Nerd's Eye View blog

Weekend Reading for Financial Planners (Mar 16-17)

March 15, 2019 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the mega-news that Envestnet is buying PIETech, the maker of MoneyGuidePro, for a whopping $500 million as Envestnet seeks to further expand itself into a holistic "financial wellness" technology platform.

Also in the news this week was the news that the SEC's "Share Class Selection Disclosure" initiative has culminated in 79 investment firms agreeing to return $125 million in inappropriately collected or improperly disclosed 12b-1 fees in their hybrid broker-dealer relationship with the client, another study reinforcing that while consumers still don't trust the financial services industry they overwhelmingly (97%) trust their own individual financial advisor, the revelation that this week's College Admissions scandal actually emerged as a tip-off to Federal investigators from someone seeking leniency in a securities fraud case, the news that Ameriprise is getting ready to launch a retail bank (so their advisors will be able to offer banking products to their clients), and a new advisory firm loan platform from SkyView Partners that will allow firms looking to merge, acquire, or complete a succession plan to bid out their loan needs to more than a dozen different banks at once.

From there, we have several insurance-related articles this week, including the news that Genworth (the largest long-term care insurer) is indefinitely suspending sales of traditional long-term care insurance through advisors and instead will rely solely on direct-to-consumer telesales instead (a potentially chilling trend for the availability of long-term care insurance to advisors from other carriers in the future), a good primer on the rise of "structured annuities" with various Buffer and Guard strategies to partially protect against downside, and an interesting look at how a decade of "unexpectedly low" interest rates have caused life, annuity, and long-term care insurers to make changes to their policies and premiums that have adversely affected both advisors and their clients.

We wrap up with three interesting articles, all around the theme of the brain and how it works: the first takes an interesting look at the connection between our brains and exercise, particularly running, and the ways that running appears to stimulate our brain functions (for which we may have had an evolutionary bias in the first place); the second explores the emerging research on why the brain is so "noisy," and how the difficulty in being able to silence our brains may not necessarily be a result of "faulty wiring" but instead part of the brain's learning mechanisms and how it is able to take in so much information in a wide range of contexts; and the last looks at how, because human beings must take in information to survive, but also exist as "herd animals," that sometimes our need to be right can conflict with our need to feel socially connected... thus helping to explain why sometimes we'll ignore factual information that might otherwise change our beliefs (because it would also disrupt our social connections), and how the key to really changing someone's mind is to start by being more connected to them socially so the "leap" to new information doesn't require such a socially disruptive leap of faith as well.

Enjoy the "light" reading!

How Can FPA National Account For Its Chapters When It Can’t Account For Itself?

March 14, 2019 01:55 pm 0 Comments CATEGORY: Planning Profession

When the Financial Planning Association recently announced its OneFPA Network initiative to consolidate its chapters, a key aspect was to gain operational efficiencies and leverage the FPA’s economies of scale by fully centralizing the accounting of all 86 of its chapters. The systems overhaul would require a substantial initial investment – estimated at more than $300,000 – but with the end result of all chapters being relieved of the burden of chapter accounting and instead simply receiving monthly financial reports directly from National.

Yet part of the controversy of the OneFPA Network initiative is that FPA has been experiencing its own deterioration of financials over the past decade, with revenue down by millions of dollars since the financial crisis impacted the financial advisor community, raising questions of whether the FPA is simply trying to consolidate its chapters finances so it can get access to available chapter cash reserves and annual surpluses.

To rebut concerns about FPA’s financial state of affairs, the organization conducted in late January a first-ever “Overview of National Finances” to its chapter leaders, which did candidly acknowledge that the organization’s revenue has dropped by nearly $4M from a decade ago, but noting that membership revenue is actually up over that time period, and emphasizing that FPA’s finances have stabilized since the downturn. Except, as it turns out, the historical trends that the FPA presented didn’t even match its own published Audited Financials, to the tune of nearly $1.5M revenue per year for several years, and a cumulative mismatch of nearly $8M of 'missing' revenue over the past decade.

