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Agile Financial Planning: Replacing “The Plan” With A Process Of Continuous Planning Improvement

December 16, 2019 07:08 am 17 Comments CATEGORY: Practice Management

In recent years, the financial planning profession has seen a growing shift in the services that financial advisors offer to their clients. Whereas in the earliest years of the profession, advisors primarily provided clients with product-based offerings such as insurance, annuity, and investment products, the focus of many advisors today has shifted to service-based offerings around the ‘advice’ itself. Interestingly, though, the shift to service-based advice offerings continues to expand, past the ‘traditional’ realms of financial planning advice, as now more and more financial advisors find themselves playing the role of a financial “life coach” to their clients, focusing more on how their clients can develop their goals and establish the financial capacity to realize their dreams (and not ‘just’ recommending the products they’ll implement to get there), and going along with them on the journey to navigate the inevitable shifts and changes that come along the way.

In this guest post, Roger Whitney – Senior Financial Advisor of The Retirement Answer Man, and creator of his “Agile Retirement Management®” process – describes a new financial planning paradigm he calls “Agile Financial Planning” for advisors who want to help clients achieve their financial goals, versus simply creating a one-time financial plan for them. This new model is based on the Agile Manifesto developed in 2001 by a group of software engineers inspired to improve upon the rigid, process-driven “waterfall” style of project management traditionally popular at the time (and that continues to be used effectively today by large corporate businesses). The Agile approach is based on four primary values: 1) individuals and interactions over processes and tools, 2) working software over comprehensive documentation, 3) customer collaboration over contract negotiation, and 4) responding to change over following a plan.

Adapting the tenets of the original Agile Manifesto, Roger developed his own “Agile Financial Planning®” approach, a financial planning process focused on the same objectives of continuous improvement, team input, and a quality (advice) product, with five core principles aimed to help advisors create a high standard for client care: 1) Acceptance that uncertainty is natural and will/should create a need to update strategies for achieving goals; 2) Collaboration between advisors (with financial planning expertise) and clients (with expertise around what makes the most sense for their own lives and situations) in creating a plan will produce more successful results than if the advisor just creates the plan for the client themselves; 3) Flexibility allows for creatively responding to changes in the plan with effective solutions, 4) Prioritizing goals and resources around what’s most important and impactful (versus what might be most attractive but is actually just distracting) will lead to improvement in everyone’s life; and 5) Communication on a continual basis will keep the process moving forward and in alignment with the Agile Financial Plan, providing opportunities to accept and respond to uncertainties as they arise, collaborate, stay flexible, and prioritize.

The Agile Financial Planning process consists of four stages: 1) Feasibility (creating a high-level plan to prioritize clients’ most important goals); 2) Sustainability (analyzing resources to develop resiliency in the plan against market forces and life circumstances); 3) Optimization (choosing the strategies to implement to make the best use of resources when executing the plan); and 4) Iteration (staying in touch with clients to ensure they remain engaged in the process, and keep moving forward with goal-setting and implementation). In turn, clients move through these stages with frequent meetings that Roger refers to as “huddles” and “SMART sprints”. In this context, huddles are brief conversations that take place frequently, and serve to keep the advisor and client in touch with each other, in between the goal-setting SMART sprints – the strategy discussions that help the client determine their next SMART (Sustainable, Measurable, Actionable, Realistic, and Time-Bound) goal to prioritize and then “sprint” to implement. Because Agile Financial Planning is a never-ending project that focuses on managing change.

Ultimately, the key point is that an Agile-style financial planning approach offers a process for financial planners who have chosen to go beyond ‘traditional’ financial planning practices that rely on long, comprehensive, data-gathering meetings upfront, to develop a one-time financial plan that is not frequently (if ever) updated. Instead, Agile Financial Planners coach clients on developing multiple SMART goals over time, discussed through frequent huddles designed to keep clients both on track and, more importantly, engaged. Even though the advisor is responsible for managing the process, the process still depends on a dynamic, interactive relationship with participation by both advisor and client, relying on the advisor’s financial planning expertise, and the client’s intimate understanding of their own goals, abilities, and circumstances.

Weekend Reading for Financial Planners (Dec 14-15)

December 13, 2019 02:45 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the 2019 edition of Financial Planning magazine's annual Tech Survey, showing the adoption leaders in each of the key advisor tech categories... and that despite all the hype, advisor use of "robo" tools remains not only tepid (at barely 11% of the advisor marketplace) but is actually declining as advisors predictably appear to be abandoning offering clients robo-only approaches and reverting back to their core (and more sustainably-priced) human-based financial advice services instead.

