Grand Central Financial Planning

Flat Fee Investment Advice in NYC

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Why a Financial Planner Is Like a Doctor

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For many people there is a link between financial health and physical health, especially when one’s income and savings are not those of a titan. Studies have found there is a connection between financial security and stress. Having money frequently at the front of your mind is not about being materialistic, it’s about survival. 

While most clients that come to Grand Central Financial Planning are far from being in financial distress, living in New York City means they still have a lot of demands on their discretionary cash flow. They also pay a lot in taxes – both in absolute amounts and as a percentage of their income.  Making sure that you are getting your finances right and crossing that task off your to-do list can at a minimum provide mental relief. 

Think of a Portfolio Review at Grand Central Financial Planning like you would a medical check-up. For me to give the best financial advice requires many clients to share a lot about themselves, both individually and as a couple if it is a joint assignment. Just like being in an examination room, you are essentially bearing it all. Which is why bedside manner is all-important for a financial planner. Similarly, it is not unusual for health issues, both physical and mental, to occasionally play a role in financial decision-making. 

When is a good time for a Portfolio Review? It depends on the client, but in one’s 20’s and 30’s a check-up every five years, just to make sure, is appropriate. Even if nothing is wrong, micro tweaks could possibly bring big savings and earnings as assets and income compound over time. Kind of like your doctor telling you to eat healthier, it is an incremental effort that becomes significant. Though it is not always easy, it is better to start correcting the ship in your 20’s than in your 50’s.  

Finally, from my perspective, being a financial planner shares one other important characteristic with a doctor: the opportunity to really help people and make an impact on their lives. 

Investment Adviser Fees No Longer Deductible

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In what may be my first and last blog post ever, I’m going to let you in on a little secret.  One of the many changes to come about from the federal tax reform legislation passed in 2017, is that investment adviser fees are no longer an itemized deduction from personal taxes.  Therefore the more you pay for these services the less they are subsidized by the government starting in 2018, thus it comes out of your pocket leaving you even less in savings for the future.

The amount can be quite significant, especially since it’s savings you will forgo every single year.  For example, if you pay 1% in wrap fees on a $1 million dollar account, the advisor receives $10,000 a year – a good back of the envelope estimate.  Previously these were deductible

Now, there are some caveats.  First of all given the near doubling of the standard deduction, from $6,350/$12,000 (individual/married) in 2017 to $12,700/$24,000 in 2018, many people will discontinue itemizing so this change is not relevant.  Nevertheless if you live in the northeast and own a home and have accumulated a reasonable amount of wealth and make charitable contributions (and are reading this blog), there’s a good chance you’ll still be itemizing.

The second and smaller caveat is that there is a 2% AGI floor on itemized deductions, which both previously and going forward made choosing the standard deduction the better option for some. By way of explanation, let’s say a married couple’s AGI was $200,000 in a given year and their itemized deductions consisted of:

Mortgage Interest                    $10,000
State & Local Taxes                  10,000
Investment Adviser                   10,000
Accountant Fees                        2,000
———–
Total                                        $32,000

Less 2% AGI of $200K             -4,000

Net Itemized Deductions          28,000

 

As you can see, the AGI floor is netted from one’s aggregated deductions and the couple is still better off itemizing to save on taxes.  Or was, before this deduction was taken away.

Similarly, there is a phaseout of itemized deductions that starts at —/— and is fully gone by —/—.  But if you’re retired and your sole income is coming from your investments, it’s easy to have an AGI below those latter numbers even if one has a $10 million nest egg.

Finally, while mutual fund fees and brokerage commission are still implicitly deductible, investment adviser and wrap fees are not.  So those fees will essentially be coming out of that nest egg, retired or not.  Every year.  One more reason that now is the time to consider changing your high priced adviser or broker.