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Senior Spectrum – February 23, 2010

The field of financial planning is relatively new and has existed for just the past generation. As a result there’s many uncertainties, mysteries and confusion about what it is, where’s the best place to go for it and why financial planning is important.

Financial planning is not an event but rather the process. Financial planning is often said to be similar to preparing for a journey. You need to first ASSESS where you are to start, establish GOALS as to where you want to go, ANALYZE what will be needed for the trip, get RECOMMENDATIONS as to the best way to get there, MITIGATE any risks along the way, INITIATE the trip and MONITOR your progress along the way. Financial planning helps you make better financial decisions, to improve the quality of your life now and in the future. 

The trouble that many people have is balancing current needs (what is currently being spent) with future needs (saving enough to have a good life later).

Unfortunately, anyone can call themselves a financial planner. Some mortgage brokers, insurance salesman, stockbrokers, Registered Investment Advisors, money managers, CPA’s even some Attorneys use the term. 

The field of financial planning is made up of several focused areas including: estate planning (legal), taxes and general finance (CPA/accounting), risk management (insurance) and investment (securities/real estate/banking). Historically most planners have evolved out of one of these four areas.

In recent years, a number of colleges and Universities have developed programs specifically in financial planning. A graduate from such a course will have a good understanding of all the areas of financial planning rather then a more narrow view of someone with experience in just one field. 

Asking a planner about their education and experience is important but perhaps the more important concern is their objectivity.

All too often someone will purport themselves to be a “financial planner” but in reality they are trying to sell you something. The concern is that if the salesman (financial planner) does not have the best solution for your situation, you might be sold a product anyway. The other problem in a commission situation is the lack of transparency. You do not know what you are paying your financial planner because the commission is a hidden fee.

The alternative to a “salesman” approach is the “fee for service” concept. Pay the planner by the hour or for a specific project or service. Some planners work on a retainer basis, a set fee for the year. Some, mostly money managers, are paid on a percentage of the assets they manage for the client. Any planner should be very willing and comfortable discussing the cost of their service. 

You would be confident that your interests always come first when dealing with an advisor who is a fiduciary. Registered Investment Advisors are required by State and/or federal law to act in your best interests at all times and to fully disclose compensation arrangements prior to service. This is not the case with a sales oriented adviser.

When you seek a planner, look for one who has the formal education, is unbiased in his or her recommendations (does not sell you products,) and has had a good amount of experience.

Many members of the public do not really understand how a financial planner helps clients so here are some real life examples:

Couple in their mid-50s
Their primary concern was whether they would have the retirement that they envisioned. As a result of working with a planner, they decreased their insurance costs, obtained the proper type of insurance coverage, established a revocable living trust as well as Powers of Attorney and other documents, recommended changes in their investments to decrease risk, provided recommendations to change the allocation within his retirement plan, established that they would have a successful retirement based on current projections, provided recommendations around buying, selling and renting a residence.

Lady in her late 60’s
Her primary concern was determining if she could retire comfortably at age 70. As a result of working with a planner, she decreased her property and casualty insurance costs, started collecting $600 a month from her ex-husband’s Social Security benefits without impacting her own benefits which she will start taking at age 70, established that she could retire comfortably at 70 and in fact even earlier.  Other recommendations were, converting some IRA to Roth IRA, increased her retirement plan contribution to decrease current income taxes, recommended changes to her estate planning documents to improve the likelihood that her wishes would be carried out.

Couple in their late 70s
These folks were concerned about the best way to leave assets to their family, make sure they had enough to live on comfortably the rest of their life, make sure they were invested properly and were adequately protected if they got sued. The financial planning recommendations included modifications of their asset allocation in their various accounts, recommending they go back to their attorney for some clarification within their trust and get updated HIPAA release, transfer all assets to the trust and use an estate-planning letter as a way of distributing personal items. It was also confirmed that there was a 92% chance that they would not outlive their assets.

If you want to improve the quality of your life, consider using the services of a financial planner. When interviewing planners look for one that is a Certified Financial Planner ® and does not sell insurance and investments. To find such a planner in your area consult the website of the Garrett Planning Network or the National Association of Personal Financial Advisors. If you do not have web access call 800-347-1340 and ask for a referral.

