2024 Highlights – The Top 24 Nerd’s Eye View Blog Posts You Might Have Missed

Tax Planning

2024 Election: Evaluating The Impact Of A Republican Trifecta On The TCJA Sunset And Tax Planning – With Republicans appearing to have secured a sweep of the White House and both chambers of Congress, the most immediate question for many financial advisors and their clients is what impact the election results will have on the scheduled expiration of the Tax Cuts & Jobs Act (TCJA) at the end of 2025. At a high level, while the Republican trifecta would appear to set the stage for much of TCJA to be extended beyond the original 2025 sunset date, given the makeup and priorities of the incoming Congress, there will inevitably be portions of the existing law that Congress will aim to amend or even expand beyond the original tax cuts created by TCJA.

For example, the current 7 tax brackets and the increased standard deduction that have been in effect since 2018 are expected to remain largely unchanged. However, the $10,000 limit on State And Local Tax (SALT) deductions, which has been highly contentious with both Democrat and Republican supporters and detractors, is much more likely to become a negotiating point. Other key areas likely to be impacted include:

• The Child Tax Credit, currently capped at $2,000 per child, with some bipartisan support to raise it at least to the pandemic-era $3,600 maximum;
• The Alternative Minimum Tax (AMT), which could be amended as part of SALT cap negotiations to kick in at lower income levels for households with high SALT deductions, offsetting the impact of raising or eliminating the SALT deduction cap;
• The Section 199A deduction for Qualified Business Income (QBI) for pass-through owners, which could be increased if corporate tax rates are cut further in order to preserve the proportionate difference between pass-through and corporate tax rates; and
• The gift and estate tax exemption, which appears likely to remain at its current elevated levels.

Ultimately, the key point is that there almost certainly will be a new tax bill to extend and/or replace TCJA. And while it may not represent as large of a shift from the status quo as TCJA did in 2017, it could still have tax planning implications for millions of Americans – at least until it reaches its own sunset date in another 8–10 years!

529-To-Roth IRA Rollovers: Taking Advantage Of The New Option To Move Education Savings To Retirement Savings – Traditionally, the challenge of using a 529 plan to save for higher education expenses has been figuring out how much to save to cover the beneficiary's college costs without overshooting and saving more in the 529 plan than is actually needed. Because while the 529 plan's combination of tax-deferred growth on invested funds and tax-free withdrawals for qualified education expenses (plus many state-level tax deductions or credits on 529 plan contributions) make it a powerful savings vehicle for college or graduate school expenses, the flip side is that any non-qualified distributions are subject to income tax plus a 10% penalty tax on the growth portion of the distribution.

The Secure 2.0 Act, passed in 2022, provided a new 'escape valve' for individuals who find themselves with more funds in their 529 plan than they could use on qualified higher education expenses. Nevertheless, the 529-to-Roth rollover option comes with strict limitations, such as a $35,000 lifetime rollover cap, which limits its usefulness as a broader planning tool. Its primary function remains to give individuals with overfunded 529 plans an opportunity to reallocate some of those funds tax-free toward their retirement savings.

Even with these constraints, 529-to-Roth rollovers can still be worth incorporating into college and estate planning, particularly as a way to gift beneficiaries the 'option' of directing up to $35,000 towards their retirement savings. For families who want to give their kids a head start on their career and life path – without simply giving no-strings-attached cash – 529 plans now offer the dual benefit of boosting their education savings and their retirement savings.

In sum, while the new 529-to-Roth rollover rules may be limited in terms of how much wealth they can transfer into tax-free retirement funds, they still provide real benefits – both as a practical solution for unused 529 funds and as a way to support a child or grandchild's future – whether for education, retirement savings, or both!

Why Pre-Tax Retirement Contributions Are Better Than Roth In Peak Earning Years (Even If Tax Rates Increase) – From a financial planning perspective, the implication of a likely rise in future tax rates (spurred by government deficits and a rapidly expanding national debt) is that, given a choice between being taxed on income today or deferring that tax to the future, it would make more sense to be taxed today when taxes are lower than they'll be in the future. For example, if taxes are expected to rise, contributing to a Roth retirement account (which is taxed when the contribution is made, but not upon withdrawal) could be more beneficial than contributing to a traditional pre-tax account (which is tax-deductible today, but taxable later on withdrawal).

Nonetheless, given Congress' history of closing loopholes and eliminating deductions that have resulted in more income being subject to tax, it seems more likely that future changes will involve reducing the benefits of current tax planning strategies – possibly including those of Roth accounts themselves –rather than simply raising the marginal tax brackets in the future. Furthermore, focusing only on tax rates at a national level overlooks the fact that an individual's own tax rate is likely to change much more during their lifetime based on their own income and life circumstances. For instance, an individual might make pre-tax contributions during their peak earning years and then convert those funds to Roth after retirement (perhaps before they start receiving Social Security benefits and/or are subject to required minimum distributions). As long as those funds can be converted at a lower tax rate than when they were contributed, contributing to a pre-tax account can still be a sound strategy.

