Thursday, October 22, 2009

Find a Cause and Get Involved!

Too many people accept the status quo and say thank you and then complain as opposed to getting off their keesters and doing something about it. Being a baby boomer I know that movements of the 60s and 70s did bring change.

Last weekend I attended the second memorial service for a person that I was proud to know and be friends with. There were so many local dignitaries in attendance that I commented to an aide from a Congressman’s office that this is as close to royalty as I’ll get.

What made this person so loved and respected? It wasn’t wealth; she was comfortable but cautious with her spending. It wasn’t what we would call fame; she had published a number of cookbooks but that wasn’t why people paid their respects.

She was a person who simply cared about her community, whether it be her street, city or her country. She was an involved person! Some might even call her an activist or community organizer. She wanted the world to be a better place and she did her share.

I look back at the last 40 years or so and realize that America now is much different than it was then. Or is it? We were involved in an unpopular war then and now, well we have been in Iraq and Afghanistan for 8 years which is longer than we were involved in Viet Nam. What we don’t have today is the sense of outrage that was more pronounced in the sixties and seventies. There have been major improvements in Civil Rights and yet it seems that we will always have a group that is discriminated against. Poverty is perhaps less pronounced but affecting more people. Spending on social programs and defense programs were large then and they are enormous now.

There is a distinct lack of public outrage now as compared to then. Perhaps the internet has provided a forum for people to voice displeasure but I haven’t heard the news anchors discussing web traffic too much.

My friend demonstrated commitment to concerns four decades ago though becoming a leader in the community for the causes she believed in. She would volunteer realizing that no job too insignificant for something that was needed; something that should be changed. She supported politicians who were Democrats but admired those who supported the other party for that meant that people cared. She organized fund raisers and open houses where political leaders could come and meet with constituents.

She was from New York City who moved to the suburbs in the 50’s. She became a supporter of Open Spaces in an urban setting. When she said that green was among her favorite colors it signaled the green of grass, not money; blue referred to the skies. She wanted a nice environment for all.

She would work tirelessly for causes she supported and that seems something that today’s people are shying away from. It truly is sad because while I was listening to the accolades being presented I could only think of a voice saying “Don’t ask why but ask why not?” and knew that social progress is seldom achieved when the status quo is revered.

Sunday, October 04, 2009

Bifurcated Designations or Grandfathering at Its Worst

The public is often confused by the alphabet soup of financial designations and in an attempt by the CFP Board of Standards to show differentiation they have instead highlighted what may be major shortcoming.

People like to look at credentials and think that everyone who has them has satisfied the same requirements. All too often that is not the case, and now in the financial field we are seeing the effects of grandfathering at work.

Grandfathering is the term used when the rules of the game change mid-stream and those who have met certain requirements are exempted from the new requirements.

What has brought this to mind is the recent newsletter issued by the CFP Board of Standards, in which they attempt to explain the differences in the CFP® mark and the ChFC® designation. It is in the message from the CEO.Both are used by professionals in the financial planning, investment and insurance world as well as in the legal and academic arenas.

Kevin Keller, CEO of the CFPBOS refers to the fact that the CFPBOS requires the passing of a comprehensive examination as a litmus test to demonstrate professional competency. The test does not have a traditional passing grade requirement. Instead, if I understand it correctly, certain questions within each category must be answered correctly in order to demonstrate mastering the material. Historically 5 out of every 8 candidates who take the test for the first time have passed it.

He then refers to Michael Shaw, who is an attorney and the Managing Director of their Professional Review and Legal Departments and earned his ChFC from the American College and is still listed as a ChFC in good standing despite the fact that he has not provided financial services since 1990. It appeared that Mr. Keller was dismayed that the American College continued to show Mr. Shaw as a member in good standing considering that he no longer is involved in providing financial services. However, Mr. Shaw still refers to his ChFC designation and in fact in a press release issued by the CFP Board they referred to Mr. Shaw as having both the CLU and ChFC designations.

