FLBC 014: Making Better Financial Decisions-Part 1

Podcast Details:

Podcast Title:  Making Better Financial Decisions-Part 1
Podcast Series: Financial Literacy Boot Camp

Full Illustrations available on YouTube Version here.

Questions/Issues We’ll Address on this Episode:

– Introduction to the Idea of what biases are and why our brains get in the way of good financial decision making.

– Behavioral Economics/behavioral finance is the basic premise that we as individuals have several biases that keep us from behaving rationally when it comes making investment decisions.

– Faulty Decisions–From Brain or Heart?
– Emotional and Cognitive?

Helpful Links:

Daniel Kahneman
Howard Marks memo

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Where to Find Us:

Website
Blog
LinkedIn
Facebook
Twitter #FinancialLiteracyBootCamp

Bio:

Dominique is owner of DJH Capital Management, LLC. a full service, comprehensive financial planning firm helping individuals build roadmaps to reach their financial dreams.

© 2016 DJH Capital Management, LLC.

Sound bumps provided by www.bensound.com

What is Your Financial Professional–A Broker or Fiduciary?

Summary:  Athletes understand “off-the-field” distractions.  None are probably worse than those of the financial variety.  Last April, the Department of Labor (DOL) decided that financial professionals giving advice for retirement assets must act in their client’s “best interest”.  Yes. You heard me right. Well, you may be thinking, “I thought my advisor was already acting in my best interest”.  Apparently not all advisors.  The scope of this article won’t cover the long history of the financial services industry (you can get that here).  However, I’ll provide you with a brief one.

A Brief History

Over the last several decades the financial services industry has been split into two camps: the broker-dealer community and the registered investment advisory (RIA) community.  Brokers act as intermediaries between financial companies and consumers.  At a time, they were the only way you could purchase a financial product.  The legal standard to which a broker is held is called the “suitability” standard. This means that any financial product or service sold to the client had to be “suitable”.  Unfortunately, suitability can be vague and was subsequently abused over the years causing some financial professionals to sell products that a client didn’t need.  Actually, this became so bad that Congress blamed the stock market crash of 1929 on abuses of the standard and the subsequent depression of the 1930s and created the U.S. Investment Advisers Act of 1940 (“the Advisers Act“).  This began the formation of the RIA community and the creation of many additional regulations which produced a higher standard–one that was in the “client’s best interest”.  This is why RIAs are referred to as fiduciaries.  In short, the Advisers Act required financial professionals whose business was “giving financial advice” to register with the state(s) in which they did business or the Securities Exchange Commission (“SEC”).  This provided the potential client with access to several pertinent details about the financial professional including methods of compensation.

Fast Forward to Today

More often than not, lawsuits against brokers are lost by clients because of the laxness of the suitability standard.  Brokers can always claim they were giving financial advice solely incidental to the product they were selling and were not in fact “financial advisors”.  Well the DOL rule eliminated this defense.  As a veteran of the financial services industry, I welcome this change and believe it will be a “rising tide that lifts all boats”.  Unfortunately, in each section of the financial services industry we will continue to have bad actors, but this new rule will lessen the promulgation of unsuitable financial products that lose investors money. The rule’s one shortfall at this point is that it only covers “retirement accounts”.  However, I believe that it won’t be too long before the “powers that be” realize that a client may have both retirement and non-retirement assets with a broker and both buckets need to be treated equally.  I have prepared a “Q&A” of sorts to answer what I think may be some of the questions individuals may want to ask.

Q: How can I found out if my advisor is part of a broker-dealer firm or a registered investment advisor firm?

Go to http://brokercheck.finra.org/.  Click the “firm” tab, and then type in the name of your investment professional’s firm. If the firm is a RIA it will say “investment adviser firm”. If it says “brokerage firm”, then your guy or gal is part of a broker-dealer.

Q: What is the main difference between a broker and a fiduciary?

