News About IRS And Tax: August 2017

Wednesday 30 August 2017

New SEC Custody Rule Requirements For Advisors With Third-Party SLOA Authority

In an effort to provide premium service to clients, it’s common for financial advisors to be granted a standing letter of authorization – or “SLOA” – to enact money movements in and out of a client’s account. The use of SLOAs and other disbursement authorizations effectively allows advisors to act based on a client’s verbal requests, without “troubling” them for additional paperwork and signatures every time.

Yet the caveat is that while providing such conveniences is appealing from a client service perspective, from a regulatory perspective, the ability of an advisor to transfer money out of a client’s account – especially to a third party that isn’t the client – creates the risk that the advisor could abuse their authority. Accordingly, in this “age of Madoff”, the SEC has decided it’s necessary to issue additional compliance rules to protect consumers when it comes to advisors with standing letters of authorization (SLOAs) to make client disbursements.

In this guest post, Chris Stanley, a compliance consultant and the founding principal of Beach Street Legal, shares his perspective on the recent issuance of an SEC No-Action Letter, and supporting FAQ and IM Guidance Update 2017-01, which deems that advisors who have SLOA authority will be treated as having custody of client assets. Which means not only will those assets and accounts need to be reported for custody purposes on Form ADV, but those investment advisers who don’t comply with certain new safe harbor provisions will also be subjected to the requirement for an annual surprise exam under the custody rule as well!

Fortunately, the SEC will allow RIAs to continue to use SLOAs to support clients in limited (but still useful) circumstances, and provide additional guidance on how RIAs can avoid the custody rule if their only standing authorizations are for “first-party” transfers (i.e., moving money amongst accounts that are all the client’s, with the same account registration). Nonetheless, the reality is that most advisors will at least need to work with their RIA custodian to update account agreements and/or some of their SLOA paperwork with clients to remain compliant and avoid surprise exams under the custody rule!

Tuesday 29 August 2017

#FASuccess Ep 035: Investing In Your CRM And Your Team To Systematically Grow Your Advisory Business with Cheryl Holland

Welcome back to the thirty-fifth episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Cheryl Holland. Cheryl is the founder of Abacus Planning Group, a private wealth management firm located in Columbia, South Carolina, that manages more than $1B of assets under management for just over 200 affluent clients.

What’s fascinating about Cheryl’s firm, though, is the way that she has systematized the processes of the firm – in a way that actually helps them be even more high touch and customized for their clients. From automating workflows, tasks, and reminders of client needs, to building a templated meeting agenda for every client meeting that covers check-ins, celebrations, investment, financial planning, and administrative tasks, to refining an investment process around model portfolios with DFA funds, Cheryl’s firm has invested heavily in systematizing the business… and invested heavily into customizing Salesforce as their CRM to facilitate the process.

In this episode, Cheryl shares how her firm structures its blended AUM-plus-planning fee structure, why Abacus sets a minimum fee – rather than an asset minimum – in deciding which new clients to work with, why the firm decided to make a shift towards focusing on a niche of closely-held family businesses after already growing successfully for nearly 20 years, and how the firm markets with a combination of COI referrals, national board volunteerism, and client referrals, to drive its growth.

In addition, we talk about Abacus’ approach to reinvesting into its team – because as Cheryl puts it, “you can’t grow your firm if your people aren’t growing” – with everything from sending employees out to conferences, bringing in psychologists to teach active listening and empathy skills, management training classes for emerging leaders (including Cheryl herself!), and how every the Operations and Administrative team members at Abacus have a chance to take the Registered Paraplanner course and advance themselves in the firm.

And be certain to listen to the end, where Cheryl shares the two key advisory business books that she re-reads every year to advance the firm, how she decides when it’s time to make a change and evolve the firm and her role, and her advice to young women who are trying to grow their own advisory careers and manage the competing demands of work, home, and family.

So whether you’re curious about how to balance the dynamic between systematizing your firm’s processes and procedures without losing the sense of high-touch customization, or simply want some ideas of what, exactly, you might standardize, or are looking for ideas on how to deepen the training and education of the advisors (and emerging leaders) in your firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 28 August 2017

Are You a PTA Parent? That Volunteering May Just Pay Off

By volunteering – including the local school or PTA – you may have some surprise tax benefits waiting for you when you file your income tax return. The IRS allows you to deduct certain expenses incurred in connection with volunteer...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/are-you-a-pta-parent-that-volunteering-may-just-pay-off-31615/

How (New) Advisors Should Dress And The Dangers Of Countersignaling

A topic of increasing discussion amongst financial advisors is whether it’s truly necessary to dress up in order to attract and retain clients, and whether it might instead be better to adopt more casual attire – either because such attire makes it easier to connect with clients, or because some very experienced and successful advisors have adopted such wardrobes, seemingly with no negative impact on their success. But the reality is, just because a more casual style may work for seasoned and successful advisors, does not mean that it will work for all advisors.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – explores the concept of “countersignaling” and what the research shows are the implications it may have for the decision to dress down – particularly amongst younger and newer advisors.

In economics, signaling refers to the ways in which we try to convey information to another party under conditions in which credible communication is difficult. For instance, when meeting with a prospective client, financial advisors may need to engage in certain forms of signaling in order to demonstrate their competency (e.g., becoming a CFP professional), since all advisors trying to win over a prospect would have an incentive to claim they are competent, regardless of their true level of knowledge. By contrast, countersignaling is a strategy which refers to ways in which we may try and demonstrate an even higher level of status by not signaling (e.g., a mid-level student may eagerly attempt to answer an easy question in class, while a high-level student may not, as a signal that their knowledge surpasses the point at which they would take pride in answering such a question).

In an attempt to explain such countersignaling behavior, prior research has used game theory to demonstrate why signaling can be an effective strategy for mid-level individuals with regard to some characteristic (to demonstrate they are not low-level, and to hopefully be perceived as high-level), while countersignaling may actually be more effective for high-level individuals (as they are unlikely to be mistaken as low-level, and signaling could actually give the perception they are mid-level). And this dynamic may have direct implications for the decision to dress down as a financial advisor, as it could be the case that dressing down actually increases the status of an experienced and successful advisor, while dressing down might decrease the perceived status of a young and inexperienced advisor.

Of course, this doesn’t mean that it isn’t still wise to consider other factors, such as a particular client niche (and their typical dress/attire), when deciding whether or not to dress down. But given that many people prefer to not dress up, advisors – and particularly those who are young and inexperienced – should be careful not to skip out on opportunities to signal credibility to prospective clients, and be especially cognizant of the fact that just because seasoned advisors can dress down successfully, does not mean that young and inexperienced advisors can, too!

Saturday 26 August 2017

Is This Deductible? Adopting a Pet

Ever wondered if you could get some tax savings from being a pet owner? Let me tell you about the financial benefits of being a foster parent

source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/is-this-deductible-adopting-a-pet-18124/

Friday 25 August 2017

New School Year, New Gear? Don’t Just Toss Your Old Gear When You Can Donate

Have your kids outgrown last year’s school clothes? Are they clamoring for the latest backpacks and school supplies? If so, you’ve probably been shopping for back to school clothes and supplies in recent weeks. Which may leave you wondering what...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/new-school-year-new-gear-dont-just-toss-your-old-gear-when-you-can-donate-31623/

Weekend Reading for Financial Planners (Aug 26-27)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with an interesting new advisor survey on the Department of Labor’s fiduciary rule, which finds that despite the claims of Wall Street lobbying firms that “small investors” will be abandoned if the fiduciary rule fully takes effect, only 3% of financial advisors themselves actually agree with the statement that they’ll stop providing advice on qualified retirement accounts in a fiduciary world!

