Fiduciaries: What They Are and Why They Matter

Fiduciaries

Have you heard the term “fiduciary” before? It’s may not be a term you use every day, but it’s extremely important to understand when it comes to your financial situation.

If you have a financial advisor managing your assets, you’ll want them acting as your fiduciary. Here’s why.

What Is a Fiduciary?

Fiduciary means “involving trust,” and someone acting as a fiduciary has undertaken the responsibility to provide the highest standard of service for their clients. That means fiduciaries eliminate conflicts of interests and put the needs of their clients above everything else.

Trained, certified, and educated professionals act as fiduciaries for average individuals in a number of fields, including finance. They have highly specialized knowledge that isn’t common across a general population, and as such they can make the right, informed decision about complicated issues where other people may not have the knowledge to do so successfully.

That’s why it’s important your financial advisor acts as your fiduciary. A professional who takes a fiduciary oath swears to act in your best interests at all times. Having a financial advisor act as your fiduciary ensures that your needs are put first.

Why It’s Important that Professionals Work as Fiduciaries

If you’re worried about a financial advisor being motivated to recommend certain products because they make a commission on them, then having a fiduciary can erase that worry. Since they are committed to your financial well-being, they will only recommend products they truly believe will work in your favor.

This also means they won’t try to push you to buy certain financial products that you don’t need or don’t make sense for your situation.

Essentially, your fiduciary will be biased toward helping you. If you ask for their opinion on two different products, they should be able to explain the benefits and drawbacks of each, and then explain their reasoning for picking one over the other in your particular case.

Having this trust also makes it easier to form a relationship with your advisor. If you ever need to consult with them on your financial goals, you can do so without the worry that they’re only out for themselves.

Their number-one goal should always be to build and preserve your wealth to the best of their ability.

Finding a Fiduciary You Can Trust

As you want your relationship with your fiduciary to be based off of trust and respect, it’s important that you find an advisor willing to answer all of your questions. They should be transparent about their practices and the products that they sell (if any).

Do your due diligence in researching advisors, and be aware of the different ways advisors get paid. A fee-only structure further ensures that advisors only get paid what you pay them — they don’t earn commissions off what their clients do.

However, if an advisor is fee-based, then they can charge a flat fee or get paid via commission. Ask your advisor about their fee structure and make sure it’s going to benefit you. There shouldn’t be any hidden fees.

And don’t be afraid to ask an advisor, “Are you a fiduciary?” or “Would you be willing to sign a fiduciary oath before working with me?” If they refuse to act as your fiduciary, it may be in your best interest to look for a different financial professional to have on your side.

Fiduciaries take their oaths extremely seriously and won’t jeopardize your finances for their own gain. Being able to trust your advisor with your assets will go a long way toward giving you peace of mind when it comes to your portfolio.

Should You Rent or Buy?

Rent or Buy

This week, The Money Guy Show hit the road! Brian visited with Bo up in Nashville, Tennessee and the guys kicked off the show by providing a great update on The Big Give.

When your Money Guys got down to business for this episode, the focus was on home ownership. They took a look at both sides of the “should you rent or buy” argument and discussed the pros and cons of each. Before jumping into the details, however, they went over a few things that could affect your view and place you on one side of this debate or the other.

Your age, your experience, and the way you view your money and your long-term goals can all impact whether you think it’s better to rent or buy. Brian and Bo got two big things straight right away, for everyone: there’s no one right answer for everyone’s situation, and you shouldn’t do anything that you can’t afford over the long term.

The Emotional Pull of Home Ownership

Brian explained that many of the decisions that go into home ownership are emotional ones. It’s extremely exciting to own your very own place, and that feeling of ownership isn’t something you get when you rent.

You also build strong memories that will last a lifetime when you buy a home and live in it for years. Each home you own becomes part of the fabric of your life, and that’s very meaningful for many people.

But there are downsides that the guys acknowledged. The most obvious: your costs often rise when you’re a homeowner, and home ownership can put more demand on your finances than some rental situations.

The Logical Argument for Renting

Bo expressed that he wasn’t so sure about the decision to buy over renting, and he explained some of the advantages to choosing to rent instead of purchase a home. At the top of the list: flexibility.

Renting allows you much more flexibility to change your living situation as you need to, whether it’s because of a change in your career, your finances, or because you simply wanted to move to a new location. When you buy a home, that’s not only a huge financial commitment. It’s a huge time commitment, too, as you should plan to live in the home for 5 to 7 years after purchase.

Whether it’s a good investment or a bad investment, real estate is always an illiquid investment that very few people can move quickly for a profit.

