What is the “Fiduciary Rule”?
You might have heard in the news about the new “fiduciary rule.” Although it might seem confusing, basically, the Department of Labor created a new retirement investing rule that’s supposed to go in to effect on April 10, 2017.
“Fiduciary” is defined as the relationship between a trustee and the person or body for whom the trustee acts. In other words, it’s an individual who holds a legal or ethical relationship of trust, and has an obligation to act in the best interest of the beneficiary.
The rule was created after a government report determined that U.S. retirees lose a total of $17 billion each year because of conflicts of interest. Since the Department of Labor oversees regulations for 401(k)s, they decided in step in.
The rule is designed to help average investors save more money for retirement and spend less on commissions and fees.
Using Celebrities as Examples
What about the not-so-average investor? Their stories are fascinating because of the person’s fame.
We can all learn from the high-profile mistakes of a celebrity, such as the recent case of Johnny Depp. He is out of money. Now the courts will decide if it was his fault for living a lavish lifestyle, or if it might have been the fault of those giving him financial advice.
Despite tales of large monthly wine budgets, and purchases of a village in France and islands in the Bahamas, this is yet another celebrity example for everyone. The bottom line: the lesson to learn here is whether your financial advisor is serving your needs or not.
Fiduciaries and You
What does this mean? Right now, although many financial advisors give sound advice, some may recommend investments because of the commission they will get—not what will make the wisest choice for the client.
The new fiduciary rule applies only to 401(k) and retirement investment vehicles. The Department of Labor does not have jurisdiction over other types of investments.
Some of the larger firms have been scrambling to make changes and determine how they can adjust their practices to serve their clients under the new regulation. Plans may be changing. Accounts may be restructured. Clients are being called in for meetings to explain what this means to them.
Fee structures and investment offerings are now being scrutinized and retooled. Portfolios are being rearranged.
Obligation or Choice?
Many people assume their advisor is behaving as a “loyal fiduciary and prudent steward,” as Johnny Depp’s lawsuit describes. Until the Department of Labor started placing the spotlight on “fiduciary,” many clients did not realize the extent of possible conflict of interest.
Celebrities can hire expensive advisors of all kinds to help them understand the myriad of legal disclosures and fine print. But what about ordinary people? No matter who you are and how much money you have, you hire people to help you make decisions and manage your affairs in a beneficial way.
How do you know if your financial advisor is a fiduciary? Ask. Take a look at your statements. Know what you are paying for. You should feel comfortable with the answers you receive.
Who Has Responsibility?
You might be able to do your own taxes, but you hire an accountant to do it for you to save time and leverage their expertise. You even hire someone to take care of your yard, not because you don’t know how to mow the lawn, but because it allows you to do other things.
There is a battle waging over the Fiduciary Rule. One camp says investors should understand where they are putting their money and not blindly take advice from their financial advisors. The other side believes clients don’t always know the full picture. They hire an expert for advice to help save for retirement, not to invest in funds with the highest commissions.
In the movies, everything usually works out. In real life, it’s not always so simple. For the busy professional, and even the seasoned investor, the best path can be terribly confusing. Your advisor should be able to help.
The Future of Fiduciary
The Obama administration began the Fiduciary Rule implementation, but it was very complicated and many details were not ironed out. The Trump administration has voiced opposition to the regulation, ordering a six-month delay in the rule’s implementation.
Despite uncertainty among politicians and firms, JJ Burns & Company has always and will continue to act as a fiduciary for clients. It is one of the reasons our clients trust us. It is one of the qualities setting us apart from other advisors.
We are here to talk with you anytime.
Your Whole Picture
The new rule applies only to retirement investments and 401(k)s, but we feel that your financial advisor should treat your entire portfolio as a fiduciary would. Why should they serve your best interests for retirement accounts, but not your other investments?
JJ Burns has always felt that taking the role of a fiduciary—someone who serves the best interest of the client—is important. We are happy to sit down with our clients to review investments, portfolios and personal financial plans. We always want you to understand where your money is and why it is there.
[Update: For those who couldn't attend, you can watch the webinar video here.]
What key themes will shape global markets in 2017?
After a rollercoaster year of geopolitical surprises, the outlook for the global economy remains uncertain with the prospect of fiscal stimulus, trade protectionism, and accelerated interest rates in 2017. How will these risks and opportunities affect your portfolio and business?
