Truly Free Credit Reports and Gift Card Law Change

Free Credit Reports and Why You Should Do This (at least annually)

The only truly free website to obtain a free credit report is: This site is governed by the Federal Trade Commission (FTC). You may also call 877-322-8228.
Beginning April 1, 2010, other websites offering credit reports must clearly indicate in a box the above information. This site will provide you with a link to get your credit report and you will need to answer a number of personal questions, for identification purposes.

The Fair Credit Reporting Act guarantees consumers access to their credit report information from each of the three credit reporting companies, once per year, for free. The best and only way to ensure that you are getting this information for free is to use the above website,

The 3 major credit reporting agencies are Experian, Equifax and TransUnion. Using the above website, you are entitled to one report from each company every 12 months. You can obtain a free report from all three at one time, or order them one at a time, at various times during a 12 month period.

There are many companies that offer credit reporting services and most will charge various fees, along with the “free credit report.” You should be careful of such services. While they may provide you with valuable services, you should not have to pay for the above credit report. Note that this free credit report is not your “credit score,” which is the basis for most lending, such as mortgages and credit cards.

We recommend that you request your free credit report information from each of the 3 companies at different times during the year, not all 3 at once. This is recommended to monitor if the information maintained is accurate and to spot identify theft. You have the right to inform the agencies if you note any errors.

If you want to purchase an additional credit report, for up to $10.50, you can contact each agency as follows:
Equifax:, 800-685-1111
Experian:, 888-397-3742
TransUnion:, 800-916-8800

Source: Federal Trade Commission,

New Gift Card Rules: The purpose of the new rules is to prevent service fees on gift cards unless the consumer has not used the card (or gift certificate) for more than one year. The consumer cannot be charged with more than one fee per month and the fees must be clearly disclosed.The Federal Reserve released the rules on March 25, 2010, which go into effect on August 22, 2010.

Expiration dates for gift cards must be at least 5 years after issuance, or five years after funds were last loaded. These rules are for retail gift cards or network branded cards, like Visa gift cards.

The new federal laws will override any state laws that are not as beneficial to the consumer.

Source: Journal of Accountancy, March 25, 2010, “Fed Issues Final Rules on Gift Card Fees, Expiration Dates”

Fiduciary Standard: Why this matters so much

We make a great effort when working with our clients that they understand their investments and the rationale that supports our investment philosophy. We feel this education is important and a vital part of our relationship.

In some discussions, we are asked how are we different than the “typical broker,” such as Merrill Lynch or Smith Barney. There are many answers to this question. In this post, I want to focus on an important distinction that is based in law, but I think really comes into practice regularly and has significant consequences to investors.

We are legally established as a “Registered Investment Advisor” and must adhere to a “fiduciary responsibility.” Brokers are subject to a lesser standard, called a “suitability rule.” This topic was addressed in a New York Times article dated February 28, 2010, which I will use to explain these differences.

“Registered financial advisers…adhere to a higher standard – “fiduciary responsibility,” an ethical and legal requirement that the investor’s best interest comes first, not the adviser’s own financial gain…Rooted in trust law, that standard means that an advisor has to act impartially and solely for the benefit of the client, avoiding conflicts of interest and self-dealing.”

“Brokers are governed by the suitability rule, which requires them to have “reasonable grounds for believing that the recommendation is suitable, according…” to industry standards. “They are not obligated to get you the best price for what they advise you to buy or sell – or even to be free of conflicts.”

“What may matter more than the array of services is the mind-set of the adviser. When a broker tells a client to buy or sell something, the suitability rule does not mean the broker has to be free of conflicts of interest. After all, the broker’s salary is ultimately paid by the brokerage firm, which has various products to sell. But brokerage firms say they are trying to eradicate that appearance of conflict.”

We take this obligation very seriously and it is the core foundation of our firm. We will only act in our client’s interest.

As an example, we recently reviewed a statement on behalf of a client, who also has some investments with a major Wall Street firm. The other broker sold a high quality municipal bond, which was to mature in a year, and purchased a bond that was rated as much riskier, based on the rating agency’s credit rating. Upon further research, the new bond that was purchased was underwritten by the same Wall Street firm. Thus, it appears that the only reason for the sale and purchase was to support the firm’s bond underwriting efforts. Was this broker acting in the client’s best interest or his firm’s best interest?

