Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement that Golden Gate University has launched the first Master's in Financial Planning with a concentration in financial life planning, as financial planning education providers increasingly shift to focus on training new financial advisors in the communication and empathy skills needed for future success. Also in the news this week was the announcement that the Treasury is shutting down the MyRA program (after it failed to blossom into a full-blown automatic IRA enrollment solution, and only a lackluster 20,000 households have signed up in the past two years), and for the first time an independent RIA successfully sued a large broker-dealer (for $1.5M!) for poaching one of its advisors who improperly took client information when he left (signaling a new escalation in the growing battle between broker-dealers and RIAs, as in the past it was only broker-dealers suing RIAs for poaching advisors, not the other way around!).
From there, we have a few practice management articles this week, including one about the importance of becoming an "emotionally intelligent CEO" for advisory firm founders who must transition from "just" being the lead advisor into being a leader and executive of the firm, another about what to do if an employee declines a promotion or opportunity for partnership, and why advisors need to be wary of asking "platitude" questions like "What keeps you up at night" when talking to prospects, and instead reframe question to get more concrete responses that help the advisor really understand how he/she can help.
We also feature several more technical articles, from a review of the rules on deducting long-term care expenses (not just LTC insurance, but the underlying expenses themselves for those who aren't fully insured!), to issues to consider when choosing a (family or corporate) trustee as part of the estate plan, and the rules for Medicaid recovery (where the state files a claim against a decedent's probate estate to recover state Medicaid expenses against any of the decedent's remaining assets at death that weren't already spent down).
We wrap up with three interesting articles, all looking at the connections between happiness, fulfillment, and how we spend our dollars: the first is a review of a recent study finding that spending money on timesaving tasks (e.g., hiring a maid, or ordering takeout for dinner) provides a greater happiness boost than spending on material goods; the second looks at the decline of conspicuous consumption amongst the affluent, and the rise of "inconspicuous consumption" amongst the upper-middle-class (spending on things like services and education), in a manner that doesn't overtly display social status, but may reduce social mobility; and the third is a fascinating interview about the latest research on positive psychology and what leads us to really feel fulfilled in our lives.
Enjoy the "light" reading!
Weekend reading for July 29th/30th:
New Master's Degree To Teach Advisers Financial Life Planning Skills (Liz Skinner, Investment News) - As technology automation increasingly drives financial advisors towards the "soft" interior skills of financial planning, a gap is emerging from financial planning programs between the "knowledge-centric" content typically taught, and the communication and empathy skills necessary for new financial advisors to succeed in the future. To fill the void, Golden Gate University has announced an expansion of its existing Master's Degree in Financial Planning program, offering a "concentration in financial life planning". The new program will combine together research on counseling and communications, positive psychology, the teachings of George Kinder and Dick Wagner, and guest lectures from financial life planning leaders like Rick Kahler, Ted and Brad Klontz, and Susan Bradley. Notably, the new degree is specifically positioned as a "post-CFP" educational program, and in fact will require having already passed the CFP exam as a prerequisite. Students can enroll to participate either in-person on the GGU campus in San Francisco, or online as distance-based students.
Trump Administration To Wind Down Obama-Era MyRA Retirement Program (Kate Davidson, Wall Street Journal) - The MyRA program was first announced in early 2014 and formally launched in November 2015, as a no-fee Roth IRA that would be administered directly by the US Treasury, allow participants access to an equivalent to the popular "G Fund" offered inside the government's Thrift Savings Plan, and allow for contributions to occur directly by automatic payroll deposit (for contributions as small as $25 initially, and $5/paycheck thereafter). However, the results thus far have been quite lackluster, with a total of just 20,000 people signing up for the program so far (despite a whopping cost of $70M to manage the program over the past several years). Ultimately, it's not clear whether the program failed because the MyRA was really nothing more than another way to open a Roth IRA (for which there are already ample Financial Institutions available) - especially since MyRA participants would be forced to roll over the account to a standalone Financial Institution once the account balance reached $15,000 anyway - or whether proponents simply underestimated the challenge of education and outreach to convince people to sign up. Notably, the MyRA - with its ability to handle payroll direct deposits - was also viewed by some as a potential conduit to eventually creating a standardized IRA automatic enrollment program nationwide... but with Federal legislation languishing (and auto-IRAs not being a stated priority from President Trump), and individual states now taking up the auto-IRA effort instead, the Treasury has declared that the MyRA program will be wound down over the coming months, and participants will be given the opportunity to roll their accounts over to other Roth IRA providers.
