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#FASuccess Ep 137: The Evolution Of How Financial Advisors Solve Client Problems Across Industry Channels, with Lou Tranquilli

August 13, 2019 07:05 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 137th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Lou Tranquilli. Lou is the founder of Tranquilli Financial Advisor, an independent RIA based in Clinton, NJ that oversees more than $100 million of assets under management for 110 clients.

What’s unique about Lou, though, is the way his advisory firm has evolved over more than 25 years across every channel of the industry, having started out as a traditional life insurance sales agent, shifting to the broker-dealer model, then becoming a hybrid RIA, and now making one more recent transition to the independent RIA channel.

In this episode, we talk in depth about how Lou structured his independent RIA as an experienced practitioner. From why he chose Trust Company of America as his custodian rather than one of the traditional big four custodians, the way he brought together an integrated technology stack built around his custodian, to how, despite criticisms that solo advisors will need more size and economies of scale to compete, the increased efficiency of technology to support his solo RIA over his prior broker-dealer actually allowed him to reduce his staff support and increase his profit margins after making the transition.

We also talk about Lou’s journey through the industry itself, from starting out as a traditional life insurance agent in the 1990s and embracing the sales job, even making top of the table with MDRT, to deciding to walk away from the insurance sales job after a decade of tiring of the environment where, as Lou puts it, you’re out of business every minute you’re not calling somebody, and to walk away from his insurance renewals in order to transition to a recurring revenue AUM model that would allow him to focus more on serving existing clients. How Lou hired a marketing director to help him craft and then focus into a niche and triple his firm in under four years, and the way he sought out confidants and formed a study group to get ongoing feedback and guidance from peers on how to continue to refine his business.

And be certain to listen to the end, where Lou explains how despite the fact that he’s always been focused on trying to help clients solve their problems, his own advice role and the services he provided were impacted and materially different as he switched from one industry channel to another.

So whether you’re interested in learning about how Lou went independent and lauched his own RIA, how he outsources his staffing needs, or how a business development manager helped him grow, then we hope you enjoy this episode of the Financial Advisor Success podcast.

What The Australian Financial Services Royal Commission Signals For U.S. Fiduciary Rulemaking

August 12, 2019 07:03 am 1 Comment CATEGORY: Regulation & Compliance

For almost half a decade now, the United States has tried to implement Federal-level regulations requiring that those who are in the business of providing financial advice to serve as fiduciaries and be required to put their clients’ interests ahead of their own. Thus far, however, these regulatory reforms have failed to hold, as financial services industry product manufacturers and distributors have vehemently argued that such rulemaking would end out preventing consumers from receiving their (conflicted) financial advice in the first place, due to the “cumbersome” requirements inherent in any such fiduciary regulation.

The irony, however, is that despite all this tumult about the potentially adverse impact of fiduciary regulations in the U.S., another set of fiduciary regulations have been established and operating for the past six years in Australia, and are far more comprehensive and disruptive than anything proposed (or even hinted at) in the U.S.

In this guest post, Ashley Murphy, founder of Arete Wealth Strategies (a fee-only financial planning and investment management firm serving Australian/American expatriates), discusses the background and impact of Australia’s fiduciary reforms to its financial services industry, some recent developments as the Australian government evaluates the effects of their fiduciary efforts, and what the implications might be for the U.S. fiduciary movement going forward.

Originating in the aftermath of the Great Recession and first passed by the Australian Parliament in 2012, the Australian “Future of Financial Advice” (FoFA) reforms, which went into effect the following year, sought to address pervasive problems in an Australian financial services industry, which, at the time, lacked oversight and was rife with poor “advice”, scandal, and even outright fraud. It was against that backdrop that lawmakers passed two separate acts – the Corporations Amendment (Future of Financial Advice) Act 2012, and Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 – which (among other things) sought to require financial advisors to act in their clients’ best interest, place a general ban on any payment that might influence any advice or recommendation, and require advisors to provide clients ongoing fee and engagement disclosures, at levels far beyond what the SEC has required of broker-dealers under Regulation Best Interest.

