An "Uplifting" Call to Arms
They’ve put me hand-in-hand, face-to-face, even heart-to-heart with the men and women of this great profession. I’ve met people from all colors and creeds, including those breaking through societal barriers; the veterans continuing their lives of service; the culture carriers of this profession’s long-standing organizations; and the next generation of advisors looking to make an impact in the communities they serve.
I helped cut the ribbon on The American College of Financial Services’ new home, the Cary Maguire Building – a modern, media-driven location that christened a new day in The College’s storied 93-year history. I spoke at events honoring veterans, industry heavyweights, and our 2019 designee and master’s degree recipients. Also, as the first African-American President in The College’s history, it was a profound honor to open our 14th annual Conference of African American Financial Professionals in Atlanta.
I found its slogan a fitting facsimile to the message I continue to carry with me everywhere I go: lift as you climb.
There’s a stark choice in this profession: get lost in the darkness of power and prestige or lift up others through a dedication to service. This is the financial services profession, where the ultimate benefit must be theirs, not ours. We must lift up our clients, our communities, and new advisors looking to do the same. Our profession will flourish in the years ahead if we follow the “we, not me” mentality. It’s been tested by crises of confidence that soured trust in our stewardship, by rapidly advancing technology that requires a shift to more holistic service offerings, and by a wave of Baby Boomers who are ready to retire even if their finances aren’t.
Instead of sitting in a silo, I call on you to uplift our profession with your knowledge and your wisdom. Embrace the kinship of community, and become a financial mentor to your neighbors, colleagues, and career changers. A larger, more knowledgeable advisor community will benefit clients and improve public perceptions. A common fellowship will expand our professional networks and strengthen our ties to the communities we serve.
Success isn’t about climbing the ladder then kicking it down so no one else can follow. It’s about climbing the ladder, getting to that next level, and looking back at where you started with an extended, helping hand.
The American College of Financial Services is always looking to do its part. Our goal is to be your life-long learning partner – promoting financial literacy, engaging and educating society, and sharing our knowledge with all who need it. We believe that a rising tide lifts all boats; that an informed society asks the right questions, picks the right advisor, and has better financial outcomes.
As I make my way through Year 2 at The College, I look forward to seeing many of you at industry events, hearing your stories, and collaborating with a growing, inclusive profession that is moving in the same direction. Together, we are stronger.
The Vision and Values To Lead Us Forward
The College’s legacy is a virtue. Its 93-year history is one to embrace and leverage, but it certainly cannot impede progress. And that’s the intersection where I live – at the corner of celebrating history and making it.
As The College’s 10th President and Chief Executive Officer, I wholeheartedly thank the over 170,000 alumni who at times have carried this institution with their time and charity. I revere Dr. Solomon Huebner’s vision, not just as this College’s founder, but as the architect of the modern financial services profession. Yet, I am also conscious of a 21st-century marketplace that looks different, works different, and demands different.
Different means moving forward with a clear vision guided by strong values. Here are mine.
Leading Change: Understanding Urgency as an Invaluable Skill
Urgency is not frantic. Composure and poise are sorely lacking in some organizations. Some leaders think frantic conveys speed and purpose, but instead it causes confusion and chaos. Even if the chaos closes out a short-term project, it breaks the organization’s resolve to continue the long-term mission. Leaders press for urgency without helping their team understand what it means or why it’s important.
Urgency is also not emergency. The first comes with a greater purpose focused forward to create impactful change and reach tangible goals. The latter is a reactive approach that leads to finger pointing that eventually can sap the life from a business.
Urgency is the way you prepare and communicate. As a business leader, I try to think as I would communicate – calmly, rationally, and with poise. I’m not perfect, but I believe prepared business leaders can more easily execute their vision. If you are prepared, fewer emergencies arise. If you have a clear vision, urgency comes across as excitement and determination, and that’s reflected in the way you speak across the organization. Aim for the heart, not just the mind. Look for the motivation that will compel a team to take action. Empowered employees don’t feel stressed by urgency; they buy into it.
Business leaders should also think about communication as more than a town hall or executive retreat. They should convey a sense of urgency in meetings, memos, and emails. They are the spokesperson or organizational role model: lead effectively, and others will follow.