In the end, while the idea that we currently live in an anomalously low-tax environment that will inevitably reverse course has its appeal, basing tax planning decisions around that assumption is still risky. Because even if Federal tax rates do rise, individuals who are already in the highest tax brackets today are still likely to be in a lower bracket upon retirement – which makes it more advantageous to contribute to a pre-tax account today and withdraw (or convert) the funds at a lower rate later on!

Retirement Planning

Helping Nervous Clients Understand The (True) State Of The Social Security System And What It Means For Their Retirement – Given the frequent news headlines about the (un)sustainability of the Social Security system, many working-age financial advisory clients may harbor doubts about receiving their full estimated Social Security benefits. Similarly, many current Social Security recipients might worry about whether they will continue to receive their full benefits throughout their lifetimes.

While the state of Social Security's trust fund reserves often receives significant media attention, the reality is that most Social Security benefits are funded through Federal Insurance Contributions Act (FICA) taxes, more commonly known as payroll taxes. Which means that even if the trust fund reserves were to be depleted (currently estimated to occur in 2035), the system would still be able to pay the majority of scheduled benefits (83% in 2035, gradually declining to 73% by 2098) through ongoing payroll tax revenue.

Nonetheless, given the disruption that a reduction of Social Security retirement benefits would cause recipients, policymakers have a strong incentive to implement measures that would allow the system to continue paying out full benefits for decades to come. These measures could include, either independently or in combination, changes to benefits (e.g., raising the Full Retirement Age) and/or adjustments to the taxes that support the system (e.g., increasing the payroll tax wage cap).

In sum, financial advisors can add value for their clients by providing context on the state of Social Security and the potential legislative fixes being considered. They can also use financial planning tools to show the impact of potential changes on each client's financial plan – both in dollar terms and in the probability of success for their plan. Which, together, could provide clients with a more realistic picture of what Social Security changes could mean for their unique situations!

Reframing Risk In Retirement As "Over- And Under-Spending" To Better Communicate Decisions To Clients, And Finding "Best Guess" Spending Level – Over the past few decades, financial advisors have used Monte Carlo analysis tools to help clients determine if their assets and planned level of spending were sufficient to realize their goals while (critically) not running out of money in retirement. More recently, however, the traditional Monte Carlo '"probability of success/failure" framing has attracted some criticism for potentially distorting the way a client perceives risk, leading them to aim for a 100% probability of success – often at the expense of spending less than they could otherwise afford.

Instead of relying on a "probability of success/failure" framework, an alternative approach uses the concepts of overspending and underspending, which can help both an advisor and their client better understand the trade-offs inherent in ongoing retirement spending decisions. With this approach, an advisor accounts for all of a retired client's income sources and balances them against their various spending goals – incorporating future assumptions such as life expectancy and market performance – to arrive at a 'best guess' spending level. From a mathematical standpoint, this 'best guess' represents the level at which a client is equally likely to overspend as to underspend.

This allows advisors to shift the focus away from avoiding failure at all costs and toward balancing spending and lifestyle goals. For instance, an advisor might communicate that their job is to help the client find a spending level that balances their goals of living the life they want while not depleting their resources. Using this framework, advisors can mitigate the biases of Monte Carlo's traditional probability framing while using concepts that clients are already familiar with.

Ultimately, the key point is that retirement spending levels are not static – they can (and should) be adjusted over time based on lifestyle changes or market conditions. By using an overspending/underspending framework, advisors can better communicate how clients can make these adjustments over time, minimizing the biases that discourage spending and helping clients live their lives to the fullest!

Estate Planning

Creating Incentive Trusts To Foster Beneficiary Legacies Without Spoiling The Kids – Looking at estate planning solely through the lens of assets on a balance sheet can overlook an important reality: people often have other intangible assets that they wish to pass on to the next generation. Intangible assets –such as values, lessons, and opportunities to pursue lifelong passions – are often equally, if not more important. Yet these legacies may not be achieved – and in many cases may be undermined – by a simple transfer of cash.

In these cases, certain types of trust-based estate plans can allow an individual to set specific guidelines for how their assets are held and under which circumstances they can be distributed. One of the most common examples involves trust provisions that direct assets to be distributed to beneficiaries once they obtain a certain age (e.g., at age 21 or 30) or stagger distributions at multiple ages. However, it's possible to get much more specific and allow distributions that are tied to specific conditions that incentivize the beneficiary's behaviors. For instance, distributions can be contingent on the following conditions:

• Academic achievements, such as maintaining a certain GPA or attaining advanced degrees;
• Life events, such as getting married or buying a first home; or
• Earned income, such as 'matching' distributions equal or in proportion to the amount of income that the beneficiary earns).

