The Impact of Student Loans on Your Own Retirement

Roddy MarinoRoddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

An education is one of the greatest gifts a parent or grandparent can give to the next generation. The problem for many, however, is that it comes at the cost of their own retirement.

People over the age of 60 represent the fastest-growing segment of individuals taking out loans for education. Over the past decade, student loans taken out by individuals over the age of 60 grew from $6 billion in 2004 to $58 billion in 2014. To put the dollars into perspective, consider another staggering statistic—the numbers of senior citizens with student debt exceed 760,000. Some have co-signed loans or taken Parent PLUS loans to help children or grandchildren get an education. Other seniors carry old debt from when they returned to school to get advanced degrees or in the pursuit of new skills needed for a career change.

A mistake some retirees make is they incorrectly assume that they will never have to repay their student debt. Only two things can make federal college debt go away: satisfaction or death of the borrower.

shutterstock_44454148Federal student loans aren’t forgiven at retirement or any age after. Bankruptcy won’t even discharge a federal student loan, and the consequences to a senior who defaults on a federal loan are severe. The government can garnish Social Security benefits and other wages. Recent reports indicate over 150,000 retirees have at least one Social Security payment reduced to offset federal student loans. This number represents a drastic increase from the 31,000 impacted in the year 2002.

The government can withhold up to 15% of a borrower’s retirement benefits and can also withhold tax refunds in the event the borrower defaults on a college loan.

If repayment is not possible, you may want to explore a few options to minimize the impact on cash flow once you are on a fixed income. You could stretch out the term of the loan as long as possible through extended payments, or enter into an income-driven repayment plan. Typically, borrowers must pay 10-20% of discretionary income in an income-contingent scenario.

Both strategies could reduce your monthly payments; however, ultimately either strategy will result in higher total payments. To put it simply, debt of any kind is best retired before you retire.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Wisdom, Not Just Wealth

John_SolomonJohn Solomon, Executive Vice President, Wealth Advisory

When it comes to passing assets down to the next generation, many parents worry heirs are ill-equipped to handle sudden wealth. In a recent survey, 80% of Americans said they planned to transfer their wealth, but only 45% actually had a plan in place (State Street Global Advisors). For those with a plan, the focus seems to be on the technical aspects of the transfer—wills, trusts and other estate planning strategies.

Wills and trusts, when prepared correctly, can help transfer wealth efficiently and effectively. They help provide direction on how to divvy out assets and can even give guidance to heirs about how to manage this new wealth. An ethical will, on the other hand, aims to transfer intangibles like life lessons, core values, aspirations, and wisdom.

Ethical wills, also known as legacy letters, are not legally binding, but they present a way to talk about values and beliefs pertaining to wealth and help to share personal lessons you have learned along your journey. Most importantly, it helps you articulate what it is about money that is important to you; how your wealth fueled your passions and enabled you to support the ones you love. It’s a place to talk about your past financial successes and failures.

shutterstock_240954376Money has long been considered a taboo topic because it is emotional and highly revealing. How you handle your money and the thought-process you use for spending and making investment decisions speaks to your core values and the inner force driving your actions. An ethical will can help you describe your relationship with money, explain how you used your wealth to bring your hopes and aspirations to fruition, and how you would like your wealth to serve the next several generations. It also gives you an opportunity to provide historical perspectives and references and bring to light past financial successes and failures. You can explain how your wealth was initially created and if it was even passed down through the generations prior. The goal in sharing your family’s financial ancestry is to emphasize family values and the profound impact they have made in your life.

Communication is the key element of successful wealth transfer. An ethical will gives that one last opportunity to punctuate what truly matters to you about the wealth your heirs will inherit.

The Brinker Capital Wealth Advisory team delivers exceptional service and support to meet the unique wealth management needs of high-net-worth and ultra-high-net-worth investors, family offices, institutions, and endowments.The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Guiding Your Child to Financial Independence

John_SolomonJohn Solomon, Executive Vice President, Wealth Advisory

Good money management is a fine example of a skill best learned young. The earlier your child gains control over their financial world, the more time your child has to make thoughtful decisions that bring them closer to financial freedom and the fulfillment of their life goals.

