Answers and Guides from Top Financial Advisors

John,

I am not familiar with Ameriprise's compliance rules, but this could be their policy. They may not allow their advisers to manage anything for clients without it being in an Ameriprise account or in a product that they sell to clients.

If you are still employed and you want to leave the funds in the existing 401(k), you should seek out a Fee Only Independent Registered Investment Adviser. They should be able to help you manage the 401(k). There are typically two ways that my firm will mange someone's 401(k) and I would assume other advisers could do this for you too. One way is by managing it on a non discretionary basis. By doing this the adviser would give you recommendations of which fund options to use and how to allocate the funds. It would be your responsibility to actually make the recommended changes. The second approach is for the adviser to have discretionary control. With this approach the adviser accepts the responsibility to not only make the recommendations, but also to make sure the changes are done for you. Either way works. It just depends how much control you want to maintain. Also, if you choose this way don't be surprised if the fees charged by the adviser are a little higher for the discretionary management versus non discretionary. This is due to the fact that taking discretionary control the adviser is responsible for the implementation and not only providing you the recommendations.

If you no longer are working for th ecopany another option is to roll the funds to your own IRA and have and adviser manage the funds for you. By doing this the investment options will be greater since you won't have to rely only on a relatively small selection of option inside your 401(k). The investment cost of the investment options could also be lower depending on the type of options you would choose.

I hope this is helpful

Hi John! Here is my question for your advisor: how do you get paid? If he is paid based on the dollar amount of assets he manages, then, yes, you will need to transfer the account in order for him to manage your 401(k) funds. Otherwise, he is not getting paid for the education, advice, and money management he is supplying. Contrary to popular belief, financial advisors don't work for free.

Here is my question for you: what is your reasoning for leaving your 401(k) at AON? If you still work there, that makes sense. If you have left the company, you may want to consider taking the funds with you - kind of a control issue. Also, if you are questioning your advisor's advice, get a second opinion. You want someone you can trust to help manage your retirement funds. Good luck!

Another consideration is does your 401k have brokeragelink access? If it does, you are able to open investment options of a full blown brokerage account. You and your advisor would be able to invest in a wide range of investments such as stocks, bonds, etf's. The Ameriprise rep is only held to suitabilty standard. The RIA model provides you with a fiduciary relationship which simply means that the advisor must always act in your best interest. Hope this helps. Good Luck!

These stock options may be inside a qualified plan or outside a qualified plan. As you can see from the responses, this could be a hand grenade or a cornucopia. We would all need a discussion and have a plethora of questions for you before really know which path to recommend. It is very important that you find someone who is competent to help you sort it all out. Most of the choices that you could make have irreversible consequences and could be very costly to you. Go forth and conquer.

It is difficult to say whether life insurance or a long-term care insurance policy would be a better investment against risk. They are both addressing different types of risk. Are you more interested in possibly protecting the depletion of your assets if you were unable to care for yourself or provide money when you pass away for household costs, end of life expenses, transition money for your significant other, etc.? Before making any decision or diving further into specifics, I suggest you make a list of your goals and wishes in order to see what strategy would accomplish them the best.

Like others have mentioned, I would work with an advisor to determine if you have a need for life insurance before surrendering your current policy. Sometimes there are goals or factors you have not considered.

Since there have been other responses about possibly obtaining life insurance with a long-term care rider, you should first figure out if you need the life insurance. Do you really want to pay for life insurance if you do not have a need for it? If you decide to purchase a long-term care insurance policy by itself, think carefully about whether you could afford the policy in the future. Premiums could increase in the future.

We often address questions like this on our blog, so if you you want to learn more about other topics, check out http://www.empirical.net/empirical-wealth-management/empirical-blog/.

Hi C, I agree with the group and strongly urge you to look at the asset based type solutions. Translation - Life or annuity chassis products that give you a death benefit in case you never need to pay out of pocket for care, a long term care benefit in case you do need to pay for care, and a cash value in case you win the lottery and want your money back. One America, Genworth and Lincoln Financial all have solid products for this purpose. One America has one attribute that the others do not. They offer a Lifetime Continuation of the benefit for a small annual premium. It's guaranteed to never go up and if you do a joint policy with you and your husband, there would be benefit dollars available as long as either is alive.

Mark and Michael have made some very good points on this issue. These areas of financial planning can get complicated. Consider the purchase of a LTC policy that would offset the risk if needed, and if you never need it, the premium can be paid back to you in the form of a death benefit or return of premium. You should seek professional advice on this decision so that your personal situation is fully understood. Hope this helps.

