Addis & Hill, Inc.

2012-01-27T12:10:00.000-05:00

JOE

By Chip Addis

I was raised Penn State. The Penn State culture thatthe world is learning more about since Joe Paterno’s death is imbedded inme. Since my hero died, I have come to realize that all Penn Staters arecarrying around some of Paterno inside all of us. It might appear odd tothose on the outside, but, the man’s endearing qualities give us all somethingto aspire to: Unconventional, simplicity, team, vision, integrity, trustand the list could go on and on.

I have spent a lot of time in the past few days thinkingabout Paterno’s impact on my life. I have come to realize that theculture has had a profound influence on my business as well. Unknowingly,we have molded our organization after these same characteristics andculture. These qualities are also the ones that make all types oforganizations really successful – just look at Apple as an example outside theworld of sports.

So, rather than debate the subjective questions of morality,I’d like to encourage you to think about your own culture and what values areimbedded in you and to hang out there, do business there, and learnthere. It is only there that you will feel at home and will find themeaningful interactions that can enrich your life. And, or course, if youfeel you are looking for some guidance in this area of your life, just listento those of us who have lived it at Penn State.

Thank you, Joe.

2012-01-12T16:59:00.001-05:00

DIGGING OUT

14 feet of snow plus more than 44 inches of rain since November 1^sthas the Alaskan fishing town of Cordova reeling. Fortunately, fifty new 26inch Yukon Sleigh Scoop shovels purchased with emergency funds are on the wayto help the residents and the national guard dig out.

Haveyou wondered if there is some kind of new financial tool, product, or servicethat can help you dig out of the past decade? Extremely low interestrates, lack of investment returns, dropping real estate values, along with joband personal pressures all equate to quite a never ending “snow storm”!

Thereis no easy answer or quick solution – it’s one shovel load at a time. But, a new kind of shovel in the financial advisory business is the fee-onlyapproach to doing business:

- Nosales gimmick up anyone’s sleeve

- Fiduciaryresponsibility to act in clients best interests

- Nopotential for conflicts of interest

- Notassociated with a big company who is calling the shots

- INDEPENDENCE

Youmay want to give that new shovel a try in 2012!

2012-01-05T09:48:00.000-05:00

Top Financial Advisors..or Top Salesmen?

Over the holiday break the latest issue of Main Line Today arrived in my mailbox at home. The magazine featured thirteen of the "top financial advisors" in the western suburbs. Of the thirteen advisors featured, only ONE is a truly independent firm and not dually registered. Dually registered firms are able to sell financial and insurance products as well as provide financial and investment advice for a fee. We would argue that simply having the ability to sell a product and earn a commission in the transaction presents a conflicts of interest. Unfortunately, all too often, the transaction usually benefits the sales person rather than the client.

So how do you know? Just look at the disclosures at the bottom of the advisor's website. If the advisor is able to sell financial products you will see the following statement:

Securities and Advisory Services offered through (firm name), a Registered Broker/Dealer, Member FINRA/SIPC.

In 2012 and beyond, look for independent financial advisors whose interests are truly in alignment with your own!

2011-12-21T17:03:00.001-05:00

ETF's Explosion

According to a new Standard and Poor’s report, assets in ETF’s have surpassed one trillion dollars. 220 billion was added in 2010 alone – one half from appreciation and the other half from new money. Three top players in the ETF business share 84% of the market share – 45% iShares, 24% State Street, and 15% Vanguard.

Sounds like good news, right? Here’s the scary part - of the new money landing in ETF’s in 2010, 21% went into bond funds and 29% went into emerging markets… a total of 50% of new assets invested at exactly the wrong time! Despite the good news, investors tend to have awful timing. Instead of following the herd mentality – question it! Think like a contrarian and you just might learn to get the timing right.

2011-11-28T16:17:00.001-05:00

Is Magical Thinking Taking You Off Course?

About two weeks ago Michael Yudell, an associate professor at Drexel wrote an article in the Philadelphia Inquirer about the untimely death of Steve Jobs that really struck me and that we can all learn from.

In the article he described how Jobs decided to try to treat his cancer first with alternative medicine because he didn't want doctors to open him up. "According to a friend, he had a strong desire for the world to be a certain way that he willed it to be that way. That magical thinking might have worked well for technological innovation, but may have cost him his life in the end.

Which brings me to my point. We see how magical thinking plays into the decisions people make with their money all the time. Rather than focus on fundamental, usually simple principals, they wind up going down a path in search of something 'better" as defined by the financial services industry, the media, or others. But, many times they live to regret their decisions because the alternative investment or gimmick they bought into never lived up to its billing.

