We’ve seen a lot of chatter online around the complex yet rewarding landscape of 3(38) investment management services. In the world of social media where information availability is endless, we want to ensure you have a trusted source when it comes to learning about finances, and how to best approach your retirement savings and investment strategies. 

That’s why we decided to bring in the big guns, and have our very own Spencer Seggebruch, Artesys’ Chief Investment Officer, walk us through everything you need to know about 3(38) investment management. 

The Growing Popularity and Advantages of 3(38) Plans for Plan Sponsors | Artesys

In case you’re not subscribed to our YouTube channel, Spencer’s videos take us through the latest industry trends and teach us how to approach our investments and savings with a strategic approach. Subscribe today so you don’t miss out! 

Let’s break it down, piece by piece! Keep reading…

What is a 3(38) investment manager?

What is a 3(38) investment manager? | Artesys

The term “3(38)” refers to section 3(38) of ERISA, which outlines the fiduciary responsibilities and liability associated with the selection and monitoring of investment options within a retirement plan. In simple terms, a 3(38) fiduciary is an investment manager or advisor who assumes the responsibility and liability for choosing, managing, and monitoring the investment options available within a retirement plan.

When a retirement plan sponsor (typically the employer and/or HR Manager) designates a 3(38) investment manager, they transfer the responsibility for selecting and managing the plan’s investment options to the 3(38) fiduciary. This means that the 3(38) fiduciary takes on the duty to prudently select and monitor the investment options, relieving the plan sponsor of those responsibilities.

It’s worth mentioning that the specifics of fiduciary responsibilities and designations may vary depending on the jurisdiction and local regulations. Therefore, it’s advisable to consult with a legal or financial professional familiar with the relevant laws in your area for accurate and up-to-date information.

What are the things to consider when hiring a 3(38) investment manager? 

Things to consider when hiring 3(38) investment manager | Artesys

When hiring a 3(38) investment manager for a retirement plan, there are several important factors to consider: 

• Fiduciary Responsibility: Ensure that the investment manager understands their fiduciary responsibilities and has a track record of acting in the best interests of plan participants. Request information on how they fulfill their fiduciary duties, including their investment selection process, monitoring procedures, and documentation of decisions.

• Investment Philosophy and Strategy: Understand the investment manager’s philosophy and approach to managing retirement plan assets. Assess whether their strategy aligns with the goals and risk tolerance of the plan and its participants, such as diversification, asset allocation, risk management, and long-term performance.

• Investment Performance: Review the investment manager’s historical performance record across various market conditions. While past performance is not indicative of future results, it can provide insights into the manager’s ability to generate consistent returns and manage risk. Compare their performance against relevant benchmarks and peer groups.

• Fees and Transparency: Evaluate the investment manager’s fee structure and ensure that it is reasonable and competitive within the industry. Transparent communication about fees and any potential conflicts of interest is crucial. Remember that you can always request a breakdown of all costs associated with their services, including management fees, transaction costs, and any additional expenses.

• Compliance and Regulatory Oversight: Verify that the investment manager is properly registered with the appropriate regulatory bodies, such as the Securities and Exchange Commission (SEC) or state regulatory agencies, while checking for any disciplinary history or regulatory actions against the firm or its key personnel.

• Service and Support: Assess the investment manager’s level of client service and support, how they communicate with plan sponsors, provide regular updates on investment performance and market conditions, and handle participant inquiries. 

• References and Reviews: Request references from other retirement plan sponsors or clients who have worked with the investment manager to gather insights into their experience, level of satisfaction, and any potential concerns.

• Ongoing Monitoring and Reporting: Inquire about the investment manager’s procedures for ongoing monitoring of the plan’s investments. They should provide regular reports and updates on performance, changes in investment strategy, and any material events impacting the plan.

Should an employer hire a 3(38) investment manager?

Should an employer hire a 3(38) investment manager? | Artesys

Deciding whether to hire a 3(38) investment manager for a retirement plan is an important consideration for an employer. While there isn’t a one-size-fits-all answer, there are several factors to consider when making this decision. 

When employers sponsor a retirement plan, they have fiduciary duties under ERISA. Hiring a 3(38) investment manager transfers some investment-related fiduciary responsibilities to the manager, reducing the employer’s potential liability. It also reduces the risk of poor investment decisions or inadequate monitoring, as the manager assumes responsibility for these tasks, providing additional protection to both the plan sponsor and plan participants. However, it’s important to note that the plan sponsor still retains certain fiduciary duties, such as selecting and monitoring the 3(38) fiduciary itself.

Managing retirement plan investments can be time-consuming. Depending on the size and complexity of the plan, the decision to hire a 3(38) investment manager may be the right move. It’s important to evaluate the potential benefits of their expertise and fiduciary protection against the associated costs, and see if the value they provide outweighs the fees incurred. But if the employer has knowledgeable staff and the necessary resources to effectively handle investment selection and monitoring, hiring a 3(38) investment manager may be less critical.

What are the risks of not hiring a 3(38) investment manager? 

What are the risks of not hiring a 3(38) investment manager? | Artesys

Not hiring a 3(38) investment manager for a retirement plan can entail certain risks and potential consequences. When an employer sponsors a retirement plan, they have fiduciary duties under ERISA. If they choose not to hire a 3(38) investment manager, the responsibility for selecting and monitoring investment options falls on the employer, increasing their fiduciary liability as they will be held accountable for any poor investment decisions or inadequate monitoring practices. Failing to fulfill their fiduciary responsibilities regarding investment selection and monitoring can result in breaches of fiduciary duty, leading to legal disputes, regulatory penalties, and potential lawsuits. 

A 3(38) investment manager can help identify and capitalize on investment opportunities, adapt to changing market conditions, and employ sophisticated investment strategies. Without their expertise, employers may miss out on potential investment opportunities that could benefit plan participants. This could result in plan participants perceiving that their investment options are poorly selected or not adequately monitored, eroding their confidence in the plan and the employer. Dissatisfied participants may become more likely to voice complaints or seek alternative retirement savings options, which can impact employee morale and retention. Without professional investment guidance, there is a higher risk of inadequate diversification and suboptimal risk management within the plan’s investment options. 

How do plan sponsors hire Artesys as a 3(38) manager?

How do plan sponsors hire Artesys as a 3(38) manager?

What a great question! 

Employers can initiate the process by contacting Artesys through our website, phone, or email.

Typically, we will arrange a consultation to discuss the needs of the plan and how our services might be beneficial. Employers should be prepared to provide detailed information about their retirement plan for us to evaluate.

If both parties agree to proceed, they will sign a contract outlining the terms of the engagement.

Once hired, Artesys will begin the process of reviewing the plan’s current investment options and developing a strategy that aligns with the goals of the plan.

As the headlines continue to highlight the potential ramifications of poor investment decisions, we hope you’ll consider Artesys when hiring a 3(38) investment manager for your retirement plan.  

The post Maximizing Retirement Success: The Growing Popularity and Advantages of 3(38) Plans for Plan Sponsors – A Comprehensive Guide from Artesys appeared first on Artesys.

Your next job title? Retiree! 

Whether you are days, months, or a few years away from retirement, the end is near and your future is bright. And that’s a huge life milestone that you, and your family, friends, and colleagues, should be proud of. 

For many of us, being years and years away from retirement can seem like we’ll never get there. But that’s simply not the case. The actions we take now will only make our retirement years in the future better and more meaningful. 

Planning for retirement earlier rather than later can provide us with the benefit of time – more time to save money and accumulate wealth, invest your savings, and identify potential financial risks and make adjustments accordingly. Planning gives us a sense of security and peace of mind, knowing that we’ve taken steps to prepare for our family’s future. 

