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"Free" is not Free

FreeIsNotFree

We at Mitlin Financial always communicate the importance of having a financial plan. As I have said in the past, people spend more time, energy and money on planning their family vacations than they do their financial lives. It is important to make sure you have a guide, a roadmap, for how you are going to be able to successfully retire and reach the financial goals you have in the future. We rely on tools to guide us all the time, such as Waze for the car, and it is important to have this tool to guide your financial life; a financial plan.

Recently we met with a prospective client who found us from our robust online presence. Once contacted by this family, which we will refer to as the Doe’s, we introduced the firm’s process and began to walk them through it. On the initial call we scheduled our “Is There A Fit” meeting with both Mr. and Mrs. Doe. It is key to have both spouses involved in the planning process, so it is a must that both attend our initial meeting.

The initial meeting was a huge success, the couple clearly had financial planning concerns that needed to be addressed and a financial plan would be paramount to their success. Following our meeting we forwarded the couple a proposal which outlined the areas we would cover in the plan and the detail they should expect to see in their personal financial plan. In addition, we quoted our fee for the plan.

When we contacted the couple, as we had scheduled during the initial meeting, to see if they felt we would be a good fit for them and confirm whether or not they were a good fit for us, things became interesting. As a firm, we felt this family would be an ideal client for us. They were in need of a financial plan to help organize and outline their financial life as they approach retirement and also needed assistance in managing their assets. I must say their assets were everywhere and invested in many different ways without a unified direction. In speaking with the prospective clients we learned that they too felt we were a good fit for their family and would provide the services and attention they need to work towards their goals.

The couple had a few questions about the financial plan and the fee. They felt that the fee was too high. When speaking with them to learn more about their questions, I came to learn that they had decided to choose to work with another firm. The reason they provided us was because the firm they were going to move forward with was not charging them for the financial plan.

Have you heard this before? Do you think a financial plan has no cost? I can tell you from personal experience that a good financial plan can take anywhere from five to thirty hours to produce, depending on its complexity. The pitfall with a free plan is typically it is simply used as a “sales” technique to get your assets under management. The financial plan is used as loss leader in order to have you move your accounts to the firm. Unfortunately, in many instances this may have consequences that you may be unaware of and it particularly problematic if you are not working with a fiduciary advisor like Mitlin Financial, Inc.

When offered a “free” financial plan by a non-fiduciary advisor you will typically see several outcomes that may come as a result. This is not to say that this is the case in 100% of the circumstances, but it does happen often. Many times the “free” plan is one you could probably do in five minutes using an online calculator and get the same result, not providing you much guidance. We have also seen outcomes that produce plans that are two hundred plus pages that are designed to confuse you and presented in a way you would never be able to follow or implement. One additional result we have seen with the “free” plan is the broker, or non-fiduciary advisor, using investment vehicles that will pay them handsomely in order to compensate them for the lost upfront revenue for the “free” plan. The “advisor” in this case is looking at the financial plan as a loss leader. Essentially they are using the plan as a tool to get you to transfer their assets to you and once that is done they will look to have you invest in high commissionable products. This will allow the “advisor” to recoup the money for the time spent on putting your plan together. This may involve you buying products that may require you to hold on to them for several years before you can get out of them without a penalty and/or purchasing products that may be in the “advisors” best interest and not your own. They have put several hours into this plan and need to be compensated somehow, did you really think they were doing this for free?

It is very important that you do your due diligence in advance, especially when working with a non-fiduciary advisor. This scenario can ultimately cost you way more than if you actually paid for the plan. We have not even spoken about the follow through and implementation of the plan, which many times will fall to the wayside once they are investing the assets and this is the most important part. We feel it would make more sense to work with a fiduciary advisor and pay for the plan on its own. This will allow you to implement the plan and incur those costs separately. More importantly, because you are working with a fiduciary advisor they will be required to work in your best interest and disclose any potential conflicts of interest.

Working with a fiduciary advisor in this instance is paramount. As a fiduciary, these advisors must disclose any costs and make investments that are in your best interest and not theirs. We have seen fiduciary advisors offer the financial planning component for “free”, but typically these are cases where the client is having them manage in excess of a certain dollar amount; typically over one million dollars or some higher threshold. When you think about, in this case the plan is not free either but is being done as part of the services for your family because of the size of your account and the benefit it produces.

