Nerd's Eye View blog

Weekend Reading for Financial Planners (Aug 31 – Sep 1)

August 30, 2019 02:56 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a look at the various Democrat plans beginning to emerge that may shift the US tax system from being heavily income-based to a blend of income- and wealth-based instead... as regardless of an advisor's political affiliation and belief in Democrats' policy goals, a major shift in tax policy in the U.S. will have substantial impact for many advisors' clients, and is already an increasingly common topic of conversation with clients, which means it's crucial to be aware of the leading proposals and what they entail. Though given the increasingly political environment, it's notable that also in the news this week is a new effort from the Investment Advisers Association (IAA) to make it easier for at least smaller RIAs to be more politically active with campaign contributions (if they wish to) without becoming buried in the burdensome "pay-to-play" compliance rules that RIAs must follow to ensure their political contributions don't result in working with "prohibited" clients in government.

From there, we have articles around spending behaviors, including one study finding that a whopping 30% of clients still hide at least some spending decisions from their financial advisors (ostensibly out of a fear of being judged for their decisions), the ways that affluent clients sometimes "buy" privacy not for luxury but simply to protect themselves from the public eye, the emergence of the "subscription monthly-pay model" in the world of luxury travel for affluent clients, and the ongoing rise of "medical tourism" where some companies are even paying their employees to have surgical procedures done in foreign countries (even if it's necessary to fly a U.S. surgeon there to do the procedure) as a way to lower health care costs for the business.

We also have a few marketing articles this week, from a look at how to use and leverage Google Reviews (without running afoul of anti-testimonial compliance rules), how to set up Goal Tracking in Google Analytics to actually figure out where new prospects are coming from (and what actually connects with them on your website), and some tips for experienced advisors whose growth has stalled to re-ignite their prospecting efforts.

We wrap up with three interesting articles, all around the theme of the ever-evolving profession of financial planning itself: the first is an "Open Letter" on diversity from a financial planner who is a woman of color about the real-world challenges that emerge in being a "pioneer" in what is still a predominantly white industry; the second looks at what the CFP Board must do from here to shore up its credibility after the recent Wall Street Journal article suggesting the organization wasn't effectively enforcing its own standards; and the last takes an interesting retrospective look at the financial planning profession itself as it approaches its 50th anniversary this December, whether the profession is really living up to its promise as a profession, and concerns of whether financial planners really have the advocacy organizations in place that are necessary to carry the torch of higher standards into the future.

Enjoy the "light" reading!

Kitces & Carl Ep 15: Why Are We So Afraid To Just Listen

August 29, 2019 09:05 am 1 Comment CATEGORY: Client Trust & Communication Kitces & Carl Podcast

Although gaps in a conversation are often awkward and uncomfortable, when used effectively, they can become power tools for financial advisors to foster deeper connections with their clients. Because, beyond just hearing what financial concerns a client may have, advisors can use the opportunity to give space to the conversation, which helps to establish empathy and build trust, and in the process sometimes bringing to light the unique roadblocks clients may have in executing their plan.

In our 15th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the value of really listening to clients, and how, by simply talking less and listening more in client meetings, an advisor can improve the chances that a client will stick to their plan.

In general, financial advisors are trained to be knowledge experts and to communicate that knowledge to clients. But even though clients seek out financial advisors for their technical expertise (after all, the main value-add financial advisors offer are the recommendations that help clients down the path of achieving their financial goals), what may not be so obvious are the reasons that clients will (or will not) successfully follow those recommendations. Reasons that can’t be discovered… unless the advisor gives the client the space to reveal them.