C, there are a lot of moving parts to your UL policy, and they are important because, other than need, it will determine if you have value that you are giving up.

How long have you been paying premiums, what are the premiums going forward, how much cash is built up, have you paid all the admin expenses on the policy?

Sometimes there is an admin expense that is loaded onto the first 7 or 10 or 14 years. FYI, that is a key reason why some UL policies can build cash value much quicker than others. So you may have a policy where the admin fees has been recently paid; now you policy's cash value will start to grow rapidly. I don't recommend life insurance as an investment vehicle, but it's possible that you are in a position where you've just gotten over the hump. In regard to making a decision, this is the toughest position to be in.

If you have been building cash value over years and surrender it, you will have to pay tax on the gain over cost basis. It might be wiser to get a 'Reduced Paid-Up' policy. That is where the insurance company will give you a paid in full policy for whatever your current cash value will buy.

If you have reasonably low cash value and you don't see the value in paying continued premiums, and your husband really doesn't care, and there are no children or grandchildren that you want to name as beneficiary, then you truly might not need it. But be sure, because 'you don't know what you've got til it's gone'. Keep in mind that you are 55 now; if you breathe your last breath at age 95, in 40 years, with inflation, it might cost half of that just to put you in the ground

My current preferred method to provide long term care is with, coincidentally, life insurance, or alternatively an annuity, with a long term care rider. The rider will pay 2-3 times the face amount if you cannot perform 2 of the 6 activities of daily living. Hopefully, you still are in a Preferred health classification;, you can use this strategy of transferring your cash value through a tax free 1035 exchange to a new policy, either as all of your long term protection, or in conjunction with a stand-alone LTC policy.

This should be part of your family's overall financial plan. Seek professional advice. Consider the alternatives.

Mark gave some great advice there. One more thought is that a lot of insurance companies now offer life policies and annuities that have Long Term Care benefit riders. In essence, they can do "double duty" to help out with Long Term Care costs into the future. I'd really recommend you finding an objective financial advisor in your area who can help you make the best decision for you. It might be possible to "trade" your existing policy for one with LTC benefits included.

Scott provided a great summary of these Alternative Asset Managers business model and sources of revenue, but did not give a specific valuation metric. Coming up with a So I am going to give my 2 cents.

Any business is valued based on its present and future cash flows discounted at a certain rate of interest. So the question is, are these Alternative Asset Managers going to grow at a rate faster than the Traditional Asset Managers and do they deserve a higher multiple or lower discount rate, etc.

The first Alternative Asset Manager that went public a couple of years ago was Fortress Investment Group (FIG). Per Yahoo Finance it is currently valued as follows (caveat: these have not been independently verified):

Forward PE=10.5 PEG Ratio=0.77 Price/Sales=2.0 Price/Book=2.59 EV/EBITDA=9.80 ROE=26% Forward Dividend Yield=3.2%

One can compare FIG to Traditional Asset Managers like Legg Mason (LM) and/or Blackrock (BLK). What I found in a quick and dirty back of the envelope comparison was that there was not a clear cut valuation parameter that stood out for one group (Traditional) vs. the other (Alternative). For example, on a PEG basis FIG at 0.77 was lower than 1.33 for BLK. The market obviously feels that BLK deserves a premium based on its size, longevity, etc.

Ultimately, the valuation will depend on the following parameters:

1) Your forecast of the future growth of the business cash flows 2) Confidence in your forecast 3) Management's ability to execute and deliver on those forecasts 4) Whether the management is shareholder friendly 5) Demand for the shares etc. etc.

I have copied links of various articles and reports that will shed more light on various valuation related issued when looking at Private Equity Managers.:

http://finance.fortune.cnn.com/2012/05/03/private-equity-firms-valuations/

http://dealbook.nytimes.com/2007/03/16/valuing-a-public-blackstone/

http://www.bloomberg.com/news/2011-08-17/carlyle-pitches-wall-street-on-ipo-valuation-to-rival-blackstone.html

http://www.washburn.edu/sobu/apm/Reports/BX.pdf

Hope this helps.

First of all, you need to give serious thought to surrendering an existing life insurance policy. There are a myriad of issues around this. If you were gone, your income, your retirement savings contributions, contributions to the household, the cost of funerals, wakes, etc. are just a start. We always recommend conducting a probability analysis around this topic. I know - not a very simple answer, but eliminating a life insurance policy is serious - the odds insurability can go down every year and the cost of insurance generally goes up every year. In other words, if you lose a policy, it may be impractical or impossible to get another. It's a big decision.

