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#FASuccess Ep 109: How A Retirement Researcher Implements Retirement Planning For His Own Clients, With Jon Guyton

January 29, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 108th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Jon Guyton. Jon is the founder of Cornerstone Wealth Advisors, an independent RIA in the Minneapolis area that oversees $240 million in assets under management for about 240 mostly retiree clients.

What's unique about Jon, though, is that he doesn't only run a financial planning firm that serves retirees, he's also contributed to the retirement research himself, with several seminal articles in the mid-2000s on creating retirement withdrawal rate guardrails and decision rules, and now has spent the past decade actually implementing those strategies with clients and finding out what really works in practice.

In this episode, we talk in depth about Jon's retirement planning approach with his clients. How he separates out a client's prospective retirement expenses into core and discretionary categories, the way he applies decision rules to adjust that retirement spending in subsequent years, and the way he then creates multiple portfolio buckets, each with its own investment policy statement, to handle each of those retirement spending categories but notably does not create a cash bucket for short-term expenses because of the consequences that cash drag can have on actually reducing a client sustainable retirement income in the long run.

We also talk about the unique resident program that Jon created in his firm, similar to a medical resident program, to leverage next-generation talent. Why he deliberately chose a model that brings in young advisors with the plan that they will leave after three years, how having a limited duration financial planning resident program has actually allowed his firm to attract even better talent regardless of geography, and the key traits that Jon has found that really make a financial planning resident and in the long run a financial planner themselves more successful.

And be certain to listen to the end, where Jon shares the challenges he faced in his own advisory firm at the start and how even though today he's the owner of an incredibly successful $240 million AUM practice, in his first year in the business, he qualified for the low income Earned Income Tax Credit and had to continue for nearly 4 more years before he finally reached the point of earning a livable wage from his practice. Because the reality is that the first few years are incredibly difficult for any financial advisor, even those who are incredibly successful in the long run.
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Marketing Compliance Under Advertising Rule 206(4)-1 And Avoiding (Accidental) Testimonials

January 28, 2019 07:07 am 2 Comments CATEGORY: Marketing

The expression, “the truth will out,” appears to have originated with Shakespeare and is being used more frequently by commentators on news programs. The expression has come to mean that the facts of a situation will inevitably become known or discovered. If Registered Investment Advisers (“RIAs”) use false or misleading content in their advertisements, the truth will out when examiners conduct examinations of their firms.

Because when it comes to RIAs, Rule 206(4)-1 under the Investment Advisers Act of 1940, better known as the Advertising Rule, prohibits advertisements for SEC-registered Investment Advisers that are false or misleading in any way. Advertising regulations governing state-registered Investment Advisers are often modeled after Rule 206(4)-1 as well. As the very essence of a fiduciary duty for investment advisers starts with the principle to say (only) what you’ll really do… and then be prepared and capable of actually doing (and proving that you can do) what you said.

In this guest post, Les Abromovitz, an attorney with deep expertise and experience with the RIA Advertising Rule, discusses what RIAs should be doing and thinking about when it comes to marketing compliance. As a starting point, RIAs should avoid promissory language, guarantees, and statements that cannot be proven (i.e., only statements that can be supported with objective evidence should be used). In addition, RIAs should avoid marketing hype, which may be tempting to differentiate in an increasingly competitive environment… even though “hype” is inherently misleading. RIAs must also satisfy strict compliance requirements if they refer to past specific investment recommendations in an advertisement, and especially when they advertise their performance returns.

Unfortunately, though, even with good faith attempts to do things right, many Investment Advisers inadvertently use advertisements that are false or misleading as they attempt to woo clients. In many instances, advisers may have no idea that the content (or particular keywords) they are using would be deemed “misleading” by regulators. And although securities regulators are unlikely to bring a full-scale enforcement action against an RIA because of these innocent mistakes, they can give examiners a bad impression of the firm’s compliance program and suggest to examiners that they should dig deeper in reviewing the firm (to ensure that the misleading advertising smoke isn’t a sign of a bigger compliance fire to address). In addition, after completion of an examination, examiners take note of these errors, as well as other compliance mistakes, in a deficiency letter sent to the firm. The RIA must then respond to the letter and correct (or dispute) the examiners’ findings. If an RIA fails to address those deficiencies, the SEC might then bring an enforcement action against the firm.

