The End of the Fiduciary Rule and What It Means to You

A post about the squashing of the Department of Labor’s Fiduciary Rule has been long overdue. In case you haven’t heard, in June of this year, the Obama-era Fiduciary Rule-—a rule that sought to uphold more financial institutions and advisors to a fiduciary standard of care and obligated them to act in their clients’ best interest—was overturned and abolished. The Department of Labor’s research found that Americans lose $17 billion a year due to conflicts of interest, namely in the form of hidden and/or excessive fees. Our firm can attest to this: This year alone we’ve saved our clients hundreds of thousands of dollars in unnecessary fees and financial commitments from products they didn’t need and that were sold to them in a less-than-transparent manner. One case that is still ongoing involves a U.S. investment advisory firm that was just fined $8M from the SEC for several securities violations, some of which included lying to consumers by telling them they were “fee-only” financial advisors when they were in fact earning sales commissions, failing to disclose significant conflicts of interest, and substantially misrepresenting product tax benefits. There’s no doubt that with the overturning of the Fiduciary Rule, Wall Street has won, and Main Street consumers have lost an important battle.

What does this mean to you as a consumer? It primarily means that you will have to continue to do your due diligence when seeking out financial advice and products. The one bit of good news about all of this is that many consumers now understand what it means for an advisor to be a fiduciary, and they’ve learned that not all advisors are legally held to a fiduciary standard of care. Consumers will want to continue to ensure that any advisor with whom they work is indeed a fiduciary, i.e. that the advisor is obligated to provide advice that is in their best interest and is not being motivated by a desire for sales commissions or any other form of conflicted compensation. The best way to avoid these conflicts of interest is to work with an advisor who is a member of the National Association of Personal Financial Advisors (NAPFA). All NAPFA advisors are not only CERTIFIED FINANCIAL PLANNER™ professionals, but they are also fee-only planners, which means they’ve taken a fiduciary oath to never get paid in the form of sales commissions, and all of their compensation comes directly from the client on a fee-for-service basis. This is not to be confused with “fee-based;” fee-based advisors are what are known as dually-registered advisors, which means they can still get paid in the form of sales commissions and provide advice that is not in the client’s best interest. It’s also important to make sure any advisor with whom you work acts in a fiduciary capacity 100% of the time. Some advisors, namely fee-based advisors, can operate as a fiduciary for one part of an engagement, and then put on their sales hat to sell commission-based products for another part of the same engagement.

The SEC is currently working on another consumer protection rule, but there are are still a lot of unknowns about whether or not its final product will provide any useful protections for consumers. In the meantime, it’s a “buyer-beware” environment out there and, as was the case prior to the fiduciary rule, a consumer’s best course of action is simply to work with a fee-only financial planner who acts in a fiduciary capacity 100% of the time.

Article Source on: The End of the Fiduciary Rule and What It Means to You

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Dunston Financial Group and MarketWatch on How to Handle Involuntary Retirement

As specialists in retirement planning, Dunston Financial Group was happy to work with Morey Stettner and MarketWatch on how to deal with an involuntary retirement.

“Depression is the No. 1 emotion that comes up,” said Lynn Dunston, a certified financial planner in Denver. “Your identity disappears suddenly. Your pride gets hurt. You’re used to having influence in the community and then it’s gone” when you’re forced to retire.”

 

“Then you’ll need to rethink what retirement looks like,” Dunston said. “If you can’t ski or bike, you need to be open to something else like traveling or spending more time with family. You don’t want your plans to be so rigid that they can’t be undone and redefined.”

 

Speaking of flexibility, allocate your assets to maximize cash flow if you must retire earlier than planned. Dunston encourages clients approaching retirement to set aside sufficient cash reserves to cover their income needs in an emergency.

 

“Have some intentionality in where you pull your money from,” he said. “Creating a retirement withdrawal strategy helps your assets last longer” and prevents you from, say, selling a stock at an inopportune time to cover your living expenses.

You can read the full article here.

Originally Posted over here: Dunston Financial Group and MarketWatch on How to Handle Involuntary Retirement

Moving to Be Near the Grandkids in Retirement: Dunston Financial Group Featured in Kiplinger Magazine

Thinking about moving to be near the grandkids in retirement? Our firm was grateful to collaborate with Jane Bennett Clark and Kiplinger Magazine on this important topic facing retirees.

