Monthly Archives: June 2016

Fiduciary Standard for Investment Advice

The typical answer: These issues both seem very complicated to me, I’m already concerned where you are going with this, so let’s change the subject.

My answer: They both have the potential to alleviate human suffering, grow the economy, increase employment, and compel us to choose leaders willing to support policies that are not partisan in nature.

It is no secret that, as the use of fossil fuels has increased, carbon dioxide levels have been increasing at a rate of about 0.5% per year for the past several decades. The economic benefit of converting carbon locked up in fossil fuels for millions of years into instant energy, of course, has provided prosperity to many for the last century (e.g., inexpensive travel, food choices, home/office heating and cooling). Unfortunately, the last several generations have passed the true costs forward to the next many generations. Carbon dioxide traps heat energy in the atmosphere. The resulting disruptive impacts of excess atmospheric heat contributes to increasing human suffering (e.g., droughts, floods, wind damage). It is increasingly apparent that the true cost of burning fossil fuels has not been reflected in its price. Economists consider it a market failure when the true cost of a product or service is not reflected in its price.

If fossil fuels were now priced at their true cost, the fossil fuel age would be brought to a close and allow for a new era of sustainable energy to be established. Technology to make this happen is already in place. Improved policy making is needed to move us forward toward. A good example is the policy offered by the nonpartisan Citizens’ Climate Lobby (CCL). CCL’s carbon fee and dividend proposal was studied by an independent entity, Regional Economics Models, Inc. (REMI). The results of the analysis showed that a gradually increasing fee on fossil fuels at the source, where the collected fees are distributed as dividends to households, would transition society from an unsustainable dependence upon fossil fuels and grow the economy by generating 2,800,000 new jobs and avert 230,000 premature deaths over a 20-year period. Members of congress are aware of the CCL bipartisan proposal and are looking for signs of support from their constituents (surveys show 68% favorability of a fee and dividend approach to carbon pricing) in order to overcome the actions of the fossil fuel industry to delay the needed transition to clean energy.

Prior to 1980, most members of the middle class did not need an investment advisor – you paid off the mortgage, saved some extra cash and relied on a pension and your Social Security benefit to fund retirement. With the advent of 401k plans and the demise of pension plans, the financial services industry grew to a scale comparable to the fossil fuel industry in economic size. It took a relatively long time for policy makers to identify that excess investment management fees are a cause of significant avoidable financial loss to savers. For instance, a retired couple without pensions and a savings of $1,000,000 may expect to draw down $40,000 per year to supplement their Social Security benefits. If their investment advisor charges a fee of 1% or 2% per year over the true (i.e., competitive) cost of the service provided, the couple is getting by with $10,000 or $20,000 less per year –as little as half the amount they expected! Is this suffering? Let’s consider a single retiree who has $300,000 in savings and no pension. This retiree is sold an annuity with a 10% upfront commission ($30,000) and locked into an investment management contract he did not fully understand with an annual fee of greater than 2% per year for 10 years. Excessive, non-transparent, fees benefit few at the expense of many.

The Department of Labor recently published a rule that would require more investment advisors to act in their clients’ best interests (i.e., act as a fiduciary), which involves disclosure of fees and conflicts of interest. Many financial service providers have already shifted their practices and service models in anticipation of this ruling (e.g. one firm stopped selling nontraded Real Estate Investment Trusts with a 12% commission). A June 11th article in The Economist pointed out how informed investors are moving to lower fee investments. Keeping more wealth back in the hands of middle class investors allows for more economic activity and, by economic inference, more employment. A fiduciary standard provides for more informed investors. At the current time, however, a partisan effort is underway to overturn the fiduciary rule.

In a post-Citizen’s United world, it has become easier for established financial interests, such as the fossil fuel and financial services industries, to fund actions that promote their own narrow short-term interest and influence policy-making. The influence of large contributions to political campaigns has made otherwise solvable problems difficult to tackle by fabricating a partisan dimension to them. Without sufficient citizen involvement, progress that leads to benefits for the many can be too easily stifled.

Best on Financial Planner Tips

As a financial planner, my job is to help people make smart financial decisions. That means planning ahead for big purchases, making rational spend vs. save decisions, and generally being purposeful and thoughtful with your money.


It’s a noble endeavor, but the truth is that we’re all human and we all make less-than-optimal decisions from time to time. Myself included. Here are three examples where I made decisions that were frowned upon by my financial planning alter-ego.

