Weekend Reading for Financial Planners (Apr 1-2)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the latest news that the Department of Labor has submitted its official 60-day fiduciary rule delay, and sent it along to OMB for final approval… although fiduciary supporters are already raising the question of whether the delay might face a legal challenge, as it’s not clear whether the DoL could have realistically read and thoroughly considered in just two weeks the over-1,100 comment letters that were submitted. Also in the news this week is a new FINRA Rule 2165, that would obligate financial firms (and their advisors) to make “reasonable efforts” to get contact information for a trusted third party (or even to stop disbursements from an account) if there is suspicion that a senior client may be getting financial exploited, while also providing a safe harbor against privacy breach or other legal consequences for endeavoring to do so.

From there, we have a few practice management articles, including a look at “what’s next” in the world of financial advisor marketing (as we continue the evolution from cold-calling to seminar marketing to client appreciation events and now digital marketing), an important reminder that as financial advisors we use too much industry jargon (often without realizing it), and an interesting way to think about how the client relationship evolves over time from being “just” a customer, to a true client, to a friend, and finally to an advocate (which is food for thought about what you might do to evolve your own clients along that continuum!).

We also have several more technical articles this week, from a discussion by Wade Pfau of “time segmentation” (i.e., bucketing) strategies in retirement (as differentiated from systematic withdrawals from total return portfolios, or various essential-vs-discretionary income approaches), common estate planning mistakes that financial advisors can help their clients avoid, and a look at the recent Tax Court case of Ozimkoski, which provides several valuable reminders of what not to do when handling an inherited IRA!

Towards the end, we have three interesting articles on the theme of retirement, and whether it’s all that it’s cracked up to be, from a look at the global research on happiness and wellbeing that finds being employed is consistently associated with greater life satisfaction than being unemployed (with white-collar jobs consistently scoring better than blue-collar jobs as well), a look at the real-world challenges that early retirees face in transitioning to retirement when all of their peers are still working, and the results of a fascinating survey from the Wall Street Journal that asked new/recent retirees what they found to be most surprising in retirement, to which they said… almost everything.

We wrap up with the sad news that this week, financial planning visionary Dick Wagner passed away unexpectedly. Wagner has long been recognized as a thought leader in the profession (since long before the term was popular), and was both a former practitioner, former volunteer leader at the chapter and national level in various FPA-predecessor organizations, co-founder of the Nazrudin Project (from which much of the life planning movement emerged), and a tireless advocate of advancing financial planning into a true profession around a broader garden of knowledge that he dubbed the study of “finology”. Fortunately, Wagner was able to publish his book, “Financial Planning 3.0”, just a few months before he passed away, and in today’s weekend reading, we highlight what many view as the seminal article on how financial planners must evolve to truly become a recognized profession… an article he first published in the Journal of Financial Planning in 1990, that we are all collectively still trying to live up to today. Rest in peace, Dick Wagner.

Enjoy the “light” reading!

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source https://www.kitces.com/blog/weekend-reading-for-financial-planners-apr-1-2/?utm_source=rss&utm_medium=rss&utm_campaign=weekend-reading-for-financial-planners-apr-1-2

Tips for Tips: Employees Who Make Tips

If you receive pay in the form of tips, those tips are taxable income, and don’t let anyone tell you otherwise. Here’s how tip reporting works. You report your tips to your employer. Your employer then includes those tips in...

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source http://blog.turbotax.intuit.com/income-and-investments/tips-for-tips-employees-who-make-tips-21531/

Does Renting My Apartment on Airbnb Make Me Self-Employed?

Wouldn’t it be great if your home was working while you were on vacation?  Well, that’s essentially what happens when you rent out your apartment on Airbnb and other similar services. Rental income is not considered to be earned income...

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source http://blog.turbotax.intuit.com/income-and-investments/does-renting-my-apartment-on-airbnb-make-me-self-employed-30376/

Marketing Lessons Learned From NerdWallet Ask An Advisor Shutting Down

As an advisor, one of our most crucial but difficult challenges is figuring out how to get new clients to grow the business. In recent years, several new digital platforms have emerged with the aim to bring consumers and advisors together – allowing advisors to showcase their knowledge by answering consumer questions, with the hope of acquiring new clients. However, as I’ve warned advisors before, building your digital marketing presence on third-party websites can end badly, and this week’s abrupt shutdown of NerdWallet’s Ask An Advisor platform is a case-in-point example of what can go wrong!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss marketing lessons learned from the news that NerdWallet’s Ask an Advisor Platform is shutting down – particularly the risks associated with building your digital marketing strategy on “borrowed land”, and what you should do instead to succeed in the long run.

For financial advisors that were using the platform, NerdWallet’s announcement to shut down their Ask an Advisor platform came as an abrupt surprise. The personal finance site had started out providing credit card comparisons back in 2009, but in more recent years had branched into other channels, from bank accounts and mortgages, to offering a platform where consumers could ask financial questions and financial advisors could respond to those questions, in the hopes of gaining some visibility and possibly even a new client. But, with only three days notice, NerdWallet suddenly announced resources were being allocated towards other company priorities, and advisors will lose the ability to respond to questions, or even directly edit their profiles, after March 31st.

Notably, this is precisely the type of risk that I’ve warned advisors about for some time when it comes to building your digital marketing strategy on someone else’s platform. Advisors who have poured their heart and soul into the Ask an Advisor platform suddenly have to start their digital marketing strategy all over again from scratch. And the reason they have to is because they built on someone else’s platform. If you’re an advisor on NerdWallet, you just lost all of your equity value from the content you built, even though NerdWallet can continue to monetize your content by placing ads for their products, their solutions, and their advertisers next to it. That’s the risk when you create value but don’t retain control of it because it’s on someone else’s platform!

Now, certainly digital marketing can be an effective strategy for advisors, but the ultimate point of all of this is that if you want to succeed in the world of marketing online, it’s not just about creating content to demonstrate your expertise, but retaining control of it so you can build on it over time. Which not only avoids the risk of having the content disappear when some other company decides to “reallocate resources” elsewhere, but also ensures that you have the ability to control how the prospect experiences the content, and the call to action they get at the end! Which is what really drives new client results!

In the end, building on your own websites means that you own the traffic, you own the SEO value, and you can create the call to action that turns readers into bona fide prospects – all without worrying whether you are going to lose control of the platform or your ability to engage a prospect in the future. Don’t be a digital sharecropper. Build a foundation you own, you control, and that you can leverage to turn your audience into real new client business!

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source https://www.kitces.com/blog/nerdwallet-ask-an-advisor-aaa-shutting-down-lessons-learned/?utm_source=rss&utm_medium=rss&utm_campaign=nerdwallet-ask-an-advisor-aaa-shutting-down-lessons-learned

Evaluating Phi: Is Motivation Really The Hidden Variable Of Organizational Performance?

In November of 2016, a joint study from the State Street Center for Applied Research and the CFA Institute was released claiming to have discovered “the hidden variable of performance”. They called this variable “Phi” and it is a combination of the motivational forces of Purpose, Habits, and Incentives. Specifically, the found that a one-point increase in Phi was associated with 28% greater odds of excellent organizational performance, 55% greater odds of excellent client satisfaction, and 57% greater odds of excellent employee engagement.

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 the Phi study and delves deeper into exactly what it is, how it is measured, and what conclusions might be drawn from this study.

In an 18-month study, the State Street Center for Applied Research and the CFA Institute combined findings from 200 in-depth interviews with global industry leaders and a survey of 3,300 “investment professionals” (which was broadly comprised of various executives and employees of asset managers, asset owners, financial advisors, central bankers, regulators, policy makers, and others) from 20 different countries. Participants were asked questions about organizational performance, client satisfaction, and employee engagement — as well as questions about their own purpose, habits, and incentives. As a result of these questions, researchers found a statistically significant relationship between Phi and organizational outcomes, client satisfaction, and employee engagement.

