Reducing The Stress of a Job Loss

Job Loss is Stressful and Complicated

Because my practice has morphed these last years from helping families in divorce to helping those in any major transition (getting married, losing a spouse, etc.), I see a lot of job loss.  It can happen so fast and be completely unexpected. What to tackle first?

Typically, when you are walked from an employer, they are going to send you home with some paperwork or perform an exit interview on-site.  In high times of stress, one's brain cannot focus and concentrate.  Listen to your exit interview, take your paperwork and go home.  Please do not sign anything until you have had a chance to review it.  You do not need the stress and pressure of the HR Director peering over you and the immediate sense of shock of losing employment to make major decisions.

Instead, write down your questions, organize your thoughts and call HR later.  

HEALTH INSURANCE

We get a lot of questions about about health insurance.  Heck, I know many people that go to work only to obtain health insurance for their family.  This is a major concern. 

COBRA

By 1986 law, COBRA gives employees the right to continue coverage at the group premium rates. Typically, it is 100% of the premium (which might have been partially covered by the employer) and a 2% administration fee.  This is a viable option and can provide consistent coverage for a family while other options are researched.  The employer will send over coverage termination information and your insurance provider within 2 weeks will send you COBRA continuation options via the mail.

Healthcare.gov

Outside of open enrollment, one can obtain coverage due to job-loss.  This is important to research while exploring COBRA options.  It might be less expensive to obtain independent insurance or move to a short-term coverage policy rather than pay your COBRA premiums.  I have researched this enough times with clients to know that every one family is different.  

For example, a family with young children and frequent trips to the doctor, might decide to it advantageous to maintain consistency of coverage through COBRA.  For a single person with minor health issues, a short-term medical policy through healthcare.gov can be significant savings.  

I recently read a Motley Fool article that advised to research, research and do more research.  Compare plans, check prices, and check doctor participation depending on your attachment to your physician.

Make a list of the medications you take and what they'll cost under various plans. List services you expect to need, too, such as visits to mental health counselors. Then try to estimate how much each candidate plan will cost you. Don't be afraid of high-deductible plans. If you're not likely to spend a lot on healthcare, they offer a good way to keep costs down. (Source: https://www.fool.com/retirement/2017/06/04/read-this-before-you-buy-health-insurance.aspx)

BUDGET

We say we are going to analyze our spending but let's face it, we get busy.  This is the time now to put that thought to action.  Sit down and list out all known expenses.  I like to use receipts and an Excel spreadsheet - a legal pad will do!  Take some time to get a handle on what needs to be paid and how you can address your imminent bills. 

What is not acceptable is ignoring it.  You cannot ignore your bills because you feel bad.  They don't care.  You can control your spending and your stress will reduce, the more your stay on top of it.  If there are small bills that can wait to be paid, call the company and ask for small payment plan or an extension while you sort things out.

GET ORGANIZED

You are already disciplined.  You got up every day, got ready and went to work.  Continue to do so.  Work on your resume, research new job opportunities ad treat it like your full-time job.  I see the most success and the least down time with people that have a plan. 

Get up, get ready, research, submit resumes, make calls, and have coffee with people who can help you in your field.  You will be shocked at how much time it takes to get your next awesome role.  It needs your time, dedication and attention.

GET SUPPORT

There is no shame in losing a job.  It happens!  Talk to your friends, arrange to do things to keep you occupied (hikes, movie rentals, pot lucks) that do not strain your budget.  Seek support and ask for help.  Your friends want to help but they do not know how and they cannot read your mind.  

The more you can prepare for emergency, the better (like with an emergency savings account) but hey, this is life! and $h1t happens.  Breathe and know that you can do this, get better and succeed in another role wherever you may land.

Sources:

https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/cobra-continuation-health-coverage-compliance;

https://www.healthcare.gov/;

 

401(k) Fees: The Wolf in Sheep’s Clothing

While the 401(k) plan has been around for decades, we are just now starting to see the cycle of this strategy.

Most people know that if you save in a 401(k) plan, you're able to deduct what you put into it on your income taxes. If you put $18,000 total a year into your 401(k) and you make $78,000 a year, then only $60,000 a year of your income is taxable.