In addition, it’s notable that since 2015, the FPA stopped distributing its Audited Financials to members altogether – ironically a self-violation of the FPA’s own “Information and Transparency Policy” – and only began distributing a more limited financial summary in its Annual Report. Which itself was excluded from its just-released 2018 Annual Report, leaving FPA’s own membership entirely in the dark about its current financial state (except, again, for a recent webinar that reported numbers failing to match FPA’s already-published Audited Financials to the tune of $8M of missing revenue). Even as the webinar did concerningly highlight a substantial $700k drawdown in FPA’s available cash over the past year, which appears to be attributable primarily to a significant decrease in the FPA’s deferred revenue… a potential signal that its actual revenue is about to deteriorate further.

Fortunately, the reality is that the FPA does have a demonstrated track record of managing its expenses (i.e., cutting staff and costs) in-line with its revenue, and as a result, its available reserves have remained stable throughout its financial turmoil of the past decade. Which suggests that the FPA may not literally be in any kind of “financial distress,” but simply that the organization’s revenue is declining more substantially than it has previously implied… which should be a concern for a National Board that, thus far, has not held its staff leadership accountable for the decline.

More broadly, though, the key question is simply this: how can the FPA move forward with the OneFPA Network and confidently and transparently account for its chapters – which is at best an extremely time- and labor-intensive tasks when committed to monthly reconciled reporting – when the National organization can’t even effectively (and transparently) account for itself?

How The Tools Of Financial Therapy Can Improve The Delivery (And Follow-Thru) Of Financial Planning Advice

March 13, 2019 07:03 am 0 Comments CATEGORY: General Planning

The fundamental purpose of financial planning is to help clients make better financial decisions to achieve their financial goals – and hopefully to feel happy or empowered along the way by having made those decisions. Yet as most financial advisors know from experience, getting clients to make better decisions (and ones that they feel happy about) is not so easy in practice.

Clients do not always listen. Clients don’t always follow through on the advice they are given. And sometimes clients even do things that truly worry us, and actually endanger their financial health in the process. And unfortunately, there is remarkably little training on what financial advisors should actually do in such instances!

In this guest post, Meghaan Lurtz, our Senior Research Associate at Kitces.com, explores how the tools and techniques of Financial Therapy could be that research-based solution that financial planners may want to give some serious consideration to for training on how to deliver better advice that actually sticks, and to learn to better help clients actually help themselves. Perhaps even more so than the recently in-vogue Behavioral Finance research, which in practice is more focused on categorizing the problem behaviors that clients tend to express, than what financial advisors can and should actually do about it.

For instance, Financial Therapy utilizes techniques like Solution-Focused Therapy (SFT) to help clients figure out what skills they may already possess to overcome their own (financial) challenges. Financial Genograms provide a means to unearth clients’ financial family history and how the relationships around them may be influencing their money behaviors. And exercises like “What Do You Believe” help to unearth and explore money scripts that may cause clients to get stuck in a financial rut, as their sometimes subconscious limiting beliefs sabotage their ability to make good financial decisions.

Of course, the reality is that at some point, problematic financial behaviors cross the line from something that a financial planner can help with (even one trained in financial therapy techniques), into a bona fide psychological disorder that merits a referral to a qualified mental health professional. Nonetheless, a wide range of financial therapy tools and techniques can be applied by financial planners in their routine work with clients, in an effort to help ensure clients actually follow-through on the advisor’s recommendations, and the client’s own financial decisions and commitments.

And fortunately, with the rise of organizations like the Financial Therapy Association, and new educational programs like the Certified Financial Therapist (CFT) designation, there are more opportunities than ever for financial planners to explore the tools and techniques of financial therapy and how they can be applied in a financial planning context with clients!

#FASuccess Ep 115: Building The Confidence To Turn A Personal Mission Into An Advisory Firm Niche, With Hilary Hendershott

March 12, 2019 07:07 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 115th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Hilary Hendershott. Hilary is the founder of Hendershott Wealth Management, an independent RIA based in San Jose, California that oversees nearly $75 million of assets under management.

