Nerd's Eye View blog

Scaling The Efficiency Of Comprehensive Financial Planning By Creating Repeatable Expertise

October 21, 2019 07:48 am 3 Comments CATEGORY: Practice Management

In the early days of being a “financial advisor” at a broker-dealer or insurance company, having ’expertise’ meant being well-trained on the company’s products and their features and benefits. ‘Training’ at large financial services firms was primarily focused on product training (and perhaps training in how to sell those products), with the benefit that when the scope of required knowledge is fairly understood – just the features of a handful of the company’s most popular best-selling products – it takes relatively little time to train in the first place. In other words, training up an advisor’s expertise was rather simple and speedy, because the advisor just had to master the inner workings of a few select products.

In the modern era, though, as financial advice is increasingly comprehensive and holistic, the breadth of what it takes to have ‘expertise’ goes far beyond what was required in the product-centric world of 20 years ago. Yet unfortunately, the reality is that the minimum bar to become a “financial advisor” – generally, a Series 6 and 63, 7 and 66, or a Series 65 exam – is largely unchanged through this shift, built around 3 hours of regulatory exams that most can study for and pass in just a few weeks. The end result is that ‘advisors’ are licensed to provide comprehensive financial advice, with no actual requirement to have any training, education, or experience, in personal finance or advice itself.

On the one hand, a voluntary desire to improve financial planning expertise has led to rapid growth of CFP certification in recent years, with more than 5,000 CFP candidates completing the exam process in 2018, up from approximately 3,000 in 2013. Still, though, the total penetration of CFP certification is still less than 86,000 out of approximately 311,000 financial advisors (or barely more than 25%). Which makes it incredibly difficult to deliver financial planning advice efficiently… when the advisor has to research any and every question the client asks, because they lack the depth of expertise to actually know those answers offhand in the first place.

In fact, recent Kitces research on “How Financial Advisors Actually Do Financial Planning” finds an emerging “Experience-Expertise” gap, where having CFP certification reduces the time it takes to complete the first-year financial planning process by 22%, and that amongst the most experienced advisors, having CFP certification reduces the time of the financial planning process by a whopping 44%. As the more experienced the financial advisor, the more confident they tend to be, and the more affluent and complex clientele they tend to attract… which means advisors with more experience actually end out spending even more time to get through the financial planning process (despite the availability of technology, and their years or decades of experience doing it!).

Similarly, more experienced financial advisors also tend to increasingly struggle with the time efficiency of financial planning, because an increasingly complex range of clientele means an ever-widening range of complex situations that the advisor must provide advice on. Notably, though, the real challenge isn’t that more experienced advisors tend to have more sophisticated clientele with more complex needs, but that their needs are differently complex. Which means formulating a niche or more specialized expertise for a particular target clientele can not only be effective for marketing purposes, but also becomes a substantial efficiency improvement, as once the advisor researches and ’learns’ how to handle a particular complex situation, it becomes repeatable expertise for the future as well.

In addition, crafting a more repeatable financial planning process also makes it possible to improve the efficiency of financial planning by leveraging paraplanners who can do not only a portion of the back-office work in financial planning preparation, but even limited-scope portions of the financial planning meeting process as well. Such that, in practice, solo advisors who leverage a paraplanner are able to service an average of 64% more clients and generate 80% more take-home pay by better aligning the tasks being done to the skill and experience (and compensation) level of the team member.

The bottom line, though, is simply to recognize that the majority of the time spent in the financial planning process isn’t actually in the phases of Analyzing and Developing the financial planning recommendations themselves, but also in Establishing the relationship, Gathering data, Presenting the plan, Implementing it, and the ongoing Monitoring process (and the never-ending stream of financial planning questions that crop up from clients along the way). Most of which are human-to-human interactions and communication (either in-person, by video, or via email)… which means the key to improving their efficiency is not necessarily investing in the technology to better automate those processes, but instead investing into the human capital of advisors themselves with deeper and more focused expertise, and a wider range of skill levels to which various financial planning tasks throughout the process can be appropriately (and cost-effectively) matched.

