Weekend Reading For Financial Planners (April 5–6)

Tariff Announcement Jolts Markets, Prompts Range Of Tactical Approaches From Advisors

(David Bodamer | WealthManagement)

While smaller-scale tariffs had been put in place over the past couple months (alongside existing tariffs that have been added over time), President Trump on Wednesday announced a dramatic expansion of the nation's tariff regime, hiking tariffs on nearly every foreign country in what was a surprise to many observers. Equity markets reacted negatively to the announcement, with the S&P 500 on Thursday seeing its largest one-day decline since the pandemic-related shock in 2020.

The dramatic news sent many advisors into action mode, whether in communicating with clients and/or considering adjustments to client portfolios. Some advisors taking a long-term investment approach with diversified portfolios saw little action to take within client portfolios, highlighting the expectation that equity markets will eventually bounce back and the fact that bonds have so far served their role as a portfolio ballast (unlike the 2022 bear market where stocks and bonds fell in value simultaneously). Another factor potentially dissuading portfolio changes is uncertainty over the final severity and duration of a possible trade war, as the Trump administration and foreign trading partners could decide to ramp up tariffs further or seek to turn the volume down (with difficult-to-predict consequences for markets). At the same time, some advisors are viewing the downturn as an opportunity to rebalance client portfolios (perhaps if they reach certain tolerance thresholds). Still, others are viewing the downturn as an opportunity to put client cash to work while stocks (whether individual names with strong fundamentals or broader indexes) are available 'at a discount'.

In sum, while the market drop and economic uncertainty associated with this week's tariff announcement has no doubt rattled investors (and can be stressful for advisors as well!), many advisors appear to be implementing long-established plans for such situations based on their investment approach and their clients needs (and communicating their observations and actions to clients), demonstrating the value they can provide as a steady hand during turbulent times.

Republicans Eye $25,000 SALT Cap As Tax Cut Plan Takes Shape

(Nancy Cook | Bloomberg)

One of the major topics of conversation for financial advisors this year is the scheduled expiration of many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and the potential for a major tax bill that could extend (and possibly expand) many of these measures. One potential expansion of TCJA would be increasing the current $10,000 limit on the State And Local Tax (SALT) deduction, a priority of many members of Congress from higher-tax states.

According to unnamed sources familiar with Congressional Republicans' latest thinking, a draft tax bill in progress includes an increase in the SALT deduction to as high as $25,000 for an individual, with plans to offset the increase by reducing the deductions corporations can claim on the state and local taxes they pay. Other parts of the proposed plan include renewing TCJA's tax reductions for individuals and closely held businesses as well as some of President Trump's campaign pledges (which included eliminating taxes on tipped income, overtime pay, and Social Security benefits). According to the unnamed sources, the proposed tax break for Social Security benefits would only apply to incomes below a certain threshold (suggesting that many higher-income planning clients could still see their benefits taxed under current levels).

Ultimately, the key point is that while potential major tax legislation is still taking shape, hints have started to come out regarding its composition, including (perhaps most impactful on many financial planning clients) extending marginal tax rates under TCJA and a certain level of SALT cap relief. At the same time, given that a SALT expansion (and other proposed tax reductions) would increase the 'cost' of the tax bill and potentially require raising revenue or limiting tax cuts elsewhere (in order to pass it through the "reconciliation" process that wouldn't require Democratic support), at least some clients could face measures that at least partially offset rumored tax-reduction policies.

Client Meetings And Service, Investment Management Top Advisor Time Use: Survey

(Fuse Research Network)

Financial advisors (depending on their exact roles) face no shortage of potential tasks to complete in a given day or week, from meeting with clients and prospects to preparing financial plans to handling marketing and compliance responsibilities. Which suggests that checking in regularly on how one's time is used (and, perhaps, how it compares to other advisors) can help an advisor take stock of how they spend their time.

According to a survey of 500 financial advisors by Fuse Research Network, advisors on average spend 22% of their time in client meetings and 18% of their time on client service. Investment management followed at 15% of advisor hours, followed by business development (13%), "core" financial planning (9%), and administrative work (8%). The survey also asked advisors what they perceived as their value proposition to clients, with respondents attributing 46% of their value proposition to financial planning and 36% to investment management (notably, there is a difference between time spent on investment management [15%] and its place in respondents' value proposition [36%], which could be attributed to advisors' use of outsourced investment management providers such as Turnkey Asset Management Platforms [TAMPs] and outsourced chief investment officer services).