Michael Chamberlain CFP®

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Senior Spectrum – March 16, 2010

As a teenager I worked in an ice cream store. There were 31 flavors, so I think you know the store in which I worked. The good thing about ice cream is all the flavors are good. The problem with taxes is some flavors are better than others.

The first flavor that we are most familiar with is “Fully Taxable”. The sources of income subject to full tax would be our wages, bonus, business income, partnership income, bank account interest, alimony, pensions and rent that you might receive. The tax rates are 10%, 15%, 25%, 28%, 33% and 35% depending on your total income.

With the current financial status of this country, it’s pretty clear that these income tax rates will be going up at some point in the future. There’s an election coming up in November and I would bet a “ dollar to a donut” that the rates would go up for next year.

The second flavor of income tax that’s better than the full flavor is “deferred tax”. This includes individual retirement accounts (IRA) and annuities. This also includes 401K plans for those who work for private or public companies. If you’re a teacher, or work for certain non-profit organizations, you have the option of a 403B plan. Unfortunately many 403 B’s have very few options available and that will be the subject of a future article. A 457 plan is an option to defer income into retirement years when you might be in a lower bracket. With this flavor of tax, you don’t pay now, but you pay later when you take it out.

Now we’re starting to get into some of the better flavors, the first of which is “preferred tax” status. Many of you who are retired do have this preferred tax on your Social Security benefits. If you’re in a very low income tax bracket, you pay no tax on your Social Security benefits. If you have some additional income, you could pay tax on up to 85% of your benefits. Some of you might be old enough to remember the government’s previous promise never to tax Social Security benefits. What happened to that?

Another type of preferred flavor is that of long-term capital gains. If you invest in stocks or other types of investments and hold them for longer than one year, sell the item and reap a profit, you pay less than ordinary income tax rates. If you are in a low tax bracket, you would pay zero tax and in higher brackets, long-term tax rates are 15%, which is honestly preferred to the higher rate of full taxes.

Now we come to the best flavor of all… “Tax-free”. Municipal bonds are what most people think of when they think of tax-free income. There are, however, many other sources of tax-free money. When someone gives you a gift, there is no tax due (as long as it is under $13,000). If you receive an inheritance, there is generally no Federal tax due. Life insurance payouts are income tax-free except in extremely rare circumstances.  When you sell your home, you are exempt from income tax up to $500,000 as a couple. You do not have to pay income tax on child support. Roth IRA withdrawals require no taxes be paid either. Health Savings Account withdrawals are income tax free as long as you use it for a qualified expense.

The fifth flavor of tax is the Alternative Minimum Tax. The IRS, for the purpose of making sure the wealthy pay their fair share, invented this particular flavor. When Congress wrote this rule, they did not index the tax for inflation. As a result, years later, it is impacting many middle-income taxpayers. Unfortunately, our lawmakers don’t have the time to eliminate this flavor from our ice cream shop.  (Oh, I mean tax code.)

As a financial planner, as well as a taxpayer, my favorite flavor is tax-free, followed by tax preferred then tax-deferred. My least favorite flavor of tax is “fully taxable” and I personally have never had to taste the Alternative Minimum Tax. What are your favorites, if any?

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Senior Spectrum – March 9, 2010

Perhaps you have seen the television show “Myth Busters”. The two stars of the program go about proving whether myths are true or not. Unfortunately there are many financial myths as well. Perhaps this article will help to disprove some of them.

