What is a Fiduciary?

What Is A Fiduciary?

 

You have probably heard this term Fiduciary thrown around a lot here in the last few years. It is a question you should be asking your current Advisor, “Are you a fiduciary?” At 56 Capital Partners we are a fiduciary and are proud of it! In fact, our agreements specify our fiduciary capacity a total of ten (10) times. 

Why is this question so important and a point of pride for us? Merriam-Webster defines fiduciary as “one that holds a fiduciary relation or acts in a fiduciary capacity”. We like to define fiduciary as earning a person’s trust by acting in their best interest as if it were your own. Many people might relate this to the ‘Golden Rule’. 56 Capital Partners holds a high standard and tries to stick to the Golden Rule.

The fiduciary topic received plenty of coverage in the media in summer of 2017 when the Department of Labor (DOL) first proposed the fiduciary standard on retirement accounts such as IRAs. Instantly, the financial and insurance industry lobbyists went to work to water the law down and eventually ensure that it was not implemented. Most recently, the Securities and Exchange Commission (SEC) proposed a similar law, but decidedly voted on a watered down “best interest” policy with the mild expectation to be compliant by June 30, 2020. To add further fuel to the fire, this conflicts with the proposed Certified Financial Planner (CFP) Board’s proposal to make its designees act as a fiduciary when using the designation.    

In response to these regulatory proposals, Financial Planning Magazine presented a great article “Will Edward Jones stop advisors from using the CFP designation?” Edward Jones as a firm does not act as a fiduciary, but in certain capacities its independent advisors might be acting as a fiduciary when planning under the banner of the CFP designation. If the CFP enacts the fiduciary standard in its Standards of Conduct Manual it puts many firms and advisors in a legal predicament. 

To be fair, the industry needs both advisors acting as fiduciaries and broker dealers whose standard is only suitability. Guidelines that clearly define what role the professional is fulfilling should be given to the client, so they are aware. For example, when paying for long-term family retirement advice clients should expect the advisor to be acting as a fiduciary and putting their interests first. However, if you have a smaller ‘fun’ account that you are trading in and out of the market and want to bounce a new trade idea off a professional; that professional acting as a broker is simply helping facilitate the trade that is likely highly speculative in nature. These examples seem straight forward, but the lines blur when there is not enough communication and disclosure to define the multitude of services provided throughout a client’s tenure with a firm. 

Having kept up to date on this, it could take regulators years to sort this out, if they ever do. Along the way there will be a plethora of changes proposed by attorneys and lobbyists, that could result in lawsuits and could potentially cost taxpayers billions. In the meantime, we are happy to set a standard for others to live up to.

Are You Holding Cash?

Do not think of this as holding cash in your wallet or literally in your hand. Think of the bigger picture and your overall portfolio. As I was browsing through a magazine, I noticed an article* about holding cash and the long-term effects it has on planning.  Given the sharp decline in the market and rapid rise that created a “V” on the chart, many clients asked about going to cash during the December swoon. You can find a lot of articles out there in which they talk about not being invested during the top ten return days in a year and the cost it has on long-term performance. This article though, took an inverse look at the problem and not being invested at all. 

During December, we advised clients to stay invested for several reasons such as, dividends and interest would be reinvested at lower values.  We also had accumulated a higher cash position naturally, that we also put to work during the rebound.  While cash plays a role in planning, more so in emergency fund planning, it does come in handy for portfolio allocation.  However, to go to all cash out of fear as many clients wanted to, would have caused them to miss out on one of the largest meteoric rises in history. 

The final point of the article is that not all cash is created equal, which we agree with.  This is why we come up with the allocated ratios to accounts like, Saving, Checking, Brokerage, IRAs, and other types of accounts.  We maintain liquidity, but are careful to have nothing too excessive and with the cash we do hold, we look to higher rate accounts.  

All said and done, the lesson we recognized was cash is a tool in financial planning that can be used efficiently and inefficiently; question is do you know which one you are?

*Source: Money Magazine (T. Rowe Price)

Tax Time

Tax Season… everyone’s favorite time of year… just kidding!

We know how stressful tax season can be. Waiting patiently for all those tax documents to arrive in the mail so you can file as soon as possible. As we engage with clients this time of year, we are excited that our new platform has a simple solution to retrieve those documents. Under the reports section titled “Tax”, you can find all tax statements and dates of availability for your accounts to help ease your stress level.  Below we have compiled a list of tax lessons that we have learned, that we hope will help minimize the stress year after year.

Our tax lessons for the ages:

·            Admit to yourself if you need help.  Ignorance is not an excuse to the IRS, it might abate the penalty and interest you are assessed, but does not alleviate it fully.

