Changes in Congress have caused noise in financial industry
There has been quite a brouhaha developing in the past few months in the financial services industry as a result of Congress' move to implement sweeping changes in the regulation of all financial services companies as part of the Investor Protection Act of 2009.
The Certified Financial Planning Board of Standards convinced a Massachusetts representative to include an amendment in the legislation which would impose fiduciary standards for all individuals who sell any type of investment products to consumer.
Heretofore, stockbrokers, insurance agents who offer investment advice and other investment professionals have been held to a common law standard of care.
The Investment Act of 1940 promulgated suitability standards which have worked well over the years, and the industry has done a good job of protecting the interests of investors.
However, the Madoff debacle has resurrected the notion of disclosure, and this concern has contributed to the debate. It is important to remember that a fiduciary standard of care goes for beyond a common law standard. It obligates one person to act in the best interest of another party.
"For instance, a corporation's board member has a fiduciary duty to the shareholders, a trustee has a fiduciary duty to the trust's beneficiaries, and an attorney has a fiduciary duty to a client.
"A fiduciary obligation exists whenever the relationship with the client involves a special trust, confidence and reliance on the fiduciary to exercise his discretion or expertise in acting for the client.
"The fiduciary must knowingly accept that trust and confidence to exercise his expertise and discretion to act on the client's behalf.
"When one person does agree to act for another in a fiduciary relationship, the law forbids the fiduciary from acting in any manner adverse or contrary to the interests of the client or from acting for his own benefit in relation to the subject matter.
"The client is entitled to the best efforts of the fiduciary on his behalf and the fiduciary must exercise all of the skill, care and diligence at his disposal when acting on behalf of the client.
"A person acting in a fiduciary capacity is held to a high standard of honesty and full disclosure in regard to the client and must not obtain a personal benefit at the expense of the client."
Needless to say, all of life insurance agents and companies are against this section of the proposed legislation, and it appears that their lobby effort is paying off. Stay tuned.
Year end tax planning tips
* Buy your new car before year end to obtain a sales tax deduction. This applies to vehicles costing less than $49,500, and for married couples with an AGI of less than $250,000, or singles with less than $125,000. This tax goodie will disappear next year.
* If your tax bracket is in either the 10 percent or 15 percent bracket, any long-term capital gains you obtain on the sale of appreciated assets are tax free until they push you into the 25 percent bracket, which starts at $67,900 for married couples and $33,950 for singles.
* If you are a first-time home purchaser, you won't have to pull the trigger by Nov. 30 to get the $8,000 tax credit, since Congress will extend this tax break well into 2010.
Moreover, Congress is working on a bill that will extend the credit to provide a $6,500 tax credit for persons who have owned a home for at least five of the last eight years.
* If you have made too much income in the past to qualify for a Roth IRA conversion, remember that the income limit won't apply to you next year. However, with the top tax bracket set to go up in 2011 to 39.6 percent, it will probably be to your advantage to pay all of the tax due on conversion in 2010.
Got a financial planning question for Greg? You may e-mail him at greg29803@gmail.com.
Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.