asset location - Part 10

#FASuccess Ep 007: Matthew Jarvis On Building a Highly Profitable Lifestyle Practice by Age 35

February 14, 2017 07:01 am 52 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back for the seventh episode of the Financial Advisor Success podcast!

This week’s guest is a bit different from those we’ve had on the podcast in the past – because he reached out to me to share his story. And it’s a pretty incredible one.

Matthew Jarvis is the founder of his eponymous firm Jarvis Financial, based in Washington state. He manages over $100M of AUM for about 150 retirees, providing both investment management and financial planning services, with the support of a three-person team.

But what makes Matthew unique is that he has so systematized his firm and the services he provides to his clients, that he’s able to support all 150 clients while also taking over 80 days of vacation every year, and still maintain a more-than-50% profit margin! In essence, Matthew runs a hyper-efficient lifestyle practice. Oh, and he’s only 35 years old!

In this episode, Matt talks about how he bought out and transformed what had been a relatively stagnant and struggling firm in the midst of the financial crisis, into what the business is today, sharing how he views his business’ key metrics, how he structures the service model, and the internal staff and technology infrastructure he has created that allows him to take off all the time he wants to be with his family.

And be certain to listen to the end, where Matthew shares his strategy for “time blocking” to maximize his personal productivity, and the business development training course he took that has helped him to steadily add 10-20 new clients every year for the past four years.

So whether you’re struggling with efficiency in your own advisory firm and trying to find a better work/life balance, or you’re proactively building a “lifestyle practice” and want ideas of how to do it better, I hope you enjoy this latest episode of the Financial Advisor Success podcast with Matthew Jarvis!

The Latest In Financial Advisor #FinTech (September 2016)

October 3, 2016 07:01 am 3 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September issue of the latest news in Financial Advisor #FinTech - where we look at the big news announcements, and the underlying trends and developments that are emerging, in the world of technology solutions for financial advisors.

This month's edition kicks off with the launch of two new categories of financial advisor technology - AdvicePay, a payment processor to facilitate monthly, quarterly, or annual retainer billing directly from a client's credit card or bank account (without running afoul of RIA custody rules!), along with Snappy Kraken, a comprehensive automated digital marketing platform for advisors, both premiering at the #XYPN16 #FinTech competition in September.

Also in the news over the past month is: McKinsey Consulting buys PriceMetrix, a financial advisor data platform to do benchmarking of advisor fees (necessary to determine "reasonable compensation" in the future under DoL fiduciary!); the launch of a new risk tolerance profiling system called TrueProfile, and the news that the Financial Planning Association is participating in the venture (putting it in competition with companies like Riskalyze and FinaMetrica, which also sponsor FPA events!); RIA In A Box wins its second consecutive "Best In Show" award at the Fuse Orion hackathon (who says compliance tech solutions aren't exciting!?); a new hybrid Robo/TAMP solution named "RobustWealth" launches, aiming to compete with alternatives like Betterment for Advisors but with the capabilities of a full-fledged TAMP; Betterment rolls out a new "Tax Coordinated Portfolio" service, threatening to commoditize Asset Location in the same way it has with Tax-Loss Harvesting; the Balance Financial PFM solution for advisors shuts down (but may live on as a proprietary HD Vest solution); transactional "robo" platforms Motif and Robinhood pivot to an AUM-like fee-based wrap account subscription model, but at a cost that could be drastically higher than other robo-advisors for small Millennial accounts; and a new product called "Screenmeet" launches for advisors, aiming to compete with (more expensive and complex) alternatives like GoToMeeting and WebEx for advisors who just want to do a simple screen-share of a document while speaking to a client on the phone.

