News About IRS And Tax

Monday, 3 September 2018

The Latest In Financial Advisor #FinTech (September 2018)

Welcome to the September 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 from Schwab that, after years of promising that it is working on a next-generation multi-custodial replacement to PortfolioCenter, the new PortfolioConnect solution will only work directly with the Schwab custodial platform… but will be more deeply integrated, and more importantly free to Schwab advisors, in what could become a major inducement to advisory firms to join or consolidate with Schwab given that portfolio accounting software is the most expensive line item in most RIAs’ technology budgets. In the meantime, for those who want to remain multi-custodial, Schwab noted that PortfolioCenter will also be receiving an upgrade this fall, to ostensibly remain as the multi-custodial server-based alternative that independent RIAs can choose to purchase separately.

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

JPMorgan Chase launches a new “YouInvest” trading platform that will provide 100 trades for free with no account minimums, and indefinite free trades to those in its Private Client group, putting newfound pressure on independent RIA custodians to justify why their advisors should be at a competitive disadvantage.
RightCapital launches the first dedicated student loan planning module in a financial planning software package
MoneyGuidePro deepens its integration with WealthAccess as advisors and clients apparently prefer the third-party PFM solution to MGP’s own client portal
Galileo Processing announces a new debit card structure that can allow clients to spend directly from an investment account that stays fully invested without the need to hold any cash aside in advance

Read the analysis about these announcements in this month’s column, and a discussion of more trends in advisor technology, including Orion adding its own “planning light” tool in partnership with FinMason, UBS deciding to wind down its internally built SmartWealth robo platform and go all-in with its SigFig partnership, FMGSuite acquires Platinum Advisor Strategies to build out its “HubSpot for Advisors” content marketing platform (as ousted former Platinum co-founder Robert Sofia spins up his own HubSpot-for-Advisors competitor SnappyKraken), and the CFP Board demonstrates a novel application for applying blockchain in financial services: a public ledger to verify who is a CFP certificant, replete with an authenticated “digital CFP certificate” that advisors can use on their websites and in their email signatures.

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!

Saturday, 1 September 2018

Football Season Savings: National Tailgate Day

Football season is finally back! I think we can all agree that nothing goes better with football than food and friends. As fun as tailgating can be, without careful planning and shopping it can get very pricey. Luckily, there are...

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source https://blog.turbotax.intuit.com/income-and-investments/football-season-savings-national-tailgate-day-24003/

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.