Episode 124 – Making Decisions that Lead to a Secure Retirement with guest Julie Jason, JD, LLM

Episode: 124
Originally Aired: April 29, 2015
Topic: Making Decisions that Lead to a Secure Retirement with guest Julie Jason, JD, LLM

The Lange Money Hour - Where Smart Money Talks

The Lange Money Hour: Where Smart Money Talks
James Lange, CPA/Attorney
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Making Decisions that Lead to a Secure Retirement
James Lange, CPA/Attorney
Guest: Julie Jason, JD, LLM
Episode 124


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  1. The Pennsylvania Ban on Same Sex Marriage Deemed Unconstitutional
  2. Guest Introduction: Julie Jason, JD, LLM
  3. How Much Do I Need To Retire?
  4. Picking the Right People to Help You Plan
  5. Where to Find Further Advice from Julie

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1. The Pennsylvania Ban on Same Sex Marriage Deemed Unconstitutional

David Bear: Hello, and welcome to today’s edition of The Lange Money Hour, Where Smart Money Talks.  I’m David Bear, here in the KQV studio with James Lange, CPA/Attorney, and author of three books, Retire Secure!, The Roth Revolution, and now Retire Secure!: For Same-Sex Couples.  We’re going to change our regular format a bit today in light of historic and late-breaking headlines regarding same-sex marriage in Pennsylvania.  That’s right!  As KQV listeners heard earlier today when Jim Lange spoke with Earl Bugaile on the live line, now that Pennsylvania’s ban on same-sex marriage has been declared unconstitutional, committed LGBT couples can take advantage of many previously denied benefits to cut their taxes and increase their wealth by hundreds of dollars.  Jim?

Jim Lange: Well, first, why don’t we talk about two aspects of the decision that came down.  The first are the legal aspects.  So, basically, there are two areas: one is that Pennsylvania will now recognize same-sex couples’ marriages in different states.

David Bear: From states.

Jim Lange: From states.  So, let’s say, for example, that a same-sex couple was married in New York, or Washington D.C., or California, or Massachusetts, or any of the other sixteen states that did recognize same-sex marriages.  Up to now, Pennsylvania did not recognize those marriages.

David Bear: Umm-hmm.

Jim Lange: That’s one aspect of the decision that has changed.  The second aspect of the decision is that now, same-sex couples can get married in Pennsylvania, and actually, I think there are at least hundreds, maybe thousands, of people who’ve applied for marriage licenses, literally within the last twenty-four hours.  So, there is a hotbed of activity for same-sex couples who can now get legally married in Pennsylvania.

David Bear: Can that decision be appealed?

Jim Lange: Well, we thought it might be.  On the other hand, today, Governor Corbett came out and said it would not be appealed.  Now, that would not be his personal choice.  He would like to see it appealed and reversed, but I think that realistically, he sensed that he was likely to lose.  It might have been political.  It might have been for whatever reason they decided not to appeal it.  So, basically, the decision was issued without a stay, meaning it was effective the day it was made, which was May 20th.  So, as of the minute it was made, people could apply for licenses, and now that Governor Corbett has said that he will not appeal, I don’t think that people have to fear that the law will be reversed.

David Bear: Well, I know that you’re a legal expert, but even more than that, could you tell our listeners about some of the practical financial impacts of the decision on committed same-sex couples?

Jim Lange: All right, well, here, we have to…it’s not as big as some people might think, and the reason is because of prior laws that were the federal laws in nature.  So, why don’t we take a quick history?  So, the big law that really changed the whole argument is a case called Windsor, which was actually a federal Supreme Court case, and Windsor was actually an estate tax case.  So, if you are married and your beneficiary is a U.S. citizen, there is something called an unlimited marital deduction.  So, you could have a billion dollars, a hundred million dollars, it doesn’t matter how much, and if you leave that money to your spouse, there is no federal estate tax.  Now, in Windsor, New York State did recognize the marriage of two women.  But for federal estate tax purposes, under DOMA, which basically said that the federal government would not recognize same-sex marriages, the federal exemption or the unlimited marital deduction was denied.  She was required to pay estate tax.  She appealed.  It went all the way up to the Supreme Court, and the Supreme Court said, “Hey, not only are we going to recognize same-sex marriages if the state recognizes same-sex marriages, but we are going to use the law of celebration, not the law of residence, to control.”

David Bear: The state of celebration.

