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Maximizing The Value Of Public Service Loan Forgiveness (PSLF) By Minimizing Debt Repayment

October 9, 2019 08:06 am 15 Comments CATEGORY: Debt & Liabilities

In an effort to make college more accessible to low-income students, the Public Service Loan Forgiveness (PSLF) program was created in 2007 with the intent of offering tax-free forgiveness of certain student loan debt for borrowers working in qualifying government or non-profit jobs for at least ten years. However, in the decade-plus since, the scope of the program has expanded as the skyrocketing cost of education has left record levels of college graduates with a debt load that is very difficult (or outright impossible) for them to repay, leaving PSLF as an appealing route for them to eliminate their student loan debt as well as work towards other financial goals.

Yet, the requirements to qualify for PSLF are fairly stringent, and in this guest post, Ryan Frailich, founder of Deliberate Finances (a fee-only financial planning practice that specializes in working with couples in their 30’s), discusses the rules around PSLF, PSLF’s unique advantages (and disadvantages), and the opportunities that financial advisors have to help clients minimize overall payments by managing their annual Adjusted Gross Income (AGI).

To qualify, PSLF candidates must work full-time for a qualifying government or non-profit employer and have Direct Federal loans (which can include Direct Subsidized, Direct Unsubsidized, Direct PLUS, or Direct Consolidation loans). The borrower must also be in one of four “Income-Driven Repayment” plans, consisting of Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), or Income-Contingent Repayment (ICR) plans, which all calculate monthly loan payments based on the borrower’s AGI. Thus, rather than having fixed payment obligations determined by loan term, balance, and interest rate, a student loan borrower’s payments will adjust in step with their AGI instead.

And because these PSLF-qualified income-driven repayment plans depend on AGI, financial planners have the opportunity to help borrowers minimize payments by reducing AGI in every manner possible… to maximize the value of forgiveness at the end of the 10-year repayment term. While every client’s situation is unique, some common strategies include: using Married Filing Separately (MFS) instead of MFJ as a tax status for married borrowers, maximizing qualified retirement account contributions, and utilizing employee benefits to offset W-2 wages of the borrower pursuing PSLF. Accordingly, these (and other) strategies can offer significant savings to the borrower in the long-term by reducing debt obligations that would otherwise be much higher under a standard repayment plan (and all without necessarily reducing overall income!).

PSLF has significant advantages over other programs for Federal student loan forgiveness. For income-driven repayment plans, the time to loan forgiveness is generally 20 to 25 years (versus the much shorter 10-year PSLF requirement), so the borrower who qualifies for PSLF will pay less in total student loan interest along the way. Additionally, the amount forgiven by other Federal student loan repayment plans is counted as taxable income, unlike the tax-free forgiveness offered by PSLF. Which means that, because many borrowers on income-driven repayment plans have loans negatively amortizing (i.e., the loan balance grows each month), without PSLF they may end up with debt forgiveness that is multiples more than the debt originally taken out, resulting in a tax burden that can negate much of the impact of loan forgiveness in the first place.

Ultimately, the key point is that the PSLF program can be an effective tool for borrowers managing overwhelming student loan debt, and because loan payments qualifying for PSLF can change dynamically based on income (versus a fixed monthly payment based on initial loan balance and interest rate), financial planners can help clients maximize the amount of the loan ultimately forgiven by using strategies to minimize AGI every year during the loan repayment years… which, for some borrowers, can equate to hundreds of thousands of dollars in savings (assuming all PSLF requirements are met)!

#FASuccess Ep 145: Systematizing Reviews Of Client Tax Returns By Building Software To Automate Them, with Roger Pine

October 8, 2019 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 145th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Roger Pine. Roger is the co-founder of Holistiplan, a new kind of tax planning software for advisors built to systematize and automate the process of reviewing a client's tax return to find the potential planning opportunities.

What's unique about Roger, though, is that he previously spent 10 years as a financial advisor in an independent advisory firm where he taught himself computer programming on the side implementing custom technology improvements for his own firm, before deciding to shift into becoming a full-time FinTech entrepreneur himself.

In this episode, we talk in-depth about the Holistiplan software that Roger developed. From leveraging optical character recognition to scan all the relevant information from an entire tax return PDF in just seconds, to converting that information into relevant tax observations about the client's tax bracket, phased-out deductions or tax credits, and the eligibility for tax preference contributions to retirement accounts, to the forward-looking tax planning tools that Holistiplan is now building to identify the client's true marginal tax bracket, taking into account all the phase-ins and phase-outs to make better forward-looking tax recommendations.

We also talk about the ever-blurring line between where a CPA's tax services end and a financial advisor's begin, the dynamics of trying to balance providing tax guidance and not unwittingly competing against potential CPA referral sources, and why Roger views Holistiplan's tax analyses as only the beginning of developing a comprehensive expert system that helps financial advisors craft more consistent recommendations across the full spectrum of the financial planning body of knowledge.

