News About IRS And Tax: August 2018

Friday, 31 August 2018

Weekend Reading for Financial Planners (Sep 1-2)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the announcement of the CFP Board’s latest public awareness campaign, which will kick off this fall with a series of new ads around the theme of promoting a “more confident today and more secure tomorrow… with a CFP professional,” as the public awareness campaign completes its 6th year of spending $10M+/year from its $145 assessment on what is now 82,000+ CFP certificants.

Also in the news this week was an interesting private letter ruling from the IRS that may clear the way for employers to provide “matching” 401(k) contributions, based not on an employee’s own contributions to the plan, but their payments for their student loans instead (which might alternatively be framed as employers providing student loan assistance for those employees who are also willing to save towards retirement), and a discussion from SEC Commissioner Clayton about possibly expanding the accessibility to private investments for main street investors (potentially through the use of a financial advisor).

From there, we have several articles about investment trends in the industry, from a look at how more and more mutual fund companies are beginning to automatically convert C-shares to A-shares after 7-10 years (ostensibly in response to the SEC’s Share Class Selection Disclosure Initiative earlier this year scrutinizing brokers that used higher-cost share classes when equivalent lower-cost alternatives were available), to the rising concern from Morningstar that not all “Clean” shares are equally clean (and why “bundled”, “semi-bundled”, and truly “unbundled” categories may be a better descriptor), and the discussion of how advisors are becoming even more proactive in seeking out better cash yields for clients who don’t want the low-yield cash sweep options available from most broker-dealers and RIA custodians today.

We also have several marketing-related articles this week, including: why it’s important to not just explain to clients the benefit of working with you but also the consequences of not working with you; how to change your seminar evaluation firms to get prospects to book more follow-up appointments; and how when it comes to complex services like financial planning, it’s not enough to simply show that the advisor has solutions to solve the client’s problems, it’s also necessary to engage in a conversation to help clients better define what the problems are that they’re really trying to solve for in the first place (which clients sometimes don’t realize themselves)!

We wrap up with three interesting articles, all around the theme of our very human struggle to be part of the herd and liked by others, and how it can adversely impact us: the first looks at how many advisors find themselves unhappy in their advisory firms because they build towards the peer pressure of what others are doing (e.g., “grow more!” or “get bigger!”) instead of focusing on the goals for the firm that will make them personally happy; the second explores how increasingly collaborative work environments are leading to rising employee overwhelm and burnout because it can be so hard to figure out how to say “no” to co-worker requests (especially when our identity is built around being the go-to person in the office that likes to help people as a “good team player”); and the last provides a powerful reminder that to be a good leader, it’s crucial to not always try to be “nice”, as the reality is that sometimes team members need hard feedback… instead, focus on being honest, consistent, and rigorous, and then deliver those messages as nicely as you reasonably can.

Enjoy the “light” reading!

Thursday, 30 August 2018

Converting Ensemble Partner Compensation From Revenue-Based To Advisor Salary

An individual financial advisor can only ever work with so many clients before running out of any time and capacity to serve more. As a result, all advisory firms eventually hit a capacity wall, where they must either decide to stop growing or hire or partner with more advisors to increase capacity. When several advisors come together to create and build on such capacity, an “ensemble firm” emerges, where it’s no longer about growing any individual advisor’s practice, and instead is about growing “the firm” and clients of the firm (and hiring employee advisors as necessary to service those clients). The caveat, however, is that most advisors who come together to create such an ensemble firm are transitioning from existing individual practices, with separate expenses, separate revenue, and separate income. Which can make it especially hard to figure out how to actually transition advisor compensation from separate silos to a shared enterprise where all advisors are treated consistently… especially if there’s a large discrepancy in the revenues that each advisor brings to the table.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1 PM EST broadcast via Periscope, we discuss the mindset shift that must occur to successfully grow an ensemble firm with shared clients, how partners in an emerging ensemble advisory firm can equalize compensation levels and get to work growing their business, and when advisors are best able to make the shift from revenue-based compensation to ensemble salaries and bonuses instead.

One of the first challenges that advisors face when transitioning into an ensemble practice is changing their mindset from being an individual advisor with his/her own clients, to being an advisor in a larger firm that is responsible for servicing the firm’s clients. Because ultimately, if the ensemble business is truly going to grow and scale to 10X its size or more… the firm will eventually be so large that it’s no longer about the clients and revenue of any founder/partner/owner, but the collective value of the firm’s clients. After all, the whole point of building an ensemble practice in the first place is to create value from a business that’s larger than and goes beyond what either partner could have built with their own individual client base.

Still, different advisors come to the table with different existing client bases and revenue, which can make it challenging to equalize (or at least standardize) compensation levels, especially if one partner is responsible for generating substantially more revenue than the other.

One way to approach the issue is simply to go ahead and equalize ownership and compensation and get on with the work of building the business, because if the goal really is to create a sizable advisory business in the long run, then the personal wealth that’s created from the long-term value of the firm will dwarf the small differences in compensation in the initial stages anyway.

The second approach that can work – especially if there’s a large discrepancy in revenue-generation – is to have the lower-revenue partner buy a percentage of the business from the larger-revenue partner. Doing so makes it easier to even out both partners’ compensation structures, with the check the lower-revenue partner writes mitigating the step-down in pay taken by the larger-revenue partner.

The third approach is to blend advisor compensation, with a salary base for the “executive” functions of being an owner of the firm, and a partial revenue-based compensation for the job of servicing the founder/advisor’s existing clients. With the caveat that, as compensation for servicing clients in the business, advisor partners need to be cognizant that whatever they pay themselves should be the same compensation structure they would offer to other employee advisors in the business as well (as the additional upside for the partner should come from equity profits, not compensation for the job of being a “partner” in addition to an advisor).

Regardless of which approach is chosen to make the transition, the question also remains: “When is it best to make the switch from revenue-based silos to ensemble salary compensation?” While there’s no hard and fast rule, the shift typically takes place somewhere between the $500,000 and $1,000,000 in firm revenues, because at that level, there’s enough to not only pay the partners an appropriate salary for their work in the business but to have enough left over at the bottom line so that the partners can begin split the income generated from the business itself.

The bottom line, though, is simply that building a multi-advisor ensemble business is all about separating out the value being created by the business itself – for which owners generate profits – from the work of servicing clients that’s being done in the business, for which compensation should reflect what the job itself is actually worth (i.e., what would be paid to any employee in that role, partner or otherwise). And by making the compensation transition, ensemble firm owners truly create the most effective incentive for themselves to focus not on their own clients and revenue but building the shared enterprise value of the business itself.

Wednesday, 29 August 2018

How To Give Better Financial Advice That (Actually) Sticks

For an advice-giver, the “ideal” client is one who presents a clear fact pattern to analyze, for which there is a single straightforward recommendation to implement, that the client immediately takes up and follows through on. In the real world, most clients are more complex, and entail a long series of recommendations to implement over time… which means, at best, even the most diligent clients won’t necessarily follow through on everything right away. And for many, over time, it can become even harder to finish all the implementation steps, as other demands and distractions of life sap the client’s focus and motivation.

