קטגוריה: Uncategorized

I challenge you readers to tell me how can I help you succeed more in your business and what kind of connections would help your business?

Opening my own financial planning business was only 50% of what needed to be done since the other 50% were "simpler" and required "only" to start bringing clients.

As I started reading a lot and studying what are the most effective way to bring clientele, I understood that strong distribution channels are it. So I met with tens of CPA's lawyers and individuals in the financial business.

In all of those meetings something very strong surfaced and it was that I was made to understand that the other side will always expect to receive first, meaning, I was expected to refer a potential client first to the other side in order for the other side to refer to me. To this I call the "I will never be a sucker" culture.

Knowing this and being active in a business networking group have made me understand few major things that helped me greatly with increasing my business with new clients:

1. "He who gives will surely receive" – Always try to create benefit to potential distribution channels without asking for something back. Most of them will feel the need afterwards to help you back sometime along the way.
2. Make it a habit to listen as much as you can to every one you meet. Listening will make you understand one's needs (people do like to talk and less listen).
3. Connect as much people as you can who can have any kind of benefit from each other even if you will not benefit from that connection at all.
4. The Cliché "It's not about what you know but who you know" really works, so make it a habit to know as much people as you can.

An interesting fact is that high net worth clients own assets just for the sake of having more assets which could be fun for itself but not very productive.

Most of the high net worth clients I have met did not have the slightest clue of how much assets will they need in order to meet their family financial goals and as it seems they did not care – and so does the ostrich.

The gap between the assets I have and the assets I need in order to meet the financial goals might leave the family asset less much sooner than they expected.

The first step of financial planning is to understand the gap and make a business plan to deal with it.

I’m often asked to explain about what I do.  Perfectly understandable, as even my kids haven’t quite figured out what I do for a living.  While in the US and other countries personal financial planning is a well-known profession, it is relatively new in Israel.

So what does a personal financial planner do?  A colleague once said to me that we are like family doctors – we look at the overall financial health of our clients, and when needed refer to specialists to set things straight.  While the comparison is valid, I prefer one that another colleague once told me:  We are our client’s Chief Financial Officer (CFO).

A CFO is generally associated with a company, not a person.  CFOs are responsible for the financial affairs of a company, from A to Z.  A CFO looks at the income and expenses, cash flow, risk management (such as insurance) and the investments of the company.  A personal financial planner does similar work for clients, but on a personal level.

Unfortunately, anyone can call themselves a financial planner, as there is no license required.  This makes it difficult for consumers, but in choosing a financial planner, look for someone with qualifications, such as licensing from the Israeli Securities Authority (for investments in securities) and/or the Ministry of Finance (for pensions and insurance).  Recently the internationally recognized Certified Financial Planner (CFP) designation began to be offered in Israel, with the Israeli certification specializing in Israeli oriented issues such as Israeli pensions, investments, Israeli taxes, Bituach Leumi and other issues.  I recently completed the Israeli CFP course, and after 18 months and passing a rigorous 7 hour examination, be’ezrat hashem I will receive my certification at the next certificate issuance in October.

While insurance agents, portfolio managers, accountants and attorneys each have their specializations, usually none of them look at their client’s complete financial picture.  A personal financial planner looks at your complete financial situation and works with your specialists to give you the most efficient and effective financial plan possible.

Objectivity is perhaps the most important issue; my firm does not keep any fees or commissions from our recommendations.  We rebate those to our clients, which lowers our net fee.  In fact, many of our clients end up paying us close to zero net fees, and some have rebates so high they even receive payments from us!

My typical process with a client is to meet with both the client and spouse (if applicable) and go over their current family and financial situations.  I ask about their goals, their willingness and ability to take investment risk, their current insurance coverage and current pension plans.  Based on this Q&A and the documents I receive from the client, I form a financial plan that takes into account my client’s current financial picture and their goals.  I then make recommendations regarding possible changes to their investment portfolios, pension plans, insurance coverage and other issues.    My client can either accept or reject these recommendations.  If the client accepts at least part of the recommendations, I deal with all the paperwork necessary to get the job done.

Isn’t it time you had your own personal CFO?