In addition to incentivizing behaviors, trust provisions can also include tools to disincentivize undesirable actions, such as delaying distributions until a beneficiary has curbed a harmful behavior (e.g., curbing a gambling habit). Likewise, trust provisions can mitigate family conflict as the result of a contested estate (e.g., by a family member who feels they were treated unfairly) by including tools such as a "no contest" clause, which would effectively disinherit any family member who takes legal action against the estate.

In sum, advisors can play a crucial role in helping clients design the most appropriate estate plans that preserve their legacy of personal values. By asking thoughtful questions to clarify the client's goals, aiding with the selection of an estate administrator or trustee, and working with an attorney to draft a trust that reflects the client's wishes, advisors can ensure that their clients' legacies are preserved for generations to come!

Making Estate Planning More Tax Efficient And Equitable For Beneficiaries By NOT Just Splitting The Assets Evenly – Traditionally, people tend to think of their estate as comprising one big 'pot' of assets, focusing on the total value rather than considering the individual characteristics of each asset. Consequently, when planning how to divide their assets after death, they often aim to simply apportion the whole pot among their beneficiaries without regard to the specific nature of the assets themselves.

However, this approach might not lead to the most wealth being passed down or the most equitable distribution of assets among beneficiaries. This is because the tax treatment of inherited assets can vary significantly depending on the type of asset and the beneficiaries' individual tax situations. For instance, pre-tax retirement accounts are taxed upon withdrawal by the beneficiary, whereas nonqualified assets may receive a step-up in basis, reducing tax consequences.

By planning on an asset-by-asset basis, advisors can help clients create a more equitable and tax-efficient estate plan. For example, in an estate with a mix of pre-tax retirement assets and nonqualified assets, the pre-tax assets can be left to beneficiaries with a lower tax rate, while nonqualified assets can be allocated to beneficiaries in higher tax brackets. This approach not only ensures that each beneficiary receives the asset that results in the highest after-tax value to them, but also maximizes the total after-tax value of the entire estate.

In the end, just as clients have different planning needs, goals, and tax circumstances during life, the same applies to their beneficiaries and assets after death. Which means that it's just as important to incorporate tax implications in the estate planning process as it is in the financial planning process to help clients pass on more of their (after-tax) wealth to future generations. And by designing a more equitable distribution plan, advisors can help their clients ensure that their legacy benefits their beneficiaries as effectively as possible!

Client Trust & Communication

3 Question Types To Go From (Just) Retained To Highly Engaged And Happier Clients – After advisors do all of the work of bringing on a new client, it can sometimes feel natural to let the relationship go into 'maintenance mode'. While all may appear well on the surface (e.g., the client rarely contacts the advisor with problems, but they show up for every annual meeting), clients may actually be feeling quite disengaged with the financial planning services being provided. This can result in fewer referrals and even the loss of the client, who might eventually opt to move their accounts to another (more appealing) advisory firm.

Nonetheless, advisors can address client disengagement by asking compelling questions that encourage participation and invite clients to engage more actively in the financial planning process. Asking questions at the beginning of the meeting, such as "What is different from the last time we met?" and "What changes are coming up soon?", can help to reveal relevant priorities and planning opportunities that the disengaged client may not have thought about mentioning on their own.

Additionally, checking in with clients deeper into the meeting to monitor any potential financial anxiety can set the stage for a more open and honest discussion about concerns that may have not yet surfaced. For example, advisors might ask how confident the client feels with their financial plan or what worries them most (or least) about their finances.

Finally, asking for feedback at the end of the meeting can help the client recognize that the advisor values their engagement and input; this can also help them reflect on their progress and the advisor's role in helping them achieve it. Facilitating these opportunities for honest dialogue and reflection can strengthen trust and encourage ongoing client engagement.

Ultimately, the key point is that highly engaged clients not only provide more referrals and recognize their advisors' value, but they also tend to be more enjoyable to work with. And by carefully choosing the right questions to ask, advisors can recognize their clients' engagement levels and ensure that more of them are (and stay!) fully engaged!

Sending (Private) Client Newsletters: How Advisors Can Do It Effectively To Reinforce Value – For financial advisors, an ongoing client service model often means finding ways to keep clients engaged and progressing toward their goals beyond the 1 or 2 typical client review meetings each year. For clients, more frequent communication serves as a source of behavioral coaching and helpful information, better equipping them to stay the course, even through rocky markets.

One way to increase the pace of communication (without holding one-on-one meetings) is by using 'private' email newsletters. These newsletters can help reinforce the value that advisors provide in a scalable way across their entire client base. To create consistency and efficiency, the content can be broken down into several recurring sections, such as market insights, financial planning topics, recommended reading, and personal and business updates.

