Rick Kahler's Financial Awakenings

Here is a bit of news—my wife and I had a meeting with our financial planner this week. I can hear you thinking, “That’s news?”

Certainly, visiting your financial planner isn’t exactly news, any more than having an appointment with your accountant or getting your teeth cleaned would be news. It isn’t, at least, unless you are a financial planner yourself.

When people who know I am a financial planner heard me mention visiting my financial planner, their immediate responses were raised eyebrows. The reactions fell into two categories. The first is best summed up by the question one client asked me: “Should I be worried?”

She was wondering why on earth her financial planner needed a financial planner and whether that was an indication of my incompetence. Certainly, financial planners should be capable of doing their own financial planning, right? In reality, that is no more true than saying physicians should be capable of taking care of all their family members’ medical problems, or attorneys representing themselves in court, or therapists doing their own therapy.

The second response was just the opposite. As another client remarked, “That’s a pretty strong endorsement of your profession, that you think so highly of your services you seek them out from a peer.”

This latter reaction sums up my own view. I have gained significant benefits from having my own financial planner. For one thing, just because I’m fully capable of doing my own financial planning doesn’t mean I do it. Like many professionals, I put my clients’ financial planning far ahead of my own. It took me 20 years to begin to treat the performance reporting of my own investments in the same way I do those of my clients. My clients come first. With over 70 clients, there is always someone needing my attention. So my planning comes last, which isn’t fair to my family. Having a planner is a way for my family’s financial planning to get “equal time.”

It also provides more security for my wife. First of all, she is more fully involved in our financial planning. In addition, if I should die prematurely, my family would not be left stranded. If a financial planner who is doing his family’s planning dies, family members have lost their financial planner just at the time they need one the most. My wife draws a lot of reassurance from knowing that, if I died tomorrow, there would be someone she could lean on to help her through the difficult legal and financial process of cleaning up and distributing an estate.

Those personal benefits would be reason enough for having a planner. But that isn’t all. Having a financial planner is also a chance for me to grow professionally. It gives me a chance to see “up close and personal” how another planner practices. It gives me a benchmark to measure my services against and an opportunity to pick up some new ideas. For that reason, I am careful to select a planner (I’ve had two planners over the last 10 years) whom I respect and want to emulate in some fashion.

Perhaps the most significant benefit, as far as my clients are concerned, is that having my own planner gives me a chance to sit on the other side of the desk and experience what my clients experience. That has had a profound impact on my interactions with clients. For example, at one time I gave clients a 42-page form to fill out. Then I had to complete one of those forms myself. I’ve never given one to a client again.

The April 2008 issue of Parenting magazine included several quotes from Rick about ways to communicate balanced money values to your children. The article by Valerie Frankel was titled “Money Messages: What you’re telling your kids and how to communicate the values that matter most.”

The author had interviewed Rick a year ago for this article—just another indication of the timeless appeal for parents of information on teaching children how to manage money. To read the complete article, click here.

Rick was one of several financial planners cited in a article by George Mannes in the March 2008 issue of Money magazine. The article, “Goals: What you really want from your money,” focused on the value of clarifying your goals and values and deciding what a satisfying life would be for you. It described some of the methods financial planners use to help clients do this, calling The Financial Wisdom of Ebenezer Scrooge “one of the more engaging paths.” For the complete article, click here.

We’ve just scheduled an exciting teleclass for this week. Please join us on Thursday, March 27, at 4:00 p.m. MST (6:00 p.m. EST). My guest will be April Lane Benson, Ph.D., a nationally known psychologist who specializes in the treatment of compulsive buying disorder.

Dr. Benson’s new self-help book, To Buy or Not to Buy?: Why We Overshop and How to Stop, will be published in December 2008 by Trumpeter Books. She previously edited I Shop, Therefore I Am: Compulsive Buying and the Search for Self, a multidisciplinary approach to the problem of compulsive buying.

As well as providing group and individual treatment and coaching, Dr. Benson trains therapists who want to work with overshoppers. In 2006, she launched Stopping Overshopping (www.stoppingovershopping.com), a guided self-help program that is based on the successful treatment program she developed.

Dr. Benson has appeared widely in the media, including Good Morning America, Today, the CBS Evening News, and Oprah and Friends radio. She has been quoted in such national publications as The New York Times Magazine, The Wall Street Journal, and The Washington Post.

Don’t miss the chance to hear and interact with one of the nation’s top experts on compulsive buying. Sign up today. Click here to register.

A frequent lament in South Dakota is that we are close to “last” in this, that, or some other ranking. Certainly, there are areas where this is a very real problem.

There is at least one place, however, where our being at the tail end of things is an advantage. South Dakota was one of the last states to set up a 529 college savings plan. Because we were able to benefit from the experience of other states, we have one of the best-designed plans in the nation.