Unfortunately, however, it appears that some of the reporting on Phi may have been overhyped. Specifically, if we take a closer look at the methods utilized in this study, it doesn’t actually evaluate organizational performance, client satisfaction, or employee engagement! Instead, the researchers evaluated self-reported assessments of organizational performance, client satisfaction, and employee engagement. And this distinction is meaningful, because it isn’t exactly clear that employees make valid or reliable assessments of organizational performance, client satisfaction, or employee engagement — and especially when these employees may not actually even know if clients’ goals are being met (how “organizational performance” was defined), whether clients or satisfied, or whether other employees within a large multinational financial services firm are actually even engaged!

In the end, the study did ask some interesting questions and set out with some lofty ambitions. What the researchers set out to do was not easy and they went after some big questions, so they can be commended for that, but until further research can tie Phi to actual outcomes or provide evidence that the self-reported measures are assessing something meaningful in a valid and reliable way, then the conclusions we can actually draw from the Phi research are limited.

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source https://www.kitces.com/blog/phi-hidden-variable-organizational-performance-financial-firms/?utm_source=rss&utm_medium=rss&utm_campaign=phi-hidden-variable-organizational-performance-financial-firms

Ways Your Phone Fixation Can Help You Save

How often do you check your phone? For most people I know, calling people is one of the least used features! Smartphones and their apps have become a part of people’s daily routine. I’ve seen people practically glued to their...

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source http://blog.turbotax.intuit.com/tax-planning-2/ways-your-phone-fixation-can-help-you-save-30308/

#FASuccess Ep 013: Succeeding As A Serial Financial Advisor Entrepreneur Serving Ultra-HNW Clients With Steve Lockshin

Welcome back to the thirteenth episode of the Financial Advisor Success Podcast!

This week’s guest is Steve Lockshin, a founder of AdvicePeriod, a Los Angeles-based advisory firm that serves ultra high net worth clients. So if you’ve ever been curious to hear what’s involving in serving clients with tens of millions of dollars of net worth (or more!), and charge financial planner retainer fees that could start at $100,000 and go up from there, you won’t want to miss this episode!

What’s fascinating about Steve, though, is not simply his success in serving ultra high net worth clientele, but his path as a serial entrepreneur who has founded several businesses in the advisory industry. His prior advisory firm Lydian Wealth Management, which also served ultra high net worth clientele and had more than $7B of AUM, was acquired by City National Bank. And the performance reporting software solution he co-founded, Fortigent, was acquired in 2012 by LPL Financial. And currently, Steve is also a part of AdvicePeriod for Advisors, which gives independent advisors access to AdvicePeriod’s branding, tools, and resources, for those who want to use his tools while maintaining control of their own advisory businesses.

In this episode, you’ll hear how Steve first created and sold a software company without a background in programming, and then got started as a financial advisor without any experience in the field either. In fact, his story is a fascinating example of true entrepreneurialism – of someone who sees problems and gaps to be solved, and then marshals the resources necessary to create a solution (and a business around it!), while continuously looking for new opportunities as a lifelong learner.

And be certain to listen to the end, where Steve shares his thoughts on what he thinks is the single most important choice an advisor has to make in building their own advisory business (or shaping their own career trajectory), to be successful in the long run.

So whether you’re curious to get a glimpse of what it takes to serve ultra high net worth clients, or just want to hear the perspective of a true financial advisor entrepreneur, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

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source https://www.kitces.com/blog/steve-lockshin-advice-period-podcast-financial-advisor-serial-entrepreneur-ultra-hnw-clients/?utm_source=rss&utm_medium=rss&utm_campaign=steve-lockshin-advice-period-podcast-financial-advisor-serial-entrepreneur-ultra-hnw-clients

Last Minute Tax Tips for Self-Employed Filers

With warmer weather comes the end of tax season: the deadline to file your taxes is Tuesday, April 18th. Between work, family and everyday responsibilities, it’s possible to leave your taxes for the  last minute. But that doesn’t mean you...

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source http://blog.turbotax.intuit.com/self-employed/last-minute-tax-tips-for-self-employed-filers-30379/

The Business Benefits Of Transitioning From Commissions To Fee-Based Advisory Accounts

Since the late 1990s, the broker-dealer community has been increasingly transitioning away from traditional commission-based accounts, and towards fee-based alternatives instead. Facilitated first by a proposed 1999 exemption under Rule 202 that would allow broker-dealers to offer fee-based accounts without being registered as investment advisers, and then transitioning fully to dual-registered or hybrid RIA arrangements (after the proposal was struck down in 2007), the shift has been substantial, with leading broker-dealers going from less than 10% of fee-based revenue to more than 50% today.

For any individual advisor, though, the reason to transition to doing fee-based advisory accounts isn’t just because the broker-dealer prefers it, but simply because it allows for building a bigger and more successful advisory business. The reason is rather straightforward: because commission-based business is transactional, and will always be constrained by the number of clients the advisor can personally see and sell, while a recurring revenue advisory business makes it possible to separate “selling” clients from the less-expensive process of servicing them. Or stated another way: after several years of commission-based business, your income on January 1^st of a new year is still $0 until you get a new client, while with an advisory business, after a few years you can be financially successful with no new clients, as long as you give quality service to the ones you already have.

The challenge, though, is that transitioning to fee-based advisory accounts is not easy. As an advisor, it’s necessary to redefine your value proposition to justify charging an ongoing advisory fee, and persuade clients to make the change with you. And those reinvestments into the business have to happen just as revenue declines in the transition – because even if advisory fees may be more stable in the long run, in the near term it’s just less money coming in the door.

Nonetheless, with the regulatory winds around the globe blowing increasingly towards no-commission fiduciary advice, arguably the transition to fee-based advisory accounts may be inevitable anyway. But given that recurring revenue advisory fees are facilitating the growth of bigger advisory businesses, which also get better valuations in the marketplace, it’s a good shift to make, regardless of whether the regulators ultimately require it or not!

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source https://www.kitces.com/blog/transitioning-commissions-to-fee-based-advisory-accounts-as-dual-registered-hybrid-ria/?utm_source=rss&utm_medium=rss&utm_campaign=transitioning-commissions-to-fee-based-advisory-accounts-as-dual-registered-hybrid-ria

Three Big Reasons to Not Wait for The Tax Deadline

The IRS tax filing deadline for the 2016 tax season is Tuesday, April 18, 2017. Many people dread it, but maybe you should embrace it and file as soon as possible! I dare you: try it! There are at least...

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source http://blog.turbotax.intuit.com/tax-planning-2/three-big-reasons-to-not-wait-for-the-tax-deadline-22764/

Real Talk Series: My daughter needs to take out student loans. How will this affect our taxes?

Q: My daughter needs to take out student loans. How will this affect our taxes? A: First, congratulations on your daughter attending college! Although going to college is an exciting and unforgettable opportunity, we all know some of the challenges that...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/education/real-talk-series-my-daughter-needs-to-take-out-student-loans-how-will-this-affect-our-taxes-30372/

Weekend Reading for Financial Planners (Mar 25-26)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with an interesting new consumer survey from J.D. Power (and a similar one from Spectrem) finding that the majority of consumers currently using commission-based investment accounts don’t want to switch to a fee-based solution instead, even as studies also find that those who use fee-based accounts are more satisfied with what they pay… and reinforcing that while there may be some harm caused by inappropriate commission-based sales, there is a segment of consumers that don’t want to pay ongoing fees and would prefer to just engage via commissions when they wish.

From there, we have a few practice management articles, from a look at how the biggest key to getting new clients may be “approachability” (which is far easier said than done!), to a discussion of what the real difference is between a TAMP and a “robo-for-advisors” solution (as the two increasingly converge towards each other), what to do (and not to do) when talking to the media as a financial advisor to get PR exposure, and what your website homepage must include in order to be appealing to prospects (even including the ones that were already referred to you, but are still checking you out online first!).