Source: New York Times, “Broker? Adviser? And What’s the Difference?”, February 28, 2010

Health Care Reform: The Tax Impacts

The following summary of the tax impact of the health care reform legislation is based on information available as of March 23, 2010. As more details are learned (the fine print!), I will provide further updates.

Increase in Medicare Tax: Beginning in 2013, the employee portion of the Medicare tax on compensation/earnings will increase by .9% (from 1.45% to 2.35%) for taxpayers with earned income in excess of $200,000, or $250,000 for joint filers. This also applies to self-employment income. It appears that the tax will affect all wages, but only for taxpayers with income above those levels. Implementation of this may be challenging or complicated, as taxpayers may not known until after the end of the tax year, whether this tax will apply, until their AGI is determined.

Investment Income Tax: Starting in 2013, at the same income levels as above, there will be an additional 3.8% tax on net investment income (interest, dividends, capital gains). I have seen some publications that include rental income in this definition, as well as annuity income, royalties. It would not apply to retirement plan distributions. This may cause a review of annuities, if this tax applies to annuity distributions.

Medical Expense deduction: For 2013 – 2016, medical expenses that exceed 10% of adjusted gross income will be deductible as an itemized deduction. This is an increase from the current level of 7.5% of AGI. Thus, for affected taxpayers, this will reduce the amount of medical expenses that they will be able to deduct. The new level will not apply to taxpayers older than 65 by the end of the respective year.

Flexible Spending Accounts and Health Savings Accounts: Beginning in 2011, includable expenses will be limited. This needs further clarification. Based on what I’ve seen, only prescribed medications and insulin will be includable. Over the counter products will be excluded after 2010. Beginning in 2013, the annual contribution to FSA account is limited to $2,500, reduced from the current level of $5,000.

Impact on Children under age 27: Within 6 months of becoming law, employees should be able to keep their children on their medical insurance policies through the age of 26. Currently, this is a state specific law. Michigan currently allows children to remain on their parents’ policies until age 24, if enrolled in college.

IRS: The IRS will be very involved in various reporting and enforcement parts of this legislation, through reporting by employers, individuals on their income tax returns and health insurance companies. Insurers will be providing information to the IRS annually regarding the amount of coverage they provide.

Business impacts: The impact on business are unclear at this point, or too detailed to provide in this format. The impact will depend primarily on the size of a business, depending on employee levels (less than 10, less than 25 or much larger employers), as well as the average employee compensation. Most of the credits available to businesses to encourage or offset the cost of providing employee health insurance are for companies that have average compensation of $40,000 or $20,000 for smaller employees.

Business information reporting: Starting in 2011, employers will need to include the value of employees’ health insurance coverage paid by the employer on each employee’s annual Form W-2.

The act also requires, starting in 2012, businesses to file information returns (a Form 1099) for all payments aggregating more than $600 in a calendar year to a single payee, including corporations. This was reported by the Journal of Accountacy, published by the AICPA, and would be a vast expansion and burden, in the preparation and filings of Form 1099s.

Adoption Credit: For 2010, credit increased by $1,000, to $13,170 per child, and made refundable. This will be adjusted for inflation in future years.

Medicare and “doughnut hole”: For the Medicare prescription coverage, seniors are covered for initial payments, up to a certain level. After exceeding that level, payments are out of pocket (referred to as the “doughnut hole”), up until another level, after which Medicare prescription coverage resumes. The gap amount will be gradually reduced, beginning with a $250 rebate in 2010, and eventually eliminated after 2020. In 2011, there will be a 50% discount on brand name drugs.

Sources: New York Times, Wall Street Journal, USA Today and Journal of Accountancy, as of March 22 and 23, 2010

Fed Actions: What Does it all Mean?

The Federal Reserve met on Tuesday, March 16th and published their rate-setting statement. What does it mean? How did the financial markets react? What can be learned from their statements and actions?