The most important point to get across is the advisor's own perspective on what's happening since it's often this perspective that gives clients confidence about their own situation. Also, because clients tend to value consistency, advisors can choose any cadence for sending a newsletter (weekly, monthly, etc.) that they feel comfortable with – so long as they are able to maintain the same schedule over time.

In sum, by engaging clients more frequently, advisors can strengthen the client-advisor relationship while providing clients with timely behavioral coaching and valuable information, ultimately leading to deeper trust, fewer worried phone calls or 'emergency' meetings, and potentially even more client referrals!

Practice Management

A 90-Day Onboarding Plan To Train Your New Superstar Client Service Associate (CSA) – For small advisory firms that are beginning to grow and ready to add new staff, a Client Service Associate (CSA) or similar support role is a common early hire. Ideally, this person will free up an advisor's time to focus on higher-value tasks (likely income-producing activities that allow the advisor to continue growing the firm).

However, if a new CSA is not onboarded well, advisors may find themselves taking on additional management responsibilities without a corresponding lift in task workload. This can also create a frustrating situation not just for the CSA, who likely wants to do their job, but also for the advisor, who no longer has as much capacity to do their job!

Nevertheless, much of this frustration can be avoided with a clear onboarding plan. To start, advisors can structure onboarding tasks and measurables around the following 3 segments that make up the majority of learning that CSAs need to do for their role:

1. Understanding the firm (e.g., the firm's schedule, processes, and people);
2. Getting to know the clients (e.g., individual client preferences); and
3. Gaining industry knowledge (e.g., technical terms as well as where the firm sits in the broader financial advice industry).

As the onboarding process progresses, advisors can be transparent about which processes are crucial to the firm's workflows or the value proposition to the client and which are flexible to be adapted as the CSA gets more comfortable. Furthermore, adapting how instruction is given to align with how the CSA learns – while prioritizing synchronous learning opportunities – can make an enormous difference in a new employee's long-term retention and ability to give good strategic input. Inviting the new hire 'into the room' and letting them sit in on client meetings, strategy conversations, or other crucial conversations allows them to observe, ask questions, and gain insights in real time, helping them develop a deeper understanding of the firm's processes and goals.

Ultimately, the key point is that onboarding a CSA requires thoughtful planning and an upfront investment of time. But with clear structure, flexibility, and engagement, both the advisor and CSA can have a pleasant and efficient onboarding experience that can lead to a more rewarding and productive partnership in the long run!

3 Key Principles For Measurable and Actionable Standards That Help Cultivate Excellent Client Service – While solo advisors are often able to intuitively sense when they're delivering their best service, as they grow and scale their firms, that same advisor eventually goes from individually 'owning' every client relationship to sharing the workload with first a client service associate, then a paraplanner, and then another advisor. Suddenly, a crucial question emerges: "What does it mean to provide the best care for clients as a team?"

For firms looking to standardize procedures and create a system to measure the effectiveness of those procedures, a crucial starting point is to identify what the firm's desired outcomes are. For instance, Minnesota-based RIA Accredited Investors selected 3 key principles: first, offering relationships with clients based on constant attention with at least 3 meaningful interactions throughout the year; second, following through on commitments made to clients; and third, providing ongoing and consistent planning for all clients, including the quieter ones. With these priorities established, the firm assessed its current practices and then established practical goals based on the current team's position to ensure everyone was set up for success, mixing in only a few stretch goals.

Over time, tracking metrics in the firm's CRM offered powerful insights about the team's performance that allowed the firm to better plan its capacity, not just by evolving goals to address 'overdue' communication and other high-priority tasks, but also by offering clarity into how to structure team assignments and allocate client relationships more impactfully. Other benefits also manifested from tracking the firm's progress as the team gradually refined their processes and standards.

Ultimately, the key point is that devising the right metrics that help a firm assess its areas of excellence and potential areas for growth can be instrumental in establishing a flourishing firm culture based on exceptional client service. By first identifying how the firm wants to define its own standards of client service and then evaluating how those standards are currently being met, firms can gain a clear and objective way to measure their standards, which can offer valuable insights into further cultivating a proactive culture of outstanding client care across the team!

What High-Net-Worth Prospects (Really) Want From A Financial Advisor – Over time, the value offered by financial advisors, especially for High Net Worth (HNW) clients, has come to involve a far more comprehensive range of services beyond traditional investment management practices. Today, it often includes a comprehensive suite of services such as estate planning, tax advice, and charitable planning, all while incorporating insights from financial psychology and behavioral finance to help clients stay on track with their long-term financial planning goals. While this shift has enriched the advisor's role, it has also introduced challenges in aligning the advisor's offerings with the nuanced needs of HNW prospects and clients.

