Weekend Reading For Financial Planners (April 15-16)

Altruist Raises $112M On The Heels Of SSG Acquisition As It Becomes The Third-Most-Used RIA Custodian

(Diana Britton | Wealth Management)

RIA custodian Altruist, which has gained traction with a particular focus on the small-to-mid-sized RIAs that tend to receive less service and attention from the largest custodians (and are more reliant on a custodian’s technology to stay efficient), has had a busy couple of months. In March, the company announced that its own self-clearing platform, Altruist Clearing, went live, the final step in becoming a full-service RIA custodian. Further, Altruist made a splash later in the month by acquiring Shareholder Services Group (SSG), a competing RIA custodial platform with a reputation for very-high-quality service levels for its RIA clients, adding 1,600 SSG firms to Altruist’s roster (and bringing its total to more than 3,000 RIAs, ranking it 3rd-most-used in terms of RIA firms behind the recently combined Charles Schwab/TD Ameritrade and Fidelity).

And now, Altruist announced this week that it has raised a whopping $112 million in series D funding (from both institutional and individual investors, including Carson Group founder and CEO Ron Carson and Mariner Wealth Advisors CEO and President Marty Bicknell), bringing the custodian's total funding to more than $290 million. Altruist said the bulk of the funds from the capital raise will go to research and development, with a focus on building out more capabilities for Altruist Clearing, as well as tech to further improve upon common advisor processes (e.g., account opening, rebalancing, and fee billing). Altruist also plans to use some of its new resources to expand its market reach. As while it has historically catered to RIAs with under $100 million in Assets Under Management (AUM), it will now try to move up to serve more midsize RIAs with between $100 million and $1 billion in AUM by offering the account types and access to the full range of securities these firms seek.

Altogether, Altruist's latest capital raise provides it with fuel to continue to take market share from Schwabitrade and Fidelity with ongoing improvement to its platform features and all-in-one custodian-based technology stack. However, while the firm has grown by attracting new and smaller firms that are happy to utilize Altruist’s tech stack to avoid incurring their own costs for standalone portfolio management and performance reporting software, the next step of getting mid-sized firms to leave their current custodian (and deal with the repapering requirements involved in such as move) and switch tech (to use Altruist's built-in tools in lieu of their existing third-party portfolio management software) could be more challenging. Nonetheless, to the extent that many RIAs lamented the Schwab acquisition of TD Ameritrade as a 'loss' of a key competitor, Altruist appears to be increasingly putting pressure on the 'Big 3' of Schwabitrade, Fidelity, and Pershing to stay competitive or risk losing firms to a no-longer-just-an-upstart RIA custodian competitor!

Foundation For Financial Planning Ramps Up Volunteer Matching Program With Orion Support

(Janet Levaux | ThinkAdvisor)

Working as a financial advisor can be both financially rewarding and emotionally satisfying. By helping clients develop financial goals, create a financial plan, and support the implementation and monitoring of the plan, advisors help clients live their best lives. But while new fee models and service offerings have allowed fee-only advisors to reach an expanding range of potential clients (in terms of income and/or assets), there are still many Americans who could benefit from professional financial advice but might not have the resources to pay for it. This gives advisors the opportunity to offer their services on a pro bono basis to not only support these individuals, but also the financial planning industry as a whole.

At the same time, many advisors might not know how to begin offering pro bono services or might be concerned that time spent seeking out pro bono clients could instead have been used on their business. This is where organizations like the Foundation For Financial Planning (FFP) come in, providing grants to organizations to develop programs connecting volunteer financial planners to individuals and families in crisis or need and linking planners with these organizations, with the goal of connecting 10,000 CFP professionals with pro bono service work. Of course, doing so requires funding, and the FFP has received increased support from advisor technology platform Orion Advisor Solutions, which is the exclusive sponsor of FFP’s online volunteer matching program, which advisors can use to find national or local organizations in need of their services. Orion also provides free access to its Orion Planning financial planning tool for advisors working with pro bono clients.

In the end, in addition to providing a valuable service to the community and serving as a meaningful activity for advisors, pro bono planning is also an important part of growing financial planning into a profession, similar to other fields (e.g., law) with established pro bono programs. Further, pro bono planning can help advisors develop their skills, whether it is working with individuals of different ages or incomes than their usual clients to practicing their empathetic listening and client meeting skills (which is especially relevant for qualified junior advisors whose primary functions in the office may be focused on behind-the-scenes responsibilities supporting senior advisors, and who might not have as many opportunities for substantive one-on-one client interactions!).

