When Jack Black’s Polka King comes selling investments, you should run

Netflix is out with the next installment of its unintended financial education series.

Last year it was “Ozark,” where Jason Bateman played a crooked financial advisor who shreds the fiduciary rule that says you must protect your clients’ interests faster than the New England Patriots’ secondary.

Available now on the video streaming service is “The Polka King,” a fictionalized comedy about the nonfiction story of a Polish immigrant, Jan Lewan, who gained some fame as the “Polka King” of Pennsylvania coal country in the ’90s. Played by comedian-actor Jack Black, Lewan just wants to be loved and live the American dream.

Unfortunately, living the dream takes money, a lot more than Lewan can muster playing weddings and other small-time gigs with his polka band, as well as manning a gift shop with his wife (played by Jenny Slate) in Hazleton, Pennsylvania.

So, Lewan stumbles on another idea.

When an elderly couple, enthralled by Lewan’s upbeat and kitschy polka shows, wander into his shop, he entices them to invest in “Jan Lewan” enterprises. He tosses a thin pamphlet across his desk and tells his would-be investors to think it over.

They, of course, fall for his charms and while grumbling how they’ve been mistreated by stockbrokers and Wall Street, fork over their money. You can see how this will end.

To make sure you don’t fall prey to the same type of con, consider these lessons:

Don’t mistake affability for financial savvy

One of the reasons con artists like Lewan are able to raise money from unsuspecting marks is that they are just so darn nice. Lewan/Black always inquires about family, and his over-the-top enthusiasm for his dubious investment schemes are infectious.

Never confuse this with doing your own due diligence. Check out the offering carefully. Is there a business plan? Are audited numbers of income, expenses and potential future profits available? No? Then pass. Who are the managers of the business? Find out and Google them. They won’t tell you? Then pass.

Charm is never a substitute for actually knowing what you are doing.

Older investors are often prey

Sad, but true. Seniors often fall for this type of con more than other age cohorts. Reporting by CNBC’s Kelli Grant on elder fraud and abuse showed that this is a $36.5 billion a year issue.

Bait and switch

In the story, one older couple corner Lewan in his office and demand their money back (which of course has swelled from phony returns). As he’s writing out a check that he knows would be sure to bounce, he lets slip that he’s starting a new fund, one with “guaranteed” returns of 20 percent and only open to a select few. The couple, with dollar signs flashing in their eyes, tear up the check and immediately invest even more money.

Never fall for these high-pressure, better-get-in-now-before-it’s-too-late tactics.

Unregulated securities are, well, unregulated

In the story, Lewan starts selling what’s described as promissory notes, likely unsecured ones at that, meaning that they’re not backed by any physical assets. Of course, he skips an essential step, registering them with regulators.

Selling unregistered securities is a particularly ripe area for the not-so-above-board; FINRA, the brokerage industry’s self-funded regulator, has called them out in investor alerts.

Generally, selling unregistered securities is restricted to so-called accredited investors, those who by virtue of high annual income or assets are deemed to be sufficiently knowledgable to evaluate the risk or sustain a loss. That doesn’t always happen.

While the authorities eventually step in and shut Lewan down, it’s not before the damage is done. That should be a warning to you. Don’t rely on regulators to catch these things before it’s too late.

There is no free lunch

Anytime someone promises you “guaranteed” returns from investments, they’re engaging in some magical thinking. In fact, the smartest character in the movie is Slate’s skeptical mother, who is convinced, correctly, that Lewan is up to no good.

Later in the film, when one bilked older couple confront her in a shopping mall parking lot over her son-in-law’s dishonesty, she berates them: “You idiots, why did you think you could get 12 percent, when the bank is only paying 3 percent!” (She then eggs their car, just to make the point).

Anytime you’re promised outsized returns, it’s more likely fantasy than fact.

By the way, Lewan eventually conned investors out of almost $5 million, according to the show. And spent five years in prison.

He has vowed to pay those back he scammed — from polka shows.

