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Weekend Reading for Financial Planners (Nov 7-8)

November 6, 2020 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that a prospective win for presidential candidate Biden may cause regulatory reform of financial advice to become an issue once again in 2021, as a new administration may seek to reign back the expansion of advice at broker-dealers that was permitted by this year's introduction of Regulation Best Interest (or at least, may more actively enforce Reg BI against broker-dealers that overstep the line when switching their RIA and broker-dealer hats).

Also in the news this week is the announcement that Canadian RIA aggregator, CI Financial, is considering a potential public listing on the New York Stock Exchange in what could become the second publicly traded RIA aggregator (alongside Focus Financial) in yet another wave of new buying activity for advisory firm acquisitions (potentially pushing already-record RIA valuations even higher in the coming years?), and a look at recent InvestmentNews Research data showing just how dramatic the shift to independence has been, as both independent broker-dealers and RIAs continue to gain nearly 1,000 new advisors per year from wirehouses, insurance broker-dealers, and banks.

From there, we have several practice management articles all around the theme of leveraging staff hires, from the importance of creating a vision of the firm's future org chart when it grows to better visualize what the next hires should be to keep the growth moving forward, to the benefits of hiring service-minded advisors (in lieu of rainmakers) to scale an advisory firm, and some tips on how to successfully transition existing clients to service-minded advisors without undercutting their credibility.

We've also included some marketing articles this week: a look at some advisory firms that are doing content marketing well, and what they're actually doing that makes it work; a review of 10 advisor websites that are especially appealing, and what they are doing to make the content, design, and messaging so effective at connecting with the prospects they're looking to attract; and some suggestions on advisor marketing strategies that are actually working in the age of social distancing.

We wrap up with three interesting articles, all around the theme of leveraging one's time and efficiency: the first is a look at why Inbox Zero may not be something to aspire to, as being efficient with email can still misfocus an advisor's time on the tasks that don't really matter most; the second explores the challenge of "hoarding" to-dos and the compulsion we sometimes have to keep and check off everything... instead of focusing on just checking off the tasks that truly matter the most; and the last provides some valuable tips to overcome the tendency as financial advisors in a service-minded profession who just want to help people of saying "yes" to everything, because in the end we still only have so much time and have to learn to say "no" to helping everyone in order to have the most positive impact on those we can help the most.

Enjoy the 'light' reading!

Kitces & Carl Ep 46: Communicating With Long-Standing Clients When Transitioning To A Planning-Based Business Model

November 5, 2020 07:04 am 5 Comments CATEGORY: Kitces & Carl Podcast

Over the past decade or so, the financial planning profession has continued to shift away from its transactional business model roots – where a client is a “client” simply because you’ve done business with them at some point in the past – to a model driven by long-term planning relationships (where a client is a client because they’re actually in an ongoing client relationship). As such, many advisors are making that same transition themselves, as they expand their expertise and introduce additional services for their long-standing clients to round out an ongoing service model. Along the way, though (and often due to the performance-centric nature of the transactional relationship), advisors may not have formed a full and complete understanding of all of their clients’ circumstances (beyond what was necessary to know to implement the original product recommendation). In turn, those same clients may themselves be accustomed to a certain cadence and routine of annual meetings. The net result is that advisors may sometimes struggle when trying to figure out the best way to introduce those clients to a more holistic planning-centric relationship, and gain a clearer picture of what’s most important to them beyond the original product need (that the advisor may not have really delved deeply into in the past).

In our 46^th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore best practices for transitioning longer-term transactional clients to a more planning-centric relationship, how to introduce the concept during regular meetings (particularly when the advisor may need to gather additional information that they hadn’t asked for along the way), and why a gradual (and possibly interactive) transition may be better than making any big “now we’re doing financial planning!” announcements.

As a starting point, it’s important to understand that there’s no shame in needing to learn more about long-term clients. One approach to introducing the conversation is simply to include some initial discovery questions as part of a ‘normal’ agenda, which in turn would provide the advisor a reason to start spending more time on deeper questions in subsequent meetings, as a means of going beyond the ‘traditional’ client review meeting that’s so often just focused on portfolio performance reviews.

From there, advisors can start filling in information gaps that may have opened up over the year, not by shoving a thick intake questionnaire in front of the client (which could prompt clients to wonder if their advisor shouldn’t already have asked for that information years ago), but by using modern interactive planning software where the pertinent information can be populated live (and collaboratively) in the meetings themselves. The important thing again, though, is that these things don’t have to happen all at once, and instead can happen iteratively over time.

Ultimately, the key takeaway is that advisors don’t need to make any drastic changes in the way they interact with their clients to introduce a more planning-based approach. Rather, by making the process more conversational, interactive, and gradual, advisors can start by asking deeper questions to find out more about their clients’ long-term goals, gather any missing data by using interactive planning tools available in various planning software applications, build more financial planning depth from there in subsequent meetings, and foster a deeper relationship with a more engaging process of real financial planning.

