Family Finance - FiLife

Avoiding the Financial Sharks

Mon, 08 Feb 2010 11:16:50 -0500

There is blood in the water and financial sharks will do their best to consume any weak, floating prey. More than ever, investors are now looking for answers in these perilous economic waters. It behooves investors to arm themselves with the knowledge and questions necessary in dealing with financial predators.Unlike other professions, the hurdle in becoming a 'broker,' 'adviser,' 'financial consultant' or other glorified title is much lower than entering careers like medicine, law or accounting. Basically, if you pass an exam or two, you are ready to do business and handle the financial future of virtually anybody.Not all practitioners are evil, and there is a segment of investment professionals that takes the craft very seriously. Separating the wheat from the chaff can be very challenging. Here is a list to follow when deciding who should manage your finances:1. Experience Matters: Find an adviser with investment experience. Someone who has actually invested money. Don't partner with a financial salesperson good at shoveling high-cost, high-commission products and strategies. When you fly in a plane, do you want an inexperienced flight attendent or veteran pilot flying the plane? If you were ever to need surgery, would you want the nurse using the knife, or a trained, specialized surgeon? Your investment future is a serious proposition, but many investors do not treat it that way.2. Education and Relevant Credentials Matter: Find an adviser with credible, relevant investment credentials. Not all investment letters are created equally and interpreting the alphabet soup of financial industry designations can be thorny. Two credentials in the investment industry that rise to the top are the CFA (Chartered Financial Analyst) and CFP® (Certified Financial Planner) designations. Less than 10% of the industry has one of these credentials and less than a few percent have both. An advanced degree like a masters degree wouldn't hurt either.3. Low Cost and Tax Efficiency: Find an adviser who uses a low-cost, tax-efficient strategy, including the integration of passive investment vehicles, such as exchange trade funds (ETFs), index funds, and/or individual securities that are invested over long-term investment horizons (read more about passive investing). Not only are low-cost products important, but low-cost activity is vital too, meaning there should be no churning of the account with high commissions or transaction costs.4. They Eat What They Cook: It is important to find an adviser who eats his/her own cooking, i.e. he/she is invested in the same investment products and strategies as the client. Commissions can often be the number one motivation for the adviser, rather than what is best for the client's future. When offered a new investment product, one way to cut to the chase is by asking, "Oh, that's great you will make an immediate $10,000 commission off the sale of this product to me, but do you own this same investment in your personal portfolio?" It is crucial to have someone in the bunker with you as you invest.5. Fee-Only is the Way to Go: Find a "fee-only" adviser with a transparent fee structure who can honestly answer what fees you are paying. A fee-only investment adviser mitigates the conflict of interests because if the client's portfolio declines, then the investment manager's compensation is also reduced. There is a built-in incentive for the adviser to preserve and grow the client portfolio in accordance with the client's risk-tolerance and objectives.6. Find an RIA ('Fiduciary Duty'): Find out if the adviser is working with an RIA advisery firm (Registered Investment Adviser), which is required by law to have its advisers make investment decisions in the sole interest of the client. Most brokers/advisers/financial consultants (or other euphemism) working at firms such as UBS, Merrill Lynch, Wells Fargo/Wachovia, Ameriprise, and Morgan Stanley/SmithBarney, have a much lower "suitability" standard in managing client money.7. Don't Become Chopped Liver: Find out how many clients the adviser serves. Some brokers attempt to service a client list of 100 or more (many brokers have hundreds of clients). Typically the highest revenue-generating clients are given service, and the smaller accounts are treated like chopped liver or swept under the rug.8. Get References: You will likely not be forwarded bad references, but see if you can get beyond, "Johnny is such a nice broker" talk and find out how the portfolios have performed versus the relevant benchmarks. Getting this data can be difficult, but you can ask the adviser for an anonymous sample of an appropriate portfolio that you would be invested in.9. Background Check: With proper research, investors can become more comfortable with the professional chosen and the status of the firm employing the manager/professional. Several government and professional regulatory organizations, such as the National Association of Securities Dealers (NASD), the Securities & Exchange Commission (SEC), your state insurance and securities departments, and CFP Board keep records on the disciplinary history of the investment and financial planning advisers. Ask what organizations the professional is regulated by and contact these groups to conduct a background check.Getting all this information may take time, but protecting yourself from the masses of financial predatory sharks is imperative. Compiling data from the checklist will act as a shark cage, helping safeguard you from potential harm.Remember, it's your financial future, so invest wisely!

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Swoon-Worthy Valentine's Day Gifts for Sweetheart's on a Budget

Mon, 08 Feb 2010 10:50:02 -0500

With Valentine’s Day right around the corner, we know many of you frugal lovebirds are frantically searching for gifts that will inflate your lover’s heart without deflating your savings account. Read on for a few gift ideas your sweetheart (and accountant) will love.

You want to get him: Cuff linksWhether you’re looking for timeless silver with a small diamond accent or something a little funkier Overstock.com offers bargain-hunting lovers a wide-array of options.Price: $29-$115

You want to get her: ClothingMost women would love a dress from Victoria Beckham’s lovely collection but the price tag can give frugal husbands and boyfriends quite a scare. Enter Shabby Apple., a New York Boutique that produces chic and sophisticated styles (many with the sexy-yet-lady-like sophistication of Beckham’s collection) that are not only affordable but well-made!Price: Most dresses are under $100Note: Pay attention to the size to insure a proper fit.

