The Small Business Jobs Act of 2010, passed earlier this year on September 27th, opened up the possibility of completing an in-plan Roth conversion rollover from a 401(k) or 403(b) to a Roth 401(k) or Roth 403(b). However, the rules are not quite as simple and flexible as typical Roth conversions, due to the fact that the account is still first and foremost a qualified employer retirement plan. Fortunately, the IRS has issued guidance to help individuals understand the details of the new rules - which is fortunate, because there are some significant differences that could otherwise catch clients (and their planners) unaware!
Secular Bull and Bear Market Cycles – Planning Implications
Although financial planners often rely on long-term averages when making capital market assumptions - whether to design a portfolio or create a retirement plan - there is a growing body of research that makes it clear: not all starting points are the same. Even over time horizons as long as 20-30 years or more, investing in high valuation environments tends to lead to below-average returns (and a notable dearth of results significantly above average), and the reverse is true if valuation is low when the investor begins. While many have written about the investment implications of market valuation, my interest is broader - how would it change our financial planning recommendations, beyond just the portfolio composition?
Key to Financial WellBeing: Money Helps, But It Depends How You Spend It
As sayings go, money can't buy love, and the love of money is the root of all evil. They also say that money can't buy happiness, but some interesting recent research shows that actually, financial wealth levels really do affect happiness. However, it only helps if you spend it on the "right" things, and act up front to head off your irrationality.
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What Are The Assumptions That REALLY Drive Your Client’s Plan?
Any form of long-term projection is built on the back of assumptions. In the case of a retirement plan, there are several key factors, including portfolio composition (and assumed growth rates), inflation rates, savings, retirement spending, time horizon until retirement, and the duration of retirement. Yet the reality is that not all of these assumptions have equal impact; some are far more dramatic drivers of plan results than others, and which are most important varies by the client situation. In other words, there are assumptions, and there are ASSUMPTIONS! Have you ever examined the sensitivity of your client's financial plan to the assumptions they're using, so you can determine which factors are the most important to focus upon?
Clients Won’t Trust (A Plan) If They Can’t Take It For A Test Drive
In today's skeptical and cynical world, we believe little that we read or are told until we have a chance to try it for ourselves. The car looks great in the magazine, but we have to take it for a test drive. The TV is supposed to be great, but we want to see how the image looks on the screen in the store before we buy. Yet as planners when we deliver financial plans to our clients, we don't just fail to give them a test drive; we actually make it onerous to even try!
The Highly Inefficient Market… Of Advisor Education
In theory, the efficient market is supposed to reward the business that create products and services that improve the lives of their customers, while businesses that create harmful or ineffective solutions generate no income and cease to exist. Industries where the marketplace is too inefficient, and/or where bad products and services can result in public harm, receive some type of regulation to ensure the public good. Given the remarkably inefficient nature of marketplace for advisor education, perhaps it's time for some sort of oversight there, too? :/
Style Box Drift – Maybe Not Such a Bad Thing After All?
In the traditional investment world, it is considered crucial for an active investment manager to stick to their style box. After all, if the manager "drifts" from small cap to large cap, the investor may suddenly find themselves with an under-allocation to small cap, and an excess of large cap, violating their goal of maintaining a well diversified portfolio. Yet there is a growing recognition that for many mutual funds, constraint to a style box may be eliminating the very value that active management was intended to achieve!
Is "Save For Decades, Then Quickly Double Your Money And Retire" Your (Unintentional) Retirement Advice!?
If there's one thing that has remained certain in this decade of difficulty, it's the gold standard advice for retirement planning: save a healthy amount of your income, start young, invest steadily, and you'll be able to retire when you want to and enjoy the standard of living you hoped and dreamed for.
Yet the reality is that this model of retirement planning advice excellence is actually far more speculative than we have ever acknowledged, and might be better summed up as: "Save for decades, build a base, and then in the last few years, quickly double up your wealth with investment growth and retire happily." We'd never say that to our clients... yet in truth, that's exactly what we have been recommending all along!
Difficult Investment Clients? It’s Not Their Risk Tolerance, It’s Their Risk (Mis-) Perceptions
Most planners have struggled at times to deal with "difficult" clients. Sometimes it's the client who says he's really tolerant of risk and wants 30% returns... until the decline comes. Other times it's the client who refuses to tolerate any risk whatsoever... yet laments the low returns that entails. Accordingly, most planners try to avoid working with clients at the extremes of risk tolerance (or lack thereof). But the truth is, these challenging clients usually do not really have extreme levels of risk (in-)tolerance... instead, the problem is actually with their risk perceptions, and it requires a different solution.
Is The Internet Changing The Value Of Financial Planning?
The members of Generation X and Gen Y have had a unique collective experience, including growing up in the age of computers and (especially for Gen Y) with immersive exposure to the internet and the information resources it provides. Questions that might have required a trip to the library or an Encyclopedia Brittanica can be answered in a 10-second Google search. So if clients can look up a financial question in a few moments on the internet, where does that leave the value of financial planning?
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