Despite ongoing criticism and intermittent tweaks to the original Acts, there is evidence that FoFA has (at the very least) accomplished some its original goals, as the number of complaints against advisors has decreased, and despite concerns that regulation would reduce access to advice in reality more and more Australians are seeking out financial advice after FoFA (suggesting a general increase in the public’s confidence in and therefore willingness to engage with the industry).

Nonetheless, a subsequent formal inquiry to investigate misconduct in the banking and financial services industry, known as the Hayne Commission, found that up to 90% of advisors who worked for firms that manufacture and sell financial products were still giving conflicted advice that wasn’t the in the best interest of their customers… even though the advisors were compensated solely by fees and/or salaries (because the advisors were still largely controlled by their product-manufacturing employers). Moreover, even when banks were found to be in violation of FoFA rules, the penalties were so lax that misconduct continued to be remarkably profitable.

Notwithstanding the industry condemnations from the Hayne Commission, critics feel that the final report fell short and failed to include some key recommendations, including a once-discussed outright ban on asset-based (i.e., AUM) fees and a potential breakup of vertically integrated financial services firms (to force a separation between products and advice). Nonetheless, the findings did throw light on the need for further regulation and enforcement in Australia’s financial services industry, and industry consultant Rice Warner suggests that Australians are receiving better advice at a lower cost and are experiencing better financial outcomes after Australia’s fiduciary reforms.

Ultimately, the key point is that the ongoing evolution of the reformation of Australia’s financial advice industry could serve as a model in the U.S., as regulators struggle with implementing a fiduciary standard. Because, while the SEC’s Regulation Best Interest, which is slated to take effect at the end of June, 2020, is a step in the right direction, it’s possible that the rule will only lead to further confusion among consumers who can’t tell the difference between salespeople and advisors, leaving the proverbial door open for increased regulation in the years ahead. While Australia’s experience shows that lifting fiduciary standards actually can result in an increase in the levels of advice delivered to consumers, as eliminating low-quality advisors and reducing the level of conflicted advice leads to an increase in trust that ultimately creates more opportunity for financial advisors to survive and thrive.

Weekend Reading for Financial Planners (August 10-11)

August 9, 2019 03:30 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with an edgy new academic study finding that dual-registered advisors on average charge fees that are significantly higher than standalone RIAs, face more conflicts of interest, and end out with a higher rate of regulatory complaints, raising serious concerns about whether the shift towards, and growing popularity of, dual-registered investment advisors may ultimately face a regulatory backlash.

Also in the news this week is a decision by the New York State Supreme Court to uphold its new Regulation 187 that would require all insurance agents and brokers to meet a fiduciary duty when providing insurance and annuity recommendations to clients, and a blockbuster investigative report from Financial Planning magazine finding that JPMorgan not only inappropriately fired a whistleblower for raising a red flag about its practice of selling proprietary products to fiduciary clients, but appears to have falsified client complaints against the advisor as well... and FINRA still disciplined the advisor and refuses to retract it, while FINRA itself faces the conflict of having JPMorgan's former top lawyer as a member of its own Board.

From there, we have several technology-related articles, including a look at the growing number of tools for advisors that help to estimate healthcare costs in retirement and plan for senior medical expenses, a look at the slow-but-steady rise of artificial intelligence in wealth management (which thus far, is actually being driven in large part by CRM provider Salesforce), and how "digital marketing" technology is becoming the hot area for advisory firms to spend more on (given the potentially immediate positive ROI for investments into marketing technology versus other areas like compliance tech).

We also have a few articles on investing, including a guide on how to select the right outsourced investment management provider (i.e., TAMP), a prediction that only two types of asset managers (high-performance boutiques and mega-scale behemoths) will survive in the coming decade, and a Morningstar analysis of what exact drives the tax-efficiency of ETFs.

We wrap up with three interesting articles, all around the theme of the ways our future is changing through the power of technology: the first looks at the rise of technology-driven homebuyer services like OpenDoor and OfferPad, that are applying algorithms to turn residential real estate into an "e-commerce" environment with faster buying and selling; the second explores how, despite the eye-popping rise of platforms like Uber, such mega-platforms can still be highly prone to disruption themselves depending on the nature of their networks; and the last looks at how the near-ubiquity of smartphones is leading them to be increasingly used as our identification device, with initiatives underway to digitize into our phones everything from MetroCards to even our Driver's Licenses.

