Weekend Reading for Financial Planners (June 1-2)

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.

Retirement Bill Would Allow Tax-Free [Retirement] Planning (Mark Schoeff, Investment News) - There are currently three pieces of retirement legislation working their way through Congress - the Setting Every Community Up for Retirement Enhancement (SECURE) Act in the House, and the Retirement Enhancement and Savings (RESA) Act and the Retirement Security and Savings (RSS) Act in the Senate - and notably, in the RSS version of the legislation, Section 113 would permit employees to use pre-tax retirement account dollars to pay for "qualified retirement planning services")... in other words, advice regarding retirement accounts, including both advice pertaining to those particular retirement accounts, and retirement advice for outside accounts as well. The question, however, is how broad such "retirement advice" can really be and still qualify for the preferential tax treatment - e.g., whether it's only for the investment advice on retirement accounts, or a broader range of retirement planning advice (of which the investment accounts for retirement are an integral part) - nor is it clear whether there will be any limitations on the types of retirement advice providers that can be paid in such a manner. Perhaps most concerning for independent advisors, though, is that it's not clear whether or how retirement plan providers will be able to configure their systems to pay an outside advisor for advice on outside accounts... as it appears the RSS Section 113 provision was added primarily to support holistic financial wellness providers offering advice as a part of the retirement plan in the first place (and simply allowing them to charge on a tax-preferenced basis for both advice on the in-plan assets and out-of-plan assets as well). Nonetheless, the potential for a wider range of tax-preferenced treatment for retirement advice directly from retirement accounts is a positive sign from Congress, given the recent changes under the Tax Cuts and Jobs Act that eliminated the pre-tax treatment of advisory fees, and that up until now retirement accounts could only pay advice fees for the retirement account (and not outside assets). On the other hand, the fact that the provision may effectively only be available for financial planners who are first and foremost attached to the 401(k) channel itself potentially provides a challenging inequality in the marketplace, where providers like Edelman Financial Engines will be able to provide holistic advice on all retirement accounts on a pre-tax basis but traditional advisors outside of 401(k) plans will not?

Direct-Sold 529 Plans Coming To Advisor Market (Juliette Fairley, ThinkAdvisor) - In its latest "Landscape of 529 Plans" study, Morningstar finds that the traditional segmentation of "direct-sold" versus "advisor-sold" (through broker-dealers) 529 plans are beginning to break down, as an increasing number of financial advisors recommending 529 plans are in the RIA channel, where they are not permitted to sell/utilize a broker-sold plan but have previously been unable to support clients directly on direct-sold plans. What is emerging instead are "advisor-supported" 529 plan providers, like Utah's direct-sold my529 plan offering for advisors (which is actually already one of Morningstar's top-rated plans in the direct-sold category). The challenge, however, is that, thus far, advisor-sold plans tend to have a wider range of comprehensive investment offerings, while direct-sold plans historically have offered fewer more pre-packaged solutions (e.g., target date funds for college students) that may or may not fit the advisor's recommended investment approach. And overall, only 12% of consumers report that they're using a 529 college savings plan for their children's education in the first place (as the rest are either preoccupied with paying off current debt, managing their high cost of living, or are using other savings methods). On the other hand, given that financial advisors tend to work with more affluent clients - who have more financial wherewithal to save into 529 plans - arguably there is still significant room for growth in the not-advisor-sold-but-advisor-supported 529 plan marketplace.

