August 1, 2025 • 39 mins
On today’s Simply Money show presented by Allworth Financial, Bob and Brian lay out the five ethical standards every financial advisor should meet. Plus, they tackle rising home insurance costs as State Farm makes a big move. What Ohio homeowners can learn—and how you to proactively protect your budget.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:06):
Tonight the list of ethical standards you should demand from
your financial advisor. You're listening to Simply Money, presented by
all Worth Financial on Bob Sponseller along with Brian James.
Great topic today, Brian, Let's be honest, Choosing a financial
advisor might be one of the most important financial decisions
people ever make, and it's also one of the hardest
(00:29):
to evaluate because of all the confusion out there. If
you've built real wealth, you're not looking for someone to
just pick a few mutual funds, throw it in an account,
let it go. You need somebody to shelter you through
the rest of your life, guide you through building your legacy,
minimizing taxes, constructing a tax efficient income plan. There's a
(00:50):
lot of moving parts there that need to be done,
and you know, on top of that, you want somebody
who does it ethically. Brian walk us through some of
these things from a new bank rate study that just
came out, and this is a this is an important
segment to go through today.
Speaker 2 (01:07):
Yeah, so our friends at bank rate have just have
released this study and just to kind of boil down
to more detail than just look for the word fiduciary, Well,
what does that actually mean. So let's let's get into
that little bit. So the first ethical standard they came
up with is the fiduciary duty. This is just the
general kind of overarching philosophy of your advisor. They should
be acting as a fiduciary. That means, if they were
(01:29):
in a court of law having to justify what they did,
why they made the recommendations that they do, that they
can they can correctly say, here, here's the situation that
I've uncovered about this person. Therefore I recommended that they
do this now the way the way we do this,
This is the whole reason behind financial planning. At the
end of the day, we're investment manager. That's what we do.
But we need to be able to explain and justify
(01:50):
why we picked the investments that we have. Well, we
do that with a financial plan. That means we've sat
down with your you know, with you, your spouse and whoever,
and we have figured out here's the resources. We've got,
this savings, this in retirement, we've got these social careity
pension situations. There's maybe this business on the side, real
estate or whatever. And then separately, here's what we're trying
to do with it. Here here's what we need in
(02:10):
terms of just keeping the ship afloat. Here's what we
might need in terms of healthcare. Here's our estate planning goals.
And then here's the things we want to do on
all that other kind of stuff in handling debt and
so forth. Therefore, we've got a clear understanding of any
given client, and therefore we can justify here's why we
set up the portfolio that we did. But that's the
most important thing. Are you a fiduciary and have you
(02:31):
exercised your fiduciary obligations?
Speaker 1 (02:34):
Well, Bryant, this is a big one because not all
financial advisors are fiduciaries. Many are still operating under that
old quote unquote suitability standard, which only requires that the
investment or the recommended solution is quote generally appropriate. It
doesn't have to necessarily be the best or most cost
(02:54):
cost efficient. The fiduciary standard is different. It means a
fiduciary advisor always is legally obligated to put the client's
interest ahead of their own, always giving the advice that
is in the best interest of the client. That is
a big distinction. And here's the concerning stat Only one
(03:15):
in three investors even know if their advisor is a fiduciary.
You know, according to a recent study from Sharouli, over
half mistakenly believe all advisors are required to act in
their best interest and they are not.
Speaker 2 (03:29):
Brian, Yeah, that's very true. And that suitability standard you mentioned,
that's sort of it's almost sort of industry jargon, but
it basically it's just a one time is this investment
suitable for this person? Yes or no? And that's a
tough standard to break.
Speaker 1 (03:42):
Right.
Speaker 2 (03:43):
You can get away with an awful lot by selling anybody,
you know, any old mutual fund and annuity and earning
a commission, and there's nothing wrong with that kind of business,
you know, for those that practice that. But at the
same time, it does introduce conflict of interest. I'm if
I'm only going to get paid if I convince you
to purchase this, and I won't get paid if you
don't that I'm a salesperson. That's very different from a
fiduciary kind of more holistic approach. And then the next
(04:06):
next part of that is are you always a fiduciary
or is it just when you're wearing certain hats. I
came out of the banking industry, and this is where
you've got to be super, super careful. The banking industry
has fiduciaries, of course, that's what a trust department does,
but they also have lots of salespeople out there, so
know who you are speaking with and exactly how their
bread gets buttered. Let's move on to the next one.
How about fee transparency, Bob.
Speaker 1 (04:25):
Transparency in fees is another big ethical standard to look
out for. Advisors should not be cagy or squirmy or
avoid talking about what they earn and how they earn it.
You deserve as a client to know exactly how your
advisor's being compensated, whether that's a flat fee and hourly rate,
a percentage of assets, or commissions. Not that commissions are evil,
(04:48):
but you need to know that your advisor is being
compensated in that way up front, not after the fact.
And in our world, which we love, a fee only
fiduciary advisor removes a lot of those conflicts because there
are no product commissions, there's no hidden incentives, and it's
just straightforward feed based, you know, planning, and that makes
(05:09):
them easy for us and easy for the people that
we deal with and review. It removes a lot of
ethical standard Number three conflicts of interest Brian Yep.
Speaker 2 (05:20):
So this is a big one. Good advisors are going
to disclose any conflict upfront, and oftentimes it's it's in
what you know in the disclosure documents they're going to
send you that you can sign off of to understand
how all that stuff it runs into each other. So
better yet, they put a lot of effort into getting
rid of conflicts in the first place, and that way
you know you have objective advice, not just product sales.
(05:42):
This is really really true in the high net worth
space because your advisor might have access to to certain
other things, you know, private type investments and structured solutions
that are more complicated and can be very lucrative for
the advisor as well if they're in a situation where
they're earning commissions and things like that. So you have
to question are they offering these i commission paying things
because they fit your plan or are they offering them
(06:03):
because they fit their plan? Big question. You need to
pay attention to it well.
Speaker 1 (06:06):
And you talked about coming out of the banking industry.
I came out of the insurance broker dealer side of
the business, so I know how this game works. You know, intimately,
we always had a lot of stuff we could offer clients,
but we were paid more to place certain products and
certain proprietary products manufactured by that particular insurance company. And
(06:31):
it got to the point where I felt like I
had an inherent conflict of interest from you know, how
my income was generated. And that's why I made the
jump to you know, fiduciary independence, you know, decades ago,
and so glad I did. You're listening to simply Money
presented by all Worth Financial on Bob Sponseller along with
Brian James Ethical Standard number four Client centered communication. This
(06:55):
is huge, Brian. You got to be working with somebody
that you understand and trust and that communicates with you.
Speaker 2 (07:02):
Yeah, the time of being an advisor. You know, as
I think back on my career, I wouldn't have described
it this way when I decided I wanted to get
into this field. But now I feel more like a
teacher than anything else. So when I sit down at
a table and review somebody's financial plan with them. It's
a lot of people think a financial advisor has you know,
it does math all day long, like we all have
advocacies and uh, you know, we sleep with our calculators
(07:23):
and all that kind of thing the computers do that
I don't do math. I help people understand. I help
them uncover all of their needs and then we will
figure out, you know what that is. And may that
puts me in the role of being more of a teacher,
because my goal is, you know not is really to
help them understand the situation they've built, what opportunities that
(07:43):
affords them, and then to make sure that they understand
the you know, the the pros and cons of each
of the paths they might take. You know, you've got
a good solid plan. It's now about efficiency. Should be
to be doing roth conversions, When do we show security?
When do we sell this real estate? Should we pay
off the mortgage versus not? All those kinds of things.
They're all good, but at some point you got to decide.
(08:03):
My job is to teach them how to discern the
pros and cons of each of those approaches and what
the ultimate impact will be way down the road. So
I have to be able to speak English, and I
have to speak in a language that they understand, come
to come to their level, as opposed to using jargon
and things like that. Again, that makes me a teacher
if they walk out of the room going yep, I
understand it. I don't want to do this one. I
(08:24):
do want to do that one. I've done my job,
but it terms I got to speak the same language.
Speaker 1 (08:27):
Yep for sure. And a good advisor is also proactive.
You know, you shouldn't be sitting around waiting. You know,
advisors shouldn't be just sitting around waiting for the phone
to ring if a client has a question. We talk
about annual review meetings all the time, and for some
quarterly or semi annual reviews, a lot of those are generated.
Should be generated by the advisor. The advisor should be
(08:51):
looking at your situation, know what you need, know when
to pick up the phone or have the staff call
to schedule a meeting. It should be a proactive relationship
with a lot of this stuff coming from the advisor,
not a reactive relationship. And then ethical standard number four, Hey, Bob.
Speaker 2 (09:07):
I want to add a quick thought to that, because
that door swings both ways too, Because this is a
this is very much a team sport. It never, it
never fails to amuse me how often somebody will come
and bring their couple million dollars in a wheelbarrow and
dump it on our front porch, and we put a
plan together, get things set up, and then we can't
get them to call us back when we're just trying
to People are just kind of averse to money in general.
I want to trust somebody and I want to walk
(09:28):
away from it. Well, it's your money, and we definitely
need to be in touch with your advisor because your
advisor needs your input so that they can give you
the best possible plan and therefore the best possible outcome.