We also have several more technical articles this week, including: strategies for using bonds to meet retirement expenses; whether the rules limiting upside return projections on indexed universal life policies under Actuarial Guideline 49 went far enough; what to do when a retired couple applies for long-term care insurance but only one of them gets it (and the other gets declined); and an in-depth look at how the number of publicly listed stocks has dropped by almost 50% in just the past 20 years, as fewer and fewer companies choose to IPO in the public markets, even as M&A activity continues, resulting in a more-and-more concentrated number of publicly traded mega companies (and potentially less diversification even for the investor who buys a total market index fund).

We wrap up with three interesting articles about spending and saving behaviors: the first is a fascinating look at how a couple earning $500,000/year in a major metropolitan area can still spend “reasonably” (at least, relative to their income) yet find themselves living paycheck to paycheck; the second dives into how one Millennial blogger managed to accumulate $1M in investments in barely 5 years by converting his long-term savings goals into a daily savings effort (which so motivated him that as his income rose, he saved virtually all of it, accelerating his financial success); and the last looks at how anyone can get their financial life more streamlined and organized (which, notably, is something few financial advisors actually focus on directly, even though it could arguably be a complementary or even a separately paid service!).

Enjoy the “light” reading!

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source https://www.kitces.com/blog/weekend-reading-for-financial-planners-mar-25-26/?utm_source=rss&utm_medium=rss&utm_campaign=weekend-reading-for-financial-planners-mar-25-26

What is the Standard Tax Deduction?

When a business brings in revenue, not every penny is taxed. Businesses are allowed to deduct their expenses from their income. It seems only fair considering there are costs to doing business and it would be unreasonable not to consider...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/what-is-the-standard-tax-deduction-21270/

Does It Matter Whether You Get Your CFP From A “Top Ranked” Program?

For parents these days, there’s a huge focus these days on not just getting kids into college, but getting them into the “right” college. And whether it’s realistic or not, many people by default want to plan for their kids getting into recognized Ivy League schools like Harvard, Yale, or Stanford, in the hopes that studying at a “top school” will help their kids’ future career prospects. Accordingly, it’s perhaps no great surprise that more and more people who are looking to study for their CFP certification are also asking the question of what the “best” or “top ranked” CFP programs are, and whether it matters where you go to get your CFP. Particularly in light of the fact that some of the largest CFP education programs are completely unknown outside of our industry.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss why for most people, it doesn’t really matter if you get your CFP certification from a “top ranked” CFP program or not, and what criteria you should really focus on instead when getting your CFP education.

First and foremost, the primary reason that it doesn’t matter where you get your CFP education is that most clients really don’t care what school you went to school. They just rarely ask. And even when it does happen, it’s not difficult to explain the credentials of an industry -specific educational institution like the American College or the College for Financial Planning – and then move on. Because ultimately, if of getting your CFP marks gives you expertise and confidence that you communicate accordingly, that is the primary benefit of CFP certification! Not getting the “right” institution at the top of your degree.

That being said, tt is worth noting that there are some situations where the school you get your CFP from may matter, at least a little. The first is when you are trying to get a financial planning job. Not a position where you need to go and get clients, but an internal position at a financial planning firm. Because when a firm is hiring someone, they have very little to look at… and as a result, having a school like Texas Tech or Virginia Tech on your resume – since these are schools known to have reputable CFP programs – can at least cast a positive “halo effect” on you. But don’t count on that getting you the job. It might help you get an interview and tilt the scales in your favor a bit, but it ultimately comes down to what you learned in your CFP program. And that means if you ultimately want to land a job, focus on picking the program that allows you to learn the material best, because that is what will get you past an interview to an actual financial planning job!

The other time you may want to consider where you get your CFP is if you plan to go into academia. Although even in academia, it still isn’t about where you get your six CFP education courses per se, but where you get a masters degree or a Ph.D. could truly matter. In this case, you aren’t trying to win over consumers or persuade an employer to hire you, but in academia, school rankings simply matter more. Many schools like to have a good “academic pedigree” for their professors. Yet, even within academia, it’s going to matter what type of job you ultimately want. If you want to help start a new CFP program or primarily teach undergraduates, then where you get your degree won’t matter as much. If you want a tenure-track research position at an R1 research university or business school, then where you get your degree will be more important, even if it doesn’t matter so much where you took your CFP courses.

The bottom line is, for most people getting their CFP certification – especially those who are just wanting to get a job or build an advisory firm getting clients – don’t stress about where you get your CFP education. Instead, stress about finding a program where you can do well, and actually learn the content! Because, in the end, the biggest determinant of your success will be how well you actually learn the material and can confidently use it. Ultimately, this comes down to educational fit – not academic pedigree!

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source https://www.kitces.com/blog/ranking-top-cfp-programs-education-vs-pedigree/?utm_source=rss&utm_medium=rss&utm_campaign=ranking-top-cfp-programs-education-vs-pedigree

Tax Tips for Retirees

When you retire, your life changes, and your tax situation changes as well. Here are tips to make retired life less taxing and more relaxing. Think before you commingle retirement accounts. Although rolling all your retirement accounts into one giant...

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source http://blog.turbotax.intuit.com/tax-planning-2/tax-tips-for-retirees-21493/

TurboTax Offers Free Filing for Military E1- E5

Continuing this tax season, TurboTax will still be offering the expansive military discount to all US active duty military and reservists. The Details For service members in ranks E-1 to E-5, you can file both your federal and state taxes...

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source http://blog.turbotax.intuit.com/turbotax-news/turbotax-offers-free-filing-for-military-e1-e5-18831/

The Evolution Of The Four Pillars For Retirement Income Portfolios

The research on the optimal strategy to generate retirement income from a portfolio has been evolving for decades.

In the 1950s and 1960s, with the initial rise of a portfolio-based retirement, the leading strategy was simply to buy bonds and spend the interest (by literally “clipping the coupons” from the bearer bonds of the time). Until the inflation of the 1970s ravaged the purchasing power of bond interest.

The harsh consequences of inflation on bond portfolios led to a dramatic shift by the 1980s, as retirees increasingly purchased high-quality dividend-paying stocks instead, counting on the ability of businesses to raise prices and keep pace with inflation… which also helps their dividends to rise and keep pace with inflation as well.

The dividend strategy was popular until eventually retirees realized that owning stocks and focusing on the dividends, while ignoring the capital gains, just leads to large retirement account balances that could have been spent along the way. As a result, by the 1990s, retirement portfolio strategies shifted again, to consider a more holistic “total return” approach that incorporates interest, dividends, and capital gains as well.

Unfortunately, though, capital gains may be one of the largest drivers of total return in the long run, but it’s also one of the least stable, forcing the retiree to periodically rely on the portfolio principal as well. Of course, in the end, retirement principal that is unspent is arguably a wasted spending opportunity – where the “optimal” retirement portfolio is for the last check to the undertaker to bounce. On the other hand, given the uncertainty of a retiree’s time horizon – not knowing when you’re going to die – means in practice, the principal can and should be used more dynamically, spending from it in some years but leaving it untouched in others.

Which means ultimately, the modern retirement portfolio will really rely on four pillars for retirement income – interest, dividends, capital gains, and principal. Or stated more accurately, the four pillars of retirement cash flows – since the treatment of the pillars as “income” for tax purposes can vary depending on both the pillar itself (interest is taxable and principal liquidations are not), and the varying types of retirement accounts (from pre-tax IRAs to tax-free Roth accounts).

