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#FASuccess Ep 217: Creating Value For Next-Generation Clients By Focusing On Actions Over Projections, With Sophia Bera

February 23, 2021 07:08 am 5 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 217th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Sophia Bera. Sophia is the founder of Gen Y Planning, an RIA based in Austin, Texas that serves just under 100 young professionals in their 20s, 30s, and 40s.

What’s unique about Sophia, though, is that she was one of the first financial planners to launch a “location-independent” firm, specifically to serve Millennial clients using an up-front plus monthly retainer model that now averages $400 to $500 per month for each of her new clients… yet uses a one-page financial plan and an Action Checklist – not comprehensive financial planning software – to deliver ongoing financial planning value to her next-generation clientele.

In this episode, we talk in-depth about how Sophia and her fully virtual team help Millennial clients navigate the plethora of changes and decisions they face as they establish their careers and their families. How Sophia structures her initial client meetings around goal and value discovery and then putting together her one-page action checklist before establishing an ongoing meeting schedule, why net worth reporting (and not portfolio reporting) is at the heart of her planning process, and why she eschews more mainstream financial planning with its long-term retirement projections in favor of solutions that focus on shorter-term goals instead.

We also talk about how working with next-generation clients can entail a higher turnover rate than managing portfolios for retirees, why Sophia is less worried about retaining a stable book of clients than she is about having the capacity to work with people who need her help the most, the way that Sophia is starting to offer established clients new options around how they can structure their ongoing planning relationship as their needs change, and how Sophia’s own life experiences drive home just how much the quick-fire pace of life changes make a financial planning relationship so valuable for those still in their 30s.

And be certain to listen to the end, where Sophia discusses the deliberate steps she and her team took to prepare ahead of her maternity leave (to the point where her out-of-office responder made it explicitly clear that she wasn’t responding to emails at all for four months), how she spent the first month after returning from her maternity leave focused on the business rather than meeting with clients, and how she’s been able to intentionally build her firm and structure her schedule to make a good living while still having time to focus on the things that are important to her outside of her business as well.

So if you're interested in learning about Sophia's experience with retention rates within a subscription-based fee model, how she's structuring her fees for longer-term clients, and how she incorporates a one-page action plan as a client deliverable, then we hope you enjoy this episode of the Financial Advisor Success podcast!

How To Study For (And Pass) The CFP Exam

February 22, 2021 07:01 am 21 Comments CATEGORY: Personal/Career Development

Since 1991, the CFP Board has offered the CFP certification exam to establish a high standard of excellence for financial advisors to act as fiduciaries for their clients. The exam is a rigorous, 6-hour test, and is offered only three times a year. Because of the rigorous nature of the exam and the scope of material covered (not to mention the relatively low pass rate generally ranging from 60–65%), candidates aspiring for CFP certification invest an inordinate amount of time to ensure that they pass the exam. And to make sure that they structure the time devoted to test preparation most accurately, candidates need to consider several factors, including the requirements to take the CFP exam, their own learning styles and study habits, the resources available to them, and how to structure a schedule to follow to stay on track to best prepare for the exam.

The first important key for any CFP candidate to create a workable study plan for the CFP exam is to understand whether they are visual, auditory, or kinesthetic learners. By knowing their own learning style, candidates can implement the most useful CFP exam prep tools to help them retain and apply the information they will need to pass the exam. Understanding their learning style can also help candidates choose the right CFP exam review course to prepare for the test. While review programs can be expensive (generally ranging from $800 to $1,500), they have helped many candidates successfully prepare for (and pass!) the exam by conditioning them to the style and pacing of questions, helping them review material and create a framework to recall important facts, and providing general support and practice materials.

