Avoiding penalties — and tax court — on a late 60-day IRA rollover

A late IRA rollover spiraled into a five-year ordeal, with an investor barely escaping being taxed on over $500,000. That’s the mess that landed Nancy Burack in Tax Court.

It’s a nightmare that could have easily been avoided. What’s more, this incident serves as a cautionary tale for financial advisors regarding the need for vigilance in monitoring all rollovers of retirement funds — 60-day rollovers in particular, which are subject to more stringent tax rules than the preferred method of direct transfers. Advisors should also be aware of the various relief provisions available to avoid the time and expense of a full-blown Tax Court case like this one.

On June 25, 2014, Burack received a distribution in the amount of $524,981 from an IRA held with Capital Guardian, with Pershing serving as custodian. Burack used the distribution to purchase a new home while awaiting the closing of the sale of her former home. She intended to redeposit the sale proceeds back into her IRA as a 60-day rollover.

On Aug. 21, Burack received a check in the amount of $524,981, drawn from the closing. Burack was told by someone at Capital Guardian that she could carry out the rollover by overnighting the check to Capital Guardian, which she did on Aug. 21.

retirement legal case Capital Guardian. Nancy Burack. Created by Bernadette Berdychowski

Capital Guardian received the check on August 22 — 58 days after the June 25 distribution to Burack. However, Capital Guardian did not record the deposit of the check into Burack’s IRA account at Pershing until Aug. 26 — 62 days after the distribution. (The Tax Court said that it “is not entirely clear” what happened between the receipt of the check by Capital Guardian on Aug. 22 and the deposit of the check at Pershing on Aug. 26.)

The IRS determined that Burack’s redeposit of funds was not made within the 60-day rollover period and therefore assessed her $524,980 of additional taxable income for 2014.

Burack appealed to the court, making two arguments. First, that the late rollover should be excused as it was due to a bookkeeping error, citing the seminal Wood v. Commissioner, 93 T.C. 114 (1989), where a custodian made an error recording the rollover. Second, that she was entitled to a hardship waiver, citing IRS Rev. Proc. 2003-16. The court accepted both arguments and found her rollover to be valid.

Burack’s rollover was saved, plus the IRS tax bill of $214,333, and additional penalties assessed of $42,867 were all removed.

Dangers of 60-day rollovers

This case offers a number of indispensable IRA lessons for advisors. First and foremost: as tempting as it is for a client to use an IRA distribution as a short-term loan with the intention of paying it back within 60 days, a lot can go wrong to cause that deadline to be missed. Although it is now easier than ever to obtain relief for a late rollover (as discussed later), there are still circumstances in which a taxpayer will be forced to spend a lot of money and time trying to convince the IRS or Tax Court to waive the 60-day rule.

However, the taxpayer will not always be successful and the consequences of a failed rollover can be devastating.

Had the IRS prevailed in Burack, the rollover amount would have been considered a taxable distribution, adding over $500,000 of taxable income to Burack’s 2014 tax bill. Plus, the IRS was assessing an accuracy-related penalty of $42,867. Furthermore, if Burack was under the age of 59 1/2, an additional 10% early distribution penalty would have applied. Finally, if considered late, the rollover could have been deemed an excess contribution in the receiving IRA and subject to a 6% annual penalty unless timely withdrawn.

An indirect, but crucial, lesson to be gleaned from this case is that even a rollover made within 60 days won’t relieve clients from potentially serious tax consequences if they violate the IRA once-per-year rule, which limits certain 60-day rollovers to one in every 12-month period.

Note that this period does not comprise a calendar year; it starts on the date when funds are distributed — not when they are rolled over. And while there may be a relief when the 60-day deadline is missed, the IRS has no authority to provide relief when the once-per-year rule is violated — it is a fatal error that cannot be fixed.

IRA accounts

Another danger area an advisor should be on the lookout for is that if a company plan participant takes a distribution and does not elect a direct transfer (as discussed below), the plan must withhold 20% of the distribution for federal income taxes and may be required to withhold for state taxes as well. This holds even if the participant does a valid 60-day rollover. (Note that 20% mandatory withholding does not apply to IRA distributions.)

Therefore, instead of a 60-day rollover, clients should be strongly advised to do a direct transfer whenever possible, in which the IRA custodian or plan trustee of the outgoing funds directly transfers the funds to the receiving IRA custodian. The funds are never made available to the IRA owner or plan participant. (Direct transfers are often called “direct rollovers” when the distribution is paid from a company plan.)

Since Burack easily satisfied the conditions for the automatic hardship waiver, it is unclear why this matter could not have been resolved at the IRS level. Going to Tax Court no doubt forced her to spend substantial amounts in legal fees and dragged out her case for over five years.

And it still may not be over: the IRS could still decide to appeal the Tax Court decision.

Avenues of relief

To help clients avoid similar messes — and even potentially salvage a lifetime of retirement savings put into jeopardy by a late rollover — advisors need to know that avenues of relief outside the courtroom may be available when the 60-day deadline is missed.

There are three such recourses: an automatic hardship waiver, a PLR, and self-certification.

