2020 Highlights – The Top 20 Nerd’s Eye View Blog Posts You Might Have Missed

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2020 Best-Of Highlights Categories: Tax & Retirement Planning | Estate Planning | Industry Trends | Practice Management | Sales & Marketing | Client Communication | General Planning | Financial Advisor Success and Kitces & Carl Podcasts

Tax & Retirement Planning

Understanding Proposed Changes Of The Biden Tax Plan – Changes in the Presidency, particularly when accompanied by a change in party leadership, are often accompanied by a new wave of tax legislation, as the new party in control sets new policy, from President Bush’s Economic Growth and Tax Relief Reconciliation Act of 2001 to President Obama’s American Recovery and Reinvestment Act of 2009 and President Trump’s Tax Cuts and Jobs Act of 2017. Accordingly, as President-Elect Biden prepares to take office, advisors have focused on the proposed Biden Tax Plan for indications of what may come in 2021 as the new administration considers new tax legislation.

One of the key features of Biden’s proposed tax plan is for ordinary income brackets to be adjusted for individuals with annual incomes over $400,000 (although whether this threshold applies to individuals or joint filers remains unclear), increasing the top tax bracket to the pre-TCJA rate of 39.6% for those above the threshold (while the income brackets for those with annual income levels under $400,000 remain unaffected), and introducing a flurry of end-of-year Roth conversion planning (to harvest income at current tax brackets before they potentially increase). Long-term capital gains and qualified dividend tax rates would increase to ordinary income tax rates for income over $1 million under the proposed Biden plan as well (with the 3.8% surtax on net investment income to remain in place), which has created additional interest in harvesting capital gains before year-end and may shift investment preferences in the future (increasing the appeal of everything from municipal bonds to investment-only variable annuities for tax deferral).

Biden’s plan also includes the elimination of the Qualified Business Income (QBI) tax deduction for pass-through business owners (e.g., partnerships, LLCs, S corporations, and sole proprietors) whose individual annual income is $400,000 or more, in effect, potentially increasing the tax bracket for high earners by 10% (from 29.6% for those eligible for the QBI deduction to the proposed highest rate of 39.6%). The plan would also cap the value of the rate at which itemized deductions can be taken to 28%, which affects those in the tax brackets above 28%, as their rate to determine itemized deductions would be reduced from their income tax bracket. And the proposal would eliminate 1031 tax-free exchanges of real estate for taxpayers with annual income over $400,000.

Another feature of Biden’s tax plan is a flat retirement contribution credit (in lieu of the current tax deduction for retirement contributions), which would be determined by a specific percentage (currently anticipated to be 26%) of the contribution amount to replace deductions of those retirement account contributions. This would, in effect, lower the tax burden for taxpayers in tax brackets under the proposed set rate (incentivizing taxpayers in lower tax brackets to contribute to tax-deferred retirement accounts), while increasing it for taxpayers in brackets over the proposed rate.

Enhancements to personal income tax credits made by Biden's proposal include a higher Child Tax Credit (increased from $2,000 for children under 17 to $3,600 for children under 6 and $3,000 for all other children under 17) and an increased Child and Dependent Care Credit (from $3,000 to $8,000 for one child, and from $6,000 to $16,000 for two or more). The First-time Homebuyer Credit would be reintroduced as a refundable and advanceable credit of up to $15,000, and a brand-new proposed Caregiver Credit would provide $5,000 for informal long-term caregivers.

Additionally, Biden’s tax plan proposes to eliminate the step-up in basis rules that currently apply to inherited assets (that are not considered Income In Respect of a Decedent), which would impact both higher- and lower-earners potentially facing a significant and problematic tax bill on inherited assets, and may herald a return of life insurance for estate planning purposes and/or more proactive structure sale and gifting strategies throughout the owner’s lifetime to mitigate future capital gains taxes for the beneficiary. A final key feature of the proposed tax plan would be a 50% reduction of the exclusion amount for estate and gift taxes, from $11.58 million to the pre-TCJA amount of $5.79 million, increasing the appeal of proactive gifting by ultra-HNW clients to utilize their available exemption before it potentially decreases, and likely renewing interest in other estate transfer strategies like Grantor Retained Annuity Trusts (GRATs), Charitable Lead Annuity Trusts (CLATs), and sales to Intentionally Defective Grantor Trusts (IDGTs) in the future.

Ultimately, it remains to be seen whether the Biden tax plan ultimately becomes law (or not), and which elements of the plan are actually included (or not). Nonetheless, proactive planning starts with a clear understanding of the proposal itself… and a consideration of which clients may want to take action, while there is still time to do so!

Navigating Income Harvesting Strategies: Harvesting (0%) Capital Gains Vs Partial Roth Conversions – The traditional approach to tax planning is fairly simple: defer, defer, defer. As to the extent that a tax obligation can’t be avoided altogether, it’s at least beneficial to take advantage of the time value of money and delay that tax liability to the future. Except the challenge is that there’s actually such thing as being “too good” at tax deferral, pushing so much income into the future that it drives the individual into higher tax rates and is actually taxed at higher rates… a risk that is only further amplified by the potential for the proposed Biden tax plan to increase the tax brackets themselves in 2021 and beyond. For which the solution is to “harvest” not the tax losses but the tax gains, capturing them at current tax rates and reducing the risk of being impacted by higher rates in the future.

However, because of the ordering rules between long-term capital gains and ordinary income, it’s important to coordinate harvesting with each, or risk that additional ordinary income (e.g., from Roth conversions) actually hits the “Capital Gains Bump Zone” which can cause the long-term capital gains rate to effectively double! Accordingly, financial advisors can design optimal income harvesting strategies for their clients by considering when it’s better to harvest ordinary income at its brackets, versus capital gains at those brackets, depending on the relative outlook for each in the future. For instance, those in the 0% ordinary income tax bracket may benefit more from harvesting additional ordinary income (versus capital gains) at 0%, while for clients in the 10% or 12% ordinary tax bracket (but still in the 0% capital gains tax bracket), it’s often better to harvest capital gains income (versus ordinary income) to reduce the impact of future capital gains income taxed at 15%+ capital gains rates.

On the other hand, it’s important to consider other mitigating factors that will impact a taxpayer’s overall tax liability as well, from the taxation of Social Security benefits (which phases in as income levels rise, such that harvesting income can actually trigger taxation of these benefits); Medicare Part B and Part D Premium Surcharges (which increase with higher income levels); the Net Investment Income Tax (NIIT); and the impact of state income taxes (especially for those who may relocate to a different state in the future).

Ultimately, though, the key point is simply that those who have lower tax rates today should be wary about simply celebrating their current low tax rates and deferring income at those low rates – because it can often cause higher rates in the future – and instead consider softening the impact of higher future tax rates by strategically harvesting ordinary and/or capital gain income today!

