Tag Archives: financial advisor

3 Essentials Missing From Many Retirement Plans

retirement-exit-2My Comments: One thing I’ve learned over the years is that people in my profession have a profound bias when it comes to trying to explain the dynamics of money. We include a lot of self promotion.

I’ve also learned that I’m not immune to this bias. Some of this is justified since probably 95% of the target population is misinformed about those same dynamics. While they should be willing to learn all they need to know so they can do it themselves, those same 95% will not or cannot apply the necessary time and energy. So the issue becomes, “To Whom Do We Turn for Help?”. If I’m going to survive, I have to focus on those who need help.

I’m doing the best I can to bring you stuff like this to help you better understand the background noise.

Erika Rawes / July 07, 2014

Work is a major part of our lives. From the moment we reach adulthood (and sometimes even before adulthood), most of us find a job and we work for the next 40 or 50 years until it’s time to retire. Retirement is thought to be a sort reward for working hard during all of those years. We accumulate savings so we can enjoy those final chapters in our lives without having to worry about money, as for the average person, money is a daily concern.

Perhaps, retirement savings should be as easy as putting away a percentage of our income into a savings fund and then collecting small increments of this savings once we retire — up the mountain and then back down. It’s not exactly that simple, however. Tax legislation, the various types of retirement accounts, contribution limits, Social Security laws, and pricey medical care make this simple concept — save now so we can enjoy retirement later — much more complicated.

Since we have so many factors to consider — all of which have a role in determining how well we save, the return we earn, and how well we maximize and preserve our money — we try to make the best decisions possible. Lincoln Financial Group conducted a study on the underrated impact of taxes on retirement. In the 2013 study, Lincoln examined the habits, knowledge, and behaviors of individuals between the ages of 62 and 75 with incomes in excess of $100,000.

Using data from the Lincoln Group study, we found a few common must-haves that appear to be missing from a high percentage of retirement plans.

1. Proper Tax Planning

Many future retirees think costs like discretionary expenses and home repairs are the highest costs during retirement. When Lincoln asked pre-retirees about what they thought their highest expenses would be during retirement, the top answers among survey respondents were home mortgages, healthcare, and travel and leisure.

In reality, around $1 out of every $3 spent by high-income retirees goes to taxes. Taxes are the largest source of spending for retirees in the above $100,000 earnings group, accounting for 31.38% of overall spending.

Retirement SurprisesWhen Lincoln asked retirees about their biggest surprise expenses, taxes were the again most common answer. The average marginal federal tax rate among the survey respondents was 26 percent, and the state rate was 7 percent. Forty percent of survey respondents stated taxes were higher than they expected and even with rates at these levels, 23 percent of respondents stated they were doing nothing to reduce their taxes.

2. A Financial Advisor
With the recent recession resulting in losses for millions and changing legislation impacting several facets of retirement planning, discussing a retirement plan with a financial advisor is a must. A good advisor compares every plausible scenario, and finds the most profitable plan for each individual. This, of course, is different for everyone.

For instance, people often hear about how converting to a Roth IRA is an effective tactic for minimizing tax liability. The Lincoln study found that only 30 percent of retirees were familiar with Roth IRA conversion rules. An advisor can help sort through the information as converting isn’t always best for everyone and even when it is an ideal choice, gradual conversion may be a more effective option.

Those who use a financial advisor have a higher level of confidence in their retirement plan than those who do not use an advisor. The study found that 75 percent of higher income pre-retirees who use an advisor had confidence in their retirement savings, compared to only 59 percent who do not use a financial advisor.

Most pre-retirees simply do not have the time to devote to learning every rule and regulation. Those with a good financial advisor have a resource available to answer their inquiries and educate them on general topics, like tax policy and withdrawal strategy, and also on investor-unique topics, like conversion and account choice.

3. Knowledge and Mindset
The income and spending habits of a retiree are different than those of a working individual. Bureau of Labor Statistics‘ spending data indicates housing is the largest expense for consumer units during their working years. During these years, transportation, personal insurance, and pension costs are also high. The primary source of income are wages and salaries, and investment and dividend incomes account for only a small percentage of annual income for the average worker.

