​Are you Fixated on Elite Schools?
 
This month’s newsletter is directed to parents with smart teenagers. Chances are, you may be encouraging your children to aim for highly selective colleges.
 
At the same time, you may be stressing about how you’d pay for some of these extremely expensive brand name institutions.
 
Some of these schools are now charging upwards of $280,000 for a single bachelor’s degree. And for parents with two or more children, the costs are beyond staggering-even for those with comfortable six-figure incomes.
 
Where the chances for merit scholarships are slim to none
 
One of the realities is this:
 
The schools with the very shiniest brand names don’t have to bother giving merit scholarships to highly accomplished students from high-income families.
 
Why? Because there are plenty of wealthy parents who will pay ANY amount to get their children into one of the U.S. News & World Report’s rankings darlings. Schools like Harvard or Stanford could charge $1 million or $2 million for a bachelor’s degree and they’d still reject most teenagers.
 
Once this reality sinks in, many parents begin wondering if they should plunder their retirement accounts and/or take on debt to underwrite a degree at one of these elite schools that seem (notice the emphasis on seem) to have a monopoly on dispensing golden tickets.
 
Here are some key things parents need to know:
 
You don’t have to go to an elite school to succeed!
 
It is not uncommon for a bright student to get accepted to the flagship school of their dreams, only to find little or nothing awarded to them in the form of merit scholarships. Yet these same students routinely can snag big, fat merit scholarships from other good, but lesser known schools.
 
This may not seem as obvious to parents in wealthy communities who sometimes view getting into prestigious colleges as a trophy sport. There are parents who have been known to obsess about their children going to a prestigious college while their children are still in diapers!
 
The following hypothetical is NOT true, but let’s just say all the best jobs in the entire country go exclusively to the graduates of the most highly ranked colleges and universities. This would still leave roughly 99.5% of jobs left to the rest of us.
 
One quick, easy and practical way we can unscientifically confirm this is to take a look at your LinkedIn contacts (if you have a LinkedIn profile). Most, if not all, of the most successful contacts you have did not attend a trophy school.
 
The smartest student advantage
 
There have been two highly touted studies on whether an Ivy League bachelor’s degree conveys a professional advantage for students.
 
The main conclusion of the papers is this: Students who attend Ivy League institutions and equally bright students who apply but get rejected from these elite schools or who get accepted, but attend other institutions end up making roughly the same amount of money in their careers. These are bright and motivated students, after all, who can succeed wherever they go to school.
 
There was an exception to the research findings. Minority and first-generation students who don’t enjoy the same advantages as the students whom the Ivy League schools specialize in educating – wealthy students – did gain an advantage from attending these elite schools.
 
SAT score predictor
 
What should make parents feel better is the conclusion that Alan Krueger, the famous Princeton economist and coauthor of the studies, reached.
 
Krueger pointed out that the average SAT score at the most selective college that students apply to is a better predictor of their future earnings than the average SAT score at the college they attend. Read that again and let that sink in!
 
Here are shorter summaries from the New York Times and the Brookings Institute on what the famous Ivy League studies uncovered.
 

• Revisiting the Value of Elite Colleges (New York Times)
• Who Needs Harvard? (Brookings Institute)

It’s what you do in college that counts!
 
A Gallup survey conducted with Purdue University last year provided further evidence that people should really stop fixating on elite schools.
 
The survey results indicated that the type of institution that college graduates attend matters less to their future happiness at home and work than the experiences they have at whatever college that they end up at. In fact, the survey concluded that whether respondents attended an elite school, a public flagship, a private college or a regional state school didn’t matter at all.

-WEBSITE OF THE MONTH

​The Chronicle of Higher Education just released a search tool that allows you to sort colleges and universities by state, tuition, room/board and total cost.
 
You can also sort by type of school including public institutions, private, nonprofit schools and two­year colleges.
 
You can also check the price figures for individual institutions and trace the published prices from the 1998-­1999 school year up through 2016­-2017.
 
Most of The Chronicle’s website is behind a pay wall, but this search tool is available to anyone.