1. Dollar Cost Averaging will increase my return. Sorry folks, dollar cost averaging might make you feel more comfortable about investing a sum of money into the markets, however there is no evidence to justify this technique. This subject was covered in a previous article and alluded to by experts in the field. The primary reason it does not work is that the stock market rises more often than it falls.   So, the more you have in the market, and the sooner you invest it, generally the higher return. This is particularly true when you’re investing over long periods time.
2. Picking the right investment is the main factor to high returns. Wrong again. It has been well known for a long time that having an asset allocation that is appropriate for your circumstances (mix of investments, stocks bonds and cash) is actually the factor that contributes the most to a higher return over time. Picking the right investment only contributed 4.6% while market timing account for only 1.8% of total investment return.
3. I don’t need to worry about Long-Term Care costs because Medicare will pay for it. This is perhaps one of the biggest myths ever. Medicare does pay for skilled nursing care, but only for a limited time frame. The vast majority of nursing care costs are custodial in nature and Medicare specifically excludes this type of care. You’re on your own for this cost. Don’t expect the government to help you unless it is through the Medi-Cal program which, is for those who are indigent.
4. It’s more important to save for my kids’ college than for my retirement. Every parent wants to feel like they can contribute to their kids’ education. College costs can be addressed in a number of different ways including loans and grants. Retirement can’t be financed through these options. In reality, saving for retirement is almost always more important than saving for your kids’ education.   Ideally, you should try to do both.
5. It’s a better financial decision to buy a new car than a used car. Financially it makes more sense to buy a used car in almost every case because a new car has a huge depreciation factor (drop in value) just driving it off the lot. While a new car might make you feel more special, it’s not the best financial decision.
6. It’s always best rolling your 401(k) at retirement into in IRA. Generally not true but it could be in some cases. Unfortunately, many people giving advice about making a change are hoping to sell you mutual funds and will make a big commission. Many 401(k) plans have very good choices available at a very low cost and should be retained. In some cases the 401(k)’s don’t give you enough diversification of investment choices and going to a no-load IRA would be a better choice.
7. Actively managed mutual funds have higher returns than index funds. This debate has two sides. If you believe economists, college professors, and Nobel Prize winners, you know that over time, index funds generally provide higher returns than actively managed mutual funds. If you believe stockbrokers, Wall Street, Banks and big for-profit companies trying to make money off your investments, you may believe actively managed mutual funds do better… but there is no evidence to that effect in the long run.

Do you have some fact or myth that you would like some input on? Just ask!

Michael Chamberlain CFP®
Ca Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Avoid Problems When Lending Money to Family

It can happen at any time. Your child or grandchild describes to you a financial predicament they are in and then asks you for a loan. The reasons can be varied — the purchase of a home, schooling costs, job layoff, health problems or to decrease credit card debt.

Regardless of the reason, you need to avoid some common problems when this happens to you. To start with, you need to be in a financial position to make the loan. Remember, you need enough liquid assets for your own financial safety net.

How would you be impacted if the loan was not repaid? After looking at your own circumstance, it might be best to not offer the loan and say, “I would really like to be able to help with your current money troubles, but after looking at my own finances, I do not have any extra money to lend you.”

Many younger people do not have a good handle on their finances and are over-extended because of making poor buying decisions. If they’re asking for the money to buy a new car when they have a perfectly good older car, or they want to go on vacation, you may be doing them a favor by NOT making the loan.

If you do consider making the loan, be sure to understand their total financial situation (just like a bank or some other lender would do). Your loved one may not want you to judge them, so they may not be telling you their whole financial story. Ask to see a copy of their current credit report to determine that they are not totally underwater and that you have the whole story. (They can get a credit report for free on the Internet at www.annualcreditreport.com)

If you can afford to make the loan, it’s for a legitimate reason, and they are technically solvent, the next step would be to agree on the terms of the loan. What is the amount to be loaned? On what date? What is the term of the loan? What is the interest rate to be charged? What is the date each month the payment is due? What is the date when the payment is late? What are the penalties for late payment? And is the loan callable or not?

If the family member requesting the loan is married, are you in fact making the loan to both of them or just your family member? This could be important in case of a divorce.

If you have a living trust, the promissory note should reflect that your trust is making the loan and not you personally.

Put the terms of the loan in writing. You can go on the Internet and Google “promissory note,” where you will have several contracts from which to choose. The best option would be to talk to your attorney and have the note professionally prepared.

Should you make a loan to one family member, do you want the rest of the family to be aware of this loan? Full disclosure is many times best, but the loan could be an embarrassment to the borrower. Disclosure might lead to requests for loans from other family members. Would you be in a position to help them as well?

