Blog | Castlerock Financial Planning | Mendota Heights, MN 55118

Do You Know What a Fiduciary Is?

November 10, 2017 By Lauri Salverda, CFA, CFP®, AIF®

If you know what a fiduciary is, you’re in the minority of Americans. In April of 2016, entrepreneur and life coach Tony Robbins stood on a Manhattan street and interviewed passersby, finding that the only respondent who could define the word was a fiduciary. Although it’s not a prayer, it is, as one respondent guessed, “something awesome”.

Obviously, there are a lot of questions on the topic that need answering.

So, what is a fiduciary?

A fiduciary is a financial advisor who is required by law to put the client’s interests ahead of their own, and to disclose any possible conflicts of interest.

Don’t all financial advisors put client interests first?

Unfortunately, this is not the case. The majority of financial advisors are held to a suitability standard. Meaning, these advisors need only suggest items that are suitable for your objectives, income level and age. Suitable doesn’t always mean best. Additionally, they do not need to disclose any conflicts of interest.

Is disclosing a conflict of interest that important?

It really is. According to a recent article by Bloomberg, there are half a million brokers who earn commissions if they can convince you to buy an expensive alternative to the thriftier, better-performing investment options on the market. That’s more than ten times the number of advisors who adhere to a fiduciary standard.

Government research estimates that consumers lost $17 billion a year to conflicted advice in the recommendations made by brokers and sales agents posing as advisors related to retirement plans. This, to put it bluntly, helps explain why so many Wall Street brokers are insulted if their annual bonus is in the low seven figures.

Why is working with a fiduciary so important?

Let’s put it in perspective:

Say you’re looking for a restaurant for dinner tonight. You want a place that’s not too far away, and is open on a Thursday night. A quick online search will turn up a whole host of “suitable” options. But how will you know which one is going to best cater to your customer experience? Do you take the top “sponsored” result on your search? Or do you turn to outside resources, like Yelp, where feedback is based on the diner experience, not sponsored by their marketing department? More than that, you probably confirm multiple sources — asking your foodie friend for a recommendation, and checking the restaurant’s rating on Google, too. You don’t trust a single biased source for dinner, and you certainly shouldn’t trust an advisor who has motives other than your best interests in mind.

How do I find out if my financial advisory is a fiduciary?

Just ask! If you are currently working with or looking for a new financial advisor, simply ask, “Are you acting as a fiduciary at all times? Will you sign an oath stating that you will always put my interest above all others?” They’re obligated to answer, and if they can’t, or won’t, be prepared to find someone who can, and will.

Remember, at Castle Rock, your interests always come first.

The Financial Nomad: Conserving Your Retirement Money by Becoming an Expat

October 13, 2017 By Guest Blogger

This post is by guest blogger Victoria Thompson, a U.S. expat who is excited to share her experience abroad in Argentina with others exploring the idea of living abroad.

In the wake of healthcare law changes, inflated premiums and rising housing costs, life in the United States can be a struggle. But if you’ve the free time and flexibility retirement affords, you might want to consider a move to another country — not only to save money, but for the adventure of a lifetime.

“But I can’t do that, I’ve got pets, grandchildren, responsibilities, health problems,” you protest.

I assure you, you can.

In the wake of a divorce in my 50s, the Great Recession, my son leaving for college, getting laid off, and massive changes to my professional industry (print publishing), my life resembled the spin-cycle of an overloaded Maytag. When my house had to be sold as part of a divorce agreement, I shouted to the universe, “You want to see change? I’ll show you some change!” I did what I felt was the only sensible thing: I moved to Buenos Aires.

“Madness!” you may think — but it was a calculated madness. The U.S. dollar was worth four times the value of the Argentine peso. My Minnesota winter was an Argentine spring. So, into a storage unit went the accumulation of 20 years of married life stuff, and onto a plane I stepped. I spoke no Spanish, but I had lots of free time, no responsibilities, and a cache of cash from selling the house. I’d planned on staying six months, with the option of a longer stay if I found the city agreeable and Buenos Aires would have me. The recession would be almost over by then, right?

If the idea of packing it all in and departing to lands unknown is appealing to you, here’s some hard-earned wisdom I’d like to impart:

Preparation

Research the countries that interest you, taking into consideration favorable exchange rates and quality medical care. A good site to begin reading is internationalliving.com. Many sites have discussion groups where you can ask question of expats already living there, and their assistance is invaluable. I used BAexpats.com a little before I left (and a lot when I arrived). I got help on everything from how to activate a Spanish-language cellphone to what bars showed American football. I used it to get invited to parties and to invite others to mine, and make a lot of new friends in the process.

