Does it feel like you are constantly paying bills all of the time?   It may be time to refresh and automate your current financial process.  Just simply keeping track of all of our various accounts can be mindboggling and often quite tiring.  Since time is one of the most precious aspects in life, why not regain some by automating your personal finances.

Reason To Automate
Initially, it can feel scary automating your finances – like you are losing control over when and out of which account a bill gets paid.  Looking at the bigger picture though, you are going to pay your electric and gas bills anyway, so why not simplify things.


  • Gives you peace of mind that no bill was left behind (think of times where you are away from home such as vacations and holidays).
  • Frees up time to spend on more important tasks.
  • Increases your credit score:  On-time bill payments make up 35% of your overall credit score.
  • Provides safety:  Online bill pay has come a long way over the past decade.  Websites are more secure and most credit cards and bank accounts have built-in fraud monitoring features.

First Steps
In order for financial automation to work, you must build up a checking/savings account balance to a level where all bills can be paid without worrying about the amount (emergency reserve).  Next, you will need to create an online login (if you do not have one) for each bill/payment you would like to automate.  Once your account is setup online, you will then be able to initiate your recurring payments.

What accounts can be automated?

  • Credit Cards (always pay the balance in full)
  • Gas/Electric/Water/Cell Phone/Cable/Garbage Bills
  • Debt Payments (Home Mortgage, Car Loans, Student Loans)
  • Savings (Set up automatic transfers to a different account)
  • EZPass/Car Insurance/Life Insurance

With automatic payments set up, you will not have to continually write checks for monthly bills.  However, I do recommend monitoring all of your transactions so that you can make sure all of your charges are correct.  I personally use to monitor my credit cards, bills and bank account transactions.  It is simple to setup and is very secure.  I use this as a replacement for balancing my checkbook.

Everyone manages their finances in a way that works for them.  If you haven’t considered setting up automating payments, I urge you to give it a try.  If we can help you at Rockbridge, please let us know.

In an unfortunate skiing accident, I recently tore the anterior cruciate ligament (ACL) in my left knee. I am now three weeks post-surgery and doing well, but beforehand spent a month tirelessly interviewing and researching surgeons to perform the operation. Through this process I figured out that they are all “really nice” people and because of this I was stuck in decision paralysis on who to choose. It wasn’t until I dug deeper that I found the perfect match for me, and I couldn’t be happier with where I am today.

In this case, digging deeper included the following:

  1. Who matches best with my personality and long-term goals?  
  2. Who has the most/best experience working on ACL repairs and especially the type I want to have? 
  3. I consider myself young and active. Does this affect what type of reconstruction I should have (hamstring tendon vs. patellar tendon vs. cadaver tendon)?

Choosing the right surgeon and surgery type was important for me and I wanted to make sure I didn’t regret my decision. After going through the above list, it was easy for me to narrow down the list of surgeons and confidently come to a decision I know was best for ME.

I believe the same holds true for people looking for a trusted financial advisor. At the end of the day, I believe, like surgeons, advisors are all “really nice” people, so investors must dig deeper to help find the right match for their situation. Usually a life event (marriage, children, retirement, changing jobs, etc.), just like my injury, sparks your need to look for an advisor or second opinion. Without the right list of questions, it’s easy for decision paralysis to take over!

Below are some questions that hopefully will help every investor distinguish the right financial advisor from the rest of the “really nice” people in the industry:

  1. Are they a fiduciary? In other words, do their goals align with yours and are they truly placing your best interest in front of theirs.
  2. Are they a Certified Financial Planner™ (CFP®)? CFP®’s have gone through rigorous coursework around financial planning and are better suited to help you understand how your savings will translate into available spending in retirement.
  3. Do they even offer comprehensive financial planning? Most investment firms only concentrate on how your money is invested, and often overlook the importance of how other factors will affect your retirement picture (i.e., Social Security timing, college savings, insurance needs, pension vs. lump-sum decisions, etc.).
  4. How much do they charge for their services? Costs are one of the few things you can control as an investor and have a large impact on your overall financial success. Make sure to find out what the advisor charges for their annual fee as well as what the annual charges are on the investments he recommends.

