News About IRS And Tax: February 2017

Tuesday 28 February 2017

You Can Still File Your Taxes for Free!

If you have a simple tax return (1040EZ or 1040A), you can still take advantage of free Federal and state tax filing with TurboTax Absolute Zero. Generally, you’re considered a “simple filer” if you file Form 1040EZ or 1040A. To...

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source http://blog.turbotax.intuit.com/announcements/you-can-still-file-your-taxes-for-free-22623/

#FASuccess Ep 009: Carolyn McClanahan On Using A Complexity-Based Retainer Model To Deliver Holistic Financial Planning

Welcome back to the ninth episode of the Financial Advisor Success podcast!

This week, I’m excited to host Dr. Carolyn McClanahan, of Life Planning Partners. Carolyn is an emergency medicine physician turned comprehensive financial planner in Jacksonville, Florida, where she maintains a practice serving 80 clients and nearly $1 million of stable recurring revenue from financial planning retainer fees.

What makes Carolyn’s firm especially unique is the way she has applied the principles of a professional medical practice, into her advisory practice. Each of Carolyn and her three advisors all communicate and support clients directly – akin to a doctor with nurses and other support staff who all interact with patients directly – with each working in their respective area of expertise. And their holistic services are covered by a single “complexity-based” retainer fee, including both financial planning and asset management services.

In this podcast episode, Carolyn shares her journey from wanting to be an actuary, to becoming a physical therapist, and then an ER physician, and finally transitioning into financial planning. She also discusses why her plan is never to grow beyond 100 client families, the hard lessons she has learned about hiring, and the parallels she sees between professional medicine and the emerging professionalization of financial planning.

And be certain to listen to the end, where Carolyn talks about exactly how she prices and adjusts her complexity-based retainer fee for each client, and the “client engagement standards” document that she requires every client to sign to ensure she only works with considerate, responsive, and all-around “good” clients!

So whether you’ve been thinking about adopting some kind of retainer fee structure, or simply want insight on a unique kind of holistic financial planning lifestyle practice, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Monday 27 February 2017

Can You Claim a Parent as a Dependent?

For that time in a person's life when he or she begins to take care of their parent, its important to know that the IRS allows those individuals to claim their parents as dependents on their tax return.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/family/can-you-claim-a-parent-as-a-dependent-13842/

The Unbundling Of The TAMP And The Rise Of The Model Marketplace

The Turnkey Asset Management Platform (TAMP) has been a popular solution for financial advisors who want to provide comprehensive wealth management to clients, but focus their time more on financial planning and client-facing duties than the actual investment management process and its implementation. Made feasible by the decline in transaction costs and rise of portfolio management tools beginning in the 1980s, the TAMP marketplace today is estimated to be more than $250B of AUM.

However, the growing capabilities in recent years of “robo” automation tools to handle the trading, rebalancing, and management of investment models, have made the need for a TAMP’s back-office support less and less relevant. And now, that robo-technology appears to be instigating a new competitive threat for TAMPs: the rise of the Model Marketplace.

In essence, a Model Marketplace is a centralized platform where financial advisors can select from a series of third-party-created investment models, but retain control and discretion to implement the trades themselves (in an efficient manner) by leveraging trading and rebalancing software. And in just the past month, both TD Ameritrade (via iRebal rebalancing software), Riskalyze (via its new Autopilot rebalancing tools), and Orion Advisor Services (via their new Eclipse trading and rebalancing solution) have rolled out Model Marketplaces. And the emergence of Model Marketplaces appears to be supported by asset managers themselves, who are seeking new paths to distribute their (otherwise increasingly commoditized) investment products, along with new revenue opportunities from adding a layer of fees for model management itself.

Ultimately, it remains to be seen whether Model Marketplaces will gain traction, and via which platform – from “robo” onboarding tools to portfolio accounting software or an RIA custodian – advisors will choose to adopt. Nonetheless, the transition of “robo” trading and rebalancing tools into the creation of Model Marketplaces represents a significant new disruptive threat, for both existing marketplace incumbents like Envestnet, and the entire world of TAMPs, as advisors gain newfound choices about whether to outsource just the creation of investment models, or their back-office implementation as well.

Saturday 25 February 2017

Should I Itemize Tax Deductions on My Taxes?

When it comes to deductions on your tax return, you have two options: taking the standard deduction or itemizing.

source http://blog.turbotax.intuit.com/tax-tips/should-i-itemize-deductions-on-my-taxes-1448/

Friday 24 February 2017

Can I Write Off Parking Tickets if I Drive for a Living?

Let’s say you’re driving for Lyft or Uber, and need to grab a coffee before picking up your next customer. The line is longer than expected, you are unable to get to the parking meter to feed in a few...

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source http://blog.turbotax.intuit.com/self-employed/can-i-write-off-parking-tickets-if-i-drive-for-a-living-30072/

FSA 101 – FSA Basics

If you work for a big company, chances are you have a Flexible Spending Arrangement plan available through work. If so, do you have any idea how they work? Many employees learned all they know about FSA plans from other...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/fsa-101-fsa-basics-30078/

Using Your 401k to Reduce Taxable Income

As you file your taxes, you’re probably thinking about ways to reduce your taxable income. Did you know that there are a lot of strategies you can use with your retirement funds, like your IRA and 401(k), to reduce your...

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source http://blog.turbotax.intuit.com/income-and-investments/401k-ira-stocks/what-can-you-do-with-your-retirement-fund-to-reduce-taxable-income-30056/

Weekend Reading for Financial Planners (Feb 25-26)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a recap of the recent Technology Tools for Today (T3) Advisor technology conference, which includes many notable announcements, from a new Orion rebalancing software solution, to major new Riskalyze features, and the news that eMoney Advisor will be integrating into Schwab OpenView Gateway, putting to rest the ongoing concerns about whether eMoney Advisor would remain open and cross-custodian after Fidelity acquired it two years ago.

From there, we have several more articles on advisor technology, including: a deeper look at the latest Riskalyze features, from the new Premier solution, to its new Autopilot Partner Store (a former of TAMP supermarket delivered through rebalancing software); how Wealthbox CRM got $6M in venture capital to scale up its CRM solution for financial advisors (which is already ranked 4th in market share amongst independent RIAs); a review of EverPlans, a software solution that advisors can provide to clients to help them organize their estate plan (or give to prospects as a way to reach them to potentially do business together); a look at how the IBM Watson artificial intelligence solution is going to be used by H&R Block this tax season to facilitate tax planning strategies and advice; and a review of some robo-advisor “competition” to financial advisors, including E*Trade Adaptive Portfolio and Fidelity Go.

There are also a couple of marketing-related practice management articles this week, from a look at which types of financial advisor niches are currently most popular (hint: those that focus on baby boomers and their retirement dollars) and which might become more popular in the future, when it makes sense to hire an outside marketing expert, and an interesting question you can ask prospective clients in an approach meeting to engage them and better understand what their needs are and how you can help.