Steve Jobs taught us that anything is possible - in your chosen career, your relationships, your volunteer work, or in other areas of your life. But, don't let magical thinking take you off course with your money - it doesn't have to be that complicated.

2011-10-21T13:39:00.000-04:00

TalkingHeads get Paid to TALK!

Likemost investors, you are likely starting to receive your quarter end investmentperformance statements. Not pretty! But, how quickly do thingschange. In a matter of only 12 trading days in October, about half theloss from the 3^rd quarter has been reversed. So, what’s thelesson to be learned? Don’t allow yourself to get emotionally caught upin all the hype you hear about the markets. By the time you are hearingabout it, it’s too late anyway to make any changes without really inflictingpain on yourself. Stay calm, stay diversified, and stay focused on yourlong term objectives – no matter what the talking heads have to say!

2011-09-21T15:40:00.000-04:00

It's Not About The Return

Tuesday's Philadelphia Inquirer reported thatthe University of Pennsylvania’s six billion dollar endowment returned 18.6%for the fiscal year ending June 30, 2011. So, for fun, we did somechecking to see how Addis & Hill Investments measured up. You’ll bepleased to hear that our average portfolio return for the same time period was19.6%! But, the return is NOT why we are bringing this to yourattention. Penn’s healthy endowment is allowing the institution to fundall sorts of development projects and initiatives, most recently the creationof parkland from wasteland along the Schuylkill to link center city toUniversity City, a section of the city bursting with activity!

Many people have an endowment of sorts in their investment portfolio. Maybe it’s time to develop your own strategic plan to utilize part of yourfunds to live your best life. Whether the funds be used for yourself orfor the benefit of others, the point is that you may want to think about howyou view your money and how it can be used to fund “projects” that areimportant to you! Penn is doing it, so, why can’t you?

2011-09-07T11:47:00.000-04:00

Don't Even Go There

We all know that the financial markets are in panic mode right now and maybe even rightfully so. Our elected officials have been kicking the economic can down the road for decades, after all. We shouldn’t be so surprised that we are facing the day of reckoning.
Maybe we’ll actually see something get done now in Washington.

But, don’t let the shenanigans in DC blow YOU off course. It’s time to remain focused on the things that you can control and don’t let your emotions get the best of you. Those who came out of the 2008/2009 market meltdown only a little bruised but not battered were those who stayed invested and didn’t try to jump on a bandwagon of some sort. Trying to “feel better” in the short term usually only leads to an even darker place long term.

US Treasuries sure do look enticing right now, up over 6% while stocks are down 15% over the past month. But, what’s going to happen to Treasuries when the dust settles and we get back to the realization that our economy maybe isn’t as bad as we were led to believe. Do yourself a big favor and don’t even go there. If you do anything, maybe you might just want to buy those stocks which everybody else is selling right now!

Remember that every market contraction is different and isn’t necessarily as bad as the one that proceeded it. For example, US stocks would have to drop another 40% to look like 2008/2009. It’s possible, but, not very likely. We will emerge from this mess just as we have a long list of others over the years. And, maybe just maybe we will all be better for it in the end.

2011-08-24T11:59:00.001-04:00

CNBC Correspondent Sharon Epperson was on the Today Show answering viewer money questions and she pointed people to NAPFA!

(Please excuse the advertisement..apparently nothing comes without a cost.)

"Fee-Based" ins't the same as "Fee-Only" click here.

2011-07-29T14:33:00.000-04:00

FORGET THE DEBT CEILING

If you insist on watching theheadline news in the next week as the debt issue gets worked out (and it willbe resolved somehow) you might consider paying more attention to corporateearnings reports.

Our country has a well documented national debt problem that is not going awayanytime soon no matter what happens in the coming weeks with all the politicalposturing going on now. So, you might want to focus on the good news –corporate earnings are up and it appears people are being put back towork. Economic progress is being made despite the setbacks along theway. We must not forget how close we came to a complete economic meltdownwhich has forced a global economic restructuring which has had major implicationsfor so many both good and bad!

Maybe it’s time to turn off the TV, go to the beach, and check back after allthe dust has settled in Washington. If the present economic trendscontinue, you just might be in for a surprise!

2011-06-20T14:21:00.002-04:00

CHIP ADDIS QUOTED IN REUTERS

Stern Advice: Read this before jumping on the ETF bandwagon
Lisa Stern - REUTERS

(Reuters) - Some stories just seem to end up in the cosmic consciousness: blogged, tweeted and talked about in many different places at the same time. Right now, one of those story lines involves the big smackdown between traditional mutual funds and ETFs.
Several analysts have raised the idea that traditional mutual funds are dying and the future belongs to ETFs, which look like index funds but trade like stocks.

