Karl Marx, Jay-Z & SGI Funds have a lot in common

Usually the title of these posts IS a myth.  But believe this one is true.  Where did I come up with these seemingly completely unrelated topics?  Oddly, they were in the top 10 financial search words last month.

Karl Marx

Karl Marx Monument in Chemnitz

First, what he was not.  Marx was neither Russan nor capital-C Communist, despite having written The Communist Manifesto.  He was a law student from a wealthy Jewish family headed by his attorney father.  I'm guessing his unpopularity with the authorities from whom he fled Germany, France & Belgium was due to his central belief that theology would eventually succumb to philosophy.

A prolific journalist & author, Marx was admirable in his focus on fair & efficient political and social processes (such as his belief in a "constitutional republic with freely elected assemblies".  Like I, he felt wealth and merit needed to be reconnected, without which there would be constant struggle between the economic classes.

Jay-Z

Streetart in Katoomba

The first hip-hop billionaire, Jay-Z (aka Shawn Corey Carter) holds the fascination of millions around the world.  We obsess over our billionaires, that's for sure.  But as perfectly stated in this recent USA Today article, Jay-Z epitomizes what every investor should emulate:

1. Diversify across several sectors and industries.  Jay-Z has his own champagne and congac brands, sports promotions, investments in fashion, Uber & his own Uber-like jet sharing app as well as his own venture capital firm

2. Invest in what you know and love.  This is important because if you don't love your work and your place in the world (e.g. your investments) you probably won't be motivated to put in the effort and commitment necessary to be successful.

3. Commit to your goals.  Not everyone can be a billionaire.  In fact, hardly anyone can be.  I would restate this as "pick goals that inspire your commitment".

Would Marx have liked Jay-Z?  I think so.

ESG

Experiencing heavy in-flows of new capital, ESG funds mirror the growing awareness that sensible and ethical companies are more likely than the liars and cheaters to flourish in the future.  ESG stands for Environmental, Social and Governance & the funds and companies that pass those screens.  

ESG is supposed to be a more evolved, stringent screen than SRI (socially responsible investing) or sustainable investing.  Here's what they mean, in a nutshell:

• Environmental- conserving, protecting and even enhancing local and global natural environments
• Social- treating employees, clients, partners and the communities in which the business operates with respect by following the law, providing quality safe products & services, & contributing to the needs of local communities.
• Governance- operating in a compliant, equitable and transparent manner.

So I find it encouraging that people are interested in these three topics.

 

Your Constructive Comments are Welcome!

The Power of Peace

There is a surplus of anger, desperation, futility, depression, fury and isolation in our country right now.  It's the worst I remember, even during the Vietnam debacle.
I've advocated- rather unpopularly -that peaceful resistance is the most powerful and effective response to the sources of these intense emotions.  Steeped in affluenza, racism, fascism, nationalism and all the other sick isms, if we're not furious then we're not paying attention.  I don't need to catalog all the evil things done to whom by whom; we're deluged with that.  The fury is justified, OK?  So when I say to someone that peaceful resistance is more effective than violence (bodily injury and property damage) what they hear is negation of their fury, denial of their despair, minimizing of their suffering.

That isn't my intention. 
 As Erica Chenowith's research proves, peaceful resistance has been more than twice as effective as violence in creating change.  She studied all such events, worldwide, since 1906 to reach that conclusion, causing a 180 degree pivot in her former beliefs.  Please read her material and watch her TED talk:  https://www.youtube.com/results?search_query=erica+chenoweth+ted+talk
I don't know about you but I don't recall ever making a good decision in the middle of anger.  Granted, anger is an action emotion, an indication that action is needed.  It is a great motivator while being an abysmally poor judge of right action.  Right action takes all of our faculties, our anger, our hearts, our minds, our relationships.  And that's why violence doesn't work:

• Violence severely limits who can and will join you in your rebellion.  Why not adopt a strategy that can involve children, our elders, the reticent, first-time activists?  "Many people won't turn up unless they expect safety in numbers" (Erica Chenoweth)
• The border between oppressors and the oppressed is wide and gray.  A cop may refuse to shoot rubber bullets into a peaceful crowd if he knows his daughter might be there.  Even the most corrupt enablers of dictator-wannabes have families, friends & associates who love (and fear and or hate) them and eventually garner the courage to speak up and act out.
• As a result of these two factors, nonviolent campaigns are four times larger and much more inclusive & diverse than violent ones.