Recently published Kitces Research on Advisor Productivity also looked at time allocation to front-office (e.g., meeting with clients and prospects), middle-office (e.g., client meeting and financial plan preparation), and back-office (e.g., trading and client servicing) tasks across a range of roles. Senior advisors (i.e., those responsible for managing client relationships, driving business development, and mentoring others) surveyed reported spending the most time (33%) on front-office tasks compared to those in other firm roles, including approximately 10% of their time meeting with clients. Service advisors (i.e., those accountable for managing and retaining existing clients but typically with little or no new business development responsibilities) spent somewhat less time on front-office tasks (24%) while spending more time on middle- (48% versus 45%) and back-office (27% versus 22%) tasks, including more time spent on meeting preparation and planning analysis.

Altogether, these surveys indicate that while client meetings make up a significant portion of an advisor's time, so too does the analysis and preparation needed to get ready for them. Which might lead some advisors to take stock of their individual time use and perhaps tweak their various responsibilities to ensure their workdays are focused on the highest-value (and perhaps most enjoyable?) activities for them.

What Advisors Are Telling Their Clients About Tariff-Related Market Volatility

(Steve Garmhausen | Barron's)

Financial news headlines this year have been dominated by the evolving situation surrounding US-imposed tariffs on other countries (with this week's tariff announcement serving as a dramatic expansion in their size and coverage). The tariffs have rattled markets as well, as investors assess their potential impact on individual companies and the broader economy.

In this environment, advisors are likely to field worried calls from clients who might be concerned about the equity market decline seen so far and the potential to get it worse. To start, some advisors are using this moment as an opportunity to educate clients on what tariffs are (and are not) and how they might impact certain economic sectors and companies (while acknowledging the significant uncertainty involved in the evolving situation). In addition, for clients still in the accumulation stage, some advisors are attempting to focus clients on their long-term goals and emphasizing that regular contributions to investment accounts allow them to 'take advantage' of (temporary) market declines by buying at lower prices. For clients nearing and in retirement, some advisors are looking to ensure they have sufficient cash cushions to meet near-term spending needs to avoid having to sell investments if the downturn deepens. Certain advisors are also using the volatility to gauge clients' real-world risk tolerance and whether adjusting their asset allocation (perhaps when volatility dies down) might be in order.

In sum, while there is no single recipe for communicating with clients during periods of market volatility, financial advisors can add value by serving as a stable voice who can ensure clients remain positioned (and confident in their ability) to meet their near-term liquidity needs while avoiding dramatic action that could imperil their long-term goals.

Engaging In One-To-Many Client Communication During Turbulent Markets

(Charles Passy | MarketWatch)

While financial advisors recognize the many ways they add value for clients throughout the year, periods of market turbulence (while scary for clients and potentially damaging to firms' asset-based revenue) can represent opportunities for advisors to cement their relationships with clients and to take action that could be financially advantageous for those they serve as well.

To start, advisors who are proactive with their communication can potentially calm client nerves while possibly avoiding a barrage of calls and emails from individual clients (while perhaps leaving room for individual clients to call with concerns related to their unique situation?). For instance, picking up the pace of all-client emails or newsletters (e.g., explaining what recent tariff actions entail in clear terms or putting the current market decline in historical perspective while recognizing why clients might be alarmed) could get the advisor's message out without having to speak to clients individually. Similarly, recording a video message (e.g., using a tool like Loom) could add a personal touch by allowing clients to see and hear (rather than just read) their advisor's reaction to recent events. Advisors could also use these communications to let clients know about the specific actions they are taking amidst market volatility, which could include taking advantage of tax-loss harvesting opportunities, engaging in Roth conversions while they are 'on sale' (likely after consulting with relevant clients), and/or reviewing client portfolios to ensure they remain aligned with their short-term cash needs and long-term financial goals.

In the end, while market downturns can be painful for clients and advisory firms alike, advisors who are able to reassure their clients (perhaps in an efficient one-to-many format where possible) while seeking tactical opportunities to support their clients could ultimately benefit from greater client confidence and loyalty once the dust settles on the latest round of volatility.