Enjoy the "light" reading!

Is The CFP Board Finally Ready To Enforce The Standards Its Public Awareness Campaign Promotes?

August 8, 2019 07:03 am 7 Comments CATEGORY: Planning Profession

On July 29, the Wall Street Journal published an article which reported that nearly 10% of the certificants included on the CFP Board’s “Let’s Make a Plan” website, which the CFP Board makes available to consumers to find a CFP professional, have material public disclosures listed on the FINRA BrokerCheck site (including several with felony charges!). Notably, though, exactly zero of those “red flag” disclosures are included on the CFP Board’s own website. Which raises the question: How effectively does the CFP Board ensure its own professional standards of conduct are really being upheld, especially as it trumpets a consumer public awareness campaign advocating that those with the CFP marks are the “Gold Standard” that consumers should look for?

In this episode of #OfficeHours with Michael Kitces, we discuss the main issues raised by the WSJ article (as well as the CFP Board’s response), how the CFP Board’s public awareness campaign has unwittingly amplified the issues, some potential challenges the CFP Board faces in addressing these challenges, and explore what it might take for the CFP Board to close the gap between what it promotes in its public awareness campaign and the standards its CFP professionals are actually meeting.

While the CFP Board promotes its “Let’s Make A Plan” site as the “go-to” resource for finding qualified financial planners, the WSJ report pointed out that they have failed to disclose important background details (which even FINRA discloses on its own BrokerCheck website) that would be relevant to a consumer seeking a trustworthy professional. To which the CFP Board was quick to respond, referencing limited staffing and budget resources (70 employees and a $30 million budget, compared to FINRA’s 3,000 employees and $1 billion budget) and non-profit status (meaning that they can only certify and set standards for its certificants, as opposed to a regulatory agency’s official authority to investigate allegations against advisors), as reasons that the WSJ shouldn’t necessarily hold their “Let’s Make A Plan” site to the same standard as a bona fide regulator like FINRA.

The CFP Board also maintained that it is not their policy to publish allegations of wrongdoing, especially if the CFP Board hasn’t investigated them itself, and will only publish disciplinary actions against prohibited activities fully investigated by the Board (as contrasted with FINRA, that sometimes will publish information about client complaints, even if there was no ultimate finding of wrongdoing). Yet historically, disciplinary action against a CFP certificant has been taken by the CFP Board only after another regulator has found them guilty. And ironically, other regulatory bodies generally have less stringent rules of conduct. Which means in essence, the CFP Board is claiming a higher standard of conduct, but often only taking enforcement action based on other regulators’ lower standards… raising the question of how exactly the CFP Board can ever ensure its CFP professionals actually will uphold its proclaimed higher standards?

Despite this, the CFP Board acknowledged it could do better, promptly established an independent task force to “strengthen and modernize enforcement”, and has pledged to begin checking third-party regulatory records (e.g., FINRA and the SEC) every time CFPs renew their certification, instead of conducting an initial one-time background check and relying on self-disclosure in subsequent years.

Still, though, the question remains of how can the CFP Board possibly enforce the higher standards they have been advocating for nearly the last decade with their $10 million annual awareness campaign, if the CFP Board doesn’t have the capacity or authority to fully investigate allegations made against CFP certificants?

Perhaps the most straightforward path is, to the extent that promotion of CFP Board’s higher standards and enforcement of those standards are inextricably linked, the CFP Board’s public awareness budget itself could be (partially) reallocated to support efforts to uphold and enforce CFP standards as well? Or alternatively, the CFP Board could also be more proactive about collecting information already available from third-party regulators, make it easier for fellow CFP professionals to identify peers who violate the Board’s Standards of Conduct, and devise an improved investigative process to actually be able to review complaints and disciplinary issues.

Ultimately, the key point is that the CFP Board needs a mechanism to enforce the high standards CFP professionals are required to follow and that the CFP Board is so proactively marketing to consumers through its own public awareness campaign. And the need for better enforcement mechanisms is especially critical with the new CFP Code of Ethics and Standards of Conduct going into effect in October, 2019, which will only increase the stakes further. Proactively reporting all disciplinary records and creating tools for consumers and CFPs to easily register complaints are simple steps, at least initially, towards improving oversight of financial advisors, until the new independent task force releases its recommendations for strengthening and modernizing enforcement of CFP standards.

