News About IRS And Tax: October 2017

Tuesday 31 October 2017

#FASuccess Ep 044: Structuring A Successful Internal Succession Plan As A 25-Year-Old Buyer with Jake Kuebler

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

My guest on today’s podcast is Jake Kuebler. Jake is the President of Bluestem Financial Advisors, an independent RIA based in Champaign, Illinois, that provides a combination of financial planning, investment management, and tax preparation with 4 staff members for nearly 100 clients using a comprehensive annual retainer model.

What’s really unique about Jake’s business, though, is that he’s actually the next generation successor owner of Bluestem, having spent the past 5 years buying out the founding owner, Karen Folk, while nearly doubling the size of the practice along the way. Oh, and he just turned 30. Which means he started this internal succession plan as a buyer when he was just 25.

In this episode, we talk in depth about how Bluestem built a niche focus on serving college professors and administrators (as they are based in the hometown of the main University of Illinois campus!), why they chose to include tax preparation as a part of their annual service offering, the structure of Bluestem’s annual retainer fee model and how it changes from upfront to ongoing clients, how their retainer model structure is allowing them to grow the business serving a substantial segment of young professionals in the Champaign area in addition to retirees, and the business management spreadsheet that Jake uses to monitor and track the key metrics of his advisory firm along the way.

From there, we also talk about the details of the actual succession plan that Jake executed with the founder, how they eventually came to terms on setting a price for the internal succession plan of a hard-to-value solo advisory practice, the way the purchase was structured and funded, and how it was balanced to share the upside for both Jake as the buyer, and Karen as the seller, for any growth that happened after the terms of the deal were set.

And be certain to listen to the end, where Jake shares his own advice to other young advisors looking to buy into an advisory firm and be a succession plan, about how to push the conversation forward when the founder just doesn’t seem to want to sell…. and how to know when it’s time to cut bait and leave and find another opportunity instead.

So whether you’ve been curious to see an example of how an internal succession plan is structured, to hear the perspective of the buyer’s side of a succession plan, or just want a glimpse into the world of a successful retainer-based practice with a clear niche, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 30 October 2017

Making Tax Digital (‘MTD’), Part 1 — Your Personal Tax Account

Making Tax Digital & Personal Tax Accounts

HMRC have been busy, behind the scenes, shaking things up with regard to the personal data they hold on UK taxpayers. They've been pulling in - rather successfully - personal data from various different government departments and bringing all that data into one central place for both them and us to see, whenever the need arises. This is all part of their longer-term plan for Making Tax Digital or 'MTD' as it's known in the tax and accounting world. So, with that in mind, this is the first in a series of posts that introduces MTD and a crucial part of that; Personal Tax Accounts (PTAs). In this series of articles we'll discuss what MTD will mean for most of us, we'll look at the kinds of data that will be stored, see how it'll affect us and, lastly, see if there is anything that we'll need to do.

Personal Tax Accounts (PTAs)

Personal Tax Account (PTA) National Insurance record

One of the core elements of MTD is the Personal Tax Account (PTA). In years to come, each UK individual is likely to become very used to logging into their Personal Tax Account on the HMRC website. In fact, these already exist and most, if not all, UK taxpayers can already access them if they want to. When accessed, it's quite interesting to see the huge amount of data already accessible via your own PTA if you care to take a look. You may be surprised just how much data they contain for you. For those not yet ready to take the plunge, we've taken a look for you, as you'll see. And, so far, we are quite impressed. First, though, perhaps you'd like to sign up to view your PTA account for the first time. If you do this you can perhaps follow along with our notes and see how similar records in your PTA are to those in our demonstration account. For example, we found the National Insurance Record and resulting State

Personal Tax Account (PTA) State Pension summary

Pension Forecast of particular interest, but that's just indicative of many different areas available in the new PTAs. Before starting, though, take a look at our quick word about security* because it's important to keep your personal details safe and out of harm's way. Anyway, if and when you'd like to take a look at your own PTA, head off to this page which will give you various options depending on whether you already have a Government Gateway account (to clarify, you will need a Government Gateway account before you can gain access to your PTA). If you've used HMRC online services before, you'll already have a Government Gateway account. If not, follow the instructions on that page in order to set one up for the first time. To do that, you'll need your National Insurance (NI) number and proof of identity which can include your bank account details, a P60, your 3 most recent payslips or your passport number and expiry date. It takes about 15 minutes to set up if you have these to hand. So, assuming you now have your Government Gateway account access credentials sorted and to hand, you can sign into your Personal Tax Account (PTA) here using your User ID and password.

When first logging in as a new user, the HMRC system may prompt you to set up an additional level of login security. For example, setting up access codes by SMS (you'll then be sent a code to enter into the screen when logging in, to prove you are who you say you are. You'll be sent a new access code to your mobile phone every time you sign in. It's rather like 2FA (2 Factor Authentication) for those who are familiar with that). You may additionally be asked some security questions, again to protect your data from hackers. In my test I was asked for my full name, date of birth, passport number and similar information (quite a bit actually). This type of heavy duty disclosure is another reason to make sure you have read our security* pointers before disclosing anything sensitive online.

Welcome to your Personal Tax Account (PTA)

Personal Tax Account home page (Making Tax Digital)

Once logged in you'll be met with a screen similar to the image shown right, with your name at the top: As you can see, it contains several sections. From your Personal Tax Account, you can:

Check your PAYE tax code, see an estimate of the Income Tax you'll pay and more;
Check your Self Assessment details (or enrol) and view personal tax returns submitted in the past;
View your National Insurance record;
Check and amend your Tax Credits record;
Tell HMRC about any changes that might affect any Child Benefit you receive (e.g. tell HMRC if your child is staying in education or training if they were aged 16 on or before 31 August);
View and potentially update details about any Marriage Allowance if applicable to you (if you're married or in a civil partnership and earn less than £11,500 you may be eligible);
View an entire history of your National Insurance (NI) contributions;
Check when you can claim your State Pension;
See a forecast of how much you may receive for your State Pension when the time comes.

You can also:

source http://www.taxfile.co.uk/2017/10/making-tax-digital-personal-tax-account/

How to Save Before the Holiday Season is Here

Are you ready for the holidays? We don’t mean have you bought all your presents. The question is, have you done your financial planning for the holidays? Huh? That’s not something most people think about, but it is critically important...

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source https://blog.turbotax.intuit.com/tax-planning-2/how-to-save-before-the-holiday-season-is-here-24585/

Becoming B Corp Certified As A Financial Advisory Firm

With the increasing interest and focus from consumers on sustainable and socially responsible investing, more and more financial advisors have started to offer SRI portfolios designed to more effectively align a client’s investment dollars with their stated values. However, the next frontier in these values-based investment approaches is not merely to allocate client dollars to SRI portfolios, but to operate the financial advisory business itself in a manner that effectively considers its environmental, social, and community impacts.

In this guest post, Georgia Lee Hussey and Liliya Jones of Modernist Financial provide a guide to making values-based commitments as a financial advisory firm through becoming B Corp Certified. The B Corp certification is not an alternative to other corporate structures like an S or C corp, but a process that entails making a legal commitment (through the business’ bylaws or operating agreement) that affirms the existing S or C corp (or partnership or LLC) business entity’s commitment to consider its impact on all stakeholders (rather than just maximizing shareholder value). After recently going through the process of getting their RIA to become B Corp Certified themselves, Georgia and Liliya outline what a B Corp is, why financial advisors should consider getting their firms B Corp Certified, and how to go about the process.