Weekend Reading for Financial Planners (Oct 19-20)

October 18, 2019 04:02 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off by diving into the big industry buzz of the past two weeks, where Ken Fisher, multi-billionaire owner of his eponymous $110B+ RIA, made sexually inappropriate comments at the recent Tiburon CEO Summit, spawning the financial advisory industry's version of a #MeToo moment that has led to not only Fisher being banned from several conferences (and the withdrawal of more than $1B of his institutional investors), but a rising focus on sexual harassment policies at conferences and the stories of women across the industry sharing their own experiences of sexual harassment, sexual assault, or outright rape at industry conferences.

From there, we have several more articles on industry news this week, including the FPA's decision to break with precedent and select its first non-CFP vendor representative as the next President-Elect for its National Board (from a company that also happens to be the FPA's largest corporate sponsor, and that directly opposes FPA's fiduciary advocacy lobbying efforts!), the CFP Board's announcement that it is gearing up a new Enforcement Plan for the coming year with its new Standards set to take effect (and in response to the recent WSJ article questioning its current enforcement standards).

There are also a few regulatory articles, from a new PIABA study finding that expungement requests for brokers with problematic disciplinary records has skyrocketed as creative lawyers appear to have figured out how to game the system, a critique from the Inspector General that the SEC is failing in its enforcement efforts (with an average of more than 2 years from when the SEC begins an investigation until it actually issues an enforcement action against a problematic RIA), and an alert from FINRA that it may soon crack down on broker-dealers' lax oversight of their brokers using text messages and social media messaging apps (without properly archiving and overseeing the communications, or failing to monitor their brokers from not using those channels if the broker-dealer states they're not permitted).

We also have a few investment-related articles, including a look at why the SEC's recent ETF rule will likely mean the death of the iNAV for ETFs (and why it may not necessarily be much of a loss in practice), how the industry has focused on declining ETF expense ratios but the average expense ratio that investors pay for mutual funds is also crashing (if only because investors have now put nearly 5X the dollars more into no-load mutual funds than loaded mutual funds as the industry increasingly shifts towards fee-based accounts), and how even as expenses on ETFs continue to lower there may be a floor appearing as recent ETFs that have launched with zero or even "negative" expense ratios are actually not attracting significant new dollars from investors.

We wrap up with three interesting articles, all around the theme of the challenges of burnout: the first explores the concept of "boreout", where an employee isn't necessarily burned out from too much work, but "bored out" from having too little work to do, to the point that it can actually result in deleterious health effects; the second examines the drivers of work motivation, and how compensation only carries someone 'so far' before other more intrinsic motivators become the primary drivers; and the last looks at a recent industry study finding that financial advisors themselves are experiencing far higher stress levels than the average person, for which the solution isn't necessarily about 'work-life balance' and spending more time with family, but being more proactive in taking control of the advisor's time and scheduling to have a more productive work day in the first place.

Enjoy the 'light' reading!

FPA Selects Largest Corporate Sponsor As First Ever Vendor Representative To Become National Board President

October 17, 2019 03:25 pm 27 Comments CATEGORY: Industry News

Over the past year, the Financial Planning Association (FPA) has been no stranger to controversy. After years of declining revenues and membership levels and ongoing organizational struggles, the FPA rolled out its OneFPA Network initiative last November, which in effect would have nationalized its existing chapter system, centralizing all decision-making and budgetary control at the National level. Not surprisingly, given the FPA's history of chapter autonomy and a long-standing concern that the National organization is out of touch with its chapters, the OneFPA Network rollout met with a significant backlash from members and chapter leaders, forcing the FPA just a few months later to roll back most of its planned changes.

Yet even as the FPA National organization tries to smooth over its increasingly tense relationship with its chapters, this week as the FPA Annual Conference gets underway the organization dropped the bombshell announcement that its new and incoming President-Elect and future Chair will be Skip Schweiss of TD Ameritrade, who serves as Managing Director of TDA's Trust Company and its Retirement Plan Solutions platform for advisors. Which is significant because it means Skip Schweiss is not only not a financial planner himself (or from an advisory firm or organization that teaches financial planning, as every prior FPA president has been in the past), he will be the first-ever FPA Chair that doesn't actually hold the CFP marks (even as FPA promotes itself as the principal membership association of CFP professionals), and the first-ever FPA Chair who represents a vendor whose business is selling solutions to FPA members.

