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Kitces & Carl Ep 59: The Time-Finding Trap – How Do You Find The Time To Get More Time Efficient?

May 6, 2021 07:05 am 3 Comments CATEGORY: Kitces & Carl Podcast

Over the past several years, the ever-expanding technological landscape has given financial advisors a plethora of tools that they can use to expand their reach, market their services, communicate with and serve their clients, and manage and grow their businesses. Yet, those same technological tools that have been so useful for advisors (i.e., email, social media, team communication platforms, CRMs, etc.) can also serve as irresistible distractions that can fill an advisors’ days with low-impact tasks as they react to an endless stream of notifications and, in the process, end out sacrificing their ability to do the things that can move their practices forward and allow them to do their best work for their clients. Which raises the question: how can financial advisors create the space in their schedules for high-impact work and actually leverage technology to do so (instead of sacrificing real productivity for ‘unnecessary’ responsiveness)?

In our 59th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss a key framework that advisors can use to prioritize their tasks, actionable strategies to create an environment that’s conducive to spending sufficient time on those things that are the most important, and how to manage their own natural tendencies to get distracted by life’s constant stream of interruptions.

The best place to start is by using the task prioritization framework introduced by Steven Covey over 30 years ago, which uses a container to represent the unalterable amount of time that we all have in any given day or week. The container, as the analogy goes, can be filled with rocks (the big, important stuff that moves us forward), pebbles (which are the things that have to get done but don’t necessarily move the proverbial needle), and sand (which is just the constant stream of communication and distraction). And the challenge that every advisor faces is that, if they don’t actually prioritize their rocks, then the sand and pebbles will naturally fill up all the available space in their container (which is why it’s easy to feel as if there’s never enough time to tackle the big rocks).

From there, the best way for advisors to make time for their rocks is to put it on their calendar… not mentally earmark a slot at some point during the week to get around to the rock, but literally book the time on the calendar, just like it was a meeting with a big client that can’t get moved or interrupted. Because when something inevitably comes up, advisors can (without missing a beat) respond that the time slot is already booked on their calendar. And, in order to create an environment conducive to the sort of deep concentration that working on rocks requires, advisors can turn off all incoming email and text notifications and set messaging apps on Do Not Disturb.

After making rocks a priority and eliminating distractions comes the hardest part, which is maintaining focus to actually do the work (and avoid the temptation of taking a quick look for any messages that may have come in). Maintaining focus, just like any other worthwhile endeavor, requires practice, but one effective strategy to get started is by setting milestones, and when a milestone is reached, the advisor can take a break and do something pleasurable (like going for a walk or getting an afternoon coffee).

Ultimately, the key point is that advisors who want more time to tackle the important things that will push themselves, their clients, and their businesses forward can start by actually booking time on their calendar to force time to be made. And if that causes issues because other urgent tasks aren’t happening, then the next logical step is to find someone to help handle them. Because, at the end of the day, there will always be more things to do than anyone has time for, and advisors who don’t actively take control of their calendar will always find themselves reacting to the sand and never have enough room for rocks. Or, put another way, no one has a magic machine that allows them to do more than anyone else. Rather, the real secret of time management isn’t about being more efficient; it’s about making the things that matter most (but aren’t necessarily the most urgent) the real priority.

Reconstructing Lost IRA Basis To Help Avoid Double Taxation

May 5, 2021 07:02 am 10 Comments CATEGORY: Retirement Planning

From time to time, individuals (typically high-income) can make after-tax contributions to traditional retirement accounts that are usually designated for pre-tax funds. No deduction is received for these contributions because the contributions have already been taxed and should not be taxed again. To avoid such double taxation, however, the after-tax contributions must be recorded properly, and those records must be adequately maintained. This is particularly important when after-tax amounts end up in Traditional IRAs.

After-tax contributions can make their way into Traditional IRAs via two separate routes, either via direct contributions of after-tax amounts or through rollovers of after-tax dollars previously held in an employer-sponsored retirement plan. Critically, while many taxpayers think that their IRA custodian is keeping track of the after-tax amounts they have in their Traditional IRA, it is, in fact, the taxpayer who is responsible for doing so. Specifically, taxpayers are required to file Form 8606, Nondeductible IRAs, to keep track of such amounts. Sometimes, for numerous reasons, taxpayers may fail to file Form 8606, which can result in basis being ‘lost’. Yet filing Form 8606 does not always capture IRA basis, as it is only required either when after-tax amounts go into the Traditional IRA (via a nondeductible contribution or a rollover of after-tax funds from employer-sponsored retirement plans) or when after-tax money is distributed from a Traditional IRA (including a Roth conversion).