·            Expect as your situation complicates itself that you will get closer and closer to filing April 15th or even asking for an extension (there is nothing wrong with this). Do not rush to get your filing done and miss important documents that have not even been sent to you yet.

·            Adjust your W4 withholdings as your situation changes so you do not give the government an interest free loan; the goal is NOT to receive a refund.

·            Make a list of this year’s statements, so next year you have an idea of how many you are likely to receive, where, and when they will come and online availability.

·            Strategize not only for this year but for years to come. Ex: Make sure IRAs are maxed out before year’s end so the statement the investment company generates matches your taxes versus calling us and saying “I can save on taxes if I max out my IRA”.  We reach out to everyone with IRAs in Oct/Nov to help with this as we knew that.

·            CPAs have limits, they account for what has happened but rarely strategize what to do going forward. 

 

**Our attorneys would want me to make sure I remind readers that we are not CPAs nor do we give tax advice and you should seek advice from a tax professional.

 

Start the New Year with New Books

“Education is the passport to the future, for tomorrow belongs to those who prepare for it today.” - Malcom X

With the New Year comes new books. As we grow each year we want to keep you updated on what we are diving into. 56 Capital Partners is committed to further education, ongoing training, research and continuing to learn about relevant subjects. We want to grow our library to help pass along educational information we have learned. Here is this years start to the reading list. Enjoy!

56 Capital Partners 2019 Reading List

Inevitable Checklist

When planning for the worst, some obvious topics are often overlooked. This is a morbid topic, but it is critical to prepare a plan and think about creating documents that will help with the inevitable. Here are some steps you can take to help insure that your loved ones are not lost during their time of grief.

Make sure to have an UPDATED will or trust in place; not the one you think you did 20 years ago before you had your last child.  Updating either or both of those documents will help delegate where and to whom you want things to go.  A will or trust will mitigate living relatives from fighting over your estate and will allow them proper grieving. A trust often accelerates your family’s access to the estate and avoids probate.

Create a list of emergency contacts, service providers (Doctors, vets etc.), memberships, banking information, investment and 401k plan information, life, disability, long-term care and health insurance companies, subscriptions and any other vendor or company used. Include in the list the name, phone number, address and primary contact or website with password. If there are any policies or paperwork that was received make sure to save a digital copy in case it is destroyed or lost and let a family member know where to find those documents such as a safe or safety deposit box.

To help, list out all monthly income and expenses first, this will help identify what companies need to be contacted. Gas, electric, water, cable and internet, mortgage, cell phone, credit cards, prescriptions, dividend checks etc. are just a few that should be included.

Something that is often overlooked are email, social media, snail mail accounts, and PO Boxes. When a person passes the mail does not stop nor do the social media accounts. You can cancel or have mail forwarded by completing a change of address form or go in to your local post office and have them help with forwarding and closing a PO Box if one existed. Social media and email are a little trickier because we all have at least one account, but some have five or ten! Most accounts will require you to have the email and password associated with the account and then you can go through the process of deleting the account. An awesome feature though that some sites offer (Facebook) is an option to memorialize this account. For people who want to have that as a keepsake this is a great option.

Make sure to check in on your Social Security benefits not only for yourself but for your family that is left behind. Sometimes we wrongfully assume credits are on our statements and come to find out the government did not account for them properly. For example, Derek’s was calculated wrong when he was deployed over multiple years yet it was the government paying him.  You can go straight to SSA.gov, create an account and keep track, this is especially helpful since the Social Security Administration cut back on sending out paper notices. Save a copy of your Social Security statement digitally and print one out to keep with all the other documents.

Stored credit card information is something to check on as well, such as Amazon. If you go in and remove that saved card information there is less likelihood of it being charged for something and it can help prevent identity theft during the transition when predators are at a peak.

Search for “missing” money. Our loved ones might have opened an account that they stopped using after college or after they bought new furniture. There are plenty of tools out there to help determine if you have any accounts that were lost or overlooked.

Having the following handy will help make this a smooth process for your loved ones:

-          Store passwords in a safe place that can be accessed if something unfortunate happens. Having those passwords will help when trying to close accounts.

-          Make sure to have multiple copies of the death certificate and a digital copy. Many companies require a certificate to be able to execute closing or transferring ownership of your account.

-          Have copies of documents stored in a safe place and in a digital format and make sure family members know where they are.

There are a ton of resources out there to help you prepare for this event in life like Everplans, Legal Zoom etc. Completing some of these items will help make the transition from you to your family members easier and will allow them to grieve for you instead of curse you.

 

*See disclosures page

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