Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Thursday, November 05, 2020

What is the value of Professional Designations?

People often ask about certifications and licenses that financial advisors have. With over two hundred Professional Designations recognized by FINRA (one of our regulatory bodies) this is an important question!

Professional Designations or certifications indicate some particular expertise or knowledge about a subject. There are certifications relating to estate planning, retirement planning, college finance, insurance and every other personal finance topic imaginable. Certifications generally go above and beyond the qualifying exams that FINRA administers. These exams, known as the series exams, "ensure that an individual acquires a minimum level of understanding and expertise."

Financial professionals like myself may pursue a professional designation to gain in depth knowledge of a subject, experience in a new topic or just to stand out in the crowd by showing off how clever we are. To that end, I was looking up estate planning designations today when I noticed something odd:

Some designations were flimsy, and some were downright vapid.

I don't want to give too much attention to this obvious grift, but the Registered Estate Planner designation is devoid of any meaning. There are no education requirements, no exam, no way to verify or complain about individuals and practically no experience pre-requisite. Their website touts designations like "Registered Investment Banker" Registered Legal Professional" or "Registered Health Insurance Professional" all for people who may not have much knowledge, expertise or relevant work experience.

When people ask me what my certifications mean, I can tell them with pride about the hundreds of hours of study, the exams and the years of experience that it took. I had a very supportive work environment and a local chapter to lean on to earn the CFA Charter. I may pursue other designations for formal education in topics relevant to my clients lives, so that I can better serve them.

Bot for those looking for a financial professional, keep in mind, not all designations are created equally, and some are not even worth the paper they are printed on.

Friday, October 09, 2020

Reading Along With Ryder Part 5: What Were We Thinking?!

Cleaning all of these magazines off of my desk is hard for me, because I don't want to miss out on the knowledge they contain. To alleviate this, I will summarize one article from each magazine as I clear it away. Click here for the last article I read.

Sorting through old magazines today a few bold headlines from Januarycaught my eye:




How did those turn out?

The first article (please note they have since changed the headline!), from the January 6th issue of Investment News, was an interview with Mohamed El-Erian, Chief Economic Adviser at Allianz and perhaps better known from his time at PIMCO with the legendary Bill Gross. El-Erian pointed to strong households supporting the economy and central bank provided liquidity driving further increases in the market.

While the headline prediction of no recession did not bear out, he was still largely correct in his thinking. Strong households did support the economy, when people were laid off, enhanced unemployment benefits made sure that people kept spending and the pain of recession was ameliorated. Liquidity did drive gains in the stock market. Support from the federal reserve bolstered faith in the markets and kept them well functioning after a sharp selloff in February and March.

Speaking of predictions, El-Erian also predicted that the Patriots would win the Super Bowl. He didn't get this quite right either, in Super Bowl LIV, the Kansas City Chiefs

beat the San Francisco 49ers 31 - 20.

Looking back, the headline prediction was dead wrong, but the insight he gave in the interview was sound!

The second article, from the January 13th issue of Pensions and Investments, actually starts hedging their bets in the sub-title saying "big stock returns are unlikely." It cited some dark clouds lifting: a US China trade deal shaping up and clarity emerging on Brexit and Middle East tensions subsiding. Overall, improved trade dominated the economic outlook from Schroders, PLC - a British asset manager.

Unfortunately for these predictions, the impact of COVID-19 restrictions was to bring global trade to a grinding halt. Stories after March focused more on good sitting in docks, waiting approval to come in or a buyer to take them out.

The article did hedge, noting that equity markets had performed very well in 2019, and were unlikely to repeat the feat in 2020. Markets have been a mixed bag this year, giving us a 10% rise followed by a 30% fall, only to bounce back completely by August. The article noted key risks to the economy were still political: trade deals negotiations, inequality and the looming US presidential election.

I've included the industry forecasts for your entertainment below.

As a bonus, The Economist had a whole list of predictions for the coming year. They were looking forward to the Tokyo Olympics and the Dubai World Expo (both since postponed to 2021) and thought that we would all be talking about big anniversaries: Beetoven's 250th birthday, the 100th Anniversary of Prohibition (celebrated at the Mississippi History Museum!) and 50 years since the Beatles broke up. Aptly, they did predict that more quality entertainbent would be available to stream online, but insisted that people would watch the new James Bond in theaters, or travel to Cairo to visit the Grand Egyptian Museum.

COVID-19 took us all by surprise. Even the most pessimistic predictions I remember did not include the death toll or economic interruption that we have had. While I will readily admit I was too optimistic when the news first broke, I am still not so pessimistic to think that it will hamper us for years to come. I don't know how the disease will end, but I know it will not end human innovation and desire to connect.

Wednesday, September 23, 2020

How To Give

When we talk about financial values with clients, we are talking about their deepest connections between their money and the world they live in. Many people want to give back to communities and institutions that gave much to them or support more distant causes that align with the world they wish to see. Helping give money away is both a joy and a challenge. 

I am deeply involved in giving back to my high school:
this was at an alumni reunion

Besides figuring out how much and to whom you want to give, there are many different vehicles and tax treatments for gifts: Any charity will take cash, and when you give cash, you can deduct that from your taxes when you itemize deductions. If you don't itemize, you may be able to give directly from an IRA and simply not recognize the income, getting the same benefit as a deduction. Many larger charities will accept donations of appreciated stock. This allows you to take a tax deduction on the market value of the gift, while avoiding paying capital gains tax on 

What if you could get the best of all of these benefits? A
is a special type of charitable account that gives you the ability to:

  • Give large gifts!
  • Make the gift as easy as possible for the receiving charity.
  • Have exact control over the timing, frequency and size of ongoing gifts.
  • Take large tax deductions, in the tax year you need them most.
  • Avoid paying capital gains on appreciated stock.