Nonetheless, the fundamental point is simply to recognize that a retirement portfolio has multiple ways to generate the desired cash flows for retirement. And in fact, in a low yield environment, it can be especially important to diversify across all four pillars – or retirees take on additional risks in stretching for yield, from interest rate and default risk (from longer-term or lower-quality bonds), to the concentration risks of buying just a subset of the highest dividend-paying sectors (which, as the financial crisis showed, can expose the portfolio to severe risk along the way!).

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source https://www.kitces.com/blog/four-pillars-retirement-income-portfolios-interest-dividends-capital-gains-principal/?utm_source=rss&utm_medium=rss&utm_campaign=four-pillars-retirement-income-portfolios-interest-dividends-capital-gains-principal

#FASuccess Ep 012: Delivering Profitable Financial Planning To Millennials For A Monthly Retainer Fee With Sophia Bera

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

This week’s guest is Sophia Bera, the founder of Gen Y Planning, a financial advisory firm that is successfully and profitably delivering financial planning to Millennials, by charging them an ongoing monthly retainer fee to access her financial advice.

Sophia’s path to launching her advisory firm was first the subject of a Nerd’s Eye View guest post back in 2013, when she launched her independent RIA for under $10,000 (in a world where most people said it wasn’t possible to get launched for so little!). So I decided to check with her to see how it’s going… and found out that she had replaced her prior job salary within 18 months of her new practice, and now after 3 full years, she’s already taking home $100,000 of profits after all expenses, and is growing rapidly with 2 new clients per month, almost all of whom are in their 20s and 30s.

Sophia’s firm is a great example of not only the fact that Millennials can be served profitably, but the power of having a niche. Because not only is Sophia’s firm actively growing, but her primary source of new clients is Google. That’s what happens when you have a niche. Just search for “Financial Planning for Millennials” yourself, and you’ll see that Sophia is at the top of the search results as the recognized expert in her niche!

In this episode, Sophia breaks down exactly how her fee structure and service model work, from how she charges a combination of upfront and ongoing advice fees, how she incorporates investment management for certain clients (using a “robo-advisor” platform to do it!), and what exactly it is she does for clients throughout the year (and why it’s not necessary to do something for them every month!). And Sophia goes into detail about what client retention looks like with a retainer model as well, and how she sees her business growing over time.

And be certain to listen to the end, where Sophia talks about how her practice has evolved into an entirely “location-independent” virtual advisory firm, and how that not only helps her to live the lifestyle she wants, but also to diversify her income streams across financial planning, speaking, writing, and even a new coaching service for other financial advisors who want to build a similar business for themselves.

So if you’ve been curious to know how exactly to serve young Millennial clients in your firm, or have been wondering what it would be like to “take the plunge” and start your own business to do it yourself, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

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source https://www.kitces.com/blog/sophia-bera-gen-y-planning-podcast-profitable-financial-millennials-monthly-retainer-fees/?utm_source=rss&utm_medium=rss&utm_campaign=sophia-bera-gen-y-planning-podcast-profitable-financial-millennials-monthly-retainer-fees

Maximizing Your Spring Break Dollar

Normally around this time, families are looking towards things they can do since spring break is coming up. Here are a few ideas that I hope can save you some money and make your vacation a more pleasant experience.

source http://blog.turbotax.intuit.com/tax-tips/maximizing-your-spring-break-dollar-2614/

What Is Financial Coaching, And Best Practices For Becoming One

While the number of business models for financial advisors continues to grow, from its commission-based roots, to the AUM model, and more recently to hourly and retainer models, the fundamental challenge is that virtually all of those models are still focused on the “traditional” domains of financial planning, including retirement, insurance, estate, taxes, and investments. When the reality is that for a huge swath of Americans, their needs for financial advice are focused on issues like credit card debt, building an emergency fund, or just getting their head around their budget for the first time. The problems are half about financial literacy, and half about behavior change and forming good financial habits around spending and cash flow… neither of which are part of the typical engagement with a financial advisor.

But what’s the alternative? Increasingly, it’s a new domain being called “financial coaching” instead. And in this guest post, Garrett Philbin of Be Awesome Not Broke (a financial life coach who helps people get out of debt and save towards their goals!) shares some of his own thoughts, tips, and processes, and guidance for those who want to try running a financial coaching practice instead of a traditional advisory firm. From the regulatory and compliance issues, to the business model and how to charge clients (because yes, there are people who really do pay for this kind of help!), the software and tools that can help, to the actual services and deliverables provided to coaching clients.

Ultimately, the key point is to recognize that financial coaching is emerging as a distinct service from what we traditionally do as financial advisors, and one that reaches a distinct clientele (who have been grossly underserved by the financial advisor marketplace so far!). For some, that means coaching is an appealing way to expand an advisory firm to reach a new type of clientele. For others, it might even be a preferable alternative to the “traditional” path as a financial advisor. In fact, as Garrett notes, financial advisors and financial coaches can be an excellent professional relationship to cross-refer clients who need the services of one or the other!

So whether you’ve heard of financial coaching but don’t know what it is, have been thinking about adding financial coaching services as an offering, want to become a financial coach instead of a financial advisor, or are simply interested in how your clients may benefit from working with a financial coach… I hope that you find this guest post from Garrett to be helpful!

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source https://www.kitces.com/blog/financial-coaching-what-it-is-and-how-to-become-one/?utm_source=rss&utm_medium=rss&utm_campaign=financial-coaching-what-it-is-and-how-to-become-one

IRS Free File Program is Open

The IRS has opened its popular Free File Program, available at www.irs.gov, a public-private partnership between the federal government and private tax preparation companies, including TurboTax maker Intuit. This year, taxpayers with an adjusted gross income of $33,000 or less,...

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source http://blog.turbotax.intuit.com/turbotax-news/irs-free-file-program-is-open-22779/

Weekend Reading for Financial Planners (Mar 18-19)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a “surprising” Field Assistance Bulletin issued last week by the Department of Labor on its looming fiduciary rule, noting that there’s a real possibility that the rule will not be delayed by the April 10th applicability date, but then stating that if the delay (or even a non-delay outcome) comes shortly thereafter, the DoL won’t enforce the fiduciary rule during the gap period (though notably, any damaged clients in the gap period could conceivably just sue directly).

Also in the news this week was the announcement that Schwab has officially pivoted away from its robo-advisor to a new hybrid offering dubbed Schwab Intelligent Advisory, which will provide advice directly from CFP professionals (in addition to automated portfolios); at the same time, T. Rowe Price announced the launch of its own pure robo solution, ActivePlus Portfolios, though the offering will be limited to providing an asset allocation of T. Rowe Price’s own mutual funds (at no additional cost, beyond the mutual fund expense ratios themselves). Also in the news this week was the revelation that Morningstar is actually preparing to launch its own mutual funds for its Morningstar Managed Portfolios advisor platform, which is suggests will reduce costs on the platform by as much as 20%, but in the process puts the firm in the conflicted position of being both a rater of mutual funds and a manager of some.

From there, we have a number of technical articles, including: the news that the Tax Data Retrieval Tool from the IRS that is used to facilitate income verification for the FAFSA (and income-based repayment plans for student loans) has been taken offline for several weeks due to potential criminal activity (identity thieves trying to steal taxpayer information); an analysis from Ed Slott of the prohibited transaction rules for IRAs that can potentially disqualify the entire account if non-traditional assets are not handled properly; and new research that suggests a slightly different approach to retirement income planning, where consumers don’t simply diversify their portfolio assets, but instead try to diversify amongst the available “Retirement Income Generators” (RIGs) – which might include systematic portfolio withdrawals as one component – to effectively “pensionize” retirement.

We also have several practice management articles this week, from the challenge of figuring out the “right” valuation of your advisory firm (recognizing that outsider buyers often offer higher valuations than internal succession plans, but if key employees leave the outside deal could end out paying less in the long run after all), to the question of whether advisory firms should offer more flextime to employees (and how to structure it), and a look at the rise of Interactive Brokers as a new low-cost niche custodian for independent RIAs (especially those who trade actively and globally).

