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4 Ways To Boost Associate Advisors’ Client Confidence And Communication (Without Risking Client Revenue)

July 15, 2024 07:01 am 0 Comments CATEGORY: Practice Management

Associate financial advisors play an important role within a financial planning firm, for both their work today (e.g., preparing financial plan drafts and notetaking in client meetings) and their potential to become the next generation of lead advisors at the firm. Which means their development (and desire to stay at the firm) can contribute to the firm's long-term health. At the same time, working as an associate advisor can come with frustrations based on the extent (and limits) of their job responsibilities and the freedom granted to them. For instance, because they have relatively less experience than lead advisors, their firm might not yet be confident in their ability to present 'live' in client meetings, as a mistake made by the associate in the meeting could reduce a prospect's or client's trust in the firm.

Perhaps reflecting these frustrations, data from Kitces Research on Advisor Wellbeing show that associate advisors are less likely to be "thriving" (and more likely to be "struggling") than more senior advisors and indicate that they are significantly more likely to leave their employer within the next year. Which suggests that creating a collaborative development plan that allows associate advisors to build and practice the needed skills to increase their client interactions and reach the next level could not only lead to more engaged associates, but also better leverage the investment the firm has made in them.

Advisory firms have a variety of ways to gradually increase associates' client interactions, including external training, client-facing practice, and opportunities to progress internally within the firm. This type of support can empower associate advisors and get them ready to advance within the firm, while minimizing the potential for making mistakes in front of clients. External training options include development programs that help advisors build client communication skills (e.g., Amplified Planning's CORE program and FPA Residency) as well as pro bono planning opportunities that can give associates practice working with 'live' clients and give back to the community in the process. Internally, creating a progression that starts with asynchronous client communication to demonstrate the associate's expertise (e.g., drafting substantive emails to clients and/or writing for the firm's blog or newsletter) and leads to the associate presenting during client meetings on a single topic that they have mastered can allow the firm and the associate to increase their responsibilities in a structured manner.

Ultimately, the key point is that while associate advisors tend to have lower overall wellbeing scores than more senior advisors, finding ways to increase their skills and responsibilities, as well as creating a growth path that shows how they can play a bigger part in client meetings and eventually manage their own client households, could give them the confidence and feeling of empowerment that could not only improve their sense of wellbeing (and perhaps the likelihood that they will stay with the firm), but also increase the chances that the investment the firm has made in the associate will pay off in the form of a more skilled (and happier!) advisor who can help the firm thrive for years to come!

Weekend Reading For Financial Planners (July 13-14)

July 12, 2024 02:00 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 at a time when employee retention has heightened importance for advisory firms given the ongoing competition for advisor talent, recent studies indicate that factors such as firm culture and leadership, as well as providing advisors with a sense of autonomy, can play important roles in building advisor loyalty to the firm. Which suggests that while firms might be tempted to zero in on compensation when it comes to retaining advisors, focusing on these other factors (which do not necessarily involve hard dollar expenses) could pay off in the form of increased advisor (and client) retention over time.

Also in industry news this week:

2 House committees this week advanced legislation that would halt implementation of the Department of Labor's new Retirement Security Rule, which, combined with ongoing lawsuits, threaten to derail the regulation either before or soon after it becomes effective in late September
A Federal judge has put the future of the Federal Trade Commission's ban on non-compete agreements in limbo, issuing a limited temporary injunction and indicating that a final ruling on the regulation (with possible nationwide impacts) could come before the ban goes into effect in early September

From there, we have several articles on tax planning:

Why potential upcoming increases to marginal tax rates and recent changes to RMD rules for inherited accounts could make Roth-style retirement accounts increasingly attractive for many clients
How advisors can add value not only by regularly analyzing whether Roth conversions might be appropriate for a client in a given year, but also by communicating how they work in a clear manner to help the client better understand the strategy and its potential benefits
How working clients can get more money into Roth-style accounts, from in-plan 401(k) conversions to in-service distributions

We also have a number of articles on marketing:

How applying the principles of beauty, simplicity, and creativity when it comes to website design can help advisory firms stand out at a time when differentiation is becoming increasingly challenging
Why targeting a firm's website and marketing content to an ideal client persona can help prospects better understand whether the firm can meet their unique needs
How becoming a "knowledge sharer" online can help advisors build their brand and support higher quality personal financial information amongst a sea of "finfluencers"

We wrap up with 3 final articles, all about exercise:

While middle age is associated with a growing number of aches and pains caused in part by natural muscle loss, regular exercise can help mitigate these trends and potentially lead to a better quality of life
Why resistance training, in addition to aerobic exercise, is an important part of a healthy lifestyle and can ultimately improve longevity
How targeting 4 "pillars" of exercise – stability, strength, aerobic efficiency, and peak aerobic output – can help an individual lead a healthier lifestyle, even if their exercise routine dropped off during middle age

Enjoy the 'light' reading!

