Fundamental of the Week #7: EXECUTE DUE DILIGENCE. Developing the best solution for the client isn’t always obvious and isn’t always easy. Often it requires significant research as well as creativity. Have a bias for thoroughness and do extra work necessary to find the best way to meet the client’s objectives.

Many of the Fundamentals of The Bernhardt Way played a role in the decision to create Bernhardt Wealth Management. Creating a firm that had a fiduciary responsibility (Fundamental #1) to its clients was certainly important. However, this Fundamental perhaps played the biggest role in that decision.

Working for companies that had their own products and services they wanted their brokers/registered representatives to sell was frustrating for me when I knew there were solutions that I wanted to offer but could not. Fortunately, I had friends who encouraged me to make the difficult step of creating Bernhardt Wealth Management.

But EXECUTING DUE DILIGENCE means more than just that. It means discussing issues and possible solutions internally with our financial planning team. And when necessary it means we take the extra step to discuss the unique challenges of a client with our network of experts to ensure nothing is overlooked so the best possible solution is presented to meet the client’s objectives.

EXECUTING DUE DILIGENCE also impacts how the Bernhardt Wealth Management team supports each other. We are always looking for ways and technology that allows us to better serve our clients. And I want each member of our team to support each other in that endeavor. The mantra of “if it ain’t broke, don’t fix it” or “this is the way we have always done it” are not reasons we should not change. If you think there is a better way to do something, discuss it with your supervisor to determine the next steps.

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New Tax Law Expands 529 Plans and ABLE Plans

In addition to almost doubling the personal exemption and providing breaks to businesses, the new tax law signed by President Trump in December contains a provision that could be very helpful for parents and grandparents who are trying to fund a child’s education or pay for a disabled child’s care.

Section 529 of the Internal Revenue Code allows for what it calls “qualified tuition plans” into which parents or grandparents can deposit funds earmarked for future education costs. The funds then accumulate without incurring taxation of the interest or gains. Originally, the funds could be used only for tuition and other qualified expenses associated with attending a college or university. But under the new tax law, these accounts may now be used to fund expenses related to K–12 private schools. Up to $10,000 per year may be withdrawn from a 529 plan for qualified expenses, and the withdrawals, like the plan accumulations, are tax-free.

According to the College Savings Plan Network, total US investment in 529 plans is just over $275 billion, with accounts averaging a balance of $21,000. While final figures are not yet available, projections indicate that 2017 investment in the plans will push the total over $300 billion.

Forty-nine states and the District of Columbia offer 529 plans, and 33 of the states offer a tax break to parents, grandparents, or others who contribute to such a plan (Wyoming is the sole state that does not offer the plan). Currently, 19 states and the District of Columbia automatically update their legislation to align with federal guidelines for 529 plans, so the new expansion to K-12 expenses will automatically go into effect in these states: Alaska, Colorado, Connecticut, District of Columbia, Illinois, Indiana, Kansas, Louisiana, Maryland, Massachusetts, Missouri, Montana, Nebraska, New Mexico, New York, North Dakota, Oklahoma, Rhode Island, Tennessee, and Utah. Residents of other states will need to verify their state’s rules before using the plan for K-12 tuition and other costs. To see a list of plans available in each state, click here.

Another important benefit conferred by the new law is the ability to transfer funds from a 529 plan to an ABLE plan. ABLE plans were created by the Achieving a Better Life Experience Act of 2014, which stipulated tax-advantaged savings plans to assist individuals with disabilities and their families. These plans, similar in function to 529 plans, permit tax-free accumulation and withdrawal of funds to pay disability-related expenses for persons who become blind or otherwise disabled before age 26. ABLE plans are subject to annual contribution limits (they cannot exceed the annual gift tax exclusion of $15,000), and each state sets its own lifetime limit–generally, the same as the state’s lifetime limit for 529 plans, which is typically $350,000 or more. A list of state ABLE plans is available here.

