Retirement Summit – Video Transcript

ROBERT BROKAMP:

Welcome to the Fool Wealth Retirement Summit. I'm Robert Brokamp, the senior advisor for The Motley Fool's Rule Your Retirement service. I am joined by three of my good friends at Motley Fool Wealth Management — Nick Crow, Megan Brinsfield, and Ross Anderson. Hello, everyone.

MEGAN BRINSFIELD:

Hi.

ROSS ANDERSON:

Hey, Bro.

NICK CROW:

Hi.

ROBERT BROKAMP:

It turns out that about half of the people who qualify for Fool Wealth have told us that they are either in retirement or within four or five years of retirement, and we get a lot of questions about whether the offerings of Motley Fool Wealth Management are appropriate for these people, so we thought we would take some time today to answer some of the questions we have received. We've printed them out and given the opportunity for these folks, here, to give their input on them. Sound good?

NICK CROW:

Go for it.

ROBERT BROKAMP:

Our first question is from Kara, and Kara asked us, "My 401(k) is at Fidelity and is ongoing for more than one year." I assume that means she's going to work for another year. "The plan is retiring from that job. Can I still be a part of the Foolish SMAs?" SMAs standing for…

ROSS ANDERSON:

Separately managed accounts.

ROBERT BROKAMP:

Exactly. So what can we say to Kara?

ROSS ANDERSON:

The short answer to Kara's question, unfortunately, like many things in retirement, is it depends. Every retirement plan is a little bit different, and this is one of the few areas in the financial world where at the plan level it's more restrictive than at the government level.

So 401(k)s — many of them have what's called an in-service distribution. If you've gotten to a certain age, a lot of times that's 59-1/2. So if you're 60 or beyond, they'll actually let you take money out of the plan while you're still employed and move that to an IRA if you wanted to do that. In that case, we're happy to manage an IRA for Kara. However, if it has to stay in that 401(k) for one more year, we don't currently support 401(k)s on our platform.

ROBERT BROKAMP:

It's important to point out, here, that we are offering general personal financial advice. You certainly want to consult your own personal advisors before making a decision on that. Fair on that one?

NICK CROW:

Yes, because we know nothing else about Kara but this one line, here…

ROBERT BROKAMP:

Exactly.

NICK CROW:

…so it's difficult for us to [crosstalk 00:01:54].

ROBERT BROKAMP:

The next question comes from David. "I'm a longtime Motley Fool member. I am self-employed, 52 years old, and my only retirement savings is my SEP IRA that has about $220,000 in it right now. Is it possible to roll that over into a Motley Fool Wealth Management managed SEP IRA?"

MEGAN BRINSFIELD:

Yes, it is. Congratulations, David. You can take a SEP IRA and roll that money into a SEP IRA at Interactive Brokers where we can manage those funds. So, congrats.

NICK CROW:

It's also worth knowing that as a Motley Fool Wealth Management client, you would have access to a financial planning team, and it looks like he might have a significant liquidity event in the future. If he's self-employed, he might have a business that he's able to sell or hand off and that might be something that's such a big event in his life that he should get some help in determining the right way to go about that. So if the current situation is like David's, I'm sure we can help with SEP IRA, but there's a lot of other things that are very important that we could help with, too.

ROBERT BROKAMP:

That's a good point. A business is another asset that you can use in retirement, and how you factor that in your plan is an important consideration from a planning perspective, as well as a tax perspective, as Megan, our CPA will tell you.

Now we have a question from Ed. "I am 72. I think there is a strong possibility of a major downturn or a recession in the next one to two years. Which of the SMA strategies would be best if I want to minimize my risk? I think that even if one's investing long term, one should not invest if there's a high chance of a major short-term loss. Better to wait for the downturn and invest after."

NICK CROW:

First I'd just like to say I think more money has been lost waiting for the next downturn than has ever been lost in a downturn — except for those who may be panicked during that period of time. I would say to Ed, first, what's your track record over those past 72 years of predicting the next downturn? How is that working out for you?

