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Simplifying Retirement Income Planning Visualization Using The ‘Spending Risk Curve’

April 13, 2022 07:03 am 7 Comments CATEGORY: Retirement Planning

Retirement income planning is often one of the primary reasons prospective clients approach a financial advisor. In a world of increasing longevity and declining reliance on defined benefit retirement plans, being able to give clients an estimate of how much they can ‘safely’ spend each year, given their available assets, is a major part of an advisor’s value proposition. To do so, advisors often rely on Monte Carlo analyses, which provide the probability of a particular course of action being ‘successful’ (and, therefore, implying the corresponding probability of ‘failure’). However, the typical presentation of Monte Carlo results via a single probability-of-success outcome can make for a cumbersome process of guessing and checking plan results to get a sense of the range of plan outcomes for a client across different levels of spending.

A potential solution to ameliorate this problem and allow for easy comparison across various spending levels is to leverage technology to graphically display curves that relate a client’s spending levels with corresponding risk outcomes. These “Spending Risk Curves” can be far more insightful than a single probability-of-success result, and very useful for an advisor to gain a higher-level understanding of a client’s financial options by visually illustrating the trade-offs between a client’s spending choices and risk in retirement.

At their core, Spending Risk Curves show the trade-off between risk (framed in terms of probability of success or otherwise) and spending in retirement planning (i.e., as annual portfolio withdrawals increase, so does the spending risk level) based on a client’s particular circumstances (e.g., mixes of ages, longevity expectations, or Social Security benefits). In this way, Spending Risk Curves give advisors an idea not only of the full range of options for the initial risk/income levels, but, when combined with Spending Risk Curves at different portfolio levels, can also of the future adjustments to spending that might be needed (these could be to the upside or the downside, depending on portfolio performance) to keep the client at the desired risk level.

Ultimately, the key point is that Spending Risk Curves are highly versatile tools that can help advisors better conceptualize the range of outcomes associated with different spending levels for their clients, so that they can more easily design relevant and suitable financial plans. By understanding the full range of spending options at all levels of risk for a given client’s situation and being able to estimate future spending adjustments that might be needed to maintain a desired level of risk, advisors can not only give clients a more accurate view of their choices but also communicate what changes to spending might be needed down the line to keep their plan on track. In the end, this can lead clients not only to make better-informed decisions but also to have more confidence in their financial plan!

#FA Success Ep 276: Integrating Tax And Legal Services Under One Roof To Truly Scale A ‘One-Stop Shop’, With John Hagensen

April 12, 2022 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

John Hagensen Podcast Featured Image FAS

Welcome back to the 276th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is John Hagensen. John is the founder of Keystone Wealth Partners, an independent RIA with offices in Arizona and North Dakota, that oversees $650 million of assets under management for nearly 1000 client households.

What's unique about John, though, is how he is one of the first non-lawyer financial advisors in the nation to build, own, and operate a law firm, which he then leverages, along with his own tax firm, to create a truly one-stop-shop wealth management experience of financial planning, tax, and estate, for his mass affluent clients.

In this episode, we talk in-depth about how the unrealized predictions of fee compression in the financial industry inspired John to concentrate on adding more measurable value for his clients with tax and estate services, how John has been able to leverage his all-in-one service offering to gain a faster pace of referrals, and how John has been able to grow to nearly 1,000 clients in barely more than a decade through a multi-prong education-based marketing strategy that utilizes informational webinars, in-person events, and making a big investment into a weekly radio show.

We also talk about how John transitioned from a career as an airline pilot but still incorporates the same systematized checklist-oriented mindset to build standard processes for his own businesses, how he has become comfortable with the idea of not being a right fit as an advisor for every prospective client, and how he found a sense of renewal after a trip to Ethiopia made him look internally and evaluate his purpose in life and the potential impact of his money.

And be certain to listen to the end, where John shares how the growth of his business led to a mindset shift to focus more on the collective team after realizing how dependent he had become on hiring the right people, how he believes in utilizing the talents and resources afforded to us to help uplift others rather than just himself, and how his plans for the future are centered on a potential merger to scale up even further to expand his all-in-one services across the country.

So whether you’re interested in learning about how John created a true one-stop-shop experience for his clients, how he uses slower, ‘older’ marketing techniques to attract prospects, or how he measures the success of new ventures and avenues explored, then we hope you enjoy this episode of the Financial Advisor Success podcast, with John Hagensen.

