How Do You Make Your (Financial) Decisions?

This week I have been attending an AICPA Employee Benefit Plan conference in Dallas, Texas. This is my first conference of this type, so I was a bit apprehensive as to what I would "get" from the conference. That apprehension did not last long.

The very first session was a general session with a recorded video from the Assistant Secretary of Labor (note - due to a meeting, she was unable to attend). Of course, there were numerous parts of the video that did not really interest me, but then the speaker stated...

"How do you make your (financial) decisions?"
Suddenly, I was listening to the speaker talk my kind of language...

She was talking about how the Department of Labor (DOL) was interested in how employees made their financial decisions. One of the quick things the speaker stated was that the DOL had come to the decision that bad, conflicted advice was worse than no advice... Um, not good.

The DOL was looking for things like:

• How do you make retirement decisions?
  
  • Do you read, talk to someone, "just know," or ???
• If you do talk to someone,
  
  • How do you choose?
  • How do you know this person has your best interest in mind?

So, if the DOL is interested in this information, I should be too. Please tell me your answers by emailing me rschultz@rollinsfinancial.com.

The speaker then mentioned how a SEC registered investment advisor representative has a fiduciary standard whereas a broker usually has only a suitability standard.

In case I have lost you, the standards above are not the same thing.

The "Fiduciary Standard" is the highest standard of care. A fiduciary must work in the best interest of the client only and not in the interest of the fiduciary. In fact, by being an SEC registered investment advisor representative, the representative has stated that they will follow the fiduciary standard.

The "Suitability Standard" is different in that the investment that is being offered only has to be considered "suitable" not necessarily in the client's best interest. Broker-Dealers and their representatives are usually held to this standard.

What does this mean to you? Well, it depends. I have reviewed hundreds of portfolios over the years. Some have been suitable but benefit the representative more than the client due to commissions and fees that might be hidden from the client (think annuities as an example). Some have clear fees and are setup to help the client, but maybe the funds are just lackluster and the representative does not trade much or ever. Some have been spot on with clearly defined fees, well regarded funds, and a good track record...

What I am trying to tell you is that not all your "advisors" are created equal or even follow the same guidelines. Do you know how your advisor gets paid? I promise - your advisor is being paid.

In another class at the conference, the speaker stated, "Most employees think that their plans are 'free' or 'very low cost' since they are not 'charged' fees." As I have discussed before, there are numerous investment products that charge very high fees, but some could be hidden in the "fund expenses" of the plan. Do you know what you are really paying for your accounts?

All of these questions are important, and if you do not know the answer, do not be afraid to ask. The markets have been great since March 2009, but that does not mean that you cannot question your advisor.

I would enjoy hearing from you about your answers to all of these questions, and if you wish to ask me questions, feel free. My email is rschultz@rollinsfinancial.com.

Hello... Again...

Hello all...

First, I know that I do not post here too often anymore, but there is not a week that goes by that I do not receive an email thanking me for the website or asking for some advice/help. I am happy that my little web project has become a source for many educators to use, and when things change, I promise to post something about the changes.

As for the emails I receive, I certainly try to answer every single one of them, so if you sent me something and did not get a response, I probably did not receive it, so please try again. Everyone has different concerns and questions, so if I didn't hit on yours in a previous post, then email me a question.

In the meantime, today's little blog is simply something to say hello. I hope that all of you are doing well, so if you feel like sending me questions, comments, or just a hello, just email me at rschultz@rollinsfinancial.com.

All the best,
Robby

A Suggestion for Employers of (Georgia's) Educators

I have been thinking about this post for months (since December actually), and after talking to various educators, administrators, and colleagues over a number of months and years, there are a great many things that always seem to come up.

• Most educators don't think about or discuss their retirements with anyone until the last few years before retirement.
• While most educators seem to have at least a basic understanding of their pension benefits,
  
  • they have little or no comprehension of their Social Security benefits (or lack there of)
  • they do not realize the opportunity they are missing by not contributing to a retirement plan/account
• Employers hold employee orientations that cover retirement benefits, but (based on my conversations with educators) there is so much information giving in the 1-2 day orientation that most educators ignore the retirement section (usually part of the new employee orientation).

There are many things that I could say here to employers (school systems), but the bottom line is simple - Educate the Educators. That's it.

Essentially, employers should set aside time to educate their employees on the various retirement benefits that they have and that they could receive as well as those they will not. If the employer withholds Social Security or does not, they should explain what it means to the employees. They should make sure to stress the need for 403(b) accounts, discussions on TRS benefits, and more - throughout their employment and not just before the last few years of service.

