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#FA Success Ep 257: Deepening Client Relationships By Going Deeper For Clients In Transition, With Beth Jones

November 30, 2021 07:07 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 257th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Beth Jones. Beth is the co-founder of Third Eye Associates, an independent RIA in the Hudson Valley of New York that oversees $125M of assets under advisement for nearly 200 client households.

What's unique about Beth, though, is the way her firm goes deep in its financial planning process with clients, spanning a series of 7 initial meetings that go deep into creating a personal vision statement to help clients truly understand what they need to do to align their money with their values.

In this episode, we talk in depth about Beth’s financial planning process with clients, including assessments like a wellness worksheet and a communication preferences tool that she uses to determine how best to work with new clients, how Beth leverages eMoney Advisor’s account aggregation to spark client conversations around their household cash flow, and why Beth still chooses to provide a physical financial plan deliverable to clients (even as she acknowledges that few open the plan again after it’s first delivered).

We also talk about how Beth structures her advisory fees with clients, the way she arranges an upfront multi-month retainer fee based on the initial complexity of the client and the number of meetings she anticipates it will take to cover all their issues, why Beth also charges an AUM fee to monitor client portfolios but has chosen to work with AssetMark as her TAMP of choice for clients to implement with, and how becoming known for her in-depth financial planning discovery process has led to a waiting list for her new clients after more than 15 years of growth.

And be certain to listen to the end, where Beth shares how the greatest challenge of scaling up her advisory firm has not been about continuing to find new clients but finding the new team members to serve them, how Beth ultimately made the decision to let go of 85 of her earliest clients after discovering that she was actually losing money on them, and how Beth navigated the challenging transition of finding out that her co-founder was ready to retire while Beth wanted to continue running the business and serving clients longer.

So whether you are interested in learning how Beth creates a safe space for her clients, how she helps her clients create a Life Vision, or how she overcomes the challenges of working with clients through major life transitions, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Beth Jones.

How To Choose The Best CFP Exam Review Program (For You)

November 29, 2021 07:08 am 2 Comments CATEGORY: Personal/Career Development

The Certified Financial Planner (CFP) designation is one of the most respected credentials for financial advisors and the process to earn it is rigorous. Candidates must fulfill education, experience, and ethics requirements, in addition to passing the comprehensive CFP Exam, a 170-question, multiple-choice test taken across two 3-hour sessions in one day. Material on the CFP Exam is categorized into the CFP Board’s eight principal knowledge topics, which range from retirement savings and income planning to investment planning, professional conduct, and regulation. With a general recommendation that exam takers study for at least 150 hours before the exam, the cost in time and money of failing can be high. Furthermore, given that the exam covers a broad range of financial planning topics, having an organized and disciplined study routine is a necessity to pass the exam.

Accordingly, CFP exam review courses can be a good option to help exam takers not only review the material that will be on the test but also develop strategies for preparing for and taking the exam. The core of most CFP exam review programs is based on instructor-led review sessions that typically come with extensive pre-study materials, which can include condensed reviews of the principal knowledge topics and practice questions, as well as questions and mock exams to help exam-takers gauge their progress and practice in similar conditions as the actual exam. While the core elements of most CFP exam review programs are similar, they differ in their method of delivery, level of personalization, and cost. Instructor-led sessions for some programs can be held synchronously, either in person or livestreamed virtually, while others are held asynchronously, with recorded lectures available to view on demand. Some programs also offer more personalized instruction, from one-on-one video coaching to email access to instructors. Certain programs also offer students some form of exam-pass guarantee, which can range from being able to retake the program for free, to receiving a refund of the program cost.

With more than twenty different CFP exam review options to choose from, exam takers can methodically approach selecting a program by first deciding whether to take a synchronous or asynchronous program. While synchronous programs can be good for exam takers who want (or need) the structure of set schedules, asynchronous programs can be useful for those with unpredictable schedules and the discipline to complete the program on their own. Individuals can then consider other important factors (e.g., group size, guarantees, and cost) that are most important to them based on their preferred learning style and budget. As an alternative, exam takers with very tight budgets can choose a self-study approach using printed review materials and practice questions without the lecture component.

