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Friday Financial Five – August 24th, 2012

Friday, August 24, 2012


Apple grabs the top spot in the world . . .

The QE3 training wheels stay on

News from the Fed’s latest meeting indicates they will engage in another round of bond buying. Despite the recent rise in home sales, the Fed’s action suggests the prospect of an improving economy remains weak. All indications are that they’ll continue to drive down long term interest rates until businesses start ramping up lending and consumers start pulling out those credit cards and spending again. The economy will not turn around until consumer confidence comes back.

FICO scores get a facelift

Fair Isaac’s (FICO) has rolled out a new calculation for credit, and it’s good news for those that pay their rent or used car bill on time. When the financial crisis hit, it was not uncommon for borrowers to get a call saying their various credit lines were being closed. Lenders were scared, and their immediate reaction was pull back wherever possible. It appears that trend is reversing, but banks are looking at alternate credit lines to determine the viability of a borrower. That means you have to be vigilant on paying all of your bills, not just those that have traditionally appeared on a credit report.

The implementation of Dodd-Frank

We’ve crossed the two year anniversary of the Dodd-Frank Act, so let’s pull out a mini- scorecard to see where it stands. The Consumer Financial Protection Bureau (CFPB) is up and running and has probably been most visible in rewriting the rules for the mortgage industry. Banks have focused on increasing their emergency capital to the tune of $400 billion, according to Treasury Secretary Timothy Geithner. One important issued yet to be finalized is a method of dealing with derivatives, which played a major role of getting us into this mess in the first place.

Emory gets exposed

In what has become a disturbingly common practice, Emory University admitted to reporting inaccurately high test scores and class ranks for their student body. The price of education continues to rise outrageously, so what other universities are doing anything possible to get on the US News top 25 list? In evaluating college costs, it is more important than ever to determine that the money being paid in tuition will produce an appropriate rate of return after graduation.

Beware the annuity salesman

Our firm sees a number of clients, many of them seniors, who have invested in annuity products that they don’t understand. Some of these annuities have long surrender penalties and undisclosed expenses but are sold as providing “guarantees”. Investor confusion has prompted an effort to implement a system that will help the public determine exactly what they’re getting when they seek financial advice. The CFP Board has called on the aforementioned Consumer Financial Protection Bureau to create a rating system for certifications. Twelve industry stalwarts, including John Bogle of Vanguard and former Fed Chairman, Paul Volcker, have called on the SEC to implement a fiduciary standard for anyone giving financial advice. Let’s hope someone out there is listening.

Dan Forbes is a regular contributor on business financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning in Providence, RI and can be reached at dforbes@forbesplanning.com


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