SERVING UNIQUELY SUCCESSFUL FAMILIES
The Dashboard Way

The Dashboard Way

Our process far exceeds new and existing federally mandated standards of care

New legislation to improve the minimum standard of care in the financial services industry highlights the value of our proprietary Dashboard Planning Process. 

 

Regulation Best Interest

In between COVID-19 updates, you may start to hear about the implementation of Regulation Best Interest (Reg BI). This is a new rule adopted by the Securities and Exchange Commission (SEC) last year that will go into effect June 30, 2020.

You may remember a couple of years ago when the Department of Labor was pushing for a fiduciary standard across the financial services industry (commonly referred to as the DOL Rule), but the courts put a kibosh on it. Reg BI is the second iteration of legislation designed to hold financial professionals who operate on a commission basis to a higher standard of conduct, hoping to further protect investors.

Reg BI is new legislation from the SEC designed to improve the minimum standard of care throughout the financial services industry.

Reg BI primarily requires that all financial professionals make recommendations that put their clients’ interests ahead of their own. Certain costs, alternatives, and circumstances must be evaluated and rationale documented for all commission-based relationships and recommendations. Additionally, financial professionals must identify any potential conflicts of interest and/or incentives associated with recommended products, investments, or strategies. While all this may seem like a “no-brainer”, it has not been the legally mandated standard in the industry. Instead, financial professionals have simply been obligated to do what is “suitable” for you, not necessarily what is best. 

 

Broker versus Fiduciary

Under the new Reg BI, a Broker must put the interests of their clients’ ahead of their own and disclose pertinent conflicts of interest or incentives. Reasonable care must be taken when making a recommendation, including an evaluation of potential risks, rewards, and costs relative to alternatives.

While this new Reg BI certainly improves the legal standards of care across the financial services industry, it remains overshadowed by the Fiduciary Standard. A fiduciary, by definition, acts on behalf of another person and owes a duty of trust, loyalty, and exemplary care. A fiduciary is legally and ethically obligated to act in your best interest, period. Conflicts of interest should be eliminated wherever possible, or, at a minimum, clearly identified and understood by all parties. An “Investment Fiduciary”, specifically, must do everything in his/her power to ensure any financial advice given and/or implemented is in the best interest of the client and based on accurate and complete information.

The Fiduciary Standard continues to be the highest standard of care. At Dashboard, we are your fiduciaries, and we believe our process exceeds the mandates set by the federal government.

At Dashboard Wealth Advisors, we are your fiduciaries. We take this obligation very seriously, and aim to embody its mandate in everything we do. Our commitment is to put the needs of each client ahead of our own in every circumstance.

However, in our opinion, simply being your “Investment Fiduciary” isn’t enough. We at Dashboard believe it is our duty to be your “Financial Fiduciary”, and we strive to provide stellar care and guidance with regards to every aspect of your financial life – not just investment management, but also cashflow planning, risk management, insurance, estate planning, wealth transfer, tax planning, charitable giving, and more. This expansive scope allows us to make more informed decisions, and provide a level of care and service that, we believe, can surpass even the Fiduciary Standard set by the federal government. 

 

“Investment Fiduciary” versus “Financial Fiduciary”

Real Life Examples

It’s always easier to understand complex, abstract ideas by relating them back to real life experiences. We hope that what we believe to be the “wrong way” to do things is due to a lack of acumen, intelligence, or scope…NOT due to a lack of ethics. Ultimately, that’s for you to decide.

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Welcoming a new baby into your family 

We would expect most Brokers and “Investment Fiduciaries” alike to typically focus on opening and continually funding an education savings account – typically a 529 – which is all well and good. At Dashboard, we would look beyond the simple answer to evaluate whether a custodial account such as an UTMA or UGMA account may be a better fit for your family. There are pluses and minuses to both strategies, like most things in life, but the point is to evaluate all the options and determine what makes the most sense for you and your family.

That said, while education savings are important to many, we believe there are far more critical items to consider. First of all, if applicable, we would evaluate your Term Life Insurance coverage as a means of insuring your future earnings potential. Having the appropriate amount of effective insurance coverage is key to mitigate unnecessary risk to your family.