Short term interest rates: The Fed continued their policy statement that they will keep short term interest rates at “exceptionally low levels…for an extended period” of time. Note that in Fed speak, an extended period of time is interpreted as a number of months (some analysts think 6-9 months), not necessarily years, as one would generally think. Thus, short term rates will remain very low, in the near term.

Mortgage rates: The Fed, as expected, is nearing the completion of the emergency measures they undertook in 2008 and 2009, to purchase various mortgage securities and securities of housing related government “agency bonds.” The purpose of these actions was to keep interest rates low on mortgages, to make mortgages and housing more affordable.

It is interesting to observe, as I have written about before, how difficult it is to predict the financial markets. It has been widely anticipated that the Fed would be stopping these purchases, which would cause mortgage rates to rise in 2010. So what has happened? Just the opposite, so far. Rates on 30 year mortgages have fallen from 5.28% in early January to a current rate of around 5.05%. Evidence again that the financial markets cannot be accurately predicted in advance.

Inflation: The Fed expects “inflation is likely to be subdued for some time,” as they feel that there is still significant under utilization of resources and capacity, and that will keep cost pressures down. They also feel that long term inflation expectations are stable.

As advisors managing fixed income portfolios, we do not make predictions about the direction of interest rates. As noted above, to attempt to do that is nearly impossible, particularly over a long period of time. We would prefer to build a diversified portfolio of very high quality fixed income securities, of varying maturities, so that we will get the interest rate return of the market, and not risk losing money by betting on the direction interest rate moves.

What a Difference a Year Makes, or Does It?

Who would have predicted what occurred in the financial markets during 2008 and early 2009? Who could have predicted the huge losses in the stock markets worldwide, financial crisis and major institutions going bankrupt or merging into others?

No one could have predicted these events, as no one can predict the future. Which is why one of our investment principles is based on the concept that “we cannot predict the future.” This may seem startling to non-clients, but give it some thought. It makes sense, doesn’t it?

Much of Wall Street is based on claiming they can pick the best stocks, which countries or sectors to allocate into and out of, etc. To do this correctly over a long period of time, you have to be able to predict the future. Do you know of anyone who can do that correctly, for years in a row?

So what has occurred to the financial markets in past year? It is utterly amazing, and again, something that no one could have predicted. The S & P 500 is up 71% from its low on 3/9/09 to today, going from 667 to approximately 1,140 today. The Global Dow (made up of large companies throughout the world), has risen 74% from it’s low on 3/9/09 to today.

What is to be learned from this information? It reinforces our philosophy and advice that we provided to our clients, that markets would rebound, we just did not know when and by how much. We did know that if you were to wait until clear signs of a financial recovery or stability were apparent, you would miss a lot of the market recovery. Signs are now appearing in the statistics that the government and businesses are releasing, such as retail sales and unemployment claims, that the worst of the financial crisis is behind us.

We believe that our financial principles have survived the test of the past few years. Being well diversified on a global basis and having a very significant international allocation of equities was beneficial. Our strategy of not using active money managers was proper, as most active managers and mutual funds underperformed the markets, and those few that did could not have been identified in advance. Regardless of what Wall Street says (“this is a stock pickers market”), if you cannot predict the future, then picking stocks in this manner is a losers game, in the long run.

We are more passionate than ever that our investment providers are doing the right thing. They are focused, as are we, on providing the lowest cost investment products, as that is something that we can control, without sacrificing investment performance. We know that global diversification means not just having international mutual funds, but having those funds diversified all around the world in a prudent and disciplined manner. It means not having 50% of your international fund be in Europe or Japan, as that is not truly “diversification,” that is actually a huge bet (prediction?) on one part of the world.

We are also very satisfied that our conservatism with regards to fixed income investing has proven to be the correct strategy. By not holding corporate bonds, junk bonds, certain municipal bonds or long term fixed income investments, our clients did not incur the huge losses which many investors did in 2008. Our clients are also well protected for the eventual rise in interest rates (when will that begin?), as their portfolios are not full of bond mutual funds, which will be the “next big mistake” that the media will be writing about some time in the future. When interest rates rise (not if, but when), those bond mutual funds will decline significantly in value. Our strategy of holding very high quality individual bonds and CDs is proper now, and it will be even more evident that is it correct over future years.

