Simply Money

Episode Transcript

Speaker 1 (00:08):
Tonight, the hidden risks that those with a nice nest
egg off and overlook. You're listening to some morning if
all Worth financial Bob spunt Seller along with Brian James tonight,
we're shining a light on something that doesn't get nearly
enough attention, and that's the hidden risks financially comfortable families
Off and Overlook. When we say financially comfortable, we're talking

(00:33):
about everyday folks, not the hie rollers and multi millionaires
like Brian who fly around on private jet.

Speaker 2 (00:42):
Yeah. I meant to tell you, Bob, I scratched your
car in the parking lot this morning with my private jet.
My bead came in a little too hot. Yeah. So
who are we talking about here? Who falls into this category?
If you've built a comfortable life, a second home, we've
got investment accounts, maybe even a family business, you might
assume that you've checked all the financial boxes, but there's
a lot of risks that are still quietly sitting in
the background that could sneak up and come get you.

(01:03):
One of the big ones, Bob, is liability. So this
is where an umbrella insurance policy comes in. A lot
of people think they're covered until something big happens, so
you're autoing your homeowners assurance that might give you a
half million dollars in liability coverage, and you might think
that that can check the box. But things can happen.
They have nothing to do with your car or with you.
What happens if your teenager causes a major car accident,

(01:25):
somebody is seriously injured at a rental property you have,
or falls on the ice outside your own home, Suddenly
you're on the hook for millions of dollars. That's what
an umbrella policy will cover. They're very cheap. It did
not much to add on maybe three four hundred dollars
to add a million dollars worth of coverage, but they
will cover things that could absolutely sink your ship. That's
why it's so cheap. The events that they cover, the

(01:46):
risks that they cover are fairly rare that they're going
to occur, so it doesn't cost very much, but if
they do occur, they are absolutely ship sinkers.

Speaker 1 (01:54):
Yeah, it's really one of the best returns on peace
of mind out there. It's something to get enough liability
covers to cover basically your net worth in case you
get sued. Because the higher your net worth goes up
the more of a target you are. And with all
the cybersecurity stuff out there and people getting their hands

(02:16):
on your information, you know, we're often surprised at how
many people know about our situation. And yeah, you want
to take that bullseye off your chest and make sure
you're covered in case something wild and crazy happens that
we don't see coming down the pipe.

Speaker 2 (02:31):
Yeah. So when I bought my umbrella policy, my my
property and casualty guy pointed out to me it was
something I needed, and because I was having conversations about
the first of at the time three coming young drivers,
and he basically said, you're kind of an idiot if
you don't do this, And from there we got into
a conversation about what else does it cover, and I
basically told him to throw the whole thing into the boat,

(02:53):
because any of this stuff can happen to me. So
one of the bigger ones that wasn't really a thing
ten fifteen years ago, Like you just mentioned it, CyberSecure.
So there's a reason we bring the expert Dave Hatter
on our show to talk about these things. If you
are a wealthier family, then you've got a lot of
things out there. You've got a lot of irons in
the fire, and a lot of that stuff is tied
to Internet access, so that makes you a prime target

(03:13):
not just for identity theft, but ransomware, financial fraud, phishing attacks,
any way that they can get into your assistant to
your system. And remember how often we hear about data
being exposed in ways that it shouldn't just about every
big box store, some government agencies, lots of places have
exposed your data, So it's not too hard for these
criminals to piece lots of things together to figure out

(03:35):
that you might be a big, fat, tasty target. So
they're going to come after.

Speaker 1 (03:38):
Get Well, let's not forget about our kids either. I mean,
my youngest son, who's now I think twenty four, still
has a TikTok account, And I mean we all know
how those You know, there's all these Chinese bots that
monitor everything that goes on TikTok. I've tried to get
them to cancel that thing for years. I think that
younger generations they love TikTok for some reason, but it

(04:01):
exposes them and possibly me to people getting a hold
of information. I don't like it. I wish it go away.
But yet that's another reason to have, you know, liability protection.

Speaker 2 (04:12):
Come on, Bob, and we all know you you're a
big TikTok star out there. I know you're dancing in
front of your phone on a nightly basis just to
blow off team you can.