Jim Lange: That’s correct.  So, the law of the state of the celebration is what counts.  So, if you got married in New York or Massachusetts or California or any of the then sixteen states, for federal estate tax purposes, you were deemed married, and even if you were a resident of Pennsylvania, you were still deemed married.  Now, that was very important for precedent, but if you think about what the financial implications for same-sex couples are, they were not all that big for most same-sex couples because even without that law, everybody, whether you’re married or unmarried or anything else, has what is today a $5.3 million exemption from federal estate tax.  And if you’re married you have a $10.6 million, but even if you’re just single, you have a $5.3.  Well, most people don’t have $5.3 million.  So, as a practical matter, for most taxpayers, Windsor wasn’t all that important, even though it’s cited all the time.

David Bear: But there’s a state tax, too, on top of that, isn’t there?

Jim Lange: Well, we’ll get to that in a minute.

David Bear: Okay.

Jim Lange: I’m not there yet.  So then, the IRS came down with revenue ruling 2013-17, and that was where the IRS said, “Hey, we are going to extend the Windsor decision to income taxes.”  So now, no matter where you live, if you got married in a state that recognized same-sex marriage, for federal income tax purposes, you were going to be considered married.  Now, this affected a lot of people because, you know, virtually everybody pays income taxes, and there are, particularly in the area of estate planning for IRAs and retirement plans, there are enormous benefits of inheriting IRAs and retirement plans from a spouse versus inheriting IRAs and retirement plans from a partner.  So, for that reason, and for reasons that we’re about to talk to in a couple minutes regarding Social Security, my advice to a lot of same-sex couples was go to a place like Washington D.C., get married, come back to Pennsylvania to live, and if one of you dies, the survivor will be significantly better off, not because of estate tax purposes, although if you have more than $5.3 million, it would be important for federal estate tax purposes, but for income tax purposes, and since, you know, most everybody, at least the people that I work with, have some kind of IRA or 401(k) or 403(b) or some type of retirement plan, and since the rules that I’m not going to get into the details, but I do certainly in the book Retire Secure!: For Same-Sex Couples, are so much more favorable for spouses than for non-spouses, I was saying, “Go get married, come back to Pennsylvania, and then if the member of the couple who has the IRA or retirement plan dies, it will save tens, maybe hundreds, maybe over a million dollars, for the survivor.”

David Bear: Okay, I can see that. And so now, in Pennsylvania…

Jim Lange: All right.  So, that was the deal before the Whitehead decision.  All right, so now, Pennsylvania says, “Hey, we are now going to recognize same-sex marriage.”  Now, a couple things on that: first is, like you had mentioned earlier, PA inheritance tax.  Before a couple days ago, the PA inheritance tax, whether it’s one spouse to another or one partner to another, it was still a 15% PA inheritance tax.  Now, if you are married, there is no PA inheritance tax.  So, let’s say you had an estate of a million dollars and you left it to your spouse.  Before, $150,000 tax, today, no tax.  So, that’s one aspect.

Now, let’s talk about while people are living.  And this is huge.  And this, by the way, to me, if you’re a same-sex couple, and particularly if you’re in your sixties or older and you’re even considering getting married, the Whitehead decision now gives you much more motivation to get married, and here’s why.  Because now, I said before that the federal government and the IRS would treat you married if you got married in a place that recognized same-sex marriage, and that was basically the state of celebration, not the state of residence.  But for purposes of Social Security and collecting spousal benefits for Social Security, which, over time, can be worth hundreds of thousands of dollars, that was controlled by the state of residence.  So before, a Pennsylvania resident was not entitled to spousal benefits for Social Security, whether they were married or not, and if they were married, it didn’t matter where they were married.  Now, under the new law, which is not going to be appealed, they will be entitled to spousal benefits.  There’s not going to be an appeal.  So now, there’s a lot of people in their sixties that should be considering getting married because they will have all the benefits of a spousal benefit for Social Security, which, again, we could do a whole show on, and in fact, we’ve actually done four of them, not in the same-sex context, but actually in the married context.  And you can use such techniques as apply and suspend.  You can do claim now, claim more later.  You can have just plain spousal benefits, and then you can also have spousal death benefits, which can be literally hundreds of thousands of dollars.  So, it was a big deal for Pennsylvania residents, not just from a civil rights standpoint, but also from a financial standpoint.

David Bear: Well, you know, all that’s interesting, and I think now we should take a quick break and listeners can hear about how they can find out more about this.


2. Guest Introduction: Julie Jason, JD, LLM

David Bear: And welcome back to The Lange Money Hour.  I’m David Bear, here in the KQV studio with Jim Lange.  One aspect of estate planning is making the decisions that will lead to a secure retirement.  But it also entails reevaluating those decisions as your life circumstances and situations change.  For insights on this issue, we welcome Julie Jason back to the show.  A long-time director of personal money management for Jackson, Grant Investment Advisers, she’s a strong proponent of financial literacy who approaches investing with a healthy skepticism.  Author of six books, including The AARP Retirement Survival Guide: How To Make Smart Financial Decisions in Good Times and Bad.  Julie’s been quoted widely for her views on retirement and investing, and the IRS recognized her weekly financial column for its accurate, timely, informative and helpful tax information.  So, without further ado, welcome, Julie.

