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Announcing The Second (Bi-Annual) Kitces Research Study On The Real Financial Planning Process

March 9, 2020 07:01 am 0 Comments CATEGORY: Nerd's Eye View

Financial planning, and the process of creating a financial plan, has changed extensively over the nearly 50 years since the first class of CFP certificants. As while in the early years, the “financial plan” was primarily used as a way to demonstrate a prospective client’s gaps and establish a need (for which the advisor could sell a solution to implement), financial planning then evolved into being a ‘value-add’ to support an ongoing client relationship, and now increasingly is becoming the purpose of (and primarily value proposition in) the client relationship in the first place.

To better understand these trends, in 2018 we released the first Kitces Research study on “How Financial Advisors Actually Do Financial Planning”, which examined how financial planners today are actually executing their financial planning processes, delivering their financial plans, what technology tools they are using, and how they are compensated.

Our 2018 report revealed several key findings, including how many meetings it takes to create and deliver a financial plan, how advisors are collecting the requisite data from clients, the tools they use to conduct their financial planning analyses and plan creation, the way technology is used to deliver the plan itself (where the majority of planners use planning software interactively, but also still use Word and Excel to supplement their financial planning software), and the time it takes for the whole planning process to come together. In fact, our research found that overall, financial planners spend only 19% of their time meeting with clients at all, while they spend 26% of their time preparing financial plans and other meeting preparation for their client meetings (along with almost 17% of their time on business development!).

A lot has changed since 2018, though, and as the financial planning industry, tools, business models, and regulations have changed, so too has the financial planning process itself. New technology tools have come, major financial planning software releases have occurred, new regulations have been proposed, and the industry continues to evolve.w

Accordingly, we’re excited to announce the second Kitces Research study, which will once again examine the process that financial advisors go through to create and deliver a financial plan. Similar to the study we conducted in 2018, this research will not only seek to identify current benchmark data for creating the financial plan itself (as well as best practices most effective for financial advisors), but will also specifically explore how the delivery of plans is changing in response to the rapidly evolving landscape of the financial planning industry itself.

So whether you’re frustrated that your financial planning software doesn’t “do” what you need it to in order to demonstrate its value, or are simply looking for ideas to refine your financial planning process to be more time-efficient or cost-effective (or valuable and able to command a higher price!), I hope you’ll take a few minutes to participate in this year’s Financial Planning Process survey and help the world better understand what real financial planners actually do!

Weekend Reading for Financial Planners (Mar 7-8)

March 6, 2020 03:00 pm 6 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the buzzing industry news that the CFP Board is removing descriptions of how advisors are compensated from its Let's Make A Plan consumer website, claiming that explanations like "Fee-Only" are "not... helpful to consumers", and setting off a fresh debate about whether or to what extent the focus should be on Fiduciary versus Fees (and whether being compensated by Fees is necessary to be a full-fledged fiduciary to clients in the first place).

Also in the news this week are more announcements of the rapidly-evolving landscape for RIA custody, with Pershing Advisor Solutions announcing a new monthly-subscription-fee approach to offering RIA custody services (in exchange for free trades for not only stocks, bonds, and ETFs, but also free mutual fund trades, and a high-yield cash option), and Betterment For Advisors announcing its own new hybridized pricing structure with a monthly per-advisor fee (and a lower basis-point fee stacked on top).

From there, we have several articles about investment markets and the ongoing saga of the coronavirus, including a look at the short- and intermediate-term implications of this week's 'emergency' 0.5% rate cut from the Federal Reserve, the new mortgage refinancing opportunities now emerging as rates crash (potentially giving clients more room to save to help make up for the recent market decline?), and some helpful talking points to consider when discussing volatile markets with clients (especially those who feel they have to 'do something' to feel more in control of the market situation they can't actually control).

We also have a few articles on how to run an advisory firm better and be compensated by the business, including one article on strategies for how best to pay yourself from the business entity (depending on the type of entity), another exploring the "Profits First" approach to budgeting for business expenses (and personal income), and a fascinating look at how, when advisory firms grow, it's crucial to properly pay yourself as the owner/founder of the firm or risk distorting the valuation of the business itself!