Yet the growing base of research on “non-compliance” (or at least, “non-adherence”) to advice-givers in the medical world (i.e., patients who don’t follow their doctor’s advice and prescriptions) reveals that the burden for following through on implementation should not rest solely with the patient or client receiving the advice. Instead, the reality is that the advice-giver also has a role to play, and a shared responsibility to ensure that the advice they give actually “sticks.”

And in her recent book of that name – “Advice That Sticks” – neuropsychologist Dr. Moira Somers explores how the adherence research on advice can be applied to the world of financial advisors to actually increase the likelihood that clients really do follow through on all of their recommendations.

The first key insight of the research is that clients hire financial advisors for a wide range of reasons – far beyond “just” seeking out answers to their financial questions. In fact, given the ever-growing depth and reach of the internet, clients are arguably less and less likely to be seeking answers and expertise alone. Instead, they may be seeking someone to help them make sense of all the information, to reduce complexity or help them evaluate trade-offs, or increase their confidence about their own decisions. In other cases, the client may actually be hoping to delegate something – not just the responsibility for managing their assets, but the “unpleasantness” of spending time in an area they don’t relish, to have someone (else) to blame if things go wrong, or simply to free up their own time for other endeavors.

And in addition to the fact that clients come to advisors for more than “just” advice alone, Somers highlights the wide range of additional influences that can impact the client’s receptivity to advice, from their own personal financial history and circumstances (and the “money scripts” they’ve learned from prior experiences), to their social and environment factors (where they may not be prepared to face the family consequences of a financial decision), to the nature of the advice itself (long-term preventative advice is the hardest to implement in the first place), and how the advisor’s own advice-delivery process can impact the outcomes.

Ultimately, though, the key point is simply to understand that clients who don’t implement the advice they’re given aren’t necessarily “bad clients” for failing to do so. Instead, the advice-giver themselves has a proactive role to play in aiding clients to follow-through and implement, and in reality the client who faithfully and fully implements all their advice the first time and never needs help on follow-through again is not the paragon of being a good client but more the exception to the rule for how most people actually struggle to implement even good advice. On the plus side, though, that means there is tremendous additional value to be created for clients by not just giving the most accurate good advice, but actually being the best at giving advice that sticks, too.

Tuesday, 28 August 2018

#FASuccess Ep 087: Going Independent To Run Your Advisory Firm With The Systems And Clients You Want with René Nourse

Welcome, everyone. Welcome to the 87th episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is René Nourse. René is the founder of Urban Wealth Management, an independent RIA in the Los Angeles area that manages nearly $120 million of assets under management for more than 200 clients, with a team of 6. What’s unique about René, though, is how she built a successful practice at a wirehouse for the first 20 years of her career as an advisor and only went independent later in her career so that she could use the system she wanted to use to build with the type of clientele she wanted to serve.

In this episode, we talk in depth about the systems that René uses to run her business. The unique way that she structured her “contact us” page to better engage prospects, the material she sends every prospect before the first complimentary consultation meeting, how she determines which prospect meeting she takes versus the ones that she hands off to other advisors in the firm, and the proposal tool she sends every prospect who’s interested in engaging her services.

We also talk about the process that René went through to break away from the wirehouse and form her own independent RIA. How she retained the trust of her clients even without the big-name wirehouse firm at the top of her business card anymore by focusing on the safety and security of the RIA custodian she was going to use instead, and the new social media and webinar-based marketing initiative she’s created called Smart Women ~ Savvy Money, to grow the firm with the female professional she most enjoys working with.

And be certain to listen to the end, where René shares what it was like building her advisory practice at a wirehouse environment as both a woman and a minority, why she sees mentors as crucial to supporting better diversity in the industry, and how there’s increasingly a business case and not just a moral imperative to give better opportunities to both women and racial and ethnic minorities in financial services.

Monday, 27 August 2018

The Long Tail, The Big Head, and the Dangerous Middle Of Financial Advisory Firms

One of the most popular debates in the advisory industry today is whether small advisory firms of the future will be able to compete against the ongoing growth of today’s mega-advisory firms, from the small subset of the largest independent RIAs that control the marketplace (with more than 60% of client AUM held by fewer than 4% of firms), to the national brands like Vanguard and Schwab that are increasingly competing with independent advisory firms directly. Yet despite the negative forecasts, industry benchmarking studies continue to show record profits for the most successful solo advisory firms, generating as much income as the per-partner take-home pay of billion-dollar firms!

The ongoing success of the small firm shouldn’t be such a surprise, though, given the “long tail” phenomenon that is increasingly being observed in many industries – where niche providers can survive and thrive as technology makes it increasingly feasible for consumers to find their way to them, from niche books being found on Amazon, niche music being found via streaming music services, and niche financial advisors able to be found via a simple Google search.

The caveat, however, is that, as the biggest advisory firms scale their operations and marketing and establish recognized brands, while niche advisory firms thrive in the online marketplace of the internet, “something” has to give. But the “something” appears not to be large firms dominating small ones, or small firms picking off the clients of large ones… but instead, both applying substantial business pressure to the dangerous middle in between. Which today would encompass a wide range of advisory firms from $100M to more than $2B of assets under management.

Because unfortunately, it’s the firms in the dangerous middle that are both too small to be big (lacking the scalable marketing and established brands of regionally and nationally dominant firms), but are too big to be small (struggling to capitalize on a focused niche to differentiate). And instead have to grow through a series of challenging business hurdles, from a capacity wall of client service to a complexity wall of operational infrastructure and a growth wall of centralized, scalable marketing.

Fortunately, the good news is that some firms really do grow successfully through the dangerous middle, but the rising pace of advisory firm mergers and acquisitions – with an average deal size directly in the middle of the dangerous middle range – suggests that more and more firms are feeling the pressure to either get much bigger to get past the dangerous middle, or consider how to downsize and get smaller instead (either by outright downsizing the firm, or by tucking into a larger one to simplify the practice).

The bottom line, though, is just to understand that, as the long tail grows longer and the big head grows bigger, the future of financial planning isn’t about whether the “small” firms will win or the “big” firms will win. There is room for both to succeed, as the biggest advisory firms grow bigger with their size and scale and the smallest advisory firms grow more profitable. Just be wary about getting caught in the dangerous middle.

Friday, 24 August 2018

Is a Dog Your Tax Refund’s Best Friend?

National Dog Day is the perfect day to reflect on all of the fantastic benefits, responsibilities, and fun that come with being a dog owner. Taking care of a dog can be an incredibly rewarding experience. The love and affection you receive...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/is-a-dog-your-tax-refunds-best-friend-24028/

Weekend Reading for Financial Planners (August 25-26)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with news about the latest IRS regulations that definitively close the door on the potential for individuals in high-tax-rate states to preserve their SALT deductions by converting them into charitable deductions to state-run charities instead, as the Service declares that donating to a state-run charity in exchange for a state tax credit amounts to a quid-pro-quo transaction that would reduce the deductible amount of the charitable contribution all the way to $0. Also in the news this week, though, was a look at what kinds of tax policy changes the Democrats might take up and propose in 2019, including repealing the SALT cap, if they are in fact able to retake control of Congress in the mid-term elections this fall.