Julie Jason: Hi, hello.  How are you?

Jim Lange: Good!  It’s great to have you back on the show, Julie.

Julie Jason: Well, thank you very much.  Glad to be here.

3. How Much Do I Need To Retire?

Jim Lange: Well, one of the things that I think a lot of our listeners are interested in is as they approach retirement, they are interested in can they afford to retire, how much money can they spend in retirement?  And I know that you actually write about this, and you do this in practice, so I thought I would go right to the source and say how do you do those calculations?  Do you get into discussions of safe withdrawal rates?  What do you do when somebody is either thinking about retirement or they’ve already retired, the biggest issue is they never want to run out of money during their lifetime, what kind of advice would you have for somebody in that situation?

Julie Jason: Yeah, so the real question is: will your money last as long as you do?  And, of course, you have to go through an analysis on a case-by-case basis, on a person-by-person basis.  I do not believe there is such a thing as a safe withdrawal rate that applies to every single person.  I just don’t believe it.  I think this is a very, very personal exercise, and if you just think about it.  You know, if you have relatives or friends who are the same age, are they in the same circumstances as you are?  Do they have the same lifestyle as you do?  Do they have the same investment knowledge that you do?  Do they have the same investment expertise or experience that you do?  And you know that the answer is no, they don’t.  And that’s always the starting point.  So, you know, many times, you’ll see publications and writers and experts come out with a number.  They’ll say either three or four percent or some other number.  But I think that’s folly.  I think that it really depends on your situation.  But let me tell you something that I find interesting.  When I was writing the AARP book, which was in 2006-2007, one of the statistics that I researched for the book was what were people saying was a safe withdrawal rate?  And I have my notes from that period of time, and I found this very interesting.  This is a 2006 survey, so it was before the financial crisis.  Do you know that individuals who were surveyed, some of them believed that they could withdraw as much as 21% annually from their retirement savings without running out of money?  How do you like that?

Jim Lange: Well, that’s pretty shocking.

Julie Jason: That’s amazing, isn’t it?

Jim Lange: Yeah.

David Bear: How do they figure that?

Jim Lange: They didn’t!

Julie Jason: You know, you have to wonder!  But there’s another statistic which surveyed advisors, and that was also in 2006, and the range of expectations of a safe withdrawal rate given by advisors was between three to eleven percent.  It’s a safe withdrawal rate that you could reasonably expect you would not run out of money.  So, the reason I’m pointing that out is that it is absolute folly to come up with a percentage.  And it will be market-dependent.  You know, that number will be bigger or lower based on where you are in the market.  So, I think, for people who are approaching retirement or in retirement or even millennials who are thinking that there has to be another way other than possibly Social Security or a pension, they really have to focus on themselves, learn how to invest, learn about the markets and learn about what is safe for them, which is tied to health and longevity and lifestyle, and it’s really, really, really all about you, the investor.  It’s not about some artificial number or someone else’s situation.

Jim Lange: So, basically, you’re going to answer like an attorney.  It depends.  But I actually think that that’s…

Julie Jason: Well, you don’t mean that meanly, do you?

David Bear: It depends!

Jim Lange: Well, since I am an attorney, I’m allowed to knock attorneys!  Are there some guidelines that you would have?

Julie Jason: Yes.

Jim Lange: So, for example…well, I’d like to hear the guidelines.

Julie Jason: Okay.

Jim Lange: Because I know that you’re just not going to…I mean, I’ve read your stuff and you don’t just say, “Well, it depends.  Bye!”

Julie Jason: Right.  Well, okay, let me tell you the guidelines.  So, the first thing that I do when I meet a client is I assess what they’ve been doing in the past.  So, what kind of investors are they?  So, that’s key.  Are they aggressive investors or conservative investors?  What are they used to doing?  So, that determines, if you just think about it, if you are thinking in terms of a withdrawal rate, well, it depends on the investments.  How are the investments structured?  What is safe for that type of structuring?  So, experience and understanding is key.  Now, they’re coming to us for our experience, so we will apply our experience to their situation.  But I always want to know where they’re coming from.  So, that’s one thing.

The second thing is, we need to have a sense of longevity.  So, you know, we need to know if we’re talking to someone who’s forty, they may be retired.  Fifty, sixty, seventy, eighty, longevity is an issue.  So, we want to be able to have a sense of longevity.  There might be something that is family-specific that we need to know, but longevity.  So, those two things right there are pointing back at the client.

