Weekend Reading for Financial Planners (Jan 16-17)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

Biden's $1.9T Covid Relief Plan Calls For Stimulus Checks, Unemployment Support, And More (Thomas Franck, CNBC) - This week, President-elect Biden announced a new $1.9 trillion coronavirus relief proposal, dubbed the "American Rescue Plan", which is intended to provide additional stimulus to the US economy until the COVID-19 vaccine is widely available. Key points of the proposal include a new $1,400 stimulus check (intended to bring the total up to $2,000 on top of the $600 December payment); making the Child Tax Credit fully refundable for 2021 and increasing the credit to $3,000 per child (and $3,600 for children under age 6); increasing the Federal minimum wage to $15/hour and Federal unemployment benefits for $400/week through the end of September; extending eviction and foreclosure moratoriums until the end of September; $50B for COVID-19 testing and $20B for a national vaccine program in partnership with states; and more than $500B in various aid programs for state and local governments and K-12 and higher educational institutions. In addition, a potential $10,000 student debt forgiveness offering is still under consideration as well. Notably, Biden's team has already indicated that the American Rescue Plan is intended to be only the first of two legislative proposals, with a second anticipated in February that is intended to tackle Biden's longer-term goals in areas from job creation to reforming infrastructure and combating climate change to advancing racial equity. Of course, it ultimately remains to be seen whether the legislation can be passed in a Congress where the Democrats still hold only the narrowest of majorities in the Senate, though some Republicans have already signaled bipartisan support for key provisions (including especially an additional $1,400 economic stimulus check), and there is some possibility that the legislation could be structured as a budget reconciliation bill (which would permit it to be passed with a simple majority in a divided Senate with Vice President Harris' tie-breaker vote).

Senate Leader On Tax Policy Seeks To Increase Capital Gains Taxes (Mark Schoeff, Investment News) - As control of the Senate shifts, Senator Ron Wyden (D-Ore.) is set to become chairman of the Senate Financial Committee and has indicated that he plans to introduce a proposal that would "reform capital gains taxes on the top 0.3% of taxpayers" by equalizing rates on wages and investment income. The proposal is broadly consistent with the previously announced Biden Tax Plan, that proposed long-term capital gains would be taxed as ordinary income to the extent they (on top of all other income) exceed $1M, effectively creating a new top capital gains tax bracket of 37% (or 39.6%, if Biden also increases the top tax bracket itself as previously proposed). In addition, Wyden has indicated plans to change the rules for the step-up in basis at death, to further prevent the higher long-term capital gains rate from being circumvented by simply holding until death, while acknowledging the challenges that capital gains taxes at death could create for small/family businesses (signaling a potential "step-up exemption amount" that may become available, similar to the structure used when estate taxes and step-up in basis were temporarily repealed in 2010). As with other Democrat proposals, though, it's not clear if such changes will be able to muster the 60 Senate votes necessary to avoid a filibuster (which would require bipartisan support from Republicans), though notably tax legislation, in particular, can be passed as a budget reconciliation bill with a simple majority (as long as all Senate Democrats vote for it) as long as it extends no longer than 10 years into the future (i.e., the proposal would need to have a 'sunset' provision after no more than 10 years, akin to President Trump's own Tax Cuts and Jobs Act, which sunsets after 2025).

Biden Poised To Pick Wall Street Critic Gary Gensler To Lead SEC (Saleha Mohsin & Jennifer Epstein & Robert Schmidt & Benjamin Bain, Bloomberg) - This week, President-elect Biden signaled that Gary Gensler is the leading pick to become the next SEC Commissioner. Gensler was most recently known as the leader of the CFTC (Commodity Futures Trading Commission) during the Obama administration, where he led oversight reforms on the massive over-the-counter swaps market in the aftermath of the financial crisis (and frequently pitting Gensler against major banks that resisted the changes). Notably, though, while President Obama selected Mary Jo White as SEC Commissioner (whose background was as a prosecutor, and not surprisingly took an aggressive enforcement approach to SEC leadership), Gensler's background as a policy-style reformer suggests that the coming years will more likely contain new SEC rulemaking (as opposed to enforcement actions) to improve consumer protections, including an active look at cryptocurrencies and the role of FinTech (as Gensler himself currently leads a program at MIT called FinTech@CSAIL that aims to connect FinTech companies and academics). In the context of financial advisors, this includes the potential that Gensler will take a hard look at Regulation Best Interest, which has been widely criticized by fiduciary advocates as blurring the lines between brokers and advisers instead of clarifying for consumers the differences between the two.

