Nerd's Eye View blog

Implementing A Financial Planning (Summer) Internship Program

February 26, 2018 07:01 am 0 Comments CATEGORY: Practice Management

Summer internship programs are a popular way for advisory firms - as with most businesses - to leverage student talent to tackle projects, get support on ongoing business tasks, and even to build a pipeline of talented candidates that the firm can hire for future openings. The caveat, though, is that implementing a financial planning internship program can be a challenge, especially in trying to get it off the ground for the first time. From finding good candidates and creating a proper internship job description, to making the hire and getting the intern up to speed in your firm quickly, there is simply a lot to learn and do, with only a short amount of time to do it all given that a summer internship only lasts a few months. The unfortunate end result is that many financial planners avoid internships altogether, even though they could be great opportunities for students, firms, and the profession!

But the reality is that implementing a financial planning internship program does not need to be an overwhelming task, and it really is possible to get productive value out of a financial planning intern in just a few short months. In this guest post, Jon Yankee of FJY Financial, which has run a successful internship program with 21 summer associates over the past 11 years, shares how they implemented their financial planning (summer) internship program with college students, from the early stages of finding qualified candidates, to the process of (rapidly) onboarding the intern so they have time to contribute productively to the firm, all the way through the late stages of the exit interview to get feedback from interns and discover ways that the program can be improved for future years.

The end result of their financial planning internship program has not just been a way to give back to the profession, students, and the CFP Board Registered Programs training the financial planners of the future, but also a direct benefit to the team members at the firm, a talented pool of vetted candidates from which the firm has hired, and an experience working with young financial planners who have enhanced client deliverables for the firm. Of course, it is always a challenge trying to get an intern up to speed in a short amount of time and acclimated to the culture of a new firm, but with a diligently implemented internship program, financial planners really can launch a successful internship program!

Weekend Reading for Financial Planners (February 24-25)

February 23, 2018 02:55 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that yet another state, Maryland, has now jumped into the fiduciary fray, with its own version of a rule that would require brokers operating in the state to meet a fiduciary standard of care, given ongoing concerns from state legislators about the potential consumer consequences of President Trump's order to review (and potentially further delay or kill) the Department of Labor's fiduciary rule. Also in the news this week was a discussion from SEC regulators suggesting that they may be focusing less now on creating new rules for robo-advisors, and instead simply looking to apply the existing principles-based fiduciary regulation under the Investment Advisers Act of 1940 to the robo-advisor business model (with a particular focus on whether robo-advisors, or human advisors using "robo" tools, are probably explaining how broad, or narrow, the scope of their financial advice really is).

From there, we have several articles on the new tax law, including how many small businesses are taking a fresh look at the ideal business entity structure (with some pass-through businesses considering whether to become C corporations for the new 21% corporate rate, and some C corporations considering whether to switch to pass-through status to take advantage of the new 20% Qualified Business Income deduction), a discussion of whether some employee advisors at broker-dealers may want to switch to become independent contractors to take advantage of the new pass-through deduction, how some couples may want to use the "Married Filing Separately" filing status to preserve the pass-through deduction where one spouse is a business owner and the other has (even higher) non-business income, and a look at how the change in tax rates from 2017 to 2018 creates interesting opportunities over the next two months for people to engage in "tax rate arbitrage" by contributing to IRAs for the 2017 tax year and then converting them in the current 2018 year at lower rates.

We also have a few marketing-related articles this week, from tips to squeeze more value out of your client communication and events (by focusing on how to expand or better leverage or re-purpose the content), to how having a narrower niche or target market allows you to build rapport faster with clients by getting to know their common needs and issues (which makes you look like a mind-reader when you can tell them what's on their minds before they even say it!), and how clients begin to develop a deeper relationship with a professional in as little as 3 extra minutes of the professional listening and making clients feel like they're heard and cared for.

We wrap up with three interesting articles, all around the theme of selling and business incentives: the first explores a recent research study that finds it's not the lower fees of robo-advisors that are attracting clients, but the transparency of those fees (and their subsequent performance reporting systems), which has important lessons and implications for all advisors; the second looks at how business model incentives may help to contribute to the unique (and not necessarily pro-long-term-investor) way that brokerage firms typically develop their client statements and websites; and the last provides a good reminder that even if we're in the business of advice and not product sales that we're all still selling something to clients, which means perhaps we should focus less on trying to avoid discussions about sales altogether and instead focus more on the most productive ways to ethically "sell" and help clients to reach better financial outcomes!

Enjoy the "light" reading!

Will Australia’s New Advisor Competency Standards Be A Roadmap For US Regulators?

