Northstar Northstar Financial Planners, Inc. offers an advisory relationship built on personal trust, creativity, and integrity. Wed, 11 Oct 2017 21:31:32 +0000 en-US hourly 1 111010051 The Emerging Market Bounce Wed, 11 Oct 2017 14:00:23 +0000 By Steve Tepper, CFP®, MBA

You’d have to be a little crazy to invest in emerging markets right now. There are so many problems in the second and third world, they could hardly all be listed in this short article. But here are a few key drivers of expected weakness outside of the U.S. and developed international markets:

  • Cooling off of China. Annual GDP increases of 8% to 14% in China made emerging market funds winners in the mid to late 2000s, but the country’s recent numbers and forecast are not as rosy.
  • Fear of rising interest rates, which restricts the flow of money to non-developed markets.
  • Plummeting commodities prices—in particular, oil—have hurt third world countries whose natural resources are often their most valuable currency.
  • Anti-globalist sentiment across Europe, particularly in the U.K., have raised concerns about investing in developing markets.
  • And Putin. What’s up with Putin? The Russian president has single-handedly provoked political turmoil not only in emerging economies like Ukraine and Turkey but in Brazil, South Korea, and the U.S. as well.

Most of these factors have been simmering for months or years, with one more added to the mix last year: The U.S. presidential election campaign, in which the candidate who would eventually win marshaled the forces of anti-globalization from both the right and the left. Every sign pointed to one outcome: Emerging markets were going to get crushed.

You know where I’m going with this, don’t you? As I’m writing this in late June, the MSCI emerging markets index is up almost 19% year-to-date (after gaining more than 11% last year).

So it’s no wonder we’re a little crazy, because we are invested in emerging markets and have never gotten out. We didn’t get out in 2008 when the same MSCI index fell more than 50%, and good thing, because it ran up nearly 80% the next year.

As you can see from Table 1 below, we had a run of good years leading up to the 2008 crash, a big recovery in 2009, and then spotty performance. Even so, it has been a winning asset class, weathering economic and political storms, and providing an annualized return of 11.2% for the last 14-plus years. That’s good enough to turn a $1,000 initial investment into nearly $5,000.

Table 1
MSCI Emerging Markets
Annual Performance (%)

Year   % Gain/(Loss)
2017 YTD 18.7
2016 11.19
2015 -14.92
2014 -2.19
2013 -2.60
2012 18.22
2011 -18.42
2010 18.88
2009 78.51
2008 -53.33
2007 39.42
2006 32.14
2005 34.00
2004 25.55
2003 55.82

So why the unexpected results this year, after a tirade of bad news or ominous warnings? As bad as the financial media and economists seem to be at predicting the future, they seem to also struggle with playing “Monday Morning Quarterback,” offering up many, and sometimes conflicting, reasons for why things happened that shouldn’t happen. Here are a few of the postmortem excuses offered from the press:

  • The market decided Donald Trump was more talk than action on trade. For example, after the election, he backed off his campaign rhetoric that China was a currency manipulator.
  • After years of bad news and sluggish performance from 2011 through 2015, emerging market stocks were undervalued and therefore poised to rally.
  • Emerging markets are not as risky as they were just a few years ago. The most in-debt countries had deficits totaling around $300 billion in 2012. Today that number is below $100 billion.
  • Economists believe there is less risk that the dollar will rise. If it did, it would raise the debt service cost for debtor nations. Conversely, emerging market currencies have been strengthening, which has the opposite effect, making their debt service easier to handle.

All of these seemingly logical but ultimately incorrect predictions and rearview reassessments serve as reminders that even the so-called market experts can’t be relied upon to provide meaningful information to help us time the market or any segment of the market. And so we remain committed to broad investment across many asset classes, no matter what the prognosticators say.

Source: Bounce Back by Eric Rasmussen, Financial Advisor magazine, June 2017.

Past performance is no guarantee of future results. There is no guarantee an investment strategy will be successful. Diversification does not eliminate the risk of market loss. Investing risks include loss of principal and fluctuating value. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks.

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Is Your Advisor a Fiduciary? Wed, 04 Oct 2017 17:55:37 +0000

By Allen Giese, ChFC®, CLU®

Look, there are lots of advisors out there to pick from. And there are lots of differences between them. But if there is one thing that separates them more than anything else, one thing that tells you who may really have your best interest at heart, what would that be?

The answer, I believe, is whether or not your advisor is a fiduciary.

When we’re talking about a financial advisory relationship, a fiduciary standard requires your advisor to put your interests above his own. If your advisor is a fiduciary, it means he legally has to act in the best interest of you, the client.

It means that the advisor has to avoid conflicts of interests and disclose wherever there might be one, and that his or her analysis of your situation must be thorough and complete and as accurate as possible.

Sounds pretty good, right? Isn’t that what you’d want? For your advisor to have your best interests over his own? But the problem is, not all advisors have to follow a fiduciary standard.

Actually, the majority of financial advisors currently don’t have to follow a fiduciary standard. They follow something called the suitability rule.

