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Weekend Reading for Financial Planners (July 4-5)

July 3, 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 news that the SEC has prevailed in its legal challenge against Regulation Best Interest, as the 2nd Circuit Court of Appeals ruled in its favor, clearing the way for this week's enforcement date (but with questions looming about whether XY Planning Network will appeal the ruling). In the meantime, the Department of Labor also revealed its newly proposed Advice Rule this week (which would similarly provide an exemption from the typical ERISA fiduciary obligation for brokers that provide non-fiduciary "Best Interest" advice that conforms to Reg BI), and the CFP Board's own 'fiduciary at all times' standards will also begin to be enforced starting this week (but with questions remaining about whether or how effectively the CFP Board can enforce CFP professionals complying with its rules).

From there, we have a number of investment-related articles this week, including discussion of the news that Dimensional Fund Advisors (DFA) will be launching ETF versions of its funds that many advisors have been demanding (but in the process, will move away from its legacy of being an 'advisor-only' solution as consumers will now be able to buy DFA in ETF form directly), the Fed briefly becomes the #3 holder of the largest corporate bond ETF as its bond stabilization program expands since May (but may soon contract?), and a fresh look from Morningstar finding that, despite the traditional view that actively managed funds will shine in the midst of market turmoil, in practice, actively managed funds only slightly outperformed in Q2 and by less than they underperformed in Q1 (such that 57% are still underperforming year-to-date!).

We also have a few practice management articles about employee morale, including a look at how autonomy is one of the biggest drivers of advisor satisfaction (which may help to explain the explosion of the independent channels over the past decade?), tips on how to boost staff morale (by not letting the team just get 'stuck' in the busy day-to-day management of clients amidst the pandemic), and further tips on how to support employee morale in challenging times (starting with the simple recognition that advisory firms should be at least as proactive in communicating with their teams about the health of the business as they have been with clients about the health of their portfolios and financial lives).

We wrap up with three interesting articles, all around the theme of finding happiness and personal satisfaction: the first examines a recent analysis of long-term longitudinal data that finds higher incomes really are associated with greater happiness, and that consequently a "happiness gap" is emerging that aligns to rising income inequality; the second looks at how higher income may actually be more associated with our evaluation of our life satisfaction but doesn't actually correlate as well to our day-to-day happiness in living our lives; and the last explores how to find our own 'happiness threshold' in trying to draw the line of what constitutes "Enough".

Enjoy the 'light' reading, and happy Fourth of July!

Kitces & Carl Ep 37: How A Mid-Career Crisis Can Turn Advisors To Focus On Public Work

July 2, 2020 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

No matter the industry or field, virtually all business owners have experienced the stress of just trying to stay afloat for the first (sometimes several) years of their existence. Those fortunate enough to get through those early ‘lean’ years, building a sustainable and growing business along the way, eventually feel a certain sense of relief when it’s clear they’ll “make it”, and the business can provide the income they hoped for in order to achieve their own personal goals. Yet at some point, many of those same entrepreneurs – including advisory firm owners – often then find themselves wondering “OK, but is this it?” or simply “what’s next?”… the proverbial “mid-life” (or at least, mid-career) crisis!

In our 37th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards discuss how, at a certain point for many financial advisors, thoughts about the next stage in their careers and/or lives often turn towards expanding into wider circles and having a greater impact on the world around them…. even to the point of diminishing their involvement in the firm that they built but may no longer need to be as involved in to keep afloat.

However, the reality is that deciding on how to engage in more publicly focused work can be an overwhelming decision, as there is an endless number of ways to go about doing so, from writing books to speaking to volunteering and other ways to give back. By intentionally working on developing clarity and finding focus, though, financial advisors can begin to identify their best ideas and choose specific areas they want to act on. And allowing oneself flexibility is also important, because even as values and priorities may shift and evolve over time, so too should advisors’ long-term (and shorter-term) points of focus.

Vision statements – often used in the context of the business – can be used by advisors as personal statements of purpose, and become instrumental as “filters” for financial advisors who may feel overwhelmed by an abundance of potential ideas. As while individuals who are successful will tend to find more opportunities to choose from, making a decision that resonates with their values and priorities can be difficult without a clear vision of the direction in which they truly want to go.

Ultimately, the key point is that financial advisors who may be faced with a mid-career crisis of uncertainty, and who are having difficulty deciding how to choose the next step in their lives, may benefit from creating a vision statement based on their own true ‘why’. As while having a clear understanding of what’s most important in one’s life can serve as an effective funneling tool to rule out ideas that may simply sound good, but don’t really resonate with the advisor’s true goals, a good vision statement can keep an individual on target for what really matters most to them!

