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Kitces & Carl Ep 40: How To Turn Your Advisor Marketing Content Into A(n Entire) Book

August 13, 2020 07:07 am 6 Comments CATEGORY: Kitces & Carl Podcast

Over the past several years, digital marketing strategies have increasingly provided an alternative to the more traditional marketing tactics that advisors have relied on for so long. Blogs, podcasts, social media, lead magnets, email newsletters, and SEO (among a myriad of others) have for many advisors become far more effective than cold-calling and mass mailers, particularly for those establishing themselves as a trusted expert on helping to solve the specific problems of a particular type of niche clientele. And ultimately, there’s perhaps no better way to become recognized as a subject matter expert than by writing and publishing a book. Yet for many, if the thought of trying to find the time and inspiration to come up with enough “stuff” to write a blog or produce a podcast consistently is daunting, then the idea of writing a whole book is downright mystifying and overwhelming!

In our 40th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards share practical tips for actually writing a book, by building on the strategies they’ve shared around creating content for digital marketing, and how advisors can leverage the credibility that comes with being the person who (literally) “wrote the book” on a particular subject.

The key is that for advisors that have already been creating various pieces of content for a while (whether by writing down answers to frequently asked questions, or by recording thoughts and observations on topics that are relevant to prospective and existing clients), after a not-unsubstantial-but-not-overwhelming period of time, there will be a sufficient number of those pieces of content to sort into “piles”. Those piles can then be organized into one of two structures, either a manifesto (i.e., “These are the things I believe” gathered into a coherent flow) or an outright book that provides the expert information to solve a problem for a specific niche. And if the building blocks are there, then it just takes a little bit of work to pick the best bits and hand them off to a freelance editor… who can then help to assemble them into a polished final product.

In other words, financial advisor authors don’t have to try to write books by sitting down and writing a book. They can do it by proactively identifying key ideas and points to communicate to a specific audience, getting into the habit of creating ‘snackable’ pieces of content, and then outsourcing the rest to freelancers who edit and pull together books for a living. All of which can be done today without a big publishing house – which in the end is solely concerned with overall sales volume, while for financial advisors, a book has nothing to do with book sales and everything to do with prospects and clients anyway. In fact, a financial advisor book is arguably just a 200-page business card… but one that will go immeasurably further in establishing real credibility (not to mention generating a few more leads and improving the conversion rate on those leads) than any steak dinner and glossy pamphlet (with stock photos of lighthouses and winding roads) ever will!

Preserving Capital Losses At Death By Gifting Embedded Loss Assets To Avoid A Step-Down In Basis

August 12, 2020 07:04 am 6 Comments CATEGORY: Taxes

Over the past couple of decades, Congress has passed several laws impacting the Federal estate tax exemption, resulting in a significant increase from $675,000 in 2001 to $11.58 million today. As a result, under the current rules, most taxpayers will not be subject to a Federal estate tax liability, and thus, the current focus of tax planning for one’s estate should generally focus on reducing Federal income tax liability. Basis management is a critical part of this process and includes strategies to both maximize the step-up in basis, as well as to minimize the loss of any unrealized and/or carryforward capital losses.

For spouses, two questions are important in determining adjustments to the basis of inherited (non-IRD) assets: 1) who owns the asset, and 2) whether the state of residence is a community property or separate property state. In separate property states, property ownership is generally determined by common law, which generally dictates that property is owned as it is actually titled. Thus, if an asset is in an account that belongs solely to the deceased spouse, then 100% of the asset is subject to a step-up (or step-down) basis adjustment; however, for assets held jointly (typically either as joint tenants with rights of survivorship or tenants by the entirety), the surviving spouse will typically receive a step-up/step-down basis adjustment on only one-half of the assets (the half of assets considered to have been owned by the deceased spouse).

By contrast, in states that follow the “community property” rules (AZ, CA, ID, LA, NV, NM, TX, WA, and WI; with AK also allowing couples to opt-in to community property treatment), most assets acquired during marriage, as well as those assets which are mutually agreed upon to be jointly owned or that can’t clearly be identified as either spouse’s separate property, are essentially treated as being simultaneously owned 100% by each spouse. Accordingly, these assets will automatically receive a full step-up/step-down adjustment on the entire value of the property upon the death of either spouse.