We wrap up with three interesting articles on the dynamics of managing advisory firms: the first reviews a major new research study of the industry, finding that there appears to be a substantial gender bias in advisory firms when it comes disciplining misconduct, with male advisors being 3x more likely to commit serious misconduct, with a 20% larger average damages settlement for consumers, yet it’s female advisors with misconduct who end out being 20% more likely to get fired and 30% less likely to find another advisory job (though notably, the difference largely vanishes once there are females amongst the ownership or executive suite!); the second is a look at an advisor who decided to establish her RIA as a B Corporation, a new voluntary certification that businesses can obtain to affirm that they will operate not just to maximize profits, but the interests of all stakeholders (which aligns especially well to independent RIAs that serve as fiduciaries to clients in the first place!); and the last is a look at how businesses need to be cautious not just to espouse certain “noble values” that all employees aspire to, but actually include those values in their interview/hiring process, firing employees who fail to live up to them, and promoting those who espouse them best in practice – because otherwise, it doesn’t matter what the firm says, if what it rewards is different, eventually all employees will migrate their behaviors to fit the values that are being rewarded, not the ones written in a corporate Core Values statement.

Enjoy the “light” reading!

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source https://www.kitces.com/blog/weekend-reading-for-financial-planners-mar-18-19/?utm_source=rss&utm_medium=rss&utm_campaign=weekend-reading-for-financial-planners-mar-18-19

Get Refund Lucky with These Top 8 Tax Deductions & Credits

Happy St. Patrick’s Day! Just like finding $20 in your coat pocket, getting a big tax refund may feel pretty lucky. In fact, luck has nothing to do with it! Knowing the tax deductions and credits available to you is a...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/get-refund-lucky-with-these-top-8-tax-deductions-and-credits-19270/

How Do You Know It’s Time To Leave Your Advisory Firm?

Finding your first good job as a financial planner can be tough. Not only because it’s challenging just to find a job at all, but because it’s not always clear up front which firms really do financial planning or not, and which jobs will be real financial planning jobs versus just a sales job. In many cases, the only way to find out is to take the job that’s available, make the best of it, and hope it turns into a good long-term career path. Except when it turns out it’s really not a good match at all… and then suddenly the challenge is figuring out whether it’s time to leave, and whether having a short-term job stint on your resume will hurt your future career chances even more! So what should you do?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss how to know it’s time to leave your advisory firm to find another opportunity – based on whether the firm was a bit fit philosophically, or just not a good long-term growth opportunity – and best way to handle the situation if you find yourself in it.

First and foremost, though, remember that the best way to fix a problematic situation is not to make a change at all, but try to change the firm from within, rather than just running away from the problem. If you are worried about the investment or planning philosophy, or want to know if there’s a better long-term career opportunity, then ask – broach the conversation with the firm owner. But it’s important to be tactful in how you do this. If you are critical of your boss or the firm owner, they will likely just defend themselves, because that’s human nature. Instead, come up with an actual solution, and offer it by having a “what if” conversation rather than a confrontational “why” conversation. If you come to the table with a proactive solution, most firm owners will actually be happy to work with you, adopt a solution, and get the firm in a better position than it was before!

Similarly, when it comes to career opportunities, if you want a career path, you may need to ask for it! I’m always amazed at how often people complain about having a lack of a career track, when they’ve never raised the conversation themselves! And realize that for most smaller advisory firms (which is most firms), this may be the first time they’ve taken someone through a career track, so the reality is they literally don’t know what their career path is. Don’t just sit back and expect that a perfect career track is going to be waiting for you, but instead, initiate the conversation ask about your opportunities with the firm as it continues to grow! The emphasis on continued growth is important, because both you and the owner want to be in a position of sharing a growing pie, rather than fighting over bigger pieces of a pie that isn’t growing. If you find yourself in the latter position – in a firm that just isn’t growing at all – the odds of a career track emerging are almost nil.

However, after having the tough conversations, the reality is you may decide that it really is time to leave. Perhaps something unethical is going on and you need to get out immediately. Or maybe the pie just isn’t growing and that isn’t going to change, so there’s simply going to be nothing to share in the future. If that’s the case, then what you should do next depends on the situation you are in. If you’re really uncomfortable with how the firm operates and they truly aren’t doing right by its clients, then get out right away. Life’s too short for not doing right by your clients. But if it is “just” a lack of future growth, then realize that you can take your time and make a smart transition. Get your CFP experience (or finish the coursework if necessary!), save up some money for the transition, and take your time to truly do your due diligence on the next firm you work for. If you’re checking the job boards and networking through industry associations, you may have a better chance of finding a good fit.

But in either case, understand that ultimately you don’t have to worry about being labeled a “job-hopper” – or at least if it only happens one or two times. Just be straightforward about your prior situation, and take ownership for not doing your proper due diligence the first time around. Most advisors will understand that this happens, and will appreciate the attention you are paying this time. But whatever you do, don’t make the transition without learning from it! If you go through too many entry-level positions without figuring this out, then ultimately, you may have good reason to worry about being labeled a job-hopper!

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source https://www.kitces.com/blog/how-to-leave-advisory-firm-job-opportunity-for-bad-fit/?utm_source=rss&utm_medium=rss&utm_campaign=how-to-leave-advisory-firm-job-opportunity-for-bad-fit

Audit Misconceptions

Many taxpayers, whether they are just starting their taxes or have already filed, are curious about audits. It’s natural! But the actual risk of being audited is greatly overestimated by the general public. In fact, less than 1% of taxpayers are actually...

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source http://blog.turbotax.intuit.com/tax-planning-2/audit-misconceptions-9977/

Social Security Rules And Strategies For Divorcee Spousal Benefits

One of the key benefits of Social Security is the spousal benefit – a payment at retirement that goes not to the worker who paid into Social Security over time, but his/her spouse. The payment was originally designed to provide retirement support for what were typically (at the time) stay-at-home spouses in a single-income household, and still remains relevant today for many spouses who take at least some time off from work to raise a family.

However, the spousal benefit is not only available for currently married couples; single people who were previously married may also be entitled to a spousal benefit, based on the ex-spouse’s earnings record. This spousal benefit for divorcees becomes available as long as the couple was married for at least 10 years, and the divorcee has not remarried.

For some divorcees, the ex-spouse’s spousal benefit is a key pillar of retirement income, and choosing when to start the benefit – early at a reduced amount, or at full retirement age for the full amount – is a crucial decision. For others, the ex-spousal benefit will ultimately be trumped the divorcee’s own retirement benefit from years of working. But for those born in 1953 or earlier, who are eligible for retirement and (ex-)spouse benefits, there is still an opportunity to further leverage the spousal benefit by filing a Restricted Application for just the ex-spouse’s benefit at full retirement age, and switching to his/her own individual benefit at age 70 – increased by 32% Delayed Retirement Credits!

For some divorcees, though, the biggest opportunity of the ex-spouse’s spousal benefit is simply recognizing when it’s available, and claiming it properly, as if the ex-spouse’s benefit is larger, the divorcee can actually step up his/her benefit to the higher amount!

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source https://www.kitces.com/blog/divorcee-social-security-spousal-benefits-rules-and-strategies/?utm_source=rss&utm_medium=rss&utm_campaign=divorcee-social-security-spousal-benefits-rules-and-strategies

It’s Pi Day! Have Your Pi and Eat it Too with These Money Saving Tax Tips

Geeks, nerds, and math lovers unite – it’s time to celebrate Pi Day! In honor of all things 3.14159, March 14 is the day to embrace both your sweet tooth and your inner arithmetic aficionado. Pi is a mathematical constant. You...

