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Weekend Reading for Financial Planners (Dec 19-20)

December 18, 2020 02:57 pm 2 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 the CFP Board is reversing its prior decision to remove compensation disclosures (e.g., "fee-only") from its Let's Make A Plan website and soon will begin to include even more information to consumers about how they will be charged for the advice they receive (e.g., commissions, AUM fees, hourly fees, subscription fees, etc.), after an internal consumer research study affirms that the most important factors for prospective clients evaluating an advisor are how they pay, whether they can afford it, and what the value will be (i.e., whether the service is worth the cost).

Also in the news this week is the unfortunate announcement that the SEC is tabling its long-anticipated proposed changes to RIA advertising rules that would have expanded guidance around the use of social media and (finally!) permitted advisors to use at least limited client testimonials (pushing any potential changes to a future yet-to-be-determined SEC Commissioner under Biden?), and the release of the Department of Labor's final new fiduciary rule that would for the first time allow ERISA fiduciaries to receive commissions (but has been issued so late that it will not take effect until after Biden's inauguration, raising the possibility that the controversial new fiduciary rule will be delayed and killed before it can be fully enacted).

From there, we have several articles around investment trends, including a look at the rise of "custom" direct indexing as an alternative to ETFs and mutual funds, an announcement that mega insurer Transamerica is halting all sales of fixed indexed annuities and variable annuities with living and death benefit riders due to the limited opportunity to offer compelling products to consumers in a low-interest-rate environment, and a fascinating look at the emerging work of Ole Peters who is challenging the traditional view of economics by taking a hard look at the "ergodicity" assumption and suggesting that perhaps investors aren't actually irrational but simply using a different framework to evaluate decisions than what economics has long presumed.

We've also included some articles on client retention, from a look at how clients may actually want to connect with each other through their advisor (from in-person social events to the virtual world of online networking or even message forums for clients), how driving client retention often isn't about having all the answers for clients but being able to ask better questions that engage them and make them feel understood, and some research on what really drives client retention that shows even very small increases in retention can have an outsized impact on the economics of an advisory firm (and suggests that advisors may still be "under"-investing in retaining existing clients over trying to get new ones?).

We wrap up with three interesting articles, all around the theme of advisor burnout and taking time off to rejuvenate (as we enter the holiday season!): the first looks at how often advisors can only recover from burnout by making a substantive change in their work (from taking on an entirely new role at the advisory firm, to leaving altogether and starting their own firm to better control their own time and focus); the second explores the rising phenomenon of employees not even using all of their vacation (and the potential ramifications of trying to "force" employees to take more time off in a busy work environment); and the last explores some of the data-driven research into the impact of taking vacation on the ongoing productivity of a firm's top employees.

Enjoy the 'light' reading!

Kitces & Carl Ep 49: Getting More Referrals Beyond Just Trying To Be More Remarkable

December 17, 2020 07:03 am 2 Comments CATEGORY: Kitces & Carl Podcast

Achieving success as a financial advisor is difficult. Not just because of the challenge of learning the necessary information (and how to deliver that information), but also because of the perennial challenge for advisors in getting people to (in marketing parlance) “know them, like them, and trust them” enough to become clients and pay the advisor for their expertise. Which is why, despite the tremendous growth in recent years of available channels to connect with prospective clients, by far the most common (and reliable) means of growth for advisors is when existing clients (who already know, like, and trust their advisor) refer their friends and family to the advisor. Still, though, while “referrals” remains the most common channel by which advisors get new clients, most are not getting as many referrals as they would like, and struggle with figuring out how to actively get more referrals in a way that is both genuine and scalable, in a world where just trying to be “remarkable” may no longer be enough.

In our 49th of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss why asking clients to refer their family and friends has become increasingly difficult for advisors in recent years, the key mindset shift that advisor should make when thinking about growing their business through referrals, and a systematic strategy to actively go about making that happen (beyond just trying to do more and give more away to clients in the hopes that they will tell their friends and family about it)!

As a starting point, it’s important to recognize that, as the industry has shifted towards a more fee-based model (where clients see the fees that they pay as a line item in their statements), the old “I get paid two ways” conversation (by the work you do with me as an advisor, and giving me a referral to your friends and family) is no longer a comfortable one to have. Yet, when asked how they go about generating referrals in a post-commission world, most advisors still don’t really have a good answer other than they try to give remarkable service and then hope that their clients will, in turn, remark to their friends and family about what a great advisor they have.

Unfortunately, that process is neither reliable nor repeatable for most, which is why advisors should instead adopt an approach that is. A more targeted strategy is for the advisor to instead make a shortlist of the clients that they would most like to replicate, scheduling a short call with those clients, and asking them, if they were in the advisor’s shoes, how they would go about finding more clients like them. Some conversations may not go anywhere, but a few may result in the actual name of a new referral on the spot! But by far the most valuable outcome is an idea, that comes from the client, about a good way to meet more people just like them. And because those ideas are coming from the client, chances are pretty good that they’ll be the first in line to show up with their friends or family to an outing or event that they thought of in the first place!

