Monthly Archives: May 2018

Fiduciary: Not Just Financial Jargon

MON, MAY 14th, 2018
 
Reactions to headlines like Wells Fargo to Pay $1 Billion to Settle Lending-Abuse Claims barely register on the Richter scale. For decades firms in the financial services industry have agreed to pay large settlements to federal regulators and then simply continue with business as usual.
 
A recent article in The Economist entitled Regulatory Settlements Raise Questions about America’s Financial Markets focused on the multi-billion dollar settlements paid by Credit Suisse and Deutsche Bank among others to direct attention to how Wall Street is rife with conflicts of interest. The Economist expressed deep concern with how settlements end up sweeping bad behavior under the rug. Misalignment of interests continues to cost consumers billions of dollars and clients rarely have any idea that their financial firm generates profits by defrauding them.
 

DOL Fiduciary Rule

The Department of Labor attempted to fix this poor alignment of interest by requiring a fiduciary standard for all those who either advise or invest retirement plans. The aforementioned DOL rule has been delayed several times and, sadly for clients, may be postponed indefinitely.
 

Suitability vs. Fiduciary Standards

Currently there are two standards for providing investment assistance and financial advice. The first is the suitability standard which states that the agent must recommend investments that are suitable for the individual client. The second is the fiduciary standard which states that the advisor must always act in the client’s best interest. Further complicating the issue are financial agents that have dual registration. They must act as a fiduciary while wearing their Registered Investment Advisor hat but operate under the suitability standard when wearing their Registered Representative / Insurance Agent hat.
 

What’s the Difference?

Imagine a mutual fund that has two share classes meaning there are two different ways to own the investment product. The first class has the investor paying 5.0% commission plus 0.75% per year in ongoing sales charges and 1.0% ongoing investment management fee. The second class of shares eliminates sales charges and has only a 1.0% investment management fee. Both share classes are suitable in respect that the underlying portfolio is the same. But, only the second share class without sales charges is best for the client and meets the fiduciary standard.
 

Advertising with Testimonials

Further muddying the waters are the dramatic differences in how the two camps can advertise. The suitability standard players can say most anything. Have you seen heartwarming television ads where a good-looking financial advisor helps a traditional nuclear family successfully launch their children and retire to a luxury beach house? Beautiful imagery. Total fiction. The suitability regulations allow use of these fake testimonial ads. Rules for fiduciaries do not allow use of real testimonials, never mind the bogus stories crafted by Wall Street marketing firms!
 

As Investors, What Can You Do?

First, accept that the regulatory environment is not looking out for you; you have to look out for yourself. Second, understand that firms operating under the suitability standard ultimately work for the companies whose investment and insurance products they sell; they do not work for you. Seek out an advisor who is a CERTIFIED FINANCIAL PLANNER™ working at a fee-only firm who wears their fiduciary hat all the time.
 

Albion Financial Group: Always a Fiduciary

Countless times we’ve helped clients understand the investment and insurance products they’ve been sold by big name financial institutions, pointing out associated risks, benefits and costs. Very rarely in our thirty-five year history has a client truly understood what they purchased. And, not once has a client expressed delight upon gaining a full understanding what they actually own.
 
As fiduciaries, our team of Senior Wealth Advisors can help you evaluate the various structures of your insurance policies as well as analyze your mutual fund positions to ensure both suitability and cost efficiency. Visit us for a complimentary advising session to learn more about the products you own inside your own investment portfolios.
 
John Q. Bird, CFA, CFP®, MBA
President, Principal and Co-Founder
Albion Financial Group
jbird@albionfinancial.com
(801) 487-3700

Tax Planning For Fiscal Year 2018

MON, MAY 7th, 2018
 
As we take a deep breath after filing our 2017 taxes and begin to look forward to warmer temperatures and Spring flowers, we should take a few minutes to focus on setting ourselves up for tax success in 2018.

Many of us have enjoyed a bit of extra income as the new tax rates have started to flow through our paychecks. While enjoying the extra cup of coffee, lunch or additional 401k contribution that the extra income is affording us, we need to pause and shift our attention to our tax withholding for 2018. With the tax law changes, certain itemized deductions that we have become accustomed to are now limited. How will the change in legislation impact us when we file our 2018 taxes a year or so from now?
 

2018 Tax Changes

2018 brings a host of new tax changes. We have new marginal tax brackets and rates, capital gains brackets, standard and itemized deductions limits. For 2018 the standard deduction amount is now $12,000 for individuals, $18,000 for head of household, and $24,000 for married couples filing jointly. For additional detail, our 2018 Planning Guide is designed as a quick reference for the latest tax rates, savings and retirement contribution limits, etc.

One of the largest tax changes is that the state and local tax deduction including real estate taxes is capped at $10,000. With this limitation and others, many people may find that they are better off from a tax perspective to use the standard deduction rather than itemizing on their taxes.
 

A Helpful Tool

What will your tax pictures look like for 2018? And, will your 2017 deductions now be limited in 2018? To answer these questions, the IRS has built a very helpful tool, the IRS 2018 withholding Calculator: https://apps.irs.gov/app/withholdingcalculator/. The tool is simple and quite user friendly.

Before accessing the calculator, take the time to look at your 2017 tax return and understand what deductions you took for the year. Armed with an understanding of your 2017 tax return numbers, collect your most recent pay stub(s). You will need to reference your pay stubs in order to enter necessary information into the calculator. You will also be asked to enter the amount of tax that you have had withheld year-to-date. Additionally, you will also need to enter any contributions to tax deferred retirement plans such as your 401k, and any amounts that you contribute to your cafeteria plan or health savings account (HSA).

The Calculator then asks a series of questions leading to a results page which informs you of your anticipated income tax, total dollar amount of your withholdings anticipated at your current withholding rate, and whether this results in an under- or over-payment of tax. The calculator then provides suggestions of adjustments to consider making on your Form W-4 including filing status and the number of allowances to claim.
 

Update your W-4

Here is where action is required on your part. If you would like to update your Form W-4, you will need to coordinate with your employer or HR department. Although it may sound painful, this quick and easy exercise can help you effectively manage your tax obligation in a tax year with many new variables. We are over a quarter of the way through 2018 so be sure to follow through with these updates so to set yourself up for less stress during tax time a year from now.
 

Need Help?

If you have questions about the tax changes or logistics of the calculator, please reach out to me at 801-487-3700 or sbird@albionfinancial.com. I would be happy to help you.

 

Sarah Bird, CFP® / Senior Wealth Advisor
Albion Financial Group
sbird@albionfinancial.com
(801) 487-3700