Candidates will find that creating a structured study schedule is critical for successfully preparing to take the exam. The general recommendation is to devote at least 10 hours per week, with a total of 150-250 hours (which means approximately 4-6 months of preparation), to study for the CFP exam. While most review courses guide candidates through creating a structured study plan, candidates should ensure that they actually stick to their plan of action and devote ample time to any areas they may be struggling with, being mindful to learn and understand the material – not just to memorize it – knowing how the breakdown of topics covered by the exam are weighted. Taking practice exams and working through as many practice questions as possible will help candidates get accustomed to the nature and scope of questions that will be on the exam.

During the final stage of exam preparation, candidates should focus on developing confidence in passing the exam, spending time reviewing the basics in each topic area, and getting plenty of rest to mentally prepare for exam day. On the day of the test, candidates should ensure they have their calculator (and a backup, if possible), a valid photo ID, and a packed lunch that can be kept in their car or on-site locker.

Ultimately, attaining CFP certification is no small task; the exam requires a great deal of commitment and requires candidates to build up enough confidence to actually decide – with conviction! – to pass the exam. While preparing for the exam requires hard work, focus, tenacity, and a lot of effort, the payoff is well worth the sacrifice. CFP professionals can confidently set themselves apart as competent and knowledgeable financial planners who can use their financial planning knowledge to positively impact their clients’ lives by helping them achieve their goals!

Weekend Reading for Financial Planners (Feb 20-21)

February 19, 2021 02:57 pm 5 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that the Biden administration will not be halting the new Department of Labor fiduciary rule, which controversially will begin to allow ERISA fiduciaries and those advising on IRA rollovers to receive commissions as long as they otherwise meet "Impartial Conduct Standards"... but that the DoL may still be looking to implement future "improvements" to the rule and its conflict-of-interest exemptions that may tighten the permitted level of conflicted advice in the future.

Also in the news this week are a number of other notable industry headlines, including:

The DoL's new fiduciary rule taking effect means brokers and RIAs will now face additional DoL scrutiny on rollovers from IRAs (and not just when advising on ERISA employer retirement plans) and may need to prepare new policies and procedures to document (and maintain documentation of) their rollover recommendations
A new study on the 'Pulse of the [RIA] Industry' finds that despite the 2020 turmoil, the average RIA grew substantially last year, and the average firm is now projecting a 10% hiring binge in 2021 with ongoing growth

From there, we have several articles on social media marketing:

Key tips on how financial advisors can build their own online personal brand via various social media platforms
How TikTok is rapidly becoming a new platform for financial advisors to market themselves (through short-form 'edutainment' videos)
Why Instagram is proving to be an effective social media marketing channel (particularly for advisors pursuing next-generation upwardly mobile clients)

We've also included a number of retirement-related articles, including:

How fixed annuities can improve net after-tax returns over traditional fixed-income alternatives simply by taking advantage of the tax deferral benefits and avoiding tax drag
Why single premium long-term care insurance may be coming back in vogue (both to avoid the risk of future premium increases, and to 'take money off the table' in the face of high market valuations and low yields)
A look at how to adapt the future of Social Security to support more private savings (and how other countries are dealing with their own social insurance programs)

We wrap up with three final articles, all around the theme of what it takes to build and maintain trust:

How low trust (both between individuals and with industries) can outright increase the cost of doing business and the end cost of products and services (including financial planning) to consumers
How 'humanizing' robo-advisors (by literally giving them a name) actually decreases our trust when looking for help on complex tasks
A deep dive into how the military has managed to maintain its institutional trust while virtually every other major institution has faced declining trust in recent decades (and the lessons it implies for how to get societal trust back on track)

Enjoy the 'light' reading!

Reviewing Social Security Statements And Helping Clients Access And Make Corrections

February 17, 2021 07:05 am 5 Comments CATEGORY: Retirement Planning

In 1999, the Social Security Administration began mailing paper copies of Social Security statements to most American workers that summarized their personalized retirement and disability benefits. While these statements were a valuable source of information for workers to understand their future benefits, budget cuts in 2011 ultimately precluded the Administration from continuing to mail paper statements to all workers. However, the Social Security Administration did make online statements available for workers who went through a simple process to establish an account. Whatever the means of access, though, the annual Social Security statement remains the most straightforward way to both know what Social Security benefits are anticipated to be in the future (at least on the worker’s current earnings trajectory), and to spot discrepancies that could be corrected to increase future benefits as well!