Using Retirement Accounts To Reduce Estimated Tax Penalties Via Tax Withholding From (Required Minimum) Distributions

November 4, 2020 07:23 am 17 Comments CATEGORY: Taxes

The United States tax system is set up on a “pay-as-you-go” basis, which means that taxpayers are required to pay taxes throughout the year as income is earned, whether it be through withholding income or making estimated tax payments. Individuals who don’t pay timely taxes throughout the year may be assessed Estimated Tax Penalties by the IRS, which are based on the amount of unpaid tax and the Federal short-term rate (in the first month of the quarter in which taxes were not paid) plus three percent. While understanding and helping clients comply with the requirements of tax payments can preclude Estimated Tax Penalties, advisors can also use simple arbitrage strategies to help clients maximize their savings when making estimated tax payments with tax-advantaged retirement account distributions.

While taxpayers who have income withheld to pay their tax liability generally aren’t required to make quarterly payments (as the IRS considers withholdings as if they were paid throughout the year, regardless of when they were actually paid), those who opt to make estimated tax payments must pay their estimated tax liability on a quarterly basis following a schedule of “General Due Dates for Estimated Tax Installment Payments” provided by the IRS. For taxpayers who choose to pay their taxes with estimated tax payments (versus through withholding taxes from paychecks or other qualifying accounts such as pensions or retirement plans), there are basically three options to calculate tax payments. Tax payments can be estimated based on the taxpayer’s prior year’s tax liability, where the estimated annual amount is equal to 100% of the prior year’s tax for income under $150,000, or 110% for income over $150,000, with the total estimated amount paid in equal quarterly installments. While this is generally the simpler way to calculate estimated payments (and more fool-proof in avoiding penalties, since the prior year’s tax will generally be known), individuals can also make estimated tax payments based on the current year’s tax liability instead. In this case, the amount due would be 90% of the current year’s liability paid in equal quarterly installments. The caveat to using the current year’s tax liability to calculate estimated tax payments is that, if the tax liability is underestimated, tax payments may be too low, and an Estimated Tax Penalty may result. The third way to make estimated tax payments is to use the Annualized Income Installment method, in which payments are based on the individual’s actual quarterly tax liability. While this method is cumbersome and time-consuming, it can be beneficial for taxpayers who earn income unevenly throughout the year.

Clients who pay their taxes by withholding income can benefit from the fact that quarterly payments are not necessarily required by the IRS. While paychecks are generally received on a regular basis throughout the year, resulting in withholding taxes in a true “pay-as-you-go” manner as intended by the IRS, retirement account distributions are often made only once per year, which effectively creates a “pay-as-you-go” loophole for taxpayers whose income consists of retirement account distributions! Because of this, advisors whose clients rely on retirement account distributions for income can help maximize savings by withholding taxes later in the year, thereby letting clients keep their money longer (and letting those funds grow in the meantime) without risk of incurring Estimated Tax Penalties.

For clients who may have inadvertently underpaid (or missed) estimated tax payments during the year, using an ‘erase-and-replace’ strategy can help them avoid an Estimated Tax Penalty by using a retirement account to withdraw the amount of underpaid estimated tax and withholding the entire amount from that distribution. The client can then ‘roll over’ non-retirement funds (that otherwise would have been used to make the estimated tax payment) within 60 days of the distribution to avoid any taxes due on the distribution itself, provided that no other rollovers have been made in the last year (so as not to violate the once-per-year-IRA-rollover ule).

Ultimately, the key point is that by leveraging the flexibility of tax withholding from retirement account distributions, advisors can develop strategies to help clients avoid tax penalties while keeping their money invested for longer and postponing tax withholdings until later in the year.

#FASuccess Ep 201: Building A Scalable Advisor Marketing Engine That Eliminates Reliance On Rainmakers Or Referrals, With John Wernz

November 3, 2020 07:05 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 201st episode of Financial Advisor Success Podcast!

My guest on today's podcast is John Wernz. John is the former chief marketing officer for Wealth Enhancement Group, an independent RIA based in Minneapolis that has nearly 20 billion of assets under management for nearly 20,000 affluent clients. What's unique about John, though, is the way he's scaled Wealth Enhancement Group's organic growth through marketing over the past decade, as the firm has grown from nearly 1 billion of AUM to nearly 20 billion, attracting more than 1.5 billion of net new client assets in the past year alone, not including acquisitions.

In this episode, we talk in-depth about how John built the organic marketing engine at Wealth Enhancement Group, why direct mail became a foundation for the firm's growth strategy, how Wealth Enhancement Group leverages third-party data sources to enrich its client personas to better target its marketing, why the firm uses a centralized sales team to field all prospecting queries before handing them off as leads for local advisors to close in service, and how John structures what is now a 30-person marketing team to execute across all of Wealth Enhancement Group's marketing channels.

We also talk about the economics and metrics of advisor marketing. How John evaluates the lifetime value of a client to the firm and why the company will happily spend more than $5,000 to get one new client. The core marketing metrics that Wealth Enhancement Group uses to track its success, including cost per lead, cost per appointment, cost per client, and why the firm doesn't target a certain percentage of revenue to spend on marketing and sales, and instead uses a media efficiency ratio to determine which marketing programs are worth sustaining or not.

