MYTH: Ken Fisher's Lewd Remarks Don't Matter

 In case you're new to this tempest, Ken Fisher is the prolific author, WSJ writer & CEO of financial behemoth Fisher Investments.  At a recent Tiburon CEO Summit in October Fisher, a featured speaker, made several sexist, lewd remarks in portrayal of how the investment business operates in general*.  Contrary to most of the media, according to Fisher, he was describing this industry not his beliefs about how it should be run.  Still, as usual, the title of this post is a myth.  I believe Fisher's remarks do matter but not as momentously as the financial press would make it seem.

All the self-righteous hullabaloo is pollyannish and naive in the face of the larger obscenity that has not been addressed:  Fisher is a billionaire.  And then there's the subsidiary obscenity to that which is the ways he became a billionaire: merciless boiler rooms harrassing people on the phone all day,  the millions spent on questionable mass mail campaigns, & idiotic and disengenous advertising & public statements e.g. "I would rather die and go to hell than sell someone an annuity" & "I hate annuities and you should too".

I agree with Bernie Sanders that billionaires should not exist.  I think $999 mil. is plenty of "reward" for anybody.  The record wealth disparity we have today presumes there is a direct & uniform correlation between wisdom and wealth, virtue and wealth, value to society and wealth.  There are plenty of prominent models proving that this is false, including Ken Fisher.  No individual should be able to change the rules of commerce at will.  Billions can buy a lot of lawmakers and that is indeed what has occurred.

It is obscene that billionaires exist while families go bankrupt from medical bills.  It is obscene that billionaires exist while people die because they can't afford their prescriptions.  It is obscene that billionaires exist while we we mercilessly extract resources and other wealth from other nations.  It is obscene that billionaires exist while graduates stagger under record tuition debt design to create ever more billionaires.  Yet the financial press is all in a tizzy because Ken Fisher- accurately, I might add - likens the conventional sale of securities to trying to get into a girl's pants.  Both are driven by lust as well as disregard for the other person.

So Fisher's juvenile similes are merely symptoms of the problem, they are not THE problem.  The problem is wealth disparity resulting from the increasing ease with which unmerited wealth can be accumulated, an ease progressively enhanced by the super rich.  That is obscene in any society since it is the universal precursor to a failed civilization.

Your Constructive Comments are Welcome!

*all the juicy details here:  https://www.thinkadvisor.com/2019/11/25/cover-story-tipping-point

MYTH: I Hate Annuities

This is a myth.  I don't use some of them, the expensive ridiculously high commissioned restrictive poorly performing ones.  But I agree with the authors of the article below:  I neither like nor dislike "annuities" as a class because they are a widely divergent collection of financial tools.  Some are indespensible and some are useless.  It just depends on your goals.

By John L. Olsen and Michael E. Kitces | November 06, 2019 at 03:32 PM

 

As advisors who often talk about annuities to financial advisors, we are often asked whether we “like” annuities. To that question, our standard answer is that we neither like nor dislike them—because they’re just tools, which work well in certain circumstances and do not work well in others. Occasionally, that response will elicit what may appear to be a better follow-up question:
“When—that is, in what planning situations—does an annuity make good sense and when does it not make good sense?”
That’s a core question, and one that might be in the mind of you, our reader. What’s our answer? One answer might be that “it depends… on the specific facts and circumstances of the case.” That’s a reasonable and rather obvious reply, and what our audiences often expect to hear. But it’s not our answer.
Our answer to that question is that the question in unanswerable—until we know what the questioner means by an annuity in the first place. Are we talking about a variable deferred annuity or a fixed immediate annuity? Those contracts are hugely different.
Each is an “annuity,” but the two contract forms are designed to meet completely opposite needs. Generalizations, always hazardous, are especially unproductive when used with annuities. A true statement about fixed annuities is likely to be false when applied to variable ones, and vice versa. The same is true when the annuities are immediate versus deferred. Yet many, if not most, consumers—and all too many advisors—routinely generalize about annuities, often to the extent that their conclusions are so flawed as to be worthless.
If we bear in mind this caveat—that we must generalize only when our assessment can be generally accurate—can we now attempt to answer the question posed earlier: “When, and in what planning situations, does an annuity make good sense and when does it not make good sense?” We believe that we can, and should, construct bright line tests to help us determine when an annuity is likely to be suitable for our client.
1. Where the Goal Is Immediate Income
When immediate income is the primary goal, an immediate annuity may be appropriate, so long as it is understood that it may provide no benefit at the annuitant’s death. Indeed, if the annuitant lives beyond the point where any refund element is payable, an immediate annuity will not provide any death benefit.
2. Where the Goal Is Income in the Future
Where the goal is income in the future, several annuity strategies may be appropriate.

1. Accumulating money now, to purchase an immediate annuity later
2. Purchasing a longevity now
3. Purchasing a “ladder” of longevity annuities over time
4. Purchasing a deferred annuity now, and activating the Guaranteed Lifetime Withdrawal Rider later.

3. Where the Income Amount Must Be as High as Possible on a Guaranteed Basis
Where the primary goal is income and where the amount of that income must be as high as possible on a guaranteed basis, an immediate annuity is ideal. The key word, here, is guaranteed, given that other alternatives (e.g., portfolio-based strategies) merely have the potential of generating greater retirement income, but the investor/retiree cannot be fully assured that they will.
Where the income period is a fixed number of years, a Period Certain fixed immediate annuity will generally provide a greater amount per year than can be assured from any investment alternative because the non-annuity alternative must often preserve principal.
4. Where the Goal Is Accumulation of Capital
Where the goal is capital accumulation, an immediate annuity is clearly not suitable, but a deferred annuity may be. If preservation of principal is a requirement, a fixed deferred annuity might be appropriate, but a variable one, in the absence of a Guaranteed Living Benefit rider, might not. This is because a variable annuity, except to the extent that its cash value is invested in the fixed account, does not offer safety of principal.
If, however, the purchaser is willing to regard a return of purchase payments in installments, no matter what happens to policy earnings, as a guarantee of principal, a Guaranteed Minimum Withdrawal Benefit (GMWB) rider to a variable deferred annuity can serve as an instrument for capital accumulation with “safety of principal.”
Indeed, the GMWB provision of many contracts includes a step-up feature that not only assures the return of the original investment in installments, but also any contract gain accrued as of the point where the step-up option may be exercised. However, it is important to emphasize that in this context, the safety of principal provided by the deferred annuity exists only if the annuity owner accesses the principal according to the terms of the guarantee. In the context of a GMWB, this means that principal is not guaranteed, unless the annuity owner is willing to extract that principal as a series of periodic payments over a span of many years.
(Excerpted from The Advisor’s Guide to Annuities, 5^th ed.)