Credit Cards Dangle Bevy Of New Perks To Antsy Premium Card Customers (Jenny Surane, MSN Money) - In recent years, "premium" credit cards with annual fees as much as $500/year in exchange for high-end travel and restaurant perks have been increasingly popular... until in 2020, when the pandemic shut down most restaurants and consumer travel, and suddenly made a wide swath of premium credit card holders question why they were still paying their annual fees. In response, some credit card companies have been crediting some or all of their 2020 fees back to their cardholders to keep them on board, and in the meantime are rapidly rebuilding their premium perks... and in the process, opening the door to a new array of decisions about what the "best" credit card is, depending on a household's particular (post-pandemic) spending habits. In some cases, the expansion is about allowing points and statement credits to be used in more ways - e.g., not only towards travel but also at gas stations or supermarkets. Though given the 'premium' customer that is often attracted to a premium credit card, some companies have been rolling out even more upscale benefits, such as AmEx's recent inclusion of up to $650 for virtual personal training sessions from Equinox, and $150 back for food-delivery service Home Chef. Other "at-home essentials" categories being added for some cards include perks for everything from streaming and wireless services, e-commerce, and (home office) business essentials.

6 Apps To Help You Trim Down Subscriptions And Save Money (David Nield, Wired) - In the modern "subscription economy", it seems that everything is becoming available 'As A Service'... for an ongoing subscription fee, from streaming services to food delivery, exercise equipment to nearly every app on our smartphones. The good news is that subscription models allow us to engage with the services we enjoy most on an ongoing basis in a cost-effective manner and make it easier for the business to grow and scale its services with a more stable revenue stream. The bad news is that some services make it easy to sign up but hard to cancel, and many of us have so many different subscription services we've clicked on over the years that it's hard to even keep up with them and figure out which to keep (or not) as they just continue to automatically bill us each month. To fill the void, a growing number of services and apps are now becoming available as a tool to help us manage (and where appropriate, unsubscribe) from the array of subscription services, including: TrueBill, which parses through connected bank accounts to identify recurring payments, and then assist with the unsubscribe process for any you wish to cancel; Trim, which is available not only on a smartphone but also a desktop (via a browser), also aggregates spending information and provides a simplified summary of where all your money is going (along with highlighting which are recurring payments in particular); Clarity Money, which is part of Goldman Sachs' Marcus bank offering, and thus not only provides spending tips but also nudges to move your money to a higher-yielding bank account (with Marcus!); Bobby, which is built 'just' to keep tabs on ongoing subscriptions (without the 'distraction' of more comprehensive money management features); TrackMySubs, which lets you simply manually add and track your own subscriptions, and provides reminders of them all in one place (and the ability to program reminders when they're about to renew); and DoNotPay, which bills itself as a "robo-lawyer" to help everything from canceling digital subscriptions to contesting parking tickets.

Where Are You Still Using Single-Ply (Tim Ferris) - For most people who are frugal, doing so is not simply a series of frugal choices one after another, but creating frugal 'habits' that work because we don't have to keep thinking about the choices we may be making (and what we're giving up). The caveat, though, is that old habits die hard... and sometimes we continue our frugal habits long past the point where they are actually necessary or even useful. For Ferriss, a case-in-point example was the decision he made long ago to save a few dollars every month buying single-ply toilet paper... and then remain stuck in the habit, long past the point when he really needed to save $5/month (to when he could easily afford to buy higher-quality toilet paper). But the reality is that often frugal financial decisions that stay with us long past the point where we really need to be that frugal apply far beyond just the decision about what toilet paper to buy. To take a fresh look at spending, Ferriss suggests a 2-step process: 1) look back at where you spent money in the past year, and where in particular you felt that the money was best spent (and also where it was not worthwhile); and 2) look at the areas that positively impacted your life, but you spent less than $100 (or just in general, what areas you do on a daily or weekly basis for cheap), and ask yourself instead what it would have looked like to spend $1,000 or even $10,000 in that area (for Ferriss, these were mostly around sleep, health, travel/experiences, and gifts for family and friends). Ultimately, though, the key point is simply that instead of falling into the frugality habit of "How can I avoid spending this dollar?", ask instead, "If I spend this dollar, what is the highest-leverage place to spend it?"