A 529 plan is an investment plan, operated by a state, designed to help families save for future college costs. Plans can be set up by parents, grandparents, siblings, aunts and uncles, or other relatives. Contributions to the plan are not tax-deductible, but no federal tax is due on any funds—including earnings—that are withdrawn to pay for college. The money can be used for tuition, books, and room and board, and can be used for any accredited college in any state.

One big advantage to these plans is their flexibility. If you have established a 529 plan for a child or grandchild who decides not to go to college, one available option is to shift the money from that account to another relative’s plan. Money that isn’t used for the original beneficiary can be rolled over into a new account, as long as the new beneficiary is related to the original beneficiary. The South Dakota plan’s definition of family is very broad, including in-laws, stepkids, sisters, brothers, aunts, uncles, and cousins. Beneficiaries do not have to be residents of the state.

A second advantage is that the donor retains control over the plan’s assets. Suppose you have a plan for a grandchild, who, at age 18, decides to join a cult instead of going to college. You retain the right to decide what to do with the kid’s 529 plan. It isn’t automatically handed over to the beneficiary to end up in the pockets of the Guru of the Fly-By-Night Temple.

Or suppose over the years you have put away a little money in 529 plans for your kids. Then you develop a debilitating illness and will be unable to work for several months. You can withdraw that 529 money yourself, paying a relatively small penalty of an extra ten percent tax on only the interest portion of what you take out.

South Dakota is among the 12 states that shield the assets in a 529 account from creditors of both the donors and the beneficiaries. There are no income limitations, such as those applying to education IRA’s, and no age restrictions. Even though the donor retains full control over the plan’s assets, contributions are considered to be completed gifts, and thus are not included as part of the donor’s estate.

Because of the many benefits, I’ve even had one or two clients set up 529 plans to fund ongoing education for their adult children. If the children choose not to use the accounts themselves, the plans can be rolled over into new accounts that give them a head start on college savings for their own children.

The current minimum for opening an account is $250 for South Dakota residents, with subsequent contribution amounts as small as $50. The upper limit is $325,000 on the total balance per account, which isn’t likely to be a problem for the average donor.

To find out more about South Dakota’s 529 plan, talk to a financial advisor, check out the website at collegeaccess529.com, or call toll-free at 866-529-7462.

Rick was featured in the November 2007 issue of Men’s Health magazine. The article, by Mark Millhone, was titled “Actually, Money Can Buy Happiness” and discussed six commonly held myths about money.

Rick was quoted on three ways to teach your kids healthier attitudes about money. Those are:

1. Teach them that smart money management is a basic 21st Century survival skill.

2. Talk openly about money.

3. Give them allowances early, but make them earn part of the allowance, and be consistent about enforcing rules that have financial consequences.
To read the article: click here

It’s St. Patrick’s Day. The forecast is for snow. That must mean spring—and tax deadlines—are just around the corner. It’s a good time to think about IRAs.

These individual retirement accounts are an attractive option for anyone beginning to save for retirement, especially those who don’t have access to 401(k) or other retirement plans through their work. It’s not too late to set up an IRA for 2007; the deadline is April 15. The maximum contribution for an individual for 2007 is $4000 per year, or $5000 for those 50 and older. For 2008, those amounts increase to $5000 and $6000.

An IRA is only available for those with earned income. Parents couldn’t open IRAs for their children, for example, unless the kids had earned at least as much income as the amount of the contribution to the IRA. Spouses can open separate IRAs, however, even if only one of them has earned income.

The two most commonly used types of IRAs are the traditional and the Roth. In the traditional one, your contribution is tax-deductible. The trade-off is that you pay taxes on the amounts you eventually withdraw. If you withdraw any of the money early, you’ll pay a 10% penalty in addition to the taxes. Under some circumstances, such as the contributor’s death or disability, the penalty does not apply.

Your contributions to a Roth IRA are not tax-deductible, but you don’t pay taxes when you withdraw the money. For younger people, the Roth is usually the way to go. Even though you don’t get the immediate tax deduction, you will come out ahead in the long run because you won’t pay taxes on what you withdraw.

One important point to clarify is that an IRA, in and of itself, is not an investment. It’s just a type of account that holds investments. You might think of the IRA as a container; the investment is the contents of that container.

When you open an IRA, all you do initially is deposit your money. Then you need to decide how to invest that money. You generally can buy stocks or mutual funds, depending on the choices offered by the company managing your IRA. As always, my recommendation is to go with mutual funds that are as diversified as possible.

There are many companies that can set up IRAs. These include banks and credit unions, online discount brokers, and insurance companies. It’s important to keep in mind that many of these institutions have limited choices for your IRA investments. In addition, the people you talk to may be salespersons whose income is based on commissions on whatever funds they sell you. That doesn’t mean such an IRA is a bad choice; it just means you want to be cautious and ask plenty of questions.

