Questions to Ask Financial Advisors & Uncle Sam

Mike Lester

by Mike Lester

Apr 26, 2021

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Transcript

Speaker 1 (00:02):

Welcome to The Retirement Wealth podcast. Our goal is to help those retired or soon to be retired investors make more informed financial decisions and live an enjoyable retirement. Our host, Mike Lester, is the founder and CEO of Talon Wealth Management. Mike is an investment advisor, representative of Retirement Wealth Advisors, Inc. An SEC registered investment advisor. Thanks for joining us today. And let’s get started.

Kristen (00:31):

The world is kind of spinning right now. The new administration changes happening day by day, but how is President Biden planning to address our country’s growing federal budget deficit? He told ABC News that his plan is still what he proposed during the election.

President Biden (00:48):

Anybody making more than $400,000, will see a small to a significant tax increase. If you make less than $400,000, you won’t see one single penny in additional federal tax.

Kristen (00:58):

It sounds like this may not impact the middle-class at all.

Mike Lester (01:01):

Does anybody else want to laugh a little bit? When a politician goes, “Hey, don’t worry about it. Everything’s going to be okay. Trust me.” But it’s very, very hard to take that at all seriously. I think we all know better, right?

Kristen (01:13):

True. And so I say that it sounds like it may not impact the middle class. It always does. And that’s the point.

Mike Lester (01:19):

It really is. And so, how is it going to impact the middle class? So it’s possible that the paperwork will say, “Hey, listen, if you’re making under $400,000 a year, your taxes don’t go up.” But the problem is there are a lot of people out there that have businesses that are making certainly more than that, that pass through. So there are small businesses, which is probably the largest part of our economy that gets impacted. So if you’re impacting small businesses and they’re having to hire people and now they’re being taxed at a much, much higher rate, I mean, what do you think is going to happen to jobs? I mean, so that’s potentially bad. Would you rather have a job and have an income that you’re taxed more on or would you rather just lose your job?

Mike Lester (01:58):

And I mean, that’s an obvious answer, I’d rather have a job. But it’s potentially problematic and we just have to be very, very careful. Now we focus on individuals that are either retired or pretty close to it. This may not have a direct impact for many of our clients because in retirement they typically don’t have an income that is $400,000 or more per year because they’re taking income from things like social security, maybe a pension, and then some income off of their portfolio. So we might be talking to somebody week after week who says something like, “Hey, listen, if I could have about $10,000 a month to spend, after taxes, after inflation around roughly $120,000 a year, that’s a pretty good lifestyle for me.” And when I take a look at that number and I look at what Biden’s talking about, that is under the $400,000 mark.

Mike Lester (02:47):

But then if I take a look at everything else that’s going on, it starts to become problematic because a lot of these clients are going to have individual accounts, joint accounts, trust accounts, markets have been doing very well. If you take a look at the gains that they’ve potentially had over the past 10, 12 years, those gains could be really, really significant. And so, when he’s talking to people and saying, “Hey, listen, don’t worry, as long as you have income under $400,000, you’re going to be okay.” A lot of people are sitting there going, “Well, hey, I’ve got income under $400,000. I’m going to be okay.” It’s pretty misleading because what about your investments? What about those gains? Because what he didn’t back that up with is, “Oh, by the way, if you made over a million dollars that year, you’re going to lose a whole bunch of other things like no step up in basis.” Which is in there on investments passing to beneficiaries, or if you made over a million dollars, you’re now taxed at a much, much higher rate.

Mike Lester (03:46):

So the long-term capital gains rate is now much higher if you’re in that situation. And again, there are individuals who are technically making less than $400,000 a year in income over that period of time. But maybe they have investments that have appreciated over a long period of time. And as we approach the next market crash, I don’t know when it’s going to happen. I feel it’s getting closer every day with everything that’s going on. I think a lot of our clients feel the same way, but would you rather sell prior to that crash or would you just like to ride it out? I think most people would like to sell prior to the crash wall. There’s a lot of money out there right now that would have to realize more than a million dollars in gains. And it would immediately put them in a situation where, because of Biden’s tax plan, instead of paying a 15% long-term capital gain on that, they’re now over a 40% long-term capital gain.