Now, the suitability rule, in my opinion, is a big step down from a fiduciary standard because under the suitability rule an advisor has to only make recommendations that are consistent with the best interests of the customer. His recommendations need only be suitable for the client’s situation in terms of financial needs, objectives and unique circumstances.

There is also a key distinction in terms of loyalty that’s important, in that the broker’s duty is to his broker-dealer—the company he works for and who pays him—not necessarily the client he’s serving.

Here’s what that means: When it comes to things like transaction costs and fund fees, the suitability standard only says that the recommendation must not be excessive. Say there are two competing fund choices, where both funds invest in exactly the same thing—like, for example, an S&P 500 stock fund—but one fund pays a commission and is twice the expense of the other. The broker, under the suitability rule, can recommend the costlier fund—the one with the commission.

That’s a pretty big conflict of interest that the suitability rule causes. As long as the investment is suitable for the client, the broker can recommend it. This allows brokers to sell their own company’s products ahead of lower-cost competing products. And remember, the broker works for a broker-dealer, and ultimately that’s where his or her loyalty is.

At Northstar Financial Planners, we’ve been following a fiduciary standard for many years. We think it’s clearly the best thing for our clients. If you are interested in finding out more or seeing for yourself how recommendations might differ under an advisor who is following a fiduciary standard, or if you just want to know if you are making good decisions in today’s economy, consider Northstar Financial Planners for a second opinion. Give us a call, and we’ll talk about it. We think you’ll be glad you did.

Thanks for watching, and when it comes to your finances, don’t settle for something that’s just suitable.

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The Retirement Savings Gap: Bleak and Getting Bleaker Tue, 26 Sep 2017 22:29:00 +0000 By Steve Tepper, CFP®, MBA

It should come as no surprise to readers of our newsletter that most people have not saved enough for retirement. We reported several years ago that about 57% of baby boomers would run out of money within 20 years of retirement according to the Employee Benefit Research Institute (EBRI). I haven’t seen an update for that report, but I’m going to go out on a limb and guess the figures haven’t changed much.

The World Economic Forum has put the long-term outlook into focus, and it’s very bleak. By 2050, the combination of longer life spans, inadequate savings, and poor investment strategies will result in a $400 trillion retirement savings gap.

$400 trillion! That’s a Dr. Evil number because literally, that much money doesn’t exist in the world—it is about five times the size of the global economy today.

The figure was derived by starting with an assumption that a retiree would need a beginning retirement income of 70% of annual earnings before leaving the workplace.

The death of defined benefit plans (traditional pensions) is a big culprit for the bleak assessment. Once upon a time, you worked for an employer for 30 or 40 years and built up a pension (a fixed amount of monthly income for the rest of your life), which, combined with Social Security, would provide the income you needed to cover living expenses. But very few employers offer traditional pensions anymore, shifting instead to defined contribution plans (such as 401(k) plans).

Defined contribution plans (including IRAs) make up more than 50% of retirement assets worldwide, and compared with pension-type plans, they are riskier for investors. They usually require employees to “buy in” or make contributions through payroll deduction. Participation is not mandatory, so an employee can opt to save nothing for retirement. Sadly, many do just that. For those who do participate, they may find limited investment options, or may not understand their options, and usually, don’t have the option of professional investment management.

None of that was a concern under a classic pension plan, where contributions were made for all eligible employees by the employer, and assets were pooled together, which helped spread out risk and allowed for low-cost management by a financial advisor required to act as a fiduciary to the plan.

The World Economic Forum reported that the savings gap is growing by about $3 trillion per year in the U.S. and could climb by as much as 7% in China and 10% in India, where populations are aging more rapidly and more people work in what they call “informal sectors.” I’m taking that to mean “off the books” jobs that don’t pay into retirement plans.

It is clear under the current system that individuals need to take responsibility for the success of their lifelong financial plans by investing as much as possible toward retirement during their working years and hiring the services of a professional financial advisor who will serve as a fiduciary and act in their best interest in managing their money.

Past performance is no guarantee of future results. There is no guarantee an investment strategy will be successful. Diversification does not eliminate the risk of market loss. Investing risks include loss of principal and fluctuating value. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks.

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Cybersecurity Best Practices Wed, 13 Sep 2017 14:34:39 +0000 The WannaCry ransomware attack last month affected individuals and businesses in more than 150 countries and infected more than 230,000 computers. It illustrated yet again the need for everyone using any device connected to the internet to employ best security practices at all times.

Ransomware occurs when malicious software is installed on a computer, encrypting your files and then flashing a message demanding payment so you can regain access to those files. Ransomware can be problematic for a number of reasons. First of all, in many instances, including the WannaCry attack, there is no guarantee that the hacker will un-encrypt your files even if you do pony up the ransom. Second, payment of ransom will encourage hackers to attempt more ransomware attacks.

SonicWall, an industry leader in cybersecurity hardware, reported there were 638 million attempted ransomware attacks in 2016, a 167-fold increase over 2015.

Here at Northstar, we strive to keep up with the latest information and releases to protect our clients’ information as well as proprietary business data, and we are committed to helping our clients do the same.