We wrap up with three interesting articles: the first is a review of the recent family memoir of Frances Stroh (of Stroh beer), which details how the family’s $9 billion fortune wasted away in a catastrophic failure of internal family succession planning (even after having already survived to the third generation from the original founder in the 1850s); the second is a look at check-cashing and payday lending services, which have a reputation for being expensive or downright predatory, but a new analysis finds that in reality the services may be succeeding because they’re actually superior on cost, transparency, and service, to traditional banking (at least for those they seek to serve); and the last article is a look at one personal finance blogger’s “financial philosophy core tenets”, which is notable not just for the tenets themselves (which are quite good!), but as an example of an exercise that financial advisors might consider going through to create and share with their own clients and prospects!

Enjoy the “light” reading!

Thursday 23 February 2017

The Impending Fiduciary Armageddon Of (Most) Mutual Fund Share Classes

Even for financial advisors, the proliferation in recent years of different variable annuity and mutual fund share classes can be overwhelming. Some companies may have as many as 15+ share classes for a single investment strategy, all with unique advisor compensation, surrender charges, and fees. Yet by definition, not all of these share classes can possibly be the best for any particular investor. And in too many cases, it’s simply a matter of the advisor choosing how they wish to get paid.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why there are only a few share classes necessary under a fiduciary rule, and why that means there’s an impending fiduciary armageddon for (most) mutual fund and variable annuity share classes coming soon!

Because the reality is that the differences amongst most share classes ultimately boils down to the different ways that mutual fund companies pay distribution costs – i.e., commissions – across various sales channels. Those who preferred upfront commissions would sell A or B shares, while those who preferred levelized commissions would sell C shares, and those who got paid an advisory fee would charge their 1% AUM fee separately and use institutional or advisory share classes instead. Retirement plans and 529 plans cut their own deals as well, for their own share class alternatives. And the client got whichever share class happened to be sold by the broker or plan they were working with, and paid the associated cost, including embedded commissions, 12b-1 fees, and sub-TA fees, that may or may not apply.

But in a fiduciary world, the advisor is always expected to use the lowest cost share class for the client. Notably, the fiduciary rule doesn’t actually require that advisors use the lowest cost fund, period; it’s a myth that the fiduciary rule requires index funds to the exclusion of actively managed funds. However, if the advisor is going to recommend an actively managed fund… it better be the cheapest version of the fund available, because using anything different would represent a conflict of interest for the advisor enriching themselves at the expense of the client with an unecessarily-more-expensive product.

Yet taken to its logical conclusion, this means that most variable annuity and mutual fund share classes will be rendered entirely irrelevant under DoL fiduciary! At best, there may only be 2 share classes available – the uniform-commission T share for those who are paid some moderate upfront commission, and an institutional or advisory share class for everyone else (who separately charge their own advisory fee on top). And the other dozen or more share classes just vanish!

Of course, the transition may not happen immediately. Not only is there the potential that DoL fiduciary will at least be delayed, but given that it only applies to retirement investors, other share classes may still get used in non-retirement accounts for a while longer. But the key point is that under a fiduciary rule, there is only a legitimate need for one or two share classes at most. As a result, whether it’s the Department of Labor fiduciary rule, or one that the SEC follows with in a few years, what we’ll soon see is an armageddon that destroys most mutual fund and variable annuity share classes, as we complete the shift from being brokers who sell whatever products we can get paid to sell, into advisors who actually sell advice and implement the best solutions we can at the lowest cost they’re available for!

Wednesday 22 February 2017

Is This Tax Deductible? Student Loans

Congratulations, on almost completing another year of college! You’re almost in the home stretch and can look forward to sleeping in (well at least for a little while). Unfortunately, not far behind is the repayment of any student loans you...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/education/is-this-tax-deductible-student-loans-18532/

The Impact Of Decreasing Retirement Spending On Safe Withdrawal Rates

The conventional method for evaluating safe withdrawal rates assumes that retirees maintain a stable standard of living through retirement in real (inflation-adjusted) dollars. While there’s nothing unsound about this assumption – at least so long as it reflects a particular retiree’s goals – it is worth considering how accurate this assumption is relative to actually observed retirement spending behavior of the “typical” retiree.

Because, as it turns out from a growing base of research, constant real spending is not particularly realistic for most retirees. Instead, various studies are finding that real spending actually declines throughout retirement, by as much as 1% to 2% per year. And compounded throughout retirement, this discrepancy between standard industry assumptions and actual retiree behavior may be underestimating the safe withdrawal rate.

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – analyzes safe withdrawal rates assuming decreasing spending in retirement, finding that the discrepancy between standard industry assumptions and actual retiree behavior may be underestimating the safe withdrawal rate by 0.32% to 0.75% – turning the so-called “4% rule” into something closer to a “4.5% rule” (with subsequently reduced real spending) instead.

While some may argue that “overstating” spending assumptions is good for the sake of being conservative in making retirement projections (certainly it is worse to run out of money that it is to have some extra!), assuming constant real spending is not the only (nor necessarily the best!) way to incorporate a margin of safety. Further, an appropriate safety margin will vary by retiree, depending on their risk tolerance and spending flexibility. If advisors truly wish to give advice that is customized to an individual’s goals and values (as most say they do!), then the safety margins utilized should reflect an individual retiree’s situation, too.

Obviously, the best way to capture an individual’s unique circumstances is simply to create a customized financial plan — which isn’t a radical idea for most advisors — but it is still important to understand what is actually customizable within a plan and what remaining assumptions may be biasing the results. And for advisors who prefer to apply and adapt the safe withdrawal rate to individual retiree circumstances, it’s still crucial to build on the right baseline assumptions – recognizing that the 4% rule may be predicated on retirement spending that simply doesn’t reflect reality!

Tuesday 21 February 2017

A Step-by-Step Guide to Managing Your Finances as a Freelancer

Managing your finances requires diligence even when you have a steady paycheck. Add in what comes along with being a freelancer — inconsistent income, the ups and downs of running your own business, and wearing many hats at once —...

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source http://blog.turbotax.intuit.com/self-employed/a-step-by-step-guide-to-managing-your-finances-as-a-freelancer-30047/

#FASuccess Ep 008: David Grau On Maximizing The Valuation Of A Financial Advisor’s Book, Practice, Or Business

Welcome back for the eighth episode of the Financial Advisor Success podcast!

This week’s guest is David Grau Sr. David is not a financial advisor himself, but over the past 20 years his business, FP Transitions, has facilitated the sale of nearly 1,500 advisory firms, and valued almost 9,000 of them. Which means David brings an incredibly unique perspective to the evolution of buying and selling independent advisory firms, having had a front-row seat over the past two decades.