Bo also pointed out that renting means extremely low maintenance. Whenever anything goes awry, your landlord or property management company is just a phone call away. When you own a home, there’s no one to call — you (and your wallet) need to deal with maintenance and repairs yourself.

Financial Upsides to Home Ownership

Brian countered Bo’s points with a few logical ones of his own. He explained that there are a number of financial benefits to buying a home if you finances can get you into one, including:

  • Tax advantages (like tax write offs and capital gains exemptions)
  • The historic lows of mortgage interest rates
  • The fact that real estate can be used as an inflation hedge and leverage to grow your wealth

Ultimately, if you purchase a house and plan to stay there for the long term, buying is a smart financial move.

Should You Rent or Buy?

As the guys stressed at the beginning of this episode, there’s no one right answer to whether you should rent or buy. The right decision is one you make for your situation after running the numbers and considering your long term goals. There are situations where it makes good financial sense to rent — and other times when it could pay off to buy.

If you do choose to buy, Brian and Bo provided a few tips to keep in mind:

  • Try to keep all of your housing expenses under 30% of your income. Shoot for around 25% or less if possible.
  • Remember the number-one rule of real estate: Location, Location, Location!
  • You might not want to buy the most expensive house in the neighborhood. Getting in at a lower price provides a better opportunity for appreciation over time.
  • Avoid homes that are too trendy and might be hard to resell. (You know how you can look at certain houses and know exactly what decade they were built in?)

And when it comes to down payments, know that lenders do like seeing 20% down. There are other options, but then you run into PMI which adds to your home ownership costs.

Finally, with interest rates at historic lows, a 30 year conventional mortgage may be the best bet for many — even if you like 15 year options. That’s because most mortgages do not have a prepayment penalty. Take advantage of today’s low interest rates and enjoy the flexibility a 30 year loan offers. You can pay extra when your finances can handle it, but you know you can always drop down to the normal monthly payment should life get in the way from time to time.

The Importance of Wills and Estate Planning

Estate Planning

Do you ever worry about what will happen to your possessions if you pass away? What about your kids? It’s an unsettling thought and as much as we might not want to think about it, it’s a valid concern as no one will live forever.

It’s never too early to start thinking about the importance of wills and estate planning. As odd as that might sound, when you’re young and healthy is exactly when you want to be taking care of these essential items.

The sooner you start implementing this advice, the less you’ll have to worry down the road in case something does happen.

Creating a will and an estate plan not only gives you peace of mind, but your family as well. If you’re hesitant to think about this topic because it makes you uncomfortable, consider forging ahead for the sake of your loved ones.

No one wants to sort through a legal mess in the wake of a friend or family member passing away. Taking care of these things will lessen the burden on your family — and it will also ensure spouses, children, other beneficiaries, and your assets receive the protection you want to provide them.

Yes, You Do Need a Will and Estate Plan

Why are wills and estate planning important — even for younger generations?

Wills can help your loved ones plan a funeral for you, ensure your wishes are carried out in respect to your property, designate guardians for any minor children you have, and name the executor of your estate. And those are just a few reasons.

If you want to have control over how your assets are disbursed when you’re gone, as opposed to the government having that control, then you need to create a plan.

That’s because if you pass away without a will or estate plan, everything passes to probate court. A judge will decide what happens to your assets, your possessions, and even your children.

A will and estate plan gives you a say and keeps these issues out of the court system.

What’s an Estate Plan, Anyway?

“Estate planning” can be an odd term. Many people hear it and immediately dismiss the idea of needing an estate plan simply because they don’t think they have an “estate.”

But if you have any assets whatsoever, you have an estate. And you probably possess more assets than you think, particularly if you’re younger. Owning a car, a home, a business, or other valuable belongings counts!

Additionally, if you have investment accounts, a life insurance policy, or any retirement accounts — those are also considered part of your estate.

Again, without your explicit instructions, the issue of who gets what is taken to the court via probate. It tends to be a long process, and puts your family through more stress than needed.

It’s crucial that you make sure your wishes are able to be carried out, and that’s where estate planning comes into play.

Estate Planning When Children Are Involved

Your biggest worry when it comes to estate planning might be your children, and for good reason. If you and your spouse or partner were to both pass away, who would raise them?

Chances are, you don’t want just anyone taking that responsibility. But if you fail to designate guardians in your estate plan, your children are going to go through that stressful probate process.

No one wants that to happen, and it’s a major reason why you should consider creating a will. And don’t forget — it’s important to ensure the people you choose as would-be guardians are actually willing to take this responsibility on.

It’s not a decision that either party should take lightly.

