Weekend Reading For Financial Planners (December 7–8)

Trump Picks Paul Atkins To Lead SEC, Signaling Lighter Regulatory Approach

(Mark Schoeff | Roll Call)

The Securities and Exchange Commission (SEC) under Chair Gary Gensler has issued Proposed regulations at a rapid pace over the course of the past several years, including many rules that would have affected RIAs in the future if implemented, including an 'Outsourcing Rule' that would establish formalized due diligence and monitoring obligations for investment advisers who hire third parties to perform certain functions (a potential increase to the compliance burdens for advisory firms whenever they add a new tech vendor or platform partner), and proposed amendments to the SEC's Custody Rule that would, among other measures, extend custody obligations beyond securities and funds (subject to the current rule) to encompass all assets in a client's portfolio for advisors who manage on a discretionary basis (potentially subjecting the majority of RIAs to at least some of the additional compliance burdens of having custody).

However, amidst the impending return of Donald Trump to the White House, Gensler said in November that (as is common for SEC Commissioners when there is a change of administration) he plans to step down from his role at the SEC on January 20 (Inauguration Day), opening the door for a new individual to take the reins as SEC Chair. This week, Trump announced that he plans to nominate former SEC commissioner Paul Atkins to replace Gensler (Atkins will need to be confirmed by the Senate to step into the role).

Atkins served as an SEC commissioner between 2002 and 2008 during the George W. Bush administration, and has shown skepticism toward the more active regulatory approach embodied by Gensler's tenure leading the agency. Among other issues, Atkins has spoken out against the costs of "disclosure overload" (and that more and more disclosure alone is not an effective remedy), high penalties levied on companies (arguing that they ultimately hurt shareholders when the penalties are passed through as a 'cost of doing business' and that instead the SEC should seek to prosecute individual wrongdoers instead), and that the SEC has been unnecessarily harsh in its crackdowns on firms operating in the crypto asset space (his financial services consulting firm, Patomak Global Partners, has advised crypto companies, among others).

Looking at the financial advice space specifically, Atkins has been an opponent of the SEC's enforcement of its Share Class Disclosure Initiative around 12(b)-1 fees (under which ultimately more than 100 broker-dealers and dually registered firms have paid hundreds of millions of dollars of fines for failing to disclose to investors that there were less expensive mutual fund share classes available), calling it an example of "regulation by enforcement" (notably, the Investment Company Institute, which represents the mutual fund industry, issued a statement of support following Atkins' nomination). More generally, Atkins' views that the SEC should be less heavy-handed signal a high likelihood that proposed rules under Commissioner Gensler, like the Outsourcing Rule and the new Custody Rule, will never be finalized and see the light of day (a boon to smaller RIAs in particular that would have been most burdened by the new regulations if they had passed).

Altogether, Atkins' nomination appears to confirm expectations that the SEC under the second Trump administration will take a lighter touch when it comes to financial regulation and how the SEC enforces (especially as it pertains to levying enforcement penalties). Which could be a boon to the product sales industry if an Atkins-led SEC is more reluctant to impose fines and/or pursue more stringent standards to address potential conflicts of interest when providing financial advice (e.g., taking a lighter touch in the enforcement of Regulation Best Interest [Reg BI], which the SEC issued during Trump's first term). On the other hand, for RIAs, the nomination would appear to confirm that many regulations proposed under Gensler (e.g., the 'outsourcing rule' and changes to the Custody Rule) are unlikely to be enacted (and, given his past criticisms of the SEC's approach, Atkins could in fact look to reduce disclosure and other obligations of RIAs during his time as Chair).

Which means ultimately, Atkins' nomination may be a 'mixed bag' for fiduciary-oriented financial advicers. If lighter-touch regulation leads to more abuses that erode consumer trust in the financial advice industry (whether they occur in RIAs or otherwise), fiduciary advisors could have a harder time convincing clients that they truly are acting in their best interests and differentiating from product salespeople who continue to use the "financial advisor" title. On the other hand, a lighter burden of enforcement on RIAs themselves, especially for smaller RIAs, may simply encourage and support more advisors currently at broker-dealers and insurance companies to start or join RIAs themselves and continue to accelerate the shift to fiduciary advice.