Calming Clients With Anxiety About Tariffs And Trade Wars

(Michael Kitces and Carl Richards)

Whenever the markets become 'scary' due to current events, advisors can anticipate calls from anxious clients wondering what to do next. These clients are often in fight-or-flight mode, which can make it difficult to have a rational discussion or a productive conversation about their financial plan. And if an advisor jumps straight to data – trying to 'prove' why staying the course is the right decision – the client may become even more frustrated and reactive. So how can advisors navigate these conversations in a way that helps clients regain a sense of control?

When a client calls in distress, the first step is to greet them with empathy. If the client says they are worried, it can help to reflect that concern back to them with a simple acknowledgment, such as, "You sound very worried. I feel worried when I watch the news, too." Next, creating space – such as taking a minute to grab a glass of water or introducing a natural pause – can help slow the pace of the conversation and ease tension. Once the client feels more at ease, the advisor can affirm their goals by reinforcing what truly matters to them, such as ensuring they can continue spending a certain amount in retirement. From there, the advisor can remind them that their portfolio was built to support the client's long-term goals and designed to withstand market hiccups, declines, and corrections. Finally, once the emotional intensity has subsided, the advisor can introduce data and historical patterns to provide reassurance.

Still, some clients may insist that "this time it's different". In these cases, it can help to acknowledge that while the cause of each scary market downturn is unique, the market's pattern of recovery has been remarkably consistent. Walking the client through how their individual portfolio would perform in a recession can also be reassuring. Often, the worst-case scenario isn't financial ruin – it may instead be a matter of weathering a few years without an increase to their year-over-year spending. These conversations can also be a great opportunity to affirm why portfolios are structured for risk management, especially since the same client who fears a downturn today may, in a strong market, wonder why they have to rebalance when they could be chasing higher returns!

Ultimately, the key point is that scary markets feel scary – but advisors don't need to rely solely on data to convince clients to stay the course. While historical patterns provide perspective, no one truly knows what will happen next. By leading with empathy and curiosity, advisors can guide clients through market volatility with confidence and care, ensuring they leave conversations feeling heard, understood, and reassured!

How Advisors Can Navigate Private Markets With Their Clients

(Danielle Labotka | Morningstar)

For many years, private market investments (e.g., private equity and private credit) were largely the purview of institutional investors (e.g., pension funds and college endowments) seeking a measure of diversification from public markets. However, these investments are becoming increasingly accessible to retail investors, whether through mutual funds and ETFs (with the potential for these investments to be available within 401(k)s as well).

These developments might lead many clients to ask their advisor whether private investments are appropriate for their situation (and this interest might increase amidst the current, highly visible downturn in public markets). Notably, clients might come to these conversations without detailed knowledge about what different types of private investments entail. For instance, a Morningstar survey found that while half of investors had some knowledge of private equity and private credit, only 15% and 13%, respectively, said they understood them well enough to provide a definition. Even fewer investors were familiar with less common private instruments, such as semiliquid interval funds and business development companies. In addition, while private market investments might be attractive to advisors for their possible diversification benefits, the most common reason investors gave for wanting to access private equity was returns (followed by diversification), suggesting that this interest could be motivated by a perception of private assets as a 'hot' investment opportunity.

Amidst this backdrop, a first step for advisors who have a client approach them with interest in private investments might be to gauge the client's knowledge about the particular investment they're interested in (perhaps starting the conversation by inviting them to expand on what they understand about the product rather than giving them a 'pop quiz' on specific details).  Next, an advisor might ask the client about the motivation behind their interest in the investment (e.g., a conversation might flow differently if the client is seeking increased diversification and is willing to face potential illiquidity rather than one who thinks the investment could be a way to make a quick return). Finally, bringing the conversation back to the client's goals can help them understand whether a private market investment fits within their broader asset allocation and financial plan.

Altogether, the rising availability of private market investments for advisors and their clients (and perhaps increased interest amidst the current market downturn) could make them a topic of conversation in upcoming client meetings, providing an opportunity for advisors to help clients better understand their potential benefits and drawbacks and, if appropriate, consider using them within client portfolios.

Private Credit ETFs Launched, But Were They Ready?