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Oct 1-2)

September 30, 2016 02:51 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big news that Nationwide Insurance is purchasing Jefferson National, the maker of the leading low-cost fee-based variable annuity for RIAs, as Nationwide looks to gear up its no-commission fee-based insurance and annuity products for the DoL fiduciary rule (and gain access to Jefferson National's RIA relationships to offer new Nationwide fee-based products in the future). Also in the news this week is a new advisor survey from Fidelity, finding that financial advisors are warming up to the DoL fiduciary rule and increasingly see it as an opportunity, though a non-trivial number of advisors (about 1-in-5) report that they may leave the industry altogether if forced to act in their clients' best interests. (Good Riddance!?)

From there, we have several "counter-intuitive" articles on financial advisor marketing strategies, from why you should stop asking for referrals (and what you should do instead to become more referrable), why you should stop going to networking events (and organize your own instead), why you should create a "prospect repellant" list (characteristics of people you don't want to work with), and why maintaining an emotional aloofness as an advisor professional may be inferior to sharing your personal story and allowing yourself to be more emotionally vulnerable with clients.

We also have a few more technical articles this week, including: the benefits of using a HECM for Purchase reverse mortgage to buy a retirement home (instead of a traditional mortgage); how factor investing extends beyond the traditional Modern Portfolio Theory (MPT) approach; and ideas for new ETFs that would actually be useful for consumers (unlike the proliferation of so many today that appear to be pursuing extreme differentiation at the cost of introducing new risks).

We wrap up with three interesting articles: the first is a look at how, if you really want to motivate employees, don't just give them financial bonuses (which can briefly encourage behavior but quickly fade), and instead give them compliments and pizza (which have more lasting motivational effects than you might have realized!); the second is a discussion of how we tend to distance ourselves from those who criticize us, even though the reality is that constructive criticism feedback is crucial to self-improvement; and the last dives into the research of how to actually take a truly restful "micro break" during the day to keep your energy flowing (as even a brief 5-minute restful break can go a long ways to renewing our energy to get through the rest of the work of the day)!

And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, which this week includes highlights of the recent #FinTech hackathons from Orion Fuse and eMoney Advisor, the announcement that Motif Investing is launching a new Motif BLUE subscription service, the launch of Betterment's new "Tax-Coordinated Portfolio" (automated asset location), a new Quovo advisor dashboard, and more!

Enjoy the "light" reading!

The Tax Risk Of Too-Tax-Efficient Investment Strategies

August 3, 2016 07:01 am 13 Comments CATEGORY: Investments

Judge Learned Hand once famously stated that “Any one may so arrange his affairs that his taxes shall be as low as possible” and that there’s no duty to pay any more in taxes than is absolutely necessary. And the corollary when it comes to an investment portfolio might be “Any one may so manage a portfolio to defer taxes as long as possible,” given that if the investor ever intends to use the money, eventually the tax bill must still come due, but it still pays to minimize tax drag along the way.

Yet while it’s appealing to manage investments in a tax-efficient manner – or buy “tax-managed” mutual funds to do it for you – in today’s tax environment, there actually is such thing as being too tax efficient and deferring too much in taxes for too long.

The reason is that since the beginning of 2013, investors effectively face four different capital gains tax brackets (including the 3.8% Medicare surtax on net investment income), with higher rates applying to higher levels of income and larger capital gains. Which introduces the possibility that an investor is so tax efficient, and defers their tax liability for so long, that when the taxable event finally occurs, the sheer size of the gains propel the investor into higher tax brackets, who then ends out finishing with less wealth!

Which means ultimately, while “tax drag” is bad, and strategies to minimize it – such as tax loss harvesting – are valuable, doing too much tax minimization now can just cause even more harm later. Instead, for some investors, the best approach is to recognize that in low tax rate years it’s better to harvest the gains instead of the losses. And in other situations, the best way to minimize tax drag is not to buy a tax-managed mutual fund at all, and instead leverage the asset location opportunity of sheltering growth investments that generate capital gains inside of an IRA (or ideally a Roth IRA) instead.