In summary, 2008 was very painful. Most of 2009 was very rewarding, for those who were disciplined and adhered to their strategy. We learned throughout the past 2 years that the foundations of our investment philosophies were correct and will withstand the test of time, during both good and bad times.

If you have questions or thoughts about any of these items, please email me at

Source for investment statistics:, as of 3/8/10.

Review Your Property Tax Assessments…Now

Most Michigan residents have recently received their property tax assessment notices for 2010, which should reflect the significant decrease in property values of their real estate.

Property owners should carefully review the assessments they received, as the change in valuation will directly impact the amount of their current and future property taxes. While the decreases are very discouraging, if you are not planning to sell your property in the near future, a careful review may be beneficial for years to come.

Under Michigan law, when property values rise, the increase is capped at 5% or less, per year. This is called the taxable value. Taxpayers should review their assessments, as this year may be the low point in valuations and future increases would thus be based on this figure.

Time is of the essence, as to appeal your assessment, you must go before your local community’s Board of Review, which is generally in March. To go before the Board of Review, you should be prepared with recent comparable property sales, and possibly even consider retaining a qualified real estate appraisal, if the amount of the disputed tax is large enough.

The process for commercial real estate may be different and may result in appearing before the Michigan Tax Tribunal, which sometimes reviews these cases for multiple years at one time, due to the heavy caseloads.

While our firm does not specialize in this area, we can review your situation with you and provide you additional guidance, and referrals to specialists, if it is considered necessary.

We highly recommend that you review your assessment promptly, as this may save you money. Immediate action is necessary to receive any benefit.

Thoughts from a Quick Trip

Some random thoughts from a quick trip with my two boys and my parents to Florida, primarily to visit the Tigers for the opening of Spring Training.

I flew Southwest Airlines. Amazing how efficient, friendly and terrific they operate. Absolute evidence of a happy staff translating into a more successful business. How they can land and take off so quickly (and safely), is unbelievable.

Southwest has created a great marketing strategy: 2 free bags included with their ticket price. Delta (formerly Northwest) charges approximately $25 per bag, each way. That’s $50 roundtrip per person for one bag! So, make sure to factor in bag charges when you make plan reservations. And for those that know that I overpack, I only took one suitcase, not 2.

My boys flew Airtran (long story as to why). My younger son is very into technology. Airtran now offers wi-fi on all their flights. My son was able to use the internet, post Twitter updates, etc. for most of the flight, for approximately $10. That seems reasonable and a future trend many of us will be using in the near future. I’m now following him, and a few others on Twitter, to learn about Twitter.

The opening of spring training was fun and a positive sign of spring to come. Observing the great variance in how the Tigers’ players interacted with fans to sign autographs was interesting. Some were overly gracious and signed for everyone in sight. Others would not give the fans, even little kids, the time of day. For what they are paid, no excuse. I really wanted to get Brandon Inge’s autograph for my daughter, as he does so much charitable work, which we followed last summer. He never signed, although we waited and waited, as he stayed for hours after most other players had left for the day. A sign of his incredible work ethic and desire to rehab from last years’ injuries. Can’t fault him for that and a great lesson for my kids!

We went to the Kennedy Space Center, which I strongly recommend to anyone who goes to Orlando or departs from a cruise near there. Can easily spend an entire day, which is moving (particularly the Memorial for astronauts who have died in various space program efforts and the Shuttle explosions), awe inspiring and educational. You have to see the 1970s Saturn V rocket, which they built a building around to display, to truly appreciate how large the rocket is…and how small the ship carrying the astronauts in the Appolo missions were at the very top. A must see experience!!

The road outside the Tigers spring training facility is evidence of our health care system and Lakeland’s population. For probably two miles, over 90% of the buildings appeared to be every type of health care related facility possible. My kids noticed before I did. Other than 1 sub shop and a car dealership, just health care and more health care.

The Next Big Mistake: Don’t reach for it!

As we meet with clients, a common theme is investor frustration with the low yields that are available for high quality fixed income investments, such as CDs or short term government bonds.

We often say that we don’t have a crystal ball and we cannot predict the future. However, the implication for the eventual rise in interest rates and their impact on many investors is best stated as: “Not if, but when.”

