We rose before dawn on Saturday September 26th to arrive at Ann Morrison Park by 6:00 am. We weren’t there to feed the ducks, but to help prepare food and drink for the approximately 11,000 participants in the St. Luke’s Woman’s Challenge. The race is the largest woman’s 5 K race in the nation. In contrast to last year’s heavy rain the day dawned clear, crisp, and calm. The park was a buzz with men and women of all ages scurrying about preparing bagels, apples, snack bars, cookies, and water for the participants. Fellow Rotarians, friends, and family were also present. It was exciting to see so many people giving their time and energy to help make the event successful. Smiles, laughter, and banter brightened moods as the sun brightened the sky. Congratulations to all the participants.
Don and his “little brother” from Big Brothers Big Sisters, Brendan, enjoyed an exciting afternoon watching the Pepsi Night Fire National drag races at Firebird Raceway. The event was off the charts in excitement, noise, and amazing cars. Street rods, dragsters, funny cars, and a jet car pounded the pavement as they battled for the championships in their respective classes.
Last year we went through the most unbearable process of trying to have an improperly credited tax payment corrected with the IRS. It literally took over a year. I had to call in once every 6 weeks, wait approximately 45 minutes on hold, and then only to find out that no resolution had ever been made or that our account was locked because a different department was looking at our screen (?).
What makes me even more curious is how the tax credits are going to be handled through Obama’s COBRA stimilus package. Prior to the new law it took me 45 minutes per call and over a year to get something resolved. What are they to do now with an increased load on an already slow and out dated dot matrix system? I’m just glad that I don’t have to deal with COBRA stimilus checks and to finally have my tax issue resolved.
Recent travel gave me the opportunity to experience the difference in attitude and service between two well known airlines.
The first trip took me to New York. Travel arrangements were made for me by another organization. Round-trip air travel on Delta Airlines from Boise to New York, via their hub in Salt Lake City, arriving at the Newark Airport in New Jersey. The negative impressions with Delta started at check-in. To check one bag there was a $15.00 charge. Next was the attitude of their employees. It left me with the impression that they thought doing their jobs was doing me a favor. For the return trip I arrived at the Newark Airport very early to make sure traffic wouldn’t be an issue and cause me to miss my flight. It is a good thing I was early because I never could have expected what would happen next. The line for check-in at the Delta counter was very long. While standing in line a Skycap came by asking for anyone whose destination was Salt Lake City. I raised my hand, and he said follow me. At the Skycap check in I got a very disturbing surprise. When the Skycap put in my confirmation number no reservation came up for the flight from Newark to Salt Lake City. The Skycap asked me if was sure I had the correct airline. I assured him I did and quelled the first pangs of panic by pulling out my confirmation notice to make sure we were using the correct confirmation number. Unfortunately the initial relief of seeing that I had given the correct confirmation number only lasted a split second. The confirmation numbers were correct but there were three letters that were not, JFK. I had the right airline, but I was at the wrong airport. Boise only has one airport so making sure I was going to the correct airport had never been an issue for me.
Since I new there was a flight leaving Newark for my interim destination I called Delta’s reservation number. Giving full disclosure of my circumstances and accepting full responsibility for my error I pleaded for assistance. Could the agent change my reservation to Salt Lake from the JFK flight to the Newark flight? After a reasonable hold period he came back on the line and assured me a seat was available and they could change my reservation. The initial relief was followed by disbelief when he proceeded to tell me that there would be a charge of over $200 for the change. Delta had a chance to become a hero in my eyes and build more customer loyalty by helping me fix my mistake. Instead they were more interested in sticking it to me. Out of principle, not to mention I had enough time, I hired a car to take me from Newark to JFK for $130. What happened when I arrived at the correct gate at JFK added insult to injury. The Salt Lake City flight from JFK was overbooked and Delta was offering to pay people give up their seats. You’ve got to be kidding?!?! I stewed about this all the way home. My terrible experience with Delta culminated in them losing my luggage.
My next trip was on Southwest Airlines and the differences were apparent at check-in. No charge to check my bag. Every employee I came into contact with seemed happy and eager to serve. One attendant, Kelly, on the Oakland to Orange County leg was so engaging that I didn’t want to get off the airplane, even though I had reached my destination. On the return flight I was sitting at the gate when my cell phone rang. It was Southwest letting me know that the departure gate had changed. On the final leg home I gave the attendant a Southwest coupon for a free beverage. Only one problem, it had expired. But for Southwest that wasn’t a problem. The attendant accepted the expired coupon and brought me the beverage of my choice. I have to add that if I change a flight reservation with Southwest they don’t charge me any additional fees. They charge the existing fare for the new reservation and give me full credit on the cancelled reservation.
