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Four Ways to Increase Employee Retirement Contributions

As a retirement plan sponsor, you want your employees to save the most they can in order to reach their maximum retirement potential. A significant amount of research says that you can improve both employee participation and their saving rates. Here are four ways you can help your employees start building a confident retirement:

Boost employee participation with automatic enrollment. Choosing to automatically enroll all new employees in your retirement plan can dramatically improve your participation rates. According to the Center for Retirement Research (CRR) at Boston College, in one study of automatic enrollment, participation increased by 50 percent, with the largest gains among younger and lower-paid employees.1 While auto enrolled employees are allowed to opt out of the retirement plan, most generally stay enrolled.

Set the initial default contribution rate higher. Many companies who use auto enrollment set their default contribution rate relatively low at 3 percent, according to the CRR, which is lower than the typical employer match rate of 6 percent. Workers who might have contributed more to their savings passively accept the lower default rate, which means they’re sacrificing employer matching funds along with saving less of their own pay.

Adopt auto escalation. Plans that use auto escalation automatically increase their participants’ contribution rate every year, typically by 1 percent. Over time, that can significantly improve savings rates among workers. The CRR cites a 2013 study of Danish workers where the majority of workers who experienced automatic increases simply accepted them, and savings rates dramatically increased.

Automate investment decisions with target date investment products. Investing is complicated, and many employees don’t want to take the time to learn how to manage their portfolios. Target date strategies automatically adjust an employee’s investment allocations over time, shifting them to a more conservative asset mix as the target date (typically retirement) approaches. The ease of use of target date funds means their popularity is increasing. The CRR notes that in 2014, nearly 20 percent of all 401(k) assets were in target date funds, and about half of plan participants used target date funds.2

      1http://crr.bc.edu/wp-content/uploads/2016/08/IB_16-15.pdf
      2http://crr.bc.edu/wp-content/uploads/2017/01/IB_17-2.pdf
About the Author, Michael Viljak
Michael joined RPAG in 2002 and has over 30 years of experience in the retirement plan industry, on both the wholesale and retail levels, focusing on retirement plans ever since their inception in 1981. Michael has an interest in fiduciary-related topics and was part of the team that created RPAG’s proprietary Fiduciary Fitness Program. He also authors many of the firm’s newsletter articles, communication pieces and training modules.

Déjà Vu All Over Again

Investment fads are nothing new.  When selecting strategies for their portfolios, investors are often tempted to seek out the latest and greatest investment opportunities.

Over the years, these approaches have sought to capitalize on developments such as the perceived relative strength of particular geographic regions, technological changes in the economy, or the popularity of different natural resources. But long-term investors should be aware that letting short-term trends influence their investment approach may be counterproductive. As Nobel laureate Eugene Fama said, “There’s one robust new idea in finance that has investment implications maybe every 10 or 15 years, but there’s a marketing idea every week.”

What’s hot becomes what’s not

Looking back at some investment fads over recent decades can illustrate how often trendy investment themes come and go. In the early 1990s, attention turned to the rising “Asian Tigers” of Hong Kong, Singapore, South Korea, and Taiwan. A decade later, much was written about the emergence of the “BRIC” countries of Brazil, Russia, India, and China and their new place in global markets. Similarly, funds targeting hot industries or trends have come into and fallen out of vogue. In the 1950s, the “Nifty Fifty” were all the rage. In the 1960s, “go-go” stocks and funds piqued investor interest. Later in the 20th century, growing belief in the emergence of a “new economy” led to the creation of funds poised to make the most of the rising importance of information technology and telecommunication services. During the 2000s, 130/30 funds, which used leverage to sell short certain stocks while going long others, became increasingly popular. In the wake of the 2008 financial crisis, “Black Swan” funds, “tail-risk-hedging” strategies, and “liquid alternatives” abounded. As investors reached for yield in a low interest-rate environment in the following years, other funds sprang up that claimed to offer increased income generation, and new strategies like unconstrained bond funds proliferated. More recently, strategies focused on peer-to-peer lending, cryptocurrencies, and even cannabis cultivation and private space exploration have become more fashionable. In this environment, so-called “FAANG” stocks and concentrated exchange-traded funds with catchy ticker symbols have also garnered attention among investors.

The fund graveyard

Unsurprisingly, however, numerous funds across the investment landscape were launched over the years only to subsequently close and fade from investor memory. While economic, demographic, technological, and environmental trends shape the world we live in, public markets aggregate a vast amount of dispersed information and drive it into security prices. Any individual trying to outguess the market by constantly trading in and out of what’s hot is competing against the extraordinary collective wisdom of millions of buyers and sellers around the world.

With the benefit of hindsight, it is easy to point out the fortune one could have amassed by making the right call on a specific industry, region, or individual security over a specific period. While these anecdotes can be entertaining, there is a wealth of compelling evidence that highlights the futility of attempting to identify mispricing in advance and profit from it.