The automatic hardship waiver is a seldom-used but easy and completely free way to immediately salvage a late rollover. Note that there is a strict deadline for this fix so advisors should act quickly if this option is on the table. Under Rev. Proc. 2003-16, an automatic waiver is granted when the following two conditions are BOTH met:

(1) The funds are deposited into an eligible retirement plan within one year from the date the distribution was received.

(2) The rollover would have been a valid rollover if the financial institution had deposited the funds as instructed.

IRS building taxes IAG

(Bloomberg News)

A PLR is a written statement issued to a taxpayer in which the IRS applies tax laws to a particular set of facts represented by the taxpayer. In Rev. Proc. 2003-16, the IRS allowed taxpayers to apply for a waiver of the 60-day rule by requesting a PLR, and hundreds of taxpayers have taken advantage of that opportunity. (As discussed, the Revenue Procedure also established an automatic hardship waiver — without requesting a PLR — when a financial institution’s error causes a late rollover.)

But PLR requests are expensive — the IRS user fee is $10,000 and professional fees can add thousands of dollars more. They are also slow — a ruling can take as long as nine months. Even then, there is no guarantee of success. For example, the IRS will typically not issue a PLR for a late rollover if the taxpayer uses the IRS funds as a “60-day loan.” This may explain why Burack did not request a PLR.

A client who misses the 60-day rollover deadline can now obtain relief through self-certification under Rev. Proc. 2016-47 — a cheaper and faster alternative to a PLR. An individual can use self-certification only if the late rollover was for one or more of the 11 reasons specified in the Revenue Procedure.

The self-certification procedure was established too late for Burack to use, but it might not have helped her anyway. Rev. Proc. 2016-47 does not specifically address whether self-certification can be used if the IRA owner makes use of the distribution (as she did), but some wording in the guidance suggests that it cannot be used in that situation.

The most important lesson is this: Using a direct transfer instead of a 60-day rollover means the client doesn’t have to worry about complying with all of the strict IRS rules or about fixing the rollover if those rules aren’t complied with.

If clients feel they must use the 60-day rollover because they need the funds, they must be extra careful to make sure the funds are eligible to be rolled back over and that the rollover is completed well before the 60-day deadline.


Ed Slott


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From Firefighting to Financial Planning

Bill Cuthbertson

William C. Cuthbertson has a cool head and unassuming manner that eclipses the reality that saving folks from burning buildings, delivering babies in jeopardy and stopping people from suicide is scary work. He knows about all that: For 27 years, he was a paramedic firefighter.

For nearly the last two decades, he has been a financial planner: different to-do lists, but both are jobs of trust with a mission to help, as he tells ThinkAdvisor in an interview.

A solo planner and member of the Alliance of Comprehensive Planners (ACP), Cuthbertson manages about $34 million in assets of successful professionals, widows and retirees. He uses a tax-focused retainer model to serve them from his Fiscalis Advisory in San Juan Capistrano, California.

The certified financial planner, 63, chair of ACP’s financial technology committee, transitioned from firefighter to independent financial planner over an eight-year span. During that time, he earned an MBA, the CFP designation and notched work experience at a small planning firm — all the while continuing to fight fires with the Orange County Fire Department (now the OCF Authority).

Even after launching his own shop in 2003, the El Segundo, California-reared Cuthbertson kept living this, sort of, dual life for four years before retiring from the fire department, which he’d joined at age 25.

Now, his medic background comes in handy not only for creating retirement plans, encompassing, as they do, health care issues; but when urgent medical matters crop up in the present, he often helps elderly clients receive appropriate care.

As a paramedic firefighter, Cuthbertson’s duty ran the gamut from treating victims at the scene of gang violence to serving in Ronald Reagan’s motorcade when the president was visiting for a fundraiser one night.

“Nothing happened,” Cuthbertson says. “But we were ready.”

THINKADVISOR: What was it like to be a paramedic firefighter?

WILLAM CUTHBERTSON: The job is 95% boredom and 5% sheer terror. When I was a rookie, we found an elderly couple who’d hidden themselves in the bathroom and died of smoke inhalation. The upstairs of their two-story building was totally engrossed in fire. There were situations of violent gang activity: You’d go on a [gunshot] call where the cops were looking for the perpetrators, but you had a patient to deal with.

My goodness.

One time we got a call that someone was threatening to hurt themselves. When the woman saw me come into the room, she decided to jump off the balcony. I grabbed her and held her by her arm while she was dangling and waited for the rest of the crew to go downstairs to get her. She had bipolar disorder and was just a tortured soul.

Any other rescues that come to mind?

A woman was in labor and about to deliver. But when I got there, the baby’s amniotic sac hadn’t broken. I got him delivered; but when you’re not seeing something that looks like a head, it’s a little disconcerting. I used a medical scissors to get him out of the sac quickly.

Wow. Why did you want to retire from the fire department?

I thought of a firefighter medic as a young man’s job. Not that older guys can’t fight fires; but as you get older, your physical abilities diminish unless you’re amazingly exceptional. I thought of a financial planner as a sort of “older person’s” profession.

Do the two have anything in common?

I saw both jobs as being of service. I think of myself being more an advocate than an advisor. I’m interested in helping people do what’s best for them in spite of, maybe, their own instincts.

