Nerd's Eye View blog

The Latest In Financial Advisor #FinTech (November 2017)

November 6, 2017 07:01 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the November 2017 issue of the Latest News in Financial Advisor #FinTech – 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 and wealth management!

This month's edition kicks off with the big debut of CleverDome, a next-generation cybersecurity solution that aims to bring all major financial services providers into a closed network that operates with a “Software Defined Perimeter” (SDP) to block out hackers and only permit known entities to interact with vendors. At the T3 Enterprise advisor technology conference, CleverDome announced that it is launching with Redtail CRM, Orion Advisor Services, Riskalyze, Entreda, and TD Ameritrade all “under the dome”, and is looking to rapidly add more advisor tech providers in the coming months.

Also in the news this month was a slew of new “Model Marketplace” announcements, including the launch of Orion Advisor Services’ “Communities” model marketplace built around its new Eclipse rebalancer, a pivot by Oranj to build a new MAX model marketplace around its recently acquired TradeWarrior rebalancing software and make its platform free to advisors to place assets in MAX, and the announcement that Apex Clearing is launching its own API-based rebalancer called Equilibrium that may also become a future player in Model Marketplaces (while enhancing its capabilities to compete with other RIA custodians as well).

From there, the latest highlights also include a number of major new product and feature rollouts this month, including:

Morningstar launches its “Best Interests Scorecard” solution to help advisors with DoL fiduciary due diligence and compliance on IRA rollovers
Redtail launches “Redtail Speak”, a new compliant text-messaging solution for advisors
Advizr launches “Accelerate”, which will allow advisors to directly open investment accounts or begin insurance applications from within a financial plan presentation
CapGainsValet re-opens its annual tracking database of end-of-year mutual fund distributions

You can view analysis of these announcements and more trends in advisor technology in this month's column, including fresh Series A rounds of capital for Snappy Kraken and Vestwell, the launch of U.S Bank’s “FundKeeper” platform that aims to reinvigorate the “direct mutual fund” business of small- and mid-sized broker-dealers (with better compliance oversight and a fraction of the cost!), and the release of a series of “Consumer Protection Principles” from the Consumer Financial Protection Bureau to re-assert that consumers are the owners of their financial data and have a right to grant third-party data aggregators access to it (despite a desire of many Financial Institutions to limit the flow of data that is increasingly being used against them!).

I hope you're continuing to find this new 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]!

Evaluating The Proposed Individual Tax Reforms Under The House Republican Tax Plan

November 3, 2017 08:42 am 128 Comments CATEGORY: Taxes

(Michael’s Note: In light of the breaking news of the long-awaited release of the House GOP tax reform legislation, we have pre-empted the usual Friday Weekend Reading with this special “In-Depth Review Of The Proposed Tax Reforms” edition of Weekend Reading! Hope it helps!)

(Note: For an updated discussion of the final 2017 GOP Tax Plan, see Individual Tax Planning Under The Tax Cuts And Jobs Act Of 2017.)

After more than a year of buzz from both House Republicans, and President Trump, and high-level proposals that were scant on crucial details, this week the House GOP finally unveiled the actual draft legislation of its proposed tax reform – kicking off the messy process of Congressional compromises that may still be necessary to actually pass the reforms into law, but providing a first real glimpse at exactly what is on the table.

While the proposals of the “Tax Cuts and Jobs Act” are not quite the sweeping level of “file your tax return on a postcard” that Republicans had proposed early on – as the inevitable push for compromises eliminated the elegant simplicity of the original version – the House GOP proposal nonetheless represents some of the most significant tax reform in more than 30 years, with a reduction in the number of tax brackets from seven to four with the same top tax rate of 39.6% (albeit with a 6% surtax for a portion of income over $1M that effectively creates a new 5th tax bracket at 45.6% before reverting back to 39.6% again), the repeal of the AMT, and substantial simplification employee fringe benefits, college tax preferences, and itemized deductions… along with a near doubling of the standard deduction that will make itemizing a moot point for most individuals anyway.

On the other hand, the proposed changes also bring a whole host of crackdowns that will likely trigger complaints for many – but then again, sweeping tax reform virtually always means that everyone has at least some pet deduction or tax credit to lose. Though for many, the negatives will be made up for most of the middle class by the expanded standard deduction, an increased $1,600 child tax credit, and a new “Family Flexibility Credit” of $300, fewer (and for many, lower) tax brackets, while more affluent business owners will be attracted to the opportunity for many types of pass-through business income to be taxed at favorable 25% tax rates (though, alas, not the pass-through income for financial advisors!), as well as a (delayed) repeal of the estate tax (starting in 2024).

