Saying Thanks

Let me start by saying Thank You to all of my readers, clients, and business partners for our relationship. Like many people, it is a sentiment that I believe and feel but don't say enough.

As the holiday season approaches, people often have several different things to think about.  Some are focused on Thanksgiving dinner, others on finding the best deal in certain stores, and others on how they can help their favorite charity one last time for the calendar year.

I often advise people that charitable giving is part of the estate planning process, and can follow a similar thought process.  It comes down to two main concepts:  control and taxes.

Control

Ask yourself some questions initially to determine what you are really trying to accomplish.

• Is there a specific organization you're trying to help?  If not, take a look at sites like GlobalGiving or Donors Choose to identify potential recipients.
• Are you trying to help in a specific way, or just provide general assistance?
• What are you comfortable doing?
• What does the organization need?
• Do your interests match what they're asking for?
• What values do you want to teach your heirs?  What legacy do you want to leave?

Introspection, along with a conversation with someone from the organization, can help clarify what the best fit is, what you want to donate (time, talent, treasure), and how the gift should be structured.  For example, let's say your favorite 501c3 organization has a particular project that piques your interest.  Do you want to volunteer for the organization, participate on a board, or provide funds to be used only for that project (and not for salaries, overhead, etc.)?

Taxes

While most are aware that charitable contributions are potentially deductible, many don't realize that the amount you can deduct may depend on the amount, type of gift, and type of organization.  Be sure to have your financial team on one accord here, as your accountant, financial advisor, and attorney(s) - (estate planning, business, etc.) could all have duties to fulfill depending on the strategy you pursue, especially if one of your goals is to reduce the size of your taxable estate.

• Does the 501c3 organization have a foundation?  Look it up on Guidestar.org or a similar site.
• If so, is the foundation, public or private, operating or non-operating?  This is critical to determining how much of a deduction you can take (up to 20%, 30%, or 50% of AGI).
• How well is the organization managed?  Review Charity Navigator or similar sites.
• Do you want to make a donation now a choose an organization later?

The right solution depends on your particular situation such as: donating cash or property; establishing a donor-advised fund; creating a charitable trust; or creating a private foundation.  Each has different potential benefits, drawbacks, and costs associated.

One thing is clear:  it's best for you to make the decision while you can instead of it being made for you.  If you want more information, visit "Our Website" above to contact us and discuss your situation more in depth.  

One Size Does Not Fit All...and That's OK

Image courtesy of zole4/Freedigitalphotos.net

Have you noticed all of the advertisements that essentially say, "We know the answer... the one way you should invest"?  It's a good line for selling something, but could be questionable if you dig deeper.

Given the multitude of perspectives and investor preferences that exist, how can one approach fit everyone?  The answer is simple.  IT CAN'T.

If one approach were deemed to be correct, then logically, it still couldn't work in a marketplace.  For example, if you assume all investors want to be correct, and the correct action were to buy something, there would be no one to buy it from.  If the correct action were to sell something, there would be no one to sell it to.

Solutions are not absolute.  They are relative to your situation.  In my opinion, your success rests in having a plan that helps you understand what tactics you may need to take while being flexible and nimble enough to change as needed. In the beginning of Sun Tzu's The Art of War, he explains that one must understand:

• Your Belief System - what you want to accomplish and how you want to do it;
• The Environment  - what uncontrollable factors may help or hinder you;
• The Situation - where you are now and what it will take to get you to your goal;
• Leadership - confidence in your/the decision maker's abilities;
• Management - the proper use of resources at the appropriate time.

The solutions you choose may change over time due to uncontrollable, changing conditions.  No one solution will fit everything, but you can increase your odds of success by utilizing them properly.

"You Can Observe a lot Just By Watching"

Baseball legend Yogi Berra was as famous for the things he said as what he did on the field.  Many of his quotes don't make sense on one level, and yet they may on another.  For example:

"It ain't over till it's over."

"When you come to a fork in the road, take it."

"This is like deja vu all over again."

"You can observe a lot just by watching."

Berra came to mind recently as I thought of the many conversations over the years with people who think they don't pay any fees on their investments.  On one level, they don't see any cost on their statements, so it must not exist, right?  On another, one man's revenue is another's expense.  If you're not paying anything, then they're not making anything, and I highly doubt businesses function on goodwill alone.  Ignoring the possible types of relationships momentarily (see my previous post, Form Follows Function), it's clear that many people don't understand that they are paying fees one way or the other.

To simplify things, I like to break down costs into the following three areas when I'm comparing competing options.