In this podcast episode, David shares the four different types of advisor ownership structures – books, practices, businesses, and firms – what characterizes each, how they’re typically valued, and what kinds of acquirers are interested in one type versus another. We also explore how to grow ownership from one stage to the next, and the classic pitfalls along the way – for instance, why the industry-standard revenue-based compensation is actually prohibitive of transforming a practice into a true business.

You’ll also hear about how advisory firm deals are typically structured today (and how it’s changed from 10 and 20 years ago), valuation trends with the looming seller wave of Baby Boomer advisors, the best way to find the right prospective buyer if you’re looking to sell now (or soon), and how the growing availability of bank financing is changing the way advisory firms are bought, sold, and valued.

And be certain to listen to the end, where David talks about why most advisors should be very wary of relying on their broker-dealer or custodian platforms to facilitate a sale, and how to spot the “predatory buyers” that are often lurking within those platforms.

So whether you’re a financial advisor getting ready to sell your advisory firm, just thinking about how to maximize the value for the future, or are a newer advisor who wants perspective on the dynamics of buying into an advisory firm, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Monday 20 February 2017

Can I Claim My Pet as a Dependent?

Some people consider pets are a lot like children. They’re cute, loving, playful, attention-craving, and they can’t wait for you to get home. They also poop, pee, whine, ignore your commands and break stuff. (Hey, it’s not all lovey-dovey!) Like...

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source http://blog.turbotax.intuit.com/tax-tips/can-i-claim-my-pet-as-a-dependent-53/

FP Transitions And The Kelley Blue Book Valuation Of An Advisory Firm

An independent financial advisory firm can have significant value, even if the business doesn’t have any physical or intellectual property to yield profits. Because the reality is that with annually recurring revenue and 95%+ client retention rates, there really is income-producing value in an advisory firm, even if it’s mostly based on the “goodwill” of clients to stick around year after year.

However, valuing a business whose primary assets is intangible goodwill can be challenging, especially given that the overwhelming majority of independent advisory firms are small/solo practices that generate little net profit beyond the healthy income paid to the advisor-owner to operate the business. As a result, the traditional Discounted Cash Flow (DCF) approach to valuing most businesses tends to break down (and undervalue) a “small” advisory firm (e.g., those with <$1M of revenue).

For such hard-to-value assets, an alternative approach to valuation is simply to look at the prices being set by buyers and sellers in the actual marketplace, and to simply value the business relative to its marketplace comparables. In fact, sometimes digging further into the piecemeal value of the business isn’t even relevant, just as no one values a car by disassembling it to value and then add up all the component parts; instead, for nearly 100 years, they’ve just looked up the going market value in the Kelley Blue Book instead.

In the context of advisory firms, the leading “Kelley Blue Book” solution for valuation is FP Transitions and its “Comprehensive Valuation Report” (CVR), which uses their comparables database of more than 1,500 advisory firms bought and sold in the past 20 years to estimate the value, after making reasonable adjustments for transition risk, cash flow quality, market demand, and the payment terms of the transaction itself.

Unfortunately, the FP Transitions CVR valuation estimate isn’t quite as cheap and accessible as buying the Kelley Blue Book – due to the harder-to-value aspects like transition risk and cash flow quality that must still be considered – but nonetheless, at $1,200, it makes getting a reasonable valuation accessible for the vast majority of independent advisory firms. In fact, a growing number of firms get regular valuation updates every year or two, just to understand how the value of their firm is changing, and whether/how they should make changes to further enhance the value.

Ultimately, the largest advisory firms that have greater complexity may still want to rely on custom valuations using the DCF approach, and a growing number of online valuation tools for advisory firms are starting to crop up to compete as well. Nonetheless, it’s hard to argue with going right to the source, and getting a valuation from FP Transitions using their actual (albeit proprietary) database of over 1,500 completed advisory firm transactions.

Saturday 18 February 2017

What is a 1099 Form?

Although you don’t need to know much about tax forms with TurboTax on your side, it’s always best to organize your forms that when you sit down to do your taxes. Many people are familiar with W-2s, but they may not be aware that other financial documents...

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source http://blog.turbotax.intuit.com/taxes-101/what-is-a-1099-form-5660/

Friday 17 February 2017

Wedding Planning and Savings Checklist

Weddings can be expensive. The average cost for a wedding in the United States is around $26,000! That can be a huge burden for couples just starting off their new lives together. The good news is it doesn’t have to...

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source http://blog.turbotax.intuit.com/tax-planning-2/wedding-planning-and-savings-checklist-29989/

Weekend Reading for Financial Planners (Feb 18-19)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a 2-part series from Bob Veres, exploring all the various technology solutions that have emerged in recent months specifically to help advisors comply with various aspects of the DoL fiduciary rule, from workflows for transitioning clients to level fee fiduciary engagements to benchmarking tools to evaluate the “reasonableness” of the advisor’s fee and to conduct due diligence on the client’s existing 401(k) plan (and the performance and costs of all its investment options).

From there, we have several financial advisor marketing articles, including: how to “repurpose” content to leverage your time doing blogging and social media as a financial advisor; how to rethink client appreciation events as “client connection events” to drive more engagement and referrals; when it’s time to consider revisiting your advisory firm’s brand; and why at least some types of private client lawyers can be especially good as center-of-influence referrers of high-net-worth clientele.

There are also a couple of practice management articles this week, from alternative strategies to finding advisory firms to acquire (beyond just waiting for advisors to retire), why regulators are actually pushing back on the industry’s transition from AUM to retainer fees, and the various ways that “generic” business advice really does not fit the typical advisory firm.

We wrap up with three interesting articles about personal success and productivity: the first is a look at how you can divide your activities of the day/week/month/year into those that give you energy, and those that take away, recognizing that one of the biggest ways to boost your productivity is to adjust the balance in a way that increases your net energy (and yes, I can attest this really works!); the second provides tips on how you can break through if you’re finding that your advisory business has plateaued; and the last is a look at how if you really want to make positive changes for yourself, it’s better to think not in terms of setting goals, but creating new systems and habits for yourself that allow your goals to be achieved.

Enjoy the “light” reading!

Thursday 16 February 2017

Tax Credits and Deductions for Families

As you prepare to file your taxes, please keep in mind some helpful tax deductions and credits that may apply to your family. First off, many families filing are a bit confused over what exactly tax deduction and credits are. While...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/tax-credits-and-deductions-for-families-12907/

Can I Claim My Girlfriend or Boyfriend as a Dependent?