Just like my experience finding a surgeon, choosing the right financial advisor can prove to be tough and decision paralysis often takes over. Hopefully the list above will help you weed through the plethora of “really nice” people in this industry and find the perfect financial advisor for you.

Rockbridge is a fiduciary, meaning that we must always act in the best interest of our clients. We are required to act as a fiduciary because we are registered with the SEC under the Investment Advisers Act of 1940.

The Debate
The SEC was given authority to propose a uniform fiduciary rule for all brokers and advisors as part of the Dodd-Frank Financial Regulatory Law of 2010. They are still wringing their hands. More recently the White House has been pushing the Department of Labor to establish a rule that would apply only to retirement money. It would require any person giving advice on retirement accounts to act as a fiduciary.

The vast majority of people calling themselves financial advisors, or investment advisors, are not registered in the same way our firm is registered, and are not held to a fiduciary standard.

This can lead to unpleasant surprises, as reported in a New York Times article last October (Tara Siegel Bernard NYT, 10/10/14). A retired couple in their 70’s went to their bank. The teller suggested they meet with the bank’s investment expert, who probably called themselves a financial advisor. The couple was sold a variable annuity in which they invested over $650,000. They didn’t fully understand that the annuities came with a hefty annual charge of about 4% of the amount invested. The bank said the investments were appropriate for the couple, in other words, in compliance with the “suitability standard” to which non-fiduciaries are held. “Like many consumers, they say they didn’t realize that their broker wasn’t required to follow the most stringent requirement for financial professionals, known as the fiduciary standard. It amounts to this: providing advice that is always 100 percent in the consumer’s interest.”

Many people think they are getting fiduciary advice when they are not. The lingo and terminology are bewildering for consumers.

The simple fact is this – whenever an advisor’s compensation is affected by the client’s decision, a conflict of interest arises between what’s best for the advisor/broker, and what’s best for the client.

If you don’t know exactly what determines your advisor’s compensation, they are probably not a fiduciary.

Why does it Matter?
The Council of Economic Advisers published a report in February that supports a fiduciary standard for retirement accounts. The report includes the following statements in its executive summary, based on its review of academic literature:

  • Conflicted advice leads to lower investment returns. Savers receiving conflicted advice earn returns roughly one percentage point lower each year.
  • An estimated $1.7 trillion of IRA assets are invested in products that generally provide payments that generate conflicts of interest. Thus, we estimate the aggregate annual cost of conflicted advice is about $17 billion each year.

A difference of 1% never sounds like much, but it can mean a difference in lifestyle. For a retired couple with $500,000 invested, it could pay for a nice $5,000 vacation every year.

Why Does it Not Matter?
Regulations do not always have the desired effect. Regulation in the financial services industry often takes the form of “required disclosure.” Think about the reams of extra pages you must sign at a mortgage closing, or the Privacy Statement mailings that no one really reads. That paper is all intended to make you aware of the ways you could be harmed, but as consumers, we pay little attention.

While the SEC might implement a principle-based fiduciary standard, we are more likely to see something that is based on rules – which will require conflicted advisors to disclose those conflicts to consumers.

A similar process occurred recently with “Fee Disclosure” for 401(k) Plans. The intent was that plan sponsors (employers) and participants could make better choices if they simply knew how much they were paying for their retirement plan services and investments. Instead the result is another layer of burdensome paperwork for employers, and a barrage of “disclosures” that leave participants more confused than ever. Have costs been reduced, or investment choices improved? Not really.