For example, many insurance policies used for pensions, often called manager’s insurance, are very expensive, and there are advantages (and some disadvantages) to switching to one of the pension funds, which are generally cheaper and over the long-run can make a big difference in the size of your retirement pension.  Another example deals with investment portfolios.  I often find clients taking either too much or too little risk in their portfolios.  Based on their risk tolerance, I make recommendations regarding the raising or lowering of the percentage of stocks and bonds in a portfolio and the exposure to foreign currency risk.  I will also look at insurance policies and may recommend either increasing or decreasing insurance.

The information is not intended to be and does not constitute financial advice or any other advice.  It is general in nature and not specific to you. Before using this information to make an investment decision, you should seek the advice of a qualified investment advisor and undertake your own due diligence. 

A married couple in their early 50's with 3 kids, who's monthly expenses are approximately 10,000 $ (including vacations) and who will want to continue this level of life quality level until the age of 90, will need approx. 3.5 million USD at the present (present value – and much more if you live in the USA).

1. Do you have it?
2. If you have less, how will you succeed? Are you really financially qualified enough to allow yourself to make mistakes on your own? (Would you build your house on your own?)
3. If you have more, how will you preserve it and make it grow?
4. How will you make sure your advisers really care about you to make you achieve those goals and are in no conflict of interests?
5. You want to reach your financial goals – outsource your financial management to objective advisers and pay them directly, don't let them get commissions from 3rd parties.

I was surprised by the results of a new international survey on financial literacy released by S&P Ratings, Gallup, the World Bank and the Global Financial Literacy Excellence Center (GFLEC) at George Washington University. According to the survey results, Israel ranked 4th in the world in financial literacy (Sweden, Norway and Denmark were tied for 1st place). The survey showed that 68% of Israelis were financially literate. Compare that to the US, where only 57% of the population is financially literate.

You are probably shaking your head. If you are new (or veteran) immigrants, I bet you’ve had a hard time understanding the Israeli financial system, with concepts you’ve never heard before, and in Hebrew no less. Terms like tsamud, keren hishtalmut and other items unique to Israel. By now you are probably thinking “Am I financially illiterate”?

The Financial System Here is Complicated

Let me reassure you. The survey measured basic concepts. I tried a few sample questions and indeed, the concepts were very basic. The financial system here is likely far more complicated that what you had in your birth country. So if you can even begin to understand the Israeli financial system, you are ahead of the game and would likely have done well in this survey.

That said, even native Israelis have trouble understanding how the system here works. Tax laws are complicated, and don’t get me started on pension rules, which seem to undergo radical changes annually. Just when you think you are beginning to understand, they change the rules of the game.

Foreign Citizenship Makes It Even More Complicated

It gets worse when you add another citizenship to the pot, especially US citizenship. Many people in Israel once craved US citizenship, now record numbers are giving it up. Why? Well, unlike just about any other Western country in the world, the US taxes citizens who reside abroad. It results in onerous reporting. Not only that, a US citizen who invests in a non-US mutual fund, ETF or other types of foreign investments is subject to PFIC reporting taxation, which in some cases can exceed 100% of the profit!  I cannot tell you how many of my US clients had PFICs in their portfolio when they came to me.  If you have an investment account with an Israeli brokerage, the odds are you have PFICs as well. Caveat Emptor!

You Can’t Understand Everything

On the other hand, some people really believe they understand the financial system here. They think they understand everything there is to know and don’t need any assistance whatsoever.  I have a client who thinks he knows everything there is to know, which leads me to believe that he only hires me to prevent him from making all the mistakes he would have made without me.

Professional Advice Can Save You Lots of Money and Aggravation

I bet some of you are DIYers (Do It Your Selfers). You try to manage everything on your own. For less complicated finances, that is fine and it can be a great way to learn the system without causing too much damage. However, for those of you who are older, with pension funds, investment accounts and the like, keeping your finances in order can be a daunting task. Do you really understand what your retirement benefits will be? Are you in the best possible investment vehicles to maximize your retirement pension? Is your portfolio appropriate for your lifestyle and risk appetite? I’ll bet that many of you will answer “I don’t know”. Many executives in the financial services business hire financial planners because they cannot manage everything on their own.  If they don’t think they can do it alone, why should you?