A recent article on highlighted best practices for the financial services industry, but many of them have universal application. Here are a few highlights:

Keep your updates up-to-date. Don’t you hate all those pop-ups and system messages on your computer telling you to run this and update that? Well, stop hating and start updating, especially anything marked “critical.” In March, two months before the WannaCry attack, Microsoft released a “critical” patch. Guess what all of the 230,000 infected computers had in common? None of them installed the patch.

Manage your device. All your devices need the latest antivirus protection. In addition, you should have the ability to erase or disable a phone or tablet if it is lost or stolen. Aside from the annoyance of giving someone access to your contact list and that secret selfie folder (hey, I’m not judging), you’ve probably got your bank account login cached in memory, so you definitely want to keep a thief from getting their hands on that.

A remote wipe can be done on an Apple device by making sure you have Find My iPhone installed on your phone (before you lose it, of course!). Then you can wipe or disable the phone (and maybe even find it) by using the same app on another iOS device or by visiting

For Android devices, the app is called Lost Android, and while there is a feature that would allow you to “push” the app onto your phone even after you lose it, that’s not a best practice. Install the app now, then accept administrator functions, which will allow you to go to the site to lock, wipe, or locate the phone if it is lost or stolen.

Encrypt your data. If you have received confidential information from us, you know what we do to protect that information. Rather than sending it as an attachment, we direct you to a secure site to download it ( It’s a bit of a hassle, but it is a critical component to our cybersecurity program. Additionally, if we want you to send something confidential back, we direct you on how to securely email us using Sendinc. That is a best practice for you to follow anytime you need to send confidential information electronically.

Use passwords, and make them long and complex. The most common passwords in 2016 were “123456,” “qwerty,” and “111111.” In fact, if you use any password with just letters or numbers, characters that are sequential on the keyboard, or are just six characters long, sophisticated hackers can get past your password security in just a few seconds.

Here are a few standards for password creation:

  • Use as many characters as allowed;
  • Use upper and lower case letters, numbers, and special characters if allowed; and,
  • Don’t use the same password for all of your logins. If a hacker figures out one of your passwords, he will probably try that same password and user ID combination on hundreds or thousands of other common websites, including every banking and brokerage site.

My rule of thumb for passwords is “If you can remember it, it’s not good enough.” Yes, that means you need a password file to write down all your passwords.

Don’t back down on backups. They can be a pain, but having a comprehensive recent backup can be a lifesaver if you fall victim to an encryption virus like ransomware.

By comprehensive, I mean more than just copying your “My Documents” folder to an external drive. You need a complete system image and your system registry so that you can completely restore all files, programs, and settings in the event you have to reset your device back to its original day-you-bought-it settings.

Be careful on social media. The information you put out on social media can be used by hackers to impersonate you to your friends and to figure out the answers to personal security questions. Did you ever post your wedding pictures? A page from your high school yearbook? A pic of your pooch doing something adorable? A shot of you and the family at the game, all dressed in matching team apparel? You’ve just answered some of the most common security questions: What is your best friend’s name (your best man or maid of honor), where did you go to school, what’s your favorite pet’s name, and what’s your favorite sports team?


Good cybersecurity practices can be a pain, but they are necessary components to safe computing in the 21st century. Get comfortable with them because they are with us to stay and will likely get even more complex and cumbersome as hackers become more and more sophisticated.

Source: 10 Cybersecurity Best Practices by Fred Kauber,, May 26, 2017

FRS Pension Option 1 with Life Insurance: Good Idea? Wed, 06 Sep 2017 20:03:49 +0000

By Allen Giese, ChFC®, CLU®

Here’s a concept that if you’re an FRS special risk employee approaching retirement, I’ll bet you’ve heard. The idea is, if you’re married, you choose Option 1 for your pension. That’s the option where if you die before your spouse, then your spouse gets no continuation of benefits—they get nothing. But Option 1 also has the highest monthly payout. So to make up for that, you also buy a large amount of life insurance that would be paid to your spouse, and then your spouse goes and buys an annuity or invests the money and draws an income to make up for the pension they lost.

Sounds like a great idea, right? Not so fast.

I’m Allen Giese, and our firm, Northstar Financial Planners in Plantation, helps special risk FRS employees make better decisions with their finances. With this pension maximization idea, the FRS retiree is obviously trying to increase his or her pension payout. The trick is to get the cost of the life insurance policy to be less than the difference between the payout of Option 1 and Option 3 or 4.

So let’s say a life insurance agent you are talking to shows you a plan where, indeed, the cost of the policy is less than the difference between the two pension payouts. Now you have to ask yourself: “Is it really enough life insurance to replace my pension?” I mean, how do you know how much you need? Have you factored in inflation and a reasonable return on the money and a conservative assumption for your spouse’s life expectancy?

The problem is, I often see plans like this where the retiree has far too little life insurance in place to accomplish the goal. That, of course, makes the premium lower, which makes the idea appear to work—until it doesn’t. But at that point it’s too late. And here’s typically the culprit, more often than not: You have to understand that the life insurance agent gets a commission for placing the policy, right? And that commission is no small amount. It can be as high as 100% (or even more) of the first year’s premium for the policy! So the agent has this big incentive to get the insurance in place. In fact, his or her number-one concern is to get a policy in place. The number-two concern is, is it enough?

