HR Considerations

for Small Businesses

Date: Tuesday, March 19, 2013

time: 9:00 am—Registration

Panel Discussion

9:30 am to 12 noon

 

Moderator Mary Livingston, VP-HR

SCORE Philadelphia

Panelists Topic:

 

—Staffing Christine Faville Philly Temps and Perm Topic

 

 

—Employment Law

Andrea Kirshenbaum

 

-Employment/Wage and Hour Law

Post and Schell, P.C. Topic

 

—Affordable Care Act Abbe Kligerman

 

 GetMeAHealthPlan.com Topic

 

—Onboarding Practices and Workplace

 

 Communication Michelle Snow Michelle Snow & Co., LLC Topic

 

 

 

—Employee 401(k) Plans

Brendan Magee Inevitable Wealth Coaching

Free Library of Philadelphia

Central Parkway

1901 Vine Street

Philadelphia, PA 19103

 

Most new business owners understand the importance of developing their busi-ness plan, marketing strategy, and finan-cial projections but usually fail to recog-nize the importance of their human capi-tal. Payroll is the highest, expensive and most important line item on the monthly P&L statement. So pay attention to your most valued commodity your company has by taking proactive versus reactive measures.

Learn how small businesses will succeed from Philadelphia's HR Experts during this 2.5 hour panel discussion on HR Considerations for Small Businesses.

REGISTER TODAY

For questions or more information,

call SCORE Philadelphia

(215) 231-9880

Ask for Mary Livingston

 

Learn to manage the

most costly budget

item in running

your business—Payroll!

Why Pa. Taxpayers Will Have To Cough Up $4 Billion

by: Brendan Magee

2/7/13

In Sunday January 27th's edition of the Philadelphia Inquirer, Joseph N. Di Stefano, reported that Pennsylvania's taxpayer's contribution to the state's pension fund is going to increase from $1.6 billion to $4 billion within four years. So what's one of the major reasons for the increase? Answer, the Pennsylvania State Employees Retirement System (SERS) board of directors not knowing the difference between gambling and speculating with money vs. prudently investing it.


In 2006 SERS gave $3 billion in taxpayer money to six private investment firms in an effort to outperfrom sagging bond and stock markets. They also needed to find a way to pay for increases to the pension benefit which was enacted by Gov. Tom Ridge, but who failed to provide the funding for such an increase.


So first things first, What is a hedge fund? It's an aggressively managed portfolio of investments and unlike your typical mutual fund they are not subject to the same level of regulations from the Securities and Exchange Commission. Their pitch is they are designed to generate above market rates of return. They claim to have a special or sophisticated ability to know in advance where your money should or shouldn't be to outperfrorm the market. In other words you could substitute the word speculate for aggressively managed because in order to outperform the market you would have to be able to predict the future. 

Pa. believed or wanted to believe that there were special frims out there that could do just that. They were so impressed that they paid one firm Arden Asset Management $20 million of taxpayer money to identify which hedge funds they should use for their pension portfolio from 2006 through 2012.
 

So the first step SERS took down the slippery slope of gambling and speculation was the failure to realize that in order to outperfrom the market, their portfolio (the taxpayer's money) would exposed to strategies that were in essence gambling and speculation. They paid for the privilege of getting a seat at the blackjack table with taxpayer money.


The second step was allowing someone to continually roll the dice with the pension's money. A hedge fund's performance is based on that fund manager knowing in advance which way the market is going and having their money properly allocated before the market reacts. The state had no idea that all the available infromation has already been factored into market prices. They failed to grasp that only unknowable and unpredictable information and events that will take place in the future and how the world's population reacts to those events will determine market prices going forward.  How in the world could anyone claim to have this ability? How in the world would anyone believe anyone who claimed to have this unique insight?


As is the case with most gambling, the results of the hedge fund managers was not very profitable. Between mid 2007 to mid 2012 the average hedge fund according to the Bloomberg Hedge Fund Index lost 10 cents on every dollar invested. Arden Asset Management fared better than the average hedge fund in that they gained 2 cents for every dollar invested, but that was far below the 7.5% projected and needed by the pension to meet its obligations.


