This week I read, watched, and listened even more than usual; I give the credit to my 2 month-old son's newfound ability to sleep through the night for 9-10 hours.... Needless to say, I'm a new man.
What stood out to me this week was some renewed appreciation for the F-Word, the importance of saying "No", and a reminder to get proactive about tax planning.
Adam Harding, CFP / Smartvestor Pro
If this is your first time receiving this email, here's some background: "Three Things" is a quick weekly email to recap some things that stood out to me in the previous week. I try to find inspiration in articles, videos, images, and anything else that I can tie into a financial planning or investment tip. Let me know if there's something you'd like to see covered, or if you happen to spot something interesting which you'd like to share. I hope you find this insightful!
The F-Word... It's not what you think.
Supporting Article: Financial Advisor
F-Word = Fiduciary.
(Sorry for the dramatic headline... It was a shameless attempt to attract eyeballs and clicks. But now that you're here, stick with me, this is important).
For those that don't know what it means to be a fiduciary, the definition is fairly straightforward:
A fiduciary is a person or organization that acts on behalf of another person or persons to manage assets. Essentially, a fiduciary owes to that other entity the duties of good faith and trust. The highest legal duty of one party to another, being a fiduciary requires being bound ethically to act in the other's best interests. (Source: Investopedia...for more, click here)
On October 1st, the CFP Board's new standards of conduct for its charterholders became effective. These new standards enforce a fiduciary duty in order to hold the designation. This new standard doesn't affect the way I do business, since I've always been a fiduciary, but it sends a message to the rest of the financial community.
These new standards absolutely will affect CFP advisors who build financial plans and craft recommendations with an end-goal in mind: recommend a specific product that may benefit the advisor and may not be the best for the client.
As the saying goes, "To a hammer, everything looks like a nail."
Or in this case, "To a life insurance or annuity salesperson, every financial plan points to one place."
The CEO of the CFP Board came out saying that he hopes the number of CFPs doesn't fall as a result of this new ethics and conduct enforcement, but that they recognize it may happen... In short, to be the gold standard in financial planning, we need to weed out some bad apples even if it comes at the expense of widespread adoption of our designation (and the associated membership fees).
There are A LOT of designations in this industry and some of them are easy to obtain and maintain. Others are difficult to get in the first place (I spent 2 years studying material and passing 7 individual exams and then a two-day, comprehensive 10 hour exam) and they require a more strict adherence to principles designed to improve the lives of clients and the image of our industry.
I'm proud to be a CFP charterholder and their commitment to the F-Word.
Some Thoughts About Saying "No" and the need for Focus.
Article: Warren Buffett: “Really Successful People Say No To Almost Everything”
Financial professionals loveto quote Warren Buffett (I'm guilty). Usually the quotes are about investment wisdom, behavioral finance, or just plain common sense.
However, in this case, his wisdom is about FOCUS... and focus is about setting priorities...and priorities should be the driver of every single financial plan and investment decision you make.
I recommend you go through the following exercise recommended by Buffett:
- First, Buffett recommended writing down the top 25 goals on a piece of paper. Go ahead and write your goals down now (25 is a lot, but you'll get there).
- Next, circle the top 5.
- Finally, take the 20 goals you did NOT circle and put them on an “avoid-at-all-cost” list. This is the step where things get a little weird and you might be saying, "Should I completely ignore the sixth most important thingin my life?" According to Buffett, yes. Only when your Top 5 goals are met should you begin to work your way down the list.
This approach is strict, but important to consider. Simply put, the areas that receive our focus are those which can be improved. In order to apply our focus to certain things, we must say "no" to a lot of others.
When investing, we always must come back to the purpose for the investment and how it relates to your Top 5.
Note: This whole article in the link above is good. I only focused on small piece of it but I recommend the entire thing.
Tax Optimization Meeting
Source: Harding Investments & Planning
Tax law in America is painfully complicated and we are not tax advisors.
Not a Disclaimer:
We can help quarterback your team's offense (your investment portfolio, your tax advisor, your estate planner, insurance needs, etc.) to work well together. Simply put, we know enough to lay out the framework for your plan, but then a CPA can add their expertise to make sure the design is comprehensive.
With that said, we've officially reached the time of year when tax optimization becomes a priority. Many people think of spring as Tax Season, but that's just about getting organized to file your tax return by April 15th. By then the opportunity to make an impact in your tax situation has mostly passed.
Proactive planners have until 12/31 to implement or contribute to certain retirement plans, to convert pre-tax assets to Roth, and to recognize gains or losses in a strategic way.
Over the last week I've been scheduling my annual Proactive Tax Planning meetings to help see where we can add value prior to year-end and I'd like to invite you to do the same....
If you'd like to schedule this discussion use the link below:
For clients: https://calendly.com/hardingwealth/year-end-tax-planning
For non-clients (15 minute limit): https://calendly.com/hardingwealth/tax-optimization-meeting-non-client
We don't have control over everything in our financial lives --impeachment proceedings, moves by the Federal Reserve, company earnings, terrorist attacks, and Tweets are out of our control.
Evaluating ways to optimize your tax situation may allow value to be added without the emotions and unpredictability of the markets.
That’s all for now, have great week!
Adam Harding, CFP®
Three Things: October 21, 2019
October 21, 2019