Secondly, we would strongly encourage you to update your estate plans and assign guardianship of your child. We may also suggest trust planning should your family’s needs mandate such measures and controls. Truly, every time we talk, we will nag you about updating your estate plans until you do it.

Thirdly, we would work with you to gain an understanding of your new Spend Rate and directly related Savings Rate. Before considering education savings for your child, we would evaluate and ensure you are on track to meet your own future financial goals. For example, we would encourage contributing to your retirement savings before adding to a 529 plan. While difficult for parents, it is vital that we take steps to plan for your financial success before saving for education – there are often other options available for your child’s education funding, but you cannot reclaim the lost time of compounding interest on your own wealth if you wait. 

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Buying a new home

We would expect that neither Brokers nor “Investment Fiduciaries” would care that you purchased a new home, other than to get your new address to update your accounts. By contrast, at Dashboard such an event would trigger a series of planning discussions. We would assess your Property & Casualty coverage – in particular your Excess Liability or Umbrella policy – to ensure appropriate coverage is in place or recommend changes as needed for you to address with your insurance agent. We would review the ownership of the new property, and discuss potential wealth transfer considerations. We would gather information about the terms of your loan for your family's Dashboard, and consider whether it may be appropriate for you to pay down additional principal. And of course, update the mailing address on your accounts. 

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Open Enrollment period begins at work

Again, we generally would not expect Brokers or “Investment Fiduciaries” to review your various employee benefits. At Dashboard, we can help you to evaluate all of your available benefits. We can provide guidance on which health insurance plan makes the most sense for your family. We can review options related to your employer-sponsored retirement plan (401k(k), 403(b), etc). While we are not the advisors to the plan, we can discuss making contributions on a pre-tax or post-tax basis, education on in-plan Roth conversions, general advice on selecting investments, and information on completing after-tax Roth rollovers or other features that may be available within the plan. We can review your Long Term Disability, in particular whether premiums are paid with after-tax dollars so that the benefit would not be taxable to you. Also, we can evaluate all other benefits for which you are eligible, such as profit sharing, employee stock purchases, non-qualified deferred compensation, etc. We believe maximizing available employee benefits is a simple and effective way to dramatically improve your financial life. 

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It’s tax time!

A Broker or “Investment Fiduciary” may generally want to know your AGI in order to recommend appropriate strategies and investment products. At Dashboard, we want to know your AGI so that we can potentially “fill up” your current tax bracket and take advantage of historically low tax rates. We may consider capital gains harvesting, Roth conversions, or other strategies that will cause you to pay a higher tax bill now, but should reduce the amount of taxes you will pay over your lifetime. We will work closely with your CPA to evaluate what methods are appropriate for you and your family. 

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Charitable giving through cash donation

Generally, neither Brokers nor “Investment Fiduciaries” review donations you've made or plan to make. At Dashboard, we want to discuss your charitable intentions to determine the best way to maximize the positive impact to the non-profit organization and to you. Since the new tax law which doubled the standard deduction went into effect in 2018, many Americans no longer itemize and miss out on the tax benefits of making a donation. However, it is important to note that these tax benefits have not been eliminated – you just have to change your strategy.

If you turned age 70½ before 12/31/2019, you are required to take a distribution from your IRA accounts – this is called an RMD. If this is the case, we would consider a Qualified Charitable Distribution (QCD) from your IRA which will satisfy your RMD and decrease your taxable income dollar for dollar.

Conversely, if you’re currently under age 72 and were not required to begin RMDs in 2020, we would suggest you consider opening and funding a Donor Advised Fund (DAF) with a larger lump sum payment (say 5 years’ worth of donations) so that you can get the full tax deduction the year in which you open the account.

If you want to make charitable giving a significant part of your family dynamic, you may consider creating your own foundation, naming family members as the directors. Similar to a DAF, you could fund the foundation with a larger lump sum payment to get the full tax deduction in the same year. While a bit more complicated and more costly then opening a DAF, a foundation allows for increased participation and engagement of your family.

