Posted on Sep 7, 2016 in Blog | 0 comments

Hidden Costs – Revenue Sharing and Self Dealing Your friendly neighborhood wire-houses like Edward Jones, Morgan Stanley and others have seen a outbreak of lawsuits by their own employees over hidden 401k fees. The key issue behind the lawsuits is that the brokerage firms profit from the plan’s investments by retaining for itself revenue sharing payments paid by product partners and self-dealing. In other words, the employees are investing in funds where the employer, e.g Edward Jones, receives financial benefits from the fund family. This amounts to millions of dollars in so-called “revenue sharing” payments from their “partners” or “preferred partners”. How Much Money are We Talking About? From the employee lawsuits filed and settled, here’s a quick summary: Edward Jones – $13 million in excessive fund fees and $8 million excessive record keeping fees from August 2010 to present. Morgan Stanley – $150 million in excessive fund fees from 1/11 to 4/14. New York Life – $3 million in excessive fund fees from 2010 to present. Mass Mutual – $31 million settlement to employees over fees. Ameriprise – $27.5 million settlement to employees over fees. Fidelity – $12 million settlement to employees over fees. Given the recent lawsuits (and more sure to come), it’s no surprise that the brokerage industry is suing The Department of Labor over its decision back in April that broadened the definition of a fiduciary to anyone who receives direct or indirect compensation for providing advice to retirement plans, plan participants or beneficiaries and IRA owners. There’s enough money changing hands behind these 401k plans to make International Olympic Committee executives envious. Here’s a Fee Disclosure Form that will ferret out Hard Dollar Fees, Soft Dollar Fees, Revenue Sharing and Direct/Indirect Compensation that is otherwise very difficult to get disclosed. Sources

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The Nasty 3.8% Investment Tax

Posted on Apr 6, 2015 in Blog, Investments, News, Tax Planning | 0 comments

The Nasty Tax Here we are, 2 years after getting rooked with a 5 dimensional tax system, and many people are still unaware of the Nasty Tax: 3.8% Net Investment Income Tax (NIIT). I think the IRS used Wal-Mart pricing strategy with 8’s when they derived the number so it the smell would go un-noticed. But since it’s tax time, let’s talk about what’s in the baggie. The NIIT is a surtax of 3.8% that covers a broad category of investment income sources. Determining how the tax is applies involves a fairly simple two step calculation. But first, let’s cover what’s included. What’s Included: interest, dividends, annuities, royalties, rents, income from a business that is a passive activity with respect to the taxpayer, and net capital gain on the sale of non-business assets, reduced by any deductions properly allocable to such income. Does not include salaries, wages, bonuses, distributions from IRAs or qualified plans, or self-employment income. Are You Affected? 3.8% surtax that applies to the lesser of: 1. Net investment income (NII) or 2. The excess of your modified adjusted gross income (MAGI) over $200,000 (Single) or $250,000 (Married filing jointly). Remember, your MAGI is the amount reported on the last line one page 1, Form 1040.             First, add up your income subject to the Surtax. Subject to Surtax Exempt from Surtax Wages      X Taxable Interest      X Exempt Interest      X Dividends      X Annuity Income      X Passive Royalty      X Active Royalty      X Rents      X   Next, look at the Threshold Amount • Single taxpayers – $200,000 • Married taxpayers – $250,000 • Estates/trusts – $12,150 Example: Tammy, a single taxpayer, has $225,000 of net investment income and no other source of income. The 3.8% surtax would apply to $25,000 of income. (the lesser of investment income of $225,000 or the excess of $225,000 MAGI over $200,000 “threshold amount”). Example: David & Darla, married filing jointly, have $200,000 of salaries and $150,000 of net investment income for total MAGI of $350,000. The 3.8% surtax would apply to $100,000 of income because the excess of $350,000 MAGI over $250,000 threshold amount is $100,000 and LESS than their NII of $150,000. How to Reduce NIIT 1. Look at Your Dividends. There can be a meaningful difference in the tax rate on ordinary versus qualified dividends (43.4% versus 23.8% highest brackets). Review your 1099 statements. Lines 9a and 9b on your 1040: Tax-inefficient mutual funds can generate short-term capital gains, which are classified as ordinary dividends. Consider a tax-managed implementation, or if dividends are not needed for cash flow again, consider asset location. Taxation of Traditional Dividends- Ordinary Income...