How did you become interested in finance?

When I was a firefighter, one of the captains was interested in becoming a CFP. I looked at that work, and it intrigued me. I saw that a financial planner was in a place of trust, guidance and giving help. That was how I saw my role as a medic and a fireman. So it resonated.

Did you have any business background?

Earlier, I’d become involved with labor relations in the firefighters union; so my head was already in the space of legal issues. And I learned I had acumen for financial math.

Does having been a medic firefighter help you as a planner?

Understanding the importance of knowing who you’re there to serve is huge. It’s the ability to talk to people, listen to them and understand their needs and situation. Taking a history from a patient is very similar to getting to know your client and what they’re trying to achieve.

Anything else that’s similar?

Stepping across the line and committing yourself to a course of action you believe is best for the situation. That’s what you do in medicine and at a fire: After you size up, you make a plan of attack and then implement it. Then you reassess how it’s working and adjust as necessary.

Does your work on the medic side specifically ever come in handy as an FA?

I’ve got a sense of what the medical issues are and how they’ll translate [financially]. So I’ll talk to clients about health-related matters when we look at their needs, like whether they’re going to qualify for life insurance.

As a licensed paramedic, you’ve kept medical equipment in your office to check a client’s vital signs if they weren’t feeling well. You’re no longer licensed, so can’t have that equipment; but are you able to help a client some way under that type of circumstance? 

The other day a 92-year-old client with a medical condition phoned about some symptoms she was having. That was consequential information for her physician to have. So I got his office on the line and told them what was troubling her.

You joined ACP even before you opened your practice. What appealed to you? 

ACP gave me a way to communicate with clients regarding their broad financial picture, not simply their investments. Access to the ACP brain trust and community allowed me to quickly set up my practice and move forward as a solo practitioner. I knew I’d have a reliable resource to help me when I was faced with something new. Having a backup plan is key. I learned that in the fire department: Always have an escape plan!

What are the benefits of ACP’s retainer model?

It gives me a way to eliminate conflicts of interest. Anybody with financial knowledge can do the analysis. The key is whether or not the client is going to implement and buy the advice. If they think you’re conflicted, they’re going to discount your advice. So that’s crazy!  If they’re hiring me to advise them, I need to have a practice that’s set up to make it as easy as possible for them to [believe and trust] what I [say].

On July 24 of last year, you wrote to SEC Chair Jay Clayton in relation to Regulation Best Interest, explaining that RIAs “minimize conflicts of interest” by “only receiving compensation from client fees.” What was your purpose in contacting him?

The [SEC] never gets [rules] right — they always get it more confused because they don’t have a clear idea who their ultimate — concern is about. They’re trying to be friends to everybody — possibly more so to those they get financial backing from. People in politics are influenced by a number of factors. A lot of them don’t always seem to have a clear view of who the client is when they come out on the other side — in this case, Wall Street, the financial services industry and people with big pockets — instead of on the consumer’s side.

Please elaborate.

With a conflict of interest, it’s: Who’s your loyalty to? It’s like giving somebody advice with your fingers crossed behind your back. My job is to give good advice so clients get the best benefit, not so [I] can make a higher commission on one product than another.

How do you propose the “best interest” issue be handled? 

The easiest way to solve that whole dilemma would have been to just enforce the law: An advisor is an advisor, and a broker is a broker — and let’s be clear on that.

— Related on ThinkAdvisor:

Financial planner’s 3-step checklist to organize money, build wealth

One of the critical elements for building wealth is patience. Most people’s fortunes don’t materialize overnight; they’re more often the result a solid money-management system that’s implemented once and then modified over the years.

In a recent blog post, financial planner Sophia Bera revealed how her firm, Gen Y Planning, helps new clients set up a system to “get rich slowly.” Bera says it boils down to a three-step process, regardless of how much money a client has or why they’re seeking financial help.

First up, take a simple bird’s eye view of your finances. “Begin by taking an inventory of where your money is now, and where it goes,” Bera writes. Everyone should have a net worth statement, which shows what you own (assets) minus what you owe (liabilities), and a spending plan, she continued. A simple Google spreadsheet or an app like Mint or Personal Capital can help you visualize your cash flow.

After that, it’s time to get more granular. List out every account, debt, and expense you have, including every savings, checking, investment, retirement, and credit-card account. Take a hard look at each account or expense, Bera writes, and ask yourself questions like, “Does this checking account serve me?” and “Am I carrying the right credit cards?” The purpose of this exercise is to cut out what’s unnecessary and streamline what you need.

“Once you make adjustments to your accounts and loans (and this can take a few weeks or even a couple of months, by the way!),” Bera wrote, “you can begin to do one of my favorite things that makes money management easier: automate.”

Bera suggests setting up automatic transfers from a checking account into savings, investment, and retirement accounts, and automatic bill pay for your credit cards and loans. “If you have multiple short-term savings goals (like buying a home in the next year, replacing your old car within two years, or taking a big vacation when you turn 35 in three years), you can even automate money transfers into multiple savings accounts earmarked for each goal,” she wrote.

