News About IRS And Tax: July 2018

Tuesday 31 July 2018

I Just Joined Bumble Bizz. Are There Any Networking Deductions I Can Take?

Building your own business comes with challenges and perks every step of the way, but along that path, you’re probably going to meet people who can lend a hand or share an important piece of advice. One of the most...

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source https://blog.turbotax.intuit.com/self-employed/i-just-joined-bumble-bizz-are-there-any-networking-deductions-i-can-take-41210/

#FASuccess Ep 083: Switching to the Right Independent Broker-Dealer by Understanding its Profit Centers with Jon Henschen

Welcome, everyone. Welcome to the 83rd episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Jon Henschen. Jon is the president of Henschen & Associates, a recruiting firm that specializes in helping advisors find and match themselves to the right independent broker-dealer when making a switch to a new platform. What’s unique about Jon, though, is his willingness to be transparent in how broker-dealer recruiting really works in a segment of the industry that historically has thrived by keeping much of its compensation hidden with back-end commissions and markups.

In this episode, we talk in depth about the key factors to consider when evaluating a prospective independent broker-dealer. Why the ownership structure and whether the BD is publicly-owned or privately-owned and whether the private owner is an individual or a bank or an insurance company or a private equity firm is so important, the ways that certain broker-dealers specialize in certain types of reps, how forgivable loans work when advisors are recruited to a new independent broker-dealer, and the ways that broker-dealers have created profit centers above and beyond the payout grid, which is crucial for advisors to know so they don’t unwittingly switch to a broker-dealer that may drive higher pass-through costs to their clients.

We also talk about how the independent broker-dealer recruiting model itself works. How recruiters are paid by broker-dealers to find new advisors to switch to them, what broker-dealers really spend upfront in order to attract advisors to make the switch, and how the dynamics differ when being recruited to a larger versus smaller independent broker-dealer.

And be certain to listen to the end, where Jon talks about the trends in independent broker-dealers that advisors should know when considering where to build their businesses in the long run. How the growth of the RIA channel and the fee-based business is impacting the broker-dealer model, and how different broker-dealers are taking very different positions on whether or how to support hybrid RIAs.

So whether you are interested in hearing about the various ways in which broker-dealers make money, how their recruiting process works, the most important things to consider when evaluating a prospective broker-dealer, or what changes may be coming down the pike for the industry in the coming years, then I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 30 July 2018

Time to Cut Your Grocery Costs With These 5 Crucial Tips

Besides homes and cars, when I chat with families about their finances, I notice that their next biggest expense by far is food. And while grocery shopping is a necessity for most people, the problem for many of us is that our...

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source https://blog.turbotax.intuit.com/income-and-investments/time-to-cut-your-grocery-costs-with-these-5-crucial-tips-41346/

Public Comment Letter on the SEC Advice Rule and Separating Advice from Sales

Earlier this year, the SEC proposed its own long-awaited overhaul of the regulation of broker-dealers and investment advisers. At the time, the Department of Labor’s fiduciary rule was still the law of the land, and the pressure was on the SEC to “harmonize” – both the SEC’s regulation with the DoL’s version, and to close what has long been perceived as a concerning gap in the standards of conduct that apply to the “suitable” advice delivered by brokers versus the “fiduciary” advice of (registered) investment advisers.

And while the DoL fiduciary rule has since been struck down, consideration of the SEC’s advice rule is still, thus far, proceeding as planned, with a controversial overhaul of the standards of conduct for broker-dealers that would require them to act in the “best interests” of their customers when making a recommendation (but not as a fiduciary at all times in their relationship with clients) under the new Regulation Best Interest, along with a new Form CRS (Customer/Client Relationship Summary) to better describe the nature of the broker or investment adviser’s relationship with the consumer, and a potential limitation on the use of the “financial advisor” title by at least the brokers at standalone broker-dealers who have no RIA affiliation.

Yet, while the SEC’s efforts to lift the standards of advice being delivered by brokers is laudable, arguably its effort to do so by applying Regulation Best Interest to the “pay as you go” episodic or transaction advice of brokers inappropriately redefines the Investment Advisers Act of 1940 itself… which knowingly subjected broker-dealers to a lower standard than that of investment advisers specifically because brokers are not supposed to be in the business of advice (ongoing or episodic) in the first place, and were only permitted to provide advice to the extent that advice was/is “solely incidental” to the sale of brokerage products and services. In other words, the problem is not that broker-dealers are giving advice without being subject to a fiduciary standard under FINRA regulation; the problem is that broker-dealers giving such advice are required to register as investment advisers, and if they did, they would already subject them to the fiduciary standard that applies to registered investment advisers, rendering the entire Regulation Best Interest proposal moot anyway!

In this context, it is especially concerning that the SEC’s proposals appear to undermine the clear choice between sales versus advice that Congress intended when establishing the ’40 Act in the first place. After all, it’s hard to imagine that consumers will understand the sales-versus-advice distinction when the proposed Form CRS disclosure states that consumers may receive advice from a broker on a transactional or episodic basis or from an investment adviser on an ongoing basis (when the SEC already requires advisors providing transactional or episodic advice in the form of hourly and project planning fees to become investment advisers anyway), and it is unclear how any consumer could understand their choices given the Form CRS disclosure that broker-dealers “must act in your best interest and not place our interests ahead of yours” while investment advisors “are held to a fiduciary standard” which the SEC defines as the obligation to “act in the best interest of the client” as well!

Similarly, while the SEC’s advice rule proposes to reduce consumer confusion by limiting the use of the “financial advisor” term by standalone broker-dealers and their registered representatives, it continues to allow hybrid advisors to use the label, knowing full well that at least a portion of the advisor’s services will not be in his/her capacity as an advisor but as a salesperson. In other words, advisors are explicitly being granted permission to market their services as “advice” and implement that advice without being subject to the appropriate standard for advice, without any requirement to explain to the consumer when the advice relationship ended. For which the SEC suggests consumers might be “confused” by a requirement that the advisor clearly disclosure and use proper labels for the “hat” being worn… instead of recognizing that the confusion stems from the nature of the dual-hatted advice-and-also-sales relationship in the first place, for which clear use of titles at all times alleviates the confusion!

The bottom line, though, is simply to recognize that the real problem in the marketplace for financial advice today isn’t that broker-dealers are giving advice without being subject to the fiduciary duty that has always been applied to advice relationships of trust and confidence, or that the application of a fiduciary duty to the broker-dealer model could limit choice (and thus why a lower Regulation Best Interest standard is needed instead). The real problem is that Congress articulated in the Investment Advisers Act of 1940 that consumers should have a choice – between brokerage sales and investment advice – which the SEC’s Regulation Best Interest proposal not only fails to honor, but risks undermining to the detriment of advisor competition in the marketplace and the elimination of clear choices for consumers.

In any event, though, whether you agree or disagree, the time to do so is now, as the 90-day Public Comment period on the SEC’s proposals ends on August 7^th. So, if you haven’t submitted your own comments to the SEC about why Regulation Best Interest and Form CRS should, or shouldn’t, move forward… now is the time to make your voice heard!

Saturday 28 July 2018

Is My Student Loan Tax Deductible?

Student loans have become a tremendous burden. Even though you can’t escape the payments, are there any tax breaks for student loans? Luckily, most taxpayers who make student loan payments on a qualified student loan will get a little relief.

source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/education/is-my-student-loan-tax-deductible-10166/

Friday 27 July 2018

Weekend Reading for Financial Planners (July 28-29)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a look at the recent Focus Financial IPO, which did in fact go off as planned this week, at a lower price than the rumored peak, but far higher than first anticipated when the IPO was announced, with trading that began at $33/share and closed at $37.55 after the company’s first day… which at a multiple of nearly 18X EBITDA, is both a tremendous validation of what markets in the aggregate still see as the promise of the independent RIA model, and will likely fuel a fresh wave of advisory firm roll-up aggregation and M&A.