We believe that you should always have somebody besides the life insurance agent (who stands to make a big commission and therefore has a conflict of interest) figure out how much insurance you really need in this situation.

Now I’m going to point out something that may not be obvious. Let me ask you, how does the state determine the difference between the Option 1 payout and the Option 3 payout, where Option 1 payments end at the retiree’s death and Option 3 payments end at the second of the two married persons’ deaths? They determine the difference using mortality tables. Well, guess what? They use the same mortality assumptions that life insurance companies use—except there is one big difference. Insurance companies are in business to make a profit, so they are going to mark up above the mortality to make that profit. The state doesn’t do that. The truth is, the average age a healthy 50-year-old lives to doesn’t change because he or she has a life insurance policy versus FRS pension Option 3.

So, in essence, Option 3 has already factored in the mortality at most likely a more favorable rate than the insurance company. So if the insurance is coming in at a better rate, then logic dictates that something is amiss. Again, it would probably make sense to have somebody, who doesn’t have a vested interest in you buying the life insurance policy, take a look at it and give you an unbiased opinion. Remember, once you make this decision and retire, there’s no going back and changing it.

Now one other problem I have with this pension maximization idea. This one is a little more philosophical than mathematical, but hear me out. Why do most people who pick the pension plan monthly benefit over the investment plan lump sum do so? Everybody I’ve asked says it’s because they feel safer and more secure not having to invest the money themselves and making perhaps a big investment mistake. They like the security of knowing that every month they are getting a check no matter what.

So let’s say an FRS retiree and his or her spouse do take Option 1 and buy a couple million dollars of life insurance. What happens when the retiree dies? Well, of course the monthly pension check stops coming, but what does the spouse get? A couple million dollars.

Now what are they supposed to do with it? Think about it: They are distraught. Is this a good time to be making major financial decisions? Is this a good time to be shopping for an advisor they can trust to do the right thing for them? Are they really going to take any investment risk with that money, even though you probably built the assumption they are when you determined the life insurance amount?

Aren’t they basically just a huge target for every unscrupulous commissioned salesperson with the “greatest investment you ever saw” in their briefcase? And isn’t having all this investment risk exactly what you were originally trying to avoid, which is why you took the pension in the first place? Logically, we think it’s just a bad idea.

All that security the FRS retiree had when they were getting a monthly check is gone and probably at one of the worst times possible as far as the surviving spouse is concerned. Believe me because I’ve been there: Surviving spouses aren’t looking for risk, and losing the security of their income that they live off of is a big deal.

I have a few other issues as well, but those are the biggest ones. My point is, there’s a lot to think about and a fair amount of homework that you have to make sure is right if you are considering taking Option 1 and buying life insurance to replace the lost income to your spouse. Every case is unique, and it would be a good idea to bounce the idea off someone who doesn’t have a vested interest in you buying the life insurance and has the ability to correctly analyze the situation.

If you find yourself in that or any other complex situation, or you just want to know if you are making good decisions in today’s economy, consider Northstar Financial Planners for a second opinion. We think you’ll be glad you did. Thanks for watching, and be sure to stay safe out there. Now, if you are an FRS employee and would like a free copy of Retired Battalion Chief Gary Gonzalez’s book explaining what you need to know about retiring from FRS, just give us a call or drop us a line.

The Talk Every Adult Should Have with Their Parents Wed, 30 Aug 2017 14:20:29 +0000 By Mia Kitner

Let’s talk about “the talk.” It’s the talk with our parents that we as adult children tend to avoid—sometimes out of fear and other times because it is, simply put, difficult. The thoughts that may race through our minds tend to revolve around “Will they think I am being greedy?” or “I don’t want to offend them.”

Estate planning is never an easy topic. Many people plan for everything else in their lives but put this subject off. A study from Fidelity Investments found that “43% of parents have not had detailed conversations with family members about long-term care and elder care; another 23 percent haven’t talked about these topics at all.”1 However, facing our greatest fear, the fact that we all age, cannot be put off for “when the time is right.” The reality is that no one knows when our time is up, but we can plan for the unexpected and help ensure that our loved ones are not left swimming in the wake of our estate planning procrastination.

Although the talk with our parents is one that we should perhaps avoid in the middle of Thanksgiving dinner, it is one that needs to be addressed—and with care and compassion. Below are five topics we should, at the bare minimum, discuss with our parents and tips on how to approach the subjects.

Let’s start with the most basic question:

Do you have a will or a trust?

While asking this question will not be the easiest thing you will do, it will help set the foundation for future conversations. A good approach may be bringing up a concern about your own estate planning. Blame it on your estate planning attorney or financial advisor if needed. Crafting the question around your issues may lead to a more natural conversation about their own. The key is to let the conversation take a natural turn by not rushing it, helping to open the line of communication for future discussions.

Have you named your health care surrogate and power of attorney?

