Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an interesting interview with Geoff Davey of FinaMetrica about risk tolerance, some practice management issues on how economies of scale impact the client experience and moving your technology to the cloud, and a few articles exploring the big recent news from the Department of Labor regarding both finalized rules on 401(k) fee disclosure and new proposed rules about how (primarily immediate and longevity) annuities might be integrated into qualified plans. There's also an interesting look by John Mauldin at some of the economic difficulties and choices the US faces in the coming years, and a fascinating look at the problems the US faces (and some of the causes that got us to where we are) by the brilliant Woody Brock. We finish with a controversial article by Blaine Aiken of Fi360 suggesting that advisors aren't true professionals because they need a code of professional conduct similar to accountants, and a lighter piece by Angie Herbers about why a lack of confidence is not a career death knell but simply a challenge to overcome. Enjoy the reading!
Congress Fires Warning Shot At Stretch IRAs, Threatens 5-Year Rule For All
The "stretch IRA" is a popular estate planning strategy, where the (typically non-spouse) beneficiary of the IRA stretches out required minimum distributions over his/her life expectancy; with a young beneficiary, such as a child or even grandchild, this can result in decades of tax deferral for a large portion of an inherited IRA.
However, the planning technique may soon come to an end. As a part of the "Highway Investment, Job Creation and Economic Growth Act of 2012" to reauthorize and replenish the Highway Trust Fund for interstate highway projects, Senate Finance Committee Chairman Max Baucus (D-Mont.) has proposed a provision that would require inherited IRAs to be distributed within 5 years of the original owner's death, eliminating the ability to stretch. If passed, the new rules would take effect for all deaths that occur beginning in 2013.
While the legislation - and the amendment to require IRAs to be liquidated within 5 years after death - is still just proposed at this point, and may not ultimately pass in its current form, the fact that an elimination of the stretch IRA rules was on the table at all suggests that the window may soon close on this particular planning technique.Read More...
AICPA PFP: The “Other” World Of Financial Planners
Last month witnessed the national conference for the Personal Financial Planning section of the AICPA – a world of CPA financial planners that have lived a relatively separate existence from “the rest” of the financial planning world. They have their own membership association (the Personal Financial Planning {PFP} section of the AICPA) with its own member benefits, their own professional designation (the Personal Financial Specialist {PFS}), and as just noted, their own national financial planning conference.
Yet CPA financial planners are a rising force in financial planning… and at some point in the next few years, will have to make a decision about whether or how they will engage with “the rest” of the financial planning world.
Looming Mortgage G-Fee Increase Puts Time Pressure On Mortgage Decisions
In December, Congress passed the Temporary Payroll Tax Cut Continuation Act of 2011, which extended the 2 percentage point payroll tax "holiday" of 2011 into the first two months of 2012. However, to offset the nearly $20 billion cost of the payroll tax cut extension (along with a few other provisions), Congress adjusted the so-called guarantee fee charged by Fannie Mae, Freddie Mac, and the FHA, mandating that the fee must rise by at least 10 basis points. The new g-fee increase is set to apply beginning on April 1, 2012 (no fooling!), and its effects are already being felt as borrowers look to set 45- and 60-day rate lock guarantees on current purchases and refinances. The net impact to clients: if there's a purchase or refinance being considered, it could be worth many thousands of dollars to get the loan done as soon as possible.Read More...
It’s Not About The Risk Of A Black Swan, But How You Plan For It
Since the turmoil of the financial crisis in 2008, financial planners have become increasingly obsessed about so-called "black swan" and "fat tail" events. As we witnessed one "impossibly rare" volatile day after another that fall, the fact that financial planning models its uncertainty using Monte Carlo analysis with normal distributions suddenly became not a virtue, but a liability. Yet for most clients, who don't invest with leverage, even a black swan event does not result in immediate destitution, but merely sets them on an unsustainable path that must be adjusted in the years that follow to prevent a subsequent depletion of assets. Which means in reality, it's not about more accurately modeling the probability of a black swan... it's about having a plan for dealing with it when the time comes.Read More...