(Nicholas Phillips | ETF Central)

While public fixed-income markets can offer investors access to a variety of government and corporate bonds (whether on an individual bond basis or in fund form), tapping into the world of private credit has been less common. While mutual fund options have emerged, the tax inefficiency of private credit funds (with relatively high yields and returns generated as bond interest and taxed at ordinary income) can them better suited for tax-advantaged accounts. Which in part inspired the creation of private credit ETFs that seemingly could offer greater liquidity and tax efficiency compared to other structures.

However, questions remain as to whether the ETF wrapper is appropriate for relatively illiquid private credit instruments. For instance, unlike publicly traded bonds, private credit investments don't trade on a centralized exchange, which could make real-time pricing of the underlying assets in an ETF difficult. In fact, an analysis of one private credit ETF found that some holdings had incorrect market values reported (requiring manual adjustments) while other holdings were marked based on correlated market movements rather than accurate trades (which could cause mispricing during periods of market stress).

In addition, redemption demands might force the sponsor to sell underlying instruments into a market that could have little liquidity. To address this, the fund sponsor might serve as a designated liquidity provider, though it is unclear whether they might be able to meet redemption demands in a market downturn without triggering distressed sales (and further losses for fund holders). Further, if the ETF sponsor itself encounters financial stress, it might not be able to handle a liquidity shock to its private credit ETF.

In sum, while being able to access private credit through an ETF might appear to offer the potential benefits of this investment class in a relatively liquid and tax-efficient product, the difficulty of accurately assessing such an ETF's net asset value and providing sufficient liquidity to handle redemptions (particularly during periods of market stress) might lead some investors and asset allocators to await more data and real-world performance before considering them for their clients?

How To Effectively Integrate Liquid Alternatives Into A Client's Portfolio

(Jason Kephart | Morningstar)

While publicly traded equities and bonds often make up the core of advisory clients' portfolios, some advisors might look to liquid alternative strategies (e.g., equity market-neutral investing and managed futures) that often offer low correlations to these asset classes to further diversify a portfolio. However, effectively investing in these strategies can require an understanding of the types of strategies (and the funds available within each category), how they might fit into a given client's portfolio, and the tradeoffs involved in using them.

Liquid alternatives are often sought out for their diversification benefits. For instance, systematic trend-following strategies provided support when stocks and bonds fell together in 2022 while multi-strategy funds (which combine multiple liquid alternative approaches) can potentially deliver low correlations and lower volatility compared to the broader stock and bond markets. However, because the performance of funds within the same category can vary significantly (e.g., the standard deviation of three-year returns in long-short equity funds analyzed was 5.5%, compared to 2.5% for 'standard' funds in the large blend category. Further, because many liquid alternative funds have folded over time (in particular, in the long-short equity category), identifying firms who keep their funds open for the long term can provide more confidence that the fund can remain in a client portfolio for long enough to have its intended benefits (given that liquid alternative funds can go through extended periods of underperformance compared to a broader stock or bond index.

In the end, given the complexity, expense, and periods of underperformance of liquid alternative funds, many advisors might shy away from using them with clients. Nevertheless, for those advisors who are willing to put in the work to find the best liquid alternative products to meet their clients' needs could potentially more effectively provide desired portfolio outcomes (and perhaps serve as a differentiator in the eyes of interested clients compared to advisors who choose not to?).

What Advisors Can Do When Cybercriminals Impersonate Them Online

(John O'Connell | Advisor Perspectives)

Financial advisors who are active on social media platforms might encounter profiles of well-known individuals that appear to be authentic but are actually run by fraudsters. Oftentimes, these fraudulent accounts will send direct messages to unsuspecting users encouraging them to buy a certain investment as part of a 'pump-and-dump' scheme (this scheme has been on the rise on WhatsApp as of late, but exists on other platforms as well). Notably, though, advisors who are on social media might not just encounter one of these schemes but perhaps find themselves being impersonated.