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Fundamental of the Week #6: BE A FANATIC ABOUT RESPONSE TIME. People expect us to respond to their questions and concerns quickly, whether it’s in person, on the phone or by e-mail. This includes simply acknowledging that we got the question and we’re “on it,” as well as keeping those involved continuously updated on the status of outstanding issues. Rapid response keeps us standing out from the crowd.

Before we formalized the 26 Fundamentals that represented “The Bernhardt Way,” our website stated that “We will meet our deadlines and return calls within 24 hours.” This brief sentence and Fundamental #6 is a way of saying that “you are important to us.”

Of course, that brief statement on the website failed in that it did not address the follow-up actions that were required. Yes, it is important to me that we return calls and requests in a timely manner. But just as important is the follow-up that may be necessary. Have we assessed what needs to be done, have we determined what the expectations of the client are, and have we obtained agreement on the date to provided the client the information requested?

Basically, there are three things that must be done to meet the objective of Fundamental #6:

  • First, we must get back quickly. It should be within 24 hours but if it can be done within five minutes or the next hour, that is even better. Just be a fanatic in getting back to them.
  • Second, acknowledge you got their request. If you can give them the information they requested or answer their question immediately, do so. However, if you know it will take some time to conduct the research, acknowledge their request and obtain agreement on when you will get back to the client once you have determined the client’s expectations and what is reasonable. If the client’s expectations are not reasonable, it is up to you to educate and inform the client on why a different date is more appropriate.
  • And finally, keep the client in the loop. It is completely appropriate to let them know of your status and perhaps even send some things you are finding that may be of interest to the client. However, get back to them when you promised to do so, if not earlier.

Being a fanatic about response time is an opportunity to let our clients know you are trustworthy and reliable and that the client is important to us.

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Out with the Old, In with the New (But Not Yet)

With all the discussion surrounding the passage of the new tax law at the end of 2017, it may seem to many taxpayers that everything has changed. While it’s true that the new law does make a number of significant changes that will greatly affect the ways many of us are accustomed to preparing our tax return information–including big changes in mortgage interest deductibility, deducting state and local taxes, most itemized personal deductions, and other changes–it’s important to remember that the return we are about to file is still governed by the “old rules.” The tax return due by April 17, 2018–or later, for those who file extensions–should still incorporate the same deductions, exemptions, and other information that we have used in the past.

With that in mind, here are a few basic tips to keep in mind as you prepare to file your 2017 income tax return. Many of these will probably sound familiar, but as all great athletes know, nothing is more important than practicing good fundamentals.

  1. Start early. While it is certainly true that nobody looks forward to thinking about taxes (with the possible exception of your CPA), it’s also generally true that the earlier you start gathering your documentation, the more complete the information you’ll be able to provide to your preparer and the sooner you’ll have the whole experience behind you. Not only that, but the earlier in the tax season you can hand everything over to your preparer, the greater the likelihood that your return will get the best possible attention to detail. Don’t get caught in the end-of-season rush, when your tax preparer is burning the midnight oil, trying to finish the raft of returns that came in at the last minute!
  2. Review last year’s return. As you begin gathering your records, spend some time studying the return you filed for your 2016 taxes. While no one expects you to become a tax expert, having at least a general working knowledge of where various types of information fit on your return will give you a big advantage when it comes to supporting and assessing the efforts of your preparer. For example, if you have self-employment income, it’s helpful to understand how your Schedule C or Schedule E impacts your adjusted gross income (AGI). Also, a good basic understanding of the various moving parts of your current return will come in handy next year, allowing you to gain a quicker grasp of the things that are changed by the new tax law.
  3. Organize your documentation–yourself. Having your personal information (Form 1099s, Form W2s, all Social Security numbers for anyone listed on your return, etc.) organized and in your preparer’s hands is just the first step. You should also categorize and organize any expense receipts used to document business or personal deductions and charitable contributions. If possible, you should enter these in a spreadsheet that your preparer can use to quickly plug the numbers into your return. At the very least, you should list the various categories of expenses making up your deductions and provide the totals. It may require a bit of your time to go through your receipts and come up with the numbers, but if you can reduce the number of hours your preparer must spend simply calculating and entering data, you will also be reducing the fee you’ll pay for preparation of your return. You should also have on hand pertinent account statements, mortgage interest statements, and statements of gains and losses on securities transactions, if you have investment accounts (these are reported on Form 1099-B, due to you from your investment firm by February 15). (Note: Your CPA may be like mine and have a tax organizer for you to complete to simplify pulling your information together.)
  4. Communicate, communicate, communicate! The more well-informed your preparer, the better for you. Have you had any major life changes–marriage, divorce, birth of a child, death of a family member, job change, business or real estate sale or purchase, receipt of an inheritance, etc.–since you filed your last return? Make sure your preparer knows all about it. If you moved an aging parent into your home or otherwise took responsibility for their care, tell your preparer. In other words, the more familiar your preparer is with any changes in your situation, the better he or she will be able to advise you on filing strategies that could save you money.
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Fundamental of the Week: #5 – HONOR COMMITMENTS. Do what you say you’re going to do, when you say you’re going to do it. This includes being on time for all phone calls, appointments, meetings, and promises. If a commitment can’t be fulfilled, notify others early and agree on a new timeframe to be honored.