To further address areas of potential examiner concern when reviewing RIAs, the SEC periodically publishes Risk Alerts to highlight compliance problems identified by its Office of Compliance Inspections and Examinations (“OCIE”). On September 14, 2017, OCIE released a Risk Alert, which identified the most frequent Advertising Rule compliance issues uncovered by examiners during their examinations. Advisers would be wise to familiarize themselves with the deficiencies identified by examiners and should make sure their compliance manuals and processes are designed to prevent the same mistakes.

Weekend Reading for Financial Planners (Jan 26-27)

January 25, 2019 02:52 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that the Nevada Securities Division has released a working proposal of its new fiduciary rule, which would expansively apply a fiduciary duty to both investment advisers and brokers who give advice or merely hold out as an advisor in the state, as more and more states move to implement their own uniform fiduciary rules in the absence of any effort from the SEC to do so instead.

Also in the news this week is the announcement that Raymond James is buying boutique RIA M&A investment bank Silver Lane (in what signals an anticipation of even more growth in RIA mergers and acquisitions in the coming years), and updated regulations from the Treasury on the new Section 199A Qualified Business Income deduction (including important clarifications and some new restrictions for real estate investors).

From there, we have a few articles on savings and spending habits, including advice on how to not just save more effectively but to lift your savings rate over time, tips for juggling multiple credit cards to maximize credit card rewards points, and a look at the rise of "luxury concierge" services for the affluent providing "bespoke experiences" as the affluent increasingly focus on not just buying goods but services and experiences as well.

We also have a number of retirement articles this week, from a look at how the "bucket approach" to retirement actually tends to decrease retirement success by almost any measure, how deferred income annuities improve retirement readiness (by only using, but only needing, a small portion of the portfolio in the first place), and the unanticipated challenges that one early retiree faced when he actually retired early at the age of 41.

We wrap up with three interesting articles, all around the theme of income and wealth inequality, which has been increasingly in the news lately: the first looks at a recent study by Oxfam, which finds the top 26 billionaires now have as much wealth as the bottom 50% of the entire population of the planet, with the top 1% overall capturing nearly 82% of the world's annual wealth increase last year (further amplifying wealth and income inequality); the second looks at Senator and president-candidate Elizabeth Warren's recent proposal of a new wealth tax of 2% to 3% as a means to raise government revenue and reduce wealth inequality; and the last explores the recent proposal from Representative Alexandria Ocasio-Cortez, who has proposed a new top tax bracket of 70% on those earning more than $10M, based in part on the fact that the US had top tax brackets from 70% to 90% through the 1950s, 60s, and 70s... except as it turns out, the high tax rates were also accompanied by a wide range of tax shelters and other tax avoidance schemes at the time, and that in reality the effective tax rate on the top 1% wasn't all that different back then than it is already today.

Enjoy the "light" reading!

How To Effectively Change Domicile For Tax (And Other) Benefits

January 23, 2019 11:33 am 7 Comments CATEGORY: Taxes

“Home is where the heart is.” Or at least that’s what they say. When it comes to state income taxes and other legal matters (from family law to asset protection), though, home is where your domicile is… whether your heart – or your body – is there or not.

Fortunately, for many or even most people, determining domicile is rather straightforward – it’s the state in which you live in your one and only residence. But technically, domicile is a person’s fixed, permanent, and principal home that they reside in, and that they intend to return to and/or remain in. Which means for those who have multiple residences, or may be living somewhere else temporarily, where they live may not actually be their domicile.