Are you living with your girlfriend or boyfriend? Have you ever wondered whether or not you could claim him or her on your tax return as a dependent? Like many things in life, it depends. Even if it feels like...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/can-i-claim-my-girlfriend-or-boyfriend-as-a-dependent-21025/

Why Brokers CAN’T Be A Full Fiduciary To Clients With A Series 7 License

With the flurry of activity and attention surrounding the Department of Labor’s fiduciary rule and whether it will be delayed or not, there has been a dramatic increase in media coverage around what it means to be a fiduciary, and a push for consumers to seek out RIAs over those who work at broker-dealers. Despite the fact that most advisors, at both RIAs and broker-dealers, are trying to do the right thing for their clients.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why the fiduciary rule still matters, and why Series 7 licensees technically CAN’T be full fiduciaries to their clients.

The key issue is that the Series 7 exam is technically the “General Securities Representative Examination”. This name is important, because it indicates that ultimately, the licensee is acting as a representative of the broker-dealer. In other words, a Series 7 license allows an individual to represent the broker-dealer in the sale of securities products to clients. This is why Series 7 licensees are referred to as “Registered Representatives” of a particular broker-dealer.

And as a representative of the broker-dealer, the broker technically has an obligation to serve the broker-dealer, not the client. This is why a broker-dealer can terminate a broker for outside business activity, or for soliciting a client to move with them to a new broker-dealer. In fact, technically the client isn’t even a client of the broker’s; it’s a client of the broker-dealer’s, and the broker is just the sales representative. That’s why it’s illegal for the broker to take any client information when changing broker-dealers!

Of course, in today’s environment, the overwhelming majority of those working at a broker-dealer are dual-registered as a sales rep under the broker-dealer and working under a corporate RIA. Nonetheless, anytime the broker sells a product and earns a commission (i.e., using the Series 7 license), the broker is not a fiduciary, but a sales representative! Notably, these advisors are fiduciaries when they give under the RIA and are paid an advisory fee. But they are still effectively wearing two hats, and cannot be full fiduciaries while the Series 7 hat is on!

And the reason all this matters is because, if someone wants to take money from their clients by selling high-commission products to anyone they can, the suitability standard that applies to brokers is a relatively low caveat-emptor bar. But they couldn’t under a fiduciary standard. That’s why it matters – it’s not about the already-good advisors who are doing the right thing, but about raising the bar to reduce the risk of bad brokers who try to do the worst they (legally) can. Which is why the focus on fiduciaries vs non-fiduciaries has morphed into a discussion of RIAs vs broker-dealers.

The bottom line, though, is simply to recognize that Series 7 licensees are legally sales representatives. If you don’t like being treated as a salesperson, consider how your business is structured. Although ironically, if the DoL fiduciary rule does not get delayed, it may all soon be a moot point – as everyone working with retirement investors will be subject to the same fiduciary duty, regardless of their current business model! But ultimately, until brokers either voluntarily move to a new business model or are held to new DoL fiduciary standards, the reality will remain that you can’t be a full fiduciary with a Series 7 license!

Wednesday 15 February 2017

The Real Reason Big Savers Retire Early: Minimizing Retirement Savings Needs

The standard advice in saving for retirement is rather straightforward: save as much as you can, starting as early as you can, to maximize the amount of your savings and how long it has to grow. The more you can get into the retirement account, and the longer that you can let it compound, the more affordable it will be to retire.

However, the reality is that trying to increase savings actually has a dual positive effect on reaching retirement: not only does it mean there’s more in the account to grow, but saving more reduces your retirement savings need. The reason, simply put, is that for any given level of income, the more you save, the less you’re spending to live on – and if you don’t spend as much to maintain your lifestyle, you don’t need as much saved up to replace it!

In fact, the impact of increased savings (and the associated reduction in spending) can actually go a long way to help bridge the gap for retirement, especially for late-stage savers. On the other hand, for those who are still younger, strategies that help to maintain (but not substantially increase lifestyle), and let future raises be directed towards savings instead, can dramatically accelerate the path towards early retirement as well by controlling the retirement savings need. In the extreme, highly frugal living allows for extreme early retirement, precisely because it facilitates both substantial savings, and doesn’t necessitate much to achieve financial independence given that very frugality.

The bottom line, though, is simply to recognize that the reason big savers who live modestly are more able to retire is not just because of the savings itself, but the fact that a moderate spending lifestyle can dramatically reduce retirement savings needs in the first place!

Tuesday 14 February 2017

#FASuccess Ep 007: Matthew Jarvis On Building a Highly Profitable Lifestyle Practice by Age 35

Welcome back for the seventh episode of the Financial Advisor Success podcast!

This week’s guest is a bit different from those we’ve had on the podcast in the past – because he reached out to me to share his story. And it’s a pretty incredible one.

Matthew Jarvis is the founder of his eponymous firm Jarvis Financial, based in Washington state. He manages over $100M of AUM for about 150 retirees, providing both investment management and financial planning services, with the support of a three-person team.

But what makes Matthew unique is that he has so systematized his firm and the services he provides to his clients, that he’s able to support all 150 clients while also taking over 80 days of vacation every year, and still maintain a more-than-50% profit margin! In essence, Matthew runs a hyper-efficient lifestyle practice. Oh, and he’s only 35 years old!

In this episode, Matt talks about how he bought out and transformed what had been a relatively stagnant and struggling firm in the midst of the financial crisis, into what the business is today, sharing how he views his business’ key metrics, how he structures the service model, and the internal staff and technology infrastructure he has created that allows him to take off all the time he wants to be with his family.

And be certain to listen to the end, where Matthew shares his strategy for “time blocking” to maximize his personal productivity, and the business development training course he took that has helped him to steadily add 10-20 new clients every year for the past four years.

So whether you’re struggling with efficiency in your own advisory firm and trying to find a better work/life balance, or you’re proactively building a “lifestyle practice” and want ideas of how to do it better, I hope you enjoy this latest episode of the Financial Advisor Success podcast with Matthew Jarvis!

Monday 13 February 2017

Your New Baby Can Bring You Joy and Savings

There are no words that can describe the feeling of becoming new parents. The happiness a new baby brings into a family is a wonderful thing. However, the cost of having a child can be a shock to new parents. Here’s more about those tax benefits and how you might qualify.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/family/your-new-baby-can-bring-you-joy-and-savings-15070/

1099-MISC or 1099-K: What’s the Difference?

Self-employment comes with many perks, including deserved business expense deductions. Did you drive during the course of the work you performed? You can take a mileage deduction. Did you buy computer or office supplies to use for consulting? Then you...

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source http://blog.turbotax.intuit.com/self-employed/1099-misc-or-1099-k-whats-the-difference-29903/

The Problem With S Corporations For Independent Brokers And Insurance Agents

Using an S corporation to reduce self-employment taxes – by splitting the income into a “reasonable compensation” salary and S corp dividends – is a popular strategy that financial advisors recommend to clients in a wide range of businesses. And in point of fact, it’s actually a viable strategy for financial advisors to use for their own advisory firms.