In 1989 the American College, the academic organization that awards a number of financial designations changed the requirements of continuing education for the ChFC designation. People who had enrolled in a program prior to 1989 would not be covered by the new rules which are 30 hours of continuing education each two-year period.

The American College confirmed that Mr. Shaw is grandfathered. Each organization's CE requirements are somewhat similar.

The CFP Board did not always require a comprehensive exam. In fact it was introduced in 1991, and yet all those who were awarded the CFP® designation prior to the exam requirement are not referred to in any different matter. These people did not demonstrate the professional competency that those who took the test did. There are no asterisks next to their name although perhaps there should be since they did not take and pass the exam.

The issue here is not to decide who is right or wrong or to discuss the merits of any designation or organization but rather to point out to the public that on face value you do not really know what requirements a person authorized to use the designations has met. In the first two instances older advisers may have had to achieve less in order to use the same titles. Conversely, the newer planners who may have the least experience are the ones who have met all the current requirements.

I wouldn’t mind arbitrating a meeting between the CFPBOS and American College in order to clarify the underlying issue. My decree would be those that are grandfathered from CE requirements must meet the new standard and those that did not pass the CFP comprehensive exam have one year in which to do so. That way the public will know that the holders of each respective designation have met the same requirements and have the same ongoing obligations.

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Tuesday, August 18, 2009

Divorce - Civil Style

There are basically three paths to divorce in America: litigation, mediation and collaborative.

Litigated divorces are where each party hires an attorney with the objective to get the best deal for themselves. These are cases we usually hear about when our friends complain how the attorneys fought over every detail and the case ran on forever, costing nothing but money and aggravation. "The case was so bad our kids take turns hating us" has been uttered as well.Perhaps my all time favorite example of a bad divorce is in the movie War of the Roses. I remember watching the movie with my then-wife, thinking that this could never happen in real life. Wrong! It can and does if you allow it.

Mediation may be considered as the opposite extreme. Usually the husband and wife seek resolution through the use of a neutral third party called a mediator. That person can be an attorney, mental health professional or someone simply trained in mediation. Each state has its own statutes as to who can practice. Please note that if the mediator is an attorney that they are not acting as an attorney in this instance and will disclose that fact to you. The mediator will guide you through a series of issues and allow you to come to your own agreement. These issues will include child support, spousal maintenance, parenting plans and division of assets. Then a memorandum of separation will be prepared and each party should have it reviewed by their own attorney, who is acting in that capacity.This path works well when both spouses are emotionally healthy and there have not been instances of emotional or physical abuse. Quite honestly, when domestic violence has been part of the relationship most mediators will suggest that you consider litigation.

The next and perhaps newest path is Collaborative with a capital"C". Collaborative divorce combines the best practices of mediation with each party having an attorney representing them during negotiations. The goal is to achieve a workable solution for both today and tomorrow. The big bright line that makes Collaborative divorce different is that each party signs agreements that state, should the negotiations fail, it is understood that the attorneys can no longer represent them nor be called in to testify in litigation. In addition, all documents produced and discussions had during the process are confidential and cannot be used during litigation. Often in the Collaborative process, besides having attorneys, each party may have a mental health professional on their side to act as a coach and keep them focused on what is important to them and possibly avoid the petty squabbling that can prolong litigated divorces. If there are minor children then a child specialist may be involved to offer opinions on what is the best route for the children and express some concerns.There may also be a neutral financial expert who will meet with both parties, gather all the financial information and help draw up scenarios for support and distribution of assets. The financial person will meet with the clients and also the attorneys and other team members. By agreement, once the divorce is settled, the financial person cannot represent either spouse again.Each spouse also agrees to provide full and complete information, and failure to comply can result in disqualification and the process will end. Court orders are not sought in Collaborative divorce.You can see that each side is investing time, money and emotion into this process. They're making the informed decision, knowing that if the proceedings break down they'll have to start over with new attorneys -- without being able to use any information that was disclosed. This is the crux of the issue.

