Conventional wisdom does not always apply.
This is the subject in Gregory Karp’s article, “Turning conventional wisdom on its head”, in his October 6th article in The Chicago Tribune. Following are excerpts from that article.
“Getting credit cards at a younger age can be a good thing. ‘It seems that the type of people who get credit early are better borrowers – less likely to default…’”.
“Part of the reason young borrowers become better borrowers may be that they are once bitten, twice shy. ‘They have some minor delinquencies and they learn their lesson’”.
“The takeaway? Don’t necessarily discourage a young adult from getting a credit card.”
“You might think that sticking with your auto insurer year after year breeds good will and maybe even lower rates…according to the Consumer Federation of America…some insurers are illegally jacking up car insurance rates on people who, faced with higher rates, are less likely to shop for a better deal, a practice called price optimization.” “…the takeaway is tried-and-true advice regardless of price optimization: Regularly shop around your insurance coverage to make sure you’re not overpaying.”
“Those ‘use by’ and ‘sell by’ dates on food items seem like helpful guides, but they actually don’t mean much. That’s because they are not standardized or regulated…”
Based on this article and numerous other similar articles, it may be more important than ever to exercise due diligence rather than rely on conventional wisdom.
Fees of a Fee-Only adviser are only paid by the client.
I have not understood why there has been any resistance to requiring financial planners and investment managers to be held to a fiduciary standard. A recent article in the Wall Street Journal (WSJ) may indicate why some do not want to be held to a fiduciary standard.
The Free Dictionary by FARLEX defines a Fiduciary as: “An individual in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit.”
A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person.”
Many of us believe it is putting the client first.
Jason Zweig’s September 20th article “ ‘Fee-Only’ Financial Advisers Who Don’t Charge Fees Alone” may show why there is resistance to a fiduciary standard for financial planners and investment managers. They found that 24% of the 33,949 certified financial planners (CFP) they analyzed described their compensation as “fee-only”.
The article notes that “Securities lawyers and government regulators say that an adviser who works for a brokerage firm or insurance company that charges commissions shouldn’t describe his services as ‘fee only’, even if the adviser himself doesn’t charge commissions to his clients.” Although none of the CFPs at major banks and brokerage firms, the WSJ identified 661 listed CFPs who call themselves ‘fee-only’” at some of the major banks and brokerage firms. The problem extends beyond CFPs.
Can you argue that if the compensation is not accurate, the advisor is not a fiduciary?
Tips for selecting a fianncial professional
Linda Stern (Reuters) provided some tips for getting help selecting a financial planner and/or adviser in her August 4, 2013 column in the Chicago Tribune.
The first part of the article summarizes the battle that has been going on since the 1990s to impose a requirement that all financial planners and/or advisers put their client’s interest first. The point she was making is that you should not wait until Congress decides who should be covered and by what standard as an excuse for not getting help with your financial matters.
“If you are getting your financial advice for free, you are not getting an adviser who is putting…” your interest first. “Smart and unconflicted financial advice is worth something…” Many of us provide guidance, support, etc. for those that want to manage their financial matters themselves.
“Look for the term ‘fiduciary planner’.” Until Washington waters it down, it means the adviser has to make sure your investments are the best possible investments for you.” Those that have the Personal Financial Specialists Credential (PFS) had to establish they had the specified experience, specified education and successful completion of the required examination. As a member of the AICPA, we are also are subject to the AICPA Code of Professional Conduct. CPA/PFS professionals must maintain objectivity and integrity, be free of conflicts of interest, and shall not knowingly misrepresent the facts. Some believe these requirements are the essence of the fiduciary duty.
“Regardless of where you get your advice, make sure your assets are held in a bona fide brokerage account insured by the Securities Investor Protection Corp. “
Bottom line is that you should not delay planning. Delays can limit you alternatives and require more effort to reach your financial goals. You should also do your due diligence in selecting a professional to guide you through the process.