Estate Planning

The (Partial) Death Of The Stretch IRA: How The SECURE Act Impacts Inherited Retirement Accounts – Passed into law in December 2019, the “Setting Every Community Up For Retirement Enhancement (SECURE) Act”, introduced a plethora of substantial updates to longstanding retirement account rules. One of the most notable changes was the elimination (with some exceptions) of the ‘stretch’ provision for non-spouse beneficiaries of inherited retirement accounts. As prior to the SECURE Act, beneficiaries of inherited retirement accounts were able to ‘stretch’ out distributions based on their own entire life expectancy, but now most non-spouse beneficiaries will be required to deplete their accounts within ten years after the original owner’s death.

However, not all beneficiaries will be impacted by this new “10-Year Rule”. Instead, the SECURE Act identifies three distinct groups of beneficiaries: Non-Designated Beneficiaries (i.e., non-person entities such as trusts and charities), Eligible Designated Beneficiaries (i.e., individuals who are spouses of account holders, those who have a disability or chronic illness, those not more than 10 years younger than the decedent, minor children of decedents, or “See-Through” trusts), and Non-Eligible Designated Beneficiaries (i.e., any individual who qualifies as a Designated Beneficiary but is not on the list of Eligible Designated Beneficiary). This distinction matters because those who are part of the newly created Eligible Designated Beneficiaries group actually are permitted to continue to stretch over their life expectancy, and it is only the Non-Eligible Designated Beneficiaries that are now subject to the new 10-Year Rule… which, admittedly, can cover a wide range from trusts to adult children and more.

Fortunately, the 10-year rule does still facilitate at least some flexibility – as the rule simply requires that all funds be distributed by the end of the 10th year after the death of the original account owner, but the beneficiary has discretion over when to take the dollars out over that time window – though such a mandatory distribution window will generally make it difficult for Discretionary Trusts to be the beneficiary of a retirement account and obtain anything more than ‘just’ the 10-year window for Non-Eligible Designation Beneficiaries (and may be even more problematic in the case of so-called Conduit Trusts that automatically make distributions to beneficiaries and could trigger the sudden liquidation of both the IRA and trust at the end of the 10-year window).

Using A Family Dynasty 529 Plan For Multigenerational College Planning – From their very start decades ago, the Section 529 College Savings Plan has been a popular vehicle for advisors and their clients when it comes to saving for education goals, with both favorable tax treatment, much-higher contribution limits than Coverdell Education Savings Accounts, and favorable estate planning provisions in the form of 5-year averaging for lump-sum contributions.

The caveat, however, is that withdrawals from 529 college savings plans are only tax-free to the extent they are used for qualified higher education expenses… which for large balances, introduces the possibility that the account will grow so much, there will be “more than needed” for college itself, subjecting the excess to ordinary income taxes and even a potential 10% penalty for non-qualified withdrawals. However, the reality is that a 529 plan can have the beneficiary changed to another child in the family – generally without any income or estate tax consequences – allowing unused balances to effectively be ‘ported’ to another family member… and in the extreme, allowing individuals who have both the means and desire to ‘overfund’ one or more 529 plan accounts (either by making periodic contributions over many years or by a large lump sum contribution), effectively creating a “Dynasty 529 Plan”, which can be used to pay for qualified education expenses of not only their children and grandchildren (or any number of qualified members in their extended family), but potentially for multiple generations of family members to come!

Advisors, however, must use special care when implementing a Dynasty 529 strategy, as there are potential gift tax and Generation-Skipping Transfer Tax (GSTT) implications to navigate, contribution limits to consider when maximum account balances are reached, and different features across states (where some states consider changes in ownership a distributable event). Meanwhile, there’s also a risk that any number of future events may derail a carefully crafted Dynasty 529 plan, including potential changes in 529 plan transfer rules, the possibility that Congress could decide to make a college education available to everyone at no cost, and the chance that future account owners may decide to simply cash out the plan for their own use (which could be mitigated, however, by creating a trust, which could serve as the account owner).

Still, though, for affluent families, a Dynasty 529 plan can be an effective tool to capitalize on the significant and unique tax benefits and flexibility offered by 529 plans, making them an attractive option for providing legacy educational support for many generations to come.

Preserving Capital Losses At Death By Gifting Embedded Loss Assets To Avoid A Step-Down In Basis – Over the past couple of decades, Congress has passed several laws impacting the Federal estate tax exemption, resulting in a significant increase from $675,000 in 2001 to $11.58 million today. As a result, under the current rules, most taxpayers will not be subject to a Federal estate tax liability, and thus, the current focus of tax planning for one’s estate is not on reducing estate taxes at death, but the income tax consequences instead.

Accordingly, “cost basis management” has become a critical part of the estate planning process, both to maximize the step-up in basis at death… and to minimize the loss of any unrealized and/or carryforward capital losses that may otherwise be lost at death. As while appreciated assets receive a step-up in basis at death, those with embedded losses will receive a step-down at death (which for couples in community property states, can step down the basis of all of the property, not just the deceased spouse’s share!). However, by gifting assets prior to death, the original owner’s basis can be retained, and unrealized capital losses preserved (though when a non-spouse receives a gifted asset with unrealized capital losses, the so-called ‘double basis’ rules apply, which use the value of a gifted asset on the date of the gift to calculate the amount of any capital loss, but still use the donor’s basis at the time of the gift is used to calculate the amount of any future capital gains).

Ultimately, the key point is that gifting assets is a simple yet effective strategy to preserve the economic value of unrealized capital losses that may otherwise be lost at death, which in turn can be used to reduce exposure to future capital gains (or in the case of spouses, outright preserve capital losses to be harvested against other gains in the future).

Industry Trends

The 15 (Fiduciary) Duties To Clients That CFP Professionals Must Comply With – By definition, “advice” is a recommendation to someone about a prudent course of action to improve their situation or achieve their goals, which by its very nature is delivered by the advice-giver in the interests of the person receiving the advice. As a result, professionals from law to medicine to accounting to investment advisers have long imposed a “fiduciary” duty of professional advice-givers to provide advice in the best interests of the person receiving that advice. Since 2008, CFP professionals have similarly been required to provide fiduciary advice in the best interests of their clients… but only to the extent they were actually doing Financial Planning (or material elements of Financial Planning), as simply being a CFP professional did not necessarily trigger a fiduciary obligation (to the extent that the CFP certificant was implementing or selling a product without providing broader financial planning advice).

Under the CFP Board’s new Code of Ethics and Standards of Conduct that took effect in October of 2019 (with an enforcement date of June 30th of 2020), though, the CFP Board has for the first time imposed a “fiduciary at all times” obligation on CFP professionals – whether providing comprehensive Financial Planning, or non-Financial-Planning Financial Advice. Yet in practice, it’s not enough to just say that CFP professionals are fiduciaries; professional adherence requires setting forth clear Standards of Conduct about how, exactly, CFP professionals are expected to deliver their services in a fiduciary manner, so the CFP Board can determine when a CFP professional is not meeting their obligations and may need to be disciplined… or, at worst, have their CFP marks suspended or revoked.