But more importantly, Ed, we want to help you manage your temperament well, so we're going to ask a few questions so we can better understand how you've actually performed during downturns, both emotionally and behaviorally, and make sure that we can go ahead and build a blend of those seven strategies you're asking about that's going to best match your temperament.

You've only mentioned seven strategies, here, and I'm really excited to say that we are currently working on a dividend SMA that might actually be another portion you want to think about, here, where we're mixing and matching these things. So the least risky strategy we have is going to be a fixed-income piece, but I'm thinking that for someone like him, putting a dividend SMA alongside a fixed income one at his age and his temperament, here, might be a better consideration for him than worrying about whether or not the market's going to go up or down 10% in the coming year.

ROBERT BROKAMP:

You brought up the fixed income SMA. That's important because a lot of people associate the overall Motley Fool with just stock investing. But we do help people who may not want all their money in the stock market. Certainly someone's who's 72 and retired — they probably shouldn't have all their money in the stock market and there's a way that you help people determine that right mix.

NICK CROW:

Absolutely. We ask them a number of questions to help build a portfolio that has the right equity and fixed income mix for their situation.

ROSS ANDERSON:

When somebody new joins our service, the first thing that we do is we ask them about themselves. How far away from retirement are they? Are they currently retired? And then as Nick mentioned, we're going to get into how you behaved in past market environments. How much risk would you like us to take on your behalf? And all of that's going to get combined into our guidance on how each of these clients should be invested.

They're free to disagree with us on that. They've got some input and are able to massage that to a point where they're really comfortable with the portfolio that they're going to be investing in before they do so, but we're certainly going to give them our guidance as a starting point. Fixed income may be a part of that for folks that are in retirement or looking to manage that risk.

ROBERT BROKAMP:

Our next question come from Carl. Carl says, "I am retired. My primary investment objective is regular receipt of income to supplement my income from other sources. And the only type of investments that I feel would be suitable for my SMA would be the type of investments that Motley Fool Income Investor and Motley Fool Options recommend to produce income. I don't see any SMAs styled this way. As such, it seems to me that Motley Fool Wealth Management's SMA service is not suitable for me. Am I correct? If not, please explain which SMA I might invest in?"

Nick, you mentioned that our Motley Fool Wealth Management does have a dividend-focused SMA on the horizon. What about his other concerns?

ROSS ANDERSON:

The short answer to Carl's question is really twofold. Number one, it's coming. We get a lot of questions like this from prospective clients of Motley Fool Wealth Management and there's clearly demand for an income-focused or a dividend-focused strategy, so we are bringing that to market.

But the second answer is really that I think he may be overstating, a little bit, the importance of that being the only investing method that might work for him. We really take a total return look and what Carl should be looking to do is provide that total return wherever that comes from — capital appreciation or yield coming off a stock. We're a little bit agnostic to that. Mathematically, whether or not he's selling some pieces of a portfolio from time to time to create the amount of cash he needs for his lifestyle expenses … versus taking that off of just an income component … mathematically it really doesn't work out to be that much different.

ROBERT BROKAMP:

And, of course, there is the fixed-income-focused SMA, as well, that's part of that whole picture.

NICK CROW:

Yes. He mentioned Motley Fool Options here as a service — a newsletter that he is interested in, and it's worth noting that we manage a Motley Fool PRO strategy that is inspired by the newsletter portfolio Motley Fool PRO. And in that strategy we can make use of options and shorts in a similar way that really helps reflect the full breadth of investment options that are available to us to achieve a long-term end.

ROBERT BROKAMP:

Our next question comes from Richard. "What steps would be involved in moving my existing IRA from Fidelity to Motley Fool Wealth Management? Would I need to liquidate my holdings? How do I avoid a tax hit?"

MEGAN BRINSFIELD:

Well, the good news…

ROBERT BROKAMP:

CPA? What's the news on the tax hit?

