Planning

Paul Tramontozzi was invited to the Federal Reserve Bank to discuss elder fraud in financial services

My Day at the Fed

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My Day at the Fed

As many of you know, cognitive impairment is an issue that is very important to me. I lost my father earlier this year to Lewy Body dementia. The experience gave me a new perspective on managing a family’s finances. Without a plan and the right advice, it can be like walking through a minefield.

I was recently asked by the Federal Reserve Bank of Philadelphia to share my personal and professional experiences working with retirees with diminished capacity. The Fed was hosting a conference on Aging, Cognition, and Financial Health. The purpose was to bring thought leaders in the financial services community together to combat financial exploitation instead of waiting for regulation from above. At this event, I was able to meet with many federal regulators, advocacy groups, and executive leadership within the financial services industry. These individuals can shape policy, increase awareness, and influence the financial professionals that work with retirees. Here are some of the points that I made when given the opportunity:

New FINRA Rules 4512 and 2165 are a good start

Effective February 5th, 2018, two new FINRA regulations will go into effect that are a step in the right direction to combat potential financial abuse of the elderly. An amendment was made to FINRA Rule 4512 that:

“require members to make reasonable efforts to obtain the name of and contact information for a trusted contact person for a customer’s account; and (2) adopt new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit members to place temporary holds on disbursements of funds or securities from the accounts of specified customers where there is a reasonable belief of financial exploitation of these customers.”*

Although many financial service professionals are already making an effort to discover trusted persons in a client’s life, this amendment will make it a requirement. The ability given by Rule 2165 to slow down a transaction if there is suspicion of financial exploitation will also be a useful tool. However, there is still more that needs to be done. The reality is that a large percentage of financial abuse comes from one of the “trusted” persons in a victim’s life. Compliance departments at financial institutions need more leeway to address financial exploitation when it involves a trusted person.

POA isn’t foolproof

Although a power of attorney (POA) is an important legal document for a retiree, they aren’t always enough to prevent financial exploitation. Most POAs are durable which means the chosen agent has the power to make financial, legal or health decisions on someone else’s behalf regardless of the mental capacity of the person who drafted the POA. In the case where the agent is the “trusted” person committing financial fraud, this document can actually make it easier for them to exploit their victim.

Another potential shortcoming of a POA involves the inclusion of a springing provision. Instead of giving an agent the power to make decisions immediately, this provision makes the agent’s power effective at some point in the future. It is usually when the person who appointed the agent is diagnosed with a cognitive impairment by a doctor. Even if the agent has the best intentions, a diagnosis may come well after the point of actual cognitive decline. The damage may be done by the time the POA goes into effect.

Know your client

In some cases, financial exploitation can be uncovered by a financial professional simply knowing their client, the people in their life, their spending habits, and their lifestyle. This will require more training for employees of financial institutions that work directly with clients. There is also optimism that advances in data gathering technology will make it easier to spot any abnormalities in transactions that could be a sign of financial abuse.

It’s also important to remember that the issue of financial exploitation with the elderly is not limited to persons with a mental incapacity. It’s an issue for all retirees. Those in the financial services industry that work with the public are on the front lines and have an opportunity to get ahead of it.

More That Can Be Done

It’s not uncommon for me to meet with a retiree for the first time and learn that they have little understanding of the mechanics of certain financial products that they own. They could be unclear about what is actually guaranteed or what a reasonable expectation should be for investment returns. Marketing material for variable annuities, market linked CDs, and permanent insurance products can be very difficult for many to understand, let alone someone whose cognition is in decline. The material that is used to market many of these products should be appropriate given the prospective audience is typically older individuals.

I suggested basic product questionnaires be used during the sales process to assess the prospective buyer’s understanding of what they are getting into. I emphasize the word “basic”, because, in my opinion, most prospectuses and applications of financial products have pages of disclosures that do very little to assess the client’s capacity to understand how the product will function.

Over the years our retirement system has transitioned from one of defined benefits (pensions), which took a lot of the decision making out of the hands of retirees, to one of defined contributions (retirement accounts) which puts the onus on the retiree to manage their finances. As retirees continue to live longer lives due to medical advancements, the need to put a better system in place to service their finances will continue to grow. It was a great experience to be in a room with those that recognize the need for this change and are acting on it.