February 22, 2018 02:19 pm 0 Comments CATEGORY: Regulation & Compliance

In recent years, the world has been awash in fiduciary regulatory for financial advisors, from the Future Of Financial Advice (FOFA) reforms in Australia, to the Retail Distribution Review (RDR) changes in the UK, and the Department of Labor's rule here in the US, all focused on requiring financial advisors to act in the best interests of their clients, and to reduce or eliminate conflicts of interest (especially around commission compensation). Yet while the DoL fiduciary rule has been repeatedly delayed in the US, in many other countries the fiduciary reforms have already taken effect... and now we're beginning to see the next stage of fiduciary legislation emerge.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we examine the new round of financial advisor regulation emerging in Australia, which focuses specifically on competency standards, and what it suggests about what may come next for advisor regulation in the US, and what financial advisors here should be thinking about in order to “future-proof” their own careers against potential future regulation!

Since adopting fiduciary requirements under the FOFA reforms (Future of Financial Advice) in the summer of 2012 and fully implementing those reforms in 2013 (in stark contrast to the ongoing debate in the US over DoL fiduciary which began around the same time but still isn't fully imiplemented!), Australia has served as a place that advisors can look to see what trends may be coming in the future of financial advisor regulation.

And in that context, Australia has followed up their fiduciary standards with a new round of standards of financial advisor competency, as the reality is that it’s not enough to just have a fiduciary duty for financial advisors to act in the best interests of their clients, but it’s also essential for the advisor to have the technical competency and training needed to know what’s in the best interests of the client in the first place! In essence, the new competency rules would require that all financial advisors have a college Bachelor’s degree, a full professional year of experience, pass a comprehensive exam to demonstrate their competency in core knowledge domains, and commit to ongoing continuing education and ethics requirements. Notably, this is the exact same framework as the CFP Board's “Four E’s” requirement that already exists in the US: Education, Exam, Experience, and Ethics.

However, just as not even 30% of advisors here in the US have the CFP marks, it is estimated that only about 25% of the financial advisors in Australia will be able to meet the new competency standards there. Accordingly, the regulators are providing a substantial transition period for Australian advisors.

This is important for advisors in the US, as it gives some hint about what may be the next shoe to drop in the regulation of financial advisors here, either in the form of literally requiring the CFP marks to practice – making CFP certification a minimum competency standard for all financial advisors rather than just a voluntary designation – or similar to Australia, some separate-but-similar competency requirement that’s administered directly by a government regulator or an independent entity the regulator creates.

On the plus side, the changes in Australia should not just improve competency to ensure there’s good advice, but also improve consumer trust in financial advisors in the first place. Because even if you show great warmth and caring for clients, if they don't believe that financial advisors are competent in the first place, it's difficult to build the necessary trust to have an effective advisor/client relationship. Which is why I think it’s such a big deal that Australia is now rolling out a financial advisor competency standard. Because lifting competency and education standards not only improves the quality of advice, but also trust in financial advisors.

But these changes also mean that, if you’re a financial advisor who wants to “future-proof” your own career, then you really should be reinvesting into advancing your education with programs like CFP certification. As Australia has shown, there will probably be some grace or transition period, so if you’re within 5-10 years of retirement already, you’ll likely be safe to just ride out the status quo. But if you’re younger than that, and still have a longer time horizon in the business, there’s increasingly a risk that once the first round of the fiduciary rule to act in clients’ best interests is done, the next round is going to be about competency standards... which means it may be a good idea to get started future-proofing your own career sooner rather than later! And if you are a CFP certificant today, and you use that to differentiate yourself from the 70% of advisors who don’t, recognize that it’s not going to be a sustainable differentiator for you once the regulators lift the competency standards for everyone... which again highlights the importance of developing your niche and specialization, so that you can stay one step ahead.

The bottom line, though, is just to recognize that much like Australia served as an indicator for what regulation was to come under DoL fiduciary (with a fiduciary rule that took effect 5+ years ahead of the US), Australia's new adoption of competency standards for financial advisors may be a good indication of where the regulatory focus will be next in a post-fiduciary world in the US. Which means, if you haven't invested in your education to meet such standards, you may want to start now. And even if you have, it's important to realize that merely fulfilling the "four E's" going forward will no longer be a differentiator!

New Medicare Premium Surcharge Tier And Other Tax Implications Of The Bipartisan Budget Act of 2018

February 21, 2018 07:01 am 0 Comments CATEGORY: Taxes

In today’s contentious legislative environment in Washington, it’s not often that Congress passes any legislation. Which means when a bill actually is on track to be approved, various members of Congress often tack on a number of other provisions that they wish to see approved as well (either individually, or as part of the negotiated process for a compromise to pass the overall legislation).

