Message from CFP Board

-Eleanor Blayney, CFP^® Consumer Advocate, CFP Board

Ah summer: that lazy, hazy, middle-of-the-year lull. Most of the fiscal stresses that come with the start or the end of a year – budgets, funding deadlines, tax requirements – seem less urgent during the dog days of summer, and for a month or two, we can take an easy “no neckties, no nylons, no problems” approach to life.

But what better time to think about our personal finances than when we don’t really have to? We still have months, not just days, to make good on the financial resolutions we made in January. We have some summer space to be leisurely and deliberate about our financial management, which usually produces far better results than the usual scrambling at year-end to tie up our financial loose ends.

In keeping with the relaxed pace of summer, how about setting aside a day for financial self-care – a day of basking in information and self-assessment that will leave you financially refreshed and toned? Turn off the phone and turn on the air conditioner and spend a long summer’s day on yourself. Following are some financial treatments for you to consider. Don’t worry if some of them seem like year-end-only activities. These work just as well now as later – in fact, they’ll work even better.

• Prepare or update your balance sheet. List all your assets, by title and type of holding (cash, fixed income, stock, retirement, non-retirement). List all your liabilities (mortgage, credit card debt, auto or personal loans). Compare your current net worth (assets minus liabilities to your net worth in years past. Have you gained ground toward your financial goals?
• Review your balance sheet with a view to asset protection. What assets do you own or have recently acquired that may need insurance coverage (think real estate, autos, boats, personal property)?
• While you are thinking about insurance, review the declaration pages on your life, disability, homeowner’s, long term care, and health care policies. Don’t have one of these coverages? Which ones do you need? Who can you call to review and/or update your coverages? Make the appropriate appointments now.
• Prepare an annual cash flow statement, using records of your pay stubs and bank statements. Are you seeing excess cash that could be invested or saved? Are you seeing a cash shortfall? How can this shortfall be addressed?
• Review all non-retirement investment accounts. Determine if any holdings have short-term or long-term capital losses. If yes, consider selling these holdings and either replacing them immediately with a similar but not identical holding or waiting 30 days to buy back the holding you have sold.
• Review all non-retirement investment accounts. Determine if any holdings have short-term or long-term capital losses. If yes, consider selling these holdings and either replacing them immediately with a similar but not identical holding or waiting 30 days to buy back the holding you have sold.
• Add up those losses you can realize. Check last year’s tax return to see if you have any loss carry forwards, and add this amount to the loss total. Use this “allowance” against any unrealized gains you may have in holdings that you may wish to get rid of, or need to trim back for purposes of rebalancing the portfolio back to target allocations.
• Determine what sales and purchases are needed to rebalance all your investment accounts (both taxable and non-taxable) back to target allocations. Plan on executing those transactions before year end.
• Do a tax projection or make an appointment to have a tax projection done for you by your accountant. If you have low to no or even negative taxable income (a possibility even among the very wealthy), ask your accountant for ways to realize income. Some suggestions: converting a portion of your IRA account to a ROTH IRA; if over 59 ½ years, taking a taxable IRA distribution rather than withdrawing money from other accounts; selling appreciated securities that you had planned to sell at some point in the near future.
• If your tax projection shows that you will have a relatively large liability due in April, take action now: change your payroll withholdings, and/or plan on making additional estimated federal and state tax payments by year end.
• Get out your estate-planning documents, and your list of retirement plan beneficiaries. Have you named contingent beneficiaries as well as primaries? Do you have advanced directives for medical care and end-of-life wishes? Read over your will and trust documents and see if your plans still make sense. Do you understand what will happen in the event of your death? Has anything changed in your life that should be reflected in your documents (the birth or death of a family member, change in state residence, change in marital status)?
• Determine if you have any unspent balances in your cafeteria plan and makes plans to use this balance before year-end.
• Fund your IRAs and Keogh plans now instead of waiting till April.
• Fund your Health Savings Accounts now instead of at year end.
• Make charitable gifts now. If planning on giving more than $1000 to any one charity, consider giving an appreciated security (select the one that is most highly appreciated.) Get in touch with the charity for instructions as to how to transfer this security to the organization. If you did not necessarily want to get rid of that security, use other cash to replace what you have given away.
• Fund your children’s 529 plans.
• If wishing to make gifts to family members of more than $13,000 per recipient, plan on dividing the gift between this year and next. (For example, you give half the gift now, and the other half on January 1st). You are allowed to give up to $13,000 per recipient each year without having to report the gift for gift tax purposes. If you are married, you can split the gift with your spouse, thereby giving up to $26,000 each year to each donee. Be sure to let your accountant know that you have made these gifts.