During retirement, Social Security disbursements are the most common source of income as 81 percent of survey respondents cited SS as a primary income source. Sixty-five percent of those surveyed cited salaries as a main income source, indicating a large percentage of working retirees. Pension and retirement plan distributions and investment income were also among the most common sources of income for retirees.

As for spending during retirement, federal income tax is the highest expense for retirees, with the average person in the survey spending $16,625 annually. A mortgage was second on the list, followed by transportation, food, and then real estate taxes. The retirees surveyed spent more on vacationing than they did on healthcare.

When Lincoln compared the retirees’ anticipated spending to their actual spending, there were several large discrepancies. Actual spending on healthcare ended up being significantly higher than the retirees projected, as did spending on household repairs and expenses.

The transition from a mindset of wealth accumulation to wealth preservation is an adjustment. Since we spend our lives continually earning, living on a set amount is difficult for many and it requires strategic planning. A good plan, in addition to mapping out withdrawals and an exact budget, provides a cushion for the adjustment period, anticipating and allowing for a few mistakes along the way.

30 Common Obstacles to Estate Planning

hourglass• It’s too expensive
• My attorney takes care of that
• Planners just want to sell me something
• Too complicated
• It may jeopardize my own financial security
• My children want me to spend it all
• Leaving too much to my children can make them unmotivated
• My children are financially successful already
• My children are financially irresponsible
• I started with nothing
• I don’t like to think about dying
• I’m uncomfortable talking with my children about it
• I don’t want my heirs to know how much I have
• I’m uncomfortable giving my estate away; I might need it later
• All my assets are in a living trust
• All of my property is joint-and-survivor anyway
• Most of my estate is concentrated in one asset (like an IRA or business)
• I’m in a second marriage
• The new tax law eliminates the estate tax anyway
• I bought life insurance to pay the estate tax
• I have enough liquid assets to pay the estate tax
• I’ll just give my estate away during my lifetime
• I want my children to enjoy my estate while I’m alive
• My spouse and I can’t agree
• I’ve already heard it all
• I’m patriotic and I don’t mind paying taxes
• I’ll just leave my estate to charity and not pay any tax
• I don’t know how to equalize my estate so that it’s fair
• I don’t know who to listen to

My Comments: I can’t tell you how many people I’ve talked with over the years who recently lost a parent and are totally exasperated and angry about the lack of planning by their parents. And many of the parents followed the mindless stupidity evidenced by many of those comments above. It’s one thing to be ignorant and uninformed, but another to be stubborn and stupid. It leaves hard feelings that simply need not be there.

Essential Legal and Financial Documents to Have

My Comments: This article appeared as An emergency checklist for advisors and clients: essential legal and financial documents. It caught my eye since lists are always useful when it comes to writing a blog post that someone might read. After all, I read this one.

More than that, however, is the fact that getting older is a difficult process. It’s easy to be in denial and pretend our days are not increasingly numbered. And having clients who adamantly refuse to plan properly is a pain in the backside, especially for those family members left behind to figure out the mess.

So I encourage you to read this. If you need help, call me or call your attorney. If you need help finding someone who will focus on you, and you alone, I can give you some names.

by Ike Devji, JD on July 24, 2014

Finding key documents can be trying and laborious under the best circumstances, even with plenty of notice, like at tax time every year. Finding them under stress — or worse, having to have someone else sort through the entirety of the paperwork you have hoarded after an emergency, death or other crisis — is often impossible. This is the list of the most essential legal and financial paperwork that you should be able to lay hands on or instruct others to easily find.

Passports: Make sure they are current and useable. If your kid is off on a summer abroad and gets hurt, it will certainly be the wrong time to discover that your passport is expired (true story) and that you have to wait for the government to reopen and for your passport to be processed.

Copies of other identification:
Driver’s license, Social Security card or other legal forms of ID, including birth certificates, are often required to obtain other documents.

Insurance policies: Life, property, liability and health are four most basic key areas. I’d hate to go on what Allstate (or any carrier) felt like paying me on my homeowner’s policy on good faith alone if my home was damaged or lost in a flood or hurricane. Having a copy of these actual policies is key in demanding service, coverage, and in enforcing the actual contract if required. Similarly, health insurance cards are often kept in places that can be lost or stolen, like wallets and purses — if you’ve ever sat in an emergency room and seen who gets treated first and how well, you’ll get this.