Defining Fee-Only And Proper Use Of Compensation Labels Under CFP Board’s New Standards Of Conduct

July 1, 2020 07:03 am 5 Comments CATEGORY: Ethics

When purchasing a product or service, it’s only natural to want to know what it will cost. But in the context of paying for professional services in particular, “what you pay” isn’t only a matter of measuring the value (relative to what you get), but also of understanding the incentives of the person providing the service and their conflicts of interest. From the person selling new clothes on commission (and who tells everyone they ”look great” in whatever they’re wearing coming out of the dressing room) to the surgeon who thinks ‘every’ health issue may require surgery to resolve, it’s crucial to understand when advice is at least at risk of being compromised.

However, when conflicts of interest become too widespread and of concern to consumers, businesses can differentiate specifically by highlighting their efforts to mitigate or entirely avoid such conflicts. Which, in practice, is what has happened with financial advisors over the past 20 years as the “Fee-Only” label has shifted from a descriptive label of how an advisor is compensated into an increasingly mainstream marketing label. And leading to a growing number of disciplinary actions from the CFP Board in response to CFP certificants that misused the label in a manner that was misleading to clients.

Accordingly, in its recently enacted new Standards of Conduct, the CFP Board has further updated and refined its compensation disclosure definitions, particularly as it relates to the “Fee-Only” label. At its core, the requirement to be “Fee-Only” is still that the advisor receives only fees – now more broadly labeled as not receiving any “Sales-Related Compensation” that might include commissions, trails, revenue-sharing solicitation fees, or the like – and emphasizes the importance that neither the CFP professional nor their firm nor any Related Party receives such compensation either.

On the other hand, the CFP Board also refined the scope of Related Parties that have to be considered in a CFP professional’s compensation disclosures, recognizing that there’s no need for compensation to be ‘disclosed’ from a Related Party that had no connection to the services provided by the CFP professional in the first place. Thus, for instance, the mere fact that a family member or separately owned business happens to generate commissions is not ‘fatal’ to the Fee-Only label, as long as the CFP professional isn’t actually directing clients there (such that the compensation would be “in connection with” their financial planning services).

Ultimately, the key point to recognize is that the CFP Board does not actually require CFP professionals to be “Fee-Only” and not accept commissions, nor does the organization specifically endorse one type of compensation model over another. However, to the extent that “Fee-Only” is becoming more popular in the marketplace, and financial advisors may feel a financial incentive to use the label, the CFP Board does require that CFP professionals use the label accurately. Which means it’s up to the advisor about whether they wish to use the Fee-Only label or not… but if they do, it is incumbent upon them as CFP professionals to do so in an accurate manner that reflects the full scope of the advisor-client relationship!

#FASuccess Ep 183: Structuring Your Advisory Business To Manage Your Time And Fit Your Natural Strengths, with Hannah Moore

June 30, 2020 07:05 am 4 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 183rd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Hannah Moore. Hannah is the Founder of Guiding Wealth, an independent RIA in the Dallas, Texas area, that oversees nearly $25 million of assets under management for 25 affluent clients. What's unique about Hannah though, is the way she has deliberately crafted her advisory firm to support her personal goals, from giving back to the profession through her involvement with the FPA, to building her Everyday Money consumer brand and the unique attitude that she brings to her decisions about where and how she focuses her time to achieve her goals.

In this episode, we talk in-depth about Hannah's philosophy and how she manages her time and focuses her efforts, the way she limits her working time regardless of the length of her to-do list and uses what remains undone as a way to reevaluate her own priorities and what she's delegating, how Hannah hired a virtual integrator to help her manage the implementational aspects of the business so she could focus on the visionary work that she does best, and the systems that Hannah uses to manage tasks and workflows to ensure that her vision is implemented appropriately.

We also talk about Hannah's advisory firm itself and the way she started out by buying into an experienced broker's book of business, how she transitioned from serving nearly 300 clients to going independent with fewer than 30 of them while still managing to keep her income even with about 90% less work, and the budgeting block tool that she has created for her clients to have more meaningful financial planning experiences with them.

And be certain to listen to the end, where Hannah shares the mindset shift that helped her separate the visionary work she loves from the management she doesn't enjoy as much, the way she structures her week to be productive and stay focused, and why the number one piece of advice to financial advisors, and especially those in the early years of their career, is to join and get involved with a membership association in the FPA.

Announcing New CFP Ethics And Enrolled Agent CE, And A Potential Kitces Virtual Marketing Summit!?

June 29, 2020 07:07 am 7 Comments CATEGORY: Nerd's Eye View

2020 hasn’t gone exactly as planned. From the COVID-19 global pandemic and ensuing pivot to a work-and-school-from-home model, to the stunning market crash and (even-more-stunning?) subsequent rebound, and the civil unrest in the wake of the death of George Floyd, this year has presented multiple challenges. Yet, those challenges have also presented opportunities for growth, not only personally and professionally, but also for our society. Here at Kitces.com, we’ve had to make several adjustments on the fly amid conference cancellations and the shifting needs of the advisor community, but throughout, we have continued to focus on growing our platform in order to provide you, our readers, an ever-increasing array of content and solutions to help you be better financial advisors!

