Naming Beneficiaries

Aaron Archambo - Friday, September 05, 2014

At first glance it might seem that naming beneficiaries would be fairly simple and inconsequential, but unfortunately, this is not always the case.  Certainly completing a beneficiary designation form is easy enough, but the ramifications of completing it incorrectly can cause problems later on.  Let’s discuss this topic in more detail:

 

What is a beneficiary designation?

Naming a beneficiary allows the owner of the account to designate who will receive the asset upon his or her death.  Beneficiary designations are allowed in the following devises:  Life Insurance, Annuities, IRAs, SEPs, Simple IRAs, 401ks, & TOD/POD (transfer-on-death/pay-on-death) accounts.

 

Why is it important to name a beneficiary?

Without a beneficiary designation, it would be left up to your state of residence to decide who should receive your assets, but this may not result in what you want.  This process occurs through probate court.  Even if you have a will in place, probate is still required to administer your wishes.  However, having beneficiaries designated takes priority over your will, thus bypassing probate and flowing automatically to the recipient.   This is a much quicker and less expensive process.

 

In most cases you will be allowed to name primary and contingent beneficiaries.  The primary beneficiary will be the first person(s) in line to receive the asset if you die.  If the primary person(s) has predeceased you, it will be necessary to have a contingent beneficiary named.

 

It is permissible to name more than one primary and/or contingent beneficiary.  If naming more than one, the asset will be split equally, unless you designate otherwise.

 

Who should and should not be named as beneficiaries?

For married couples it is typical for them to name one another as their primary beneficiary.  This is perfectly acceptable and even advisable in most cases.  However, not everyone is married, so other options need to be considered.  If you have taken time to work with an attorney to create a Trust, this could be the best option as your primary or contingent beneficiary designation.  Many times we see clients name their children or relatives as primary or contingent beneficiaries.  This too is acceptable, but take time to think through your options before making this important decision.  If you are single with no kids and no trust, you may want to consider family members like your parents or siblings.

 

It is not recommended to name your estate as your beneficiary, as your assets will end up going straight into probate, which is costly and time consuming.  It is also not recommended to name your minor children as beneficiaries.  Minor children are not permitted to own legal property in their name.  Even though it is not advisable, it is quite common to see minor children listed as contingent beneficiaries.  In this case, keep in mind that the courts would need to appoint a guardian to manage the property on their behalf until they reach the age of majority (typically age 18 in most states).  This would only be the case if the account owner dies and no other beneficiary designations are listed ahead of the minor children.

 

The Bottom Line

Even after you have taken time to consider your options and have designated beneficiaries, your job is still not done.  It is important to review your designations regularly as things vary from year to year.  Unfortunately, family dynamics, such as a divorce, can change and this needs to be factored when doing your review.  It will be important to remove your ex-spouse if a divorce has occurred, otherwise they will receive your assets.  More times than not though, people decide on their beneficiaries and never review them again.  As previously noted, this could be problematic.  So take the time to review your designations annually, because completing a change of beneficiary form is simple and quick.

What role does an advisor's fee play in picking the right professional?

Aaron Archambo - Thursday, September 04, 2014
It is somewhat surprising when we get cold calls to our office and the amount of our advisory fee is the first question asked, often before ever wanting to know anything else about our firm. Generally, it is obvious from the beginning, if this is their highest concern, that it will probably not be a long standing relationship. Please don’t get me wrong, we realize it is an important consideration when picking a financial professional. However, we feel more important questions should be asked before approaching this subject.

When I look at picking an advisor from the client’s standpoint and put myself in their shoes, I would ask and want to know much more. For example, does your potential advisor come highly recommended? In other words, has someone else referred them to you? This can easily be one of the biggest factors to consider. If a friend or colleague, whom you respect, has had a great experience with their advisor; they trust them, find them competent, reliable, professional, and know their best interests come first, then this should make a big impact in beginning your search. If an advisor hasn’t been referred to you, ask around, see what others are saying. Our firm cares deeply about our client’s interests and putting them first. We also know that if they are happy with us, they will tell others.