Mike Lester (04:38):

So there’s a lot in there that’s not being talked about that if you take the time to actually do the financial planning, actually do the tax planning, do the income planning, trying to figure out how this is going to impact you as an individual or yourselves as a family directly, frankly, it’s just not as simple as they’re making it out to be. And Kristen, I don’t think our listeners think that it is.

Kristen (05:00):

Right.

Mike Lester (05:01):

When was the last time?

Kristen (05:02):

Anything was simple that came from the government.

Mike Lester (05:03):

That came from the government. However, there are a lot of questions and people are just wondering, it sounds like a big change. I don’t trust what he’s saying. How does it impact me personally? Those are the types of questions that we can answer just by sitting down at our office or through a zoom meeting or a telephone call. People are calling us week after week to say, “Hey, listen, Biden’s president, he’s got a new tax plan. That’s going to come out here shortly. How is that going to impact me and my family personally?” Those are the questions that we’re answering every week.

Kristen (05:37):

See it both ways, the way you have it figured out. And the way it looks like Biden is leading the conversation planbiden.com. There’s a lot of people listening right now, Mike, that are very interested in hiring a financial advisor, but they’re quite afraid that they could choose the wrong one. They could pay too much, be taken advantage of, especially because you guys are not all the same. What types of financial advisors are out there and what should everyday investors listening to the radio right now, coast to coast, what should they watch out for?

Mike Lester (06:09):

Well I could give my opinion, Kristen on what people should watch out for. At the end of the day, everybody should really just work with whoever makes them feel the most comfortable, but there are several types. And one of the first types would be an advisor that works off of commissions. So that would be more of a product sales person if you go visit them, you’re probably going to hear a sales pitch and I don’t want to make that sound bad. I mean, everybody’s going to walk you through their process and what they do. But if they start talking about moving you into annuities or moving you into mutual funds or moving you into REITs, real estate investment trusts, I mean, these are products that pay commissions to advisors, and those would be more of a commission only. And historically, that’s what advisors that was more of transactional. They met with you. They gave you some advice. They got a commission, but they didn’t really participate in anything after that. And I think service after the sale, right? If it’s a product becomes an issue because-

Kristen (07:05):

I don’t like the sale being involved with my life savings too, by the way.

Mike Lester (07:08):

Well, that’s kind of what it is. And well, here’s the thing. There are a lot of people out there. We meet them every week that are kind of dissatisfied with the level of service that they’re getting from an advisor. And then a lot of times when we look at how the advisor recommended products or how the client is invested is typically products and the advisor was already paid. So what’s their incentive to help you moving forward it’s very little. Then you’ve got advisors that are fee only. And what it means is they only work for a fee. So if somebody says their fee only, then they should be someone who only charges you a fee to manage your portfolio. They never ever sell you a product to get a commission. And that’s fine. We see a lot of times advisors fee only, and they’ll charge you for a plan,

Mike Lester (07:52):

That’s why we talk about our, our plan that we do complimentary. And we do it complimentary, but we say, “Hey, it’s a $1,500 value.” Because we know that advisors are out there charging $1,500 for financial planning, which is fine. It’s just that we don’t charge for the financial planning. We want to provide value on the investment side of things. And then outside of that, you’d have advisors that are fee-based. So what that means is they might make money on a fee based basis, meaning charging you for advice or charging you for management of your portfolio. But then they also might help you with products that are commission mason. So what I tell all of our listeners about Talon Wealth Management, what we do and how we do it is we never want to be just on one side of the fence or the other, because what you find about advisors if they’re selling products, they’re telling you everybody on the other side is bad. If they’re selling, fee-based only, and they’re telling you everybody on the other side is bad.