 To compound, the problem the state anounced it was liquidating its hedge fund position. Another way and what would be the honorable thing for the state to tell the taxpayer is, The STATE BOUGHT HIGH AND NOW IS NOW SELLING LOW. As far as the state is concerned that's no problem,the taxpayer is more than willing to make up for the shortfall($4 billion).  The irony here is that the state anounced it will give Arden another $150 million in taxpayer money to invest.


I say the taxpayer has every right to be upset about how the state is mismanging their pension fund. After all it's the taxpayer who ultimately pays the price. However, the solution for the state and taxpayer is an Investor Coach. A coach would be an advocate not only for the state but the taxpayer as well. For example, the coach could create an agreement with SERS that they are not allowed to engage in any strategy that is consistent with gambling and speculation. Every transaction has to be anounced to the public in advance. There would also be strict fines placed on any governemnt official who engaged in or allowed for any gambling or speculation activities with Pa.'s pension money. After all, where is the incentive to disengage in a dysfunctional behavior if there is no penalty?



Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail to brendan@coachgee.com

Why Investors Need To Be Able Measure Portfolio Turnover

                               by: Brendan Magee

                1/24/2013

Diane told me how happy she was with her current investment advisor. She told me she was happy to have found someone whom she could trust, and I asked what was it about her advisor that she liked so much.

She told me how she had come to know him. Her father had passed away and the manager for the  firm that had been handling her father's investments called her. He let her know that that the broker, whom Diane had never met before, who had been handling her father's account was no longer with the company. The manager told her they had discovered that the broker had been engaging in an excessive amount of trading on behalf of her father's account which was generating a lot of commissions for the broker at the expense of her father's account.

The branch manager told Diane that their firm does not condone their brokers putting their personal gain ahead of their client's and as such that broker's employment with the firm had been terminated. Never mind the fact that the firm's manager didn't let Diane know that the manager had the responsibility of monitoring the behavior of their brokers, she felt good that the manager reached out to her and let her know that he would personally take over the day to day management of the money she was receiving from her father's portfolio. Diane felt that her interests were being looked after. Hence she felt she was in the hands of someone she could trust.

This is where the story takes an ironic and deceitful twist. The advisor said he would transfer the money to one of the frim's mutual funds and that would protect her money from excessive trading. So as we were talking I asked if she could measure the amount of turnover that was taking place in the fund her money was in. She answered no. The follow up question was, could she account for all the costs she was paying for the managemet of her money in the fund and again she answered no.

Now let's first understand what turnover in a fund is. Turnover is a measurment of  the amount of trading that goes on inside a fund. For example if the turnover rate is 100%, that means that within the year every stock within the fund has been sold and replaced with new stocks, and just like the more trading the broker was doing on her father's account, a higher percentage of turnover means the more commissions and other expenses  a mutual fund investor is going to pay.

The fund Diane was investing in had 79 different stocks and a turnover rate of 79%. So more than two thirds of the stocks owned by the fund were being sold and replaced with new stocks. This equates to an added expense of about one percent for the trading the fund was doing. Bear in mind, their is no where in her statements that these trading expenses are accounted for so she has no idea that this is going on.

The hypocrisy on the part of the manager is that he said the firm didn't condone the excess trading being done to her father's account, but then he endorses Diane investing her money in a very actively trading mutual fund that hides the expenses she is absorbing. You also have to understand that Diane has no control over the amount of trading her fund could be doing. It could go up to 200% and she'd have no idea as to what is going on.

The only way she would know about the amount of trading going on in her mutual fund is to ask and be able to answer the question, Can you measure the amount of turnover that is taking place inside your fund? If she realizes that a higher percentage of turnover means a higher rate of trading, which means higher expenses, which also means a higher degree of gambling and speculation taking place within her investments, she will know to stay away from not only the fund, but also the manager of the brokerage firm.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail brendan@coachgee.com.