(This post originally appeared on CNBC.com)

Why October is the scariest month for your retirement

October is a scary month for America’s retirees, and not just because swarms of kids will be banging on their doors, demanding candy and treats.

No, October is the month when the Social Security trustees generally announce the annual cost of living adjustment (COLA) to recipients’ monthly checks. In recent years, the paltry percentage increase has been downright frightening. It was zip in 2015, and 0.03 percent in 2016.

And consider this: Roughly 43 percent of older, unmarried recipients rely on that check for 90 percent of their monthly retirement income, according to the Social Security Administration. The average monthly check is $1,369, by the way. Yes, you read that correctly.

The Nationwide Retirement Institute, an arm of Nationwide, the Columbus, Ohio-based insurer with the Peyton Manning commercials, conducts an annual survey of consumer knowledge and attitudes about Social Security. The results of its most recent poll are sobering and should send a chill among anyone concerned about the financial security of older Americans.

People worry the money will run out

Among the highlights: 78 percent think Social Security funding will run out during their lifetime. That’s pretty troubling given how many people really rely on this benefit. Worse yet, 29 percent of future retirees said they plan to draw their benefits early, before reaching full retirement age, (which is currently 66+) according to the survey, which was taken in May and June among 1,012 adults age 50 and older.

I recently sat down with Tina Ambrozy, president of Nationwide Financial Distributors, to elaborate on the results.

“There’s a lot of belief that there will be changes over the next four years that will negatively impact their Social Security benefit,” Ambrozy said. That’s the highest that sentiment has been in the four years the survey has been taken, she added. (Although the Republican tax framework, released on Sept. 27, says it will encourage “retirement security” and “will aim to maintain or raise the resources available for retirement.” )

Of course, if you’re in poor health or think the government’s cash will run out, it’s an understandable decision to take the money early, though that’s a very costly move as you permanently lower your benefit than if you had waited to collect.

More education needed

Compounding the issue is the general lack of understanding about the how the program works. It’s not your fault. The Social Security claiming system with all its rules, nuances and permutations, makes an NFL coach’s playbook look simple.

For example, if you wait until age 70 to start collecting, your benefit will be about 32 percent more than if you took it at 66. Or that your Medicare premiums generally are automatically deducted from your monthly benefit. And if you’re married and want to strategize about who should claim what and when, it really does take a rocket scientist to decipher it all.

Meanwhile, Nationwide has developed a Social Security claiming tool it says will help you make informed decisions about this critical benefit. (Spoiler: it’s only available to advisors who work with clients.)

“Advisors need to be comfortable talking with their clients,” about Social Security, Ambrozy said, which was part of the impetus in building the tool.

They’re not alone in trying to give Americans a leg out on sorting all this out. And even if you aren’t working with an advisor, there are a number other tools out there, both free and paid, although with varying degrees of accuracy.

For America’s older citizens, it’s time well spent to utilize one.

(This post originally appeared on CNBC.com)

This adviser wants to help you with spending, not saving

Does the world need another robo-advisor? United Income CEO and founder Matt Fellowes thinks it does. And here’s why.

Many advisors focus on investing and increasing the size of your nest-egg for retirement or other goals such as paying for college, buying a house, etc. Fellowes says relatively few — especially among the three dozen or so robo-advisors out there today — deal with “decumulation,” a fancy word for spending.

He may have a point. A lot of the financial advice industry is centered on growing people’s assets, maximizing returns and getting them to save or invest more.

In reality, a lot of people are so stressed about outliving their assets that they are afraid to spend at all beyond what’s needed to cover the bare essentials once they stop working.

Fellowes says it’s an area that’s often poorly addressed by traditional advice. It’s made more complicated by the fact that most of us don’t know how long we’re likely to live.

In addition, Fellowes says many retirees get tripped up by the cash flow transition once they’ve stopped working full time. Generally, they then go from one main of source of income (ie, a paycheck) to multiple sources such as withdrawing from savings, collecting Social Security, pensions, annuities and fixed-income payments from bonds.