Essential corporate and business documents, including bank statements: If you have corporate documents that control chain of command, ownership, title, account balances and succession, you better know where they are. I am continually amazed at how many doctors don’t have copies of their corporate documents, adding stress, delay and expense when those documents are needed, as in a lawsuit between partners in a medical practice. In that case, you may be stuck with copies that may or may not be accurate.

Mortgages and deeds: These are perhaps the most overlooked, lost and disrespected documents we come across — odd, since it is the single largest asset of many doctors.

Medical records and prescriptions:
This is the most subjective, but if you or a family member have a complex medical history or require prescription drugs to function at a basic level, having copies of the prescriptions at issue is essential, especially during emergencies.

Estate plan: We assume you have one, whether a basic will or a more sophisticated series of trust of various types and that you’ve updated it and you have avoided common mistakes. It does no good if we can’t find it and don’t know who’s in charge.

How and where should they be stored?

The conventional wisdom, and likely the safest bet, is that these documents should be stored at the bank in a safety deposit box. That said, it may be impractical or subject you to delays based on their hours and a variety of other conditions including the substantial limits on access by third-party agents you may want to have possession. Would the person you send be able to get into the box, including your own children?

Home and office storage

Invest in a safe that is both waterproof and fire-rated to withstand most common house fires. “Too big” or “too expensive” is not a valid excuse for almost anyone reading this. Costco, as one example, has large fire-rated safes that will hold guns, laptops, jewelry and documents for as little as $600, and small, entry-level safes are a fraction of that cost.

Consider which documents are sufficient if you have a copy, like an insurance policy, and which require originals, like a passport. Consider keeping the original paperwork for which copies are an acceptable substitute in the bank and the reproduced copies at home. The most prepared also have copies of documents they actually keep on hand at home (like passports) saved somewhere else, as most of us don’t have those details recorded or memorized. Do you know your passport number by heart?

All my personal clients from this month forward will receive electronic copies of their documents, instructions, filings and signature pages on an encrypted “key drive” to help in this process. That drive also allows other documents to be added to it and is encrypted to a high security level. Don’t make electronic copies the primary source; it limits you to times when you have power and computer/internet access, a significant variable for folks in a natural disaster, as one example.

Obamacare Helps Add Life to Medicare as Shortfall Delayed

healthcare reformMy Comments: I’ve argued vigorously over these past few years in favor of the PPACA, what all of us know as ObamaCare. Without it we would be at the mercy of the drug industry, hospitals and the insurance industry. Of the five primary stakeholders in the health care debate, any two of those three could have the necessary leverage to reverse the rising tide of cost increases we had been living with for decades or they could sustain it.

That the rising tide is still visible is not a surprise. If our elected leaders in Congress had spent the last few years working to improve the PPACA instead of blindly working to repeal it, the cost savings might already be apparent. Sooner or later is will be obvious. Just look at Kentucky as an example.

As for the drug companies, hospitals and insurance companies, in my mind its doubtful their solution would be in our best interest as citizens and patients. Most likely their solution would be one that serves the best interest of those industries. That’s how free enterprise works. So what happened is we, as one of the five stakeholders, stepped up and said it’s time to stop the rising tide and this is how it will be done.

As all of us know, it hasn’t happened smoothly or without adverse consequences. It’s going to take years for the hiccups to stop. It may never be a smooth running idea, if for no other reason than world economics and demographic forces will intervene along the way. But it’s better than the social chaos that would happen if the health care delivery system in this country collapsed of its’ own weight or became “owned” by the above mentioned industries.

This article suggests at least one measure of good news has surfaced in support of the overall goal. Some of our dilemma is driven by the need to introduce legislation where benefits will be seen long after the current leaders are dead and buried. That goes in the face of decision making that wants immediate results to encourage and justify being re-electied to office.

By Bloomberg News Service / July 28, 2014

The main trust fund behind Medicare, the $583 billion U.S. health program for the elderly and disabled, will be exhausted in 2030, four years later than projected last year, the government reported.

