Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big industry news that FPA Executive Director Lauren Schadle has resigned in the face of 8 years of stagnant membership and a recent accelerating decline, a new interim CEO is stepping in, and the FPA is beginning a national search for new leadership to try to get its growth engine firing again (giving the ongoing growth of the financial planning profession itself).
Also in the news this week is an announcement that the CFP Board is updating its own Disciplinary Rules and Procedures in advance of the June 30th enforcement date for its updated Code of Ethics and fiduciary-at-all-times Standards of Conduct, and a recent study by Hearsay Social shows the dramatic improvement in results that financial advisors get by sharing more personal and authentic information on social media channels beyond just canned investment content.
From there, we have several articles on cash flow and spending decisions, including a look at how credit card companies are beginning to shift their rewards benefits in the face of a major pullback in travel and dining, a look at the ongoing rise of subscription services for 'everything' and tips on how to keep track of them all, and an interesting discussion of the benefits of 'taking a sabbatical' to work remotely as a renter instead of buying a house (with all the costs and reduced flexibility that entails).
We also have a few retirement-related articles this week, from a look at how the coronavirus pandemic may shave one or several years off the survivability of the Social Security trust fund (accelerating either a prospective cut in Social Security benefits, or action in Congress to shore up the system), a look at the use of hybrid annuity/LTC policies in low-interest-rate environments, and why it's perhaps time to eliminate the assumption of 'retirement' altogether and instead think about phased glidepaths of retirement itself (where hours worked and duties gradually shift over time, rather than a hard-stop retirement plan).
We wrap up with three interesting articles, all around the theme of client communication and engagement: the first delves into recent research on exactly what communication strategies support client trust, satisfaction, and referrals; the importance of evolving client communication beyond 'just' regular check-ins (including and especially in the coronavirus pandemic environment); and the last provides a powerful reminder of the emotional benefits of working with a financial planner, in terms of not just walking clients off the proverbial investment ledge but also simply helping them to focus on what they can financially control (from investments to spending and more)!
Enjoy the 'light' reading!
Lauren Schadle Resigns As FPA CEO (Karen Demasters, Financial Advisor) - After nearly 8 years in the role, this week Lauren Schadle resigned as the CEO and Executive Director of the Financial Planning Association, to be immediately replaced by an interim chief while a permanent successor is sought. Yet while Schadle was well-liked by most volunteers and staff members, she ultimately presided over a multi-year decline in FPA membership, that appears to have accelerated over the past 18 months after the organization's aborted OneFPA Network consolidation of its chapters (even before the coronavirus pandemic and associated recession). The question now becomes who will lead the FPA in the coming years, as the National Board indicates that it will begin a full national search for a CEO (akin to the external CEO searches that the CFP Board used to successfully find Kevin Keller and that NAPFA used to recruit Geof Brown). Though at the same time, ongoing financial woes of the FPA - likely exacerbated by pandemic-related event cancellations - raise concerns of whether the organization still has the resources for a turnaround amidst an accelerating revenue and membership decline (unclear to members as FPA is still not providing its required financial reporting in its Annual Report to Members). Still, though, with the ongoing growth of financial planning, and CFP certificants in particular, accelerating in the midst of an increasingly-financial-planning-centric industry, there is still significant potential for the organization under new FPA leadership!
CFP Board Ready To Enforce New Standards (Karen Demasters, Financial Advisor) - This week, the CFP Board published extensive updates to its Disciplinary Rules and Procedures, not coincidentally taking effect just a month before the CFP Board's new Code of Ethics and Standards of Conduct will first be enforced (beginning June 30th). The essence of the changes is simply to refine and clarify the process itself, consolidating various separate processes (e.g., Disciplinary Rules and separate Appeals Rules) into a single document, but also includes provisions giving CFP Board more capability to obtain information about advisors under investigation, clarify who may (and may not) review confidential information provided to the CFP Board during an investigation, and streamline the process for complaints involving advisor bankruptcies. At the same time, the CFP Board also clarified its 'statute of limitations' on how long after a matter it can issue a notice of investigation (7 years), and limits the time period that the CFP Board can issue a complaint after beginning an investigation (to ensure a timely disciplinary process for CFP certificants). Ironically, the new rules also expand the capabilities of CFP certificants to engage in the Disciplinary process via video hearings - a change the CFP Board was already considering before the pandemic, but that has been accelerated and that is currently being used. Ultimately, though, the real significance of the updated standards is not merely the refinements to the process itself, but that when coupled with the looming new effective date for enforcement of the new standards, sends a signal that the CFP Board really does intend to step up enforcement of its new 'fiduciary-at-all-times' rule for CFP certificants going forward.
