Category Archives: Financial Health

Medicare Features Often Overlooked

Although Medicare is America’s largest payer for healthcare, participants are often unaware of the features and limitations of the program. It is a costly mistake to sign up for coverage, choose a supplement and drug plan and then never revisit the coverage. Want to save thousands? Here are some simple things to know about your coverage:

• Medicare does not cover medical care in a foreign country. Only Medigap plans C through G and M and N cover part of the cost of emergency care abroad during the first two months of a trip.

• You are paying too much for your prescriptions (probably). Choosing the right Part D prescription plan can save you thousands of dollars each year but a 2012 study showed that only 5.2% of beneficiaries picked the cheapest Part D coverage. And while you may have the least expensive policy this year, the coverage is rarely the least expensive two years in a row.

• Not all pharmacies charge the same price. Drug plans often offer “preferred retail cost sharing” to their members, meaning the pharmacy has contracted with the insurance company to provide lower-cost drugs than other pharmacies.

• You cannot buy a Medigap Policy to go with a Medicare Advantage plan. Medigap policies are only applicable when you are enrolled in Original Medicare.

• Cost of Medicare Part B goes up if your Modified Adjusted Gross Income is above $85,000 for a single and $170,000 for a couple. Your monthly premiums could be as much as $4,432 per year more for the same coverage!

Medicare Action Steps:

1. Purchase travel insurance before leaving the country. There are multiple companies that offer coverage that will provide you medically equipped transportation back to a hospital in your home country.

2. Go to www.Medicare.gov/find-a-plan/ to reprice your prescriptions each year. This handy tool allows you to input your regular prescriptions and compare plans to see which ones cover the prescriptions.

3. Shop the pharmacies with your coverage to ensure you receive the lowest price. Speak with the pharmacy to find out which insurance companies they have partnered with for lower costs or go directly to the insurance company to see if there is a pharmacy in your area they partner with.

4. Stop your Medigap policy while enrolled in a Medicare Advantage plan. If you’re switching from original Medicare to an Advantage plan, your Medigap policy becomes unusable. You have a short window to determine whether or not to keep your Advantage plan. If you decide you don’t like the Advantage plan, you can go back. However, if you keep the plan past the deadline, in most every case you cannot go back.

5. Manage your income to stay below the income thresholds. If your income falls below this threshold after paying the higher premiums, file a Medicare Income Life Changing Event form to reduce your payments.

6. Always review your coverage during annual open enrollment, from October 15th to December 7th. Don’t miss your opportunity to review your coverage. There may be some real savings to be found, but you won’t know unless you check.

How to Find a Fiduciary Financial Advisor

 

In 2016, the Department of Labor shocked the investment world by starting the process of requiring investment advisors who provide services to retirement plans (like IRAs and 401(k)s) to act in a “fiduciary” capacity. The term fiduciary, as defined by Merriam-Webster’s is “held or founded in trust or confidence”.1 In other words, the DOL submitted a set of rules to require advisors to be legally bound to act in the best interest of their clients. While the implementation of the rules has been stalled by Congress, the idea has thrown the world of investment advisors into a tailspin.

If you are like most, the idea that it is legal in the United States for financial advisors to act in any capacity OTHER than a fiduciary capacity is surprising. Unfortunately, it is true. You, like most, may believe that every advisor is required to place your interests above his or her interests at all times. Unfortunately, they are not. Even worse, the definitions are so convoluted that it is difficult for the average consumer to identify a fiduciary from a non-fiduciary. I hope this post helps.

Not All Advisors Are Created Equal

When it comes to narrowing the field to advisors who truly have your best interest at heart, there are essentially three different types of advisors and advisory firms in the U.S.:

  Investment Advisor Representatives (IAR): IARs are employees of independent, Registered Investment Advisor firms that are regulated by the SEC or state securities commissions. These advisors must always act as fiduciaries and must prove compliance to their regulating bodies. These advisors are generally compensated by a fee paid directly from the client (not commissions or compensation that comes from their affiliated company) and are often known as “Fee-Only” firms. IARs generally offer full pricing transparency and full disclosure of any conflicts of interest. This is easily the smallest segment of the investment advisory profession, accounting for fewer than 20% of the advisors in the U.S.

•  Registered Representatives: Registered “Reps” are employees of brokerage firms and are regulated by FINRA. Registered Reps are held only to a “suitability” standard which simply requires the advisor to determine whether the investment is suitable for the client; not necessarily the best for the client, not necessarily the least expensive and without the disclosure of any conflicts of interest. These advisors are generally compensated by a commission that is charged on the sale of the products they sell. This is the largest segment of the advisory profession.

•  Dually Registered Advisors: Dual registration means that the advisor may be registered with the SEC or the state securities commission as well as with FINRA. This allows the advisor to claim the standard of fiduciary at one moment and then, when the time is right, sell products on a suitability standard and charge a commission without full disclosure. Yes, amazingly, it is legal in the U.S. to call yourself a fiduciary while only serving in that capacity part of the time. It seems that most of the IARs in the U.S., who should be trusted as fiduciaries, are dually registered, making them non-fiduciaries when it is expedient.

How Can I Find a Fiduciary Financial Advisor?