Also in the news this week is a discussion of how CFP Board is beginning to gear up its compliance enforcement capabilities more than a year in advance of its new fiduciary Standards of Conduct that will take effect in October of 2019, and the questions that still linger after the FPA not only terminated its affiliation agreement with a challenged New York chapter but chose not to replace the chapter with a new independent nonprofit entity (as exists for its more-than-80 other chapters) and instead decided to roll the FPA of Metro New York into the national FPA organization, and raising questions about whether the approach may be a template for national attempting to centralize more of its chapter system in the coming years.

From there, we have several articles on investment themes, from a paper in the Financial Analysts Journal suggesting that Bill Sharpe’s famous “Arithmetic of Active Management” (suggesting that the average active manager return will and must underperform the market in the aggregate, net of fees) may not be valid in practice due to the existence of IPOs and share repurchases along with additions and deletions from public market indices (which creates opportunities for active managers to still add net value at the margins), to a look from Research Affiliates at when and whether investment manager selection is really worth the effort (at least compared to simply trying to help clients better manage their own behavior), and a candid look from Morningstar at how its own new Morningstar Analyst Ratings have performed after their first 5 years (finding that Gold ratings do predict risk-adjusted outperformance, and Negative-rated funds underperform, but Silver, Bronze, and Neutral funds are ending up in a murky middle).

We also have a series of articles on client communication, including some good icebreaker questions on how to get clients or prospects to start talking about themselves, 10 “tactless” things that advisors often have to tell clients to help them face reality, and what to consider in the unfortunate situation you actually need to communicate to a client that it’s time to end the relationship (i.e., to “fire” the client).

We wrap up with three interesting articles, all around the theme of how increased longevity, paired with increased connectivity, and changing the ways we work and the ways we take breaks from work: the first explores the rising interest, especially amongst Millennials, in taking sabbaticals and even 1-2 year stints off from work, as an alternative to just working continuously for 40-50+ years (given increased longevity) and then taking the vacations all at the end; the second looks at how the conventional view is that you have flexibility to “goof off” and pursue your passions while you’re young, yet in reality we often don’t really know what we enjoy and want to pursue when we’re young, and that perhaps a better formula is to just focus on working hard in the early years and aim to pursue your passions in your 40s and 50s instead (when your life is more stable and you better know what you actually would want to do); and the last makes an interesting case that, in a 24/7 ever-connected world, perhaps it’s a good idea to deliberately live a “24/6” lifestyle, where we take one “digital sabbath” per week to completely unplug and focus on ourselves, our health, and our relationships… both because doing so seems to improve our happiness, and because the alternative has a greater risk of leading to burnout, anyway!

Enjoy the “light” reading!

Thursday 26 July 2018

Letting a Room through Airbnb? HMRC Tracks your Income!

Back in late 2015, we forewarned that HMRC was planning to force on-line companies like Airbnb to share customer income data with them. That plan has come to fruition and HMRC is now receiving detailed information from Airbnb and other online providers. The data will tell HMRC about lettings income that may have been previously […]

source https://www.taxfile.co.uk/2018/07/tax-on-airbnb-lettings/

Why Simple Financial Advisor Regulation Requires Complex Guidance

After announcing earlier this year the final approval of its new Code of Ethics and (fiduciary) Standards of Conduct for CFP certificants, the CFP Board recently announced that it was creating a “Standards Resource Commission” – a new assemblage of 13 industry leaders formed for the purpose of providing formal guidance and supporting resources for the CFP certificant community to better understand how to comply with the new CFP fiduciary standard.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why this was a good and needed move by the CFP Board, why it’s necessary for even simple “principles-based” fiduciary regulation to have formal guidance on how to comply, and how the industry tends to wind up with very long and very complex regulations to support fiduciary regulation – not because a fiduciary rule is complex, but because the industry is a complex beast to which even simple fiduciary regulation isn’t simple to apply.

To understand why the CFP Board’s new Standards Resource Commission is a good idea, though, it’s important to recognize that one of the key issues that many raised in Public Comment letters when the Board’s Standards were proposed was its heavy reliance on the notion of “reasonableness”. For instance, the Standards of Conduct stipulated that advisors should act in a “reasonable” manner when addressing everything from data security to avoiding material conflicts of interest. Yet unfortunately, the very definition of “reasonableness” can potentially be quite subjective… which is why the new Standards Resource Commission is so important; their job will be to determine from the advisor community, and more importantly communicate back to the advisor community, what are our generally accepted professional practices that are recognized as industry standards and therefore “reasonable”.

For some, though, frustration remains that there is a need in and of itself to define what it means to be “reasonable” in the first place. Why isn’t the fact that CFP professionals are required to act in the best interest of their clients enough? What’s so hard about that? Why do we need all this other guidance stuff?

The answer is that in reality, simple concepts, as appealing as they are, aren’t always easy to apply to a complex system… and there aren’t many industries more complex than the financial advice industry! For example, fiduciary advocates often suggest that advisors should be banned from using only proprietary products, so that they can implement a potentially-lower-cost alternative like a Vanguard fund if it’s in the clients’ best interests. But what happens if the advisors works at Vanguard; would the Vanguard advisor be banned from using best-in-class Vanguard funds because they happen to be a proprietary product for the Vanguard advisor?

The sheer complexity of the industry means that simple rules aren’t always so easy to apply to the multitude of situations… and that’s exactly why we end up some very long and complex regulations.

However, it’s crucial to recognize that while the regulatory guidance can be quite long, the actual fiduciary and best-interests standard rules that the regulators have proposed in recent years are quite short. The Department of Labor’s fiduciary rule was not actually a 1,023 page rule; the actual rule that applied directly to advisors was just 3 simple pages… followed by 800 pages of guidance for a complex industry. Similarly, the SEC’s advice rule is not actually a 917 page rule, but a 7 page rule with over 900 pages of guidance for a complex industry. And even the CFP Board’s new 16-page Standards of Conduct is actually a half-page fiduciary rule (that’s it!), and 15+ pages of guidance regarding the Code of Ethics and conduct that is expected to comply with that rule.

And unfortunately, this tendency for long regulatory guidance for a complex industry will likely continue, until and unless the financial services industry is forced to actually become less complex – for instance, by separating out the different business lines – so that companies that create and sell financial products aren’t allowed to own advisory businesses, as is the case in the medical industry where doctors aren’t paid by drug companies to sell specific products, and is now being considered in Australia in the aftermath of their initial fiduciary regulation several years ago.

Until then, the key point remains that the complexity of regulatory guidance doesn’t stem from the fiduciary rules themselves… it stems from the complexity of the industry trying to follow them. Because being a fiduciary isn’t confusing in and of itself… but it does start getting a little messy when you begin to apply simple concepts to the real-world complexity of the financial services industry.

Wednesday 25 July 2018

Financial Advisor Trends in Constructing Mutual Fund Vs ETF Investment Portfolios

One of the biggest trends in the investment industry in recent years has been explosive growth in the variety, availability, and use of exchange-traded funds (ETFs). Not only because they are more tax efficient, have more flexible trading, and are typically being less expensive – which has made them a popular way to implement passive investing strategies – but also because even advisors who actively manage portfolios themselves appear to be used ETFs are the core “passive” building block for their active ETF strategies. However, the industry still shows that the overwhelming majority of advisors still use mutual funds as well, which in turn raises the question: how, exactly, do advisors choose between mutual funds versus ETFs and select the particular investment vehicle they’re going to use… and from the asset manager’s perspective, what should fund companies be doing to get their investment solutions in front of advisors?

