Choosing a Financial Advisor Archives

Positive News Articles

June 15, 2016 by Justin M. Follmer, MBA, CFP®, AIF®

Where are all the positive news articles? Do you ever listen to the news and find yourself thinking that the world has gone to the dogs? The roll call of depressing headlines seems endless. But look beyond what the media calls news, and there also are a lot of things going right.

It’s true the world faces challenges in maintaining stable and well-functioning social, environmental, and economic systems. The legacy of the financial crisis is still with us, and concerns about climate change and sustainability are widespread.

Europe is grappling with a refugee crisis; China faces a difficult transition from an export and industrial-led economy to one driven by domestic demand; and the US is preoccupied with a sometimes rancorous election campaign.

But it’s also easy to overlook significant advances in raising the living standards of millions, increasing global cooperation on sustainability, and efforts to build greater transparency and trust in financial institutions.

Many of the 10 developments cited below don’t tend to make the front pages of daily newspapers in the form of positive news articles or the lead items in the TV news, but they’re worth keeping in mind on those occasions when you feel overwhelmed by all the grim headlines.

So here’s an alternative positive news articles bulletin:

Over the last 25 years, 2 billion people globally have moved out of extreme poverty, according to the latest United Nations Human Development Report.¹
Over the same period, mortality rates among children under the age of 5 have fallen by 53%, from 91 deaths per 1000 to 43 deaths per 1000.
In September 2015, all members of the UN set 17 sustainable development goals for 2030, including targets for eliminating poverty and hunger and lifting standards in health, education, water, energy, and infrastructure.
Global trade has expanded as a proportion of GDP from 20% in 1995 to 30% by 2014, signaling greater global integration.²
Global bank regulators recently announced that since the financial crisis they have implemented reforms to reduce leverage, address systemic risk, and build capital buffers into the banking system.³
The world’s biggest economy, the US, has been recovering. Unemployment has halved in six years from 10% to 5%.⁴
Global oil prices, while about 80% up from January’s 13-year lows, are still 50% below where they were two years ago. While bad news for the oil sector, lower prices also raise real incomes for consumers, increase profits outside energy, and decrease costs of production.
While fossil fuels still play a major role in the economy, renewable energy sources—such as solar and wind— accounted for nearly 22% of global electricity generation in 2013 and are seen rising to at least 26% by 2020.⁵
We live in an era of rapid innovation. One report estimates the digital economy now accounts for 22.5% of global economic output and projects digital technologies could generate $2 trillion of additional output by 2020.⁶
The growing speed and scale of data are increasing global connectedness and transforming industries as new discoveries are made in such areas as engineering, medicine, food, energy, and sustainability.

No doubt many of these advances will lead to new business and investment opportunities. Of course, not all will succeed. But the important point is that science and innovation are evolving in ways that can help mankind. The world is far from perfect. The human race faces major challenges. But just as it is important to be realistic and aware of the downside of our condition, we must also recognize the major advances that we are making.

Just as there is reason for caution, there is always room for hope. And keeping these positive news articles and trends in mind can help when you feel overwhelmed by all the bad news. Working with an investment advisor and financial planner can help you keep a perspective on the positive news articles that have an impact on your portfolio and long-term financial plan. Looking at the daily barrage of negativity through traditional media outlets as well as Facebook and other social media platforms can seriously dampen your mood. A constant state of depressed emotions and feelings can have lasting negative effects on the decisions you make with your money. One of the core investment philosophies of Coastal Wealth Advisors is keeping emotions in check – thereby helping to prevent our clients from making poor decisions at the worst times. Let us be your fiduciary; let us help you towards a more meaningful investing and planning experience. Get in touch today to learn about our unique financial planning process.