Here are a few things to consider when looking for a potential advisor:
1) What sort of experience do they have? Have they been in the business a while?
2) What are their credentials? Do they claim to be a financial planner? If so, they should be a CFP®.
3) Check out their registration with FINRA here:
http://www.finra.org/investors/toolscalculators/brokercheck/index.htm
4) Do they provide the services you need?
5) Do they have a website? This could answer some of your preliminary questions, as well as those above, and give you a little insight into their firm.
6) Are they a local firm? And has the firm been around a while?
7) What’s their back office (staff) like? Are they qualified, experienced, friendly, & reliable?
8) What investment vehicles do they use? I.e. stocks, bonds, mutual funds, CDs, etc.
9) Have you seen their Form ADV? If not, ask for it. This will give you a lot of detail into how their practice is managed as well as their advisory fee structure.

This is not an exhaustive list of inquiries, but hopefully it will give you a good start in assessing if the relationship is right for you. As you can see, advisory fees are only part of the equation. You need to feel comfortable working with someone you know cares about you and your goals. Lastly, a good client/advisor relationship will center on trust. It’s the pinnacle of a long lasting successful relationship and should be of paramount consideration.

Securities offered through Dominion Investor Services, Inc. Member FINRA and SIPC.

Fantasy Football or Fantasy Future?

Aaron Archambo - Wednesday, September 03, 2014
 
Fantasy football has become a national obsession and has appealed to adults of all ages.  Magazines, television shows, and ESPN updates have been dedicated solely for the purpose of fantasy football.  I personally have been among the ranks and joined in on the fun for a couple of years.  So, I bring this up not to say fantasy football or any other entertainment activity cannot be fun or important, but do we spend more time planning for these activities and neglect planning for our future?  From a financial planning standpoint, we sometimes find individuals late in their working years that have very little set aside for retirement.  However, somehow it seems they have found the resources necessary to purchase the latest flat-screen television or newest BMW.  These are all great in their proper place, but not at the expense of sacrificing our future.  So, I ask you, are your financial priorities straight?
 
With personal savings rates so low and mortgage defaults rising, we have to ask ourselves, are we too part of the problem?  Are we living within our means and putting enough aside for our future?
 
Social Security is considered by many to be a major source of income during their retirement years.  This has also been a major topic in the latest presidential debates and one that will affect us all.  However, are you depending too much on social security for you future? With so many from the baby boom generation nearing retirement, our already strained system will be under even more pressure in a few years.  No one knows for sure, but it is a fairly safe assumption that social security will not be enough to meet your retirement needs.
 
So I encourage you to take advantage of some of the retirement opportunities available to you through your current employer.  Many employers offer some form of a 401k, Simple IRA, SEP, and/or profit sharing plan.  Many plans offer a company match, meaning they will match a portion of the amount you contribute to the plan.  This is one of the best ways to save for retirement.  For example, if you were to contribute $200 month, and the company matched 50% of your contribution, you would have just added $100 to your investment and made a 50% return!  Then, the $300 would be invested in any number of investment options offered as part of the plan.  If you were to invest this $300/month for 20 years averaging an 8% annual return, you could have approximately $178,000!  Additionally, if you factor in incremental increases to your contributions as a result of periodic raises, your potential savings could be much more.  If your employer does not offer some type of a savings plans, you can always look into a personal retirement account.  The limits to how much you can contribute are continually increasing.  The tax-saving advantages are also additional positives to retirement savings.  Consult an investment advisor or plan administrator to learn more about these tax advantages.
 
Again, keep in mind, activities like fantasy football can be wonderful fun, but let us take the time now to consider where we might be in 20 or 30 years and start planning now.  The biggest thing that young people have on their side now is time.  With so much time between now and your retirement years, a little saved today can make a very positive impact on the way you live later in life.
 
Aaron Archambo is a financial advisor and the vice president of Archambo Financial Advisors, Inc. Securities Offered Through Dominion Investor Services, Inc.  Member FINRA & SIPC.       

Can your personality affect your investment behavior?

