Nerd's Eye View blog

The 13 Best Conferences For Financial Advisors To Choose From In 2018

October 23, 2017 07:01 am 8 Comments CATEGORY: Conferences

Michael Gerber’s famous business book “The E-Myth” points out that most small business entrepreneurs struggle because they spend all of their time working in their business, and too little time working on the business itself. Any small business owner who has a unique and valuable personal skillset – from a pie-maker to a doctor to a financial advisor – is particularly prone to this challenge, as almost by definition what gets them paid is the work they do in the business. And accordingly, to the extent they take time off to go to a conference once or twice a year, they tend to go to events that help them improve their skills in the business (i.e., continuing education), particularly since most regulated professions have CE requirements anyway.

To break the cycle for financial advisors, I’m declaring 2018 as “the year of the practice management (or career development) conference” instead. Because the reality is that there is an ever-growing number of choices on how to fulfill your annual CE requirements online, from conferences that are live-streamed or recorded for subsequent purchase, to an abundance of webinars on demand, and even the Members Section of this blog (and CFP professionals only need to complete CE requirements every other year anyway!). But the opportunities for good practice management content that actually helps you work on the business more effectively, or career development content that helps you grow to the next level, are few and far between. And when it comes to working on the business, it’s especially important to actually physically leave the business and go to a conference, as you have to get beyond your own four office walls to get a fresh perspective on your business or career.

Unfortunately, though, going to a conference is a major investment – with conference registration fees that can run $1,000 or more, plus the cost of airfare and hotel accommodations – which means it’s especially important to pick the right conference to get value. In fact, given that in recent years I’ve been speaking annually at nearly 70 conferences myself, and have presented at virtually every major conference in our industry, from the various membership association events to custodian and broker-dealer and even media publication conferences, I’m often asked for recommendations of what I think are the “best” conferences for financial advisors based on what I’ve seen.

Accordingly, in 2012 I started to craft my own annual list of “best-in-class” top conferences for financial advisors, based on my own travels and experience, and divvied up into categories that would make it easier for advisors to select what matches their own needs at their current business or career stage.

And now, I’m excited to present my newest list of “Top Financial Advisor Conferences” for 2018, all with a focus on practice management and career development. Of course, given that we’re all at different stages of our businesses, some events are much better suited to certain types of advisors, and accordingly I’ve tried to delineate which are the best depending on your size of business, industry channel, and/or career stage.

So I hope you find this year’s 2018 financial conferences list to be helpful as a guide in planning your own conference budget and schedule for next year. And I hope you make the investment – because the truth is that you just need one major takeaway to materially change the trajectory of your business or career in the coming years! Also, be certain to take advantage of the special discount codes that several conferences have offered to all of you as Nerd’s Eye View readers (especially since a few early-2018 events have their Early Bird deadlines closing soon)!

Weekend Reading for Financial Planners (October 21-22)

October 20, 2017 02:57 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of major RIA custodian and broker-dealer news stories, including the decision by TD Ameritrade to eliminate 84% of its no-commission ETF lineup (including all of its Vanguard ETFs) with just 30 days' notice to advisors to re-design their portfolios, the news that retail online brokerage giant E-Trade is looking to enter the RIA custody business by acquiring Trust Company of America (for a whopping $275M!), the launch of U.S. Bancorp's new "FundKeeper" platform that could substantially disrupt mutual fund distribution and aid most small-to-mid-sized broker-dealers that don't self-clear, and a backlash against FINRA for granting block transfer approval in the LPL/NPH deal after not allowing it for any other recent broker-dealer acquisitions (though the change in precedent could just further accelerate broker-dealer consolidation from here!).

From there, we have a few more technical articles, all around the theme of handling concentrated stock positions, from a discussion of a "Stock Protection Fund" strategy to partially hedge concentrated stock positions for executives (without liquidating the stock and incurring tax consequences), to how an "M&A Reseller" strategy can help small business owners gain installment-sale tax deferral on the sale of a business while minimizing the credit risk of taking on an installment note directly from the buyer, and a look at the rise of Securities-Based Lending (SBL) and how it can help provide short-term liquidity at a reasonable cost for those with concentrated stock positions.

