1650 Wealth Management

Tom Balcom Speaking at 2011 Structured Products Americas

admin — Wed, 04 May 2011 01:47:11 +0000

Tom Balcom Speaking at 2011 Structured Products Americas Conference

Tom Balcom, Founder of IBIS Wealth Management, was invited to speak on May 5, 2011 at the 6th Annual Structured Products Americas Conference ( http://www.structuredproductsamericas.com) hosted at the Biltmore Hotel in Coral Gables, Florida. Tom utilizes structured notes as a risk mitigating tool within his clients’ portfolios and remains focused on researching new opportunities in this area. He will be discussing the utilization of structured products as a tool for diversifying a portfolio internationally. Tom was the recent winner of the Structured Products Association LeadingEdge Advisor Award ( http://www.ibiswealth.com/in-the-news/2008-leadingedge-advisor-award-winner/).

IBIS Wealth Management is a fee-only, Registered Investment Advisor (RIA) firm located in South Florida with offices in Boca Raton and Miami. The award-winning Certified Financial Planning (CFP®) advisors at IBIS Wealth possess over 40 combined years of experience and specialize in investment and wealth management solutions for high net worth individuals, family trusts, charitable foundations and qualified retirement plans. For more information or to register for The IBIS Wealth Investment Commentary visit: http://www.ibiswealth.com or follow IBIS Wealth on Facebook at: http://www.facebook.com/IBISWealth

CNBC Interviews Tom Balcom for Investor Special Report

admin — Mon, 04 Apr 2011 15:36:22 +0000

Business news network CNBC, reached out this week to IBIS Wealth Management to interview Founder, Tom Balcom for their 2011 Investor Spring Cleaning Special Report. We have posted the article below for your review, as well as included the link to read the article on CNBC.com.

http://www.cnbc.com/id/41626693//

Save It Or Toss It — Dealing With Paper Files

By: Shelly K. Schwartz,, Special to CNBC.com | 29 Mar 2011 | 01:59 PM ET

Assuming you have been unable to achieve paperless perfection, managing household records can be a tricky — never mind, time consuming — business, even for the uber organized.

If you keep every brokerage statement, pay stub and credit card bill you receive, you’ll have the production crew of “Hoarders” salivating in a matter of months.

But if you toss all your paper without a minimal holding period, you might be unable to flag errors in your account, defend yourself from the IRS, or prove ownership of property should a dispute ever arise.

Ah, the perennial pickle.

Tax season, though, is the perfect opportunity to attack your files and figure out what you can shred, what you should retain and how long you need to keep it.

“I don’t care if you have a fancy home office or an accordion folder,“ says Gail Cunningham of the National Foundation for Credit Counseling. “You need to create a financial center in your house and get organized.”

There are obvious candidates for the file cabinet (preferably a fire-safe one) — basic legal documents you should keep forever.

That includes birth certificates, current passports, insurance and annuity contracts (for as long as they’re active), wills, Social Security cards, mortgage deeds, real estate bills of sale, marriage certificates, separation or divorce papers and medical records.

You should also keep diplomas and transcripts, adoption and custody papers, insurance records (accident reports, claims and policies) property appraisals, military discharge papers, and an itemized inventory of your household goods, necessary if you ever need to recover stolen items or settle an insurance claim.

For that reason, you should also retain receipts for all major purchases like rugs, jewelry and pianos, as proof of their value.

“I advise homeowners to get out a camera and walk around their house and take pictures of the contents of each room in case they ever have an insurance claim,” says Ted Beck, CEO of the National Endowment for Financial Education.

It’s wise, as well, to keep permanent records of any retirement and pension plan you have, especially those that involve nondeductible IRA contributions, so you can prove that the tax has been paid when you start to make withdrawals.

For an added measure of security, Beck says any legal records that would be hard to replace should be held in a safe deposit box at the bank, keeping all other important documents close at hand so that, in the event of an emergency, you have easy access.

What’s left, you ask? Tons.

Most of the rest of the paper that floods your mailbox has a limited shelf life, though probably a longer one than you would like.

Tax Forms

Tax records, for example, need not be held in perpetuity, but the rules here are less concrete.

Generally speaking, you should keep copies of your tax returns for a minimum of seven years, in case you need them to file an amended return or defend yourself in an audit.

The IRS can audit your returns for up to three years after you file if it determines you may owe additional tax, six years if it believes you underreported income by 25 percent or more and up to seven years if you file an incorrect claim for a capital loss from a worthless security.

There is no statute of limitations if you file a fraudulent return, or do not file a return.

That said, you might opt to simply keep your tax returns forever, which needn’t clutter your file cabinet if you scan the paperwork into your computer, back it up electronically and burn it onto a DVD for safekeeping in your safe deposit box.

“My policy is to scan and retain any document that involves value or title, specifically change of value or title,” says Stuart N. Speer, a certified financial planner with Central Financial Services in Kansas City, Ks. “Scanners are cheap and computer memories vast. There is no longer any motivation to destroy documents that might prove useful in making some future point, and which we can produce or conceal at our option.”

