Meredith Wealth Planning works very closely with clients and believes in building long-term relationships by giving great ongoing advice at a great price. Below are breakdowns of different
Joe and Lisa had busy professional lives, and 3 kids at home. While they were in the peak earning years of their careers, they were also in peak “busy phase”.
They had been good savers for the entire careers and 15 years ago they hire a big brand name advisory firm to look after the wealth and help it progress forward, as they knew they wouldn’t have the time or expertise to do so on their own. They thought the fee of 1% annually seemed very reasonable, as the advisor suggested they’d make about 10% a year before fees so they’d still keep 9%.
As time went by their portfolio was growing, but nowhere near the 10% that was suggested. Further, they started to realize that 1% a year of their $2 million portfolio was $20,000 a year in fees. Knowing they each wanted to retire in less than 10 years, they started getting more involved in understanding their finances. They were overwhelmed looking at their investment statements, and thought it all seemed incredibly complex. They started reading the Wall Street Journal looking for guidance, and came across a column that recommended working with flat-fee financial advisors.
They decided it was time to look at another option. This was a tough decision as their advisor was a good friend, and often took them to steak dinners and baseball games. They thought that if he was really a good friend, he would support them in their decision.
Joe and Lisa were intrigued and searched www.feeonlynetwork.com for an advisor in their area. They found many firms, but only a few offered a flat-fee model and were CFP® professionals. They scheduled a meeting with Meredith Wealth Planning and were initially skeptical if this small independent firm could offer service and advice at the level of much bigger institutions.
They were also a bit nervous of the embarrassment they might face by admitting to another advisor their lack of attention to their portfolio over the years.
After the first meeting they were stunned at how much they were paying their big brand name firm, versus how little they were truly receiving in terms of quality advice. The financial planner at Meredith Wealth Planning was able to show them how the 1% advisory fee was actually quite detrimental to their long-term wealth.The advisor at Meredith Wealth Planning were also able to demonstrate how Joe and Lisa’s complicated portfolio of 50 different positions added no additional value over a very simple portfolio with only 4 holdings and that they were paying many unnecessary taxes due to the advisor’s high turnover and tax-inefficient approach to investing.
Further, in the first meeting alone Joe and Lisa learned about several planning concepts that their current advisor has never mentioned to them throughout 15 years of working together, such as:
Louis & Susan are enjoying retirement and living in a small Texas town about 30 miles Southwest of Austin. Louis & Susan have been funding their retirement through the following income sources:
• Louis’ pension
• Louis & Susan’s Social Security
• Distributions from their investment portfolio
• RMD’s from their IRA’s
• Taxable account distributions
Concern #1 – By spending all of their taxable dollars, they would only be able to distribute funds from their IRA’s which would show up as ordinary income on their tax return. Ordinary income is generally taxed less favorably than capital gains from taxable investments thus setting up a nasty tax future for Susan & Louis.
Concern #2 – They would run out of money in their early to mid-80’s. Overall, they were distributing 6% of their portfolio to support their needs. While some costs such as travel would decrease over time, their medical expenses would surely increase as they reach their 80’s and 90’s.
Concern #3 – They didn’t want to leave their dream home they had built so many years ago. While the debt owed on the residence was small, their liquid assets were dwindling.
Louis & Susan’s probability of fully funding their retirement needs through age 95 was below 10%. One simple solution was to sell their home and downsize but this was their dream home built into the Texas Hill Country. If possible, selling the home was the last resort.
The home was their largest asset by far with an estimated value of $1.5 million in 2021. They had built the home in the mid-1990s for around $300,000.
Action Item #1 – Do a cash-out refinance of their home to take advantage of the rise in value
Louis & Susan had no children to leave the home to, extending mortgage debt beyond their planning horizon was no concern to them
Rates at the time (2021) were still in the low 3s. They could pull $500,000 or more out of the home at a low rate
Closing costs were affordable compared to the amount withdrawn
Action Item #2 – Invest the cash-out refinance proceeds into a portfolio that targeted a high enough return but also accounting for appropriate risk
The portfolio included a mix of globally diversified equities, systematic alternatives, and short-term high quality fixed income for near-term cash needs
Action Item #3 – In order to decrease current expenses, we did a detailed analysis of a long-term care insurance policy they had
Given the rising insurance premiums, family health history and coverage from the policy; we concluded that letting the policy lapse was in their best interest
If one or both individuals were to need assisted living later on, they agreed selling the home and using the proceeds to cover an assisted living facility was appropriate
Susan and Louis were able to pull out $700,000 of equity from their home and invest the proceeds into their investment portfolio to earn positive returns going forward. They took advantage of the low interest rate market at the time and locked in a nice interest rate to keep their costs low. The added income from their portfolio, combined with the additional liquidity and peace of mind allowed them to remain in their dream home for years to come.
Justin & Kelly are a young successful couple with 2 young children at home. They have paid off their student loans and are now earning considerable wealth and have the ability to save and invest. Their primary goal is to make sure that they are efficiently investing their hard-earned dollars in the market and avoided unnecessary risks and costs.
Goal #1 – Make sure that they are efficiently investing their hard-earned dollars in the market and avoided unnecessary risks and costs.
Goal #2 – Ongoing tax planning to make sure they are reducing their tax bill each year for their portfolio and retirement savings
Justin and Kelly have always been Do-It-Yourselfers (DIY) since their assets and savings have been relatively low until now. They occasionally come across articles describing how active managers often underperform their benchmarks and the importance of lowering costs and this has led to them buying a number of low cost index funds in their accounts.
Action Item #1 – Consolidate their holdings in order to remove overlap, reduce complexity and lower their expense ratio
Current Holdings:
Action Item #2 – Analyze their current account structure (taxable, tax-deferred, tax-free) to determine where to purchase certain assets in order to reduce annual taxation.
After careful analysis of their current holdings, we determined that they could greatly reduce the number of funds they were holding and consolidate into a handful of positions. The new portfolio would provide nearly identical market exposures and reduce their expense ratios by nearly 50%.
New Portfolio:
The two portfolios have near identical exposures and returns:
• 4 funds
• Aggregate expense ratio reduced from .18% to 0.7%
• Simplicity > complexity
After simplifying their portfolio, we moved onto allocating the assets based on their available accounts and their tax structure. The idea being to locate tax-inefficient holdings inside tax-deferred and tax-free accounts in order to reduce their annual tax drag:
At the end of the day, Justin and Kelly were thankful that we were able to simplify their lives and help them understand how to reduce their costs and taxes each year going forward as they begin to accumulate wealth.
These savings will add up over time.
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