Hiring a Financial Advisor

So you’ve decided to hire a financial professional to help you navigate your future. You’ve talked to friends and family members, and while you trust their recommendations, putting your financial future into the hands of someone else is a very big deal. You need to do your own due diligence, but where do you start? Not all financial firms/advisors are created equal. And with all the options available to us, many people decide to go it alone out of fear. They fear they could be hiring the next Bernie Madoff, or that they might end up being a number in a long list of clients. The task can seem so daunting that it’s often easier to hire the first advisor you meet, or do nothing at all.

It’s a big decision and many don’t know what questions to ask and what to look for. The below can help provide anyone looking to hire a financial professional a place to start. The questions are not meant to sway anyone in a certain direction, but rather to help ensure you hire someone you feel comfortable with and confident in.

Understand how the advisor is compensated.

Find out exactly how your advisor is paid and make sure you understand any fees and charges – and have them in writing – before making any final decisions. Fee-only means the advisor does NOT earn any commission, while fee-based advisors can earn commissions.

I believe fee-only advisors are best. I formed this belief working for firms that were fee-based and fee-only, and witnessed the practices at each. Fee-only advisors do their best to align their interests with their clients. They don’t make money off the investments they recommend. In a fee-only structure, anything that comes out of your bottom line in turn comes out of the advisor’s bottom line. Therefore, it’s in the advisor’s best interest to only recommend investments they truly believe are in your best interest.

Fee-based advisors might have incentives to sell certain products. (Have you ever heard: “If you want to buy your financial advisor a new Mercedes, buy an annuity?”) Fee-based advisors can fall prey more easily to their clients’ views and emotions, especially during volatile markets. You want to make sure you are hiring someone that will give you the best advice, even if it isn’t what you want to hear. “The difference between successful people and really successful people is that really successful people say no to almost everything.” – Warren Buffet. You don’t want a “Yes” man. read more…

Why It’s Important to Keep Track of Improvements to Your House

Whether you live in a popular residential market like Seattle, San Francisco or New York, or have simply lived in the same home for several decades, it’s more common than ever that households are incurring taxable gains when they sell their home.

Taxable gains from the sale of a primary residence occur when the gain from the sale is above the $250,000 gain exclusion for an individual and $500,000 for a couple. This gain exclusion is available to households that meet the following criteria:

  • You’ve used the home as your primary residence for two out of the past five years (use test).
  • You’ve owned the home for two out of the past five years (ownership test).
  • You did not use the home sale exclusion in the past two years.

The gain is calculated by subtracting selling expenses and your adjusted cost basis in the property from the sale price. The adjusted basis is what you previously paid for the home plus the cost of improvements. Since you are subject to federal capital gains taxes, state taxes (where applicable) and the 3.8% Medicare surtax (in many cases as the taxable gain can be sizeable), keeping track of your improvement history can lead to significant savings on your taxes.

What’s considered an improvement?

The IRS provides the following examples of common improvements to your home that will increase your basis. read more…

Determining Which Term Life Insurance Policy Makes the Most Sense

Term life insurance is used primarily for pure income replacement (i.e., your human capital). When you apply for term life (non-permanent) insurance, you have to choose the amount of coverage you want ($50,000 to more than $2,000,000) and the term of the policy – usually a 10-, 15-, 20- or 30-year policy. The coverage amount and term depend on your specific needs, such as taking care of young children, or paying off the mortgage if you pass away unexpectedly.

Since term life insurance policy premiums stay level, i.e., the same, your premium does not change during the term. This causes the premium to be higher for longer terms. At the end of the term, you either lose life insurance coverage or apply to obtain a new policy with a different term, conditions and premium costs.

How the Premium Is Determined
Your premium is determined by your age, gender and health rating, multiplied by a stated factor for the term and coverage amount you’re applying for. The health rating component requires an insurance physical exam where a nurse visits you at home or at work, or you can go to a doctor’s office.