Speaker 1 (04:19):
Well, I did put a credit freeze on all my
stuff for that reason, so at least nobody can go
borrow money. Question. We talked about some of the solutions
multi factor authentication, which I think now really comes with
about everything we deal with and I know people get
aggravated by it, but it is there, uh for our protection,

(04:43):
and some people, Brian go to the step of hiring
someone to like a Dave Hatter, a cybersecurity consultant, just
to take a look at all of our don't and
do kind of a one time sweep to get some
of this stuff off of our computers that can make
us an easy target.

Speaker 2 (05:00):
Right, And let's drill into that multi factor authentication stuff
a little bit, because I think that gets that those
are big words that get thrown around. People don't generally understand. Yes,
you can hire a consultant, but there are things available
on your computers and your phones right now, For example,
Google has an authenticator app that's already built into your
Android phone, can be downloaded on iOS and it will
generate a random number that you can tie to it,

(05:21):
to your bank accounts, to to other things. That itself
is multi factor authentication. Plus you're already doing multi factor authentication.
If the website sends you a text message with a
number in, it's the same kind of thing. But there
are apps on your phone built in already that will
allow you to put that in place. If you need
more than that, then absolutely go hire a consultant. They'll
tell you exactly where your holes are.

Speaker 1 (05:41):
Well, this is good. It sounds like you've already forgotten
more than I know about all this stuff. And since
your office is right next to mine, how about if
I buy you lunch and you come into my office
and look at all my stuff and help me get
some of this garbage off of all my devices.

Speaker 2 (05:55):
I will do that in exchange for in exchange for
some for a personal TikTok dance show by Bob Sponsor.

Speaker 1 (06:01):
I will do that. You're listening to Simply Money presented
by all Worth Financial. I'm Bob Sponsorer along with Brian
James An uncoordinated a state plan. You know, this is
another thing that people overlook, and this is a big one, Brian.
This isn't just about having a will. It's about making
sure your legal documents, your financial accounts, your insurance policies,

(06:22):
they all work together. In other words, the word that
I want to use here is coordination, Brian, And a
lot of times there's not a whole lot of coordination
going on with the overall wealth plans of people, especially
the higher their network situation becomes.

Speaker 2 (06:39):
Yeah, it's great that you bringing this up. I just
had a conversation with a brand new client yesterday. The
main reason they wanted an advisor and that they ended
up hiring Allworth is simply because they they had just
settled in a state with a deceased parent that was,
as you put it, uncoordinated. So what that means is
that there was nothing but a will. A lot of
times people just go, I'll have a will written by

(07:01):
an attorney and that's going to check every box and
I'm good to go. But the will that actually can
make things slightly more complicated because that drags probate into it,
and if all you really have, you might have a
decent amount of assets. But it's really just financial accounts
and relatively simple things. Go to each financial institution and
simply name beneficiaries on each of those accounts. That takes
the will entirely out of the mix, and all those

(07:23):
people have to do, your beloved airs, All they have
to do is take a death certificate to your bank
and your investment firms and so on and so forth,
and they will have accounts set up in their own
names and the assets distributed into them within a few days.
It's not that complicated. But if you leave it all
to the will, the county gets involved.

Speaker 1 (07:40):
Brian. It's not that complicated. But the words that you
actually used in your prior comments go to your various
financial institutions. That takes a lot of work and time
and aggravation that a lot of people don't want to
fool with. Therefore they don't do anything about it. And
one of the main benefits that we do perform for
our clients here at all Worth is we do the

(08:02):
coordination for them, We do the consolidation, We check the
beneficiary designations. We can put a transfer on death, you know,
designation on certain accounts. We take care of that for people,
so they don't have to be driving around to umpteing
different banks and savings institutions to get some of this done,

(08:22):
because you know as well as I do, Brian, if
left to their own devices, a lot of this stuff
doesn't get done. And that's what you know, rears its
ugly head for the airs down the road when there
is a lack of coordination.

Speaker 2 (08:36):
Yeah, and if you're somebody who truly really just wants
somebody to handle all of this stuff on your behalf,
you may look at hire, putting a lot of things
in a trust and hiring a trustee to actively take
things over for you. Now, you can also do that
with powers of attorney if you have a trusted you know,
attorney or a CPA or just a family friend who
wants to handle this for you. What we're referring to

(08:56):
here is something called a family office, where you basically
hire people to run your financial and legal life for
you and simply bring you things to sign off on. Now,
these are obviously there are expenses involved here. You're literally
hiring employees in an employment type relationship. But if you're
in a situation where there are that many moving parts
to your financial situation, perhaps there's a lot of business entities,

(09:17):
maybe real estate, family limited partnerships, those kinds of things.
Then absolutely you probably want somebody to coordinate at all.
That's a good move to make, but it'll come with expenses,
but it does take a lot of stuff off your plate.