Keep in mind that the loan must have a declared interest rate, according to the IRS. If a loan does not have a stated interest rate, the government will determine the rate for you, which could impact the income taxes of the borrower or for you. Talk to your tax professional to be sure that you are aware of the implications of an interfamily loan.

If you want to keep the loan on a more professional level, you can use the services of a company such as Virgin Money US. For a one-time fee of $199 and a monthly fee of $9, this company will prepare the documents, collect the money each month and deposit it into your account.

To restate, if you get asked to make a loan, do not say yes until you’re sure that you are in a position to make the loan, you know what it is for, you know the borrower’s financial situation, and you both agree on the terms, then reduce it to writing, know your tax implications and its impact on your estate plan.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340.

Your Money Matters
Avoiding Family Conflicts with Your Illness or Death.
By Michael Chamberlain, CFP

Conflict and arguing within the family is the last thing anyone wants to have happen. Unfortunately, many people fail to have the proper estate planning documents so at the time of serious illness or death there is uncertainty, which creates discourse and strife from which some families never recover.

Below is a review of the documents you may need to be sure your desires are clear and legal, hence minimizing conflicts and confusion in your family.

The Advanced Health Care Directive is a specific form that lists your healthcare preferences to be used only at a time when you cannot communicate your wishes. It puts your family, doctors and hospitals on notice as to the types of treatments/tests/care you would or would not want. It also lists those empowered to make health care decisions on your behalf should you not be able to express your desires. Everyone over the age of 18 should have this form completed.

The office of the Attorney General of California has excellent information on this topic including a sample form and may be viewed @ www.ag.ca.gov/consumers/general/adv_hc_dir.htm

Power of Attorney for Asset Management appoints those that you trust to handle your financial affairs. The form also lists those areas in which you allow the individual to assist you. Having completed this form can be very important in avoiding conservatorship should you become incapacitated. An immediate or durable power of attorney allows your agent to immediately act on your behalf. A springy power-of-attorney goes into effect only when you are incapacitated. It would be important to talk to your attorney and make sure you receive the form that is most appropriate for your situation.

HIPAA Release Form. Several years ago the federal government passed a law to help protect our health care information. In doing so, it made it more difficult for our family members or trusted individuals to deal with health insurance matters at a time of our incapacitation. By having this special form completed ahead of time you allow those individuals named in your advanced health care directive and or power of attorney for asset management to have access to healthcare information to deal with insurance matters on your behalf at a time when you cannot do so.

A Will is the method that many people use to transfer their assets upon their death. These are relatively inexpensive to acquire but in most cases will result in probate which can be time-consuming and expensive. For many people who own real estate or have more than just modest assets, may be better served by having a Living Trust. Even those individuals having a living trust still need a will.

A Living Trust is the preferred method of transferring assets upon death for many people. When assets are transferred via the trust there is more confidentiality, less cost, more flexibility with distribution, faster distribution and your wishes are less likely to be contested than with a “probated will”. For those with a lot of wealth, the trust might also provide some estate tax benefits. The downside to the trust is that they are a little bit more expensive to create and maintain.

If you have the trust, is important to make sure that trust is properly funded. All real estate should be transferred to the trust as well as savings accounts, mutual funds and other investments. Assigning your personal property to the trust and having the proper document allows the trustee to distribute your personal property those that you list thus helping to avoid conflicts within the family when you’re gone.

You should always consult with an attorney who specializes in estate planning to make sure you have the correct estate planning documents for your situation. Do not rely on the Internet or from the sale of products such as from Suze Orman to create your own trust document.

Do yourself and your family a favor and make sure you have the proper estate planning documents now thus avoiding the family issues that can be caused by your lack of planning.

Michael Chamberlain CFP®
CC Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.

Your Money Matters
10 Tips for These Difficult Economic Times
by Michael Chamberlain CFP

The recent economic changes impact everyone and particularly those who are retired. Whether it is a drop in value of your retirement account or a decrease in interest rates at the banks, everyone has noticed.