We also have several practice management articles this week, including: How to change the ways you ask questions in a prospective client approach meeting to better connect emotionally with clients; a 5-meeting structure for approaching prospects and turning them into clients (and getting them comfortable after they've onboarded); and how to re-frame a client or prospect event around a "life transition" event that can help get a far better turnout than "just" talking about your latest investment views or a particular financial planning strategy.

We wrap up with three interesting articles, all around the theme of challenging our perceptions: the first is a fascinating look at how Betterment is putting behavioral testing into practice to determine what really helps clients to stay the course (and finds that just communicating to all clients that they should "stay the course" with a blast email during market turmoil is actually not a very effective strategy after all!); the second looks at the research into how (and why) we actually change our minds, and finds that the biggest key to helping someone change their mind is to give them an "out" so it's not embarrassing for them to change their views; and the last is a simple but powerful way of looking at advice, recognizing that the best advice is not just good advice, but effective advice that people can implement given all of our behavioral biases!

Enjoy the "light" reading!

TD Ameritrade Sells Out NextGen Advisor-Client Platform By Replacing 84% Of Its NTF ETF Lineup

October 19, 2017 01:06 pm 42 Comments CATEGORY: Industry News

The growth of ETFs in recent years has been nothing short of extraordinary, with more than $3 trillion of ETF assets in the US, and ETF adoption amongst advisors rising rapidly from just 40% a decade ago, to 88% of advisors today. Yet, unfortunately, one of the main appeals of ETFs - that they trade "like stocks" - has also inhibited their growth, as the ticket charges of trading commissions can add up quickly for younger investors that are still in the accumulation phase and making modest ongoing contributions to a diversified multi-ETF portfolio. Fortunately, in recent years, RIA custodians have helped to fill this void by offering so-called "no-commission" or "no-transaction-fee" (NTF) platforms, where a set list of ETFs can be traded without incurring transaction costs... which has been especially helpful for advisors creating ETF portfolios for young savers. Yet this week, TD Ameritrade upended its no-commission ETF Market Center for financial advisors by announcing the removal of 84% of their current NTF exchange-traded funds, including several iShares Core ETFs and the entire lineup of popular Vanguard ETFs!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the TD Ameritrade’s big announcement, the good news of their newly expanded ETF Market Center lineup, and the bad news of how TD Ameritrade's decision to remove 84% of the existing no-commission ETFs upends financial advisors on the platform – and has been particularly damaging to those advisors who were most loyal to ETF Market Center while serving next generation clients!

In recent years, TD Ameritrade's ETF Market Center platform was used primarily by financial advisors who wanted to construct simple low-cost passive portfolios for their younger clientele, whose more moderate account balances and ongoing contributions were especially well suited to the no-commission ETF lineup... especially given the availability of low-cost iShares Core and Vanguard ETFs. Yet some financial advisors prefer to express a wider range of investment views, from more targeted allocations (which can be tax loss harvested), to applying factor tilts... and accordingly, TD Ameritrade has expended the selection of Market Center ETFs up to 296 (including the new ultra-low-cost State Street “SPDR Portfolio” series).

Yet unfortunately, the removal of all Vanguard ETFs and the most popular iShares Core ETFs has put advisors in the lurch, leaving them barely 30 days to make changes for their clients before ticket charges will apply. Which means, what was a convenient solution for financial advisors has just become a big headache, as they must now scramble to investigate and map out replacement funds, contact clients, and update portfolios over the next 30 days.

Fortunately, the reality is that all those Vanguard and iShares Core ETFs are still going to be available through TD Ameritrade. They’re not being removed from the custodial platform; they're simply being removed from the commission-free ETF Market Center platform, and as a result advisors can continue to hold onto those ETFs for existing clients. But after November 20^th, any subsequent purchases for new contributions (or sales of existing ETFs) will cost $6.95 per trade. Which for small ongoing contributions, is still cost-prohibitive, and will likely force advisors to at least switch to the new ETF lineup for new contributions, and potentially make switches for the existing ETFs as well.