When a financial advisory firm wishes to become B Corp Certified, the advisory firm owner must first take an assessment which evaluates their practices in the areas of governance, workers, community, environment, and customers. After completing this assessment, firms will be required to provide some documentation of select items, and possibly create a specific action plan for bringing their firm up to required standards. Once a firm meets the criteria required by B Labs – which grants the B Corp certification – they are then required to make the necessary changes to their corporate documents in order to make their commitment to ethical practices legally binding.

Financial advisors interested in earning B Corporation® certification have many ways to ensure they are considering all stakeholders in their decision making, from implementing ESG portfolios and promoting diversity and inclusion in the industry, to investing in their employees and considering the environmental impact of their firm. Ultimately, being a B Corporation® can be a way to truly apply a values-based perspective beyond the portfolio itself. Which can result in a new way to build trust with prospective clients – especially those who already have a strong values-focused oriented to where they invest and who they do business with – as well as connect with a broader community of like-minded socially-conscious entrepreneurs, and provide an environment that is more attractive to next generation advisors!

Friday 27 October 2017

Weekend Reading for Financial Planners (October 28-29)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the big buzz in the advisory world this week… a major feature article in the Wall Street Journal dubbed “The Morningstar Mirage” that notes how Morningstar star ratings based on past performance are a huge driver of mutual fund asset flows but have at best only limited predictive value of future performance (though the Journal authors, as well as Morningstar in its response, both note that highly rated funds are still at least somewhat more likely to outperform than just picking mutual funds at random!).

Also in the news this week was a separate major announcement from Morningstar, that it’s DoL fiduciary proposal tool, the “Best Interests Scorecard”, is now available as an add-on to the Morningstar Advisor Workstation. And the Investment Management Consultants Association (IMCA) announced that it is rebranding to the Investments & Wealth Institute (IWI), and has acquired the Retirement Management Analyst (RMA) designation as part of its growing investments and wealth management focus.

From there, we have a number of marketing and business development articles this week, including: a review of what a “marketing funnel” really is, and how it’s relevant for financial advisors; a discussion of how most advisor websites are built for the wrong purpose, aiming to educate about the advisor’s firm or get a prospective client to call when really it should just focus on getting a prospect’s email address instead; a fascinating research survey about where ultra-HNW investors go for their financial news that finds HNW investors tend to rely on both traditional media, social media, and an advisor’s own communication (and that younger HNW clients are even more likely to rely on the advisor’s communication!); how digital marketing lessons from Silicon Valley can be applied for financial advisors, particularly when it comes to “influencer marketing”; why your answer to the simple question “How’s It Going?” can unwittingly deter clients from giving you referrals; and how the best way to build Center Of Influence (COI) referrals is not to just try to find “good” COIs, but instead to work more deeply with the COIs your clients already use, where you can turn deepening client engagement with a mutual client into COI referrals instead!

We wrap up with three interesting articles, all focused around the theme of taking a fresh look at popular themes: the first explores how advisors should beware about entirely rebranding themselves as behavioral coaches and accountability partners, because the truth is that most people don’t actually want to always be held accountable for everything (and at best, advisors need to be more sensitive about how to frame accountability in a positive, future-focused manner); the second looks at the simple concept of financial milestones, and the kinds of common milestones that can (and should) be celebrated with clients; and the last looks at how the recent wave of natural disasters, from hurricanes to fires, have been causing people to question how much “stuff” they really need… and not just those who are impacted by the disaster, and may have lost everything and need to start over, but even those of us who only saw the events on the news, but still find ourselves questioning whether we have too much “stuff” and how we could better focus on the things that really matter.

Enjoy the “light” reading!

Thursday 26 October 2017

Why The New SIE Exam Is The Wrong Track To Become A Financial Advisor

Many financial advisors getting started in their careers have historically faced the same conundrum: In order to get started with a broker-dealer, you needed to pass your Series 6 or Series 7 exam. However, you couldn’t actually start on your Series exam until you got hired by a broker-dealer, so they could sponsor you in the first place! Which created issues for both prospective financial advisors, and the broker-dealers hiring them. Acknowledging the problems this creates, earlier this year FINRA received approval from the SEC to begin offering the SIE (Securities Industry Essentials) exam starting next year, which will finally allow prospective financial advisors to get started on their Series exams without being sponsored!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the new SIE exam, including how it works, what it covers (and doesn’t cover), and why it ultimately isn’t actually a good path to becoming a financial advisor in the future.

Under FINRA Regulatory Notice 17-30, the SIE (Securities Industry Essentials) Exam will actually first become available next October of 2018, allowing prospective brokers to be able to sit for the SIE exam without first being sponsored by a broker-dealer. Instead, the individual will be able to register themselves directly with FINRA, and then register to take the SIE exam at a local testing center from organizations like Prometric and Pearson. The SIE exam will cover, as the “Securities Industry Essentials” name implies, the basics of the financial services industry, including knowledge of basic products, and the rules and regulatory structure of the financial services industry itself.

Notably, however, the SIE exam is not actually a replacement for the Series 6 or Series 7 exams. Those who have passed the SIE will still need to take abbreviated Series 6 and Series 7 exams, to “top off” the initial SIE exam, after getting hired by a broker-dealer and being sponsored for the final Series exam. But the SIE exam will provide the initial pathway to the Series 6 or Series 7 exams… allowing prospective brokers to get started without first getting sponsored. Additionally, though, the SIE exam doesn’t actually prepare anyone to be/join a Registered Investment Adviser (RIA), because the SIE exam prepares for broker-dealer jobs, not for RIA jobs that require the Series 65 exam instead.

And that’s ultimately why I’m actually concerned about the introduction of the SIE exam. Particularly for college students and young entrants to the profession, given that college students studying financial planning are likely going to be pushed to take the SIE exam before they graduate to get started as a financial advisor. Only to discover once they search for financial planning jobs, that increasingly the jobs require them to have a Series 65 exam and work under an RIA or a hybrid RIA… which means their SIE exam will be useless!

The bottom line is to recognize that while the SIE exam may be a great expedited pathway to getting a job at a broker-dealer to sell financial services products, it’s still ultimately a path to getting a Series 6 or Series 7 or similar license, which are licenses for salespeople. The path to getting paid for financial advice, under the current regulatory environment, is all about passing the Series 65 and becoming or joining an RIA (or at least a hybrid RIA), which the SIE exam doesn’t cover at all!

Wednesday 25 October 2017

Spousal Rollover And Stretch Rules For Inherited Traditional And Roth IRAs

The key benefit of specialized retirement accounts are their tax preferences – from the upfront tax deduction and tax-deferred growth of an IRA or 401(k), to the opportunity for tax-free growth from a Roth. Such tax benefits are intended to encourage and incentivize workers to save for retirement, and to make retirement at least a little more affordable. The caveat, though, is that if all the assets are not actually used for retirement, the retirement account – whether an employer retirement plan or an IRA, Roth or traditional – must be unwound, as eventually the Federal government does want to collect its share! Accordingly, IRC Sections 401(a)(9) and 408(a)(6) prescribe a series of somewhat-complex rules to determine exactly how fast a tax-preferenced retirement account must be liquidated after the death of the original owner, allowing the beneficiary in most cases to stretch out the tax impact over time (dubbed the “stretch IRA” strategy).