Now, the third thing is cash flow.  So, we want to know what the lifestyle looks like and how much does it cost to live today.  We’re not projecting anything out into the future yet.  Those are the three elements that are the starting points.  And then, what are the plans for the future?  So, expanding lifestyle, contracting lifestyle, all the things that go to a cash flow analysis.

So, those four elements all focus on the client, and it truly is all about you.  It’s not about someone you know.  It’s not about someone external to you or someone outside of your family.  So, that’s the basis of the analysis.  And then, you look at assets.  So, what are the assets and how does the cash flow picture fit in to what the asset level is?  And the ideal structuring of a portfolio is one that protects the principle and allows the portfolio to spin off interests and dividends that support the lifestyle.  So, you back into the structure of the portfolio based on the cash flow demands on the portfolio.  It is an iterative process and it sometimes takes some time to work through those elements, but then once you do, then you have your safe withdrawal rate, and it depends on all of those factors as to what that number is.  There’s no special number for any one particular person.  It’s a process that doesn’t require any kind of special analysis.  You don’t have to be brilliant to do this.  It’s just a process of organizing yourself, organizing the effort, and just working through each element of the puzzle.

Jim Lange: Well, one of the things that I’ve noticed is…and maybe it’s the type of clients that I have (who tend to be pretty involved in their careers and usually work a lot of hours), and I know the rule of thumb is to actually assume that you’re going to need less income in retirement.  And I kind of think that you’re going to need at least as much as you have now, maybe more, because one of the reasons you didn’t spend as much money, you didn’t go on a vacation as often, you didn’t develop expensive hobbies, is you were too busy working.

Julie Jason: You know, that’s a very good point.  And again, it points to how individualized this study is, because yes, one person will want to expand his lifestyle.  Another person will want to contract his lifestyle.  So, it really, really is individualized.  But yeah, you’re making a good point.  It’s not the same for everybody.

Jim Lange: And the other thing, I have clients that come in and say, “Hey, you know, I’m 65 years old.  I’m in very good health.  You know, I know in ten or fifteen years, it’s not going to be this way.  I’m not going to be able to travel as much.  I’m not going to be able to engage in some of these activities.  So, therefore, I want to spend more now.”  And I say, “Well, hang on a second.  Isn’t the potential cost for increased healthcare, in effect, overriding, or at least equaling, the additional money that you want to spend now?”  So, I don’t like when clients say, “Okay, I want to spend a lot of money now because I’ll plan to live more frugally, or I won’t have the needs later in life.”

Julie Jason: Completely agree.  Completely agree, because the uncontrollable costs are health costs, etc., and then, of course, you have to factor in inflation.  So, we’ve been living in a low inflationary environment, you know, and people aren’t talking too much about inflation, but I have some figures here.  If you look at a life-long career, and you look at saving during a life-long career preparing for retirement, you look at forty years.  So, I just looked at…a forty-year rolling period’s going back to the twenties.  And I’ll tell you, the inflation numbers are pretty high.  The last forty years?  So, starting ’74 through the end of 2013, on an inflation adjusted basis, the S&P 500 returned about 7% annually during that period, and the average annual inflation rate during that period was 4.13%.  That’s much higher that people realize.  You know, many people talk about the…if it’s a number, the 3% average annual inflation number since 1926 through today, that’s an annual number.  But once you start looking at chunks of long periods like forty years, they get pretty big.  Those numbers get pretty big.

Jim Lange: And that’s also depending on how you define inflation.  So, I know, for example, during high periods of inflation, that in order not to fuel more inflation, there was motivation for the government to show that inflation wasn’t so bad.  So, they didn’t take into account the cost of fuel and the cost of food into inflation.  So, yes, the cost of your computers might go down, but when you go to the gas tank, or when you go to the grocery store, all of a sudden, your expenses were way up.  So, your 4.1% number actually might be low.  So, I think you’re right.

Julie Jason: Yeah, and that is high.  You know, 4% is a very high number.  But yeah, you’re making a very good point.  Now, during those high inflationary times, remember when we had the gas lines?  So, in 1979, inflation averaged 13.3% for that year, 12.5% in 1980, 8.9% in 1981, before declining to 3.8% in 1982.  But yeah, we have to be prepared for inflation, and that brings us to talking about the market, and if you look at what the choices are in terms of investment options, when you have an overlay of inflation, you have to look at the stock market because when people run to the safety of a bank or treasury bills when they’re concerned about volatility, that is not going to be good enough during an inflationary period.  So, the banks and the T-bills lose money during normal inflationary times.  They don’t allow you to build capital.  So, it’s really a question of looking to the stock market to build retirement wealth and then maintain wealth during retirement as well.