You can guide your child towards financial independence by imparting these valuable lessons:

Promote Him/Her to Account Manager

The best way to encourage financial responsibility is to make your child responsible for their financial decisions.

When your child is young, you most likely make all of the financial decisions for them. You probably opened their first bank account when he or she was just an infant. You instruct when to make a deposit and when money should be withdrawn.

At some point, well before the child reaches the age of maturity and can legally take independent action on the account, you should begin to cede some control. The child should start to take on the responsibility that comes with managing the account, getting comfortable with the decision-making needed to guide financial growth. After all, this is the money that will fund future whims.

Once children feel ownership over some pool of money, it should be the source of funding for non-essential items. As the account manager, the child then must decide whether he or she wants something badly enough to take money out of their account. If money is spent from the account, your child will have to figure out how to replenish it. Discretionary purchases exceeding the amount available in the account should be discouraged, to emphasize the notion that money is a limited resource.

Let Consequences Teach

There comes a time in a young adult’s life when they must live with the consequences of their decisions and circumstances. For example, often young drivers fail to consider insurance, fuel, and routine maintenance when they calculate how much they can afford to spend on a car. Increased expenses are a natural consequence of car ownership. Sometimes, these overlooked costs dawn on the teen only after the uninsured car is in the driveway, with an empty gas tank. This is a prime time for natural consequences teach the lesson. If you swoop in to protect your child from a painful lesson, they learn an entirely different lesson. They learn that when their money runs out, they simply need to tap into yours.

Encouraging Surfing

Before your child makes a purchase, insist upon comparison shopping. Encourage your son or daughter to surf the internet to explore the best deals available.

Make Them Honor Financial Commitments

Teenagers can come up with all kinds of creative excuses for not following through. Backing out of commitments, especially financial commitments, should be non-negotiable. If your child asks you to float them some money for an impulse purchase, make them pay you back. If your child agrees to shovel a driveway or babysit a neighbor, make sure they show up, on time and ready to work.

Set Guidelines

Before your child receives his or her first paycheck, you should talk about the importance of saving for both short- and long-term goals. Set the expectation that each a certain percentage of pay period should go towards meeting those objectives.

Give Incentives

Some children seem hardwired to spend their money as quickly as it is earned while others save every penny. To encourage saving, consider providing financial incentives. For example, you may deposit $10 for every $100 your child puts in the bank.

Give Them a Peek

Many families don’t talk about money. Parents often worry their child will misconstrue the information, share it with others, become complacent, or endure an unnecessary burden. When you explain certain aspects of your financial life to your child, however, it provides context and clarity to your decisions. It also allows you to talk about what money means to you. Nothing makes an example clearer for a child as when you explain trade-offs you have made in your life, like buying a smaller house closer to work, so you spend less time commuting and more time with the family.

The Brinker Capital Wealth Advisory team delivers exceptional service and support to meet the unique wealth management needs of high-net-worth and ultra-high-net-worth investors, family offices, institutions, and endowments.The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Personal Benchmark was Made for Days Like This

Crosby_2015Dr. Daniel Crosby, Executive Director, The Center for Outcomes

Chuck Widger and I released our New York Times bestselling book, Personal Benchmark: Integrating Behavioral Finance and Investment Management, on October 20, 2014. Although the book was published in 2014, the writing process began in 2013, and Chuck’s original idea for a goals-based investing system is much older still. Both 2013 and 2014 were great years to be invested, with the S&P 500 returning 32.39% and 13.69% respectively. But although Personal Benchmark was crafted in a time of prosperity it was created with an eye to days just like today.

What is needed during times of fear is an embedded solution that helps clients say “no” to short-termism and say “yes” to something bigger.

As we wrote in the book, “While investor awareness and education can be powerful, the very nature of stressful events is such that rational thinking and self-reliance are at their nadir when fear is at its peak.”

Financial advisors do their clients a great service by educating them about investing best practices, but at times of volatility, logic is often thrown out the window. What is needed during times of fear is an embedded solution that helps clients say “no” to short-termism and say “yes” to something bigger.