I am quite confident that all of us at Bernhardt Wealth Management were raised by parents who created the foundation for the values we have today. And one of them most likely was to honor commitments.

Dan Sullivan, the founder of Strategic Coach, was the first person I remember saying the phrase, “Do what you say you’re going to do, when you say you’re going to do it.” Those words were so powerful to me at the time that it became a theme for customer service. Our clients have hired us to serve as their trusted wealth manager and they deserve to receive what we commit to them when we commit to doing it. It is fundamental to maintaining trust.

My father emphasized that being punctual was a sign of honor to the individual you meet. He emphasized “Early is on time. On time is late. Late is unacceptable.” Or as Vince Lombardi said, “If you are five minutes early, you are already ten minutes late.”

Those things we noted in Fundamental #5 seem fairly basic, right? And I think we are pretty good at this when it comes to serving our clients. However, it is funny what happens when you draw a line in the sand. All of a sudden, I see my shortcomings and times when I have failed. I will confess that I am consistently one or two minutes late on a monthly call with a person I value who I will call Sharla. I realize that I have dropped the ball with my own teammates on some commitments. And my excuse was that I am the CEO and there were other priorities that arose. However, I failed to renegotiate a new commitment.

Perhaps one of the biggest reasons we fail to meet our commitments to each other is that we want to say “yes” but we fail to consider the other deadlines that are looming. Or maybe we need to be more organized.

My point is that I want us to continue to honor our commitments to our valued clients. And let’s be more transparent about our commitments to each other and work to honor those commitments to our valued teammates. And if that means I need to give you resources and training, let’s discuss what we can do to help each other HONOR COMMITMENTS.

Let’s have a great week; and do what you say you’re going to do!

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Four Financial Communication Tips for Couples

It probably wouldn’t surprise too many people to learn that money and finance are at the top of the list of reasons why marriages break up. If that is such common knowledge, it would make sense that most couples would communicate carefully around money, right?

Wrong. A recent Harris poll conducted for the National Foundation for Financial Education found that one in three adults in a committed relationship say they have concealed financial information from their partner or committed financial deception. Not only that, but 76 percent of those surveyed say that when financial deception has occurred, it has had a negative effect on the relationship.

With so much at stake, it is vital for married couples and others in a committed relationship to learn and exercise good communication around finances. Here are some tips I’ve gleaned from my years as a financial advisor:

