News About IRS And Tax: January 2019

Thursday 31 January 2019

A Guide for Self-Employed Filers that Haven’t Tracked Their Expenses This Year

I still remember the first year I did my taxes and had self-employment income. Similar to many first-time self-employed people, I didn’t go into the year knowing that I’d have self-employment income. One common mistake that many first time self-employed...

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source https://blog.turbotax.intuit.com/self-employed/a-guide-for-self-employed-filers-that-havent-tracked-their-expenses-this-year-40500/

Tax Tips for the Self-Employed

Self-employed? There are special tax considerations for you.

source https://blog.turbotax.intuit.com/self-employed/tax-tips-for-the-self-employed-2297/

Missed the tax return deadline? What now?

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

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

Excuses that aren't usually accepted by HMRC include:

source https://www.taxfile.co.uk/2019/02/missed-the-tax-return-deadline-2/

Three Tax Credits for Your Family

As parents, we work hard to provide our children with the best education, a roof to sleep under and food to eat every day. This valiant effort is not overlooked by the Internal Revenue Service (IRS). Here are some tax credits that are available when you prepare your tax return, that help you with the financial support of your home and children.

source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/three-tax-credits-for-your-family-12778/

5 Pieces of Life Advice from TurboTax Live CPAs

Looking for tax advice? No need to stress, whether you have a specific tax reform question, had a life change, or just want to chat about your tax situation, our TurboTax Live CPAs and Enrolled Agents have you covered. Our...

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source https://blog.turbotax.intuit.com/tax-news/5-pieces-of-life-advice-from-turbotax-live-cpas-42800/

Kitces And Carl Talk About How To Value The Value Of Financial Planning

One of the biggest challenges comprehensive financial planners face today is that “everyone” says they do financial planning. Yet in practice, what they actually do, whether it’s really comprehensive financial planning, or even what constitutes “financial planning” as opposed to just ad hoc financial advice, has no clear and consistent definition within the industry. And if we can’t figure out what the differences are within the industry, then it’s almost impossible for the public to understand the differences between the services offered (including any potential conflicts) by a whole bunch of people who do different stuff (frequently playing by different sets of rules) yet say they all do the same thing! Not to mention trying to help the public understand the value (both financially tangible and intangible) of the financial planning choices available and being offered to them.

To explore this issue, we’re introducing you to a new experimental (but possibly recurring if you like it!) content format we’re simply calling “Kitces & Carl” here at The Nerd’s Eye View, where Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss industry topics from their own unique perspectives. And in this inaugural episode, Michael and Carl talk about the Value of Financial Advice, efforts to quantify that value, and why we may need to move past the asset-based model in order to define and communicate the real value of financial planning to our clients and the public in general.

Fortunately, both Morningstar, Vanguard, and Envestnet have done some research to try and quantify an answer to this very question. Their studies suggest that, even when we ignore any potential excess investment return, the advice that advisors provide around the dollars that they are managing can amount to an additional 1.5-3.0% over what a client would have likely gotten had they “done it themselves”

But, outside of “helping clients avoid big mistakes” by re-allocating their portfolios or talking them off the proverbial “ledge” when volatility ticks up, there’s arguably another aspect to helping clients that transcends the “quantifiable” aspect of the profession. Because most clients don’t have anywhere else they can go and feel safe talking about this topic of money, that is so important yet remains a taboo topic of discussion, and for many carries an enormous amount of baggage. And those hurdles only expand geometrically when it’s a couple that’s sitting across the desk.

In fact, perhaps the greatest problem of trying to explain the value of financial advice, especially while the industry is in the midst of such rapid change, is that we are still tying all our value conversations back to the portfolio-based model… to the extent that, even when trying to quantify the behavioral aspects of planning, industry studies still scale them to a percentage of assets. Even though an increasingly amount of the value of financial planning advice is specifically about the advice that occurs outside of the portfolio!

Alternatively, perhaps instead of trying to put a dollar value on the advice we provide as advisors at all, we might just consider framing it in terms of the real-world outcomes for clients. For instance, what if we as advisors simply said to a couple having stressful arguments about money that, “We help couples have better conversations about money, so they’re not as awkward”? And then let them figure out if it’s valuable enough to them to pay for it? Because, if an advisor can help reduce marital stress and reduce the number of marriages that end out in divorce because of money issues… then clients might consider that a whole lot more valuable that we might have ever imagined anyway!

Ultimately, then, the key point is to recognize that as financial planning continues to expand beyond just building and managing diversified asset allocated portfolios, the key task as an industry is to figure out how we can frame that value beyond the context of “investable assets”. Because if we want to better communicate our value to prospects and clients, especially beyond the portfolio, we must first be willing to fully embrace and acknowledge that value ourselves.

Wednesday 30 January 2019

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

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

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

Navigating The Capital Gains Bump Zone: When Ordinary Income Crowds Out Favorable Capital Gains Rates

While long-term capital gains have had preferential tax rates for most of their history (and receive similar treatment in most developed countries around the world), it’s only in recent years that long-term capital gains have been subject to not just one, but a series of tiered preferential rates, from a 0% rate for those in the lowest tax brackets, to 15% for those in the middle, and 20% for the highest earners (albeit still a “deal” relative to a 37% top tax rate on ordinary income). Plus a 3.8% Medicare surtax that stacks on top of a portion of the 15%, and all of the 20%, long-term capital gains rates.

The significance of this phenomenon is that, similar to ordinary income tax rates, generating “too much” in capital gains can drive the household up into higher capital gains tax rates. And because capital gains income stacks on top of ordinary income, even just increasing ordinary income can effectively crowd out room for preferential long-term capital gains rates.

In fact, the interrelationship between ordinary income and long-term capital gains creates a form of “capital gains bump zone” – where the marginal tax rate on ordinary income can end out being substantially higher than the household’s tax bracket alone, because additional income is both subject to ordinary tax brackets and drives up the taxation of long-term capital gains (or qualified dividends) in the process.

For instance, individuals with as little as “just” $30,000 of income (after deductions) and some capital gains on top who would normally be in the 12% tax bracket may face marginal tax rates as high as 27% due to the capital gains bump zone. And upper-income households eligible for the 35% tax bracket may face a marginal rate of 40% as the top capital gains tax bracket phases in. The effect can be even worse for retirees who also claim Social Security benefits, where the combination of phasing in Social Security benefits, and driving up long-term capital gains to be subject to the 15% rates, can trigger a marginal tax rate of nearly 50%(!) for a household otherwise in the 12% ordinary income tax bracket!

As a result, it’s crucial to consider the coordination of long-term capital gains with ordinary income, and the phase-in of Social Security taxation. For those with negative taxable income, it is generally still appealing to do partial Roth conversions at a marginal tax rate of 0%. But for others in the bottom tax brackets, it may be preferable to harvest 0% long-term capital gains instead (and not do partial Roth conversions that will undo the 0% rate on those capital gains!). While higher-income individuals may prefer to once again do partial Roth conversions in the 22% and 24% brackets, or even the 32% bracket… while avoiding the additional capital gains bump zone that occurs in the 35% bracket.

