FA Insights is a daily newsletter from Business Insider that delivers the top news and commentary for financial advisors.
Why Some Investors Should Take Social Security Benefits Early (Wall Street Journal)
Social security benefits are currently “unsustainable”, and overdue for change, Scott Hanson at Hanson McClain Advisors warns that. Therefore, investors that have done well in terms of savings would be better off taking their benefits early, since the same benefits might not be around much longer.
“This idea is not that far fetched. Thanks to new taxes and amendments to Social Security during the 1980s and 1990s, benefits to retirees with higher incomes have been significantly reduced,” Hanson wrote in a WSJ column. “Additionally, we’re already seeing something very similar happen with surcharges in Medicare Parts B and D. When a retiree’s income reaches a certain threshold, they’re now required to pay higher premiums. That change came without much political wrangling or voter backlash–it just arrived one day as part of a tax package.”
“For me, the question for advisers and clients then becomes what is the likelihood that you will actually receive this income in the future? What is the probability that you will be repaid on your investment in Social Security? As advisers we do some sort of risk analysis on any investments our clients make–that same evaluation has to be done on this investment as well.”
With baby boomers retiring, most major wealth holders are quickly moving to the next generation. However, a study cited by Vanguard said that half of investors 30-42 are dissatisfied with their current advisor. Vanguard advises connecting with clients’ families to better anticipate changed expectations and plan for inherited assets. “Forward-thinking advisors can turn this lack of engagement to their advantage by developing relationships with clients’ families well before money passes between generations.” Vanguard said. “With these meaningful but uncommon connections, an advisor is strongly positioned to retain assets and gain a new generation of clients when wealth eventually transitions.”
Financial Planning Survey Shows Retirement Planning Is Down, Risk Tolerance Is Up (Financial Planning)
The Financial Planning Retirement Advisor Confidence Index dropped to 54.2 in June, after three months of strong tax-related retirement activity. “The survey, which asked respondents to focus on May activity, showed big pullbacks in two retirement-related components: both the number of retirement products sold (which pulled back 8.2 points) and the dollar amount contributed to retirement plans (down 10.6 points). Both pulled the overall index downward,” according to Rachel Elson at Financial Planning.
“Advisors also noted a disconnect between client sentiment and portfolio allocations: They reported increasing allocations to both cash and bonds, despite growing client interest in taking greater portfolio risk. ‘Clients who didn’t have high equity allocations in 2013 now have equity envy,’ one respondent says.”
Businesses need to constantly adapt in order to survive, and that includes incorporating tech advancements. Sheryl Rowling from InvestmentNews points out the first step to understanding the technology needs of the future is reaching past the generation gap.
“To have a sustainable business, advisers must reach out to younger generations, both as clients and employees. But there is a huge generation gap brought on by the age of technology. Recognising that gap is the first step in building a bridge,” Rowling said. “Mastering technology, rather than just using it, is imperative to creating a firm that will last. To do that, we must hire more tech-savvy employees and listen to their ideas with open minds. The next generation wants to be involved in influencing the future. We can teach them the financial business but we need to rely on them to move our practices into the future.”
NAPFA Will Start Losing Members (Financial Planning)
The National Association of Personal Financial Advisors (NAPFA) will lose an estimated 5%, or 125 planners, after a fee-only rule change to match the Certified Financial Planner Board. “The rule change eliminates an exemption, in place since 2004, that had allowed members to keep ownership stakes of 2% or less in firms that take commissions,” Financial Planning’s Ann Marsh reported. “The new rules are effective immediately. Geoffrey Brown, NAPFA’s CEO, says the group will review members on a case-by-case basis as each member’s annual membership comes up for renewal.”
“NAPFA requires that all of its members — currently about 2,500 — be fee-only planners and accept no commissions. The 2% exemption allowed larger firms more complex ownership structures, as long as they only took fees from their clients. NAPFA began reexamining the exemption last year, when the CFP Board publicly clarified its rules for use of the term fee-only after summarily dismissing its own chairman in part over such an ownership stake.”
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.