And be certain to listen to the end, where Roger shares his own journey and what it's like to transition from being a financial advisor to an advisor tech entrepreneur. Why he ultimately decided to take the leap despite being on a partnership and succession track in his current advisory firm, and his suggestions on what other advisors can do if they too see an opportunity to develop advisor technology solutions to fill the gaps in today's marketplace.

So whether you're interested in learning about the process behind taking an idea for an application and actually bringing it to market, lessons Roger learned when transitioning out of the advisory business and launching a startup, or about his goal to advance the financial planning profession by helping develop "normative practices", then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (October 2019)

October 7, 2019 07:22 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the October 2019 issue of the Latest in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month's edition kicks off with the news that a new startup RIA custodian called Altruist is entering the fray to compete against the existing incumbents, leading with next-generation digital tools for portfolio reporting and management overlaid onto a modern RIA custodian so much less expensive to operate that it will provide all trades commission-free… only to witness a total collapse of trading commissions at multiple RIA custodians, as Schwab decides to set the price of trading at zero for the broader market of online discount brokers, forcing most competitors to follow almost immediately (and almost immediately undermining the cost differentiator that Altruist was launching with?).

From there, the latest highlights also take a look at a number of other interesting advisor technology announcements, including:

Fidelity partners with Ethic Investing to bring a direct-indexing-style ESG solution to its RIAs
Orion fully integrates its ASTRO direct indexing solution into Eclipse for firms that want to implement it themselves
Morningstar launches its own ‘financial planning lite’ solution dubbed Goal Bridge for brokers using its Advisor Workstation platform
Holistiplan wins the XY Planning Network FinTech competition with a new tax planning software that digitally reads tax return PDFs and identifies the planning opportunities automatically
CFP Board changes the rules to permit some (client-relevant) technology content to become eligible for CFP CE credit

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including RIA compliance provider SmartRIA acquiring GreyTwist and ComplianceHero to round out its cybersecurity and website/social media/email archiving capabilities, WiserAdviser buying out the OG digital lead generation platform Paladin Registry, Investopedia Advisor Insights shutting down its advisor platform, Zoe Financial raising $3M of capital to scale up its lead generation service, and Wealthfront catapulting to $20B of ‘assets’ but with most of its growth in its new non-managed cash offering (which may not be growing Wealthfront’s revenue, but could shave a whopping $100M to $200M of profits off competing banks and brokerage firms!) as the battle for cash gets increasingly active.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Oct 5-6)

October 4, 2019 02:54 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of news stories spurred by Interactive Brokers' announcement that it was cutting its trading commissions on all US stocks and ETFs to zero, which in turn spawned announcements from Schwab doing the same just two business days later, TD Ameritrade price-matching Schwab at zero just hours after that, E-Trade cutting their trading commissions to zero the next day... and Fidelity notably deciding to hold firm (albeit at just $4.95/trade), and suggesting that it may be better to hold firm on pricing if it keeps Fidelity's revenue up to be able to provide advisors better service as well!

From there, we have a few articles on hiring and leveraging associate advisor talent in your advisory firm, from a discussion about the benefits of delegating (both to free up your time, and give your team more opportunities to excel and rise to the occasion), tips on how to pick the right/best successor for your firm, why associate advisor compensation actually declined in the latest benchmarking study despite an ongoing talent shortage (hint: advisory firms are so desperate that they're hiring those with less experience and less talent... and then paying them less in the process), and some good suggestions on what to ask (and what you may not ask) when interviewing a prospective associate advisor!

We wrap up with three interesting articles, all around the theme of gratitude and sharing (and accepting praise for) our good deeds: the first explores why it's important to learn to accept compliments with gratitude and not just brush them off saying "It was nothing"; the second delves into the research on "virtue signaling" and when/whether it's good to show off your own good deeds; and the last explores what you should actually do to accept a compliment with grace (and make the person giving the compliment feel appreciated for having done so!), including and especially when the compliment is from yourself!

Enjoy the 'light' reading!

Highlights Of The 2019 FinTech Competition Finalists At XYPN LIVE

October 3, 2019 07:06 am 1 Comment CATEGORY: Conferences

Last month, XY Planning Network held its fourth Annual FinTech Competition in the Union Station Hotel in St. Louis, Missouri. Each year, the FinTech Competition showcases software providers serving financial planners that are startup companies with either $1 million or less in revenue, or that have been in business for less than one year.

In this guest post, Bill Winterberg – financial technology consultant and founder of the tech blog FPPad.com – provides a recap of each finalist’s fintech presentation demo, which included a range of tools and services for financial planners, from tax planning and college financial aid planning software, to commission-free custody services and client survey software.

Bill kicks off with highlights from Holistiplan’s presentation on their innovative tax planning software, and how it can take a client’s entire tax return, digitize the data, and produce a client-friendly detailed report in less than a minute. The company aims to fill an important gap with its fintech offering by serving the large majority of financial advisors (estimated at over 90%!) who may collect tax documents from clients but have no tax planning software used in their businesses to support the analysis of all that tax information.