An improving economy and the health-care overhaul known as Obamacare may stave off depletion of the fund as it took in more money and spent less than expected last year. The trust fund pays for hospital visits, nursing care and related services for Medicare’s 52 million beneficiaries. Its assets fell $7.1 billion in 2013 to $281 billion, less than one-third the reduction of a year earlier, according to a report released today by the program’s trustees.

Medicare’s finances are a flash-point in health-policy debates between Republicans, who have proposed converting the program into private insurance subsidized by the U.S., and President Barack Obama. Unusually slow growth in the program’s spending, payment cuts under the Patient Protection and Affordable Care Act, known as Obamacare, and debt-reduction legislation have extended the life of the fund, called Part A.

“Medicare is considerably stronger than it was just four years ago,” Sylvia Mathews Burwell, secretary of the Department of Health and Human Services and a trustee for the program, said today at a news conference. “Cost growth is down. The quality of the care our parents and grandparents are receiving is improving.”

Spending Unchanged
Medicare spending per beneficiary, including outpatient services and prescription drugs that are paid for from separate trust funds that can’t be exhausted, was unchanged from 2012 to 2013. Spending per beneficiary under Part A — for hospital care and related services — fell for the second year in a row.

Growth in Medicare Advantage plans, offered by private insurers including Humana Inc. (HUM) and UnitedHealth Group Inc., accelerated. About 1.3 million people joined the plans in 2013, raising enrollment to 14.8 million, or 28 percent of all Medicare beneficiaries. About a third of Medicare beneficiaries are projected to be in the private plans by 2023.

Medicare’s actuaries, who compile the report, said that fewer people than they expected sought hospital care in 2013 and that those patients used less expensive services when they did. It remains unclear whether that is due to economic pressure on patients or to changing practices by doctors and hospitals, who have been encouraged under the Affordable Care Act to better coordinate their care and avoid unnecessary readmissions to the hospital.

Cost Questions
“The jury’s yet out as to whether we can really count on the pace of cost growth being reduced,” Doug Holtz-Eakin, president of the American Action Forum, an advocacy group that has opposed Obamacare, and a former head of the Congressional Budget Office, said in a phone interview. “My concern is this will take pressure off the Congress and the administration to deal with the real problem and we run the risk of a very bad surprise down the road.”

Social Security’s trust funds, used to make disability and retirement payments, will be exhausted in 2033, the same projection as last year, a second report said.

The program’s trustees, who include the secretaries of the Treasury and Labor departments in addition to Burwell, said payment reductions and productivity improvements under the Affordable Care Act can be sustained.

“The trustees are hopeful that U.S. health-care practices are in the process of becoming more efficient as providers anticipate a future in which the rapid cost growth rates of previous decades, in both the public and private sectors, do not return,” they said in the annual report.

Repeal Scenarios
Medicare spending would grow much faster if provisions of the Affordable Care Act that control cost growth were repealed, the trustees said. Under one “illustrative scenario” that included repeals of several provisions of the law, Medicare spending would consume more than 8 percent of gross domestic product by 2080, compared with just more than 6 percent under current law.

Obama has sought to keep the current structure of Medicare largely intact and allow changes wrought by his health-care law to take effect. In April, the Congressional Budget Office said the program would cost $1,000 less per patient than it had projected in 2010, the year the law was passed. Republicans have also lobbied to raise Medicare’s eligibility age to 67, a proposal Obama hasn’t ruled out as part of a larger budget deal that would include tax increases. Republicans have rejected any budget agreement increasing taxes.

“The president is ready to work with Congress on enacting responsible reforms, and he is prepared to make tough choices,” Treasury Secretary Jacob Lew said at the news conference. “The president will not support any proposal that hurts Americans who depend on these programs today and he will not support any proposal that slashes benefits for future retirees.”

10-Year Investing Forecast: Takeaways for Advisors & Clients

investmentsMy Comments: When you look back ten years from now and wonder if this article came anywhere close to reality, you must remember that people are much happier with you if you estimate low returns and reality turns out to be high, rather than the other way around.