The question is – what can retirees do now to shore up their finances? Some things are fairly obvious, such as delaying a vacation, going to a less costly restaurant or putting off major purchases as long as you can.

But there are other things retirees can do to help in these difficult times:

1.    Know what and where you’re spending. Saving a dollar is easier than making one. Keep track of what you spend each month. This is an easy way to help you identify those areas you might be able to cut back without impacting the quality of your life. Use pencil and paper, a computer program such as Quicken® or Excel, or an online tool available at: www.mint.com.

2.     Shop your insurance program. There can be large differences in premiums from one company to the next and it is wise to re-shop your insurance package (home and car, etc.) with several companies every few years.  The savings are often in the hundreds of dollars.

3.    Comparison shop banking services. Many banks have raised fees and decreased interest rates.  As an example, Bank of America investment services money market account now pays a 0% interest. Customers would do well to go elsewhere. Don’t overlook your local credit union or banks outside the area. Searching online can help identify institutions with higher interest rates.

4.     Beware of something that sounds “too good to be true.” Be cautious about an invitation for a “free lunch” to learn about an “investment that can never go down,” “Earn extra money from your home,” “Long Term Care without paying for it,” etc. Remember there is often fine print or a hook and they are always selling something. If you don’t understand it, avoid it or at least seek a professional second opinion (from someone who’s not selling the product).

5.    Do not be the victim of scare tactics. Do not let salespeople take advantage of you in reaction to the recent economic havoc. An 83-year-old client was recently sold an annuity at her bank and she cannot get all her money back until she’s 93, which is totally inappropriate.

6.    Do not take retirement plan distributions if you do not need them. A new law allows retirees to not take a minimum distribution from certain retirement plans. The concept is to allow the values of the account to come back up and then resume distributions.

7.    Understand your investments costs. In this environment, it’s crucial that you have a firm understanding of all the fees (commissions, sales loads, deferred charges, redemption fees, surrender fees, account fees, management fees, distribution fees, and even statement fees).  Depending upon the size of your portfolio, going to investments with lesser costs could save you thousands of dollars a year.

8.    Proper asset allocation in your portfolio. Having the proper mix of different types of investments is the prime way to mitigate risk. The allocation that is appropriate for you is dependent upon your risk tolerance (a mental state), your risk capacity (your financial state) and your goals, which includes your timeframe. The people that felt the most pain with the recent drop in the market had an incorrect asset allocation.  Now is a good time to make sure your asset allocation is correct.

9.    Determine if you need help. It’s what you don’t know that can hurt you the most. To help identify the areas where you could use some professional assistance, a Financial Security Survey was developed. It’s free and can be very reveling.  Go to the website below and download the survey or call 800-347-1340 and it will be mailed to you.
http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf

10.  If you need help, get objective advice. Money magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek, and AARP all have had articles recommending people get objective advice from a “fee-only” advisor.  These individuals do not sell product, so there is no conflict of interest between what is best for you and the person who is selling a product.  The publications above recommend readers go to www.napfa.org and www.garrettplanningnetwork.com for a list of “fee-only” planners in your area.

While these 10 tips will not undo the effects of the changes in the economy, they offer some practical steps you can take to strengthen your finances today and position your retirement savings for improvement as the economy comes around.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340
This article is for informational purposes and should not be taken as legal, tax or investment advice.

Your Money Matters
Tips for a More Successful Retirement
By Michael Chamberlain, CFP

At a recent meeting of retirees, a presentation of “The 10 biggest retirement planning mistakes” was given. There were many questions and much discussion. Everyone left having a few pearls of wisdom to take home.

When all the others were gone, a retired teacher approached me and said, “Mike, I learned a lot, but having been a teacher for many years, you might want to consider dwelling on the positive, not the negative.”

In that spirit of accentuating the positive, here are some tips for a more successful retirement rather than mistakes to avoid:

Have Goals
Tasks you wish to accomplish, places you want to go, people you wish to help — goals are a list of things you plan to do. There can be short-term and long-term goals, larger goals as well smaller ones. The chances of reaching your goals are much greater when they are written down and have a timeframe attached to them, as well as the expected financial cost and where the funds will come from. For instance, I will complete Spanish 1 at the community college by next June with a grade of B or better. And the fees of $250 will come from the interest on my CD.

