John Rothmann – Welcome back to the Retire With More Program…We have a very special guest, Sally Brandon. She is the person who handles all of those kinds of questions that you’re going to call or email about. So, I left off with a question: I know what personal hygiene is, but what in the world is “portfolio hygiene?” Can you answer that for me Sally?

Sally Brandon – Sure. Portfolio hygiene is really making sure that every year you take a look at your portfolio and make sure that everything still is appropriate. So, have you had any life changes that you need to take into consideration when you take a look at how your portfolio is being managed? Your beneficiaries, now this is a really important one, John. So, think about maybe when you started a retirement account, hopefully it was in your 20s, and at the time when you put together a retirement account, you have to list beneficiaries. Beneficiaries are those that would receive your account if something were to happen to you. And at that time it was probably your mom and dad.

But as life goes on, changes in your life will occur. You’ll get married, maybe have some children, and you’ll want to revisit who those beneficiaries are. So every year it’s really important that clients take a look at — well, we with our clients will do it — but that people in general take a look their portfolios and make sure the beneficiaries are still appropriate and is the asset allocation, the way the money is being invested, is that still appropriate given where you are in your lifetime?

John Rothmann – And you really want to look for pitfalls. For instance, if someone who is named as a beneficiary dies, you certainly have to make the correction. What about a divorce? What do you do in the case of divorce?

Sally Brandon – Well, that too. If you’ve gone through a recent divorce, chances are your former wife is on your account as the primary beneficiary and you’re going to want to make a change and have your new wife, if you’ve gotten remarried, be the primary beneficiary. Or possibly consider, if you haven’t gotten remarried, putting your kids there.

We had a client recently that had gone through a very similar situation. He had been divorced for many years and had just gotten remarried. And when we got linked to his account I was able to look inside and see who is beneficiaries were and wanted to make sure that the way he originally registered the account was still appropriate and, sure enough, he had his first wife as the primary beneficiary. And, when push comes to shove, whoever you designate as a beneficiary is going to take precedence on who gets your money. So we quickly made that change and put his current wife on the account.

John Rothmann – Now you told us a story about Dale, the sole beneficiary for an elderly mom. Tell us that story, will you?

Sally Brandon – Well we had her retirement account that we were managing and she was in a pretty aggressive portfolio but there was a little bit more room to take on a little bit more equity exposure. But she has an elderly mom and she is the only child for her mother. So she was going to be soon inheriting those funds. And when she took a look at how her mom’s assets where being invested, they were all in bonds. So when she took that into consideration, she really needs to factor in the money that she’s going to be inheriting into her overall allocation, and it made us kind of pause and rethink about how we should invest the retirement account that we had. So we stepped it up and went more aggressive.

John Rothmann – So at Rebalance, if I contact you, if I call you, if I email you, what you do is a real assessment of what you have. So my great aunt just died and left me $1 million, and I don’t know what to do with that $1 million.  I call you. Do you really sit down with me, examine everything, figure out what to do? Do you do that for me?

Sally Brandon – Well, we’ll look at everything holistically, so we’ll take that into consideration as that is now a part of the mix and we will then evaluate if the funds that we’re managing need to be re-jiggered a little bit, and maybe we need adjust how those funds are being managed.

John Rothmann – And that applies no matter what the amount is right? I use $1 million. I wish I had that great aunt. But, the point is if it’s $1,000, $10,000 or $50,000. What a life insurance policy. Somebody names you as the beneficiary on a life insurance policy? What do you do then?

Mitch Tuchman – Well it’s all part of what Sally is talking about with portfolio hygiene, it all needs to be factored in and what we always find, Sally’s always telling me stories about… She conducts a first-year call with all of our clients, a second year call, a third year. Every 12 months, she makes a point to get on the phone with every client — Sally or a member of her team — and go through this process, and that’s why she calls it portfolio hygiene.

Because there’s usually there’s something that happened during the year that might not be of any consequence to the client. The client may think it’s nothing, no big deal, but when we hear it, because this is what we’re trained to do, we say “Wait, that’s very important.” That actually might make this assumption we had very different, just like in the case of Dale who found out that if you consider both portfolios together her allocation is out of whack. It’s all about making sure that on a regular basis learning about people’s life changes. So we recommend that everybody take stock once a year and look at everything they’ve got.

John Rothmann – Ok, so speaking of test driving, I love this expression, which you taught me, you should take your advisor for a test drive. Just like you try out a car, why not an advisor?  What does that mean?

