Invest in Portland

Have you ever heard a stock broker, financial advisor, maybe even an insurance agent say something like, “Don’t worry the investment company pays me, or the annuity company, or the mutual fund, or the insurance company pays me, so you don’t have to?”

That’s the answer one of our clients got from their former financial advisor when they asked a real simple question. They had just bought an annuity from their prior financial advisor. And their question simply was, “how are you getting paid?” The answer? “Don’t worry; the annuity company is going to pay me.”

You might not see anything wrong with that. But I sure do.

We all know there is no such thing as a free lunch. So where is the annuity company getting the money to pay this advisor? From you. They might camouflage it and hide it, but at the end of the day, bottom line, that money is coming out of your pocket.

In this particular situation, our client was shocked. They had over $15,000 a year in hidden fees and expenses coming out of their annuity contract, and yet they were getting statements from the annuity company that said their administrative fees were zero. That’s a pretty big difference.

Is the annuity company lying? Well, yes and no. The annuity company may not exactly be lying, but they certainly are misleading their customers. It’s true there are no administrative fees — as defined by the annuity company — being charged or assessed to the annuity contract. However, there is a boatload of hidden fees and expenses that aren’t being properly disclosed, to the tune of over 2-3 percent per year.

What does that mean? Well, say you put money, $100,000, into a variable annuity. Most annuity companies charge hidden fees and expenses of around $3000 a year that you don’t see! Are they breaking the law? No. Are they meeting the current disclosure requirements? Yeah. Are they treating their customers in an honorable and ethical manner? I’ll let you be the judge. But let’s get back to that $100,000 variable annuity. You now know you’re paying $3000 a year in hidden fees and expenses that you didn’t even know about. Now, on top of that, the annuity also comes with a surrender charge or withdrawal penalty that could amount to another $5000!

So what should you do?

Since you’re going to pay the fee one way or the other, my advice is that you stop the bleeding now. By that I mean, your best move is probably to go ahead and pay the surrender charge and move on to a lower cost investment vehicle. You could put the same $100,000 into low cost, no load index mutual funds.

They also have hidden fees and expenses that aren’t clearly disclosed. But for an index mutual fund, those fees on $100,000 might be $500-$600, not $3000. That’s a huge difference — especially when you multiply the savings over the next 5, 10, 15, or 20 years.

Think of all that extra money that could be in your pocket instead of sending it off to an insurance, annuity, or mutual fund company.

Make sense? I hope so.

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Understanding the financial and investment world can prove to be a challenge. It appears that the industry has its own language with terms and expressions that industry employees use very casually but seems foreign to the general public. Have you ever watched the news or spoken with a broker or financial advisor that talks to you as if you should understand what they mean? Of course you have. As a member of the industry myself I often find that there are those “experts” who use language that I do not even understand. As a result, many fear talking with an investment professional out of fear of not understanding their language and looking like a fool. The truth is, though, that regardless of our lack of comprehension to the investment language it is still responsible to plan for your retirement, as well as, the unseen future. How to choose the right financial advisor can appear to be a daunting task especially when you are not even sure of what to ask and are uncertain of the advisement you will receive. How then can it be done? How can you choose the right advisor for you?

The first thing to understand in choosing a financial advisor is understanding that you do not need to know everything there is to know about the financial and investment industry. What is important to know is that there are different types of advisors and that knowing the difference between the small independent broker and the big brokerage firms with captive advisors can help you decide which is right for you. Having worked on both sides of the industry I feel that it is important for you to learn some things about the way big brokerage firms operate. Therefore, I have listed 6 things every investor should know about how to choose the right advisor.