However, what people don't talk about is how 401(k) plans are constructed, charged and the responsibility of the employer in managing those plans.

401(k) Fees

Even though 401(k) plans are tax-deferred until withdrawn, they may be loaded with up to 13-15 different fees that you would not normally have in a good IRA, Roth IRA or a non-qualified brokerage account. On a high-level range, these expenses can consist of:

• Communication expenses like enrollment and ongoing material fees;
• Record-keeping and administrative expenses;
• Participation fees;
• Loan origination and maintenance fees;
• Tax filing fees;
• Trustee fees, etc.

These fees can erode a substantial amount of your potential retirement nest egg.

Employers who create 401(k)s have a fiduciary responsibility to make sure they are doing everything they can to avoid high fees.

In fact, the US Department of Labor is auditing employers to see if their fees are too high.

According to CFO Daily News, in 2013:

“Nearly three-fourths (73%) of these investigations resulted in fines or other corrective action for the employers that were involved.”

The average fine last year was $600,000; up from $150,000 four years ago.

A small business owner, who in good interest creates a 401(k) plan for their employees and who trusts their broker’s advice, could unknowingly be in a high-fee plan that could result in hefty fines for themselves.

What can employers do?

As an employer, the Department of Labor requires small businesses to compare annually their 401(k) plan against others to make sure fees are reasonable. You can research 401(k) plans on the Internet, talk to your advisor or call a company like ours to ensure your plan is adequately audited and in line with the industry standard and you are not paying excessive fees.

What can employees do?

Take ownership of responsibility of where your money goes. As an employee, it's important to understand the fees being paid for your plan. Talk to your employer (chances are they don’t know and will be appreciative of the help) or call our office to check your 401(k) fees; we can help you navigate the complicated language reports. After all, this is your net worth that gets reduced by the potential excessive fees.

Does a divorce void a 401(k) spousal beneficiary?

Not by operation of federal law, but that doesn’t mean the answer is always “no.” In some states, law says that after a divorce, an ex-spouse is no longer considered to be a person’s beneficiary (unless they are reaffirmed as a beneficiary afterwards). A similar provision can be built into plans as well. So while the answer is generally “no,” you’d have to check your state law and the plan’s specific language to be 100% sure.

We say at Strada Wealth Management, “make informed financial decisions.”

• You cannot control taxes, but you can try to minimize them.
• You cannot control inflation, but you can work to protect against it.
• But fees, you can control.

These 3 things will eat away at your wealth the most over the course of your investing life. Control what you can and work with what you cannot.

Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com

The Uncertain Future of 529 Plans

President Obama recently tried to hijack 529 plans and go back on the popular benefits.

529 plans, named for their section in the Internal Revenue Code, allow people to save after-tax dollars and come in different varieties.

An employee can place a percentage of their income into a 529 plan, which grows tax-deferred and comes out tax-free, as long as the money is being used for legitimate college costs, such as:

• tuition;
• room;
• board;
• books;
• fees; and
• other school supplies.

It’s a self-auditing system, meaning the IRS doesn’t call each year and demand receipts, but records should be kept in case it has to be proven that the tax-free money was legitimately used.

529 plans aren’t just for young high school students. 529 plans can also be used by adults who wish to return to school to further their education. They can also be transferred to another student by changing the beneficiary.

At one point in time, Obama was toying with the idea of effectively gutting the plan, while vowing in a recent State of the Union address to help the same middle-class families who use 529 plans to better their lives. Folks deploying tax-advantage 529 plans to help offset or buoy a child’s college education would no longer be able to apply or to use those dollars.

That’s significant for families like mine who have 2 young children. I have two 529 plans, and have been putting away after-tax dollars each year, for 5 and 10 years respectively, into these plans so that my children, when in college, will have access to tax-free dollars.

For Obama to go back and say he’s going to take those dollars, estimated at over $200 billion, and tax them would be very significant and very harmful to middle-class Americans.

There is a lot of kick-back already, and it looks like Obama will abandon the idea, but it hasn’t gotten any press. Nobody’s talking about it, and that’s what shocks me.