When presented with an extremely complicated decision, it is human nature to seek simplicity, something psychologists refer to as “answering an easier question.” Rather than deeply consider and weight the relative importance of social, economic and foreign policy positions, voters tasked with choosing a Presidential candidate tend to instead answer, “Do I like this person?” Confronted with a complex dynamic system like the stock market, the easier question that we ask ourselves is, “Am I going to be OK?” Part of the power of the Personal Benchmark solution is that it helps clients answer this important question in the affirmative.

bookOur book discusses the human tendency to engage in “mental accounting”, the psychological partitioning of money into buckets and the corresponding change in attitudes toward that money depending on how it is accounted for. Page 154 features the story of Marty, a Philadelphia-area gang member who separated his money into “good” and “bad” piles depending on whether it was honestly or ill-gotten. Marty would tithe to his local church using the good money, but reserved his bad money for reinvestment in his criminal pursuits. Although we are hopefully all more civic-minded than Marty, we are no less likely to label our money and spend, invest and think about it relative to that label. One huge advantage of Personal Benchmark the solution is that it sets aside a dedicated “Safety” bucket for days just like today. When a client asks herself, “Will I be OK?” she can take comfort from the fact that her advisor has accounted for her short-term needs. Being comforted in the here-and-now, she will be less likely to put long-term capital appreciation needs at risk.

“While investor awareness and education can be powerful, the very nature of stressful events is such that rational thinking and self-reliance are at their nadir when fear is at its peak.”

Besides helping clients say “no” to short-termism, Personal Benchmark also helps advisors paint a more vivid, personalized picture of return needs. Page 203 of Personal Benchmark tells the story of Sir Isaac Newton, who lost a fortune by investing in what we now refer to as the “South Sea Bubble.” Newton invested some money, profited handsomely and eventually sold his shares in the South Sea Company. However, some of his friends continued to profit from their investment in South Sea shares and Newton was unable to sit idly by and watch people less gifted than he accrue such fantastic wealth. Goaded on by jealousy, he piled back in at the top and lost almost everything, saying after the fact, “I can calculate the movement of the stars, but not the madness of men.” Newton’s failure is a direct result of anchoring his benchmark to keeping up with his friends instead of attending to his own needs and appetite for risk. If Personal Benchmark’s Safety bucket is for providing comfort today, then the Accumulation bucket is a vehicle for rich conversations about the dreams of tomorrow. As clients simultaneously manage their short-term fears and identify their long-term goals, they are able to experience the best of a goals-based solution.

Personal Benchmark was created in a time of comfort and even complacency on the part of some investors, but was done so with a perfect knowledge that there would be days like this. At Brinker Capital we believe that an advisor’s greatest value is providing “behavioral alpha”, increasing returns and mitigating risk through the provision of sound counsel. Our goal is to be your partner in that sometimes-difficult journey and Personal Benchmark is evidence of that commitment.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Brinker Capital Founder and Executive Chairman Charles Widger Makes Historic $25 Million Investment in the Villanova University School of Law

Coyne_HeadshotJohn Coyne, Vice Chairman

All of us at Brinker Capital are proud to recognize the generosity of our founder and executive chairman, Chuck Widger, who has made a transformative $25 million investment in the Villanova University School of Law. In recognition, the school has been renamed the Villanova University Charles Widger School of Law.

Chuck, a 1973 Villanova School of Law grad, proudly refers to himself as a “Villanova lawyer,” and has remained involved with the school in various capacities over the years. He has played an active role in its efforts to revolutionize legal education by infusing vital business coursework and practical experience into the Villanova School of Law’s curriculum. Its tagline, “Where Law Meets Business” perfectly captures Chuck’s vision of what law schools should be doing to train tomorrow’s legal, business, government and nonprofit leaders.

Chuck_BlogChuck stated: “My investment in Villanova Law is an investment in the preservation of the two institutions that are vital to a free society, the rule of law and a market economy, both of which will enable us to flourish as a people for generations to come.”

Brinker Capital is pleased to recognize all of our Villanova alumni: Phil Green, Ping Guan, Ed Kelly, Neal McLaughlin, Jeff Raupp and Jamie Shoup.