Full article here.

2011-05-25T17:16:00.000-04:00

ETF IGNORANCE CAN MEAN BIG COSTS TO CLIENTS
Marshall Eckblad
DOW JONES NEWSWIRE

CHICAGO -- Financial advisers and accountants who don't understand ETFs could be quietly doing damage to their clients' investment portfolios.

Exchange-traded funds, or ETFs, have been growing rapidly for the last decade as investors seize on their low investment fees, and their ability to be traded like stocks or bonds.

What is surprising is how many financial professionals still don't understand why they are often substantially more tax-efficient than actively managed mutual funds -- and, more importantly, when it makes sense to use ETFs on a client's behalf.

"I had a meeting with a client's CPA last week...and he said, "Tell me: What exactly is an ETF?'" said Chip Addis, co-founder of advisory firm Addis & Hill Inc., in Wayne, Pa. "I get that kind of thing all the time."

Said Eric Pollackov, managing director of The Charles Schwab Corp.'s ETF Capital Markets group: "There is a lack on knowledge on why they're tax efficient."

There are, of course, situations where selecting an ETF makes more sense than using a mutual fund, and vice-versa. Financial professionals need to know what they are.

Full article here.

2011-05-03T12:48:00.002-04:00

WHAT IF YOUR PLANE WENT DOWN TOMORROW?

So,

1. What have you postponed in your life that can no longer be delayed?
2. How are you going to stop wasting time on things that don’t matter with people that matter to you?
3. Are you being the best parent (or friend) you can be?

Now that is one hell of a financial, no, life plan!

2011-04-26T08:28:00.001-04:00

WHAT IS THE INTERNET YOU ASK?

A subtle shift comes first and then it’s all consuming and running your life. The new dependency is too great to escape. You have to view this clip!

So what does the beginning of the internet have to do with my finances and investing? Nothing. But it’s illustrative of a paradigm shift underway in the financial services industry… disclosure! Prior to 2008, not many seemed to care about the fine print. It took an economic tsunami for people to finally wake up and demand a little transparency in what they were actually buying and what the costs really are. Finally, the dark side of our industry is being exposed!

We understood the huge importance of a fiduciary standard back in 2000 when we moved to an independent fee-only business model free of conflicts of interests – just because it was the right thing to do. The shift we made is now the gold standard just like we could never imagine living without the internet. Thank goodness for paradigm shifts!

Enjoy the clip!

2011-03-31T15:44:00.000-04:00

FINANCIAL LESSONS FROM DNA?

According to a Penn researcher, our bodies cells contain tiny aging clocks made from pieces of DNA called telomeres. Over the years, the telomeres shorten until they reach their ends, fray, and cause diabetes. As the telomeres eventually disappear the cells die which acts as a protective mechanism that keeps cells from becoming cancerous. But, researchers are learning that humans can actually lengthen their telomeres and keep them from fraying by exercising and adhering to a healthy diet.

Our individual financial lives likely have similar issues inside of them that might be causing our plans to fray and cause some unintended negative outcome. Accelerating inflation, longevity, lack of diversification, medical costs are all examples of pieces of your financial DNA that could threaten your plans and cause you to eventually run out of money. So, although our bodies are programmed to break down, deteriorate, and eventually die - thoughtful unbiased financial advise just might be what the doctor ordered to prevent your financial plan from doing the same.

2011-03-23T10:37:00.000-04:00

WALL STREET FLEECING

Americans pay a whopping 2.5% per year of what they have invested for delivery of financial services according to a Wealthcare Capital Management study. Frankly, the American public has been and continues to be fleeced by Wall Street, brokers, insurance companies, mutual fund providers and many other intermediaries – each one taking a little bit which adds up to be a lot at the end of the day. And, we suspect keeping everyone confused about these fees is part of the plan! What can you do? Demand transparency. Know what you are paying to the providers of financial services in fees, expense charges, and a myriad of other charges. There is no free lunch as many would like you to believe. And, work with those who don’t come to the table with conflicts of interests – a fee-only fiduciary advisor. Be careful out there and remember there is an alternative!

2011-03-14T14:27:00.000-04:00

CHIP ADDIS QUOTED IN US NEWS

HOW TO SAVE FOR RETIREMENT WITHOUT A 401(k)
Emily Brandon: US NEWS.COM

Only about half of the workforce participates in a pension, 401(k), or similar type of retirement account at work. When you don't have help from your employer, you have to save and invest for retirement completely on your own. Here's how to build a nest egg without any help from your company.