Chemistry – I have heard many of my clients say that the reason they chose me over someone else is because they did not feel as comfortable with other professionals. Consider, for example, your relationship with your doctor. In order for doctors to know how to treat us they have to ask lots of questions, many of which are very personal things unknown even to our own family . How comfortable are we with our doctor when he examines us physically? Would you not agree that there has to be some type of professional and personal chemistry between us and our doctor in order to be helped? Certainly so. It should be no less for those we choose to advise us and direct us. If a financial professional talks over your head or talks down to you, if he/she sound as if is they are trying to impress you, or you just do not get a good vibe from them then go somewhere else. Rule 405 – There are various regulatory agencies that govern the securities and investments industry. The Securities and Exchange Commission (SEC) is the ultimate government agency that serves as a watchdog for our industry. The Federal Government, however, also allows self- regulatory agencies to exist under the watchful eye of the SEC and these agencies regulate their members. The majority of brokerage firms are members of these agencies since it is nearly impossible to operate otherwise. The two most popular self-regulatory agencies are the Financial Industry Regulatory Agency (FINRA) and the New York Stock Exchange (NYSE). Rule 405 is a NYSE rule that is often called within the industry the KYC rule or Know Your Customer rule. It requires that financial professionals and firms collect specific information on each client at the time a new account is opened. However, this rule also means that each financial professional should know their client well enough and their circumstances to suggest a certain type of investment course or strategy. Some organizations, even some for whom I have worked, will call up individuals who they recently met trying to sell a stock or a bond. If Rule 405 states that a professional is to know their customer how can such a recommendation be made when they have no real relationship with the person? Just because an investment is a good quality investment does not mean that it is appropriate for your needs and circumstances. Be careful about buying investments. Investments and other financial products should be appropriate to help you reach your financial goals. Contests, Rewards & Gifts – Most companies offer rewards to their brokers and advisors who reach certain production levels. While it is true that good work should be rewarded, it can also be a temptation for advisor to promote certain types of products or investments that pay a higher commission or put them in line to get an all expense paid trip to a resort destination. This can especially happen if a broker or advisor is near the end of the qualification period and is just shy of reaching that goal. The government requires that the companies and their advisors who are eligible to receive such gifts to notify and disclose such information to their clients. This is usually done in a fine print disclosure form…those forms that few of us rarely read. While there is nothing wrong with this avenue of employee commendation it should be noted that it can have an affect on the way a company representative advises. These types of contests are usually found among big brokerage firms and rarely among the smaller firms. Do not be afraid to ask your advisor what affect your business will have on his/her annual and seasonal contests.The government also has limitations on the gifts that an advisor may give you or that he/she may accept from you. It is allowable for an advisor to give gifts to his/her clients but they may not exceed $100 in value per person per calendar year. Likewise, the broker or advisor may not accept gifts more than $100 per person per calendar year. If an advisor offers you or gives you expensive gifts for doing business with him/her and its value is more than $100, NFL tickets, for example, he is breaking the law. The same would be true of accepting them from you. The offering of gifts to people often serves as an incentive to do business with them so know the law. If he/she is willing to break this one law for you what other laws would he/she be willing to break? Free Lunch & Dinner Seminars – Free lunch and dinner seminars have become very popular among financial professionals. Some seminars are simply for the purpose of providing financial education to clients and the public while others are specifically designed to obtain new clients or sell financial products. Because many individuals have been taken advantage of by means of this environment, especially senior citizens, the government has begun evaluating how dinner seminars are to be conducted and supervised. The offer of a free dinner at a nice restaurant is very tempting. If you decide to attend you should never be made to feel pressured into buying a product, changing your investments, or moving from one advisor to another. It is important to keep in mind that the majority of the time dinner seminars are designed to attract you as a client. Never sign anything without taking the time to consider it and read it thoroughly. If an advisor truly values having you as a client he/she will want to be sure that you feel you are making a right decision. Churning – Churning is a legal word that carries the following definition…”An unethical practice employed by some brokers to increase their commissions by excessively trading in a client’s account.” This practice violates the FINRA Fair Practice Rules. It is also referred to as “churn and burn,” “twisting” and “overtrading.” Such activities usually result in a higher tax bill for the investor. If an advisor seems to contact you quite often to invite you to sell one investment and buy another then you should contact his broker-dealer firm. Unless you have a signed agreement where this kind of action takes place be cautious of any advisor who regularly gets you to change investments. Sometimes a change is necessary but keep track of what changes are made and how often. Churning is difficult to prove and some advisors are good at covering their tracks. For long term investors a portfolio of quality investments and/or annuities should rarely have to be changed unless the quality of such investments fail or decline. A proactive approach with your investments on your part can help prevent such unlawful activity. 80-20 Rule – This is not a legal rule but a principle upon which many businesses operate. The 80-20 rule states that 80% of an advisors business comes from the top 20% of his/her clientele. I have personally sat in meetings where top producing advisors tell the others that they do not allow clients to use more than 15 minutes of their time unless they fall into the top 20%. They focus more energy on those top 20% than the bottom 80%. While producing income is the life blood of any business, all clients should be treated the same. The individual that invests $1000 worked just as hard for that $1000 as did the person who invested $1,000,000. Favoritism and financial prejudice should not exist in the work place but unfortunately it does. Small dollar investors may not be sitting on huge stock piles of funds but one day they may through an inheritance, a gift, a lawsuit or some other way. All clients should be treated equally. If you feel slighted in this way by your broker ask him/her why. Would you not want to be treated the same as everyone else?

These 6 things can help you in choosing the right financial advisor or professional for you. There are thousands of honest professionals who genuinely care about their clients. There are also those who only care about themselves. Be sure you feel comfortable with the person whom you choose and remember that there are laws to protect you. You have worked hard for what you have and you should feel that your advisor cares as much about your investments as you do.