Accordingly, there can be gaps between these actions with long periods of time during which Form 8606 is not required to be filed. In the interim, various events, such as changing CPAs or the death of the client, can lead to a previously filed Form 8606 being ‘forgotten’, resulting in a similar outcome to having never filed the form in the first place! One way to dramatically reduce the likelihood of properly reported basis being forgotten is by filing Form 8606 every year regardless of whether it is required. This way, a taxpayer can be sure that their cumulative IRA basis will always be available on their most recent income tax return.

In the event Form 8606 was not properly filed to begin with, basis can be reconstructed from scratch. To reconstruct nondeductible Traditional IRA contributions, taxpayers can find old Traditional IRA account statements showing contributions, past years’ Form 5498 (Individual Retirement Arrangement Contribution Information), or Form 1099-R (Quantifying And Proving Prior Years’ Nondeductible IRA Contributions) that report such amounts. Alternatively, they can also request a Wage and Income Transcript from the IRS. All of these could be used to prove that a contribution to a Traditional IRA was made. And if a contribution to a Traditional IRA was made with no deduction taken, which can be verified with copies of the relevant tax returns or by requesting Return Transcripts to the extent that such returns were otherwise unavailable, the amount is a verified nondeductible contribution!

Ultimately, the key point is that taxpayers may still be able to deduct tax-free distributions, even if they have ‘lost track’ of the basis in their Traditional IRA accounts. By turning to a multitude of resources to help identify the nature of their retirement account contributions and rollovers, financial advisors can help prevent the double taxation of after-tax contributions made to clients’ retirement accounts!

#FASuccess Ep 227: Achieving Financial Security By Serving 50 Great Clients In Your (LGTBQ) Community, With Leighann Miko

May 4, 2021 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 227^th episode of the Financial Advisor Success Podcast!

My guest on today’s podcast is Leighann Miko. Leighann is the founder of Equalis Financial, a fully virtual advisory firm offering ongoing financial planning services for nearly $500/month and currently serving 45 creatives within the LGTBQ community.

What’s unique about Leighann, though, is that she’s been able to realize financial security for the first time in her own life by focusing on serving a niche community that she belongs to herself, for whom she helps create their own financial stability despite the uncertainties around their income streams.

In this episode, we talk in-depth about how Leighann emphasizes her planning-centric services by charging a financial planning fee of nearly $500/month and then including the first $500,000 of investments management as a part of that planning fee (with an AUM fee of just 60 basis points over that threshold), how bringing asset management into her service offering has helped create some additional stickiness for her financial planning clients, why she enlisted the help of a copywriter to clearly communicate on her website her process and value proposition to help create buy-in from new clients, and the screening process Leighann implemented that requires prospective clients to acknowledge that they understand what their planning fees are going to be before they’re able to book a second meeting with her.

We also talk about how Leighann has implemented George Kinder’s EVOKE process into her practice (and adapted his famous three questions to apply specifically for the LGBTQ creatives she serves), how Leighann weaves their answers into a vision meeting to paint a clear picture of what they want their lives to look like, which is then followed by an Obstacles meeting where Leighann and her clients set a game plan for anything that could get in the way of them realizing that vision, and how Leighann’s own experiences as a member of the LGTBQ community has helped her better understand and provide unique and differentiated services for the clients she serves given their own struggles with the income uncertainty that comes from working as a creative in Los Angeles.

And be sure to listen until the end, where Leighann shares her own story about how her family’s money insecurities growing up pushed her towards a career in financial planning, how a failed succession plan left her deep in debt but still ended out being the catalyst to push her to launch her own firm, and how the success Leighann has found as a business owner serving no more than 50 clients has given her the financial security she was seeking, the opportunity to donate a portion of her annual profits to charity, and the chance to look ahead to ways that she can pay that success forward to others entering the financial planning profession.

