dsmWealth October 3, 2019

How Fiduciary Duty Differs From Suitability Standard

BY STEVE DINNEN

Some years ago I was invited to join the investment committee of a local nonprofit organization. At the first meeting I saw that most of our unused cash was sitting in two high-fee mutual funds I thought were underperforming. When I questioned how this happened, two committee members said the funds were their recommendations. They had to be so, they explained, because they worked for the financial firm that sponsored the funds, and they had a duty to the employer to recommend only their products.

That should not have happened. But it helps explain how the fiduciary rule and its cousin, the suitability standard, can work both for and against you and your money.

A fiduciary duty is the legal term describing the relationship between two parties that obligates one to act solely in the interest of the other. The fiduciary owes the legal duty to a principal and must ensure that no conflict of interest arises between them.

The guideposts for fiduciary duty are pretty straightforward – a duty of care, and a duty of loyalty. So you have to perform your role in good faith, taking into account the best interest of your business or client, and you must refrain from personal or professional dealings that out your interest ahead of your company or client.

Then there is the suitability standard used when offering financial and investment advice. Advice given by someone using this standard must be suitable to the client’s needs at the time it is given.

In the investment world, financial advisors are either a Registered Investment Advisor (RIA) or a broker-dealer. An RIA abides by the fiduciary rule, while a broker dealer is held to the suitability standard.

Fiduciary duty covers a lot of ground. A doctor has a fiduciary duty to a patient, as does a teacher to a student and a lawyer to a client. Courts are littered with legal spats between insurers and insured and claims of breach of fiduciary duty. Directors of a company have a fiduciary duty, as do senior employees. In Webster City, as aquaculture start-up VeroBlue Farms collapsed late last year under a $98 million mountain of debt, the firm sued five former top executives with allegations they wasted company assets and otherwise breached their fiduciary duty.

So fiduciary duty is not just an esoteric exercise but has real applications. What it boils down to, says a West Des Moines based investment advisor, is "do the right thing by your client."

A Checking Account with a Difference

BY STEVE DINNEN

A friend was showing off his new checkbook. Big deal, I thought; you’re 70-some years old and are just now settling down with a bank account?

This was no ordinary checking account, however, but one tied to his IRA account. So, rather than request a disbursement from his IRA, and wait for a check to arrive, or an electronic money transfer to take hold, he could just write a darn check immediately.

The beauty of this lay in his ability to write a check not only to himself but to any charity or nonprofit organization. As you likely know, once you reach age 70-1/2, you must take distributions from an Individual Retirement Account. That is a taxable event, because the government gave you a tax break when the money went into the account, and now it wants its taxes paid.

You can beat the IRS if you ship money from your IRA directly to a qualifying charity (including churches); that qualifies as a distribution and it’s tax free. It’s a bit clunky, however, to contact the IRA account holder and ask them to issue a payment. With an IRA checking account, you skip that procedure and write the check directly.

Good going, friend, with the new checkbook.

You're Never Too Young To Get Rich

BY PAUL WHITFIELD, for INVESTOR'S BUSINESS DAILY

The path to wealth is closer than many young people suspect. And the good news is that the younger you are, the greater the opportunity is. Especially when it comes to learning how to invest in stocks.

If you have $15.26 in your pocket, it takes 16 doublings of your money to reach $1 million.

Now skeptics might read that and say, "That's nuts. Doubling on the low end is easy. Doubling on the high end is near impossible." Like a game show host, we can only ask, "Is that your final answer?" If negative thinking is your final answer, no one can help you.

What are the tools that a teen or preteen can use to build wealth?. >> Read more

Democrats’ Plans To Tax Wealth Would Reshape Economy

BY ALAN RAPPEPORT AND THOMAS KAPLAN, New York Times

Progressive Democrats are advocating the most drastic shift in tax policy in over a century as they look to redistribute wealth and chip away at the economic power of the superrich with new taxes that could fundamentally reshape the United States economy.

As they compete for the Democratic presidential nomination, Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont have proposed wealth taxes that would shrink the fortunes of the richest Americans. Their plans envision an enormous transfer of money from the wealthy to ordinary people, with revenue from the wealth tax used to finance new social programs like tuition-free college, universal child care and "Medicare for all."

The wealth taxes under discussion would deal a major blow to the balance sheets of American plutocrats like Jeff Bezos, Bill Gates and Warren Buffett. If the tax that Ms. Warren has called for had been in place since 1982, the net worth of the 15 richest Americans in 2018 would have been half as much, according to two economists who helped develop her plan. The Sanders wealth tax, which was released last week, would have eroded their fortunes even further, to barely one-fifth of their 2018 total.

>> Read more

15 Luxury Vacation Spots Beloved by the Rich and Famous

BY LAURA WOODS, for GoBankingRates.com

A-listers spend a lot of time working, but they also know how to kick back and relax in style. Many members of the jet-set crowd own vacation properties in the world’s most beautiful locales, while others rent out luxury accommodations featuring all the top amenities.

From the slopes of Telluride to the beaches of Bali, the below destinations are top picks among celebrity travelers the world over. Click through to learn more about luxury travel experiences the rich and famous enjoy.. >> Read more