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Maximizing 2021 Recovery Rebate Checks: Strategies To Manage Income And Deductions

April 28, 2021 07:03 am 4 Comments CATEGORY: Taxes

One of the centerpieces of the $1.9 trillion American Rescue Plan Act recently signed by President Joe Biden was the establishment of a third round of coronavirus-related stimulus checks, officially a tax credit known as the 2021 'Recovery Rebates'. The maximum potential amount of an individual's 2021 Recovery Rebate is equal to $1,400 times the number of eligible individuals, which includes the taxpayer(s) themselves, as well as any dependents (not just limited to qualifying children) claimed by the taxpayer.

Those credits, however, phase out quickly over extremely narrow phaseout ranges. Yet, while the relatively modest income amounts at which a taxpayer’s 2021 Recovery Rebate credit is fully phased out will make it challenging for some individuals to qualify for the stimulus, the good news for many individuals is that there's the potential to receive the amount based on their 2019 income, their 2020 income, or their 2021 income.

More specifically, if, at the time the American Recovery Plan was enacted, the taxpayer’s AGI on file (generally 2019, but 2020 in the case of some early filers) was below the applicable phaseout range, taxpayers would generally have already received their 2021 Recovery Rebate. If the most recent year of AGI on file was 2019 (as was the case for the majority of taxpayers) and that AGI was too high to qualify for the taxpayer’s maximum potential 2021 Recovery Rebate, the American Recovery Act offers a second opportunity to receive a (larger) credit, based on the taxpayer's 2020 AGI, provided their 2020 tax return is filed before the Additional Payment Determination date. Barring any additional delays in the filing deadline for 2020 returns (beyond the current already-delayed filing deadline of May 17, 2021), the Additional Payment Determination Date is August 15, 2021.

Those who still haven’t received their full 2021 Recovery Rebate by the time they file their 2021 return will have one last chance to do so. To the extent that the AGI reported on the 2021 return is low enough to create a larger 2021 Recovery Rebate Credit than what the taxpayer has already received (based on their 2019 and/or 2020 AGI), the taxpayer will be 'trued up' via a credit on their 2021 income tax return.

Given the many ways in which a taxpayer can qualify to receive a 2021 Recovery Rebate credit, a non-trivial number of individuals can take action now, during 2021, that will enable them to receive a (larger) 2021 Recovery Rebate.

For many taxpayers, 2020 will perhaps represent the only year in which their income will be low enough to allow them to qualify for a 2021 Recovery Rebate Credit. In such circumstances, the Additional Payment Determination Date of August 16th really needs to be viewed as the taxpayer's de facto 2020 income tax return. For others, additional measures may be necessary to reduce their AGI enough to qualify for the maximum credit. Potential strategies that can be implemented now (in 2021) to reduce 2020 AGI include making deductible IRA contributions and/or HSA contributions, using installment sales to report eligible gains, maximizing the use of employer-sponsored retirement plans, and using accelerated depreciation options.

For those unable to use presently available strategies to reduce 2020 AGI enough to qualify for their maximum Recovery Rebate, 2021 provides increased flexibility and opportunity to drive down income. In addition to methods that can potentially reduce 2020 AGI, some taxpayers may also consider seeing if year-end bonuses can be paid in 2022 (utilizing the flexibility afforded to cash-basis businesses), reducing or eliminating planned Roth conversions, reducing portfolio income, or even taking a lengthy unpaid leave of absence/sabbatical from their employer!

Finally, married couples in separate property states can explore whether filing separate returns and ‘stuffing’ the lower-earning spouse’s income with all available dependents will allow that spouse to receive a big enough 2021 Recovery Rebate credit to more than offset any increase in income tax due to filing separate returns.

Ultimately, while not all taxpayers will be able to qualify for the maximum Recovery Rebate, many individuals whose incomes are closer to the 2021 Recovery Rebate Credit phaseout ranges have several sound planning strategies that can meaningfully increase the ultimate amount of 2021 Recovery Rebate Credit they receive, potentially relying not just on their income levels for the current year, but also on 2019 and 2020 income levels as well. Which also offers financial planners a range of strategies to help their clients maximize any Recovery Rebate credit due to them!