Your Constructive Comments are Welcome!

You Can't Get Decent Returns Without Risk

This could, or could not, be a myth depending on how we define "decent" and "risk".

My definition of "decent" is a rate of return that exceeds the "risk-free" rate plus inflation.   The risk-free rate is typically the T-bill rate or long-term government bond yield.  The current long-term composite (>10yrs) is 2.12, down from 2.35 a week ago.  The current long term projected inflation rate is 1.9%.  So a ROR of 4.02 would be decent, according to my definition.

Take a look at the private wealth portfolios below, from FTA Wealth Advisors.  The grayed out columns are the benchmark indexes.  Look, for example, at the Foundation Strategy column.  Worst historical drawdown was -9.47%  while the S&P500's was -50.95%!  And since inception- including both recessions -it averaged 6.22% vs. 5.5% for the S&P.  The bottom row shows median monthly returns.   Then take a look at the next chart.

This shows year by year performance.  Wouldn't it have been nice to have made money during the last two recessions instead of losing it and needing almost 10 years to recover?

Strategy Disclosures
Disclosure applicable to all strategies:
Performance prior to 9/30/16 has been independently verified by Alpha Performance Verification Services. Please ask your financial advisors for a copy of the performance verification
report.
Performance presented is hypothetical (back-tested). The back-test calculations are based on the same methodology used when product was/is launched. The actual strategy invests in index and
bond funds and/or ETF’s which may be similar but different from the instruments used in the model. Prospective application of the methodology used to manage the basket may not actually result in
a performance commensurate with the back-test returns as shown. The back-test period does not necessarily correspond to the entire available history of the basket or any individual instrument. No
ETF expenses, trading costs or custodial fees are accounted for in the hypothetical data. Hypothetical model results have inherent limitations due to the fact that they do not reflect actual trading and
may not reflect the impact that material economic and market factors might have had on the advisor’s decision-making if actual client funds had been invested in the strategy. No matter how positive
the model returns have been over any time period, the potential for loss is always present due to factors in the future which may not be account for in the model.
The investment strategy that the back-tested results were based upon can theoretically be changed at any time with the benefit of hindsight in order to show better back-tested results and
theoretically the strategy can be adjusted until desired results are achieved. Therefore back-tested or hypothetical data must be approached with caution because it is constructed with hindsight and
may not reflect material conditions that could affect a manager’s decision process, thus altering the application of the discipline. There is no assurance that these back-tested results could, or would
have been achieved by FTA during the periods presented.
The data used to construct the back-tested results were obtained from third-party sources. While FTA and outsourced providers believe the data to be reliable, no representation is made as to, and
no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information and opinions expressed in this document are for informational purposes only.
Any recommendation or opinion made in this document may not be suitable for all investors. The information contained herein does not constitute and should not be construed as investment advice,
an offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Past performance does not guarantee future performance. While FTA believes that the factors which have historically affected the markets over time will continue to do so, there can be no guarantee
that these effects will persist or that they will have the same intensity as past time periods.
Disclosures to Country Rotation Strategy
Third Party Model Creation: The Logical-Invest Country Rotationi Strategy is developed by and licensed from Logical-Invest.com. Logical-Invest.com is not a registered investment advisor and does not
provide financial investment advice. Logical- Invest solely creates and maintains models that it licenses to other firms. Software provided by Logical-Invest.com is solely responsible for the
performance described herein. Financial & Tax Architects, LLC (“FTA”) receives trading signals for this investment strategy from software provided by Logical-Invest.com. From time to time FTA
utilizes these signals as a part of this strategy. Execution of trading signals, performance, and allocation may differ from what is displayed described herein. Thus, FTA’s future performance using the
signals provided could materially differ from described performance.
The Country Rotation Strategy (CRS) is a strategy created by Logical-Invest.com and licensed by Financial & Tax Architects. It seeks to add geographic diversity through the rotation of a wide variety
of individual countries ETFs by blending the mix of risk adjusted growth. This strategy offers significant non-US global exposure and allows for the harvesting of returns from those outperforming
countries even in a sideways market. The strategy uses momentum and relative strength indicators to choose between countries. When risk is high, it invests in fixed income ETF's. The strategy
pursues a rule-based investment process that allocates between Long Duration Bonds and the four top ranked countries or regions to try to achieve an optimal risk/return profile.
Disclosures to Global Sector Strategy
Third Party Model Creation: The Logical-Invest Global Sector Strategy is developed by and licensed from Logical-Invest.com. Logical-Invest.com is not a registered investment advisor and does not
provide financial investment advice. Logical- Invest solely creates and maintains models that it licenses to other firms. Software provided by Logical-Invest.com is solely responsible for the
performance described herein. Financial & Tax Architects, LLC (“FTA”) receives trading signals for this investment strategy from software provided by Logical-Invest.com. From time to time FTA
utilizes these signals as a part of this strategy. Execution of trading signals, performance, and allocation may differ from what is displayed described herein. Thus, FTA’s future performance using the
signals provided could materially differ from described performance.
The Global Sector Strategy is a strategy created by Logical Invest and offered by Financial & Tax Architects. The strategy is based on seeking an optimum allocation between the Global Equity Sectors
and Long Duration Treasuries market. Equity Sectors present well-defined, long lasting cycles along the overall economic cyclical development of global markets, therefore allowing the strategy to
receive returns from the outperforming sectors even as the market goes sideways. Simultaneously, the strategy benefits from the long term inverse correlation between equity markets and long
duration bonds while capturing value from the money flows into safe havens of US treasuries in crisis times.
Disclosures to Sleep Well Bond Strategy
Third Party Model Creation: The Logical-Invest Sleep Well Bond Strategy is developed by and licensed from Logical-Invest.com. Logical-Invest.com is not a registered investment advisor and does not
provide financial investment advice. Logical- Invest solely creates and maintains models that it licenses to other firms. Software provided by Logical-Invest.com is solely responsible for the
performance described herein. Financial & Tax Architects, LLC (“FTA”) receives trading signals for this investment strategy from software provided by Logical-Invest.com. From time to time FTA
utilizes these signals as a part of this strategy. Execution of trading signals, performance, and allocation may differ from what is displayed described herein. Thus, FTA’s future performance using the
signals provided could materially differ from described performance.
The Sleep Well Bond Strategy is a bond rotation strategy licensed by Logical-Invest.com and offered by Financial & Tax Architects that seeks, through optimum allocation, to achieve superior returns
while attempting to offer a risk profile similar to that of the broader based US bond market. The strategy pursues a rule-based investment process that uses ETF's to allocate between long term US
treasuries, High Yield Corporate Bonds, Emerging Market Bonds and Convertible bonds to try to achieve the appropriate risk/return profile so that the allocation among the asset classes is