It is important to remember that many investing fads, and indeed, most mutual funds, do not stand the test of time. A large proportion of funds fail to survive over the longer term. Of the 1,622 fixed income mutual funds in existence at the beginning of 2004, only 55% still existed at the end of 2018. Similarly, among equity mutual funds, only 51% of the 2,786 funds available to US-based investors at the beginning of 2004 endured.

What am I really getting?

When confronted with choices about whether to add additional types of assets or strategies to a portfolio, it may be helpful to ask the following questions:

  1. What is this strategy claiming to provide that is not already in my portfolio?
  2. If it is not in my portfolio, can I reasonably expect that including it or focusing on it will increase expected returns, reduce expected volatility, or help me achieve my investment goal?
  3. Am I comfortable with the range of potential outcomes?

If investors are left with doubts after asking any of these questions, it may be wise to use caution before proceeding. Within equities, for example, a market portfolio offers the benefit of exposure to thousands of companies doing business around the world and broad diversification across industries, sectors, and countries. While there can be good reasons to deviate from a market portfolio, investors should understand the potential benefits and risks of doing so.

In addition, there is no shortage of things investors can do to help contribute to a better investment experience. Working closely with a financial advisor can help individual investors create a plan that fits their needs and risk tolerance. Pursuing a globally diversified approach; managing expenses, turnover, and taxes; and staying disciplined through market volatility can help improve investors’ chances of achieving their long-term financial goals.

Conclusion

Fashionable investment approaches will come and go, but investors should remember that a long-term, disciplined investment approach based on robust research and implementation may be the most reliable path to success in the global capital markets.

Source: Dimensional Fund Advisors LP.
Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities. There is no guarantee an investing strategy will be successful. Diversification does not eliminate the risk of market loss.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.
Eugene Fama is a member of the Board of Directors of the general partner of, and provides consulting services to, Dimensional Fund Advisors LP.

Key Questions for Long-Term Investors

Asking the right questions and following a few key principles can improve your odds of long-term investment success.

Whether you’ve been investing for decades or are just getting started, at some point on your investment journey you’ll likely ask yourself some of the questions below. Trying to answer these questions may be intimidating, but know that you’re not alone. Your financial advisor is here to help. While this is not intended to be an exhaustive list, it will hopefully shed light on a few key principles, using data and reasoning, that may help improve investors’ odds of investment success in the long run.

1. What sort of competition do I face as an investor?

The market is an effective information-processing machine. Millions of market participants buy and sell securities every day, and the real-time information they bring helps set prices. This means competition is stiff, and trying to outguess market prices is difficult for anyone, even professional money managers (see question 2 for more on this). This is good news for investors though. Rather than basing an investment strategy on trying to find securities that are priced “incorrectly,” investors can instead rely on the information in market prices to help build their portfolios (see question 5 for more on this).

Source: World Federation of Exchanges members, affiliates, correspondents, and non-members. Trade data from the global electronic order book. Daily averages were computed using year-to-date totals as of December 31, 2016, divided by 250 as an approximate number of annual trading days.

 

2. What are my chances of picking an investment fund that survives and outperforms?

Flip a coin and your odds of getting heads or tails are 50/50. Historically, the odds of selecting an investment fund that was still around 15 years later are about the same. Regarding outperformance, the odds are worse. The market’s pricing power works against mutual fund managers who try to outperform through stock picking or market timing. As evidence, only 14% of US equity mutual funds and 13% of fixed income funds have survived and outperformed their benchmarks over the past 15 years.

Source: *Mutual Fund Landscape 2017, Dimensional Fund Advisors. See Appendix for important details on the study. Past performance is no guarantee of future results.

 

3. If I choose a fund because of strong past performance, does that mean it will do well in the future?

Some investors select mutual funds based on past returns.  However, research shows that most funds in the top quartile (25%) of previous three-year returns did not maintain a top-quartile ranking in the following three years. In other words, past performance offers little insight into a fund’s future returns.

Source: *Mutual Fund Landscape 2017, Dimensional Fund Advisors. See Appendix for important details on the study. Past performance is no guarantee of future results

 

4.Do I have to outsmart the market to be successful investor?

Financial markets have rewarded long-term investors. People expect a positive return on the capital they invest, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation. Instead of fighting markets, let them work for you.

US Small Cap is the CRSP 6–10 Index. US Large Cap is the S&P 500 Index. Long-Term Government Bonds is the IA SBBI US LT Govt TR USD, provided by Ibbotson Associates via Morningstar Direct. Treasury Bills is the IA SBBI US 30 Day TBill TR USD, provided by Ibbotson Associates via Morningstar Direct. US Inflation is measured as changes in the US Consumer Price Index. US Consumer Price Index data is provided by the US Department of Labor Bureau of Labor Statistics. CRSP data is provided by the Center for Research in Security Prices, University of Chicago. The S&P data is provided by Standard & Poor’s Index Services Group. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

 

5. Is there a better way to build a portfolio?

Academic research has identified these equity and fixed income dimensions, which point to differences in expected returns among securities. Instead of attempting to outguess market prices, investors can instead pursue higher expected returns by structuring their portfolio around these dimensions.