Estate planning doesn’t start and end with the creation of a will or trust. While having one is essential for anyone, regardless of income or net worth, it is important to note that a health care surrogate and power of attorney appointment are among those critical documents too. Whoever is named as the surrogate is able to make health care decisions and receive protected information on behalf of that person if he or she is unable to make those decisions. A power of attorney is similar, except that it extends to financial and general affairs. We recommend seeking the help of a qualified estate planning attorney for assistance with these documents.

Are your named beneficiaries up to date?

Families may change as the years go by, and the beneficiary list created five or 10 years ago may need updating. It’s easy to have this update slip by, especially if your employer’s plan or life insurance agent doesn’t send out yearly reminders, but it should be part of an annual review for everyone. Keeping the list of beneficiaries updated is one way of preventing future problems. It may also help avoid unfortunate issues such as will contests or family disputes about inheritances.

Where do you keep your important documents (e.g., tax returns, financial account statements, bank statements, life insurance policies, long-term-care policies, health insurance, online access information, and advisors’ and attorneys’ contact information)?

In an emergency, at least one designated person should know where to access important documents. You may find it helpful to set aside an afternoon to review the documents with your parents and ensure everything is up to date. If your parents have a safe deposit box, ask where the keys, combinations, and any pertaining details are kept. This is not something you need to be looking for with a blueprint of their home in hand.

Are there any other personal wishes or matters we should discuss?

This may be the toughest question of all, especially because no one wants to think about what it means. Once again, compassion and understanding are key. You may discover that your parents may have different views from yours, and it is important that those views are expressed ahead of time. While many of these topics will be covered in the will, designation of health care surrogate, and power of attorney documents, it is equally important to have a conversation about their personal wishes. No one wants to face familial disputes over how to take care of a sick parent.

While “the talk” with our parents is not one that we may look forward to, it undeniably needs to take place. Postponing it and any related estate planning can leave our loved ones with issues after death that will be costly to resolve. Today, start thinking about how you will initiate this conversation to help ensure that your parents’ wishes are followed and they are well taken care of in the future.


1. How Far Are Adult Kids Willing to Go to Help Out Aging Parents? Much More Than Parents May Think, According to Fidelity® Study. (2016, June 28). Retrieved July 25, 2017, from

Social Security for Divorcees Wed, 23 Aug 2017 15:55:16 +0000 By Steve Tepper, CFP®, MBA

Spousal benefits are an important part of Social Security, and for many people, those benefits are still available even after divorce.

While rules on spousal benefits for married couples are pretty well known to retirees and those retiring imminently, spousal benefits for divorcees are not as well known.

The spousal rules are pretty straightforward: Once one spouse reaches retirement age (at least age 62) and begins to take benefits, the second spouse can take 50% of the first spouse’s benefit, provided the second spouse is also at least age 62 and the marriage has lasted more than one year.

The determination of whether to take spousal benefits is simple: If 50% of your spouse’s monthly benefit is greater than 100% of your benefit, you should take the spousal benefit. This is particularly useful when one spouse was the “primary” earner and had substantially higher lifetime earnings.

But benefits also are available if the couple divorces. A divorced spouse can still elect to take half of the ex-spouse’s benefits, provided all of the following criteria are met:

  • The marriage must have lasted at least 10 years;
  • The divorce must have occurred at least two years before filing the application for spousal benefits;
  • The ex-spouse electing to take spousal benefits must not be remarried; and
  • Both ex-spouses must have reached retirement age (at least age 62).

Unlike spousal benefits for married couples, it doesn’t matter if the higher-earning spouse has actually elected to begin receiving benefits. As long as he or she has reached age 62, the other spouse can file to receive half of the benefit if it is more than 100% of his or her own amount.

Another important aspect of divorcee benefits is it doesn’t matter if the higher wage earner remarries, only the ex-spouse electing to take spousal benefits. And the ex-spouse’s election does not have any impact on the higher earner’s benefits, or spousal benefits available to the new spouse.

Where it starts to really get fun is when reduced benefits for early retirement are calculated. Remember, if you file for benefits at age 62, you will receive substantially less each month than if you wait until age 66, and you can still increase your monthly benefit by delaying filing until up to age 70 (there are no added benefits for waiting past age 70 to file).

To determine which retirement age option is best, you need to perform a “breakeven analysis,” the sort of things MBAs like me love to do while the rest of the world is doing boring stuff like going out on a date or binge watching Game of Thrones.

For a married couple, electing to take spousal benefits at age 62 will result in 48 payments over four years that would not be received if you wait until age 66. But waiting until age 66 means receiving a monthly benefit that is 30% higher than the age 62 benefit. Using basic assumptions of 3% inflation and 6% growth, the breakeven point is around 20 years. So, bottom line: If you think you’re going to live past age 86, you should delay filing for benefits until age 66. And if, like me, you plan to live forever (as Steven Wright says, “So far, so good”), delay filing until age 70.

But the early benefits reduction isn’t as severe for divorcees filing for spousal benefits, which means the breakeven point is actually about 16 years, or age 82.