From there, we have a number of articles on the topic of health insurance and health care planning this week, including a look at the rise of “direct primary care” providers who simply charge an ongoing monthly fee (and accept no insurance) for a primary physician with easier access and shorter wait times for an appointment, the rise of “concierge medicine” and private doctors that work directly to provide holistic medical advice for a wealthy family, a new platform for advisors called “HealthStyles.net” that can be provided to clients to help them get more educated on health care issues, and another new software solution called “Whealthcare” for advisors who want to get even more involved in supporting and better analyzing the intersection of a client’s financial planning and health care needs (a substantial opportunity to add value as investment management becomes commoditized).

We also have several investment-related articles, including a look at the increasingly controversial practice of order routing rebates from market exchanges to broker-dealers, a potential pilot program from the SEC to shift away from the current “maker-taker” structure of setting markets, the opportunity (and underutilization) of securities-based lending revenue to offset most or all of the expense ratio of ETFs, and the prospective rise of performance-based fees in mutual funds as a way for fund managers to differentiate their pricing and better align their compensation with the interests of their mutual fund shareholders (though it remains to be seen whether investment managers will actually be willing to adopt the practice!).

We wrap up with three articles focused on the evolving role of the financial advisor itself: the first reviews a recent Boston Consulting Group study that suggests as technology continues to expedite the administrative tasks of financial advisors, that we’ll be increasingly forced to deliver more sophisticated advice, and need more in-depth formal education to substantial our value; the second is a look at the rise of financial coaching, and the emergence of training programs for those who want to be financial coaches and financial therapists (and whether financial planners should be engaging in such training programs themselves); and the last is a look at how the generational shift in financial planners themselves, from the “founding” Baby Boomer generation of advisors to the Millennials, is creating a significant shift in the vision of what it means to be a financial planner in the first place, and is driving a growing number of young financial planners to strike out on their own to create new firms that disrupt the incumbents… exactly as the prior generation of Baby Boomer financial planners did 20-30 years ago!

Enjoy the “light” reading!

Thursday 24 August 2017

How Do I Amend My Previous Quarterly Estimated Tax Payment?

Millions of people make quarterly estimated tax payments during the year in lieu of income tax withholding. Learning about quarterly estimated tax payments is a rite of passage for any self-employed business owner. If you are required to pay tax...

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source https://blog.turbotax.intuit.com/self-employed/how-do-i-amend-my-previous-quarterly-estimated-tax-payment-31613/

How the Fiduciary Movement Became a Global Phenomenon

While the fiduciary debate has become heated in the US in recent years, from the Department of Labor’s fiduciary rule, to the potential that the SEC will take up its own fiduciary rule, and the latest proposed revisions to the CFP Board’s fiduciary Standards of Conduct, the reality is that the recent fiduciary proposals are not an isolated case. In fact, the movement to applying a fiduciary standard to financial advisors is a global phenomenon over the past decade, for which the fiduciary proposals in the US have actually been mild by comparison to many other countries that have outright banned commissions altogether!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the major fiduciary movement that is occurring globally, how fiduciary proposals have rolled out in other countries (including the U.K., Australia, India, and the Netherlands), as well as the industry shifts that commonly happen after a new fiduciary rule is implemented, and the role that technology has played in fueling this global movement.

First and foremost, though, it is important to acknowledge that the movement to apply a fiduciary duty to financial advisors is truly is a global movement. India was one of the first countries to take action, banning upfront commissions on open-ended mutual funds all the way back in 2009. Australia followed with their Future Of Financial Advice (FOFA) reforms in 2012, which ultimately led to a ban on investment commissions as well. Similarly, the United Kingdom in 2013 implemented their Retail Distribution Review (RDR), which similarly led to a ban on investment commissions in the U.K., and the Dutch implemented a commission-ban that year as well. And in most countries, regulators gave the financial services industry only 12-18 months to prepare for the reforms. Which makes the recent DoL fiduciary proposal in the US, and its extended transition period, seem “mild” by comparison!

The fact that fiduciary rules have been implemented in other countries also gives us the opportunity to see the likely fallout that occurs when financial advisor regulation changes. The common trend in most countries has been that, after adopting new fiduciary rules, the headcount of “financial advisors” appears to decline between 10% and 30%. Notably, though, the individuals who leave appear primarily to be not bona fide financial advisors, but simply those who wrote “Financial Advisor” on their business card, but acted solely as a salesperson… and simply decide they don’t want to actually be responsible for giving financial advice, once the investment commissions are no longer available! Which ironically just leaves even more opportunity for the actual financial advisors who remain behind!

With the fiduciary trend occurring on a global basis simultaneously, one might wonder what it is that has led so many countries to implement fiduciary rules in quick succession. The answer, in a world, appears to be: technology. Because around the world, the rise of the internet has made it easier and easier for consumers to access the financial products they want and need directly, without a financial advisor to sell it to them (and earn a commission)… which makes consumers begin to ask “why am I paying a financial advisor for a product I could buy online anyway?” And forcing advisors to actually begin to give bona fide advice, and not just the “advice” necessary to sell a product. In turn, the rise of financial advisors actually focusing on giving advice makes the fiduciary rulemaking a natural outcome. Because when the majority of advisors actually focus on advice, what standard could possibly apply to advice besides one that requires the advice to be in the best interests of the consumer receiving the advice!?

Ultimately, though, the key point is simply to recognize that as technology commoditizes financial products and increasingly forces advisors to focus on truly giving advice, fiduciary rules to hold that advice accountable to an appropriate standard are inevitable… and thus, the fiduciary movement has quickly become a global phenomenon. Which means our battle over the DoL fiduciary rule is not merely some esoteric isolated debate going on here in the U.S… as the fiduciary movement is impacting consumers and advisors worldwide!

Wednesday 23 August 2017

Why Paying Yourself 5% Interest On A 401(k) Loan Is A Bad Investment Deal

Borrowing money has a cost, in the form of loan interest, which is paid to the lender for the right and opportunity to use the borrowed funds. As a result, the whole point of saving and investing is to avoid the need to borrow, and instead actually have the money that’s needed to fund future goals.

A unique feature of a 401(k) loan, though, is that unlike other types of borrowing from a lender, the employee literally borrows their own money out of their own account, such that the borrower’s 401(k) loan repayments of principal and interest really do get paid right back to themselves (into their own 401(k) plan). In other words, even though the stated 401(k) loan interest rate might be 5%, the borrower pays the 5% to themselves, for a net cost of zero! Which means as long as someone can afford the cash flows to make the ongoing 401(k) loan payments without defaulting, a 401(k) loan is effectively a form of “interest-free” loan.

In fact, since the borrower really just pays interest to themselves, some investors have even considered taking out a 401(k) loan as a way to increase their investment returns, by “paying 401(k) loan interest to themselves” at 5% instead of just owning a bond fund that might only have a net yield of 2% or 3% in today’s environment.