Image credit: Nitin Dhumal

1.”Human Development Report 2015: Work for Human Development,” United Nations.
2.”International Trade Statistics 2015,” World Trade Organization.
3.”Finalising Post-Crisis Reforms: An Update,” Bank for International Settlements, November 2015.
4. Bureau of Labor Statistics, May 26, 2016.
5. “Renewable Energy Statistics,” International Energy Agency, March 2016.
6. “Digital Disruption: The Growth Multiplier,” Accenture and Oxford Economics, February 2016
7. Authored by Jim Parker of Dimensional Fund Advisors. Original article here.

Stock Market News

December 7, 2015 by Justin M. Follmer, MBA, CFP®, AIF®

Why don’t the media run more good stock market news? One view is bad news sells. If people preferred good news, the media would supply it. But stock markets don’t see news as necessarily good or bad, rather in terms of what is already built into prices.

One academic study appears to confirm the view that the apparent preponderance of bad stock market news is as much due to demand as to supply, with participants more likely to select negative content regardless of their stated preferences for upbeat stock market news.¹

“This preference for negative and/or strategic information may be subconscious,” the authors conclude. “That is, we may find ourselves selecting negative and/or strategic stories even as we state that we would like other types of information.”

So an innate and unrecognized demand among consumers for bad stock market news tends to encourage attention-seeking commercial media to supply more of what the public appears to want, thus fueling a self-generating cycle.

Insofar as consumers of stock market news are investors, though, the danger can come when the emotions generated by bad stock market news prompt them to make changes to their portfolios, unaware that the stock market news is likely already built into market prices.

This is especially the case when the notions of “good or bad” are turned upside down on financial markets. For example, stocks and Treasuries rallied and the US dollar weakened in early October after a weaker-than-expected US jobs report. Some observers said the “bad news” on jobs was “good news” for interest rates.²

Conversely, a month later, stocks ended mixed, bonds weakened, and the US dollar rallied after a stronger-than-expected payrolls number. While an improving job market is good news, it was also seen by some as cementing the case for the Federal Reserve to begin raising interest rates. In both cases, the important thing for markets was not whether the report was good or bad but how it compared to the expectations already reflected in prices. As news is always breaking somewhere, expectations are always changing.

For the individual investor seeking to make portfolio decisions based on stock market news, this presents a real challenge. First, to profit from news you need to be ahead of the market. Second, you have to anticipate how the market will react. This does not sound like a particularly reliable investment strategy.

Luckily, there is another less scattergun approach. It involves working with the market and accepting that stock market news is quickly built into prices. Those prices, which are forever changing, reflect the collective views of all market participants and reveal information about expected returns. So instead of trying to second-guess the market by predicting news, investors can use the information already reflected in prices to build diverse portfolios based on the dimensions that drive higher expected returns.

As citizens and media consumers we are all entitled to our individual opinions on whether stock market news is good or bad. As investors, though, we can trust market prices to assimilate news instantaneously and work from there.

In a sense, the work and the worrying are already done for us. This leaves us to work alongside a Johns Island Investment Advisor to build globally diverse portfolios designed around our own circumstances, risk appetites, and long-term goals.

There’s no need to respond to stock market news, good or bad.

1. Marc Trussler and Stuart Soroka, “Consumer Demand for Cynical and Negative News Frames,” International Journal of Press/Politics (2014).
2. Mark Hulbert, “How Bad News on Wall Street Can Be Good News,” WSJ MarketWatch (October 5, 2015).
3. Author: Jim Parker, Vice President, Dimensional Fund Advisors with some edits by Coastal Wealth Advisors, LLC. Original article here.

