>Biloxi, Mississippi – The Katrina Bomb

>As many of you know I spent a week in Mississippi during the month of October. My mission was two fold – repair damaged roofs and tarp them off and to “muck out” houses that had been flooded.

It was a tiring but rewarding week and my heart was warmed by the resiliency of many of these people in the midst of what could only be described as utter disaster. Most of the astonishing damage was done obviously in the coastal areas, and as you’ll see when you look at my pictures it literally looks like an atomic bomb went off. Amazingly there were area’s that were barely touched, but most people felt some effect.

The first day we helped an 80 year old woman who had lived in her house for 40 years. Our job: remove everything including the drywall, insulation, flooring, and ceilings. When we were finished the house was basically a frame and a foundation, nothing was salvageable. There was a pile of junk probably 16 feet high in her front yard awaiting to be hauled away. You’d think this woman would have been devasted, but she was very up beat and very kind to us. She made it her mission to come back to the house every day to feed a bird that had survived the storm. She was thankful to be alive. I doubt I would have had her attitude had the same thing happened to me.

On a funny note, her neighbor had just purchased a brand new large screen Plasma TV before the hurricane hit…..it didn’t survive, but we didn’t have the heart to throw it in the junk pile!

It will take many years to clean up the mess and rebuild, but it will get done and probably quicker than most people think. We saw hundreds of relief workers in Mississippi working hard to bring back America to a place that had suddenly turned into a war zone.

I had a few new experiences as well….

I ate Fried Catfish for the first time
I ate Fried Dill Pickles for the first time
I ate a bunch of fried stuff that I didn’t really know what was inside….hopefully for the last time!

That week in Biloxi taught me how fortunate we are, but it also assured me that if we experience a disaster in California (earthquake anybody?) that we will have an onslaught of Americans on our doorsteps ready to help us pick up the pieces and move on.

As a side note, the organization that I was working under was Samaritan’s Purse, which is run by Franklin Graham (Billy Graham’s son).

Please take some time to view the photos by clicking on the link above. There are a lot and some may not make much sense, I haven’t had time to edit them….

Scott Dauenhauer

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>The Myth of the "Independent" Advisor

>Scenario

Prospect: Tell me Mr. Advisor, what makes you qualified to give planning advice and manage my money? Also, are you fee-only?

Advisor: Well, for one thing I am completely independent and I am fee-based. I don’t work for any of those evil brokerage firms you see advertised on TV.

Prospect: Wow, let’s get started then!

Ok,

So this little parody is a bit over the top, but it is demonstrative of the sales pitch used by most registered representatives today. Everybody is using the term independent (and also Fee-based) to try to make them appear to be better than someone else. Now, I fully endorse trying to separate yourself from the pack, I do it myself, however when I state my credentials they are actually true. When most registered reps (term used to describe advisors regulated by the National Association of Securities Dealers) tell you they are independent they fail to define what independence means for them. The only true independent advisors are the ones who are Registered Investment Advisors and are fee-only (meaning their compensation comes from their clients directly). All others are basically charlatans if they represent themselves as Independent.

Why? As a registered representative you must affiliate yourself with what is called a Broker/Dealer (hereinafter referred to as a B/D). A B/D is basically an entity that provides oversight of other brokers, the technical definition is “any individual or firm in the business of buying or selling securities for itself and others.” There are many types of B/D’s, but in the most basic sense you have the big brokerage firms (Merrill, Morgan, Smith Barney) and the “Independents”. They are referred to as independents because typically the registered rep is not an employee of the B/D (as they are at the big firms), they are separate businesses.

Despite the fact that they are separate businesses the registered reps affiliated with B/D’s have similar restrictions as to what they can sell to you as the reps at the big brokerage firms. The main difference is that reps at “independent” B/D’s get to take home a bigger chunk of the commissions they earn. In fact, that is the main difference (as it applies to the consumer). An rep at an “independent” B/D has the same restrictions on what can be sold, the same conflicts of interests, and the same regulatory structure as the big brokerage firms. Actually, the regulatory oversight is usually less at an indepedent B/D, thus you have more risk of being sold a bad product. Iindependent B/D’s got slapped just as hard as the big brokerage firms in the “shelf space” scandal in which it was learned that big mutual fund and annuity companies paid the B/D’s money so that their products would receive preferred selling status.