Because no matter how perfect and comprehensive a plan may be, it will offer little value if the client does not know how, or is unable, to follow it. Like a swimming instructor teaching a fearful student how to swim, it may be very clear to the advisor what steps the client needs to take and how to communicate what those steps are. Yet it may be harder to see the doubts and fears that the client may be holding on to – or about whether they can even trust the advisor in the first place – which, in turn, can give rise to a client’s hesitation and reticence to follow through… in essence, a “gap” between what the client knows (i.e., what you tell them), and what a client actually decides to do. But by encouraging clients to fully talk through their concerns – and by using silence as an opportunity for the client to reflect deeply on the questions asked – advisors can empathetically understand what a client’s true priorities are, and particularly, what may be creating the knowledge/action gap for the client.

In the end, the key point is simply that it’s okay, and maybe even potentially valuable, to have some silence during a client conversation, because it can lead to a better balance between the delivery of knowledge and the discovery of nuances that make the client a unique individual. Ultimately, by asking probing, relevant questions, and leveraging silence, advisors can become better listeners and strengthen their relationships with clients, and in doing so, may even identify the obstacles that are keeping them from sticking to their plan in the first place.

New PLR Allows RIA Advisory Fees To Be Paid Pre-Tax Directly From Non-Qualified Fee-Based Annuities

August 28, 2019 07:13 am 5 Comments CATEGORY: Annuities

It’s a long-standing principle of the tax code that expenses incurred for the production of income or management of assets (e.g., an investment advisory fee) is a cost that can be applied against the income produced – in other words, deducted as a pre-tax expense. Unfortunately, though, under the Tax Cuts and Jobs Act of 2017, the entire category of “miscellaneous itemized deductions subject to the 2%-of-AGI floor” was repealed… which included the deduction for investment advisory fees, making them no longer able to be paid directly on a pre-tax basis.

However, the ability to pay for the cost of an advisor on a pre-tax basis is still preserved in situations where the fee can be paid directly from a tax-preferenced account or product. As a result, advisory fees deducted directly from an IRA are still pre-tax, and commissions subtracted directly from the net asset value of a mutual fund (or the cash value of an annuity) are still pre-tax as well. The caveat, of course, is that registered investment advisers charging fees cannot receive commissions from mutual funds or annuities in the first place, making it effectively impossible to charge clients on a pre-tax basis.

When it comes to annuities in particular, the fundamental challenge is that even though there’s a cash value from which advisory fees could be paid – roughly akin to deducting advisory fees directly from an IRA – annuities have historically been subject to a peculiar wrinkle in the tax code: any amount received from an annuity that isn’t received as an annuity (i.e., as annuitized income payable at regular intervals for life or a period certain) will be treated as a withdrawal, and taxable to the extent that there are any gains in the annuity contract. Which includes not only traditional distributions from an annuity to the owner, but any amount paid by an annuity on behalf of its owner… effectively rendering advisory fees from an annuity to not only fail to be a pre-tax payment, but even worse to actually trigger tax consequences as a taxable distribution. Even though, again, the same advisor could receive a 1%/year commission trail from the annuity for the same net compensation without triggering a taxable event.

The key distinction is that while the IRS deems a 1% per year advisory fee that’s paid from the cash value of an annuity to be a taxable distribution to the annuity owner (who then ostensibly pays his or her advisor), any trailing commission paid to the broker who sold the annuity is instead deemed to be an expense paid by the annuity company (and deducted from the value of the annuity), and therefore is not technically a taxable distribution.

This standard treatment could be undergoing a significant shift, however, after a coalition of insurers banded together to submit a series of Private Letter Ruling (PLR) requests, asking the IRS to change its position and consider advisory fees on so-called “fee-based” annuities to be treated like any other retirement account or internal mutual fund expense ratio (i.e., as expenses paid by the account itself, rather than as a distribution to or on behalf of the owner). And, given that these contracts are specifically designed to be fee-based (and therefore RIA-supported), the IRS acquiesced and ruled that, since the payment on ongoing fees for advice are “integral to the operation of the contract,” those fees should be considered to be an expense of the annuity itself, which are authorized by the owner, withdrawn by the annuity company, and paid directly to the (registered investment) adviser.

