We received a call from Marvin, who finally decided he felt uncomfortable having $2 million in just a single stock. Yes, he loves the stock and is loyal to the company; he first acquired the stock because he worked for the company years ago at the beginning of his career. But so much money in just one equity? What if the company goes through a bad patch and he loses half the value?
Marvin reported to us that his risk of loss, because this $2 million of his net worth is not diversified, has become untenable. We agreed, having often raised this concern with him. Now that it is time for action, what can he do? He originally purchased $250,000 worth of the stock, so his gain is a whopping $1,750,000! On the one hand, we investors love the gains but on the other, to sell off this stock aiming to reduce risk by diversifying means a tax bill–a BIG tax bill.
We opened our conversation with Marvin by asking if he would be interested in learning how he might “Do Well” (reduce his portfolio risk and reduce that Big income tax bill) by “Doing Good.” That idea attracted his attention. We then presented Marvin with the following two options for doing good while aiming to reduce his portfolio risk and avoid big tax consequences:
Donate the stock to a charity (or charities), to fulfill your charitable intentions during your lifetime. Such a donation would result in a deduction in income tax liabilities for most of us, but check in with your accountant before taking action!
Establish a donor-advised fund (DAF), and contribute the stock to the fund. Do not sell it first because that triggers the BIG taxes. When the stock is in the DAF, it can then be sold and diversified with no income tax liabilities. This donation is eligible for an income tax deduction, just like contributing a single stock to a specific charity or two.
Before our conversation about these choices, Marvin figured he was stuck losing a substantial amount of his single stock gain to income taxes, as the trade-off for reducing his portfolio risk. He was thrilled to learn of the personal economic benefit of donating. To say nothing of the feel-good experience of fulfilling his charitable intentions now, rather than after his death.
Our conversation ended on a good laugh, when we shared with Marvin the following medical research:
“Medical tests have indicated that giving of your time, your talents or your money stimulates a part of the brain that results in the same gratification as when you eat food or have sex.”¹
Whether you would like to do well by doing good, or just plain want to feel good this holiday season, give us a call like Marvin did to learn what planning can do for you. 610-687-3515 or email@example.com
¹Arrillage-Andreessen, Laura. Giving 2.0: Transform Your Giving and Our World. New York: Jossey-Bass, 2011.
This information provides opinions and general information compiled by the Firm from sources believed to be reliable at the time of this material being distributed. All contained opinions and material relied upon may change or become outdated without notice. The Firm makes no representation or guarantee of the accuracy of the opinions or views expressed or information relied upon from third parties. This material is a general opinion regarding current markets, economy outlooks, and/or financial planning topics. Further, the opinions or views expressed in this material are not intended to be financial, legal or tax advice.
Readers should always seek advice regarding their particular accounts and transactions from their financial advisor before making investment decisions. All investments involve risk. Past results do not guarantee future performance. There is no guarantee that any investment will return a particular performance result or a better performance result over another investment option.
Jeremy has been an entrepreneur since high school. His pride and joy is the restaurant he opened upon graduating and has built into a successful enterprise over the past two decades. When we met, he reported that he promised himself for the last five years that early retirement was just around the corner. He wants more time to spend with his beautiful family.
Jeremy’s aspiration, what we at Entrust call making work optional, is lofty. It requires a finely-tuned financial game-plan to make it happen. You will not be surprised to learn that Jeremy has no financial game-plan because, like virtually all entrepreneurs, he spends all his time working on his business.
Not having the time to devote to creating your personal financial game-plan–or preferring to delegate your long-term financial success so you can spend your time doing what you love–is the first indicator that it is time for you to hire a competent financial advisor. Jeremy contacted Entrust when he was finally able to admit to himself that he had neither the time, nor the interest, in formulating his own game-plan for long-term financial success. We assured him that he was not alone in his lack of interest. After all, everyone has different interests, passions and talents.
Our discussion continued with consideration of two other common indications that financial expertise is needed: an individual’s so-called “financial goals” are actually vague hopes; an individual’s portfolio of investments is just a collection of accounts and holdings, selected with no rhyme or reason.