Finally, here’s the best, most self-caring activity of all:

• Make an appointment with a CFP^® professional to help you with your financial management. By choosing an individual who holds the CFP^® marks, you can be confident that the professional is qualified by examination, experience, and commitment to ethical standards to put your financial needs first. Go to www.cfp.net to learn more.

Top News Stories

Planners Step Up Fiduciary-Standard Push
Wall Street Journal (07/15/09) McNamara, Kristen

U.S. financial planning groups including Certified Financial Planner Board of Standards are stepping up their push to require financial advisers of all types to put clients' interests first. Several financial planning, consumer protection, and state regulatory groups sent a letter to two U.S. House representatives on July 14 expressing concern about an aspect of proposed legislation the Treasury Department sent to Congress earlier in the month. Knut Rostad, chairman of the fiduciary committee and the regulatory and compliance officer at investment advisory firm Rembert Pendleton Jackson, says investors aren't necessarily clear on the distinctions between stockbrokers, who are held to a so-called suitability standard, and investment advisers, who are held to a higher fiduciary standard. The proposal the Treasury sent Congress gives the Securities and Exchange Commission (SEC) authority to require a fiduciary duty for any broker, dealer, or investment adviser who gives investment advice. The legislation would also empower the SEC to examine and ban forms of compensation that encourage financial professionals to steer investors into products that aren't in the investors' best interest. In the letter to Reps. Barney Frank (D-Mass.) and Spencer Bachus (R-Ala.), industry groups said legislation should require--rather than simply authorize--the SEC to issue rules compelling financial-advice providers to act as fiduciaries.


Earlier Notice on Rate Hikes Gives Credit Card Users Options
USA Today (07/28/09) Block, Sandra

Beginning in August, credit card issuers will be required to give users at least 45 days prior notice before raising interest rates or fees. The early notification requirement is part of the credit card reform bill signed by President Obama in May. Most terms of the Credit Card Accountability, Responsibility and Disclosure Act do not take effect until 2010, but the prior-notice rule takes effect Aug. 20. Before that, credit card companies could raise rates and fees with as little as 15 days advance notice. There are some caveats to this stipulation. If a card's interest rate hinges on the prime rate or similar rate and that benchmark changes, the issuer is not required to give prior notice, says Ben Woolsey, head of marketing and consumer research for CreditCards.com. On the other hand, he says, issuers will be required to give 45 days prior notice if they raise the margin, which is the amount tallied onto the benchmark index to determine the APR. The safest course of action for consumers is to pay off the balance before a rate increase. When that is not possible, two other options are available: continue to repay the balance at the higher rate, even though the new law does not set a cap on interest rate hikes; or, opt out of the rate increase, at the possible expense of a lower credit score.

Personal Finance News

Wary Investors Are Seeking Out Objective Voices
Wall Street Journal (07/29/09) P. D1; Tergesen, Anne; Kim, Jane J.

