Nerd's Eye View blog

Weekend Reading for Financial Planners (Sep 28-29)

September 27, 2019 02:57 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 SEC has adopted a new ETF Rule 6c-11, adding new formal disclosure requirements about daily holdings, bid/ask spreads, and trading premiums or discounts... but also eliminating the requirement for all new ETFs to obtain costly and time-consuming exemptive relief to be launched, which is anticipated to even further accelerate the pace of new ETF launches in the coming years (though inverse and leveraged ETFs, and non-transparent 'active' ETFs, will still remain with the slower high-scrutiny exemptive relief process).

Also in the news this week is a new joint initiative from the Foundation for Financial Planning along with the CFP Board, FPA, and NAPFA, to promote pro bono financial planning services, and notable internal compliance review underway at Merrill Lynch on advisors who are using Merrill's home-office-created model portfolios, which happen to be the same as the portfolios offered directly to consumers in their Guided Investing and broker-facilitated Merrill Edge programs, and create an interesting microcosm of the challenge for advisors to justify exactly what value they're providing over and above what a direct-to-consumer offering provides (especially when it's your firm providing the side-by-side offering).

From there, we have a few more investment-related articles, including a look at the recent turmoil in interbank lending and the overnight repo market that may be signaling the end of banking excess reserves fueling economic growth, a discussion of the new "FedNow" system being developed to facilitate truly "instant" bank-to-bank payments (which may entirely eliminate overdraft fees, payday lending, and check-cashing services in the coming decade), and an early warning for mutual fund holders that a 10-year bull market coupled with rising outflows from mutual funds (as investors increasingly shift towards ETFs) could trigger very sizable mutual fund capital gains distributions in 2019 (far beyond what the funds themselves have appreciated this year).

We also have a number of articles on health insurance, including one that finds Affordable Care Act (ACA) marketplace plans may finally be "stabilizing" with premium increases slowing and some insurers increasing their options and competing in more state markets, a study that finds overall health insurance costs continue to march higher in the employer marketplace (with family coverage up 5% in 2019, leading the total cost of coverage for family plans for employers to top $20,000 in 2019), and a look at some of the behavioral finance research about why people have such difficulty choosing the right health insurance plan even when one is 'clearly' dominant (a combination of complex math, overwhelming choices, and a strong aversion to deductibles even when they may be cost effective).

We wrap up with three interesting articles, all around the theme of what motivates advisors themselves: the first looks at a recent Financial Planning Review study finding that women who have entered the profession find more career satisfaction going independent than working in large corporate environments; the second explores a new Morningstar study around practice management and the conflict between advisors who started firms because they want to serve their clients but have trouble finding and attracting them; and the last exploring the importance of avoiding peer pressure, including as a financial advisor, and creating the firm that is most fulfilling to you personally (and not just what the "industry says" you should be building towards).

Enjoy the 'light' reading!

Kitces & Carl Ep 17: Responding With Empathy When Clients Call About ‘Scary’ Markets

September 26, 2019 07:17 am 6 Comments CATEGORY: Kitces & Carl Podcast

If there’s one thing virtually every financial advisor can relate to, it’s the outreach from a panicked client who has seen or heard some sensationalized story about how the economy or market is in imminent danger of collapse and is seeking reassurance that their life savings will be okay… and may even be asking if it would be better for them to simply sell everything and put their money in cash or CDs. Or instead, it’s the angry client who calls and wants to know (immediately!) why their portfolio has declined, despite frequent (and recent) discussions the financial advisor has had with them about inevitable market fluctuations.

Yet while it’s easy for advisors to get frustrated (especially after having the exact same conversation, sometimes with the exact same client, multiple times), it’s not always as easy to remember that clients are human beings, and as such, will naturally experience fear over losing what they hold dear. And for many clients, it isn’t just about losing portfolio assets themselves that is upsetting; rather, for many clients, it’s what that accumulated wealth that they have entrusted you to manage actually represents: a lifetime of hard work, and the ultimate means to achieving their future goals and dreams, that they may fear is evaporating away right before their eyes.

