Executive Summary
Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with an interesting article from Investment News, highlighting that while there's a growing discussion of how advisors can use "big data" to improve their businesses, asset managers may already be using "big data" insights by tracking every metric they can about us as advisors, to figure out which might be interested in using their company's investment products!
From there, we have several technology-related articles this week, including: a new "platform" bundled-technology partnership between portfolio reporting software Black Diamond and financial planning provider MoneyGuidePro; a review of one advisor's good (and some challenging) experiences using the eMoney Advisor account aggregation portal with clients; issues for advisors to consider as Windows 10 rolls out later this summer; a review of an emerging new financial planning software provider called WealthMinder; and a first look at a coming "Financial Health/Wellness" app coming out soon from FinanceLogix.
We also have a few more technical-competency articles this week, from a discussion of key issues to consider when clients become eligible for Medicare (e.g., when it is, and is not, ok to delay enrolling in Medicare!), to the issues that must be raised with clients who are thinking about retiring abroad, to a first look at how estate planning strategies may change if recent White House proposals are enacted that would eliminate the stretch IRA.
We wrap up with three interesting articles: the first looks at how financial planning services should be offered to younger clients, who actually experience a high volume of major life transitions that necessitate planning advice (from job changes to starting businesses to starting families) but may have little need for "traditional" planning software and its retirement-centric Monte Carlo projections; the second looks at a new open-source "robo" platform called Wealthbot.io, which would allow any advisory firm to hire a developer and adapt the platform for the needs of their particular practice and clientele (think "Wordpress for robo-advisors"); and the last is a call-to-action from FPA National board president Ed Gjertsen that financial planners need to step up and get more involved with the Financial Planning Coalition's advocacy efforts, especially as the Department of Labor fiduciary proposals loom large, and FPA prepares for its National Advocacy Day on Capitol Hill this coming Wednesday, June 24th.
Enjoy the reading!
Weekend reading for June 20th/21st:
Asset Managers Are Harvesting Data [On Advisors] To Help Market Mutual Funds Better (Trevor Hunnicutt, Investment News) - Asset management firms have entered an "arms race" in their efforts to collect, analyze, and exploit data about financial advisors, with larger firms establishing entire teams dedicated to the effort. The data collected may include not only the advisor's history of using the company's own products, but also additional information about the size and other details of the advisor's practice, and detailed tracking whenever the advisor engages in the company's marketing efforts (e.g., clicks on an email link from a marketing message the company sent out). Notably, information from the advisor's broker-dealer is included; in fact, some broker-dealers are selling data on their advisors to asset managers, for as much as $300,000 per year. Ultimately, the goal is for asset management firms to better direct their resources, reducing the amount of contact and outreach they place towards advisors who appear not to be interested or a poor fit, and directing greater attention towards those who may be an especially good fit and/or who have expressed any indication of interest at all. Notably, the trend is not unique to financial services; technology companies like Netflix have long used the approach of tracking what viewers are interested in, to craft more content for them. But as the asset management industry increasingly struggles to distribute products - especially as the industry shift away from commissions and towards RIAs has limited the usual wholesaler tactics like gifts of expensive dinners, golf outings, and such - the companies are becoming more and more focused on better ways to leverage their time and outreach efforts to advisors who might do business with them.
Black Diamond Partners With MoneyGuidePro To Create A Turnkey Product (Brooke Southall, RIABiz) – The Black Diamond portfolio reporting software announced this week that it’s “Black Diamond Link” solution will be sold as part of a “bundle” that also includes financial planning software MoneyGuidePro. In addition, Black Diamond Link will also accommodate either Salentica, Concenter Services (XLR8), Junxure Cloud, Advisors Assistant, and Redtail as the CRM component of the advisor’s practice, and will also offer AdvisoryWorld proposal generation software. The expansion of Black Diamond’s offering comes on the heels of portfolio reporting and accounting competitors Tamarac and Orion Advisor Services, that have both been offering bundled packages with deeper integrations to financial planning and CRM softwares. More broadly, the change is part of an ongoing trend for software solutions to increasingly shift from being standalone solutions, to coming together as comprehensive platforms instead, as advisors demand deeper integrations but don’t want to be responsible for managing a large number of technology vendor relationships. On the other hand, some advisors still push back on bundles that are formed “too tightly” – as it becomes impossible to substitute out a component they may not like – and as a result, Black Diamond suggests that its goal is to maintain a broader number of integrations for greater flexibility. In the meantime, Black Diamond is also expected to announce this week its overhaul of Blue Sky, the company’s core product that has been adapted to the latest HTML5 programming and mobile-friendly design.