What's unique about Hilary, though, is the way she's crafted a niche of not just serving, but trying to empower women clients, with a combination of both her traditional financial planning offering, a coaching program for women trying to accumulate wealth, and a very successful podcast focused on empowering women to take control of their finances.

In this episode, we talk in depth about how Hilary has been able to bring in an average of nearly $20 million of assets per year for the past 3 years through her podcast and website. What she talks about on the podcast to connect with her listeners and who it is she tries to attract, how she set up and launched her podcast, even though she's not a techie herself, and how she overcame her impostor syndrome fears to launch the podcast in the first place.

We also talk about the initiatives that Hilary has launched to try to further scale her services to clients. From a series of one-to-many online courses to teach wealth building skills, to a service called Ignite Investing that heavily leveraged technology to support working with smaller client accounts, to her current coaching program called the $50K Wealth Multiplier Experience, where Hilary does deep-dive coaching with women building wealth and is successfully charging $10,000 per year for her financial coaching services, entirely outside of her traditional financial planning offering.

And be certain to listen to the end, where Hilary shares how her own role as a business owner has evolved over the years. How she built her own self-confidence as a financial planning professional, why Hilary no longer works with a business coach herself and what she's doing instead, and why she continues to stay rooted in her financial planning practice, even as she continues to try to build more courses and grow her coaching clients as well.

Navigating the Financial Planning World as a Person of Color

March 11, 2019 07:07 am 2 Comments CATEGORY: Planning Profession

Despite the financial services industry’s ongoing efforts at improving racial diversity, only 3.5% of CFP professionals are black or Latino… a revealing statistics for not only the underrepresentation of people of color in the industry but that simply trying to expand awareness of financial planning and invite more diversity into the industry is not enough to move the needle.

In this guest post, Eugenié George, a prospective new financial advisor studying for her CFP certification to enter the industry, shares her own perspective on the real-world challenges in entering financial planning as a person of color. Starting with the understanding that, due to a history of financially-related racial discrimination in the US over the past 200 years, many communities of color do not have the same accumulated wealth and positive connection to the financial services industry in the first place. And it’s hard to enter financial planning – and have support from family, friends, and your community to enter financial planning – when the community’s history with the financial services industry is so negative in the first place.

In addition, Eugenié shares her own path and journey into the financial services industry, how she has built a “network map” of people to reach out to and connect with to mentor and find opportunities, how to identify your own “superpower” skills that will help you get your foot in the door for a job opportunity, how to navigate the financial challenges of taking one step back to take two steps forward into the industry, and how to manage the fact that, as a person of color, you will inevitably “stand out” in an industry that is still more-than-90% white.

Fortunately, though, a growing understanding of the historical context and challenges of communities of color with the financial services industry provides a foundation for today’s existing advisors to become “allies” and help to build more effective pathways and support for people of color to become CFP professionals of color in the future.

Weekend Reading for Financial Planners (Mar 9-10)

March 8, 2019 02:40 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with yet another round of warnings from the SEC at a recent compliance conference that they continue to scrutinize hybrid RIAs for whether they're using the appropriate (lowest-cost) share class for any mutual fund held in an advisory or wrap account for which the advisor is already receiving a separate fee (including now when it comes to 529 plans as well).

Also in the news this week were two proposed bills in Congress that would ban mandatory arbitration (not specifically targeted at financial services, but nonetheless potentially disrupting industry-standard mandatory arbitration clauses in brokerage and many advisory agreements), and a new succession planning program from Wells Fargo that could make it feasible for wirehouse brokers to get paid as much as an independent RIA does to sell their practice (but without needing to leave the wirehouse in order to do so)!

