Credit Lines & Credit Bureaus. I am simply amazed by the number of credit card offers and new solicitations that I receive each month. Checks are attached and ready for me to add the payee along with my signature. A lot has been written about personal debt in America and the consequences that come along with it. While impossible to create debt without first being offered credit, the easy availability of credit is the stimulus that feeds the addiction of over spending. Many of us think of addiction in terms of substance abuse while never considering other possible forms of addiction. A synonym of the word addiction is dependence. How many of us today have become dependent on our credit lines to facilitate our emotional decisions when it comes to our purchases? I would be remiss if I didn’t speak to the ability to shop online with the use of our smart phones. Are there any limits to what can or cannot be purchased today online? And if that isn’t enough temptation, there are two cable channels that are devoted to sharing the daily gospel of shopping. In addition to credit lines, another industry has risen that is convincing Americans of the need to monitoring their credit report – credit bureaus. The three primary credit bureau companies are: Equifax – equifax.com P.O. Box 740241, Atlanta, GA 30374-0241. Ph. 1-800-685-1111 Experian – experian.com P.O. Box 2104, Allen, TX 75013-0949. Ph. 1-888-397-3742 TransUnion – transunion.com P.O. Box 1000. Chester, PA 19022. Ph. 1-800-916-8800 If you visit any of the three credit bureau websites, they are busy pitching FICO scores and the need for you to shell out $240 a year to monitor your credit reporting and scores. While you can go ahead and sign up for the twenty bucks a month based on some marketing narrative, I am not sure how that is going to help you improve your FICO score. The most effective way to improve your credit score is for you to understand how the system works and to work the system to your advantage. The people with the highest credit scores are those who have always paid as agreed, kept their existing credit balances low in relation to the credit line limits, and in general do not have any real need for credit because they have cash. I am not suggesting that you ignore your credit score and who is reporting it. Personally, I annually pull my three credit bureau reports and review the reported information for accuracy, and I can do that for a lot less than $240 bucks. One of the best places for you to begin to educate yourself on this subject is to go to the Federal Trade Commission’s website under Credit and Loans:  https://www.consumer.ftc.gov/topics/credit-and-loans. This is a great resource that can be trusted because the Federal Trade Commission is responsible for the enforcement of the Fair Credit Reporting Act, a federal statute to protect you, the consumer, from those who may be gaming the system.

While the aging process is a subject that most of us would certainly rather shy away from, it is a subject that will affect the majority of us. As you are likely already aware, life expectancy has increased substantially over the last century. However according to the CDC, the leading cause of death and disability in the United States is due to chronic diseases. As defined by the U.S. National Center for Health Statistics, a chronic disease lasts for three months or longer. Common types of chronic diseases and conditions are listed, below: ALS (Lou Gehrig’s disease) Alzheimer’s disease and/or dementias Arthritis Asthma Cancer Chronic obstructive pulmonary disease (COPD) Cystic fibrosis Diabetes Heart disease (example – congestive heart failure) Obesity Osteoporosis My work with the public for the last twenty-seven years in the areas of life and money has allowed me to experience firsthand the challenges many of us will face as we age. While chronic illnesses are emotionally difficult to endure for individuals, families and friends, it can also be very financially difficult due to the emotional uncertainty about the financial resources required to provide quality care for our loved ones. If a person becomes afflicted with a chronic illness at age sixty-five or older, the Department of Health and Human Services, Centers for Medicare & Medicaid Services, and Chronic Care Management Services are very specific in what services will be covered and/or reimbursed. The challenge facing the United States today is the aging of the baby boomers (born between 1946 and 1964). By some estimates, the boomer population is over 75 million. As this population continues to age, the increased medical demands will create a significant burden on the government entitlement programs, namely Medicare and Medicaid. Just for clarity, Medicare is the federal health insurance program for people who are age sixty-five and older or those under the age of sixty-five who have been declared disabled by the courts. In contrast, Medicaid is a jointly funded, Federal-State health insurance program for low-income and needy people, e.g. welfare. To qualify for Medicaid, an individual’s financial resources will be assessed. For services related to chronic illnesses, any private expenses are first paid by the individual with any remaining expenses possibly covered by Medicaid. This being the case, anyone with substantial financial resources will be required to cover the expenses of chronic illnesses until they fall below certain threshold levels established by specific State Medicaid requirements. For those individuals who believe they may be able to game the system by hiding or transferring assets prior to applying for Medicaid benefits, they may want to think twice as the states have adopted a look-back period. For example, the look-back period in the state of Indiana was extended to five years. Moving forward over the next twenty years, the current health care system that covers the issue of chronic illness is, by all measures, unsustainable. Due to budget constraints, the states will be forced to implement new protective measures to prevent those with financial resources from gaming the system. For anyone who has created sufficient amounts of investment capital and/or real assets, it would be wise to educate themselves on the cost of healthcare in order to be better positioned for the final stages of life.

