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Which Financial Advisor Is Right for You?

April 10, 2017

Marcus Winbush, CFP® — CEO, True North Capital Alliance

We all have financial goals and dreams we would like to have come true, but all too often, dreams go unrealized or only partially fulfilled because we lack clear, actionable plans.

Is now the time for you to take your financial planning to the next level? Are you ready to become more intentional about funding your retirement and leaving a legacy for the people and causes dear to you? Or perhaps you are ready to start investing for the first time. Any one of these is an excellent reason to seek financial planning or investment assistance. If this is your time, let’s consider which type of financial planner might be right for you.

Many Financial Professionals Call Themselves Financial Planners

The term financial planner covers a variety of titles, services, and skills: financial advisors, financial representatives, financial consultants, brokers, or investment advisers. From their titles, you might assume they all do pretty much the same functions and have the same regulatory oversight. That assumption would not be accurate.

According to the Financial Industry Regulatory Authority (FINRA), “the first step in selecting an investment professional is to see if the person and his or her firm are registered.” Financial professionals in this category include investment advisors, Certified Financial Planners®, and registered representatives.

Investment Advisor

Investment Advisors (IAs) also called Registered Investment Advisors (RIAs) provide advice about securities and a broad array of financial/investment services. Services may include financial planning for college education and retirement, estate and investment planning, and asset management.

IAs must be registered with either the Securities and Exchange Commission (SEC) or state securities regulators, depending on the amount of assets they manage. Typically, RIAs do not “sell” proprietary investment products; their compensation comes primarily from fees they charge for their advisory service. At a minimum, IAs must pass the Series 65 exam administered by FINRA, but they usually add other credentials such as the CFP® designation to enhance their qualifications.

Certified Financial Planner®

Advisors who earn the CFP® designation are also qualified to provide investment advice for a full suite of services, including retirement, estate, and investment planning as well as asset management. To earn the CFP® designation, advisors must complete a comprehensive course of study approved by the CFP Board followed by a rigorous CFP® Certification Exam, which tests their ability to apply financial planning knowledge to real-life situations. Before they can use the CFP® designation, advisors must have several years of hands-on experience providing financial service for clients.

Another significant distinction relates to the standard of care you can expect. CFP® professionals and other registered advisors are bound by the fiduciary standard established in the Investment Advisor Act of 1940. To comply with the fiduciary standard, investment advisors must act solely in the “client’s best interest when offering personalized financial service.” This means that registered advisors must not recommend an investment simply because they will receive more compensation from that investment. It also means that advisors must make sure their advice is accurate, complete, and as thorough as possible. RIAs are responsible for providing clients with objective advice.

Broker/Registered Representative

Brokers, sometimes called registered representatives, are licensed to buy and sell securities—stocks, bonds, mutual funds, and other investment products. A broker or a registered representative working on behalf of a broker-dealer must fulfill the suitability standard of care for clients.

The suitability rule states that brokers must make recommendations that are consistent with the best interest of the customer; it does not require the broker to place his or her interest below that of the client. This means that if an investment fits the needs of the client in some way, the broker is free to recommend the investment that pays them more money even though if may mean higher expenses for the client. Ultimately, it is important to realize that brokers’ primary role is to represent their broker-dealer, not the client.

What’s Right for You?

Many investors find the Certified Financial Planner® to be an excellent choice because of their experience, educational qualifications, and certification standards. With these factors as background information, you will need to interview the advisor you are considering. Finally, before you commit to work with an advisor, be sure you are comfortable with their investment philosophy and investment strategies. Also, look for someone you trust and with whom you can communicate effectively.

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Will the Fed’s Latest Rate Increase Affect You?

March 20, 2017

Marcus Winbush, CFP® — CEO, True North Capital Alliance

The Fed’s March 15th increase of the federal funds rate was much anticipated by most analysts. As a result, the markets were well prepared for the modest increase of one-quarter percent, taking the federal funds rate to a range of 0.75 to 1 percent. This is only the third increase since the federal funds rate was reduced to near zero during the Great Recession, which began in 2008.

A Good News Rate Increase

While consumers do not look forward to Fed decisions that increase the cost of borrowing, there is clearly good news in the recent announcement. Quite simply, the good news, according to Fed Chair Janet Yellen, is this: “The U.S. economy is doing well.” In her March 15th press conference, Yellen expressed the Fed’s “confidence in the robustness of the economy and its resilience to shocks.”

Since the worst of the financial crisis, the economy has added “around 16 million jobs,” the unemployment rate dropped to 4.7 percent in February, and inflation is moving up toward the Fed’s 2 percent target. Yellen conceded that “people with less skill and education and certain sectors of the economy” still face challenges in the labor market. However, many people are expressing optimism about their job market prospects, and consumer sentiment has improved. Chair Yellen believes that “people can feel good about the economic outlook.”