Figuring Out The “Best” Healthcare Option For “Early” Retirees

August 7, 2019 07:11 am 18 Comments CATEGORY: Insurance

Given the skyrocketing cost of healthcare (as well as the increasing need for it as we age), it’s not too surprising that Baby Boomers’ biggest worry is how they’re going to afford their medical costs in retirement. Thankfully, however, Medicare (which is available to individuals who paid – or have spouses who have paid – Medicare taxes for at least 10 years and are at 65 years of age or older) is the de facto option for healthcare for retirees. And it’s actually quite affordable – at least relative to the underlying costs of care – due to the fact that Medicare taxes already cover between 77% and 99% of a Medicare recipient’s premiums (such that they only have to pay the net remaining premium out of pocket).

The caveat, however, is that, while the majority of individuals plan to retire at some point after they reach age 65, there is still a non-trivial number of individuals, whether by choice or by need, who retire before they are eligible for Medicare (or even Social Security, for that matter) and still need health insurance coverage (and can’t just simply be added to their still-working spouse’s employer-sponsored plan).

Fortunately, early retirees do have a few options as they consider the best way to obtain health coverage in early (pre-Medicare) retirement. For workers who retire from a company with greater than 20 employees, COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage allows newly-separated employees (or employees who work so few hours that they’re not eligible for their employer’s health plan) to continue their existing insurance coverage at the same (full-premium) cost (plus an administrative fee that is usually capped at a maximum of 2% of the premium). However, COBRA coverage generally lasts only 18 months, and thus can only (except under certain conditions) be used to bridge short gaps before Medicare eligibility begins. Another option for retirees looking to continue their coverage using the same health insurance provider is to “convert” the plan under the group to an individual plan… at least, as long as the plan allows for such a conversion. Again, though, this isn’t always an ideal alternative, as there’s no requirement that the terms (or cost) of such an individual policy are the same as their “old” group plan.

Meanwhile, retirees who (either due to eligibility or cost) decide that either COBRA coverage or a conversion policy isn't the right choice for them, may choose to simply purchase health insurance using their state-approved exchange created under the Affordable Care Act. However, while retirees can’t be denied coverage for a pre-existing medical condition, coverage can only be purchased during specific open enrollment periods, or within 60 days that the employer’s plan is terminated (which means time is of the essence after retiring to make a decision).

Ultimately, though, the key point is simply to realize that, while retirees may be understandably worried about their healthcare costs eating away at their life savings, the availability of Medicare ameliorates those concerns to a significant degree. However, for those who aren’t yet eligible for Medicare, the issue of securing health insurance to bridge the gap until they reach age 65 becomes less clear… particularly for those whose budgets aren’t exactly robust. Regardless, the good news is that there are options, with coverage that is guaranteed (at least if timely obtained). But the range of choices means it is necessary to conduct a thorough cost/benefit analysis when finding the best option between purchasing COBRA coverage, converting an existing group health plan to individual coverage, and/or purchasing insurance via a state-approved health insurance exchange.

#FASuccess Ep 136: Leveraging Risk Tolerance And Financial Planning Software Upfront To Deepen Conversations With Prospects, with Nina O’Neal

August 6, 2019 07:07 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 136th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Nina O’Neal. Nina is a partner with Archer Investment Management, a hybrid advisory firm based in Raleigh, NC that oversees nearly $90 million of assets under management for 165 clients.

What’s unique about Nina, though, is the authentic way that she juggles the realities of being an advisor, a firm owner, and a parent, going so far as to pioneer the advisor video series “The Juggle is Real” about the challenges of work-life balance as a financial advisor raising a family.

In this episode we talk in-depth about Nina’s own advisory firm, the unique way they use Riskalyze for risk tolerance assessments not just with existing clients, but as part of the prospecting process, how she also integrates the eMoney Advisor portal as a way to paint the picture with prospects of how their firm works with clients on an ongoing basis, and the unique client service commitment postcard that all clients receive after being on board for three months.

