Nerd's Eye View blog

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!

#FASuccess Ep 135: Developing The Systematized Business Development Playbooks To 10X Your Advisory Business, with Kathryn Brown

July 30, 2019 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 135th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Kathryn Brown. Kathryn is the co-founder of Morton Brown Family Wealth, an independent RIA in Allentown, Pennsylvania that oversees nearly 110 million of assets under her management for 85 affluent households. What's unique about Katie, though, is the way they position their firm for the potential for 10X growth in the coming years, systematizing everything from their business development to their financial planning processes and even hiring a Data Geek Chief of Staff as just their third hire to ensure the firm stays focused on the metrics that matter the most.

In this episode, we talk in-depth about the playbooks that Katie and her partner have developed for the firm, from a business development playbook that articulates exactly what the firm does to nurture a potential new clients in each stage from being a source name to a lead to a prospect and eventually onboarding as a client, to their client experience playbook that tracks a financial planning heat map where clients are between the planning and process phase, implementation phase, maintenance phase, update phase, and no plan phase. And the way the partners of the firm have surrender control of their own calendars to a team member whose job is to ensure that they keep their own time focused on where they need to spend the time to positively impact the business the most with each day of the week set with specific tasks to focus on that day.

We also talked about Katie's own path through the planning business from starting out in an administrative roles straight out of school, then moving into an operations role and then into a client-facing financial planning role before eventually forcing herself to learn business development and then eventually deciding that it was time to launch her own firm with a partner after nearly 15 years in the business, building on the foundation of skills and confidence that she had developed in each step along the way.

And be certain to listen to the end where Katie talks about the way she made the successful transition to breaking away from her prior firm. How keeping the split amicable made for an exponentially easier process of being able to use the negative consent letters instead of fully repaid to bring all her clients, the challenges she faced along the way with certain outsourcers that didn't always deliver, and how she persevered through the leap to independence despite learning that she had breast cancer and going through three surgeries while preparing for the transition to break away.

So whether you're interested in learning about why Kathryn hired a "data geek", the process she went through when learning how to build a business with intent, or how she's developed systematic processes for business development and the financial planning process, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Networking Tactics To Develop Relationships With Local Small Business Owners

July 29, 2019 07:06 am 0 Comments CATEGORY: Marketing

For years, independent financial advisors (particularly those who offered holistic and comprehensive financial planning services) had a relatively easy time differentiating themselves from the vast majority of others in the industry by emphasizing the breadth and depth of their financial planning services (as contrasted with competitors that were still primarily in the investment or insurance product distribution business). However, in recent years, the asset management and product placement facets of the business have become increasingly commoditized, and an increasing number of advisors have also come to understand that the real value that they provide for their clients isn’t in the products themselves, but in the comprehensive advice that needed to implement those products (or not). Which, ironically, means more clients than ever actually get qualified financial planning advice… and it’s harder than ever for those who give quality advice to differentiate themselves from other advisors offering essentially identical services.

Which means that, moving forward, identifying and nurturing a clear and distinct niche will only become even more of an indispensable differentiator for advisors (and eventually, might become the only real differentiator!?). Yet, for many, the real challenge isn’t in choosing a niche, but in actually reaching potential clients in a particular target market… or at least enough of them to start building a practice around. And while few advisors are naturals when it comes to networking, the good news is that it is a skill that can be learned, and that there are several proactive steps that any advisor can take in order to connect with members of their niche, which are based on the same principles of any good networking strategy.

In this guest post, practice management consultant Teresa Riccobuono of Simply Organized uses small business owners as an example niche to offer actionable tactics and steps to start building a niche-focused network and provides specific examples of ways you can deepen and expand your own web of connections in the small business owner community.

Of course, the first key in networking is to recognize that it’s all about building a relationship that establishes you as the go-to expert in the community… not necessarily to try to get business from anyone/everyone upfront. Accordingly, strategies that build valuable goodwill for you and your practice through networking include: helping the small business owners in your network connect with other small business owners (e.g., by first making a list of all the business owners in your network, and finding ways that they might be able to work together or help each other), creating an “insider’s” directory of local businesses that your clients use and trust (which can help expand your reach by giving you a great reason for introducing yourself to business owners included in that directory but who are outside your network), and hosting events such as a speaker series or even a full-fledged multi-day expo featuring (local) businesses that provide goods and services to a common target market.

Ultimately, the key point is that an effective networking strategy is based on genuinely providing others value without expecting anything in return… which, over time, builds goodwill and (eventually) trust, to the extent that small business owners (or whatever target market you decide to serve) will naturally turn to you as a resource down the road when they encounter someone who might need your help. Or even to reach out to you when they need help themselves.

