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How Accountants Should Find a Financial Advisor to Work With

by Financial Alternatives on 1/15/2019

How can accountants find a great financial advisor to partner with?

Finding the right financial advisor to partner with from a practical standpoint has been, well, a source of much frustration for many CPAs we know. So we’re putting together a sketch of how accountants who want to expand their margins, offer a higher level of service to their clients, and grow their practices through partnering with a financial advisor should go about finding the right one.

#1 How is the advisor compensated?

It matters.

The way an advisor is compensated can create conflicts of interest that influence how their clients – and your clients – will be treated.

Advisors can get paid in many ways, each bringing varying levels of objectivity. Some advisors are paid on commissions – either fully or partially. This may mean that the advisor is held to a suitability standard and must make sure that the recommendations he or she makes are proper given the client’s profile. However there is nothing to say that they are the most proper solutions available given the opportunity set, or that the client’s best interests are truly placed before the person advising him or her.

It would be a wise decision for accountants to consider fee-only Registered Investment Advisor (RIA) firms who work in the sole best interest of the client. These advisors are fiduciaries in the true sense of the word. They are obligated to put the client’s best interest before their own.

Because these advisors are paid the same regardless of what they recommend, you are less likely to have to worry about him or her suggesting that your client buy high fee insurance products or mutual funds when there are better, lower cost options available that would serve the client better.

Word to the wise: fee-based is not the same as fee-only. A fee-only advisor is a fiduciary who can not accept commissions while a fee-based advisor may accept either commissions or fees.

#2 Look at the depth of their team

Generally we recommend that accounting firms of a particular size, whether they be sole proprietors, small businesses, or medium sized enterprises, partner with financial advisor firms of similar size. This usually creates parity in terms of expectations, resources, and workload.

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posted in BlogGeneralPersonal Finance

The Surprising Truth about Women and Stock Options

by Financial Alternatives on 12/10/2018

The surprising truth about women and stock options.

A recent article in Bloomberg revealed some shocking data about women being underpaid relative to men – in the progressive technology sector, of all places. As per a study by Carta, “women hold 47 cents for every dollar of equity men do” (Greenfield, 2018). These results should not be taken lightly; here’s why this imbalance may matter for female executives and what they can do to change it.

What the Imbalance Looks Like in Reality

It’s surprising to think that in an industry known for innovation and transparency such a striking disparity would prevail. But nonetheless, let’s suppose that it’s true; what if women do in fact hold less equity in technology start up firms than men.

So what?

Let’s see how this translates in reality. Think about a man and woman who are equivalently skilled and qualified, performing the same job responsibilities for which both earn a salary. For the sake of discussion, we’ll call them John and Sally.

Throughout the year, John and Sally chug along merrily taking home their paychecks each week. It’s a known fact that women tend to be underpaid relative to men when it comes to salary. But a salary is a set amount and it’s not likely she earns less than 20-30% of what he does even given the “gender discount.”

What does it mean when a woman holds less of a stake in a highly profitable tech firm that, say for example, goes through a $50MM IPO?

Let’s apply the 47 cent ratio mentioned above. Let’s say this applies universally across the company. There is $50MM of equity to be divided up; women get $16MM while men get $34MM. According to these numbers, Sally takes home $1.6MM while John takes home $3.4MM.

It’s massive.

The difference in wealth between John and Sally’s salaries is nothing compared to the fact that men are theoretically taking home in some instances twice the amount of money than women when the company hits jackpot.

What’s unfortunate about this is that many people take stock options in lieu of salary (aka “sweat equity”). They grind it out in hopes of a better day. It doesn’t work out all the time but you would only hope that when it does the contribution that John and Sally have made would pay off equally regardless of their different genders.

Let’s look at what could possibly be driving this.

Probable Causes

There is no one clear factor that can be cited as the cause for women’s smaller equity stakes. Possible reasons may be the following.

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posted in BlogGeneralPersonal Finance

The Trouble with Trusting Your Stock Options

by Chris Jaccard, CFP®, CFA on 11/27/2018

Here's the trouble with trusting your stock options.

Stock options are great for established companies who want to reduce their tax bill, startups who don’t have a revenue stream, and many others in between. But do they always make sense for the employee? Here are some scenarios when you should push back on a stock option offer, and the questions to ask to avoid locking yourself into an unfavorable one.


posted in BlogInvestmentsPersonal Finance

How Smart a Charitable Giver Are You? Take this Quiz!

by Ellen Li, MSBA, CFP® on 11/27/2018

What kind of a charitable giver are you? Take this quiz.