Join JJ Burns & Company on Thursday, February 2nd at 1:00 pm EST for a webinar to discuss the Q1 2017 Economic & Market Outlook. During this live presentation, CEO JJ Burns, Managing Director Anthony LaGiglia, and Chief Investment Officer Steven Mula will review our outlook for the coming year.
Bonus: All registrants will receive a link to the on-demand version of the webinar following its completion.
In this 30-minute webinar we'll talk about:
The resiliency of 2016 markets to Brexit, China’s transition, and the U.S. presidential election
Near-term expectations of growth and inflation
Key themes & economic trends to watch for in 2017
Plus we’ll also answer questions from attendees.
Don't miss this informative event! Reserve your spot today.
New year. New you. As we go into 2017, we’re all fired up to make improvements: diet, exercise, relationships, finances.
What do you want to accomplish this year—and in the future? It all depends…on your goals. Ever wonder why most new year’s resolutions fail? It’s because most people don’t go through the goal engineering process. (Yes, there is a science behind that.)
X person from the evening news suggests you should do this, you read Y in The New York Times, you heard Z on a popular podcast, and who knows what’s going to happen with the incoming administration.
The only thing to do is to take charge of your situation. Again, it’s about what you want to accomplish. It could be spending more time with family, getting up at 5 a.m. to exercise with a buddy or a trainer, learning a new language...or also figuring out what you want to achieve financially this year. Perhaps just pick one to start with.
There’s no time like the present to tackle whatever it is you want to do. Just like you have other advisors to help you in certain areas, begin the new year by taking charge of your finances. Base your future on what is important to you, not by a popular article you read or what you heard from an arbitrary commentator.
Instead, knowledgeable wealth advisors suggest that you take the following steps:
Envision your goals and write them down. It helps you and your financial advisor to have a tangible document of where you want to go this month, the next six months, a year, and going forward. Some people jot things down on a legal pad, others prefer creating an Excel spreadsheet, while others are more visual and like to include pictures of their goals—such as a trip, a new home or their ideal retirement—into their yearly financial plans. It doesn’t matter what your method, only that you take it out of your head and put it on paper, Pinterest, or your iPad.
Anticipate the obstacles. Any worthy goal has obstacles. Fleshing out the obstacles in advance and writing out how you will move through them will eliminate the excuse of not being able to achieve it. Think about potential roadblocks, like “impulse purchases” or expenses that you could have anticipated, which will derail a long-term savings plan.
Enact your written plan. Whether it’s saving a certain amount a month for a vacation, putting money away for retirement, making sure school tuition is paid for, taking care of aging family…it all takes consistent action. Once you’ve envisioned your goals, how are you going to get there?
Take control of your habits. Your habit to regularly save, your habit to maximize your tax advantages, and your habits to invest greatly influence your ability to make your financial plans successful. And, of course, have a habit to direct funds to what makes you happy—whether it’s giving to charity, helping a family member with college tuition, expanding your wine collection, or creating memorable experiences. Great investing and savings strategies are not temporary things you do at the beginning of the year like all those other resolutions. Simple things such as automatic deductions to your designated accounts can help you easily reach your goals without even thinking about them.
Don’t try to time the market. Instead, think about what you want your future to look like. Then go beyond wishing and take action on your future plan. Over the years, financial advisors have found that using consistent asset allocation in your plan may help you to meet or surpass your financial goals.
Create realistic expectations. No matter how thoroughly you plan your financial portfolio, even experienced investors have down years along with profitable years. In some years, you may need to make up for losses in certain investment or 401(k) accounts—and in others you may be experiencing significant growth. By talking with a financial advisor, you can make appropriate adjustments to help meet expectations.
Monitor your goals. Few people have static financial situations. Which is why a quarterly review with your financial advisor can help keep you on track or give you informed guidance to fine-tune your plan.
Be flexible to change. For some people, this is more easily said than done. However, we can’t control everything. Circumstances can alter, goals can adjust, markets can change. Working with a trusted advisor, you can work through uncertainties to keep working toward your goals.
