Category: Planning

Key Changes to the Oregon 529 Plan!

Oregon recently changed plan administrators on its direct-sold 529 college savings plan, and also enacted a series of meaningful changes to plan investments options that will impact how existing assets are invested. What you think you own may no longer be true. Read our synopsis of the important changes here:

NFT on Oregon 529 changes

Our Fees and Why They Matter

Investment costs matter, because high product fees, especially over extended horizons, have a massive, insidious impact on ultimate portfolio values. For our typical client, the negative impact of choosing high-fee advice and/or high-fee products would be in the tens of thousands of dollars.

Which is why we are uniquely transparent about our fees.

In a relationship with an adviser, clients pay for the advice and the implementation of that advice. Generally those total costs are around 2% or more.

Below is a chart of the all-in fees paid to financial advisors of all stripes, via Michael Kitces. The red square indicates where our fees lie on the spectrum.

But don’t just take our word for it. Via our reporting platform, Orion, here is our average fee rate, inclusive of investment instrument costs, benchmarked against investment advisers like us (read: not stockbrokers) using that platform. Again, our all-in costs are marked with the red square:

So, as you can see, the all-in average cost of working with North Forty Two & Co. is far, far lower than the universe at large, and substantially lower than the typical Registered Investment Adviser.

Leaving more money in our clients’ pockets. As we have for the past two decades.

If you are considering working with us, ask your current adviser to provide this information. You deserve to know it, but our industry fights to the death not to reveal it. To their benefit and, more importantly, to the detriment of their clients.

Incentives Matter

One of the main tenets in economics is that incentives matter.

Wholesalers give incentives to retailers to sell stuff. Principals give agents incentives to sell stuff. These incentives create behaviors, which are often undesirable.

Our business model is depicted on the left. We are principals who work directly with clients without agents, and we receive no compensation from third-parties in any way in constructing and managing client portfolios. This is in contrast to the more common business practice depicted on the right, which is rife with the potential for financial conflicts of interest (by nature, it is also a more expensive relationship).

Our only incentive is to provide top-caliber service in stewardship of our clients’ assets, so that they remain lifelong clients and refer us enthusiastically to their friends and colleagues.

Fee-Only versus Fee-Based Chart

Equifax data breach – actions to consider to protect your personal information

Below is a letter we shared late last week with clients in response to the massive data breach at Equifax.

Please note specific guidance may change due to more recent developments (for example, under pressure from attorneys general, Equifax will not prevent those inquiring about their status to waive their right to legal action, and they are no longer charging for a credit freeze).

When we work for free

There are times when we provide valuable guidance at no additional charge when our colleagues in the industry profit handsomely from it.  And despite what our management consultant friends say, that’s fine.

Saving for college is one of the most daunting challenges around for our peer group. Tuition inflation rates have historically run at twice that of general inflation, or around 6-7% annually.  We are acutely aware of the shocking sticker price of four years of college; our two principals have (hopefully) five children going through over the next ten years.

Nearly two decades ago, around the start of our registered investment advisory (RIA) firm, mutual fund companies and state governments came together to develop the Section 529 plans that are a principal funding vehicle for many.  These tax-advantaged accounts are an integral part of successful financial planning.

However, in many instances, 529 plans have been sold by traditional commission-based brokers who charge outrageous ongoing fees (either through A, B, or C shares of the underlying mutual funds themselves or in high-priced fee-based plans) for doing little outside of establishing an initial asset allocation.

In our client reviews, we have discovered thousands of dollars that have gone into financial advisors’ pockets, when those monies could have paid for textbooks and computers and pencils or even additional semesters of college.  For a recent client, we were able to save them $2,000/year in unnecessary fees levied by a prior financial advisor.

 

 

Think about how much that is over the course of a decade or more of saving!

In our minds, it is a dereliction of fiduciary duty to charge a fee for funding and overseeing 529 plan accounts.  Not that they aren’t important or meaningful, just that the structural restrictions imposed on the accounts by the IRS lend themselves to more static management, which is appropriate given the objective.

So we do the work to set up and oversee 529 plan accounts directly with the appropriate direct plan administrators, avoiding any unnecessary sales charges or fee arrangements that clients pay, but we don’t bill for that activity.  It doesn’t feel right, it is to the advantage of our clients, and we can direct more dollars toward the noble and challenging cause of funding the higher education of future generations.

And we can sleep at night.  At least until we remember how unbelievable college costs have become.

If you know of anyone struggling with college funding strategies (perhaps having been sold a sub-optimal 529 plan), ask them to reach out to us for a free review.  Whether they can benefit from our comprehensive services or not, we can set their college savings strategy straight to achieve those goals in the most efficient and inexpensive manner.

Because it’s the least we can do to further the higher education aspirations of future generations.