More information about the Villanova University Charles Widger School of Law can be found at: http://www1.villanova.edu/villanova/law.html

Brinker Capital, a Registered Investment Advisor.

Educating Clients in the Search for Yield

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

We were proud to be Premier Sponsors of this year’s Financial Services Institute’s OneVoice conference. We participated on multiple panels while there and had the opportunity to network and hear from many industry experts to learn about the latest within the industry.

I participated on the panel, Educating Clients in the Search for Yield, that addressed the issue of whether or not alternatives provide a legitimate and sustainable source of income. After a great discussion, we concluded that investors need to understand what they are buying and should consider these issues when doing their due diligence:

  • There is a variety of alternatives that come with lower (but not zero) correlation to traditional asset classes (equities and bonds) absolute return, real asset, BDC, private equity strategies have different return and risk profiles; liquid and illiquid structures.
  • It is important to be aware of the risk components within strategy: interest rate, credit, operational, funding risk.
  • Don’t stretch for promise of high yield as high yield is only one part of total return.

Click here to listen to the audio recording.

Brinker Capital at the FSI OneVoice 2015 Conference

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer, Brinker Capital

Brinker Capital is once again proud to be a Premier Sponsor of the Financial Services Institute (FSI) and the 2015 OneVoice conference in San Antonio, TX from January 26-28. OneVoice is the annual gathering of home office executives from independent financial services firms providing networking and education opportunities to learn about the latest within the industry.

I am honored that Brinker Capital has been selected to participate in multiple session at this year’s conference. On January 27, Brinker Capital Vice Chairman, John E. Coyne, III, will be a participant in the Using Alternatives in Investment Advisory Accounts panel; Brinker Capital Senior Investment Manager and International Strategist, Stuart P. Quint, III, will partake in the Educating Clients in the Search for Yield panel discussion, and I am personally excited to moderate the Recruiting Successes and Challenges panel discussion.

With a culture rooted in accountability, dependability and innovation, Brinker Capital has been committed to being the best strategic partner to financial advisors since 1987. This is why we feel that our partnership with firms such as FSI is so valuable and helps to make a difference in the financial advisor community.

We’re looking forward to another great conference hosted by the FSI and hope to see many of you there!

Brinker Capital, Inc., a Registered Investment Advisor

Reach Out in Good Times and Bad

Sue BerginSue Bergin, President, S Bergin Communications

It’s no secret that clients like to hear from their advisors. In fact, failure to communicate is one of the top five reasons why clients become dissatisfied with their advisor. According to a Spectrum study, 40% of clients said they consider leaving when the advisor makes them do all the work (make all the calls).[1]

A recent study by Pershing, however, shows that advisors do make the calls—when they have bad news. Here are some of the key findings when it came to communication choices.

  • 58% of the advisors contacted clients during market downturns, yet only 39% reached out to discuss market gains.
  • 68% of advisors reached out to clients when personal investments declined, while only 53% initiated contact with the client in instances when personal investments increased in value.[2]

Bergin_Reach Out in Good Times and Bad_6.19.14How News is Delivered
The telephone is the most frequently used communication vehicle for both good and bad investment performance news. A quarter of the advisors surveyed used email and face-to-face meetings to communicate market losses, while 58% of the advisors picked up the phone. The only type of communication that happened more frequently in person than any other message was in the area of education. 52% of advisors said that they scheduled face-to-face meetings to educate clients while 48% did so over the telephone.

“No News is Good News” Applies Better to Weather than Client Relationships
Communication work is fundamentally about two things: trust and relationships. Good communication can strengthen relationships and deepen trust while poor communication can have the opposite effect. The “no news is good news” approach many advisors seem to take is problematic for a few reasons. It robs the advisor of the opportunity to score relationship-building points. It also increases the risk of clients feeling neglected. Finally, it makes it more difficult for the advisor to identify opportunities proactively because they become somewhat out-of-touch with what is happening in their clients’ lives.

[1] http://www.onwallstreet.com/gallery/ows/client-switching-advisor-top-five-reasons-2681390-1.html

[2] The Second Annual Study of Advisory Success: A New Age of Client Communications and Client Expectations, Pershing.

The views expressed are those of Brinker Capital and are for informational purposes only.

