Xero - reaching beyond the cloud to the stars?

Margaret Carey  for  businesseez.com.au  writes: Dynamic and visionary were the two adjectives that were constantly at the front of my mind as Xerocon –the annual Xero conference – unfolded last week. It wasn’t a ra-ra affair, just down-to-earth presentations on what the company – staff and product – has delivered over the past year and where it is heading.

Some of the numbers were pretty spectacular: a world-wide doubling in the number of customers since March this year from 100,000 to 200,000, a doubling of annualised revenue since last year to NZD $64m and, because focus is on investment for revenue growth – a doubling of losses per year to NZD$15 million for this year. Budgeting for a huge loss year on year is certainly not the traditional formula recommended by accountants but Xero is a company with vision, focus and strategy as was revealed at Xerocon (which had also doubled its number of attendees from last year.)

An jam-packed product information session unveiled what we can expect to see in the coming twelve months. (See the complete and comprehensive review from Boxfreeit). Long awaited and eagerly anticipated; Purchase Orders, Sales Quotes and Inventory are finally slated for delivery – the exact date is still unknown but the screen shots and discussions on inventory costing methodology indicated that the functionality had reached the design stage at least.  Jobs are also on the horizon but probably a bit further off.

In addition to these we can expect a more comprehensive reporting engine as user definable parameters and variables will be available, resulting in the ability to tailor standard reports to suit individual requirements and  putting reporting more on a par with QuickBooks which currently has the most comprehensive and flexible reporting engine of small business accounting software.

The handy feature of being able to attach documents to transactions is being greatly expanded so not only will you be able to link documents in more places but they will be stored in navigable folders and basic image editing tools such as zoom, resize and rotate will be available. This feature grabbed my attention because as well as being pretty neat it also shows how Xero is exceeding its motto of being ‘beautiful accounting software’ to including practical tools for businesses.

However the feature that really excited me was the unveiling of Banking 2.0, as this really proves how Xero is thinking outside the square. Xero blitzed its rivals with its bank feeds and complementary bank rules making this industry standard and forcing other software vendors to scramble to emulate. Banking 2.0 will further revolutionise this key area and certainly give Xero a competitive and strategic advantage. Banking 2.0 will enable the business owner to liaise directly with the bank – no more uploading of ABA files and will streamline payment management. Anything that can streamline the banking  process – both ins and outs has to be a winner for small businesses as this is where so much non-value add time is spent and where so many errors are made. Xero backed this claim up with some substantial numbers – 6.2million invoices totalling $12 billion have been received and 6.4 million totalling $14 billion sent so there is scope for process improvement. So far only a couple of banks are on board with this revolutionary process – but the message from Xero is loud and clear – if your bank isn’t one of these – talk to them and  get them to change, otherwise change your bank to take advantage of those that are dancing with Xero.

Again reducing small business admin, Xero is looking to public/private partnerships with government whereby it pushes directly not via government websites. The first example of this – the lodging of Tax File Number declarations has seen an astonishing 8640 lodged in the first months of the rollout.

There were more exciting announcements: Xero is continuing to roll out functions on the mobile app. We were promised that soon we will be able to stand in the bus queue on the way to work and complete bank reconciliations! The Leave module is also due for an overhaul – a bar calendar will provide an easy visual of who will be on leave amongst other features.

Once these key elements are delivered, Xero considers it will have completed the accounting engine of the software and then the sky’s the limit. Or in Rod Drury’s words, this will be ‘the end of the beginning’. This is where and when the excitement will begin because Xero has the vision to take its customers beyond expectations and blur the boundaries of what constitutes accounting software.

I have been invited to attend the Intuit VIP Accounting Professionals Summit in Mountain View, California this week where I am hoping to understand more about the vision for QuickBooks Online and its positioning in Australia, and then 20^th & 21^st September it is the annual Reckon Conference (short straw here as it is in Melbourne) where the long awaited Reckon One cloud accounting software potentially may be a little more live. But I am really left wondering how these vendors can possibly even catch up with Xero let alone leap frog ahead. Right now it appears that Xero has an incredible competitive advantage – it is an incumbent player with a sizeable market share, it has solid credentials behind it and it has the vision to boldly go where no accounting software has gone before.

Rule with self-directed IRAs: Investor really beware

Ilyce Glink and Samuel J. Tamkin for the Chicago Tribune write:  Question: Q: My partner and I are considering rolling over his 401k into a self-directed IRA in order to purchase rental property. I was wondering if you have any information on how to vet this 
type of company. That being said, we have experience with rental properties, so we are not outside the realm of our experience.