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source http://blog.turbotax.intuit.com/tax-planning-2/its-pi-day-have-your-pi-and-eat-it-too-with-these-money-saving-tax-tips-21556/

#FASuccess Ep 011: How Launching An Advisory Business Can Be Safer Than Working In One with Alan Moore

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

My guest this week is Alan Moore. Alan and I co-founded the XY Planning Network in 2014, but the reason I invited him to the podcast has little to do with XYPN itself, and everything to do with his own fascinating path as a financial advisor, business owner, and successful entrepreneur.

Because Alan started out his career as most of us are taught from the days we’re young – to go out and try to find a stable job with a steady income, and move up the ladder over time. Except Alan realized barely 6 months into his first job that it wasn’t going to be the right fit. Only to change to another job… from which he got fired in another 6 months. And so, realizing that perhaps being an employee just wasn’t the right fit, Alan decided to launch his own advisory firm. From scratch. At age 25.

These early experiences led Alan to the counter-intuitive conclusion that perhaps the traditional view of trying to find a job with a steady income is wrong, and that it can actually be more stable (at least in the long run) to build a business from scratch. Because as a business owner, even your best client firing you might only cost you a 2% to 5% of revenue… which is a lot “safer” than relying on a single boss who can take away 100% of your income in a heartbeat by firing you!

In this podcast episode, we talk about Alan’s journey from financial planning college student, to getting involved as a volunteer with NAPFA and its young-advisor group Genesis, to his path from employee to (young) entrepreneur of his own advisory firm, how he later launched a second business (XY Planning Network) as well, and how and why he ultimately made the decision that he couldn’t keep both a B2B and B2C business and would have to wind one down to fully focus on the other.

And be certain to listen to the end, where Alan talks about the rut he got into that almost led him to leave his rapidly-growing business entirely after a particularly bad month, and what it took to turn everything around and re-energize him in the business again.

So if you’re thinking about making the switch from employee to entrepreneur, or perhaps are an advisory firm business owner wondering how to better keep your young entrepreneurial employees, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

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source https://www.kitces.com/blog/alan-moore-xypn-podcast-launching-advisor-business-entrepreneur/?utm_source=rss&utm_medium=rss&utm_campaign=alan-moore-xypn-podcast-launching-advisor-business-entrepreneur

5 Ways to Financially De-stress

Just this week, I got an update from a fund I invest in. As a part of their usual material, there was a letter outlining current trends and events on the minds of investors. The manager was reminding everyone to focus...

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source http://blog.turbotax.intuit.com/income-and-investments/5-ways-to-financially-de-stress-30225/

12b-1 Fees: It Is Time To Bid Them Farewell?

From its start in 1980, the 12b-1 fee was controversial – a distribution charge assessed against current mutual fund investors, that the fund company can use to market the fund to new investors. In other words, the mutual fund got to use investor dollars (rather than its own money) to grow the fund’s assets under management (AUM).

In theory, this use of the mutual fund investor’s own money to market the fund company’s products was supposed to be good for the investor, because it would help grow and scale the fund and bring down its operating expense ratio. However, several decades later, subsequent analysis is finding that while mutual funds that charge 12b-1 fees are successful at incentivizing salespeople to bring in more assets under management, the 12b-1 fee isn’t living up to its promise of helping to scale up and bringing down the expense ratio as the mutual fund grows.

At the same time, the reality is that investor behaviors are shifting as well. A growing number of consumers are purchasing their investments directly, avoiding the 12b-1 fee altogether by eliminating the mutual fund salesperson middleman. And as more and more financial advisors become affiliated with an RIA firm and get paid an AUM fee on an advisory account, the 12b-1 fee is less and less of a driver to incentivize financial advisors anyway.

In fact, the entire shift of financial advisors from being mutual fund salespeople (compensated by upfront commissions and ongoing 12b-1 fees) to operating as actual financial advisors instead (compensated by fees directly from their clients) raises the question of whether the 12b-1 fee is still relevant at all. Especially given the 12b-1 fee’s controversial roots, and the misalignment it creates between who pays the marketing and distribution costs, and who actually benefits from it.

Of course, the reality is that financial advisors, custodians, broker-dealers, and product providers still need to get paid for what they do, which means eliminating the 12b-1 fee still won’t necessarily bring down costs for the end client. Instead, it would likely just shift where and how financial advisors and their platforms get paid. Nonetheless, given the 12b-1 fee’s implicit conflicts, and their declining relevance, arguably it’s time to create a more appropriate pricing structure for the realities of today’s investment marketplace!

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source https://www.kitces.com/blog/eliminate-12b-1-fee-marketing-distribution-cost-mutual-fund-trails/?utm_source=rss&utm_medium=rss&utm_campaign=eliminate-12b-1-fee-marketing-distribution-cost-mutual-fund-trails

Top Job Seeker Tax Deductions

Traveling to job interviews. Dry-cleaning your best suit. Printing resumes on quality paper. Working with a job search coach. If you engaged in any job search activities in 2016, you may be able to deduct the related expenses from your...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/top-job-seeker-tax-deductions-30184/

Where’s My Tax Refund? How to Check Your Refund Status

With refund season well underway and the average tax refund being close to $2,800 last tax season, we are hearing the common tax season question: “Where’s My Refund?” We know that you work hard for your money and often a...

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source http://blog.turbotax.intuit.com/tax-refunds/wheres-my-tax-refund-how-to-check-your-refund-status-18855/

Don’t Let Filing Multiple W-2s Scare You

According to the Bureau of Labor Statistics, 7.4 million Americans (5.3% of the workforce) have more than one job, and the number is increasing. Add in those who changed jobs in 2016, and you have quite a few people who find themselves...

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source http://blog.turbotax.intuit.com/taxes-101/dont-let-filing-multiple-w-2s-scare-you-3714/

Weekend Reading for Financial Planners (Mar 11-12)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a reminder that while most regulatory attention has been focused on the Department of Labor’s fiduciary rule, the Treasury’s FinCEN group is actively working on a new set of anti-money-launching (AML) rules that could impose new compliance burdens on RIAs (akin to what broker-dealers and banks already have to deal with for AML compliance). And in the DoL fiduciary news itself, the buzz this week is that with a potential 60-day delay on the table, asset managers have been slowing their development efforts on the new T-share class, at least until the dust clears.

From there, we have a number of articles this week about marketing and business development for financial advisors, including: how to think differently about crafting a (more unique) value proposition for clients; a structured process for trying to create and articulate your value proposition; some new research on why clients leave advisors (and how to start conducting exit interviews to understand for yourself why your ex-clients left, and what you might need to change); and an interesting article about whether in the world of digital marketing, it’s better to stop thinking of potential new clients as “prospects” to sell at all, and instead think of them as an “audience” to engage instead.

We also have several articles specifically on how to create better engagement with clients and prospects, from how to create a “client persona” in your marketing to further refine your messaging and improve engagement with prospects, to the latest research about how people have different engagement styles, and the importance of adapting your own communication to match the client’s style, and why it’s so crucial to not just answer a prospect’s questions but ask them questions and get them talking in a prospect meeting (as it better engages them and leads to deeper rapport).

We wrap up with three interesting articles that challenge conventional thinking in the industry: the first is an analysis by Wade Pfau, building on a prior article from this blog, about how the DALBAR behavior gap study is actually fundamentally flawed in the way it compares investor to market returns over 20-year time periods (as DALBAR compares investors to the returns of the market invested with a lump-sum all at once, even though most people didn’t have all their wealth to invest 20 years ago); the second raises the question of whether the whole “passive revolution” is overstated, and whether the phenomenon is simply that investors (and advisors) are no longer stock-pickers and instead are “asset pickers” (for which index funds and ETFs are simply convenient active building blocks); and the last raises the question of whether, as robo-advisors continue to evolve, if eventually financial planning will be given away for free by robo-advisors… or whether the ongoing lead generation, engagement, and self-onboarding tools of financial planning software means eventually it will automate itself to the point that it doesn’t need a financial advisor anyway (or at least, that the advisor has to provide a value proposition above and beyond just the software analysis itself!).

