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Don't miss this month's timely story ideas, direct dial phone numbers, and E-mail addresses of these accessible experts! • Mortgage Planning Offers Advisors an Essential Value-Added Service and Branding Opportunity. • Mutual Fund Managed Accounts Unburden the Investor - A Major Factor in Their Continuing Growth. • ALERT
from FOREFIELD, INC. * Media May Subscribe to Free, In-Depth, Financial Education Resources from Forefield. INVESTMENTS AND WEALTH MANAGEMENT • Tools to Protect Assets III (See September and November Trends for Tools I and II). • Find Out Who’s Paying Whom from The Statement of Additional Information – Brokerage Commissions Unwound. • Advice for Widow Needed Even When Spouse Made Good Estate Planning Decisions. • Year End Gifts: Front-loaded 529 College Savings Plans • Hidden Values Complicate Estate Planning. • Gifts to Help Children Through Graduate School May be Transformed into Smart Loans With Careful Planning. • 2004
Resolution: •Long Term Care Policies May Downplay Inflation Risk.
Mortgage Planning Offers Advisors an Essential Value-Added Service and Branding Opportunity. The competition is intensifying as more advisors buy into the concept of creating comprehensive financial advisory relationships with clients vs. simply pushing products. In order to compete and thrive in this environment, advisors must continue to differentiate themselves from their competition while creating unique value that clients cannot find elsewhere. This process could mean adding or repackaging new services with those they already provide and creating a unique “brand” for themselves. To this end, the single most promising service that can be added to an advisory practice is mortgage planning. Home mortgages comprise the single largest debt and monthly expense of most of an advisor’s clients, so it makes sense to help clients integrate their largest debt with their overall financial plan. After all, home equity affects the client’s estate plan, the mortgage interest deductions affect the client’s tax plan, and the monthly payments affect the client’s cash flow, savings and investment plan. If a client needs an estate, tax and investment plan, why should the advisor neglect to implement a mortgage plan that touches all three of these areas simultaneously? By adding a mortgage planning arm to an advisory practice, advisors can uniquely position themselves and create a unique brand in their marketplace as a full service “financial concierge”. Gibran Nicholas, Nicholas & Co., Ann Arbor, MI, gibran@nicholascity.com, 734-531-0180, is a mortgage broker specializing in consulting to financial advisors about adding mortgage planning to their practices. His two-hour program “The Mortgage Planning Arm of Your Advisory Practice” is approved for two continuing-education credits for CFPs.
Mutual Fund Managed Accounts Unburden the Investor - A Major Factor in Their Continuing Growth. Inflows are up in mutual fund managed account products and there is a reason. Managed accounts, created by third-party organizations and sold through financial institutions, make it possible for the investment representatives to sell objective, independent advice. Constructed by firms whose livelihood depends on the quality of their products, mutual fund managed accounts unburden investors in the following ways: * There are no commission issues because financial consultants
discussing a mutual fund managed account receive no financial incentive
to choose one fund company over another. A good managed account provider stays arms length from the mutual fund management. They use publicly available data and documents to evaluate the fund company, eliminating the opportunity to be swayed by personal relationships. This distance allows the managed account provider to remove funds for many reasons, including: * Failure of the fund to maintain its objectives as stated in the
prospectus. Investors want and need confidence in their investment choices. Mutual fund managed accounts release them from the burden of decision making so they may invest with the true knowledge that their investments are being carefully monitored to ensure that their investments continue to fulfill the investor's investment objectives For a list of twelve factors considered when due diligence is provided by a mutual fund managed account provider, send an e-mail with "Twelve Factors" in the subject line.
To reach Tim Clift, V.P. for Investments, FundQuest,
Boston, call Joanna Flynn at 617-526-7307. FundQuest is the leading
provider of customized Web-based managed account platforms for financial
institutions interested in moving their representatives from commission-based
to fee-based product sales.
Claiming Disaster-Related Casualty Losses Can Provide Relief to Affected Taxpayers. Typically, casualty losses are deductible for federal income ta1x purposes only in the year in which the casualty occurs. However, an exception exists for losses that occur in areas that are subsequently declared federal disaster areas by the President, for example the areas of southern California recently struck by wildfires (including Los Angeles, San Bernardino, San Diego, and Ventura counties). Taxpayers who incur a casualty loss in a Presidential Disaster Area have the option of treating their entire loss as having happened in the year prior to the disaster (or, they can claim their loss in the tax year the loss actually occurred). By electing to treat their loss as having occurred in the prior year, taxpayers are eligible to receive an earlier refund. However, individual taxpayers generally have to reduce their casualty
losses by 10% of their adjusted gross income. So, taxpayers who had
high income in the year prior to the disaster but who expect to have
lower income in the current year may want to wait to claim their
loss until they file their tax return for the current year. However,
this means that any refund a taxpayer is entitled to will be delayed.