To provide clear guidance, the CFP Board’s new Standards of Conduct delineate a series of 15 Duties To Clients that CFP professionals must adhere to, from the Fiduciary Duty to Clients itself, to an obligation for providing key information and relevant disclosures of Material Conflicts of Interest, confidentiality obligations, the duty to uphold core professional principles including Integrity, Competence, and Diligence, as well as entirely new Duties regarding the selection of external professionals (to which the CFP professional may refer clients) and even the selection of technology itself. In addition, the CFP Board’s new Standards also establish new guidance in previously controversial areas, particularly with respect to how CFP professionals disclose their compensation, and the use of compensation disclosures as a marketing term (e.g., the “Fee-Only” label)… not to induce CFP professionals towards any mode of compensation in particular, but simply to ensure that whatever compensation methodology the CFP professional chooses, that they are accurate in how they describe their prospective compensation to their Clients.

In the end, the 15 Duties Owed To Clients by CFP professionals are not meant to impose substantial new obligations on CFP professionals – and in reality, are commonly followed and generally recognized as best practices, anyway. Still, though, by enumerating the 15 Duties as part of the Standards of Conduct itself, the CFP Board both provides additional guidance to CFP professionals on what they are expected to do as a matter of not just “best” but standard practices… and also establishes the grounds by which CFP professionals may be disciplined for failing to meet the minimum standard of their professional duties! Which, notably, may even apply to CFP professionals who otherwise adhere to other regulators’ (sometimes lesser) standards!

The Smaller AND Bigger AND Better Trends In The Business Of Financial Advice: Why I Chose Buckingham – Over the past decade, the ongoing evolution of technology, from the rise of robo-advisor platforms to the broader reach of the internet and its ability for APIs to connect “everything”, has spawned changes to advisor business models, (proposed) major shifts in regulation, and an entire wave of systemic changes to the financial planning landscape. The end result of this overall industry evolution is a growing pressure on financial advisors to “step up” and add more value for clients, leading to the launch and growth of our own Nerd’s Eye View blog focused on Advancing Knowledge in Financial Planning, the creation of numerous “Kitces-related” businesses serving the advisor community, and earlier this year, the decision that after 17 years, I was leaving my now-prior advisory firm where I was a partner to go to Buckingham Wealth Partners, one of the few independent ‘mega-RIAs’ with nearly $50 billion of assets under management and advisement, that offers both wealth management services to consumers and a TAMP and other outsourced investment services for other RIAs. This, in turn, has raised several questions around why I chose to change firms at this juncture, particularly to a “mega-RIA”, and what my move says about where I see the next batch of opportunities for our industry.

Specifically, I believe there are three broad trends that will determine the next stages in the evolution of financial planning in the years ahead. First is that technology and so-called “Turnkey Advice And Planning Platforms” will allow “smaller” advisors to better compete with “large” firms by not only giving them the tools and capacity to provide the same level of service to their clients, but by facilitating new and more focused business models that larger firms can’t easily replicate (into increasingly focused niches and specializations), thus making financial advice available to more people than ever before. At the same time, the emergence of several firms with more than $10B under management suggests that the biggest firms will continue to get even bigger, through both organic growth and inorganic acquisitions, and reach national-scale, attracting a disproportionately large percentage of high-net-worth households, and shifting to a more ‘traditional’ business model where their advisors are employees (versus the legacy independent advisor percentage-of-revenue eat-what-you-kill model). Finally, as the industry moves farther away from being product-focused to advice-centric, I anticipate that advisor education, training, and experience will play an increasingly important role, as clients will demand increasingly complex and sophisticated advice, which advisors will have to be able to deliver if they want to differentiate themselves and defend their fees from amid a sea of advisors who all have the same value propositions.

Ultimately, the key point is that, as financial advice becomes more accessible to a wider audience, there is ample room for firms of all sizes, business models, and fee structures, because each can serve different segments of clients and be a good fit for different sorts of advisors, who each have their own personal/career goals and preferences. At the same time, technology will remain a constant influence, and will allow not only smaller advisors to thrive, but for “mega-RIAs” to achieve the sort of scale that was merely a pipedream just a decade ago… while at the same time pushing advisors to invest in their own expertise.

50 Portfolio Management Software Solutions For Advisors Can’t All Survive – The total addressable marketplace for financial advisor technology solutions is limited, with a ‘mere’ few hundred thousand financial advisors (as contrasted with millions upon millions of potential users with direct-to-consumer software). And while at advisor (and especially enterprise) prices, that is still a healthy marketplace to build a software company, it is further limited by the fact that not all advisory firms do the same thing, such that the addressable market for any particular software solution may be even more limited. Which in turn is becoming even more challenged by the ongoing trend towards industry consolidation, which is splitting the market between a few behemoth wealth management firms (meaning larger but fewer enterprise opportunities), and a flood of small firms (who aren’t necessarily in the market for sophisticated, complex FinTech offerings, and can be expensive to reach from a software distribution perspective).

Yet despite all these limitations in market opportunity, certain categories in the AdvisorTech landscape – in particular, portfolio management systems – continue to grow each year, as more and more competing vendors vie to provide complete end-to-end solutions for (a not necessarily growing number of) advisory firms. And while this trend is certainly a natural stage in any maturing market, the presence of so many portfolio management systems that aim to support almost every step of the investment management process is resulting in an overwhelming array of choices for advisors… few of which are able to really differentiate themselves (and instead attempt to be everything to everyone, resulting in increasingly bloated and often cumbersome user experiences). In turn, this is leading some providers to attempt to refine comprehensive all-in-one solutions, while others consciously pursue a focused “best-of-breed” integration-based approach instead.

Still, though, the problem remains that more and more competition amongst both best-of-breed and all-in-one portfolio management solutions has left us with a landscape that is crowded with a whopping 50 portfolio management systems for advisory firms to choose from. And with a limited number of opportunities for vendors to target (especially as various custodians develop their own in-house portfolio solutions, such as Schwab’s Portfolio Connect and Fidelity’s WealthScape), conditions are ripe for smaller vendors to either team up, look for potential buyers… or risk getting squeezed out of business. Which, at the end of the day, could result in a smaller playing field of portfolio management systems for advisors, and a higher hurdle for any new offerings that will have an even harder time trying to differentiate themselves. Still, though, in the end, advisor choice is good… but do we really need 50 different portfolio management systems today?

How ‘Free’ RIA Custodians Make It Difficult To Determine Which Is Actually The Most Expensive – In the early days of the Registered Investment Adviser (RIA), financial advisors who didn’t affiliate with a broker-dealer had no way to actually manage investment accounts on behalf of their clients… short of having clients open “retail” investment accounts with direct-to-consumer “retail” brokerage platforms and grant their advisor a limited power of attorney to make a phone call (pre-internet!) to place trades on their behalf, which was a win for the client (who had their portfolio managed), the advisor (who had a platform to manage their client portfolios), and the brokerage firm itself (that generated trading commissions every time an advisor traded on behalf of their clients). In the decades since, the nature of RIA platforms has evolved tremendously, from advisors phoning in trades to an entire technology ecosystem of RIA custodians providing trading, billing, and supporting technology for RIAs to use… but still all predicated on the original model where advisors get access to the RIA custodial platform “for free” because the brokerage-firm-as-RIA-custodian profits from advisors at the expense of their clients.