How Does the Feds’ Rate Move Affect You?

This interest rate move will have ripple effects that increase the cost of borrowing over time. The federal funds rate, also known as the “overnight rate,” is the rate banks pay to borrow money from Federal Reserve banks. The federal funds rate is directly correlated with the prime interest rate that banks charge their most creditworthy customers. As the federal funds rate goes, so goes the prime interest rate and many forms of interest that consumers pay for essentials and lifestyle items.

Thus, you can expect to see changes such as the following over time.

  • Higher Mortgage Interest: According to Bankrate.com, mortgage rates for 30-year mortgages increased from 4.21 percent to 4.31 percent last week. this was the second increase in two weeks. The outlook is for mortgage rates to continue rising gradually this year. Likewise, interest rates for home equity lines of credit and adjustable rate mortgages will gradually rise as the Fed continues to adjust the federal funds rate upward.
  • Higher APR on Credit Cards: Most credit cards carry a variable interest rate, which is closely tied to the prime interest rate. Thus, you can expect interest on credit card accounts to move upward commensurate with the Fed’s rate increase.

    The surest way to avoid being hit by rising credit card interest is to pay the account balance each month. If this is a challenge, consider using the snowball debt payoff method described in my recent post to eliminate credit card debt.

  • Little Change in Interest Paid on Savings: Savers are certainly hopeful to see higher interest paid on savings. Currently, the average savings account pays only about .10 percent with some online savings accounts paying around 1.0 percent and slightly higher. Unfortunately, the amount of interest that banks pay on saving accounts is not likely to increase quickly in response to the Feds’ rate hike.

Outlook

The Fed projects a federal funds rate of 1.4 percent by the end of this year and 2.1 percent next year. That means we should expect one or two more rate increases this year. The timing and amount of future rate increases will continue to be gradual and dependent on the continued strength of the economy.


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

Past performance is not a guarantee of future results.

All expressions of opinion are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

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U.S. Labor Market Continues to Strengthen: 235,000 New Jobs in February

March 13, 2017

Marcus Winbush, CFP® — CEO, True North Capital Alliance

The February jobs report issued by the U.S. Labor Department on Friday, March 10th exceeded analysts’ projections by a long shot. Including February’s data, total nonfarm payroll employment has been on a rising trend, averaging 209,000 new jobs per month over the past three months. That’s a significant tick up from last year’s pace of 180,000 net new jobs per month, which Fed Chair Yellen noted as satisfactory when she spoke in Chicago on March 3rd. Chair Yellen noted that “economic developments since mid-2016 have reinforced the Committee’s confidence that the economy is on track” to achieve the Fed’s statutory goals of maximum employment and price stability.

Given the strength of the February jobs report, most analysts expect the Fed to make the first of this year’s projected rate increases when the policy committee meets this week (March 14-15).

February Jobs Report by the Numbers

In February, total nonfarm payroll employment increased by 235,000 jobs:

  • Sectors: Strongest growth was in construction (up 58,000), private educational services (up 29,000), manufacturing (up 28,000), and health care (up 27,000).
  • Unemployment Rate: The unemployment rate went down slightly from the previous month to 4.7 percent. Compared with 4.9 percent a year earlier, overall unemployment is continuing a stable downward trend. Although the overall employment picture is brighter, jobless rates for some segments of the population continue unchanged (Blacks at 8.1 percent; Hispanics at 5.6 percent).
  • Labor Participation Rate: The labor participation rate sits at 63.0 percent. This measure reflects an additional 447,000 people in the labor market over the January total.
  • Long-Term Unemployed: The number of individuals who have been jobless for 27 weeks or more was essentially unchanged at 1.8 million (23.8 percent of those who are unemployed). However, the total number of long-term unemployed declined by 358,000 over the past year.
  • Involuntary Part-Time Workers: Workers in this category would have preferred full-time employment but were working part-time for economic reasons. The number of people in this category showed little change at 5.7 million.

The earnings data was an especially bright spot in the February report. Average hourly earnings across all employees increased by 6 cents to $26.09; this growth follows a 5-cent increase in January.

Thus, overall job gains remain solid and broad-based, and unemployment is in line with Fed expectations for the longer run.

Case for Scaling Back Monetary Policy Accommodations

Since 2014, the Fed has been gradually scaling back monetary policy accommodations, such as quantitative easing and low federal funds rate, previously needed to support the U.S. economy through the aftermath of the 2008 financial crisis. This process has been slower than many expected, but the Federal Open Market Committee (FOMC) were determined to proceed with caution giving the U.S. economy time to strengthen. In her March 3rd comments, Chair Yellen noted that the “U.S. economy has exhibited remarkable resilience” in recent years.

