Financial Frontlines®

Investing is all about choices.  The first choice is whether to do it yourself or seek help from an advisor.  As a professional investment advisor I can’t be completely objective on the subject but what you choose should depend upon two criteria: probability and consequences.  What is the probability that you can consistently make successful investment decisions on your own and what are the consequences if you are wrong? 

Some projects, like repairing a leaky faucet, are obvious DIY candidates.  Others, like brain surgery, are clearly not worth the risks.  So while you may be knowledgeable enough to pick a good mutual fund in your 401k, putting together a comprehensive investment plan may well be beyond your capabilities. 

When choosing among financial advisors you should look for the qualities you would require from any other professional: honesty, technical competence and empathy (i.e., understanding and appreciation for your personal situation). 

Honesty.  Ideally you want your advisor to be a fiduciary (someone who legally must place your interests ahead of his own).  In any case, you should expect your advisor to disclose any potential conflicts of interest (we all have them but you need to know what they are).  This is particularly true of financial conflicts.  Your advisor should be open about what his advice will cost you and how much he will be paid.  He should also be candid about his limitations (what he can and cannot accomplish for you) and you should expect him to tell you what you need to know not just what you want to hear. 

Technical Competence.  Your advisor must have the educational background, experience and credentials (e.g., licenses) to meet your needs.  Be careful of titles.  Some titles, such as “Vice President, Investments,” are awarded simply for achieving a certain level of sales.   Others (“Retirement Specialist” for example) may not require anything more than answering a few questions and paying a fee.  Find out what is required to acquire and maintain any unfamiliar professional designations before you rely on them. 

Empathy.  Your advisor must have an understanding and appreciation for your situation.  He should take the time and effort to identify your specific investment objectives and your level of sophistication (knowledge and experience).  In particular, he should ask the kind of questions that will help him identify the appropriate level of risk for your personal situation.  A good test to judge an advisor’s empathy is how responsive he is to your legitimate concerns and questions.  In my opinion, there are no “dumb” or “rude” questions when it comes to investing. 

Unlike other things in life, two out of three IS bad.  If a potential advisor can’t get high marks in all three of these areas then you should keep on looking.  Finding a good advisor isn’t always easy but it definitely is worth the effort. 

These are just the high points.  For a more detailed report on how to choose an advisor see “Expert Advice” by Lt Col Shane Ostrom in the August 2009 issue of Military Officer http://www.nxtbook.com/nxtbooks/moaa/mo0809/index.php?startpage=77&qs=Ostrom#/76 .

***Application Deadline Extended to 18 March 2011***

8 Dec 09.  The Navy site is up and running.  Go to http://www.npc.navy.mil/channels to make your application.

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Nov 09. The Navy Retro Stop-Loss Pay program isn’t quite finalized yet, but soon. Once finalized, details will be published on the Navy Personnel Center web site. In the meantime, you can contact the project office to have your name added to the list of eligibles. The eligibles will be contacted with application procedures. Call or write: CDR Raffier, (703) 614-5565 or john.raffier@navy.mil.

———-UPDATE 25 Nov 09—–
I spoke to the Army last Friday. The process is stumbling along but there is nothing shady going on. The Army program office is getting plenty of “help” from the top of the food chain. This program is getting loads of visibility from OSD and Congress. Until they get the flow down on the process, things will be a bit rocky. The main issue with the mismatch letters is how the law and Army policy defines being Stop-Lossed. Evidently, the law-policy is not the same as the dates on Service docs. That causes manual reviews.

Regarding the Navy; they owe me a call back but I’ll be following up with them. When I spoke to them 3 weeks ago or so, I was told there are so few Navy members impacted by Stop-Loss that the Navy would personally contact each member and work the application. I’ll confirm this soon.

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Just got off a conference call with the Army Stop-Loss project officer. Here are the main takeaways from the phone call:

* Number of apps is about 16k so far but many of these are duplicate apps or incomplete. His best estimate is that around 10k are legit. Of the incompletes and dups, most don’t have all or correct docs. This causes some of the processing slowdown as they review which apps are legit and which are not.  He said it appears some folks apply more than once–not helpful.

* Vast majority are getting the standardized email claiming a mismatch—approx 90%. This goes to a difference between Army systems and docs being submitted. Of the mismatches of those processed, the mismatch is 1 to 17 months off.

* About 10% of apps are spot on between the dates on the app and the Army files.

* Mismatches between app and Army files are cleared by case workers manually screening app with the Army personnel system. Reasons for the mismatch are examined and the legit dates determined before resolution.

* Getting a mismatch email does not mean denial of benefits or a stalling tactic.

* Wounded members are the priority.

* There’s confusion about what counts as Stop-Loss time. Call-ups/continuation of service of members on the Reserve rolls may not be Stop-Loss time.

* Dash 4s tend to be more reliable than DD214 but both help.

* The Army is not trying to save money by denying or reducing claims. Stop-Loss money is fenced off from other Army programs/requirements.  These funds must go to intended beneficiaries–specifically for Stop-Loss. There are no competing requirements.