As the holidays is when many people make charitable donations, it’s a good opportunity to brush up on your giving IQ. Are you making the right moves to maximize value for both you and the charity? How smart a charitable giver are you?

Take this 5 question quiz to find out!

True or False: You can donate and still reap tax savings additional to the write off.


Many people are surprised to hear that you can donate and still get the benefit of additional tax savings in excess of the tax write-off you earned.

For example, one of our clients was donating $10k a year to charity in cash. After we discussed the benefits of other strategies, she decided to use a Donor Advised Fund (DAF) to give appreciated assets she held in her portfolio. These investments bore a low cost basis, and if she sold them she would likely have incurred substantial capital gains and a big tax bill.

By using a DAF, she earned both a tax write off and tax savings on the appreciated positions. What a pleasant surprise!

Multiple choice (select at least one option): Which of the following groups of people can engage in charitable planning?

  1. Affluent individuals with over $1MM of net worth or who are earning high income
  2. People who are beginning to save and invest
  3. People with low income and substantial assets
  4. Retirees

Answer: 1, 2, 3, and 4

There is a popular misconception that only millionaires can benefit from charitable planning. The reality is that there are a variety of different ways that strategic giving can help people who are at all different points of life.

For example, did you know:

  • That people older than 70½ can take a qualified charitable distribution from their IRA accounts?
  • That people with low/no income but a large capital gain on assets held can use donor advised funds to save themselves from having to pay a huge capital gain on selling those assets?
  • Some charitable tools (such as a charitable annuity or unitrust) can actually create income while allowing the donor to give at the same time. This may be opportune, for example, for donors who still wish to have some income protection in their retirement.

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posted in BlogPersonal Finance

Don’t Forget Your End of Year Tax Planning!

by Chris Jaccard, CFP®, CFA on 11/16/2018

Don't forget your end of year tax planning!

As open enrollment season and the calendar year comes to a close, late-stage tax planning often comes into focus.  Just sticking with your current employment elections may be mistake – there are several end of year tax planning options to consider. Here are a few items on the list for you to check as the year winds down.

Health Insurance

It would be wise to keep in mind what the final parts of the Tax Cuts and Jobs Act, signed December 2017, will eventually mean for your healthcare planning.  Although a few of the provisions of the act don’t apply until 2019, they are still important to consider.

The two most significant would include:

  • Medical expenses must exceed 10% of your adjusted gross income to be deductible starting in 2019. Previously only expenses over 7.5% were generally deductible.
  • Penalty payments will no longer be assessed for not purchasing health insurance meeting ACA guidelines.

Given this, it’s quite likely that health insurance costs will see a significant increase next year – particularly for those with individual rather than group policies.

What actions should you consider taking?

Brady Bunch It Up

Consider bringing some medical expenses into 2018 to exceed the lower threshold; afterwards, you can try grouping your medical expenses into one calendar year again in the future — but at the higher hurdle rate.  This late in the year, consider any discretionary medical expenses that you have been putting off such as dental or vision work.

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posted in BlogPersonal Finance

The #1 Thing That Most Executives Aren’t Doing With Their Stock Options and Executive Compensation Plans – and What It May Be Costing You

by Jim Freeman, CFP® on 10/23/2018

Executives are constantly overlooking the automation of their stock options - here's how to do just that.Executives who are time-constrained yet serious about reaching their financial and investing goals commonly overlook one important factor: automation. Set up your plan so that it will be automatically executed without you having to remember what decisions were made. Automate, automate, automate! Here’s why.

A Typical Executive’s Financial Snapshot

Let’s say that you are an executive for a successful company that offers the following executive compensation:

  • Salary & Bonus $350,000
  • Restricted Stock Units (RSUs) of $150,000 annually
  • Stock option grants annually
  • A deferred compensation plan
  • An employee stock purchase plan (ESPP)
  • A matching 401k plan

We also assume your portfolio is overweighted to your company’s stock and you’d like to gradually reduce this overweight. In addition, let’s suppose you are in a high tax bracket and you’d like to reduce your taxes if possible during your peak earning years. You also want to begin saving money for your kid’s college costs, have your mortgage paid off in 10 years, keep your spending to $200,000 per year and aggressively reduce your stock option holdings if your company stock hits certain price targets.

