Wednesday, July 14, 2010

Interesting Little Tidbit Of The Day

I had no idea, until a few weeks ago, that money laundering can occur in retirement planning. This is not something that usually comes up in conversations, but when I found out about it I was shocked. The process involves turning the dirty money into clean money. "How does this happen?" you may ask yourself.

Well sneaky money launderers or those acting on behalf of them will come into the Financial Advisor's office, or just go to the company website of choice, and sign up to withdraw, transfer, or buy into an investment. Now think back to a previous posting about the 60-90 window of retraction. Well the launderers pay in the money in a lump sum, let it sit, and then make a retraction request. The mechanics behind it are so simple yet so unbelievable. Well, now the fund company or brokerage firm has to distribute the money back to the investor from their own money. This makes the money "clean money" and untraceable by the government.

That is why Financial Advisors are so picky and selective about some of their clients. Noone wants to go to jail for aiding in the money laundering process. So just be weary when someone wants to invest a very large lump sum of money all at once like that, without it being a company sponsored retirement plan.

Now that I am thinking about it, I did receive a random call once from a guy claiming to have won the lottery somewhere and wanted to put it in an investment for safe keeping. The red flag went up immediately because of the way he worded his requests. Not wanting to get into an arguement over the phone, I did what I do best and just transferred the call to another department. Yes, I really did do that and still do that with calls that I do not want to deal with at the moment. Ha ha.

Moral of the story? Crime only pays when someone pulls the wool over your eyes.

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Tuesday, July 13, 2010

Thinking You Should Sell And Actually Needing To Sell Are Two Different Things

With todays economy and market fluctuations, investors are always quick to jump to conclusions or jump on the band wagon. They will listen and respond to anything that they hear on the news or radio, causing them to make some radical decisions. Then they call and want to close the entire account or move it somewhere else, aka another brokerage firm who puts stars in their eyes. Take the lady from today for example. She calls and says that she needs to close out her account because it has only been losing money. So I go and pull up her account only to discover that she has over $500 in gains.

Seriously? What was she thinking? When investors get their statements, either annual or quarterly, they do not depict what the current value is as of TODAY. So yeah, maybe they had a bad quarter but she is still $500+ in gains in the past two years of opening the account. This happens very frequently with investors. Instead of just going by your statement, try going to the company's website and registering with them for up to date values and information. You can even pick up the phone and call your advisor to ask them what the current value of the investment is and then measure how it compares with your statement.

As with any investment, market fluctuations are going to happen. That does not mean to go ahead and close it now so that you can reinvest when the market changes in the direction you are wanting. What happens when you do this, and try and reinvest at a later date, is that you may not get as high of an interest rate as you had before or if you are in bonds or stocks you may have to buy back in at a more escalated price that before.

Moral of the story? When in doubt, don't freak out. Just ride it out and you will see that nothing lasts forever.


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Monday, July 12, 2010

Broker Price Opinions?

While visiting a friend's family with her for a week I made a fascinating discovery. It seems that her dad, who is a real estate broker, was hit pretty hard during the sub prime debacle. Yet they still had a very high standard of living and he still had plenty of money to burn. How the heck did he manage this? Come to find out he was working on the side doing, what he called, BPO's. This means Broker Price Opinions. So we hung out with him for a few hours to see what it was all about.

From those few hours I learned that companies hire people to do these BPO's because they are not able to do it themselves without being penalized by the IRS. When certain companies have a need to know specific information about certain properties they email the real estate broker that they have on file for the area. The real estate broker then goes out and either examines the site on foot or does what my friend's dad calls, "a drive by." The requirements are to take photographs of the property using as many angles as possible. The company wants details of how many rooms, windows, condition, etc. pertaining to the site. After gathering the details the real estate broker would then take all information and create a profile for the property. He would also need to look at house prices in the vicinity of the property in order to accurately place a value on it. All I know is that there is a lot of money to be made here, usually consisting of about $50 or more per BPO.

Sounds pretty easy right? Not true. There are also downfalls with this particular endeavor. He had told me stories of how drive bys were very dangerous. People see you taking pictures of their house and will yell and scream at you. Some even run out of the house/property with weapons. One agent/broker was even killed by someone hiding on the property, who stabbed him to death. Caution must always be the main priority if you decide to do this for a living.

So if you can deal with the drawbacks and have some decent time on your hands, not to mention a real estate broker's license, then BPO's are the way to go.

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Rumor Concerning The Future

So what I was told a couple of weeks ago was that the government was going to make some changes regarding inheritance benefits. Usually when dealing with investments the beneficiary will receive inheritance distributions based on the original account owner's tax association. This is usually measured in basis points, which directly effects how an investment is perceived on the market and how it is regulated and taxed. So the rumor is that next year the basis point will go up. What does this mean for the average Joe? Well consider all of the capital gains that the deceased has earned on the investment now taxable income. So that big chunk of money, the deceased earned over the lifetime of their investment, is now based on the value at death not inception. Yes this sucks big time for everyone who has loved one's leaving them alot of money in the future. The moral of the story? It does not pay to die. So live long and prosper.

New item learned about 401K's

So today I have discovered something very interesting about 401K rollovers. I have dealt with these quite frequently, and this is the first time I have had to answer this question. We have been setting up an IRA rollover for a client to rollover his 401K. Something you probably didn't know is that any person initiating one of these has the right to retract their request within a specified window of time. When dealing with most financial investments this window is 60 days. In the case that you do retract your application for rollover it is sent directly back to your 401K to be invested elsewhere. The main reason that someone would do this is if they were laid off from one job and then found another one after initiating the application for rollover.

Ok, so back to what I had learned today. The call came in about whether or not you can retract the rollover request if you had already used some of the money to pay bills. I had no idea at first about this and needed to consult with my boss. So what I did find out is that yes you can do a partial rollover retraction within the 60 day window. This prevents the 10% early withdrawal penalty from occuring, as would be the case if he had already went through with the rollover and then decided to move it back. The only down side is if you had already paid taxes on the rollover when you initiated the application. You will not get any paid taxes back on the rollover retraction, whether or not is was within the 60 day window.

So I consider this very important information to have on hand for future client matters. If you read this it will also help along the way if you are ever in the same situation.
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