FINRA Tightens Work-From-Home Rule Plan For Brokers

(Melanie Waddell | ThinkAdvisor)

At the onset of the pandemic, many firms shifted to a remote work-from-home environment, and while some have returned to the office, others have continued remote operations, allowing their employees to work from home on either a full-time or hybrid basis. However, remote work raises a range of regulatory compliance concerns (particularly around the security of client communications and data), as a firm’s operations are no longer centralized in fixed offices, which makes it harder (or at least different) for an Office of Supervisory Jurisdiction (OSJ) to actually 'oversee' their advisors for compliance purposes (when the OSJ doesn't even have a branch office location themselves!).

In July of last year, the Financial Industry Regulatory Authority (FINRA) filed a proposal with the Securities and Exchange Commission (SEC) that would create "Residential Supervisory Locations" (RSLs) that would allow a broker working remotely to supervise other brokers, without the broker's home being designated as a branch office (which would otherwise subject the supervisor’s home office to additional regulatory requirements, particularly with respect to office inspections).

This proposal received support from many broker-dealers and industry groups, but also some opposition from organizations concerned that remote supervision would undermine investor protection. In response to some of the concerns raised, FINRA in late March refiled with the SEC a revamped plan to allow a home office to be considered a non-branch RSL under certain conditions, with enhanced restrictions compared to the original proposal. These include enhancing the conditions for RSL designation relating to books and records to provide, among other things, that records are not physically or electronically maintained and preserved at the location; expanding the list of criteria that would make a firm ineligible (e.g., a member firm that has been suspended); and requiring firms to provide a current list to FINRA of all RSLs on a quarterly basis, among other measures. The SEC (which must approve FINRA rules) will have 240 days from the date of the proposal’s publication in the Federal Register to approve or deny FINRA’s plan.

Altogether, while this proposal would apply to FINRA-regulated broker-dealers (and it remains unclear whether it will be adopted), the SEC's eventual decision on the matter could signal its thinking on the supervision of remote workers for financial advisors more broadly, especially as RIAs both increasingly have multiple office locations (including more work-from-home advisors) and the SEC has already been giving greater scrutiny to how RIAs handle local 'branch office' supervision. The SEC's interest in the matter also suggests that firms with remote workers might want to consider reviewing their cybersecurity practices to ensure compliance with current requirements, particularly with respect to Chief Compliance Officers who themselves are 'remote' and not in a physical office with those they are supervising!

Do Your Team A Favor, Learn To Delegate

(Matt Sonnen | Wealth Management)

As their firms grow, life for solo advisors can become quite busy as they not only handle the planning work for an expanding client base, but also all of the back-office responsibilities that go into running a business as well. Many of these advisors hire staff members, from client service associates to lead advisors, to help alleviate this burden, but this can eventually lead to the advisor-owner becoming an "accidental business owner", who spends much of their time managing people rather than generating and serving clients.

And while these advisors might recognize that unloading some tasks on staff members could help free up their time for more productive and/or enjoyable work, these firm owners sometimes resist doing so, perhaps because they think they could do a certain task better than a staff member could or because they do not want to spend the time training an employee on how to handle a given responsibility. One way these firm owners can get over this hurdle is to engage in a structured exercise proposed by Gino Wickman and Rene Boer in their book "How To Be A Great Boss" that sorts tasks into 4 quadrants.

The first quadrant is for tasks that the advisor both loves doing and has mastered (these are the tasks that the advisor will likely keep on their plate). The 2nd quadrant is for tasks that the advisor likes and can be performed with minimal effort (these will also probably continue to be performed by the advisor). The third quadrant is for tasks the advisor does not like, but is good at doing (e.g., certain repetitive administrative tasks), and the 4th quadrant includes duties the advisor does not like and is out of their area of expertise. Duties that fall into these final 2 quadrants are the best candidates to be delegated to staff members; doing so can not only free up the advisor's time (for the more productive and/or enjoyable tasks that fall into the first 2 quadrants) but also potentially empower staff members by giving them more responsibility and autonomy (as the firm owner no longer serves as a bottleneck to getting things done).

