No Ceiling in Sight for Tuition
and the Fate of the Fiduciary Rule
By: Kevin Dombrowski
As of 5/31/18
Past performance is not an indication, prediction or guarantee of future results.
Weekly Update
It was a choppy week as trade tensions rattled US stocks and heavy political activity caused mixed reactions on Wall Street. The markets have been slowly recovering for several months. In fact, as of Friday, both the S&P 500 and the Dow Jones Industrial Average have been in correction territory for 99 days – the longest stretch since the financial crisis in 2008.  

This was a very busy political week which could have some large-scale impacts on the markets in the future. Justice Anthony Kennedy announced he will be retiring at the end of July, giving President Trump the ability to nominate someone more conservative before November’s elections. This is big news as Justice Kennedy was a moderate swing vote for many landmark cases this past decade. 

Additionally, the Supreme Court upheld President Trump’s travel ban and an agreement to hold a summit on July 16th in Helsinki, Finland between Presidents Trump and Putin was established. Finally, the Supreme Court struck down a 1977 ruling that allowed unions to require all employees to pay union dues. This is a huge blow to unions and will likely reshape their structure and purpose in the years ahead.

With so much political movement, volatile markets may be on the horizon in the coming weeks. 

Attending Harvard may cost $475,000 in 2036
Less than 50 years ago, some baby boomers could pay for college with money they earned during their summer employment. Fast forward to today, where the average student graduates with over $37,172 in debt, more than twice the level of 13 years ago. Still, some analysts predict that today’s tuition levels will look cheap compared to the price hikes we may see in the future. 

According to Wealthfront, if college tuition continues to increase at similar rates, attending Harvard as an undergraduate will cost $475,000 in 18 years . Although this is unlikely for a variety of reasons, a large scale structural reform may be necessary before we see a significant slowdown in tuition increases. 

From an investment perspective, the most prudent thing you can do is to prepare for future tuition increases. Parents should consider investing early in a 529 plan, provided you’ve considered your retirement savings first. Depending on where you live, it may be advantageous to invest in your state’s 529 plan . If there are no tax advantages in your state, you may want to consider the best overall 529 plan with the lowest and most transparent fees

529s are easy to set up and can transfer from one family member to another seamlessly. In the instance that you invest more than is necessary for one child’s education, any extra money in the 529 can be used for other children, saved for future generations (i.e. your grandchildren) or used directly for non-qualified expenses (albeit the earnings will be subject to income tax and a 10% penalty). 

Additionally, with the new tax overhaul, 529s can now be used for K-12 educational expenses in addition to college expenses. 

Best Interest Rule Officially Shelved
The Obama administration’s Department of Labor (DOL) Fiduciary Rule (“Rule”) was officially vacated last week This rule would have required financial professionals, including brokers and insurance agents, to adhere to a higher fiduciary standard when providing advice related to tax-advantaged retirement accounts, for example - individual retirement accounts. Under the Rule, any financial professional providing investment recommendations with respect to retirement plan savings would have been subject to a heightened care standard and required to act in their clients’ best interest. When certain conflicts and fee commissions, like those typically charged by brokers were present, they would have to enter into a special contract with their client to even allow for such an arrangement.

In the end, the court sided with many objections to the rule, which included a challenge to the Rule’s consistency with governing statutes and the DOL’s authority to regulate the financial services industry in such a manner. 

In the meantime, the Securities and Exchange Commission made several proposals including its own “Regulation Best Interest” hoping to enhance investor protections while at the same time preserving choice for investors. Time will tell where this road ends, although the SEC along with their new Chairman Clayton seem dedicated to enhancing the investor experience and elevating the standard of care in the industry.

What does this mean for investors? When working with a financial professional, it may be wise to follow the advice of Phyllis Borzi, former Assistant Secretary of Employee Benefits Security from 2009-2017:

“When somebody is trying to give you advice, what you do is ask them if they are legally obligated to act in your best interest and as a fiduciary. If they say yes, or any euphemism that can be construed as a yes, then ask them to put it in writing.”

At MainLine Private Wealth, we are a fiduciary to our clients and always put our clients’ interests first.
MainLine Private Wealth 308 E Lancaster Avenue Suite 300 Wynnewood PA 19096