News - Longwave Financial

As Your Child Heads off to College…

Although they’re old enough to go off to college, you’re still helping them remember to pack enough underwear. It’s still your job to keep them safe so you make sure they bring their Neosporin and HEPA air filter amongst countless other necessities they have surely taken for granted up until this point.

What you might be forgetting however is to help them complete a HIPAA form and Health Care Proxy prior waving good-by to them at their new dorm.

Upon turning 18, rules protecting the child’s privacy may prevent a parent from being able to access the child’s medical information. Imagine your child gets into a car or sports accident. You rush to the hospital only to find out that they are not allowed to share your child’s medical status with you. Moreover, you may not be able to make any treatment decisions on their behalf. Of course no parent wants to think about their child having a medical emergency but lack of information or access could make that situation much, much worse.

For situations such as these and others, advisers and estate attorneys suggest parents have a Health Care Proxy with a HIPAA release even for adult children. Getting these documents in place requires a very adult conversation but it’s also a good step on the child’s journey to maturity.

A Health Care Proxy lets the family make medical decisions on behalf of the patient when he or she is unable to make decisions for themselves. This is to ensure that strangers won’t be making treatment decisions with no input from loved ones. The good news is that a Health Care Proxy is very easy to create. It simply needs to be witnessed by two people other than the named agent.

In addition to the Health Care Proxy, a HIPAA release form is needed. A HIPAA release form ensures that the family (or designated person) will be given information regarding the patients’ treatment. This way the doctors and nurses can legally speak about the patients’ medical care. However, it is purposefully short on specifics. This is not the document wherein one expresses their wishes on every conceivable treatment under the sun. Customization can take place within another document called a Living Will. The only specifics that should be included in the Health Care Proxy are whether or not the named agent is permitted to make life-sustaining treatment decisions. It is also a good idea to permit the agent to consent to the liberal administration of pain-relieving medication. This will alleviate possible liability concerns on the part of medical providers.

You do not need to pay for either of these documents. They can be obtained from your Primary Care Physician, or online. Once you have the forms, fill them out completely and have them signed by witnesses. Then give copies to everyone mentioned in these documents.

In regards to the Health Care Proxy Form, try to name at least two health care proxies, in case one of them is unable to be reached in an emergency. It is recommended that parents keep the original documents in a safe but quickly accessible place at home, and also keep a PDF file of the papers stored digitally for immediate access anywhere.

For an online version of these forms, please click the links below:

New York Health Care Proxy

New York HIPAA Form

Is College Worth if it Means Taking on Five and Six Figure Loan Debt?

By Nathan Munits, Accredited Investment Fiduciary (AIF®)

New research from Prudential finds Americans are questioning college debt more than ever before. While a college education is still highly valued, many graduates end up questioning whether the cost of attending college is worth the financial sacrifice.

Among the findings:

Only 1 in 4 surveyed graduates who borrowed for college call the debt they incurred “good debt.”
Only 4 in 10 say that borrowing for college proved worthwhile.
Many students borrow without understanding the terms of their debt.
Student loans are causing graduates to delay or forego saving for retirement, building up emergency savings, or buying a home.

Read the full study here.

The student debt overhang is a big reason more kids are living with their parents later in life or receiving financial help from their parents into their late 20’s and 30’s. However much of this “epidemic” is avoidable by students and parents simply making better educational choices.

If you have a child who will be selecting a college in the next few years, you will be soon be faced with a potentially challenging conversation. Their first choice school may have a total cost of $60,000 per year or more! As a parent you may be able to help some and financial aid may play a role too. However, statistics suggest your child will likely subsidize any shortfall with a massive amount of debt.

Research has shown that while college has gotten much more expensive to attend over the past 10 years, investment in actual education has not increased that much. What has increased has been administrative expenses and improving the college ‘experience’. Many campuses seem more like high tech spas. They now often compete based on which one has the most compelling amenities rather than which provides the greatest value.

Colleges however are not entirely to blame for the inflationary pressure. They simply provide a service that reflects the demands of their student clients. Only when students and parents begin demanding better educational value will colleges start to compete by keeping costs down.

Seventeen year olds are generally poorly equipped to make astute financial choices. They often end up attending schools that will saddle them with debt they can hardly appreciate. It is only once they graduate and enter the real world do they have to face up to the consequences of their decisions.

If you know a high school student, or the parent of one, have them read this study. It’s a great first step in building financial responsibility and ultimately having financial success in life.

Explaining the Department of Labor Fiduciary Rule

By Nathan Munits, Accredited Investment Fiduciary (AIF®)

Over the past year you might have seen articles about the Department of Labor’s newly issued Fiduciary Rule. This rule, which went live on June 9^th, obligates financial professionals who work with retirement accounts such as 401ks or IRAs to work in the client’s best interest. While this sounds like a no-brainer, it was a long, hard road to get this rule implemented and a lot of opposition to it still remains.

First some background. For as long as finance has existed banks, brokerages, insurance companies and other financial institutions have been creating and selling investment products to the retail public. All along investors simply assumed that their sales representative was obligated to work in their best interest. However, in reality salespeople and ‘brokers’ operate under what’s called a “suitability standard” which means that if they are weighing two similar investments, they can recommend the one that pays them a greater commission even if it will hurt the client’s overall returns.

