News & Insights

Beware the Ides of March: Are You Your Own Retirement’s Worst Enemy?

by Financial Alternatives on 3/7/2018

The Ides of March commemorate Julius Caesar, the Emperor who significantly expanded the Roman Empire — only to meet his demise by a conspiracy carried out by his own people.  Just as Caesar’s fate turned to misfortune as a result of his tragic flaw, we see people who are their wealth’s worst enemy. If you’re making these retirement planning mistakes, it’s best to seek counsel before the bright day brings forth the adder.

Making Emotional Decisions

In our decades of experience, we’ve seen examples of perfectly rational, logical people who make emotional decisions that lead to their finances becoming compromised. Unfortunately, being called in to be the independent voice of reason after the fact is a step too late.

A common emotional trap that people run into when managing their own money includes holding on to company stock or an inherited position for nostalgia reasons. This can lead to dangerously undiversified portfolios.

Timing the Market

Very few people get this right. Most of the time, trying to sell at the top of the market and buy when the market has dipped creates more trouble than it prevents. Even professional money managers can’t successfully time the market.

Choose an advisor who will balance your needs for principle protection, income, and growth against market conditions. This approach, rather than one of reactive trading, is the best way to create long term growth.

Being House Poor

Buying a house that is beyond your means is a common retirement planning mistake.

The American Dream can turn into a nightmare if you’re living beyond your means with your real estate. People’s eyes being bigger than their wallets turned against us a decade ago when the real estate bubble burst, causing the largest systematic failure of the banking system that our country has ever seen.

While the crisis has passed, some families are still getting themselves into trouble by spending beyond their means, incurring too much mortgage debt, and limiting their financial flexibility.

Several years ago, we worked with a couple who continued to maintain a poorly performing rental property because they had already sunk so much money into it. They also kept holding on to it for sentimental reasons. We evaluated the property and had them make a realistic outline of cash flows, demonstrating how it affected their tax planning and retirement goals.  This helped them make a difficult choice in a more informed and prompt manner.

Cash flow and budgeting are just one part of financial planning. A complete strategy should be designed to help you with all aspects of your financial life, not just house purchases.

Not Enough Insurance or Estate Planning

Everyone with dependents knows that they need to manage the risk of an untimely passing, but very few people actually wind up with the right amount of insurance protection. This is because many insurance agents are not diligent in conducting an analysis prior to selling the insurance. People often have way more or, more commonly, way less than they need.

One of the important parts of how we work together with clients is our insurance analysis. Your advisor should go through such an exercise with you as part of your planning.

We also help clients work with an attorney to draft will or trust documents which make sure their dependents are taken care of correctly in the case of their passing. People tend to shy away from this as nobody likes to think about dying. It can also be a bit intimidating to work with a lawyer who bills by the hour. We help our clients navigate this challenge and put a will or trust in place that will last throughout time.

We had a client a few years back who was having difficulty with their estate planning because they had accumulated various residential properties over the years and had a hard time deciding how to fairly transfer ownership to their children – while limiting any cause for infighting or resentment. We conducted several meetings to help the client get a clear picture of what they wanted. Then by encouraging open family meetings and collaborating with a qualified estate planning attorney, we were able to set up a plan that will appropriately handle the future ownership and management of their properties.

Working with the Wrong Planner, or No Planner at all

In our experience, working with the wrong planner or no planner causes some things to end up slightly wrong, while other things end up totally wrong.

We recently worked with a married couple that had been sold several different annuities and life insurance policies over the years. The products were not managed after they were sold and the commissions had been paid. These annuities and life insurance no longer served a clear purpose that the client understood. We helped evaluate the merits of each annuity and insurance policy; we showed how they fit into the clients’ plans and what alternatives were available. Afterwards, we assisted the client with replacing and surrendering their expensive annuities; we also helped them fit their life insurance into a broader estate plan.

As this example illustrates, commission-based reps can burn you and lock your money into high fee products that aren’t in your best interest. We recommend that you hire a Fee-Only financial planner who works only for you, not for a financial institution. Such a professional should be committed to a systematic, detailed, and integrated process.

For more insight on how to do this, please read our blog post entitled, “How Are Your Financial Institutions and Advisor Compensated? It’s Important” by clicking here.

Some people can do a decent job of managing their own finances but most of the time it takes a qualified professional to really do them justice. In our experience, we’ve found that most people who are DIYers lack the time to pay attention to all the details. It takes just one beneficiary designated incorrectly to spoil an entire estate plan. It takes one incorrect tax move to ruin an entire decade of tax efficient investing.

Even if you want to be in the driver’s seat, you should at least have a Plan B who can step in if something were to happen to you. And, you should regularly consult with this person to get a second opinion to ensure that you’re not making any major mistakes.

Summing It Up: Retirement Planning Mistakes to Avoid

The Ides of March happen once a year, but poor financial decision making is unfortunately present in the lives of many all year long. If you would like to know how well your decisions align with your long term goals, please contact us for a fiduciary review.

