Since January of this year, we have been working hard to reduce allocations around long-duration bonds. With the most recent fed decision to ease quantitative support, I have paused to consider the implications to my post-divorce wealth management clients and have spent considerable time these past two weeks to further diversify the portfolio. After all, the fed expects our economy to stand on its own - how will that affect your investments?
Last week, I wrote about investment fees in my blog, Are My Dollar Bills Transparent? I was lucky to hear from a colleague of mine who shared his recently published piece on the same theme. Improve Your Future Investment Returns By Keeping a Lid on Your Expenses by Steve Thorpe of Pragmatic Portfolios, LLC, illustrates why it's so important to keep expenses low.
Registered Investment Advisors can help clients with this same philosophy discussed in both my and Steve's blogs. Below is a short excerpt of Steve's blog.
Improve Your Future Investment Returns By Keeping a Lid on Your Expenses By Steve Thorpe
Contrary To Popular Belief: Past Performance Truly Does NOT Predict Future Performance
Numerous studies have shown that investors have no reliable way to identify, in advance, which asset classes or active managers will outperform in the future. This phenomenon is persistent across time, market subsectors, and geographic regions. To a large extent, where outperformance exists it is due to random chance -- being in the right place at the right time -- as opposed to skill.
Steve Thorpe is the founder of Pragmatic Portfolios, LLC, a fee-only Registered Investment Adviser based in Durham, North Carolina, that focuses on developing sensible investment plans integrated across all of a client’s investment accounts. He also chairs the Research Triangle Park, NC area chapter of the Bogleheads®  investment interest group.
In a financial advisory relationship, it is important for investors to understand the multitude of fees they may be required to pay.
When you walk into your CPA’s or attorney’s office, you sign an engagement letter, and pay a fee for their services; there are not a lot of hidden costs. Their engagement letter outlines expenses including charges for photocopies and interest charged on late payments. With your financial advisor, that may not necessarily be the case.
If you ask your financial advisor, “What is your fee?” the common response is, “a percentage of your Assets Under Management (AUM).” A percentage of your AUM is the percentage of money your advisor manages. So, if your advisor manages $1 million dollars, you pay $10,000 a year; some advisors charge more and some charge less. I read recently that a typical fee was 1.5% of AUM (Investment News).
A prudent investor seeking transparency, understanding and knowledge will ask about other potential fees, such as:
- Management fees;
- Sub-manager fees (if someone has been retained to manage a sub-portion of your portfolio);
- Sales charges;
- Transaction costs;
- Custodian fees (fees charged for the safekeeping of your securities and other administrative services like collecting dividends and interest);
- Performance fees;
- Mortality and expense fees (in certain investments like commission-based annuities);
- Mutual fund expenses;
- Operational expenses; and
- Surrender fees (in some annuities).
As an investment manager, I may go to a potential third-party money manager and say, “I’m looking at this investment for my client. What are their fees?” and they’ll typically reply, “The fee is x%, but the client will only see your fee on the statement.” I’ll reply and say, “The client still pays the fee whether they see it or not. They should know what they are paying.”
My charge to you as an individual investor is to know what you are paying and why. Compose a list of questions for your financial advisor to learn exactly what fees are being charged, to whom they are being given and how they will impact you. Also ask your advisor to see all performance net of fees.
My charge to the financial industry is that all fees become transparent. Over a 20- to 25-year investment period, fees can add up and cost investors a lot of money. I understand we have to earn our living, and if we are prudent and fiduciaries to our clients, we will earn a great living. However, the fees need to get easier for our clients to understand. This is paramount in establishing trust with them.
As an investor, you can’t control what the markets are going to do, but you can control the information you have when you’re doing your own investing: minimizing your taxes, keeping fees low and staying ahead of inflation.
Our firm prides itself on giving you all the information so you can make informed decisions that best suit your needs.
We are proud to announce that we are changing our company name from Failla Financial Management, LLC to Strada Wealth Management, LLC.
The name change is due to the significant change in our business structure. Strada Wealth Management is now a fee-only Registered Investment Advisory firm and as always, our business activities will continue to include comprehensive retirement and income planning for families just out of divorce.
As a fee-only registered investment advising firm, we are able to truly assure our clients that our advice is objective and independent. Compensation never comes in the form of commission or trails (money paid to the financial adviser for chosen investments), and as a result, we are our client’s fiduciary.
Our former e-mail addresses will continue to be operational for the foreseeable future. Our new email addresses are as follows: firstname.lastname@example.org and email@example.com. Our web domain is in transition - www.faillafinancial.com will change in the near future to www.stradamanagement.com. We will continue to update you on our progress and improvements; we strive to be better for you, our clients. Thank you for all these years of trust in the firm.
Warmly, Jennifer Failla
Your divorce is final. What’s next? How do you move forward? How do you find the right path to follow?
Initiating the next steps can be daunting, overwhelming, and frightening, but the idea of starting fresh and new is worth the trek through the mud. Planning a new lifestyle can bring about feelings of excitement, inspiration and normalcy. With the support and guidance of a professional, transitioning to life after divorce can be simplified.
When dealing with a divorce decree, one of the things we focus on at Strada is creating a post-divorce checklist before the divorce is actually final. In the last stages of your divorce, there are many things you can do to help prepare yourself for the next phase.
