Gifting without worry. A guide to Gift Tax: A simple rule many complicate

 Gifting without worry.

A guide to Gift Tax: A simple rule many complicate.

 

by Sarah Johnson, CFP

As the holiday season approaches, many are making plans to gift something beyond what can be bought in a store, finding great joy in helping their loved ones through generous financial gifts.  Financial gifts may come in the form of college tuition, cash, stocks, or even a family vacation. Giving financial gifts can provide a sense of security and freedom to loved ones, but often brings up questions about what kind of tax burden these gifts may bring.  This concern often comes out of common misconceptions around gift tax rules, so let’s take a quick look at what those rules are, so the focus this holiday season can be on the joy of giving.

There is a lot of attention given to the annual gift exclusion which is simply a term for how much you can give without paying gift tax.  This focus on the annual gift exclusion is a bit overstated, as in reality, most Americans will never have to pay any gift tax.  Here’s why.  You will often hear that the annual gift limit is $17,000 per person (2023), meaning that each individual can gift up to $17,000 per gift recipient each year.  You will also be told that any gift over $17,000 is subject to federal gift tax.  This is where most people get nervous, and for good reason- no one wants to pay taxes for giving away money they already were taxed on.  While these numbers are accurate, they are somewhat misleading.  Yes, if you gift an individual more than $17,000, you will have to file a 709 gift tax return.  For over 99% of Americans, the inconvenience of filling out the form is where the impact will end.  Each American in 2023 has a $12.92 million lifetime gift tax exemption, and spouses get to share- putting a married couple’s lifetime gift tax exemption at $25.84 million.  What the 709-gift tax return form does is track gifts over your annual exemption, which will come off of your lifetime gift tax exemption.  So, unless you plan to give through gift or your estate, more than $12.92 million per person, the whole point is moot, and you are free to give as you are able.  For example, even if you gifted $3 million over the annual exclusion throughout your lifetime, your federal estate tax exemption would simply go down from $12.92 million to $9.92 million.   

While it seems complex, what it boils down to is this:  

  • If you keep each individual gift to $17,000 or less, you file no 709-gift tax return, and nothing comes off of your $12.92-million-dollar lifetime exclusion limit.  
  • Gifts that are over $17,000 per person- file a 709-gift tax return.  Funds gifted that exceed $17,000 will come off of your $12.92 million lifetime limit. 
  • No matter what amount you give, the recipient will never have to pay taxes on their gift.  

Having a solid understanding of these conditions can help you focus on what is truly important – the joy your gift brings to those you love.  

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

Should I Invest in AI? Weighing the Pros and Cons

 Should I Invest in AI? Weighing the Pros and Cons

by Sarah Johnson, CFP®

Talk about Artificial Intelligence (AI) seems to be everywhere you look these days.  With Chat GPT being the fastest growing app, to companies like NVIDIA and Microsoft grabbing great returns – it has certainly piqued many people’s interests, and for good reason.  AI has become an increasingly prominent technology in recent years, transforming industries and reshaping the way we live and work. Its potential to revolutionize various sectors, from healthcare and finance to manufacturing and transportation, has attracted the attention of investors worldwide. However, before diving into the world of AI investments, it is crucial to be aware of not only the potential benefits but also the risks associated with this emerging technology.

The Pros of Investing in AI

1. Disruptive Technological Advancements: AI is driving disruptive technological advancements across industries. It has the potential to change how companies do business by optimizing operations, enhancing efficiency, and revolutionizing business models. By investing in AI, you may position yourself to benefit from these transformations, potentially gaining a competitive edge in the market. The key here, however, is to be cautious. It is extremely difficult to identify early-stage AI start-up winners in advance, especially before they are bought by the large tech players.  

2. Potential for High Returns: The rapid growth of AI presents significant investment opportunities. As this technology matures, AI-focused companies may experience substantial growth, leading to higher returns on investment. Early-stage AI startups, particularly those with groundbreaking innovations, have the potential to provide significant returns if successful, but that can be a big “if”, and trying to pick the winners from the losers can be a fool’s game. 