In fact, it can be remarkably difficult to determine domicile for those who have multiple residences in multiple states, because the key factor is the “intent” of the individual, which isn’t always able to be known clearly. Accordingly, individuals who wish to change to a new state of domicile and don’t clearly leave and sever ties with a prior state of domicile can run into problems, with the old state challenging the change of domicile based upon a perceived lack of intent. Thus, even though a person can technically only have only one true domicile, two states may each believe that single domicile is their state!

In addition, even if an individual does not have domicile in a particular state, maintaining a residence in a state and using it for extended periods of time can trigger “residency” status in that non-domicile state as well, under the “statutory resident” rules. Which, ironically, means that multiple states may claim an individual as a resident under statutory resident rules.

And ultimately, knowing which states an individual is a resident of – whether triggered by domicile status or as a statutory resident – is crucial, because any state in which the individual is a resident has the right to tax that individual on all income worldwide. Which means if residency is triggered in multiple states at once, worldwide income may be subject to income tax in any/all of those multiple states (though certain offsetting credits for taxes paid to another jurisdiction are generally available).

As a result of these rules, determining domicile and the state (or states) of residency for tax and other legal purposes requires not just careful consideration of which state(s) the individual wants to reside in, but the exact rules that each state uses to determine domicile (and/or statutory residency), and that in the end changing state of domicile isn’t just about meeting an arbitrary time-based test but actually showing and being able to prove the intent to live in a particular new state (for which individual behaviors, from voting to driver’s license registration, using local service providers and even moving your pet, are crucially important), along with showing intent to sever ties and not live in the prior state as well!

#FASuccess Ep 108: How To Take A Sabbatical Even When Your Clients Depend Primarily On You, With Lisa Kirchenbauer

January 22, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 108th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Lisa Kirchenbauer. Lisa is the founder and president of Omega Wealth Management, an independent RIA in the Washington, D.C. area that oversees more than $100 million of assets for nearly 100 affluent clients.

What's unique about Lisa, though, is her targeted focus with two specializations: entrepreneurs and people in transition, to whom she charges a financial planning fee that starts at $7,500 a year while forming deep client relationships by implementing George Kinder's EVOKE Life Planning process and has still managed to achieve what is completely impossible for most advisors, take 2 6-week sabbatical vacations in the past 6 years.

In this episode, we talk in depth about Lisa's unique financial planning services for clients. The way she truly differentiates her services from the very start in prospect meetings by discussing everything from communication preferences to George Kinder's famous three life planning questions, the additional assessment tools that she uses, from Riskalyze to Kolbe, to better understand and connect with her clients, the four-meeting financial planning process she takes all clients through before she ever talks about signing an investment management agreement, and the way she's further honed her services into two niches: for entrepreneurs and people in transition, which aren't the only types of clients that Lisa has but are, as she puts it, the specialties where she does her best work with clients.

We also talk about how despite developing a financial planning process with clients that are especially a deep on the advisor-client relationship, Lisa still managed to take two six-week sabbatical vacations in the past six years. The way she works with her staff for an entire year in advance to prepare the firm, train the team and transition relevant and necessary tasks to take that sabbatical, how she trained clients as well to become less dependent on her and more comfortable working with the other members of her team, the way she breaks the news to clients, and her lessons learned about how she might have still done the sabbatical a little bit differently for the next time.

And be certain to listen to the end, where Lisa shares how the growth of her firm ultimately led to a rising level of turnover until she began to reallocate her own time to focus less on just the clients and more and truly managing and developing her team, and the entrepreneurial operating system that she ultimately implemented to help better run and scale her practice.

So whether you're interested in learning about what it takes to really unplug and take a sabbatical as an owner of an advisory firm, tools you can use to develop and deepen your relationships with your clients, or how to set a clear strategic direction for your firm, then we hope you enjoy this episode of Financial Advisor Succcess!

