The Fiduciary

Is your current financial advisor acting in your best interest? Does your advisor follow only the suitability rule to determine appropriate investments for your portfolio? Does he or she act in a fiduciary capacity? It is important for an individual to understand the regulatory standards and confines by which financial professionals work. In order to attain the best possible financial advice, guidance and client service, investors need to realize that there are great differences between how financial advisors and brokers qualify investments for their clients.

In order to determine which regulatory standard is the best fit for your situation, it is crucial that you understand each standard on its own. By definition, FINRA’s suitability rule states that firms/ brokers must have reasonable basis to believe that any investment strategy or transaction involving securities that they recommend is suitable for that particular customer. This belief is based directly on the client’s information as per only their investment profile. An investment profile includes information such as the client’s age, other investments, investment time horizon, investment experience, net worth and liquidity needs. As long as the financial professional believes the investment to be suitable for the client given their investment profile, the broker can then go ahead and recommend that security or strategy accordingly. Although this may sound like a thorough vetting process, it is not as in depth as the fiduciary standard.

What is the fiduciary standard? This standard requires advisors to always act in their clients best interests and put their client’s interests before their own. The fiduciary standard is similar to that of an attorney, CPA and medical professional. A prime example as to when this standard is important is when an advisor is purchasing securities. If acting as a fiduciary, the advisor cannot purchase securities for his or her account prior to purchasing them for a client. Additionally, the advisor must always disclose any potential conflicts that may exist. As you can see from the two, the fiduciary standard is significantly more client-centric and appropriate

Although there are rules and standards in place that help to govern both the broker-dealer and the Registered Investment Advisory world, it is evident that the RIA fiduciary standard is far more stringent. With an advisor always acting in the best interests of the investor, clients are significantly more insulated from fraudulent business practices as well as unsuitable investments that may result in avoidable loss. It is extremely important for every investor to discern whether their current advisor, or even one they are looking to hire, acts in a fiduciary capacity or if they are only obligated to make recommendations that are consistent with the underlying investment profile of the client.  

As an SEC Registered Investment Advisory firm, Mitlin Financial, Inc. acts in a fiduciary capacity. The fiduciary standard is a topic that should be discussed with your advisor, broker-dealer and/ or every financial services professional. Knowing who will be managing your financial future ahead of time can help an investor circumvent potential downside risk. Check out our latest edition of the Mitlin Minute to learn more about the fiduciary standard. Call us at (631) 952-4466 x12 to learn whether your financial advisor acts in a fiduciary capacity or not. Don’t leave it to your imagination, let us help facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.


Advisor Succession Planning

While taking inventory of your individual financial circumstances, have you considered what’ll happen to your hard earned assets upon your demise? Have you given sufficient thought to the process by which the beneficiaries and heirs to your estate will come to inherit those assets? Will they have to deal with the nightmare of probate or outlandish estate taxes? These are just some of the important questions that can be answered through facilitating your own succession planning. But have you ever stopped and considered whether or not your advisor has executed a plan for their firm and clients? As registered investment advisory firms continue to grow and evolve, the idea of advisor succession planning continues to become more and more prevalent. There are many reasons why it is crucial for your advisor to have their own succession planning in place as well as certain questions that need to be answered by your advisor.

Advisor succession planning has recently become an important consideration of financial advisory firms and rightfully so. First and foremost, if your own financial advisor acts as a fiduciary and is going to recommend that you execute your own succession planning, they should certainly have already executed or already be in the process of executing their own plan.

There is a great deal of downside to working with an advisor who does not have a firm succession plan in place; especially a sole practitioner. A prime example includes the possibility that you could be stuck searching for a new financial advisor at an inopportune time if your advisor were to retire, or worse, get hit by the proverbial bus. In addition, just because your advisor is part of a larger firm it does not mean that they have a succession plan in place. It is very important that you handle this proactively, as this is not a matter you want to leave to chance. You want to make sure that your advisor will be able to facilitate continuity for their clients should they retire or pass away.

How can you ensure you don’t end up without a financial advisor at a critical stage of your financial life? The best place to start is by asking your advisor what plans they have made to maintain client care after their retirement. Although this is a topic that your advisor should have already covered on their end, there are many financial advisors that have never addressed this issue. It is very important that you initiate this conversation if it has not yet taken place. You want to make sure that your advisor has executed a succession plan that touches upon all fronts like asset management and servicing continuity and leaves nothing to the imagination.

