What I’ve Learned About Fiduciaries

Posted on December 10, 2020 in

For years, I have listened to my Dad tell just about everyone he meets that he is a financial advisor. For the man sitting in the aisle seat on the airplane, there is no difference between the financial planner that receives commission off security sales and those that are considered a fiduciary. Many people I encounter are unaware of the differences in financial advisors. To be completely honest, I had no idea there was a difference. In the short six months I have worked here at CPS Investment Advisors, I have learned about fiduciaries, broker-dealers and all of those in between. I was born and raised here in Lakeland, Florida and I have come across many advisory firms. What is interesting to me is that these firms are structured differently but they offer similar services. So, what sets them apart?

I have read numerous articles debating the idea of a fiduciary vs. fiduciary- like financial advisors. Sure, I would like to be able to trust my advisor to “do the right thing,” but why shouldn’t it be required? I want to work with an advisor that has a duty to care for my financial needs (and ultimately me as a person), is transparent with any conflicts of interest that may arise, and will continue to provide services with my absolute best interest in mind, no questions asked.

The definition of a fiduciary is “holding in trust.” As a fiduciary, our clients trust us to act in their best interest and choose investments that will benefit the client, not the advisor. A fiduciary will disclose important facts and figures, avoid conflicts of interest, and make decisions that benefit you as the investor, NOT the individual advisor or the firm. Fiduciaries monitor the performance of investments and with the client’s full trust, make financial decisions that they feel are beneficial. The fiduciaries’ services also extend past just investments. They are here to stay and become an important part of your financial future. This is where the ultimate standard of care comes into play: the duty to care. It is a fiduciaries’ responsibility to make decisions in your best interest throughout your financial relationship, not just at the time of the initial transaction.

 So how do fiduciaries get paid?

To be defined as a fiduciary, you are required to be fee-only or fee-based. Fee-only means the advisor is compensated based off a flat fee which is always disclosed. An important term, independence, comes into play here. When an advisor does not receive compensation from an investment, they are completely independent from the investments they are purchasing. They are truly acting in the client’s best interest.

Another way a fiduciary is paid is fee-based. This compensation plan means the advisor is compensated based on a percentage of assets. It is important to ask about the compensation structure of the firm you are interviewing. Full transparency on how the advisor and advisory firm are compensated is required if they are a fiduciary. Any advisor for a firm who has trouble disclosing this information may not have your best interest at heart.

If the advisor is commission-based, they are not a fiduciary. Non-fiduciaries receive commissions from certain investments that they purchase or continuously trade. The presence of commissions can remove independence and the investor may not be given advice in their best interest. Commissions are a conflict of interest as advisors may be more likely to purchase an investment where they will receive a higher kickback and compensation.

Finding your best fit is about finding the right pair of pants. Finding the right financial advisor is about finding a fiduciary. Asking the right questions and understanding the different structures of financial advisory firms is important to your financial future! We are here to help!

Erin E Golotko | MBA
Tax Accountant

A Cash Balance Plan May Benefit Your Business

Posted on October 15, 2020 in

Many benevolent business owners have established 401(k) plans and other profit sharing plans to assist in employee retention and reward their employees for all of their hard work. Often though, there are additional motives, such as maximizing retirement saving for the owners themselves and reducing the business’s income tax liability. However, they often find that the employee contribution limit for defined contribution plans ($19,500 for 2020) and the total contribution limit, including employee and employer contributions ($57,000 for 2020) cause business owners to fall short of their goals. While additional catch up contributions of up to $6,000 are available for those 50 and older, this may still not be enough.

A Different Kind of Pension Plan

Traditional “Defined Benefit” pensions, once the mainstay of corporate retirement plans, have fallen out of favor during the past thirty years. One reason is the mandatory annual contributions these plans require of businesses, and another is the risk to plan members that their employer may go bankrupt, leaving plan members with a significantly reduced benefit. But don’t give up on pension plans just yet; other types of pension arrangements exist which can benefit business owners.