Except making such a transition introduces a lot of operational complexity for advisors. Because now advisors will be forced to decide whether to switch all existing funds from the old lineup to the new lineup. Which is challenging because, even without ticket charges, there are still bid/ask spread concerns to consider… especially given that some of the new ETFs still have very low volume. In addition, long-term accumulator clients now have substantial capital gains issues, after 7 years of a raging bull market! And keeping existing funds in current ETFs and allocating new funds to new ETFs is logistically very difficult to manage without rebalancing software - and at best requires programming "proxies" into current rebalancing tools just to ensure accidentally-taxable sales aren't triggered in the future.

And if these investment decisions weren’t enough to cover in 30 short days, the real challenge for virtually every advisor will be the client communication burden imposed by the TD Ameritrade changes. By adopting completely different ETFs, advisors are going to need to have a lot of conversations over the next 30 days… not to mention needing to review (and potentially get signed and updated) Investment Policy Statements, update Fact Sheets and address hypothetical performance comparison issues going forward due to the fact that the new ETFs are largely built around different indices than the prior line-up, and review tax considerations on a client-by-client and account-by-account basis!

Perhaps most frustrating, though, is that there's no reasonable explanation for why TD Ameritrade is forcing these changes on its RIAs and next generation clients... except that apparently State Street and other ETF companies were willing to pay more to be in TD Ameritrade's ETF Market Center than the existing players (as Vanguard is notoriously not willing to share revenue with custodians). Which means, basically, that TD Ameritrade sold out financial advisors and their next generation clients on the ETF Market Center lineup! And it’s perhaps no coincidence that this change happened just a month after RIA champion Tom Bradley left TD Ameritrade... raising the question of whether there is a cultural shift away from Institutional business at TD Ameritrade, and grossly undermining TDA's position as a "champion of RIA fiduciaries" and next generation clients.

Ultimately, though, TD Ameritrade does still have some options to right their wrongs and restore trust with advisors and their next generation clients. First, TD Ameritrade could simply bring back the old funds and add them to the lineup of new funds (as the fundamental problem with the announced changes is not the additions, but the subtractions that were made). If TD won’t make such concessions for everyone, at least they can consider doing so as an “Institutional-only” option, or otherwise grandfather advisors who were already on the ETF Market Center platform. Or perhaps it's simply time to stop all of the faux “free ETFs” arrangements (which are only “free” on the front-end because RIA custodians make money on the back end from revenue-sharing shareholder servicing fees and sub-TA fees) and instead simply offer a low-cost fee-based wrap account for a few basis points that advisors can use for any ETF as a true open architecture platform. In other words, instead of selling out advisors to get 1-2 basis points on a SPDR Portfolio core fund, why doesn't TD Ameritrade just charge advisors 3 basis points and make all ETFs available with no trading costs?

The bottom line: Will TD Ameritrade Institutional do what it takes to make it right with its RIAs and next generation clients who were blind-sided by being sold out to the highest asset management bidder?

What Is The Optimal Shape Of Retirement Planning – Curve, Triangle, Or Rectangle?

October 18, 2017 07:01 am 7 Comments CATEGORY: Retirement Planning

As the retirement research has evolved over the decades, so too have the “optimal” retirement strategies, and the entire approach to the retirement planning process itself.

In the early years, optimal retirement planning was all about determining which portfolio on the efficient frontier was best suited to achieve retirement goals. Then advisors shifted to a more goals-centric approach, where clients pursued a Maslow-style hierarchy of goals, from the “basic” essential goals of retirement (e.g., food, clothing, and shelter), to the more discretionary wants and wishes. And in recent years, retirement planning has increasingly shifted towards a more holistic “household balance sheet” approach that aims to capture all of the household’s present and future assets and liabilities, to determine if the household is fully funded (or if not, what its funded ratio is).

