Last-minute investment strategies, and how not to make them next year

There is nothing magic about year’s end when it comes to wealth management. It is, however, a time that coincides with tax planning, so it’s often an opportunity to consider financial planning moves.

John Schuman, chief planning officer at Budros, Ruhlin & Roe, Inc., says there are considerations to make at year’s end, but none that couldn’t have been decided much earlier.

“Consider your year-end opportunities, but find an adviser to work with so your planning isn’t crammed into the last month or quarter of the year. Advisers can make planning a lot easier and less stressful,” he says.

Smart Business spoke with Schuman about year-end wealth management tips and how to avoid an end-of-the-year rush in 2015.

What should be done before the calendar turns?

From a wealth management perspective, the end of the year is a time to think about maximizing contributions to qualified plans, making sure you’re putting away money in your 401(k) plans and other retirement planning vehicles such as Roth IRAs.

The general rule is to defer income and accelerate deductions. Following that logic, retirees experiencing a low income tax year, who are not withdrawing from their IRAs and have little or no earned income, can convert IRA accounts into a Roth IRA. Basically, you’re paying your tax early, but you’re choosing to pay your tax in the low bracket when having a low bracket year.

For those still in the workforce, there’s an opportunity to move money into a Roth IRA. A nonworking spouse can make a nondeductible IRA contribution and convert it tax-free to a Roth IRA.

It’s also a time to accelerate any tax deductions to offset income, like paying real estate taxes in December rather than January, and paying any local or state taxes in December and not waiting until the next year.

What else might be to an investor’s advantage at the end of the year?

Since 2006, qualified charitable distributions (QCDs) from IRAs have allowed people aged 70.5 or older to make up to $100,000 in charitable contributions and have that count toward their required minimum distribution. The benefit is that instead of having to take the distribution into income and then taking a charitable deduction, the QCD excludes it from your income altogether. This, in turn, eliminates state income taxes on the distribution and reduces the various phase-out limits. QCDs have not been extended for this year, but are expected to be. It’s advisable to make a QCD this year anyway, in anticipation of the legislation being extended.

On the estate planning side, we now have portability, which allows a spouse to inherit a deceased spouse’s unused estate tax exemption. Historically, each individual had to use their own estate exemption (currently $5.34 million). Now, any unused exemption can be passed on to the surviving spouse.

Further, the IRS says it’s permissible to go back for those who have died between 2011 and 2013 and retroactively take advantage of this portability election, but that has to be done before the end of the year.

Lastly, Congress has been focused on compliance with disclosing foreign-owned assets and accounts. A new amnesty program, which allows disclosures with reduced penalties, opened in July of this year. Failure to make a disclosure during the amnesty period can result in penalties larger than the account balance itself.

What would help people avoid having to make a year-end push?

Planning should be an ongoing process, not an event-driven reaction. If your investments get most of your attention during the last quarter, you’re being transactional, and probably not making the best decisions. It’s best that investors have an ongoing dialogue with their wealth management adviser throughout the year.

It’s common for people to procrastinate. But deep within procrastination is confusion, and that can freeze decision-making. People often aren’t aware of the full landscape of investing factors to form a strategy, so they get stuck. Most wealth managers do this for several hundred people every year, and know how to gather the facts and perform the analysis that help their clients avoid confusion, correct misinformation and make better decisions.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

How to set goals that increase your business’s value before you exit

It’s estimated that 3 million small business owners in the U.S. will sell in the next five years. Yet one-third of those owners don’t have a business or retirement plan to prepare for the transition.

“That’s a million businesses that are really vulnerable to debt, disability, economic downturn, competitors, external and internal strife, and more,” says Deborah F. Graver, high net worth asset development officer and chief compliance officer at Fragasso Financial Advisors. “If they don’t pay attention to it, everything they worked so hard to build could disappear, and then all their dreams of retirement are gone.”

If you fail to plan, you can end up unprepared to sell, she says. And if you have to have a fire sale, you won’t be able to convert what you’ve built into a liquidity event that really represents the true value of your small or midsize company.

