“Financial Advisors” Selling Fear Go the Next Mile

You have all heard and read the market doomsday prophets, but lately they are taking their pitch to a new level. The headlines are enough to send chills down your spine. “Market Crash Inevitable, or “Next Market Meltdown,” or even “Trump Will End the Dollar as We Know It,” ad nauseum. What do they have in common? They profess to have “The Answer,” and for an annual fee (or a huge commission,) they will share their survival secret with you. Just send money.

What else do many of these dismal prophets have in common? They can be somewhat believable, as they cite examples, even if those examples date back to the 1920’s. Their claims are based on “logic,” and are derived from vast experience and education, otherwise known as “history.” They selflessly tout past successes. An old saying goes, “Economists correctly predicted 8 of the last 3 recessions.” Funny how we never seem to hold those prognosticators to account for their various failures. (They don’t, either.)

Supporting predictions of imminent catastrophic losses has to be more difficult during periods such as this, while prosperity reigns. The usual gaggle of market naysayers is now turning to various “experts” to shore up their arguments. One recent example caught my eye for its sheer audacity by taking a pull-quote from Warren Buffet, then backing it up with a quote from a Hollywood movie producer. Really?

Most investors know of (and many are in awe of) Warren Buffett, who ranks high among the world’s most successful investors. In the article I read, the author explains that Buffett sees upcoming market losses of 50% or more. Deep into the article it is revealed that his remark was in reference to a future period the length his own past – a mere 53 years. Yet the article called this tragic upcoming(?) event “inevitable.” While not out of the question, the catastrophic claim is not supportable, even in the long run. Worse, though, is the wording, which is slanted to make it appear imminent. Adding insult to injury was the failure to reveal that Buffett used his periods of market decline to buy, rather than to sell.

Digging in deeper, the article’s author supports the doomsday claim with a quote from someone I had never heard about, so naturally I did the research. My findings were illuminating. The author supported a misused claim from Warren Buffett by quoting a Hollywood movie producer. Whoa, now I am impressed.

In my current example, the objective was to promote one of the many fully-funded life insurance products that pepper the airwaves these days. They are unsupported, vague, and overly-optimistic, but they do appeal to fear among many investors. I should also point out that claims regarding these products have been debunked by industry experts for as long as the sales pitches have been made.

Until government agencies assign the same regulatory standards to insurance and annuity averters as it does for fiduciary advisors, you will see outrageous claims made. You don’t have to believe the claims, and you should not believe the people making those claims.

Occom’s Razor states that the simplest answer is usually the correct answer. Under that premise, if something sounds too good to be true, you may want to trust your intuition.

Van Wie Financial is fee-only. For a reason.

On a recent Van Wie Financial Hour, and also in a recent Blog, we asked and answered the question, “Are we at the market top?” The simple answer was that no one knows. I volunteered to tell you the answer, but not until long after we are past that market top.

Judging whether or not we are at the top of the market is part of a practice called Market Timing. There are said to be three “conventional” contributors to success for investors; Securities Selection, Market Timing, and Asset Allocation. Market timers have no proven track record, any more than do the self-styled gurus who claim they can “beat the market” by selecting individual stocks. Most successful investors practice a much more sensible practice called Diversification. Asset Allocation is the process of diversifying a portfolio to optimize the risk/reward equation over time.

Researchers and statisticians have repeatedly shown, over the past 70 or so years, that Asset Allocation accounts for a minimum of 90% of success among similar portfolios. That leaves very little room for Market Timing and Securities Selection to make much difference. Given those circumstances, consider how you are spending your time and energy in your investing life. For instance, does it matter if Ford underperforms GM? Sure it does, if you are long either Ford or GM. What if you owned both in a mutual fund or an Exchange-Traded Fund (ETF)? The differential performance of the two stocks in the same sector becomes unimportant.

As Certified Financial Planners, one tool we use to design and implement diversified portfolios is called “Modern Portfolio Theory,” or “MPT.” MPT has been around since its original publication in 1952. We will be discussing this practice in depth on the Van Wie Financial Hour.

For now, I want to discuss one of the most unusual market timing methods to see if you will be impressed. It is called the “Hindenburg Omen,” which I assume reflects the inventor’s attempt to scare you. Here is the definition from my favorite website for this type research, Investopedia.com.