Weekend Reading for Financial Planners (July 9-10)

July 8, 2016 02:48 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a discussion of the Senior Safe Act, legislation currently winding through Congress that would make it easier for financial advisor to report suspected elder abuse amongst their clients without fear of litigation for breaching client privacy (but sadly, only when reporting to government agencies, and not family members). Also in the news this week is a lobbying effort by the Investment Adviser Association to allow clients of RIAs to automatically be deemed accredited investors, regardless of their actual income or net worth, and be allowed to rely on the RIA's recommendations (subject to fiduciary duty) as protection from overly risky investments.

From there, we have several advisor technology articles this week, including a review of social media management software Grapevine6, the Canadian portfolio management software platform Croesus (now looking to grow its adoption amongst RIAs in the US), a discussion of how technology vendors are trying to step up to help large advisory firms cope with the DoL fiduciary rule requirements, and a look at how the most successful advisors are disproportionately likely to be heavy adopters of technology (but affluent investors are still most likely to choose their advisors for more 'traditional' reasons like years of experience and expertise/capabilities).

We also have a few more technical articles this week, from a look at how the Medicare "Hold Harmless" provisions are projected to strike once again for 2017 (which will limit Medicare premium increases to just 0.2% for most, but spike Medicare premiums for higher-income individuals as much as 22%), to a discussion of the rules for holding foreign stocks and claiming the foreign tax credit, and an analysis of the rules for the Net Investment Income Tax (NIIT) as applied to non-grantor trusts (where the 3.8% surtax can kick in after just $12,400 of income).

We wrap up with three interesting articles: the first is a look at how many parents who take time out of the workforce to care for children, seeing that child care may have consumed most or all of their take-home pay already, may be grossly underestimating the long-time financial impact of staying home with children once accounting for how time out of the workforce can permanently change a worker's income and career trajectory; the second is an analysis of how income inequality may actually be driven less by the concentration of national income in the hands of capitalists or merely going to higher-skilled professions, and more a result of the barriers that many professions have erected in the name of consumer protection that may have (unwittingly or on purpose) limited competition and (artificially) inflated incomes; and the last is a look at Millennials, who are often lauded for having an "entrepreneurial mindset" but are actually forming new businesses at a significant lower rate than prior generations did at the same age, raising the question of whether competition from mega-firms and the overhang of student debt may be permanently impairing Millennial entrepreneurship, or if the reality is just that the Millennial entrepreneurship needs another decade to germinate before it really starts to blossom (given that in reality research shows the peak age for entrepreneurs to start a business is 40-something anyway, not as a 20-something).

Enjoy the "light" reading!

Weekend Reading for Financial Planners (Jun 18-19)

June 17, 2016 02:51 pm 16 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with an interesting recent interview from Vanguard CEO Bill McNabb at the Morningstar Investment Conference, as he describes Vanguard not as an asset manager or investment company but as a "technology company" instead, possibly implying that Vanguard will be rolling out even more technology innovation or more "robo" tools of its own in the coming years.

From there, we have a few technical articles this week, from another reminder/warning that ETFs cannot be any more liquid than the liquidity of their underlying investments (at least not during times of market distress), to a look at the current Social Security "redo" rules for those who wish to withdraw or voluntarily suspend their benefits, and a discussion of the growing momentum for changes to the retirement laws that would make it easier to enroll more/all workers in automatic enrollment retirement plans with automatic escalation clauses, and possibly the advent of open multiple employer plan (MEP) options in the coming years.

We also have several practice management articles, including: a look at how the new DoL fiduciary rules may bring fresh attention to the issue of "reverse churning" in advisory accounts; a review of 'lesser-known' RIA custodians RBC Advisor Services, Trust Company of America (TCA), and Shareholder Services Group (SSG); a review of the new MoneyGuidePro G4 release and its new "Conversations" feature; a look at the iRebal rebalancing software from TD Ameritrade; and a look at the latest version of Junxure Cloud CRM for financial advisors.