Step One: Identifying your goals

The first step in planning out your retirement is identifying your goals. It’s important to take time to figure out what you really want for yourself in years to come. Of course, these goals can change overtime, but it’s good to have something ahead of you that you can work towards, knowing that all of your efforts will pay off. When coming up with your goals and a retirement income plan, it’s essential to estimate the amount of income needed to maintain the lifestyle you want to have in years to come. From there, developing a strategy to achieve this income goal will confirm if you are currently on the right track or if you’ll need to make lifestyle changes in the present. We wrote another blog post about how you can start estimating your retirement expenses so be sure to check that one out too!

When creating your retirement income plan, it’s important to consider various sources of income, such as maximizing Social Security benefits, pensions, and personal savings. This may involve creating a diversified investment portfolio, including stocks, bonds, and other assets that generate income, and accounting for inflation and unexpected expenses that may arise during retirement. Regular reviews of the plan with your financial advisor are also necessary to ensure it remains aligned with changing circumstances and goals. 

Step Two: Tax planning

Another very important aspect of retirement planning overall is tax planning. This involves developing a strategy to minimize the tax burden on retirement income and ultimately helping to stretch your retirement savings further, providing you back with more flexibility with your income. 

Understanding the tax implications of various sources of retirement income, such as Social Security benefits, pensions, and withdrawals from retirement accounts is crucial. For example, Social Security benefits are subject to federal income tax if a retiree’s income exceeds a certain threshold, while distributions from traditional retirement accounts are generally taxable as ordinary income. 

Planning ahead with your financial advisor and becoming aware of these situations will allow you to take advantage of tax-efficient strategies, such as Roth conversions or capital gains harvesting, to reduce your overall tax bill. 

Step Three: Envisioning your retirement lifestyle

Going back to what goals you may have as a retiree, you may also want to think about what sorts of hobbies you want to get into. You may have always wanted to take your passions to the next level, but it was always time that held you back. Retirement provides you with that time back, and an opportunity to focus on yourself and what matters to you most. The newfound freedom you’ll experience is exciting and well-deserved after a long and successful career. Here are some ideas you could consider when thinking about what you want your retirement to look like: 

Travel: 

A fairly obvious suggestion but for many people, traveling is very much a part of their retirement goals. Whether it may be a road trip across the country, visiting every national park, or even taking it internationally to see the Eiffel Tower in person, traveling does so much for the soul and gives us priceless memories with those we love. 

There are many ways to plan your trips resourcefully, such as using accumulated credit card points to put toward your hotel stays. Some travel companies may even offer senior discounts which is definitely something to take advantage of if possible. 

Volunteering and philanthropy:

Volunteering is a great way to give back to the community and make a difference in the lives of others. Using skills developed throughout your career, you can contribute to an organization greatly, such as mentoring young volunteers or staff, supporting the delegation of tasks while volunteering at a food bank or soup kitchen, or serving on a nonprofit board for a cause that is most meaningful to you. 

Taking the volunteering route a step further, becoming a philanthropist when you retire can have numerous benefits for yourself, your family, and the community. By using your accumulated wealth and resources to support causes you care about, you could make a tremendously positive impact on your community or even the world while leaving a lasting legacy of yours and your family’s name. 

From a financial perspective, philanthropy can also provide you and your family with tax benefits, such as donations to qualified charities being tax-deductible, helping you reduce tax liabilities and maximize your giving.

Research shows that giving to others simply makes us feel better, and can have a very positive impact on mental and physical well-being. Through experiences that result in increased happiness, a greater sense of purpose, and improved overall health, philanthropy supports us all, one way or another. 

Fitness for your body, mind, and finances:

There have been many studies over the years that speak to the direct correlation between healthy lifestyles and finances. The healthier people are, the more likely their finances are in a positive position. Why? Because their minds are in a calm state, allowing them to make better and more logical decisions compared to someone who is unhealthy and potentially carrying a lot of mental stress.  Financial and personal wellness is important at any life stage, but we’re inclined to say that your retirement years may be the most important to have this in check.

Depending on the level of physical activity your job currently requires, you can imagine that stopping the daily movement can take a toll on your body. Continuing to stay mobile, build strength and reduce the amount of stress in our body and mind should continue to be a part of your daily routines.  Yoga, swimming, and cycling are all great forms of exercise that offer numerous benefits and all also offer an opportunity for socialization and community building. 

Step Four: Turning the page to your next financial chapter

Once you’ve entered your retirement, the financial planning and strategy building with your financial advisor don’t stop there. In fact, it continues its journey into an entirely new phase, with opportunities to pivot depending on the economic conditions and potential life changes. 

At Artesys, we’re with you at every step of the way and are here to advise on recommendations to ensure your years of planning follow through. It’s important to share any worries or concerns with your advisor and to keep an open dialogue. Some things to consider discussing early on in your retirement are:

• Investment options during retirement
• Determining your comfort with risk now that your income has stopped
• Estate planning goals and what you hope to leave behind for your family and loved ones

Retirement is a time to focus on what truly matters, whether that is spending time with loved ones, pursuing personal goals, or simply enjoying the pleasures of life. We want to ensure all of the above are within reach for our clients, which is why we are dedicated to creating a custom plan that will support your goals for yourself and your family now and in the future. 

Discover your risk tolerance today, using our questionnaire here.

The post Retirement Planning: The Ultimate Guide for 2023 & Beyond appeared first on Artesys.

Earth Day is an annual event that is celebrated on April 22nd to raise awareness about environmental issues and promote actions around making sustainable choices that can help protect our planet. This is a global event, with millions of people participating in various activities such as community cleanups, tree planting, and awareness events. By bringing people together and creating a platform for discussion and education, Earth Day encourages individuals, organizations, and governments to think about the impact they have on the planet and what they can do to make a positive change.

From a consumer demand perspective, more and more buyers of your business’ goods or services are becoming conscious about the impact their purchasing decisions have on the environment. They are increasingly choosing to spend their hard earned money on products and services from companies that are committed to sustainability and environmentally friendly practices. Consumer perception can do a lot for your brand in terms of awareness, but it can also do the opposite and lead to a damaged reputation if found out that your company isn’t keeping up with the latest green technologies. And no one wants bad press around that, right?

As much as it’s an individual responsibility for people to choose a more sustainable lifestyle for themselves and their families, small and large business organizations can and should also take the lead in making better choices for the environment. Why? Because employees want to work for good companies that care about the future. It takes dedication and discipline to commit to sustainable practices, but in turn this can help businesses attract and retain talented people to work for them for years to come. And of course, your efforts of keeping employees happy also support saving our planet!

When it comes to implementing a more environmentally friendly standard in the workplace, it’s great to get teams and employees involved to support the changes. This will give everyone their own responsibility to commit to the company’s overall goals, and make everyone feel like they are playing an important part to get there. There are several ways your business can create environmentally friendly protocols in the workplace. Here are a handful of suggestions:

Reduce energy consumption where possible:

Encouraging employees to turn off lights and electronics when not in use, such as switching off monitors, projector, and lights when leaving the boardroom after a meeting has ended are all small actionable habits that can lead to a greater impact. Installing energy-efficient light bulbs, and replacing equipment with energy-efficient appliances can lead to waste reduction. Sustainable equipment sourcing can also lead to significant cost savings for your business in the long run.

Consider Environmental, Social, and Governance investment benefits: 

From an investing perspective, socially-conscious investors and stakeholders want to know a company’s stance on socioeconomic factors and its sustainability efforts before investing. This is where the ESG investing framework (Environmental, Social, and Governance) becomes increasingly important. 

ESG investing is an investment approach that seeks to integrate sustainability factors into the investment decision-making process. The goal of ESG investing is to generate long-term financial returns while also having a positive impact on society and the environment.