Schwab Misleading Investors About ETF Costs

Schwab Misleading Investors About ETF Costs

                                          Nov. 6, 2012

I was watching a football game last Sunday and on comes a commercial from Charles Scwhab about how they offer the lowest cost Exchange Traded Funds (ETF's). They showed a comparison between their ETF's and the industry average and their cost of .004% cost was the lowest in the investment industry.  If that was all there was to costs that might be impressive, but the fact that they excluded a bunch of other costs associated with ETF's makes it misleading.


First, what is an ETF? An ETF is fund that mirrors a particular segment of the market. For example, an investor could own a fund that is identical to the S&P 500, but unlike a true index fund an ETF allows an investor to actually trade one segment of the market for another segment of the market. For example, today you could hold an ETF that mirrors the S&P 500 and if tomorrow you think the more attractive market is U.S. Small Company Stocks you sell your ETF in its entirety and buy the U.S. Small in its entirety. It's a quicker way of moving from one market to the other.


Getting back to Schwab misleading investors, ETF's include all the costs associated with an actively trading invetment strategy. The .004% Schwab is referring to is just the tip of the iceberg.

The key word here and why brokerage houses promote ETF's is, Traded. Remember how brokerage houses make money. They make it off of trading securities. How in the world could Schwab afford to put a commercial on prime sporting events on just .004%?
On a $100,000 investment, that .004% equates to $40. You could barely afford to put an ad in a local newspaper if that was all the revenue the brokerage house was bringing in.


So what are some of the costs in actively trading ETF's?

There's commissions. Just like when a stock is traded individually or through a mutual fund there is an expense that is imposed on that transaction and that same commission expense applies to ETF's. There are also Bid/Ask Spreads. When an investor places a trade in addition to the commissions that are paid, the trade also has to go through one of the brokerage houses's market makers.


Think of the market maker as any other business owner with an inventory to buy and sell from. When a customer comes along, the market maker tacks on an expense to the sale in order to make a profit. When the market maker buys back an ETF to add to their inventory they mark down the price so that when they put the ETF back on the market they can sell it at a price that they can profit from. None of the costs were mentioned in Schwab's commercial and if the an investor took the ad at face value they'd have no idea about all the other costs they'd be paying and how they will impact on their returns.


None of these costs metioned even begins to shed light on the costs investors will absorb by participating in the trading of their ETF's. There is no mention of the fact that trading securities on an active basis is gambling and the expected rate of return on gambling is 0%. After absorbing all the costs the return is negative. Hence, promoting solely the costs of holding the fund is completely misleading to the investing public.



Brendan Magee is the founder and president of Inevitable Wealth Coaching in Drexel Hill, Pa. With questions or comments call 610-446-4322 or e-mail brendan@coachgee.com.

Certainty And Disppointing Returns Go Together

Certainty And Disappointing Returns Go Together

by: Brendan Magee

Nov. 2, 2012

A very nice man shared with me that he had been disappointed with the results of his investments. He told me that over the past five years his account had only gone up by about one hundred dollars. He showed me his statement and asked if there was anything I could do to help.


As he handed me his account statement he told me this was all the money in the world he had and  since he was retired he couldn't afford his account to suffer any losses. Thus, when we looked at his account holdings, all the money was in a certificate of deposit.

Like a lot of people who have their money in certificates of deposit their was not a lot to celebrate in terms of return.His annual yield to maturity was a mere 0.95%. When you factor in the rising cost of living over the last 20 years at 2.80%, the value of his money wasn't going up by 0.95% on annual basis, it was decreasing by 1.85% every year he kept his money in that certificate.


However, his biggest investment problem was not losing value on his life savings every year. That was symptomatic of a bigger problem he has no clue about.


Our friend was looking at his investments looking for an investment solution when all the while his investments actually have an investor problem. The bigger more damaging problem he alluded to as he handed me his account statement. "This is all the money I have and I can't afford to take any losses," is masking his problem. Our friend cannot live with (is scared to death of) any negative returns. He cannot live with any uncertainty, uncertainty that comes from depositing any of his money into equities (stocks). In this man's case he cannot see that FEAR is making his investment decisons for him and he's paying a huge price for it.