Let’s take a closer look at the three indicators:
You never get around to handling your personal finances. Most of us prefer to hire an expert to handle complex matters for us. We recognize that while we can look on the internet for information, that does not mean we have the skill required to be the best advocate for ourselves in all matters. For instance, do we really want to drill our own teeth or perform our own surgery–just because “we could”?
Your “financial goals” are actually vague hopes.
A comfortable retirement and/or the desire to pay for four years of college for your children are admirable aspirations, but they are not achievable goals unless they are: quantified, have a step-by-step plan for implementation, have specific timelines for achievement, are monitored, and may be revised as needed. How many of us have the time to consistently fulfill these facets for goal-achievement?
Your investment portfolio is really a collection of accounts and holdings without rhyme or reason. This can happen for a variety of reasons, but most often it is due to a lack of a disciplined investment plan strategy. Especially in today’s climate of changing jobs many times over a career, inheriting money, divorce, as well as other life events, it is easy to accumulate financial clutter. But it is not easy to move from clutter to better portfolio results.
Whether you are trying to build wealth, preserve wealth, or make work optional like Jeremy, partnering with the right financial expert is often vital to your peace-of-mind and long-term success. Now is the time to confirm that your financial advisor relationship is right for you; take advantage of our Second Opinion Service today.
You would not expect a business to succeed unless the owners established short and long-term goals, and took the time to track expenses and income. When it comes to couples and money, the same expectations hold true. Setting goals and tracking financials can make all the difference to a lifetime of financial success.
But as you know, not all couples experience financial success. What stands in the way? First, couples are often unsure how to collaborate with one another to make good financial decisions. Second, money is personal and each partner brings his or her own values, desires, habits, and baggage from the past into the conversation. However, as you are about to see with the story of Eva and Brian, the past does not have to present an obstacle course to financial bliss within relationships.
Eva, aged forty-two, works for a local university and was never married. Brian, aged fifty, is a partner at a large law firm and has two children from his first marriage. You can imagine how different their incomes, savings, and lifestyle choices were before they met. They decided to contact Entrust due to their uncertainty about how to fairly join their diverse finances and investments, a goal they wished to achieve prior to their upcoming marriage.
While there is no magic formula because financial success in marriage is a journey, not an end-game, the following steps helped Eva and Brian to get on track:
Put all your cards on the table. Before you marry, be honest about where you are today financially––review your current situation, including your income, expenses, debt, savings, and financial goals. Not surprisingly, this type of truth party takes courage. In our illustration, Eva was ashamed that she still had some student loan debt to re-pay; Brian was embarrassed that his investments had been in cash since 2008.
Determine your income and expenses. With a clear understanding of the pieces of their financial puzzle, Eva and Brian were then able to collaborate regarding expenses. They now use mint.com to make it easy to monitor their cash-flow, and report how reassuring it feels to know how much money comes in, how much goes out, and to have a firm grasp on where their money is spent.
Create and work toward precise goals, and specify timelines for achieving them. Brian and Eva are excited to be aiming toward achieving retirement goals as well as planning to provide for an elderly parent and special needs child. They conduct monthly financial check-ups and find creative ways to celebrate when their progress reports are right on track.
Today, Eva and Brian feel a revitalized sense of financial security because they know that they are on track–collaborating and sharing responsibility for achieving everything they need for a lifetime of financial success. If you need help fine-tuning the financial bliss in your relationship, contact us right now: firstname.lastname@example.org or 610-687-3515.
When I established my holistic financial planning firm in 2000, I was advised by colleagues to avoid using the word “holistic” to describe Entrust Financial’s services. “It sounds too new age,” they said, “Like you are reading taro cards or something. It just doesn’t sound like you are offering rigorous financial and investment advice.”
I admit I was puzzled by the strong negative reaction to the word holistic because to me, offering financial advice using a holistic process was the natural outcome of observing what clients needed to be successful. For example, early in my career I was referred a couple, Emily and Dan, who reported they wanted to meet because they were “hemorrhaging money.” To them, this meant that although they inherited a substantial portfolio a couple of years before, they had already dissipated about $2 million dollars of it.