Thus was the path of the recent Bipartisan Budget Act of 2018 (H.R. 1892), which was passed into law by President Trump on Friday, February 9^th. As while it was intended primarily as the legislation that would avoid a government shutdown by agreeing to increase government spending limits and raising the debt ceiling for two years, buried in the legislation were a number of tax-related provisions – some temporary, and others permanent – with impact for both high-income and low-income households.

Of primary note for financial advisors who work with higher-income individuals is that, starting in 2019, there will be a new IRMAA tier for Medicare Part B premium surcharges for individuals earning more than $500,000 (or married couples with AGI in excess of $750,000), stacked on top of what were additional adjustments to the Medicare premium surcharge tiers that just took effect in 2018 as well!

Also included in the legislation were a number of temporary-but-immediate retroactive reinstatements of popular tax provisions for 2017, including the above-the-line education deduction (for those who weren’t already fully eligible for the American Opportunity or Lifetime Learning Tax Credits), the deductibility of mortgage insurance premiums, and relief from any cancellation-of-debt income for those who go through a short sale with an underwater mortgage on their primary residence.

In addition, the Bipartisan Budget Act of 2018 also provides a number of changes to grant more flexibility for hardship distributions from employer retirement plans, authorizes the creation of a new Form 1040SR (an “E-Z” tax filing form for seniors), and provides a number of retirement-plan-related and other tax relief provisions for those who were impacted by the California wildfires in late 2017!

Which means even though the Bipartisan Budget Act of 2018 was nominally “budget legislation” and not a tax law, a number of households may be impacted by its tax-related changes!

#FASuccess Ep 060: The Written Job Description As A Financial Plan For Employee Talent Development with Kelli Cruz

February 20, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 60th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kelli Cruz. Kelli is the founder of Cruz Consulting Group, a human resources consulting practice that specializes in working with mid-to-large sized independent financial advisory firms.

In this episode, we talk in depth about the kind of human resources challenges that begin to emerge as an advisory firm grows, especially once it crosses the $100M and then $200M under management thresholds... where the firm grows beyond half a dozen employees – and the founder's ability to manage them – and suddenly creating the right culture, and designing effective compensation systems that properly incentivize employees, becomes crucial for the business. All of which begins with establishing effective job descriptions for every role in the firm... which Kelli says is like creating a financial plan for employee talent development, forming the basis of what goals the firm and the employee are collectively working towards together.

We also talk about the challenges of hiring dedicated management in an advisory firm, the importance of industry benchmarking studies, how to think about crafting a career track for your employees – especially when your firm isn't even large enough to have formal career tracks yet – and why the growth and evolution of an advisory firm is all about refining employees into increasingly specialized roles over time.

And be certain to listen to the end, where Kelli shares her thoughts on best practices in setting actual compensation plans, why Kelli believes that the traditional model of paying advisors a percentage of revenue for the clients they manage is a fundamentally unsustainable model for advisory firms that ever hope to scale, how Kelli believes that even sales and business development incentives should only last for 1-3 years, and how firms should balance out the combination of base salary, incentive plans, and sales incentives for various advisory, administrative, and other staff positions in the firm.

So whether you are experiencing your own human resources challenges as your firm grows, have been thinking about hiring dedicated management for your firm, or are interested in how to best structure incentive compensation, I hope you enjoy this episode of the Financial Advisor Success podcast!

The Handbook For Next Generation Partners Of Independent Advisory Firms

February 19, 2018 07:01 am 0 Comments CATEGORY: Personal/Career Development

While the CFP certification for financial planning has been around since the early 1970s, it wasn’t until the 1980s and 1990s that it began to gain widespread adoption amongst financial advisors. And it’s only been over the past 20 years or so that the highly scalable AUM model gained enough traction and popularity that the typical advisory firm evolved from solo practices into larger ensemble firms with employee advisors and multiple partners.

As a result, while the essential set of skills needed to establish your own advisory firm are now relatively well known, the most effective path to become a partner in an existing advisory firm is still in its earliest stages, with no set industry norms, a wide variety of career paths from one firm to the next, and a number of firms that haven’t yet designed their formal career tracks at all. Which, to say the least, makes it very difficult for next-generation advisors to figure out where to focus and what to do in order to succeed.

Accordingly, practice management consultant and guru Philip Palaveev has published what should soon become the seminal handbook of next generation advisors pursuing partnership. Because in “G2: Building The Next Generation”, Palaveev – who himself joined a major accounting firm in his early 20s and rapidly ascended to partnership by his early 30s – sets forth exactly what so-called “G2” (second/next generation) advisors in large independent advisory firms should be doing to successfully manage their own career track to partnership, what kinds of expectations are (and are not) realistic, and why (and how) the requisite skills to develop will themselves change as the advisor achieves new levels of success.