Full article here.

2011-03-01T13:26:00.000-05:00

CHIP ADDIS QUOTED IN BLOOMBERG

VANGUARD TOPPING FIDELITY SHOWS SHIFT TO INDEPENDENT ADVISORS
Christopher Condon - Bloomberg

David O’Brien, a 46-year-old financial adviser in the Richmond, Virginia, suburb of Midlothian, has made Vanguard Group Inc. the world’s largest mutual-fund manager. Just not by himself.

O’Brien visits clients at their homes and, at kitchen tables and on front porches, counsels them on how best to invest their savings. Almost half of the $17 million he oversees has landed in mutual funds and exchange-traded funds sold by Valley Forge, Pennsylvania-based Vanguard, the company that pioneered low-cost index investing for individuals in the mid-1970s.

Full article here.

2011-02-15T14:53:00.000-05:00

WHAT"S YOUR SIGN

You have been a Capricorn your whole life, now somebody is telling you that you are a Sagittarius! Could it be true? According to Parke Kunkle, a longtime astrology teacher, the earth’s wobbly orbit means it’s no longer aligned to the stars like it was when the signs of the zodiac were first conceived. Kunkle claims that this is not new news since astrologers have known about this since 130BC. The news makes you wonder if you are not really who you thought you were all these years?

The financial markets leave you feeling the same way sometimes. Earlier in January, it seemed the market was heading higher and higher as Dow 12,000 was surpassed. But, a week later, the market was dropping like a rock due to the GDP report, protests in Egypt, and Japan!

So, what are you to do? Ignore it all and stick to the disciplined investment plan you have put together for 2011 and beyond. All the noise will drive you batty!

You really are who you thought you were and don’t let anybody try to convince you otherwise!

2011-02-04T11:19:00.000-05:00

STICKING TO YOUR BELIEFS

Not one to read much about the NFL, I was drawn into an article in Sunday’s Philadelphia Inquirer about Ted Thompson, the Green Bay Packers general manager. Since he took over the job in 2005, he has been a target for fan criticism – too conservative, no big name free agent signings, and he actually traded Brett Favre! Now Thompson looks like a football genius. The Packers coach, Mike McCarthy, has applauded Thompson for sticking to his beliefs and staying the course. McCarthy went on to say, “He (Thompson) is the same person every day. He doesn’t make emotional decisions. He has a plan, sticks to the plan. Has the strength to stick to the plan even through the storms… He’s why this team is in the shape it’s in and why the future looks so bright.”

The same philosophy should be true with your financial and investment plan. Storm clouds will roll in from time to time. There will always be a new investment fad that you must try. You will be expected to run with the herd and do things like everybody else. You try to time the market and get stung, again.

Perhaps it’s time to shape a bright future by sticking to that conservative and boring game plan, just like Ted Thompson did out in Green Bay. Chances are you might even end up winning your game – the game of LIFE.

2011-01-11T14:54:00.000-05:00

Are heuristics holding you back?

Heuristics are simplifying rules. These rules provide us with actionable outcomes that help us reach decisions, although perhaps not ideal ones. If our past behaviors produced relevant past decisions, we are bound to repeat them.

So, why is a financial advisor talking about heuristics after all? Because heuristics can become long-term habits! And, bad habits repeated over and over again don’t necessarily turn the pesky habits into good habits as much as we humans try!

So, now that we are nearly two weeks into the new year, what have you done to change a bad financial habit? Over spending, under spending, buying an investment at the top of the market, selling an investment at the bottom of the market, buying a mutual fund, ignoring ETF’s – the list goes on and on. These habits might feel good to you, but you just might be giving something up in return because you adopted a rule (heuristic) and are not adapting to a change that took place somewhere along the way.

If that bad habit is bugging you, do something about it today – you might be very glad you did!

2010-12-22T13:16:00.000-05:00

Baby Boomer 8.4 Trillion Inheritance Bonanza

According to a recent Met Life study of Inheritance and Wealth Transfer to Baby Boomers, two-thirds of baby boomers will receive some inheritance in their lifetime. The median amount they will receive is $64,000 with the wealthiest taking in $1.5 million. But, how certain is that windfall? Not accounting for fluctuations in asset values which have been severe in the past few years, your parents wealth can easily be consumed by medical and long-term care costs or simply by living a long life. And, don’t forget that a modest dose of inflation can exacerbate the problem even further!

So, while you are spending some quality time with your siblings and parents over the holidays – start the conversation so that you can all work together and put plans in place to increase the odds that you will receive what is intended for you!