*Source: FINRA.org

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Stratos Wealth Partners, Lob Planning Group and LPL Financial do not provide legal and/or tax advice or services. Please consult your legal and/or tax advisor regarding your specific situation.

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charitable giving with a donor advised fund

Giving Through a Donor Advised Fund

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How Your Charitable Giving Can Benefit From a Donor Advised Fund

It’s not easy keeping up with the proposals by the GOP regarding tax reform. However, two common goals that keep coming up are to decrease income tax rates and increase the standard deduction. This could effectively decrease the benefit of charitable deductions. A decrease in income tax rates could ultimately decrease the value of a deduction. Raising the standard deduction, would mean less people itemizing their deductions. This could lead to less charitable deductions altogether.

Why not a Donor Advised Fund?

An overlooked tool for charitable giving in 2017 is a donor advised fund. By putting money into a donor advised fund (DAF), you could take the charitable deduction this year, but direct that money to charitable organizations later on. A donor advised fund is an account that is held with a sponsoring charity where a donor can make a charitable gift. If you are charitably inclined, it is a way to set up a vehicle to manage these funds with ease. Once the gift is made, the donor retains the ability to recommend how the sponsoring charity directs that gift over time.  A successor can even be named to the DAF to continue directing gifts from the fund after the donor passes away.

Still take the Charitable Deduction

The tax benefits are similar to a gift that is made directly to a public charity. It may qualify for a charitable income tax deduction equal to the fair market value of the gift in the year that it was made. It would be subject to the same income limitations as charitable donations. Currently no more than 50% or adjusted gross income can be deducted for cash gifts and 30% for property with a long term capital gain. Unused deductions can be carried forward for up to 5 years.

Taking some gains without paying Uncle Sam

With equity markets at all-time highs, many investors find themselves holding assets with large capital gains. These assets can be donated to a DAF, and once in the fund, can be sold without incurring a capital gain tax. This makes it a great strategy for highly appreciated stock. It can also reduce a concentrated position in your portfolio. The funds can then be professionally managed until they are granted to a charity.

DAF in Action

Let’s say you purchased a stock position with a fair market value of $2,000 and it has increased in value to $10,000. If your intention is to donate $10,000 to a charity, you may want to consider putting the stock position in a DAF now, and direct that money to various charities over time. This way you may receive the $10,000 income tax deduction immediately subject to your income and you will not be obligated to pay a capital gain tax on the $8,000.

You should always consult an accountant before making tax planning decisions and work with a trusted financial advisor to see how your charitable giving may benefit from the use of a donor advised fund.

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

While donor advised funds have many advantages, some disadvantages to be aware of include but are not limited to possible account minimums, strict limits on grant allocations, management fees and the potential that future tax laws may change at any time that may impact the tax treatment and benefits of donor advised funds.

Stratos Wealth Partners, Lob Planning Group and LPL Financial do not provide legal and/or tax advice or services. Please consult your legal and/or tax advisor regarding your specific situation.

 

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Have a financial plan for the new year.

Instead of Resolutions, Have a Plan

Instead of Resolutions, Have a Plan

The last weeks of the year are a good time to reflect on all that we have achieved in 2016. It’s also a time to think about areas where we could improve. If you have put off addressing your personal finances, here is how working with a financial planner can help you reach your goals in the New Year.