Your Constructive Comments are Welcome!

6 Financial Steps You Should Consider NOW

Would you like to know why I've gotten zero freaked-out calls or emails from my clients because of the coronavirus, political upheaval or [insert your own freak-out factor]?  It's because we've already tested even worse scenarios (like the 2001-2003 recession) in their written retirement financial plans and they know they will be OK. 

However, that doesn't mean there aren't new opportunities and cautions:

1. If we have not developed your written retirement financial plan then get yourself on my schedule immediately.  I've opened my calendar up as much as possible for the next three weeks.  Call me at my mobile at 503-698-1110 or simply schedule yourself here:  https://calendly.com/g---5

Key Takeaway:  No matter what is happening in the world and in your life, there are risks to avoid and opportunities to acquire.  These risks and opportunities should be tested and executed carefully, as part of an overall plan, not by running out and buying four thousand rolls of toilet paper.

2. To make up for losses in the market-based portion of your portfolio, don't settle for inflation losses in your cash.  You should be getting at least 2.0% on your two-year money.  I've seen savings accounts paying as little as 0.07%.  Yes, seven hundreths of a percent. Increasing earnings and other benefits on your safe money will help offset these short-term fluctuations in the market and make dramatic long-term differences in your future cash flow. 

3. Does it make sense to refinance debt?  Probably.  Interest rates have tumbled with the market & I doubt they will increase this year.  Refinancing may be a great way to reduce your budget and preserve your savings. 

4. Is funding for your lifetime budget locked in?  If not, wouldn't that be worth finishing up?  Then you can ignore market hysteria.  Cash flow solves all other financial problems.

5. Do you need to put off that expected retirement date this or next year?  I won't sugar coat it; maybe you do.  But how do you figure out when you can retire?

6. Finally, taxes will probably shrink your money more this year than will the market.  What tax planning have you done?  Did you know the tax issue will become even more concerning in 2026 when the Tax Cuts and Jobs Act expires?  I don’t see any of my peers doing tax planning.  Maybe this is the perfect time to do Roth conversions or in-kind conversions of poor performing stocks.  When the market recovers, all the gains can be tax-free.  This video is pending my review of the three “stimulus” packages.  Lots of little- and not so little -goodies for everyone.

Warm wishes during these trying times,
and get yourself on my calendar!: 
https://calendly.com/g---5
Gary
 

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.

 
Your Constructive Comments are Welcome!

Trump's delay of Fiduciary rules is a good thing.

Well, no, it isn't. But it could be. To get up to speed, here's a good summary of the rules: https://www.dol.gov/ProtectYourSavings/FactSheet.htm Yeah, that is a many thousands of words summary.  You should see the whole thing!

In a nutshell, the Dept. of Labor's new rules would have required anyone who gives advice about retirement plans to be held to a fiduciary standard: the investor's welfare must be placed above the interests of both the adviser and his firm. What, you say? Don't they do this already? Um, no.

So how could reversal of this rule possibly be "good"? At least two reasons.

1. Because it will be a great differentiator between those of us who already submit ourselves to a ficudiary standard and those who do not. And all you have to do is ask, "Are you a legal fiduciary, and, do you hold yourself to a fiduciary standard in all areas of your practice?"
2. Laws and regulations are great but the #1 most effective consumer protection is smarter more careful consumers.  Spend some time at the Investor Protection Trust (while it still exists).