Hearsay Examines What Works On Social Media For Financial Advisors (Michael Fischer, ThinkAdvisor) - In its latest 2020 Financial Services Social Media Content study, Hearsay Systems (which provides social media compliance tools for large financial services enterprises) analyzed nearly 18 million social media actions on its platform to evaluate "what [really] works" for financial advisors, and found that: authentic and personal content written by advisors themselves shows 10X the engagement compared to content suggested by corporate marketing, reinforcing the value of authentic communication over canned content; posts about general lifestyle topics (e.g., holidays and health) performed exceptionally well; and automated campaigns have become a staple of social media success because they help maintain a consistent cadence of content with limited effort (e.g., queueing up multiple social shares at once but doling them out over time using a tool like Buffer), which means it may not always be feasible to have 100% personal/authentic content (but it turns out that a 75%/25% mix of corporate vs original content is sufficient).
Credit Card Companies Expanding Options For Cash-Back Reward Programs As Travel Wanes (Sophia Kunthara, Crunchbase) - Credit card rewards have been an increasingly popular factor in deciding which credit card to choose, especially for more affluent clientele who pay their cards in full consistently (where the perks for paying on time outweigh the interest rates for carrying a balance). In particular, leveraging credit card rewards for flights, hotels, and other travel benefits has been especially popular, leading to whole niches of content around 'credit card travel hacking'. Yet with the pandemic literally shutting down events and the ability to travel, and expectations that it may take years for the willingness to travel to fully rebound, credit card companies are not surprisingly seeing a rapid shift in consumer preferences (as there's not much benefit in granting bonus-point multipliers on Uber or Lyft when there's nowhere to go!)... and are beginning to adapt their own credit card benefits accordingly. Accordingly, credit-cards-for-startups firm Brex created a new category for "remote collaboration rewards" (with a whopping 7X-points multiplier!) and also rolled out 3X points on food delivery (as opposed to restaurants, a shift that Chase and American Express have also been making), and 2X points on recurring software charges. The real question, though, will be whether these shifts reflect a temporary change in credit card points and consumer habits, or a new era where more credit cards will differentiate on a wider range of benefits than 'just' the travel benefits that American Express first made so popular?
How Much Are We Paying For Our Subscription Services? A Lot! (Brian Chen, New York Times) - According to data from Mint.com, the average person spent $640 on various digital subscriptions (e.g., streaming video, music services, cloud storage, online productivity tools, etc.) in 2019, up from $598/year just 2 years earlier... including $170/year just for streaming TV services like Netflix and Hulu, and now Disney Plus, Apple TV Plus, etc. (which admittedly is still less than the nearly $1,200/year it costs to get a traditional cable TV package!). And the trend is only expected to continue as the monthly subscription model becomes more popular across a wide range of industries... which also will make it harder and harder to keep track of all the services we pay for! Which is especially concerning as more and more services offer various 'teaser' rates or a special series (hello, Disney's "The Mandalorian"!) to get consumers to sign up initially, in the hopes that we forget to go back and cancel later (which data suggests we, unfortunately, do forget to do!). So what's the best way to handle it? For a particular subscription - especially one intended to be temporary - add a calendar reminder when signing up to go back and cancel later, or consider a once-a-month review of services being used to see if any can be canceled (as even if you cancel at the beginning of the month, most services will allow you to continue using the month you already paid for and simply not renew you for next month). To get a handle on the aggregate volume of subscriptions, though, it may be appealing to use a service like Mint specifically to get a handle on all the subscriptions, check out key subscription aggregators to audit what's being auto-paid (e.g., via Apple mobile devices, Android devices, or Amazon subscriptions), or even explore services like TrueBill to get help auditing all the recurring subscription bills and expedite the process of canceling the no-longer-necessary ones!