How could this be? Two things stood out when we completed our discovery meeting. First, the allocation of their inherited portfolio was not structured to generate the income they were taking or to minimize taxes. Second, Emily and Dan had inadvertently overlooked the need to plan for their family’s financial concerns that went beyond investing. These concerns proved not only expensive but extensive as well, including things such as: promised payment of expensive college tuitions for four children, long-term care expenses for a parent, and private, unreimbursed therapist expenses for their children, to name a few. Not surprisingly, the money hemorrhaging continued until we were able to reallocate their portfolio with a tax-sensitive income objective and to address their family’s other financial concerns.
Let us return to the term holistic for a moment. It is an adjective that means to comprehend the parts of something as intimately interconnected and understandable only by reference to the whole¹. Emily and Dan were faced with a dissipated portfolio because they had failed to look at the interconnection between the asset allocation of their inherited portfolio, their family’s financial concerns that went beyond investing, the inevitable tax consequences, and their current need for income. Fortunately, Entrust’s commitment to using a holistic process provided the structure they needed to turn things around and re-position their personal finances for long-term success.
Today, unlike in 2000, Entrust can use the word holistic with confidence, knowing the term is a positive indicator of the extra layer of care we provide to clients. In fact, when Mckenzie and I made the decision to reorganize Entrust Financial as an independent fee-based firm in 2015, we chose the descriptor: Partners in Holistic Wealth Management.
Our years of experience have continued to teach us that ensuring financial security and independence for clients is a holistic endeavor requiring more than astute investment planning. We have positioned ourselves as the financial quarterback, meaning we see the big picture, coordinate related professionals, deploy resources and respond with appropriate strategies within the context of life transitions and unexpected events. The job of our Entrust team is to be each client’s financial partner, the fundamental multi-faceted resource they can count on, no matter what.
Surprisingly, despite the benefit to clients of the extra layer of care offered when a holistic process is utilized, fewer than seven percent of financial advisors have adopted this service-delivery model. Rather, the financial services landscape has remained virtually unchanged over the past twenty years, with the vast majority of advisors trying hard to sell investment products, instead of addressing investors’ complex financial needs.
Whether you are preserving your affluence or are in the process of building your wealth, Gloria Steinem’s wry observation sums up the need for using a holistic approach: “Rich people plan for three generations; poor people plan for Saturday night.” Planning your personal finances for long-term success is not about a product sale. It is about achieving a holistic balance as you address your complex financial needs.
You can instill a sense of gratitude and generosity in even the youngest children by teaching them to share with others, beyond the immediate family. For instance, a great place to start is to encourage your kids to volunteer their time or share a portion of their allowance with the causes they love.
Strategies for transforming your children into young philanthropists include:
Discover what sparks their interest
Create a family tradition
Establish a donor-advised fund
Discover what sparks their interest
You can easily discover children’s interests by having a conversation, or better yet, by holding a family meeting. Facilitate the participation of each family member regarding their special interests. Identify what captures the heart of each child; then select charities that fulfill his or her passion.
For example, if your child likes pets, that might generate interest in a local animal rescue group. Once the organization is selected, look for opportunities to support them by donating time or money. As an added incentive you might agree to match the donations your child gives.
Create a family tradition
Celebrate a holiday, anniversary, or other event as a family by giving back to those in need. Not only will your children learn the importance of volunteering and generosity, they will also look forward to this traditional family endeavor every year. For example, participate in a family-friendly one-mile or 5K walk that benefits a cause important to your family. Or enjoy beautiful spring or summer days by volunteering for a park cleanup project or a local community building project. These shared experiences provide valuable lessons about the impact of giving back to the community.
Establish a donor-advised fund
A great charitable tool you should consider is a donor-advised fund. Many families establish a donor-advised fund because it’s flexible and a great tool to teach their children about giving, saving, and investing. When you and your family donate to your fund, you may be eligible for an immediate tax deduction.