As a starting point, while the language that describes what prospective HNW clients want and what advisors offer may often sound similar, in reality, what each party actually means can be quite different. For example, an advisor may think of "risk management" in terms of life and property insurance coverage, whereas HNW clients may instead think of tax and estate planning strategies as asset protection measures.

Fortunately, financial advicers can bridge these communication gaps in a few ways, starting with identifying a client's goals, relationships, and values before getting into the situational details of their finances. Which not only tailors advice more effectively, but also serves as an impactful marketing differentiator in a competitive environment where many advicers describe themselves as having excellent customer service, comprehensive advice, and fiduciary standards.

Ultimately, the key point is that what most HNW clients actually want is an advisor who understands and can solve their unique problems. However, the value of this advice may go unrecognized unless an advisor is able to explain how their solutions align with the client's core values and goals. By prioritizing the identification and understanding of these values and goals, advisors can better showcase the real value of their advice, leading to mutual success and long-term client satisfaction!

Assessing Payouts And Platform Fees For Profitability When Choosing An Independent Advisor Platform To Affiliate With – Broadly speaking, financial advisors can choose between 2 primary career models: operating independently as a firm owner or affiliating with a larger platform such as a wirehouse broker-dealer, independent broker-dealer, or larger corporate RIA. Deciding which model to pursue is a key moment in beginning or evolving a career as an advisor.

The key difference between these 2 models from a financial standpoint is that while clients of independent advisors usually pay the entire amount of their fees directly to the advisor, clients of affiliated advisors often pay their fees to the affiliate platform itself, with the platform passing on a percentage of the income to the advisor (where the amount that the platform keeps represents the fee for the services they provide to the advisor).

Notably, different affiliate platforms have different payout rates; those that pay out the most (and thus have the lowest fees) tend to cover relatively few functions such as compliance and technology, while those that pay out the least (and therefore have the highest fees) cover a significant amount of the advisor's overhead costs. Which means that using the platform with the highest payout rate won't necessarily result in the most take-home income for the advisor (since they're still responsible for paying all of the overhead costs that aren't covered by the platform); rather, the choice is more about whether – and how – the platform's services align with what the advisor needs to succeed in their role.

In sum, achieving success as an advisor (regardless of the model they choose) involves finding the best use of the advisor's resources to leverage support for the functions that they can't perform (or don't want to manage) on their own. Which means that, ultimately, while some advisors might simply prefer the autonomy of the independent model, it's possible to be successful in whichever model provides the support they need to make the best use of their time.

Why Service Advisors Who Obtain CFP Marks Are Making More Money For Themselves And Their Firms – While the share of advisors with the CFP marks has risen steadily over time, today, about 2/3 of financial advisors are not CFP professionals. For those considering CFP certification and preparing for the exam – often requiring them to sacrifice evenings, weekends, and many thousands of dollars – a crucial factor is whether they will actually earn more as a result of doing so.

According to the 2022 Kitces Research on Advisor Productivity, CFP professionals take home more money per hour worked than non-CFP professionals, with this gap being substantially larger for service advisors than senior advisors. This "CFP Productivity Gap" appears to be driven by supply-side explanations – the skills that CFP practitioners develop and deliver – as well as demand-side explanations – the preferences of clients (especially more affluent clients) when selecting an advisor to work with.

Specifically, service advisors with the CFP marks appear to spend more time on key revenue-generating activities, such as meeting with clients and prospects and creating financial plans. Notably, these hours are highly productive because these CFP professionals provide financial plans that are both more comprehensive and updated more frequently than those offered by non-CFP professionals. In addition, teams with service advisors who hold the CFP marks tend to attract significantly more affluent clients, with a median client AUM of $1,000,000 AUM versus $250,000 AUM for teams with non-CFP certificants. These higher-AUM clients also tend to pay substantially higher fees.

Altogether, these benefits suggest that firms looking to attract and retain affluent clients may benefit from hiring CFP professionals or helping current employees (e.g., service advisors) earn their CFP marks. And for service advisors themselves, this research suggests that CFP certification is a crucial vehicle to help them experience continued income growth without stalling out!

General Planning

Quantifying (More Accurately) The Real Impact Of A Financial Advisor's Costs On Their Clients' Nest Eggs – While the financial advice industry has transformed in many ways over the past several decades, one aspect that has remained relatively constant is the use of the Assets Under Management (AUM) fee model, with a 1% fee often serving as a common baseline. However, the 1% AUM fee has faced criticism over the years, with some arguing that it reduces portfolio value more than the advisor's guidance adds.

For advisors looking to explain their value to prospects (including those who may be critical or skeptical of the AUM fee model), a potential starting point is to acknowledge that, technically, all spending reduces the total amount a person could save for retirement. And over time, almost any 'normal' household expenditure can compound into significant amounts when projected over decades at market rates of return. However, comparing every expense to what they could have been worth if saved in a portfolio can be misleading – because from that perspective, every expense seems unfavorable!