More than anything, urgency is the execution of a well-thought-out plan. I’m sure you’ve heard the phrase, “Keep Calm and Carry On.” It originated on a motivational poster produced by the British government to raise public morale in preparation for World War II. Today, it’s a popular slogan calling for persistence in the face of challenge or confidence in a plan, no matter the short-term pitfalls. This is relevant to today’s investment environment. The uncertainty surrounding the global impact of a new illness, the coronavirus (or COVID-19), has caused significant market instability, and in turn, fear in many clients, especially those in or close to retirement. See the results of a flash survey we did with advisors who hold The College’s Retirement Income Certified Professional Designation® (RICP®). A global health crisis is an easy reason to cut and run, thereby locking in losses that could otherwise be avoided.
Now is the time when financial advisors really show their value. How well do you understand emotional investing? Are you following a goal-based approach? Is face-to-face communication your strong suit? Do you have the knowledge to apply theory and data to real-life decisions?
If your answers to these questions are YES, you are equipped to lead with poised urgency: this is an ability to cut through the noise, re-engage on end goals, and shepherd your clients to safety and success without irresponsibly sounding the alarm. If any of your answers are NO, let this situation serve as a reminder that knowing how to execute crisis communications comes from advanced knowledge and education.
Stewardship – whether it be of a corporation’s balance sheet or an individual’s retirement account – requires deliberative thought, consistent messaging, and precise implementation. You can’t accomplish those goals in a frenzy, but you can check off the boxes with a sense of urgency that rallies everyone around a common cause. Keep calm and carry on … with the plan.
Why Business Ethics Matter...Perhaps More Than Ever
Do you think I’m exaggerating? While the S&P 500 returned 30.43% in 2019, just 49% of millennials experienced the rise, down sharply from the 61% who rode the soaring market from 2001-2008. We all remember what happened next…a recession that took a psychological toll on young investors during their formative years and shaped an economy that took several years to recover. In turn, these investors didn’t reap the market’s revival due to distrust in the institution.
This isn’t a “financial services problem.” Enron, Boeing, and Facebook are just a few examples of ethical lapses that have eroded public trust. But to say that these events are bound to human nature or are just inherent in American capitalist society is just wrong.
At The American College of Financial Services, we continue to take ethics well beyond words. We ingrain our advocacy for ethical standards into our company culture, academic rigor, and alumni initiatives.
In 2020, The American College Cary M. Maguire Center for Ethics in Financial Services celebrates its 20th anniversary. As the only ethics center within an academic institution focused exclusively on the financial services profession, the Center promotes ethical behavior by offering programs that go beyond the rules of market conduct to help executives and producers be more sensitive to ethical issues and think more critically about solutions.
In January, I moderated a panel at ACLI’s ERT meeting alongside executives Roger Ferguson, Chief Executive Officer of TIAA, and Roger Crandall, President and Chief Executive Officer of MassMutual. We had a profound, prosperous conversation on the people, processes, and planning that goes into not just building, but maintaining, an ethical business culture. Later that week, we also celebrated the 20th anniversary of the Forum on Ethical Leadership, the vision of Jim Mitchell and his wife Linda. They are synonymous with advancing business ethics through the profession, just as they are so appreciated and deep-rooted in The College’s history.
It’s been said that ethics represents the attempt to resolve the contact between selfishness and selflessness. In such a fast-paced world, the greatest threat to relationship-based enterprise isn’t technology, but ourselves. Yes, technology is pushing the envelope and narrowing any margin for error, but we as professionals can still win the day by always working in the best interests of those we serve; that the benefit is theirs, not ours.
We live this commitment every day at The College. It’s in our DNA. Moreover, I believe we have an opportunity, even an obligation, as an accredited, non-profit institution serving the financial services profession to continue to forge forward as a catalyst for shaping this all-important conversation.
How does that happen? By coming together, and by working with the best and brightest minds in stewardship of the financial services community, in the interests of the clients who are entrusting us with their financial futures. This is a topic I’ll be talking more about over the weeks and months to come.