It’s important to note that these are “only” private letter rulings, not an actual change in the tax code, and include several key stipulations that, if not followed, could make it difficult for other annuity carriers to receive similar treatment. Specifically, the PLRs stipulate that in order to receive the favorable tax treatment, annuity advisory fees can’t exceed 1.5% per year, must be paid by the annuity carrier to the RIA, should only pertain to the advice on that particular annuity, and must be explicitly authorized by the owner.

Still, while the new ruling is a major breakthrough for the annuity industry’s attempts to create more RIA-friendly annuity solutions, it remains to be seen whether fee-based annuities will gain wider adoption with advisory firms. As the reality is that there are still numerous operational and technical issues that must be addressed, including facilitating graduated advisory fee schedules (that also don’t exceed the 1.5% per year cap), integrating annuity sub-accounts into existing RIA portfolio model management tools, the ability to open new accounts at scale (for existing RIAs with a sizable base of existing clients), and being able to coordinate various distributions (leveraging an annuity’s available living benefit guarantees) amid a much more complex asset mix that includes non-annuities the advisor manages as well.

The key point, however, is that the recent PLRs from the IRS are at least a step in the right direction, bring important parity and tax law consistency between advisory fees for tax-qualified retirement accounts and advisory fees for non-qualified annuities, and provide another potential tool that advisors can use to better serve their clients… particularly in unique situations where a client specifically needs an annuity, or wants to replace an existing annuity. From a systems and practical perspective, though, there are numerous challenges that still must be addressed, particularly for larger advisory firms operating at scale, before fee-based annuities gain wider acceptance among RIAs.

#FASuccess Ep 139: Plugging In For Large Firm Support To Refocus Your Time On Clients Instead, with Michele Clark

August 27, 2019 07:06 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 139th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Michele Clark. Michele is the senior portfolio manager for Acropolis Investment Management, an independent RIA based in the St. Louis area that oversees nearly $1.1 billion of assets under management for more than 800 clients.

What’s unique about Michele, though, is that until very recently, she ran her own independent hourly financial planning practice and only recently decided to tuck in or, as she puts it, to “plug in” to a larger firm so that she could worry less about the hassles of being a business owner, from bookkeeping to IT, and simply focus more on what she enjoys the most, which is connecting with and servicing her clients.

In this episode, we talk in depth about Michele’s somewhat nontraditional journey through the advisory industry, from starting out selling mutual funds door-to-door with Edward Jones, to switching to Charles Schwab and becoming a regional investor education specialist until she was so successful the travel overwhelmed her and she decided to switch and become a branch financial consultant instead, and then growing her base of Schwab private clients so large that it once again overwhelmed her to the point that she decided to go out on her own to structure the practice the way that she wanted, only to once again, over the span of 10 years, grow to the point that the business was consuming too much of her life and to make the decision to plug into Acropolis to, yet again, back off when the advisory practice got too big and rebalance both her business and the work she’s doing in it.

We also talk about how Michele built her independent firm, from the way she structured her project-based fees in her hourly business, to the challenges she discovered when trying to properly price renewal plans for ongoing clients, the trick she used to begin to systematize the processes and procedures in her firm as it grew, and what she learned about the changing ways that clients are finding a financial advisor in today’s environment by meticulously tracking her own sources of new business for nearly a decade.

And be certain to listen to the end, where Michele shares her own tips on how to stay lean when starting an advisory firm, the importance of developing an expertise or specializations so that you don’t have to rely on local business development opportunities and can attract clients no matter where they are, and the inevitable challenges of growth in the early years of starting out on your own, even when you’re experienced in business development.