Understanding the Financial Services Industry If there is one industry that can be a very confusing, it is the financial services industry. Over the years, I have had the misfortune of witnessing firsthand the consequences of poor financial decisions made by the public based on recommendations by those active in the industry. Often, these recommendations were based in part on the narrative created by the very companies who develop and market the products. Even more troubling, there have been occasions when those same individuals display scant knowledge of the very financial industry that they are engaged in. The Financial Advisor is a widely accepted generic title used by many who are active in the financial services industry today. For the public, the challenge is to understand how financial advisors are licensed, who they represent, and how are they compensated. Today, it is common to see advertising on bank marquees that tout “Banking-Insurance-Investments”. From the bank’s perspective, this creates the ultimate one stop shop, so it appears. Let’s begin with a quick overview of the four, primary, consumer driven business models. Commercial Banks provide services to the public in the areas of mortgages, installment loans, credit cards, checking and savings accounts, and certificate of deposits. What government regulators are involved in the regulation of the bank will depend on whether the bank is federally or a state chartered. The banking and regulatory structure in the United States is complicated. To learn more, go to www.federalreserve.gov Insurance Companies are in the business of creating products that allow the consumer to transfer risk. The risk can be subdivided into two primary categories property & casualty (auto and home) or life & health (life, health, disability, and annuities). Some companies may focus on one specific product area while others may try to cover a full range of products. Their distribution and marketing channels may differ as well. Some companies may have a captive channel (the career agent) or may distribute their products using insurance agencies who act as brokers who offer a range products from several competing companies. Both insurance companies and their agents are licensed and regulated by the state insurance departments. To learn more, go to www.naic.org Broker-dealers are companies that transact the sale of securities. They may act as a broker (selling a security for someone else), or they may act as a dealer (selling a security from their own inventory). Broker-dealers may be large, privately owned companies with a large captive sales force, others may be publicly owned companies with a large independent sales force, and many may be owned by banks and/or insurance companies. FINRA (Financial Industry Regulatory Authority) regulates broker-dealers as well as registered representatives of the brokers. According to FINRA, there are 3,800 broker-dealers with 635,000 brokers as of 04-17-2017. To learn more about FINRA, go to www.finra.org Registered Investment Advisor is a company that is engaged in the business of providing investment advice. The advice may be limited to investments or a broad range of advice services may be offered. Under the Investment Advisors Act of 1940, registered investment advisors (RIA) and their investment advisor representatives (IAR) are required to register with the U.S. Securities and Exchange Commission (SEC) and/or individual state securities departments. In addition, both the RIA and IAR fall under the supervision of either the SEC or the Secretary of State Securities Department. Registered investment advisor companies may be publicly traded while most are privately held and many are owned by either broker-dealers or insurance companies. To learn more, go to www.sec.gov Today, financial advisors can come in various combinations and may be licensed in several different combinations.  For example: State Insurance License – Life & Health and/or Property & Casualty or both FINRA – Registered Representative SEC – Investment Advisor Representative Life & Health and Property & Casualty, FINRA – Registered Representative, SEC – Investment Advisor Representative While the state Insurance departments currently do not have any form of disclosure requirements for their insurance licensing, the regulatory authority for the financial industry does. Affiliations must be disclosed between the financial advisor and broker-dealer and between investment advisor representative and registered investment advisor. These affiliations are typically disclosed on business cards. For example, Sara Sample is a financial advisor of Sample Financial Management, a registered representative of PLM Investments and an investment advisor representative for Crow Bar Investment Services. Sara’s disclosures will state that securities are offered through PLM Investments, a registered broker-dealer, member FINRA/SIPC and investment advisory services are offered through Crow Bar Investment Services, a registered investment advisor. In addition, the disclosure will also state whether the two