My experience provides some insight as to why some of the larger airlines are struggling. Delta had the chance to be a hero and ended up being a heel. Instead of customer appreciation they generated customer resentment. Delta Airlines is now only a last resort option for me. While with Southwest, the only thing brighter than the shine of their service is the smile of a very satisfied customer.
In tough economic times businesses can help build customer loyalty and attract new business with great service. As an investment advisor I find myself looking at companies I do business with from three perspectives:
Consumer- The impression left experiencing the company as a customer.
Consultant- What can be learned about doing things right or wrong.
Investor- Does the experience make me want to invest in the company.
Logically, you would expect a comparison between a major airline and a low cost airline to favor the larger airline. Not true! Thank you Southwest Airlines.
A recent business trip took me to Reno where I was meeting with the trustees of a 401(k) plan that we provide investment advisory services for. I stayed at a nice hotel that has always provided great service. Evidently, they are feeling the impact of the economy since they provided a coupon for a free appetizer with the purchase of a drink in their wine tasting lounge. After a long day of work I decided to take advantage of this great offer. It wasn’t until I returned to my room that I realized that I had fallen for the power of marketing again. The appetizer was delicious and would have cost me $8.00 if I hadn’t had the coupon. But, I realized I would not have gone to the lounge if I hadn’t been making sure I took advantage of the coupon. So to get the “free” $8.00 appetizer I spent $10.00 for a glass of wine that I would otherwise not have purchased without the coupon.
This is one of the ways in which advertising and marketing costs us money. It is a powerful force. To avoid falling into this trap I should have asked myself if I was going to have a glass of wine whether I had a coupon or not. If yes, then take advantage of the coupon. If no, then toss the coupon in the trash. The Three D approach to coupons below may keep you from spending $10.00 to save $8.00.
? Decipher the coupon. (Including fine print)
? Determine if you already planned on purchasing what is offered.
? Destroy the coupon if the answer is no.
The key is to not let the power of suggestion, of something for less, compel you to spend more. If the coupon happened to be for something you already planned on buying or doing then you can save money by replacing the last D, destroy with the two below.
? Decide how much you are going to purchase before you go.
? Discipline yourself to purchase only what you planned for.
A client recently died as a result of a terminal illness. Prior to meeting with the surviving spouse we reviewed copies of the wills and trusts they had established during the past twelve months. A well respected attorney had drafted the documents to take advantage of the tax benefits of a credit shelter trust. When the first person dies fifty percent of the assets are placed in a trust. The surviving spouse has access to the income from the assets in the trust and can take out principle for health, education, and support. The primary purpose is to avoid paying estate tax on the assets when the second person dies to maximize the amount that will be inherited by the surviving children. Unfortunately, avoiding estate tax and maximizing inheritances was not the goal or desire of the couple in question. The surviving spouse was disturbed when we explained that half of all the assets will have to be placed into the trust. This was going to cause a major change in lifestyle, charitable contributions, and was not the intent of the deceased or surviving spouse.
There are two contributing factors that contributed to this situation.
1. The tax attorney being too focused on avoiding taxes rather than directing assets as the clients wanted.
2. The clients not understanding the documents they signed.
This scenario happens more than it should. Unfortunately, it is also common for the issues not to be discovered until after the first spouse has died. Then it is too late to change.
The underlying cause of the problem is the attorney losing site of the individual’s goals and objectives. By designing the wills and trusts to minimize taxes and maximize inheritances the attorney violated what I believe is the order of priority in doing estate planning.
1. Adequate resources to maintain the lifestyle individuals are accustomed to.
2. Assets are distributed as desired by the individuals.
3. Available tax reduction techniques are used.
There are four simple steps to avoid an estate plan debacle.
1. Clearly communicate your desires and plans to the attorney.
2. Have any documents drafted reviewed by an experienced planner or other trusted advisor before signing them.
3. Have the advisor explain in plain language what the documents say.
4. If the plans fit with your goals then return to the attorney to sign and implement the documents.
Investment due diligence is one of the buzz phrases flying around in the 401(k) retirement plan arena. It is a critical part of responsible retirement plan management that should not be overlooked. Many of the companies that offer retirement plan services tout their due diligence process as one of the factors for doing business with them. Recent developments with one of the major 401(k) providers illustrates why having an independent investment advisor is important.
The company in question is one of the largest providers of 401(k) plans in the nation. They offer a wide variety of investment options and extensive retirement plan services. One benefit they promote is their stringent due diligence process to evaluate investment options offered in their 401(k) plans. Recently this company froze the assets in the separate real estate investment account they offer. Anyone invested in the account cannot transfer their assets to another investment. The restriction on selling the real estate investment applies even if the employer, plan sponsor, is moving all plan assets to a new 401(k) provider. All assets can be transferred except those in the real estate account. Restricting redemptions in the real estate account is legal since their prospectus states that the management company has the right to do so for up to three years.