Supporting Documents

In addition to the actual tax return, of course, you’ll want to keep any records that help support deductions you claimed for as long as the IRS can contest your return.

That includes documents that show proof of income, like Forms W-2 and 1099, bank statements, brokerage statements and Form K-1.

If you own a home, you should also keep closing statements (since you’ll need information off of it when you sell), purchase and sales invoices and proof of payment and insurance records.

Likewise, the IRS says you’ll want to retain sales slips, invoices, receipts, canceled checks or other proof of payment and written communications from qualified charities relevant to a claim.

As for income or losses generated by your investments, the IRS suggests keeping year-end brokerage statements, mutual fund statements, and Forms 1099 and 2439.

Until all distributions are made from your IRA, the IRS also suggests that you keep copies of documents that show contributions made to your IRA, distributions received and the value of your IRA, along with Form 1099-R for each year you received a distribution and Form 8606 for each year you made a nondeductible contribution to your IRA or received distributions.

Other items you may need to keep for tax purposes: receipts for medical and dental expenses you paid with a distribution from Health Savings Account or Medical Savings Account, a written separation agreement or the divorce or support decree if you receive or pay alimony, records related to home office expenses (including gas bills and mortgage interest statements if you write off a portion for business use), medical receipts for a health or medical savings account, and other evidence for which you may have claimed a tax incentive, like moving expenses.

Most other paperwork that clutters your coffee table falls under the category of “as long as it’s useful.”

All investors, for example, should retain a record of their cost basis for any securities they own, which they’ll need when they go to sell it, says Tom Balcom, a certified financial planner with IBIS Wealth Management in Boca Raton, Fla., and president of the Financial Planning Association of Greater Ft. Lauderdale.

Your cost basis, the original price you paid, determines how much capital gains tax you’ll owe when you sell your shares. Without it, you could be forced to pay more than you owe.

“If you change brokerage firms, in particular, your cost basis information might get lost, so I always recommend keeping the last statement you receive from that firm so you know what your cost basis was,” says Balcom.

Monthly Statements

You can trash your monthly or quarterly brokerage statements as new ones arrive, unless it helps you keep track of your transactions, but keep your year-end statements indefinitely, says Beck.

He adds you should also keep your car title along with your record of service and any warranty information until you sell the vehicle, and keep credit card bills for no more than a year, unless you need them for your tax return.

“My policy is to find out what I have access to through online banking and for how long,” says Beck, noting some financial institutions limit your ability to search back statements to three months, while others remain available for several years. “All banks are different.”

It’s generally safe to trash your utility bills after the next month’s bill shows it was paid, again unless you’re claiming a home office deduction or tracking usage.

And likewise, you can shred (to ward off identity thieves) your paycheck stubs after a year once you’ve reconciled your income with your W-2 form at tax time, says Beck, but save the final paycheck you receive for each job you have and your last 401(k) statement before you leave. (It’ll help if the company gets sold or goes under and your retirement earnings come into question.)

“I’ve seen people try to unravel an old account and finding someone who can sign off on it is a very hard thing to do if you don’t have documentation,” he says.

The IRS also recommends keeping most canceled checks for seven years (in case of an audit), but those involving “important payments” like taxes, purchases of property, and special contracts should be permanently filed with the papers pertaining to the transaction.

Lastly, keep any receipts for major home improvement projects (not basic maintenance expenses), too, for as long as you own the property, along with the receipts for expenses related to its sale (realtor’s commission, legal fees) since you may be able to use them to increase the cost basis of your home when you go to sell — thus lowering the amount of capital gains tax you’ll potentially owe.

These days, of course, most banks and lenders are putting account information online, allowing clients to check balances and transactions for the last few years using a secure server.

But don’t assume your financial institutions are looking out for you.

“It’s always the case that the thing you need to save is the one you don’t have,” says Speer. “Credit card bills, pay stubs and financial statements in many instances are already online so it doesn’t take any time to just pull them up and save them as a PDF on your computer so you’ve got a second repository for all these documents. I do that and I advise my clients to do the same,” he says. “Put them in a folder, and the next time you need it, hallelujah! It’s there.”

Diversification or Timing the Market?

admin — Tue, 01 Mar 2011 14:30:30 +0000

After experiencing the Great Recession of late 2008 and early 2009, investors may have questioned the merits associated with diversification. With most asset classes experiencing significant declines, the most seasoned of investors were forced to reevaluate their investment plans. Those who panicked and sold out of growth assets (stocks, REIT’s, commodities, high yield bonds) in late 2008 or early 2009 were disappointed to miss out on the strong rally that has occurred over the past 21 months. While hindsight is often 20/20, the Great Recession was another illustration that “Time In The Market” is often more important than “Timing the Market.“ The chart below is a good illustration of that point.