Ultimately, the key point is that getting clients to refer their friends and family to their advisor is about creating room for clients to become invested in the success of the ideas that will help their advisor build relationships rather than just trying to provide remarkable service (which is still important) and then hoping for the best. Because if advisors can show that they are genuinely interested in their clients’ interests, ideas, and opinions, then those clients will become actively engaged in activities that will give prospective clients the opportunity, in turn, to get to “know, like, and trust” the advisor as well.

Coordinating Social Security Benefits For Those Who Lived Or Retire Abroad

December 16, 2020 07:03 am 4 Comments CATEGORY: Retirement Planning

For many Americans, Social Security income plays an integral role in retirement planning, and while retirement planning is generally straightforward for Americans with income solely from US employment that pays into Social Security, the situation becomes more complex when income from multiple countries is involved. As working in a foreign country may not count towards US Social Security benefits, either reducing benefits or even rendering the worker with insufficient quarters of coverage to be eligible for Social Security benefits at all. In addition, receiving non-US pension or foreign Social Security benefits can impact US benefits, and there is the potential for double-taxation of benefits when more than one country seeks to tax the same individual (the foreign country because the US citizen lives there, and the US because it taxes all citizens on all of their income worldwide!).

In this guest post, Jonathan Lachowitz – Founder of White Lighthouse Investment Management, which specializes in cross-border retirement planning – explores some of the cross-border planning issues that financial advisors and their clients face in the context of Social Security when there is residency or past work experience outside of the United States. For these clients, the main factors that will affect their Social Security benefit are how long they contribute to the US Social Security system, whether they are entitled to a foreign Social Security pension, and the presence of a tax treaty and/or a Totalization Agreement with the country in which the overseas work has been (or is being) done.

Totalization Agreements are currently in place with 30 countries and serve not only to eliminate double taxation (i.e., taxes paid by employers and employees in both the US and the foreign country) of the same income being taxed for Social Security programs by more than one country but also to coordinate the accrual of worker’s benefits when they have been employed in multiple countries. These agreements also typically include a “detached worker” provision that exempts an employee from their local (temporarily-foreign-country) Social Security taxes for up to five years while continuing to pay into their own national Social Security program.

The Windfall Elimination Provision (WEP) is another consideration to take into account when planning for an individual’s Social Security benefit when they have years of service abroad. As while the WEP was initially established to more fairly adjust Social Security benefits for workers who earned income eligible for Social Security benefits alongside other income from US state and local government jobs that were not covered by Social Security, it also applies to individuals who receive both US Social Security benefits and a foreign pension benefit that does not pay into the US Social Security system. The WEP prevents workers who receive benefits from a non-covered plan (that did not pay into Social Security, and thus would not be factored into the employee’s income history used to calculate their US Social Security benefit) from receiving more US Social Security benefits as though they were long-time lower-wage earners.

Fortunately, Congress has provided for a Foreign Tax Credit, which prevents a US taxpayer from having to pay tax on eligible foreign income taxed by both the foreign country and the US, and the Foreign Earned Income Exclusion, which allows a US taxpayer who meets either a bona fide residence test or a physical presence test to exclude up to $107,6000 in foreign income from US income taxation. However, only the Foreign Tax Credit or the Foreign Earned Income Exclusion – not both – can be used by an eligible worker. And in practice, the FEIE generally will not apply to Social Security and other retirement benefits, as it’s not considered earned income at the point of receiving payments or taking retirement account withdrawals.

Ultimately, cross-border retirement planning can be a complex yet rewarding area that financial advisors can address with clients who have earned income from more than one country. By understanding the role of international tax treaties, Totalization Agreements, and the social security benefit systems offered by other countries, financial advisors can help their cross-border clients optimize their retirement income and Social Security benefits.

#FASuccess Ep 207: Building A High-Touch Practice Starting From Scratch Straight Out Of School, With Lindsay Elwood-Goetz

December 15, 2020 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 207th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Lindsay Elwood-Goetz. Lindsay is the founder of Elwood & Goetz, an independent RIA based in Athens, Georgia that oversees nearly $365 million in assets under management for 375 affluent clients. What's unique about Lindsay, though, is the way she launched her advisory firm within a year of graduating from the Texas Tech Financial Planning Program as an undergrad, and has been able to steadily build over the past 15 years to a successful multi-advisor firm.

In this episode, we talk in-depth about how Lindsay first launched her advisory firm. The pain of only getting two or three new clients in her entire first year of launching in a new city where she had no prior connections while relying on a spouse's stable income to make ends meet. How the firm generated early opportunities by building a relationship with an estate planning attorney as a center of influence, who was ultimately able to refer some initial clients. And the way Lindsay was able to leverage being fee-only into not only a value proposition for clients but also as a niche to differentiate herself from other advisory firms in her local market.