Speaker 1 (09:29):
Well, Brian, I think so many times for the clients
that I've worked with for years, they see me as
the coordinator and appropriately so. And what that means is
developing a regular rhythm of communication between their CPA and
between their attorney. So we're all working off the same

(09:49):
sheet of music, and we are keeping things proactively coordinated.
And I see that as my job as a fiduciary
financial advisor, and I know you do a great job
of that as well.

Speaker 2 (10:01):
Now, these are all things that come up in the
course of a holistic financial planning relationship where we throw
all the puzzle pieces on the table and figure out
what are our resources, what are we trying to do
with them, and then therefore, what steps do we need
to take now so that we get the outcome we
want in the future.

Speaker 1 (10:16):
Here's the all Worth advice. Protecting wealth isn't just about
investing wisely. It's about defending your financial house from risks
that don't show up in a market chart or stock
market chart. Next, look at what real diversification looks like.
You're listening to Simply Money, presented by all Worth Financial
on fifty five KARC the talk station. You're listening to

(10:44):
Simply Money presented by all Worth Financial. I'm Bob Spondseller
along with Brian James. If you can't listen to Simply
Money every night, subscribe to get our daily podcasts. Just
search Simply Money on the iHeart app or wherever you
find your podcasts. Straight ahead A six forty three. What
to do when significant ownership of your company's stock becomes

(11:05):
a potential liability? All right, does this describe you? You've
got five different accounts or maybe ten, a dozen mutual
funds and a couple of ETFs. You think you're diversified, right,
but do you know whether those accounts are all holding
the same stuff. That's not diversification, that's duplication. And Brian,

(11:26):
we see this all the time. Bob, We're gonna go
to the story vault here. Let's talk shop a little bit.
You probably remember this too. We didn't know each other
at the time. That about twenty years ago. The Janis
funds were just the greatest things ever, and they were
all anybody had to have for a couple of year period.
And there were four of them, Janis Worldwide and Janiss
Enterprise and two other ones that I don't that are

(11:46):
lost to history. But the reason everybody loved him was
because they were up double digits every single year. So
people would say, I'm just gonna get the Janis four.

Speaker 2 (11:53):
That's all I need. Look at these things, they're just
doing great. But if you looked under the hood, which
it's a lot easier to do that now than it
was then, if you looked under the hood, they all
owned mostly the same stocks, so that when things finally
turned in two thousand and one two thousand and two,
all those stocks took a beating and all four came down,
and people who thought they were diversified were completely caught
with their pants down because there was nothing in that

(12:14):
portfolio to support when when the winds started blowing the
other way. So more accounts doesn't mean more protection. That
doesn't mean that you have you know, you that you
have things that offset each other. Having the same stock
across four different institutions or the same mutual fund does
not protect you at all. It's going to behave the
same way.

Speaker 1 (12:32):
Yeah, if you're gonna take me back twenty years, Brian,
do you remember the aim Wingarten Fund?

Speaker 2 (12:38):
I do.

Speaker 1 (12:39):
That was another fund that just they were selling this
as the widows and Orphans fund. It could never go
down and lo and behold. You know, it had sixty
some percent in tech stocks. And when we had the
tech bubble in two thousand to two thousand and two,
boy did that take a hit. And boy were people
shocked and disappointed and in a lot of cases angry.

(13:00):
All right, well, back to what we want to do
about it. You know, we run into people all the time.
You know, the more institutions you have and the more
you know accounts you have, what I like to tell
people is you've got a great collection of products, but
you don't have a strategy and you don't have as
much diversification as you think. And to your point, Brian,

(13:22):
the more institutions and funds and all that you spread
yourself out among you tend to you when you actually
look at what is comprising these funds. People are amazed
when you own the same stocks and those funds, and
you know, you look at the S and P getting
as high as thirty to thirty five percent over the
last year, and these MAG seven stocks. People think because

(13:45):
they have five six hundred companies in their portfolio that
they're diversified. They really are not.

Speaker 2 (13:51):
Right, And you have to look also at how some
of these index funds how they actually work. Right, So
an S and P five hundred, a lot of people think, well,
that's five hundred different stocks I've got evenly spread across
five hundred. Well that's not the case. The S and
P five hundred itself is capitalization weighted, meaning the bigger
the stock is. In reality, the more of the S
and P, the more of the index it makes up.

