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The Latest In Financial #AdvisorTech (January 2021)

January 4, 2021 07:03 am 1 Comment CATEGORY: Technology & Advisor FinTech

Happy New Year, and welcome to the January 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 storied Silicon Valley VC investor Sequoia Capital is investing $45M into Vise, a new tech-enabled TAMP looking to capitalize on the emerging trend of direct and, more importantly, “custom indexing”, where advisory firms use technology to create portfolios for clients customized down to the individual stock level (eschewing mutual funds and ETFs), and where Vise hopes that advisors will be willing to outsource the subsequent implementation of that portfolio for a 0.50% fee. But in the end, it’s still not clear if custom indexing will ultimately be a TAMP solution – with the basis point fees – or if the technology will eventually make it so easy and efficient that advisors can just do it themselves with the software they purchase for a flat software fee?

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

- JP Morgan acquires 55IP’s rebalancing and model management software in the hopes that tax management overlays will be the new model marketplace differentiator

- FMG Suite acquires Twenty Over Ten to expand into the realm of digital marketing automation for advisors

- MassMutual acquires Flourish Cash as AdvisorTech solutions increasingly become viewed as the pathway to the RIA channel

- The SEC’s new RIA marketing rule may kick off a new wave of Advisor Review and Rating sites to capitalize on the new opportunity to leverage client testimonials

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Advyzon launches a new prospect portal and highlights the benefits of creating simpler extensions of advisor software for specific use cases, Morningstar integrates FinaMetrica into its Investment Proposal Tool as a way to at least partially compete against Riskalyze, FA Match raises seed capital for a platform to help brokers find new (and better-matching) broker-dealers, and Pulse360 launches a new task automation tool to turn post-meeting advisor notes directly into after-meeting action items and takeaways.

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

I hope you're continuing to find this column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*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 (Jan 2-3)

January 1, 2021 02:02 pm 0 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 SEC is gearing up for the next wave of examinations as it continues to examine the rollout and initial impact of Regulation Best Interest, with a focus in the coming year on whether and how broker-dealers have changed their product shelves, are reviewing the costs of their products, and are managing the conflicts of interest embedded in those costs, as the brokerage model continues to adapt to a more advice-based future.

From there, we have several articles around the theme of retirement planning, including why it's better to encourage clients to make small New Year's resolutions to get on track for retirement (not to plan big New Year's resolution changes), why it's so important to consider the true meaning of the word "income" when talking about what a portfolio can produce (especially in a world where many forms of "income", such as immediate annuities, actually include a material return-of-principal component), how to reframe the way Social Security claiming decisions are presented to get clients more comfortable delaying, and how to mathematically quantify the advice benefit of getting clients to use tax-deferred retirement accounts.

We've also included some investment-related articles, including a discussion of why clients should not be dissuaded from investing despite markets reaching "all-time new highs", tips on navigating the emerging world of sustainable investing ratings (which lack the uniformity of more industry-familiar MPT-based metrics like alpha and Sharpe ratios), whether advisory firms should be concerned about the recent wave of money market fee waivers, and how advisors can talk clients through some risks of investing in the hot new Wall Street trend of SPACs (which as it turns out, may, unfortunately, be far better for their sponsors and early investors who redeem out than the actual long-term investors that would buy and hold them).

We wrap up with three interesting articles, all around the theme of looking to the future year and future decade of the 2020s: the first looks at how the new advertising rule from the SEC will not only open the door to RIAs using client testimonials, but may also spawn a new wave of third-party advisor rating sites that help to further promote good advisors (and also bring greater negative scrutiny to the bad ones); the second looks at how the intersection of zero-commission trading and new technology may spawn a new wave of (stock-level) portfolio customization for advisors and their clients; and the last looks at how, even as the world of financial advice becomes more mature and established, there's still a long way to go in becoming a bona fide and recognized profession, where the coming battle may not necessarily be about implementing a uniform fiduciary standard for all but instead getting clearer about titles and labels so consumers better understand who's in the advice profession and who's an agent of the financial services industry... and then let the consumer choose which they want to work with (once they clearly understand the capacity of each)!

Enjoy the 'light' reading and hope you're having a safe and Happy New Year!

Kitces & Carl Ep 50: Overcoming Referral (Asking) Reluctance And Taking The Risk Of Marketing Yourself

December 31, 2020 07:06 am 1 Comment CATEGORY: Kitces & Carl Podcast

Over the past several years, there’s been an explosion in the number of marketing channels that advisory firms can use to attract new leads, turn them into prospects, and finally convert them into clients or customers. Yet, despite the ongoing evolution in marketing, our Kitces Research studies have shown that the most common way that financial advisors gain clients is the same way they’ve been doing it for decades… through referrals. As the profession has evolved, however, so too has the approach to actually generating those referrals, as the invasive “I get paid two ways” tactic has been replaced by having far more effective (and far less uncomfortable!) conversations with existing clients about ways in which they would prefer to connect with new people.

