Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a look at the various Democrat plans beginning to emerge that may shift the US tax system from being heavily income-based to a blend of income- and wealth-based instead... as regardless of an advisor's political affiliation and belief in Democrats' policy goals, a major shift in tax policy in the U.S. will have substantial impact for many advisors' clients, and is already an increasingly common topic of conversation with clients, which means it's crucial to be aware of the leading proposals and what they entail. Though given the increasingly political environment, it's notable that also in the news this week is a new effort from the Investment Advisers Association (IAA) to make it easier for at least smaller RIAs to be more politically active with campaign contributions (if they wish to) without becoming buried in the burdensome "pay-to-play" compliance rules that RIAs must follow to ensure their political contributions don't result in working with "prohibited" clients in government.
From there, we have articles around spending behaviors, including one study finding that a whopping 30% of clients still hide at least some spending decisions from their financial advisors (ostensibly out of a fear of being judged for their decisions), the ways that affluent clients sometimes "buy" privacy not for luxury but simply to protect themselves from the public eye, the emergence of the "subscription monthly-pay model" in the world of luxury travel for affluent clients, and the ongoing rise of "medical tourism" where some companies are even paying their employees to have surgical procedures done in foreign countries (even if it's necessary to fly a U.S. surgeon there to do the procedure) as a way to lower health care costs for the business.
We also have a few marketing articles this week, from a look at how to use and leverage Google Reviews (without running afoul of anti-testimonial compliance rules), how to set up Goal Tracking in Google Analytics to actually figure out where new prospects are coming from (and what actually connects with them on your website), and some tips for experienced advisors whose growth has stalled to re-ignite their prospecting efforts.
We wrap up with three interesting articles, all around the theme of the ever-evolving profession of financial planning itself: the first is an "Open Letter" on diversity from a financial planner who is a woman of color about the real-world challenges that emerge in being a "pioneer" in what is still a predominantly white industry; the second looks at what the CFP Board must do from here to shore up its credibility after the recent Wall Street Journal article suggesting the organization wasn't effectively enforcing its own standards; and the last takes an interesting retrospective look at the financial planning profession itself as it approaches its 50th anniversary this December, whether the profession is really living up to its promise as a profession, and concerns of whether financial planners really have the advocacy organizations in place that are necessary to carry the torch of higher standards into the future.
Enjoy the "light" reading!
Democrats' Emerging Tax Idea: Look Beyond Income, Target Wealth (Richard Rubin, The Wall Street Journal) - With an election year approaching, the news media is increasingly being filled with discussions of presidential candidates' various campaign policy proposals, which even for advisors who try to eschew political conversations about candidates themselves with clients, is inevitably leading to discussions of how various policy proposals could impact clients in the years to come. Especially since recent Democratic proposals are increasingly focusing on the introduction of a potential new approach to taxation: a focus not on the income tax, but on a wealth tax instead. Of particular concern is the fact that a substantial volume of wealth, particularly in the hands of the ultra-wealthy, simply continues to be held but never sold - whether it's substantial real estate, or closely held company stock - which subsequently ends out not being taxed at all if held until death for a step-up in basis (and as a 2013 Federal Reserve study showed, most of the value of estates >$100M consists of unrealized capital gains, with unrealized capital gains overall estimated to be $3.8 trillion). And research from the Tax Policy Center suggests that if the capital gains rate rises above 28.5% - in an attempt to capture more tax on the capital gains that are liquidated - it may just drive people to avoid capital gains and defer even longer (and instead just borrow against their assets for liquidity instead of selling them). Accordingly, the policy approach to taxation may potentially be shifted to focus less on income taxes (which trillions of held-until-death capital gains will never be subject to) and instead include at least some version of a wealth tax instead. For instance, the Biden Plan would trigger capital gains taxes at death (rather than a step-up in basis) and tax them at ordinary income rates, while the Wyden Plan would require income taxes to be paid on unrealized gains each year regardless of whether the investment is sold (known as a "mark-to-market" system) and again at ordinary income tax rates, and the Warren Plan would apply a tax of 2% on all wealth above the first $50M (with an additional 1% surtax on wealth above $1B). Of course, substantial questions remain about whether such approaches would be feasible, as eliminating step-up in basis at death could be reversed in the future before any substantial number of deaths from affluent individuals occur, taxes on unrealized gains create valuation challenges (as the IRS has to figure out how much illiquid closely held investments "appreciated" each year), and wealth taxes often just lead asset owners to try to move or restructure how their assets are held to avoid the tax (thus why European countries in the past tried and ultimately largely abandoned wealth taxes) with some suggesting they may be outright unconstitutional. Still, though, with both new policy goals for Democrats and a growing focus on the widening gap of wealth inequality itself, it seems likely that such proposals will at least loom for years to come.