I work in a company that deals with wealthy individuals.  Our clients became wealthy through various ways.  Many of our clients founded successful companies, while others worked for these companies and after years of hard work were able to cash in their stock options.  These people took a risk, worked hard and are now enjoying the fruits of their labors.

There are also those that become wealthy through a windfall.  When I lived in Miami, not one but two members of the Orthodox Jewish community won the lottery.  According to most opinions, if you win a prize like the lottery (even a small amount) you say “Shehechiyanu” (He who has granted us life, sustained us and enabled us to reach this occasion).  If you are sharing the prize with others, such as other family members, you say “Hatov v’hameitiv” (He who is good, and bestows good).  Perfectly reasonable, as you are saying thank you for your good fortune.  However, there is another very different kind of windfall where you say the same brachot:  An inheritance.

We recently observed my mother’s 2^nd Yahrtzeit.  My mother was an extraordinary individual, the kind of person who lit up a room when she entered.  She adored her grandchildren, and they adored her.  So when she passed away, a major void was created in our family.

My mother was always generous when it came to her grandchildren, but she was also a child of the depression, and rarely spent extravagantly.  So despite having never owned her own home and earning a middle-class income as a teacher, she managed to save a respectable amount of money.  She was what we call today an over-saver, the exact opposite of the more commonly known over-spender.  She could have afforded to spend more on herself, but she chose not to.  It was and is that way with many from her generation who grew up during the depression.

When she passed away, I was her sole heir, as I am an only child.  I was (and still am) grieving for her, and yet I was told that the proper thing to say upon receiving the inheritance was “Shehechiyanu”.  What?  I am supposed to say a prayer of thanks for an event that was triggered by my mother’s death?  Sure, I gained something of a material value, but it was only at the far greater emotional loss.  How could this be?

I tried to rationalize it in whatever way I could.  I finally determined that it was ok to say “Shehechiyanu”, because my mother had been saving all her life so that she could give this money to us.  It was what she had wished for.  However, knowing my mother as I did, it came with a key unwritten condition: Responsibility.

There is an old joke about a Jewish mother (forgive the stereotype) who keeps screaming out “Oy the agony!  Oy the ecstasy!  Oy the agony!  Oy the ecstasy”!  A stranger comes up to her and asks “Madam, what’s the agony”?  She responds “It’s my daughter, she’s eloped!  Oy the agony!  Oy the ecstasy”!  The stranger asks “So what’s the ecstasy”?  The Jewish mother responds “He’s a nice young doctor”!

Life has its agonies and ecstasies and as in the story above, some things can be both agonies and ecstasies.

Case in point:  People are living longer. The average life span in the US in 1984 was approximately 74.7 years.  By 2014, it rose to 79.8.  In Israel, the news is even better.  The average life span in 1984 was about 74.8, similar to the US.  However, in 2014, it rose to 82.1, showing that the average life span in Israel is approximately 2 years longer than in the US.  The ecstasy.

So what is the agony?  The answer for many is our expanding lifespans.  Huh?  Didn’t you just say that our expanding lifespans is the ecstasy?  Isn’t it better to live longer?

The problem is that we will live more years in retirement.  Whereas 30 years ago we would retire at 65 and live 9 years on our retirement savings, today we retire at 67 and live 15 years or more in retirement.  The agony is that our savings may die before we do.

With that depressing thought, you may be happy to know there are solutions.  Among them:

• Defer retirement. By working longer, we increase our savings.  Additionally, our monthly pensions and other retirement benefits such as Bituach Leumi can potentially increase.  Finally, working longer means that we will spend fewer years in retirement.
• Save more. Current Israeli law makes pensions mandatory for workers.  You can add to your retirement savings by taking advantage of tax “gifts” such as “Tikkun 190”, which under certain circumstances allows you to deposit investments in an account that will be tax deferred and quite possibly tax free.
• Spend less. The traditional rule of thumb has been to withdraw up to 4% of your savings annually during retirement.  However, many financial experts believe that given the low interest rate environment, that may be too much.
• Take more investment risk.  We are likely to have low interest rates for a few more years.  One way of increasing the returns on your portfolio is to increase your allocation to stocks.  While stocks are more risky than many other investments, they also have higher return potential.  Consider investing in stocks that pay high dividends.  Many of these stocks pay dividend yields that are far higher than current interest rates.