(14:12):
It's not divided evenly across five hundred different stocks. So
to your point, those MAG seven stocks are the ones
that are driving the S and P five hundred right now.
You can specifically look for other funds that do not
have that risk, same five hundred companies, but equally weighted
as as opposed to cap weighted. But you have to
understand what these things own. What's under the hood of
all these various mutual funds in extreme exchange traded funds ETFs.

Speaker 1 (14:35):
That you probably have.

Speaker 2 (14:37):
They do serve the purpose of I own one thing
that owns underneath it five hundred, maybe a thousand different things.
They can serve the role of being the sort of
the Kellogg's variety pack if you remember that from your
family vacations, by one thing that has a bunch of
different things in it. So it is diverse by that way,
but you have to understand what those things are so
that you can make sure you're not duplicating. Even though
I have the ABC and the XYZ fund, they're both

(14:59):
the same risk.

Speaker 1 (15:01):
Well, we only have to go back about six weeks,
Brian to look at what can happen when the market
takes a turn and you are over allocated without knowing
it in some cases with a lot of overlap in
certain companies and certain industries. When that volatility comes, and
it always does, that's where you can see what actually
happens in real time with your own money when you're

(15:22):
a little underdiversified. So let's talk about what real diversification
looks like. At its core, it means owning investments that
respond differently to different economic conditions. And our industry likes
to throw around a lot of terminology. You know, like
negative correlation and all that. All that means is having

(15:44):
some things in your portfolio that zig when other things zag.

Speaker 2 (15:50):
The market gets distracted by different things at different times.
When we're in a rising rate environment, that means we
want to own a certain type of bonds, for example,
and sometimes we will pivot away from that. The pendulum
swings back the other way and we'll pivot away from
that rising rate environment. We'll sit in a flat rate environment,
and that means we need to change those bonds out
to something that reflects a little bit more accurately what

(16:12):
that portfolio needs to do. And then we'll be on
the other side where the rates start to drop whenever
the government feels like we need to sort of goose
the system a little bit. All three of those scenarios
require different types of holdings. In addition, you know, most
people think about stocks anyway. When we're talking about diversification.
At any given time, the herd wants to shy away

(16:33):
from one type of thing and invest in something else.
This is why we have that term. There are stocks
called defensive stocks. Defensive simply means, for example, grocery stores.
Right no matter what's going on, grocery stores are going
to make money. We may not go to Best Buy
and buy that new gigantic TV when the economy is
a little bumpy, but we are sure going to go
buy a loaf of bread and a bottle of milk
on the way home. That's a defensive stock. So the

(16:54):
market will be attracted to the types of things that
it feels like are going to do better, you know,
in the very short run, and then as things clear up,
we'll move toward a more growth approach. But that's the
reason we can't predict the timing of these swings. That's
why we need to own all of them at the
same time and make sure we're diversified.

Speaker 1 (17:10):
You're listening to Simply Money presented by all Worth Financial.
I'm Bob Sponseller along with Brian James. Brian, let's get
into how a lot of this duplication happens for clients
and and look, it's often unintentional. You open an account here,
you do a rollover IRA there, You've got three or
four different advisors that adds news funds, and all of

(17:31):
a sudden you've got this collection of products without a
strategy that I alluded to before. Sometimes people think they're
being cautious, and they are diversifying by spreading money across
different firms. But if the advisors at these different firms,
you and I know this, Brian, they don't talk to
one another, they don't coordinate with one another. They're competitors.

(17:54):
And so the more you spread across your institutional exposure,
you're actually defe eating the purpose of what you're trying
to do, which is build a consolidated, diversified portfolio, especially
if you've got three or four advisors all doing certain
things with your money and not talking to one another.

Speaker 2 (18:13):
Yeah, I'm thinking of an example of about about a
month ago, I had a client who was doing the
kind of the same thing she had. We would work
for her for a long time, and she had inherited
some assets from her deceased parents and she just decided
to keep those with the other advisor. Didn't take very
long before she realized that that made her the advisor
because we would share our thoughts. She would talk to
the other side, who was perfectly legitimate firm, and other's

(18:35):
a lot that way. We're good at what we do,
but we're not the only ones, and they would share
some thoughts too, and it was up to her to
coordinate to make sure that we weren't. We can't see
what each other is doing, so it was up to
her to make sure that there wasn't a lot of overlap.
She eventually got fed up with that and ended up
deciding just to bring it all to all Worth and
have us deal with it, just to remove that sense
of conflict. And so again having two is going to

(18:56):
it can cause more trouble than it could solve.