“Pay-to-play shelf-space agreements” are one way that RIA custodians profit from advisors’ clients, by offering No-Transaction-Fee (NTF) funds that effectively embed the RIA custodian’s trading costs within the mutual funds themselves (with little way for advisors or their clients to identify what the exact breakdown of what those 12b-1 and sub-TA costs may be). Another major indirect cost of RIA custodial platforms is found in interest earned (or rather, not earned) on client cash holdings, which is often by default “swept” into a proprietary mutual fund of the RIA custodian, or even a bank deposit account of a subsidiary bank owned by the RIA custodian, yielding net interest income – the difference between what the cash position actually earns and the lesser amount that is paid to the client – that is collected by the RIA custodian.

In recent years, another growing source of revenue for RIA custodians to generate from advisors and their clients is Payments For Order Flow (PFOFs), which custodians receive for selling the placement of client trade orders to high-frequency trading firms. And while directed trading to high-frequency trading firms can potentially improve trading efficiency (even with the drag of PFOF costs), RIAs generally have very limited means to assess the actual quality of execution (which is actually becoming more difficult because rising PFOF and a rising volume of trades occurring off the traditional exchanges makes it systemically harder to benchmark good trade execution in the first place!).

Of course, the reality is that RIA custodians are businesses that can and should be able to generate revenue and profit from the services they provide. Still, though, the current model of RIA custodians generating such ‘indirect’ revenue from the clients of advisors, coupled with a dearth of any requirements to disclose financial statements and pricing (at least for non-publically-traded RIA custodians) make it difficult to research what RIA custodians are truly charging and whether it is a fair and competitive price to the available alternatives. Which, ironically, raises the question of whether advisors may soon even seek out RIA custodians that require RIAs to openly pay (fully disclosed) trading commissions and platform fees, if only to ensure full disclosure and a clear understanding of all expenses for the advisory firm and its clients (and an opportunity to price-shop for other RIA custodians that may offer advisors and their clients a better deal)?

Practice Management

Kitces Research On Advantages Of Niching In Time Use, Planning Approach, Pricing, and Productivity – In the early days of the financial advice industry, the nature of client relationships was primarily transactional, and any “financial planning” that happened was done purely from the perspective of determining a client’s needs so that the advisor could get paid for implementing a product with them to meet that need. That transactional relationship meant that advisors could work with anyone they meet – or at least anyone who had an interest and the financial wherewithal to buy their products – and since there wasn’t any value to meet with the client again until there was another opportunity to implement another product, an advisor would need potentially several hundred clients to be able to call back upon for new/repeat business opportunities over time in order to make a living.

However, as the advice industry has increasingly moved towards a recurring-revenue model (where advisors provide ongoing advice and generate ongoing fees), the number of clients that any advisor needs to serve has decreased dramatically, and the biggest limiter to an advisor’s practice is the number of ongoing clients they can support with a limited amount of time in the week, month, and year. Which means that it’s become increasingly important for advisors to focus on the operational efficiency of their financial planning practices.

In recent years, a growing number of financial advisors have begun to focus on niches and specializations as a way to differentiate themselves in an increasingly crowded advice marketplace. But those who have focused on a particular target clientele have also begun to note that it’s possible to run a more efficient (and more profitable) business by serving a client base that shares similar characteristics, as it means that an advisor can develop deep and repeatable expertise to increase their capacity to serve more clients (and reduce the time it takes to provide financial planning to each).

In fact, data from both the 2019 Kitces Research Study on Advisor Marketing and the 2020 Financial Planning Process Kitces Research Study shows that there is indeed material efficiency value in focusing on a niche clientele to serve, including that top advisors with a niche (versus top advisors without a niche) spend 150+ more hours every year on high-value, client-facing activities (or 28% more time with clients and prospects, while spending 13% less time doing middle-office and back-office tasks), are able to deliver a more focused and customized financial planning process (as not every possible area of financial planning is applicable to every particular niche), serve an average of 14% more clients (since advisors with niches can more easily scale their practices), have clients with an average of both 25% more investable assets and higher net worth, are able to set their AUM fees 9% higher (and generate 20% higher standalone planning fees), and earn an average of $660,000 (versus $395,000 for non-niche advisors at the same income percentile).

Ultimately, the key point is that there are indeed clear and measurable advantages (in both the short- and long-term) when opting to serve a niche clientele… and any business decision that allows a professional to serve their clients better, and to see better business results is, at the end of the day, a positive for advisors and their clients!

Implementing Client Meeting Surges To Boost Advisor Productivity And Systematize Client Value – The typical financial advisor meets with clients year-round, both because clients vary as to when they want and feel the need to see their advisor, and simply to ‘even out’ the workload involved in preparing materials for and actually spending time seeing clients during those meetings. The end result is that, according to the latest Kitces Research study, the average advisor spends nearly 27 hours per week on client service, which includes meeting preparation, planning, and the meeting itself. However, adopting an alternative client meeting strategy – the ‘surge’ method – can dramatically boost advisor productivity, making it more feasible to systematize the client review meeting in a manner that delivers the same level of quality service (if not better) to their clients, while freeing up as many as several months of the year for advisors to focus on other aspects of their businesses (or personal lives!)!

At its core, the client meeting surge approach involves developing a highly systematized method to conduct client meetings by separating the ‘factory work’ (e.g., the rote tasks and routines, such as preparing forms, confirming appointments, updating client information, etc.) from the ‘focus work’ (e.g., the intellectual work, such as detailed financial planning analyses that rely on the advisor’s knowledge and understanding of their client’s situation). The meeting process itself is organized into four steps: 1) scheduling meetings (where a typical surge schedule would accommodate 3 client meetings per day, 3 days a week – generally Tuesday through Thursday, typically scheduled over 4- to 8-week periods, and only during set months of the year); 2) preparing the client deliverables, giving the advisor an opportunity to review client files in advance of the meeting (typically, Mondays are set aside for advisors to review client meeting files); 3) the actual meetings themselves; and 4) following up with the clients, providing them meeting summaries and (automated) personal check-ins at regular intervals after the meeting such as every 30-, 60-, and/or 90-days afterward (usually tasks that are completed on Fridays during surge weeks).

While the main concern of the surge approach is that it might seem to compromise the advisor’s ability to provide specialized, tailored attention to each client, in reality, the process of systematizing the ‘factory work’ actually enhances the meeting experience by creating more time for the advisor’s ‘focus work’ that needs thoughtful discussion and analysis, empowering the advisor to delve more deeply into these topics with the client during their meeting. Not only does this afford the advisor the opportunity to closely examine complex issues facing their clients, but it also helps them more easily identify other potential problems that might go unnoticed without the ability for a deeper analysis, and at the same time, even strengthens the relationship with the client.