“They’re not sure about which checks to cash, and what to do with their savings,” he says.

So United Income — which is actually more of a hybrid, pairing algorithm-based investment research and in-house advisors — has aimed its services squarely at that age 50+ cohort, a target-rich environment with about 80 percent of the country’s investable assets, according to Fellowes.

One feature that may have the greatest appeal is the “Retirement Paycheck” which aggregates different retirement income streams to simulate a monthly paycheck, so retirees know how much they have to spend and can budget to that amount – just as they did during their working lives, according to a press statement.

The affable Fellowes, 42, founded HelloWallet in 2009 before selling it to investment research firm Morningstar in 2014 for more than $50 million and becoming Morningstar’s Chief Innovation Officer. Prior to that, he was a fellow at the Brookings Institution. And he may also be a distant relation to Julian Fellowes who created “Downton Abbey.”

This advice doesn’t come cheap, however. The base annual fee is 0.50 percent of assets for self-service financial planning and goes up to 0.80 percent for unlimited access to a personal financial advisor. That’s serious cash if you have a large portfolio. (Though you can register for a free financial plan.)

Fellowes says their fees are justified because their solutions are customized to each client as well as their specialized offerings including a “Concierge Service” which takes care of the tasks clients do not want to do, such as helping them enroll in Social Security and evaluating Medicare benefits.

United Income will also curate opportunities for users to pursue their hobbies, passions and dreams, according to the press statement.

“They are as low as they could be to build a sustainable business,” Fellowes says of the fees, and lets United Income “avoid taking hundreds of millions of dollars of venture capital money, which would then pump and dump the company.” (Morningstar is a backer.)

Another potential downside: You have to transfer all your accounts to them, which means if you have money stored with Vanguard or Charles Schwab, for example, you have to move it to Apex, their custodian.

Still, how to spend down those assets wisely in retirement is a conversation very much worth having. If United Income can move that along, so much the better.

(The post originally appeared on CNBC.com on Sept. 11, 2017)

Netflix series ‘Ozark’ is full of advice you probably shouldn’t take

A new Netflix drama series “Ozark” (think “Breaking Bad” on water) focuses on corrupt Chicago-based financial advisor Marty Byrde, who launders money for Mexican drug dealers.

While you may not see this scenario play out in real life, the show does give investors plenty of red flags and warnings to consider with whoever is managing their money.

Warning: Spoilers below.

When Byrde’s business partner decides to skim some cash from the cartel, the bad guys don’t take too kindly to that. Byrde (played by Jason Bateman) flees with his wife, Wendy, (Laura Linney) and kids — after convincing the cartel he can hide even more money among those rubes at Missouri’s Lake of the Ozarks in return for sparing his life.

That the locals prove to be as crafty as Marty is one of the conceits of the program. The cast of characters includes “hillbillies” who live in broken-down mobile homes, a rogue FBI agent who trashes motel rooms and seduces a witness and local drug dealers who distribute their wares in hollowed-out hymnals at a pastor’s weekly sermon on the lake.

Along the way, a bunch of financial advice is ladled out — most of which is questionable at best. Here’s a sampler:

Not properly vetting your adviser

Marty’s partner is a master at sweet-talking new clients, essentially hustling them to sign on with the firm. Scant evidence is offered about their qualifications. The message for you: Never pick an advisor without doing your homework. (See our graphic below for the best tips.) Just because Aunt Tillie vouches for him is not good enough.

Ironically, the one who does do some checking is the cartel’s rep (Esai Morales) who goes around town testing advisors with a set of cooked books. Only Marty, a purported numbers whiz, is clever enough to spot the rounding errors (huh?) on the balance sheet signifying siphoned-off cash. The cartel’s previous advisor is later murdered (not recommended).

Handing over cash

An advisor shouldn’t be holding your cash and investments. That’s what custodians like Schwab, Fidelity and Vanguard are there to do.