The purpose of this blog is to shed some light on some of the things one might have to complete, per their decree. What we like to do is sit down with the client and the nearly final draft of the Marital Settlement Agreement (MSA) (or divorce decree) to determine the most pressing tasks. We then create a checklist using those tasks as our guide. You can do exactly the same thing at home.
As a companion to this article, please feel free to download and use this Post-Divorce Checklist PDF to keep track of all of the important tasks associated with life after divorce.
Your post-divorce tasks might fall into these major areas:
- Cash management - budgets, spending needs including potentially a home
- Tax organization
- Understanding your investments and redefining your portfolio to suit your needs
- Insurance analyses - health, auto, home - do they still work for you?
- Coordinating new estate plans - often pushed off but critical to address within 6 months of divorce finalization
Sit down and read your decree, divide your tasks into the above categories and tackle them one at a time.
For example: Cash management: change banks, open new accounts, close credit cards, analyze new expenses including groceries, and let things settle for 6 months before making big decisions; Taxes: determine who is filing, by when, what documents do you need to share, how will you archive. What can you do to prepare for your new tax status as Single or Head of Household?
There are many things that need to be completed after a divorce, but one of the most pressing concerns is “How and when will I get my money?” This could entail:
- Multiple transfers and title changes on accounts
- Transferring ownership of different investments
- Coordinating the paperwork around opening up new accounts and having funds transferred in
This is the time of year where we start the tax organization process with our clients. Post divorce, this can be even more confusing. With regard to income tax and obligations and returns, one person might be obligated to file and report to the other. There are so many executable action items that need to be considered pursuant to a divorce:
- Beneficiaries on insurance policies and/or individual retirement accounts
- Executing to qualified relation domestic orders
- Transferring IRAs
- Stock option executions
- Distribution requests
- Name changes
- Removing signors on accounts
- Transfer of titles on property
- Health insurance changes
Once through the administrative matters of the divorce, you can focus on your future, how you want to live and how you visualize your new life ahead.
Dealing with all these issues can be overwhelming, but a controlled, well-defined approach will help you complete each one in an accurate and efficient manner. If you have any questions about post-divorce tasks, please feel free to give us a call.
Join me on April 17, 2014 as I present at the Collaborative Family Law Institute's event for Attorneys, Mental Health Professionals, and Financial Professionals on why your practice should be collaborative. See below for details. Hope to see you there!
For more information, please contact Lisette Beraja, LMFT at 305-858-7763.
Please click below to register or RSVP.
Thank you for your attention and response. We look forward to seeing you at the event!
One unintended consequence of getting a divorce is that it forces people to get their financial houses in order. Often clients come to my office and have little or no idea what is actually in their portfolios, or how much any of it is worth. One of the first things I do when I sit down with clients is to educate them as to what they actually own. We are most often paralyzed into inaction because of fear. We overcome that fear with education! We then discuss both the short-term opportunities and long-term implications of their holdings.
These are some of the questions to consider when evaluating your assets:
- How many accounts do I have, and what forms do they take?
- In whose name(s) are they titled?
- What are the tax implications of each asset? How does that affect my tax bracket? (see next blog article for more on that).
One discussion I have quite frequently is explaining the difference to clients between two different, but somewhat similar, financial instruments within their portfolio: ETFs (Exchange Traded Funds) and mutual funds.
A mutual fund is a pool of funds collected from many investors for the purposes of investing in securities. An advantage of a mutual fund is that it allows an investor to participate in a selection of securities with a smaller amount of money. Your $100 investment might be able to buy small pieces of many companies for increased diversification.
An Exchange Traded Fund is basically a number of stocks packaged to sell like a single entity - same goal intended; you purchase lots of companies for a set dollar price. There are hundreds of mutual funds and ETFs on the market to sort through and understand.
Mutual funds have been around for a long time now, and most people are relatively familiar with them, but ETFs are relatively new. Many people do not even know what they are, let alone how it might prove beneficial to their portfolios. Here are some of the key distinctions:
- ETF fees are significantly less than those of mutual funds: Typically ETF fees range from .5% to 1%, as compared to fees of 1-3% for mutual funds.
- ETFs can be more efficient: This is because they are traded intraday, not just after the market closes. If there's a buy or sell order you want to place, you can have it executed right away. You don't have to wait for the market to close, and for the managing company to go out and re-calculate its value before being able to make your trade.
- ETFs allow you to control how and when you pay taxes on any profits you make: Whenever a mutual fund realizes a gain that is not balanced by a loss, the mutual fund must distribute capital gains to all its shareholders. These gains are fully taxable to each shareholder, even if the profits are reinvested. In contrast, holders of ETFs only realize taxable gains when they make the decision to sell their own shares. This leaves the tax planning in the hands of the shareholder him or herself, not a fund manager.
If you are going through a divorce, the first glance at your portfolio may seem like the junk drawer in your kitchen, but that’s why professionals are here to assist you in understanding and evaluating your finances. Organize your accounts and understanding your holdings is critical.
Once all the assets are clearly identified, valued and tax-affected, you will understand how to make better strategic decisions regarding your financial future.