Investors who use an ESG approach may look for companies that have strong environmental policies and practices, treat their employees fairly, have a diverse and independent board of directors, and maintain transparent and ethical business practices.

ESG investing has become increasingly popular in recent years as investors have become more aware of the potential risks and opportunities associated with environmental and social issues. Many large institutional investors, such as pension funds and endowments, now have dedicated ESG investment strategies, and some financial regulators are beginning to require companies to disclose more information about their ESG practices.

What is sustainable investing? | Spencer Seggebruch with Artesys

Reduce paper usage:

Is your team still printing out pages and pages of reports that will only be looked at for a meeting or two? It’s time to go digital! Create a paperless system and encourage employees to use electronic communication instead of printing documents. This can also support better team collaboration and engagement when everyone can access the same document and review it from their computer, whether they are in the office or working from home. Of course, sometimes printing is just necessary depending on the document or project, so in those instances always encourage double-sided printing.

When it comes to old ink cartridges, ensure your employees are not tossing these in the garbage. Many printing companies offer a complimentary recycling program to their business partners, such as mailing the empty cartridges back to them so that they can safely dispose or recycle them. This is known as closed-loop recycling, where a manufacturer can implement a recycling system in which materials are recycled and reused to create the same product, with little or no waste generated in the process. How great is that? 

Create a waste sorting system:

Implement a waste sorting system and program for recycling paper, plastics, glass, and other recyclable materials, organics or food waste for compost, and garbage for single use items that cannot be recycled or reused (but of course, we want this bin to be empty most of the time!). 

If your company’s building has access to an outdoor space, you could even consider creating a social committee to create and attend to a garden with the food compost collected by the office over time. This initiative could in turn inspire employees to do this at home with their families.

Green transportation:

Who wants to sit in traffic? Motivate employees to use public transportation, bike, or walk to work if accessible. For those who need to drive in, set up a carpool program for employees to commute to the office together and save on gas. Creating an incentive program for employees who choose environmentally-friendly transportation methods can help kick start these efforts across teams and get individuals excited, such as VIP parking spots for those who carpool, bike tune-up coverage, or free or discounted public transportation passes.  

Educate employees:

Providing training and resources to your employees for educational purposes is a great way to amp up your company’s new environmentally friendly practices. Sharing your “why” around the importance of sustainability and having a concrete and thoughtful plan will get your employees excited about how their individual contributions can make a big impact. 

One area that will get employees listening is how they can personally save money by choosing to live a greener lifestyle, and what they can do with these savings such as investing or contributing more to their retirement fund. This can be an eye-opening experience, and change the mindset and habits some may have around choosing more sustainable options around everyday purchases. Here are a few that surprised us the most: 

1. Buy a reusable coffee mug and bring your coffee to work from home: Depending on their coffee order, employees could be saving anywhere from $60-$120 per month, or $720-$1,440 per year! And that’s just from cutting back on buying coffee! A reusable mug is also a smart and easy way to reduce waste of to-go coffee cups and lids. If employees are married to their morning Starbucks order and do not like bringing coffee from home, encouraging them to bring their reusable mug to their local coffee shop is still an improvement and a step in a greener direction. 
2. Bring a lunch from home: Similarly to coffee, bringing a lunch from home does wonders for your employees’ wallets. Saving more money comes down to finding ways to limit our daily spending, and we know that ordering food can be quite the expense. We also know that packing ourselves a lunch tends to be a healthier option versus getting takeout. And from an environmentally conscious perspective, bringing a lunch from home means using reusable containers versus single use takeout containers. Packing lunch is really a win-win for everyone!
3. Discontinuing fast-fashion purchases for office attire: We’ve all been in the situation where we’ve purchased a cheap article of clothing that barely survived the washing machine and dryer. That’s because many retailers are a part of the damaging fast-fashion industry, where they use cheap and environmentally harmful materials that simply do not last. Investing in quality clothing items can easily become forever pieces that employees can wear many times, and will save them money in the long run. And if they no longer like the style after a while, they can consider donating or selling it to a consignment store so that the clothing can get a second life and be used by someone else. This helps our environment by not adding more clothing items to landfills.

Showing your employees the positive financial impact of choosing to be environmentally conscious consumers has so many benefits for themselves and the planet. Supporting your employees’ futures and educating them on these saving potentials for retirement planning will boost company culture and morale. Consider hosting these sessions every April in celebration of Earth Day! 

While all of these initiatives take time, resources, and discipline, they support something that’s really important for all of us and future generations. Remember to measure and track the progress of your company’s green initiatives, always celebrate your team’s achievements, and identify areas of improvement to have an even greater result and impact on our planet! 

Enjoy celebrating Earth Month!

The post Going Green: Implementing sustainable business practices and employee programs in celebration of Earth Day appeared first on Artesys.

Well, we did it. We made it through a pretty tough winter. While March is just getting started, we can’t help but feel so excited for the spring season to arrive. 

We like to think of spring as the season of renewal and rejuvenation. After all those long and cold winter days, the arrival of this new season signals the start of new beginnings. The snow melts away, the sun shines brighter, and flowers start to bloom. It’s a time of transformation and growth, not just for nature, but for us as well.

When it comes to transforming areas of our lives that our future selves will thank us for, one that is top of mind for many of us is our retirement plans. Are your current financial habits supporting your long-term goals for retirement, or will they end up sabotaging your family’s future? This may sound a bit dramatic, but unfortunately, we see the latter happen more times than we’d hope for. 

Financial habits are the patterns and behaviors that individuals exhibit when it comes to managing their money. Good financial habits can help us achieve our financial goals and live a more stable life before we officially enter our retirement era, while poor financial habits can lead to financial struggles and stress in the present and the future. The decisions we make today are what set us up for better tomorrows. 

More often than not, we are expressing these bad financial habits without even realizing it. Mindless actions can lead to the most damage, which is why it’s so important to establish control over our finances and not be irresponsible through these habits. This season, we’re asking everyone to take an honest look at their financial habits and identify those that we could consider as less than ideal to take into spring and the rest of the year. It’s never too late to reverse a habit that doesn’t align with your financial goals and retirement plans. Here are the most common ones we see: 

Impulse buying:

Impulse buying is when you make a purchase without really thinking it through. There are many areas that influence this type of purchasing behavior – we’re sure you’ve all heard of retail therapy. Situational factors such as sales, emotional states like feeling excited or bored, captivating marketing and packaging, and societal pressures to keep up with others’ spending habits or to maintain a certain lifestyle can all lead to us mindlessly swiping our credit cards.  

While we cannot deny that impulse buying can be a source of instant gratification, this feeling tends to go away rather quickly. Why? Because impulse buying more often than not leads to the feeling of regret. Other financial consequences such as overspending and high-interest debt also tend to follow these sorts of transactions. 

Avoiding impulse buying can be difficult, but here are some steps to try and control and break the habit: 

1. Plan purchases in advance: When you enter a store, walk in knowing exactly what you need to buy and how much you plan to spend. If prices are higher than what you expected, remind yourself that it is okay to leave the store empty-handed. You can always come back after reevaluating your budget
2.  Set a budget: We cannot stress this point enough! Setting a budget helps you organize every aspect of your financial situation, showing you what you can and cannot spend across different categories.

3. Avoid tempting shopping environments: If you’re the type of shopper that cannot turn down a sale, we have a solution for you – do not go to the mall. You can still budget for specific purchases that are known to be heavily discounted during sale seasons, such as TVs during Black Friday weekend, but what we’re trying to avoid is getting caught up with in-store marketing and sale prices that often lead to us overspending and not getting much of a deal in the end. 

