Weekend Reading For Financial Planners (May 17–18)

Republicans Reveal Details Of Tax Plan, Which Will Head To Full House

(Erik Wasson, Chris Cioffi, and Zach Cohen | Bloomberg News)

One of the major topics of conversation for financial advisors this year is the scheduled expiration of many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and the potential for a major tax bill that could extend (and possibly expand) many of these measures. After months of speculation about its contents, the Republican-proposed legislation was released this week and was approved by the House Ways and Means Committee on a party-line vote, which means that (after passing certain procedural steps) it will head to the full House floor for a vote, which Republicans hope to hold by the end of the month.

The proposed legislation includes a wide range of components that could impact financial planning clients (for a full breakdown, readers might be interested in a Tweetstorm-style summary from Jeff Levine). To start, the legislation would permanently (i.e., without a scheduled sunset) extend the lower individual tax rates enacted as part of the TCJA, with a top bracket of 37% for the highest earners (though obviously a new Congress could pass a new law to change tax rates again in the future). One anticipated part of the legislation (which could potentially see changes given interest in this subject from Republican legislators in relatively high-tax states) is an increase to the cap on deductibility of State And Local Taxes (SALT), with the House legislation proposing a new $30,000 limit (up from the current $10,000), though this limit would phase out once taxpayers' Adjusted Gross Income (AGI) exceeds $400,000 (notably, both limits are lower for married couples filing separate returns). Many advisors and clients were also closely watching for potential changes to the estate tax exemption, which currently stands at just under $14 million per individual but would decline to approximately $7 million in the absence of a TCJA extension; however, the proposed legislation would permanently maintain the higher exemption, which would rise to $15 million per person in 2026.

Other measures in the proposed legislation would only be temporary (lasting from 2025 through 2028). These include a $4,000 increase to the standard deduction for seniors (phased out by 4% of income in excess of $150,000 for married couples filing jointly and $75,000 for others), eliminating taxes on tips and overtime pay (subject to income- and occupation-based limitations), and a new deduction for interest on loans for motor vehicles whose final assembly takes place in the United States (which is subject to a maximum annual deduction of $10,000 and a phase-out for those with income exceeding $200,000 for joint filers and $100,000 for all others).

While the release of the Republican tax plan provides advisors and their clients with a measure of clarity on the measures that might make it into law, the final details of the legislation will continue to be up for debate, both within the House and as the Senate considers its own version of the legislation (and has to deal with the reconciliation process to pass the legislation without sufficient Democratic support). Which still leaves some uncertainty for advisors and their clients about the tax environment they will face for 2025 and beyond.

Fortunately, though, unlike the original TCJA (which was passed at the very end of the year), it appears possible (given a Republican goal to have the legislation passed by July 4) that this new tax legislation will come sooner rather than later, giving advisors clarity by the summer, and more time to act on behalf of clients before the end of the year (though, given that tax brackets, deductions, and other measures will remain largely the same under the proposed legislation, there might be fewer 'action items' compared to the passage of TCJA, which brought significant changes to tax rates, deductions, and the estate tax exemption). Also, stay tuned for an upcoming Nerd's Eye View article that will go into further detail on this proposed tax legislation and its particular details!

Clients Leave Largely Positive, Descriptive Online Reviews For Their Advisors: Study

(Wealthtender)

In May 2021, the SEC finalized its updated advertisement rules to allow the use of testimonials in RIA marketing materials. This change offers a new opportunity for advisory firms to provide social 'proof' of their ability to build relationships through their services and to develop trust and a positive reputation among potential clients. However, some advisors might have been concerned about the ability of clients to leave (uncurated) reviews on online review platforms given the potential for a few bad reviews to skew public perception of the firm.