Jim Lange: So, if you’re taking into account inflation, and you’re taking into account that perhaps some of your expenses might be higher, like fuel and food, and maybe sometimes some of those numbers like 4%, or even I’ve seen higher, might be a little bit too high if you actually look at individual circumstances.

Julie Jason: Yeah.  Yeah, so, that paints a picture that takes the potential retiree or the retiree to the following point: the point is that it’s very important to do a little bit of homework when you’re transitioning into retirement, and it’s the kind of homework that you have to sit down and you have to start doing some planning.  And some people don’t want to do the planning, and this is where you need help because, like I said, you don’t have to be brilliant to do it, but you just have to be organized and go through an organized effort to take a look at all the elements and come up with a program, a plan, that will serve you for the rest of your life.  And it’s those transitional periods, the retirement, the death of a spouse, a divorce, the sale of a business, an inheritance, those are the key times when you really need to sit down and plan.

Jim Lange: Well, and I think that it can’t be overestimated, the importance of the potential death of a spouse.  So, for example, particularly, I don’t know why I’ve seen a number of them in the past couple weeks, where a husband and wife came in, and the husband had a pension that might have been, you know, a reasonable pension, maybe $5,000 or $6,000 a month, and I always ask, “Well, what happens to the pension if you die?”  And I always hope for, “Oh, well, my wife gets 100% of the benefit.”  But often, it’s not.  Often, it’s, “Well, 50%,” or sometimes even less, and I had one case where, “Well, we took the whole amount (that is, a one-life pension), and we made up for it by buying a $100,000 life insurance policy.”

Julie Jason: Umm-hmm.

Jim Lange: And I was thinking, well, maybe that’s…by the way, those numbers have never worked for me, but if they did, it might be closer to a $500,000 policy.  So, I think, a lot of times, you underestimate what you might lose in pension.  And the other thing is, yes, it is true that, in general, the surviving spouse will get the higher of the two Social Securities, but the surviving spouse will only get one Social Security.  They won’t get both like you did while you were both alive.

Julie Jason: Umm-hmm.

Jim Lange: And that has to be taken into account.

Julie Jason: Yeah, absolutely.  And these are the types of things that, again, you know, anyone can do it as long as they put in the effort, put in the time, and it is so important to do because, if you think about it, when you’re thirty, you can pretty much buy just about any kind of stock or stock mutual fund with the help of either doing research or with the help of financial expertise.  But it’s very different when you are trying to turn over your investments into a portfolio that will not only produce income for you now for today, but also produce income for you for the rest of your life, offset inflation, offset taxes, offset rising costs if there are rising costs.  That’s a very different exercise.

Jim Lange: Well, I think those are some good words of wisdom.  The other thing, and I think that you’re just being nice about it, is that you keep saying, “You have to do this.  You have to do this,” because you don’t want to push people going to a financial advisor or getting some help.  But, very frankly, I see some people who are pretty bright, and if I’m going to pick on one class of people, I might as well pick on the engineers, because they probably have the highest degree of smarts compared to thinking how smart they are, meaning that they think they’re very smart, and they might be in very many areas, but in some areas, and sometimes some long-term financial planning, they are terribly mistaken, and sometimes even just talking with the appropriate financial professional might make a huge difference in their plans.

Julie Jason: Well, that’s an interesting observation.

Jim Lange: By the way, I’m married to a software engineer and I have a lot of engineers as clients, and I think quantitatively myself, and I like engineers, but sometimes, a lot of times, engineers think they know a lot about everything, including financial planning, and they might know more than the average person, and they might get it a little better, but they often on their own don’t come to the best conclusions.

Julie Jason: Yeah, that’s interesting, interesting.  Interesting observation.  But I’m a big fan of really learning as much as possible, and also being…you know, if you’re working with someone, then to really understand what’s going on, to ask questions, understand pricing, understand skill, understand expertise.  I recently had a situation where I was talking to an individual on how to choose an advisor, and he had just gone to a presentation at headquarters for one of the major firms, and I asked him about the person he was speaking with, and he had four years of experience, and he was actually thinking of possibly using that individual.  Now, that is not too smart.  You know, you really have to have someone who’s got experience in this particular field.

Jim Lange: Maybe we’ll talk about how to pick the appropriate person after we come back.

David Bear: Yeah, we should take another break now, so let’s do that.


David Bear: And welcome back to The Lange Money Hour, with Julie Jason and Jim Lange.

4. Picking the Right People to Help You Plan

Jim Lange: So, Julie, you were starting to talk about some of the criteria that you think consumers should use in deciding who to go to for financial help, and the one thing that you did say was you didn’t like the idea of somebody putting their life savings into someone who has four years experience in the field.

