Already being experienced by consumers and financial planners, it seems that the economic downturn has arrived on the doorstep of the Financial Planning Association as well. In the past week, the FPA national organization has slashed their staff by approximately 12%, and the price of their upcoming conference by over 70%!
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January 2009: The Taxing Complications of Paying for Financial Planning Quiz
Course Review Date:
N/A
Session Description:
In this month’s newsletter, we explore the types of financial planning fees that are and are not deductible, the ways in which fees can be paid and how it affects their deductibility, and some unique tax complications that can arise as financial planning fees are paid. In a separate section at the end of the newsletter, we also cover some recent developments on the 2009 waiver of required minimum distributions and changes to the rules for non-spouse beneficiary rollovers from employer retirement plans in 2010.
Learning Objectives:
LO #1: Explain the technical rules for deducting payments for advice. Be able to identify the three prongs of IRC Section 212 and understand what does and does not qualify as a deductible financial planning-related expense.
LO #2: Identify the three methods in which you can go about allocating payments for advice and discuss when it makes sense to do each of the methods.
LO #3: Describe what the limitations of the deduction are, who is impacted, and why there is no tax downside to claiming the maximum possible fee deduction.
LO #4: Illustrate an understanding of the additional issues regarding retirement accounts, specifically the rules around which accounts can be used to pay for planning fees. Define what a prohibited transaction is.
LO #5: Identify which types of accounts were affected by the waiver of RMDs for 2009 via the Worker, Retiree, and Employer Recovery Act (WRERA) of 2008. Explain how the wavier affects the 5-year rule. Discuss who the wavier will not affect.
Key Terms::
2% of Adjusted Gross Income (AGI) Floor: The 2% rule says a tax-payer is only allowed to deduct the portion of miscellaneous expenses that exceed 2% of their adjusted gross income.
Section 212: IRC code section entitled “Expenses for the Production of Income” and it outlines three subsections that define what is and is not deductible related to financial planning and other services.
Alternative Minimum Tax (AMT): A additional tax placed on certain individuals, corporations, estates, and trusts that may have an exemption or special circumstance, loophole, to avoid taxes on standard income.
Required Minimum Distribution (RMD): This is the minimum amount that one must withdrawal from an IRA, excluding Roth IRAs, each year.
5-year rule: Refers to the rule stipulating that the annuity must be liquidated by the 5th anniversary of the owner’s death.
Qualified plans: These include all types of defined contribution plans (401(k)s, profit-sharing, ect.), as well as 403(b) and governmental 457(b) plans.
Roth IRA: An Individual Retirement Account is a savings vehicle that provides a tax-break. In contrast the to the traditional IRA (tax-deferred growth) the Roth IRA uses after-tax dollars (taxes have already been paid) and then the money grows tax-free is and is tax-free upon withdraw at retirement.
IRA: An Individual Retirement Account is a savings vehicle that provides a tax-break; they provide tax-deferred growth until the assets are withdrawn.
Net Asset Value (NAV): This is the calculation for determining the value of a mutual fund; deduct the fund’s liabilities from its market value and then divide by the number of issued shares.
C-share Mutual Fund: A special type of mutual fund with a level load; often small back-end loads. The loads are generally around 1% and fall off once the mutual fund has been held for a year.
Level of Complexity:
- CFP / IWI (formerly IMCA): Intermediate
- NASBA: Basic
Specialized Knowledge:
- CFP: General Principles of Financial Planning / Investment Planning / Retirement Planning
- NASBA: Specialized Knowledge (Personal Financial Planning)
Recommended CE Hours:
- 1.5 CFP hours
- N/A NASBA hours
Availability:
All self-study courses will be available at least through December 31, 2024.
Live courses are only available for the scheduled date.
All of our courses are reviewed on a yearly basis and renewed or discontinued every December.
For additional information about our programs, click here.
In a message board thread on financial-planning.com, initiated by Harold Evensky, there is an interesting discussion of the fact that apparently State Farm has directed all of their agents to voluntarily relinquish their CFP marks. It appears that an overarching fiduciary standard is "not conductive to [their] business model."
After nearly a decade of ongoing complaints about the poor communication with respect to the CFP Board and changes/initiatives that it launches, it appears the organization, under the guidance of its "new" CEO Kevin Keller, has turned over a new leaf for 2009. Or at least, it's off to a good start.