“The Hindenburg Omen is a technical indicator that compares the number of 52-week highs and lows to predict the likelihood of a market crash.” Investopedia goes on to explain all of the details required to establish that the Hindenburg Omen is possibly in play. The opening lasts for 30 trading days, and must be confirmed by something called the McClellen Oscillator, or MCO, being negative.

Confused? Me, too. All this in an effort to control one of two factors shown together to contribute 10% or less to your investing success. Life is too short to chase minimal potential returns at the expense of maintaining a good Asset Allocation plan.

Van Wie Financial is fee-only. For a reason.

Have you ever heard of Nationstar Mortgage? I had not either, and there might be a reason for this. In August of 2017, Nationstar mortgage underwent a large branding campaign to become known as, wait for it, Mr. Cooper. I am not kidding. Apparently Nationstar has a somewhat troubled past. They held a lot of mortgages that defaulted back during the housing crash, and haven’t exactly done much since then to improve their image. From 2011 to 2014, the State of New York found over 900 mortgage loans that Nationstar failed to fund in a timely manner, resulting in various consequences to their clients. They also opened branch offices with the proper authorization, did not maintain the proper documentation for client files, did not post their fee schedule, did not submit quarterly reports on time, and also failed to file 90-day pre-foreclosure notices with the DFS. This led to a $5 million fine, $5 million donated to a local nonprofit, and $7 million being refunded to their clients.

What was Nationstar’s answer to all of this? Well, they rebranded as a fictional character named Mr. Cooper. Mr. Cooper, according to Nationstar, is your friend. Mr. Cooper solves your problems. Mr. Cooper also collects your money, as Nationstar clients now write their mortgage checks to “Mr. Cooper”. Ironically, the fines I mentioned above were levied shortly after Nationstar rebranded as Mr. Cooper, so apparently Mr. Cooper is a friend who collects your money and also gets hit with large fines by the NYDFS.

As enjoyable as our day jobs can be, including dealing with successful, pleasant, interesting people, watching their financial dreams take shape, and sharing the recent market boom, it is not all fun and games. Because of our approach to total personal planning, we need to cover topics that are, by their very nature, uncomfortable. These topics include illness, disability, and death, and are not confined to the clients themselves. Family relationships play a huge role in financial planning, and properly documenting clients’ wishes is critical.

About half of Americans are intestate, simply meaning that they have not prepared a Last Will and Testament. This demographic includes lawyers and other professionals at about the same rate as the general public. Not directing your asset distribution during your life can lead to problems, in even the simplest estate.

There is an old saying in our business that goes like this: “If you’d like to see the worst come out in people, simply attend the reading of the Will.” But that is likely not even the worst scenario. I suspect you’d see even more of the dark underbelly in people if there were no Will to read! (We use “Will” and “Trust” interchangeably for this discussion.)

How do you know when you should hire a competent Certified Financial Planner™? Here are a few items deserving of consideration. Do any of these common situations apply to you?

• You do not have a Last Will and Testament, or it is many years old (and maybe from another state and/or a prior marriage)
• You do not have a Health Care Directive in the event you can’t make important medical decisions for yourself
• You do not have a valid Durable Power of Attorney for a trusted person to help with your finances, should you become unable to do it yourself
• You own real properties other than a primary residence, either in the same state as your residence, or perhaps in other places
• You do not have a Living Revocable Trust (not everyone needs one, but there are increasing numbers of reasons to do so, and especially in Florida)
• You have outdated Beneficiary Designations on 401(k) accounts, IRAs or life insurance policies
• You have been through a divorce and have blended families
• You are starting to plan for retirement
• You have some intended beneficiaries that are poor at handling money
• You own investments and/or annuities, but you aren’t sure why you own them
• You have received “sudden money” from an inheritance, lottery, insurance policy, or lawsuit settlement
• You woke up one morning and suddenly realized you haven’t started planning for your future
• You have experienced a changed relationship with a family member
• You have been managing your own investments and are unhappy with your performance
• You have too many accounts in too many places (our term is “financial clutter”)
• You have changed jobs several times, but never bothered to roll old 401(k) plans into a self-directed IRA (see financial clutter above)
• You are still working, but approaching age 55, 60 or so, and want to start taking charge of your own investments (possible “in-service distribution” available to roll some funds into a self-directed IRA)
• You are starting a family and beginning to think about insurance and other boring but critical topics, like funding college educations, getting a mortgage, buying life insurance, managing cash flow, and asking, “How can we possibly do all this?”