Weekend Reading for Financial Planners (July 27-28)

July 26, 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 a number of big industry shake-ups, including the sudden news that TD Ameritrade CEO Tim Hockey is out (for what may have been a failure to pay enough attention to the company's RIA channel), and a management restructuring at Schwab that elevates its Schwab Advisor Services RIA division to report directly to CEO Walt Bettinger at the top of the organization, as the RIA channel continues its rise (and even the attention and resources it commands at historically-retail-oriented brokerage firms).

From there, we have several practice management articles this week, from the latest Schwab RIA Benchmarking Study that shows RIA growth remains solid (but not huge), averaging a 5.4%/year growth rate in clients over the past 5 years, the dynamics of what happens when an advisory firm decides to close its doors to new clients after growing to be "big enough" to satisfy the owner's needs, how equity-sharing is becoming increasingly common at large advisory firms as a way to attract, but especially retain talent, and a new Risk Alert from OCIE that advisory firms are not doing enough to run their own independent background and disciplinary checks on new hires (and thus failing to properly report disclosable events to prospects and clients).

We also have a few marketing articles, from why it may be better to help prospective clients conduct a "fee audit" of their current advisor (before trying to convince them of your own value for the fees you charge), how trademark law works when it comes to advisory firms and the names of their businesses, and how the targeted advertising capabilities of search engines and social media is making outbound paid advertising an increasingly lucrative channel for advisory firms to pursue for getting new clients.

We wrap up with three interesting articles, all around the theme of trying to make good decisions on the path to self-improvement: the first looks at the fascinating phenomenon that successful systems are often "complex to make [but] simple to break," which means at some point in the process of success (from business to investing), the focus shifts from building the complex system to work, to simply trying to make sure it doesn't die a simple death; the second looks at how to think about potentially complex decisions not as an all-or-none "it's right" or "it's not," but on a "confidence meter" scale from 0% to 100%, with a threshold for when a bet is at least "sure enough" to be worth making (while also recognizing that the threshold cannot be 100% because virtually no decision is entirely assured); and the explores how we often try to improve by making something bigger or better, but in practice some of the best improvements can come simply by reducing the leaks and fixing the tiny errors and mistakes that take away from compounding growth along the way.

Enjoy the "light" reading!

Highlights From The 2019 In|Vest #FinTech Conference For Financial Advisors

July 25, 2019 07:08 am 1 Comment CATEGORY: Conferences

Last week, SourceMedia, publisher of “Financial Planning” magazine (and several other financial services industry publications), hosted its annual In|Vest advisor FinTech Conference in the heart of Manhattan, with over 1,000 industry executives gathered to discuss technology opportunities and challenges facing the wealth management industry as a whole.

In the guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – shares his signature Twitter-driven recap of the conference, which featured presentations and discussions on digital advice trends, RIA M&A, pricing models, custodians, and of course new FinTech itself.

Craig kicks the recap off with highlights from Shirl Penney’s presentation on running an RIA aggregator, suggesting that RIAs should use a 5-year economic model in order to time a sale (rather than being forced to sell during a downturn), and that (with the recent Goldman Sachs / United Capital deal) more custodians will be looking in the middle-market for acquisition targets. Meanwhile, panel highlights included a discussion on the pros and cons of the subscription pricing model, which is a hot topic given Schwab’s strong launch of its subscription service (as well a more recent news that Bank of America might introduce a subscription model for Merrill Edge).

From there, other conference highlights included sessions on:

Drivers of Consumer Choice, with market research firm Parameter Insights pointing out that the biggest reason that consumers aren’t using digital advice is that they think they don’t have enough money to invest in the first place;
Activating Digital Hybrid Advice, where a panel of industry executives suggested that, while digital advice is essentially useless without personal interactions, digital adoption remains a one-way street (i.e., once a digital solution to a problem is adopted, users rarely - if ever - go back to the old way of doing things);
The World Wealth Report, where Abhishek Singh from Capgemini showed how only 40% of high-net-worth individuals were satisfied with the personalization from their wealth managers, that service quality is still the most important factor when choosing a wealth management firm, and that AI has the potential to make the biggest impact on helping advisors meet their clients’ service demands; and
Modernizing Advice, with Michael Spellacy from Accenture emphasizing that, while digital advice may have disrupted the industry, personalization and customer experience remain at the heart of good financial advice.