FPA Defines Its New Roadmap: Serving CFP Professionals And Building (Trust With) Local Chapters

April 11, 2022 07:08 am 3 Comments CATEGORY: Planning Profession

Leading up to the arrival of new CEO Patrick Mahoney in 2020, the Financial Planning Association (FPA) had experienced a rocky few years. From the continued decline in membership (including a 25% cut between 2018 and 2020) to the angry backlash among members regarding the OneFPA initiative (not to mention challenges brought on by the COVID pandemic), the FPA was in need of a fresh start. With this background in mind, Mahoney has taken several steps since his arrival to revive the FPA’s relationship with its chapters and members and could help the organization grow for the first time in years.

Mahoney’s efforts started with trade and national press outreach efforts, offering interviews to tell the FPA’s story and to communicate the value of the organization – and, more generally, financial planning – to the broader public, emphasizing the efforts made by FPA chapters to drive professionalism among their ranks. Mahoney then focused on rebuilding trust between local FPA chapters and the national FPA headquarters by meeting with FPA chapter boards across the country and reinforcing that the main goal of the FPA home office is to support its members and the profession (in stark contrast to the FPA’s previous message that its members existed to support the FPA). This shift in attitude prompted changes to the FPA staffing structure intended to better serve its chapters and members, and gave rise to a new Chief Membership Experience Officer position, as well as a new membership experience department and chapter experience team whose roles are to help chapters better serve FPA members on their level.

Perhaps most importantly, the new FPA Advisory Council (that originally arose from the initial OneFPA initiative) has brought the leaders of 80 FPA chapters together with Mahoney and key board members, who have been actively brainstorming ways to reverse the organization’s membership decline and put the FPA on what would be its first growth path since its inception. As a result of the Advisory Council’s recommendation to identify the organization’s core members, the FPA has determined that the FPA’s marketing and membership benefits will be oriented to making the lives of CFP practitioners – the organization’s formally defined ‘core member’ – easier and more convenient.

Ultimately, the key point is that while the FPA’s turnaround is going to take time, the first steps have been taken. By focusing on CFP professionals as its core members and restructuring the organization to focus on how it can serve its chapters and members (rather than on the support of members required to sustain the organization), the FPA and its leadership have built a foundation for the organization to grow and thrive in the years ahead!

Weekend Reading For Financial Planners (Apr 9-10)

April 8, 2022 02:03 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the Biden administration will be extending the current moratorium on Federal student loan payments, originally scheduled to end on May 31, until August 31 (which, while welcome to many borrowers, also leaves many in financial limbo as they try to plan for when – if ever – the payments will restart).

Also in industry news this week:

A new study by Charles Schwab and Ariel Investments shows that participation in the stock market is near an all-time low among Americans amid declining trust in markets and financial institutions (with the effects most acutely seen with Black investors)
How focusing on client experience (rather than simply client service) can help firms generate more revenue by creating emotional engagement with the firm’s most important clients

From there, we have several articles on the current stock market environment:

What advisors can do to keep client investment portfolios on track in the current turbulent market and geopolitical environment
What the recent yield curve inversion means for stock market returns going forward and how advisors might respond
Why investing in international stocks could still provide diversification benefits even as they lag U.S. equities in performance

We also have a number of articles on direct indexing:

While the number of direct indexing platforms has proliferated, one industry observer is skeptical of several of its advertised benefits for advisors and their clients
In the latest sign of direct indexing growth (and its potential to disintermediate ETFs and mutual funds), Charles Schwab plans to launch its direct indexing offering for RIAs and retail investors in late April
Fidelity has gone live with its Fidelity Managed FidFolios direct indexing platform, and its $5,000 account minimum has the potential to bring direct indexing to a wider range of investors (who may not even benefit from it if they’re already eligible for 0% capital gains rates!?)

We wrap up with three final articles, all about productivity:

How the rise of remote work has created a late-evening “peak” of productivity for some workers (which on the positive side could mean more workers are optimizing their schedules to their preferred hours, or on the negative side could mean workdays are simply getting longer)
Why many employees spend at least half of their days “working on work”, including following up on tasks, giving status updates, and searching for information (which comes at the cost of actually getting work done and can prevent organizations from strategizing for the long term)
How workers can optimize their schedule for productivity by grouping meetings together and leaving the remaining time free to work without distractions

Enjoy the ‘light’ reading!