There is no free lunch or financial plan and it is important when hiring an advisor that you understand all the costs. There is an unwillingness, especially among the non-fiduciary advisors, to have a discussion about the costs of doing business with a financial services firm. As a firm, this is something we disclose at our first meeting. Unfortunately, the Doe’s have most likely fallen into a trap that will end up costing them far more in the long run than if they move forward and worked with us. Chances are that they will learn this at some point down the road and either we or some other fiduciary advisor will have to charge them even more to fix and unwind the mistakes that were made.

We would welcome the opportunity to speak with you about your own experiences with financial plans and help you, your family and friends in any way that we can. Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Five Biggest Mistakes of New Business Owners

Mistakes of New Business Owners

 

A new business is typically an endeavor that comes with many challenges. Businesses are usually started by people, entrepreneurs, who have come across a great idea or provide an excellent service. This venture entails many working parts and has many risks/rewards. According to the Small Business Association (SBA) Office of Advocacy’s 2018 Frequently Asked Questions, eighty percent of small business will survive the first year and about half will survive beyond five years. Only about one third of businesses will survive to celebrate their ten year mark.

Taking a mathematical look at this, these numbers are quite discouraging and one must think why this is the case. In our view, there are five key things that have a tendency to get overlooked by new business owners. Those new business owners that focus on these five areas will have a higher level of long term success for their companies.

  • Not having a plan comes in at number one and is the largest contributor to company failure. Would you ever think about driving cross country to a specific destination without a roadmap or Waze by your side? I think it would be extremely difficult to hop in the car and start driving West (we are located on the East coast) without any tools to guide your trip. Essentially, starting a business without a plan is the same thing. As Benjamin Franklin said, “By failing to prepare, you are preparing to fail.”
  • Having a great advisory team in place is paramount to the success of your business. Your advisory team should include a CPA, attorney, banker, insurance advisor and financial advisor. This would be the bare minimum I would start with on your team. As the business grows in size and success there will be a need to add additional professionals to the team. This core group will be sufficient to ensure you get off to the right start, have people in place to turn to for advice and rely on those that have been successful helping people and companies like yours.
  • You will want to have goals and metrics to benchmark your success against. These metrics may be very different from one company to the next and will change over time as well. The key is to have a direction in place to keep you on track while running the day-to-day of the business. You will want to make sure that you have SMART goals (Specific Measurable Attainable Relevant Time-Based). Using the SMART process will allow you to then break the goals down into bite size pieces to track your progress and success.
  • Being impatient in a new business can be deadly and comes in as one of our biggest mistakes. New business owners have a tendency to think and want things to happen much more quickly than they do, everything takes time. Our optimism and vision will typically allow us to envision the business moving forward far more quickly than it will in reality, and that is fine. Optimism is typically a common trait found embedded in the entrepreneur. This is a new business and it will take time and effort to get the word out there about your product or service. A new business owner will need to be patient and have the ability to wait for their success to arrive.
  • Keeping a cash safety net is key to the success of any business. There are always events that can take place while owning a business and they typically cost money. You will want to make sure that you have a sufficient emergency fund for these instances. Many new business owners find themselves with their back against the wall if a financial event takes place and they do not have a sufficient cash reserve. This may cause the owner to get a loan, borrow money from friends and family, utilize credit cards or even give away significant equity in their growing business for an insignificant amount of capital. Making sure that you have a cash reserve will be paramount to your success.

Beginning a new business is a rewarding experience and can be a life changing event. It is imperative to make sure that you are doing everything in your power to ensure your success. We have included what we believe are the top five mistakes of new business owners and this is by no means and exhaustive list. Having a handle on these items will put you in a position to be far more successful than if you had not addressed them. We encourage you to contact us if you are considering beginning a new business or are already in business, but have questions about where you may be overlooking important concerns. We would be more than happy to have a discussion to see if we can be of assistance and help you towards being one of the businesses that passes the ten year mark!

Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

The Beyond 6 Seconds Podcast: Larry Sprung – Founder of Mitlin Financial and advocate for suicide prevention

I recently had the opportunity to be a guest on the Beyond 6 Seconds Podcast hosted by Carolyn Kiell.  We had a fantastic conversation about how I entered the financial services business and why I am such an advocate for suicide prevention. 

On this episode, Larry discusses the critical events in his life that shaped his career and advocacy:  

  • How his mother’s long battle with breast cancer led him to a career helping people plan for critical financial events in their lives, and
  • How the loss of his brother-in-law to suicide led Larry to become involved with AFSP and, along with his wife Denise, raise more than $1,000,000 for the organization through the Keith Milano Memorial Fund. The fund was created at AFSP in memory of Larry and Denise’s brother-in-law and brother, respectively.

Larry also talks about some of the important work that AFSP is doing to help people “Seize the Awkward” by having potentially life-saving conversations with the people in their lives who may be suicidal, and AFSP’s Project 2025, which aims to lower the suicide rate by 20% by the year 2025.

You can also find more information about AFSP’s work at www.afsp.org and the Seize the Awkward campaign at www.seizetheawkward.org .

 

Beyond 6 Seconds Podcast Lawrence Sprung

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.  Past performance is not indicitive of future results.

The Financial and Non-Financial Aspects of College Planning

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The topic of college planning has entered my home in full force. My oldest, who is currently a tenth grader, has embarked on his search for college. I know many of you think this is quite early to begin this, but being his dad is a planner I am sure it is not much of a surprise. Just like we talk about having a plan in place for your financial future to guide you, it is important for the student to have a plan in place for their educational and eventual career as well.

I have found over the years that there are two components to assisting a family through the college planning process, the financial and non-financial. Many wealth managers have a tendency to help families accumulate the assets they will potentially need for their child future education and stop there. I think it is as important to assist the family through the non-financial part too. Let’s delve a bit deeper into these two very different aspects of the college process.

The financial aspects of planning for college are fairly straightforward and include a great deal of assumptions in order to save enough for our children’s education. As a family, it is wise to determine what you plan on contributing to their education. Do you plan on paying for all their undergrad and graduate school regardless of where they attend or at what cost? Do you plan on paying the equivalent of the cost for a State university and anything above that is on your child? These will help you to determine what your expected cost will be in today’s dollars. You then will need to factor in inflation in the cost of school, the return you believe you will be able to achieve on your investments, and how long you have until they will need the money. This will lead you to discern how much you will need to save on an ongoing basis to fund that goal. Like any financial plan, it is important to revisit your goals, objectives and progress each year to make sure you are staying on course.

The non-financial aspects of college are typically a more difficult hurdle for families to overcome. In most cases, we as parents have not been in college for eighteen plus years and things have changed. How do we make sure our children are looking at, visiting, and ultimately applying the best schools for them? In my experience, people typically will spend more time researching everything they need to know surrounding a new car purchase than they will the higher education options their children are considering. Considering the education will cost anywhere between two to six times the price of the car, this needs to change. Not to mention the fact that the education your child receives will be the basis for their entire future moving forward.

We, as parents, really need to spend more time helping our young ones find the “right fit” for their education. I think it goes without saying that a university does not qualify as a “right fit” simply because they have a great football team and/or fantastic weather. My family decided that we needed assistance in this area for my son and we hired a college advisor, Hans Hanson of College Logic. This has been an excellent decision for us and he has already helped our son immensely. Currently, we have a list of sixteen schools with a goal of visiting each one by the end of his sophomore year. After only a few visits, he is starting to see what he likes and does not like about the schools on his list. Through the use of the advisor we have allowed my son to take ownership of the process and have discussions with us about his findings. Ultimately, by having a plan and his advisor to walk him through the process, we feel that our son will truly find a university that is the “right fit” for him and will put him on a path for success following his college years.