The caveat, though, is that paying yourself 5% loan interest doesn’t actually generate a 5% return, because the borrower that receives the loan interest is also the one paying the loan interest. Which means paying 401(k) loan interest to yourself is really nothing more than a way to transfer money into your 401(k) plan. Except unlike a traditional 401(k) contribution, it’s not even tax deductible! And as long as the loan is in place, the borrower loses the ability to actually invest and grow the money… which means borrowing from a 401(k) plan to pay yourself interest really just results in losing out on any growth whatsoever!

The end result is that while borrowing from a 401(k) plan may be an appealing option for those who need to borrow – where the effective borrowing cost is not the 401(k) loan interest rate but the “opportunity cost” or growth rate of the money inside the account – it’s still not an effective means to actually increase your returns, even if the 401(k) loan interest rate is higher than the returns of the investment account. Instead, for those who have “loan interest” to pay to themselves, the best strategy is simply to contribute the extra money to the 401(k) plan directly, where it can both be invested, and receive the 401(k) tax deduction (and potential employer matching!) on the contribution itself!

Tuesday 22 August 2017

#FASuccess Ep 034: Becoming An Advisor and #FinTech Software Entrepreneur While Running Your Own Advisory Firm with Sheryl Rowling

Welcome back to the thirty-fourth episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Sheryl Rowling. Sheryl is the founder of Rowling and Associates, an independent advisory firm in southern California that manages more than $300 million of assets under management, and provides a combination of investment management, financial planning, and tax preparation services for clients.

What’s unique about Sheryl, though, is not simply that she’s built a successful advisory firm with a team of 12, but that in an effort to try and make her firm’s investment management process more efficient, she decided to create her own rebalancing software… and then sell it to other financial advisors as the software solution we now know to be Total Rebalance Expert, or TRX, which was subsequently acquired just a few years ago by Morningstar.

In this episode, Sheryl talks about what it was like building a technology firm (while running her advisory firm as well!), how building an advisor technology firm differs from building a traditional advisory firm, the challenging demands of needing to iterate rapidly in a competitive software landscape, and the personal toll that it takes in trying to simultaneously run both an advisory firm and an advisor technology firm at the same time.

In addition, we talk in depth about the structure of Sheryl’s CPA financial planning firm, why they decided to offer – and charge separately – for tax preparation services in addition to financial planning, the core technology stack of MoneyGuidePro, Junxure CRM, and PortfolioCenter (bundled, of course, to TRX for rebalancing) that she uses to operate the firm, and how she positions her comprehensive financial planning offering to her clients as “we answer every financial question you have, and the ones you don’t even know to ask!”

And be certain to listen to the end, where Sheryl discusses her “As If” rule to decide what to focus on and how to build her ideal practice, and the newest solution she’s launching for fellow financial advisors, to purchase her investment team’s model portfolios and due diligence research for a flat annual fee – which, you can then implement in your own rebalancing software, but without the AUM fees of a full-blown TAMP provider.

And so whether you’re looking for fresh perspective on a comprehensive financial planning firm with a strong tax focus, or have ever wondering specifically what it takes to launch an advisor technology solution “on the side”, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 21 August 2017

Real Talk: I Missed the Estimated Tax Deadline. What Should I Do?

Life gets busy when you’re running your own business. If you missed the estimated tax deadline, don’t worry. At least you’re conscious of the date and you know that estimated taxes exist. If the date passed you by, here are...

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source https://blog.turbotax.intuit.com/self-employed/real-talk-i-missed-the-estimated-tax-deadline-what-should-i-do-31625/

8 Organizational Apps to Get You Ready for the New School Year

With the new school year approaching (and some places already started!), it’s time to make a mental shift and get back into college mode. Between the multiple overlapping deadlines for papers, prepping for huge exams, and setting up a meeting...

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source https://blog.turbotax.intuit.com/tax-planning-2/8-organizational-apps-to-get-you-ready-for-the-new-school-year-31581/

Comment Letter To CFP Board On Its Proposed Fiduciary Standards Of Conduct

In December of 2015, the CFP Board announced that it was beginning a process to update its Standards of Professional Conduct for all CFP certificants, the first such update since the last set of changes took effect in the middle of 2008. And on this past June 20^th, the CFP Board published proposed changes (including an expanded fiduciary duty) to its Standards of Conduct, with a public comment period that would last until August 21^st.

And so as the CFP Board’s Public Comment period closes today, I have published here in full my own comment letter to the CFP Board. And as you will see in the Comment Letter, I am overall very supportive of the CFP Board advancing the fiduciary standard of care for CFP professionals, and view this as a positive step forward for the financial planning profession.

However, the CFP Board’s proposed changes do introduce numerous new questions and concerns, from key definitions that (in my humble opinion) still need to be clarified further, to new wrinkles in what does and does not constitute a fee-only advice relationship (and whether and to what extent certain types of compensation must be disclosed), to uncertainties about how CFP professionals are expected to navigate important conflicts of interest, and how CFP professionals should interpret the 29(!) instances where the CFP Board’s new standards are based on “reasonableness”… with no explanation of how “reasonable” is determined, and a non-public CFP Board Disciplinary and Ethics Commission that doesn’t even allow CFP professionals to rely on prior case histories for precedence.

Ultimately, I am hopeful that the CFP Board will end up moving forward with its proposed changes to expand the scope of fiduciary duty for CFP certificants, but only after publishing another round of the proposal for a second comment period, given the substantive nature of both the changes themselves, and the concerns that remain.

In the meantime, I hope you find this public comment letter helpful food for thought. And if you haven’t yet, remember that you too can submit your own Public Comment letter to the CFP Board by emailing Comments@CFPBoard.org – but today (August 21^st) is the last day to submit!

Friday 18 August 2017

Weekend Reading for Financial Planners (Aug 19-20)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a slew of announcements about major broker-dealer mergers and acquisitions, including LPL acquiring National Planning Holdings (and its four subsidiary broker-dealers) from Jackson National, Kestra acquiring H. Beck from Securian and Minnesota Life, and Cetera folding in Girard Securities from being an independent subsidiary broker-dealer into a regional super-OSJ instead… a sign that as DoL fiduciary implementation looms large, broker-dealers are feeling the pressure to merge for economies of scale, and insurers are simplifying their distribution by eliminating their captive broker-dealers altogether!

We also have several compliance-related news and articles this week, including the SEC’s latest Risk Alert regarding the results of its Cybersecurity initiative for broker-dealers and RIAs, a separate announcement from the SEC that RIAs can delay some of the new Form ADV updates if they have any intra-year amendments to make after October 1st (though all RIAs will still need to comply when annual ADV season rolls around next spring!), and a look at what RIAs need to remember when hiring a new (experienced) advisor and going through the registration and compliance process of onboarding.

There are also a few advisor technology articles, including a look at the new technology initiatives rolling out from the leading RIA custodians as “advisor FinTech” becomes the primary differentiator for custodians, a look at the latest updates of the Capitect client portal (and increasingly, performance reporting and rebalancing) software, and a review of the Folio Connexion (AcX) platform that advisors can use to create their own white-labeled “robo-advisor-for-advisors” solution.

And given the summer vacation season, we wrap up with three articles all focused on how to better maximize your own vacation enjoyment: the first looks at whether a mandatory scheduled vacation policy is better than a flexible or open vacation policy when it comes to actually boosting employee creativity, productivity, and happiness; the second looks at why a 2-week vacation isn’t actually any better than a 1-week vacation when it comes to boosting happiness; and the last provides some (research-backed) tips and tactics about how to actually maximize the happiness of your vacation experience… for those who still have a little summer vacation left, or perhaps are already beginning to look forward to their winter holiday vacations instead!