We wrap up with three interesting articles, all around the theme of how the business world is changing with the growing availability of data to change how customers or clients are served: the first looks at the rise of "experience" businesses, as technology makes it increasingly possible both to customize experiences, spot trends and data points to identify new experiences... and facilitate customers quickly sharing their good or bad experiences immediately via social media; the second explores how "shelf space" agreements are on the decline in grocery stores, as the growing availability of data about how customers shop means the grocers can create more customer loyalty by eschewing shelf-space payments and focusing first and foremost on what the end customer wants and values (making the foregone shelf space revenue back with additional customer retention instead); and the last examines how the marketplace for investment solutions itself is undergoing rapid change, as the era of the 'financial supermarket' appears to be coming to a close... apparently being replaced by a new generation of increasingly proprietary products and solutions that may cast a new wave of doubt on the objectivity of financial advisors?

Enjoy the 'light' reading!

Highlights From The 2020 T3 Advisor Conference

March 5, 2020 07:11 am 3 Comments CATEGORY: Conferences

The 2020 Technology Tools for Today (T3) Advisor Conference, held last month in San Diego, California, featured a large gathering of financial advisors and representatives across the fintech industry attending the two-and-a-half-day conference, which showcased this year’s theme of “Acceleration and the Pace of Change.” Hosted by Joel Bruckenstein and his team from T3 Consulting, the conference covered everything from how custodians are keeping ahead of the technology curve to the latest in portfolio management and reporting solutions, and from the latest in financial planning software innovations, to marketing tools, billing applications, and the importance of a solid cybersecurity plan.

In this guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – summarizes this year’s conference highlights with his signature Twitter-driven recap, kicking off with presentation highlights from custodial innovators such as Altruist CEO/Founder Jason Wenk, TD Ameritrade’s Director of Innovation Dani Fava, and TradePMR CEO Robb Baldwin, and from industry thought leaders from Fidelity, TD Ameritrade, BNY Mellon/Pershing, and Schwab, who gathered for a panel discussion to delve into the importance of understanding the needs of a diverse client base and maintaining gender equity in the workplace.

The annual T3 Tech survey, which assesses the software programs used by financial advisors, was also released at this year’s T3 Advisor Conference, and revealed that only 64% of advisors surveyed actually use financial planning software tools and even fewer (41%) use risk tolerance instruments, but that 81% use portfolio management tools, suggesting that many advisors are still not actually providing financial planning and remain focused mainly on asset management, instead. Other interesting results show Redtail capturing 62% of overall market share of all CRMs reported, with Wealthbox scoring at second place with less than 7% overall market share! Interestingly, though, more people indicated they were considering using Salesforce Financial Services Cloud than Redtail. And it’s not entirely clear how representative the survey really is of the broader advisor industry (as the survey link was simply open to any company that could encourage its users to participate and ‘turn out the vote’).

Other major highlights from the T3 Advisor Technology Conference included:

Betterment For Advisors made its first T3 conference appearance, with Head of Business Development Tom Moore discussing the firm’s automated investing and custodial services, along with its rapid growth (suspected to be bolstered by the recent inclusion of DFA funds to their investment lineup).
Broker-Dealer presentations included Cambridge CTO Nick Graham, who talked about digital transformation and emphasized the importance of creating a strategy before investing in new technology, and Burt White, LPL Financial Chief Investment Officer, who gave a keynote talk on the difference between running a business and growing a business.
Several new and emerging Portfolio Management vendors attended and offered demonstrations of their full-featured application solutions, including AdvisorPeak, Advyzon, D1g1t, Envestnet Tamarac, and several others.
Automated marketing tools are on the rise for financial advisors, as they often need help understanding it and improving their marketing processes. Vendors that attended and presented demonstrations include Snappy Kraken, AdvisorStream, FMG Suite, and TwentyOverTen.
Vendors showcasing financial planning solutions included Advicent (provider of Naviplan and Profiles financial planning tools), Apprise Labs (creator of Lifestyle Studio by former eMoney Advisor founder Edmond Walters), BlackRock (creator of iRetire, providing retirement income analyses), Covisum, Envestnet MoneyGuide, FinMason, FP Alpha, PlantechHub, Income Conductor, and LifeYield.
The conference also hosted a student competition, featuring university CFP programs from across the country. A mix of students studying financial planning and information technology teamed up with mentoring technology firms and were tasked to create RIA technology solutions addressing real, current financial planning problems. BYU Idaho (which was paired with AdvicePay) won the competition with a public-facing version of AdvicePay’s retainer-fee calculator for clients to use directly on an advisor’s website to calculate their own fees.
Brian Hamburger of Hamburger Law Firm and Founder/CEO of MarketCounsel, talked about cybersecurity, and stressed the importance of adequate training and adherence to compliance as good business practices, and also as basic requirements to simply maintain goodwill with clients.
Fidelity’s ESG Product Manager Hannah Lippe explained the similarities and differences between Environmental, Social, Governance (ESG) Investing, Socially Responsible Investing (SRI) and Impact Investing, and how advisors can use these practices to strengthen client relationships.

