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Weekend Reading for Financial Planners (Jan 23-24)

January 22, 2021 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 news that former CFTC Chairman Gary Gensler has been nominated as the next SEC Commissioner, though as a regulator who's known for being hard on Wall Street is still not anticipated to overturn Regulation Best Interest (but may take further steps to enforce it more aggressively and ensure that the "Best Interest" obligation of broker-dealers really is one).

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

2020 shaped up to be a record-breaking year for advisory firm mergers and acquisitions, as a Q2 slowdown from the pandemic rebounded in the second half of the year on advisory firm valuations that continue to rise
A new Envestnet-MoneyGuide study finds that standalone financial planning fees are up 50% to $2,500/plan since 2015, with 72% of advisors now reportedly charging financial planning fees separately on top of/alongside their AUM fees

From there, we have several articles around investment trends:

One study finds that 37% of financial advisors now at least 'consider' ESG factors for all of their client portfolios
Mutual fund assets experienced record-shattering outflows in 2020 (despite years of market volatility theoretically being a moment for actively managed mutual funds to shine)
DPL Financial Partners raises $26M of new capital to fund their no-commission annuity marketplace for RIAs

We've also included a number of practice management articles:

Why it's important to look back on a firm's referral sources and what worked (or didn't) when it came to referrals in 2020
Why segmenting clients isn't just about giving 'more' to "A" clients but specifically offering a "RAVE" experience (with a focus on it being Rare, supporting Advocacy, delivering Value, and being an Experience unto itself)
How the shift to working with clients virtually means having a 'local' advisor is no longer necessary... a game-changer in marketing as a financial advisor for many years to come!

We wrap up with three final articles, all around financial advisor diversity:

While diversity is a common topic at financial advisor conferences, the lineup of conferences themselves has been remarkably lacking from a diversity perspective (especially with respect to racial diversity)
How some advisory firms are trying to shift their own company culture to support diversity and are recognizing the limits of an 'eat-what-you-kill' approach to new advisor recruiting
The latest data on the diversity of CFP certificants themselves, which shows that advisors of color are on the rise (up 12.6% over 2019, which itself was up 12.3% over 2018), though the total number of Black and Latino CFP professionals is still only 1.7% and 2.5%, respectively!

Enjoy the 'light' reading!

Why The New 100%-Of-AGI Charitable Deduction Limit Isn’t Actually Good Tax Planning

January 20, 2021 07:06 am 6 Comments CATEGORY: Taxes

For many financial advisors, helping affluent clients with charitable planning strategies is a common objective, particularly those who have more than enough to satisfy their own retirement and family goals and also wish to make substantial charitable contributions that will help others in need. Which in recent years has become even more flexible, as the Tax Cuts and Jobs Act increased the percentage-of-AGI limit on cash contributions from 50% to 60%, and the CARES Act (as extended by the Coronavirus Stimulus Act) further increased the limit from 60% to 100%(!) of AGI, making it possible for the most charitable inclined clients to fully offset their income and reduce their tax bill to zero! Yet as it turns out, reducing one’s tax bill all the way to nothing actually produces tax savings at the lowest tax brackets… such that in the end, the new 100%-of-AGI charitable giving limit actually is not such a great deal after all!

Taxpayers who itemize deductions on their Federal income tax return can generally deduct contributions made to qualifying charitable organizations up to some percentage of their Adjusted Gross Income (AGI), traditionally ranging from 20% to 50% of AGI, and is dictated by such factors as the nature of the asset donated (e.g., cash gifts vs Capital Gain property) and the type of charitable organization receiving the gift (e.g., “50% Limit Organizations”, which include churches, educational institutions, hospitals, government entities, and public charities; and “Other Charitable Organizations” which include any charity not considered a 50% Limit Organization).

As a result, charitable contributions can be categorized into four primary groups: 1) cash contributions to 50% Limit Organizations, 2) cash contributions to Other Charitable Organizations, 3) Capital Gain property contributions to 50% Limit Organizations, and 4) Capital Gain property contributions to Other Charitable Organizations. And when contributions in a given year overlap between multiple categories, there is a specific order of operations to be employed, which first prioritizes cash over Capital Gain property contributions, and then 50% Limit Organizations over Other Charitable Organizations.

