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Should Financial Advisors Accept (And Disclose) Paycheck Protection Program Loans?

April 23, 2020 09:52 am 59 Comments CATEGORY: Practice Management

Last month, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2+ trillion emergency fiscal stimulus package, with the intention to mitigate the economic damage created by the Coronavirus pandemic. For many individuals and small business owners who are facing financial hardship, including many financial advisors themselves, the Paycheck Protection Program (PPP), which originally authorized $349 billion in forgivable loans, is a compelling opportunity offered by the CARES Act providing much-needed financial relief.

While the initial round of funding was quickly depleted (as funds were exhausted only 2 weeks after applications were first accepted), Congress is now considering renewing PPP funds with an additional $310 billion. While the opportunity for relief with a loan (potentially one that is tax-free and forgivable, depending on how it is used) is attractive, the question for many financial advisors is whether or not they should take a loan in the first place, as there are many factors for advisors to consider.

First is whether the funds being requested are truly necessary to keep the business running, and whether the advisor really does need the funds as much as the next person in danger of losing their business. PPP funding is forgivable only if used for specific purposes (namely, payroll costs, mortgage interest, rent, utilities, and interest on other loans incurred prior to February 15, 2020); importantly, loans are not intended to serve as a ‘rainy-day’ fund or as reserves for future anticipated hardship.

Another important consideration that advisors should make is around disclosure requirements. As while PPP loans are not required to be disclosed in item 14K on FINRA Form U-4, they may need to be included in Item 18B of the Adviser’s ADV. Furthermore, while the ADV disclosure is not considered a derogatory mark against the advisor by regulatory agencies, clients (or potential clients) may feel otherwise. However, the manner in which the advisor chooses to present themselves to clients can influence their perception of the disclosure (e.g., some advisors who openly talk about the loan with clients have encouraged those who also need financial relief to apply for a loan; this approach has worked well to inspire some clients).

Ultimately, the key point is that the PPP has been (and, if more funding becomes available, can continue to be) a valuable resource that may help financial advisors in financial distress caused by the Coronavirus. While there are many considerations to make before choosing to apply for a loan, advisors should think quickly and be ready to apply for funding should more funds become available.

Fixing Unwanted RMDs Taken Before The CARES Act Waiver Of 2020 RMDs

April 22, 2020 10:05 am 11 Comments CATEGORY: Retirement Planning

With the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act by Congress last month, Americans were provided with a more-than-$2 trillion emergency fiscal relief package that included benefits for many individuals, small business owners, healthcare providers, and government entities. For financial advisors with clients who have retirement accounts or who are beneficiaries of retirement accounts, one particular provision of interest established by Section 2203 of the CARES Act is the suspension of Required Minimum Distributions (RMDs) during 2020.

The suspension of RMDs applies to all IRA accounts (including SEP and SIMPLE IRAs) and defined contribution plan accounts, such as those under 403(a), 403(b), 401(a), and 401(k) plans, as well as the Federal Thrift Savings Plan (TSP). RMDs from 457(b) plans are also suspended, but only from plans offered by government employers.

In fact, not only can individuals who have RMDs for 2020 suspend their distributions, but individuals who either turned 70 ½ in 2019 or who were older but had retired in 2019 (taking advantage of the provision offered by IRC Section 401(a)(9)(C)(i)(II), the “Still-Working Exception”) can avoid any 2019 RMDs that were delayed to 2020.

Beneficiaries of retirement accounts are also eligible to suspend their 2020 RMDs. Specifically, these include individuals who are Designated Beneficiaries that can ‘stretch’ their RMDs with the life expectancy method and Non-Designated Beneficiaries (e.g., charities, estates, and certain non-See-Through trusts) who inherited the account from a decedent who died on or after their RBD.

On the other hand, accounts that are not eligible for suspended RMDs include defined benefit plans, non-governmental 457(b) plans, annuitized annuities held in an otherwise eligible plan, and 72(t) Distributions. Qualified Charitable Distributions (QCDs) are also not impacted by the CARES Act’s suspension of RMDs (and can still be made normally in 2020 for those who were otherwise QCD eligible).

