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Mentor RIA Consulting

Allowing you to focus on what you do best

My Blog


Free Dinner Seminars?

Posted on December 19, 2019 at 9:29 AM Comments comments (28)
On a regular basis, invitations to seminars with an accompanying free dinner fall through the mail slot. Naming popular restaurants and offering various dates, these seminars propose to inform the attendees all about a variety of topics. Most often they focus on retirement finances but can also address subjects such as Medicare and other health related issues. Sounds appealing, doesn’t it? You get to enjoy a free dinner at a nice restaurant and listen to experts tell you about things that you are not sure about as well as are important to you and your family.
Of course, when you read the flyer carefully – if you bother to look past the dinner choices and dates – you will see the disclosures and disclaimers about financial products (or other services). This will allow you to understand that you will not only receive educational information but an opportunity to purchase products and services to address the issues covered in the seminar program.
How can these experts afford to provide groups of folks with free meals while providing education on relevant topics? One attorney put this best when he said (and I paraphrase) “if you sign up for the services offered by the expert speakers, you will be paying for everyone’s dinner that night.” This opinion is not far from the truth as the financial products and services will always involve a cost to the purchaser. The question, of course, is whether the offerings are the best course for you to take and whether the seminar experts are the best sources of products and services you may need.
Best bet, if you want to enjoy the dinner, go ahead and make sure to pay attention to the presentation and retain any materials offered. Don’t make a decision on the spot. Then, get a second opinion or at least do your own online research. If the offering appears to be something you want to pursue, then ask for a meeting and ask questions about the experts’ proposals. That should give you some confidence that you are making the right choice.

Test Post

Posted on November 22, 2019 at 9:40 AM Comments comments (0)
Because Vistaprint can't seem to consistently process posts and so very often fails. 

Wealth Tax Effect

Posted on November 15, 2019 at 10:13 AM Comments comments (0)
Something we have heard a great deal about in the past several months is the interest of some presidential candidates in imposing a wealth tax on individuals who have substantial wealth. This proposed tax is not a substitute for the income tax or other taxes but is an additional tax intended to help fund a variety of planned spending programs.
From the standpoint of a politician, the proposed tax has a great deal of attraction since it not only brings more revenue to the government but appeals to both a desire to reduce inequality of resources among people and the very human feeling of envy. Of course, the reduction in inequality is one-sided since the wealthy will have less after the tax is exacted but the money won’t directly benefit those who are far less wealthy. Instead, the revenue will go to fund a variety of government programs and the primary benefit will be to those who are hired by the government to administer those programs.
More disturbing is the potential of such a tax to fail in two respects. The first is one we have all seen in action and that is the tendency of individuals to respond to a new tax with a change in behavior which will lessen the blow. Divesting oneself of a portion of wealth will reduce the exposure to the tax while at the same time the tax will discourage individuals from striving to create and build wealth going forward. The second aspect is the undeniable fact that the reduction in wealth due to exaction of this tax will inevitably mean less revenue in future years as the tax continues to shrink the pot.
The logical final step – and the one that is probably the best reason to oppose such a tax – is that the insatiable desire of the government for revenue will mean the tax will in the end apply to almost everyone with any type of wealth. The burden will fall on the middle class – upper and lower – and the only real equality will be in the lack of opportunity and similarly reduced circumstances for all. What fun. 

Increasing Regulatory Burdens

Posted on October 30, 2019 at 11:42 AM Comments comments (24)
When we speak of the costs of government, the first topic usually is taxes, fees, and charges that appear in a myriad of forms and circumstances. We often don’t get past this aspect of governmental burdens and that means some other direct costs are not fully exposed or understood. One that is often mentioned but rarely discussed in detail is the cost to us all of regulations.
Examples of how regulations can cost a great deal can easily be found – here’s one I ran into recently. As almost everyone knows, the pervasive use of the internet, the cloud and their extended family has resulted (naturally) in some folks using the technology in nefarious ways. This in turn has raised substantial interest in what is often called cybersecurity and that of course means regulations to ensure that folks are not harmed. In the financial industry, for example, firms are required to implement measures and processes to provide cybersecurity to their customers. That makes sense.
However, it is easy for regulators to get carried away. The example we will note here is the recent release by a national association which identifies no fewer than 89 assessment areas for member firms to examine for purposes of addressing cybersecurity needs. I haven’t had either the time or the heart to plow my way through all of them yet, but I can assure you that simply reading them all, let alone comparing them to the programs a firm may already have in place, takes time which costs money which in turn will be a charge passed on customers who may or may not benefit from this level of detail. It almost seems like the regulators had a contest to see who could come up with the most items with the most minor distinctions or lack of real life application.
A straightforward, plain language regulation covering the topic would make more sense and be understandable and usable by firms and their customers. Given that all the regulation in the world will not guarantee protection for customers makes it even more problematic that firms will be burdened by the excessive detail and overlap. Of course, this does ensure paying jobs for additional regulators and the lawyers. 

