Beware of Financial Advisors?

Scott Burns is a syndicated columnist who writes a column on financial affairs.  His article on “Beware pitfalls of financial ‘advisors’” which appeared in the Sunday November 29, 2015, business section (p B4) of The Eagle had information which should be of interest to all investors.  The column, which can be read in its entirety at www.theeagle.com in the 11/29/15 e-Edition, made some points which we think bear repeating.  We quote some of the below (all items in quotations are directly from this article): 

Mr. Burns was waiting for an international flight to Paris and engaged a couple, also waiting for the flight, in conversation.  The wife was a financial advisor who had won the trip (an 8 day Viking cruise, Paris to Normandy, airfare included) as a sales inventive from the company for which she works.  Mr. Burns wrote the following:

“The company she worked for also provided generous commissions, as most insurance companies do.  And every dime of that money eventually comes out of the savings on the people they counsel on making ‘good plans for retirement.’”

“According to the Bureau of Labor Statistics, there were some 443,400 people working as insurance sales agents in 2012, all of whom might like a trip to Paris enough to sell you the product that will get them there fast.”

“There 2014 Annual report from the financial Industry Regulatory Authority (FINRA) notes that it oversees 636,707 stock brokers.  They may also be influenced by sales incentives.”

“…saves face an army of more than 1 million people who call themselves ‘advisors’ but are primarily motivated by commissions, perks, and sales incentives.”

“Both groups operate under the vague ‘suitability’ principle-that they will sell investments that are ‘suitable’ for their clients.  And they have fought being required to act as fiduciaries year after year after year.  Why?... A fiduciary swears to act in the best interest of the client and to put the client’s interests before their own.”

“The number of Registered Investment Advisor firms-those regulated by the SEC to perform to a fiduciary standard-is about 11,000.”

“There are about 100 people who live by commissions and sales incentives for every person who has sworn to live to the fiduciary standard.  Those aren’t good odds.”

“The trouble is that both the brokerage and insurance industries have business models that require sticking the consumer with high costs.”

“And the Tart is about 2 percent-from your money.”

Paragon Financial Advisors is a Registered Investment Advisory (RIA) firm which operates under the fiduciary principle.  Please call us if you need assistance with your financial planning or investment management needs.  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

The Student Debt "Bubble"?

About 25 years ago, federal government policies were implemented to encourage students to get a higher education—including borrowing the funds for that education if necessary. It was assumed that college graduates could afford the debt because they would be earning more from better paying jobs. However, the law of unintended consequences reared its ugly head. College expenses have been increasing much faster than the general rate of inflation. In addition, especially since the 2008 recession, jobs created have not been ones that paid exceptionally well.

 

An Associated Press article, written by Josh Boah in early October of 2015, gave some statistics about the student debt incurred for a higher education—and how it can have a multi-generational affect. Student debt in America now totals approximately $1.2 trillion. An Associated Press analysis of that data provided the following statistics:

1. Americans over age 40 account for approximately 35% of the education debt. Extended loan repayment schedules, mid-career changes, and signing for children’s educational borrowing have driven the increase from its 25% proportion in 2004.
2. Adults in the age 35-50 year old bracket owe about the same amount (an average of $20,000) as those students in the age 34 and younger bracket.
3. Parents who still have college debt and teenage children have more difficulties in providing education assistance for their children. Such parents have an average of $4,000 for children’s education savings vs. the $20,000 average for children whose parents have no student debt.
4. Student debt repayments are surpassing the cost of food for the average college educated head of household under age 40 (who has student debt outstanding)--$404 for debt repayment vs. what the family spends per month at the grocery store.

Student debt levels are causing potential problems in an already weak economy. Older graduates are delaying or foregoing some spending which would benefit the economy (such as housing and related purchases). Some graduates are accepting employment (usually at lower paying jobs) which would qualify them for student loan forgiveness.  Second generation student debtors will be looking at greater debt levels to continue their education.

