Congress Pushes Us to the Cliff's Edge

Well, here we are on December 31 and there’s still no deal on Capitol Hill to avoid the Fiscal Cliff. Negotiations on Sunday had Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell holding closed-door meetings. Their goal was to reach a compromise by mid-day, but they fell short, even as Vice president Joe Biden joined in.

Senator Reid announced the Senate would meet again Monday, December 31, at 11:00 AM, noting that “Although there is still significant distance between the two sides, there is still time left to reach an agreement.”

A major point of contention remains individual income-tax rates. President Obama has called for raising taxes on family income above $250,000. In the latest round of Senate talks, Republicans proposed a $550,000 threshold, which Democrats moved to $450,000.

Bitter disagreement on tax increases extends to how the money raised should be spent. Republicans want any tax increase, which they have reluctantly accepted, to go toward reducing the deficit. Democrats want any increased tax revenue to offset spending cuts that are scheduled to kick in as part of the fiscal cliff, and to pay for extending unemployment benefits.

Of course, with this much distance between the two parties on tax rates, there’s little hope of getting any resolution on the estate tax this year.

In the absence of a bipartisan deal later today, Senator Reid has said he will ask for a vote on a bill to carry out President Obama's backup proposal, which addresses only a few items on the long list of tax sunsets and budget cuts. Most significantly, the bill includes extending current tax rates for incomes up to $250,000 for couples filing jointly. Democrats say they could pass the bill through the Senate. However, it’s questionable whether the Republican controlled House would approve it.

We’ll know the outcome in just a few hours. As all the political rhetoric and posturing on the Hill continues, I think Senate Chaplain Barry Black’s opening prayer for last weekend’s session accurately describes the desperate situation our elected leaders have put us in. “We gather this weekend with so much work left undone,”  he said. “Look with favor on our nation and save us from self inflicted wounds.”

I will address this once again in the New Year.  In the meantime, my wish to you is that you will have happiness, good health and prosperity in the New Year!  Happy New Year!

A Way to Honor the Precious Lives Lost

“When we meet real tragedy in life, we can react in two ways -- either by losing hope and falling into self-destructive habits, or by using the challenge to find our inner strength.” That inspiring thought comes from the Dalai Lama and it is certainly applicable in the wake of the unfathomable tragedy in Newtown, Connecticut. Last Friday, as the nation came together to reflect in a moment of silence and ring church bells 26 times to honor the lives lost at Sandy Hook Elementary School,  the “26 Acts of Kindness” campaign was gaining steam. The idea’s as simple as it is cathartic -- commit to performing one act of generosity for each of the victims lost at Sandy Hook, and share the results.

NBC journalist Ann Curry, who tweeted about her 20 acts of kindness in honor of the child victims, is leading the charge.  “Right now, this country wants to heal,” she wrote in a blog post. “I think the only thing comforting in the face of a tragedy like this is to do something good with it if you can. Be a part of that wave.”

The idea, which invites everyone to carry out acts of kindness has evolved into a viral effort known as 26 Acts of Kindness on Facebook and #26Acts and #20Acts on Twitter.

The Facebook page was started on the day of the tragedy Warren Tidwell, a 34-year-old auto parts salesman. He posted a photo of his first act, giving a box of chocolates to a woman at his local supermarket in Auburn, Alabama. His note read, “To honor the 26 taken from us at Sandy Hook we are doing 26 acts of kindness. You are #1.”  Later, he and his four-year old son donated toys to the local firemen's Toys for Tots drive.

“I felt empowered, instead of the helplessness, hurt, and fear,” Tidwell said in an interview with NBC. “I can put the good back in the world that was taken from it.”

Students nationwide, struggling to understand the tragedy and to feel safe in their own schools, spent the days before their holiday vacation trying to do just that. They gathered Christmas gifts for underprivileged kids, collected canned goods for local food banks, acknowledged their own teachers, and created artwork to send to the new Sandy Hook School. All of these efforts are helping our nation to hold on to hope and to heal.

As Ann Curry asks at #26 Acts on Twitter, “An act of kindness, big or small. Are you in?

It's Christmas time.  Give charity, spread some smiles and bring cheer to hearts!

Know How Your Advisor Gets Paid

Know what you are paying for; and know how your advisor gets paid.

Amazingly, studies continue to show that many clients of financial advisors have no idea how they pay for the financial advice they receive. That’s certainly not how we transact with our doctors, lawyers, or contractors, so why is it true in the financial services industry? The root of the confusion could be that financial advisors use so many different compensation models.