What you should know about reps who claim to be independent is that this basically refers to how they receive their commissions. They are independent because they are not an employee, though they are regulated much of the time as if they were. The main reason reps go independent is because they get to keep more of their commissions (I’m all for that). However, being independent does NOT mean they are unbiased, does NOT mean they will act as a Fiduciary, and does Not mean they are fee-only. I have seen more people hurt by the so called “independent” planner than I care to talk about. In the end most independents are about product sales.

You must ask yourself, do you want an Independent, or someone who will put your interests first? Actually you can have both. As a Registered Investment Advisor with no outside affiliations to pull my strings I can give unbiased, independent advice that is free of product sales and commissions. Make sure you know who you are dealing with and always ask as many questions as possible, especially if someone is claiming the term “Independent” as a credential.

Scott Dauenhauer, CFP, MSFP

Kindle

>Impact to Retirement Plans of New Roth 401(k)

>The above link will take you to a summary of the study with a link to the full study. The study points to the Roth 401k/403b as a new benefit available for employers to adopt beginning January 1, 2006 and shows how it can benefit employees.

I believe the Roth 401k/403b is a great option for a lot of people, not just the highly paid. I think a new concept in investing is beginning to take shape, that of tax diversfication and the Roth is at the center of it.

Tax Diversification refers to diversifying your investments into accounts other than just pre-tax, tax-deferred options. You should aim to have money in tax-deferred accounts, but you should also try to accumulate money in tax-free accounts, such as Roth IRA’s and 401(k)/403(b)’s, this gives you the ability manage your taxes better in retirement in order to minimize what you owe.

I have a few interesting strategies for the Roth 401k/403b for people who have inherited money or expect to inherit money in the future to take a look at.

Scott

Kindle

>Bush Picks Bernanke to Lead Fed

>Watch this closely, the replacement for Greenspan is one of the most important economic events both domestically and internationally. I believe a Fed Chairman does more to help or hurt the economy than most Presidents (and Congress) claim credit for.

Smartmoney.com: Breaking News: Bush Picks Bernanke to Lead Fed

Kindle

>Large IRA’s not fully protected from bankruptcy or lawsuit seizure?

>A great piece on what is and isn’t protected from creditors when it comes to your IRA accounts. This year has brought a lot of clarity and strengthened rules to IRA’s and how they are protected from creditors and a bankruptcy.

Scott Dauenhauer, CFP, MSFP

Kindle

>Slowing Is Seen in Housing Prices in Hot Markets

>You may need to register to view this piece.

Last Thursday the Wall Street Journal came out with a piece on how mortgage lenders are tightening their standards on who they will issue loans too, this is an indication that the banks were making too risky of loans, but also it is an indicator for the housing markets as tighter credit standards lead to less people able to buy a home. Translated this means there may be less demand, combine this with rising interest rates and already high home prices (not to mention regulatory problems with Fannie Mae) and you have set the premise for the above linked article by the New York Times.

I am not saying a crash is imminent or that their will even be a crash, but if it hasn’t already happened you will see some cooling in the hot markets. You will see more houses on the market, for longer time periods, and prices going lower – not higher (usually because they set their price to high to begin with).

Another problem is high gas prices, people are much less willing to live further away from their work if the extra savings they get is eaten up by transportation costs.

All I am saying is be careful, if you’re buying a home to live in, make sure you have a long time horizon and that you can truly afford the place. If you are a renter, make sure you can cash flow the property – and make sure you have enough in reserves.

Scott Dauenhauer, CFP, MSFP

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>The Meridian Quarterly Update

>The Meridian Quarterly Update

4th Quarter Commentary & Update

The third quarter actually saw some movement in the price of stocks. The first half of the year was quite flat, and the third quarter for the S & P 500 was also pretty flat, only up 2.73% for the year. Diversified portfolios are faring better due to small, value, real estate, and international stocks having a decent year. A diversified portfolio 100% invested in stocks is up around 7% through the third quarter, not bad. Many experts are predicting a great 4th quarter (similar to last year), I have no prediction. Short term predictions are a crap shoot, anything can (and usually does) happen.

