We turn to rollover expert Mark Lamkin of Louisville, Ky.-based Lamkin Wealth Management to help identify the most common mistakes made by boomers and their advisors. Assets that took a lifetime to build can be taken in an instance if even the slightest mistake is made. Ensure your clients' retirement plans (and your reputation) are protected by keying in on the following five areas:
The "detour" IRA -- Don't sweat the small stuff, right? Wrong. Lamkin says unless you teach your client exactly how to roll their plan over, they won't have a clue, which leads to costly mistakes (and potential liability for you). Obviously, the most preferred method is a direct rollover, as the client never touches the money; no taxes are withheld and it's generally non-reportable. However, if the funds take a detour to the client, the employer will withhold taxes. The client will have a 60-day window to roll funds over or face harsh penalties. The transaction will be reported to the IRS, but most importantly, your client may make an emotional decision that could hurt ... the kids need help, their favorite charity caught them at the perfect time, it's the middle of a bear market or they simply lived for the moment. In any event, it's a mistake that's easily avoided.
Rules are not made to be broken -- 60-day Rule, Net Unrealized Appreciation rollovers, 10-year averaging, same property rule, one-year waiting rule ... the list goes on and on. When it comes to the IRS, Lamkin warns, ignorance of the law is no defense. As an advisor you owe it to your client to understand the rules and nuances of qualified plans, IRA's, 403(B)s and so on. If you only have a basic knowledge, you're not doing the best job for your boomer clients. Understanding every option available can save your client tens of thousands of dollars over their lifetime; dollars that can create a financial legacy for generations to come.
Enron syndrome -- Lamkin doesn't have room to list the number of financial institutions that supposedly could not fail, but did. Over the last several months, years of savings and planning have been destroyed as a result of too much concentration in company stock. Lamkin says he's in the process of buying certificates of now defunct companies that used to trade. "I'm going to make it a habit to show my 'Wall of Shame' to clients that don't want to diversify," Lamkin says. "Do your job and teach and convince your client to do the right thing regardless of how strong the company is perceived to be."
The "do it yourselfer" -- "Tiger woods is the best golfer in the world and he still has a swing coach," Lamkin explains. "Convince your clients and prospects that they need you to be their money coach." Too often, boomers dream about retirement, yet have not taken significant time to develop a prudent investment strategy to reach their goals. Don't let them make investment decisions based solely on watching cable news, says Lamkin. Coach them to an overall strategy based on sound financial investment models.
Ignoring the problem -- Some retirees simply don't like change. Educate your client that all plans are not created equal. Too often employer-sponsored plans have higher fees than self-directed IRA's, they have limited investment choices and -- most importantly --- they have no advisor to help in times of turmoil. Furthermore, if they have multiple plans, building an asset allocated portfolio which is actively rebalanced and proactively managed is virtually impossible.