Taking Maternity (Or Any Extended) Leave As A Financial Advisor Without Losing Your Clients

January 21, 2019 07:03 am 1 Comment CATEGORY: Personal/Career Development

One of the most rewarding aspects of being a financial advisor – both financially, and psychologically – is forming deep relationships with clients that makes the advisor an indispensable resource that clients can depend on when needed. From the advisor’s ability to provide timely advice as needed, walk clients off the proverbial ledge in times of market volatility, or simply provide ongoing management of the client’s investment portfolio… success as an advisor with existing clients is all about being available to provide value if/when/as the clients may need.

Yet the challenge is that being under a constant state of “potential need” from clients makes it remarkably hard to ever get away from the business for a vacation, and especially for any kind of “extended” leave… including (and especially) maternity leave. Which in turn can become a deterrent for younger female financial advisors who want to someday start a family but are concerned about the consequences of wanting to step away for maternity leave in the future.

In this guest post, financial advisor Ashley Micciche shares her own story and perspective about how she was able to successfully step away from her practice and her clients for a collective 7 months over the span of 3 ½ years for two separate maternity leaves… from the steps she took in advance to prepare, the necessary infrastructure it takes to succeed (or at least make it easier), the benefits of a recurring revenue (e.g., AUM or fee-based) business model to help support the process, how the maternity leave plans were communicated to clients, and why it’s so crucial to set ground rules with both clients and staff to make maternity leave work.

Ultimately, the end result was that, while Ashley did experience a setback in growth of the firm – as time away from the office is still time lost that could have been spent doing business development, and clients rarely provide referrals while the advisor won’t even be there to receive them – clients not only didn’t leave while Ashley was out on maternity leave, but were actually remarkably supportive of her personal journey along the way!

In fact, Ashley makes the case that there are few professions better than financial planning to support starting a family and that allows the flexibility and freedom to step away for a period of time while still being able to control your business and income in the long run!

Weekend Reading for Financial Planners (Jan 19-20)

January 18, 2019 03:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the incredibly sad news that Vanguard founder and index investing pioneer, Jack Bogle, has passed away at the age of 89... but his legacy will live on, in both the books he wrote, the index funds he created, and the company he built with a unique mutual structure that ensures it will continue to support his legacy long after he's gone.

Also in the news this week is the ongoing government shutdown, which looks increasingly likely to drag on for an extended period of time... and is leading economists and analysts to start assessing all the secondary effects that may soon emerge as agencies run out of stop-gap measures, from TSA shortages at airports to the Department of Agriculture's food stamps program and nearly $460M of lease payments to various commercial real estate investors that won't be paid every month the shutdown continues.

From there, we have a number of tax planning articles this week, including an announcement from the IRS in Notice 2019-11 that tax underpayment penalties will be waived in 2018 for anyone whose estimated tax payments and withholding added up to at least 85% of their total tax liability (instead of the usual 90%), a look at the various above-the-line tax deductions you can still take even with a higher standard deduction that limits the ability to itemize, and some tips on how to prepare and get organized for the upcoming tax season.

We also have several advisor technology articles, from a look at the increasingly sticky issue of who really owns a client's financial data (and how the industry may need to change to really empower consumers to own and control their own financial data), a look at what AI will really likely do for financial advisors (hint: think "make advisors more proactive," not "replace them"), the hazards of "legacy technology" for financial advisors, and how the creator of the modern password requirement (with upper- and lower-case letters, numbers, and special characters) regrets what he created as we've now reached the point of requiring passwords that are very difficult for consumers to use and remember but easier and easier for malicious computers to hack (as computing power grows exponentially greater every year).

We wrap up with three interesting articles, all around the theme of the habits and time use of successful and affluent people: the first looks at how the affluent spend their time, finding that what leads to happiness isn't just having more wealth, or spending it on experiences per se, but simply engaging their leisure time in any kind of more "active" leisure (e.g., exercising or volunteering) rather than more passive leisure (e.g., watching TV or just relaxing); the second explores the "boring" habits of successful people, who tend to write things down, simplify their lives to reduce unnecessary choices, but still remain open to updating and changing their systems over time; and the last looks at how one of the most common first or early jobs of the ultra-wealthy was some kind of "sales" job, as the reality is that for everyone - even, and including, fiduciary advisors - it's still absolutely vital to have sales skills in the modern era, if only to be able to sell yourself and your value (whether it's to a client or boss).