Family members meet regularly to review their contributions, their investment strategy, and the value of their donor-advised fund. They make decisions about when to grant money and to what organizations. Some families set savings goals; they wait for the fund to reach a certain value prior to dividing funds among their favorite charities. Because grants are made only to qualified charities, an added benefit is that investment appreciation has the potential to grow tax-free.
Givers for life
By teaching lessons in gratitude and generosity early on, you can set your kids up for a lifetime of giving back to those in need, to their local communities, and to cherished causes. If you would like to discuss specific strategies for incorporating charitable giving into your family planning, contact us today or take a look at the BalancingActBook.com Charitable Planning Map.
NewsWorthy, Entrust’s monthly video intended to help you make good financial choices, focuses today on: What do you need to consider when hiring a financial advisor?
To get your thinking started, consider whether you want to work with an advisor who focuses on investment products and pretty much stops there, or whether you prefer to work with an advisor who partners with you to help you make good financial decisions in all aspects of your life. You can usually tell the advisor’s focus before the first meeting, based upon the documents you are asked to bring with you.
You may be asked to bring only investment statements. On the other hand, if you are asked to bring all documents relating to your financial life (investment statements, tax returns, legal docs, insurance policies, and so forth), that is a sign that the advisor’s approach is to get a good understanding of your financial concerns that go beyond investing, too.
Another key consideration is communication. For instance, when you first meet with the advisor, how do you feel? Does it seem that the meeting is primarily designed to tell you about their firm and their products? Or do you feel like the first meeting is structured for the advisor to listen to you, to better understand you–your style of living, values, goals and needs? You should walk away from the meeting feeling like the advisor truly understands you, and is genuinely concerned about all aspects of your financial well being. In other words, the advisor has a strong commitment to partnering with you using a holistic approach.
Sherri contacted us because she was concerned that she was not getting the best financial advice. She was retired and using her nest egg for income; she wanted to make sure that her investments were doing okay because she was always worried about running out of money.
Our meeting began with my gaining a good understanding of where she was today and what she was trying to accomplish. I then asked what questions she had brought with her to our meeting. She responded, “I’m sure I should already know all this, but,” and then asked me a couple of questions. I could tell that she felt tense and uncertain what questions to ask.
Asking the right questions can make all the difference in an investor’s comfort and confidence regarding the choices they make about their money, especially because there are many different types of financial advisors out there–often claiming to provide identical services. Following are key questions to ask, when you evaluate a financial advisor. I shared them with Sherri:
1. Are you a fiduciary?
Working with an advisor who is a fiduciary is an important first step to ensuring that the advice you receive will be in your best interests. As a fiduciary, an advisor has an ethical commitment to put the client’s interests before his or her own. In other words, the advisor is client-centric, not product-focused. The advisor must also disclose how he or she is compensated, as well as any conflicts of interest that might arise in the working relationship. Financial advisors who have earned their CFP® certification are held to this highest standard in the financial services industry.
2. Do you work with a team?
Many advisors practice on their own, perhaps with support staff. However, some firms choose a team structure, because they value having team members representing a variety of expertise, ensuring rich collaboration for providing clients with a holistic experience. Just as important, a team also serves as a succession plan, so you can be confident that your needs will be met even if the unexpected occurs.
3. What services do you offer?
All financial advisors offer slightly (and sometimes significantly) different services to their clients. It is important to know exactly what services an advisor will provide and to make sure they are aligned with your values and needs. For example, for most advisors managing investments is the end-game. At Entrust Financial, we start with astute investment management. But that is only the beginning because we know that to help clients make good financial choices in all aspects of their lives, we also need to address their financial concerns that go beyond investing.
4. What will our relationship look like after I become a client?
You want to understand that the investment philosophy and asset allocation approach of the firm is disciplined, deliberate and articulated in advance so emotional decisions may be avoided during times of heightened market volatility. You also want to know how the firm will communicate with you. For instance, at Entrust Financial, we schedule regular progress meetings to fit each client’s needs and preferences, as well as communicating current events perspective by email to inform clients about the economic and capital markets climate.
With these questions in hand, Sherri finally began to relax and enjoy our conversation. The answers I was able to provide gave her a new level of comfort because she had a framework for making her decision about how to hire a financial advisor, to help her move past her fear of running out of money.