Also in the news this week were a number of interesting articles about the economy and markets, including a major revision from the Bureau of Economic Analysis to the personal savings rate data that reveals the U.S. consumer is actually saving at a whopping 7.2% rate that is well above 30-year averages (despite the fact that the so-called “wealth effect” normally decreases personal savings rates late in the economic growth cycle), the revelation that labor markets are becoming so tight that the mid-summer unemployment rate for 16-24-year-olds has dropped to a 52-year low, and a look at the recent buzz and President Trump’s proposal around changing quarterly earnings reports and guidance to become semi-annual (twice-per-year) instead and why if we really want to reduce the focus on earnings and market volatility the key is not to report earnings less often to instead to make the guidance more often (e.g., monthly or even daily through technology) so no one data point is ever so impactful anymore.

We also have several behavioral finance articles this week, from a look at what to do when clients don’t follow our advice (and why oftentimes clients aren’t actually looking for advice from their financial advisor about a major decision anyway, and really just want support for the decision they already made instead), to the importance of culture in determining whether advice is appropriate (or even relevant) for a client, why trying to imagine yourself in someone else’s shoes is actually a terrible way to understand their perspective (and how it’s far more effective to just ask them to share their perspective), and how managing clients so they don’t panic in a bear market isn’t just about dialing down the volatility in their portfolios so it doesn’t trigger any emotional fear in the first place but also looking at how we as advisors can create ‘circuit-breakers’ that help to prevent a volatile market event from translating all the way into an actual hasty and ill-timed action.

We wrap up with three interesting articles, all around the theme of balancing financial wealth and time: the first looks at how one the greatest challenges in wealth accumulation is that we think of wealth in terms of the outwardly expensive things that people own (fancy homes, cars, and jewelry) when in reality it’s the decision not to buy those things that are the greatest driver of wealth (which means wealth is best created by what we don’t see, not by what we do see!); the second explores the trade-offs between time and money, and how sometimes the best advice we can give is not about how to prudently save money, but how to prudently spend money in order to save time instead; and the last explores the reasons why very affluent individuals sometimes choose to remain anonymous and unseen with their wealth, preferring instead to be rich but not famous (an important mindset for advisors to understand about their clients)!

Enjoy the “light” reading!

Thursday, 23 August 2018

Which Work-Related Devices Can I Write Off?

You may have heard that the new tax reform law eliminates tax deductions for un-reimbursed employee business expenses beginning in 2018 (the taxes you file in 2019). If you own your own business, however, you can still deduct business expenses...

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source https://blog.turbotax.intuit.com/self-employed/expenses/which-work-related-devices-can-i-write-off-33164/

How The Dunning-Kruger Effect Holds Good Financial Advisors Back

The “Imposter Syndrome,” which affects professionals across industries and at every stage of their careers, is relatively common and refers to the tendency many have to doubt their own abilities and accomplishments, and results in the fear of being “found out” as a fraud (even if the reality is that they really are a bona fide expert!).

A lesser-known challenge that many professionals – particularly those in fields where their interactions with clients can result in life-altering consequences – run up against after they’ve got some education and experience under their belts is the realization that, despite what they’ve already learned, there’s an ocean of knowledge and expertise between where they are where they feel they need to be to best serve their clients. Which similarly can result in a decrease in confidence even as their actual skill to serve clients is objectively increasing.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1 PM EST broadcast via Periscope, we discuss this phenomenon, called the Dunning-Kruger Effect, how it manifests itself (particularly for financial advisors with a few years of experience as they earn their CFP certification), and specific steps advisors can take to ameliorate feelings of inadequacy and (re)gain the confidence needed to serve clients effectively.

The first, and probably most important, step in dealing with the Dunning-Kruger effect is to realize that, simply by gaining some financial planning knowledge – much less earning CFP certification – you really are already far ahead of the knowledge curve relative to virtually every client or prospect you’ll ever meet, with more than enough expertise to add real value to clients.

Second is understanding that there’s nothing wrong with double-checking your work anyway – just to be safe – or even asking for a second opinion from more experienced advisors. Similarly, there’s absolutely nothing wrong with telling a client that you need more time to research a complex topic before providing an answer, just to be certain you really have considered all the issues.

From there, the best way to overcome the Dunning-Kruger effect is simply furthering your education by obtaining additional certifications and become a truly confident expert, establish a niche or mini-specialization that makes it easier to achieve mastery by narrowing the required scope of expertise in the first place, and focus on succeeding with clients who have less-complex financial circumstances before moving up the proverbial food chain of more affluent clients. Of course, it’s also helpful to simply stay flexible with the advice you give to clients in the first place… managing expectations to make it clear that the future can and will change, and that decisions don’t need to be viewed as irrevocable in the first place (because most aren’t!).

The bottom line, though, is simply to understand that you aren’t as ignorant as you may feel with the realization that there is so much to learn and consider in giving advice to clients, and that by taking steps to further your skills and knowledge, you can actively deal with the Dunning-Kruger effect and be the confident professional your clients are looking for.
Read More…

source https://www.kitces.com/blog/dunning-kruger-effect-financial-advisor-confidence-experience-expertise-competency-mastery/

Wednesday, 22 August 2018

Proposed Regulations Refine Definitions For Specified Service Businesses Eligible For QBI Deduction

While much of the Tax Cuts and Jobs Act of 2017 was focused on individual and corporate tax reform and simplification, one of the biggest new planning opportunities that emerged was the creation of a new 20% tax deduction for “Qualified Business Income” (QBI) of a pass-through entity, intended to provide a tax boon to small businesses that would leave more profits with the business to help it grow and hire.

The caveat, however, is that the QBI deduction was only intended to provide tax benefits for profitable businesses that hire employees, not to provide tax benefits for high-income professions who generate their profits directly from their own personal labors. As a result, the new IRC Section 199A created a so-called “Specified Service Business” classification that, at higher income levels, would not be eligible for the QBI deduction.

The challenge, however, is that the exact definition of what constituted a “Specified Service Trade or Business” (SSTB) was not always clear, given the wide range of professional services that exist in the marketplace. In addition, as soon as the rules themselves were released, creative tax planners began to strategize about how to arrange (or re-arrange) revenue and profits to maximize the amount of income eligible for the QBI deduction and minimize exposure to the Specified Service Business rules.

In this guest post, Jeffrey Levine of BluePrint Wealth Alliance, and our Director of Advisor Education for Kitces.com, examines the latest IRS Proposed Regulations for Section 199A, which provides both important clarity to how the “Specified Service Business” test will apply in various industries, including rather broadly for professions like health, law, and accounting, but only narrowly to high-profile celebrities who may have their endorsements and paid appearances treated as specified service income but not the income from their other businesses that may still materially benefit from their high-profile reputation.

Of greater significance for many small business owners, though, are new rules that will force businesses with even just modest specified service income to treat the entire entity as an SSTB, limit the ability of specified service businesses to “carve off” their non-SSTB income into a separate entity, and in many cases aggregate together multiple commonly owned SSTB and non-SSTB business for tax purposes.

