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Retirement Rob

What Does Fiduciary Mean and Why is it Important?

Leading Edge Financial Planning is growing!  Thanks to you for spreading the word about Leading Edge, we're adding new advisors to increase our capacity and continue to improve the quality of our service for current and future clients.   

We've been tremendously fortunate to have added three new advisors over the last few months.  Many of you already know Ben Dickinson as he's been with us for almost two years now.  However, he's moving into more of an advisory role as he's increased his knowledge base, experience and met the SEC's requirements to become an Investment Advisor Representative (IAR).   

We've also added Mark Covell as an IAR.  Mark is a soon-to-be-retired Marine fighter pilot as well aan American Airlines pilot And yeshe's brilliant and talented in addition to being a Marine warrior for our country!   

For many of you, this article may be your first introduction to Rob Eklund.  He's one of our latest additions to the team.  We're very excited to add Rob to our team of advisors because of his passion and excitement for helping people with their personal finances.  Mguess is his enthusiasm will come through in this article. He tells his story of searching for a trusted, fiduciary financial advisor to help him and his family with their personal financebefore becoming an IAR himself.  Click here tlearn more about Rob's background and experience, and please check out his article below... 

What Does Fiduciary Mean and Why is it Important

The first time I heard the term "fiduciary," I said to myself, "fidu…what? Sounds fancy." Then I fell asleep. Admittedly, this topic appears boring and could put my 16-year-old boy all hopped up on Mountain Dew to sleep! But here is a wake-up callknowing who is and who is not a fiduciary is the first step in finding someone to help you with your retirement and investment planning.   

I have been interested in investing ever since I was knee-high to a grasshopper. However, I acquired this fiduciary knowledge several years ago when I was a newly minted first officer for a major airline, before becoming an investment advisor myself.  At that time, I began a journey to find a trustworthy financial advisor for myself and my family. As a military officer, money had not been a primary concern, and to be honest, I didn't have enough of it to matter. But as I began my major airline career in 2013, I realized I would soon have enough money that I had better start thinking about how to manage it. I knew I needed help. Furthermore, my focus was on learning how to be a first officer while still juggling my Air Force Reserve career.  

Many questions ran through my head. The biggest and most important was, "How can I protect my money?" The money I had worked so hard to accumulate. What I found surprised me.  Many financial advisors wanting my business were not fiduciaries. Some of these advisors were very intelligent and could sell with the best. One problem, they only had a "suitable" duty of care to me versus a fiduciary standard.   

The Suitability Standard 

The suitability standard means an advisor or broker only had to put my money into investments they deemed adequate. They did not need to give me advice that put my interests ahead of their own.    

The Fiduciary Standard 

A fiduciary is someone who acts on behalf of another person and has a legal and ethical obligation to put their clients' interests ahead of their own.  SEC Chairman Jay Clayton defined the fiduciary responsibility this way, "This duty - comprised of both a duty of care and a duty of loyalty - is principles-based and applies to the entire relationship between the investment adviser and the client." When someone is a fiduciary, it applies to the "entire relationship," not parts of it. It is the highest standard in the financial world.  

You may be saying, "Okay. Great! Aren't all financial advisors' fiduciaries?" Unfortunately, the term financial advisor is very nebulous and can apply talmost anyone.  In fact, most financial advisors are not fiduciaries.  Furthermore, more than half of respondents (53 percent) to a 2017 Financial Engines survey mistakenly believe that all financial advisorare already legally required to put their clients' best interests first.    

Regulation Best Interest, aka "Reg BI"? 

Reg BI, effective January 1st, 2020, attempted to improve upon the suitability standard and move the ethical bar higher for anyone who calls themselves a financial advisor.  Instead of only having a suitable duty, they are now supposed to have a "best interest" duty. The regulation takes several steps to raise the bar (like having to disclose conflicts of interest); however, it does not change the dynamics of how a non-fiduciary advisor operates or receives compensation  

"It is difficult to get a man to understand something when his salary depends upon his not understanding it.~Upton Sinclair  

I believe this is what Reg BI attempts to do. It tries to get brokers to act in the client's best interest, but their salary often depends on him not doing so. I fear that many advisors will continue finding ways to put clients in funds that pay them a commission. Even in the regulation itself, the term "best interest" is ill-defined and very open to interpretation.  