However, the recent Tax Court case of Fleischer v. Commissioner (TC Memo 2016-238) serves as a reminder that while advisory fees can be paid to an S corporation and partially passed through as a dividend to reduce taxation, the strategy does not work for insurance and investment commissions. In Fleischer’s case, the Tax Court invalidated his efforts to assign and transfer both his LPL investment commissions and MassMutual insurance commissions into his S corporation, finding instead that he should have claimed them as personal income on his Schedule C (and paid self-employment taxes on all of it).

The fundamental challenge is that, in order for a corporation to legitimately claim income, it has to actually control the contractual engagement to earn in the income. Which in the case of insurance and investment commissions, is generally impossible, because securities and state insurance laws require that commissions be paid directly to the individual. The only way an entity can legitimately receive the income is if the entity itself is registered as a broker-dealer or an insurance agency (and then contracts directly for the commission income), which alas may be common for an RIA but is usually not feasible for a broker-dealer or insurance agency due to regulatory and compliance costs.

Nonetheless, as the Fleischer case indicates, the fact that establishing a bona fide broker-dealer or insurance agency isn’t economically feasible in most cases doesn’t change the underlying requirement of the tax law – which is that if an individual earns income personally (including investment or insurance/annuity commissions), that person must report the income for tax purposes, and can’t simply transfer it into a business account and issue a 1099-MISC to the S corporation and expect it to be honored by the IRS!

Friday 10 February 2017

What’s the Difference Between a Tax Credit and a Tax Deduction?

While both tax deductions and tax credits can save you a significant amount of money on your taxes, they work in significantly different ways. Find out how here.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/whats-the-difference-between-a-tax-credit-and-a-tax-deduction-7838/

Weekend Reading for Financial Planners (Feb 11-12)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the latest of the fast-moving news on the DoL fiduciary rule, with the Texas judge who was forum-shopped in expectation of a favorable ruling by fiduciary foes coming out with an 81-page ruling that slammed the door on every industry objection to the Department of Labor’s fiduciary rulemaking process, and now the latest rumor that DoL may still soon be issuing a proposal to delay the applicability date of the rule (though notably, the delay proposal itself would have to go out for public comment before it can occur).

From there, we have several technical planning articles, including: when/whether it makes sense to do after-tax contributions to a 401(k) plan; how life insurance is increasingly being issued online without a need for medical records and blood and urine samples (and at a lower cost); a retirement income comparison of the lifetime tenure payment of a reverse mortgage to an immediate annuity; and the role of QTIP trusts for “small” estates that want asset protection while still preserving a step-up in basis at the death of the spouse.

There are also a couple of practice management articles this week, from tips to prevent hackers or thieves perpetrating wire fraud on your clients, to a look at the key trends of the advisory industry (and busting a lot of myths along the way), a discussion of the key performance indicators that advisory firms should track to monitor their success, and tips on how to position yourself to grow clients when the next bear market comes along (by preparing a proactive communication plan).

We wrap up with three interesting articles: the first is a fascinating look at all the objections we as advisors tend to raise about marketing, despite the challenge that we truly believed in the value of what we provided, we should want to tell everyone about what we do; the second points out that it’s time to reimagine how advisory firm offices are physically laid out, as clients want to feel more engaged in the process (and not just feel like they’re sitting in a stately meeting room); and the last is an interesting “open letter” from a Millennial to advisors, reminding them that ultimately the problem isn’t that young people don’t want to work with an advisor, but simply that the availability of the internet and smartphones means they’re acutely aware of what they can already do easily online, and as a result will demand (and be willing to pay for) advisors provide real value above and beyond what technology can already provide.

Enjoy the “light” reading!

6 Reasons it Pays to File Your Taxes Early

As the saying goes, “the early bird gets the worm.” Or is it the tax refund? Well, whether you file early or you are a tax procrastinator, you still may get a tax refund, but there are good reasons it...

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source http://blog.turbotax.intuit.com/tax-refunds/6-reasons-it-pays-to-file-your-taxes-early-19100/

Thursday 9 February 2017

4 Surprising Ways to be Self-Employed

One winter, back when I was in college, I had a brainstorm for how to make some extra dough. I shared it with a few pals, they sort of agreed that it might work, and so I jumped in. The...

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source http://blog.turbotax.intuit.com/self-employed/4-surprising-ways-to-be-self-employed-29929/

Lack of Awareness: The Real Challenge In Growing Financial Planning

With the total number of financial advisors continuing to decline year after year, the industry is increasingly focusing on what it takes to attract and retain new financial advisors, with a strong focus on career track opportunities and how to improve retention. However, new research from the CFP Board reveals that the real blocking point to growing the ranks of financial planners is simply that too few young people even know that financial planning exists in the first place! In other words, our struggles to grow are first and foremost a simple issue of awareness… or lack thereof!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we chat with Kevin Keller, CEO of the CFP Board, at the Center for Financial Planning’s new Academic Research Colloquium, about the challenges of financial planning awareness, new initiatives from the CFP Board, and what individual financial planners can do to help.

Because despite the fact that financial planning is a very lucrative career – especially when compared to the median household income in the US – the research shows that most young people are skipping financial planning as a prospective college major because they simply don’t know that the opportunity exists! As a result, even generalized public awareness campaigning, such as the CFP Board’s “DJ ad”, have actually been successful at attracting people to download the “Guide to Certification” and check out financial planning as a career.

Fortunately, the needle is beginning to move, as is evidenced by the 1,000 people from baccalaureate programs that sat for the exam this past year (up from 700 the years before). But there is still room for progress. Accordingly, in 2017, the CFP Board will be launching a new “I’m a CFP Pro” initiative – with the aim of increasing both gender and racial diversity by telling the stories of CFP professionals who are women and people of color – in addition to continuing to grow their Women’s Initiative (WIN) and women-to-women mentoring program. Also being launched this year is a new Massive Open Online Course (MOOC) offered through Coursera in partnership with the University of Illinois, and a new certificate program with the Columbia University to help train advisors who want to be financial planning educators the necessary skillsets to actually teach the material.

The bottom line, though, is simply to recognize that the biggest problem in bringing new people into the financial planning industry is that many don’t realize the profession exists in the first place. So if you want to have a role in advancing the profession, go back and speak to your alma mater or alumni association and just tell them about what you do as a successful financial planner, and help spread the word. Or alternatively, if you’re connected to the TV industry at all, help us figure out how to launch a new television show that features financial planning or a central character who is a (good) financial planner!

Wednesday 8 February 2017

Freeze Your Tights … and Other Surprising Ways to Save [Infographic]

Most of us know that only purchasing things we need instead of things we want can go a long way in meeting our budget goals. But did you know there are a number of unexpected ways to save money that...