SEC's Advisor Pay-To-Play Rules Too Burdensome, IAA Says (Tracey Longo, Financial Advisor) - Under current "pay-to-play" rules, RIAs are prohibited from providing advisory services for compensation to a government client for two years after the advisor, executives, or any employees, make a contribution to an elected official or a candidate (with a potential "small business" exemption for firms managing <$25M). In addition, RIAs are prohibited from providing direct or indirect payment to any third party for a solicitation of advisory business from any government entity (unless the third-parties are broker-dealers or RIAs themselves, but then those entities, in turn, would be subject to the same original pay-to-play restrictions), nor can they solicit political contributions from others or coordinate contributions to elected officials or candidates where the RIA is also providing or seeking government business. Of course, the core purpose of the rules is simply meant to ensure that, as the pay-to-play name of the rule itself suggests, advisory firms don't "buy" government business opportunities by putting their money towards candidates to get them elected in an implied quid pro quo. However, as the SEC itself notes, at some point an advisory firm's business and role is too small to present a material risk - thus the $25M small business exemption - and in practice the compliance oversight requirements (if only to ensure employees are not making inappropriate contributions to candidates the firm ends out working with) can be extremely burdensome to "mid-sized" firms that are more than $25M of AUM. Accordingly, the Investment Adviser Association (IAA) is suggesting that the SEC at least consider raising the $25M exemption threshold to widen the range of what constitutes a small business (given that in practice, 87.5% of SEC-registered investment advisers employ fewer than 50 people anyway, and the majority employ fewer than 10), or alternatively to determine what is "small" based on the RIA's number of non-clerical (i.e., advisor) employees (of which the median across the whole industry is only 9), in what may be a first-time attempt to shift small-vs-large regulatory thresholds away from an AUM basis and towards an employee-count-based determination instead.
30% Of Clients Say They Hide Spending Habits From Advisors (Jacqueline Sergeant, Financial Advisor) - According to a recent survey from eMoney Advisor, more than 1/3 of Americans state that they are still not comfortable seeking out professional advice, and amongst those who do, 30% still state that they hide information about their spending habits from their advisor. The reticence to share detailed financial and spending information appears to be part of a broader challenge that for many, it's simply uncomfortable to talk about their finances in the first place, with 43% of the eMoney sample of 2,500 adults stating that they felt stressed, embarrassed, or confused when talking about their personal finances, and 20% flat out "never" talking about money with other people. In fact, the least comfortable conversation appears to be specifically talking about what people have (or don't have), with "bank account" ranking as the most common response (34%) that people are not comfortable discussing, followed by salary (22%), credit card debt (18%), retirement and investment choices (9% each), and then student loan debt (8%). For those who do seek out advice, the most common source to rely on is still parents or family members (37%), followed by a spouse (30%) and only then a financial advisor (22%).
10 Ways The Wealthy Buy Privacy (Bryce Sanders, ThinkAdvisor) - Significant affluence in modern society often leads to a certain form of celebrity status, which some people may enjoy, but others are eager to avoid, either because they simply don't enjoy the publicity itself (and the paparazzi that may expose more of their social or private lives than they are comfortable with), or fear that it may make them a target for anyone from financial scammers to even kidnappers or extortionists. As a result, it's not uncommon for very wealthy individuals to deliberately try to keep a low profile and maintain their privacy. Which may mean not only choosing to have their telephone numbers unlisted, but to donate anonymously (as large gifts are otherwise public information and can just make them a solicitation target for other non-profit organizations), to join private schools and private clubs simply to be less visible (or only engaged with other affluent individuals who similarly value their privacy), to maintain "hidden" houses that are deliberately not visible from the road, to take "exclusive" vacations to remote destinations (just to avoid any risk of paparazzi), and to deliberately "dress down" and not wear designer clothing or use expensive luggage (that draws attention to themselves). And notably, in the context of financial advisors, it's not uncommon for the affluent to try to maintain their privacy by deliberately transferring their assets and financial matters to another advisor in another location, specifically to have their accounts handled in a city where they're not known (to draw less local speculation about how much money they've got).