In addition, advisors can highlight the value they provide beyond 'just' asset allocation. For example, firms that offer services like tax-loss harvesting, systematic rebalancing, and behavioral coaching often save clients money in taxes and other areas, potentially more than offsetting a 1% AUM fee.

Ultimately, the key point is that while criticism of the 1% AUM fee may be widespread, it's fair to recognize that financial advice does have a cost that advisors should be expected to offset by the value they provide. Advisors who lead with holistic financial planning have a lot of value to demonstrate, especially when engaged on an ongoing basis, to help prospects better understand the true costs and benefits of having a trusted financial advisor in their corner!

KPIs To Track Your Advisor Marketing And Figure Out What's Actually Working (Or Not) – Given the near-dizzying array of potential growth tactics (from blogging and social media to old-fashioned approaches like cold-calling and networking), advisors may find it challenging to figure out which strategies work the best (especially when some take more time, and others cost more upfront in hard dollars).

However, by tracking Key Performance Indicators (KPIs) tied to marketing and sales metrics, advicers can measure their business development efforts to identify the most effective tactics and refine them over time to improve marketing efficiency and scale the firm's growth. Important KPIs that can help an advisor become more efficient and effective include:

• The total amount of time spent generating each new prospect;
• The percentage of prospects who are actually "qualified";
• The conversion rate of qualifiedprospects to clients;
• The number of days between when a prospect first reaches out and when they sign on as a client;
• The average revenue generated by each new client; and
• The total new revenue opportunity represented by all prospects currently in the sales pipeline.

Finally, advicers can calculate the most comprehensive of all marketing and sales KPIs, the Client Acquisition Cost (CAC), which measures the all-in cost of acquiring a new client. By dividing the amount of time and dollars spent on marketing by the total number of new clients acquired, advicers can determine if their sales and marketing efforts are truly contributing to the growth of their practices.

In the end, given the importance of generating new business for nearly all advicers, gathering raw data from marketing and sales efforts and calculating the resulting key metrics is a crucial step towards effectively growing their practices. By doing so, advisors can determine what's working (and what's not!) and learn where their time and resources are best allocated to build and scale their ideal financial planning practices!

Why Held-Away Asset Management Technology Is Being Scrutinized By State Regulators (And How Advisors Can Compliantly Manage Clients' 401(k) Assets) – Historically, advisors haven't had many avenues to manage clients' 401(k) plan accounts since, unlike traditional custodial investment accounts, advisors generally lack discretionary trading authority in employer-sponsored retirement plans. However, as advisors have increasingly taken on working-age clients (and the 401(k) plan itself has taken on greater importance in retirement planning), the friction between 401(k) and non-401(k) plan assets has grown into a bigger issue from an operational and compliance standpoint.

Advisors who want to advise on 401(k) plan assets but who can't manage them directly have typically relied on 2 options: 1) reviewing the plan options and having clients execute trades on their own (which can prove frustrating for advisors and clients alike) or 2) collecting clients' login information and executing trades in their accounts (which can create concerns over data security and compliance for the advisor).

To address these challenges, several data aggregation tools, with Pontera being the most prominent, have emerged, allowing advisors to more efficiently – and securely – manage their clients' 401(k) plan accounts by giving them the ability to view and trade in the 401(k) account without collecting login information. However, regulators in several states, including Washington and Missouri, have recently begun to scrutinize the use of Pontera and similar technology, citing concerns that these platforms potentially violate clients' user agreements with their 401(k) platforms.

Despite the current regulatory friction around held-away asset management, the most sensible path forward does involve some role for technology to manage clients' 401(k) accounts – albeit with more communication between technology providers, financial institutions, regulators, and advisors to build a system that addresses the concerns of each.

In the meantime, it's important for advisors considering whether to use Pontera or similar technology to understand where their own state regulators stand and for those who use it already to explain to their regulators how it allows them to better manage their clients' assets holistically without resorting to collecting client login credentials. Since ultimately, advisors who use it every day are best positioned to show how held-away asset management technology can truly be used in the client's best interests!

Designing "Custom GPTs" With Advanced ChatGPT Features To Enhance Advisor Capabilities With AI – In late 2022, OpenAI launched ChatGPT, an Artificial Intelligence (AI) powered natural language processing tool that enabled the public to have human-like conversations with a chatbot and generate a seemingly endless array of sophisticated content. In this article, guest author David Ortiz, Managing Partner at the Financial Chef, describes how he leveraged AI in his practice to improve his client meeting process by generating summaries, extracting pertinent data, and creating action items – all while maintaining compliance.