A less familiar type of pension, the cash balance plan, can be used alone, or in conjunction with a 401(k) plans to provide additional benefits to employers. Cash balance plans are technically a type of defined benefit pension plan, but differ from traditional defined benefit plans. While traditional pensions promise a future benefit based upon the employee’s years of service and average earnings, a cash balance plan benefit is based upon a “contribution credit” based upon the employer’s contribution plus an “interest credit” specified in the plan document. The employer contribution credit is typically based on a percentage of the plan member’s income, much like a 401(k) contribution. Annually, plan participants receive a statement showing the employer’s contribution credit and interest credit earned on their account. But, there is a caveat – the accounts are only hypothetical. The statement balance, which is the sum of the accrued contribution credit and interest credit, is an amount that will be due to the employee at their normal retirement age as specified in the plan document- usually age 65. So, the actual annual contributions made by the employer are considerably less than the contribution credit amount shown in the employee statements.

How Does It Work?

Each year an actuary calculates the required employer contribution based upon a number of factors including mortality, disability, salary growth, turnover, and anticipated investment return. The goal is to determine how much must be put aside now to provide the promised benefit (contribution credit plus interest credit) to each employee at their normal retirement age. The required contribution is then placed in a pooled account from which all employee benefits will be paid. The plan sponsor (employer) is responsible for choosing how the funds are invested, and may hire an advisor or consultant to provide assistance; however, the sponsor is ultimately responsible for paying the promised benefit to the employees when they reach retirement age regardless of how the fund has actually performed.

Is It Right for Your Business?

Considering the mandatory contributions and investment risk, why would a business owner consider a cash balance plan? The primary reason is that these plans provide business owners the opportunity to defer significantly more income for themselves while reducing business income tax. The annual IRS contribution limits mentioned earlier do not apply to pension plan contributions. The employer contribution is dictated solely by the amount required to fund the future benefit. So, an employer can sponsor a 401(k) and profit sharing plan which defers the maximum contributions allowed by the IRS, and additionally fund a cash balance plan. These combined plans can benefit the business owner at a significantly higher rate than it benefits the employees.

The annual actuarial testing, record keeping, and plan administration will result in additional costs to the employer, but cash balance plans offer the opportunity for considerably higher pre-tax income deferral than can ever be obtained through a defined contribution plan alone. Talk to your trusted advisor to find out how a well-crafted retirement plan can benefit your business.

Rick Bernard | MBA
Financial Advisor

It was late. The smell of smoke and ash in the air stirred everyone in the house awake. The bedroom felt warmer than normal. You remember setting the air conditioner to 73 before bed because it was a hot day earlier. Walking to the door, the handle was hot to the touch when you grabbed and swung it open. The house was on fire.

I hope this experience never happens to anyone, but it could. Homes can burn down or be badly damaged by fires or the water used to put them out. Similarly, wind and rain from a storm or hurricane can rip strong homes to shreds. When that happens, preservation of life or the lives of whom you are responsible for come first. After that, what will be removed from the house?

Many people keep important documents at home, and storing them in a place that could easily be removed or safe from catastrophe could make the difference between wealth and poverty. When considering how to store possessions or important documents, choose one that is most comfortable for you. Protecting your valuables by keeping them out of harm’s reach means you can focus on the safety of your family.

Home Safes
Home safes are steel lockboxes designed to store important documents or valuables. Home safes are typically part of a larger security system for the home, but a few general options stand out for understanding. Floor safes can be designed to be hidden as well as being bolted into the foundation but cannot be removed easily. Wall safes are designed to be kept out of reach of children or hidden behind clever pictures or TVs.

Protecting your valuables by keeping them out of harm’s reach means you can focus on the safety of your family.

Portable safes are small and compact, often weighing far less than the latter options. Most include handles or cables so they don’t “walk away” unnoticed. Different safes are designed to withstand water while others have fireproof ratings of 1800 degrees Fahrenheit for one or two hours.

Home safes have been a staple of the household since the medieval times when wooden boxes wrapped with iron were used to store titles, jewelry, and other keepsakes. Mass production of the modern home safe came about in the early Nineteenth century. Ranging from inexpensive and mobile to a multi-generational investment with complexities, home safes provide a great option for those looking to keep items close by.

Safety Deposit Boxes
Similar to home safes, these types of boxes are also made of metal, typically stored at a bank or credit union. Unlike home safes which are purchased by the homeowner, safety deposit boxes are rented for as long as necessary to keep valuables and documents stored in a vault. Rarely would a bank be blown away in a storm or burnt down. Banks will allow most anything to be kept in their boxes outside of passports, medical directives and living wills. These items should be easily accessible at home, protected in a different way.