Enjoy the “light” reading!

Thursday 17 August 2017

Back to School Series: Money Lessons for College Freshmen

The new year is here for college students! If you’re a freshman, getting adjusted to your new life may feel overwhelming. But with new beginnings come new opportunities, like getting smart about your finances now to build up your wealth in the...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/education/back-to-school-series-tax-lessons-for-college-freshmen-24072/

Integrating Advisory Fee Schedules & Billing During A Merger Or Acquisition

There are many challenges in navigating a successful advisory firm merger or acquisition, from ensuring that the firms align on investment, financial planning, and service philosophies, to finding an agreeable valuation and terms to the transaction, and navigating the post-transaction integration process. Yet in practice one of the biggest blocking points is simply figuring out how to effectively align the advisory fee schedules and fee calculations of the two firms – for instance, when one advisory firm charges substantially more or less than the other – to the point that one of the biggest blocking points of an otherwise-well-aligned merger or acquisition is simply whether it’s feasible to integrate their billing processes (especially when the firms have differences in their underlying business model, such as an AUM firm acquiring a retainer-fee firm).

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the major issues to consider when integrating advisory fee schedules and billing processes, from strategies to adjust when one firm has an advisory fee schedule that charges more (or less) than the other, to reconciling differences in billing timing (i.e., billing in advance versus in arrears), and the unique acquisition problems that arise when trying to acquire retainer-fee firms.

For most, though, the biggest challenge is simply reconciling differences in fee schedules between the two firms. In situations where the acquirer charges more than the firm being acquired, there’s typically a desire to lift the newly acquired clients up to the fee schedule of the existing firm – which can make the transaction a strategically positive deal for the acquirer, if it can generate more revenue from the same clients, but also increases the risk that clients will reject the new fee schedule and not transition at all (which means it may be a good idea to leave the original fee schedule in place for a year or two, to allow clients the time to adjust, and build a relationship with the new firm). On the other hand, when the acquirer charges less than the firm being acquired, it gets even messier, as if the acquirer pays “full price” for the new firm’s revenue and then immediately cuts their fee schedule, the acquirer faces a substantial loss on the transaction (unless they can bring down costs in the merger business by even more than the loss in revenue!).

Even where advisory firms reasonably align on fee schedules, though, it’s also necessary to consider whether they have the same billing timing – in particular, whether both firms consistently bill in arrears or in advance. Because differences between the two firms in their billing process can lead to substantial disruptions in cash flow for either the acquirer, or the newly acquired clients! After all, if the acquirer needs to switch the new firm from billing in advance to billing in arrears, the firm could be forced to wait up to six months without receiving any new revenue from the new clients! And if the acquirer needs to switch in the other direction – from billing in arrears to billing in advance – then the first invoice to the clients may have to be a “double-billing” of the last arrears fee and the first advance fee all at once (which increases the transition risk for the acquiring firm!). In fact, even differences in the billing calculation process – such as when one firm bills on end-of-quarter balance, and the other uses average daily balance – can create billing gaps between expected and actual revenues!

And of course, this all assumes that both the acquiring and selling firms were both charging AUM fees in the first place. In the case where the acquiring firm charges AUM fees but the acquired firm charged retainers, it can be even more challenging to transition the retainer clients onto the AUM firm’s fee schedule (especially since many retainer-based firms proactively “sell against” the disadvantages of AUM fees, which effectively chases away potential buyers who may want to convert the business to their own AUM fee schedule). In turn, this means the marketplace of potential acquirers for retainer fee firms is drastically smaller, and retainer fee firms may have more difficulty finding an acquirer that will pay them a “fair” price – particularly for firms that charge retainer fees to clients who do have assets and “could” pay AUM fees (as the situation is different when using retainer fees to serve younger clients, or other “non-AUM” types of clientele).

Ultimately, though, the key point is simply to recognize how important differences in advisory fee schedules and billing processes can be when you’re looking at a potential merger or acquisition. As a result, doing detailed due diligence on advisory fee schedules is crucial. In particular, advisors should be evaluating any differences in the level of fees charged to clients, the timing of those fees, how those fees are calculated, and whether two firms have fundamentally different approaches to billing altogether. Of course, fee schedules don’t need to be identical in order to successfully navigate a merger, but approaching a merger with a clear understanding of the potential risks and opportunities involved is crucial!

Wednesday 16 August 2017

How The Human-to-Human Connection Helps Facilitate Positive Behavior Change

As financial advisors, we understand that one of the most important (and difficult) things we can do for our clients is help facilitate positive behavior change. And not just change that keeps clients from doing “bad” things (like selling at a market bottom), but also change that enables them to do “good” things (like saving more for retirement).

Unfortunately, behavior change is hard, but the good news is that the difficulty of enacting behavior change also means it is one of the most valuable things we can do as financial advisors. And the human-to-human connection – and the social commitments we feel – provide some powerful incentives to enact behavior change… which means financial advisors serving as an “accountability partner” to their clients have the potential to drive more successful behavior change than what clients can do on their own.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – analyzes some existing research in the contexts of weight loss and alcoholism to explorer the power of the human-to-human connection in holding us more accountable (than we can be to ourselves alone) to accomplish our goals and behavior our behavior.

In other words, the unique power of the human-to-human connection means clients can achieve better behavior-change outcomes with a financial advisor than they may be able to achieve by themselves or through the use of technological tools. Because when a human is involved, we often have few options for totally avoiding the unfavorable perceptions we think others may have about us if we don’t follow through on our goals… which can be highly motivating. In the case of technology, while it may provide useful behavior change reminders… we can always just turn off the technology, and feel very little guilt. But it’s far harder to just “turn off” an existing relationship with another person.

Of course, this still doesn’t mean that enacting behavior change is easy. It is very difficult, but by acknowledging the social pressure that exists within an advisor-client relationship, we can use strategies – such as setting clear action items for clients based on “SMART” criteria, and encouraging clients to leverage social forces in contexts outside of the advisor-client relationship – to can help clients improve their financial well-being. Ultimately, we human beings are herd animals, and as financial advisors we should keep that in mind as we develop strategies to help clients achieve their financial goals!

Tuesday 15 August 2017

VAT Clampdown for UK Sales on eBay & Amazon

VAT on eBay & Amazon Fees - all Change for UK Sellers

According to a website¹ run by a campaigning group of UK eBay and Amazon business sellers, HMRC and UK traders lost out on £27 billion in sales revenue and taxes from such online marketplaces over the last three years alone. The group has campaigned for some time against over-leniency by HMRC towards overseas traders, particularly from China, who have not been charging VAT on products, despite those products being located (often via UK fulfilment houses) and supplied within the UK. Moreover, the overseas sellers' volumes are also often well over the threshold for registering for VAT if selling from inside the UK, yet many have continued to flout the law and seem to have been getting away with it for a considerable time. That hurts both HMRC in terms of lost VAT and tax revenue, as well as making it difficult for compliant UK sellers to compete against competitor prices that seem ‘too good to be true’.