Speaker 1 (18:59):
Well, this is where just a simple portfolio analysis can
really help. And this doesn't mean fire all your other
advisors and move all your money with one advisor and
one fell swoop, but most good, well intentioned fiduciary advisors
will do for no cost or no obligation, a thorough
portfolio analysis where we take all your statements and there's

(19:22):
really nice salts available today where you can show a
client here's what you really own, Here's how it's broken
down by asset class, here's some of the risks inherent
with the allocation you currently have, and Brian, that helps
people make an informed decision on how to proceed going further.
I find that to be very useful and helpful and

(19:44):
potential clients really like that when we take the time
to do that for them.

Speaker 2 (19:48):
Yeah, I think that's great advice. Just understand, Like a
lot of things we talk about, look step back, look
at your big picture and understand what you have and
what you're trying to do with it.

Speaker 1 (19:57):
Here's the all Worth advice, ask yourself, I diversified or
just busy because in investing motion doesn't always mean progress.
Coming up next, how to fireproof your finances from family drama.
You're listening to Simply Money presented by all Worth Financial
on fifty five KRC the talk station. You're listening to

(20:22):
Simply Money presented by all Worth Financial. I'm Bob Sponseller
along with Brian James. Time to tackle everyone's favorite topic,
money and family. What a loaded topic that is, Brian.
And when they don't mix money and family, don't mix, boy,
the sparks can flying. We're not just talking about who
gets Grandma's china. We're talking about real money, inherited wealth,

(20:47):
business succession planning, estate planning decisions, and what happens when
your kids, your spouse, or your siblings don't see eye
to eye. It's a very important topic that we're going
to get in in here.

Speaker 2 (21:00):
Brian, you know about one of my very first lessons
as to how people can be. When I became an
adult and I was a young financial advisor, I got
a phone call from somebody who was in the hearse,
their father's hearse, on their way to the cemetery, wanting
to know if they could stop by the office and
pick up their money. And I'm using air quotes, I
want to pick up my money because it's in a
shoebox with my name on it. Obviously that's not exactly

(21:22):
that's not a very common scenario. But people do think
funny about money, and they're different no matter if they're
in the same family, everybody has different opinions on it.
So one of the big things we can run into
is values versus vision. What this means is, you've got
a parent who built their wealth by being frugal, disciplined.
Maybe they started a business which is its own huge
lift to carry. You got the next generation that all

(21:42):
they know was that they didn't really want for anything.
They kind of got whatever they wanted, did not have
to put that same amount of blood, sweat and tears
into growing that wealth. Their goals are very different. Their
priorities are different. So we see this all the time,
where the parents are the ones who want to preserve
that wealth and the kids kind of assume that it's
always they They want to use it to start a nonprofit,
which is a very honorable thing to do, but it's

(22:04):
a very different mindset than something you know that they're
trying to grow something to provide for future generation. So
one child might be conservative with money, the other one's
ready to kind of live it up. And you know,
yolo want you only live once and kind of live
that life of luxury. Maybe launch a music career, take
a swing for the fence. Is that kind of thing.

(22:24):
That's when the friction starts. When you've got those two
children who are arguing over what mom and dad built
and how we are treating it now.

Speaker 1 (22:32):
Well, and I'm dealing with the situation right now, Brian.
Involving a closely held business where this couple has four kids.
Two of the kids are actively involved in the business. Now,
I mean it's their livelihood, it's their paycheck. They are
putting blood, sweat and tears into that business. The two
other kids have nothing to do with the business. But
this is a significant chunk of this couple meaning the

(22:55):
parents net worth and when they came and met with me,
they had done zero estate planning. They knew it was
the elephant in the room, but they hadn't really sat
down and talked and thought through it as as spouses,
to say nothing of sitting down with their kids. And
the good thing is, you know, I brought in an
attorney that I've worked with for years that is wonderful

(23:16):
at working with closely held business owner clients, and Brian,
in the course of about an hour and a half,
we were able to sit down together in one room,
throw around some ideas, and come up with an actual
plan that we think is going to make everyone happy.
And boy, was at a game changer for that family
to head off some potential discord down the road.