There is a conflict of interest when the real estate investment account is a proprietary investment managed by the company that provides the 401(k) services and is supposedly doing the due diligence on investments. Depending on the same company that provides many of the investment options in your 401(k) plan to do your due diligence is like having the fox guarding the hen house.
It is an interesting time to listen to investors talk about what they are doing and not doing in the volatile stock market. I have been doing employee meetings for our 401(k) clients to provide information to the employees and answer their questions. Recently, several people have stated, with some amount of pride, they haven’t stopped investing in their 401(k) plans. RIGHT! But, then they say that they changed their investment election so that the new contributions are going to cash or guaranteed accounts instead of equities. WRONG! One of the biggest advantages of deferring money from each paycheck is dollar cost averaging. Investing the same amount of money for each pay period automatically results in buying fewer shares when the prices are high and more shares when the prices are low. Currently stock prices are lower than they have been in years. Thus the same amount invested from each periodic paycheck buys more shares than the same amount invested over the past several years. When prices increase the shares purchased at the lowest price will make the largest profit. The following options illustrate this point assuming we are investing $200 per month for 47 months.
A. Share prices start at $20 per share and increase every month by just over 21 cents every month to $30 per share 47 months later.
B. Share prices start at $20 per share and decline by $1 every month until they reach $2 per share. Then they increase by $1 every month until they climb to $30 per share.
Psychologically and emotionally option A feels better because the price never goes down. Yet option B, if you are emotionally and financially able to keep up the contributions, provides a substantially better return. The $200 per month in option A buys just over 381 shares worth $30 per share in the end for an approximate value of $11,440. The $200 per month in option B buys over 1,018 shares worth $30 per share in the end for an approximate value of $30,556.
Don’t make emotional decisions when it comes to your investment allocations. Being half right can result in a very expensive wrong decision.
In dollar cost averaging, the following must be made clear: • (a) The investor will incur a loss under such a plan if he liquidates his account when the market value of his accumulated shares is less than his cost. • (b) He is investing in securities subject to market fluctuations, and the method involves continuous investment in such shares at regular intervals regardless of price levels. • (c) He must consider his financial ability to continue the plan through periods of low prices. • (d) Such investment plans do not assure a profit or protect against loss in declining markets. See FINRA Conduct Rule 2210(d)(2)(1).
My father is in what I think are the middle stages of dementia, sometimes you would think that he is perfectly normal then the next time you see him he may not know your name. He still recognizes that you are a familiar face, but isn’t exactly sure who you are. He lived by himself up until about a month ago, when it became obvious that we as family could not care for him anymore; he was becoming resentful as the roles had reversed. So we set out to determine care options. Unfortunately we as a family hadn’t really discussed this with Dad prior to the progression of the disease. We had established power of attorneys when mom passed away several years back; however, as time changes so do roles of children. My sister had since retired and started caring for dad, by taking him to doctor appointments, paying his bills, and administering his medicine. Even though she was the oldest she did not have her name on his bank account or power of attorney. Nor did she have the health care power of attorney. So we take Dad to the attorney’s office to do the basic power of attorneys for financial and health care. Dad immediately doesn’t trust us, thinks we are taking some of his rights away. My brother and he get into an argument at the attorney’s office. It was really ugly. Dad’s will needs to be updated, but none of us have the macho to address it, and it would be questionable at this time if Dad is of sound mind. Moral of the story, make sure you have the necessary legal paperwork done while minds are sane and emotions are calm.
Anyone old enough to drive, who drives a car younger than they are, is used to seeing the words “OBJECTS ARE CLOSER THAN THEY APPEAR” in their passenger side mirror. The warning is there because while the mirrors allow you to see behind you, they distort what you are seeing. Ignoring the warning can have expensive consequences. Making present day investment decisions based on a distorted view of what is behind us can also have expensive consequences. It is very hard for even seasoned investors to watch their account balances drop like they have the past 16 months. Unfortunately, we cannot change the past. Is your portfolio down 15% to 45%, or more, from 16 months ago? Nothing you do today is going to change that. If you continue to look back at how much you have today compared to how much you had, it will likely distort the investment decisions you make in the future.
Evaluate the options available to you today based on their value today. Consider the following criteria for your investment decisions:
• Time Frame- Number of years until the money is needed
• Inventory- List of investments you currently own
• Options- List of investments currently available
• Look Forward- Best returns likely for the next five years.