Nerd's Eye View blog

What Does It Take To Really Specialize In Working With Retirees?

April 27, 2017 08:14 am 6 Comments CATEGORY: Retirement Planning

In the world of financial advice, focusing on retirement planning has long been the most popular strategy. And the reasoning is quite straightforward. Just as bank robber Willie Sutton once explained why he robbed banks - "Because that's where the money is" - working with retirees means working with clients who have already accumulated substantial assets, and working with them on the retirement transition in particular means an opportunity to engage a new client when there is "money in motion". Except there's just one problem: really specializing in working with retirees entails far more than just managing retirement rollovers!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we delve into what it really takes to specialize in working with retirees, with expertise that spans far beyond just creating a diversified retirement portfolio.

In part, the challenge is simply that effectively managing a retirement portfolio, and the distributions that occur from it, is about more than just managing the investments themselves. Because retirement portfolios also have to face sequence of return risk - the possibility that even if the portfolio generates the desired long-term return, if it achieves that return with an unfavorable sequence, ongoing distributions could catastrophically deplete the portfolio before the good returns show up! As a result, the best strategy for retirement income isn't necessarily the one that produces the best return.

But frankly, retirement income issues just scratch the surface of what it really means to specialize in retirement and retirees. There are also issues such as planning for the timing of Social Security benefits, retiree-specific tax planning, making Medicare and other health insurance decisions, health issues more generally, housing wealth and reverse mortgages, housing lifestyle choices and whether to "age in place" or utilize a Continuing Care Retirement Community, handling cognitive decline and the problems that come with it, and even the emotional issues associated with death, grieving, and losing loved ones. These are the issues that retirees face, and need help with - and this is the kind of expertise advisors need to truly differentiate themselves as being retirement experts!

Of course, this all raises the question of how you actually learn to be a true retirement specialist in the first place, and where to learn all of this other stuff? Fortunately, there are some retirement-specific designation programs, such as the Retirement Income Certified Professional (RICP) program from the American College, the Certified Retirement Counsel (CRC) program from InFre, and the Retirement Management Analyst (RMA) program from the Retirement Income Industry Association, as well as specialized training programs, and a growing number of specialized conferences, too. In fact, while there are probably too many "generalist" financial advisor conferences already, we may need even more specialized conferences in the future, to support the increased importance of specializing into a niche!

But the bottom line is that if you want to be a financial advisor who truly specializes in retirement planning and working with retirees, it is going to mean doing a lot more than just focusing on a client's retirement portfolio. It's going to mean developing a much deeper understanding of the strategies and issues that are unique to this specialization!

Buying Happiness And Life Satisfaction With Greater Cash-On-Hand Reserves

April 26, 2017 07:01 am 7 Comments CATEGORY: General Planning

The classic view of cash in the world of investing is that it’s something to avoid, or at least minimize. To the extent cash is truly needed for immediate or near-term liquidity, holding some may be a necessity. But the investment goal is always to hold as little cash as possible, and put the rest to work on your long-term behalf.

Except a recent research study by Ruberton, Gladstone, and Lyubomirsky finds that maintaining a healthy level of cash-on-hand (or at least in a checking or savings account) appears to improve our feelings of financial well-being and life satisfaction. And the relationship holds up even after controlling for income, spending, and other investments, as well as age and employment status. In other words, no matter how much total wealth and income we have, we’re just not as happy unless it’s also accompanied by a healthy pile of cash (or at least, a sizable and readily available bank account).

From the investment perspective, it’s purely irrational for anyone to need to hold a substantial cash balance above and beyond what’s needed to cover actual near-term spending needs. But the research results are more understandable given the research on mental accounting, that we tend to bucket our holdings into groups of current income, current assets, and future income (or at least, assets to fund future income). Which means even if we have ample income, and ample assets for future income, we’re just not content until we also have a healthy allocation to current assets. Which in practice, means cash (or at least cash equivalents).

As a result, rather than always encouraging clients to fully deploy their available cash, perhaps instead it would be better for advisors to start by asking clients “how much cash do you need to hold to feel comfortable and sleep well at night”, and then invest what’s left around that constraint. Because in the end, what’s the point of trying to invest a little more cash for a little more return, if in the long run greater wealth buys little additional happiness anyway, but having more-than-enough cash today may have a more positive impact on financial well-being? Or viewed another way, perhaps holding some comfort cash is not “under-investing”, but simply giving up on extra yield as a way to “buy” a little more financial contentment?