However, the reality for many couples – particularly single-earner households – is that the retirement account assets may be in only one spouse’s name, even though the savings were intended to support the couple jointly in retirement. And so in recognition of this dynamic, the tax code provides unique preferential treatment for a spouse who is the beneficiary of a retirement account, allowing not only more favorable stretch IRA (and stretch 401(k)) provisions, but also the opportunity for a spousal beneficiary to “roll over” the inherited retirement account and treat it as his/her own.

Yet while the additional flexibility of the spousal stretch IRA and the spousal rollover option are both more favorable than the standard rules for non-spousal beneficiaries of inherited retirement accounts, the special choices that spouses face have unique trade-offs. On the one hand, leaving an inherited IRA as such for a spousal beneficiary obligates him/her to take post-death Required Minimum Distributions (RMDs) – potentially sooner rather than later – but avoids the impact of an early withdrawal penalty. A spousal rollover allows for the use of more favorable RMD tables, and may defer the onset of RMDs until even later, while also providing more favorable treatment for subsequent beneficiaries… but re-introduces the 10% early withdrawal penalty, which may be problematic for younger spousal beneficiaries (under age 59 ½).

Ultimately, the good news is that spousal beneficiaries have the option to make either choice, and even have flexibility about the timing – allowing a decision to maintain an inherited stretch IRA for the spouse initially, and completing a spousal rollover later (after he/she turns age 59 ½). Nonetheless, it’s important to carefully consider the choices and trade-offs… especially since a spousal rollover, once completed, is irrevocable and cannot be undone after the fact!

Tuesday 24 October 2017

How Much Does It Cost to Attend the World Series?

With tickets to the game ranging from $600 – over $2,000, airline flight tickets averaging $1,000 round-trip, and hotel prices at a $200 minimum each night, making a trip for the big game could end up costing you $2,000 or...

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source https://blog.turbotax.intuit.com/income-and-investments/how-much-does-it-cost-to-attend-the-world-series-24630/

#FASuccess Ep 043: Navigating The Internal Succession Planning Turning Point As An Advisory Firm Founder with Marty Kurtz

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

My guest on today’s podcast is Marty Kurtz. Marty is the founder of The Planning Center, an independent RIA based in Moline, Illinois, that – as the name implies, quite deliberately – provides comprehensive financial planning for clients, along with investment management for more than $700 million of client portfolios.

What’s unique about Marty’s business, though, is that he’s already in the midst of executing a succession plan that will ultimately wind down his ownership and management of his 26-employee and now multi-partner firm. In other words, while a lot of advisors talk about succession planning, Marty is actually living the process.

In this episode, we talk in depth about succession planning, and the real-world challenges that crop up in trying to facilitate an internal succession plan, from the difficulty in finding an “appropriate” valuation for the firm, the dynamics that emerge between founders and the next generation of advisors that want to take over the business, and why founders need to recognize the trade-offs that often exist between maximizing the dollar value of the business by selling to a third-party, and maximizing the longevity and sustainability of the business itself by selling internally.

From there, we also talk about how The Planning Center is shifting away from the AUM model to a unique retainer model that charges clients 1% of their income plus half a percent of their liquid net worth, how Marty jump-started the growth of the firm in the early years with a strategic partnership with a local accountant (and how they structured – and had to later change – the revenue-sharing solicitor agreement), and the unique household cash flow planning technique that he uses as the First Step of the financial planning process with every client.

And be certain to listen to the end, as Marty provides his advice to those who are looking to become successors in a firm about the conversations they need have – and drive, if necessary – with their founders to ensure the succession plan really happens. And Marty talks about the new business he’s helping to create – called Turning Point – that helps experienced advisors who founded firms and are looking to sell to figure out what they really want and need, deep down, to make the succession plan a success.

So whether you’re curious to hear the successsor’s perspective on executing a succession plan, or are looking for ideas of new and innovative non-AUM advisory firm business models, or simply want to learn how one advisor built success with a focused strategic alliance with an accounting firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 23 October 2017

Tax Write-Offs for Athletes

If you are a professional athlete, you spend a great deal of time honing your technical skills and keeping your body in tip-top shape so you can win in the sport that you play. It’s imperative that you focus on...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/tax-write-offs-for-athletes-32333/

Turbo: The Financial Health Profile that Truly Matters

Do you ever feel in the dark when it comes to your own finances? If so, you’re not alone. Today, Intuit introduced Turbo, the first and only financial health profile that will unleash the power of verified IRS-filed income and...

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source https://blog.turbotax.intuit.com/turbotax-news/turbo-the-financial-health-profile-that-truly-matters-32378/

The 13 Best Conferences For Financial Advisors To Choose From In 2018

Michael Gerber’s famous business book “The E-Myth” points out that most small business entrepreneurs struggle because they spend all of their time working in their business, and too little time working on the business itself. Any small business owner who has a unique and valuable personal skillset – from a pie-maker to a doctor to a financial advisor – is particularly prone to this challenge, as almost by definition what gets them paid is the work they do in the business. And accordingly, to the extent they take time off to go to a conference once or twice a year, they tend to go to events that help them improve their skills in the business (i.e., continuing education), particularly since most regulated professions have CE requirements anyway.

To break the cycle for financial advisors, I’m declaring 2018 as “the year of the practice management (or career development) conference” instead. Because the reality is that there is an ever-growing number of choices on how to fulfill your annual CE requirements online, from conferences that are live-streamed or recorded for subsequent purchase, to an abundance of webinars on demand, and even the Members Section of this blog (and CFP professionals only need to complete CE requirements every other year anyway!). But the opportunities for good practice management content that actually helps you work on the business more effectively, or career development content that helps you grow to the next level, are few and far between. And when it comes to working on the business, it’s especially important to actually physically leave the business and go to a conference, as you have to get beyond your own four office walls to get a fresh perspective on your business or career.

Unfortunately, though, going to a conference is a major investment – with conference registration fees that can run $1,000 or more, plus the cost of airfare and hotel accommodations – which means it’s especially important to pick the right conference to get value. In fact, given that in recent years I’ve been speaking annually at nearly 70 conferences myself, and have presented at virtually every major conference in our industry, from the various membership association events to custodian and broker-dealer and even media publication conferences, I’m often asked for recommendations of what I think are the “best” conferences for financial advisors based on what I’ve seen.

Accordingly, in 2012 I started to craft my own annual list of “best-in-class” top conferences for financial advisors, based on my own travels and experience, and divvied up into categories that would make it easier for advisors to select what matches their own needs at their current business or career stage.

And now, I’m excited to present my newest list of “Top Financial Advisor Conferences” for 2018, all with a focus on practice management and career development. Of course, given that we’re all at different stages of our businesses, some events are much better suited to certain types of advisors, and accordingly I’ve tried to delineate which are the best depending on your size of business, industry channel, and/or career stage.