3. Increasing Demand and Adoption: The demand for AI solutions is rising as organizations seek to leverage their capabilities. From automation and data analysis to personalized customer experiences, AI is becoming a key differentiator in the market. Investing in AI allows you to tap into the expanding market and be part of a potential digital revolution.

4. Diversification: Including AI in your investment portfolio can provide diversification. AI spans various industries, such as healthcare, finance, cybersecurity, and autonomous vehicles, enabling you to spread your investments across different sectors and potentially mitigate risks.

The Cons of Investing in AI

1. Volatile and Speculative Market: AI is still a budding technology, and the market can be highly volatile and speculative. Investing in AI carries inherent risks, particularly when investing in early-stage startups or companies with unproven technologies. Market fluctuations, regulatory challenges, and unforeseen technical hurdles can impact the value of AI investments. Due to the speculative nature of AI, it is susceptible to disinformation spread through social media. Be cautious of where you get your information.   

2. Ethical Considerations: As AI becomes more pervasive, ethical considerations and public perception come to the forefront. Elon Musk said “Chat GPT is good, we are not far from dangerously good AI.” Concerns about privacy, algorithmic bias, job displacement, and the ethical use of AI may impact the long-term viability of certain AI investments. Researching and investing in companies that prioritize ethical practices and demonstrate a commitment to responsible AI development can help. 

3. Competitive Landscape: The AI industry is highly competitive, with numerous players vying for dominance. Established technology giants and startups are actively investing in AI research and development. Differentiating between winners and losers in this fiercely competitive landscape can be challenging. Proper due diligence is necessary to identify companies with a strong competitive advantage and sustainable business models. 

4. Technological Challenges: AI development poses complex technical challenges, including algorithm design, data quality, and the need for continuous improvement. Investing in AI requires an understanding of these technical nuances, as well as an assessment of a company’s capabilities and track record. Companies that can overcome these challenges are more likely to succeed in the long term. 

5. Regulation Risk:  Government policies and regulations play a crucial role in shaping AI investing and will impact your AI investments. Governments can have a positive effect on investment in AI technology by offering tax incentives, grants, and funding programs to encourage private-sector investment. They can also negatively affect your AI investments through regulatory framework you may or may not see coming. Government impact has the ability to significantly impact AI investing and should be watched closely.   

Investing in AI offers both opportunities and risks. The potential for disruptive innovation, high returns, and diversification can be appealing to investors. However, it is essential to carefully evaluate the risks associated with market volatility, ethical concerns, competition, and technological challenges. Conducting thorough research, diversifying your portfolio, and considering long-term prospects can help navigate the dynamic landscape of AI investments.  Ultimately, your financial advisor can help you decide whether or not investing in AI aligns with your investment goals, risk tolerance, and understanding of the technology. 

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

Guaranteed Income!

 Guaranteed Income!

by Ben Johnson

That sure sounds nice, especially in times like these where uncertainty in both the stock and bond market runs high. However, as with most things that sound too good to be true, it is not quite that simple. If someone is offering you 8% today, you know it’s not as simple as it sounds. How are they able to give me that return? How are they making up the 6% to 8% commission paid to the Advisor (sales person)? It’s done by fees inside the contract, surrender charges to ensure the contract stays with the company for many years, the cost of riders guaranteeing income, death benefits etc..


Have you ever gone to buy a car for say $40,000? Then when you go to complete the purchase, the dealer suggests (FOR YOUR PROTECTION) you get the 6-year Bumper to Bumper EXTENDED warranty, and also the anti-theft devices, nitrogen in tires, window tinting, chrome-plated wheels, all-season floor mats, splash guards, wheel locks, cargo trays and alarm systems. You walk out of the dealership spending $50,000 — “How did that happen”? It sounded good, I guess I ’m protected? Did I really need all that?