Ultimately, it remains to be seen whether or how much the Tax Cuts and Jobs Act will be altered from here, as the messy process of compromise begins in an effort to garner the necessary votes to actually pass the legislation. Nonetheless, the fact that so many compromises have been brought already, from the original House GOP framework, and the fact that the GOP already laid the groundwork to pass the legislation with an up-to-$1.5 trillion deficit projection under budget reconciliation rules (which only require 51 votes in the Senate and cannot be filibustered), suggests that legislators are truly positioning this proposed tax reform legislation as something that can garner enough votes to pass (as in current form, it is projected to cause a $1.487T revenue loss over 10 years, just under the budget reconciliation thershold). Which means that while some of the exact details may shift, the current proposal has a real chance of being passed in the coming month, setting a new foundation for the Internal Revenue Code (and individual tax planning) in the coming decade!

B/D Advisor Valuations To Compress As The Broker Protocol Unravels

November 2, 2017 11:10 am 10 Comments CATEGORY: Industry News

Since 2004, brokers moving from one wirehouse or broker-dealer to another, or breaking away entirely to the RIA channel, have relied on the Broker Protocol to set the rules for switching firms without fear of being sued. However, the big news this week is that Morgan Stanley – the largest wirehouse by advisor headcount – is leaving the Broker Protocol effective Friday November 3^rd, in what is likely the beginning of the end of the Broker Protocol, and a reversion back to the dark days of breakaway lawsuits.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why Morgan Stanley leaving the Broker Protocol is likely to result in the unraveling of the Broker Protocol, and the subsequent implications, including reduced payouts at wirehouses and a compression of advisory firm valuations for those at broker-dealers.

For those that are unaware, the Broker Protocol stipulates the specific five pieces of information (client names, addresses, phone numbers, email addresses, and account titles) that departing brokers can take with them without fear of being sued for violating the firm’s non-solicit agreements or any client privacy and confidentiality obligations under Reg S-P. Originally put in place by Merrill Lynch, UBS, and Smith Barney (now Morgan Stanley) in 2004, the Broker Protocol effectively served as a cease-fire of breakaway lawsuits between the major wirehouses, but in the decade since has grown to also include over 1,600 other firms (including independent broker-dealers and RIAs that hire brokers away from wirehouses).

The reason why it is such a big deal that Morgan Stanley is leaving the Broker Protocol isn’t just about what happens to brokers at Morgan Stanley who want to leave in the future, but because Morgan Stanley’s decision to leave the Broker Protocol will likely unravel the entire Broker Protocol in short order. Because as it stands now, if Morgan Stanley recruits a Merrill or UBS broker, the broker can leave under Broker Protocol. But if UBS or Merrill recruits a Morgan Stanley broker, then Morgan Stanley is reserving the right to sue the broker for leaving (and likely UBS or Merrill Lynch as the recruiting firm). So, from Merrill Lynch’s perspective (and UBS, and Wells Fargo), it’s not a good deal to stay in the Broker Protocol when Morgan Stanley isn't. As long as they were all in, they all shared the potential pain and the potential benefits together. But once Morgan Stanley leaves, there’s not much reason for the others to stay, either. And the more firms that leave, the less value there is for any to remain, including a number of independent broker-dealers that have been net losers of broker recruiting in recent years.

Which means we’ll be moving back to the dark days of breaking away from a broker-dealer in the early 2000s and the 1990s, where breakaway attempts were almost immediately followed by a cease-and-desist order, which might then be followed by a judge issuing a Temporary Restraining Order requiring that the broker stop contacting clients or risk going to jail for being in contempt of court. And then the breakaway lawsuit would come, alleging theft of trade secrets (for the former broker taking the broker-dealer's client list), breach of confidentiality and client privacy, and/or breach of non-solicit agreements. Of course, there were brokers who still made the breakaway transition, but it was far more risky and expensive, and broker-dealers were often eager to sue if they could, as even if they didn't prevail against a particular broker, the legal costs effectively raised the cost of breaking away in order to make it less appealing for any other broker to consider trying it as well.