So I hope you find this year’s 2018 financial conferences list to be helpful as a guide in planning your own conference budget and schedule for next year. And I hope you make the investment – because the truth is that you just need one major takeaway to materially change the trajectory of your business or career in the coming years! Also, be certain to take advantage of the special discount codes that several conferences have offered to all of you as Nerd’s Eye View readers (especially since a few early-2018 events have their Early Bird deadlines closing soon)!

Friday 20 October 2017

Weekend Reading for Financial Planners (October 21-22)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a slew of major RIA custodian and broker-dealer news stories, including the decision by TD Ameritrade to eliminate 84% of its no-commission ETF lineup (including all of its Vanguard ETFs) with just 30 days’ notice to advisors to re-design their portfolios, the news that retail online brokerage giant E-Trade is looking to enter the RIA custody business by acquiring Trust Company of America (for a whopping $275M!), the launch of U.S. Bancorp’s new “FundKeeper” platform that could substantially disrupt mutual fund distribution and aid most small-to-mid-sized broker-dealers that don’t self-clear, and a backlash against FINRA for granting block transfer approval in the LPL/NPH deal after not allowing it for any other recent broker-dealer acquisitions (though the change in precedent could just further accelerate broker-dealer consolidation from here!).

From there, we have a few more technical articles, all around the theme of handling concentrated stock positions, from a discussion of a “Stock Protection Fund” strategy to partially hedge concentrated stock positions for executives (without liquidating the stock and incurring tax consequences), to how an “M&A Reseller” strategy can help small business owners gain installment-sale tax deferral on the sale of a business while minimizing the credit risk of taking on an installment note directly from the buyer, and a look at the rise of Securities-Based Lending (SBL) and how it can help provide short-term liquidity at a reasonable cost for those with concentrated stock positions.

We also have several practice management articles this week, including: How to change the ways you ask questions in a prospective client approach meeting to better connect emotionally with clients; a 5-meeting structure for approaching prospects and turning them into clients (and getting them comfortable after they’ve onboarded); and how to re-frame a client or prospect event around a “life transition” event that can help get a far better turnout than “just” talking about your latest investment views or a particular financial planning strategy.

We wrap up with three interesting articles, all around the theme of challenging our perceptions: the first is a fascinating look at how Betterment is putting behavioral testing into practice to determine what really helps clients to stay the course (and finds that just communicating to all clients that they should “stay the course” with a blast email during market turmoil is actually not a very effective strategy after all!); the second looks at the research into how (and why) we actually change our minds, and finds that the biggest key to helping someone change their mind is to give them an “out” so it’s not embarrassing for them to change their views; and the last is a simple but powerful way of looking at advice, recognizing that the best advice is not just good advice, but effective advice that people can implement given all of our behavioral biases!

Enjoy the “light” reading!

Life Happens—But That Doesn’t Mean You Don’t Have Health Insurance Options

Life can move a mile a minute, and as we all know, changes can sneak up on us. Whether they are expected or not, one thing we know for sure is that if we experience big life changes, we have...

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source https://blog.turbotax.intuit.com/health-care/life-happens-but-that-doesnt-mean-you-dont-have-health-insurance-options-23225/

Thursday 19 October 2017

TD Ameritrade Sells Out NextGen Advisor-Client Platform By Replacing 84% Of Its NTF ETF Lineup

The growth of ETFs in recent years has been nothing short of extraordinary, with more than $3 trillion of ETF assets in the US, and ETF adoption amongst advisors rising rapidly from just 40% a decade ago, to 88% of advisors today. Yet, unfortunately, one of the main appeals of ETFs – that they trade “like stocks” – has also inhibited their growth, as the ticket charges of trading commissions can add up quickly for younger investors that are still in the accumulation phase and making modest ongoing contributions to a diversified multi-ETF portfolio. Fortunately, in recent years, RIA custodians have helped to fill this void by offering so-called “no-commission” or “no-transaction-fee” (NTF) platforms, where a set list of ETFs can be traded without incurring transaction costs… which has been especially helpful for advisors creating ETF portfolios for young savers. Yet this week, TD Ameritrade upended its no-commission ETF Market Center for financial advisors by announcing the removal of 84% of their current NTF exchange-traded funds, including several iShares Core ETFs and the entire lineup of popular Vanguard ETFs!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the TD Ameritrade’s big announcement, the good news of their newly expanded ETF Market Center lineup, and the bad news of how TD Ameritrade’s decision to remove 84% of the existing no-commission ETFs upends financial advisors on the platform – and has been particularly damaging to those advisors who were most loyal to ETF Market Center while serving next generation clients!

In recent years, TD Ameritrade’s ETF Market Center platform was used primarily by financial advisors who wanted to construct simple low-cost passive portfolios for their younger clientele, whose more moderate account balances and ongoing contributions were especially well suited to the no-commission ETF lineup… especially given the availability of low-cost iShares Core and Vanguard ETFs. Yet some financial advisors prefer to express a wider range of investment views, from more targeted allocations (which can be tax loss harvested), to applying factor tilts… and accordingly, TD Ameritrade has expended the selection of Market Center ETFs up to 296 (including the new ultra-low-cost State Street “SPDR Portfolio” series).

Yet unfortunately, the removal of all Vanguard ETFs and the most popular iShares Core ETFs has put advisors in the lurch, leaving them barely 30 days to make changes for their clients before ticket charges will apply. Which means, what was a convenient solution for financial advisors has just become a big headache, as they must now scramble to investigate and map out replacement funds, contact clients, and update portfolios over the next 30 days.

Fortunately, the reality is that all those Vanguard and iShares Core ETFs are still going to be available through TD Ameritrade. They’re not being removed from the custodial platform; they’re simply being removed from the commission-free ETF Market Center platform, and as a result advisors can continue to hold onto those ETFs for existing clients. But after November 20^th, any subsequent purchases for new contributions (or sales of existing ETFs) will cost $6.95 per trade. Which for small ongoing contributions, is still cost-prohibitive, and will likely force advisors to at least switch to the new ETF lineup for new contributions, and potentially make switches for the existing ETFs as well.

Except making such a transition introduces a lot of operational complexity for advisors. Because now advisors will be forced to decide whether to switch all existing funds from the old lineup to the new lineup. Which is challenging because, even without ticket charges, there are still bid/ask spread concerns to consider… especially given that some of the new ETFs still have very low volume. In addition, long-term accumulator clients now have substantial capital gains issues, after 7 years of a raging bull market! And keeping existing funds in current ETFs and allocating new funds to new ETFs is logistically very difficult to manage without rebalancing software – and at best requires programming “proxies” into current rebalancing tools just to ensure accidentally-taxable sales aren’t triggered in the future.

And if these investment decisions weren’t enough to cover in 30 short days, the real challenge for virtually every advisor will be the client communication burden imposed by the TD Ameritrade changes. By adopting completely different ETFs, advisors are going to need to have a lot of conversations over the next 30 days… not to mention needing to review (and potentially get signed and updated) Investment Policy Statements, update Fact Sheets and address hypothetical performance comparison issues going forward due to the fact that the new ETFs are largely built around different indices than the prior line-up, and review tax considerations on a client-by-client and account-by-account basis!