With that being said, I like your consideration of a long term care policy. If the life insurance is not needed than any available net cash value (above taxable gains, surrender charges, etc.) could be available to help finance the long term care policy. Also, if you are eliminating the UL premium that now available cash can go to the LTC policy. The LTC policy is another big topic. Consider shared LTC policies for both you and your husband. If you only get a policy for you and your husband ends in situation where you and family members can not care for him, his extended care could end up using all your assets. The same thing could happen to you in relation to your husband's future. Long term care policies have lots of variables - inflation protection (very important), elimination periods, maximum daily benefits, etc. Consider shared policies with decent benefits that fit into your budget. Work with an advisor that will help in the process.

This is a lot of info, but I hope it helps. Mark

When you exerices your options you are taxed on the difference between your exercise price and the market price. Therefore you have money at risk. If you hold for long term capital gains there is a risk that the stock will go down--why take the risk? You are better off exercising and selling to avoid that risk. The only advantage of stock options is their leverage and after you exercise there is no leverage.

Without getting too specific on any of the individual names that are public today (e.g. Oaktree, Blackstone), here are some of my general thoughts on the business model:

1) The main thing to remember is that these are asset management companies at their core. The primary difference between a private equity company and a more plain vanilla asset manager (think Blackrock or PIMCO) is the fee structure, which is much more favorable to the private equity model.

2) The difference in the fee structure is that when a private equity company raises a fund, they raise committed capital, which means that they are literally raising the right to receive capital at a future date from a client (for example a pension fund). The PE company begins taking fees on this pool of committed capital before it is even deployed. The PE company then typically has a certain amount of time to invest the committed capital, and if it doesn't deploy all the capital it loses the right to invest those commitments. On top of the fees on committed capital, there are then a series of other fees that the PE company takes. The main ones are the management fee, which the company charges to oversee owned assets once the capital is deployed and then of course the incentive fee, which is the ~20% fee that the company can earn on a profitable investment.

3) So to answer the question more directly, the value of a PE company is tied to its AUM like any other asset manager, and for a PE company you would have to include committed capital in that calculation. I haven't run a specific comp table comparing the value of the PE companies to other public asset managers (Blacrock, Legg Mason, etc.) but I would assume that the PE companies trade at premiums to the vanilla asset managers, although I'm not sure that's justified (I'm not sure it isn't justified either though). As to whether or not they should trade at a premium, I can see the argument going either way based on my level of understanding. On the one hand, PE companies have the potential to earn much, much higher fees than traditional managers. On the other hand I would argue that there are disadvantages to the PE model in that you are only as valuable as your last fund because the funds have defined lifespans. By contrast PIMCO can and probably will be managing its mutual funds for the foreseeable future.

4) Two other items to note:

a) Remember that if the market has enough confidence in a company, it will not be valued based on its present operating fundamentals but on its prospects for future growth. Asset managers are operating in extremely deep capital markets, and so the potential for growth can be astronomical even if the growth wont necessarily materialize.

b) Growing an asset management business isn't about who is the best manager, it's about who has the best sales and marketing. A good sales force will beat a good investor every day of the week in building a successful business.

5) Remember who you're partnering with. As a shareholder in any company it is imperative that you evaluate the trustworthiness of management. This means not just going with the smartest team, because if the smartest team happens to be a greedy one, they will spend their day thinking about how they can enrich themselves at the expense of the shareholder. For PE companies you should take extra care for the following reasons:

a) Asset management businesses are people businesses. They are not capital intensive and so arguably there is very little reason why they should be public companies. The primary operating reason that most asset managers come public is for succession and retention purposes, meaning that it gives them a tool to give equity to their employees. PE companies are generally not coming public to enrich their public shareholders and in fact it is likely that behind closed doors they view retail investors as "dumb money."

b) Wall Street is teeming with smart, selfish and short term thinkers. That's one of the most dangerous combinations I can think of. In my mind the excessive fee structure that PE companies charge should be an instant red flag highlighting management's propensity for greed. PE firms are hired by their clients to advise on investment opportunities. Part of being a good advisor is protecting your client from excessive fees even if that comes at your own expense. IMPORTANT: That is not to say that everyone who works in PE or manages a PE firm is greedy and lacks integrity, but it is a warning to potential shareholders to tread with extra caution.