The One Word that Closes Prospects (Sara Grillo, Advisor Perspectives) - In the midst of a recent re-design of her website and challenges with configuring her contact form, Grillo simplified her Contact page to simply read, "Only cool people please. Email me directly at <email address>". And then suddenly found that all of her email inquiries were suddenly anchored on 'cool', from "Hey Sara, I think I’m cool enough to email you…not sure…" to "Here’s an idea for you. Let me know if you think it’s cool or not." In other words, by specifying "cool people only", it suddenly became a qualifier that made people want to try to "qualify" to make the outreach! The key is that by using the word "only", you effectively specify what Grillo calls the "positive opposite" outcome from where they are currently situated, as using "only" allows the advisor to qualify the prospect (without having them feel judged), implies exclusivity (and makes us want to be able to participate), shows that you are focused on them (for those who do meet the "only" criteria), and ultimately inspires action by demonstrating cause and effect ("if you meet the criteria, then you will be able to have access..."). For instance, an advisory firm might stop saying "We work with individuals, families, and business owners in our area and help them achieve their goals such as buying a house, putting their kids through college, and retiring comfortably" and instead say "We only work with families with considerable wealth who stand to greatly benefit from having a separately managed account in our deep-value style. As a result, the minimum portfolio size of a typical client is typically $2MM or higher". Or for a client who balks at going through the financial planning process, instead of saying, "But you needed to do this yesterday. Don’t you think you need a comprehensive overview of your financial goals and the steps you need to achieve them? You need to do this so you won’t go broke in retirement and have to live with your kids." Try instead: "I only suggest creating a financial plan when I see someone at risk of committing an oversight that may not be possible to fix. What’s your strategy going to be to make sure this doesn’t happen?" And watch how the dynamics of the conversation change.

Rethinking If (or How) You Use Social Media (Julie Littlechild, Absolute Engagement) - The conventional view is that feeling 'connected' to others requires being able to meet and be with them in person. Yet while the pandemic has in many ways reinforced this view - with feelings of isolation that many have experienced in the social distancing era - it has also revealed that there are ways that we can find connectedness with others, from virtual meetings to webinars, discussion groups to social media. Because as Littlechild notes, in the end, connection is less about the form of communication, and more about its intention and focus. Which is relevant not only when it comes to meeting with clients virtually (e.g., via Zoom), but also in how we communicate "socially"... through social media. For instance, while many financial advisors have eschewed social media because, at best, only a subset of clients indicate that they want to 'follow' their advisor on social media, the reality is that asking about the form of communication without signifying the intent is meaningless... akin to asking clients if they are interested in receiving emails or telephone calls (for which the natural response is... well, that depends, what will you be calling or emailing me about?). Accordingly, Littlechild suggests that a better question is asking clients "what would you like to learn more about through our social media?" And share that instead. And in evaluating this question herself, Littlechild suggests that in the end, often what clients really want to learn about is their advisor themselves - the human being behind the professional which in turn helps to humanize the advisor-client relationship itself.

There's No Such Thing As A Local Advisor Anymore (Josh Brown, Reformed Broker) - One of the biggest 'surprises' for many advisory firms in 2020 was that social distancing and mandatory shutdowns forced many advisors to stop meeting with their clients in-person and meet only virtually instead, e-signing the necessary "paperwork" virtually as well... and most clients stayed, with little change in retention rates from their 100%-in-person retention history. On the one hand, this shift has led many advisory firms to take a hard look at what does need to return to in-person (or not) as vaccines are distributed and being in-person becomes feasible again (but meeting with clients virtually also remains an option). On the other hand, though, Brown notes that as clients have become comfortable doing business online and meeting with their advisors virtually, the decision about whom to work with as an advisor is changing too... because location no longer has to be the driver it once was for a consumer trying to choose a financial advisor to work with. Or stated more simply, when geography is no longer a barrier, will consumers still choose to work with the nearest advisor... or instead seek out the best (whatever the "best" means for their particular needs and situation)? And the phenomenon isn't just about next generation Millennial clients, either; if X'ers and Baby Boomers can buy their groceries on the internet and even meet with their doctors virtually, they can work with almost any professional online.  From the advisor's perspective, the good news is this means advisors themselves can market more broadly, no longer constrained to their local geography (and local market opportunities) to grow an advisory business. However, it also means that locally focused advisors may face new competition from non-local competitors they have never had to compete against for clients in the past. This means, simply put, that as we emerge on the other side of the pandemic, "we find ourselves in a whole new game" when it comes to business development and how to grow an advisory firm.

