Unsung Money Mentors: The Legacy Dan Wheeler Left Us

Are you familiar with the butterfly effect, or how small actions can have big, often unexpected ripple effects? The classic example (and its name source) is a butterfly flapping its wings in one locale altering the air pressure just enough to generate a tornado halfway around the world.

Next question: Have you ever heard of Dan Wheeler? Unless you are an independent, fee-only financial advisor, probably not. But despite his relative anonymity, Daniel Webster Wheeler, Jr. is acclaimed in our community as someone who changed the advisory profession for the better.

Sadly, Wheeler passed away recently, on February 15, 2023, at age 72. To honor his memory, we want to share with you the larger-than-life butterfly effect he had on our life and yours.

An Unlikely Champion for Individual Investors

Born in East St. Louis, serving as a Vietnam War Marine, bouncing among various accounting, philanthropic, and financial roles (including being comptroller for a Saudi Arabian arms dealer), landing as a broker at Merrill Lynch in the 1980s … Wheeler might seem like an unlikely hero for individual investors.

But perhaps it was his restless nature that made Wheeler perfect for the role.

Pre-Wheeler, the financial industry fed almost exclusively on commissions. From an investor’s perspective, any advice you received would seem free of charge. But behind the scenes, your “advisor” was earning their keep from commissions paid by third-party providers who stood to benefit from your transactions, including broker/dealers, bankers, insurance companies, and fund managers. Your advisor was also usually employed by one of these same providers, beholden to their sales quotas and other profit-generating priorities.

It’s easy to imagine how rife this model could be with conflicts of interest to trade, trade, trade, and to recommend investments that would enhance a firm’s bottom line, whether or not they made best sense for you. After all, earning commissions and chasing incentives was the only way a financial provider could earn their keep, or sometimes, even keep their jobs.

Reimagining Investment Advice

In the late 1980s, Wheeler characteristically called BS on the financial industry’s inherently flawed compensation model. He’d seen the sausage-making, grown disgusted by what it took to “succeed,” and envisioned a new, more meaningful way to deliver solid investment advice to investors who were otherwise too often being thrown to the wolves.

Even then, Wheeler was not alone in his beliefs. But he became among the first to act on them. At age 40, in a brash, virtually unheard-of move, Wheeler quit Merrill Lynch and opened a solo firm. In lieu of commissions, he charged a transparent fee, which clients paid directly to him for his independent advice. He refused to accept any forms of third-party compensation that might influence his recommendations.

The independent, fee-only advisory model was born. Wheeler blazed a new path, in which advisors were free to structure and manage clients’ portfolios, without being beholden to opaque sales incentives, and third-party conflicts of interest.

An Alliance with Evidence-Based Investing

Wheeler also turned to fellow thought leaders to help him implement his vision. As described in this homage by Financial Times Editor Robin Wigglesworth, Wheeler’s next epiphany arrived when “he discovered the works of … Gene Fama, the University of Chicago professor and father of the efficient markets hypothesis. It all suddenly makes sense, Wheeler thought.”

In another butterfly moment, Wheeler crossed paths with a nascent Dimensional Fund Advisors (with Fama sitting on Dimensional’s board). In its early days, Dimensional was providing no-load/no-commission funds that investors could use to efficiently and effectively capture available dimensions of market returns at lower costs compared to most retail fund equivalents. They grounded their strategies in evidence-based insights provided by Fama and other Nobel laureate financial economists. This approach was also virtually unheard of at the time. 

Together, they agreed it was high time for advisors, fund managers, and investors to all sit on the same side of the table—the investor’s side, that is. But there was a wrinkle. Dimensional was serving institutional investors only.

Once again, Wheeler led the charge. He convinced Dimensional they could—and should—create a legion of like-minded, independent advisors to bring evidence-based investing to the world. Dimensional’s co-CEO Dave Butler describes in his post, “Remembering Dan Wheeler”:

“Dan was convinced that there were other financial advisors who would share his enthusiasm for marrying independent and conflict-free financial advice with cost-effective investment strategies grounded in a scientific approach. He just didn’t know who they were, and they didn’t know about Dimensional. With a larger-than-life personality and enough zeal to overcome the odds, he made this vision a reality.”

In 1989, Wheeler joined Dimensional to build up its advisor channel. He retired in 2011 as its director of global financial advisor services. His business strategy had happened, just as he’d described it.

Advocating for a Fee-Only Future

Today, thanks to Wheeler and other early advocates like him, it’s much easier for investors like you to find an independent, fee-only advisor like us. From our perspective, it’s also much easier for us to provide the kind of fairly priced, fiduciary advice we are proud to provide.

Unfortunately, it also remains all too easy for consumers to end up being swayed by commission-based advice, which is still widely available as well.

