Nerd's Eye View blog

IRS Issues Guidance For New 3.8% Medicare Tax On Net Investment Income

December 19, 2012 12:01 pm 16 Comments CATEGORY: Taxes

In early December, the IRS and Treasury issued a series of Proposed Regulations for the two new Medicare taxes scheduled to begin on January 1, 2013 - the 3.8% Medicare tax on unearned income (generally, a 3.8% surtax on net investment income), and the 0.9% Medicare tax on earned income (i.e., wages and self-employment income), applied to "high income" individuals above certain thresholds. Although the new rules are still proposed and may ultimately be amended or changed, the Treasury and IRS nonetheless indicated that they can be relied upon by taxpayers. However, given the limited time to cultivate these regulations - including addressing potential loopholes - the rules did indicate that taxpayers should not try to read between the lines to find loopholes in the proposed regulations, and that the IRS will closely review transactions that manipulate net investment income to eliminate Medicare tax exposure.

While there were no huge surprises in the guidance, it does provide important clarification on a wide range of issues that planners and their clients must contend with heading into 2013, including how the Medicare tax rules interact with other parts of the tax code, and serves as a reminder to complete any last minute capital gains harvesting that high-income clients may wish to engage in before 2013 begins (including a special opportunity for Charitable Remainder Trusts!)!

Why Every Financial Planner With A Blog Needs A Google+ Page, Now

December 17, 2012 12:03 pm 12 Comments CATEGORY: Marketing

As consumers increasingly turn to the internet for information about potential products, the ability of a company and its products to turn up at the top of search engine results is increasingly crucial for success and growth - leading to an explosion of consultants that will help companies with their "Search Engine Optimization" (SEO) to ensure that their products and services come up first. A similar process occurs when consumers search for information about services and people to work with, although the process is more complicated due to the fact that many experts may appear prominently on lots of sites, not all of which are necessarily tied to their business.

To better understand not just where influential content is, but the influential people who create it, Google has begun to develop a new system for its search engines to track authors and determine who's influential, called "AuthorRank", which is intended to supplement the "PageRank" algorithms it uses to identify and rank influential websites and content. The upshot of this change is that for the first time ever, financial planners and other service professionals will be able to start establishing their own online "webutation" as they tie content they have produced to their personal profile and business, regardless of where it is published. The caveat, though, is that Google accomplishes "Google Authorship" tracking by having authors tie their content and websites to a specific Google+ profile - which means any financial planners that produce a blog or other content who hadn't already established a Google+ profile need to go create one, now!

Weekend Reading for Financial Planners (Dec 15-16)

December 14, 2012 07:02 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition is a technology extravaganza! We start off with a writeup of Financial Planning magazine's 2012 Tech Survey, and Bill Winterberg's picks for 2012's "Best Tech for Advisors" from Morningstar Advisor. From there, we look to a number of recent technology developments, including whether advisors should jump on board with Windows 8, how advisors can get their own privately branded "app" for mobile devices, a new online site for advisors to search for new jobs and contact prospective firms privately and anonymous, how investment custodians are evolving to meet rising technology demands from RIAs, and a discussion of why more advisors should look to conduct online meetings with clients. We also have a look at the rising trend of email fraud (where thieves pretend to be clients to convince the advisor to transfer money), and an interview with David Drucker and Joel Bruckenstein regarding their upcoming new book about technology tools for advisors. We wrap up with two interesting articles: one that looks at the only 5 things you need on your website to communicate with clients (and a suggestion that you should trim the fat off your website to focus on those items), and the other providing a neat list of statistics for financial advisors about use and adoption of social media by both advisors and their clients. Enjoy the reading!

MailBag: Solo 401(k) Contributions For S Corps And End-Of-Year Rebalancing To Harvest Capital Gains

December 13, 2012 07:34 pm 0 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's mailbag, we look at two recent inquiries: 1) when do employee "salary deferral" contributions have to be made for a solo 401(k) where the business is an S corporation; and 2) is it a good idea to split end-of-year rebalancing trades to trigger the gains this year but the losses next year (even if it means you're out of the markets for a few days).

