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Coastal Financial Advisors - Providing Fee Only, Unbiased Advice. NAPFA member.

October Tax Update from the Star Ledger

Ok this is from October but I finally have a chance to post it.  Back in October we questioned what would happen with the tax reform.  Here I was quoted in the Star Ledger regarding the reform.

The Suitable Fiduciary?

The finance reform has created many questions regarding financial advisors.  This article discusses the differences between a fiduciary advisor and a suitability broker. 

A registered investment advisor (RIA) works under the Investment Advisor Act of 1940.  A broker-dealer works under the Securities Act of 1933. 

The Investment Advisor Act of 1940 requires the advisor to act as a fiduciary and therefore act in the best interest of the client.  Generally an ongoing relationship is developed when working with an RIA.  The RIA provides unbiased advice about the investments being managed and directs the investments based on the goals of the clients.

Brokers, under the title of Registered Rep, are commissioned sales people who typically work for a bank, insurance company or broker-dealer.  Brokers sell products that are “suitable” for their clients.  The suitability test is therefore managed by gathering some basic information such as age, risk tolerance and investment objectives.  This method of data collection provides a wide range of products to be sold and may or may not be in the best interest of the consumer.  The wide range is intended to provide a “pick-a-product” environment. 

To complicate matters the SEC has let brokers register as Registered Investment Advisors while working with or being associated with a broker-dealer.  This dually registered method is fraught with conflicts of interest.  It is not possible to sell a product and be a fiduciary at the same time.

An employee of a broker-dealer has a duty of loyalty to the company they work for.  Most bank employees, insurance sales people and stock brokers work for public companies.  As an employee of such company, they are required to work in the best interest of that company to maximize the profits of that company.  This enables the stock holders of that company to receive dividends based on the amount of profits and how well that company was managed. 

If the banker, insurance agent or stock broker is not working to sell the company’s products, then the company’s profits will fall short of expected returns.  The stockholders will see their investment suffer and stock price as well as dividends will decrease. 

Insurance agents are generally required to sell their company products.  In this regard, it is not possible to make an unbiased decision for a consumer.  The consumer is provided a product based on the agent’s affiliated company and not on the needs of the consumer or whether it is the best product for the consumer.  Once again, they are not acting as a fiduciary. 

So how can one be part of a Registered Investment Advisor and be connected to a broker-dealer?  There currently are no restrictions with being affiliated with a broker-dealer as well as being registered as a RIA.  Unfortunately the consumer suffers and the cloud over the industry is not clear.  Which hat is the person wearing when working with a client?  Are they a salesperson or a fiduciary? 

Consumers need to be aware that not all financial advisors are providing the same unbiased advice.  They need to education themselves on these basic topics.  There are clear differences and a true RIA fiduciary is required to work in the client’s best interest.

Study shows 43 percent of Americans have less than $10K saved for retirement

Dennis K. O’Brien comments on the latest study from EBRI on the limited level of savings Americans have for retirement.  The study shows Americans continue to spend and are not saving enough for retirement.

Best Business Leader – Irish Voice Newspaper

Dennis K. O’Brien named 2009 Best Business Leader by Irish Voice Newspaper

Dennis K. O’Brien, President of Coastal Financial Advisors, Inc. was named Best Business Leader of 2009 by the Irish Voice Newspaper.  “Regardless of doom or gloom, our 31 leaders for 2009 found ways to survive and prosper,” said Niall O’Dowd, president and publisher of the Irish Voice.

It’s always a pleasure to single out the Irish who bring honor to themselves, their families and their heritage by their success in the U.S.  Their triumphs stretch across all different fields – everything from the traditional Irish areas of hospitality and construction to financial advising, medical and corporate. 

Profiles of the award recipients were reported in the December 16th edition of the Irish Voice. 


An awards ceremony and cocktail reception was held at the Irish American Historical Society at 991 Fifth Ave New York on December 16, 2009 to honor our nominees. 

 About Coastal Financial Advisors, Inc.

Coastal Financial Advisors, Inc. is a fee-only financial advisory firm practicing comprehensive financial advising.  Services provided include retirement plan advising on 401(k) for business.  Individual services range from investment management and tax prep to planning for education and retirement.


About Irish Voice

The Irish Voice newspaper, Irish America Magazine and are publications and communications for the Irish community in the United States.  Niall O’Dowd is the founder and president of the communications company.