And in a recent paper, researchers Patrick Collins and Francois Gadenne note that each of these retirement modeling approaches has their own “shape” – from the curve of the efficient frontier, to the triangle of the Maslow-style hierarchy of retirement needs, to the rectangle of the household balance sheet with its assets and liabilities. And each shape leads to its own unique views on what is “best” for retirement planning, and what is considered “safe” – from cash under the curve approach (the most conservative portfolio on the efficient frontier), to the lifetime annuity under the triangle approach (guaranteeing that essential expenses are covered for life), to a laddered portfolio of TIPS bonds with the rectangle approach (aiming to perfectly match assets to liabilities and immunize the household against future changes in interest rates or inflation).

Yet ultimately, while each of the different shapes of retirement planning may prescribe different recommendations, it’s still not entirely clear which is “best”. After all, the rectangle approach may be effective to determine the household’s funded ratio and explore what’s possible, but is a poor framework for making trade-off decisions about which goals to prioritize. And while the triangle approach is better for prioritizing goals, it doesn’t necessarily produce a clear portfolio allocation the way the efficient frontier curve does.

Which means in the end, the best approach for retirement planning may incorporate all three – the rectangle to explore the Possibilities, the triangle to Prioritize, and the curve to allocate the Portfolio itself!

#FASuccess Ep 042: Building Group Financial Wellness Classes To Expand The Reach Of Financial Advice with Carol Craigie

October 17, 2017 07:01 am 2 Comments CATEGORY: Financial Advisor Success Podcast

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

My guest on today's podcast is Carol Craigie. Carol is the co-founder of Fiscal Fitness Clubs of America, a financial wellness company that aims to expand the reach of financial planning advice using a combination of online education and Group Classes.

What's fascinating about Carol's business, though, is that while the idea of providing financial advice in a group format may seem alien to the traditional financial services industry, the reality is that it's already established as an effective model amongst psychologists, and is used for a wide range of successful counseling programs, including Weight Watchers and AA. And not coincidentally, Carol's training before she joined the financial services industry herself? She has a degree in Psychology, and a Master's in Counseling.

In this episode, we talk in depth about how financial planning advice can be delivered in a group format. We explore the highly structured way that Fiscal Fitness Clubs takes clients through its process, starting with a series of 8 "Taking Control" classes, and followed by an ongoing series of Monthly Action Classes. The process is built entirely around focusing on cash flow first, and tackling the underlying issues that cause money stress, with the idea of breaking up financial self-improvement into a series of small bite-sized tasks that can be accomplished every month... and then using the group format as a way to create peer-to-peer accountability, including the fact that everyone gets a "money buddy" when they first start.

From there, we also talk about the business model of doing financial planning and financial wellness in a group format, the experimentation that Fiscal Fitness Clubs is doing with various price levels and group sizes, and how financial advisors can actually get paid upwards of $100 per hour to facilitate these financial wellness groups... which suggests that financial advisors could actually make a very solid income, serving a group of consumers that the industry has long claimed "can't possibly" be economically feasible to serve as a financial advisor!

And be certain to listen to the end, when Carol shares her own journey from having served as the National Director of Financial Planning for both a wirehouse and a private bank before making this substantial pivot into financial wellness, and her perspective about what it will take for financial advisors to really succeed in an increasingly technology-driven future.

So whether you've ever been curious about the idea of delivering financial planning in a group format, or want a glimpse of how a financial wellness program can deliver financial advice value to the masses, or simply want some ideas and inspiration about the value of financial planning, I hope you enjoy this episode of the Financial Advisor Success podcast!

2017 Financial Advisor Compensation Trends And The Emerging Shortage Of Financial Planning Talent

October 16, 2017 07:01 am 5 Comments CATEGORY: Planning Profession

After years of tepid increases in the average compensation of financial advisors, the latest bi-annual industry benchmarking studies from both Investment News and FA Insight reveal that the industry’s long-forecasted talent shortage appears to be taking hold.