By learning to design 'custom GPTs' to create specialized bots for specific tasks, David created (and has made publicly available) an advisor-focused tool he calls the "Client Meeting Summarizer". This tool processes advisor/client meeting transcripts to extract, summarize, and organize key information from any meeting or call through various AI prompts. Additionally, David has used AI tools to transform what were once monologue-based planning meetings into interactive, engaging dialogues. By incorporating a mindmap plugin, David creates high-level visuals that give clients a clear understanding of how their financial plans were constructed, how their specific issues are addressed, and the value that he delivers on an ongoing basis.

Ultimately, David has found that integrating AI into his practice has not only made him more efficient, but also allowed him to ask better questions, gain a deeper understanding of his clients' needs, and hone his own listening skills. More broadly, David's experience suggests the real promise of AI is in allowing financial advicers to foster deeper and more meaningful relationships with their clients, helping them be better (and more successful) at their craft!

Podcasts

#FA Success Ep 372: Quadrupling Revenue By Restructuring Your Business Model To Reflect Your Entire Value To Clients, With Melody Townsend – While many financial advisors might have an idea of the fee model they want to use when starting their own firm, they may find that their initial model can be difficult to scale as their practice grows over time. Which can lead to an inflection point where the advisor decides to remain on the current path – potentially putting a limit on the ultimate size and profitability of the firm – or pivot in a different direction.

In this Financial Advisor Success episode, Melody Townsend discusses how she initially built an hourly, fee-only firm for its ability to serve the middle market in Kentucky, where she was based. While the model provided flexibility, Melody found it challenging to grow and scale the firm, particularly as she balanced generating enough billable hours with managing all of the back-office tasks. In addition, she realized that the hourly model had led her to undercharge by not billing for all the time she was spending servicing clients.

To address these challenges, Melody decided to take a bold leap to right-size her prices by wrapping them into an AUM fee for clients she was helping with implementation. And despite her fears about losing clients in the face of a fee change that would, on average, double her client fees, she discovered even her clients recognized that she had been undercharging. As a result, nearly every single client stayed, and many even consolidated more assets with Melody once she was actually able to manage (and bill on) them.

Ultimately, the key point is that new firm owners don't need to feel locked into the first business model they choose. Making a strategic switch can be necessary to ensure the scalability and profitability of the firm in the long run, all while being compensated for the entire value it provides to clients!

#FA Success Ep 375: Running 20+ Client Meetings Per Week By Systematizing The Meeting Prep And Follow-Up Process, With Rob Schultz – As an advisor's client base grows, so too does the number of meetings they have to hold throughout the year. From discovery meetings with prospects to initial plan delivery meetings with new clients to check-in meetings with existing clients (and the prep to get ready for them), an advisor's calendar can fill up quickly, leaving little time for other responsibilities.

In this episode, Rob Schultz discusses how he systematized his meeting process in the course of building his firm, allowing him to scale up to over 20 client meetings every week and still maintain his sanity and energy levels. He does this, in part, by setting the agenda for his weekly client meetings using a structured flow that always touches on the same key areas for every client. He also relies on his paraplanner to prepare a stack of client meetings so that he can complete a week's worth of meeting preparation in just a few hours every Monday morning. Rob also leverages the built-in audio transcription features in Microsoft Word to quickly wrap up his post-meeting notes at the end of each day.

In the end, while each advisor has their own preferences for how they structure their workweek, a systematized process for client meetings can streamline pre- and post-meeting tasks, freeing up time on the calendar for other high-value tasks (or just time to relax?)!

#FASuccess Ep 391: Improving Efficiency (In A Solo Practice) By Eliminating What Clients Don't Really Care About Anyway, With Christopher Jones – Running a solo practice can be a time-intensive endeavor for advisors, as they are responsible for managing every aspect of the firm – from holding prospect and client meetings to handling administrative and compliance issues. Which can quickly become overwhelming for advisors who take on all of these responsibilities themselves.

In this episode, Chris Jones discusses how he has built a highly efficient solo practice that allows him to work fewer than 25 hours per week to have more time for his family. He achieved this by focusing exclusively on the financial planning tasks that truly matter most to his clients, outsourcing or eliminating the rest.

In addition, Chris saves time during the planning process by working through clients' financial plans collaboratively during their annual meetings and sending them a final copy afterward instead of conducting time-intensive plan preparation in advance. He also cuts down on the time needed to manage his retired clients' cash requests by making a single, sizable annual distribution each January to cover their spending needs for the entire year, instead of processing monthly or ad hoc withdrawals. Chris further improved the efficiency of his practice by building a carefully curated tech stack, deliberately using the specialized features of a range of best-in-class AdvisorTech products rather than pursuing an all-in-one solution.

In sum, while solo firm owners are responsible for a wide range of tasks, they do not necessarily have to complete them by themselves or in a certain prescribed way. Which can allow advisors to experiment with different ways to save time, from focusing on the most important issues for their ideal target clients to outsourcing responsibilities that they don't enjoy and/or take up too much of their time!