Perhaps most notable, though, is the simple fact that at the most senior levels of leadership within an advisory firm, it’s really more about leadership and the ability to manage people, than the actual skill set of being a great advisor. And in turn, the path to leadership and partnership eventually entails growing beyond “just” being a great and expert advisor serving clients, but also learning how to manage and develop a team of subordinates. In addition to learning how to “manage up” to the expectations of founders and senior leadership, with respect to everything from projects and initiatives the advisor might champion, to the advisor’s own career and path to partnership.

Of course, the irony is that when it comes to advisory firms and making partner – like in most industries – success just begets more work and burdens, not to mention a substantial financial commitment to buy in to partnership. Yet at the same time, the good news is that for those who are effective at managing the career marathon, the long-term benefits of becoming a partner – both financial and psychological – can be incredibly rewarding.

Weekend Reading for Financial Planners (February 17-18)

February 16, 2018 02:50 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that the Massachusetts state securities regulator has accused retail brokerage firm Scottrade of violating the Department of Labor's fiduciary rule by holding a series of "sales contests" in the second half of 2017, as even though the full Best Interests Contract Exemption is delayed until the middle of 2019, the requirement to satisfy the Impartial Conduct Standards of the DoL fiduciary rule did take effect last June 9th of 2017... and raising the question of whether Massachusetts will soon be scrutinizing other major firms for similar fiduciary compliance violations. And in a similar vein, the SEC also announced this week new "Share Class Selection Disclosure" Initiative that will grant amnesty to RIAs (especially hybrid RIAs) that may have failed to disclose that they were using higher-cost share classes that included 12b-1 fees (paid to a related broker-dealer) without disclosing that there were lower cost alternatives available (but only if the firm self-discloses its error, and refunds all excess profits earned from clients).

From there, we have several advisor technology articles, including a brief recap of the latest 2018 Advisor Software Survey from Joel Bruckenstein and Bob Veres, two reviews of the big news and announcements at the recent T3 advisor technology conference, and a fascinating profile of some of the major private equity and venture capital investors that have been putting money into the burgeoning number of new advisor tech startups that are well-funded with outside capital and not merely "homegrown" solutions built by advisors themselves and re-sold to their peers.

We also have a few articles on the ongoing trends of advisors retiring, merging, and being acquired, including tips for RIAs that are looking to sell about what they should do to find the right buyer, a look at the landscape for broker-dealer recruiting (which is especially hot amongst the largest independent broker-dealers, who are attracting reps from both wirehouses and smaller IBDs), and some advice from Bob Veres on how advisors should think through their own potential retirement (which isn't just about the financial matters of selling your practice, but is primarily about finding your own new purpose in a world where your primary focus may no longer be your advisory firm!).

We wrap up with three interesting articles, all around the theme of telecommuting and whether working remotely may not be all it's cracked up to be: the first looks at how working from home is associated with a dangerous rise in loneliness and isolation, which is both leading employees to want to go back and work from an office again, and can even have deleterious health effects; the second examines how working from home also appears to be impairing everything from the innovation to customer service of a number of large firms, which are shifting from telecommuting and remote work policies to more of a "flexible work" policy that allows some work from home but still requires employees to come into the office on most days; and the last explores the rise of co-working spaces, which provide helpful office space and business infrastructure for those who don't have a good setup at home, but are proving to be popular primarily because of the social and community aspects of co-working (as contrasted, once again, with the potential isolation and loneliness of working from home). Which means at a minimum, those who are interested in working from home – including solo advisors who don't have an office – need to be mindful of the need to maintain a social network of friends and colleagues, at least in the form of a co-working space.

Enjoy the "light" reading!

Understanding The New Pass-Through Business Deduction For Qualified Business Income

February 14, 2018 07:01 am 1 Comment CATEGORY: Taxes

It’s long been a tenet of taxation that when a group of individuals come together for a “joint venture”, the taxation of their collective business should simply be done by taxing each individual on their respective share of the business. Over the years, this has been formalized into the structure of “pass-through” business entities, from partnerships to LLCs to S corporations (and of course, the sole proprietor themselves)… all of which simply subjected the business’s income to the tax rates of their individual shareholders.