Fee-Only versus Fee-Based 

The critical distinction is that an advisor operating under Reg BI castilbe paid by a 3rd party tpuclient's money in certain investments or insurance products.  In other words, if an advisor gets paid by a third party (mutual fund company or insurance/annuity company) to put your money in certain investments or insurance products, then there is a conflict of interest.  And athat moment, the advisor needto disclose that they arNOT acting in a fiduciary capacity.      

Most fiduciaries operate in a "fee-only" manner.  This means the client's fees are the onlsource of income for the advisor, and they are not paid commissions from third parties or outside sources that could bring into question the objectivity of the advice given.  Be sure to understand thdistinction between a "fee-based" financial advisor who may earn a commission and a fee versus a fee-only advisor.  The languagis very nebulous and confusing for a reason.   

Back to my personal journey in search of a trustworthy financial advisor; During one conversation, I asked, "Do you have a fiduciary duty to me?" What should have been a simple yes or no, was instead a bunch of hemming and hawing, but no real answer. Not to be deterred, I asked again. This time I received another vague response, so I asked once more. Finally, thiadvisor told me he only had a suitable responsibility (today, he would have told me he had a best interest responsibility).  Case closed! He may have been a great advisor, but he had no legal obligation to dwhat was best for my family and me 

 I wanted my financial advisor to do what was in my highest interest. Furthermore, I wanted someone whose advice was objective and had no incentive to put me in a particular mutual fund. For me, the fiduciary advisor is the answer.  

"How do you find out if someone has a fiduciary responsibility to you?" This one is easy, ask.  

Ask the following question, "If I hire you as my advisordo you always have a fiduciary duty to me?If the answer is not a fairly quick, "Yes" I advise looking elsewhere. If it is, follow it uwith this question“To be clear, you never put on a broker hat and always have a fiduciary responsibility tme? The answer should again be, yes. 

Beyond asking, you should also be able to find out by looking at the disclosures on their website or looking at their Form ADV Part 2A/Firm Brochure or the new Client Relationship Statement (CRS) mandated by Reg BI. 

When I became an advisor, I knew I wanted to do it the right way and act as a fiduciary for my clients.  Thankfully, Leading Edge Financial Planning (LEFP) shares this belief. Our Form ADV Part 2A says this: 

Item 10: Other Financial Industry Activities and Affiliations "No LEFP employee is registered or has an application pendinto register as a broker-dealer or a registered representative of a broker-dealer. LEFP only receives compensation directly from our clients. We do not receive compensation from any outside source, nor do we pay referral fees to outside sources for client referrals." 

 If you have gotten this far and not fallen asleep, I thank you. As you now know, I am a fiduciary and vow to protect my clients' hard-earned money with the highest devotion to their goals. Until next time, I hope you have only tailwinds and blue skies! 

 

Robert E. Eklund, CRD # 7317768 
Investment Advisor Representative  
www.leadingedgeplanning.com 

Robert Eklund - Financial Planner

Rob is a Southwest Pilot and soon to be retired Air Force Lieutenant Colonel. He grew up working on his family’s ranch in Colorado and went to high school in Alaska.  In 2000, he graduated from the United States Air Force Academy, earning a Bachelor of Science degree in Legal Studies.  Rob has served over twenty years in the Air Force, ten years on active duty, and over ten in the Reserves. During his military career he flew the C-130 while stationed in Germany and the KC-10 in California. Rob has accumulated over 700 hours of combat flying hours and participated in multiple Operations.  He was hired by Southwest Airlines in 2013 and became a staff officer at USNORTHCOM’s Domestic Operations Division in 2016. While holding this position as an Air Planner, Rob helped areas recover from Hurricane disasters; specifically, he was called to active duty to aid in recovery efforts following Hurricane Maria.