Attention then turned towards custodians and their vision for the future. Bernie Clark from Schwab pointed out that more than a third of the $1 billion of inflows to its new subscription model came from new clients, and that integrating new tools with existing infrastructure is a major area of focus for them right now. Industry consolidation is also an ongoing trend, as the first half of 2019 saw 67 RIA deals totaling $69.5 billion, or more than a 55% increase over the same period in 2018.

Ultimately, the 2019 In|Vest Conference brought together an otherwise seemingly disparate group of presenters, each with their own perspectives on the trends shaping the ongoing evolution of the industry, yet many shared a common thread around the importance of client relationships and excellent service, the opportunities for technology to help deepen those relationships and improve overall client experience, that industry consolidation will be an ongoing driving force, and that there’s a blue ocean of potential, yet non-traditional, wealth management clients out there that need (and want) advice, and that it behooves the industry to figure out a way to reach them (e.g., through the use of new advisor business models, coupled with new advisor FinTech to serve them efficiently).

How To (Correctly) Fix A Forgotten, Missed, Or Miscalculated Required Minimum Distribution (RMD)

July 24, 2019 07:04 am 18 Comments CATEGORY: Taxes

Tax-deferred accounts have long been a boon to savers, allowing them to earn additional growth on top of the growth without Uncle Sam taking a share. But tax-deferred doesn’t mean tax-free, and sooner or later, Uncle Sam will eventually take his share, since each and every retirement account is subject to Required Minimum Distribution (RMD) rules at some point (even Roth accounts, after the death of the original owner!).

Unfortunately, though, the RMD rules can be maddeningly complicated, making it easy for taxpayers to make a mistake by taking a smaller-than-required distribution, taking a distribution from the wrong account (or even the wrong type of account), or (worse yet) missing a distribution altogether. In fact, mistakes in satisfying RMD obligations are so widespread among retirees that in just 2006 and 2007, over a quarter-million individuals failed to take an RMD from their IRAs alone... not to mention all the other types of tax-preferred accounts out there. And given that RMD rules haven’t changed, it’s not a stretch to assume that the number of missed distributions hasn’t gotten any better… especially given that Baby Boomers have since been retiring in droves and reaching the age 70 ½ threshold when RMDs begin.

The problem, of course, is that, not only does a taxpayer still have to catch up on any of their distributions that were missed (which could end out having adverse tax consequences if a large enough amount has to be taken), but the IRS will impose an additional penalty of a whopping 50% of the amount that was supposed to have been distributed in the first place… even if the mistake was purely unintentional!

The good news, though, is that the IRS isn’t entirely without compassion and understanding (truly!), and has the option to decide to waive that punitive penalty for failing to take an RMD. However, it’s important to note that the onus is on the taxpayer to reach out to the IRS, explain that their mistake was the result of a “reasonable error,” and show how they are taking “reasonable steps” to remedy the shortfall.

Unfortunately, though, the bad news is that, although there is a way to waive the 50% penalty, the means for doing so can be just as confounding as the RMD rules themselves… at least if the taxpayer hopes to have their penalty abated!

The first step towards requesting a waiver for a failed RMD is to take the missed distribution(s) as soon as possible, preferably separately and without any additional taxes withheld (so that the amount deposited into a receiving account exactly matches the shortfall). From there, the taxpayer must (correctly) file the appropriate Form 5329 for each of the years that a distribution mistake was made. The caveat is that there is one line in particular - line 54 - which can easily throw a wrench in the works, as the proper way to request the penalty waiver is to not fill out the line the way it is explained on Form 5329 itself, and instead to mark a request for waiver next to that line instead. And, in addition to that, the taxpayer must also attach a letter explaining the reasonableness of both their error and their corrective measure to the IRS.

In the end, the key point is that, while RMD mistakes are common among owners (and beneficiaries) of tax-preferenced retirement accounts, it’s actually quite likely that the IRS will waive the 50% penalty… but only if the appropriate steps are taken in a timely manner to rectify the error. Because while it may be tempting to “roll the dice” and hope that the IRS doesn’t figure out that a mistake’s been made (and then feign ignorance if/when they discover the error), the reality is that it’s far less likely that the IRS will be as understanding had the taxpayer self-reported the mistake in the first place! Especially since the failure to file a Form 5329 to report (and request a waiver of) the penalty means the statute of limitations itself for the 50% penalty never begins to toll in the first place!

#FASuccess Ep 134: Positioning A Family-Owned Advisory Business For The Next Generation Of Growth, with Andrew Altfest

July 23, 2019 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 134th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Andrew Altfest. Andrew is the president of Altfest Personal Wealth Management, an independent RIA based in New York City that oversees nearly $1.3 billion for nearly 600 affluent clients.

