As of October 21st, 2016 our new Maryland addrss is 6701 Democracy Boulevard, Suite 300, Bethesda, MD 20817. It is only about a 1/4 mile from our previous location. Please use this address for any mail you may send our way. The parking will be much better for clients as far as the number of spaces to park. Parking at the new location will require you to get a ticket to park. We will be validating 2 hours of parking for client meetings.
You can enter the building complex from either Democracy Boulevard or Fernwood Road.
Note, there are no changes to our VA meeting location.
Ok folks, this is a long one but an important one. I have been thinking about this post for a few weeks and trying to figure out how to explain the new Department of Labor Rule and its impact. Then lo and behold, someone did it for me in a format that you might actually enjoy. If you missed John Oliver's piece on retirement savings and the Department of Labor's Fiduciary rule then you should watch it to get a comical yet fairly accurate view of a mini-war that has been raging in the financial industry for the past several years. Everything we write here should be considered our opinions of what we think will happen in our industry.
The Department of Labor's fiduciary rule is something that we are wholeheartedly behind, despite many firms in our industry fighting very hard against it. Although it is a little more complicated than many articles make it out to be, the heart of the rule is what is important. Client interests should be ahead of anyone else's. Currently, we are a hybrid firm. This means we are fiduciaries for a lot of accounts and not for others. Confusing, right? Not only that but we may be a fiduciary on one account for a client and not on another one for the same client. Thus the DOL rule.
Some investments only pay commissions and even if we think they make sense for a client the investments may not fall under a fiduciary standard because they are under the purview of FINRA. We utilize a broker dealer for these types of things. On the flip side we use the Registered Investment Advisor side of the broker dealer for our fiduciary business. This falls under the purview of the SEC which calls for a fiduciary standard. Most of Divergent Planning's business is "fiduciary business" or "fee based business".
Why would anyone fight this rule?
Large organizations don't like change. Change is expensive. One thing to keep in mind while watching Oliver's video is that the "Financial Services Industry" did not all fight the rule. In fact it was pretty much only large brokerage firms, banks and insurance companies. They have their public reasons and then they have what we feel are their real reasons.
The biggest argument they are trying to make is that it will lead to a large amount of investors who won't be a able to find advice. We feel this is not only false but see the rule potentially spurring a growth in tiny independent advisors who serve "smaller" clients in an efficient and technologically driven way. Just because a large brokerage firm isn't structured to make a profit on a "small" client doesn't mean a small independent firm can't
The more truthful reasons, in our opinion, is not surprisingly money. There are a lot of fees that are hidden in investments. They are outlined in prospectuses but since investors don't pay these fees directly they may forget the fees are there. These fees are huge in terms of revenue for many large firms. These fees were in jeopardy during the DOLs various iterations of their rule. The final rule actually allows for these fees to potentially stay in play but not without further disclosures and tougher administration which means a great expense to the companies.
Individuals don't always love change but a firm like ours is very nimble and forward looking compared to the large brokerages and wire houses. Advisors who work for banks, brokerage firms, insurance companies and don't do fee-based business will have to make some major decisions in the coming months. One fear for them is a potential disruption to their commission based business. It may not be as easy for them to see an immediate "payoff" from a big client like they have become accustomed to. In a commission based system a $5 Million dollar client could mean a big paycheck is coming to the advisor. Under a fee based system there is no big paycheck from this client. Instead it is a stream of much smaller fees over a period of time. Personally, we would have liked to see a complete elimination of commissions on all investments. The UK did this years ago and Australia has a similar rule in place and guess what? Their advisors aren't starving.
There are also some organizations we feel are on the wrong side of this. For example, the Financial Services Institute which we are members of (probably for the last year) are against the rule and have fought hard against it. They are mostly funded by large organizations. On the flip side the Financial Planning Association and the Certified Financial Planner Board are for the rule. These organizations are funded by due paying individuals.
In our opinion the only real downside to the rule we see was illustrated in Oliver's piece when he discussed annuities. There is no doubt that annuities can be misused but they also can be very helpful for certain portions of a clients investments. The issue is when someone puts too much money into these. Many annuities pay up front commissions but the good news is many more are starting to stop up front commissions and move to a more fee based approach. Hopefully this will help annuities to not be vilified so much. Its the fees and commissions that make them the easy target.