The Council of Economic Advisers summed it up well at the end of their report:

Finally, in practice, disclosures of conflicts of interest can actually backfire (Cain et al. 2005, Loewenstein et al. 2011*). Research in behavioral economics and psychology demonstrates that when advisors disclose their conflicts, they may be more willing to pursue their own interest over those of their clients and thus give worse advice. Advisees may interpret the disclosure as a sign of honesty and become more likely to follow their advisors’ biased advice.
*Cain, Daylian M., George Loewenstein, and Don A. Moore. 2005. “The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest.” The Journal of Legal Studies 34 (1): 1-25
Loewenstein, George, Daylian M. Cain, and Sunita Sah. 2011. “The Limits of Transparency: Pitfalls and Potential of Disclosing Conflicts of Interest.” The American Economic Review 101(3): 423-428

Some lessons can be taught while others must be learned through experience. Unfortunately those experiences can sometimes be costly. I do not think regulation will teach people the value of a fiduciary relationship. At the same time, I remain hopeful that more people will learn the lesson before paying years and years of unnecessary tuition.

Equity Market Returns over Periods Ending 3 31 15Stock Markets
After a lot of bumps and bruises, as we show in the accompanying chart, stocks markets were up across the board over the March quarter.  Although lagging over longer periods, international developed markets led the way this quarter.

Look at the returns from emerging markets.  While the 10-year results are consistent with other markets, returns are well below in other periods.  I think this simply reflects the unsustainability of the early-on exuberance shown by investors for the BRICs (Brazil, Russia, India and China).  In any market or market segment, sustained periods above or below long-term averages generally don’t last.

The latest moves in market averages seem to be in response to comments from pundits observing the latest Fed activity as well as the uncertainty in the pace of the growth in the global economy.  The worry, I guess, is that after the run-up in domestic equity markets of the past few years we are heading for a cliff and anything negative will push us off.  It’s true that since December 2008 the S&P 500 has earned more than 18%, well above long-term averages.  Yet, add just the previous three years and this average drops to 9% – so maybe it’s just making up for lost time!  In any event it’s uncertainty about the future that drives market prices.  Markets respond as the future unfolds.

Bond Markets
Bond returns, which react inversely to changing yields, were Yield Curves 3 15, 12 14 and 3 14positive over the past quarter and trailing 12-month periods.  These results are consistent with the falling bond yields shown in the accompanying chart.  With the domestic economy seemingly doing better, it is well known that the Fed is poised to raise interest rates anywhere from a quarter to three-quarters of a percent.  The timing is the only uncertainty.  Yet, in the face of expected rate increases, bond yields have continued to fall.  I can think of two explanations:  (1) temporary market anomalies due to unprecedented Fed activities of recent years, and (2) significantly reduced inflation expectations.  I suspect the truth includes both – we’ll have to wait and see.


Expected Inflation
The chart below shows the trend in the annual changes in the ConsumTrend in Annual Change in CPI 3 2015er Price Index (CPI) over the past five years.  Look how it has fallen to below zero for the most recent period.  I suspect this negative number reflects sharply falling energy prices and not necessarily a sign of a general decline in prices across many items (deflation) in the future.  Deflation can be a significant drag on economic activity – why spend now if prices are going to be less in the future? – which helps to explain the Fed’s announced goal of keeping inflation at about 2% annually.

Of course, it is expected inflation that is reflected in market prices.  However, given today’s negative inflation and bond yields, two conclusions seem reasonable:  (1) the Fed is going to have to work hard to meet its inflation target, and (2) future inflation is apt to be less than what we have experienced in the past.

As we deal with the daily ups and downs of market averages, it is important to keep in mind that stock prices are determined by the actions of both a buyer and a seller – each has access to the same information.  They interpret it differently, but the price that results is where they are both happy.  Now, we may think that those who traded last got it all wrong, but there is little evidence of long-term success from betting against the “wisdom of the crowds,” which is reflected in the market price.

