Dodd-Frank Wall Street Reform and Consumer Protection Act:
What Does it Mean for You?

On Wednesday July 21st, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) into law.  Today we’ll take a look at a few ways in which the Act could affect you.

If you’re unfamiliar with the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173), it’s sweeping legislation intended to overhaul financial regulations in the U.S.

According to OpenCongress.org, H.R. 4173 is “A bill to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.” If you’re ambitious, you can read the full text of the bill here.

Ignoring for now the murky “other purposes” referred to above, let’s dive right into the consumer protection provisions of H.R. 4173.

For starters, the Act will give you additional opportunities to get free access to your credit report.  If you apply for a loan and end up with a higher interest rate because of an adverse action (previously being denied a loan, for example) in your credit report, you’ll have the right to receive a free copy of your credit report.  Today, you can only receive that free credit report once a year (as well as each time you’re actually denied credit), so H.R. 4173 will extend the circumstances under which you can access your credit report for free.

H.R. 4173 extends to mortgages as well. Under H.R. 4173, mortgage companies will be required to fully document your income.  Stated income loans, with their corresponding higher interest rates, will likely be a thing of the past. And say goodbye to prepayment penalties.  Although you likely were avoiding loans with prepayment penalties all along, they’ll no longer be allowed, which will enable more consumers to refinance without getting gouged.  Unfortunately, some experts are predicting H.R. 4173 will result in higher mortgage rates and down payments (those lenders have to make money somehow) and make it harder to qualify for a home loan.

It may not be perfect, but the intentions behind H.R. 4173 are to ensure all Americans are protected from predatory and dishonest financial practices.

That, at least, is a noble goal—no matter which side of the aisle you’re on.

Come back to AllFinancialAdvisors.com later, when we’ll look at how the Dodd-Frank Wall Street Reform and Consumer Protection Act will take on the big credit card companies.

Dodd-Frank Wall Street Reform and Consumer Protection Act:
The CFPB Explained

We’ll be doing a series of posts this week about the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173).  In today’s post, we’ll take a look at the Consumer Financial Protection Bureau.

H.R. 4173 creates the Consumer Financial Protection Bureau (CFPB), a new regulatory entity within the Federal Reserve. 

The CFPB is completely removed from any influence from the banking industry.  It is intended to oversee all financial products offered to consumers by just about any financial institution, large or small.  For example, when you have a complaint about a shady payday loan company, or if a credit card company is charging you exorbitant fees, a consumer can take it up with the CFPB, which will have the authority to investigate your complaints and make new rules to respond to new problems.

We can also expect the CFPB to crack down on big banks and their scads of fees that nickel-and-dime consumers.  But if you get a car loan through a dealership and something goes south, don’t call the CFPB: Thanks to successful lobbying by car dealers, they won’t be regulated by the CFPB.

All the other lenders that will fall under the CFPB’s oversight, however, can expect to clean up their acts—or pay up.   H.R. 4173 gives the CFPB some real enforcement muscle, including the authority to impose fines of up to $1 million per day if a lender fails to follow consumer financial protection laws.

President Obama is expected to sign H.R. 4173 into law this week.  Before the CFPB begins protecting anyone, it has to be created; the front runner to head up the new agency is currently Elizabeth Warren, chair of the Congressional Oversight Panel, who introduced the idea of the CFPB back in 2007.  Consumer protection groups support Warren, which is a good sign; it remains to be seen whether President Obama will make her head of the CFPB.

This week we will also discuss specific ways in which the Dodd-Frank Wall Street Reform and Consumer Protection Act could affect you, so make sure to bookmark AllFinancialAdvisors.com.

What Should You Look For In a Financial Advisor or Financial Planner?

* Ask if they have been subject to any disciplinary actions or have received any client complaints in the past.
* Ask for a copy of all compensation, fee and/or commission schedules.
* Ask for references, specifically from clients who have similar goals as yours.
* Inquire about the financial advisor’s experience, education, professional affiliations, credentials and general background.
* Make sure the financial advisor is properly licensed, bonded and insured in the states where they do business.
* Review the advisor’s methodology prior to committing your investment.
* Is the financial advisor using an institution to “clear” or execute trades?  If so, become familiar with that institution and double-check the fees associated with this activity.  There may be hefty ”commissions” involved.

NOTE: Some experts recommend contacting 2-3 financial advisory firms, so that one may compare/contrast each firm, thus making the best-qualified choice.