A: The standard each is held to is the major difference. RIA firms comply with the legislation set forth by the US Investment Advisers Act of 1940 and hold themselves out as “investment advisers”. This transparency allows for potential clients to have access to the type of financial business and the methods of compensation the adviser will use. This can all be found on-line for every RIA and is called  the “firm brochure“.  (Look up one here.) Broker-dealer firms are not held to such a standard and there is no transparency on the type of financial business they are in nor the methods of compensation used.

Q. What are the specific changes the DOL is requiring?

A. They are numerous and can be found here. The “cliff-notes” version is this:  by January 2018 (at the latest), brokers engaging in prohibited transactions (see next question) will be forced to execute a “best interest contract” with their clients affirming that the transaction was in the client’s best interest.

Q: What is a prohibited transaction?

A:  There are 3 basic categories: 1) retirement account rollovers that specifically shift from low-fee to a high fee arrangement; 2) rolling assets from a 401(k) to an IRA where the advisor will receive an ongoing fee for management; and 3) switching client from commission based account (i.e. fee charged per transaction) to a fee-based wrap account (for which the advisor receives ongoing revenue).  All these activities are an acts of giving “financial advice”, thus the DOL is now requiring brokers to adhere to the same standard as RIAs.

 Q: Does this new rule apply to all types of accounts?

A: No. Sadly it doesn’t. This rule only applies to retirement accounts for now.

Q: What should I do if my financial professional is not a RIA?

A: This is a good time to have a conversation with your financial professional. Let them address your concerns about the implications of this rule and whether they and the firm they work for are willing to be held to a higher standard. They should be able to demonstrate their willingness to comply with the new rule and acknowledge any past deficiencies.  Need help on what to look for our ask?  Click here.

The ramifications of this new legislation will affect a lot of investors.  You should be aware of it and how you can continue to protect yourself and your assets.

Invest Wisely!

FLBC 013: The Financial Playbook for Entrepreneurs

I share some secrets for the currently or “to-be” self-employed individual.

Podcast Details:

Podcast Title:  The Financial Playbook for Entrepreneurs
Podcast Series: Financial Literacy Boot Camp

Full Illustrations available on YouTube Version here.

Questions/Issues We’ll Address on this Episode:

-From the Financial Playbook
1) Tax Efficiency
2) Entity Structure and Selection
3) Maximizing Business Monetization Event

Helpful Links:

Where to Find Us:

Website
Blog
LinkedIn
Facebook
Twitter #FinancialLiteracyBootCamp

Bio:

Dominique is owner of DJH Capital Management, LLC. a full service, comprehensive financial planning firm helping individuals build roadmaps to reach their financial dreams.

© 2016 DJH Capital Management, LLC.

Sound bumps provided by www.bensound.com

FLBC 012: Pulling Back the Covers

Podcast Details:

Podcast Title:  Pulling Back the Covers
Podcast Series: Financial Literacy Boot Camp

Full Illustrations available on YouTube Version here.

Questions/Issues We’ll Address on this Episode:

An “intimate” look at me, why I started the Financial Literacy Boot Camp and my role as a financial advisor.

Helpful Links:

Submit a “Boot Camp Listener” question

Subscribe to our Newsletter

Where to Find Us:

Website
Blog
LinkedIn
Facebook
Twitter #FinancialLiteracyBootCamp

Bio:

Dominique is owner of DJH Capital Management, LLC. a full service, comprehensive financial planning firm helping individuals build roadmaps to reach their financial dreams.

© 2016 DJH Capital Management, LLC.

Sound bumps provided by www.bensound.com

The Branding Series: Developing Focus (Part 4 of 4)

Lesson #6 – Ignore the bling. No really, ignore the bling.