Message to Wal-Mart – Act like a Fiduciary

Recently Wal-Mart has been in the news.  No not because of the holiday sales or how sales were on Black Friday.  Wal-Mart employee Jeremy Braden has taken his company to court over excess fees associated with their 401(k) retirement plan.  A lower court ruling was recently overturned on appeal.  The appellate panel, citing a 6th Circuit opinion that said information is material if there is a substantial likelihood that nondisclosure “would mislead a reasonable employee in the process of making an adequately informed decision regarding benefits to which she might be entitled.”  The information referred to is the disclosure of revenue sharing arrangements and other information related to the 401(k) under the Employee Retirement Income Security Act (ERISA). 

In Braden’s complaint, he estimated that fees cost the plan $60 million over the past six years and will continue costing approximately $20 million per year in excess fees.  Braden complaint says seven of the plan’s ten funds charge 12b-1 fees from which participants derive no benefit. 

We couldn’t agree more.  Not surprisingly Bank of America Merrill Lynch is the trustee for the plan.

The complaint also alleges that despite the very large pool of assets, the ten funds available offers only retail class shares, which charge significantly higher fees than institutional shares for the same return on investments. 

Again, we agree with Braden. 

Another point Brandon made was that no changes to the plan investments were made despite the fact that most of them underperformed the market indexes they were designed to track. 

At this point, Braden should be protected under Whistle Blower laws.  Wal-Mart has a history of terminating troubling employees. 

It appears to us that both Wal-Mart and Merrill Lynch do not understand their fiduciary duties.  There is no reason why a plan of this size in not in institutional shares.  We would also question the need for 12b-1 fees.  The amount of estimated fees collected by Merrill Lynch is astonishing.  In previous reports, Wal-Mart required Merrill Lynch not to disclose its fees.  Unfortunately, at this point, ERISA and the Department of Labor still do not require full disclosure. 

Lastly, a simple review of the investment selection on a regular basis would suggest a change in investment line-up.  Apparently, neither Wal-Mart nor Merrill Lynch thought this was necessary.  Mr. Braden has really hit the ball out of the park.  He has nailed this 401(k) retirement plan as being a revenue generator for Merrill Lynch.  Like most bundled plans, the employees are captive to the plan and to poor fiduciaries decisions. 

When we work review 401(k) retirement plans, the fiduciary responsibility comes first.  Apparently, Wal-Mart and Merrill Lynch do not see it that way. 

It is important to recognize with businesses of any size and retirement plans of any size that the plan sponsor act as a fiduciary at all times when making decisions on their retirement plan.  Regular review of the plans investment selection, fees, performance and service are vital to the responsibility held by the fiduciary.

Plan Sponsor seminar for Retirement Plans 401(k), 403(b)

How is your company’s 401(k) holding up in today’s challenging market?
Dennis O’Brien, President of Coastal Financial Advisors invites Plan Sponsors to a seminar providing valuable information to improve your retirement plan.  New laws will change the face of retirement plans.  Come learn what to expect.Retirement Plans:  Understanding Plans, Fees and Your Fiduciary Role

Tuesday, September 15th, 2009 9:00 am to 11:00 am

Greater Monmouth Chamber of Commerce 17 Broad Street, Freehold, NJ

The economy has not been treating anyone’s retirement money very well.  And yet even in the midst of serious downturns, opportunity exists.   

Dennis will discuss how by addressing issues including:

Evaluating Retirement Plan fees
Uncovering the Full Cost of Retirement Plans
Understanding Bundled vs. Unbundled Plans
Examining Target Date Funds
Understanding the Role of a Broker Dealer & Registered Investment Advisor
Evaluating Investment Options
Employee Education

Dennis’s insights have been featured in business publications, including Investor’s Business Daily, Success Magazine and Investment Advisor Magazine. 




Social Security Freezes Increases for Two Years

Well today it was announced that Social Security will not provide any increases for the next two years.  This coupled with increases in Medicare means that seniors will have to dig deeper for savings to met their bills while for others, they will look for ways to decrease monthly bills.  We always have promoted saving while your younger.  Our retirement plans such as 401(k) and 403(b) that we provide have the best investments and lowest costs.  In that regards, we were contacted by the Star Ledger to comment on the needs of those on Social Security and how to address the frozen increases. 

The link to the Star Ledger page is:

This article by Leslie Kwoh provides suggestions on cutting back your bills.

Rethinking Your Money

Dennis O’Brien explains the benefits of a good financial advisor in challenging economic and financial times, and how it’s important to look at individual circumstances when putting together a financial program.