“This abuse has grown significantly and now accounts for £1 - 1.5bn of the total VAT gap. These overseas traders are unfairly undercutting all businesses trading in the UK, abusing the trust of UK consumers and depriving the government of significant revenue.” ^{(Source: David Gauke MP, Chief Secretary to the Treasury, 16th March 2016).}

Levelling the Playing Field

However, following new changes that came into effect on 1st August, that is now starting to change. While it's not yet a perfect system to fight VAT fraud in online marketplaces and level the playing field for legitimate UK businesses, it is at least a start. Genuine private sellers using the platforms will, though, see a small increase to their costs in the form of VAT now being levied on eBay and Amazon fees, but hopefully it's a small price to pay to make for a more fair, and legal, system overall.

VAT Changes Starting This Month

As part of the March 2016 Finance Bill delivered by then Chancellor George Osborne, UK individuals selling on eBay will begin paying VAT on eBay charges, starting on the 1st of August (2017). The VAT rate will be the standard 20% rate and will be automatically charged on eBay fees to UK sellers who have not registered as business sellers with the company. It may at first seem odd to target non-businesses, but actually this is a way to force the likes of Amazon and eBay to put pressure on those who have not registered with them as businesses when, in many cases, they should have. Such online marketplaces will also potentially become liable for the outstanding VAT on products actually sold if they do not take measures to counter (or remove) non-compliant overseas sellers.

“HMRC will also be given new powers to make online marketplaces jointly and severally liable for the unpaid VAT of overseas businesses who are non-compliant with UK VAT rules and using their platforms to sell through ... These measures will provide HMRC with the tools necessary to tackle the overseas businesses who do not comply with UK VAT rules and help level the playing field for all businesses.” ^(Source)

Those businesses operating within the UK will need to properly register as business sellers, in which case they will generally also need to account for VAT as a business if their taxable turnover is above the VAT threshold of £85,000 (or £70,000 if 'distance selling' into the UK) over the course of a year. UK eBay sellers, and overseas sellers supplying/fulfilling orders completely within the UK, will now

source http://www.taxfile.co.uk/2017/08/ebay-amazon-vat-clampdown/

#FASuccess Ep 033: Building An Online Marketing Machine That Takes Over Your Advisory Business with Jeff Rose

Welcome back to the thirty-third episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Jeff Rose. Jeff is the founder of Alliance Wealth Management, a solo financial planning firm with just one support advisor that oversees more than $40 million in client assets in Carbondale Illinois, a rural town of just 5,000 people.

What’s fascinating about Jeff’s advisory business, though, is not just that he’s been able to successfully grow his firm in an area with a far more limited natural market than being in a dense metropolitan city, but that recognizing the constraints of his local geography, Jeff decided to develop an online blogging strategy to get more prospects. And after 9 months of toiling away with nothing to show for it, he landed his first “digital” client – a widow with $2M who had simply Googled “certified financial planner in Illinois” – and become obsessed with digital marketing. Nearly 10 years later, Jeff’s online marketing efforts have been so successful, he’s generating more than $100,000 per month in revenue from his online efforts, and is powering leads not only to his own advisory firm, but is also providing a high volume referrals to an outside insurance business for people who just need term insurance, as well as referring additional prospects to a number of other financial services firms as well.

In this episode, Jeff talks about how he built his digital marketing platform, the setbacks he’s had along the way, and how it powers his advisory firm, which he has made so efficient that he’s able to spend only 1-2 days per week to keep it running, with a combination of Redtail CRM, Blueleaf, InStream Wealth, and Slack, while he continues to leverage his blogging platform to grow new revenue streams.

And be certain to listen to the end, when Jeff talks about the major move he’s about to make – literally, moving over 150 miles away from his own advisory firm – where he goes for inspiration and new ideas, and why, despite or perhaps because of his financial success, his primary focus is now on getting even more efficient about the work that he does, so that he can spend more time with his four kids as well.

And so whether you’ve been curious to know what it takes to successfully build a blog and digital marketing presence that generates new clients, or want to see how success online can bring new opportunities beyond just the advisory business alone, or simply want a glimpse into a hyper-efficient solo advisor’s firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 14 August 2017

How Social Security Income is Taxed

Not everyone has to pay taxes on their Social Security benefits. To see if your Social Security will be taxed, you have to look at your *combined income and your marital status. Find out more here.

source http://blog.turbotax.intuit.com/income-and-investments/how-social-security-income-is-taxed-7676/

Self-Publishing Your Own Book As A Financial Advisor In 6 Months

In an increasingly competitive landscape of nearly 300,000 financial advisors, it’s hard to stand out and differentiate by simply providing great service and offering comprehensive financial planning advice. For more and more advisors, the path to differentiation is by pursuing some kind of niche or specialization… but even then, it’s still difficult to prove that you’re a “recognized expert”… even for those who have been working in a niche for an extended period of time.

One effective way to communicate and “prove” an advisor’s expertise is by publishing your expertise in the form of a book – to literally be the one who “wrote the book” on the subject! Unfortunately, though, for most advisors the idea of writing a book is truly daunting. Successful advisors are already busy enough as it is, and those who don’t have the level of success they want need to spend more time trying to find new clients. How does anyone possibly find the time to write an entire book… especially if you’re not naturally a skilled writer?

As it turns out, though, there is a method to writing a book as a busy professional (even if you’re not writing-inclined to begin with!). In this guest post, Zach Obront of Book In A Box shares some of his own thoughts, tips, and best practices for financial advisors who are interested in writing and publishing their own book, including a detailed timeline of the process, as well as the costs associated with each step. Because it turns out an advisor can publish their own book in “as little” as about 6 months of time, and under $6,000 of outsourced help on everything from interviewing, writing assistance, editing, layout, and design!

And the path is particularly appealing for financial advisors, as the reality is that for clients that pay ongoing revenue for ongoing financial planning services, it can take as little as one or two clients to more than recover the entire investment cost to create your own book. In fact, the upside business potential of generating “just” another 1-2 leads per month, and improving your close rate by 10%, is so significant, that most financial advisors will profit far more by getting clients from publishing a book than they will ever get in book sales anyway. Which means it’s actually quite effective to simply give the book away for free – a glorified business card that can instantly establish your credibility as an expert!

The bottom line, though, is simply to recognize that the process of writing a book is not nearly as daunting as most fear… as long as you know how to break it up into manageable pieces, and outsource the tasks that are outside of your expertise (as the truth is that there are ample freelancers available for you to hire to help with every step of creating your own financial advisor book!). So if you’ve been thinking about writing a book for some time, or are just curious to explore new marketing ideas for demonstrating the unique value you provide to clients, I hope that you find this guest post from Zach to be he helpful!

Friday 11 August 2017

Who Can I Claim As a Dependent?

The question “Who can I claim as my dependent?” has remained a confusing topic for many taxpayers and an area where tax deductions are often missed or misstated on tax returns. Did you know you may be able to claim...

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source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/family/who-can-i-claim-as-a-dependent-7658/

Weekend Reading for Financial Planners (Aug 12-13)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the Department of Labor’s announcement that it is working on a new delay proposal for the full implementation of the fiduciary rule, that could extend the current transition period by as much as 18 months to July of 2019… though it remains unclear what legal basis the DoL has for postponing full implementation so much further, and whether OMB will actually approve its proposal.

In the meantime, DALBAR’s Lou Harvey has proposed a new “Seller’s Exemption” that would make it easier for salespeople to avoid the fiduciary rule – on the condition that they do not provide any actual advice, nor hold out to the public as “advisors” – and given that the delay would still just delay full implementation (but not repeat the fiduciary rule itself), we also feature coverage on what procrastinating advisors should do to get caught up on their upcoming DoL fiduciary compliance obligations.