According to the latest data, the average Paraplanner with 4 years of experience is earning total compensation of $65,000/year (with a nearly $60,000 salary base and 10% bonus potential), an experienced financial planner responsible for client relationships is earning $94,000/year with 8 years of experience, and Lead advisors who are skilled at developing new business are earning an average of $165,000/year, with the top quartile earning more than $250,000/year, and the top practicing partners earning nearly $500,000/year in a combination of salary, bonus incentives, and partnership profit distributions!

Of course, even within those numbers, there can be substantial regional variability. But still, financial advisor compensation across the board was up nearly 6.5%/year for the past two years – from paraplanners to lead advisors – with base salaries for financial advisors growing even faster, especially amongst the largest independent advisory firms that are both winning the bulk of new clients, and the most likely to be working with affluent clients (which generate the most revenue, and therefore allow their advisors to earn above-average compensation). And the demand for talent is leading to a rise in advisory firms attempting to poach advisors from other firms, a growing focus of large firms to build talent pipelines with colleges and universities, increasing use of third-party recruiting firms to hire even young financial planning talent, and a rise in the average time to hire a financial advisor to a whopping 4-6 months.

The trends may not be entirely surprising given that the overall financial advisory industry continues to see the total headcount of financial advisors decline a mere 1% to 2% per year. Yet with the number of CFP certificants actually up by nearly 50% in the past decade, perhaps the real challenge may not merely be a shortage of financial planning talent, per se, but the industry finally discovering that as investment management is increasingly commoditized and firms seek to add value through financial planning and wealth management as the “anti-commoditizer”, that the number of true financial planners was never enough to meet consumer demand in the first place?

Weekend Reading for Financial Planners (October 14-15)

October 13, 2017 02:59 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement of the annual Social Security COLA (cost-of-living adjustment) for 2018, which will be a whopping 2.0%... a modest increase, and one that most ongoing Social Security recipients won't even enjoy due to the unwind of the Medicare Part B "Hold Harmless" provisions that kicked in back in 2016... although ultimately, the 2.0% COLA is actually still the biggest Social Security inflation adjustment we've had since 2012!

From there, we have a number of interesting articles about trends in the world of investing and asset management, from a recap of a fascinating panel discussion from the recent Money Management Institute conference about how asset managers are being disrupted by technology and regulation (more so than advisors themselves), to a look at the recent SPIVA scorecard that continues to show that most money managers can't beat their indices (although if you confine the list to a subset of low-cost managers who invest in their own funds, the majority actually are outperforming their benchmarks in the long run!), how advisors are (or need to be) increasingly using ETFs in their portfolios instead of individual stocks (not just for the challenges of stockpicking, but the difficulty in scaling a wealth management business where different clients own different stocks), and a candid self-assessment of Morningstar star ratings by Morningstar itself which funds that while star ratings have limited predictive value they do tend to correlate to funds that are more likely to be lower cost, have moderate volatility, and actually stay in business (albeit perhaps due to the favorable flows that the funds receive when Morningstar gives them a good star rating in the first place!).

We also have several career management articles this week, including: tips for advisory firms to actually develop their young talent internally (which is increasingly necessary as the cost of hiring experienced advisors just continues to rise); the Culture, Community, and Compensation components of an advisory firm that are essential to young advisor employee retention; how yet another wirehouse (UBS) is revamping its trainee program to shift away from commission-based sales and into a more in-depth salary-based training in actual financial advice; and a good reminder that as advisory firms get bigger and deeper, and financial planning itself attracts a wider range of candidates, that there is a growing opportunity for entire career tracks built not around client-facing positions but the operations roles in a successful advisory business.

We wrap up with three interesting articles, all around the theme of year-end planning: the first provides tips and best practices on how to handle end-of-year employee reviews; the second gives some great ideas on what to do for end-of-year holiday gifts for clients (i.e., what to do instead of just the traditional mass holiday card!); and the last explores why you can only do so much planning for your future before you have to just take the first step, initiate something new, be ready for it to fail, and figure it out as you go... a good reminder as advisory firms do end-of-year strategic planning and consider what they will do new and differently in the coming year (and how to overcome the hurdle of what they planned to do new and differently in 2017 that never actually happened!?).

Enjoy the "light" reading!