Answer: A: Self-directed IRA companies started to become more popular more than a dozen years ago when investors began using them to help finance the purchase 

investment real estate.

And why not? When you use a self-directed IRA, you're essentially lending yourself the money to pay for the real estate. The proceeds from the investment property (that is, the income the property generates) go back into the account to repay the loan and any expenses. Over time, as the loan is paid down, profits will increase, but those must stay in the IRA as well until you withdraw them. At that time, you'll owe ordinary income on your withdrawals, just as you would for withdrawals from any other qualified retirement account.

Many investors who have pots of ordinary IRA cash and investments just sitting there, earning virtually nothing, have looked to roll over those funds into a self-directed IRA account, where they can use those funds in a different way. At a time when stock market and bond market returns were uncertain, many investors turned to real estate to scoop up foreclosures and short sales that seemed to be underpriced. As the housing market has increased in value, investors are finding that their IRAs are worth a lot more.

Of course, there are issues to think about when about using self-directed IRAs, including the high fees some companies charge and the many rules investors must follow in order not to run afoul of IRS regulations regarding IRAs and investing in real estate.

When it comes to vetting self-directed IRA companies, you need to be extremely cautious. The SEC's Office of Investor Education and Advocacy (OIEA) and the North American Securities Administrators Association (NASAA) issued an investor alert warning of the potential risks associated with self-directed IRAs. According to the alert, NASAA has noted a recent increase in reports or complaints of fraudulent investment schemes that utilized a self-directed IRA as a key feature. State securities regulators have investigated numerous cases where a self-directed IRA was used in an attempt to lend credibility to what turned out to be a fraudulent scheme. Similarly, the SEC has brought a number of cases in which promoters of fraudulent schemes steered investors to self-directed IRAs.

The SEC cautions investors to understand that the custodians and trustees of self-directed IRAs may have limited duties to investors, will generally not evaluate the quality or legitimacy of an investment or its promoters. In other words, when you buy amutual fund on the recommendation of your registered investment advisor (RIA) or even an investment advisor at one of the big financial investment companies, there may be a duty to help you select the best investment for you and to investigate to make sure that the investment isn't a fraud or a fake. But with a self-directed IRA, there is less regulation, and the custodian or trustee of your accounts (you need a third-party to manage the investment for you to maintain it as an "arm's length" transaction to meet IRS guidelines) may not have to ascertain whether the investment is fraudulent or even a good idea. That's up to you.

The market for self-directed IRAs is small compared to traditional IRAs, but if it's your money, that doesn't matter. A 2011 study found that Americans have approximately $4.7 trillion in IRAs. About 2 percent, or $94 billion, is held in self-directed IRAs. The rebounding stock market might have changed those numbers somewhat, but you can see that it isn't a huge number relative to the total amount held in IRAs.

To check out a self-directed IRA company, we suggest running the company through a news search engine and a couple of regular search engines along with the word "complaint." That should bring up any issues or problems someone has faced. You can also check with your state regulator, and the SEC. For more information and resources on self-directed IRAs, visit Investor.gov. Here’s the link to the SEC Investor Alert we found. (http://www.sec.gov/investor/alerts/sdira.pdf)

What you can do about a lousy 401(k)

SHEYNA STEINER, Bankrate.com  It's a tough world out there for people hoping to retire. An employer-sponsored plan such as a 401(k) is a huge help, but bad plans can make it harder for people to retire than it should be. Some of the bells and whistles, such as a match from the employer, are extremely nice to have. Free money from a generous employer is great. But that may not be enough to make up for a plan with lousy investment options.

Most of the problems in bad 401(k) plans stem from high fees and poor investment choices.

Fees are Everywhere

Workers who sign up for their employer-sponsored plan may have no idea what kinds of fees they're being charged. Last year, the Department of Labor instituted a rule that requires plan sponsors -- employers -- to disclose the fees charged to plan participants. Even so, this did not appear to enlighten workers about what they're paying in fees, since half of them had no idea how much they paid in 2012 -- the same percentage as the previous year, according to a study by LIMRA, an insurance consultant.

Average fees and expenses paid by plan participants in 2012 totaled 1.46 percent for small plans with 50 participants and less than $2.5 million in assets. For large plans with 1,000 participants and $50 million in assets, average fees were 1.03 percent, according to the most recent version of the 401(k) Averages Book and the Society for Human Resource Management. 