From there, we have several practice management and personal productivity articles, including: how to achieve a state of “Flow” and peak productivity; the ways that we as financial advisors sometimes sabotage our own growth as we try to change our businesses to better fit our own lives; what to focus on if you’re a “reluctant manager” who just wanted to serve clients but now increasingly find yourself in a managerial role with your advisory team; common conversational traps that advisors fall into with clients; why it’s crucial to understand your financial planning “weaknesses” and limitations on your technical knowledge (and don’t say you’re “comprehensive” when you’re really not!); and a reminder that financial planning can take an emotional toll on us as advisors, which means it’s especially important to have strategies to manage your own stress!

We wrap up with three interesting articles, all looking at emerging trends in the advisory landscape: the first looks at whether advisory firms need to stop focusing on increasingly commoditized investment (and even comprehensive financial planning) advice, and instead try to figure out how to expand their services to also include solutions their clients more proactively seek out; the second examines the aftermath of the “new” fiduciary rules (and outright commission bans) that rolled out in the UK and Australia in the past 5 years, which ultimately did not disrupt financial advisors (but did force them to shift their business models); and the last is an interesting look at whether the new term for advice-centric advisors to differentiate themselves is to not just be “fee-only” but to be an “advice-only” fee-for-service advisor, where by definition the only thing the client pays for is the advice itself (and nothing else)!

Enjoy the “light” reading!

Thursday 10 August 2017

Back-to-School: Education Tax Benefits to Offset Education Costs

College is expensive. If you are looking for a way to offset some of your education costs, the government offers some tax credits and deductions designed to help students and their parents.

source http://blog.turbotax.intuit.com/tax-deductions-and-credits-2/education/back-to-school-education-tax-benefits-to-offset-education-costs-11119/

Why Broker-Dealers Launching Robo-Advisors Are Missing The #FinTech Point

Broker-dealers launching their own “robo-advisor-for-advisors” solutions for their reps has been a growing and accelerating trend. From prior announcements like the LPL deal with FutureAdvisor after Blackrock bought them, to Voya stating that they are looking to acquire a robo-advisor solution, and this week Kestra Financial announcing that it is working on a robo solution in the coming year as well. Yet the irony is that even as broker-dealers increasingly hop onto the “robo tools” bandwagon, they may actually be the worst positioned to capitalize on the trend, especially if their goal is to increase their volume of next-generation Millennial clients for their reps!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why broker-dealers are missing the point by launching “robo” solutions, how broker-dealers will struggle to gain any traction with Millennials – even with a robo-advisor – because of their digital marketing woes, and why broker-dealers should really be framing “robo solutions” as simply an upgrade to their entire technology stack instead!

Given the popular notion that “robo-advisors” are an effective means to grow a Millennial client base, it’s certainly understandable that broker-dealers want to pursue “robo” solutions. After all, the reality is that while the average advisor may simply be able to keep working with affluent retirees until the advisor themselves retires, broker-dealers are going-concern businesses that must focus on the long run – and recognize that eventually, the coming shift in generational wealth (as Baby Boomers pass away and bequeath assets to their Millennial children) means that they must find a way to grow their Millennial client base. And for the average broker-dealer rep who struggles to efficiently serve small accounts, who wouldn’t want a “robo” solutions where clients can come to the broker’s website and sign up and onboard themselves?

Yet the truth is that robo-advisor tools don’t actually attract Millennial clients. At best, they’re a highly efficient means to onboard and manage a Millennial client’s account, but the firm must still figure out how to market and attract Millennial clients in the first place. Which has been a challenge even for the most established robo-advisors, as companies like Betterment and Wealthfront have only averaged $1B to $2B per year in net new asset flows (and even then at “just” a 25bps price point!), and even the more eye-popping growth of Schwab Intelligent and Vanguard Personal Advisor Services has been driven primarily by clients who already had their assets with those brands, and simply moved them to their new “robo” offerings. And in point of fact, Vanguard’s solution wasn’t even the rollout of a robo-advisor, but the addition of human financial planners to clients who already worked with Vanguard digitally – a “cyborg” (tech-augmented human CFP professional) solution that is taking over the industry, with Personal Capital, Schwab, and even Betterment now offering tech-augmented human CFP advisors (and not just a robo solution alone).

In fact, when it comes to marketing to Millennials, even the robo-advisors have struggled with client acquisition costs, and they have entire companies (or at least entire divisions) with dedicated direct-to-consumer marketing, and the ability to leverage substantial existing brands (in the case of Schwab and Vanguard). By contrast, most broker-dealers have little brand recognition with consumers, a decentralized marketing process (where every rep is responsible for their own marketing and business development), and a cumbersome compliance process that makes it almost impossible to rapidly iterate the broker’s digital marketing efforts to attract Millennials online. Which means broker-dealers that launch “robo” initiatives are unlikely to see much of any asset flows whatsoever.

All this point said, it doesn’t mean that the “robo” tools themselves are bad for a broker-dealer to adopt. To the contrary, there are tremendous operational efficiencies to be gained with “robo” technology that expedites the process of onboarding clients and efficiently managing (model) portfolios. But again, that’s because robo tools are all about operational efficiencies… not marketing and business development! Which means broker-dealers announcing they are going to roll out “robo” tools will at best underdeliver on its promise of bringing in new young clients without needing to do any work – because it’s not a marketing solution for Millennials, it’s an operational solution after you do the marketing to Millennials yourself (which, most advisors don’t do well in the first place)! And at worst, brokers themselves just won’t adopt the tools, because they feel threatened by “robo” tools that imply the broker can be replaced (even if real advisors aren’t at risk of being replaced by robos). Instead, what broker-dealers should do is simply say “we’re upgrading our technology to make you more operationally efficient in opening and managing investment accounts.” Because that’s what it’s really about. And that’s the outcome that really matters!

Wednesday 9 August 2017

Why The Trusteed IRA May Be A Riskier Alternative To A Trust As IRA Beneficiary

Historically, most individual retirement accounts are structured as a “custodial” account, but the Internal Revenue Code permits IRAs to be structured as trust accounts as well.

The benefit of using a “trusteed IRA” is that the account is literally controlled by a trust document, which both ensures continuity in the form of a trustee that manages the account, and can restrict beneficiaries’ future access to the money after the original IRA owner dies (either to protect them from themselves, or to protect their IRA inheritance from potential creditors).

The caveat, however, is that a trusteed IRA really doesn’t provide any benefits that can’t already be accomplished with a (separate) trust as beneficiary. And in fact, having a standalone trust drafted to be the beneficiary of a retirement account can provide even more flexibility, or more robust spendthrift and asset protection for future beneficiaries.

Nonetheless, the ranks of trusteed IRA providers have been growing in recent years, in part because the trusteed IRA is highly appealing from the perspective of the IRA provider – because, as the trustee of the IRA itself, it’s very difficult for future beneficiaries to ever fire the trustee or transfer the account to another provider, allowing the trusteed IRA provider a greater likelihood of retaining the assets than a traditional custodial IRA provider. In addition, it’s notable that while drafting a separate trust as beneficiary of a retirement account has a non-trivial one-time upfront cost, it may still be less than paying ongoing fees for the trustee to manage and administer the trust for what could be decades into the future.