Enjoy the "light" reading, and Happy New Year!

Is It Better To Skip The CFP Exam And Get The ChFC Designation First?

January 17, 2019 01:03 pm 5 Comments CATEGORY: Personal/Career Development

As the world of financial advisors becomes less sales-driven and more “advice-centric”, the need to differentiate has become all the more acute, especially as the ranks of advisors who say they offer “comprehensive financial planning” continue to grow.

As a result, a plethora of designations has emerged over the years for the purpose of helping advisors demonstrate their credibility and expertise to both their current and prospective clients, and achieve some level of differentiation. Except in practice, some designations are much harder to achieve than others… which both makes it difficult for consumers to know which designations are really credible (or not), and for advisors, creates uncertainty about which designations an advisor should pursue first.

Accordingly, in this week’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we compare and contrast the two most common comprehensive financial planning designations, the Certified Financial Planner (CFP) and the Chartered Financial Consultant (ChFC), discuss some practical considerations about why advisors might choose to pursue one designation before the other, and why, in the end, it’s not an either/or question, but a pathway to building the competency it really takes to advise clients about potentially life-altering decisions with their hard-earned life savings.

The most popular designation for financial advisors – and literally, the one with the greatest consumer recognition – is the CFP certification, conferred by the CFP Board with education provided by more than 200 registered programs across the US. By contrast, the ChFC is offered exclusively by the American College for Financial Services, and was developed as a competing alternative to the CFP over 35 years ago, consisting of the same six core courses comprising the education component of the CFP requirements, as well as another two additional courses related to the application of various (more advanced) financial planning topics. Other notable differences, though, are that ChFC candidates don’t have to have a bachelor’s degree, meet a minimum experience requirement, or – most importantly for some – pass a comprehensive final exam (given how notoriously difficult the CFP exam is with its ~60% pass rate).

Which means that, at first blush, the ChFC is a much less daunting hurdle to surmount if you want to quickly (and less painfully) establish credibility and fear whether you can pass the rigorous CFP exam. But the CFP exam is rigorous for a reason: because, ultimately, a financial advisor’s job is to advise clients on how to protect, how to grow, and what to do with the savings they’ve spent years (or literally a lifetime) accumulating. Which, in turn, should reasonably demand a reciprocal effort from the financial advisor to study for (and pass) the CFP exam, which (along with the experience and ethics requirements) is a major step towards ensuring that you, as a financial advisor, really have the knowledge to fulfil that sacred duty to clients and not unwittingly give them incorrect (and potentially destructive) financial advice along the way.

In fact, as CFP certification increasingly becomes recognized as a baseline minimum standard for competency for real financial planners, arguably the decision of CFP vs ChFC isn’t an either/or question, but is rather a matter of obtaining a foundational skillset (CFP certification) from which you can build upon with post-CFP designations (like the ChFC). In other words, by starting with the CFP marks and then layering on the ChFC, CLU, CPWA, CIMA (or any number of the myriad of similarly available high-quality industry designations) as you drill down towards a deeper level of specialization, advisors can better stand out in a sea of other advisor who might say that they do the same things you do, but haven’t yet earned professional designations to demonstrate that experience and expertise!

Why Evolutionary Psychology May Be Better Than Behavioral Finance Research To Understand Financial Behaviors

January 16, 2019 07:07 am 0 Comments CATEGORY: General Planning

There’s no doubt behavioral finance research has had a tremendous influence on our general understanding of human behavior. From loss aversion, to choice architecture, to the “Bottom Dollar” effect, and more – behavioral finance research has enhanced both our understanding of real-world financial behaviors, and what financial advisors must watch out for while trying to assist their clients in making wise(r) financial decisions.