Ultimately, the new rules are only impactful for the subset of small business owners who engage in specified service business activities and have enough taxable income to meet the thresholds where the phaseout of the QBI deduction begins (which is $157,500 for individuals and $315,000 for married couples). Nonetheless, for that subset of high-income business owners, effective planning to avoid having SSTBs “taint” non-SSTB income, or to split off non-SSTB income to the extent possible, will be more challenging than before.

Tuesday, 21 August 2018

Tax Benefits for Having Dependents

Kids can be overwhelming when they are cooped up in the house while on break, but they are also blessed tax-savers when you file your taxes. Here are some of the tax benefits for having children and other dependents.

source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/family/tax-benefits-for-having-dependents-12835/

#FASuccess Ep 086: Mastering Marketing As A Solo Advisor By Simply Sharing Your Authentic Self with Eric Roberge

Welcome, everyone. Welcome to the 86th episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Eric Roberge. Eric is the founder of Beyond Your Hammock, an independent RAA based in the Boston area that specializes in financial planning services for high income young professionals in their 30s and 40s. What’s unique about Eric though is the way that he’s quickly propelled his advisory firm to $300,000 of revenue from scratch in just five years, with a marketing approach of talking about what he does personally in his own financial lifestyle and attracting prospective clients to him who want to live the same way.

In this episode, we talk in-depth about Eric’s marketing process, from why he’s decided to abandon the standard approach of trying to make neutral statements in the media and always saying it depends, and instead, showing the financial decisions he actually makes. To how he’s published articles to share publicly about those financial decisions, including how much he spent on his recent marriage and why he’s chosen to rent instead of buy a home living in Boston. How Eric deals with the criticism that often comes back when you make such strong statements in public. And why Eric finds that this kind of marketing is the ultimate differentiator, because anyone can write technical articles, but only you can write about your beliefs to attract prospective clients who share those beliefs.

We also talk about Eric’s advisory firm itself. From the financial planning process he uses and the way he uses eMoney Advisor to gather data before meeting with clients, to the way that he’s implemented a monthly retainer model with his clients, or as Eric puts it, an annual retainer payable monthly. Why Eric decided to add in a separate AUM service as well and what Eric went through to survive the early years of getting his practice to the point of generating $300,000 of revenue, including spending nearly six months waiting tables on the side to make ends meet while he was getting his advisory firm off the ground. And be certain to listen to the end where Eric talks about how he ultimately figured out the exact type of ideal client he wanted to serve as a way to build his own confidence in communicating his passion for financial planning to clients.

So whether you are interested in learning about how Eric grew Beyond Your Hammock to $300,000 in revenues in the first five years, about his unique approach to marketing to his target audience, or about his pricing model that allows him to charge effectively for a blended service model, then I hope you enjoy this episode of the Financial Advisor Success Podcast!

Monday, 20 August 2018

The Appeal Of Working At Independent Advisory Firms In The Eyes Of A Millennial

In a recent study, Cerulli Associates points out that about 28% of financial advisors who say that they plan on retiring in the next 10 years have yet to settle on a succession plan. On aggregate, the financial services industry understands the need to attract, groom, and retain the next generation of talent if they want to ensure the longevity of their firms, but accomplishing that goal remains elusive.

There’s been plenty of discussion from a more senior perspective about how to address this problem, but little has been written from the Millennial viewpoint – about what they’re looking for in a career, why they desire a sense of purpose and not just a job, and what the financial advisory industry looks like through their eyes.

In this guest post, Janki Patel from The Ensemble Practice (a consulting firm serving the financial advisory industry) discusses why independent financial advisory firms are a great fit for Millennials, the challenges many Millennials face when trying to understand (and differentiate between) the varying service models within the industry, why advisory firms are having such a hard time attracting next-generation talent, and the specific steps advisory firms can take in order to bridge that gap.

Unfortunately, the financial services industry is competing with a myriad of other industries who are also trying to hire Millennial talent. What’s worse is that the industry is small, outrageously complex, and doesn’t exactly have the best reputation. It just isn’t easy for young people to figure out who’s wearing the “white hats” when all they see are (very) negative headlines and job postings that are misleading at best.

Meanwhile, Millennials have been unfairly labeled as a spoiled and entitled generation that’s only interested in taking selfies and communicating with emojis. Instead, Millennials are driven and passionate, and desperately want their careers to matter. They care less about perks and benefits, and more about a company’s mission, having a well-defined career path, and being challenged and mentored.

Because the reality is that good financial advice can make deep and meaningful impacts on people’s lives, and that resonates with Millennials. And by focusing on doing a better job of honing their mission, communicating how they make the world a better place, and creating well-defined career paths, advisory firms can better position themselves to attract and retain the next generation of talent.

Friday, 17 August 2018

Weekend Reading for Financial Planners (August 18-19)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the interesting news that a growing number of states are trying to limit the use of the terms “certified” or “registered” to only those who are actually certified or registered by a state agency or certifying body… raising the concern that “Certified” Financial Planning professionals might someday be prevented from using the term, and leading the FPA and CFP Board to join a multi-organization coalition called the “Professional Certification Coalition” fighting to differentiate bona fide certification credentials from the rest of the specious designations (in financial services and other industries) that state legislators are really trying to crack down on.

Also in the news this week is a brief look at the recent “FINRA Industry Snapshot” (a first-ever report from FINRA on the state of the brokerage industry, which finds that the number of broker-dealer firms and registered representatives has been declining steadily for 10 years… but revenue and profits continue to grow and hit record highs!), and a discussion of some of the public comment letters that came out earlier this month against the SEC’s Regulation Best Interest and new Form CRS proposals (including a stringent objection from a group of 17 state attorneys general that could form the basis of a legal challenge against the rule if the SEC decides to move forward).

From there, we have several advisor technology articles this week, from a look at how “robo” tools aren’t replacing advisory firms but instead are allowing smaller advisory firms to run more efficiently than ever with the use of technology to automate away expensive back-office staff and administrative tasks, to tips on how to conduct third-party vendor due diligence for cybersecurity purposes, and why both advisors and their clients should be talking more about using Password Managers.

We also have a few retirement articles, including: the role that uncertainty (especially sequence of return risk, but also simply the changing nature of our lives over time) has in determining whether portfolios are depleted in retirement or not (which goes far beyond just investing for a sufficient long-term return); perspective on how economists that study lifecycle finance view traditional financial planning topics and strategies differently; and why a goals-based retirement planning approach is very problematic because in the real world, most people don’t actually know what their goals are, and even if they think they do, the goals often change by the time the client gets closer to achieving it!

We wrap up with three interesting articles, all around the importance of habits (both breaking bad habits and improving good ones): the first looks at a number of recent books that highlight the latest research in how we form habits, change habits, and improve our willpower and self control; the second is a fascinating study at how we can improve our own self-confidence in our ability to control our behavior and break our bad habits (by adopting seemingly mindless rituals); and the last is a fascinating look at how even the most brilliant creatives still struggle, often for years, with a vision of what they want to achieve and knowing that their current work isn’t up to their own tastes, but that the key is maintaining the habit of continuing to do the work anyway with a focus on self-improvement, and its the repeated habit of practice combined with the vision of what your work can be that ultimately makes it great and successful!

