Wednesday, August 25, 2010

American's take a vacation?

People in other countries think we Americans are a little weird in our work habits, and they may be right. The web site has recently conducted its ninth annual survey of international vacations, telling us how many vacation days are taken by workers of different countries. French workers get the most 38 days a year, on average, although they typically only take 36 of them. Italians receive 31 days, although, on average, they leave 6 of them on the table.
The American workers? The web site reports that "throughout the eight years that the Vacation Deprivation survey has been conducted, the U.S. has long-held the dismaying distinction of being the country with the worst vacationing habits." Our workers, on average, receive 13 days of vacation time, less than any country in the developed world, including Japan 15 days, Australia and Canada 19 day apiece, Germany 27 days and Britain 26days. Even so, more than a third of Americans don't take their full yearly allotment of vacation days. In the 2009 Expedia study they found Americans give back a total of 436 million of them.

To make matters worse, there is plenty of evidence, on the beaches, in restaurants and the theme parks that many workers are still slipping in an hour or two of productive labor on their days off, calling the office on their cell phones or earnestly consulting their blackberries. Expedia says that 24% of employed American adults do this, but this may be an undercount.

Meanwhile, 37% of employed American adults report regularly working more than 40 hours a week.

This compulsive work ethic may help explain another phenomenon that American financial planners frequently talk about at conferences: how difficult it is for some of their clients to spend their hard-earned money once they've accumulated more than they're ever likely to need.

It's not hard to find advice online and elsewhere for people who overspend and can't stay on a budget, but there seems to be no support or therapy available for a sizable number of Americans who long ago got in the habit of accumulating, and even when they've achieved the point where they no longer have to work, they still do, meanwhile living not beyond their means, but significantly, sometimes uncomfortably, under it. For some of us, stopping to enjoy what we've accumulated seems to be as hard as fully disconnecting from the office.

Is this really a problem? If your goal in life is to increase America's GDP and raise our average worker productivity statistics, then no, everything is fine. But one of the most poignant statements I ever heard was by a rabbi who was asked to travel to Oklahoma City to offer grief counsel to the families of the victims of the bombing incident.

"In my line of work, I regularly sit with people in their last hour of life," he said, "and often people will tell me, with the benefit of hindsight, looking over the course of their lives, that they wish they had spent more time with their loved ones or children, or doing things that gave them pleasure. Never once, in all my years," he added, "has anybody expressed regret that they didn't spend more time at the office."

By the way, as I write this I am on vacation?

Ted Feight, CFP® is a fee-only Certified Financial Planner with 37 years of experience. He limits the amount of clients and planner can have to 100 or less. Ted is the Chair of the Midwest National Association of Personal Financial Planners and is a member of the National Board of Directors for the National Association of Personal Financial Planners. He has offices in Lansing and Postage, Michigan and is toying with the idea of opening an office in the Detroit Metropolitan area.

Link to the Expedia article: .

Friday, August 20, 2010

How many new clients can a planner take and take care of old clients?

I’ve always had a rather altruistic view concerning the role and purpose of financial planning. In my opinion, a financial plan is a tool to determine the most prudent course of action. Just as a physician orders various tests to assist in the diagnosis, I consider the plan as the instrument which directs my recommendations. Therefore, I rarely render advice before I review the results of the plan.

I would hope that the majority of financial planners share this paradigm. I would also contend that there are several who do not and use the “financial plan” as a tool to increase product sales. The difference depends on the focus of the individual advisor. Either they are sales driven or advice driven. You cannot act in one fashion and profess another, although many do.

The issue becomes capacity. How many new comprehensive financial plans can one advisor generate in a year while still taking care of his existing clients? Remember, the more comprehensive the plan is, the lower the number will be. The general consensus at JP Morgan seems to be somewhere between 20 and 24 per year, according to an article in Investment Advisor magazine, written by Mike Patton. I would personally be hard pressed to do half that many.

Another relevant question is this. How often will you update a client’s plan? It took me several years to settle this issue, but a few years ago I decided that updating each part of a client’s financial plan every 2 to 3 years, during reviews. However, this can often get preempted during periods of time like the 2008 market meltdown, when a client’s needs are much different than during good times. I inform clients of this at the beginning of the relationship so they will know what to expect.