The Four Types Of Financial Content Marketing (Crystal Butler, Advisor Perspectives) - For advisors who want to "do" blogging and content marketing via their websites, one of the common questions is figuring out "what kind of content should be created" for prospects and clients? Butler suggests thinking about four different types of content that are feasible, including: 1) evergreen content ("explainer"-style articles that cover common issues/situations but are not necessarily timely, and therefore can remain relevant for years to come, such as "Key Estate Planning Mistakes to Avoid for Medical Professionals" or "Little Things That May Help Young Professionals With Retirement Saving"); 2) news and commentary on economic/financial issues, which tend to be much more timely (e.g., monthly market/economic update, political updates, year-end planning strategies, important dates/deadlines, etc.), but will need to be written fresh each time; 3) content that help clients/prospects get to know you personally, as it's important to humanize yourself to prospects (beyond just your "About Us" page), which could include everything from articles you're featured in and awards you receive, to community-involvement pictures showcasing your team or business/personal news items worth sharing (e.g., anniversaries, birthdays, births, etc.); and 4) third-party content from trusted sources, which shouldn't be the only thing you share, but if you're "curating" the relevant articles for your audience, sharing third-party content (or links to third-party content to avoid violating copyrights) is fine, and the articles don't even have to be industry- or financial-specific (e.g., if your clients are wine drinkers, consider a relevant article from Food & Wine in addition to a financial one from Bloomberg or CNBC!). Notably, when it comes to the last category in particular, there are now some third-party services that can help to identify "relevant" articles based on what your clients and prospects are already clicking from your website and emails (e.g., Vestorly or AdvisorStream), to automate at least that portion of your content marketing selection. (The rest, however, you're still responsible for yourself!)

Search Intent: The Overlooked 'Ranking Factor' You Should Be Optimizing For In 2019 (Joshua Hardwick, AHrefs) - The basic principle of "Search Engine Optimization" (SEO) is to structure your website (and the articles on your blog) to fit what search engines look for (or more directly, what people actually search for) in order to appear higher in the search results and therefore get more prospects who find their way to your website. In the past, the focal point of SEO was all about having the relevant "keywords" that people use in their searches also appear in your article, but as search itself (and how consumers use search engines) becomes more complex, search engines increasingly are not just focusing on the actual keywords that people use in their searches but their "search intent" as well. For instance, imagine someone types "protein powder" into a search engine... is that because they want to buy protein powder (and should see protein powder sellers), because they want to learn more about the best/worst protein powders (and need to see protein powder reviews), or because they want to know what protein powder is (and need to see explainer/primer articles about protein powder)? More broadly, Google has recognized now that there are four core types of search intent: informational (just trying to get information about a subject, such as "football scores"); navigational (trying to find a specific website, such as "Twitter login"); transactional (wants to buy something and needs to figure out where to buy it from, such as "Samsung Galaxy S10 cheap"); and commercial investigation (looking for information in order to make a decision about whether or where to buy, such as "best protein powder"). Accordingly, Google has recognized that the keywords people use tend to signal not just keywords themselves, but also search intent - for instance, queries with "how/what/who" tend to be informational, while "best/to/review" are commercial, and "buy/coupon/order" are transactional. So what should advisors do with this information? First, recognize that people looking for an advisor tend to engage in "commercial investigation" kinds of searches, which means writing articles (and using keywords) that pertain to those searches is important. While if the goal is to educate prospects/clients, more "how-to" oriented articles (and literally using that word in the title) is more likely to draw attention, and you can even try doing the searches yourself (i.e., type the question into Google on your own) to see what other articles already exist and then try to figure out how to make your own a little bit differentiated with a unique angle. In fact, you might actually look at what Google itself identifies as the "People also ask..." search questions below the search results you get for yourself, to get other ideas for what you might try to write about as well.