However, even more concerning is the fact that TD Ameritrade itself has been the FPA’s leading top-tier sponsor nearly every year for more than a decade, which means that, with its current "Cornerstone Partner" $200k annual sponsorship commitment, TD Ameritrade has cumulatively written upwards of $1 – 2 million in sponsorship checks over the past decade! And while it’s not necessarily a bad thing for the Board to have representation from vendors (since vendors that serve financial planners are themselves stakeholders in the FPA and the broader financial planning community), there’s a difference between having representation on the FPA board and having a non-CFP representative of a vendor (which is ‘coincidentally’ the FPA’s largest sponsor) be the President of the entire organization (that can influence, amongst other things, its policies with vendors that FPA relies upon for its financial viability).

And if that apparent conflict of interest weren’t enough, perhaps most problematic is the reality that TD Ameritrade has a history of lobbying on regulatory issues in a manner that directly opposes the FPA’s own advocacy for a uniform fiduciary standard for all investment advisers and broker-dealers providing financial advice. In fact, earlier this year, TD Ameritrade went so far as to threaten to discontinue offering services in the entire state of Nevada if the state imposed a uniform fiduciary duty on its brokers... a uniform fiduciary duty that the FPA directly supported along with the rest of the Financial Planning Coalition in its own public comment letter. Which means that, after spending a cool $1 to $2 million in FPA sponsorships over the past decade, TD Ameritrade now has one of its executives in a position to strongly influence the direction of FPA's advocacy efforts that have a history of conflicting with TD Ameritrade’s own business interests! If the future CEO of TD Ameritrade someday calls Skip Schweiss and asks him to dissuade FPA from advocacy for a fiduciary standard that harms TD Ameritrade's retail business interests, how exactly is Schweiss supposed to handle that conflict if his job is on the line?

Putting aside these deeply concerning conflicts of interest between FPA's board leadership and TD Ameritrade's executive representation, it's also notable that the FPA’s decision means, for the first time ever, the majority of its Executive Committee will consist of non-practitioners with no leadership experience within the FPA’s local chapter system. Just as the FPA National organization struggles in its chapter relations in the wake of the failed OneFPA Network rollout. And more broadly, of the newly elected slate of Board candidates, only two members even have CFP certification, one of whom is an international representative whose CFP marks are based in the Netherlands (and may not be valid here in the United States, which would actually mean the FPA no longer has sufficient representation of CFP professionals on its Board of Directors to meet its own Bylaws requirements!).

Perhaps the upcoming restructuring of the Nominating Committee, of which half will be comprised of FPA chapter leaders going forward, will provide a good first step towards unwinding some of the FPA’s recent missteps... except given that the FPA National Board has still retained the right to veto chapter leaders from the nominating committee, to veto nominees that chapter leaders select for the board, to substitute its own candidates and override the nominating committee anyway, while stacking the nominating committee with the President-Elect and President in all the meetings and the National Chair presiding over the nominating committee and casting its tiebreaker vote over chapter leaders... it's still not clear that the FPA is even serious yet about really adopting a more "participatory governance" structure in the future?

Ultimately, though, the key point is simply that if the FPA is going to get back on track and growing again - recognizing that if the FPA merely maintain its market share of CFP certifications since it was first formed, it should have over 50,000 members today, instead of barely 23,000 - it desperately needs to focus on the real needs of its chapters and the 60,000+ CFP professionals who are not currently members... and it's hard to see how that goal will be achieved by reducing chapter leadership experience on its Executive Committee, and reducing CFP representation amongst its entire Board, even as the FPA continues to try to grow an 86-chapter system while holding itself out as the principal membership association for CFP professionals.

Future Self-Continuity: How Envisioning The Future Is Important To Financial Planning

October 16, 2019 07:10 am 3 Comments CATEGORY: Client Trust & Communication

Developing good habits, like eating healthy, exercising, and saving for a rainy day, is a challenge that we all share. Clients of financial advisors are no exception, as no matter how carefully advisors craft financial plans and formulate sensible strategies to help clients achieve their goals, the majority of those clients struggle with following through on their tasks, even though they are 100% on board with the strategies they’ve agreed to adopt!