#FASuccess Ep 017: Using Social Media and Blogging to Drive Business Growth As A Reformed Broker with Josh Brown

April 25, 2017 07:01 am 9 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the seventeenth episode of the Financial Advisor Success podcast!

This week’s guest is Josh Brown, a financial advisor and CEO of Ritholtz Wealth Management, and regular guest on CNBC’s The Halftime Report, but known to most in the financial advisor community through his prolific presence on social media – including more than half a million Twitter followers – and his popular finance blog, The Reformed Broker.

What’s fascinating about Josh, though, isn’t just that he’s active on social media, but that his firm has been able to turn it into real business growth. As having broken away to become an independent RIA with less than $100M of AUM in late 2013, Ritholtz Wealth Management has grown in under four years to a 13-person firm managing nearly $500M in AUM. In fact, Josh and his team get anywhere from 10-30 inbound prospect inquiries each week now, thanks to the constant publication of valuable (and entirely free!) content produced through the blogs of Josh, firm founder Barry Ritholtz, and several other advisors-who-also-write in the firm.

In this episode, Josh tells the story of how he became one of the best known voices in the industry, after starting out doing cold-calling for nearly a decade in a number of small regional broker-dealers before finally deciding to make the switch to become an investment adviser, and how the trajectory of his entire career was changed when he decided it was worth racking up some credit card debt to accept an invitation to a financial conference where he ended up meeting his future business partner. Josh also talks about how his own role in the firm has shifted and evolved as the business has grown, and the steps he takes to make sure he’s still working on the business and not just in the business.

And be certain to listen to the end, where Josh shares some of the books that have been most influential to his career, and the advice that he offers to anyone – whether a newer advisor, or an experienced one – on how to get started if you want to build your own digital presence with blogging and social media.

So whether you’ve been curious to learn how an advisory firm with a prolific blogging and social media presence turns free content online into real business, or want to hear the story of how a cold-calling broker ultimately broke out to success by becoming an investment advisers, or just want some ideas on how to build your own business with more digital marketing, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Advisor’s Guide To Choosing The Best Portfolio Rebalancing Software

April 24, 2017 07:01 am 11 Comments CATEGORY: Technology & Advisor FinTech

For many advisory firms, portfolio rebalancing technology is one of the single most important pieces of technology that they have. While other software is certainly important – from a CRM for managing client relationships, to eSignature for streamlining account opening and administrative processes, to financial planning software for helping guide your clients long-term financial plan – arguably no other piece of software is impacting your clients' portfolio on a regular basis more than rebalancing software. Yet, amongst a sea of different options and software features, it can be hard to know which solution is best for you and your clients.

In this guest post, Craig Iskowitz, CEO and founder of Ezra Group (a management consulting firm providing advice to the financial services industry on marketing and technology strategy), shares some of his own thoughts on the best portfolio rebalancing software available, including portfolio management features, pricing, integrations, user experience, and more! Reviews include all the major rebalancing software providers, from iRebal and Tamarac, to TradeWarrior, tRx, and RedBlack!

And arguably, in today's environment, the need for rebalancing software is even more urgent to stay competitive, with the rise of "robo-advisors" that can already automate rebalancing, along with tax loss harvesting. The good news, though, is that as the original "robo" solution for portfolio automation, all the major rebalancing software platforms can handle this... and more! But only for advisors who are willing to move away from portfolio rebalancing Excel spreadsheets!

And so, whether you currently have a rebalancing solution and want to ensure it is up to date, know that it has been a while since you've evaluated rebalancing options and want to get started with the process, or haven't been convinced of the value of rebalancing software and are still using spreadsheets or calculating rebalance trades by hand... I hope that you find this guest post from Craig to be helpful!

Weekend Reading for Financial Planners (Apr 22-23)

April 21, 2017 02:57 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a fascinating new report from Morningstar, finding that the industry's shift to adopt T shares and Clean shares under DoL fiduciary could improve mutual fund returns in the aggregate by as much as 0.50%/year, through a combination of cost savings and the anticipated pressure of advisors to adopt lower-cost fund choices (over comparable higher-cost ones). Also in the news this week was the announcement that front-end advisor software provider Oranj was purchasing portfolio rebalancing software provider TradeWarrior, and the blockbuster deal that private equity firms Stone Point and KKR were buying a 70% stake in Focus Financial valued at $2 billion (and helping to validate that the RIA aggregation/roll-up model is far from dead).

From there, we have a few articles about advisor technology this week, including a Joel Bruckenstein review of the new FinMason risk tolerance assessment tools, a head-to-head comparison of Redtail CRM versus Salesforce Financial Services Cloud, and a brief review of new advisor screensharing software app ScreenMeet.