Kitces & Carl Ep 142: Carl’s 13 Magical Questions Of Conversational Goodness With (New) Clients

July 11, 2024 07:02 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Carls Magical Questions Of Conversational Goodness With (New) Clients

Meaningful communication is crucial to building strong, durable relationships, and asking effective questions is an essential part of facilitating impactful conversations. Being able to initiate and lead those conversations has become an important aspect of any financial advicer's skill set, but for many, it's one that isn't always as straightforward or easy to learn… particularly for advicers who might be happiest when nerding out with spreadsheets and flowcharts! The good news, however, is that every advicer can learn how to be a better communicator, especially when there's a certain podcast host willing to share his roadmap for having Meaningful Conversations About Money.

In our 142nd episode of Kitces & Carl, Michael Kitces and aforementioned client communication expert Carl Richards discuss Carl's "Magical Questions Of Conversation Goodness", how an advicer can 'move through time' to help clients make meaningful connections around their relationships with money, and how advicers can effectively implement those questions in their own practices.

It's generally accepted in the financial planning world that people don't typically wake up in the middle of the night because they've realized they need a comprehensive financial plan. More often, initial outreach from a prospect occurs because there's some urgent issue they need help with. Accordingly, advicers can foster a space for deeper money conversations by helping the prospect (or new client) paint a picture of their desired future state, homing in on whatever the underlying issues may be (which won't always be the same reasons they reached out in the first place). Questions like "What brought you in today?" and "How do you think we could help with that?" are great places to start, while Dan Solin's "3 years", Bill Bachrach's "What's important about money to you?", and George Kinder's EVOKE questions can offer powerful avenues to help clients start to open up.

As conversations (and relationships) deepen, advicers can probe further by 'working through time', asking questions like "What was money like in your home growing up?" and "Were you one of the rich kids or poor kids in middle school (and how could you tell)?" From there, advicers can help clients explore their relationships with money by asking, "If you could go back and talk to yourself with the benefit of hindsight, what would you say?", potentially providing them with insight around experiences that have been informing their lives for years. From a forward-looking perspective, advicers can ask about how the client deals with money in their home, and (if they have children) what they think their kids would say if asked the same series of questions 20 years down the road.

It's important to note that the goal isn't to tackle all these questions in one meeting. Rather, advicers can have multiple conversations over time to deepen the relationship. Initially, advicers can focus on discovery questions to understand the client's future desired state, which (once defined) becomes the basis for a Statement Of Financial Purpose, which in turn becomes the foundation for well-informed goals. And with clear goals, the advicer can then ask about the client's current state, identifying what they owe and what they own.

Ultimately, the goal is to normalize the process of having meaningful conversations about money. And by implementing Carl's Magical Questions Of Conversation Goodness, not only can advicers help their clients buy into their financial plans, implement recommendations, and reach their 'desired future states', but they can also learn a skill set that helps them differentiate themselves in an increasingly crowded marketplace while engendering long-term, durable relationships with their clients!

Planning For Changes In Client Marginal Tax Rates After TCJA’s Sunset

July 10, 2024 07:02 am 0 Comments CATEGORY: Taxes

The Tax Cuts and Jobs Act (TCJA), passed in 2017, was one of the most extensive pieces of tax legislation to be passed in the last 30 years, touching many aspects of individual, corporate, and estate tax. However, most of TCJA's provisions are set to 'sunset' at the end of 2025 – an event that would have at least as much impact as TCJA's initial passage.

From an advisor's perspective, TCJA's impending expiration raises the importance of planning for clients who will potentially be impacted, which, given the law's broad scope, could be nearly every client. And yet, the timing of the sunset provision at the end of 2025 means that the actual fate of TCJA will largely hinge on the uncertain outcome of the 2024 U.S. elections. In reality, any law that extends or replaces TCJA would likely not pass until well into 2025, creating a very limited window (potentially only days long) in which to implement any planning strategies. And so even though there's uncertainty today about whether or not TCJA will sunset as scheduled, it's still not too early to start making plans for either contingency so they can be triggered quickly once there is more certainty.

For many clients, one of the biggest questions is whether they'll have a higher or lower marginal income tax rate after TCJA expires than they do today, and whether it is therefore reasonable to accelerate income – i.e., to recognize it before the end of 2025, such as by converting pre-tax retirement funds to Roth – or to defer income to be recognized in 2026 or beyond. And although TCJA's reputation as a broad tax cut might give the impression that everyone's tax rates would increase after its expiration, comparing the current Federal tax brackets with their estimated post-TCJA equivalents shows that a fair number of households will actually see their tax rates decrease.