Ultimately, the key point is that while there is no single ‘best’ CFP exam review program that will be suitable for all test takers, those taking the exam can consider their individual situation to narrow the field of available programs. And while there is no guarantee that an individual will pass the CFP exam after taking a review program, these programs can greatly improve the quality and efficiency of the strategy the exam taker chooses when preparing for the exam. Which is important, because passing the CFP exam requires a high level of commitment and hard work – and finding the right method to review and prepare can make a big difference in helping prospective test takers pass the exam!

Weekend Reading for Financial Planners (Nov 27-28)

November 26, 2021 01:58 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading for Financial Planners” – this week’s edition kicks off with a breakdown of how the Build Back Better Act is likely to change now that it has passed the House but is just now heading to the Senate for a fresh round of debates – including, most notably for financial advisors and their clients, the potential increase in the SALT deduction cap that was included at the last minute in the House’s version of the bill but faces resistance from the progressive wing of Democrats in the Senate.

Also in industry news this week:

IRS data showing that the amount of estate tax paid by Americans fell by over 50% from 2018 to 2020, the result of a combination of higher estate tax exemptions after the Tax Cuts and Jobs Act… and higher adoption of more sophisticated estate planning methods (e.g., GRATs and FLPs) by wealthy individuals
A new report by Cerulli showing how investors, despite being increasingly aware of the fees they pay for financial advice, are also becoming more willing to pay for the advice itself, creating opportunities for advisors with non-AUM fee-for-service models

From there, we also have several articles on digital marketing, including:

The highest-performing types of financial advisor blog posts, including both topics that demonstrate the advisor’s expertise, and those that showcase their personality and client experience
How to create email subject lines that lead to higher opening and click-through rates with prospects
How video marketing campaigns outperform other media – as long as they are hosted natively on the advisor’s site (not just via YouTube or social media) and promoted effectively

We also have a number of articles on changes to the college financial aid process and student loan planning:

Upcoming changes to the Free Application For Federal Student Aid (FAFSA) and the formula used to determine financial need
How distributions from grandparent-owned 529 accounts will no longer negatively affect a student’s eligibility for financial aid under new FAFSA changes in the coming years
Why the biggest student loan burdens are shifting from undergraduates to graduate students, and the challenge of ‘elite’ Master’s degrees that have a high cost but don’t lead to (materially) higher incomes

We wrap up with three final articles, all about financial advisory practice management and conveying our value as financial advicers:

Why ‘unbundling’ financial planning services can create value for both advisors and clients
How clients determine the value they get from a financial planning engagement, and the way advisors can (re-)price their services accordingly
A consumer survey highlighting that consumers may get initial introductions to advisors through friends-and-family referrals, but increasingly are looking to the advisor’s presentation of services, brand, cost, and communication style, to determine whether to hire (and stick with) the advisor

Enjoy the ‘light’ reading!

The Retirement Distribution “Hatchet”: Using Risk-Based Guardrails To Project Sustainable Cash Flows

November 24, 2021 07:04 am 8 Comments CATEGORY: Retirement Planning

One of the questions retirees often have is how much they can afford to spend each year over the course of their retirement without depleting their portfolio during their lifetimes, and financial advisors have many tools to aid in this discussion. One classic technique is the use of withdrawal rates; based on asset allocation and historical return data, advisors can calculate a safe annual portfolio withdrawal rate that retirees can use to guide their spending throughout their retirement. However, this approach does not account for the investment returns the clients actually experience in their retirement; for example, the safe withdrawal rate could increase over time if the client experiences strong investment returns in their first few years of retirement.

