Tapping in to Great Minds, Good Food

By John S. Davis, CFP

One of the greatest challenges of this business is keeping up with the latest wealth management strategies. It’s one of the great pleasures too, because it allows me to get out of the office, collaborate with my colleagues from around the country and learn new ways to help clients.

I just returned from the annual conference of the National Association of Personal Financial Advisers (NAPFA), the fee-only financial planning industry organization. The conference always offers scores of educational opportunities in an interesting venue (Salt Lake City this year) – and way too much food! We also have access to some of the great minds in the industry, from academics to mutual fund managers.

Here is a brief synopsis of what’s new in the wealth-management business:

Technology – Advisers are turning to the cloud. Improvements in internet security and falling prices for computer storage space are spurring movement of documents online, where they can be accessed from any location. The trend is making it unnecessary to perform data backups or to maintain expensive hardware onsite.

Trusts – Wyoming is one of the most trust-friendly states in the country. A settlor of a Wyoming irrevocable trust can be a beneficiary and may appoint or remove a trustee, yet still protect assets from the claims of creditors. The state has no income tax (it’s a big producer of oil, natural gas and wind energy), and it has efficient, responsive and friendly legislature and courts.

Student loans – This is a really big issue today. Think twice before consolidating a government loan with a private lender: You may lose some valuable benefits. Payment reduction, which was the main benefit of consolidating in the past, is no longer valid, as government plans allow the most affordable payment schedules.

Regulation – A culture of compliance exists at Mentor Capital. This means that we are continuously aware of how what we do and say fits in with financial regulation. One regulation about which we’ve been diligent is a ban on the use of testimonials, or using positive statements about us by our clients. While it is OK for clients to make such statements, we can’t use them in our marketing or advertising materials. Facebook “likes” and LinkedIn endorsements are considered to be testimonials, so we have turned off those functions on our Facebook and LinkedIn pages.

Investing – What do investors really want? It’s not just money, according to Meir Statman, professor of finance at Santa Clara University. Investors also want expressive benefits (“I am much smarter than mediocre index-fund investors”) and emotional benefits (“I love the exhilaration of winning”) from their investments. Therefore individuals behave in ways that are not always in their best interests financially. They look for evidence that confirms their claims and beliefs and reject evidence that contradicts them. Successful investors look for confirming evidence as well as disconfirming evidence in their investment strategies.

Health insurance – No financial planning conference would be complete without and address from an expert on the Affordable Care Act (Obamacare). Rick Mayes worked on Medicaid policy in the White House for George H.W. Bush and is now an associate professor in the University of Richmond’s department of political science. He said that consolidation of physicians’ practices into Accountable Care Organizations (ACOs), medical homes and multi-specialty health systems may result in elimination of insurance companies. Consumers would pay directly to an ACO, which would manage the full range of their healthcare needs.

Income taxes – With creation of the net investment income tax (Obamatax), we now have three federal income tax systems: The regular tax (Form 1040), the AMT (Form 6251) and the NIIT (Form 8960). Why not go for a home run and create a fourth?