Smart Business spoke with Graver about what to consider when you’re seeking to transition your business to the right people at the right time, and for the right price.

What’s the first step to planning a business transition?

First, sit down with an adviser to describe what you want to achieve. You need to work with a financial professional who can help you envision and plan for the transition.

An experienced, knowledgeable financial adviser can help create a transition plan in coordination with your CPA and attorney. While planning for the sale, your adviser should also work with you to create a customized personal plan to ensure financial security during your lifetime and beyond.

When do you need to get started?

Start planning for the transition at least five years out. Planning with foresight gives you time to prepare yourself and your business for the change. Proper business valuations on a routine basis are also vitally important.

What’s critical to prepare internally?

Make sure you have the right people in place. Strengthen your leadership structure, considering long-term goals and the intended succession plan. Are the managers’, directors’ and other employees’ strengths properly aligned with the roles they play in operating the business? Would changes in key employees improve operating efficiency?

If you are unsure of how to evaluate that and restructure where needed, or if you’re simply too close to the subject matter, consider hiring a consultant. A business transition specialist can help interview key stakeholders to determine strengths and weaknesses in the organization and provide guidance on strategic changes.

How else can you get ready?

Create a written business continuity plan, in the event of the death or disability of yourself or key employees. Various types of insurance can also help guard the business against loss of key personnel and protect the future of the company and personal wealth. For example, a key person life insurance policy can help protect the business from the adverse effects of losing essential personnel, and a more comprehensive buy/sell agreement can help provide greater financial protection for business continuity.

What can you do to make the company financially stronger before the transition?

Review the company’s fringe benefits, including the retirement plan. A quality retirement plan is key for retention and ranks as a top priority for job candidates. Many employer-sponsored plans also offer significant tax advantages to the company. A properly structured retirement plan helps to round out a solid business, making it more attractive to potential suitors, which can help you retire with a larger nest egg.

In addition, clean up the balance sheet. Managing assets and liabilities properly with disciplined accounting practices shows prudent financial control systems are in place. Employ cash management and debt reduction strategies to maximize value well in advance of an intended exit.

Planning a business transition can be like another full-time job. That’s why it’s critical to find a financial adviser who can help translate your vision into a plan, help execute the plan on that vision and work systematically with you to get the right people and processes in place. If you haven’t worked with an adviser before, or feel you’ve outgrown your current adviser, schedule an appointment with a seasoned professional more suitable given this stage in your life.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

What to do when you suddenly find yourself flush with new income

Proper prior planning is essential when it comes to dealing with financial windfalls such as bonus money and royalties paid out for oil drilling rights.

Your failure to do so could cost you a lot of money and even the land that brought you all that income if you don’t take the time to prepare, says Broderick N. Haer, a financial consultant at AXA Advisors LLC.

“This is like winning the lottery,” Haer says. “A common mistake with bonus and royalty money is that people don’t know how it’s treated in terms of taxes. In most situations, the bonus payment, as well as the royalty income stream, is considered taxable income. So when you’re getting tremendous amounts of dollars in terms of ordinary income, it obviously has a dramatic effect on your effective tax rate.”

Haer says the oil and gas drilling boom in Ohio has been a learning process for financial professionals as much as the people getting the money.

“The key is to talk about it in more simplistic terms and handle it in a methodical, step-by-step process,” Haer says.

Smart Business spoke with Haer about how to manage a sudden surge of income in a way that helps to protect you, your family and your property.

What’s a common mistake made with a sudden infusion of income?

Often, the first thing you want to do with a windfall of money is start paying off debt on the farm or purchase assets such as a new tractor or tiller or a new truck. You have this bonus money and you’ve spent the majority of it without leaving enough for the expected taxes that you’ll need to pay on it. Step back and plan how you’re going to distribute the income and properly save for taxes.

How comprehensive is the planning process?

It can help you understand whether the income may be extensive enough to support future generations, which would involve legacy and estate planning strategies such as trusts, limited partnerships or even family limited partnerships.