Using credit cards for everything:

While using credit cards can be convenient and provide a range of benefits such as cashback, rewards points, and fraud protection, there are also many risks with swiping your card if you have bad spending habits. It’s easy to lose track of how much you’ve spent when using a credit card because you do not actually see the total dollars spent until receiving a monthly statement from your credit card provider. This can lead to feelings of shock, worry, and anxiety around how to pay off a bill that you may not have the available cash to do so in a given month. We unfortunately often hear about stories around people getting caught up with the dangers of irresponsible credit card use, such as high-interest rates and interest charges while carrying a large balance, fees for late payments and cash advances fees, identity theft and fraud, and damaged credit scores because of late payments, high balances, and maxed-out credit cards

If you find yourself in a position of having credit card debt, let’s make it a spring season goal to pay off the balance as much as possible. You can use these steps to help you: 

1. Stop using your credit cards: If you cannot control how much you spend using a credit card, simply stop using it. Cut up your cards, freeze them, or put them away in a drawer, so you can’t use them easily.
2. Pay more than the minimum payment: Paying just the minimum payment can keep you in debt for a long time. Try to pay more than the minimum payment to pay down your debt faster.
3. Prioritize high-interest debt: If you have multiple credit cards, prioritize paying off the one with the highest interest rate first
4. Consider a balance transfer: A balance transfer allows you to move your debt to a credit card with a lower interest rate. This can help you save money on interest charges, but be aware of any balance transfer fees
5. Explore debt consolidation: If you have multiple debts, you may want to consider consolidating them into one loan with a lower interest rate. This can make it easier to manage your debt and pay it off more quickly.

Remember, getting out of credit card debt takes time and effort, but it’s worth it to achieve financial freedom and get back on track with your retirement savings goals. Stay focused on your goal and don’t give up.

Not saving for the future:

A habit that we want to stress the importance of reversing is not saving enough or effectively for yours and your family’s future. Saving for the future can include retirement savings, your family’s emergency fund, education tuition, housing down payments and fees, and health care. We see this habit take a toll on our mental and physical health as well. All around, not saving responsibly for our lifestyles has a tremendous impact on what our future looks like. 

In order to save more money you need to spend less. This can take a lot of discipline for individuals who are impulse buyers, but it’s important to think ahead and realize how these bad spending habits could impact your future. We believe having a solid savings plan and looking ahead to what your life could look like financially in 5 to 10 years, should be exciting. Ultimately, we want you to be motivated by saving money so that all of your hard work throughout your adult life feels like a reward once you’re ready for retirement. We know you can do it, and we’ll be here to help you along the way. 

In conclusion, bad spending habits can have a significant impact on our financial health. By breaking these habits, we can take control of our finances and work toward a more secure future. It’s important to be mindful of our spending and to make smart choices that will benefit us in the long run. Let’s take this time of transformation during the spring season to see how we can better our lives and financial positions now and for our futures. Talk to us about how we can help you get on the right path this season and beyond. 

The post Breaking Bad Habits: How to Reverse Your Damaging Financial Routine appeared first on Artesys.

This Valentine’s Day, skip the flowers and talk about money!

Valentine’s Day is a time to celebrate love, but it’s also a great opportunity for your clients who are couples to reflect on their shared future, regardless of their age or stage in life. Money management and wealth planning are great places to start, and this is your wheelhouse as a financial advisor. 

Couples who communicate about their finances are more likely to achieve their long-term wealth goals, especially if they have these discussions early on and frequently. It can help build trust, prevent conflicts, and set a foundation for a strong financial future together. This can also prevent unexpected debts, loans, and any financial infidelity.

As a financial advisor, your role is really important. Having open and honest conversations with your coupled clients will help them identify their financial goals and create a plan to achieve them.

In this blog post, we’ll discuss how you can set your clients up for success, ensuring you ask the right questions and focus on honesty as the best policy.   

Questions to ask new clients who are couples

Asking clients the right questions is key! This makes it easier and more efficient to provide them with the necessary information and guidance to achieve their wealth goals. 

It’s also crucial to be an active listener. Many clients are aware that they aren’t the expert in financial planning; you are! But, they are the expert in their own lives and know which goals matter most to them.

Here are some questions to ask couples to get them thinking about their wealth goals. Let’s start with couples who are in their 20s and 30s. 

Couples in their 20s and 30s

For couples in their 20s and 30s, the focus should be on building a solid foundation for their financial future. This may include paying off any outstanding debts, building an emergency fund, and starting to save for retirement. Questions to ask may include:

1. What are your short-term and long-term financial goals?

This can help them establish a solid financial foundation for their future. Couples can ensure they’re on the same page and working towards a common goal or important milestones, such as buying a home, starting a family, and saving for retirement, which can prevent conflicts and misunderstandings. 

2. Are you currently saving for a down payment on a home?

Buying a home is a significant financial decision and one that should not be taken lightly. A typical down payment for a home is 20% of the purchase price, but first-time home buyers may have access to special programs that can help them with a lower down payment.

3. Are you saving for your current or future children’s education?

Couples can increase their chances of achieving the dream of providing a quality education for their current or future children. It’s helpful to understand that education expenses can vary widely depending on the type of education and institution their child chooses, and also the cost of education is rising. Remind them to have realistic goals and to start saving early.

4. Do you have any outstanding debts or loans that need to be paid off?

Couples must be open and honest with each other about their financial situation, including any outstanding debts or loans that need to be paid off, such as student loan debts, mortgages, car loans, credit card debts, etc. By paying off debts early, couples can free up more money in their budget to save for other goals, such as retirement.

5. How much are you currently saving for retirement?

Starting their retirement savings plan early is a good idea, whether it’s through an employer-sponsored retirement plan or through their own business. Couples will want to discuss the type of retirement plans they have and understand the different contribution limits, tax benefits, and withdrawal rules to maximize their retirement savings.

6. Are you contributing to an emergency fund?

An emergency fund can provide a financial safety net in case of unexpected expenses or events, such as job loss or income reduction, natural disasters, or family emergencies. It can also be a buffer for future plans, such as moving, having a baby, and more. Plan on having 3-6 months of expenses in your savings as an emergency fund.

Couples in their 40s and beyond

For couples in their 40s and beyond, the focus should be on maximizing their savings and investments to ensure they have enough to retire comfortably. Questions to ask may include:

1. How do you envision your lifestyle in retirement?

Retirement is a time to explore new opportunities and enjoy the simple pleasures of life. A few things your client might be thinking about are downsizing their home, traveling, a part-time job, new hobbies, volunteer work, and spending time with friends and family. 

2. Are you on track to reach your retirement savings goals?

Develop a comprehensive picture by reviewing these few things: your client’s statements, employer-sponsored retirement plan, Social Security benefits, pensions, other assets, and spending habits. Discuss what it would take to help them achieve their financial goals. And ask them how they want to receive their retirement income (e.g. annuity, lump sum, etc.).

3. How much do you think you will need to save for retirement?

When thinking about retirement expenses, couples need to factor in living expenses, healthcare expenses, travel and leisure, debt repayment, tax implications, inflation, and other contingencies. Keep in mind, healthcare costs tend to increase as people age, and there’s some uncertainty around future health. 

4. Are you covered by insurance?

Long-term care insurance is a type of insurance that helps cover the cost of long-term care services, such as in-home care, assisted living, or nursing home care. It’s important for your clients to plan for in their 40s and beyond because it can be expensive and helps to avoid any financial surprises.

5. Have you thought about estate planning?

Estate planning ensures that your client’s assets are distributed according to their wishes after they pass away. With your guidance as their advisor, you can help them to leave a financial legacy, minimize taxes, protect assets, plan for incapacity, and avoid probate. 