#FASuccess Ep 226: Building CPA Alliances To Reach A More Affluent Clientele To Serve, With Paul Saganey

April 27, 2021 07:02 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 226th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Paul Saganey. Paul is the President and Founder of Integrated Partners, a hybrid RIA headquartered in Waltham, Massachusetts that manages over $10 billion for about 18,000 affluent clients.

What’s unique about Paul, though, is how he’s generated hypergrowth for his firm through building strategic alliances with accountants, acting as a resource for CPA firms to build out their own “financial services divisions”, where Integrated Partners supports behind the scenes and the CPAs can remain the “heroes” for their clients throughout the process.

In this episode, we talk in depth about how Paul learned early in his career about the power of referrals from professionals with established relationships when he was an insurance agent creating estate plans for the high-net-worth clients of wirehouse advisors, how Paul expanded that model and generated initial success by doing financial and estate plans for partners at CPA firms, why it became clear for Paul that he needed to get really clear up front that while the CPAs still “owned” the client relationship, it was Paul’s responsibility to actually make and implement the recommendations, and how client relationships change when professionals each charge a separate fee for their respective services.

We also talk about the importance Paul places on being product- and solution-agnostic and having a platform where he can remain product- and solution-agnostic, his key decision in 2016 to re-examine his business model and ultimately form his own RIA (and how that set the stage for him to change his vision for his firm to gain a national reach), and the tremendous growth that Paul is now generating by attracting outside advisory firms who want to “tuck in” to Integrated’s CPA referral program and get themselves in front of higher-net-worth clients.

And be sure to listen to the end, where Paul discusses how “moving up the complexity curve” by working with wealthier clients helps advisors fight the “fear” of fee compression (as they are able to more consistently charge higher fees for providing advice on more complex needs), Paul’s vision for coming years for Integrated Partners to expand their reach by doubling the number of CPA firms that they partner with, and the “Who Not How” methodology that Paul has used throughout his career to not only become a better business leader, but find ways to collaborate with others to create synergies.

So whether you’re interested in learning how Paul built out Integrated Partners’ CPA strategic alliance program, how he’s leveraged that program to expand nationally, or why working with wealthier clients can help advisors combat the fear of fee compression, then I hope you enjoy this episode of the Financial Advisor Success podcast with Paul Saganey.

Persuading Prospects To Become Clients By Leveraging “Influence” Techniques

April 26, 2021 07:03 am 2 Comments CATEGORY: Marketing

Given the industry’s growing focus on delivering financial advice in the best interests of their clients and not ‘just’ selling them financial products, financial advicers are increasingly wary about associating their practices with “sales” techniques. However, the reality is that even those in the business of advice (and not product sales) who are confident their services are of great value to clients must still bring prospects to the door and convince them to hire the advisor and pay for that advice. Which means regardless of how knowledgeable or capable an individual advisor may be, or how well their expertise may fit a client’s needs, getting a prospective client to commit requires both expertise and persuasion.

In his book Influence: The Psychology of Persuasion, Robert Cialdini presents research that helps demonstrate how advisors can leverage three simple influence tools to better aid (and retain!) clients who may already be coming to an advisor for answers but still need a nudge to actually engage the advisor… ultimately allowing advisors to save time and help more people.

First, creating a perception of scarcity around what a financial advisor offers can crystalize the value of the advisor and motivate clients to action. One way this can be done is to use a scheduling approach that involves “surge meetings”, where advisors schedule prospects and clients in a very structured and condensed time period (and not offering meeting slots outside of those ‘scarce’ time windows). Not only is this helpful to free up time for the advisor to focus on firm infrastructure and other priorities, but the apparent scarcity of available meetings tends to discourage prospects who aren’t ready to commit to working with an advisor from signing up, yet motivates clients who are ready to sign up for coveted meeting slots to take action. Which means that the people with whom advisors meet are much more likely to be ready to act in concrete ways and implement recommended changes.

Cialdini also proposes the idea of consistency, whereby individuals tend to strive for behavior that aligns with how they identify themselves. Thus, if a client views themselves as a proactive doer (opposed to a passive drifter), they are much more likely to commit to taking action – and advisors can leverage the client’s tendency to behave consistently with their ideal self-image by speaking directly to ‘doers’ in their marketing. Additionally, a goals-based planning approach can be a powerful motivator by helping clients identify their financial planning priorities, such that they feel ‘compelled’ to follow through on their financial planning recommendations to ensure their behaviors will align with their ideal future self-image.