In our 17th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about the importance (and challenges) of responding with empathy to clients who are upset or afraid. Because even though research in behavioral finance has helped us better understand the natural human proclivity to make irrational decisions, especially in times of stress and fear, the objectivity with which these paradigms have been created has perhaps unwittingly made it too easy for advisors to judge their clients for their impulsiveness, and subsequently become dismissive of what are normal and understandable reactions to stress. And while it is an advisor’s job to help their clients make good decisions, the real challenge is figuring out how to do so with kindness and empathy, and without behaving smugly with a sometimes-hard-to-resist “I told you so” attitude.

Instead, the insight that behavioral finance has provided to advisors can be used to offer an empathetic response to an upset client in a truly genuine manner. Because when that advisor takes a moment to tell the client, “I understand why you’re upset,” they are doing so from a place of intellectual understanding, and are in the optimal position of helping the client down from the ‘branches’ of irrational ideas and emotional obfuscation, and back to the ‘roots’ of their financial plan’s basic objectives… which are based on the client’s core values and long-term goals. And by deliberately pausing for a moment after offering an initial empathetic response, an advisor can give the client a chance to shift gears and, if necessary, to calm down, which helps set the stage for the ensuing conversation.

Ultimately, the key point is that, when a financial advisor responds with empathy to a panicked or angry client, they are strengthening that relationship, building trust, and becoming more effective at their jobs. Because, at the end of the day, empathetic communication is simply an effective tool to connect people to each other’s humanity, facilitating conversations around highly personal values, points of view, and priorities, all of which make it easier to understand the ‘why’ behind a client’s goals and objectives, and how to stay on track to achieve them through the vicissitudes of market volatility.

Ambiguous Loss: Helping Clients To Grieve Even Before A Loved One Passes Away

September 25, 2019 07:03 am 1 Comment CATEGORY: Client Trust & Communication

Loss is an experience that all humans share at one point or another, and when a loved one dies, the grief is undeniably and devastatingly certain. But what about the grief that we might feel for a loved one who is still alive, only physically separated from us? Or for one who is mentally incapacitated, but who no longer has the capacity to recognize us? These feelings of grief for someone who is still alive, but no longer present (either physically or psychologically), are referred to as ‘ambiguous loss’. For example, some clients might have relatives who are no longer mentally lucid (psychological ambiguous loss), and some may have loved ones who need full-time care provided by an assisted living facility (physical ambiguous loss). And as would be expected with extended human lifespans and increasing cases of mental incapacity that comes with a growing, older population, feelings of ambiguous loss are on the rise.

Because the average human lifespan has increased over the last several decades, we are now at a point where family members are commonly expected to take on the responsibility of caring for elderly parents or spouses, many of whom are afflicted with neurodegenerative diseases such as Alzheimer’s and dementia. Accordingly, advisors may find themselves dealing with clients suffering from ambiguous loss, especially when conversations are raised around incapacity planning and estate planning.

While most financial advisors don’t have formal training in grief management, there are some basic guidelines that can be effective in working with clients suffering from ambiguous loss. As a starting point, mentally preparing for client conversations, for example, can include a series of questions that advisors ask themselves about their own personal attitudes around grief and loss in general, and also around understanding the situational causes of their clients’ ambiguous loss. Understanding the daily routines and relationships that the client may be struggling with can also help the advisor relate more empathetically with the client. And starting any incapacity discussion as early as possible to give clients ample time to process their feelings of ambiguous loss while adjusting to their new responsibilities can prove helpful for the client to transition through change.

Additionally, the advisor can support clients by acknowledging their feelings of ambiguous loss, and helping them adjust to the ambiguity they face by planning for a broad range of financial scenarios. This can help clients attain a level of certainty over what they have control over versus what variables in their situation will inevitably remain unknown, and that may eventually need to be addressed. And last, the advisor can play an important role in their client’s life by helping them through the difficult process of understanding and accepting what is happening to them, by simply giving them time and space to share their stories when they are ready to do so.