Speaker 1 (09:37):
Team sport yep, for sure a good point. The last
standard we want to talk about standard number five confidentiality.
It should I mean, this should seem obvious. We shouldn't
even have to bring this up. But obviously your advisor
has access to your deepest financial details and confidentially. Confidentiality
isn't optional, it's sacred. If they share other clients stories
(10:01):
with you, that's a bad sign because yours could be next.
Especially in a close knit community like parts of Cincinnati.
You want to know your advisor is gonna keep their
mouth shut when it comes to the details of your
financial life, not name drop and be a loud speaker
talking about your situation with others. It we shouldn't even
need to talk about this, Brian, but I guess it
(10:23):
comes up from time to time.
Speaker 2 (10:24):
Yeah, and I hear some some hair raising stories from
clients that you know that are looking around because of
these types of an issue. Maybe maybe we met them.
Maybe they came to all work because they felt like
their advisor wasn't keeping things, you know, kind of on
the down low the way that they should. And this
is this doesn't mean that they're you know, you're worried
about them tweeting out your your balance sheet or anything
like that. It can simply be are they paying enough
(10:46):
attention If my kid calls, you know, my adult kid
calls sniffing around about my money, and I don't want
them to know, Well, my advisor has no right to
to share that information. But it's a I do hear
of things like this happening where somebody will just assume, well,
this family must be asy and trusting is my family,
so I can talk to whoever I need to. That
is not the case, and that could even happen between spouses.
Sometimes there are situations where spouses maybe you know, just
(11:08):
find together, but they don't want their details shared, and
your advisor needs to be conscious of what you want,
how you want that information treated.
Speaker 1 (11:15):
Here's the all Worth advice. You deserve an advisor who
puts you first, clearly, transparently and always coming up next.
A major insurance company just raise some homeowners insurance rates
by nearly thirty percent. We'll tell you what's going on
there and how to protect your wallet. You're listening to
Simply Money presented by Allworth Financial on fifty five KRC,
(11:38):
the talk station. You're listening to Simply Money presented by
Allworth Financial. I'm Bob Sponseller along with Brian James. You
should never take Social Security early if you can afford
to wait. Is that fact or fiction? We're tackling that
and other questions straight ahead. At six forty three. There's
(12:01):
a warning shot coming from a state very close to US.
State Farm, the largest home insurer in the country, is
hiking homeowners insurance rates in the state of Illinois by
a jaw dropping twenty seven percent. Brian, that's nearly five
hundred dollars more per year for the average customer. And
while it's not happening yet in Ohio or Kentucky, this
(12:22):
is exactly the kind of financial storm we want our
listeners to be prepared for, especially those with high value
homes or complex insurance needs.
Speaker 2 (12:32):
Yep, this is why we tell people to We got
to make sure we got oil in the engine. Make
sure you got an emergency fund because you might get
a bill drop out of the sky that's a little
higher than what you've become accustomed to. And currently that's
happening in the property and casualty insurance space. So why
is this happening, Bob, Well, in a nutshell, it's is
weather and rebuilding costs. Right, there's more natural disasters. We've
got crazy hurricanes going on. You know, we got earthquakes, wildfires,
(12:55):
all that kind of kind of stuff. Those things are
just happening more and more frequently than they use to.
And remember the cost of everything is up. So what
you paid for your house has nothing to do with
what it would cost a builder to go buy the
supplies and raw resources to rebuild that home, the two
by fours of the drywall and all that. You want
to make sure that you have replacement cost built in
(13:17):
to your policy, so if it can. There are policies
out there that don't have that in place, and it's
some fixed dollar amount, or it's not calculated right. Replacement
costs is extremely important, So one of the big things
you want to do is shop around. You know, and
I'm guilty of this too. I don't like property and
casualty insurance. That's a boring side of the industry that
doesn't fit in my brain. So I don't pay enough
(13:39):
attention to my property and casualty insurance as often as
I should. However, when I do look at it, I
have moved it around a couple of times. Just make
sure that you're getting the best deal. A lot of
people treat insurance like a crockpot, turn it on, and
then ignore it for the rest of the day. That's
not the way to treat it, and now is definitely
a good time to take a second look at your policy.
Speaker 1 (13:58):
Yeah, you could consider working with an independent insurance agent,
not just a captive agent from one company. Independent agents,
for the most part, they represent multiple companies and they
can go out and shop different companies depending on your
you know, individual situation, and they can help you identify
if your current rate is still competitive. Second, another option
(14:20):
is raise your deductible. If you've got a healthy emergency fund,
and your net worth has grown and you could sustain
a little bit more the front hit, you know, the
hit on the front end. Like a lot of our listeners,
can consider bumping that deductible up from five hundred dollars
to one thousand or even twenty five hundred dollars, and
just look at what happens to your premium if you
(14:40):
do that. Chances are you're going to save premiums every
year if you raise that deductible, you know, just a
little bit. And then third, ask about discounts, Bundling home
and auto, installing a security system, even upgrading your roof,
These can all lead to savings. Point here is, don't
wait for a massive rate hike to review your homeowners insurance.
(15:02):
Shop smart now and protect what you've built. All right, Brian,
one of the biggest tennis tournaments in the world is
about to converge on Greater Cincinnati, right here in Mason, Ohio.
The biggest names of the sport will be here, whacking
you know, yellow balls around. Talk about one of the
players that's gonna be here, which I know she's a
(15:23):
big favorite here among Cincinnati tennis fans.
Speaker 2 (15:26):
So we're talking about the Cincinnati Open of course, and
big long term history. That thing's been running for over
one hundred years, and that just blows my mind. I
like going there and looking at all the people who
are wearing their tennis whites, just in case they get
called out of the audience, you know, to play against Venus.
So let's talk about Venus Williams here. So she's won
multiple Grand slams. She's forty five now, so she's you know,
(15:46):
that's young in terms of you know, being human being,
but a little on the older side for any kind
of athlete. But she did just come back from a
sixteen month break from playing professional tennis. But she didn't
come back because she missed playing, she missed her health insurance.
This is like, this is one of those things that
make you scratch your head. You say, that's playing at
(16:07):
this level is a lot of work and a lot
of energy. But she basically said she came out and said,
you know, they informed me this year that I'm on Cobra,
so it's like I got to get my benefits back
working again. So interesting comments from so you wonder how
people kind of get themselves in this situation. But you know,
this is she has the same debate that anybody who
retires younger than medicare age of sixty five, you got
(16:27):
to figureut how you're going to pay for things. Cobra
is a good deal, but it doesn't last forever. That's
eighteen months worth of you sharing the cost of your
insurance policy with your employer. Better deal than going off
the rack, but still there's a clock on that. And
it's just interesting. This is, you know, coming from the
former number one rank player who has made over forty
three million dollars playing professional tennis. Who knows maybe she
just wants efficient healthcare benefits well, and that.
Speaker 1 (16:50):
Forty three million dollars doesn't even include the multiple endorsements
she's had over the years, so who knows. Maybe her
financial advisor is just staying on her case. Brian, get
that health insurance paid for all right? Every Sunday you'll
find our all Worth Advice in the Cincinnati Inquire. Here's
a preview, Brian. You take this one from Carter and
(17:11):
Tiffany and Butler County. They're asking, is there any way
to avoid the net investment income tax?
Speaker 2 (17:18):
Yeah, first of all, that's not to have investments, so
the net investment income.
Speaker 1 (17:22):
Don't make any money.
Speaker 2 (17:23):
Exactly. Good show, Bob. I'm glad we're here to help people.
So the net investment income tax is something that went
into place under the Obama administration and basically was a
way to start generating more income revenue and start taxing
you know that at higher dollars amount worth of income.
So the the types of things that you want to
(17:45):
do here to to avoid this is, well, you can
make sure that you're your investments are tax sheltered. That
means iraise annuities, that kind of thing. Make sure there's
the there's things in there that are you're taking advantage of.
Know the dollar limits in terms of what you can
earn and the where the different things. This is a
three point eight percent surtax on your high income earners
(18:07):
that's levied against your net investment income and the amount
by which you're modified adjusted gross income goes over the threshold.
That threshold if you're married filing joint that's two hundred
and fifty thousand dollars. In other words, if you have
you earn more than two hundred fifty thousand dollars as
a married or if you're single at two hundred thousand dollars,
anything over and above those limits will will generate that
(18:29):
three point eight percent surtax and that includes interest dividends,
capital gains, rental income, passive business income, all those kinds
of things. So you need to keep your modified adjusted
gross income below that threshold. And we've said this earlier
in this very session here ROTH conversions are key. You
can do that and that will help you avoid those
required minimum distributions.
Speaker 1 (18:49):
Well, this is the importance of having a proactive tax
plan rather than just being reactive and preparing your taxes
every year, because with a good advisor, you know, an
advisor working together with a CPA, we can kind of
look at what your income is going to be now
in in the future and look at ways to hopefully
stay out of the net investment tax, the ERMA tax,
(19:11):
all these hidden taxes that rear their ugly head if
you're not ready for him and plan ahead for him.
So this just amplifies the point that we make all
the time. Good tax planning is essential here, all right,
all Worth, Chief Investment Officer Andy Stout is going to
be annext with some strategies for the investor who wants
(19:31):
to be tax efficient. Like we just talked about you're
listening to Simply Money, presented by all Worth Financial on
fifty five KRC, the talk station.