There are a number of factors that investors need to consider when selecting an independent adviser. For starters, investors should think about which of the two types of advisers they need: brokers, who tend to focus on giving investment advice to their clients, and registered investment advisers (RIAs), who can help investors meet goals such as saving for their children's college education or planning for retirement. There are a number of differences between brokers and RIAs, including the fact that they are not held to the same fiduciary standards. RIAs must meet fiduciary requirements, which means that they must act in their clients' best interests, while brokers must follow the less stringent "suitability" guidelines, which means that they cannot invest their clients' money in inappropriate investments. These differing requirements mean that the degree to which an independent adviser must put his client's interests before his own varies. This situation also means that "the public is so confused," says Marilyn Dimitroff, CFP^®, the chairwoman of the board of directors of Certified Financial Planner Board of Standards. Other factors that investors should consider when deciding between a RIA and a broker are the amount of money they want to invest and the fees the advisers charge. RIAs typically charge fees of 1 percent to 2 percent of their client's annual account balance and many tend to work with those that have $250,000 or more to invest (although some RIAs will charge hourly fees and work with people with less than $250,000 to invest), while brokers charge an average of 0.72 percent of their clients' assets and often work with clients that have relatively small amounts of money to invest.


Time to Stop Hiding From the Stock Market
Detroit Free Press (MI) (07/27/09) O'Connor, Brian J.

Experts are advising that people be careful as they return to stock trading. "The prudent choice is to begin dipping your toes rather than diving in," says Timothy Wyman, CFP^®. He observes that it is not unusual to have a few major run-ups in depressed markets that give back half or even all of their gains. "For people on the sidelines or with new money to invest, I'd put that into equities in as short a time-frame as three months but even as long as 10 months," Wyman advises. Because the market could fall again, it may be worthwhile to put money into stocks over time rather than all at once. Doing so may help to protect the investment from market dips that could push prices down again.


Planning Matters: Know Estate Planning Papers
Port Huron Times Herald (MI) (07/26/09) Wallace, Matthew M.

Attorney Matthew M. Wallace writes that good estate planning requires proper knowledge of key documents. He supplies a list of important papers, including a durable power of attorney and a durable power of attorney for health care, also known as a Designation of Patient Advocate. The former is a document by which one appoints an agent to make financial decisions in the event one is incapable of making them, while the latter is used to appoint a health care agent to make medical decisions. Wallace recommends that a durable power of attorney for health care include advanced medical directives or living will provisions to clarify one's medical preferences regarding end-of-life care and the refusal or withdrawal of medical treatment. Another important estate planning document is a will, which appoints a personal representative to follow the instructions to distribute the decedent's property. Wallace writes that a will is typically inapplicable to joint property, property held in trust, or property for which one has designated a beneficiary other than his or her estate. A revocable living trust provides instructions to manage and distribute one's property during one's lifetime and after one's death. "You may include specific provisions for your beneficiaries in your trust such as catastrophic illness directions, creditor protection, remarriage protection, divorce protection, values promotion, and personal instructions," notes Wallace. "A trust is generally not supervised by the probate court unless a party requests the supervision."


Do a Midyear Check: Make These 7 Resolutions for Financial Success
Associated Press (07/26/09) Carpenter, Dave

It may be a particularly wise strategy to do a financial check this summer as midyear statements come in. "It's like the fable of the ant and the grasshopper," says Eleanor Blayney, CFP^®, consumer advocate with the Certified Financial Planner Board of Standards. "The grasshopper fiddles away the summer while the ant puts away food for the winter. Which one do you want to be?" CERTIFIED FINANCIAL PLANNER™ professionals recommend a series of mid-year financial solutions that carry long-term benefits. Reviewing statements and rethinking strategy periodically is one recommendation, while greater awareness of political and legislative actions also can be beneficial. Putting together an emergency fund is advised, as is making a commitment to save money, first in writing, and then by monitoring spending. Be realistic about your college funds; contributions should not be shifted from retirement to offset losses in a 529 college-saving plan, for example. All insurance policies should be reviewed to ensure that they are not about to expire and are at appropriate levels. The last recommended strategy is to start reserving money now for taxes that will be needed to pay for the conversion of an IRA to a Roth next year.