The bottom line, though, is simply to understand that with 7 ordinary income tax brackets, plus 4 long-term capital gains brackets (with the 3.8% Medicare surtax), tax planning and evaluating marginal tax rates is a function of not just the ordinary income or long-term capital gains rates themselves, but also the interrelationship of the two and the indirect but substantial tax impact of adding more ordinary income when there are already substantial long-term capital gains stacked on top!

Tuesday 29 January 2019

W-2 Arrival: All You Need to Know about Tax Forms

This post can be found en Español here. If you were employed during 2018, you should receive your Form W-2 (officially known as the Wage and Tax Statement) from your employer soon since employers were required to send them out by...

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source https://blog.turbotax.intuit.com/tax-planning-2/w-2-arrival-all-you-need-to-know-about-tax-forms-20996/

Happy #W2sDay!

TurboTax is celebrating #W2sDay! IRS E-File is open, and W-2s are arriving, so now is the perfect time to file your taxes to get one step closer to your biggest possible refund! Join us on YouTube Live TODAY, January 29th, at...

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source https://blog.turbotax.intuit.com/announcements/happy-w2sday-42811/

#FASuccess Ep 109: How A Retirement Researcher Implements Retirement Planning For His Own Clients

Welcome back to the 108th episode of Financial Advisor Success Podcast!

My guest on today’s podcast is Jon Guyton. Jon is the founder of Cornerstone Wealth Advisors, an independent RIA in the Minneapolis area that oversees $240 million in assets under management for about 240 mostly retiree clients.

What’s unique about Jon, though, is that he doesn’t only run a financial planning firm that serves retirees, he’s also contributed to the retirement research himself, with several seminal articles in the mid-2000s on creating retirement withdrawal rate guardrails and decision rules, and now has spent the past decade actually implementing those strategies with clients and finding out what really works in practice.

In this episode, we talk in depth about Jon’s retirement planning approach with his clients. How he separates out a client’s prospective retirement expenses into core and discretionary categories, the way he applies decision rules to adjust that retirement spending in subsequent years, and the way he then creates multiple portfolio buckets, each with its own investment policy statement, to handle each of those retirement spending categories but notably does not create a cash bucket for short-term expenses because of the consequences that cash drag can have on actually reducing a client sustainable retirement income in the long run.

We also talk about the unique resident program that Jon created in his firm, similar to a medical resident program, to leverage next-generation talent. Why he deliberately chose a model that brings in young advisors with the plan that they will leave after three years, how having a limited duration financial planning resident program has actually allowed his firm to attract even better talent regardless of geography, and the key traits that Jon has found that really make a financial planning resident and in the long run a financial planner themselves more successful.

And be certain to listen to the end, where Jon shares the challenges he faced in his own advisory firm at the start and how even though today he’s the owner of an incredibly successful $240 million AUM practice, in his first year in the business, he qualified for the low income Earned Income Tax Credit and had to continue for nearly 4 more years before he finally reached the point of earning a livable wage from his practice. Because the reality is that the first few years are incredibly difficult for any financial advisor, even those who are incredibly successful in the long run.
Read More…

source https://www.kitces.com/blog/jon-guyton-cornerstone-wealth-retirement-income-planning-guardrails-decision-rules/

Monday 28 January 2019

E-File is Now Open: Why You Should File your Taxes Early

Today, January 28, the IRS officially kicked off the opening of the 2019 tax season and is now accepting e-filed tax returns. As we all know, some taxpayers wait until last minute to file their taxes, but if you stop...

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source https://blog.turbotax.intuit.com/tax-news/e-file-is-now-open-why-you-should-file-your-taxes-early-21087/

Are You Ready for Some Football Tax Tips?

The biggest game of the year is almost here! That’s right, we’re talking about Super Bowl LIII Just as the new tax season is beginning to ramp up, football players are also kicking into high gear as their teams compete...

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source https://blog.turbotax.intuit.com/tax-tips/are-you-ready-for-some-football-tax-tips-42770/

Marketing Compliance Under Advertising Rule 206(4)-1 And Avoiding (Accidental) Testimonials

The expression, “the truth will out,” appears to have originated with Shakespeare and is being used more frequently by commentators on news programs. The expression has come to mean that the facts of a situation will inevitably become known or discovered. If Registered Investment Advisers (“RIAs”) use false or misleading content in their advertisements, the truth will out when examiners conduct examinations of their firms.

Because when it comes to RIAs, Rule 206(4)-1 under the Investment Advisers Act of 1940, better known as the Advertising Rule, prohibits advertisements for SEC-registered Investment Advisers that are false or misleading in any way. Advertising regulations governing state-registered Investment Advisers are often modeled after Rule 206(4)-1 as well. As the very essence of a fiduciary duty for investment advisers starts with the principle to say (only) what you’ll really do… and then be prepared and capable of actually doing (and proving that you can do) what you said.

In this guest post, Les Abromovitz, an attorney with deep expertise and experience with the RIA Advertising Rule, discusses what RIAs should be doing and thinking about when it comes to marketing compliance. As a starting point, RIAs should avoid promissory language, guarantees, and statements that cannot be proven (i.e., only statements that can be supported with objective evidence should be used). In addition, RIAs should avoid marketing hype, which may be tempting to differentiate in an increasingly competitive environment… even though “hype” is inherently misleading. RIAs must also satisfy strict compliance requirements if they refer to past specific investment recommendations in an advertisement, and especially when they advertise their performance returns.

Unfortunately, though, even with good faith attempts to do things right, many Investment Advisers inadvertently use advertisements that are false or misleading as they attempt to woo clients. In many instances, advisers may have no idea that the content (or particular key words) they are using would be deemed “misleading” by regulators. And although securities regulators are unlikely to bring a full-scale enforcement action against an RIA because of these innocent mistakes, they can give examiners a bad impression of the firm’s compliance program and suggest to examiners that they should dig deeper in reviewing the firm (to ensure that the misleading advertising smoke isn’t a sign of a bigger compliance fire to address). In addition, after completion of an examination, examiners take note of these errors, as well as other compliance mistakes, in a deficiency letter sent to the firm. The RIA must then respond to the letter and correct (or dispute) the examiners’ findings. If an RIA fails to address those deficiencies, the SEC might then bring an enforcement action against the firm.

To further address areas of potential examiner concern when reviewing RIAs, the SEC periodically publishes Risk Alerts to highlight compliance problems identified by its Office of Compliance Inspections and Examinations (“OCIE”). On September 14, 2017, OCIE released a Risk Alert, which identified the most frequent Advertising Rule compliance issues uncovered by examiners during their examinations. Advisers would be wise to familiarize themselves with the deficiencies identified by examiners and should make sure their compliance manuals and processes are designed to prevent the same mistakes.

Friday 25 January 2019

Government Shutdown 2019 Update: You Can File Now With TurboTax

Today, the President announced plans for a temporary end to the Government Shutdown until February 15. Although the IRS previously confirmed the Government Shutdown would not impact processing tax returns, with filing season beginning on Monday, January 28, 2019, and...

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source https://blog.turbotax.intuit.com/turbotax-news/with-government-shutdown-coming-to-an-end-and-filing-season-beginning-january-28th-turbotax-is-open-for-filing-42773/

Weekend Reading for Financial Planners (Jan 26-27)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the big news that the Nevada Securities Division has released a working proposal of its new fiduciary rule, which would expansively apply a fiduciary duty to both investment advisers and brokers who give advice or merely hold out as an advisor in the state, as more and more states move to implement their own uniform fiduciary rules in the absence of any effort from the SEC to do so instead.