How much will I need in retirement?

You will hear a lot of people say that to calculate what you will need in retirement, you should use a percentage of your previous income during your working years.  Some advisors say 70%, others say 80% and others say 90%.  My view is that this is completely wrong.  Your retirement should be based on your needs during retirement, not on what you previously earned.  Many people will see their expenses drop significantly during retirement, with mortgages being paid off, kids out of the house and a decline in work related expenses, such as commuting.  Others may see their expenses rise, with increased travel, higher medical expenses and the desire to help their children and grandchildren financially.

How will I fund my retirement?

Your investments, savings and pensions are designed to fund your retirement.  You can also extract cash by downsizing – selling your current residence and buying or renting a smaller one.

In summary, there are no set retirement rules – everyone should calculate their own needs and how they will fund them. A qualified independent financial advisor can help you with this process.

The information is not intended to be and does not constitute financial advice or any other advice.  It is general in nature and not specific to you. Before using this information to make an investment decision, you should seek the advice of a qualified investment advisor and undertake your own due diligence. 

Richard Gussow is a Certified Financial Planner and Investment Marketer licensed with the Israel Securities Authority.  You can read more about financial planning in Israel at his website:  www.richardgussow.com

אתה בטח חושב שאינך אוחז בדעה קדומה ביחס לקבוצה כלשהי, אך מרבית הסיכויים כי הנך. לא, איני מתכוון לכך שאתה מפלה על רקע מין, גזע או דת, אלא על היותך מוטה בהשקעותיך.

ייתכן ושמעת על שלושת הכללים בנדל"ן: מיקום, מיקום, מיקום. באשר להשקעות החוקים הינם: ביזור, ביזור, ביזור. הזכרתי ביזור? המשקיעים הטובים ביותר נוטים לבזר את השקעותיהם בין סוגי נכסים שונים (מניות, אג"ח, נדל"ן וכו'), מגזרים שונים (היי-טק, כימיקלים, בנקים וכו') וגאוגרפיות שונות. לרב, תיקים מבוזרים הנם בעלי תשואות סולידיות וסיכון נמוך יותר מאשר תיקים שאינם מבוזרים. אף-על-פי-כן, רוב האנשים אינם מבזרים את תיק ההשקעות שלהם כראוי והם "מוטים". ארחיב להלן על הטיה זו.

הטיה נכסית – ישנו כלל אצבע ישן הגורס, כי גיל המשקיע אמור לייצג את האחוז שיש על המשקיע להשקיע באג"ח, כאשר היתרה מוקצית למניות. לדוגמא, תחת קו מנחה זה, אדם בן 30 צריך להשקיע 30% באג"ח ו- 70% במניות, אדם בן 50 צריך להשקיע 50% באג"ח ו- 50% במניות ואדם בן 70 צריך להשקיע 70% באג"ח ו- 30% במניות. הרעיון העומד מאחורי כלל זה הינו, כי מאחר ומניות הנן בעלות סיכון גבוה יותר מאשר אג"ח, משקיעים צריכים להפחית את חשיפתם למניות ככל שהם מתבגרים. עם זאת, לדעתי, כלל זה אינו רלבנטי עוד, אם היה בכלל רלבנטי בעבר. עם התשואות הנמוכות הקיימות כיום באג"ח ושיעורי הריבית הנמוכים על חשבונות בבנקים, משקיעים בדר"כ מפסידים כסף על השקעותיהם, שכן האינפלציה גבוהה יותר מהתשואות שהם מקבלים. בעוד שהשקעה במניות כרוכה בסיכון גבוה יותר, היא גם בדר"כ בעלת פוטנציאל גבוה יותר לקבלת תשואות. עם העלייה בתוחלת החיים למשקיעים יש יותר זמן להחזיר את ההפסדים שצברו.

