Kitces.com - Advancing Knowledge in Financial Planning

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!

Weekend Reading for Financial Planners (Feb 13-14)

February 12, 2021 02:56 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the announcement that the Investments & Wealth Institute (IWI) is launching a new online advisor networking/community platform called "The Hive", to be available to both IWI members and those beyond, as the organization seeks to expand its footprint beyond its roots of CIMA and CPWA certificants into a more FPA-style "open tent" association for financial advisors.

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

The latest Cerulli Associates data showing the largest broker-dealers are getting even bigger, with the top-25 broker-dealers now accounting for nearly 72% of brokers and a whopping 90% of all IBD assets (up from just 58% and 83%, respectively, a decade ago)
A new study of TAMPs showing that investment outsourcing continues to rise, though while TAMPs started in the independent broker-dealer channel, it's now RIAs leading their growth

From there, we have several articles on investment management:

The ongoing rise of direct indexing is now gaining enough traction that index providers are scrambling to figure out how to license their indices to the emerging direct indexing platforms
The complexity and opacity of alternative investments isn't doing much to slow their growth, but is spawning rapid growth in the CAIA designation for advisors who want to learn more about how to properly exercise due diligence regarding alternative investments
A Morningstar analysis on whether Bitcoin is really a good idea to hold (or "HODL"!) in a client's portfolio given its dramatic volatility

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

How using the word "if" turns prospect pitches into awkward leading questions and why using open-ended questions is better
Why it may be better to make your advisor marketing less rational and more emotionally driven
Rethinking the business development process to better highlight how the advisor brings expertise to the table to identify less-than-obvious problems and provide less-than-obvious solutions

We wrap up with three final articles, all around the theme of being more flexible to a changing world and making mistakes:

The difficulties of planning for your long-term future amidst a world with such uncertainty, and how a "micro-planning" approach can help
Given that every successful person has a lot of mistakes to share, perhaps it's time for us to get less fearful of making mistakes and more focused on simply learning from them?
Why it's a good idea to deliberately put yourself in situations where something may go wrong... because in the end, it's far easier to "practice failure" in a controlled environment than to risk it in the moments that matter most

Enjoy the 'light' reading!

Kitces & Carl Ep 53: Using Financial Plan Proposals To Show Planning Value To Prospective Clients

February 11, 2021 07:05 am 6 Comments CATEGORY: Kitces & Carl Podcast

The evolution of advisor technology in recent decades has made it easier and easier for financial advisors to build (and manage) systematized model portfolios for a large number of clients. The good news of this shift is that it has greatly facilitated the scalability of advisory firms. The bad news, though, is that it centered the advisory firm’s value proposition around the portfolio, as the firm’s resources were literally focused on “investment management”. And in turn, to help convert the prospects to clients, advisors learned to create beautifully designed marketing brochures, “investment decks”, and engaged proposal generation tools to show why their bespoke portfolios were better than all the other bespoke portfolios out there.

However, as the industry has continued to evolve towards a more holistic and service-based (i.e., intangible) approach to the financial planning process (and away from such a focus on investment management and the attendant performance expectations), advisors often struggle with illustrating the increasingly financial-planning-centric value that they offer (often over the course of decades) to their clients. Which, in turn, raises the question: Is there such a thing as a “financial planning proposal”, or something similar that financial advisors can give to prospective clients in an initial meeting to illustrate how great all this ‘financial planning stuff’ really is?

In our 43rd episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards talk about the importance of meeting prospective clients where they are and asking good initial questions, creating a preliminary financial planning proposal and deliverable (and what that might include), and how to provide an even more substantial piece of supporting material that can help advisors show prospects what value they can expect to receive from the financial planning process.

As a starting point, it’s important to recognize that, in order for a prospect to decide to hire an advisor, the advisor needs to have asked the right questions to uncover and understand the specific pain point that prompted the prospect to book a first meeting. As it’s the clear understanding of this pain point as a motivator that led the client to take action that the advisor must address in a financial planning proposal (and communicate back to the prospect to make them feel they’ve been heard!).

From there, the advisor can create a one-page plan that lays out what the key issues are, which might include a preliminary statement of purpose, a list of initial goals that have been identified, and a 90-day action plan to start down the proverbial financial planning road. The key is to understand that prospective clients care far less about specific solutions than knowing that someone understands their problems (and can help them work towards a solution). Additionally, advisors can supplement that one-page plan with a full sample financial plan, which can really help prospects understand what exactly they will be getting, why the fees are what they are, and what the financial planning process really means (beyond what they may have encountered in prior experiences).

Ultimately, the key point is that the days of glossy brochures full of Morningstar reports and stock photos of compasses and lighthouses may not be as relevant as they were when an advisor’s main value proposition was investment management. But that doesn’t mean that there aren’t valuable deliverables that advisors can use to help demonstrate the sort of value that prospective clients can expect. And at the end of the day, tools that help clients decide to move forward and engage a financial planner not only help them solve the problem that they came in to get solved in the first place but can expand further into a holistic financial planning engagement… and also help advisors grow their businesses in the process, too!