We’ll continue to work on that. We’ll continue to beat Wheeler’s drum, insisting, as he did, that investors deserve far better than that. One thing is clear: Were it not for Wheeler’s early effect on investment advice as we know it, our voice would not reverberate nearly as loudly as it now does. Wherever he is now, the irascible Dan Wheeler has earned his wings.

The Right Time to Buy? How to Factor in Higher Mortgage Rates

Recent trends in the housing market have prompted many potential homebuyers to ask: Is now a good time? In the past year, mortgage rates have not only doubled, but they also did so at a time when housing prices had reached historical highs. This combination potentially impacts the home purchasing decisions of millions of Americans. Here’s what to consider when deciding if you are ready to become a homeowner this year.

A Decade of Favorable Rates May be Coming to an End

If you purchased a home over the past two decades, you likely locked in a favorable rate. This is especially true in the years following the 2008 financial crisis and accompanying housing market collapse:

  • In May 2013, the average 30-year fixed rate was 3.35%. For most years until 2019, rates fluctuated in the 3% to 4% range, rarely going above 4%. It was only in 2019 when they briefly spiked to over 5%.
  • Then, because of pandemic-driven interest rate declines, mortgage rates fell even lower, to an average of 2.68% in December 2020.
  • In 2022, however, things changed. Mostly because of factors tied to the pandemic, rates shot up between January and October. In that short 10 months, the average 30-year fixed rate went from 3.22% to 7.08%. It took less than a year for rates to fluctuate more than we’ve seen in decades.

Historical context puts today’s rates in perspective

Think mortgage rates seem high now? When looking at the last decade, or even the early 2000s when they averaged 5% to 6%, sure, they’ve increased. But when viewed from a broader historical perspective, a 7% mortgage rate begins to look much better.

Consider that mortgage rates in the early 1990s were nearly 10%. Or, how about this? In 1981, you may have been signing your name to a contract where you agreed to pay back a mortgage loan with a whopping 18% interest rate.

How rates move from here, and how quickly they do so, is still a matter of debate. But inflation appears to be stabilizing, which has allowed the Federal Reserve to slow the speed at which it increases rates. Still, for new buyers, higher interest rates will have an impact on their budgets and monthly loan payments.

Impact of Mortgage Rates on Payments

When planning for a home purchase, one of the biggest factors buyers tend to consider is “the amount of house” they can get for the money. While the total cost of a house is an important factor, often buyers are more concerned with what they can afford on a monthly basis.

When budgeting using a specific monthly payment, a higher interest rate eats away at the price you can spend on a home because you’ll need to allocate more money each month toward interest, rather than the principal loan payment. The chart below illustrates the impact.

Clearly, higher rates mean potential homebuyers might not be able to afford the same house they could have a year ago. However, for those in this situation, there may still be some options to secure a lower rate.

Opportunities for a Lower Mortgage Rate

  • Shorter Duration Loans: Mortgage loans with shorter durations, such as 15 or 20 years, generally offer lower rates than the more traditional 30-year mortgage. This might be a good option for a buyer who has a larger budget and wants to pay off their mortgage quicker. However, they aren’t usually a great option for those looking to get the most house they can for a certain monthly payment. That’s because even though the rate is reduced, the monthly loan payment will generally increase significantly because the principal portion of the mortgage is compressed into fewer payments.
  • Adjustable-Rate Mortgages (ARMs): ARMs also generally offer lower initial interest rates for a specified period. But, in an uncertain rate environment, ARMs can be risky. When the initial rate period expires, the new rate following the adjustment could be much higher.
  • Compare: Not all lenders offer the same rates. Shop around. An independent financial advisor can also help you compare lenders, rates, terms and other factors to help you find the right loan option for you and your family.
  • Mortgage Discount Points: Sometimes, you’re able to pay a fee upfront to lower your mortgage rate over the life of your loan. This type of fee is known as a “mortgage point.” If you’re planning to live in your new home for a long time, purchasing mortgage points could reduce your interest rate and long-term costs. Since you have to pay an upfront fee, though, there is a breakeven point to make the cost worthwhile. You’ll need to stay in the home long enough so that the amount you save in interest outweighs the cost of the points.
  • Credit Score: If you will be in the market to buy a home in the future and do not have a favorable credit score, it is in your interest to look at ways to improve it. Small changes in your score could have cost-saving benefits when shopping for an interest rate.
  • Down Payment: The amount you put toward your down payment may reduce your interest rate. Also, a higher down payment will lower the principal loan to be paid as well as the associated overall interest.

Mortgage rates aren’t the end of the story, however. There’s another side to the equation: home prices.

Predicting Housing Prices is a Tough Task

Typically, when interest rates rise, housing prices are expected to go down because the housing stock rises and the market becomes less competitive. This means that your dream home could still be in reach, even with higher mortgage rates. Unfortunately, there is no clear consensus about where things are headed.