401k Rollover

July 27, 2015 by Justin M. Follmer, MBA, CFP®, AIF®

There’s been a reoccurring theme in the financial services industries surrounding a 401k rollover. A simple Google search of the topic loads thousands of results. Many of the big investment firms spend millions of marketing dollars to rank for the “401k rollover” search term just so they can convince you to perform a 401k rollover to their management platform. And I know what you’re thinking…”aren’t you an investment firm also interested in my 401k rollover?” And the answer is “yes, I am…but only when it’s in your best interests.” Recall that we are a fiduciary and must always recommend what is best for you, even if it means not doing business with us. And there are times when a 401k rollover is not the best option for you just as there are times when it is. The Department of Labor is finally catching on to this long-running practice and is proposing that all advisors on 401k plans act as a fiduciary in their approach, especially when recommending a 401k rollover to a client. The details of their plan are far from being solidified but the good news is that this fiduciary standard is designed to protect you and your hard-earned dollars and we fully support the DOL’s efforts. Can you believe there are advisors who do not have to do what is in your best interests? We can’t either.

The story these investment firms tell to convince you to do a 401k rollover is that of greater investment options, control of your money, continued tax-deferred growth, and unlimited portability. And while these are all true, most of these same benefits are also available inside your existing plan.

I’ll refrain from defining a 401k in this post as you likely understand what a 401k is and how it benefits your retirement plan. What you may not fully understand is what happens to your 401k when you no longer work for that employer. And this unknown is manipulated into uncertainty by investment firms when they market “don’t leave your 401k behind” as if to subconsciously suggest that your 401k would be in jeopardy if you no longer work for the company. This couldn’t be further from the truth. The money you earned and contributed pre-tax to the plan is, and always will be, yours no matter what happens to the company. Depending on the plan structure and vesting schedule, even the matching contributions that you are legally entitled to will be yours no matter what happens to the company. So don’t be misled by this fake fear.

Now that you know your money is safe, as in, not in jeopardy of being consumed by the company in the event of insolvency or similar, in the old 401k plan, let’s outline your possible options and when each may fit your best interests. Please note, if your money is invested in the stock and bond markets, it is still subject to loss of principal and the risks associated with being invested.

401k Rollover Option 1: Transfer the Money into your New 401k

If you’ve moved onto another job that offers a 401k plan, you can combine your old 401k with your new one when you become eligible to contribute to it. Your plan sponsor will be able to give you all of the details and paperwork to accomplish this simple transfer. And here’s why this option may benefit you:

If you’re a younger employee, combining small balances into one account helps you keep everything all together as you build a dollar cost averaging plan into your payroll deductions.
The IRS allows you to borrow against 401k money and set up a payroll deducted loan payment back to yourself versus having to take a straight withdraw from an IRA and possibly incurring taxes and penalties. This rule difference may make sense if you know you might be or are inclined to be in a financial pickle in the future.
Tax deferred growth continues and the transfer is considered tax-free (meaning no taxes are due when you combine the two accounts).
If the expense ratios of the investment options inside of the new plan are cheaper than your old 401k, you may achieve cost savings by combining the accounts.
A higher balance 401k may offer you better incentives when seeking advice from your plan sponsor.
Ability to gain access to additional investment options, if available.

Why combining with your new 401k may not make sense:

Investment selection is more restrictive and/or more expensive than your current plan.
You’re giving up access to a reputable investment firm who you may feel comfortable with.
Your new plan doesn’t allow transfers (this would be rare in our experience).
You lose certain guaranteed benefits when transferring –especially when your 401k is a variable annuity with enhanced living benefit riders (these riders traditionally have expenses associated with them, so it’s important to analyze their value as well).

Most important items to consider:

Fees – always consider both management fees, plan fees, and fund expense ratios. Just because a fund is cheap doesn’t mean it’s the best value for you and the same is true for more expensive funds.
Range of investment options – more options tend to give you greater flexibility to adjust your allocation if the economy dictates, but too many investment options can become overwhelming to new investors.
Loss of benefits or gain of new benefits – comparing the “all-in” costs versus value relationship is a must.
Your new employer won’t make matching contributions to your transferred balance, so don’t think you can game the system, smarty pants.