The charts are hard to understand, at least they are for me. The short takeaway for us is that what happened in 2008-09 was not within the 5% chance of happening. A meltdown like we had only happens once every 40 – 60 years. Another takeaway is the expected annual return for stocks from the people referenced. The high number is less than 6% annually. If they are right, then it behooves you to find advisors who give you at least a chance to make money in the inevitable down markets. Because the upmarkets are going to be relatively pathetic.

by Allan S. Roth / AUG 4, 2014

We all want to know how stocks and bonds will perform next year and beyond. Unfortunately, forecasts typically give very tight ranges of returns — and often merely predict the past. That may partly explain why investors continue the pattern of buying high and selling low.

The Vanguard Capital Markets Model, which forecasts both returns and risks over the next 10 years, takes a more useful approach. Your clients might prefer to have more precise forecasts, but uncertainty is a reality.

This forecast may help you both design a better portfolio and explain its rationale to your clients. I spoke with Roger Aliaga-Diaz, a principal and senior economist in Vanguard’s Investment Strategy Group, about the model and its implications for investors.

The Vanguard Capital Markets Model’s estimated returns are based on 10,000 simulations. This Monte Carlo analysis runs not only variations of returns but also ranges of risk (standard deviation) and correlations among asset classes.

The “Range of Returns” and “Asset Class Correlations” tables below shows the forecast returns and ranges and the historical correlations.
2014-08-13 Portfolio_roth_8_14
Portfolio_roth_8_14_2

EQUITY EXPECTATIONS

The first takeaway: Across the board, equities are expected to far outpace inflation, which is estimated at 2% annually. As the midpoint in the range of expectations, U.S. stocks are estimated to return 7.7% annually, while international stocks will yield 8.5%.

International stocks were seen as likely to outperform U.S. stocks for a few reasons, says Aliaga-Diaz: International valuations are more attractive and investors are compensated for taking on more risk. The annual standard deviation for international stocks was 20.9%, he points out, compared with 17.6% for U.S. stocks.

Within the bracket of outcomes that Vanguard believes have a 90% probability of occurring, U.S. stocks are shown as returning between a loss of 2% annually and a gain of a whopping 17.7%.

International stocks, by contrast, are seen as returning anywhere from a loss of 3.3% to a 21.1% annualized gain. To put this in perspective: In 10 years, a $1 million investment in U.S. stocks could be worth anywhere from $820,000 to $5.1 million. And the same investment in international stocks could be worth anywhere from $710,000 to $6.8 million.

Not only is that range of returns incredibly large — and only somewhat helpful from a planning perspective — but Vanguard says there is a 10% probability that the actual return will land outside of these ranges. And the downside risk is even worse after you factor in inflation.

The bottom line, of course, is that equity investing is risky — any forecast asserting otherwise would be claiming to have precise (and, needless to say, impossible) foreknowledge of economies, geopolitical events and investor sentiment. Nonetheless, equities offer the best expectation for high future returns.

Clients should also understand the impact of expenses and emotions on these returns. Aliaga-Diaz notes that the projections are geometric asset class returns and don’t include costs, and that even the lowest-cost index funds have some fees. And clients need to stay the course. Even with the least-costly index funds, investors’ returns underperform fund returns — an indication that investors time the market poorly.

FIXED-INCOME INVESTMENTS
Bonds, of course, have lower expected returns with less risk. Vanguard predicts the aggregate bond index of investment-grade bonds will return 2.5% annually — just half a percentage point more than inflation.

The range is much tighter than for stocks, with the 90% confidence interval showing returns ranging between 1.2% and 3.9% annually. Translated again, this suggests that a $1 million investment would be worth anywhere between $1.13 million and $1.47 million after a decade.

Note that these returns are far below those of the last decade, when declining rates were good for bonds. The narrow range of returns for bonds illustrates the role of high-quality bonds; they are more a store of money than a growth vehicle. Hedged international bonds offer similar expected returns and volatility.

Both of these bond classes have little credit risk; increasing credit risk increases correlation with stocks. For example, according to Morningstar, the average bond mutual fund — which is more likely to include bonds of lower credit quality — lost 8% in 2008 while Vanguard’s Total Bond ETF (BND), which follows the Barclays Capital Aggregate Bond Index, gained about 5.1%.