6. Are you taking advantage of catch-up contributions to your retirement accounts?

Catch-up contributions can be an important tool for clients who are age 50 and older to boost their retirement savings, maximize tax benefits, and increase their retirement income. Help them understand the benefits of these contributions as well as the limits, and how to make these contributions.

BONUS questions

Financial advisors, here are a few more questions you can ask.

1. What is your risk tolerance?

Offensive investing is a “buy and hold” approach for those focused on maximizing their return. On the other hand, defensive investing is a “buy and sell” approach for those who wish to protect what they already have. To find out which type of investor you’re working with, we recommend they take this short risk tolerance questionnaire to find a portfolio that fits their unique needs. 

2. Have you ever worked with a financial advisor before?

Asking this question can help you understand your client’s expectations and their level of experience with financial planning. It can also help you tailor your approach and your recommendations to the client’s specific needs.

3. What does your current financial health look like? Assets? Debts? Income vs. expenses?

By understanding the client’s current financial health, you can help them understand their current situation and how it relates to their goals, create a personalized plan that helps them achieve their goals, and avoid any potential pitfalls. Additionally, it’s also an opportunity to show your client that you care about their financial well-being and that you’re the right advisor for them.

4. Do you have any other financial concerns or questions?

This question helps to build trust and establish a relationship of open communication with your client. It can also help them feel more confident and secure about their financial future.

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Conclusion

When it comes to financial planning, it’s important for couples to have open and honest conversations about their goals, priorities, and concerns. However, many couples struggle to have this conversation, often due to feelings of embarrassment, lack of knowledge, or fear of conflict. But by not having this conversation, couples may miss out on opportunities to build a strong financial foundation and achieve their goals together.

If couples struggle with these conversations, help to be their guide. As a financial advisor, it’s important to help your clients by asking them the right questions and providing them with the necessary information and guidance to achieve their wealth goals. 

This Valentine’s Day, encourage couples to think about their financial future and set goals to ensure a secure and comfortable retirement for themselves and their loved ones. And remember, Artesys is always here to take the work out of retirement for you and your clients. 

The post Questions Financial Advisors Should Ask When Working with Couples appeared first on Artesys.

Hello, 2023! We hope everyone had a wonderful holiday season celebrating with family and friends. 

Let’s face it, last year was a tough year for many. From a tough economic climate to getting back into the office after two years of working from home, there was a lot of change. While there is still a lot of uncertainty around what’s to come in 2023 regarding the economy, it’s important to focus on things that we as individuals can control. 

January is traditionally a month of reflection. Looking back at the last year, think about all of the things that you’ve accomplished, big or small. Consider the actions you took to get there and the challenges you may have overcome. It’s important to give ourselves recognition and take a moment to be proud!

We can also reflect on things we’d like to change in our lives and use them as opportunities for personal growth. Many people use this time to develop a wellness routine that will help them achieve their physical and mental health goals. Others may try to end old and bad habits, such as smoking or scrolling on our phones for hours. 

Coming off of the holidays, where many of us overspend on gifts and festivities, January is also an important time to consider what financial resolutions you want to make this year. This may feel like an overwhelming task as it’s only January, and we still have an entire year ahead of us! 

Let’s break it down by month. Here are some of our recommendations on what you can focus on each month.

January:

Use this time of reflection and goal-setting to create a budget for yourself and your household 2023.

Think about all that you have coming up this year in terms of large purchases. Whether that’s moving and buying a home, education, gifts, vacations, or weddings, we don’t have to remind you how important it is to have money set aside for these life events. Along with these items, consider your everyday expenses and create a “things I forgot to budget for” list for one-off expenses or emergencies.

Next, think about your savings goals for the year. Look back at what you were able to accomplish in 2022 and consider taking the same steps or changing your approach. This will vary depending on what you are saving for, such as furthering your education or a retirement plan. 

Lastly, there may be key dates coming up that affect your finances, such as deadlines for enrolling in your company benefits plan or estimated tax payments to the IRS for Q4 2022 if you’re self-employed. Make sure to mark these on your calendar as a reminder.  

At the end of the month, look back at what you were able to accomplish during the last 30 days. Make adjustments to your budget as needed, such as increasing your savings goals and contributing more to your retirement plan. 

February: 

To save more in 2023, try a Frugal February challenge this month.

It helps that it’s a short month, and typically not great weather for outings or vacations. So why not use February as a period to do something difficult but important – like getting your finances on an even better track for the remainder of the year? We love the sound of that!

Use this shorter-than-usual month to make some financial sacrifices. Take a look at your fixed expenses and ask yourself if there is anything you can cut out, such as streaming subscriptions. You’d be surprised at how many things we pay for on a monthly basis that we are not getting the full benefit from. Spend a bit less, save a bit more! It all adds up.

March: 

At this point, it’s the end of Q1 2023! Wow, how time flies when you’re having fun and saving money towards your retirement! 

Use this time to reevaluate your finances and actions you took over the last three months. Did you save as much as you planned to? If the answer is yes, find ways on how you can try to save even more over the next quarter. And if your answer is no, maybe it’s time to consider speaking to a professional on how you can make your money work harder for you through smarter investments. 

April: 

It’s tax season! By April, you should have your taxes completed and filed. If this is a task that is overwhelming for you when it comes to your personal taxes, consider hiring an accountant you trust to take on the work. This is a great example of how to use the funds saved in your “things I forgot to budget for” list! 

If you have kids, April 27th is Teach Children to Save Day, sponsored by the American Bankers Association. This program is designed to help young people develop savings habits early on and setting them up to be successful savers when they are adults. We love this initiative! 

May:

Mother’s Day is coming up on Sunday, May 14th. While spending money to show the moms, grandmothers, and mother-figures in your life how much you love and appreciate them isn’t necessary, you may want to spend some of your saved dollars from your gifting budget on flowers, cards, or other gifts. You could also consider hosting a brunch at your home to save on costs of going out to a restaurant. 

Memorial Day is also in May, and typically, there are many sales and great deals at retailers. If you’re saving up for a large purchase, it may be smart to wait until the items you intend to purchase are on sale. 

June:  

And just that, we’re halfway through 2023. Use this time in Q2 to organize any tax payments you need to submit if you are self-employed. 

For your personal finances, this is another great time to reflect on what you’ve been able to accomplish over the past 6 months. Life can throw us curve balls at any moment, so maybe you’ve incurred an expense you didn’t think you’d have to pay for. If you have to dip into your emergency savings, consider focusing on paying the money back to get back on track. 

When it comes to your retirement savings, discuss options with your financial advisor. Is now a good time to pivot to a different investment strategy given the health of the market? Ask all of the questions you may have so that you can make the greatest impact on your savings plan for the remainder of 2023. 

Father’s Day is also a holiday in June, so like Mother’s Day, decide how much you’d like to spend on gifts for dad. But remember, the greatest gift we have with our loved ones is time! And quite often, spending quality time is free. 

July and August: 

It’s summertime! And no, not every month in the year is all about saving (because the whole point is to save more now so you can enjoy more later). Now is the time to go on those vacations you’ve been saving for, knowing that you’ve set yourself up financially to not incur debt while you’re exploring a new place.

September: 

Labor Day falls in September, which is another good day for sales on large purchases. If you’re a planner and like to get all of your holiday shopping done ahead of time, consider buying your gifts now to take advantage of the great deals. December will be here before you know it!

With summer ending, the kids going back to school, and work starting to pick up again, it’s not a bad idea to relook at your budget to see if any new expenses will be coming up this month. Life tends to get busy in the fall and unexpected costs can come up when we least expect it.