I had one administrator tell me that if they told their employees about (not paying in to) Social Security it would scare them. Well, maybe it should. 

In the private sector, employers and other employees stress the need to contribute to retirement accounts - 401(k), IRAs, etc. In the public sector, I have failed to see a similar push. I believe that most people see their pensions as enough, and when you toss in Social Security, they are quite sure they are set... BUT, what if they receive little or no Social Security - ever? Does the employer have a responsibility to explain this to the employee?

Granted, I have not compiled a list (or know of one) of which counties have opted out of Social Security in Georgia, but in those counties especially, the need to educate your educators is immense. They could be completely and literally blindsided by the effects of not contributing to Social Security (yes, I mean the WEP and GPO).

In some counties, employees are forced to contribute to mandatory 403(b) accounts usually with employers contributing as well. I have heard many educators complain about this and think that it is "unfair" for the county to force them to contribute. When I have discussed and explained the issue with them, the vast majority usually change their tune. It's not that they are against it, but that they do not understand why it is being done. That to me is the problem... educators may not understand it, and if employers only discuss it with them on a few occasions, educators could miss an opportunity to help themselves.

One final note is that employers do not need to get the same people selling the 403(b) accounts to the educators to give the information about the benefits of investing in the 403(b) accounts.  They need to find an unbiased voice that will explain the issues of the WEP and GPO to the educators, and from there, show that investing in 403(b) accounts is the best way to safeguard their retirements.  Just my humble opinion.

Japan Earthquake and Market Volatility

One of my colleagues, Eddie Wilcox, wrote a post for our blog, The Rollins Financial Blog, yesterday, and I thought he did a very good job of discussing the current issues involving Japan. It is always important to remember that the long term effects can be vastly different than the short term.

Japan Earthquake and Market Volatility

The world equity markets have been rattled lately by the devastating earthquake in northeastern Japan. It’s not the earthquake itself that caused such an enormous disturbance. Rather, it was the tsunami that followed and its ensuing damage to the nuclear power facilities of the affected area. Headlines of possible meltdowns at those nuclear facilities have clearly spooked investors and some of the Japanese over the past week.

While the human impact on those in the region is permanently devastating for the families involved, the economic impact is probably less permanent. We have been closely monitoring the affected investments, especially those located in Asia and Japan. The uncertainty of the event is, in our view, causing the most impact on the markets. While the nuclear situation still does not appear to be completely under control, it does appear that the Japanese and the international community are devoting every possible resource to gaining control of the problem.

Natural disasters have been and will always be one of the risks to the economy. In almost every example, however, those risks are concentrated in the near term following the event. The economic disruption is definitely felt in the immediate aftermath, but in the long term, the rebuilding process can make up for – or even eclipse – much of the initial loss of economic activity. This seems likely this time also, as Japan has unleashed nearly unlimited resources to battle the situation.

Clearly, the near term impact will be felt by many Japanese and U.S. companies with a presence in Asia and Japan. Depending on how you look at the numbers, you could argue that the event may or may not have much of an impact on the world economy. Japan remains the third largest world economy at about $5 trillion in GDP and accounts for over 8% of the world economic activity, which is very significant. However, the affected area accounts for a rather small portion of Japan’s economy. Furthermore, Japan does not contribute to global economic growth as the Japanese economy has been stuck in the doldrums for over a decade.

Without a doubt, the financial markets have reflected the uncertainty in Japan. Social unrest in Libya and elsewhere in the Middle East have only added to the volatility as the Dow Industrial Average has frequently traded higher or lower by triple-digit margins on a daily basis. The major averages, including the S&P 500 Index, are currently trading just slightly positive for the year after starting out the year with gains of nearly 7% through late February. The markets would rather have quantifiable data to trade on; oftentimes the uncertainty causes more commotion than if there was a known negative impact.

The fundamentals of the U.S. economy continue to strengthen through all of these geo-political situations. Even the slow to recover job market is showing signs that some strengthening may be on the horizon. It’s our position that the global recovery remains intact. But, of course, that does not mean that occasionally the markets or world events will not cause us to question that thesis.

While we are mindful that the human tragedy is the greatest concern, we will continue to closely monitor the affected investments and our portfolios under management. As always, we are available to discuss our strategy during this time if you have any questions or concerns.

Sincerely,
Eddie Wilcox