There is also a very cool provision in the Social Security Act available to divorcees born January 1, 1954, or earlier, provided they meet all the other spousal benefit eligibility requirements. Under the restricted-application provision, the divorcee can file for spousal benefits at age 66, and then switch to his or her own benefit at age 70. During those four years, his or her own benefit will continue to accrue delayed retirement benefits. In other words, the benefit will be 32% more than it was at age 66, and that could make his or her own benefit more valuable than the age 66 spousal benefit.

Divorcees can file for spousal benefits online at or by visiting a local Social Security office.

Source: Social Security Claiming Strategies for Divorcees by Michael Kitces,, April 21, 2017.
Past performance is no guarantee of future results. There is no guarantee an investment strategy will be successful. Diversification does not eliminate the risk of market loss. Investing risks include loss of principal and fluctuating value. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks.
Advisor Compensation 101 Fri, 04 Aug 2017 21:31:31 +0000 By Steve Tepper, CFP®, MBA

There’s big news in my world: After several months of searching, I have a contract to buy a condo downtown. Without a doubt, my real estate agent’s most important quality throughout this process has been patience! I changed my mind about price range, view, amenities, buying or renting, and many other specifications large and small. When I finally found a property I was interested in, I insisted on reviewing all of the condo association and management financials before making an offer. (Hey, that’s what I do!) And then, just 10 days before my current lease expired, I signed a purchase contract because why not wait till the very last minute?

All this time, through all the other property viewings and failed negotiations, I never paid the agent a dime. And in fact, I never will pay him a dime. Oh, he’ll get paid, but not by me. And yet he worked diligently as my agent, representing me and putting my best interest ahead of his own or the interest of the seller, who will, in the end, be the person paying him for all of his hard work.

As far as compensation goes, much of the financial services industry works the same way as it does in the world of buying real estate. You hire someone to manage your business and to act in agency for you, and you never pay them.

And yet, as our clients well know, we are staunch advocates for a completely different advisor compensation model, the fee-only model in which our clients, and only our clients, pay us for our services. We do not accept payment from any other party.

So how are the two industries different? Why does real estate work so well with a “no-fee” model, while investment management doesn’t? Several reasons:

Large selection: Real estate agents search a comprehensive database called the MLS, or multiple listing service, to find a home that matches your specifications. According to the National Association of Realtors, about 89% of sellers use a real estate agent, which means almost all homes for sale end up listed on the MLS, and almost all home sales will result in a commission paid to the buyer’s agent. So your choices aren’t limited because you aren’t paying your agent.

Similarly, when your financial advisor is compensated by someone else, the advisor will look at only a subset of possible investments—the ones that will pay a commission. But in the financial world, that isn’t 89% of investments. Excluded would be almost all individual stocks and bonds as well as almost all no-load and low-cost mutual funds.

No “hidden” costs: Generally, the only investments that pay your advisor a commission are high in price to the owner of the fund, and most assess penalties if the investment is sold too quickly, which can be anywhere from five to 15 years, or more! Clearly, the “free” investment management offered by a commissioned advisor is not free at all. You’re just paying someone else, and often, you end up paying much more than if you just paid the advisor for their advice and services.

By contrast, there are no fees or commissions that must be recovered by anyone when your real estate agent helps you buy a home. The commission is taken from the payment you make to the seller and divided between the seller’s broker/agent and buyer’s broker/agent. The seller keeps what’s left and has no recourse to recover that commission from you or anyone else later.

Imagine if real estate worked like the financial services industry. The seller would pay your agent a commission, then charge you a fee equal to 1 or 2% of the value of the home each year. Then if you decided to sell the home after three years, they’d charge you a 5% or 7% penalty. Who would buy a house under those terms? Nobody. But that’s how most investors invest their money.

Motivation to get you a low price: Your real estate agent’s primary goal is the same as yours: to help you find a home you like and can afford, and help you through the process of purchasing it. Your agent’s compensation is a function of the value of the home, so there is also an incentive to sell you as expensive a home as possible. However, “overselling” has a potential downside for an agent, and the downside could easily overshadow the added compensation.

Two numbers that agents love to share with you are their “sale price to list price” ratios. One number is how high a selling price they get when they act as the seller’s agent, and the other is how low a price they get when they act as the buyer’s agent. For example, if an agent is helping someone sell a $250,000 home, the agent will try to get that amount, or more if possible. If the sale price ends up being $250,000, they get 100% of the asking price. If they can average 100% or close to it over all of their sales, they’ll probably be able to sign on more sellers than if their number was only 95% or 90% or lower. Makes sense, right?

But most agents represent sellers and buyers in different transactions, and agents don’t want to tell prospective buyers their sales are at 100% of asking price. When an agent acts as the agent for a buyer, they will try to get as low a price as they can to drive down their buyer’s sale-to-list ratio. If you end up paying $240,000 for a home listed at $250,000, that’s a 96% ratio, and the lower the better, both for you and for the agent to attract more potential buyers.