If you’re doing this all manually, as most executives are, you may not realize how much time you are spending on tasks that could easily be achieved in a fraction of the time. In addition, automation reduces the risk of error.

The Automation Advantage

So how could an executive go about reducing the amount of manual work that is done in their financial and investment planning? Here is how this might look.

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posted in BlogInvestmentsPersonal Finance

Market Review – Q3 2018

by Financial Alternatives on 10/16/2018

  • Looking at broad market indices, the US outperformed non-US developed and emerging markets during the quarter.
  • Small caps underperformed large caps in the US, non-US developed, and emerging markets. The value effect was positive in emerging markets but negative in the US and non-US developed markets.
  • REIT indices underperformed equity market indices in both the US and non-US developed markets.
  • Quarterly Topic: Total Cost of Fund Ownership. The article starting on page 16 illustrates to importance of mutual fund operating costs and that investors should consider going beyond expense ratios when evaluating options.

posted in InvestingNewsletters

Planning Newsletter – Oct 2018

by Financial Alternatives on 10/16/2018

Year-End Tax Planning

If you have not already completed your year-end tax planning, now is the perfect time to do so. Don’t wait until December when the holiday rush kicks in and you and your advisors have less time to devote to this very important task.

  • Year-end tax planning could save you thousands of dollars in taxes.
  • Automating the execution of your financial planning and investment decisions will assure their implementation.
  • Every business and family needs up to date and accurate books and records.
  • Use technology to automate tracking of your assets, liabilities, income and expenses.

posted in NewslettersPlanning

Financial Survival Tips for the Sandwich Generation

by Ellen Li, MSBA, CFP® on 9/20/2018

Here are some Financial Survival Tips for the Sandwich Generation

Planning a financial life for yourself is complicated enough with competing goals such as pursuing a career, raising a family, saving for college and saving for retirement. But what about when an aging parent needs help or when an adult child moves home? If you’re a member of the sandwich generation, the people in their 30s or 40s who bear the responsibility for financially taking care of both their parents and/or children at the same time as themselves, here are some financial survival tips.

Meet Sandy of the Sandwich Generation

Being sandwiched in between several conflicting and serious responsibilities isn’t something anyone necessarily plans for, but as the following example illustrates, it’s easy enough for almost anyone to end up there.

Let’s take Sandy, a married 47 year old radiologist from La Jolla, California.  As a physician specialist, she makes a decent living, but the income didn’t come without a cost. She’s battling her student loans, even at this stage in the game. She’s earning a high salary, but at the same time much of it is consumed by taxes and professional expenses such as insurance and continuing educational requirements.  Moreover, because of the demands of her work, Sandy is often forced to hire support staff to assist with her home and domestic responsibilities.

Sound familiar?

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posted in BlogGeneralPersonal Finance

Questions to Ask If You’re Considering Working During Retirement

by Chris Jaccard, CFP®, CFA on 9/10/2018

Ask yourself several important questions about the benefit and tax implications of taking Social Security benefits while working.

One of the best ways that modern retirement has changed for the better is the high amount of retirees embracing the decision to stay active. Whether you’re working full time, part time, or pursuing your own dream business or an “encore career”, it should be factored in to your Social Security strategy. Read this article to learn about the benefit and tax implications of taking Social Security benefits while working.

Reduction in Cash Benefits

If you have claimed Social Security and reached your full retirement age (between 65 and 67 years of age depending on your year of birth) you can earn as much as you want and keep all your Social Security benefits.

However, if you claimed benefits before your full retirement age, your benefit could possibly be reduced.  For example, if you claimed early and earned income in 2018, the Social Security benefit paid to you is reduced $1 for every $2 you earn over $17,040.  If you realize you made a mistake in claiming early, you have a once in a lifetime opportunity to pay back what you took and reset the clock – but it must be made within one year of claiming benefits.

Read: A deeper look at Social Security Claiming Strategies

This reduction due to early claiming is not a permanent loss, as the Social Security Administration (SSA) will make a recalculation and add back the withheld benefits when you reach full retirement age.  Still, it may have a large impact on your cash flow and hence spending ability.

Questions to ask yourself:

  • What, if any, is the reduction on every dollar earned now that I am combining SS and income from my work?
  • How much can I work and still get benefits? (only relevant if claimed SS prior to full retirement age)
  • Am I within the one year window period of redacting my SS claim?

Read more

posted in BlogPersonal Finance

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