Keep in mind that items inside of a safety deposit box are not insured by the bank or FDIC. The individual would have to purchase their own insurance (typically applied to a homeowner’s policy) to cover the contents inside the box, thus increasing the overall cost over time.

Finally, if the person owning the box passed away and no other individuals were given access to the box, it could be weeks or months before it’s able to be opened.

Digital Storage
It’s so easy in our modern world to be able to access documents at a moment’s notice via digital cloud storage. Of course, a person won’t be able to store valuables this way, but digital storage keeps documents readily available and safe. It’s important to note that most cloud storage comes with a fee, which can be shared in the event that a server loses power and information needs to be backed up elsewhere. Attorney’s offices are able to store legal documents for you either physically or digitally with a retainer fee. Other professional offices may do the same. It’s also important to note that the State of Florida allows for most legal documents to be copies, but not all.

For planning purposes, it makes sense to have digital copies of legal documents to be able to read through and sort on a computer. Powers of attorney, living wills, advanced directives, and trust documents are able to used legally as copies. Last Will and Testaments should be original or at least certified copies of an original, and this document should be kept somewhere safe. If this document is not an original, probate court will usually require a hearing, witnesses, reporting, and could come with a hefty price point.

Having trusted advisors to walk you through this step of financial and estate planning can leaven the shoulders of the most astute client. Either way, seek guidance from a fiduciary whenever possible. We’re here to help.

Derek M Oxford | CFP®️, AEP®️
Financial Advisor

Gone are the days of brokers that would call randomly with a stock tip or buy request like movies we have seen with Charlie Sheen or Leonardo DiCaprio. “Advisory Services” has taken over as a foothold in the industry that is Finance.

What was once a transitionary relationship for the wealthy is now a long-term planning type of relationship for all walks of life. Designations are many and confusing. In fact, the financial services industry has more than 250 of them. Some credentials overlap; some are just plain “pay us and we’ll let you use the letters” type; and some actually mean something. Similarly, the type of advisor you may receive also depends on what laws govern their business and their actions.

So, how can an investor tell which type of advisor is right for them? Here are a few key questions one could ask to determine if the advisor is a good fit.

Are You a Fiduciary?

A fiduciary is one that must put your interest before their own when recommending securities or planning opportunities. The Securities & Exchange Commission has required new forms be distributed to prospects and clients alike detailing what conflicts of interest are present with any interaction. If either cannot be handed to you in writing, walk away.

How Are You Compensated?

Just how a fiduciary must put your interest before theirs, knowing how an advisor is compensated is paramount to understanding about any back-door dealings, side fees, hidden fees, or other forms of soft dollars. If the advisor is compensated any other way besides what they charge you directly, think twice about any recommendation they give.

What Is Your Investment Philosophy?

This one is a bit more difficult to grasp, but an advisor that has different philosophies for different clients and different from their own doesn’t have a clear understanding of what they do and may only receive knowledge from a strategy desk far, far away.

What Is Your Succession Plan?

When an investor places the outcome of their life-long savings in the hands of an advisor, they want to know that the advisor will be around for a while. And, if not, are they comfortable with a team they’ve set up to perpetuate them? Most estate plans are multi-generational. Having an advisory relationship that can follow the plan will be worth while.

What Are Your Qualifications?

As I stated earlier with the credential frenzy, look for advisors that are fiduciaries and carry credentials to back it up such as the CERTIFIED FINANCIAL PLANNER™ designation, advisors that are Certified Public Accountants (CPAs) but also carry the Personal Financial Specialist (PFS) designation to signify extra study on financial planning to complement their fiduciary position as a CPA, and finally the Certified Financial Analyst® designation proves a highly difficult and rigorous multi-year examination for expertise in the investment professional world. An advisor having one or many of these specific designations will mean that the investor is speaking with someone that has credibility, knowledge, and experience to help make a great financial plan.