Whatever the reason(s) you may be considering seeking professional help with your finances, look for a fee-only Registered Investment Advisor (RIA), owned and operated by Certified Financial Planners™ (CFPs®). They (we) can steer you in all the right directions.

Van Wie Financial is fee-only. For a reason.

It is hard to imagine life without a bank account in the modern world. In the modern age, we are able to access our bank account at any time using our smart phone and a thumbprint. We know how much money we have, what our outgoing bills are, how our investments are performing, and some banks even show us our credit score.  However, you might be surprised to learn that as much as 7% of American households do not have a bank account. Who are these people? Why don’t they have a bank account of some kind?

It turns out that a majority of these households are low-income, and most have been denied an account due to their banking history. They have a general distrust in banking institutions, and believe the fees are too high and unpredictable. Additionally, many banks have a required minimum balance that many low-income families either can’t or fear they can’t maintain.

Due to the lack of banking traffic in low-income neighborhoods and the trend away from physical bank locations, many banks have shuttered their operations in these areas. While this may make sense from a business perspective, it leaves a financial hole in these neighborhoods which is easily filled by cash advance stores. These stores cost the customer more than they realize. While the average annual fees for a checking account at a bank are about $200 (many people don’t even pay that much), the average cost to cash a year’s worth of checks comes to about $500 (2% fee each check for a $25k net income).

One solution that has been making headlines is to require the Federal Reserve to offer private accounts directly to consumers, thus cutting out the middle man of the privatized banks that deny accounts. The pros associated with this idea include:

• Higher interest rates on savings
• Quicker deposit/transfers
• Guaranteed approval to open an account

While these are advantages to this system, there are many people that are against centralization. While the Federal Reserve is not strictly a government run entity, it is still associated with the government. This system would allow the government to have too much control over private money, which is a big red flag.

Supporters of the proposal say that this new system will be competitively neutral, allowing private and public equal opportunity to compete for business. This, however, does not seem to be the case. Banks make profit by borrowing money from the Fed and lending it a higher rate. If the Fed is loaning money to banks and also serving the consumer directly, what is to stop the Fed from competing with the banks in areas such as private lending?

Are their alternatives to banks and the Fed? One of the best alternatives is already widely available and in use today. Credit Unions are like banks but rather than focusing on the success of their stock holders, their focus is on their members (account holders). They are very locally focused since their funding comes from the community. Opening credit unions in lower income neighborhoods and offering incentives to open and keep accounts will open a door for more families to keep their funds in a financial institution. Also, if the credit unions emphasize that they are locally focused with advertisements, local events, etc. it will help lower the distrust in banking institutions, making people more comfortable entrusting their funds to these institutions.

Summer officially ends on September 23 this year, but for many investors, the unofficial end of summer is Labor Day weekend. Wall Street’s biggest players are now closing their seasonal estates in the Hamptons, sending their children back to hugely expensive schools, and returning to their plush offices on Wall Street. Trading volumes on the various exchanges will start to increase, making market moves (either direction) will be more significant.

Coincidentally, what I call “Mini-Silly Season” is gearing up and will soon be in full swing. “Silly Season” is widely described as the several months prior to a Presidential election, when politicians and pundits everywhere are heard to say and do outrageous things. I dubbed this off-year election cycle “Mini-Silly Season,” as those same groups act nearly as silly as they become during Presidential years.

My favorite recent entrant into this craziness was a headline that proclaimed, “No Bull Market has ever reached its 10^th birthday.” That is absolutely true today, but consider this: None of my children have ever attained the age of 42. However, all three are alive and thriving, and I harbor every expectation that all three will reach age 42, and likely exceed that number by a large margin.

Perhaps a better headline should be, “Bull Market attains age 9, First Time in History.” The first headline evokes fear, and the second casts a positive image on a truly upbeat situation. That difference might be considered political, given “Mini-Silly Season” news.

Many statements (including statistics), are absolutely true, yet virtually meaningless. Intelligent and experienced investors should not succumb to craziness in the media. Markets are driven by the economy, profitability of companies, employment, wage growth, and optimism among consumers. All are at multi-year high levels.

There is nothing we can see in recent financial data to indicate a market pullback of any major proportion. Market corrections are normal, could happen any day, have happened recently, and should not be feared. That said, there is ample room for the markets to advance.

