Rick Kahler's Financial Awakenings

We’ve been just deluged with calls wondering what’s happened to the podcast and webcast that accompanied the weekly column. Okay, “deluged” is pushing it, we’ve had three calls!

Unfortunately, our Pinnacle software stopped working about a month ago and after trying every fix imaginable, my typically savvy tech team is totally stumped. I’ve decided “when riding a dead horse, dismount,” and told them to start searching for some new webcast software. Hopefully it will be up and running before May is out.

In the meantime, I will drag out my old digital recorder and bring the podcasts current. But for now, the two of you who preferred to see my smiling face deliver my weekly wisdom will have to wait!

Just as all legislation produces unintended consequences, so do the things we purchase. It is a universal truth you can bank on.

For example, take my new purchase of some Turkish rugs for my office. They are hand woven and died with natural colors. My favorite is the burgundy and gold carpet that is colored with saffron and some type of red beetle juice. Okay, not an appetizing thought, but I’m walking on the carpet, not eating it.

Being a good steward, I called my insurance agent and had the new rugs scheduled on our fire insurance policy. Scheduling expensive personal items is important, because you may want broader coverage for them or they may exceed the personal-property limits of your business or homeowner policy.

As a result of scheduling my rugs, I decided to review my homeowner’s policy. I discovered that a number of recent art purchases were not scheduled. Neither were my boyhood collections of stamps and baseball cards.

A call to my insurance agent reminded me why. Premiums on scheduled items, especially collections such as stamps, sports cards, or coins, are expensive. I was quoted a rate of $1.44 per hundred dollars of insurance. That is about 1.5% a year of the value of the collectible. When I considered that some of my collections had actually declined in value over the past 10 to 20 years, paying such a relatively high premium only added insult to injury.

Doing what every wired 50-something now does, I Googled “collectible insurance” and found several companies that specialize in insuring collections. Before you buy from one of these companies, make sure it is licensed to operate in your state, find out as much as you can about it, and read the policy carefully.

The company I chose was Collectibles Insurance Agency from Hunt Valley, Maryland (www.collectinsure.com). It is an agency specializing in insurance for collectibles of all types, including unusual collections like arrowheads, limited edition lithographs, mineral specimens, and ephemera.

Their policy offers replacement coverage, meaning the company will replace the item with a similar type and value as the original item. You can elect coverage that is increased at 1% per month, not compounded. Burglary coverage is limited to $60,000 unless the collection is protected by a central station alarm or approved safe or bank deposit box.

Some other insured coverage includes mail and shipping, travel, exhibition, storage facility, and property of others. Excluded losses include wear and tear from dampness or extremes of temperature other than fire, infestation by insects, birds, and other animals (although cats are covered!).

The premium for $20,000 of coverage (assuming no alarm system or safe) costs $88 plus a $15 policy fee, for a total of $103. That’s $.51 per hundred, or one-third the cost of such coverage through my homeowner’s policy. Their policy is underwritten by the Hartford Insurance Company, rated an A+ by AM Best.

While they don’t require an inventory or appraisal on individual items worth under $5,000, you still need to have your own inventory to prove a loss. And therein lies the unintended consequence of my trip into scheduled coverage.

I was one of the fortunate kids whose mother did not throw out his baseball card collection. I have thousands of 1960’s vintage baseball cards—uninventoried—in a bank deposit box. I have long forgotten what I had, and of course, have no idea of the current value of the collection. Thus, I have embarked on what appears to be a summer project of cataloguing, grading, and pricing long-forgotten visages of Mickey Mantle, Willie Mays, and Roberto Clemente.

Enough for this week, I’ve got to get back to cataloguing.

Technology is a wonderful thing, when you know how to work it! KFG offers you some of the most advanced technology possible, with the intention of making your financial life simpler and more efficient. The challenge is that, to enjoy the benefits, you’ve got to know what is offered, where to find it, and how to get it to work.

For example, do you know how to:

Access all our teleclasses, which are available 24/7 on our website?
Search the KFG website for any topic?
Search the Internet for answers to any question?
Read, listen to, or even watch Rick’s weekly column on our website?
Receive all your TD Ameritrade statements online and save money?
Enlist our staff to help you set up your online banking accounts?
Set your spam filter to insure you receive our weekly emails?
Use RoboFrom and the Google Toolbar to transform your life (well, almost)?
Get email on your notebook anywhere you can get a cell signal for $15 a month?

Join us for the answers to these questions, and more, at our second annual technology workshop. The workshop will be held in our office on June 20th from 11 AM to 1:30 PM, MDT. Class size will be limited to eight KFG clients, so reserve your seat early. Lunch will be served. If you cannot attend, the session will be webcast on GoToMyMeeting and available on our website. Click here to register.