While studying at the Academy, Rob discovered his enthusiasm for the study of personal finance and investing.  As his military service comes to a close, he is excited to combine his passion for helping and protecting others with his enthusiasm for personal finance.  This culminated in 2020 with Rob passing the Series 65 Uniform Investment Advisor Law Exam and joining the Leading Edge team as a fiduciary advisor.  A fiduciary’s role comes naturally to him as he enjoys helping people whether that benefits him or not.  Rob knows the tremendous trust clients place in their financial advisors, and it is his goal to grow that trust through the highest level of transparency and integrity.  In his personal life, Rob married up to the love of his life and has been married for 18 years. He is overwhelmingly proud of his son, whom he recently donated a kidney.

 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this post will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 02/10/2021 and are subject to change at any time due to the changes in market or economic conditions.

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Charlie Education

What Lies Ahead? The Top Ten Investing Principles for Getting Through the Next Market Downturn, Pandemic, Recession, etc.

Not even Hollywood writers could have created a story like we lived out in 2020. In this video, Charlie Mattingly and one of Leading Edge’s newest advisors, Rob Eklund, discuss what this year has taught us, how to better prepare in the future, and thoughts about the markets and economy going forward.   

Leading Edge financial advisor Rob Eklund, a First Officer for a major airline and a retired Air Force Pilot, review what investors can learn from mission planning in the Air Force anairlines.  Foexample, how can we be proactive instead of reactiveMany times, people may remark how pilots need quick reactions to be successful.  As Rob and I know, if you are frequently reacting as a pilot, it’s a good indication you did not plan sufficiently.  We believe it’s the samwith investing and retirement planning.   

Although, it is to prepare prior to a recession or market downturn, there are many things we can do during the event itselfVanguard posted the following graphic listing just a few of the value-added strategies that are critical to consider during any market decline.  

 

In addition to the checklist above from Vanguard, we believe there are ten essential principles to help all of us remained focused and less stressed during the next market downturn or recession.  

 

Embrace the efficiency of the markets in the long term.   

 

In the short term, the stock market reflects investor phycology (and many other unpredictable factors).  However, over time, equity prices tend to represent the future cash flows of a business.  We can all share in those future profits if we have the discipline to remain invested.

Don’t try to outguess the market. 

Although there is some debate within the finance community on the exact level of impact on investment returns, most will agree that strategic asset allocation and the amount of time in the market (not market timing) havthe most considerable influence on investor returns.    

Resist chasing performance.  

Do not select investments based on past returns.  Funds that have outperformed in the past do not always persist as winners in the future.  Past performance alone provides little insight into a mutual fund or ETFs ability to outperform in the future.  

Let markets work for you.  

The financial markets have historically rewarded long-term investors.  We have the opportunity to earn an investment return that outpaces inflation by supplying capital to the companies we invest in. (I.e., stocks, mutual funds, exchange-traded funds) 

Consider the drivers of returns.  

Evidence shows that buying investments at a fair price (value factor), buying companies that demonstrate a consistent trend of profitability (profitability factor), and companies that tend to be smaller (small-cap premium) point to differences in expected future returns.   

Practice smart diversification.  

Diversification helps reduce risks that have no expected return.  Global diversification can prove beneficial over the long term while reducing the short-term volatility of a portfolio.   

Avoid market timing.  

You never know which market segments will outperform from year to year. Time in the market is much more profitable than attempting to time the market.   

Manage your emotions. 

It’s challenging to differentiatthe short-term ups and downs of the market from the long-term returnneeded to outpace inflationIn reality, the most significant risk we face is losing purchasing power over the long-term, during retirement, versus the risk of short-term losses in the market  

Look beyond the headlines.  

There will ALWAYS be a news headline that could prevent you from investing in the stock market.  The news headlines will either attempt to scare you out of the markets or lure you into the latest investing trend.  Either strategy increases viewership, which in turn sells more commercials.   

Focus on what you can control.  

As we mentioned at the beginning of the article, just like pilots plan for their missions in great detail, we believe thorough planning is the best way to ensure a successful investing experience plus a fulfilling and prosperous retirement.   

Please don’t hesitate to call or email us anytime.  We’d love to hear from you! 

Charlie Mattingly

Charlie@leadingedgefinancialplanning.com 

865-240-2292 

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 12/18/2020 and are subject to change at any time due to the changes in market or economic conditions.