We also have a number of marketing and sales related articles, including: why meetings with prospects should always include two people from the advisory firm, ideally with different and complementary sales styles (e.g., one "charmer" and one "analytic"); why the presentation of an advisor's physical office space really matters (and when it makes sense to invest into an interior designer to get help!); and how to handle the looming "marketing wars" that may soon emerge in the increasingly competitive advisory landscape.

We wrap up with three interesting articles, all on the theme of big data: the first is a look at how a number of tax prep services offered free tax preparation this year, from TurboTax to H&R Block and even Credit Karma, as the providers are realizing that not charging for tax preparation, and using tax filers' big data, has even more income potential, whether to recommend tax strategies, credit cards, or loan refinancing deals; the second looks at the recent launch of USAFacts, a new initiative from former Microsoft executive Steve Ballmer, that brings together Federal, state, and local government data to understand where tax dollars go, and the results they achieve, in a way that no one has been able to produce before; and the last is a discussion of behavioral economics professor Dan Ariely's new "Common Cents Lab", that is partnering with FinTech software providers to run behavioral finance "experiments" and harness the value of big data to understand what it takes to actually help consumers change their financial behaviors for the better!

And be certain to check out the video at the end - the start of a new video series being offered from journalist and financial consumer advocate Dan Solin, that provides simple 1-minute video tips for consumers, and can even be embedded by financial advisors directly onto their own websites for free (just be certain to include proper attribution back to Solin!).

Enjoy the "light" reading!

Why Conferences Don’t Need More CE, They Need Better (Practice Management) Content

April 20, 2017 09:41 am 4 Comments CATEGORY: Conferences

One of the most common challenges these days for financial advisor conferences is deciding whether or how much practice management content to include. On the one hand, a practice management session that has just one material takeaway that impacts the advisor's business can generate a good ROI for the entire conference. On the other hand, practice management isn't eligible for CFP CE credit, and most practice management sessions end out having a lower turnout. Does that mean it's time to give CE credit for practice management sessions to equalize the playing field?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we delve into the issue of whether conferences should still offer practice management sessions, and why the real problem isn't really about whether practice management is eligible for CE, but simply that almost any particular practice management session will only be relevant to a small subset of advisors!

In fact, the irony is that the most common reason financial advisors ask for CFP CE credit from conference sessions is not because it's hard to get CFP CE credit, or that we need to go to a conference to get it. It's because a lot of conferences have mediocre sessions... which means if we as advisors are going to attend, at the least we want some CE credit as a consolation prize for the time and dollars spent! And with so many conferences unwilling to invest into paid speakers, and still relying on sponsors to fill their speaking slots - despite the fact that most sponsors have a long history of delivering sales pitches in lieu of real education - it is no surprise that CE is a common demand. If you expect the content to be mediocre, the CE is the only remaining reason to bother showing up!

But when it comes to good content, the value of the content can more than pay for itself, regardless of CE credit. And good content can come in the form of a technical session or practice management. In fact, financially, good practice management content – that provides real takeaways that can be implemented to make meaningful changes in the business – can actually provide a much higher ROI than technical content. And in point of fact, it really is the conferences that spend the most time and effort (and in some cases, hard dollars) on content that are seeing the most growth and financial success!

The caveat when it comes to practice management content, though, is that even the best session isn't likely going to be useful for all advisors, or even most of them. After all, a great session on selling a firm won't be valuable to the majority of advisors who currently aren't looking to sell their firm anytime soon. A great session on technology won't be valuable the large number of advisors whose platform makes the technology decisions for them. And a great session on marketing won't be valuable for the large number of paraplanners or associate planners who don't have business development responsibilities. Which means even the best practice management speaker will rarely draw a large crowd for a practice management session. But that doesn't mean conferences should avoid this content altogether! Rather, they should be careful about how it is scheduled - put practice management content in breakout time slots, paired with different content for those who won't find the session relevant, and be cognizant only to put practice management speakers into general sessions if their content is truly relevant to the whole audience!

Ultimately, as CFP and other types of CE becomes more and more commoditized and accessible from many sources at a low cost, the value in attending a conference is not the CE. Advisors may leave audience feedback requesting CE, but that's not a sign they truly need CE - it's a sign that the conference needs better content, so the audience isn't demanding CE as a consolation prize!