Finding a Place to Live

You can arrange an apartment or house to rent online, but I wouldn’t recommend it. One needs to learn the neighborhoods, or “barrios” as it was for me. Photos are well and good, but sometimes don’t match up to the real life experience. It’s also good to meet your landlord so you know what kind of service you’ll receive. Airbnb or Vacation Rental by Owner are good options for a short-term stay while you hunt for a residence. In some countries where corruption is the norm, it’s helpful to bring an interpreter or friend with you as you visit rental agencies. I brought an Argentine friend to help me when looking for apartments. After we walked out of one agent’s office, she told me he bragged to his assistant (in Spanish) that he was planning to scam both the homeowner (and me) by skimming money off the top. He’d forgotten that my friend was Argentine.

It’s also helpful to know cultural and societal norms. In Argentina, to rent a dwelling for a year you need to pay a year in advance in cash, and have a citizen vouch for you to get a lease. Otherwise, you’ll pay tourist rates. I paid tourist rates. I found my home on Vacation Rental by Owners and because I was staying for six months, negotiated a lower rent. Educate yourself on how to negotiate a long-term rental. Once again, expat websites are your new best friend. Another option is renting a room in an established household. I have a friend who teaches English all over the world and she prefers to live in other people’s homes for the company. She’s become close to several families this way and still keeps in touch. You’ll learn more about the culture living in someone’s home, and it’s often much less expensive.

Medical Insurance

It’s important to understand the options for healthcare in the country you choose. In my case, the BAexpats site was very helpful as a research tool for choosing a health insurance company. For $100 a month, I purchased a comprehensive plan with no deductible and no copays. During my stay I needed a root canal and a crown, and it paid for those as well. I also had a full physical. As an American, the reasonable cost astounded me.

Social Connections

I made friends with my hairdresser, the guys who owned the cafe across the street, the two Argentine guys who owned the local expat bar, and the man who fixed my laptop, as well as friends and acquaintances from BAexpats. I went to a fabulous New Year’s Eve party at the former Russian Embassy, attended several “pop up” dinners, danced tango and hosted Thanksgiving dinner, Christmas party, and Australian Day parties at my home. I had a much more vibrant social life in Buenos Aires than I ever did in Minnesota, made even easier by being single.

Spend some time learning to understand the cultural norms around affection and friendliness where you go. Argentines are warm and outgoing generally, and the expat crowd — because they’re away from their homes too — are very easy to meet. If you’re moving alone, consider what the cultural norms might mean for your social life. (If people are generally more reserved and slow to make friends, are you okay with having a small social circle?) I’ve heard from other expats that it is difficult to make friends when people find out you’re only there for a finite time because they don’t want to make the social investment, but wasn’t the case for me.

Transportation

Being in a large metropolitan area with a subway, buses, trains, and cheap taxis made getting around without a car easy. You can always rent a car if you want to explore more of the country, but in my case that was unnecessary. I walked many miles every day — an excellent way to get to know the neighborhood. It also was the source of some wonderful memories: it’s while walking that I came upon the stunning Art Deco building, the surly French coffee shop proprietor who warmed up when asked about the vinyl records he’s playing, the pet store where puppies ran free and visitors were welcome to play with them.

Language

Because I spoke no Spanish, I prioritized finding a reasonably-priced tutor who came to my home three times a week. Most Argentines in Buenos Aires were not bilingual, even in the professional classes. And I never met one taxi driver who spoke English. But, with a little creativity you can get by. I always wrote my destination address on a piece of paper to give to the driver. It also helped that I’m also totally unashamed to make a fool out of myself: I once employed pantomime to act out the action baking soda takes when it’s incorporated into cookie dough (which I was attempting to make). As I swooshed my arms upwards in imitation of a chemical reaction, I gathered a small crowd in the store. People began shouting out their guesses to me. It felt like I was in a game show!

Putting it All Together

People often ask me “How did you find the courage to move to another country alone?” The hardest part is adjusting your attitude. Once that’s accomplished, the rest falls into place.

If the country you choose is not what you envisioned, consider your options and context.

Culture shock can be extremely difficult, especially if you’ve had a very monocultural upbringing or social context. Consider that perhaps you need to be there at least a year to acclimate to the culture or build social connections.
If you’re certain this isn’t the locale for you, move to another country. If your stuff is in storage and you’ve tied up loose ends at home, you’ve nothing to lose. Spend some time figuring out what it is that was difficult for you, and research how those challenges might surface or fade away in other cultural contexts.
Or simply go home. There’s no shame in that.

Thank you for reading about my journey. I’ll be starting a new one soon as I approach retirement age this year and prepare to move to Madrid. One expat experience usually leads to another. In my case, three friends from my stay in Buenos Aires are in Madrid, waiting to welcome me.

Time for Women to Become Invested

December 10, 2016 By Lauri Salverda, CFA, CFP®, AIF®

By Lauri Salverda |

Women are smart, savvy, and wise. Partnered with the fact that most women outlive their spouses by five years, it’s a wonder that so many women take the back seat when it comes to managing their financial future.