From there, we have several articles around practice management and employee development and retention, including a discussion of what it means to craft a good employee experience, how to more effectively make new employees feel included from day 1 (so they don't get disengaged as leaders/managers tend to take input more from existing employees who have existing relationships), the rise of in-house "universities" at larger advisory firms to both develop their talent and better attract next generation advisors, why even though toxic employees tend to be more productive than average their cost to the firm in the aggregate still exceeds their productivity benefits, the business impact of having stressed-out workers, and why, despite their popularity, advisory firm bonuses for business development often don't work (especially if their purpose is to get advisors not already doing much of any business development to try to start).

We wrap up with three interesting articles, all around the theme of how the industry itself is changing: the first looks at how, as the role of the financial advisor changes, so too is the requisite skill set to succeed as a financial advisor of the future; the second explores whether wirehouses can really be successful in launching their own RIA platforms to try to prevent their entrepreneurially-minded brokers from leaving to start their own independent RIAs; and the last raises the question of whether the real transformative opportunity in the industry is not to lift the fiduciary duty of loyalty (that advisors must act in their clients' best interest and mitigate conflicted compensation), but simply to lift up advisors' educational standards so it's more likely that when a consumer engaged a financial advisor, he/she really has the "substance" to deliver in-depth quality financial advice in the first place!

Enjoy the "light" reading!

Maximizing The Pre-Tax Treatment Of Investment Advisory Fees After TCJA

March 6, 2019 07:01 am 2 Comments CATEGORY: Taxes

One of the many changes made by the Tax Cuts and Jobs Act of 2017 was the repeal of miscellaneous itemized deductions through 2025… which was especially concerning to many financial advisors, as it included the elimination of the deduction for investment advisory fees! Of course, the reality is that not all taxpayers were eligible to claim a deduction for advisory fees in the first place, as not only did it require the taxpayer to itemize and exceed 2% of the taxpayer’s AGI along with other miscellaneous itemized deductions… but even then, could be lost to the alternative minimum tax (AMT). Still, though, many clients of advisors have been impacted by the loss of the deduction for advisory fees… and are now looking for any opportunity they can find to reduce the repeal’s impact and still get at least some tax benefit for advisory fees paid.

One “simple” way to help clients retain the pre-tax nature of advisory fees is to find a bona fide way to continue deducting the expenses. For instance, although advisory fees are no longer deductible as miscellaneous itemized deductions, ordinary and necessary expenses of a business continue to be deductible under IRC Section 162. Thus, for clients who are small business owners, a portion of the total advisory fee may be deductible as a business expense, at least to the extent that business-related advice (i.e., succession planning, retirement plan services, business-related tax strategies, etc.) has been provided. Though notably, only payments made from taxable accounts (i.e., not retirement accounts) could potentially qualify for this treatment, and deducting advisory fees from the business may be even more complex for those who are not sole proprietors, and must logistically manage to pay the advisory fee (or a portion thereof) from a business account and not the owner’s individual investment account.

Another way that advisors can help clients mitigate the impact of the loss of the deduction for advisory fees is to help clients pay fees from the most efficient source. As fortunately, AUM-style investment advisory fees for a client’s retirement account (i.e., a traditional IRA or a Roth IRA) can actually be “pulled” directly from the applicable retirement account, allowing the expense to continue to be paid with pre-tax dollars (at least when pulled from a pre-tax retirement account in the first place).

Hybrid advisors (i.e., those with both an RIA and broker/dealer affiliation) may also wish to reevaluate when it is in a client’s best interest to have them pay for the advisor’s services with advisory fees, as opposed to commissions. As ironically, while the financial “advice” industry has steadily been moving away from commissions and towards fees, the Tax Cuts and Jobs Act gives a distinct tax preference paying advisors via commissions over fees! Because, while commissions are not deductible, per se, they can add to the cost basis of a position (such as a commission paid for the purchase of an individual security), reduce the proceeds of a sale (such as a commission paid for the sale of an individual security), or reduce the amount of taxable income produced by an investment (such as the 12b-1 fee commission paid by mutual funds) before the income is, in turn, passed through to the investor. All of which are more tax-efficient means of compensating a financial professional than advisory fees.