Yellen gave her clearest signal yet of the Fed’s next move: “…we currently judge it will be appropriate to gradually increase the federal funds rate if the economic data come in about as we expect.” Certainly, the February jobs report will be viewed as a strong confirmation.

Heading into the March 14-15 meeting, the FOMC seems to be lining up in favor of raising rates—likely another quarter-percent increase taking rates to a range of .75 to 1.00 percent.


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

Past performance is not a guarantee of future results.

All expressions of opinion are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

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Investment Shock Absorbers

By Jim Parker, Vice President DFA Australia Limited, a subsidiary of Dimensional Fund Advisors LP

Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner stomach-churning, and every red light an excuse to assume the brace position. Owning an undiversified portfolio can trigger similar reactions.

In a motor vehicle, the suspension system keeps the tires in contact with the road and provides a smooth ride for passengers by offsetting the forces of gravity, propulsion, and inertia. You can drive a car with a broken suspension system, but it will be an extremely uncomfortable ride and the vehicle will be much harder to control, particularly in difficult conditions. Throw in the risk of a breakdown or running off the road altogether and there’s a real chance you may not reach your destination.

In the world of investment, a similarly bumpy and unpredictable ride can await those with concentrated and undiversified portfolios or those who constantly tinker with their allocation based on a short-term rough patch in the markets.

Of course, everyone feels in control when the surface is straight and smooth, but it’s harder to stay on the road during sudden turns and ups and downs in the market. And keep in mind the fix for your portfolio breaking down is unlikely to be as simple as calling a tow truck.

For that reason, the smart thing to do is to diversify, spreading your portfolio across different securities, sectors, and countries. That also means identifying the right mix of investments (e.g., stocks, bonds, real estate) that aligns with your risk tolerance, which helps keep you on track toward your goals.

Using this approach, your returns from year to year may not match the top performing portfolio, but neither are they likely to match the worst. More importantly, this is a ride you are likelier to stick with.

Just as drivers of cars with faulty suspensions change their route to avoid potholes, people with concentrated portfolios may resort to market timing and constant trading as they try to anticipate the top-performing countries, asset classes, and securities.

Here’s an example to show how tough this is. Among developed markets, Denmark was number one in US dollar terms in 2015 with a return of more than 23%. But a big bet on that country the following year would have backfired, as Denmark slid to bottom of the table with a loss of nearly 16%.1)In U.S. dollars. MSCI-developed markets country indices (net dividends). MSCI data © MSCI 2017, all rights reserved.

It’s true that the US stock market (by far the world’s biggest) has been a strong performer in recent years, holding the number three position among developed markets in 2011 and 2013, first in 2014, and sixth in 2016. But a decade before, in 2004 and 2006, it was the second worst-performing developed market in the world.2)In U.S. dollars. MSCI-developed markets country indices (net dividends). MSCI data © MSCI 2017, all rights reserved.

Predicting which part of a market will do best over a given period is also tough. For example, while there is ample evidence to support why we should expect positive premiums from small cap, low relative price, and high profitability stocks, these premiums are not laid out evenly or predictably across the map. US small cap stocks were among the top performers in 2016 with a return of more than 21%. A year before, their results looked relatively disappointing with a loss of more than 4%. International small cap stocks had their turn in the sun in 2015, topping the performance tables with a return of just below 6%. But the year before that, they were the second worst with a loss of 5%.3)In U.S. dollars. U.S. Small Cap is the Russell 2000 Index. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. International Small Cap is the MSCI World ex USA Small Cap Index (gross dividends). MSCI data copyright MSCI 2017, all rights reserved.

If you’ve ever taken a long road trip, you’ll know that conditions along the way can change quickly and unpredictably, which is why you need a vehicle that’s ready for the worst roads as well as the best. While diversification can never completely eliminate the impact of bumps along your particular investment road, it does help reduce the potential outsized impact that any individual investment can have on your journey.

With sufficient diversification, the jarring effects of performance extremes level out. That, in turn, helps you stay in your chosen lane and on the road to your investment destination.

Happy motoring and happy investing.4)Published in the February 2017 issue of “Outside the Flags,” which began as a weekly web column on Dimensional Fund Advisors’ website in 2006. The articles are designed to help fee-only advisors communicate with their clients about the principles of good investment–working with markets, understanding risks and return, broadly diversifying and focusing on elements within the investor’s control–including portfolio structure, fees, taxes, and discipline.


Past performance is no guarantee of future results. There is no guarantee an investing strategy will be successful. Diversification does not eliminate the risk of market loss.

Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2017, all rights reserved.

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

True North Capital Alliance has no affiliation with DFA; however, the firm uses DFA funds and strategies in developing its investment models.

©2017 Dimensional Fund Advisors LP. All rights reserved. Unauthorized copying, reproducing, duplicating, or transmitting of this material is prohibited.

