There’s never a lack of stories about advisors and the advice they offer. As in other years, 2021 was replete with predictions and proclamations about financial direction.
1. Too Late For The Bitcoin Gold Rush?
The gold rush for Bitcoin might be subsiding, even though predictions are the digital currency will still increase in value. FOMO, the fear of missing out, is driving consumers to grab Bitcoin now, but they may be too late.
There’s still money to be made off Bitcoin purchased today, but investors won’t enjoy the same multiples as early adopters.
That is because even if each bitcoin grows to hundreds of thousands of dollars in value, it is not the same multiple that someone would have seen with a bitcoin purchased several years ago, said Jamie Hopkins, Carson Group director of retirement research.
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2. Hall of Fame, Fall of Shame: Marshall Faulk Loves Planning With Insurance
It might be hard to sympathize with multimillionaire athletes pleading poverty. Yet, the field is full of pro sports stars who could have made use of some financial advice. Lack of role models is a big part of the problem, said said, along with many athletes coming from low-income, low-financial literacy backgrounds.
“You get these circumstances where these guys, even as high schoolers, such as Lebron James, are signing multimillion-dollar contracts,” said Matt J. Goren, assistant professor of financial planning at The American College of Financial Services. “And you have no frame of reference for what you’re getting yourself into.”
For every story of an athlete who is smart with his money, like Dwayne Wade and Venus Williams, there’s the Evander Holyfield and Mark Brunell, who squandered their wealth with bad decisions and bad investment.
Things are slowly changing. Most pro sports leagues now include financial literacy as part of rookie orientation. Likewise, major colleges that turn out a lot of athletes are offering financial literacy programs.
3. ‘Decade Of Disappointments’ Coming, World Bank Says
Maybe, just maybe, the COVID-19 pandemic will subside in the coming year, at least on our physical wellbeing. Financially, might be a different story. The World Bank said the planet’s economy is going feel sluggish for the next decade.
The disinvestment during the pandemic, especially in developing regions, is going to compound over the next 10 years, compound over the decade, slowing down the economic spurt expected as the pandemic subsides, the bank’s Global Economic Prospects report said.
“If history is any guide, unless there are substantial and effective reforms, the global economy is heading for a decade of disappointing growth outcomes,” according to the authors.
4. Building Back Stronger: Recruit and Train More in 2021
The National Association of Insurance and Financial Advisors said One of its key challenges during the pandemic is bringing in new people who will be successful. Recruiting is tough at any time, but in an interview with InsuranceNewsNet Publisher Paul Feldman, Tom Michel, NAIFA’s then president-elect told how some basic values inform his recruiting
“First of all, we have to think more diverse and be more inclusive,” he said. “People do business with people they know generally and who they like and who are similar to them. I don’t think any of those characteristics will ever change. My client looks a lot different than that of the 25-year-old new advisor in my office.”
5. 1 In 5 Delaying Retirement Because Of COVID-19, MetLife Says
A MetLife study found the pandemic has caused one in five retirement plan participants to delaying their retirement.
The postponements are driven primarily by financial reasons, MetLife said, with respondents citing the top reasons for the delay as a continued need for a monthly income (31%) and that the pandemic has impacted their ability to save (23%).
On the flip side, one in 10 retirement plan participants said the pandemic has actually caused them to retire sooner. Those who said the pandemic is leading them to retire earlier are most often doing so because of a pandemic-related change in perspective.
Nearly one-third (31%) said they are retiring early because of a new perspective that “life is too short.” Nearly one-quarter (23%) said they are retiring early because of a desire to spend more time with loved ones or to have more free time for themselves.
6. Americans More Secure, But Retirement Not So Much
Americans are more secure about covering their expenses and are more optimistic about the future than they were a year ago, according to a New York Life Wealth Watch survey. But, and there’s always a but, they are not building the foundation for that security.
As COVID-19 was reaching pandemic status, Americans were already uneasy with their finances, the survey said, with only 53% of respondents confident in their ability to pay their monthly bills. But this year, 73% were confident.
In 2019, only 42% of Americans were confident they could pay for a personal emergency; by March of 2021, 55% said they could handle it.
More people were also feeling more confident that their retirement savings will last their lifetime, although it was still less than half of the respondents who said they felt very or somewhat confident.
7. DOL Drops ‘Bomb’ On Advisors Who Give Advice To IRA Owners
The Dept. of Labor issued a new interpretation of its Prohibited Transaction Exemptions that dropped a bomb on unwary wealth managers to give investment advice to IRA owners.
The DOL said most recommendations to make a rollover are considered fiduciary investment advice and listed a number of inherent conflicts of interest advisors need to consider addressing, including receiving variable compensation or compensation from a third party in connection with that fiduciary advice in order to avoid a prohibited transaction.
Rollover Advice is Conflicted Investment Advice if the Adviser is paid from the IRA. The ruling impacted all wealth managers who recommend rollovers, even if the advisers had no advisory relationship with a plan itself. This is a major departure from past practice, since historically advice to roll assets out of a Title I Plan, even when combined with a recommendation as to how the distribution should be invested, did not constitute investment advice.
8. The Zero Estate Tax Plan: The Cure For Planning Fatigue
The ever-changing estate-planning landscape for high net worth clients is insane, according to Ron Sussman, CEO of CPI companies.
Estate planning is, by definition, he said, a long bet with an uncertain outcome, made riskier by employing tax strategies that work only if today’s laws remain unchanged. Which, in itself, is a rarity, he said.
Planning for the disposition of your client’s highly appreciated assets is really more of an exercise in futility, since there is no way to know when and if the tax laws will change or be abolished. This is convenient if you charge for advice, since there is very rarely a time when the tax laws are not in flux. But it can be very frustrating to clients who are trying to achieve a specific outcome.
9. Biden Tax Plan May Leave Estate Tax Alone, But Kill ‘Step Up’ Provision
There were no changes to the estate tax included in President Joe Biden’s tax plan, and a proposal to eliminate the step-up in basis didn’t fly.
Wealthy families breathed a sigh of relief because the exemption rate in the estate tax was not lowered. The president campaigned on lowering it to $3.5 million, down from $11.7 million, but he had planed to eliminate the step-up in basis that could have slammed heirs with a significant capital gains tax bill, particularly if that rate is increased to match income tax rates, as Biden is proposed. With the Medicare surcharge, the top rate would have gone to 43.4%.
The step up in basis resets the cost basis of an asset upon inheritance for the purpose of capital gains. Say someone bought an asset for $100 in 1970. The person died in 2020 with the asset worth $1,000 and left it to an heir. The step up in basis allows the cost basis of the asset to be reset to the value on the date of death – in this case, $1,000.
Thus, if the heir decided to sell the asset immediately, they wouldn’t owe any capital gains taxes. If the step up in basis were repealed, the heir would have to pay taxes on the $900 gain. Critics say the step up in basis allows tax avoidance. However, eliminating it would would likely have amplified other tax code flaws.
10. Your Clients Are Likely Underestimating Their Lifespan By 5 Years
If advisors and clients are looking at the average American lifespan as a yardstick for their retirement planning, they are most likely going to need a bigger stick.
That’s because Americans are underestimating their longevity by five years on average, according to a Capital Group blog post.
The underestimate owes much to the way people look at longevity statistics, which is to look at the aggregate. Overall, Americans are not doing great with longevity, falling behind many other advanced countries – and dropping.
The average in the first half of 2020, which was the latest available, was 77.8 years, which was a year younger than 2019, according to the Centers for Disease Control. Although the average has been stagnant or dropping for several years, the sharp decline early last year was attributed to COVID-19.