Rick Kahler's Financial Awakenings

While the rest of the investment world had a frenzy over the stock market decline last week, KFG clients took the decline in stride….maybe with a yawn! We’ve “been here and done that.”

Indeed, the Dow declined about 5.2% from its all-time high on July 19th. However, a portfolio with asset class diversification was down around 3.5%. That is 33% less of a decline than the Dow.

What is asset class diversification? In addition to the usual asset classes of US and international stocks and bonds, a diversified portfolio will also include real estate, commodities and natural resources, market neutral funds, junk bonds, and Treasury Inflation Protected Securities (TIPS).

KFG clients have heard me say for years that the recent markets are doing far better than what is sustainable over a long period of time. Good investors know that what goes up will not continue to go up forever. Personally, I think another 5% to 10% fall in the Dow would be a good thing, washing a lot of optimism out of the market and building a solid foundation for another advance. But it really doesn’t matter what I think, does it? The market will do what the market is going to do. We just need to have a well-diversified portfolio and hang on for the long run.

What is Rick doing with his computer standing in the middle of the Badlands? For the second time in a month, Rick’s integrated financial planning practice was featured in a national trade magazine. The Wealth Manager magazine, July 2007 issue, featured Rick and two other rural planners in an article titled, “Green Acres” by Bobbi Dempsey.

Dempsey writes, “Kahler has become a trendsetter and has grown accustomed to being told he is “years ahead of the curve.”" The article goes on to feature Rick’s heavy use of technology and his “unconventional approach” to incorporating financial psychology and partnering with therapists. Kahler partners with therapists trained in financial therapy to help some of his clients, who are stuck, to move through and resolve the tougher issues of cash flow, investments, and estate planning.

“It appears I am one of the only financial planners in the nation that will work in tandem, meaning jointly, in the same meeting, with a therapist. The outcome of this process is incredibly powerful and transformational for the client,” Kahler is quoted as saying in the article.

Of course, people from major metropolitan areas have trouble imagining someone from rural America being a trend setter, which was the point of the whole article. Rick told Bobbie, “I believe people in my town are a litttle less into appearances than in a larger city. Clients who move here from larger cities love the lack of pretentiousness in the people here.”

Michael Haubrick’s teleclass with Rick is now available on the KFG website. Michael is known for creatively blending traditional financial planning with current thinking and tools to meet the work and life realities of today’s clients.

Since starting Financial Service Group in 1981, Michael has been a relationship-focused industry innovator who is passionate about his fiduciary responsibility. In 2006, Michael introduced Career Asset Management (CAM) to the financial planning and career coaching professions. Mike has been working on this unique planning topic for the past several years and has been quoted in the major financial planning magazines as well as newspapers around the country. Mike’s view of clients’ careers as a dynamic part of their lives is in stark contrast to the traditional financial planning approach of viewing your career as a binary issue of either working or not working. Career asset management is a process to help you manage your career so you gain financially, are doing the work you want, and have the work/life fit you need.

To listen to the interview, you must have a user name and password for the “client only” section of the KFG website. If you are a client but don’t have those set up, please contact Kahler Financial at (605) 343-1400 and someone will assign you your own user name and password. Then you will have access to listen to all KFG teleclasses and workshops.

Click Here to log in and listen to “Career Asset Management™” with Rick and Michael.

It’s a momentous time in the book publishing world. J. K. Rowling’s seventh Harry Potter book finally came out. So did the second edition of Conscious Finance.

For some reason, the second of these two events didn’t get quite the same attention as the first. Maybe it’s our marketing. Perhaps we should have chosen a title like Conscious Finance for Wizards or The Enchanted Guide to Wealth and Success. We might get more attention if our book promised magical ways to get rich in a hurry, cure overspending instantly, or get rid of the anxiety often experienced around money. Certainly, there are books that make promises almost this extravagant. Some of them have sold exceedingly well.

To be honest, though, I think the reason Rowling’s books have sold just a few more copies than Conscious Finance is their content. I haven’t read the Harry Potter books, but my wife and daughter have. From what they tell me, it’s just possible that the stories about wizards and magical creatures are a tiny bit more dramatic and exciting than our book about building a healthier relationship with money. My first clue was the audible groan and quick change of topics to horses when I suggested my daughter might read Conscious Finance when she finished with Harry.