Ultimately, the 2020 T3 Advisor Conference brought together vendors, industry thought leaders, financial advisors, and students with the shared goal of gaining insight into the fast-paced growth and change of the financial planning industry, along with learning about new technology tools available to help financial planning businesses flourish efficiently and profitably. In line with this year’s theme, there was an expansive array of new and upcoming technology solutions for current and emerging issues faced by today’s financial advisors, no matter the size of the firm.

Restructuring Conduit Trust Beneficiaries Of Retirement Accounts To Avoid The SECURE Act’s 10-Year Rule

March 4, 2020 07:04 am 13 Comments CATEGORY: Retirement Planning

Passed in December of 2019, the SECURE Act brought several changes to the rules governing retirement accounts, the most significant of which (at least for financial advisors and their clients) was the elimination of the ‘stretch’ provision applicable to most non-spouse Designated Beneficiaries of inherited retirement accounts. Instead of letting such beneficiaries stretch distributions out based on their own lifetimes, inherited retirement accounts under the SECURE Act must now be emptied by the end of the 10th year after the year of death. Which is challenging when planning for retirement account beneficiaries… but is especially impactful for so-called “Conduit” Trust beneficiaries.

A Conduit Trust is a particular type of “See-Through” Trust that can serve as the (stretch) beneficiary of a retirement account. In order to be a Conduit Trust, all distributions from an inherited retirement account received by the trust must be passed out (i.e., “conduited”) to the trust beneficiaries each year. The appeal of a Conduit Trust is that beneficiaries named as a sole Income Beneficiary are essentially treated as if they were named directly on the account beneficiary form (i.e., allowing the trust to still take advantage of the ‘stretch’ provision if that conduit beneficiary is an Eligible Designated Beneficiary). However, Conduit Trusts whose conduit beneficiaries don’t meet the new “Eligible" Designated Beneficiary requirements – or have multiple Income Beneficiaries where at least one Income Beneficiary is not considered an Eligible Designated Beneficiary – can face significant new complications under the SECURE Act.

For Conduit Trusts with at least one Non-Eligible Designated Beneficiary, the ‘stretch’ provision is automatically eliminated and all funds from inherited retirement accounts must be distributed by the end of the 10th year after death! Accordingly, these circumstances with Non-Eligible Designated Beneficiaries, in particular, beg the question as to whether Conduit Trusts subject to the 10-Year Rule are even a viable solution for clients, especially in cases when the trust language limits distributions to “only” the Required Minimum Distribution. In such scenarios, no distributions can be made until the 10th year after death, when the entire account must be emptied all at once, since that is the only point during the 10-Year Rule when a distribution is actually required (resulting in a potentially huge tax liability in the process).

To help clients address the SECURE Act’s impacts on Conduit Trusts, advisors can start by taking a comprehensive inventory of all clients with trusts as retirement account beneficiaries and identifying those that are Conduit Trusts (which may require some legwork in attaining trust documents to review the trust language regarding distributions). The next step involves identifying all Income Beneficiaries of Conduit Trusts to assess whether the trust can still ‘stretch’ distributions (e.g., is the Income Beneficiary an Eligible Designation Beneficiary? If there is there more than one, are any Income Beneficiaries Non-Eligible Designated Beneficiaries?). Advisors should then proactively review with clients the implications of the 10-Year Rule on their estate planning strategies.

If an alternative to a Conduit Trust is deemed beneficial, the most straightforward alternative may be creating a new Discretionary Trust to replace the Conduit Trust as the retirement account’s Designated Beneficiary. While this route maintains post-death control over retirement assets, it comes at a potentially high cost, though, as Trust tax rates reach the 37% rate at just $12,950 (in 2020), versus $518,400 (Single) or $622,050 (Married Joint) for Individual taxpayers. Alternatively, Conduit Trusts can simply be replaced by the individual Income Beneficiaries themselves as the named beneficiaries of the retirement accounts.