Advisors Who Switch Firms Are Overwhelmingly Happy About It: Survey

(InvestmentNews)

Changing companies within an industry can come with a variety of potential benefits for a job changer, from higher compensation offers to the opportunity for better professional development and work-life balance (as well as possible challenges, such as the need to adapt to the new company's culture as well as its technology systems). Employee turnover can be costly for firms as well, particularly in terms of the time and dollar cost of hiring and training a replacement. And looking at the financial advice industry specifically, another key issue for both an advisor considering a transition and their firm is what will happen to an advisor's clients when they leave (though advanced preparation from both sides can help resolve this question!).

Amidst this backdrop, a recent study by AdvisorTech company Advisor360 investigated the main reasons advisors have left their firms (perhaps offering lessons for firms looking to retain staff) and the results of these moves, finding that 83% of the 155 advisors surveyed (who had switched firms in the past 3 years) were satisfied with their decision and that 35% said they wish they had moved sooner. Among those surveyed, 79% said technology was a key factor in their decision to switch firms and the search for better tech tools and capabilities was the top reason cited for making a move (followed by compensation, career growth, and improved work-life balance). Technology also played a role in these advisors' satisfaction at their new job, as 86% of satisfied advisors reported that the technology at their new firms met expectations while all of the advisors who regretted their move said their new technology didn't meet expectations. Looking at the challenges they faced, respondents cited managing work-life balance during the transition, adjusting to new compensation models, and learning new technology (as well as the regulatory requirements and client communication involved when transitioning clients).

In sum, this survey indicates that advisors who have moved appear to have few regrets about the decision and that an advisory firm's tech stack appears to play a role both in encouraging advisors to look for greener pastures as well as determining whether advisors settle in well in their new firm. Which suggests that firms at least need to be mindful of not falling materially behind in technology – especially in the 'core' categories (e.g., CRM, financial planning software, and portfolio management tools), even as forward-looking firms try to compete for advisor talent but not only checking all the 'core' boxes but investing into emerging AdvisorTech categories (e.g., advice engagement) as well!

Preliminary Injunction Halts Corporate Transparency Act Enforcement

(Jay, Kirby, Sikes, and Boulay | Goodwin Procter LLP)

In 2021, Congress passed the Corporate Transparency Act (CTA) which, for the first time, required small business entities such as LLCs and corporations to report identifying information on their "beneficial owners" (i.e., those who own at least 25% of, or who otherwise exercise substantial control over the business). The law's provisions became effective on January 1, 2024, and so under the law, many small businesses – including a good number of RIA firms – would be required to submit a Beneficial Ownership Information (BOI) report to the Treasury Department's Financial Crimes Enforcement Network (FinCEN) before the January 1, 2025 deadline for existing businesses (and even sooner for newer companies formed during 2024).

However, the law has come under legal scrutiny, with the National Small Business Association (many of whose members would likely bear the costs of complying with the CTA) filing a lawsuit against the law in 2022, arguing that it was unconstitutional because it allegedly infringes on protected rights of state sovereignty, privacy, and due process. In March, a Federal judge agreed with the plaintiffs, ruling that the CTA is unconstitutional (relieving the plaintiffs, but not other entities, from CTA responsibilities). This week, a separate Federal court went a step further, enjoining the enforcement of the CTA in its entirety nationwide, specifically staying the January 1, 2025 reporting deadline (though the court didn't definitely decide whether any aspect of the CTA is unconstitutional). The U.S. Justice Department could decide to appeal the ruling, perhaps requesting an immediate stay of the injunction in the meantime (which could put the filing deadline back in play, though it's possible that it could be extended given the uncertainty created by this week's decision). However, while they might not be required to do so (at least at this point), firms can still proceed with their BOI filings to avoid future uncertainty (or perhaps a rush to meet a tight deadline if a stay is imposed on the injunction).