Given the likelihood that the Social Security Administration will continue its current practice of not mailing statements to most workers for the foreseeable future, the primary way financial advisors can help clients access their annual Social Security statements is online via a “my Social Security” account.

Once clients establish their my Social Security account and access their Social Security statements, advisors can review these statements with their clients and use them to verify the client’s reported work history, review current estimates of anticipated Social Security benefits, and explore how the benefits align to the client’s retirement income needs. (Though it is important to note that while advisors can help guide clients through the process of creating a my Social Security account (if their clients don’t have one already), they cannot create such an account for their clients, even with the client’s consent!).

Page 1 of the Social Security statement indicates that Social Security benefits are meant to be a supplementary source of income in retirement. This can be an opportune time to discuss a client’s overall sources of income, reviewing anticipated income to be provided by Social Security benefits, current retirement savings, other retirement income sources like a pension, and the potential need for guaranteed income products such as annuities.

Page 2 of the Social Security statement includes a summary of the worker’s estimated retirement, disability, family survivors, and Medicare benefits. Notably, these benefits do not adjust for inflation (i.e., they are reported in current dollars, not future dollars with projected inflation adjustments). Retirement benefit projections also generally assume that the income a worker earned last year will be how much they will continue to earn, in inflation-adjusting dollars, each year until they reach their retirement age. If there are no reported earnings from the prior year, but there are earnings from the prior-prior year, the earnings from the prior-prior year will be assumed through retirement age. Though if a worker has no earnings from either the prior year or the prior-prior year, the Social Security Administration will assume that there will be no future earnings when projecting future benefits.

Page 3 of an individual’s Social Security statement details the earnings that the Administration has on file for each year since an individual began working. Advisors should encourage clients, especially those who are long-term self-employed individuals, to carefully review the earnings history on their statements. If an error or omission is identified, the mistake should be corrected as soon as possible by providing evidence (e.g., old Form W-2s or pay stubs, and/or tax) of the under-reported income to the Social Security Administration.

Ultimately, the key point is that a client’s Social Security statement can provide an advisor with valuable information, help clients to better understand their future potential Social Security Retirement Benefits (or fix their projected benefits if historical earnings are missing!), and serve as a launching point for deeper conversations with the client to explore how they can meet their financial planning goals!

#FASuccess Ep 216: The Financial Advisor As Curator And Redefining The Value Of Financial Expertise, With Jason Zweig

February 16, 2021 07:04 am 7 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 216th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jason Zweig. Jason is a financial journalist who wrote one of the first books on behavioral finance and neuro-economics and writes the "Intelligent Investor" column for "The Wall Street Journal." What's unique about Jason, though, is his perspective on the financial services industry, having covered it for nearly 25 years, and why he sees the future value proposition of financial advice as being less of an 'expert' and more about the advisor as a 'curator' who identifies the best solutions and systems for clients to get the answers they need.

In this episode, we talk in-depth about the parallels between the fiduciary ethics of financial journalism and financial planning, the difficulties that consumers face in trying to determine who is a credible journalist or credible financial planning expert, and why being able to say, "I don't know," in response to a client's question can actually be viewed as a litmus test for who is really a true expert in the needs of their clients.

We also talk about the evolving value proposition of financial advisors themselves, the behavioral value that advisors can add to their clients beyond just trying to get higher returns, why even the hand-holding value proposition of helping clients manage their behavior could eventually be replaced by technology, and Jason's views on why the AUM model has been so stubbornly persistent, despite decades of naysayers calling for its demise.