Speaker 2 (19:45):
You're listening to Simply Money, brought to you by Allworth Financial.
I'm Brian James and I'm joined by Andy Stout, chief
investment officer for Allworth Financial. And contrary to the music
we just heard, or in parallels to the music we
just heard, he is the best around. Today we're going
to talk about something called tax alpha.
Speaker 3 (20:02):
Uh.
Speaker 2 (20:02):
There's a lot of words and uh catch words and
phrases and jargon gets thrown around in the investment industry,
and there's a whole bunch of Greek letters attached to them.
So sometimes you run across something called beta, which is
just comparing an investment to a benchmark, and it has
a beta one point two or point nine or whatever,
and that's just kind of relative to a specific benchmark.
Alpha is slightly different. Alpha is something that we look
at in terms of managing, you know, a specific management
(20:25):
strategy and what the whatever the unique factors is around
are around those that strategy that causes it to do less,
to perform, outperform an index, or or underperformed. What are
the reasons behind it? So specifically, we're going to talk
about tax alpha, which has the what is the after
tax impact of investment strategy? So Andy, tell me a
(20:45):
little bit about how can you control the tax alpha
of an investment strategy.
Speaker 3 (20:50):
Yeah, that's a great question, and it's a might sound confusing. Oh,
tax offa one point two percent?
Speaker 2 (20:56):
What does that mean?
Speaker 3 (20:57):
Well, let's just take a step back even from that.
Let's say you own two stocks, Procter and Gamble and Croger.
Let's say one of those stocks you bought and has
a thousand dollars gained. One of them has a thousand
dollars loss. Without tax planning, let's say you happen to
sell the one that has a thousand dollars gain and
you keep the one with a thousand dollars loss. What
(21:19):
happens is that you owe taxes on that game, so
you might end up paying you know, three hundred bucks.
But if you had some tax aware planning or did
some tax los harvesting, what you would do is you
would also sell stock be the one with the loss,
and essentially the loss would offset the gain and you
would owe no taxes in your portfolio value overall would
(21:41):
still be the same. So tax alpha is really just
the extra investment returned by minimizing taxes just through you know,
smart planning strategies.
Speaker 2 (21:52):
Okay, So is this something I would be doing with
my mutual funds or my four toh one K or
where are the specific places that this is impactful.
Speaker 3 (22:00):
Yeah, that's a great question and really impactful and tax accounts.
You don't want to do it in your four O on, kay,
because it's not even possible from the IRS's perspective, So
don't worry about that. But what you want to be
focused on is if you have a trust account or
a joint account or an individual account, those are the
accounts typically there are others, but those are the main
(22:21):
ones that where you can employ these tax alpha strategies
to sentially reduce the amount of money you pay the IRS.
I mean, that's what we all want to do anyway.
Speaker 2 (22:30):
Okay, So that's starting to make some more sense. But
it sounds like this is something where I really, you know,
if I have a diversified portfolio of mutual funds, I
may or may not be able to benefit too much
from that, even if it isn't a taxable account. Is
that right?
Speaker 3 (22:43):
Well, now, if it's not a loss or you have
a gain in other error, If you have a gain
in the mutual fund, you could possibly if you want
to get out of that, sell that and look for
losses in other areas. Or maybe that mutualal has a loss.
It's really just whether or not that investment has a
gain or loss in how you can offset that in
other areas. What you know, we like to focus on
a lot our you know, tax loss harvesting strategies, where
(23:05):
you're looking at individual positions. Those could be mutual funds,
could be exchange trade of funds or ETFs. It could
also be individual stocked or individual bonds as well. Really,
any security that's in a tax will count, and we're
looking specifically at those investments and sometimes what's called at
lot levels, because you could buy maybe Procter and Gamble
(23:26):
on one day and then buy it on another day.
You could sell from those specific lots. If one of
them happens to be a higher cost basis, meaning you
might have a lower or an increased loss, you could
sell from that specific one. And it's really just being
laser focused on the ability to target specific securities and
(23:47):
specific lots to harvest losses and here's the key, brind
while still maintaining your overall investment exposure and not deviating
from your broad strategy. So by harvesting those losses, we
can offset gains in other areas, allowing your portfolio to grow,
you know, in a tax free way. And if you
(24:07):
do take on more losses than gains, you have a
couple of other options, which is really great. One you
can take basically three thousand dollars and use that to
offset your income overall to lower that but probably more
importantly as you can carry over as many losses in
one calendar year and use them in the future. So
if you happen to have banked maybe tens or hundreds
(24:29):
of thousand dollars of losses and you didn't use them
all in one year, you can use them in another year.
Speaker 2 (24:33):
You've got to keep track of it. Okay, So this
sounds like I don't want to root for losses, but
since they're kind of inevitable and they happen from time
to time, this is kind of like it almost sounds
like this is kind of a silver lining. It's things
to go through, that kind of thing. But at the
same time, as long as I know how the tax
code works, it can be kind of beneficial. Now, I think,
aren't there other you know, it seems like there are
other things involving charities. Are there other ways that I
(24:55):
can add some a positive tax return to my portfolio?
Speaker 3 (24:59):
Yeah, there's a few things you can do. Let's just
say you have a bunch of individual stocks and you're
charitably inclined. Instead of donating cash, look for the stocks
that have the highest appreciation, so with the largest gains,
and you can donate those. You get a tax right off,
and then guess a lot, you didn't pay any taxes
on those gains, and you're still in the same position
you were, whereas if you would have donated to cash. Uh,
(25:21):
and then you sell the stocks later, all of a sudden,
you're paying taxes on those gains. You can avoid that
all together just by donating your most appreciated stocks. So
that's another really good strategy. You combine that with tax
loss harvesting, and you can do that through a variety
of methods. One's called a direct index, which basically tries
to match an index return but provide that tax alpha.
(25:45):
So when you marry those two things of the charitable
donation with the Act of tax Sauce harvesting. It's a
really powerful tool that you can have in your tool
belt to lower the amount that you pay the I
R S.
Speaker 2 (26:00):
That's great, that's fantastic information. None of this is new.
This is just the tax code. This isn't financial products
or anything like that. This is just how the tax
code works and understanding how to apply it to your portfolio.
So super helpful information from Chief Investment Officer Andy Stout.
I'm Brian James, and you'll be listening to Simply Money
on fifty five KRC, the talk station.
Speaker 1 (26:25):
You're listening to Simply Money and presented by all Worth
Financial on Bob' sponseller along with Brian James. Do you
have a financial question for us? There's a red button
you can click while you're listening to the show right
there on the iHeart app. Simply record your question and
it will come straight to us. All right, it's time
to play some financial factor fiction. Brian. Let's start off
(26:46):
with you. Factor fiction. You should never, and I say never,
take Social Security early if you can afford to wait.
Factor fiction, Brian.
Speaker 2 (26:55):
You know, Bob, there are some words that I hate
when they come up in a financial planning discussion. Those
words are always and never. There are no rules of thumb.
Everybody's got a different puzzle to put together, everybody exactly. Yeah,
you got to deal with your own situation anyway. So
this one's fiction. There are reasons to take social security early.
If you know, some of the sadder stories I've ever
(27:17):
heard in my life is where, you know, a married
couple is getting ready to retire, and they're excited about
going forward and so forth, and then all of a sudden,
one of them comes down with something super significant and serious.
Forget the math, forget the spreadsheet, forget the you know,
the snowball effect. That that's when you need to take
control of the time that you have left and go
in and a lot of times that does involve turn
on the Social security bigot. Don't worry about those eight
(27:39):
percent increases. But on the other hand, there are some
others where if there's plenty of resources out there, you know,
and you then you could benefit significantly from those eight
percent increases and push it out till seventy Most of
us are going to be somewhere in the middle. All right,
My turn, Bob Fact or fiction. Bob spond Seller as
state taxes can still apply at the state level even
if you're below the federal exemption.
Speaker 1 (28:00):
What do you think, Well, this is a fact, and
it depends on what state you die in and where
your airs are. And let me give you an example.
In Ohio, there is no a state tax at the
state level. In Kentucky, on the other hand, it's a
little more jumbled up mess. You know, if you leave
assets to let's say, your spouse or child or grandchild,
(28:21):
no estate taxes. But if you get into some other airs,
there's a schedule, you know, put out by the state
of Kentucky where there's exemption amounts. There's different percentages that
the person inheriting the money has to pay depending on
what the dollar amount is. So be careful to check
the state you live in, in the state you think you're
going to die in and leave money in, because things
(28:44):
can change depending on where you live.
Speaker 2 (28:46):
Sounds like job security for lawyers and accounts.
Speaker 1 (28:48):
Yep, all right, Brian, If I'm maxing out my four
to oh one k, I'm saving enough for retirement. Fact
or fiction.
Speaker 2 (28:56):
It's another declarative statement that I ever like. So I'm
going to call it that one fiction because maybe you know,
it depends on your other situation. Maxing out your four
oh one K, that's one thing that's good. I mean,
obviously it's gonna give you a bigger pile of money.
The more you put in, the more it's gonna grow.