  • Setting up the ground rules. When you meet with a financial planner, the first objective is to establish the services that you need and determine the scope of the relationship. If there are any conflicts of interest, they should be presented at this time. You should leave the first meeting with a clear understanding of your responsibilities, as well as the role that the financial planner will play and their compensation.
  • What are you planning for? In order for a financial planner to effectively help, you need to be able to define your personal and professional goals. Whether you are saving for college, preparing for your own retirement, or planning to open a new business, they can work with you on prioritizing your goals. It is important to understand your background, needs, and values in order to put together a plan that you will stick with.
  • Start with what you have. A financial planner will work with you to determine what you already have and how you are managing your cash flow. Many of us have self-directed investment accounts, employer retirement plans from an old job, investment products that we purchased from our bank or insurance policies that haven’t been reviewed in a while. A financial planner can look at the big picture to make sure these accounts are in line with the goals that have been established. When analyzing your cash flow, it’s important that you are contributing to these goals on a regular and defined basis.
  • Bringing it all together. The financial planner will now determine if your current course of action is adequate to achieve your goals and if not, recommend alternatives to your current situation. Assumptions used to arrive at a recommendation should be clearly explained as well as the potential risks involved.
  • Putting the plan to work. Once the plan has been established, it is time to put it into action. This could involve making changes to current investments, insurance policies, or consulting with outside professionals when necessary.
  • Making changes and being proactive. A financial planner will monitor your situation on an ongoing basis to make sure you are following through with your plan. When life brings changes, your plan should reflect them. By partnering with a financial planner, they will work with you to anticipate these changes and adjust your plan when necessary. They will help you take the emotion out of important financial decisions.

Take the initiative, and speak with a financial planner to help you make the most of 2017.

All the best in the New Year.

 

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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Create a financial plan for you and your loved ones

Preparing for Tomorrow

Preparing for Tomorrow

What is your plan for optimizing your quality of life as you grow older?

When a loved one is diagnosed with a cognitive disorder, it can have a lasting effect on the entire family. I recognize that financial planning increasingly becomes a family issue. In addition to professional investment management, I aim to partner with my clients in preparing for the challenges that potentially lie ahead.

To assist my clients, I offer the following services:

  • Organization of Assets- Do you still have stock certificates, paper bonds, or accounts at several financial institutions? We will start by cleaning up your financial house by consolidating accounts and converting paper stocks or bonds into electronic records.
  • Comprehensive Investment Management- Whether it’s paying for a home aide, making changes to a family member’s housing situation, or having a desire to leave a legacy to family or charity, we can implement an investment strategy with the goal of keeping you in control of these important decisions.
  • Cash Flow Analysis- In retirement, it is important to have a plan to replace working income with investment income. We can establish a disciplined distribution strategy to help manage the day to day cash flow needs of your household and reduce the risk of outliving your retirement money.
  • Long Term Care Planning- According to the Department of Health and Human Services*, 52% of people turning 65 can expect to use some form of long-term care during their lives. The rising costs of long term care can become a significant financial burden on a family. We will explore all options to help mitigate this risk, including insurance or allocating existing assets to cover the potential need.
  • Integrated Tax Planning Strategies- After reviewing your current situation, we can work with your tax professional to determine if you are taking advantage of all current and newly adopted tax laws. In regards to planning, gifting and trust strategies can minimize-or potentially eliminate-the taxes for you and your heirs.
  • Estate & Trust Strategies- You worked hard to build your nest egg, and it’s important to ensure your wishes are met when you are no longer able to advocate for yourself. By working closely with your attorney, we can help ensure that your current needs and expectations are being fulfilled through your estate plan.
  • Analysis of Social Security and Medicare Benefits- In retirement, Social Security will typically be the foundation of your income, so it is critical to develop a claiming strategy that maximizes the amount that you are entitled to. When it comes to Medicare, the enrollment process and timelines can be overwhelming. Missing a deadline can leave you without healthcare for months and result in costly penalties or delays.
  • Access To Your Most Important Documents- Over the years, we accumulate a lot of important paperwork that we may need to access quickly. This becomes difficult if we are splitting our time between two homes or we have authorized a trusted person to represent or act on our behalf. To offer confidence, insurance policies, wills and estate documents, legal contracts and financial statements can be categorized, filed, and retrieved online 24/7.
  • Help Protect Against Elder Scams- During tax season, fraud that targets taxpayers is on the rise. Whether it is tax identity theft or an IRS imposter scam, senior citizens are becoming the most likely victim. I can help prepare your family to be aware of possible threats.
  • Access to a Trusted Network of Senior and Elder Care Specialists- I understand the growing need for elder care services and I strive to work with the best professionals in the industry. Whether it is navigating through the Medicaid process, getting guidance on housing, or finding an Aging in Place association nearby, I can help connect you with reputable resources.