Future self-continuity, i.e., the ability to relate to one’s ‘future self’, is one factor that may explain why some clients struggle with plans they know, on a practical level, make sense to follow, but still have difficulty following through on the tasks they need to carry out. Research in the area of future self-continuity (FSC) – which examines three general areas: relatability, vividness, and positivity – suggests that increasing future-self continuity (i.e., improving one’s ability to relate to their future self) can increase financial self-efficacy, leading to a higher likelihood that clients will follow their financial plans and carry out the tasks outlined in their plans.

The first area of FSC research, which examines relatability, asks how a person’s perception of their ‘current self’ compares to their vision of their future self, with respect to goals, values, and priorities. This is important because the more a person considers their future self a completely different person (versus an older version of themselves) the less likely they will be inclined to act on something today to benefit their future self. For example, someone who identifies their future self as a stranger may have a difficult time committing to saving for retirement on a regular basis, even though they may understand intellectually that it is for their own benefit. The second area of research, vividness, asks how clearly a person is able to envision their future self, factoring in physical and circumstantial changes. For example, a client who has recently divorced (or whose spouse has died) that is able to clearly envision a version of their future, without their past partner, may have an easier transition recovering from what can be a devastatingly difficult situation. And the third area of research, examining positivity, asks about the level of esteem one has for their future self and how important is it for the future self to be happy and successful. Which is essential for achieving goals in a financial plan, because the more a client feels their future self is worth planning for, the more likely it is that they will follow their plan.

Ultimately, the key point is that FSC is a useful (and simple!) tool that advisors can use to help clients better relate to their future selves, which can make it easier for them to follow the strategies implemented in their financial plan, as it’s the future self who will reap the rewards of their goals. Assessing FSC can also be useful for advisors to gauge any psychological gaps that may exist for a client between their current and future selves. Not only can advisors use these concepts to determine whether to check in with their clients more or less frequently (as clients who are less attuned to their future selves may benefit from more frequent reminders of why sticking to their plan remains important in the long run), but it can also help the advisor identify the underlying reasons why their client may find it challenging to stick to their plan in the first place.

#FASuccess Ep 146: Systematizing Financial Planning Progress For Clients With Your Own Wealth Management Index, With Ross Levin

October 15, 2019 07:03 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 146th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Ross Levin. Ross is the co-founder and CEO of Accredited Investors Wealth Management, an independent RIA based in the Minneapolis area that oversees nearly $2 billion of assets under management for 475 affluent clients.

What's unique about Ross, though, is the way he systematized the financial planning process across the firm by developing his own Wealth Management Index that prompts clients with specific exploratory questions in each of the core financial planning topic areas and converts the results into a score that clients can use to track their progress over time.

In this episode, we talk in depth about how Ross developed his Wealth Management Index system and the relative balance of delving into the technical topic areas of financial planning, versus trying to ask the right questions to explore the client side of those issues in the first place. Why it's so important to have a systematized process both to do thorough data gathering and to track how clients are progressing in those areas, and why ultimately, Ross decided to retain the Wealth Management Index questions but to actually stop tracking clients' progress scores over time.

We also talk about the path that Ross went through in building Accredited Investors to become a multibillion-dollar RIA with more than 50 employees. The in-depth hiring process they've developed in conjunction with an outside industrial psychologist to ensure prospective hires would be a good fit for the firm's "we over me" team-oriented culture, the succession plan the firm established after losing an initial succession partner that has now brought in more than 10 additional shareholders and will eventually force the co-founders to sell all their shares over the next decade, and the personal mental shift that Ross went through in the early years to better appreciate the value of having a partner who was less focused on business development but more focused on actually building and scaling the business systems and staff of Accredited Investors itself.

And be certain to listen to the end, where Ross reflects on the challenge of trying to maintain a small firm mentality that focuses more on increasing services to clients rather than just trying to get bigger, the way the firm is aiming to leverage technology to speed up the 'fast' work so that they can have more time to do the 'slow' work of client conversations and building relationships, and why Ross believes that the most important thing for advisors to do in building their own advisory business is to figure out what they want to be first or, as Ross puts it, risk ending up with successful businesses but bankrupt lives.