Derek M Oxford | CFP®️, AEP®️
Financial Advisor

The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in response to the COVID-19 pandemic provided much needed relief to businesses and taxpayers to assist with the resulting economic crisis. The relief offered to individual taxpayers included the opportunity to take penalty free early distributions from retirement accounts and made it easier to take loans from retirement plans. Also, the Act waived Required Minimum Distributions (RMDs) for 2020 and allowed those who had already taken RMDs to roll the funds back into their retirement plan or IRA.

However, there are several restrictions that limits a taxpayers’ ability to roll back RMDs. One of the restrictions required the funds to be returned to the account with 60 days of the distribution, thereby falling under the existing 60-day rollover provision in the I.R.S code. Additionally, although 2020 RMDs from inherited IRAs were also waived, those already received could not be rolled back into the inherited IRA. Furthermore, the limit of one rollover per year was still in effect, so those who receive their RMD in a series of payments could not roll back more than one of the payments.

Luckily, the IRS recognized the challenges with the original plan and has recently provided some welcome relief. On June 23, 2020, the IRS issued Notice 2020-51 which eased many of these restrictions. The time period for rolling back 2020 RMDs has been extended until August 31, 2020, or 60 days from the date of the RMD, whichever is later. The notice also clarifies that rolling back RMDs will not count toward the one rollover per year limit, so those who receive their RMD as a series of payments can roll them all back to their retirement plan or IRA. Also, the IRS is now allowing those who received RMDs from inherited IRAs to roll them back.

If you have taken an RMD in 2020 and are curious what your options are, or simply want more information on these opportunities, contact your trusted advisor at CPS for a more thorough, personalized review.

Rick Bernard | MBA
Financial Advisor

Election day is a few months away, and it’s natural to wonder what the possible outcomes might mean for your portfolio. Fortunately for investors, there are many previous elections we can study to give us insight into how the market might react.

Policy Matters, Politics Doesn’t

The most important thing to keep in mind is that policy matters to long term investment returns, but politics doesn’t. Everything that will happen between today and election day is just politics. As the election gets closer, both sides will undoubtedly ramp up their rhetoric. Political vitriol can cause market volatility, but it doesn’t change the fundamentals of the economy. No matter what the outcome of the election is, we will be well into 2021 before policy changes are made. History also shows us that policy changes rarely work out as planned, and often have unexpected effects. For long term investors, there is no reason to rush to make portfolio changes just because it is an election year.

To understand the future, study the past.

The way the markets react to elections and changes of power in Washington is remarkably consistent over time. Historically, when Republicans control Congress and the White House, the markets tend to go up and the economy tends to grow. When Democrats control Congress and the White House, the economy tends to grow and the markets tend to go up. When there is divided government in Washington, the markets tend to go up, and more often than not, the economy grows.

History tells us that during the run-up to an election, market volatility increases. Despite the increased volatility, the market most often trades sideways in the months ahead of an election. Uncertainty is a far greater problem for the markets than who wins or loses an election. Once the results are known, long-term trends take over.

Policy changes might have an impact on individual companies or entire industries. Policy changes won’t derail the long-term trends that have created tremendous returns for investors over the past 100 years. American capitalism is still the engine that powers the global economy. Long-term investors in American businesses will continue to be rewarded no matter who wins the election.

Matthew A Treskovich | CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC, FLMI
Chief Investment Officer

Losing a Loved One

Posted on August 10, 2020 in

After a loved one dies, there are important – perhaps time-sensitive – decisions to make. Losing a family member or friend is one of the hardest life events to cope with. Survivors are the people who must make the decisions or carry out the directives of the person who died. The husband, wife, partner, or maybe even the child, parent, brother or sister, or close friend may have to step in to help with this process. Each person may have different tasks to handle, while some might not have any responsibilities after their loved one dies. In any situation, the best preparation is to have a plan. A valuable lesson, at any age, it to take time to organize your financial life and seek the assistance of a fiduciary to help with your planning needs.

As a financial advisor, some of the greatest joys are seeing my clients reach their version of financial independence. During our relationship, I watch my clients grow throughout their careers until that major milestone of retirement meets them face to face, then I fortunately get to watch them through retirement until that last milestone is upon them. But, along the way, we are always planning since there are many revisions to their personal plan as their family dynamics change and the investment landscape changes alongside them.