If your advisor currently has no plan in place, it may be time to start looking for a financial advisor that has already executed a sufficient succession plan. Never assume that every advisor has a plan. Here at Mitlin Financial,Inc., we already have an in-depth succession plan that’ll ensure seamless continuity for our clients with regards to asset management and client service. If you are unsure if your current financial advisor has a succession plan in place or if you’d like to hear more about the Mitlin philosophy, be sure to give us a call at (631) 952-4466 x12. To learn more about the importance of advisor succession planning, check out the latest Mitlin Minute. You’ve worked hard to get your finances to where they are, do take the risk of reversing all of that progress by leaving your financial future to the imagination.

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Cost Basis Step-Up

What’s the single biggest expense that you will incur during your lifetime? You guessed it, taxes! Nobody enjoys giving away their hard earned dollars to the Tax Man. This is all the more reason to take advantage of any rare instances where tax implications can be minimized. A step-up in cost basis on inherited assets (from a decedent) is a prime instance where your tax liability can be reduced. This commonly overlooked tax benefit can be advantageous to a beneficiary when inheriting assets and it is crucial to understand when and how to effectively implement this strategy.

What exactly is a step-up in cost basis and how is this beneficial? Defined as the readjustment of the market value of an appreciated asset for tax purposes upon inheritance, a step-up in cost basis values the asset using the cost basis at the time of inheritance rather than the value at the time of purchase. It is very important to understand that this tax benefit only applies to appreciating assets, such as securities and property.

Often times, when an asset gets passed on to a beneficiary, its value tends to be greater than the value at which the original owner had acquired it at. For example, your friend’s Aunt has just passed away and left your friend 100 shares of Disney stock. The stock was originally purchased for $50.00 and the current market value is $100.00. The $50.00 difference between the purchase price and market price is defined as the capital appreciation and this is the component that the beneficiary will have to pay capital gains taxes on. But what if we could reduce the amount of that capital gain? Can we also reduce the amount of the capital gains taxes owed?

The answer is yes; this is exactly where the step-up in basis comes into play. On the day your friend’s Aunt passed away, the Disney share price was $90.00. With a stepped-up cost basis, the asset’s cost basis is now the market value as of the date of the decedent’s death ($90.00) and not to be confused with the current market value ($100.00). Instead of your friend paying capital gains taxes on a $50.00 gain, he is only responsible for paying taxes on the $10.00 capital gain. The adjusted cost basis has decreased the size of the capital gain and the capital gains taxes which go along with it.

As a beneficiary inheriting assets, it is very important that you remain aware of the limitations associated with a step-up in cost basis. One important rule to note is that this tax benefit does not apply to any assets that are held jointly with children. In addition, you cannot apply a step-up in basis to any tax-deferred, qualified retirement account. This means that you will not be eligible to receive a step-up in cost basis on any IRAs, 401(k)s, 403(b)s or any other qualified account. Lastly, you must be aware of the fact that assets can also receive a “step-down” in cost basis. This is simply the opposite of a step-up in cost basis.

Although this tax rule is not one that an inpidual uses regularly, it is still important to be cognizant of the fact that it exists. Be sure to view the latest Mitlin Minute to learn more about a step-up in cost basis. If you think that you, or someone you know, may be eligible to receive a step-up in cost basis on recently inherited assets, it would be wise to consult with your financial advisor on how to proceed. You may also want to give us a call (631) 952-4466 x12 to see how Mitlin Financial, Inc. can help you in these types of scenarios. Contact us today and see how we can help facilitate and maintain your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Social Security Changes

For many Americans, Social Security has always been a paramount factor when determining one’s retirement income.  Over the years, claiming tactics have been very effective in maximizing Social Security benefits. However, due to the Budget Act of 2015, certain claiming strategies have been slated to change in a big way for the coming year. These changes may have negative impacts on those close to retirement who may have benefited from the tactics that will soon cease to exist once these changes take effect on April 29, 2016. As one nears retirement, it is very important to remain vigilant of new legislations that can directly impact one’s retirement income benefits. In order to plan effectively and circumvent potential speed bumps, it is crucial to develop a concrete understanding of the impending changes to Social Security.