Don’t get discouraged. If one of your goals has been to lose weight, perhaps you’ve reached a plateau at some point; if you’ve ever remodeled or built a house, you’ve definitely run into unexpected delays. The same holds true for investing. There are bound to be highs and lows along the way. We live in a world of immediate gratification so it’s natural to want to give up the minute something doesn’t turn out as anticipated. But sage advice is like a good wine—it works over time and only gets better with age. Working with an experienced advisor can help you navigate your financial and life changes. Your plan is the glue that binds you to your future goals, and it will keep you on track and in a positive frame of mind.
The start of a new year is an excellent time to take stock of what you want to accomplish in 2017, and a big part of that includes financial planning. At JJ Burns & Company, we’re here to help you achieve your goals this year—and for the future. We hope you make 2017 your best year yet.
This time of year is one of reflection. We go in and out visiting the ghosts of the past, present and future. Just as in the classic story, A Christmas Carol, we all face the decisions we’ve made—but even better, we also have the opportunity to reflect on how to improve ourselves and others.
As the end of the year nears, there’s no better time to take stock of what we want to do now—and what is in store for the future. It’s also a time to recognize the many “angels” we have around us. As much I would like to believe in fairy godmothers, or plump, pink cherubs who fly about on their gossamer, feathered wings granting wishes, there are real angels who live, work and love right here among us.
These angels include Mary*, a JJ Burns client, and her long-time caretaker Sophia*. Mary will be 100 years old in 2017. We have worked with Mary to set up and oversee her life and wealth management plan for almost 20 years.
Mary worked for many years as a college professor in psychology and had a successful private practice. She never married and had no children. Early on she shared with me that she needed a financial partner to help her make choices to give her a life that she can enjoy.
As a philanthropic person, Mary always looked to help others before herself. Whenever she could give and still be able to afford a comfortable life, she did so. She contributed to children’s education programs, religious causes and medical care in less fortunate countries. I’ll always remember when 9-11 occurred, she made a contribution to the local firehouse and they came to her home to acknowledge the gift. It was uncomfortable for her and she felt it was unnecessary. Nonetheless, the fireman showed up at her door and it was they who were honored. Mary taught me that no matter how much or little you have, you should try to help others because every bit makes a difference. She shared many life experiences with me over the years I have known her and I walked out of every meeting with her reflecting on how much I learned.
We mapped out a financial plan that detailed how Mary would enjoy her life, and when she needed care, what her treatment would look like. As time progressed and her health began to deteriorate, Mary needed more care. What became a few hours per week, eventually progressed to a full-time aide. We evaluated each aide together with written expectations of what we wanted them to do.
When we hired Sophia there was a magical connection that occurred. To see her in action and the love she has for Mary is something I have rarely witnessed. Sophia cares for Mary in every way. She shops at natural food stores so Mary can maintain a healthy diet. Her meals are home cooked and made with large doses of love for another human being. If Mary is sick, Sophia researches herbal remedies that have brought her better health.
Over the last couple of years as Mary’s mental and physical health declined, Sophia has been with her every step of the way. She arranges for a yoga instructor, physical therapy and for friends to come by and visit. Getting her hair and nails done, having lunch, going shopping or simply looking at the holiday windows are all part of their weekly activities. Mary has continued to travel to Florida and the west coast to visit family members with Sophia by her side.
I have witnessed how Sophia cares about Mary in every way. And Mary recognized early on what a special person Sophia is. Together we developed a part of Sophia’s compensation that is based on Mary living… not dying. Additionally, without Sophia knowing, Mary established an educational trust for her so that when the day does come of Mary’s passing, Sophia can live her dream of becoming a registered nurse.
As I reflect on the stories of these “angels” I recognize that setting goals and planning were the key to Mary’s success. She knew she wanted to age comfortably at home while having a trusted caretaker help do her shopping, chores, and cooking, while continuing to travel and be the adventurer she always was. Living life on her terms was vital to her.
Of course, everyone’s financial situation is different and you probably have individual goals for how you want to distribute your finances. Investing and minimizing taxes were the original contributors to Mary’s personal and financial success. Sure, she had the past—some well-earned funds to invest. She has the present—the one she enjoys with her caretaker “angel” Sophia. And now she also has a future of income security thanks to good financial planning, which allows Mary to live her life as a centurion to the fullest.
You don’t need to be 100 like Mary to appreciate a generous life. No matter what your age, you also have some “angels” in your midst. At JJ Burns, it’s always been a privilege to help our clients create the lives they wanted for themselves, for their families, for charities and for those closest to their hearts. This is what it really means to be an advisor—to be of service in the best way we know how. In this year and the upcoming ones, take some time to plan the life you want and if you have already, check in for a progress report.