Interest rates are at historically low levels, due to the economic crisis that we have endured since 2008. Eventually interest rates will rise. No one knows specifically when this rise will begin, how quickly it will happen or to what extent. But we know that eventually interest rates will rise from their current levels.

What will happen when rates rise? Who will be affected and will that affect be good or bad? Many people we meet with who are not currently clients, or clients who still hold some of their investments elsewhere, hold some of their fixed income investments in bond funds. When interest rates rise, bond values will fall. The longer the maturity of the bond, the larger the loss will be. This is an economic reality.

Investors in bond funds, who think they own a “safe investment,” are going to be facing losses, some of which will be very significant, when interest rates rise. We recommend that investors hold high quality individual fixed income investments, not bond funds. By holding these investments to maturity, our clients will avoid the losses that investors in bond funds may incur, when interest rates rise.

So investors may want to “reach” for the higher yield that tempt them by owning a bond fund (or lower quality or longer term bonds), but they will be better off in the long run to stick to short term, high quality individual bonds or CDs.

We can work with you to structure a fixed income portfolio that will maximize the interest rate return that is available today…and properly structure your fixed income portfolio for the eventual rise in interest rates. This will help you avoid what we predict will be one of the major financial stories of the next 5 years…the massive losses that will be incurred by investors in bond funds when interest rates rise. Don’t make that mistake!

Teaching and Learning

On Thursday February 4th, Brad spoke about Roth IRA conversions for the Institute of Continuing Legal Education (ICLE), before approximately 200 attorneys and another 100 who watched via a live webcast. ICLE, an affiliate of law schools in Michigan, primarily the University of Michigan Law School, provides continuing legal education to attorneys throughout Michigan. The seminar will be rebroadcast throughout the State during February and March.

Based on our background as investment advisors and CPAs, we are uniquely qualified to provide guidance and creative planning opportunities for Roth IRA conversions. See our separate blog post regarding Roth IRA conversions or contact us for more information.

Keith recently attended a 2 day seminar in Arizona with advisors that we are affiliated with on a national basis, as part of our affiliation with BAM Advisor Services, our “back office” firm which supports approximately 120 wealth management firms, which together manage approximately $10 billion.

Keith’s seminar focused on estate planning with a nationally recognized estate planning attorney, as well as sessions with top executives from Dimensional Fund Advisors (DFA) and economists.

Both Brad and Keith participate in these peer groups throughout the year, which focus on exchanging best practices and advice with advisors who share our investment and wealth management philosophy. These peer groups also talk bi-weekly or monthly throughout the year, to discuss various topics and ideas, and meet in person at least twice a year.

2009: Facts and Figures Perspective

With all the volatility we have experienced in the financial markets during the past few years, a little perspective is sometimes helpful. While we usually focus on the long-term, this one year perspective is also insightful.

Format below: 12/31/08, 12/31/09, Change

S & P 500: 903, 1115 +23.5%

Dow Jones Indus: 8,776, 10,428 +18.9%

30 yr. Treas Bond Yld 2.68%, 4.63% huge relative increase

10 yr. Treas Bond Yld 2.21% 3.83% significant increase

90 day T bill rate .07%, .06% no change; historically low

30 yr. mortgage rate 5.10%, 5.14% no change

Crude oil, spot price $38.95, $78.87 increase $39.92/barrel

increase 102%

Price per gallon of gas: $1.90, $2.60

While this post is full of figures, what are some thoughts about what they mean?

Though the first part of 2009 was horrendous for the stock market, as was 2008, investors who remained disciplined were very well rewarded, particularly if they had a globally diversified portfolio.

Interest rates remain very low, particularly for very short term investments. Note the rise in the long term bonds. One of the biggest risks, and stories of the future, will be the eventual rise in interest rates and investors who lose significant amounts of money by holding their “safe” investments in bond funds. As interest rates rise, investors in bond funds will lose significant dollars as the value of their funds decline. This is why we do not recommend bond funds for our clients and prefer holding individual fixed income securities, like CDs, individual bonds, etc.

It is also interesting, and I can’t explain why, that the price of oil per barrel more than doubled, but the price of gasoline rose 37%. While they increased in correlation, they did not rise by the same percentage.