Speaker 2 (23:36):
Yeah, you said the key word The word is planned,
just basically meaning do all have this conversation in advance,
not you know, on the deathbed or you know, at
the estate settlement meeting with with all the attorneys. So
I'm reminded of another situation I had years ago where
there were two brothers who owned a business and they
both knew that they were about same age and they
knew they want to get out at the same time.
But they both felt kind of equally about the business.

(23:57):
They could continue it or they could bow out at
the right price. So what their agreement was was that
they were going to agree or one of them would
come up with the value of the firm. Here's what
the price of this firm is worth, and we're going
to split it in half, and then the other would
decide whether he was going to buy or sell. And
that worked out perfectly because that forced them both to
be honest about their intentions. If I'm going to value

(24:18):
my own business, but I don't know whether I'm on
the buying or selling end, then it's going to be
a pretty fair valuation. So that's kind of a unique situation.
It did work out really well for those two guys,
But the whole point is they had that discussion well
in advance of any actual settlement of this thing. For
a lot of people, like you said, it's going to
involve bringing an attorney into the mix, bringing everyone to
the table and just talking about what is important to you.

(24:39):
What do you want to have as a memory of
mom and dad, Do you want the business, do you
not want anything to do with it? Lay it all
out and then after everybody understands the different points of view,
don't do anything that's hail everybody, go think about it,
then come back to the table and see where we land.

Speaker 1 (24:54):
Yeah, and even if we're not talking about ownership of
a family business, just basic a state planning. You know,
when you've got multiple kids or grandkids or what have you.
As you've already mentioned Brian, everybody's interest and you know
their preferences can be different, and that's where you can
get created creative. It doesn't mean over complicate things. But

(25:15):
we might have one kid in the family that's may
maybe not very responsible with money, and you don't want
to just dump a couple million dollars on them on
one day when you pass away, because they're not prepared
to handle it. And that's where you could put some
contingencies into that trust to dole that money out over time.
You can tie that with some incentives, you know, to

(25:35):
hopefully motivate them to do some right things with that
money rather than blow it. There's some creative things you
can do with trusts and estate planning, but you've got
to get out ahead of it, you know, proactively, to
make sure you don't leave a mess. You know, for
those you know coming in the next generation.

Speaker 2 (25:52):
Right, So you can do some mechanical things. You can
use what's called a discretionary trust. That's the trustee, so
the trustee decides on your behalf. How and when children
get access to the funds. That way they don't have
a blank check. Well drafted trust can to protect assets
from xpouses as well, and there's plenty of other toys
you can play with them.

Speaker 1 (26:10):
Here's the all Worth advice. You don't just pass on money.
You pass on meaning protecting your legacy means protecting your
family from the drama that unmanaged wealth can create. Coming
up next, how to manage the risks of holding too
much company stock. You're listening to Simply Money presented by
All with Financial on fifty five KARC, the talk station.

(26:37):
You're listening to Simply Money presented by All with Financial
on Bob Sponseller along with Brian James. You have a
financial question you'd like for us to answer. There's a
red button you can click while you're listening to the
show right there on the iheartapp app. Simply record your
question and it'll come straight to us. All right, you've
worked hard, you've climbed the company ladder, or maybe you've

(26:58):
built the business from the ground up, but now you're
sitting on a whole lot of one thing, your company stock.

Speaker 2 (27:07):
Yeah, company stock is not a bad thing at all. Right,
we should get paid, you know, we should be compensated
when our company does well. The risk, however, though, and
there's a lot of companies that put their their customer
or their their employees in this situation, is that now
a lot of your financial stability is tied to it.
Your salary comes from this company. If you've got your
you know, a large chunk or sometimes all of it.

(27:29):
I still see that every now and then, sometimes every
nickel of it is in the employer's stock. Then everything
you have in this universe is tied to that company.
And if it goes under, well, then that's going to
take everything with it. And we haven't heard a story
like this in a very long time. But if the
name Enron rings a bell. Enron was the Procter and
Gamble of Houston and was being the key word, it

(27:50):
no longer exists and it basically evaporated overnight because it
was all a house of cards. Lehman Brothers a slightly
different story, but they made too many bets in too
many bad places. These are companies that went poof overnight
and they took obviously the market. These things triggered market
downturns which dragged for one k's down just in general
across the country. But if you had companies stock in
those firms and a large chunk of it, then you

(28:11):
lost a heck of a lot more than, you know,
than a simple diversified portfolio would have lost in those
downtimes one hundred percent loss of course, in the case
of Enron. So these are things you want to pay
attention to make sure you know what position you're in.