Eventually you'll come to a situation of, Okay, should I
be paying down my mortgage? You know, maybe, And that's
(29:16):
a that's a decision that's a lot of people run
into when they're in the maybe like the last three, five,
seven years of retirement, where there might be already a
good chunk put into the four to oh one k,
And in that case, it may be okay to drop
from the twenty fifteen percent or whatever they're putting in
their four oh one k, drop it back to a
certain amount, to a lower percentage, and then reroute those
savings toward that toward that mortgage. But that's just one example. Again,
(29:38):
it's all about puzzle pieces. Everybody's puzzle pieces look different,
but they all do fit together one way or another.
You gotta figure out what you want your puzzle to
look like. Factor Fiction, Bob Sponseller. Tax loss harvesting in
a direct indexing portfolio can improve after tax returns even
if the market is flat or only up a little bit.
Is that truer fake?
Speaker 1 (29:58):
This is absolute fact. And this is one of my
favorite things about these tax loss harvesting strategies that are
prevalent out there, and we've got a great one here
at all Worth two. I mean, the thing you can
take advantage of, and this is one of the times
you could take a ton of advantage of short term
market volatility because these tax advantage strategies, the way they
(30:19):
work is it's an algorithm floating in the background. There's
you know, things going on that none of us are
looking at, and it's it's constantly harvesting losses when you
have them and then immediately get into something very similar.
So you're fully invested in the market, but you've captured
that capital loss and you can use it later to
(30:41):
offset future gains. It's a wonderful strategy that works really
well irrespective of whether the market's going up, down, sideways,
or anything in between. All right, Brian, Factor fiction. Deferred
compensation plans can lower your current taxable income but create
future income timing complexity factor fiction, Brian.
Speaker 2 (31:05):
Oh, this one is fact. The deferred compensation plans are
complicated themselves, and they make other things complicated downstream. So
if you haven't heard of a deferred comp plan, then
you may not have one. These are essentially plans. This
is something beyond your four to one K, beyond your
you know, your normal retirement plans that generally everybody has
access to. If you're in an executive role or how
(31:26):
you're a key employee, a highly compensated person, you're your
employer maybe offering you some kind of extra plan that
you can get access to to continue to put more
money away. Now. What this does, though, is you generally
have to decide yes, I'm gonna I'm eligible for this
bonus now, but I don't want to receive it now
because I don't need the income first and foremost currently,
(31:46):
and I'd like to defer the taxes on it. So
I want to pick a time in the future. You
know that might be five, six, seven, could be ten
years from now, depending on how your plan works. That's
up to your employer, but you're picking a time in
the future to receive those assets. Therefore, you are deferring
the compensation, hence the name. What that does, though, is
that it creates a tax overhang in that year, and
they can be a little complicated and they're very stressful
(32:07):
decisions because you're asking somebody, you know, to decide when
do I want to take this tax hit. I don't
really know what's going to go on five, seven, ten
years from now, but I'll have to decide and commit
to something. And the income time and complexity of all
that is of course, that's going to have an impact
on your bracket that year. Well into the future, and
we don't know what the brackets are going to be.
We never know what tax is going to look like
in the future. But remember, well into the future you'll
(32:29):
be dealing with things such as such as IRMA. IRMA
is something that will you retire one year, start taking income,
and then two years later your Medicare premiums will be
calculated based on what your income was that twenty four
month period prior. So these are all things again you
have to kind of plan them well in the future.
You don't get a chance to, you know, really truly
(32:50):
understand what's coming. But again these are these are plans
that not everyone has access to. It's something over and
above your four oh one k.
Speaker 1 (32:57):
Well, the other thing, the other thing we got to
watch out for there. In terms of future income, timing
is required minimum distribution. Some people think, hey, defer the income,
defer the income, defer the taxes, and you just keep
putting it away, putting it away, and then you look
and lo and behold. When you hit you know, RMD
age age seventy three, seventy five, you got a boatload
(33:18):
of income coming in and you might get jumped significantly
up in terms of tax rates. So in some cases,
not all, but in some cases it makes sense to
not defer that income now because you could pay taxes now.
Its potentially a lower bracket. There's a lot to think
about here.
Speaker 2 (33:34):
If I eat all my dessert now, I got nothing
but vestibles later. You gotta spread it out, all right,
Come in your way there, here's our last one of
the days. So, Bob, fact or fiction? Structured notes are
too complicated for most investors.
Speaker 1 (33:47):
What do you think, Well, I'm gonna say fiction. They're
not like a lot of things in life. You know,
we're not trying to talk down to people here. I
think most people can understand a lot of this stuff,
and I would put structured notes in that camp as
long as they're provided with the information so I would
say for most people out there, structured notes are not
(34:07):
a do it yourself proposition because there's caps on what
you can make, there's different floors on what you can
protect yourself from. And all these structured notes are tied
to different investment indices or blends of different indices. So
I think that's again that's where a good advisor if
they explain this stuff clearly to most investors. I find
(34:30):
most investors understand this stuff within five to ten minutes
if we just boil it down to plain English and
tell them, you know what the deal is, and people
can make an appropriate decision. What do you think about that, Brian.
Speaker 2 (34:41):
You sound like an experienced advisor. That's mostly what we
spend our time doing is just educating on how the
tools work, on how the different moving parts work together,
and how does it apply to somebody's specific situation.
Speaker 1 (34:53):
Yeah, just taking what we do all day is we
take complex financial concepts and we try to boil it
down to plain English and demystify it for people. That's
what we do all right. Coming up, coming up next,
you're gonna get my two cents, uh, municipal bonds and
cash management stuff and I'm talking about the taxes around
(35:14):
all of that. You're listening to Simply Money presented by
all Worth Financial on fifty five KRC, the talk station.
You're listening to Simply Money presented by all Worth Financial
on Bob Sponseller along with Brian James, and it's time
for my little two cent segment Brian, and tonight, I
(35:34):
want to talk about an actual situation I've been dealing
with with a with a client, a fairly affluent client
that's got a bunch of money in municipal bonds and
a bunch of money in cash, and we're having ongoing
conversations about because these people are very intelligent, but for
some reason they're they're having a hard time grasping the
(35:57):
concept of before tax and after after tax returns on
both the money they've got in the bank and save
these accounts and their municipal bond holdings. And in this
particular situation, Brian, I'm actually finding that the more I
dig into where the actual client's tax rate is, it
makes sense to not have all the money in municipal bonds.
(36:19):
And I'm having a hard time telling these people, hey,
it's okay to pay a little bit in taxes because
your net return is going to be higher. You ever
running into anything similar, Brian.
Speaker 2 (36:30):
Yeah, this is this is very common. I think a
lot of people are attracted to the term tax free
for obvious reasons, right, we don't want to pay any taxes.
But the assumption is that, well, if I need bonds,
I want them to be tax free because I can
get a five percent CD from a bank. That therefore
means I could get a five percent municipal bond and
not pay taxes on it. So that's a no brainer,
right Bob. What doesn't work that way? Of course, I'm
(36:51):
gonna make up numbers here a little bit, but a
five percent CD might might equate to, you know, maybe
a three and a half percent municipal bond. The states
that issue municipal bonds, you could be buying this from
State of Ohio, state of Kentucky. You're basically buying the
debt of a government entity, and it will be federal
tax free to you. Ohio does not tax income on
(37:12):
its own municipal bonds as well, so it can be
totally tax free. But again you're getting less. You're getting
three and a half percent. If you look at the
tax free nature there that that looks like a good deal.
But if you're only in say the twenty percent bracket,
then my five percent becomes four percent after taxes, which
is a little higher than the three and a half.
So it seems to me, Bob, you really need to
(37:33):
be in there is a wide, wide gap, wider than
I recall in the past twenty thirty years between the two,
and you really need to be twenty four percent or
higher bracket that I hate, rules of thumb, but that's
in that bracket. I think that's where where it might
start make this start to make sense to consider tax free. Yeah.
Speaker 1 (37:47):
Another thing I'm running into more often that I used
to is this dramatic difference, you know in how these
cash interest rate float, you know, the cash interest rate
that banks are paying on deposits. I mean, the name
of the game in our industry, as you know, Brian,
is assets under management au M and all the banks.
(38:09):
I mean, everybody's trying to gather assets. And what I'm
talking about here is these short term teaser rates. And
I've run into more than a few clients this year
that tell me, hey, I'm getting four point seven at
the bank, and you know, why should I invest, I'm
getting four point seven percent. Well that might have been
for three months or six months, and then that rate
(38:30):
goes right back down to three and a half three
point seven percent, and it flies right on by people
unless they actually look at their statement and see what
they're earning. I'm seeing that happen more often than I
care to mention.
Speaker 2 (38:43):
Right now, what about you with your the more bricks
and mortar, the less rate of return you're going to get.
Right So, a lot of if you look at a
bank account now and you see that it's not paying
you very much, there's a chance of two, three, four,
five years ago it was some kind of teaser rate
that attracted you at the time and you maybe kind
of forgot, which is exactly what the bank once they
want to pay you that teaser ape to keep the
assets after you're forgotten that. That's the thing.
