Journal of Personal Finance Tools, Techniques, Strategies

115 Pages·2008·3.94 MB·English

Journal of Personal Finance
Tools, Techniques, Strategies, and Research to
Aid Consumers and Professional Financial
Advisors
Volume 3 Issue 1
The Official Journal of the International Association of
Registered Financial Consultants
2 Journal of Personal Finance
CONTENTS
EDITOR’S NOTES .................................................................. 8
®
John E. Grable, Ph.D., CFP , RFC
FEATURED COLUMNISTS ........................................................ 14
The Basics Of Tangible Asset Investing ............................................. 21
Burnett Marus, RFC, Burnett Marus Associates
PLANNING STRATEGIES
Utilizing Variable Universal Life To Fund Higher Education: A Superior
College Saving Strategy For Middle Income FAMILIES ........................ 27
Wesley A. Bacon
For most education funding advisors, Section 529 (QTP) and Section 530
(CESA) plans are the primary college funding vehicles because the earnings
within the accounts accumulate tax free so long as the proceeds are used to
fund expenses related to higher education. Yet using these plans increases
the amount that the family is expected to pay for the college education of
their child because these accounts are recognized as assets by the federal
method of calculation the family’s expected family contribution (EFC). This
paper proposes that variable universal life insurance (VUL) can more
effective than QTP and CESA accounts on a tax adjusted basis because
monies invested in VUL policies are not included in the EFC calculation. To
test this theory, several trials comparing the relative EFC costs of using VUL,
QTP and CESA plans was run using families representing different income
groups. The results of these trials indicate that VUL is a superior college-
funding vehicle for families with less than $100,000 in income.
Issues With 412(i) Plans .................................................................... 43
Ronald K. Stair, Ph.D., EA, Creative Plan Designs, Ltd.
Section 412 of the Internal Revenue Code (Code) specifies funding requirements
for pension plans which are qualified under 401(a) of the Code. Failure to com-
ply with funding requirements can lead to excise tax penalties. This article
discusses the design requirements of a fully insured defined benefit pension
plan under Section 412(i) of the Code. Issues related to abuses of the require-
ments in the marketplace are also discussed. Key definitions are provided as
endnotes. The article concludes with a cautionary observation, namely, prudent
financial advisors and consultants should design plans which conform to the
Code and regulations as outlined under Section 412.
©2004, IARFC All rights of reproduction in any form reserved.
Volume 3,Issue 1 3
PRACTICE MANAGEMENT
H.R. 1000 And The Independent Financial Planner ........................... 58
Cris de la Torre University of Northern Colorado,
Kenneth P. Moon University of Northern Colorado
Present ERISA regulations prohibit an agent or employee of a fiduciary
advisor from providing investment advice. Proposed legislation (H.R. 1000)
would eliminate this prohibition and allow the 401(k) provider or advisor the
opportunity to give advice, inclusive of the provider’s own funds, to the
participant. The independent financial planner should realize that the pro-
posed changes may produce formidable competitors with inherent advan-
tages. The battle for the right to receive impartial investment advice has been
joined by Congress. This paper represents a call to arms by examining the
compensation and advice prohibitions in light of the proposed legislation,
alerting the practitioner of potential problems.
RESEARCH AND THEORY
Student Financial Aid: A Review Of Literature .................................. 73
Oscar Solis, Ph.D. Texas Tech University,
Ralph Ferguson, Ph.D. Texas Tech University,
Veronica P. Villarreal, Ph.D. Texas Tech University,
Dorothy C. Bagwell, Ph.D. Texas Tech University
This review provides a summary of the development of financial aid in
education and points out the effects of student loan debt for borrowers. The
cost of education continues to escalate and financial aid has not kept up with
the needs of borrowers. More students have to generate a higher debt level
to achieve a degree. Implications for financial advisors, consultants,
counselors, and financial educators are presented.
