Frequently Asked Questions
Have a question for Holly? Below are some frequently asked questions:
How are advisors compensated?
Unfortunately, there is no foolproof way to choose an ethical, qualified financial planner or investment adviser. In addition to varied educational backgrounds and credentials, financial advisers also have several different ways in which they are compensated; the following compensation explanations may help you decide which type of compensation plan with which you feel most comfortable:
Commission Only – No charge for financial planning or money management. Recommendation will consist of investment/financial products that charge commissions or fees – ask what the real cost is to you, this year and in the future.
Fee-Based or Fee & Commission – Charges a fee for financial planning but recommendations will usually consist of investment/financial products that assess commissions or fees. The fee charged for planning may or may not be reduced by all commissions earned – ask for a detailed breakdown of costs, this year and in the future.
Salaried – No charge but incentives and awards are often provided in addition to the salary when certain financial products are purchased based on their recommendations. Recommendations may consist of investment/financial products that charge commissions or fees – ask what the real cost is to you, this year and in the future.
Fee- Only – Charges an hourly fee or a percentage of your net worth for financial planning and a percentage of assets if they manage your money. Your cost to implement the financial or investment plan, above the fee paid, should be minimal. Most advisers charging a fee for financial/investment advice or money management should be Registered Investment Advisers with either the Secretary of State (SOS) or the Securities Exchange Commission (SEC). All Registered Investment Advisers are required to provide clients with a disclosure form called ADV Part II. This form should outline their education, employment history, licenses and all methods of compensation. If your adviser is charging a fee and is not registered, ask why.
Financial Planning Services, Inc. is a fee-only planning firm.
Financial Planning Services, Inc. fees are outlined in the firm’s ADV and on the Fees page. The comprehensive plan fee is generally appropriate for complex estates. Most clients will enter into a planning agreement based on the hourly fee. In most cases, on-going money management clients are not charged an additional fee for financial planning services.
What should I bring to the first meeting?
Some financial advisors require you to complete a workbook prior to your first meeting. I’ve determined that information relevant to a client’s personal situation in whatever format is easiest for them works just as well.
The following is a list of documents and information to bring to our first meeting. You needn’t bring everything listed and you may have other information you deem important; bring what you think will be useful. Completing the cash flow and net worth worksheets on my web site may be useful. If you have this information in another format use what you have.
- Latest investment statements or a list of assets and the broad categories (Retirement & Taxable accounts, emergency funds, education funds etc.)
- Include employer retirement plans – how your current investments are allocated and what additional other investments are offered.
- Include the amount of your contribution and the employer match, if any
- Real estate information – Approximate fair market value, mortgage balance, interest rate and term of all mortgages.
- Break out principal and interest payment from your total monthly payment if you have an escrow account.
- Differentiate between principal and secondary residences and any investment property.
- Any other liabilities and payment terms
- Information on life, disability and medical insurance – coverage and costs
- Income information
- Recent tax return
- Major purchases and other anticipated future expenses (automobile, education …)
- Desired retirement age
- Estate Planning documents or steps taken toward estate planning
Q. My wife passed away recently and I am the beneficiary of her rather large IRA. Do I have to start taking distributions now? Also, can I name a beneficiary of this IRA in the event of my death? If so, can I name more than one?
A. I’m sorry to hear of your loss. A spouse named as the beneficiary of an IRA has some unique options; a brief explanation will follow. Once you have decided on an option make sure you name a primary and a contingent beneficiary. You can ame as many beneficiaries and contingent beneficiaries as you like. It is common for a beneficiary form to provide just enough space to name two people. If you need more room write “see attached list of primary and contingent beneficiaries” in the space provided and attach the list to the form.
As a spousal beneficiary you can either roll over the inherited IRA or remain as beneficiary. The spousal rollover allows you to transfer the IRA to your own IRA. The inherited IRA becomes your own and the rules for calculating the Required Minimum distributions (RMDs) are the same as any IRA owner. This is only true when a spouse inherits the IRA, non-spousal beneficiaries are not allowed to roll an inherited IRA to their own. The spousal rollover can be accomplished by withdrawing the balance and depositing it in your own IRA within 60 days or by a trustee-to-trustee transfer. I prefer the trustee-to-trustee transfer; funds go directly from your spouse’s IRA to your own. If you wish to remain with the same trustee, you can just retitle the account in your name. If you are a participant in a company plan and they will agree to accept the money in the IRA, you can also roll the IRA into the company plan.