An advisor can sit down and run a financial plan and look at the bonus and/or royalty money you expect to receive. When your land is drilled and the wells are productive, you can start seeing extreme income that becomes very lucrative.

In this case, you’re going to need a more professional approach with a team of advisors. This includes an estate and contractual attorney, a good CPA and a financial professional that can head up that team.

How important is estate planning?

The value of your property before royalties may be below the estate planning limits for estate taxes. But after drilling, within a very short period of time, the value of that property and the value of that lease could dramatically exceed the estate planning tax exemption.

If that happens and you haven’t planned for it, the result could be devastating.

Let’s say something happens to you and now estate taxes are owed and there’s no liquidity coming in because that tax bill is going to be evaluated based on all the future cash flows of that well.

The IRS is going to have someone come in, a geologist, and find out what is expected in terms of future income. Then they are going to go to a present value calculation and they’re going to put it in today’s dollars and that property can be worth $15 million or 20 million.

Maybe you have just gotten a couple royalties. Now there is an estate tax bill that is due by Oct. 15 of the following year and it’s a $3.5 million to $4 million bill. What’s going to happen to the farm?

You’ll probably have to sell it to the highest bidder. If you haven’t saved enough for estate tax or put a product in place such as a life insurance policy that is liquid upon death to pay those estate taxes, the IRS is going to want its money. The most valuable asset in that situation is the lease, so the lease might be sold and now the family loses the lease or the farm might be sold. That’s a scary notion.

Broderick Haer offers securities through AXA Advisors, LLC (NY,NY 212-314-4600), member FINRA/SIPC, offers investment advisory services through AXAAdvisors, LLC, an investment advisor registered with the SEC, and offers insurance and annuity products through AXA Network, LLC.

Broderick Haer, AXA Advisors and AXA Network do not offer tax or legal advice. Please consult with your professional tax and legal advisors regarding your particular circumstances.

Make the effort to manage 401(k) plans responsibly and earn loyalty

A growing number of employers automatically enroll employees in 401(k) plans based on evidence that shows it’s simply a more effective way to get them to save for their retirement.

People are 14 times more likely to save money on a regular basis if it’s automatically deducted from their paycheck than when they are left to their own devices, according to research by the National Association of Plan Advisors, says Jeffery Acheson, managing partner, advisory services at Corporate and Endowment Solutions Inc.

“The stick rate of people who are automatically enrolled in their company’s 401(k) plan is close to 90 percent. People are often just as apathetic about opting out of a 401(k) plan as they are about opting in,” Acheson says, citing a 2012 Blackrock Retirement Survey.

Smart Business spoke with Acheson about how employers can responsibly manage their 401(k) plans.

What is the biggest challenge to managing a 401(k) plan for employees? 

The Employee Retirement Income Security Act (ERISA) of 1974 requires plan sponsors and fiduciaries to carry out their responsibilities prudently and with a duty of loyalty to the participants. Down deep, employers know they need to pay a lot of attention to their retirement plans, but many times they are too busy with other aspects of their business. It needs to be a higher priority. The Department of Labor enforces the many fiduciary requirements that businesses need to adhere to.

What are some best practices for employers to manage their 401(k) plans? 

Develop a detailed investment policy statement that lays out the process and procedures you follow in providing fiduciary oversight of the plan you are managing. Be sure that if the Department of Labor ever does come knocking on your door, you have documented evidence of your adherence to the many requirements mandated by ERISA.

Second, make sure the fees in your plan benchmark well against alternatives in the marketplace. You don’t have to hire the lowest cost providers, but as a plan fiduciary overseeing your plan, you have to be able to ascertain and document that you have deemed your plan’s fees fair and reasonable for the services provided.

How often should a company compare its plan against what is offered by other firms? 

The rule of thumb is every three to five years you should re-evaluate your existing plan against market alternatives. Most ERISA attorneys would agree that is an acceptable length of time to show responsible fiduciary oversight. When you do look at other options, three things can happen. The data will come back and tell you that you are doing all the right things and there isn’t much of anything you should be doing differently. The data may come back and say that you’re doing OK, but highlight improvement potential that if addressed in a few small areas, would allow you to do even better. Or, the data could tell you that your plan is not up to acceptable and defensible standards.