Smart Tool For Understanding Clients’ Money Habits (Carolyn McClanahan, Financial Planning) – Last year, McClanahan adopted the eMoney Advisor financial planning software, not only for the planning tools themselves but also its personal financial portal that allows clients to track their own spending habits as well. Rolling out the software took about half a year, as the firm helped enroll 2-3 clients per week into the portal until the firm’s 70 clients were connected (all but a handful were willing to adopt the platform). From the planning perspective, McClanahan was struck to note that most clients were actually spending more than they thought, which meant the financial plans themselves needed to be updated accordingly for more realistic projections. Other benefits that McClanahan has discovered include: elderly clients can allow their children access as well, making it easier for family members to stay involved and monitor from afar; some clients who don’t regularly monitor their spending may discover questionable charges, or even outright fraud; for business owner clients, the portal can help them get more organized around tracking their business expenses (important for both business and tax reporting purposes!); and when clients pass away (especially unexpectedly), the portal can be very helpful to assist the family in knowing where all the assets and liabilities are to wind down the decedent’s affairs quickly and easily. Notably, though, McClanahan does note that maintain connections to all of a client’s account providers can be difficult, as password changes and resets, and even website changes of account providers, can ‘break’ the links and require them to be updated again (which across all clients and all of their accounts, can be a non-trivial amount of maintenance to keep the platform up and running).
What Does Windows 10 Mean For Advisors (Dan Skiles, Investment Advisor) – The next operating system from Microsoft, entitled Windows 10, is expected to be released sometime later this summer. The new version is expected to be a very significant upgrade from the current Windows 8 (there will be no Windows 9), which has had lackluster adoption (there are still more desktops running the no-longer-even-supporter Windows XP from over a decade ago, than Windows 8). New features will include the return of the “Start” menu, a new ability to create “virtual” desktops (making it easier to switch between multiple computers), and the release of Microsoft Edge, which will be the new replacement of Internet Explorer (an upgrade in terms of both speed and security, and the integration of “Cortana”, Microsoft’s virtual personal assistant equivalent to Siri). Beyond these enhancements, overall improvements in security and versatility are expected in Windows 10. In fact, to encourage adoption, Microsoft is offering a free upgrade to Windows 10 during the first year it’s available, for most PCs currently running Windows 7 and Windows 8.1. For those looking to upgrade when the time comes, Skiles cautions that it’s first necessary to determine if all of your current advisory software will run on Windows 10. Although Microsoft has indicated that programs running on Windows 7 and 8.1 “should” be fine in Windows 10, Skiles suggests just upgrading one computer first (if you have several and especially if you’re in a larger office), and first test on that machine every program and software solution and process and procedure you use.
Beyond The Robo-Advisor (Joel Bruckenstein, Financial Advisor) – A new financial planning software solution called WealthMinder is aiming to help advisory firms reach under-$500,000-AUM “mass affluent” prospects and clients in a more scalable manner. The platform allows advisors to send an ‘invitation’ link to a prospect (or via a link embeded directly into the advisor’s website), which clients can use to log in and begin entering basic financial planning data for themselves – articulating goals, personal family details, then connecting financial accounts via account aggregation (powered by Yodlee), and finally completing a risk tolerance questionnaire. As prospective clients complete the process, advisors can view their progress and the information that was inputted via an advisor dashboard, which serves up not only the details the client entered but even some initial recommendations that can be served up to the client (or modified by the advisor first). Once the financial plan and recommendations are confirmed, the software makes it easy to create an action plan for clients – i.e., a “to-do” list for them to work on, along with template explanations of what each recommendation entails (e.g., the purpose of an emergency fund) – which then can be communicated by the advisor and also served up via the client’s portal. Notably, pricing from Wealthminder is unique compared to the alternatives – rather than a flat software fee per advisor, the advisor instead pays $10 per client every month (only paying for clients who actually create accounts in the software). Overall, Bruckenstein points out that the sign-up and aggregation process is very easy for clients and prospects, though in the trade-off of sophisticated for simplicity, the actual financial planning capabilities are not as comprehensive nor as flexible as competitors (though some features like easy goal selection, and the wishes/wants/needs framework from MoneyGuidePro, will be familiar). But perhaps the biggest caveat for some advisors will be the fact that Wealthminder also has a direct-to-consumer version (though it currently only deals with investments), and advisors may not want to work with an offering that goes directly to consumers as well; on the other hand, Wealthminder has already signed a deal with the Garrett Planning Network to use its software, and has been having integration discussions with some RIA custodians as well (though no deals have been set yet).