* In 2-3 weeks, the Army web site will be updated to show an app status line.

* They can’t state how long any person’s app will take. Too many variables to predict.

* Approx 120k are eligible. There are a lot of potential apps out there. Why aren’t there more apps?

* The project office and the Army has to make weekly reports to OSD on the status and regular reports to Congress.  At the end of it all, there will be audits and reports to Congress to ensure no one eligible was denied their benefit and all money was used for Stop-Loss only.

That’s it for now…Shane

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Here is the Army site for applicants. 

For you Air Force folks, here is your application site.

For Navy, email NXAG_N132C@navy.mil.

For Marines, go to https://www.manpower.usmc.mil/stoploss.

Please help spread the word on this special pay. Let’s try to prevent the situation where some people never get the word.

*****Deadline Extended to 18 March 2011*****

A flurry of action lately on laws passed that benefit military members.

• Homeowners’ Assistance Program payments were made tax-free.
• The First-Time Home Buyers Credit extended for military members out to May 2011 if you had at least 90 days overseas service starting 1 Jan 09 to before 1 May 2010. Plus, the waiver of the 3-year occupancy requirement. Now military members who are PCS’d prior to living in the new home for 3 years do not have to pay back the tax credit.
• Passage of the Military Spouse Residency Relief Act (MSRRA).

So what’s the MSRRA mean to you? Now, your non-military spouse is allowed to determine where his/her state of legal residence will be—your current state of assignment or the state of legal residence of the military member. You need to decide soon because your decision will affect your 2009 tax year. It is not retroactive to years prior to 2009.

What should you consider?

• Where you want to vote.
• Where your cars will be registered.
• Where you want to file state income taxes or whether you will have to file state income taxes.
• Cancelling your state income tax withholding from a paycheck in an income tax state if you switch to a non-income tax state.
• Check for the impact on in-state tuition situations.
• Check the impacts on county and local taxes, fees and services.
• Community property state or not.
• Insurance issues; possibly auto, life and commercial health plans.
• Wills, Powers of Attorney, estate planning issues.
• College savings plans tax breaks.
• Business related issues if you own and operate your own business.
• Property rights.
• Personal property taxes.

There are many details to be determined and implemented by the states as they digest this new law. If you want to join the social network discussing this new law, check out the Facebook page.

I have received a number of calls and a couple of faxes from members upset about the premium increase in the Fed LTC program. The premium increase applies to the plan with the inflation protection. Members remember being told that under the inflation protection plan there would never be a premium increase. The faxes I received were copies of contracts that indicated no premium increase. Well, not exactly…

In the case of the Fed LTC plan, the guaranteed premium rate was for the contract period. The contracts are for 7 years. There was no guarantee that premiums would never go up—ever. Don’t be surprised if there is another premium increase in the next round of contract talks. If you get the inflation protection option when you re-up, which I highly recommend, you can be secure in knowing you will have no premium increase in the next 7 years even though your benefit amount will increase.

So why did the premium increase so much? According to Mike Causey’s Insight column in the Federal Employees News Digest, there were a couple reasons. One is the age of the applicants increased. This is a standard reason for higher premiums. The other reason, the use of the benefits was much greater than anticipated. LTC insurers don’t expect large payouts until people reach their 70s and above. The Fed plans are paying a larger number of beneficiaries in their 50s and 60s. Now why this occurred cannot be known. Were there more unfortunate Fed workers than the general population? Maybe more Feds applied for LTC knowing they had conditions that would one day require LTC. Either way, that the way it is.

So what about commercial LTC plans? Before working at MOAA, I was a financial adviser with a firm and I sold LTC policies when appropriate. I can state that no policies from any company ever stated there would never be a premium increase. All policies have contract provisions that allow premium increases on ‘classes’ of customers. Premium increases in LTC policies are not unusual and will probably become more common as we age and use the policies. If you have a policy with a smaller insurance company, your premium is more likely to be increased.

A perennial estate planning horror story is the one in which a man dies before revising his will leaving everything to his ex-wife instead of to his current spouse as he intended.  While none of us would allow this to happen, we could have other potential horror stories lurking in our retirement plans.  

 Beneficiary designations should be reviewed annually and updated whenever there is a significant “life event” such as birth, death or divorce.  That single document is more powerful than you might think because it can override the instructions in your will or trust.  Your plan administrator is responsible for maintaining these instructions but paperwork can get lost and what counts is the physical document itself not the electronic entry on a computer screen.  That is why you should keep an updated copy with the other important papers your executor will need.  

 Who you name as beneficiary is another important consideration.  Naming your estate or trust as beneficiary may not be the best choice since it can force heirs to take taxable distributions they might otherwise defer.  Naming a contingent beneficiary can be another important estate planning tool.  These issues are best discussed with your attorney. 

 While updating legal documents may be inconvenient it isn’t a whole lot of work.  More importantly, it is one more way to take care of your heirs.