Ultimately, the key point is that the willingness and ability to delegate tasks is a crucial skill for firm owners of growing businesses. And so, by identifying the tasks that they either do not enjoy or are not skilled at and giving these responsibilities to staff members, firm owners can not only free up their own time for more productive tasks (or even time to relax!), but also build up the skillsets of their employees in the process!

Why The Best Leaders Aren't Necessarily 'Professional Managers'

(Jeff Haden | Inc.)

As an organization grows larger, it not only needs working-level employees to cover the jobs that need to be done, but also, eventually, managers to oversee these employees and their work (otherwise a company founder might become overwhelmed by the sheer amount of substantive and management tasks that need to be done). When looking to add a leader, an organization has a couple of different options. One option is to hire an individual who has already worked as a manager, either from outside the organization or from a different department within it, and apply their leadership skills to their new team, even if they do not have experience in the specific functions the team performs. Another option, though, is to promote a working-level employee within the team who has significant technical expertise but has not served as a manager before.

While this latter option might seem riskier (as the company will lack evidence that such an individual can lead well), Haden (inspired in part by Steve Jobs' experience running Apple) suggests that these employees often make the best leaders. This is because while an experienced leader might be effective at managing what the team is currently doing (e.g., ensuring the team follows processes, conducing performance evaluations), an individual contributor is more likely to be aware of the specific challenges facing the team and what the team is capable of achieving. Further, hiring a technical expert rather than an experienced manager can also benefit the team members themselves, as one study found that a manager's technical competence is the single strongest predictor off the job satisfaction of employees.

And so, in the financial planning context, firms looking to hire someone to lead a team could potentially benefit by looking beyond 'professional managers' and consider technical experts within the company, who, with leadership training, could take their department's performance to the next level!

It's Not A Funnel, It's A Filter

(Joshua Brown | The Reformed Broker)

In the business world, having large 'funnels' is often seen as a key to success. For example, increasing the number of prospective clients contacting the firm can lead to greater new client growth. But for Brown, the CEO of RIA Ritholtz Wealth Management, the 'filters' his firm uses for bringing on new clients and hiring employees are more important to the firm's success.

For instance, when it comes to hiring new advisors, Brown seeks candidates who are already familiar with his firm's culture and brand (which is not particularly hard to glean given the number of blogs, podcasts, and other content produced by its advisors) and who are only seeking a job at Ritholtz (rather than seeking advisor positions at several different firms). Because they are already 'bought in' to the way the firm operates, they can hit the ground running and become evangelists for its offering. Of course, this requirement serves to reduce the number of qualified advisor candidates, but for Brown, it’s more important to hire for fit rather than to grow headcount as fast as possible.

This filtering concept also applies to how Brown and his firm bring on new clients. While a new firm might take whatever clients can afford their fee (in order to keep the business afloat), as a more mature firm, Ritholtz can afford to be more selective with the clients it takes on. For example, by turning down clients who would require services outside of the firm's wheelhouse, Ritholtz can work more efficiently and avoid having to create new processes to service 1 or 2 clients. Of course, the firm can afford to apply this filter because it has a large funnel of inbound prospects, but it also requires discipline to be willing to sacrifice new client revenue in the short term in order to achieve longer-term goals.

Ultimately, the key point is that while it can be important for financial planning firms to create 'funnels' of prospective employees and clients, it is up to each firm to determine how to (and whether to) filter these down to meet their individual needs. And while doing so could slow revenue growth in the short term, building a cohesive team serving a curated client base could pay off for the overall health of the business in the long run!

Fear Over Social Security's Future Leads Some To Claim Retirement Benefits Early

(Anne Tergesen | The Wall Street Journal)

Starting in January, those receiving Social Security received an 8.7% Cost Of Living Adjustment (COLA) to their benefits. While this boost will help Social Security recipients keep up with rising prices, the increased benefit payouts could have the follow-on effect of pushing up the date of the Social Security trust fund’s insolvency, which is now estimated to occur in 2032, according to the Congressional Budget Office. And as the date of the trust fund's insolvency (which could trigger a 23% reduction in benefits unless Congress acts) inches closer, some retirees are choosing to claim Social Security benefits as early as possible.