We also talk about how Nina’s advisory firm is structured, the way the firm decides to handle its mixture of fee-based advisory and commission-based brokerage business, how the firm structured its AUM fee to be an “all-in” AUM fee that captures the underlying costs of both trading and any separate account managers, why Nina’s firm doesn’t view the hybrid model as a waypoint to the independent RIA model and plans to remain a hybrid firm, and how, despite the number of naysayers about broker-dealers and their sometimes overbearing compliance culture, Nina actually chooses to stay with her broker-dealer, Triad, precisely because she actually appreciates the quality of their compliance support.

And be certain to listen to the end, where Nina talks about the real-world challenges of balancing the burdens of being a parent with the challenges of growing an advisory firm, why she decided to create her own advisor video series “The Juggle is Real”, and her latest endeavor in launching the new Female Advisor Network specifically as a community to help empower fellow female advisors in their own path of building an advisory business and balancing the rest of their lives in the process.

So whether you're interested in learning about how Nina uses Riskalyze to deepen her relationships with her clients, why she has no interest in letting go of her broker-dealer, or the advice that she has for young, female advisors, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (August 2019)

August 5, 2019 07:19 am 3 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the August 2019 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month's edition kicks off with the announcement that Orion Advisor Services is acquiring newcomer financial planning software maker Advizr for a whopping $50M (on a revenue base of only $3M), and will almost immediately begin offering it for free to Orion users as a way to make the Orion client experience more financial planning centric… but in the process, creating potential client experience and workflow conflicts for actually-planning-centric advisory firms already using other third-party financial planning software tools.

From there, the latest highlights also include a number of other interesting advisor technology announcements, including:

Independent software goes wirehouse as Morgan Stanley selects Box to power its new Client Vault and Merrill Lynch cuts a deal with Envestnet Tamarac to replace its own proprietary portfolio performance reporting solution.
AdvicePay launches a new Fee Calculator tool for advisory firms to show and explain their pricing to clients, as Schwab’s Intelligent Portfolio Premium service quickly garners $1B in 3 months with its own financial-planning-for-a-monthly-subscription-fee offering.
Northern Trust Asset Management acquires robo-advisor-for-advisors Emotomy as standalone digital onboarding tools continue to struggle to find traction.
Salesforce rolls out a new “downmarket” version of Financial Services Cloud in an attempt to compete in the small-to-mid-sized RIA market

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including Betterment rolling out an “Everyday” high-yield cash savings option for its investors but finding that it’s the Betterment For Advisors RIAs quickly becoming its biggest cash referrers, Ritholtz Wealth re-launches its LiftOff “robo” service for small clients and chooses to pay Betterment For Advisors 0.25%/year just to not use existing RIA custodians’ digital onboarding tools, “Techno-TAMPs” are on the rise as Ethic Investing raises a $13M Series A to provide advisor-customized centrally-managed SRI strategies, Plaid rolls out new student loan account aggregation capabilities that may finally bring more student loan planning tools to advisors, and Envestnet MoneyGuide partners with Jackson National to leverage its wholesalers to provide training on MoneyGuideElite’s new “Secure Income Modeling” tool designed to make it easier for RIAs to begin using annuities with their clients.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!

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

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

Weekend Reading for Financial Planners (August 3-4)

August 2, 2019 02:59 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big investigative journalism report from the Wall Street Journal this week that the CFP Board's "Let's Make A Plan" website was including thousands of CFP brokers who had a history of disciplinary misconduct and/or other material disclosures on the FINRA website that were not communicated on the CFP Board's website... leading the CFP Board to immediately make changes to its site to link to BrokerCheck and IAPD, to increase its reviews of CFP professionals' disciplinary records during the renewal process, and to appoint a new Task Force chaired by former Texas Securities Commissioner Denise Voigt Crawford to "strengthen and modernize" CFP Board's enforcement.

Also in the news this week are several articles about the increasingly controversial 12b-1 fee, from a lawsuit from the SEC against Commonwealth Financial alleging that the firm received more than $100M in not-properly-disclosed 12b-1 fees as part of a revenue-sharing agreement with NFS (that may have directed investors towards higher-cost share classes that paid such 12b-1 fees to NFS and Commonwealth), and a look at how Vanguard itself competes by not paying 12b-1 fees to other platforms even as Vanguard's own brokerage and Personal Advisor Services solution may be collecting 12b-1 fees from other mutual funds in order to fund their own platform costs.