Ultimately, the key point is that ambiguous loss is commonly experienced by many people, and advisors should be prepared to work with clients and their issues in a sensitive yet productive manner. The conversations will be difficult and may be highly charged with emotion, but offering compassion and providing support can have a huge impact on the client’s ability to make sound financial decisions, as well as establish trusting relationships not only between the advisor and the client, but with the client’s support system as well.

#FASuccess Ep 143: Getting Local Clients Via Google Search With A Niche Of Serving Independent Women, with Cathy Curtis

September 24, 2019 07:01 am 9 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 143rd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Cathy Curtis. Cathy is the founder of Curtis Financial Planning, a solo independent RIA in Oakland, California that oversees nearly $60 million of assets under management for 52 client households.

What's unique about Cathy, though, is the way she's positioned her business into a niche of serving women, and in particular, single, independent-minded women who specifically want to work with a female financial advisor as their financial partner, to the point that the majority of Cathy's new clients find her through a Google search.

In this episode, we talk in-depth about why Cathy chose to build into a niche of serving women as a way to better stand out and attract clients in the crowded San Francisco advisor marketplace, how she refined her website to the point that even new prospects compliment her on how it spoke to them, the way she's been able to generate most of her new clients from organic Google search traffic, even though she focuses on working with local in-person clients, and why the business development success of focusing into her niche eventually has forced Cathy to implement a minimum fee requirement just to better determine which prospects were really qualified to do business with her or not.

We also talk about Cathy's financial planning process itself. How her targeted marketing has helped her to get clients who are willing to go through a lengthy, detailed 20-page data gathering questionnaire, why she includes a draft financial plan meeting with clients and uses eMoney Advisor's Decision Center instead of printing out any details of a financial plan, the reason she chose HiddenLevers and Kwanti to be her risk tolerance and investment research tools, and the surge meeting approach that Cathy is using to cluster all of her regular client meetings into just 3 different months throughout the year.

And be certain to listen to the end, where Cathy shares how she got over the impostor syndrome struggles she faced early on as a career changer entering financial planning. Why she thinks new entrants to the profession today should work for another advisory firm for several years before going out on their own, and how the industry pressure to consolidate led her to merge into another advisory firm, only to realize that she really did prefer being an independent entrepreneur, and now simply leverages technology and outsourcing solutions instead to make herself even more successful.

Serving Small Business Owners With 3(21) And 3(38) Retirement Plan Fiduciary Services

September 23, 2019 07:02 am 3 Comments CATEGORY: Practice Management

In today’s highly competitive job market, many industries have more openings than there are qualified employees to fill them. Which means that many workers are finding that they have the luxury of being able to choose amongst a number of potential employers. And in an effort to recruit (and retain!) top talent, it’s important for employers to not only offer competitive pay but a compelling benefits package as well, including, in particular, a generous retirement plan. In many cases, a 401(k) plan is the retirement plan of choice, as it offers substantial contribution limits, allows employees to defer taxes on income contributed to the plan and gives employers the option to offer profit sharing and matching contributions as well (that they can deduct themselves from their business income).

The caveat, however, is that many employers (especially small business owners) lack the knowledge and time it takes to properly administer a retirement plan as a plan sponsor, which is important not only to prevent penalties and fines but also to maintain a plan’s qualified tax status. And given that there were over 83,000 ERISA-related lawsuits in the past decade alone, liability risk when offering a 401(k) plan is understandably a significant concern, as plan sponsors have a fiduciary responsibility to act prudently and in the best interest of the plan participants (i.e., the employees enrolled in the plan). This entails offering a diverse mix of investment options, ensuring that the plan expenses are reasonable, and following the documents as written for the plan.

The good news, though, is that advisors can help employers manage these responsibilities by providing various fiduciary services. More specifically, advisors may provide plan sponsors with investment-related services by serving as either an ERISA “3(21) Fiduciary” or a “3(38) Fiduciary” (named after the sections of ERISA that define a fiduciary). In addition, advisors can help plan sponsors find a reliable “3(16) Fiduciary” to provide administrative and operational support.