A study by Fidelity Investments found that when couples interact with a financial advisor, men are 58 percent more likely than women to be the primary contact. In a similar study by Prudential, 78 percent of women rated themselves either as beginners or as needing help in many financial areas, compared with only 53 percent of men. These are rather large gaps, but it’s not surprising that we got here.

An Anecdotal History

When I was in junior high school, the girls took Home Economics and the boys took Shop—a well-tread dichotomy of the time. In Home Economics, I learned how to cross-stitch a heart, sew a pillowcase, make three different kinds of refrigerator cookies, and grocery shop. While the importance of snickerdoodles cannot be understated, the irony was that we barely touched on economics. The closest to financial education was learning how to clip coupons to make your shopping list come in under budget. Conversely, in shop class, boys got to play with lots of cool woodworking tools and they learned how markets moved with supply and demand and what stocks and bonds were. Life was truly unfair.

This uneven playing field was a sign of the times. (Remember, that until 1974, banks required single, widowed or divorced women to bring a man along to co-sign any credit application, regardless of the woman’s income.) We’ve come a long way, but many women have been left in the dust.

Investing is not a difficult thing to understand and we would love for more women to feel confident and empowered about their financial futures. The easiest way to get started is to learn the differences between a few key investment options. For example:

Stock – A share of ownership in a company.

Bond – Lending money to a governmental entity or company.

Certificate of Deposit – A savings certificate that entitles the owner a specific interest rate and has a specific maturity date

Mutual Fund – An investment in a group of stocks, bonds or a combination managed by an individual or group of individuals.

ETF – Exchange Traded Fund is marketable security that tracks an index

Large Cap – Large companies typically with a market value of over $10 billion

Mid Cap – Mid-sized companies with market value between $2 and $10 billion

Small Cap – Smaller companies with market value of under $2 billion

Working with an Advisor

I had a couple in my office not too long ago. Let’s call them “Mary” and “Jim” for the sake of this story. Right off the bat, Jim made it very clear that he only made this appointment with a female advisor to appease Mary and he had no intentions of working with a female planner. (We were off to an interesting start, no?) While we were talking, I asked the couple about who handles the money in their household. Mary proudly answered, “I do.” Jim quickly put her in her place and said, “No Dear, you pay the bills. I handle the money and the investments.”

Well since I had nothing to lose, I couldn’t resist. I said, “Okay, you are telling me that Mary, you pay all the bills, make sure the appropriate amount of money is in each account when needed and that everything is paid on time.” Mary nodded in agreement. I then looked at Jim, smiled and said, “After Mary does all the work, you get to shop.” Well, you can imagine how well that went. The point is that investing is simply shopping for a safe place to put your money so it will work for you and be available when you need it.

I liken it to the selection process of buying a car and going through different steps before you make a final decision. You need to know your budget, how much is available for the down payment and monthly lease or loan payments. You also need to identify for what the car going to be used—short distances, hauling a trailer, or reliable transportation to and from work. Finally, you need to prioritize what is important to you, whether it be gas mileage, maximum seating (or minimum if it is you child’s car!), comfort, reliability, resale value, or color. Selecting investments is a very similar process.

You and your advisor should walk through these steps for investing your assets:

What is the purpose of the assets? Is it for everyday use? Is it to be covered in case of an emergency? Is it to buy a home, send kids to college, or your retirement? Determining the need for the money will help you determine what type of investment would be most beneficial.

How long is it until you need the money? If you need the money within the next three years and you need it to be there, a savings account or a certificate of deposit is the best alternative. If the money is not needed for three to six years a high-quality bond or a certificate of deposit may be your best options. If it a longer time period then you may want to think about investing in the market.

If it is a longer period of time there are other questions that need to be asked:

Do you need the money to provide income and/or to maintain its purchasing power in the future? Will the income from investing the money be sufficient to live off of or do you need the money to keep up with inflation so its value in today’s dollars will be able to purchase the same amount in the future? Or are you counting on that money to grow to fill a bigger need?

How comfortable with market movements? Can you sleep at night if the market is up 1% one day and down 1.5% the next? Would the temptation to get out of the market when it is low be too great? Or could you sit back and not listen to the doomsayers and buckle in for the long haul? In an analysis done by Dalbar, the average investor earned an average 2.1% over a twenty-year period while the S&P 500 earned 7.8%. The reason for this is that investors get nervous, sell all their positions and only reinvest once the market has shown continued improvement—thus missing the majority of the gains in the market.

The best thing to do, if you have a longer time horizon and you can withstand some market movements, is to invest in a diversified portfolio of mutual funds or ETFs—diversified meaning exposure to many different markets, such as large, mid and small capitalized US and international companies, US and foreign bonds, commodities, and real estate. The reason for having a diversified portfolio is to protect us when different markets move up and down at different times.