401k Rollover Option 2: Leave the Money in your Old 401k

I think we’ve made it pretty straight forward in your ability to know that you don’t have to rollover your 401k. Just as you analyzed the option to combine the 401k with your new one above, it may well make sense to simply leave the account alone. The only considerations not mentioned above are:

If you believe your old company has an executive inability (incompetent plan administrators) to adequately manage the investment choices going forward, it may make sense to remove your hard-earned money from their oversight.
If your balance is below a certain level as directed by the plan documents, you may be forced to move your account. We’ve seen minimum balances as high as $5,000 for non-participant, former employees.

401k Rollover Option 3: Cash it out (take a Lump Sum Distribution)

This option is the one that will likely hurt the most when the tax man comes in April. If you’re under age 59.5, you’ll pay ordinary income taxes plus a 10% early withdraw penalty. High income earners could see close to half of their retirement savings wiped away by choosing this option. In addition to giving large sums of money to the IRS, you lose out on future tax-deferred earnings benefiting from compound interest growth. In our experience, no matter how you look at it, this option rarely makes sense. Even if you are in severe debt and the taxes you’d pay are better than whatever situation you’re in, you could still avoid the 10% penalty by rolling the account to an IRA and then set up what’s called a 72t distribution. There is a lengthy list of rules regarding this specific IRS rule so please give us a call if you think this may make sense for you. We’ll work with your accountant to develop a plan that fits you.

401k Rollover Option 4: Rollover to an IRA

Let’s say that you’ve determined that the other 401k rollover options aren’t that attractive. Now it would be time to analyze rolling over your 401k to an IRA. This is where you’ll want to look at various companies and what they may propose. Just as you reviewed your new 401k, you’ll want to consider:

Fees – management fees, expense ratios, trading costs, commissions, mortality & expense charges, loaded funds, etc. Some or all may apply depending on who you’re speaking with. If the fees are significantly higher in one company versus another, ask why. Do your research before committing and don’t be afraid to ask – all advisors must disclose how they are compensated and what your “all-in” fees will be. If they don’t tell you or it’s still vague, run far and fast. Stick to the old adage: if it sounds too good to be true, it usually is.
Management approach – how will your account be managed? Passive, top down, bottom up, active, cyclical, etc. When will trades occur and how often? How often will review meetings occur and what can you expect during those meetings? Will the account be managed on a discretionary basis or will they need permission to make adjustments each time?
Investment allocation – what mix of stocks and bonds, sectors, styles, and approaches will you take? Will alternative asset classes and commodities (rarely offered in 401k plans) be a major component of the mix? How about structured products and limited partnerships? IRAs have the ability to invest in many types of asset classes that can’t be found inside of typical 401ks. Even investing in hard assets like real estate and physical metals such as gold and silver can be accomplished given the right, qualified custodian. Keep in mind the more non-traditional your selection, the more rules there tend to be.
Value added services – if fees are higher, are additional services included to justify the increased costs? Is a financial plan, budget guidance, or debt management included? How often advice is rendered – unlimited or certain number of times per year? Is the management approach the reason for higher fees? It can often make perfect sense to pay higher fees when the value of services offered is considered. Having an advisor that you can trust to help you manage your financial life can be a huge relief to the burden this may cause.
Type of advisor – not all financial advisors are the same. Some earn commissions on trading activity while others are fee-only. Some tend to be a hybrid of both types and how they operate at different capacities can be vague (think of the DOL rule we talked about earlier in this post). Not to tout ourselves, but we believe it’s best to work with a fiduciary; a person who must keep your best interests at the forefront of every decision they make.
Special tax considerations – if you own the stock of the employer you work for, you may want to consider leaving the stock in the 401k. There are special tax considerations to analyze with a qualified CPA that allows this type of stock to be taxed when withdrawn at a rate lower than ordinary income taxes. We’ll help you work with your accountant in analyzing if this fits your situation.