This basis adjustment of inherited assets at death can potentially result in losing out on the opportunity to benefit from realized capital losses, which can be used to offset capital gains and up to $3,000 ordinary income each year. However, by gifting assets prior to death, the original owner’s basis can be retained, and unrealized capital losses preserved!

For non-spouse beneficiaries, the benefits of gifting assets with potential capital losses are not quite as favorable as those for spouse beneficiaries but remain valuable, nonetheless. More specifically, when a non-spouse receives an asset with unrealized capital losses, the so-called ‘double basis’ rules apply. These rules use the value of a gifted asset on the date of the gift to calculate the amount of any capital loss. On the other hand, the donor’s basis at the time of the gift is used to calculate the amount of any capital gain.

Application of the ‘double basis’ rules results in three potential consequences for non-spouses who are gifted with assets that have unrealized capital losses: 1) If the sale price of the asset is less than the fair market value on the date of the gift, then the recipient of the gift can claim a loss equal to the difference between those two values; 2) If the sale price of the asset is more than the original owner’s basis on the gift date, then the recipient of the gift has a capital gain equal to the difference between those two values; and 3) If the sale price of the gifted asset is in between the fair market value on the gift date and the original owner’s basis, the recipient has neither a capital gain nor a capital loss.

Ultimately, the key point is that gifting assets is a simple yet effective strategy to preserve the economic value of unrealized capital losses that can be used to reduce future capital gains (and up to $3,000 of ordinary income, annually). As while the basis of inherited assets will generally receive a step-up (or step-down, depending on the FMV) adjustment at death, unrealized capital losses from inherited assets are essentially useless after the original owner’s death since they will no longer be available for use to offset any gains in tax years after death.

#FASuccess Ep 189: Experimenting With Advisor Marketing To Find The (Digital) Formula That Works For You, with Taylor Schulte

August 11, 2020 07:05 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 189th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Taylor Schulte. Taylor is the founder of Define Financial, an independent RIA based in San Diego, CA that oversees $76 million of assets under management for 60 families in or approaching retirement. What's unique about Taylor, though, is the way he's grown his practice by proactively spending on marketing, from hiring a branding and website design agency to a PR firm to running ongoing advisor marketing experiments, and everything from local SEO to email marketing automation.

In this episode, we talk in-depth about both the hits and the misses in marketing that Taylor has experienced along the way. From the initial $12,000 he invested into his original website that, in retrospect, wasn't focused enough to succeed, to the $24,000 he spent on a PR firm that was deemed valuable but not something he continued, how Taylor figured out how to turn podcast listeners into clients (but only after 3 years of trying), and the way all his marketing results accelerated once he decided to narrow to a more focused target clientele to pursue, even though it meant firing his mother and his grandfather from being clients, such that today, 75% of all of Taylor's new clients first reach out to him through his well-targeted website that speaks to his niche clientele.

We also talk about Taylor's own evolution within the business. How he hit the wall at $250,000 of revenue and got stuck, unable to grow further, not because of his marketing, but his operations limitations, the way he got through the blocking point by hiring an office manager to take over and focus on those operational aspects, the unique hiring process that Taylor used to find the ideal office manager, and the journal that Taylor now keeps to monitor what he should be doing and what he needs to start delegating.

And be certain to listen to the end, where Taylor shares how working with business coaches have helped him break through the key blocking points in his business, how he has come to rely on CRM workflows, even though Taylor in his own words is not operations-minded, and why Taylor's biggest regret is that he didn't focus on his niche clientele earlier, even as he recognizes that struggling without a niche focus for several years may have been the only way he could eventually accept why getting more focused would help the way that it has.