This research material has been prepared by Horsesmouth
 
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The Department of Labor recently passed a new law that establishes a new fiduciary standard for retirement accounts, including IRAs. This ruling has made headlines in recent months because it has significant ramifications to the financial advisory business and how financial advisors do business with their clients.

Currently, there are two regulatory standards of care in the financial industry: (1) The suitability standard and (2) the fiduciary standard.

The Suitability Standard
In practice, this standard is similar to how it sounds. A broker is permitted to make recommendations based on what is suitable to a client’s personal situation. After collecting information about the client’s income, assets and financial situation, the broker can make product recommendations that are suitable for the client.

The Fiduciary Standard
This standard is the suitability standard taken an extra step further by assuring advisors focus only on what is best for the client.

What’s the difference?
Let’s just say you know very little about cars and decide to purchase a new vehicle, so you pay a visit to your local Chevy dealership. You describe the features of what you’re looking for and what you describe sounds exactly like a Honda Pilot.

Under the rules of the suitability standard, the car salesman may say, “We have some Chevy Tahoe’s right over here that have all the features you’ve described.” The car salesman makes the sale and earns a commission. As a result, you drive off the lot with a car that certainly suits your needs, but may not have necessarily been what was best for you.

If the fiduciary standard was applied to the same situation, the car salesman would have an obligation to say, “That sounds exactly like a Honda Pilot. We don’t sell those cars here, but the Honda dealership down the street does. I have a Chevy Tahoe here for you that has all of those features, but it’s more expensive and isn’t exactly what you described. But we can take a look if you’d like.”

Haven’t you always done what’s in my best interest?
If you’re a client with us here at Blom & Associates, this is the first question you’re probably asking, and the answer is yes! As independent financial consultants, we are free to recommend any investments or financial products that will help our client’s pursue their financial goals. To liken what we do with the example above, the good news is we have the investment and financial product equivalents to a Honda Pilot or Chevy Tahoe available. Our independence means we’re not captive to providing the products of any one particular company (which may or may not have the best products), enabling us to recommend products we feel are appropriate to our client’s individual circumstances and in their best interests.

We know our role is to help our clients navigate the myriad of financial decisions they face. We take the trust our clients place in us very seriously, which is why we’ve intentionally created a consultative business model that focuses on “planning” versus “selling.” This allows us to always focus on what’s best for our clients.

Why all the press over the changes?
The rule has created a shockwave through the investment world. Few broker-dealers and advisors have objected to the intent of the rule, but they have been challenged by operational aspects due to the logistical nature of its implementation. The ruling is complex and contains many nuances that have been left open to interpretation, leaving substantial portions for firms to determine how to implement.

Opponents in the industry argue the ruling is an act of over-regulation that means well, but may end up harming consumers in the long-run. The rule is expected to increase compliance costs dramatically and has the potential to affect affordable advice provided by advisors to lower and middle class families. With the rule also dealing with areas of morality, some opponents also question whether the rule would actually produce the results it attempts to achieve. On the other hand, proponents argue the rule creates a better financial planning environment that will result in lower fees and less conflicts of interest.

A Trump presidency may throw a wrench in the ruling.
With a new Trump administration entering the White House bent on ending over-regulatory practices, a new Labor Secretary may halt the DOL/Fiduciary Rule in its tracks prior to it going into effect on April 10, 2017. The administration may also propose an alternative.

What does the change in regulatory standards mean for you?
To reiterate, at Blom & Associates, we will always put the interests of our clients first regardless of the regulatory standard we’re required to operate under. Logistically, the components of the law that are still left open for interpretation and the impact of a Trump administration on the law means we don’t know exactly what clients and/or accounts will be impacted by this new regulation. We will certainly provide updates as we learn more and guide our clients every step of the way if changes are needed.

​Have Questions?
If you or your family would like to know more about the DOL ruling or how we can help you, please contact us at (209) 857-5207. If email is more convenient, please send inquiries to: gary@blomassociates.com or michael@blomassociates.com.
 
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.