Tech Review: New Bet On Financial Health (Joel Bruckenstein, Financial Planning) – In recent years there has been a explosion of health-tracking apps and even whole devices (e.g., the FitBit), so financial planning software company FinanceLogix is trying to extend the concept by making a “financial health/wellness” app. Clients can install the app on their smartphone, connect their accounts via account aggregation (powered by CashEdge), and then get an immediate net worth statement. From there, clients can enter goals that they want to track, and prioritize them based on their own preferences – which can help to emphasize with clients that a near-term goal that’s lower priority should still be subservient to a longer-term goal that’s higher priority (e.g., you can “afford” a nicer car now, but it’s going to derail your top-priority retirement goal). If the goals aren’t working out, the app also prompts clients for potential changes – e.g., with retirement, it may suggest lowering spending. or working longer, or saving more – creating the potential for clients to see the immediate ramifications of their decision (e.g., if you do buy the car now, you’ll have to retire 1.5 years later to get back on track!). The app also helps to track cash flow, so it can give clients feedback on progress towards shorter-term goals like an annual savings goal as well. Of course, the reality is that there are some other personal finance apps out there already to help with some of this, but FinanceLogix CEO Oleg Tishkevich notes that sites like Mint.com are now being used by robo-advisors to solicit clients… so advisors may really want to start looking at offering such tools directly to clients themselves instead.
Six Questions To Ask When [Clients Are] Switching To Medicare (Mark Miller, Reuters) – The transition for retirees from employer health insurance to Medicare can create problems if not done properly, from excess premium consequences to risky gaps in coverage. The first issue to note is simply that if clients haven’t already started their Social Security benefits by age 65, Medicare enrollment is not automatic; instead, clients must enroll themselves in a seven-month window before or after their 65th birthday. Failure to do so can be costly, as Medicare Part B and also Part D premiums will increase by 10% (permanently) for every 12 months that clients wait. Exceptions to this “late enrollment penalty” apply for retirees who still have employer health insurance coverage directly or via a spouse, though when such coverage ends retirees again have only an 8-month special enrollment period to get signed up – and notably, even if the retiree signs up for COBRA after retiring (e.g., to cover a spouse or dependents), or is able to participate in a retiree health plan, it’s still necessary to sign up for Medicare during the special enrollment period to avoid the 10% premium increase rules. In addition, those who are still working at age 65 but are in a small business with fewer than 20 employees should also sign up for Medicare at age 65; and even those in larger businesses can sign up for Medicare, which will provide secondary coverage to fill any gaps in an employer plan. Though notably, enrolling in Medicare while still participating in an employer plan can render the client ineligible for contributing to a Health Savings Account (HSA) (and executing a file-and-suspend strategy with Social Security at full retirement age can also leave the worker ineligible for HSA contributions). On the other hand, for those who retire, begin Medicare, and then go back into a full-time job that is eligible for health insurance benefits, workers can drop Medicare for the employer coverage (to avoid the Part B and Part D premiums), and then re-enroll once retired (again) without facing the late enrollment penalties.
Retire Abroad? Not So Fast (Jane Wollman Rusoff, Research Magazine) – Many retirees are looking at the possibility of retiring abroad, to foreign locales that have both more appealing weather and significant potential cost savings due to an overall lower cost of living. However, several unique planning issues can arise for clients who retire abroad, beyond just ‘simple’ issues like whether the retirees can speak the language of the destination. For instance, access to quality health care can be a significant challenge in some countries, and while some countries have less expensive health costs themselves, costs in many other countries are rising even faster than here in the US, which may close the gap; in addition, getting health insurance from private providers to cover clients internationally may itself still be more expensive (and notably, Medicare coverage is not available in foreign countries). In some countries, there are also safety risks, and even areas that once were safe may not be any longer (e.g., Acapulco was once a popular tourist destination, but it is no longer considered a safe place). Perhaps the biggest challenges, though, may actually be money issues; despite a goal to retire abroad to save on costs, the fact that some countries experience rapid currency fluctuations means that assets held in those countries could quickly become devalued (which means it’s probably advisable to maintain brokerage accounts in the U.S. and just have a local foreign-country bank account to pay the bills). And don’t forget that even if clients live abroad all year, as U.S. citizens they are still required to file a U.S. tax return – in addition to a foreign tax return as a resident alien in that country – and must then coordinate on tax obligations from the foreign tax credit to claiming the foreign earned income exclusion for any other wages (though it does not apply to foreign investment income). Clients abroad must also be certain to comply with the Foreign Account Tax Compliance Act (FATCA), which requires an “FBAR” filing to report to the U.S. any foreign bank accounts with an aggregation balance of $10,000 (or face severe penalties up to the greater of 50% of the account balance, or $100,000).