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Does the Health-Care Reform Law Apply to You?
Beginning in 2014, the mandatory health insurance coverage provisions of the Patient Protection and Affordable Care Act (ACA) go into effect. But the law does not require everyone to have health insurance, nor are all of the coverage requirements applicable to all types of health insurance.
Are you exempt from the health insurance mandate?
Most U.S. citizens and legal residents are required to have health insurance beginning in January 2014 or face a penalty tax that can be as high as 1% of taxable household income exceeding the taxpayer’s federal income tax filing threshold (increasing to 2% in 2015, and 2.5% in 2016). You can avoid the penalty tax if you already have health insurance for the entire year, and the coverage is obtained from one of the following:
Medicare
Medicaid or the Children’s Health Insurance Program (CHIP)
TRICARE (for service members, their families, and retirees)
The veteran’s health program
Employer-provided health coverage
A policy you purchase on your own that’s at least at the Bronze level
A plan that is grandfathered (in existence prior to the enactment of the ACA that meets the requirements of grandfathered plans under the law)
However, certain groups are not required to be insured and thus are not subject to the penalty tax. The ACA specifically excludes people who are members of an exempt religious sect or division, members of a health-care sharing ministry, Native Americans, undocumented immigrants, incarcerated individuals, people whose income is so low that they don’t have to file federal income taxes, and people eligible for a hardship exemption (when the cost of insurance after employer contributions and federal subsidies exceeds 8% of their income).
What types of insurance are not affected by the health-care reform law?
The health-care reform law does not apply to automobile insurance, homeowners insurance, and umbrella liability coverage, even though they provide some health-related coverage. Also not subject to the law’s provisions are life, accident, disability, long-term care, and workers’ compensation insurance. Medigap (Medicare supplement) insurance is generally not covered by the ACA if it’s sold as a separate plan and not as part of a comprehensive health insurance policy. In addition, retiree-only plans are exempt from the ACA’s provisions. These plans are group health insurance plans with fewer than two participants who are current employees.
For more consumer information about enrolling in a health insurance plan, government subsidies, and tax credits, visit the U.S. government’s website, www.healthcare.gov.
“Studies show how to be a better consumer”
Gregory Karp’s article in the June 30th Chicago Tribune discusses some of the many studies about consumer behavior.
“There’s a whole area of academic study about consumer behavior that examines not what we buy, but why.” Most of us can learn how to make better decision from some of these studies. He discusses how some of our actions impact our choices.
“…participating in online social networks can raise your self-esteem. “ Heightened feelings of self-worth “…can lead to impulsive and indulgent behavior, poor traits.” “…greater social network use was associated with a higher body mass index, increased binge eating, lower credit scores and higher levels of credit card debt…” “The self-esteem and self-control effects did not seem to affect those with weak ties to their network.
“…for people trying to spend less and save more” they should consolidated their accounts rather than have multiple accounts for different purposes. Some examples of multiple accounts include: vacation, new car, special celebrations and vacation homes. “Individuals will save more and spend less when they have a single account. “ “Multiple accounts create vagueness about how much money you really have, making it easier to justify expenditures you shouldn’t make.…” Mr Karp suggests that if you must use multiple accounts, use financial software. This will provide a consolidated view of all your accounts.
“Physical acts of completion can provide consumers with a sense of closure that makes them happier with their purchases…” “That’s as opposed to revisiting the decision and continually reassessing the options.” “Consumers are less likely to be satisfied with a purchase when they compare it to other options.” “Physical acts of closure enable consumers to perceive a difficult decision as complete and limit their tendency to compare their selection with the options they have rejected.”
Social Security has improved the information available online
“my Social Security” provides improved information applicable to you. Information and tasks available includes: your benefit verification letter, your benefit and payment information, your earnings record, ability to change your address and phone number. Start or change your direct deposit of your benefits,
This allows you to obtain information when you need it. It will save your time and eliminate the need to travel to a social security office to obtain this information. It avoids the delay of getting information that is helpful in your financial planning.