Dynamic Programming As A Methodology For Financial Planning Retirement Projections

April 19, 2017 07:01 am 3 Comments CATEGORY: Retirement Planning

While most financial planners are familiar with the leading practitioner-based research in retirement planning - for instance, Bill Bengen's 4% safe withdrawal rate studies - the reality is that economists have actually developed their own research approach to evaluating financial planning trade-offs, including optimal strategies for retirement spending and asset allocation. Notably, though, the two tracks of retirement planning research employ substantively different approaches - where practitioners most commonly "test" a particular retirement plan or strategy to see if it's sustainable (or not), while economics researchers try to create models that can be optimized. However, the gap between these distinct lines of research and practice are beginning to blur, as practitioner-oriented research becomes more sophisticated, economic research becomes more practical, and computing technology makes it easier than ever to conduct complex analyses.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – takes a deeper look at dynamic programming, a economics-based methodology for conducting financial planning retirement projections, that introduces new opportunities beyond traditional financial planning software in optimizing retirement spending and asset allocation, and may be outright superior in projecting and modeling how retirement spending and asset allocation might change over time, based on whatever future market returns turn out to be.

The core of the dynamic programming (also known as dynamic optimization) approach is really just a methodology of solving larger problems by breaking them down into smaller problems. In the context of financial planning and retirement projections, it's about taking a long term retirement plan, and breaking it down into a series of sequential retirement years, each of which can then be optimized based on what happened (or didn't happen) in the preceding years. What's powerful about dynamic programming, though, is its capabilities to model a greater number of retirements that might all vary at the same time; for instance, dynamic programming could allow spending (consumption), asset allocation, investment returns, and longevity to all vary at the same time, and then truly optimize the financial plan across all of those variables at once – rather than the more manual process of testing "a plan" and then repeatedly tweaking it with "What If" scenarios until a client is satisfied with it, as is more common amongst practitioners today.

A key advantage of dynamic optimization is that a single dynamic programming analysis also has the potential to provide guidance about what to do now and in the future in a way that a one-time Monte Carlo projection cannot. Dynamic programming can do this by effectively providing a three-dimensional road map of how over time a retiree might adjust spending, and adapt the allocation of their portfolio, based on the actual investment returns that are experienced in the future. And, by being more responsive to an individual's consumption preferences and investment returns that are experienced, dynamic programming not only helps guide retirement spending decisions that are better suited to an individual's unique goals and desires, but it may increase a retiree's consumption in retirement, as prior research from Gordon Irlam & Joseph Tomlinson has found that dynamic programming can provide significant enhancements in retirement income over traditional rules of thumb utilized by advisors. Financial planners who want to explore dynamic programming further can explore products such as Gordon Irlam's AACalc or Laurence Kotlikoff's ESPlanner.

Ultimately, it's still not clear that there's one “right” way to do retirement planning. Whether it is Monte Carlo versus historical… goals based versus cash flow based... or dynamic programming versus non-optimizing approaches… all can provide different insights, which in turn can help guide decision for clients given the risks and sheer uncertainty they face in planning for retirement. But in the end, if the whole point of doing financial planning is at least in part to come up with an actual plan for how to handle an uncertain future, dynamic programming provides a unique toolset that isn’t available in today’s traditional financial planning software solutions… at least, not yet!

#FASuccess Ep 016: Building Authentic Client Relationships By Practicing Skills (Not Pursuing Passions!) with Deena Katz

April 18, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the sixteenth episode of the Financial Advisor Success podcast!

Our guest this week is Deena Katz, the co-chairwoman of Evensky & Katz / Foldes Financial, a $1.6 billion independent RIA in Coral Gables, Florida. In addition, Deena is an author, editor, and contributor to 9 books on financial planning and wealth management, including 3 specifically on practice management for financial advisors… one of which had a tremendous impact on me when I was early in my own career!

More recently, Deena transitioned from financial advising to academia, and is now a professor in the financial planning program at Texas Tech University as well! Though in point of fact, Deena’s transition to becoming a professor isn’t entirely surprising, because she was also a teacher early in her career before making the change into financial planning almost 40 years ago.

In this interview, Deena talks about the early years of financial planning, how she and her partners established one of the first sizable fee-only financial advisory businesses, and how she was able to break through in her own career – at a time when there were even fewer female independent advisory firm owners – by adopting a niche of working with recently widowed and divorcee women.

We also talk a lot about the delivery of financial planning itself, and various business models, including why it is that Deena’s firm does not provide full-length comprehensive financial plans to new clients anymore (and instead breaks up their financial planning process into modules over the first year), the simple process her firm uses to demonstrate its ongoing financial planning value over time, and why success isn’t about following your passion but practicing your skills instead.