Yet if the end of the Broker Protocol makes it difficult, more risky, and more expensive to try and leave a broker-dealer, that also means that broker-dealers will have more leverage to cut their payouts to advisors as well (what are you going to do, try to leave?). And when it is harder to leave and take clients, brokers will increasingly be compelled to sell to other brokers on the same platform... which means brokers can’t sell to the top buyer willing to pay the best price as they become more captive to only buyers at their current B/D. As a result, the valuation of advisory businesses under a broker-dealer will likely compress going forward, and sellers will have more difficulty negotiating favorable tax and payment terms from buyers.

Realistically, not all broker-dealers will leave the Broker Protocol, as those that have been successfully using it to hire away from their competitors (e.g., Raymond James, RBC, and Janney) will want it to stick around. But in a world where most broker-dealers have been net losers on recruiting, either to other larger broker-dealers, or to the RIA channel, most broker-dealers will not likely stay in the Broker Protocol - and especially not the firms that brokers would most likely want to leave! Which means brokers at other firms contemplating leaving - especially at the major wirehouses - may want to accelerate their plans… at least while they still can! Because, as Morgan Stanley has shown, a firm can depart the Broker Protocol very quickly once they make the decision to do so!

Does Failed Retirement Income Planning Really Result In Bankrupt Financial Ruin?

November 1, 2017 07:01 am 9 Comments CATEGORY: Retirement Planning

While it is a topic most retirees hope to avoid ever dealing with, the reality is that not all retirement income plans will be successful. Whether due to a retiree’s refusal to plan, reluctance to take the advice of a professional, or simply due to unfortunate circumstances which were outside of a retiree’s control – failures in funding retirement can and do occur. In fact, financial planners routinely do Monte Carlo projections for retirees to determine their prospective probability of failure, especially given growing awareness of sequence of return risk.

Yet given the reports of low levels of both objective measures of retirement preparedness (such as savings) and subjective measures of retirement preparedness (such as retirement confidence), many financial advisors may be surprised to learn that bankruptcy rates among those over age 65 appears to be less than 3 per 1,000, and actually declines among older retirees. So, what’s going on? If retirees are living longer than ever – which should be making retirement more difficult than ever to afford and sustain, especially given the long-term impact of sequence of return risk – then where are all of the bankrupt retirees?

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – examines bankruptcy among retirees, finding that the reality is that bankruptcy may not be a great indicator of retirement income planning failure. A retiree who blows through their nest egg doesn’t necessarily end up bankrupt, they simply need to adjust their spending downwards to their new reality. Social Security plus public assistance represent the true consumption “floor” for most. Further, bankruptcy may not even be a great indicator of actual financial strain, as given the rules surrounding bankruptcy, the ways that retirees deplete their retirement assets does not necessarily trigger an actual bankruptcy filing, especially in light of the ways in which bankruptcy laws favor those in retirement.

Nonetheless, the point remains: with longer life expectancies and struggles with retirement preparedness, especially combined with the difficult markets of the past 15 years, the retiree bankruptcy rate is shockingly low. Which suggests that the overwhelming majority of retirees facing retirement shortfalls really are able to downsize their lifestyle to avoid financial ruin when the time comes. Of course, few retirees want to risk even a major lifestyle setback in retirement if they can avoid it. Still, though, if most retirees really are capable of making spending adjustments when necessary… shouldn’t those potential adjustments be better reflected in financial plans in the first place?

#FASuccess Ep 044: Structuring A Successful Internal Succession Plan As A 25-Year-Old Buyer with Jake Kuebler

October 31, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the forty-fourth episode of the Financial Advisor Success podcast!

My guest on today's podcast is Jake Kuebler. Jake is the President of Bluestem Financial Advisors, an independent RIA based in Champaign, Illinois, that provides a combination of financial planning, investment management, and tax preparation with 4 staff members for nearly 100 clients using a comprehensive annual retainer model.

What's really unique about Jake's business, though, is that he's actually the next generation successor owner of Bluestem, having spent the past 5 years buying out the founding owner, Karen Folk, while nearly doubling the size of the practice along the way. Oh, and he just turned 30. Which means he started this internal succession plan as a buyer when he was just 25.

In this episode, we talk in depth about how Bluestem built a niche focus on serving college professors and administrators (as they are based in the hometown of the main University of Illinois campus!), why they chose to include tax preparation as a part of their annual service offering, the structure of Bluestem's annual retainer fee model and how it changes from upfront to ongoing clients, how their retainer model structure is allowing them to grow the business serving a substantial segment of young professionals in the Champaign area in addition to retirees, and the business management spreadsheet that Jake uses to monitor and track the key metrics of his advisory firm along the way.