Julie Jason: Yeah, because this is not a time to train someone with your money.  You know, you really need to go to someone who is well versed in how markets work and how investments work and most importantly, well versed in how to work with individuals who are approaching or in retirement.  It is a very, very different situation to sell a stock or a bond to an individual who’s, again, much younger, and turn lifetime savings into a retirement portfolio.  Two completely different experience levels are needed for that.  And plus, you want someone who’s lived through different markets, because, you know, you have to understand how markets work, and that’s not something that you can pick up during a training program.

Jim Lange: Okay.  So, let’s say that somebody says, “Okay, that makes sense.  You know, I should go to somebody that has at least ten, maybe, better yet, twenty or even thirty (because I have more than thirty, so I’ll just throw that in there) years of experience.”  What other criteria should they use?  Because there’s certainly a lot of not-so-good advisors that do have twenty or thirty years experience.

Julie Jason: All right.  So, again, it depends on what you’re looking for.  So, if you’re looking for someone who can specifically know enough and be experienced enough to help structure a retirement portfolio and run it so that you don’t run out of money for the rest of your life, you need to look for that expertise in particular.  So, you have to interview people to see what they do and what they do most of the time, not what they do 5% of the time.  And that’s a journey.  It’s a search, and it’s the kind of search that you would do when you’re hiring someone.  So, it’s exactly the same sort of thing.  So, you’re looking for someone who will work with you and work with you well and produce the results that you need.

Jim Lange: All right.  So, you basically are saying, “Do your due diligence in choosing an advisor because it’s an important decision.”

Julie Jason: Oh, absolutely.  Absolutely.  There’s no question.

Jim Lange: All right.  And what about the way the advisor is paid?  Do you think it is a good idea to demand to know how exactly the advisor is compensated?

Julie Jason: Absolutely, because that determines…that’s very relevant to a whole bunch of different things.  And one thing, you know, it’s interesting.  The SEC has done a number of surveys, and the CFA Society has done a number of surveys of whether people understand the differences between advisors.  And I’m looking at a survey right now in front of me.  There’s quite a bit of work that’s been done in the field.  This was published by the Securities and Exchange Commission in January of 2011, and it’s a study on investment advisors and broker dealers.  If anyone in your audience is interested in understanding the true differences, I would highly recommend that they pull out this 200-page study and take a look at it because it goes through surveys, and it goes through the legal standards that apply to different types of people who are financial advisors.  And what it concludes is that the investor really doesn’t know the differences, and there’s a reason.  The reason is that the financial services industry uses the same terminology to describe people in the industry.  So, a financial advisor, financial consultant, money managers, a financial planner, there are many different terms, or a senior executive of investments, or, you know, those terms are loosely used.  So, you can’t tell by the title.  So, you have to go deeper.  And fiduciary duty?  Well, the SEC has concluded that people do not know what that means.

Jim Lange: Well, let’s talk about that for a minute because I think that’s critical, and I know that you have written about how critical that is.  So, can you tell us the difference between a fiduciary advisor (which, by the way, I happen to be one of) and someone who is not a fiduciary advisor?

Julie Jason: Yeah.  So, if you approach it from the legal standard, you’ll get confused.  So, let me approach it from a practical standard.  From a practical point of view, the person who is held to a fiduciary duty, that’s the highest duty unto the law, must disclose conflicts of interest if there are any conflicts of interest, and also put your interests ahead of his.  So, those are the two things that are most important, and there are a couple of court cases that go through the standards of care.  And by the way, if anyone would like a copy of that, let me know because I’m happy to e-mail anyone any of that material.  So, that’s the fiduciary.  That’s the highest standard.  You can really tell the difference by looking at the lower standard.  Under the lower standard, there is no duty to disclose fees or conflicts of interest.  If you’re the financial advisor, there’s no duty to put the client ahead of your own interests.  So, it’s a caveat emptor standard, buyer beware standard.  So, you know, if you, as a consumer, don’t realize that, you think, “Everyone has the duty to disclose conflicts,” then you are at a potential disadvantage.  But the way you solve that is you have to ask questions.  So, you have to ask: how much?  How are you regulated?  What else have you considered for me?  And why are you showing me this recommendation?  So, it’s a series of possibly embarrassing questions, but they must be asked.

Jim Lange: Well, I think that that makes a lot of sense, and I would say that I think most people need help in two areas.  One is the area that I like to write about and talk about on the radio, and do what is mainly strategies: Roth IRA conversions, Social Security, tax planning, tax loss harvesting, how much money people can safely spend, should you set up a 529 plan for your grandchildren, what the estate planning type is, and that’s what I personally like to do.  And then there is the other issue, which is actually managing the money, which is what you’re talking about now.  In my office, for example, by the way, for me, it’s too overwhelming for not only me to do all those functions, but even to have my office do those functions.  So, we have an arrangement whereby we have a money manager, who we think is a very good money manager, doing a lot of the kind of things that you’re talking about, who uses low-cost index funds.  Then our office runs the numbers and does the Roth stuff and the Social Security and the tax, etc.  And then, together, we charge one percent or less, and we’re both fiduciaries.  But I think that your point of somebody who’s going to really do the planning for you, and how are they going to charge you, and are they true fiduciaries, is very important.