Take the Time to Plan Properly

When it comes to your will and estate plan, they need to adhere to specific state laws. For this reason, work with a legal expert in your area — don’t try to skimp on costs and cut corners by using a fill-in-the-blank form found online.

Any errors could result in it being contested in court. Get it done and reviewed by a professional, with witnesses and all.

What About Trusts?

For some folks, a will by itself won’t be enough. You may want to consider a trust.

Opening a trust will allow you to specifically designate how your assets will be used in the event of your passing, especially when children under 25 are involved.

Let’s say you wanted to leave $40,000 to one of your children, but you want them to use it only for their education. If you don’t specify that, there are no restrictions on the use of this inheritance.

The purpose of a trust is to ensure any assets you leave your family are being used how you intended them to be used. Additionally, trusts can remain private and don’t have to go through probate, which simplifies the process and makes it less painful for your family.

There are a few different kinds to consider:

  • A revocable trust is a living trust. You have control over it while you’re alive. You can designate a beneficiary to receive the funds from the trust once you pass away. This is subject to estate taxes.
  • An irrevocable trust lessens the chances of your estate being taxed, but you’ll lose control over the trust once you execute it. The terms can’t be changed and the trust can’t be dissolved (hence, irrevocable).

There are a lot of different elements at play with estate planning, but you shouldn’t let that overwhelm you or prevent you from creating a plan today. Consult with a trusted professional to protect your family, your assets, and your wishes for what happens to your property.

No, this isn’t a fun topic to discuss. But it’s important to understand why you need a will and estate plan.

These documents protect your loved ones and the assets you’ve worked hard to establish.

What to Look for When You Need a Financial Professional

Financial Professional

It’s the first podcast of 2015! Brian and Bo are kicking off the New Year by giving out valuable advice on what to look for in a financial professional — be it a tax preparer, insurance agent, or financial advisor.

These are services nearly everyone uses (or should use!), and it’s important to connect with a financial professional who can actually provide value.

The guys walk you through the important questions to ask each of these individuals in order to make sure they’re in the right position to help you. This episode will also provide you with a better idea of how to vet each one so that you end up a happy client.

What Should You Look for in a Tax Preparer?

Brian tackles this question right off the bat, citing a wonderful article written by Kelly Phillips on Forbes: 11 Questions To Ask When Hiring a Tax Preparer.

Brian goes through a few of these questions and offers his perspective:

  • Knowing your tax preparer’s tax background sounds like a no-brainer, but you want to find out if they specialize in your situation.
  • Your tax preparer should be well aware of the intricacies of the credits and deductions offered by your state and local government. (Make sure your tax preparer will check on these things if you’re hiring one out-of-state.)
  • What do you want to get out of the transaction? Are you looking for just a tax preparer, who will have you in and out of the office within an hour? Or are you looking for someone that will also help you with tax planning for the upcoming year? What you need will help you determine which professional is right for you.

What Should You Look for in an Insurance Agent?

Everyone needs insurance of some kind — there’s no way around that. So how can we make sure we end up with a respectable insurance agent who is only recommending products that will truly benefit us?

Bo and Brian acknowledge that Amica, USAA, and Auto Owners are the three leading property and casualty insurance companies according to Consumer Reports. If you’re not with one of these companies, seek out an agent who will look out for you in the following ways:

  • They set annual reminders to check-in with you to see if you’ve gone through any big life changes recently.
  • They look for holes in your insurance coverage. (You want to make sure your agent is truly looking out for your best interests!)
  • They are well-established and have a history of success, as they will be less likely to recommend products based on commission.

What to Look for in a Financial Advisor

The guys also touch on what characteristics your financial advisor should have, and what questions you can ask them to make sure they’re a good fit for you.

You should always look for someone willing to work with you as your fiduciary. This means they always put your interests ahead of all others, including their own.

Bo and Brian also suggest asking the following before hiring an advisor to help you manage your finances:

  • What type of advisor are they? How do they receive compensation?
  • What is their motivation behind their recommendation? Are there conflicts of interest?
  • What’s the value proposition? (You shouldn’t pay a dime to anyone if you’re not getting value out of it.)
  • What’s their wealth management philosophy?

What to Do If You Need a Financial Professional on Your Side

Always do your due diligence and don’t be afraid to ask questions when looking for a financial pro to help you with various money issues. The right professional will make you feel comfortable and put your needs and interests ahead of anything else.

Could you use help from a financial advisor? You can always reach out to the Money Guys to help get you on the right track — Bo and Brian are currently accepting new clients.

Email brian@money-guy.com or bo@money-guy.com if you’d like the pros behind The Money-Guy Show in your financial corner.