One more note on the inflation forecast: While 2% doesn’t sound unusual, extrapolating the downside shows about a 15% probability of sustained deflation over the next decade. Should that occur, the resulting scenario would be bad for stocks and great for longer-term U.S. government bonds.

CONSTRUCTING A PORTFOLIO
What matters most for clients, of course, are real (after inflation) returns. But to model the impact of inflation, we can’t just deduct two percentage points — because inflation impacts the returns of the asset classes.

The Vanguard model — run for a combination of U.S. and domestic equities, with various maturities of Treasuries and corporate fixed-income securities — looks at various weightings, from conservative to aggressive. The “Portfolio Implications: Real Returns” chart above shows the results.

Because high-quality bonds and equities have low correlation to each other, you’ll note the combined portfolios have less downside than the simple average of stocks and bonds.

The good news is that even a conservative portfolio of only 20% equities is forecast to outpace inflation by 1.7 percentage points annually. And it can still deliver a handsome return if results are high in the range of possible outcomes.

The takeaway here is that clients who have met their goals and have little need to take risk — even those who say they have a high risk tolerance — should consider a high concentration of high-quality bonds. (Think back to March 2009 and ask yourself if clients’ appetite for risk was in fact constant.)

A moderate portfolio of 60% equities is projected to outpace inflation by 4.2 percentage points annually. An aggressive portfolio of 80% stocks does deliver an expected return of 5.4% annually, while the downside is only an extra annualized 0.7 percentage point loss relative to the moderate portfolio.

While this might argue for taking on more risk, few aggressive investors want to stay the course when markets melt down. By my calculations, that portfolio declined by about 31% in 2008; that’s more than two standard deviations away from the mean and should happen only once every 40 years.

HOW MUCH RISK?

Just looking at the numbers, one could conclude that the 80% equity portfolio isn’t that much riskier than the 20% equity portfolio. In real terms, the outcome at the bottom fifth percentile for the 80% equity portfolio loses about 31% of spending power, while the fifth-percentile result for the 20% equity portfolio loses about 22%.

But don’t forget that a fifth-percentile outcome doesn’t measure the so-called black swan event that many said happened in 2008.

What this means for your clients is certainly open for interpretation. This is perhaps the most comprehensive economic model I have reviewed, but even so, it is important to remember that this is only one model.

Vanguard predicts a most likely case of a 5.7% real annual returns for stocks, but other experts are more cautious. In his new book, Rational Expectations, William J. Bernstein predicts a 2% real return for large-cap stocks and 3% for small-cap stocks over the next decade. Rob Arnott, chairman of Research Affiliates, forecasts a 3% real return over the next decade.

My opinion is that the future is even more uncertain than the ranges shown in the Vanguard model — especially on the downside. And as I see it, the world is a less predictable place than ever before.

Allan S. Roth, a Financial Planning contributing writer, is founder of the planning firm Wealth Logic in Colorado Springs, Colo. He also writes for CBS MoneyWatch.com and has taught investing at three universities. Follow him on Twitter at @dull_investing.

Wealth Managers Enlist Savvy Spy Software to Map Portfolios

profit-loss-riskMy Comments: I’ve been playing this financial game now for almost 40 years. And like so much in today’s world, it’s very different today than it was then. Technology forces us to embrace new thoughts and ways to deal with so much in life.

When it comes to managing your money, my role as an investment advisor and financial planner causes me to try and stay at least near the front of the line, otherwise I’ll get left behind.

Much better returns on investment (ROI) can be had today, hypothetically, than we could have hoped for 30 years ago. Do you remember when interest rates less than 10% were thought to be ridiculous? Now we are living with interest rates near zero and have been for some time. So how is it possible to predict that a 10% ROI is reasonable today?

The following article talks about people of wealth that no one around here fully understands. And so for the rest of us, it’s kind of meaningless. Except when they talk about technology and how far its come so that mere mortals like us can benefit. Having access to these technologies can make a huge difference in your life.

Posted by Steven Maimes, Contributor – on August 5th, 2014
NYT article by Quentin Hardy

Some of the engineers who used to help the Central Intelligence Agency solve problems have moved on to another challenge: determining the value of every conceivable investment in the world.