Navigating RIA Non-Compete And Non-Solicit Employment Agreements As A Financial Advisor

October 12, 2017 04:40 pm 12 Comments CATEGORY: Practice Management

In their eagerness to simply get a job as a financial advisor, many new financial planners gloss over the details of what they’re agreeing to in their RIA employment agreement regarding their clients if it doesn’t work out. After all, it's often a moot point to worry about what happens to your clients if the job doesn't work out, as usually if it doesn't work it's because the new advisor struggled to get any clients in the first place. Except sometimes, it does matter, because sometimes it does work out, just not at an advisor's current firm. Yet if you don't want to stay with your current firm, you have to figure out what happens to your clients you have a relationship with when you leave the firm, and whether you are allowed to "take" them with you!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the dynamics of non-compete, non-solicit, and non-accept agreements for financial advisors working for an RIA, including how easy/difficult they are to enforce, and whether non-compete and non-solicit provisions are really "fair" in the first place.

Unfortunately, disputes over non-compete and non-solicit agreements are increasingly common issues to deal with when an advisor is leaving an RIA, as employment agreements themselves have become far more common as independent RIAs have grown larger. Yet even amongst the restrictive covenants in an employment agreement, there's a big difference between non-compete, non-solicit, or non-accept provisions... both because some are far more restrictive than others, and also because not all of these are equally enforceable (at least in some states).

The first type of restrictive covenant in an employment agreement is a “Non-Compete”. A non-compete provision stipulates that if you leave the advisory firm, you can’t continue being a financial advisor for another firm – or your own firm – if it competes with your prior firm. In other words, if you leave, you can’t be a financial advisor anymore. Fortunately, in practice comprehensive non-competes like this are typically difficult to enforce, and in many states, they’re outright unenforceable. That being said, though, some states will allow narrower non-compete agreements, such as limiting you from being a financial advisor for another firm within 20 miles of your current firm. Although unfortunately, even though not all non-competes are enforceable, it hasn’t stopped a lot of RIAs from putting non-competes into their employment agreements, because not all advisors realize that the non-compete might be unenforceable in their state, and a lot of advisors don’t have the financial wherewithal to fight the non-compete and prove their case. So the firm gets away with it.

Because of the challenges with enforcing a Non-Compete, though, many RIAs that truly want to protect their client relationships, with something that can actually be enforced, require employee advisors to sign a Non-Solicit instead. A non-solicit agreement stipulates that you will not solicit any of the clients of the firm. In other words, you can’t contact any of the clients of your former firm to ask you to do business with you after you leave. Even if they were “your” clients. The key difference between a non-solicit and a non-compete is that with a non-solicit, you can continue to be a financial advisor. And you can be an advisor in the same industry, in the same niche, and even in the same geographic region. And because a non-solicit is narrower in scope, they’re much more likely to be enforced if challenged. Notably, a non-solicit doesn’t mean you can’t still work with your former clients, it means you can’t solicit them. So you can’t reach out to them after you leave and ask them to keep working with you, but you may be able to work with them if they follow you on their follow.

The third kind of agreement that exists in some RIA employment agreements is what’s called a “Non-Accept”. A non-accept agreement is basically an extended version of a non-solicit. The non-solicit says “here are a list of clients you can’t solicit.” A non-accept says “here are a list of clients you’re not allowed to accept, even if they contact you unsolicited.” In practice, these are less common in the RIA business, as similar to broad-reaching non-compete agreements, they aren't always able to be enforced in a court if challenged. Still, though, it’s a matter that varies by state. And some RIAs include a non-accept provision in their non-solicit agreement, simply on the hopes that the advisor won’t realize it may not be valid, and/or that the advisor won’t have the capacity to fight it.

From the financial advisor’s perspective, this rise of RIA employment agreements with non-compete and non-solicit provisions are a huge challenge. Because it means if you build your career and a client base with your firm, and you decide to leave, you’re likely going to have to start over and leave all your clients behind. To some advisors, this may not seem "fair", especially if the advisor really did do the work to get the client.