Also in the news this week is the announcement that Raymond James is buying boutique RIA M&A investment bank Silver Lane (in what signals an anticipation of even more growth in RIA mergers and acquisitions in the coming years), and updated regulations from the Treasury on the new Section 199A Qualified Business Income deduction (including important clarifications and some new restrictions for real estate investors).

From there, we have a few articles on savings and spending habits, including advice on how to not just save more effectively but to lift your savings rate over time, tips for juggling multiple credit cards to maximize credit card rewards points, and a look at the rise of “luxury concierge” services for the affluent providing “bespoke experiences” as the affluent increasingly focus on not just buying goods but services and experiences as well.

We also have a number of retirement articles this week, from a look at how the “bucket approach” to retirement actually tends to decrease retirement success by almost any measure, how deferred income annuities improve retirement readiness (by only using, but only needing, a small portion of the portfolio in the first place), and the unanticipated challenges that one early retiree faced when he actually retired early at the age of 41.

We wrap up with three interesting articles, all around the theme of income and wealth inequality, which has been increasingly in the news lately: the first looks at a recent study by Oxfam, which finds the top 26 billionaires now have as much wealth as the bottom 50% of the entire population of the planet, with the top 1% overall capturing nearly 82% of the world’s annual wealth increase last year (further amplifying wealth and income inequality); the second looks at Senator and president-candidate Elizabeth Warren’s recent proposal of a new wealth tax of 2% to 3% as a means to raise government revenue and reduce wealth inequality; and the last explores the recent proposal from Representative Alexandria Ocasio-Cortez, who has proposed a new top tax bracket of 70% on those earning more than $10M, based in part on the fact that the US had top tax brackets from 70% to 90% through the 1950s, 60s, and 70s… except as it turns out, the high tax rates were also accompanied by a wide range of tax shelters and other tax avoidance schemes at the time, and that in reality the effective tax rate on the top 1% wasn’t all that different back then than it is already today.

Enjoy the “light” reading!

Happy Earned Income Tax Credit Awareness Day! Are You Eligible?

Today is National Earned Income Tax Credit Awareness Day! The Earned Income Tax Credit (EITC) is a huge benefit to taxpayers with low to moderate income and has helped lift millions of people out of poverty. To determine if you...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/happy-earned-income-tax-credit-awareness-day-are-you-eligible-18892/

Thursday 24 January 2019

TurboTax Makes it Easier for Coinbase Customers to Report Their Cryptocurrency Transactions

Whether you got into cryptocurrency trading last year, have been a holder since 2011, or your employer pays you in Bitcoin or Ethereum, you need to know what all of these transactions mean for your taxes. While the IRS released...

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source https://blog.turbotax.intuit.com/turbotax-news/turbotax-makes-it-easier-for-coinbase-customers-to-report-their-cryptocurrency-transactions-42740/

3 Key Tax Reform Changes and Facts for Self-Employed [Infographic]

As you may already know, tax reform has changed taxes for the majority of taxpayers beginning with tax year 2018. And if you took the plunge into self-employment in 2018, you may be wondering how the new tax law affects...

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source https://blog.turbotax.intuit.com/tax-reform/3-key-tax-reform-changes-and-facts-for-self-employed-infographic-42708/

Wednesday 23 January 2019

Here’s How Gambling on College and Professional Sports Affects Your Taxes

Every year, I join a fantasy football league with my friends and every year, I lose. So for me, unfortunately, my limited sports gambling has no impact on my taxes. But if you frequently place bets on sporting events, and...

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source https://blog.turbotax.intuit.com/income-and-investments/heres-how-gambling-on-college-and-professional-sports-affects-your-taxes-42523/

TurboTax Offers Free Filing for Military E1- E5

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

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

How To Effectively Change Domicile For Tax (And Other) Benefits

“Home is where the heart is.” Or at least that’s what they say. When it comes to state income taxes and other legal matters (from family law to asset protection), though, home is where your domicile is… whether your heart – or your body – is there or not.

Fortunately, for many or even most people, determining domicile is rather straightforward – it’s the state in which you live in your one and only residence. But technically, domicile is a person’s fixed, permanent, and principal home that they reside in, and that they intend to return to and/or remain in. Which means for those who have multiple residences, or may be living somewhere else temporarily, where they live may not actually be their domicile.

In fact, it can be remarkably difficult to determine domicile for those who have multiple residences in multiple states, because the key factor is the “intent” of the individual, which isn’t always able to be known clearly. Accordingly, individuals who wish to change to a new state of domicile and don’t clearly leave and sever ties with a prior state of domicile can run into problems, with the old state challenging the change of domicile based upon a perceived lack of intent. Thus, even though a person can technically only have only one true domicile, two states may each believe that single domicile is their state!

In addition, even if an individual does not have domicile in a particular state, maintaining a residence in a state and using it for extended periods of time can trigger “residency” status in that non-domicile state as well, under the “statutory resident” rules. Which, ironically, means that multiple states may claim an individual as a resident under statutory resident rules.

And ultimately, knowing which states an individual is a resident of – whether triggered by domicile status or as a statutory resident – is crucial, because any state in which the individual is a resident has the right to tax that individual on all income worldwide. Which means if residency is triggered in multiple states at once, worldwide income may be subject to income tax in any/all of those multiple states (though certain offsetting credits for taxes paid to another jurisdiction are generally available).

As a result of these rules, determining domicile and the state (or states) of residency for tax and other legal purposes requires not just careful consideration of which state(s) the individual wants to reside in, but the exact rules that each state uses to determine domicile (and/or statutory residency), and that in the end changing state of domicile isn’t just about meeting an arbitrary time-based test but actually showing and being able to prove the intent to live in a particular new state (for which individual behaviors, from voting to driver’s license registration, using local service providers and even moving your pet, are crucially important), along with showing intent to sever ties and not live in the prior state as well!

8 Days to the Tax Return Deadline!

[As at 23 January]: There are just 8 DAYS left to file your Self Assessment tax return with HMRC. Miss the deadline (11.59pm on 31st January 2019) and you’ll straight away be in for a £100 fine from HRMC, so don’t delay — contact Taxfile TODAY to book an appointment with one of our helpful […]

source https://www.taxfile.co.uk/2019/01/countdown-to-tax-return-deadline/

Tuesday 22 January 2019

6 Reasons it Pays to File Your Taxes Early

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

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

Who Can I Claim As a Dependent?

This post can be found en Español here. The article below is accurate for your 2018 taxes, the one that you file this year by the April 2019 deadline. Under tax reform, you can no longer claim the dependent exemption,...

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

#FASuccess Ep 108: How To Take A Sabbatical Even When Your Clients Depend Primarily On You, With Lisa Kirchenbauer

Welcome back to the 108th episode of Financial Advisor Success Podcast!

My guest on today’s podcast is Lisa Kirchenbauer. Lisa is the founder and president of Omega Wealth Management, an independent RIA in the Washington, D.C. area that oversees more than $100 million of assets for nearly 100 affluent clients.