There are some planning opportunities for pre-college students on how to handle the costs of continuing education. We, at Paragon Financial Advisors, can assist parents (and grandparents) in the best way to proceed on college funding. However, stay tuned—we haven’t heard the last of the student debt “bubble."  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Interesting Times

There is an old curse: “May you live in interesting times.” The stock market has definitely had those “interesting times” in the last few months. Triple digit moves in the index (both positive and negative) have had investors hanging onto their hats for a wild ride. Pundits on the financial news channels have mentioned that the third quarter of 2015 was the worst quarter in the last four years. For 2015 (January 1 through September 30), major financial indices have been as follows:

 

• Dow Jones Industrial Average: -8.8%
• S&P 500: -6.7%
• Russell 2000 (Small Caps): -8.8%
• Barclays Aggregate Bond Index: -0.6%
• High Yield Corporate Bond Index: -7.8%

In this quarter's newsletter I discussed  a “white paper” from the Vanguard Group that I found quite interesting. As you probably know, the Vanguard Group manages significant amounts of money in their mutual funds and exchange traded funds (ETFs). A major area of emphasis for them has been indexing markets and market segments. The article, “The added value of financial advisors,” provides some interesting research insights from a company that was founded for individual investors. One of advisor benefits cited is “…helping you get through tough markets.” There are strategies which can potentially reduce the market downturns. We hope you find the information worthwhile, and urge you to call us to discuss those downturn strategies.

For a complete copy of this Quarter's Newsletter with the "white paper" article discussed please email info@paragon-adv.com and request to be added to the mailing list.

Ready to Retire?

The June 1, 2015 Wall Street Journal (pg. R5) quoted information from the 2015 Retirement Confidence Survey by the Employee Benefit Research Institute. The survey, released in April, 2015, provided some interesting information about how Americans felt about retirement. Some items discussed include the following (based on responses from individuals age 55 or older):

 

Planning

 

The percentages below show how many of the individuals polled:

1. Have a written or documented financial plan- 21%
2. Consulted a professional financial advisor- 43%
3. Estimated health care costs in retirement- 36%
4. Estimated their income needs in retirement- 58%
5. Estimated how much they will need in savings as they begin retirement- 58%

Retirement Savings

The retirement savings issue warrants further discussion. More than half of the survey respondents believe they will need at least $250,000 in savings when they retire: only 25% have attained that level of savings. As a result, 67% expect to work in retirement. Only 23% of current retirees are working for pay.

Current savings levels prior to retirement showed some concerning results:

 Current Savings                                          Percent

Less than $1000                                           21

$1000-$9999                                                11

$10,000-$24,999                                          11

$25,000-$49,999                                          9

$50,000-$99,999                                          9

Current Savings                                           Percent

$100,000-$249,999                                     14

$250,000 or more                                        25

Note: These results are based on an Employee Benefit Research Institute telephone survey of 295 workers age 55 or older conducted in Jan-Feb 2015. The values exclude the value of a primary residence and assets in a pension (defined benefit) plan.

How does your retirement planning compare? We, at Paragon Financial Advisors, assist our clients in answering that question. Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

 

Back to the Basics: Dust off your Budget

I read a great article recently about the St. Louis Rams football team. Before they allow any of their new draft picks to sign contracts (many containing huge signing bonuses) they have to attend a mandatory “Financial Planning 101” class.  If the story is true, one of the coaches walked into the room with a briefcase and dumped out one million dollars in cash onto the table. Hopefully that got their attention [it would have gotten mine!]; because the next thing he did was physically remove a third of the pile…for taxes. He then took away several other stacks representing the player’s management fee and declared what was left was theirs to keep… BUT they had to make it last for the rest of the year.  

Not all of our employers are able to put our entire annual salary on the table in front of us in cash and challenge us to be good stewards of money, but what if they could? Would it change how you manage your money right now?

Our coach in this story is teaching his players a very valuable life skill and lesson on the importance of wisely controlling how you spend money. In the financial world we call this a “Spending Plan” or a “Budget”; a great tool that when used properly can help prevent you from overspending on your lifestyle and falling into debt. 

If you’re new to budgeting and making a spending plan, regardless of your age, don’t sweat it. No one gets their budget perfect the first, or even after several tries.  What is crucial during this timeframe is that you compare the projections you made to what you actually spent that month.

If you need a place to start or a format to follow; email us today at info@paragon-adv.com to request a free copy of our Household Budget Template.

The key to budgeting is to plan for your expenses ahead of time. By knowing your spending habits and accounting for your wants and needs it’s possible to take out the guesswork and quit wondering where all your money went.  If you’re married, being able to sit down and discuss your budget with your spouse will allow you to be on the same page and prevent future money disagreements; which can be a huge stress reliever. 

What if I have a surplus or a deficit?

If you find yourself having too much month left at the end of your money then it’s time to be honest with yourself. If you have a deficit by spending too much or your expenses are greater than your income, one of two things should happen 1) Decrease your Expenses and/or 2) Increase your Income. If you’ve dug yourself into a hole the best thing to do is stop digging! Put a plan in place to alter your habits so that destructive financial behavior will not create further problems.  In the words of Ben Franklin: “Beware of little expenses; a small leak will sink a great ship.”