This can happen in investments too. The graphs and promises often used to illustrate guaranteed income products seem clear and straightforward, but the reality is that these contracts are often highly complex, inflexible, confusing to the average investor, and often misunderstood. Many investors enter the world of annuities, which is the source of most guaranteed income products, as a way to eliminate some level of risk that is often associated with investing. Over time however, the perceived benefits of guarantees often don’t meet expectations, leaving many investors feeling frustrated, misled, and angry. When rent, cost of medical care and food prices goes up, the guaranteed income you signed up for doesn’t. A guaranteed death benefit feels good, but the cost of personalizing your benefits is coming out of your actual account balance.

A “Fixed Annuity” offering lifetime payouts can provide a comforting solution. But have you asked all the questions you should? Will it meet my needs if inflation gets high, how strong is the company that guarantees it, can I get out if I need to? Increasingly we want “full disclosure” in what we buy, and whether disclosed or not, I find few investors understand what they are buying.

Newer annuity products promise a specific “guaranteed” annual return, say 6%-8% until you start taking income. This return is not yours to take in lump sums or pass on to heirs. Heirs get the actual balance which is reduced by the distributions and the annual cost of the Income Guarantee Rider. The “guaranteed income for life” sure sounds appealing, but if you instead choose to use traditional Bond Ladders and stocks or generic Systemic Withdrawal Option, available in most annuities or without a fee, you may receive a higher monthly payout option, earn a current, real-life rate of return and retain control over the distribution of your entire account.

KEY TAKEAWAYS on “Guaranteed Income”

  • Potential for lifetime income stream: Annuities can provide a reliable income stream in retirement, but if you die too soon, you may not get your money’s worth. Once you “annuitize” your annuity, or if you buy an immediate annuity, your lump sum can be turned into a series of payments that will be promised for your life.  The insurance company is responsible for paying the income it has promised, regardless of how long the annuity owner lives; however, that promise is only as good as the insurance company behind it. This is one reason investors should only do business with insurers that receive high ratings for financial strength from the major independent ratings agencies.
  • Riders can customize an annuity to fit your needs but be aware of Fees:  Death Benefits and Guarantees are appealing, but annuities often have high fees compared to mutual funds, Treasury Bonds, ETFs and other investments. The cost of an annuity is as high as 3.8% annually or higher with riders.  This can eat away at your return.  Many contracts also carry a surrender fee for years, making it difficult to leave.  Feeling trapped is no way to invest.
  • Money Management is left to someone else for investors who’d rather leave that work to someone else.  The question is should it be an Annuity (Insurance company) or an Registered Investment Advisor who has the fiduciary responsibility to work in your best interest at low fees.

 There are many low-risk ways to grow your savings and secure an income.  Various types of annuities are among them, but understand your options and what they mean.  At Yes Wealth Management, we have access to the entire market of investment options.  It is our goal here to ensure that our clients know the “why” and the “how” behind their investment choices and what is best for them.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

Understanding the Impact of SECURE Act 2.0 of 2022

 New Rules for Money in and Money out of Retirement Plans

Understanding the Impact of SECURE Act 2.0 of 2022

by Jay Heflin & Bob Schneeweis

The “SECURE ACT 2.0” was signed into law on December 29, 2022. It follows the SECURE Act of 2019 and is the second major legislation impacting qualified retirement plans since 2006. It consolidates three bills voted on over the course of the last year (Securing a Strong Retirement Act of 2022, Enhancing American Retirement Now Act, Retirement Improvement and Savings Enhancement to Supplement Healthy Investment of the Next Egg).

The legislation was designed to encourage businesses, especially small employers, to adopt retirement plans and help to close the gap to large employer plans. It also increases opportunities for individuals to save for emergencies and retirement, and to help individuals preserve their retirement savings.

SECURE 2.0 has a vast array of new provisions (more than 90) designed to help close existing gaps across the retirement system. We are going to focus on the provisions which are of the most interest to our clients, but our team is open to further questions about your specific needs.