Enjoy the “light” reading!

Thursday, 16 August 2018

Leveraging A Mini-Specialization To Gain Experience And Get More Client Referrals

Finding a good way to differentiate yourself amid a sea of people who call themselves financial advisors has never been easy task, but it’s become all the more difficult in recent years as the ranks of advisors who offer “comprehensive financial planning” continue to grow. The problem is only compounded for newer advisors trying to find a way, not to get new clients, but just to get noticed within their firms (and get opportunities for client face time) as they launch their own careers.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why niches and mini-specializations are a great way for advisors to differentiate themselves, the differences between the two, and cover specific and actionable ways to market yourself and grow your exposure in your mini-specialization of choice.

At the start of their careers, most advisors are generalists – having just completed the comprehensive CFP certification educational curriculum – and haven’t yet had the time, opportunity, and experience to develop a specific target niche audience. However, one way that newer advisors can start to differentiate their expertise is simply to dive deep into a particular subject area and make themselves more referable and top-of-mind by becoming the go-to expert for that topic in their firm or within their community – a form of “mini” specialization.

Because the reality is that early on, in particular, you don’t need to be an expert on everything to succeed. You just need to become really good at only one thing and be known for doing it well… and that can happen in a relatively short period of time!

Of course, just because you become an expert on something with a (mini-)specialization doesn’t mean that the masses will automatically beat a path to your door. You still have to get the word out, and that’s where a good inbound marketing strategy comes into play, from building a website that showcases your expertise, to starting a growing an email list and a social media presence to get the word out about your expertise, and creating “lead magnets” like ebooks (or even self-publishing a real book) to establish your “authority”, which you can then leverage further to teach and speak on the topic.

Ultimately, by going through the mini-specialization process, you’ll learn more about the things that matter most to your target clientele, and where they spend their time gathering such information, which makes the process of getting new clients even more efficient over time. But at the most basic level, developing a mini-specialization is the most straightforward path to being more than just another advisor who offers “comprehensive financial planning and investment management to affluent individuals and families”, and can be the key to making you the one that lead advisors choose to bring into their client meetings to gain more real-world experience!

Wednesday, 15 August 2018

What is a Tax Bracket?

Did you know not everyone or every dollar earned is taxed the exact same amount? This is because the United States tax system aims to be progressive. A progressive tax system tries to collect more tax from those who earn...

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source https://blog.turbotax.intuit.com/tax-planning-2/what-is-a-tax-bracket-24007/

Why The Best P&C Insurance Deductible Is Driven By The Pseudo-Deductible Threshold For Filing A Claim

The concept behind property and casualty (P&C) insurance is straight forward. Consumers pay a premium for insurance coverage and, should they incur a loss greater than their deductible, they can file a claim for the balance. However, when we consider the fact that insurance companies operating in bonus-malus systems typically raise a customer’s premium after they submit a claim, the question of whether the insured should submit a claim versus paying for the loss out of pocket becomes substantially more complex.

This internal tension when deciding whether to file a claim or not leads to what is known as a “pseudo-deductible” – referring to the true dollar amount of a loss one would need to experience before deciding to actually make a claim (above and beyond just the stated deductible itself). 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 – takes a closer look at this underexamined phenomena, including why the conventional wisdom to take as large of a deductible as one can afford may not be quite right (and why consumers should actually identify their ideal pseudo-deductible first).

The decision of how large of a pseudo-deductible to adopt is naturally influenced by many factors unique to an individual (e.g., our aversion to risk and uncertainty, as well as our ability to withstand loss in the first place). Though we cannot “solve” for an ideal pseudo-deductible in an algebraic sense, one method we can use to inform the question of how large of a pseudo-deductible may be ideal is Monte Carlo simulation based on real-world assumptions. Using national claims figures combined with peril-specific premium increases (as the premium increase for a loss which could indicate negligence or risky behavior is often higher than one that is completely out of an insured’s control, such as a natural disaster), the results of this analysis indicate that, in isolation, an ideal pseudo-deductible for homeowners insurance policy could be somewhere in the range of $500 to $1,500.

Of course, this amount is by no means fixed and is everchanging as both consumers and insurers adjust to the behavior of one another. But the key point is that by adopting some non-trivial pseudo-deductible above and beyond one’s deductible, it is possible to reduce both long-term average costs and outcome variability. Yet, if those adhering to conventional wisdom truly adopt deductibles “as high as they can afford”, this may not put them in a position to strategically forgo claims that may increase long-term costs. Instead, consumers may wish to first identify the maximum pseudo-deductible they can afford to adopt (or wish to adopt given their risk preferences) and then select a lower deductible which allows them to strategically forgo claims that may result in higher costs in the long run.

Financial advisors can lend a hand by helping clients understand these dynamics, as well as helping clients develop a better understanding of the actual odds that they will incur a loss (versus their preconceived notions of those odds). In fact, when participants in an experimental study were given information about the likelihood of a hypothetical loss reoccurring, they increased their pseudo-deductibles (but not their deductibles!) to levels which more effectively balanced the long-term costs and benefits of filing a claim – suggesting that this type of assistance can truly be beneficial to clients. Ultimately, the reality is that “the highest deductible you can afford” is not necessarily best. Instead, the best deductible for a client is likely one that better allows for the long-term balancing of the costs and benefits of filing a claim.

Tuesday, 14 August 2018

Take Note On How to Save! It’s National #FinancialAwarenessDay

Have you ever wanted to not stress over your credit cards, car and student loans, or even your mortgage because they were all paid off? Can you imagine what it would be like to have the freedom in your schedule...

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source https://blog.turbotax.intuit.com/income-and-investments/take-note-on-how-to-save-its-national-financialawarenessday-41507/

#FASuccess Ep 085: Boosting Firm Productivity With A Financial Planning Resident Program With Elissa Buie

Welcome, everyone. Welcome to the 85th episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Elissa Buie. Elissa is the CEO of Yeske Buie, an independent RIA with offices in San Francisco and Washington, D.C. that manages nearly $750 million of assets under management for 240 clients with a team of 13. What’s unique about Elissa, though, is the way that she and her firm have figured out how to leverage next-generation talent through a financial planning resident program that trains and develops advisors, with the expectation that they will graduate and leave the firm after three years to be replaced by another financial planning resident.

In this episode, we talk in depth about YeBu’s Financial Planning Resident Program. How the firm developed an intensive boot camp process to train new advisors in just eight weeks in how to produce the core deliverables the firm provides to clients, the way their financial planning residents gain experience in client meetings while boosting the firm’s productivity, and why the firm prefers hiring financial planning residents to a more traditional approach of hiring and developing paraplanners instead.

We also talk about the evolution of how advisors are trained and educate as professionals. The rise of master’s degree programs to increase the technical competency of today’s advisors, the importance of programs like the FPA Residency program to teach the so-called soft skills of effective client communication, and why Elissa believes that all advisors should at least know how to create a comprehensive plan for clients with only a yellow pad and a financial calculator to ensure that today’s financial planning software will then be used as a tool instead of a crutch with clients.

