Category Archives: DOL Fiduciary Rule

Longevity Quandary

With each installment, I find the best thinking on retirement, and this week is a treasure trove of commentary on the longevity quandary. Michael Phelps presumably just wrapping his competitive swimming career is a great model for longevity. Both Michael Phelps and Usain Bolt competed in four Olympic Games … and neither won a medal the first time. There may be an analog here because that is not what you remember about either of them. The lesson for the rest of us is to work harder, longer on your savings because you will be retired longer.

Leverage the longevity quandary by watching expenses in your retirement accounts.
Sad to say I would not think to ask a Department of Labor employee for advice on retirement. This former one, however, makes a series of worthwhile points about common mistakes. I encourage you to read it. 10 Retirement Mistakes Baby Boomers are Making
We always harp on costs. When you consider the longevity impact on costs, it is even worse. So you must strive to lower your total investment cost structure. It can be as easy as having a simple, effective strategy and sticking with it. A financial planner says most people don’t need to pay someone to manage their investments

Leverage the longevity quandary by ensuring you save enough for retirement.
Here is a really good, comprehensive piece on just what challenges longevity brings, and ways to address them. The Longevity Paradox
We have mentioned HSAs before, but this drives home the point about. Fact is you will spend a lot of your own money on healthcare in retirement. An HSA is a way to save pre-tax money now, not get taxed on growth, and not get taxed when you withdraw for medical expenses … there is simply no better answer. Why Advisors Need to Know about HSAs
Just in case you forgot, or simply don’t believe me, here’s the latest on medical expenses in retirement. Health Care Expenses for Retired Couples Hit Record $260,000 : Fidelity
On a related note, long-term care insurance is an important thing to consider … just weigh the cost/benefit wisely. These tricks can help tilt the balance in favor of buying. 4 Tax-Friendly Ways to Pay for Long-Term-Care Insurance
Here is an advisor’s eye view of these medical costs in retirement. More importantly, the implications of the DOL fiduciary rule on advice you will get on them. It lays out some hard dollar costs and is promising in anticipating incorporation into plans under the new rule. Add this to your DOL checklist: health, LTC costs in retirement

Leverage the longevity quandary by focusing on building an income stream for retirement.
Switching mindset from accumulating wealth to generating income is a key retirement transition. Longevity, though, may have some bearing on when you make that move. Longevity and Your Retirement
Changing your mindset should begin with understanding your needs. This piece helps you put your retirement income needs into perspective. How to Solve the Retirement Income Equation
Here is some interesting insight on IRAs, and 401(k)/403(b) for that matter. They may not be the best in retirement vehicle for you when you consider longevity risk. IRAs are for retirement planning, not for retirement
Here is a fascinating, refreshing look at the retirement income puzzle. Is retirement spending a level pattern? Should you use a simple rule like the 4% rule? This says no. What is the “Retirement Spending Smile”

Gun Violence

I purposely shy away from commentary on politics and politically charged issues, but watching a live feed from Dallas last night unwittingly showing at least two officers down from gun violence is simply enough. I have not seen commentary yet on the motivation for the attack, but it certainly begs the question ‘can we not do more to ensure the mental stability of gun buyers?’ I cannot conceive of someone, whatever side of the various issues in play here, who can endorse this action. The notion that Congress is beholden to the NRA, preventing truly common sense measures is untenable. We should challenge this false narrative. If nothing else, elect legislators not compromised on this issue. Presumably, we all feel sorrow and compassion for the families of the fallen. Let us leverage this horrific incident to get some movement on the underlying issue, gun violence.

I parse this gun violence issue, which includes other mass shootings, from the very valid driver of the peaceful protests across the country last night and the recent police involved shootings because the corrective action is different. I, too, am shocked by the rapid succession of police shootings, but presume that to be a training and selection issue.

The backdrop for this mayhem is the strangest Presidential election of my memory. Surely, there will be plenty of campaign trail bluster about this, and mayhem seems the best descriptor for this mess. I say you should largely focus on what you can control, your retirement. Perhaps we start with ‘are you controlling your retirement?’ Regardless of your answer, here are some ideas that can help.