When deciding how much insurance to get, consider the costs of raising a child and potential college tuition, plus the mortgage, funeral costs and any other potential debt. For lower coverage amounts, such as under $250,000, many companies offer simplified issue insurance, which you usually receive advertisements for by mail from your mortgage lender or homeowner’s insurance company. This type of life insurance doesn’t require a medical exam and can be approved in just a couple of days. read more…

Why Unrealized Gains/Losses Isn’t the Best Way to Look at Performance

When trying to figure out your own performance, it’s common to look at your unrealized gain and loss first on your statement (Charles Schwab, Fidelity, TD Ameritrade). The problem with trying to evaluate performance based upon the gain and loss column alone is that it doesn’t reflect your total return and the impact of rebalancing.

Rebalancing entails selling assets that have grown beyond your target and buying assets that have fallen below your target, meaning, selling overvalued securities to buy undervalued securities. When rebalancing occurs, the assets sold likely had a large unrealized gain. Once sold, that gain is wiped out and the proceeds are re-invested in an asset that may show an unrealized loss or a much smaller gain. Rebalancing helps avoid your portfolio drifting too far from your target allocation of stocks, bonds and specialized investments to reduce your risk if the stock market were to decline. Furthermore, rebalancing takes advantage of the shift over time in which assets are in or out of favor.

Total return takes into consideration changes in the price of the asset (unrealized gain/loss), dividends, interest and capital gains distributions received. For many investments, such as more income focused mutual funds, most of the return comes from the components of total return that are not reflected in the unrealized gain or loss column on the statement. Below is the formula to calculate total return. read more…

Carter & Carter Wealth Strategies Joins Us as New Merriman Office in Eugene, Oregon

On July 1, 2017 we welcomed Carter & Carter Wealth Strategies to the Merriman team, continuing to expand our Pacific Northwest presence with a new Merriman office in Eugene, Oregon. We work with clients across the country, and are now able to provide in-person service from this location as well as our Seattle and Spokane, Washington offices.

The Carter & Carter team, led by Charlene Carter and Jenny Hector, has long provided a similar comprehensive wealth management service and shares Merriman’s commitment to serving in the best interest of our clients.

“We are excited to welcome the Carter & Carter team. Together, we will draw on our decades of experience in wealth management to enhance our combined client service offering,” – Jeremy Burger, Merriman CEO

For more information, click here to read an article on the merger, published in Eugene’s local newspaper, the Register-Guard.

Ask Merriman: SIPC Coverage

Q: Brokerage houses have additional insurance that covers certain events relative to my deposit. Should I be concerned when the funds on deposit at a major brokerage exceed the insurance limits?

Let’s assume this refers to SIPC coverage brokerage firms use. While loosely similar to the more familiar FDIC insurance to cover bank deposits, SIPC insurance is much more limited in scope.

Essentially, SIPC insurance provides coverage from loss due to the brokerage firm going out of business. It provides up to $500,000 of protection on securities and up to $250,000 in cash in excess of what is recovered. It does not provide coverage from a decline in the value of investments.

To help visualize an example of when SIPC would come into play, let’s use an example of a $5 million client account:

· Assume the brokerage firm fails, resulting in $5 billion of client claims on assets.

· Assume 90% of clients’ assets ($4.5 billion) are recovered. The actual historical recovery rate is 98.7% according to SIPC.

· The client in this example holding $5 million in SIPC eligible assets would receive $4.5 million from recovered assets and $500,000 from SIPC. The loss to the $5 million client account would be zero.

It’s exceedingly rare for a client to be entitled to recover damages under SIPC and not be made whole because of the $500,000 limit.

Also, most large brokerage firms purchase “excess of SIPC” insurance, which insures clients for any losses above the $500,000 limit.

Ultimately, clients do not need to be concerned when funds at a brokerage exceed the coverage limits.

More detailed information about SIPC coverage can be found here.


 

Do you have a question about investments, taxes, retirement or insurance? Send it to “Ask Merriman” and one of our financial advisors will help you find an answer.

Stay Informed

Stay Informed

Get the latest blog posts delivered directly to your inbox

You have successfully subscribed!

Hiring an Advisor? Watch this first.