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Out of Work, but Owing Taxes

Mon, 08 Feb 2010 09:58:09 -0500

It's a perfect example of adding insult to insult to injury. You're out of work collecting unemployment: that's the injury. The first insult comes with the taxes you may have to pay on those benefits. The second insult comes with possible underpayment interest and penalties if you failed to have sufficient withholding or to make estimated payments on your unemployment income.

The last possible date for making timely estimated payments on 2009 income has come and gone, so what's a poor jobless person to do? Fortunately, all may not be lost taxwise, even if it is jobwise. Consider the following:

But suppose you are the worst possible case: your unemployment is taxable, you did not make estimated payments in required amounts, and even after the $2400 exemption and all possible credits and deductions you still show a big number for 2009 taxes owed. The fact that interest rates are at historic lows may make you feel better. The IRS uses a 4 percent rate for both interest and penalties on underpayments.

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Free ETF trades are big draw for investors

Sun, 07 Feb 2010 12:02:00 -0500

BOSTON (MarketWatch) -- Online brokers are fighting hard for a greater share of the fast-growing exchange-traded fund business, and investors stand to benefit from lower costs.

Two of the nation's largest brokerage platforms are allowing customers to buy and sell some exchange-traded funds for free in a bid to attract business. The move could compel rivals to follow suit, encouraging investors to buy and sell ETFs. Last week, Fidelity Investments said clients can trade several outside-managed ETFs online without paying commissions.

The Boston-based investment giant also cut U.S. online stock-trading commissions by as much as 60% to a flat rate of $7.95 a trade. See previous story on Fidelity slashing online trading commissions.

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First Aid for Your Résumé

Sun, 07 Feb 2010 00:02:00 -0500

These are desperate times for many job seekers. But you can avoid desperate-looking and time-wasting measures when it comes to putting together and marketing your résumé.

The first mistake many job seekers make is sending out résumé s in bulk without giving much thought to whether they are a good fit for a job -- and a job is a good fit for them.

Andrea Kay, a career consultant and author in Cincinnati, says about 15% of your time should be spent responding to job ads online. You also should be figuring out where you want to work, and who to contact at that company.

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The Joy of Giving, and the Pain of Falling Short

Sun, 07 Feb 2010 00:02:00 -0500

Steve Yoder and his son Isaac discuss how much and where they donate their money.

LEVI: I should start giving some of my money away.

In our New Year's resolutions column, I wrote about how I planned to give money I make from this column to church, as well as to a charity that will have a big impact on people who are less fortunate than I. I resolved to give 10% of the money I make to charities or other nonprofits.

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Lessons From Xerox

Sun, 07 Feb 2010 00:02:00 -0500

The Xerox that Anne Mulcahy inherited in 2001 wasn't in the best shape. The company was losing hundreds of millions of dollars, and the price of its stock had fallen into single digits.

Ms. Mulcahy had worked for Xerox for 25 years, and as the new CEO she didn't want to hurt the company's culture, declare bankruptcy or cut research and development -- though many advisers pushed for those things.

Instead, Ms. Mulcahy shut down unprofitable businesses and cut $2.5 billion out of Xerox's cost structure. She was determined to create an organization that would march into the 21st century happy with what it could offer customers and employees. By 2006, Xerox was earning annual profits of over $1 billion.

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The Final Frontier: Investing in Ghana

Sat, 06 Feb 2010 00:02:00 -0500

Like travel brochures promising unspoiled destinations, Wall Street makes even the most volatile markets seem alluring.

When Invesco PowerShares unveiled in 2008 an exchange-traded fund tracking the Middle East and North Africa, its marketing materials noted the region's growing petro-wealth would bolster "growth in sectors [including] manufacturing, logistics, construction, tourism, wholesale and retail."

The fund hit its high-water mark of $25.21 a share two days after launching — then headed lower as the region struggled with the global crisis, falling oil prices and, most recently, Dubai's debt scare. Its current share price: $12.44.

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Will We Ever Again Trust Wall Street?

Sat, 06 Feb 2010 00:02:00 -0500

For many investors, the market's turbulence hasn't just destroyed wealth. It has shattered their faith in the financial system itself.

Consider Philip Eberlin, 56 years old, who runs a woodwork-restoration business in Chicago Heights, Ill. Trading hot stocks a decade ago, Mr. Eberlin got burned on picks like Krispy Kreme and Tyco. In 2007 he got back into stocks, only to take another hit.

"Having been burned twice in 10 years," says Mr. Eberlin, he now has about 80% of his family's assets "protected from the market" in certificates of deposit and fixed annuities. "I don't have trust in Wall Street to help the small investor in any way, shape or form."

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What is Equitable Relief for the Victims of a Ponzi Scheme?

Fri, 05 Feb 2010 17:46:37 -0500

A Ponzi scheme uses money from later investors to pay unrealistically high returns to earlier investors. Accordingly, earlier participants are more likely to have received a financial benefit than later investors. When a Ponzi scheme unravels, a key question is how to fairly distribute any recoveries to the victims. Should earlier investors be required to return the amounts they withdrew? Should the recovered funds be distributed in proportion to the amounts invested (net of any withdrawals) or in proportion to the amounts reported on the last account statements?

Similar issues were argued before Judge Burton R. Lifland on February 2, 2010, in connection with the proposed allocation of funds recovered from Bernie Madoff (Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, U.S. Bankruptcy Court, Southern District of New York (Manhattan)).

The attorney for the trustee, Irving H. Picard, argues that the payments to victims should be proportional to the amounts they paid to Madoff less any withdrawals.

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