Make Timely Decisions (Don’t Procrastinate)
Some retirees are afraid of making wrong decisions, and based on that fear, do not make decisions at all. A common comment is, “I’ll think about it.” If you have accurate information and understand the circumstances, you have all the knowledge necessary to make an informed decision. Getting accurate information can be difficult, particularly so in a sales situation. Do not be afraid to get a second opinion from someone who is not trying to sell you something. Ask family members or a trusted advisor, such as your tax preparer, attorney or financial planner, depending on the decision at hand.

Do Not Put All Your Eggs in One Basket
Your investments should be diversified. Having all your assets in CDs may not yield enough return to meet your needs. Having all your investments in stock (or mutual funds invested in stock) is much too risky. The correct asset allocation for you and your situation should be based on your risk tolerance (a mental state), your risk capacity (a financial state) and your goals, including your timeframe. Determining the correct allocation is sometimes best accomplished with professional help.

Good Debt/Bad Debt
Not all debt is created equal. Some interest, such as a home mortgage, is tax-deductible and would be much more preferred than the interest on an auto loan. Credit card debt is the worst type due to its non-deductibility and very high interest rates. It should be avoided like the plague.

Mitigate Your Risks
In dealing with risk, your options are to avoid the risk, transfer the risk to an insurance company or retain the risk and pay the price should the dread event occur. These three options exist for all risks including; health, auto, home, disability and long-term care. Unfortunately some people have too much insurance while others do not have enough and most are paying more premium than they should for the insurance they have. Everyone is different and your risk mitigation program should reflect your unique situation.

Proper Estate Planning Documents
All retirees should have the proper estate planning documents that designate who will make health care decisions or control their finances when the time comes. It is much easier to address this ahead of time rather than after an event, such as stroke, Alzheimer’s disease or other incapacitating affliction. If you own real estate, a living trust may be a good way of making sure your assets go to whomever you choose upon your passing. Always consult with an estate planning attorney for these matters.

Ask for Help if Needed.
Financial planning, insurance, investments, taxes and retirement planning are complicated subjects. Most retirees learn about these subjects through the “school of hard knocks.” It is the age of specialization. We go to the doctor for a checkup on our health, we get car tune-ups at the garage, the gardener tends our garden, and for financial advice, there is the financial planner.

To identify the areas where you may need help, complete a “Financial Satisfaction Survey.” It’s free and can be very revealing. Go to the Web site below and download the survey, or call (800) 347-1340, and it will be mailed to you. There is one survey for those who are retired and a different one for those not yet retired. http://www.chamberlainfp.com/pdf/fp_security_survey_retire.pdf.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340

Protect Yourself From Investment Fraud

The media are full of stories about investment fraud and sales abuse. Wells Fargo was sued by the State of California for selling investments that were not as safe as they reported. Bank of America was sued for its involvement in a Ponzi scheme. Ameriprise paid a fine for selling products unsuited to clients’ retirement accounts. And, of course, we all know about the Bernie Madoff hedge fund scandal, where people lost millions.

Now is a great time to review 12 methods to protect yourself from possible investment fraud and misrepresentation.

(1). If an investment salesman uses phrases such as high rate of return; risk-free; your investment is guaranteed against loss; or you must invest now, then you should be extra cautious.

(2). Security laws protect investors by requiring that companies provide investors with specific written information about the company. Unfortunately, this information is very detailed and is buried among dozens of pages of the prospectus. Security laws and safeguards are of no value if you don’t read the information prior to the purchase.

(3). Be aware of the risk associated with an investment. Most people know that a certificate of deposit (CD) at a bank is less risky than investing with someone who contacted you by phone or by investing with someone you know through your church or a friend. Many people do not know how to assess the risk of bonds, mutual funds or stocks.