And be certain to listen to the end where John shares how Wealth Enhancement Group's marketing success has led to a unique acquisition strategy to accompany it targeting firms in metropolitan areas that have enough depth to deploy their marketing strategies in that new market. How a growth-based acquisition strategy can result in cost synergies with a merger but avoid any layoffs in the acquired firm. And why John sees digital marketing from SEO to social media advertising, paid search to re-targeting, and more, as the next great frontier of scalable advisor marketing.

So whether you’re interested in learning how John’s firm uses direct mail marketing, how he calculates the firm’s media efficiency ratio, or how Wealth Enhancement Group uses acquisitions to open up new marketing channels, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial #AdvisorTech (November 2020)

November 2, 2020 07:08 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the November 2020 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 includes guest contributor Kyle Van Pelt, and kicks off with the big news that Morgan Stanley is acquiring asset manager Eaton Vance, in what was largely billed in the media as asset management consolidation of Eaton Vance’s mutual fund family… but in practice may be a $7B bet from Morgan Stanley on the future of Direct Indexing technology to displace ETFs and mutual funds, as in practice more than half of Eaton Vance’s assets were actually managed or overlay portfolios of its subsidiary Parametric (which is estimated to control a whopping 75%+ of the current Direct Indexing marketplace). Though in practice, Morgan Stanley will likely simply re-package Parametric into an ultra-HNW solution for its own 16,000+ brokers serving affluent clients… leaving the door still open for other Direct Indexing startups (or fast-encroaching incumbents) to gain market share with the mass of independent advisors.

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

LPL acquires Blaze Portfolio for $17M to in-house its own model marketplace through rebalancing software
Lincoln Investment acquires Hanlon Advisory Software as the old IAS all-in-one ‘silver bullet seeks a new home
YCharts recapitalizes with LLR Partners to expand its footprint from investment research to investment communication (and potentially proposal generation?)
CapGainsValet launches its 2020 season of capital gains estimates for mutual funds with a new Delivery service to give advisory firms a weekly update on their firms’ individual holdings

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including MoneyGuide’s new built-in analytics to identify potential product sales opportunities for clients, Income Conductor’s novel discount on E&O insurance for independent advisors that use their retirement income planning software (with underwriters presuming that clients will be more likely to be satisfied with their outcomes?), ScratchWorks FinTech accelerator announces its season 3 winners with $5M of funding and opens for new applications for Season 4, and CRM systems signal that they may be becoming the new ‘hub’ for advisory firms as Holistiplan, fpPathfinder, fpAlpha, and Knudge all announce new integrations to Redtail and Wealthbox!

And be certain to read to the end, where we have provided an update to our popular new “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 (Oct 31 – Nov 1)

October 30, 2020 02:53 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that Congress is considering a new round of retirement legislation, dubbed the "Securing A Strong Retirement Act" or simply "SECURE Act 2.0" on the heels of last year's 2019 SECURE Act legislation, which could be passed in the lame duck Congressional session this December with a wide range of new benefits (from allowing QCDs from IRAs to be contributed to a charitable remainder trust, to increasing the RMD age yet again to age 75).

Also in the news this week is a rising discussion of new estate planning strategies that may become popular in the last 2 months of the year if there is a "blue wave" on election day (given looming discussions of proposed upper-income tax increases from the Biden campaign), and a recent Dalbar study finding that 83% of investors agreed that their account balance is higher today because of the help of their advisor during the crisis and 9-in-10 investors reported a slight or significant increase in confidence and trust in their advisor (and being more likely to retain their advisor) in the aftermath of the pandemic

From there, we have a few sales-related articles, including why it's so important for financial advisors to tell their own personal story of why they're an advisor in order to deepen a relationship with prospective clients, what to say and how to try to recover if you unwittingly put your foot in your mouth in the midst of a meeting with a new prospect, and why even advice-centric firms may still need to consider establishing sales quotas on business development to create a culture of accountability around growth (or risk being acquired and subsumed by other advisory firms growing faster because they have figured out how to do so).

We've also included a number of practice management articles, from a look at the ongoing rise of incorporating legal and/or accounting services into advisory firms (and some of the complexities that arise), the announcement that eMoney Advisor is piloting an outsourced paraplanner solution to help firms with the back-office work of actually creating their financial plans (so advisors can focus on client meetings), and some tips on how to delegate - what to keep doing and what should be delegated - to focus an advisor's time into its highest and best use.

We wrap up with three interesting articles, all around the theme of financial literacy: the first explores how, finally, financial education is starting to be incorporated more into college campuses as the ability to navigate the financial system is itself becoming an essential life skill in the modern era; the second explores how, despite the obvious appeal of financial literacy, the actual results of providing more broad-based financial education are mixed at best, and that 'just-in-time' focused education when needed most may be more relevant for individuals; and the last explores how to make financial literacy and personal finance more fun, by getting away from jargoned explanations of technical topics (e.g., what is life insurance and how does it work), and instead focusing on more entertaining and relevant ways to teach key financial concepts (e.g., why is life insurance appropriate for Homer Simpson but not Batman!?).

Enjoy the 'light' reading!