optimized. Cross-correlation and volatility of asset classes are accounted for to try to achieve lower overall portfolio volatility. The strategy is designed as an all-weather, diversified, multi-asset
strategy generating optimal performance while attempting to mitigate downside risk.
Disclosures to US Prime Dividend Strategy
The U.S. Prime Dividend Strategy invests in leading American dividend paying stocks and/or ETF's to expose the investor to companies with increasing, sustainable dividend payouts. The strategy
employs an intermediate tactical overlay in order to determine when the strategy should have a bullish or bearish stance. When the strategy has a bullish stance, it is fully invested in an array of
American dividend paying stocks and/or ETF's. When it is in a bearish stance, it is invested in an ETF designed to track the Barclays Capital US Intermediate Aggregate Bond index.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for U.S. PRIME DIVIDEND STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to,
the following: (i) U.S. PRIME DIVIDEND STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation
methodologies described above; (ii) model performance may not reflect the impact that all or any material market or economic conditions would had on use of U.S. PRIME DIVIDEND STRATEGY by an
individual client; (iii) for differing reasons FINANCIAL AND TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were
or may have been materially different from those reflected by the U.S. PRIME DIVIDEND STRATEGY model performance. For Example, variances in client account holdings, investment management
fees incurred, the date on which a client began using U.S. PRIME DIVIDEND STRATEGY, client account contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s portfolio to vary substantially from the U.S. PRIME DIVIDEND STRATEGY model performance results; and (iv) different types of investments and investment strategies involve
varying levels of risk, and there can be no assurance that any specific investment or strategy will be either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for U.S. PRIME DIVIDEND STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect
reinvested dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the
historical index performance results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in
determining whether the index performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios
will correspond directly to any such comparative benchmark index. Further, the comparative index may be more or less volatile than U.S. PRIME DIVIDEND STRATEGY.
Disclosures to Foundation Strategy
The Foundation Strategy attempts to emulate, as best as possible, the diversified investment style practiced by leading endowments, specifically that of Yale University. The strategy invests in ETF's
designed to track the performance of large domestic stocks, large foreign stocks, 10-Year Treasury Notes, the Goldman Sachs Commodity Index, and the NAREIT Real Estate Investment Trust
Index. Each asset class is separately graded on a technical score designed to move into bonds when that asset class is in a prolonged downturn.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for FOUNDATION STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to, the
following: (i) FOUNDATION STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies described
above; (ii) model performance may not reflect the impact that all or any material market or economic conditions would had on use of FOUNDATION STRATEGY by an individual client; (iii) for differing
reasons FINANCIAL AND TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been materially
different from those reflected by the FOUNDATION STRATEGY model performance. For Example, variances in client account holdings, investment management fees incurred, the date on which a
client began using FOUNDATION STRATEGY, client account contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s portfolio to vary
substantially from the FOUNDATION STRATEGY model performance results; and (iv) different types of investments and investment strategies involve varying levels of risk, and there can be no
assurance that any specific investment or strategy will be either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for FOUNDATION STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect reinvested
dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the historical index
performance results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether
the index performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios will correspond
directly to any such comparative benchmark index. Further, the comparative index may be more or less volatile than FOUNDATION STRATEGY.
Disclosures to High Yield Corporate Bond Strategy
he High Yield Corporate Bond Strategy (HYCB) uses a blend of High Yield Corporate Bond mutual funds and/or ETF's overlaid with sell triggers designed to attempt to minimize downside risk. This
strategy seeks to take advantage of the well-documented return premium available in the High Yield Corporate Bond universe while attempting to minimize drawdowns through security-specific risk
tolerance limits.. Securities are subject to risk mitigation designed to prevent prolonged downturns.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for HYCB STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to, the following:
(i) HYCB STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies described above; (ii) model
performance may not reflect the impact that all or any material market or economic conditions would had on use of HYCB STRATEGY by an individual client; (iii) for differing reasons FINANCIAL AND
TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been materially different from those reflected
by the HYCB STRATEGY model performance. For Example, variances in client account holdings, investment management fees incurred, the date on which a client began using HYCB STRATEGY, client
account contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s portfolio to vary substantially from the HYCB STRATEGY model
performance results; and (iv) different types of investments and investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or strategy will be
either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for HYCB STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect reinvested dividends, but
do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the historical index performance
results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether the index
performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios will correspond directly to any
such comparative benchmark index. Further, the comparative index may be more or less volatile than HYCB STRATEGY.
Disclosures to International Prime Dividend Strategy
The International Prime Dividend Strategy invests in leading Foreign dividend stocks or ETF's designed to expose the investor to foreign equities that show continually increasing, sustainable, dividend
payouts. The strategy employs an intermediate term tactical overlay in order to determine whether to be in a bullish or defensive posture. When in a bullish posture, the strategy is invested in
European dividend stocks and/or ETF's. When bearish, the strategy invests in an ETF approximating the Barclays Pan-European Aggregate bond index.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for INTERNATIONAL PRIME DIVIDEND STRATEGY during the measurement time period. As such, these results have limitations, including, but
not limited to, the following: (i) INTERNATIONAL PRIME DIVIDEND STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of
the calculation methodologies described above; (ii) model performance may not reflect the impact that all or any material market or economic conditions would had on use of INTERNATIONAL PRIME DIVIDEND STRATEGY by an individual client; (iii) for differing reasons FINANCIAL AND TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the
measurement period that were or may have been materially different from those reflected by the INTERNATIONAL PRIME DIVIDEND STRATEGY model performance. For Example, variances in client
account holdings, investment management fees incurred, the date on which a client began using INTERNATIONAL PRIME DIVIDEND STRATEGY, client account contributions or withdrawals and general
market conditions, would have caused the performance of a specific client’s portfolio to vary substantially from the INTERNATIONAL PRIME DIVIDEND STRATEGY model performance results; and (iv)
different types of investments and investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or strategy will be either suitable or profitable for a
prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for INTERNATIONAL PRIME DIVIDEND STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index
reflect reinvested dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the
historical index performance results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in
determining whether the index performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios
will correspond directly to any such comparative benchmark index. Further, the comparative index may be more or less volatile than INTERNATIONAL PRIME DIVIDEND STRATEGY.
Disclosures to Strategic Mid-Cap Strategy
The Strategic Mid-Cap Strategy (SMC) is a strategy which seeks to exploit two seasonal influences on the stock market. These seasonal forces have historically “skewed” returns in certain months of
the year and specific sub-periods in the final three months of the year. Each year, the SMC Strategy holds an S&P MidCap 400 Index ETF from late-October to the end of May and then invests in
intermediate-term bond ETF's from June to late-October. During the third and fourth quarters of each year, the strategy raises the leverage of the midcap exposure by 100% during certain subperiods
totaling less than 25 days. These sub-periods are influenced by end-of-month and holiday seasonal forces.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for STRATEGIC MID-CAP STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to,
the following: (i) STRATEGIC MID-CAP STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies
described above; (ii) model performance may not reflect the impact that all or any material market or economic conditions would had on use of STRATEGIC MID-CAP STRATEGY by an individual client;
(iii) for differing reasons FINANCIAL AND TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been
materially different from those reflected by the STRATEGIC MID-CAP STRATEGY model performance. For Example, variances in client account holdings, investment management fees incurred, the
date on which a client began using STRATEGIC MID-CAP STRATEGY, client account contributions or withdrawals and general market conditions, would have caused the performance of a specific
client’s portfolio to vary substantially from the STRATEGIC MID-CAP STRATEGY model performance results; and (iv) different types of investments and investment strategies involve varying levels of
risk, and there can be no assurance that any specific investment or strategy will be either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for STRATEGIC MID-CAP STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect
reinvested dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the
historical index performance results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether the index performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios
will correspond directly to any such comparative benchmark index. Further, the comparative index may be more or less volatile than STRATEGIC MID-CAP STRATEGY.
Disclosures to Strategic Enhanced Bond Strategy
The Strategic Enhanced Bond Strategy (SEB) is an asset allocation strategy that combines conservative intermediate-term and inflation-protected bond funds with Financial & Tax Architects' fourth
quarter "prime period" trades. The strategy determines, in advance, when to be invested in bond funds and when to be invested in equities. The investment components of the strategy are: Jan 1 to
late-October: 70% intermediate-term bond funds/ 30% inflation protected Treasury bonds (TIPS); late-October to Dec. 31: 40% intermediate-term bond funds plus three prime period trades using the
S&P 500 index leveraged by 100%. Investors should be aware that the use of leveraged funds in the fourth quarter of each year increases the risk and volatility of the equity component of the
strategy.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for SEC STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to, the following: (i)
SEB STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies described above; (ii) model
performance may not reflect the impact that all or any material market or economic conditions would had on use of SEB STRATEGY by an individual client; (iii) for differing reasons FINANCIAL AND
TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been materially different from those reflected
by the SEB STRATEGY model performance. For Example, variances in client account holdings, investment management fees incurred, the date on which a client began using SEB STRATEGY, client
account contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s portfolio to vary substantially from the SEB STRATEGY model
performance results; and (iv) different types of investments and investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or strategy will be
either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for SEB STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect reinvested dividends, but
do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the historical index performance
results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether the index
performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios will correspond directly to any
such comparative benchmark index. Further, the comparative index may be more or less volatile than SEB STRATEGY.
Disclosures to Strategic Hedged Income Strategy
The Strategic Hedged Income Strategy (SHI)attempts to maintain a conservative, diversified portfolio of ETF's that strives to protect your assets on the downside while attempting to achieve
consistent and steady growth on the upside. This diversified portfolio invests in instruments designed to track the performance of Spot Gold, T-bills, 10-Year Treasury Notes, 30-year Treasury Bonds,
and the NAREIT Real Estate Investment Trust Index.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for SHI STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to, the following: (i)
SHI STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies described above; (ii) model
performance may not reflect the impact that all or any material market or economic conditions would had on use of SHI STRATEGY by an individual client; (iii) for differing reasons FINANCIAL AND TAX
ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been materially different from those reflected by
the SHI STRATEGY model performance. For Example, variances in client account holdings, investment management fees incurred, the date on which a client began using SHI STRATEGY, client account
contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s portfolio to vary substantially from the SHI STRATEGY model performance
results; and (iv) different types of investments and investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or strategy will be either suitable or
profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for SHI STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect reinvested dividends, but
do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the historical index performance
results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether the index
performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios will correspond directly to any
such comparative benchmark index. Further, the comparative index may be more or less volatile than SHI STRATEGY.
Disclosures to Value Discount Strategy
The Value Discount Strategy is a relative value strategy applied to tradable asset class proxies. The Strategy uses ETF's to invest in Stocks, Treasury Bonds, Corporate Bonds, or cash. The
strategy chooses which asset class to invest in by examining which is the most undervalued compared to the equity risk premium for stocks, the credit risk premium for corporate bonds, and the term
risk premium for treasury bonds. If no asset class is undervalued the strategy invests in cash.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for VALUE DISCOUNT STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to, the following: (i) VALUE DISCOUNT STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies described above; (ii) model performance may not reflect the impact that all or any material market or economic conditions would had on use of VALUE DISCOUNT STRATEGY by an individual client;
(iii) for differing reasons FINANCIAL AND TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been materially different from those reflected by the VALUE DISCOUNT STRATEGY model performance. For example, variances in client account holdings, investment management fees incurred, the date on which a client began using VALUE DISCOUNT STRATEGY, client account contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s