Notably, from an advisory firm perspective, SEC-registered RIAs were not required to submit a BOI report (since they're included on a list of entities specifically exempted from the rule) anyway, though many state-registered RIAs are still subject to the BOI reporting requirements – except firms that are dually-registered as insurance producers and/or broker-dealers, which are also included on the list of exemptions. Nonetheless, regardless of whether the CTA applies to a specific firm, given that the beneficial ownership reporting rules (and the relevant court cases) might have been missed by business-owner clients, advisors have the opportunity to add value by reminding them about their (possible) reporting obligations!

HSAs Gaining In Popularity, But Participants Might Not Be Reaping Full Benefits: Survey

(Leo Almazora | InvestmentNews)

Health Savings Accounts (HSAs) have become a popular savings tool among financial advisors (and their clients), in part because they offer a very attractive 'triple-tax' set of potential benefits: 1) tax-deductible contributions, 2) tax-deferred growth, and 3) tax-free withdrawals for qualified medical expenses (although withdrawals made for non-qualified expenses are not tax-free and incur a 20% penalty if made before age 65). After age 65, though, non-qualified withdrawals have no penalty, so the account virtually becomes an "enhanced" IRA which can be used for any purpose but without the requirement of taking annual RMDs. Which suggests that the power of an HSA is not only in its tax benefits in the current year, but also in its potential to offer significant savings down the line when funds are invested and grow over time.

Nevertheless, a recent survey by the Plan Sponsor Council of America and sponsored by HSA provider HSA Bank suggests that many HSA users aren't reaping the full benefits these accounts offer, particularly when it comes to investing the balance in their accounts. According to the survey, 90% of eligible employees (i.e., those with a High-Deductible Health Plan) had an HSA in 2023, with 3/4 of these individuals making contributions to it (3/4 of employers also contribute to employee HSAs), with an average contribution of $2,609 and an average account balance at the end of the year of $6,165. However, uptake among employees for investing assets in their HSAs continues to be low; while 2/3 of companies offer investment options for HSA contributions, an average of 18.9% of participants invested their assets (further, only 25.3% of investments were in something other than cash). Which suggests that many HSA account owners view these accounts as a tax-advantaged way to pay for ongoing healthcare spending needs (and perhaps a more attractive option than a Flexible Spending Account [FSA] because HSA funds do not have to be spent in the current year) rather than a way to achieve tax-deferred growth for future medical (or general retirement) expenses (though for some individuals, this could be because they don't have sufficient available cash outside of the HSA to pay for medical expenses).

In sum, while more employees appear to be taking advantage of HSAs and the tax benefits they can offer, many are not getting the full tax-deferred growth benefits (and/or aren't contributing up to the annual maximum in the first place). Which presents an opportunity for financial advisors to add value not only by helping clients choose an appropriate health insurance plan (which might not be an HDHP, depending on the client's unique circumstances and their available plan options), but by analyzing how contributing to an HSA and investing the balance to achieve tax-deferred (and potentially tax-free) growth over time (an opportunity which they might not be aware of!).

Common HSA Mistakes That Can Cost Savers

(Tobias Salinger | Financial Planning)

Health Savings Accounts (HSAs) offer a host of benefits (in particular their famed 'triple tax advantage') for those who use them. However, they also come with a range of restrictions on both contributions (e.g., eligibility and annual contribution limits) and distributions (e.g., eligible medical expenses), which, if not adhered to, can prove costly for account holders.

To start, while distributions for eligible medical expenses can be made tax-free, other distributions (for those below age 65) not only are taxed as ordinary income, but also incur a penalty of up to 20% of the withdrawal amount (and could invite IRS scrutiny of other parts of the individual's tax return). With this in mind, clients with HSAs will want to make sure that they not only are using money in their HSAs for eligible expenses, but also that they have documents (e.g., receipts) to back them up in case the IRS requests them. Another potential mistake involves coordinating employer and employee contributions as (unlike 401(k)s), both types of contributions count toward the annual contribution limit (meaning that clients looking to max out their contributions will want to subtract their employer's contribution when calculating their own), with excess contributions (that aren't removed within the same tax year) being subject to a 6% excise tax each year until they are removed from the account.