Be suspicious of performance statements that come solely from an advisor that you can’t verify with the actual firm that has custody of your money. Make sure you can access your accounts either electronically or over the phone or by walking into a branch office. That’s one way how Bernie Madoff duped his clients for years — with fake statements.

High-pressure sales tactics

In several episodes, potential clients are told a “fund” was about to close or was “not accepting” any more new clients unless they buy in and pony up cash. If you hear this sort of nonsense, get up and leave. No reputable advisor should ever deal this way.

Withdrawing $8 million (in cash) from a bank

OK, it should be pretty obvious why this is a not a smart move. Not to mention that U.S. banks must inform the federal government of any transaction of more than $10,000. Kind of a bad idea if you’re a money launderer.

Buying unregistered securities

Another red flag. In the series, Marty pressures an unsuspecting local to fork over more than $900,000 for an unspecified “fund.” While selling unregistered securities is generally illegal, there are instances where it’s permitted to so-called accredited investors, meaning those who have a certain level of assets and are therefore deemed to be “sophisticated.” Sadly, that’s often not the case, making them ripe targets for this type of scam.

Making investments without any due diligence

In his rush to spread the drug money around, Marty invests in a failing motel/bar, a strip club and a mortuary, all with predictable bad results. The takeaway for you: Never make an investment that you don’t thoroughly understand, be it a business or any other opportunity where money is involved. A 90-page prospectus full of legal jargon Alan Dershowitz couldn’t decipher means you probably can’t either. Absent a very, very clear understanding of what you’re buying and the risks involved, just walk away.

(This post was originally published on CNBC.com on Aug. 17, 2017)

Schwab Starts Robo-Investment Service

The investing world has been all atwitter — or a tweeter — over the coming of Charles Schwab’s Schwab Intelligent Portfolios, which opened to the public yesterday .

The new service from the San Francisco-based money manager is the latest in the growing world of “robo-advisers,” or investment advisory solutions that rely on computer algorithms to build, monitor and rebalance portfolios based on your stated goals, time horizon and risk tolerance. Online competitors include Betterment, Wealthfront, SigFig and others, which have varying fee structures depending on how much you invest. But given Schwab’s size (about $2.45 trillion in assets managed), any new offering from the firm gets a lot of attention.

What’s more, the Schwab service is free of advisory fees, commissions or account services charges. But wait a minute, where’s the catch? We all know there’s no free lunch in the financial services world.

So of course there is one — or two. The Schwab portfolios require you to keep a certain percentage in cash, which will pay you essentially bupkis in interest while the firm gets to use that money. It remains to be seen how big an effect this will have on performance. The firm also earns revenue from “managing Schwab ETFs,” or exchange-traded funds, “and providing services relating to certain third-party ETFs that can be selected for the portfolio,” according to its disclosure statements. There’s also a limit to how much personalization you can do on your own; in other words, you have to live with the choices they’ve selected unless you change your risk profile. (A company spokesperson says you can swap out as many as three funds from the portfolio with backup choices they provide.)

Schwab will use only exchange-traded funds to make up the portfolios, using third-party providers including Vanguard, iShares and PowerShares as well as its own branded funds, which generally have low operating expense ratios. So that’s good.

Schwab also says the investments will be spread among stocks, fixed income, real estate and commodities across U.S. and international markets in an effort to reduce volatility and keep the portfolios diversified. Another good thing.

It also promises automatic rebalancing when your portfolio drifts too far from your stated goals — yet another plus, because many self-directed investors get tripped up by inertia, fear, etc. when it comes to reallocating investments.

Whether that all adds up to the Next Big Thing or not depends on whether the average investor embraces it. Schwab said on a conference call that it has over $1 trillion in self-directed accounts now, so that’s a pretty big sandbox.

Your Incredible Shrinking Pension

In its rush to flee Washington for the just-completed holiday break, Congress tossed a grenade to some pensioners. Tucked into the 1,600-page budget bill (you know, the one that keeps the government’s lights on) was a proposal that allows trustees of multi-employer pensions to cut benefits to current and future recipients.