From a plan sponsor standpoint, these are all good outcomes. Either you’ve validated that you’re doing a good job, received some good tips on how to do it even better or gotten a much-needed alert to provide a stronger plan for your employees.

What do employees want in a 401(k) plan? 

It takes a lot of money to get through retirement and with people living longer and the better we get at health care, the more it exacerbates the retirement income security problem. If you want your employees to consider your retirement plan a real benefit, you have to show it’s an important part of your overall compensation package. That starts with how much attention you pay to the plan in trying to make it the best it can be at your company’s intersection of human and financial capital.  

Jeffery Acheson offers securities through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/SIPC, offers investment advisory products and services through AXA Advisors, LLC, an investment advisor registered with the SEC, and offers insurance and annuity products through AXA Network, LLC, which conducts business in California as AXA Network Insurance Agency of California, LLC, and conducts business in Utah as AXA Network Insurance Agency of Utah, LLC. Corporate and Endowment Solutions, Inc. is not a registered investment advisor and is not owned or operated by AXA Advisors or AXA Network. 

GE 98715 (10/14)(Exp 10/16) 

Insights Wealth Management is brought to you by AXA Advisors, LLC 

Navigating the misconceptions that surround wealth management

There is no universally accepted definition of wealth management, which can lead to misconceptions about what the practice involves. The term may refer to investment management, private banking, stock picking, even estate planning. To many, it can mean all of these. To some it can mean none of these.

“Those who call themselves wealth managers may each provide a different service,” says Jim Budros, chairman and founder of Budros, Ruhlin & Roe, Inc.

This has led many to form false impressions of the practice, which keeps them from using services that can be helpful to their financial well-being.

Smart Business spoke with Budros about the general misconceptions associated with wealth management and how the practice can be better defined.

What are some misconceptions about access to wealth management services?

It’s a commonly held belief that access to wealth management services is just for the wealthy. But wealth management decisions can be about a person’s first 401(k) deferral, buying a life insurance policy or budgeting.

Some people believe it’s expensive. There are, however, many wealth managers whose relationships with clients are on a project, per hour or percentage of assets under management basis. Each of those payment scenarios can make access to services available to those with greatly different levels of wealth.

What’s inaccurate about who wealth managers are and the services they provide?

Wealth managers often specialize in different aspects of wealth management. Some may focus on investments, some deal mainly with financial planning and others represent banks or brokerage firms. It’s important that those seeking these services determine what they require and find a person who can help. Generally, the scope of service should be clear from the outset. That clarity should be found in the contract that is signed at the start of the relationship.

Wealth managers should not make promises they can’t keep, so look for a proven track record of success. A good wealth manager will tell his or her clients that the process is the solution.

One thing to look out for is conflict of interest. Wealth managers who classify themselves as fiduciaries must work with their clients’ interests above their own, and recommend products and strategies in their clients’ best interests. Those who are not fiduciaries may recommend any product as long as it’s suitable. It’s a subtle distinction, but an important one.

What is a more accurate description of what wealth managers can do?

The description is based on one’s point of view. Generally, the phrase wealth management suggests a scope of services that’s relatively broad based and includes financial planning and investment management.

Financial planning is an activity that seeks to articulate one’s goals in a procedural way, and then determine a course of action to achieve them. Investment management happens once money has been accumulated — it’s what you do with the money to achieve the goal financial planning has defined.

When is a good time to begin working with a wealth manager?

One of the misconceptions is that wealth management starts when a person retires. If the whole process starts at retirement then it’s often too late for it to be most effective.

Wealth management can start very early in life and include decisions such as building a current income stream with jobs and education, providing insurance coverage, managing and reducing debt, and building an emergency fund.

For those who wonder about their financial future, the sooner they get connected, even in a temporary way, with someone who can give them financial advice without conflict the better.