From there, we also talk about the details of the actual succession plan that Jake executed with the founder, how they eventually came to terms on setting a price for the internal succession plan of a hard-to-value solo advisory practice, the way the purchase was structured and funded, and how it was balanced to share the upside for both Jake as the buyer, and Karen as the seller, for any growth that happened after the terms of the deal were set.

And be certain to listen to the end, where Jake shares his own advice to other young advisors looking to buy into an advisory firm and be a succession plan, about how to push the conversation forward when the founder just doesn't seem to want to sell.... and how to know when it's time to cut bait and leave and find another opportunity instead.

So whether you’ve been curious to see an example of how an internal succession plan is structured, to hear the perspective of the buyer’s side of a succession plan, or just want a glimpse into the world of a successful retainer-based practice with a clear niche, I hope you enjoy this episode of the Financial Advisor Success podcast!

Becoming B Corp Certified As A Financial Advisory Firm

October 30, 2017 07:01 am 1 Comment CATEGORY: Practice Management

With the increasing interest and focus from consumers on sustainable and socially responsible investing, more and more financial advisors have started to offer SRI portfolios designed to more effectively align a client's investment dollars with their stated values. However, the next frontier in these values-based investment approaches is not merely to allocate client dollars to SRI portfolios, but to operate the financial advisory business itself in a manner that effectively considers its environmental, social, and community impacts.

In this guest post, Georgia Lee Hussey and Liliya Jones of Modernist Financial provide a guide to making values-based commitments as a financial advisory firm through becoming B Corp Certified. The B Corp certification is not an alternative to other corporate structures like an S or C corp, but a process that entails making a legal commitment (through the business' bylaws or operating agreement) that affirms the existing S or C corp (or partnership or LLC) business entity's commitment to consider its impact on all stakeholders (rather than just maximizing shareholder value). After recently going through the process of getting their RIA to become B Corp Certified themselves, Georgia and Liliya outline what a B Corp is, why financial advisors should consider getting their firms B Corp Certified, and how to go about the process.

When a financial advisory firm wishes to become B Corp Certified, the advisory firm owner must first take an assessment which evaluates their practices in the areas of governance, workers, community, environment, and customers. After completing this assessment, firms will be required to provide some documentation of select items, and possibly create a specific action plan for bringing their firm up to required standards. Once a firm meets the criteria required by B Labs - which grants the B Corp certification - they are then required to make the necessary changes to their corporate documents in order to make their commitment to ethical practices legally binding.

Financial advisors interested in earning B Corporation® certification have many ways to ensure they are considering all stakeholders in their decision making, from implementing ESG portfolios and promoting diversity and inclusion in the industry, to investing in their employees and considering the environmental impact of their firm. Ultimately, being a B Corporation® can be a way to truly apply a values-based perspective beyond the portfolio itself. Which can result in a new way to build trust with prospective clients - especially those who already have a strong values-focused oriented to where they invest and who they do business with - as well as connect with a broader community of like-minded socially-conscious entrepreneurs, and provide an environment that is more attractive to next generation advisors!

Weekend Reading for Financial Planners (October 28-29)

October 27, 2017 02:58 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big buzz in the advisory world this week... a major feature article in the Wall Street Journal dubbed "The Morningstar Mirage" that notes how Morningstar star ratings based on past performance are a huge driver of mutual fund asset flows but have at best only limited predictive value of future performance (though the Journal authors, as well as Morningstar in its response, both note that highly rated funds are still at least somewhat more likely to outperform than just picking mutual funds at random!).

Also in the news this week was a separate major announcement from Morningstar, that it's DoL fiduciary proposal tool, the "Best Interests Scorecard", is now available as an add-on to the Morningstar Advisor Workstation. And the Investment Management Consultants Association (IMCA) announced that it is rebranding to the Investments & Wealth Institute (IWI), and has acquired the Retirement Management Analyst (RMA) designation as part of its growing investments and wealth management focus.