For financial advisors with clients who have already taken RMDs for 2020 from their retirement accounts (or who have postponed RMDs for 2019 in 2020, as noted above) but who could have benefitted from suspending the distributions, there are a few ways to address the unwanted now-no-longer-necessary RMDs. Individuals can return the funds to the original account or rollover the funds to another retirement account (either through the 60-day-rollover window, or the extended rollover deadline offered through IRS Notice 2020-23), or for individuals directly affected by the COVID-19 virus (e.g., they or their family member has been diagnosed with the illness or has been experiencing financial hardship caused by the pandemic) by using the Coronavirus-Related Distribution Provision outlined in Section 2202(a) of the CARES Act.

However, in the case of IRA owners, it’s important to be mindful of the once-per-year IRA-rollover rule. Effectively, the rule prevents an unwanted RMD (or any other IRA distribution) from being rolled back into another IRA via a 60-day rollover (or using the relief provided by Notice 2020-23) if another IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollover has been completed during the past 365 days. Though IRA owners ‘stuck’ with multiple distributions may be able to fix them while steering clear of the once-per-year rollover rule by rolling the second, third, fourth, etc. distributions to a non-IRA-based employer-sponsored retirement plan that accepts roll-ins. If no such plan account is available, they may, at least, be able to salvage some tax benefits by timely completing a Roth conversion (which is also not subject to the once-per-year rollover rule).

For non-spouse beneficiaries of inherited retirement accounts, there is, unfortunately, no option to fix an unwanted RMD, as they are not permitted to do rollovers in any case. Spousal beneficiaries, on the other hand, do at least have the option to make spousal rollovers to move distributions to their own retirement accounts (but such rollovers are subject to the once-per-year rollover rule).

Ultimately, the key point is that financial advisors whose clients are retirement account owners can use relief offered through the CARES Act by suspending 2020 RMDs that aren’t immediately needed. For retirees who may already have taken their RMDs for 2020 (or for certain individuals who took 2019 RMDs timely in 2020), there are strategies for them to return these unwanted distributions using the 60-day-rollover rule, the relief provided by IRS Notice 2020-23 (which pushes back the deadline to rollover distributions taken on or after February 1, 2020, to July 15, 2020), or a Coronavirus-Related Distribution (for individuals directly affected by the COVID-19 virus).

#FASuccess Ep 173: Growing To $250M In Five Years By Crafting A More Specialized Client Experience, with Andrew Leonard

April 21, 2020 07:03 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 173rd episode of Financial Advisor Success Podcast!

My guest on today's podcast is Andrew Leonard. Andrew is the founder of Geometric Wealth Advisors, an independent RIA based in the Washington, D.C. area that oversees nearly $250 million of assets under management for 110 client households.

What's unique about Andrew, though, is his decision to focus into a unique niche serving the partners of the big three strategy consulting firms, Bain, McKinsey, and BCG, propelling his firm to organically add almost $200 million of net new assets in just 5 years almost entirely from a single white paper he wrote for his niche, and the ongoing one-meeting-close referrals he's been able to generate as a now recognized expert in that niche.

In this episode, we talk in-depth about what it really means to customize the financial planning process and experience to a particular type of niche clientele. The unique opportunities and challenges in working with management consultants who may make more than $1 million a year and save $250,000 annually into their portfolios but have been trained to analyze and scrutinize financial models and projections, how Andrew evolved his financial planning process to focus almost entirely on live interactive presentations of financial planning models using eMoney's Decision Center and eschewing the written plan altogether, and how Andrew combines in-person and virtual delivery to a clientele who are largely distance-based and spread across the country, and why Andrew ultimately decided to stick with the traditional assets under management model for a somewhat non-traditional niche clientele.

We also talk about why and how Andrew decided to pursue this type of clientele in the first place. Why he ultimately found it easier and more personally rewarding to work with high-income management consultants than the traditional retiree with significant retirement assets to manage, how he selected and narrowed down the type of niche clientele he wanted to pursue, the white paper marketing strategy he used to accelerate his growth after his first 10 niche clients, and why he finds that when focused on a niche, the biggest challenge is no longer how to market and attract high-quality clients, but the difficulties in finding the right kind of financial advisor talent to service that rapidly growing base of clientele instead.

And be certain to listen to the end, where Andrew shares why he found it so emotionally draining to work with retired clients, the real-world challenges of deciding to pivot from what had been a more generalist practice for his first seven years into this deep niche focus, and the unique cost-benefit analysis tool that he created on his website specifically to demonstrate the value of a financial advisor to his hyper-analytical clientele.