Mike Lester (08:43):

We’re here to help people make informed decisions, regardless of whether or not it’s fee-based, regardless of whether or not there’s this product that’s going to solve all of your problems. There isn’t one, by the way. But we’re here help individuals make informed decisions. So we fall into the fee-based category and most of our clients pay us a fee to manage their portfolios. The majority of our business has nothing to do with products and sales of it, but there are some clients that we help with that. So we just want to make sure that we can help as many people as possible. And if you’re in a situation where you’re wondering what’s best for you? How can we provide value? Is there a reason to work with Talon Wealth Management? Again, it’s a phone call to set up a meeting, whether that’s in person or virtual, but we can explain to you exactly what we do, how we do it and decide for yourself whether or not we can provide value.

Kristen (09:29):

Make sure you’ve got the right advisor you feel comfortable with is the first thing I heard you say there, Mike, and I think that’s key. Beyond that, make sure you ask those questions, empower yourself. It’s okay to say, “Hey, how are you getting paid? And what happens with my money when you make this transaction?” There’s no question that should be off the table. There was a recent movement on Wall Street after the federal reserve announced they plan to leave interest rates alone. CNBC’s Jim Cramer feels it’s a mistake for investors to react by dumping stocks.

Jim Cramer (10:00):

Normally when business beats up like this, you’d expect the federal reserve to tap the brakes by raising interest rates, but [inaudible 00:10:05] vowed not to do that, at least not anytime soon. So the Fed’s basically saying party on industrials, which causes the hedge funds to buy them hand over fist. But problem is if they want to buy the banks or the smokestack socks, well, they don’t have a lot of money just sitting there they need to sell something. So what are they dumping? The high growth tech stocks that they always dump and that’s called the hedge fund playbook.

Kristen (10:26):

I feel like somebody needs to taper his caffeine a little bit, but I mean, Jim Cramer-

Mike Lester (10:30):

Well, did our listeners get all of that?

Kristen (10:32):

No.

Mike Lester (10:33):

I mean, I got it, but I had to listen very quickly.

Kristen (10:35):

I should have slowed him down because for many investors, there is now a heightened concern over inflation. And we’re hearing that all of this is connected to Wall Street. What are your thoughts here?

Mike Lester (10:47):

Well, Kristen, in my mind, it’s all math. And I realized-

Kristen (10:51):

Everything in your mind is math.

Mike Lester (10:52):

All the time and what makes sense? And I mean, it’s not as simple as two plus two is four, but I just think when things get complicated and you start to wonder math is math and things need to add up for us. So when we listen to Jim Cramer, go through everything there, he’s talking about things that we’ve seen. If you owned a technology, if you own Apple, if you own some other, these high-flying companies, you got beat up here, recently in the past month. It wasn’t great for you. But if you take a look at your return over the past year is still pretty good, even though it got beat up over the past month or so.

Mike Lester (11:27):

Now talking about inflation and things like that again, it goes back to the math. So yes, the government is printing in my opinion, way, way more money than they should. And yes, they don’t have a plan to pay for it. And I guess they’ll try to sort that out later, but right now, if we take a look at inflation, there could be inflation. I mean, there are certainly advertisements on television. There’s certainly people out their advertising, telling people to be worried about inflation to buy gold, that sort of a thing, but what would actually have to happen longterm for inflation to become a big problem the Fed’s looking at that. So when Cramer says, “Well, the Fed did not raise interest rates to try to sort of tamper the situation.” What that tells us, if we look at the math is they’re more worried about the backend of all of this. They’re more worried about what’s going to happen six months down the road, one year down the road.

Kristen (12:17):

Okay. The big picture.

Mike Lester (12:18):

It’s big picture. We don’t-

Kristen (12:20):

Well, that’s a good thing.

Mike Lester (12:21):

It is a good thing. And we don’t want a knee jerk reaction really to anything, particularly when it comes to our finances, particularly when it comes to our nest egg, our life savings. So right now, if you look at the math, you say, “Well, all of the stimulus, all of these vaccines, where is this economy?” Meaning our economy here in the U.S. and then potentially the world economy likely to be come summertime? Right? Probably pretty good. Probably, I don’t know, but probably most people have had vaccines. Probably people have money in their pockets. Probably people are going back to work. Things look pretty good, at least in the short term, but I would guess, and again, I don’t work for the Fed. They’re more worried about, so after we get the stimulus, after people go to work, after we’ve got the vaccines out there, what now? What then? Are people going to continue to work? What happens if they raise taxes? How do we pay for all of this?