Hang on here, because it gets a bit complicated. Multi-employer pension plans generally cover employees of all companies in a given industry. They’re different than single-employer pensions (if you’re still lucky enough to have one), which aren’t directly affected by this bill. It’s estimated that there are about 1,400 multi-employer plans in the country covering about 10 million workers, according to the Pension Rights Center.
A number of the plans are underfunded, and some of them are so underfunded (for reasons we won’t go into here) that they may well run of money as soon as the next 10 years.
Hence the bill. The new law allows trustees of those plans to slash benefits sharply for retirees to keep the plans solvent longer, the measure’s proponents argue, although other solutions may exist. For more background, see this recent New York Times overview. Another good one is this post from The Los Angeles Times.
Why this got jammed into an appropriations bill at the last minute without time for discussion or review is anyone’s guess.

IRS to Taxpayers: We’ve Got Your Back

The recently installed head of the Internal Revenue Service, John Koskinen, dropped in on members of the media the other day at the National Press Club in Washington.

His message: The tax collection agency is out to restore public trust amid accusations the IRS acted inappropriately in reviewing tax-exempt status for certain public welfare groups, known as 501(c)(4) organizations.

“Taxpayers need to be confident that the IRS will treat them fairly. It doesn’t make any difference who they are, what organizations they belong to, or whom they voted for in the last election. None of that matters to us at the IRS,’’ Koskinen said.

“The IRS is an agency of career civil servants who are dedicated to serving the American taxpayer in a fair and impartial manner,” said Koskinen, who took over as commissioner of the 90,000-employee agency about three months ago. “That’s how it’s always been, and that’s how it will stay on my watch.”

Other topics he touched on: the filing season is going relatively smoothly, with 90 million returns filed so far; the agency said it protected $17.8 billion from refund fraud last year and initiated 1,400 investigations, with over 1,000 indictments and 400 convictions.

And prospects for reforming the bloated U.S. tax code? Don’t look for that to happen this year,  Koskinen said.

Last, from the we’re-here-to-help department: The IRS says “don’t panic” if you can’t finish your return by April 15. Tax-filing extensions are available. Remember, this is an extension of time to file, not an extension of time to pay. Follow this link for more details.

If you’re expecting money back from Uncle Sam, check out the “Where’s My Refund?” tracking tool on the IRS website, which taxpayers used more than 200 million times last year. I think I hit it a few times myself.

Bitcoin Exchange Bit by Hackers

So it seems Japan-based Mt. Gox, the largest exchange for bitcoins, the  virtual-currency released in 2009 by an anonymous creator, got ripped off by hackers. While we may not actually know the total amount taken,  it may be large enough to push the company into bankruptcy.

The bitcoin program, as the New York Times explains, “runs on the computers of anyone who joins in, and it is set to release only 21 million coins in regular increments. The coins can be moved between digital wallets using secret passwords.

“While Bitcoin fans have said the technology could provide a revolutionary new way of moving money around the world, skeptics have viewed it variously as a Ponzi scheme or an investment susceptible to fraud and theft,” according to the Times.

I’m not really surprised by this latest development.  For the average retail investor without a lot of money to burn, the take-away is this: stay away from trendy, next-best-thing investments.

Aside from the lack of transparency about how they’re created – or mined –  as bitcoiners call it,  the price of each bitcoin has been extremely volatile, ranging from $1,200 to $500 in a matter of months. That’s usually another red flag for long-term investors trying to save for retirement, the kids’ college bills or buying a house.

I agree with Bloomberg’s Barry Ritholtz who says of the small, but vocal group of crypto-anarchists who strongly disapprove of “worthless” paper currencies:  ”Please send me your worthless fiat currency, be it euros or dollars, for proper disposal.  I will assist in freeing you from this troublesome paper.”

The Prognosis for the Older Unemployed? Grim.