MEGAN BRINSFIELD:

I'm here to bring you tax news and that is that inside an IRA, there are no tax consequences of buying and selling different holdings. So from a tax perspective, the transactions are really not a concern. What we might want to be careful of, in this case, is making sure that the IRA is rolled over from Fidelity to Interactive Brokers. You want to avoid taking a distribution and then depositing that into a different IRA because the IRS has some restrictions on that. So as long as you do a trustee-to-trustee transfer from Fidelity to Interactive Brokers, you should be good there.

We will, once we get those holdings, compare your holdings to our model and liquidate anything that's not in common. So if there are holdings in there that you want to keep and you wouldn't want to sell, you should just not transfer those to Interactive Brokers.

NICK CROW:

That trustee-to-trustee transfer is an easy transfer to do between firms. That's not going to be a problem for Richard.

ROBERT BROKAMP:

And if you ever do get a check in the mail from an old retirement account, you want to make sure you do something with that quickly and roll that over quickly. We can't get into the details here, but if you don't do something within 60 days, it can be considered a distribution and you pay taxes and maybe penalties. Just a little public service announcement there.

The next question is from Joe. "I am 71 years old and retired. I currently live off my Social Security and withdrawals from my pretax IRA. Approximately 30% of my life savings is in a Roth IRA and 70% in a pretax IRA (perhaps meaning traditional). Participating in a program such as these Foolish SMAs goes somewhat against my do-it-yourself temperament which I have followed for most of my life, so I would not be willing to turn over my entire life savings to an SMA. If I were to transfer $500,000 from my pretax IRA into the SMA, I believe I would have to withdraw some funds each year to meet the minimum required distributions rule from each pretax IRA that I own. If this is correct, does your plan include such withdrawals?"

So he's talking about required minimum distributions after age 70-1/2 from the traditional IRA. First of all, how does moving an IRA to Interactive Brokers affect your RMDs?

ROSS ANDERSON:

The first thing I would note is you can always take distributions out of these accounts. These are built. It's your account. You're not signing up for a lock-up period or anything like that. It's just like an IRA that you have now, except that our team and our professional investment managers are making the buying and selling decisions on your behalf.

So anytime that somebody has distribution requests, whether it's to satisfy that required minimum distribution, or just because they need some money out of the account, it's a simple process. They let us know how much they'd like to take. Our trading team goes in, makes sure that there's at least that much cash available for them, and they can take that and move it to their bank or whatever they need to do with it. So that's a pretty simple process. Megan, maybe you can comment on the RMD process and whether or not it has to come from a single account or if that can be coming from multiple places?

MEGAN BRINSFIELD:

Of course. This is actually a common misconception among retirees — that if you have multiple IRA accounts, you need to take a required minimum distribution from each of those accounts. The IRS actually says anything that's in a traditional IRA we just see as one big bucket of funds. So once you determine the total amount that you need to withdraw each year, you can take it from any account. You don't have to do a little bit from this one or a little bit from that one. You can take one big distribution from any of those accounts.

So it sounds like if you have some inside the SMA program and some outside, you may decide in certain years you'd rather withdraw from the account that's outside the SMA, and that's fine.

ROBERT BROKAMP:

Right. One fact we have on this — it is slightly different with employer-sponsored accounts. If you have old 401(k)s with employers, you actually do have to take a required minimum distribution from each of those accounts.

MEGAN BRINSFIELD:

Right. From each 401(k).

ROBERT BROKAMP:

Exactly. It's the traditional IRA in which you can just take the distributions from one single account.

ROSS ANDERSON:

One other thing that I'll just add to that, because I have seen people make this mistake, as well, is that that does not go for across spouses. If you have a required minimum distribution and your spouse has one, you do have to take from both of those. You can't just take from one person's IRA and assume because you're filing a joint tax return that it's going to be okay. So that's the only other caveat I'd throw in there.

NICK CROW:

I'll just add for Joe. We send out emails to remind our clients that they might need to take required minimum distributions, so if you're feeling forgetful in the fall, we're help out.