Investing [Or Putting Your Time And Effort] In The Podcast Ecosystem In 2019 (Li Jin & Avery Segal & Bennett Carroccio, Andreessen Horowitz) - One-third of all Americans now listen to podcasts on a monthly basis, and nearly a quarter of all Americans listen to podcasts every week (for an average of a whopping 6+ hours per week); and in response to the demand, there are now over 700,000 free podcasts available, and a growing range of devices/ways to listen (from smartphones to Bluetooth-enabled cars to smarthome speakers). Of course, as with so many things that are "suddenly" hot, podcasting actually started nearly 15 years ago (with the launch of spoken-word audio content being broadcast to Apple's iPod, which turned into a portmanteau of "podcasting"), but with compounding interest is now becoming the next-generation alternative to radio. Notably, though, thus far podcast listening has concentrated into a small subset of very popular podcasts, and a very long tail of smaller podcasts, with the top 1% averaging 35,000 downloads per episode but the median podcast having only 124/episode. Still, though, a growing range of podcast producers are emerging, from media companies (e.g., NPR or the New York Times) and podcast-only production companies (e.g., WaitWhat or Gimlet), along with large independent providers (e.g., Joe Rogan or Tim Ferriss), hobbyists... and businesses that use podcasts as a form of content marketing to reach prospective customers/clients. For most podcasts, the struggle is getting paid, as even large popular podcasts have struggled to monetize effectively into what are still relatively low advertising rates (at least compared to other media types); on the other hand, for financial advisors, who may literally only need half a dozen prospects or fewer to make a podcasting effort worthwhile, the monetization opportunities are uniquely valuable (due to the relatively high fees a client pays, compared to other businesses selling smaller inexpensive products). From the perspective of Andreessen Horowitz, the growth of podcasts means investing opportunities into podcast producers, apps that support podcasting, and platforms that facilitate podcast advertising. From the advisor's perspective, the article simply makes the point that podcasting itself is a rapidly growing medium and one where advisors may still have good opportunities because the dominant platforms and providers have not yet solidified.

4 High-Converting Fee Pages For Financial Advisors (Samantha Russell, Iris.xyz) - Financial advisors are often reluctant to list their advisory fees on their website, out of fear that prospects will be "spooked" by the cost of financial advice... yet as Russell notes, the irony is that when financial advisors are already perceived to be expensive, not listing the advisor's fees could actually do even more to scare off prospects, and the reality is that prospects are going to want to know how much the advisor costs anyway, so you may as well be upfront about it. Not to mention that by clearly listing what you charge and what your minimums are, you can also use your website to screen out prospects who aren't actually a good fit anyway. Of course, there are still better and worse ways to present that fee information to prospective clients (in a manner that is constructive and less likely to spook them), and Russell shares four example advisor websites and their fee pages that do a good job of this, including: Gold Canyon Financial Planning, which first affirms its fiduciary responsibility to clients and the importance of transparency, and then emphasizes the point by being transparent about their fees, with a simple table showing their AUM fees and a section that explains their hourly rate; Financial Planning Done Right, which offers three different options (the Retirement Readiness Income Planner, an Annual Retainer, and Hourly Services), each of which has a clear bright blue box in the upper right of the page that shows exactly what the pricing will be (accompanied by bullet points that explain exactly what the prospective client would get for that fee); United Planning Group, which provides a series of tiled boxes that succinctly explains their five different service options (Comprehensive Plan, Wealth Management, Retainer Fee, Tax Prep, and Hourly Planning), a brief description of each, and then highlights what the fee will be; and Settlement Investment Services, which offers a table that has service "tiers," each of which pays a standard AUM fee stated upfront, and then shows clearly for each tier what the asset minimum is, and checkboxes of each of the services that are available at that asset tier.

Beyond Wealth: What Happens AFTER You Achieve Financial Independence? (J.D. Roth, Get Rich Slowly) - In the personal finance classic "Your Money or Your Life," authors Joe Dominguez and Vicki Robin highlight the non-linear relationship between spending and happiness... that more income and spending brings more fulfillment (as we proceed the be able to afford survival, then comforts, and then a few luxuries), but only up to a point, beyond which we have "overconsumption" that makes us less happy again (as the "stuff" takes control of our lives). Accordingly, the whole goal of retirement - or more generally, of "financial independence" - is to reach the point of having enough, and then being able to afford a little more... beyond which we may as well stop, because more income/wealth/spending at that point doesn't bring more happiness anyway. Yet as Roth notes, in practice, the moment of reaching financial independence - when that "enough" point is reached - can itself be a confusing process, as those who achieve it then wonder "well, what is next from here?" In fact, one study found that the biggest predictor of contentment in retirement is a sense of purpose, with 91% of happy retirees being clear on their sense of purpose but 89% of unhappy retirees stating they're uncomfortable with their sense of purpose. Of course, for some people, there's a need to find what that sense of purpose should be, and what their core pursuits might become, once financial independence is reached, which Roth suggests can be addressed by trying to craft a "personal mission statement." Of course, arguably it's important to have a clear sense of purpose throughout our lives... but Roth notes that it's particularly common to have a crisis of purpose upon achieving financial independence, because, for those who are trying to accumulate for retirement and financial independence, that goal is often a primary purpose and motivator... that is then lost once achieved, creating the challenge of needing to find a new purpose and motivator going forward. Which, ironically, for some people leads them right back to doing "work" - often even in their same career or field - but done on their own terms, based on what's relevant for their purpose and personal values, because at that point it's just about the purpose and not the need for money anymore.