How Women Can Seek Advice

There are thousands of trusted advisors out there. Selecting an advisor can be quite the undertaking in and of itself. But, truly you just need to know the appropriate places to look and some simple questions to ask:

What is the advisor’s background and training? If they have initials after their name, ask them what they mean, how did they earn them and do they require continuing education and if so, how much.

Are they a fiduciary? This means that they have to work in the client’s sole best interest as opposed to suitability, which is a looser guideline. (Something can be suitable, but not necessarily in the client’s best interests. It could be cost the client more and pay the advisor more.) If they are a fiduciary, will they put it in their contract?

How are they paid? Are they paid solely by their clients or do they receive commissions or kickbacks from investment companies or their parent company for selling certain investment or specific products?

Women have great instincts and should have no problem finding a trusted financial planner. From my point of view, it’s always advantageous to interview a few of advisors before making a decision. You have to be very comfortable with the person you hire. After all, they are going to take an intimate look at your finances.

Finally, there has to be mutual trust. The advisor needs to trust that you are providing them with the correct information and just as you need to trust that your advisor is acting in your best interest. Three excellent sources for finding someone to help you on your journey to financial independence are www.NAPFA.com, www.FPAnet.org, and www.FeeOnlyPlanners.com.

If you are a woman, and decide to work with a financial advisor, make sure your voice is heard and your input is considered as you drive towards your financial future, confident and empowered.

Lauri Salverda is an award-winning Certified Financial Planner and the owner of Castle Rock Financial Planning in Mendota Heights, Minnesota. She has been helping individuals and families reach their financial goals since 2001.

An Important Consideration for Parents of Adult Children

November 10, 2016 By Lauri Salverda, CFA, CFP®, AIF®

By Lauri Salverda |

As parents, we do everything we can to get our children prepped for college. We keep an eye on the ACTs, SATs, and the AP classes. We feel the stress of the early decisions and early admissions. We’re there for all the tears and the triumphs—knowing that we’ve done everything in our power to send our little adults into the world as ready as they can be.

As a financial planner, it may be expected that I delve into the many new fiscal responsibilities young adult children will face. Learning how to minimize student debt, manage a budget, and avoid impulse credit card applications are important touchstones. I encourage these conversations with all my heart. However, I’d like to discuss something that is oft overlooked. Something that had never occurred to me until it was right in front of my nose.

My daughter, the eldest of four, went to college halfway across the country. The distance, in and of itself, is enough to wrack some nerves. But we confident that we had done everything we could to get her ready for her adult wings. (And we kept our fingers crossed tightly for those first few months.) Her roommate was in a similar situation, attending college far away from home, but was not quite ready.

This particular young woman had health issues that ballooned exponentially in those first few months of college. She had issues with alcohol dependence and an eating disorder. Both were serious issues on their own, but the combination led to a complete physical and mental breakdown within a few months.

Fortunately, her friends intervened and notified the medical staff at the college. She was admitted on a Friday night to a local hospital, against her will, for a psychological evaluation. It was being viewed as a life-or-death situation. Her parents were notified by the college and were on the first flight out.

Once her parents arrived on the scene, they were confronted with an unexpected truth. Their daughter was an adult in the eyes of the law, leaving them powerless to intervene or even visit with their daughter. This is a terrible place for loving parents to be. By Monday, they were able to meet with a judge and receive a health care power of attorney for their daughter. It was a simple piece of documentation that allowed them to legally care for their daughter and make decisions about her health care in her best interest.

As parents, there are legal and medical things to consider when your child becomes an adult that are commonly overlooked. There are some simple things that can safeguard your child as he or she transitions into adulthood. These documents can also begin a meaningful conversation and open the lines of communication.

A Healthcare Directive or Power of Attorney for Healthcare allows a parent to act on the child’s behalf in case of a medical emergency. This simple document can be found online from many state and hospital websites. After a quick trip to a notary, you will be able to assist your child in medical decisions when they are deemed unable.

A Durable Power of Attorney for Finance is another important document. This gives financial power to the parents or another third party should something happen to your child and they cannot freely manage their finances. We see this commonly used when a child is studying abroad or heads across the border for Spring Break, but it can be equally handy when they lose their wallet. Consider it a backup plan for when there is an obstacle between them and their funds.

Knowing what we do now, each of our children will be sent off to college with more than their shower shoes and extra-long sheets. We’ll nudge them out of the nest knowing that their parents are legally prepared to act in their best interest should the situation arise.

Lauri Salverda is a Certified Financial Planner with an office in Mendota Heights. She has been working with individuals and families to help them reach their financial goals since 2001. She has been a devoted mother since 1991.