Also in the news this week is the release of the Investor Choice Act in the House that would end mandatory arbitration clauses amongst broker-dealers and RIAs, and a look at the recent Wells Fargo Advisors succession plan rollout that will pay retiring advisors as much as 225% of their trailing 12-month revenue (akin to a 2.25X multiple in the RIA marketplace) and facilitate next-generation advisors to buy those advisors out (but in turn more deeply binding those young advisors to the firm for the long run).

From there, we have several investment-related articles, including the latest Morningstar study on the behavior gap that finds the trailing 10-year gap has narrowed to 'just' 45 basis points in the US and has actually turned positive in the U.K. and Australia (though the narrowing/improvement may be driven in large part by rolling off the volatile years of the financial crisis and a 10-year sustained bull market), recent approvals to another 4 asset managers to offer non-transparent actively-managed ETFs (though it's not clear if advisors will actually adopt them), and an emerging trend that the push for lower-cost ETFs may finally be bottoming out as a series of recent zero- or even negative-expense ETFs have failed to garner market share since their launches earlier this year.

We also have a few articles on practice management, including a recent YCharts study on advisor communication (finding that most clients still don't think their advisors communicate frequently enough, or with enough personalization), the importance of regularly re-assessing an advisory firm's pricing and business model (and that the fear that clients will leave if the fee model changes are overblown), and a look at how the majority of advisors find the process of selling a firm to be very anxiety-inducing (as they try to figure out whether the acquirer really has the right culture and people to take the firm forward).

We wrap up with three interesting articles, all around the theme of managing (and improving the outlook of) your own career: the first explores how "sales skills" are often the top-ranked ability that successful people cite for their success (whether it's selling their services, or themselves, or their ideas, in the company/marketplace); the second looks at how it is increasingly acceptable to have a "resume gap" (whether due to taking time off to start a family, or to pursue new skills, careers, or even hobbies for a period of time); and the last examines how the best way to sustain and lift your own career is to try to develop your own personal brand that can give you (career) "pricing power" in the marketplace of job opportunities!

Enjoy the 'light' reading!

HSA Planning When Both Spouses Have A High-Deductible Health Plan (HDHP)

December 11, 2019 07:02 am 38 Comments CATEGORY: Retirement Planning

Since as early as 1960, our national health expenditures have been steadily increasing. The American Medical Association found Americans paid nearly $3.5 trillion on healthcare in 2017, and expenses continue to rise, with estimated increases in healthcare expenses by the Bureau of Labor Statistics pegged at over 7% since 2016.

To address our country's rising healthcare expenses, the Medicare Modernization Act was signed into law by President George W. Bush in December, 2003. This law created Health Savings Accounts (HSAs) to encourage individuals to enroll in High-Deductible Health Plans (HDHPs) in an effort to curb overall healthcare spending. In essence, HDHPs incentivize individuals to make healthcare decisions more carefully, with higher out-of-pocket requirements and lower premium expenses (which can often make up for the higher out-of-pocket requirements – especially for healthy individuals!).

Health Savings Accounts (HSAs) offer a further incentive for HDHP enrollment, as they provide a very attractive 'triple-tax' set of potential benefits. The three potential benefits are: 1) tax-deductible contributions, 2) tax-deferred growth, and 3) tax-free withdrawals for qualified medical expenses (although withdrawals made for non-qualified expenses are not tax-free and incur a 20% penalty if made before age 65). After age 65, though, non-qualified withdrawals have no penalty, so the account virtually becomes an “enhanced” IRA which can be used for any purpose but without the requirement of taking annual RMDs.

As with other tax-preferenced savings accounts, there are contribution limits for HSAs, which are based on the type of HDHP coverage an account owner has. For family HDHPs, annual limits are $7,000 for 2019 ($7,100 for 2020), and for self-only HDHPs, limits are $3,500 for 2019 ($3,550 for 2020). Additionally, HSA owners age 55 and older are allowed to make an annual $1,000 catch-up contribution.

Financial advisors with clients who are married and have mixed health insurance coverage can help their clients understand their actual HSA contribution limits, as these limits depend on the type of plan each spouse has. For spouses covered by separate self-only HDHP plans, each can contribute up to the maximum, self-only limit to their respective HSAs, but they can’t make up for any contribution shortfalls of the other spouse.