An advisor offering 3(21) Fiduciary services, for instance, provides a plan sponsor with investment recommendations (i.e., which funds should be included in the plan lineup), though the plan sponsor still ultimately makes all final decisions and is the party responsible for actually taking action. Thus, while a 3(21) Fiduciary’s advice should, in theory, help a plan sponsor to reduce their risk (as the 3(21) Fiduciary should have more investment experience and knowledge than the plan sponsor), the plan sponsor still retains liability for investment-related decisions. By contrast, a 3(38) Fiduciary advisor not only recommends investment options but serves as an investment manager, approving and implementing the recommendations made into the plan. When engaged as a 3(38) Fiduciary, the liability for investment management is largely shifted to the advisor and away from the plan sponsor (though the sponsor can't fully delegate the fiduciary obligation, and remains liable for prudently selecting the 3(38) Fiduciary in the first place). Finally, advisors can educate plan sponsors on the value of a 3(16) Fiduciary, who provides plan administration services. Notably, the 3(16) Fiduciary acts on behalf of the plan sponsor with respect to administrative functions and also assumes the liability for such functions. It’s important to note that both 3(21) and 3(38) Fiduciaries are generally provided by Registered Investment Advisers (but not by broker/dealers), while 3(16) Fiduciaries are typically specialized “Third Party Administrators”, and are not generally investment professionals.

Ultimately, the key point is that advisors have an opportunity to provide employers options to help them manage not just their retirement plans but their fiduciary liability in making the plan available to their employees, effectively shifting much (but not all) of the fiduciary responsibility (as well as liability) from the plan sponsor over to the Fiduciary advisor themselves. Regardless of how administrative or investment liability may be shared or shifted, though, the plan sponsor will always have the liability of due diligence in vetting and selecting appropriate Fiduciaries for the plan. Nonetheless, depending on what level of involvement the employer wants to have in their retirement plan, advisors can provide one or more types of fiduciary services to provide for the plan sponsor’s needs to balance limiting their liability, while providing the retirement plan they want to offer that helps them attract and retain top talent!

Weekend Reading for Financial Planners (Sep 21-22)

September 20, 2019 02:35 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a big cover story from Investment News about the upcoming 50th anniversary of the financial planning profession from its humble beginning in December of 1969, and the ways that both the delivery and regulation of financial planning have evolved over the years. Also in the news this week is the announcement that Vanguard is preparing to launch a new "Digital Advisor" service, which will be a 'true' no-humans robo-advisor offering (as distinguished from its Personal Advisor Services solution with hundreds of human CFP professionals) charging just 15 basis points with a $3,000 account minimum.

From there, we have several articles around the ever-growing buzz of advisory firm mergers and acquisitions, including a look at the recent "Deals and Dealmakers Summit" that finds there are still far more interested buyers than there are prospective sellers, a recent DeVoe & Company study finding that as many as 50% of advisory firms may be willing to sell a stake in their firm (but for many, it's only so they can raise capital to become buyers themselves), an analysis finding that so many of the largest RIAs have already been bought in recent years that advisor M&A is now moving 'downmarket' to mid-sized firms with $100M to $500M of AUM, and what to be aware of if you're considering whether to sell to an RIA consolidator.

We also have a number of marketing articles this week, from a look at the factors to consider to avoid picking the 'wrong' niche when choosing to better focus the firm's target clientele, tips on how to turn the ephemeral differentiation of "we provide better service" into something more tangible for prospects, tips about what it takes to actually grow successfully with online/digital marketing, and how some advisory firms that are cutting fees in the face of fee pressure may just be negotiating against themselves.

We wrap up with three interesting articles, all around the theme of understanding and quantifying the value of financial planning: the first examines a recent Russell Investments study finding that the value of financial planning is a combination of A (Annual rebalancing) + B (Behavioral mistakes) + C (Cost of getting it wrong with asset allocation) + P (Planning advice) + T (Tax-smart investing) and may add up to as much as 4.4%/year; the second covers a recent consumer study in the UK finding that the primary value of an advisor is derived from trust in the advisor themselves; and the last is a new Vanguard study further affirming the value of a financial advisor, and finding that, based on direct consumer surveys, nearly half of the perceived value of a financial advisor specifically comes from the non-financial 'emotional' benefits of having someone the client can trust, who understands them, and can reassure them during difficult times.