We wrap up with three interesting articles: the first is a look at how improvements in health are leading to a growing number of people retiring "early" in their 60s even as they could work into their 70s, which raises difficult questions about whether our current Social Security and Medicare systems are subsidizing "early" retirement more than they were originally intended (and if they're going to be changed, how to do so in a way that doesn't adversely impact less educated workers in physically demanding jobs who really can't work later); the second explores how the traditional mutual fund wholesaler is being made irrelevant by the availability of online information and how wholesalers are shifting to become value-added relationship managers to survive and thrive (an interesting parallel for financial advisors themselves; and the last is a fascinating look at how the rollout of ATMs impacted the jobs of bank tellers over the past 30 years, as it turns out that ATMs made bank branches so much more efficient that banks opened up more branches, resulting in a net increase in bank teller jobs over the past several decades... which implies that, similarly, the end point of "robo-advisors" may not be the death of financial advisor jobs, but an improvement in financial advisor efficiency that allows for more financial planning jobs to be created in the coming years!

Also, be certain to check out the video at the end, a clip from the popular HBO late-night comedy show with John Oliver, supporting the Department of Labor's fiduciary rule and sharply criticizing the financial services industry's lawsuits against it... an entertaining segment, punctuated by Oliver's usual comedic wit.

Enjoy the "light" reading!

The Problem With Joint Ownership Of Non-Qualified Deferred Annuities

May 18, 2016 07:01 am 19 Comments CATEGORY: Annuities

The opportunity to obtain tax-deferred growth in a non-qualified deferred annuity is a key feature of the contracts, particularly for those who face high tax brackets and have already maxed out other available tax shelters. An added benefit is that non-qualified annuities aren’t even subject to RMD obligations during the lifetime of the annuity owner.

However, a significant complication of annuities is that upon the death of an annuity owner, the beneficiary must begin post-death Required Minimum Distributions from the contract. And notably, the post-death RMD obligation occurs at the death of the first owner with a jointly owned contract, which means that a surviving joint owner can even be forced to liquidate their own asset and trigger a taxable event!

Fortunately, the tax law does allow for “spousal continuation” of an annuity payable to a surviving spouse. But that rule triggers based on whether the spouse is named as the beneficiary, not the joint owner. In fact, once a surviving spouse is properly named as a beneficiary, there’s often no reason at all for the annuity to be jointly owned anymore!

And between non-spouses, the situation can be even more problematic, as the death of one annuity owner can force the surviving owner to begin taking “stretch annuity” payments over his/her life expectancy, even if it was the survivor’s money in the first place and he/she doesn’t want it!

Which means in the end, most situations where an annuity is jointly owned, it probably shouldn’t be, as most of the benefits of joint ownership can be accomplished by other means when using an annuity anyway (unless specifically pursuing contractual living or death benefit guarantees that are designed to apply for both spouses jointly). And in situations where it's not actually necessary to jointly own the contract anyway, by not owning the contract jointly, the risk of unintentionally forcing the contract to be liquidated at an undesirable time is greatly reduced!

Why The DoL Fiduciary Rule Won’t Kill Annuities, It Will Make Them Stronger!

April 21, 2016 01:09 pm 48 Comments CATEGORY: Annuities

Periscope Office Hours Cover Image April 19 Why DoL Fiduciary Wont Kill Annuities

Annuity products have long been the domain of annuity agents who earn substantial commissions, while the adoption of annuity products by fiduciary RIAs has been sluggish at best, ostensibly due to some combination of a dislike of available annuity products, and the lack of any commissions to incentivize their use. Yet now with the DoL fiduciary rule, there are new pressures coming that may compress annuity commissions... raising the question of whether annuity products will even survive in the long run without commission compensation to support them.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at how the DoL fiduciary rule may impact annuity companies and annuity product design in the coming years, and whether it's really the beginning of the end of annuity products.