Don't Buy A House; Take A Sabbatical Instead (Jon Luskin) - Homeownership is a classic element of the American Dream... but as Luskin points out, also an expensive vice, especially for those living in denser higher-cost-of-living metropolitan areas. To some extent, the costs are 'manageable' - after all, borrowing limits at least usually prevent people from buying homes they cannot afford. Yet the reality is that borrowers don't create lending guidelines based on what's prudent to borrow, but the maximum amount that someone can borrow and still be slave enough to their job to actually manage to repay the lender without defaulting. Accordingly, Luskin notes that in practice, one of the potential reasons that Americans take far less vacation time than others (e.g., Europeans) is that they can't afford to take more (unpaid) time off from work given their mortgage payments (not to mention all the other home servicing, appliance replacements, and repairs)! So what's the alternative? Especially in an increasingly feasible remote-work environment, consider not just renting, but instead 'taking sabbaticals' and using the available dollars (and flexibility) to travel, set up 'house' as a renter in a place you want to live for a while... and then when you're ready, move on to the next location and just work remotely from there instead. Or stated more simply, it's not just about renting versus owning, but the unique flexibility that comes with renting along the way, too?
Coronavirus Could Shave 2-4 Years Off Social Security Trust Fund (Michael Fischer, ThinkAdvisor) - In April, the Social Security Board of Trustees published its annual report on the health of the Social Security system and its trust fund, projecting that the funds will be depleted in 2035, after which Social Security will only be able to pay 79% of its benefits thereafter (drifting lower to 73% of benefits by the end of the century). However, the analysis from Social Security was conducted before the coronavirus pandemic, the associated shutdown, and economic recession... and the mass number of layoffs that directly reduces how paying people are paying into Social Security (in the form of payroll taxes) in the first place. As a result, more recent projections from the Penn Wharton Budget Model estimate that Social Security trust fund assets will run out one year earlier (in 2034) even with a V-shaped recovery, and as early as 2032 with a U-shaped recession that has a slower recovery. Of course, the reality is that Congress can intervene to make adjustments to the system before that point... and ironically, a faster trajectory for the depletion of the Social Security trust fund may even accelerate the process of Congress coming to a new solution (as by contrast, the last time the Social Security trust fund was depleting, in 1983, the National Commission on Social Security Reform didn't even come up with a proposed fix until barely 6 months before the projected depletion date, and were only spurred on by the impending short-term financing 'crisis'!).
You Probably Haven't Heard Of This [Long-Term Care Qualified] Annuity (Scott Stolz, Investment News) - When Congress passed the Pension Protection Act back in 2006, it included provisions that would allow long-term care expenses to be paid out from a non-qualified annuity on a tax-free basis whether drawing from original principal or growth (as contrasted with the traditional treatment of non-qualified annuities, where gains must be withdrawn first and are taxable as ordinary income). In addition, the Pension Protect Act also made it feasible for annuity owners to engage in a like-kind 1035 exchange from an existing non-qualified annuity into a Long-Term-Care-Qualified Annuity. In addition, such hybrid long-term-care/annuity policies can pay out an additional multiplier above and beyond the original cash value, specifically as a(n also tax-free) long-term care benefit. Thus, for instance, an annuity originally purchased for $100,000 that grew to $150,000 could be exchanged into a hybrid annuity/LTC policy that pays as much as $450,000 in tax-free long-term care benefits (and in the process of doing so, if actually used for LTC needs, would eliminate the $50,000 embedded gain otherwise taxable as ordinary income). In the past, clients have often balked at hybrid annuity/LTC policies due to the often low rates of return they offer (given that they're typically built on a fixed-annuity chassis in a low-interest-rate environment). Yet with interest rates once again crashing in the midst of the pandemic to record lows, arguably the opportunity cost of low interest rates is itself lower than ever, making a potential 1035 exchange an appealing option to consider (after doing appropriate due diligence on the existing annuity that might be replaced, of course!).
Losing The Retirement Assumption (Mitch Anthony, Financial Advisor) - The conventional view on retirement is that people 'typically' retire in their early-to-mid-60s, often coinciding with the onset of Social Security benefits and Medicare eligibility and that the years leading up (i.e., those in their 50s and early 60s) should be spent focused on final-stage preparations for the retirement transition. Yet a recent study from Transamerica's Center of Retirement Studies found that 77% of employers believe their employees actually want to continue working, and that 47% of their employees are likely envisioning a phased retirement (as opposed to a full-stop retirement transition on a specific date). The problem, though, is that even as we recognize the shifting preferences around retirement, only 31% of businesses actually let their employees shift from full-time to part-time work, and in practice still largely rely on the assumption that there will be some fixed retirement date beyond which the worker leaves and is no longer employed. Accordingly, Anthony urges that the whole concept of a "retirement assumption" needs to be dismissed, and instead to focus on the idea that employees may simply shift both the nature of their work and the amount of time they work, in a more gradual and phased approach that reasonably reflects their own shifting preferences and capabilities. The upshot of this approach is that companies don't face the prospective 'brain drain' of waves of experienced employees leaving, and older workers themselves may benefit from a more gradual transition (given the positive health and other benefits for seniors of continuing to work). Or viewed another way, perhaps the real key to a "retirement glide path" isn't about a target-date fund allocation ahead of and through retirement, but a glide path of working hours and duties into the transition to "retirement" in the first place?