I’m not anti-Obama and I’m not pro-Obama, but if one of our leaders of the nation is going to present an about-face on something of this scale, it should be known to the general public, not just to high-ranking government officials.

In a nation where we need to be investing our capital and bettering ourselves, Americans should not be dissuaded from both.

Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com

Prenuptial Agreements - Why the Long Face?

The value in setting up a prenuptial negotiation is that both people can lay out what really matters to them from a financial standpoint.

With various forms of insurance, we prepare ourselves and our families for the worst of circumstances. Prenuptial agreements can also be a helpful tool to prepare people for another life-changing event: divorce or happily staying married. No one plans on getting divorced before they marry, but isn’t it wise to be prepared? If you do not get divorced, it really does not matter anyway.

When it comes to prenuptial negotiation, don't depend on the law to protect you 15, 20 or 30 years from now. The law is open to interpretation and debate, and it changes with time. A beautiful example of this is the Florida Alimony Reform movement.  

Prenuptial agreements are often painted in a bad light. However, there are quite a few ways that prenups can make our lives better, such as:

• Protection from the proposed alimony reform;
• Property settlement agreements where alimony really does not apply;
• Well-established marriage terms;
• A solid understanding of the other person’s financial situation.

Alimony Reform

In Florida, with the possibility of Alimony Reform in the near future, prenups can become a positive thing for both people in the relationship. This is especially true for the person who enters the marriage with less wealth than his or her future spouse or with the intent of not working while married.

In Florida, a spouse of a long-term marriage (20 years or longer) is technically eligible for permanent alimony, until death or remarriage. After alimony reform, this may no longer be true. A prenup can protect a spouse’s right to alimony by outlining terms based on the family’s needs and not the stated law. This allows the spouses to control their own future with their pre-determined agreements in place.

Well-Established Marriage Terms

In the past, prenuptials have not stood up in court when the other spouse was denied the opportunity to receive independent counsel. Because of this, attorneys often advise their clients to ask their fiancés to get independent counsel regarding prenups.

This is an excellent reason why prenups can be a positive force during the entire marriage; these agreements must be distributed, reviewed, agreed upon and signed with a lot of time before the wedding date. In other words, each party has time to consider the terms and get independent counsel.

A Solid Understanding of the Other Person’s Financial Situation

Prenuptial negotiation is a fantastic way for you to understand the finances of the marriage you're getting into. Many couples don't talk about money before they get married, but this isn’t prudent. Both people bring their own financial baggage to the table.

As a mediator and planner, I’ve consulted people on how to structure their prenup. In one case, the husband was the primary wage-earner. He presented his ideas for the agreement, and I educated him on how to better balance the terms. The result was a prenup that both spouses found reasonable.  

The value in seeking counsel for prenuptial negotiation is that both people can lay out what really matters to them from a financial standpoint, including the money for their future children’s education.

If you are planning on marrying, don’t consider a prenuptial agreement your enemy.

Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com

$99/Hour Mediation Service Aims to Serve Families

For parties seeking an alternative route for divorce, mediation is the best option. However, the high price tag associated with mediation can create a roadblock. I recently had the opportunity to meet with Lilliana Real, a Mediator I strongly recommend to my clients and colleagues. We had a candid discussion as to why she is launching this service and why it is so needed in our community.

Q: Can you tell me a little about yourself?

I am a family attorney for the past 9 years and I have been a Supreme Court Certified Family Mediator for the past 5 years, since 2009. I am also certified in Appellate Mediation since 2011. I was a Supreme Court Certified Civil Mediator from 2004 until 2009 (when I purposely allowed it to lapse to focus on family mediations). Before that I worked as a mediator for Florida Mediation Group handling civil mediations. I have been practicing law for 19 years.

Q: What exciting news do you have for this year?

Starting in 2015, I am offering mediations for $99 per hour due to what I believe is an overwhelming need for affordable mediation. These $99 per hour mediations are available for clients who have attorneys, as well as those without legal representation; these can be done post-filing or pre-suit.
 

Q: What factors led you to make this decision?