The bulk of fees comes from the expenses related to investments. Fund companies bundle fees differently, depending on share class. One class of shares may have no built-in sales charge, but another share class may add that charge. Institutional share classes generally don't have 12b-1 fees built into the cost. These are "distribution fees" that pay for advertising and marketing costs of funds. Overall expenses will hinge on the investment choices made by the participant, but the share classes offered by the plan make a big difference.

Typically, the share class is identified in the name of fund, for instance, Columbia Mid Cap Index A indicates that class A shares are on tap for that plan. Class A shares typically charge a sales charge, also called a front-end load. The cost of the funds can be found in the prospectus or on the fee statement.

The R Share Class

While A, B and C share classes are generally sold to individuals who work with commission-based advisers, R shares are often found in retirement plans. Though R shares have no load or sales commission, they may have other expenses built in. Investors want to see higher numbers attached to the R, for example R4 shares rather than R1, according to Donald Jones, a director at Fiduciary Doctors in Phoenix, Ariz. "If it's an R1, R2 or R3, you can bet there is a lot of hidden expense built into that fund," he says.

The difference in cost between R1 and R4 share classes can be nearly a full percentage point, according to Jones. That may not sound like a lot, but it adds up year after year and can make a huge difference in how much you end up accumulating for retirement.

Evaluating new fund options in a 401(k) plan

"I call it the rule of 1 percent -- if you take a difference of 1 percent lost through an improper share class and you multiply that over 35 years, participants have approximately $200,000 less at retirement," says Craig Morningstar, chief operating officer at Dynamic Wealth Advisors in Scottsdale, Ariz.

As an example, if you save $10,000 a year and earn a 6 percent return on average, you'll end up with $1,114,348 after 35 years. But if you only earn 5 percent net of fees, your nest egg will be worth $903,203 -- a difference of $211,145.

Spread across an entire plan, that represents a lot of money lining the pockets of investment professionals rather than the retirement accounts of workers.

Why would an employer pick share classes that are obviously to the detriment of their workers? In many cases, they wouldn't; they simply don't know how the financial industry works. "The plan sponsor is not the one choosing the share class.… Usually, the adviser or plan provider is helping select those," says Jones. 

Bad Investments

Unfortunately, plan sponsors may be nudged in the direction of adding investments that could benefit the investment provider more than plan participants.

"The revenue sharing they can build in is the most important to them," says Morningstar.

Revenue sharing occurs when plan providers get payments from investment fund companies for selecting particular mutual funds for 401(k) plans. Plan sponsors are often unaware that these conflicts of interest exist. "Many sponsors, particularly of smaller plans, do not understand whether or not providers to the plan are fiduciaries, nor are they aware that the provider's compensation may vary based on the investment options selected. Such conflicts could lead to higher costs for the plan, which are typically borne by participants," according to a 2011 report from the Government Accountability Office.

A Time-Honored Retirement Savings Rule Comes Under Attack / A look at the controversial "4-percent rule" and why critics have attacked it recently.

Dan Caplinger for DailyFinance writes:  After spending your whole career trying to save up enough money for a comfortable retirement, retirees face a brand new challenge: how to make their investment portfolio last a lifetime.

Most financial advisers believed that they had a simple answer to that tough question, but recently, the rule they came up with has come under fire for potentially being too risky. Let's take a look at the controversial "4-percent rule" and why critics have attacked it recently.

Understanding the 4-Percent Rule

In terms of simplicity, you can't really beat the 4-percent rule. How it works is that you take your total portfolio value when you retire and multiply it by 4 percent. The resulting figure gives you your annual income. The following year, you take the previous year's figure and then adjust it by whatever the inflation rate was during the previous year.

The result is that you should be able to sustain the same purchasing power throughout your retirement.

When 'The Rules' Don't Work

The 4-percent rule has been around for a long time and was based on actual performance in the stock, bond and other financial markets. Yet as analysis from mutual-fund giant T. Rowe Price shows, retirees who retired in 2000 with their investments split 55/45 between stocks and bonds and who followed the 4-percent rule saw their portfolios lose a third of their value by the end of 2010.

Looking forward, even bigger concerns exist.

With both the stock market and the bond market at relatively high price levels, a paper earlier this year from two professors and an investment professional at Morningstar (MORN) found that an extended period of low investment returns could sabotage the 4-percent rule, with failure rates exceeding 50 percent under certain circumstances. In particular, the paper, "The 4 Percent Rule Is Not Safe in a Low-Yield World," focused on low interest rates that dramatically sapped the income-producing potential of the bond portion of portfolios.