In this context, a recent industry study published by Erdos & Morgan provides a fascinating look into what advisors actually view as the most important factors when selecting fund providers. Not surprisingly, performance and fees rank were top-ranking factors, but advisors also place a high value on a fund provider’s approach to managing volatility and their perceived trustworthiness… and surprisingly (or not) weight at all on the fund company’s marketing materials, wholesalers, or “thought leadership” white papers. And the trend is especially pronounced amongst the RIA channel, which sits the furthest from traditional commission-based fund distribution models, and appears to be the most likely to take a “don’t call us, we’ll call you” approach to selecting fund providers to work with.

In fact, another study from Advisor Perspectives (also looking at fund company selection by advisors) found that advisors are becoming increasingly sophisticated in regards to evaluating a fund’s fees and performance, instead of relying on the higher-level “rankings” from research providers (e.g., Morningstar’s star ratings). And to the extent that advisors want “value-added” services from fund providers, the desire is not for practice management advice, but simply more accessibility to deeper investment expertise, from having more direct access to fund managers and research analysts, and demanding that wholesalers themselves be increasingly investment savvy (with real investment expertise like CIMA certification) as well.

The bottom line, though, is simply that with all the rapid changes occurring in the industry, there is growing recognition that the traditional distribution approach of fund providers and asset managers is changing. Yet thus far, fund companies appear to be struggling to adapt, leading to especially low reputation scores from RIAs compared to advisors working at broker-dealers, and substantial negativity towards traditional wholesalers. The good news, however, is that in the end, client assets still have to be invested somewhere… which means there is a substantial opportunity for the fund providers that can learn to adapt most quickly to the new normal of how advisors select investment solutions.

Tuesday 24 July 2018

Hosting an Estate Sale This Summer? Here’s How it Affects Your Taxes

Are you hosting an estate sale this summer? It may be because a loved one passed away and you need to sale their belongings, or it could be on account of divorce, bankruptcy, downsizing, or any number of other reasons...

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source https://blog.turbotax.intuit.com/income-and-investments/hosting-an-estate-sale-this-summer-heres-how-it-affects-your-taxes-41323/

#FASuccess Ep 082: Insights From The History Of Financial Planning Since The First CFP Class with Ben Coombs

Welcome, everyone. Welcome to the 82nd episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Ben Coombs. Ben is the former owner of Petra Financial Advisors, an independent advisory firm that he built and ultimately sold to a successor when he was ready to retire, and is now retired after nearly 40 years of experience as a financial advisor. But what’s really unique about Ben is the fact that he was a member of the very first class of CFP certificants in 1973, and was subsequently involved in the formation of the Institute for Certified Financial Planners, also known as the ICFP, later that year, and was a member of the Board of Directors of the CFP Board in its early days. In other words, Ben has actually lived and been a part of the entire history of the movement of financial planning from the very beginning.

And in this episode, we talk in depth about the history and evolution of financial planning itself, from what it was like to be part of the first class of CFP certificants, the challenges that set back the early financial planning movement when it was still largely about using financial plans to sell products, why the professional association for CFP certificants split from the broad association for financial advisors and took nearly 25 years to be rejoined as the FPA, the lawsuit that actually caused the CFP Board to be created as a spinoff from the College for Financial Planning in Denver, and how almost all of the common industry debates that we have today, from the sometimes problematic relationship that CFP stakeholders have with the CFP Board to the battles over various forms of advisor compensation are not at all new but have actually been repeating every decade since the inception of financial planning itself.

We also talk about Ben’s accumulated wisdom having been a financial planning practitioner and a part of the financial planning movement over his entire professional career, from how the financial planning approach fundamentally changes the nature of the questions we ask of and for our clients, to why it’s so necessary to sometimes give things up in order to move forward, whether it’s in our own career or for the financial planning profession as a whole, how different compensation models can sometimes unwittingly cause us to collect bad information about the solutions we make available to our clients, and why in the end it’s absolutely crucial to be the one that delivers important news to your clients, including the bad news.

And be certain to listen to the end, where Ben shares his wisdom about what every financial advisor should be doing to advance their own careers and the quality of the services they provide to their clients.

So whether you are interested in hearing more about the beginning of the financial planning industry, how many of challenges we face as a community have cropped up decade after decade, or insights into what advisors can actively do to keep pushing their careers forward, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 23 July 2018

Social Media Influencers: A Guide to Your Tax Return(and All the Free Stuff You Receive)

Are you a social media influencer or a well-followed blogger? You may be having fun while working and promoting your favorite brand, but if you are being financially rewarded, the IRS says that you are in business – a self-employed,...

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source https://blog.turbotax.intuit.com/self-employed/social-media-influencers-a-guide-to-your-tax-returnand-all-the-free-stuff-you-receive-41339/

The Efficiency Benefits Of Niching From The Start To Launch An Advisory Firm

Starting a new financial planning practice can be a scary yet exciting time. One of the big challenges facing any financial advisor is finding initial clients and building up a business that can financially support itself. As a result, in the beginning, many financial advisors will take anyone who is willing to work with them. Yet the reality is that while this can create some growth at the start, often this can actually impede growth in the future, as a business without any clear focus and target clientele can lead to significant problems with efficiency.

In this guest post, Meg Bartelt of Flow Financial Planning, LLC recounts the evolution of her virtual fee-only financial planning practice, from starting in May of 2016 with a focus on “working mothers in the tech industry” and growing into her current focus on “early to mid-career women who are employees in the tech industry”. Additionally, Meg notes the benefits of starting out with a niche, such as easier design of process and deliverables (as everything can be designed around a single clientele), easier referability (as clients actually know what’s unique about you and who they should send to you), increased confidence (as working with a community of people you know a lot about can help you develop assurance in the value you provide to clients), more enjoyable client relationships (as working with people you know and like will make the work more enjoyable), and more effective professional development (as she can ignore many of the topics that a generalist must focus on, while specifically honing in on topics that are meaningful to her clients)!

Ultimately, every firm has their challenges in the early days and Meg’s firm was no exception, but by focusing on a niche and marketing it aggressively – including sufficient investment in a quality online presence that resonated with her target clientele, efforts building SEO through her blog, networking through the right online communities, and leveraging centers of influence that many advisors traditionally don’t focus on (e.g., resume writers, career coaches, and people who are “hubs” in the tech industry) – Meg was able to reach the tipping point at which her efforts paid off, and now she has an entirely virtual firm on pace to likely break $150k in revenue in just her third year of operation. And Meg has done all of that while bringing on 26 of 31 clients in her niche, and adopting a policy of only accepting clients in her niche going forward, as she has seen the efficiencies gained from growing a firm through niching from the start!

Friday 20 July 2018

6 Tax Write-Offs for Your Wedding

Weddings are expensive, so it is too bad that they aren’t tax deductible. But wait – though tax write-offs may not be top-of-mind when you are planning your wedding, with careful planning there are some ways you can garner a tax deduction or two.

source https://blog.turbotax.intuit.com/tax-tips/6-tax-write-offs-for-your-wedding-5133/

Weekend Reading for Financial Planners (July 21-22)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that the CFP Board has selected Vanguard veteran Jack Brod, CFP, to serve as President-Elect of its Board of Directors, as Vanguard itself becomes a rising force in hiring CFP certificants for its Vanguard Personal Advisor Services division (which Brod helped to establish), and the CFP Board may face new struggles during Brod’s Chairman year in 2020 when the organization will have to actually begin enforcing its new fiduciary Standards of Conduct for the first time.