Key Provisions of SECURE ACT 2.0

  • When to start taking distributions from your IRA (and other qualified accounts). The original SECURE ACT raised it from age 70.5 to age 72, SECURE 2.0 Act increases the age at which individuals must begin taking RMDs (Required Minimum Distributions) from their retirement account from 72 to 73, starting on Jan. 1, 2023. The SECURE 2.0 Act will also eventually increase the RMD age to 75, beginning on Jan. 1, 2033.
  • If you forget to take your RMD on time. The penalty is lowered to 25% (from 50%) and can be reduced to 10% if the IRA owner makes up the RMD in a timely manner. The law says this means the full amount is distributed by the earlier of the second year after the RMD was missed or before the IRS assesses a penalty. The IRS still can waive the lower penalty when a reasonable excuse is offered, but it’s not clear if the IRS will be as lenient now that the penalty is lower than 50%.
  • Unused 529 college savings. Owners of 529 plans will be allowed to roll over funds to a Roth IRA of the beneficiary (beginning in 2024). There is a maximum $ 35,000-lifetime limit per beneficiary. It should be noted that the 529 plan will be subject to Roth IRA contribution limits, and in order to be eligible for the rollover, 529 plan account holders need to make sure their account is at least 15 years old and the Roth owner has includible compensation at least equal to the rollover. College is a major expense for all families, and expanding the use of 529 plans to allow for conversions to a Roth IRA down the road is a big positive. No need to worry about losing money not spent on education expenses.

  • Larger IRA Contributions. Improvements to “Catch-Up” contributions reflect the reality that more people are working later and fewer have access to pensions. Secure Act 2.0 introduces a new category of catch-up contributions for 401K and employer-sponsored plans. Starting in 2025, there will be a new catch-up contribution limit for these plans: the greater of $10,000 or 150% of the standard catch-up contribution limit. For individuals not covered by these plans, the catch-up addition is $1,000 for individuals at least 50 years old. The standard catch-up limit for IRAs has been a fixed amount, but on Jan. 1, 2024, it will be indexed for inflation for Traditional and ROTH IRA contributions.
  • Long-Term Care premiums before age 59 ½. The Secure Act 2.0 will let a client use up to $2,500 in individual retirement account or 401(k) plan account assets per year to pay for stand-alone long-term care insurance. A client can also use the distributions to pay for life insurance policies or annuity contracts that provide what the law classifies as high-quality sources of long-term care benefits. A client who uses the provision will have to include the distributions in taxable income but will not have to pay the extra 10% tax on early retirement asset withdrawals. For those in flood, or weather-damaged areas – Provisions for penalty-free early distributions of up to $22,000 for IRA owners who live in a “federally declared disaster area”, and they may repay the distribution within 3 years to avoid taxation.
  • Provision for Terminal Illness. There are now penalty-free early distributions for IRA owners with a doctor’s certification of a terminal illness.

Much of the rest of SECURE 2.0 is focused on employer-sponsored retirement plans, including provisions that permit employers to add Emergency Savings accounts to their plans for participants to save up to $2,500 in after-tax ROTH contributions for emergency withdrawals. New plans must include automatic enrollment with initial contribution rates of at least 3% but not more than 10%. Starter 401k plans are encouraged for employers not currently offering a retirement plan with some coverage for the expense of setting up the plans.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

Mugged By Reality

 Mugged by Reality

by Thomas Schneeweis, Chief Investment Officer

In recent months, we in the financial industry have been increasingly impacted by a set of changing financial conditions and how these changing conditions have impacted our financial investors.  Inflation has raised its ugly head and while it seems to be peaking it still remains at a level not seen since the early 1980’s. Investors looking for the stock market as a solid place ‘to park’ their money, have come back to find their ‘stock market car’ without any wheels, missing a spare tire, and out of windshield washing liquid. At the same time, the ‘diversifying’ bond market also lost value as interest rates rose to reflect increasing price levels. 

