a point to this exercise. Whenever somebody implies that he has absolutely crushed the index competition–that he has, in other words, consistently beaten the markets by a considerable margin–you can be pretty sure you’re being deceived. Unless you’re talking to Warren Buffett, who has the clout to make extraordinary deals and the patience of a saint waiting for his bets to pay off, be very skeptical of anything that looks like an extraordinary track record. You may be talking to somebody much closer to Bernie Madoff on the spectrum of advisors than a Warren Buffett.

White Oaks Wealth Advisors, Inc. offers clarity in investment management and performance.

Source: http://www.fpanet.org/journal/DebunkingDeceptiveSalesPitches/

White Oaks Private Vault

Posted on February 28, 2013 by admin

Keeping track of important papers and documents is part of keeping one’s financial house in order. Tax returns, wills, trusts, property descriptions and insurance information all need to be accessed at various times. Yet, have you ever found yourself looking for an important document like a will or tax return and can’t find it? You know it’s somewhere (and it is) but where? Have you ever needed to deliver a document (or several) and finding it, copying it, and getting it mailed or FedEx’d and hope you’ll never need to do that again? Most of us have experienced something like this. Sometimes it comes from keeping too much over the years and accumulating volumes of papers; many or most that are not relevant to current circumstances. For that reason we have helped many clients get their papers organized and found a more effective solution for storage and retrieval. This is one the reasons we have the White Oaks Private Vault for our clients to use.

Like a safe deposit box in a bank, copies of important documents can be securely stored for easy filing and retrieval. White Oaks can assist in the setting up of folders and sharing with appropriate parties. As a collaborator of your private folder, you can give others express permission to share/view your documents. This can be a trusted advisor like an attorney or tax professional. In some cases, where family assistance is needed, access (again with your express permission) can be set up so family members can access important papers.

For example, let’s imagine you’re in Bangladesh on a vacation and the need comes up to increase your credit card limit ASAP. You call up the card company and they say “I would be happy to help. You have an excellent record with us but, I need your last year’s tax return as a requirement to authorize the increase.” With a paper system you could call someone at home and tell them where it is. Ask them to scan/email or fax it to you. Of course, they now know where you keep them. Or you could call up your trusted tax professional and ask them to send via fax or email. Or….you could merely log onto your White Oaks Private Vault account, find the tax return and immediately send it to the card company. Okay, maybe a little far fetched but, I’m sure you get the drift: Safe, secure, private and easy to have everything in one place.

If you would like to know more, connect with Micki Larson, our White Oaks Private Vault, Master of the Universe to find out how you can maximize the effectiveness of this valuable tool.

A Purpose Driven Firm

Posted on February 19, 2013 by admin

The Purpose Driven Firm

With a nod to Rick Warren’s book, “A Purpose Driven Life”, I’ve been thinking a lot lately with regards to what the real purpose of our firm is. White Oaks Wealth Advisors, Inc. fills many varied roles for clients: investment management, estate planning, insurance and risk analysis, cash flow planning for a post employment world, family accounting and the list goes on. It’s all too easy to define our purpose with these task-oriented words.

At the same time I believe that purpose is more than that. Purpose is the reason we get up in the morning and do these things. Purpose is the platform on which we can stand and make relevant decisions about what we do or decide not to do. Knowing our purpose empowers a team to do the right thing for the right reasons and not just mechanically perform an appointed task. It is the knowledge about what we are good at that “competition” is merely a word and not a threat to our being as an organization. It is “who we are and a statement about what we are the best at, and the value we deliver to our clients”.

So….what is our purpose? At its essence we enable the accomplishment of our clients hopes and dreams for themselves and their loved ones. If all we do is deliver excellent investment results we have failed at our purpose. Delivering good advice on positioning clients well for good tax outcomes is a neat thing but, it is only part of our purpose as a firm. Working with other advisors to envision a effective plan for transferring wealth to the next generation or to charitable causes can be a part as well. Helping a client with family record keeping and payment of bills done well is an important task. Yet, there are many options for these and many other functions White Oaks carries out each day.

White Oaks Wealth Advisors assists clients with the many tasks and functions listed above and others such as banking, mortgage refinances, insurance assessment and procurement, as well as, many other ancillary functions. Ultimately the question needs to be asked, why does the firm do these things? Who does it do them for?

Some time ago White Oaks decided our motto/tag line for the firm should be “Simplify the Complexities of Wealth”. That was over ten years ago and we feel the thoughts conveyed in those few short words are even more appropriate today than when they were first envisioned. Many (but not all) would acknowledge that life continues to get more and more hectic and complex. New tax laws, investment ideas, pressures of being even more present for career and family, the constant onslaught of new email messages each day that need to be dealt with and unfortunately the list continues on.

Combine the previous paragraph with the new paradigms everyone needs to face with increasing life expectancies. The old rules just aren’t applicable in the same way they once were. Trying to learn and adapt to these new paradigms can be stressful and frightening.

What does all this have to do with purpose? Because dealing with all these issues is our purpose as a firm. The reason this team gets up in the morning, goes to work, and performs their tasks is to allow our clients the ability to envision, create and live out their dreams. By taking a holistic approach to life’s financial challenges and mysteries, pragmatic, effective plans and strategies are developed to help our clients live enriched and fulfilling lives without needing to “know it all” or spend “hours of research and investigation time” trying to find the answers themselves. Not everyone wants to have this type of assistance or entrust someone to help them. We get that! There are some who truly enjoy all the ongoing work and research that is required in today’s world and more power to them. But for people who want to create, build and live the lives they have dreamed about and want capable, intelligent, experienced and credentialed people to help them, that is what we do. Our purpose is to help people “live the dream” in the most effective and practical way possible. Through our fee-only design where we accept no compensation from any third parties you can be assured that “you” are the boss and that your interests are first and foremost in our daily work. Our team of experienced Certified Financial Planners and a CPA provide the highest in expertise, training, ethical standards and assurance of an ongoing commitment to keeping their skills sharp and up to date.

There are many financial firms that offer a list of services similar to White Oaks Wealth Advisors. That can be confusing and obfuscate the real difference. The real difference is the people and the ultimate reason they are showing up every day. We are here to help people with effective, positive financial outcomes while navigating complex scenarios and never ending demands on their time and talents. We are present to help with the guidance and wisdom, gained through education and experience, to create and maintain the outcomes envisioned. We are here to help people live their dream.

Income Tax Views

Posted on February 13, 2013 by admin

We all knew that the tax discussion was not over with the latest tax increases. This post from Knowledge@wharton provides some balanced insights.