Speaker 1 (39:05):
Yeah, And I think the real point we're trying to
drive home here is just make sure you're reviewing what
you actually own, and if it's not something you want
to do or you have no interest in doing it,
get a good fiduciary advisor to sit down and look
under the hood and actually look at and tell you
what you're actually getting. Thank you for listening. Tonight you've
been listening to Simply Money, presented by all Worth Financial
(39:27):
on fifty five KRC, the talk station
Tonight the list of ethical standards you should demand from
your financial advisor. You're listening to Simply Money, presented by
all Worth Financial on Bob Sponseller along with Brian James.
Great topic today, Brian, Let's be honest, Choosing a financial
advisor might be one of the most important financial decisions
people ever make, and it's also one of the hardest
(00:29):
to evaluate because of all the confusion out there. If
you've built real wealth, you're not looking for someone to
just pick a few mutual funds, throw it in an account,
let it go. You need somebody to shelter you through
the rest of your life, guide you through building your legacy,
minimizing taxes, constructing a tax efficient income plan. There's a
(00:50):
lot of moving parts there that need to be done,
and you know, on top of that, you want somebody
who does it ethically. Brian walk us through some of
these things from a new bank rate study that just
came out, and this is a this is an important
segment to go through today.
Speaker 2 (01:07):
Yeah, so our friends at bank rate have just have
released this study and just to kind of boil down
to more detail than just look for the word fiduciary, Well,
what does that actually mean. So let's let's get into
that little bit. So the first ethical standard they came
up with is the fiduciary duty. This is just the
general kind of overarching philosophy of your advisor. They should
be acting as a fiduciary. That means, if they were
(01:29):
in a court of law having to justify what they did,
why they made the recommendations that they do, that they
can they can correctly say, here, here's the situation that
I've uncovered about this person. Therefore I recommended that they
do this now the way the way we do this,
This is the whole reason behind financial planning. At the
end of the day, we're investment manager. That's what we do.
But we need to be able to explain and justify
(01:50):
why we picked the investments that we have. Well, we
do that with a financial plan. That means we've sat
down with your you know, with you, your spouse and whoever,
and we have figured out here's the resources. We've got,
this savings, this in retirement, we've got these social careity
pension situations. There's maybe this business on the side, real
estate or whatever. And then separately, here's what we're trying
to do with it. Here here's what we need in
(02:10):
terms of just keeping the ship afloat. Here's what we
might need in terms of healthcare. Here's our estate planning goals.
And then here's the things we want to do on
all that other kind of stuff in handling debt and
so forth. Therefore, we've got a clear understanding of any
given client, and therefore we can justify here's why we
set up the portfolio that we did. But that's the
most important thing. Are you a fiduciary and have you
(02:31):
exercised your fiduciary obligations?
Speaker 1 (02:34):
Well, Bryant, this is a big one because not all
financial advisors are fiduciaries. Many are still operating under that
old quote unquote suitability standard, which only requires that the
investment or the recommended solution is quote generally appropriate. It
doesn't have to necessarily be the best or most cost
(02:54):
cost efficient. The fiduciary standard is different. It means a
fiduciary advisor always is legally obligated to put the client's
interest ahead of their own, always giving the advice that
is in the best interest of the client. That is
a big distinction. And here's the concerning stat Only one
(03:15):
in three investors even know if their advisor is a fiduciary.
You know, according to a recent study from Sharouli, over
half mistakenly believe all advisors are required to act in
their best interest and they are not.
Speaker 2 (03:29):
Brian, Yeah, that's very true. And that suitability standard you mentioned,
that's sort of it's almost sort of industry jargon, but
it basically it's just a one time is this investment
suitable for this person? Yes or no? And that's a
tough standard to break.
Speaker 1 (03:42):
Right.
Speaker 2 (03:43):
You can get away with an awful lot by selling anybody,
you know, any old mutual fund and annuity and earning
a commission, and there's nothing wrong with that kind of business,
you know, for those that practice that. But at the
same time, it does introduce conflict of interest. I'm if
I'm only going to get paid if I convince you
to purchase this, and I won't get paid if you
don't that I'm a salesperson. That's very different from a
fiduciary kind of more holistic approach. And then the next
(04:06):
next part of that is are you always a fiduciary
or is it just when you're wearing certain hats. I
came out of the banking industry, and this is where
you've got to be super, super careful. The banking industry
has fiduciaries, of course, that's what a trust department does,
but they also have lots of salespeople out there, so
know who you are speaking with and exactly how their
bread gets buttered. Let's move on to the next one.
How about fee transparency, Bob.
Speaker 1 (04:25):
Transparency in fees is another big ethical standard to look
out for. Advisors should not be cagy or squirmy or
avoid talking about what they earn and how they earn it.
You deserve as a client to know exactly how your
advisor's being compensated, whether that's a flat fee and hourly rate,
a percentage of assets, or commissions. Not that commissions are evil,
(04:48):
but you need to know that your advisor is being
compensated in that way up front, not after the fact.
And in our world, which we love, a fee only
fiduciary advisor removes a lot of those conflicts because there
are no product commissions, there's no hidden incentives, and it's
just straightforward feed based, you know, planning, and that makes
(05:09):
them easy for us and easy for the people that
we deal with and review. It removes a lot of
ethical standard Number three conflicts of interest Brian Yep.
Speaker 2 (05:20):
So this is a big one. Good advisors are going
to disclose any conflict upfront, and oftentimes it's it's in
what you know in the disclosure documents they're going to
send you that you can sign off of to understand
how all that stuff it runs into each other. So
better yet, they put a lot of effort into getting
rid of conflicts in the first place, and that way
you know you have objective advice, not just product sales.
(05:42):
This is really really true in the high net worth
space because your advisor might have access to to certain
other things, you know, private type investments and structured solutions
that are more complicated and can be very lucrative for
the advisor as well if they're in a situation where
they're earning commissions and things like that. So you have
to question are they offering these i commission paying things
because they fit your plan or are they offering them
(06:03):
because they fit their plan? Big question. You need to
pay attention to it well.
Speaker 1 (06:06):
And you talked about coming out of the banking industry.
I came out of the insurance broker dealer side of
the business, so I know how this game works. You know, intimately,
we always had a lot of stuff we could offer clients,
but we were paid more to place certain products and
certain proprietary products manufactured by that particular insurance company. And
(06:31):
it got to the point where I felt like I
had an inherent conflict of interest from you know, how
my income was generated. And that's why I made the
jump to you know, fiduciary independence, you know, decades ago,
and so glad I did. You're listening to simply Money
presented by all Worth Financial on Bob Sponseller along with
Brian James Ethical Standard number four Client centered communication. This
(06:55):
is huge, Brian. You got to be working with somebody
that you understand and trust and that communicates with you.
Speaker 2 (07:02):
Yeah, the time of being an advisor. You know, as
I think back on my career, I wouldn't have described
it this way when I decided I wanted to get
into this field. But now I feel more like a
teacher than anything else. So when I sit down at
a table and review somebody's financial plan with them. It's
a lot of people think a financial advisor has you know,
it does math all day long, like we all have
advocacies and uh, you know, we sleep with our calculators
(07:23):
and all that kind of thing the computers do that
I don't do math. I help people understand. I help
them uncover all of their needs and then we will
figure out, you know what that is. And may that
puts me in the role of being more of a teacher,
because my goal is, you know not is really to
help them understand the situation they've built, what opportunities that
(07:43):
affords them, and then to make sure that they understand
the you know, the the pros and cons of each
of the paths they might take. You know, you've got
a good solid plan. It's now about efficiency. Should be
to be doing roth conversions, When do we show security?
When do we sell this real estate? Should we pay
off the mortgage versus not? All those kinds of things.
They're all good, but at some point you got to decide.
(08:03):
My job is to teach them how to discern the
pros and cons of each of those approaches and what
the ultimate impact will be way down the road. So
I have to be able to speak English, and I
have to speak in a language that they understand, come
to come to their level, as opposed to using jargon
and things like that. Again, that makes me a teacher
if they walk out of the room going yep, I
understand it. I don't want to do this one. I
(08:24):
do want to do that one. I've done my job,
but it terms I got to speak the same language.
Speaker 1 (08:27):
Yep for sure. And a good advisor is also proactive.
You know, you shouldn't be sitting around waiting. You know,
advisors shouldn't be just sitting around waiting for the phone
to ring if a client has a question. We talk
about annual review meetings all the time, and for some
quarterly or semi annual reviews, a lot of those are generated.
Should be generated by the advisor. The advisor should be
(08:51):
looking at your situation, know what you need, know when
to pick up the phone or have the staff call
to schedule a meeting. It should be a proactive relationship
with a lot of this stuff coming from the advisor,
not a reactive relationship. And then ethical standard number four, Hey, Bob.
Speaker 2 (09:07):
I want to add a quick thought to that, because
that door swings both ways too, Because this is a
this is very much a team sport. It never, it
never fails to amuse me how often somebody will come
and bring their couple million dollars in a wheelbarrow and
dump it on our front porch, and we put a
plan together, get things set up, and then we can't
get them to call us back when we're just trying
to People are just kind of averse to money in general.
I want to trust somebody and I want to walk
(09:28):
away from it. Well, it's your money, and we definitely
need to be in touch with your advisor because your
advisor needs your input so that they can give you
the best possible plan and therefore the best possible outcome.
Speaker 1 (09:37):
Team sport yep, for sure a good point. The last
standard we want to talk about standard number five confidentiality.