Finally, advisors can use reciprocity as a way to persuade prospects to become clients and ultimately build the advisor’s business. Letting prospects test-drive the client experience (by offering a free preview of available planning services) can attract prospects and increase referrals, as this gesture of reciprocity can demonstrate the advisor’s value and skill by offering a clear example of what is actually delivered to clients. Exactly what is given away to prospects, and how, is up to the individual advisor, but treating a prospective client as if they have already joined the team is a great way to ensure that they actually do join the team!

Ultimately, it is important to remember that clients investigate and hire financial advisors because they want help to reach their goals. Advisors who are client-focused and have a good advice service to market can benefit from using Cialdini’s principles to persuade potential clients who would benefit from their help to take the leap into hiring them. By using Cialdini’s research to adapt strategies for use with clients, financial advisors can remove some of the resistance that prospects may initially feel by promoting trust, allowing clients to realize the reason that they sought out a financial advisor in the first place!

Weekend Reading for Financial Planners (Apr 24-25)

April 23, 2021 02:59 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the industry news that Morgan Stanley is selling off the E*Trade Advisor Services platform to Axos Financial, a retail-focused online-bank-plus-robo-advisor that is looking to pivot into the business of RIA custody and use E*Trade's RIA custody unit (and its $13B of RIA assets) to immediately gain some economies of scale to compete in the RIA custody business.

In addition, there are several notable industry studies hitting the news this week, including:

EY reports that affluent clients want more "digital services", not in lieu of a financial advisor, but offered by their financial advisor (and are even willing to pay more to get them!?)
Spectrem Group highlights the services that clients want from a financial advisor to earn their fees, and finds that "only" 2/3rds even want investment management, which is now almost tied with the number who want financial planning (but not necessarily investment management paired with it!)

From there, we have several interesting articles on investments:

How establishing "financial habits" can be the best way to overcome the tension between what we "want" (in the short-term) and what we know we "should" do (but may struggle to do) in the long term
The five "superpowers" of being a good investor, including Restraint, Curiosity, Creativity, Patience, and Courage
A look at William Bernstein's new book "The Delusion Of Crowds" and why we have a tendency to invest with the herd (even if sometimes doing so leads us straight into a bubble!?)

We've also included a number of practice management articles on the theme of culture:

How independent firms by and large score well on culture (82% of advisors are proud of their firm's culture) but wirehouse firms are struggling tremendously on culture (with only 43% proud of their firms, and providing a key indicator of why the breakaway broker trend continues?)
Why it's better to hire for "culture-add" than just "culture-fit" alone
Tips for advisory firms to create a more data-driven culture where decisions are made on all available data (which must start with the firm's leadership itself)

We wrap up with three final articles, all around the theme of productivity and focus:

How a sense of "overwhelm" often isn't a result of being short on time, but doing work that is misaligned from our needs and values
How offering "Office Hours" to connect with other professionals can expedite networking in a time-efficient manner
How to find your own personal focus and decrease distraction with a personal Kanban system

Enjoy the 'light' reading!

Kitces & Carl Ep 58: Getting Mentally Unstuck From Thinking About Clients “Too Much”

April 22, 2021 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Over the past couple of decades, the financial advice industry has evolved from being based primarily on one-off transactions with dozens or often one or several hundred individuals that an advisor may interact with (often only once every few years), to being focused on providing ongoing advice for a tighter group of clients that the advisor meets with several times each year. One of the greatest features that has emerged as part of that evolution (and attracts people into the profession itself) is the depth of ongoing relationships that advisors develop with the clients they serve. The feeling of playing a key role in helping families reach their financial goals provides a high level of both personal and professional satisfaction, and can become deeply gratifying personally as those relationships last for several decades (and across multiple generations). Sometimes, however, advisors can become so attached to their clients that it becomes difficult to separate a client’s stress from their own… which can eventually take its toll on the advisor’s own health.