Investment advisors often hear stories from prospective clients about the money that was lost by investing in stocks, real estate or other assets. What is interesting about these stories is that they are often quite similar in nature. The novice investor seeks to chase gains in an asset class and enters at or near the top of the market. An example of this is the investor who purchases tech stocks in 1999 or banking stocks or real estate in the mid 2000’s. These investors were chasing gains that had already occurred within these asset classes. Chasing gains is often the quickest way to deplete an investor’s principal. A more prudent way to invest one’s nest egg is to diversify among a variety of asset classes preferably those that exhibit low or possibly negative correlation. This would result in an investor benefitting in most market environments by at least having one asset class with gains.

The chart below clearly depicts that some asset classes are “in favor” while others are “out of favor” for extended periods of time. During the 1970’s, the country was faced with the OPEC oil embargo resulting in gas shortages and long lines at service stations throughout the country. During this inflationary period, commodities were the best performing asset class. In the 1980’s, Japan’s market capitalization accounted for a majority of the foreign stock index (MSCI EAFE) and Japan’s housing boom led to this asset class outperforming all others during that decade. The decline in Japanese stock market which was known at the time as the “Lost Decade” coincided with the technology boom in the U.S. during the 1990’s. During this time, U.S. stocks dramatically outperformed all other asset classes. During the 2000’s, commercial real estate as measured by the Real Estate Investment Trust (REIT) Index outperformed all other asset classes even after the dramatic declines experienced during the fall of 2008 and spring of 2009.

What is the lesson learned from this chart? The lesson relates to the fact that it is extremely difficult if not impossible to predict which asset class will outperform all others during this decade. Exposure in some degree to all these asset classes based upon your unique risk tolerance level would enable you to have a portion of your assets in the best performing asset class for the coming decade. Whether you are a do-it-yourself investor or currently work with a financial advisor, please ensure that your portfolio matches your short and long-term investment objectives as well as your risk tolerance level. In conclusion, the patient investor will tell you that it is often “time in” the market as opposed to “timing” the market that will allow you to reach your financial goals.

Asset Class	1970’s	1980’s	1990’s	2000’s	2010
Commodities	21.3%	10.7%	3.9%	5.1%	9.0%
Foreign Stocks	8.8	22.0	7.0	1.6	8.2
U.S. Stocks	5.9	17.5	18.2	-1.0	15.1
Real Estate (REIT’S)	n/a	12.5	6.8	10.2	26.9
U.S. Bonds	7.5	12.4	7.7	6.3	6.5

Source: Morningstar, NAREIT, Standard & Poors

Tom Balcom Named FPA President of Greater Ft. Lauderdale

admin — Tue, 04 Jan 2011 16:51:34 +0000

FOR IMMEDIATE RELEASE:

Thomas W. Balcom Named 2011 President of the Financial Planning Association of Greater Ft. Lauderdale

BOCA RATON, Fla. (Jan. 4, 2011) –The Financial Planning Association (FPA®) of Greater Fort Lauderdale elected Thomas W. Balcom, CFP®, CAIA, MBA, as 2011 President. Balcom began leading as President of the organization on January 1, 2011.

“It is an honor to be elected by my peers to serve as President of the Financial Planning Association of Greater Fort Lauderdale,” said Balcom, who is the Founder of IBIS Wealth Management, a fee-only, Registered Investment Advisor firm with office locations in Boca Raton and Miami, Florida. “We have an experienced and energetic Board of Directors and we are all looking forward to an exciting 2011, with numerous events planned.”

Balcom has been providing investment management advice to high net worth individuals for over 11 years. He has been an active FPA Board member for the past 7 years and serves as an adjunct professor for the Certified Financial Planner program at Barry University. Balcom is a Hurricane Club Council member for his alma mater the University of Miami and was the recipient of the 2008 Structured Product Associations Leading Edge Advisor Award for his innovative work with structured investments.

Balcom has hit the ground running, already working hard securing high-caliber speakers and sponsors for the 31^st Annual South Florida FPA Conference, scheduled for April 28^th-30^th, 2011 to be held at the Westin Hotel in Ft. Lauderdale. With over 150 financial advisors scheduled to attend, it is South Florida’s largest conference for financial planning practitioners. College scholarships are scheduled to be awarded this year to high school senior applicants looking to pursue a degree related to the financial services industry. For more information visit: http://www.southfloridafpa.org

About IBIS Wealth Management

###

US Adviser Enthuses Over Structured Note Success

admin — Tue, 16 Nov 2010 12:47:10 +0000

Tom Balcom, Founder of IBIS Wealth Management and Winner of the Structured Products Association’s LeadingEdge Advisor Award, was interviewed today by StructuredRetailProducts.com. We have posted below the article that was just published for our clients review, as StructuredRetailProducts.com’s website and magazine is strictly subscription-based.

If you have any questions related to the use of Structured Products within your investment portfolio, or if you would like to set-up a complimentary investment portfolio consultation to discuss your current investment strategy, please contact Tom Balcom at 1-800-658-9560 or tombalcom@ibiswealth.com.