Enjoy the 'light' reading!

When Heuristics And Biases May Actually Improve Financial Decision-Making

September 18, 2019 07:24 am 1 Comment CATEGORY: Client Trust & Communication

Making good financial decisions should be based on a thorough analysis that is free of influence from the use of behavioral biases or heuristics… or so we’re told. We should strive to adopt an objective point of view and choose the best path forward based on factual data, avoiding gut-instinct, rules of thumb, and other biases that could influence our behavior. This perspective has become so common that many financial advisors now market one of their key value-adds as their ability to 'de-bias' their clients and provide an objective point of view. While there are certainly cases where bias and heuristics can interfere with good client decision-making, is it possible that we’ve adopted too negative of a stance towards bias and heuristics when making financial decisions?

In this post, Derek Tharp – lead researcher at Kitces.com, and an assistant professor of finance at the University of Southern Maine – explores this question and the research summarized by Gerd Gigerenzer and Henry Brighton, which finds that not only can bias and heuristics be potentially valuable tools from a cost-benefit perspective, but they can, under the right circumstances, even improve decision-making beyond what could be achieved with extensive data collection and analysis. Of course, it has always been acknowledged that there is a cost associated with gathering and analyzing data. It’s no surprise that at some point the costs of further analyzing a decision are not worth the benefits. But the insight highlighted by Gigerenzer and Brighton is that, in some cases, less truly is more!

Under the right circumstances, bias and heuristics can help us make better decisions by allowing us to avoid 'overfitting' historical data and making the most efficient use of our limited cognitive resources. Similar to intuitively knowing how to catch a ball, a skill based on heuristics developed and ingrained over a long history of evolution and natural selection (despite the fact that no human can, in the moment, do the calculus necessary to compute a ball’s trajectory and then precisely position their body to complete the catch), some heuristic techniques allow us to ignore what otherwise might seem to be important factors, but still arrive at a solution not only equal to what we might have accomplished via a more cognitively demanding route, but actually better instead!

Interestingly, the conditions under which bias and heuristics are the most efficient (i.e., an environment where data is lacking, or where the data appears to be too random or 'noisy' to be considered useful) are precisely the conditions under which we make many financial decisions, which could explain why there are so many best practice ‘rules of thumb’ (e.g., the 10% savings rule, the 70% replacement ratio in retirement rule, and the ‘cost-per-use’ strategy to make purchasing decisions) that are still remarkably pervasive in society and effective in helping people achieve their financial goals.

Of course, there’s danger in relying on a rule of thumb that is inappropriate for one’s circumstances. Few people who start saving at 55 are going to be successful saving 10% of their income. But, at the same time, it’s possible that our attempt as financial advisors to rely on in-depth analyses of a client’s situation (and the use of parameters, such as safe withdrawal rates based on historical data) may 'overfit' a client’s situation and miss out on some of the wisdom embedded in heuristics and biased decision-making. This perspective may also help explain why, despite nearly consistent proclamations that Americans aren’t saving enough, no epidemic of elderly poverty has actually come to fruition. It’s possible, and there are studies which have found, that the failure to account for factors such as Social Security income in retirement or the declining spending throughout retirement have systematically overstated how much savings many Americans need.

Ultimately, though, the key point is that we’ve perhaps been too negative towards bias and heuristics. Bias and heuristics are not inherently good, but they aren’t inherently bad either. It is crucially important to acknowledge the ‘ecology’ in which heuristics and biased decision-making can be rational, as well as the environment in which greater data gathering and analysis may be useful. By effectively using (and refining) heuristic techniques when it is appropriate to do so, we can develop an arsenal of useful decision-making tools to better help our clients!