The trusteed IRA may still be appealing in situations where the IRA owner wants to outsource investment management for beneficiaries, is comfortable with the “risk” that beneficiaries may have trouble changing providers anyway, and simply cannot find a competent attorney who can draft a proper conduit or accumulation trust to serve as the IRA beneficiary instead. Yet ultimately, for those who do have access to competent legal counsel as part of the estate planning process, a well-drafted trust as IRA beneficiary can accomplish everything a trusteed IRA provides, and potentially more estate planning strategies as well!

Tuesday 8 August 2017

#FASuccess Ep 032: Building A Personal Brand Advisory Business Of Financial Planning And Online Money Management Courses with Brittney Castro

Welcome back to the thirty-second episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Brittney Castro. Brittney is the founder of Financially Wise Women, an independent RIA in the Los Angeles area that specializes in providing fee-only financial planning for professional women in their 30s and 40s.

What’s unique about Brittney’s advisory business, though, is not just that she’s generating more than $100,000 in standalone financial planning fees, but that by building an entire personal brand business around herself, she’s been able to diversify her revenue streams as a financial advisor to include offering online courses, paid speaking, and even corporate partnerships where she is paid to be a brand ambassador for financial literacy!

In this episode, Brittney talks in depth about the digital marketing strategies she uses to attract young professional women who are ready and willing to pay her $2,500 to $5,500 financial planning fees, the 5-meeting process she uses over 6 months to deliver financial planning advice and earn her fees, how she structures her ongoing retainer fee for clients, and what she does for them on an ongoing basis (when there’s no portfolio to manage). In addition, we also look at how Brittney built her highly scalable online Money Class course on personal finance, and how she’s been able to generate nearly $100,000 of additional revenue over the past several years by selling her course for $497 per person… despite spending less than $10,000 and 40-50 hours of her time to make it… which means her investment into building that online course has generated about a whopping $2,000 an hour for her time!

We also talk about how Brittney gets paid for professional speaking, the world of “influencer marketing”, and why a financial institution would pay her a substantial amount of money just to have Brittney – the financial advisor – be affiliated with their brand.

And be certain to listen to the end, when Brittney talks about how the key to her success is all about focusing on one area of her business at a time, working on improving it, and then moving on to the next area, while maintaining a large number of independent outsources who each help her in specialized aspects of her business.

And so whether you’ve been wondering how to position fee-for-service financial planning to younger clients who can pay planning fees but have no assets to manage, or want perspective on how a successful personal brand as a financial advisor can open up new business lines, or have simply been curious about what it takes to create an online course to reach new clients, I hope you enjoy this episode of the Financial Advisor success podcast!

Monday 7 August 2017

Child Tax Credit 101 [Video]

Learning about tax credits and deductions that you qualify for can make a big difference at tax time. If you’re a parent, you’ll be happy to know that you may qualify for the Child Tax Credit if you have children....

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source http://blog.turbotax.intuit.com/deductions-and-credits/child-tax-credit-101-1921/

The Latest In Financial Advisor #FinTech (August 2017)

Welcome to the August 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 Morgan Stanley’s rapid pace of reinvention as a tech-savvy wirehouse since hiring away Schwab’s Naureen Hassan to become the firm’s Chief Digital Officer in early 2016. Since then, the company seems to be rapidly overcoming the traditional “Not Invented Here” mentality of wirehouses, forging partnerships with a number of outside providers, even as they build a fascinating vision of a robust tech-augmented human advisor platform, where the software continuously monitors and analyzes the situation for all clients and nudges the advisor with “Next Best Action” ideas that the advisor can take to the client (queued up with pre-written communication templates that the advisor can easily modify and adapt to individual client circumstances).

From there, the latest highlights also include a slew of companies announcing new “platform” initiatives, including:

FinFolio launches Wealthlab.io, a standalone REST API back-end platform for account openings, trading and rebalancing, and data feeds, that should provide an expedited foundation for new robo startups (or even large advisory firms that want their own custom-created wealth management solution).
FinMason launches a new FinTech accelerator program, allowing startups to build on their FinRiver data analytics to create and rapidly deploy solutions to advisors (or consumers).
Pershing continues to try to expand its open API platform to compete with TD Ameritrade’s VEO open architecture (and provide new advisor FinTech startups an alternative to building for “just” TD Ameritrade alone).
Apex Clearing strikes yet another deal with a “robo” middleware solution to help it gain distribution to the independent RIA marketplace and compete against the likes of Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions.

You can view analysis of these announcements and more trends in advisor technology in this month’s column, including “robo”-401(k) provider Vestwell partnering with Fiserv, Advisor Software launching a new “Behavioral IQ” solution that aims to go beyond just risk tolerance and risk capacity, RobustWealth partners with Roofstock to allow advisors and their clients to invest directly into rental real estate and have the results aggregated with the rest of the portfolio, Morningstar acquiring a 40% stake in Sustainalytics as it doubles down on its commitment to its Morningstar Sustainability Globes, AdvisorHub launches a platform called “AssetLink” to re-define how advisors engage with wholesalers, and more!

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!

Friday 4 August 2017

Weekend Reading for Financial Planners (Aug 5-6)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with several recent industry tracking studies, including one showing that RIA assets continue to grow (but those serving individual investors continue to be dominated by a large volume of “small” advisory firms with less than $1B of AUM and fewer than 10 non-clerical employees), and another examining fund flows data and finding that advisors are not eschewing actively managed funds altogether, just high-cost funds – as both ETFs, and low-cost active funds (with expense ratios under 20bps) are experiencing positive inflows!

From there, we have a few technical articles, including: strategies to plan around the Medicare Part B and Part D surcharges for those with high income; how the growth rate of college tuition has actually been in steady decline for a decade (and last year was actually in-line with the general level of inflation); ways to use trusts to shelter (and tax-manage, and asset-protect) investment real estate; and a primer on how annuity mortality credits really work.

We also feature several practice management articles this week, from a look at how to develop the “other” career track in advisory firms (for administrative and operational employees), to why it’s crucial to develop career tracks and provide promotions based on performance and skill attainment (and not just based on tenure), and why businesses (both advisory firms and in other industries) often start to “break” as they cross 25 employees, and have to adjust to the dynamics of being a larger business.

We wrap up with three interesting articles, all looking at mindset issues in what it takes to be financially successful: the first looks at a recent Journal of Financial Planning study, which finds that more affluent households tend to take more financial risks, but only because they also tend to better understand those risks (and take them prudently) in the first place; the second discusses some of the “habits” of the affluent that appear to bolster their wealth accumulation and financial success; and the last examines Warren Buffett’s recent statement that his future successor must not only be smart, but have a “money mind”, and explores what it really means to have a money mind.

Enjoy the “light” reading!

Even Self-Employed Bosses Need Time Off

This year has been amazing, but also very packed for me business wise. I started the year off co-hosting a financial summit, published my book, Jumpstart Your Marriage and Your Money, and this week I launched my first course! I...

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source http://blog.turbotax.intuit.com/self-employed/even-self-employed-bosses-need-time-off-31523/

Thursday 3 August 2017

Finding Confidence To Differentiate On Advisor Value Instead Of Price

Financial advisors charge a wide range of advisory fees, which can vary based on everything from the depth and breadth of the advisor’s services, to his/her skills and expertise. Yet in recent years, there has been a growing level of criticism directed towards advisors who charge “above-average” fees, implying that doing so is a potential breach of their fiduciary duty to clients… with no regard to the fact that the advisor might simply have a more specialized level of expertise that merits those higher fees.