Here’s the challenge. As the number of planning clients increase, so do the number of plan updates, after a few years it can become problematic. For example, let’s assume I have 70 clients and gain 10 new planning clients each year over the next three years. In year two you have 80 updates and 10 new plans to prepare. In year three, you have 90 plans to update and 10 new plans to prepare. Each year the task becomes increasingly difficult. I am beginning to sense this so I have been trying to streamline our processes, but at what point does the ability to take new clients or keep smaller less productive clients collide?

Sunday, August 15, 2010

New Law August 15th on Debit Card Overdraft fees

There’s a new law going into effect on August 15, 2010. It’s called Regulation E (Reg E), and deals specifically with overdrafts. Basically now you have to choose to Opt In or Opt Out of overdraft protection.

Currently many banks will approve your debit card even though there is not enough money in your account. Effective August 15, every banking client will be opted out of overdraft protection unless they choose to opt in. Should you opt in or opt out?

Opt In for Overdraft

If you choose to opt in for overdrafts, your card may get approved even though the funds are not available in your checking account. This may be good in the event of an emergency where you are stuck with absolutely no cash and your car has broken down, or even to avoid embarrassment when you’re out to dinner with a date and your card would normally be declined. On the other hand, opting in to overdraft protection would not be a good idea for someone who doesn’t balance their checkbook. I definitely wouldn’t recommend opting in if you don’t keep up with your balance. There’s no sense in risking overdraft fees!
Opt Out of Overdrafts

Opting out is just what it sounds like: no overdrawing your checking account with the debit card. Don’t be overly confident, though: recurring debit card transactions are an exception. If you’ve let your car insurance company charge your debit card, the transaction may be approved even though the funds are not available. Otherwise, if you don’t have the money in your account, your card won’t get approved to cover the transaction. This is definitely helpful in the fact that you’re less likely to get overdraft fees.

If you don’t do anything, you’ll automatically be opted out of overdraft protection.
Under the Fed rules, banks would have to explain what overdraft protection is, the details of how it works and the fees associated with it before asking consumers to opt in to the program. (See model opt-in disclosure.)

"The final overdraft rules represent an important step forward in consumer protection," Federal Reserve Chairman Ben S. Bernanke, said in a press release on the rules. "Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service."

Another blow to banks

The new rules are the latest setback for the nation's banks and credit unions already reeling from the effects of the economy and new consumer credit card rules coming online. Thursday's overdraft regulations are sure to trim back what had become a growing income source, estimated at $23.7 billion in 2008 and projected to hit $38.5 billion in 2009.

In third quarter financial statements filed this month, Wells Fargo indicated it expects to take in $300 million less in fee revenues in 2010 because of policies the bank has implemented to help consumers limit overdraft and returned item fees. Facing a rising tide of consumer complaints, Bank of America and Chase have also revised their policies to give customers the choice of using overdraft services.

Edward L. Yingling, president and CEO of the American Bankers Association trade group, said the bankers have created an overdraft task force to look at consumer concerns as well as how technology can be improved and the role of retailers and merchants processing transactions.

"This new rule addresses the primary concerns that have been raised by consumers and policymakers and will help bring consistency and clarity to overdraft programs. Our goal is to have a system that works well for banks and customers and keeps the payment system running efficiently," Yingling said in a statement.

The Fed rules also come as lawmakers in both houses of Congress are considering bills (H.R. 3904 and S. 1799) to curb overdraft abuses. The proposed bills are more far reaching than the Fed rules and include bans on multiple overdraft fees during a single month. Those bills also seek to regulate how debit card transactions are processed by banks. Consumer advocates have complained that transactions are processed to maximize fees for banks rather than chronologically as they occur. A hearing on the Senate bill is scheduled for Nov. 17 before the Senate Banking Committee.