Managing And Nurturing Clients Through The Lifecycle Of The Advisor-Client Relationship

August 26, 2019 07:02 am 1 Comment CATEGORY: Client Trust & Communication

Over the past decade, the financial advisory industry had continued to shift away from being primarily sales-based (where every new year starts off with little to no income, and there’s immense pressure to always be finding the next new client) and towards a recurring revenue model (typically based on AUM fees). The good news is that, after a few years of building such a recurring revenue business, advisors can spend more time providing more and better service to their existing clients, without needing to worry as much about finding the next new one (since just keeping those recurring-revenue clients itself becomes very lucrative over time!). The bad news, however, is that advisors must also learn a whole new set of interpersonal and management skills to ensure they really establish and keep that ongoing relationship… skills that often have very little to do with the formulation and delivery of financial recommendations themselves. In other words, in the ongoing advisory business, one of the key challenges is learning how to manage and nurture those evolving client relationships (in the face of the clients’ own changing needs and expectations).

Accordingly, in this guest post, financial advisor Adam Pearce explains how client relationships can be viewed as developing across four distinct phases, potential pitfalls that an advisor may encounter through those stages, and the potential impact of client needs in each stage may have for an advisor’s workflows and client service models.

For instance, in the Onboarding Phase, new clients closely watch to see if the expectations that were set while the advisor was selling themselves and their services are being met (i.e., does the advisor really follow through on the quality of service they promised upfront?). Accordingly, it’s particularly important for the advisor to be especially proactive as accounts get set up and paperwork gets processed, and to make sure that there is frequent communication so the new client sees that their advisor is working hard on their behalf… to allay about doubts they may otherwise have about whether they made the right decision (to hire the advisor) in the first place. In other words, it’s not just about the paperwork itself, but an opportunity for the advisor to demonstrate – in how they handle and communicate about the paperwork – the advisor’s own service standards and affirm that the client really made a good decision.

As the relationship moves into the Feeling Out phase - which can span over the first few years, and, statistically speaking, is the most likely time that a client will decide to leave - advisors should focus on “excelling at the basics”, which means continuing to meet expectations, maintaining frequent contact, and cementing a personal connection with the client… which could even include getting to know them socially as well.

After those first few years, though, the ongoing relationship enters the Maturity Phase, which is often characterized by a decline in the frequency of client-initiated communication… not because they don’t see as much value in the service they are receiving, but because their comfort level typically grows to the point where they trust that their advisor is doing their job and don’t feel such a need to check in as often. Yet, it’s still essential that the advisor continues to proactively engage with the client to make sure everyone is on the same page when it comes to such things as how often they should come in for in-person meetings. Even if clients aren’t asking for more meetings, the advisor still gets credit for offering them.

Eventually, a Transition Phase will emerge, where the client faces some major change in their life (e.g., divorce, career changes, retirement, or health issues). Which in turn has the potential to put new strains on the advisor-client relationship. Which means it’s more important during this phase that the advisor once again is being effective at handling the little details, but making sure they’re adapting and changing along with their clients’ new needs and preferences, and are again actively reaching out to stress the importance of proactive planning during these major transitions.

Ultimately, though, the key point is simply that advisors need to be aware of the changing stages that client relationships will go through over time, so they can take advantage of the various opportunities they have to deepen the relationships they have with their clients (which do, in fact, vary by stage). And the best way to make that happen is by having processes and workflows in place to ensure a consistent level of service… because if advisors can’t even handle the basics smoothly, it creates doubt in the mind of the client, while those advisors who can deliver reliably on the fundamentals help assure clients that they can know what to expect… and will trust that their advisor is taking care of them!

Weekend Reading for Financial Planners (August 24-25)

August 23, 2019 02:58 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with new guidance from the SEC that is taking an increasingly tough look at proxy voting and how RIAs (and the proxy advisers who give them guidance) are voting their proxies in an age of rising shareholder activism (suggesting that there may be another shoe to drop with additional proxy voting guidance in the coming year as well).