From all of us at JJ Burns, we wish you a Happy and Healthy New Year!
*Not their real names.
Everyone is afraid of something. It’s true. The visceral reaction to threats, real and imagined, has driven human behavior for millions of years. As time has passed, our species has evolved from fearing simple threats from predators and harsh climates to fearing more sophisticated threats. We have mostly conquered our ‘lizard brain.’ The lizard brain (so called because it is believed that reptiles survive almost solely on its impulses) is the amygdala, which controls emotions such as fear, our survival instincts, and memory. Controlling fear is how our ancestors emerged from the cave and conquered predators and darkness. Now, millennia later, what are we most afraid of? According to Chapman University’s 2016 ‘Survey of American Fears,’ Americans are most afraid of government corruption than any other of the additional 79 topics in the survey. That’s right: we are more afraid of our own government than we are of death, disease, loneliness, war, climate change, going bankrupt, snakes and public speaking. This year, it appears, we are also afraid of our future.
Some of our recent discussions with clients have surfaced their biggest fear: the outcome of our national elections on November 8. As we might expect, investors are worried about the future because of heightened dislike for many of the candidates and an uncertain future for the economy, the markets, and their portfolios. Their collective lizard brain says sell stocks and hide, much like our primitive ancestors, and emerge when the perceived threat has passed. As we often say, we understand this reaction. We know that the markets, like people, hate uncertainty. We also know that managing our emotions – especially conquering fear – in trying times is the key to success in any endeavor. So it is today.
Remember that the market has weathered many crises since 1900: two world wars, the Roaring ‘20s, the Great Depression, the first big market crash in 1929, oil shocks, wars in Korea, Vietnam and the Middle East, the 1987 flash crash, the Tech Bubble, high inflation, low inflation, terrorist attacks on U.S. soil, the Financial Crisis, a government debt downgrade, landing a man on the moon, the Ebola and Zika scares, ISIS, the beginnings of climate change, banking crises, the rise of the internet, the rise—and fall—of communism, and so on. Through all these events, capitalism has survived and adapted and moved forward. We believe it will again regardless of Tuesday’s election results.
Here’s our brief summary of the main issues to consider when thinking about the election and the post-election markets:
The U.S. economy is chugging along in a low-growth/low-inflation environment. A recession is not on the IMMEDIATE horizon, interest-rate hikes are expected to be modest and drawn out, and the job and housing markets are stable. Preliminary Q3 GDP came in at +2.9%. As we write this, October’s payrolls number was good and included prior-month positive revisions, unemployment dropped to 4.9% and wages showed their highest year-over-year increase since 2009 (ending at +2.8%). Even market news is good: S&P 500 earnings results thus far for the third quarter of 2016 are showing improvement over the past six quarters. These data show expected improvement for the current quarter and into 2017.
The Fed is expected to use the calm after the election storm to raise short-term rates by 0.25% in December, with two additional +0.25% hikes expected next year.
The markets, and a narrow majority of the electorate, appear to favor the Democrat candidate. Mrs. Clinton has proffered a platform of change, but nothing that we see as too radical. We expect that, should she win and the U.S. Senate change control, that modest incremental legislation will be enacted to (among other things) change the tax code, work on regulatory and immigration reform and review U.S. trade pacts. The markets have, and should continue to, respond modestly.
Many of our clients have stocks and bonds in their portfolios. The stocks are expected to provide long-term growth to keep ahead of inflation; the bonds provide income and act as ballast when markets are especially volatile and investors seek safety. Adjusting this mix by using rebalancing opportunities is our best tool to keep our strategic focus and avoid costly tactical mistakes. This is what we do.
Investors need to battle their lizard brains and keep their focus on the future, not the short term. The initial fear trade is to sell and go to cash; a tried and true short-term palliative, selling stocks and sitting in cash is good for short-term peace of mind but not a long-term planning strategy. Our clients know that we believe in globally diversified portfolios, that we focus on the long-term, and consider strategy over tactics to ensure that portfolios are built to stand the weather of time rather than simply avoid today’s storm.
As always, we appreciate your confidence and would be happy to discuss any of the issues raised here or answer any questions you may have.