Often in a litigated case the attorneys will say that they will work collaboratively with opposing counsel. They often do this in order to lessen tensions, but unless there are the disqualification clauses this type of collaboration is not collaborative!

Friday, April 24, 2009

No Apologies Here

"Because the fee-only approach (which not all CFPs embrace), and NAPFA's pr and outreach efforts in recent years, has a slightly self-righteous air to it."

"NAPFA planners place themselves above it all, on a higher plain of ethics and practice. I took it on faith that NAPFA planners were safe. But at the end of the day, it's just a membership organization, not a regulatory body. There are crooks and alleged crooks everywhere, in journalism, in NAPFA, all over the place."

These are direct statements from someone who felt betrayed by their financial advisor . The particular advisor has the CFP mark, was a Registered Investment Advisor and was a fairly well placed member of NAPFA's hierarchy having spent a few years on various Boards.

The person does not mean the remarks as anti- NAPFA however from the second sentence they believed all the hype. While I don't agree with all the hype that comes from NAPFA I can say that given the choice I would rather aim high than aim low. In the ideal world I think it’s best to aim true.

It is incredibly hard to read about brethren who fail to serve their clients well and causes some remorse. However I am not responsible for their actions and everyone who knows me is aware that although I embrace a fiduciary standard it is just a legal term and does not mean that I am a saint.

I made that point a year ago and if you want to hear that podcast click here. I work hard for all of my clients, don't let my interests get ahead of theirs and pretty much pay my own way to due diligence meetings. I know advisors who let their airfare, hotel and entertainment be comped and for me that doesn’t work.

I follow a process in planning and do my homework (due diligence) on investments that I choose.

In spite of my own knowledge that I am Mr. Dudley Do Right in disguise I would never ask for nor accept the ability to move client's money to an account that was not already linked up to the investment account. In fact when I was using Fidelity as a custodian they came up with an option to have the ability to move money to a third party without pre-arranging a link. I would never even ask a client for the authority because I would hate the responsibility if the custodian blew a transfer.

While I am sorry that someone felt betrayed by their advisor my main concern is my clients and their advisor (me). Do I think that the industry can be improved? Sure I do and my blogs reflect it.

President Obama has made reform of the financial services industry one of many priorities and I hope that he comes through on his promise and doesn't blow the shot from the foul line.

Dear President Obama:
In order to make the financial services industry better as it applies to the field of financial planning and investment advice I think that you should ( fill in the comment box and have some fun)

Monday, April 13, 2009

Beware of IRS’ 2009 “Dirty Dozen” Tax Scams

The Internal Revenue Service today issued its 2009 “dirty dozen” list of tax scams, including schemes involving phishing, hiding income offshore and false claims for refunds. It is always my pleasure to pass these tidbits on.

“Taxpayers should be wary of scams to avoid paying taxes that seem too good to be true, especially during these challenging economic times,” IRS Commissioner Doug Shulman said. “There is no secret trick that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”

Tax schemes are illegal and can lead to problems for both scam artists and taxpayers who risk significant penalties, interest and possible criminal prosecution.

The IRS urges taxpayers to avoid these common schemes:


Phishing is a tactic used by Internet-based scam artists to trick unsuspecting victims into revealing personal or financial information. The criminals use the information to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name.

Phishing scams often take the form of an e-mail that appears to come from a legitimate source, including the IRS. The IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Taxpayers who receive unsolicited e-mails that claim to be from the IRS can forward the message to Further instructions are available at To date, taxpayers have forwarded scam e-mails reflecting thousands of confirmed IRS phishing sites. If you believe you have been the target of an identity thief, information is available at

Hiding Income Offshore

The IRS aggressively pursues taxpayers and promoters involved in abusive offshore transactions. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through other entities. Recently, the IRS provided guidance to auditors on how to deal with those hiding income offshore in undisclosed accounts. The IRS draws a clear line between taxpayers with offshore accounts who voluntarily come forward and those who fail to come forward.

Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. The IRS has also identified abusive offshore schemes including those that involve use of electronic funds transfer and payment systems, offshore business merchant accounts and private banking relationships.

Filing False or Misleading Forms

The IRS is seeing scam artists file false or misleading returns to claim refunds that they are not entitled to. Frivolous information returns, such as Form 1099-Original Issue Discount (OID), claiming false withholding credits are used to legitimize erroneous refund claims. The new scam has evolved from an earlier phony argument that a “strawman” bank account has been created for each citizen. Under this scheme, taxpayers fabricate an information return, arguing they used their “strawman” account to pay for goods and services and falsely claim the corresponding amount as withholding as a way to seek a tax refund.

Abuse of Charitable Organizations and Deductions

The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets, including easements on property, closely-held corporate stock and real property. Often, the donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

Return Preparer Fraud

Dishonest return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares the return, the taxpayer is ultimately responsible for its accuracy. Since 2002, the courts have issued injunctions ordering dozens of individuals to cease preparing returns, and the Department of Justice has filed complaints against dozens of others, which are pending in court.

Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of the positions on the list are subject to a $5,000 penalty. More information is available on

False Claims for Refund and Requests for Abatement
This scam involves a request for abatement of previously assessed tax using Form 843, Claim for Refund and Request for Abatement. Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is "Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."

Abusive Retirement Plans

The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to IRAs as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity which is considered prohibited.

Disguised Corporate Ownership

Some taxpayers form corporations and other entities in certain states for the primary purpose of disguising the ownership of a business or financial activity. Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes, and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.

Zero Wages

Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.

Misuse of Trusts

For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some promoted transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the promised tax benefits and are being used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.

The IRS has recently seen an increase in the improper use of private annuity trusts and foreign trusts to divert income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust arrangement.

Fuel Tax Credit Scams

The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim, potentially subjecting those who improperly claim the credit to a $5,000 penalty.

How to Report Suspected Tax Fraud Activity

Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. Form 3949-A is available for download from the IRS Web site at The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The person filing the report is not required to self-identify, although it is helpful to do so. The identity of the person filing the report can be kept confidential.

Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following the procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

Tuesday, February 24, 2009

Timely Actions are Important in a Divorce

An interesting tidbit came across my desk yesterday and it highlights a very important fact and one that is often overlooked. When you get divorced and have to separate assets you should do it in a timely manner. Don’t treat things in a cavalier fashion and don’t let your attorney do it either.

Of course I am not using real names here except when I mention Attorney Dratch.

John and Mary got divorced and in the settlement Mary was awarded 50% of John’s 401(k). A 401(k) plan is covered under ERISA and as a result it is necessary to have a Qualified Domestic Relations Order (QDRO) drafted, signed by the Judge and then honored by the Administrators of the 401(k) plan. The QDRO cannot be signed nor presented prior to the divorce but it certainly could be prepared and ready to be presented to the Judge when the divorce is being granted.

Subsequent to the divorce John lost his job and rolled his 401(k) into an IRA. He must have told his employer that he was not married because when you are married a 401(k) distribution requires the approval of your spouse.

There is no longer a 401(k) to split and the protections afforded an IRA are less than that afforded an ERISA plan. However John does want to comply with the Court Order and transfer half of his IRA to his ex spouse. Why is it difficult? The Separation Agreement makes no mention of an IRA. An IRA can be transferred to an ex-spouse with no tax consequences provided it is part of a divorce settlement. There are no papers that indicate that John is supposed to transfer the IRA and the custodian cannot just take his word.

As a result of the QDRO not being prepared in a timely manner Mary has not gotten access to her funds. In addition the availability of the funds is more advantageous when they are coming from an ERISA plan than when they are coming from an IRA.

What can be done?