What’s unique about Lisa, though, is her targeted focus with two specializations: entrepreneurs and people in transition, to whom she charges a financial planning fee that starts at $7,500 a year while forming deep client relationships by implementing George Kinder’s EVOKE Life Planning process and has still managed to achieve what is completely impossible for most advisors, take 2 6-week sabbatical vacations in the past 6 years.

In this episode, we talk in depth about Lisa’s unique financial planning services for clients. The way she truly differentiates her services from the very start in prospect meetings by discussing everything from communication preferences to George Kinder’s famous three life planning questions, the additional assessment tools that she uses, from Riskalyze to Kolbe, to better understand and connect with her clients, the four-meeting financial planning process she takes all clients through before she ever talks about signing an investment management agreement, and the way she’s further honed her services into two niches: for entrepreneurs and people in transition, which aren’t the only types of clients that Lisa has but are, as she puts it, the specialties where she does her best work with clients.

We also talk about how despite developing a financial planning process with clients that are especially a deep on the advisor-client relationship, Lisa still managed to take two six-week sabbatical vacations in the past six years. The way she works with her staff for an entire year in advance to prepare the firm, train the team and transition relevant and necessary tasks to take that sabbatical, how she trained clients as well to become less dependent on her and more comfortable working with the other members of her team, the way she breaks the news to clients, and her lessons learned about how she might have still done the sabbatical a little bit differently for the next time.

And be certain to listen to the end, where Lisa shares how the growth of her firm ultimately led to a rising level of turnover until she began to reallocate her own time to focus less on just the clients and more and truly managing and developing her team, and the entrepreneurial operating system that she ultimately implemented to help better run and scale her practice.

So whether you’re interested in learning about what it takes to really unplug and take a sabbatical as an owner of an advisory firm, tools you can use to develop and deepen your relationships with your clients, or how to set a clear strategic direction for your firm, then we hope you enjoy this episode of Financial Advisor Succcess!

Monday 21 January 2019

Revenue Productivity Ratios: The 3 Most Important Numbers To Manage In An Advisory Firm

As advisory firms grow, it’s crucial to both measure and manage the productivity of the firm. At the individual level, productivity is typically measured by evaluating the amount of time it takes to complete various key tasks. At the firm level, it’s measured through key “revenue ratios” that become Key Performance Indicators (KPIs) for the entire business.

The first key revenue ratio that all advisory firms should measure is revenue per client – literally, by dividing the total revenue of the firm by the number of clients. The significance of revenue/client is that it is the most straightforward way to understand an advisory firm’s “typical” clientele, to immediately identify clients that may unprofitable (i.e., significantly below-average revenue/client), and to determine which clients are so far above the firm’s average that it may be worthwhile to segment them and then provide additional services to them. In addition, given that the typical solo advisor only ever has the capacity for 50-100 clients in total, understanding the advisor’s revenue/client provides an indication of his/her maximum earning potential as well (at least until/unless lower-revenue clients are replaced by higher-revenue ones!).

As advisory firms grow, and become multi-advisor, so too does the next revenue ratio for productivity shift, from revenue/client (for an individual advisor’s clients), to revenue per advisor themselves. By measuring revenue/advisor, it’s quickly possible to see which advisors in the firm are more efficiently servicing their clients (and the associated revenue), by literally handling more revenue per advisor. On the other hand, extreme deviations in revenue/advisor can also provide an indicator of not just efficiency and productivity, but significant over- or under-servicing of clients as well.

And for the largest advisory firms, the key measure of productivity becomes revenue per employee, the most straightforward way to quantify, in the aggregate, how much staff it takes across the enterprise to service each segment of the firm’s clients and revenue.

In turn, advisory firms that measure these three Key Performance Indicators of advisor productivity can then evaluate how they compare to other firms at a similar size, using industry benchmarking studies. Which actually show that when measured on these key productivity measures, advisory firms may not actually benefit much at all from growing larger and gaining economies of scale, as larger firms tend to attract more affluent clients (with higher revenue/client) that demand additional services which in turn fully offset any size-based efficiencies!

The bottom line, though, is simply to understand that as advisory firms grow as businesses, it is feasible to benchmark the productivity of the firm in the aggregate… and then take the necessary steps to manage it accordingly!

Taking Maternity (Or Any Extended) Leave As A Financial Advisor Without Losing Your Clients

One of the most rewarding aspects of being a financial advisor – both financially, and psychologically – is forming deep relationships with clients that makes the advisor an indispensable resource that clients can depend on when needed. From the advisor’s ability to provide timely advice as needed, walk clients off the proverbial ledge in times of market volatility, or simply provide ongoing management of the client’s investment portfolio… success as an advisor with existing clients is all about being available to provide value if/when/as the clients may need.

Yet the challenge is that being under a constant state of “potential need” from clients makes it remarkably hard to ever get away from the business for a vacation, and especially for any kind of “extended” leave… including (and especially) maternity leave. Which in turn can become a deterrent for younger female financial advisors who want to someday start a family but are concerned about the consequences of wanting to step away for maternity leave in the future.

In this guest post, financial advisor Ashley Micciche shares her own story and perspective about how she was able to successfully step away from her practice and her clients for a collective 7 months over the span of 3 ½ years for two separate maternity leaves… from the steps she took in advance to prepare, the necessary infrastructure it takes to succeed (or at least make it easier), the benefits of a recurring revenue (e.g., AUM or fee-based) business model to help support the process, how the maternity leave plans were communicated to clients, and why it’s so crucial to set ground rules with both clients and staff to make maternity leave work.

Ultimately, the end result was that, while Ashley did experience a setback in growth of the firm – as time away from the office is still time lost that could have been spent doing business development, and clients rarely provide referrals while the advisor won’t even be there to receive them – clients not only didn’t leave while Ashley was out on maternity leave, but were actually remarkably supportive of her personal journey along the way!

In fact, Ashley makes the case that there are few professions better than financial planning to support starting a family and that allows the flexibility and freedom to step away for a period of time while still being able to control your business and income in the long run!

Friday 18 January 2019

Weekend Reading for Financial Planners (Jan 19-20)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the incredibly sad news that Vanguard founder and index investing pioneer Jack Bogle has passed away at the age of 89… but his legacy will live on, in both the books he wrote, the index funds he created, and the company he built with a unique mutual structure that ensures it will continue to support his legacy long after he’s gone.

Also in the news this week is the ongoing government shutdown, which looks increasingly likely to drag on for an extended period of time… and is leading economists and analysts to start assessing all the secondary effects that may soon emerge as agencies run out of stop-gap measures, from TSA shortages at airports to the Department of Agriculture’s food stamps program and nearly $460M of lease payments to various commercial real estate investors that won’t be paid every month the shutdown continues.

From there, we have a number of tax planning articles this week, including an announcement from the IRS in Notice 2019-11 that tax underpayment penalties will be waived in 2018 for anyone whose estimated tax payments and withholding added up to at least 85% of their total tax liability (instead of the usual 90%), a look at the various above-the-line tax deductions you can still take even with a higher standard deduction that limits the ability to itemize, and some tips on how to prepare and get organized for the upcoming tax season.