Through working with families, I aim to reduce the risk of having to react to a bad situation. With a plan in place, families can concentrate on supporting a loved one and getting them the care they need.

*Long-Term Services and Supports for Older American: Risks and Financing Research Brief, 07/01/2015, https://aspe.hhs.gov/basic-report/long-term-services-and-supports-older-americans-risks-and-financing-research-brief

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

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Taking Care of Aging Parents

5 Things I Wish I Told My Dad

5 Things I Wish I Told My Dad

In 2014 my father was diagnosed with Lewy Body Dementia which is the second most common type of dementia after Alzheimer’s disease. Little did my family know the difficult road that would lie ahead to provide my father with appropriate care as the disease continues to progress. As a financial advisor, I find comfort in being able to alleviate the stress my mother has of managing their finances through this difficult situation.

My father never liked to seek outside help with his personal finances, but five years ago, while he was still well enough to make his own decisions he brought me down to his office in the basement to go over his accounts in case his health were to diminish. At the time, I was a trader on Wall Street and knew very little about how a retiree should manage their finances. But if I knew what I now know, this is what I would have told him on that day:

  • For your family’s sake, consolidate. The binder my father used to keep track of his accounts was always up to date and accurate, but as I thumbed through the graph paper with numbers carefully penciled in, I noticed that as time went on the pages weren’t as detailed and the time between entries were further apart. I didn’t know it at the time, but this was one of the earliest signs of his cognitive issues. When his condition worsened and I took over managing the accounts, there were checking and savings accounts at several banks, CDs reinvesting at almost no interest, paper savings bonds stashed away with no copies stored online or in another physical location, and a portfolio which had very little direction. It comprised investments that were collected over the years that were never revisited to determine if they were still suitable. We have since consolidated these accounts, and come up with a portfolio that reflects their current needs. At any time, my mother has online access to a snapshot of her accounts where she can see everything in one place. 
  • Dust off those estate plans. It isn’t uncommon for a young family to establish their estate plans when they get married or have their first child and never revisit them again. This is a mistake. I cannot emphasize enough how important it is to have a durable power of attorney with clear direction. The power of attorney has been an important tool in managing my father’s finances. His will and health care proxy will take a lot of the difficult decisions away from our family. We are able to spend our time with him and focus on providing him with the best quality of life that we can, knowing what his wishes are.
  • Long term care isn’t cheap, so what’s the plan? The cost of long term care can easily dwarf the cost of attending a four year university. We spend years planning how we are going to pay for our children’s education, but very little time is spent on how we will manage the cost to maintain our quality of life in our later years. Long term care insurance isn’t always feasible, but if added to the picture, can be an extremely valuable tool. Some form of it should be considered sooner rather than later as policies become more cost prohibitive as one gets older. My father does not have a long term care policy, and it would have made the planning process easier.
  • Can anyone help pay the bills? In addition to long term care insurance, other options to subsidize the cost of long term care include Medicaid, VA Benefits, and certain supplemental insurance policies. These were all areas that we explored after my father was already sick and in the early days it took time away from getting him the proper help. Understand these programs and policies before you actually need them to see if they will be available to you. Even if you are eligible, the paperwork can be overwhelming and it is better to be prepared.
  • Work with the pros. Talking to your children about your finances and your wishes in case your health were to decline is a great first step, but have a team of professionals and their contact information available for your family members so they can step in and do the heavy lifting when needed. A financial planner can act as the quarterback for your family and work between you and the other professionals that you entrusted. I was fortunate to work with my family’s estate attorney and accountant to guide me through the planning process. A geriatric social worker or elder care consultant could also be a valuable resource.

Nobody wants to think about the possibility of losing their cognitive abilities, but establishing a plan will assist your loved ones in the event that they need to oversee your care. Reacting to unfortunate events leads to worse outcomes than planning for their possibility. Take the initiative, and speak with a qualified professional to assist you with your plan.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, Member of FINRA/SIPC and investment advice offered through Stratos Wealth Partners Ltd., a Registered Investment Advisor. Stratos Wealth Partners, Ltd. and Lob Planning Group are separate entities from LPL Financial.

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