One of the most profound changes that will result from the passing of this act is the end of the “file-and-suspend” claiming strategy. The “file-and-suspend” option was a way for married couples to increase their Social Security claiming options by allowing themselves to take advantage of spousal benefits and "delayed retirement credits" simultaneously. With this strategy, his or her spouse could claim a spousal benefit while allowing his or her own retirement benefit to grow at 8 percent per year until age 70. Spouses who did not have a work history of their own were likely to deploy this claiming strategy. This claiming tactic was especially useful for the generation of retirees and those near-retirees whose demographics were that of single-earner families.

The other major change to prepare yourself for is the shutdown of the restricted-application option. This option allowed inpiduals who had not yet filed for any benefits, and whose spouse has an established filing date, to file (a specific restricted application) only for the spousal benefit that is based upon the spouse’s record.

It is important to note that no one turning 62 in 2016 will be able to implement the “file-and-suspend” or restricted-application claiming strategies. Additionally, these reforms are not retroactive. This means that those inpiduals already collecting benefits through file-and-suspend and the restricted-application tactics will not be affected and thus their social security benefits will remain unchanged. Unfortunately, not everyone will be so lucky.

With these powerful claiming tools coming to an end, millions of Americans who were planning on implementing these strategies to maximize their household’s lifetime benefits must now figure out an alternative path. Both of the aforementioned approaches generate higher benefit payouts for entitled recipients and have already been baked into the retirement planning of many aging citizens. The removal of these claiming tactics may cost an average middle class couple $70,000 over their life-time of collecting social security benefits.

Given the impending changes to Social Security, many inpiduals nearing retirement may find themselves in a bind to make up for the lost retirement income without these claiming strategies. It is crucial to factor such changes into your current financial plan in order to discern the impact.  In anticipation of May 2016, contact Mitlin Financial, Inc. today to have your inpidual situation reviewed. Also be sure to check out the latest Mitlin Minute to learn more about the changes coming to Social Security benefit claiming options. Let Mitlin Financial assist you with your financial planning and help to facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Financial Aid

With higher education costs at unprecedented levels, financial aid has become more important than ever. College financing has evolved into a familiar issue that millions of American families find themselves struggling with. Unfortunately, the severity of this issue does not seem to be waning. With rising college costs and the increased competitiveness for the small amounts of aid available, it is crucial for parents and students alike to have a strong understanding of their specific financial aid eligibility in order to maximize the amount of aid they can receive.

Financial aid is best known as funding granted to students to be used specifically for costs associated with a post-secondary educational institution, a professional school, community college, four-year college or university. Aid can consist of grants and scholarships, low-interest government-subsidized loans, work-study, and education tax benefits. A common misconception pertaining to financial aid is that grants and awards are only for those who cannot afford the costs associated with higher education. This fallacy is easily reconcilable as there are two main types of aid; merit-based and need-based financial aid.

Merit-based aid is awarded on the basis of student achievements or accomplishments. This type of aid is usually awarded for outstanding academic achievements, such as high SAT or ACT scores. There are also some instances where this type of aid can be awarded for special talents, leadership potential and other personal characteristics.

There is also need-based financial aid. This type of aid is awarded on the basis of the student’s financial needs and circumstances. One’s eligibility to receive federal, state and/or institutionally need-based financial aid is determined by the FAFSA form. The FAFSA form contains the formula that calculates how much need-based financial aid a student is eligible to receive.

To maximize the amount of aid you receive, it is vital that you take on a proactive mindset. Being cognizant of who holds assets can actually affect the amount of aid you can receive down the stretch. According to the FAFSA form and the expected family contribution (EFC), roughly 25% of assets held in the child’s name are expected to be used for higher education. While only 6% of assets held in the name of the parent are expected to be used for higher education costs. It is important to begin applying for financial aid very early on. It is also very beneficial to keep your eyes open for non-need-based aid that can supplement whatever you are granted from a needed basis standpoint.

A common theme associated with financial aid is the fact that many families are unable to afford college costs and yet are considered to be earning ‘too much’ to be eligible to receive financial aid. This paradoxical double-standard has led many students into great amounts of student loan debt, as they are left with no other option but to take out high interest loans.

Financial aid can be a very powerful tool when implemented strategically. Given there are many variables and financial scenarios involved in the financial aid qualification process, it is crucial that you review your specific situation with a financial professional prior to applying for financial aid. Contact us today at Mitlin Financial to have your unique circumstances reviewed to make sure that you are on the correct track to receiving optimal financial aid and ultimately affording the costs of today’s higher education. Also, be sure to check out the latest Mitlin Minute to learn more about financial aid. Let Mitlin Financial assist you with your early planning and help to facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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