What Makes a Great Financial Advisor?

I have a one-word answer to that question: An advisor must be trustworthy.

The Dodd-Frank Act, passed two years ago this July, was intended to increase the integrity of the financial services industry. Yet, in the last few months, we’ve read about J.P. Morgan’s $6 billion loss as a result of the “London Whale” trades, The New York Times’ expose on J.P. Morgan’s campaign to push high-priced proprietary products, and Barclays’ problem with their manipulation of LIBOR. Given these recent events, it didn’t surprise me to read an article on AdvisorOne that reported that the law firm Labaton Sucharow’s survey of 500 senior executives in the United States and England found that 24% of the respondents believe financial services professionals need to engage in unethical or illegal conduct in order to be successful.

So, with so much distrust, how do you find an advisor you can trust? Working with an advisor you can trust begins with finding a fiduciary, someone like me, who always puts your needs first. In my mind, serving as a fiduciary means possessing and upholding six core characteristics—the “Six Cs” – which I’ll cover individually in future posts.

My first C is Character. An advisor with character acts with complete integrity, loyalty, and transparency and avoids all conflicts of interest to put you first in all situations. An advisor with character provides objective guidance and sits on the same side of the table as his clients, 100% committed to putting their interests first. Character is the most essential relationship building block. It serves as the foundation on which we build a trusting bond that serves as foundation of a productive and collaborative relationship.

As Theodore Roosevelt said, “In the long run, character is the decisive factor in the life of an individual and of nations alike.”And, as the debate over regulating a universal fiduciary standard continues, the observation of Alan Greenspan, past chairman of the U.S. Federal Reserve Board, holds particular weight, “But rules cannot substitute for character.”

(Note:  You can read the a summary of the other "Six Cs" in our August 2012 article on our website.)

Tick, Tock on Estate Planning Opportunity

One of life’s certainties -- taxes -- is a little less certain in 2012. It’s increasingly unlikely Congress will address the expiring Bush tax cuts before the November elections. Instead, the debate will be left to a lame-duck Congress, or even pushed into 2013. That’s not great timing for tax planning.

As investors focus on whether to accelerate portfolio gains due to scheduled increases to income and capital taxes, they may be overlooking a small window of opportunity in the estate planning arena. If Congress fails to act before the end of the year, today’s high gift tax exemption levels and low estate tax rates will expire on January 1, 2013. And when the federal gift tax exemption and estate tax revert to 2001 levels, the change will be significant.

For 2012, both the estate tax and lifetime gift tax exemption are $5,120,000 per person and $10,240,000 per couple, with a 35% top tax rate. Beginning in 2013, however, unless new legislation is enacted, the exemptions will drop to $1 million per person ($2 million per couple) and the top tax rate will increase to 55%.

If you're single and have a taxable estate worth more than $1 million, or if you're married with a taxable estate worth more than $2 million, now’s the time to think about the implications of these new taxes on your estate. Making immediate outright gifts is probably the easiest way to get money out of your estate in advance of these changes, but you might also talk with your attorney about a grantor retained annuity trust (GRAT), a qualified personal residence trust (QPRT), or gifting into an irrevocable trust.

Remember, in order to use the higher exemption, your gifts must be completed by December 31, 2012. It is important to note, too, that as the market continues to recover, it may be that getting all future appreciation of the gifted assets out of your estate may be an additional benefit of this strategy. While it’s impossible to predict how a new Congress will deal with estate tax reform (Remember when they let the estate tax expire all together in 2010?), this is a valuable estate planning opportunity that is available today.

How Many of Covey’s 7 Habits Do You Practice?

Dr. Stephen R. Covey passed away last month at the age of 79 from complications of an April bicycling accident tin Provo, Utah. As you undoubtedly know, Covey was the author of the epically successful The 7 Habits of Highly Effective People. The groundbreaking book was published in 1989 and has sold more than 25 million copies in 38 languages. In Covey’s honor, I thought it might be worth reviewing his 7 habits here:

• Habit 1: Be Proactive
• Habit 2: Begin with the End in Mind
• Habit 3: Put First Things First
• Habit 4: Think Win-Win
• Habit 5: Seek First to Understand, Then to be Understood
• Habit 6: Synergize
• Habit 7: Sharpen the Saw

Remember that much of this language was new in 1989, leading 7 Habits to be one of the most influential management books of all time. One of the world's foremost leadership authorities, Covey also published Principle-Centered Leadership and The 8th Habit: From Effectiveness to Greatness. Additionally, he founded Covey Leadership Center, which later merged with Franklin Quest to create FranklinCovey Co., a “global consulting and training leader in the areas of strategy execution, leadership, customer loyalty, sales performance, school transformation and individual effectiveness," with 44 offices in 147 countries, according to the company’s website.

At Covey’s passing, Utah Gov. Gary Herbert commented, “His combination of intellect and empathy made him a truly unique and visionary individual. The skills he taught, and importantly, the personal example provided by the life he led, will continue to bless the lives of many.”

Clearly, the universal applicability of Covey’s rules is what has made 7 Habits so useful, but it’s striking how many of his tenets apply directly to financial planning. Be proactive. Begin with the end in mind…

Olympic Thinking - Try It On for Size

The 2012 Summer Olympics in London have certainly been inspirational – even prompting a London man to attempt to swim across the Atlantic Ocean! I recently read a piece “Olympic Like Thinking, Olympic Size Producing” where Bill Bachrach, one of the financial services industry’s leading authorities on building high-trust client relationships, encourages what he calls “Olympic Thinking,” or the adoption of high standards in our personal and professional life.  He listed five characteristics of "Olympic Thinkers" and it made me reflect that many of the business owners and C-Suite executives I have interviewed have these characteristics.  The five characteristics Bill cited were:

• Olympic Thinkers Take Risks
• Olympic Thinkers Don't Make Excuses
• Olympic Thinkers Tend to be Perfectionists
• Olympic Thinkers Have High Standards
• Olympic Thinkers Seek Feedback

Bill notes that raising your own standards involves a level of risk-taking to improve your performance and writes, “In our business and personal lives we can’t play it safe and expect to achieve our highest levels of success. Fortunately, the risks are seldom as bad as we imagine and the rewards are often greater than we expect. If the primary motivation behind your decisions is to avoid unlikely worst-case scenarios, your options will be severely restricted. Olympic thinkers take risks and don’t permit the remote possibility of a negative outcome to overshadow the probable positive results.”

Adding that Olympic thinkers focus on results, don’t make excuses for poor performance, and tend to seek perfection, Bill also has some interesting insights as to the benefits of working as an Olympic team. Rather than letting one another off the hook for sub-par efforts, he writes, “People with high standards truly support one another with encouragement to take their endeavors to the highest levels possible.” That’s how I think of our relationships, two team members with high standards, dedicated to working together to achieve your goals.

Bill closes his three-part article with this observation ,“Feedback serves as the measurement system for improvement. Feedback sets the benchmarks for achieving the high standards you have set for yourself. Feedback, not Wheaties, is the true breakfast of champions.”

As always, I invite you to let me know how you think we are doing.