Relative price is measured by the price-to-book ratio; value stocks are those with lower price-to-book ratios. Profitability is a measure of current profitability based on information from individual companies’ income statements.

 

6. Is international investing for me?

Diversification helps reduce risks that have no expected return, but diversifying only within your home market may not be enough. Instead, global diversification can broaden your investment opportunity set. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.

Number of holdings and countries for the S&P 500 Index and MSCI ACWI (All Country World Index) Investable Market Index (IMI) as of December 31, 2016. The S&P data is provided by Standard & Poor’s Index Services Group. MSCI data ©MSCI 2017, all rights reserved. International investing involves special risks such as currency fluctuation and political stability. Investing in emerging markets may accentuate those risks. Diversification does not eliminate the risk of market loss. Indices are not available for direct investment.

 

7. Will making frequent changes to my portfolio help me achieve investment success?

It’s tough, if not impossible, to know which market segments will outperform from period to period.

Accordingly, it’s better to avoid market timing calls and other unnecessary changes that can be costly. Allowing emotions or opinions about short-term market conditions to impact long-term investment decisions can lead to disappointing results.

US Large Cap is the S&P 500 Index. US Large Cap Value is the Russell 1000 Value Index. US Small Cap is the Russell 2000 Index. US Small Cap Value is the Russell 2000 Value Index. US Real Estate is the Dow Jones US Select REIT Index. International Large Cap Value is the MSCI World ex USA Value Index (net dividends). International Small Cap Value is the MSCI World ex USA Small Cap Value Index (net dividends). Emerging Markets is the MSCI Emerging Markets Index (net dividends). Five-Year US Government Fixed is the Bloomberg Barclays US TIPS Index 1–5 Years. The S&P data is provided by Standard & Poor’s Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Dow Jones data provided by Dow Jones Indices. MSCI data ©MSCI 2017, all rights reserved. Bloomberg Barclays data provided by Bloomberg. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results.

 

8. Should I make changes to my portfolio based on what I’m hearing in the news?

Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future, while others tempt you to chase the latest investment fad. If headlines are unsettling, consider the source and try to maintain a long-term perspective.

9. So, what should I be doing?

Work closely with a financial advisor who can offer expertise and guidance to help you focus on actions that add value.  Focusing on what you can control can lead to be better investment experience.

  • Create an investment plan to fit your needs and risk tolerance.
  • Structure a portfolio along the dimensions of expected returns.
  • Diversify globally.
  • Mange expenses, turnover, and taxes.
  • Stay disciplined through market dips and swings.
Source: Dimensional Fund Advisors LP.
Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss.
There is no guarantee investment strategies will be successful. Investing involves risks including possible loss of principal. Investors should talk to their financial advisor prior to making any investment decision.
All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services. Investors should talk to their financial advisor prior to making any investment decision.

Is Your Financial Advisor a Legal Fiduciary (and Why is that Important?)

If you hire someone who goes by the title of “financial advisor”, you expect them to place your interests before theirs. After all, doesn’t the word advisor imply that they provide true advice?

Many investors are surprised to learn not everyone who uses the title “financial advisor” is legally bound to act in your best interest.  In 2018, the picture became muddier. In March, a Court of Appeals vacated the Department of Labor Fiduciary Rule. This Fiduciary Rule was proposed in order to require financial professionals who provide advice to retirement savers to act as a legal fiduciary.

What exactly does this mean? If you are a fiduciary, you are legally responsible to place the client’s interest before your own. It is much like the responsibility an attorney has to their client, or a parent has to his or her child. Negligence can and should come with legal consequences.  When it comes to professional advice about your money, implied consequence can be a very good thing. Unfortunately, the financial industry has made it confusing to know whether or not you are working with a fiduciary.

Understanding the Fiduciary Role

Other professions regularly act as fiduciaries. If you retain an attorney or see a medical doctor, for example, they are each required to do what is best for you…not what is best for them. That means the attorney must make recommendations based on your best interest, not what will generate more fees for his or her practice. The doctor may not prescribe any procedures or medications that are not in your best interest.

Not all financial professionals are held to that same fiduciary standard. It is perfectly legal, for example, for a non-fiduciary advisor to recommend a more expensive mutual fund to you, as long as it is deemed “suitable” or appropriate for an investor’s objectives and risk tolerance.  This suitability can be documented simply by requesting the client complete a questionnaire.

As an investor, it is of the upmost importance that you know whether you are working with a fiduciary advisor or a commissioned broker. Investors may end up paying more simply because the suitable product pays a higher commission to the advisor.