By contrast, taxpayers who expect to have roughly similar incomes
in the prior year and current year may want to claim their loss right
away (by filing an amended return for the prior year) in order to be eligible
to receive an earlier refund. Jim Walsh, Forefield, Inc., Marlboro, Mass. jwalsh@forefield.com, 508-630-1125. Forefield is the foremost provider of real-time sales, education, and presentation solutions for financial institutions and their advisors. Forefield's web-based solutions facilitate the communication of client-centric financial planning knowledge and advice that is current, concise, and compliant. Both members of the media and financial advisors may sign up for a 45-day free trial to FMA Advisor, at http://www.forefield.com/trial.
Media May Subscribe to Free, In-Depth, Financial Education Resources. Members of the media may contact Forefield.com to receive full time access to Forefield's educational resources on financial planning topics. If it's a financial topic that a client would ask a financial planner about, Forefield has a written explanation, many with illustrations, in their web-based , client-centric financial planning and advice product. Forefield's information is current, concise, compliant, and available to the media at no cost. Simply e-mail William Davenport at wdavenport@forefield.com to be included on the permanent subscription list and you will receive your complementary password shortly.
INVESTMENTS AND WEALTH MANAGEMENT Tools to Protect Assets III (See September and November Trends for Tools I and II) Asset Commitment
is the most important component of an active management investment
model. The legendary Brinson, Beebower, Hood study from the early
90s concluded that over 90% of portfolio returns are determined
by asset allocation -- making it more important
to be exposed to the stock market than the stocks in which you
are invested. So, the question becomes, if asset allocation is
the most important factor in investing success, why do so many
investment advisors spend no time whatsoever on asset allocation? These asset commitment indicators play a vital role in the distinction between a conservative portfolio and a growth portfolio. For more aggressive clients, it makes sense to invest in the market earlier and remain invested longer than for more conservative clients. In contrast, all of an active manager's asset commitment indicators must be positive before risking conservative clients’ assets to the stock market. Asset commitment indicators to determine equity allocation are the heart of the investment decision making process. As with the PMFM, Inc. Market Environment Indicators, the Asset Commitment Indicators are also updated and explained every two weeks in the "Hands On" section at www.401ktoolbox.com website, and the indicators are monitored daily for "Manage It For Me" clients – employees with contracts allowing PMFM, Inc., to manage their company’s 401(k) assets for them. PMFM, Inc.
principals are Tim Chapman and Don Beasley, with offices just outside Athens,
Georgia. Jud Doherty, CFA, manages the marketing and distribution of 401k Toolbox,
a service that provides discretionary management as part of its advice product.
PMFM provides money management services for its own clients, for the asset held
by plan participants in their 401(k) plans, as well as for the clients of other
asset managers. The firm has always offered a tactical asset allocation strategy
and has a lengthy history of good risk-adjusted performance, preserving the value
of client accounts over the difficult last four years. Tim Chapman,
800-222-7636, timchapman@pmfm.com, www.401ktoolbox.com
Find Out Who’s Paying Whom from The Statement of Additional Information – Brokerage Commissions Unwound. Mutual fund brokerage commission expenses — the third largest category of mutual fund costs after sales loads and management fees — are seldom disclosed to investors. Brokerage commissions, ostensibly confined to the costs of the fund manager’s purchases and sales of fund investments, are often expanded to cover the purchase of analyst research and data services that benefit other areas of the mutual fund firm’s business. Through commission expenses, the ivestor becomes a source of financing for the firm’s broader business model. But unlike the firm’s other sources of financing, such as its friendly banker, your money is provided free of charge and is subject to a usage fee borne by you. All for the privilege of helping the firm become more profitable and you, the investor, less profitable... As the investing year draws to a close and you convene your financial advisor for a state-of-the-state portfolio review, make it a point to explore this hidden cost and its impact on your “stated” portfolio returns. For each fund in your portfolio, ask your advisor to review with you the level of the fund’s brokerage commissions and the real return on your fund investment, i.e. the dollars the fund put into your pocket after paying commission expenses. By the way, in case your advisor needs to know, a mutual fund’s brokerage commission expenses can be found in the “Statement of Additional Information,” a document that must be specifically requested from the mutual fund firm. Paula Chauncey, CFA, Managing Partner, être llc, 617-716-0257 works with individuals, and their closely held businesses, to develop and execute wealth-building strategies. pchauncey@etrellc.com.
