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Michael Kitces' Comment Letter on CFP Board's Proposed Fiduciary Standards

"the CFP Board's proposed changes do introduce numerous new questions and concerns, from key definitions that ... still need to be clarified further, to new wrinkles in what does and does not constitute a fee-only advice relationship ... to uncertainties about how CFP professionals are expected to navigate important conflicts of interest, and how CFP professionals should interpret the 29(!) instances where the CFP Board's new standards are based on 'reasonableness'... with no explanation of how 'reasonable' is determined, and a non-public CFP Board Disciplinary and Ethics Commission that doesn't even allow CFP professionals to rely on prior case histories for precedence."

Estimating Changes in Retirement Expenditures and the Retirement Spending Smile

"David Blanchett of Morningstar ... finds in reality, real retiree spending decreases slowly in the early years, more rapidly in the middle years, and then less slowly in the final years, in a path that looks less like a slow and steady decline and more like a 'retirement spending smile' instead.... The implications of this research are not only that financial planners should be more cognizant to assume some level of real spending decreases throughout retirement ... but also that the traditional research may be somewhat overestimating the amount of funds needed to retire in the first place, as a lower average spending level across all the retirement years means it simply may not take quite as much to retire as is typically assumed or modeled in a typical financial plan!"

In the FY2016 Treasury Greenbook: Proposals for Eliminating Stretch IRAs, Repealing NUA, and the $3.4M Retirement Account Cap

"Every year, the proposed changes to the tax laws encapsulated in the President's budget request for the Federal Government are recorded in the Treasury Greenbook, which is then taken under advisement by Congress to create its own budget resolution.... While some tax proposals in the Greenbook are relatively minor, or pertain to issues not directly relevant to our work as financial planners, this year's FY2016 budget request had several proposals that would represent major changes in the world of planning for retirement accounts, both during clients' lives and after they pass away."

Age Banding to Model the Decline in Retirement Spending

"[P]rojecting retirement expenses using an age-banding approach may allow for a more nuanced and accurate representation of how spending will change over time. Which is important, because the data indicating that retiree expenses tend to fall throughout retirement -- especially in some categories -- implies that retirees may not actually need to be saving as much, or accumulating as large of a nest egg, to retire in the first place!"

Benchmarking Study on Trends in Advisory Firm Hiring, Typical Employee Benefits, and Average Advisor Compensation

"[T]he most common employee benefit is the typical offering of vacation time, offered by a reported 90% of firms (along with 81% who provide sick time, 57% that provide bereavement leave, and 46% offering maternity leave).... From there, the next most common employee benefit was health insurance, offered to staff in 75% of advisory firms (and paired with a Health Savings Account in 33% of firms, and a Flexible Spending Account in 25% of firms).... When it comes to employer retirement plans, there were 67% of firms offering a 401(k), another 14% of firms using a SIMPLE IRA, 10% providing a pension, and 3% using a SEP IRA.... the next most common employee benefit was covering the cost for licensing and exam fees, at 68% of firms, followed closely thereafter by financial support for professional development (e.g., conferences) at 61%, and financial support for designations/technical training at 56%."

Beneficiaries Need to Understand the 'Income in Respect of a Decedent' Deduction

"[T]he Internal Revenue Code allows for an 'Income in Respect of a Decedent' (IRD) deduction under Section 691(c). Claimed by the beneficiary of an inherited IRA to the extent of any estate taxes that were caused by the account, the deduction can be material -- as much as 40% of the value of the account! Yet despite its size, beneficiaries in practice often 'miss' the IRD deduction ... And notably, in the end the IRD deduction applies not only to inherited IRA accounts, but also other employer retirement plans, inherited non-qualified annuities, employer non-qualified stock options, deferred compensation, employer NUA stock, and more!"

Financial Independence in Lieu of Retirement, and Other Phrases That Should Be Banished from Retirement Planning

"[T]he focus of generating retirement spending from retirement 'income' creates ... unnatural distortions, as retirees potentially stretch for income (especially in low-yield environments!), introducing new risks, and possibly confusing appealing-sounding retirement 'income' products that are actually just returning principal ... If we talk about retirement 'cash flows' instead, and move away from an income-centric conversation, it opens the door to looking more holistically at the retirement portfolio and how it can support retirement spending. But perhaps the most crucial change in our language of retirement planning is simply to rename 'retirement' itself."

How the 'Annuities Should Never Go in an IRA' Rule Has Become a Myth

"While in some limited cases, deferred variable annuities actually are making a resurgence for pure tax deferral purposes -- in which case, there's once again little reason to purchase them with retirement assets -- most annuities continue to be purchased for their guarantees and investment characteristics, not their tax preferences. Given these changes, it is perhaps time to abolish the 'annuities should never go into an IRA' rule and recognize that it has become more a myth and remnant of old than proper advice in today's environment."

Changes in Prospectus by AXA and Hartford: A Troubling New Trend for Existing Variable Annuities

"[In] the process of rotating investment offerings in a 'routine' prospectus change [Hartford] indirectly defaulted a large number of annuity holders into more conservative investments than they may have originally selected... [A] number of [AXA] contract owners with what were purported to be lifetime guarantees are now renewed to complete a 'renewal' process by October 4th or permanently lose their lifetime income protection! ... [A]dvisors will need to be increasingly diligent in reviewing client annuity contracts, or look to outsource to due diligence services that can help to support the process."

The Problem with Reverse Churning in Advisory Accounts

" '[R]everse churning', where an advisor charges an ongoing investment management fee ... is likely to be a growing regulatory concern in the coming years, as the DOL fiduciary rule spurs a massive shift towards various forms of fee-based brokerage and advisory accounts.... [T]he scrutiny on reverse churning raises troubling concerns when paired with the growing popularity of using index funds, ETFs, and passive investment approaches. How is an advisor supposed to justify an ongoing advisory fee when the right thing for the client to do might really be to do nothing?"