On October 18, Putnam Investments and the State of Ohio will offer an investment-based Qualified Savings Tuition Plan (or 529 Plan). Putnam will market the plan and the accounts will hold Putnam-managed mutual funds. Investors will have 3 portfolio choices: Aggressive, Conservative, or Age Based. The investment choice is made at the time of the contribution and cannot be changed for the life of the account. Though established with Ohio, the account assets can be used at any qualified institution nationwide.

The tax benefits are attractive. Federal income taxes are deferred on the earnings until used for qualified expenses. At that time, income taxes are collected at the student’s income tax rate. In addition, Ohio is offering residents $2000 of annual state tax deductions for donations to the 529 plans. This deduction can be carried forward if donations to the account exceed $2000 in one year.

Unlike the Education IRA, one donor can contribute up to $50,000 at one time to a beneficiary child using five years’ worth of annual gift- tax exclusions. This provides a great opportunity to both jumpstart a child’s college savings and remove assets from Aunt Bessie’s estate. The lifetime maximum a beneficiary can receive is $150,000. Also, there is no age limit at which the money must be used and no income limits on who can contribute.

Unlike the UTMA/UGMA account, the beneficiary never gets control over the account. So at age 21, Junior cannot use his money to invest in a Porsche rather than his education – unless the donor agrees. If the original beneficiary does not go to college, the donor can change the beneficiary to a sibling or child of the original beneficiary. The donor can even take the money back! If the assets are withdrawn for other than qualified expenses, the earnings will be taxed at the donor’s rate plus a 10% penalty.

As of this writing, the commission schedule is not yet established. However, Putnam stated that brokers will be compensated and it is expected along the lines of traditional share pricing. More pricing information, account packets and marketing materials should be available mid-September.

Our new internal wholesaler for Putnam is Laura Nardone at (800) 354-4000 x41713.

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Under IRS Code Sections 6042(b)(2)(B) and 6049(b)(A) payments to corporations are exempt from these requirements in most cases.

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America has a new wealthy class, younger and more diverse than before. A snapshot of the new high net worth individual taken by the Phoenix Home Life Mutual Insurance Company looks like the following:

• The number of households with net worths of $1 million or more (not counting the residence) has grown 400 percent since 1990, to 7.2 million in 1992.

• The number of millionaires worth $5 million or more doubled between 1990 and 1998.

• Eighty percent of today’s millionaires are first generation wealthy.

• Forty-five percent of the millionaires are younger than 55.

• Less than half have a financial plan, and less than 40 percent of that group have implemented a plan.

• Half of all high net worth individuals live in eight states: California, New York, Florida, Texas, Illinois, Pennsylvania, New Jersey, and Ohio.

Also these statistics should be of interest:

• 1 in 6 families have at least $500,000 in investable assets or are making at least $100,000 a year.

• 1 in 9 Americans invested in socially responsible investments.

• 61% of households invested in stocks in March 2000.

• 54% of households invested in stocks in May 2000.

• 39 percent of women comprise all personal bankruptcy filers, versus men or couples.

• 39.6 million life insurance policies containing accelerated death benefit provisions - twice that of four years ago.

• 68 percent of investors have relied on some type of advisor for financial advise.

• 20 percent reduction in life insurance agent population in the next five years predicted by a majority of insurance executives.

• 1 in 383 American workers will become a millionaire each year.

• The proportion of the population made up of elderly (65 +) will increase from 13 percent to 20 percent by 2050.

• Raw numbers of elderly are expected to double.

• The 85 and older population will increase 400 percent and make up 5 percent of the population by 2050 (vs. 1.4% today).

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These are life events that motivate prospects to seek financial planning advice (rated on a frequency scale of 1 to 10, with 10 being the highest):

• Realization of Approaching Retirement 7.3

• Pension/IRA Rollover 7.0

• Inheritance/Unexpected Windfall 5.5

• Pressure to Fund Future Education 4.4

• Erosion of Investments/Assets 3.7

• Change in Marital Status 3.6

• Birth of Children 3.5

• Responsibility for Elder Care 3.1

• Buy/Sell/Start a Business 3.1

• Potential/Actual Job Loss 2.9

• Significant Health Care Costs 2.9

• Increasing Personal Debt 2.5

Source: CFP Board of Standards

Source: Journal of Financial Planning, September 2000.

Remember, the telephone is not an interruption, so it is vitally important to start off on the right foot and make a favorable impression. Smile and be friendly. Project a positive, caring attitude.

Set the tone of the call by speaking softly with enthusiasm and slightly faster than prospects. They will perceive you as being intelligent and interesting. Also, sound expectant in your tone, as though you would be surprised if they were not willing to meet with you or respond favorably to you.

Notice whether clients or prospects use their names, because that establishes a feeling of relationship with you and connection to them. It also lets them know that you know them, and it makes them much more comfortable. Be careful you don't use nicknames or, in some cases with prospects, first names until such time as you've met with them one-on-one or they give you permission. Being too familiar at the outset can make them uncomfortable and put them further out of reach.

In addition, prospects and clients like to be heard and understood. Demonstrate that you care to hear their point of view. Be prepared to listen and show patience in your listening. Tell them you are listening by saying softly, "I see," "I can appreciate that," and so on as they explain their point of view.

A favorable impression here will open them to new ideas.

The problems may be numerous, including: undo risk for your client due to limited diversification; a large tax bill if the stock is sold; the current dividend doesn’t provide enough income. Two simple solutions come from Eaton Vance: The Pooled Income Fund or the Donor-Advised Fund. Both are tax-exempt public charity funds approved by the IRS within "The U.S. Charitable Gift Trust". The initial minimum donations are relatively low at $20,000 and $10,000, respectively. The contributions can be made in cash or securities (stock, bonds, mutual funds).

The Pooled Income Fund may be well suited for those clients wanting to reduce the size of their taxable estate, save on capital gains, reduce income taxes immediately, and most importantly, generate income for one or two lives. (The High Yield Fund currently pays about 9%! There are four investment fund choices.) Unlike a Charitable Remainder Trust there are no start-up fees and no attorney is needed. One of the commission options pays 4% plus a trail with no breakpoints and no reduction of the contribution amount. By the way, the average ticket is $750,000!

The Donor-Advised Fund would apply best where the client’s intent is purely donating to charity. This fund establishes their own private foundation for a family legacy of giving. There is a dollar for dollar tax deduction on the initial contribution, no start-up fees, and no excise taxes. The broker is paid an ongoing account servicing fee of 1% beginning immediately. The average ticket size is $80,000.

For more details, call Stan Weiland at 800-225-6265 ext 9-8372 or Chris Meadows at ext 9-8348.