While uncertainty abounds, as it always does, it seems like what could impact stock and bond values is pretty well known and, therefore, is part of today’s price. Of course as we go through time, we are going to receive new information (“news”) not only about the eventual outcome of today’s uncertainty, but also about new things to worry about.  Some of this new information will be positive, some will be negative; all will be a surprise.  The impact of these surprises is the risk we endure, safe in the expectation that over time we will be paid for bearing this risk.  That’s how markets work!

I’ll tell you a few reasons why, and how, an advisor might save you more than you will ever pay in account management fees.  Income tax time exposes some of the costly mistakes of investors, especially those who decide that they can manage their own investments.

I have heard this for years:  “I can do the same thing you guys do with my money, and save money on the annual fees.”  I agree that one may be able to decide what to invest in, what amount of risk to take, invest in the same products, and rebalance his/her accounts regularly.  Then I add, “but you won’t!”, and there are other less obvious reasons to take advantage of an investment advisor.

Here are a couple simple real life examples, understood by just about everyone who has investments or IRA/pension accounts:

Vince brought his documents to have his taxes prepared, generally a simple return with some pension, dividends, interest, and Social Security.  As I entered his data from 1099 forms, I noticed a large one-time distribution of over $30,000 from his IRA, not unusual in itself, but I noticed no federal or state withholding.  Upon completion of the return I asked Vince about it and he said he took it all out for improvements to his house.

I then told him to his surprise that it was all taxable income, and that his federal tax liability is $6,400 and his state tax liability is $600.  In previous years he would get a small refund.  In Vince’s case not only was his taxable income increased by $30,000, but this additional income was enough to make about $13,000 of his Social Security taxable income.  Vince manages his own accounts, had an IRA and lots of telephone stock from years of payroll deductions with the phone company.

Now he has to come up with an extra $7,000 to pay his taxes, or file for installment payments of roughly $90 monthly for six years.  Plus, he has to deal with NY State IRS about payments.  He and I agreed to hold the return until the next week so he would have some time to think about how to handle the situation.  The next week he came back and told me he would pay the whole thing by April 15 of this year. I asked where the money was coming from, and he said he had sold all of his stock holdings, worth much more than the $7,000 he currently owes IRS.

Now he has created a few more problems for himself:  He has created a very large capital gain for himself for 2015.  This extra income will, no doubt, make his Social Security taxable again this year, and he will have a large amount of cash on hand that should be invested.

What should he have done?  He should have talked with his financial advisor/consultant about his need for cash to make his home improvements.  By taking the money out over 2 or 3 years, or getting a home equity loan, or selling some (not all) of his stocks, he would have been in a lower tax bracket, possibly paying no NY State taxes, and kept his equity investments in place.  It is the kind of financial discussion one should have with an investment advisor before making a rash decision.

At Rockbridge , we feel that this kind of support and assistance is what the investor client should expect.

Sharon, age 72, came to the tax preparation session fully expecting that she would not need to file a return this year because her income was too low.  I looked at her documents and agreed that she need not file a return.  As we talked I inquired about any pension, because she had no document from a custodian or company.  She said that she didn’t need any extra money last year, and that she remembers some letter in the fall but ignored it.  I suspect the letter was from a custodian telling her that a required minimum distribution (RMD) from her IRA was due because she was over 70 ½.  The custodian is required to notify the client, but is not required to make a distribution because the client may have already satisfied the minimum distribution from another IRA account.

Since Sharon had thrown the letter away, I suggested that she contact the custodian to see what she should have taken in 2014.  The penalty for not taking the minimum distribution is 50% of the distribution.  This penalty is applied regardless of the tax liability or lack of it on the tax return.

At Rockbridge we talk with every client who has an RMD and make sure they understand the amount, the payment method, and the withholding options.

One might ask why I didn’t do more to help these people.  In my role as a voluntary tax preparer for AARP I am precluded from acting as a consultant or advisor to those for whom I prepare taxes, and may not hold myself out as an investment advisor, nor solicit business for my firm.  In these cases I talk with the client about the situations and suggest the actions that I think they could take in their best interests.  It is their tax return that I prepare and file for them.