Unfortunately, though, many advisors still have a difficult time actually starting up those referral-asking conversations in the first place, which, in turn, raises the questions: What are the blocking points keeping advisors from having conversations with their existing clients about finding more clients like them, and how can we as advisors overcome those blocking points?

In our 50th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the underlying reason why advisors have such a hard time asking their clients for referrals, how to push forward by instead asking advice on how to grow their practices, and ways to gain the sort of confidence that ultimately eliminate those blocking points altogether.

As a starting point, it’s important to recognize that anything having to do with marketing and business development requires an advisor to put themselves “out there”, which means that there’s a risk of rejection. And since human beings don’t like rejection, it’s that fear of rejection that causes us to find all sorts of reasons to not do what it is that we’re supposed to do. Overcoming that fear initially often requires a burst of courage to take a leap and take action, but the good news is that those leaps not only get easier with repetition, they eventually become something to look forward to as the advisor starts to see tangible results from their efforts and feels “rewarded” for taking the leap.

From there, the next important step is for advisors to gain the confidence that the services they offer really do bring value – so much value to their clients, that they should want to be passionately telling (nearly) everyone they meet about the great work they do! There’s a plethora of pathways towards gaining that passion and confidence, but two of the most important for advisors are by making sure they are in a situation where they are proud of what they do and the services they can offer, and by obtaining the education necessary to have the self-confidence of knowing that they are good at what they do and that they help people.

The key point is that the challenge around generating referrals from existing clients is less about the method itself, and more about overcoming the fear of rejection, and addressing our own self-confidence gaps that may exist. Because at the end of the day, it can be helpful to reflect on the fact that most of the good things that happen in life involve some initial element of risk. Ultimately, soliciting a client’s help in meeting more prospective clients that are like them isn’t about generating referrals or having conversations about referrals, but is simply a way for advisors to try get more people great financial advice that they’re confident they can provide!

The New Pooled Employer 401(k) Plan And The Hazards Of Advisor-Led PEPs

December 30, 2020 07:05 am 4 Comments CATEGORY: Retirement Planning

Recognizing that retirement saving is an important goal for many individuals, and an employee benefit that many job-seekers commonly screen for as they consider new employment opportunities, business owners commonly offer employer-sponsored retirement plans, such as 401(k) plans, to attract (and keep) their employees. For small business owners, though, the hassle and expense of setting up and running such plans can be a serious hurdle to offer competitive benefits for employees, and often are the reason that some small business owners have no retirement plan benefits in place to begin with! In an attempt to help small business owners offer employer-sponsored retirement plans to their employees, Congress has passed various pieces of legislation, one of the most recent being the December 2019 SECURE Act, which for the first time created a new “Pooled Employer Plan” (PEP) intended to make it easier for small business owners to establish and administer a 401(k) plan.

Notably, Multiple Employer Plans (MEPs) to facilitate employer-sponsored retirement plans for small business owners by allowing multiple employers to pool together and create one single plan for all of their respective employees have existed for many decades. But they have failed to rise in popularity, mainly because of limitations established by the IRS and Department of Labor (DOL) over the years, including the IRS’ “one bad apple” rule that can disqualify an entire MEP if one single participating employer fails to follow the plan’s requirements, and the DOL’s “nexus” rule that required an MEP’s participating employers to be in the same general line of business. The SECURE Act’s recently introduced Pooled Employer Plan (PEP) version, however, eliminated these limitations, clearing the way for multiple employer 401(k) plans without being in the same line of business, and with a pathway to remove an employer that fails to comply with the plan’s rules (without disqualifying the rest).

In order to create and offer a PEP, the plan provider must become a designated “Pooled Plan Provider” (PPP), registered with the Department of Labor, and serving in a fiduciary capacity as the plan administrator and performing all of the plan’s 3(16) fiduciary administrative duties.

Notably, RIAs (and broker-dealers) will be allowed to serve as PPPs, creating the potential that advisory firms could establish their own ‘private PEP’ for their small business owner clients (and gaining the efficiencies as the plan provider). However, there are several issues that advisory firms should understand before deciding to commit to a role as a PEP’s Pooled Plan Provider. Most significant is the fact that by providing investment services to the plan (and managing assets for an AUM fee) while serving as the PPP, there is potential for creating a Prohibited Transaction, as the Internal Revenue Code Section 4975(c)(1) disallows a plan fiduciary from dealing with the income or assets of a plan for their own interest, or from receiving compensation from the plan in connection with transactions involving the income or assets of the plan… with penalties for such Prohibited Transactions starting at 15% of the amount involved and, if not rectified in a timely manner, can be as high as 100% of the amount involved! Whether or not the DOL releases legislation that will provide for a Prohibited Transaction Exemption addressing the challenge created by IRC Section 4975(c)(1) is yet to be seen.