References   [ + ]

1, 2. In U.S. dollars. MSCI-developed markets country indices (net dividends). MSCI data © MSCI 2017, all rights reserved.
3. In U.S. dollars. U.S. Small Cap is the Russell 2000 Index. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. International Small Cap is the MSCI World ex USA Small Cap Index (gross dividends). MSCI data copyright MSCI 2017, all rights reserved.
4. Published in the February 2017 issue of “Outside the Flags,” which began as a weekly web column on Dimensional Fund Advisors’ website in 2006. The articles are designed to help fee-only advisors communicate with their clients about the principles of good investment–working with markets, understanding risks and return, broadly diversifying and focusing on elements within the investor’s control–including portfolio structure, fees, taxes, and discipline.
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Personal Finance: How Is Your Financial Wellness?

February 27, 2017

Marcus Winbush, CFP® — CEO, True North Capital Alliance

Have you ever wondered why some people seem to manage well on their income while others struggle financially no matter how much they earn? The secret likely has much to do with what we might call “financial wellness.” By “financial wellness,” I don’t mean wealth; rather the term refers to a state of financial health. Financial wellness involves living within your means and making sound financial decisions that enable you to achieve the short- and long-term goals that are important to you.

Achieving financial wellness is an ongoing process. No matter the state of your financial wellness today, the important thing is to start where you are, do a thorough check-up of your financial tendencies, and put plans in place to move steadily toward wellness.

Take stock of how you spend money

Do you know with reasonable certainty where your money goes each month? Most of us can rattle off the amounts we spend on the big budget categories such as housing, transportation, utilities, grocery, loan/credit card payments, savings, and investments. But we often lose sight of many other expenditures that sometimes drain more of our money than we anticipate.

The first step toward financial wellness is to understand precisely how you spend money on a regular basis. Conduct your own spending review using your bank statement and credit card statements for the last one or two months. Make a list of your expenditures, paying close attention to the amounts you spend on daily living expenses (e.g., dining out, coffee, clothing, grooming, entertainment, impulse spending). Look for obvious places where you can eliminate or reduce spending.

Such a review can be eye-opening; it may be just what you need to pinpoint the gap between what you think you spend each month and what you actually spend. For most of us, this gap amounts to “spending leaks” in our finances, and these leaks can undermine the progress we hope to make toward our savings and investment goals.

Develop a budget: income, spending, and saving

With the insights gained from your spending review, create a workable, realistic budget for your monthly spending, saving, and investing. If your spending review revealed a shortfall in your monthly finances, you may need to take immediate steps to reduce spending, create additional income, or get out of debt. If debt reduction is a pressing need, consider the strategy described in our earlier post, “Saying Goodbye to Debt: A Simple Method That Works.”

If your income is adequate, the challenge may simply be a matter of committing to live within your means. Be sure your budget accounts for regular monthly expenses as well as larger expenses that occur quarterly or semi-annually (e.g., car insurance, homeowners/renters insurance, life insurance, etc.). An effective way to deal with these periodic expenses is to calculate the monthly average for these items and set up a special savings account where you can accumulate the monthly average amount until the payment is due. This lets you smooth out your budget and avoid spikes in your expenses.

Another potential budget-busting snafu is out-of-control discretionary spending. At the beginning of the month, consider setting a limit for discretionary spending each month and then create an “allowance,” which you take in cash for such spending.

Continue to track your spending and review how well your plan is working. Make adjustments as needed to stick to your budget, and resist using credit or making unnecessary purchases.

Set Long-Term and Short-Term Goals

Getting a handle on your monthly spending and saving is a significant step, which allows you to confidently set short- and long-term goals that are important to you. You may choose to set short-term goals (2-5 years) for any number of things such as paying off debt, traveling to special destinations, purchasing big-ticket items, and so on.

Money management experts recommend making emergency savings a top priority short-term goal. Having emergency savings to cover living expenses for three to four months is the best way to prepare for unexpected events such as a job loss, medical emergency, major car repairs, or similar events. To ensure that you reach your savings goal, pay yourself first with automatic transfers from your checking account to your saving account as you receive your paycheck(s).

You will no doubt set long-term financial goals for bigger items such as a home, college education for children, retirement, and assets you wish to pass to future generations. To address your long-term goals, consider working with a trusted financial advisor to develop the best strategies for your specific dreams and goals.

Financial wellness is achievable, but it takes commitment, time, and perseverance. The benefits of good financial management are many: improved cash flow, savings, peace of mind, and a strong sense of confidence as you make progress toward financial wellness. The benefits are clearly worth all the effort you put into the process.


True North Capital Alliance is registered as an investment advisor with the states of Minnesota and Texas. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability.

Past performance is not a guarantee of future results.

All expressions of opinion are subject to change. This content is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

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