Worried About the Markets? Maybe you should(n’t) try alternatives.

Jim Lorenzen, CFP®, AIF®

The financial planning profession has changed dramatically since I opened my first office in 1991; but, the financial services industry – not to be confused with the profession that operates alongside it – seems to have changed little, though it’s changed a lot.  What?  I’ll explain.

The industry, comprised largely of product manufacturers and their sales arms (these days it seems anyone can say they’re a ‘financial advisor’), has a long track-record of constantly packaging new products to take advantage of a demand among investors that the product manufacturers create through their marketing.   New ‘issues’ (created by marketing) give rise to new products to be sold to fill a marketing-driven demand.  Changes in product innovation to generate new sales is the constant that never changes.

This doesn’t mean it’s all bad; it’s just that it can be difficult for spectators to recognize the game without a program.

Alternative investments get a lot of press these days – especially if there’s a perceived risk of a down or bear market… a perception that’s convenient to exploit at almost any point in time.  The media likes ratings, so profiling people that called a market top or decline – and made money – is always good for attracting an audience.  And, since there’s always someone on each side of a trade, finding someone on the right side isn’t difficult.

I’ve always felt that many fund managers operate like baseball free agents.  Being on the right side of a call gets them on tv, which in turn attracts new assets, which in turn leads to bigger year-end bonuses.  I could be wrong, or not.

Many captive “advisors” are putting their clients into “alts” these days because their employer firms (the distribution arm for the product manufacturer) are emphasizing them.

My sales pitch for alternatives:   With alternatives, you can have higher costs, greater dependency on a fund manager’s clairvoyance, less transparency, low tax-efficiency, and limited access to your money!  What do you think?

Don’t get me wrong.  It’s not a black and white decision.  They can have a place in a well-designed portfolio; and, while many endowment funds and the ultra-wealthy do tend to own alts, most of us aren’t among the ultra-wealthy and risk mitigation is important.

More about alternatives next time.


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

ROLLOVER MISTAKES CAN BE COSTLY

Jim Lorenzen, CFP®, AIF®

… and mistakes are more common than you might think.

IRA mistakes generally revolve around errors associated with required minimum distributions (RMDs), hardship distributions, and distributions involving pre-tax vs. after-tax funds; but rollover errors can create special headaches.  Ineligible rollovers are often taxable (unless they are after-tax funds) and could be subject to a 10% IRS penalty.  Not good.

According to retirement expert Ed Slott[i], the biggest three ineligible rollovers are:

>  Violations of the one-per-year IRA rollover rule

>  Missing the 60-day rollover deadline.

>  Distributions to non-spouse beneficiaries (a non-spouse beneficiary can never do a rollover.  The funds must be moved as direct transfers).

Those are only the top three; but there are many other lesser-known rollover tax-traps.   If you’re retiring and planning a rollover, you might consider getting professional help.  You can find a CERTIFIED FINANCIAL PLANNER® (CFP®) professional here.

Naturally, if I can help, you can get things started here.

Here’s an IRA Rollover Checklist you might find helpful, as well as a little insight about How To Get Value from an Advisor Relationship.

Jim

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[i] El Slott is a CPA based in Rockville Centre, New York, who has appeared on PBS and is the author of several books on IRAs.


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.