Lawmaker: Fed rules don't go far enough

Rep. Carolyn Maloney, co-sponsor of the House bill, applauded the Fed for recognizing that the overdraft fee problem needs review, but said the Fed rules don't go far enough to address all of the practices harmful to consumers.
While these rules are a good, solid step forward, they don't eliminate the need for congressional action on this issue," Maloney said in a statement. "The Fed still allows institutions to charge an unlimited quantity of overdraft fees, would do nothing to make fees proportional to the amount of the overdraft, and would not address the manipulation of posting order of charges to accounts. Under the Fed's new rule, a $5 cup of coffee could still become a $40 cup of coffee after an overdraft fee is added!"

She added: "My bill does all that -- it caps the quantity of fees at one per month or six per year, requires that fees be reasonable, and prohibits posting-order manipulation, and includes all transactions, not just debit cards. Those are provisions I believe make for the strongest consumer protections, that's why Chairman [Barney] Frank and I have proposed this legislation, and that's what I believe the House will be passing."

Consumer groups have called overdraft fees "high-cost loans" and note that banks can decline debit transactions when there aren't enough funds but don't because of the profits they can make from the fees consumers pay. Advocates say banks often don't explain to consumers that they can avoid overdraft fees by linking their debit cards to other savings accounts or opening a line of credit -- less expensive alternatives to overdraft fees.
Eric Halperin, director of the Washington, D.C., office of the Center for Responsible Lending, criticized the Fed's "failure to propose or enact necessary safeguards against a host of unfair practices."

"Congress needs to step in to stop the abusive practices the Fed has known about for nearly a decade, but once again has failed to address," Halperin said in a statement.

Fed research: Consumers want choice

According to the Fed, which conducted consumer research on overdraft practices, most consumers would prefer to have a choice in enrolling -- or "opt in" for -- overdraft programs for ATM and debit card transactions. The research also showed that most people do want overdraft coverage for important bills such as rent, telephone and other utilities. Thus, the new rule applies to ATM and one-time debit card transactions but not checks. A 2009 study by the Center for Responsible Lending found most overdraft fees were generated at the point of sale, when consumers are using their cards at check-out.

The Fed rule also took steps to prevent banks from discriminating against customers who do not opt in by requiring that they have the same account terms, conditions and features as account holders who opt in to the fees. Anyone with ATM or debit cards prior to July 1, 2010, cannot be charged overdraft fees after Aug. 15, 2010, unless the bank or credit union has first gotten the consumer's consent to participate in an overdraft program.

"Overdraft fees can be costly," Fed Gov. Elizabeth A. Duke, who heads the agency's Committee on Consumer and Community Affairs, said in a press release. "Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs."

Said Maloney at an Oct. 30 congressional hearing on her overdraft bill: "The overdraft problem is significant and getting worse. The quantity of debit card transactions now exceeds the quantity of credit card transactions."

Friday, August 06, 2010

Investment Worries

Investing Worries:

Have you ever felt anxious about your investment portfolio? Who hasn't? A recent presentation, at one of my professional conferences, pointed out that five out of every six years will produce a stock market return sequence that either triggers anxiety or smacks your portfolio so hard that you wonder why you ever trusted the markets to begin with.

This is normal. Many people simply cannot handle stock market volatility, which is why the people who DO have, historically, tended to make more, over multiple ups and downs, than the people who kept all their money stashed away in Treasury bonds.

The question is: is there better way to handle the inevitable anxiety that comes with buying stocks?

Psychologist Ken Haman, who now works at the investment firm Alliance Bernstein, says that the key is to stay rational. He points to studies of the human brain which shows that all of us actually have two brains. One is the neocortex, where all of your higher thought processes take place. Below the neocortex is a primitive brain which is about as smart as an alligator, and this lower brain happens to be where all of our survival instincts are housed. Whenever you experience panic, the primitive brain immediately takes over and shuts down the neocortex--which allows you to respond instantly (rather than thoughtfully) on those many occasions when a saber-toothed tiger is running in your direction.

So when the markets have spent the past quarter giving up all the gains they generated in the first quarter, what do you do? First, talk with somebody who actually listens to you about how you're feeling. Then start to engage your neocortex. What do you imagine is going to happen in the future? Then move to: is that what you think, or how it feels?

Give us a call and we will help guide you through this process, and then, when your neocortex is functioning again, you can look at some of the past market declines and see what happened next, or look at your financial situation and take stock of your progress toward your financial goals.