With the CARES Act of 2020, though, a new 100%-of-AGI limit on deductions for category 1 – certain “qualified” cash contributions to charities – was implemented (and extended through 2021 with the passage of the Consolidated Appropriations Act) to provide some additional incentives for charitable giving in the face of the financial impact that COVID-19 has had on Americans. Which means that taxpayers can technically offset all of their taxable income with charitable contribution deductions, resulting in a tax bill of $0!

Still, though, the fact that one can take charitable contribution deductions up to 100% of their income doesn’t necessarily mean it’s a good deal to actually do so. Because it is often simply be better for a taxpayer who normally finds themselves in a higher ordinary income tax bracket to go ahead and actually pay taxes on a portion of their gross income at lower tax rates (and not offset it with a charitable deduction), thereby preserving their charitable giving (or at least their charitable deduction) for future years when their rates may be higher again. And by spreading charitable contributions out over multiple tax years (and leveraging the five-year carryforward allowances for unused charitable contribution deductions), they can effectively offset income in years when they would be subject to higher tax rates, thereby producing a greater total tax benefit.

Ultimately, the key point is that while the new CARES Act (now extended by the Coronavirus Stimulus legislation) makes it possible to claim Qualified Contribution deductions (with 100%-of-AGI limits) and zero out one’s tax bill, in practice it is rarely a good idea to do so. As while there is a small group of ultra-high-income individuals who can occasionally still benefit from using the increased deduction limits they provide, in most cases, high income donors are better served to stretch out or carry over a portion of their charitable giving (and charitable deductions) across multiple high income years instead. Though for financial advisors who have clients who won’t necessarily benefit from the provision, simply being able to explain why the better option would be not to take potential deductions as soon as possible can be a valuable service, in and of itself!

#FASuccess Ep 212: The Professional Paraplanner As (Virtual) Support And A Career Path Unto Itself, With Alex Hopkin

January 19, 2021 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 212th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Alex Hopkin. Alex is the founder of Simply Paraplanner, a job board and training portal for virtual paraplanners across the U.S. What's unique about Alex, though, is her vision for Simply Paraplanner – not just as a way for paraplanners to find job opportunities and firms to find virtual paraplanning help – but to support the ongoing evolution of paraplanning from an entry-level support role into a dedicated professional services career path unto itself.

In this episode, we talk in-depth about what paraplanners really do in an advisory firm to make it more efficient and effective, the best way to divide tasks between a paraplanner and a lead advisor, how the internal process of crafting a financial plan must change when a paraplanner develops the initial plan but the lead advisor has to get up to speed on the details and recommendations in order to actually deliver it, and how the technical demands of the paraplanner role have risen in recent years to the point that designations like the Financial Paraplanner Qualified Professional are no longer necessarily sufficient, and firms increasingly want someone with CFP certification or at least who has completed the CFP educational requirement and passed the CFP exam to be in the paraplanner role.

We also talk about the Simply Paraplanner platform itself, how advisory firms become split about hiring part-time or full-time paraplanners based on their own current size and needs, the support services that Simply Paraplanner provides for firms that aren't sure how to pick the right paraplanner for their own firm, and the portal that Simply Paraplanner has developed to help newer virtual paraplanners get the training they need to be successful, from guidance on how to set up a virtual paraplanning practice to training in key financial planning software like eMoney and MoneyGuidePro.

And be certain to listen to the end, where Alex shares her own path through the financial services profession and building the Simply Paraplanner platform, from the frustrations of trying to get paraplanner work herself as a stay-at-home spouse and military mom that led her to founding Simply Paraplanner so others could have an easier journey, the emotional roller coaster that is founding and building a business, the turning point where Alex decided three years ago to turn Simply Paraplanner from a hobby into a full-time focus by taking on a partner so that they can build together, and Alex's advice to newer financial planners trying to enter the profession today who want to get started on the right foot.

So whether you’re interested in learning about the education and designations needed to become a professional paraplanner, how hiring a paraplanner can benefit your firm, or the challenges that Alex faced trying to find work virtually as a military spouse, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Making Financial Planning More Tangible Using (Turnkey) Deliverables For Clients

January 18, 2021 07:04 am 0 Comments CATEGORY: Practice Management

When assessing the suitability of a service provider, from a plumber to an attorney to a financial advisor, prospective clients consider several aspects of the service they anticipate receiving: reliability (will they do what they promised to do?), assurance (can I trust them?), empathy (will I receive individual care and attention?), responsiveness (will they be prompt, or accurately communicate timelines?), and tangibles (the physical experience of the service, from the offices and attire of the professional to the deliverables they provide?). Of these areas, tangible components are often overlooked by most advisory firms – given the otherwise intangible nature of financial planning as a service – yet actually present an interesting opportunity for financial advisors to improve their clients’ experience with the firm and the financial planning process.

