Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

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!

Monday, August 31, 2020

Reading Along With Ryder Part 3: Financial Planning Degrees

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.

The bright color drew me in to today's magazine, beckoning from the stack on the floor. Financial Planning focuses on advisors, but this article on the education is relevant to anyone who engages with a financial planning professional.

For a little background, there is really not much to calling yourself a financial planner. While dealing with investments is a fairly well regulated industry, simply providing financial planning or advice is not. Neither the law nor customers necessarily have a hard and fast rule for what you do. As an investment advisor, I am regulated by FINRA and the Securities and Exchange Commission. I am also a CFA charter holder, which is a high standard for ethics and professionalism in the finance industry. Financial planning, however, doesn't have the same trappings of professionalism.

The CFP Board is working to change that. They administer the Certified Financial Planner certificate which involves a well rounded curriculum of personal financial planning topics. They also endorse college programs that help prepare a student for a financial planning career. The article notes that there are about 145 different baccalaureate CFP Board registered programs and asks if the lack of a standard financial planning degree is hampering the growth of the profession.

If you want to be a doctor, you can take pre-medicine classes, and go to medical school, if you want to be a lawyer, you can take pre-law classes and go to law school. If you want to be a financial planner, well, there are apparently 145 different endorsed programs you can enter around the country. Is this a problem for the profession?

The article speculates that the lack of standardization in education is what prevents people from seeing financial planning as a profession. I think not. The personal finance industry gets a bad rap from a lot of bad actors, high fees and bad service. That is changing a lot, thanks in part to the CFA Institute's insistence on high standards in wealth management and the CFP board's growing visibility as a comprehensive standard. While a financial planning degree might be nice, there are probably far better things to learn in college. A financial planning degree would likely prevent a future planner from having the sort of broad education that lends itself to looking at a client's entire financial picture.

Absent comprehensive regulation of the profession, these certificating bodies have an authority that elevates their own members.

I do think certification matters. Excellent financial planners can come from all walks, with diverse education and life experience. Having a certificate shows that you also have the comprehensive knowledge to address clients with great and diverse needs. I am also a fan of broad liberal arts education and believe that individual clients would be well served by someone who has a broad education and life experience themselves. The way to ensure that financial planners are held to a high standard is through a certificate that is a high standard - not a single minded education track.

I say all of this never having done the CFP curriculum. Generally the CFA is a higher standard (albeit for different audience), and they make it easy for CFA charter holders to obtain the CFP certificate. However, as our firm grows, having advisor candidates from a broad range of backgrounds will be important.

The public's view of the financial planning profession is important - how do you view us?

Friday, August 28, 2020

Read Along With Ryder Part 2: ESG

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 I picked up a magazine called Pensions and Investments which bills itself as "The International Newspaper of Money Management." This sounds very important, and is probably why it shows up at my office on a regular basis without my prompting. Most of the articles are pretty dry details about regulatory changes in the pension and retirement benefit world. The article that caught my eye was about ESG: Environmental, Social and Governance factors in investing.

ESG is a huge topic and its importance in investing is a growing trend. There are a lot of factors that people look at when making investments, and environmental, social or governance factors are not unusual. What sets ESG investors apart, however, is how they bring these factors to the forefront of their methodology. Some investors simply want to avoid investing in companies that are bad for the environment, bad for society or simply have bad actors in control. Others want to go further and actively push for better behavior at companies that are never perfect.

Awareness of ESG factors in investing is a growing trend, and whenever you have a trend, people want to jump on board. This article begins by noting that while many investment managers say publicly that they are aligned with ESG principles, hardly any of the assets they manage have ESG factors in their formal documentation. They cite two main reasons for the low integration of ESG factors in official documentation: Lack of standard terminology and the newness of explicit ESG integration into guidelines.  The article later notes that the UK Investment Association is working on standardizing language for this very purpose. Formal documentation can backfire when the language is so vague and boilerplate as to have no meaning, as this twitter user pointed out:

The article notes progress made and progress needed. It notes that the alternative investment space has a long way to go to achieve anything close to gender parity. While women are a growing part of the financial industry workforce, women make up 8.5% to 13.5% of leadership positions, depending on the sector. When it comes to getting quality ESG advice about companies, the article notes that public companies feel that they are wasting effort engaging with proxy advisors on these matters. Progress made includes a large French public-sector pension fund accelerating their divestment in carbon-heavy industries, reflecting similar announcements by the Norwegian pension fund dumping similar investments. Institutional managers are more often considering ESG as part of their fiduciary duty - a responsibility to the end investors. 

Aside from this article, some interesting things that have caught my eye in ESG lately include a new "Social Justice" focused ETF from Adasina. The growing success of Impax Asset Management's Ellevate fund, which adds a "gender lens" to their already robust environmental focus. The Financial Times noted that ESG was getting blamed by CoreCivic, a private prison operator, for "increasing their cost of capital" - most ESG investors would probably call that a success.

Thanks for reading along with me today! ESG allows investors to better align their investment portfolios to their values. Progress is being made, but as this article indicates, it isn't a clean straight line.