Perhaps most frustrating, though, is that there’s no reasonable explanation for why TD Ameritrade is forcing these changes on its RIAs and next generation clients… except that apparently State Street and other ETF companies were willing to pay more to be in TD Ameritrade’s ETF Market Center than the existing players (as Vanguard is notoriously not willing to share revenue with custodians). Which means, basically, that TD Ameritrade sold out financial advisors and their next generation clients on the ETF Market Center lineup! And it’s perhaps no coincidence that this change happened just a month after RIA champion Tom Bradley left TD Ameritrade… raising the question of whether there is a cultural shift away from Institutional business at TD Ameritrade, and grossly undermining TDA’s position as a “champion of RIA fiduciaries” and next generation clients.

Ultimately, though, TD Amertirade does still have some options to right their wrongs and restore trust with advisors and their next generation clients. First, TD Ameritrade could simply bring back the old funds and add them to the lineup of new funds (as the fundamental problem with the announced changes is not the additions, but the subtractions that were made). If TD won’t make such concessions for everyone, at least they can consider doing so as an “Institutional-only” option, or otherwise grandfather advisors who were already on the ETF Market Center platform. Or perhaps it’s simply time to stop all of the faux “free ETFs” arrangements (which are only “free” on the front-end because RIA custodians make money on the back end from revenue-sharing shareholder servicing fees and sub-TA fees) and instead simply offer a low-cost fee-based wrap account for a few basis points that advisors can use for any ETF as a true open architecture platform. In other words, instead of selling out advisors to get 1-2 basis points on a SPDR Portfolio core fund, why doesn’t TD Ameritrade just charge advisors 3 basis points and make all ETFs available with no trading costs?

The bottom line: Will TD Ameritrade Institutional do what it takes to make it right with its RIAs and next generation clients who were blind-sided by being sold out to the highest asset management bidder?

Wednesday 18 October 2017

What Is The Optimal Shape Of Retirement Planning – Curve, Triangle, Or Rectangle?

As the retirement research has evolved over the decades, so too have the “optimal” retirement strategies, and the entire approach to the retirement planning process itself.

In the early years, optimal retirement planning was all about determining which portfolio on the efficient frontier was best suited to achieve retirement goals. Then advisors shifted to a more goals-centric approach, where clients pursued a Maslow-style hierarchy of goals, from the “basic” essential goals of retirement (e.g., food, clothing, and shelter), to the more discretionary wants and wishes. And in recent years, retirement planning has increasingly shifted towards a more holistic “household balance sheet” approach that aims to capture all of the household’s present and future assets and liabilities, to determine if the household is fully funded (or if not, what its funded ratio is).

And in a recent paper, researchers Patrick Collins and Francois Gadenne note that each of these retirement modeling approaches has their own “shape” – from the curve of the efficient frontier, to the triangle of the Maslow-style hierarchy of retirement needs, to the rectangle of the household balance sheet with its assets and liabilities. And each shape leads to its own unique views on what is “best” for retirement planning, and what is considered “safe” – from cash under the curve approach (the most conservative portfolio on the efficient frontier), to the lifetime annuity under the triangle approach (guaranteeing that essential expenses are covered for life), to a laddered portfolio of TIPS bonds with the rectangle approach (aiming to perfectly match assets to liabilities and immunize the household against future changes in interest rates or inflation).

Yet ultimately, while each of the different shapes of retirement planning may prescribe different recommendations, it’s still not entirely clear which is “best”. After all, the rectangle approach may be effective to determine the household’s funded ratio and explore what’s possible, but is a poor framework for making trade-off decisions about which goals to prioritize. And while the triangle approach is better for prioritizing goals, it doesn’t necessarily produce a clear portfolio allocation the way the efficient frontier curve does.

Which means in the end, the best approach for retirement planning may incorporate all three – the rectangle to explore the Possibilities, the triangle to Prioritize, and the curve to allocate the Portfolio itself!

Tuesday 17 October 2017

#FASuccess Ep 042: Building Group Financial Wellness Classes To Expand The Reach Of Financial Advice with Carol Craigie

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

My guest on today’s podcast is Carol Craigie. Carol is the co-founder of Fiscal Fitness Clubs of America, a financial wellness company that aims to expand the reach of financial planning advice using a combination of online education and Group Classes.

What’s fascinating about Carol’s business, though, is that while the idea of providing financial advice in a group format may seem alien to the traditional financial services industry, the reality is that it’s already established as an effective model amongst psychologists, and is used for a wide range of successful counseling programs, including Weight Watchers and AA. And not coincidentally, Carol’s training before she joined the financial services industry herself? She has a degree in Psychology, and a Master’s in Counseling.

In this episode, we talk in depth about how financial planning advice can be delivered in a group format. We explore the highly structured way that Fiscal Fitness Clubs takes clients through its process, starting with a series of 8 “Taking Control” classes, and followed by an ongoing series of Monthly Action Classes. The process is built entirely around focusing on cash flow first, and tackling the underlying issues that cause money stress, with the idea of breaking up financial self-improvement into a series of small bite-sized tasks that can be accomplished every month… and then using the group format as a way to create peer-to-peer accountability, including the fact that everyone gets a “money buddy” when they first start.

From there, we also talk about the business model of doing financial planning and financial wellness in a group format, the experimentation that Fiscal Fitness Clubs is doing with various price levels and group sizes, and how financial advisors can actually get paid upwards of $100 per hour to facilitate these financial wellness groups… which suggests that financial advisors could actually make a very solid income, serving a group of consumers that the industry has long claimed “can’t possibly” be economically feasible to serve as a financial advisor!

And be certain to listen to the end, when Carol shares her own journey from having served as the National Director of Financial Planning for both a wirehouse and a private bank before making this substantial pivot into financial wellness, and her perspective about what it will take for financial advisors to really succeed in an increasingly technology-driven future.

So whether you’ve ever been curious about the idea of delivering financial planning in a group format, or want a glimpse of how a financial wellness program can deliver financial advice value to the masses, or simply want some ideas and inspiration about the value of financial planning, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 16 October 2017

Five Tips to Help You Figure Out How Much to Save for Retirement

As we get more comfortable with our finances we're looking for ways to improve our system and that includes our retirement plans. Here are five tips to help you estimate how much you need to save for retirement.

source https://blog.turbotax.intuit.com/income-and-investments/401k-ira-stocks/five-tips-to-help-you-figure-out-how-much-to-save-for-retirement-15608/

Extension Filers: The Tax Deadline is Today

If you haven’t filed your 2013 income tax return yet, the clock is ticking. Here are a few last minute tips to ensure you make the filing deadline today:

source https://blog.turbotax.intuit.com/tax-news/extension-filing-ends-today-get-your-tax-return-in-on-time-18182/

2017 Financial Advisor Compensation Trends And The Emerging Shortage Of Financial Planning Talent

After years of tepid increases in the average compensation of financial advisors, the latest bi-annual industry benchmarking studies from both Investment News and FA Insight reveal that the industry’s long-forecasted talent shortage appears to be taking hold.

According to the latest data, the average Paraplanner with 4 years of experience is earning total compensation of $65,000/year (with a nearly $60,000 salary base and 10% bonus potential), an experienced financial planner responsible for client relationships is earning $94,000/year with 8 years of experience, and Lead advisors who are skilled at developing new business are earning an average of $165,000/year, with the top quartile earning more than $250,000/year, and the top practicing partners earning nearly $500,000/year in a combination of salary, bonus incentives, and partnership profit distributions!