Article can be found on-line at  June/July 2009 issue.

Looking for Direction

Dennis O’Brien comments on the outlook for the financial markets and economy for the second half of 2009 in a roundup story on the market’s performance.

What’s Up With Target-Date Funds?

Dennis O’Brien discusses the risk of investing in target-date funds in a story examining the hearings being conducted by the Securities and Exchange Commission and the Department of Labor on these investment vehicles.

 What’s Up With Target-Date Funds?


Posted 06/23/2009 05:10 PM ET

 The latest financial scapegoat? Target-date funds. At a joint hearing by the Securities and Exchange Commission and Department of Labor last week, critics beat up on the increasingly popular mutual funds.

 The catalyst was that most target-date funds — like much of the fund industry — lost ground last year.  The problem was that some people were shocked by that.

 “Some people think these funds are risk-free,” said Dennis O’Brien, president of Coastal Financial Advisers, of Farmingdale, N.J. “They don’t understand that these are investments. They can lose ground, especially during short periods.”

 In the worst-case scenario, the SEC and DOL could restrict how target-date funds invest. The DOL will take public comments until July 18. After that it will indicate what action, if any, it plans.

 “There is no denying that 2008 was the second-worst market ever for equities,” Francis Kinniry, a principal in Vanguard’s Investment Strategy Group, told IBD before the hearings. “Everyone should take a deep break and use a much longer lens than one year. The market has rebounded (about 34% off its March 6 intraday) low. That should influence the eventual outcome here.”

 A bigger problem for target-date funds is how fund families market them, said O’Brien, who is a financial adviser to individual clients and consultant who helps corporate clients set up and run 401(k) plans.

 “Not enough fund groups clearly explain how these funds are run and how they differ from each other,” O’Brien said. “Not enough of them explain their risks or their costs.”

 The stakes are rising. Target-date funds have grown a lot. As of May 31 they held $181.8 billion in assets. That was 3.06% of all fund assets and up from $152.8 billion on Dec. 31. It was also well up from $7.2 billion at the end of 1999, or 0.16% percent of all fund assets.

 The funds have become a staple of 401(k) plans, especially since 2007. Late that year the DOL gave incentives to plans that use them as default investment options for workers who are automatically enrolled.

 Proliferating Portfolios

Target date funds are in more than 33% of all 401(k) plans, says the Profit Sharing/401(k) Council of America. That’s up from 25% in 2005.  The funds generally invest in other mutual funds. A parent fund’s ratio of bonds and cash to stock typically grows as the target date nears.  That’s meant to better preserve the fund’s principal. The target date is usually near a shareholder’s intended retirement. Target-date funds overall averaged a 32.96% loss in 2008, according to Morningstar. The S&P 500 lost 37%. U.S. diversified stock funds averaged a nearly 39% loss.

 As might be expected, target-date funds with the longest investment horizons generally did worse. Last year funds with a target date of 2050 or later averaged a 39% loss. The $10 million JPMorgan SmartRetirement 2050 fell 33.53%, marking the best of the long-range funds.

 Funds with target dates from 2000 through 2010 fared best, averaging a setback of 22.46%.

 Among funds with the shortest views, $32 million DWS Target 2010 took top performance honors with a 3.61% loss. The $20 million Oppenheimer Transition 2010 was the cellar dweller with a 41.84% plunge.

 Too many shareholders do not understand how target-date funds differ, O’Brien says. First, there are two broad varieties.

 In addition to the type known as target-date funds, there are lifecycle funds. These portfolios do not shift their asset mix over time.  Instead, as he ages a shareholder is supposed to hop from one with an aggressive investment strategy — usually with more stocks — to one with a moderate strategy. As he nears retirement, he shifts to one with a conservative tack, with more bonds and cash.

 Different Approach

Second, many shareholders do not realize that funds with the same target date or in the same lifecycle category often invest differently.

 They can have different ratios of stocks, bonds and cash. Drilling down, they can also have different types of stocks and bonds.

 “A fund with all blue chips tends to perform differently from one with a mix of large caps, small caps and emerging markets,” O’Brien said.

 Also, only some funds stop making strategic moves when they reach their target date. Some shareholders cash out. Others want ongoing growth or income.

 “Some fund families do a better job than others of explaining things,” O’Brien said. “Shareholders can look up information at fund Web sites. They can also check through their 401(k) plans.”

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