Bera is hardly the only financial expert championing automation. Bestselling author Ramit Sethi says it’s the key to being good with money and accumulating wealth: “It’s not that hard. It’s not a mystery. It’s not magic. It’s just math. It’s totally, totally understandable,” he told Business Insider.

However, Bera warns, even with your finances on autopilot, you still need to make time for checkups — on your own or with the help of a financial adviser — which can include increasing your retirement contributions, changing your beneficiaries after a marriage or divorce, and reassessing financial goals after big life events.

BlackRock, Microsoft developing 401(k) retirement tool

BlackRock and Microsoft’s 401(k) retirement tool will include guaranteed income planning and rewards for saving, according to the head of the asset manager’s retirement group.

The technology giant and the asset manager overseeing 15 million Americans’ 401(k) portfolios are developing an app and desktop tool aimed at narrowing the widening gap between what workers will need in retirement and how much they’re saving, said Anne Ackerley in a session at SourceMedia’s In|Vest conference.

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With so many factors unknowable, planning for retirement is perilous

That gap expands by $3 trillion each year, Ackerley noted, for reasons relating to culture, politics and financial literacy. Social media posts celebrate spending money rather than saving it, and millions of people have no access to a 401(k), she said.

Companies “need to have a social purpose,” Ackerley said.

She continued: “Both Microsoft and BlackRock really believe that financial security and financial well-being need to be in everybody’s reach, not just the wealthy. And we’re putting the resources from both companies together to try to help that.”

Ann Ackerley, head of BlackRock’s retirement group

Anne Ackerley, head of BlackRock’s retirement group, spoke at the SourceMedia In|Vest conference on the asset management giant’s plans for its upcoming retirement planning collaboration with Microsoft.

Ben Norman

The strategic partnership, unveiled in December, includes visualizations around the so-called next dollar problem, solutions on how to deal with student debt and simulations involving guaranteed income, Ackerley said.

An annuity will figure in the mix of the upcoming investment product, with Microsoft providing the technology platform, according to BlackRock spokesman Logan Koffler. The firms will begin rolling out their tool later this year, Koffler said in an email.

Why advisors ‘must love technology more than they fear change’

Charles Paikert | Lists

Microsoft and BlackRock are also designing methods of showing workers how much extra contributions today could end up netting them in retirement, Ackerley said. Rewards for additional contributions could be as simple as confetti appearing in the app, she said.

“We’ve been out testing it, and I know it sounds sort of simple, but people actually reacted to it,” Ackerley said. “They liked it, and they said it might get them to do something.”

The firms are also considering monetary payments from employers to incentivize workers to sign up as part of the “whole bunch of things” that could act as rewards, she added. Ackerley expressed support for employers automatically enrolling workers in 401(k) plans and increased access to 401(k)s.

Retirement planning covers a wide range of areas, and workers need tools to assist them if they are going to achieve financial security, she said.

“This is a really hard problem,” Ackerley said. “You don’t know how long you’re going to live. You don’t know what your expenses are going to be, particularly your medical expenses. You don’t know what the rate of return is going to be in the market, and [you’re expected to] ‘hey, go figure it out.’ That’s what we’ve sort of done.”


Tobias Salinger


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Fintech success story: TIAA and MyVest

You’ve acquired a fintech — congratulations.

Now comes the hard part: how can the firm be successfully integrated?

That process should actually start before the deal is sealed on both ends. Fintech firms need to ask themselves if they should stay independent, Anton Honikman, CEO of MyVest, told attendees at SourceMedia’s In|Vest conference.

Too many fintech firms focus on “the narrow and new” in an attempt to slice off market share from established companies, he says. But more often than not, he contends, this strategy results in gaining only a “tiny” share of a market and turns out to be “much ado about nothing.”

By contrast, established financial companies like TIAA must deal with issues that are “old and broad,” according to Scott Blandford, TIAA’s chief digital officer, who spoke on a panel Honikman.

Anton Honikman, MyVest CEO, speaking at InlVest in New York City.

Anton Honikman, MyVest CEO, speaking at InlVest in New York City.

Fintech firms that are able to solve problems for large financial institutions like TIAA can actually contribute “broader horizontal solutions” than they would have by remaining independent, Blandford observed.

TIAA’s acquisition of MyVest three years ago is an example of a combination of a fintech startup and an established institution that has worked, according to Honikman and Blandford.

Other examples include Invesco’s purchase of Jemstep, Envestnet’s acquisition of Yodlee and Fidelity buying eMoney, Honikman added.

The key to making these pairings work?

Above all, fight to maintain autonomy and your own identity, Honikman stressed.“Retain your own brand,” he told conference attendees. “Don’t co-locate. Have a separate office and a separate look and feel.”

Maintaining the fintech’s third-party customers is also critical, Honikman and Blandford agreed. “Having different customers keeps you competitive and dynamic,” Honikman said.

Indeed, TIAA encourages MyVest to have a separate customer base. “We benefit from the input and a fresh flow of ideas,” Blandford said.

Perhaps just as important to keep in mind is that fintech employees want to work for a fintech company, not for a large financial institution.

