Fee-only advising: putting “You First”

People often ask me why I chose to become a fee-only financial advisor. The answer is simple—I wanted to be able to put my client first, and act as a fiduciary: a type of advisor who, by law, must place the client’s best interest ahead of their own.

Unlike what many consumers believe, most financial advisors do not have a fiduciary duty to their clients. Instead, advisors are contractually obligated to put the good of their own firm ahead of their clients.

That is 100% contrary to the way I want to work. As a fee-only financial advisor, I provide frank, independent advice, based on the “big picture” of my clients’ finances—including tax implications and personal goals. Neither I nor anyone in my firm is compensated based on the products we recommend. By being fee-only, we’re free to recommend whatever strategies or products will best benefit our clients.

Sometimes this means telling a client something they don’t want to hear: for instance, that an investment opportunity is too good to be true, or that a “friend” they’ve gotten advice from is not someone they should be listening to. But, I’ve heard from clients that they appreciate my honesty and that they know I’m giving them my unvarnished, objective advice.

My goal is always to act with transparency and integrity, putting “You First”—meaning, the client’s interest ahead of my own. To me, that’s what fee-only advising (and even life!) is all about.

By Jerry Wade, CFP^®, CFS
Chief Wealth Advocate

Dividend Stocks Solid Choice Short and Long Term, Regardless of Tax Rates

• Dividend-based investment strategies should produce superior total returns on a multi-year basis, given tepid global economic growth and moderate price appreciation.

• That said, the outlook for dividends varies markedly across countries and sectors, and some seemingly appealing dividend opportunities break down upon closer scrutiny. 

• Some of the sectors we currently favor include consumer staples, health care and energy, given reliability and growth prospects.

“Fiscal Cliff” Tax Hikes Avoided For Many

Photo by Arvind Balaraman

A summary of the legislation passed by Congress and sent to the President for his signature is as follows:

1. The 2012 rates for taxable incomes below $450,000 ($400,000 if single) have been permanently extended. The top bracket was 35% over $388,350 (married). It will now be $388,350 - $450,000. Over $450,000 will be 39.6% 

2. The capital gain and qualified dividend rate will remain 15% for taxable incomes below $450,000 ($400,000 if single) and will increase to 20% for taxable incomes above $450,000.

3. The Alternative Minimum Tax rate will permanently adjust the income exemption levels for inflation.

4. Itemized deductions will be limited to 3% of adjusted gross income above specified thresholds beginning at $300,000 ($250,000 is single) but not more than 80 percent.  

5. The estate tax exemption level of $5,120,000 has been permanently extended and will be indexed to inflation for future years.  The current estate tax rate of 35% is increased to 40%.

6. The scheduled 27% cut in reimbursement for Medicare services is extended for one year.

7. The extended benefits for long-term unemployed are extended for one year. 

8. The dreaded automatic and blunt spending cuts to defense and non defense programs have been extended for two months. The cuts, if left in place, would have reduced spending by $110B.

9. Several other miscellaneous credits including Child tax credit and Earned income tax credit were extended for 5 years.

The Fiscal Cliff......Maybe?

Based upon what is being leaked to the press tonight, there may be a deal that curtails many of the potential tax increases. This could prove positive for 2013.  That said, there is little, if any good news on addressing the longer term problems of the U.S. economy.

Steer Clear of These Retirement Mistakes!

Courtesy Library of Congress

1. Not paying for independent financial advice. There is no such thing as a free lunch.

2. Investing in something you do not understand.

3. Supporting adult children, when you are unsure if you do or will have enough assets.

4. Lowballing elder-care costs: Helping out aging parents can be costly.

5. Underestimating how much you will need in retirement.

Three little-known facts about 529 plans

Courtesy Wikimedia. Photo by Chad Miller

1. Accelerated gifting. A 529 plan is the only investment vehicle allowing five years of tax-free gifts in a single year — up to $130,000 per beneficiary.

2. Estate tax benefits. All 529 plan gifts and investment earnings are excluded from federal estate taxes due to rise from 35% to 55% next year if the Bush tax cuts expire. 

3. Legacy planning. Multiple family members and friends can give to the same 529 plan account to help create larger college funds and lasting legacies.

Last Minute Tax Commentary

For many, the idea of taking capital gains in 2012 to take advantage of lower tax rates vs. what is coming in 2013 is a winner.

When you combine the proposed capital gains rate change of 5.0% with the 3.8% Medicare surtax, this represents an increase of $8,800 per $100,000 of gain for taxpayers with taxable incomes exceeding $250,000 (married filing joint) and $200,000 (single).  

That is a 58.7% increase in capital gains tax

You could consider selling a major stock position and paying the tax and then buying the stock back if you believe it is rising or it pays a great dividend.  Also, it may be a time to recognize diversification if you have been holding off not wanting to pay taxes. Paying taxes on gains is likely not going to get any cheaper than in 2012 for many years and you have about 13 days to decide!

At my company, we have been diligently working with clients with proactive tax planning all of 2012.