The decision you make with your 401k rollover is very important and shouldn’t be taken lightly. Don’t assume that because it seems like everyone rolls over their 401ks to an IRA, that it’s the best option for you. Your situation is drastically different than your friends and family. You are unique and so too should your money management plan. Outside of your personal home, your 401k is most likely the largest asset you own and will naturally become the cornerstone to your retirement income. We want to be your trusted financial partner to help you determine which option is best given your unique circumstances. We are a Johns Island Financial Advisor who builds financial plans and investment strategies for our clients. Anywhere you want to go; we’re here to help guide you along the way. Let’s start a conversation today.

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Why do I Need a Financial Advisor?

May 1, 2015 by Justin M. Follmer, MBA, CFP®, AIF®

It’s a common question we get asked a lot. ‘Why do I need a financial advisor?’ And it certainly isn’t a question without merit. Our industry has had a few bad apples that have made national news since the 2009 Financial Crisis. With household names as Madoff, Sanford, and Parrish, among others, we too can understand why you would hesitate to trust another person with your money.

**3 Reasons why we believe you need a financial advisor.**

Reason One: You don’t know what you don’t know, until you know it.

There are a lot of mistakes we all make with how we manage our daily wallets and these financial mistakes usually aren’t made on purpose. I commonly say, “you don’t know what you don’t know until you know it.” Why do I need a financial advisor? A Financial Advisor can help you learn new methods of the financial world that you haven’t learned yet. You go about your day with a common goal to earn more, spend less, and make life better for your family and others that you love. But there may be financial concepts that you just don’t know because life is an educational journey; one in which you are constantly learning. A Johns Island Financial Advisor can be your financial educator to help teach you how to manage your money with your long-term, best interests in mind. It’s really easy to get lost in the tiny transactions of life and lose the big picture of how your daily habits add up and affect your much larger financial goals. With a financial advisor by your side, you have a resource you can use to help you make more informed financial decisions.

Reason Two: Advice on Managing Investment Allocations and Risk Tolerance, Specific to You.

If you’re like most people, you’ve been told that your biggest assets are your home and your retirement plan (401k, 403b, etc.) at work. While these are big and important, we believe your biggest asset is your future earnings potential. This assets is like the hammer of your financial tool box; it’ll likely be the most used component in your financial projects. How you allocate your earnings, meaning where and how much you spend, how you choose to invest in a particular security, mutual fund, ETF, stock, bond, etc. has a dramatic effect on the possible outcomes of your financial life. Why do I need a financial advisor? A financial advisor can help show you the long-term effects of your financial choices through the development of a financial plan and investment strategy that’s appropriate for your tolerance for risk. The investment advisory world is highly technical, complicated, and involves great risk, up to and including the loss of 100% of your hard-earned money. We believe you shouldn’t leave the results to chance and should develop your own plan. Over the years, many people have tried to simplify it through crafty rules of thumb, but the reality is that financial advice is only good for one person at a time; it has to be tailored directly to you and your specific situation.

Reason Three: Your Time is a Precious Resource.

A long time ago, someone decided that there would be 24 hours each day. And it’s time you start believing that your time, just like your money, is a precious resource. You only have a limited amount of it. The financial world is full of IRS rules, financial data, expense ratios, risk, and numerous other often confusing and complicated concepts…and the worst part, they are constantly changing. It’s a full-time job just keeping up with it all! As your wealth grows, your life doesn’t get simpler like most people think, it gets more complex. Why do I need a financial advisor? A Financial Advisor has the tools and methods available to help you manage your financial life and limit the amount of time you spend on it. A small investment into a fee based financial advisor cost could save you a lot of time that could be spent doing activities that you actually enjoy. Afterall, we believe true wealth are the memories we build with the people that we love.

We work with our clients to define their long-term financial goals and then build action-based savings and investment strategies to help them accomplish those goals. Our financial planning process has helped others and we believe we can help you too. We have a fiduciary duty to our clients. This means we must do what is in your best interests, regardless of our own interests.

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