The 20 Best Conferences For Financial Advisors To Choose From In 2020

October 14, 2019 07:46 am 10 Comments CATEGORY: Conferences

It was Benjamin Franklin who once famously quipped “An investment in knowledge pays the best interest”. The caveat, however, is that like any investment, it’s still important to do your due diligence in researching whether any particular allocation of dollars will be a good investment. And with the proliferation of financial advisor conferences in recent years, it has become more and more difficult to figure out which events are most likely to actually provide a good “Return On Investment” (ROI) in fruitful knowledge that advances your success as an advisor. Even if it often takes just one good takeaway from a conference that can be implemented to make the whole trip worthwhile.

The matter is further complicated by the fact that advisory firms themselves are evolving in an ever-wider range of directions, with small, mid-sized, and large firms, independents versus employee advisors, RIAs versus broker-dealers, and an ever-growing range of niche specializations… which means an objectively ‘good’ conference may be the absolute ‘best’ conference for one advisory firm (or one advisor within a firm)… yet be totally irrelevant for another.

As someone that has been speaking at nearly 70 conferences a year for almost a decade myself, I’ve seen the good and bad of our various industry events, which are spread across membership associations, broker-dealers, insurance companies, RIA custodians, product manufacturers, trade publications, private events, and more. And as a result, I am often asked for my own suggestions of what, really, are the industry’s ‘best’ conferences to attend.

Accordingly, back in 2012, I started to craft my own annual list of ’best-in-class’ top conferences for financial advisors in various categories (to allow advisors to match the available conference specialties to their own needs), and have updated it every year since, in what has become one of our most popular annual articles.

And so now, I’m excited to present my newest list of “Top Financial Advisor Conferences” for the upcoming 2020 year, broken into 5 broad categories: Go Home (to your broker-dealer, RIA custodian, or network conference); Go Local (to network at your membership association's local chapter meetings); Go Scale (whether it’s making your big advisory firm bigger, or your lifestyle practice more efficient); Go Specialize (in the various industry niche conferences for those cultivating deep subject matter expertise); or Go Broad (to one of the major regional or national association conferences).

In addition, we've also launched a new "Master Conference List" of all financial advisor conferences in 2020, for both advisors looking for a wider range of events to attend, and vendors looking for more conferences to exhibit at!

So I hope you find this year’s 2020 conferences list (and our new Master Conference List) to be helpful as a guide in planning your own conference budget and schedule for next year, and be certain to take advantage of the special discount codes that several conferences have offered to all of you as Nerd’s Eye View readers!

Weekend Reading for Financial Planners (Oct 12-13)

October 11, 2019 02:50 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that Fidelity has not only decided after all to match competing custodians with zero-commission trades on US stocks and ETFs, but is further accentuating how it provides better default money market options and eschews payments for order flow in an even further amplification of the competitive pressures of the RIA custody model.

From there, we have several more articles beginning to explore the implications of the industry's rapid shift to zero-ticket-charge RIA custodians, including how the collapse of trading commission revenue could force RIA custodians to assess new custody fees (or else have to cut services given the lost revenue?), the way zero-commission trading may further accentuate the differences between broker-dealer platforms and RIA custodians (and further accelerate the breakaway broker trend), and the compliance issues that suddenly have emerged for RIAs that previously negotiated asset-based pricing on trades and especially those that bundled their asset-based trade pricing into a holistic wrap fee that may no longer be priced appropriately in a zero-trading-fee world.

We also have a number of articles on RIA and broker-dealer industry trends, from a look at the latest FINRA data showing that the number of brokers changing broker-dealers or switching to the RIA channel is actually declining (at least for now?), to the challenges of large broker-dealers that aren't always leveraging their economies of scale for better service to their brokers (and sometimes use their scale to negotiate better distribution agreements for themselves instead), whether the industry is starting to shift away from revenue-based compensation for advisors (and how the rise of Merrill Edge could drive the shift in large firms), and how advisory firms learning to bring in their own clients (whether by centralized marketing or inorganic acquisitions) are leading to a rise of restrictive non-compete and non-solicit agreements in the RIA channel that may even be more limiting than the wirehouse channel those independent firms criticized just a few years ago.