Advice for Widow Needed Even When Spouse Made Good Estate Planning Decisions. Mrs. Gilbert was 54 when her husband died. Surprisingly, age 56 is the average age of widowhood in the U.S. Mrs. Gilbert’s husband knew he was dying from a short-term illness. Mr. Gilbert set up a Trust to cover college education for his children, and he properly filled out the beneficiary forms for his IRA and retirement plan to benefit his wife, signed his will and had it notarized. But Mr. Gilbert had always handled the family’s finances. Despite Mr.
Gilbert's preparation, Mrs. Gilbert’s attorney helped her select a financial
advisor who could implement the financial plan and help Mrs. Gilbert once the
assets were solely her responsibility. Her goals were to maintain her current
lifestyle, find additional current income, make the college tuition payments,
and not have to worry about retirement. • Working with the attorney to Settle any outstanding issues or debts of
the estate Women of any age must take an active role in understanding financial matters. You never know when you will need to take over the management of the family’s assets.
Year End
Gifts: Front-loaded 529 College Savings Plans. When the gift giving rules for 529 Plans were developed, Congress specifically provided a set of rules that allows people to gift substantial amounts into a 529 Plan gift tax-free. Under current federal tax law each person is allowed to make gifts, each year, to as many people (related or not) as they like, in an amount up to $11,000 free of any gift tax. Married couples can join together to double this per person gift of an annual $22,000 to as many people as they like. In an effort to help families begin the college savings process, Section 529 allows for the “front-end loading” of a 529 College Savings Plan Account. The rules allow for the contribution of five (5) years worth of annual gifts (or some portion of it) all at one time. This way parents and grandparents can place as much as $55,000 into a 529 Plan Account all at once (or for married couples, double the amount to $110,000). Whether making small gifts into a 529 Plan Account instead of a Christmas toy, or for those with larger estates, making substantial gifts into a 529 Plan Account, now is the time to use the annual gift tax free amounts before the year comes to a close. Richard A. Feigenbaum, J.D., 529 Consultant, Wellesley, Mass., co-author of "The 529 College Savings Plan", Second Edition, is a highly expert speaker and writer on the subject of funding for college and the nuances of the myriad 529 plans. An estate planning attorney, Feigenbaum offers a third-party resource for institutions and their registered investment advisors who need broad-based information to make the right 529 recommendations to clients. He can be reached raf@529consulting.com or 781-263-0090.
Hidden Values Complicate Estate Planning A couple in their eighties with uncertain health were shocked at the complications caused to their estate planning when they discovered that their property in Florida, a second home owned for nearly 60 years, was worth multiple millions. This late-in-life financial issue emerged when they visited a tax attorney at the urging of their financial advisor to discuss their estate tax issues. He fknew at least $400,000 in cash would be required to settle their estate under the next year's tax code. The Florida house had always been their winter retreat and they gave little attention to its growing value. The four children expressed an even split on preferences about what should happen. Two voted for keeping the property and two would prefer the distributions from a sale, furthering the dilemma for their parents who have an upcoming cash flow problem. In reality, the parents who perceived themselves to be comfortable in their late retirement years, now needed to make a joint decision about the tax implications of a property with huge value. It is critically important that both parents participate in the decision making process about this asset. A time of deep grief is the worst time to try to make a major decision involving emotions and a large illiquid asset. Because this dilemma is so much more an issue of feelings and emotions, than numbers, resolving it before the death of one parent is highly recommended. Henry I. Montgomery, CFP -- Planners Financial Services, Inc., 952-835-9000. Minneapolis, Minnesota. Registered investment adviser and subsidiary company Montgomery Investment Management, specialize in the management of no-load mutual fund portfolios for individuals and retirement plans designed to protect capital by reducing risk. pfshim@usinternet.com.