It should I mean, this should seem obvious. We shouldn't
even have to bring this up. But obviously your advisor
has access to your deepest financial details and confidentially. Confidentiality
isn't optional, it's sacred. If they share other clients stories
(10:01):
with you, that's a bad sign because yours could be next.
Especially in a close knit community like parts of Cincinnati.
You want to know your advisor is gonna keep their
mouth shut when it comes to the details of your
financial life, not name drop and be a loud speaker
talking about your situation with others. It we shouldn't even
need to talk about this, Brian, but I guess it
(10:23):
comes up from time to time.
Speaker 2 (10:24):
Yeah, and I hear some some hair raising stories from
clients that you know that are looking around because of
these types of an issue. Maybe maybe we met them.
Maybe they came to all work because they felt like
their advisor wasn't keeping things, you know, kind of on
the down low the way that they should. And this
is this doesn't mean that they're you know, you're worried
about them tweeting out your your balance sheet or anything
like that. It can simply be are they paying enough
(10:46):
attention If my kid calls, you know, my adult kid
calls sniffing around about my money, and I don't want
them to know, Well, my advisor has no right to
to share that information. But it's a I do hear
of things like this happening where somebody will just assume, well,
this family must be asy and trusting is my family,
so I can talk to whoever I need to. That
is not the case, and that could even happen between spouses.
Sometimes there are situations where spouses maybe you know, just
(11:08):
find together, but they don't want their details shared, and
your advisor needs to be conscious of what you want,
how you want that information treated.
Speaker 1 (11:15):
Here's the all Worth advice. You deserve an advisor who
puts you first, clearly, transparently and always coming up next.
A major insurance company just raise some homeowners insurance rates
by nearly thirty percent. We'll tell you what's going on
there and how to protect your wallet. You're listening to
Simply Money presented by Allworth Financial on fifty five KRC,
(11:38):
the talk station. You're listening to Simply Money presented by
Allworth Financial. I'm Bob Sponseller along with Brian James. You
should never take Social Security early if you can afford
to wait. Is that fact or fiction? We're tackling that
and other questions straight ahead. At six forty three. There's
(12:01):
a warning shot coming from a state very close to US.
State Farm, the largest home insurer in the country, is
hiking homeowners insurance rates in the state of Illinois by
a jaw dropping twenty seven percent. Brian, that's nearly five
hundred dollars more per year for the average customer. And
while it's not happening yet in Ohio or Kentucky, this
(12:22):
is exactly the kind of financial storm we want our
listeners to be prepared for, especially those with high value
homes or complex insurance needs.
Speaker 2 (12:32):
Yep, this is why we tell people to We got
to make sure we got oil in the engine. Make
sure you got an emergency fund because you might get
a bill drop out of the sky that's a little
higher than what you've become accustomed to. And currently that's
happening in the property and casualty insurance space. So why
is this happening, Bob, Well, in a nutshell, it's is
weather and rebuilding costs. Right, there's more natural disasters. We've
got crazy hurricanes going on. You know, we got earthquakes, wildfires,
(12:55):
all that kind of kind of stuff. Those things are
just happening more and more frequently than they use to.
And remember the cost of everything is up. So what
you paid for your house has nothing to do with
what it would cost a builder to go buy the
supplies and raw resources to rebuild that home, the two
by fours of the drywall and all that. You want
to make sure that you have replacement cost built in
(13:17):
to your policy, so if it can. There are policies
out there that don't have that in place, and it's
some fixed dollar amount, or it's not calculated right. Replacement
costs is extremely important, So one of the big things
you want to do is shop around. You know, and
I'm guilty of this too. I don't like property and
casualty insurance. That's a boring side of the industry that
doesn't fit in my brain. So I don't pay enough
(13:39):
attention to my property and casualty insurance as often as
I should. However, when I do look at it, I
have moved it around a couple of times. Just make
sure that you're getting the best deal. A lot of
people treat insurance like a crockpot, turn it on, and
then ignore it for the rest of the day. That's
not the way to treat it, and now is definitely
a good time to take a second look at your policy.
Speaker 1 (13:58):
Yeah, you could consider working with an independent insurance agent,
not just a captive agent from one company. Independent agents,
for the most part, they represent multiple companies and they
can go out and shop different companies depending on your
you know, individual situation, and they can help you identify
if your current rate is still competitive. Second, another option
(14:20):
is raise your deductible. If you've got a healthy emergency fund,
and your net worth has grown and you could sustain
a little bit more the front hit, you know, the
hit on the front end. Like a lot of our listeners,
can consider bumping that deductible up from five hundred dollars
to one thousand or even twenty five hundred dollars, and
just look at what happens to your premium if you
(14:40):
do that. Chances are you're going to save premiums every
year if you raise that deductible, you know, just a
little bit. And then third, ask about discounts, Bundling home
and auto, installing a security system, even upgrading your roof,
These can all lead to savings. Point here is, don't
wait for a massive rate hike to review your homeowners insurance.
(15:02):
Shop smart now and protect what you've built. All right, Brian,
one of the biggest tennis tournaments in the world is
about to converge on Greater Cincinnati, right here in Mason, Ohio.
The biggest names of the sport will be here, whacking
you know, yellow balls around. Talk about one of the
players that's gonna be here, which I know she's a
(15:23):
big favorite here among Cincinnati tennis fans.
Speaker 2 (15:26):
So we're talking about the Cincinnati Open of course, and
big long term history. That thing's been running for over
one hundred years, and that just blows my mind. I
like going there and looking at all the people who
are wearing their tennis whites, just in case they get
called out of the audience, you know, to play against Venus.
So let's talk about Venus Williams here. So she's won
multiple Grand slams. She's forty five now, so she's you know,
(15:46):
that's young in terms of you know, being human being,
but a little on the older side for any kind
of athlete. But she did just come back from a
sixteen month break from playing professional tennis. But she didn't
come back because she missed playing, she missed her health insurance.
This is like, this is one of those things that
make you scratch your head. You say, that's playing at
(16:07):
this level is a lot of work and a lot
of energy. But she basically said she came out and said,
you know, they informed me this year that I'm on Cobra,
so it's like I got to get my benefits back
working again. So interesting comments from so you wonder how
people kind of get themselves in this situation. But you know,
this is she has the same debate that anybody who
retires younger than medicare age of sixty five, you got
(16:27):
to figureut how you're going to pay for things. Cobra
is a good deal, but it doesn't last forever. That's
eighteen months worth of you sharing the cost of your
insurance policy with your employer. Better deal than going off
the rack, but still there's a clock on that. And
it's just interesting. This is, you know, coming from the
former number one rank player who has made over forty
three million dollars playing professional tennis. Who knows maybe she
just wants efficient healthcare benefits well, and that.
Speaker 1 (16:50):
Forty three million dollars doesn't even include the multiple endorsements
she's had over the years, so who knows. Maybe her
financial advisor is just staying on her case. Brian, get
that health insurance paid for all right? Every Sunday you'll
find our all Worth Advice in the Cincinnati Inquire. Here's
a preview, Brian. You take this one from Carter and
(17:11):
Tiffany and Butler County. They're asking, is there any way
to avoid the net investment income tax?
Speaker 2 (17:18):
Yeah, first of all, that's not to have investments, so
the net investment income.
Speaker 1 (17:22):
Don't make any money.
Speaker 2 (17:23):
Exactly. Good show, Bob. I'm glad we're here to help people.
So the net investment income tax is something that went
into place under the Obama administration and basically was a
way to start generating more income revenue and start taxing
you know that at higher dollars amount worth of income.
So the the types of things that you want to
(17:45):
do here to to avoid this is, well, you can
make sure that you're your investments are tax sheltered. That
means iraise annuities, that kind of thing. Make sure there's
the there's things in there that are you're taking advantage of.
Know the dollar limits in terms of what you can
earn and the where the different things. This is a
three point eight percent surtax on your high income earners
(18:07):
that's levied against your net investment income and the amount
by which you're modified adjusted gross income goes over the threshold.
That threshold if you're married filing joint that's two hundred
and fifty thousand dollars. In other words, if you have
you earn more than two hundred fifty thousand dollars as
a married or if you're single at two hundred thousand dollars,
anything over and above those limits will will generate that
(18:29):
three point eight percent surtax and that includes interest dividends,
capital gains, rental income, passive business income, all those kinds
of things. So you need to keep your modified adjusted
gross income below that threshold. And we've said this earlier
in this very session here ROTH conversions are key. You
can do that and that will help you avoid those
required minimum distributions.
Speaker 1 (18:49):
Well, this is the importance of having a proactive tax
plan rather than just being reactive and preparing your taxes
every year, because with a good advisor, you know, an
advisor working together with a CPA, we can kind of
look at what your income is going to be now
in in the future and look at ways to hopefully
stay out of the net investment tax, the ERMA tax,
(19:11):
all these hidden taxes that rear their ugly head if
you're not ready for him and plan ahead for him.
So this just amplifies the point that we make all
the time. Good tax planning is essential here, all right,
all Worth, Chief Investment Officer Andy Stout is going to
be annext with some strategies for the investor who wants
(19:31):
to be tax efficient. Like we just talked about you're
listening to Simply Money, presented by all Worth Financial on
fifty five KRC, the talk station.
Speaker 2 (19:45):
You're listening to Simply Money, brought to you by Allworth Financial.