Q3 will be closing at the end of the month as well. Consider making adjustments to your retirement plans if there have been any changes to your income, such as a raise, to see what kind of impact you can make for the next three months of 2023. 

October: 

October is the last month before the busyness of the holidays start up. Now is a really good time to hone in on your finances and ensure that you have enough saved for the expenses you have coming up.

November and December: 

The holidays are here and it’s a very fun, yet sometimes overwhelming time of year!

Whether you’re hosting friends or need to travel to get to your family’s gatherings, make sure you are not spending too much and outside of your means. It’s a good idea to reevaluate your budget and ensure you are not allocating too much money to gifts and one-off holiday expenses. You don’t want to go into 2024 without an emergency savings– you never know what could happen, and it’s a good idea to be prepared!

At the end of the year, make sure to take time to look back and see all that you’ve accomplished. Write down your achievements, learnings, challenges, and questions about how you can do better at saving in 2024. Bring this list to your next appointment with your financial advisor to discuss the best course of action moving forward. 

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And there you have it! A month to month look at how you can take control of your finances in 2023. 

We know that everyone’s financial situation is unique, so if you have questions on how to make 2023 the most impactful for your family’s future in retirement, get in touch with us. Knowing which funds to move to, when to move, or whether to move anything at all is part of what makes Artesys a much better alternative to trying to manage a retirement account alone.

The post How To Plan Your Finances In 2023 appeared first on Artesys.

Imagine you begin investing in your employer offered 401(k) retirement plan, only to find out those managing said funds may not be working in your best interest.

For employees at Wells Fargo, this is a sad reality many have faced. The company has agreed to pay $32.5 million after settling a two-year-long class action lawsuit brought upon by a former Wells Fargo employee after the company was found to be purchasing proprietary funds that were more expensive and lower-performing compared to other options on the market.

What Happened?

News of the incident came to light after a former employee accused the company of violating ERISA (and breached their fiduciary duty). The employer was accused of investing in funds that are affiliated with the company to maximize profits even though better performing (lower cost) were available. ERISA is defined by the U.S. Department of labor as:

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.

ERISA requires plans to provide participants with plan information including important information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).

By choosing to invest in products that directly benefited the company while simultaneously over-charging and underperforming for their clients, Wells Fargo breached the fiduciary duty to those who were owed a high level of care. The lasting impacts of this decision go deeper than monetary punishment, the reputation of the company has also taken a hit and employee trust was damaged.

The firm had over 340k employees enrolled in the employer-sponsored 401(k) retirement plan who were not allowed to personally choose which funds to invest in. This resulted in a level of trust between the employees and those financial professionals in charge of making election decisions. By violating that trust, not only did they violate ERISA but violated fiduciary duty care.

Why?

You can speculate what led to the decisions that were made by the company, but it boils down to potential greed and oversight. There was an obvious conflict of interest as the company had high-level Wells Fargo executives choosing the funds in the retirement accounts, their job (and salaries) depend on the company maximizing profits. In a fiduciary relationship, the client should never be put second to company profits and this was an example of not working in their best interest by choosing funds that are more costly with lower returns for the client.

Outcome

U.S. District Judge Donovan Frank denied the company’s motion to dismiss the complaint. Two years after the complaint was first brought on, the company chose to settle the class action suit for $32.5m to be distributed among plan owners from March 13, 2014 to the settlement finalization date. Of course, that is before all administrative and attorney fees have been deducted from the lump sum. According to plaintiff Yvonne Becker:

“[Wells Fargo] should have been able to obtain superior investment products at very low cost but instead chose proprietary products to bolster their own salaries by increasing fee revenue and providing seed money to newly created Wells Fargo Funds.”

The company made no comment on the matter.

What We Learned

This case serves as a prime example to clients that you can never be too careful when choosing a financial professional to manage your retirement plan. Remember to ask questions, and perform at minimum annual check-ups on your investments in your retirement plan. Learn more about the investment products you have available on your retirement plan and how/why they were chosen.

The post Wells Fargo 401(k) Lawsuit- Here’s What You Should Know appeared first on Artesys.

There are a lot of expectations that arrive with celebrating the holidays… parties, gifts for family, friends, or colleagues, home decor, and stocking stuffers. Where does it end? Particularly for 2022, we know that families are having a harder time approaching the holidays because of the rising costs of everything else we need to buy on a regular basis. This can create the feeling of guilt, or comparing our financial situations to those who may be more financially comfortable. It’s important to set healthy boundaries when it comes to your time and money. The last thing the holidays are meant to do is create stress around what we can and can’t afford. After all, the only thing we should be spending in excess is quality time with our family and friends (and binge-watching as many holiday movies as we can while sipping on hot chocolate!). 

At Artesys, we’re all about helping families make smart financial decisions. So, we’ve put together a few helpful tips to consider before you start your holiday shopping to try to keep your mind and wallet at ease. Keep reading!

#1: Set a budget and stick to it: 

Discuss with your family: How much do we want to spend? How much can we comfortably spend? These are questions we need to be asking ourselves before we start tapping our cards excessively. 

To start, look at the expenses you have coming up during the holiday season. Of course, there will be expenses that you must pay during the month of December, such as mortgage or rent payments, and cell phone bills. But if you have, for example, multiple streaming services, perhaps you could decide to cancel some of them to save some cash for now and the future. 

Once you’ve determined the remaining dollars you have left, decide how much you’d like to keep for yourself, and how much you want to spend on others. Deciding to keep more for yourself is not a selfish choice! It’s a responsible decision and one that your future self will thank you. Don’t let the holidays push the financial goals you may have set up for yourself this year to the side. Imagine how good it will feel to thoughtfully shop and have remaining budget leftover that you could then put into your savings or future investments. 

Once you’ve set up your holiday budget, it’s important to be disciplined on how we spend it. It’s easy to get carried away with wanting to spoil our friends and family. We can avoid overspending by preparing for our shopping trip and not going to the mall without a plan of what we are buying and for who. And remember, you do not need to buy every person you know a gift! 

To help you keep track of what you’ve spent, make sure you are logging your transactions. You’d be surprised how quickly things can add up and there are lots of items we are probably forgetting to budget for – such as cards, wrapping paper, and postage fees if you are shipping any gifts. There are a lot of great mobile apps out there that can track your spending automatically, and show you the remaining balances. 

#2: Save money where you can: 

The holiday season is never short on promotions or sales. Cough, cough– Black Friday and Cyber Monday! Plan your shopping trip accordingly and try to take advantage of discounts to stretch your holiday budget further. 

Remember that homemade gifts are sometimes more thoughtful and special than anything you could purchase. Are your friends and family in love with your holiday shortbread cookies or cinnamon rolls? Whip up a few batches and share these delicious treats. It’s a gift that will be instantly enjoyed without having to break the bank. 

Another helpful option to think about– regifting! However, there are rules—especially if you want to pull it off successfully. Check out these 12 rules of regifting that will help you organize your budget, declutter your home, and keep your relationships intact this Christmas.

If you have a large family or friend group, suggest holding a “Secret Santa” gift party and set the budget to a reasonable amount for everyone to spend. This gets the whole group involved and is a fun twist on traditional gift giving, while saving everyone some money. 

One last idea to consider is foregoing gifts altogether this year, and making a charitable donation to an organization that means a lot to your family and friends. You can make the donation on behalf of a group of people, and share where the contribution went to and how it will be helping others. This option allows you to set an amount that is comfortable for you to donate privately and fits with your budget. 

And don’t forget! With the new year around the corner, so are 2022 tax breaks. If you are an employer (or self-employed), you’ll want to see what you can take advantage of when filing your taxes. Read more about our tips here.

#3: Take advantage of credit card perks

Take advantage of credit cards that have good point systems or cash back rewards by purchasing your gifts with those cards only. That way, you can earn while you shop and get additional savings later on. 