There are many family law cases where the parties are not willing or able to pay traditional mediation fees of $200-$450 per hour. Yet, the only alternative of an in-house or court mediation, which is only $60 per hour, is not always a good fit for certain family law cases. In-house or court mediations, which are typically limited to 2 to 4 hours, result in agreements that are not extensive due to insufficient time to delve into the issues.

The time limits and less complex agreements are not adequate when there are layered issues involved, such as child parenting plans or financial issues, that cannot be addressed in the short time frame and/or brief agreement.

Regardless of the reason, mediation is dispensed with altogether since the parties cannot afford a private mediator, and the in-house or court mediation is not a good option. The result is that the case does not settle or they go straight to trial.

Q. How does this fill a need?

As previously mentioned, there are family law cases where the parties cannot pay the traditional private mediation fees or the case is not a good fit for in-house mediation. A case may not be a good match if it requires a longer and more extensive mediation session or is not going to be served by a very abbreviated mediated agreement.   

In my experience, I realized there was a need for parties who did not care for the terms listed above, yet still wanted mediation because of assets or complicated child issues. I wanted to be the “Target Store” of mediation; the dignified, but less-expensive option.

Q. Tell me about those you wish to serve in this capacity?

Those families who want to make smart choices about their families by reaching a settlement to avoid litigation, but do not want to spend a great deal of money arriving at that settlement. Families that are dedicated to maintaining control of their process are those I wish to serve.

Q. What do you think has prevented attorneys from doing something like this in the past?

We all have good intentions. Attorneys work for the client and we rally for their needs. Mediation requires a paradigm shift that takes time to make. We have to be more educative and open to the clients making their own decisions. When we are advocating for a client, sometimes it is hard to remember that while we are running our law practices.

To learn more about $99 per hour mediation, visit  www.lillianareal.com. What have your experiences been with mediation? Is this affordable mediation service of interest to you?

Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.co

Year in Review and a Look Ahead

Each winter, I spend a lot of time doing what we call practice management. Before I delve into the components of this, I want to thank you for all the support you have given us this last year. Many things have happened in 2014 -- we have updated our business name, rebranded the firm, launched blogging and social media campaigns, changed registrations, created a new website and changed custodian firms where we hold our clients’ investments.

With these new practices and measures in place, we are certain that 2015 will be our best year yet. We are looking forward to helping you this year and for many after. I’d like to touch on several parts of my practice management for 2015:

Rebranded Firm Name

Our original business name, Failla Financial, was a great name and one that fit beautifully when I left Merrill Lynch in 2008. However, I am not the only one that makes things happen here in our office; there is an entire team I work with. Sandy is an integral part of my team in the office and externally, I rely on multiple strategic partners. I wanted a firm name that represents our entire unit.

Strada in Italian literally means “street” but figuratively it means path, way or direction. As I review each of your financial and personal lives, we are metaphorically proceeding down that path together as a team. Taking my name off the door to reflect this philosophy seemed completely natural and timely.

Our New Goal

A lot of you already know that these last years, I have spent a lot of time working with attorneys in divorce settlement negotiations. We work with families as a neutral or in a support capacity to help them make the right decisions during their divorce. Our goal is to keep families out of court and to help them make the best financial decisions that are sustainable for the future.

Firm Registration Changes

There are a lot of “financial advisors” out there and not all are created equal. Back in 2012, I started to practice fee-only financial advice, but until I changed the registrations of the firm, I could not use the word “fiduciary.” This is the utmost important tenant of our firm. My fiduciary standard is to you, not the broker-dealer and not the insurance firm.

Custodian Changes

When looking at my career as an investment manager, I am fortunate to have an array of experiences with Merrill Lynch, Pershing and TD Ameritrade. I reviewed a lot of custodians this past year (Fidelity and Schwab included) and chose TD Ameritrade. I went with TD Ameritrade for many reasons: ease of use for my clients, reduced fees on trades, and institutional capability to hold those alternative investments we utilize to reduce market exposure. I look forward to a long relationship with TD Ameritrade.

Electronic Signature

We are thinking about how to make our operations better and more streamlined and as a result, are instituting a couple of new programs and technology.

Thinking green we will reduce the amount of paper printed and then mailed. With Docusign, we will be able to send needed forms electronically. Our clients can now sign on their computer screen and securely send it back to us. This will also reduce our lead times executing to strategies faster.