Five years ago, they started a company called Addepar, with the aim of providing clear and reliable information about the increasingly complex assets inside pensions, investment funds and family fortunes. In much the way spies diagram a communications network, Addepar filters and weighs the relationships among billions of dollars of holdings to figure out whether a portfolio is about to crash.

Professional wealth managers are going to be seeing a lot more of big data. Last spring, Addepar raised a substantial sum to take this mainstream, and although it is not the only one bringing big data to a portfolio statement, its cast of characters sets it apart.

“One of the most foundational questions in finance is ‘What do I own, and what is all of this worth?’ ” said Eric Poirier, the chief executive of Addepar. “ ‘What is my risk?’ turns out to be an almost intractable problem.”

Although the list of wealth managers who use Addepar is confidential, Mr. Poirier says it has already grown from people like Joe Lonsdale, its tech-billionaire founder, and Iconiq Capital, which manages some of the Facebook co-founder Mark Zuckerberg’s money, to include family offices, banks and investment managers at pension funds.

“In this state, some people are just getting wealthier,” said Joseph J. Piazza, chairman and chief executive of Robertson Stephens L.L.C., a San Francisco investment adviser that manages about $500 million using software from Addepar. Ten years ago, he said, “it might be a young entrepreneur with $50 million. Now it could be 10 times that, and they are thoughtful, bigger risk-takers.”

Investing used to be a relatively simple world of stocks, bonds and cash, with perhaps some real estate. But deregulation, globalization and computers have meant more choices. For a wealthy person, this could mean derivatives, private equity, venture capital, overseas markets and a host of other choices, like collectibles and Bitcoin.

And for all the computers on Wall Street’s trading floors, a lot of money management is surprisingly old-fashioned. Venture capitalists may invest in cutting-edge technology, but they sometimes still send out quarterly reports on paper. Financial custodians, which hold securities for people, often have custom-built computer systems. That makes it hard to compare a trade at one with a trade at another.

“The market is much more complicated than it used to be,” said David G. Tittsworth, president and chief executive of the Investment Adviser Association, a trade group of 550 registered firms. “The rich have bigger appetites for futures, commodities, alternative investments. There’s a lot of demand for helping them keep track of what their holdings actually are.”

Mr. Poirier, 32, a New Hampshire native who started a coding business at 14 before heading to Columbia University, worked on analyzing fixed-income products at Lehman Brothers from 2003 to 2006, before that Wall Street firm collapsed from mismanagement of its own risk. “Trying to figure out a yield, I’d work with a dozen different computer systems, with different interactions that people didn’t understand well,” he said.

He then took a job with Palantir Technologies, a company founded to enable military and intelligence agencies to make sense of disparate and incomplete data. He went on to build out Palantir’s commercial business, managing risk for things like JPMorgan Chase’s portfolio of subprime mortgages.

There were plenty of parallels between the two worlds, but instead of agencies, spies and eavesdropping satellites, finance has markets, investment advisers and portfolios. Both worlds are full of custom software, making each analysis of a data set unique. It is hard to get a single picture of anything like the truth.

Even a simple question like “How many shares of Apple do I own?” can be complicated, if some shares are held outright, some are inside a venture fund where the wealthy person is an investor and some are locked up in a company that Apple acquired.

Finance “was the same curve I encountered in the intelligence community,” Mr. Poirier said. “How do you make sense of diverse information from diverse sources, when the answer depends on who is asking the question?”

The parallel was also evident to Mr. Lonsdale, a Palantir co-founder. From an earlier stint at PayPal, he had millions in cash and on paper is a billionaire from his Palantir holdings. He also knew lots of other young people in tech who could not make sense of what was happening to their money. “Wealth management is designed for the 1950s, not this century,” he said.

Mr. Lonsdale left Palantir in 2009, starting Addepar with Jason Mirra, another Palantir employee, in 2009. “It didn’t make sense for Palantir to hire 20 or 30 people to work in an area like this,” Mr. Lonsdale said. Mr. Mirra is Addepar’s chief technical officer. Mr. Poirier joined in early 2013 and became chief executive later that year.