The Subscription Model Comes To Luxury Travel With Inspirato Pass (Claire Ballentine, Financial Advisor) - Last month, the travel club Inspirato launched a new "Inspirato Pass" service that allows customers to book unlimited stays in luxury vacation homes and five-star hotel brands, for a cost that starts at $2,500/month with no other nightly hotel rates or fees (though it does include an initial 6-month commitment), as the increasingly popular subscription model comes to the world of luxury travel. The key to the model is recognizing that luxury travel properties often have "unbooked inventory" - high-end rooms or entire properties that sit empty - with the goal that by converting luxury travel to a subscription model to take available rooms or properties, it may be feasible to generate more interest in the unbooked inventory at a reasonable cost (from Inspirato's own high-end homes, to high-end hotel brands, and Inspirato-only "experiences" such as cruises and safaris). For an extra $500/month, participants can then share their Pass with family and friends as well (when not already traveling and using properties themselves), or for $5,000/month families can have two active reservations at a time (e.g., by renting in south Florida for the season, but then taking a short trip from the Florida home to Paris for a weekend getaway). Ironically, from the hotel industry perspective, the appeal of the Inspirato Pass is that high-end hotels that have excess inventory can provide it to Inspirato without disclosing the cost in a manner that might encourage others to try to book last minute (because with the Inspirato Pass, the end-user doesn't pay anyway, it's covered by Inspirato through its monthly fee).
A Mexican Hospital, An American Surgeon, And A $5,000 Check (Yes, A Check) (Phil Galewitz, The New York Times) - The rising costs of health care and especially hospital services in the U.S. have in recent years led to a growing trend of "medical tourism", where people travel to foreign countries to have surgery done (sometimes even performed by U.S. physicians who fly there just to perform the procedure abroad). A recent case-in-point example is a woman who flew from Mississippi to Cancun for knee replacement surgery, to be performed by a doctor who flew in from Milwaukee for the procedure, for which the doctor was paid $2,700 (roughly 3X what he would have received to perform similar surgery in a U.S. hospital under Medicare), while the patient herself received a check for $5,000 from her employer (plus all travel costs) just to not have the surgery in a far-more-expensive U.S. setting. Of course, the key concern for most considering such medical tourism is whether the foreign facilities will offer a similar quality of care as is available in the U.S., but now an organization called the North American Specialty Hospital (NASH) has been organized specifically to facilitate treatment of U.S. patients by U.S. doctors in quality foreign hospitals (for which NASH is paid a fixed fee, typically by an employer who hopes that the arrangement will save on total costs, as the aforementioned knee surgery would cost in the U.S. anywhere from $30,000 to $90,000, but all-in was only $12,000 in Cancun). Of course, even with American surgeons, there's still a risk that the rest of the foreign medical team may not be as skilled, and the foreign hospital may not be fully equipped for adverse contingencies that could arise during surgery. And ironically, the fact that the physician is still from the U.S. means that patients may still have recourse to sue for medical malpractice in the U.S. if something goes wrong. Still, though, with employers who report that supporting medical tourism is saving the business as much as half of its health care costs, the trend may only continue to grow, especially if organizations like NASH are successful at getting U.S. consumers to trust the quality of care at foreign hospitals.
The Right Way To Use Google Reviews To Attract Prospects (Lee Delahoussaye, Advisor Perspectives) - In an increasingly digital world where consumers leverage the internet to decide what to buy or what professional to engage, online reviews of prior experiences with the vendor or provider are becoming an increasingly relevant way for consumers to decide who to hire. The caveat, of course, is that when it comes to financial advisors, it's not permitted to use testimonials in the first place to share the experience that other/prior clients have had. However, technically, the anti-testimonial rule just prevents advisors from sharing testimonials themselves; it doesn't prohibit testimonials from existing outside of the advisor's control, on third-party review sites. Accordingly, with widely popular review platforms like Google reviews (generally attached directly to Google Maps search results), there's actually nothing wrong with clients having posted Google reviews, or even directing clients to those third-party reviews on a third-party site; however, it is not permitted to author reviews yourself or in the client's name (or write the review for the client to post), to compensate clients to post a review, publish the reviews in advertisements, or to respond to, alter, delete, or "like" the review. Which is important not only because positive reviews can encourage prospects who are searching to engage with the advisor, but also because an advisory firm that doesn't have any reviews (e.g., the infamous "Be the first to leave a review" prompt) raises questions about how established the firm really is. Not to mention that Google reviews can actually impact search results for location-based searches (i.e., if a prospective client searches for "financial advisors near me", those with higher Google review ratings will be more likely to come up first). Accordingly, advisory firms should be certain to set up and claim their Google Business page, and make sure their firm is set up to receive reviews from clients who wish to leave one!
