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Journal of Personal Finance Tools, Techniques, Strategies PDF

115 Pages·2008·3.94 MB·English
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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: (785) 532-1486 or (785) 532-5510; Fax: (785) 532-5505; 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.

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