With this in mind, Wealthtender (a digital marketing and online review platform for advisors) analyzed 2,568 online reviews published on its platform between May 2021 and April 2025 for more than 200 advisors and wealth management firms to see how clients were reviewing the advisors and firms they work with. Overall, 85.5% of reviews were judged to be positive, 14.0% of reviews were neutral (i.e., offered brief feedback without strong emotional expression), while only 0.4% of reviews were negative (mentioning miscommunication or unmet expectations). Further, these reviews tended to offer detail, with an average of 86 words and 6 sentences (with a significant number of reviews exceeding 150 words), providing consumers with greater detail into these clients' experience with their advisors (perhaps helping viewers determine whether they might be a good-fit client themselves). By far the top theme in reviews was personalized retirement and financial planning (in 38% of reviews studied), followed by long-term relationships and loyalty (13%), trust and peace of mind (12%) and investment management and portfolio strategy (10%).

Ultimately, the key point is that just as financial advisors tend to enjoy high client retention rates, clients' online reviews appear to reflect this positive experience with their advisor, taking the time to do more than provide a rating or write a few words, with these clients having a particular focus on how their advisor is able to understand their needs and provide personalized recommendations (a feature that can help human advisors differentiate themselves from digital advice offerings!).

FINRA Says Outside Business Activities Proposal Won't Create New Obligations

(Sam Bojarski | Citywire RIA)

Given the potential for conflicts of interest, broker-dealer registered representatives are required by self-regulatory organization FINRA to disclose certain Outside Business Activities (OBAs), with the broker-dealer required to evaluate the activity and assess whether the activity should be limited in order to ensure it doesn't interfere with or otherwise compromise the representative's responsibilities to the broker-dealer and its customers (or be viewed by the public as being part of the broker-dealer's business itself). Representatives are also required to report private securities transactions that the firm is also required to supervise.

Amidst this backdrop, FINRA has proposed a new rule that it says is designed to streamline regulations in these areas and in some ways narrow the scope of existing requirements (e.g., excluding the RIA activities at dually registered affiliates, as well as securities transactions among immediate family members, and more generally to narrow the scope of OBAs that need to be overseen that clearly are not relevant to the broker-dealer's business in the first place).

However, some commenters on the proposal have argued that other parts the new rule could dramatically increase the compliance burden on certain broker-dealers and RIAs (e.g., possibly bringing otherwise independent RIAs under a broker-dealer's oversight when using the broker-dealer for certain transactions, such as using the broker-dealer to 'park' old commission trails when otherwise fully transitioning to the RIA model).

After receiving more than 70 public comment letters since the beginning of the month, FINRA issued a statement to "clarify" its proposal, saying that, under the proposed rule, broker-dealers are not intended to have any additional duties to supervise the OBAs of their representatives. According to the statement, "The proposal does not change the existing obligations regarding unaffiliated investment adviser activity but explicitly asks whether FINRA should reduce or eliminate current obligations for unaffiliated investment adviser activity. In addition, the proposal eliminates such obligations for outside investment adviser activities conducted at a broker-dealer's affiliate." In response to separate concerns that the proposed rule would require associated persons to receive approval from their broker-dealers for certain financial transactions (e.g., buying Bitcoin, insurance, or conducting banking transactions), FINRA said the proposal excludes such personal non-securities-related activities from the rule.

In the end, while the final language of the rule remains to be seen (the comment period on the proposal ended earlier this week), the regulator appears to view it as an opportunity to streamline regulations regarding OBAs and reduce compliance burdens for broker-dealers it oversees (including those with affiliated RIAs), and not as an extension into regulation of unaffiliated RIAs or other firms. Which, if enforced according to its description, would likely be a relief to RIAs (which are already regulated by the SEC) that might have been exposed to additional compliance obligations according to the interpretations of certain commenters on the proposal.

4 Fund Fee Trends To Watch In 2025

(Zachary Evens | Morningstar)

Over the past several decades, investors have benefited from a decline in the fund fees they pay, driven in part by increased competition among fund providers, the growing popularity of passive index-based strategies (that tend to be lower cost than actively managed funds), and the introduction of ETFs, among other reasons. Nevertheless, there still remains significant dispersion of fees across the fund universe, allowing advisors to add value to their clients by finding low-cost options that meet desired portfolio objectives.