And be certain to listen to the end, where Elissa shares why the financial crisis of 2008 and 2009 was the hardest moment for the firm, not simply because revenues turned down with the market decline, though, why the firm has decided to remain on the AUM model despite being a financial planning-centric business, and Elissa’s advice to new advisors in how best to find clients you will actually enjoy working with in the long run.

So whether you are interested in hearing about Yeske Buie’s unique structured financial planning residency program, about the ongoing financial planning work Elissa’s firm does for its clients, or why every financial advisor should know how to create a comprehensive plan by hand, then I hope you enjoy this episode of the Financial Advisor Success Podcast!

Monday, 13 August 2018

From Planning Analyst To Financial Planner: It’s Not How You Start That Matters, It’s How You Improve

As the average age of a financial advisor remains 50-something and rising, along with it is a rising need to not only attract and develop the next generation of financial advisors, but actually begin to transition clients to them. However, while it’s difficult enough for advisory firms to simply recruit next-generation talent at the early stages of their careers, it can seem even more challenging to transition existing clients to them. Nonetheless, advisory firms are going to have to tackle these transitions if they want to continue to grow and, ultimately, to retain clients as their founders and experienced advisors retire.

Yet while there’s been a lot of discussion from the senior advisor’s perspective about how best to manage this process of transitioning clients, remarkably little has been written from the viewpoint of the up-and-coming advisor about how best to prepare and position themselves for a successful transition. Accordingly, in this guest post, Jack Rabuck from West Coast Financial recounts his career path so far, from starting out as an entry-level analyst fresh out of college, to becoming the de facto point of contact for newer clients, and then gradually growing into a lead advisor role with 65 existing clients and $165M of AUM in just five years by the age of 27… and the steps he took to ensure the transition would be successful.

Because the reality is that there is a lot that paraplanners and associate advisors can do to better prepare themselves for success, by trying to gain more of their own knowledge, exposure, and experience. From actively seeking out opportunities to sit in on meetings with as many different advisors as possible, to paying close attention to how they actually manage meetings themselves, becoming an expert in highly specific topic (effectively creating a micro-specialization for themselves), focusing on learning as much as possible, and being brutally honest with oneself about areas for needed improvement… the more the new advisor positions themselves for success, the more duties and responsibilities that can be taken on in a relatively short period of time.

Of course, there will often still be challenges, and Jack shares some of his own challenges experienced and the key lessons learned along the way, that any advisor can seek to apply to advance their own career!

Friday, 10 August 2018

W-4 Withholding and Tax Reform

On December 22, the President signed the tax reform bill into law that made sweeping changes to the tax law. Now that you have filed your 2017 taxes and the year is more than half way over, you may be...

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source https://blog.turbotax.intuit.com/tax-reform/w-4-withholding-and-tax-reform-33053/

Weekend Reading for Financial Planners (August 11-12)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that the IRS has issued new regulations to provide additional guidance on the Section 199A “pass-through business deduction”, with a particular focus on cracking down on professional services firms (which includes financial advisory firms) to prevent them from abusing potential “loopholes” like cracking up their businesses into pieces that might have been eligible for the deduction.

Also in the news this week is a discussion that RIA custodians are considering whether to adopt a new pricing model of offering custody services for a basis point charge, rather than just trying to make money on the underlying products that clients implement… in what would be a very positive realignment of the costs that advisors and their clients pay with the value that custodians provide, but could be challenging to transition to the currently-less-transparent “free” model of custody for advisors.

From there, we have several retirement-related articles this week, including research on the kinds of words and images that consumers use to describe retirement (which importantly but not surprisingly varies depending on their own demographics and background), tips to prevent loneliness in retirement for new retirees who often unwittingly become very socially isolated, why more and more retirees are looking for “phased retirement” approaches that blend part-time work with retirement, and the real-world difficulties that many older workers are facing in actually finding meaningful part-time work in retirement.

We also have a few practice management articles, from a fascinating study about what next generation advisors really want in a financial planning job (with 78% wanting to do comprehensive financial planning, but only 2% showing interest in sales and marketing!), how to speed up training for next generation advisors by becoming a more effective mentor, and the rising demand of next generation advisors for family leave policies given that more and more are launching their financial planning careers while also starting a family.

We wrap up with three interesting articles, all around the value of reading itself to advance our knowledge and skills: the first explores the physiology of the brain and how reading literally helps the brain form new connections that can improve our fluid intelligence and ability to spot important patterns; the second looks at the important balance between both book knowledge and real-world knowledge (as book knowledge alone misses real-world applications, but real-world knowledge alone misses important patterns and opportunities that aren’t necessarily intuitive); and the last is a series of four “summer reading” book suggestions on the leading industry books that are most relevant to financial advisors today.

Enjoy the “light” reading!

Thursday, 9 August 2018

4 Little Known Tips to Help You Pay School Tuition

According to the College Board’s 2017 – 2018 Trends in College Pricing report, the average full-time student at a four-year nonprofit, private university will pay $34,740 a year in tuition and fees. Add in room and board and the price...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/education/4-little-known-tips-to-help-you-pay-school-tuition-23404/

Why CPAs Are A Growing Competitive Threat to Financial Advisors

Over the past few years, advisors have worried mightily about the threat posed by the rise of the so-called robo-advisors. However, as we’ve seen in recent months, several robo-advisors have shut down, while many of the more prominent ones have seen their growth rates decline dramatically. Still there is a threat out there that financial advisors need to be aware of: and it’s not from robo-advisors, but from Certified Public Accountants (and what robo-tax-preparation has done to them!).

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope and guest hosted this week by Jeff Levine, we discuss why CPAs represent the biggest competitive threat to financial advisors today, why the demise of the DoL fiduciary rule has opened the door for CPAs to expand their practices by offering financial planning services, and the steps financial advisors can take right now to help stave off that threat.

It’s not news that financial advisors have been dealing with compressed margins for years, but CPAs have been under that same pressure for far longer, as “robo” tax preparation software has dramatically reduced tax preparation costs for consumers. By expanding into financial planning services, CPAs have the opportunity to add value for their clients by capitalizing on the fact that, not only do they already have a deep knowledge of their clients’ financial situations, but they also enjoy a very high level of public trust.

All of this, including the fact that consumers prefer one-stop shopping, makes financial planning a great fit for CPAs. The American Institute of Certified Public Accountants (AICPA) knows this as well and has been busy promoting their Personal Financial Services (PFS) designation, which (by the way) is only available to CPAs. And now, with the Department of Labor’s fiduciary rule now officially out of the picture, a major regulatory hurdle is out of the way, opening the door for larger accounting firms to take a closer look at entering the wealth management arena.

All is not lost, however. To combat this threat, financial advisors can focus on developing their tax planning expertise, and work on making themselves indispensable to tax professionals by proactively sharing and providing client information and collaborating with as early as possible every tax season. Because CPAs who already work productively with financial advisors are less likely to decide to go into competition with them… especially if the CPA is counting on you as their referral source!