While much of the focus on HSAs regards individuals saving during their working years, those nearing and in retirement face possible pitfalls as well. For instance, because government-funded health insurance options such as Medicare are not considered qualifying High-Deductible Health Plan (HDHP) coverage (which is required to contribute to an HSA), enrolling in Medicare – either directly through its website or by applying for Social Security benefits (which automatically enrolls someone in Medicare once they reach age 65) – means that an individual will no longer be eligible to contribute to an HSA (which means that individuals nearing age 65 who are still working and want to contribute to an HSA will need to navigate the interaction between Medicare, Social Security, and the HSA contribution rules). In addition, given that for non-spouse beneficiaries of HSAs, the entire account value becomes taxable income to the beneficiary in the year of the original owners death (making it one of the worst types of accounts to inherit from a tax perspective), older clients (and their advisors) might consider making a plan to draw down the assets in the account before their deaths.

In sum, while taking advantage of HSAs' benefits might seem like a valuable tax-savings opportunity to many clients (and/or their advisors), the value they derive from these accounts is determined in part by their ability to adhere to the relevant rules. Which presents an opportunity for advisors to support these clients by educating them on these limits and offering strategies to make the most of these accounts during key life transitions!

HSA Planning When Both Spouses Have A High-Deductible Health Plan (HDHP)

(Jeffrey Levine | Nerd's Eye View)

As with other tax-preferenced savings accounts, there are contribution limits for Health Savings Accounts (HSAs), which are based on the type of High-Deductible Health Plan (HDHP) coverage an account owner has. For family HDHPs, the annual limit for 2025 is $8,550, while the limit for self-only HDHPs is $4,300 (additionally, HSA owners aged 55 and older are allowed to make an annual $1,000 catch-up contribution). However, adhering to these limits can be tricky when 2 spouses each have their own HDHP coverage.

Financial advisors with clients who are married and have mixed health insurance coverage can help their clients understand their actual HSA contribution limits, as these limits depend on the type of plan each spouse has.  For spouses covered by separate self-only HDHP plans, each can contribute up to the maximum, self-only limit to their respective HSAs, but they can't make up for any contribution shortfalls of the other spouse.

Sometimes, one spouse might have self-only HDHP coverage and the other an "employee-and-children" family HDHP (which does not offer coverage for the employee's spouse). This can be cost-effective for couples with children, as family HDHPs sometimes provide for "employee and children" coverage that is less expensive than family plans that include both spouses. In this situation, the spouse with self-only coverage is limited to the self-only HSA contribution amount, and the spouse with family coverage can contribute up to the family limit.  But while the total between spouses cannot exceed the family limit, the spouse with the family plan can make up for any contribution shortfall of the spouse with self-only coverage.

In rare cases, both spouses may each opt for separate HSA-eligible family HDHPs through their employers (perhaps because of different in-network doctors offered by each plan). Again, the total contribution between spouses may not exceed the annual family limit, but in this situation, both spouses have the ability to compensate for any contribution shortfalls of the other, or to simply choose which spouse's HSA it makes sense to fund first.

Financial advisors who have married clients with HSAs, where at least one spouse is under age 65, also can employ some strategies to maximize the value of their clients' accounts.  For example, it may behoove the couple to maximize contributions to the older spouse's account first in order to reduce the potential exposure to the 20% penalty for non-qualified withdrawals, since the penalty will not apply to the age 65+ older spouse. In addition, using HSA funds from the younger spouse's account to pay for qualified medical expenses will also result in more funds in the older spouse's account, available for penalty-free withdrawals for non-qualified expenses.

Ultimately, the key point is that the unique triple-tax benefits of HSAs make them attractive savings vehicles and financial advisors can help their clients with different HDHP coverage options get the most value out of their HSAs by guiding them through their specific contribution rules and choosing how to coordinate withdrawals for qualified and non-qualified expenses from each account in the most tax-efficient manner!

How RIAs Can Become "Lighthouse Brands"

(Joe Duran | Citywire RIA)

When you think of companies with strong brands, the first that come to mind might be major retailers, restaurants, or hotels. Nonetheless, financial advisory firms have brands as well (whether they know it or not!) and in an increasingly competitive market for comprehensive planning services, having a strong brand can serve as a 'lighthouse' to attract prospects to the firm.

