Wealth management

The Financial Accounting Standards Board has issued the first of two proposed standards intended to simplify the accounting for financial instruments in response to the financial crisis.

There are possible tax strategies that are particularly suited to the times that we are in. Here are two that I keep seeing, with the latest in a press release from a major tax publisher. According to analysts with the Tax & Accounting business of Thomson Reuters, C corporations may secure a refund of overpaid estimated taxes, or use projected current-year NOL to offset taxes owed for the previous year.

There is no question that in today’s economic climate, lots of people have lots of different questions. In my own family and among my own friends, I hear the same recurring questions being asked. So, here with the help of my friends in the financial planning/services community, are some answers you might consider telling your clients. Naturally, there might be a difference of opinion but here goes: Are bank accounts, IRAs, and 401(k)s insured? The Federal Deposit Insurance Corporation (FDIC) has raised the limit for individual bank deposits from $100,000 to $250,000. Joint accounts held by a husband and wife would be covered up to $500,000. Unfortunately, defined contribution plans such as 401(k)s are not protected against market losses. But federal protections are present in the event the employer or the company managing the account goes under. In fact, under the Employee Retirement Income Security Act, the amount on the 401(k) account cannot be claimed by creditors of failed companies. How about money market funds? The government now temporarily insures money market funds against losses for the next year. A brokerage account, which may include mutual funds, stocks, or bonds, is not protected against market fluctuations. However, the account is protected against fraud and that’s where the Securities Insurance Protection Corporation (SIPC) comes into play. It insures the account up to $500,000. It’s important then to make sure that the brokerage is SIPC-insured. Don’t stay in the market? People talk about bailing out. Experts advise it is usually best to stay the course, because a highly diversified portfolio generally reflects the amount of risk that the individual has been comfortable with as well as goals. Many advisors are recommending that one just hangs in there and avoids panic selling. Of course, there are some who simply can’t ride out the storm, so where do they put their money? Experts claim that the safest investments are certificates of deposit and money market funds, particularly those that invest in Treasury bills. However consider the tradeoff. The safest investments generally produce the lowest returns. Buying annuities, or charitable gift annuities from a charity or university, which do come with tax breaks, may be an alternative for investors who are looking to reduce their stock exposure and who want an income stream for life. What about those annuities? Many leading experts in financial circles advise that because variable annuities fluctuate with the market, they do provide an opportunity to take advantage of a market boom. Conversely, they may not protect from a down market unless a guaranteed minimum withdrawal benefit had been purchased, which affords a guaranteed income stream regardless of the performance of the investment accounts. However, there is a downside here: it costs more and most insurers restrict the investment choices. Some experts suggest transferring a variable annuity to a fixed annuity where the principal is guaranteed and withdrawals of up to 10 percent of the account value are permitted each year without a penalty. But, keep in mind that this may incur heavy penalties for just switching from one to another. Is it better to use a credit card or a debit card for purchases? Much depends on the individual’s situation but it doesn’t take being a brain surgeon to realize that a credit card should only be used if the full balance can be paid off each month. That way, it’s really borrowing someone else’s money to finance a monthly purchase and at no interest. Of course, if there already exists a heavy balance, then obviously, that shouldn’t be added to; therefore, consider using the debit card to keep the debt load down. Finally, keep in mind that savings itself should be handled based on age and years until retirement. The most important factors are the post-retirement income and the value of the overall investments in determining how to allocate a portfolio. Diversified investments focusing more on capital preservation and income generation, and less on riskier growth stocks, are usually considered the best bets. Older investors may opt for the safety of money market funds.

Marcum & Kliegman has created a task force to advise investors who may have been defrauded by Bernard Madoff and his investment management business.

It's hard to believe we can write another column about pensions and the bad GAAP applied to them, but here we are again, beating the same old drum. In addition, there is a new drum in the Pension Protection Act of 2006.While we're putting this column together, the market is continuing its sliding and bouncing, and the government is doling out money left and right (and in between) to bail out insurers, mega-banks, regional banks, investment banks, depositors, money funds, brokerage houses, and who knows what else.