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Interview with The Suit Magazine

1. Gary Duell, you are the Owner and Founder of Duell Wealth Preservation. What sparked your interest in this line of work and what were you doing professionally prior to this firm? What is the history of this firm?
* I began my career as an agent for Farmers Insurance. 
*After 15 years I was bored with selling house and car insurance.  I enjoyed learning about my clients and wanted to provide more value to them. 
*So, I got all the licenses needed in order to give financial advice.  But after working through several broker-dealers I found intolerable their restrictions on what I could say to my clients.  For example, we were forbidden to send follow-up letters to clients after a meeting to summarize what we discussed 
*So I formed my own RIA firm in 2007.


2. What qualities do you seek in your potential clients and on the flip side, what qualities do you and the firm possess that prompts potential clients to select your services?
THEM
*Lifetime students
*Sense of humor, affability
*Financially successful but not convinced of their success
*Open minded
*Connected- good referral sources
ME
*Also a lifetime student & generous teacher/consultant/collaborator
*Legal fiduciary
*Totally transparent
*Clean conduct

3. The paradigm suggests that the conversation has shifted away from the alpha approach [supposedly measurable gains attributable to the adviser] to a more conservative approach which provides a more customized solution. Do you agree with the premise?
*Alpha is problematic- 2 reasons:  Can you trust their past measurement of it?  And how do you justify projecting that into the future?
*Sheer computing power makes the latter approach- customized solutions -not only possible but necessary in order to claim to be a true fiduciary.
*Avoiding mistakes & losses is more important than chasing alpha.  This is something that can be promised.

4. Financial literacy among clients remains to be a problem. Planners say kids who grew up watching their parents go into debt want to avoid the same fate. Will we see more online tools to help "gamify" that financial planning experience while creating a more savvy relationship? 
*Absolutely.  So-called roboadvisers are appearing all over the place. 
*Initially these struck fear into the hearts of advisers but now most of us realize such software frees us to do the most important task:  connecting with and guiding our clients.
*These tools will most certainly become more prolific and powerful.

5. What does being a fiduciary mean to you and to your clients?
*I’m not sure it means much of anything to my clients until after I define it for them.  And even then the looks are skeptical.  We all know that legal obligations don’t guarantee good behavior.
*What I hope it means to my clients is that there are resources for verifying the fiduciary history of their advisers. 
*Which there are:  brokercheck.finra.com, for example, and each state’s regulatory agencies. 

6. Communicating with clients can be a challenging task, how do you insure plans stay on track, level set client expectations and most importantly handle unforeseen circumstances?
*We contact all clients no less than quarterly by phone or email.
*We issue a quarterly newsletter
*Annual review appointments are set a year in advance
*Special notices go out as need for topical or timely advice

7. With Americans enjoying increased longevity, what methods are you using to help clients create enough savings to last through what could be a retirement lasting as long as their working years while still maintaining their desired standard of living? What methods are you using to combat the potentially draining effects of long-term care?
*Virtually all of my clients are at or near the end of their asset accumulation phases.
*The moving parts that are available to work with at this point are Social Security benefits, pension timing & options, when to retire.
*Avoiding sequence of returns risk is task #1
*For long term care risk- which is substantial for couples -we explore three options, depending on level of assets:  LTCi insurance, asset-based solutions, Medicaid planning.

8. Do you think the current 401(k) fee disclosures are enough to fully inform savers or retirees of what they are paying for their accounts?
*Yes.

9. What has been your greatest success in this industry and what has been the failure or challenge that you learned the most from?
*My greatest personal success has been to teach classes and seminars.  Like the average person, I was more afraid of public speaking than death.  This has changed the quality of clients I acquire and also made my practice more fun and challenging.
*Biggest failure was dinner seminars.  It was hard to admit that I just don’t have the bright, magnetic personality for that to work for me.  Plus I think they have kind of a sleazy reputation. 

10. Goals for 2016 / 2017?
*Triple my business volume
*Settle on a roboadviser and asset custodian
*Figure out how to fairly charge for AUM
*Ramp up social media exposure
*Begin podcasting