KFG clients were recently treated to author, speaker, and attorney Jeff Condon’s insights on practical estate planning. Jeff is the co-author of Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to your Children (and Others) (2001, Harper Collins). In the teleclass, he addressed:

• Why treating children equally is often unequal
• When to use a “protection trust”
• Will your instructions be followed, or will your heirs have a “better idea?”
• Unintended disasters your best laid plans may cause

The podcast runs just about an hour and is available on the KFG Clients Only section of the website.

I received several responses to the recent column about Mary, an elderly long-time client who was gradually deteriorating mentally and who fired me as her financial planner, co-executor, and her general and health care power of attorney. Several colleagues offered helpful suggestions.

Rich Colman and Gayle Knight Colman, of Colman Knight Advisory Group in Carlisle, Massachusetts, offer all clients a choice of signing a statement allowing them to contact someone of the client’s choosing if they believe the client’s behavior may be irrational. So far, all their older clients and many younger ones have given permission for this contact. While this would not prevent a client from firing an advisor, it would provide a method of discussing the issue and also involve another person in the decision.

Ed Jacobson, Ph.D., a coach and consultant in Madison, Wisconsin, suggested working with clients early on to create a contingency plan in the event of mental decline. This plan should then be reviewed periodically. He also suggested that, at any time of transition such as a move to a retirement community or a nursing home, the planner and the client should meet with other professionals (such as a financial coach or counselor, social worker, assisted living provider, and physician) to discuss the client’s needs.

I certainly endorse the idea of a contingency plan. For clients without close family members, perhaps the plan could include an agreement that the financial advisor could call for an evaluation if the client’s behavior appeared irrational. That evaluation could be done by several professionals chosen ahead of time by the client. This team approach might alleviate a client’s fears about being judged incompetent by the person managing the client’s assets.

Tom Simmons, an attorney with Gunderson, Palmer, Goodsell, and Nash in Rapid City, South Dakota, recommended putting the client’s assets into either an irrevocable living trust or a South Dakota Domestic Asset Protection Trust (DAPT) and naming someone other than the client as trustee. The trustee could be an individual (preferably not the planner) or a corporate trustee such as the trust department of a bank.

With either type of trust, the client, as the beneficiary, would have the power to fire the trustee. Concern about a trustee being fired irrationally could be mitigated to some degree by having a corporate trustee. Even if the initial trustee were an individual, the trust could be drafted to require that any replacement had to be a corporate trustee. In addition, with a DAPT, the beneficiary client would not have the power to amend the trust without the agreement of the trustee. This would give some protection against self-destructive choices by a client who was gradually losing competency.

One disadvantage of this approach is cost. Fees charged by corporate trustees are relatively high, because they presume that the trustee is managing the assets as well as administering the trust. If someone already had a financial planner, this would mean paying twice for the same management services. It may be possible to find a corporate trustee that charges a flat fee for just the administration of a trust.

My experience with Mary has confirmed the validity of my initial judgment not to serve as a trustee or power of attorney for a client. I made an exception in Mary’s case because she had no one else. Her isolation was precisely the underlying problem. She relied on me for services I should not have been the one to provide because she had no support system of caring family and friends. Perhaps the most important contingency planning any of us can do is to build and maintain that network of loved ones.

My daughter, London, has recently completed her second book, Blue Moon. Blue Moon is a prequel to her first book, The White Filly, in similar fashion to the earlier Star Wars movies. In the book, readers will discover what Sonya’s and Blue Moon’s childhood’s were like, before they met Karen.

In a recent interview with Ms. Kahler, she had this to say about her newest project: “In my prequel to my first book, readers will discover that Sonya was not always the tame horse she appeared to be and Blue Moon’s hidden secret!” Sounds intriguing!

I’ve recently learned that London’s stories have developed a small following of her friends and classmates, to whom she is reading her books during class. London just completed her fourth book and has begun her fifth. Obviously, her agent is a bit behind. Her third book will appear just as soon as her father gets around to placing it on the blog.

To read the book, click here: blue-moon.doc

Financial planning, as is obvious from the name of the profession, is directed toward the future. One important aspect of a financial planner’s work is “retirement planning”—helping clients invest and manage their funds to make sure they will have enough resources to take care of themselves in their later years.

We often use the term “retirement” as a euphemism, a softer phrase than the blunt “old age.” It’s becoming clear, however, that there isn’t one term that fits all aspects of people’s later years. This period of life has as many stages and variations as any other.

I have several clients, for example, who are in their 60s and retired from their careers. At the same time, they are caring for their own parents, who are in their 80s and 90s. Lumping these two generations together as “retired” or “elderly” makes no more sense than assuming 25-year-olds and 45-year-olds have the same needs, interests, and lifestyles.

It might be more useful to divide “retirement planning” into two subcategories. The first would be “active retirement.” These are perhaps the first ten to fifteen years after people have retired from full-time work. For most of us, this would probably be the years from the early 60s to mid or late 70s.