Who’s Who of Fiduciary Financial Professionals

While most professionals these days go by the generic term of “financial advisor” or “wealth advisor” …the actual licensing and registration can tell you if they are a fiduciary or not.  Anyone who is licensed as a Registered Representative is not a fiduciary. In fact, they cannot charge you a fee for advice. Rather, Registered Reps will charge you a commission for product recommendations and implementation. Does this sound like an advisor to you? Actually, it sounds more like a salesperson. While Registered Reps may be competent and educated, it is critical to know if you are receiving true advice or product recommendations that result in a commission.

If you walked into a Ford dealership and asked which car they recommend, you are more than likely to drive away in a brand-new Ford. The salesperson is incentivized to sell you a Ford even if a used car or a different brand would have met your needs at a lower cost.  Registered Representatives are held only to a “suitability” standard. That means they must simply recommend something that could be appropriate for you. Even if the one they recommend pays them a (higher) commission, as long as it is documented as “suitable”, there is no problem.  In fact, a Registered Representative’s first loyalty is to their employer and shareholders…not you, the client.

Fortunately, not all financial professionals operate this way.  Those who are licensed as Investment Advisor Representatives (the employees) or Registered Investment Advisors (the firms) are held to the fiduciary standard. They must always place client interests before their own. A conflict of interest may not be present in the relationship. If they do not place your interests first, you have legal recourse.  Instead of receiving commissions from products, fiduciaries are only paid a fee for advice.

 The High Cost of Conflicted Advice

If a Registered Representative has placed a product in your account for the sole reason of making a commission, then you have experienced  a conflict of interest.  A White House Task Force estimated that this “conflicted advice” costs Americans about $17 billion per year.  While you still may end up with a solution that generally works, your investment expense will be greater as a way cover these commissions. Over time, these small expenses can have a real effect on your total return.  Ideally, investors should avoid conflicted advice altogether.

Always Find Out

It is not always easy to discern who is a fiduciary and who is not.  Some advisors are “dually registered” as both a Registered Representative and an Investment Advisor Representative acting as a fiduciary only some of the time.  Most investors are not in the habit of questioning the advice they receive or asking if the recommendation represents a conflict of interest.

Get it in writing

It is vital that you are confident in the financial advice you receive:  are you  dealing with a legal fiduciary, or not?  We always recommend clients visit the following websites to research potential financial advisors.

However, one easy way to find out is to ask the prospective advisor this one question:

Will you act as my legal fiduciary at all times?

And ask for that in writing.  If that isn’t happily provided, you just learned something very important. It is safer to keep looking and limit your search to those who will act as your legal fiduciary.

Photo of Ryan C. Warwick

Ryan Warwick is Principal of Rathbone Warwick, a Registered Investment Adviser. Rathbone Warwick is a fee-based financial planning and investment management firm headquartered in Boise, Idaho serving families nationwide. Our advisors hold the Certified Financial Planner™ designation and the Chartered Financial Analyst® charter and serve as trusted stewards to help families preserve and grow their wealth for over three decades. Visit us at https://www.rathbonewarwick.com/.

 

How to Find The Best Financial Advisor in Boise, Idaho

If you are actively looking for a financial advisor in the greater Boise area, you have many choices. There are a multitude of financial professionals qualified to help with investment management, financial planning, estate planning and other needs.

Overwhelmed by the sheer number of firms, most people turn to their friends and family for a referral. Your network can be a good resource. However, with financial advisors, it can be dangerous. Why? Because most people have no idea what to look for and end up just hiring someone they like.

The following questions can help one analyze various financial professionals:

  • Is the person qualified to do the job?
  • Do they have the right education and professional designations?
  • Do they have enough experience to help me protect and grow my wealth?
  • Have they helped people like me achieve their goals before?
  • Are they ethical and do they have a clean record?

Answering these questions can help you avoid outright fraud or protect you from a negative experience that might result is significant heartache over time

Avoiding Conflicted Advice

While the idea of a Bernie Madoff is frightening, his boldness is relatively rare. The bad news, however, is that many financial professionals are not required to legally have to place your interests first and eliminate all conflicts of interest. In fact, some who use the title ‘advisor’ may not even legally be able to provide you with true advice.

This concept is called “conflicted advice” and unfortunately, it is quite common. Conflicted advice can occur when you unknowingly engage with a financial professional not legally required to place your interests in front of their own.

Usually, it is not personal or malicious. The advisor working for a large brand name bank or brokerage will have a first loyalty to their employer and the company’s shareholders. This may incentivize them to recommend that you buy more expensive financial products, simply because it is best for the company’s bottom line.

Is ‘conflicted advice’ an isolated incident? The research says no. A White House Council of Economic Advisors report estimated that “conflicted advice” costs Americans about $17 billion every year.

As you can guess, it is not always easy to find true, unbiased financial advice if your advisor is placing the company’s profitability before your needs. Thankfully, if you know the right questions to ask before you hire an advisor, you can be confident.

How to Find the Best Advisors

Here are five questions you should ask prospective financial advisors.

Question 1: Are you a Fiduciary?