We also have several advisor technology articles, from a look at the increasingly sticky issue of who really owns a client’s financial data (and how the industry may need to change to really empower consumers to own and control their own financial data), a look at what AI will really likely do for financial advisors (hint: think ‘make advisors more proactive’, not ‘replace them’), the hazards of “legacy technology” for financial advisors, and how the creator of the modern password requirement (with upper- and lower-case letters, numbers, and special characters) regrets what he created as we’ve now reached the point of requiring passwords that are very difficult for consumers to use and remember but easier and easier for malicious computers to hack (as computing power grows exponentially greater every year).

We wrap up with three interesting articles, all around the theme of the habits and time use of successful and affluent people: the first looks at how the affluent spend their time, finding that what leads to happiness isn’t just having more wealth, or spending it on experiences per se, but simply engaging their leisure time in any kind of more “active” leisure (e.g., exercising or volunteering) rather than more passive leisure (e.g., watching TV or just relaxing); the second explores the “boring” habits of successful people, who tend to write things down, simplify their lives to reduce unnecessary choices, but still remain open to updating and changing their systems over time; and the last looks at how one of the most common first or early jobs of the ultra-wealthy was some kind of “sales” job, as the reality is that for everyone – even and including fiduciary advisors – it’s still absolutely vital to have sales skills in the modern era, if only to be able to sell yourself and your value (whether it’s to a client or boss).

Enjoy the “light” reading, and Happy New Year!

Thursday 17 January 2019

What To Expect When You’re Expecting…a Tax Refund

Ready for your tax refund? You’re not alone! Close to 75% of taxpayers received a federal direct deposit tax refund of about $3,000 last year! TurboTax is now accepting tax returns, which means you’re one step closer to receiving your...

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source https://blog.turbotax.intuit.com/tax-refunds/what-to-expect-when-youre-expectinga-tax-refund-20980/

Is It Better To Skip The CFP Exam And Get The ChFC Designation First?

As the world of financial advisors becomes less sales-driven and more “advice-centric”, the need to differentiate has become all the more acute, especially as the ranks of advisors who say they offer “comprehensive financial planning” continue to grow.

As a result, a plethora of designations has emerged over the years for the purpose of helping advisors demonstrate their credibility and expertise to both their current and prospective clients, and achieve some level of differentiation. Except in practice, some designations are much harder to achieve than others… which both makes it difficult for consumers to know which designations are really credible (or not), and for advisors, creates uncertainty about which designations an advisor should pursue first.

Accordingly, in this week’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we compare and contrast the two most common comprehensive financial planning designations, the Certified Financial Planner (CFP) and the Chartered Financial Consultant (ChFC), discuss some practical considerations about why advisors might choose to pursue one designation before the other, and why, in the end, it’s not an either/or question, but a pathway to building the competency it really takes to advise clients about potentially life-altering decisions with their hard-earned life savings.

The most popular designation for financial advisors – and literally, the one with the greatest consumer recognition – is the CFP certification, conferred by the CFP Board with education provided by more than 200 registered programs across the US. By contrast, the ChFC is offered exclusively by the American College for Financial Services, and was developed as a competing alternative to the CFP over 35 years ago, consisting of the same six core courses compromising the education component of the CFP requirements, as well as another two additional courses related to the application of various (more advanced) financial planning topics. Other notable differences, though, are that ChFC candidates don’t have to have a bachelor’s degree, meet a minimum experience requirement, or – most importantly for some – pass a comprehensive final exam (given how notoriously difficult the CFP exam is with its ~60% pass rate).

Which means that, at first blush, the ChFC is a much less daunting hurdle to surmount if you want to quickly (and less painfully) establish credibility and fear whether you can pass the rigorous CFP exam. But the CFP exam is rigorous for a reason: because, ultimately, a financial advisor’s job is to advise clients on how to protect, how to grow, and what to do with the savings they’ve spent years (or literally a lifetime) accumulating. Which, in turn, should reasonably demand a reciprocal effort from the financial advisor to study for (and pass) the CFP exam, which (along with the experience and ethics requirements) is a major step towards ensuring that you, as a financial advisor, really have the knowledge to fulfil that sacred duty to clients and not unwittingly give them incorrect (and potentially destructive) financial advice along the way.

In fact, as CFP certification increasingly becomes recognized as a baseline minimum standard for competency for real financial planners, arguably the decision of CFP vs ChFC isn’t an either/or question, but is rather a matter of obtaining a foundational skillset (CFP certification) from which you can build upon with post-CFP designations (like the ChFC). In other words, by starting with the CFP marks and then layering on the ChFC, CLU, CPWA, CIMA (or any number of the myriad of similarly available high-quality industry designations) as you drill down towards a deeper level of specialization, advisors can better stand out in a sea of other advisor who might say that they do the same things you do, but haven’t yet earned professional designations to demonstrate that experience and expertise!

2 WEEKS to the Self Assessment Tax Return Deadline!

There are only 2 weeks left in which to file your Self Assessment tax return with HMRC. Miss the deadline (11.59pm on 31st January 2017) and you'll straight away be in for a £100 fine from HRMC, so don't delay — contact Taxfile TODAY to book an appointment with one of our helpful tax advisors and accountancy experts. We'll make filling in and filing your tax return a breeze and what's more, we're currently open 6 DAYS A WEEK from now until the end of January (Saturday mornings by appointment). Don't leave it to the last minute, though, as there is always a bottleneck for those who do — so come in as early as you can this week. It doesn’t matter if you have zero tax to pay – you still need to submit your tax return on time! You also need to have paid HMRC any tax due for the 2015-16 financial year by the same 31 January deadline. So get our professional help with filing of your tax return — you can book an appointment online, drop by the Tulse Hill shop to book one, send us an email message via our contact form or, better still, simply call us on 0208 761 8000 and we'll book you in and help sort out your tax return accurately and on time. Don't delay — time is quickly slipping by!

source https://www.taxfile.co.uk/2019/01/2-weeks-to-the-tax-return-deadline/

Wednesday 16 January 2019

Why Evolutionary Psychology May Be Better Than Behavioral Finance Research To Understand Financial Behaviors

There’s no doubt behavioral finance research has had a tremendous influence on our general understanding of human behavior. From loss aversion, to choice architecture, to the “Bottom Dollar” effect, and more – behavioral finance research has enhanced both our understanding of real-world financial behaviors and what financial advisors must watch out for while trying to assist their clients in making wise(r) financial decisions.

However, despite its tremendous influence, behavioral finance research leaves a lot to be desired. Most notably, while behavioral finance has taught us a lot about how people behave, it tells us very little about why we behave how we do – and understanding why we behave the way we do is important to ensuring that we understand the circumstances in which biases, heuristics, and other behavioral quirks may lead us astray (so that we can then avoid or manage those circumstances).

In this guest post, Dr. Derek Tharp – lead Researcher for Kitces.com, and an assistant professor of finance at the University of Southern Maine – examines the weakness of behavioral finance as a field, and why evolutionary psychology may likely grow to become a more useful framework for understanding how humans make financial decisions.