What's unique about Andrew, though, is that he's become the second-generation leader in a family advisory firm founded by his parents who themselves were early NAPFA fee-only pioneers, and how he's now positioning the business to grow and build upon their legacy in the decades to come.

In this episode, we talk in-depth about the dynamics of a family business. Why it's often easier to find alignment in a family business because the values of the owners and parents tend to get transmitted to the children as successors within the family from a young age, how Andrew ended up finding the path to the family business despite having not planned to pursue it originally, and the ways his parents exposed him to all aspects of the business, from operations to clients from early on to build his breadth of experience as a future leader.

We also talk about how exactly Andrew is beginning to position the firm for the future, from rolling out a next-generation client service charging a minimum planning fee to serve the children of their current clients, to increasingly leveraging technology tools to communicate with clients by a wider range of means, and how Altfest eventually decided to hire tech developers and begin to create their own technology tools to better track and find planning opportunities for clients, a solution that they eventually intend to make available for other advisory firms as well.

And be certain to listen to the end, where Andrew talks about the changes he's implemented as a leader of the firm since going back to get his MBA and participating in the Schwab Executive Leadership Program, from rolling out an annual client engagement and satisfaction survey that's tied directly to the firm's advisor compensation, the employee satisfaction surveys they do internally to evaluate their team, and the practical challenges that Andrew faced and overcame in trying to drive change in a long-standing, already-successful advisory firm.

Developing Your Advisory Firm’s New Hire Training Program With A Growth Mindset

July 22, 2019 07:06 am 0 Comments CATEGORY: Human Capital

Back when the financial services industry was focused almost exclusively on product sales, the process of “training” new employees was relatively straightforward: either new hires were able to learn to sell enough to survive and build a book of business, or they didn’t… and moved on to do something else. However, as the industry has evolved into a more sustainable, advice-centric model, advisory firms are discovering that, unlike most other professions, there aren’t many standards when it comes to training new entrants to progress down a (well-defined) career path into the profession.

And in the modern era, the stakes are higher when it comes to training new advisors. As while in decades past, firms didn’t put much into training new advisors (beyond basic sales training) and therefore didn’t have much to lose if a new advisor “didn’t make it”, modern advisory firms trying to develop a new advisor to be able to manage ongoing relationships (for ongoing revenue) have to incur far more salary expenses until that new advisor develops the necessary skillets to be a productive member of the team.

Accordingly, advisory firms that are looking at steady and ongoing growth are increasingly focusing on developing a repeatable in-house training program, or “boot camp”, to accelerate a new advisory hire’s learning curve to get them through that process faster. Where systematization reduces the cost to the firm if the hire doesn’t work out. And in the extreme, can actually make newer employees so valuable, so quickly, that the firm might even assume that participants will actually move on to another firm at the end of the program and still be successful.

Yet, while a training program is certainly better than none at all, perhaps more important is inculcating into the firm’s culture a “Growth Mindset”, which fosters an environment that encourages learning and talent development, seeks out challenges, and understands that improvement is impossible without failure. Which is especially important in the advisory profession, where new entrants into the field might have a good amount of technical knowledge, but can only learn the (arguably more) important interpersonal skills through experience.

The real key to the Growth Mindset, though, is simply recognizing that if growth is natural, employees can learn anything they need to learn to be successful, as long as they have the right attitude that they can learn it in the first place. Which means it’s crucial that the firm itself is characterized by an attitude of, “I may not be able to do that now… but I can learn how!”

Ultimately, the key point is to realize that adopting a Growth Mindset can be an invaluable step towards helping an advisory firm better educate, retain, and grow a team that sets high expectations, challenges team members throughout the firm, and gives positive reinforcement, not in the context of innate personal ability, but against a backdrop of a process fosters their long-term success and reinforces the firm’s culture.

Weekend Reading for Financial Planners (July 20-21)

July 19, 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 industry news that the CFP Board has decided to delay enforcement (but not the rollout itself) of its new fiduciary standard, allowing brokerage firms another 9 months (from October of 2019 until June of 2020) to adjust their policies and procedures... while reinforcing that the CFP Board's new fiduciary standard will be enforced once Regulation Best Interest is also effective after June 30th of 2020.

Also in the news this week is the announcement that Salesforce is rolling out a new low(er)-cost version of its Financial Services Cloud, in an effort to reach the small-to-mid-sized independent advisor marketplace that is currently dominated by industry-specific competitors like Redtail and Wealthbox.