2010-12-02T13:51:00.000-05:00

Invest Like A Grown-up, Not Like Wall Street

A Dying Banker's Last Instructions

Ron Lieber - The New York Times

2010-11-01T17:58:00.000-04:00

Love That Gravy Train
A recent report from the probe into the Gulf oil spill revealed that the cement mixture used to seal the bottom of the well was unstable and that the warning signs reported before the blow out were ignored. Why is it that does disaster seem to have to strike before anyone pays attention?

In the last ten years we have experienced two financial related bubbles burst which caused great distress for all of us – technology stocks collapsed and, most recently, the mortgage mess - both of which hit us hard. Were there warning signs before the implosion that came as a result of both these events? You bet there were. But, it seems everyone thought the gravy train would continue on forever.

So maybe we better learn from past mistakes and pay attention to the warning signs that will inevitably present themselves in the economy and financial markets today and in the future. Just a reminder, we have seen huge gains in treasury bonds and gold the past few years as a result of all the economic uncertainty. But, what might happen when we re-enter a period of economic growth? Don’t be lulled into thinking that the run-up will never end.

2010-10-21T15:11:00.000-04:00

Heater Just Went

You know the feeling, first the heater stops working - then the bathroom pipes leak - then the kitchen faucet breaks - then the fridge dies - then the air conditioner stops - and then the phone goes kaput. It’s one thing after another – it’s just a darn nuisance. Now imagine the same string of events only you have no money to do the repairs. Well, that’s what Stephanie Mikalic a 78 year old widow from South Philadelphia and many other seniors are experiencing outside of the bubble we find ourselves living in according to the commentary on the front page of the Philadelphia Inquirer this morning. And to make matters worse, the emergency funds of some critical social service agencies have been exhausted. Charitable giving was down 11% last year and major donors to these funds are continuing to say NO!

So if you find yourself sitting there a little annoyed when the heater goes, but you’re able to fix it and still have emergency funds left over - 1.) be grateful, 2.) consider donating to the social service agencies who do so much good for so many who are in need, and, 3.) make sure you do the financial planning required so that you don't find yourself in a similar jamb later in life.

For a link to the article and the agencies in need, click here.

2010-10-08T09:48:00.000-04:00

The Teddy Pendergrass Legacy

It’s a classic dispute over conflicting wills despite a much-diminished estate as was reported in yesterday’s Philadelphia Inquirer. Was the Philadelphia legend and R&B performing legend of sound mind when he signed an October codicil to his will? We may never know what really happened in the final months of his life.

But, since there wasn’t much money left in the estate at the time of Pendergrass’ death in January – why all the conflict? One of the attorneys involved said the dispute was less about money and more about the singer’s legacy.

Isn’t the same true about you and your life? Of course you want your heirs to receive everything they are entitled to if you haven’t spent it all by then! But, haven’t you spent a lifetime trying to leave your heirs with the gift of your time, your love, your confidence, and your spirit? That’s the stuff of legacy – that helps those who are special to you way more than the money you leave behind. Pendergrass left a legacy. Will you?

2010-10-01T13:09:00.000-04:00

Fannie Buten 1899 - 2010 = LONGEVITY RISK!

Mrs. Buten was the 37th oldest person in the world until her death on September 24th. Born in Austria, she immigrated with her parents to the United States and settled in Philadelphia where she met her husband Mottie Buten of Buten & Sons Paint Company. Asked about her mother’s longevity, Marjorie Steinberg claims she was not an exerciser and never watched her diet. She loved her coffee, chocolate, and ice cream. Mrs. Buten liked anything beautiful and simply led a beautiful, long life.

Living to age 111 might be an anomaly, but, Mrs. Buten’s story is a reminder of the importance of making sure that your money lasts so that you can enjoy a beautiful ending to your life as well. Do you run the risk of running out of money if you live to even age 85 or 90? The statistics say that the vast majority of baby boomers are not financially prepared for retirement, assuming a normal life expectancy, let alone a longer life expectancy. It just might be the time to explore the longevity risks that you face so that you can live the last chapter of your life as beautifully as Fannie Buten did!

2010-09-22T09:33:00.000-04:00

Oh, Those Nagging Pests!

Today is day one of a two day conference in Chicago titled:“Bed Bug University’s North American Summit 2010”

Yes, you read that correctly – a Bed Bug summit. In fact, in researching the conference further I learned that Philadelphia is second on the list of the 15 most infected cities in the country. And, aside from the emotional trauma, it can cost $2000 or more to rid an average sized house of the little creatures.