The Payback From A Learning Culture (Brett Davidson, FP Advance) - For those who own their own advisory firm, the reality is that being an owner is about more than 'just' ownership... it's also an obligation to lead the firm and its team in serving clients. And in a service-based business like financial planning, arguably the team should be the first focus of the advisory firm leader; after all, if the team isn't happy, they can't deliver an effective client experience that is necessary to keep clients happy (which in turn is necessary to keep the business's profitability happy!). From this perspective, employees aren't just a cost of the business to be managed, but an asset to be invested in, in order to create happier outcomes for clients and the business as a whole. Accordingly, Davidson suggests that it's key to building a culture that is focused on the ongoing learning and personal development of everyone on the team. Notably, though, investing into the development of the team is about more than just mapping out month-by-month and quarter-by-quarter what the firm's training/learning programs will be; it also requires leadership to lead by example, driving an attitude of learning and personal development from the top down. In other words, if the advisory firm leader is going to ask team members to get their CFP certification, the owner should also be pursuing a post-CFP designation (or perhaps an MBA if they're looking to grow and scale the business?). If the team is expected to get more training in software tools from advisor CRM to essentials like Word and Excel, the advisory firm owner should participate in software training as well. The key point, though, is simply that it's not enough to ask employees to learn and get better for the sake of the business; a culture of learning and curiosity starts with the owners themselves, and the behaviors they model that show what "success" looks like for everyone.

The Wisdom of the Inner Crowd (Alex Tabarrok, Marginal Revolution) - One of the most fascinating phenomena of markets is know as the "wisdom of crowds"... that a group of people making an estimate of some unknown quantity, from the number of jellybeans in a jar to the 'right' value of a stock, can, in the aggregate, average out with remarkably accurate estimates, even though any one person in particular may slightly or substantially over- or under-estimate. The fact that a group of people with disparate information can average out to the 'right' answer is presumed to be a function of multiple people each having their own perspective being able to 'average' those diverse perspectives into the right answer (even though not any one person in particular may be able to observe all that information). But in a fascinating new research paper by Philippe Van de Calseyde and Emir Efendic, it turns out that even if we ourselves make a first estimate and then try to make a second estimate by consciously taking the perspective of someone else we disagree with, that we can still arrive at remarkably accurate estimates... a phenomenon the researchers call the "wisdom of the inner crowd". In essence, it appears that the strategy 'works' because, by consciously taking a disagreeing perspective, we are 'forced' to reflect on information and options that we may not have previously considered, resulting in a more accurate estimate. Which is important in the context of not only brainstorming for ourselves, but thinking in groups as well, because it suggests that the best decisions may require not only putting many minds together to evaluate a problem, but specifically those who may otherwise disagree with each other (and thus will force full consideration of a wider range of issues!).

The Case For Longer But More Thoughtful Meetings (Nadia Tatlow, Fast Company) - Most people who have worked in a business of any size have experienced the challenge of meetings that feel like they are longer than necessary (or that didn't need to happen at all). And the phenomenon has seemingly only become worse in a pandemic work-from-home environment where internal team meetings are virtual (e.g., via Zoom, Slack, or Teams) and even harder to focus on and stay engaged. Yet the challenge is that by trying to eschew meetings - or make them significantly shorter - team members can become increasingly isolated, views never have the opportunity for cross-pollination, and in the end the most important ideas that really move the business forward never get discussed in the first place. To which the obvious alternative is to have longer meetings instead. Not to simply have (longer) meetings for the sake of having (longer) meetings, but because scheduling more time for the meeting allows time to talk about the 'why' of the matter, and gives more time to have a real discussion about the underlying issues and potential solutions, ultimately driving greater team alignment (and allowing more flexibility for others who may learn and process their thoughts in different ways or simply need more time to process their ideas). Notably, though, having productive long meetings still requires ensuring that the right topics are being discussed in the first place; at Tatlow's own company, they use an internal tool called "Build Docs", strategy documents that specify the Objective(s) and Stakeholders or Target Audiences upfront, so everyone understand the focus of the discussion in the first place (and management can triage amongst the ideas to figure out what to discuss first). The key point, though, is simply that the feeling of meeting drudgery is often less about the problem of "meetings" themselves, but the result of meetings that aren't clearly planned out for their focus and relevance in the first place. The clearer the purpose of the meeting is, and the more relevant it is as a key issue for the company, the more the team will likely want to be part of the discussion... and want more time to have that meaningful conversation!

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, and Craig Iskowitz's "Wealth Management Today" blog as well.