#FASuccess Ep 400: Sizing Up Vs Scaling Up To Build An Enduring Advisory Business, With Mark Tibergien – While many (most?) advisory firms are looking to grow their roster of client households (and, in turn, their AUM and revenue), not all growth is created equal. Because client growth comes with costs (most prominently in the form of staff to serve them), firms that are able to grow efficiently are more likely to see this growth turn into greater profitability than those that aren't able to control costs during the growth process.

In this episode, industry veteran Mark Tibergien discusses the difference between simply growing in size versus truly gaining scale as an advisory firm (with scale occurring only when revenues are growing faster than expenses, not just growing in line with rising asset or client headcount growth). Amidst this backdrop, Mark believes advisory firms should aim for a 30%–35% operating margin, with a higher profit margin potentially indicating a lack of reinvestment in the business and a lower margin implying some problem around pricing, client or service mix, or team productivity.

Mark also discusses how he sees the differences among advisory practices (which revolve around the founder), businesses (which start to add employees and build processes and procedures for them to follow), and advisory enterprises (which have professional management, career paths, and organization-wide measures of accountability). He also considers the implications of each model – such as strategies for attracting new clients and the importance of succession planning – for advisory firm owners pursuing each style.

In the end, while 'growth for its own sake' can lead to larger AUM and revenue figures, firms that truly scale will tend to see the greatest profitability. Which can ultimately lead to a healthier firm today and a more attractive one when a founder eventually looks to sell their business (whether to the next generation within the firm or to an external buyer).

Kitces & Carl Ep 130: Helping Everyone You Can Vs Getting Paid What You're Really Worth – Few service industries have as much potential to impact lives as financial advice, and for many financial advicers, the opportunity to help clients achieve positive outcomes that can often compound for decades (and beyond) is what makes the profession so deeply satisfying. Nonetheless, tension can develop for advicers, as some households reaping the greatest benefit from their help might not always be the most profitable clients for the advicer, and in some cases, may not be profitable at all!

In this episode, Michael and Carl discuss why building a highly profitable business doesn't necessarily require an advisor to serve only high-net-worth clients and how those who succeed in doing so can still find ways to help underserved individuals in need of financial planning, even when those clients may not be profitable. For instance, the most recent Kitces Research on What Actually Contributes To Advisor Wellbeing found that 'struggling' advicers had clients with an average of $600,000–$700,000 in assets, while 'thriving' advicers had clients averaging $1,000,000 in assets. This suggests that modest increases in client affluence can lead to significant gains in advisor happiness.

The benefits of serving more affluent clients also resulted in additional benefits, including fewer hours worked, the ability to work with fewer clients, reduced overhead and staff needs, more autonomy and freedom, and even greater profitability. In other words, there appears to be a threshold where, once achieved, advicers can reclaim a non-trivial number of hours each week, which can be redirected toward other rewarding endeavors like offering pro bono financial planning services or creating broader content that addresses the widespread need for financial education.

Ultimately, the key point is that being a happy advicer who's paid well for doing good work doesn't necessarily mean sacrificing the opportunity to serve those who need real financial advice the most. By intentionally building a profitable client base, reasonably reducing overhead, and learning how to say "no" to prospects who aren't a good fit (and helping them find the help they need), advicers can increase their take-home pay, reduce the number of hours they work, and create the freedom and capacity to also serve those who are truly in need!

Kitces & Carl Ep 149: Do You Really Need A Business Partner… Or A Study Group? – For those launching an advisory firm, partnering with someone in the firm's early days can seem like an attractive option. A business partner offers more than just a way to share costs and risks; they can also serve as a sounding board and strategic collaborator across the highs and lows of launching a business. However, while this can be an appealing option, it's important to recognize that not all partnerships are created equal, and a business partner may not always be the best solution for challenges advisors are trying to solve.

In this episode, Michael and Carl emphasize the importance of aspiring firm owners considering the question, "What are you solving for?" For instance, if an advisor's main issue is managing high upfront operational costs, they may want to explore fractional solutions to lower the prices of issues. Or if their concern is the sense of loneliness and isolation that comes with 'hanging one's own shingle' and launching a solo firm, joining 'launch groups' through organizations like XYPN or even their broker/dealer can provide resources, solutions, and camaraderie.

Nevertheless, there are times when a business partner is essential to successfully launching a business, especially when both parties share the same vision and excitement for building the firm. When aligned, a partnership can be the foundation of a successful launch and ongoing growth.

Ultimately, the key point is that while there will be some issues that can be solved with a business partner, not all necessarily should be. Whether an advisor seeks a business partner or finds support through peer groups and fractional services, finding like-minded people who are "in it together" can make all the difference in managing the stress of launching and running a successful firm!