US Adviser Enthuses Over Structured Note Success

15 Nov 2010

StructuredRetailProducts.com

Thomas Balcom, founder of IBIS Wealth Management in Boca Raton, Florida, is a hero of sorts to his clients. That is because a two-year structured note linked to a real estate exchange traded fund (ETF) that matured last week has returned 180% of initial capital to investors.

The note was customised for Balcom’s clients in early November 2008, at the height of the financial crisis and less than two months after Lehman Brothers filed for bankruptcy in mid-September 2008.

“We were looking to recoup some of the losses that had been incurred during the financial crisis, while still offering our clients a level of downside protection,” Balcom told SRP. Despite the US subprime real estate market meltdown, Balcom said that being a devout asset allocator meant that turning his back on the real estate market was never an option. “There was never a discussion about abandoning the asset class. Rather, the focus was on whether or not mutual funds, ETFs or structured notes offered our clients the best risk/return parameters,” he said.

Deutsche Bank structured and issued the original note, which was linked to the performance of the iShares Dow Jones US Real Estate Index Fund, an ETF. That structured note struck its price on 6 November 2008, offering a 200% participation rate, a cap on index growth of 40% and an all-important 20% downside buffer level. Balcom, along with other financial planners at Balcom’s previous firm, invested just shy of $7m in the note allocated across the firm’s clients. According to Balcom’s calculations, the note outperformed the benchmark index by 26.40%.

That buffer was what kept many of Balcom’s nervous clients focused, especially when equity markets swooned to very low levels in March 2009. Balcom said that most of his clients are in their 50s and 60s and are cautious. While some were just too shaken and sold out of all of their holdings, other clients just sold their long-only mutual funds and ETFs but remained invested in the structured note. “Clients are okay with [sacrificing] a bit on the upside for the downside protection,” Balcom said.

An important part of the process was educating clients and explaining what the potential outcomes could be if they held on until the note matured, Balcom said. “There are a lot of good notes out there. They do work if used properly.”

Tom Balcom is Featured in The New York Times!

admin — Thu, 21 Oct 2010 14:41:40 +0000

Tom Balcom, Founder of IBIS Wealth Management was featured in today’s, The New York Times article, on his innovative work with Structred Products. Tom was the 2008 Structured Products Assocation’s LeadingEdge Advisor Award Winner, due to his progressive strategies utilizing Structured Products for his wealth management clientele. The New York Times recently requested an interview with Tom and we have posted the article in its entirety below.

IBIS Wealth Management is a fee-only, registered investment advisory firm located in South Florida, with offices in Boca Raton and Miami. If you have any questions related to the use of Structured Products within your investment portfolio, or if you would like to set-up a complimentary investment portfolio consultation to discuss your current investment strategy, please contact Tom Balcom at 1-800-658-9560 or tombalcom@ibiswealth.com.

http://www.nytimes.com/2010/10/21/business/businessspecial3/21PRODUCT.html?_r=1&scp=1&sq=balcom&st=cse

An Investment for the Experienced

By JOHN F. WASIK

Published: October 20, 2010

DEPENDING on whom you talk to, structured products are either clever ways of hedging specific portfolio risks or another demon from Wall Street.

Marc Serota for The New York Times

BUYER BEWARE Tom Balcom advises caution when considering structured products.

As vehicles that use derivatives to protect or enhance an underlying stock, bond or index, structured products are sold by nearly every major bank and brokerage house — and more than $34 billion of them were sold in the United States in 2009.

Yet they are not for investors who don’t fully understand them, because they are riddled with complexity, are mostly opaque and have lost money for investors in the past. (With a grant from the Nation Institute, a nonprofit organization that says it was established “to extend the reach of progressive ideas,” I have been researching structured products for months.)

“These are complicated investments, and people should know what they’re buying,” said Tom Balcom, a fee-only adviser with Ibis Wealth Management in Boca Raton, Fla. He said he had “yet to put more than 35 percent of a client’s portfolio in structured products,” adding, “If you don’t understand what these products are, stay away from them.”

Sean O’Toole, 43, who owns and operates an event-marketing agency in Fort Lauderdale, Fla., worked with Mr. Balcom to add structured products to his portfolio.

“I’m not betting the farm,” Mr. O’Toole said. “I like diversification. I’d rather be over-conservative if we see another double dip.”

An ultracautious investor concerned about the prospect of another huge stock market decline, Mr. O’Toole has two-thirds of his portfolio in cash and one-third managed by Ibis in structured products like buffered return enhanced notes, which put a cap on the potential gain in return for protection against a market decline. He pays no commission for the vehicles and a 1 percent annual asset management fee to Mr. Balcom.

Before Mr. O’Toole bought structured products, he had experience with options strategies, an essential prerequisite for anyone interested in structured products.

While structured products are not household names, they are hot sellers, and sales growth is estimated to be about 24 percent this year, according to structuredretailproducts.com, a service that monitors the industry.