Mike Lester (13:15):

The back end of this is what concerns me. So right now I wouldn’t want a sort of a knee jerk reaction. We want to just jump out of this market because we’re afraid it’s going to be horrible in the near future. It probably isn’t in the near future. And hey, listen, that’s my job managing client’s portfolios. We work with individuals that are retired and pretty close to it. They’re obviously looking to us for advice week after week, month after month. Right now it’s things are probably going to be pretty good but if that changes, we’re going to make changes to the portfolios very quickly. And that’s what active management is all about. So right now I’d say inflation might be an issue, but we would need the economy to continue after the stimulus, after the vaccines, the spending rate would have to continue after that.

Mike Lester (14:01):

I think that the Fed is a little nervous that it might not, which is why they don’t want to raise interest rates just yet. I mean, the Fed is in charge of the money supply. Is it easy money or is it difficult to get money? They want money to be very easy to get meaning low interest rates if they want to stimulate the economy, if they want to slow the economy down because of inflation, they’re going to raise interest rates and make it harder to get. Right now, the Fed is looking at this thing going, hey, listen, we don’t trust it. We don’t trust the fact that after all the stimulus, after all the vaccines, we’re going to knock it out of the park and we should be looking at that right now, going, okay, well maybe inflation isn’t going to be a big deal just yet. Maybe equities or stocks are going to do well here in the sort of short term, but just be ready.

Mike Lester (14:43):

And that’s what I would explain to people that are invested on your retirement plans, on your 401k’s, on your 403(b)’s. We’re taking care of this for our clients. They’ve hired us to manage their portfolios. They’ve hired us to pull them out of markets. If it looks like to us, things are going to get real nasty. But if you haven’t hired somebody to manage your portfolio, keep a close eye on this, keep a watch, understand probabilities moving forward, be a smarter investor. There’s no such thing as being able to time markets, but you can be smarter about it. So right now it makes sense that markets probably do well for a little bit, but I think you’ve got to have your finger on the button to more or less eject and get out. But the question is when, and we’re watching that very, very closely for our clients. And if you want more information about that, we’ll be more than happy to share our thoughts, more than happy to do some financial planning, more than happy to do analysis for you. And we do it for you complimentary.

Kristen (15:33):

Common sense investing, tactical management, where do you stand with your money now and moving forward with all of these, what ifs? Reach out for that CFP, complete financial plan, guardingyournestegg.com. The pandemic has taken a financial toll on many Americans. In fact, a recent survey by Personal Capital reveals that almost 24% of Americans decreased retirement contributions during the pandemic. But according to the same survey Mike, savers in their sixties had an average retirement plan balance at the end of 2020, around $597,000. So does that mean that those near retirees in that survey are in a pretty good place to wrap up their careers?

Mike Lester (16:16):

Well, the silver lining to 2020 was markets did pretty well. I mean, we had ton of drama, politics, pandemics, all kinds of stuff going on just a lot. It was a terrible year. I don’t think any of us want to go back and recreate it again, but we would like to have our portfolios perform as well as it did in 2020, despite everything that was going on. So it’s not shocking that people that are in their sixties are looking at potentially all time highs in their portfolios or close to it. But then we’re talking to people in their sixties week after week, day after day. And they’re very, very concerned about the future. Very concerned about things we’ve talked about on the program already today, tax changes, pandemic spending, what’s likely to happen in the next six months to a year with markets and everything else. I mean, you have to be, and that’s why we encourage individuals just understand your portfolio, understand your investments, understand what they’re likely to do moving forward.