According to research from Morningstar, the average fee U.S. fund investors paid in 2024 was 0.34%, down from 0.36% the previous year (representing $5.9 billion in fund expense savings for investors). Part of this result was from investors seeking out less-expensive fund options, with the cheapest 20% of funds adding $930 billion in assets during the year while the remaining 80% of funds saw a combined $254 billion in outflows. Notably, while average ETF fees remained flat in 2024 (at 0.16%), mutual fund fees fell to 0.42% from 0.44% (and down significantly from an average of 0.86% in 2005), perhaps reflecting competitive pressures as well as the increasing number of more active (and, often, more expensive) ETFs that include options-based strategies, public/private vehicles, and other emerging fund types (which might be attractive for fund issuers given the intense price competition for funds applying more passive strategies).

Altogether, investors continue to benefit from lower fund fees, reducing the drag on their investment growth. Further, given the extensive fund universe, advisors can help their clients save additional dollars by seeking out less expensive fund options within a desired category (e.g., funds that track the S&P 500) and determine whether certain higher-fee funds (e.g., those investing in active strategies or in smaller market niches) might provide diversification or other benefits that would still make them appropriate for a client's portfolio.

As Other Fund Fees Fall, Money Market Fund Expenses Come Under Scrutiny

(Jason Zweig | The Wall Street Journal)

While stocks and bonds might make up the majority of many clients' portfolios, advisors will often leave an allocation in 'cash' to provide easy liquidity for client spending needs, planned investment purchases, or other purposes. Advisors often use money market funds for this purpose to allow clients to earn some yield while gaining the liquidity benefits they provide.

Until the increase in interest rates seen in the past few years, money market funds had offered investors very low returns. So low, in fact, that fund managers waived more than $50 billion in fees to prevent their funds from having a negative yield after expenses. However, with rates now at much higher levels, fund companies have been able to charge full fees again, with these fees not reflecting declines seen in other fund categories. For instance, while the average expense ratio for U.S. stock mutual funds have fallen to 0.33% (from 0.54% in 2015), annual expenses at money market funds rose to 0.21% from 0.19% even as the total assets in these funds grew by more than 150% (which is notable, since fund investors typically benefit from economies of scale as fixed costs get spread over a larger pool of assets). One factor driving this trend is the relative dearth of money market ETFs, with some of the first coming online late last year. With early ETF entrants charging annual fees of 0.2%, lower than the 0.51% annual fee for money-market mutual funds available to individual investors (though these ETFs are different than funds in that their prices can fluctuate slightly and don't offer features such as check writing), these funds could become increasingly popular (though some platforms restrict the availability of these early ETFs available to customers in an effort to keep their cash in their own money market funds).

In sum, while investors are currently enjoying yields on money market funds unseen for many years, those that don't compare expenses across funds might experience lower returns than might otherwise be available to them. Which offers an opportunity for advisors to identify the money market funds with the highest net yields (or perhaps consider moving the cash to one of many cash management platforms designed for advisors?), boosting net returns for their clients (particularly those with large cash balances!).

The Secret Fees Behind $9.7 Trillion In Passive ETFs

(Lan Anh Tran | Morningstar)

One of the major themes in fund management over the past several decades has been the shift in investor dollars away from actively managed strategies (where fund managers have discretion over fund investments) and towards passively managed index funds (where the managers are charged with tracking a selected index), in part because of the lower fees typically offered by this latter group.

For companies offering index funds, a key expense (that can be passed on to investors purchasing the fund) is the license for the index itself in order to craft a fund based on the makeup of the particular index. The cost of licensing an index can vary in part based on an index's complexity. For instance, an index that attempts to track the broader universe of large cap stocks is likely to be less expensive than an index tracking specific factors, as constructing the latter index will likely be more challenging. While the universe of index providers is much smaller than the range of fund providers, competition in the space still allows asset managers to select from a range of indexes based on composition and/or price. For investors (and advisors), this competition can be a benefit (as it can lead to reduced fund expense ratios), though it is worth noting that indexes tracking the same category (e.g., small cap stocks) can be different in terms of the included securities and therefore the risk/reward involved (unlike two funds that both track the S&P 500). Which means that when a fund changes index providers, advisors and their clients cannot necessarily assume that the fund will continue to have the same performance characteristics.