And be certain to listen to the end, where we talk about various types of financial advisory business models, the future of the AUM model, and the infamous question of whether it’s better to charge separately for financial planning, or not.

So whether you’re looking for perspective on the future of financial advisor business models (from a woman whose firm has tried almost all of them at some point or another!), ideas in how to get your growth going by focusing into a niche, or are looking for inspiration about how to get started in your financial planning career from here (especially as a woman in a still-male-dominated industry), I hope you enjoy this latest episode of the Financial Advisor Success podcast!

The Virtue Of The Weekly Advisory Team Staff Meeting

April 17, 2017 07:01 am 3 Comments CATEGORY: Practice Management

Anyone in a growing business has had the displeasure of being stuck in an unproductive meeting. At best, they happen from time to time. At worst, the day is so filled with unproductive meetings that it seems like there’s no time left to actually get anything done… leading many to want to just eschew internal team meetings altogether.

Yet the reality is that done well, meetings can be a mechanism to keep your team on the same page, working towards the right priorities, accountable on a weekly basis to getting things done, and provide a crucial opportunity for everyone to work together on solving the business’s biggest challenges from week to week.

Accordingly, the real problem is not that “(team) meetings are bad”, but that “bad (team) meetings are bad”, and that the remedy is to formulate a better structure to the weekly team staff meeting in the first place, with time to review key business data, evaluate the tasks that need to be done, prioritize for the coming week, and then take more than half the meeting time to actually solve problems that are occurring in the business!

Personally, I’ll admit that I was a long-time skeptic of having a weekly team staff meeting – having spent an incalculable amount of my own time in unproductive meetings over the years! – but have ultimately found that the pulse of the weekly team meeting really does become the heartbeat of the business as it moves forward!

Weekend Reading for Financial Planners (Apr 15-16)

April 14, 2017 03:01 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the interesting announcement that TD Ameritrade is raising its revenue-sharing agreements for its advisor referral network, as the DoL fiduciary rule looms along with the assimilation of hundreds of Scottrade retail branches that could soon turbocharge the advisor referrals coming through the network... and both raising questions about whether this will kick off revenue-sharing increases at other custodians as the struggle for advisor growth becomes more widespread, and also raising concerns about how abruptly TD Ameritrade distributed the news and made the change (giving advisors barely two weeks to agree to a substantial change in terms or be kicked off the referral platform). Also in the news this week is an emerging trend that advisors are getting more political in their communication with clients - what was traditionally a third rail never to be touched in client meetings - and whether doing so is really bad for business, or might actually be good to help attract like-minded prospective clients with similar beliefs.

From there, we have a few articles about regulatory trends, including: a deeper look at how the DoL fiduciary delay until June 9th (and delay of the full Best Interests Contract Exemption until the end of the year) may still not be enough to really deter the fiduciary rule from taking effect; the trends in the 401(k) marketplace for more advisors offering 3(38) services instead of operating as just a 3(21) fiduciary; and an interesting list of other regulatory battles for financial advisors that may be looming (including a potential "fiduciary lite" proposal that could come from the SEC on the titles that advisors use when holding out to the public).

We also have a number of investment-related articles this week, from a look at the rise of "evidence-based" investing, to a theoretical exploration of why it is that stocks continue to persistently outperform bonds (even when we "know" they're going to outperform, which theoretically means an efficient market should bid up their prices until they don't outperform anymore), a fascinating new study that shows how incredibly skewed stock returns really are with the entire wealth creation of the US stock market actually coming from just 4% of all stocks (and half the wealth creation from just 0.3% of them!), and a retrospective look at how TIPS have done for the past 20 years since they were first introduced in 1997.

We wrap up with three interesting articles: the first is a look at how the recent United Airlines incident is an example where having "too many" rules to manage behavior actually caused a breakdown in the system (which has significant implications regarding how many fiduciary rules should or shouldn't be prescribed for advisors); the second is an important reminder that advisors should not market themselves as being "conflict-free" just because they're independent, because all advisory models still have at least some conflicts of interest; and the last is a good reminder of why at least some regulation is necessary in most industries, because otherwise it's just too easy for marketers to take advantage of low barriers to entry and communicate in a way that misrepresents their products (but lets them profit before anyone realizes the profit that has been caused), and thus why smart and ethical marketers (and financial advisors?) should recognize that some level of regulation is actually a positive (both for consumers, and in providing clear guardrails to practitioners).

Enjoy the "light" reading!