Navigating The Now: A Conversation with AALU/GAMA
This webcast was part of AALU/GAMA’s #NavigatingTheNow Webcast Series – conversations with the profession’s top executives and thought leaders in response to today’s COVID-19 crisis. If you have an hour, watch the webcast or read the transcript below. It was an engaging discussion on how The American College of Financial Services is leading through innovation, ethics, and new learning opportunities for today’s financial services professional.
Special Needs Planning Insights
Special Planning for Individuals with Special Needs: An Inside Look
Families caring for special needs children and all the requisite changes that come with them can expect to pay more than twice as much, up to $30,000 per year. It’s a sobering statistic, and while there’s no way to get around those additional expenses or the extra attention caregivers of a special needs child have to deal with and provide, one of the best ways a financial planner can help is to make sure that first and foremost, clients caring for special needs children or an adult with a disability have a life vest to keep them afloat.
Studies done by The American College of Financial Services indicate 90% of special needs and disability caregivers and family members admit retirement planning isn’t their main priority: caring for their loved one through special needs financial planning is. Of caregivers and those with guardianship who are trying to save, 70% are concerned they’ll have to stop to provide their loved one proper support. This is a noble sacrifice to make, but the truth is clients can’t help their special needs children or loved ones in the long run by jeopardizing their own financial futures. They need to take care of themselves first, so they can then take care of others who need help.
So what can financial advisors do with their expertise to help clients in these situations? Fortunately, there are some simple, common-sense goals for special needs planning any financial planner can start with.
Any family, especially those who have guardianship of special needs children or other individuals, should have an emergency savings fund that can cover three to six months of their must-have expenses. Building up a cushion like this won’t happen overnight, especially if family members aren’t high-net-worth earners, so it’s important for the financial advisor to emphasize to them how critical it is to add a small amount of savings into their budget over time. They’ll be grateful for it if an unforeseen problem strikes, like a job layoff or needed household work. In addition, while it’s difficult to estimate future care costs of those with special needs, including Medicaid or eligibility for other government benefits, every little bit helps. Encourage caregiver clients to set aside a little every month into another savings account for retirement planning, or to start building assets their special needs loved ones can access once the caregivers are no longer around.
In the spirit of planning for the future, those with guardianship of a special needs child or other individual should also look into leveraging any company 401(k) plans they might have to start stashing away money for their retirement and eventual estate planning, or use a traditional or Roth IRA. A solid goal is to set aside five percent of income to start and work up to 10 or even 15% over the next several years. When retirement age finally does come, caregiver clients will be under more financial stress than ever if they’re still caring for a special needs loved one or a person with a disability, and will need all the help they can get. Additionally, end-of-life preparations must be made, and ensuring a special needs child or adult is known legally as the beneficiary of any policies those with guardianship may have is a crucial step to take.
Finally, a commonly-used saving method among financial advisors for special needs planning and disability-affected families is a 529 ABLE account: clients should consider opening one of these accounts, or perhaps a special needs trust, after they’ve maxed out retirement planning and other savings goals. A 529A can be used, much like a normal 529 college savings plan, to prepare financially for the education of any special needs child or individual with a disability. Since many special needs children or individuals with a disability will also need to attend special schools that cost more than the average education, it’s a valuable part of government benefits caregivers can’t afford to miss out on.
Special Needs Planning Insights
An Overlooked Deduction for Families Caring for Those with Special Needs
According to the Center for Disease Control and Disease Prevention (CDC), the numbers have gone from one in 10,000 to one in 54. In addition to the psychological and financial implications of having a child diagnosed with an autism spectrum disorder or any disability, parents of children with special needs are often unaware of the substantial tax benefits available to them and frequently forego many potential tax deductions and credits in determining their tax liability.
Medical care expenditures alone for a child with special needs can prove astronomical. As a result, parents and their financial services professionals need to become familiar with some unusual Internal Revenue Code provisions in assisting their clients in the planning process. There is a medical expenditure available that often goes ignored by special needs families: medically necessary capital improvements.