In the past when faced with economic or financial conditions not of my liking, I often tried to look to historical conditions with a similar story and with a historically based solution or at least to find a villain (e.g., Banks and the Crash of 2007) to blame. Unfortunately, a simple review of past financial conditions or villains as a basis for current solutions is often inadequate. When I raise these issues, my brother and co-partner often raises his head from the table and correctly corrects me with a: “So now what are you going to do? I don’t need your problem (e.g., declining stock market, rising interest rates, …) I need your solutions”. He reminds me that being ‘Mugged by Reality’ is not an excuse for denying its existence and not moving forward. Today, we live in a global financial market and unlike in the past, what happens in Europe, Asia or Ukraine has an immediate impact on our markets. Today, new forms of ‘financial instruments such as Futures, ETFs, and Options impact today’s financial products, and reliance on individual stocks or mutual funds are often insufficient and inadequate.  

 I often hear my financial investment sisters and brothers tell me to rely on the principles of ‘Modern Portfolio Theory’.  I point out that Modern Portfolio Theory was initiated in 1952 by Harry Markowitz and is no longer Modern and was centered on individual stocks and bonds. Today we cannot simply give an excuse that we were ‘Mugged by (the new) Reality’ and that our reliance on past solutions proved inadequate. We have to remind our investors that while we know we may not have perfect solutions, we do realize that we live in a ‘World of Post-Modern Financial Theory’ in which simple historical data may be meaningless, and what we should understand are new financial ideas and how we can expect them to work in the new financial world.  This is why we at Yes Wealth bring to our clients, solutions that address new ways of providing returns that also manage risk in today’s reality.

In short, financial reality bites especially when it may be in one’s own rear end, but this may also be a good time to get up and to get off it, and move forward into the new financial world of global equity, fixed income, options, futures, private markets, alternative investments, etc. I look forward to meeting you in this new ‘financial’ world’.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854.

Moving On? Don’t Leave Your 401K Behind

 Moving On? Don’t Leave Your 401 K Behind

by Sarah Johnson, CFP®

The average American now changes jobs every 4.2 years, yet many are not just leaving their jobs behind, but are also leaving their 401K with their previous employer. While leaving your funds put may be the simplest solution at the time, it can be detrimental to your retirement picture. 401k plans, especially ones that offer a match, can be a useful tool to save for retirement, however, they are not perfect vehicles.  Not only do 401k plans often carry various fees not always understood by the investor, but due to compliance issues the investment offerings within 401ks leave much to be desired.  Most 401K companies have a “less is more” attitude, severely limiting your investment options, making it difficult if not impossible to invest in your best interest.  For their own protection, they often subtly push investors to select Target Retirement Funds, a much simpler option for investors and one which gives the Benefits companies legal cover. The problem is that simplicity may or may not work to the long-term benefit of the investor. These issues are why it is important that when you leave a company, you leave your 401k plan as well. So, if you shouldn’t leave your 401k plan where it is, what should you do with it? When you leave a company, you have 4 options for your 401k funds, only one of which we recommend in most situations.

  • Stay Put: Keep your funds in your 401k (not ideal):  While this is the most convenient in the short term, each year Americans lose track of billions of dollars in old retirement accounts they forgot how to access.  Even if you manage to keep track of your various accounts, your 401k investment options are limited, and no active management of your funds is occurring.
  • Roll your funds over to another company’s 401k (not ideal): While this would help with the tracking issue of option #1, in this plan you’re simply moving from one poor investment platform to another as your investment options remain limited.
  • Cash out your 401k (not ideal): Cash-out withdrawals are considered income, triggering state & federal taxes, and depending on your age, could trigger a 10% penalty in addition to taxes.
  • Roll your 401k into an IRA (ideal): A 401k Rollover to an IRA is considered a non-taxable event, meaning you owe no taxes at that time, and your investments can continue to grow tax-free.  You will have superior investment options in your IRA compared to what you had in your 401K, and you will likely be paying fewer fees.