We also talk about the way Elwood & Goetz has been able to build over the years with a heavy reliance on referrals, the proactive gift-giving that Lindsay has built into the culture of the firm to truly distinguish its depth of connection with clients, the client reference program that Lindsay developed to help support word-of-mouth discussion of her services among clients and prospects, and how Lindsay is focused on the details of the experience of coming to their office as a way to show their attention to detail. Because as Lindsay puts it, when clients can see how much you're focused on the details of even how their drinks are presented or the office space is conducted, they'll be more confident in your taking care of the details in their financial plan too.

And be certain to listen till the end, where Lindsay shares how the firm evolved from an individual advisor to a team structure, accelerated after Lindsay became a mother and experienced firsthand the squeeze of trying to be a lead advisor and a new parent at the same time, how the firm is built with a heavy focus on hiring young talent that grows from interns to full-time advisors, and why, even as someone who launched her own firm as a twenty-something, Lindsay still emphasizes the importance of "paying your dues and taking the time to get some experience in your early years."

So whether you’re interested in learning about how Lindsay creates an "experience" for clients who visit their office, how she differentiates her firm's service with her attention to detail, or how she shows her appreciation to her clients through personalized gifts, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Your Input Requested – Reader Survey For Nerd’s Eye View

December 14, 2020 07:08 am 0 Comments CATEGORY: Nerd's Eye View

2020 has not turned out the way that any of us expected. For so many financial advisors, the coronavirus pandemic has turned our world upside down, from how we meet with clients, to how we run our businesses, the turbulence in markets, and the turbulence in our personal and family lives. For Kitces.com, 2020 was incredibly disruptive as well, as in-person financial advisor conferences ground to an abrupt and total halt in March (and the longest stint that I’ve been home in more than 15 years!), and the advisor community shifted to a world of virtual continuing education… leading our Nerd’s Eye View Members Section to grow more in the past 12 months than it did cumulatively in its first 9 years!

Every year, we ask you – our readers – for feedback about what you want to make this website even better for you, to ensure we stay on the right track in adding value to the advisor community and making financial advisors better and more successful. And especially in a year with so much change, we’re more eager than ever for your feedback about how we’re doing, where we can improve, your thoughts about some new ideas we’re considering, and your feedback about what else we could be doing to help.

Because we really do take your feedback seriously. Over the years, Nerd’s Eye View reader feedback has shaped everything from the visual design of the blog (from its original dense small font!) to the Comment system we use, to the expansion of our Members section to offer CFP and IMCA/IWI CE credits, and now CPE credits for accountants as well for Nerd's Eye View blog posts, the launch of the Financial Advisor Success podcast, our popular Advisor #FinTech Map, and our newest “Master List” of all the major Financial Advisor conferences in the industry.

So regardless of what kind of reader you are: an advisor, an individual consumer who reads this blog for your own benefit, a related professional that works with financial advisors, or you're associated with a vendor who serves advisors... I hope you'll participate in this year's survey. It's only 12 questions, should take no more than a few minutes, and will remain open until the end of next week.

Thanks in advance for taking a few minutes to access our Reader Survey below and share your feedback! 🙂

Weekend Reading for Financial Planners (Dec 12-13)

December 11, 2020 02:52 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the industry news that the Financial Planning Association has hired its interim CEO Patrick Mahoney (who took over after prior CEO Lauren Schadle departed earlier this year) to become its new permanent CEO, the first to be hired from outside the organization since the FPA's creation more than 20 years ago, but with a depth of executive experience that can hopefully engage a successful turnaround of the beleaguered membership association as the number of CFP certificants continues to grow?

From there, we have several articles around the theme of succession planning, including a 'Letter from a Successor' to help founding firm owners better understand the mindset of a prospective successor, a discussion of why a good succession plan should be both 'concrete' (to be executable if unfortunate circumstances dictate) and also 'flexible' (to be able to adapt and be changed as circumstances change), a look at why shifting valuations of RIAs versus broker-dealers is causing a growing number of brokers to convert to an RIA as part of a future succession/exit plan, and some tips on how to manage the transition process as a successor when taking over a retiring advisor's clientele.

We've also included some articles on client communication, from a look at how to better communicate the advisor's fiduciary obligation to clients, why it's problematic for financial advisors to market by saying they provide "Peace Of Mind" to their clients, the importance of getting clear on your target audience of prospects and who you're really trying to reach and communicate with, and a look at how to bring together a Client Avatar profile to better understand who exactly the firm is trying to communicate with in the first place.

We wrap up with three interesting articles, all around the theme of getting more efficient in handling the 'administrative tasks of life' that can weigh us down after an already-busy workday: the first looks at the rise of virtual assistants, not just for work tasks but to use in our home lives as well; the second provides some tips on how to be more efficient and productive in handling our "Life Admin" tasks; and the last provides a good reminder of all the reasons why delegating and outsourcing are valuable not only in the workplace, but also and especially in our personal lives because it allows us not only to potentially be even more financially successful (by freeing up time for lower-expense tasks to do higher-earning work), but also to better enjoy the limited time we all have with your friends and family and take care of our own mental health!

Enjoy the 'light' reading!