Financial Planning

The Treasury Department and the Internal Revenue Service have issued proposed regulations that would make it easier for companies to automatically enroll employees in 401(k) plans at a predefined contribution percentage.

Individuals managing their own assets receive no legal guidance on the standards for prudent investing.Fortunately, they can look to the Uniform Prudent Investor Act for guidelines. The act sets forth standards that govern the investment activities of trustees, and is currently the law in almost every state. While those standards do not apply to individuals managing their own assets, they do provide guidance on what the courts consider prudent investing.

SMHG BUYS 25% STAKE IN IPRO ONESanders Morris Harris Group, a financial services holding company, has acquired a 25 percent ownership interest in iPro One, a company that provides CPA practices with investment systems and products. Terms of the deal were not disclosed. IPro One has exclusive contracts with more than 1,000 CPA firms that provide investment products and services to clients. The company has signed letters of intent to purchase interests in CPA-affiliated advisory firms in several locations with a total of more than $1.5 billion in assets under management.

You’ve undoubtedly heard the term “rebalancing.” It has nothing to do with a highwire act although some in the financial community might say that’s exactly what it is. Rebalancing your portfolio is rather critical and it should be done at least annually so that your financial goals remain intact. I do know that many investors don’t even consider this. In fact, friends and family alike tell me that it’s just too time-consuming and besides, they know little about what it takes to do so. To counter this, I like to offer an example. Here’s one courtesy of my friends at First Investors: Take my friend Fred who has a portfolio of 60 percent domestic stocks and 40 percent bonds. He’s had this for the past five years and now it has an allocation of 69 percent domestic stocks and 31 percent bonds. So, over the five year period, stocks went up by 13.4 percent while bonds increased by 4.5 percent. What does this mean? It means that the portfolio wandered or as they call it in financial circles, “drifted.” So, Fred’s portfolio changed rather dramatically even though he did nothing about it for five years. What this also means is that even what appears to be positive developments can easily toss your entire asset allocation out of balance. This translates to a potential for risk coupled with the fact that your return may not be what you had already envisioned. Therefore, if you’ve had a portfolio just sitting there, you might want to reassess the investment priorities, review the securities, and rebalance if necessary. First of all, conducting an annual review requires you to identify whether any of the changes may require a financial response such as a new investment strategy. This may be true because you may have set up certain financial goals or lifestyle considerations which have now changed. Next, if you knew that every investment in your portfolio would throw off the same return year after year, then what would you need to rebalance? That’s not reality. A portfolio drift such as outlined above, can affect your asset allocation…and all to the negative. Finally, suppose your portfolio does need rebalancing. What can you do? The most cost-efficient way to do this is to change the allocation of future investment contributions. What does that entail? Well, you could continue investing the same amount on a regular basis in an overweighed asset while increasing contributions to underweighted investments until you feel that your target has been reached. Or, you can choose to make a lump-sum investment into the asset class that is underweighted. And, you can always sell existing investments that have become overweighted and use those proceeds to buy shares of assets that are then underweighted. Keep in mind that for the last option, mutual fund investors can usually shift money from one fund to another within a fund group without incurring a sales charge. Of course, you still have to consider any tax consequences. But the bottom line is portfolio maintenance. Don’t be inactive!

Nearly everyone can use lessons in financial literacy, and Dan Iannicola Jr., deputy assistant secretary for the U.S. Treasury Department's financial education office, provided suggestions on how women accountants can educate their clients.

I just reviewed the results of a couples retirement study conducted by TNS Canadian Facts for Scotiabank and was surprised to learn that when it comes to retirement, Canadian couples aged 50 and above simply don’t agree with each other on such important topics as finances and lifestyle. Apparently, according to the study, this lack of consensus comes from too little conversation. (So, what else is new?) The study looked at Canadian couples with at least one partner aged 50 or over and still working. It examined attitudes and planning for post retirement as well as financial and lifestyle priorities. Examples of such priorities include travel, spending time with family and friends, practicing healthy aging, and accommodations. (That last one refers to place of abode.) It also reflects the fact that less than one quarter of respondents claim to have had a thorough discussion with their spouse or partner about all aspects of retirement while 55 percent say they have a rather rough idea of how each other feels. Some 23 percent haven’t discussed it all, or haven’t discussed it as much as they should. (I love that “rough” idea.) In short, the results found that Canadian couples are most out of touch with each other in the areas of financial planning, financial concerns, and their outlook toward retirement. In fact, some 60 percent disagree on the basic question of whether or not they are even looking forward to retirement. (Oh, my, that’s not what I hear from my train buddies who are much younger than me and would retire at the drop of a dime.) Moreover, couples apparently also disagree when it comes to the role that family and friends will play in retirement, with only half agreeing. Surprisingly, in only eight percent of couples are both people primarily interested in spending time with their partner rather than with other family/friends or by themselves. (Ouch!) This Couples Retirement Study was conducted for Scotiabank using TSN Canadian Facts online panel. Respondents for the survey were couples who are married or in a common-law relationship, with at least one partner aged 50 or over, and working full-time. Household investable assets were at least $50,000. Of course, couples do share the same level of concern in their ability to retire comfortably with 65 percent saying that they are very or fairly confident they can do so. A full 44 percent of respondents, however, still do not have a formal financial plan. (Hmmmmm!)

SEC OKS RULE ON DEFERRED VARIABLE ANNUITIESThe Securities and Exchange Commission has approved a rule from the Financial Industry Regulatory Authority that would crack down on abusive sales of deferred variable annuities, particularly to senior citizens.

Life insurance agents and companies have always tried to find ways of making costs paid by business owners tax deductible.The situation became ridiculous a few years ago with outrageous claims about how Sections 419A(f)(5) and (6) of the Internal Revenue Code exempted employers from any tax-deduction limitations. Finally, the Internal Revenue Service put a stop to such egregious misrepresentations in 2002 by issuing regulations and naming such plans as "potentially abusive tax shelters" (or "listed transactions") that needed to be registered and disclosed to the IRS.

Radon Stancil and Rick Parkes own Diversified Estate Services, a financial planning firm, based in Cary, NC. They have been in practice for more than 30 years. They also co-founded the N.C. Educational Institute that was formed to teach continued education to other professionals as well as the public. In short, they are pretty knowledgeable fellows. They have come up with 10 smart financial ideas to help ensure that an individual’s retirement nest egg lasts a lifetime. And, here they are:

The Social Security Administration said monthly benefits would increase 2.3 percent for more than 54 million Americans in 2008.