What Is Fiduciary Duty?  A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary (Wikipedia).

Health Care Reform — YIKES!

Health Care Reform has REALLY become a ‘hot potato’ nobody can afford to ignore.  Today’s workforce and retirees are finding it increasingly difficult to stay insured.   

** Fact: in 2008 national health expenditures increased nearly 7% and employer health insurance premiums increased by 5%. Both figures are more than double the rate of inflation. 
** Fact: the annual premium for single coverage averaged over $4,500.
** Fact: The average retirement age at which men and women retire in the U.S. is 62 (for men) and 61 (for women).  Average years spent in retirement = 20+.

So, what does it take to comfortably afford a $4,500 annual “single coverage” health care premium?  Many financial planning professionals and financial advisors suggest no more than 3%-5% annual expenditures from a retirement portfolio.  $4,500 is equal to 4.5% of a $100,000 portfolio!  That’s great if you are single, however, but a married couple will need twice as much; $200,000 set aside just to cover health care insurance premiums!

Additionally, this savings would only cover insurance premiums not deductibles, co-pays or other out-of-pocket expenses.  As it stands, the average after-tax social security check marginally covers average health care insurance premiums. 

Our recommendation:  Create a savings plan with a trusted financial advisor to ensure you stay insured!   You deserve to have a little GOLD during your Golden Years!

Only if the estate can pay the tax bill! 

Financial Planning is essential.  It’s never too late to correct your errors or put an estate plan in place, if you have neglected to do so up to this point. 

Early this week the judge presiding over Michael Jackson’s estate ruled in favor of the co-executors listed in Jackson’s 2002 will. Mr. John Branca, a renowned music attorney and Mr. John McClain, a music executive will now take control of the Jackson estate. Together, with a team of legal advisors, they will orchestrate strategies to assess opportunities embedded within Jackson’s assets including real property, music, video and publishing rights. Overall, the estate value could increase significantly as people want to remember Jackson’s legacy similar to Elvis Presely’s estate.  Could Neverland become the next Graceland?  Should Jackson have had better comprehensive financial planners?  or a single high-quality financial advisor?

Now, the co-executors are facing an estimated $80 million dollar federal estate tax bill due within nine months from the date of death. Unfortunately, most of Jackson’s estimated $236 million estate, as reported by The Associated Press March 2007, assets are relatively illiquid and difficult to value. Until a final valuation and liquidity solutions are in place the executors are expected to request a tax payment extension from the IRS.  In special cases, estate tax can be spread out for a period up to 14 years.

This scenario sets itself up to have assets with significant intrinsic value to be sold off at discount prices. Remember to visit with your favorite investment advisor to ensure your estate has liquidity strategies in place to comfortably settle your estate.

Search: Financial Advisors with a specialization in Estate Planning.

What Is Full Disclosure?

Bernard Madoff, yet another reason to know more about your financial advisor. 

Mr. Madoff’s previous experience as Chairman of the NASDAQ combined with posting unusually high investment returns helped his investment firm garner unwavering faith by many investors. In fact, it became “bragging rights” to say, “My money is with Madoff” a club-like experience. The Madoff portfolio was treated as a “sacred cow” by many investors who neglected to investigate the investment strategy because they were making money and were told he can be trusted.

As the world’s largest Ponzi scheme began to unravel it became evident his investors neglected to ask pertinent questions of Mr. Madoff and his firm. Several simple questions can be asked of your advisor and the firm he/she represents to prevent getting blindsided by a Madoff like event.

When signing the necessary paperwork to open your account, ask if your advisor if he/she has authority to make withdrawals from your account for anything other than fees. Make sure you see it in writing!

Ask the advisor who has custody of your money? Is the custodian the investment firm you are personally working with or a larger third party financial institution. A large third party institution helps create an arms length distance between your money and the advisory firm. Should anything seem weird with the advisory firm you can call the third party financial institution to inquire.

Transparency, Reporting and Liquidity are three other vital factors.

You need to be aware of what exactly is being held in your account, when statements are scheduled to be sent to you and how long does it take to sell-off the entire account in the event of an emergency.

An honest advisor should be happy to review all of this information with you upon your request. It is very easy to focus on other things and get distracted from the basics. Armed with answers to these questions you should be able to make an informed decision that will let you sleep at night.

We hope you find the best financial advisor or financial planning firm for your needs.