Trovena Weblog

"Fed Holds Rate Steady"

In economic news today, the Fed let out a big yawn.  YAWWWN...  Go ahead, you know you want to.

As it is every time the Fed meets to determine whether to raise or lower rates, this was the big economic news of the day.  Of course, Fed watchers a plenty are ready to let us know what is going to happen before it happens.  Normally, I would use this portion of the blog to make fun of such prognostications, but it turns out the Fed watchers actually have a good record.  Perhaps it is easier to know what the humans are going to decide than it is to know how it will all play out.

An odd example, after the college basketball season there is no shortage of sports "analysts" who tell us who will be in the NCAA tournament and which teams will get the coveted #1 seed.  Now, they're picking 65 teams, not guessing whether the Fed will do thumbs up, down or sideways, but all things considered they're pretty accurate.  Try having those same guys fill out their brackets with the same accuracy.  Won't happen.  They have a good idea of how the committee will act, but they have no clue as to how it will all play out.

What is Wealth Management?

Recently, I was interviewed by Jeff Plungis, of Bloomberg News, about the status of UBS and other major banks, regarding their "wealth management" offerings.  You can read the story on bloomberg.com, including my quote near the end.

The process confirmed to me that few really know what wealth management means.  As a result, many firms and advisors are saying that they offer wealth management services when, in fact, they do not!  One research paper found that 78% of advisors describe themselves as wealth managers, but only 8% actually perform true wealth management (Source:  Russ Alan Prince and David A. Geracioti, Cultivating the Middle Class Millionaire, 2005).

So, what is true wealth management?  I have a simple formula:

Wealth Management = Investment Management + Advanced Planning + Relationship Management; provided in a cohesive, holistic manner.

Most firms provide the Investment Management piece.  Where they fail is the Advanced Planning and Relationship Management part.  What do these pieces mean?

Another formula:  Advanced Planning = Wealth Enhancement (advanced income tax planning, current and future) + Wealth Transfer (estate tax planning and transfer strategies) + Wealth Protection + Charitable Gifting.

Relationship Management is the process of coordinating, managing and monitoring a team of experts to analyze, recommend and implement the advanced planning strategies.  The Wealth Manager acts as the quarterback for the team of experts.

True wealth management is really a type of family office service.  What the banks, brokerage firms and many of the trust companies are trying to do is up-market their brokerage business.  Quite simply they do not have the capabilities to provide these services.  I won't even get into the huge conflicts of interest these institutions bring to the process!

Wash Sale Rules and Loss Harvesting

It's hard to believe, I know, but there may be times when you buy a stock, mutual fund, or other security and it (wait for it...) goes down!  No one wants to own something that is down, but there's a bit of good news.  By selling the security, you will realize the losses, creating tax losses to offset gains.  The amount that you can deduct depends on your tax specific tax situation.

Of course, saying that selling securities at a loss for the tax benefit is good news is kind of like saying that selling for a gain is bad news because you will have to pay taxes.  Yes, we would rather have the gains and the taxes to pay, but I'm looking at the silver lining here folks.

Let's do an example.  You bought a security for long term investment purposes.  Let's say it was a stock, let's call it 1,000 shares of Coca-Cola (KO).  We're going to presume that you are not an active trader, because that would complicate things.  It goes down, let's say from $65 to $54 per share.  Your 1,000 shares has lost $11,000. 

You're not going to bail on the stock because you're a long term investor.  You're not going to buy more to "average down" because that's foolish.  You simply want to continue to hold it.  Of course, you want the tax loss, but in order to get that you have to sell it.  You could always sell it, take the tax loss and buy it back again, but then you run smack into what the IRS calls a "wash sale."

Here's how it works.

Five Tips to Avoid Bank Fees

There's no questions about it, bank fees have been going up steadily over the past decade or two.  In fact, outside of gas prices, I can't think of too many things that have increased more in price.  Bank of America encourages you to "keep the change," but in the meantime, it seems that they are keeping the dollars!

Back when I was in college, I worked part time as a teller at Glendale Federal Bank. No, they are not around anymore.  If you remember this bank, I suppose I am giving away my age.  They were taken over by Cal Fed Bank a number of years ago, which subsequently was taken over by Citibank.

When I was a teller (okay, this was the early 90s), the charge for bouncing a check was $12-15.  Today, it's over thirty bucks at most banks.  Then there's the fact that they're constantly trying to hit you up for various sorts of ID Theft insurance or Accidental Death insurance.

Bank Fees are avoidable, you just have to make sure you are navigating the process the right way.  I'm not going to touch credit card fees, because that's a whole different topic.  This applies mostly to checking fees.  Based on my vast experience as a part time teller 15 years ago, here are my five tips to avoid bank fees:

United and American to charge $15 for first bag checked

Honestly?  I'm in favor of this.  When I travel, I make a serious effort to pack lightly.  In fact, during our recent two week honeymoon to Italy and Greece, my wife and I did the entire trip each toting along a small backpack and a rolling carry-on bag.  Two weeks in Europe with carry-on only.  Except, of course, the little plane that took us from Venice to Rome.  They made us check our little rolling bags.  And then lost them.

But I digress.

Basically, I see this as a first step to the unbundling of airline pricing.  An additional step would be to follow Spirit Airlines, who charges additional for seat reservation.  $10 for a window or an aisle, $5 for a middle seat.  Seriously, I'm going to sit in the middle and PAY $5 for it?  And they charge $15 for exit row seating.  I have an issue with charging extra for emergency exit row seating (is it an emergency row or is premium seating?), but that's not worth getting into.

I do want to talk about price bundling.