Enjoy the “light” reading!

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source https://www.kitces.com/blog/weekend-reading-for-financial-planners-mar-11-12/?utm_source=rss&utm_medium=rss&utm_campaign=weekend-reading-for-financial-planners-mar-11-12

Income Tax Filing Requirements

With the second half of tax season here, it’s time to get those gears in motion to start filing. Tax season means getting your paperwork and finances in order. While it may not seem exciting, filing taxes is manageable. Plus...

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source http://blog.turbotax.intuit.com/taxes-101/income-tax-filing-requirements-558/

How are Unemployment Benefits Taxed?

Being out of work and filing for unemployment benefits tends to be low on the list of fun and interesting topics to talk about with your friends. It’s no surprise that accurate information about the taxation of unemployment benefits is...

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source http://blog.turbotax.intuit.com/income-and-investments/how-are-unemployment-benefits-taxed-16841/

How The Advisory Industry Has Stifled #FinTech Innovation

Our whole world is currently being changed by technology. From smart appliances powering our homes, to the apps and software that help us manage our daily tasks, to the rise of autonomous vehicles that may eventually reshape how we travel… change is all around us. Yet, while technology has come a long way over the past few decades, the unfortunate reality is, for financial advisors, our technology solutions have lagged other industries.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I discuss how it has been the advisory industry itself that stifled its own #FinTech innovation, and how our industry’s structure and standard practices have caused advisor technology to lag so far behind other industries.

The first problem in the financial advisor marketplace is that we are incredibly fractured. By some estimates, anywhere from 80% to 90% of advisory firms are either fully or quasi-independent, which means that it is really hard for advisor technology firms to gain traction when they have to sell to each firm one at a time. Advisor tech firms do have the option of going through independent broker-dealers and custodians to try and reach a critical mass, but even then, the reality is that advisors aren’t forced to use new technology, so firms must still convince advisors that adoption is worth the time and hassle… which is not a strategy that generally leads to fast adoption!

This dynamic wouldn’t be so problematic if advisor tech firms had a good way to reach advisors en masse, but unfortunately, they don’t! The most logical way to try and do it is to reach advisors through conferences as an exhibitor, but even this isn’t feasible for most startups given the high cost of renting a booth at the typical advisor conference. Because the reality is that these startups must bid for booth space against huge financial product manufacturers (asset managers, insurance companies, etc.), which ultimately prices most startups out! And this dynamic is unfortunate not just because it means it’s more challenging to launch new advisor tech firms and develop great technology, but also because it fills exhibit halls with companies that sell through advisors (to reach our clients) rather than selling actual solutions to advisors, meaning that advisors have little interest in talking to most exhibitors anyway!

The last problem worth acknowledging is that enterprises, such as large broker-dealers and RIA custodians, arguably control too much of the development of advisor technology. That’s not to criticize these companies necessarily, but the reality is, they’re in the business of getting and investing client dollars, which means that software they help develop ultimately focuses too heavily on those activities (gathering assets and selling products) rather than real financial planning advice. Thus why financial planning software hasn’t developed great budgeting, cash flow, debt management, or dynamic retirement models; because ultimately, those are important for delivering advice, but not very relevant in gathering assets and selling financial products. Yet, to reach any level of scale, advisor tech companies have historically needed to work with these companies, but as they do, they become beholden to the enterprise companies focused on the old way of doing business, and innovation that would provide real planning value gets stifled.

The good news is that things are starting to change. Venture capital firms like Vestigo Ventures, which is specifically willing to fund startup advisor technology solutions, are beginning to emerge… companies are finding ways to grow through independent RIAs and pivot to enterprises and scale up… conferences are beginning to adopt more flexible exhibiting pricing that opens the doors to startup companies… and even some enterprises are becoming more flexible in their approach to advisor technology. But ultimately, the combination of these factors is why advisor technology has lagged, and we have not seen the technology growth that other industries have experienced.

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source https://www.kitces.com/blog/advisor-fintech-innovation-stifled-by-common-industry-practices/?utm_source=rss&utm_medium=rss&utm_campaign=advisor-fintech-innovation-stifled-by-common-industry-practices

Spring Budget 2017: Key Changes Affecting SMEs & the Self-Employed

Philip Hammond, Chancellor of the Exchequer, delivered his Spring Budget to the House of Commons today. https://www.youtube.com/watch?v=k9vaPqMX2zw If you missed it, you can watch and listen to the entire speech by clicking the video above. For those without 55 minutes to spare, we spotlight the key changes, particularly in relation to tax, National Insurance, the self-employed and small businesses.

• For the self-employed, Class 2 National Insurance Contributions (NICs) were already set to be abolished from April 2018. Today, to the surprise of many, the Chancellor announced that Class 4 NIC rates will increase from 9% to 10% from April 2018, increasing again to 11% in April 2019. The Chancellor said that this was to more closely align self-employed NI rates with those paid by employees, particularly in view of the new State Pension to which the self-employed will now have access.
• Tax-free dividends for those working through a limited company will also be reduced from the current £5,000 level to just £2,000 in April 2018. Corporation Tax will then be charged above that threshold. Again, the reason cited was to bring the self-employed more in line with employees in terms of tax paid overall.
• The National Living Wage, for those over 25, will increase to £7.50 per hour from April.
• From April this year, the personal allowance (the amount people can earn before paying income tax) will increase to £11,500 and to £12,500 by 2020. The threshold for higher rate tax will also increase from £43,000 to £45,000 this April.
• Up to £2,000 (tax-free) will be available towards the cost of childcare for children under 12 from April this year. So for every 80 pence you pay in childcare costs up to £10,000 maximum, the government will add a further 20 pence.
• Those lucky enough to be able to afford it will be able to save up to £20k maximum in their ISAs from this April. There will also be an NS&I bond introduced, which will pay 2.2% interest on a maximum of £3,000 per person.
• There will be help for businesses following business rate increases, particularly pubs, which will receive a £1,000 discount if their rateable value is less than £100k (apparently that's 90% of all English pubs). Also businesses coming out of 'small business rate relief' will be helped through the transition with a promise of increases no larger than £50 per month from next year.
• There will also be an expansion of the clampdown on tax avoidance where some businesses were converting capital losses into trading losses.

Other announcements made by the Chancellor

source http://www.taxfile.co.uk/2017/03/spring-budget-2017-key-changes-affecting-smes-the-self-employed/

Why Congress Should Allow Financial Planning Fees To Be Paid From A Retirement Account

Acknowledging the need for and value of professional guidance in the long-term management of investment assets, the Internal Revenue Code allows investment advisory fees to be deducted as IRC Section 212 deductible expenses. Additionally, tax law also allows for Section 212 deductible expenses to be paid directly from the retirement account which accrued the expense, without fear of being treated as a taxable distribution (potentially subject to early withdrawal penalties) or a “prohibited transaction” (which could otherwise disqualify the entire account). However, while the benefits of investment advisory services are implicitly acknowledged in current tax law, the same is not true of financial planning services; unfortunately, financial planning fees cannot be paid from a retirement account without triggering the aforementioned adverse tax consequences… even though they may be equally (if not more) important in helping someone accomplish their long-term financial goals!

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 why it’s problematic that financial planning fees can “only” be paid from after-tax accounts, the behavioral advantages of being able to pay financial planning fees from a retirement account instead, and explores how modifying current tax rules could allow more consumers to access financial advisors (while also creating better incentives for all advisors to be able to give advice that aligns with the clients’ best interests).