Part of what “retirement planning” means at this stage is having enough income to support you in doing the things you may have long wanted to do but haven’t had time for. Ideally, this is the period of time when people are still fully active, capable, and healthy, and when they also have enough time, freedom, and money. This is the period when many people travel, take classes, become active in community affairs and organizations, or even start second careers. This can be “crunch time” for many people—the time to take action to fulfill those long-held dreams, because if you don’t do them now, you probably never will.

This is also a time to continue investing and managing your resources for the future. Having some conservative investments that provide a secure income is certainly important for “young elderly” retirees at this stage. It’s also important during this time to keep a significant part of your portfolio invested in assets such as stocks that are focused on longer-term growth.

The purpose of maintaining future-oriented investments is to provide for the second phase of retirement—old age. This might be the period when people downsize, moving to smaller homes or relocating to be closer to family members. This is the stage when people need to consider possibilities for assisted living and other potential health-care needs. This is a time to review and refine your estate planning to be sure the legacy you have designed is what you want it to be.

What I see with clients is that “retirement planning” usually begins as only a vague intention to provide for one’s later years somewhere way out there in the future. This is especially true for the few people who begin to invest for retirement when they are in their 20s or 30s. The majority don’t get serious about even thinking about retirement planning until the 40s or even 50s.

In part, this reluctance to plan for the future may be because we associate “retirement” with the negative aspects of growing older. Investing for retirement might be more appealing to younger people if they focus instead on the “active retirement” phase. For most of us, this stage of retirement can be full of opportunities that can make it an enjoyable and fulfilling period. Wise retirement planning makes it possible to take advantage of those opportunities.

Davin made his national print debut in the April issue of the Investment Advisor magazine. If the decision was left up to him, I am sure he would have preferred Popular Electronics!

Columnist Olivia Mellan did a piece on fathers and sons titled, “Child Is Father to the Man,” that explores father/son relationships as they pertain to money.

Here is the excerpt from that column. “Recent research confirms my clinical experience that young men learn about money mainly from their fathers. There are exceptions, of course, if Dad is absent too much or Mom is the family’s primary money manager. But as a rule, sons are deeply affected by their father’s views on finances.

These lessons can start at a relatively early age. Rick Kahler, president of Kahler Financial Group in Rapid City, South Dakota, began giving his son Davin an allowance at age 3. At first, Davin spent the money every week. On one trip to a toy store, Rick said, they ran from toy to toy with Davin asking, ‘How much?’ Rick would tell him if he could afford it or, if not, how many weeks it would take to save up the money. ‘We had many shopping trips that ended in tears as he painfully figured out that there was far more he wanted than dollars in his pocket,’ Rick says. ‘I’ll never forget the first Saturday he walked out of the store, having bought nothing and with his allowance still in his pocket!’”

Also featured in the article were Ted and Brad Klontz! You can read the entire article at http://www.investmentadvisor.com/article.php?article=7560.

I was honored to have an article I co-authored with Ted and Brad Klontz featured in the April issue of the Journal of Financial Planning. The article, Helping Clients Change: 21st Century Tools from a 19th Century Fable, is written to financial planners with the intent of helping them be more effective in working with their clients.

What the Klontzes and I have discovered is that there are no difficult clients, just advisors who have run out of tools. Certainly, I’ve run out of my share of tools over the past 25 years! This article suggests that a fundamental tool in working with “difficult” clients is accepting that their past experiences affect their behavior in the present.

A Christmas Carol, by Charles Dickens, is a useful metaphor for helping people understand this truth. In the story, Ebenezer Scrooge was not a miser by conscious choice; he was acting in accordance with hidden beliefs about money, or money scripts. Destructive financial behavior is not about money, but grows out of unfinished business from the past; the Ghost of Christmas Past helped Scrooge come to this realization.

Integrated financial planning, which combines the emotional, or interior, aspects of finance with exterior financial knowledge, provides an expanded set of tools for working with financial planning clients. A fundamental precept of integrated financial planning is that understanding the past leads to clarity in the present, as the Ghost of Christmas Present helped Scrooge see the truth of what he had become.

The article suggests strategies that financial planners can use to help clients change. Sharing Scrooge’s story may be a first step toward helping clients achieve their own transformations.

About a month ago, on February 27th, the Dow Jones industrial Average lost over 400 points. The talking heads were predicting the beginning of the end. Investors featured on financial news shows had no idea where to invest next. Everyone was in a stupor–except seasoned investors, who took the one day crash in stride…..and did nothing.

For those of you who sat on your hands and did nothing, once again your investment maturity paid big dividends. On Thursday, just a tad over 30 days later, the Dow had regained the 400 points it lost. And, not only had the Dow bounced back, so had most foreign stock markets, including the Shanghai Composite Index, which has now hit new highs.

Of course, this is not to say markets always go up. They don’t. Markets do have bear markets. However, the average bull market is around three times longer than the average bear market. The evidence strongly suggests that investors who “buy and hold,” rather than panic and sell, come out way ahead.