Julie Jason: Yeah, absolutely.  So, it sounds like you’ve thought through how to combine the best of both worlds, to have an independent person who’s doing the money management, and then have you do the other side of the planning.

Jim Lange: Well, partly, it’s personal because I didn’t come from a sales background.  I came from a CPA and a legal background.

Julie Jason: Umm-hmm.

Jim Lange: And I love the strategy parts, and my advice, when I got into money management, was well, if you don’t do it, just hire somebody.  But the way I figured it is, how do I know if I have the right person?  Then I’m supervising somebody and I don’t know if they’re giving the right advice.  Then, what if it doesn’t work out and the person leaves and the client is holding the bag?  I actually wanted somebody who was as good in money management as I was in my areas.  So, I think that that’s somewhat of a unique model.

Julie Jason: Yeah, it actually is.  It’s very interesting.

Jim Lange: Yeah.  But hopefully, when people are going to somebody that, in one form or another, they are getting the benefit of both the tax, Roth, Social Security, tax loss harvesting, estate planning, etc., and the appropriate money management, and whether that comes from one person or one firm or multiple firms, some people have CPAs and lawyers and financial advisors, and unfortunately, sometimes it’s confusing because you get different pieces of advice.

David Bear: Well, it seems to be a clear advantage if you get both the long-term perspective and the short-term analysis that will provide the best overall organic result.

Jim Lange: Well, of course, we would say that we’re…I don’t think Julie or I would like the idea of saying, “We’re just doing short-term.”  I would think that we would hope that we would do all long-term.  But one of the issues that I think that maybe you could help our listeners out is both you and I are big fans of being a fiduciary advisor.  How can you tell if somebody’s a fiduciary advisor?  You know, if somebody’s selling insurance and he doesn’t say, “Oh, by the way, I stand to make money for this,” or there’s somebody selling an annuity where there’s maybe a 10% commission, and they’re not disclosing that, how can you find out?

Julie Jason: Well, okay.  So, you have to be a bit of a nudge, and you really have to ask.  You have to ask what’s the regulatory structure that covers you?  But I have to tell you that a lot of advisors don’t know how they’re regulated, surprisingly.  You know, in my personal experience, there’s some confusion on that level.  But then, you also can ask for a Form ADV, also called a brochure.  So, you can go to the SEC website.  So, that’s the Securities and Exchange Commission website, and look up the firm and look up the Form ADV.  So, the Form ADV is a disclosure document, and every fiduciary advisor must comply with the registration requirements, unless there’s an exception.  There are some exceptions for lawyers and accountants.  So, that’s a very good starting point.  Now, I have to mention that you have some firms that are both fiduciaries and non-fiduciaries, and there was a very interesting case that was decided in 2006-2007.  The circuit court of the District of Columbia called Financial Planning Association vs. SEC, and until that time, if you bought a managed account, which looks like it’s a fiduciary-type of account, from a major brokerage firm, there had to be a disclosure on the paperwork.  And let me just give you a minute and let me just read this disclosure to you, and then I think your audience might get a sense of what the difference is.  So, very quickly, what the disclosure had to say is: “Your account is a brokerage account and not an advisory account.  Our interests may not always be the same as yours.  Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest.  We are paid both by you and sometimes by people who compensate us based on what you buy, etc. etc.”

Jim Lange: That’s pretty scary.

Julie Jason: Isn’t that interesting?  So, that was the disclosure that was required before on marketing literature before this case came down, and the result of the case was that someone who was selling a product like this had to become a registered investment advisor and had to be a fiduciary.  But the problem now, and this gets a little complicated, the problem now is you can go to someone who is both a fiduciary and not a fiduciary, and you have to ask, “Which hat are you wearing?  Are you wearing the fiduciary hat, or the non-fiduciary hat?”  And technically, the term is called ‘dual registration.’  So, many firms are now registered both as registered investment advisors, which are the fiduciaries, and the non-fiduciaries who are the brokerage firms.  So, you can go to a major firm and now have one person you’re talking to who can wear two hats, and you have to ask, “Which hat are you wearing?”

Jim Lange: That’s pretty scary.  Is it fair enough to say to your advisor, “Are you a fiduciary and are you acting in a fiduciary manner with regards to my account?”