Government officials now expect 401(k) plan sponsors to conduct periodic due diligence reviews. With respect to their 401(k) or other retirement plans, the problem is that most sponsors (owners) do not have the in-house resources to do so.This is not something that 401(k) plans historically did. On the heels of the recent mutual fund scandals, though, Labor Department officials indicated that sponsors had a duty to periodically investigate plans and benchmark funds and fees.

PLANNERS GET NEW CLIENTSTwo thirds of certified financial planners have seen an increase in potential clients as economic turbulence has increased in the past several weeks, according to a recent survey.

I received some interesting information from Brian Meehan of Celtic, Inc. regarding a little practical advice on how to weather a volatile market when it comes to college savings. He notes that if you are like most people, the current market conditions can cause concern when you see your long-term investment accounts, including college savings and retirement plans, losing their value. He points out that the College Savings Plans Network, a non-profit association representing states who administer 529 college savings and prepaid plans, and an affiliate of the National Association of State Treasurers, encourages people to keep the following principles in mind when making decisions about their college savings accounts during tough economic times: Stay Focused on Long-Term Objectives: As the market moves in up and down cycles, it is vital that one keep emotions out of affecting financial decisions. Look at the performance of your college savings account since inception as well as shorter-term performance. Diversify Your Investments: You need a mix of stocks, bonds, and cash investment options or in an age-based option which typically provides this sort of mix. Make Changes, if at all, Gradually: Invest any new funds into more conservative options and reallocate equity options to more conservative ones. Move funds gradually so as to not lock in, or realize, all of your losses and to be able to take advantage of a market recovery. Limit Reallocations: All 529 plans have a one-time-per-calendar-year rule on making reallocations between investment options. If you have already made a reallocation of your account this year, you cannot make another change until next year. However, you can always redirect new contributions at any time. Make Regular Investments: Often referred to as “dollar-cost averaging,” this approach lessens the risk of investing a large amount in a single investment at the wrong time. Invite Family to Help: Ask your family and friends to help build the college savings by contributing to your account as a holiday or birthday gift. Many plans offer gift certificate forms or contribution slips to facilitate making a contribution as a gift. Talk to your Plan Provider: If you have specific questions abut your 529 savings or prepaid plan, call your plan provider. To learn more about the College Savings Plan Network and 529 college savings plan across the country, visit collegesavings.org.

The Internal Revenue Service has given schools and tax-exempt organizations more time to finish writing their retirement plans.

The College for Financial Planning plans to add renewal requirements to some of its professional designations starting next spring.

Worries about the financial crisis are spreading rapidly, with job losses hitting levels not seen in over three decades, and people are wondering if CPAs have the answers to help them get through the turmoil.

The sour headlines lead. Ford wants billions in loans. Car makers’ sales are tumbling, like a too-tall SUV on a tight curve. Delta’s slashing service. Staples and Sears are staggering. GE and Goldman Sachs say their decks are awash.

iPro One and American Business have teamed up to offer insurance products that wealth management advisors at CPA firms can market to their clients.

The Virginia Society of CPAs is offering a free financial wall calendar for consumers, developed in partnership with the American Institute of CPAs.