#FASuccess Ep 142: Creating A Structured Relationship-Building Calendar To Enhance Trust With Affluent Clients, With Matt Oechsli

September 17, 2019 07:04 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 142nd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Matt Oechsli. Matt is the founder and CEO of The Oechsli Institute, which does primary research into affluent investors and how they select advisors, and then provides financial advisor marketing and sales consulting and coaching on how to leverage those research insights to grow their firms by reaching more affluent clients.

In this episode, we talk in depth about how to reach and connect with affluent clients by forming better relationships with them. From why knowing the names of a client's children and pets really is so important in the relationship-building process, to the reason why having non-business social lunches with clients, or what Matt calls a $1,000 per hour activity and are so effective to deepen the relationship and get more referrals, the importance of doing intimate events with a small number of key clients at a time, in addition to broad-based client appreciation events, and how in the end, the point isn't merely to become friends with clients, but that social interactions with clients are really all about having opportunities to demonstrate that you're worthy of their trust, to continue working with you and hopefully to refer you as well.

We also talk about how to bring better structure to your client relationship-building efforts. From developing a relationship calendar of the key activities you intend to engage them with your top clients throughout the year, why it's so crucial to focus relationship building activities on a subset of your top clients instead of trying to reach everyone at once, why you should target one surprise and delight opportunity with key clients every week, the right way to ask for referrals without just asking for a referral, and how even as advisors try to engage in more social relationship-building activities with clients, it's still important to go into those meetings with strategic intent for success.

And be certain to listen to the end, where Matt talks about what he calls the three C's of good client communication: be concise, conversational, and confident, the reason that advisors tend to get stuck in their businesses, and his advice to new advisors entering the business on what it will take to be successful in the future.

Why XYPN Is Suing The SEC Over Regulation Best Interest’s Double-Standard For Financial Planning Advice

September 16, 2019 07:07 am 14 Comments CATEGORY: Regulation & Compliance

Since the beginning of the modern era of financial services regulation in the aftermath of the crash of 1929 and the Great Depression, Congress has recognized a fundamental difference between the activities of broker-dealers and registered investment advisers. Broker-dealers were in the business of literally brokering (effecting securities transactions for their customers) and dealing (effecting securities transactions for their own accounts) as a part of the capital formation process and operation of publicly traded investment markets. While registered investment advisers were in the business of providing advice itself. And accordingly, the two were assigned different regulatory standards, with a Suitability standard for sales-based, transactional brokerage activity, and a Fiduciary standard for advice.

Yet in recent decades, the rise of technology has made various brokerage services increasingly accessible to consumers directly (through the discount brokerage movement and then the emergence of online brokers), coupled with the emergence of the independent broker-dealer model (independent of the investment banks that used to own broker-dealers to facilitate the sale and distribution of public offerings they underwrote), has increasingly led broker-dealers in the direction of providing advice to supplement (or validate entirely) their value proposition to their customers. Leading to a blurring of the lines between broker-dealers and investment advisers, and leading Congress in enacting the 2010 Dodd-Frank legislation to direct the SEC to lift the standard of conduct for brokers to be at least as stringent as the standard for RIAs, recognizing the advice that broker-dealers now deliver.

However, in issuing the new Regulation Best Interest rules, the SEC declined to equalize the standard of care for broker-dealer-delivered versus RIA-delivered advice as mandated by Dodd-Frank, and instead expanded the broker-dealer exemption that would allow broker-dealers to even more easily provide comprehensive financial planning advice without being subject to a fiduciary standard for that advice, nor for the implementation of that advice, and without requiring such advisors to register as investment advisers either… which creates, literally, a double-standard for the delivery of financial planning advice.

Accordingly, last week XY Planning Network filed suit against the SEC to challenge Regulation Best Interest, recognizing that the SEC both failed to follow the provisions of Dodd-Frank to apply an advice standard for brokers at least as stringent as the RIA standard, and that the SEC has exceeded its authority by impermissibly trying to re-write the registration requirements to become an investment adviser to stipulate that investment advisers are only engaged in such fiduciary activity when they manage investment accounts and not with respect to the entire advisor-client relationship (even contradicting SEC’s own prior and concurrent guidance). Particularly when it comes to the delivery of comprehensive financial planning, which the SEC itself recognized in 2005 as being too comprehensive by its nature to be considered “solely incidental” to the sale of brokerage products, and instead would have required all financial planning to be delivered under the aegis of an RIA (before the 2005 rule itself was vacated in FPA vs SEC).