There were a number of other big news items this week as well, including a new set of retirement plan proposals rolling through Congress (that appear to have a chance to pass) that would expand multi-employer plan (MEP) options for smaller 401(k) plans and make it easier for 401(k) participants to buy (immediate) annuities at retirement, the revelation that with its final IPO under two weeks out Focus Financial’s opening price may come in substantially higher than previously anticipated (suggesting there is still substantial investor demand for RIAs and potentially fueling a fresh new wave of M&A), and the finalization of New York state’s fiduciary rule for annuity and life insurance sales (which could prove to be an industry-wide template if the NAIC does not implement a similar model rule).

From there, we have a number of articles on next generation advisors, succession planning, and continuity planning, including: the generational perspective gaps that are impeding the ability of founders and successors to establish effective succession plans; why next generation advisors want more than a job (and how to inspire them to come into the financial planning profession); issues to consider when implementing a real-world succession plan (from both the founder-owner and successor-owner’s perspectives); the tax related considerations in how a buy/sell agreement or succession plan is structured; and how to properly structure a continuity plan for those who do not want to retire and transition to a successor but do need a contingency plan for what happens to the business and their clients if something happens to them (e.g., in the event of sudden disability or death).

We wrap up with three interesting articles, all around the theme of how financial advisor and financial advisors are changing in the future: the first explores the rise of financial wellness programs in the workplace, as employee research finds that financially-related issues cause so much disruption in the workplace that employers can get a positive ROI by subsidizing or even fully paying for financial wellness programs for employees, spawning not only a growing volume of financial wellness technology platforms but even a rise in human financial advisor solutions offered in the workplace channel; the second looks at how nearly 5 years ago Australia set the template for fiduciary reform by being one of the first major countries to ban commissions for financial advisors, but the fact that those advisors remained employed by the companies that manufacture and distribute product has left them so conflicted that a Royal Commission is now investigating and deliberating about whether to split advice and product sales entirely (in a move that again could become a template for reform around the globe); and the last looks at how, despite the industry’s efforts to improve gender, age, and ethnic diversity, the needle has barely moved in years, raising the question of whether the problem is simply a lack of awareness and diversity support programs, or if the industry’s traditional view that “Financial success is derived from having a fixed set of goals funded as a consistent percentage of income into stock-market-based accounts” (based on our investment-centric business models) could unwittingly be less appealing and less aligned to the real-world needs and views of women, Millennials, and people of color, who may approach their own financial goals and saving and investing philosophies differently?

Enjoy the “light” reading!

Tax Credits Renewal Deadline Just Days Away – Don’t Miss Out!

If you’re claiming tax credits and haven’t yet renewed, then you’d be wise to pay very close attention to the following … Don’t Miss Out Tax Credits are payments made to eligible people with children and/or very low incomes. Examples include Tax Credits and Child Tax Credits and the payments are made by the UK […]

source https://www.taxfile.co.uk/2018/07/tax-credits-renewal-deadline/

Thursday 19 July 2018

How the Sales Tax Holiday Can Boost Your Back-to-School Savings

Back-to-school season is just around the corner! Depending on where you live, your state may be offering huge savings with a sales tax holiday shopping weekend on specific purchases. With state sales tax ranging from 4 – 10%, that means more...

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source https://blog.turbotax.intuit.com/tax-planning-2/how-the-sales-tax-holiday-can-boost-your-back-to-school-savings-19933/

Why Simple Financial Advisor Regulation Requires Complex Guidance

Wednesday 18 July 2018

Maximizing The “Still-Working” Exception To Delay RMDs From A 401(k) Plan

While qualified plan participants are generally required to begin taking distributions April 1 of the year following the year the plan participant turns 70 ½, the “still-working” exception delays the RBD to April 1 of the year following the year the employee retires. The motivations behind the still-working exception are simple enough (Congress anticipated that some workers would continue working beyond age 70 ½ and did not want to force these participants to begin taking distributions), however the reality is that the provision itself is surprisingly complex, containing many layers of rules that influence one another and make the determination of whether an individual is “still-working” more difficult than many would expect.

In this guest post, Jeffrey Levine of BluePrint Wealth Alliance, and our Director of Advisor Education for Kitces.com, takes a deep dive into the still-working exception, examining how an individual is (or is not) determined to be “still-working”, as well as the planning strategies that arise from the exception, such as rolling qualified assets into a still-working exception eligible plan, divesting more than 5% ownership of a company prior to age 70 ½, creating a new business after age 70 ½, and even just making sure the requirements are met to qualify for the still-working exception!

To the surprise of many, defining precisely what it means to be “still working” (e.g., 1 hour per week, 10 hours, 20 hours?) is not something that the IRS has done. However, the general interpretation based on a plain reading of the law is that, as long as the employer still considers an individual employed, that person is “still employed” for the purpose of the still-working exception (even if the ongoing work is of a relatively limited nature). However, this determination is further complicated by the fact that an employee must be employed throughout the entire year to qualify for the exception and delay RMDs past their 70 ½ year, which is defined as not having retired at any point during the year, including December 31st! So, if an individual worked every day of the year (including a full work day on December 31st), but retired on December 31st (i.e., did not come back to work at any time in the next year), then the individual would be deemed retired in that year and would not be eligible for the still-working exception during that year.

Another complication with determining whether an individual is “still working” is the exclusion of the rule for 5% owners of a business. One point of confusion is that 5% owners are not considered “5% owners” for the sake of this rule. Instead, owners must own more than 5% in order to be considered a 5% owner. A second point of confusion is that ownership according to the 5% ownership rule includes indirect ownership of stock owned by a spouse, children, grandchildren, and parents (though not siblings, cousins, aunts/uncles, and nieces/nephews). Further, the still-working exception is based on a one-time test of ownership at age 70 ½, which actually means that those who own an increasing amount of a company after reaching age 70 ½ can own more than 5% and be considered less than 5% owners (or may own less but still are considered more than 5% owners).

Fortunately, this complexity does create planning opportunities which individuals can use to reduce (or at least delay) their tax bill. In particular, individuals may want to consider rolling other qualified into still-working exception eligible plans (as only an account through an eligible employer receives an exception from taking a distribution), divesting more than 5% ownership prior to age 70 ½ (as the test is only applied at this age), creating a new business and adopting a qualified plan after age ½ (as the new business would not have been around when an individual reached age ½), or just making sure that the requirements to receive the still-working exception are met (as despite the popularity of retiring on December 31st, it may be beneficial to work at least one day into a new year).

Ultimately, the key point is to acknowledge that the still-working exception is not as straight-forward as is often believed. There is a lot of complexity in the rules surrounding the still-working exception, yet, at the same time, a lot of opportunity for tax planning as well (at least for those who have the luxury of not needing their retirement funds at age 70 ½ and who can continue to defer spending into the future)!Read More…

source https://www.kitces.com/blog/still-working-exception-delay-rmd-401k-required-beginning-date-5-percent-owner/

Tuesday 17 July 2018

#FASuccess Ep 081: Expanding Access To Financial Planning Advice By Offering Financial Doing Instead with Louis Barajas

Welcome, everyone! Welcome to the 81st episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Louis Barajas. Louis is the founder of Wealth Management LAB, a multi-family-office style advisory firm in Los Angeles that specializes in providing financial advice and business manager services to entertainers and other celebrities in the Latino community.

What’s unique about Louis, though, is the way that his advisory firm has evolved over time, from trying to serve Latino small business owners in the barrio where he grew up, to writing books and teaching financial literacy to the Latino and broader community, and now focusing on a business that is not just about financial planning, but what Louis calls “financial doing” instead.