If you have highly appreciated stock, you may consider donating some or all of those shares. The non-profit gets the full value of the securities, and you are able to avoid paying the large capital gains tax.

There are many other possible opportunities for charitable giving. There’s no reason to deprive yourself of the tax benefit of your generosity – let’s figure out what method will achieve the best outcome for everyone!

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Cash windfall

All of a sudden, you now have a big lump sum of cash – maybe you sold your business or received an inheritance. We discussed above the standards of care of a Broker and an “Investment Fiduciary”. Ultimately, we would expect each of them to make recommendations for the entire lump sum amount. At Dashboard, we would first review all of your debts and liabilities. Rather than simply investing a set portion of your portfolio into fixed income, it is very likely we would instead encourage you to pay off your liabilities. By “buying your own debt”, you are effectively purchasing a bond with a rate of return equal to the interest rate on the debt. Then, with the balance of cash, we can design and implement a personalized investment strategy for you and your family with your best interests in mind.

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Your child starts his/her first job

A Broker or “Investment Fiduciary” would likely be reactive to any questions you bring to them. At Dashboard, we will not only help to review your child’s available benefits (see Open Enrollment above), we will also challenge you to gift cashflow so that he/she can “max out” Roth retirement accounts through the early working years. We call this the 5 Year or 10 Year Challenge. By granting your children the awesome power of compounding interest over time, you help to kick start their own future financial success, and hopefully instill a valuable savings discipline.

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Your aging parents are ready for you to help with their own finances

We would expect Brokers and “Investment Fiduciaries” to abide by their respective mandated standards of care as discussed above and present recommendations that are in the best interest of your parents. At Dashboard, we would broaden our scope and begin to evaluate what generational planning strategies may help to expand your family legacy.

We would evaluate appropriate strategies for any highly appreciate stock.

We may suggest that you “buy” your parent’s IRA by gifting them cash to convert those dollars into a Roth. Then, your parents should name you – or better yet, your kids – as the beneficiary of those Roth assets. Similarly, if your parents have earned income, you could gift them cash to make Roth contributions and name you or your children as the beneficiary.

We would likely encourage your parents to add disclaimer language to their beneficiary designations to provide enhanced flexibility for heirs based on then relevant tax data.

We would review your parents’ estate planning documents to ensure their desires match their reality. In particular, we would ensure appropriate Powers of Attorney are in place so that the “right” people are able to easily make and execute decisions.

In effect, we will work with you and help your entire family to design and execute their desired legacy. 

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Hopefully these hypothetical examples of real life scenarios demonstrate just how important it is to widen our scope when making decisions about your family's financial future. Don't confuse the more narrow focus of a Broker or an "Investment Fiduciary" with the expansive, wider lens of a "Financial Fiduciary" who applies the mandate of the Fiduciary Standard to ALL aspects of your financial life. It is only through an extensive, inclusive view that we can hope to better capitalize on potential opportunities that may help to ensure your family's future financial success. 

 

Any opinions are those of Dashboard Wealth Advisors, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Converting a traditional IRA into a Roth IRA has tax implications. Additionally, each converted amount may be subject to its own five-year holding period. Investors should consult a tax advisor before deciding to do a conversion. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us. Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust. Any examples provided are hypothetical and for illustration purposes only, and are not intended as investment advice. Please consult with your financial advisor if you have questions about these examples and how they relate to your own financial situation. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. In a fee-based account clients pay a quarterly fee, based on the level of assets in the account, for the services of a financial advisor as part of an advisory relationship. In deciding to pay a fee rather than commissions, clients should understand that the fee may be higher than a commission alternative during periods of lower trading. Advisory fees are in addition to the internal expenses charged by mutual funds and other investment company securities. To the extent that clients intend to hold these securities, the internal expenses should be included when evaluating the costs of a fee-based account. Clients should periodically re-evaluate whether the use of an asset-based fee continues to be appropriate in servicing their needs. A list of additional considerations, as well as the fee schedule, is available in the firm's Form ADV Part II as well as the client agreement. Raymond James Financial Services, Inc. does not provide advice on tax, legal or mortgage issues. These matters should be discussed with the appropriate professional.