To improve your odds of making the right choice, first identify your motivation for moving, says Lynn Dunston, a CFP in Denver. For instance, if getting help from your daughter with errands or with personal care—now or later—is a factor, find out whether she is willing and able to take on that role. “Put it all on the table,” says Dunston.

You can read the full article here.

Original Post right here: Moving to Be Near the Grandkids in Retirement: Dunston Financial Group Featured in Kiplinger Magazine

Why It Can Pay to Work with a Fiduciary Financial Planner

A really good question that we regularly get asked at our firm is, “What is the return on my investment if I hire you be my financial planner?” This question can be answered in a variety of ways, both quantitatively and qualitatively. Without going into too much detail on how a financial planner can provide value, I’d like to quickly share the results of just four of our recent financial plans, and how we were able to save just a handful of clients over $200,000 a year.

One of the things our firm regularly does for clients is analyze their investment holdings. Sometimes these investments are traditional stocks and bonds, and sometimes they’re cash value life insurance and annuities. We’ve recently analyzed six insurance contracts that were comprised of both annuities and life insurance. After doing extensive research on all of these contracts, it became apparent that our clients were sold products that were not in their best interest. While it doesn’t always make sense to disregard these products, in these cases the conclusion was clear: Our clients were sold products they didn’t need, and they were paying far too much for them. Fast-forward to the end result: For just four clients, we were able to save a combined $207,340 a year in annualized contract fees and unnecessary expenses. This is just a very small sampling of the kind of quantitative value a good fiduciary advisor can provide. And, given that the DOL Fiduciary Rule was just killed this week, it’s going to be increasingly important for consumers to do their homework and only work with a fee-only advisor who acts in a fiduciary capacity 100% of the time.

First Posted right here: Why It Can Pay to Work with a Fiduciary Financial Planner

Creating a Retirement Income Strategy

Accumulating assets for retirement is only one phase of preparing for retirement. Decumulating retirement assets is the means by which one will try to spend down a portfolio in an effort to make it last potentially thirty years or more in retirement. Here is a brief summary of some of the methods that exist for spending down a portfolio. I’d like to thank Dr. Wade Pfau for providing some of the categorization that has influenced my thinking.

FIXED AMOUNT METHODS

1.) Constant dollar amount (adjusted for inflation each year). One method to accomplish this has historically been the creation of an “Income Portfolio” designed to spin off a fixed dollar amount every year; another iteration is a reverse systematic withdrawal from a portfolio, which is where one simply sets up an automatic deduction for a fixed amount, often selling equally across various holdings in the account to create the cash available for withdrawal.

2.) Fixed percentage amount – A fixed percentage of the portfolio (adjusted for inflation each year) is withdrawn each year. An example would be William Bengen’s well-known 4% rule. Designed to address sequence of returns risk, the idea is that withdrawing 4% of a portfolio’s total value each year resulted in the portfolio safely lasting for 30 years (spends down principal. 3.8% is the safe withdrawal rate if one does not want to spend down principal). The down side is that simply because a portfolio will last 30 years doesn’t mean that it will meet one’s income needs if that 4% is significantly too low. This simply represents a helpful point-of departure when beginning to frame the retirement income discussion.

3.) Evensky’s Cash Flow Reserve Strategy  With a total return investment approach, this is a needs-based approach that is a fixed dollar amount, but is also in conversation with the fixed percentage amount. Typically a retirement planner works with a client to determine a realistic dollar amount that can be withdrawn (but this dollar amount can also be viewed as a percentage for discussion purposes). Then, 1-2 years of income needs and/or any additional short-term liquidity needs (e.g. a new home, car, wedding) are set aside in a cash reserve “bucket”. This cash bucket can either sit statically as an emergency reserve for bear markets to prevent liquidating positions that have lost value, or it can be set up to pay out the client’s actual income needs (most often the case). The rest of a client’s retirement assets are invested in an investment portfolio “bucket” that is segmented to be able to provide for an additional three years of income in fixed income holdings and the rest of the portfolio in an equities portfolio designed to provide long-term growth. This approach is implemented with a total return approach that takes into account taxes (both in the types of accounts and liquidations), costs, goals, and other financial planning priorities.