Introducing An Evidence-Based Communication Model To Retain And Gain More Clients (Evan Beach, Journal of Financial Planning) - In their study "The Value of Communication in the Client-Planner Relationship", researchers Yuanshan Cheng, Chris Browning, and Philip Gibson analyzed how various types and frequencies of communication with clients resonated with clients as measured by satisfaction, trust, and commitment to the financial planning process. Not surprisingly, the research generally showed that more communication is better, but in a world where advisors can't just continuously communicate with every client all the time, it's important to consider what can feasibly be implemented (for maximal positive impact). Key applications for financial advisors include: providing educational communication around investments does have a high positive association with satisfaction and trust, and frequency of the content was also positively associated with client commitment, suggesting that a regular client newsletter of market commentary really does have a valuable positive impact on the advisor-client relationship (or for those who don't like to write, Beach suggests a monthly market update video delivered via text or email using a service like BombBomb); non-investment-related educational communication was positively associated with client referrals but not other satisfaction measures, which suggests that such content should be created specifically to be easy to pass along and share (e.g., send it to clients via email so they can forward it and post to your website, including social sharing buttons); sharing some occasional personal content (e.g., non-educational material about the advisor's own interests and hobbies) was viewed positively if sent quarterly, but more frequent and the relationship-to-client retention turned negative); and 'old-fashioned' greeting cards and personal notes were still very positively associated with trust and client satisfaction, but since 'everyone' sends birthday cards, Beach suggests sending couples anniversary cards instead, or sharing congratulations about other personal moments in clients' lives).
So You've Reassured Your Clients. Now What? (Julie Littlechild, Absolute Engagement) - When the coronavirus pandemic first hit, the heavy focus on most advisor communication was getting out information and education about what was happening in the investment markets and the economy, and trying to reassure clients so they didn't panic and consider selling at the market bottom. Yet at some point, clients have heard what they need to hear from their advisor, and the focus shifts to what they want to talk about with their advisor, as the ramifications of the pandemic translate to their own personal circumstances and challenges. And it's important to recognize that those circumstances may vary tremendously from one client to the next, as some clients have more time on their hands than ever before as travel and other activities shut down (e.g., retirees), while others are stressed and busier than ever before (e.g., younger parents balancing working from home and schooling from home!). The key point, then, is that it's crucial to start where clients actually are today, and guide the conversation appropriately, whether it's helping the idle client figure out how to apply themselves, or the busy client find some breathing room (or at least be an ear for them to vent!). Littlechild suggests starting with the core safety issues (is the client worried about their health or the health of those close to them?), then financial security (what's the outlook of their portfolio, job, or business), and then the general fallout of 'change' (whatever changes the pandemic have wrought in the client's life), to adapt their financial plan in whatever manner is meaningful for them given where they are right now.
The Emotional Benefits Of Having A Financial Planner (Robin Powell, Evidence-Based Investor) - The traditional view of a 'financial planner' is of an expert, trained in the ways of the technical CFP curriculum, who can gather information about a client and analyze it to craft a recommended financial plan that maximizes the client's ability to achieve their goals. Yet in practice, the benefits of working with a financial planner are not just the technical aspects of the plan analysis and recommendations, but the benefits that come from the advisor-client interactions and conversations themselves. For instance, a good financial planner may also act as a devil's advocate, helping the client think through both bull and bear markets (in the current pandemic environment), or helping the client both prepare for retirement and reflect whether retirement is even the right thing for the likely-to-be-bored-in-retirement client to pursue. In other cases, the benefit of a financial planner is simply to have someone to hold the client's hand... and perhaps help to pull them back from their own worst instincts as an objective observer and guide. And especially in times when the rest of the world feels out of control, the best emotional benefit of the financial planner may simply be helping clients to re-focus back on what they actually can control - from their portfolio, asset allocation, and rebalancing decisions, to their spending and lifestyle - both to better tune out the stressful stuff we can't really control anyway, and actually help clients to feel more empowered and in control (of what they can be in control of, at least!).