Banks continue to market them aggressively as well. Structured note offerings are up 58 percent this year (through August), according to Bloomberg. The global market for these vehicles exceeds $1.6 trillion.

But the numerous disadvantages of structured products make them ill-suited for investors who want low-cost, government-guaranteed or liquid investments.

Once you invest your money, you are essentially locked in for the duration of the contract. Brokers may say they can buy them back, but often little or no secondary market exists for many of them. They may charge you another commission to do so and not guarantee the price you initially paid. Despite their many promises of principal or downside protection, investors can still lose money. Investors in principal-protected notes issued by Lehman Brothers, which filed for the largest bankruptcy in history on September 2008, found out the hard way that they held unsecured Lehman debt. Their principal was not protected, and most lost all of their investment.

Structured products have been linked to an estimated $1 billion in investor losses in the Lehman notes alone. UBS, the Swiss bank and brokerage firm, was one of the largest sellers of the notes and is being sued by investors and regulators in the United States and Britain.

“UBS properly sold Lehman structured products to UBS clients, following all regulatory requirements, well-established sales practices and client disclosure guidelines,” said Alison Chin-Leong, a spokeswoman for UBS. “Any client losses were the direct result of the unexpected and unprecedented failure of Lehman Brothers, which affected all Lehman bondholders.”

Other structured investment vehicles like reverse convertibles and equity-linked notes are also the subjects of state investigations and investor lawsuits.

“Deservingly, the architects and marketers of these bizarre investments are now facing a long-term battle with investor rage and regulatory scrutiny,” said Lou Straney, a consultant and expert witness for Arbitration Insight in Santa Fe, N.M.

Investors interested in structured products should contact a registered investment adviser or fee-only certified financial planner who understands them and has vetted them thoroughly. “Look at the payout options,” Scot Jurczyk, a chartered financial analyst and registered investment adviser, tells clients. “Ask, ‘How am I going to make money? What’s the tax impact? How much is the adviser being paid?’ ”

Mr. Jurczyk, managing director of the Financial Solutions Advisory Group in Chicago, said he carefully reviewed client portfolios before placing them in structured notes — and he avoided broker-sold notes altogether.

Don’t be cowed by the daunting calculus employed to hedge risk and produce returns. A competent adviser should be able to explain — and clearly illustrate — all risks (credit, market and liquidity), conflicts and expenses like commissions, underwriting fees, bid/ask spreads and embedded derivatives costs.

If you don’t get a clear explanation or are uncomfortable tying up your assets in a virtually illiquid product, move on. These products don’t lend themselves to comparison and you can’t monitor them like you would a stock or mutual fund.

Most structured notes are “a hot mess,” said Janet Tavakoli, president of Tavakoli Structured Finance in Chicago and author of several books about them. “Most professionals can’t analyze them. When I have done it, I find these notes are loaded with hidden fees and hidden risks.”

And as with all investments, remember the timeless principle that higher return always means more risk. Wall Street continues to profit on that oft-forgotten rule.

A version of this article appeared in print on October 21, 2010, on page SPG8 of the National edition.

IBIS Wealth Offers Clients Protection with Structured Notes

admin — Tue, 05 Oct 2010 01:54:37 +0000

Tom Balcom, Founder of IBIS Wealth Management and Winner of the Structured Products Association’s LeadingEdge Advisor Award, was interviewed today by StructuredRetailProducts.com. We have posted below the article that was published for our clients review, as StructuredRetailProducts.com’s website and magazine is strictly subscription-based.

US Advisers Wary of Structured Fees

4 Oct 2010
StructuredRetailProducts.com

Fees attached to structured products feature prominently in advisers’ allocation decisions, but are secondary to counterparty risk issues, a number of RIAs have told SRP.

“If they (providers) bake in huge fees, then it reduces the notes’ terms,” said Tom Balcom, founder of Ibis Wealth Management of Boca Raton, Florida. Balcom said that while he tends to shop for structured notes with the best terms with his clients’ interests in mind, he treads carefully so that diversification risk among issuers is mitigated. He is also careful not to simply go with the bank offering the best terms if the note is being offered by a weak bank that could pose increased issuer risk.

Balcom said he prefers notes linked to ubiquitous indices, such as the S&P500, which tend to carry lower fees than those linked to more expensive proprietarily-created indices. However, he is now discussing structuring a note that will be linked to the performance of Barclays Capital’s iPath S&P 500 VIX Short-Term Futures Exchange Traded Note (ETN), with the expectation that he can achieve good performance when market volatility spikes. According to Balcom, his is the first registered investment advisory firm to request a structured note linked to this Barclays Capital ETN.

“I think fees are very important,” agreed J Scott Miller, co-founder and managing partner of Blue Bell Private Wealth Management in suburban Philadelphia. “We use a competitive bid, reverse inquiry process. We check with ten investment banks and give all of the banks the exact same criteria,” he said. “We are the ones who decide who has the best terms.”