  1. Money means different things to different personality types. This isn’t just a male/female thing, either. Knowing your partner’s “financial personality” is a crucial first step toward good communication. The Financial Times of London recently published a free online “money personality test.” Using a tool like this together can be an important first step in starting or improving financial communication in a family.
  2. Put the numbers on paper (or screen). Construct a family net worth statement that lists all assets that you know about and all debt that has been incurred, either individually or jointly. Write it all down and look at it together. Similarly, put together a statement of monthly income that shows exactly what comes in (and from where) and what goes out (and to where), every month. I use Quicken to track my spending but the free website Mint has a great toolkit to help families learn exactly where they are financially and also for keeping track of monthly expenses. Using this together will help couples “get real” with each other, financially.
  3. Learn to be a good listener. Especially with an emotional subject like money, many of us listen in order to reply, or, even worse, win an argument. Instead, learn to listen with acceptance, realizing that until you really understand what is important to the other person (and see #1, above), you cannot work together on a mutual goal.
  4. Define mutual goals, and put them in writing. If you both agree that having a comfortable retirement is a priority, write it down. If funding a young child’s college education is your shared front-burner item, put it in writing. If the thing you both want most is an amazing vacation in ten years, put it at the top of the list. Keep the resulting document in a safe place in your files or on your computer, and refer to it during financial discussions.

One more tip: even if one of the partners in a relationship is the “designated money person,” it is important for both partners to know some basics: account passwords, where main accounts are located, persons to contact for emergency assistance. (Note: If you want some guides or worksheets to help prepare such a document, contact me with your request.) When both partners are in the game, everybody wins.

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One of My Favorite Days

Several years ago one of my sisters sent me the following poem. It meant a lot to me, and I wanted to share it with you today:

One of My Favorite Days

(March Fourth)

We all love Christmas. Halloween is scary sweet.
I’m thankful for Thanksgiving, boy how we eat!
Then there’s our birthday which is really fun.
New Year’s Eve is festive but we’re a little tired come January One.

Easter is delightful! Fourth of July fireworks are great!
There is St. Patrick’s, Presidents, Valentines, Veterans, Labor,
Columbus, Flag, Father’s, Mother’s, Martin Luther King, . . .
How do we keep track of all of these darn dates?

When I look at my one year calendar,
March Fourth is one of my favorite days.
Nothing much happened in history.
It’s just what the day has to say!

When you have problems, March Forth!
When things don’t work out, March Forth!
When bad things happen, March Forth!
When you lose, March Forth!

When anything can happen, March Fourth says it all.
When something does happen,
Get up, Brush off, and March Forth,
Because we’re all bound to fall.

–Anders Rasmussen

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Fundamental of the Week: #4 – ATTEND TO DETAILS. Accuracy is everything in our business. Be in the habit of proofreading all letters, e-mails, spreadsheets and proposals for accuracy and correctness. The goal is to get things “right,” not simply to get things “done.” Being obsessively careful about the details is a demonstration of how much we care.

This Fundamental is closely related to Fundamental #2—Make Quality Personal. Is it possible to make quality personal when there are frequent inaccuracies in e-mails, proposals, applications, etc.? Obviously, the answer is a resounding “no.”

I remember completing a proposal for a prospective client earlier in my career. We clicked on all levels. They were nice people. They liked our services and approach to investing. And I knew we would be able to add a lot of value. And since their proposal was not all that much different than a proposal I had recently completed for another investor who became a client, I retrieved the old proposal and started making the appropriate modifications. I reviewed the proposal before printing it and was happy with it. However, there was one little detail I missed. I had failed to open the header of the Word file to modify the name. Needless to say, I was embarrassed by this oversight. Every other detail and every calculation was correct, but the names in the header on a 3-page letter were incorrect. They did not become a client and did not return my subsequent calls. To this day, I am convinced that my failure to pay attention to those details cost me a client. And then I wonder how much it cost them because they did not benefit from our services like our clients did. That is something I have to live with for the rest of my life.

Most of the time the difference between accurate work and work that contains errors is as simple as proofreading at least once. If I had not just proofread the proposal and letter on my screen but proofread a printed document, I would have caught my error. So slow down and take the extra time to double check our work product. Proofread your letters and e-mails.

None of us are going to be perfect. But we can reduce or eliminate most errors simply by proofreading or double-checking our work. Let’s give attention to our work and get the details right.