From there, we have several marketing-related articles this week, including a look at how the best approach to prospective clients is better understanding what their biggest worries are (recognizing that when clients feel truly understood after having been asked good questions, they often just presume the advisor will have the skills to solve their problems anyway), a good "probing" question to ask to better understand prospective clients' real needs, a look at the wide range of reasons that clients actually hire an advisor (hint: it's not just about solving complex problems or helping them with financial ignorance, sometimes it's just for the convenience of delegating what they could but don't want to do themselves!), and ways to field the always-challenging question of "how much do you charge?"

We also have a few investment articles this week, from a discussion of what the inverted yield curve signals (or not), to why there's actually such a thing as being too diversified in stocks (at least for active managers who are actually trying to outperform), how liquid alternatives may not actually be much of a diversifier to equities (at least compared to just buying old-fashioned intermediate-term Treasuries), and how hedge fund alpha has continued to shrink over the past decade from what appears to be "too much" interest from institutional investors that caused hedge funds themselves to shift their focus and business practice (in not-entirely-positive ways).

We wrap up with three interesting articles, all around the theme of working long hours and the importance of finding balance: the first is an interesting research study that finds it's not actually working long hours that can cause adverse health effects, but specifically having a workaholic mentality that isn't able to disconnect from work (even after the long work hours are over); the second provides a powerful reminder on the importance of delegating in order to grow; and the last points out that while being "busy" is almost worn as a badge of honor in modern culture, in practice it's often just a signal that someone is doing a poor job prioritizing their work and their focus... which means instead of just trying to be Busy, it's better to try and find Balance by truly prioritizing what really matters most, and learning to let go of the rest that doesn't really matter in the end (because, by definition, it wasn't the greatest priority!).

Enjoy the "light" reading!

How Qualified Opportunity Zone Funds Create Unique Estate Planning Challenges For Beneficiaries

August 21, 2019 07:21 am 2 Comments CATEGORY: Estate Planning

The Tax Cuts and Jobs Act of 2017 made substantive changes to the Internal Revenue Code and in the process, created several new provisions, including “Qualified Opportunity Funds” (QOFs), which were designed to encourage taxpayers to invest in certain low-income (and also newly created) “Qualified Opportunity Zones” (QOZs) by offering some particularly unique (and potentially potent) tax benefits. Specifically, by investing into a QOF, a taxpayer gains the ability to defer taxes from the sale of any asset (including intangible assets like stocks), as long as the portion of the proceeds attributable to the capital gains on the asset that’s been sold are reinvested into a QOF within 180 days. Moreover, the portions of those deferred capital gains reinvested into the QOF are eligible for potentially two partial basis increases (once after five years and again after seven years), and if the investors hold the QOF for at least ten years, then all of the tax attributable to the gains of the QOF, itself, are completely eliminated if the QOF is sold.

Of course, such tremendous tax benefits don’t come without potentially prohibitive caveats, and there are many when it comes to QOFs. Specifically, capital gains on the sale of an asset that aren’t reinvested (on a timely basis) into a QOF by December 31, 2019 (a little over 4 months from the date this article was published) won’t be eligible for all of the available basis increases. Moreover, any still-deferred gain will become taxable either when the QOF is sold, or at the end of 2026 (whichever comes sooner).

Older potential QOF investors, or those with predictably shorter life expectancies, should also be aware of the disadvantages to beneficiaries who inherit a QOF. Typically, assets originally purchased with non-retirement funds receive a “step-up” in basis upon the death of the owner, giving the beneficiary the opportunity to sell the asset with little to no tax consequence. However, the gains that were originally reinvested into a QOF do not receive a step-up in basis, but instead, become income in respect to a decedent (IRD). Which means that QOFs tend to make poor estate planning vehicles, particularly when compared to other potential options. Plus, given the forced inclusion of any still-deferred gain at the end of 2026 and the extremely illiquid nature of QOFs, a beneficiary with limited other financial resources could find themselves between the proverbial “rock” and “hard place."