While the spectrum of bids usually come in within a rather tight range, there is sometimes an outlier, Miller said. Although it can be cost effective to go with the low bidder, he, too, said he will not sacrifice risk for low fees. “My biggest fear is overexposure to any one bank,” he said, adding that this is especially important in a post-Lehman Brothers world.

Off-the-shelf structured notes and products are for brokers, Miller said, adding that he prefers to stick to the major indices as underlyings. “To me the S&P500 is something we can all follow and everyone can bid on the same product,” he said. “If you have a product with a proprietary index, it can be more expensive.”

As for the increased interest in using structured products for clients, Balcom is forward looking. “Structured products are now what ETFs were five years ago,” he said. “People realise they want exposure to the market, but they also want downside protection.”

How to Select the Best Financial Advisor

admin — Sun, 04 Jul 2010 19:24:55 +0000

In light of recent Wall Street scandals, many investors are taking a closer look at who is actually managing their money and what investment methodology they are following. Investors are taking the time to do their due-diligence and are becoming more educated on selecting the best financial advisor. In my travels and meetings with clients, I continue to hear the same vein of questions. How do I select the best wealth manager? How do I select the best investment management company? Are there FAQ’s on selecting the best financial advisor that I can read? Are “Registered Representatives” fiduciaries? What is a Registered Investment Advisor? What is the difference between a Registered Representative and a Registered Investment Advisor? With such great questions, I wanted to take the time to answer these questions and address this fundamental topic of helping investors select the best financial advisor or wealth manager.

Question #1. How do I know if my Financial Advisor has a Fiduciary Responsibility?

Only a small percentage of financial advisors are Registered Investment Advisors (RIA). Federal and state law requires that RIAs are held to a fiduciary standard. Most so called “financial advisors” are considered broker-dealers and are held to a lower standard of diligence on behalf of their clients. One of the best ways to judge if your financial advisor is held to a Fiduciary standard is to find out how he or she is compensated.

Here are the 3 most common compensation structures in the financial industry:

Fee-Only Compensation
This model minimizes conflicts of interest. A Fee-Only financial advisor charges clients directly for his or her advice and/or ongoing management. No other financial reward is provided, directly or indirectly, by any other institution. Fee-Only financial advisors are selling only one thing: their knowledge. Some advisors charge an hourly rate, and others charge a flat fee or an annual retainer. Some charge an annual percentage, based on the assets they manage for you.

Fee-Based Compensation
This popular form of compensation is often confused with Fee-Only, but it is very different. Fee-Based advisors earn some of their compensation from fees paid by their client. But they may also receive compensation in the form of commissions or discounts from financial products they are licensed to sell. Furthermore, they are not required to inform their clients in detail how their compensation is accrued. The Fee-Based model creates many potential conflicts of interest, because the advisor’s income is affected by the financial products that the client selects.

Commissions
An advisor who is compensated solely through commissions faces immense conflicts of interest. This type of advisor is not paid unless a client buys (or sells) a financial product. A commission-based advisor earns money on each transaction-and thus has a great incentive to encourage transactions that might not be in the interest of the client. Indeed, many commission-based advisors are well-trained and well-intentioned. But the inherent potential conflict is great.

Bottom Line. Ask your Financial Advisor how they are compensated.

Question #2: What does Fiduciary mean in relation to a Financial Advisor or Wealth Manager?

fi•du•ci•ar•y – A Financial Advisor held to a Fiduciary Standard occupies a position of special trust and confidence when working with a client. As a fiduciary, the Financial Advisor is required by law to act in the best interest of their client. This includes disclosure of how they are to be compensated and any corresponding conflicts of interest.

Question# 3: Who is a Fiduciary?
Fiduciary responsibility does not arise only in the financial services industry. Professionals in other fields also are also legally required to work in your best interest.

Who is a Fiduciary?
Physician – Yes, follows the Hippocratic Oath
Lawyer – Yes
Stock Broker – No
Insurance Agent – No
Registered Representative – No
Registered Investment Advisor – Yes
CFP Practitioner – Maybe**
Financial Planner – Maybe**

**Advisors who are affiliated with a broker-dealer firm are most likely not fiduciaries. If the client signs an NASD binding arbitration agreement (which is required by almost every broker-dealer firm), then the firm’s advisors would not be held to a Fiduciary Standard by the North American Securities Dealers. CFP Practitioners and Financial Planners will be held to a Fiduciary Standard if they are also Registered Investment Advisors (RIA) or associated with an RIA firm. Be sure and ask!

Because broker-dealers are not necessarily acting in your best interest, the SEC requires them to add the following disclosure to your client agreement. Read this disclosure, and decide if this is the type of relationship you want to dictate your financial security:

“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”
Bottom Line. If this disclaimer appears in the agreements you are signing, you need to question your advisor. Obtain complete disclosure about how he or she is compensated, and where his or her loyalties lie. Then decide if the relationship is in your best interest.