In this episode, we talk about Louis’ path into financial planning, from helping his father prepare tax returns and keep the business books as a teenager, to starting out with a broker-dealer in the 1980s but quickly getting tired of the pressure to sell products at the end of every financial plan, getting his CPA license and shifting to an accounting firm that worked with high-net-worth individuals, and then leaving the accounting firm to start his own solo practice after a chance meeting with pastor Rick Warren in a coffee shop, shortly before the pastor published his Purpose-Driven Life book, and how that 30-minute coffee shop conversation changed the trajectory of Louis’ career forever.

We also talk about how Louis built his advisory firm over time, the setbacks he had that forced him to nearly start over from scratch twice after he had to split away from former business partners and associate advisors, because as he’s learned you can have multiple partners in a business but only one Visionary, the Abundance Mentality Louis brings to the table that has allowed each new iteration of his business to grow even larger than the past, and how Louis building more successfully than ever this time with a focus on hiring for heart and teaching the skills, while putting a series of Core Values – or what Louis calls “Immutable Laws” – in place for the business, that serve as a guidepost for the entire team about the deliberate culture of the firm.

And be certain to listen to the end, where Louis talks about why he believes that not just financial planning, but financial doing for clients, is the key to expanding financial advice to a broader range of underserved consumers.

So whether you are interested in learning more about expanding access to financial planning advice to traditionally underserved communities, learning more about how financial “doing” differs from financial planning, or how an Abundance Mentality can help you grow your firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 16 July 2018

Introducing fpPathfinder: Flowcharts And Checklists For Diligent Financial Planners

Financial planning is full of complex decisions. From handling the nuances of Social Security planning (e.g., whether part-time income may trigger the Earnings Test, or whether past earnings could trigger the Windfall Elimination Provision) to navigating the complex set of rules tied to retirement accounts (e.g., how to delay RMDs from a traditional IRA, or the rules for when and how to make a backdoor Roth contribution), the reality is that it is challenging to remember how all of the many different components of financial planning might interact with each other when making financial decisions. However, despite the challenge, managing this complexity is crucial for financial advisors, as the failure to do so can lead to both omissions (e.g., a key rule that gets missed) and errors (e.g., failing to recognize the full breadth of issues that had to be considered in the first place).

Fortunately, checklists are a proven method for helping professionals manage such complexity. As highlighted in his famous book “The Checklist Manifesto”, author (and doctor) Atul Gawande illustrates that one of the easiest ways to handle the daunting complexity that face professionals today is simply to create a checklist of the key steps that must be taken, or the key factors that must be considered. In fact, checklists have been widely adopted and demonstrated to be successful in avoiding errors in many professions, including both airline pilots and surgeons. One limitation of checklists is that many people prefer to learn visually, which has led to the adoption of flowcharts in professions such as computer programming, where the purpose of the flowchart is largely similar to a checklist (e.g., to help ensure quality control for complex processes that require consistent outcomes), but to do so visually rather than through a checklist.

Yet despite the effectiveness of both checklists and flowcharts, the reality is that one of the biggest barriers to adopting the use of such tools is creating the tools themselves, as it is both time consuming and can take considerable knowledge to develop these tools in the first place. To address the challenge, we’re excited to announce the launch of fpPathfinder, a new business specifically created to provide checklists and flowcharts for financial advisors, to use either internally in their own practices when evaluating client scenarios and formulating recommendations with clients, or directly with clients as a way to illustrate and explain key concepts.

As a starting point, fpPathfinder is offering a “Retirement Planning Essentials” package of visual flowcharts that can be used to cover key retirement planning issues, from eligibility to make tax-deductible IRA contributions and take tax-free Roth distributions, to the specialized claiming rules for Social Security benefits for divorcees or surviving spouses, the rules for delaying RMDs from a traditional IRA, and the rules for when and how to make a backdoor Roth contribution. Over time, fpPathfinder plans to launch additional flowcharts covering both retirement planning and other topics, as well as a complementary set of checklists for common planning scenarios, a voting system for members to express interest in what flowcharts to create next, and the opportunity for advisors to white-label the flowcharts with their own name and brand. Ultimately, fpPathfinder hopes to be a valuable resource for helping financial advisors adopt the checklist and flowchart processes common among other professions – as a means to both help advisors avoid errors and omissions, and to elevate the value of services that advisors provide to their clients!

Friday 13 July 2018

Weekend Reading for Financial Planners (July 14-15)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that the SEC is getting more aggressive in enforcing against advisors who violate the no-testimonials rule through social media platforms, as while previous SEC guidance has noted that there’s nothing wrong with third-party social media websites that reference an advisor (from tweets about the firm, to having a Yelp page with reviews), the SEC did fine 3 advisors $10,000 each for hiring a third-party firm that solicited their clients to leave (positive) testimonials/reviews on the advisory firm’s Yelp page. And also in the news this week is the decision of the SEC to move forward with a so-called “ETF Rule” proposal that would drastically streamline the time and cost it takes for asset managers to launch new ETFs.

From there, we have a number of insurance-related articles this week, from a look at the looming rise of no-load insurance policies (driven both by regulatory shifts away from commissions and towards fiduciary fees, and also the success of early no-load variable annuity products in the RIA channel), to a discussion of whether consumers (and advisors) are now overweighting the risk of future LTC insurance premium increases, and a discussion about whether advisors should start recommending various types of “concierge medicine” and “direct primary care” (DPC) health care solutions for clients in lieu of (or in addition to) traditional health insurance.

We also have several practice management articles, all focused around building teams and retaining team talent, including: an overview of Angie Herbers’ “Diamond Teams” approach to developing advisor talent; tips to building deeper and stronger teams in your advisory firm; how to apply educational and instructional design principles to train and develop your team members more effectively; and a look at how to better retain female advisors in particular (as the number of female advisors has remained stubbornly ‘stuck’ and not rising for more than a decade, despite a significant rise in efforts to recruit women into the industry).

We wrap up with three interesting articles, all around the theme of entrepreneurship and starting your own advisory firm (or not): the first explores the challenge in larger advisory firms of finding next generation (G2) entrepreneurs to lead the business, which author and practice management consultant Philip Palaveev suggests may be less a lack of entrepreneurial talent and more a tendency of advisory firms to not take the steps and opportunities to develop the entrepreneurial talent they have; the second explores a research study that found, despite the stereotype of the 20-something uber-successful tech entrepreneur (e.g., a young Bill Gates, Steve Jobs, or Mark Zuckerberg), that the average age of an entrepreneur is actually 42, and the most successful entrepreneurs averaged age 45 when they founded their firms; and the last similarly looks at another research study finding that the odds of a startup business still being around in 5 years increases a whopping 500% when the founder is over the age of 35, and increases by 85% if the founder has at least 3 years of experience first… suggesting that in reality, the best path to starting a successful advisory firm with clients might never have been finding the “right” 20-something entrepreneurial advisor, but instead requiring all advisors to first get their 3 years of experience, complete their CFP certification, and consider waiting as long as 10-15 years into their career before actually going out to start their own advisory firm from scratch in order to increase the odds of long-term success.

Enjoy the “light” reading!

Wednesday 11 July 2018

Tax Tips for Self-Employed Personal Trainers

When it comes to staying fit, personal trainers can often keep you motivated to along your workout journey. If you’re a self-employed personal trainer, your forte is probably in fitness, not taxes. But, did you know there are a lot...