We wrap up with three interesting articles, all around the theme of how we find and consume good news and other content in an increasingly complex (and algorithm-driven) world: the first provides some recommendations on less-commonly-known blogs and news sites to help advisors who want to try and figure out what the market 'consensus' is (in order to identify potentially-market-moving news); the second offers up another series of blog and media site recommendations for content that will challenge you to think differently; and the last takes a fascinating look at how after nearly a decade of increasingly-algorithm-driven content recommendations, companies from Netflix to Apple are bringing back human curation to provide the contextually relevant suggestions for readers/viewers that algorithms just haven't seemed to be able to master (or at least, haven't yet?).

Enjoy the 'light' reading!

Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets

October 10, 2019 07:13 am 2 Comments CATEGORY: Kitces & Carl Podcast

When clients are panicking and on the verge of making emotionally-driven (and potentially irrational decisions), there's an opportunity for advisors to use empathy to build trust and strengthen the relationships to be able to talk clients off the ledge. Recent insights from behavioral finance show us ways to genuinely relate to clients by understanding their fears on an objective and intellectual level. But once an advisor makes an empathetic connection, how does the advisor then move that conversation forward to help their client actually make a more rational decision?

In our 18th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards extend their last podcast and look at communication strategies advisors can use to set the stage for helping clients actually make better decisions after ‘talking them off the ledge’, using a three-part pyramid framework: the Plan, at the foundation of the pyramid (representing the financial plan itself that was developed around the client’s personal values and goals); the Process, in the middle (i.e., the method whereby an advisor helps their client determine how those values and goals will become reality); and the Product, at the top of the pyramid (which are the tools that were chosen but that are now the focus of the client’s fears and anxieties).

By using such an approach, an advisor can draw the client’s attention away from the initial cause of alarm – that place in the ‘branches’ of irrational ideas driven by emotional turmoil – back to the grounding ‘roots’ of the client’s financial plan, which (as they’ll be reminded) was built around their own personal values and unique goals. And then, once the client is (hopefully) back at a place where their point of reference is centered on their foundational values and goals (instead of on whatever external, uncontrollable news story or event that made them worry in the first place), it’s at that point where data and evidence can (finally) be brought into the discussion and how the plan originally factored in the potential for both good and bad outcomes to begin with!

Because changing the perspective back to the fundamentals of what they’re trying to accomplish can have a huge impact on a client’s behavior; without that context (and especially under the influence of sensationalized market news), the reasoning behind the product can be easily forgotten and difficult to understand, making that product seem arbitrary and potentially senseless in a turbulent environment. By contrast, with the (reminded) context of the plan, staying within the parameters of the client’s plan will almost always now seem the best course of action for them to weather whatever turmoil the market might be experiencing at any given moment.

Ultimately, the key point is that, by establishing trust through a connection built on empathy, we as advisors can help upset clients remember how the foundation of their plan, based on their personal values, was used to develop the unique portfolio and recommendations designed to bring their financial goals to fruition. And by re-centering the client’s focus back to their original plan, an advisor can make all the difference in helping a client maintain the grit they’ll need to stay on course regardless of whatever transient turbulence the client may perceive.

Maximizing The Value Of Public Service Loan Forgiveness (PSLF) By Minimizing Debt Repayment

October 9, 2019 08:06 am 15 Comments CATEGORY: Debt & Liabilities

In an effort to make college more accessible to low-income students, the Public Service Loan Forgiveness (PSLF) program was created in 2007 with the intent of offering tax-free forgiveness of certain student loan debt for borrowers working in qualifying government or non-profit jobs for at least ten years. However, in the decade-plus since, the scope of the program has expanded as the skyrocketing cost of education has left record levels of college graduates with a debt load that is very difficult (or outright impossible) for them to repay, leaving PSLF as an appealing route for them to eliminate their student loan debt as well as work towards other financial goals.

Yet, the requirements to qualify for PSLF are fairly stringent, and in this guest post, Ryan Frailich, founder of Deliberate Finances (a fee-only financial planning practice that specializes in working with couples in their 30’s), discusses the rules around PSLF, PSLF’s unique advantages (and disadvantages), and the opportunities that financial advisors have to help clients minimize overall payments by managing their annual Adjusted Gross Income (AGI).