How To Use Google Analytics To Set And Track Goals For Your Financial Planning Firm (Katie DeMars, XY Planning Network) - Google Analytics has become the internet standard when it comes to tracking internet traffic to your website, with a plethora of available data about where visitors are coming from and what pages they're viewing. The caveat, however, is that just looking at traffic and where it goes doesn't necessarily clarify for the advisory firm whether it is achieving its goals of attracting prospective new clients to the firm (and if prospects do contact the firm through the website, it's not necessarily clear which of those visitors signed up, and what that particular individual was doing/viewing before engaging). To track what website visitors do down to the individual level, and whether they trigger certain goals of the website, it's necessary to not only install Google Analytics itself, but to set up the aptly titled "Goals" in Google Analytics. Although Google Analytics can actually track a wide range of goals, from how long a visitor remains on the website to how many pages they view, advisory firms will generally be most interested in tracking key metrics like whether the prospect reached certain pages (e.g., the firm's "Contact Us" page, or, better yet, the "Thank You for Contacting Us" page that only results from someone who actually submits an inquiry), or triggers a similar "Event" (such as viewing the firm's intro video or downloading its brochure). Setting up Goals is done in the Google Analytics Admin interface, which has a section specifically called "Goals", where the particular Goal can be configured (including Templates for common scenarios, including "visited the Contact Us page"). More sophisticated users may even want to track an entire 'Funnel' of how visitors track through the various pages of their website (e.g., from "Who We Are" to "What We Do" and then "Pricing" and then "Contact Us"). Though for most advisory firms, the starting point is simply to know whether prospective clients who contacted the firm did so coming from a Google search, a social media link, or a referral from another website, and what pages exactly the prospect viewed before deciding to reach out... all of which can be easily tracked with Google Analytics Goals.
10 Ways To Restart Your (Stalled) Prospecting Efforts (Bryce Sanders, Iris.xyz) - In the early years of an advisory firm, there's a heavy emphasis on marketing and prospecting, when advisors have a lot of time and not a lot of clients, and a strong desire and motivation to grow their client base (and their income) by finding more. At some point, though, the need to prospect tends to diminish, as the advisory firm approaches capacity, and/or at least has enough existing clients to provide referrals that it's no longer as necessary to seek out new opportunities to meet with prospects. Yet if firms stop marketing and prospecting altogether, there's a risk that growth slows too much, with revenue flat-lining or even declining as clients begin to pass away or at least take increasingly large retirement withdrawals... forcing established advisors who haven't prospected for years to suddenly feel the need to do so again. So what are the options for established firms to re-start a dormant prospecting pipeline? Sanders has several suggestions, including: try to start getting more socially active with existing clients, as a way to meet and get introductions to their acquaintances; make a list of your top clients, and go see them anew, with a specific focus on widening the box beyond whatever you did for them originally (which may still be the narrow way they view your services), and remind them of all the other things you do/offer as well; reach out to clients who departed in the past, who may have had a change of heart; come up with some good (or better) stories of how you help people, so when someone next asks "How's business going?" you've got a relevant story that indirectly highlights what you do and the service you provide; reach out to clients with whom you've had 'big wins' in the past, and ask them if they know anyone else that might need the same kind of help; widen your circle by becoming active with a non-profit organization or through social media; or just look around at some other advisors (locally or in your organization) who are having prospecting success, and ask them what's working for them lately!?
An Open Letter To Planners Of Color (Rianka Dorsainvil, Financial Planning) - One of the great challenges in professions with a lack of diversity, such as financial planning, is that efforts to enhance diversity, that involve hiring a more diverse range of advisors, don't change the fact that those in the minority are still in the minority, potentially leading to even more uncomfortable pressure on the diverse individual (e.g., being the only person of color in a room full of white advisors). As Dorsainvil notes, these are challenges she has had to navigate as well, having successfully started and grown an advisory firm as a woman of color, and that even in the face of success there are still substantial ongoing challenges. From whether to wear your hair naturally (with recent studies showing that women of color are still discriminated against in the workplace because of their hair, with one of Dorsainvil's clients once remarking that she looked more "casual" than her usual professional look by wearing her hair naturally), to receiving pushback from voicing different ideas and perspectives (that can easily shake one's self-confidence), and the culture shock of entering the profession where, for many minorities, almost no one else looks like them (especially jarring for those who come from HBCUs where the opposite was true). Ultimately, though, Dorsainvil urges that everyone ultimately must be true to themselves, and that the best way to deal with the culture shock and challenges of a non-diverse industry is to "find your tribe" of others with whom you can connect and find support (a theme she explores further in her 2050 Trailblazers podcast as well).
