Archive for October, 2017

Impact Investing Can Make Money While Making Change

Posted by Joseph W. Chase, CFA®

What to Expect if You Decide to Pursue an Impact Investment Strategy

Your investments should strive to meet all your objectives, whether that is solely focused on the bottom line, or also having an impact on the world around you. In addition to securing a financial future, more and more individuals and families are choosing to invest in strategies that are focused on making positive change.

Impact investing is growing in popularity with investors as an opportunity to meet their long-term investment goals, while seeking to make a positive, lasting impact on the world.

What is Impact Investing?

It is difficult to boil impact investing down to a single definition, as its meaning can vary from person to person, depending on the overall impact they wish to make.

Since there is no “one size fits all” method to crafting an impact-oriented portfolio, it’s beneficial to work with a knowledgeable financial advisor who can help you develop a cohesive strategy. Successful impact investing allows you to accomplish impact-oriented goals as well as financial objectives.

Here we explore the 3 strategies related to investing with an impact in detail and explain what you should expect from your advisor.

  1. Exclusionary Impact Investing

Exclusionary investing refers to the practice of restricting certain types of investments from being held in your portfolio. Common restrictions include oil and gas exploration companies, tobacco companies, gambling stocks, and firearms manufacturers. If you are interested in an exclusionary impact investing strategy, you should expect your financial advisor to help you customize a portfolio that eliminates exposures to specific industries. This can be done by removing certain asset classes, or by placing restrictions on separate account managers to exclude certain holdings. You can choose to restrict certain industries and/or specific stocks, all while maintaining exposure to the rest of the market as part of a well-diversified portfolio.

From a broad economic perspective, the practice of exclusionary impact investing could theoretically raise the cost of capital on companies that are not socially responsible or impactful, making it more expensive for these companies to raise capital in the future.

  1. Inclusionary Impact Investing

Unlike exclusionary investing, inclusionary investing seeks out certain types of investments, or investments with certain characteristics, in which to allocate capital. This approach is best suited to active management, often obtained through mutual funds, because evaluating criteria that fits an impact mandate is a qualitative and quantitative endeavor best handled through active management.

Depending on personal preferences, different funds may be suitable for different individuals and families. Some funds use systematic criteria to tilt exposures to companies with better ESG rankings. Other funds are dedicated solely to holding environmentally-friendly companies. Some seek out companies with responsible governance practices such as higher-than-average female representation on their executive teams and boards of directors. If you are interested in an inclusionary impact investing strategy, you should expect your financial advisor to leverage relationships with fund managers to provide recommendations that are best suited to your goals.

The economic rationale for this approach is that companies with a long-term environmental and social record and better corporate governance may deliver better results for their shareholders over the long term.

  1. Direct Funding of Impactful Companies

Directly investing in impactful companies can be done both in public and private companies. Stock picking in public companies can be a time-consuming endeavor, and for even the most experienced individual investors the results may be disappointing. Working with an advisor to identify long-term opportunities may yield better results.

You may be presented with opportunities to make early-stage investments in private start-up companies with impactful products or services. Direct funding in start-up companies can have high return potential; however, they also come with commensurate risk. If you are interested in a private direct investment strategy, your advisor should help evaluate the investment’s merits, potential risks/rewards, and help to size investments appropriately to be part of a well-diversified portfolio.

An Allocation to Impact Investing Can Make Money and Make Change

Impact investing as part of a diversified portfolio can make a difference for both society and your wealth. If you wish to make a positive change in the world around you, you should work with a financial advisor who can help you do it in a way that’s balanced for your cause and for your financial future.

Make Your Estate Plan Work for You

Posted by Rachael E. Bator, CFP®

How to Get the Most Out of Your New or Updated Estate Plan

For many people (especially those with prudent financial planners!) estate planning documents are another item on their to-do list–one of the most important pieces of a personal financial plan. But once they’re marked “done,” are they really?

Once created, estate planning documents such as wills, durable powers of attorney, healthcare proxies, trusts and directives (sometimes called “living wills,”) should be reviewed every three years–or after any major life event like a death, marriage, birth, divorce, financial changes, or even after legislative changes have gone into effect. By not doing so, your estate and the direction of your wealth can be negatively and irrevocably impacted.


Keeping Your Estate Plan Updated and Effective

Creating or updating your estate plan with a qualified attorney is an important step–­however, ensuring the proper implementation of the estate plan is equally as important. In most cases, your financial planner is directly involved in the estate planning process and can drive the implementation stage to ensure assets are managed in a way that is aligned with your plan. If you’ve completed your estate planning documents, here are a few items to keep in mind when putting your new estate plan to work.