If 60 days have not elapsed since John transferred the money from the 401(k) to the IRA he may be in a situation to transfer some of it back. If he is allowed to then the QDRO can be prepared and executed and Mary can access the funds.

They can go back to Court and have the settlement modified to reflect the division of the IRA instead of the 401(k).

If Mary wants the cash then John can cash it out and give Mary the money. However this will be a taxable event and be subject to a 10% early withdrawal penalty. Depending on the incomes this could be a 49% hit, including State tax.

All of this could have been avoided had the QDRO been ready at the time of divorce or shortly thereafter. In addition Mary’s Attorney could have written a letter to the Administrator of the 401(k) plan advising them of the divorce and that a QDRO is being prepared. With that letter on file it is more likely that John would not have been able to move the money to an IRA.

After my own divorce there were a number of post divorce issues that needed to be taken care of. We needed a QDRO to move some of my 401(k) to my ex and a QDRO to move money from hers to me.

I recall telling her lawyer, Barbara Dratch that I would take care of it. Curtly she said no that she would and I asked why. “Because it is my job to protect the interests of my client” was her response.

A light went off in my head and those words are so true. In a divorce it is your attorney’s responsibility to protect you and that includes timely preparation of all paperwork. Attorney Dratch also sent a letter to the administrator. While I wasn’t thrilled at the time I now appreciate how important those actions were.

Thursday, January 08, 2009

IRS Presents: Top Ten Tax Time Tips

As an Enrolled Agent I received this notice today from the IRS. If I were making my own list I would simply have number 1 as ... Let Morris Armstrong do your taxes, he is after all an Enrolled Agent!

1. Gather your records…now! It’s never too early to start getting together any documents or forms you’ll need when filing your taxes: receipts, canceled checks, and other documents that support an item of income or a deduction you’re taking on your return. Also, be on the lookout for W-2s and 1099s, coming soon from your employer.

2. Find your forms. Whether you file a 1040 or 1040-EZ, you can download all IRS forms and publications on our Web site,

3. Do a little research. Check out Publication 17 on It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return. Review Pub 17 to ensure you’re taking all credits and deductions for which you’re eligible.

4. Think ahead to how you’ll file. Will you prepare your return yourself or go to a preparer? Do you qualify to file at no cost using Free File on Are you eligible for free help at an IRS office or volunteer site? Will you purchase tax preparation software or file online? There are many things to consider. So, give yourself time to weigh them all and find the option that best suits your needs.

5. Take your time. Rushing to get your return filed increases the chance you will make a mistake and not catch it.

6. Double-check your return. Mistakes will slow down the processing of your return. In particular, make sure all the Social Security Numbers and math calculations are correct as these are the most common errors made by taxpayers.

7. Consider e-file. When you file electronically, the computer will handle the math calculations for you, and you will get your refund in about half the time it takes when you file a paper return.

8. Think about Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a check by mail.

9. Visit often. The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, FAQs and updates on tax law changes.

10. Relax. There’s no need to panic. If you run into a problem, remember the IRS is here to help. Try or call our customer service number at 800-829-1040.

Saturday, January 03, 2009

Nine for '09

Nine for ‘09

Here are nine little thoughts that may help us get through the coming year. Some may be easier to accomplish than others but they are all aspirational. The last two may be the most important and easiest to accomplish.

• Resolve to review spending and cut by 9% where possible.

• Resolve to increase savings by 9% where possible.

• If you need to have a PhD to understand an investment concept avoid the investment.

• If you have been meaning to get a Will or update an existing one and haven’t in five years then do it now.

• While we all try to economize let’s not forget those who have less.

• Waste not, want not. A clich√©? Maybe but we realized last year how expensive commodities can become.

• Make sure that you and your family know where all the assets are. Keep an account list or updated financial plan in a safe accessible place.

• Respect and love your family

• Count your blessings. I know that I do every single day.
Best wishes for a happy and healthy 2009!