I'm Brian James and I'm joined by Andy Stout, chief
investment officer for Allworth Financial. And contrary to the music
we just heard, or in parallels to the music we
just heard, he is the best around. Today we're going
to talk about something called tax alpha.
Speaker 3 (20:02):
Uh.
Speaker 2 (20:02):
There's a lot of words and uh catch words and
phrases and jargon gets thrown around in the investment industry,
and there's a whole bunch of Greek letters attached to them.
So sometimes you run across something called beta, which is
just comparing an investment to a benchmark, and it has
a beta one point two or point nine or whatever,
and that's just kind of relative to a specific benchmark.
Alpha is slightly different. Alpha is something that we look
at in terms of managing, you know, a specific management
(20:25):
strategy and what the whatever the unique factors is around
are around those that strategy that causes it to do less,
to perform, outperform an index, or or underperformed. What are
the reasons behind it? So specifically, we're going to talk
about tax alpha, which has the what is the after
tax impact of investment strategy? So Andy, tell me a
(20:45):
little bit about how can you control the tax alpha
of an investment strategy.
Speaker 3 (20:50):
Yeah, that's a great question, and it's a might sound confusing. Oh,
tax offa one point two percent?
Speaker 2 (20:56):
What does that mean?
Speaker 3 (20:57):
Well, let's just take a step back even from that.
Let's say you own two stocks, Procter and Gamble and Croger.
Let's say one of those stocks you bought and has
a thousand dollars gained. One of them has a thousand
dollars loss. Without tax planning, let's say you happen to
sell the one that has a thousand dollars gain and
you keep the one with a thousand dollars loss. What
(21:19):
happens is that you owe taxes on that game, so
you might end up paying you know, three hundred bucks.
But if you had some tax aware planning or did
some tax los harvesting, what you would do is you
would also sell stock be the one with the loss,
and essentially the loss would offset the gain and you
would owe no taxes in your portfolio value overall would
(21:41):
still be the same. So tax alpha is really just
the extra investment returned by minimizing taxes just through you know,
smart planning strategies.
Speaker 2 (21:52):
Okay, So is this something I would be doing with
my mutual funds or my four toh one K or
where are the specific places that this is impactful.
Speaker 3 (22:00):
Yeah, that's a great question and really impactful and tax accounts.
You don't want to do it in your four O on, kay,
because it's not even possible from the IRS's perspective, So
don't worry about that. But what you want to be
focused on is if you have a trust account or
a joint account or an individual account, those are the
accounts typically there are others, but those are the main
(22:21):
ones that where you can employ these tax alpha strategies
to sentially reduce the amount of money you pay the IRS.
I mean, that's what we all want to do anyway.
Speaker 2 (22:30):
Okay, So that's starting to make some more sense. But
it sounds like this is something where I really, you know,
if I have a diversified portfolio of mutual funds, I
may or may not be able to benefit too much
from that, even if it isn't a taxable account. Is
that right?
Speaker 3 (22:43):
Well, now, if it's not a loss or you have
a gain in other error, If you have a gain
in the mutual fund, you could possibly if you want
to get out of that, sell that and look for
losses in other areas. Or maybe that mutualal has a loss.
It's really just whether or not that investment has a
gain or loss in how you can offset that in
other areas. What you know, we like to focus on
a lot our you know, tax loss harvesting strategies, where
(23:05):
you're looking at individual positions. Those could be mutual funds,
could be exchange trade of funds or ETFs. It could
also be individual stocked or individual bonds as well. Really,
any security that's in a tax will count, and we're
looking specifically at those investments and sometimes what's called at
lot levels, because you could buy maybe Procter and Gamble
(23:26):
on one day and then buy it on another day.
You could sell from those specific lots. If one of
them happens to be a higher cost basis, meaning you
might have a lower or an increased loss, you could
sell from that specific one. And it's really just being
laser focused on the ability to target specific securities and
(23:47):
specific lots to harvest losses and here's the key, brind
while still maintaining your overall investment exposure and not deviating
from your broad strategy. So by harvesting those losses, we
can offset gains in other areas, allowing your portfolio to grow,
you know, in a tax free way. And if you
(24:07):
do take on more losses than gains, you have a
couple of other options, which is really great. One you
can take basically three thousand dollars and use that to
offset your income overall to lower that but probably more
importantly as you can carry over as many losses in
one calendar year and use them in the future. So
if you happen to have banked maybe tens or hundreds
(24:29):
of thousand dollars of losses and you didn't use them
all in one year, you can use them in another year.
Speaker 2 (24:33):
You've got to keep track of it. Okay, So this
sounds like I don't want to root for losses, but
since they're kind of inevitable and they happen from time
to time, this is kind of like it almost sounds
like this is kind of a silver lining. It's things
to go through, that kind of thing. But at the
same time, as long as I know how the tax
code works, it can be kind of beneficial. Now, I think,
aren't there other you know, it seems like there are
other things involving charities. Are there other ways that I
(24:55):
can add some a positive tax return to my portfolio?
Speaker 3 (24:59):
Yeah, there's a few things you can do. Let's just
say you have a bunch of individual stocks and you're
charitably inclined. Instead of donating cash, look for the stocks
that have the highest appreciation, so with the largest gains,
and you can donate those. You get a tax right off,
and then guess a lot, you didn't pay any taxes
on those gains, and you're still in the same position
you were, whereas if you would have donated to cash. Uh,
(25:21):
and then you sell the stocks later, all of a sudden,
you're paying taxes on those gains. You can avoid that
all together just by donating your most appreciated stocks. So
that's another really good strategy. You combine that with tax
loss harvesting, and you can do that through a variety
of methods. One's called a direct index, which basically tries
to match an index return but provide that tax alpha.
(25:45):
So when you marry those two things of the charitable
donation with the Act of tax Sauce harvesting. It's a
really powerful tool that you can have in your tool
belt to lower the amount that you pay the I
R S.
Speaker 2 (26:00):
That's great, that's fantastic information. None of this is new.
This is just the tax code. This isn't financial products
or anything like that. This is just how the tax
code works and understanding how to apply it to your portfolio.
So super helpful information from Chief Investment Officer Andy Stout.
I'm Brian James, and you'll be listening to Simply Money
on fifty five KRC, the talk station.
Speaker 1 (26:25):
You're listening to Simply Money and presented by all Worth
Financial on Bob' sponseller along with Brian James. Do you
have a financial question for us? There's a red button
you can click while you're listening to the show right
there on the iHeart app. Simply record your question and
it will come straight to us. All right, it's time
to play some financial factor fiction. Brian. Let's start off
(26:46):
with you. Factor fiction. You should never, and I say never,
take Social Security early if you can afford to wait.
Factor fiction, Brian.
Speaker 2 (26:55):
You know, Bob, there are some words that I hate
when they come up in a financial planning discussion. Those
words are always and never. There are no rules of thumb.
Everybody's got a different puzzle to put together, everybody exactly. Yeah,
you got to deal with your own situation anyway. So
this one's fiction. There are reasons to take social security early.
If you know, some of the sadder stories I've ever
(27:17):
heard in my life is where, you know, a married
couple is getting ready to retire, and they're excited about
going forward and so forth, and then all of a sudden,
one of them comes down with something super significant and serious.
Forget the math, forget the spreadsheet, forget the you know,
the snowball effect. That that's when you need to take
control of the time that you have left and go
in and a lot of times that does involve turn
on the Social security bigot. Don't worry about those eight
(27:39):
percent increases. But on the other hand, there are some
others where if there's plenty of resources out there, you know,
and you then you could benefit significantly from those eight
percent increases and push it out till seventy Most of
us are going to be somewhere in the middle. All right,
My turn, Bob Fact or fiction. Bob spond Seller as
state taxes can still apply at the state level even
if you're below the federal exemption.
Speaker 1 (28:00):
What do you think, Well, this is a fact, and
it depends on what state you die in and where
your airs are. And let me give you an example.
In Ohio, there is no a state tax at the
state level. In Kentucky, on the other hand, it's a
little more jumbled up mess. You know, if you leave
assets to let's say, your spouse or child or grandchild,
(28:21):
no estate taxes. But if you get into some other airs,
there's a schedule, you know, put out by the state
of Kentucky where there's exemption amounts. There's different percentages that
the person inheriting the money has to pay depending on
what the dollar amount is. So be careful to check
the state you live in, in the state you think you're
going to die in and leave money in, because things
(28:44):
can change depending on where you live.
Speaker 2 (28:46):
Sounds like job security for lawyers and accounts.
Speaker 1 (28:48):
Yep, all right, Brian, If I'm maxing out my four
to oh one k, I'm saving enough for retirement. Fact
or fiction.
Speaker 2 (28:56):
It's another declarative statement that I ever like. So I'm
going to call it that one fiction because maybe you know,
it depends on your other situation. Maxing out your four
oh one K, that's one thing that's good. I mean,
obviously it's gonna give you a bigger pile of money.
The more you put in, the more it's gonna grow.