In 2021, about a quarter of those turning age 62 (the earliest age to do so) claimed Social Security benefits, though the breakdown of why they decided to do so is unclear (i.e., while some might claim early fearing that benefits could be reduced in the future, a portion of early claimers likely do so because they need the benefits to support their lifestyle). That said, a 2021 study by the Center for Retirement Research at Boston College found that in an experimental setting, participants responded to headlines regarding the depletion of the Social Security trust fund by reducing their intended claiming age (with no change in their intended savings rate!). Of course, claiming benefits early comes at a cost for those who do so (for every year benefits begin early, they are reduced by 6.66% per year [up to 3 years, and then reduced by "only" 5% for additional early years], and are increased by 8% per year [until the maximum age 70] for starting late), which is why many (perhaps under the guidance of a financial advisor) choose to delay their benefits.

As the date of the trust fund’s depletion draws closer, some legislators have started exploring ways to shore up the fund, from long-considered measures (e.g., raising the full retirement age, increasing the payroll tax rate used to fund Social Security, or increasing the taxable wage base) to more creative measures, like establishing a sovereign wealth fund to generate returns that could be used to fund the program. In the meantime, financial advisors can put the health of the Social Security system and the potential solutions into context and help their clients make the best decision for their individual situation, from considering the optimal time to claim benefits to ensuring that their Social Security statements are correct!

9 Ways To Help Clients Reduce Taxes On Social Security

(Roger Wohlner | ThinkAdvisor)

After contributing to the Social Security system by paying payroll taxes over the course of their careers, some retirees are surprised to find out that a portion of the benefits they receive can be subject to taxes. And with taxation of benefits starting once "provisional income" reaches $25,000 for single filers and $32,000 for those filing jointly, even retirees with moderate income can end up paying taxes on their benefits. At the same time, there are several strategies financial advisors and their clients can consider to reduce this tax burden.

One way to reduce a retiree’s income is to minimize the impact of Required Minimum Distributions. This can be done in several ways, from engaging in strategic (partial) Roth conversions (which can reduce the size of tax-deferred accounts that will be subject to RMDs) to making Qualified Charitable Distributions (QCDs) (which can be used to satisfy some or all of a client's RMD requirements) or purchasing a Qualified Longevity Annuity Contract (QLAC) (as the money used for the contract premium is excluded from their RMDs until they commence receiving the annuity payments, though this can come with a cost). Separately, clients who do not use itemized deductions annually (because they add up to less than the standard deduction) could potentially benefit from bunching charitable contributions or medical expenses (if possible) in order to exceed the standard deduction in certain years. Also, advisors could consider engaging in tax-loss harvesting in client accounts to reduce the amount of income associated with taxable investments.

In the end, minimizing the taxation of Social Security benefits is not the only reason to try to reduce a client’s taxable income, as doing so can help them remain in a lower tax bracket or, for those on Medicare, avoid or minimize Income-Related Monthly Adjustment Amount [IRMAA] surcharges. At the same time, it is important to consider tax-reduction strategies within the scope of each client’s financial plan, as those that apply to one client (e.g., QCDs for a client who is charitably inclined) might not be appropriate for others!

Delaying Social Security Retirement Benefits: The Bridge to Better Outcomes in Defined Contribution Plans?

(David Blanchett | SSRN)

While much has been written about the inherent benefits of delaying Social Security benefits to age 70, a fundamental challenge in the real world is that the decision cannot be viewed in the abstract. The decision to delay Social Security isn't just about the value of delaying, but also about the money that must be spent from the portfolio to sustain spending in the meantime, and/or the decision to allocate money towards delaying Social Security and not towards other fixed income investments or a commercially available lifetime immediate annuity.

With this in mind, Blanchett considered how the decision on when to claim Social Security benefits interacts with assets individuals have within Defined Contribution (DC) retirement plans (which often represents the bulk of a worker's retirement savings). In this context, he suggests one that a potential strategy to encourage individuals to delay claiming Social Security benefits is to create an explicit "delayed claiming account" sleeve within the default investment in the DC plan (which is typically a target-date fund). This sleeve would be used to 'bridge' the income gap between retirement and claiming (delayed) Social Security benefits and would be invested more conservatively than the broader fund. This could provide consumers with more flexibility compared to other strategies that require a higher level of commitment (e.g., purchasing an annuity), while also behaviorally prepare plan participants to delay claiming (as they know they have a pool of money set aside to fund the 'bridge' period).