Of course, even within those numbers, there can be substantial regional variability. But still, financial advisor compensation across the board was up nearly 6.5%/year for the past two years – from paraplanners to lead advisors – with base salaries for financial advisors growing even faster, especially amongst the largest independent advisory firms that are both winning the bulk of new clients, and the most likely to be working with affluent clients (which generate the most revenue, and therefore allow their advisors to earn above-average compensation). And the demand for talent is leading to a rise in advisory firms attempting to poach advisors from other firms, a growing focus of large firms to build talent pipelines with colleges and universities, increasing use of third-party recruiting firms to hire even young financial planning talent, and a rise in the average time to hire a financial advisor to a whopping 4-6 months.

The trends may not be entirely surprising given that the overall financial advisory industry continues to see the total headcount of financial advisors decline a mere 1% to 2% per year. Yet with the number of CFP certificants actually up by nearly 50% in the past decade, perhaps the real challenge may not merely be a shortage of financial planning talent, per se, but the industry finally discovering that as investment management is increasingly commoditized and firms seek to add value through financial planning and wealth management as the “anti-commoditizer”, that the number of true financial planners was never enough to meet consumer demand in the first place?

Saturday 14 October 2017

Does Tutoring Make Me Self-Employed?

Like many tax questions – it depends! If you are tutoring, whether or not you’re considered self-employed, you will have to do a lot with the specific arrangement. Let’s see what the different arrangements are and how it affects your...

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source https://blog.turbotax.intuit.com/self-employed/does-tutoring-make-me-self-employed-32243/

Friday 13 October 2017

Weekend Reading for Financial Planners (October 14-15)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the announcement of the annual Social Security COLA (cost-of-living adjustment) for 2018, which will be a whopping 2.0%… a modest increase, and one that most ongoing Social Security recipients won’t even enjoy due to the unwind of the Medicare Part B “Hold Harmless” provisions that kicked in back in 2016… although ultimately, the 2.0% COLA is actually still the biggest Social Security inflation adjustment we’ve had since 2012!

From there, we have a number of interesting articles about trends in the world of investing and asset management, from a recap of a fascinating panel discussion from the recent Money Management Institute conference about how asset managers are being disrupted by technology and regulation (more so than advisors themselves), to a look at the recent SPIVA scorecard that continues to show that most money managers can’t beat their indices (although if you confine the list to a subset of low-cost managers who invest in their own funds, the majority actually are outperforming their benchmarks in the long run!), how advisors are (or need to) increasingly using ETFs in their portfolios instead of individual stocks (not just for the challenges of stockpicking, but the difficulty in scaling a wealth management business where different clients own different stocks), and a candid self-assessment of Morningstar star ratings by Morningstar itself which funds that while star ratings have limited predictive value they do tend to correlate to funds that are more likely to be lower cost, have moderate volatility, and actually stay in business (albeit perhaps due to the favorable flows that the funds receive when Morningstar gives them a good star rating in the first place!).

We also have several career management articles this week, including: tips for advisory firms to actually develop their young talent internally (which is increasingly necessary as the cost of hiring experienced advisors just continues to rise); the Culture, Community, and Compensation components of an advisory firm that are essential to young advisor employee retention; how yet another wirehouse (UBS) is revamping its trainee program to shift away from commission-based sales and into a more in-depth salary-based training in actual financial advice; and a good reminder that as advisory firms get bigger and deeper, and financial planning itself attracts a wider range of candidates, that there is a growing opportunity for entire career tracks built not around client-facing positions but the operations roles in a successful advisory business.

We wrap up with three interesting articles, all around the theme of year-end planning: the first provides tips and best practices on how to handle end-of-year employee reviews; the second gives some great ideas on what to do for end-of-year holiday gifts for clients (i.e., what to do instead of just the traditional mass holiday card!); and the last explores why you can only do so much planning for your future before you have to just take the first step, initiate something new, be ready for it to fail, and figure it out as you go… a good reminder as advisory firms do end-of-year strategic planning and consider what they will do new and differently in the coming year (and how to overcome the hurdle of what they planned to do new and differently in 2017 that never actually happened!?).

Enjoy the “light” reading!

IRS Gives Tax Relief to Victims of California Wildfires

After the recent destruction caused by the California Wildfires, the IRS announced today that individuals and businesses have until January 31, 2018 to file certain individual and business tax returns and make certain tax payments. This includes an additional filing...

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source https://blog.turbotax.intuit.com/tax-news/irs-gives-tax-relief-to-victims-of-california-wildfires-32304/

Thursday 12 October 2017

Hurricane Victims Get Additional Relief with the Disaster Tax Relief and Airport and Airway Extension Act of 2017

Following the devastation left from Hurricanes Harvey, Irma, and Maria, the Disaster Tax Relief and Airport and Airway Extension Act of 2017 was signed into law. The bill provides relief in addition to the already extended tax deadlines provided to...

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source https://blog.turbotax.intuit.com/tax-news/hurricane-victims-get-additional-relief-with-the-disaster-tax-relief-and-airport-and-airway-extension-act-of-2017-32274/

Navigating RIA Non-Compete And Non-Solicit Employment Agreements As A Financial Advisor

In their eagerness to simply get a job as a financial advisor, many new financial planners gloss over the details of what they’re agreeing to in their RIA employment agreement regarding their clients if it doesn’t work out. After all, it’s often a moot point to worry about what happens to your clients if the job doesn’t work out, as usually if it doesn’t work it’s because the new advisor struggled to get any clients in the first place. Except sometimes, it does matter, because sometimes it does work out, just not at an advisor’s current firm. Yet if you don’t want to stay with your current firm, you have to figure out what happens to your clients you have a relationship with when you leave the firm, and whether you are allowed to “take” them with you!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the dynamics of non-compete, non-solicit, and non-accept agreements for financial advisors working for an RIA, including how easy/difficult they are to enforce, and whether non-compete and non-solicit provisions are really “fair” in the first place.

Unfortunately, disputes over non-compete and non-solicit agreements are increasingly common issues to deal with when an advisor is leaving an RIA, as employment agreements themselves have become far more common as independent RIAs have grown larger. Yet even amongst the restrictive covenants in an employment agreement, there’s a big difference between non-compete, non-solicit, or non-accept provisions… both because some are far more restrictive than others, and also because not all of these are equally enforceable (at least in some states).

The first type of restrictive covenant in an employment agreement is a “Non-Compete”. A non-compete provision stipulates that if you leave the advisory firm, you can’t continue being a financial advisor for another firm – or your own firm – if it competes with your prior firm. In other words, if you leave, you can’t be a financial advisor anymore. Fortunately, in practice comprehensive non-competes like this are typically difficult to enforce, and in many states, they’re outright unenforceable. That being said, though, some states will allow narrower non-compete agreements, such as limiting you from being a financial advisor for another firm within 20 miles of your current firm. Although unfortunately, even though not all non-competes are enforceable, it hasn’t stopped a lot of RIAs from putting non-competes into their employment agreements, because not all advisors realize that the non-compete might be unenforceable in their state, and a lot of advisors don’t have the financial wherewithal to fight the non-compete and prove their case. So the firm gets away with it.