Beyond the tax brackets themselves, however, households will also see significant changes to how their taxable income is calculated post-TCJA. First, the combination of a lower standard deduction and the elimination of the $10,000 cap on deductible state and local tax payments means that many more people will be taking itemized deductions instead of using the standard deduction. Second, the reinstatement of personal exemptions means that households will be able to take an estimated $5,010 exemption per taxpayer or dependent, meaning that larger households could see a large reduction in their taxable income. With the caveat that the expiration of TCJA will also bring back the Personal Exemption Phaseout (PEP) and "Pease limitation" on itemized deductions above a specific income threshold, both of which effectively create a surtax on income within the threshold range, increasing the household's marginal tax rate above their nominal tax rate based on the tax brackets alone.

For owners of pass-through businesses like partnerships, S corporations, and sole proprietorships, the biggest concern around TCJA's sunset is the elimination of the Section 199A deduction on Qualified Business Income (QBI), which allowed for a deduction equal to 20% of the lesser of the taxpayer's QBI or their taxable income. For most pass-through business owners, the end of the QBI deduction will result in much higher marginal tax rates in 2026 or later, with one exception: Owners of Specified Service Trades or Businesses (SSTBs) like lawyers, consultants, and financial advisors, whose QBI deduction phases out above certain income thresholds, will have a much higher marginal tax rate on any income earned within the threshold range – meaning that while it might make sense for most business owners to accelerate income in 2024 and 2025 while the QBI deduction is still in effect, SSTB owners within the phaseout threshold range would be better off doing the opposite and deferring income until after TCJA expires.

The key point is that different households will experience the end of TCJA in a wide variety of ways, with income level, filing status, number of dependents, and QBI all factoring heavily into the impact that the TCJA sunset will have. And although TCJA's ultimate fate may still be undecided, for at least some clients the potential benefit of taking action today (e.g., to recognize income at a lower marginal tax rate today versus after TCJA expires) may be worth taking the risk that TCJA is ultimately extended – since in that case the client would have simply recognized income at the same marginal rate that they would have later on, merely 'costing' them the value of a few years of tax deferral. So by understanding how each client stands to be affected, advisors can narrow their focus on the planning strategies that will have the biggest benefit for their clients.Read More...

#FASuccess Ep 393: Taking The Risk Of A Multi-Million-Dollar Succession Loan To Make The Business What You Want It To Be, With Alex Lewis

July 9, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 393rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Alex Lewis. Alex is the owner of Blackbridge Financial, a hybrid advisory firm based in Irmo, South Carolina, that oversees approximately $330 million in assets under management for 415 client households.

What's unique about Alex, though, is how, at age 29, he took on a multi-million-dollar loan to purchase the firm from its founder as his successor, and, in the 4 years since, has made changes to everything from the staff to the technology to the service structure to make the business what he wanted it to be… and in the process, nearly doubled the firm's AUM.

In this episode, we talk in-depth about how Alex gained the trust of his firm's founder and its clients by gradually increasing his client-facing responsibilities over a span of 4 years in advance of a potential succession, how Alex and the firm's founder negotiated a valuation and transaction terms with a seller-financed note with protective covenants that met the needs of both parties, and how Alex got comfortable with a purchase whose first monthly loan payment was higher than his entire annual salary the year before the purchase and resulted in a net income of just $11 in the 1st year after the deal (but ultimately grew enough that he was able to refinance his succession loan to make the former owner whole and reduce the monthly payment).

We also talk about how Alex's firm now segments clients into 5 service tiers based on their assets under management and revenue (and the actual differences in services the firm provides to clients at each level), how Alex tracks his clients' individual preferences to create what he calls "Wow Factors", such having their favorite soda on the table when they arrive for a meeting, which strengthens the relationship between clients and the advisory team, and how Alex, shortly after taking over the firm, made the decision to hire 2 new advisors and support them through getting their CFP marks to be able to continue to offer high-touch services for his rapidly growing client base and ensure they stay under 150 clients per advisor.

And be certain to listen to the end, where Alex discusses how he first entered the financial planning industry, transitioning from the world of public accounting to seek better work-life balance but taking a more-than-50% pay cut to get his foot in the door, how Alex managed to not lose a single client after being forced to call all 400 clients to let them know he had to raise their fees after a service provider dramatically increased its own pricing to Alex's firm… only to cancel the fee increase after the service provider reversed course (and how that action in turn built even more trust with his clients), and how Alex dug into a series of business books to identify best practices to systematize his own firm's operations, from Gino Wickman's "Traction" to Matthew Jarvis' "Delivering Massive Value", as he continues to evolve the business he bought from its prior owner into the one that he wants it to be for himself.

So, whether you're interested in learning about navigating an internal succession plan, handling the financial realities of taking on debt to purchase the firm, or creating a plan to grow the firm and its staff after taking over, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Alex Lewis.