To solve this problem, advisors can use withdrawal-rate guardrails, which are guidelines to increase or decrease spending when portfolio withdrawal rates reach certain levels. For example, if an initial 4% withdrawal rate calls for $5,000 in monthly spending, the spending amount could be adjusted higher if it reaches 2% of the portfolio value or lower if it hits 6%. Yet, withdrawal-rate guardrails can be flawed because the relatively steady withdrawal rate patterns used do not necessarily align with how retirees actually pull distributions from a portfolio in retirement.

In reality, what is more commonly seen is a “retirement distribution hatchet” in which the initial retirement distribution rates from a portfolio are highest early in retirement, then significantly decline when deferred Social Security is claimed (as late as age 70), and falling further yet because of the tendency for retirees’ spending to decline in real dollars as they move through retirement. A dynamic portfolio withdrawal strategy should also consider other sources of income in retirement (e.g., pensions, rental properties, part-time jobs, house downsizing, and inheritances) that can impact the size of needed portfolio withdrawals to cover spending requirements.

To compensate for this issue, advisors can consider using holistic risk-based guardrails, which reflect current longevity expectations, expected future cash flows, expected future (real) income changes, and other factors. Probability of success via traditional Monte Carlo analysis can serve as the risk metric to guide the implementation of risk-based guardrails. There is a risk of causing anxiety for clients if the risk is presented in terms of the success or failure of their plan as a whole, but advisors can instead use the language of income risk, which may be less stress-inducing. For example, an advisor could explain that if risk increases (e.g., if investment returns are weak), downward adjustments to spending will be needed; alternatively, if risk declines (e.g., because the client has reached an advanced age with a strong portfolio) spending can be safely increased.

Ultimately, the key point is that a risk-based guardrails model can provide clients with a more accurate picture of how much they can sustainably spend than can models based on static withdrawal rates or withdrawal-rate guardrails. While risk-based guardrails can be less efficient to calculate manually than withdrawal-rate guardrails because of the many factors considered in the risk-based model, when properly assisted by technology, risk-based guardrails can be implemented and maintained as efficiently as withdrawal-rate guardrails. And, given how different the retirement distribution hatchet is from the distribution patterns assumed by withdrawal-rate guardrails, the movement from withdrawal-rate guardrails to risk-based guardrails represents a significant improvement in planning quality for retirees!

#FA Success Ep 256: Living On The Cutting Edge Of Advisor Technology To Build A Better Client Experience, With Vincent Barbera

November 23, 2021 07:09 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 256th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Vincent Barbera. Vince is the founder of Newbridge Wealth Management, an independent RIA based right outside of Philadelphia that oversees nearly $120M of assets under management for 75 client households.

What's unique about Vince, though, is the way he stays on the cutting – or sometimes bleeding – edge of advisor technology by continuously experimenting with new tech tools for his advisory firm, setting a new strategic focus every year to identify a new category of solutions to try out, either internally with his team, or externally with his clients.

In this episode, we talk in depth about the new technology tools that Vince has been trying this year with a theme of improving his Client Experience, including using Knudge to keep track of and collaborate with his clients on their financial planning tasks, Pulse360 to keep his meeting agendas and post-meeting notes more organized, and Hubley to help systematize the firm’s workflows above and beyond what his CRM alone can accomplish.

We also talk about how Vince manages his technology choices and budget to avoid having the cost spiral upwards out of control by just adding more and more technology, how Vince compares the cost of new technology tools to his financial planning software to determine if it’s a ‘reasonable’ price (because if it costs more than his planning software, he’d better be using it more than his planning software!), how Vince regularly assesses how often he’s logging into his technology tools to decide what to prune, and where Vince goes to find the latest and greatest tools to try out (and the gaps he still can’t find a solution for!).

And be certain to listen to the end, where Vince shares his own journey through the financial services industry, from starting out at a major asset manager’s HNW advice department but finding that the advice was still too focused on the firm’s asset management products and not the rest of the client’s financial advice needs, how Vince made the transition to go out and launch his own independent firm (with an eye towards using all the technology tools that are available today to stay competitive without an asset manager’s size and scale), and why Vince ultimately decided that he did not want to try to build the next billion-dollar firm and has actually felt even happier in his business by consciously deciding to take his foot off the gas and grow a little slower for a while.