From there, we have several articles on regulatory topics, from a look at what's coming for advisors with the new 2-page Form CRS that must be provided to prospects and clients starting next year (and how hard it may be to fit all the required information onto "just" 2 pages), to a discussion of why it's so important to read the Privacy Policies of the FinTech vendors that advisors use (some of which actually do share portions of client and/or advisor data with third parties!), some tips on text message compliance, and technology strategies on how best to facilitate file-sharing with clients.

We also have a few behavioral finance articles this week, including: recent research suggesting that the bulk of investors (at least who go direct to Vanguard) actually are relatively patient, prudent, and calm (and that the "dumb money" retail investor may actually be less common than previously believed); research on whether "smart" people with a high IQ are really better investors (or perhaps just better at not making behavioral mistakes); and why it's important to evaluate your decision-making process properly and not engage in "resulting" that can lead to repeating bad decisions and underappreciating good ones (that happened to not work out as well as anticipated).

We wrap up with three interesting articles, all around the theme of the opportunities of compounding returns (in sometimes unanticipated ways): the first is a fun look at the town of Quincy, Florida, which has the highest rate of millionaires per capita due to the advice of a local banker during the Great Depression that the local community invest in the consumer durable stock of Coca-Cola... which over its lifetime has compounded its original $40 shares into $10M/share (split-adjusted and dividend reinvested back to its original IPO in 1919!); the second looks at the emergence of "non-linearity" in earnings, especially in professional services jobs, such that couples can often earn more by choosing to have one spouse work significantly more hours and the other work part-time or less, instead of a "traditional" dual-income (two-full-time earning) household; and the last explores how the rise of the internet has facilitated the rise of "microbrands," ultra-targeted niche solutions that leverage social media and digital advertising to not only reach a unique segment of consumers, but to pre-test their business offering to affirm a niche clientele will purchase before the product is ever made (which is increasingly relevant for the rise of niche financial advisors, too!).

Enjoy the "light" reading!

Kitces & Carl Ep 12: Communicating With Clients To Bring Them Under The Cone Of Trust

July 18, 2019 07:03 am 3 Comments CATEGORY: Client Trust & Communication Kitces & Carl Podcast

Although “real” (i.e., holistic and comprehensive) financial planning encompasses far more than “just” investments, for better or worse, clients look to their financial advisors as people who are (at least) more knowledgeable than your average bear in regard to “the market.” Because, while providing advice on a client’s portfolio is just one part of the ongoing financial planning process, it’s natural for clients to worry about their investments (or more generally, their assets) and look to their advisors for reassurance that their life savings is being looked after… especially when the financial media consistently bombards them with clickbaity doom-and-gloom headlines. Which, in turn, leads to the question: should advisors send their clients market commentary to demonstrate the advisor’s expertise and try to soothe their nerves… or does doing so just risk making them focus even more on investment issues?

For our 12th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss if sending market commentary to clients actually helps solve any problems (or if it’s just a relic of a product-centric industry), what sorts of clients benefit the most from proactive communication (and why), and ultimately, why sending investment market commentary to clients may be a good thing to do… even if the majority of your clients never even read it!

As a starting point, though, it’s important identify the problem that advisors are really trying to solve by sending market commentary to clients, and which types of clients need such a solution. Because the reality is that, no matter what advisors send, those clients who are true delegators (and hired an advisor in the first place so they didn’t have to be bothered with keeping track of their investments) won’t be interested. However, many clients – even those who delegated their portoflios – do feel like they need to “check in,” at least from time to time, to be reassured that they made the right decision when they hired the advisor to tend to their life savings. Which often manifests itself by the client asking about current market affairs… not because they really care, but because they want to know that their advisor is really “on top of things.” And not only is it a good idea to make sure the advisor can answer their questions, but regularly sending out commentary is a good way to proactively address whatever the topic du jour may be once (rather than fielding potentially dozens of identical phone calls on the same investment concern).

Meanwhile, as client relationships mature over time, meetings naturally become less frequent (as trust levels have developed, and most of the early planning heavy lifting has already been done), so simply staying in touch even by sending out bulk emails with the advisor’s “commentary” can help prevent the dreaded transfer paperwork from landing in the inbox. As no matter how much we’d like to think we’ve “trained” our clients to stay focused on the big picture and ignore short-term market fluctuations, the reality is that sudden spikes in volatility will cause clients’ loss aversion instincts to perk up.

Ultimately, though, the key point is simply to realize communicating with clients outside of their regular meeting rotation matters, and sending them some form of investment commentary (whether it be from a third party or written in-house) is a great way of providing reassurance that you are versed in whatever may be going on in the market at any given time. Even if you always wind up with the same conclusion, which is that your clients are properly allocated and are served best by sticking with the plan you’ve developed with them.