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source https://blog.turbotax.intuit.com/self-employed/tax-tips-for-self-employed-personal-trainers-31046/

Determining The ROI Of Eliminating Private Mortgage Insurance (PMI) With Principal Prepayments

Saving up a “traditional” 20% down payment can be difficult for many individuals. As a result, many borrowers end up paying private mortgage insurance (PMI), in order to cover the lender’s risk that the proceeds from foreclosing on a property would not be sufficient to cover the outstanding liability of a mortgage. On the one hand, PMI is therefore valuable to borrowers as it creates opportunities for homeownership for those that don’t have enough cash saved up to put 20% down (it is effectively the “cost” of buying a home without a traditional down payment), but, at the same time, PMI can seem like an expensive drain on a borrower’s cash flow, making it enticing to pay down the debt to eliminate the need to pay PMI.

In this guest post, Dr. Derek Tharp – a Kitces.com Researcher, and a recent Ph.D. graduate from the financial planning program at Kansas State University – examines how to determine the ROI from prepaying a mortgage to eliminate PMI, and finds that although the ROI can be high over short time horizons, the ROI from eliminating PMI over longer time horizons is often much lower.

PMI is generally required on a mortgage with a long-to-value (LTV) ratio of less than 80% (i.e., less than a 20% down payment). Because PMI is actually a form of insurance for the lender rather than the borrower, the reality is that PMI is functionally the same as a higher interest loan taken out on whatever amount would be needed to be prepaid in order to reduce the LTV ratio to less than 80%. For instance, if a borrower pays $1,200 per year in PMI premiums for a $200,000 home with a 5% down payment, then the borrower is initially paying an effective $1,200 of interest on a loan equal to the additional 15% ($30k) that would be needed to be prepaid in order to avoid PMI. Which is not an insignificant amount of interest, as $1,200 of annual interest on a $30,000 loan is effectively 4% loan on top off whatever the underlying interest rate is. So, if a borrower is paying 4.5% on a mortgage, then the total cost of the additional “loan” (PMI) is roughly 8.5%. Further, since this assumed $1,200 premium does not reduce as the balance needed to get below 80% LTV declines, the cost of keeping this “loan” in place increases with time. For instance, a borrower paying $1,200 per year in PMI on a mortgage that is only $5,000 away from eliminating PMI is effectively paying a rate of 24% on top off whatever their underlying mortgage rate is!

However, this 8.5% only represents a short-term ROI over a single year time period, and a key consideration in determining the long-term ROI of an investment is the rate at which it can be reinvested. Since pre-payment of a mortgage is effectively “reinvested” in a stable investment that “only” earns an ROI equivalent to the mortgage rate itself, this creates a long-term drag on the ROI from prepaying a mortgage (as funds are then tied up in debt repayment rather than investments which may have a higher long-term expected returns). And over long enough ROI time horizons (e.g., 30-years), the ROI of eliminating PMI effectively approaches the same ROI as prepaying the mortgage itself (albeit slightly higher due to some benefit that remains from the initially higher ROI). Which is important to acknowledge because while PMI elimination can look highly attractive based off of a single year ROI, failure to appreciate the differing short-term and long-term ROIs can lead investors to make pre-payment decisions which may not align with their long-term goals.

Of course, pre-payment of a mortgage to eliminate PMI may still be an attractive investment (particularly on a risk-adjusted basis), but the reality is that the time horizon used to evaluate the decision has a substantial impact on the long-term ROI. And given that it is the long-term impact that is most important for investors to consider, deciding whether to eliminate PMI may not be as much of a “no-brainer” as simply calculating the single year ROI may lead us to believe!

Tuesday 10 July 2018

#FASuccess Ep 080: Navigating The Path From High Volume Insurance Agent To Focused Financial Planner with Matthew Blocki

Welcome, everyone! Welcome to the 80th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Matthew Blocki. Matthew is a 30-year-old financial advisor with a niche practice of serving physicians and retirees, and has grown to nearly $70M in AUM and $800k of revenue in just 8 years.

What’s unique about Matthew, though, is that he’s built his financial-planning-centric practice by starting out as a major life insurance company – Northwestern Mutual – and has quickly evolved his business from starting out with nearly 100 transactional insurance clients per year, to a hyperfocused practice that’s aiming to grow now with just 15 affluent clients per year instead.

In this episode, Matthew talks in detail about how he got started and survived in the early years by trying to focus on engaging in the “right” activity from the start, the networks he tapped out of the gate just to get some initial traction, the way he leveraged LinkedIn to expand his network to reach new prospects, and how he learned the importance of being “professionally persistent” and always following up with prospects at least 3 times before giving up.

We also talk about the way Matthew differentiated himself as a 20-something advisor working with retirees, and how that evolved into two niches working with retirees and young physicians, the unique and “non-traditional” advice services he provides to his young doctor clients in particular to distinguish himself and build a connection, and why it’s so important to not just offer what we traditionally consider financial planning services to clients, but what it is that they’re really truly stressed about that keeps them up at night.

And be certain to listen to the end, where Matthew talks about how having coaches and finding mentors has helped to shape his career in the early years, the importance of learning about and knowing yourself to find your own strengths, and why you only have to be slightly better than the competition to come out exponentially ahead in your business.

So whether you are interested in learning more transitioning from a broad transactional business to a hyperfocused advisory niche, how LinkedIn can be used to expand your network and reach out to new prospects, or how a 20-something advisor can build a niche working with physicians and retirees, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 9 July 2018

Tax Withholdings and Your W-4

Did you get a large refund this past April? More than $1000? Time to sit down, sip your beverage, and learn a bit about how to adjust your withholdings.

source https://blog.turbotax.intuit.com/tax-planning-2/tax-withholdings-and-your-w-4-7196/

10 Wise Lessons Learned About Being A (Better) Financial Planner

The FPA Residency program (originally the ICFP Residency program) was created to help financial planners develop the skills needed to be successful through the use of on-site case studies to gain practical experience guided by a group of peers and a mentor as a guide. Over the years, this program has been a valuable experience for many advisors who have had the opportunity to attend. However, the intimate nature of the event naturally means that many advisors have not had an opportunity to attend, and therefore have not had the opportunity to learn from this event.

In this guest post, Ben Coombs, a veteran mentor of the FPA Residency program and a member of the very first graduating class of CFP certificants in 1973, shares 10 underlying “truths” – wise lessons he learned about being a (better) financial planner – that he developed as an attempt to capture the core values of the residency.

In the residency program, Ben’s truths became to be known as “Ben’s Bromides”, and include lessons covering many important insights – from lessons regarding the information we provide to clients (e.g., you are only as good as your sources of information, and your sources of compensation will control your sources of information), to lessons about what we should do as financial planners (e.g., don’t design “iron butterflies”, and pursue the possible), to lessons about how we should put together a plan (e.g., financial planning is a “neighborhood play”, and remembering that the financial plan is for the financial planner – not the client!). Ultimately, while we may not all be able to attend the FPA Residency program (though should consider it if we can!), Ben’s Bromides capture a lot of financial planning wisdom in a concise manner that can still be useful to know!

Friday 6 July 2018

Weekend Reading for Financial Planners (July 7-8)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the announcement that the CFP Board is gearing up for a new round of advertising campaigns as part of its ongoing public awareness campaign, this time focusing on the emotional and psychological benefits of working with a financial advisor, including feeling more “confident, optimistic, secure, and at ease” with one’s finances.