4 Journal of Personal Finance
Financial Behavior and Problems Among University Students: Need for
Financial Education ............................................................................. 82
Masud Jariah University Putra Malaysia,
A.R. Husniyah University Putra Malaysia,
P. Laily University Putra Malaysia,
Sonya Britt Kansas State University
Many students rely on loans to get them through college. Yet, sometimes
students borrow too much money while in school. Excess loan money leads
to debt that students must pay back after graduation delaying other financial
goals. With the proper educational support about living independently,
students can reduce their chance of obtaining unnecessary debt from
educational loans. Young adults generally learn their skills from parents and
teachers as children. However, parents often overlook teaching financial
skills, such as budgeting and investing, while their children are still living at
home. Instead, children are forced to learn how to handle their money when
entering college and sometimes they make mistakes that will cost them several
years of repayment of loans. This study examines what kinds of financial
problems students face. By knowing what problems students encounter, it is
possible for educators to offer a course that teaches the financial skills
necessary to overcome these problems. The participants were asked to
indicate what financial education they would be interested in if offered.
Nearly all of the students expressed an interest in learning about financial
management.
BOOK REVIEW
Garrett's Guide To Financial Planning: How To Capture the Middle Market
and Increase Your Profits .................................................................... 97
Reviewer: John E. Grable, Ph.D., RFC
INSTITUTIONAL PROFILE
Kansas State University .................................................................... 101
©2004, IARFC All rights of reproduction in any form reserved.
Volume 3,Issue 1 5
Write an article today! The Journal of Personal Finance is currently
accepting manuscripts and reviews for publication in future issues.
Practitioners, this is your opportunity to contribute to the profession
by sharing your ideas and insights with others. Academicians, this is
your opportunity to add tothe body of literature in personal financial
planning through a rigorous peer reviewed process.
The Journal of Personal Finance is unique in its publication approach. The
Journal’s Research Policy Board and I are committed to publishing timely
original contributions that offer readers applicable personal financial
planning tools, techniques, and strategies.
The Journal is practitioner oriented. Approximately one-half of each issue is
devoted to practice management articles written by financial consultants and
academicians. Each issue also includes empirically based academic articles.
Both qualitative and quantitative articles are acceptable. A blind peer review
process is used to evaluate each manuscript. Contributors are encouraged to
submit papers corresponding to the following topic areas:
Client Relationship Management
Financial Planning Trends
Technology Issues
Planning for Special Needs
Regulation Overview
Ethics of Financial Planning
Practice Management Techniques
Interesting and Unique Planning Tools and Techniques
Investment Decision Management
Marketing Methods
Book Reviews and Letters
Attitude and Behavioral Measurement
The audience for the Journal consists primarily of practicing financial
planners, insurance advisors, other securities industry professionals,
consultants, and academicians. Empirically based submissions should
provide a detailed discussion of findings that are directly related to
practitioner implementation.
If you are a new author, or just thinking about the idea of writing for the first
time, please feel free to contact John Grable, Ph.D., RFC about your
manuscript ideas. Details regarding the Journal’s manuscript submission
process can be found at www.ksu.edu/ipfp/jpf.htm
6 Journal of Personal Finance
JOURNAL OF PERSONAL FINANCE
VOLUME THREE, ISSUE ONE
EDITOR
®
John E. Grable, Ph.D., CFP , RFC
EDITORIAL COORDINATOR
Jennifer Elliott
Editorial Advisory Board
Steve Bailey, RFC, LUTCF, CEBA Burnett Marus, RFC
HB Financial Resources Burnett Marus Associates
Joyce Cantrell Jerry Mason, Ph.D., CFP , RFC
Kansas State University Edelman Financial Services
Charles Hatcher, Ph.D. Jim McCarty, RFC
University of Wisconsin Edwin P. Morrow, RFC, CFP , CLU,
So-Hyun Joo, Ph.D. ChFC
Texas Tech University Financial Planning Consultants
Rich Landsberg, RFC, J.D., LLM Barbara O’Neill, Ph.D., CFP , AFC,
Nationwide Financial Services CHC, CFCS
David Lazenby, Ph.D., RFC Rutgers Cooperative Extension
ScenarioNow, Inc. Dick Norton, RFC
Ruth H. Lytton, Ph.D. First Financial Education Centre
Virginia Tech Rob Rodermund, RFC
Mike Lemieux, RFC M&O Marketing
U.S. Worldwide Financial Services, Inc. Richard Salmen, CFP , CRFA, EA
Jean Lown, Ph.D. G-Trust
Utah State University Ronald Stair, Ph.D., RFC, MLT, AEP
Constance O. Luttrell, RFC Creative Plan Designs
CC & Associates Jing Xiao, Ph.D.