הטיה מגזרית – משקיעים רבים מושקעים יתר על המידה במגזר מסוים. לדוגמא, אני מכיר מספר משקיעים שכל כספם הושקע במניות של חברות טכנולוגיה בטרם קריסת הסקטור בתחילת שנות ה- 2000. משקיעים אלו הפסידו חלק נכבד מכספם, וזה לקח יותר מ – 15 שנים לאחר-מכן למדדי הטכנולוגיה הראשיים לחזור לשיאים הקודמים. לעומתם, מדדי המניות הכלליים, כגון ה- S&P 500, גבוהים בכמעט 40% מעל השיא של שנת 2000. אם משקיעים אלה היו מבזרים את תיק ההשקעות שלהם במגזרים שונים ולא מושקעים במגזר הטכנולוגיה בלבד, מצבם כיום היה שונה לחלוטין.

הטיה גאוגרפית – קיימת נטייה בקרב אנשים להשקיע את מרבית נכסיהם בארץ המוצא שלהם, נטייה הידועה בכינויה "הטיית ארץ המוצא". מדובר בנושא גלובלי, שכן כל המשקיעים ברחבי העולם "שבויים" בהטיה זו. מחקר שנערך ע"י קבוצת Vanguard מראה, כי ארה"ב מהווה כ- 49% משווי שוק המניות העולמי, עם זאת משקיעים אמריקאים בקרנות נאמנות החזיקו רק 27% מהשקעותיהם במניות בקרנות שאינן אמריקאיות. האמור נכון גם בישראל. אם חיית בישראל מספר שנים או יותר, סביר להניח שיש לך הטיית ארץ מוצא ביחס לישראל. הסיבות לכך הינן:
– אם בבעלותך קרן פנסיה, ביטוח מנהלים, קופת גמל או קרן השתלמות, סביר להניח, כי רובם מושקעים במניות או אג"ח ישראליים.
– אם בבעלותך בית בישראל, הוא לרב מהווה שיעור גבוה משווי נכסייך, נטו. מחירי הדירות בישראל קשורים למשק הישראלי ונקובים בשקלים.
– אם אתה עובד, אתה מקבל משכורת שגם היא קשורה למשק הישראלי ולרב נקובה בשקלים. התזרים החופשי העתידי המתקבל ממשכורתך הינו נכס.
אי לכך, סביר להניח ששווי נכסייך, נטו בעל משקל יתר בישראל.

אתה בטח אומר לעצמך: "אני לא וורן באפט, כיצד אני יכול לבזר?" ולמעשה ניתן לבצע זאת ביתר קלות, דרך שימוש בקרנות תעודות סל (Exchange Traded Funds – ETF) וקרנות נאמנות. כלי השקעה אלה, מאפשרים לבזר את תיק ההשקעות הן של אנשים אמידים והן של כאלה שאינם (אני בן אדם אופטימי מטבעי ולכן אני נוטה לכנות קבוצה זו כ"אמידים בעתיד"). ההשקעה בקרנות תעודות סל ובקרנות נאמנות בונה לך "תיק השקעות מידי" ובאה בכל מיני צורות של השקעה: קרנות שמשקיעות בשוק המניות בארה"ב, בשווקי מניות מחוץ לארה"ב, בשווקים מתפתחים, באג"ח ארה"ב, באג"ח מחוץ לארה"ב, בנדל"ן וכיו"ב. באמצעות עבודה צמודה עם יועץ השקעות מוסמך יש באפשרותך לבנות תיק השקעות מבוזר, שיסייע לך לעמוד במטרותיך הפיננסיות.

* הכותב הנו מתכנן פיננסי מוסמך (CFP) ב- "The Service תכנון פיננסי (אף. פי) בע"מ" ורו"ח מוסמך (CPA) (ארה"ב).

You may like to think that you are not prejudiced against any particular group.  But the odds are that you are biased.  No, I don’t mean that you discriminate based on gender, race or religion.  I am talking about your investments.  That’s right, you probably have investment bias.

You may have heard about the three rules of real estate:  Location, Location, Location.  With investing, the rules are: 1. Diversification 2. Diversification 3. Diversification.   Did I mention diversification?  The best investors tend to be diversified in several ways, by asset type (stocks, bonds, real estate, etc.), by sector (high-tech, chemicals, banks, etc.) and by geography.  Diversification has a strong track record, with solid returns and lower risk than non-diversified portfolios.  Nevertheless, most people are not properly diversified, and are “biased”.  Let’s discuss these biases in more depth.