One of my pet peeves is so-called “financial advisors” who sell people variable annuities for their IRAs. This makes no sense—except to the salesperson who gets a commission from the transaction. Like an IRA, an annuity is a tax-deferred container to put investments in. Since your IRA investment is already tax-deferred, it makes no sense to put another tax-deferred investment inside it—especially since fees for annuities are high because you’re paying for insurance protection.

Before opening an IRA, it’s wise to do some research and educate yourself as much as you can. A good place to start is the Internet; go to www.irs.gov and search for IRAs. Many companies that offer IRAs also have basic information on their websites.

There are risks with IRAs, just as there are with any investments. Still, they are one of the best possible ways to begin building a retirement nest egg.

As some of you know, many of our clients live out of town and in other time zones. To accommodate these clients, along with those who live here, we have changed our office hours. We are now open from 7:00 am to 4:00 pm Mountain Time.

One of the ironies of my profession is that, if you want to accumulate wealth and financial security, you would benefit greatly from the services of a financial planner. Yet generally people can’t afford a financial planner until they have already accumulated some wealth.

This inherent contradiction raises a question. How can planners succeed as professionals, be compensated fairly for their expertise, and still provide services to people other than the wealthy?

Periodically I interview potential new clients who could benefit from my advice, yet whose assets are too small to justify my minimum fee. These interviews are frustrating, because they remind me I haven’t figured out how to help people who can’t afford my services.

Like most fee-only financial planners, I have a minimum fee. This is a necessity if I want to stay in business. It takes the same time, effort, and expense to construct an investment portfolio for $100,000 as it does $1,000,000. Because the industry standard for setting fees is based in part on the size of the portfolio, without a minimum fee I would earn the same paycheck from one person with $1,000,000 as I would helping ten people with $100,000 each.

Given the choice of earning $100 for one hour’s work or $100 for ten hours’ work, what would you choose? Financially, the decision is a no-brainer.

Yet the human element isn’t so simple. I know I have the knowledge and skills to help a large group of people. Yet, if I took the time to help every person I could, regardless of the economics, my staff would be overworked, my relationships would suffer, and before long my business would fail. So I choose to limit my services to those that can afford them.

But that doesn’t mean I and my fee-only peers turn a blind eye to those who cannot afford our services. Planners who wish to be personally responsible as well as professionally successful do feel an obligation to share their knowledge with those who don’t already have a high net worth.

Many planners try to give back to their communities by providing pro bono services to non-profit or charitable organizations. Others give talks to groups about the basics of investing or money management or volunteer with programs such as Junior Achievement, intended to teach school children about business, taxes, and the economy.

Many advisors give seminars or classes at a low cost. Offering such programs online makes it even easier to reach more people economically. One way I’ve chosen to make my advice accessible to anyone is by writing books. For $17 someone can obtain the general information that underlies the services I provide to my clients.

Increasingly sophisticated Internet tools enable financial planners to gather client information and distribute information quickly and inexpensively. This can help planners keep costs down and enable them to serve more clients who don’t have a high net worth.

The Internet also makes it possible for more and more people to access skilled and unbiased financial advice. One resource I recommend is Myfinancialadvice, Inc. (myfinancialadvice.com). This company provides online financial planning services at hourly rates.

The goal of Myfinancialadvice is to make fee-only financial planning available to middle-income clients. These consumers expect to and can pay for financial planning services. True, they can’t afford more complex services such as complicated asset protection plans, but they don’t need those services. Plain vanilla planning is more than sufficient.

Maybe you are also at that “plain vanilla” stage when it comes to providing for your financial future. If you’d like to find affordable help, the Internet may be a good place to start.

My office currently has a position open for a CFP professional. Recruiters tell me the biggest obstacle I have in recruiting someone is “Rapid City, SD.” One told me recently that all interest in this position evaporates when she tells them where they must move. “People think Rapid City is on the edge of the Arctic Circle.”

Such a view of Rapid City is really as inaccurate as it is unfortunate. Anyone who has spent any amount of time here knows that we have a micro-climate that is closer to that of Colorado Springs or Boulder.

Still, perception is everything, even if it’s wrong. My wife and I were in Chicago a few days ago and we froze our rears off! The high temperature of 24 degrees was accompanied by 80% humidity, making it bone-chilling cold. Almost every Chicagoan we met, on finding out where we were from, responded, “Oh, wow, it must be really cold there.” When we would tell them it was 45 degrees in Rapid City when we left and that we made sure we packed our sweaters when we came to the Windy City, we could see the disbelief written on their faces.

We were so glad to get back to Rapid City and warm up. Today, just a few days later, it’s a balmy 73 degrees on the 1st of March!

Don’t cry for us, America!