Trial Court Orders Ameriprise To Pay RIA Firm $1.5M (Liz Skinner, Investment News) - With the slowly rising volume of "breakaway brokers" transitioning to independent RIAs, lawsuits from broker-dealers against their brokers who violate the Broker Protocol, and the independent RIAs they join, are unfortunately inevitable. However, in this case, it was an advisor who left an independent RIA - from multi-billion-dollar RIA Hanson McClain - to join broker-dealer Ameriprise, who got sued for taking confidential information (including names, account numbers, account values, addresses, emails, and more) about 200 clients with him and sharing it with his new Ameriprise branch manager. And ultimately, a trial court judge affirmed that the departing advisor had breached his employment contract with Hanson McClain, and that both the advisor and Ameriprise's branch manager had violated fair business practices and misappropriated trade secrets, though Hanson notes that the matter only went to trial after both FINRA and the CFP Board declined to pursue the matter. The fact that Hanson McClain was not itself a signatory to the Broker Protocol - which is unusual for independent RIAs to sign, unless they're recruiting out of broker-dealers - likely made it even harder for the departing advisor to justify taking client information, although notably the breadth of client information the advisor took went far beyond what the Broker Protocol would have allowed anyway. More generally, though, the case is arguably a notable landmark, as historically most lawsuits between broker-dealers and independent RIAs were for the broker violating Protocol in taking/giving too much information to the independent RIA, but now there is a precedent for RIAs to defend their turf when large broker-dealers recruit against them as well.
An Emotionally Intelligent CEO (Hoon Kang, Advisor Perspectives) - One of the biggest challenges in growing advisory firms is that the typical advisor is a "technician", skilled at providing financial advice to clients... not at being an executive and leader in their own business. In fact, Kang suggests that the reason most advisory firms eventually plateau in their growth is that they hit a leadership wall, where the founder can't make the changes necessary to transition their role away from "advisor" and into being the firm's "leader" instead. As a case-in-point example of what it takes to be an "emotionally intelligent" CEO, Kang cites a response by (non-advisory-industry) Gravity Payments CEO Dan Price to a negative review his company received by an employee on Glassdoor (the employer/job review site). Notable aspects of the CEO response include: it starts out with an acknowledgement of the employee's frustration and unhappiness; it acknowledges that while not everyone may feel like they're getting paid what they should, the firm is actively working to improve the situation (since as a startup, their funds are limited); it shares the facts of how the firm is making progress and improving on the issue; and it explains what the feedback mechanisms are to ensure that all employees have an opportunity to be heard and share any/all concerns they have (about their job or the company).
Have You Ever Turned Down A Promotion? (Mark Tibergien, Investment Advisor) - For most employees, the goal is to grow income and climb the career ladder to greater opportunities and more responsibilities, and most firms are more than happy to see employees grow and develop in a way that benefits both the employee and the firm. However, not everyone has the aspiration of a bigger career, particularly amongst financial advisors where for many, the psychological rewards of helping clients, and the flexibility potential of work/life balance, which can lead to the potentially awkward situation where a firm offers a promotion to the employee... and the employee turns it down. For many advisory firms, the event of an employee declining a promotion can throw a wrench into the succession plans of the firm... for instance, when a "successful" advisor in the firm chooses not to take on the responsibility of buying in and becoming an equity partner, or requests not to take on a leadership position and instead stay as "just" an advisor. Which in turn can raise fears and concerns from the employee about whether their current job could be at risk if they choose to decline a promotion to the next step on the ladder, especially if their refusal to move up means the firm might want to replace them with someone else who is more of an "up-and-comer" instead. Tibergien suggests that the starting point for working through the dilemma is a clear conversation between the employee and their manager, covering four main areas: 1) what are the employee's core strengths and interests (to clarify if the new job really is a good fit, or if the employee might be correctly concerned that they're going to be shifted out of their core competency); 2) how do you define success (as for advisory firm owners, success is typically about ownership and independence, but that's not always true of employees, who often take the job precisely because they wanted to be employees and not independent owners); 3) is the work environment enjoyable (to clarify if there are external factors about the potential promotion that may be complicating the situation); and 4) consider "if not this, then what?" (i.e., is there another solution to make the job work). And ultimately, for those who are considering a promotion - or rather, considering whether to turn one down - be certain to take a hard look in the mirror, and consider whether it's because you truly don't want the job, or whether it's simply because burdening yourself with self-doubt or a fear of change for what likely would be a positive step in the long run!