The website address is: http://www.socialsecurity.gov/myaccount/
Some people cannot receive or acknowledge LinkedIn endorsements
I am such a person. I greatly appreciate all the endorsements I have received. The current state of financial regulations prohibits testimonials. LinkedIn’s “Skills & Expertise” are endorsements that are considered testimonials. The spirit of these regulations is to prohibit comments about the conduct or performance of an adviser. The best information currently available is that making endorsements would also be prohibited.
I am permitted to have your endorsement in LinkedIn as long as it is hidden. When and if the regulations are changed I can quickly unhide them.
Increasingly people are using the new features available through social media. Those of us that are subject to the restriction are frustrated. A recent article in “Reuters” discusses this matter in more detail at http://www.reuters.com/article/2013/01/23/us-social-media-idUSBRE90M1G020130123
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2013 FICA Tax Increase Surprises Some Taxpayers
With all the end-of-year hype surrounding the fiscal cliff and the relief that came with New Year’s legislation permanently extending most income tax rates, one change seems to have been veiled by the settling dust: the 2 percent increase in FICA (Federal Insurance Contributions Act) tax. That increase, the result of an expiring provision that was not extended, means that the vast majority of American workers are now receiving about 2 percent less in their take-home pay, an unwelcome surprise to some people.
Background
In the midst of the last recession a little more than two years ago, Congress passed and the president signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This new law included a 2 percent reduction in the Social Security (OASDI) portion of the FICA tax. The provision was designed to help put a little more money into the wallets of American workers during the challenging economic environment of 2011. While the employer portion of the OASDI contribution remained at 6.2 percent, the employee contribution was reduced from 6.2 percent to 4.2 percent. The provision was extended through 2012 by the Temporary Payroll Tax Cut Continuation Act of 2011 and the Middle Class Tax Relief and Job Creation Act of 2012.
The reduction was never meant to be permanent, as it put additional financial pressure on the already stressed Social Security Trust Fund. So during the 2012 fiscal cliff negotiations, both Democrats and Republicans agreed that it should expire at the end of the year.
Impact of 2 percent
Despite media reports warning of the impending payroll tax increase, many Americans were caught off guard when they received their first paychecks in 2013. How much of an impact might the additional withholding have? A family earning $60,000 a year will see their pay cut by about $1,200, or $100 per month, during 2013. Those earning $100,000 will receive about $2,000, or about $167 per month, less. (The maximum amount of an individual’s earnings that is subject to Social Security tax in 2013 is $113,700.)
While most experts believe the decrease in take-home pay won’t be enough to cause major economic damage, it may encourage families to cut back on spending enough to slightly dampen the nation’s overall growth. For example, the 2 percent decrease could represent a family’s monthly utility bill, an investment in a college savings account, or a week’s worth of groceries.
Medicare taxes for high earners
Also consider that high earners will need to pay a bit more in Medicare taxes beginning in 2013. Taxpayers will pay an additional 0.9 percent Medicare tax on wages exceeding $200,000 for single/head of household, $250,000 for married couples filing jointly, and $125,000 for married couples filing separately. Taxpayers whose modified adjusted gross income exceeds those same threshold amounts will also pay a 3.8 percent Medicare tax on some or all of their unearned income. These provisions were part of the Patient Protection and Affordable Care Act of 2010, and like the expiration of the FICA reduction, were not affected by the 2012 fiscal cliff legislation. When combined with the 2 percent Social Security increase, the total hit could mean a difference of several thousand dollars a year to some higher-earning taxpayers.
Questions?
If you have questions about your FICA withholding, your human resources department or personnel manager might be a good place to start. These representatives are typically prepared to answer such questions and can help you confirm that your withholding is correct.
Safeguard your email accounts.
The number of people that tell that their email accounts were hacked has increased in the last few months. PC Magazine recently issued an article that discussed 5 non technical steps to help protect your email account.
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