IRA: Retirement or Succession?

Posted on October 16, 2019 at 10:15 AM Comments comments (145)
There is much ado in the financial world concerning various proposals to curb the use of the stretch IRA approach and otherwise change the current rules. Pundits decry the “devastating consequences” to some IRA owners if the changes are approved by Congress. Specifically, the Secure Act proposal would require complete distribution from many IRAs within ten years of the IRA owner’s death.
While this might seem hard for a person who planned to leave their IRAs to younger generations, letting them face the income taxes as and when they took distributions, a closer look suggests otherwise. First and foremost, the IRA has not been around all that long and, as its name indicates, was intended to facilitate saving for retirement by allowing workers to defer taxes on their contributions to qualified plans such as the individual IRA. This primary goal of the IRA is not affected by the proposed legislation which will continue to encourage workers to save money in an IRA while benefitting from tax deferral until such time as they take distributions.  The IRA during the contributing owner’s lifetime remains unaffected.
Another aspect of the IRA was the use of a stretch IRA which allowed the inheritor(s) of the remaining funds in the tax deferred account to continue deferral over their lifetimes while taking required minimum distributions which, of course, were subject to income taxation. This clearly has little to do with retirement and so we now see the proposals to limit the use of this technique.
The commonly heard argument that enactment of the proposals will wreak devastating damage to the plans of account owners seems very weak. The proposals would exempt account values below $450,000 as well as providing other exemptions for certain individuals and situations. This means the impact of the earlier taxation/limitation on the stretch would fall primarily on the wealthy who have accumulated large sums in their accounts while not paying taxes and then would wish to continue to defer taxes after their deaths. Why endorse a rule which benefits only the wealthy and abuses the intent of the IRA to fund retirement and not future generations?

Negative Interest Rate Fun

Posted on October 11, 2019 at 11:10 AM Comments comments (0)
Negative interest rates, could there be anything more unappealing? Banks don’t like it because they have to pay the government interest on the reserves they hold and have not made available to lend. The government believes that the negative rates will lead banks to loan out the money instead of holding it and that as a result the economy will improve due to the added funds out there working.  The idea is also to boost inflation, a bit, also to help the economy. Of course, the government also requires the banks to hold substantial reserves in case there is a liquidity crisis (such as a run on banks).
The European multi-year experience with negative rates, which is continuing, has not proved to be the panacea the governments felt it would be and the expected boost to the economy has not materialized. How does this affect the rest of us? Well, for starters it does not mean that the banks will charge their customers to put money into savings at the bank but also means that the interest rates customers receive are paltry at best. More worrying is the fact that despite these efforts by the central banks/governments to boost the economy, the desired results have not been achieved. As always, your personal situation may vary but there is so much that is out of your control that the best one can do is hope that the government is doing the right thing. Hope is not a plan, they say, but there is little else we can do with regard to the actions of the central banks and the governments they serve.

Withdrawals from a Minor's UTMA Account

Posted on September 20, 2019 at 12:31 PM Comments comments (117)
Gifts to minors range from cash in a birthday card to very substantial gifts to accounts established to receive those gifts and hold them until the minor attains their majority and can access the funds. It is not unusual, however, for a parent to wish to disburse some of those funds on behalf of that minor at some point before the minor is able to access the funds.
Whether it is to purchase a car or perhaps pay for a trip, the amount may be substantial and it is important for all to keep in mind the applicable rules. First is the need for the use of the funds to be for the benefit of the minor beneficiary. As the parents (or guardians) are responsible to provide for the minor’s basic needs, the expense to be funded by the minor’s account generally should not fall within the categories of food, shelter, clothing, and other such needs. Naturally, the beneficiary should be on board with the idea of withdrawing funds for the intended purpose and it is also a good idea for the donor(s) of the funds being expended to be in agreement.
The custodian of the account, often a parent, will need to handle the actual disbursement and should keep copies of receipts, checks and other pertinent information. These will show the intent and purpose of the transaction and protect all the participants and particularly the custodian of the account from a claim that the withdrawal was improper.  When one is working with funds belonging to someone else, they need to take care to handle them appropriately and to be able to show that is what they did.