Ultimately, the key point is that while it is easy for advisors to recognize the potential benefits of delaying Social Security benefits for many of their clients, there are behavioral challenges for clients in following through with the plan. But by designating certain assets within a DC plan to serve as a 'bridge', some clients might gain the confidence needed to follow through with a plan to delay their Social Security benefits, which can ultimately lead to greater income throughout their retirement!

Cancel Your News Debt

(Brett and Kate McKay | The Art Of Manliness)

In the 21st Century there is no shortage of news stories and ways to access them. Whether it is television, websites, Twitter, or phone alerts, it is hard to avoid being bombarded with the news, much of which is negative (as the old saying goes, "if it bleeds, it leads").

But regularly drinking from the firehose of news (in particular, just viewing headlines or sensationalist content) can not only provide a distorted view of reality (i.e., by making it seem like negative events are more prevalent than they nearly are), but also give you a grim outlook for the future. Because while some news stories are reporting on current events ("XYZ candidate won yesterday’s election"), many reports and commentaries focus on future hypotheticals ("If ABC candidate wins next month's election, these awful things could happen!"). And because the outcome of most of these hypotheticals are largely out of an individual's control (e.g., while an individual could make a difference by voting or supporting a political campaign, they cannot control the result of the election), focusing on this speculation can not only give individuals a gloomy outlook, but could also distract them from the things they have more control over and that bring them joy (e.g., spending time with friends and family).

And so, while 'doomscrolling' and other methods of news consumption can be tempting (and can be hard to resist given the amount of content being produced!), focusing on the things that are within one’s control, rather than worrying about events that might happen in the future, could be more likely to greater personal wellbeing.

How To Log Off

(Rhiannon Williams | MIT Technology Review)

Many people want to spend less time online, whether it is at their computer or on their smartphones, but might not know how to actually follow through. One option is to go cold turkey, perhaps swapping their smartphone for a flip phone and keeping their online browsing to work or necessary personal tasks. But some researchers suggest that such draconian moves might not be necessary.

Instead, you can first consider what parts of their online activity are productive or enjoyable, and which ones are mindless or bring them negative emotions. For example, an individual might get immense joy from playing online games with others for an hour each night but find themselves getting into a bad mood every time they scroll through Facebook and see the ‘content’ that their 'friends' are posting (or what is suggested to them). In this case, it might not be necessary (or beneficial!) to cut out all online time, but rather restrict the time spent on less enjoyable activities (e.g., by only checking Facebook once per week). Another way to inspire action is to compare different online activities with other things you could be doing with your time. For instance, it might be easier to reduce the time you spend scrolling through Twitter when comparing it to going for a walk outside.

Ultimately, the key point is that not all time spent online is a waste. Rather, by differentiating the online activities that improve your wellbeing and those that don’t, you can continue to reap the benefits of the digital world while having more time to spend on enjoyable activities in the 'real' world!

Easily Distracted? Think Like A Medieval Monk

(Matt Reynolds | WIRED)

With a multitude of potential distractions available (from social media to reality television), it can sometimes seem like it is harder to be productive now than at any time in the past. However, a new book by medieval historian Jamie Kreiner,  The Wandering Mind: What Medieval Monks Tell Us About Distraction, suggests that we're far from the first humans to worry about distractions.

For instance, Kreiner found that early Christian monks, who lived between the years 300 and 900, were obsessed with preventing distractions so that they could spend their lives concentrating on God. And, just like today, this pursuit (and the frustrations of failing to concentrate fully) led many of these monks to write to their contemporaries to share their experiences and seek guidance. Some of these stories included inspiring feats of concentration (e.g., Simeon the Stylite, who lived on a pillar and could not be distracted, even when his foot became infected), while others offered tips on creating routines that could allow them to live more productive lives (which doesn’t sound too different from today's self-help industry!).

And so, while in many ways the information age is a unique historical period, it turns out that humans have been confronting many of the same concerns we do today for hundreds of years. And if you need inspiration the next time social media tempts you, just consider the feats Pachomius, a 4th-century monk who kept his concentration amid a parade of demons performing elaborate comedy routines!

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

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