I still believe that the long term prospects for a globally diversified portfolio are bright; though I do not expect similar returns as we’ve had in the past five years. My expectations for a diversified portfolio 100% invested in stocks would be in the 9 – 11% range, however this may be optimistic. Many believe returns will come in at the lower end of the spectrum at 7 – 9%.

For the last five years diversified portfolio’s have shined and taught everyone the value of diversity, however we must remember that their was a five year period previous to that where a diversified portfolio trailed the overall market by a wide margin. We must all be prepared to stick with a diversified portfolio even when it feels like it may not be the right thing to do. I have no idea what the next five years hold, but I do know that the best probability of capturing the returns that are available is through a globally diversified portfolio.

I could spend the next few pages writing about what everybody else is hearing about in the news: Oil prices, Interest rates, Hurricane Katrina’s effects, and real estate but I don’t feel that will add any value to your day as I cannot predict the effects of any of the events related to those news events. I have written about much of those events or linked to articles about those events on my blog at http://themeridian.blogspot.com/. Predicting the future is a fool’s game, planning for the future continuously and using probabilities to sharpen your planning is the wise way to go.

Instead, I have a few announcements for you.

Enclosed you will find a copy of the invoice for your third quarter management fee. You do not need to do anything with this except review it for accuracy and file it (unless you normally by the invoice by check). The fee will be automatically debited from your Ameritrade account.

Mississippi Trip – Out of the Office from October 8th – October 15th

I have the opportunity to go to Mississippi this coming Saturday for a week to help rebuild homes destroyed by Hurricane Katrina. I do not know what my communications will be like during this time period as I doubt they have high speed internet access. I will have my cell phone, but don’t know if it will be working or how often I will be able to check messages.

In my place while I am gone a good financial planning friend of mine has volunteered to take any “emergency calls” from my clients, his name is Scott Brewster and his contact information is as follows:

Scott Brewster
Brewster Financial Planning
Phone 646-249-9880
Scott@brewsterfp.com

I ask that you not contact him for routine information, but only if you truly need help immediately. I will only be gone for five business days and can address most concerns as soon as I get back.

No 3rd Quarter Reports Due to Switchover

I am happy to announce that I have signed a contract with a company that will enhance the existing performance reporting capabilities of Meridian Wealth Management. Over the past four years I have spent nearly $10,000 and hundreds of hours working on a portfolio accounting system that just hasn’t worked out. Though I was using the top software in the market it was clunky, inefficient, and occasionally inaccurate. After a near two year search I believe I have found a company that will be able to provide a solution for me and you that will be truly beneficial.

The new solution will allow you access via the internet to all your accounts in one place and allow you to run any report you want at any time. I will be meeting with you to introduce the different reports that will be available and you can choose which one’s you want to see. I will still be mailing or e-mailing you a consolidated quarterly report as well.

As I get this system up and running I am sure there will be some difficulties so I ask that you bear with me. I need to transfer all cost basis information into the new system and this may take some time, in fact it may take most of the fourth quarter. I also will be setting up individualized target portfolios for each client so that you will be able to see where your portfolio is in relation to where we want it to be.

Many of you have accounts that are held outside of Ameritrade and TIAA-CREF and thus I don’t have daily downloads for those accounts. In the past I have manually entered in the statement information each quarter in order to give you an accurate picture of your portfolio. The new system has additional capability that will allow many of your accounts to be downloaded electronically and thus eliminate me manually inputting the information, I hope this part of the system will be up and running before January 1st, 2006. I cannot guarantee outside accounts will be available by that date, but I am working hard to make it happen. The goal is to produce a report that is true and captures all your assets. In some cases there will be an additional fee for the outside account service, I will communicate this directly to you.

I am confident that once up and running this new system will provide great value to you as well as to me. I hope to meet with each of you during the fourth quarter to introduce you to the new system and get you a user name and password. Due to the transition no 3rd quarter reports will be issued.

Thank you very much for your patronage, in many ways it is because of you that I am able to leave for a week to Mississippi to help serve others who have had their lives torn apart, I am in your debt for this opportunity.

Scott Dauenhauer, CFP®, MSFP
President
Meridian Wealth Management
949-916-6238
scott@meridianwealth.com
http://www.meridianwealth.com/
http://themeridian.blogspot.com/

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An Independent Fiduciary

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