How Diversity Initiatives Often Fail In The Financial Planning Profession By Neglecting To Consider Inclusion

August 10, 2020 07:03 am 3 Comments CATEGORY: Planning Profession

Over the past several years, despite numerous programs from a wide range of organizations encouraging women, people of color, and minority groups to join the profession, the financial planning industry has struggled to increase diversity among its ranks. Which appears at least in part to be due to the fact that, while a 2019 CFP Professionals Survey showed strong job satisfaction among women, Black, and Latino CFP professionals, those satisfaction levels are still materially lower than for ‘traditional’ white male CFP professionals, signaling that the financial planning profession may be attracting more diversity but is also losing diverse CFP professionals at a faster rate… such that the overall diversity among CFP professionals has not increased despite a steady rise in both the total number of certificants and the number of diversity programs targeting them. Because the reality is that the problem is not necessarily one that can be addressed by increasing diversity efforts alone, and instead appears to be that increasing inclusion efforts is the key to increasing (and maintaining!) a more diverse pool of financial planners.

Whereas diversity efforts can be thought of as sending invitations to (more) guests to attend a party, inclusion efforts are separate from those of diversity and can be thought of as asking the guests who arrive to actually dance and engage with other guests. Inclusion involves helping individuals feel safe, involved in the group, respected, and valued. It also recognizes and honors cultural diversity, supporting individuals to express themselves authentically and as valued members of the organization. Furthermore, researchers have found that without efforts to facilitate inclusion, diversity policies can actually be damaging to an organization by upsetting the racial majority, who can tend to feel that the diversity programs are set up to unfairly discriminate against them.

Importantly, effective diversity and inclusion training programs are dynamic and necessarily take into account the unique potential prejudicial viewpoints of their participants, which can range from blatant (openly expressing prejudicial opinions) to symbolic (veiled but deliberately expressed) to aversive (subconsciously expressed). Depending on the participants involved and their respective viewpoints, good training programs can simply encourage individual self-reflection, or can incorporate philanthropic community engagement to give participants opportunities to interact with individuals from more and different cultural backgrounds.

Financial advisory firms looking for ways to increase diversity and inclusion can start by developing mentorship programs to support new financial planners of all backgrounds and by investing in scholarship programs to help aspiring CFPs meet their education and exam requirements. Even compensation can be structured to be more supportive of diversity and inclusion efforts, adopting different compensation models such as monthly or hourly subscription fees to help newer advisors who may initially lack the social structures to thrive on commission-based or AUM-based compensation models (that have disproportionately relied on new financial planners coming from backgrounds and ZIP codes that already have significant financial affluence to turn ‘friends and family’ into initial clients).

Ultimately, diversity and inclusion are important aspects of the financial planning industry that can only help businesses succeed. Not only does a diverse industry workforce better serve a diverse client base, it also helps firms retain diverse employee pools and gives them access to a richer pipeline when recruiting new talent. Despite the shortfall of diversity efforts in our industry so far, a growing focus on inclusion – particularly including mentoring, and organizing/attending conferences and events dedicated to supporting specific groups – can help the industry work towards achieving a net increase in diversity, and not simply bringing in more diverse financial planners only to continue to lose them a few years later.

Weekend Reading for Financial Planners (August 8-9)

August 7, 2020 02:59 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 industry buzz that Schwab has announced it will be retaining TD Ameritrade's iRebal solution in the merger, which is both a big relief to TD Ameritrade RIAs often reliant on the tool, a big opportunity for Schwab to expand adoption of the popular tool to its own even-larger base of Schwab advisors, and a big threat to independent rebalancing software providers currently serving Schwab RIAs that may soon find themselves threatened by Schwab's offer of another 'free' solution.

Also in the news this week is the latest industry trend data from FINRA, showing a record-low number of registered representatives joining broker-dealers in 2019, as more and more financial advisors don't simply leave broker-dealers for RIAs but join RIAs rather than coming into the brokerage side of the industry in the first place (while broker-dealers try to combat the trend by increasingly expanding their own hybrid platforms for those who want to and are willing to be dually registered with FINRA and as an RIA!).

From there, we have a number of additional articles about industry trends, including a consumer survey showing that while investors increasingly want to talk to their financial advisors about a broader range of topics, "investments" are still the dominant category for advice; highlights of the latest FA Insight practice management study showing that advisory firms still grew well in 2019 but organic growth continues to slow while operational overhead costs are on the rise; a mid-year "snapshot" study from Ensemble Practice noting that at least larger advisory firms have weathered the pandemic well with the median firm's revenue down barely 1% and only 4% of firms engaging in layoffs but a whopping 48% of advisory firms seeing at least one employee resign as the pandemic disrupts normal working (and parenting) habits; and a study finding that individual financial advisors shined over 'call center' advisors when it came to making personal connections that maintained client satisfaction in the midst of the pandemic.

