Category : investing

The Fiduciary Rule and Financial Technology

It didn’t take the DOL ruling (“Final Rule”) or a report by Cerulli Associates for blooom co-founders, Chris Costello and Kevin Conard, to understand that more than 70% of investors are missing out on access to much needed investment advice. According to reporting in WealthManagement.com the new Cerulli Associates report indicates that approximately 90 million households in the U.S. have less than $100,000 in investable assets (approximately 70% of investors), which is a threshold some advisors are using to judge applicable clients.

The robo-advisor space has been able to demonstrate that technology not only provides the ability to scale professional financial advice, but also the ability to do so at the fiduciary level. In a recent Time Op-Ed piece, The Retirement Risk We All Share, blooom’s president, Greg Smith, explained that presently, in a world where pensions are gone and the future of social security is an enigma, too much is riding on employer-sponsored accounts not to implement a fiduciary standard around their management. Pointedly, he states, “[i]n a world where we are left to fend for ourselves in retirement, the stakes are too high not to at least make sure that someone is legally obligated to tell you the right thing to do.” And robo-advisors are positioning themselves to be exactly that “someone”.

And yet, some in the industry continue to suggest that a “robo” cannot replace that “someone” and therefore, will ultimately fail. The key to success with the so-called robo provider is speaking in a language the average investor can understand and making available direct lines of communication with the client. Investors, at all asset levels, want to know their best interests are put first and that there is a trusted source taking care of their nest egg.

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Class of 2016 – Change the world, but try this first!

Change the world. Find your passion. Make a difference. The number of cliché phrases used as words of advice in commencement speeches would provide for a pretty great drinking game…which I’m sure already exists (à la, drink every time you hear a cliché). The truth is that yes, all of those encouraging words are inspiring, but there is no actionable first step for a graduate to take to accomplish those things. Life is complicated and there are far too many words of advice to fit into a blog post.

One of the areas in a graduate’s life that can be the most confusing is finances. So while we can’t help you or your grad “reach for the stars” or find the “road to success” on a map, here are some quick tips to help 2016 grads get started on the right path financially.

Tackle debt head on

There is no greater financial burden to a graduate in 2016 than their student loans and credit cards. The average graduate this year will owe about $35,000 in student loans and $3,000 in credit card debt. Get those credit cards paid off as quickly as possible using Dave Ramsey’s snowball method, and then start making extra payments to those student loans. Get it all out of your life as fast as you possibly can!

Don’t fixate on salary

Understand that a job is about far more than salary, especially in 2016. Now that millennials have become the largest generational group in the workforce, employers are changing the way they approach culture and benefits. Healthcare costs are rising and an employer that offers a Health Savings Account (HSA) with their group plan should really grab your attention. Financial wellness is huge for young workers as well and voluntary benefits that help workers with their financial lives are worth far more than you may realize right now. Consider voluntary benefits and salary as just two pieces of an overall compensation package. And of course, don’t expect to find that perfect job right out of school. It takes time and different experiences to really find what you love. Don’t beat yourself up if you haven’t found your passion by 25.

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This is your brain. This is your brain on investing.

That, folks, is a human brain and in it resides why most of us struggle with investing. See that red section? That is the amygdala. It works the same for everyone – it is not influenced by a college degree, yoga or IQ. And most importantly, it does not discriminate.

So what does it do? It controls the emotions of freeze, fight or flight. This area of our brain gives us a fantastic biological advantage; it’s kept the human species going and going (e.g., fire hurts, bears will eat you, and steer clear of beehives). You get the point.

However, when it comes to investing…the amygdala is your worst nightmare. Why? Because you can’t just turn it off. The very thing that keeps us alive in the face of danger also triggers when other scary moments arrive at our doorstep. Oh, say…investing…or more so, when investments drop in value.

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Don’t Sacrifice Your Future

Don’t sacrifice your future: retirement vs children’s education

Every parent, at some point, has made a decision to put their children’s needs ahead of their own. Starting from the moment your child becomes a part of your family, you’re putting aside your need for sleep, to feed and comfort your tiny bundle of joy…Every. Two. Hours.

And, this continues throughout parenthood with decisions to miss that once-in-a lifetime concert because your little one has a fever or to buy the minivan over the sweet two-seater you’ve absolutely fallen in love with. We make these “sacrifices” without regret because we love our children unconditionally.

There is one decision, however, where your children’s needs should not supersede your own…that’s the decision between saving for your retirement or saving for your children’s education. For many the decision normally comes down to which one to save for, not how much to save for both. When you’re pressed with making a choice between the two – your children’s future or your own future – placing yourself first will give your family a long-term benefit.

In a 2016 Parents, Kids and Money survey conducted by T. Rowe Price, more respondents had saved for their children’s college than saving for their own retirement. And, in this same study 16 percent of those questioned indicated they used their retirement savings to pay for their children’s education.

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The “F” Word in the Financial Industry

What is this whole fiduciary thing and why is it important?
Overhear the word “fiduciary” from across the room and you might think someone’s throwing around off-color insults. The Urban Dictionary definition isn’t exactly a term of endearment, but the real meaning with regard to your finances is pretty simple: A fiduciary is someone that is working for YOU and puts YOUR best interests ahead of their own (or their firm’s), at all times.

Believe it or not, this is not a requirement for the vast majority of the big brand name institutions in the financial services industry. Nearly anyone can call themselves a financial advisor in some form or another, but that doesn’t mean the “advice” they are providing is anything but conflicted. And what does this mean to you? It means money in the form of fees going into your advisor’s pocket instead of your portfolio.

You may have heard about the latest update to the fiduciary rule, released last week by the Department of Labor (“DOL”). It’s been anticipated for quite some time now and has had most of the industry pretty freaked out that they may have to change their entire business to start acting in their clients’ best interests. For Registered Investment Advisor firms like blooom, which always has been and always will be a fiduciary, a stricter standard on the industry as a whole was something we were pretty excited about. After all, one of the reasons our founders created blooom was to disrupt the industry and shine a light on the largely ignored segment of our population that truly needs non-conflicted advice from someone they can actually trust.

Good or bad, the end result of the new DOL rule thus far has left the non-fiduciary side of the industry breathing a huge sigh of relief, and even popping champagne I would imagine, since the rule is not nearly as strict and comprehensive as originally intended. But regardless of the impact the new 1,000+ page rule (yawn) will or won’t have on the industry and you personally, the good news is that all of this shines a bright light on a pretty important problem and a question that every investor must ask before trusting any professional with their hard earned money – How do I know my advisor is truly looking out for me and my family?

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