In the 9+ years of this Bull Market, the S&P500 Index, a broad measure of the U.S. stock market, is up well over 300%. That is simply a number derived from stock prices, and is not an indicator of a coming “crash” prior to the 10^th birthday of the current Bull Market. That birthday will be on March 9, 2019. We will gladly tell you what happened after March 9, 2019, and not one day sooner.

Van Wie Financial is fee–only. For a reason.

It’s official. Finally, the longest Bull Market in American stock market history was eclipsed last week. Are you surprised? We are not. I should point out that it occurred in the face of several headwinds, yet it happened on Friday, August 24, 2018. What we, as investors, should do about it is today’s subject. Perhaps the best answer might be to simply kick back and enjoy it.

As an independent, fee-only Registered Investment Advisory Firm (RIA), we have always been, and remain today, independent and unbiased with regard to the markets, our clients, and our investment strategy. This seems like an opportune time to review the process that drives our thoughts and actions as financial advisors.

Two fundamental emotions that drive investors are fear and greed. First, I believe that “greed” is one of the most abused words in the English language. According to dictionary.com, greed means “excessive or rapacious desire, especially for wealth or possessions.” This is not what we experience when meeting our clients and investors from every walk of life.

Investing, to us and to our clients, has little to do with greed. The desire for financial independence, and not the “excessive or rapacious desire, especially for wealth or possessions,” is the most common sentiment we see and hear. Fear is another story altogether, and is a valid emotion for investors. Anyone with a few miles on them has been through some really tough times in the financial markets. The mere fact that markets have historically recovered and gone on to new heights does little to erase that learned fear.

Emotions certainly play a role in most people’s investing lives. Should they? Empirically, emotions shouldn’t influence our decisions. Data, facts, and statistics should overpower emotions. That, as the saying goes, is easy for me to say.

Understanding peoples’ emotions is critical to successful financial advising. Easing fears and controlling “greed” is our goal, and our best tool is simply a process of educating investors in the risks and rewards of investing in the world’s greatest capitalistic economy.

Is this market now at the top? We know that it is higher than ever before, and we know that the current Bull Market is the longest in history. A more thorough look at the past 9-1/2 years reveals a remarkable historical fact. This Bull Market likely has a long way yet to run. First of all, the market was driven artificially low during the “Great Recession” of the last decade, and in this ensuing economic and market recovery, progress was incredibly slow. Ipso facto, there is more room to grow.

It is not easy to look at numbers on the Dow-Jones Industrial Average, the NASDAQ Composite, or the S&P500 Index, and to accept them as “only numbers.” However, that is what they are – only numbers. For evidence, think back to when investors were concerned about the level of the “Dow” when it was crossing 16,000, then 17,000, 18,000, ad nauseum. It is only a calculated index number, and index numbers don’t drive the market. Economics do, and our economy is spectacular right now.

Van Wie Financial is fee-only. For a reason.

I’m sure that most of you have heard of a stock split, which is a fairly common event. When a company decides that their stock price has gotten too high and therefore unattractive to small investors to buy in lots of 100, they often split the stock to lower the price. This does not affect the market cap of the company, which is simply measured by stock price times shares outstanding. For instance, a company that has 100 shares of stock trading at $100 each has a market cap of $10,000. If they do a 2 for 1 split, they would then have 200 shares of stock worth $50 each for a market cap of $10,000.

Stock splits are largely psychological in that there is no rule that investors have to buy stocks in groups of 100, but everyone likes to. Therefore, when a company splits their shares, they will often see a bump in buying activity after the split. However, many investors, traders, and finance professionals like myself and Warren Buffet think that splitting stocks is ridiculous and it has no benefit outside of the company’s marketing and investor relationship teams.

You may wonder why this move is even less valuable for a mutual fund than it is for a stock. Well, mutual funds don’t typically get traded in shares, but rather in dollars. You don’t buy 100 shares of Contrafund, you buy $10,000 of Contrafund, and that is represented by a certain number of whole shares and some fractional shares. So that might be 100.9564 shares of Contrafund, which is ticker symbol FCNTX. In fact, on our institutional trading platform for mutual funds at TD Ameritrade, it isn’t even an option to buy mutual funds by shares. They can be sold by shares, but the only purchasing option is in dollars. Therefore, does it really matter what the price of the shares of the fund are?