Most of us would love to have magical powers and be able to get whatever we wanted by simply waving a wand. It’s only natural to want an easy route to success or a quick fix. The promoters of get-rich-quick books and workshops take full advantage of that wish.

Yet the surest ways to build wealth don’t include betting the house on the newest, surest stock, using inside information, or owning highly leveraged real estate. Most of those who try to time the markets and gain fortunes overnight forge a proven path to poverty. Instead, the wise way to build wealth is to use a common-sense strategy of diversified investments, held for the long term. It’s routine. It’s mundane. For everyone except those of us who love left-brained number crunching, it’s boring.

That’s certainly not as exciting as using magic. Still, remember that Rowling’s books are set in a school. Before her young wizards and witches get to reap the exciting and dramatic rewards of using magic, they have to learn their skills—complete with homework and disciplined practice. Even magic, it seems, has its mundane and tedious side.

Lesser authors who are envious of J. K. Rowling’s success might see the rewards she has gained and ask, “Why weren’t we that lucky?” We can be in awe of the incredible numbers of books she has sold, her fame, and her wealth. In the same way, those of us with modest incomes and lifestyles can envy the rewards enjoyed by successful people like Bill Gates, Warren Buffet, or even our friends and neighbors who seem to have more than enough.

What we often fail to notice is the work and commitment behind those successes. Much of J. K. Rowling’s “luck” was earned by telling a great story set in a well-crafted imaginary world. Yes, maybe that world is filled with magic, but she built it the old-fashioned way—by sitting at her desk and writing, one word at a time.

When it comes to building wealth and using money to enrich your life, there’s no magic involved. It’s something that ordinary people can do, if they are willing to learn the basics, practice some self-discipline, and commit to investing in their future. That takes a bit longer than using magic, but the rewards are every bit as satisfying.

Ted Klontz, Ph.D., one of the nation’s leading couples coaches, will conduct a workshop on Saturday, September 1, 2007, at our office in Rapid City, SD.

I’ve witnessed Ted’s talents in working with couples through my co-facilitation of the Healing Money Issues workshop at Onsite Workshops. Ted has a unique ability to take a couple, regardless of the state of their relationship, to new levels of communication they’ve never thought possible. He works with a wide range of clients, from inner-city couples to the rich and famous.

Ted’s been featured on the Today Show, Naomi Judd’s New Morning talk show, The Wall Street Journal, Men’s Health, and many more too numerous to mention. Ted is also one of my co-authors of the book The Financial Wisdom of Ebenezer Scrooge.

I am really, really excited about this opportunity for clients and readers of this blog. I promise you, this will be an event you will not want to miss!

The workshop is limited to the capacity of our conference room, which is 5 couples. Registration will be on a first come first served basis, with preference given to KFG clients. If we develop a significant waiting list, we will consider moving the venue and opening up a few more seats. However, I can’t promise that, so your best insurance that you have a seat is to register immediately.

The cost is $495 per couple for non-KFG clients and $249 for KFG clients. A 50% deposit is due within 3 days of your registration and the balance is due one week prior to the workshop. After the final payment, there will be no refunds for cancellation, unless we can fill your spot with a couple on the waiting list. The workshop will start at 9 AM and go to 4 PM, with a one-hour break for lunch.

Marcia and I have just put in our reservation, so we have four spots left!

To register click here, now!

According to Wealth Manager magazine, Kahler Financial Group is ranked as the largest financial planning firm in a seven-state area. Wealth Manager defines “largest” according to the size of the average client’s assets rather than the size of the firm. Still, when I consider the small number of staff members in my office, I find that rank amazing. I am proud of them, as well as very grateful for their hard work and their dedication to client service.

Because of our growth, I am facing a decision that is a chronic dilemma for owners of small businesses. All of us need to answer, again and again, the question: “How big do I want this business to be?”

I have been looking at adding another financial planner to my practice. The advantages are obvious: being able to accept more new clients, having another planner in the office when I am gone, and freeing more of my time for speaking, writing, and expanding our services.

There are disadvantages, as well. The first is the challenge of finding a planner whose philosophy matches mine, who is committed to doing the integrated financial planning that is the heart of my practice, and who wants to live in Rapid City, South Dakota. Others include the need to delegate and share responsibility with a second planner, the probable need to add support staff, and the need to actively seek out new clients in order to support a second planner.