Ultimately, the key point is that financial advisors have the opportunity to add value for clients not only by identifying lower-cost funds in the same category, but also by ensuring that the index being tracked for a chosen fund matches the advisor's goals for that part of the asset allocation.

A Guide To Maximizing 529 State Tax Benefits

(Hyunmin Kim | Morningstar)

529 plans offer a tax-efficient means of saving and paying for college expenses. Notably (among other benefits), distributions from 529 plans are Federal income tax- and penalty-free to the extent that they are used for the beneficiary's qualifying education costs. In addition, clients have the option of using the 529 plan sponsored by their home state or choosing one sponsored by another state, potentially weighing the available tax benefits offered by their state against the potential to access wider and/or lower-fee investment options in another state's plan.

State tax benefits vary widely across the country. Nine states (Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio, and Pennsylvania) give their residents the most flexibility by offering tax parity, which means residents can deduct their taxable income on contributions (up to certain limits) made to any plan in the United States (giving clients in these states an incentive to shop around for the best available plan for their needs). Another group of clients who might consider 529 plans outside of their state are those in states with no income tax (as there are no income tax deductions or credits for their state to offer!).

The bulk of states offer income tax deductions to residents for contributions made to the state's 529 plan (with varying limits on the deduction). Another five states (Indiana, Minnesota, Oregon, Utah, and Vermont), though, offer state income tax credits on 529 contributions to their state-sponsored plan. In these cases, advisors could support clients by calculating whether the amount of the available deduction or credit is greater than expense savings (or benefits from expanded fund availability or plan flexibility) that they could get by using an out-of-state 529 plan (which could be based in part on the amount the client plans to contribute).

In sum, advisors have a range of ways to offer value for clients when it comes to saving for education, from identifying the client's state's tax benefits for saving in 529 plans, researching available plans from other states to identify potentially attractive options, and, ultimately, running the numbers to help the client decide which plan (and contribution amount) might be most suitable for their needs!

The Pros And Cons Of 4 Alternatives To 529 Plans For College

(Cheryl Winokur Munk | The Wall Street Journal)

When it comes to education planning, the first option on many advisors' (and clients') minds could be a 529 plan, given their ubiquity and tax benefits. Nevertheless, given the restrictions on the use of funds in these plans (though these are looser than many clients might assume, including the more recently established ability to rollover funds to a Roth IRA, subject to certain conditions), some clients might look to other (perhaps more flexible) options to save for college.

One option is to simply save within a taxable brokerage account. Doing so provides significant flexibility in terms of investment options (as 529 plans typically have a limited pool of investments to choose from and can also come with trading restrictions) as well as the use of the funds in the account (i.e., if a child doesn't end up needing all of the funds in the account, the parents could use it for their own retirement or other purposes without penalty). On the other hand, investing within a taxable brokerage account might not be as tax efficient as using a 529 plan, as the client will owe taxes on investment income and realized capital gains (whereas 529 plans offer tax-free growth and tax-free qualified distributions).

Another option is to use assets in a Roth IRA for education costs. Contributions to Roth IRAs can be withdrawn tax free and parents could also consider receiving tax- and penalty-free withdrawals on earnings if the funds are used for qualified education expenses and if the account has been open for at least five years. Like taxable brokerage accounts, Roth IRAs will likely have access to a broader investment universe and unused funds could be used for non-education purposes. However, given the annual limits on Roth IRA contributions (meaning that they might not be able to 'replace' all of the funds used for education purposes), clients considering this option to fund their child's education will likely want to ensure they have other assets available to support their retirement (in addition, they might be reluctant to give up additional years of tax-free growth of assets in the Roth IRA before they need the assets in retirement!).