What The CFP Board Needs To Do From Here (Bob Veres, Advisor Perspectives) - For many CFP certificants, it was not surprising to read the recent Wall Street Journal "revelation" that there are a number of CFP certificants who have blemished records of working with clients (or in some cases, carry outright felony convictions), as many advisors see problematic "fellow advisors" when new clients come in having been harmed by one. However, the sheer scope of the improprieties - with The Wall Street Journal finding 6,300 advisors with disclosure events out of over 70,000 CFP practitioners on the CFP Board's "Let's Make A Plan" website - was surprising for some. However, notwithstanding the fact that many CFP professionals have raised red flags about the issue of CFP Board's lax enforcement for years (due in large part to its own limitations in investigative powers since the CFP Board isn't actually sanctioned as a regulator), Veres notes that the real question is what the CFP Board does going forward from here. To some extent, the challenge for the CFP Board has been its strong focus on growth (at a potential cost of not exorcising bad apples from its ranks), though Veres notes that growth is a relevant and appropriate goal for the CFP Board, supporting both its ability to maintain the integrity of the CFP marks itself, and to attract enough CFP professionals so that even if a group of them objects to something (e.g., broker-dealers that have fought the increase in the CFP Board's fiduciary standard) there would be enough CFP professionals that the CFP Board wouldn't have to acquiesce. Eventually for the CFP marks to be relevant, they do need to be promoted to the public (which again requires resources and a sizable base of CFP professionals to amortize the cost). Or stated more simply, it doesn't help to try to create a profession and enforce standards for the CFP marks if no one knows about or cares about the marks in the first place. Still, though, Veres suggests that now the CFP Board must embark on the next phase of its journey: to more carefully vet the holders of CFP marks, and ensure they actually meet the (new, higher) standards the CFP Board espouses. Which Veres believes must go beyond just checking other public records like the SEC and FINRA for public disclosures of CFP certificants, but also figuring out how to follow up more constructively when reports of problem behavior are submitted (and not just insist that the CFP Board "does not comment on investigations", which raises concerns that it is simply ignoring them or sweeping them under the rug), and to investigate those claims more aggressively. Though Veres suggests that in the end, it is still appropriate for the CFP Board to continue to market the CFP marks (and not divert funds away from marketing and towards enforcement), though he does emphasize that it's perhaps finally time for the CFP Board to fully live up to the promises being made in those advertisements.
As It Turns 50, The Financial Planning Profession Is In Peril (Dan Moisand, Financial Advisor) - According to "The History of Financial Planning", it was on December 12th of 1969 that a group of 13 men gathered together at the O'Hare Hilton in Chicago and declared that covering a wide range of personal financial issues in a single engagement should be viewed as a distinct and unique service unto itself... what we now know as "financial planning", and eventually spawned a number of organizations to serve and support the emerging profession, from the International Board of Standards and Practices for Certified Financial Planners (the IBCFP, now known as the CFP Board), to the International Association for Financial Planners (IAFP) and the Institute of Certified Financial Planners (ICFP) that merged in 2000 to become the Financial Planning Association (FPA), and more. Over the years, financial planning has evolved its own Code of Ethics and Practice Standards, its own educational institutions, a certification exam, research publications like the Journal of Financial Planning, and more, as the number of CFP certificants itself continues to grow (now nearly 85,000). However, Moisand notes that ultimately, as financial planning grows in demand and acceptance by consumers, there is an increasing burden of responsibility on the shoulders of planners to live up to... expressed in the form of the advisor's fiduciary duty to clients, and a standard that itself has been increasingly contentious in the past 20 years as sales organizations have increasingly co-opted the "financial advisor" title and "financial planning" service as a means to sell products (and live under a lower sales-based regulatory standard). Which raises the concern of who will carry and advocate that burden on behalf of the profession; for instance, a decade ago it was the FPA that sued the SEC and won a key victory in requiring regulators to maintain a separation between sales and advice (by voiding a broker-dealer exemption that would have allowed such firms to charge ongoing fees without the fiduciary duty such fees require under the Investment Advisers Act of 1940), yet today the botched rollout of the FPA's "OneFPA Network" may so set back the organization's momentum and resources that it can no longer carry the torch for the profession, and the CFP Board is facing its own public scrutiny for failing to effectively enforce its professional standards. The key point, though, is simply that the success of financial planning over the past 50 years has also become its greatest danger, as sales-based organizations increasingly seek to don the title and benefits of financial planning without adhering to its client-centric standards, which means that for financial planning to continue to succeed further in the next 50 years, it is imperative that the profession find a way to advocate for and ultimately enforce its own professional standards, or the status of the profession itself may be in peril. The question, then, is what organization will be - or is capable of - taking up the charge from here?
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.
As a young advisor, the financial planning industry doesn’t come close earning the title of “profession”. Make money
while doing good. There, I corrected it.