In essence, the “problem” with behavioral finance research is that it is largely atheoretical, functioning more as an ever-growing catalog of human behaviors which do not align with traditional assumptions of rational behavior. Of course, cataloging interesting behavioral phenomena is not inherently a bad thing to do, and there is tremendous value in the cataloging work that has been done. But the reality is that a mere catalog of interesting financial behaviors is less insightful than a true theoretical perspective, especially when it comes to providing any real insight about what individuals (or their advisors) should do about those problem behaviors.

By contrast, evolutionary psychology, which applies Darwinian evolutionary principles to human psychology, can not only provide a rationale for why we engage in behavior such financial behaviors as the endowment effect or hyperbolic discounting, but also insight into the conditions in which we are most inclined to be misled. Specifically, humans must be most concerned when a bias or heuristic was functionally useful within the environment in which our ancestors evolved, but is no longer as relevant within our modern world. Further, evolutionary psychology also provides insights into areas such as communication, positive psychology, and psychopathology, suggesting that evolutionary psychology has much to offer financial counselors and therapists as well.

Tuesday 15 January 2019

#FASuccess Ep 107: Using Podcasting As A Marketing Strategy To Attract (Retirement Niche) Clients, with Roger Whitney

Welcome back to the 107th episode of Financial Advisor Success Podcast!

My guest on today’s podcast is Roger Whitney. Roger is a partner with WWK Wealth Advisors, an independent RIA based in Fort Worth, Texas, where Roger works with a personal client base of retirees with $75 million of assets under management.

What’s unique about Roger, though, is that he’s been able to attract almost $50 million of those assets in just the past 2 years by launching a niche podcast on retirement that attracts to him affluent baby boomers making the transition to retirement.

In this episode, we talk about the why and how Roger built his “Retirement Answer Man” podcast, the style and format of his podcast and what he’s found works to attract listeners, the way he transitions podcast listeners to a webinar that shows prospects a sample client meeting and then invites them to a schedule a fit meeting, and the way he treats his podcast marketing strategy as an orchard to be nurtured and tended and not just a tactic to hunt for more retired clients, even though it’s generating a lot of retired clients for him anyways.

We also talk about how Roger focused his advisory firm into a niche of working with retirees. Why his focus with clients is less about financial freedom and more about time freedom, his unique Agile Retirement Management approach to working with retirees that’s less about producing the comprehensive financial plan and more about producing what he calls a minimum viable plan and then engaging in constant iteration of what he calls SMART sprints to the next short-term goal or objective, and how despite being what he calls a classically-trained financial planner, that most of Roger’s conversations today take more of a coaching approach with clients that focuses as much on human and social capital as their financial capital.

And be certain to listen to the end, where Roger shares how the success of his podcast has now evolved into publishing a book called “Rock Retirement” and creating what he calls the Rock Retirement Club as a way to serve the subset of his listeners who will never realistically hire them to be his financial advisor but are willing to pay to join a community he’s created that helps support them in their own do-it-yourself journey through retirement.

So whether you’re interested in getting started with podcasting (or building a content marketing strategy), how Roger attracts new clients and builds business through his podcast, why he creates content only for a very specific audience, or how he handles the compliance side of the equation, then we hope you enjoy this episode of Financial Advisor Success!

Monday 14 January 2019

7 Crazy Things People Have Deducted

When it comes to U.S. taxpayers, there’s no end to the ingenuity applied when it comes to weird tax deductions and the crazy reasons given to justify them. Though some of them may seem like a reach, sometimes the IRS...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/7-crazy-things-people-have-deducted-42603/

Should The CFP Board Allow Expungements For Those Who Violate Its New Fiduciary Standard?

A core requirement of any bona fide profession is to have a professional Code of Ethics and Standards of Conduct that must be adhered to and a disciplinary enforcement process to remove professionals who don’t honor the standards. And while technically the CFP Board is not a sanctioned regulatory body but a 501(c)(3) public charity that owns a trademark for the CFP marks – and grants CFP certificants the right to use its private trademark in exchange for following its stipulated rules – the organization has been attempting to make financial planning a (more) recognized profession by similarly establishing a Code of Ethics, requiring CFP certificants to adhere to it, and enforcing against those who don’t follow its rules.

Accordingly, to the extent that last year, the CFP Board decided to lift its Code of Ethics and Standards of Conduct to formally adopt a fiduciary standard for all financial advice (or really, financial recommendations of any type) provided by CFP certificants, the CFP Board is now taking steps to refine its processes for enforcing those standards, with a series of proposed updates to its Disciplinary Rules and Procedures.

Yet alongside a number of more process-oriented refinements, the CFP Board has also put forth a rather controversial proposal: to allow CFP certificants to expunge their one-time public disciplinary sanctions (e.g., a public letter of admonition or a temporary suspension of the CFP marks) after 5 years. Despite the fact that recent studies of broker recidivism have found that those who have even “just” one misconduct disclosure on BrokerCheck are a whopping 5X more likely to engage in repeat misconduct, and a more recent study found that those who request expungement of their disciplinary records are even more likely to end out being repeat offenders anyway! While in the internet age when “nothing dies” once it’s online, it’s not even clear if expungement of a public sanction from the CFP Board’s website really effectively vacates a CFP certificant’s record anyway… or just makes it harder for the public to find the information they need.

And so at a minimum, if the CFP Board is going to proceed with an expungement process, it should seriously consider more “aggravating factors” like additional private censures or the extent of client harm before automatically granting a time-based expungement, separate the process of expunging public sanctions from “just” bankruptcy-only disclosures, and apply a probationary period to expungement where any expunged sanctions are returned in the event of a future public sanction or private censure.

Ideally, though, the CFP Board should move away from its proposal for expungement, and instead simply provide the means for CFP certificants to add an explanation to their public disciplinary records (akin to what FINRA already provides), and perhaps better aid consumers by clarifying the nature of the infraction and whether or to what extent client harm actually occurred or not. And to the extent there is concern about an uptick in violation of the new fiduciary Standards of Conduct when they launch later this year, consider adopting a more lenient transition enforcement policy for the first year… rather than forgiving all 2020 infractions by 2025 regardless of their actual severity and client harm!

Fortunately, at this point, the proposed Disciplinary Rules and Procedures are just that – proposed – which means CFP certificants still have an opportunity to submit their own Public Comment letter expressing support or concern for the proposals to the CFP Board by January 29^th.

Saturday 12 January 2019

IRS Free File Program is Open

The IRS has opened its popular Free File Program, available at www.irs.gov, a public-private partnership between the federal government and private tax preparation companies, including TurboTax maker Intuit. This year, taxpayers with an adjusted gross income of $34,000 or less,...

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

Friday 11 January 2019

Sweepstakes: Your #TaxHero Is Ready When You Need It

Tax refund season is here, and it’s time to start filing! When you get ready to file you may be wondering about how your taxes are going to look, what to expect or how the new tax law changes will impact...

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source https://blog.turbotax.intuit.com/announcements/your-taxhero-is-ready-when-you-need-it-25570/

Weekend Reading for Financial Planners (Jan 12-13)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with a striking new projection from Cerulli that direct-to-investor platforms are projected to grow to over $9 trillion of assets by 2022… driven not by robo-advisors, but by the existing leading direct-to-consumer platforms (primarily Fidelity, Vanguard, Schwab, and TD Ameritrade, that collectively own 84% of the direct-to-investor marketplace) that are increasingly competing with financial advisors by launching their own in-house advisory solutions for investors.