portfolio to vary substantially from the VALUE DISCOUNT STRATEGY model performance results; and (iv) different types of investments and investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or strategy will be either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the hypothetical performance reflected for VALUE DISCOUNT STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect reinvested
dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the historical index
performance results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether
the index performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios will correspond
directly to any such comparative benchmark index. Further, the comparative index may be more or less volatile than VALUE DISCOUNT STRATEGY.
Disclosures to Economic Cycle Strategy
By utilizing employment and housing indicators in a manner unique to Financial & Tax Architects, The Economic Cycle Strategy attempts to mitigate the downside risk associated with investing in the
stock market. When employment and housing indicators are bullish, this strategy is long the US equity markets using various equity instruments. When the indicators are bearish, the strategy invests
in instruments that attempt to track the Barclays Aggregate Bond Index.
Performance presented is hypothetical (back-tested). Prospective application of the methodology used to manage the strategy may not actually result in a performance commensurate with the
hypothetical returns as shown. The hypothetical period does not necessarily correspond to the entire available history of the back-test or any individual instrument. The actual strategy invests in
index and bond funds and/or ETF’s which may be similar but different from the instruments used in the model. Model results have inherent limitations due to the fact that they do not reflect actual
trading and may not reflect the impact that material economic and market factors might have had on the advisor’s decision-making if actual client funds had been invested in the strategy. No matter
how positive the model returns have been over any time period, the potential for loss is always present due to factors in the future which may not be account for in the model.
The investment strategy that the results were based upon can theoretically be changed at any time with the benefit of hindsight in order to show better results. Therefore, hypothetical data must be
approached with caution because it is constructed with hindsight and may not reflect material conditions that could affect a manager’s decision process, thus altering the application of the discipline.
There is no assurance that these results could, or would have been achieved by Financial & Tax Architects (FTA) during the periods presented.
The performance is prepared using the following methodologies: (i) by a hypothetical model portfolio to which an investment methodology is applied on a current and on-going basis; (ii) at the
beginning of each annual period, the model begins with $100,000 invested in exchange traded funds (iii) all securities are priced at month’s end and all securities held are valued at the closing price as
of the last business day for each month; (iv) the cost basis and proceeds for individual security purchases and sales are based on the day and time a trade was entered into and the price is recorded as
of the time the decision was made; (v) on a monthly basis, performance is calculated using a holding-period return; (vi) annual performance for the model is computed by linking the monthly
performance results for the indicated number of months; (vii) the total investment performance includes both realized and unrealized gains and losses, as well as dividends but does not take into
consideration any interest on cash; (viii) all performance results are net of management fees; (ix) net of fee performance has been reduced by the management fee but is gross of all other fees and
transaction costs; (x) net of fee performance is calculated using an annual management fee of 2.00% applied quarterly, in arrears; and (xi) the U.S. Dollar is the currency used to express performance.
The performance represents hypothetical model results for ECONOMIC CYCLE STRATEGY during the measurement time period. As such, these results have limitations, including, but not limited to, the
following: (i) ECONOMIC CYCLE STRATEGY results do not reflect actual trading by specific FINANCIAL AND TAX ARCHITECTS clients, but were achieved by means of the calculation methodologies
described above; (ii) model performance may not reflect the impact that all or any material market or economic conditions would had on use of ECONOMIC CYCLE STRATEGY by an individual client;
(iii) for differing reasons FINANCIAL AND TAX ARCHITECTS clients would have experienced investment results, either positive or negative, during the measurement period that were or may have been
materially different from those reflected by the ECONOMIC CYCLE STRATEGY model performance. For Example, variances in client account holdings, investment management fees incurred, the date
on which a client began using ECONOMIC CYCLE STRATEGY, client account contributions or withdrawals and general market conditions, would have caused the performance of a specific client’s
portfolio to vary substantially from the ECONOMIC CYCLE STRATEGY model performance results; and (iv) different types of investments and investment strategies involve varying levels of risk, and
there can be no assurance that any specific investment or strategy will be either suitable or profitable for a prospective client.
The model performance does not reflect other earnings, brokerage commissions, and custodian expenses. It is important to note that actual portfolios would be charged other fees and transaction
costs and performance would be lower. Hypothetical past performance is not indicative of future results. Therefore, no client should assume that future performance will be profitable, equal the
hypothetical performance reflected for ECONOMIC CYCLE STRATEGY, or equal the corresponding historical benchmark index. The historical index performance results for the index reflect reinvested
dividends, but do not reflect the deduction of transaction and custodial charges, or the deduction of an advisor fee, the incurrence of which would have the effect of decreasing the historical index
performance results. The historical index performance results are provided for comparison purposes only, so as to provide general information to assist a prospective client in determining whether
the index performance meets the client’s investment objectives. Historical index performance results do not reflect the impact of taxes. It should not be assumed that portfolios will correspond
directly to any such comparative benchmark index. Further, the comparative index may be more or less volatile than ECONOMIC CYCLE STRATEGY.
Index Information
S&P 500:
The Standard & Poor's 500 composite index is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The
S&P 500 index components and their weightings are determined by S&P Dow Jones Indices. It differs from other U.S. stock market indices, such as the Dow Jones Industrial Average or the Nasdaq
Composite index, because of its diverse constituency and weighting methodology. It is one of the most commonly followed equity indices, and many consider it one of the best representations of the
U.S. stock market, and a bellwether for the U.S. economy.
Barclays US Aggregate Bond Index:
This index is a market-cap weighted index that is representative of the overall US bond market. It includes most traded investment grade bonds including corporates, treasuries, agency, and
mortgage backed bonds, but does not include TIPS or munis.
EAFE:
The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the
U.S. and Canada. The Index is available for a number of regions, market segments/sizes and covers approximately 85% of the free float-adjusted market capitalization in each of the 21 countries.
Barclays US Corporate High Yield Bond Index:
This market capitalization weighted index if representative of the non-investment grade corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is
Ba1/BB+/BB+ or below.
Definitions
Drawdowns/Maximum Drawdown: This is a measure of the peak to trough percentage loss in a given period. The maximum drawdown is the largest drawdown in the time period.
Median Return: This is the median monthly return of the strategy or index over a time period.
Months Positive: This is the percentage of months that a strategy or index had a positive monthly return in a time period.
Standard Deviation: This is a statistical measure of dispersion from a set of data. For the purposes of FTA marketing materials it measures the dispersion of monthly returns of a strategy or index.