And when it comes to standalone RIAs, while they cannot receive commissions for the sale of securities (to get pre-tax treatment for their clients), RIAs may still benefit from the use of mutual funds or ETFs, by turning their investment models into such funds. By doing so, RIAs can bill their advisory fees as a management fee to the fund itself, which means clients effectively pay the RIA’s fee via the mutual fund/ETF’s expense ratio on a pre-tax basis. Unfortunately, though, the creation and maintenance of a mutual fund or ETF - and potentially multiple funds for multiple advisor model portfolios – can add a significant level of operational overhead to a firm. And even for larger firms that may be able to absorb such costs, there are still other issues to contend with, including up-ending the firm’s entire business model, and the fact that packaged funds, when held in taxable accounts, are generally not as tax-efficient as separately-managed accounts holding identical positions (from a tax loss harvesting perspective).

Alternatively, some advisory firms may look to limited partnerships as another potential method of mitigating the loss of the deduction for advisory fees, by again trying to claim the RIA’s fees as a “management fee” for the business, rather than a pass-through expense of the investment partnership. Though whether or not such a partnership would qualify as a true business – as opposed to an investment – would be of the utmost importance (as absent business status, expenses of the partnership would again be deemed non-deductible personal investment expenses), and is, unfortunately, a very grey area. A clearer path would be for advisory firms to instead opt to be compensated via a “carried interest” as a general partner, which is effectively treated on a pre-tax basis for the client… except even in the best of circumstances, such partnerships would likely be operated as private securities (limiting their availability to primarily high-net-worth and other accredited investors), and by definition, a carried interest payment is a performance-based fee (that most advisory firms wouldn’t want to operate by in the first place?).

The bottom line, though, is that while the loss of the deduction for investment advisory fees may be painful for many, there are still at least some ways that financial advisors and institutions can help their clients pay investment related expenses in a tax-efficient (pre-tax) manner!

#FASuccess Ep 114: Why Creating A Great Client Experience Is About More Than Just Great Service, with Dennis Moseley-Williams

March 5, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 114th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Dennis Moseley-Williams. Dennis is the founder of DMW Strategic Consulting, a boutique consulting firm that works with financial advisors in how to design and deliver a great client experience.

What's unique about Dennis, though, is that he's not simply focused on how to improve client service, but that he's trained and studied under Joseph Pine, author of the seminal book, "The Experience Economy," and has specialized in applying "The Experience Economy" concepts specifically to the domain of financial advisors.

In this episode, we talk in depth about the difference between simply giving better client service and a truly distinct client experience. How the focus of better service is to save client's time and money, but a great client experience is about ensuring that the client's time is well spent. How the delivery of a great client experience starts with viewing everything about your financial planning process as an experience to be staged for clients, and why in the end it's not just about what you do for clients but what change for the better you help to create in their lives.

We also talk about the practical steps to take to start adapting your firm towards delivering a better client experience, starting with how to more effectively target who you want to serve by taking a niche, niche, weird approach to identifying your target clientele, why it's so important to develop a theme to the experience you're trying to create for your ideal clients, why you should think of your advisory business as a stage and industry products and your financial plan itself as props in that staged experience, and how the challenge of creating a unique client experience that there's no clear instruction manual for how exactly to do it for your particular ideal clientele is part of what makes it so profoundly unique and differentiating in the marketplace.

And be certain to listen to the end, where Dennis talks about the importance of finding your own true authenticity and crafting unique client experience, and how in the end, building an advisory firm and a great experience for clients is really just about doing one great thing for one particular type of ideal client and then really going all in to own it.

So whether you're interested in learning about how you can leverage "the experience economy" for your advisory business, why discovering your "theme" as a financial advisor is so important, or actionable steps you can take to improve your clients' experience with you and your practice, then we hope you enjoy this episode of the "Financial Advisor Success" podcast.