firms are affiliated. Let’s focus on the two types of advisors, registered representative (RR) and investment advisor representative (IAR), and how the advisors are regulated and compensated. The registered representative (RR) is registered with a broker-dealer and regulated by FINRA. The primary regulatory criteria for FINRA is based on the concept of suitability. Because the RR is acting on behalf of a broker-dealer, the RR is either selling something for someone else or selling something out of the dealer inventory. In either case, this is a transaction based relationship, and the RR is paid a commission on the sale of the security. FINRA and the broker-dealer are responsible for determining whether the sale was suitable for the investor at the time the sale was made. All security products sold by a registered representative are some form of a commission product, and the sales transaction is held to a suitability standard. Furthermore, all insurance products are designed for a transaction based relationship and pay commissions. The supervision of investment advisor representatives (IAR) affiliated with registered investment advisor is based on a fiduciary standard. The regulatory framework for this standard is from the Security Exchange Commission along with the state. Because fees are charged for their advice, IARs are prohibited from receiving commissions as part of their compensation. Therefore, IARs are considered fiduciaries. Per the SEC, “As an investment adviser, you are a ‘fiduciary’ to your advisory clients.This means that you have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests.” So there you have it. Pay commissions and hope your decision was suitable for your situation. Or pay commission-free, on-going fees and establish a collaborative relationship based on a fiduciary standard.  

The Basics of Tax Language. This certainly isn’t a subject most us, including myself, like to think about and certainly isn’t one that appears to be going away anytime soon. As wealth accumulates for future needs, the tax rates by federal and state governments will likely increase due to budgetary issues. Therefore, my goal is to share some basic tax language, concepts, and distinctions that I believe every person should know. Let’s first begin with a list of terms: Earned income versus unearned income Tax deductions and exemptions versus tax credits Social Security versus Medicare tax Long and short-term capital gains tax Marginal tax rate versus effective tax rate Tax deferred versus tax-free For 2017, federal income tax has seven progressive brackets – 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The amount of tax you owe depends on your income level and filing status. Earned income includes wages, salary, professional fees, and commissions. In contrast, unearned income is income derived from savings accounts, certificate of deposits, and investment accounts. Because the income classifications are taxed at different rates, it is important to understand the distinction between the two. With a progressive tax system, reducing your taxable income is important. This can be accomplished through tax deductions and exemptions. A tax deduction is a reduction in tax obligation that is accomplished by lowering the taxable income. Common tax deductions include charitable contributions, 401k contributions, mortgage interest, and student loan interest. In contrast, a tax credit is a monetary amount that directly reduces the actual taxes owed to the government. On earned income up to $127,200 in 2017, the Social Security tax rate is 6.2% for employees and 12.4% for the self-employed. In addition, the Medicare tax rate on earned income is 1.45% for employees and 2.9% for the self-employed. High-income earners also pay an additional 0.9% in Medicare taxes on earning above certain amounts. A capital gain is the profit that is realized when investments (like property, stocks, and bonds) are sold. A short-term capital gain is any investment owned for exactly one year or less. Whereas a long-term capital gain is any investment held for more than a year. How long the investment is held influences the tax treatment of the capital gain. Short-term capital gains are taxed at ordinary income tax rates while long-term capital gains are taxed at a lower rate. Because of our progressive tax system, a basic understanding between taxable income and the seven tax brackets is important. Specifically, the taxable income levels that shifts the tax rate from 10% to 15%, from 15% to 25%, etc. This higher tax bracket is referred to as the marginal tax rate and is the top rate that you are being taxed. In contrast, the effective tax rate is calculated by dividing your income taxes paid into your gross income. And lastly, a discussion about tax deferred versus tax-free Is warranted. Tax deferred refers to accounts that have favorable tax treatment. This allows income and capital gain taxes to be deferred and not paid until a future point in time. In contrast, tax-free refers to accounts that are free indefinitely from taxation of income and capital gains.