So, how does it work? A Donor Advised Fund is administered by a special type of non-profit that handles the regulatory compliance of complex charitable giving for you. You simply open an account and fund it with either cash or appreciated stock or property. Like giving to a charity, you receive a tax deduction in the year that you move the money into the DAF account. This allows you to give large gifts of appreciated stock in years that you need to take a particularly large tax deduction. This also allows you to lump multiple years of donations into one tax year, especially if your giving doesn't normally exceed your standard deduction. When you want to send money to a charity, you just instruct, or "advise," that funds be granted out to the charity.

What sort of problems does it solve? Using a Donor Advised Fund allows you more control over what assets you use to donate and what tax years you take your deductions. This is very useful for if you give to charity regularly, but don't give enough to need to itemize deductions. If you have large or recurring gifts, the DAF sends out a check or bank transfer directly to the charity, making it quicker and easier for them to receive and administer than sending stock or getting them to set up a recurring donation. There are great tax benefits to you and great cost and effort savings to the receiving charity.

Where can I open an account like this? If you work with an investment advisor, they can set up an account for you. We custody through TD Ameritrade and use American Endowment Foundation or iGiftFund to administer the accounts. Charles Schwab also has a very user friendly account.

What next? If you are a frequent and generous donor to charitable causes, have appreciated stock you would like to give or simply want more control over your charitable donations, a Donor Advised Fund may make sense for you. Check out Schwab Charitable, or work with your advisor to open one!

Friday, September 18, 2020

All Things New(s)

  • Oracle is buying Tik-Tok. Don’t ask me what Tik-Tok is. I have no idea. I set up an account, but I’m still clueless. I think that just means I’m not 14 years old. Tik-Tok is just one company with ties to the Chinese government that has caused concerns about data collection. 

  • Snowflake’s IPO was a big success. I don’t really know what this is, either. It’s all about cloud computing. Maybe all your files will fall out of the sky during winter?? As with any IPO, caution is the word. Most are trading below the IPO price a year later. Buyer beware.

  • Retail is bouncing back, but not all retail is the same. Sixty percent of small businesses that closed during the pandemic are calling it quits for good. Meanwhile, Amazon is hiring like crazy. The world is being rearranged in front of our very eyes.  

  • The Federal Reserve announced plans to keep interest rates low through 2023. Many of you ask, “How is the stock market still so high when the economy is struggling?” The answer is the Federal Reserve and their power over the money supply. Low rates should continue to fuel all kinds of purchases, personal and business, for the next few years. Thank you Mr. Chairman. 


While the world is changing at breakneck speed, I find myself racing to keep pace. At New Perspectives, we are upgrading our systems. Our first training session is this afternoon. Light a candle for me.  

Thursday, September 03, 2020

Reading Along With Ryder Part 4: Donor Advised Funds

Cleaning all of these magazines off of my desk is hard for me, because I don't want to miss out on the knowledge they contain. To alleviate this, I will summarize one article from each magazine as I clear it away. Click here for the last article I read.

Today's article came from Investment News, which bills itself as The Trusted Resource for Financial Advisers. The article was on Donor Advised Funds, a topic I have a lot of love for.

First, the basics: a Donor Advised Fund, or DAF, is a charity. It is a charity that allows individuals to have an account. In that account, they can deposit money, generally cash and appreciated stocks (though more complex assets can go into them). Putting money in your account counts as giving it to charity. You get a tax deduction that year. The money sits in the account (the DAF may let you invest it, or keep it in cash) until you decide to grant it out to specific charities. There are some technical details I'm not covering, but that is the gist of it. This process of being a sort of intermediary charity presents a lot of interesting planning opportunities.

I am a huge fan of folks incorporating their giving into their financial plans, and this tool is ideal for it. Donors can give a large amount when they can afford it, but space actual charitable grants out over time, focusing on making the impact that truly aligns with what they want to see in the world. It is even possible to set up legacy gifts in a way that was previously only available through trusts or private foundations.

One advantage for the donor is that these accounts often make it easy to donate a large amount of appreciated stock. Say you have a stock for a very long time that has grown a lot (like, say, buying TSLA a few months ago). If you sold that stock, you would have a large taxable capital gain. If you donate it to charity, you get a tax deduction equal to the value of the stock on the day you donate it! Avoiding a tax bill and reducing another? Thats a great deal. While many charities can receive stocks, not all can. This also makes it easier for you to donate a single stock to multiple charities. If you wanted to give thirty different charities $10,000, you could give a single share of Berkshire Hathaway to your DAF and send it along as cash.

Importantly, with the change in standard deduction, DAFs have become more attractive. The article notes that with the Standard deduction at $12,400 or $24,800 for couples, fewer people can meet the threshold for deductibility in a single year. A tactic we have helped people with is bunching up their charitable donations into one year - contributing enough to cover several years worth of giving. They give enough to get a substantial charitable deduction in one year, and take the standard deduction in the other years. Their beneficiary charities still receive money every year as the donor intended.

Ultimately, receiving the gift is fairly simple for the receiving charity: it just comes as a check! Sometimes the checks are anonymous, or unclear who the giver was, which charities don't like. On the other hand, it is easy to set up recurring donations which the charities love.

The most interesting information in the article to me was about the growth of the DAF "industry:"

  • 12.7% of all individual charitable giving was through DAFs in 2018.
  • In 2018, $37 Billion was given to DAFs and $23 Billion was passed on to charities.
  • There are an estimated 728,563 donor advised fund accounts.
While there can be some concerns about money getting tied up in these entities, and not ultimately flowing to the charities that need the funds most, I believe that this is simply a tool that allows people to be more flexible with their giving. Ultimately, if this makes giving easier, and more impactful for the donor, it will benefit all charities!