With that, I am excited to announce that, as part of a new pilot program with the CFP Board, this month’s June articles on the Nerd’s Eye View Blog about the CFP Board’s new Standards of Conduct are now eligible for a full 2 hours of CFP Ethics CE! Similarly, we are also happy to share that we’ve expanded our CE credit offering to cross-apply a full 16 hours of CE credit for Enrolled Agents (on top of the CFP and IWI continuing education credits we offer) for our articles that – as specified by IRS guidelines – cover Federal taxation.

In addition, we have some exciting news around new (and existing) Kitces team members. Jeff Levine formally became a full-time member of the team, assuming the role of Lead Financial Planning Nerd and expanding his capacity as both a writer for the blog and a Kitces speaker (at both live and virtual events). Sarah Keese, our new External Engagements Manager, is now handling every aspect of our speaking and consulting engagements and has also become the main point of contact for our rapidly growing number of Members Section advisors. Finally, Hannah Collman is joining the team this month as our Associate Financial Planning Nerd and will be supporting Jeff Levine with financial planning research, crafting presentations for events, as well as many other endeavors on our platform.

As part of our mission to help real financial advisors become better and more successful, part of my efforts over the years have included helping various vendors and advisor platforms in the industry better understand macro trends and opportunities. Unfortunately, though, there are only so many hours in the day – which has led to a growing waiting list for my Consulting time – and as such, we are expanding our consulting capacity by launching the Kitces Consulting Consortium and partnering with Craig Iskowitz of the Ezra Group, who will be available to provide his consulting expertise and insights around FinTech with larger advisory enterprises, from large RIAs and broker-dealers looking to make strategic technology decisions, to FinTech vendors themselves trying to iterate their products and identify advisor market opportunities, and private equity and other investment firms looking for market research and insights into industry trends.

In the meantime, we’ve also spent much of the second quarter revamping our speaking services for a virtual world, and have participated in literally dozens of educational webinars (both for various industry organizations as well as on our own platform in our Members Section) and a growing number of virtual keynotes.

In fact, as the industry becomes more comfortable with virtual conferences, we are even kicking around the idea of hosting our own “Kitces Virtual Marketing Summit” to help advisors learn more about how to market and network in a world where the traditional methods aren’t practical (or even possible) anymore. If you’d be interested in participating as an attendee, please let us know and we’ll keep you posted as we develop the prospective agenda!

We’ve seen some tremendous growth here at Kitces.com over the past 12 years (and especially in the past two as our team has grown!), and while these are challenging times, I am more excited than ever for the opportunities that lie ahead to serve the advisor community, and to help Real Financial Advisors Be Better And More Successful. So, stay tuned for more announcements, more ways to interact with our platform… and more opportunities to join the growing Kitces Team!

Weekend Reading for Financial Planners (June 27-28)

June 26, 2020 03:00 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the CFP Board has been gearing up for its new Standards of Conduct and June 30th enforcement date by launching a comprehensive background check on all 87,000 of its CFP certificants... finding 1,240 that already have potential misconduct in their regulatory reviews or background checks and allocating a whopping $5M over the next two years to investigate them and begin to clean out its own potential 'bad apples'.

Also in the news this week is some surprise relief from the IRS that anyone who took an RMD earlier this year (all the way back to January 1st) that proved to be unnecessary because the CARES Act suspended 2020 RMDs will now have until August 31st to "undo" the RMD and roll it back into their retirement account (even if it's for an inherited retirement account or would otherwise violate the once-per-year rollover rule), and a new industry study finding that the overwhelming majority (78%) of the mass affluent are already using a financial advisor and only 1% of them are dissatisfied with their advisors (suggesting that advisors are generally serving clients well, but that it may be increasingly difficult to get new clients with so many already attached to advisors they're satisfied with!).

From there, we have a number of articles around industry trends, including a look at the slow-but-steady growth of financial planning across the broader financial services industry, a glimpse of just how much money brokerage platforms are still collecting from asset managers behind the scenes in various revenue-sharing and shelf-space agreements, and how ongoing competition and especially consolidation in the RIA custodial world may soon drive a new wave of advisor migrations.

We also have a few marketing-related articles, including: tips on how to leverage any expert content you've created by 'repurposing' it across an advisor blog, social media, videos/YouTube, and podcast; suggestions on what to do to make your advisor website more compelling (hint: treat it like your professional in-person office space and make it look professional); and some new technology tools to help support the advisor marketing process (from Loom for quick videos to Zapier to connect email marketing and advisor CRM systems and Linkfire to more readily share a podcast).

We wrap up with three interesting articles, all around the theme of personal creativity and originality: the first explores how not fitting in and "being a weirdo" can actually support creativity; the second looks at how ADHD is also increasingly being linked with creativity and divergent thinking; and the last examines a recent study that finds we all tend to systematically underestimate our own originality, and that the average person is actually far more creative than they give themselves credit to be, as long as they spend at least a little time iterating on thinking of new ideas (because the first or second idea isn't always original, but the 5th or 6th almost always is even if we don't realize it!).

Enjoy the 'light' reading!