Types of Costs

1. Compensation to the Representative = Millions of people in the US go to work for a company, and in exchange for their efforts, they receive compensation.  It is no different with your financial representative.  Whether he/she works for a Registered Investment Advisor or for a Broker-Dealer, your representative is in business to receive compensation.  How they go about seeking profits or providing services may be different, but the goal of every business is to generate profits.  
2. Costs of the investment product = These costs may go include several items, such as a markup/markdown, commission, expense ratio, mortality expense, trading costs, or fee.  These costs usually goes to the company for creating and/or distributing the investment product, and may help pay for items such as compensation of their employees, marketing, or overhead.
3. Recordkeeping or administrative costs = The firm you deal with tracks and communicates (physically or electronically) details of transactions and of your portfolio through  trade confirmations &/or statements.  Firms incur costs for tracking this information (for example, custodians, transfer agents, and broker-dealers), and often pass on these costs to clients.

I hope you find this post and others in this blog to be both educational and helpful.  Let me know what your thoughts are by posting on either the LinkedIn or Facebook pages for Locker Wealth Management, by emailing me directly at alex.locker@lockerwealth.com, or contacting us through our website.

Happy Investing!

Form Follows Function

Image provided courtesy of Grant Cochrane/
FreeDigitalPhotos.net

Architecture is one area that makes Chicago a world-class city.  One lasting principle of architecture & design that many are familiar with is "Form follows function."  In other words, as Wikipedia puts it, " that the shape of a building or object should be primarily based upon its intended function or purpose."

So, let's talk about this mantra in the context of a four-letter "F" word - fees- as it pertains to both brokerage accounts and advisory relationships.

Brokerage Accounts

A broker is an entity that arranges a transaction between parties and receives a commission for the transaction.  In this scenario, brokers are often motivated to encourage a transaction, as long as it is "suitable."  However, a broker's obligation is primarily to their employer.  Brokers also have lesser requirements for disclosing conflicts of interest that investment advisors.  You may or may not know the costs of a transaction beforehand.  Some firms offer fixed rate transactions (ex., $15 per trade), others may charge based on the number of shares and liquidity of the investment.  In other cases, costs are layered inside the expense ratio of the investment product.

Advisory Relationships

Investment advisors, by definition, provide advice.  They have a fiduciary responsibility; in other words, their primary obligation is to the client, and they must put the client's interest in front of their own.  In this type of relationship, you may be charged a retainer, a flat fee for planning, or a percentage of the account.  The fee structure is agreed to up front, before services are provided, and in writing.  Any potential conflicts of interests must be disclosed.

In short, how you pay your representative may depend on what you are paying them for.  Ask yourself a few questions in advance of engaging in either type of relationship.  

• Do you have the time, desire, or experience to manage a portfolio by yourself?
• Do you just want help with transactions, or are you looking for advice?
• Are you comfortable working with someone whose obligation is to their employer rather than to you as a client?
• Do you want to know your cost structure upfront, or would you rather pay-as-you-go?

If you would like to discuss your situation more in depth, click on "Our Website" above and go to the Appointments section to schedule a phone consultation.

The Agony of a Football Fan

Football has taken over this time of year for many sports fans (including me).  As I watched my team lose a game and listened to the post-game TV commentary, it made me think of how we often react to the stock markets.  Every game provides a roller-coaster of emotions.  Win a game & you're buying Super Bowl tickets.  Lose a game & you want everyone fired or traded. Your legacy is based on 4% of days during a 5 month period, and every week you get a 6-day performance review from self-proclaimed bosses despite the fact they are largely unqualified to do so.  It's even more noticeable because you only get 16 chances per season, as opposed to 82 in basketball or 162 in baseball.

Would you invest this way?  If so, STOP!  Focus on the "season", not the "session".  It's your life, not fantasy football!  Remember, your enemy is RISK, not another person, institution, or index. Try this instead as your new "roster".

• Owner = You (after all, it's your money);
• General Manager & Head Coach = Your financial advisor (Get the right people in the right positions with the right strategy);
• Assistant General Managers = Tax, legal, & other business advisors;
• Position Coaches = Money managers or mutual fund managers;
• Players = Individual securities;
• Offense = Stocks (Appreciation is how you move forwards)
• Defense = Bonds, Cash, & Insurance (Protect your position as much as possible)
• Special Teams = Alternative Investments, IPOs, & strategies with higher risk

The "plays" that are called will vary based on the condition of the markets, the economy, as well as your personal situation and preferences.  Most coaches have a sheet with plays for given situations that they've developed ahead of time.  In other words, they know what their choices are before the scenario arises.