“If we had just one customer, 50% of my employees would leave,” Honikman said. Indeed, he said, the first consideration for an acquirer after buying a fintech firm should be “how do we retain talent?”

“If the buyer wants the firm they bought to grow and flourish, it starts with people,” he told the audience. “This is a talent-based business.”


Charles Paikert


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Steven Merrell, Financial Planning: Financial resilience

Question: I was raised in a home where we didn’t have much. It seemed like Dad was always working to pay the bills and Mom was always working to keep the family together. They did their best, but I always felt a like we were on the edge of disaster. I want something better for my family. How do I help my children develop a sense of financial security?

Answer: Before I get into a discussion about helping children feel more financially secure, I want to commend you for your desire to build on the foundation your parents left you. The ethic of each generation improving on the previous generation is one of the great hallmarks of our society. Hopefully, we never take that for granted.

Your desire stands in sharp contrast to a conversation I had with a very successful attorney several years ago. I mentioned the idea of leaving the world a better place for the rising generation. She surprised me by saying, in effect, that she had given up on that sort of idealism. Now that her children were raised, she was going to live her own life and her kids would have to figure it out for themselves. She was not yet a grandmother, but I asked about her future grandkids. She said that was someone else’s problem.

In contrast, as a father of five and grandfather of four (almost five), I feel a very keen interest in the kind of world they inherit. And while much of what I see in today’s world troubles me, I also see great reason for optimism. It is this connection between living optimistically while remaining conscious to life’s dangers that gets to the heart of how we help our children stay healthy — emotionally, socially and financially — in a very complex world. The key is to teach them correct principles, including how to be resilient.

Resilience is the ability to adapt to the vagaries of life in a constructive way. It is the capacity to recover quickly from difficulties. It is a kind of mental and emotional toughness that acknowledges hardship but refuses to be cowed by it. In my mind, the question isn’t so much how we instill a sense of financial security in our kids as it is, how do we help them develop financial resilience.

The best way to teach our children is to model healthy living — including following sound financial principles. When financial reversals hit — and they almost always do at some point — our children will see our resilience and learn to incorporate it into their lives.

You can reinforce your message by intentionally drawing attention to it. For example, if you experience a layoff, you can say something like, “Layoffs are a real bummer, but I am so glad we put aside an emergency reserve to carry us through times like this.”

Correct financial principles enhance our resilience. Such principles include living within our means, saving for a rainy day, saving for retirement, avoiding consumer debt, avoiding excessive student debt, getting an education, staying current with your education, investing properly, carrying enough (but not too much) insurance, making do with what you have, and doing without things that don’t support your core values.

One of the most important things you can do to enhance your financial resilience is to develop and keep current with your financial plan. A financial plan will show you how all the pieces in your financial life fit together. It is also a great vehicle for teaching kids to be financially resilient by giving them a better foundation for understanding the financial decisions you make.

Steven C. Merrell is an investment adviser and partner at Monterey Private Wealth Inc., in Monterey. Send questions concerning investing, taxes, retirement or estate planning to Steve Merrell, 2340 Garden Road Suite 202, Monterey 93940 or smerrell@montereypw.com.

Bank of America considering subscription pricing model for Merrill Edge

Bank of America is “absolutely” considering creating a subscription service for its Merrill Edge service, potentially making it the second major Wall Street player to offer clients a nontraditional way to pay for wealth management services.

“Clients are simply getting used to paying to subscriptions. It’s a logical next step. It’s just a question of getting the pricing right,” says Teron Douglas, head of digital capabilities at Merrill Edge, who was speaking at SourceMedia’s In|Vest conference in New York.

Douglas, who was responding to an audience member’s question, noted there’s precedence for such a move, observing that Schwab and some fintech firms have already put forward such offerings.

In April, Charles Schwab introduced a subscription pricing model, which has gained traction with clients. The company’s robo advisor added $1 billion in new client assets in the last three months, according to Bernie Clark, head of Schwab’s RIA channel. Thirty-seven percent of clients are new customers, says Clark, who also spoke at In|Vest.

Bloomberg News

Bank of America, meanwhile, has been expanding its range of wealth management offerings. In June, the company added a digital-plus-human-advisor option dubbed “Merrill Guided Investing with an advisor.” The bank already offered a DIY platform (Merrill Edge), a robo advisor (Merrill Edge Guided Investing) and its traditional Merrill Lynch financial advisors.

The new digital-plus-human offering has a $20,000 account minimum and charges an annual fee of 0.85%, compared to a $5,000 minimum and an annual fee of 0.45% for the purely digital version. Discounts are available for members of Bank of America’s preferred rewards program.

A subscription model could resemble what cable companies offer; a basic plan with options to add more services as clients need or want — for a fee, of course.


Andrew Welsch


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Retirement spending, confidence rebound even as global concerns loom

Despite concerns about a looming market downturn, clients have been buoyed by strong returns, shifting more money into equities and putting away more for retirement, according to the latest Retirement Advisor Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers.

“Clients are getting nervous about the economy but see stocks increasing,” one advisor says, noting that they have been moving more assets to equities in response.

“Better market, more aggressive,” says another advisor.