Because of the challenges with enforcing a Non-Compete, though, many RIAs that truly want to protect their client relationships, with something that can actually be enforced, require employee advisors to sign a Non-Solicit instead. A non-solicit agreement stipulates that you will not solicit any of the clients of the firm. In other words, you can’t contact any of the clients of your former firm to ask you to do business with you after you leave. Even if they were “your” clients. The key difference between a non-solicit and a non-compete is that with a non-solicit, you can continue to be a financial advisor. And you can be an advisor in the same industry, in the same niche, and even in the same geographic region. And because a non-solicit is narrower in scope, they’re much more likely to be enforced if challenged. Notably, a non-solicit doesn’t mean you can’t still work with your former clients, it means you can’t solicit them. So you can’t reach out to them after you leave and ask them to keep working with you, but you may be able to work with them if they follow you on their follow.

The third kind of agreement that exists in some RIA employment agreements is what’s called a “Non-Accept”. A non-accept agreement is basically an extended version of a non-solicit. The non-solicit says “here are a list of clients you can’t solicit.” A non-accept says “here are a list of clients you’re not allowed to accept, even if they contact you unsolicited.” In practice, these are less common in the RIA business, as similar to broad-reaching non-compete agreements, they aren’t always able to be enforced in a court if challenged. Still, though, it’s a matter that varies by state. And some RIAs include a non-accept provision in their non-solicit agreement, simply on the hopes that the advisor won’t realize it may not be valid, and/or that the advisor won’t have the capacity to fight it.

From the financial advisor’s perspective, this rise of RIA employment agreements with non-compete and non-solicit provisions are a huge challenge. Because it means if you build your career and a client base with your firm, and you decide to leave, you’re likely going to have to start over and leave all your clients behind. To some advisors, this may not seem “fair”, especially if the advisor really did do the work to get the client.

But while this may feel frustrating, from a firm’s perspective, the business takes a lot of risk and assumes a lot of cost to be a platform for you as an advisor. Even if you get the client, you may be doing that with their brand, their resources, and their support.

But in the end, the key thing to realize is that if you are working in an advisory firm, you need to know what your employment agreement actually says, and consider the terms and their ramifications about whether you’ll have to start over before you leave. And because employment law is a state-by-state issue, advisors who are concerned about the restrictions in their employment agreements really need an employment law attorney, in your state, to determine whether a particular non-compete or non-solicit is enforceable in the first place!

Need help with your 2016-17 tax return?

Act fast to save money!

Do you need Taxfile to sort out and file your tax return? We’d be very happy to help and do well over 1000 Self Assessment tax returns for customers every year. However you need, please, to start giving us your paperwork ideally during October and November or, at a push, up to the 20th of December absolute latest if you are to avoid the price increases that may come into effect thereafter (these are sometimes necessary to cover overtime for evening and weekend work to process work for anyone who has left it until the last minute). From that point, the accounting world goes mad as everyone tries to hit the January tax return deadline all at the same time — we’ll have something like 400 last-minute tax returns to do in one crazy month. So the message is: avoid both the bottlenecks — and a likely price increase from 1st January — by coming to see us for your tax return as soon as possible. You can book your appointment online with the staff member of your choice (various languages spoken) at taxfile.co.uk/appointments/ or call the office on 0208 761 8000 (07766 495 871 after hours). Please don’t leave it to the last minute - thank you. We’ll require your records and receipts for the financial year 6 April 2016 to 5 April 2017.

source http://www.taxfile.co.uk/2017/10/2016-17-tax-return-help/

Wednesday 11 October 2017

Rules For Calculating Required Minimum Distributions (RMDs) During Life

To limit the otherwise-generous benefits of tax deferral for traditional retirement accounts, the Internal Revenue Code requires retirement account owners to begin taking money out of their accounts upon reaching age 70 ½. Not that retirees are required to actually spend the money. But the funds must be distributed out of the retirement account, triggering income tax consequences, to ensure that Uncle Sam can get his share.

However, the purpose of the RMD rules is simply to ensure that retirement accounts taxation is not deferred any longer than what a reasonable retiree would prudently have withdrawn anyway. As a result, the RMD obligation merely requires that the account owner take money out systematically over his/her life expectancy (or actually, the joint life expectancy of the retiree and his/her designated beneficiary).

To limit potential abuse, though, the Internal Revenue Code and supporting Treasury Regulations prescribe very specific rules about exactly how to calculate what a “prudent” distribution would have been, including when and how to determine the value of the account, what life expectancy to use, the deadline for taking the distribution, and how to coordinate when there are multiple accounts with multiple distribution obligations.

In reality, retirees who are actually using their retirement accounts for retirement spending may well be withdrawing more than enough to satisfy their RMD obligations anyway. However, given the substantial penalties involved for failing to take the full amount of an RMD – a 50% excise tax for any RMD shortfall – it is crucial to ensure that the RMD is calculated correctly (and withdrawn in a timely manner)!

Tuesday 10 October 2017

Financial Planning Month: Tax Edition

October is Financial Planning Month, and what better way to plan than to take a look at your taxes! Oh my, you thought you didn’t have to do that until January, right? Not true, because now is the time to...

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source https://blog.turbotax.intuit.com/tax-planning-2/financial-planning-month-tax-edition-32220/

#FASuccess Ep 041: Structuring A Leadership Team And Family Succession Plan In A Billion Dollar RIA with Elaine Bedel

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

My guest on today’s podcast is Elaine Bedel. Elaine is the founder of Bedel Financial, an independent RIA in Indianapolis that provides comprehensive financial planning and investment management, and over the past 29 years has grown to more than $1 billion in assets under management.

What’s fascinating about Elaine’s business, though, is not simply that she’s been successful in growing to the $1 billion AUM milestone, but that she founded the firm from the start as a fee-only RIA in 1989, a time when very few financial advisors launched fee-only firms, and even fewer who were women.

In this episode, we explore Elaine’s journey as a pioneer female fee-only financial planner, from starting her career in a bank trust department where she learned all about estate planning and investment management, to becoming the Director of Financial Planning for Coopers and Lybrand and honing her tax planning expertise in a Big 8 accounting firm of the time, and then transitioning to create her own independent RIA in 1989.

From there, Elaine shares how her advisory fee structure evolved from doing standalone financial planning project fees, to her current blended AUM-plus-upfront-planning-fee model, the unique engagement letter process that she uses after her initial meeting with clients to quote them a fee, and the way that she breaks up the upfront planning fee into an initial and ongoing payments in the first 3 months to help get buy-in from clients to complete the process.

And be certain to listen to the end, when Elaine talks about how she navigated the challenges of bringing her son into the advisory business, from first requiring him to work in another firm for a period of time, and then hiring him into the business but in a position that would not report to her, and how ultimately he has both become a partner and successor owner in the business, and is underway in launching the firm’s Generation NeXt offering, which started as a financial planning solution for the children of the firm’s clients, but is now growing even further beyond them.

So whether you’re looking for insight into how a large advisory firm blends together upfront planning fees with the AUM model, new ideas in how an “engagement letter” can help to close prospective clients, or want some perspective on how to successfully navigate an intra-family succession plan, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 9 October 2017

The Six Levels Of Account Aggregation #FinTech And PFM Portals For Financial Advisors

While the early years of the internet brought a wave of new solutions that made it easier than ever to track one’s investments, it wasn’t until Mint.com showed up in 2006 that the true potential power of “account aggregation” was revealed, as the company grew to 1.5 million users in just two years and was sold the next to Intuit for a whopping $170 million.