The rules concerning distributions from the roll over IRA change depending on your age and your spouse’s age at time of death. The Required Beginning Date (RBD) for RMDs is April 1 after the year the IRA owner turns 701/2. If your spouse was past her RBD and died without taking her RMD, you must take this distribution if you have not reached your RBD. You would withdraw her RMD and then roll the remainder to your own IRA. Future RMDs are based on your RBD since you are the new owner. If you are both past your RBD at time of death, her RMD must be taken and you must begin your RMDs from the roll over IRA the year after your wife’s death. If neither of you have reached your RBD, no distribution is required until your RBD.
If you are under age 59 ½, you may wish to remain as a beneficiary rather than selecting a roll over and becoming the IRA owner. As a spouse choosing to remain as a beneficiary, you must begin taking RMDs by whichever is later, December 31 of the year the IRA owner would have turned 70 ½ or December 31 of the year following the IRA owner’s death. You still have access to the money prior to the RBD. As a spouse beneficiary, if you need some of the money to live on prior to age 59 ½ you can avoid the 10% penalty. The 10% early withdrawal penalty applies to owners not beneficiaries. These are special spousal rules; a non-spouse beneficiary must begin RMDs the year following the IRA owner’s death. You can still roll the IRA over to your own when you reach your RBD. This is beneficial due to the different life expectancy tables used for owners (uniform lifetime table) and beneficiaries (single life expectancy table). The uniform lifetime table has a higher/longer life expectancy factor so the RMD is lower. The lower the RMD the lower the tax bill and the benefits of tax deferral remain in place for a longer period of time.
As with most major financial decisions, a consultation with a knowledgeable adviser is recommended.
Q. My parents are of the generation where financial issues are personal matters. This is fine but at dinner last week they asked me if I would be executor of their estate. I asked them what exactly that meant and they said I would handle all of their affairs at death. When I started questioning them about their burial wishes and estate plans they became withdrawn and accused me of wanting to know what my inheritance is going to be. We got into a big argument and I spent the rest of the evening assuring them that it was not my intent to question them or determine my inheritance. I finally convinced them that it would be an honor to be their executor. I don’t have any idea what I’ve just agreed to do. What do I need to know as executor and when do I need to know it? What will I need to do? Any information you can provide would be very helpful.
A. That sounds like a fun evening! Your parents aren’t any different than most people, regardless of generation. When people begin to work on their estate plans it can become very stressful, they are actually planning for their death, not a very pleasant topic. Your parents have probably spent a great deal of time considering who would be the best person to handle their affairs at death and may have been insulted that you didn’t immediately accept this responsibiltiy.
The job of an executor or executrix (female) can be time consuming and may be difficult. As executor, you will have the reponsibility to gather all of the decedent’s assets and report to the court by preparing and submitting an inventory. You will need to keep track of assets received and sold, expenses paid, and amounts due to heirs. Record keeping is an important part of an executors job. There are risks involved in being an executor because of your fiduciary obligations. You are required to act in the best interests of the heirs and must preserve the value of the estate during the probate process. If you have never handled an estate before, I would recommend hiring an experienced estate attorney to assist you in this process.
By preparing a schedule of assets during their lifetime your parents will make your job much easier. Once everything calms down you can explain that there are some basic things you need to know to be an effective executor. If they do not want to share this information while living ask them to put the information in a sealed envelope to be opened only at death. Obviously, you will need to maintain possession of this packet or at the very least, know where it is. A useful packet will contain the following:
Q. My stock broker recently changed brokerage firms; she is now a vice president and I’m very happy for her. She wants me to transfer my account to her new firm. She says that a transfer won’t have any tax consequences since the account is an IRA and I will save money because her new firms’ annual custodial fee is $30 less than her old one. She explained that I will need to sell some of my current mutual funds prior to transferring. Some of them are “proprietary” but there won’t be any surrender charge because they are “A” shares. Some she wants me to sell are “B” share funds; these aren’t performing well. I really enjoy working with this broker but want to make sure I’m doing the right thing before I sign the transfer papers. I don’t completely understand the difference between proprietary, A and B shares, could you explain these? What do yo think I should do, stay put or transfer?
A. I can help you understand the costs of transferring to a new brokerage house, explain proprietary, A and B shares but I can’t determine how much the working relationship is worth to you. Only you can make that decision. Consider the following before you move your account:
Proprietary mutual funds are a family of funds managed by a particular brokerage firm. These almost always have the name of the brokerage firm included in the name of the fund. In the past few years, many brokerage houses have relaxed their policy concerning acceptance of other brokerage proprietary funds. You may want to ask your broker if her new firm would consider accepting the funds you already own.
For private client issues call 919-676-2806.