Sometimes, one spouse might have self-only HDHP coverage and the other an "employee-and-children" family HDHP (which does not offer coverage for the employee's spouse). This can be cost-effective for couples with children, as family HDHPs sometime provide for “employee and children” coverage that is less expensive than family plans that include both spouses. In this situation, the spouse with self-only coverage is limited to the self-only HSA contribution amount, and the spouse with family coverage can contribute up to the family limit. But while the total between spouses cannot exceed the family limit, the spouse with the family plan can make up for any contribution shortfall of the spouse with self-only coverage.

In rare cases, both spouses may each opt for separate HSA-eligible family HDHPs through their employers (perhaps because of different in-network doctors offered by each plan). Again, the total contribution between spouses may not exceed the annual family limit, but in this situation, both spouses have the ability to compensate for any contribution shortfalls of the other, or to simply choose which spouse's HSA it makes sense to fund first.

Financial advisors who have married clients with HSAs, where at least one spouse is under age 65, can employ some strategies to maximize the value of their clients’ accounts. For example, it may behoove the couple to maximize contributions to the older spouse’s account first in order to reduce the potential exposure to the 20% penalty for non-qualified withdrawals, since the penalty will not apply to the age 65+ older spouse. In addition, using HSA funds from the younger spouse’s account to pay for qualified medical expenses will also result in more funds in the older spouse’s account, available for penalty-free withdrawals for non-qualified expenses.

Ultimately, the key point is that the unique triple-tax benefits of HSAs make them attractive savings vehicles that can be used for expenses beyond medical care (but penalty-free for non-qualified expenses only after age 65). Financial advisors can help their clients with different HDHP coverage options get the most value out of their HSAs by guiding them through their specific contribution rules and choosing how to coordinate withdrawals for qualified and non-qualified expenses from each account in the most tax-efficient manner.

#FASuccess Ep 154: (Re-)Igniting Your Advisor Marketing By Defining Client Avatars And Removing Impediments To Action, With Mary Beth Storjohann

December 10, 2019 07:11 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 154th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Mary Beth Storjohann. Mary Beth is the chief marketing officer for Abacus Wealth Partners, an independent RIA based in Santa Monica, California that oversees nearly $2.6 billion of assets under management for almost 1,700 clients.

What's unique about Mary Beth, though, is that up until very recently, she was the founder of her own independent advisory firm, Workable Wealth, and despite (in fact, because of) the successful growth of her solo practice, Mary Beth decided the best way to continue advancing her own personal mission of expanding her financial planning impact was to sell her firm and to take on a marketing leadership role in an even larger firm instead.

In this episode, we talk in-depth about what it means to be a chief marketing officer of a large independent advisory firm. How Mary Beth allocates a marketing budget of just 2.5% of revenue that still adds up to nearly half a million dollars to allocate for marketing purposes, the relative split of marketing dollars towards staff to help implement marketing strategies versus direct spending on sponsorships and advertising, and how Abacus's marketing team funnels all of its activity to a lead intake team, whose job is to screen all the firm's prospects to determine who is qualified and who should be referred out instead.

We also talk in-depth about how Mary Beth developed avatars for the firm's marketing, formerly defined marketing personas like builders, protectors, and changemakers that the firm uses to more clearly determine where they should be and not be targeting their marketing dollars, how the firm developed a brand style guide so all the advisors of the firm can communicate in a consistent manner when marketing, and why Mary Beth decided to remove the contact form from the Abacus website altogether and instead, just install an embedded scheduling app to let prospects instantly and immediately set up a time for an initial call with the firm.

And be certain to listen to the end, where Mary Beth shares her ideas about what any advisory firm regardless of size can do to better improve its marketing, given her own experience in both a very large advisory firm, and having previously worked as a solo practitioner. Why often the biggest improvement that advisory firms can make is simply removing the impediments they're unwittingly creating that may reduce their marketing effectiveness, and Mary Beth's philosophy that the long-term key to marketing is all about brand consistency, which means it's better to spend a small amount of marketing dollars in a very consistent manner for a long period of time than to spend a large amount of money in a very short period of time.

The Millionaire Sweet Spot: How Large Advisory Firms Are Scaling Advice For (Better) Profits and (Faster) Growth

December 9, 2019 04:08 am 3 Comments CATEGORY: Practice Management

Since the early days of the financial advisory business, revenue models have evolved to rely less on commissions and more on the recurring income stream generated from the AUM model. The result has been a shift away from an often-one-time sale of a product to an ongoing provision of financial planning and wealth management services. Naturally, AUM-based advisors have had to change how they spend their time, as firms increasingly required advisors to prioritize servicing clients on an ongoing basis (instead of on closing one-time sales of financial products).