Yet years later, the adoption of account aggregation in the financial services industry remains somewhat lackluster, particularly amongst the largest enterprise buyers like banks and financial advisor broker-dealers. While some new solutions roll out, and an occasional blockbuster deal is announced, relatively few new players have arrived on the scene for several years now, and a number of banks have recently announced that they are shutting down their PFM solutions.

A deeper look, though, reveals that perhaps the biggest blocking point to the growth of PFM solutions – particularly in the financial advisor channel – is that most remain mired in the early days of using account aggregation to simply compile investment performance reports and identify held-away assets. Relatively few have evolved to higher-level functions that would support the delivery of financial advice (and not just the sale of financial products), and even fewer have gone to the next level where account aggregation could be used to actually automate financial plan monitoring and the execution of financial planning strategies. In fact, when account aggregation providers are evaluated on the six levels of potential functionality, most have failed to even move beyond Level 1 or Level 2!

Fortunately, though, the reality is that the unit economics of providing account aggregation solutions to financial advisors are actually quite good, especially compared to the direct-to-consumer channel, and a few key players – including Envestnet’s Yodlee and Quovo – appear to be positioning themselves for the future growth opportunities of advice-centric account aggregation. Nonetheless, for the time being, account aggregation appears to be stuck in a chicken-and-egg dilemma that few providers are building advice-centric account aggregation solutions (instead remaining focused on only investment accounts), but the industry’s product-centric focus means few enterprises are demanding the Advice and Automation levels of account aggregation anyway.

However, with the ongoing shift of financial advisors towards real financial advice, catalyzed by the Department of Labor’s fiduciary rule, the logjam may finally be about to break free – creating a wave of new account aggregation solutions that can power next generation financial advisor dashboards and client PFM portals that truly help to deepen the value-add of a financial advisor!

Friday 6 October 2017

Weekend Reading for Financial Planners (October 7-8)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that the SEC has indicated it is beginning work on its own fiduciary proposal that would harmonize the standards of conduct for investment advisers and broker-dealers (and between the SEC and the DoL), though it remains to be seen how long it will really take for the SEC to even propose, much less adopt, its own fiduciary standard. Also in the news this week is a proposal from FINRA to make more information available to consumers via BrokerCheck, and a growing momentum for broker-dealers to adopt the NASAA Model Fee Disclosure that would give consumers a consistent set of clear disclosure documents about all the various fees and charges that broker-dealers may assess besides standard trading commissions or advisory fees.

From there, we have several practice management articles, including: a look at how to better vet potential technology solutions and avoid or minimize redundant technology (which ends out making the advisor pay twice for the same solution!); tips on potential tax deductions that advisory firms should bear in mind for themselves; and a fascinating look at the future of financial advisors and the shift to the RIA model from industry leader Mark Tibergien.

There are also several more technical planning articles this week, from a reminder that now is a good time to start doing “Medicare annual reviews” with retirees (as the Medicare Open Enrollment season opens later this month), to guidance from Ed Slott about how to take advantage of the “still working” exception to RMDs from a (current) employer retirement plan, and the news that the Treasury will be withdrawing the proposed Section 2704 regulations that would have imposed a major crackdown on Family Limited Partnership (FLP) discount strategies and providing a green light to the planning technique for now (at least until/unless the Democrats regain control in Washington and potentially reassert the crackdown in the coming years?).

We wrap up with three interesting articles, all around the theme of the social issues and challenges of having substantial wealth: the first is a look at the psychology research about why, exactly, we so often “hate” the super-wealthy, and why animosity towards wealth is so common; the second explores how, in part because of the challenging social dynamics around wealth, many wealthy individuals go to great lengths – often subconsciously – to rationalize and even downplay their wealth to reduce the social discomfort; and the last examines the fears that parents often have if they have the financial wealth to retire early but worry about the example that “not working” may set for their children… although the reality seems to be that, as long as the parents stay engaged and clearly communicate the reason that they’re not working (i.e., their prior business/financial success), that doing so, and having more time to be involved in their kids’ lives, just helps to deepen the relationship and good example that they can set for their children!

Enjoy the “light” reading!

Thursday 5 October 2017

5 Tax Breaks for Teachers on World Teachers’ Day

Happy World Teachers’ Day! While our little girl is enjoying her first big school break (she’s in year-round), many families are just starting their school year. Plenty of teachers are back to work, giving their best to their students and...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/5-tax-breaks-for-teachers-on-world-teachers-day-32222/

How To Find The Best Financial Advisor Companies To Work For

With the number of different financial advisor business models and firm types that are in existence, prospective financial advisors have a lot of options when it comes to finding “real” financial planning jobs – the kind that don’t have sales requirements, and are really focused on (learning to give) financial advice. And the reality is that not all financial advisory firms are equally great to work for. But the good news is that the best financial advisor companies to work for do share a number of common traits, that can make them easier to identify.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we talk how to find the best financial advisor companies to work for, and why those companies tend to be larger companies with recurring revenue and a healthy growth rate.

Perhaps not surprisingly, if you want to find the best financial advisor companies to work for that won’t just make you a salesperson working on commission, the first secret is… to find companies that don’t work primarily on commission. It sounds intuitively obvious – if you don’t want to work on commission, don’t go to a company that pays its advisors on commission – but the real reason this matters is more nuanced. Because the fundamental challenge for any financial advisor who is paid on commission is that, no matter how successful you were last year, when you wake up on January 1^st, your income is zero (or close to zero with some small commission trails). Which is crucially important, because it means commission-based advisors can’t afford to reinvest into staff and create entry-level very many financial planning jobs. As a result, these firms tend to only hire salespeople who can go get more clients (and perhaps some administrative staff), but not real financial planning positions focused on financial advice itself.

The next criteria for finding the best companies to work for is that a company should be growing. At a minimum, you want a firm that is growing at 10% a year. Ideally, one that is growing at 15% to 25% a year. And the reason why is because the simple math of growth means a firm growing at 15% per year will double its size in about 5 years with compounding. Which means twice as much revenue, twice as many clients, and since advisors can only serve so many clients at a time, twice as many clients means twice as many financial advisor jobs in the coming years. And with the creation of many new jobs will also come new opportunities to grow in your own career path as a financial advisor.

Which leads us to the third and final factor that helps to determine which are the top financial planning firms to work for. Simply put: the best companies to work for are the biggest ones (ideally, a firm with at least $3 billion of assets under management or about $25 million of revenue, all the way up to mega-national firms like Vanguard’s Personal Advisor Services and Schwab’s Intelligent Advisory and Portfolio Consulting groups). This is actually a very controversial view, but the industry benchmarking data shows that the biggest firms are the ones adding the most new revenue, the most new clients, and consequently are the most likely to be hiring financial planners (and with recurring revenue, those jobs are likely to be focused on really providing financial planning advice).

The bottom line, though, is just simple to recognize to recognize that the best financial advisor companies to work for have three key traits: a recurring revenue business model, a healthy growth rate, and some size and scale to have a deep bench of new opportunities. The caveat to this is that because these firms tend to pay the best and have the best career prospects, they are also the most competitive. Which means if you want a job at one of the best firms to work for as a financial advisor, you better bring you’re A-game!