As a culture, we are naturally drawn into things that shine and pop.  I think this is best proven by how quickly bad news travels or how people are drawn to the scene of an accident.  Thus, the lure of “fast” branding is just that…a lure.  (Most fish might tell you to stay away from lures as their famous last words.)  Many of the stories of fraud perpetrated upon athletes have had a common theme …the very provocative lure.  Having been in the financial markets for nearly half of my life, I realize there are no guarantees.  If something sounds too good to be true, generally speaking, it is. However, as an expert (not by cognitive aptitude but by Malcolm Gladwell’s concept of 10,000 hours) I know better.  Unfortunately, without the proper instruction and guidance, novices can be exploited like has been the case many times before.  So what is my advice here?  Be patient and realize everything that glitters is not gold.  Your brand (and consequently, your wealth) will take time to build.  It cannot and will not happen overnight.  Usually any thing (or anyone) that promises you a quick return or profit is likely a wolf in sheep’s clothing.  You should run far, far away.  In speaking with Chase Carlson, a Florida attorney that has represented over a dozen of athletes in fraud cases, he gave some common tell-tale signs for athletes to avoid.  “A lot of these deals [that blow up] are private deals”.  (Private deals are not registered with a centralized exchange or clearinghouse and therefore are more risky).  He also mentioned the type of individuals to avoid.  “A lot of these guys [that defraud the players] are living very large, driving very expensive cars, wearing very expensive jewelry”.  You may want to read an earlier post I wrote if your financial advisor is a bigger celebrity than you are.

Lesson #7 – Listen for perspective, only implement wisdom.

Finally, while I personally may allow for a lot of different perspectives to be voiced, I only implement what amounts to wise counsel.  How do I tell the difference between perspective and wisdom? Experience–and not just my own either.  For years, I have sought mentors much older to provide me with invaluable nuggets of wisdom.  What if you don’t have this type of access to wisdom?  My advice is that you find it.  Seek it out.  Having a superb brand is not for the lazy or faint of heart.  Particularly, crucial to protecting your brand will be what you allow into your psyche from friends, family and other associations.  Make all those relationships pass a “mental” filter.  Some may call it common sense.  Unfortunately, common sense is not all that common anymore.  Only listening to the input of your peers can be a recipe that cooks up a “one-sided” perspective.  In a recent conversation with four-time Olympian Lauryn Williams, she mentioned that “youth and inexperience” as key reasons that athletes don’t consider the years after they retire.  Lauryn, who is now reciprocating some of her life lessons as a financial advisor to current and future Olympians, understands the challenges young athletes face.  When I asked her why younger athletes were not implementing better financial strategies, like those of Kobe’s and LeBron’s mentioned earlier, she responded that, not only is there “limited exposure to [that type of] advice to help younger athletes”, but “younger athletes often don’t have the knowledge or education that helps them apply the advice [that] is given”.  Most successful professionals will agree that applying the hunger and drive that got you to where you are won’t necessarily take your brand to where you want it to go.  This is why a healthy dose of wise perspective is like a dietary supplement that should be taken daily.

One way to define wisdom is the ability to see, into the future, the consequences of your choices in the present. That ability can give you a completely different perspective on what the future might look like.”  -Andy Andrews

So let’s recap the seven lessons:

  1. Recognize you are a brand;
  2. Use good associations to create brand value;
  3. Start planning your transition early;
  4. Practice personal responsibility;
  5. Replace negativity with positivity;
  6. Ignore the shine
  7. Listen to different perspectives,  but only accept wisdom;

So what will you do with what you know? Athlete or not, implementation of these principles will help you build and preserve your brand.

(Special thanks to Lauryn Williams, Marques Ogden and Chase Carlson for their contributions to this mosaic of thought.)

FLBC 011: The Not So Obvious Benefits of your 401(k)

How to maximize your tax and shelter more income from taxation.

Podcast Details:

Podcast Title:  The Not So Obvious Benefits of your 401(k)
Podcast Series: Financial Literacy Boot Camp

Full Illustrations available on YouTube Version here.