When you retire, you don’t turn all your money into cash, spend it and die. Most people have a lot of living left once they stop working. There are wealth managers who provide services for those planning later in life, so there’s someone for everyone regardless of life stage. Bear in mind, however, that working within a wealth management process is like compound return: The outcomes improve with time.

Insights Wealth Management is brought to you by Budros, Ruhlin & Roe, Inc.

How to start along the right track to retire with the lifestyle you expect

When it comes to saving  for retirement, people can be their own worst enemy. Worldwide, 82 percent of people worry about how they will fare financially during retirement, but they don’t adequately plan, spending more time planning vacations than preparing for retirement.

“Many employees aren’t putting any money in their 401(k), which is often matched. That’s low-hanging fruit that they aren’t taking advantage of,” says Ray Amelio, family assets development officer at Fragasso Financial Advisors.

Often, getting started is the hardest step because people don’t understand their current expenses and what they might need in the future.

“Usually when people join 401(k) plans and start to put money away, they see how it grows and it opens up their eyes,” he says.

Smart Business spoke with Amelio about saving early and often, while monitoring your current lifestyle and spending.

At what age should people start saving?

Form the habit of saving early in life, while in your 20s and 30s, because those extra years of compound interest pay handsomely later. And if you couple that with some sort of company retirement plan and Social Security, the whole equation can generate a nice retirement package.

The younger generation seems to be savvier about this as they’ve seen their parents struggle. However, as the economy improves, some people have started to save less again.

What are the first steps to calculating your retirement needs?

Set your goals. What do you want to accomplish? The answer might be different in your 20s and 30s than in your 40s and 50s, but establishing what your retirement will look like, when you’d like to retire and with what lifestyle is key. Even though it’s far in the future, it’s similar to when you graduated high school and thought about what you’d like to do. You really didn’t know, but you had to start putting a plan together.

As you move through your career, get married, have children, etc., you can adjust your plan as necessary. Ideally, you should review your monthly statements, talk to your financial planner quarterly and meet with him or her face-to-face at least annually.

At the same time, it’s important to honestly think about your lifestyle. Keep track of how much you’re spending on things like food and entertainment, while questioning your major purchases and ensuring you don’t use credit cards too much.

Does saving for retirement start to become habitual?

If you can instill in yourself that you should be thinking about it on an ongoing basis because it will impact your future, it does become somewhat of a habit — just like you go to the dentist twice a year, have an annual physical and get your car inspected. You just need to work it into your lifestyle and keep track of where you are as far as saving goes, how you’re tracking towards your retirement goals, etc.

When should you determine that you must save X amount each month to reach Y goal?

A financial adviser can work with you to help you plan at that level. Your retirement goals will help you determine the aggressiveness and allocations of your wealth portfolio.

As an employer, how can you encourage your people to start along this path?

Education is always important to help ensure people understand and are taking advantage of any match.

A group of people may say they cannot afford to take any money out of their paycheck. But that’s really another discussion — analyzing their current lifestyle to see where they can cut back a little to at least capture those match dollars.

Also, you can automatically enroll everyone in the 401(k) plan. Employees have the ability to opt out but most don’t. This has been generating more interest from organizations that want to help their employees start their nest eggs.

A study several years ago found that 50 percent of baby boomers didn’t have $50,000 saved for retirement. Even if you fear you may fall short, giving it your best shot is better than doing nothing.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

How to prepare for retirement through the decades — your 40s, 50s and 60s

When you’re young, retirement can seem a long ways off. It’s intangible and too far in the future to be a concern. In many cases, people don’t start taking it more seriously until their 40s when they see their parents living in retirement.

“At some point, it’s almost too late,” says Adam Spiegelman, wealth management advisor at Northwestern Mutual. “You have fewer options as you get older because there is not as much time to make up any shortfalls in your plan.”

Smart Business spoke with Spiegelman about how to prepare at each stage of life before the planning window narrows.

How far out should people plan?

Take advantage of tax-deferred savings your employer provides as soon as you start working. If you’re self-employed, use tax favorable options such as IRAs, SEPs and other pension plans that allow you to put money away in a tax efficient manner. The best advice is: early, often and automatic. Most people spend more time annually planning for their next vacation than they do for their own retirement.