Some examples of tangibles that can influence a prospective (or existing) client’s perception about the service they will receive from their financial advisor include the condition and décor of the office space, appearance and attire of employees, and the materials associated with the financial planning service itself (e.g., marketing materials, client statements, the physical financial plan, deliverables at the client review meeting, etc.).

In practice, advisory firms often struggle to create tangible deliverables for clients on an ongoing basis because of their time-consuming nature. But systematizing a firm’s financial planning processes also makes it easier to systematize the deliverables along with them. For example, a meeting surge system can be implemented to help advisors streamline their processes, which can give the team the time they need to prepare appealing, tangible deliverables that are systematically produced for all clients and prospects at specific times throughout the year. Alternatively, a client service calendar can be developed to organize and showcase upcoming deliverables that clients can expect to receive on a monthly basis.

Turnkey resources are also widely available to financial advisors, and can be used to help an advisory firm systematize processes that include tangible elements for existing and prospective clients, from stand-alone planning modules (e.g., Right Capital’s menu of planning report options), to modules that provide more of a comprehensive interactive experience for clients (e.g., MoneyGuidePro’s ‘My Blocks’ modules), and planning tools that provide specific analyses (e.g., Holistiplan’s tax analysis report, Riskalyze’s risk assessment tools, Hidden Levers’ portfolio stress test report, and i65 Medicare planning tools). Further, customizable template tools, such as fpPathfinder’s financial planning checklists, flowcharts, and market commentary messaging services from firms like Clearnomics, Broadridge Forefield Adviser, and Marketing Pro, can be used to send clients informative, tangible deliverables that remind them of the value their advisor provides to them. Advisors can even create investment performance reports and beneficiary summary reports on a regular basis as another simple way to provide their clients with tangible, impactful deliverables that remind them that their advisor keeps them top of mind.

In designing a more tangible client experience, advisors can consider introducing tangible elements throughout the five key stages identified as a client’s most memorable milestones in their relationship with an advisor: 1) Introduction – when first impressions are made and scheduling meetings take place, 2) Interaction – the first opportunity for clients to assess the meeting environment and data collection process, 3) Guidance – where advisors use technology tools to create analyses and recommendations to share through reports, illustrations, and other deliverables, 4) Implementation – the process created by the advisor to make plan implementation easier for clients, and 5) Relationship – the ongoing services and engagement opportunities created by the advisor that can deepen the rapport with clients.

Ultimately, the key point is that there are many resources for advisors to elevate the client experience by incorporating tangible deliverables into the menu of services they provide. And by considering the most memorable stages of the client journey, advisors can strategically implement impactful deliverables that remind clients how valuable they really are!

Weekend Reading for Financial Planners (Jan 16-17)

January 15, 2021 02:59 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with a look at the details of President-elect Biden's newly proposed "American Rescue Plan", a $1.9 trillion economic stimulus proposal that would provide additional from additional ($1,400) stimulus checks to increased unemployment benefits, a higher Child Tax Credit to an increase in the minimum wage (to $15), along with a wide range of state and local government aid, and more funding for national COVID-19 testing and vaccinations. Of course, a legislative proposal does not necessarily mean it will become law... though, with the potential for tax legislation to pass with a simple majority as a budget reconciliation bill, all eyes are increasingly on the potential for major tax legislation in the initial weeks of the incoming Biden administration.

Also in the news this week are a number of other key announcements on transition and new plans from the Biden administration, including:

A signal from Senate Democrats that they intend to quickly take up the Biden Tax Plan proposal to increase capital gains rates to ordinary income rates for upper-income households (e.g., those making more than $1M in income)
An indication that the Biden administration may soon announce Gary Gensler as the incoming SEC Commissioner... who is known for implementing aggressive pro-consumer policies to reign in Wall Street from his years at the CTFC and suggesting that Regulation Best Interest may be back on the table for consideration in the coming year

From there, we have several articles around managing household cash flow:

A look at the new 'perks' that premium credit cards are rolling out to keep high-end customers on board in a world where travel perks weren't usable in 2020
6 apps that can help automate the process of figuring out all the services you're automatically subscribed to (and help you unsubscribe from them!)
Thoughtful consideration of when 'frugal habits' become so ingrained that they persist long past the point of being useful or necessary (do you really still need to keep using single-ply toilet paper!?)