If you have a decent amount of points saved up on a credit card, check out what you can redeem them for. Many credit cards have partnerships with retailers that may have items on your gift list that you could get for free with your redeemed points. 

If you’re planning a trip for the holidays, make sure you book with a credit card that provides you with travel insurance. That way, you’re safe and sure during your travels while also earning points! 

Be careful to not get too carried away with making purchases on your credit card. It can be easy to swipe away at the cash register because we do not instantly see the bill. This is another reason why logging your transactions is so important! 

We understand that spending money on our loved ones and seeing their reactions to the gifts we buy them is a special moment. But, it’s important to pay yourself first and not choose consumption over saving for your retirement. The choices you make now will be helping you and your family in the long run while not getting caught up in the spending buzz that the holidays can bring. Saving for retirement strategically will provide you with the gift of time spent with your loved ones in future years ahead. If you are still unsure on how to juggle your expenses while planning out your retirement savings, we recommend you reach out to a financial professional such as Artesys to evaluate your investment strategy and ensure you are on the right path.

The post Saving money during the holidays appeared first on Artesys.

Article originally posted on SureDividend.com

Individual stock pickers and passive investors can both benefit from becoming more aware of emotional biases.   

These biases can cost you returns and lead to mistakes when managing risk.  Below you will find the most common biases we see, how to keep them in check, and get an investment manager’s take on managing emotions. 

Leave the emotions at the door! Educate yourself so you are aware and don’t make those mistakes.  

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Discover if You’re an Emotionally Driven Investor 

Do you know what your investor personality is? Are you a Preserver, Follower, Independent, or Accumulator? Surprisingly, this can be a tough nut to crack for most investors.  

At Artesys, this understanding of behavioral finance is a big part of what we do because it allows us to make better informed decisions about each of our clients’ portfolios.  

For those that are investing for themselves, being aware of your investor personality is essential for financial success. The purpose of understanding your investor type is to take advantage of your strengths and limit any obstacles that could hinder you from reaching your financial goals.  

We could write an entire article about this topic, but for now, we will focus on the two most emotional investors: Preservers and Accumulators. 

1. Preservers 

Snapshot: 

• Basic Type: Passive 
• Risk Tolerance Level: Low 
• Primary Bias: Emotional 
• Common attributes: 

At Artesys, we consider Preservers as defensive investors. As the name indicates, Preservers are passive investors that value taking care of their family members and future generations. Because of this, these investors are worriers and frequently more emotional than cognitive. They are focused on risk more than gain, as well as keeping more than investing.  

Commonly, Preservers have gained their wealth through inheritance or conservatively by working at large companies. In terms of large expenses, they lean towards further education and home buying. They have trouble with decision making, due to putting too much weight into the potential for negative outcomes. Preservers are the type of people that go to casinos just to watch their friends gamble, but not participate themselves. 

Advice: 

If you find yourself in the Preserver category, try to focus on the big picture view, rather than on the maybe less important details. Oftentimes, the key to longer-term success is to stay the course through short-term volatility. And while it’s easier said than done, try your best to leave your emotions at the door. 

2. Accumulators 

Snapshot: 

• Basic Type: Active 
• Risk Tolerance Level: High 
• Primary Bias: Emotional 
• Common attributes: 

At Artesys, we consider Accumulators as offensive investors. The attribute that Preservers and Accumulators have most in common is that they both share the primary bias of emotion. However, Accumulators are the most aggressive and active type of investor. They are comfortable risking their own capital in order to achieve their wealth objectives because they believe in themselves. 

Oftentimes, these investors are entrepreneurial in nature and the first to create generational wealth. They want to be involved in investment decision making. In fact, they are quick decision makers and sometimes trade too much. Accumulators are the type of people that thoroughly enjoy gambling at casinos because they’re overconfident and love the thrill of making a good investment choice.  

Advice: 

If you relate to the Accumulators investor type, then it’s important to remember the impact financial decisions may have on family members, lifestyle, and legacy. Optimism is a really good thing to have, but make sure to combine that with controlled spending. Patience is a virtue. Keep in mind that long-term investment strategies have the potential for even greater results.  

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Does either of these resonate with you?  

Regardless of investor profile, most individuals exhibit emotional biases when making investment decisions.   

Where Do These Emotional Biases Come From? 

Biases result when decision making is made with the emotional side of the brain vs the systematic side.  Commonly, investors exhibit these biases even when they are aware of them.  Our suggestion, process information slowly and use critical thinking when making investment decisions.   Here are some of the most common behavioral biases 

1. Loss Aversion 

This bias has to do with investors fearing loss more than they value gains. Numerous studies have shown that, on average, the potential for loss is twice as powerful a motivator as the potential for gain of equal amount. More specifically, “a loss-averse person might demand, at minimum, a $2 gain for every $1 placed at risk” (Dobbs, Wiley & Sons, 2015).  

The result: Loss aversion can cause people to avoid selling unprofitable investments, despite little-to-no sign of things turning around, and to sell winning investments too quickly to dodge potential risk. This domino effect can lead to increased risk with lower returns– the exact opposite of what any investor would want. Investors with this bias should shift their focus on taking risk to increase gains, not to mitigate losses. 

2. Overconfidence 

When investors are overconfident, it means they have an unjustified optimism in their intuitive reasoning, decisions, and abilities. Simply put, investors with this bias are emotionally charged and think they are smarter and have more adequate knowledge than the reality. These investors may buy into a “get rich quick” scheme. For example, they may gain a nugget of information from a financial professional, an article, or a video, which then leads them to believe that they’re ready to take action, based on the perceived ‘key’ to financial success. 

The result: Overconfident investors can sometimes be blinded by their own self-esteem, which causes them to miss crucial red flags about whether a stock should be bought, or a stock that was already purchased should be sold. Additionally, these investors can trade excessively or hold under-diversified portfolios. Much of these common mistakes are due to these overconfident investors underestimating their downside risks, leading to poor portfolio performance. 

3. Self-control 

Self-control bias is when investors sabotage their own long-term objectives in exchange for short-term satisfaction, due to a lack of self-control. Some real-life examples of this include when a person desires to save money to buy a home but goes on multiple expensive vacations; when a person desires to lose extra weight but cannot avoid the temptation of a triple chocolate sundae.  

The result: Investors who have the self-control bias typically have trouble saving money. Retirement comes quick, and as a result of their spending habits and poor planning, these investors haven’t saved enough. Because of this, these investors accept inappropriate amounts of risk on their portfolio to make up for lost time. Self-control investors also frequently have asset-allocation imbalance problems, as well as lack basic financial principles.  

4. Status quo 

Investors with this bias prefer the current state of affairs over change. The current baseline or status quo is taken as a reference point, and any change from the baseline is perceived as a loss. The phrase ‘if it ain’t broke, don’t fix it’ rings true here. Both endowment and loss aversion biases are contributors to the status quo. For example, status quo bias often occurs for adults who have a hard time switching to a different bank account from the one they opened when they were young, even if the features will be better. 

The result: Status quo investors take unnecessary risks or invest too cautiously. In order to avoid loss, these investors maintain the status quo of their current, low-performing investments, rather than reallocating to potentially a better opportunity, especially if there’s a transaction cost associated. They will also hold familiar securities that they have tied an emotional attachment to, compromising financial performance.  

5. Endowment 

Endowment bias is when someone values an asset more if they own it, or even feel like they own it. The prospect of selling or losing an asset has a stronger influence on our decision making than purchasing or gaining an asset. For example, if a person inherited an investment option, they are more likely to want to retain it, even if they are presented with a different option without penalty of switching.  

