Nerd's Eye View blog

IRS Revamps Schedule D, Introduces New Form 8949 For 2011 Tax Reporting

February 21, 2012 04:10 pm 5 Comments CATEGORY: Taxes

On October 3, 2008, then-President Bush signed into law the Emergency Economic Stabilization Act of 2008. Although it was widely known as the "bailout" bill - it was the legislation that authorized the Treasury Secretary to use $700 billion under the Troubled Asset Relief Program (TARP) - the legislation also contained a number of measures to help bring in additional revenue to the Federal government.

Amongst those provisions was the establishment of a new requirement for financial intermediaries to track and report cost basis on securities transactions to the IRS on an updated Form 1099-B, to better ensure that taxpayers properly their gains and losses on investments and pay taxes as appropriate, and the new rules took effect for stocks that were purchased in 2011. Over the long run, the new rules will make it easier for clients to track the cost basis for most of their investments, simplifying reporting and preparing returns during tax season.

However, in the near term, the introduction of cost basis reporting brings new complexities and challenges to manage. To help support taxpayers through this process, the IRS has revamped Schedule D, and introduced the new Form 8949 - which may have to be done three times for many individuals! - for reporting capital gains and losses for the 2011 tax year.

Do Your Retired Clients Really Experience Annual Inflation?

February 20, 2012 03:01 pm 4 Comments CATEGORY: Retirement Planning

The long-term impact of inflation is a fundamental risk for retirees; a 60-year-old retired couple loses 50% of their purchasing power by age 85 at a mere 3% inflation rate. To plan for this, retirement projections typically assume an annual inflation adjustment, as does the research on safe withdrawal rates and sustainable retirement income. Yet many planners are quick to point out that no clients called the office on January 1st, 2012 to request their monthly distributions be adjusted from $3,000/month to $3,090/month to reflect the 3.0% increase in CPI in 2012. In fact, most clients rarely request to adjust their ongoing portfolio distributions more than once every several years. Does that mean retired clients don't really experience ongoing annual inflation? Or is the reality that they just handle it some other way?Read More...

Weekend Reading for Financial Planners (Feb 18-19)

February 17, 2012 08:27 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an interesting discussion by Morningstar about the challenges of evaluating tactical investment managers, an article by Bob Veres with tips on resources when starting a practice and outsourcing solutions, and an article by Joel Bruckenstein about a new integrated cloud solution for advisory firms. We also highlight some compliance-related articles for RIAs tying to the slew of new rules and regulations impacting investment advisors this year thanks to Dodd-Frank, a summary of the Rydex|SGI AdvisorBenchmarking study, and some tips to deal with the tax treatment of client investments in gold. We wrap up with Mauldin's weekly investment article - this week continuing his discussion of the decisions facing the US and how much impact the president and elections do or don't have on the outcome, an intriguing look from Oaktree Capital chairman Howard Marks at the challenging realities of assessing performance records, and a piece by Moshe Milevsky about "Gompertz' Law" and the mathematics of mortality assumptions. Enjoy the reading!

Have Financial Advisors Gotten Off Track With Client Vaults?

February 16, 2012 02:30 pm 14 Comments CATEGORY: Client Trust & Communication

Once upon a time, the purpose of a client vault was to use it like a vault. It would store important client documents to be accessible if/when needed. It was designed to be the digital equivalent of a safety deposit box in your local bank's vault. But at some point over the past several years, we began to shift, and the client vault became not only the place we store the files we access rarely, but the ones we access regularly. Advisors increasingly made it the centerpiece of their efforts to securely share files and collaborate with clients. Yet in reality, this is quite impractical. Just as you don't regularly go to your local bank vault to constantly move things in-and-out of your safety deposit box, so too do we need to stop using our digital data vault like a collaborate file sharing tool. Just as going regularly to your bank every time you need to check on something would be a huge hassle and a negative experience, so too is using the data vault as a collaboration tool a negative client experience. It's time for a better alternative.

How Do You Create A More Collaborative Office Culture? Upgrade Your Tribe.

February 15, 2012 02:32 pm 1 Comment CATEGORY: Practice Management

In an ideal world, everyone in your office would selflessly collaborate together in pursuit of the common goal to serve clients and ensure the success of the firm. In reality, though, your staff and co-workers probably run the gamut, from people who are really focused on the team and the good of the firm, to those focused just on themselves, to those who don't seem particularly motivated to do much of anything at all. The latter, in particular, can be the most frustrating when mixed in with an otherwise proactive and motivated team. But new research suggests that surprisingly, if you want to upgrade the demotivated team members and make your office "tribe" more collaborative, the key first step is actually to try to make those individuals more interested in just selfishly helping themselves!Read More...

Comment Letter on the CFP Board's Proposed Changes Regarding Bankruptcy

February 14, 2012 03:09 pm 7 Comments CATEGORY: Planning Profession

On January 18, the CFP Board issued proposed changes to its process for addressing bankruptcies of CFP professionals and candidates for certification. Under the current rules, CFP certificants and candidates who experience a single bankruptcy are subject to a hearing by the Disciplinary and Ethics Commission, which may result in disciplinary action including a private letter of censure, suspension, or revocation of the marks. Under the proposed rules, the disciplinary process would be eliminated, and replaced with a disclosure process that would require CFP certificants who experience a single bankruptcy to have such bankruptcy publicly disclosed on the CFP Board's website for a period of 10 years, but no longer otherwise be subject to discipline or restrictions regarding the CFP marks. The comment period for the proposed changes ends on Friday, February 17th, and in today's blog post I share my own comment letter feedback to the rule.Read More...

Are Black Swans Just A Short-Term Distraction?

February 13, 2012 03:34 pm 7 Comments CATEGORY: Investments

One of the most common criticisms to the use of Monte Carlo in financial planning is its typical assumption that investment returns are normally distributed, when in reality the market appears to go through environments that may be more volatile than a normal distribution would predict, as highlighted by the events of the financial crisis. In the last four months of 2008 alone, the market experienced 20 high-volatility trading days with a standard deviation varying from 3.5 to almost 10... each of which should not have occurred more frequently than once per millenia to once per several billion years. Yet when we look at those returns on an annual basis, we see a very different picture - the one-year decline to the bottom in March of 2009 was a "mere" 2.5 standard deviation event, which is uncommon but entirely probable under a normal distribution. Which raises the question - are "black swans" just a short-term phenomenon that average out by the end of the year, and are we focusing too much on impossibly rare black swans instead of the rare-but-entirely-probable 2 standard deviation decline?Read More...

Weekend Reading for Financial Planners (Feb 11-12)

February 10, 2012 07:14 pm 0 Comments CATEGORY: Weekend Reading

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

February 9, 2012 03:38 pm 7 Comments CATEGORY: Retirement Planning

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

February 8, 2012 02:25 pm 15 Comments CATEGORY: Planning Profession

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.