The Latest In Financial Advisor #FinTech (March 2019)

March 4, 2019 07:07 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the March 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 mega-news that Envestnet has acquired PortfolioCenter from Schwab, and in the process, has stirred up a feeding frenzy of what may be once-in-a-lifetime deals as all the major portfolio performance reporting solutions compete for the nearly 2,000 legacy PortfolioCenter users that are now in transition.

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

Commonwealth spins off its proprietary broker-dealer operating system and advisor tools into a standalone entity, Advisor360, and then promptly licenses it out to MassMutual’s 9,000 brokers
Cetera stakes a new direction in the post-product future of the broker-dealer model with a “fee-for-service” advice initiative using AdvicePay
OnPointe Risk Analyzer launches a new Riskalyze alternative that aims to compete not just on risk tolerance assessment but marketing capabilities as well
FA Match raises a $500k seed round and builds a broker-dealer recruiting matchmaking platform for independent brokers looking to make a switch

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including the latest new “Multiple Opinions” and “Timeline” features announcements from Riskalyze, Chalice Financial Network’s acquisition of SuccessionLink as a channel to recruit new advisors, PreciseFP launches a standalone “digital onboarding” solution with SSG that does not require advisors to change client portals and portfolio performance reporting solutions, and Yourefolio launches a new drag-and-drop estate plan flowcharting tool (at least for the subset of advisors still doing estate planning flowcharts!).

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 (Mar 2-3)

March 1, 2019 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a fascinating study from Morningstar, which finds that, even as financial advisors increasingly frame "behavior management" as a key value proposition, consumer research ranks "helping me control my emotions" as dead last amongst the benefits of working with a financial advisor, instead showing a preference for more tangible benefits like the advisor's relevant skills and knowledge, how well the advisor communicates, performance results, and actually achieving financial goals.

Also in the news this week was a big announcement that Bank of America is dropping the Merrill Lynch name from its investment banking unit, consolidating the Merrill Lynch Private Banking and Investment Group (PBIG) into just Merrill Private Wealth (removing the "Lynch"), and retiring the 165-year-old U.S. Trust brand altogether... and raising the question of whether the days are numbered for the entire Merrill brand itself. And there's a fascinating discussion from Bob Veres about whether FPA chapters should consider "seceding" from the FPA to form a new "CFP Society" that would fulfill the original founding vision of the FPA to be the home for CFP professionals (while the FPA itself has declined from nearly 50% to barely 20% market share of CFP certificants since 2000).

From there, we have several articles on spending and cash flow decisions, from research that suggests social media (and the rise of modern media in general) may be helping to drive the ongoing decline in the National Savings Rate in recent decades, the rise of "stealth wealth" behavior for those who don't want to live ostentatiously (whether to avoid being solicited as a "wealthy" person, or simply to help find social circles that don't encourage profligate spending), research on the habits of wealth accumulators that differ from everyone else, a fascinating series of interviews with people who had "sudden wealth" events about how they really handled the money, the ways our spending does (or often doesn't) really align with our values (as an alternative way to determine whether we're "living within our means"), and why perhaps society needs to become more cognizant of - and more sympathetic towards - the fact that even households living within their means and exercising financial discipline are often still exposed to significant "financial fragility" as well.

We wrap up with three interesting articles, all around the theme of finding and building our own career path: the first explores the research of what it really means to "find your passion" or calling, and how it turns out that you're more likely to find a passion by simply engaging in something that's aligned with your values and having your passion for it build as you succeed (rather than trying to identify the passion and find the "perfect" passion job in the first place); the second provides a powerful reminder that almost by definition, you can't learn from experience until you're willing to do and experience something different than what you already do (which is why experimentation is so crucial); and the last is a fascinating reminder that while most people try to be good workers in their jobs, and find a good company to work for, that ultimately it's finding the right industry that may actually be most important to long-term career success, as even the best companies and workers may struggle in an industry that is shrinking, while a rising/growing industry tends to lift all boats (while providing an outsized reward to the top performers in particular).

Enjoy the "light" reading!