Turning to the IRS for Help

Rather than using the 4-percent rule, one alternative looks at a rate that the IRS uses to determine how much money retirees have to take out of IRAs and certain other retirement-plan accounts.

In order to prevent investors from keeping money in traditional IRAs and 401(k)s forever, the IRS has rules governing required minimum distributions each year that take effect when you turn 70½. Essentially, you're required to take out a fraction of your total retirement-account balances every year. That amount is based on the expected number of years remaining in your lifetime. An IRS publication provides the appropriate life-expectancy table.

Compared to following the 4 percent rule, using the IRS tables results in smaller withdrawals in the early years of retirement. For example, the rate for a 62-year-old equates to a roughly 3-percent withdrawal. Only once you reach age 73 does the withdrawal go above 4 percent, and there are no automatic upward adjustments for inflation -- the only boost comes if your portfolio value increases.

The IRS-table method has advantages and disadvantages.

On one hand, unlike the 4-percent rule, it's mathematically impossible to run out of money using the IRS-table method, as each year's withdrawal is based on the remaining value in the portfolio rather than the first year's value. The IRS-table method also lets retirees benefit from increases in the market value of their assets. Yet it leaves retirees exposed to big drops in allowed withdrawals if their investments suddenly lose value.

Handling Retirement Risk

Without knowing the future, it's impossible to know whether any given method for drawing down your retirement savings will work best. Under some conditions, the 4-percent rule will work fine; in others, using the IRS-table method will give you better results.

What's really important, though, is to understand the principles behind the different rules.
The 4-percent rule shows that in most situations, ignoring market noise and making consistent withdrawals is perfectly safe. Yet the IRS-table method proves the value of being flexible enough in your finances to handle falling income levels -- at least temporarily.

Using the principles behind both rules can put you in the best position to retire comfortably no matter what happens in the markets.

Roth 401(k) Distribution Rules

Mike Piper, the Oblivious Investor writes: While many investors understand that a Roth 401(k) is basically a hybrid of a regular 401(k) and a Roth IRA, if my email correspondence is any indication, many people are somewhat confused about the details. Specifically, many people have misunderstandings about either of two points:

• When you can take money out of the plan, and
• How withdrawals (technically referred to as “distributions”) are treated for tax purposes.*

When Can You Take Money Out?

With an IRA (whether Roth or traditional), you can take your money out of the account at any time. The only question is whether the money will be taxable and/or subject to the 10% penalty. In contrast, with a 401(k), you have to meet certain requirements before you’re even allowed to take money out of the account.

In this regard, a Roth 401(k) works like a regular 401(k). That is, if you are still working for the employer in question, you might not be able to take money out of the plan at all. (Possible options to look into would include a financial hardship distribution, an in-service distribution, or a 401(k) loan.)

Is the Distribution “Qualified”?

When trying to figure out how a distribution will be treated, the first thing to determine is whether or not the distribution will count as a “qualified distribution.” If a distribution is qualified, it will be free from tax and penalty. For a Roth 401(k) distribution to be qualified, it must occur:

1. After you have reached age 59.5 (or died or become disabled), and
2. At least 5 years after the first day of the calendar year in which you first made a Roth contribution to the retirement plan.

Note that this 5-year rule is on a per-Roth-401(k) basis. (In contrast, the 5-year rulethat applies to Roth IRA distributions is not on a per-IRA basis — once you have met it for one Roth IRA, you have met it for all Roth IRAs.)

Example: Bob is employed by Employer A and has been making Roth contributions to Employer A’s retirement plan since 2010. In October of 2013, however, Bob takes a new position with Employer B and begins making Roth contributions to Employer B’s retirement plan. Bob will now have to satisfy a new 5-year period (in this case, he must wait until January 1, 2018) until Roth distributions from Employer B’s retirement plan can be considered qualified.

If, however, you roll money over from a prior Roth 401(k) into your new Roth 401(k), the 5-year rule for your new Roth 401(k) is considered to have started on January 1 of the year in which you first made a Roth contribution to the prior plan. (So, if Bob in our previous example rolled over his Roth 401(k) from Employer A into his Roth 401(k) with Employer B, his 5-year period with regard to Employer B’s plan would be satisfied as of January 1, 2015.)

How Are Nonqualified Distributions Treated?

If your distribution is a nonqualified distribution:

• The portion of the distribution that represents your contributions to the account will be nontaxable (and not subject to the 10% penalty), and
• The portion of the distribution that represents earnings (i.e., growth) will be taxable and potentially subject to the 10% penalty.