Overview of the Medical Expense Deduction
According to the IRS, only individuals itemizing their deductions on their federal individual income tax returns can claim a medical expense deduction. Unreimbursed medical expenses are deductible only to the extent they exceed 7.5% of a taxpayer’s adjusted gross income (AGI) through 2020. The 7.5% AGI threshold for the medical expense deduction was reinstated with the Tax Cuts and Jobs Act of 2017 (from prior law’s 10% of AGI) for 2017 and 2018 and was retroactively extended thru 2020 by The Taxpayer Certainty and Disaster Relief Act of 2019. Alternatively, parents who are eligible to participate in tax-advantaged plans through work for funding medical expenses, such as flexible spending accounts or health savings accounts, can set aside limited amounts of money to finance medical care expenses on a pre-tax basis while bypassing the AGI limitation. Flexible spending account pre-tax contributions are limited to $2,750 for 2020.
The Overlooked Deduction: Capital Expenditures as a Medical Expense
Under most circumstances, capital expenditures aren’t permitted as a medical expense deduction. As a rule, assets used in a trade or business or held for the production of income are depreciated or amortized over time. Capital expenditures incurred for personal medical expenses are not depreciable nor amortizable. However, a medical expense deduction is available when the capital expenditure is made primarily for the medical care of the taxpayer, the taxpayer’s spouse, and/or the taxpayer’s dependents. To secure a current medical expense deduction for a capital expenditure, the cost must be reasonable in amount and incurred out of medical necessity for primary use by the individual requiring medical care.
Qualifying capital expenditures for medical expense deductions fall into two categories. First, expenditures improving the taxpayer’s residence while also providing medical care (e.g., a central air conditioning system for an individual suffering from a chronic respiratory illness). Second, expenditures removing structural barriers in the home of an individual with physical limitations (e.g., construction costs incurred for an entrance ramp, widening doorways and halls, customizing bathing facilities, lowering kitchen cabinets, and adding railings).
Capital expenditures in the first category are deductible only to the extent that the cost exceeds the increase in the property’s fair market value as a result of the capital expenditure. However, expenditures incurred in the second category are fully deductible under the presumption that there is no increase in the property’s value as a result of removing a physical barrier. Further, the entire cost of special equipment acquired to assist an individual with physical limitations is deductible. The following examples illustrate expenditures in both categories:
Example One
This past year, Thomas was injured in a severe skiing accident. Thomas sustained a disabling leg injury, which requires him to spend most of his time in a wheelchair. His physician recommends that he install an elevator in his home to alleviate the pressure on his knees from walking up and down stairs. During the year, Thomas made the following expenditures: wheelchair: $3,500, elevator: $19,000, operational and maintenance costs incurred with the elevator: $2,800, and entrance ramp and door modifications: $8,500. According to appraisers, the home increased in value as a result of the elevator by $5,000. As a result, Thomas has a $28,800 medical expense deduction before considering AGI limitations for 2020.
Example Two
In 2020, Jane, a single mother with AGI of $100,000, fully supported her 20-year-old daughter living with her. Her daughter has no income for the year and was properly claimed as Jane’s dependent. During the year, Jane installed a central air conditioner at a cost of $17,000, which her physician said was required in caring for the daughter’s asthma. After installation, Jane’s home increased in value by $7,000, allowing for a deduction of $10,000 for the central air conditioner. In addition, Jane incurred the following medical expenses in 2020: prescribed drugs: $500, physician expenses: $1,000, and unreimbursed health insurance premiums: $3,000. As a result, Jane has a medical expense deduction of $14,500 before considering AGI limitations for 2020 and $7,000 after subtracting 7.5% of her AGI ($100,000). In addition, if Jane’s utility bills increased $150 monthly after installing the central air conditioner system, her medical expense deduction would increase to $8,800 after the AGI limitation.
Under either category, costs incurred to operate or maintain the capital expenditure (such as increased utility expenses and maintenance costs to operate the elevator as illustrated in both examples) are deductible currently as medical expenses as long as the medical reason for the expenditures continues to exist.
Conclusion
Although many of families caring for those with special needs are aware of the medical expense deduction for special schools and education, the deduction for a capital expenditure for medical care is often overlooked. As illustrated, this deduction alone can result in saving thousands of tax dollars.
Now is The Time to Listen – Racial Injustices Cannot Continue
You hear the stories of black men and women navigating poverty inside America’s densest projects; the malnutrition, the financial stress, the entrenched inequalities in our system that eventually boil over. They become fearful of the cops, of creditors, even of each other while fighting on the streets for survival.