Communicating the New Plan or Updates to Others

Think of the people you’ve elected to fill key roles in your estate plan–your executor, your durable power of attorney, your healthcare proxy, a trustee. If you haven’t discussed the role with them before, this is the perfect time. You should educate them on:

You’ll also want to inform your accountant of any changes related to your estate plan that include the use of trusts. Some types of trusts are required to file their own tax return, and some may have investment-related activity that flows to your own personal tax return.

If your doctor (or another medical professional) has a copy of your healthcare proxy and/or any authorizations to release information on file, you’ll want to send them copies of your new documents to ensure they have the most current information on hand in the event of a medical emergency.


Opening and Correctly Titling New Financial Accounts

A common estate planning strategy is to hold your personal assets in the name of a revocable trust. Revocable Trust assets avoid probate, and are governed by pre-determined terms that allow for asset management and distribution according to the grantor’s wishes. When moving personal assets to a revocable trust, it’s important to open new financial accounts in the name of the trust (or to update the registrations of existing accounts, if permitted.) While the assets are for your own benefit, you no longer “own” them–you’ll (usually) be listed as the trustee of your trust, and the account owner will always be the trust itself.

If you create an irrevocable trust and intend to fund the trust with financial assets, a new account would be opened in this case to hold title to those assets as well.


Retitling Real Estate

There are different types of trusts or entities that can be used to own real estate; however, if you intend to own, or benefit from, real estate held in trust, the local registry of deeds must be notified and the home ownership information must be updated to reflect the trust as the property owner. By not doing so, real estate property may unintentionally be included in your estate at your passing, and become subject to probate that may have otherwise been avoided. Probate assets may be distributed in a manner that doesn’t align with your estate plan.



While your estate planning attorney will most likely preserve the original versions of your documents and any revisions made through the years, it’s important to ensure that you have the most current version of a document readily accessible to you or your family members in the event of an emergency. If someone in a decision-making role (like a durable power of attorney or a healthcare agent) doesn’t have access to the most current documentation (or doesn’t know that it exists), they may make a decision on your behalf that doesn’t match the decisions you’ve made in your estate plan.


Updating Life Insurance Policy Ownership

If one of your estate planning goals is to ensure that life insurance proceeds are kept outside of your estate, you may have created an Irrevocable Life Insurance Trust (ILIT)–a trust designed to own and receive the benefits from life insurance policies, outside of your estate. Other irrevocable trusts can be designed to hold life insurance as well. The beneficiaries of these trusts can still be family members, friends, or charity–the life insurance proceeds will pass to them through the trust instead of directly from a life insurance carrier.

The Internal Revenue Code imposes a three-year lookback period on assets transferred outside of your estate for estate tax purposes, which most often applies to life insurance policies, so it’s important to transfer any life insurance policies you own out of your name as soon as possible if you anticipate an estate in excess of the exemption limit ($5,490,000 for 2017). The IRS must agree that you do not have an ownership interest in the policy within three years of your passing.

When it comes to life insurance, relinquishing personal interests in the policy means that the original owner must not have the capacity to change beneficiaries, surrender the policy, access cash from the policy, or determine how the beneficiaries will be paid. They also cannot make premium payments on behalf of the trust. Actions such as these indicate policy ownership and could prevent your estate from receiving the tax benefits your trust was designed to capture.

In order for the ILIT to work as intended, the ILIT should become the owner and beneficiary of any life insurance policies. Once the ILIT has owned the insurance policy for three years, any proceeds yielded from the policy are not included in your personal estate tax calculation. If the insurance policy is not updated, the death benefit amount would be included in your personal estate, and could potentially expose you to an estate tax if the death benefit amount pushes your overall estate value above the exclusion limit.


Adding or Updating Account Beneficiaries and/or TOD Designations

Beneficiary designations can be assigned to retirement accounts, basic brokerage accounts, and to some checking and money market accounts in the form of Transfer-On-Death (TOD) designations. It’s always important to revisit these as you review your financial accounts to ensure that they still align with your personal wishes, as beneficiary designations trump any designations outlined in your will and cannot be changed after your passing. You’ll want to be sure to discuss any tax implications of your beneficiary designations with your financial planner or accountant before making any additions or changes.


Estate Planning–Not the Most Popular Item on Everyone’s “Bucket List”

The topic of estate planning isn’t always an easy one to think about or discuss. Making decisions regarding the key players in your own estate plan, and how you direct your wealth to your family or to charity can seem like an insurmountable task. When the important decisions have finally been made and your estate planning attorney has accurately captured them in your estate planning documents, integrating your estate plan into your overall financial plan creates consistency and effectiveness when your plan goes to work. By not considering these action items after your estate plan has been created, you will lose the opportunity to direct your wealth in the meaningful and organized manner you intended, and your beneficiaries may lose the opportunity to benefit from and enjoy the wealth you’ve worked so hard to preserve for them.