Yet a deeper look reveals that the changing incentives for annuity companies may not kill annuity products at all, and in fact may actually drive annuity products to get better in the future. After all, when an annuity company can't pay a hefty commission to incentivize agents to sell it, their own remaining choice is to actually design a good product, and then market and educate advisors on how to use it appropriate - in a manner that meets their own fiduciary requirements. In addition, annuity companies will also face new pressures to be more transparent and less "gimmicky" with their product design, as anything less will drive away fiduciary advisors who will fear they can't do sufficient due diligence to manage their own liability exposure.

Of course, the biggest caveat is that the new DoL fiduciary rules only apply to retirement accounts, which means non-qualified annuities won't face any of these pressures. Yet given that the concentration of retirement dollars that would buy annuities are held in retirement accounts, the opportunity for annuity companies is to figure out how to step up and create fiduciary-ready products... which in turn may only further increase the regulatory pressure on the SEC, FINRA, and state insurance regulators to improve the standards for non-qualified annuities to match the new fiduciary world for IRAs!

Weekend Reading for Financial Planners (Mar 12-13)

March 11, 2016 02:29 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big announcement of Salesforce Financial Services Cloud, a new contender in the world of advisor CRM as Salesforce looks to build on its success in financial services by building its own proprietary customized solution for financial advisors.

From there, we have several technical articles, including some good reminder tips for those doing "last-minute" IRA contributions in the coming weeks, and a review of the issues to consider for early retirees who want/need access to health insurance after work and before being eligible for Medicare at age 65 (now more feasible than ever, thanks to the new health insurance exchanges). We also have two investment-related articles, one discussing the launch of Eaton Vance's new "exchange-traded mutual fund" (the ETMF) and how it's similar-but-different to an ETF, and the other looking at how high-dividend strategies may have strong performance but value-oriented strategies (regardless of the dividend) appear to perform even better.

There are also a few technology-related articles this week, including software reviews of a new digital content marketing service called Financial Media Exchange (FMeX), a new platform for advisors to engage in options trading called Vest Financial, and the looming emergence of facial recognition software that advisors might use to help understand their prospects and clients better (and how they emotionally react to money and financial issues). There's also a good review of the technology offerings of the "smaller" and start-up-friendly RIA custodians, including TradePMR, SSG, and Scottrade Advisor Services.

We wrap up with three interesting articles: the first is a look at why investors tend to stray from their investment principles (hint: they convince themselves it's "close enough" to their principles that it's ok to fudge a little, even though it's often quite a material divergence); the second is a look at how our world is becoming so abundant, from free media and entertainment to excesses in many commodities, and how it may be driving malinvestment (and that a 'healthy' recession to purge the excesses would be good, before the real economy is harmed!); and the last is a discussion of whether the explosive rise of indexing over the past decade may be approaching the point that it's starting to distort the market prices for stocks and commodities, and what we might need to do in the future to correct the situation if we want to preserve cost-effective investment strategies but ensure healthy markets.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, which this week includes a discussion about the new release of Salesforce Financial Services Cloud (and his skepticism of its significance!), and the announcement that Betterment is adding account aggregation to its retail and institutional platform.

Enjoy the "light" reading!

A Hierarchy Of The Value A Financial Advisor Provides

March 8, 2016 07:01 am 7 Comments CATEGORY: Practice Management

With the ongoing commoditization of investment management services, and ever-increasing pressure on active investment managers to demonstrate their value, many have raised the question of whether financial advisors will eventually succumb to the pricing pressures of low-cost robo-advisors.

In today's guest post, Bob Seawright from Above The Market makes a compelling case for the long-term value of a financial advisor beyond just security selection and portfolio management, and highlights a "hierarchy of financial advisor value" that starts with the areas where financial advisors have the most impact - on savings and investment behavior, and providing financial planning advice - beyond which the actual implementation of an investment portfolio is just a small slice.

So whether you're a financial advisor who finds it difficult to articulate your value beyond just portfolio management services, or are simply looking for a new take and some fresh inspiration on how to describe your value to current and prospective clients, I hope that you find this hierarchy of financial advisor value to be beneficial in your practice!