Make no mistake – that’s what this is, not what it’s become. I lived this life as a kid in the segregated South – and five decades have not solved these injustices. Fifty years of powerful people thinking they must always fill the sting of silence with their own words, when it’s not their void to fill.
America now lays bare its weakness in this moment of immense pain. It’s spilled over into the streets of cities and towns across this nation – an anger so deep-rooted leading to glass sitting on sidewalks framing defaced storefronts. I echo Dr. Martin Luther King Jr. in urging those protesting to remember the message they want to deliver. He said, “Darkness cannot drive out darkness; only light can do that. Hate cannot drive out hate; only love can do that.”
Put down the rocks, and pick up the megaphones. Amplify your Instagram audiences. Rally the voices of black churches, and the motivations of black activists. Mobilize a communications effort as wide as these protests can stretch. While America is still largely staying at home, there’s a captive audience bigger than ever before.
I really hope our nation is ready to listen. But, more importantly, I hope that those marginalized and mistreated for so long are heard and understood. Because this is bigger than a commitment to hiring a few more people of color or setting up a diversity council or cloaking the systemic struggle black people face with a program that means well, but stops a few steps short of feeling uncomfortable.
I’ve had a tough talk with myself over the last few days. Is The College doing enough? Yes, our scholarship programs lift up people of color looking for valuable, and valued, careers in financial services. Yes, The College’s Conference of African American Financial Professionals will celebrate its 15th year in 2020 as a venue for black men and women to support each other, share stories and strategies, and lift up their communities.
Yet, we can all do more to create equal opportunity in this world, to establish a fairness doctrine that spurs economic growth from the bottom-up, to re-assess how we’ve lived up to Dr. King’s ideals. We honor his birthday, but how’s that anything close to enough?
As a nation, we start conversations on race I don’t think we ever intend on finishing. This time must be different. The College will hold itself and its partner companies accountable for affecting real change through real dialogue. A message co-signed by The College, ACLI, NAIFA, AALU/GAMA, and LIMRA was a strong step in setting the tone.
And, more than anything, we have the opportunity and responsibility to become a platform for progress, where the communities we serve drive the ideas and actions we take. For far too long, pontificators have read some words on race, offered their thoughts and prayers, and America moved on. That cannot continue.
Our Role in the Emerging Retirement Crisis
While the CARES Act was a necessary provision to mitigate short-term financial pain, there’s also a real fear the allowances it offered may significantly impact individuals’ long-term retirement prospects.
However, not all is lost, because retirement planning shouldn’t be the Wild, Wild West. Financial professionals are the buffer between irrational thought and financial planning decisions. The American College of Financial Services plays an important role in this relationship, educating financial professionals on many facets of retirement planning, including areas severely impacted by today’s public health crisis.
Should my clients claim Social Security early? How can I talk to them about avoiding retirement plan withdrawals unless necessary? Where can they park money as a safe haven until the market recalibrates?
Knowledge helps provide the expertise and confidence needed to answer these questions, and many more like them. This crisis will hit retiree and near-retiree clients differently depending on the makeup of their portfolio and their familial needs. Is long-term care on the table? Do they need to have an estate planning conversation? Again, there’s so much to know, and The College wants to be both the conveyor of that information and the platform for the big, impactful discussions the profession is having.
There are several ways The College is living its mission in the retirement space during this unprecedented crisis:
- We held four-part webcast series, Financial Planning During COVID-19, which included a full hour on tax and retirement planning strategies, as well as another session on reframing a goal-based wealth management plan under market stress.
- We continue to provide relevant, timely information through the Retirement Planning Series webcasts presented by the New York Life Center for Retirement Income. A recent session detailed Social Security’s perilous solvency. We assembled a lineup of thought leaders, including The College faculty Steve Parrish and Wade Pfau, along with Kent Conrad, former U.S. Senator and co-chair of the Bipartisan Policy Center Commission on Retirement Security and Personal Savings.
- Our esteemed faculty has been busy talking to journalists across America, and have been featured in over 200 stories reaching 792 million eyes through publications like The New York Times, The Motley Fool, Bankrate, Kiplinger, and so many more.