Have you ever considered financial advising as a career? The career path has never been more interesting, the opportunities more numerous, nor the prospects for success more evident, than they are now. Why do I say this? American demographics are poised to elevate the profession to new heights, both in quality and quantity.

In the next several years, a massive amount of wealth will be transferring hands, as Baby Boomers are inheriting assets from aging parents, and Boomers themselves are retiring. Financial advising and wealth management as a career should be viewed as an opportunity to participate in the orderly transition of an estimated $31 trillion of wealth between generations over the next few decades.

I have spent many years in the financial services arena, following decades in non-financial businesses, during which I was on the client side of the table. My perspective on the subject is well-rounded and seasoned.

After years of preparation and study, I have come to one simple conclusion. If you want to be successful as an advisor, be the one that you would like to hire for yourself. In order to do so, you need to think about what topics are important to people. Then, you should become competent in each and every one of them.

A good overview of relevant topics is on the Certified Financial Planner Board website, www.letsmakeaplan.org. From there, you can learn the areas of financial planning that make up a comprehensive financial life and/or career. A good advisor will have to know a good deal in each and every topic area.

What would your ideal advisor bring to the table? Education is important, and the least I would consider is an undergraduate college degree. A Masters Degree or higher would be even better. Likewise, certain certifications prove that the advisor respects the clients, and the CFP mark is the hallmark of certifications. Experience counts, as it does in all endeavors, and should be a consideration. Getting experience is perhaps the hardest part in a young advisor’s career.

What kind of advisor would you like to be? Are stocks and the stock market the only arena in which you care to dwell? If so, become a stockbroker, but become an outstanding stockbroker. Is insurance your thing? If so, become an excellent insurance agent. Are you interested in overall financial planning, touching on all aspects of clients’ financial lives? If so, consider becoming a Certified Financial Planner through a long process of education, experience and ethics. You will need to pass what will likely become the most difficult exam of your life.

Whatever you decide, work to honor your customers or clients (and yourself) by being as good as you can be. People who choose to specialize in only one area of financial services do not, in my opinion, qualify to be called true Financial Advisors. Only a broad-based, wide knowledge of financial topics, coupled with completion of the certification program, would be satisfactory to me as a client.

Remember the old commercial that said, “We are NOT your father’s stockbroker?” Now you should understand why that became popular.

Van Wie Financial is fee-only. For a reason.

In June of this year, I reported on some announced changes implemented by the Trump Administration in an effort to “fix” our Health Insurance industry. This was necessitated when his own party failed to honor their campaign promises to repeal and replace ObamaCare. Set back, but undaunted, the Administration is making badly needed changes.

President Trump ordered the first changes when he signed an Executive Order in October of 2017. The Labor Department recently finalized sweeping reforms in the group insurance arena. “Commonality Groups” are now able to be formed by individuals wanting to purchase group plans, but not belonging to another covered group. These Associative Groups can even purchase insurance across state lines.

Remember “catastrophic” insurance policies, designed to cover someone in need of medical insurance, but only for major problems? Inexpensive and readily available, their purpose was to protect people and families from becoming financially devastated. They’re Back! The Administration has now authorized short-duration plans with limited coverage. The cost? 50% to 80% lower than ObamaCare policies would be for the same people.

We are currently watching the daily rise of Socialism in America. I deem these advocates of collectivism the “Willfully Ignorant.” One has to choose to remain uninformed in these days of 24/7/365 news.

One of the main precepts of socialism is so-called “free” health care for everyone. Therefore, I assume that countering the wave of popular support for free health care is best done through education. Only when people truly understand that nothing is free might we have a chance to change minds, and hence to fix problems.

Americans have long enjoyed the finest health care in the world. For decades we also had much of the best insurance. Our insurance choices have deteriorated, and the goal of the Trump Administration, with or without other elected Republican support, is to restore our free will.

Without complaining how long it took to get here, I am thrilled by the announcement of a second wave of health insurance changes. We expect many more, regardless of the do-nothing Congress, because Trump is steamrolling changes over the trash heap of dead legislation. Expect more changes in coming weeks.

The importance of health insurance reform cannot possibly be overstated. Small businesses, which create the vast majority of new jobs in this country, must have affordable options in order to attract talent. Affordability was at an all-time low. The Trump Administration is attacking that problem, and we all need to get on board.

Van Wie Financial is fee-only. For a reason.