FPH Insights - April 2017Submitted by Financial Planning Hawaii on June 19th, 2017
April Showers Bring May Flowers. Our Marketing Director spreads aloha wherever she goes.
Announcements, colorful commentary, and useful financial planning tidbits from John H. Robinson
Published…My latest research paper, Determinants of Retirement Portfolio Sustainability and Their Relative Impacts, has been published in the April issue of Journal of Financial Planning. The paper is co-authored with my Nest Egg Guru co-founder, Jack De Jong, Jr. Ph.D., CFA. Jack is an Associate Professor of Finance at Huizenga School of Business at Nova Southeastern University. The paper was a finalist in the Financial Planning Associations annual academic research competition last fall. It is the fourth paper we have published on retirement income sustainability. All of the data in the paper was produced using Nest Egg Guru’s Retirement Spending app.
G Fund Temporarily Closed To New Investments…A number of FPH clients participate in the federal government Thrift Savings Plan (TSP). TSP participants should be aware that the G fund, a popular and entirely unique government guaranteed stable value, fund has suspended new investments into the fund as a result of the federal debt ceiling being reached. The yield on existing assets in the fund as of April 2017 is 2.875%. The rate is calculated monthly, based on the average yield of all U.S. Treasury securities with 4 or more years to maturity. For more on this, see the following article link –
Annual SEC Form ADV Disclosure…Each year, firms that offer investment advisory and/or financial planning services are required to provide plain English disclosure information to all clients. SEC Form ADV Part 1 discloses information about the nature of the firm’s busines and its organizational structure. Parts 2A and 2B (also known as “The Customer Brochure”) provide details about the advisor’s background, education, and experience, potential conflicts of interest, research underpinnings, business services, and other pertinent information. Our updated forms may be found on the ABOUT page of the FPH website under "Service Models, Pricing, and Disclosure".
Password Management...As a reminder, FPH offers all clients free password storage and management through an app called Elevate CDS. The app enables clients to store and easily update an unlimited number of passwords. The app may be accessed through the Client Resources page on the FPH website. Unfortunately, Elevate CDS is not formatted for mobile devices. For mobile password management, you may wish to check out LastPass. I use it on my iPhone and find the touch screen fingerprint ID verification handy to use.
Podcast...This month's "Market Minute," puzzles over investors' weird perceptions of risk and specifically cautions investors about the risk of investing in bonds and bond mutual funds (Length: 5 min, 1 sec).
The Demise of the Financial Planner Has Been Greatly Exaggerated
This column is dedicated to demonstrating how the biggest financial planning mistakes and oversights often have nothing to do with investment selection.
"I was driving down south in an unfamiliar area when my GPS told me to make a right turn. I was on a bridge." - Reader's Digest
Scarcely a day goes by when I don’t see a headline in the mainstream news about the threat of technology to the jobs of American workers. To be sure, advancements in automation and artificial intelligence are disrupting industries from fast food to financial services. The rise of automated investment platforms - so-called “Robo-Advisors” – has caused some observers to ponder whether the financial planning profession may be headed toward extinction too.
While I can definitely see how Robo-platforms may be potentially disruptive to certain segments of the investment management marketplace, to the extent that technology enables people to invest more efficiently and at lower cost, I believe that it should be embraced rather than feared by the planning community. I also find it difficult to envision how technology could ever truly replace a good planner because financial planning is one profession where consumers seem to actually be increasing the value they place on personal guidance and service.
This month’s Catch of the Day features three recent, real-life examples of planning experiences that would be difficult to duplicate through automation or artificial intelligence.
A long-time client recently tried to obtain a home equity loan on her own and was frustrated by misinformation, jargon, and bank bureaucracy. I ultimately, shopped various banks for her, accompanied her to the meetings with the loan officers, and was included on all correspondence with the bank that was ultimately chosen. The end result was a HELOC with a great 3-year rate lock that was in line with her objectives and that minimized her upfront costs.
A client who is over age 70 ½ and maintains a 403(b) plan from a former employer with an insurance company was advised by a customer service rep for the 403(b) that she could take her RMD from her IRA instead. While it is true that IRS permits IRA holders to take RMDs from one or any combinations of IRAs, the same flexibility does not apply to qualified retirement plan accounts, including 403(b)s, 401(k)s, and 457 plans. I obviously caught the mistake, but, had she taken the phone rep's advice, she could have been subject to a 50% excise tax penalty for failing to take her 403(b) RMD.
A 65 year old client who is still working, wanted to transfer a portion of his 401(k) plan to a traditional IRA to gain access to a broader range of investments and to reduce investment costs. The HR director of his company informed him that he could not withdraw money (except as a loan) from his 401(k) plan until he was officially retired or separated from service. However, when I reviewed the Summary Plan Description, I discovered that the plan explicitly permits in-service distributions for employees over age 60.
To the extent that big insurance companies, banks, brokerage firms, credit card companies, government agencies and the like are increasingly inclined to employ either automated response platforms or under-trained phone reps, demand is on the rise for independent, knowledgeable, experienced financial planners who can cut through frustrating institutional bureaucracy, spot mistakes/misinformation and provide reliable, personal guidance. In my albeit biased opinion, this is the dawn of a golden age in financial planning.
Changing the Approach to College Funding Advice (Journal of Financial Planning)
This article throws cold water on the traditional financial planning focus on encouraging clients to save as much as they can to pay for their kids education, and instead encourages planners and their clients to become more savvy about financial aid planning and merit based options. I could not agree more.
10 Common Estate Planning Mistakes (Journal of Financial Planning)
These are all mistakes I have featured in this newsletter before and that I consistently highlight in one-on-one client interactions. They bear repeating.
Social Security Rules for Restricted Applications (The Balance/Dana Anspach, CFP)
If you were born before 1954, and have not yet claimed social security income benefits (including divorced spouse benefits and widow's benefits), you should be aware of the potential benefits of filing a restricted application.
Securities offered through J.W. Cole Financial, Inc. (JWC) member FINRA/SIPC. Advisory services offered through Financial Planning Hawaii and J.W. Cole Advisors, Inc. (JWCA). Financial Planning Hawaii and JWC/JWCA are unaffiliated entities.
Fee-Only Financial planning services are provided through Financial Planning Hawaii, Inc, a separate Registered Investment Advisory firm. Financial Planning Hawaii does not take custody of client assets nor do its advisers take discretionary authority over client accounts.
The information contained herein is general in nature. Neither Financial Planning Hawaii nor J.W. Cole provides client specific tax or legal advice. All readers should consult with their tax and/or legal advisors for such guidance in advance of making investment or financial planning decisions with tax or legal implications.