But while this may feel frustrating, from a firm's perspective, the business takes a lot of risk and assumes a lot of cost to be a platform for you as an advisor. Even if you get the client, you may be doing that with their brand, their resources, and their support.

But in the end, the key thing to realize is that if you are working in an advisory firm, you need to know what your employment agreement actually says, and consider the terms and their ramifications about whether you'll have to start over before you leave. And because employment law is a state-by-state issue, advisors who are concerned about the restrictions in their employment agreements really need an employment law attorney, in your state, to determine whether a particular non-compete or non-solicit is enforceable in the first place!

Rules For Calculating Required Minimum Distributions (RMDs) During Life

October 11, 2017 07:01 am 25 Comments CATEGORY: Taxes

To limit the otherwise-generous benefits of tax deferral for traditional retirement accounts, the Internal Revenue Code requires retirement account owners to begin taking money out of their accounts upon reaching age 70 ½. Not that retirees are required to actually spend the money. But the funds must be distributed out of the retirement account, triggering income tax consequences, to ensure that Uncle Sam can get his share.

However, the purpose of the RMD rules is simply to ensure that retirement accounts taxation is not deferred any longer than what a reasonable retiree would prudently have withdrawn anyway. As a result, the RMD obligation merely requires that the account owner take money out systematically over his/her life expectancy (or actually, the joint life expectancy of the retiree and his/her designated beneficiary).

To limit potential abuse, though, the Internal Revenue Code and supporting Treasury Regulations prescribe very specific rules about exactly how to calculate what a “prudent” distribution would have been, including when and how to determine the value of the account, what life expectancy to use, the deadline for taking the distribution, and how to coordinate when there are multiple accounts with multiple distribution obligations.

In reality, retirees who are actually using their retirement accounts for retirement spending may well be withdrawing more than enough to satisfy their RMD obligations anyway. However, given the substantial penalties involved for failing to take the full amount of an RMD – a 50% excise tax for any RMD shortfall – it is crucial to ensure that the RMD is calculated correctly (and withdrawn in a timely manner)!

#FASuccess Ep 041: Structuring A Leadership Team And Family Succession Plan In A Billion Dollar RIA with Elaine Bedel

October 10, 2017 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

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

My guest on today's podcast is Elaine Bedel. Elaine is the founder of Bedel Financial, an independent RIA in Indianapolis that provides comprehensive financial planning and investment management, and over the past 29 years has grown to more than $1 billion in assets under management.

What's fascinating about Elaine's business, though, is not simply that she's been successful in growing to the $1 billion AUM milestone, but that she founded the firm from the start as a fee-only RIA in 1989, a time when very few financial advisors launched fee-only firms, and even fewer who were women.

In this episode, we explore Elaine's journey as a pioneer female fee-only financial planner, from starting her career in a bank trust department where she learned all about estate planning and investment management, to becoming the Director of Financial Planning for Coopers and Lybrand and honing her tax planning expertise in a Big 8 accounting firm of the time, and then transitioning to create her own independent RIA in 1989.

From there, Elaine shares how her advisory fee structure evolved from doing standalone financial planning project fees, to her current blended AUM-plus-upfront-planning-fee model, the unique engagement letter process that she uses after her initial meeting with clients to quote them a fee, and the way that she breaks up the upfront planning fee into an initial and ongoing payments in the first 3 months to help get buy-in from clients to complete the process.

And be certain to listen to the end, when Elaine talks about how she navigated the challenges of bringing her son into the advisory business, from first requiring him to work in another firm for a period of time, and then hiring him into the business but in a position that would not report to her, and how ultimately he has both become a partner and successor owner in the business, and is underway in launching the firm's Generation NeXt offering, which started as a financial planning solution for the children of the firm's clients, but is now growing even further beyond them.

So whether you’re looking for insight into how a large advisory firm blends together upfront planning fees with the AUM model, new ideas in how an “engagement letter” can help to close prospective clients, or want some perspective on how to successfully navigate an intra-family succession plan, I hope you enjoy this episode of the Financial Advisor Success podcast!