Also in the news this week is a controversial court ruling in Georgia that allowed an RIA to enforce an employment agreement that required its departing advisors to give 60-90 days notice in advance of leaving the firm (where the RIA sued after the advisors departed the firm abruptly to join Morgan Stanley under the terms of the Broker Protocol), raising the question of whether broker-dealers in turn might try to add similar “garden leave” requirements to their employment contracts as a way to subvert the Broker Protocol for departing brokers. And there was also a big announcement from Vanguard, just in time for “Independence Day”, that starting in August it will begin to offer nearly 1,800 ETFs on an expanded no-transaction-fee ETF platform… and in the process, declaring war on other custodian’s existing back-end revenue-sharing or shelf-space distribution agreements required to get onto their NTF ETF platforms (from which Vanguard has increasingly been booted in recent years for being unwilling to pay to play).

From there, we have a number of retirement-oriented articles, from a look at the rise of the FIRE (Financial Independence, Retire Early) movement, to a discussion from a longevity researcher about whether it would be more appropriate for people to spend their 20s and 30s “just” being trainees/apprentices and raising families and not starting full-time jobs until their 40s (given our increasing capability to remain productive well into our 70s thanks to medical advances), and an examination of whether advisors may be overestimating health care costs in retirement as recent studies have shown that beyond Medicare premiums themselves the medical expenses of retirees are actually remarkably moderate and stable (especially for those who have at least a “mass affluent” level of wealth).

We also have several practice management articles, including: an analysis of why the greatest challenge for advisory firm business owners to manage is the potential gap between workload obligations to clients and the staff resources necessary to deliver promised services; why especially in the early years of an advisory firm, 5-year (or even 3-year) business plans are largely useless; and how to demonstrate the ongoing value of a financial advisor by creating a “Client Confidence Index” that periodically surveys clients on their feelings of financial confidence, control, and clarity… and then reflecting those results back to them to show progress and the advisor’s value-add over time.

We wrap up with three interesting articles, all around the theme of taking vacations to better maximize health and productivity: the first looks at the growing trend of workers not taking vacations, even when they’re otherwise available, due to both the workaholic culture of many firms, and often simply a lack of systems to make them feel safe and comfortable to take a vacation; the second examines how even amongst the most productive people, there’s often little more than 3-4 hours of “real” work that gets done in a day, suggesting that instead of trying to push employees to work harder throughout an 8-hour workday that it may be better to embrace taking breaks instead; and the last provides a remarkably simple and effective system to handle the pain of “digging out” from the email backlog after a long vacation… by simply creating an autoresponder to tell people to email you again if they feel it’s necessary after you’re back, and then just delete all the email in your Inbox on your first day back at work!?

Enjoy the “light” reading!

Thursday 5 July 2018

Vanguard Declares War Against Custodial Platform Shelf-Space Distribution Agreements

Earlier this week, Vanguard announced that in August it will begin offering commission-free ETF trading through its Investor.Vanguard.com online brokerage platform on a whopping 1,800 ETFs… which includes not just its own ETFs, which were available commission-free already, but virtually all ETFs, including those from all their major competitors like Blackrock, State Street, and Schwab (on top of the 2,500+ mutual funds already available through Vanguard without trading fees). Yet while the media immediately jumped on the announcement as a new stage of the price wars on ETF trading costs, as Vanguard’s platform will offer nearly 5X – 10X the breadth of ETFs as their largest competitors… the real significance of Vanguard’s announcement is much bigger.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why the real impact of Vanguards announcement is a potentially fatal disruption to the nature of no-transaction-fee (NTF) ETF platforms themselves, undermining existing pay-to-play distribution agreements to the most popular NTF ETF platforms today, and potentially pushing RIA custodial platforms instead to charge advisors (or investors) a more transparent and less conflicted basis point fee directly for the clearing, custodial, and other services they provide.

Some historical perspective on the use of shelf-space and revenue-sharing distribution agreements for fund providers may be helpful to understand why Vanguard’s announcement is so disruptive. The first “no transaction fee” (NTF) online brokerage platforms got going in the 1990s, pioneered by companies like Schwab with their OneSource program, establishing a giant online supermarket of mutual funds that were made available (and funded by) 12b-1 shareholder servicing fees and sub-TA fees instead of charging “traditional” transaction fees to purchase a fund. But then along came ETFs, which “felt” like mutual funds to many consumers who wanted to be able to buy them without transaction fees as well… except, ETFs don’t have a 12b-1 fee or a sub-TA fees! As a result, when the online brokerage platforms wanted to offer ETFs under a no-transaction-fee platform, they needed a new way to get paid. What emerged was brokerage platforms negotiating “distribution” agreements directly with the ETF providers that effectively said, “If you want to be listed in our NTF platform, you need to pay us directly”, taking the form of other a revenue-sharing agreement (paying basis points for assets on the platform) or “shelf-space” agreements (which are typically negotiated flat fees and not set as basis point directly, though they are still effectively loose basis point equivalents based on total assets). The key point: one way or another, fund providers had to pay to be on the NTF platform, which is why most NTF ETF platforms have a limited lineup (or only those providers willing to pay).

And, mostly out of necessity for distribution opportunities, many fund providers have paid to be on these platforms. The bold exception to this trend was fund companies like Vanguard and DFA, which were notorious for not paying dollars under the table to get onto these NTF platforms. Early on when many NTF ETF platforms were being built out, Vanguard still wasn’t nearly as dominant in the ETF space as they are today, so many companies allowed Vanguard onto their platforms as a way to validate their platform (with Vanguard’s name recognition) in the hopes of attracting clients who might also use some of the other NTF funds (that do pay to be listed). But as Vanguard has continued its meteoric rise over the past several years, Vanguard attracted so much in assets onto these platforms that it was adversely impacting the profitability of the entire platforms… leading companies to swap Vanguard out for other ETF providers that were more willing to pay to participate.

And that is why it’s such a big deal that Vanguard made the announcement this week that it’s going to make virtually all ETFs available on its own online brokerage platform. The significance is that they’re offering a no-transaction-fee platform without requiring the same back-end shelf space payments that all the other brokerage and custodial platforms require. In other words, the latest move by Vanguard isn’t a price war against ETF trading fees; instead, it’s declaring war on the entire model of asset managers being forced to pay back-end revenue-sharing and shelf-space agreements to get onto those platforms in the first place, by offering their own and not charging the asset managers what everyone else charges!

How will this potentially play out from here? ETFs that currently pay NTF platform fees are compelled to increase their expense ratios to cover the cost (because the money has to come from somewhere to pay)… except now ETF providers have a problem: their ETF expense ratios are boosted higher to compete on NTF platforms at companies like Schwab, Fidelity, and TD Ameritrade, but the higher expense ratios to cover the distribution costs on those platforms will reduce their competitiveness on the new mega Vanguard platform! As a result, ETF providers may be compelled to start creating a new series of their popular ETFs, with those additional distribution costs stripped out, creating a lower-cost “clean ETF” that can better compete in a true NTF environment. Yet once this happens, since the ETFs will be available elsewhere as well (just with a transaction cost instead) it will recreate the multiple-share-class effect we have now in mutual funds, where there’s a higher cost version of the mutual fund in the NTF platform – because it’s pushed up by the 12b-1 and sub-TA fees – and then there’s a lower cost version of the same mutual fund you can buy directly. Which ultimately will lead to consumers (and advisors) adopting whichever fund is cheaper in their situation, putting further pressure on custodians to offer less conflicted models where investors (or advisors) are simply charged a transparent basis point fee for the clearing and custodial services provided instead.

But ultimately, the key point is to acknowledge that the real news is not that Vanguard is simply offering a larger NTF platform than other providers. The real news is that this may be a fatal disruption to NTF platforms themselves, and a step towards a more transparent model of custodial services over the more conflicted models of back-end distribution agreements that currently exist!

How Are Gambling Winnings Taxed?