What if you review your budget and make more money than your expenses? Congratulations, that is a great problem to have! When you reach the point where your expenses are under control is a perfect time to maximize your contributions to retirement accounts, children’s college funds, as well as save and invest for major purchases and financial goals.

We, at Paragon Financial Advisors, assist our clients in identifying their cash flow needs in order to maximize their savings and lifestyle. We offer Financial Planning and Investment Management. Paragon Financial Advisors is a fee-only registered investment advisor located in College Station, Texas.

Paragon Perspectives

The first thing every investor should know and accept is that there is no such thing as a sure thing when it comes to investments.  Risk is a part of the investing process; we need some risk in order to generate profits.  There is always the possibility that your investment won’t be profitable.  Or worse, you can lose some or even all of what you have invested. In this quarter’s newsletter we will examine how you can manage total portfolio risk by reducing systemic risk though asset allocation and by reducing non-systematic risk with portfolio diversification.


At first glance, dividends and income-producing securities may seem like an attractive way to generate income in retirement.  But investing exclusively with income distributions may end up being riskier than you thought.  Income producing securities can leave retirees susceptible to the current interest-rate environment and the possibility of a decrease in revenue.  We will also discuss how a diversified portfolio may be a more stable way to generate revue in retirement.


In order to avoid unnecessary risk and account for living expenses in retirement you should adjust your portfolio accordingly. Even if you are comfortable with a decent amount of risk, the closer you get to retirement, the more conservative your investment portfolio may need to become. 



At Paragon Financial Advisors, we try to assist our clients in doing a thorough risk analysis to determine their risk tolerance.  We also design portfolios with diversification and asset allocations that suit the client’s current investing and income needs.   Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

If you are not on our email list for our quarterly newsletter and would like to be added please email info@paragon-adv.com to request a copy of Paragon Perspectives.

5/29: National 529 College Savings Plan Awareness Day

School Yourself Before You Invest


May 29^th is National College Savings Plan Awareness Day. This annual day celebrates the importance of preparing for future college expenses and the advantages of 529 College Savings Plans. Did you know that an alarming 70% of students who graduated from college in 2013 left college with an average of $28,400 in debt per borrower¹? It’s shocking how quickly tuition rates have risen and how expensive the price tag of a college degree has become.  Planning for future expenses has become a crucial necessity. See: Shocking Trends in College Expenses and College Debt Necessitate Earlier Planning for Families


College Savings 529 accounts have been getting a lot of exposure nationally and are starting to get the positive recognition they deserve. 529 plans offer a simple, affordable way to save for rising higher education expenses. These investment accounts allow tax-deferred growth, high contribution limits, and unique ownership features. See: School “Daze”


Characteristics of 529 College Savings Accounts:

• Anyone, regardless of income, can open a 529 account to save for their dependents or even their own educational expenses.
• Individuals can contribute annually up to the federal gift-tax exclusion ($14,000 for 2015 or $28,000 if married) per beneficiary. Keep in mind these contributions are made with after tax dollars.
• Under a special election you can combine up to five years’ worth of contributions into one contribution of up to $70,000 ($140,000 for married couples).
• Anyone (i.e. family) can also contribute until the account value reaches $350,000.
• Money from a 529 plan can be used for tuition, fees, books, supplies, and equipment required to study at any accredited college, university, or vocational school here in the United States.
• The money can also be used for room and board, as long as the beneficiary is enrolled as at least a half-time student.
• A distribution from a 529 account that is not used for the above qualified educational expenses is subject to ordinary income tax and maybe an additional 10% distribution penalty on the gains unless other conditions are met.
• Accounts are transferable: unused amounts are able to transfer to other qualified members of the beneficiary’s family without incurring any tax penalty.

Do you know how much do you need to save to send your child to college? Will your children need to take out student loans? See: Student Loan repayment and Forgiveness Programs

 

* Numbers are rounded for illustrative purposes and are not intended to portray an actual investment. Values are in today’s dollars and are not adjusted for inflation

 

May 29^th is recognized as ‘National 529 College Savings Day’ and we invite you to celebrate with us the importance of setting aside money for higher education. A little preparation to put money aside today could mean a lower financial burden for your children down the road and greater freedom for those of the next generation to pursue their own financial goals.

 

Do you have a child attending college this fall? Do you have questions about saving for future college expenses and how that fits into your overall financial picture? Contact us today and schedule a consultation. We, at Paragon Financial Advisors, are happy to have a more in-depth conversation with you about your personal circumstances.

 

Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.