From there, we have a few articles on cash flow and budgeting issues, from a look at the recent Equifax settlement for $125 cash or up to 10 years of credit monitoring (and how to claim them, and why the credit monitoring may be a far better deal than the cash), to a takedown of why consumers should ignore Suze Orman's recent admonition that "wast[ing] money on coffee is like peeing $1M down the drain", and an interesting framework to help figure out when it is a good idea to "go cheap" and when it's better to still spend up for quality.

We also have a few articles on mergers and acquisitions in the advisor space, including the latest "Deal Book" report from M&A consultant David DeVoe that finds record highs in both the volume of RIAs selling and the valuations that advisory firm sellers are commanding in the marketplace, a breakdown of the common components of an advisory firm deal (from Deal Structure to Financing to Tax Treatment), and some "must-know" items to be mindful of when you receive an unsolicited inquiry to sell your advisory firm and now must suddenly decide whether to consider the buyer's offer.

We wrap up with three interesting articles, all around the theme of maintaining a productive office workspace: the first looks at the increasingly popular rise of "phone booths" (but without the phones) as a form of 'privacy pod' in open floor office plans; the second explores the research on how having multiple monitors really does make us more productive at work; and the last looks at how the physical layout of an office space matters not only for its visual and aesthetic appeal, but because it can impact the sound of the space, which in turn can impact everything from our productivity to even our mood in the office.

Enjoy the "light" reading!

Kitces & Carl Ep 13: The Better Way To Send Market (And Other) Commentary Emails To Clients

August 1, 2019 07:01 am 2 Comments CATEGORY: Client Trust & Communication Kitces & Carl Podcast

In our last episode, Kitces & Carl opened a proverbial can of worms by asking if financial advisors still, in this day and age, send out market commentary to their clients. And if so, what do they send? The general conclusion was that, yes, advisors still need to touch base with their clients, outside of their regular service cycle, using some sort of bulk communication tool or personalized report. Because doing so accomplishes several goals, including and especially that it demonstrates to clients that the person they trusted to manage their life savings is “paying attention.”

Regular communication, meanwhile, is especially important for those clients who are in the “Cone of Trust” (e.g., that stage of the relationship where a client has been with an advisor long enough to meet much less frequently and understands that the advisor will reach out if there’s a problem, and vice versa) because it helps ensure that the client actually stays in the Cone of Trust. Unfortunately, though, while our intrepid hosts were able to conclude that sending something is better than sending nothing (and especially better than anything that features a couple holding hands against a backdrop of a lighthouse on the beach), they ran out of time before they could answer the question: What should advisors be sending their clients?

So, in our (lucky) 13th episode, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss why it’s important to send regular commentary, provide a specific example of an easy and effective way to let clients know that you are thinking about them and their challenges, and why it matters so much that it ultimately comes from you (versus any number of white-labeled, off-the-shelf offerings).

In general, what advisors send out for regular communication generally fell into three buckets. Some use third-party commentary and other materials from a reputable source (some of which can be “white-labeled”), others question the value of even sending anything out at all (since the objective is for clients to not focus on and become concerned about short-term market gyrations), while still others insist no one should be sending content unless it was produced in-house (since the goal is for the advisor to establish their own expertise and authority).

For advisors who fall somewhere between the second and third camps, but whose skill set doesn’t include content creation, one effective strategy is to send out a collection of interesting articles (which may or may not have anything to do with money or “the market”), along with a short comment on why you found it useful. It provides a means of still connecting with clients (since ultimately, whether you connect frequently can be just as important as what you send to connect). And this way, when something noteworthy in the market does come along, your clients (or even prospects) are already accustomed to your cadence.

Ultimately, the key point is simply that it does matter that advisors send something to their clients and that they do so on a fairly predictable basis. Because if you are consistently communicating with clients, you can dictate the tone and focus of whatever it is you’re sending. Which means at the end of the day, what matters is that you do take some time, on a regular basis, to send something (preferably in your own words… even if it’s just a sentence or two about why you find a particular article useful). And when you do, you send a clear signal to your audience that you’re thinking about them… and about the responsibility you have as a steward of their life savings!