Kristen (17:11):

Maybe that $600,000 is enough for you. Maybe there’s more to be done, go to guardingyournestegg.com, but believe it or not, a lot of people were able to considerably cut their credit card debt last year. We heard about how many Americans were suffering. A lot of Americans really buckled up according to a study from Personal Finance website, WalletHub Americans collectively got rid of a record $82.9 billion in credit card debt. Congratulations to any of you that that affects. It’s more than no worthy because consumers have typically added an average of $54 billion in credit card debt every year for the past decade. It raises an interesting question. Being debt free when we stop working, is that a must do?

Mike Lester (17:57):

Well, it’s not a must do, but you got to look at it in terms of your overall financial plan. Right now Kristen money’s cheap. You and I were talking before the program about how you just refinanced your mortgage and you got a great rate. I mean, under two and a half percent, I mean, that’s phenomenal. That’s very, very cheap money. And again, look at everything that’s going on in politics with stimulus and everything else. Are rates likely to be that low in the future? Probably not. In financial services or in the financial industry, we call that leverage. So we’d say, listen, how much money should I borrow against how much should I own outright? Because if you can borrow money very, very cheaply and have that money work for you in a capacity where you’re earning more than what you would be paying in interest on that particular loan, whether it’s immediately or whether it’s long-term appreciation on the investment leverage makes sense.

Mike Lester (18:49):

So right now we’re talking to individuals that honestly some people feel like, “Hey, listen, I’d be way, way more comfortable in retirement if I didn’t have any debt so I want to make sure that I don’t owe any money in my house. I want to make sure I don’t owe any money on credit cards. I want to make sure I don’t owe any money on my cards. That makes sense.” But we’re also working with clients who are looking at these low interest rates. I think of some clients of mine, Jason and Mary they’re currently building a new home. Now, fortunately they started this process about a year ago when lumber prices were lower and that’s a whole nother topic, but they’ve been clients for a while. And we continued to update their financial plan. So they wanted to build a second home and we had to find out whether or not that second home was going to be affordable for them.

Mike Lester (19:35):

Certainly we’re looking at their investments, their average rates of return, how much risk they’re taking, we’re taking in their sources of income. I mean, we’re just big picture looking at everything. Jason just kept asking, “Hey listen. So if I do this, or if the house is this much, can we make it work?” And the answer in their case was yes, but a big part of that was because interest rates are so low. So the question was, “Mike, do I pull the money out of my portfolio and pay for the new home? Or should I finance?” In their situation it made sense to finance. Now, Jason was comfortable with financing the mortgage, not everybody would be, but again, leverage. Why take a lump sum of money and pay off this house, even though he could in their situation, because they were going to need income for over a long period of time, he could get a very, very low interest rate on a very long-term mortgage on a house that he and his wife aren’t probably going to live in for the rest of their life.

Mike Lester (20:28):

So it makes sense right now. And this is, I think the point to make here is financial planning is so individualized to the individual or to the couple or to the family and what their long-term goals and objectives are. And I find week after week, as we talk to people, a lot of times people want answers to questions exactly like Jason’s question, “Hey, listen, this is how much money I have. This is what I have in income. How do I need to invest my money to accomplish my goals long-term moving forward? And by the way, if I buy this house, how is that going to impact me?” That’s real life, right? That’s everyday life. And it’s our job to walk our clients through that.

Kristen (21:06):

So part of my real life in this conversation, I think I told you the other day that I am refinancing my home. And your first reaction was, “Oh my gosh, Kristen, the rates have gone back up. That’s not good.” I said, “No, no, no, here’s the really good yet frustrating news.” Everyone trying to refinance at the same time. So loan processors were overwhelmed and it’s taken my process six months, but they held my interest rate.

Mike Lester (21:30):

Good job.

Kristen (21:31):

And I’m also shortening the years on my house that I own. Now I’m not near retirement or anything. It’s just, you talk about making sure the math works out. The math worked out for me. And so being a little less in debt sounds like a good thing to me on most days. But like you said, it depends on the situation and everyone is in a different one, but you listening if you’re near retirement are already there. If you have it a goal to be debt free before you stop working, before you make that decision, have Mike and the team at Talon Wealth Management help you do the math. According to Neil Cavuto on Fox Business, Bitcoin is becoming more accepted by institutions on Wall Street. So does that mean that individual investors should take it more seriously?