A ‘Fiduciary’ is a person legally required to put your interests before their own. You want a fiduciary helping you with your financial planning and investing. Not all financial advisors are fiduciaries. Many of the brand name firms are not required to act in a fiduciary capacity. Instead, their representatives act as product salespeople who can legally recommend more expensive products to you, as long as they are deemed “suitable”.

Investors do not want to be questioning each product recommendation or the commission paid to the salesperson. You do not want to have any part of your money contribute to that $17 billion per year in conflicted advice.

To avoid this, always ask every prospective advisor: will you act as my legal fiduciary at all times? And, get it in writing, or better yet, as part of your client contract.

Question 2: What are your professional designations?

Being required to do the right thing, of course, is critical. But requirements can only get you so far. You also need to find an advisor who has the knowledge and skill to help you define and meet your goals.

With investments, this is extremely important. You want an advisor who is skilled at managing client wealth through all types of markets and economies.

While hard to measure, look for the right designations or professional credentials. But not just any credentials. Look for the “big three”:

  1. CERTIFIED FINANCIAL PLANNER™ professional
  2. Chartered Financial Analyst
  3. Certified Public Accountant

To learn about these three designations and why I recommend looking for them, see my previous article on financial advisor designations.

Question 3: How Do You Charge for Your Services?

When it comes to your money, the fees you pay matter. Over time, they matter even more. Sadly, many people don’t understand how their advisor is compensated. If you haven’t asked what you are paying, there is no way to make sure you’re not overpaying.

So, it’s best to work with an advisor who provides a transparent and easy to understand fee schedule. Your advisors should always be happy show your fees and expenses in writing so you can easily keep track. If your financial professional is not willing to do that, or cannot clearly explain how they are compensated, consider it a red flag. The best advisors believe in transparency and will appreciate involved clients that ask a lot of questions.

Question 4: Do you have any complaints or issues on your record?

One thing working in your favor when hiring a financial advisor is that the industry is regulated. Each person who is registered has an industry compliance record. Sadly, most consumers don’t even think to check these records. Don’t fall into that trap—there are more financial advisors with regulatory issues than you might think. In fact, according to research by the Wall Street Journal, about one in eight advisors or brokers have compliance issues on their records. These issues may be client complaints, actions by regulators, bankruptcies, terminations, even criminal proceedings…all things you want to know.

In addition, this research found that:

  • An estimated 70,000 advisors have at least one disclosure
  • Nearly 3,000 advisors have at least five disclosures

Always ask and then verify to make sure that you were told the truth. It’s simple to search by name using the Financial Industry Regulatory Authority website: https://brokercheck.finra.org/ and the SEC’s Investment Adviser Public Disclosure website: https://www.adviserinfo.sec.gov/IAPD/default.aspx.

Any advisor you consider should have a clean compliance record. With your financial future at stake, do not make an exception.

Question 5: How do you keep your clients fully informed about their money?

In surveys about satisfaction with financial advisors, one of the most frequent responses is concerns about the frequency of communication. Many financial advisors start strong when they get a new client, but then get comfortable and communicate less and less. That may be human nature, but you need to know the status of your money at all times.

Look for an advisor who has systems that helps keep you informed:

  • Performance reports
  • Meetings scheduled at specific intervals
  • Regular phone calls or email check ins
  • Easy to reach by email or phone
  • Quick response time

Why is this important? The best results are achieved when you interact with an advisor frequently. If paying for full-service and comprehensive advice, you should use the services to help you achieve your financial goals. One of the most important roles advisors play in their client’s lives is to act as an emotional buffer between their money and a big financial mistake!

It’s always a good idea to discuss big financial decisions with your advisor:

  • Should I refinance or pay off my mortgage?
  • Should I buy that rental or vacation home?
  • Should I sell my existing home and downsize?

Additionally, you and your advisor should talk or email frequently to make sure you are staying on track with your financial goals. That can be the difference between truly achieving your financial goals or simply those goals remaining dreams and wishes. The interaction is key and will help keep you both accountable.

Conclusion

As you can see, there is some homework to do to make sure you hire a high-quality advisor. It’s important that you research carefully, as this decision can impact your future quality of life. Use these questions to find an advisor who is a great fit.

Once you’ve found one, stay involved, because the fact is, no one will watch your money as closely as you will.

  • Always review your statements as they come in and look for anything you don’t understand
  • Monitor the fees and internal expenses to make sure they are reasonable and what you agreed to

It’s also a good idea to periodically check FINRA’s brokercheck.org to look for new filings.

Bottom line (and don’t ignore this): If there are any concerns or red flags, deal with them quickly. Your family’s security and financial future are too important.

Photo of Ryan C. Warwick
Ryan Warwick is Principal of Rathbone Warwick, a Registered Investment Adviser. Rathbone Warwick is a fee-based financial planning and investment management firm headquartered in Boise, Idaho serving families nationwide. Our advisors hold the Certified Financial Planner™ designation and the Chartered Financial Analyst® charter and serve as trusted stewards to help families preserve and grow their wealth for over three decades. Visit us at https://www.rathbonewarwick.com/.