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Thus, the RACI component tracking spending on equity-based securities increased 4.4 points in the most recent month, posting a mark of 58.5, up 5.8 points from the same month last year. RACI scores higher than 50 show an increase, while scores below that mark indicate a decline.

The equity score — while it bounced back from an earlier decline — still was the second-lowest mark in that category this year, suggesting some jitters about a potentially worsening global economy and ongoing trade tension.

Some advisors report their clients are beginning to feel the stock market is overpriced and are responding accordingly.

One advisor explains that clients are “feeling the market is expensive so [they] moved assets to cash.”

“The market value of securities, in general, has many clients nervous enough to take a little money off the table,” another advisor says.

Cash allocations jumped 2.7 points from the previous month, notching a score of 50, up 6.5 points from the year-ago period. In general, cash allocations were down from the earlier months of this year, but well ahead of where they stood in the second half of last year, when they hovered in the 40s and reached a nadir of 33.8 at the end of 2018.

In total, the RACI composite index was 52.5, rebounding 2.4 points from the prior month but still down from its scores in the mid-50s from earlier this year.

Many clients seemed to regain their tolerance for risk in the retirement space despite worries about an overheating market and ongoing global uncertainty.

The component of the RACI index measuring risk tolerance checked in at 51 in the most recent month, up nine points from the prior month and 8.8 points from the year-ago period. Risk tolerance hit a high of 60.8 earlier this year, but the most recent score of 51 still ranks ahead of where the index was in the second half of 2018, just once rising above 50 and eventually plummeting to 25.8.

However, some clients see an opportunity in a prospective market dive.

“As the stock market hit record highs, clients are expecting a correction,” one advisor says. “More than ever, if the market goes down 20%, they then want to increase their equity allocation.”

CFP Board delays stronger fiduciary enforcement by 9 months

After concerns expressed by both large industry players and solo practitioners, the CFP Board announced it won’t punish CFPs for failing to adhere to its new fiduciary standard for nine months after it goes into effect on June 30, 2020.

The decision comes two weeks after the CFP Board said it would neither weaken nor delay implementation of its heightened fiduciary standard in response to the SEC’s passage last month of a lesser standard as part of its Regulation Best Interest rulemaking, causing confusion among certified planners about reconciling the two rules changes.

“We said that CFP Board would not be led by actions regulators take, but we won’t ignore them either,” said Susan John, the board’s chairwoman, in a press conference. She added in a subsequent interview: “We think that, really, this is the best way to have as many CFPs as possible living into the standard.” While John earlier said there would be no delay, CFP Board CEO Kevin Keller had indicated the board might delay enforcement.

Jeffrey Sauers, commercialphoto.com

As to the standard itself, John emphasized that its provisions remain unchanged and “ironclad.”

By its original implementation date of Oct. 1, however, the board will expect its CFPs to be practicing at the higher fiduciary level – one which requires all CFPs to put their clients financial interests before their own while providing financial advice — even if it won’t yet penalize them for failing to do so. After that date, the test the board administers to CFP candidates, as well as its continuing education classes in ethics, will teach to that standard and not the current one.

The existing standard only requires CFPs to act as fiduciaries when providing elements of financial planning, an arguably lower threshold.

Tim Welsh, CFP and president of Nexus Strategy, was critical of the decision. “This is definitely a nod to the industry,” he says of the board’s decision to delay enhanced enforcement. Instead of postponing any aspect of the upgrade, the board’s attitude should have been, he says, “Just do it.”

CFP Board Chairwoman Susan John says the board may offer an accommodation to brokerage firms: “We do want to help them live into it.”

CFP Board Chairwoman Susan John says the board may offer an accommodation to brokerage firms: “We do want to help them live into it.”

John counters that given the complexities of Reg BI, which runs to hundreds of pages, the board made the right call in opting for a delay.

“By setting this enforcement date, we are ensuring CFP professionals have ample time to adapt their policies to be in alignment with the new rules,” she says.

In town hall forums as recently as two weeks ago, John adds, CFPs expressed genuine confusion about how to operate in order to satisfy two masters, one a federal regulator and the other a nonprofit certifying body.

She says that accomplishing this is not necessarily a straightforward matter, even in her own practice. John is the founder of Financial Focus, an RIA in Wolfeboro, New Hampshire, which she sold to F.L. Putnam Investment Management earlier this year.

In an interview, John and CFP Board CEO Kevin Keller were asked how the board would handle a situation in which CFPs in a large corporation were found to have violated their fiduciary duties on orders from their employers once enforcement of the standard goes into full effect. The SEC has brought actions against large firms for such fiduciary breaches in recent years. At least one allegedly involved a CFP, against whom the board is not known to have taken any action.

John said this kind of challenge could push the board into new territory, given that its disciplinary focus thus far has been on sanctioning individual CFPs and, in the worst cases, stripping them of the use of their marks.

But there is some precedent for more broad-based action, Keller said, citing an incident that occurred shortly after he became CEO in 2007. In response to reports of systemic misbehavior, Keller says, “I sent a letter to 700 people who worked at one firm because it was a credible allegation … That is the action that we took just to remind them of their ethical obligations under their CFPs.”