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Tis the Season to be giving and we’ve all heard the phrase, ”It is better to give than to receive.” We believe that each of us sincerely accepts this axiom to be true, because one would rather be is a position of surplus, as opposed to a position of need. However, charitable organizations of all kinds continue to report falling donations and worse, a serious decline of donation base.

My grandmother Sonia from Russia, taught me about charitable giving when I was 9 or 10 years old and I saw her putting money into this interesting looking container. She had a blue tin box in her kitchen and every day she would put into the box some change or a dollar or whatever wasn’t needed to buy groceries that week. Family and friends who came to visit, would also contribute a dollar or a bit of change to her blue charity box with the Hebrew writing on it. On Friday’s before sundown, a Rabbi or one of his rabbinical students would appear at the door to collect the box. Upon asking her if she knew who was going to receive the money that she and others put into her blue box, she answered that the money would find its way to those in need as the Rabbi and a select few others knew who they were or they would pass it on to others who knew which people or groups of people would best benefit that week.

Mama Sonia told me that all Jewish homes had a charity box and it was equally important to deposit money in the blue box as it was to deposit money for yourself into the bank on the corner. She claimed it was an investment in humanity, in society and to make the world a more harmonious place. Mama Sonia told me that there were two kinds of people, those who religiously gave to charity and those who wished they could. She counted herself and husband Jack as Blessed, in that they were counted among the people that were able to share a piece of their good fortune with those less fortunate.

There is another expression we’ve all heard, ”Charity begins at Home.” Now I think this phrase has been taken well out of context from its original meaning; I believe it meant that every house should have a blue tin box like my grandmother’s and that we must invest into that box a few shekels every day in front of your children and grandchildren in order to pass on the important lesson of giving. What is the importance? I believe the importance to be multi-faceted. First, is to benefit the less fortunate. Second, is to help bring people together in the spirit of giving, whether to help find a cure for a dreaded disease, finance the arts or to promote higher learning, etc. Third, is to bring us closer to divine wisdom. Regardless of the particular book that we pray from or the name for God to which we pray, doing acts of kindness, unsolicited, for people known or unknown, brings all of us closer to understanding what our human purpose is and perhaps a little closer to solving the mystery of life and the challenges we face, together, as a race.

Charity, acts of kindness, charitable giving, offering of your time to a cause, accepting a request for help, volunteerism, donating money or something of value like your blood, your organs or bone marrow etc., these are all tangible investments. You are making an investment in humanity for the benefit of your soul. This type of investment has nothing to do with organized religion. I would not call myself a religious man, I would call myself ”connected.” I feel connected to my belief and commitment to always do my best in everything I do, where good enough simply – isn’t! I feel connected to a history of people who have given of themselves for the betterment of others. Generations ago, my ancestors, left everything behind to come to this young country for a better life. Our founding fathers risked their lives, their family’s lives and their fortune to stand up to the status quo to create the United States of America, the greatest shining example of guts, glory, compassion and leadership on a global scale. I feel personally connected to these people and these events in that I was born with the responsibility to do my share, my part to ensure that the legacy given to me continues and prospers for my children and their children’s children too. All of us must make investments in our future, for the future in general so that America and The American Way of Life endures. I believe that a good part of this investment comes in the form of charitable giving, supporting whatever causes you deem worthy, while demonstrating to and educating your children about the necessity and magnitude of this universal investment commitment.

Though not my intention to compose a sermon when I sat down to write, I simply wanted to convey this following thought that I am famous for saying, ”I don’t want it to say on my headstone when I die: Here lies Mark Charnet. The only thing he left behind was a filled-up septic tank!” For a lot of people who have come and gone, it might as well say just that. What did they do to make an impact for the betterment of society or the people of the world? This financial advisor hopes that you count within your personal portfolio a multi-generational investment of leaving behind a better world than the one you entered, for your children and for the rest of us. I hope you feel ”connected” to this cause which, can be achieved from an investment of any size, at any time, to any cause that you feel will bring us closer to a world of peace, harmony, health and happiness.

To this endeavor I am committed and hope you will join me with your investment of a few shekels every week, into your box, to be turned over periodically to your choice of philanthropic causes, to perpetuate and further this great discipline. You might also want to cut this article from the paper and copy it for distribution to others that you feel will benefit from its message. If you would like to learn how to endow your donations after your passing, so that your giving can continue long after you are gone, call our office, as we specialize in this type of estate planning and can demonstrate inexpensive techniques for you to give in perpetuity to the causes and charities you hold most dear.