Neil Cavuto (22:16):

Not exactly treated like a regular stock, but it is trading like more of a stock. I’m talking about Bitcoin. When we would routinely talk about Bitcoin swings of course, they’d be 20, 30% or more in a single day, this average just over the last month or so here very little that would hit you as like, “Oh my gosh, I’m on a roller coaster.” It’s certainly not a smooth ride, but it is a reminder that it’s either getting respectability or calmer, cooler hands are evolved. I am willing to add though that it is not an investment for the faint of hearts.

Kristen (22:51):

Bitcoin ATM’s interestingly enough are now popping up in every state except for Alaska and Washington DC. Mike, how would you summarize this phenomenon? And that’s the only thing I know to call it that is gaining more interest every single day, this whole Bitcoin blockchain crypto life.

Mike Lester (23:09):

Well, I think that we should categorize it as something that’s here to stay. I think certainly in the future currency probably is digital. I don’t think that we should assume that we’re going to have paper dollars in our wallet forever and maybe not even credit cards. A lot of the Bitcoin stuff obviously is digital so you’re using your cell phone for the transaction. But the other thing that we should not assume is that a there’s only going to be sort of one currency. There could be several.

Kristen (23:37):

That is just crazy that we live in a day and age of where this is possible.

Mike Lester (23:40):

It is. But then at the same time, right now these digital currencies are operating without any government sort of interaction. So they aren’t governed or regulated and let’s not make the assumption that they won’t be regulated at some point in the future. And so I think of Bitcoin or any currency, because we do get this question from time to time, I think it is very speculative right now. Not because it’s not here to stay, but because the valuation of it is very hard to speculate, given that at some point in time, governments probably come in to regulate it. I mean, think about it. It’s just common sense. Why would they allow currency which is what makes the world go around to go unregulated? And so I think of Bitcoin as a bit of a hot potato. You just think of that game and you’re passing it and passing it and passing it.

Mike Lester (24:27):

I mean, do you want to be stuck holding the potato on any kind of digital currency when the music stops? And to me the music stops when governments come on, “Hey, we’re going to regulate it. Hey, there’s an issue.” And I just caution people to be careful. Obviously some traders are making money. I think they’re telling you when they’re making money. They’re not telling you when they’re losing money. Should it be a part of an overall financial plan right now for people that are retired or pretty close to it? Probably not. You might have an account on the side that you’re trading it in to be speculative, but just understand what your money is likely to do for you moving forward and there’s no way to understand that with digital currency.

Mike Lester (25:01):

You can’t say where Bitcoin is going to be a week from now, much less six months from now. And so we got to be careful. We put together actively managed tactical plans that are designed to help our clients certainly participate in markets when they’re doing well. But we also want to protect our client’s money when they’re doing poorly. It’s our job to provide value. If we can show you how to get a higher average rate of return net of fees, we’re providing value. If we can’t do that, it doesn’t make any sense to work with us. And so if you have questions about anything that we’re talking about, we’ll schedule an appointment for you.

Speaker 1 (25:33):

If you would like to have a comprehensive financial plan and an analysis of your current portfolio, go ahead and visit our website at retirement.tips/plan. And we can do that for you complimentary. Thanks so much for joining us on today’s show. Be sure to subscribe to our podcast, visit our website at retirement.tips for more free retirement planning and investment resources. Thanks for tuning into today’s show. And we’ll see you next time on The Retirement Wealth podcast. Exposure to ideas and financial vehicles discussed should not be considered investment advice or recommendation to buy or sell any financial vehicle. This information should not be considered tax or legal advice. Individuals should consult with professionals specializing in the fields of tax, legal, accounting or investments regarding the applicability of this information to their situation. Past performance is not a guarantee of future results. Investments may fluctuate and when redeemed maybe worth more or less than originally invested.

Mike Lester

Mike Lester

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Questions to Ask Financial Advisors & Uncle Sam
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