Your Constructive Comments are Welcome!

MYTH: Social Security is in Trouble

This is a solid, proven myth.  The only trouble Social Security is in is the same trouble it's been in since before it was signed into law 84 years ago:  ignorant, malicious attacks by self-righteous ideologues.

As quoted in Social Security Works: 
The most important takeaways from the 2019 Trustees Report are that (1) Social Security has a large accumulated surplus, and (2) Social Security is extremely affordable. In three-quarters of a century, in 2095, Social Security will constitute just 6.07 percent of GDP. That is considerably lower, as a percentage of GDP, than Germany, Austria, France, and most other industrialized countries spend on their counterpart programs today.
The 2019 Trustees Report projects Social Security’s cumulative surplus to be $2.9 trillion. It shows that Social Security is fully funded until 2035, 93 percent funded for the next 25 years, 87 percent funded over the next 50 years, and 84 percent funded over the next 75 years.
Yet, like a malignancy, a thoroughly inaccurate New York Times article spread until one newspaper headline said Social Security would be insolvent in 6 months.

Your Constructive Comments are Welcome!

Top Three Influencers of Fiduciary Advice

I've always believed a universal fiduciary standard should exist for anyone who gives advice to others that can affect- and ruin -lives, whether it's journalists, bankers, stock brokers, teachers or wedding planners.  I don't know why the fiduciary focus is strictly on finances.  If you hold yourself out as an expert, you'd better not be faking it until you make it or, worse, have self serving or even malicious intent.
I want to pass on this 2 1/2 year old article by Shelby George, written when a universal financial fiduciary standard looked like a sure thing.  Turns out Wall Street succeeded in killing it (Great PR move, Wall Street, fighting an initiative that puts your customers first).
I also want to emphasize this key phrase in her article, "The Fiduciary Rule puts a specific emphasis on the damage done by investor behaviors" whether self or advisor induced.  It would have helped protect investors not only from inexperienced or dishonest advisors, it would have helped protect them from themselves!  Virtually all of the big ripoffs of investors are catalyzed by investor greed, carelessness, unrealistic expectations and trusting without verifying.  Even with a universal, well-enforced fiduciary standard, investors still need to do their due diligence by verifying the credentials and recommendations of their advisors.

3 Influencers Driving Today’s Fiduciary Best Practices

November 21, 2016 | Fiduciary

Shelby George

Senior Vice President, Advisor Services

As the Department of Labor (DOL) has redefined “investment advice,” they have undoubtedly accelerated the evolution of what it means to be a fiduciary. Regulators are but one of the three key influencers shaping best practices for new fiduciaries. Financial institutions are working aggressively to comply with the DOL’s new rule; however, advisors can take actionable steps today to better identify the needs and best interests of retirement plan participants and IRA holders.

Influencer 1 – The Markets

The markets are an often overlooked key influencer. The current slow growth, low interest rate, long-term economic outlook creates new challenges for savers that were not a concern for the last generation of retirees. Fortunately, there has been an increased focus on savings as study after study finds that we need to save more for retirement than in previous years. Unfortunately, savings is only a part of the solution.
The Fiduciary Rule puts a specific emphasis on the damage done by investor behaviors and encourages new fiduciaries to pay particular attention to each investor’s unique risk tolerances and reactions to the markets as well as the investor’s long-term savings goals. In today’s market, where volatility is a “new normal,” it becomes critical for fiduciaries to frame investment due diligence and portfolio performance around the investor’s objectives rather than a hypothetical benchmark.

Influencer 2 – The Regulators

In the DOL’s own words1, the new rule will, “mitigate adviser conflicts and thereby improve plan and IRA investment results, while avoiding greater than necessary disruption of existing business practices.” However, certain compensation arrangements are viewed with heightened skepticism. In particular, the DOL application of ERISA’s self dealing prohibited transaction to all ERISA plans and IRA accounts will cause significant disruption to traditional brokerage models.
As the DOL encourages more level, transparent fee structures, fiduciaries must shift their focus to offering a service rather than selling an investment product. The value of the fiduciary’s services is based on the need of the investor.

Influencer 3 – The Litigators

ERISA class action litigation dates back to 1998 as an outgrowth of securities and class actions. Since that time, the volume and scope of the litigation has ballooned, especially when the stock market drops.
Recent 401(k) litigation demonstrates that no fiduciary decision is insignificant. IRA advisors are paying increasing attention to recent 401(k) fee litigation because of the DOL’s Best Interest Contract Exemption and the possibility of class action lawsuits.
With the new DOL Rule, advisors need to view each plan decision independently and have a repeatable and documented process for each. All processes should be designed to identify the needs of plan participants or the IRA holder and then make a recommendation based on that need. Each step of the process and the resulting recommendation should be documented with reasons given as to why the decision is in the best interest of the client.
To learn more about the three key influencers shaping fiduciary best practices and more on the DOL’s Fiduciary Rule, visit www.manning-napier.com/EvolutionaryFiduciary.

¹Source: Federal Register. Department of Labor. Rules and Regulations. Volume 81, no. 68, p. 20952.

 
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MYTH: Social Security Trust Fund Set to go Bust by 2035

Yes, this is a solid, ridiculous myth.  Don't step in it.  I feel sorry for Melanie Waddell, the ThinkAdvisor writer, that her editor capped an otherwise laudable article this way.  Here is her original piece.