Improving your retirement, first focus on fees.
I think the first priority, always, for your retirement investing is to control the fees. It has been demonstrated that the smallest improvement in these small, often hidden costs, makes a material difference in outcome. Focus on the fees you pay on all your retirement assets first and foremost.
We hit on this last week and will remind you now, Fidelity is going straight at Vanguard (ironically enough at the vanguard of low fee investing). Fidelity takes on Vanguard by cutting prices on index funds, ETFs
You may be getting some help from the Department of Labor’s new fiduciary rule, too … but you should not rely on this yet. DOL fiduciary rule will nudge 401(k) advisors to zero-revenue-share fund lineups

Improving your retirement, next focus on saving more.
I will leave this one with this one, simple Warren Buffett quote: “Don’t save what is left after spending; spend what is left after saving.”

Improving your retirement, lastly focus on building an income stream.
The closer you get to retirement, the more you need to think about converting a balance (the total of your retirement savings) into an income stream. One great way to anchor this is with investments that generate income. Find great dividend stocks, for example: High Dividend Stock Yields 15%, Has Top Shelf Customer, Insiders Keep Buying
Tread carefully in this space, though, and lean on professionals when you can. Dividend focused ETFs or funds may be your safest route. A Warning for Dividend Growth Investors

Retirement Security

Today we will focus our energy on Retirement Security. Fact is I often harp on fees and generating income, but keeping a sharp eye on your retirement security is equally important.

Retirement Security: Protecting what you already have.
I really like this one because it does what it says, gives you a simple set of rules you can easily follow to help ensure your retirement security.  For Investment Success, Keep it Simple
This one is a little more complex, but it pretty clearly explains the tools you can use to get you retirement security through protecting your downside risk.  Protect Your Portfolio Like a Pro
One way to protect what you have is to be prepared for ‘unexpected’ expenses. This study shows what has tripped up retirees before you. 17 unexpected expenses in retirement
As expected, the government is planning to do more to help your retirement security, too. Of course the DOL Fiduciary Rule is out there now and will go into effect by 2018, but that only covers your qualified money, i.e. 401(k), 403(b), IRA, KEOGH, etc. Now the SEC has announced they are following suit on the non-qualified money. No doubt the industry will bellyache and it will take a while, but it should be a good thing in the balance. We just hope there are few unintended consequences, like the potential for smaller investor (most people) to be frozen out of personal financial planning and advice. SEC plans to propose fiduciary rule next April

Construction Marvels Opening: These two projects represent meaningful change.
The Alps by their very nature are a natural obstacle of immense proportion. Here and there they have been breached in various, physical ways, but this takes things to a new level. Switzerland is opening the world’s longest-ever railway tunnel
On a much more impactful note, for the US economy, the Panama Canal expansion is finally set to open. The new Panama Canal is opening soon and will cause an ‘evolution’ in a vital US industry

A little entertainment from the coming election.
The Trump secret is finally out there … it’s all about Mar-a-Lago. Trump could win noise battle with the airport if he is president
The good and the bad of being in the public eye for ever. Clintonism screwed the Democrats: How Bill, Hillary and the Democratic Leadership Council gutted progressivism
Then there’s the other Trump secret … what’s up with that? A hair surgeon explains what’s going on with Trump’s hair

Fiduciary Implications

The initial reaction to the DOL Fiduciary Rule was mixed, now we are beginning to see some Fiduciary Implications. Big players are already making moves to ease compliance, most notably Charles Schwab, and the speed with which this is happening means some benefits may quickly accrue.

So, what have been the fiduciary implications thus far, and what might follow?
The absolute most encouraging fiduciary implications I saw all week was this news about Schwab dropping loaded funds.  Post-DOL fiduciary rule, Schwab dumps load funds as advisors yawn That’s good news because it indicates the market moving to help you with your quest for lower cost investments, and Schwab moving means others will have to follow, despite what they may say.
Inasmuch as the fiduciary implications are technically limited to qualified investments, i.e. your tax favored investments like 401(k) and IRA assets, theoretically only a fraction of your investments are ‘protected’ by the new fiduciary rule. Still, I think once the smart players go to the effort of compliance with the DOL fiduciary rule, they will go ahead and apply it themselves to non-qualified money. Mind you, the SEC is talking about its own fiduciary rule for non-qualified money, and there will be plenty of resistance from the industry. SEC Joins Battle on Broker Bias That Could Remake Industry
Frankly, having a more uniform framework which applies across qualified and non-qualified money will be a better thing, certainly for investors, as the industry will be compelled to comply, limiting the chances of shutting out smaller investors. Keep in mind that the DOL rule makes it relatively easy to choose to walk away from small accounts – whether personal or business – as a rational business decision. Walking away entirely will be an entirely different equation.