Time to Boost Your College Savings?
Payson Roundup (AZ) (07/17/09) Hage, Ross

Parents of school-age children can take several steps to save money for college. This includes contributing to a Section 529 savings plan. This allows money to be invested in specific securities; furthermore, the plans are managed by professionals. Another strategy involves opening a Coverdell Education Savings Account (ESA). Up to $2,000 annually can be contributed to an ESA, depending on income levels. Parents can also open a custodial account so that assets can be placed in a UGMA or UTMA account for their child's education.


Personal Finance: Now's the Time to Plan Tax Savings
Reuters (07/15/09) Stern, Linda

Consumers looking to save more amid the recession should create a solid tax strategy to minimize their payout, because there are some sales and property tax maneuvers this year that can save money. Now is the best time to consult with a accountant before the year-end rush, but even those who do their own taxes should start developing a strategy now. One option is to appeal property taxes, because home prices have fallen dramatically but few local governments have reduced home assessments or taxes by the same amounts. Individuals should also make use of the Making Work Pay tax credit and assess whether estimated tax payments can be reduced if interest income has declined this year, keep track of all receipts, put as much money as possible into a retirement fund and consider opening a Roth IRA, sell off investments that have not regained losses for more than a year, and consider buying a new car to take advantage of the government’s new tax deduction and the "Cash for Clunkers" program.


10 Personal Finance Basics to Consider as You Work Through the Recession
Associated Press (07/13/09)

Consumers need to know how to approach their personal finances during the economic upheaval. They should consider investing a certain amount every month from their paycheck or bank account, and making the maximum contribution to their employer's retirement plan. Consumers should think about the long term and diversify investments in stocks, bonds, or other low risk investments, and also invest in their retirement plans during downturns. They should assess the current state of their 401(k) and consider how to rebound from reduced balances as a result of the market downturn. Employees should have cash reserves of at least six months to fall back on in the event of a layoff or some other unexpected event. For employees who are closer to retirement, they should consider finding a part-time job rather than making early withdrawals on their retirement savings. They should develop a strategy for turning the 401(k) or other savings such as IRAs or CDs into an income stream, and plan income withdrawal based on anticipated costs. If financial advice sessions are not offered in the workplace, employees should consider working with a financial planner on their own.


Planning a Will Is Crucial, Even if You Don't Have a Lot
USA Today (07/09/09) Dugas, Christine

When drawing up a will, it is important to avoid common mistakes, such as failing to have the will correctly signed and witnessed. A will should be kept in an accessible place, such as in a fireproof box with other important papers, says attorney Mary Randolph. If any changes are made to the will, previous versions should be destroyed. Wills need to be specific rather than general. For example, the will should not say that the entire estate "goes to the children." Any names should be clearly listed. It is important to realize that relatives or friends might not be the ideal executor or trustee. This role should be taken on by someone who can be trusted, works well with others, is intelligent, and is unafraid to hire or request assistance.


Tips for Choosing a Financial Adviser
North American Press Syndicate (07/01/09)

"Financial fiduciary" is a term that people who are looking for a financial planner should know. These professionals put your financial best interests ahead of their own, and must follow strict ethical and conduct standards. You should interview several candidates to work with, and asking about their experience, approach, and credentials should give you a better idea whether they consider themselves to be fiduciaries. Financial planners with the CERTIFIED FINANCIAL PLANNER™ certification face penalties for violating fiduciary standards, such as having their licenses revoked. During a preliminary meeting, candidates should clearly explain the advice you will receive, fully disclose the material facts about the services and compensation, and discuss any conflicts of interest that could impact their recommendations. Your financial situation, goals, and a course of action will be discussed in greater detail with the chosen financial planner. You and the financial planner will also decide how to carry out the recommendations and who will monitor your progress toward your goals.

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