Eventually you'll come to a situation of, Okay, should I
be paying down my mortgage? You know, maybe, And that's
(29:16):
a that's a decision that's a lot of people run
into when they're in the maybe like the last three, five,
seven years of retirement, where there might be already a
good chunk put into the four to oh one k,
And in that case, it may be okay to drop
from the twenty fifteen percent or whatever they're putting in
their four oh one k, drop it back to a
certain amount, to a lower percentage, and then reroute those
savings toward that toward that mortgage. But that's just one example. Again,
(29:38):
it's all about puzzle pieces. Everybody's puzzle pieces look different,
but they all do fit together one way or another.
You gotta figure out what you want your puzzle to
look like. Factor Fiction, Bob Sponseller. Tax loss harvesting in
a direct indexing portfolio can improve after tax returns even
if the market is flat or only up a little bit.
Is that truer fake?
Speaker 1 (29:58):
This is absolute fact. And this is one of my
favorite things about these tax loss harvesting strategies that are
prevalent out there, and we've got a great one here
at all Worth two. I mean, the thing you can
take advantage of, and this is one of the times
you could take a ton of advantage of short term
market volatility because these tax advantage strategies, the way they
(30:19):
work is it's an algorithm floating in the background. There's
you know, things going on that none of us are
looking at, and it's it's constantly harvesting losses when you
have them and then immediately get into something very similar.
So you're fully invested in the market, but you've captured
that capital loss and you can use it later to
(30:41):
offset future gains. It's a wonderful strategy that works really
well irrespective of whether the market's going up, down, sideways,
or anything in between. All right, Brian, Factor fiction. Deferred
compensation plans can lower your current taxable income but create
future income timing complexity factor fiction, Brian.
Speaker 2 (31:05):
Oh, this one is fact. The deferred compensation plans are
complicated themselves, and they make other things complicated downstream. So
if you haven't heard of a deferred comp plan, then
you may not have one. These are essentially plans. This
is something beyond your four to one K, beyond your
you know, your normal retirement plans that generally everybody has
access to. If you're in an executive role or how
(31:26):
you're a key employee, a highly compensated person, you're your
employer maybe offering you some kind of extra plan that
you can get access to to continue to put more
money away. Now. What this does, though, is you generally
have to decide yes, I'm gonna I'm eligible for this
bonus now, but I don't want to receive it now
because I don't need the income first and foremost currently,
(31:46):
and I'd like to defer the taxes on it. So
I want to pick a time in the future. You
know that might be five, six, seven, could be ten
years from now, depending on how your plan works. That's
up to your employer, but you're picking a time in
the future to receive those assets. Therefore, you are deferring
the compensation, hence the name. What that does, though, is
that it creates a tax overhang in that year, and
they can be a little complicated and they're very stressful
(32:07):
decisions because you're asking somebody, you know, to decide when
do I want to take this tax hit. I don't
really know what's going to go on five, seven, ten
years from now, but I'll have to decide and commit
to something. And the income time and complexity of all
that is of course, that's going to have an impact
on your bracket that year. Well into the future, and
we don't know what the brackets are going to be.
We never know what tax is going to look like
in the future. But remember, well into the future you'll
(32:29):
be dealing with things such as such as IRMA. IRMA
is something that will you retire one year, start taking income,
and then two years later your Medicare premiums will be
calculated based on what your income was that twenty four
month period prior. So these are all things again you
have to kind of plan them well in the future.
You don't get a chance to, you know, really truly
(32:50):
understand what's coming. But again these are these are plans
that not everyone has access to. It's something over and
above your four oh one k.
Speaker 1 (32:57):
Well, the other thing, the other thing we got to
watch out for there. In terms of future income, timing
is required minimum distribution. Some people think, hey, defer the income,
defer the income, defer the taxes, and you just keep
putting it away, putting it away, and then you look
and lo and behold. When you hit you know, RMD
age age seventy three, seventy five, you got a boatload
(33:18):
of income coming in and you might get jumped significantly
up in terms of tax rates. So in some cases,
not all, but in some cases it makes sense to
not defer that income now because you could pay taxes now.
Its potentially a lower bracket. There's a lot to think
about here.
Speaker 2 (33:34):
If I eat all my dessert now, I got nothing
but vestibles later. You gotta spread it out, all right,
Come in your way there, here's our last one of
the days. So, Bob, fact or fiction? Structured notes are
too complicated for most investors.
Speaker 1 (33:47):
What do you think, Well, I'm gonna say fiction. They're
not like a lot of things in life. You know,
we're not trying to talk down to people here. I
think most people can understand a lot of this stuff,
and I would put structured notes in that camp as
long as they're provided with the information so I would
say for most people out there, structured notes are not
(34:07):
a do it yourself proposition because there's caps on what
you can make, there's different floors on what you can
protect yourself from. And all these structured notes are tied
to different investment indices or blends of different indices. So
I think that's again that's where a good advisor if
they explain this stuff clearly to most investors. I find
(34:30):
most investors understand this stuff within five to ten minutes
if we just boil it down to plain English and
tell them, you know what the deal is, and people
can make an appropriate decision. What do you think about that, Brian.
Speaker 2 (34:41):
You sound like an experienced advisor. That's mostly what we
spend our time doing is just educating on how the
tools work, on how the different moving parts work together,
and how does it apply to somebody's specific situation.
Speaker 1 (34:53):
Yeah, just taking what we do all day is we
take complex financial concepts and we try to boil it
down to plain English and demystify it for people. That's
what we do all right. Coming up, coming up next,
you're gonna get my two cents, uh, municipal bonds and
cash management stuff and I'm talking about the taxes around
(35:14):
all of that. You're listening to Simply Money presented by
all Worth Financial on fifty five KRC, the talk station.
You're listening to Simply Money presented by all Worth Financial
on Bob Sponseller along with Brian James, and it's time
for my little two cent segment Brian, and tonight, I
(35:34):
want to talk about an actual situation I've been dealing
with with a with a client, a fairly affluent client
that's got a bunch of money in municipal bonds and
a bunch of money in cash, and we're having ongoing
conversations about because these people are very intelligent, but for
some reason they're they're having a hard time grasping the
(35:57):
concept of before tax and after after tax returns on
both the money they've got in the bank and save
these accounts and their municipal bond holdings. And in this
particular situation, Brian, I'm actually finding that the more I
dig into where the actual client's tax rate is, it
makes sense to not have all the money in municipal bonds.
(36:19):
And I'm having a hard time telling these people, hey,
it's okay to pay a little bit in taxes because
your net return is going to be higher. You ever
running into anything similar, Brian.
Speaker 2 (36:30):
Yeah, this is this is very common. I think a
lot of people are attracted to the term tax free
for obvious reasons, right, we don't want to pay any taxes.
But the assumption is that, well, if I need bonds,
I want them to be tax free because I can
get a five percent CD from a bank. That therefore
means I could get a five percent municipal bond and
not pay taxes on it. So that's a no brainer,
right Bob. What doesn't work that way? Of course, I'm
(36:51):
gonna make up numbers here a little bit, but a
five percent CD might might equate to, you know, maybe
a three and a half percent municipal bond. The states
that issue municipal bonds, you could be buying this from
State of Ohio, state of Kentucky. You're basically buying the
debt of a government entity, and it will be federal
tax free to you. Ohio does not tax income on
(37:12):
its own municipal bonds as well, so it can be
totally tax free. But again you're getting less. You're getting
three and a half percent. If you look at the
tax free nature there that that looks like a good deal.
But if you're only in say the twenty percent bracket,
then my five percent becomes four percent after taxes, which
is a little higher than the three and a half.
So it seems to me, Bob, you really need to
(37:33):
be in there is a wide, wide gap, wider than
I recall in the past twenty thirty years between the two,
and you really need to be twenty four percent or
higher bracket that I hate, rules of thumb, but that's
in that bracket. I think that's where where it might
start make this start to make sense to consider tax free. Yeah.
Speaker 1 (37:47):
Another thing I'm running into more often that I used
to is this dramatic difference, you know in how these
cash interest rate float, you know, the cash interest rate
that banks are paying on deposits. I mean, the name
of the game in our industry, as you know, Brian,
is assets under management au M and all the banks.
(38:09):
I mean, everybody's trying to gather assets. And what I'm
talking about here is these short term teaser rates. And
I've run into more than a few clients this year
that tell me, hey, I'm getting four point seven at
the bank, and you know, why should I invest, I'm
getting four point seven percent. Well that might have been
for three months or six months, and then that rate
(38:30):
goes right back down to three and a half three
point seven percent, and it flies right on by people
unless they actually look at their statement and see what
they're earning. I'm seeing that happen more often than I
care to mention.
Speaker 2 (38:43):
Right now, what about you with your the more bricks
and mortar, the less rate of return you're going to get.
Right So, a lot of if you look at a
bank account now and you see that it's not paying
you very much, there's a chance of two, three, four,
five years ago it was some kind of teaser rate
that attracted you at the time and you maybe kind
of forgot, which is exactly what the bank once they
want to pay you that teaser ape to keep the
assets after you're forgotten that. That's the thing.
Speaker 1 (39:05):
Yeah, And I think the real point we're trying to
drive home here is just make sure you're reviewing what
you actually own, and if it's not something you want
to do or you have no interest in doing it,
get a good fiduciary advisor to sit down and look
under the hood and actually look at and tell you
what you're actually getting. Thank you for listening. Tonight you've
been listening to Simply Money, presented by all Worth Financial
(39:27):
on fifty five KRC, the talk station
Simply Money News
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.