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source http://blog.turbotax.intuit.com/income-and-investments/freeze-your-tights-and-other-surprising-ways-to-save-infographic-20101/

Interpreting Monte Carlo Analyses and the Wrong Side of Maybe Fallacy

Monte Carlo analysis has become a common standard amongst financial advisors for evaluating the health of a prospective retiree’s spending plan in retirement. And while the framework itself may be a rigorous way to look at a wide range of potential outcomes, there’s one big problem: it’s difficult to know how to interpret the results, and what to do with a scenario like a “95% probability of success”. Who wants to risk being part of the other 5%?

In this guest post, Derek Tharp – our new Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – delves into behavioral biases and challenges that influence our ability to interpret the results of a Monte Carlo analysis, and in particular the so-called “wrong-side-of-maybe” fallacy.

The wrong side of maybe fallacy refers to our tendency to interpret a projection as “wrong” if the outcome is inconsistent with the most likely outcome forecasted, and can quickly interfere with the proper interpretation and understanding of probabilistic forecasts. Because unfortunately, we have a tendency to try and evaluate the accuracy of a forecast based on a single outcome – if there’s a 95% probability of success, and it turns out to be a failure, the forecast must have been “wrong” – even though in reality, the accuracy of probabilistic forecasts can only be evaluated over a series of multiple outcomes (i.e., to see if a 95% probability of success is really success in 19 out of 20 attempts, on average).

Of course, when working with retirees, the reality is that they do only get one shot at retirement. Which means it’s unlikely that advisors are going to encounter retirees who are sympathetic to the nuances of proper probabilistic interpretation if their retirement is turning out poorly! Furthermore, the wrong side of maybe fallacy isn’t the only psychological barrier to properly interpreting Monte Carlo analysis. Behavioral research suggests that when clients are asked to express their comfort level with a particular Monte Carlo probability of success, rather than giving a response that answers the question at hand, they may be substituting in an expression of their intensity of feelings regarding failure instead. In other words, a retiree’s indication of their comfort with a 90% probability of success may actually be an expression of how much they dislike the idea of 10% outcome (e.g., running out of money in retirement) rather than their actual willingness to tolerate the 10% risk of it occurring.

Fortunately, there are steps advisors can take to help retirees avoid misinterpretation of Monte Carlo analysis. From re-evaluating terminology – such as framing Monte Carlo analysis in terms of probability of “adjustment and excess” rather than “success and failure” – to emphasizing the importance of ongoing planning, and using “squishy” language to guard against clients being overly critical in their interpretation of an advisor’s advice. Ultimately, if advisors want to help retirees make better decisions when evaluating Monte Carlo analyses, the cognitive and behavioral biases which may interfere with proper interpretation should not be ignored!

Tuesday 7 February 2017

Can You Deduct 401K Savings From Your Taxes?

Contributions you make to your 401(k) plan can reduce your tax liability at the end of the year as well as your tax withholding each pay period. 401(k) plan contributions.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/can-you-deduct-401k-savings-from-your-taxes-7169/

#FASuccess Ep 006: Eleanor Blayney On Improving Gender Diversity in the Financial Services Industry

Welcome back for the sixth episode of the Financial Advisor Success podcast!

This week’s guest is Eleanor Blayney, one of the founding partners of Sullivan, Bruyette, Speros, & Blayney – now known as SBSB – an early leader in the world of independent RIAs that quickly grew to a billion dollars under management in the early 2000s before it was sold to Harris Bank. Eleanor is also an author, and currently the CFP Board’s Consumer Advocate.

On this episode, I talk with Eleanor Blayney about the challenges of growing an independent RIA as a woman in a male-dominated industry, starting with how she first learned of the world of financial advice by reading about it in MONEY and Washingtonian magazines, and then cold called well-known advisors in the DC area until she found her way to her first job… and followed a path that ultimately led to her to becoming a partner at the firm despite not bringing her own book of clients.

From there, Eleanor talks about how SBSB grew its first billion of AUM so rapidly, by providing a combination of financial planning, investment management, and tax preparation services and forming a niche specialization advising on stock options for tech companies during the 1990s tech boom, and what it was like to sell the firm and transition into her current role as an author and industry advocate.

And be certain to listen to the end, where Eleanor weighs in on the controversial question of whether women should be considered a “niche” in financial services, and her advice on how to survive as a woman in a male-dominated industry (and what male advisors could do to be more supportive of industry diversity!).

So whether you’re a woman trying to find your own path in the world of financial planning, or simply an advisory firm owner looking for inspiration on how to carve a path to a billion dollar firm, I hope you enjoy this latest episode of the Financial Advisor Success podcast with Eleanor Blayney!

Monday 6 February 2017

Earnest Q&A: Should I Refinance My Student Loan?

Should I refinance or stay the course with my student loans? It’s a great question to ask yourself if you’re currently making monthly payments to pay off your education debt. The good news is that it’s easier than ever to...

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source http://blog.turbotax.intuit.com/tax-planning-2/earnest-qa-should-i-refinance-my-student-loan-29893/

Forms 1040 and 1099? We explain the differences.

Depending on the industry, employees and freelancers may seem to do similar work, but their exact roles, their connections with a company, and their tax status are all very different. Naturally, this affects how a person might complete and return...

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source http://blog.turbotax.intuit.com/self-employed/forms-1040-and-1099-we-explain-the-differences-29646/

The Latest In Financial Advisor #FinTech (February 2017)

Welcome to the February issue of the latest news in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month’s edition kicks off with a look at the emerging fight over consumer financial data, as J.P. Morgan and Wells Fargo announce a deal with Intuit (Mint.com) to facilitate direct data feeds through an API that will reduce the bank’s server loads and enhance security over clients entering passwords into third-party applications, and former Intuit CEO Bill Harris calls the partnership “baloney” and suggests the big banks are simply trying to force data aggregations to rely on a bank-provided authorization token that allows the banks to control the flow of data and potentially even force third parties to pay for it. In the meantime, President Trump’s Executive Order to begin dismantling Dodd-Frank threatens the not-well-known “Section 1033” that ensures consumers retain rights to their financial data, raising the question of whether banks will soon become even more restrictive against account aggregation solutions… and in response, the tech companies are now forming a new Consumer Financial Data Rights industry group to lobby for consumers’ rights to their financial data (and the right of FinTech providers to collect it for them).

From there, the latest highlights also include:

TD Ameritrade launches a new iRebal Model Portfolio Marketplace that could become a major TAMP disruptor.
Betterment raises fees by 67% on its most affluent clients, and pivots to offering human financial advisors.
Wealthfront tries to expand from being “just” a robo-advisor to a full-fledged robo-planner, and in the process may show up the shortcomings of today’s financial planning software providers.
Starburst Labs, maker of Wealthbox CRM, raises a $6.25M Series A round.
Grendel CRM makes a bid to become a central investment advisor dashboard with a deep TD Ameritrade Veo integration.
RightCapital financial planning software startup lands its first enterprise deal.