However, despite its tremendous influence, behavioral finance research leaves a lot to be desired. Most notably, while behavioral finance has taught us a lot about how people behave, it tells us very little about why we behave how we do – and understanding why we behave the way we do is important to ensuring that we understand the circumstances in which biases, heuristics, and other behavioral quirks may lead us astray (so that we can then avoid or manage those circumstances).

In this guest post, Dr. Derek Tharp – lead Researcher for Kitces.com, and an assistant professor of finance at the University of Southern Maine – examines the weakness of behavioral finance as a field, and why evolutionary psychology may likely grow to become a more useful framework for understanding how humans make financial decisions.

In essence, the “problem” with behavioral finance research is that it is largely atheoretical, functioning more as an ever-growing catalog of human behaviors which do not align with traditional assumptions of rational behavior. Of course, cataloging interesting behavioral phenomena is not inherently a bad thing to do, and there is tremendous value in the cataloging work that has been done. But the reality is that a mere catalog of interesting financial behaviors is less insightful than a true theoretical perspective, especially when it comes to providing any real insight about what individuals (or their advisors) should do about those problem behaviors.

By contrast, evolutionary psychology, which applies Darwinian evolutionary principles to human psychology, can not only provide a rationale for why we engage in behavior such financial behaviors as the endowment effect or hyperbolic discounting, but also insight into the conditions in which we are most inclined to be misled. Specifically, humans must be most concerned when a bias or heuristic was functionally useful within the environment in which our ancestors evolved, but is no longer as relevant within our modern world. Further, evolutionary psychology also provides insights into areas such as communication, positive psychology, and psychopathology, suggesting that evolutionary psychology has much to offer financial counselors and therapists as well.

#FASuccess Ep 107: Using Podcasting As A Marketing Strategy To Attract (Retirement Niche) Clients, with Roger Whitney

January 15, 2019 07:03 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 107th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Roger Whitney. Roger is a partner with WWK Wealth Advisors, an independent RIA based in Fort Worth, Texas, where Roger works with a personal client base of retirees with $75 million of assets under management.

What's unique about Roger, though, is that he's been able to attract almost $50 million of those assets in just the past 2 years by launching a niche podcast on retirement that attracts to him affluent baby boomers making the transition to retirement.

In this episode, we talk about the why and how Roger built his "Retirement Answer Man" podcast, the style and format of his podcast and what he's found works to attract listeners, the way he transitions podcast listeners to a webinar that shows prospects a sample client meeting and then invites them to a schedule a fit meeting, and the way he treats his podcast marketing strategy as an orchard to be nurtured and tended and not just a tactic to hunt for more retired clients, even though it's generating a lot of retired clients for him anyways.

We also talk about how Roger focused his advisory firm into a niche of working with retirees. Why his focus with clients is less about financial freedom and more about time freedom, his unique Agile Retirement Management approach to working with retirees that's less about producing the comprehensive financial plan and more about producing what he calls a minimum viable plan and then engaging in constant iteration of what he calls SMART sprints to the next short-term goal or objective, and how despite being what he calls a classically-trained financial planner, that most of Roger's conversations today take more of a coaching approach with clients that focuses as much on human and social capital as their financial capital.

And be certain to listen to the end, where Roger shares how the success of his podcast has now evolved into publishing a book called "Rock Retirement" and creating what he calls the Rock Retirement Club as a way to serve the subset of his listeners who will never realistically hire them to be his financial advisor but are willing to pay to join a community he's created that helps support them in their own do-it-yourself journey through retirement.

So whether you're interested in getting started with podcasting (or building a content marketing strategy), how Roger attracts new clients and builds business through his podcast, why he creates content only for a very specific audience, or how he handles the compliance side of the equation, then we hope you enjoy this episode of Financial Advisor Success!