Ultimately, the key point is that the meeting surge process can offer financial advisors more flexibility to balance their client meetings with other aspects of their businesses by systematizing and streamlining the client meeting process, and while the meeting surge process may involve a dramatic mindset shift for advisors in considering how business is actually done in their firms, is can free up the remaining off-meeting-surge months of the year for the advisor to consider other important issues, like how to grow their business and enhance their service offering even more!

Client Note-Taking: Frameworks And Tools For Advisors To Improve Client Conversations – Financial advisors don’t always take their best notes when meeting with clients, as maintaining the flow of a good meeting and the rapport established through personal conversation is difficult when the advisor interrupts the rhythm of the dialogue by pausing to jot down some notes! After the meeting, they may spend more time to reflect and expand their notes into a comprehensive account of the discussion… with the caveat that the longer they wait to complete their notes, the more they will inevitably forget (which according to research, can be as much as 50% after just a day!). This is problematic because not only are meeting notes important reminders for both advisors and clients of the conversations and strategies discussed, but also constitute a record of action items that need follow-up attention from the advisor or their team, and of course, become essential should the advisor be accused of wrongdoing or brought to suit (where contemporaneous notes of the conversation can be essential for the advisor to defend themselves).

But the reality is that there is also ample research on the tools and techniques of good note-taking! The best method for an advisor to take effective notes is highly personal and will depend on the nature of the meeting, recognizing that handwritten notes tend to themselves be more memorable and easier to recall, while typing tends to be less thoughtful (as much of the information is simply transcribed verbatim) but may sometimes still make more sense just to ensure the information is captured at all (not to mention being more conducive for advisors to enter such notes, details, and follow-up action items directly into an advisor CRM system). Regardless of the medium, there are several traditional frameworks for organized note-taking, including the “Cornell Method” (which divides the page into functional areas for notes during and after a meeting, with space to create an overall summary), and the “Charting Method” (which organizes main points in a columnar format, useful for discussions bouncing back and forth between a few main topics), or using “Guided Notes” as customized templates useful for conducting meetings in a consistent, organized fashion.

Tech tools are also available to help make note-taking easier and more efficient, from Redtail’s note templates (customized for individual clients with prompts to advisors with reminders), to MobileAssistant and Copytalk (apps that transcribe recorded advisor notes), and financial planning checklists and flowcharts from fpPathfinder with pre-populated questions to be used as a discussion guide with clients.

Ultimately, the key point is that, even though it may be difficult for advisors to take detailed notes during meetings, they should still make time to create complete and accurate notes afterward. But there are many templates and resources available for advisors to support the process (and whatever style of note-taking works best for them!).

Equipment To Create The Ideal Home Videoconferencing Setup: What Financial Advisors Should Use – The outbreak of the coronavirus pandemic suddenly forced financial advisors who had long met with clients in-person in their offices to instead begin meeting with clients virtually, at least until it was once again safe for offices to re-open. However, the success of so many advisory firms in being able to maintain client relationships virtually has raised new questions of whether or how often client meetings should continue to be virtual, even when it is possible to meet again in person. Which in turn raises the question of what equipment advisors may need to purchase and put in place to manage client meetings virtually in the long run. As while the reality is that videoconferencing is quite feasible with the available equipment already installed in most modern computer systems, a professional virtual office setup may require some upgrades… and most advisors aren’t necessarily familiar with what the “best” videoconferencing equipment is for conducting professional-looking virtual client meetings!

In this guest post, Bill Winterberg – financial technology consultant and founder of the tech blog FPPad.com – provides a practical overview of some of the technology choices financial advisors need to consider to up their videoconferencing game. Tips include the best cameras to use (while most laptop computers have built-in webcams that will prove sufficient for videoconferencing needs, financial advisors can upgrade their equipment by investing in an external USB webcam, such as the Logitech C920 or C922, which allow for more flexible positioning on top of their computer displays or mounted on an external tripod for even more flexibility), higher-quality microphones (e.g., headsets, such as the inexpensive Logitech H390, or the more sophisticated HyperX Cloud II, or Plantronics Voyager Focus UC) for enhanced audio quality, and better lighting equipment (such as the Fotodiox Pro Flapjack or the Elgato Key lights), as well as guidelines for how advisors can make themselves look their best on-camera and to create a camera-ready workspace (or if the area is in a tight space at home or perhaps in a high-traffic area shared with family members, using a room divider or green screen like the Fotodiox Collapsible Portable Backdrop or the Elgato Collapsible Green Screen).

The bottom is that by setting up some simple, affordable, and easy-to-acquire equipment, advisors can use videoconferencing to maintain their connection with clients in a personal manner, all while continuing to work from home as long as they wish to do so!

Sales & Marketing

The Most Efficient Financial Advisor Marketing Strategies And The True Cost To Acquire A Client – For more than 20 years, industry benchmarking studies have helped financial advisors understand how to manage the profitability of their businesses, and ensure that the costs to service clients are in line with the fees being charged to clients. However, remarkably little research has been done into the costs that must be incurred to actually obtain those clients in the first place and the cost-effectiveness of various client acquisition strategies that financial advisors use.

And it turns out those client acquisition costs are substantial, with our recently released Kitces Research study showing the average total cost for a financial advisor to acquire a new client is $3,119 per client. Notably, though, a significant portion of that cost is the ‘time cost’ of the financial advisor themselves (an average of $2,600 worth of time spent, or 83% of the total cost of client acquisition), while only $519 is typically spent on hard-dollar marketing costs themselves. Which suggests that while early on it may be cost-effective for advisory firms often to substitute advisor time for firm dollars when it comes to marketing efforts (especially for those who don’t have a lot of money to invest into growing their business in those initial years), that advisory firms may be overly reliant on an advisor’s (less-and-less-cost-effective) time to keep growing the business (rather than allocating marketing dollars to grow the business in a more scalable way).

To maximize marketing spending – and minimize Client Acquisition Costs (CACs) – our Kitces Research Report identified the most cost-effective (measured by the actual CAC) and cost-efficient (measured by the revenue generated from the client relative to CAC) marketing strategies in use by the financial advisors surveyed. Interestingly, the most cost-effective strategies differed for firms with the highest marketing efficiency (books, direct mail, paid web listings, marketing lists, and SEO) versus the most efficient strategies for firms not as ‘marketing-inclined’ as others (paid advertising, paid solicitors, seminars, and general networking). Examining marketing strategy efficiency relative to advisor adoption rates also reveals that some of the most commonly used strategies are actually among the least efficient (e.g., social media, blogging, and client appreciation events), whereas some of the lesser-used are still very efficient (e.g., marketing lists, radio, solicitors, online ads, and paid websites). This suggests an inherent inefficiency when it comes to marketing strategies chosen by financial advisors, which appears to be driven by a strong advisor preference for strategies that rely on the advisor’s time (versus hard dollars invested in the strategy), and an overweighting on strategies that produce a high quality of leads over those that produce a scalable quantity of leads (that may require more work to separate the wheat from the chaff).

