As those of us with young kids know, this is the time of year when they drop some not-so-subtle hints as to what they want Santa to place under the tree on Christmas Eve. Some requests are realistic (sports gear, games, cloths, etc.) and some – not so much (Iphone 6, another dog). The hints usually come in the form of the classic “wish list” to Santa which conspicuously left on the kitchen table, posted to the refrigerator or taped to the bedroom door.
Given the spirit of the season, I too would like to participate. But instead of petitioning old St. Nick for a new tie or a good book, I have compiled a different kind of wish list. My wish list is intended for a “Financial Santa Claus” and it’s not for things I’d like to receive but instead is focused on practical changes and simple reforms in the financial world that I believe would help many families working on their careers and trying to save for all their financial goals.
So here’s my Financial Wish List:
- Better investment options for employer 401(k) plans: In my time working with clients, I see so many companies’ 401(k) plans with expensive and limited fund options. For some people, their 401(k)s are their largest investment accounts and with choices limited to funds with fees sometimes in excess of 1.5% (instead of index funds’ 0.20%) this leaves employees no choice but to pay unnecessarily exorbitant fees every year. This can mean literally tens of thousands in excessive fees over the course of a career. It can be so egregious that very often, I work with clients to re-allocate funds (across their entire portfolio of accounts) in such a manner to “limit the damage” of the high fee options in the 401(k).
- No matching 401(k) in company stock: Another aspect of some poorly designed 401(k) plans is a company using their “match” provision in company stock vs. cash. In my view, the employee is already leveraged enough to the success of the company with their career & paycheck. Why do they need to double down with additional stock exposure? Often, the answer is an accounting game which helps the company make their balance sheet look better with additional equity outlays vs. cash. Again, when I see this I also work with clients to limit the damage by consistently rebalancing to reduce the exposure to the company stock as part of a broader diversification plan.
- Simplified Income Tax Code: This is a much more significant “wish” and has about the same chance of happening as my girls getting another dog for Christmas. According to a recent report I’ve seen the 2015 IRS tax code is 74,608 pages. Yes pages, not words! This is absolutely ridiculous and in my opinion, speaks to the notion that the tax code is nothing more than Uncle Sam’s means to pick winners and pass out favors via tax incentives. Even though part of what I help families with is navigating the quagmire of tax regulations, I would happily trade this value-add for the additional time to address other pressing financial needs.
- Eliminate “automatic” withholding from paychecks: Speaking of taxes, I believe people would be much more aware, more sensitive and hold our governments more accountable if employees did NOT have taxes automatically withheld from our paychecks. Of course, the government employs this practice to improve collections but paying the government “automatically” masks the actual costs of the services provided. How can anyone make a value judgement if they don’t see how much they are actually paying? If everyone had to write a check every quarter (much like business owners like myself do), they might think twice about some of the programs and policies their favorite politicians or party support.
- Mandatory Financial Class for middle school and high school kids: Again, helping people with their financial lives is my business but occasionally I get requests from clients to sit down with their younger relatives just to chat about finances in general terms. This speaks to the complete dearth of any financial education for school aged kids today. I would like to see a one-semester class in middle school and another in high school to teach concepts like compound interest, how a mortgage works and the basics of saving and investing. With the basics, I believe a greater percentage of our children would enter the work force more aware and equipped to handle their personal finances.
- Everyone who has a financial advisor ask one question: “how much in dollars (not percentage) am I paying you every year?” It’s a simple question really and I’ve written about this in another blog (which you can read here). But I can’t overstate the importance of this: everyone who has a financial advisor has the right to know exactly how much they are paying for their advice & service. Advisors need to be paid for valuable service- no doubt about it. However, people should ask themselves: why would an advisory firm NOT want their clients to know how much they are paying? I think we all know the answer to this question.
This list could be certainly be much longer but I don’t want to overstep my bounds with Financial Santa. After all, I haven’t been that good this year!
Merry Christmas, Happy Holidays and Happy New Year to all!