We have little creatures in our business who cause people lots of grief and money as well. They are called financial product salespeople who disguise themselves as financial advisors.

Perhaps we should consider holding a summit to help unsuspecting people in search of unbiased conflict free financial advise spot these little pests and eradicate them once and for all.

Please visit our website if you would like a list of questions to help you spot these little pests before it ends up setting you back from living your best life!

2010-09-14T10:49:00.000-04:00

Can Money Buy Happiness?

A new study by a couple of prominent researchers from Princeton conclude, yes, money can buy happiness – depending on your definition of happiness – but only up to income of about $75,000 after which more money didn’t seem to buy more happiness. Maybe it’s because the more Americans make the more Americans tend to spend.

I don’t know about you, but from where I sit talking everyday with people about money, happiness seems to be linked more with the expense side of the ledger. People who are struggling to make ends meet, no matter what they earn, tend not to be as happy – relationships suffer, health suffers, and stress levels soar!

Perhaps it’s time to stop focusing on having the new car, bigger house, and a garage full of toys to living within your means – maybe then the happiness you are searching for might just find you!

2010-08-18T13:03:00.000-04:00

Know A Good Plumber?

If you had lived back in the early 1900’s, you would have wanted to give Louis Volpe a call……or a telegraph.

A recent water leak at the historic Christ Church in Philadelphia ended up revealing an inscription on the side of a tub – “Tub set 1-9-33 by Louis J. Volpe “This work kept two men from starving during the depression”. The words themselves revealed how amazingly difficult life was at that time. However, equally extraordinary was the fact that it took 77 years for the original plumbing to spring a leak.

Louis Volpe obviously did good work that lasted. He was emotionally invested in knowing the work he was doing was just as important to the church as it was to him personally through the inscription he left behind. Can the same be said for the craftsmanship of today from you professional relationships? Are you providing the craftsmanship that will stand the test of time for your clients?

Wealthy Clients Moving to RIA's

2010-06-22T12:01:00.000-04:00

According to a recent study conducted by the Spectrum Group, a significant shift is taking place away from Wall Street firms to independent Registered Investment Advisory firms (RIA’s) – those who choose to operate in the best interests of their clients – a fiduciary. “Wall Street is simply not perceived as trustworthy” according to George Walper who spoke on behalf of Spectrum at the second Forum on Innovation and Growth in a Post-Economic Crisis Era.

RIA’s offer clients a holistic integrated approach to planning their life and money compared to product vendors. RIA’s can offer the following valuable services:

1. Measure and avoid unnecessary risks

2. Help clients avoid self destructive behavior

3. Establish goals and provide frequent stress testing ability

4. Identify, monitor, and help maintain optimal funding status

People have learned a lot about themselves during the economic downturn and as they recover psychologically they will need to be able to rely heavily on their professional advisors as they move ahead with their lives.

2010-06-04T11:40:00.000-04:00

Could Your Oil Pipe Break?

As the oil continues to bubble to the surface in the gulf we are reminded of the parallels to the economic fallout that resulted because banks cashed in on the thought that real estate values would continue to rise. BP obviously failed to put back-up measures in place that would have prevented the environmental and economic catastrophe that is unfolding. Should we blame the government regulators? Yes, they probably played a role. But, how much of BP’s 14 billion dollar 2009 profit spent on preventive measures might have saved the fragile gulf coast and related economies. What if the banks had not loaned money to everyone who had a heart beat?

We contend it’s time to put our collective focus on eliminating downside risks – before disaster strikes! It’s no different for your own life. Maybe it’s time to ask yourself what risks exist in your life (career, economic, personal, and financial) that you can take a close look at and actually do something about before disaster hits you in some negative way?

What’s going to happen when interest rates go up?

What’s going to happen when inflation strikes?

Can you sustain your standard of living if you live to age 95?

If you are in a high litigious risk profession, have you taken steps to protect your assets?

Do you really understand the downside risk potential of your investments?

Take some time before your own oil well starts gushing. It’s a lot easier and less expensive to fix before the pipe breaks than after.

Americans Still Neglecting Retirement

2010-05-06T08:59:00.000-04:00

In our work with clients at Addis & Hill, a couple with an 85% chance of NOT running out of money with a 2.5% inflation rate plummets to just over 50/50 odds when the average inflation rate increases to only 4%. Leading edge baby boomers are really in for a rude awakening and should start to prepare – but they are not doing so according to a new survey. Even one of the greatest financial downfalls in U.S. history hasn't been enough to get people to take retirement planning more seriously.