No matter what field a business owner is in, there are always going to be pros and cons when it comes to expanding. For an entrepreneur, building the business can be tempting for its own sake. Growth means the ability to reach more clients or customers, an expectation of higher profits, and increasing the value of the business against a time when you might want to sell it. It may allow more opportunities for family members to participate if they wish to. It can take pressure off of the owner and give clients assurance that the service they’ve come to expect from you will continue in the future because there are others in the company with the training and ability to do what you do.

The arguments against growth include the risks of losing touch with some aspects of the business and losing control over the quality of the services the business provides. With each new employee you add, you exponentially compound and complicate the office relationships. The more relationships, the more management required of the owner. With expansion comes the need to find, hire, and train managers—as well as the need to delegate to them and let them manage.

As your business grows, you may expand yourself right out of the technical hands-on aspects of your profession that you most enjoy. Instead of working “in the business” your time is consumed working “on the business.” Unless an owner is consciously aware and prepared for this shift in roles, the results can be disastrous. This transition is the focus of The E Myth, a book I highly recommend.

The question of how big a business should be has no single right answer. The key is to make your decisions about growth as consciously as possible by getting as much information as you can and by carefully considering pros and cons. Even more important is to define and think through what your goals are for yourself and for the business. It’s essential to decide how you most want to spend your time on a daily basis. Then you can more readily decide how big you want your business to be.

According to The Kiplinger Tax Letter, Congress is on the move to increase government revenues. Senate Democrats have a plan to raise nearly $1 billion more for their 2008 budget. This means you can expect to be paying more in taxes in the near future.

The name of the proposed legislation is the Fair Flat Tax Act. Of course, the name of most legislation is often the opposite of what it says. As with all tax overhauls, there are winners and losers.

First, the losers, which is everyone. The act would reduce the current six tax brackets to three: 15%, 25%, and 35%. The bad news for low-income filers is the elimination of the 10% bracket. As bad as that may be, it gets even worse when you see the new breakpoints. For couples filing jointly, the lowest bracket of 15% would extend to $30,000 instead of the current $63,700. The 25% bracket would extend to $120,000, which is similar to the current breakpoint of $128,500. The 28% and 32% brackets are eliminated, leaving a 35% rate on all other income. All in all, this is a very significant tax hike for rich and poor alike.

To help offset these increases, the act raises standard deductions to $30,000 for joint and $15,000 for single filers. This would help soften the impact of eliminating the 10% tax bracket, especially for the lower end taxpayers.

Probably the most puzzling thing this act does not fix is the alternative minimum tax (AMT). There is broad bipartisan agreement that something has to be done to index the AMT tax. This tax was instituted to make sure the rich were paying their fair share. The problem, as with any tax law that isn’t indexed for inflation, is that the AMT is now racheting up the tax bill of many middle class taxpayers.

Of course, this act would increase taxes on the rich. One sure sign of being “rich,” as defined by Congress, is that you have spent less than you consumed and have invested the difference. The act would eliminate the long-term capital gains and the preferential tax on dividends. Instead, it would tax all long-term capital gains and dividends at ordinary rates. For most Americans, taxes on investments held for over a year would nearly double.

I would expect this to negatively affect stock prices for several years. It would definitely mean investors would need to restructure the way they hold investments in individual accounts versus retirement accounts. It also means that if you have appreciated stocks or property you’ve been thinking of selling, before this act passes may be a good time to liquidate.

For regular corporations, the 15% and 18% tax brackets would be completely eliminated, setting a flat tax on corporate profits of 35%. This basically would triple taxes on small business owners with profits under $50,000, while leaving the big corporations unscathed.

Employees would have to pay tax on benefits that heretofore were tax free. The act would pretty much eliminate many of the perks afforded to employees of corporations, such as pre-tax life insurance, flex plans, workers’ compensation, and company-provided meals and lodging.

The fact that higher taxes are in our future really surprises no one. Philosophically, the Democrats have favored more government services, which means more spending, which means higher taxes. If they are going to pass this act before the election, it will need to happen very quickly so that voter memories have sufficiently faded come election time. My guess is that we won’t see any significant change in the tax law until 2008. Then, it will be Katie bar the door.

In the August 2007 issue of Bloomberg’s Wealth Manager magazine, Kahler Financial Group was honored as one of the top financial planning firms in the nation.