ROBERT BROKAMP:

Excellent. Another question here from Jonathan. "I have a Roth, an IRA, and a trust account. How should, or could these fit into a Wealth Management SMA? For example, my trust has huge gains in virtually all holdings. My IRAs, as well as my wife's, are much smaller in size but are not tax-encumbered. Would they each have their own separate account?"

ROSS ANDERSON:

The short answer is yes. I was going to start with that, and then obviously there's a long answer to all of these things. With each, think of it like a tax bucket. So if you have a trust, or you have an individual account or a Roth, all of those are going to be in their own individual accounts. They're all covered under our program.

So when you sign up with us, you can have as many accounts as you want under your own tax ID and one other tax ID of a member of your household. In this case it was a husband and a wife. They could have a joint account. Ten Roth IRAs if they'd like to. There's no additional fee for Motley Fool Wealth Management for having more accounts. We're happy to help them with that.

And some folks even think of their accounts in terms of different levels of being aggressive. If that trust account is where their current distributions are coming from, they might think of that as being a little bit more conservative. Not wanting to take much risk. And then the Roth might be what they're planning to leave to their kids. So maybe they can crank that up on the more aggressive side because the time horizon is much longer on those dollars.

And so we give you a lot of flexibility to mold the investment program so that it suits you and what you're trying to accomplish.

ROBERT BROKAMP:

Here's a question from Mary. "If you build me a portfolio now, how is it going to evolve over time?"

MEGAN BRINSFIELD:

One thing that we do is we ask folks to come back every year and update us on their situation. So when Ross told you earlier that the first thing that we do is go through the profile, and ask you certain questions about yourself and your behavior, we ask you to come back and revisit that at least once a year to tell us about any changes. And any changes to those questions that you answered will prompt a change in your allocation. And it could be turning the dial up on risk. It could be turning it down. It really just depends on your personal situation.

NICK CROW:

Or if you're just one year closer — everything else is the same but you're one year closer — it might be very small changes over time, but as you approach that goal, your time horizon starts shrinking. We adjust that portfolio every year for you.

ROSS ANDERSON:

And we get questions about how we are different than mutual funds. And there's a number of differences on a technical aspect of why a Separately Managed Account is different. But that ability to shape with you and move with how your life is moving is a huge difference on how an SMA program is going to be more customized to you and really follow the investing that's going to help you meet your needs, hopefully.

ROBERT BROKAMP:

Here's a question from Ally. It says, "I'm not the biggest fan of technology, and your service seems primarily technology-based. How will I know I can trust it, and what if I just want to talk to a real person?"

ROSS ANDERSON:

We'd love to talk to Ally. So the very first thing that you do when you sign up with us is we actually ask you if you'd like an appointment to go through the onboarding process with a team member of the Fool Wealth program. What that appointment really entails is understanding and making sure that we're setting up the accounts and that they understand the program fully right from the start. It's much easier to go through it a little bit slower in the opening process and get through it the right way than to maybe make a mistake or do something that you didn't ultimately want to do and then have to back that up later.

So we're happy to help Ally with that onboarding process and that's really the first spot — is let's talk to a human. Let's get you to a person that can help you with this and make sure that it's the right fit.

MEGAN BRINSFIELD:

I would say we do rely on technology as part of this process, and I think that that's an appropriate thing. We want technology to do the heavy lifting. The repeatable tasks that would be rote tasks for a human to go through and do. Where we want to talk to you and add value is where you can't interact with a computer on a real-time basis most of the time. So you can talk to a person to supplement that technology experience.

ROBERT BROKAMP:

Go ahead, Nick.

NICK CROW:

I was just going to say that because we're sharing the advice we have with you online doesn't mean that this whole thing is automated, and sometimes people assume that the computer's doing the trading and this is like a set-and-forget thing for us and no one's handling that.

We've got a trading desk with three great guys working on there every day to implement these portfolios. Have a portfolio management team that every day is looking at each of the portfolios and picking new stocks and updating earnings on old ones in there. Updating their watch list. It's a bottoms-up stock-picking process with real people implementing the trades. It's not automated, really, in all the important ways.