The 6 Types Of Itemized Deductions That Can Still Be Claimed After TCJA

July 31, 2019 07:03 am 1 Comment CATEGORY: Taxes

Touted as the most significant update to the Internal Revenue Code in decades, the Tax Cuts and Jobs Act of 2017 (TCJA) did indeed introduce several noteworthy changes, including the new 20% qualified business income owners of (some) pass-through entities, a (much) lower corporate tax rate, a (much) higher estate tax exemption, lower individual tax rates for the vast majority of taxpayers, and a slightly higher total standard deduction (which combined both the existing individual standard deduction and the per household personal exemption). Ironically, though, while the TCJA legislation largely accomplished its objective of simplifying the process of filing taxes, it did so largely by making it a lot harder for households to itemize deductions at all going forward!

As while the new standard deduction isn’t that much higher than the combined prior standard deduction and personal exemption, the threshold for itemizing deductions in the first place is significantly higher than it was before, simply because the personal exemption wasn’t part of the equation when calculating the prior deduction threshold. Moreover, the TCJA also either eliminated completely or curtailed many of the most popular itemized deductions that got people over the hurdle to itemize in the first place, including moving expenses, many miscellaneous itemized deductions, and unreimbursed employee expenses (to name just a few). The end result: the number of households eligible to itemize deductions at all is anticipated to fall from approximately 30% of US households to “only” 10%.

Regardless, despite the upheaval, itemizing deductions is still a viable strategy to reduce overall tax obligations, and there are still six core deductions available to taxpayers, including: medical expenses (to the extent that they exceed 10% of Adjusted Gross Income – up from 7.5% in 2018); taxes paid to other governmental entities (both state or local municipality taxes as well as foreign governments, but with a $10,000 maximum deduction limit… regardless of filing status!); at least some types of interest paid (for not only mortgage interest – up to a $750,000 principal limit – but for investment purposes as well); charitable giving (but with limits); casualty and theft losses (but, for individuals, only if they were attributable to a Federally declared disaster); and other (miscellaneous-but-not-subject-to-the-2%-of-AGI-floor) deductions (such as gambling losses and Ponzi scheme losses, among others).

It’s important, meanwhile, to note that most of the still-available itemized deductions simply don’t occur regularly, and there are even fewer large enough to get taxpayers close enough to the new standard deduction threshold to make itemizing “worth it” on a recurring basis. Those items include big mortgages (particularly when mortgage rates are still at historically low levels), large ongoing charitable deductions (even though the deduction amount will necessarily be much less than the amount given), big state and local tax deductions (at least for individuals, where the $10,000 SALT cap gets them close to a standard deduction that is “only” $12,000), high margin investing (since interest paid on investments is deductible… as long as the returns on the investments are taxable in the first place), big long-term care events (which, while undesirable, can require large ongoing medical expenses), and significant stretch-IRAs that are eligible for the Income in Respect of a Decedent (IRD) deduction (to the extent that the IRA was inherited from someone who actually had to pay Federal estate taxes).

While few households will be able to meet the standard deduction threshold every year using just those big-ticket items, though, it is feasible (and perhaps even much more likely) that taxpayers will be able to itemize on an intermittent basis, by combining a few (or several) additional deductions on top of other (lower-but-recurring) deductions. For instance, a taxpayer might combine ongoing mortgage interest, property taxes, and state income taxes with a large charitable contribution to push past the standard deduction threshold in order to take advantage of additional tax benefits.

Ultimately, the key point to realize is that the combination of a higher Standard Deduction threshold and the curtailment of itemized deductions, makes it much harder to itemize than it once was (if only because the new standard deduction provided a more substantive and generous tax benefit in the first place). Yet while fewer households are able to itemize each and every year, some may still be able to do so, either on an ongoing basis, or at least intermittently by stacking infrequent clusters of additional deductions on top of recurring items that typically aren’t large enough to matter from a tax planning perspective. Which is important, because at the margin it’s still valuable to identify and plan for the (few) years where itemized deductions will still be available, as those are the years when there’s the most tax benefit to stacking any other possible “add-on” deductions on top for more tax savings!