From there, we have a number of marketing and business development articles this week, including: a review of what a "marketing funnel" really is, and how it's relevant for financial advisors; a discussion of how most advisor websites are built for the wrong purpose, aiming to educate about the advisor's firm or get a prospective client to call when really it should just focus on getting a prospect's email address instead; a fascinating research survey about where ultra-HNW investors go for their financial news that finds HNW investors tend to rely on both traditional media, social media, and an advisor's own communication (and that younger HNW clients are even more likely to rely on the advisor's communication!); how digital marketing lessons from Silicon Valley can be applied for financial advisors, particularly when it comes to "influencer marketing"; why your answer to the simple question "How's It Going?" can unwittingly deter clients from giving you referrals; and how the best way to build Center Of Influence (COI) referrals is not to just try to find "good" COIs, but instead to work more deeply with the COIs your clients already use, where you can turn deepening client engagement with a mutual client into COI referrals instead!

We wrap up with three interesting articles, all focused around the theme of taking a fresh look at popular themes: the first explores how advisors should beware about entirely rebranding themselves as behavioral coaches and accountability partners, because the truth is that most people don't actually want to always be held accountable for everything (and at best, advisors need to be more sensitive about how to frame accountability in a positive, future-focused manner); the second looks at the simple concept of financial milestones, and the kinds of common milestones that can (and should) be celebrated with clients; and the last looks at how the recent wave of natural disasters, from hurricanes to fires, have been causing people to question how much "stuff" they really need... and not just those who are impacted by the disaster, and may have lost everything and need to start over, but even those of us who only saw the events on the news, but still find ourselves questioning whether we have too much "stuff" and how we could better focus on the things that really matter.

Enjoy the "light" reading!

Why The New SIE Exam Is The Wrong Track To Become A Financial Advisor

October 26, 2017 11:33 am 11 Comments CATEGORY: Industry News

Many financial advisors getting started in their careers have historically faced the same conundrum: In order to get started with a broker-dealer, you needed to pass your Series 6 or Series 7 exam. However, you couldn’t actually start on your Series exam until you got hired by a broker-dealer, so they could sponsor you in the first place! Which created issues for both prospective financial advisors, and the broker-dealers hiring them. Acknowledging the problems this creates, earlier this year FINRA received approval from the SEC to begin offering the SIE (Securities Industry Essentials) exam starting next year, which will finally allow prospective financial advisors to get started on their Series exams without being sponsored!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the new SIE exam, including how it works, what it covers (and doesn't cover), and why it ultimately isn't actually a good path to becoming a financial advisor in the future.

Under FINRA Regulatory Notice 17-30, the SIE (Securities Industry Essentials) Exam will actually first become available next October of 2018, allowing prospective brokers to be able to sit for the SIE exam without first being sponsored by a broker-dealer. Instead, the individual will be able to register themselves directly with FINRA, and then register to take the SIE exam at a local testing center from organizations like Prometric and Pearson. The SIE exam will cover, as the “Securities Industry Essentials” name implies, the basics of the financial services industry, including knowledge of basic products, and the rules and regulatory structure of the financial services industry itself.

Notably, however, the SIE exam is not actually a replacement for the Series 6 or Series 7 exams. Those who have passed the SIE will still need to take abbreviated Series 6 and Series 7 exams, to "top off" the initial SIE exam, after getting hired by a broker-dealer and being sponsored for the final Series exam. But the SIE exam will provide the initial pathway to the Series 6 or Series 7 exams... allowing prospective brokers to get started without first getting sponsored. Additionally, though, the SIE exam doesn't actually prepare anyone to be/join a Registered Investment Adviser (RIA), because the SIE exam prepares for broker-dealer jobs, not for RIA jobs that require the Series 65 exam instead.

And that’s ultimately why I’m actually concerned about the introduction of the SIE exam. Particularly for college students and young entrants to the profession, given that college students studying financial planning are likely going to be pushed to take the SIE exam before they graduate to get started as a financial advisor. Only to discover once they search for financial planning jobs, that increasingly the jobs require them to have a Series 65 exam and work under an RIA or a hybrid RIA... which means their SIE exam will be useless!

The bottom line is to recognize that while the SIE exam may be a great expedited pathway to getting a job at a broker-dealer to sell financial services products, it’s still ultimately a path to getting a Series 6 or Series 7 or similar license, which are licenses for salespeople. The path to getting paid for financial advice, under the current regulatory environment, is all about passing the Series 65 and becoming or joining an RIA (or at least a hybrid RIA), which the SIE exam doesn’t cover at all!