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Five Recent Social Security Changes

Last October, the Social Security Administration (SSA) announced changes in its program due to take effect in 2018. Those approaching retirement, as well as those already retired and receiving Social Security benefits will want to take particular note of five changes announced by the SSA on their Fact Sheet:

  1. Cost-of-Living Adjustment (COLA): Each year, the SSA reviews the Consumer Price Index (CPI) for the previous four quarters to assess the rate of inflation. It then determines whether a COLA will be granted for the following year’s payments. For 2018, Social Security beneficiaries will receive a 2 percent increase in their payments, the largest increase since 2012’s 3.6 percent raise. For beneficiaries receiving the average monthly payment of $1,377 in 2017, this will amount to an increase of about $27 per month.
  2. Higher Maximum Taxable Earnings: The amount of annual income on which an employee must pay the 6.2 percent Social Security tax will increase from $127,200 in 2017 to $128,700 in 2018. Any amount paid to an employee above $128,700 will not be subject to the Social Security tax. Of course, the flipside of this change is that the amount of earnings the SSA uses to calculate the maximum benefit will also increase. This means that the maximum possible benefit for a single worker who begins receiving benefits at full retirement age will go from $2,687 per month to $2,788.
  3. Higher Full Retirement Age: And speaking of full retirement age, that has increased for 2018, as well. For persons who turned 62 (the earliest age at which retirement benefits can be claimed) in 2017, the full retirement age is 66 and two months. But for those who have their 62nd birthday in 2018, full retirement age is 66 and four months. The SSA will continue to add two months per year to the full retirement age until reaching the goal of 67 as full retirement age. For anyone born in 1960 or later, 67 will be full retirement age. It’s important to remember that those who elect to delay receiving benefits until after their full retirement age can receive increased benefits. For example, someone who waits until age 70 to begin receiving Social Security benefits can expect a benefit about 32 percent larger than if they started receiving payments at full retirement age.
  4. Higher Earnings Limits. People who work while receiving Social Security benefits are subject to limitations on how much they can earn without having their Social Security benefits reduced. A beneficiary who is less than full retirement age can earn up to $17,040 in 2018, up from $16,920 in 2017, and still receive the full benefit available. People who reach full retirement age in 2018 can earn up to $45,360 (up from $44,880) without any reduction to their Social Security benefit. Once a beneficiary reaches full retirement age, there is no limitation on earnings.
  5. Higher Disability Thresholds. People who are legally blind and receiving Social Security disability benefits will receive a maximum of $1,970 per month (up from $1,950 in 2017), and non-blind disabled beneficiaries will receive a $10 increase, up to $1,180 per month.

Especially if you are approaching retirement age or nearing eligibility for early benefits, you should claim and/or verify your account at my Social Security. The SSA has instituted new security procedures to help you avoid identity theft, but it is important for you to check your account at least yearly (on your birthday or at the first of each year) to make sure that all your information is correct and up to date.

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Fundamental of the Week: #3 – PRACTICE TRANSPARENCY. We sell trust more than we sell anything else, and nothing helps build trust more than practicing transparency. Be completely transparent about our relationships, our fees, and even what we can and cannot do.

I worked for two different companies during the first two years of my career in financial services. Of course, I was required to recommend the products and services that were approved by those companies. When it came to compensation I remember being coached to say something to the effect that “I would be compensated by the companies that were deemed appropriate for them to use and that we would recommend.”

Obviously, there are a lot of sales professionals in thousands of companies who are compensated by commissions. And they are not bad people. But I never once felt comfortable telling someone that compensation statement. To me, it didn’t feel right and it certainly wasn’t transparent. But much of the financial services industry is built on a compensation model in which the consumer does not know what is in it for their broker whether it is the broker selling them individual bonds, master limited partnerships, managed futures contracts, etc.

That lack of transparency is part of the reason that drove me to create Bernhardt Wealth Management (BWM) in 1994. BWM receives no commissions, trips, etc. from any company or individual we recommend. It has always felt better to share with clients that the only compensation we receive is the fees they pay us.

Our clients deserve to work with a trusted financial advisor who is transparent about the fees we charge and the relationships we recommend. It definitely goes a long way to help build trust.

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