4.) Annuity Methods – These range from putting small to significant amounts into immediate or deferred income annuities (SPIAs and DIAs). The idea is to protect against longevity risk and to ensure that a certain level of one’s income needs are met in the form of an annuity income stream.

DYNAMIC AMOUNT METHODS

 5.) Floor and ceiling – This results in a variable percentage spending amount. It starts with a fixed percentage, but the percentage can decrease to a fixed dollar “floor” that is 15% below the initial amount or increase to a “ceiling” amount that is 20% above the initial amount depending on market factors.

6.) Guyton and Klinger’s Decision Rules Variable percentage amount. Withdrawals are a percentage, but can vary based on 4 rules:

  • The withdrawal rule: Withdrawals are adjusted for inflation each year unless the portfolio loses money, in which case no inflation adjustment is allowed.
  • The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.
  • The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.
  • The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. Doing this means the client does not miss out on higher sustainable spending when markets are doing well.

7.) Kitces’ Ratcheted 4% Rule Another dynamic spending approach that allows spending to be increased (“ratched up”) if the portfolio grows to a certain level but, unlike the Guyton approach, manages the increases in such a way that it does not necessitate spending cuts.

8.) Zolt’s Glide Path Spending Rule – Retiree would like spending to keep pace with inflation, but is willing to forego spending increases above and beyond inflation-adjusted modifications to spending.

ACTUARIAL METHODS

9.) RMD Method – Follow a formula similar to the IRS’ RMD formula so that each year’s changing portfolio balance and remaining life-expectancy are taken into account when calculating how much can safely be withdrawn.

10.) Endowment Formula 1 – Weighted Average of Bengen’s 4% Rule

11.) Endowment Formula 2 –  Fixed-Percentage of Three-Year Moving Average Portfolio Balance

If you’d like assistance with navigating this complex landscape of retirement income strategies, please contact Dunston Financial Group, and one of our retirement income specialists will be happy to help.

 

 

 

 

 

 

 

 

Article Source on: Creating a Retirement Income Strategy

The Legal Bible for Retirement Plans

This book is not for the faint of heart as it is written by an attorney for attorneys and retirement plan professionals, but this is the Bible when it comes to planning that relates to group retirement plans and IRAs. IRAs and 401(k)s may seem simple, but when it comes to death, RMDs, and inheritance options, they are anything but simple. This is evidenced by the fact that this book is 624 pages of legal information related to these plans. If you ever inherit a retirement plan, please be sure to talk to a qualified professional. There are a lot of things that can go wrong when it comes to making smart decisions with inherited retirement plans.

First Seen right here: The Legal Bible for Retirement Plans

2017 Market Review and Thoughts on 2018

For today’s blog post, we thought we’d share a letter that we sent to our investment management clients at the start of the year. It contains some reflections on 2017 as well as some thoughts about what 2018 might have in store. 

Dear Friends and Clients of Dunston Financial Group,

As a firm, we want to sincerely thank you for placing your trust in our team. We are dedicated to your success, and we consider it an honor to work with you.

In 2017 our organization continued to grow, and we now have six people dedicated to serving you. Stephanie McElheny, CFP®, EA, ChSNC, came to us from PNC Investments where she served as Director of Financial Planning and oversaw the financial planning activities of 13 financial planners. Stephanie is an Enrolled Agent, a designation that allows her to prepare tax returns and legally represent our clients before the IRS. She is also a specialist in special needs planning and can assist our clients who have family members with special needs. Ryan Bowman, CFP® joined us from the largest independent investment advisory firm in St. Louis, and he brings to us a tremendous amount of financial planning and investment expertise. Ryan is also a U.S. Army veteran, and he served two active-duty tours in Iraq. Finally, Rosanna Sabian joined us as our new administrative assistant. Rosanna came to us from the bay area in California where she served as office manager for a successful CPA firm.

Year-End 2017 Market Review

As we approach 2018, it‘s time to reconcile the past 365 days of 2017. We are sending off a very exciting and tempestuous year. The stock market is at an all-time high. Volatility is at a record low. Consumer spending and confidence have passed pre-recession levels.