The Case Against Early Retirement (Richard Johnson, Wall Street Journal) - One of the most striking lines of recent research into retirement is that, while early retirees often consider retirement as an opportunity to exercise more and get healthier, in practice it turns out that retirement is often bad for one's health. In some cases, it's because the retiree just ends out becoming more sedentary (without a reason to get up and go to work every day), and gains weight (especially when there's more time to eat and drink, too!). For instance, one 2018 study by Maria Fitzpatrick and Timothy Moore found that men are 2% more likely to die in the month they turn 62 (and become eligible for Social Security retirement benefits) than the previous month, and another study by Alice Zulkarnain and Matthew Rutledge found that a Dutch program that gave workers tax breaks to continue working in their early 60s reduced their mortality risk by a whopping 32%! In other cases, it's because the lack of work creates a lack of purpose that results in depression (especially when camaraderie with co-workers is also lost, leading the early retiree to become more socially isolated as well). And without intellectual stimulation from work, early retirement may even accelerate cognitive decline (a 2014 study in France of nearly half a million retirees found that dementia was significantly more common amongst those who retired earlier than those who retired later). Which raises the question of whether the positive benefits of early retirement really outweigh the negatives, or not, and the relative positive or negative impacts of work. Which increasingly are finding that health problems are more likely to intensify and get worse after workers qualify for retirement benefits, and abate after policies encouraging work are introduced! Of course, this doesn't necessarily address the dilemma of those who, due to adverse health events, cannot continue to work. But at a minimum, for those who have the choice to work or not, it's increasingly important to consider what the retiree will actually do to thrive personally in retirement when the physical activity, mental engagement, and social connectedness of work are all gone.

How To Thrive In Early Retirement (Katy McLaughlin, Wall Street Journal) - While very early retirement is still a rarity, estimated at fewer than a million Americans who manage to do so by age 50, there has been a rising interest in recent years in the "Financial Independence, Retire Early" (FIRE) movement, and a growing focus on what early retirees actually do with all that newfound free time. For many from the business world, a liquidity event that allows them to exit their business and retire often leads to a decision to give back in the form of non-profit work, putting the individual's executive skills to use in a manner that lets them have a positive impact and sense of purpose, where earning the maximum income from their work is no longer a necessity... although others end out creating "side" businesses (some of which end out generating as much or more income than their original vocation!). Outdoor activities, fitness, and other games have also become popular for retirees, where only 10% now want a golf-course home, but 73% want walking trails and 29% crave bike paths (bocce and pickleball are also in high retiree demand, along with tennis courts and workout courses). Notably, though, retiring earlier also tends to result in higher engagement in current communities (especially when there are still children in the home of the early retiree); as a result, 43% of early retirees decide to buy retirement homes in the same zip code they're already in, compared to just 29% of older retirees. In fact, staying connected to social ties is increasingly recognized as a major issue for early retirees, with nearly 1/3rd of early retirees stating they missed the social connections of work (more so than the reliable income and health insurance!).