Client Note-Taking: Frameworks And Tools For Advisors To Improve Client Conversations

April 20, 2020 07:05 am 4 Comments CATEGORY: Practice Management

Social Image NoteTaking The Forgetting Curve

Financial advisors don’t always take their best notes when meeting with clients, as maintaining the flow of a good meeting and the rapport established through personal conversation is difficult when the advisor interrupts the rhythm of the dialogue by pausing to jot down some notes. Consequently, advisors often end out relying on hastily written fragments taken during meetings to capture (at least some of) the most important details. After the meeting, they may spend more time to reflect and expand their notes into a comprehensive account of the discussion… with the caveat that the longer they wait to complete their notes, the more they will inevitably forget (as much as 50% after a day!).

In this guest post, Michael Lecours – Co-Founder of fpPathfinder (which creates flowchart and checklist resources specifically for financial advisors), and a Financial Advisor with Ohanesian/Lecours – explores the importance of good note-taking and offers tools and suggestions that advisors can use to help them take better notes during (and after) client meetings.

Good notes documenting client meetings are important for several reasons. Most obviously, notes are reminders for both advisors and clients of the conversations and strategies discussed, as well as records of action items that need follow-up attention. Additionally, good notes help advisors and their teams stay updated with a client’s situation, allowing support staff to proactively service the client with account issues and other administrative tasks. Finally, meeting notes are essential should the advisor be accused of wrongdoing or brought to suit; a good, detailed note can be the key to a quick and easy resolution of the issue under investigation.

The best method for an advisor to use to take effective notes is highly personal and will depend on the nature of the meeting. Whether to handwrite or type notes is one consideration. As while studies have found students tend to remember lecture material better with handwritten notes (forcing them to think about material quickly as it is delivered and to summarize key points to simply keep up with the lecture) and that typing tends to be less thoughtful (as much of the information is simply transcribed verbatim), it may sometimes make more sense for advisors to type their meeting notes just to ensure the information is captured at all. Especially since comprehensive notes are generally only created after meetings anyway, when advisors can thoughtfully process what transpired with the client (though taking brief handwritten notes during the meeting still may be most appropriate). Typing notes is also more conducive for advisors to enter such notes, details, and follow-up action items directly into an advisor CRM system.

Regardless of the medium, there are several traditional frameworks for organized note-taking. Two examples include the “Cornell Method”, which divides the page into functional areas for notes during and after a meeting, with space to create an overall summary, and the “Charting Method”, which organizes main points in a columnar format (useful for discussions bouncing back and forth between a few main topics). For advisors specifically, “Guided Notes” are customized templates useful for conducting meetings in a consistent, organized fashion.

Tech tools are also available to help make note-taking easier and more efficient. Redtail has introduced note templates customized for individual clients and that prompt advisors with reminders; MobileAssistant and Copytalk are apps that transcribe recorded notes; in addition to financial planning checklists and flowhcarts, fpPathfinder now offers interactive checklists with pre-populated questions to be used as a discussion guide with clients.

Ultimately, the key point is that, even though it may be difficult for advisors to take detailed notes during meetings, they should still make time to create complete and accurate notes afterward. There are many resources available for advisors to find out what works best for them to capture important details and to transfer these notes into their CRM systems. By developing excellent note-taking skills and habits, not only will advisors reduce the possibility that important details will ever be lost, they also empower their teams to proactively provide the best client service experience with access to well-organized, detailed client information.

Weekend Reading for Financial Planners (Apr 18-19)

April 17, 2020 02:56 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a recap of President Trump's three-phase "Opening Up America Again" plan, and the guidelines being put out to states and regions about when and how to re-open their economies (in stages, over time) as the coronavirus spread hopefully crests and begins to decline (with protocols in place to deal with the risk and consequences of subsequent flare-ups).

Also in the news this week is the realization that funds for the Paycheck Protection Program (PPP) have already been committed (all $349B) in less than two weeks (amplifying pressure on Congress to expand the program sooner rather than later as 700,000 applications are currently in limbo), a look at where the SEC may focus on whether/how RIAs are still meeting their own compliance obligations (even and especially in a virtual work-from-home environment), and the news that New Jersey has delayed its state fiduciary proposal (as a part of an overall Executive Order by the New Jersey governor to stay any new rule-making by any state agency of the time being) but may still take up the issue again later this year.