Being proactive, I have found, is the best way to help my clients in preparation of that last milestone. Whether it is a review of their beneficiary designations, a review of the charitable organizations dear to the client for philanthropic donations, or a review of their estate plan because they know they can’t take it with them but they can sure tell everyone how to spend it. We work together to create a plan then monitor the plan because “a goal without a plan is a wish,” was once said by a French writer. Having a plan is extremely important during this emotional time to help the survivors. In my experience, I have helped several clients through this last milestone and have collected a few best practices for what you may expect after losing a loved one.

Collect various documents and important paperwork.

This may include insurance policies, marriage license, birth certificates, revocable trusts, Last Will & Testament, Social Security information, etc. Keeping everything organized will help limit the search for some of them. Do not throw anything away until someone reviews it. You cannot be sure what might prove to be needed later, therefore, a good record keeping system is very important. At CPS Investment Advisors, we keep a secure electronic file for each client’s personal records. I, as the advisor, maintain that database for the client so when something happens, I can help immediately.

The death certificate of your loved one is generally needed every time you go to make a claim for benefits. Your funeral director or county health department can help you obtain certified copies of the death certificate. There will most likely be a cost associated with certified copies, but some companies you will deal with for a benefit claim will require one, so it is best practice to request about 8 to 12 initially. You may need more later, but this should get you through the bulk of your need.

A nice clean color copy, although this is clearly not a certified copy, may be used in some instances. Some companies just need to see the pertinent information from the death certificate while some require the certified certificate with the raised embossing.

Simplify your life.

When you lose a loved one, and you start to put together the pieces to their financial life, you may encounter assets that you never knew they owned. The first place to look is at the balance sheet. Make sure you know where everything is and have a plan for where everything is going. If you come across an asset you were not previously aware of, add it to the balance sheet so you know to come back to it later. If you are the surviving spouse, and you are set to inherit everything, simplification helps the transition process. Would you rather have same amount of assets in the same number of accounts or the same amount of assets in a fewer number of accounts? This is a best practice of where less is more. Bank accounts, investment accounts and retirement plans are some examples of assets that can be consolidated into your existing like-registered account(s) easily. After a death, you may need to change the title on property or transfer ownership. Automobiles, your house, credit cards and safe deposit box are some examples of assets that may require action on your part to change ownership or title. Getting assets out of the deceased name and into the names of the beneficiaries is an important part to the simplification process.

Note: You may need to open a bank account for the estate, if so, the estate will need its own tax identification number. The Internal Revenue Service website,, is a great source of information or you can just stop by our CPS Group tax department and we can handle this for you.

Establishing a new normal.

As the survivor of a loved one, there are a few new normalcies that will take place over time. Try to focus on what needs to be done right away, less attention to what can be done tomorrow, or even less focus on what can be put off for some time into the future. The future may seem very far away, especially during this time of grieving. It is a natural feeling to seem overwhelmed by practical matters so try to take one step at a time. Allowing others to help is not always a bad thing, so consider the advice given to you from those you trust.

The most often asked question I usually get from a surviving spouse is, “Do I have enough money to cover my expenses for the rest of my life now that my spouse is gone?” My immediate response is, “How long are you going to live?” In my experience, the surviving spouse generally loses some income after the death of a spouse. In some instances, changes in social security, pensions, annuity payouts and required minimum distributions from retirement plans, your income may change.

But expenses do not go down by nearly as much as you may think they might. Therefore, it is best practice to keep an eye on your bank account balances. Look at the value at the beginning of the month, again at the end of the month, and do this for the next 3 to 6 months following the death of a spouse.
This may take you even longer but tracking those balances will keep a high-level overview of the income and expenses occurring within your various accounts without having to dig into the details. If balances go up, then your income is exceeding your expenses, all appears fine. If balances go down, then you might be spending more than you thought. At this time is when you will want to review the details or consider creating a budget.

Your financial plan likely changed after the death of your spouse, so it is important to know what your new plan looks like going forward and make any necessary changes as appropriate. If you, or someone you know, needs guidance after losing someone they love, feel free to reach out to one of our advisors. As fiduciaries, legally and ethically obligated to act in your best interest, we’re here to help create a plan based on your unique needs.

Tony Corrao | CFP®️
Financial Advisor

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