From there, we have a number of other notable industry news articles this week, including the news that Schwab, Fidelity, and TD Ameritrade (along with 6 other banks, brokerage firms, and trading firms) are launching of a new alternative stock exchange that will be known as MEMX (Members Exchange) to try to undercut trading and data costs of the “traditional” stock exchanges like NYSE and Nasdaq, a discussion of how Schwab is working with the Investment Advisers Association to try to roll back the repeal of the advisory fee deduction and allow financial advisors to be eligible for the 20% QBI deduction as insurance agents are (though progress is not likely until after the 2020 election at best), and a preview of how the CFP Board is getting ready to “beef up” its disciplinary and enforcement capabilities in advance of its new higher fiduciary standard taking effect later this year.

We also have several articles on the theme of mergers and acquisitions of advisory firms, from tips for RIAs that want to be acquired about how to better position themselves, how RIA deals are becoming so lucrative they’re beginning to mirror the wirehouse recruiting deals of old (which in turn may be further accelerating the wirehouse breakaway broker trend), some technical issues to consider for those evaluating a merger (from entity structure to compensation policies and decision-making processes), the significance of cultural fit in a merger and how to assess it, and why the key to being a successful acquirer isn’t just about offering the right price but scaling the firm’s own operational capabilities to truly be able to take the load off the shoulders of advisors who want to sell (often to simply get back to the client-facing advisory work they enjoy the most).

We wrap up with three interesting articles, all around the theme of how technology in general (and FinTech in particular) is evolving: the first looks at how while platforms like Facebook become popular because of their ability to facilitate connections and sharing of information their success has created platforms so cluttered with information that it “forces” the companies to create algorithms to manage the newsfeed (which is now leading to other unintended consequences); the second explores how platforms like Google have become so dominant that it’s in their interests to not be biased in any way (that might open up half the marketplace to a competitor) but the longer they succeed the more they may unwittingly stifle innovation anyway; and the last is a fascinating look at the rise of Ant Financial in China, a “FinTech” digital financial services firm that has been so successful it may have already achieved what many advisors fear Google or Amazon will attempt here in the US (using their technology brands to compete in a wide range of financial services products)… even as, ironically, Ant Financial is now facing a regulatory backlash because of its success and is trying to reposition itself as not being a financial services firm but “just” a technology firm, which may help to explain why companies like Amazon and Google have been content to not directly enter the highly-regulated world of investments and financial advisors themselves, either.

Enjoy the “light” reading, and Happy New Year!

Thursday 10 January 2019

HOLA! TurboTax Blog is NOW Bilingual

TurboTax is thrilled to kick-off tax year 2018 with a special announcement: Our award-winning TurboTax blog relaunched to become fully BILINGUAL! Bienvenidos! Welcome! The new bilingual TurboTax Blog will offer consumers hundreds of pieces of content, videos and free tools...

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source https://blog.turbotax.intuit.com/turbotax-news/hola-turbotax-blog-is-now-bilingual-42564/

Advisory Firms Don’t Scale: Why Growth Doesn’t Solve Profitability Problems

One of biggest reasons why established firms in any industry are difficult to unseat is that they have “economies of scale” – where fixed costs of overhead and infrastructure on an ever-growing business results in proportionately decreasing costs (as a percentage of revenue) and ever-larger profit margins (or available dollars to reinvest for further growth).

Accordingly, for solo advisory firms and even “smaller” (e.g., <$200M) ensembles, there has been a rising focus on how to grow –expanding the firm itself, either organically, or through a merger or (multiple) acquisition(s) – in order to achieve greater cost efficiencies and advisory firm economies of scale.

In today’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we discuss why, when it comes to advisory firms, increased size and revenues don’t necessarily result in increased profits and economies of scale, the overhead expense margin and profitability ratios successful advisory firm owners can reasonably expect to see, why trying to “scale up” in a time-intensive service industry isn’t always the most effective way to improve firm profitability, and some alternative strategies that can be employed to improve bottom-line results outside of just growth for growth’s sake… which for a firm that is already less profitable than it could be, often ends up compounding the profitability problems rather than solving them!

According to the recent InvestmentNews benchmarking study on advisory firm profitability, small firms with about half a million in revenue average an overhead expense ratio around 35%. But in reality, some of the top-performing solo advisory firms can often get that number down to 20%, or even 10%(!) by giving premium service to an increasingly concentrated premium client base.

In fact, it’s only when those small firms try to grow their revenues that the firm’s expenses actually start to balloon, overhead expense ratios rise, and profit margins begin to decline, because with added capacity comes the need for added infrastructure (from more staff to more office space and more technology, etc.) to support it. Thus, ironically, larger advisory firms tend to have higher the expense ratios than smaller ones… because at a certain point, the firms end up stacking on additional overhead expenses in order to support the additional layers of infrastructure!

Fortunately, though, small and mid-sized firms have more effective tools are their disposal to improve profitability. For many firms, the biggest needle-mover is to simply raise their fees, because more often than not, profitability problems stem from the fact that advisors are doing too much for too little… or stated another way, they’re delivering a Starbucks experience at a McDonald’s rate. From there, advisors can pull other levers, including standardizing portfolio construction, consolidating custodians, “graduating” less-profitable clients out of the firm, streamlining technology, and revisiting relationships with any other non-owner advisors who don’t generate at least enough revenue to cover their overhead expenses.

The bottom line is simply that there are better ways for small to mid-sized firms to improve their profit margins beyond just trying to grow their top-line revenue in search of economies of scale. Because, in the early stages of an advisory firm, owners often accommodate specialized needs of clients out of the sheer desire to generate any revenues whatsoever and get their business off the ground. And the direct result of that is cost inefficiencies and profitability problems. Accordingly, those issues are best addressed, not by trying to grow the business itself – which can only compound the problems – but instead by changing the business. Which in turn often requires the advisory firm owner to adjust his/her own mindset and perspective away from thinking things have to be done in a certain way (the way they’ve been done in the past)… when in reality they don’t, and fixing those problems in the business are the real key to better profitability (and then, if still desired, growth)!

Wednesday 9 January 2019

Three Tips to Help Maximize Your Tax Refund

We know that the best part of tax season is receiving your tax refund (and being able to spend it on whatever you may want or need)! In the 2017 tax year alone, the IRS issued more than 100 million...

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source https://blog.turbotax.intuit.com/tax-refunds/our-turbotax-live-experts-chime-in-on-how-to-maximize-your-tax-refund-42326/

The Importance Of Finding Your Tax Equilibrium Rate For Retirement Liquidations

No one wants to pay any more in taxes than they have to, and Judge Learned Hand is famous for stating that, “Anyone may arrange his affairs so that his taxes shall be as low as possible.” Which, in practice, usually entails engaging in tax strategies that minimize (or at least defer) taxes as long as possible. Except the caveat is that when it comes to tax deferral, there really is such thing as being “too good” at doing so, given the progressive nature of income tax brackets (with higher tax rates on higher income levels). For instance, the tax-deferred retirement account that grows so large that, when Required Minimum Distributions begin, the retiree is thrust into a tax bracket higher than he/she ever faced during the accumulation years (or earlier retirement years) in the first place.