Let me make this clear he will pay a price no matter what he does, a much higher price than money can offset. If he says to himself, I am tired of seeing my money lose value, his alternative is to commit some portion of his portfolio to investments that do not guarantee his prinicpal. From year to year he will be living with the thought that he could see statements that reflect a decrease in his account balance.


The question is how much uncertainty can he live with. Can he go to bed at night and sleep comfrotably knowing that 10, 20,30, or 50% of his money is exposed to the volatility of the stock market? We already know the price he is paying for complete certainty. The value of his money can do nothing but go down with all of it being deposited into his ceritificate of deposit.


The thing that really limits his options and leads to poor decisions is not asking the appropriate questions. For example, he needs to ask about his life expectancy. Rather than thinking from year to year, what if he realized he needs to be concerned with his money lasting over the next 25 years? What if he looked at how poorly investments that have a 100% certainty of principal have done when compared to the rising cost of living as opposed to the stock market?

Would it make it any easier if he had a better understanding of how to apply diversification to his portflio? Would he draw courage from seeing that when he makes use of investments that offset one another under different economic conditions that risk can be controlled?


More critical than all of these questions, is asking what purpose is he out to fulfill on with his money? In other words what is it that he is out to create with his money? Answering those questions will give him energy and passion, not answering them has him holding on to his money for dear life and his money is actually running his life.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. with questions, comments or suggestions call 610-446-4322 or e-mail brendan@coachgee.com.

Don't Expect Others To Do What You Don't

Don't Expect Others To Do
What You Don't Do Either

                         by: Brendan Magee

           Oct. 2012

I was listening to a popular investment radio show on Saturday morning. The show was making what I thought were some a good points. They were talking about how many financial planners and stock brokers do not have a fiduciary responsibility to their clients.

To be a fiduciary means that you are someone who is responsible for money that is intended for someone else's benefit. For example you may be the trustee to money that is intended for someone's grandchildren which will be handed over to them at some point in the future.

You could even be a person who is serving on a board of trustees that holds accounts that are to be handed over upon retirement. When someone is acting in a fiduciary capacity, they have a legal obligation to the people who are going to benefit from that money. If bad investment decisions are made, the beneficiaries can hold all fiduciaries responsible and can sue for damages.


"The Crash Proof Retirement Show" was making the case that that liability is not something that brokers and planners are subject to. Therefore they can, without too much fear of reprisal, make investment recommendations to their clients and not worry if the investments crash.
In essence brokers and planners can profiting from making investment recomendations that are not safe or suitable in particular for retirees, and no doubt there is evidence that conflicts of interests have occurred in the past. The show aslo made a good point that most investors are not aware of the lack of safeguards when dealing with brokers and planners. Again, all good points.


What I thought was even more telling than what the show's hosts were saying about the lack of fiduciary standards that brokers and planners were subject to was the fact that I didn't hear the show's hosts say that they were acting as a fiduciary when making investment recommendations to their clients.

The hosts were making the case that the lack of fiduciary standards was reason enough to not trust the advice of brokers or financial planners. However, merely pointing this out to you was the reason in which you could trust the recomendations and education you will receive from them. I can't see the ethics in trying to hold your competitors up to a standard that you yourself aren't willing to live up to.


I thought I would share with you one way to identify whether or not you are dealing with someone who is acting on and is well versed in the fiduciary standards of care. Ask the advisor if they are an Accredited Investment Fiduciary, AIF. Just like accountants have professional designations for which they need to pass courses and follow through with continuing education requirements, so do financial advisors who wish to specialize in a fiduciary standards for investing.

To become an AIF requires enrolling in, passing the course, fulfilling on continuing education requirements that are laid out by the University of Pittsburgh's Center for Fiduciary Studies.


When dealing with investments, be it your own or for those that are for the benefit of some body else, an AIF is specifically trained in the standards of care that must be applied in order to maintain and demontstrate prudence. Perhaps most importantly, AIF's know that should they stray from those standards of care they as well as all other fiduciaries of that account, are subject to a legal liabilty and can be sued for damages.