Sally Brandon – Well, I think that if you are going to have somebody manage your money, you want to make sure that you’ve made the right decision, that you’re going to be, first of all, paid attention to, that they’re going to hear you out, they’re going put you in the right investments based on where you are in your life and that they are going to be charging you the least amount of fees. Fees are very important and they can erode your returns.

So why not then, if you want to try somebody out, you might not want to give them everything. You don’t want to jump in with both feet, but why not give them some of your assets to manage and evaluate then how they’re managing it compared to how your other money is being managed, and then after a while maybe evaluate and see if you should make some changes.

John Rothmann – I have to go back to this question of fees because Mitch has underlined each week the fact that 1%, which sounds a very insignificant amount of money, really mounts up. Can you explain that to us?

Sally Brandon – It does. Do you want that 1% in your own pocket to compound over time and retire with more? Or do you want to be giving someone else that 1%? When you’ve got a lot of time on your side, even though it’s 1% today, it really can amount to a lot of money in the long run.

Mitch Tuchman – But John back to this concept of the test drive that Sally was talking about. We’re an advisor, and of course we like managing people’s money and we compete against other advisors who are managing money for the same client, and if you’re just everyday people listening to the show, you hear people like me talk, like Sally talk or a hundred of other people talk and many of them probably sound great, like they know what they’re doing and that’s the best idea, that’s the best advisor.

So, at a point you say, how do I know which one to use? Sally’s recommending like you test drive a car, test drive the advisor, but where we really learned a lot is from a client name Ron. And Ron had a wife named Tammy and he decided to test drive us against his wife’s accounts with a broker at Ameriprise, and I think Sally, it was the way that he did it that really enlightened us in terms of a very intelligent way to test drive an advisor, because you really have to do this in a diligent way to get a good result. Otherwise you’re comparing apples to oranges.

So, if you want to talk about that, or I can talk about how Ron did this. I just thought it was brilliant, and we think everybody who is giving us a try should do this.

John Rothmann — So, Sally, what did Ron do?

Sally Brandon – Well, what he did is, they had a number of accounts and so he chose to give use one of his wife’s accounts that was managed in the same manner that his retirement account was managed. So, to what Mitch said, you want to make sure that it’s apples to apples. You obviously don’t want to be comparing how our portfolio is doing compared to one that is a lot more aggressive or a lot more conservative.

So what they did is they gave us her retirement account and we managed that for a year and he kept his account over at Ameriprise, which was managed in a very similar manner, and then when we had our annual call and he looked at the returns, he was really amazed by kind of the shortfall in his account, and it was mainly due to the fees that were being stripped out of his account to manage. So, at that point, he got very disenchanted with Ameriprise and wanted that money for himself, so he took his other three accounts and moved them over for us to manage as well.

John Rothmann – And Mitch you’ve made this point, differentiating what you do and what a broker does, and maybe this is a good time to restate that so we’re crystal clear.

Mitch Tuchman – Well, so the key here was that the Ameriprise broker had for his wife’s accounts a stock-bond allocation, bonds funds and stock funds, at 60/40. Actually, we didn’t think that was appropriate and we told Ron we don’t think that’s appropriate, but if you’re going to compare us to them, let’s use their allocation. And we’ll do a 60/40 allocation so that it’s apples to apples, because bonds operate and get different returns than stocks. If you have differences, you’re not getting a great comparison. So, we kept the allocations the same.

As Sally mentioned, their 2% in fees as opposed to a third of the amount that we were charging really made a difference in the returns, same stock/bond allocation, and we were selected. But the point was, Ron did a test drive and he did a very, very accurate representation, apples to apples, and we helped him do it. May the best advisor win. But we really like this idea of a test drive.

John Rothmann — I think it makes a lot of sense. So in summary on this then, really taking a test drive with whoever you work with is critical, and that includes Rebalance. Is that correct?

Mitch Tuchman – One more thing John. Here’s what Ron did also: There’s a difference in how certain advisors manage money and the amount of taxes that are paid because certain advisors do lots of trading, and as they do a lot of trading it generates taxable income. So what Ron did was is he looked at the taxable income generated on each account and he used his own tax rate and deducted that from the returns as well. That’s where we really were able to shine, because we don’t do very much trading at all. But that’s another factor — fees, taxes, allocations, do the right thing with the test-drive. And we’ve been helping lots of clients do that after we learned this from Ron and his wife.

John Rothmann – We have to take another break, but when we come back I want you to tell us the story of Sarah in New York, whose husband passed away. She was worried. How did we resolve that problem. You are listening to the Retire With More Program. Yes, that is our goal, that we all retire with more.