In determining what portion of the distribution is considered to come from contributions as opposed to earnings, each distribution is simply treated on a pro-rata basis. For example, if you currently have $10,000 in your Roth 401(k), of which $8,000 is from contributions and $2,000 is from earnings, any distribution will be considered to come 80% from contributions and 20% from earnings — meaning that 80% of the distribution will be nontaxable, and 20% will be taxable and possibly subject to a 10% penalty.

Any portion of a nonqualified distribution that comes from earnings will be subject to the 10% penalty unless one of the following requirements is met. (Note that these are the same requirements as for regular 401(k) distributions.)

• You are age 59.5 or older,
• You are disabled,
• You have died and the distribution is being made to your estate or your designated beneficiary,
• The distribution is part of a series of “substantially equal periodic payments” made based on the appropriate life expectancy table,
• The distribution is made after you have separated from service with your employer and that separation from service occurred in or after the year in which you reached age 55,
• The distribution is the result of an IRS levy on the plan,
• The distribution does not exceed the amount of medical expenses that you can claim as an itemized deduction for the year,
• The distribution is made pursuant to a qualified domestic relations order (e.g., in the event of a divorce), or
• The distribution is a qualified reservist distribution for a military reserve member called to active duty.

*For those interested in reading the actual reference material, Internal Revenue Code section 402A contains the rules for designated Roth contributions (i.e., what we typically refer to as Roth 401(k) contributions).

Xero and Clio Partner to Seamlessly Bring Complete Legal Practices Into the Cloud / Industry Powerhouses Join Forces to Create Cloud-Based, Integrated Accounting and Legal Practice Management Software

 Xero, the global leader in online accounting software, and Clio, the leader in cloud-based management tools for the legal industry, today announced a new partnership aimed to alleviate paperwork-based productivity losses and increase efficiency for lawyers. By seamlessly integrating their powerful and effective accounting and legal practice management software within the cloud, Xero and Clio deliver an automated, easy-to-use and affordable platform that helps lawyers and law firms focus on their core competencies: client work, growth and profitability.

Historically, lawyers and legal professionals have struggled with time consuming administrative work -- importing and exporting massive amounts of paperwork, billing data and client information manually, or with outdated USB drives. Now, these professionals have the ability to integrate billing time and client data into the Xero online accounting platform from Clio's legal practice management solution, effectively bringing their entire legal practice into the cloud.

"All lawyers agree: there are never enough hours in the day. With their new relationship Xero and Clio bring two of our essential technologies together, effortlessly, enabling us to focus on what matters the most: our clients," said Josh Schiffer, co-founder of ChancoSchiffer P.C. (a three partner full service Criminal Defense and Personal Injury Firm in Atlanta, GA.) "Xero and Clio products are extraordinarily easy-to-use and my administrative headaches have evaporated. The price point is where I need it and the software pretty much does everything I want when it comes to practice management and accounting. With Xero and Clio I focus on working with my clients rather than worrying about my finances and chasing down bills."

Because both companies built their products in the cloud, integration between the Xero and Clio systems are seamless, secure and accessible from anywhere around the world. Entire legal practices can be managed with Clio's cloud-based software, with billing and sales invoices easily generated, sent and followed up on within Xero.

"As an industry leader that recognizes the benefits of cloud computing, Clio is a natural addition to our ever-growing partner ecosystem," said Jamie Sutherland, President, Xero U.S. "Xero's powerful online accounting engine, dovetailed with Clio's efficient legal management online platform, creates a system that is smart, affordable and easy-to-use, delivering exactly what small businesses and law firms need in terms of financial planning so they can focus on growth and profitability."

"I've never met a lawyer who said, 'I love the administrative part of my work!' so our goal is to continue to find ways to help our customers with this aspect of their business. The Xero partnership is another step towards this goal," said Jack Newton, Founder and CEO, Clio. "Xero and Clio make it easier for any individual lawyer or small firm to efficiently and affordably manage their practice management and financial information."

In September, Xero and Clio will unveil their integration at two premier industry events, Xerocon and the Clio Cloud Conference. For more information on Xerocon, taking place on September 4 and repeating on September 5 in San Francisco, visit here.

For more information on the Clio Cloud Conference, taking place from September 23-24 in Chicago, visit here.

For those who cannot attend Xerocon or the Clio Cloud Conference, Xero and Clio will co-host a webinar outlining this new integration on September 9 at 1pm EDT. To register, visit here.