Yes, it’s hard to save for retirement when you’re also trying to fund your children’s education or buy a house, but it’s important to strike a balance. Try to put away 10 to 15 percent of your salary on a monthly basis. If you can’t manage that, start somewhere and increase it by 1 or 2 percent each year.

What are some important items to consider by the time you get to your 40s?

In your 40s revisit the planning that you have done in your 30s and make sure you’ve checked the box on the following:

  • Estate planning documents including, but not limited to, a will/trust, medical directives and powers of attorney.
  • College savings. Estimate the amount it will cost and how much you’ll need to put away. Many people include several years of graduate school as well.
  • Retirement planning. Get as detailed as you can about your budget today and what you’re spending. Translate that figure into future dollars using inflation to calculate how much you’ll actually need in retirement. Then determine how much you must put away on a monthly basis.
  • Life and disability insurance, to protect yourself and your family.


Start as early as possible and create a vision for you financial future. What does retirement mean to you? What does financial security mean to you? You can look at those questions in your 30s, 40s and 50s and find that your answers change over time.

How does this change when you’re a little older, say in your 50s?

Your perspective changes because of what you’ve experienced in life. Maybe a friend or relative has had an illness or accident, you’ve become an empty nester or you’re helping your parents tend to their needs. You’re staring at retirement, saying, ‘I’m aging. My parents are getting older. This is real.’

Don’t panic, however. It’s a matter of revising your retirement projections and budget again and ensuring your estate planning documents still are accurate. Of course, you’re not waiting 10 years to do this, but it’s more detailed now and you’re also strategically thinking about things like Social Security and long-term care planning.

What key actions should you take in your 60s, just before you retire?

Finalize your bucket list — what you want to do, the places you want to go or any major goals you want to accomplish. The majority of your planning should be complete, so just refine any projections and update documents. You also may want to start thinking about leaving a legacy or charitable causes to contribute to.

This is a good time to fine-tune your Social Security plan, and meet with a Social Security consultant and your financial adviser.

The retirement planning process shouldn’t be like going to the dentist. It should be fun. If you do it right, you’ll have a whiteboard where you can fill in all of your dreams. If you want a Ferrari in retirement, you can have a Ferrari, if you plan early enough. You can essentially do anything. It’s just a question of starting early and planning.


Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities) and its subsidiaries. Spiegelman is an insurance agent of NM and Registered Representative of Northwestern Mutual Investment Services, LLC (securities), a subsidiary of NM, broker-dealer, registered investment adviser, member FINRA and SIPC.


Insights Wealth Management is brought to you by Northwestern Mutual

How to keep your retirement package competitive with benchmarking

Benchmarking a retirement package should include a number of different metrics — not just fees — and that’s where many employers fall short.

“The whole idea behind benchmarking is to give you a sense of where you are, the problem areas that you need to work on and what techniques you should then use to improve the metrics for the plan,” says Daniel Halle, AIF®, RPA®, vice president and manager of Retirement Plan Advisors at Fragasso Financial Advisors.

From a fiduciary perspective, you want your fees in line with the market, but you also want to benchmark the performance of your funds, which can drive cost. If you’re running more of an index strategy, the costs may be lower but returns could be lower over the short term.

It’s also critical to consider participant outcomes, including employee participation rates, deferral rates, proper asset allocation and amounts saved. Remember your employees are why you set up a retirement plan in the first place, Halle says.

Smart Business spoke with Halle about how to benchmark your retirement package and then use that data to improve the plan.

If benchmarking isn’t required, why do it in the first place?

There’s no obligation to benchmark your retirement package, but you’re doing a disservice to your employees if you don’t.

It’s also good business. As a fiduciary, you must act in the best interest of the participants. If you don’t review or benchmark your fees, it’s difficult to make the case that you’ve fulfilled your fiduciary duty. And if participants file a lawsuit later, as a fiduciary you could be held personally liable for any breach of fiduciary duty.