When It Pays To Hire A Coach (John Bowen, Financial Planning) - While conference education and consultants tend to focus on a few discrete ideas to implement, coaching is a more holistic approach for advisors that want to improve themselves and their businesses. Akin to a personal trainer in the fitness realm, the purpose of a coach is to help determine and then follow through on the right "workout" regimen for self improvement, in the hopes of accelerating progress beyond what the individual could do on their own (given all the real-world distractions of life that tend to slow us down in practice, even if we "know" what we need to do). In the context of financial advisor coaching in particular, Bowen suggests that coaching should be focused on three key outcomes: a significantly higher quality of life (from learning to focus on fewer more enjoyable clients to streamlining your business model); substantial growth in net income and equity value of the business (beyond just the incremental growth that a consultant might help with through incremental consulting advice); and a dramatically enhanced client impact (as you become more focused in what you do with your time and business, which tends to aid in better focusing the business on its [best] clients). Notably, though, a coaching relationship also hinges on being a great relationship in the first place, as a key aspect of a coach is to help hold their clients (i.e., us as advisors) accountable (being a sounding board when needed, and giving a push when needed instead). Accordingly, Bowen provides a number of suggestions to find the right coach (or coaching program), including: industry-specific experience to help apply coaching concepts specifically in the context of the advisory business; actionable strategies to help advisors with the breakthroughs they need; a screening process (if the coach doesn't have their own filters to determine who is a "right" fit, how can the coach help the advisor to implement a similar practice themselves?); toolkits (e.g., templates and scripts to help implement key ideas and concepts); and measurable results (to which the coach is willing to be held accountable to justify their own value). (It is important to note, though, that Bowen himself runs the CEG Worldwide coaching platform, so some criteria may be more specific to his coaching approach in particular.)

Developing Leaders With Reverse Mentoring (David Smith, Journal of Financial Planning) - The traditional approach to mentoring is that a more "senior" and experienced person agrees to have a mentoring relationship with a younger and less experienced person who needs the guidance and wisdom of someone who has traveled the path before them. But in recent years, the phenomenon of "reverse mentoring" has emerged, where it's the responsibility of the more junior generation to provide perspective, insight, and education to the more senior leader in the firm (who may be looking for a better understanding of the firm's next generation of employees). The basic structure is relatively straightforward - the senior and junior member (often from different parts of the organization to avoid any awkwardness of direct reporting lines) meet on a regular basis for a planned discussion, with the agenda set by the junior member of what he/she thinks needs to be discussed (which might range from social media to leadership to what the competition is doing, as viewed through the lens of the different generations). From the more senior member's perspective, the benefits of reverse mentoring are getting better clarity about the organization and competitive landscape from the junior's perspective (and perhaps a fresh break from the rest of their executive duties); from the junior member's perspective, reverse mentoring provides a new way to meaningfully engage in the organization, and learn more about the company itself (from a senior level), and can be especially beneficial for introverted employees who may otherwise struggle to make connections with senior management in "traditional" company social events. Overall, reverse mentoring also has the potential to reduce turnover for the company overall (as next-generation employees feel more engaged and better heard), in addition to hopefully improving the company itself and what it does for employees and provides to its clients (thanks to the more holistic multi-generational perspective).

Mentors Are Good. Coaches Are Better. (Adam Grant, LinkedIn) - One of the lesser-known factors of success for both Apple and Google was a man named Bill Campbell, who went on a weekly Sunday walk with Steve Jobs and of whom the Google founders said they "wouldn't have made it without him." Early on, Campbell was a track and then football coach, but one who struggled because, ironically, he was so focused on making his players successful in life overall that he didn't always make the "best" decisions on the field... eventually shifting to become an executive at Apple, then the CEO of Intuit... and then a coach to a veritable who's who of Silicon Valley. Recently, some of Campbell's protégés (including Google chairman Eric Schmidt) wrote a book - Trillion Dollar Coach - about Campbell's approach. A key distinction is that, while mentors may dole out occasional words of wisdom, coaches "roll up their sleeves and get their hands dirty," sometimes getting involved more directly to help us realize our potential. (Although amazingly, Campbell was able to coach successfully even in areas in which he didn't personally have industry knowledge and experience.) Ultimately, Campbell's approach was all about helping people find the psychological safety to take risks, setting clear and meaningful goals, and understanding how they'd make a difference (key factors for the success of any team). The key point, though, is simply that coaching is no longer about just the realm of sports teams, but is increasingly relevant for anyone who wants to really excel at (or simply get unstuck from) what they do.

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.