The Emerging Next Generation Of Investment-Only Variable Annuities (IOVA) – An Asset Location Tool?

December 12, 2012 12:06 pm 13 Comments CATEGORY: Annuities

For the past 40 years, variable annuities have been on a rollercoaster, where the popularity of various features and benefits rise and fall as the contracts shift and adapt to the then-current environment. In the early years, variable annuities were popular for tax-deferred investing as top tax rates of the time were 70%, and remained popular in subsequent years as the burgeoning bull market made equity investing more appealing overall, even as tax rates declined. As the 2000s approached, variable annuity companies innovated, creating a wave of so-called "living benefit" riders that included GMIBs and GMWBs, to make variable annuities appealing to the coming onslaught of baby boomer retirees. Unfortunately, though, with the financial crisis, living benefit riders became far less appealing - old contracts forced annuity companies to raise reserves, and new contracts experienced a significant cost increase as annuity companies struggled to hedge and manage risk in a more volatile post-crisis environment.

As a result, annuity companies are now entering a new wave of innovation - where variable annuities are bolstered by more innovate active management and alternative investment strategies, and the annuity itself is used as a tax shelter for these rather tax-inefficient investments, at a drastically lower cost than the annuities of recent years. Whether this new line of investment-only variable annuity (IOVA) contracts will catch on remains to be seen, but the potential is for variable annuities to become a major part of portfolio design in the future - where the variable annuity becomes an asset location tool and clients can voluntarily choose how much of their most tax-inefficient investments will be sheltered by tax deferral.

CFP Certification, Financial Planning, and Fiduciary: Doing Versus Being

December 10, 2012 12:01 pm 5 Comments CATEGORY: Planning Profession

As financial planning continues its march towards being a recognized profession, a fundamental tenet is that it must hold itself to a fiduciary standard - just as is required of every other profession that functions in the public's interest in a position of expert trust. Five years ago, the CFP Board took that step with its adoption of a fiduciary standard for CFP certificants who deliver financial planning, declaring that doing financial planning (or even just material elements of financial planning) would trigger the standard. Nonetheless, by attaching the fiduciary standard to doing financial planning, the CFP Board's standard also implies that there are situations where a CFP certificant may not be subject to the fiduciary standard - and this "loophole" has recently come under heavy criticism. Although in practice the loophole may be a fairly narrow one - how common is it really for someone to spend years and thousands of dollars to study and obtain a CFP certification only to not deliver any actual financial planning whatsoever? - it nonetheless raise the question: is it time for the CFP Board to take the next step forward, and advance the fiduciary standard from applying when one is DOING financial planning, and instead simply attach it to BEING a Certified Financial Planning professional in the first place?

Weekend Reading for Financial Planners (Dec 8-9)

December 7, 2012 07:30 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a few big industry news items, including NAPFA's decision to restrict membership to only CFP certificants, the CFP Board's decision to NOT implement the proposed CE changes put forth earlier in the year, and a look at the SEC's announcements of what it intends to focus on next year - which still includes a uniform fiduciary standard for advisers and brokers. From there, we look at a number of additional articles about industry developments, including a review of the coming financial services reforms in the UK that will take effect in 2013 (and how it may become a template for future reform here in the US), an advisor who was ordered to pay $1.8M and may become barred from the industry BECAUSE he bought and held certain ETFs for his clients, an update from Investment Advisor magazine about whether the CFP Board's public awareness campaign is having any results, and a continuing discussion from Bob Veres about the industry's attempts to define who is a "real" financial planner. We wrap up with a few more offbeat articles, including a striking marketing discussion from Stephen Wershing that points out how a good brand should actually repel more prospects than it attracts, a review of election statistics guru Nate Silver's book and how it may be relevant for advisors, a look at how conflicts of interest are creating problems in dentistry despite the fact they generally are "fee-only" providers of services to their patients, and a discussion from financial planner Carl Richards about why financial planners should themselves be hiring financial planners. Enjoy the reading!