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Charlie High Income Pilots Retirement Mistakes

Trust Your Instruments, Not Your Gut, When it Comes to Flying AND Investing!

​As a brand-new pilot, one of the first things you learn is how to mitigate the risk of the potentially deadly physiological phenomenon known as spatial disorientation or spatial-D. In pilot speak, spatial-D is when your body is telling you one thing and your flight instruments (and airplane) are telling you something completely different. Sadly, spatial-D has claimed the lives of many pilots.

In this video, one of our newest Leading Edge team members and previous Marine F/A-18 fighter pilot, Mark Covell discusses just one example of spatial-D.  Mark shares how carrier pilots tend to feel like they are pitching up as they are launched off the carrier at night due to the massive acceleration from the catapult. During daytime, VFR conditions this is probably a non-issue. However, in weather, or at night, this type of spatial-D is potentially deadly.

What does spatial-D have to do with investing and retirement planning? Personally, I feel like all of 2020 could be compared to being catapulted off a carrier at night and not knowing what is up or what is down.

During the heat of the battle from February until the markets settled a bit in early April, investor emotions were all over the place. Years of stock market gains evaporated in days, even hours. Furthermore, many people thought, and the news media quickly suggested we were headed for the second Great Depression. And don’t get me wrong, anything was (and is) possible. Sometimes, the unknown can be truly scary.

One slightly humorous example of investor spatial-D was early in the pandemic when the shares of ticker symbol ZOOM shot up due to investors buying up shares as quickly as possible. Zoom Technologies, a so-called penny stock had risen more than 240% in the span of a month before the SEC suspended trading. Unfortunately, the traders failed to realize the ticker symbol ZOOM did not represent the Cloud Video Conferencing company Zoom they thought they were purchasing – Ticker symbol ZM.

Here is the headline from MarketWatch.com dated February 27, 2020.

In the airplane, pilots must fight spatial-D by cross-checking and TRUSTING their instruments. If, as an investor, you did not trust your instruments during 2020, it may have been very costly.

So, it’s a dark night and the weather is terrible.  What are the instruments you trust?  What is your primary and backup instrument? Here are four instruments that I think can save your investments as well as your financial sanity during uncertain times…

1. Cash reserves – Emergency Funds.

    • Having extra cash can prevent withdrawals from retirement accounts or excessive credit card debt in emergencies.  Studies also show having cash in a bank account makes people happy. In an article posted on PYMNTS.com,  “Can Cash Really Make You Happier”, Joe Gladstone, research associate at the University of Cambridge in the U.K. and co-author of two recent studies about money and happiness said,

“We find a very interesting effect: that the amount of money you have in your bank account right now is a better predictor of happiness than your aggregate wealth,” Gladstone explained. “Having more money in their bank account makes people feel more financially secure, which leads to an increase in happiness.”

2. Have a working knowledge of financial history.

    • You don’t have to be an expert or financial historian, but I believe being familiar with financial history is akin to training before you go on a flying mission.  Pilots call this chair flying.  Athletes and musicians use a technique called visualization that helps them prepare for uncertainty and reduce anxiety for a sporting event or concert.

3. Admit that times are scary, and you do not know what’s going to happen.

    • This may sound silly, but I’ve seen many people get themselves into a “square corner” because they assumed that something was going to happen when in fact there was no indication or possible way of knowing what the future may hold.  We have heard investors say “my gut tells me…” many times.
      • Some of the best investors in the world invest with the mindset of preparing to be wrong. That’s why diversification is not popular or “sexy” because it’s like admitting you don’t know what’s going to happen in the future, so you must prepare for multiple scenarios.  However, diversification can feel disappointing but prove to be a profitable strategy over the long term.

BlackRock Investment Management Company posted the graphic below on their investor education website about diversification and “S&P Envy” over the last 20 years.

4. Prepare and Plan by having a clear vision of your goals and priorities.

    • If you don’t understand the “why” behind your investments as well as why you’re investing and saving in the first place, you will most likely bail-out of your plan during difficult and uncertain times.  Changing your investment plan mid-crisis creates a very high likelihood that your investment returns will be significantly lower.
    • Simon Sinek started a movement by encouraging businesses to “Start with Why.” It’s a powerful mindset that leads to trust, inspiration and success.  I believe the same applies to your financial and investment game plan.