Embracing Innovation: Envestnet Advisor Summit Wrap-up

VradenburgGreg Vradenburg, Managing Director, Investment Services

Last week we were honored to be one of the Premier Sponsors at the Envestnet Advisor Summit in Chicago. The theme of the event was “the next big thing” and it was evident everywhere. Envestnet Chairman and CEO Judson Bergman opened up the conference by talking about how advisors need to be disruptive innovators in order to succeed and overcome looming industry challenges. He stressed the importance of embracing technology, building brand and perfecting marketing and reminded us of past giants such as MySpace, BlackBerry and Blockbuster that did not take these steps and were not aware of happenings in the new markets and seemingly fell behind.

Envestnet President Bill Crager also talked about how the role of the advisor will become increasingly important in the next five years. As older advisors begin to exit the business, Crager projects that the average advisors assets will increase from $90 million today to $145 million in 2020. (Source: “9 Takeaways from the Envestnet Advisor Summit”, Financial Planning, May 20, 2014)

Conference attendees were also introduced to the Envestnet Institute, an online advisor education portal that features white paper, videos and webinars. Brinker Capital is proud to be one of the contributing content partners for this exciting new unified education portal.

Finally we were pleased by the informative “Liquid Alternatives Panel” that our CIO, Bill Miller, participated in. All panelists agreed the education around alternatives is key for both clients and advisors. Alternatives firmly fill a role in a portfolio by providing greater portfolio diversification as well as access to unique opportunities and strategies; however, they are just a piece of the overall pie.

Our thanks go out to Envestnet for hosting such a great event that allowed us to network with colleagues, investment professionals and Envestnet representatives! We look forward to next year’s Advisor Summit!

Bridging the Alternative Investment Information Gap

Sue BerginSue Bergin, President, S Bergin Communications

The groundswell of interest in alternative investments continues to build, creating a thirst for clear, comprehensive and client-facing educational materials.

According to Lipper, alternative mutual funds saw the biggest percentage growth of any fund group, with assets under management increasing 41% to $178.6 billion in 2013. A recent report by Goldman Sachs projects liquid alternatives are in the early stage of a growth trend that could produce $2 trillion in assets under management in the next 10 years. In order for this to happen, however, investors must gain a better understanding of how alternative investments work, how they function within a portfolio, and where potential benefits and risks could occur.[1]

EducateAlternative investment strategies are a separate beast than the traditional methods of investing and traditional asset classes that most investors are familiar with. From divergent performance objectives, to the use of leverage, correlation to markets, liquidity requirements and fees, a fair amount about alternatives is different from traditional investments. Understandably, investors have many questions before they can decide whether to and how much of their portfolio to dedicate to alternative investments.

The task of educating investors about alternatives is falling largely on the shoulder of the advisory community. Well over half (60%) of the high-net-worth investors recently surveyed by MainStay Investments, indicated financial advisors as the top resource for alternative investment ideas. Trailing advisors was internet-based research (41%), research papers and reports (35%), and financial service companies (30%).[2]

Historically, advisors have shied away from recommending alternative investment strategies because they are too difficult to explain. The conundrum they now face is that 70% of those advisors surveyed also acknowledge the need to use new portfolio strategies to manage volatility and still seek positive.[3]

Bridge the Education GapIt’s important that advisors start to value the use of alternatives and find ways to bridge the information gap for investors. The good news is that investors have tipped their hands in terms of what they really want to know. According to the MainStay survey, clients want more information in the following areas:

 

  • Explaining the risks associated with alternative investments (73%)
  • Learning about how alternatives work (71%)
  • Finding out who manages the investments (54%)
  • Charting how alternatives affect returns (46%)

[1] http://www.imca.org/pages/Fundamentals-Alternative-Investments-Certificate

 [2] “HNW Investors Turn to Advisors For Alternative Investment Guidance,” InsuranceNewsNet, April 3, 2014.

[3]Few advisers recommend alternative investments: Respondents to a Natixis survey said that they stick to strategies that can be explained to clients more easily,” InvestmentNews, October 24, 2013

The views expressed are those of Brinker Capital and are for informational purposes only.