Noted financial planning writer and commentator Bob Veres has initiated an entry on Change.org, entitled "Fix the financial regulators by imposing a fiduciary standard on all who offer financial advice." Will this be a new way to make the call for fiduciary standards better heard in Washington?Read More...
Under the existing rules for 529 plans, account owners can only make investment selection adjustments once per year (or when there is a change in beneficiaries). Under the new relief just released from the IRS for 2009, 529 plan account owners will now be eligible to make changes... twice.Read More...
Yesterday, President Bush signed into law H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), which included certain provisions designed to suspend so-called Required Minimum Distributions (RMDs) for the upcoming 2009 tax year. But will that really do much to help our clients? Probably not in most cases.Read More...
The results are in for FPA's first ever video competition on "How NOT To Do Financial Planning", and congratulations to Dave and Rob Daline of Minnetonka, MN, for their winning video "Winston the Pug."
Read More...
Continuing the fiduciary financial planning momentum created by the CFP Board's release last year of their updated Standards of Professional Conduct, the FPA has promulgated one of the first formal statements of a "Standard of Care" for the delivery of financial planning services - a step that many consider to be crucial for financial planning to become widely recognized as a profession. But is the planning community really ready to go where this road leads?
Read More...
September 2008: Rethinking Risk Tolerance Quiz
Course Review Date:
October 25, 2018
Kitces Topic Areas:
- General Planning
- Investments
Session Description:
In this month’s newsletter we will explore in greater depth exactly what risk tolerance is and what we’re trying to measure, how it fits in with other aspects of a client’s overall risk profile, and to consider what’s required to truly design a quality measurement of risk tolerance.
Learning Objectives:
LO #1: Describe the current and new risk tolerance paradigms. Differentiate between the two and discuss similarities.
LO #2: Distinguish risk capacity from risk attitude. Explain why it is important to do this under the new risk tolerance paradigm and how it influences portfolio, and goal, creation.
LO #3: Define what risk perception is. Explain how, and why it is constantly changing. Describe how behavioral finance has been incorporated into the world of finance. Define what heuristics is, and identify the common behavioral finance heuristics as they relate to risk perception in particular.
LO #4: Explain how risk attitude, capacity, and perception are integrated with each other to influence a client’s overall risk profile.
LO #5: Identify problems associated with risk tolerance questionnaires, explain how psychometrics can help improve such questionnaires, and discuss alternative approaches to measuring risk tolerance.
LO #6: Illustrate how you can utilize this information to create your client’s risk profile.
Key Terms:
Risk tolerance: This is a conflated measure of a client’s ability to withstand risk.
Risk capacity: This determines how much risk a client can afford to take, how much risk a client would be required to take to achieve the specified goal, and indirectly reveals whether the risk in the portfolio should be driven by a need for risk or by the client’s decision to take more or less.
Risk attitude: This is or could be considered an upper limit of acceptable risk in the portfolio, above which the client’s portfolio should not roam.
Risk perception: This is the wildcard of the client experience. It operates independently of the client’s underlying risk attitude, causing them to potentially misjudge whether the risk they’re actually taking is more or less than they intended.
Heuristic: These are mental short-cuts that individuals use to make decisions faster.
Availability heuristic: When a person uses the most “available”: convenient, easy, most accessible information.
Overconfidence: When a person prefers to credit themselves for success, but not take the same responsibility for failures.
Loss aversion: When a person experiences a loss (loses $10 dollars) then hurts more than it feels good to have a success (find $10 dollars).
Familiarity: When a person prefers to use the information that they are most comfortable with when make a decision. We like when things are familiar.
Recency: When a person weighs more heavily recent events, over older events.
Level of Complexity:
- CFP / IWI (formerly IMCA): Intermediate
- NASBA: Basic
Specialized Knowledge:
- CFP: General Principles of Financial Planning / Investment Planning / Retirement Planning
- NASBA: Specialized Knowledge (Personal Financial Planning)
Recommended CE Hours:
- 1.5 CFP / IWI (formerly IMCA) hours
- 1.5 NASBA hours
- 1.5 IWI General Financial Planning hours
Availability:
All self-study courses will be available at least through December 31, 2024.
Live courses are only available for the scheduled date.
All of our courses are reviewed on a yearly basis and renewed or discontinued every December.
For additional information about our programs, click here.
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