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CHICAGO (Profitable.com) In the wake of the Great Recession, significant losses to retirement nest eggs have many investors questioning their long-term financial security. According to John Brackett, partner of San Francisco-based BAR Financial, LLC, when re-evaluating finances uncovers worries, many people rightly seek the help of a trusted financial advisor to help prioritize conflicting needs, set realistic goals, and develop a plan to achieve them. “As you search for financial help, rather than focus on how the advisor gets paid or his or her professional designations, it’s most important to look for someone who is committed and qualified to serve as your Personal Chief Financial Officer,” says Brackett. “A personal CFO will put your needs first and serve you with the high energy, can-do attitude of someone who is genuinely interested in your success and able to help you make sound financial decisions throughout your life.”
Today’s transitioning market requires a unique combination of skill, training and resources to ensure proper preparation for the future. Brackett and Dave Hubbard, president of Chicago-based Exemplar Financial Network have developed six areas in which a good Personal Chief Financial Officer should provide the kind of assistance needed to navigate a range of timely issues.
1. Managing Risk
In the current market, many investors have shifted from chasing returns to preserving assets. “Because a properly diversified portfolio is the best defense against market volatility, as a Personal CFO, we ensure assets are spread among stocks (large- and small-cap, growth and value, domestic and international) as well as bonds and cash according to your goals, risk tolerance and time horizon,” says Hubbard. “Combining asset classes that historically have responded differently to market conditions is the best way to temper total portfolio risk.”
2. Tax Law Changes
Recently, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the Bush tax brackets, with a top rate of 35 percent for 2011 and 2012. The Act also retained the 15 percent maximum tax on qualified dividends and long-term capital gains. “A good Personal CFO will not only keep abreast of the most recent tax law changes but can help an investor understand how those changes could affect him or her,” says Brackett. “For instance, with the two-year extension of these historically low tax rates, taking portfolio gains is not urgent.” But Brackett says that it’s always important to harvest portfolio losses to offset current—and future—gains.
3. Estate Planning
After an unprecedented one-year estate tax hiatus, the federal estate tax has been reinstated at a maximum rate of 35 percent for 2010 and 2011, with estates up to $5 million ($10 million for couples) exempt from taxes. The new law also retroactively reinstates an estate tax for 2010 at the rate of 35 percent. However, Hubbard wants to remind investors that the government allows executors of estates of decedents who died in 2010 a choice. “You can distribute assets to heirs estate-tax-free but with a carryover basis (generally the original purchase price), or step up the basis to the market value (generally at time of death) and pay the current 35 percent rate on assets above the $5 million exemption,” he says.
4. Capitalizing on Opportunities
“Sometimes the finest print in new tax law creates the greatest opportunity,” says Brackett. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 grants employees and self-employed workers a reduction of two percentage points in Social Security payroll tax in 2011. The rate falls from 6.2 percent to 4.2 percent for employees and from 12.4 percent to 10.4 percent for the self-employed, amounting to an extra $800 for someone earning $40,000 a year. Brackett advises that investors should resist the urge to blow this “found” money. Instead he advises funding an IRA or increasing the 401(k) contribution’s tax deferred growth in order to compound the benefit.
5. Managing Distributions
“Four percent is often offered as the standard answer to the question of how much you can safely withdraw from your portfolio each year in retirement,” says Brackett. “However, just as one-size-fits-all doesn’t work when you are shopping for a suit, a personal CFO should tailor your retirement withdrawal according to your portfolio’s size, your risk tolerance and your lifestyle and life expectancy.” He goes on to advise that determining from which account to draw first is part art and part science and cautions that although hardship distribution provisions from a 401(k) are rarely discussed, in the last few years there has been an increase in requests for hardship distributions. “Perhaps this is because many homeowners can no longer tap into the equity in their homes, but whatever the reason, plans differ on the rules for hardship distributions and under exactly what qualifies as a ‘hardship.'” As an example, he says that some plans may permit distributions to pay for medical expenses, but not to purchase a home.
6. Building a Team
A personal CFO is someone who will work with an investor’s CPA, estate planning attorney, insurance professionals and bankers to manage wealth accumulation, preservation and transfer. While using multiple advisors affords a broad expertise, a lack of routine communication between all parties can result in a variety of problems. “An undiscovered overlap in large-cap stock funds between your 401(k) and other investment accounts could leave you over-exposed to equities, or an unfunded trust could foil your estate planning goals,” says Hubbard. “In a quarterback role, the personal CFO keeps important financial matters that you might tend to place on the backburner front and center and with everyone on the same page. I think if a consumer really wants to get ahead and achieve their goals, they need a financial quarterback.”
About Exemplar Financial Network
Exemplar Financial Network is an independent financial services firm committed to helping their clients improve their long-term financial success by delivering a high level of personalized service. Exemplar’s signature 4-step comprehensive analysis and solutions process drives a conservative approach to protecting assets by managing risk. The company’s founder and president, Dave Hubbard has been serving clients as a financial advisor for over 30 years. He has received numerous awards and recognition including OnWallStreet magazine’s Top Ten Branch Managers of the Year (2008) and Top 100 Branch Managers of the Year (2009 & 2010). Learn more at www.Exemplarfn.com or by calling (815) 459-4550. 350 Congress Parkway, Suite C, Crystal Lake, IL 60014.
BAR Financial, LLC
John Brackett is one of three partners of BAR Financial, LLC, an independently owned financial services firm focused on delivering cutting edge knowledge, resources and solutions to independent financial advisors and financial institutions throughout the nation. BAR Financial is one of the largest regions of the Financial Network Corporation with approximately 400 representatives and several large, employee operated OSJ offices across the country. Learn more at www.BARfinancial.net or by calling (925) 944-9644. 3478 Buskirk Avenue, Suite 300 – Pleasant Hill, CA 94523.
Securities and investment advisory services offered through Financial Network Investment Corporation, Member SIPC. BAR Financial, LLC and Exemplar Financial Network are not affiliated with Financial Network Investment Corporation.
Financial Network nor their representatives provide tax advice. You may wish to consult your tax professional regarding your individual circumstances.