Weekend Reading for Financial Planners (Feb 4-5)
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a new research piece in the Journal of Financial Planning on dynamic asset allocation and itwo innovative new financial planning software offerings. There's also a good practice management piece by Angie Herbers, and two strong (but not particularly bullish) investment pieces by Mauldin and Hussman. We wrap up with a light piece about how quickly the world is changing, and that the key to success in business in the future is about "learning as fast as the world is changing." Enjoy the reading!Read More...
Are Financial Planning and Financial Counseling Different Disciplines?
Financial planning has long struggled with the criticism that it serves only a limited subset of the relatively affluent, and has failed to develop business models that deliver financial planning to the wide swath of "average" Americans with more limited income and resources. Yet at the same time, the reality is that our education as financial planners does not really effectively prepare us for the kinds of "financial counseling" knowledge and skills required to serve those with less income and fewer assets. Which raises the question: is that simply because financial planning hasn't grown far enough, or is the reality that the financial planning body of knowledge is separate and distinct from the kind of "counseling" knowledge needed to help people through the basics of navigating our financial system, from credit cards to credit reports to checking accounts to the use of public agencies? Or perhaps stated more broadly, is financial planning for the mass affluent and wealthy a different discipline than financial counseling for those of more limited means?Read More...
The Many Facets of The Fiduciary Standard and Practical Regulation
In recent years, the financial planning profession has been focused on the development of a fiduciary standard for financial advice, to protect the public from the harm done by those who claim to act in their clients’ best interests but actually make recommendations to benefit themselves. However, the reality is that the recent challenges of fiduciary have extended beyond just the delivery of financial advice; since the financial crisis of 2008, the issue has also extended to the duty that Wall Street investment banks owed to those they sold securities to (even when the company “knew” the investments were dogs at best, or at worst actually bet again their customers for profit). Other fiduciary concerns that preceded the financial crisis have also been highlighted in recent years, such as the obligation of investment managers to vote the proxies for stocks they hold in the interests of shareholders. The good news in all of this is that the public backlash against a wide range of damages the financial system and corporations have inflicted upon the public is raising the focus on fiduciary simultaneously across multiple channels. The bad news is that the fact the fiduciary is so wide in scope appears to be making it extremely difficult to implement with practical regulation.Read More...
The Best 3 Financial Planning Conferences Of 2012
Continuing education is a fundamental principle of being a professional. In fact, Competence is one of the 7 core principles in the CFP Code of Ethics and Professional responsibility, which includes both attaining and maintaining an adequate level of knowledge to serve clients. Unfortunately, though, it’s often the case that continuing education is not much more than checking off the box to receive credit for sitting through a session, regardless of whether the professional really learned anything. Well, in the spirit seeking out continuing education that actually teaches you something, here are my recommendations for the top 3 financial planning conferences in 2012 that are worth the investment and might actually teach you something new.Read More...
Is Our Financial Planning Software Improving Our Productivity, Or Destroying It?
Financial planning is hard work. It's hard work for the clients, who must spend far more time than they are accustomed in the process of digging through their personal financial lives and their goals. It's also hard work for the financial planner, who invests an incredible amount of time into the process of creating a financial plan for the client, entering client data into financial planning software, "crunching" the numbers, and then crafting a written plan to explain and justify the results and the associated recommendations. Yet as planning software becomes increasingly more complex, we are approaching a difficult crossroads: the depth of the planning software requires more and more time to do the analysis, and necessitates more and more written detail to support the software output. As a result, the planning process itself drags out, taking hours and hours to create a plan and weeks and weeks to deliver recommendations to clients. But when did the complexity of financial planning software begin to drive the planning process, instead of being a tool to expedite it? Has our financial planning software become the enemy that's ruining our productivity, instead of improving it? Read More...