As you can probably already guess, finding a true fiduciary financial advisor can be difficult, especially with the specter of dual registration. It is possible to identify the true fiduciaries by looking at their registration documents with the SEC or state securities commissions but the documents can be hard to understand and you must know exactly what to look for. Alternatively, you can conduct your own investigation by asking a few, very simple questions to eliminate the non-fiduciary advisors:

“How are you and your company compensated?”

•  A flat fee, hourly fee or a fee as a percentage of assets ONLY = fiduciary

•  Commissions or “I am paid by the company, you don’t pay me anything” = non-fiduciary

•  Fees and Commissions, Fee-based, Hybrid fee and Fee Offset = dually registered

“Do you receive ongoing income from any of the products you recommend in the form of 12(b)1 fees or trailing commissions?”

•  Yes = non-fiduciary

•  No = maybe a fiduciary

“Is your firm registered as an Investment Advisor and do you have an ADV Part II disclosure you can provide?”

•  Yes = fiduciary (but may be dually registered)

•  No = non-fiduciary

“Are you willing to sign a Fiduciary Oath?”

•  Yes = fiduciary

•  No = watch your wallet

For a more comprehensive tool to compare advisors, click here to access the National Association of Personal Financial Advisors Financial Advisor Comparison Tool. This is a free checklist and answer key to help you know the right questions to ask.

Feel free to present this questionnaire to Brown Financial Advisory. We have always been an independent, SEC registered, Fee-Only, fiduciary company. And since it is the right thing to do, we plan to keep it that way.

Source: 1https://www.merriam-webster.com/dictionary/fiduciary

Financial Pornography – What is to fear?

While certainly the title is an “attention-getter,” the problem, dare I say addiction, with Financial Pornography is more prevalent now than ever before. The 24 hour television news cycle, the ability to capture rousing financial information with the touch of a smart phone and the propensity of social media to disseminate enormous amounts of un-scrutinized information to the unsuspecting have created a minefield for investors.

So what is Financial Pornography? The term has been around for many years and Investopedia says Financial Porn is “A slang term used to describe sensationalist reports of financial news and products causing irrational buying that can be detrimental to investors’ financial health.” In 1964, Supreme Court Justice, Potter Stewart, gave a characterization of pornography that epitomizes something quite difficult to quantify by saying, “I know it when I see it…” While that may describe pornography in its most traditional sense, Financial Pornography is far more difficult to identify, especially for the lay person. Highly educated economists, world renowned writers, famous television personalities and even Ivy League educators contribute to the melee by publishing, loudly and with immense conviction, the next move of the market. Often, their predictions outline in intimate detail the rationale for buying the next stock, sector, industry, market, etc. or, even equally as damaging, selling the next stock, sector, industry, market, etc. So convincing are their arguments that many are compelled to take immediate action to take advantage of their foresight.

So what are the risks? Unfortunately, all too often it doesn’t work out as the experts had predicted. There are many logical explanations for the misinformation: 1) The markets are complex, global and constantly changing. By the time an expert releases an opinion, there is a good chance the data set has changed. 2) The expert may have little to lose, because by guessing often enough (educated guessing is still guessing) surely they will get it right the next time. Here is the rub; corrections and/or market declines are “easy” to “predict.” Think about it, the market declines every few years, always has. What has a media hungry analyst to fear from predicting a crash? Nothing, of course, since if the market doesn’t decline, everyone is happy and the analyst is “early.” If the market does decline, the analyst is a genius. He has nothing to lose. 3) Market timing, trying to find the right time to be in or out of the market, doesn’t work. Investors want to do all they can to avoid losses and/or maximize gains. But by trying to time the market, the average investor ultimately loses and many times is unable to recover.

Consider the following statistics from Morningstar1: “In 2009, money flew out of stock funds, but that proved to be the bottom of the market and a great spot to get in. Some investors were also leaning the wrong way in 2012 and 2013. The 10-year gap (in returns) between the average investor and the average fund ballooned to 2.49% by the end of 2013 from 0.95% at the end of 2012. In sum, the typical investor gained 4.8% annualized over the 10 years ended December 2013 versus 7.3% for the typical fund.” Now, 2.5% per year in annualized return doesn’t sound like much, but it is a 34% reduction in the annualized portfolio performance. In this 10-year period a $100,000 investment would have grown to either $159,813 (average investor) or $202,300 (average fund) a $42,487 difference…you choose. The guys from Morningstar get it right when they say, “The data tell a tale of poor timing, and it seems to be getting worse. I suspect the 24-hour news cycle inundates us with news and opinions leading to investing based on anxiety rather than logic. Don’t spend too much time watching TV news or checking your accounts. It only leads to bad behavior. Who cares if a talking head predicts gold will surge and stocks will tank? Focus on your needs and goals. As the data show, timing markets is too difficult, so have faith in your plan and carry on regardless…”

In short, avoid the porn.

1https://news.morningstar.com/articlenet/article.aspx?id=637022

Brown Financial Advisory is a Financial Life Planning firm dedicated to strategies that are designed to help people meet their personal financial planning goals and gain peace of mind. If you would like to learn more, please send us a message through the “Contact Us” button on the home page. We look forward to talking with you.