So no doubt, I think it's not in the investor's best interests to be dealing with a broker or financial planner who is not acting in a fiduciary manner in regards to their investments. I also do not believe it is very ethical or honest to create the illusion that you are acting in a fiduciary capacity when you are not. I also think it is good to be able to very quickly identify whether or not you are dealing with an advisor who is acting in a fiduciary capacity or not. All you need to do is ask if they are an AIF.


Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail brendan@coachgee.com.

The Mutual Fund Show Misleading Investors

 Adam Bold & The Mutual Fund Store Misleading Investors

                                                                by: Brendan Magee
                                                                 Sept. 12th, 2012

Adam Bold, has a radio show, the Mutual Fund Show, that broadcasts in 60 cities across the country. More than likely you have heard the show or listened to one of his promos. Callers call in and ask his opinion about whether or not they are in the right mutual fund. 


I was listening the other day when a caller inquired about a fund that he said had perfromed decently over the past three or four years, but lately has been producing disappointing returns. He wanted to know if he should sell it and investin a new one. Mr. Bold looked up the fund and found out that the majority of  the fund's assets were invested in China which he liked because in his opinion there was no doubt that China was going to be a world wide economic giant in the coming years. He went on to suggest a couple other funds he liked and that had had better recent performance numbers.


As the phone call ended I wondered if Bold truly understod what business he was really in. In his show's bio, Bold states that his job is developing recommendations for people's investments. However, when a person is making statements about the future economic condition of a country on the other side of the globe, they are not in the investment business, they are in the predictions business. In other words they are in the gambling business. Investing and gambling are not the same thing, and when you confuse the two, you have a recipe for disaster, especially when you are dealing with people's life savings. 


When I first started in the business, the rising economic giant was Japan. From 1965 through 1987 their GDP went from $91 billion to $1 trillion. Japan was in the midst of buying prime real estate all over the United States. They bought Pebble Beach, Rockefeller Center as well as a lot of banks. The fear was that the United States was going to become an economic colony of Japan. Then out of no where in 1989, Japan endured a major financial and real estate melt down.


The Japanese Government attempted a stimulus package (sound familiar!) in an attempt to revive their failing economy which didn't have the effect they had hoped for.As of October 2010, their national debt reached $1.5 trillion and their debt stood at 192% of their GDP. None of which, as Japan was gaining in economic power, could be predicted with any reliability.


So here we are again. China has  certainly been getting a lot of notoriety for its economic transformation, and somebody stands up and says, abosolutely they will become an economic giant. If Bold really saw triple digit profits coming from the Chinese economy, the caller would have been wise to ask how much of Mr. Bold's money he had invested in China. The real truth is, neither Bold nor anyone else knows beyond a shadow of a doubt what is going to happen to China's economy over the next six months, years or 60 years for that matter.


If Bold really understood how capital markets really worked he would have told the caller that the possibility of China becoming a world economic power has already been factored into market prices.

 On the flip side, the market has also factored in the possibility  of China's economic collapse. Beyond that his opinion is only a guess, which Bold didn't care to share with the caller. Nor did he seem to let the caller know that if he sold his fund at its current level and invested in the funds he was suggesting that he'd being creating a loss for himself by selling low and buying high.


Here's the bottom line. It's fun to make predictions. Right now in Philadelphia we're having a lot of fun on two fronts: the Phillies making the playoffs and whether or not Mike Vick lasts the year as the Eagles quarterback. It's great to debate such trivial things. However, no sane person in Philadelphia would, for one second, wager their 401k plans on whether or not their prediction turns out to be right.


As far as investing is concerned, ignore the predictions. No matter how well informed they sound, there is nothing to them. Follow the rules of investing: Own a cross section of equities, diversify amongst a variety of investment categories (cash, bonds, stocks), then rebalance. If you do those things you will have a lot more time to enjoy debating sports, hanging with  family and friends, or listening to your friends complain about the the investment tip they took advantage of that went south. 


Brendan Magee is the founder of Inevitable Wealth Coaching. With questions, comments, or suggestions, call 610-446-4322 or e-mail brendan@coachgee.com