In fact, on a recent episode of the Financial Advisor Success podcast, we had Dana Anspach, who has a niche financial planning business with an incredibly well-defined process for serving retirees, that has grown from $30M to $130M of AUM in just the past 5 years. Yet rather than celebrating her success, many in the advisory community have taken to criticizing Anspach’s fee structure of 1.25% AUM plus an upfront planning fee of $6,900, on the grounds that it is too high for a fiduciary to charge when ‘everyone knows’ the typical advisory fee is just 1%.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss whether advisors who charge more than the average advisory fee should be criticized for not charging less, or admired for their ability to craft a clearly defined value proposition that is so compelling that clients are willing to pay those fees for the value they perceive!

First and foremost, though, it’s crucial to point out that the fiduciary rule does not require an advisor to be the ‘lowest cost” provider or charge no more than the average advisory fee in the first place. Instead, it simply requires financial advisors to charge fees commensurate with their services, that are “not excessive” relative to the going rate for similar services. Which means there’s nothing wrong with charging an above-average fee to deliver an above-average solution, as Anspach’s firm does with their unique, differentiated, specialized service for retirees.

In fact, the only ones who seem to be complaining about Anspach’s fee structure are not her clients (who appear to be finding good value in what her firm provides), but other financial advisors – who imply, or in one case outright said to me, “Why would someone work with Dana at 1.25%, when I offer retirement planning to my clients and only charge a ‘more reasonable’ 1%?”

The irony of the advisor making this statement is striking, given that as advisors we routinely urge our clients not to just shop based on price alone. We tell them to shop based on value. Not just the cost, but what you get for the cost. But shopping based on value means that reasonable fees could go in either direction – with advisors charging less, or more, based on the value they provide. Not to mention that from an advisor’s perspective, competing on price alone eventually becomes a serious problem for most advisory firms. In part, it is because competing on price alone attracts price sensitive fee-conscious clients, but the real problem is that when you compete just on price, you’re not competing on actual value and there’s always going to be someone who can figure out how to charge less than you.

Yet in recent years, more and more advisors are competing on price, either by focusing on how their fees are lower than the fees of other advisors, and/or trying to offer differ advisory fee models – for instance, annual retainers in lieu of AUM fees – as a means of differentiating based on price. Which suggests to me that the real problem is that advisors are continuing to struggle in figuring out how to effectively differentiate, and lack confidence in their own value proposition (and therefore feel compelling to compete by cheapening their pricing, instead).

And this is actually borne out in some of the recent research on how advisors set their fees, with Bob Veres’ recent study finding more experienced advisors charge higher all-in costs than those in their first 1-5 years, and our first XY Planning Network benchmarking study which found that 100% of financial advisors surveyed were raising their fees after their first three years of business – suggesting that as advisors gain confidence in what they do, they actually tend to raise their fees, even as they move upmarket and work with larger clients.

Ultimately, though, the fundamental point here is that when I see a growing number of advisors who snipe at the fees of other advisors, what it suggests to me is that there are a lot of advisors who still aren’t really confident in their own value. Instead of asking how they can focus, specialize, and build a niche that commands higher fees the way that firms like Anspach have been able to do, they ask why her clients wouldn’t just work with them instead since their fees are lower. But that entirely misses the point. Dana’s specialized niche adds more value to her target clientele, and can command a higher fee.

Which means in the end, if advisors want to bolster their pricing and value proposition to better attract new clients and grow their advisory businesses, they should be looking to emulate successful advisors, rather than criticizing their business success!

Wednesday 2 August 2017

The Impact Of Early Retirement On Projected Social Security Benefits

Social Security operates as an income replacement formula, with higher benefits for those who work for more years. As a result, benefits are very limited for those who don’t work for very many years, and are much higher for those with a full working career.

To avoid confusing those who haven’t worked very many years yet – but plan to – the standard Social Security benefits statement projects out anticipated future Social Security benefits based on the assumption that the individual will continue working until retirement. Which allows the individual to understand what Social Security benefit they are “on track for” as they continue to work until full retirement age. Except, of course, that not everyone actually plans to work until full retirement age!

For those who intend to retire early, the end result is that the Social Security Administration’s projected benefits calculation may turn out to be substantially higher than what someone will actually receive if they retire early, and never actually work as many years as anticipated. The lower someone’s lifetime earnings overall, and the earlier he/she retires, the more dramatic the impact can be, commonly reducing benefits by 5% to 10% when retiring early, and potentially far more for “extreme” early retirement. Although the impact is also substantially affected by whether recent earnings were higher or lower than their long-term average… and whether they’ve already paid into the Social Security system for at least 35 working years (or not).

Ultimately, the reality is that Social Security benefits aren’t actually reduced for those who retire early – they simply stop accruing additional benefits when they stop working. But given that Social Security projects the assumption of work until full retirement age, it’s crucial to recognize that actual benefits may be lower for those who retire early – even if they wait until full retirement age to actually receive those benefits. In the end, that may not stop a prospective early retiree from making the decision to stop working – and notably, continuing to “work” even after retirement can continue to increase benefits as well – but at a minimum, it’s crucial to take a moment and look at the individual’s inflation-adjusted historical earnings, to understand whether or how much of an impact not working to full retirement age may actually have on projected benefits!

Tuesday 1 August 2017

Bonus Time: How Bonuses Are Taxed and Treated by the IRS

Bonuses can change your tax situation depending how large the bonus and what methods employers use to tax the income. Find out how bonuses(supplemental income) are taxed.

source http://blog.turbotax.intuit.com/income-and-investments/bonus-time-how-bonuses-are-taxed-and-treated-by-the-irs-8003/

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/

#FASuccess Ep 031: How To Properly Vet New Financial Advisors By Hiring For Attitude And Not Skills with Caleb Brown

Welcome back to the thirty-first episode of the Financial Advisor Success podcast!

My guest on today’s podcast is Caleb Brown. Caleb is the founder of New Planner Recruiting, a recruiting firm that, as the name implies, focuses specifically on hiring newer associate-level financial planners.

What’s unique about Caleb’s recruiting process, though, is the way that he vets prospective financial planners to determine whether they’re likely to be successful in the advisory business in the future, with a strong focus not just on their technical skills, but the initiative and effort that they put into the process of trying to get hired through his recruiting business in the first place. Because the reality is that you can provide education on the book knowledge of financial planning, and train a lot of financial planning skills, but it’s almost impossible to teach someone to have that go-getter kind of attitude that it really takes to succeed as a financial advisor.

In this episode, Caleb talks at length about what issues you should consider in the hiring process for a prospective new advisor, the role of using various types of personal and other assessment tools to evaluate potential hires, what you should – and shouldn’t – expect your new hire to do and bring to the table to make your advisory business more successful, and what the going rate salary is that you have to pay as an advisory firm to get quality talent.

And be certain to listen to the end, where Caleb talks about his tips on how to work through the inevitable difficult times that arise as an entrepreneur, and how an executive coach has helped him to keep his focus.

So whether you’ve been struggling with finding good financial planning talent for your firm and are looking for ideas on how to better identify and screen potential hires, or you’re a prospective financial planner looking for insight about what it takes to get your foot in the door with a good financial planning firm, I hope you enjoy this latest episode of the Financial Advisor Success podcast!