From there, we have several articles on how advisory firms are adapting to the current work-from-home and work-with-clients-virtually environment, including the recognition that "yes" it really is possible to work with at least most clients virtually, how to engage in prospecting via one-to-many webinars in the current online-only environment, other digital/online marketing strategies that advisors are engaging in to adapt to the current environment, tips on how to convince clients to switch advisors (including and especially in the current difficult environment), and a new free tool from advisor cybersecurity provider OS33 to evaluate whether an advisory firm's own work-from-home network and computers are really secure (or not).

We wrap up with three interesting articles, all around the theme of how to handle and manage the emotional turmoil and disruption that the coronavirus pandemic has wrought: the first explores how robo-advisors are adapting by building in various technology 'nudges' to help clients make good decisions (en masse) during these difficult times; the second explores how we can reconcile the balance between being in an industry that by and large has stable jobs and income and an ability to work from home but is still personally disruptive and stressing while also being empathetic to those who are still facing far worse; and the last is a powerful reminder that while it's important to be optimistic to maintain hope for the future (especially with clients) it's still important to be realistic as well, as the consequences of creating unrealistic hope that is later dashed can be even more harmful than simply being realistic with clients about the opportunities and hoped-for outcomes but also fairly acknowledging the risks that do still remain in the current environment.

Enjoy the 'light' reading!

Equipment To Create The Ideal Home Videoconferencing Setup – What Financial Advisors Should Use

April 16, 2020 07:18 am 15 Comments CATEGORY: Technology & Advisor FinTech

While the current Coronavirus pandemic has resulted in strict social distancing measures around the world, financial advisors who are restricted to working from their home offices are finding ways to stay in touch with their clients to continue providing the same level of service, even without the capacity to hold in-person meetings. One way advisors have continued to meet with clients is through videoconferencing – using computer technology and conducting virtual, face-to-face meetings over the internet – with readily available equipment already installed in most modern computer systems, or in some cases purchasing new equipment to create or improve their home office videoconferencing setup. With the caveat that many advisors aren’t necessarily familiar with what the “best” videoconferencing equipment is for conducting professional-looking virtual client meetings!

In this guest post, Bill Winterberg – financial technology consultant and founder of the tech blog FPPad.com – provides a practical overview of some of the technology choices financial advisors need to consider to up their videoconferencing game, from the best cameras and microphones to use, to the ideal lighting and “green screen” background options to ensure that advisors maintain a professional appearance for their clients.

Notably, while most laptop computers have built-in webcams that will prove sufficient for videoconferencing needs, financial advisors can upgrade their equipment by investing in an external USB webcam, such as the Logitech C920 or C922, which allow for more flexible positioning on top of their computer displays or mounted on an external tripod for even more flexibility. Microphones are also often built into laptops and computer monitors, but aren’t often situated for optimal sound quality. As an alternative, headsets (e.g., the inexpensive Logitech H390, or the more sophisticated HyperX Cloud II, or Plantronics Voyager Focus UC) can be used for enhanced audio quality, and available options include both wired USB and Bluetooth-enabled systems. For a less conspicuous headset option, the Bluetooth Plantronics Voyager 5200 headset offers a wireless, compact design and fits around one ear with a small microphone arm for voice detection. Lighting equipment, such as the Fotodiox Pro Flapjack or the Elgato Key lights, can also be used to provide consistent image quality, which can be especially important in low-light settings (or where available light sources may be inconsistent and unpredictable).

Finally, advisors can follow a few simple guidelines to make themselves look their best on-camera and to create a camera-ready workspace. By looking at the camera (instead of the image of the client’s face on the computer screen) and standing instead of sitting during the videoconference meeting, advisors will look more engaged and energetic during the meeting. Also, keeping the area captured by the camera clear of clutter and other distractions will provide for a more professional appearance, making it easier for videoconference participants to focus on the meeting itself. If the nature of the physical space doesn’t allow for convenient modifications (e.g., if the area is in a tight space at home or perhaps in a high-traffic area shared with family members), a room divider or green screen (like the Fotodiox Collapsible Portable Backdrop or the Elgato Collapsible Green Screen) can be helpful to reduce distracting backgrounds. And ideally, be certain the advisor can orient themselves so their back isn’t to an open window (which can result in too much background light that distorts the video image and/or leaves the advisor’s face in shadow).

Ultimately, the main point is that financial advisors can continue to meet with their clients remotely during these turbulent times especially when their clients need their support the most. By setting up some simple, affordable, and easy-to-acquire equipment, advisors can use videoconferencing to maintain their connection with clients in a personal manner, all while working from home.