Now that we have a glimpse at the fiduciary implications, let’s take a minute on world markets.
First, let’s consider some context for the prior remarks. This is a fascinating article about the future of the asset management industry. I pulled it first for the excellent bubble chart on invested funds. I put it here, though, because it gives you some insight into the industry dynamics. Asset Managers, Prepare to have Your Business Disrupted
You have read here before about the questionable US unemployment data. This article goes one step beyond to show you the US output gap as an alternative means of divining the true state of the economy. I found it fascinating. Why the US Output Gap Means the 10-year is Going Below 1%
I find it hard to internalize the rapid rise of China as an economic power. These few charts give a good primer on where things stand. These 4 maps show how China is dominating global trade
I admit I don’t agree with George Soros much, probably at my own peril. This time, though, he makes a good deal of sense. Soros says China looks ‘eerily’ like the US in the run up to the financial crisis
At the same time, Japan’s woes seem to worsen. In Shocking Finding, the Bank of Japan is Now a Top 10 Holder in 90% of Japanese Stocks

Now, you deserve to lighten up some.
As an adopted Minnesotan, I was surprisingly struck by the sudden loss of Prince. Here is a great link to his entire very last show. Listen to Prince’s Entire Final Concert
I know an inordinate number of people gather around for the Kentucky Derby. This may make it easier for you. The 13 Best Bourbons for Kentucky Derby Season 2016
When you hit the road this Summer, take along the best tools. The Best iPhone Apps for Travelers

DOL Fiduciary and You

The Department of Labor released the DOL fiduciary rule, and critiques are pouring in which makes it time to consider DOL Fiduciary and You. Does this matter to you? Should you do anything differently? What is impacted? These are all good questions, so we will share some perspectives. First, my own opinion, expanding fiduciary rules is a positive for investors. We spend a lot of time here talking about fees as a detriment to your retirement returns, and the fiduciary rules help shed light on fees while compelling your advisors to work in your best interest … that’s the key. Let’s see what others are saying about the rule and its implications.

One interesting way to consider it is by looking at industry reaction.
For truly comprehensive perspective, check in on the Investment News site, Fiduciary Focus. One interesting way to think about it is how stocks reacted, remember that comment about fees? Post-DOL fiduciary rule, Wall Street gives the nod to low-cost fund companies
One of the biggest concerns I have is that compliance costs may mean advisors or brokers walk away from smaller accounts, effectively shutting out those who would most benefit from the law. The most obvious way to solve that is with technology, and that already appears as a solution. In wake of DOL fiduciary rule changes, technology can solve problem of small accounts
You will likely see this in the form of a “robo-advisor,” but don’t fret, that may not be all bad. LPL partners with BlackRock’s FutureAdvisor, paving way for robo-pilot program Vanguard, Fidelity bank on robos, low cost strategies to ride DOL fiduciary rule wave
Still, don’t kid yourselves, the jury is very much still out on this. One has to wonder how much litigation will wrap around this rule before it is fully implemented? My guess is there will be plenty, but, ultimately, the consumer should come out ahead here. Plus, the SEC is considering similar mandates on the non-qualified side, i.e. not tax advantaged savings. Industry insiders react cautiously to DOL fiduciary rule Inside the Pros and Cons of a New Fiduciary Rule
One way, or the other, I think the hidden fees and incentives will be outed for you. Retirees find victory with the end of hidden fees

I suggest it is also good to look at this selfishly, from your perspective.
The LA Times does a nice job summing things up here. Five things to know about the new federal rules on retirement advisors

You are still on your own, for now, so let’s get a little smarter, too.
I focus maybe too much energy on getting you focused on fees. There are other ways to hurt your returns, and it is always good to understand that. These 2 investing biases could shrink retirement savings by 70 percent
You have seen here before talk of deferred income annuities – longevity insurance – or QLACs, Since I have long been an advocate, I love a reasoned perspective on them. A deferred-income annuity may help you get more cash later