The report by the Society of Actuaries (SOA) found that a 2009 survey of pre-retirees and retirees mirrored the results of a similar undertaking in 2007, before the collapse of the financial markets. Namely, that Americans are neglecting their financial planning and are ill-prepared for their retirement years.

The study found, for example, that inflation and health care costs are the top two concerns of pre-retirees and retirees, but neither group is aggressively addressing those concerns through proper financial planning. Twenty-six percent of pre-retirees, for example, do not have plans to calculate how inflation may impact their income in retirement. Nearly half of the retirees surveyed, 49%, and 67% of pre-retirees expressed concern about having enough money to pay for adequate health care.

"Individuals are clearly concerned about their retirement and the associated risks, but many are still not taking the necessary actions and planning to address these issues," said Anna Rappaport, chair of the SOA retirement survey committee.

Estate Tax Repeal Stirs Lawsuit Fears

2010-04-21T08:56:00.000-04:00

The disappearance of the estate tax this year will bring unintended consequences for many wills, and the threat of possible lawsuits that could follow has moved tax attorneys to protect themselves.

Among the worries are disgruntled would-be beneficiaries who sue over accidental disinheritance, or others unhappy over an unexpectedly heavy tax bill or shift in bequest.

When things go wrong, people tend to want to have someone to blame, and family members may focus on an adviser who failed to inform them of substantial tax changes and traps in 2010, said John J. Scroggin, an attorney in Roswell, Ga.

Many attorneys are doing the best they can, through emails and letters, to warn clients they need to review wills. The paper trails they create could help guard against suits alleging malpractice or a violation of fiduciary duty.

Trusts and estates groups have even come up with form letters that advisers can use to warn clients. The National Association of Estate Planners & Councils, for example, makes a sample letter available on its Web site and instructs planners to fax, email or mail it to clients, keep a list of people to whom it was sent, and do follow-up calls and emails to clients.

Jonathan Blattmachr, a retired partner at law firm Millbank, Tweed, Hadley & McCloy in New York, has told planners in recent lectures that "you have to send clients individual letters telling them this is a big deal and that they have to come in."

The estate tax lapses for this year only, under 10-year-old legislation that gradually reduced the rate to zero. Congress had been widely expected to change the law before that happened, and the estate tax community was taken by surprise by the repeal. Most people thought Congress would, at a minimum, keep the estate tax at 2009 rates of 45% for estates of $3.5 million and higher.

The levy is set to revert next year to rates of 55% for estates of $1 million or higher.

Legal problems may arise with the many wills drafted with formula clauses, which refer to estate-tax exemptions. With the tax set at zero for now, those formulas are cast into doubt. The result could be disinheritance of a spouse, children or grandchildren.

A lawyer with thousands of wills under his care would have to spend thousands of hours to review them. Scroggin, who drafted the letter for NAEPC and has some 4,000 wills, said it would take him around 8,000 hours to review them all for the 2010 and 2011 changes.

Exactly who is liable when a will goes wrong depends on state laws, which vary. Under New York state law, for example, a lawyer can only be sued for his work by the client. An heir thus may not be able to sue over a will, according to Blattmachr.

A dozen or so states are working on bills that would shield against unintended effects from the one-year tax hiatus, mostly by applying 2009 rules by default to wills and other documents. States that have either passed laws or are considering legislation include Connecticut, Florida, Maine, Nebraska, South Dakota, Maryland, Washington, Indiana, Tennessee and Virginia, according to the American College of Trust and Estate Counsel.

SOURCE: DOW JONES

Estate Tax ......JACKPOT!

2010-04-13T10:12:00.000-04:00

Washington lawmakers’ estate tax hiatus has now potentially cost the IRS billions in lost tax collections. Experts say death of Texas billionaire Dan Duncan makes retroactive reinstatement of the death tax less likely because the stakes are now a lot higher.

Houston gas pipeline mogul Dan Duncan was the 74th richest person in the world when he died on March 28.

If he’d passed away three months earlier or ten months later, his $9 billion estate could have generated up to $4 billion for the IRS. But because there’s no federal estate tax this year, the government gets nothing.

As the first billionaire to die in this year without an estate tax, Duncan presents a tempting opportunity for a revenue-strapped Congress to follow through on threats to reinstate the tax for 2010 and possibly even make it retroactive to the beginning of the year.

However, probate gurus say the sheer amount of money on the table makes a retroactive tax more unlikely. Big estates mean big lawyers ready to fight to see those billions of dollars go to the deceased’s heirs, and the headaches could go on for years.