With the uncertainty of Social Security and the decline of defined benefit pension plans, employees have more responsibility and are more aware of retirement. A competitive retirement package can be used for recruiting and retention.

How often should retirement plan sponsors benchmark their plans?

Every three to five years, employers need to search the market and bring in proposals to compare to their existing plan. Year after year, fee and cost structures have declined, so it’s wise to see if there’s been compression in their market size.

On an annual basis, retirement plan sponsors also need to look at other metrics to see if progress has been made in closing some of those gaps, which can include paying too much, poor performing investments or poor participant utilization. They should compare investment options to their peers and look at participant outcomes.

Why is it so important to keep benchmarking data current and compare it?

A benchmarking report that sits on your desk isn’t helpful. You need to take that data to identify problem areas in your employees’ investment allocations or contribution gaps, then provide education to fill those gaps and measure the results annually to see if you drove positive outcomes.

If employees aren’t saving enough, change your education process to talk about why saving is important or consider adding an auto-enroll/auto-escalation feature. Or maybe employees aren’t aggressive enough with their investment options, so target your education to change that behavior.

Take an active role in getting employees to save more for retirement. Employers are so focused on managing health care renewals, but if they spent a little more by increasing the match or putting in auto-enroll/auto-escalate, it gives people the retirement balances they need to leave the workplace — ultimately controlling health care costs.

Should retirement plan sponsors do this internally or seek outside help?

When 401(k) plans were started, the idea was a company could manage its own plan. But is it a good use of the company time and resources? That’s why many employers now outsource most 401(k) work to third-party administrators or record-keepers.

It’s the same for benchmarking. There are tools and resources available, and a lot of benchmarking uses your own metrics like participation or deferral rates, but it may be more cost effective and productive to outsource. If you leave it to the professionals that specialize in this business, they understand what to watch out for and focus on. Some investment advisers even include benchmarking as part of their services.

Insights Wealth Management is brought to you by Fragasso Financial Advisors

Why you need to diversify your assets to maximize return and minimize risk

Diversification is a critical component for any sound investment plan, but it requires regular monitoring to ensure it’s still producing the desired results in good and bad times.

“Whether you are managing your own money or working with a financial professional, you need to review things regularly,” says Raymond N. Sussel, CLU, a financial professional at AXA Advisors, LLC. “We have clients we meet with every quarter. Other clients ask to meet every few years because not much has changed in their life.”

The challenge for some investors is understanding diversification.

“People think their portfolio is diversified,” Sussel says. “And when we review their holdings, we’ll see they own 100 to 300 different individual stocks and bonds. They might be missing small cap stocks or emerging markets as an example.”

Smart Business spoke with Sussel about keys to effectively diversifying your assets.

How has the definition of assets changed? 

Traditionally there were three different kinds of asset classes: stocks, bonds or fixed income, and cash. The landscape has changed. It used to be that stocks and bonds moved in opposite directions. Recently, the correlation has become more positive, meaning they move in similar directions. In 2008, both had a rough time in terms of investment returns.

Today, the words ‘alternative investment’ are used a lot, especially for higher net worth individuals as a way to diversify into other asset classes that have negative correlation. The traditional asset classes of stocks, bonds and cash have been augmented by alternative investments, which can include commodities, real estate, different types of fixed income including domestic and overseas, currencies and long and short funds to bet against the market. It is by utilizing these assets that we seek to help manage risk.

What are some key strategies to achieve healthy diversity? 

First, understanding what your financial goals are is important. Time horizon is critical as well. If you were considering a three- to five-year period, you should not invest aggressively. Conversely, if you’re looking at a 30-year period, you probably don’t want a lot of money sitting in bonds. Most of our clients think of their investments in terms of buckets. Money that is needed in the next few of years should be in a short-term bucket. Perhaps funds are in a bank or a money market account and earning a little bit of interest. But the risk level is low as is the return.