Performance Reporting/Client Interface

Since re-registering the firm, I notice my performance reporting is not where I would like it to be. This will be a massive Q1/Q2 initiative on our part, but we will have complete data aggregation of all investments and will be able to report them to you on one statement, once we have established the data feeds.

Once the data is aggregated, you will be able to use our website to log in and look at all investments on one site. We have tried this for many years in the past, but with recent Internet breaches and companies increasing their security, we have had many connection issues. As a result, we will be changing providers and collecting the data direct from the company instead of using your logins and passwords.

Leading Young Professionals with Integrity

We are strategically working with our partners to create offers of our complete services for lower fees to those that need it the most: our younger generation.  

The younger generations love transparency and information. They are philanthropic, cost conscious and in need of good information. They are bombarded with what I call “noise” from the Internet and, unfortunately, not executing to some of the more basic financial management practices that can help them live better now and save for the future.  

Stay tuned as we launch into this new arena with passion and glee.

Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com

Strada’s Fiduciary Oath - So what?

Not a month goes by when I open an industry magazine such as Investment News or Financial Planning and find articles asking the same three questions: 1. What is a fiduciary? 2. Who is a fiduciary? and 3. Who claims to be one?  

There is so much internal churn about how we, as investment professionals, call ourselves, present ourselves and where our interests align – brokers, advisors, financial planners and wealth manager. However, the public lacks understanding of these various terms. After all, do you know what all these "professional titles" mean?

Who Is an Advisor?

Those who registered with the SEC (U.S. Securities and Exchange Commission) under the Investments Advisers Act should call themselves Advisors. They also might use Financial Planner, Investment Professional or Wealth Manager.

Who Is a Broker? 

A non-independent broker working for a wire house firm or a firm with multiple branches such as a national brokerage house. A wire house broker is typically a full-service broker who offers research, investment advice and order execution. By being affiliated with the wire house, the broker gains access to the firm's proprietary investment products, research and technology. (Investopedia)

I have never heard anyone in my professional circle call themselves “brokers.” Apparently, the coolness of that term went out with Oliver Stone’s 1987 film, Wall Street.

Though, technically, anyone working for a brokerage firm should be calling themselves brokers; they might be registered with the Investment Act as well, but their primary loyalty is to their broker-dealer not the client and they are non-independent. This is key in terms of fiduciary.    

Who Is a Fiduciary? 

An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another's benefit. (Legal Dictionary)

This type of trusting relationship is what I expect, I assume, when you walk into any professional's office whether it be a doctor, lawyer, accountant, even your hair stylist! You trust that they will put your interests first over theirs.

People ask me why I harp on this and this is why: When the wirehouses saw independent advisors use the term “fee-only,” they created “fee-based” to help muddy the distinction. The distinction is clear to us professionals, but not always to the individual investor. So, one walks into a professional’s office, hears “I am a fee-based advisor,” and assumes no commissions are involved in their compensation. Not so!

Strada's Fiduciary Oath

I’ve spent my entire professional life in this profession. First as a wire broker, then a fee-based advisor, and now a fee-only investment advisor. I have to tell you, I am going to keep writing about this, harping on it, standing on a soapbox, preaching it and ruining dinner parties (as my husband says) debating over this. It is not enough to read about it in our professional trade journals. The public needs to know. There are a lot of good advisors out there whether at wirehouses, insurance companies or independent broker-dealers. One can pay how and what they want for services as long as it is known and completely understood.

As a result, we at Strada Management have drafted our new fiduciary oath. Harold Evensky, a man I have followed for many years, published his fiduciary oath and we have adopted ours from his original. If you are ever in doubt as to how your advisor is compensated, use this form and have your advisor sign it on their letterhead. It is okay to pay for the advice, we all have to make a living – just know how you are paying for it and where your professional advisor’s interests align.

For further reading and education on this exhilerating topic, please read Investopedia's article "Paying Your Investment Advisor - Fees or Commissions?"

Jennifer Failla, CDFA™
Principal, Strada Wealth Management
Toll Free: 866.526.7098
Email: info@stradamanagement.com