Although housing prices have leveled off, or even declined in parts of the country, the recent increase in mortgage rates has not affected prices as much as many expected. Easing inflation and lack of inventory may mean that prices don’t decline as much as they have in past high interest rate environments. The good news is prices have at least stabilized, which could offer some comfort to homebuyers.

So, is now a good time to buy a house?

There are plenty of factors to consider beyond those in this article when deciding whether now is the right time for you to buy a house, such as where you are in your family life cycle. Current mortgage rates aren’t necessarily something that should outweigh all those other considerations.

Rates are higher, but not outside of historical norms. If they were to decline significantly, there would be opportunities to refinance at more favorable rates. And although home prices have increased since the pandemic, they have been stabilizing recently. If you are planning to live in your new home for 10 years or more, you likely won’t be affected by near-term price fluctuations.

In the end, buying a home is often as much of an emotional decision as it is a financial decision. Even if the current market isn’t considered optimal for buyers, it may still be the right time for you. If you’re thinking about buying a new home, consider consulting with your advisor who can help you evaluate your options.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third-party data which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. R-23-5139

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Funding a College Education with Taxes in Mind

While 529 plans are a popular way to fund expensive college educations, Buckingham Senior Tax Manager Shawn Williamson shares more options that may benefit both students and parents from a tax standpoint.

According to a recent study, a year of tuition, books, supplies and day-to-day living expenses at a four-year university will cost on average $35,551. In addition, the price of college is rising at an alarming 7.1% annually. To combat these soaring prices, many parents prepare for their children’s education by investing in 529 plans. Through this strategy, tuition funds are taken directly out of the plan, and parents avoid paying capital gains tax on the appreciation of the investments in the educational fund. They may even get a state tax deduction for the contributions.

While many agree that the benefits of the 529 are of great support to parents, there can be a few nuances that affect your tax filings. College tuition can be utilized in four different ways on a tax return:

  1. To offset it against scholarships that would otherwise be taxable.
  2. To claim it as qualified tuition distributions out of the 529 plan.
  3. To claim the Lifetime Learning Credit for 20% of eligible tuition, up to $2,000 a year.
  4. To claim the American Opportunities Tax Credit (AOTC), worth up to $2,500 a year for up to four years. Note that it only takes a minimum of $4,000 of tuition to maximize this credit.

The same tuition dollar cannot be used twice, but the total tuition paid each year can be split up and used for different purposes. Furthermore, all of those options may be utilized on either the parent’s or the child’s tax return, conditional on the dependency situation.

Higher-income individuals may be able to take advantage of four underutilized opportunities:

Determine if your child should be claimed as a dependent on your tax returns

First, it’s important to establish whether or not your college-aged child should be claimed as a dependent on your tax returns. When married parents have more than $180,000 in adjusted gross income (AGI), they cannot claim the AOTC or the Lifetime Learning Credit. Those with AGI in excess of $410,000 don’t even get the basic $500 credit for dependents older than 17. For parents who do not receive a tax benefit from claiming their child as a dependent and do not qualify for financial aid, it may be more advantageous to remove the child from the parents’ tax return.

A child is classified as independent if they are providing at least half of their own support through working a part-time or summer job or spending their own savings for room and board. They may also be taking out significant student loans in their own name or covering a huge portion of tuition by way of scholarships. If this is the case, the child has an opportunity to claim the AOTC on their own tax return. For the parents, a $2,500 tax credit might be irrelevant, but to a college student it may be a gold mine and at least worth considering.

Have distributions go directly to the school

Parents may pay college costs out of their personal checking accounts and then request reimbursement from the 529 plan later. As a tax professional, I recommend having those distributions go directly to the university. If the costs are reimbursed, the 1099-Q distribution will show up under the parent’s Social Security number (the reimbursement recipient). If the tuition is sent straight to the university, 1099-Q distributions usually show up under the child’s Social Security number (the beneficiary). If the parent is audited, there should be no debate or need for investigation of whether or not the distributions were qualified since they went straight to the school. Also, if the child claims herself or himself, then all of the college-related numbers can go on the child’s return: tuition, scholarships, 529 distributions and the AOTC. If the child happens to have taxable scholarships because their tuition was used to get the AOTC, they will likely be taxed at a much lower rate than the parent (possibly 0%).

Consider using the Lifetime Learning Credit before and after a bachelor’s degree

Since the American Opportunity Credit is only good for four tax years, normally you will want to use it during the child’s full-time pursuit of a bachelor’s degree. However, a lot of students these days are taking classes for college credit during high school. Many taxpayers do not know that they can use the Lifetime Learning Credit to benefit from those early part-time college classes. Likewise, if your child goes on to pursue a master’s degree or takes longer than four years to get a bachelor’s degree, this credit can continue to benefit the parents or the student after the AOTC expires.