Speaker 1 (28:23):
Well, we don't have to see a company entirely implode
like an Enron or a Layman Brothers. Those are pretty
severe examples. You know they're real, but they're extreme. I mean,
just a big market decline or a change in a
company's structure or earnings report, anything can cause a lot
of unexpected volatility when you're overexposed to anyone company. So, Brian,

(28:47):
let's talk about how people get stuck in this situation.
Why do people finding them why do people find themselves?
And let's face it, we're talking about well educated very
intelligent people in most cases, why did they get stuck
in this position of being so highly concentrated in one position? Yeah.

Speaker 2 (29:06):
So, first, it starts off with a generous benefits package,
so you're rewarded this company stock year after year. We're
talking about restricted stock stock options in employee stock purchase plans,
things like that, you might even bought more on your own,
and a lot of times they entice you with perhaps
a fifteen percent discount. So, in other words, if the
stock is worth ten bucks to share on the market,
you're able to buy it as an employee for eight

(29:27):
dollars and fifty cents, meaning there's an instant fifteen percent
gain that's hard to resist. So, and a lot of
it comes from simply loyalty. I believe in this company.
I'm familiar with it, I know it. I do this thing.
I do this stuff every single day. I can do
it in my sleep, so I understand it better than
anything else that might be sitting inside a mutual fund.
And then after some time, after you've been in this situation,

(29:48):
eventually it becomes taxes. Bob, if I sell, i'll oh
too much. Therefore, I'm never going to sell. I just
had this conversation with a client yesterday who's got who
has had stocks that he's owned for forty some years,
and he can't he doesn't have the capital gains, let
alone that he doesn't want to pay it. He doesn't
have the data to even know what the capital gain is.
So he's stuck in a situation where he says, it's
going to cost so much to sell this, I'm just

(30:09):
never gonna sell it. That's great, but as your advisor,
I need to take it out of your financial plan.
If you have walled it off because you don't want
to give a nickel to the irs, then it is
not an asset for you. So I either need to
solve that problem or find another way to work your
financial plan around it. That tax can feel like a punishment,
so people just hang on and hang on.

Speaker 1 (30:28):
You're listening to simply Money presented by All with Financial
Um Bob Sponseller along with Brian James. Yeah, when people
don't even understand what their tax exposure is, I think
sometimes they underestimate what can be done with some proper planning.
And Brian just within the last you know, I'll say
five to ten years, there's been a lot of really
nice strategies come down the road to help people gradually

(30:51):
get out of these concentrated stock positions with way less
income tax exposure and capital gain exposure than they ever
thought possible.

Speaker 2 (31:01):
Yeah, there are vehicles out there, such as exchange funds.
An exchange fund is something where a lot of people
who own diversified or I'm sorry, the whole point is
that they're not diversified. Who own a single stock own
one a big position in one thing. If I have
fifty different people who have nothing to do with each
other who have too much in one stock, those fifty
stocks probably make up a decent portfolio. So there's something

(31:24):
called an exchange fund where everybody can contribute their stock
as is and receive in exchange a share of that
whole pile of stocks. The point of that is you
didn't sell it. The IRS does not recognize that as
a sale. You exchanged it for a different pile of securities.
So that is a way to diversify their risk without
actually selling it. There's other things you can do as well.

(31:46):
You can also do what's called a collar around a
major position, which basically means you place option trades on
the upside and the downside, and that will at least
restrict the stock. It can't can't go through the floor
because you'd have an option in place to protect that
also won't grow to the sky. Should the thing ten
x in the next couple of years, it's not going
to help you because you have something else on the

(32:06):
top side. But when we've got this situation, the main
thing we're trying to protect from is a massive loss
from something unpredicted that can happen to any company out there.

Speaker 1 (32:14):
Other things we talk to our clients about are more
gradual selling strategies, and this is where we can dovetail
the client's charitable intentions or goals with gradually diversifying out
of these highly concentrated positions, things like charitable remainder trust
donor advise funds where you can give a chunk of
this stock away, get all the tax benefits now, avoid

(32:37):
the capital gains taxes in entire you know, entirely avoid them,
and dole that money out to charities over time. In
the case of a charitable remainder trust, you can retain
an income stream from what you gave away. If that's
something you need to do, it can literally literally be
a win win for everybody except the irs, and you

(32:57):
don't need to dump everything overnight. What this comes down
to is a well planned multi year approach, especially in
coordination with your income and your tax strategy, and that
can really soften the tax hit while getting you out
of this concentrated position that exposes your overall portfolio to
too much volatility and risk.