The bottom line, though, is simply that CPAs represent a threat to financial advisors, as they are driven increasingly towards the advice business because of the pressure on their own accounting firms… but there’s still an opportunity for advisors to create stronger professional relationships with accountants and even grow their practices in the process.

Wednesday, 8 August 2018

RUFADAA And The Importance of Digital Estate Planning

Over the past several years, the rise of the Federal estate tax exemption has dramatically reduced the scope of “traditional” estate planning, which is less about estate tax planning now and more about simply ensuring that the right legal documents are in place to specify how various assets should be disposed of, and who is responsible for doing so.

Yet at the same time, the rise of the digital world has created a new wrinkle for estate planning: how to transition “digital” assets. Which is important not only for those digital assets that can carry a monetary value (such as cryptocurrencies, domains, websites, etc.), or login credentials to such sites (e.g., usernames and passwords to bank and investment accounts), but also social media profiles and actual media files (e.g., digital photos). As once the account owner passes away (or is merely incapacitated), the heirs may have difficulty finding and accessing those digital assets after the fact.

While it might seem simple enough to solve the problem by just keeping a list of account credentials “in a safe place” for someone to use “just in case”, the fact that they might have the information to access to the accounts doesn’t necessarily mean that they have the legal authority to do so, especially when a website’s Terms of Service do not permit a transfer of ownership. In fact, heirs could potentially be found guilty of “hacking” by trying to access a loved one’s online accounts after he/she is gone… even if it was the individual’s dying (but not legally binding) wish!

To address the situation, various legal measures have been proposed in recent years, including the Uniform Fiduciary Access to Digital Assets Act (UFADAA), and the Privacy Expectation Afterlife and Choices (PEAC) Act. But after various implementation struggles, the Uniform Law Commission ultimately created the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) in 2015, which received widespread support and in just a few years has been adopted by more than 40 states.

RUFADAA gives a clear hierarchy of instructions for how a person’s digital assets are to be treated should a fiduciary seek access, which may include not only executors after death, but trustees, court-appointed guardians, and attorneys-in-fact. The starting point is that online service providers can create an “online tool” that functions as a form of “digital power of attorney” to specific who has control and access for that specific site. In addition, RUFADAA provides a clear legal framework for digital asset rights to be specified in traditional legal documents (e.g., Wills and powers of attorney). And clarifies that it’s only in the absence of an online tool, or any legal documents, that finally the service provider’s own Terms of Service will control.

Ultimately, the importance of estate planning has always been about ensuring that assets are distributed in the desired manner after death, and identifying the individual(s) responsible for doing so. But the complications of digital estate planning are unique, not only because of the complexities of bequeathing “digital” assets, but also because most individuals accumulate so many online accounts it may be difficult to even know where all the digital assets are! Fortunately, though, that means there’s a valuable role for the financial advisor to play in helping clients to ensure their digital estate plan is in order. Starting with helping clients at the next meeting understand the value of using a secure password manager, not only for the benefits of cybersecurity, but because it can form the core of the digital asset inventory they’ll want to begin the digital estate planning process!

Tuesday, 7 August 2018

Are Business Networking Apps Tax Deductible?

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/are-business-networking-apps-tax-deductible-41492/

Are Business Networking Apps Tax Deductible?

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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/

The Real World Financial Guide: Four Tips for Recent College Grads

As a recent college grad moving into the full-time career space, you’re probably more than a little overwhelmed by some of the financial realities entering your life. The long journey to financial success comes with many milestones along the way...

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source https://blog.turbotax.intuit.com/tax-planning-2/the-real-world-financial-guide-four-tips-for-recent-college-grads-41321/

#FASuccess Ep 084: Re-Energizing After A Mid-Career Crisis With A Focus On Next Generation Talent Development With Diane Compardo

Welcome, everyone. Welcome to the 84th episode of the “Financial Advisor Success” podcast. My guest on today’s podcast is Diane Compardo. Diane is a partner and team leader at the Moneta Group, an independent RIA with nearly $20 billion of assets under advisement and 40 partners, in which Diane leads a 16-person team with 4 partners and $1.4 billion of AUA, and has served as the chair of their Governance Committee as well. What’s unique about Diane, though, is that after nearly 20 years of building an incredibly successful advisory practice working with corporate executives at Moneta, she decided to substantially increase the size of her team and shift her own focus towards building and developing new advisors and partners at the firm… not just to grow the business, but as a way to reenergize herself after a proverbial mid-career crisis.

In this episode, we talk in depth about the unique Moneta Group structure that provides shared centralized administrative compliance and support services for more than 20 independent teams of advisors affiliated with the firm, how the firm structures its compensation and revenue-sharing agreements with teams, the unique partnership structure of the firm based on their relative contribution of profits to the firm, and how Moneta evolved into creating a governance board that sets strategy for the firm but is separate from the management team that runs the day-to-day business.

We also talk about how Diane’s own niche in working for corporate executives evolved. How she first created a specialization in working with them during her early days as a CPA at Price Waterhouse, working long hours and cramming 10 years of experience into just 5 years, why she ultimately left PwC to join Moneta and forge her own pathway to partnership, and how Diane structures her team meetings today with clients both as a way to improve client service and also to develop new advisors themselves.

And be certain to listen to the end, where Diane talks about how she uses checklists in her calendar to balance her time between work and personal life, the support system she’s created for herself by getting involved in local networking groups like the Women Presidents’ Organization, and how she reenergized herself from the low point of her career with the strategic and deliberate shift in how she was spending her own time in the business.

So whether you are interested in hearing about Moneta Group’s unique partnership structure, how a mid-career crisis re-energized Diane and helped her to focus on developing next-gen talent, or the strategies she’s used to build a strong network, then I hope you enjoy this episode of the Financial Advisor Success podcast!

Monday, 6 August 2018

The Latest In Financial Advisor #FinTech (August 2018)

Welcome to the August 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, after years of warning that robo-advisor growth rates were slowing and seeing many high-profile robo-advisors pivot to become B2B solutions for advisors… some of them are beginning to outright shut down, with early (founded in 2009) robo-advisor Hedgeable withdrawing its investment adviser registration to manage portfolios as its founders move on to new blockchain endeavors, and WorthFM permanently terminating, as its related DailyWorth media site is sold (without the WorthFM robo-advisor attached) to personal finance media personality Jean Chatzky.

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

Notwithstanding guidance that it’s permissible for clients to leave reviews for advisors on Yelp, the SEC cracks down and fines several advisors (and their marketing consultant) for asking clients to leave reviews as a deemed testimonial solicitation.
Advisor FinTech competitions heat up, as XY Planning Network announces its FinTech competition finalists, TD Ameritrade launches a new FinTech competition with $100,000 in prizes, and Scratchworks funds its first FinTech competition winner InvestmentPOD.
Large-firm enterprise interest in technology to support advisor efficiency hits a fevered pace, as Merrill Lynch rolls out a massive Fiduciary Dashboard for its advisors and Ameriprise announces a 10,000-advisor deal to switch from Ebix to Salesforce CRM.
MaxMyInterest announces a deal with Dynasty Financial as “cash management” becomes a new value-add service from advisors to their clients.