You can view analysis of these announcements, and more trends in advisor technology, in this month’s column, including new integrations from Tamarac, a new Addepar partnership with Morgan Stanley, the SEC adding “electronic investment advice” (of both the “robo” and “digital” varieties) to its exam priorities for 2017, the launch of a new $50M Northwestern Mutual FinTech Venture fund, and a new tech tool to facilitate better client data gathering meetings called Asset Map.

I hope you’re continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to TechNews@kitces.com!

Saturday 4 February 2017

[BREAKING] DoL Fiduciary NOT Yet Delayed By President Trump After All…

Given the party-lines debate that has revolved around the Department of Labor’s fiduciary rule for the past year – ever since President Trump put the full force and backing of the White House behind the final rule – it was widely believed that once President Trump won the presidential election, it would just be a matter of time before he issued an Executive Order to delay the rollout of the regulation this April. And yesterday morning, the White House circulated a draft version of the coming Executive Order, to be signed that afternoon, that would impose a 180-day delay to the rule.

Except as it turns out, the final version of the Memorandum that President Trump signed did not actually include a provision to delay the fiduciary rule after all, despite wide media reporting to the contrary! Instead, the Secretary of Labor was merely directed to conduct a new “economic and legal analysis” to assess whether the fiduciary rule and its looming applicability date is causing harm to investors by limiting access, triggering dislocations in the retirement services industry, or likely to cause increased litigation and increased costs for consumers. And if that is the case, then the Department of Labor would undertake yet another proposed rulemaking process, with a Notice and Comment period, before proceeding. A direct Executive Order from the President to delay, though, is off the table (though notably, many had pointed out it wouldn’t have been legally permissible to delay that way in the first place).

Given barely 2 months until the applicability date, it’s still unclear whether the new economic analysis requirement and subsequent rulemaking process will be able to successfully delay the rule, especially since President Trump’s Labor Secretary nominee Andrew Puzder hasn’t yet been confirmed, and is now reportedly being delayed indefinitely due to ongoing questions about his ethics and financial disclosures paperwork. Nonetheless, a delay is still possible, whether by inviting a stay in one of the lawsuits, going through a “hasty” rulemaking process to at least get some delay in the applicability date on the table (and then expand into further rule changes thereafter), or getting Congress to intervene (and overcoming a Senate Democrats filibuster).

But for the time being, the fact remains that it’s still “game on” for the Department of Labor’s fiduciary rule. The President’s Executive-Order-that-wasn’t may still ultimately facilitate a delay in the rule, and/or start the process of making changes to the fiduciary rule’s long-term provisions after the rule takes effect (but before any real enforcement and legal exposure kicks in). But that remains to be seen in the steps that acting Labor Secretary Ed Hugler does or doesn’t take in the coming days and weeks to quickly push the required economic analysis and the start of a new rulemaking process! At a minimum, though, it’s looking increasingly likely that the DoL fiduciary rule will be here to stay in some form… the only question is exactly what provisions last in the truly-final version, and when it will truly take full effect!

Friday 3 February 2017

Tres Créditos Tributarios para tu Familia

Nosotros como madres y padres trabajamos arduamente para poder darles a nuestros hijos la mejor educación, un techo donde dormir, y un plato que comer todos los días. Este esfuerzo tan valioso no es pasado por alto por el Servicio de Impuestos Internos (IRS por sus siglas en inglés). He aquí algunos créditos que están disponibles al preparar tu planilla de impuestos que nos ayudan con el sustento financiero de nuestros hogares y nuestros hijos.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/tres-creditos-tributarios-para-tu-familia-12788/

Weekend Reading for Financial Planners (Feb 4-5)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the big news that President Trump has just issued an Executive Order to the incoming (but not yet confirmed) Secretary of Labor to apply a 180-delay to the DoL fiduciary rule, with guidance to “consider whether to rescind” it… though it still remains unclear whether the rule can actually be stopped without taking effect for at least some period of time, given the requirements for Notice and Comment periods before a new-new rule could be issued. Also in the news this week was the announcement that the original robo-advisor Betterment is raising fees substantially (by 67%) on its larger accounts over $100,000, and rolling out a series of human advisor service models (at even higher price points), as the robo-advisor definitively pivots away from its “pure” robo roots; and an announcement from TD Ameritrade that its new Veo One platform is live, along with a new iRebal Model Marketplace that could substantially shake up the landscape of current “robo” and TAMP providers.

From there, we have a few technical planning articles, including a new retirement study from Wade Pfau comparing the equity risk premium to annuity risk pooling as a means to fund retirement, another new retirement study from the UK finding that the “U-shaped” retirement spending path (where retirees spend more on active lifestyle in their early years, and more on medical/long-term care expenses in their later years) isn’t substantiated by the actual data on retirees (which shows that real retirement spending just flat-out declines every year throughout retirement), and a look at a new approach to helping parents plan for college expenses by determining an amount that the child is “pre-approved” to spend on college before even beginning the process (which avoids awkward situations where the family tries to figure out how to afford an unaffordable college after already being accepted, when it’s hard to back out).

There are also a couple of practice management articles this week, from a look at why just delivering great service isn’t enough to get client referrals and good client satisfaction (and why your “great” service has to be articulated in a client service standard), to a discussion of all the ways that advisors lose out on prospects before ever having a chance to meet with them, and an exploration of the different ways advisory firms are beginning to shift towards a younger generation of clientele (from forming full-family teams, to cultivating “intrapreneurs” that create a firm-within-a-firm to serve younger clientele).

We wrap up with three interesting articles: the first is a fascinating look at what exactly causes us to procrastinate, and what the behavioral research says are the best techniques to overcome it; the second provides tips on how to be (and remain) productive in what is often an unproductive work/office environment; and the last is a great reminder of how the path of success can actually be the very thing that causes us to lose focus on what made us successful, and how to take a pause and re-set what your focus should be (and what you want it to be), both in your work and in your life.

Enjoy the “light” reading!

Tax Tips for New Filers

Filing your income taxes for the very first time may feel intimidating, but you don’t need to worry! With a few tips and suggestions, you can get your tax return filed accurately and on-time, with a tax refund waiting in...

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source http://blog.turbotax.intuit.com/tax-planning-2/tax-tips-for-new-filers-2-21027/

Thursday 2 February 2017

Meet a TurboTax SmartLook™ Expert!

This post can be found en Español here. You may have seen the commercials: a TurboTax expert helps a celebrity with a tax question from their phone. Is it too good to be true? Nope, it’s the real deal! TurboTax...