5. Remember that you are invested in companies – not politics.

    • Sometimes our politics clouds the investment and retirement planning picture.  This rule falls under the axiom; “control the controllable.”  If you’re allowing your politics to affect your investment game plan than you may want to see rule number 2 above.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 12/09/2020 and are subject to change at any time due to the changes in market or economic conditions.

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Uncategorized

Luck and Airline Pilot Retirement

Luck and Airline Pilot Retirement

How much does luck have to do with building a successful retirement nest egg?  Consider what would happen if immediately following your retirement there is a recession.  Talk about bad luck!  Unless… you planned for it.  

At Leading Edge we plan under the assumption that a recession may happen at the time of your retirement.   In this video, Charlie and Kevin discuss how to run your plan through a financial simulator in order to forecast what your financial picture might look like if the market turns south when you turn 65, and discuss what you can do NOW to insure against a “bad luck” scenario.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 07/20/2020 and are subject to change at any time due to the changes in market or economic conditions.

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Charlie Education Kevin Pilots

Southwest Airlines Voluntary Pilot Reduction Options: VSP and ExTO

 

Southwest Airlines, in an effort to reduce its workforce, has just offered pilots Voluntary Separation Pay (VSP) and Extended Emergency Time Off (ExTO). Both are generous packages (in our opinion) and an excellent option for some pilots. How do you know if it’s right for you? In this video, Kevin & Charlie discuss what is in each package, how it may affect your overall financial picture, if you can afford to take one of them, and ultimately how to decide if you should be part of the voluntary reduction.

Not only are we financial planners but Charlie is a fellow SWA pilot (senior FO out of ATL). We understand what it’s like to walk in your shoes and we want to be a resource for you when it comes to making this difficult decision. Give us a chance to run your financial situation through our simulations to determine if VSP or ExTO is the right answer for you. Call us at 865-240-2292.

 

(Please pardon our hazy image quality. We wanted to get this important message out to you quickly and used our laptop to film it, instead of our standard video equipment. Thanks for your understanding!)

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this video will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 06/04/2020 and are subject to change at any time due to the changes in market or economic conditions.

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Charlie Education Kevin

Increase in Retirement Plan Contribution Limits for 2020

 

’Tis the season for the U.S. Internal Revenue Service to make its annual inflation adjustments to a variety of tax rates and limits, including higher estate and gift tax limits for 2020.  In the coming year, individuals will be able to gift or exclude from federal estate taxes a total of $11.58 million—up from $11.4 million in 2019.  The annual gift tax exclusion—the amount you can give to heirs each year without reporting a gift—remains at $15,000.  

The IRS also lifted the annual limit that can be contributed to a defined contribution (401(k) or similar) plan from $19,000 to $19,500, and people 50 or older can make catch-up additional contributions of $6,500—up from 2019’s $6,000.  The amount you can contribute to an Individual Retirement Account is unchanged at $6,000, with a $1,000 catchup limit for people 50 and older.

If an employer allows after-tax contributions, or if you’re self-employed, the overall defined contribution plan limit was raised from $56,000 to $57,000.

The IRS also changed the tax brackets for working Americans, raising slightly the thresholds for the 10%, 12%, 22%, 24%, 32%, 35% and 37% rates, and raised the standard deduction to $12,400—$24,800 for married people filing jointly in 2020.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Moreover, you should not assume that any information or any corresponding discussions serves as the receipt of, or as a substitute for, personalized investment advice from Leading Edge Financial Planning personnel. The opinions expressed are those of Leading Edge Financial Planning as of 12/13/2019 and are subject to change at any time due to the changes in market or economic conditions. This article was written by an outside source.

 

Sources:
IRA Announces Higher Estate and Gift Tax Limits for 2020
2020 Limitations Adjusted as Provided in Section 415(d), etc.
IRS Announces Higher 2020 Retirement Plan Contribution Limits for 401(k)s and More
The 2020 Tax Brackets are Out.  What is Your Rate?
IRS RP-19-44.pdf