Aaron Archambo - Tuesday, September 02, 2014
Although some are led to believe it, investment behavior is not based only upon a client’s risk tolerance, age, investment objectives, and experience.  Although these factors are critical, at times, advisors overlook the client’s personality and the affect this can have upon the client/advisor relationship and their investment selection.  As advisors, we are often reminded to make suitable recommendations based upon the client’s specific situation, considering those factors previously mentioned.  However, too many times the client’s personality is overlooked.
 
Our personalities often define our behaviors and attitudes toward saving, spending, giving and risk taking.  Your temperament (or personality) probably determined your career path.  For example, it would not be uncommon for an independent minded person that enjoys leading and taking charge, to look into being an attorney, military officer, or entrepreneur.  Accountants, computer programmers, and actuaries often like things structured, under control and tend to be analytical.
 
In his book The Social Meanings of Money and Property: In search of Talisman, Professor Kenneth O. Doyle theorizes that people attach social meanings to money and property based upon embedded values, attitudes and tendencies.   He believes there are four types of personalities:  Expressives, Drivers, Analytics, and Amiables.   Expressives are spontaneous and enjoy lively behavior while not wanting to be constrained.  Drivers thrive on competition and achievement and reject association with incompetence.  Analytics, of course, are analytical less spontaneous and enjoy being considered steady and dependable.  Amiables tend to be dependent and thrive on the closeness of others, many times fearing rejection. 
 
It is important to realize that each one of these temperaments approach money and property from different perspectives.  As one might guess, Analytics tend to be savers with a conservative outlook and are thought of as stable and dependable. They are looking for advisors they can trust.  The financial planning process is a logical one in their minds.  Expressives are concerned about the use of their money not it’s management.  Since they live for the moment, planning will be a difficult process.  Many times they look at their advisor as the facilitator of their enjoyment.  Amiables enjoy the thought of a special companion or close friend to help guide their financial future.   Being thought of as affluent or upper class is not appealing.  They enjoy engaging their own personal value system and being shown how they can benefit others through their own financial security.  Lastly, Drivers are looking for an independent minded expert with an intellectual curiosity.  Most drivers will look to find an advisor with the proper credentials and a like-minded pursuit of continuing education.   Being recognized as knowledgeable and competent provides them a sense of importance.
 
Professor Doyle’s defined personality traits are based, of course, on his findings.  Although not an exact science, they do go a long way in helping to clarify the many differences our clients possess.  If as a client or potential client, you can identify with one or more of the above traits, be sure to find an advisor that can relate to you and your particular values, attitudes, and behaviors.  Finding the right relationship will assist in helping you to achieve your financial security.
 
Aaron Archambo is a financial advisor and the vice president of Archambo Financial Advisors, Inc. 
Securities Offered Through Dominion Investor Services, Inc.  Member FINRA & SIPC.    
    

Planning For A Financial Windfall

Aaron Archambo - Monday, September 01, 2014
Financial windfalls can come in a variety of forms, such as an inheritance, life insurance proceeds, large gifts, structured settlements, retirement lump-sums or even lottery winnings.  Upon receipt, most are not prepared to handle such a large sum and often make many mistakes.  The large amount poses an obvious temptation to spend and many are not prepared. 
 
How many times have we heard the winner of a large lottery say, years after the fact, they wish they had never won the money in the first place?  The expectations from family, friends, neighbors, etc. can be a heavy burden and a strain on your relationships.  Whether you received your windfall as a result of good fortune or proper planning, many may expect more than you are willing to give.  And as a result of poor planning many have squandered their fortune away.  It can be a difficult challenge, but with proper planning these pitfalls and others can be avoided. 
 
So what are some of the considerations?  First, are you capable of handling the funds yourself or do you need to contact a financial adviser or CPA?  Expert advice can help to manage the tax implications (now and in the future), develop a new budget, determine the new cost basis if assets are received, develop an investment plan, or revisit your previous retirement plan.  You may also want to consider retiring your existing debt obligations.  However, it may not always be to your benefit to eliminate debt immediately.  This is also a wonderful time to consider the educational needs of your children or grandchildren.  Are there college needs being met and do you want to help?
 
