Wealth Management
(Washington)
Rollovers are about to see a huge change. Advisors have largely been sleeping on the effects of the new fiduciary rule, largely because the current one was drafted under Trump and is thus milder. However, what many don’t realize is that come December, rollovers are going to be a lot more complicated. According to Fred Reish, leading industry attorney, the new rule “has turned the rollover world on its head”. Speaking further and addressing compliance, he added “A whole series of steps have to be taken to adjust to this standard”.
FINSUM: Okay so here is the reality. Full implementation begins in December, but the DOL may grant a last-minute stay because it is working on a full new fiduciary rule draft (Biden’s version). In either event, the new rule will certainly not be lighter than this version.
(New York)
Model portfolios are seeing great inflows recently, but their popularity has created its own problems. The biggest of those problems—a dizzying proliferation of funds. Today we are going to make an off-the-cuff recommendation. How about a one-stop, no fee “model portfolio” for retirement. The model portfolio? Buy these four ETFs: the Vanguard Total Stock Market ETF (VTI), the Vanguard Total International Stock ETF (VXUS), the iShares Core Total USD Bond Market ETF (IUSB), and the Schwab US REIT ETF (SCHH).
FINSUM: This is in jest of course, but this is a dead simple and well-conceived set of ETFs for retirement.
(Washington)
Advisors and their clients have spent much of this year worrying about Biden’s tax plans. Two of Biden’s budgetary priorities to raise tax revenue fall squarely on the wealthy: nearly doubling capital gains taxes and the elimination of the step-up in basis in inheritance. Well, speaking on condition of anonymity, according to Bloomberg, Washington insiders are saying the elimination of step-up in basis (often panned as a “death tax” by critics) seems be heavily watered down, or maybe dead altogether. The proposal received heavy opposition and Democrats may have already backed away from its inclusion in the budget plan, or may go with a heavily diluted proposal.
FINSUM: So there is also a big knock-on effect here as well—it means the Democrats likely won’t hike the capital gains taxes to 28% or more on the wealthy, as hiking it much without having eliminated the step-up in basis will likely end up costing the government money.
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(Washington)
The SEC is sending some very disconcerting (if you are advisor), and not so subtle signals on its plans. This version of the SEC has taken a very different tact in its appointment of critical staff. Effectively, it has closed the revolving door. And what we mean, is that in contrast to previous SECs, this one has brought almost no one in from the industry at a senior position. Instead, it is being staffed with prosecutors, consumer advocates, and other regulatory-oriented government types. The appointments seem to be a reflection of Gensler’s policies priorities and views on how he wants the SEC to conduct itself during the Biden era.
FINSUM: The SEC is sending the loudest message it possibly can without writing it on the wall. The “read between the lines” is clear: enforcement is going to be intense.
(New York)
When clients think about retiring early, Social Security benefits and their timing are often a critical consideration. However, what most don’t realize is that health insurance costs are often the biggest hindrance to retiring early. This means advisors have a crucial role to play in helping advisors plan for retirement healthcare costs. One of the main options for keeping costs lower is to use Obamacare (ACA insurance) for the period between retirement and Medicare eligibility. However, this takes significant planning, as the pricing for this is based on modified adjusted gross income (MAGI). The way MAGI is calculated includes some standard forms or income, but excludes others, such as Roth RIA contributions.
FINSUM: Advisors need to be careful in how to structure client income during this period of retirement as it can have a very material effect on insurance pricing and thus cost of living.