Ultimately, though, the purpose of the XYPN lawsuit against the SEC is not to undermine the ability of broker-dealers to engage as such; instead, the issue is simply that Congress has repeatedly prescribed that the delivery of financial advice must be delivered under a fiduciary standard of care, either by lifting the standards for brokers when providing such advice, or by requiring such advice to be delivered as a registered investment adviser in the first place. In other words, the point is not to challenge the broker-dealer model, but simply to separate brokerage sales from investment advice – as Congress mandated nearly 80 years ago – and instead let financial advisors be (fiduciary) advisors, and let brokers be brokers (who market and communicate their services as such to the public). Especially when delivering comprehensive financial planning, which by its very nature, is too holistic of an advice process to ever be solely incidental to the sale of brokerage products, and must instead be regulated the way all advice has ever been regulated: as fiduciary advice.

Weekend Reading for Financial Planners (Sep 14-15)

September 13, 2019 02:56 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 news that two lawsuits have been filed against the SEC regarding its new Regulation Best Interest, one by a coalition of 8 state attorney generals that claim the SEC failed to follow the requirements of Dodd-Frank that any new standard of conduct for brokers be at least as stringent as the fiduciary duty that applies to RIAs, and a second by XY Planning Network that claim the SEC has exceeded its authority by trying to re-draw the dividing line between brokers and investment advisers and that all financial planning advice is required under the Investment Advisers Act of 1940 to occur under the RIA aegis anyway (making the standard of conduct for broker advice under Reg BI a moot point anyway).

Also in the news this week is an announcement that the various annuity carriers that declared they were pulling their fee-based annuity contracts out of New York due to the new disclosure requirements under Regulation 187's new fiduciary rule for annuity and insurance sales may now return, thanks to further guidance from the New York Department of Financial Services that commission-based annuity agents won't be required to disclose to clients that there may be less expensive fee-based versions of the same annuity contract if they're not dual-registered to sell both in the first place... and raising concerns that New York is already undermining the relevance of its own new Best Interests standard by simply encouraging annuity agents to maintain commission-only agent licenses to avoid the disclosure requirements.

From there, we have several AdvisorTech articles this week, from the announcement that the CFP Board will now begin to grant CFP CE credit for at least some technology-related content, to the highlights of the new FinTech solutions that debuted at the recent In|Vest technology conference, the launch of a new digital-only commission-free RIA custodian called Altruist, and a discussion of the recent NASAA study finding that cybersecurity deficiencies are on the rise in state RIA examinations.

We also have a few investment-related articles, including the milestone that the total amount of U.S. equity assets held in passive mutual funds and ETFs have finally surpassed actively managed U.S. equity funds (though the total amount of global assets held in passive vehicles is still relatively low), and two different articles critiquing and debunking the recent Michael Burry statement that passive index funds may represent a "bubble" at risk of popping.

We wrap up with three interesting articles, all around the theme of where people choose to live: the first looks at how the looming deadline for tax extensions from 2018 means a slew of high-income taxpayers will see for the first time how much their tax liabilities were impacted by the new $10,000 cap on deducting state and local income and property taxes, which may potentially lead to an uptick of high-income individuals relocating to states with lower tax burdens; the second explores how the trend of intra-US migration from dense metropolitan areas to other parts of the country appears to be accelerating due not to the impact of taxes but to the cost of housing and the pursuit of more affordable housing options; and the last examines how the feasibility of working remotely in the modern digital age may be further accelerating the trend of relocation away from big cities as knowledge workers can increasingly be paid for what they do regardless of where they live (making it feasible to choose where to live based on housing affordability, taxes, weather, and any other preferences they may have... but without any need to consider the availability of local jobs in the new location!).

Enjoy the "light" reading!