Esther Maddux, Ph.D., CFP® University of Rhode Island
Kansas State University
Mailing Address: Institute of Personal Financial Planning,
School of Family Studies and Human Services, 318 Justin Hall,
Kansas State University, Manhattan, KS 66506
Phone: [phone] or [phone]; Fax: [phone];
E-mail:
Volume 3,Issue 1 7
Postmaster: Send address changes to Editorial Coordinator, Journal of
Personal Finance, 303 Justin Hall, Family Studies and Human Services, Kansas
State University, Manhattan, KS 66506.
Permissions: Requests for permission to make copies or to obtain copyright
permissions should be directed to the Editor.
Certification Inquiries: Inquiries about or requests for information pertaining
to the Registered Financial Consultant or Registered Financial Associate
certifications should be made to IARFC, Financial Planning Building, 2507
North Verity Parkway, Middletown, Ohio 45042.
Disclaimer: The Journal of Personal Finance is intended to present timely,
accurate, and authoritative information. The editorial staff of the Journal is
not engaged in providing investment, legal, accounting, financial, retirement,
or other financial planning advice or service. Before implementing any
recommendation presented in this Journal readers are encouraged to consult
with a competent professional. While the information, data analysis method-
ology, and author recommendations have been reviewed through a peer
evaluation process, some material presented in the Journal may be affected by
changes in tax laws, court findings, or future interpretations of rules and
regulations. As such, the accuracy and completeness of information, data,
and opinions provided in the Journal are in no way guaranteed. The Editor,
Editorial Advisory Board, the Institute of Personal Financial Planning, and the
Board of the International Association of Registered Financial Consultants
specifically disclaim any personal, joint, or corporate (profit or nonprofit)
liability for loss or risk incurred as a consequence of the content of the
Journal.
General Editorial Policy: It is the editorial policy of this Journal to only
publish content that is original, exclusive, and not previously copyrighted.
Subscription Rates:
Individual $ 55 U.S. Institution: $ 98 U.S.
$ 68 Non-U.S. $115 Non-U.S.
Send subscription requests and payment to:
IARFC
Journal of Personal Finance
The Financial Planning Building
2507 N Verity Parkway
Middletown, OH 45042
8 Journal of Personal Finance
EDITOR’S NOTES
Three years represents a turning point in the development of most
professional endeavors. A novice financial advisor who can make it through
the first two lean years in the business is likely to see their business turn
profitable in the third year. Students in college generally find their career of
choice during their third year of college. Three years is also the turning point
in the publishing industry. This observation is absolutely true for the Journal
of Personal Finance. This issue represents the first Journal of 2004 – our
third year of publication. This is a milestone in many ways. First, we now
have an inventory of articles for future publication. Second, we are on
schedule to increase our publication rate to four times per year. Third, the
number of libraries receiving the Journal has increased, and fourth, we are
introducing articles written by contributing columnists with this issue. Let me
explain each of these highlights.
During the first two years of publication I found myself actively
pursuing manuscripts. Over the past six months the number of manuscripts
submitted has increased dramatically. Better yet, the quality of submissions,
on average, has improved dramatically. This may be the result of more
practitioners and academicians recognizing the Journal as a legitimate outlet
for personal finance research.
The number and quality of submissions means that we are on target
to publish quarterly beginning with this volume. Quarterly publication
significantly enhances the value of the Journal as an IARFC member benefit.
Quarterly publication also allows us to more quickly turn a submission into a
publication. This has other benefits as well. For one, regular timely publica-
tion means that we can expect database cataloging and indexing in the near
future. Indexing of articles on the Internet means that a wider audience will
soon be accessing and reading Journal articles.