On the other hand, the significant upfront cost to acquire a client is especially salient for financial advisors with recurring revenue models, as the cost to acquire a client may often be equal to or more than the entire revenue generated by the client in the first year – and the equivalent of several years’ worth of profits – which results in a “J-Curve” of client profitability (where aggregate profitability of a new client is negative in the early years and only turns positive over time). Which is important, as overzealous marketing efforts can cause a steep negative J-Curve dip, which in turn can cause the firm to overextend its growth capacity and ‘grow broke’ even if otherwise on a long-term path to profitability.

Though on the other hand, the long-term upward slope of the J-curve of advisor profitability, when coupled with firms that often have 20-30+ year-average client retention (at 95% to 97% annual retention rates), suggests that most advisory firms may be grossly underspending on marketing relative to the astonishing lifetime client value of an individual new client.

The One Meeting Close: Reducing Business Development Costs By Restructuring The Advisory Firm’s Sales Process – For most financial advisory firms that seek to grow, it takes a significant commitment of time to market to, attract, and ultimately close prospective new clients. But as advisory firms grow, the cost of the time it takes to attract clients through marketing efforts and close them through sales efforts becomes commensurately more expensive as the business owner’s own time becomes more valuable. Which can be problematic for firms that want to grow, as their sales and marketing becomes more costly and inherently less scalable the larger the business gets… unless the firm updates its marketing and sales methods to match the firm’s (newfound) size and resources. And while many firms focus primarily on the Marketing or the Client Service process to address growth problems, the reality is that, more often than not, problems with growth (and time-cost-consuming nature) reside mainly in the Sales process itself – the stage in client acquisition that begins when a prospect schedules a first appointment, and ends with a signed contract.

For most advisory firms, there are generally three methods of engagement an advisor can use in the Sales process. The best method for any firm to use will often depend on the approximate revenue of the firm.

The “Do” Method involves actually doing something for the prospective client to show them what they might expect to receive from the firm and is most valuable for newer firms (generally those with less than $750,000 in annual revenues) who have not yet established a brand identity, as clients seeking these firms are looking for value and are most interested in what the firm has to offer them directly.

The “Show” Method is less labor intensive, and involves showing samples of what the firm has to offer to the client (e.g., a sample financial plan or investment policy statement); in other words, these firms are typically well-established and can rely on their brand value with compelling stories, supported by “showing” what they offer. While this is more efficient than the “Do” Method, it does still require time to prepare samples to show a target clientele, and is often more appropriate for firms with annual revenues between $750,000 and $3 million.

The “Tell” Method is the most time-efficient and relies on an advisor’s own confidence in the firm to tell the client specifically how they will address the client’s needs. There is no “free work” done or samples offered because an advisor in a firm with more than $3M in annual revenue can generally rely on their firm’s brand value and the story behind the firm alone to establish trust with a new client and simply “Tell” a client why they should be engaged, ideally (and cost-effectively) ‘closing’ the deal after just one meeting! Which is important, because considering the high value of an advisor’s time at this level, (still) using the “Do” or “Tell” methods can be exponentially more expensive (than it may have been when the firm had less revenue and the advisor’s cost of time was less).

Ultimately, though, the key point is simply that growth problems can most effectively be addressed by adjusting how the Sales process is carried out, which can and should evolve as the revenue, size, and brand credibility of the firm grows.

Client Communication

Growing Your Question Game: 21 Questions To Ask Clients And Prospects And How To Structure Them For Better Client Engagement – The first responsibility of the financial planning process under the CFP Board’s Standards of Conduct is to “understand the client’s personal and financial circumstances,” but it is crucial for advisors to establish a solid rapport based on trust to facilitate open lines of communication in the first place. After all, identifying the issues that involve a client’s personal circumstances, along with the details of their financial goals and dreams, requires the client to have a high level of trust in their advisor to disclose their most intimate financial details and be able to comfortably talk about and explore their hopes, dreams, goals, and wishes. As a result, knowing how to ask the “right” questions that elicit trust and create rapport can be vital for financial advisors to gather the information they need.

In practice, there are several types of questions that advisors can strategically use to obtain information and at the same time strengthen client relationships. One type of question that encourages thoughtful reflection is the Swing question, which poses situations with hypothetical phrases beginning with words such as “will”, “can”, “would”, or “could”. These are good question types to gently probe points of resistance (e.g., instead of asking “Why haven’t you called your estate planning attorney yet?”, ask “Can you tell me how it’s going with your estate planning attorney?”) or explore ideas that may be new to the client (e.g., “Could you explain your education funding ideas for your grandchildren?”), particularly with clients with whom the advisor already has an established relationship.

Implied questions are another type of question and are generally statements structured as questions, beginning with phrases such as “I wonder…” or “You must be…”, and are a useful way to reiterate an important idea that the client has expressed (and show the advisor’s genuine interest in the topic) or delve deeper with the client around personal situations that can impact how a financial plan should be tailored (e.g., “I wonder how you see your new employment opportunities affecting your retirement goals?”).

Projective questions are open-ended questions that can be used to help clients visualize scenarios that the advisor may want the client to consider. They generally start with phrases like “What if…” or “What would…”, and can help clients envision and understand new possibilities that may make sense for their financial plans.

Scaling questions are another type of question and can be used to assess relative levels of a client’s interests and concerns, typically structured as “On a scale of x to y, where are you on that scale?” For instance, an advisor can ask their client something like, “I know you’ve expressed concerns about the recent market activity; on a scale of 1 to 10, where 1 is the calmest and 10 is the most anxious, where are you on that scale?” Both projective and scaling questions are good ways to solicit information that the advisor may be specifically interested in, and can be used with any client, regardless of whether the relationship is well-established or still relatively new.

For any questions that the advisor chooses to use, it is important to be mindful of when to ask them, and when to give the client space to reflect on their answer and elaborate with details. Asking questions too rapidly without room for reflection will generally be very stressful and overwhelming for the client… feeling less like an advisor-client relationship and more like an interrogation! However, by pacing a series of questions to allow the client to digest what is being asked, and to contemplate their answer, the advisor can gather valuable information not just for financial planning purposes, but also for better understanding the client on a personal level and deepening the relationship.

Ultimately, the key point is that by choosing the right questions to ask, and pacing the questions to allow for reflection and thoughtful exploration, advisors can learn a lot about their clients to help them develop effective financial planning strategies and, in the process, enjoy deepening their relationships as well!