How To Handle A Long-Term Care Insurance Rate Increase

December 5, 2012 12:03 pm 19 Comments CATEGORY: Insurance

As the long-term care insurance industry continues to struggle in today's low interest rate environment, a growing number of clients who bought long-term care insurance in the past are getting notifications of premium increases - and often they're very significant increases, even from major companies like GenWorth, John Hancock, Prudential, and MetLife.

While the LTC rate increase may be a shock, though, the reality is that in many cases the coverage is still cheaper than it would be to buy the policy anew in today's marketplace - which essentially means that even with the premium increase, continuing the LTC coverage can be a pretty good deal. Nonetheless, in some situations the premium increase makes the insurance unaffordable, which forces them to decide how to modify and reduce the coverage to maintain the original premiums. When such reductions are necessary, most clients should choose to reduce the benefit period, and older clients may reduce the rate on the inflation rider as well; most clients will probably want to avoid reducing the daily benefit amount.

The good news, at least, is that given how much more expensive LTC insurance is in the current marketplace, it's drastically less likely there will be premium increases on today's new policies. Nonetheless, it's still necessary to properly deal with and navigate the rate increases that are occurring on coverage purchased years ago.Read More...

Is The Financial Planning Succession Crisis Just A Mirage?

December 3, 2012 12:02 pm 6 Comments CATEGORY: Practice Management

As the wave of baby boomer advisors move closer and closer to retiring, so too is the pressure building for a wave of selling of financial planning practices. Yet the reality is that the retirement wave may not be nearly as large as anticipated - in part because difficult markets have left many advisors behind on their retirement savings (not unlike so many other baby boomers!), but more significantly because many advisors enjoy doing financial planning and feel capable of continuing to do it even in their later years! The latter is especially true if the practice can be transitioned to a somewhat lighter load with fewer staff and management responsibilities; a so-called "lifestyle" practice.

Unfortunately, though, advisors planning to continue a lifestyle practice and "die with their boots on" face another problem: how to capture the value of the business when a death or disability event really does remove them from the picture. Fortunately, new options are beginning to emerge - from acquiring firms that will take over the ownership and management responsibilities and just let advisors live a lifestyle practice within a larger firm, to firms that are beginning to offer contingent purchase agreements tied to outsourcing platforms that will allow them to buy the business if/when/as needed but not before. Given the new choices emerging, does that mean when we finally reach the point where advisors are supposed to retire, we'll find it's nothing more than a mirage? Is there really a near-term succession planning crisis looming for advisors, or just a distant exit planning problem?

Weekend Reading for Financial Planners (Dec 1-2)

November 30, 2012 07:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a negative review of President Obama's decision to appoint Elisse Walter as a replacement for SEC Chair Mary Schapiro. From there, we look at a number of practice management and career related articles, including a discussion of how the ranks of dually registered advisors are growing ever faster than pure RIAs, some tips from Sallie Krawcheck for new advisors, a review of the rising trend of ETF asset managers, a look at some of the little things you can do to help build trust with a new client, how Google AuthorRank is changing the face of Search Engine Optimization, and a discussion of survey results from Bob Veres about the greatest fears of financial advisors in today's environment. From there, we have two more technical articles, including a discussion of the tax rules for Master Limited Partnerships (MLPs), and a response from Laurence Siegel to the rather economically forboding article last week by Jeremy Grantham. We wrap up with two more offbeat articles: one suggesting that the primary reason clients have trouble saving for retirement is that their brains physiologically think of their retired selves like a stranger; and the other that there's an important difference between persuading and convincing, with the implication that we as planners may focus too much on the latter. Enjoy the reading!