The reason why the source of financial planning fees matters is Shefrin and Thaler’s mental accounting framework, which finds that consumption is broadly divided into three buckets: current income, current assets, and future income (or the assets that support future income). We know from behavioral research that people treat these “buckets” of money differently, where certain purchases are more or less likely to occur from one bucket versus another (depending on the nature of the expense). When it comes to financial planning services in particular, which is generally associated with “long-term” planning, mental accounting alignment suggests that consumers would be most comfortable paying such expenses from the “long-term” (i.e., future income) bucket. However, as noted earlier, paying financial planning fees from a retirement account isn’t permitted… unless the financial planning services are bundled into a primarily-investment-management AUM fee, or a product commission paid with IRA dollars, which isn’t always feasible or desirable.

There are alternative options that could be considered for giving consumers more control over their future income assets, though. One simple solution is to allow consumers to write checks or transfer funds to licensed financial advisors directly from their retirement accounts, and make the expense permissible (without adverse tax consequences) as long as it’s paid to a (registered?) financial advisor. Other possibilities include giving consumers greater flexibility to roll money out of employer-sponsored retirement plans (similar to current HSA rules), or opening up paths for consumers to pay for services without rolling their funds out of employer-sponsored plans in the first place. Though, perhaps the simplest solution of all is to modify IRC Section 212 to recognize financial planning fees, which would both allow financial planning fees to be deductible when paid from an after-tax account, and also to be “safely” paid pre-tax from a traditional qualified account (perhaps with a complementary safe harbor under Section 4975 to make it clear that “comprehensive” financial planning fees are not prohibited transactions).

But ultimately, if the aim of tax policy is to facilitate better outcomes for consumers, it’s worth acknowledging that the current framework unintentionally exhibits poor behavioral characteristics by limiting the ability of consumers to pay for long-term financial planning advice from accounts that are ear-marked for long-term goals (or forcing those financial planning fees to be bundled with AUM fees or product commissions that may not be practical or feasible in all situations)!

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source https://www.kitces.com/blog/financial-planning-fees-from-ira-retirement-account-section-212-rule-change/?utm_source=rss&utm_medium=rss&utm_campaign=financial-planning-fees-from-ira-retirement-account-section-212-rule-change

6 Ways to Reduce Your Taxable Income

Famed baseball player Roger Maris once said “You hit home runs not by chance but by preparation.” If you haven’t already filed your taxes and want to hit a home run on your tax return this year and in the...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/6-ways-to-reduce-your-taxable-income-19272/

#FASuccess Ep 010: From Unpaid Intern to Advisory Firm CEO and Successful Succession Planning With Eric Hehman

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

My guest this week is Eric Hehman of Austin Asset, who over the past 20 years has completed an incredible journey from being an unpaid intern for the founder John Henry Montgomery when he was still a solo practitioner, to now becoming the successor owner and CEO of what is today a successful independent RIA with $750M of AUM.

In this podcast episode, Eric gives us some background about Austin Asset today and its incredible growth since he started working for the founder in 1997, from how the firm established itself as an early fee-only pioneer in the Austin area, to how it adapted its business model from standalone financial planning fees to charging on AUM (and why the firm still often charges separately for a financial plan as well), the way the firm develops its younger financial planner by having them work with smaller clients to gain experience and confidence, and the firm’s current structure today with 16 staff (including 12 CFPs) serving about 300 affluent clients.

What’s fascinating about this interview with Eric, though, is not simply the story of Austin Asset’s growth, but how its succession plan unfolded over time, as told from the perspective of the successor. Eric details why the founder was willing to sell him a 10% stake at just 1X revenue, how the founder transitioned his own role away from client relationships and out of management over time, and the way ownership and salary was transitioned to maintain the founder’s income at a steady level for a period of time.

And be certain to listen to the end, where Eric discusses what led him to ultimately write a book about his succession planning experience – aptly called Success and Succession – and why it is that notwithstanding the industry’s focus on the crucial financial and management transitions of a succession plan, it’s the emotional issues that ultimately drive (or can ruin) the outcome.

So whether you’re simply looking for ideas on how to grow a large financial planning firm, or are specifically looking for perspective on succession planning – as the founder, or the successor – I hope you enjoy this latest episode of the Financial Advisor Success podcast!

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source https://www.kitces.com/blog/eric-hehman-austin-asset-podcast-unpaid-intern-ceo-successful-succession-planning/?utm_source=rss&utm_medium=rss&utm_campaign=eric-hehman-austin-asset-podcast-unpaid-intern-ceo-successful-succession-planning

Mobile Filing: The Advantages of Filing on the Go

Life can become a balancing act when there seem to be a million little things on your to-do list. It’s no wonder that most tasks, from buying your groceries to applying for a job, can now be accessed and completed...

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source http://blog.turbotax.intuit.com/tax-tips/mobile-filing-the-advantages-of-filing-on-the-go-21423/

The Latest In Financial Advisor #FinTech (March 2017): Takeaways From The T3 Advisor Tech Conference

Welcome to the March 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!

In this month’s edition, we recap the recent Technology Tools for Today (T3) Advisor Technology conference – the best dedicated FinTech conference specifically for financial advisors. Overall, the major themes of the conference – most of which were highlighted in the opening keynote session by Riskalyze CEO Aaron Klein talking about the “Advisor of the Future” – include the ongoing shift of “robo” tools to serve as the technology automation infrastructure of an advisory firm’s back office (allowing the advisor themselves to spend more client-facing time than ever!), to the opportunities in using technology for lead generation and a prospect engagement tool (though it remains unclear whether most advisory firms have the marketing savvy and resources to use them effectively!). And Riskalyze’s own rapid growth in recent years seems to have boosted “risk tolerance assessment tools” into a highly competitive category of its own, with almost half a dozen competing tools represented at T3 Advisor (whereas 6 years ago, Riskalyze was one of only two!).

Other major conference highlights included:

• Riskalyze debuted a new Riskalyze “Premier” solution (with a new client dashboard and more digital account opening and onboarding tools)
• MoneyGuidePro highlighted the recent growth of its MyMoneyGuide Lead Gen solution, and a new study suggesting that clients may find virtual financial planning meetings less stressful
• eMoney Advisor announced its own new Lead Gen capture tool and more Advisor-Branded Marketing coming in Q2
• Schwab announces it will be integrating eMoney Advisor into OpenView Gateway, alleviating concerns eMoney would become a Fidelity proprietary product
• AdvisorEngine (fresh off its $20M round of capital and rebrand from Vanare) acquired advisor prospecting tool Wealthminder
• New client engagement tools, including a safe withdrawal rate illustrator (Big Picture App), and an advisor-specific solution to facilitate mind mapping in the data gathering meeting (Asset Map)
• The debut of two new risk tolerance assessment tools, Tolerisk and FinMason
• A software developer called Chetu that can work with financial advisors to build their own software solutions
• And the T3 Advisor Conference itself released the results of a major new survey of advisor software adoption (including both what’s popular, and how advisors actually rate the use of the software itself!).

You can view the analysis of these announcements, and more trends in advisor technology, in this month’s column, including highlights of the other T3 Advisor conference newcomers (from new robo tools, to software that helps clients maximize the yield on their “idle” bank accounts), how major custodians are responding with their own technology initiatives, and the emergence of new technology consults who can work with financial advisors to help them evaluate their own tech stack.

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 directly to TechNews@kitces.com!

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source https://www.kitces.com/blog/latest-financial-advisor-fintech-march-2017-t3-advisor-technology-conference-takeaways/?utm_source=rss&utm_medium=rss&utm_campaign=latest-financial-advisor-fintech-march-2017-t3-advisor-technology-conference-takeaways

Tax Tips for “The Sharing Economy”

How we perform our daily tasks and interact with one another is constantly changing. Many entrepreneurs and companies have been able to capitalize on these technology-driven opportunities, and have created a movement around sharing instead of owning. You may have...

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source http://blog.turbotax.intuit.com/self-employed/tax-tips-for-the-sharing-economy-21476/