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Vol. 74, No. 3, May 2020
FOCUS ON Nontraditional Investments & Financial Planning
Caveats to Investing in Opportunity Zones
Michael W. Valenti, CPA, CFP, MAcc
As part of the Tax Cuts and Jobs Act, Congress attempted to stimulate growth in economically
depressed areas throughout the country by creating tax incentives for certain investments in state-nominated opportunity zones. However, for an investor to benefit from the tax incentives, the underlying investment needs to be viable and sustainable
on its own. This article summarizes the opportunity zone tax incentives and discusses the risks and downsides to investing in a qualified opportunity fund.
Bitcoin’s IRS, SEC, and CFTC Treatment: The Current State of Affairs
Jennifer C. Halsey, MBA
Brian J. Halsey, JD, LLM, CISSP
The challenge for any financial
services professional is to gain a workable knowledge of the cryptocurrency landscape, including bitcoin and thousands of other cryptocurrencies. Using bitcoin as the primary example, this article attempts to provide fundamental advice within a very
rapidly changing landscape, including bitcoin’s current IRS, SEC, and CFTC treatment, and the potential rise of bitcoin exchange-traded funds.
Environmental, Social, and Governance Investing: Investor Demand, the Great Wealth Transfer, and Strategies for ESG Investing
James J. Tucker III, PhD, CPA
This review first examines the dramatic increase in investor awareness and demand for socially responsible investing. The review next examines the current and projected levels of generational wealth, followed by the impact of the “great
wealth transfer” on the wealth levels of the various generations and the implications for environmental, social, and corporate governance (ESG) investing. Strategies for financial advisors to survive and thrive through the great wealth transfer by
enlisting the next generation as clients are then reviewed. Lastly, approaches to building a client-directed ESG investment portfolio are examined and available ESG open-ended and exchanged-traded funds are reviewed.
Does It Matter How One Gets Gold Exposure? For Sure!
Kenneth M. Washer, DBA, CFA, CFP
When it comes to investing in gold, investors have limited choices. This
paper examines the five largest gold funds. Two of the available options involve owning gold bullion, and the other three involve owning gold mining stocks. Investors make a giant mistake in believing these two different types of gold funds (bullion
versus miners) are more homogenous than heterogeneous. Gold bullion funds track gold prices extremely well. Gold mining funds have many more risk exposures than simply the price of gold and often times do not track gold prices very well.
Five New Ways to Improve America’s Retirement Security
Kenn Beam Tacchino, JD, LLM
The federal government is focused on avoiding a retirement
crisis and hoping to move business owner and plan participant behavior in the correct direction. However, despite positive strides over the last 20 years (including the recently enacted SECURE Act), more needs to be done. We look at some possible
changes that the government can and should make. The changes call for promoting longevity annuity contracts; crafting measures to avoid the premature claiming of Social Security benefits; adjusting the summary plan description to incorporate retirement
income concepts; disseminating information about elder abuse; and taming future inflation.
Economics & Investment Management
How Reliable Is Your Risk-Tolerance Questionnaire?
John E. Grable, PhD, CFP
Professional and regulatory practice
standards require financial advisors to evaluate the risk tolerance of clients prior to the development and presentation of recommendations. Financial advisors typically use either a revealed-preference test or a propensity measure when evaluating
the risk tolerance of clients. Results from a preliminary test show that the reliability and consistency of test scores from different measurement techniques vary over time. As discussed in this column, financial advisors are advised to use caution
when interpreting risk-tolerance scores obtained from commonly used assessment tests.
Estate Planning with Retirement Assets after the SECURE Act
Dennis C. Reardon, JD, LLM, CLU, ChFC
Estate planning for clients who have
substantial funds in a qualified retirement plan, such as a 401(k) plan or a regular IRA (not a Roth IRA), should now be examined since the SECURE Act was implemented this year. We look at who the beneficiary should be and various trust options that
should be considered.
Ethics & Regulation
Fiduciary Standard Battle Fatigue
James Pasztor, MSF, MPAS, CFP
The ongoing struggle between sales and advice, and what standard
should apply, suitability or fiduciary, has been disruptive to many dedicated financial services professionals who, regardless of which standard they are currently being held to, just want to do what is best for their clients. Let brokers be brokers,
and insurance agents be insurance agents, and be held to the suitability standard. Let advisors be advisors, and financial planners be financial planners, and be held to the fiduciary standard.
IRS Proposes to Update the Section 162(m) Regulations
Paul J. Schneider, JD, LLM
IRC Code Section 162(m) imposes a $1 million
limit on the amount of compensation paid to a covered employee that publicly held corporations can deduct as a business expense. Congress decided in 2017 that it was time to expand the scope of Section 162(m) and to limit the exclusion for performance-based
compensation, effective for tax years beginning after December 31, 2017. The Internal Revenue Service’s initial guidance with respect to the amended Section 162(m) was set forth in Notice 2018-68. A year later, proposed regulations have now replaced
and expanded upon that initial guidance.
Integrating Work into a Retirement Plan: Some Considerations
Sandra Timmermann, EdD
The concept of retirement has changed in the
last 25 years, and financial advice to match it has changed too. It’s not unusual for people to work beyond traditional retirement years or even go back to school at later ages. For that very reason, the question of whether to keep working—to meet
basic needs, to supplement an income, or to continue to be engaged in life—needs to be addressed as part of the retirement planning process. Financial services professionals can play a significant role in helping clients think through these important
work and retirement decisions.
Consumer Navigation in Health Insurance
William S. Custer, PhD
Transforming the health care delivery system is a slow and arduous process.
Changing consumer behavior is an important component of that transformation, and while arduous as well, may have more immediate return on investment. The key is to give consumers both the incentives and tools to succeed in maintaining their health.
Life Insurance Policy Reviews from a Planner’s Perspective
Douglas B. Richards, JD, MBA, CLU, ChFC
Life insurance products continue
to evolve. Changing demographics, lifestyle, technology, and investment opportunities provide insurance companies with reasons to adapt their products to these changing needs. As life insurance companies continue to create new products, it is important
that the sales distribution apparatus servicing the needs of their clients who own these products evolves as well.