He declined to provide further details about the outcome of the incident or what bearing it might have on future actions once the board begins enforcing its stronger standard next summer.

“It’s our role and our mission to make sure that the CFP letters after a person’s name means something,” Keller says.


Ann Marsh


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Steps for millennial clients to start investing for retirement

Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.

Half of millennials invest, and the other half can join them

More than half of millennials have started to cut back on their spending to save for retirement, according to Bankrate report.

Just 50% of millennials surveyed by TD Ameritrade in 2018 “said they invest — including in their retirement accounts,” according to a NerdWallet article.

Bloomberg News

Investing is easier than millennial clients may think, according to this NerdWallet article. To join the half of millennials who do invest, these clients can lay a financial foundation in a few steps, an expert says. Before investing, clients can begin paying down high-interest debts and building up an emergency fund, the CFP says. Their first investments should be for their retirement in 401(k) and IRA plans. After that, it’s acceptable for them to invest in individual stocks or use a robo advisor that builds their portfolio, according to the CFP.

A quick summer checkup for 401(k) plans
Summer is a great time for clients to review their 401(k) plans, according to this article in Money. Clients are advised to check whether their portfolio is overweight in stocks, and to rebalance, if necessary. It is also worth revisiting their tax brackets in light of the 2017 tax law. If clients lower their taxable income through higher 401(k) contributions, they may be able to drop a bracket, the article says.
5 ways clients can lower household spending in retirement
Moving to a fixed income can be frustrating for clients used to fewer constraints on their budget. But with some lifestyle adjustments, they can stretch their money while still doing what they love, according to this Motley Fool article. Moving to a smaller home saves on energy costs, property taxes and mortgage payments. Driving just one vehicle can cut thousands of dollars from their budget, the article says. Cooking more meals at home and exercising outdoors, instead of paying a gym membership, are two ways clients can live healthier and save. Entertainment and culture can also be affordable. Many parks, museums and events are free, the article says.

Survivor benefits can bridge clients until retirement — at a cost
By taking a survivor’s benefit at age 62, a client will be paid at that benefit level even if they retire at age 65, according to Forbes columnist Laurence Kotlikoff. Clients who wait until age 65 to claim their benefit will receive a higher amount, and those who do not retire until they are 70 years old will get an even higher payout, according to the article.


Graison Dangor


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Former Atlas Financial Group Team Members Launch OneTeam Financial, LLC

Holistic Planning Firm Provides Financial Services with a More Robust, Collaborative Approach

CRANFORD, N.J., July 16, 2019 /PRNewswire/ — A team of executives and staff formerly of Atlas Financial Group, a financial planning firm located in the tri-state area that provides holistic financial planning services, have launched OneTeam Financial, LLC. Under the new company, the team members will provide holistic financial planning services including strategies to maximize wealth, minimize taxes and expenses, create life-long income and protect families from avoidable financial pitfalls. The firm will do so with resources that are more robust, a more knowledgeable team and newly expanded and refined processes for the development and maintenance of clients’ financial plans.

“The name OneTeam Financial signifies the commitment we have to serve our community. As our team transitions into this next chapter, we are excited to serve tri-state area residents through a collaborative approach with a robust staff of highly-credentialed professionals from a variety of disciplines,” said David Buckwald, CFP®, CLU®, ChFC®, CLTC®, NSSA®, CEO of OneTeam Financial, LLC. “While we have been providing team-based holistic financial planning for years, we believe OneTeam Financial is a better reflection of our unique approach to retirement planning.”

The new company tagline: “The Expertise of Many. The Synergy of One.” refers to the behind-the-scenes collaboration by the firm’s team of experts and the output of the team’s collaboration—a holistic financial plan designed to coordinate and align all areas of one’s financial life.

“By increasing our pool of expertise and expanding our team, we can provide local residents with specialists in a variety of areas including wealth management, investments, IRAs, insurance, Social Security, tax planning, estate planning, Medicare, real estate and more,” said Greg Dillion, CFA®, CFP®, CLTC®, NSSA®, principal of OneTeam Financial, LLC. “We look forward to working with the local community in this new capacity and further enhancing their financial planning experience with our expanded team of professionals.'”

For more information about OneTeam Financial, visit www.OneTeamFinancial.com.

About OneTeam Financial, LLC
OneTeam Financial, LLC is a financial planning firm located in the tri-state area that provides proactive holistic retirement and income planning services for those at and near retirement. Through a collaborative, team-based approach, the firm works to provide advanced and diverse expertise to help clients maximize their wealth, minimize their taxes and expenses, create a lifetime income and protect families from avoidable financial pitfalls. For more information about OneTeam Financial, visit www.OneTeamFinancial.com.

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. OneTeam Financial is independently owned and operated.

MEDIA CONTACT:
AdvisorPR®
(702) 685-7450

 

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Millennials are seeking accelerated career progression in advisory firms

Keeping talented young recruits in place means creating the right balance of learning with realistic expectations for the timing of career advancement.

We’ve reached the point in the financial advisory industry’s evolution where we need to move beyond the kind of ad hoc career development that has previously defined the advisory career track.