Stop Asking These Weak Questions To Win More Clients (Bill Cates, Referral Coach) - Questions like "What keeps you up at night?" are a popular staple of the data-gathering and rapport-building process for financial advisors meeting with prospective new clients, but Cates points out that the approach is actually remarkably ineffective... in some cases, because what keeps the prospect up is a financial or other problem where the advisor doesn't actually have a product or service to solve it (which makes it a wasted question), and more often because most people sleep pretty well at night (even if they have a few financial stresses!). More broadly, the problem is that advisors have a tendency to ask "platitude" questions in an attempt to gather open-ended information, but don't focus enough on asking "high value" questions in the first place. For instance, instead of saying "tell me about your dreams", ask "What is the one thing that you would change related to ____ that would make a huge difference for you?" Or Dan Sullivan's famous "R Factor" question: "If we were to meet 3 years from today, what has to happen for you to feel good about our advisory relationship?" The key is to ask questions with specificity - ones that allow an open-ended response of whatever is on the client's mind, but allow the client to answer in specific and concrete ways, where you actually know exactly what you need to do to make the advisory relationship successful. And then as they begin to respond, remember not to try to answer and solve the problem on the spot; say "Tell me more", and get them to expound on the topic further, which both gives you better perspective on their concerns, and also makes the prospect feel more heard and understood.
Deducting The Costs Of Long-Term Care Expenses (Julie Welch & Cara Smith, Journal of Financial Planning) - For many retirees, long-term care expenses are a steadily rising cost as health deteriorates and increasing amounts of care and support are needed. However, the rules permitting tax deductions for the various costs of long-term care are complex. The starting point is the medical expense deduction, which allows any medical expenses in excess of 10%-of-AGI to be deducted (at least until/unless President Trump's proposed changes alter this), to the extent the costs were not already covered by insurance. However, medical expenses are payments for the "diagnoses, cure, mitigation, treatment, or prevention of disease"; in practice, this includes expenses for medical (and dental) insurance premiums, including Medicare Part B, along with prescription drugs, fees for doctors and hospitals, special medical equipment, and even certain improvements for your home (if needed for medical improvements). Medical expenses - for the purposes of deductibility - do also include nursing homes (as long as the medical need for the nursing home), and even for assisted living facilities, as long as the individual is "chronically ill" (unable to perform at least 2 out of 6 activities of daily living for at least 90 days) and the services are performed pursuant to a plan of care prescribed by a licensed health practitioner. In addition, for those who enter into various continuing ("lifetime") care communities, payments for one-time and ongoing fees that guarantee eventual access to a nursing home as part of the continuing care community are also tax deductible. Of course, for those who choose to insure, the payments for such expenses are generally not deductible - since they're paid for by the insurance - but a portion of long-term care insurance premiums themselves are deductible (up to certain age-based dollar limits, and combined with other medical expenses), with even more favorable above-the-line deductions for self-employed individuals.