We've also included a number of articles around marketing:

How using the word "only" in your marketing (as in, you "only" work with certain types of clients) can actually attract them more quickly
Why it's not helpful to ask clients if they want to connect with you on social media, and instead should ask them what they want to hear about instead
How the shift to working with clients virtually means having a 'local' advisor is no longer necessary... a game-changer in marketing as a financial advisor for many years to come!

We wrap up with three final articles, all around the theme of running a better advisory business:

Why it's so important to create a 'culture of learning' when, in the end, the advice business is all about the wisdom and experience of the people that work there
How better decisions require not just more perspectives but substantively different perspectives that force consideration of issues from all angles
Why the remedy for boring meetings is not to make them shorter (or eliminate them altogether) but actually to make them longer... and in the process, spend more time focusing on the topics that are most relevant to have the time to really discuss in depth!

Enjoy the 'light' reading!

Kitces & Carl Ep 51: Fighting The Fear of Focusing When Trying To Select A Niche

January 14, 2021 07:08 am 2 Comments CATEGORY: Kitces & Carl Podcast

For most of its history, the financial advice industry has been predominantly transaction-based, with advisors earning a living solely from the commissions they earned on whatever product they sold to help their clients meet their needs. And since there wasn’t any reason to meet with those clients again until there was another opportunity to implement a product, advisors needed to attract as many potential clients as they could in order to be successful. As a result, it was essential for advisors to be as broad in their messaging and marketing as they possibly could, to be certain they reached anyone who might potentially be able to buy their company’s products.

However, as the industry has moved towards recurring-revenue model, where advisors are paid for ongoing financial advice, not only has it become increasingly difficult for advisors to stand out in a crowded and competitive marketplace, but as recent Kitces Research shows, advisors who serve a niche enjoy clear operational benefits as well, including the ability to spend more time on high-value, client-facing activities, charge more for the advice they give, scale their practices more efficiently, and earn (on average) more than 50% more than their non-niche counterparts. Yet, the reality is that many advisors still balk at the notion of focusing in on a specific niche, which raises the question: why is it so challenging to choose an area of focus, and how does one get comfortable choosing a particular niche to focus on?

In our 51st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss some of the reasons advisors have a hard time committing to a niche, the mindset shift that advisors can make when thinking about the choice to serve a niche, and why relevance (through serving a focused clientele) is a key element to building a successful advisory business in the future.

As a starting point, it’s important to recognize that the most common reason that advisors avoid ‘just one’ specific client-type is that they worry that they will have to say ‘no’ to prospective clients who don’t fit that focus… and actively turn down revenue in the process, which a particularly daunting prospect for advisors who are in the early stages of their career. Yet, the likelihood is that very few people (if any) end out saying ‘yes’ to advisors who try to be everything to everybody in the first place. Which is often readily apparent when looking at advisor websites, that (for generalists, at least) rarely generate leads, despite seeing (usually) a few hundred visitors each month… who might arrive at the advisor’s website, take a (virtual) look around, but leave without taking any action. Put another way, advisors who don’t develop the expertise to solve specific problems for a specific group of people better than anyone else may be able to work with anyone, but don’t end out being relevant to anyone.

Ultimately, the key point is that deciding to serve a niche isn’t about saying ‘no’ to a bunch of prospective clients, it’s about getting at least a few more potential clients to say ‘yes’ in the first place. Getting started as a financial advisor (regardless of the business model) is by far the most difficult stage in every advisor’s career. But the good news is that there is nothing to lose by not trying to be everything to everyone, and a whole lot to gain from getting really good at serving a specific clientele with issues that are unique to them for which the advisor can offer differentiated value. In the process, advisors can move from not being relevant to each and every person with whom they interact, to being in a position to serve the exact needs of at least a few of them… which, at the end of the day, is a big step forward, both for advisors just getting going, and for advisors who want to take their businesses to the next level!