Until the Tax Cuts and Jobs Act (TCJA) of 2017, which for the first time has introduced a so-called “Qualified Business Income” (QBI) deduction for pass-through entities that will effectively permit pass-through businesses to be taxed on only 80% of their income. To some extent, the introduction of this new QBI deduction was necessary to keep pass-through business tax rates reasonably in line with corporate tax rates (which were also reduced to 21% under TCJA) when stacked on top of qualified dividend or long-term capital gains tax rates. Yet at the same time, the new QBI deduction also introduces a substantial tax planning opportunity… and some complexity, too.

The core of the qualified pass-through business income deduction is that shareholders will simply be permitted to deduct 20% of the business income against itself, which will be claimed as a below-the-line (but not itemized) deduction for tax purposes. However, to prevent abuse – especially at higher income levels – the new QBI rules do not permit the deduction for high-income “Specified Service” businesses (including lawyers, accountants, doctors, consultants, and financial advisors), and high-income individuals may also have their QBI deduction limited if they do not employ a substantial number of people relative to the size of the business (under a new “W-2 wages” limit), or invest into a substantial amount of property (under the “wages-and-property” limit).

The end result of these rules is that small businesses should have relative ease claiming at least a modest new QBI deduction, which is available even if they’re simply a sole proprietor (i.e., it’s not necessary to literally create a pass-through business entity like a partnership, LLC, or S corporation). And large highly scaled businesses may enjoy an even greater deduction. However, businesses that rely primarily on the efforts of their owners – whether overtly as Specified Service businesses, or simply those with a limited amount of employee or capital investments – may still struggle to take advantage of the new QBI rules, especially those over the new income thresholds of $157,500 for individuals, and $315,000 for married couples!

#FASuccess Ep 059: Systematizing The Financial Life Planning Process To Increase Your Money Quotient with Carol Anderson

February 13, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 59th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Carol Anderson. Carol is the founder of Money Quotient, a 501(c)(3) non-profit organization in Portland, Oregon that provides financial life planning training to advisors.

What's unique about Carol and Money Quotient, though, is the way they have systematized the process of doing financial life planning for clients.

In this episode, we talk in depth about the 5-meeting financial life planning process that Money Quotient has developed, built around their 5-E stages of Explore, Engage, Envision, Enlighten, and Empower, how advisors can use standardized survey tools regarding a prospective client's financial well-being and potential life transitions eto set a more holistic tone to a financial planning engagement from the start, the way Money Quotient segments the qualitative data gathering process into Satisfaction and Values, Biography, Transitions, and Goals, and the meeting templates they've developed to systematize every step of the process along the way.

We also talk about the psychology and sociology research and theoretical framework that underlies the Money Quotient approach – as they are a uniquely research-based organization in developing their financial life planning framework – the 3-day training program they've developed to teach advisors about their communication tools, and why Carol doesn't consider financial life planning to be an alternative to traditional financial planning, and instead simply views it as a better way to help clients develop the self-awareness they need to truly identify the goals that will really improve their own well-being.

And be certain to listen to the end, where Carol shares her own story about developing Money Quotient, the challenges she faced when her initial partnership didn't work out well, how her daughter ultimately pulled her back into the business, and how Money Quotient is now seeking to grow its own footprint. Because the reality is that the challenges of building a business are equally applicable to both us as financial advisors, and the service providers who work with and train us, too.

So whether you are interested in learning more about Money Quotient's financial life planning process, curious what insights psychology and sociology may have for financial planners communicating with clients, or want to learn more about building a business servicing financial advisors, I hope you enjoy this episode of the Financial Advisor Success podcast!

12 Tips To Survive Your First 12 Months As An Independent Financial Advisor

February 12, 2018 07:01 am 12 Comments CATEGORY: Practice Management

While the average financial advisor with 10+ years of experience makes nearly triple the median US household income, the caveat to becoming a financial advisor is that most don’t survive their first few years, and the pressure of getting all your own clients (and persuading them to actually pay you for advice!).

In this guest post, first-year financial planner Shawn Tydlaska shares his own survival tips for having gotten through his first year, on track for more than $100,000 of recurring revenue(!), which he achieved in large part by heavily reinvesting in himself throughout the first year. Of course, reinvesting means that Shawn spent more than many advisors do in trying to start their advisory firms on a low budget… yet at the same time, by focusing on reinvesting his income as it came in, he was able to do so while limiting his actual out-of-pocket costs.

Shawn also shares exactly what kinds of conferences and courses he put himself through to accelerate his growth, how he structured his marketing (and what materials he takes into a typical prospect meeting today), what he tracks in his business, how he leverages his study group, and more!

So whether you’ve been thinking about going out on your own as an independent advisor but aren’t certain what to do, or you’re already in your first few year(s) and looking for fresh ideas about how to better focus, or are an experienced advisor and just want some fresh perspective, I hope you find today’s guest post to be helpful!