To qualify, PSLF candidates must work full-time for a qualifying government or non-profit employer and have Direct Federal loans (which can include Direct Subsidized, Direct Unsubsidized, Direct PLUS, or Direct Consolidation loans). The borrower must also be in one of four “Income-Driven Repayment” plans, consisting of Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), or Income-Contingent Repayment (ICR) plans, which all calculate monthly loan payments based on the borrower’s AGI. Thus, rather than having fixed payment obligations determined by loan term, balance, and interest rate, a student loan borrower’s payments will adjust in step with their AGI instead.

And because these PSLF-qualified income-driven repayment plans depend on AGI, financial planners have the opportunity to help borrowers minimize payments by reducing AGI in every manner possible… to maximize the value of forgiveness at the end of the 10-year repayment term. While every client’s situation is unique, some common strategies include: using Married Filing Separately (MFS) instead of MFJ as a tax status for married borrowers, maximizing qualified retirement account contributions, and utilizing employee benefits to offset W-2 wages of the borrower pursuing PSLF. Accordingly, these (and other) strategies can offer significant savings to the borrower in the long-term by reducing debt obligations that would otherwise be much higher under a standard repayment plan (and all without necessarily reducing overall income!).

PSLF has significant advantages over other programs for Federal student loan forgiveness. For income-driven repayment plans, the time to loan forgiveness is generally 20 to 25 years (versus the much shorter 10-year PSLF requirement), so the borrower who qualifies for PSLF will pay less in total student loan interest along the way. Additionally, the amount forgiven by other Federal student loan repayment plans is counted as taxable income, unlike the tax-free forgiveness offered by PSLF. Which means that, because many borrowers on income-driven repayment plans have loans negatively amortizing (i.e., the loan balance grows each month), without PSLF they may end up with debt forgiveness that is multiples more than the debt originally taken out, resulting in a tax burden that can negate much of the impact of loan forgiveness in the first place.

Ultimately, the key point is that the PSLF program can be an effective tool for borrowers managing overwhelming student loan debt, and because loan payments qualifying for PSLF can change dynamically based on income (versus a fixed monthly payment based on initial loan balance and interest rate), financial planners can help clients maximize the amount of the loan ultimately forgiven by using strategies to minimize AGI every year during the loan repayment years… which, for some borrowers, can equate to hundreds of thousands of dollars in savings (assuming all PSLF requirements are met)!

#FASuccess Ep 145: Systematizing Reviews Of Client Tax Returns By Building Software To Automate Them, with Roger Pine

October 8, 2019 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 145th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Roger Pine. Roger is the co-founder of Holistiplan, a new kind of tax planning software for advisors built to systematize and automate the process of reviewing a client's tax return to find the potential planning opportunities.

What's unique about Roger, though, is that he previously spent 10 years as a financial advisor in an independent advisory firm where he taught himself computer programming on the side implementing custom technology improvements for his own firm, before deciding to shift into becoming a full-time FinTech entrepreneur himself.

In this episode, we talk in-depth about the Holistiplan software that Roger developed. From leveraging optical character recognition to scan all the relevant information from an entire tax return PDF in just seconds, to converting that information into relevant tax observations about the client's tax bracket, phased-out deductions or tax credits, and the eligibility for tax preference contributions to retirement accounts, to the forward-looking tax planning tools that Holistiplan is now building to identify the client's true marginal tax bracket, taking into account all the phase-ins and phase-outs to make better forward-looking tax recommendations.

We also talk about the ever-blurring line between where a CPA's tax services end and a financial advisor's begin, the dynamics of trying to balance providing tax guidance and not unwittingly competing against potential CPA referral sources, and why Roger views Holistiplan's tax analyses as only the beginning of developing a comprehensive expert system that helps financial advisors craft more consistent recommendations across the full spectrum of the financial planning body of knowledge.

And be certain to listen to the end, where Roger shares his own journey and what it's like to transition from being a financial advisor to an advisor tech entrepreneur. Why he ultimately decided to take the leap despite being on a partnership and succession track in his current advisory firm, and his suggestions on what other advisors can do if they too see an opportunity to develop advisor technology solutions to fill the gaps in today's marketplace.

So whether you're interested in learning about the process behind taking an idea for an application and actually bringing it to market, lessons Roger learned when transitioning out of the advisory business and launching a startup, or about his goal to advance the financial planning profession by helping develop "normative practices", then we hope you enjoy this episode of the Financial Advisor Success podcast.