#1: The Big Indulgence


My brother got married. It was a beautiful wedding, lots of fun with friends and family, and he and his wife had a great time. It was also a little awkward for me. As the older, single sister at the time, I honestly felt a little self-conscious.


So what did I do? I spent a LOT of money on makeup: brushes, blushes, two types of foundation, extra eye shadows. I went nuts! It was an emotional decision through and through. It was way more than I “should” have spent, and certainly more than I had planned. But I wanted to look good and the makeup helped me feel comfortable. It may not have been the most rational decision, but it was certainly a human one.

#2: The Overextension


A few years ago I decided to start my business. And while I was excited about the possibilities for how it could grow, there was also a lot about it that I couldn’t really plan for. I didn’t know how long it would take to be profitable, how much of my time it would consume, or really anything else about what the experience would truly be like.


So of course I also decided to start remodeling my house at exactly the same time. Another project with a lot of moving parts, a lot of uncertainty, and a big investment of time and money. Tackling two big goals at the same time caused a lot of stress. I was worried about money, stretched for time, and initially couldn’t give either one the attention they deserved.


My financial planner alter-ego should have told me to take one thing at a time. But in this case my impatience got the best of me.

#3: The Impulse Buy


In early January I got a call from a friend. She was heading for the Australian Open in a few weeks and she had an extra ticket. She was calling to see if I wanted to go. Heck yeah I wanted to go! This was the Australian Open! So without giving it too much thought, I said yes.


Of course, I hadn’t planned for this trip. At all. I hadn’t saved for it. I hadn’t carved the time out of my schedule. And it was only a few weeks away. This was a last-second, impulse decision to the extreme.


Now, I had an amazing time and don’t regret a single thing. But money was tighter in the months surrounding the trip and everything was just a little more stressful. In an ideal world I would have planned for this kind of trip months ahead of time. Sometimes life happens and the planning happens in hindsight.

The Moral of the Story


There’s this perception around personal finance that you’re supposed to plan for everything ahead of time and make perfectly rational decisions in every situation. And to some extent that
is the goal. But it’s unreasonable to think that you’ll be able to do that 100% of the time.


We’re all human and we all do things imperfectly. When that happens, cut yourself some slack and move on to the next decision so that you are reasonably on track.

Estimated Tax Payments Online

Did you know it is possible to schedule your estimated tax payments online?  This is a very handy service for people who have to make Form 1040-ES estimated tax payments in April, June, September and January each year.  To make your payments, use the Electronic Federal Tax Payment System (EFTPS®).  The EFTPS® enables individuals and businesses to send their tax payments to the IRS by electronic transfer rather than writing a check and mailing it, or sending an expensive wire.

With the Electronic Federal Tax Payment System (EFTPS®), a free service of the U.S. Department of the Treasury, you schedule payments whenever you want, 24 hours a day, 7 days a week. You can enter payment instructions up to 365 days in advance.  This way when your tax preparer completes your taxes and calculates next year’s estimated payments, you can login online and schedule those payments.  Then you’re done.  The nuisance of mailing in those payments by check every few months has been removed.

Reasons to use the service include:

  • It’s fast. You can make a tax payment in minutes.
  • It’s accurate. You review your information before it is sent.
  • It’s convenient. You can make a payment from anywhere there’s an Internet or phone connection 24 hours a day, 7 days a week.
  • It’s easy to use. A step-by-step process guides you through scheduling payments.
  • It’s secure. Online payments require three unique pieces of information for authentication: an employer identification number (EIN) or social security number (SSN); a personal identification number (PIN); and an Internet password. Phone payments require your PIN as well as your EIN/SSN.

One thing to be aware of is that you can’t wait until the due date to make your first payment!  Payments must be scheduled at least one calendar day before the tax due date by 8 p.m. ET to reach the Internal Revenue Service (IRS) on time.  On the date you select, the funds will be moved to Treasury from your banking account, and your records will be updated at the IRS.

There are a couple of other items to consider.  Obviously it is important you have the funds in the checking account you are transferring from.  The first time you use the system, you will have to enroll.  Also remember that the EFTPS® is a tax payment service.  You’ll need to already know the amount, tax form, and date when you schedule a payment.  This system doesn’t help you calculate your tax due.  If you want to cancel a payment, you must do so by 8 p.m. local time two business days before the scheduled date.