(4). Suppose a friend tells you about an investment opportunity that has earned returns of 20 percent during the past year. Your investments have been performing poorly, and you’re interested in earning higher returns. This person is your friend, and you trust him or her. DO NOT invest until you call your securities regulator to see if the investment has been registered to be sold legally. It would also be wise to get a second opinion from an investment professional who is not selling the investment.

(5). When making an investment, do not rely on the testimonials of others, advertising, and/or news stories in the media or on the Internet. And don’t rely on technical data that you don’t really understand. You should depend on information that has been filed with your securities regulator. If you don’t understand it, don’t buy it.

(6). The best way to protect yourself from investment fraud includes: read all disclosure documents about the investment, be skeptical, and ask questions. Never write a check for an investment in the name of your salesperson. The NASAA recommends investors seek the advice from an independent, objective source (a professional who is not selling the investment).

(7). When dealing with an investment salesperson who you consider reputable, you should request copies of opening documentation to verify that your investment goals and objectives are stated correctly; evaluate your salesperson’s recommendations by doing your own research before you buy; review all correspondence and account statements when received; and never allow the salesperson to manage your assets as he or she sees fit.

(8). Numerous investments have been used to defraud the public, including short-term promissory notes, deeds of trust, offshore investments to avoid taxes, Nigerian advance fee letters and many others. If it sounds too good to be true, it probably is!

(9). If you work with an investment salesperson and he or she asks you to invest in a product they’re really excited about — but the recommendation is different from the financial products you have previously invested in — be sure to check with your security regulator to see if there’s any information on the investment product and that the salesperson is authorized to sell that product.

(10). Do not assume an investment is legitimate just because the promotional materials and company Web site look professional, it has a prestigious office location, other investors report quick upfront returns, or the company has an official sounding name. Make the decision only after completing your due diligence.

(11). Remember, no one insures you against investment loss. Make sure your investments are appropriate for your risk tolerance (your ability to mentally handle the ups and downs), your risk capacity (your financial situation), and your goals and timeframe.

(12). Whenever the sale of an investment generates a commission for the salesperson, there is a possibility of misrepresentation or that it may not be as well-suited to your circumstance and situation. This is the reason investors are wise to get a second opinion from an investment professional that does not sell product and only provides objective advice.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340.

Your Money Matters
Should I Rollover My 401(k) to an IRA?

By Michael Chamberlain, CFP

OK, so you have gone ahead and retired. Now you are wondering, “What should I do with my 401(k); leave it where it’s at or convert to an IRA?

Unfortunately, it’s not a simple question to answer. It depends upon your choice of investments as well as the ongoing costs of the 401(k) compared to that of an IRA. Other factors to consider are your age and whether you would need the funds before age 59 1/2, as well as the amount involved.

Advantages of the keeping the 401(k) include:

• You can borrow money from the 401(k) without penalty, as long as you pay it back.

• If you’re less than 59 1/2, you can withdraw money in your 401(k) under certain circumstances, such as needing to pay medical bills. The qualifying expenses would have to be tax deductible and would exceed 7 1/2 percent of your adjusted gross income.

• If you become disabled before 59 1/2, you can make early withdrawals from the 401(k).

• Management fees of the funds within the 401(k) at very large companies are sometimes less than those of an IRA.

• If the amount involved is small, you may get better diversification amongst different asset classes since the 401(k) often does not have a minimum account size.

Advantages of the IRA include:

• Greater selection of investment options.

• Management fees of the funds within the 401(k) at small to mid-sized companies are often more than those of an IRA.

• More freedom to switch investments with greater frequency.

• The IRA may be easier to deal with than dealing with a 401(k) and an existing IRA. There is less administration and record keeping with one account rather than two.

• Once you have established that none of the advantages of the 401(k) would benefit you and that you understand the costs of the 401(k) compared to an IRA, converting to an IRA could allow for a better asset allocation than your 401(k).

• Having the correct asset allocation of different investment types is perhaps more important then deciding to convert from the 401(k) to the IRA. The proper mix of asset classes can decrease your risk and increases your return. The allocation should be based upon your tolerance for risk, your capacity for risk and your goals including your timeframe.