Ultimately, the key point is that Conduit Trusts can be significantly impacted under the SECURE Act, especially when those Trusts have multiple beneficiaries, and even more so when at least one of those beneficiaries is a Non-Eligible Designated Beneficiary. Because with the 10-Year Rule in place, these trusts will potentially be required to distribute all retirement account assets on a 10-year schedule, after which they would no longer protect the retirement assets that they were designed to protect in the first place. Which makes it absolutely crucial to review, update, or potentially replace Conduit Trust beneficiaries of inherited retirement accounts… before the retirement account owner passes away, and the (potentially unfavorable) Conduit Trust rules are permanently locked in!

#FASuccess Ep 166: How Organic Growth Begets More Growth: The Size Bonus Of Building A Local And National Advisor Brand, with Peter Mallouk

March 3, 2020 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 166th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Peter Mallouk. Peter is the founder and president of Creative Planning, an independent RIA based in Kansas City that oversees more than $50 billion of assets under management for over 30,000 client families.

What's unique about Peter, though, is the way he's been able to build Creative Planning to an incredible milestone of $50 billion of assets under management nearly from scratch in the past 16 years and without mergers, acquisitions, or outside capital along the way, and why, after building the $50 billion, he's recently decided to begin the process of acquiring outside firms and to take outside equity investment from a private equity firm.

In this episode, we talk in-depth about Creative Planning's organic growth path over the past 16 years. The way the firm built early on with RIA custodial referrals with a then-unique offering of fully customized client portfolios and comprehensive financial planning bundled into a single AUM fee, how the firm's growth engine has shifted increasingly to referrals from existing clients and even direct inbound inquiries as more and more branch locations of Creative Planning become one of the largest local independent firms in their metropolitan areas across the country, and why it takes a very narrow focus on the kind of firms Creative Planning is willing to acquire to ensure that such acquisitions help and don't hinder its long-term organic growth strategy.

We also talk about Peter's perspective on broader industry trends, including why even with an increasing focus on fee compression and the commoditization of investment management, Creative Planning remains committed to the AUM model and not charging separately for planning, how the industry's professed talent shortage isn't necessarily a problem for firms with a clearly differentiated value proposition in the marketplace, and why he believes that independent advisory firms may be near a peak in valuation multiples, leading Creative Planning itself to recently sell a minority stake to a PE firm.

And be certain to listen to the end, where Peter shares what he actually intends to do with the outside capital that Creative Planning raised (and it's not to fund acquisitions), the firm's aggressive growth plan over the next 3 years, and why even as the leader of a $50 billion RIA, Peter still keeps a base of 100 clients that he sees for the bulk of his time every week and encourages most of his leadership team to keep client-facing roles with a portion of their time as well.

The Latest In Financial Advisor #FinTech (March 2020)

March 2, 2020 07:04 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the March 2020 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month's edition kicks off with the results of the latest T3 Advisor Software Survey, which continues to show that a subset of dominant players hold the largest market share in each key category… but that at the same time, upstarts in virtually every major advisor software category from Advyzon to RightCapital to Wealthbox to YCharts are gaining market share, and that some of the biggest shifts in advisor interest are coming from the “miscellaneous” listing of new advisor software categories that are still being created!

From there, the latest highlights also include a number of other interesting advisor technology announcements, including:

FP Alpha and Intelligent Decision Tools are both launching new “Expert System” artificial intelligence tools that help analyze client documents and data to provide not just financial planning projections but real financial planning observations and recommendations
Indyfin launches a new third-party lead generation service with its own bundled call center (to save advisors the time of qualifying prospects), while FMG Suite and TwentyOverTen launch their own website-integrated digital marketing tools
Fidelity spins off Akoya to build the next generation of account aggregation solutions that rely on (more stable) APIs than (constantly-breaking) screen-scraping by logging in with client credentials
RightCapital launches RightPay to facilitate fee-for-service financial planning payments as the trend of “Financial Planning as a Service” (FPaaS) continues to gain traction

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including the shift towards “re-bundling” of the advisor tech stack into various platform combinations, the rising trend of ‘second-act’ FinTech entrepreneurs coming back to launch new companies to disrupt the ones they originally built and sold, the emergence of Regulation Best Interest compliance and training tools as the June 30^th effective date looms, and the latest list of the Best (Advisor) FinTech companies to work for!

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map” as well!

I hope you're continuing to find this column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!