Bottom line:  Moving your 401k to an IRA when you leave a company brings with it many advantages, however, make sure to do your due diligence to find an advisor or IRA provider who promise low expenses, and if you need it – active management, as this too will be crucial for your long-term success.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

Inflation, Interest rates and “Trouble with the Curve”

 Inflation, Interest rates and “Trouble with the Curve”

by Bob Schneeweis

In a 2012 movie with Clint Eastwood (Trouble with the Curve), an aging baseball scout (Eastwood) with failing sight and years of experience and can hear how the bat sounds when a prospect hits the ball is in conflict with management that is more centered on data, what looks good and will sell with the public.  We have a new “Trouble with the Curve” (the interest rate curve).  So What? – Well, today there is an opinion that inflation is improving and the Fed should halt interest rate hikes now. This opinion feels good as it forwards the view that recovery will come sooner rather than later.  Many economists (and the Federal Reserve) however know that low income and fixed income (retired) families suffer most from inflation and continue to support elevated interest rates that could result in unemployment and recession until we are more certain inflation is under control.  Not being serious enough over inflation in the 1970s is an economic study on this issue and resulted in the Fed raising interest rates nearly 10% in just over 2 years.

The following graph from Gallup shows that public concern over inflation is the highest in 40 years.

Here’s what I think:

  • Inflation and elevated interest rates are highly likely to remain the dominant considerations influencing the investment environment for the next several years and the Federal Reserve needs to be resolute in addressing them.
  • What’s become clear is that superabundant government stimulus does in fact incur negative consequences, as the inflation of the past few years can attest. We saw an incredible rise in the stock price of companies that made no money. That available “free” money made it difficult, if not impossible, to distinguish investment skill from surfing the tide of superabundant liquidity. 
  • It appears what we have now has gone back to recognizing businesses that actually turn a profit rather than just a dream of one.
  • Fixed Income and “modern alternatives” can support portfolios with reasonable returns and low risk.

What is different now from the last 40 years? Howard Marks, Co-Chairman of Oaktree Capital Management has remarked “It seems to me that a significant portion of all the money investors made over this period resulted from the tailwind generated by the massive drop in interest rates. I consider it nearly impossible to overstate the influence of declining rates over the last four decades.” – So we recognize that along with inflation and rising interest rates, new approaches to globalization and changes in our energy sources have impacts that require investments that not only look to the future, but also protect your money and give some certainty in an increasingly uncertain world. This has always been our focus and continues to protect the assets we manage.

While most of today’s news seems challenging, with the Russian invasion of Ukraine, Global Warming and a looming recession, we believe opportunities exist. We see new opportunities for fixed income returns, modern alternatives investments that we’ve championed for years and a return to more equally weighted stock selection. Yes, rising interest rates and a need to reduce Federal debt is a new government focus, but adjustments can be made in your investment approach to deal with it.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

Gas, Hybrid or Electric: Changing Investment Models

 Gas, Hybrid or Electric: Changing Investment Models

By: Tom Schneeweis & Bob Schneeweis

Within the past week, my brother stopped over to my house, to present his new model of hybrid electric/gas automobile. While certainly different from the gas-based vehicle I have in my garage, I realized it was part of the transition of the auto industry to a new means of propulsion. Knowing absolutely nothing about the process by which a hybrid electric/gas vehicle worked, I asked my neighbor (in this case an engineer who works for SpaceX) to describe the advances in automobile propulsion (gas to electric) and the implications for current and future modes of transportation and auto ownership. In our brief discussion I also came to realize not only how little I really understood about how new forms of automobiles worked but how much I currently depend on outside sales personnel and local service personnel in keeping my gas auto version alive. The move to increasingly electric centered vehicles will likely require the help and service of higher-level service stations and personnel and many current local auto services firms may soon be a thing of the past.

It occurred to me how similar the transition from gas to electric automobiles was reflective of today’s investment transition. Today we are moving from a simple stock/bond portfolio (aka today’s auto’s gas engine) to investment technology that, like cars, are more hybrid and rely on advanced artificial intelligence (e.g., ETFs, modern alternative investments). In short, I have come to understand that all of us will have to move to newer investment approaches to propel us into the future and one that is less dependent on the local investment service stations with less advanced personnel. We also should not necessarily focus on ‘large scale investment management firms’ that hope to sell investment products that may fit their own broad strategy but not your world. We at Yes Wealth have been leaders in modern alternative investments for over 20 years and still work with your individual needs. Simply put, we look forward to helping you in the transition from the current world of wealth management to the future one with more hybrid or advanced forms of investment. 