In the past, advisory jobs advanced and progressed as the firm grew — without any systematic management or guidance. Historically, it has taken 10 to 15 years for a junior advisor to progress to senior level position. Now, the industry is more mature and diverse and in need of a more disciplined and purposeful career management process. I am seeing a change in the timing of career progression for the advisory track. What once was a decade-or-longer process is now a five-to seven-year progression.

Kelli Cruz

Columnist Kelli Cruz recommends outlining a plan for progress, development and growth over an employee’s career.

Moreover, millennials, who grew up in a faster-paced, social media-driven world, have taken over the job market and are simply not wired to wait as long as previous generations of advisors did to excel in their careers. According to the Manpower Millennial Careers: 2020 Vision report, while millennials do place a high priority on the security of full-time employment, they also want flexibility, new challenges, and advancement. According to that study, millennials want new opportunities with their current employer — 63% intend to stay with them for the next few years or longer. However, when asked what the “right” amount of time is to stay in a single role before being promoted, about two-thirds said less than two years and a quarter said less than 12 months — confirming their appetite for new challenges.

That means the challenge for today’s firms is creating the right balance of learning with realistic expectations for the timing of career advancement. I believe the answer lies in setting the right expectations for your employees from the beginning, starting with the recruiting process. The other key is ensuring that once that talent is hired, that there are sufficient options for learning to keep employees engaged and committed to the firm’s long-term success.

But aside from millennial impatience, why are we seeing this shortened timeline? A great deal of credit goes to the emergence and success of the personal financial planning programs, and the preparation they give to young advisors entering the job market.

According to Financial Planning’s 2018 annual survey of colleges and universities that offer CFP Board-registered degree programs, there are more than 102 such programs around the country. They have been extremely successful in attracting and educating talent for the advisory industry. Students not only gain industry knowledge from the excellent curricula provided by these institutions, they add to their education through internship programs. Some undergraduates start in their sophomore year and continue to gain practical work experience until graduation.

Yonhee Gordon, principal and COO at JMG Financial Group in Chicago, has seen the advisory career track timing shortened. She attributes this acceleration to several factors, one of which is the firm’s strategy of hiring graduates from PFP programs into an entry-level role of financial planning associate. These already experienced recruits hit the ground running from the start of their tenure with the firm.

Another integral part of JMG Financial Group’s recruiting efforts is to create awareness of a career path in the industry by inviting local students to their office to spend the day with employees of the firm and learn about the industry as a whole. The firm is also very committed to investing in technology, which can free-up time to focus on the higher-value activities that create a more challenging and engaging employee experience.

Millennials, who grew up in a faster-paced, social media-driven world, are simply not wired to wait as long as previous generations of advisors did to excel in their careers.

Bloomberg News

“Making JMG Financial Group a top place to work is fundamental to our ability to provide consistency and drive results. Since our founding in 1984, we’ve worked to attract and retain a talented team that is deeply committed to our clients. Creating bench strength and depth in the advisory ranks is key,” states Gordon.

Creating bench strength is an important principle for any firm that has growth as a key strategic initiative. And in order to grow, you need talent. We can learn a lot from professional sports organizations in this regard.

Take, for example, my favorite basketball team, the Golden State Warriors. Its success over the last five-year NBA finals run was largely built by developing young talent over time. Three of the starting five players were original Warrior draft picks and it wasn’t until the organization was well into its championship run that they recruited MVP player Kevin Durant. Although the Warriors did go on to win two championships after Durant joined the team, his recent departure shows us that no amount of money will keep a team member onboard if they are unhappy and not a cultural fit. The Warriors’ winning culture comes from select recruitment and relentless training, augmented with the occasional experienced recruit to round out the bench.

Another part of building a strong bench is the training and development process. I recommend developing and implementing a well-defined career path that outlines a plan for progress, development and growth over an employee’s career — one that covers the progression of capabilities, skills and experience.

Many of the prospect calls I have received over the past 12 months are generated by a need to create a career path for the employees in the firm. In some cases, firm leaders feel the need to create a separate career track for every role in the firm. One of my clients, for instance, wanted to create a separate career path for a dedicated data management/technical role even though there were no plans to add technical jobs in the future.

Undoubtedly, it is easier for larger firms to offer defined paths of career progression. However, at smaller firms job roles are typically blended so employees get the opportunity to learn the functions of the firm quickly. Additionally, because roles are not specialized, everyone must pitch in and do whatever it takes to service clients.

I encourage my clients to think of career progression as a traditional apprenticeship program within the financial services industry. I call the first phase of the path the Financial Planning and Investment Management Apprenticeship. This encompasses the roles of operations and client administration, support advisor and the introduction to servicing clients. Phase two is the Relationship Management Apprenticeship, which then progresses to include Business Development and Leadership Apprenticeships. Along the way employees are learning different skills and gaining experience that eventually can lead to running the firm with other partners. I believe that clarifying and explaining the apprenticeship pathways will meet the desires of today’s new talent.

It’s time for firms to reimagine their talent management practices, and to remember that career progression doesn’t always have to mean promotion. Climbing the proverbial career ladder isn’t as up-and-down as it used to be; sometimes you also have to move left and right.


Kelli Cruz


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