Still other clients might consider opening a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account, which are opened by parents for a minor beneficiary. While these can offer investment flexibility, they are counted as student assets for financial aid purposes (which can increase the family's expected contribution more than parent-owned assets) and don't give parents full control over them (as the child can use the assets for any purpose once they reach the age of majority). Finally, clients might tap into a whole life insurance policy by borrowing against the accumulated cash value (which might be an option for those who aggressively fund policies early in a child's life to give the cash value time to grow), though fees and returns (which might be higher and lower, respectively, than available investment options in a brokerage account) associated with these policies (in addition to the accumulated interest from the loan) might make them less attractive than other options.

Altogether, those looking to save for a child's (or grandchild's) college education have a variety of account types to choose from. Which offers an opportunity for advisors to show clients the impact of different options in terms of potential tax savings, investment options, and flexibility (with some clients perhaps choosing to use multiple account types?).

Using A Family Dynasty 529 Plan For Multigenerational College Planning

(Jeff Levine | Nerd's Eye View)

In addition to offering tax- and penalty-free distributions for a beneficiary's qualifying education costs, 529 plans also enjoy a number of unique features that set them apart from other tax-favored accounts, such as an IRA or 401(k), in that there are no annual contribution limits, but rather, a total maximum balance (which varies by state), after which additional contributions are prohibited. However, not only are those maximums quite substantial (often more than $500,000), but individuals can "own" more than one 529 plan account, there is no limit to how large those tax-deferred accounts can grow and, from time to time, both the beneficiary (which can be only one person at any given time) and the account owner can generally be changed…often without any tax consequences. Moreover, in the event that multiple family members have qualified education expenses at the same time, partial transfers of 529 plan assets to a new beneficiary can be made.

Which means that individuals who have both the means and desire can 'overfund' one or more 529 plan accounts (either by making periodic contributions over many years or by a large lump sum contribution), effectively creating a "Dynasty 529 Plan", which can be used to pay for qualified education expenses of not only their children and grandchildren (or any number of qualified members in their extended family), but potentially for multiple generations of family members to come!

Given the potential for perpetual tax-free growth, a Dynasty 529 plan can be an attractive strategy that affluent families can use in order to provide a legacy of education for their family. Advisors, however, must use special care when implementing such a strategy, as there are potential gift tax and Generation-Skipping Transfer Tax (GSTT) implications to navigate, maximum contribution limits to consider, and different features across states (where some states consider changes in ownership a distributable event). Meanwhile, there's also a risk that any number of future events may derail a carefully crafted Dynasty 529 plan, including potential changes in 529 plan transfer rules, the possibility that Congress could decide to make a college education available to everyone at no cost, and the chance that future account owners may decide to simply cash out the plan for their own use (which could be mitigated, however, by creating a trust, which could serve as the account owner).

Ultimately, the key point is that, especially for affluent families, a Dynasty 529 plan can be an effective tool to capitalize on the significant and unique tax benefits and flexibility offered by 529 plans, making them an attractive option for providing legacy educational support for many generations to come.

"Good" Vs "Effective" Advice

(Ben Carlson | A Wealth Of Common Sense)

In the world of personal finance, there are many aphorisms and rules of thumb. Which, while possibly being good advice in general, don't necessarily apply to everyone as specific individuals can have a range of goals, tolerance for risk, and financial capabilities.

For instance, during times of market turbulence, an investor might be advised to "ignore the noise". While this is sensible on the surface (as following financial news daily might be unnecessary for long-term investors who are unlikely to make a change to their portfolio based on the latest headlines), it's almost impossible to avoid market news given its presence on tv and online platforms. Instead, more "effective" advice might be to curate trusted sources of market news and commentary (perhaps one's financial advisor?). Another piece of "good" advice is to save 'X' number of months' worth of expenses in an emergency fund. While each person offering this advice might include a different number of months, more effective advice might be to have an individual assess their needs based on their personal circumstances (e.g., job security, other available assets). Also, advice-givers might have strong opinions about whether to pay down a mortgage early. However, there is likely no universal answer to this question, with more effective advice likely incorporating the individual's mortgage rate, risk tolerance, liquidity needs, and other factors.