What Clients (Actually) Value Most In A Financial Advisor – For many financial advisors, ‘proving’ their worth to prospects prior to being engaged by them as clients (e.g., by delving deep into the details of the prospect’s situation, and then coming up with potential strategies of how the advisor believes they can help the prospective client to ‘fix’ their financial life, and show the advisor’s value in the process) is an irresistible means of marketing themselves to cultivate new client relationships. However, the reality is that financial advisors don’t always prioritize the same issues that are actually most important to prospective clients, and can often invest time and energy analyzing details that do little to actually bring in new clients. This isn’t to say that the important issues viewed by the advisor should not be addressed; rather, the point is to demonstrate upfront value to a prospect by emphasizing what’s most important to them (i.e., reaching their goals), and then servicing them once they become clients to address all of the other points the advisor knows are also important for the client’s holistic plan to be successful.

But a recent research study conducted by Morningstar suggests that in practice, there often is a mismatch between what advisors think their prospective clients value, and what they actually do value when considering a new advisor. Perhaps not surprisingly, the research did find that clients value an advisor who helps them reach their financial goals above anything else (though the focus was actually on the goals themselves, not the advisor’s ability to understand their unique needs, per se, which may simply be assumed by clients to be what any/every advisor would do!). A financial advisor’s skills and knowledge are what clients identified as the second most valued aspect of the relationship with their advisor, which is an important point for advisors to consider everything from whether to get their CFP certification to how they set up their website and social media profiles (and considering whether to engage in media/PR efforts through the Financial Planning Association or services like Help A Reporter Out [HARO]) because many clients will use these resources to identify if the advisor has the qualifications they seek before even reaching out to them in the first place.

Surprisingly, though, the research also shows that clients care a lot more about investment returns than advisors think (or wish?) they do; accordingly, financial advisors should be cautious not to gloss too quickly over investment results, as while clients do want to achieve their goals first and foremost, they still look to evaluate whether the advisor managing their portfolio is adding any value beyond what the markets themselves may have already provided (which in turn means it’s important for advisors to their clients about rational benchmarking decisions).

Ultimately, the key point is that advisors can strengthen their client relationships (and improve their prospect marketing efficiency) by identifying and understanding what their clients value most from them… which starts with client goals, then shifts to demonstrating the advisor’s expertise, and in the end, still culminates with the advisor being able to show that they can add value above and beyond what the markets may already provide.

How Virtual Financial Planning Meetings Can Actually Enhance Client Intimacy (And How To Make It Happen) – In recent years, technological advances in remote communication have allowed all sorts of professionals to expand beyond having clients just in the towns and cities where they live and meeting those clients in just one location. Still, financial advisors who adopted a fully virtual “location-independent” practice were in the minority… until this past March, when suddenly, those who were fortunate enough to have jobs that lent themselves to remote work, found themselves having to navigate the world of virtual work literally overnight, including financial advisors. The transition wasn’t always smooth, and many advisors still lament what’s been lost by not being able to meet with clients in person.

But the good news is that it turns out that there are some rather favorable aspects to meeting clients virtually, and engaging with professionals in a virtual environment is something that psychologists have been studying in their domain for many years now. In fact, a recent literature review in the Journal of Financial Planning suggests that virtual financial planning may be just as good (or perhaps even better) as advisors address their clients’ emotional concerns! Specifically, the research shows that virtual client meetings create a lower barrier to entry for otherwise-nervous clients who want to meet and provide more flexibility in how and when meetings happen, as they offer increased logistical convenience and reduce any stress around actually going to the meeting itself. And as it turns out, having the option to meet from a more comfortable and familiar (i.e., home) location may even have a therapeutic benefit in and of itself! Meanwhile, that same flexibility increases the advisor’s availability, which can be particularly valuable in times of need. Beyond that, virtual financial planning can potentially help clients adhere to their plans as well, as, in a more ‘normal’ environment, where in-person meetings typically take an hour or so and happen only once or twice a year, it is very easy for tasks to fall through the proverbial cracks; however, shorter and more frequent virtual meetings can help both clients and advisors focus on a few of the most important tasks… and the supporting follow-through necessary to ensure they actually get done and reducing the risk that meetings are canceled or put off.

That’s not to say that virtual meetings aren’t without their challenges, though; at this point, there’s no question that “Zoom Fatigue” is a very real thing, as our brains simply aren’t wired to deal effectively in a (prolonged) virtual environment without our normal ability to read body language and receive subtle (but extremely important) nonverbal cues. To combat “Zoom Fatigue” and stay focused on the task at hand, advisors can try having only the video conferencing system open on their computer, shutting off notifications from their phones and other communication applications, avoid using a virtual background, keeping microphones and cameras ‘on’, and using all the reduced distractions to focus themselves on being more active listeners.

Ultimately, the key point is that, although financial advisors have had to manage a plethora of changes in a post-pandemic world, the good news is that there are several benefits that clients (and advisors) can enjoy as a result, including offering lower barriers to entry and greater flexibility and convenience, as well as an increased likelihood that clients will adhere to their advisor’s recommendations. And while there are various challenges inherent in remote settings, there are a few easy-to-implement strategies that advisors can employ to not only harness the utility of virtual meetings, but in many cases, provide even better outcomes for clients!

(Re-)Structuring Client Review Meetings In Order To Focus On What Really Matters To Clients – In the early days of financial advice, an advisor’s primary (and key) value proposition was giving clients access to capital markets via various investment products and vehicles (e.g., stocks, bonds, mutual funds, etc.) that consumers simply couldn’t buy directly on their own; as a result, the nature of the advisor/client relationship was such that they would ever only really need to interact when some sort of transaction needed to occur. However, as the internet made various investment products increasingly accessible to consumers directly – through online brokerage accounts – many advisors’ primary value-proposition became managing a more holistic diversified portfolio… necessitating regular (often quarterly) meetings to discuss the performance results of that portfolio.

Yet as the financial advisor value proposition begins to shift once again, and the profession further broadens its scope to include all the other facets of a person’s whole financial picture, many advisor/client review meetings still revolve largely or entirely around investment performance reviews. Which (especially for advisors who are transitioning clients into ongoing planning relationships) raises the question: how exactly does the advisor change the conversation in review meetings with their clients to be less investment-centric (when it may be all their clients have ever known!)?

As a starting point for advisors who want to change the nature of their annual review meetings to go beyond ‘just’ the portfolio, advisors can think of the periodic review as a sort of “State Of The Plan” meeting, which (barring any unforeseen events in their lives) typically is to help the client know that they’re making progress towards their goals. Accordingly, on a broad level, talking points can include a review of the client’s Statement Of Financial Purpose (which could include things spending time with family, serving in their community, or traveling, to name just a few), Goals (which flow out of the Statement Of Financial Purpose), and then their progress towards those goals and if the use of their capital still aligns with where they are headed (which is where the real meat of the conversation resides).

Meanwhile, a strategy for structuring these meetings might include actually crafting a physical agenda which should cover a basic check-in to make sure the proverbial plane is still flying in the right direction, any news and updates (either within the advisors firm or out in the world that might have a bearing on the discussion), some sort of planning item (which, depending on the time of year, might revolve around taxes or estate planning), and then (and only then) a portfolio review. Ideally, the agenda should be delivered a few days in advance of the meeting itself, which will not only help build trust (first by telling the clients what will be discussed and setting expectations, and then by adhering to that agenda) but also gives them an opportunity to add anything that may have come up that the advisor isn’t aware of yet (further facilitating more non-investment-centric client conversations).