Tom Balcom Headlines Today’s Bloomberg Businessweek

admin — Tue, 22 Jun 2010 19:01:46 +0000

Tom Balcom, Founder of IBIS Wealth Management made the front page of today’s Bloomberg Businessweek , with his quote regarding market-linked CD’s and risk-adverse investors. The article’s title “Wells, Sovereign Aim at ‘Nervous Nellies’ With Structured CDs “, was pulled directly from Tom’s quote terming risk adverse investors, “nervous nellies”. We have posted the complete article below along with a link to read it at Businessweek.com.

http://www.businessweek.com/news/2010-06-22/wells-sovereign-aim-at-nervous-nellies-with-structured-cds.html

IBIS Wealth Management is a fee-only, registered investment advisory firm located in South Florida, with offices in Boca Raton and Miami. If you have any questions related to this article or any other investment management related questions, please feel free to call Tom Balcom at 1.800.658.9560 or you can email him at tombalcom@ibiswealth.com.

Wells, Sovereign Aim at ‘Nervous Nellies’ With Structured CDs

June 22, 2010, 12:10 AM EDT

By Margaret Collins and Zeke Faux

June 22 (Bloomberg) — Investors seeking the safety of government-insured certificates of deposit and a chance to profit from market rallies may end up earning nothing and owing taxes for their efforts.

Wells Fargo & Co., the fourth-largest U.S. bank by assets and deposits, and Sovereign Bank, are among those providing certificates of deposit tied to equity indexes, commodities or currencies. Wells Fargo sold about $5 billion of these market- linked CDs last year and Sovereign’s CD, which links to the performance of the Standard & Poor’s 500 Index, has attracted $1 billion since October.

“Market-linked CDs are a great selling tool for nervous nellies, but they don’t realize what’s involved,” said Tom Balcom, founder of Ibis Wealth Management in Boca Raton, Florida. The products blend the potential for higher returns than current time-deposit interest rates with safety, because the principal is insured by the Federal Deposit Insurance Corp. If the index doesn’t gain, the investor may not earn anything.

Union Bank, a subsidiary of San Francisco-based UnionBanCal Corp. is offering a 5-year CD this month tied to the Dow Jones- UBS Commodity Index with gains capped at about 30 percent to 40 percent over any potential rise in the index. In one scenario, to earn the equivalent of 5.38 percent annual interest, the index would have to close at least 30 percent above its initial level at maturity, according to the bank’s 42-page prospectus. The minimum return is 0.98 percent a year over the term of the CD.

High Volatility

Structured CDs tend to sell better in times of high volatility, said Tom Orecchio, principal at Modera Wealth Management, based in Westwood, New Jersey. Investors fled U.S. equities for the sixth straight week, pulling $3.7 billion from domestic stock funds in the period ended June 9, according to data compiled by the Investment Company Institute, a trade group in Washington.

“There are other ways to get similar returns without all the complications,” Orecchio said.

Market-or-index-linked CDs are an estimated 15 percent to 20 percent of total volume in structured investments, about triple the percentage before the financial crisis of 2008, according to Richard Couzens, New York-based head of product origination for investor solutions at Barclays Capital, a unit of Barclays Plc.

Barclays develops CDs linked to equities, commodities, currencies, interest rates and inflation, and provides them to broker dealers, registered investment advisers and private banks, Couzens said, who declined to provide sales figures. They typically are aimed at risk-averse investors, he said.

Structured Notes

Many firms that offer these products also sell structured notes, which are bank bonds with yields linked to stocks that don’t carry insurance. After Lehman Brothers Holdings Inc. went bankrupt in September 2008, leaving its structured notes worth pennies on the dollar, banks began offering more of the CDs, said Matt Ginsburg, San Francisco-based head of the customized investment solutions group at Wells Fargo.

“Because investors wanted FDIC insurance, you saw market participants step up their issuance of CDs,” Ginsburg said.

The limit on deposit insurance was raised in 2008 to $250,000 per account from $100,000, which also helped CD sales, Ginsburg said. The limit is scheduled to return to $100,000 after 2013, leaving larger CDs uninsured, unless Congress acts.

“Investors are desperate for yield, the Fed has created a zero interest-rate environment and it’s leading people to stretch,” said Frank Partnoy, professor at the University of San Diego School of Law and a former derivatives trader. “The banks are responding to that demand.”

Higher Fees

The products are attractive to sell because they generate higher fees, Partnoy said. Commissions generally range from 1 percent to 3 percent, said Ginsburg.

Sovereign, a subsidiary of Spain’s largest bank Banco Santander SA, offers customers a package: a six-month, traditional CD with 2 percent interest and a three-year CD that pays 2.9 percent annually if the value of the S&P 500 Index is higher than the purchase date at the end of every 12 months, said Nuno Matos, head of retail business for the company. If the index doesn’t rise, the investor doesn’t earn any interest, he said.

“Rates are very low on traditional CDs right now. As a result, clients are sitting on cash,” said Mark Valentino, vice president and senior structured product specialist at Union Bank. “By linking these CDs to various asset classes we’re able to offer clients some growth potential and portfolio diversification, along with some of the benefits that traditional CDs have.”