Most people don't think about taxes on their way to the casino. But what might seem like nothing more than a fun night in Las Vegas actually carries significant tax consequences if you win. Failure to properly report your haul can result in serious penalties and headaches you just don't want.

source https://blog.turbotax.intuit.com/income-and-investments/how-are-gambling-winnings-taxed-8891/

Wednesday 4 July 2018

The Hierarchy Of Tax-Preferenced Savings Vehicles For High-Income Earners

The Federal government has long incentivized saving for retirement and other financial goals by offering some combination of three types of tax preferences: tax deductibility (on contributions), tax deferral (on growth), and tax-free distributions. As long as the requirements are met, various types of accounts – traditional to Roth IRAs, and annuities to 529 plans to Health Savings Accounts – enjoy at least one tax preference, often two, and sometimes all three.

For most households, these tax-preferenced accounts simply help to encourage (and tax-subsidize) savings towards various goals, and cash-flow-constrained households allocate based on whichever goal has the greatest priority. Yet for a subset of more affluent households, where there’s “enough” to cover the essential goals, suddenly a wider range of choices emerges: how best to maximize the value of various tax-preferenced accounts where it’s feasible to contribute to several different types at the same time?

Fortunately, the fact that not all accounts have the exact same type of tax treatment means there is effectively a hierarchy of the most preferential accounts to save into first (up to the dollar/contribution limits), after which the next dollars go to the slightly less favorable accounts, and so on down the line… from triple-tax-preferenced accounts such as the Health Savings Account (tax-deductible on contribution, tax-deferred on investment growth, and tax-free at distribution for qualified medical expenses expenses), to double tax-preferenced accounts such as traditional and Roth-style IRAs, to single tax-preferenced accounts such as a non-qualified deferred annuity (which is tax-deferred only). Which in turn must be balanced against even “traditional” investment strategies of simply buying and holding in a taxable account… which itself effectively defers taxes, thanks to the fact that long-term capital gains are only taxed upon liquidation.

Notably, many of the tax preferences do come with trade-offs (such as penalties for early distribution, and rules about how the funds can be spent), but for high-income earners, those limitations simply mean it will be necessary to coordinate amongst the various tax-preferenced savings accounts at the time of liquidation (and aren’t a reason to not use them in the first place).

Of course, there is still the foundational tier of savings to provide an emergency fund (and perhaps funds to promote job mobility and business startup expenses as well, which may be particularly appealing for higher income individuals), but the key point is to acknowledge that there is a hierarchy of tax-preferenced accounts – ranging from triple-tax-preferenced accounts to accounts with no tax preferences – and high-income earners can better limit their tax liabilities and maximize their growth by adhering to this hierarchy!

Tuesday 3 July 2018

Three Ways to Make This Fourth of July Tax Deductible

It’s hard to believe Fourth of July is already here! In the lineup of one of the most celebrated holidays, the Fourth of July can be quite expensive as everyone rushes around making last-minute purchases for their celebrations. Despite one...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/three-ways-to-make-this-fourth-of-july-tax-deductible-41262/

#FASuccess Ep 079: Niching From The Start To Turbo-Charge $250k Of Recurring Planning Fees In Only 3 Years with Anjali Jariwala

Welcome, everyone! Welcome to the 79th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Anjali Jariwala. Anjali is the founder of FIT Advisors, a niche advisory firm that works entirely virtually with clients, and focuses on young physicians and small business owners in their 30s providing financial, investment, and tax planning advice for an annual retainer fee that starts at $10,000/year.

What’s unique about Anjali, though, is that by focusing in on a niche from the start, which allowed her to pursue unique marketing channels that other financial advisors don’t use, she’s been able to grow to more than $250,000/year of recurring financial planning fees in just her first 3 years. And she did it while also starting a family, having had her first baby barely a year after the launch of the firm.

In this episode, we talk in depth about how Anjali positioned her advisory firm squarely in a niche of serving independent physicians and similar small business owners by leveraging her background as a CPA and a CFP certificant, the way she marketed into her niche to attract entirely virtual clients who meet with her solely online, how she iterated her business model rapidly in the first few years from offering short Quickstart plans to charging an upfront planning fee and ongoing monthly retainers until eventually she eliminated all the upfront fees and just raised her ongoing retainer instead, and how she explains and justifies charging a $10,000 retainer fee on clients who have less than $1 million in investable assets, for whom her fee can be substantially higher than the traditional 1%.

We also talk about how Anjali structures her upfront and ongoing planning meetings with clients, from an initial “Get Organized” meeting where clients have to aggregate all of their accounts in eMoney Advisor before they meet, to a second meeting that focuses on cash flow planning alongside George Kinder’s famous 3 questions of life planning, and then shifting to a cash flow and implementation meeting… and allowing her clients to set the agenda from there, while sometimes waiting as much as a full year before she ever actually even does a “traditional” retirement planning projection for clients.

And be certain to listen to the end, where Anjali talks about the challenges of balancing out her work life and her home life, the way she broke the news to her early clients that she was going to take time off to have a baby within months of starting with them, and how she reinvested into and restructured her staff support to be able to continue serving her clients while taking time off.

So whether you are interested in learning more about how you can build a successful practice using the retainer model, how to pursue unique marketing channels other financial advisors don’t typically use, or are interested in how you can better balance your home life and work life, I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday 2 July 2018

Tax Reform 101: How the New Tax Reform Law Changed 529 Education Plans

Among the many changes resulting from the recently passed tax reform law, benefits under 529 plans have been expanded for 2018 and subsequent years. The new provision in the tax reform law will be a benefit particularly for parents of...

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source https://blog.turbotax.intuit.com/tax-reform/tax-reform-101-how-the-new-tax-reform-law-changed-529-education-plans-41078/

The Latest In Financial Advisor #FinTech (July 2018)

Welcome to the July 2018 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 the big news that robo-advisor-turned-enterprise-digital-advice platform SigFig has raised a whopping new $50M round from famous VC firm General Atlantic, while U.S. Bank announced that it has (finally) deployed its “Automated Investor” robo solution via FutureAdvisor, and Fifth-Third Bank is rolling out its OptiFi digital advice offering (a white-labeled version of Fidelity’s AMP). Which means, after years of buzz, the shift from B2B to B2B2C robo-advisor technology appears to finally be gaining traction, as the startups figure out how to attach next generation modern technology to prior-generation legacy software of the incumbents, and large firms gear up to see whether or to what extent they can really cross-sell managed ETF accounts to their (existing or new) clientele.

From there, the latest highlights also include a number of interesting advisor technology announcements, including:

AdvisorEngine deepens its rebalancing software integration with SmartLeaf
Grove raises an $8M Series A round to scale its virtual-CFP financial planning subscription service
Ethos Insurance and Ladder Life raise new capital to see if life insurance can be bought by consumers (rather than sold to them) by making it easier to purchase in the first place
SmartAsset raises a whopping $28M Series C round to scale up its new SmartAdvisor lead generation program

Read the analysis about these announcements, and a discussion of more trends in advisor technology, in this month’s column, including RiXtrema launching a new prospecting tool in the 401(k) market, Orion establishing a data integration with Lincoln Financial to facilitate RIAs using fee-based annuities, Morningstar launching a new Investor Pulse competitive and business intelligence tool for asset managers to show them why their funds are failing to attract investor flows, and the big reveal of a fascinating new pivot from Wealthfront into what may finally be a truly new and uniquely differentiated holistic financial advice platform, focusing no longer on just a managed investment account or even traditional financial planning advice, but moving into the true core and lifeblood of a household’s financial life with tools to automate managing household cash flow.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map”, including a number of new companies and categories!

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!