Altogether, the difference between "good" and "effective" advice shows the particular value financial advisors offer their clients: rather than getting merely "good" advice from a friend or family member, a client can access more "effective", personalized advice from a financial advisor based on their unique preferences and situation. Which could ultimately lead to better outcomes than following 'standard' advice that they might hear elsewhere.

Build Some More Room For Error Into Your Finances

(Meg Bartelt | Flow Financial Planning)

For many individuals, it's tempting to try to optimize their personal finances, whether it's investing in a way that's expected to generate the highest long-run return (regardless of volatility along the way), minimizing cash holdings to maximize the assets they have invested, or perhaps saving just enough for an upcoming purchase to avoid 'oversaving' money that could have been put to use elsewhere.

While optimization might look attractive on the surface, building in "room for error" can often provide psychological and financial benefits for an individual. For instance, individuals who work in volatile fields or in companies that have significant turnover might build extra cushion into their emergency funds. While these dollars might not earn as much as they would in an investment account (though savings account rates are much more attractive today than they were a few years ago!), being prepared to weather a potential layoff could provide a sense of peace of mind, and financial benefits if it allows the individual to avoid selling assets that have declined in value (a very possible situation if the job loss comes during a recession and market downturn) to support their lifestyle needs while they look for a new job.

"Room for error" can also be built into investment portfolios through asset class diversification. For example, while equities might offer the most attractive long-run returns, bonds can often serve as a helpful ballast during periods of equity market volatility. Which could be useful for individual who might be tempted to sell off their equities during a sharp market downturn or for individuals facing sequence of return risk. Another potential example of incorporating "room for error" is when planning for a large purchase (e.g., a home renovation), where saving more than what might be expected to be needed could help account for (common) cost overruns and leave room for desired (and more expensive) adjustments (with the alternative of possibly being forced to raise cash from investments if additional funds are needed).

In the end, while there is often an 'optimal' answer to a particular financial question (at least on paper), building in "room for error" can provide psychological and financial benefits. For financial advisors, this could mean identifying 'optimizer' clients (or, on the other hand, those who are less risk tolerant) and offering possible ways they might build more 'room for error' into their financial lives (which might be a tough pill for some to swallow in the moment for 'optimizers' but could lead to appreciation down the line if an unexpected contingency comes to pass).

The Downside Of Delayed Gratification

(Jacqueline Rifkin | The Wall Street Journal)

From an early age, people are often told the benefits of delayed gratification (e.g., when it comes to spending money). However, it can sometimes be tempting to delay gratification so long that the 'reward' never comes

Rifkin and her research partners ran a series of experiments testing the effects of delayed gratification, finding that when something is delayed (e.g., waiting to enjoy a particular bottle of wine) it can be hard for individuals to pick a time to actually enjoy it. She refers to these occasions as "specialness spirals": when people decide not to use something it tends to become 'special', and it can be tempting to 'protect' special things and (sometimes perpetually) wait for a slightly better occasion to use it. This tendency can be particularly acute at times of stress, with Rifkin and her research partners finding that while 'self-gifting' can be particularly effective during these periods, people are often actually less likely to do so. For instance, a stressful period at work could be a good time to use a gift certificate for a massage that's been sitting on the counter; however, it could be tempting to convince oneself that there will be a 'better' time to use it in the future (perhaps some undetermined time of less stress or busy-ness?).

In the end, while uncontrolled spending is not necessarily a virtue, perpetually delayed gratification could lead to a less enjoyable life. In the financial planning context, this could arise with accumulator clients who maximize their retirement spending at the cost of their current lifestyle or, at the other end of the spectrum, recent retirees who might have trouble 'flipping the switch' from savings mode to spending mode. Which could allow advisors to add value by helping clients identify these tendencies and show them that they can afford to treat themselves today in a sustainable manner!

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.