Questions/Issues We’ll Address on this Episode:

Benefits of making pre-tax contributions to your 401(k)

  1. pretax means tax savings
  2. tax deferred growth of contributions
  3. employer match (if available)
  4. distributions/withdrawals

Helpful Links:

Submit a “Boot Camp Listener” question

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Where to Find Us:

Website
Blog
LinkedIn
Facebook
Twitter #FinancialLiteracyBootCamp

Bio:

Dominique is owner of DJH Capital Management, LLC. a full service, comprehensive financial planning firm helping individuals build roadmaps to reach their financial dreams.

© 2016 DJH Capital Management, LLC.

Sound bumps provided by www.bensound.com

The Branding Series: Developing [Brand] Character (Part 3 of 4)

“Character is like a tree and reputation like a shadow. The shadow is what we think of it; the tree is the real thing” – Abraham Lincoln

 Lesson #4 – Practice the highest level of responsibility–personal accountability.

The new owner of an office building hires two different cleaning companies to clean his building.  His secretary is puzzled about the decision of hiring two companies, but doesn’t make a fuss.  After a week of letting each company alternate on the nights they cleaned the office building, the owner decides he will award the cleaning contract to the winner of a final test.  The next morning both cleaning company supervisors are asked back at the same time to visit the owner.  Neither are aware of the test and nonchalantly greet each other as they sit and wait on the owner to arrive.  After a short wait, the owner brings them into his office one at a time.  After supervisor #1 is asked in, the owner proceeds to raise his voice about how someone from his cleaning crew left a faucet on during the cleaning shift flooding one of the floors of the building.  The bewildered supervisor stands and pleads that he is only just a supervisor and didn’t know how this could have happened.  The unrelenting owner demands to know who is responsible for the mistake.  Supervisor #1 frantically responds, “Let me call my crew and see what happened”.  The owner dismisses the supervisor to make the call.  Meanwhile he invites supervisor #2 into his office proceeding to do the same thing.  With the same emotion and fervor he demands, “who is responsible for this?”  Supervisor #2 politely stands and says, “sir, if my crew was in the building then I’m responsible.  I’ll personally see to that we fix the problem right now.”   

Who do you think won the contract?  The difference between responsibility and accountability is the personal ownership that is taken.  Accepting blame is easier, when the responsibility is shared, but it is much more difficult to (excuse the term ladies) “man-up” and isolate yourself as the loan scapegoat.  How does this relate to branding?  It has everything to do with how people perceive your personal integrity.  When you make a mistake, own it and move on.   Public speaker, author and former NFL offensive lineman, Marques Ogden had a surprisingly refreshing perspective when I asked his opinion about getting more athletes financially educated.  Players “must take more personal responsibility for their actions” and “realize the long-term effects of their decisions.”   In talking with Marques, you cannot help but be infected by his deep sense of integrity and accountability.  “When my business failed, I didn’t blame anyone but myself…those were my decisions, no one else’s.”  How can athletes avoid potentially brand-destroying advice, especially that of the financial variety?  Be informed.  Do you research.

Lesson #5 – You’re not what you eat…you’re what you think.

I once heard that:

BELIEFS are how you view past experiences 

DECISIONS are made based on those beliefs

RESULTS are based on the quality of those decisions

The theme underlying here is psychological in nature.  Our belief system frames how we think about things.  More damaging than someone bad-mouthing your brand is YOU bad-mouthing your brand.  You might say, “I’d never bad-mouth my brand”.  But what are you saying to yourself constantly?  What negative “self-talk” are you using that becomes your script for the day?  Many people unconsciously berate and tear themselves down and wonder why they achieve bad results or attract bad relationships.  Successful athletes may learn to distance themselves from that type of thinking on the field to only be haunted by it off the field.  This compartmentalization only works to devalue your brand also.  Being a giant on the field of play means nothing, if you squander it away in a moment by a bad choice produced from a poor belief system.  The only way to break this cycle is to start “mentally” ingesting the right things.  A friend once told me that you can make a glass full of sand eventually be clear as water if you poor enough water into the glass of sand.  This is how our minds work.  Fill them with enough positivity, and the negativity will be pushed out. Sustaining your brand depends on whether you are able to replace the bad with the good, and the old with the new.