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source http://blog.turbotax.intuit.com/tax-planning-2/meet-a-turbotax-smartlook-expert-29863/

Don’t Miss These Commonly Missed Tax Deductions and Credits

No one likes to feel like they're missing out. Especially when it comes to opportunities to pay fewer taxes. As this year's tax deadline approaches, let's take a look at some of the most commonly missed tax deductions.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/dont-miss-these-commonly-missed-tax-deductions-and-credits-16845/

Betterment Raises Fees And Pivots To Platform Offering Human Advisors

Since they first emerged nearly five years ago, the widespread belief has been that robo-advisors will ultimately cause fee compression amongst human financial advisors, as the process of implementing a diversified asset-allocated portfolio becomes increasingly commoditized. However, it turns out that in the pricing game of chicken between robos and human advisors, it’s actually the robo-advisors that are turning first.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss this week’s blockbuster announcement from Betterment that they will no longer be “just” a robo-business, are instead are pivoting to offer human financial advisors, and are raising their fees in the process!

Specifically, while Betterment will still maintain a 25bps advisory fee for its core digital business, the company announced that for accounts over $100,000, fees are being increased from 15bps to 25bps (a whopping 66% price increase for large accounts paying the “old” rates!), and large accounts will also have the opportunity to use Betterment Plus (offering an annual meeting with a CFP professional) for 40bps, or Betterment Premium (offering year-round access to a team of CFP professionals) for 50bps, or can be referred to the new Betterment Advisor Network (at whatever rate the outside advisor charges, plus the 25bps Betterment for Advisors platform fee).

The announcement that Betterment is pivoting to increase their fees and add new human advisory services is the most direct acknowledgement yet of the sheer unsustainability of the original robo-advisor model. Instead, Betterment has shifted to mimic its more successful competitors, including Personal Capital, Vanguard Personal Advisor Services, and the recently announced Schwab Intelligent Advisory – none of which are actually robos at all, but rather tech-augmented human advisor platforms.

Ultimately, though, Betterment’s shift to offer a layer of human advice still isn’t necessarily about staking a competitive position against (other) human advisors. Instead, it’s a shift to become a platform business that compete with the likes of Schwab, Fidelity, and TD Ameritrade. After all, if the scaled human advice is merely offered “at cost”, then Betterment effectively earns 25bps of fees regardless of where clients go – whether it’s Betterment Digital, Plus, Premium, or the Advisor Network. It’s no longer about getting the clients, per se, but simply being the platform where the clients go for whatever solution they choose.

Yet, there is still a question of whether Betterment will actually be able to compete in this space at all. After all, the irony is that now the “robo-advisor” is actually the higher priced offering, as the new Betterment Premium service is almost double the cost of the competing Schwab and Vanguard alternatives, with 5X to 10X the minimums! Which means Betterment faces a challenging uphill marketing challenge, for which the quintessential robo-advisor differentiator – low cost – is no longer in their favor!

The bottom line, though, is simply to recognize what a profound shift Betterment has made, and one that I think marks the ultimate demise of the pure B2C robo-advisor. For better or worse, Betterment is now trying to reinvent a modern version of the old-school investment platform – akin to Schwab, Fidelity, and TD Ameritrade – serving both consumers and advisors, but doing so with what it hopes will be recognized as superior technology. Which means the “robo” technology is still here to stay… though ironically for Betterment, the challenge remains what it has always been – whether they can market themselves and attract assets fast enough to hit critical mass, or succumb to the challenge of the financial services industry’s brutally high client acquisition costs!

Wednesday 1 February 2017

Multigenerational Families: Top Family Tax Deductions and Credits You Should Not Miss

For practical, cultural, and personal reasons, more families are living in multi-generational homes. According to an analysis of Census data, over 60 million Americans share a roof with their families. While having so many under one roof can sometimes be...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/multigenerational-families-top-family-tax-deductions-and-credits-you-should-not-miss-29816/

How to Save on Party Supplies for the Big Game

The Big Game weekend is one of the most popular times of the year to get together with friends and enjoy watching two teams battle it out to become the champions. Since this is the Big Game, why don’t you...

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source http://blog.turbotax.intuit.com/income-and-investments/how-to-save-on-party-supplies-for-the-big-game-2-18893/

Behavioral Biases And The Hierarchy Of Retirement Needs

A growing base of research shows that even though money itself is fungible, the way we think about our various money assets is not; instead, we tend to “mentally account” for money into various buckets of current income, current assets, and (assets for) future income. The fact that we tend to categorize our income and assets into various buckets helps to explain the popularity of so-called “bucketing strategies” for retirement income, whether segmented by time (short, intermediate, and long-term needs) or type of spending (essential vs discretionary needs).

However, the research also suggests that the way we mentally account for income and assets also has an intrinsic hierarchy of priorities – first, we need to cover our current income needs, then our current assets, and finally our savings towards future income needs (ideally, with some potential for further upside and the possibility that our future income could continue to improve over time).

The significance of this “hierarchy of retirement needs” is that it helps to explain why some types of retirement income strategies like annuitization are very unpopular (despite the fact that retirees routinely state their biggest fear is outliving their retirement assets and annuitization can guarantee that will never happen), while others are used far more often even if their current guarantees are inferior to available alternatives (e.g., most guaranteed living benefit riders on today’s variable annuities).

However, perhaps the biggest caveat to the hierarchy of retirement needs is that if retirees must satisfy a desire for current income, and future income, and have liquid current assets available, they may actually feel compelled to save more for retirement than they actually need (even if there is no desire to leave a legacy behind). After all, it “should” be sufficient to just save for future and current income, without a separately holding of liquid assets; nonetheless, recent research finds that the amount of “cash on hand” (or at least, liquid bank holdings) a person has is directly (and positively) related to their self-reported well-being and life satisfaction, even if they didn’t have a financial need for it. Nonetheless, if the need for future income cannot be achieved until the need for current assets has been mentally satisfied first, retirees may continue to feel constrained by not having enough – even if they do – and/or to choose retirement income solutions that are mechanically inferior but psychologically more satisfying to our hierarchy of retirement needs!

Missed the tax return deadline? What now?

If you missed the deadline to submit your self-assessment tax return, the first thing to know is that you are now into the penalty stage. HMRC applies an automatic £100 penalty to those who are even 1 day late (the deadline was 11.59pm on 31st January) and further penalties are added if you take even longer to comply. It's worse, of course, if you also haven't paid any tax owed as you'll then owe interest too, so our advice is to pay as much as you can before 28th February, so you'll reduce any element of interest. However, if there is a genuine reason why you were late with your return, and it fits certain criteria, you have the option to appeal ... Circumstances that are taken into account by HMRC when considering appeals include:

if a close relative or partner died shortly before the tax return or payment deadline;
if you had to stay in hospital unexpectedly;
if you had a life-threatening or serious illness;
if your computer or software failed at the time you were preparing your online return;
if HMRC's online services were disrupted;
if you were prevented from filing your return or paying your tax because of a fire, flood or theft;
if there were unexpected postal delays;
and occasionally other reasons which, if genuine, HMRC may deem to be relevant.

Excuses that aren't usually accepted by HMRC include:

source http://www.taxfile.co.uk/2017/02/missed-the-tax-return-deadline-2/