The result: Similar to status quo and loss aversion, investors with endowment bias may hold onto securities that they already own to avoid transaction costs and because they’re familiar with them. In most cases, this leads to poor portfolio performance in the long-term.  

6. Regret Aversion 

The regret aversion bias occurs when investors desire to avoid the responsibility and feeling of regret that comes with choosing the wrong investments. These investors have trouble making decisions in the first place, but when they do and it turns out bad, they will dwell on their mistake. These investors may be tempted to follow what the crowd is doing, so they feel less regret if things go south.  

The result: When it comes to their investments, regret averse people will retreat when aggressive behavior could be ideal, fearing the worst will happen. They are also less likely to sell a stock that has recently performed well, despite being advised to move on. Because they desire to alleviate responsibility for mistakes, they may not choose the most appropriate investment choices for their circumstances. 

7. Affinity 

Affinity bias is when investors tend to gravitate towards investments that they are more familiar with or will positively reflect their values. Furthermore, affinity biased investors focus mainly on expressive benefits of a product or service, rather than the utilitarian benefits, which are what the product or service actually does. For a real-life example, people who buy expensive wine for their dinner party versus the less expensive alternative that tastes relatively the same, may have affinity bias.  

The result: These investors make the most mistakes by not adequately reviewing each of their investments. They may invest in companies that share their environmental, social, and governance (ESG) values, instead of looking at their investment performance. Or these investors will invest in securities that offer a level of sophistication or status. All of these behaviors can cause investors to suffer from poor portfolio performance.  

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Keeping these biases in mind can help investors no matter the goal.  At Artesys, our goal is to deliver a long-term, high-quality, globally diversified portfolio that generates competitive risk-adjusted returns over full market cycles… and of course, keeping these biases and investor profiles in mind.  

Sources:  

“Behavioral Finance Theory.” The Investment Advisor Body of Knowledge: Readings for the CIMA Certification, by Jim Dobbs, John Wiley & Sons, Inc., 2015.   

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Owning a business can be extremely rewarding- creating your own schedule (no clock in/out), being your own boss, and running the show. It can also have its own challenges, and with so many moving pieces it can be easy to forget things- like planning for retirement. 

In fact, according to a survey, one-third of small business owners lack a retirement savings plan. When asked why, respondents stated reasons such as lack of profit, no plans to retire, and using their retirement savings to start the business (Source: PRNewsletter). 

It can be easy to forget how important a retirement plan is when running a business, but know that you have options. Starting to think about your future now is the best way you can invest in yourself.

How Do I Choose a Retirement Account?

One of the most frequently asked questions by those who are self-employed/small business owners is:

How do I choose a retirement account? 

This question depends on the individual and what their situation and goals are, and will differ for everyone. The good thing is, you have quite a few different options (which we will break down below).

SEP-IRA

One option is a SEP-IRA. which stands for Simplified Employee Pension. This type of retirement account must be set up by an employer (or self-employed) and can also be set up for your employees. This option is good for small business owners with minimal employees. 

The annual contribution limit for this plan is up to 25% of total income or $61,000 for 2022 (lesser of the two). Another benefit to this retirement plan is that contributions are tax-deductible and earnings are tax-deferred, which can mean a big tax break for employers. One thing to note, this plan requires you to make the same contribution percentage to each employer enrolled in the plan. This means you cannot contribute 10% to one employee and 5% to another. 

Pros: Tax Advantages, early withdrawals, ease of setup/maintenance

Cons: No catch-up contributions, no option to take a loan/borrow against the balance.

401(k) & IRA

Small business owners and those who are self-employed still have access to two popular options, the 401(k) and IRA.

Many individuals seem to think that 401(k) accounts are only offered by large companies, but this is not true. If your small business consists of just you (and possibly your spouse), you can open up a Solo 401(k). This account has a unique advantage, which allows you to contribute as both the employer and the employee. The total contribution limit (for both employer and employee contributions) is $61,000 for 2022. 

Pros: High contribution limit, can make Roth (after-tax) contributions, tax deductions.

Cons: Must make consistent contributions, cannot have employees.

Simple 401(k)

If you do have employees working for your small business, another great option is a Simple 401(k). This account is only available to employers with 100 or fewer employees who received at least $5,000 in compensation from the employer in the prior calendar year. This account is a simplified version of the traditional 401(k) offered by employers, and can be a cost-effective way to provide employees with retirement plans. It is also not subject to the same annual nondiscrimination tests that apply to traditional 401(k) plans.

Pros: Tax deferral, fully vested, ability to take loans.

Cons: Must have under 100 employees, employer contribution mandatory.

Traditional IRA

Another option is the traditional IRA account. This is a simple way to invest in your own retirement as it is easy to set up and start contributing right away. It takes just minutes to set up with a brokerage and has minimal fees. These contributions are tax-deferred, meaning you will not pay taxes until you start taking distributions. You can also choose to open a Roth IRA in which you pay taxes now and enjoy tax-free distributions during retirement. 

Pros: Tax-deferred, easy to set up.

Cons: Income limitations, lower contribution limits.

Defined Benefit Plan

A less commonly used retirement option is a Defined Benefit Plan. This type of retirement account is set up by the employer and provides a fixed benefit for employees when they reach retirement. This type of retirement plan can be used in addition to other plans and allows both the employer and employee to contribute. A benefit to this option is it provides predictability to the individual and there are no “guessing games” on how much they will receive in retirement. A few downsides include the expenses, administrative work, and certain taxes that can occur. 

Pros: Higher contributions compared to other plans, predictable benefits, not dependent upon returns.

Cons: Excise taxes, maintenance costs, administrative upkeep.

Other Things to Consider

Great work! You have determined what plan is right for you (if not, we recommend speaking to a financial professional for guidance), but now what? 

After you have taken the first step towards your retirement (researching and choosing a plan), there are a few other things you may want to take into consideration as a small business owner…

1. What do you want your retirement to look like?

Although you may be years (or decades) away from retirement, you should still consider what your long-term goals are. Do you want to travel the world, start a new business, or maybe just relax on the beach? Answering these questions will be the start to forming your retirement plan as you need an idea of the type of lifestyle you need to finance. 

Estimate your needed retirement income by determining how much you can comfortably live off of (and add some cushion). Don’t forget about inflation either- things will likely be more expensive by the time you retire. You can use an online calculator such as this one to find your needed annual income. 

2. Will you continue to run your business?

Another big question- what will happen to your business after you retire; will you continue to run it, sell it to a stranger, or pass it down to your children/grandchildren? This will also be a consideration when calculating your income and savings needed for retirement. 

If you continue to run it, you may choose to scale back to part-time or hire a helper so you can relax and travel more. If you sell the business, you may be able to use that money to live off of for retirement (although, it is still suggested you start saving well before then, just in case).

3. What about insurance?

This one often gets overlooked–  health insurance. If you do not plan to retire until age 65 or older, you can take advantage of medicare. If you want to retire sooner than that, you should start considering how you will cover the cost of health care. 

“U.S. households led by someone who is 65 or older spend an average of $7,030 a year on health care, according to the federal Bureau of Labor Statistics’ latest data on consumer spending, which is for 2021.” (Karla Bowsher, MoneyTalksNews)

This means, you do not want to forget to add a line item to your budget for health care costs, or it can add up quickly. If you are under age 65, those who are self-employed or own a small business will likely need to purchase their health insurance through the marketplace (and it can be pricey). 

4. What if I need help planning for retirement?

If you have read this far and you are still scratching your head, no need to worry. 

There are plenty of financial professionals who can help you to meet your goals, without any judgment. At Artesys, we help individuals from all walks of life to make a financial plan and start their investing journey. Reach out today for a consultation.

Sources:

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