- We also surveyed Retirement Income Certified Professionals® (RICP® credential holders) on how their clients were handling market volatility. As you’d expect, the results of our second survey showed more client concern than a month earlier, yet a theme was still apparent: clients remained calm if advisors proactively communicated the importance of proper planning during market imbalance.
We’ve been busy, but we’re nowhere close to finished. Providing a variety of free content through webcasts, interviews, surveys, and guest articles is one way to highlight the expertise of our brilliant retirement-focused faculty, led by RICP® Program Director Wade Pfau. We have a team dedicated to the data, cognizant of its framing in today’s environment, and uniquely focused on how behavior drives many of these important decisions. Retirement planning looks far different today than it did after the 2008 recession. I’m excited to determine how The College can play a part in how corporations, think tanks, and the federal government act on these issues. There will be another CARES Act. There will be emergency legislation that puts short-term interests over long-term outlooks. It’s a financial advisor’s duty to cut through the noise with sound advice and expertise, and The College will continue to play a leading role by delivering accessible, engaging, impactful insight and education.
Diversity, Equity & Inclusion Insights
How COVID-19 Has Impacted the Racial Wealth Gap
The New York Fed published research on this topic by studying heterogeneity in economic data, to describe how the recent economic impacts differ by race and gender. To study heterogeneity is to study variance. Economic analysis is often based on averages, but an “average” or “typical” person often doesn’t capture the experience of minority populations. So, we need a different approach to studying the numbers, and related, to providing financial services.
The Fed data tells a complex story. While the racial wealth gap narrowed between 2016 and 2019, economic insecurity among Black households remains, and is likely to worsen. Recessions historically, and today, have a larger impact on Black populations, and those communities recover more slowly. For instance, labor force data reveals divergence in Black and white labor force participation rates. While the situation during the pandemic has been bleak for all workers, there's divergence in the data: the unemployment rate rose significantly more for Black workers between the shutdowns of February to April 2020, and the recovery for white workers has occurred more quickly so far.
The data story continues. It’s been well documented by multiple sources that COVID-19 case counts are higher among communities of color. But why? The NY Fed analysis of data from the early months of the virus’ spread reveals several factors play a role, to differing degrees. These include higher rates of essential workers, indoor crowding on public transportation as well as in homes, and access to healthcare, including pre-existing co-morbidities. The researchers determine that while some causes that contribute to disparate impacts, such as co-morbidities, are more complex to mitigate, others, like access to health care and home crowding, are amenable to policy intervention.
Looking forward, how are we to address equality in economic recovery? And what's the role of business in the recovery? Several of my colleagues at The American College of Financial Services will offer ideas on these challenges in a multi-part insights series to be published over the coming weeks in the American College Center for Economic Empowerment and Equality®'s Resource Center.
What You Can Expect
- Steve Parrish, JD, RICP®, CLU®, ChFC®, RHU®, AEP® writes about the disparate impacts of tax policy and whether the time is ripe to consider tax reform. He reflects on hot topics in tax, such as carried interest and the earned income tax credit, and their interplay with economic inequality. Professors Sophia Duffy, JD, CPA and Dan Hiebert, PhD, CFP® will discuss the role of financial advisors in addressing inequality.
- On March 24, Duffy highlighted that financial planning is not just for the rich – in fact, low-income earners need strategies to protect their income and manage inter-generational wealth. She'll offer some guidance for such strategies.
- On April 7, Hiebert focused on the small business sector – which comprises over 90% of businesses – and how minority-owned firms have fared poorly during the pandemic. He'll advocate that small business advisory services can complement individual financial planning strategies, particularly as many entrepreneurs rely on personal resources in business formation and sustainability.
One conclusion to draw from these analyses is that those areas and people that are least able to withstand economic shocks, because of vulnerabilities prior to the pandemic, have felt the greatest impact and will likely experience the slowest recovery. Moreover, communities of color are also likely to trust the financial services sector, either because of past scandals which have disproportionately impacted them, or a dearth of products and services that are culturally relevant and addressing their needs.
The financial services sector has a predominant role to play in helping underserved communities by narrowing the wealth gap and promoting economic justice.