June 2011

Question: I have a son who is a junior in high school and we visited with a financial planner. They’d like to position our money so we would get the most yield out of college aid and they’re talking about life insurance and annuities. What do you think?

Ric: I’m concerned.

The rules for college financial aid are byzantine. Some assets (like investment accounts) count toward a family’s contributable assets, while others (like annuities, retirement accounts, home equity and insurance) don’t. That creates an opportunity to engage in strategies specifically designed to increase your college aid eligibility.

The emphasis on college planning creates an opportunity for unscrupulous salespeople to exploit their clients’ worries and desires — enabling them to sell investments and other products that are not in your best interests. Indeed, moving money into investments or other products that might help you increase your child’s financial aid could have a disastrous impact on your overall financial and retirement planning goals.

Therefore, be very careful when considering such strategies. If an advisor suggests insurance and annuities as college planning tools, get a second opinion before proceeding.

Let’s put it this way: We’d never recommend that idea to our clients.