Ultimately, while the PEP may become a valuable tool for small business owners to be able to offer employees competitive retirement plan options, RIAs will need to carefully consider whether to choose to take on the role of a PPP for their small business clients plans and the associated ramifications if they do choose to do so… including asking the question of whether branching out into plan administration would actually result in more business anyway, or if it will be better to find a third-party administrator (TPA) to partner with instead?

#FASuccess Ep 209: Launching Your Own (Niche) Practice As A Pathway To Becoming A Partner In A Larger Advisory Firm, With Forrest Baumhover

December 29, 2020 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 209th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Forrest Baumhover. Forrest is a financial advisor and partner with Lawrence Financial Planning, an independent RIA based in Tampa, Florida that oversees more than 100 million of assets under management for 70 affluent clients. What's unique about Forrest, though, was his path to partnership as a financial advisor, having launched as a career changer coming out of the military with the niche of serving other military veterans in transition, only to find that his options and opportunities to become a partner in an existing advisory firm grew even more quickly than the niche that he had started out building on his own.

In this episode, we talk in-depth about how Forrest set the stage for his career-changing transition from the Navy into financial planning, why Forrest chose to complete his CFP education, his Enrolled Agent license, his Series 65, and even the creation of his RIA entity all before he even finished his military service and reached his transition date. How Forrest further set the groundwork for his initial stages of business development by setting up a blog and beginning to write articles in his prospective niche, and the organizations that Forrest joined early on, from Toastmasters to the Alliance of Comprehensive Planners and his local Chamber of Commerce, all to begin the networking that he would need to do to be successful when he launched his firm.

We also talked about what led Forrest towards a path of merging his advisory firm into a larger one just as his niche was starting to gain traction, how he weighed the decision of whether to stick with his current independent practice or walk away from it in order to be a part of something even larger instead. The way that the work that Forrest had done in preparing for and then building his own firm ended out accelerating the trust curve when he decided to merge and how Forrest structured the partnership buy-in with his current firm to become a partner.

And be certain to listen to the end where Forrest shares his thoughts on the challenges of launching an advisory firm from scratch, even when you think you're prepared and still have to adjust when reality hits, the importance of having a plan and sticking to it but also being prepared to pivot if a new opportunity comes along. And his philosophy that in the end, it's not about whether your firm ends out being exactly what you'd envisioned from the start, but simply whether you finish in the general ballpark of where you were trying to get in the first place.

So whether you’re interested in learning about why Forrest decided to pursue a career in financial planning after leaving the military, how he started writing articles in his niche that eventually led him to publish a book, or how he pivoted from firm owner to partner, then we hope you enjoy this episode of the Financial Advisor Success podcast.

2020 Highlights – The Top 20 Nerd’s Eye View Blog Posts You Might Have Missed

December 28, 2020 07:02 am 0 Comments CATEGORY: Nerd's Eye View

As a challenging 2020 comes to a close, I am once again so thankful to all of you, the ever-growing number of readers who continue to regularly visit this Nerd’s Eye View blog (and share the content with your friends and colleagues, which we greatly appreciate!). This was certainly not the year that most of us anticipated when it began; personally, I changed advisory firms for the first time in 17 years, had the longest stint at home that I’ve had in 16 years (as in-person events were shut down!), and at the same time had a near-doubling of the Kitces.com team as we’ve focused on expanding our work with the advisor community with new Resources, new Webinars, new Office Hours, and changes to our back-end website infrastructure to better scale for the future… all in service to our mission of Helping Financial Advisors Be Better And More Successful.

We recognize (and appreciate!) that this blog is a weekly habit for thousands of advisors, but that not everyone has the time or opportunity to read every blog post that is released from Nerd’s Eye View throughout the year. As many of you noted in response to our recent Reader Survey, most choose which articles to read based on headlines and topics that are of interest. Yet in practice, this means that an article once missed is often never seen again, ‘overwritten’ (or at least bumped out of your Inbox!) by the next day’s, week’s, and month’s worth of content that comes along.

Accordingly, just as I did last year and in 2018, 2017, 2016, 2015, and 2014, I've compiled for you this Highlights List of our top 20 articles in 2020 that you might have missed, including some of our most popular episodes of the Financial Advisor Success podcast. So whether you're new to the blog and #FASuccess (and Kitces & Carl) podcasts and haven't searched through the Archives yet, or simply haven't had the time to keep up with everything, I hope that some of these will (still) be useful for you! And as always, I hope you'll take a moment to share podcast episodes and articles of interest with your friends and colleagues as well!

In the meantime, I hope you're having a safe and happy holiday season. Thanks again for another successful year in 2020, and I hope you enjoy all the new features and resources we'll be rolling out in 2021, too!