ROBERT BROKAMP:

I know some of the questions that people often have are actually just about moving the money. Transferring the account to Interactive Brokers. Can they get help with that?

ROSS ANDERSON:

Interactive Brokers is our partner for this. We should clarify that. So the Motley Fool Wealth Management program is picking the investments and then Interactive Brokers is the custodian of the assets. We don't actually hold any money, here. We don't have a vault or anything. We're working through them and their program to help implement that. They've got their own support team that is happy to help our customers if they're having issues with the stickier parts of moving from one institution to the other.

But we're also going to try and get you set up as well as we can to make that transition smoothly on our side. So during that onboarding appointment that I mentioned, we're going to talk you through where the money is now and trying to get you set up with some best practices for what the easiest way is to do this. Really on a technical aspect if there's a problem or something gets rejected, you do have to go through Interactive Brokers because they're the ones moving the money for you, but we're going to try to make that as smooth of a process as we possibly can.

ROBERT BROKAMP:

We have one last question, here, and it comes from Austin. "Can you explain why if I have a big portfolio this might be more advantageous than paying a traditional AUM fee" — and AUM stands for assets under management — "that if you go to a certain financial advisor, you pay maybe 1% a year of your assets each year. What all of you do is different. What are the advantages of that?"

NICK CROW:

If you think about the imputed AUM fee and an up-front expense like this incurs, the larger your portfolio it is, the cheaper it is on a comparable AUM basis. In this example, if Austin has a very large portfolio, this could be a cheaper money management solution than he can find anywhere else. I don't know the specifics. He said big and I've talked to a lot of clients where sometimes big is $30,000 to one person and $3 million for another person, so it's hard to know for his exact situation what that fee might come down to.

ROBERT BROKAMP:

So we've reached the end. We'll give you all an opportunity to add one more final thought and maybe think in terms of what's a next step for anyone who is interested in Motley Fool Wealth Management.

ROSS ANDERSON:

There should be plenty of information right below where you're watching this video — the entire details of our offer — so that you can understand all of the ins and outs. The thing that I would stress is if you're on the fence about whether or not this is right for you, we do offer a full membership-fee-back guarantee during the onboarding process if you get in and you realize that it's not really what you thought it was and it's not going to meet your needs. We hope that's not the case. We want this to be a great fit, but you do have some protection there.

And then through the whole program if you decided it wasn't the right fit for you, you can always get a prorated refund. We never want you paying for any time with us that you're not enjoying and appreciating our service.

ROBERT BROKAMP:

Sounds great. Megan?

MEGAN BRINSFIELD:

I would encourage folks to ask questions ahead of any purchase like this. We make ourselves available via email through AskUs@FoolWealth.com. And you can call any of our in-house financial planners. That's me, Ross, and anyone on my team at (844) 408-4391 anytime from 9:00 to 5:00 p.m. ET Monday through Friday.

NICK CROW:

And that phone number should be on the screen right below us, I assume right now, so if you didn't write that down…

ROSS ANDERSON:

Take quick notes.

NICK CROW:

There's a lot more information below, including what I think is a really great opportunity here, and it's timely. So for a limited time, clients who sign up and then fund (and you can see the full details below) can qualify for a $1,000 bonus. That $1,000 bonus is a meaningful portion of the overall expense, here. So if you're listening to us right now and you find this interesting — we might match your needs — I would encourage you to sign up, take advantage of that, and give us a call. And make sure it's the right thing for you.

ROBERT BROKAMP:

And I'll just throw in to make sure you check out the three retirement-focused special reports that you can find under the Resources tab on the Fool Wealth page. So Nick, Megan, and Ross, thank you for joining us. And particularly we thank you for joining us. We hope we have provided some good information and answered some questions. Let us know if we haven't. In the meantime, thanks for stopping by and Fool on!

ROSS ANDERSON:

Fool on!

[End]