Spousal Rollover And Stretch Rules For Inherited Traditional And Roth IRAs

October 25, 2017 07:01 am 15 Comments CATEGORY: Taxes

The key benefit of specialized retirement accounts are their tax preferences – from the upfront tax deduction and tax-deferred growth of an IRA or 401(k), to the opportunity for tax-free growth from a Roth. Such tax benefits are intended to encourage and incentivize workers to save for retirement, and to make retirement at least a little more affordable. The caveat, though, is that if all the assets are not actually used for retirement, the retirement account – whether an employer retirement plan or an IRA, Roth or traditional – must be unwound, as eventually the Federal government does want to collect its share! Accordingly, IRC Sections 401(a)(9) and 408(a)(6) prescribe a series of somewhat-complex rules to determine exactly how fast a tax-preferenced retirement account must be liquidated after the death of the original owner, allowing the beneficiary in most cases to stretch out the tax impact over time (dubbed the “stretch IRA” strategy).

However, the reality for many couples – particularly single-earner households – is that the retirement account assets may be in only one spouse’s name, even though the savings were intended to support the couple jointly in retirement. And so in recognition of this dynamic, the tax code provides unique preferential treatment for a spouse who is the beneficiary of a retirement account, allowing not only more favorable stretch IRA (and stretch 401(k)) provisions, but also the opportunity for a spousal beneficiary to “roll over” the inherited retirement account and treat it as his/her own.

Yet while the additional flexibility of the spousal stretch IRA and the spousal rollover option are both more favorable than the standard rules for non-spousal beneficiaries of inherited retirement accounts, the special choices that spouses face have unique trade-offs. On the one hand, leaving an inherited IRA as such for a spousal beneficiary obligates him/her to take post-death Required Minimum Distributions (RMDs) – potentially sooner rather than later – but avoids the impact of an early withdrawal penalty. A spousal rollover allows for the use of more favorable RMD tables, and may defer the onset of RMDs until even later, while also providing more favorable treatment for subsequent beneficiaries… but re-introduces the 10% early withdrawal penalty, which may be problematic for younger spousal beneficiaries (under age 59 ½).

Ultimately, the good news is that spousal beneficiaries have the option to make either choice, and even have flexibility about the timing – allowing a decision to maintain an inherited stretch IRA for the spouse initially, and completing a spousal rollover later (after he/she turns age 59 ½). Nonetheless, it’s important to carefully consider the choices and trade-offs… especially since a spousal rollover, once completed, is irrevocable and cannot be undone after the fact!

#FASuccess Ep 043: Navigating The Internal Succession Planning Turning Point As An Advisory Firm Founder with Marty Kurtz

October 24, 2017 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the forty-third episode of the Financial Advisor Success podcast!

My guest on today's podcast is Marty Kurtz. Marty is the founder of The Planning Center, an independent RIA based in Moline, Illinois, that - as the name implies, quite deliberately – provides comprehensive financial planning for clients, along with investment management for more than $700 million of client portfolios.

What's unique about Marty's business, though, is that he's already in the midst of executing a succession plan that will ultimately wind down his ownership and management of his 26-employee and now multi-partner firm. In other words, while a lot of advisors talk about succession planning, Marty is actually living the process.

In this episode, we talk in depth about succession planning, and the real-world challenges that crop up in trying to facilitate an internal succession plan, from the difficulty in finding an "appropriate" valuation for the firm, the dynamics that emerge between founders and the next generation of advisors that want to take over the business, and why founders need to recognize the trade-offs that often exist between maximizing the dollar value of the business by selling to a third-party, and maximizing the longevity and sustainability of the business itself by selling internally.

From there, we also talk about how The Planning Center is shifting away from the AUM model to a unique retainer model that charges clients 1% of their income plus half a percent of their liquid net worth, how Marty jump-started the growth of the firm in the early years with a strategic partnership with a local accountant (and how they structured - and had to later change - the revenue-sharing solicitor agreement), and the unique household cash flow planning technique that he uses as the First Step of the financial planning process with every client.

And be certain to listen to the end, as Marty provides his advice to those who are looking to become successors in a firm about the conversations they need have – and drive, if necessary – with their founders to ensure the succession plan really happens. And Marty talks about the new business he's helping to create – called Turning Point – that helps experienced advisors who founded firms and are looking to sell to figure out what they really want and need, deep down, to make the succession plan a success.

So whether you're curious to hear the successsor's perspective on executing a succession plan, or are looking for ideas of new and innovative non-AUM advisory firm business models, or simply want to learn how one advisor built success with a focused strategic alliance with an accounting firm, I hope you enjoy this episode of the Financial Advisor Success podcast!