Gifts to Help Children Through Graduate School May be Transformed into Smart Loans With Careful Planning. John and Mary are retired, in their mid-60s and doing fine. Thanks to their financial advisor, they are meeting their income needs from pensions and investment portfolios. While their income is adequate to meet their needs, they are not in a position to gift assets to their grown single daughter who is struggling financially regarding her mortgage payment while she is in graduate school. She is a graduate assistant, has a part-time job in addition, and is paying tuition from savings. John and Mary currently find themselves in the position of having to pay their daughter's mortgage ($1100 a month on an $80,000 mortgage) and have done so since she began graduate school last year. Horan suggested that John and Mary go about helping her out in a different way. Horan suggested that they take an $80,000 home equity line from their primary residence (worth about $500,000). This gives them the option of how they will help their daughter regarding her mortgage. John & Mary can either pay off their daughter’s mortgage (in essence making a gift which can be offset by their unified credit) or enter into a loan agreement with the daughter so a completed gift does not occur. Horan suggested that they loan the daughter $80,000 at 4.5% with a balloon payment of principal and interest in five years. In five years the daughter can refinance her house through a lending institution to pay her parents back (assuming she graduates and has a good job by then) or the parents can forgive the loan (resulting in a taxable gift, again offset by their unified credit). Regardless of how John & Mary handle the gift or loan scenario, they are significantly reducing the amount of money needed to pay their daughters mortgage payment. In order for John to make a mortgage payment of $1100 dollars a month, he would need to generate$1,642.00 to take into account the impact of taxes (Federal 28% + 5% net state tax.) If he took out a home equity line of credit, his payment will be $829 before tax ($80,000 loan at 4.5% interest at a ten year amortization rate) and, because interest on home equity debt is tax deductible, his after-tax monthly payment would be $733. When you subtract John's monthly, after-tax equity line payment from the monthly cost of what he would have to generate before tax to service his daughter's mortgage, John and Mary save $908 per month or $10,899 annually. This smart loan strategy substantially improves the parents bottom line while still allowing them to help their child. Patrick J. Horan, CFP™, ChFC, is the founder and managing partner of Horan & Associates Financial Advisors, Ltd., providing asset management and financial planning for executives and closely-held business owners through management of wealth accumulation and wealth preservation with minimal tax consequences. Worth Magazine recognized Horan & Associates in 2001 as one of the “Top 250 Financial Advisers in America” for the third consecutive year. He can be reached at 800-592-7534 or path@horan-associates.com, www.horan-associates.com
2004 Resolution: " I Will Take the Time to Better Manage My Paycheck." Many people misunderstand
the power of their paycheck as a financial planning mechanism.
In fact, the paycheck offers you many opportunities to manage your
money better, and a paycheck calculator to help you do the simple
calculations you need is available at http://www.paycheckcity.com.
For example: * Retirement planning: * Life event planning: * Voluntary Deductions planning: * Cafeteria Plans: PaycheckCity.com offers unequalled employee self-service tools for paycheck management. The FREE PERSONAL FINANCE CALCULATORS at this site are used by individuals and organizations of every size to quickly and accurately answer paycheck-related questions and to compute paychecks under a variety of circumstances. Over a million page views take place each month on the PaycheckCity.com site and visitors stay an average of 10 minutes each. It is the most visited site for payroll-related support on the Internet. Contact Jon Bohnert, jon@paycheckcity.com, 480-596-1500 x. 103.
Long Term Care Policies May Downplay Inflation Risk. Inflation protection increases the daily benefit of a LTCI policy by 5%/year, and most carriers offer a simple or compound option. This expensive option, which at today's prices often doubles or triples policy cost, may not adequately protect consumers. The reason is projected increases in long-term care costs. The November issue of Consumer Reports pointed out that the Center for Medicare and Medicaid Services projects nursing home costs will rise 5.6% each year for the next four years. Then it projects that from 2008 to 2011 the rates will rise 5.9% each year. If these projections are accurate, they make the inflation rate of 5% a year on LTCI policies inadequate. The implication is that even consumers who have purchased long term care insurance policies may find a shortfall in funding. Here's an example. A 50-year old buys an LTC policy with a $200 daily benefit including 5% compound inflation protection. At age 70, his daily benefit increases to $506 a day. If, however, the actual cost of long term care has increased by 5.6%, he is facing care costs of $594 a day. Assuming he does not have a claim until age 80, the shortfall is even worse. His policy will pay $824 a day, and his costs are projected to be $1054 a day. His policy shortfall is 22% of the cost of care. There are two other things to be concerned about: Periodic inflation check-ups of your LTCI policy are necessary - to make sure the policy is keeping up with your local cost of care. Marilee Driscoll, President, Long Term Care Learning Institute, (508) 641-9393, Plymouth, Mass., www.ltc123.com, author of "The Complete Idiot's Guide to Long Term Care Planning," is the nation's leading consumer authority on strategies to pay for long term care. She is President of the Long Term Care Learning Institute.
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