Continue investing after your student begins college

Many parents are falsely under the assumption that if the child has already started college, it’s too late to make 529 contributions. In fact, contributions can even be made a week before the distributions are needed. While there is little time to earn tax-free investment growth, you may still be able to get a state tax deduction of 5% to 10%. In that scenario, it is best to invest the 529 contributions in a cash option to avoid the unnecessary risk of short-term loss.

About the author:

As a Senior Tax Manager at Buckingham Strategic Wealth, Shawn helps clients with tax planning and reviews returns prepared by the firm. Along with reviewing 20,000 individual and business tax returns in his lifetime, he has authored dozens of tax and finance related articles and has written the book “Big Success in Small Business”. He was named 100 St. Louisans You Should Know to Succeed in Business by St. Louis Small Business Monthly.

While the cost of higher learning is at record levels, there are several ways to fund your child’s education while receiving tax benefits. If you need assistance with this complicated issue or have questions, reach out to your advisor.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Third party information may become outdated or otherwise superseded without notice. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this document. R-23-4998

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Emphasizing Safety on the Bond Side of the Portfolio

At Lauterbach, we understand the importance of incorporating a safe fixed income investment strategy into your portfolio. In this edition of Buckingham Weekly Perspectives, Chief Investment Officer Kevin Grogan shares our philosophy on fixed income investing, why it’s important to deemphasize credit risk and a historical examination of taking such risks.

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Donor Advised Funds

With so many people in need, financially supporting non-profits is more important than ever. In this edition of Buckingham Weekly Perspectives, Chief Planning Officer Jeffrey Levine shares three reasons why donor advised funds are a great way to support your favorite charities while still receiving a tax break.

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Recently Widowed: Dealing with Immediate Financial Concerns and Planning for the Future

The strong emotions associated with the death of a spouse can become even more amplified by the overwhelming host of financial issues that need to be addressed. Where does one start?

Losing a spouse is a life-changing event that married couples unfortunately need to be prepared for. Since survivors are faced with the daunting tasks of dealing with strong emotions while addressing immediate needs, oftentimes finances are put on the backburner. These are the times when your wealth advisor and other estate planning professionals can provide support. I have helped many clients navigate the financial complexities that occur after the death of a spouse, and my goal is not only to help manage necessary housekeeping tasks, but also to empower the survivor who may have never handled these important matters before.

If you are in this position, it can be difficult to know where to start, what needs to be done and the timeline for settling an estate. While many concerns don’t need to be addressed immediately, I often recommend that a helpful starting point can be in accessing all safety deposit boxes to secure essential documents and review the financial wishes of your spouse.

Next, it is important to reach out to your accountant, financial planner and/or attorney to let them know of your spouse’s passing. Oftentimes , you can inform the professional you are most comfortable with, and they will notify the others. This team of trusted professionals will be able to handle many necessary tasks and provide guidance. The first thing they will likely do is prepare a list of items to be completed by each family member, along with a timeline to help guide and set priorities. The team may also start gathering and organizing the documents you will need in the coming weeks.

If feasible, I recommend meeting with your team in a comfortable space such as your home or their office. It may be beneficial to have a close family member or friend join the meeting for support. Having multiple sets of ears listening to the conversation can be extremely helpful and make the process feel less overwhelming.

It is perfectly normal to not know what to ask or expect during that initial meeting. While your advisor will welcome all questions, here are some considerations to begin the conversation:

  • What are my immediate spending needs, and do I have enough cash on hand to cover them?
  • Are there any other family members’ spending needs that need to be reviewed?
  • How do I obtain a death certificate, and how many copies do I need?
  • How do I gain access to all of my account information, including online accounts, hard copies of statements and more?
  • Do I need to authorize any family members or trusted contacts to work with my advisory team?
  • Is there any additional documentation that I need to provide?

After the meeting, both you and your advisors will have a clearer outline of the next steps needed.

While the list of things to accomplish may seem lengthy, approaching them one at a time at a manageable pace can help you from feeling overwhelmed. Lean on your professionals to help guide you.

For additional resources, I encourage you to review our detailed What to do After the Death of a Loved One and Personal Document Checklist pieces. From record maintenance to insurance issues, these handy documents can help you maneuver through the red tape and paperwork.

The difficult emotions associated with the death of a spouse are often even more intensified by the overwhelming host of financial issues that need to be addressed. If you need assistance navigating this challenging time or have questions, reach out to your advisor.

About the author:
As a wealth advisor, Jada Diedrich spends time getting to know clients personally and professionally. She feels forming strong relationships enhances her ability to help clients define and achieve their goals. Away from Buckingham, she is a member of the American Institute of Certified Public Accountants and the Missouri Society of Certified Public Accountants.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. R-23-4997

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