August 2018 – The Idaho Business Review honors Boise Financial Advisor Brooke Ann Ramstad, CFP® as one of 15 financial professionals in the State of Idaho recognized for Excellence In Finance

Photo of Brooke A. Ramstad, CFP®

Rathbone Warwick wishes to congratulate Principal and Investment Advisor Brooke Ann Ramstad, CFP® for being nominated and selected as a 2018 Honoree for the Idaho Business Review’s Excellence in Finance.

The 2018 honorees are among “the best of the best” in the financial arenas of banking, corporate, investment and professional.

To earn the award, each submitted an application and was judged by a selection committee of past IBR Excellence in Finance honorees, who reviewed and rated them in the areas of leadership, mentorship, achievements, community leadership and community service.

Idaho Business Review’s Excellence in Finance awards program celebrates financial professionals in banking, corporate, investment and professional, whose fiscal accomplishments set a high bar for their company and Idaho’s business economy.

Brooke A. Ramstad, CFP® began her career with Rathbone Warwick in 2008. As a CERTIFIED FINANCIAL PLANNER™ professional and Principal, she meets with families to map out realistic long term financial goals while delivering a diversified, low-cost investment strategy. Brooke is a native of Wenatchee, WA (The Apple Capitol of the World) and a 2000 graduate of the University of Washington with a Bachelor’s of Arts degree in Romance Linguistics. A lifetime member of Kappa Kappa Gamma sorority, Brooke now serves as the Philanthropy Advisor to the Zeta Pi chapter of Kappa Kappa Gamma at the College of Idaho. When not enjoying the Boise River Greenbelt with her husband and two young children, she is a passionate Ambassador for the Women’s and Children’s Alliance. Brooke is also a member of the Idaho Women’s Charitable Foundation, the Idaho Chapter of the Financial Planning Association and will forever be a fan of “The Wonder Years”.

Link: https://idahobusinessreview.com/2018/08/13/ibr-honors-15-for-excellence-in-finance/

Financial Advisor Designations: Which ones are best?

When hiring a financial advisor, you’ll probably see a lot of designations after their names: CFA, CFP®, CPA, etc. Believe it or not, there are actually more than 180 credentials in use in the financial planning and investment world, per FINRA (the financial industry regulator).

Some of these credentials are well-respected and difficult to obtain. These credentials usually require a combination of extensive independent study and passing a rigorous final exam, in addition to completing years of experience requirements as well. Continuing education is required to keep the professional’s knowledge up to date as well as adherence to ethical requirements. If you hire someone who has earned one of these credentials, you can be reasonably sure they are knowledgeable on that topic.

But which credentials should you focus on as you narrow your search for a qualified financial advisor?

The Big Three

There are three designations that are potentially  the most difficult to obtain and require a dedicated candidate to prove they have an in-depth understanding the subject matter.

These are:

Chartered Financial Analyst (CFA). The CFA is well-known and difficult to attain.  In fact, it’s often referred to as the “Mount Everest of the investment world” (Yahoo! Finance). CFAs must demonstrate significant knowledge about investing, ranging from accounting, economics, and ethics to money management and security analysis.  Earning this CFA designation is a big undertaking. The exam is divided into three levels, each of which typically requires over 300 hours of study. To receive the official charter, a candidate must pass all three levels and have four years of qualified work experience in investment decision-making.The exams are notoriously difficult. According to the CFA institute, usually less than half the candidates pass Levels 1 and 2, and only 54% of the remaining candidates pass Level 3. The average CFA charter holder required four years to earn the charter.

Next is the Certified Financial Planner (CFP®). Broadly recognized and promoted by the CFP® Board and the Financial Planning Association, the CFP® designation requires significant work.  It entails  the completion of 18-to-24 months of independent study to prepare for a six-hour final board exam. Three years of approved experience as a financial planner or a two-year apprenticeship with another CFP® are required before earning this designation.

Third is the Certified Public Accountant (CPA).  Tax planning is integral to financial planning.  Having an advisor with an accounting background can help. To become a CPA, a candidate must complete a college-level accounting program and pass the 14-hour CPA exam. They must also have a certain amount of hands-on work experience that has been attested to.

These three designations are significant; look for these when considering advisors.

Not All Designations Are Created Equal

Just because the three designations listed require a lot of work, doesn’t mean all designations are alike. There are many designations available to candidates that are easy to obtain and require less experience and continuing education. Many require just taking a short course and paying a fee. While some, of course, were designed to provide proof of mastery of a topic, others seem designed to just help advisors look more knowledgeable due to more letters after their name on the business card.

A Consumer Financial Protection Bureau report found in 2013 that U.S.-based financial advisors were using more than 50 different “senior advisor” designations.

Consumers are likely to assume the initials behind the names mean mastery of a topic. Unfortunately, most of those credentials are easily acquired and require minimal self-study or taking a quick course and payment of a fee. On some, education is optional and only a fee is required.