Considering Intra-Family Loans

Posted on September 9, 2019 at 9:23 AM Comments comments (1)
A not uncommon situation in many families is the interplay between family members with more goals than funds and those with more money than goals to spend on. The familial relationship makes for a desire to help other family members in need and to take that action within the family without the need to go to a bank or other source of funding.
If you face this situation, an important consideration is how the transaction should be carried out. Even though it is within the family, a simple handshake and verbal agreement is probably not enough for either party. Human nature being what it is, not long after the money changes hands, one party or another might have forgotten the terms such as when and how often payments are due, what the interest rate, if any, might be and most important how much is to be paid with any installment. Then comes the hurt feelings and anger and all of that.
Perhaps the best way to avoid much of the potential for any problems is to treat the loan just like a real business transaction, which in fact it is. Agree on the terms – the loan principal, the loan interest, the term in months or years for the loan, when payments are to begin and so on. The writing should be signed by both sides and copies retained by each.  Then both sides should keep track of the payments made and the changing balance over time. 
Having an agreement protects both sides and does not stand in the way of the lender deciding at a future time to make some portion of the loan a gift or forgiving the balance entirely. The lender should be aware that the interest charged, if any, is treated as income to the lender while a forgiveness of a debt may result in income to the borrower. Of course, this entire discussion is moot where a family member plans to make a gift outright to another family member, not expecting repayment in any way. So perhaps, where helping a family member financially is a goal, the next step is to make a decision whether it is a gift or a business transaction and proceed from there. Understanding the ramifications of either approach will help prevent any future disagreement or misunderstanding. 

The SECURE act and your IRA

Posted on July 19, 2019 at 3:02 PM Comments comments (0)
Changes to the treatment of IRAs are the focus of the proposed SECURE act. Previously, we addressed a change to the timing of required minimum distributions from IRAs, the act proposing to make age 72 the new beginning date instead of age 70 ½. Since that time, much more attention and discussion has been given to the proposed treatment of inherited IRAs. For most beneficiaries, the new rule would require complete distribution of the IRA within ten years of the death of the IRA owner.
One objection to the proposed change is that it would adversely impact the long term and estate planning of some IRA owners who intend to allow their heirs to take advantage of the stretch IRA to take withdrawals from the inherited IRA over their life expectancies. This has provided a means for the IRA owners to take advantage of tax deferral and prolong that deferral until long after their deaths.
The obvious counter argument is that, as the name indicates, the IRA is a retirement account, with tax benefits granted to encourage workers to save for their retirements. It was not intended to be an estate planning tool to be leveraged to fund goals of members of future generations.
Regardless of who wins the argument here, it is interesting to note that the proposal seems to be one intended to reduce taxpayer gamesmanship on the federal level. Just as Congress reduced the amount of state and local taxes a person would be permitted to deduct from their federal taxable income, it appears that Congress here is reducing the ability of taxpayers to defer tax on income that won’t be used to fund their retirements. The outcry from some taxpayers and their advocates seems to be consistent here – those with substantial income and assets are finding some of their methods of reducing taxes will no longer be available and that is not acceptable to them. The fact that the rules may change is not unfair and an objective observer might well be excused for believing that the intent of the change is to ensure tax at the higher end of the income spectrum. The taxpayer does have the ability to arrange affairs to minimize taxes and no doubt will seek out and find alternative methods of funding estates and reducing the tax burden.  

Is Best Interest Really Best?

Posted on June 27, 2019 at 11:51 AM Comments comments (0)
Much of the discussion surrounding the best interest rule has referenced the requirement that investment advisers are fiduciaries to their clients while brokers are not held to that fiduciary standard. Regulation Best Interest and the new customer relationship summary are intended to provide investors with a clear description of the duties and obligations of investment advisers, broker-dealers and dually registered persons and firms. Not surprisingly, this new approach is not meeting with universal approval and acclaim. In fact, Congress may take steps to change or remove the SEC’s new rule and this discussion will be moot.
However, returning to the SEC rule, the SEC interestingly has stated that investment advisers are no longer required to describe their duty to clients as fiduciary and must instead disclose that their duty is to serve the best interests of their clients! This obviously is not identical with what most registered investment advisers do – act as fiduciaries – and how they currently describe and market their services to clients. 
So what apparently happens is that the SEC effort to clarify the differences between different roles ends up potentially providing clients with less assurance respecting their investment adviser and no less confusion about how the roles of broker-dealer and investment adviser differ. In addition it instead appears to create confusion and require a great deal of time and energy for investment advisers to once again change all their documentation to meet this new requirement. Not sure how this serves anyone on the investment adviser side of the industry, whether adviser or client.
Not surprisingly, insurance sellers have no fiduciary or best interest obligation.  Maybe that should be a consideration when we are thinking about how to best serve and protect investors.