The Social Security program’s reserves will be depleted in 2035, with continuing income to the combined trust funds being sufficient to pay 80% of scheduled benefits, the board of trustees predicted in its annual report, released Monday.
The old age and survivor insurance trust fund reserves are projected to be depleted in 2034, at which time OASI income would be sufficient to pay 77% of OASI scheduled benefits, the report states.
The disability income trust fund’s asset reserves are projected to become depleted in 2052, at which time continuing income to the DI Trust Fund would be sufficient to pay 91% of DI scheduled benefits.
“The report shows the depletion of the combined funds is one year later than projected last year — 2034, last year, and 2035, this year,” Nancy Altman, president of Social Security Works, a group that supports expanding the Social Security system, told ThinkAdvisor in an email message. “That kind of variation is not surprising when projecting out so far into the future.”
The 2019 Trustees Report projects Social Security’s cumulative surplus to be $2.9 trillion, according to Social Security Works. The report shows that Social Security is fully funded until 2035, 93% funded for the next 25 years, 87% funded over the next 50 years, and 84% funded over the next 75 years, the group said.
Maya MacGuineas, president of the Committee for a Responsible Federal Budget, added in a Monday statement that the report shows Social Security “faces a nearly $15 trillion funding shortfall and will face insolvency in only 16 years. That’s when today’s 51-year-olds reach the normal retirement age and when today’s youngest retirees turn 78. At that point, if not addressed, the law calls for a devastating 20% across-the-board cut for all Americans who rely on the program.”
Medicare’s Hospital Insurance trust fund will run out even sooner in 2026, when today’s 58-year-olds become eligible and today’s newest beneficiaries turn 72, MacGuineas said.
“The 2019 Social Security Trustees Report confirms that Social Security remains fully affordable, notwithstanding its modest projected shortfall,” Altman said. “The underreported story is that Democrats are moving forward with plans to raise sufficient revenue to eliminate the shortfall and cover the cost of expanded benefits.”
The Social Security 2100 Act, introduced by Rep. John Larson, D-Conn., “has over 200 co-sponsors” in the House, Altman said. “Larson has held several hearings on the bill and intends to bring it to the House floor this spring.”
While the combined basis is the way everyone tends to look at the trust funds, “by law, if either fund is unable to cover all the costs of its benefits and related administrative costs, it would be unable to pay full benefits on time,” Altman explains, but that “has never happened.”
The Social Security 2100 Act, “which expands benefits, has a provision combining the two trust funds so that reality comports with how we all refer to them,” Altman said.
The bill would gradually raise the payroll tax from 12.4% to 14.8% over the next 24 years and subject annual income above $400,000 to the tax. It would also raise the minimum benefit to 25% above the poverty line, link cost-of-living adjustments to the Consumer Price Index for the Elderly and eliminate the taxation of Social Security benefits for those with non-Social Security income above $50,000 for singles and $100,000 for couples, up from $25,000 and $32,000 currently.
Several other bills to protect and expand Social Security benefits have been introduced in the House and Senate, and nearly every 2020 presidential candidate serving in Congress is a member of the bicameral Expand Social Security Caucus, Altman said.
MacGuineas added that That fact that we now can’t guarantee full benefits to current retirees is completely unacceptable, and it should be cause enough for every policymaker to rally around solutions to restore solvency to those programs. Certainly we should be focused on saving Social Security and Medicare before we start promising to expand these programs.
Rep. Kevin Brady, R-Texas, the top Republican on the House Ways and Means Committee, said in a Monday statement that “Social Security reform only has a fair chance of succeeding if it is done with Republicans and Democrats working together. Today’s Trustees Report is an important reminder that the time to act is now.”
Republicans at a recent hearing on Social Security opposed payroll tax increases but appeared open to reducing benefits or making changes to account for longer life spans.
Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare, added in a statement that “This year’s Trustees report shows that, contrary to conservative propaganda, Social Security is not ‘going bankrupt’ or ‘in peril.’”
The system’s financial health “has improved over last year, and Congress now has before it two landmark pieces of legislation that could put Social Security on a sound financial footing for the rest of the century — and provide seniors a modest benefit boost and tax relief,” he said, adding that he “enthusiastically” endorses the Social Security 2100 Act and Sen. Bernie Sanders’ Social Security Expansion Act.
“Both bills ask the wealthy to pay their fair share to strengthen Social Security, something overwhelming majorities of the American people support in poll after poll,” Richtman said.
The trustees of the Medicare program report that the federal senior health care program’s finances look about the same as they did in 2018, he added.
“Medicare’s Part A trust fund will become depleted in 2026, at which time the system still could pay 89% of benefits,” Richtman said. “But, again, this is only if Congress takes no action to bolster Medicare’s finances.”

Your Constructive Comments are Welcome!

MYTH: Annuities are a Bad Idea for Almost Everyone!

This headline precedes an extremely ignorant article by MarketWatch writer Marc Lichtenfield.  Ironically, only the first sentence is close to being true:  "You're betting the insurance company that you're going to live longer than they think you will".  Yes, of course!

But let me dissect this dangerouly stupid article line by line.  As if Wall Street is so great at comprehensive financial planning.  The truth is,

Annuities are a Great Solution for almost Everyone.