Ultimately, the key point is that for many older investors (or younger investors with shorter life expectancies), there may be better alternatives than a QOF, especially when considering the potential benefits, or lack thereof, for their heirs. Some of these include, not selling the asset in the first place (and waiting instead to simply bequest an appreciated asset, which will eventually receive a step-up in basis), maintaining the eligibility for a step-up in basis by using a 1031 exchange (but only in the case of real property), or making use of a charitable trust. Although QOFs do offer several unique and useful tax benefits that can’t be found in any other vehicle, older investors, in particular, should look carefully at more mainstream gain management strategies before going down the QOF road.

#FASuccess Ep 138: Leveraging A Media PR Strategy To Attract Ultra-High-Income (Millennial) Clients, with Douglas Boneparth

August 20, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 138th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Douglas Boneparth. Douglas is the founder of Bone Fide Wealth, an independent RIA based in New York City that manages nearly $80 million of assets under management for 100 client households.

What's unique about Douglas, though, is that after starting out in a fairly traditional broker-dealer business model serving affluent retirees, he decided to shift and focus on serving a niche of very high-income millennials, most of whom make half a million to $1 million per year in income.

In this episode, we talk in depth about Douglas's niche of working with ultra-high-income millennials. Why he chose to invest so heavily in a younger clientele that's investing in themselves with high student debt loads that often precede their high-income jobs, the way he structures his fee as a combination of a traditional AUM fee plus a flat annual planning fee of $2,000 and $10,000 that's waived once the client reaches half a million of assets under management, because his clients are so high income, they often reach his asset minimums quite quickly, and how he's been able to be so effective with a media- and PR-driven marketing strategy that he's used to attract such high-income millennial clients to himself in the first place.

We also talk about how Douglas structures his own advisory firm. The reason he decided to transition from being a registered rep with Commonwealth as his broker-dealer to become an independent RIA but stay with Commonwealth to provide his RIA support services, why he decided to stop implementing term insurance policies himself for his clients even though he views life insurance as a critical element of the financial plan, and how he sees the rise of millennial-oriented do-it-yourself technology platforms and financial services as the key to being able to work with and support his own millennial clients.

And be certain to listen to the end, where Douglas shares his views on why the industry still has such a difficulty attracting millennials to become financial advisors, his own advice for young advisors looking to get started in the advisory business on how to navigate the sales culture that still exists at many large firms that do the bulk of the industry's next-generation hiring, and the path he pursued from starting out in his father's advisory practice to eventually deciding to break the traditional industry mold and build the advisory business he wanted to build for himself instead.

Financial Planning Software Doesn’t Make Advisors Faster… It Makes Them Better

August 19, 2019 07:12 am 2 Comments CATEGORY: Technology & Advisor FinTech

One of the biggest challenges of planning ahead – whether with respect to our finances, or anything else in life – is that it takes time. It takes time to sit down and think about the possibilities, how they might play out, and what must be done to reach the desired goal. And for an advice-giving professional, the time to support the planning process can be even more arduous… as it both takes time to do the planning and analysis itself, plus the time to gather all the relevant information up front, and translate it into advice that can be presented and implemented.

Consequently, it is perhaps not surprising that one of the biggest hindrances to the delivery of financial planning is simply the time it takes. As according to our recent Kitces Research study on “How Financial Advisors Actually Do Financial Planning”, the typical financial plan takes 10 hours to construct, and the average financial planner spends a whopping 34.5 hours on the entire financial planning process through the first year of working with the client (from establishing the relationship and data gathering, to analysis and crafting recommendations, along with plan presentation, implementation, and monitoring). Which severely limits how many clients a typical financial planner could even handle (to generally no more than 2-3 new clients per month at the most!).

In theory, the repeatable nature of the financial planning process would be highly conducive to technology – i.e., financial planning software – simplifying the process, and making it more efficient and less time-consuming. Except as it turns out, there actually is no apparent relationship between the use of (more efficient) financial planning software and time-savings in the financial planning process.