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Recommended Reading: Brené Brown’s “The Power of Vulnerability”

Posted on Aug 26, 2014 in Blog, News | 0 comments

 If you haven’t heard of Brené Brown, watch this excellent 20 minute video.  I just finished listening to her book “The Power of Vulnerability”.  Brown’s insights resonate with truths that help breakdown the superficial beliefs that our culture imposes on us.  She shows us the healthy definition of vulnerability and how being authentic can enrich your relationships and life.   [ted...

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Grandmother Dupes 146 Million People

Posted on Jul 18, 2014 in Blog, News | 0 comments

“Something is rotten in the state of Denmark.” Hmmm.. The New Yorker is promoting the Federal Reserve Chair Janet Yellen as the protective grandmother for the middle class and unemployed. Conspicuously absent in Nicholas Lemann’s profile in the magazine is her track record. Yellen’s Clinton Era and Recent Highlights: Backed the repeal of the landmark Glass-Steagall bank reform; Supported the 1993 North American Free Trade Agreement; Endorsed establishing a new statistical metric that would allow the federal government to reduce Social Security payments over time, by revising the consumer price index; Advocated cutting veterans’ benefits; Rejected concerns that increased concentration in banking as an antitrust risk; Supported cap and trade; Complained about deadbeat borrowers declaring bankruptcy in 1997. Does this seem like someone who is concerned with unemployment and the middle class? Senator Elizabeth Warren (D-Mass.) proves to be our Marcellus. During a congressional hearing on the compliance of our oligopoly banks with the “too-big-to-fail” laws requiring them to craft plans for their own orderly breakups, Warren takes Yellen to the mat. Warren points out that at the time of its bankruptcy, Lehman had $639 billion in assets; today, JPMorgan has nearly $2.5 trillion in assets. In addition, Lehman had 209 subsidiaries when it failed; today, JPMorgan has 3,391 subsidiaries, or more than 15 times the number Lehman had when it went under. This video clip is definitely worth 7 minutes of your time: Yves Smith at Naked Capitalism has an excellent critique exposing the cozening grandmother that has no accountability to 146 billion voters. Other Sources Andy partners with individuals, families and entreprenuers to provide objective and comprehensive financial planning. Andy is a Fee-Only, Certified Financial Planner™ and Registered Investment...

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Argentina Odds

Posted on Jul 13, 2014 in Blog, News, Uncategorized | 0 comments

Argentina: Playing the Odds. In today’s World Cup Final, Argentina is a 3 to 1 underdog. Maybe enticing odds for soccer fans, but miniscule for a world famous hedge fund guru’s bet on the land of Patagonia. Paul Singer launched a hedge fund in 1977. He is known as one of the first high profile “vulture investors,” and his fund, Elliott Management, invests opportunistically, with more than a third of its portfolio in distressed debt across the industrial and real estate industries, as well as on that of sovereign nations. 11 years ago, Singer invested $84 million in Argentina bonds that subsequently went into default. After three major legal victories and searching the world for missing assets, Singer is just weeks away from collecting $832 million on his original investment. If this happens, he will realize a tidy 1,600% return on his investment. Singer is also an activist investor, where he battled to win three board seats on Hess Corp in efforts to unlock value and increase returns to shareholders. Since inception, Elliot Management has delivered annualized returns of 14%. Elliot Management Holdings: I use a service called to track insider buying of companies and funds. Here’s the current holdings for Elliot Management. Sources: Crowdfunding and Drinkable Meals I have a soft spot for start-ups and supplements. Crowdfunding is a way for someone to raise money for their idea or cause by putting it on the net for prospective investors. I’m on site called Indiegogo and come across Ambronite, a real food drinkable supplement. The investment proposition is to invest by pre-ordering the meals. So, I put in for $79 in hopes that someday 10 drinkable meals will arrive at my door. They more than doubled their $50,000 goal. If youre not familiar with crowdfunding, here’s a list of crowdfunding sites. I must warn you that this could become a real time suck. You come across so many interesting ideas, and most appealing to me, is the strong sense that the entrepreneurial spirit is alive and growing!

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