For example, to achieve an   designation, a candidate must simply take a 100-question multiple-choice exam and pay a fee to be able to use that title.

While having those initials behind a name may make the advisor seem more accomplished and experienced, they practically purchased that designation.

How to Check Out a Designation

As you can see, all designations are not created equal. Before giving any weight to those letters behind an advisor’s name, plug that credential into a search engine. Find out the examinations, educational requirements, and work experience requirements the advisor had to complete to get that designation.

You can also go to the membership directory for that designation and check to see that the advisor indeed appears on the list.

Only once you have researched the designation should you consider it a factor in your decision-making about whether to use that particular financial advisor or financial planner.

Don’t Forget to Check Out the Advisor’s Compliance Record, Too

At the same time, take a minute and check out the advisor’s compliance record. Your money is important, so you should be very careful when hiring someone. Fortunately, there is a public resource where you can look up the compliance history on any financial advisor.

Go to https://brokercheck.finra.org/.

While it may take a few minutes, doing this research is vital. Too many people don’t look into their advisor’s background, and find out too late that the professional they thought was well-equipped to handle their financial planning and investing is not as knowledgeable –or ethical–as they thought.

Instead, invest the time up front. Choose carefully. Your future depends on it.

This article is solely for informational purposes and not intended to provide specific advice or recommendations for an individual. It is only intended to provide education about the financial industry. Please note that all Investing involves risk and possible loss of principal capital. No advice may be rendered by Rathbone Warwick unless a client service agreement is in place.
Photo of Ryan C. Warwick
Ryan Warwick is Principal of Rathbone Warwick, a Registered Investment Adviser. Rathbone Warwick is a fee-based financial planning and investment management firm headquartered in Boise, Idaho serving families nationwide. Our advisors hold the Certified Financial Planner™ designation and the Chartered Financial Analyst® charter and serve as trusted stewards to help families preserve and grow their wealth for over three decades. Visit us at https://www.rathbonewarwick.com/.

What can a tax-smart financial advisor do for you?

A recent survey  found  that most affluent investors want their financial advisor or financial planner to have tax expertise and be able to guide in tax-efficient strategies.

That’s smart. With recent changes to the tax code tax-efficient investing strategies are one of the few ways to keep more of what you make.

As an inactive, non-practicing CPA and Investment Advisor holding the Chartered Financial Analyst designation, I find that my tax background helps better serve our clients. With these dual perspectives, we can:

  • Discuss opportunities for clients to increase return without increasing risk
  • Consider tax ramifications of investment strategies before implementation
  • Suggest tax-efficient estate planning strategies
  • Avoid the negative tax surprises that can happen when your investment advisor doesn’t consider your tax situation

Even small incremental efficiencies can equate to significant amounts over time, depending on your income tax bracket.

Does this mean you need to eliminate your Accountant or CPA? Absolutely not! In fact, we work closely with our clients’ CPAs wherever possible.  In an ideal world, you have both your financial advisor and your CPA working in concert to identify ways to reduce your tax bill in the current year and beyond. We certainly don’t minimize the CPA’s role; we simply look for opportunities to add tax-efficient investment strategies as we help implement long term financial planning strategies based on your needs and goals.

Investing without Considering Tax Ramifications

Advisors should be aware of and sensitive to your tax situation, but sometimes problems may be hard to detect unless you know where to look. For example, the client may not disclose all the accounts he or she has, so an advisor won’t know how other accounts are invested and more important what the gain/loss landscape may reveal. But an advisor who is fluent in the tax strategy will ask about other accounts in order to avoid realizing a gain or loss in error thus creating an unanticipated tax issue.

Simply put, a financial advisor with tax experience has the mindset to always be on the lookout for ways to save on taxes. Even if they switch careers, they likely don’t lose that instinct.

On the other hand, financial advisors are usually investment professionals first. They are looking to grow your assets, and tax consequences may not be top of mind – particularly if that advisor is paid on a commission basis.

Combining the long-term investment planning mindset of an advisor and the tax-savings mindset of a CPA, however, can be a beautiful thing.

Seeking an Edge

With long term investing, investors must be comfortable taking more risk to potentially realize higher returns. And as their wealth increases many investors begin to shy away from taking risk.

This is where tax-efficient investing can be critical. By combining proactive tax planning and estate-planning strategies, you can feel more confident about the management of your wealth and the risks you are taking to grow your legacy. It is possible to realize a better return with the same amount of risk by efficiently managing the tax burden.

Whether it be simple management of positions in the right accounts, or harvesting gains and losses in a strategic way, almost every investor can benefit from a tax-smart investment review. In other cases, there are opportunities to create interesting estate-planning strategies that can serve your legacy.

When you employ several different firms for these critical tasks, you may sacrifice potential tax saving opportunities. A tax-smart advisor can often identify these opportunities or deficiencies during the financial planning process.