In fact, it turns out that advisors who use account aggregation tools to better automate (and streamline, and reduce the time for) the data gathering process end out spending more time in the data-gathering phase – as faster quantitative data collection supports an even-more-in-depth qualitative discovery process with clients. And more generally, the most highly-rated financial planning software amongst advisors is the software that takes the longest to use and is the most comprehensive and customizable… because it also happens to be the most comprehensive, and therefore the most effective at helping the advisor to actually demonstrate their value.

The significance of these findings is that it suggests broker-dealers seeking to grow adoption of financial planning by purchasing “simpler, faster, and easier-to-use” financial planning software may be misguided, as planning software is not actually the time-saving tool it was once presumed. It helps advisors go deeper into planning, not faster through it… which makes it not terribly useful to brokers who aren’t interested in the planning process in the first place.

Instead, it turns out that the single greatest path and predictor of time-savings in the financial planning process is whether the advisor has their CFP certification in the first place. Or stated more simply: making financial planning more efficient (and more widely adopted in a large enterprise) is primarily an advisor training issue, not an advisor software issue.

On the other hand, there’s still substantial room for financial planning software companies to increase their own value proposition by developing what their financial advisor users actually want and need, which is not “simpler” financial planning software, but instead to become even more comprehensive and in-depth, to help financial advisors get even better in creating and demonstrating value to their own clients!

Weekend Reading for Financial Planners (August 17-18)

August 16, 2019 02:58 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the release of the latest edition of Morningstar's "Mind The Gap" study, which analyzes investor returns based on asset-weighted flows in/out of mutual funds and ETFs, and finds that while the behavior gap does persist, it is "just" about 0.45%/year over the past decade, and is actually positive (i.e., investors on average outperformed) when it comes to asset allocation funds (as the low volatility of such diversified funds appears to drastically reduce the tendency to try to market-time them in the first place).

From there, we have a number of insurance-related articles this week, including a discussion in The Wall Street Journal of Madoff-whistleblower Harry Markopolos who claims that GE and its long-term care insurance unit in particular may be "the next Enron" and that the LTC insurer has understated its future liabilities to the tune of $10s of billions, how the pricing of insurance products (or the participation rates of fixed indexed annuities) is deteriorating in the face of now-falling interest rates, and a new Private Letter Ruling from the IRS that will allow RIAs to receive their advisory fees directly from a fee-based annuity without triggering a taxable event (and in fact, will effectively be paid by the client on a pre-tax basis for any annuity with embedded gains!).

We also have several practice management articles, from the ongoing rise of non-compete agreements at RIAs to prevent employee advisors from taking clients when changing firms (notwithstanding the fact that RIAs historically have been the bastion of no-hands-tied independence), to the business management hazards of valuing an advisory firm based on a multiple of revenue alone, the "exploding" number of options for advisory firms to borrow in order to acquire other firms, the practical challenges of trying to grow by acquisition and actually close on and integrate a newly acquired advisory firm, and the practical value of benchmarking studies as a means to not just evaluate the firm's AUM and growth relative to peers but also its productivity and efficiency in allocating its resources across the firm.

We wrap up with three interesting articles, all around the theme of how to actually make a good decision: the first looks at the "anatomy" of a Great Decision, which ultimately comes down to making a principles-based decision, and using a broad multidisciplinary lens to consider the issue from all angles before making the decision; the second looks at how thinking about decisions more probabilistically as "bets" is a better approach that naturally considers the role of luck and hidden information (and recognizes that the key to a good decision is not to guarantee a good outcome, but simply to minimize the odds of a bad one); and the last discusses the so-called "37% rule", that the best amount of time to allocate to a decision is 37% of the total time designated to the project (but after 37% of the time has passed, it's time to execute the decision and do the best you can with whatever you've got at that point!).

Enjoy the "light" reading!