To set things straight, it’s first necessary to divide the advising world into three camps.  First, there are advisors who earn their living by commission and therefore may have an incentive to sell you particular products.  Second, there are fee-only financial advisors like Bernhardt Wealth Management that charge clients a percentage of assets under management and operate as fiduciaries who always put the needs of clients first.  And third, there are advisors who utilize fee-based accounts but can also earn commissions on other products they sell.

Calculating fees as a percentage of the assets we manage enables us to operate on a relationship basis, rather than a transactional basis. That is, we get to know each client so that we thoroughly understand their values and goals. We then develop a long-range investment strategy that is true to those values and goals, and systematically review portfolios to ensure our clients stay on course as their circumstances and the markets change.

Further, we seek to add value for clients on a range of financial issues, well beyond managing an investment portfolio. Our fee encompasses a broad suite of personalized services, including tax planning, college planning, insurance planning, retirement planning, estate planning and philanthropic planning.

In all aspects of our relationships, we are motivated by one goal: Do what’s right for each and every client. Our clients know what they pay for our advice and that we will always recommend the course of action that is in their bests interests.

(Note: For a discussion of the six core characteristics--Six Cs--an advisor should have, read What Makes a Great Financial Advisor? and the Six Cs blogs on this topic.)

Retail Investors, Out of Sync and Stymied by Choices

When State Street's Applied Center for Research recently asked retail investors what steps they needed to take over the next ten years to prepare for retirement, the number one response (40 percent) was to become “more aggressive.” However, when they analyzed the respondents’ portfolios, they found that cash was the number one allocation, at an average of 31 percent. More alarming, when asked to project their allocation 10 years into the future, respondents still chose cash as the dominant asset class. Clearly, these allocations seem out of sync with the stated long-term goal of becoming more aggressive. So what gives, especially as nearly two-thirds of these retail investors rated their current level of financial sophistication as advanced?

It could be that too many investment choices have resulted in cash paralysis. According to the 2012 MFS Investing Sentiment Survey, 40 percent of investors think investment products are “overly complex,” and 34 percent feel “over-whelmed” by the investment choices available.

Psychologist Barry Schwartz has demonstrated that too much choice leads to reduced happiness and a feeling of missed opportunities. As he writes in The Paradox of Choice, “Choice no longer liberates, but debilitates. It might even be said to tyrannize . . . the fact that some choice is good doesn’t necessarily mean that more choice is better.” And in Pension Design and Structure: New Lessons from Behavioral Finance, Sheena Sethi-Iyengar, Gur Huberman and Wei Jiang highlight reported that participation rates in company retirement plans decrease between 1.5 and 2.0 percentage points per every additional 10 mutual funds offered.

The paralyzing effect of too many choices was illustrated again when researchers conducted an experiment in a California grocery store involving a display of jams. In the first test, they featured 24 different jams to taste; on another day they displayed just six. The results? Although more shoppers stopped at the display of 24 jams, just 3 percent made a purchase. And while fewer shoppers stopped to sample at the table of six jams, 30 percent purchased a jar.

Investing doesn’t have to be an overwhelming shopping experience. Working with a trusted advisor, your personal shopper, can narrow your choices and align your investments with your risk tolerance and financial objectives to ensure you meet your short- and long-term goals.

Protecting Your Accounts from Thieves

Did you see USA Today's report where a would-be thief tried to dupe a financial advisor into making a withdrawal from a client’s account? The impersonating e-mail carried instructions to wire $15,850 into an account at PNC Bank and was worded in a casual style similar to old e-mails the financial advisor had received from his executive client. Luckily, the advisor phoned his client and the fraudulent request was exposed.

Red flags we watch for were part of this attempted theft – a balance inquiry via e-mail followed by an unexpected disbursement request via e-mail and the “client” offering excuses for not being able to talk on the phone.

Obviously knowing our clients’ voices and their spending patterns also deters theft. And because as TD Ameritrade cautions, “Fraudsters prey on our natural service instincts,” we carefully review all requests for funds.

What can you do to help us? The FDIC offers these tips:

• Ensure your transactions are encrypted. Encryption is the process of scrambling private information to prevent unauthorized access. To show that your transmission is encrypted, some browsers display a small icon on your screen that looks like a "lock" or a "key" whenever you conduct secure transactions online. Avoid sending sensitive information, such as account numbers, through unsecured e-mail.
• Choose your passwords carefully. Your password should be unique to you and you should change it regularly. Do not use birthdates or other numbers or words that may be easy for others to guess.
• Protect your personal computer with virus protection. Contact your hardware and software suppliers or Internet service provider to ensure you have the latest in security updates.