And be certain to listen to the end where Jason shares why he doesn't believe financial planning is yet a true profession and what it would take to get there, why he's written a number of sharp, investigative articles about financial advisors and the CFP Board, in particular, over the past decade, and his guidance about where new financial advisors should focus if they want to be successful in the decades to come.

So whether you’re interested in learning more about how Jason views the "art" of giving financial advice, whether he sees advisory fee models changing, or his perspective on whether financial planning is a profession, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Making Financial Advicers Better And More Successful And The State Of The (Nerd’s Eye View) Blog

February 15, 2021 07:04 am 17 Comments CATEGORY: Nerd's Eye View

2020 was an incredibly disruptive year for nearly everyone. From the health toll of the pandemic itself to the economic impact of social distancing, the business disruption of work-from-home to the personal disruption of schooling-from-home, last year was a year of change for nearly everyone, whether they wanted it or not. And while the financial services industry escaped relatively unscathed with a sharp V-shaped recovery – particularly in contrast to the damaging impact of the 2008-2009 financial crisis and the recession that followed – financial advisors were not exempt from the forces of change that rolled through. A shift we felt particularly acutely at Kitces.com, with the total shut-down of in-person conferences (to which we previously had traveled on a weekly basis throughout the year!), paired with an explosion of virtual webinar events and a newfound hunger amongst the advisor community for (quality) online education.

In fact, as we look to the “State of the Blog” in 2021, the ironic reality is that last year was one of record growth for Kitces.com, with our Nerd’s Eye View blog readership marking new highs, our Members Section experiencing more-than-100% growth (as we added more new members last year than we did in the first 10 years, cumulatively!), and the Kitces team that keeps it all running behind-the-scenes more than doubling as well (to a total of 15 now, including yours truly!).

Yet even as Kitces.com had the good fortune to be able to grow rapidly amidst a challenging year, it has also helped us crystalize that, like any business that envisions being a ‘Small Giant’ (which Bo Burlingham defines as companies that try to be the Greatest instead of just being the Biggest), it’s impossible to serve everyone. Instead, we have to maintain a clear focus on who it is that we serve best, and focus our services and resources for them.

And so I’m excited to announce an update to our Mission at Kitces.com, which is now about “Making Financial Advicers Better, And More Successful”.

What’s a “Financial Advicer” you may be asking? Simply put, a financial advicer is someone who is actually in the business of financial advice itself, and whose compensation (whatever the form) is for that advice. Which matters, because it means that when you’re a Financial Advicer, the product isn’t the product. The advice itself, and the advicer delivering it, are the “product” that the client is purchasing. Accordingly, Financial Advicers recognize that it’s essential to continue learning and developing their own knowledge, as a means of reinvesting into and upgrading and increasing the value potential of the advice that they can deliver to their clients. And that’s who Kitces.com aims to serve.

In the coming years, our mission of “Making Financial Advicers Better, and More Successful” will come across four domains: Education for Financial Advicers in the form of the Nerd’s Eye View blog daily content; Resources to help Financial Advicers find (the right) solutions from our Master Conference List to our new CFP Scholarships List and our popular AdvisorTech Map; Research in the form of original studies on what Financial Advicers really do in delivering advice and being successful; and Training to develop the skills that Financial Advicers need to succeed, as embodied by the recent launch of our (first of many to come) Kitces Courses on “How To Review A Tax Return To Find Planning Opportunities”.

2020 was a challenging year for most, and there was no exception at Kitces.com as our value proposition and business model, too, had to adapt to the pandemic and its impact. Yet in the end, just as the industry was itself already in the midst of a shift from sales to advice, the pandemic has in so many ways simply caused the ‘future’ to arrive more quickly than most anticipated. Which means the 2020s are increasingly shaping up to be the decade of the financial advicer, and fortunately we’ve been able to emerge from the pandemic stronger and in a better position than ever to serve the financial advicer community. I couldn’t be more excited about what’s ahead for the business of financial advice and serving all of you, our Financial Advicer readers, in the years to come!