Ultimately, clients really just want to learn three things when they meet with their advisor: are they okay, are they making progress, and are getting their money’s worth from the advisor relationship? And by using a consistent structure and cadence, with a standardized meeting agenda, not only can an advisor make those periodic review meetings more valuable to their clients beyond a discussion around portfolio performance (which can be sent separately anyway), but it also provides a framework that the advisor can use to mention all the great things they’re doing behind the scenes to continue to earn their clients’ business as well!

General Planning

Self-Care And Self-Compassion In Times Of Financial Stress And Anxiety – When markets become volatile, as they did earlier in 2020, advisors are called upon to help their clients stay the course, remain invested, and avoid panicking… and bear the brunt of clients who may vent all their market frustrations and anxiety at their advisor. In other words, while clients may experience stress from painful events they experience directly (i.e., “Direct” trauma-related stress), advisors are more prone to “Indirect” trauma-related stress when dealing with so many of the same client fears and concerns (not to mention the direct trauma-related stress of what the market decline may be doing to the advisor’s own business).

After all, when advisors take on one fearful client conversation after another, it’s often difficult not to start internalizing their clients’ concerns, whether in the form of “vicarious traumatization” (when the advisor begins to identify with the client’s concerns personally as if those concerns were actually their own) or through “compassion fatigue” (when the advisor begins to personally experience the emotional pain and suffering that they perceive the client is actually experiencing). And unless the stress is somehow dealt with, a range of adverse symptoms can result – from physical changes to emotional, behavioral, and relationship changes. On top of being harmful to the advisor themselves, this stress can also have an adverse effect on the client relationship, because if left untreated, prolonged stress can result in an individual isolating themselves to avoid relationships (and the stress they’re inducing). Which in turn can halt the communication process between the advisor and client, ultimately leading to the client straying from their financial plan and even leaving the advisor altogether.

An effective remedy to cope with traumatic stressors is to practice self-care through self-compassion, which is a person’s ability to comfort and soothe themselves. Some simple suggestions to practice self-care include protecting personal time and setting hard boundaries on when to start and stop work, to communicate those time boundaries to others, and to create short ‘white space’ breaks throughout the day to mentally recharge.  Additionally, meeting with clients outside the office (when feasible) can create a change of scenery and avoid an environment (e.g., the advisor’s office) that might trigger a stressful response, reducing (or stopping) the amount of news watched or listened to, and working collaboratively with a partner or in teams to share the load of client meetings that may be potentially emotionally charged.

Ultimately, the key point is that for financial advisors whose clients are currently experiencing high levels of fear and anxiety due to the current market environment, the stress of dealing with those traumatized clients can elicit severe trauma-related stress for advisors, and the symptoms of that stress, without proper care, can ultimately compromise the advisor’s ability to communicate effectively with their clients. Accordingly, advisors should practice self-care and self-compassion so that they can continue helping their clients stay the course of their financial plans, and without themselves suffering from the adverse effects of vicarious traumatization or compassion fatigue.

Bonus: Financial Advisor Success and Kitces & Carl Podcasts

#FASuccess Ep 198: How The Creator Of The 4 Percent Rule Applied It For His Clients And His Own Retirement, With Bill Bengen – Bill Bengen is known to most financial advisors as the father of the so-called “4% rule” and the progenitor of the body of research that we now know as safe withdrawal rates, research that he not only published in a series of studies in the “Journal of Financial Planning” and a subsequent book… but also research that he put into practice with his clients as a financial planning practitioner.

In this episode, Bengen shares how he first developed the safe withdrawal rate research, the retirement problem in the early 1990s that he was trying to solve for, the irony that Bengen first did his safe withdrawal rate studies to delve deeper than the rules of thumb that were popular at the time and then ended out having his 4% rule become a rule of thumb instead, how Bengen integrated his 4% rule alongside his financial planning business, and why he didn’t actually use the 4% safe withdrawal rate with his clients (he used 4.5% instead).

We also talked about Bengen’s own path as a financial planner, how his career changed into financial planning after first studying aerospace engineering and then spending his first career running the family soda bottling business, how a fateful media mention of NAPFA led Bengen to launch his business from the start as an independent RIA in the early 1990s when it was not yet popular to do so, how Bengen was able to get traction in his early marketing as one of the only fee-only financial planners in his area, and why Bengen decided from the start to maintain his firm is a lifestyle practice with no more than about 80 clients at any particular time.

And be certain to listen to the end where Bengen shares what led him to ultimately decide to retire and sell his firm, why he believes the safe withdrawal rate today could be as high as 5% given the low-inflation environment (and despite current low yields), the reason Bengen currently maintains a very conservative portfolio for his own assets as a retiree, and why he thinks that advisors should be more tactical with the asset allocation for their own retired clients.

Kitces & Carl Ep #35: Favorite Questions To Ask A Prospective Client To Build Trust In The First Meeting - Every business transaction (whether for a good or a service) moves both parties involved towards a desired state. A prospective customer or client needs something, and they also need someone to help them get it. Along the way, the person providing the good or service may or may not be successful in helping the customer or client reach their desired outcomes (whatever those may be), and one of the biggest determinants of their success is good questions. Which means, simply put, that a key aspect of starting off a prospective new client relationship well is by starting with the right questions to establish trust and build rapport.

As a starting point when considering the questions to ask, it’s important to keep in mind the path that the prospective client took in order to book their initial meeting in the first place (e.g., were they referred by an existing client or did they come in ‘cold’?) because that will help frame the initial conversation and give the advisor a confidence boost as the prospective client and advisor get to know each other. Notably, though, asking good questions is about far more than checking off each box from a 17-point intake form or formulaically reciting from a predetermined script. In fact, the best questions are often ones that people have never been asked before, or are, at least, asked in such a way that offers someone a different perspective... questions that can often create some discomfort (the best questions usually do!) but can also pave the way for some meaningful insights.

From there, perennial favorites include such questions as Bill Bachrach’s “What’s important about money to you?” (which helps lay the groundwork for establishing what really matters to the client and what might help keep them on track later on down the line), Dan Sullivan’s “What would need to happen in the next three years for you to deem this relationship a success?” (which provides a more concrete time frame around figuring out what their ‘desired future state’ is), and George Kinder’s famous three questions about what someone would do given increasingly narrow time frames on their longevity.

Perhaps one of the most useful questions, however, is simply, “What brought you in to see me today?” Because the disappointing reality of this business of financial advice and planning is that people don’t spontaneously come to the realization that they really need to get a comprehensive financial plan as soon as possible. Rather, there has usually been some sort of triggering event that brought them in, and there’s some immediate and pressing need that they have at the moment. Which means that understanding the triggering event accompanying their pain point is a powerful first step to building trust.