And so whether you’re interested in learning about the work that Leighann does for the LGTBQ community, the deep meaning she finds in being able to create financial security for both herself and her clients, or what comes next for her as she looks to pay her success forward, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Leighann Miko.

The Latest In Financial #AdvisorTech (May 2021)

May 3, 2021 07:08 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the May 2021 issue of the Latest News in Financial #AdvisorTech – 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!

This month's edition kicks off with the big news that Tifin Group has raised $22M in Series B capital, shortly off the heels of its acquisition of Totum Risk and MyFinancialAnswers and its sale of 55IP to JP Morgan, in an ongoing effort to acquire smaller AdvisorTech companies, add both capital and additional developer resources, and try to incubate them to the next level of success in a world where most AdvisorTech solutions start out as undercapitalized “homegrown” solutions from advisors themselves. The real question, though, is whether Tifin envisions packaging its acquisitions together to formulate a whole that may be worth more than the sum of the parts, or instead will function as an innovation conduit for its investors who are themselves largely potential strategic acquirers (from Morningstar to Broadridge to JP Morgan). Either way, the emergence of Tifin highlights both the opportunities in AdvisorTech for small companies to receive influxes of capital and investment to grow to the next stage, as interest in AdvisorTech innovation continues to grow.

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

Ethic Investing raises $29M from investors including Fidelity as ESG-driven direct indexing continues to gain traction
Snappy Kraken raises $6M to accelerate the growth of advisor marketing technology
Morgan Stanley spins off E*Trade Advisor Services to Axos Financial to formulate another RIA custodian competitor to Schwabitrade
Envestnet acquires Harvest Wealth to power the ongoing convergence of banks, wealth, and trust services

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

SEI acquires the remainder of Oranj to upgrade its own digital experience to compete for independent RIAs
Avantax acquires Guidevine’s marketing technology tools for its own advisors
EverPresent launches a new service allowing advisors’ clients to record their own family legacy videos (with interview scripts to make the process less morbid and challenging!)
Skience launches a new digital repapering tool as the industry turns a greater focus to using technology to reduce the friction of switching broker-dealers
AdvicePay launches Deliverables to facilitate compliance reviews of financial plans for enterprises trying to scale fee-for-service financial advice

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*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 (May 1-2)

April 30, 2021 02:58 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a recap of the key provisions in President Biden's new "American Families Plan", which includes not only a wide range of provisions regarding child care and education for children, but also a number of "revenue-raisers" of significant pertinence to financial advisors, from higher top ordinary income tax brackets, to a new (much-higher) top capital gains rate, and the elimination of step-up-in-basis rules that would cause all unrealized gains to become taxable as capital gains at death.

In addition, there are several additional articles around this week's tax proposals, including:

How estate planning may begin to change if step-up-in-basis really is eliminated
How the concentration of wealth in equities is leading tax policy to shift away from raising ordinary income tax rates and towards rising long-term capital gains rates in particular

From there, we have several interesting articles on retirement:

While retirement is traditionally viewed as the end of work, considering the positives of work (from having a sense of identity to a purpose to get up every morning) may actually provide the key to what leads to a happy retirement
Increasing longevity, along with an increase in our "productive" years, is leading to a rethinking of work and when we "should" retire
Living longer in our later years is leading to a rise in how many people live long enough to experience a cognitive decline, creating a focal issue for financial advisors who are often the first to observe such issues in their clients

We've also included a number of practice management articles on the theme of improving services to clients:

Why the real key to understanding what clients want isn't just about getting feedback on what you're doing but client input about what they actually want
The limitations of being a data-driven firm when it comes to figuring out what clients might want that the firm is not already doing (and therefore can't be evaluated in the existing data)
How the best firms adopting more technology are not using it to expedite client interactions but to free up time for more meaningful interactions instead

We wrap up with three final articles, all around the theme of the ongoing evolution of the advice business itself:

Why higher standards for financial advisors could actually increase growth and retention rates (as consumers are more likely to seek out a financial advisor in the first place when they have more financial trust in advisors)
The challenges of emerging "point and click" credentials and why it's important to distinguish between advisor certificates and actual certification
How the coming decade may witness a transformation of the planning profession, from how firms leverage technology to how the world of advisors is regulated (or, alternatively, begins to peer-review and regulate itself?)

Enjoy the 'light' reading!

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!