Julie Jason: Yeah, “And right now, this advice that you’re giving me, are you acting as a fiduciary right now with respect to the advice?”  Yes, of course.  Now, can you rely on that?

David Bear: If you have a recording!

Jim Lange: Well, I would hope that somebody wouldn’t lie about something like that outright.  On the other hand, I’m naïve.

Julie Jason: I mean, it could be a misunderstanding, too.  And that’s why you really want to have something in writing that confirms your understanding of the situation.  And one way to do that, and I’m an arbitrator and a mediator as well, so one way to do that is just to write a note to whoever you’re dealing with, the financial advisor, and say, “I understand that this is whatever the deal is, that you’re recommending I do blah, blah, blah, and that you are acting in my best interests when you’re making this recommendation, and that there is no hidden or undisclosed conflict of interest in this recommendation.”  Now, who’s going to do that?  I don’t know!  But that would be the way to really safely pursue this course of action.

Jim Lange: And for whatever it’s worth, in our office, if we even mention investments, I give people my ADV and the ADV of the money manager, and that has all types of information about us, including all our fees, which I think is appropriate.  And that way, people know right up front exactly what we’re going to do for them and how much they’re going to pay.

Julie Jason: Yeah, that’s exactly what you want to look for.

5. Where to Find Further Advice from Julie

Jim Lange: Well, we only have about two minutes left, and I don’t know if we have covered everything that you wanted.  And the other thing is, you have so many books out, and you have so many potential things that I could encourage listeners to pick up.  If you could tell us what you think might be the most relevant thing for most of our listeners.  I loved your AARP books.

Julie Jason: Oh, well, thank you.  Thank you.  That was fun doing…

Jim Lange: And I liked the book…I forget the name of it, but the one that came out in 2011, I thought was excellent.

Julie Jason: Managing Retirement Wealth was the title.

Jim Lange: Right, all right.

Julie Jason: Yeah.

Jim Lange: So, that was the one that I read and liked the most.

Julie Jason: Oh, well, thank you.

Jim Lange: If there was one book that our listeners should go to, do you think that it would be that, or…?

Julie Jason: Yeah.  You know, let me just give you, very briefly…those two books, The AARP Retirement Survival Guide and Managing Retirement Wealth are really meant to be read together.  And the reason is, the AARP book is written for a very broad audience, but it goes through some of the issues that we’ve been talking about, such as pricing, how do you find an advisor, how do you know who you’re talking to, a big section on scams that you don’t want to get into, especially as you’re retiring, and some transcripts from some cases that show how people are approached incorrectly.  Also, cash flow, and also, there’s a big section on insurance products too, which I think are important to understand as you’re moving into retirement because you may be shown an insurance product or retirement income product.  All right, so that’s the AARP book.

Then, the second book that follows it, “Managing Retirement Wealth,” takes people who have assets who want to structure a retirement portfolio, and it answers the question of “can you live on it?”  In other words, will your money last for a lifetime?  And then, how do you leave a legacy and all?  So, that’s more of a process book that takes you through the process of how do you organize yourself and how do you structure the portfolio.  So, they really come together, I think, the two of them.  And by the way, I do write a column as well, and I encourage people to write to me with their questions because I’m very happy to answer questions through the column.

Jim Lange: You know something?  We really have to go.  But the important thing is the books, and let me simplify, if I could.  Go to Amazon.com, Julie Jason, look for the AARP book, and the other one is called…?

Julie Jason: Managing Retirement Wealth.

Jim Lange: Managing Retirement Wealth.  Thank you so much.  You’ve been a great guest.

Julie Jason: Thank you.

David Bear: And you can also reach Julie at www.juliejason.com. Thanks also to Phil Stillwagon, our in-studio producer, and Lange Financial Group program coordinator Amanda Cassady-Schweinsberg.  As always, you can hear an encore broadcast of this show at 9:05 this Sunday morning, here on KQV, and access the audio archive of past programs, including written transcripts, on the Lange Financial Group website, www.paytaxeslater.com.  And here’s a special offer: for one day only, Monday, June 16th, the Kindle eBook version of Jim’s new book, Retire Secure! For Same-Sex Couples, will be available for free on Amazon.  Otherwise, all proceeds from the book go to Freedom to Marry, the nation’s leading campaign working to end the exclusion of same-sex couples from the responsibilities, protections, and commitment of marriage.  You can also call the Lange offices at (412) 521-2732.  And finally, mark your calendar for Wednesday, June 4th at 7:05 and the next new edition of The Lange Money Hour when Jim will welcome Pitt Professor of Law Lawrence Frolik to the show.




jim_photo_smJames Lange, CPA

Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania.  He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again.  He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans.  His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans.  Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger’s Retirement Reports and The Tax Adviser (AICPA).  Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.