The agent does lose money when they help you get a lower price, but let’s look at how much. In an average transaction, there is a 5–6% commission, split between the seller’s and buyer’s agent. While it doesn’t have to be an even split, it often is. But that half doesn’t all go into the agent’s pocket. Agents work as independent contractors, associated with brokers like Coldwell Banker or Century 21. When the sale is closed, the broker receives the commission and then pays the agent a percentage. That percentage can be 70–80%, or even more; but often, the higher it is, the more “other charges” the broker will charge to the agent.

So to make a short story long, a reliable estimate would be that about 2% of the purchase price ends up as compensation to the buyer’s agent. On a $250,000 sale, that’s $5,000. Now, what happens to the numbers if the agent helps you get the home for $10,000 less, or $240,000? They end up with $4,800. They’re out $200, but that “lost” money bought them a lower sale-to-list ratio. Sounds like a pretty effective marketing expense to me!

There is no similar mechanism in financial services. The more your advisor sells, the more commission they earn. There is no “magic ratio” that they can show to demonstrate they are going to act in your best interest.


In general, your goals are pretty well aligned with your real estate agent’s in a purchase transaction, even though you don’t pay them. That isn’t the case when hiring a financial advisor who is paid on commission.

Special thanks to my real estate agent, Dean Ehrlich of Remax Park Creek, whom I met through a professional networking group—BNI Profit Partners. If you are looking for a trustworthy, hard-working, experienced agent to buy the house of your dreams or sell the house of your nightmares, he has my highest recommendation. You can reach him at

Referrals through a BNI chapter are not done on a “solicitor” basis. No compensation is given from the member receiving a referral to the member generating the referral.

Self-Directed Accounts—Be Careful! Wed, 02 Aug 2017 16:47:34 +0000
By Allen Giese, ChFC®, CLU®

Miami-Dade firefighters: In your 457 deferred comp plan or your FRS investment plan, do you use the self-directed account? If you’re not, are you thinking about it? Then this video might be for you.

Hi. I’m Allen Giese, and our firm, Northstar Financial Planners, helps Miami-Dade firefighters make better decisions with their money. Now for those of you who are wondering what I’m talking about with these self-directed accounts, that’s not a problem. Let me quickly explain.

A self-directed account is an account, usually with a large brokerage firm, that is linked to your core account at your nationwide deferred comp plan or your FRS investment plan. Sometimes these are called SDO accounts (which stands for self-directed option) because you get to decide what investment choices you put in it from the vast array of investments available at the brokerage firm. And, of course, that’s the big advantage of having an SDO—having many more investment choices.

But here’s the other side of that coin: I believe, for most people, an SDO is a great way to get mediocre or even subpar returns, and having all those investment options for most people actually makes matters worse, not better. So why is that?

Well, it really has a lot to do with basic human behavior. Here’s an example: Let’s say I go into a room full of people, and I ask them, “Raise your hand if you think you are a better driver than the average driver.” Now how many hands do you think would go up? Right, virtually everybody believes they are a better-than-average driver, so the majority of the hands will go up, even though in a large room full of people, it’s highly unlikely that most of them are better than average.

Well, we see the same thing with investing. But the truth is, with investing, the average investor just isn’t very good. Take a look at how the average investor actually does compared to what the market is willing to give.

A recent study by DALBAR, a financial research firm, has shown that from January 1st, 1997, until December 31st, 2016—a 20-year span of time—the S&P 500 index (which tracks U.S. large company stocks) went up 7.68%. In this study, DALBAR found that the average equity investor actually only got a return of 4.79%! And the gap in bond markets is even greater. Where DALBAR cited the Bloomberg Barclays US Aggregate Bond index that went up 5.29% over this same time frame, the average fixed income investor only got 0.48%.

So converting that to dollars, had an investor at the beginning of this time frame invested $100,000 and got the S&P 500 return over 20 years, they would have $439,334 at the end. But if they got the average return, they would have ended up with just $254,916. And if they had invested in bonds and got the index return, they would have had $280,188 as compared to only $110,051 with the average investor return.

Now, we believe that most of this difference in return is attributable to bad investor behavior, such as selling stocks after market downturns or emphasizing a strategy that tries to pick good stocks over bad stocks or just thinking they have the ability to time the market and get out before the market drops.

Now, here’s the thing: DALBAR publishes that study every year, and every year we see the same sort of disparity between what the market is willing to give versus what the average investor gets.

So we come across some firefighters that are utilizing SDO accounts because they believe that they’ll be able to pick better stocks or mutual funds from the larger list at the brokerage firm than the funds offered by their deferred comp plan or FRS investment plan. Unfortunately, actual results don’t seem to back this theory up very well.

So beyond these bad behaviors, we believe there’s another major reason having an SDO account can be very dangerous. And that is that we find most investors lack what we believe is the most important component, which is having a proven, time-tested investment strategy. And even if you do have a good strategy, what it really comes down to is how disciplined you are as an investor and how well you stick to it. Don’t have a strategy? Probably that’s your first sign, then, to avoid an SDO account. Probably also a good reason to talk to somebody about developing a strategy.

Want to talk about the right investment strategy for you or how you can utilize your plan better? Give us a call for a second opinion. We’ll talk about where you are now, where you’d like to be, and what the gaps are. Then we’ll evaluate if your current situation has you on track. If it does, we’ll tell you so and recommend you stay the course. If it doesn’t, we’ll show you what you might want to do and evaluate if we’re the right advisor for you. In any case, we think it’ll be worth the call.