Besides Mr. Lonsdale, early investors in Addepar included Peter Thiel, a founder of both PayPal and Palantir. More money came from Palantir’s connections to hedge fund investors. Addepar’s $50 million funding round last May was led by David O. Sacks — another PayPal veteran, who sold a company called Yammer to Microsoft for $1.2 billion in 2012 — and Valor Equity Partners, a Chicago firm that has also invested in PayPal, SpaceX and Tesla Motors, among other companies.

Despite the pedigree, Mr. Lonsdale says Addepar, which has 109 employees, is not meant just as a tool for rich tech executives or family money. They are, he said, “just the early adopters.”
Karen White, Addepar’s president and chief operating officer, says a typical customer has investments at five to 15 banks, stockbrokers or other investment custodians.

Addepar charges based on how much data it is reviewing. Ms. White said Addepar’s service typically started at $50,000, but can go well over $1 million, depending on the money and investment variables involved.

And in much the way Palantir seeks to find common espionage themes, like social connections and bomb-making techniques, among its data sources, Mr. Lonsdale has sought to reduce financial information to a dozen discrete parts, like price changes and what percentage of something a person holds.

As a computer system learns the behavior of a certain asset, it begins to build a database of probable relationships, like what a bond market crisis might mean for European equities. “A lot of computer science, machine learning, can be applied to that,” Mr. Lonsdale said. “There are lessons from Palantir about how to do this.”

A number of other firms are also trying to map what everything in a diverse portfolio is worth. One of the largest, Advent Software, in 2011 paid $73 million for Black Diamond, a company that, like Addepar, uses cloud technology to increase its computing power and more easily draw from several databases at once.

“We’ve been chipping at the problem for 30 years,” said Peter Hess, Advent’s president and chief executive. “There is a lot more complexity now, and the modernization of expectations about how things should work is led by the new tech money. But because of Apple and Google, even my parents have expectations about how easy tech ought to be.”

New Longevity Annuity Rules: 5 Things to Know

retirement-exit-2My Comments: Earlier this week I introduced the idea of a QLAC. If you didn’t see it, click on the link and check it out.

Some of you are going to want to use this contract as soon as it becomes available this fall. Others are going to think about how your investment mix will change today so that money in a QLAC is maximized by the time you are 85 years old.

Another reason for consideration is that while annuities are a contentious topic, they have their advantages. Some advisors swear by them; others say the fees will kill you. In my opinion, they have their uses when clients are fearful of how life might play out and the insurance element built into annuities provides a peace of mind dividend that can be found in no other product or investment.

What these new rules do not appear to include are 403(b) accounts, which are very common here in Gainesville. That’s because a 403(b) is a generic equivalent of a 401(k), but for the non-profit world only, such as the University of Florida or Santa Fe College. The answer may be to transfer money out of your 403(b) into an IRA at retirement, with up to 25% going into a QLAC.

By Nick Thornton July 15, 2014

Retirement account holders can now put 25% of their money in QLACs.

In recognition of the reality that many Americans will live well into their 80s, the Department of Treasury recently issued final rules making Deferred Income Annuities more accessible to those with good genes and perhaps inadequate savings.

The rules could be a game changer for how boomers, and their advisors, allocate 401(k) and IRA assets going forward.

Here is a breakdown of the core provisions to the new regulations governing DIAs.

1. Defined contribution participants and IRA owners are now allowed to invest up to 25% of their account balances, or up to $125,000, in qualifying longevity annuity contracts, or QLACs. That money will not be subject to the annual minimum distribution requirements governing 401(k) and individual retirement accounts that begin at age 70 1/2.

2. Longevity annuities will distribute cash at a set age, typically by 80 or 85. If the owner of the annuity happens to die before they begin to receive benefits from the annuities, all is not lost. The principal and premiums paid on the contract will be returned to the retirement account, where the money is subject to the same laws governing the inheritance of retirement accounts.

3. In the event that investors, and or their advisors, inadvertently distribute more than the 25 percent limit to a deferred annuity, the IRS will allow the mistake to be corrected without disqualifying the annuity contract.

4. Lump-sum investments can be made into QLACs, or, salary deferrals can be incrementally made into the contracts, much as they are with a 401(k) plan.

5. Ultimately, the cash value of QLACs is subtracted from the rest of a retiree’s assets in a 401(k) or IRA when determining the required minimum distributions when they take effect.