As a firm at Dunston Financial Group, we would like to wish all you a happy and prosperous 2018. It’s almost certain that the coming year will be as electrifying and eventful as the previous one!

The New Tax Plan

The new tax plan is finally here. After heated debates and speculations, president Trump and the GOP achieved their biggest win of 2017. In late December, they introduced the largest tax overhaul in 30 years. The new plan will reduce the corporate tax rate to 21% and add significant deductions to pass-through entities. It is also estimated to add $1.5 trillion to the budget deficit in 10 years before accounting for economic growth.

The impact on the individual taxes, however, remains to be seen. The new law reduces the State and Local Tax (SALT) deductions to $10,000. Also, it limits the deductible mortgage interest for loans up to $750,000 (from $1m). The plan introduces new tax brackets and softens the marriage penalty for couples making less than $500k a year. The exact scale of changes will depend on a blend of factors including marital status, the number of dependents, state of residency, homeownership, and employment versus self-employment status. While most people are expected to receive a tax-break, certain families and individuals from high tax states such as New York, New Jersey, Massachusetts, and California may see their taxes higher.

Affordable Care Act

The future of Obamacare remains uncertain. The new GOP tax bill removes the individual mandate, which is at the core of the Affordable Care Act. We hope to see a bi-partisan agreement that will address the flaws of ACA and the ever-rising cost of healthcare. However, political battles between republicans and democrats and various fractions can lead to another year of chaos in the healthcare system.

Equity Markets

The euphoria around the new corporate tax cuts will continue to drive the markets in 2018. Many US-based firms with domestic revenue will see a boost in their earnings per share due to lower taxes.

We expect the impact of the new tax law to unfold fully in the next two years. However, in the long run, the primary driver for returns will continue to be a robust business model, revenue growth, and strong balance sheets.

Momentum

Momentum as an investment strategy was the king of the markets in 2017. The strategy brought +38% gain in one of its best years ever. While we still believe in the merits of momentum investing and include it in our portfolios, we are expecting more modest returns in 2018.

Value

Value stocks were the big laggard in 2017 with a return of 15%. While their gain is still above average historical rates, it’s substantially lower than other equity strategies. Value investing tends to come back with a big bang. In the light of the new tax bill, we believe that many value stocks will benefit from the lower corporate rate of 21%. And, as S&P 500 P/E continues to hover above historical levels, we could see investors’ attention shifting to stocks with more attractive valuations.

Small Cap

With a return of 14%, small-cap stocks trailed the large and mega-cap stocks by a substantial margin. We think that their performance was negatively impacted by the instability in Washington. As most small-cap stocks derive their revenue domestically, many of them will see a boost in earnings from the lower corporate tax rate and the higher consumer income.

International Stocks

It was the first time since 2012 when International stocks (+25%) outperformed US stocks. After years of sluggish growth, bank crisis, Grexit (which did not happen), Brexit (which will probably happen), quantitative easing, and negative interest rates, the EU region and Japan are finally reporting healthy GDP growth.

It is also the first time in more than a decade that we experienced a coordinated global growth and synchronization between central banks. We hope to continue to see this trend and remain bullish on foreign markets.

Emerging Markets

If you had invested in Emerging Markets 10-years ago, you would have essentially earned zero return on your investments. Unfortunately, the last ten years were a lost decade for EM stocks. We believe that the tide is finally turning. This year emerging markets stocks brought a hefty 30% return and passed the zero mark. With their massive population under 30, growing middle class, and almost 5% annual GDP growth, EM will be the main driver of global consumption.

Fixed Income (Bonds)

It was a turbulent year for fixed income markets. The Fed increased its short-term interest rate three times in 2017 and promised to hike it three more times in 2018. The markets, however, did not respond positively to the higher rates. The yield curve continued to flatten in 2017. And inflation remained under the Fed target of 2%.

After a decade of low interest, the consumer and corporate indebtedness has reached record levels. While the Dodd-Frank Act imposed strict regulations on the mortgage market, there are many areas, such as student and auto loans, that have hit alarming levels. Our concern is that high-interest rates can trigger high default rates in those areas, something which can subsequently drive down the market.