The case examples above are for illustrative purposes only and are intended to demonstrate the capabilities of Financial Alternatives, Inc. They are not intended to serve as individualized legal, investment, accounting or other professional advice.

posted in BlogGeneralPersonal Finance

How Are Your Financial Institutions and Advisor Compensated? It’s Important.

by Jim Freeman, CFP® on 1/19/2018

Wells Fargo is the latest example of a financial institution harming its clients by creating a compensation structure that incentivized employees to act contrary to their clients’ best interest.

Regulators found over 3.5 million fake credit card and bank accounts created by Wells Fargo employees who were pressured by managers to meet unrealistic sales goals. Wells Fargo was also caught selling nearly 1,500 renters and term life insurance policies to clients without their knowledge.

How in the world could this ever happen?

Some Wells Fargo customers said bank employees lied to them saying they were giving them a quote when in fact they were unknowingly being signed up for a policy.

When these issues were initially uncovered, Wells Fargo fired thousands and tried to lay the blame on these rouge employees. But as the truth came out, it was obvious that the problem lay with management’s incentive compensation structure. In reality it was the leadership who had put extreme pressure on employees to sell products in an effort in increase profits and thereby increase bonuses.

Misguided Incentive Structures Are the Rule, Not the Exception

Some people were surprised at what Wells Fargo was up to. I was not in the least bit surprised.

In general, financial institutions and their salespeople exist to maximize the profits of the corporations they work for, and hence compensation. To generate higher profits you need to sell products that have higher profit margins which are naturally more expensive to clients.

Let’s take a look at a simplified example to show how powerful these incentives really are.

For our simple example, let’s say an investor walks into a financial institution with $1,000,000 that they just inherited and need to invest  into a long term investment.

The financial salesperson discusses two options for this investment. The first option is an annuity plus a private REIT (real estate investment trust). The second option is a portfolio of low cost no load mutual funds. Remember this investor is relying upon the sales person to tell him which option is the best option for him.  In most cases, the unsophisticated investor will go with whatever the professional’s recommendation is.

Now let’s look at how the compensation works in both scenarios:

  • If the prospective client goes with option one, the financial institution will earn a commission of $50,000 or more as soon as the investment is made and then a much smaller trailing commission each year thereafter.
  • If the prospective client goes with option two, the financial institution will earn a fee of $2,500 as soon as the investment is made and then they will be paid roughly $2,500 a quarter, increasing each quarter as the value of the portfolio increases going forward.

As you can see, it would take over five years for the compensation paid from option two to even begin to approach option one. The incentives to sell option one are enormous.

Even if the broker feels that option two is a better one for this client, the pressure from his manager and company to sell option one will be severe because the rewards to the institution are so much higher.

Step 1: Hire a Financial Advisor Who Works Only for You – Not for a Financial Institution

You can beat these self-serving, conflict-ridden financial institutions simply by hiring an advisor that is 100% compensated by you and 100% loyal to you. Such an advisor is known as a 100% fee-only advisor.

The advisor must be free and independent of all financial institutions. Because such an advisor is only paid by you, he or she will naturally be completely loyal only to you.

It makes sense because now your advisor is being paid to work for you rather than for a financial institution. Your advisor is being paid to research, know and introduce you to the best financial institutions and financial strategies without an ulterior motive of selling you products that will boost some financial institution’s bottom line.

They will introduce you to institutions known for their low cost and solid performance such as Vanguard Investments and Dimensional Fund Advisors.  If you need insurance, your advisor is now being paid to help you find a carrier offering the least expensive (yet highest quality) insurance products without an incentive to steer you in any particular direction.

Hiring a 100% fee-only advisor can transform your financial and investment planning.

Step 2: Hire an Advisor Who is Committed to a Systematic, Detailed & Integrated Process

To get the absolute most out of your fee-only financial advisor, be sure to select one that is committed to a systematic, detailed & integrated financial & investment planning process.

Your advisor’s process should integrate and coordinate all areas of your finances, and your advisor should work in concert with your other advisors such as your CPA and estate planner. If you select your advisor well, you should look back years from now and feel that this was one of the best decisions that you ever made.

If you would like to know if your advisor is truly acting in your best interest, contact us for a fiduciary review.

posted in BlogPersonal Finance

What High Earners Should Know About the Tax Cuts and Jobs Act

by Ellen Li, MSBA, CFP® on 1/5/2018

Understanding the implications of the 2017 Tax Cuts and Jobs Act is important for any high earner, or high earning family, who wants to maintain its financial success.

As illustrated below, the recent tax reform will modify the tax rate for high income earners. But that’s just where it begins. High earners should also be aware of how the tax code will significantly impact the decisions you are making about your healthcare, business, and gifting decisions.

Table Source: “Highlights of the Final Tax Cuts and Jobs Act, “ by Tim Steffen, 2017 (
Read more

posted in BlogGeneralPersonal Finance

5 Year-End Tax Planning Tips for 2017

by Chris Jaccard, CFP®, CFA on 12/1/2017

Here are a some tax-planning techniques and strategies you can still consider in the last few weeks of the year:

1. Watch out for large mutual fund distributions this year

Many mutual funds have realized large gains and typically distribute those gains in November and December.  Don’t buy a mutual fund in your brokerage account right before it makes a 10%, 20%, or 30% (of NAV) distribution – it just turns part of your purchase into a taxable event!  Look for widely published estimates, and if expected to be large, make sure you buy shares after a fund’s ex-dividend date.