Awareness is the key. You want an advisor on your team who is looking for ways you can pay less in tax which should increase your returns over long periods of time. The tax-savvy wealth manager is a great asset for any investor.

Avoiding Nasty Surprises

You’ve probably experienced this before: your advisor encourages you to take some profits. Suddenly you’ve got a tax bill on your hands you weren’t expecting, and your cash flow is going to suffer.

Your CPA should always be looking for ways to lower your taxes in the current year. Your financial advisor should be seeking prudent avenues to grow and protect your wealth, based on long term financial planning discussions during the investment planning process. However, these goals of saving tax and growing wealth can sometimes conflict if the efforts are not coordinated.

This is where a strategy like proactive tax-loss harvesting can make sense. You can still take the profits, but you can offset the potential tax bill.

By including tax planning along with your investment planning, you can smooth those situations and minimize surprises.

How to Find a Tax-Smart Advisor

Some might think it makes good sense to consult your CPA for investment advice. But investment planning and implementation are quite different from tax planning. Ideally, you want someone who has experience on both sides. You will be well-served to search for financial advisors with tax and accounting experience.

Of course, also be sure the advisor in question is a fiduciary and check out their compliance record at https://brokercheck.finra.org/.

Once you find an advisor with the capacity to be held to a fiduciary standard, don’t be afraid to ask questions to help you make the best choice:

  • Does he/she or anyone on the team have experience or training in tax planning?
  • How will your portfolio be structured to balance growth with tax savings?
  • What investments make the most sense for your tax situation?

If a prospective advisor doesn’t provide satisfactory answers to these questions, keep looking. To truly grow your net worth, investment expertise is vital, and tax expertise is essential.

It’s best to find an advisor with both.

Photo of Ryan C. Warwick

Ryan Warwick is Principal of Rathbone Warwick, a fee-based financial planning and investment management firm headquartered in Boise, Idaho and serving families nationwide. Our advisors hold the Certified Financial Planner™ designation and the Chartered Financial Analyst® charter and serve as trusted stewards to help families preserve and grow their wealth for over three decades.
This article is solely for informational purposes and not intended to provide specific advice or recommendations for an individual. It is only intended to provide education about the financial industry. Please note that all Investing involves risk and possible loss of principal capital. No advice may be rendered by Rathbone Warwick unless a client service agreement is in place.

FA Magazine 2018 RIA Ranking

There are more than 680 RIAs with at least $1 billion in client assets, according to a November 2017 Cerulli Associates report. This club accounts for less than 4% of the total number of RIAs, but controls 32% of the RIA channel’s workforce and 60% of its assets.

Click here to view the RIA ranking.

Rathbone Warwick Investment Management named to the FT 300

Rathbone Warwick Investment Management was named to the FT 300: 2017 list of top US registered investments advisers published by Financial Times.

This fourth edition of the FT 300 assesses registered investment advisers (RIAs) on desirable traits for investors.

Rathbone Warwick is honored to represent Idaho on the 2017 FT 300 list. To read more about the assessment and see the full listing, click here.

 

Selection Criteria: The fourth edition of the Financial Times 300 has assessed registered investment advisers (RIAs) on desirable traits for investors. To ensure a list of established companies with deep institutional expertise, we examine the database of RIAs registered with the US Securities and Exchange Commission and select those that reported to the SEC that they had $300m or more in assets under management (AUM). The Financial Times’ methodology is quantifiable and objective. The RIAs had no subjective input. The FT invited qualifying RIA companies – more than 1,500 – to complete a lengthy application that gave us more information about them. We added to this with our own research into their practices, including data from regulatory filings. Some 520 RIA companies applied and 300 made the final list. The formula the FT uses to grade advisers is based on six broad factors and calculates a numeric score for each adviser. Areas of consideration include adviser AUM, asset growth, the company’s age, industry certifications of key employees, SEC compliance record, and online accessibility. The reasons these were chosen are as follows: *AUM signals experience managing money and client trust. *AUM growth rate can be a proxy for performance, as well as for asset retention and the ability to generate new business. We assessed companies on both one-year and two-year growth rates. *Companies’ years in existence indicates reliability and experience of managing assets through different market environments. *Compliance record provides evidence of past client disputes; a string of complaints can signal potential problems. * Industry certifications (CFA, CFP, etc) shows the company’s staff has technical and industry knowledge, and signals a professional commitment to investment skills. Online accessibility demonstrates a desire to provide easy access and transparent contact information. Assets under management and asset growth, combined, comprised roughly 80 to 85 percent of each adviser’s score. Additionally, the FT caps the number on companies from any one state. The cap is roughly based on the distribution of millionaires across the US. We present the FT 300 as an elite group, not a competitive ranking of one to 300. This is the fairest way to identify the industry’s elite advisers while accounting from the firms’ different approaches and different specializations. The research was conducted on behalf of the Financial Times by Ignites Distribution Research, a Financial Rimes sister publication.