Thanks for watching, and stay safe. If you want your own complimentary copy of Retired Battalion Chief Gary Gonzalez’s book that’s all about the intricacies of how to retire from Miami-Dade Fire, give us a call or drop us a line.

Social Media and Our Finances Wed, 26 Jul 2017 18:11:51 +0000 By Mia Kitner

As a millennial myself, I can’t help but be associated with all the positive and negative connotations we hear about our age group. We “live in our phones” and “live in the moment, not thinking about the future” (avocado toast, anyone?). It’s true our phones are more than the mobile devices our parents had. Need to send money to a friend? There is an app for that. Need to see a doctor about that cough you have been meaning to check? A doctor is a video chat away. How about creating a vision board for your kid’s birthday party? You guessed it—it’s possible on our phones. Our lives are full of Instagram posts and live video streams, Facebook posts, Pinterest “pins” (unicorn ice cream sandwich, I see you), and tweets with the latest trends and news. We use social media for much of our communication, and it has inadvertently become intertwined with our lives.

Social media has changed the way we interact with our families, friends, coworkers, and even strangers. From sharing a photo of a recent trip to sending out a tweet about current events, social media has unquestionably changed how we share and stay in touch. While financial advice may not necessarily come to mind as something that we would look up on Facebook or Twitter, it is influencing how we think and act with money.

It’s no secret that social media affects our spending and investing habits. Keeping up with the Joneses and F.O.M.O (fear of missing out) are two expressions that come to mind. As cliché as those expressions may sound, our spending is affected by what we see on social media. According to a survey conducted by the American Institute of CPAs, more than three-quarters of employed millennials mold their financial habits after friends, and two-thirds want to keep pace with what they see (Unger, “Millennials, Money, and Social Media,” 2017). While we may see our neighbor’s new car or European vacation and get a twinge of jealousy that later on makes us book an unplanned trip on a whim, we simply don’t know the facts. We don’t see their credit card bills that may be growing exponentially or perhaps know that that car or vacation had been carefully planned for over a year. The bottom line is that our social media/virtual lives may not always reflect reality.

Think this phenomenon only affects millennials? Think again. While millennials may make up the largest population group of social media users, “high-net-worth adults that are online are using social media for investing purposes at a rate that is higher than the general population,” and “almost two-thirds say that online groups and peer-generated information have an influence over their purchasing behaviors and decisions” (Deringer, “Social Media’s Impact on Financial Decisions,” 2016). The problem with this behavior is that the original source of that trending post is not always verifiable.

Remember the game “telephone” that we used to play as kids? Well, think about social media posts the same way. As of the writing of this sentence, more than 401,955,394 tweets and counting have been sent. At that speed, imagine how much that “hot tip” your BFF just tweeted has changed and how that post influenced you. Did you invest in that stock because of what you read? What happens if a month later you read from another friend that the stock is not doing so well and he’s losing money?

If this sounds like you, you are not alone. According to a survey conducted with LinkedIn, “5 million affluent investors are using social media to make and research financial decisions” (Clark, “Social Media Does Have a Role in Investing,” 2016). Decisions to buy or sell when driven by content on social media could lead us to buy high and sell low. Just remember two things: For starters, don’t trust everything you see on social media. Stocks may respond to variables in the short term, but in the long term, those variables become less significant. Second, social media is not a stock tip gold mine. You’re highly unlikely to triple your account balance overnight based on your friend’s post no matter what your acquaintances may claim.

Making purchases or investing in the market based on social media influences can lead us to make emotional decisions with our money, and money and emotions don’t mix well. One of the hardest parts of managing our money is managing our behavior. While we may be tempted to keep up with our friends and lead lifestyles that may be beyond our means, we must learn to manage our emotions and behaviors. By spending less time on social media, we can see just how rich and fulfilling our lives already are. “Count your blessings,” “live within your means,” and “prioritize your goals” are a few things we can all do to help us break the habit. Don’t get me wrong—it’s OK to have wants and dreams. We all do. But we must learn to prioritize them and not deviate from the plan.

As we learn to not act based on what we read on social media, we may make fiscally responsible decisions that help us feel more secure in the long run. Creating the life of our dreams takes time, and for many of us, a part of that includes saving for retirement. Taking a less fancy vacation may just help you grow your retirement or emergency fund and get closer to achieving your goals. Just check your sources if you are a DIYer, or speak to a financial professional that can help you if you are not. And if your neighbor recently acquired a brand-new car, congratulate him or her—perhaps even ask to go for a drive. After all, they say that experiences are what truly make us happy.


  • Deringer, J. (2016, November 07). Social Media’s Impact on Financial Decisions. Retrieved June 14, 2017, from
  • Clark, J. (2016, October 24). Social Media Does Have a Role in Investing. Retrieved June 14, 2017, from
  • Unger, J. (2017, May 30). Millennials, Money, and Social Media. Retrieved June 14, 2017, from