Another piece of good news is that more university libraries are
subscribing to the Journal. More libraries means a wider distribution of
articles, and the opportunity for researchers to obtain articles via interlibrary
loan.
Finally, starting with this issue the Journal will begin running articles
written by columnists. Over the past two years I’ve received emails and
phone calls from readers who wanted articles written on particular topics –
transitioning to fee-only planning, understanding precious metals, and
learning new employee benefit strategies. Several nationally known experts
have agreed to address these and other issues on a regular basis. In this way
the Journal can continue to publish timely and relevant topical papers on a
regular basis.
©2004, IARFC All rights of reproduction in any form reserved.
Volume 3, Issue 1 9
I think you’ll agree that three years really does represent a turning
point, especially for the Journal of Personal Finance. We’ve built a solid
foundation, and the future looks especially bright. I am personally delighted
that you are a subscriber. And as always, I encourage you to submit an article
for potential publication. Remember that academic articles are subject to a
blind peer review process. The process is rigorous but fair. Some even might
argue the process is fun. You get the chance to write something and have it
reviewed by an expert in the field. Regardless of the outcome, you can be
assured of further discussion regarding personal finance topics in the
profession.
I would also like for those who are interested in reviewing articles to
please send me an email at
10 Journal of Personal Finance
Medical Society; Eastern Michigan University; Purdue University and the
University of Tulsa. In 2000, Mr. Marus formed Burnett Marus Associates as
a marketing and sales consulting firm. Recent clientele engaging the firms
services include a regional securities broker-dealer, a national hedge fund, an
international securities analyst; a national pension consulting firm; a major
gymnastics facility, several financial planning firms, an international financial
planning trade organization and an international personal marketing firm.
The second article will be of interest to almost all financial consult-
ants. Wes Bacon, a graduate student in the Great Plains Alliance, examines
the possibility of utilizing variable universal life to fund higher education
costs. Wes has had a life long interest in personal finance and is particularly
interested in the financial needs of middle class families. Currently employed
as an industrial water chemist, he plans on eventually opening a financial
planning practice focusing on the needs of middle class families. Wes is a
graduate of George Fox University and currently resides in Salem Oregon with
his wife and two of his four children.
Ronald K. Stair, Ph.D., EA provides an overview of the issues
surrounding 412(I) plans. Ronald K. Stair is the Principal of Creative Plan
Designs, Ltd., an employee benefits consulting firm. Dr. Stair has over
twenty-five years of experience in the actuarial and employee benefits
consulting field. He is an alumnus of Hartwick College, The College of William
and Mary and New York University, with degrees in mathematics, bio-physics
and tax. Dr. Stair is a Member of the American Society of Pension Actuaries, a
Member in the Conference of Consulting Actuaries, a member of the American
Academy of Actuaries, a Qualified Pension Administrator, a Qualified 401(k)
Administrator and a consulting actuary. Dr. Stair is a former member of the
Board of Directors of the American Society of Pension Actuaries (ASPA). He
had previously served as ASPA’s Technical Education Consultant. He has
served on the Education and Examination Committee for 14 years, most
recently as the General Chair. He had also chaired that organization’s govern-
ment affairs committee. ASPA is an organization of Actuaries, Consultants,
Administrators and other Benefits Professionals dedicated to education,
preservation and enhancement of the U.S. Pension system. Dr. Stair is
currently a member of the Advisory Committee for The Joint Board for the
Enrollment of Actuaries of the United States Department of Labor and The
United States Department of Treasury. The Joint Board for the Enrollment of
Actuaries is responsible in part for the standards and qualifications of
Enrolled Actuaries. Dr. Stair is a frequent local and national speaker on topics
relative to retirement plans and other employee benefit programs. In 1999, he
testified before the U.S. House of Representatives Ways and Means Commit-
tee on the pension industry. In 2000, he was a speaker at the National
Women’s Small Business Summit, chaired by six U.S. Senators, discussing
pension and retirement issues.
©2004, IARFC All rights of reproduction in any form reserved.