Read the analysis about these announcements in this month’s column and a discussion of more trends in advisor technology, including Wealthfront launching a new financial planning module in Path that helps working clients understand the implications of taking a sabbatical or time off to travel (which is significant not only for the technology itself, which no other advisor software can do effectively, but the fact that its Millennial clients may not engage with saving for retirement in the “traditional” way), a new report from the Treasury Department laying out the Trump administration’s FinTech regulatory guidelines that would include a streamlined process for firms to more easily get the licenses and permits they need to operate and innovate, and a look at the second (next) generation of estate planning software beginning to emerge, as estate taxes move to the background but getting basic (but not always simple) estate planning documents in place takes on a relatively greater focus.

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!

Friday, 3 August 2018

Weekend Reading for Financial Planners (August 4-5)

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the big news that Fidelity has launched an entirely free index mutual fund, with an outright expense ratio of 0.0%, in what financially is only a modest decrease in cost from the near-zero expense ratios of many index funds already, but represents a major shift in the industry as asset managers officially begin to focus on generating revenue beyond “just” their investment products alone. Also in the news this week was an announcement that the Trump administration is considering a proposal that would index cost basis to inflation over time, effectively applying capital gains on only “real” gains (above inflation), in what would potentially be a game-changer for the relative value of taxable accounts over tax-preferenced retirement accounts (that would have no such basis adjustment).

Also in the news this week were a number of major industry announcements, including that the CFP Board will be launching a series of public forums over the next 18 months to train CFP professionals on the new Standards of Conduct (and gather feedback on where the Standards Resource Commission should issue additional guidance), the Financial Planning Association announces a newly updated “Primary Aim” for the organization with an increased focus on advocacy for the profession, and the latest FA Insight study shows that advisory firms continue to enjoy strong growth in the midst of an ongoing bull market but that profit margins continue to decline (now to an average of just 20%) as pressure rises on firms to reinvest in their value proposition to justify their fees (which are now also beginning to show signs of competition and compression).

From there, we have a number of regulatory articles, including a surprising SEC action against Schwab Advisor Services that may put newfound pressure on RIA custodians to have a more active role policing the RIAs that use their services (particularly with respect to anti-money laundering regulations), some new guidance from the SEC on what constitutes ‘inadvertent’ custody for which the RIA will not be punished for failing to adhere to the Custody Rule, legal risks to consider for advisors who are publishing content (e.g., blogs or newsletters) and don’t want to get in trouble for plagiarism or copyright violations, and a look at just how far the CFP Board’s fiduciary regulations have come in the past 11 years (and where they may go from here).

We wrap up with three interesting articles, all around the role and value of financial advisors in the eyes of consumers: the first is a fascinating look at what leads consumers to switch financial advisors, finding that changes in personal or financial circumstances (from divorce or marriage to significant increases in income or net worth) are most likely to cause a consumer to switch advisors (despite the fact those are often the “money in motion” triggers that cause clients to become more profitable for their existing advisor!); the second looks at how financial planning as a profession has evolved over the past 45 years since the first class of CFP certificants in 1973; and the last looks at new research on the value of financial designations themselves, finding that consumers with higher incomes and investable assets really do tend to pay more to advisors who have such professional designations!

Enjoy the “light” reading!

What Medical Expenses are Tax Deductible?

Even with good insurance and a low deductible, no one truly enjoys paying medical bills. One bright spot to big bills is the opportunity to claim your medical expenses as a tax deduction on your tax return, as long as...

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source https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/what-medical-expenses-are-tax-deductible-21385/

Thursday, 2 August 2018

Satisfying The CFP Board Experience Requirement As A Part-Time Career Changer

With the average age of a financial advisor estimated to be 50-something, a looming talent shortage has made it increasingly appealing to become a financial advisor… both as a prospective career for college students, and career-changers looking to switch into a more financially lucrative and psychologically rewarding career. The caveat, however, is that as CFP certification increasingly becomes the requisite pathway to a professional career as a financial planner, the CFP Board’s experience requirement is proving to be especially troublesome and challenging for career-changers who can’t necessary jump in with both feet at once and must make a more gradual transition.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why the 3-year experience requirement is especially challenging for career-changers pursuing CFP certification, the ways that career-changers can satisfy their experience requirement, and the changes that the CFP Board itself should consider to be more accommodating to the realities of career-changers in the future.

Historically, most financial advisors started their careers as a 20-something that received training to sell their company’s products, and over time moved up into more comprehensive financial advice. The “good” news of this sales-centric pathway was that in the early years that are often lean, advisors were early in their own careers and usually didn’t have many family or income constraints. In other words, it was economically more practical to take the risk. By contrast, though, for those who are mid-career and want to transition into a full-time planning career, it might not be so financially feasible to make an abrupt change. Instead, career-changers more commonly make a gradual shift into the financial services industry, and may only devote a couple days each week to gaining the requisite experience. Yet unfortunately, in that scenario, it can take 5-10 years or more to fulfill the CFP Board’s three-year (6,000-hour) experience requirement, a few hours per week at a time. With the added complication that once a career-changer sits for the CFP exam, the experience doesn’t even count more than five years after passing the exam!

Fortunately, several years ago the CFP Board expanded the ways that the CFP experience requirement can be satisfied, allowing a wide range of “indirect support of financial planning” jobs to count, including working in employee benefits administration or even compliance. And while from the industry perspective, this is concerning – as it means people who have never actually advised anyone nor ever even sat across from a single client can still tick off the experience requirement – from the career-changer perspective, this becomes an especially appealing pathway to finish the CFP experience requirement in lieu of slowly “counting the hours” doing part-time work.

Accordingly, for career-changers who are struggling to fulfill their experience requirement, the best option is usually to look for opportunities in the industry to provide “indirect support” (rather than as a financial advisor salesperson out of the gate, which has a high risk of failure), as even if it’s a role in operations or project management, if it’s in an advisory firm (or the industry more broadly) it should still count. Alternatively, for those who do plan to – or need to – transition more slowly, be cognizant of when you’re going to take the CFP exam, given that you only have 5 years after you pass the exam to fulfill the experience requirement. And bear in mind it’s also possible to beef up your CFP experience hours by volunteering to do pro-bono financial planning work (including structured programs like the IRS’ Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) programs, or by taking advantage of the FPA residency program to get 3 months of CFP experience in just one week!

In the meantime, hopefully the CFP Board itself will re-think how their policies adversely impact part-time career-changers, with an experience path that isn’t built for the financial realities of career changers who can’t necessarily take a full-time (often entry-level) job out of the gate. Especially since the reality is that even “full-time” financial advisor jobs from the start are often 80%+ prospecting and sales, and less than 20% financial planning anyway… which means part-time career-changers may still be getting just as much real financial planning experience as a new financial advisor trainee anyway!

The bottom line, though, is simply to recognize that there are pathways for career-changers to gain experience, but those who have the most financial flexibility to take potentially-lower-paying-jobs to accelerate their experience progress will have the most options. Which is appealing for those who are able to do so. And hopefully the CFP Board will consider expanding these pathways further over time, so the available career path options aren’t so limited for those who aren’t able to take a step back financially just to make the transition!