Not only have changing business models influenced how advisors spend their time, but as the recently released InvestmentNews Adviser Compensation & Staffing Study reveals, the size of the advisor’s firm also influences how advisors allocate their (limited) hours. As while advisors who own solo practices are more likely to manage all (or most) of the business development and client servicing responsibilities, the larger a firm becomes, the more they rely on support staff to handle client service responsibilities (e.g., paraplanners and service advisors who have little, if any, business development responsibilities). Because with more support staff available to shoulder more of the client-service workload, lead advisors and practicing partners can devote more attention to business development, which ultimately results in higher profit margins. After all, having more affordable support staff manage client servicing is more operationally efficient than having higher-paid advisors deal with these responsibilities. The result is that larger firms tend to have extra capacity (as measured by the number of clients each advisor and support staff can service).

And notwithstanding the rise of the robo-advisor earlier this decade (which stimulated competitive fee compression among financial advisors and caused a dip in advisor productivity), the InvestmentNews study shows that productivity has actually bounced back and now even appears to outpace current trends in increasing revenue! Which suggests that as a firm’s client capacity increases, firms tend to move ‘downmarket’ and target clients that have less assets (versus targeting ultra-high-net-worth clients). As while highly affluent clients may result in more revenue per client, they may also be more labor-intensive for lead and senior advisors (as opposed to associate advisors and staff), which is why larger firms are servicing an increasing number of “mere millionaires”, who can be serviced with scale to a greater degree. Whereas with smaller firms, who don’t have the same ability to leverage economies of scale to successfully shift ‘downmarket’ and pursue smaller clients, the tendency is to maintain focus on larger clients as it has been traditionally in the past.

Ultimately, the key point is that emerging trends show larger advisory firms are shifting away from targeting highly affluent clients, and are instead aiming for smaller clients in the “millionaire sweet spot” – those clients who are still wealthy, but whose needs might not be so complex as to require senior-advisor-level service. And because these clients are generally less labor-intensive and price-sensitive as more highly affluent clients, they are a key factor for the rapid growth seen in many of today’s large firms. Solo advisory firms, on the other hand, lack the resources to implement economies of scale that larger firms are able to establish, and thus the most successful smaller firms flourish by continuing to target larger clients.

Weekend Reading for Financial Planners (Dec 7-8)

December 6, 2019 03:35 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the industry news that Schwab is tapping former TD Ameritrade RIA chief Tom Bradley to lead a new "Core" RIA support platform for RIAs under $100M on the Schwab platform, indicating both a shift of Schwab moving further "downmarket" to smaller and solo RIAs, and providing a strong signal to smaller TD Ameritrade RIAs that they will not be abandoned or kicked off the platform after the Schwabitrade merger closes. We also have articles about the recent uniform fiduciary rule proposed in Massachusetts, and a look at the new SEC advertising and testimonials rule that's been proposed by the SEC for the coming year.

From there, we have several investment-related articles, including a look at how advisors are increasingly using "alts" to diversify client portfolios but are disproportionately buying alts that are still highly correlated to markets (which make them more 'modifiers' than true 'diversifiers'), a simple five-point checklist to evaluate prospective investment strategies that an advisor may be considering, and tips on how best to retain clients through turbulent markets (hint, it's all about regular and timely communication, more so than the investment returns themselves!).

We also have a few articles on tax planning, including one on various year-end charitable planning strategies, a second on newly-updated IRS rules (via Revenue Ruling 2019-19) about how to handle retirement account checks that are sent but not cashed (to determine which year they are deemed "distributed" for both tax and especially RMD purposes), and a look at how year-end tax-loss harvesting is not really as valuable as many make it out to be.

We wrap up with three interesting articles, all around the theme of improving our own personal health: the first looks at how spending just 2 hours per week outdoors (even just taking periodic walks or sitting on benches outdoors throughout the week) can improve health; the second explores how those who have more green-ness - literally, in the form of plants or nature, even indoor in their own homes and offices - can improve health; and the last looks at all the simple health benefits that come from being kind, that literally release positive hormones in our bodies and that have a wide range of positive health effects (a good sign for being a financial planner in the business of helping our clients!).

Enjoy the 'light' reading!