Asset bias:  There is an old rule of thumb is that your age should represent the percentage you should invest in bonds, with the balance going to stocks.    For example, under this guideline a 30-year-old should have 30% invested in bonds, with the remaining 70% invested in stocks. A 50-year-old should have 50% in bonds and 50% in stocks, and a 70-year-old should have 70% in bonds and 30% in stocks. The thought behind this is that since stocks have higher risk than bonds, investors should reduce their exposure to stocks as they get older. However, in my view, this rule is no longer relevant, if it ever was. With today’s low bond yields and low interest rates on bank accounts, investors are often losing money with these investments, because inflation is higher than the yields they are receiving. While stocks involve higher risk, they also have higher potential returns. With life spans increasing (more on that in a future article), investors have more time to recoup losses.

Sector bias:  Many investors will be overly invested in a particular sector.  For example, I know several investors who had all their money invested in technology stocks before the collapse of this sector in the early 2000s.  These investors lost a huge chunk of their money, and more than a decade later, the main technology indices still have not recovered these losses.  In contrast, the general stock market indices such as the S&P 500 have recently broken all-time high records.  Had these investors diversified their portfolios in different sectors and not just invested in technology stocks, their situation today would be completely different.

Geographical bias:  There is a tendency for people to have a very high proportion of their assets invested in their home country.  This is known as Home Bias.  This is a global issue, as US, UK, Canadian and Australian investors are all guilty of home bias.  According to a study by the Vanguard Group, the US accounts for about 49% of the value of the global stock market, yet US mutual fund investors held only 27% of their stock investments in non-US funds.  The same applies to Israel.  If you have been living in Israel for several years or more, you probably have a home bias towards Israel.  Here’s why.  If you have a pension fund, bituach menahalim, kupat gemel or keren hishtalmut, much of these are likely to be invested in Israeli stocks and bonds.  If you own a home in Israel, this likely represents a high percentage of your net worth.  Israeli home prices are tied to the Israeli economy, and are denominated in Shekels.  If you are working, you have a salary, which is also tied to the Israeli economy and in most cases is denominated in Shekels.  These future cash flows from your salary are an asset.  So your net worth is likely “overweight” Israel.

You may be saying to yourself, “I’m not Warren Buffet, how can I diversify?”  It can actually be done quite easily, through the use of Exchange Traded Funds (ETFs) and mutual funds.  These investment vehicles allow diversification for both the wealthy and the not so wealthy (I am an optimist, so I prefer to call the latter group “the future wealthy”).  Investing in ETFs and mutual funds builds you an “instant portfolio”, and these investment vehicles come in all sorts of flavors, with funds that invest in the US stock market, non-US stock markets, emerging markets, US bonds, non-US bonds, real estate, etc.  By working with a qualified investment advisor, you can build a diversified portfolio that can help you meet your financial goals.

Most of us don't like dealing with our personal financial assets. Planning ahead on this matter is something scarcely done and therefore will cost us a lot of money.

Few questions everyone needs to ask especially high net-worth individuals:

1. How much money will I need in order to live the way I want until the age of 90 (at least)? Do I understand that assets are the tools to fulfill my financial goals and are not the goals themselves?
2. Did I ever take in consideration a financial crisis planning ahead and its consequences on my household?
3. Do I understand that statistically if I work until retirement than my first income after retiring will be 50%-70% lower than my last income as a working individual?
4. Do I understand that I might need to financially help/support my kids for long period of time hence a higher burn rate of my assets?
5. Do I have enough assets to serve my financial future goal and needs?
   • If I don't, what needs to be done to overcome the gap?
   • If I do, what needs to be done to create continuous growth?
6. What am I looking for in my advisors?

• Will an advisor that gets paid commission from 3rd party will be objective enough for me to trust compared to an advisor which gets paid directly fees by me?
• Would an advisor that sees the whole assets picture be better than few advisors that each one sees a partial picture of my assets?
• Do I understand the costs of not having a one financial advisor that is paid by me and sees the full picture of my assets – tax wise, investments wise, risk management wise?

7. What is the best way for me to have peace and quiet in such a dynamic and volatile global financial environment?