Considerations For Choosing A Trustee (Philip Herzberg & Linda Lubitz Boone, Journal of Financial Planning) - Trusts are vehicles that can span multiple decades, and usually by design will typically be controlled by a trustee far beyond the life of the original grantor... which means it's especially important to give due consideration to both selecting a trustee, and establishing a mechanism to replace or appoint a new trustee in the future if necessary. Many people simply appoint a family member as the trustee, which works especially well for family real estate and family businesses, where it's especially important to have someone involved who knows and understands the family dynamics. Though with a family member as trustee, it's crucial to ensure that the prospective trustee actually understands the trust document, the responsibilities it entails, has the actual skills necessary to execute their role, and ideally get their permission in advance to be appointed (and clarify whether they want/expect to be paid for the role). In addition, remember that a "long-term" trust can outlive even a younger-than-the-grantor trustee, which means it's necessary to at least have a back-up, which could be another (ideally even younger) family member, or a professional or corporate trustee (such as a bank, trust company, or other neutral professional). The good news of using a third-party trustee, especially a corporate trustee, is that as an entity it can manage the responsibility of having a trust officer oversee the trust for the long run - even if it outlives any particular trustee. On the other hand, professional trustees may not fully understand family dynamics and concerns, and as a result some families decide to appoint co-trustees - one a family member, and the other a professional or corporate trustee, where the latter handles the technical administration of the trust, while the former aids in decisions regarding distributions for family members that may have known-to-family concerns and issues. Although it's important to bear in mind that professional trustees typically charge a percentage of assets under management, and may have minimums (e.g., $500,000), making that approach limited to only "larger" trusts. In some cases, grantors even create a "trust protector", whose sole role is having the ability to fire and hire trustees, to ensure an appropriate layer of checks and balances.
An Advisor's Guide To Medicaid Estate Recovery (Maureen Baxter, Commonwealth Independent Advisor) - Most advisors are familiar with Medicaid as the program that helps cover health care (and some long-term care) services for those with limited financial means. However, many don't realize that states may place a lien on the Medicaid recipient's probate estate (and in some states, non-probate assets as well, such as life insurance death benefits, or annuity or revocable living trust assets, along with first-party special needs trusts, and certain types of "Medicaid annuities") for the amount of benefits paid during his/her lifetime. There are protections in place for surviving spouses, minor children, and disabled family members, where the estate recovery process can be deferred by those impacted family members. In general, Medicaid retains the right to recover assets from the estates of decedents who received Medicaid benefits after age 55, or who lived permanently in a residential facility (regardless of age), and can pursue the cost of nursing facilities, hospital care, prescription drugs, and home and community-based care providers. Fortunately, the state is required to provide notification to recipients about the potential for estate recovery, both during the initial Medicaid application process, during the annual redetermination process, and after the individual passes away (so beneficiaries can request a hardship waiver if applicable). Notably, state long-term care partnership programs can expand the amount of assets that are protected from estate recovery. Nonetheless, family members who spend down "most" but not all assets when filing for Medicaid should bear in mind that states can still pursue any remaining assets after death, and some states have even raised the possibility of pursuing family members for such expenses under "filial responsibility" laws as state Medicaid budgets are increasingly strained.
Want To Be Happy? Buy More Takeout And Hire A Maid! (Niraj Chokshi, New York Times) - Most people are willing to spend a little time to try and save some money, but recent research shows that spending money to save time is the path more likely to boost our happiness. In a study from the Proceedings of the National Academy of Sciences, researchers Ashley Whillans, Elizabeth Dunn, and colleagues found that spending money to save time may reduce stress about the limited time in the day, and thereby improve happiness. For instance, an analysis of nearly 4,500 people in the US, Denmark, Canada, and the Netherlands found that timesaving purchases, such as ordering takeout food, taking a cab, hiring household help, or paying someone to run an errand, were associated with greater levels of life satisfaction. And the results were consistent regardless of where the people fell on the income spectrum; rich or poor, buying time led to improvements in happiness. To further clarify whether it was the spending money on timesaving purchases that was leading to the happiness (as compared to spending similar money on material goods), the researchers did a follow-up experiment, and affirmed that the happiness benefits were present only for time-saving purchases, and not for material goods. Though ironically, despite the benefits, the researchers also found that "buying time" is not currently very popular, as even amongst those who can afford to do so, only a slight majority currently spend money on timesaving tasks!
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.
Thanks as always for an informative weekend read. Enjoy your weekend.
Happy to be of service, Mark! 🙂
– Michael
Great selection of articles Michael. I particularly liked the one about buying time. I’ve written about that before on my blog – for us, it’s one of the number one reasons clients engage us.