Read more

posted in BlogPersonal Finance

Embracing Retirement by Making the Right Housing Decisions

by Ellen Li, MSBA, CFP® on 9/22/2017

As a busy financial advisor and  mother, I like to balance myself with the practice of yoga. To me, yoga is more than just the practice of body movement, it’s  also an exercise of mental discipline.  Recently one of my favorite instructors used “embrace change” as our mantra and it really resonated  with me both  professionally and personally.

At Financial Alternatives, we recently helped two clients make new housing choices in their retirement years — one client remodeled their house and redesigned the living space on the first floor to make living there safer and more comfortable. The second client decided to move to an assisted living facility. In both cases, it was a transition, a new change that our clients embraced with courage and wisdom.  Stories such as these show the importance of making the right housing decisions  during your retirement years. These decisions could  have a tremendous effect on you  both financially and emotionally.

Read more

posted in BlogGeneralPersonal Finance

5 Steps to Take After the Equifax Breach

by Chris Jaccard, CFP®, CFA on 9/14/2017


Now that some of the dust has settled on one of the worst cyber security breaches in history, we think everyone should go through the 5 steps listed below.  Why everyone?  Because there is no way to be certain if you have been affected by the Equifax breach or not.  I entered false info to test Equifax’s verification site including a last name of “test” and a SSN of “123456” only to find that it positively identified me as a person impacted by the breach.  [9/16/17 Update: Equifax’s Chief Information Officer and Chief Security Officer are “retiring” and their internal investigation continues.]

Also, please make sure everyone in your family has taken these steps including your spouse, kids in college, domestic partner, and perhaps even minor children.

Step 1: Review Your Credit Report

Use the Annual Credit Report site to review your credit report from at least one of the three listed credit reporting agencies (“CRAs”).  By law, you are allowed one copy every 12 months, so we suggest you request a report from one of the three CRAs every 4 months.  Check for rogue activity or inaccuracies, and contact the CRAs to address the issue.

Read more

posted in BlogGeneralPersonal Finance

New Medi-Cal Recovery Laws; another Reason Why Proper Estate Planning is Needed

by Ellen Li, MSBA, CFP® on 5/24/2017

Long –term care in nursing homes, assisted living facilities, and home care can be very expensive. If you don’t have substantial assets or a good long term care insurance policy, the cost of care may deplete your assets over time.

What happens then?

If you qualify for Medi-Cal, (California’s version of Medicaid), it will pay for the cost of care, subject to recovery (repayment) from the estate when the recipient dies. In the past, the aggressive recovery program  put an inordinate burden on the heirs and survivors who were sometimes  forced to sell the family home to pay the estate claim or forced to sign a “voluntary lien” which accrued at 7% annual interest.

Read more

posted in BlogGeneralPersonal Finance

5 Tips on when to file your tax return (and when to expect the information you need)

by Chris Jaccard, CFP®, CFA on 2/28/2017

Depending on your sources of income and the types of investments you have, it may be a good idea to wait to submit your tax return until close to the April filing deadline.  Based on our experience, here are some thoughts on the timing of your preparation and when you can expect to get all the information you need.

1. Potentially File Early

If you have a relatively simple tax return and only have wage (W-2), contract work/rent (1099-MISC), or social security (SSA-1099) income, you should have everything you need to file your taxes by mid-February.  Basic 1099-INT or 1099-DIV forms should be available by early February.  Also note that the IRS does not require banks or investment custodians to send some 1099s if the amount to be reported is less than $10.00, so you don’t need to hold out for “de minimus” information like this.

Read more

posted in BlogPersonal Finance

Scam Watch: Protect Yourself From Phishing Schemes

by Thao Truong on 11/4/2016

It has recently come to our attention that the clients of some of our colleagues have reported a jump in the number of phishing attempts on their investment accounts. Although we haven’t heard this from any of our clients recently, we understand that becoming a cyber-security victim can be very painful and costly.

We continually upgrade our systems and procedures to help prevent and detect unauthorized access, but hackers are getting smarter and bolder. Because security is a shared responsibility, we think our clients and others need to know what a phishing attack looks like and what steps they can take to defend themselves.

Read more

posted in BlogGeneralPersonal Finance

Cancel your Covered California Plan When You Turn 65

by Ellen Li, MSBA, CFP® on 9/27/2016

If you have a Covered California plan, chances are that you also receive tax credits that reduce your monthly insurance premiums. When you turn 65 and enroll in Medicare, you become ineligible for those tax credits, which can amount to hundreds of dollars a month. As a result, you will not only lose your tax credit but you will also need to start budgeting for the premiums on Medicare Part B & a supplemental plan.

Read more

posted in BlogPersonal Finance

Blog Topics

Featured Literature



Receive updates by email.


Posts are general in nature and do not constitute the rendering of legal, investment, accounting or other professional advice.