In our 58th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss some of the things that advisors can do to stop thinking (and worrying) about their clients quite so much, strategies to regain some mental health balance in their lives, and ways create (and maintain) some separation from work outside of regular office hours.

As a starting point, some initial steps advisors can take in order to stop thinking and worrying so much about whatever may be stuck in their heads is by simply writing it down! Whether doing it digitally (with a dedicated note-taking app like Evernote) or by going ‘old-school’ with a pen and paper, the physical act of just typing (or writing) out the client issue on the advisor’s mind can often have a purging effect, as it gives advisors a way to get whatever it is that they’re stuck on out of their heads and into a place where they know they’ll be able to go back to it… with the caveat being that they have to make reviewing those notes (at an appropriate time) part of their routine (but at the same time, can let go of the issue for the immediate time being!).

From there, advisors can become proactive about making small changes to their routines and habits around sleep, exercise, and diet, to preserve their own mental health. Incremental steps, like going for a mid-day stroll, doing anything that doesn’t involve a screen before going to bed, and turning off notifications from work-related apps after a specific time, can go a long way. Or, in other words, taking those incremental steps can help advisors put “air in their shocks”, which can help them build up the resilience they need to better react to and manage stressful situations as they do inevitably arise.

Ultimately, the key point is that financial advice is, at its core, a helping profession, and as such, attracts people who want to have a positive impact on other people’s lives. However, it's crucial for advisors to realize that they are also important, and if they don’t protect their own physical and mental health, they simply won’t be able to help their clients. By focusing on getting some exercise, eating healthier, getting better sleep, and jotting down whatever it is that’s stuck in their heads, advisors can be proactive about making sure that they’re able to serve their clients to the best of their ability!

Helping Clients To Stop “Thinking About It” (Contemplation) And Start “Planning It” (Preparation)

April 21, 2021 07:08 am 1 Comment CATEGORY: Client Trust & Communication

Financial advisors may often work with clients struggling to implement changes recommended by their financial plans. For many of these clients, moving forward can be difficult for a number of reasons. Fortunately, the Transtheoretical Model (TTM) of change is a research-based framework that gives advisors strategies to use with their clients who may be resistant to change. While the first stage of TTM is Pre-Contemplation, where clients may not yet have the awareness that change is important to their plan, the second stage of the TTM of change is known as the Contemplation stage. In this stage, clients have acknowledged the need for change and are beginning to think about the action needed to implement change. Perhaps more importantly, they begin to consider their own ability to carry out that action and what the action actually entails behaviorally (e.g., saving more) and emotionally (e.g., cutting down on buying new shoes, ordering coffee, and planning expensive vacations).

Like the other stages of TTM, the Contemplation stage has specific hallmarks. For instance, clients in this stage tend to display behavior characterized by what are known as the “two D’s”, Doubt and Delay. Clients may get stuck in this stage because they Doubt they have the requisite ability or knowledge to implement change (e.g., they may think that they can’t understand finances or that they don’t know enough to actually tackle the actions required), which can end their progress moving forward. Clients in this stage may also tend to Delay their progress. While Delay can sometimes be attributed to Doubts, fear of the future is another common reason for clients to Delay. Those who are stuck in the Contemplation stage must resolve their issues with Doubt and Delay before they can successfully move on to the next stage of change.

Financial advisors seeking ways to work with clients stuck in the Contemplation stage may find that worksheet tools, adapted from original research by James and Janice Prochaska, can be a useful way to help clients overcome resistance and gradually move through the next stages of change to accomplish their desired goals. These worksheets focus on reducing the negative ‘cons’ that clients have associated with the change and that hold them back from moving forward. They also aim to emotionally activate the clients by helping them understand how the impact of their actions affects others around them. These tools offer an easier, systematic process, so there is less guesswork for the advisor when trying to figure out how best to help clients move forward into the Preparation stage.

Ultimately, the key point is that there is a systematic process of implementing change, and by applying the research that's based on TTM, advisors can better understand what specific issues their clients may be struggling with and help them overcome these barriers. Additionally, with the aid of TTM worksheet tools designed for use with financial planning clients, advisors can more easily facilitate client discussions exploring goals and challenges, and encourage their clients to move through the stages of change with greater ease and self-awareness!