There will be industry changes. Commissions will start to decrease if not disappear. Fee based firms will become more prevalent. Fees will become more competitive which means fees could start to decline. That is good news for investors. As for us, we won't starve.
As always, let us know if you have any questions.
We are extremely excited to announce the addition of a new member to our team. Natalie Brock has joined Divergent Planning as our Operations Manager. She will be in charge of overseeing client service and processing as well as meeting management and preparation.
Natalie Brock began her career in communications in 2002 as an intern at The Late Show with David Letterman. Following her time at the Late Show she worked her way through numerous television productions before settling in to the business and legal affairs department at Discovery Communications. Her ability to handle big name talent and negotiate with Hollywood agents proves to be an asset in working closely with the partners at Divergent Planning.
Natalie was raised in Cheshire, Connecticut and attended Penn State University where she earned a degree in Broadcast Journalism. She now resides in Loudoun County, VA with her husband Matt, their daughter Mila and chihuahua Peanut.
Natalie loves to attend spin class, is an avid yogi and occasional blogger. She loves to get her hands dirty (or at least covered in paint) with a good project around the house. Natalie enjoys spending free time with her husband and family in the Outer Banks of North Carolina (where she grew up vacationing and was also married). During weekends she can often be found exploring Loudoun County's ever expanding wine country.
Natalie can be reached at firstname.lastname@example.org
Our financial planning platform, eMoney, made a major announcement last week. They were bought by Fidelity. There was an immediate reaction to the news around the financial services community. There were some voices of reason among the negativity and even some positive reactions. I wanted to let the news settle a bit before reacting and explaining it to clients. I am still not sure this is something you care to know but one of our core values is transparency.
Our first reaction to the news was not not panic. I stay very in touch with the technology side of our industry and I know there are tons of phenomenal people constantly working on amazing planning tools. If I need to I can do a financial plan with a calculator. Usability, ease of integration and the client-side website are the things we hold important in our planning solution.
eMoney is considered by many to be the “best of breed” planning software in our community. Its cost is relatively high but so is its value. We did, however, contemplate making a switch about 18 months ago because we felt its interface and usability was falling behind. But, they announced they were redesigning the client-side site and redoing the advisor-side of their system. We waited. The improvements were worth the wait. We absolutely love where things are now.
We make two promises to clients. First, if Fidelity lets eMoney fall behind we will move on to something better. Second, if Fidelity decides they are going to mine the data in eMoney for any purpose we will move on. Neither of those things are acceptable.
The announcement by Fidelity claims they plan to leave eMoney as a standalone entity. The founder and CEO is staying on for now as well. This leads to the question….then why buy them? The highly respected, Michael Kitces, believes it was probably for eMoney’s client facing site. I tend to agree with him. Hopefully this means it will get even better.
Lastly, I think this is good for the overall planning community. eMoney is the leader and has been for years. I think it has lead to a lack of innovation in the space. This is a huge opportunity for some of the other tools to grow and try to take some of eMoney’s marketshare. I look forward to the innovation.
If you have any questions, let us know.
Several years ago the IRS changed when fund companies had to have their final numbers out for capital gains, income, etc. They bascially have until mid February which means your brokerage account 1099s and other tax documents may not be finalized until the 2nd or 3rd week of February.
The good news, Pershing does post "draft" versions to your NetxInvestor site. There may be an adjustment done to your final numbers later in February but you can at least have your taxes almost done. You can also give your CPA the draft documents. In fact, they would probably appreciate having the draft version so they can get an early start on your tax return as well.
Remember, if you signed up for paperless delivery of your statements and documents you will need to log onto www.netxinvestor.com to retrieve your tax statements. Log in and click on “Communications” and then on “Tax Documents”.
If you have accounts with any third party investments through us then you will get those tax documents directly from those investment firms.
We also get questions each year about rollovers. If you rolled over an IRA, 401k or other retirement account in the previous year, you will received a 1099 from the previous company. This is not them saying you owe taxes. It is them letting you know what they are sending to the IRS. It is your responsibility to make sure your tax return reports the rollover as non taxable on your taxes (assuming it was fully rolled over into an IRA).
Let us know if you have any questions.