Updated: May 14
Most of the industry has pivoted hard to a financial planning focused approach to providing investment related services. There is an important place for planning, however many investors should not pay an investment asset based fee for financial planning services, especially to a person or organization built around sales and relationship building. Most "wealth management" businesses bundle all their services making this hard to identify. It is a big reason why the 1% fee model doesn't make sense. Part of this industry shift is the commoditization of the investment work-product. The average adviser simply does not possess the expertise nor does it make business sense for them to try to build anything but a portfolio that will generally track the overall market forcing them to look to other things to emphasize to try to differentiate themselves. At WealthFactor we focus on investment advice and investment linked planning. Are we a "wealth manager"? Yes, we do provide financial planning related support, however, this isn't our primary expertise and we are quick to bring in various experts on topics like a Certified Financial Planner (CFP) a CPA or an estate planning attorney, when it makes sense. For the average investor a one-stop all things financial service is probably the right fit, however, the high-net-worth and ultra-high net worth communities should utilize experts in more areas rather than one-stop shop solutions.
At the core of maximizing the probability of investment success is the relationship between fees and risk taking. The negative impacts high fees have are not offset by margin benefits from complex bundled service business models. While these services have certain make you feel good values, prudent investors should cut through this noise and seek a more fee and risk efficient investment service.
As financial planning is inevitably a part of the service we do provide I aggregate and organize current important topics and thought I'd share them here. As always, please reach out with questions.
Roth Conversions. Depending on circumstances, it may be worth converting a traditional IRA to a Roth IRA. Alternatively, one might create a plan to do that conversion should we see another drop in the market.
Low-Cost Basis, Portfolio Concentration and Mutual Funds. Drops in prices while unpleasant can create opportunities to increase diversification or transition away from inefficient portfolio tools like mutual funds with a reduced or eliminated tax consequence.
What’s inside the $2 trillion CARES Act? Where are the benefits directed?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to provide relief for individuals and businesses who have been hurt by the outbreak. Here are a few key provisions that you should know about:3
One-time cash payment. Most taxpayers are eligible for a one-time direct deposit of up to $1,200 per adult ($2,400 per couple) plus $500 per child under age 16. Amounts are reduced for those who make more than $75,000 ($150,000 if married). If you have filed your 2019 taxes already, the IRS will use that income to calculate your payment; if not, they’ll use your 2018 tax filing.
Better unemployment benefits. The Act will extend and expand unemployment insurance through Dec. 31. Eligible workers (now including self-employed, independent contractors, and gig economy workers) will receive an extra $600/week for four months, on top of what they receive from state unemployment benefits.
Early withdrawal penalty waiver. The Act waives the standard 10% early withdrawal penalty for eligible coronavirus-related distributions from retirement accounts (retroactive to Jan. 1). You’ll still pay income taxes on withdrawals, but you can spread them over a three-year period or use that time to roll the distribution back over.
2020 RMDs suspended. You won’t have to take a Required Minimum Distribution from your IRA or 401(k) this year, leaving you in control of how much you withdraw. If you already took your RMD for 2020, you have several choices: keep it and pay taxes on it, return it to your IRA as an indirect rollover, or convert the amount into a Roth IRA (Roth conversions are permanent).
RMDs have been waived for 2020. If you don’t need the cash this year, consider skipping the distribution or turning it into a Roth Conversion. If you already took some or all of your 2020 RMD after February 1, you may be able to return it to your account as a rollover through July 15 (as long as you didn't complete another rollover within the last 12 months).2 There's some fine print to this, so please reach out if you'd like guidance.
Tax and IRA contribution deadlines have been extended to July 15. The IRS extended the 2019 tax filing deadline for any taxpayer who had to file by April 15. The extension also covers 2019 IRA contributions.3
Very important: if you’ll be making a last-minute 2019 contribution on your own, make sure the check or deposit is clearly marked 2019 to avoid an administrative error.
Some student loans can be deferred. Under the CARES Act, no payments are due on federally held loans through September 30, and no interest will accrue. Unfortunately, private student loans (or those held by a lender other than the Department of Education) are not currently eligible.5 Very important: I'm seeing mixed information on whether payments will pause automatically, so check in with your servicer.
You could get more from Medicare. Medicare has made some important updates to its coverage due to the crisis. Telehealth benefits are expanded, so you may be able to see your doctors over the phone or online. Many plans have relaxed their definition of "in-network" providers, so it's worth checking with your plan. Part D recipients can now request 90-day supplies of medication instead of the usual 30-day supply to help avoid trips to the pharmacy.
IMPORTANT DISCLOSURES: All information and material is provided for educational purposes only and contains the current opinions of the authors (as of the date appearing on this material), which may change without notice. This material includes information drawn from third-party sources believed reliable but not independently verified or guaranteed by WealthFactor. We do not represent that it is accurate or complete, and it should not be relied on as such.
This material does not constitute investment advice or contain investment recommendations, which would need to take into account a client’s particular investment objectives, financial circumstances and needs. Investments and strategies discussed herein may not be suitable for all readers, and you should consult with an investment, legal, tax, and/or accounting professional before acting upon any information or analysis contained herein.