What do you want in a financial advisor? Asking these questions provides a first step in evaluating your financial advisory relationship. Reach out to us today with other questions that come to mind. We welcome the opportunity to start a conversation.
An unprecedented news flash of earlier this year read: Millennials overtake Baby Boomers as America’s largest generation¹. No wonder parents routinely ask us what advice we have for their millennial offspring–especially their daughters. Well, we have some suggestions and discovered in writing them down that they apply to a larger audience than just Millennial women. So read on!
Affluent Millennial women and those in the process of growing their wealth are known for being highly ambitious, educated, and dedicated. They have redefined what success is and they work hard for their assets. As women of increasing wealth, what do they need to know about taking care of their money?
First and foremost, affluent millennial women need to take charge of their money. Whether they earned it, inherited it, or received a substantial divorce settlement, the decision to take responsibility is paramount. Sound a bit intense? There is a good reason for the passion behind this statement.
As a woman Certified Financial Planner™ professional for the past fifteen years, the number one mistake I have seen women make is to deflect financial decision-making responsibility to a man in their life–whether their father, another male family member, or–often the most damaging of all–to their love interest. No matter how gorgeous, sexy, charming, or authoritative, I can pretty much guarantee that the spouse or life partner in your life will not do a better job managing your money than you will.
Time and again I have witnessed that special person in her life dissipate, spend in ways not aligned with her values, and often just plain take her wealth while she stands on the sidelines wanting affection and rationalizing she doesn’t know enough to make her own choices. Remember, such rationalizations are past thinking. Happily, we are in the twenty-first century and you, as a powerful force to be reckoned with, do know what to do. Or you can avail yourself of the resources you need to figure out what to do with your affluence–so you can fulfill your values, needs, and interests as well as avoid losing your wealth.
Tips for Millennial Women
Tip number one to all affluent millennial women is to take charge of your wealth planning. Tip number two is to avoid the “Just sign here, honey!” syndrome, as described above when that special someone is given authority over your personal finances. Tip number three is to consider the benefits of finding a competent wealth advisor to help you achieve all that is important to you with respect to your money.
To help with tip number three, here are a couple of guidelines for selecting that all-important advisor:
Work with an advisor who has attained the Certified Financial Planner™ credential. This professional is seasoned in the aspects that can help you maintain your financial well-being as well as achieve all that is important to you. Search for professionals in your area: http://www.cfp.net/ When you visit the websites of the CFP® professionals you have identified, make sure they are comfortable working with your team of advisors, such as your CPA and attorney.
Then, during the initial consultation with the advisors under consideration, take note of whether they listen to you, educate you as the conversation unfolds, and have a long-term perspective focused on you. If all they want to discuss is their great investment products, watch out! Your long-term financial success is built upon what you need and what is important to you, not on a product.
Tip number four for wealthy millennial women is to make a spending plan. Yes, even with the best advisor, if you are not quite sure where your money is going (your expenses), you may be in for unpleasant surprises down the road. Never assume you know; be precise about what comes in and goes out; I believe your sense of command over your personal finances will grow accordingly.
Tip number five is to “get started.” No matter what your former experience, muster your courage and begin taking charge of your personal finances now. Even baby steps right now will likely result in better than ever tomorrows. If you are not sure where to begin, I created a how-to guide, complete with exercises, to get you going on your journey– Balancing Act: Wealth Management Straight Talk for Women. All proceeds from the sale of this book benefit a scholarship fund at Temple University.
I predict a couple of phenomenal outcomes when affluent millennial women choose to take charge of their money. The first is they will be better able to take care of themselves and their families no matter what curve balls life throws their way. The second is that women are charitably minded, more so than men, and often serve as a catalyst for social change, change that benefits not only their families but all of us.
So whether you earned your wealth, inherited it, or received it in a settlement award, I challenge you to take responsibility for your money. Learn what you need to know, make choices, and enjoy the experience of growing financial confidence that results.
¹FACTANK: News in the Numbers, Millennials overtake Baby Boomers as America’s largest generation, Richard Fry, April 15, 2