A first step for an advisor whose identity has been used in a pump-and-dump scheme is to notify their firm's compliance department, which can initiate the firm's incident response plan. Steps within the plan can include contacting the local police department (providing them with evidence of the impersonation, names and contact information of any alleged victims who are known, and any financial losses reported by the alleged victims, among other information), which can establish an official record of the crime, which could be needed for insurance and/or regulatory purposes. A firm can also notify Federal authorities through the FBI's Internet Crime Complaint Center. While the FBI might not track the source of an individual advisor's case, this information can help them identify patterns that lead to larger investigations. Finally, reporting the impersonator to the relevant platform can get the ball rolling on having the offending profile removed (though, given that it often takes persistence to get the platforms to take down these profiles, emphasizing that the impersonation is actively being used to commit financial fraud could expedite review of the case).

Ultimately, the key point is that while it can be frustrating for an advisor to have an impostor try to use their profile to scam unsuspecting victims, taking a proactive approach to resolving the situation with both the social media or communications platform itself as well as with law enforcement authorities (documenting evidence gathered and actions taken along the way) can potentially mitigate future victims' losses and demonstrate to regulators that the advisor and their firm are able to skillfully handle similar incidents that might arise in the future.

Protect Your Parents (And Clients) From Scammers

(Meg Bartelt | Flow Financial Planning)

While scams have likely existed for centuries, technological advancements have likely aided their development as well (from email phishing schemes to more advanced malware attacks). At the same time 'lower tech' scams (e.g., scammers who call pretending to be from a potential victim's bank) remain prevalent, suggesting that it's hard to avoid becoming a target.

Often, the targets of scams are older individuals, who might not be familiar with the scam 'landscape' and the possible defenses against them. With this in mind, those with aging parents (or older clients) could consider working with their loved ones to come up with a plan to help protect them against scams. A possible first step is to remain aware of the latest trends in scams, for instance, by regularly checking out the AARP Fraud Watch Network, Federal Trade Commission Scam Alerts, and the Protect Seniors Online websites. Next, talking to loved ones about steps that they feel comfortable taking to protect against scams can help identify ideas that they will actually follow through with. For instance, if someone calls claiming to be from their credit card company, a plan might be to politely hang up and immediately call the number on the back of their credit card. Or, perhaps, they agree to always call you before responding to any communication about their finances (or perhaps before they move any money over a certain dollar amount). And when they're using their computer, they could make a standard rule to not click any links within an email (or they call you before clicking).

In the end, the increasing sophistication of many scams (and the potential for artificial intelligence to make them even more believable) requires heightened awareness about their presence and tactics. And for financial advisors, this could mean not only creating a plan with their parents or other loved ones to help prevent them falling victim to a scam, but also communicating security expectations with clients (and setting up internal cybersecurity systems and procedures) so they don't fall victim to scams (with wire fraud being particularly threatening) as well.

Demystifying 'Hot' Investment Opportunities That Use Misleading Data

(Nick Maggiulli | Of Dollars And Data)

Investment schemes have been around for ages, from the original Ponzi scheme in the early 1900s to cryptocurrency scams of the 21st century. While many of these schemes might seem 'too good to be true' on the surface, their purveyors often use seemingly convincing data that might lead a client to bring the 'opportunity' to their advisor's office.

For instance, those peddling a (legitimate) investment product might use charts to demonstrate seemingly convincing outperformance. However, these can be misleading, particularly if they use a linear scale to show investment growth alongside a single extended performance period (which can make early outperformance appear to be consistent over time compared to a benchmark). When faced with such a chart, a skeptical advisor might ask to see it broken down into individual performance periods or be shown rolling performance. Another common tactic is for an investment manager to "cherry pick Alpha" by only highlighting winning investments and strategies and not mentioning their 'losers'. An unwillingness to show losing strategies or provided detailed performance data could be flags that they are engaging in cherry picking. Finally, understanding how an investment manager is generating their outperformance can help defend against Ponzi schemes where there is no actual underlying investment (and if they insist that their strategy is 'proprietary' [to the point investors aren't allowed to see what they'll be invested in] or their risk-reward ratio is far more attractive than would otherwise be expected, it could be worth taking a pass on the 'opportunity').

In sum, the adage "if it's too good to be true, it probably is" tends to apply in the investment world as well, as investment strategies and products that appear to show significant outperformance (without the tradeoff of increased risk) over their peers are often not as superior as they might seem. Which could serve as a warning for clients (and advisors) who might be tempted by these 'opportunities' (particularly during and after periods of market stress?).

---

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.