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.
RE: Lauren Schadle and the Decline of the FPA
Count me among the thousands of former FPA members. I was a member for many years and enjoyed the community dialogue, the JFP, and the group membership benefits. I terminated my membership in March.
Count me among the growing legions of financial planners who are completely turned off by the FPA’s status as a puppet and lobby-funding partner of the CFP Board of Standards. Over the past few years I have written many articles intended to raise awareness of the self-serving ambitions of the CFPB and of the immeasurable harm it has done to consumers by fostering confusion about the regulatory environment and by spending millions of dollars telling consumers that is members are “thoroughly vetted” and more ethical than non-CFP financial planners….all the while willfully promoting thousands of CFPs with major disclosure events as “clean” on the CFP verification website.
I also helped Jason Zweig and Andrea Fuller develop their July 2019 Wall Street Journal exposé of the CFP Board. What was the FPA’s response to the scandal? – To reaffirm its unwavering support for its OneFPA intiative (to lobby to make the CFP mark a requirement for all financial planners) and for its support for the CFP Board in general. I am not sure how much more tone deaf the FPA can be. I can’t think of any good reason why the 20%+ of the FPA’s membership base that are non-CFPs would want to continue to paying dues to an organization that is trying to put them out of business.
At the same time, when I published my Adviser Perspective article “Why the CFP Board Should Not Govern the Financial Planning Profession and when the WSJ article was published, I received a large number of emails from CFPs thanking me for calling out the CFP Board for the corrupt, ethically bankrupt, authoritarian regime that it is. Many of the CFP emails asked me not forward them or use their names out of fear of reprisal from the CFP Board. Yeah – that’s a sign of a healthy, forward thinking organization with designs to reign supreme over all financial planners (sarcasm intended). The FPA is equally tone deaf in its perception that its CFP members all support the CFPB. My experience suggests that there are large numbers of them who do not.
RE: CFP Board Ready to Enforce Its New Standards.
I laughed so hard when I read this headline that I nearly fell off my chair. Let’s be clear, the “Fiduciary Always” statement is pure fiction. All readers should be aware that the CFP Board’s new self-defined “fiduciary” standard was carefully crafted to avoid requiring its members (particularly those holding insurance licenses) from having to disclose the dollar amount of commission they may receive from the sale of products with opaque commissions.
This loophole is made possible by virtue of a careful word choice in the Standard of Conduct manual requiring CFPs to disclose “material conflicts of interest” instead of “material facts” (the language the SEC uses to govern financial planners under the Investment Advisers Act). Further evidence that the CFP Board is promoting a faux fiduciary standard can be found in the fact that conflict disclosure is only required orally.
Further reason to be skeptical of the CFP Board’s commitment to enforcement comes from today’s headline in Financial Planning – CFP Board to stop posting some financial advisor bankruptcies. According to Leo Ryzdewski, the Board’s general counsel, “A single bankruptcy may not reflect [an advisor’s] ability to manage their personal finances. We are now saying if someone has a single bankruptcy, that should go through a disciplinary process.” Note to Leo – Maybe you should consider letting consumers decide whether the fact that their CFP filed for personal bankruptcy might reflect on his ability to manage their finances.
The largest and best example to illustrate how the CFP Board is entirely disingenuous in its commitment to enforcement can be found it its response to last summer’s Wall Street Journal exposé that revealed how the CFP Board had turned a blind eye to thousands CFPs with signficiant disclosure events on their FINRA Broker Check and SEC IAPD records. Nearly a full year later, aftter a feigned mia culpa in which the CFP Board acknowledged that it should not have relied solely on its members to self-report disclosure events and after trumpeting its commitment to fix the problem by creating a (carefully restricted) blue-ribbon task force, nearly all of those financial advisors with disclosure events are still promoted as “clean” on the CFP verification site.
Michael Kitces! I had no idea that anyone read my blog, let alone you! Thank you for the feature. I am honored. ?
So, when are you selling your house and taking your sabbatical? ?
@jonluskin:disqus Love the work you’re doing these days!
Not sure I’m ready for a change from house-to-sabbatical yet – kids and the allure of a yard to play in is powerful at this age/stage – but your perspective is definitely informing some conversations I have with prospective retirees to think more about what kind of lifestyle they want. (Especially when it comes to the infamous SECOND/vacation home for some affluent clients.)
Keep up the writing and sharing!
– Michael