From there, additional XYPN FinTech Competition highlights, in the order of presentation, include:

Altruist (commission-free RIA custody services), which bills itself as a “commission-free digital custodian” providing a low-cost option for financial advisors to manage and report on their clients’ accounts held across traditional custodians, including account aggregation tools for outside investment accounts. Advisors can create custom reports with an option to set up a client-facing dashboard for clients to access and view their reports. Portfolio rebalancing tools also help the advisor manage and submit trades, and include automatic rebalancing features, trading of fractional shares, as well as commission-free trading.
Knudge (client engagement software) offers financial advisors a tool to help their clients stay on track with shared to-do lists. The software integrates with CRM systems, and lets advisors send custom reminders to their clients to keep them on track with given tasks they need to accomplish to achieve their financial planning goals. Clients can access their ‘nudges’ either through email or phone app.
College Aid Pro (college financial aid planning) offers software tools that help advisors guide their clients through the process of evaluating and selecting undergraduate colleges as well as the financial aid options available to attend each school. The software also creates custom reports that show details such as anticipated college expenses, grant and scholarship availability, and projections of anticipated earnings after graduation.
Anvil Foundry (form-filling document automation) aims to streamline the (digital) completion of routine paperwork in a financial planner’s daily workflow, including tasks such as opening new accounts and onboarding new clients (and simultaneously populating that data into other technology systems the advisory firm uses).
NEXA Insights (client survey software) provides a client survey tool that helps advisors create customized surveys helping them identify and track client trends, as well as assess client feedback in relation to other firms also using NEXA. The ultimate goal of the software is to provide information that will help advisors increase engagement and enhance the value-add offered to their clients.

After all finalists presented, a panel of judges – including Michael Kitces, guest-post author Bill Winterberg, and Robert Sofia (co-founder of Snappy Kraken and winner of the 2016 XY Planning Annual FinTech Competition) – named Holistiplan the 2019 winner of the competition for its easy-to-use analysis tools, and for providing a much-needed tax analysis option for use by financial planners. The judges also awarded an Honorable Mention to College Aid Pro for tackling the challenge faced by millions of students annually of evaluating undergraduate institutions and financial aid for families.

The Fifth Annual FinTech Competition will take place on October 12, 2020, at next year’s XYPN Live conference in Denver, Colorado.

Splitting Pensions In A Divorce: Shared Payment Vs. Shared Interest QDROs

October 2, 2019 07:46 am 3 Comments CATEGORY: Retirement Planning

Over the last few decades, divorces among couples over age 50 have been increasing dramatically, even though the overall US divorce rate has decreased, giving rise to the phenomenon known as “grey divorce.” Which means that, given the fact that older couples have had decades to accumulate shared assets, splitting those assets between divorcees can be a thorny situation, and one that has become a common issue that financial planners have to address. As while splitting IRA accounts is relatively straightforward, ERISA-qualified plans, which include defined contribution 401(k) and defined benefit pension plans, can be much more complicated to divide.

For instance, when ERISA-qualified plans are split, they require a formal document, known as a Qualified Domestic Relations Order (QDRO), in order to be divided. A QDRO identifies the Plan Participant and Alternate Payee (the former spouse receiving a benefit via the QDRO), how the benefit will be divided, and the amount of time or number of payments for which the QDRO will be in effect. For defined benefit plans, in particular, the QDRO also determines whether the plan will be divided using either the “Shared Payment” or “Separate Interest” method. For defined benefit pension plans, both forms of QDRO methods address the question, “How much will I get/give?”, but the “Separate Interest” method gives the Alternate Payee additional flexibility in terms of “How?” the benefits they receive under the plan will be paid.

Specifically, the Shared Payment QDRO is based on the Participant’s retirement date and life expectancy, and the ex-spouse Alternate Payee’s benefits will generally begin and end at the same time they do for the Participant. Furthermore, in the event the Participant dies before beginning to receive benefits under the plan, the Alternate Payee won’t receive any benefits unless a Qualified Pre-Retirement Survivor Annuity (QPSA), guaranteeing survivorship benefits, is created by the QDRO. Thus, the Shared Payment QDRO can lead to some serious planning challenges for the Alternate Payee, should the Participant die first. However, if the Alternate Payee dies first after pension benefits begin, their share of the benefit will often shift back to the Participant.

On the other hand, a Separate Interest QDRO splits the plan balance between the Participant and Alternate Payee, before payments have begun. This gives both the Participant and the Alternate Payee control over how their share of plan benefits will be paid and eliminates the Alternate Payee’s risk of payments ending upon the Participant’s death.

Ultimately, the key point is that a QDRO offers some flexibility in planning strategies for both the Participant and the Alternate Payee. While the Shared Payment method must be used if the Participant has already begun payments when the QDRO is implemented, either the Shared Payment or Separate Interest strategy can be chosen if the QDRO is implemented before pension benefits begin. These choices allow for more flexible planning for both parties, possibly lowering at least one hurdle for older couples who choose to divorce.