Accordingly, the reality is that sometimes the best way to arrange affairs to minimize taxes is actually not to defer them, and instead accelerate the income. With the caveat that if too much income is accelerated, the individual may simply drive themselves into higher tax brackets today, finishing with less wealth than they would have if they simply relied on good old-fashioned tax deferral instead!

Thus, the optimal balancing point really is a balancing point between the two – seeking out an equilibrium rate that accelerates enough income to fill up lower tax brackets today, but still defers enough income to fill up the tax brackets in the future as well. Or what are actually two tax rate equilibria – one for ordinary income (and its 7 tax brackets), and a second for long-term capital gains and qualified dividends (which have their own 4 tax brackets, and stack their income on top of ordinary income).

And while it can be difficult to know for certain what future tax rates will be, the very nature of doing financial planning (and especially retirement projections) is to determine the current trajectory of wealth… which means with some relatively simple and straightforward assumptions about future Social Security and pension payments, RMD calculations, and anticipated interest, dividends, and capital gains, it really is feasible to make a reasonable approximation of an individual’s future tax rates to determine where the ideal equilibrium will be. And then engage in strategies from accelerated retirement account liquidations, to partial Roth conversions, and capital gains harvesting, as necessary to ensure that any currently-lower tax brackets are filled up to reach the equilibrium point.

Ultimately, the ideal tax bracket to fill up will vary by the individual and their overall wealth and circumstances, with many retirees (even millionaires) able to remain in the 12% ordinary income bracket (and 0% capital gains rates) with proactive planning, while more affluent retirees may aim for the 22% or 24% brackets and the 15% capital gains rate, and the wealthiest households may seek out any tax rate equilibrium that is not the top tax bracket (as anything lower than the top bracket is a relative improvement!).

The fundamental point, though, is simply to understand that the best way to plan around taxes in retirement is not to defer too much income, nor too little, but to seek out and find the equilibrium rate that balances them out!

Why Evolutionary Psychology May Be Better Than Behavioral Finance Research To Understand Financial Behaviors

Tuesday 8 January 2019

#FASuccess Ep 106: Empowering Widows Financially By Helping Them Navigate The 3 Stages of Widowhood, with Kathleen Rehl

Welcome back to the 106th episode of Financial Advisor Success Podcast! My guest on today’s podcast is Kathleen Rehl. Kathleen is a researcher on the money issues that widows face, the author of “Moving Forward on Your Own,” a financial guidebook for widows, and a speaker and trainer for financial advisors on how to work better with widowed clients. What’s unique about Kathleen, though, is that she’s also a former financial advisor herself, having spent 17 years operating as an independent RIA before sadly becoming widowed, at which point she decided to sell her advisory firm and shift her focus to empowering widows financially as an encore career.

In this episode, we talk in depth about the challenges in working with recent widows. The words to use and what to say, as well as what not to say when working with a recent widow, how widows typically progress from a grief stage, where it’s so difficult to make good decisions, that Kathleen simply advocates for a decision-free zone for 6 to 12 months, to a growth phase where the transition work really gets underway to begin rebuilding the widow’s financial life, and then a grace stage that not all widows reach, where the foundation is set for a new life in a new direction. Which is important to understand because financial advisors that push the wrong financial issues to a widow’s current phase will likely become part of that now infamous statistic that 70% of widows end out changing financial advisors precisely because so if you have a real understanding of an empathy for the issues that recent widows face.

We also talk about Kathleen’s own practice. Why and how she formed a niche in working with members of the clergy, how she ultimately wound out and sold the practice after becoming a widow, and the transition she made to becoming a speaker, researcher, and ultimately self-publishing her own book to help widows that has now sold tens of thousands of copies, including from financial advisors who often buy the book for their own recently widowed clients.

And be certain to listen to the end, where Kathleen talks about some of the recent research she’s done on widows and money, including a study that showed how widows who worked with a financial advisor had significantly more financial confidence in their future, and how the most effective advisors who’re working with the widows instilled even more financial confidence for their clients than the average financial advisor, a powerful testament to the value of a financial advisor in a uniquely challenging stage of life.

Monday 7 January 2019

IRS Announces E-file Open Day! Be the First In Line for Your Tax Refund

The IRS announced today that it will begin processing tax returns on 1/31/14. The good news for you? TurboTax is open for business and will begin accepting tax returns on January 2, 2014!

source https://blog.turbotax.intuit.com/tax-news/irs-announces-e-file-open-day-be-the-first-in-line-for-your-tax-refund-15822/

Self-Employed? Don’t Forget About the Estimated Tax Deadline

The article below is up to date based on the latest tax laws. It is accurate for your 2018 taxes, which you will file by the April 2019 deadline. Learn more about tax reform here. If you’ve taken the plunge into...

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source https://blog.turbotax.intuit.com/self-employed/self-employed-dont-forget-about-the-estimated-tax-deadline-19852/

Intuit Scores a Touchdown as the Official Sponsor of AFC & NFC Championship Games

Are you ready for some football? We hope you’re just as excited as we are for the upcoming NFL Championship Games…because today, Intuit announced a multi-year official sponsor partnership with the National Football League! As part of the sponsorship, TurboTax...

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source https://blog.turbotax.intuit.com/turbotax-news/intuit-scores-a-touchdown-as-the-official-sponsor-of-afc-nfc-championship-games-42485/

New Year, New Tax Implications

Happy New Year! It’s a brand new year and the majority of the new tax provisions that were signed into law in December 2017 take effect for the tax year 2018 (the taxes you are filing now). This year, you may...

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source https://blog.turbotax.intuit.com/tax-planning-2/new-year-new-tax-implications-25540/

The Latest In Financial Advisor #FinTech (January 2019)

Welcome to the January 2019 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 Blackrock is partnering with Microsoft as it doubles down (or triples down as taking $100M+ stakes in both FutureAdvisor and Envestnet!?) on its strategy of using technology as a distribution channel for its iShares ETFs (and possibly a new next-generation fee-based annuity as well)?

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

TD Ameritrade rolls out a new account-opening API as RIA custodians slowly but steadily try to match the capabilities of retail robo-advisors.
LPL acquires AdvisoryWorld for $28M to be its ClientWorks core after struggling to build its own solution
RIA In A Box gears up to become the first “RegTech Roll-Up” by acquiring cottage industry compliance consulting firms and transitioning them to RIAB’s compliance technology solution
Harness Wealth raises $4M of seed funding for yet another attempt at an advisor matchmaking lead generation platform.

Read the analysis about these announcements in this month’s column, and a discussion of more trends in advisor technology, including wirehouse struggles to build competitive technology to what independent advisors already have, Fiserv’s updated fee billing and revenue management solution, the SEC fining Wealthfront $250k for failing to implement its own tax-loss-harvesting solution properly, Betterment rolling out a new two-way cash sweep program that allows them to attract held-away cash (while advisors are developing new solutions to move cash away from their existing RIA custodians due to non-competitive yields), and a look at how the broker-dealer drive to move deeper into financial planning is causing planning software solutions to finally build the more modular planning tools that advisors have wanted for years… even as it remains unclear is more modular planning tools will actually help broker-dealers themselves to gain financial planning adoption amongst their own brokers.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!

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!