Duran offers "4 Ps" that he sees as the crucial elements to building a great brand. To start, he notes that "great brands make a compelling, clear, and honest promise to clients and always live up to it". For instance, if you talked to 10 customers about their experiences with a company that has a strong brand, you would expect to hear similar responses. For advisory firms, this could mean providing a consistent level of service to individuals across their client base. Next, great brands deliver products that are consistent with the aforementioned promise and evolve along with their clients' needs (for advisors, this could mean aligning their services with the planning needs of their ideal target client). In addition, companies with strong brands invest in their people, training them in the firm's culture and investing in them to enhance their skills and abilities (which can pay off for both the firm and their advisor). Finally, 'lighthouse' brands exude a high level of passion that attracts both customers and team members, turning what could be merely a transactional relationship into a long-term commitment with those who share in the firm's mission.

In sum, while establishing a strong brand can come with a host of benefits (from client growth to greater employee retention), doing so can require a thoughtful approach that considers both a firm's strengths and the characteristics of its ideal target clients to ensure it is delivering on the promises it makes to all of its stakeholders!

What Advisors Don't Get About Brand Awareness

(Matt Reiner | Advisor Perspectives)

Whenever you shop in a grocery store, you are bombarded with a wide range of branded products which are fairly simple to evaluate (e.g., by giving them a taste). However, for intangible goods like financial advice, there is not necessarily a physical product to evaluate (particularly as many advisory firms move away from financial plans contained in thick binders to one-page and/or collaborative plans), not to mention that much of the value of working with a financial advisor isn't contained in the plan itself (e.g., reassurance during market turbulence).

With this in mind, Reiner suggests that advisory firms can instead look to their people as the torchbearers of the firm's brand. Given that the success of a financial planning engagement is often based on the level of trust between the advisor and their client, few prospects are likely to sign on with a firm without meeting the type of people who they will be working with first. And while discovery meetings are a traditional way to establish trust with clients (and communicate the firm's brand), firms can leverage their 'people power' throughout the marketing process, perhaps by creating content where team members share their favorite client success stories or why they have pursued a career in financial planning (which can be repurposed across multiple platforms) so that the prospects can feel like they 'know' the firm and its staff even before meeting them in person!

In the end, because prospective clients are often attracted to a firm based on the relationship they build with their (future) advisor and their team rather than a list of services the firm provides, putting a firm's staff front and center in its marketing efforts can help it get a head start on establishing a trusting relationship with progress, and create a stronger brand in the process!

How To Refresh Your Personal Brand

(Dorie Clark and Tomas Chamorrow-Premuzic | Harvard Business Review)

While many of the most recognizable brands belong to companies (or the products they produce), an individual's personal brand is also important and conveys a wealth of information to potential employers and clients alike. Which suggests that taking time to consider what your personal brand looks like today and how you might want it to change could be a good investment, even if you're not thinking about changing jobs in the near future.

To start, you might consider what you want other people to see. For instance, you might want to be known as an effective communicator of planning recommendations, a great 'closer' when meeting with prospects, or the most organized operations professional in the office. Notably, this vision can include goals for the future (reflecting the potential for you to grow over time). The next step is to identify gaps where others' perceptions of you might not match the brand image you are trying to get across (e.g., are the words you would use to describe yourself the same words others would use?). To get more information, you might consider talking with a trusted colleague or client to see if their impressions match your desired vision. Then comes creating a tactical plan to ensure others recognize your desired brand (e.g., by volunteering for tasks that showcase key skills and by taking [justified] credit when successes occur). Finally, it's important to recognize that a personal brand can take time to build and/or adjust. Which means that deploying "strategic patience" might be necessary as the previous steps begin to bear fruit over time.

Ultimately, the key point is that while having a strong personal brand can help you advance within your current firm or perhaps make you more attractive to future employers, it can take an intentional approach to ensure that your desired brand matches what others see in you!

The Neuroscience Of Procrastination: A Short Primer

(Anne-Laure Le Cunff | Ness Labs)

Everyone has procrastinated at one time or another, putting off an unsavory task to take on something more enjoyable in the near term. And while it can be tempting to blame oneself for engaging in procrastination, it turns out not only that humans have been dealing with this issue for millennia, but also that it's rooted in human biology.