Opinion: Why annuities are a bad idea for almost everyone

By Marc Lichtenfeld

Published: Aug 18, 2018 7:56 a.m. ET

“Don’t lose money in the Wall Street casino!” the radio announcer blared.
“It could take a lifetime to make up your losses in the stock market.”
Unless your lifetime is five years — that’s how long it took the market to make a full recovery after the Great Recession — he’s dead wrong.
He was using this fear tactic to sell annuities. And getting suckered into buying an annuity with him — or any broker — could be the biggest mistake you ever make.
Marc, since the number one risk in retirement is living longer than expected and, hence, outliving one's income and assets, wouldn't income insurance make sense?  Yes, the market made a full recovery . . . as long as no withdrawals were being made.
You see, annuities aren’t wrong for everyone… Just most everyone.
I would love to do a comprehensive plan comparison, your way and my way.  Just ask any retiree how important their existing public annuities (Social Security and pensions) are to them.
If you’re unfamiliar with annuities — you give an insurance company your money and in return they pay you an income stream, usually for the rest of your life. In some annuities, if you die before you’ve received all of your money back, too bad for you. The insurance company keeps the money.
Seriously, that’s how it works.
No, that's not how it works.  Some annuities (single premium immediate annuities or SPIAs) do work that way, just like pensions and Social Security, unless you exercise survivorship and/or spousal continuation options, in which case payments can continue for the life of one's spouse.  But they are neither the most effective nor common.
Now, there are plenty of annuities where that’s not the case. Family members can receive cash back or even continued monthly income after your death — but you pay extra for that.
Now you just contradicted your last paragraph.  Oh, there are other types of annuities.  And no,  those particular benefits don't cost extra.
Essentially, you’re betting the insurance company that you’re going to live longer than they think you will. They take your money, invest it and give it back to you in dribs and drabs (with steep penalties if you want to withdraw more than the contract states).
Annuities are indeed long term vehicles which still have great short term liquidity.  10% per year penalty-free is ubiquitous.  After 5-10 years you have 100% liquidity.  Upon death, terminal illness or disability, even the short term penalties are waived.  Everyone has money that they don't need 100% liquid all the time.  Tell any annuitant that the guaranteed income they're enjoying is "dribs and drabs".  I'm not familiar with that sophisticated financial term.
Annuities are such terrible investments that the minute the government passed a law specifying that financial professionals had to act in their clients best interest, annuity sales fell off a cliff.
In 2016, new rules were passed by the Department of Labor that stated that brokers have to act as fiduciaries. That means they had to put their clients’ best interest ahead of their own.
Believe it or not, prior to the rule being passed, stock and insurance brokers could sell you anything they wanted — whether it was right for your or not. So typically, they sold whatever paid the highest commissions.
Fixed and indexed annuities are not investments.  They are insurance products.  They are regulated by state insurance departments.  Variable annuities are indeed terrible, expensive and poorly regulated investments.  The best interest statutes never stuck.  What killed sales was the requirement that all compensation, even trips, etc. be disclosed to the client.  Those of us advisors who are already legal fiduciaries comply with the best interest standard anyway, even though it was eventually thrown out.  
Annuities pay extremely high commissions — often 7% or higher of the total amount. So if a client was sold a $200,000 annuity, the salesperson might take home $14,000 up front.
Needless to say, there’s not a lot of incentive for him to put you in a low-cost index fund.
Yes, the far more virtuous stock broker or money "manager" would rather you pay 1-2% of your money every year, indefinitely.  Annuities actually pay less compensation over a 10-yr. period.  Finally, I do in fact recommend low cost ETFs for the growth portion of my clients' assets.
This new law is scheduled to go into effect this year, though that will likely be delayed.
As soon as the fiduciary rule was passed in 2016, sales of annuities fell 8%. They slid an additional 18% in the first quarter of 2017.
Sales of variable annuities, which are the worst of the worst, crashed 22% in 2016.
If these were such wonderful products, as defenders of annuities will maintain, why did so many people stop selling them — even before the law went into effect?
Those were my two best years, due to the uncertainty caused by our current awful president.  Keep in mind, too, that everyone thought they were invulnerable in the market.  Stodgy old annuities weren't as sexy.
So why do people like them?
Fixed annuities prevent losses. You are typically guaranteed that the value of your principal will not go down regardless of what the stock or bond markets do.
Fixed index annuities allow the investor to take part in some upside, though it is usually very limited — about 4% per year in this low interest rate environment. So the investor is trading upside potential for downside protection.
If the market soars 20%, the investor will only make 4%. But if the market falls 20%, the investor won’t lose any money.
More top-of-the-head opinionating without doing any research.  I had indexed annuities credit close to 20% last year.  Virtually all indexed annuities offer monthly caps of 1-1.5%, meaning you could earn 12-18% any given year.  But this misses the point.  The primary purposes of indexed annuities are income insurance & principal protection that beats other principal insured options like CDs and bank accounts.
Another way they screw you
Let’s say you take out an annuity and your circumstances change. You need the money urgently. If you’re still within the surrender period, it’s going to cost you. Big.
A typical surrender period is seven years and the surrender charge starts at 7% and falls by 1% per year.

So if after two years, you need your money back, it’s going to cost you $10,000 ($200,000 x 5% = $10,000) to get your own money back.
 This is why fiduciary advisers build income plans to prevent having to access long term money.  That's what emergency funds are for.  Wall Street shills don't seem to be able to grasp this.
Instead, take the money and invest it in Perpetual Dividend Raisers — companies that raise their dividend every year.
Yes, they did so well in 2008.  Investors spending down such account allocations would never have recovered.  This is referred to as "sequence" risk, losing money at the wrong time while you're drawing down savings.  Wall Street shills don't seem to understand sequence risk either.
But I don’t want to risk any money, you say. After all, that’s one of the most attractive features of annuities.
Annuities are typically long-term contracts. People buy them in their 60s, 70s and even 80s, expecting to collect income for years in the future.
And most do indeed collect income for years in the future, usually well beyond the "average" life expectancy used by brokers in their plans, if they've even done a plan.
Consider that over 10-year periods, the stock market has only been down seven times in the past 80 years. And those seven times all were tied to the Great Depression or Great Recession.
In other words, you had to sell in the depths of historic financial collapses to not make money in the stock market over 10 years.
Again, this ignores sequence risk.
If you invested in 2000, near the top of the dot-com bubble and sold in 2009, near the bottom of the Great Recession, you were down 9%. Not good, but not horrendous considering you endured two epic stock market meltdowns.
But what if you were having to meet your budget during that period?
Or consider this scenario… If you have the worst timing of any investor and put your nest egg into the S&P 500 SPX, +0.62%   at the absolute top in 2007 — right before the financial collapse — you’d be up 91% (including dividends) 10 years later.
Just stop and think about that the next time market naysayers talk about the “Wall Street casino.”
Securities are indeed a casino.  Where else can you lose everything?
As an industry saying goes, “Annuities are sold, not bought.”
Don’t be one of the people who gets sold.
Actually, I disagree heartily.  Annuities are bought.  By people who want principal protection, and a solution to the three greatest retirement risks:  Sequence risk- having to spend your money after or while it shrinks, Longevity risk- outliving your income, and Withdrawal Rate risk- e.g following Wall Street's 4% rule and then going broke.
A well designed income allocation plan includes market investments.  But no one should have all their money in the market, not in a well-crafted income allocation strategy.

Your Constructive Comments are Welcome!

MYTH: Complaints Soar About Equity Indexed Annuities

This is, of course, another false statement, a blazing myth.  In a recent study by the National Association of Insurance Commissioners (the enforcers of insurance regulations), the complaint ratio about fixed indexed annuities (EIAs) was 0.039%.  That's about one-third of a tenth of a percent.*
This is because

• retirees can see the handwriting on the wall, that we're long overdue for a recession, 
• they don't want to lose decades of savings- again -
• but also don't want to miss out on gains if they continue to occur.  And finally, 
• there is no other way to get as much guaranteed lifetime income from a fixed amount of principal should they miscalculate their longevity.

Your Constructive Comments are Welcome!

*https://eapps.naic.org/cis/