The survey, which ranks firms by the size of the average client’s assets, ranked Kahler Financial Group as the largest financial planning firm in a seven-state area. Those states include: South Dakota, North Dakota, Montana, Utah, Wyoming, Nebraska, and Iowa. Add the state of Minnesota, and shockingly, KFG is the second largest firm in the surrounding eight-state area. Including Kansas and Oklahoma makes KFG fourth in a ten-state area.

Bloomberg limits its listing to the top 500 planning firms in the nation. When compared to the entire United States, KFG is 142nd, down from 126th last year and up from 212th the year before.

I am proud of our team here at KFG for providing a high level of service to our clients, especially in light of the tremendous growing pains we’ve experienced over the past year. Once again, we wish to thank you for your continued business and trust. As important as this news is to us, we realize that it would not be possible without our clients and our support in the business community.

Those who have gone before me assured me this day would come, and it finally did. My children asked me THE QUESTION. No, not, “Where do babies come from?” This was an even tougher question: “How much money do you make?”

Had it ever occurred to me to ask that question when I was growing up, the answer probably would have been some vague parental version of, “That’s none of your business.” I suspect the same would have been true for most of us.

Today, however, my work emphasizes helping clients build healthy relationships with money. That includes encouraging them to examine our learned belief that money is a taboo subject for discussion.

It would have felt wrong, then, to brush off my kids’ question with an evasion like “More than I deserve,” or “Less than I should.” At the same time, I don’t want my children to grow up with a sense of irresponsibility or entitlement around money. Simply giving them a number didn’t seem like enough of an answer. I also knew I would lose their attention in a hurry if I started in on a lecture about the value of money or the benefits of hard work.

With the societal taboos against disclosing how much you make and what you are worth screaming at me to “shut up!”, I took a deep breath, and I told the kids my daily income. They were impressed. I helped them apply some of their math skills to figure out how much that was weekly, monthly, and annually. Then I went on to tell them some of the things that income pays for: our house, food, tuition at their schools, taxes, gas, utilities, saving for the future, and so on. They were aghast at how much those items cost.

I then told them one of the best ways to insure they will have enough money someday to be financially independent is, out of every dollar they earn, to pay their taxes first (about 10 to 20 cents), put 20 cents in investments, and live on the rest.

Then came the second question, “How much money have you saved, Dad?” Here, I was a little more reluctant to give them a number, but I did tell them I’ve saved enough to replace my current salary so I could maintain my current standard of living. I also had a chance to explain that one million dollars isn’t as much as it sounds and doesn’t provide a person with an opulent retirement income.

Since my daughter is 10 and my son is six, obviously they understood the topic at different levels. Still, both of them were interested, attentive, and engaged. We went on to talk about the importance of doing work that you enjoy, and about the average income they might expect from some of the careers they’ve talked about wanting to have when they grow up. The whole conversation took perhaps five minutes.

I don’t know whether either of them will use this information for “My dad is richer than your dad” conversations with their friends. Actually, I don’t know whether either of them will even remember the numbers.

What I do hope is that this conversation is a beginning for them to understand a few basic ideas: that working for a living is the norm, that the money you make is used to provide the things you need and want, and that it’s preferable to earn money by doing something you enjoy. I also hope they’ll grow up with the idea that money is a topic that can and should be discussed in a respectful and matter-of-fact way.

Noted financial editor, Bob Veres, (http://www.bobveres.com/) featured Rick’s work with integrated financial planning in his July “Inside Information” newsletter.

The article, titled “The Therapy Alliance,” explores the work Ted Klontz, Brad Klontz, and Rick have pioneered in blending traditional financial planning with financial therapy. Rick’s vision of the future is that the highest level financial planning engagement will involve tradtional financial planning, financial coaching, and financial therapy. Rick calls this “Integrated Financial Planning.” Rick suggests the financial coaching and therapy portions of the integrated financial planning engagement will be delivered by trained or certified coaches and therapists, not the financial planner, as is the case in current “life planning.”

Says Veres of Rick’s vision, “We can now see where the evolution of life planning services is taking us–and how it may benefit [planners] and [their] clients more than you realize.” Later in the article, he adds, “My instincts tell me that this planner-therapist alliance may be the endgame for where the life planning service is going.”

“Bob Veres is one of the most respected and followed financial editors in the financial planning profession. To have my vision of the future of financial planning affirmed by him is no small compliment,” says Rick.