If the windfall comes in the form of lottery winnings, you will have to determine if you want the winnings paid out in installments over time or in one lump sum.  It is vital to consider the opportunity cost, which is the potential of gaining a greater overall return by taking and investing the single lump sum.  This can also be true of lump-sum retirement distributions vs. retirement annuity payments.
 
Receiving such a windfall may also change your insurance needs.  A focus on auto, home, and personal liability insurance is essential.  You may not need to carry as much life insurance on yourself, or other family members.  Also, you may be able to self-insure your home and autos, but still continue liability coverage against the claims of others.
 
It is obvious that a lot of thought and planning will need to take place to properly manage such a windfall.  As wonderful as receiving or earning this windfall can be, it is imperative to consider the factors mentioned as well as others.  Avoiding the temptation to immediately start spending but rather taking the time to plan wisely, can help you meet your goals and enrich your life.  
 
Aaron Archambo is a financial advisor and the vice president of Archambo Financial Advisors, Inc. 
Securities Offered Through Dominion Investor Services, Inc.  Member FINRA & SIPC.    

Is your mutual fund suitable for you?

Aaron Archambo - Friday, August 29, 2014
One of the most popular investment vehicles available today is a mutual fund.  Mutual funds are the vehicle of choice for many individual IRAs, 401(k)s, Profit Sharing Plans, Simple IRAs, as well as others.  More than likely, many of the readers have their own mutual fund or know of someone who has money invested in a mutual fund or portfolio of funds.
 
However, with more than 17,000 mutual funds available today, how do your know if yours is right for you?  First, it is critical that you determine the suitability of your particular fund with your risk tolerance, investment objectives and priorities.  It is important to take note of your investment experience and whether or not your current mutual fund(s) are out of character for you.  If you are having trouble sleeping at night and worry often about the risk of losing your investment capital, then an overly aggressive posture might not be suitable.  Upon recommending a fund to a client, investment advisors are required to provide them with a prospectus.  A prospectus spells out many of the details regarding that particular investment.  It is strongly recommended that you read it before you invest and discuss any questions with your advisor.
 
Mutual funds invest in varying types of investments.  Funds that buy only stocks or bonds or both are available for the picking.  Some funds buy international stocks, and there are others that buy only U.S. stocks.  Some look for small, medium and/or large company stocks with growth potential as an emphasis.  Others focus on stocks that pay dividends and/or preserve capital.  Mutual funds that look to buy various types of bonds are also available.  With more varieties available than there is time to discuss, be sure your selection is appropriate with your objectives.
 
Once you have chosen a fund and feel comfortable with your selection, it is important to be sure your objectives are being met.  Meeting with your investment advisor regularly to discuss your investment(s) and objectives is good practice and strongly recommended.  If material changes have occurred in your life, such as marriage, an addition to the family, etc., be sure to make your advisor aware of the changes.  It is also good practice to review your mutual fund statements once they arrive in the mail.  Looking for discrepancies and reviewing any changes can be beneficial in helping you to meet your investment objectives. 
 
Mutual funds, as an investment vehicle, can be beneficial in helping you to meet your investment objectives.  However, taking the time to do your own homework and reading through the prospectus can not be emphasized enough.  Educating yourself about your selection and being aware of how it will help you to accomplish your goals can provide a great comfort level and less uncertainty. 
 
Aaron Archambo is a financial advisor and the vice president of Archambo Financial Advisors, Inc. 
Securities Offered Through Dominion Investor Services, Inc.  Member FINRA & SIPC.    

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The full range of services offered at Archambo Financial Advisors are designed to meet your financial advisory needs today, tomorrow and well into the future. Archambo Financial Advisors can lead you through the many financial stages of your life.

310 S. Osage

Bartlesville, OK   74003

Fax: 918-336-2214

aaron@archambofinancial.com

Securities Offered Through Dominion Investor Services, Inc

Member FINRA and SIPC

 

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