Most people need some professional assistance to determine the proper allocation. Many financial publications recommend people use a “Fee-Only” advisor, who does not sell products, for objective advice that is free of conflict of interest (similar to a doctor or CPA).

If you convert to an IRA, consider using low-cost mutual funds and/or exchange traded funds (ETF’s) to keep your investment costs low.

The time when it DOES NOT make sense to move your funds from a 401(k) to an IRA is when you are getting recommendations to buy a product that has commissions and high fees associated with the IRA.

Unfortunately, most financial advisors sell a product, and the commissions of 3 1/2 to 7 percent can come right out of your account. Most retirees do not have the experience to fully understand the fees involved and the long-term impact on their nest egg.

If you are considering your options for converting a 401(k) to an IRA, be sure to talk to a financial advisor who is not going to try to sell you the IRA.

Send your questions to mike@chamberlainfp.com or call (800) 347-1340.

Michael Chamberlain is a Calif. Registered Investment Advisor. Send your questions to him at mike@chamberlainfp.com or call (800) 347-1340.

Getting Objective Financial Advice in these Trying Times

Making good financial decisions is more important now than ever with the meltdown of the stock market, low interest rates at banks and a slowdown in the economy. Good advice is the basis to good decisions.

The options for finding financial advice are endless. Magazines, books, neighbors or friends, TV and the internet are filled with information on the subject. Then of course all those folks looking to sell you a product or advice. The question that retiree’s want answered is “Where do I go for, competent financial advice for my situation that is objective?

Competent
Advice should be based on sound financial principles and be from someone who has education and experience in the field. Those that have earned the right to use the “Certified Financial Planner®” or “Certified Financial Analyst®” designations have the education and passed rigorous testing demonstrating their mastery of the subject. Other designations have less rigorous testing or ethics. Beware of designations designed for marketing such as “Certified Senior Advisor”.

Specific to your situation
To be effective, advice should be tailored to your unique circumstances. The magazines, books, TV and Internet are often entertaining and good background information but the advice given is generic in nature and is not specific to your situation. It is easy to come to the wrong conclusion and perhaps make the wrong decision. Friends and family who offer advice always do so with the best intent but it may not be based on sound financial principles.

Objective Advice
To start, let’s look at the kind of information you prefer.

· If you’re going to buy a car, are you more likely to trust the findings of Consumer Reports Magazine (who accepts no advertising) or the sales brochure in a car dealership?

· Would you be more likely to trust the results of a double-blind study performed by a nonprofit hospital on drug effectivity or the advertisement from a pharmaceutical company trying to get you to use their drug?

· For those that enjoy wine, would you be more likely to believe the findings from the Wine Spectator or the recommendation from the waiter recommending the more expensive bottle of wine on the menu?

If you picked the first choice in the 3 examples above, you clearly prefer objective advice.

“Fee only” advisors is the best place to get objective advice according to writers in numerous publications including; Money Magazine, Kiplinger Personal Finance, CNN Money, MorningStar, MSNBC, Newsweek, and AARP. With this methodology, the client pays the Fee-Only advisor directly for the time in analyzing, researching and making recommendations specific to that client. There is no sale of product, no commissions and no conflict of interest. Fee only advisers are Registered Investment Advisors and have a fiduciary responsibility of what is always in the client’s best interest.

Unfortunately, most financial advisors in the United States are not objective advisors but rather salesmen. Regardless of the location (a bank, Credit Union, or brokerage firm) any time the advisor gets a commission from selling you a product, there is the potential of conflict of interest between what is best for the client and what is best for the salesperson and the firm.

The reason you cannot get objective advise from a salesperson is that they have the duty of loyalty to their company, not to you the client. They are not obligated to disclose conflicts of interest, better products offered elsewhere or their sources of income.

The publications mentioned above recommend readers go to www.garrettplanningnetwork.com or www.napfa.org for a list of “fee only” advisors in your area.

Michael Chamberlain CFP®
CA Registered Investment Advisor

Send your questions to mike@chamberlainfp.com or call 800-347-1340

This article is for informational purposes and should not be taken as legal, tax or investment advice.