We also have several articles on marketing, including why advisor marketing should be viewed as less of a magic formula to spot and more of an ongoing series of experiments to test and improve upon (with some ideas on where to start), tips from Influence expert Robert Cialdini on how to engage and be persuasive with prospects (especially when meeting with them virtually), and a look at how to create an advisory firm that is distinct for having a clear mission and a team that passionately believes in that mission.

We wrap up with three interesting articles, all around the theme of thinking hard about what "success" really means: the first explores how the traditional measure of wealth (accumulated assets) is a poor way to measure because success at wealth-building is really about the wealth you build relative to your income; the second also explores how we often use the wrong "proxy" to measure success; and the third takes an even deeper look at what it really means to be "successful" and what we should be considering when we try to measure the value of our own lives and what we've accomplished.

Enjoy the 'light' reading!

Using A Family Dynasty 529 Plan For Multigenerational College Planning

August 5, 2020 08:37 am 12 Comments CATEGORY: Estate Planning

According to the Bureau of Labor Statistics, individuals with 4-year college degrees earn, on average, almost $25,000 more per year than those who never attended college, while those with professional degrees earn over $60,000 per year more than those who never attended college. Yet, given the steep price of a college education and the high amount of education-related debt that many individuals end out carrying for decades after they graduate, the decision to attend college and earn a degree is often questioned, especially by those who have to pay their own way through school.

For those who are fortunate enough to have parents and/or grandparents with the desire and means to pay some or all of the cost of a higher education, however, 529 plans offer a tax-efficient means of saving and paying for college expenses. Notably, distributions from 529 plans are tax- and penalty-free to the extent that they are used for the beneficiary’s qualifying education costs.

They also enjoy a number of unique features that set them apart from other tax-favored accounts, such as an IRA or 401(k), in that there are no annual contribution limits, but rather, a total maximum balance (which varies by state), after which additional contributions are prohibited. However, not only are those maximums quite substantial (currently ranging between $235,000 and $529,000), but individuals can “own” more than one 529 plan account, there is no limit to how large those tax-deferred accounts can grow and, from time to time, both the beneficiary (which can be only one person at any given time) and the account owner can generally be changed… often without any tax consequences. Moreover, in the event that multiple family members have qualified education expenses at the same time, partial transfers of 529 plan assets to a new beneficiary can be made.

Which means that individuals who have both the means and desire can ‘overfund’ one or more 529 plan accounts (either by making periodic contributions over many years or by a large lump sum contribution), effectively creating a “Dynasty 529 Plan”, which can be used to pay for qualified education expenses of not only their children and grandchildren (or any number of qualified members in their extended family), but potentially for multiple generations of family members to come!

Given the potential for perpetual tax-free growth, a Dynasty 529 plan can be an attractive strategy that affluent families can use in order to provide a legacy of education for their family. Advisors, however, must use special care when implementing such a strategy, as there are potential gift tax and Generation-Skipping Transfer Tax (GSTT) implications to navigate, maximum contribution limits to consider, and different features across states (where some states consider changes in ownership a distributable event). Meanwhile, there’s also a risk that any number of future events may derail a carefully crafted Dynasty 529 plan, including potential changes in 529 plan transfer rules, the possibility that Congress could decide to make a college education available to everyone at no cost, and the chance that future account owners may decide to simply cash out the plan for their own use (which could be mitigated, however, by creating a trust, which could serve as the account owner).

Ultimately, the key point is that, while the cost of higher education is more expensive than ever, a college degree is still one of the most reliable predictors of future income and wealth, and as such, helping family members obtain one is a common goal for individuals who understand the importance of education and are in a position to offer their help. And especially for affluent families, a Dynasty 529 plan can be an effective tool to capitalize on the significant and unique tax benefits and flexibility offered by 529 plans, making them an attractive option for providing legacy educational support for many generations to come.