Speaker 2 (33:18):
Bob, I'm going to take a step back even before that.
Those are great entities that can be set up, but
before you even do that, one simple thing you can do.

Speaker 1 (33:25):
If you regularly give.

Speaker 2 (33:27):
Money to some charity, a church or some other kind
of charity or whatever out there, you can simply give
them the stock. You don't have to write a check,
give them the shares of the stock directly. All you
have to do is contact the development person whoever handles
that for that charity, and they know how this game works.
They're going to give you something called a DTC number
and an account number, and they'll tell you where the

(33:48):
broke where their investment account is held. You provide that
to whatever firm is holding your shares and tell them
I want to send one hundred shares of Procter and Gamble,
for example, and the IRS does not recognize that as
a say you did not sell it. You simply gave
it to a charity. The charity, of course, is a
five oh one C three, meaning it doesn't pay taxes.
They sell it, and they will most likely do so

(34:09):
instantly because they don't want to speculate. They just need
the cash. They sell it and do not incur any taxes.
So you get the credit for having given them the
same dollar amount that you give them every single year,
but you don't have to pay any taxes for having
liquidated it.

Speaker 1 (34:23):
Great stuff, Brian, here's the all Worth advice. Your company
helped you build your wealth. Now your wealth has a
new job protecting your future. You're listening to Simply Money
presented by all With Financial on fifty five KARC, the
talk station. You're listening to Simply Money presented by all

(34:45):
Worth Financial. I'm Bob Sponseller along with Brian James. Brian,
I want to take a few minutes to just really
get on my high horse about what we talked about
earlier in the show, and that's just the importance of
having a truly coordinated financial play and the value that
a good fiduciary advisor can bring to the table in
that area, and I'm thinking of a meeting I had

(35:07):
earlier this week with a new client that's coming on
board or looking at hiring us. And you know, Brian,
this was a two hour meeting, you know, and at
the beginning of the meeting, they shared a little bit
of information and asked a lot of questions. The more
I answered the questions, the more information was shared. And
as we went on, you know, I found out just

(35:28):
what we talked about. Stuff is with in five or
six different places, with four or five different advisors, no
coordinated strategy. And I explain the fact that, you know,
we don't have to take over management of everything in
one day to add the value of a truly comprehensive
financial investment and tax strategy, because you don't have that today.

(35:53):
And the longer that meeting went on, and the more
comfort they had with that whole concept, which they had
never experienced before, they were more and more open to
sharing information. And I think it set the table for
a good relationship going forward where we can really add
the value to their situation that Brian, Honestly, I think

(36:14):
they've been looking for for twenty plus years and if
never found I'm sure you've had similar meetings.

Speaker 2 (36:20):
Yeah, And I'm thinking back over my past. So and
when I first got started, everything was product based, right.
It was everybody knew a guy who had a hot
stock tip from last month, or the Janis Mutual Fund
or the aim Wine Garden Fund or whatever something out
there that was just the coolest thing ever.

Speaker 1 (36:38):
Know.

Speaker 2 (36:38):
It was all we are ever gonna need to own
for us, right. It was all product based, and it
would change every year or too, And that's nothing to
build a career on, let alone a fiduciary relationship. So
eventually it pivoted to what am I going to do
with all that? How does it all fit together? And
I think nowadays when we talked to new clients or
prospective clients, the very first thing they say is, well,
all we really talk about with my advisor is what

(36:59):
the market did last quarter and what we think it
might do this quarter, which nobody knows anyway. And I
don't really get the point of this anymore. How are
these people helping me? I'm in a different situation now.
I got a lot of moving parts to my situation
about to retire, you know, I've got social security decisions
to make I got a pension, maybe a business to sell.
How does all this coordinate together? And how do I
get the conversation off of just what is this pile

(37:21):
of money doing. There's so many more moving parts nowadays.

Speaker 1 (37:24):
Yeah, you repeated that keyword coordination, coordination, and that's really
the value add that comes from having a good, qualified
fiduciary financial advisor on your team. Thank you for listening.
You've been listening to Simply Money, presented by all Worth
Financial on fifty five KRC, the talk station