The word procrastination comes from the Latin "pro" (meaning "forward") and "crastinatus" (meaning "till next day") and the concept goes even further back to ancient Greece, where Aristotle used the word "akrasia" (meaning "weakness of will") to describe a state of acting against one's better judgments. Notably, the human tendency to procrastinate can be attributed to 2 parts of the brain: the limbic system (which has 'automatic' processes that can fire up in response to stimuli, such as danger) and the prefrontal cortex (where higher-level thinking takes place). Unfortunately for humans, the limbic system is much better developed than the prefrontal cortex, leading to a constant battle between the urge to avoid danger (whether it's a tiger on the rampage or, perhaps more common in modern times, a difficult client call) and the recognition that facing the "danger" head-on might be the best decision (though maybe not in the case of the tiger). Which means that it can take significant will to put the limbic system on the back burner and take on a challenging task immediately.

Altogether, while it can be tempting to blame oneself for procrastinating, the long history of this concept and its biological underpinnings suggest a more generous interpretation of one's actions might be appropriate. Nevertheless, given some research showing that procrastination can lead to worse performance and greater stress, taking steps to overcome this challenge could lead to greater productivity and wellbeing, both in the short- and long run.

3 Strategies For Overcoming Procrastination

(Eric Barker | Barking Up The Wrong Tree)

The common issue of procrastination can sometimes be seen as a time-management problem as you try to balance different tasks during the day (perhaps favoring those that are easier to complete). At the same time, procrastination is often about choosing things to do based on how they make you feel (i.e., putting off tasks that might not turn out well and lead to disappointment).

With this in mind, a variety of strategies are available to feel better about the tasks that need to get done. A first step is to organize the job at hand by reducing ambiguity (i.e., having a clear understanding of the task at hand), breaking the project into smaller chunks, and focusing on the process (which might seem more easily attainable) rather than the overall goal (which might seem harder to achieve). Another strategy is to connect with your "future self" (who would no doubt appreciate the challenging task being completed) by writing a letter to this person, which can help connect one's actions today with the goals they want to achieve in the future (notably, this strategy can also be used to get clients to take action on financial planning recommendations). A third option is to 'tether' a less-enjoyable task to a more-enjoyable one. For instance, a person who enjoys podcasts but not going on long runs might limit themselves to only listen to the former while they're doing the latter, thereby encouraging them to be consistent about their exercise routine (less they miss an episode of their favorite podcast!).

Ultimately, the key point is that improving how one feels about a challenging task – whether by breaking it down into smaller, achievable pieces, connecting it to one's future goals, or linking it to a more enjoyable activity – can be a solution to the ever-present temptation for procrastination and help you achieve your next major goal!

How To Move Beyond The Daily "To-Do List" To Take On Big Projects

(Rachel Feintzeig | The Wall Street Journal)

As a financial advisor, there is no shortage of potential tasks to complete in a given day, from preparing for the next client meeting to managing marketing efforts to taking a look at an ever-growing email inbox. Which can sometimes distract from taking on bigger or longer-term projects that can easily get put on the back burner.

When looking to take action on a major initiative, a first step can be to get it out of one's head and onto paper, laying out the goal and the steps it will take to get there. In addition, thinking about why the project will be meaningful or lead to personal growth (something that checking email is unlikely to do!) can provide the motivation to take the next step towards completing it. Another strategy is to build a routine around the project. For instance, setting aside a block of time each day or week to work on it could lead to a level of consistency that could be hard to achieve trying to address it on an ad hoc basis (where distractions can easily creep in). Finally, breaking down the big project into smaller, more manageable tasks, can help build momentum towards reaching the ultimate goal (further, taking on these tasks at times of the day when they match one's mood or mindset [e.g., a night owl might take on a more thought-intensive task at night when there are fewer distractions] can also increase the chances they are completed).

In the end, while it might be satisfying to cross off smaller tasks from one's 'to-do list', focusing only on these areas can leave larger (and perhaps more important) goals drifting in the background. Nevertheless, because addressing these goals head-on doesn't necessarily require a multi-hour commitment each day, it's possible to address short-term tasks while still moving forward toward long-term goals!

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.