….That’s the takeaway from “Set for Life,” a new American Public Television documentary underwritten by the AARP Foundation. The hour-long program tracks several primary breadwinners who have lost their jobs, the effect that has on their families and their efforts to land a new one.

The program catalogs the dismantling of the American Dream – an informal compact that assured workers of relative job stability, health care, and the opportunity to own an affordable home. The Great Recession of 2008 turned those assumptions on their head creating prolonged unemployment for millions, repeated layoffs and home foreclosures.

The statistics for older jobless workers paint a dismal picture. Those aged 55 and older were unemployed for about 51 weeks as of November 2013, about three months longer than their younger counterparts, according to AARP. And when older workers do land a new job, it’s often for less money.

The families in Set for Life also face health problems (several lack health insurance) and the specter of losing their homes.

Adding to the pain, Congress let extended unemployment benefits lapse at the end of 2013, affecting about 1.3 million job seekers, according to AARP. AARP is pressing for a restoration of those benefits through 2014 and an emergency three-month extension has been proposed. It remains unclear  if that will pass in Congress.

Meanwhile, check your local listings for airings of Set for Life.  A note of caution, though, while the program is eye-opening, it’s pretty heart-wrenching.

Saved Enough for Retirement? Not Likely

Federal Reserve Chairman Ben Bernanke’s policy of keeping interest rates as low as possible is supposed to encourage Americans to spend and to invest in riskier assets such as stocks.

The public response after almost five years of that? We’ll keep our cash, thank you, according to a survey of consumers by Bankrate.com, which tracks interest rates and mortgages. More than one-quarter of the 1,005 adults surveyed favor cash for long-term investing, defined by Bankrate as money not needed for more than 10 years. When Bankrate.com asked back in April (when the one-month gain in the Standard & Poor’s 500 Index was 13.4 percent) if people were more inclined to invest in the market, a whopping 76 percent said no.

That fact, along with recent surveys showing that those who take out 401(k) loans generally save less than those who don’t, makes one thing very clear: Sometimes, we badly need to save ourselves from our bad savings habits. Overly conservative investing and poor saving habits have huge consequences down the line.

Given current savings rates — money market rates are 0.11 percent on average — keeping money in cash is like watching your money shrink a little bit every day, due to inflation.

“Americans are woefully undersaved for retirement,” says Greg McBride, Bankrate.com’s senior financial analyst. The way McBride sees it, with the decline in traditional company-funded pensions and uncertainty about social security, the burden is increasingly on ourselves to provide for our own retirement. A related survey from Bankrate.com reports that only 18 percent of working Americans are saving more for retirement now than they were a year ago.

Many are still recovering from the shock of seeing the S&P 500 drop 38 percent in 2008, only to come roaring back. (It’s gained 136 percent from the market bottom in March 2009 through July 31, according to Bloomberg data.) That kind of volatility tends to scare off many retail investors who can’t afford — financially and/or emotionally — to see their nest eggs take that kind of a beating.

If that’s not enough to keep the Social Security Commissioner awake at night, insurer New York Life reports that 401(k) plan participants who take out loans from their account may be sabotaging their retirement savings. Those who take loans are more likely to save at a lower contribution rate than those who don’t take such loans, and are not likely to repay the loan when leaving their employer. If a loan isn’t paid back, generally within 30 to 90 days, depending on the plan, and the ex-employee is under age 59 1/2, that loan will be considered a withdrawal, subject to tax and a 10 percent IRS penalty.

The average American worker in a New York Life 401(k) plan is 43, earns $68,700 annually, contributes 6.25 percent of salary into the 401(k) and has an account balance of $55,270. The company administers more than 1,750 plans, representing 1.15 million American workers.

The New York Times offers a related take on the 401(k) loan issue. Citing a Fidelity study, the paper reported that folks who take a single 401(k) loan are much more likely to become serial borrowers. Constantly raiding this cookie jar won’t make you fat, but it will make you poorer.

A possible solution? Whenever possible, make saving a priority, McBride says. “Pay yourself first,” he says. “Get that money to work for you right away.”