Kitces & Carl Ep 83: When The Big Prospect Doesn’t Want Your Financial Plan

April 7, 2022 07:02 am 1 Comment CATEGORY: Kitces & Carl Podcast

Kitces Carl Ep When The Big Prospect Doesnt Want Your Financial Plan Featured Image

The core value proposition offered by many financial advisors is to serve and help clients solve their complex financial issues through financial planning. As an advisory firm grows, though, so too can the pressure to onboard more remunerative clients. These tensions can be heightened when a prospective high-net-worth client decides they don’t want comprehensive financial planning at all, and instead simply requests one specific service, such as portfolio management. This can create a dilemma for the advisor who wants to serve clients and help their business grow, as agreeing to only a part of the financial planning process, without fully understanding the client’s values and priorities, can feel antithetical to an advisor’s own core values… advisors need this understanding to create meaningful plans that clients can actually use to achieve their financial goals. Even though garnering enough business to maintain a healthy flow of revenue is important to any firm, it is also critically important not to compromise the values of the advisor and the firm!

In our 83rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss some steps advisors can take when a prospect objects to financial planning in general because they only want a particular service (e.g., investing their portfolio), how to gain a deeper understanding of why the prospective client doesn’t want financial planning in the first place, and how to understand the client’s goals and values so that the services that are provided to them align with what is most important to the client.

As a starting point, it’s important to understand that while guiding clients through a comprehensive data-gathering process can certainly lead to a good financial plan, some clients may consider the experience tedious, intrusive, and unenjoyable. This can possibly be due to prior experiences with financial advisors, negative associations that a client may make with their own financial challenges, or an unwillingness to divulge personal information with an advisor whom they may just be getting to know. In these instances, advisors can still help clients simply by having a candid conversation to learn about what’s important to the client and their reasons for seeking help with their money goals. Because without the clarity of the client’s deeper purpose, advisors might provide deliverables based solely on performance and not connected to the client’s own values, and even offer services that the client doesn’t even want or need, which can alienate the client from the relationship and eventually result in the advisor losing the client’s business.

However, by asking intentional, yet thoughtful questions to identify why the client wants help can be a great way not only to connect with a client but also to show the value of discussing and reaching financial goals, which can entice them to accept the financial planning process. Because ultimately, having conversations to really understand what’s important to a client doesn’t just help advisors do a better job servicing clients with what they really need (and want), it can also lead to more trust in the relationship, which helps build deeper and longer-lasting client relationships!

Questions Advisors Can Ask To Help Clients Take Action By Exploring Their Money Memories

April 6, 2022 07:07 am 1 Comment CATEGORY: Client Trust & Communication

In recent years, understanding and applying concepts of financial psychology have become increasingly important skills used by financial advisors. While technical knowledge can help advisors develop objectively sound financial strategies, turning those strategies into advice that the client will actually follow often requires some knowledge of the client’s personality, culture, and background, so the advisor can deliver their advice in a way that is meaningful and motivating to the client.

One powerful tool for better understanding a client’s financial behavior and psychology is an exploration of their “money memories” – the key moments in a person’s past that can shape their current beliefs and actions around money. By encouraging clients to reflect on these influential events from their past, advisors can help them examine their current behaviors more objectively and recognize the reasons for feeling so stuck (their change inhibitors), which can make it easier to identify workable strategies that will help their clients get ‘unstuck’ in challenging areas of their financial plan.

However, money memories can be a very sensitive topic for many people given the emotions (both positive and negative) that these conversations can elicit, and clients may feel deeply vulnerable when talking about their money memories and past decisions. If an advisor asks about money memories too early in the relationship – without first having built a deep foundation of trust – the client could feel as if they are being judged on their past or present actions and become put off or defensive, shutting down the conversation until their trust can be rebuilt. Which means that money memory conversations that are approached deliberately and respectfully can make them more productive and insightful.

Advisors can prepare their clients for the conversation by providing an agenda outlining the discussion topics well in advance, which can give clients an opportunity to contemplate their responses ahead of time. And keeping the conversation as an open-ended exploration of attitudes and feelings (rather than using it to diagnose specific problems or behaviors, which can feel overly judgmental to some clients) can help clients feel more comfortable about having a candid discussion of their money memories.

Ultimately, money memory conversations are about giving clients the space to explore their own perspectives and perceptions of their experiences. The simple question “What’s your earliest money memory?”, followed by respectful and open-ended follow-up questions to explore the client’s thoughts and feelings more deeply, can help clients recognize for themselves the ways that past experiences may manifest into current behavior. At the same time, helping clients uncover these memories for themselves can give advisors deeper insight into the client’s psychological approach toward money – helping the advisor give advice that aligns with what matters most to the client (and that can help them tackle their most challenging obstacles)!
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