College planning is an involved process that contains financial and non-financial aspects that need to be addressed for the benefit of the student. The university your child attends should be a stepping stone to their educational, vocational and financial future which needs you to dedicate time and attention to determine fit. We would be happy to speak with you regarding getting your family on the right track for higher education from both the financial and non-financial aspects. In addition, we are pleased to share our experiences with hiring a college advisor and how it has helped us with this process immensely. Feel free to contact us, Mitlin Financial, at (844) 4-MITLIN x12 if you or someone you know needs assistance in this area.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

The Many Reasons Not to Look at your Life Insurance Policies

Life Insurance Henry Montag

 

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Henry Montag, CFP®: The TOLI Center East

It’s unpleasant, I don’t understand it, I don’t want to deal with a life Insurance salesman. But if you don’t your life Insurance policy may expire before you do.     If you’re like most people you think of life Insurance as a ‘Buy & Hold’ asset that requires no active management, when in reality a life policy is a ‘Buy & Manage’ asset, just like your stock and bond portfolio. You wouldn’t buy stocks and bonds and then place your investment portfolio in the bottom left hand drawer and not look at it for the next 10-15+ years. But that’s what many purchasers of policies do. Problem is if you purchased a life policy over the last 25+ years, there’s a 55% chance that the policy wasn’t guaranteed to last for the rest of your life.  

This is meaningful because interest rates went from a high of 18% in the mid 1980’s to the current rate of 2-3%. This reduced sustained interest rate coupled with neglect over the last 25+ years has caused 23% of those existing non- guaranteed policies to expire years earlier than anticipated (American Bar Association, Flagship book  ”The Life Insurance Policy Crisis”( Jan 2017)).

You may ask, how could that have happened? I paid all of the bills I received from the life Insurance Company on time, and in full. Yes you did but those premium bills haven’t changed over the last 20+ years when interest rates were much higher. As interest rates decreased, the premiums you paid should have been increased to make up for the reduced earnings in your cash value account. Why didn’t the Insurance Company send notices to ask me to pay a higher premium? It’s not their responsibility as managing your policy premium is the responsibility of the owner of the policy. The Insurer’s responsibility is to merely provide you with a death benefit and an annual statement/ bill. Yes, the Insurer could have done a better job of advising their customers of the danger of their policy expiring earlier than anticipated, but perhaps that’s intentional as the insurance company profits when a policy expires prematurely, because the insurer keeps all the premiums and never has to pay out a death claim.

So as a result of the reduced interest rates, the policy not being guaranteed, nor properly managed, an insufficient amount of premium was paid which resulted in an increasing number of individual’s life coverage beginning to expire years earlier than anticipated and requiring a significantly higher premium to keep the coverage in force to one’s life expectancy. (WSJ cover story Sept 2018).

In order to prevent becoming one of the statistics yourself, it is suggested that you meet with an independent experienced fee based life Insurance consultant and go over each policy to make certain you’re getting the most value for your premium dollars. Secondly to determine how long each policy will last, and compare that to how long you want the policy to last.  

Since the maximum guarantee period for a Term policy is age 80, 5-7 years earlier than normal life expectancy for a male. Anyone Insured with a term policy shouldn’t allow the conversion privilege that permits them to convert the term policy to a policy lasting to life expectancy, without any evidence of insurability, slip by. Depending on the Insurer the conversion feature expires between 65 -75.

Once an overall assessment where you compare what you think you have to what you actually have, is made you can resolve the problem and provide the tax free death benefit you intended for your beneficiaries. Keep in mind, the earlier you take the first step the more options you’ll have available and the less costly it will be. I’m happy to have a conversation and share my 35+ years’ experience as an independent CFP® and author so feel free to get in touch as I’m a good resource.

Henry Montag CFP®, in practice since 1976 in L.I N.Y has authored articles and acted as a source for NYSBA Senior Lawyer, NYSSCPA Tax Stringer, Tax Facts, Bloomberg’s Estates Gift & Trust Journal, Trusts & Estate Magazine, & The WSJ. Guest appearances for Wall Street Week, Fox Business News & News 12.

Has provided CPE & CLE credits to NYSBA, ABA, AICPA, NYSSCPA, & EPC. He co-authored an American Bar Association Flagship publication; Jan 2017, ’The Advisors & Trustees Guide to Managing Risk & Avoiding a Client Crisis’’.

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