R.I.P. Stretch IRA? Here Are Alternatives (Ed Slott, Financial Planning) – Earlier this year, President Obama’s budget proposals called for the elimination of the stretch IRA, which Slott notes probably will not be enacted this year, but is likely to be enacted sooner or later. The proposal would generally eliminate the current stretch IRA rules, and replace them with a requirement that most beneficiaries take the money out of an inherited IRA over 5 years… given that when IRAs were originated in the 1970s, it was primarily to solve the problem of under-funded retirement savings, not with the idea that there would be large account balances left over afterwards (and that the stretch IRA would become an estate planning strategy!)! Slott suggests that if the rule comes to pass, a number of unintended consequences could occur and alternatives could arise, including: retirees may be less likely to do Roth conversions if beneficiaries would no longer be able to stretch the accounts (though notably, in some cases it was better to leave pre-tax IRAs to the next generation in the first place!); life insurance strategies may become more popular again as a tax-preferenced accumulated vehicle, given that life insurance death benefits are tax free (and life insurance is more “trust-friendly” in more complex estate planning scenarios that require the use of trusts); and charitable remainder trust (CRT) strategies, funded after death, may become more popular as an alternative means to help stretch a pre-tax IRA’s distributions out to beneficiaries by utilizing the favorable tax treatment associated with CRTs (where the IRA is payable to the CRT and distributes under the 5-year rule, but the CRT itself is tax-free and only pays out income to beneficiaries over a longer period of time).
How Can You Provide Financial Planning For Younger Clients (Alan Moore, XY Planning Network) - While many in the industry suggest that it's not feasible to deliver financial planning service to Millennials, Moore suggests the problem is simply that what Millennials need doesn't fit the 'traditional' mold of how financial planning has been done in the past. For instance, in Moore's own case, in just the first few years after he graduated from college, he got married, moved across the country, bought an investment property, changed jobs, had a wife go back to grad school, launched a business, sold a business, launched another one, and then his wife had a baby. This flurry of major milestones and life changes all occurred in the span of just 3.5 years, and represents a number of opportunities for financial planning guidance from an expert. Notably, though, the advice needed for these events would not have been about retirement strategies, doing financial planning projections with Monte Carlo analysis, etc. Not just because retirement is so far away, but because other planning issues and needs are more immediate (and in point of fact, Millennials may prefer a "financial independence" approach over traditional retirement anyway?). Instead, planning for younger clients may include heavy components of teaching financial skills and education, helping with budgeting, structuring shorter-term action plans, and providing helpful advice about debt-related issues (from student loans to credit cards to car payments to mortgages). Moore also notes that career advice and career management is also a major planning issue and opportunity, helping young clients transition to new jobs, better negotiate for higher salary, decide whether to go back to school, advising on how to become an entrepreneur and start a business, etc. Of course, some 'traditional' aspects of planning will remain relevant - from reviewing insurance policies, to setting up estate planning documents (guardianship for the children!); but ultimately, Moore notes that the key issues of a comprehensive financial plan are so different for young clients, that while they can be served, it does require an entirely different approach for the advisor.
Free And Open Source: Can New Startup Disrupt The Robos? (Sharon Adarlo, Financial Planning) - Last month, the first "open source" robo-advisor platform went live; called Wealthbot.io (or "Webo" for short), the solution will offer features similar to other robo-advisors (e.g., automated tax loss harvesting), but as an open source solution will be available for free and without any licensing fees. Instead, advisors will be able to just download the platform directly, and then hire a developer to adapt it for their advisory firm, similar to how an advisor might hire a WordPress developer to create the advisor's website. Ultimately, Wealthbot.io hopes to make a profit by offering such developer services themselves, and also opening a store of third-party apps. And in the meantime, the hope is that by making the code open source, it can be improved to the point of being less buggy and more expansive (and perhaps also more secure) than other robo-advisor-for-advisors alternatives in the marketplace.
It's Time For Financial Planners To Find Our Voice (Ed Gjertsen, Investment News) - Financial planners have a major impact on millions of Americans, yet Gjertsen (current president of the FPA National Board of Directors) laments that too many are silent on vital advocacy issues, including the ongoing efforts of the Department of Labor to expand the fiduciary standard. For instance, anti-fiduciary advocates recently persuaded Rep. Ann Wagner (R-Mo) to file a bill ironically titled "The Retail Investor Protection Act" that would limit the DOL's fiduciary efforts (by forcing it to cease actions until the SEC acts first, despite the fact that the SEC may not necessarily act on the fiduciary standard at all). The legislation has been opposed by the Financial Planning Coalition, and Gjertsen calls on its 23,000 members (including nearly 17,000 CFPs) along with all financial planners to participate in FPA's Advocacy Day on Capitol Hill this coming Wednesday June 24th, which will include up to 80 meetings with Congressional leaders in both Senate and House offices, along with other influential people in the nation's capital. The bottom line: if financial planning will ever be recognized as a bona fide profession, financial planners must participate and engage in the advocacy efforts necessary to support the Financial Planning Coalition's ongoing efforts towards that goal.
I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column! And click here to sign up for a delivery of all blog posts from Nerd's Eye View - including Weekend Reading - directly to your email!
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.
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