Rate Calculations

Wells Fargo’s brokerage unit sells clients different types of certificates tied to equity indexes, currencies or commodities each month, said Tim Froehlich, director of alternative investments at Wells Fargo Advisors, based in St. Louis. In April the firm offered a 5 and a half-year CD linked to the S&P 500 Index. Froehlich declined to comment on sales.

Savers should check whether the certificates are insured by the FDIC or the financial institution offering them and how the rate of return is calculated, said Colin Healy, managing director in the Mill Valley, California, office of HighTower Advisors.

Investors may miss out on market gains depending on when the CD matures and what dates banks use to measure performance, said Healy, whose average client has $5 million in investable assets. For example, the market may be up and then dive a month prior to maturity leaving an individual with little or no return other than the principal, Healy said.

Tax Consequences

There also are tax consequences, Orecchio, the wealth adviser, said. The investor has to pay taxes every year on the implied interest income, which the bank estimates based on comparable CD yields, even though the market-linked CD doesn’t pay out until maturity, Orecchio said. An investor is taxed at ordinary income rates, instead of lower capital-gains rates on stocks, which for top earners may mean a levy as high as 35 percent compared with a 15 percent long-term capital-gains rate.

Disclosure statements provided to investors describe the tax consequences of the products, said Wells Fargo’s Ginsburg. Investors may be able to claim an ordinary income loss if they pay taxes on more than they earn, according to the Internal Revenue Service.

Investors can build their own market CD by purchasing a type of U.S. Treasury security known as a zero-coupon bond because it’s sold at a discount to the maturity value and doesn’t make periodic interest payments, and then investing the difference between the purchase price and the redemption amount, said Healy.

For example, a saver might buy a zero-coupon bond priced at about $910 on June 4 with a face value of $1,000 that matures in February 2015, and invest the remaining $90 in the market.

“The biggest thing you have to worry about is tying your money up for five years,” Healy said. “By doing it yourself you can unwind if interest rates increase or the market is doing well.”

–With assistance from Christine Harper in New York. Editors: Rick Levinson, Rob Urban.

To contact the reporters on this story: Margaret Collins in New York at mcollins45@bloomberg.net; Zeke Faux in New York at zfaux@bloomberg.net.

A Simple Question. Are You a Fiduciary?

admin — Mon, 21 Jun 2010 19:52:45 +0000

You hear them on the radio or see their ads in your local papers, “financial advisers”, “investment advisors”, “certified retirement planners”, “registered representative”, “financial planners”, “wealth managers”, and more… We continue to see new titles each week, each one more creative than the next. With so many financial service professionals to choose from, how does an investor choose? What are the fundamental differences between these professionals and how can you easily differentiate between them all?

Last Friday’s, CNBC show “Squawkbox”, interviewed Tom Bradley, President of TD Ameritrade Institutional and asked him the same questions. We wanted to share the CNBC video excerpt with you, to help you gain a greater understanding on this topic and helping you chose wisely among the many wealth experts in the financial industry.

Click on this link below to start the video:

http://www.cnbc.com/id/15840232?video=1524829988&play=1

If you do not have time to view the video, I will quickly review the important take-away’s from the show.

The key differentiator in choosing the best investment advisor, is finding one that is held to a higher standard and is a “fiduciary”. What is a fiduciary, you ask? A fiduciary is an advisor that has a legal obligation to put the needs of their clients first. This is extremely important, they are not encumbered by internal corporate mandates or swayed by large commission pay-outs. So, how do you know if your financial advisor is a fiduciary? They must be a Registered Investment Advisor. Only Registered Investment Advisor’s (RIA’s) are subject to a higher “fiduciary” standard. An advisor who is a “registered representative” is held to a much less stringent “suitability” requirement. They are not legally required, as a fiduciary is. You must be sure the investment advisor you are working with is a Registered Investment Advisor (RIA).

Secondly, it is important that investors seek services from “independent” Registered Investment Advisors. These are Registered Investment Advisers that can offer you investment products across all financial companies within the industry and just not investment products from one particular family of investment companies. So, for example, think of it as choosing an independent car insurance agent or broker. They specialize in offering you the best rate and coverage for your particular needs after searching a variety car insurance companies products, versus you going directly to an Allstate or State Farm agent, who can only offer you a choice of their companies products. You want to ensure you are using the best products from what is on the market, not just from what that one company can offer you. Make sure the Registered Investment Advisor you choose is “independent. It only makes sense to work with an investment professional who can offer you the best products, with unbiased advice free from commissions or internal corporate mandates.

IBIS Wealth Management is a fee-only independent, Registered Investment Advisory firm and our advisors are subject to the fiduciary standard. This enables us to offer objective advice to our clients. If you would like to learn more about what to look for in choosing the best investment advisor, we would be happy to answer your questions and help educate you on this important topic. Please feel free to email or call us or please visit us at www.IBISWealth.com to learn more about our innovative approach to constructing portfolios for our clients.