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854. 

It’s a Brave New World – For Investors

 It’s a Brave New World – For Investors     

By: Yes Wealth Partners

From Bitcoin to Zero Interest Rates, from slowing economies to skyrocketing stocks that defy logic, many people today are confused of both how to grow their investments and how to protect themselves from large “corrections.”  Investors often would like to go back to the world they grew up with where they believed that by finding the right stock/bond balance, their money could grow and also be protected.  First, this was never really true, but it is even less true today as bonds fail to provide much return and even some unexpected downside if interest rates rise.  Despite overwhelming evidence that during periods of investment crisis (most significantly like 2008 and 2020), traditional stock/bond diversification fails to deliver true downside risk mitigation, many still stick with the old beliefs. Today, even most investment advisors still fail to consider “modern liquid” alternative investments which provide real risk mitigation in a down equity market and conservative upside potential even when interest rates rise. So, what are modern liquid alternatives? These are strategies that provide upside potential like stocks do or more conservative returns like bonds used to provide, but are designed to limit the large downside risk of equities or the impacts of rising interest rates on fixed income. Traditional alternatives such as private equity, derivatives, fine art and commodities promise to provide significant return in the long run, but are often not liquid and have high investment minimums.  Unlike most traditional alternatives, liquid alternatives include mutual funds or exchange traded funds that can be bought and sold daily and have investment minimums most individuals can handle. Some of these strategies are called Market Neutral, Merger/Arbitrage, Event Driven and Hedged Equity.  Holding a portion of liquid alternatives in your portfolio can help you reach for return, while still allowing you to sleep at night, knowing you have protection on the downside. 

If you would like to know more about these options, or if you’d like to discuss a plan for you, please give us a call. 

Yes Wealth Management:

651-426-5854

What Is A Fiduciary? Why Should It Matter For Investing And How Can You Know If Your Advisor Is One?

 What Is A Fiduciary? Why Should It Matter For Investing And How Can You know If Your Advisor Is One?      

By: Robert Schneeweis, Chief Executive Officer

By definition, a fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other’s best interests.

This term “fiduciary” is a very good thing to hear if you’re searching for a financial advisor. It means the advisor is “legally required” to put your interests first, rather than enhancing their compensation. Fiduciary duty eliminates conflict of interest concerns which makes advice more trustworthy. Not all financial advisors are fiduciaries. All investment advisors registered with the SEC or a State securities regulator (Registered Investment Advisors or RIA) must act as fiduciaries. Broker-dealers, stockbrokers and insurance agents are only required to fulfill a “suitability obligation”. This means that while the advice they give you may be suitable to your situation; they may substitute a higher cost product that pays them more for a similar product that better aligns with your interest at a lower cost. This same conflict exists – albeit in a less visible way – with a group of advisors known as “Hybrid” advisors. These advisors work for large firms that offer both “fee-based” services and brokerage services and manage some of your money on a Fee-based basis but also put some of your money in products where they receive a commission. Fee-only advisors are sometimes seen as operating with less of a structural conflict of interest than brokers or other advisors who earn commission, which can vary from one product to another. However, in that mode, the advisor might have the incentive to engage in excessive trading activity or favor a specific investment that will net the largest commission or fee.

What about automated / on-line or “Robo-Advisors” which advertise as RIAs? They insist that they are fiduciaries. They are registered investment advisors, but are they fiduciaries? They typically only offer advice based on a relatively short risk questionnaire, but rarely get a full financial picture or understanding of goals. An back and forth discussion of goals and attitudes toward risk seems critical to providing fiduciary services and cannot be adequately addressed by checking a few boxes.

Choosing a fiduciary financial advisor can give you greater peace of mind. With a fiduciary financial advisor, you’ll know that the person managing your money is legally obligated to make decisions in your best interest. While non-fiduciary advisors are not necessarily bad actors, it’s easier to ensure that you’re working with someone who has your best interest at heart if you opt to work with a fiduciary.

Please contact us if you’d like to discuss a plan for you:

Yes Wealth Management:

651-426-5854