Perhaps it's time for you to consider us as your new General Manger.  Visit "Our Website" above to learn more and schedule a phone consultation.

A Moment of Clarity

Answers.com defines "a moment of clarity" as "when you suddenly get a deep understanding of some truth that's been out of reach for you.  When your vision becomes unclouded and focused by a mad rush of what has been called an epiphany or revelation."

The phrase often is connected to those suffering from an addiction, but in today's world -where the "I need it now"/microwave-mentality has taken hold - I believe that recognizing moments of clarity are more important than ever.  The media often refers to what is critical for today's trading session, though your financial well-being probably doesn't depend on a single day; firms market software to help you trade faster (trading faster does not necessarily mean investing better).  One company even had commercials stating "Every second counts."  If you're financial well being depends on what you did at 2:07:00 vs. 2:06:59, there may be larger issues to address.

The scenario is all too common.  You start with an idea of how you want your life to be.  After getting a job, making some money, paying some bills, spending a little, saving a little, maybe even getting married and caught up with the obligations of Life, you realize that you're not where you thought you would be and that you need help. Your moment of clarity awaits.

1. Acknowledge that your current course is unmanageable, and that you need help.
2. Believe that an expert - an advisor- could help.   
3. Hire an advisor, clarifying costs & expectations.You need to be clear on what traits you want in your advisor, and how to work with them.  A title on a business card does not automatically make them right for you. 
4. Make a searching and fearless inventory of your beliefs, standards, & goals.
5. Admit to yourself (& to your spouse, if applicable) and your advisor about how your decisions have impacted your life.
6. Be open to & prepare yourself for change.
7. Ask for help from the right resources as needed (for example, tax, legal, medical, etc.)
8. List any person or organization to whom you have outstanding obligations.
9. Eliminate any debts or obstacles, whenever possible, that may keep you from maintaining your beliefs & standards, or reaching your goals.
10. Continue to monitor your beliefs and actions (personally & financially), and admit any mistakes.
11. Communicate with your advisor, in the previously-agreed upon manner, to make sure you're sticking to the plan.
12. Encourage others you care about to search for their own moments of clarity, and to seek advice as you have.

The above points were derived from the 12-Step Program originally published by Alcoholics Anonymous.

Cutting Through the Noise

Chicago is a great city, especially during the summer.  It has a certain pace, a certain irresistible energy & charm.  After moving to a high-rise building downtown many years ago, I also discovered something else:  it has a certain sound.  From more than 20 floors above street level, I could hear cabs honking, buses, trains, and even conversations... the constant sound of activity that had nowhere to go but up and bounce off of steel, glass, & concrete.

When I would visit the city where I grew up, a few hours away, I would get out of my car and just notice that I wouldn't hear anything except wind in the trees & my thoughts.  No cars honking.  No random conversations.  No buses or trains.  It was... peaceful.

Today's financial environment sometimes reminds me of living in that high-rise.  "Experts" providing lots of noise; talking fast; talking over each other to make their point without listening; taking credit for all that is good, and "spinning" reasons for anything possibly construed as negative.  It's no wonder that investors have a lack of trust in financial institutions, advisors, and media, especially after what the US economy has gone through over the last decade.

What should you do to cut through the noise?  Consider these as a starting point.

• Listen carefully.  Many experts aren't really talking to you, about you, or even about someone like you.  They're talking about a thing - Stock of the Day, Fund of the Week, today's indicator, etc.  While these comments may be slightly informative, they lack the context of what it means to you.
• Remember that you can only live your life.  What is good for someone else may not be appropriate for you.  You'll hear more about someone's good decisions than their mistakes.
• Watch out for articles that have a number in their headline ("The Top 6...", "The Best 7...", "8 Great Ways to...".).  Including a number is good for drawing attention to the article, but people often construe the number as a limitation rather than just a list.
• Understand the motivation behind comments.  Those that know me are familiar with my bias against the financial media.  I believe that most financial media are meant to excite or provoke fear rather than to educate.
• Strive to have financial confidence.  Educate yourself.  Develop a team of advisors that you are comfortable with, whose philosophy and process you understand, & that work together for your benefit.

As an advisor, my hope is that clients feel educated about ways to accomplish their goals, informed about how they're doing, and comfortable with the advice that is offered.  If you want to learn more about how Locker Wealth Management can help, visit http://www.lockerwealth.com and contact us today.

 - Alex Locker, CFP®