If this comes as a surprise, consider a car dealer. They have no obligation to send you elsewhere if a different kind of car would be a better choice for your situation. That is the nature of sales.

Over the past 30 years, however, many financial professionals looking to have a less conflicted relationship with their clients broke away from brokerages and banks to become financial ‘advisors.’ Like attorneys or accountants, fee-based advisors do not have to sell a product to make a living. The client pays the advisor for their time and professional guidance. As such, the client can expect the advisor to be objective, transparent and put the client’s interest ahead of their own. This standard of client care is commonly called a fiduciary obligation.

More recently, fee-based advisors began lobbying the government and financial regulators to require all investment professionals to act in their client’s best interest. A broad coalition of consumer groups such as AARP also joined in this effort. Indeed, for much of the past decade, the SEC worked on a fiduciary rule but could not push it forward in the face of intense opposition by banks, brokerage houses and other product manufacturers.

However, in 2016, with encouragement from then President Barack Obama, the Department of Labor made an end-run around the SEC and Congress to create its own Fiduciary rule that applied only to retirement accounts (which courts deemed to be within their purview). Despite nearly unanimous opposition by Republicans, including President Donald Trump, the rule went live on June 9^th, 2017.

While the DoL’s Fiduciary rule is now law, it is not perfect and much uncertainty remains. There are complicated exceptions and its implementation has been extremely complicated and expensive. It still does not apply to non-retirement accounts. Many valuable investment products which are currently sold only by commission may now go away. It could discourage advisors from working with smaller clients. Meanwhile, the SEC has restarted work to create a more comprehensive and less complicated fiduciary rule. The possibility also remains that Congress may void the rule altogether.

Despite all that, the fiduciary ‘cat’ is now out of the bag. Financial institutions and professionals have begun to make the necessary adjustments. Local politicians have also started to step in. For instance, on June 2^nd the state of Nevada, with a Democratic Senate and Republican Governor, passed a fiduciary rule of its own that other individual states are likely to copy.

Most importantly however, the public at large now recognizes the importance of holding their advisor to a fiduciary standard. More and more clients are asking their financial professional if they are a fiduciary. That in itself, we have no doubt, will ultimately create much better outcomes for investors and savers.

Perhaps if Congress or the SEC mandated that all financial advisors simply acknowledged on their business card whether they are a fiduciary or not, it would save a tremendous amount of time and money. Clients would be better informed to choose the advisor that is right for them and advisors could work however they wanted.

But, while the political battles continue, rest assured that Longwave has been and will always provide advice on a fiduciary basis. We will disclose conflicts of interest, be transparent with fees and expenses and put client’s interests ahead of our own. It’s no conflict to recognize that our success is 100% predicated on our client’s success.

Are you ready for a 4,000 point drop in the Dow?

By Nathan Munits, Accredited Investment Fiduciary (AIF®)

First, sorry for the ominous headline. In truth, the US stock market has been one of the greatest engines of wealth creation the world has ever known. Since 1900, the Dow Jones Industrial Average has made an annual average return of 9.7%. Nice.

However, as the saying goes, there’s no such thing as a free lunch. The cost of such greatness is volatility, which at times can be stomach turning. From 1900 through 2017 there have been 32 instances where the market has fallen by more than 20%, the definition of a bear market. Put another way, we see a bear market contraction roughly every 3.5 years on average. Notably, we have not seen one of those since the Great Recession more than 8 years ago.

Speaking of greatness, some people now expect an imminent pull-back. These folks believe that recent market highs are based, at least in part, on Trump-fueled hype. Others disagree, saying the strength of the market is more a reflection of the recent pick up in US and Global economic activity

Regardless of who is right, we still have to accept that inevitably we will see another bear market at some point. With the stock market reaching a new high on March 1 at 21,115, a 20% drop would translate to a loss of 4,000 points or more. Ouch.

What does this mean for the average person saving for retirement? Over the long-term, hopefully very little: investing consistently through the market cycles has been extremely rewarding over the years. However, trying to time the markets to avoid losses has often been a recipe for disaster. The average bear market lasts about 15 months and more often than not, getting out means missing out. A great example is 1996. That year economists were already beginning to sound the alarms about an overheating market. However, the crash, severe as it was, didn’t come until 2000. An investor who got out in 1996 (yet avoided the 2000 crash) would have been better off just staying the course.

That said, we recognize that sitting on our hands through a 4,000 point drop, while recommended, will not be easy. It will require resolve and perhaps a bit of hand-holding. If you are particularly anxious, speak to your advisor about strategies that offer downside protection. Preparation can take many forms, however, sometimes just knowing what to expect, can make the difference between patience and panic.

2017 Investment News

WELCOME to our annual January Newsletter. We generally try to publish it as close to January 1st as possible because the New Year is always a good opportunity for reflection. This year however, we decided to take a little more time to collect our thoughts. After all, no transfer of political power in memory has felt more like the end of one era and the beginning of another.