Gold

2017 was the best year for gold since 2010. Gold reported 11% return and reached its lowest volatility in 10 years. The shiny metal lost its momentum in Q4 as investors and speculators shifted their attention to Bitcoin and other cryptocurrencies. In our view gold continues to be a solid long-term investment with its low correlation to equities and fixed income assets.

Real Estate

It was a tough year for REITs and real estate in general. While demand for residential housing continues to climb at a modest pace, the retail-linked real estate is suffering permanent losses due to the bankruptcies of several major retailers. This trend is driven on one side by the growing digital economy and another side by the rising interest rates and the struggle of highly-leveraged retailers to refinance their debt. Many small and mid-size retail chains were acquired by Private Equity firms in the aftermath of the 2008-2009 credit crisis. Those acquisitions were financed with low-interest rate debt, which will gradually start to mature in 2019 and peak in 2023 as the credit market continues to tighten.

In the long-run, we expect that most public retail REITs will expand and reposition themselves into the experiential economy by replacing poor performing retailers with restaurants and other forms of entertainment.

On a positive note, we believe that the new tax bill will boost the performance of many US-based real estate and pass-through entities.  Under the new law, investors in pass-through entities will benefit from a further 20% deduction and a shortened depreciation schedule.

What to Expect in 2018

After passing the new tax bill, Congress will turn its attention to other topics of its agenda – improving infrastructure, and amending entitlements. Further, we will continue to see more congressional budget deficit battles.

It will be important to talk to us as well as your accountant to find out how the new bill will impact your taxes.

With markets at a record high, we’ll want to keep an eye on the possibility of capturing some of your capital gains and, as always, maintaining a well-diversified portfolio will be paramount.

We might see a rotation into value and small-cap; however, the market is always unpredictable and can remain such for long periods.

We will monitor the Treasury Yield curve. In December 2017 the spread between 10-year and 2-year treasury bonds reached a decade low at 50 bps. While not always the case, a flattening yield has often predicted an upcoming recession.

Index and passive investing will continue to dominate as investment talent is ever more scarce, and it will be an important part of building a diversified portfolio. Mega large investment managers like iShares and Vanguard will continue to drop their fees.

Thank you again for another great year. We look forward to serving you in 2018.

The Dunston Financial Group Team

First Posted on: 2017 Market Review and Thoughts on 2018

Dunston Financial Group Considered Top 13 Best Financial Advisors in Colorado

Dunston Financial Group is excited to share that we’ve been named one of the top 13 financial planning firms in Colorado. Summarizing their analysis, AdvisoryHQ writes,

As a fee-only fiduciary, Dunston Financial Group represents the golden standard of Denver wealth managers, ensuring trust between clients and their advisors. Additionally, the firm boasts a diverse and talented team, with professional certifications including MBA, CFP®, CFA, and ChSNC®, enabling each Denver financial advisor to tackle a variety of financial and investment challenges. With a solid financial planning strategy, a fiduciary commitment, and an accredited team of Colorado financial advisors, Dunston Financial Group has earned a 5-star rating on our list of the best financial advisors in Denver.

We would like to thank all of our wonderful clients and professional colleagues for helping us achieve this exciting accomplishment!

You can read a detailed review of our firm as well as find tips about how to select the best financial advisor here.

 

First Seen over here: Dunston Financial Group Considered Top 13 Best Financial Advisors in Colorado

Monday Quick Tip: Tax Credit for Small Business Retirement Plan Setup

Did you know there’s a tax credit available for small businesses that set up a new retirement plan? As a small business owner, which includes a self-employed business of one, you can claim a tax credit for part of the ordinary and necessary costs of starting a SEP IRA, SIMPLE IRA, or other qualified retirement plan. The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. You can even claim the credit for a prior year or carry it forward if needed. The credit is claimed on IRS Form 8881. More information about the credit can be found on the IRS website. Setting up a retirement plan is fantastic way to save and invest for retirement, and it can also provide helpful tax deductions.

If you’d like to talk with one of our CERTIFIED FINANCIAL PLANNER™ professionals about setting up a SEP IRA, SIMPLE IRA, or other qualified retirement plan, please feel free to contact us.

First Posted on: Monday Quick Tip: Tax Credit for Small Business Retirement Plan Setup