The Return Of IAR Ethics CE Day And The State Of The (Nerd’s Eye View) Blog

July 8, 2024 07:02 am 0 Comments CATEGORY: Nerd's Eye View

After several turbulent years in both markets and workforces, 2024 appears to be the 'most normal' year of late, with strong market performance, cooling (or at least no longer rising!?) interest rates, and relatively little new tax legislation (yet).

Yet the need for advisor education – and the regulatory requirements to get it (in the form of Continuing Education obligations) – never ends, with the latest focus for most financial advisors being on the ongoing expansion of NASAA's 2020 Model Rule that implemented the first Investment Advisor Representative (IAR) requirements to get 12 hours of Continuing Education (CE), including 6 hours of Products & Practices and 6 hours of Ethics & Personal Responsibility, in order to maintain their IAR registration. This new model rule is enacted on a state-by-state basis and has currently been picked up by 18 states… though, because it applies not only to IARs physically located within those states but to anyone who is required to register as an IAR in one of those states, in reality, the new IAR CE obligation is quite far-reaching (especially with California and Florida IAR CE requirements taking effect this year!).

Given the continuing growth of advicers who fall under these new IAR CE Requirements, the Kitces platform is not only continuing to offer IAR CE (along with all of its other CE types) through its Nerd's Eye View blog articles, but, starting this year, has also expanded IAR CE eligibility to our webinars as well. And to meet the growing demand for the required "Ethics & Professional Responsibility" content in particular, we're also excited to announce the return of our IAR Ethics CE on August 29, 2024! Attending IAR Ethics CE Day allows advicers to fulfill all 6 hours of their required IAR Ethics & Personal Responsibility CE obligations in just 1 day, preventing an end-of-year CE crunch and providing high-quality education from top experts in the field of ethics and compliance (while also satisfying their CFP Ethics and IWI Ethics requirements, too!).

In addition to IAR Ethics CE Day, the ongoing growth of our Kitces Education team has allowed us to offer more frequent live CE webinars (now running the 1st and 3rd Tuesday of every month at 3:00 PM EST), and next month, we'll be rolling out our newest Kitces Course, a master class taught by our own Jeff Levine and Michael Kitces on "Optimizing Tax-Efficient Roth Conversion Strategies And Implementation", which will let advisors practice the skill of determining the 'right' amount to Roth convert, identify which clients should do Roth conversions and when, and also explore ways to explain the strategic components of Roth conversions to clients (who may otherwise resist the upfront tax liability, notwithstanding the long-term tax benefit!). Additionally, the upcoming Kitces Value Summit, coming December 12, 2024, will tackle how real advisors provide and communicate their ongoing value to their clients.

Along with the expanded CE offerings, we've also been reinvesting heavily into making the Kitces platform easier to use. Our major focus this year has been on supporting the growing number of multi-advisor firms buying Group and Enterprise subscriptions… and then needing to manage all of their Kitces Group members! Going forward, our new Group and Enterprise dashboards will make it far easier for firms administering their Kitces membership to add and remove individual advisors and to enroll their advisors into IAR CE (as more states add the requirement) with just a few clicks of a button! (And yes, in the coming year, we will be looking at a broader overhaul and re-design of the entire Kitces Members Section for all advicers to make it easier to navigate – we've heard your feedback!😊)

Of course, CE is not the only part of the advisory landscape that's changed. Our newly released Kitces Research on Advisor Marketing shows that fewer advisors are reporting client referrals as a methodology to attract new prospects (and the growthiest firms are relying on referrals the least!), but that there is no one dominant marketing tactic taking its place. Instead, the firms that are the most successful at marketing don't appear to be engaging in materially different tactics than the rest; they simply have more clarity of the ideal client they're pursuing, and how to communicate with them, such that they're executing the same marketing tactics but getting much better results (which, in turn, leads them to invest time and dollars into their marketing efforts and further compound their growth lead!).

In the meantime, if you (or anyone else you know) wants to join our Team of Nerds, stay tuned for more openings in 2024, including the Managing Editor role (available now!), an Operations Coordinator (coming soon!), and other roles. We'll be listing these roles as they become available on our Kitces Career Opportunities page, or you can sign up for our separate Career Opportunities mailing list (via that Opportunities page) to be notified when new positions open up! And for those who don't want to join the team full-time but would simply like to 'Nerd Out' with us or a bit and share what they do or know with their fellow advicers, remember to check out our "How To Contribute" page to see how you can engage with the Kitces platform as a guest writer, presenter, or podcast guest!

Ultimately, though, the focus remains the same as it always has been – on our mission to "Make Financial Advicers Better, And More Successful" – through our 4 strategic pillars of creating Navigational resources, insightful Education, original Research, and skills Development for financial advicers across the spectrum of experience and firm sizes (and yes… or organizational strategy does spell N-E-R-D😊). We look forward to continuing the journey with you through the rest of 2024!