And so with that introduction, I hope you enjoy this episode of the Financial Advisor Success podcast, with Vincent Barbera.

Navigating Minimum Net Capital And Surety Bond Requirements For State-Registered RIAs

November 22, 2021 07:03 am 3 Comments CATEGORY: Practice Management

State-Registered Investment Advisers (RIAs) are subject to numerous regulations in the state(s) where they do business, which, though they vary from state to state, generally have the goal of protecting investors from fraudulent sales practices. These rules require RIAs to file documents (such as Form ADV) with the state, maintain books and records, provide disclosures to clients, and act in the clients’ best interests whenever providing financial advice. Additionally, many (but not all) states set minimum financial requirements – in the form of minimum net capital and/or surety bond requirements – that RIA firms must maintain in order to become (and remain) licensed, to protect consumers from both the risk of fraud, and simply the consequences of negligent or inaccurate advice that could cause them harm. Because of the many differences between each state’s requirements, though, it’s important for RIA owners (especially the founders of new firms) to know their state’s particular rules and how to comply with them.

In this post, Kitces Senior Financial Planning Nerd Ben Henry-Moreland discusses how owners of state-registered RIAs can better understand their minimum net capital and surety bond requirements, and what protection they do (and don’t) provide for both clients and financial advisors themselves.

In states that set minimum net capital requirements, an RIA must hold a certain level of assets over its liabilities. This amount varies not only from state to state, but also often within states, depending on whether the RIA holds custody of client assets and/or has discretionary trading authority over client funds. In practice, states most commonly require RIAs to hold $35,000 of net capital if they have custody, $10,000 if they have discretionary trading authority (but not custody), and to have at least a $0 (i.e., positive and not-negative) net worth if they are an advice-only firm (no custody or discretion), which must be satisfied by holding cash or other marketable (i.e., liquid) investment assets.

In lieu of maintaining a certain amount of capital, though, some states permit RIAs to cover some or all of their net capital requirements with a surety bond instead. State rules for surety bonds can also vary widely, with some states requiring RIAs to hold a surety bond, others allowing firms to purchase a surety bond in lieu of maintaining the state’s net capital requirements, and some choosing not to sanction the use of surety bonds whatsoever. In states that do allow (or require) surety bonds, RIA owners need to know how surety bonds function, what the potential risks of having a surety bond may be, how their state’s surety bond and net capital bond requirements interact (and how to decide whether or not to buy a surety bond if they have a choice), and how to find the best surety bond provider to meet their needs. Though ultimately, surety bonds are appealing relative to net capital requirements because of their significantly lower cost – typically about 1% of the face amount, which means paying $100/year for a $10,000 surety bond.

While net capital and surety bond requirements provide some level of financial protection to RIA clients, that protection is minimal compared to what many clients may actually stake on their advisors’ recommendations. In practice, a legal claim by a dissatisfied client could result in a liability for the RIA that is many times greater than the state’s minimum financial requirements. Accordingly, RIA owners can protect themselves with additional layers of coverage (such as Errors & Omissions insurance) above the minimum amounts that may be required by the states in which they operate. Especially since a surety bond provider has the right to collect any client claims from the advisor, which means it does help ensure a client is made whole – similar to E&O insurance – but doesn’t actually protect the advisor’s own assets the way E&O coverage does!

The key point, though, is simply that because financial advisors are expected to give good advice, and can be held financially liable for advice that results in undesired financial outcomes for their clients, they must have the financial wherewithal available to cover any liabilities resulting from a client’s legal claims. State minimum financial requirements are one of the few ways to ensure that RIAs have assets available (or a surety bond in lieu of assets, where permitted) so clients can be compensated for any damages. But part of being a trusted professional is taking full accountability for the consequences of professional advice… which means it’s essential for the RIA to know not just how much coverage they need to secure to meet their state’s requirements (and in what form), but also how much additional coverage they may need to fully protect themselves (and their clients)!