Some clients fall into the middle-term category. Perhaps you are going to buy a second home, or are getting ready to put the kids through college. The hard part is figuring out how to invest that money so you are satisfied with the return, but not taking on additional risk. It really comes down to your tolerance for risk. If you can’t stomach a couple down days in a row, or if you see your $100,000 is suddenly worth $90,000 and you are very concerned, you are probably investing too aggressively. You should also consider the amount of money invested. A financial professional is going to invest $25,000 differently than $2.5 million. You can’t diversify $25,000, or even $250,000 as easily. The larger the amount of money, the more you are able to diversify, not only with asset-class diversification, but advisor diversification; hence utilizing multiple advisors or investment companies.

Any other tips for helping to manage the ups and downs of the markets? 

The average investor should not look at their investments every day. Because of technology, there is a lot of information available at our fingertips. It gives the average person access to things to which 15 or 20 years ago they didn’t have access. Success in the market requires patience. You should also consult with a financial professional to make sure you are on the right track, and continue to review and monitor your investments at regular intervals. ● 

Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA/ SIPC. Insurance and annuity products offered through AXA Network, LLC.

GE-97673 (9/14) (Exp. 9/16)

Insights Wealth Management is brought to you by AXA Advisors, LLC.

How to better prepare for changes in the dynamics of your family business

Small and midsize businesses are particularly vulnerable to life altering changes. Successful business leaders include contingency plans in their business for such events. However, certain business disruptions — serious injury or disability to key personnel, loss of a spouse or other unexpected “life altering” events — may come as a surprise, especially in a family business.

“Having had the important conversations ahead of time, you are better prepared to deal with significant changes when they occur within your business,” says Betty Uribe, Ed.D., Executive Vice President at California Bank & Trust.

“I have personally witnessed during this economic downturn that the businesses that weather the storms are the ones that planned for change ahead of time and remained flexible to changes as they came,” she says.

Smart Business spoke with Uribe about key points to remember when there are changes in the dynamics of a family business.

Why can these kinds of disruptions have such an impact on family business?

People do not plan for life change. We think we are going to live forever. We think our business is going to last forever. We think our partners are going to be our partners forever. We think our customers are going to be our customers forever.

Normally a business leader is able to keep personal issues separate from the organization’s operations. But during a divorce, for example, if both individuals are involved in the company, whether in day-to-day management or not, such change begins to infiltrate the business. This, in turn, affects the decision-making and the future of the business, and has an impact on employees.

How does emotion play into these kinds of situations?

You have to try to remove emotions from the decisions you make about your business, which is difficult for any business owner — family business or not. The owner has created the business from his or her sweat and tears, so it becomes almost like his or her child.

In addition, changes in a family-owned business can be harder because of the emotional ties to the business. You do not necessarily treat a family member as an employee and in doing so, instead of helping him or her grow, you may end up enabling weaknesses.

What planning would you recommend family business owners make prior to changes?

As a smart business owner, plan before emotion and turmoil kicks in. Create a board of directors that can deliver objective third-party feedback. Consider including your banker, CPA, business attorney, insurance agent, etc., in regular business planning and strategy meetings.

An independent board can help put together a business strategy, which includes areas such as business transfer and contingency plans. You know in case of fire to take the stairs and go out the back door, so why wouldn’t you adopt contingency plans for your company?

By establishing plans and controls in advance, you are in a better position when disruption occurs. During a divorce, one of the first things an attorney will say is to keep your children out of the conversation and decision-making. So, treat your business like that child and keep business operations separate.

The same thing goes for succession planning. You need objective opinions, because the fact that your child is a competent individual and business owner does not always make him or her the best successor to manage your business. The chosen successor must agree with your vision for the business, in order to truly preserve your legacy.

You may not be able to plan for everything in your business but having a plan in place allows you to proceed with minimal disruption. That plan may involve limiting the number of family members in management, or turning to selected professionals on your board in decision-making roles so if your children suddenly have to step in and take over the management of the company, they will have the appropriate assistance in place to help them navigate complex changes.

Preparation is the best way to avoid disruption. Planning is essential to insure your business lives on from generation to generation. ●

Insights Wealth Management is brought to you by California Bank & Trust