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Financial Planning Newsletter• June 17, 2010 


Financial Planning Newsletter
June 2010

Financial Services Reform update, Coverdell Account changes & Homeowners Insurance review.

I hope that your Summer has gotten off to a good start. In this June edition of the financial planning newsletter we will cover the Investor Protection measures being debated in Congress, changes to a educational savings account and a refresher on your Homeowners insurance. Our continuing series on IRA basics will resume next month.

Financial Services Reform package:

As you may (or may not) know, the Congressional Committee studying financial services reform is currently debating applying the "fiduciary standard" to everyone in the financial services business. This key point is the difference in reconciling the House and Senate drafts of the Financial Services reform bill. So what is the big deal with this pesky fiduciary label you may ask? Great question! Investment Advisors have a fiduciary duty to always act in the best interest of the client. They do this by strictly working on a fee-only basis and not pushing particular products when advising clients. The brokerage and insurance industry is adamently opposed to applying this label across the whole spectrum of financial services professionals. They are comfortable with the "suitability" standard that they currently abide by. (basically if a product is suitable for a client based on known facts then they can sell it) The reason for opposition is that big Wall Street firms and Insurance companies make most of their revenue on product sales, it would be very difficult for them to work with clients and admit that maybe their product wasn't the best and that a competitors was better and possibly lower in cost / fees. It is an interesting debate but I would imagine that with the deep pocketed lobbyists of the big firms involved that the fiduciary standard will not be included in this bill.

Coverdell Education Accounts:

When saving for College, generally parents have had 3 options if designating the funds for a particular child:

  • UTMA: a custodial account that is taxable and becomes owned by the child at the age of majority (18 or 21 depending on state)
  • 529 plan: a college savings account that let's you deposit after tax dollars into for a beneficiary's (child / grandchild) college fund. The account grows tax deferred and growth is tax free when used for the beneficiary's college expenses.
  • Coverdell IRA: formerly known as an education IRA, this account acted mostly like a 529 but had income restrictions on contributions and a yearly cap on the amount you could put in. There were also some other perks that beginning next year go away. The account let's you take money out to pay for kindergarten through 12th grade tuition and expenses but that provision expires after this year. The maximum contribution also drops from $2k to $500 annually beginning next year. These accounts aren't widely used anymore, but if you have one consider taking some "qualified" distributions this year.

Homeowners Insurance review:

Kiplingers Magazine has a great article this month regarding Homeowners Insurance. I will give them credit for bringing attention to an area most folks simply forget about. We all know that the cost of realestate has declined over the past 2 years, but the cost to rebuild hasn't. Many are still underinsured when it comes to the homeowners coverage, so right now would be a good time to dust off that policy and review a couple of these key items:

  • Dwelling Coverage (Coverage A): insurance for replacement value of your home.
  • Detached Structures (Coverage B).
  • personal possessions (Coverage C): usually limited to a percentage of dwelling value. Take an inventory of your possessions and even a video or photos. Then store the info outside your home. A safe deposit box, or online file storage.
  • check your riders: do you have valuables or collections not covered by general HO insurance? Talk with your agent about specific riders to insure these items.
  • Lastly, check your liability limits and consider what would happen if your home flooded (standard HO doesn't cover it).




James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.

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