Source: Thetrustedadvisor.com

Roth Conversions and Your Estate

2010-03-24T15:00:00.000-04:00

In a previous blog post we discussed the reasons why you may NOT want to convert your IRA to a Roth IRA - www.addishill.blogspot.com . For most people, it simply doesn’t make sense to convert and pay the tax now. But, for those who have a high probability of never needing the IRA assets and therefore a long-term investment time horizon, and they wish to leave a tax-free legacy to their children or grandchildren, a Roth conversion can make a lot of sense.

Roth IRA’s are an included asset in one’s estate and are subject to estate tax, although in 2010 there is no estate tax and it remains to be seen what 2011 will bring. Assuming estate taxes are going to come back, individuals can benefit from paying income tax before estate tax (when a Roth IRA election is made) compared to the IRD tax deduction obtained when a traditional IRA is subject to estate tax. Beneficiaries can continue to enjoy tax-free benefits and tax-free required minimum distributions (yes, they are required).

IRC Sec 401(a)(9) allows a Roth IRA account holder to name a revocable or irrevocable trust as beneficiary. Benefits of establishing a Roth Legacy Trust:

1. Prevents beneficiaries from withdrawing the entire balance of the Roth IRA

2. Higher probability of funds available for grandchildren (Roth Dynasty Trust)

3. Can name an independent trustee

4. Can specify what distributions can be used for

5. Offers creditor protection

6. Offers Divorce protection

7. Provides spendthrift provisions

Remember, there are lots of rules for spousal and non-spousal beneficiaries of Roth IRA’s and we highly recommend that you consult with an advisor who is familiar with the critical issues.

Clear as Mud

2010-02-23T10:11:00.000-05:00

In conversations with clients, tax professionals, and lawyers, more often than not a discussion emerges about how we charge for services. At least 90% of the time we hear something like - "So you are a fee-based advisor?

"Fee-based" is yet another example of industry jargon that has consumers and other professionals completely confused. You might be surprised to hear that fee-based advisors can sell products such as life insurance and annuities and earn a commission for selling you the product. They can charge you fees to develop a financial plan or manage your money. You might be surprised to learn that most CFP designees operate as fee-based advisors.

We would contend that when the option to earn a commission is present in an advisory relationship, conflict of interest has the chance of rearing its ugly head. Therefore, if you want to ensure that your financial advisor doesn't succumb to the possibility of conflicts; choose a FEE-ONLY advisor.

Fee-only advisors adhere to a fiduciary standard which means that they must act in the clients best interests at all times and therefore can't profit based on a product you buy. Insist that you or your clients work with a Fee-only advisor - one who is a member of NAPFA (http://www.napfa.org/) and remember next time you hear the term fee-based, start asking a lot of questions.

The Number.........NOT!

2010-01-27T11:23:00.000-05:00

Given the opportunity to approach their retirement savings again, 51% of affluent Americans who have retired said they would have preferred to have focused on life goals rather than a retirement number, Merrill Lynch found in a survey.

Among all respondents, 31% worked with a financial advisor when planning for retirement, although in hindsight, 55% wished they has started doing so earlier.

So, if you thought it might be time to start to plan for retirement, here are two simple tips:

#1 Work with a fee-only advisor, someone who does not sell financial products enabling them to be totally focused on the need of the client

#2 Work with an advisor who can help you prepare for retirement so you achieve your personal goals AND so you don't run out of money. After all, isn't that really what you care about?

Six significant reasons YOU SHOULD NOT CONVERT your IRA to a Roth

2010-01-20T13:30:00.000-05:00

Pay taxes now, with certainty, for an uncertain future benefit or cost.....
Question: Who in their right minds would answer yes?

Answer: All the large investment companies who are trying to capture new investment accounts from those earning over $100K through Roth Conversions.

Roth Conversions in 2010 can be beneficial for some and one can even push the tax liability out to 2011 and 2012.

Here are six significant reasons you should not convert your IRA to a ROTH:

If you need the IRA funds within the next 10 years to pay for living expenses.
If you don't have the cash to pay the taxes - especially if you are under 59 1/2 and subject to a 10% early withdrawal penalty.
If you think you will be in a lower tax bracket in retirement.
If the conversion pushed you into a higher tax bracket
If you think the feds might change their minds about the tax-exempt status of Roth IRA's in the future.
If you think we will remain in a low investment return environment.

Remember, the messages thay you hear that "it's a no-brainer" to convert tend to come from the big boys with large marketing budgets. These companies have even gone so far as to push on-line Roth Conversion calculators on their websites that relinquish control of the analysis to "garbage in/garbage out" software that can lead to very misleading information and bogus conclusions.

For most, it's best not to convert; if you are still wondering, we urge you to reach out for help!