The success of financial advisors in profitability, revenue growth, and attracting clients was the overriding theme in the 14th edition of the 2008 Moss Adams LLP Financial Performance Study of Advisory Firms, recently released and sponsored by Genworth Financial Wealth Management. For the average firm, new assets from new clients accounted for about two-thirds of growth, expanding assets under management by 13.5 percent. However, the study shows that only one in four firms has a well-defined succession plan and many firms, some 44 percent, have no plan at all. Actually, Dan Inveen of Moss Adams, who prepared the excellent release, said that while the current flux in performance of the financial markets may be causing advisors concern, the demand for objective financial advice is likely to increase. “Forward-thinking firms will recognize this as a time of opportunity and will continue to improve their effectiveness and show value in serving the market. Plenty of potential exists for further growth.” Looking at this in greater depth, the study turned up the fact that advisors in the top performing firms spend the most time on client service and business development. Actually, the top 25 percent of solo firms (meaning firms with one owner/professional) spend 56 percent of their time on client service and business development, compared to other firms that only spend 46 percent of their time on these activities. Moreover, top-performing ensemble firms also gain leverage with non-professional staff. The smallest multi-professional firms (less than $2 million in revenue) employ 1.2 non-professionals for every professional. The same ratio applies for the larger firms ($2 million - $5 million in revenue), which is double at 2.4, thereby allowing professionals to focus more time on business development and client activities, and less time on administrative and operations tasks. Of course, expansion for advisory firms raises new and impending issues as a significant number of firm owners are nearing retirement. Though firms have been trying to recruit and retain experienced professionals, the demand has outweighed the supply. As a result, this could leave firm owners holding concentrated positions in a valuable asset with no ownership transition plan. The 2008 study shows that only one in four firms has a well-defined succession plan and 44 percent have no plan at all. In addition, the aging advisor population, coupled with strong growth in the advisor industry, indicates that transactions will be prevalent in coming years. In fact, within the past two years, 29 percent of firms considered a sale, with 37 percent citing succession as the primary motivation behind this consideration. On the opposite side, more than half (55 percent) of the firms expressed an interest in acquisition, with most citing growth and efficiency as the driving factors. For more information, visit www.mossadams.com/2008advisorstudy.

This live, one-hour seminar, the first in a series covering aspects of our current economic crisis, is essential for all accountants who offer financial planning services. It will feature practical, hands-on insight and information you can put to work for your firm immediately.

The American Institute of CPAs is launching a new series of ads for its "Feed the Pig" financial literacy campaign targeted at adults in the 25-to-34 age group.

Business consulting and internal audit firm Protiviti has updated its Global Financial Crisis Bulletin with answers to the latest questions about the financial meltdown.

I’ve known David Steinberg for some 20 years now. He was introduced to me by one of the major CPA firms in New York City as knowledgeable and honest mortgage broker. I’ve used him many times and have found him quite effective. So, when we hit this financial morass, I thought it might be interesting to see what he had to say while we are in this epic meltdown. “There is no telling where things are going,” says David. But I’d like to share some observations that I believe will withstand scrutiny regardless of where markets are by the time you read this.” The following is from David’s mouth: Cash is King. You’d be amazed how much easier you can sleep if you have that emergency fund to (at least) six months of living expenses. Cash is King II: That emergency fund must be liquid. Having a HELOC (Home Equity Line of Credit) doesn’t count because many banks are getting cold feet and cutting the lines back or eliminating them. So, even if you have perfect credit, there is no guarantee that your HELOC will be there when you need it. Cash is King III: Gains (or losses) are not real until you realize them, when you sell. For years Americans have been feeling rich because their houses and portfolios were appreciating. That wasn’t real. The losses we have experienced in recent weeks as our portfolios have fallen are no more real (unless you sold). If your initial choices were solid, your portfolio should come back when the market comes back. Buy Low and Sell High: I said, “If your initial choices were solid.” All too often people buy speculatively. How do you buy well? Watch Warren Buffett. He won’t buy unless he perceives value. Learn to sit on cash waiting for opportunities. Gotta Know When to Hold’em and Know When to Fold’em: These have been tough times for investors—tough figuring out whether to hold or sell. Stick to stock in good companies that have good management (Warren Buffett) and sell the rest. ‘When’ is the challenge! Sell on your terms—don’t get stampeded into selling at the wrong time. Volatility is a Fact of Life: Hold on! Volatility, which has been at record levels throughout 2008, is not going away any time soon. Get used to it. Strategize for it. Can’t Take the Heat: Get out of the market for the next six months or so if you can’t tolerate the swings. Be prepared to miss some of the glory if the market roars back. Gotta Know When to Buy: Me? I’m buying. Why? Because Warren Buffett is buying. Due to some luck 40 percent of my retirement funds were in cash as of October 10. I told my stock broker to start buying cautiously. (And, remember, it’s not polite to laugh at people.) There’s Gold in Them Thar Hills: Fortunes will be made by those with vision and courage to take advantage of the opportunities that will surely be present in the coming months. For more information, contact him at Dave@SummitFunding.com.

Baby Boomers planning for retirement need to stick to a budget, according to one tax expert.