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Weekend Reading for Financial Planners (Jan 18-19)

January 17, 2020 02:51 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the industry news that FINRA will be probing brokerage firms (both for retail clients and ostensibly RIA custodians as well) regarding their often-conflicted cash sweep programs into affiliated banks or proprietary money market funds, which has taken on an increased focus in the new era of zero commissions (where platforms have to rely more than ever on earning net interest revenue from client cash instead). Also in the news this week is the rumor that private equity firm TA Associates may be shopping Orion Advisor Solutions... for a nearly $2B valuation, in what will likely be a sale (if it occurs) to another private equity firm or industry-strategic buyer focused on growing Orion even larger as the world of advisor technology continues to heat up.

From there, we have several articles on marketing, including a Broadridge study finding that advisors are increasingly investing into various forms of digital marketing over purely traditional (i.e., live in-person channels), a Snappy Kraken study finding that email (and a website call-to-action to join a mailing list) is still far better at generating leads for advisors than social media, a look at various digital marketing strategies that financial advisors can experiment with on their websites, and why 'old-fashioned' book publishing can still be an effective advisor marketing strategy (but is not a very good advisor business opportunity for the book sales themselves).

We also have several articles on more technical planning issues, including a look at the new provisions of the SECURE Act that will allow up to $10,000 of 529 college savings plans to be used to repay student loans (or for an apprenticeship program), Fidelity's launch of an HSA platform for advisors to manage their clients' Health Savings Accounts (though it's not clear that many clients will ever have HSA balances large enough to be worthwhile for advisors to do so!), and when it makes sense to consider claiming Social Security's 6-month-retroactive-lump-sum payment for those who begin their benefits after Full Retirement Age.

We wrap up with three interesting articles, all around the theme of breaking old habits and forming new ones: the first provides a series of tips from successful executives and business leaders about their key habits for productivity; the second looks at how moving (i.e., relocating where you live and/or work) presents a unique opportunity to break old routines and form new habits; and the last explores some of the research about habits and willpower, and how those who have above-average self-control tend to be more successful not because they're better at avoiding or breaking their bad habits but because they're better at focusing their energy to form similarly-hard-to-break good habits instead... or stated more simply, that the key to improving your own behavior is less about trying to force yourself to stop doing the things you don't like, and more about finding and forming habits around the things you do like instead!

Enjoy the 'light' reading!

Kitces & Carl Ep 25: The Overconfident Conversation And Walking Clients Back From The Greed Ledge

January 16, 2020 07:06 am 0 Comments CATEGORY: Kitces & Carl Podcast

When market conditions become volatile and scared clients are on the verge of panic about the potential to lose even more money, financial advisors are faced with the challenge of talking their clients “off the ledge” from making a potentially disastrous investment choice to leap out of the market near the bottom and risk missing the recovery. Getting clients to actually stay the course, though, is easier said than done, as simply telling clients “Don’t panic!” doesn’t necessarily help them to do so!

Alternately, when the pendulum swings the other direction and markets are ramping upwards, clients can become overconfident and as natural greed begins to kick in… often asking for even more of their top-performing investments (regardless of the additional risk), and less of the poorly performing ones in their portfolios (that may have simply been the conservative diversifiers). Which introduces yet another challenging conversation, as telling clients “don’t be greedy” in the heat of the moment isn’t necessarily any more effective, either!

In our 25th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards revisit their earlier podcast discussion about how to talk clients off the ledge from ‘scary’ markets and then explore the flip side of the situation and how to keep clients from making bad decisions in the midst of a raging bull market.

Advisors can structure these ‘overconfidence’ conversations using a three-question framework, asking the following questions:

If you proceed with this decision and it works out as expected, how would your life be different?;
If you made this investment and you were wrong about how you expected it would do, how would your life be different?; and
Have there been things you were really certain about in the past that didn’t work out as planned?

Typically, clients will respond to these questions by acknowledging that if all things go as planned, there will be marginal (but only marginal) improvements to their situation (e.g., perhaps there will be extra vacation time or an opportunity to travel); however, if the outcome turns out badly, the consequences will be much more worse, often leading to disastrous circumstances that can involve severe losses (or even bankruptcy or divorce!). When faced with the third question, clients may realize that, while the positive outcome might sound appealing, there is a real risk of an alternative outcome having serious, potentially devastating effects, and that they can’t be ‘too confident’ about the good outcome as they recognize their own failed predictions of the past.

Often, this process is enough to help clients realize that, while the decision they are contemplating might sound like a good idea, it may not really be worth the risk involved – both the risk of a bad outcome in general and the risk that they are wrong about their ‘confident’ prediction it will turn out well.

But sometimes, a client may be too caught up in the appeal of a tempting opportunity and may want to proceed anyway. In these instances, advisors can re-connect the client’s focus to their ‘deeper yes’ – the important core values and goals they identified in their financial plan in the first place. If this approach still isn’t enough for the client to reconsider, then establishing a separate non-managed account can be an effective reminder to the client that the investment is separate from the plan, compartmentalizing the potential risk (and hopefully keeping the amount actually invested limited to a manageable minimum). On the other hand, if the client is dead set on going all in with the investment opportunity, it may simply be a signal to the advisor that it is time to part ways with the client… to avoid the ‘collateral damage’ that can, unfortunately, occur if clients harm themselves against the advisor’s advice but then still look to the advisor for someone to blame.

Ultimately, the key point is that the ‘overconfidence’ conversation is not very different from the ‘scary markets’ conversation; clients may simply need to be reminded that even though the markets may be doing well, making intentional decisions that stray from their investment strategies can throw their plans off course just as easily as a hasty decision made out of fear during bad market conditions.

Selecting Income-Driven Repayment (IDR) Plans To Manage Student Loan Obligations

January 15, 2020 07:15 am 13 Comments CATEGORY: Debt & Liabilities

Income-Driven student loan repayment plans, which started with Income-Contingent Repayment (ICR) in 1993, can make monthly repayment substantially more affordable for many borrowers by limiting student loan payments to no more than a certain percentage of income. However, when considering any of the five Income-Driven Repayment (IDR) plans, it’s critical to think not only of how borrowers may manage the monthly repayment costs but also of the long-term income trajectory of the borrower. Since payments are based on income, those who expect high future earnings may not benefit from using an IDR plan; because payments increase proportionately with income levels (and depending on the interest rate(s) of the loans being paid off), the borrower may or may not be better off maintaining lower monthly payments than paying the loan off quickly with higher payments. Which makes the decision to choose an IDR plan potentially complex, especially since many repayment plans for Federal student loans not only limit monthly payments relative to income but may also actually trigger forgiveness of the loan balance after a certain number of years.

Accordingly, the first line of action for borrowers tackling student loan debt and its potential repayment strategies is to identify the specific goal: to pay the loan(s) off in full as quickly as possible and minimize the interest expense along the way, or to seek loan forgiveness and minimize total payments along the way (in order to maximize the amount forgiven at the end of the forgiveness period). Once the objective is clear, planners can explore the repayment options available.

For those seeking the path of loan forgiveness, IDR plans that limit current payment obligations are often preferable, as even if they lead to the loans negatively amortizing (as the interest accrual on the student loans may significantly outpace the required payment if a borrower has a relatively low income), doing so simply maximizes forgiveness in the end. On the other hand, debt forgiveness may not be best; if the borrower does stay on that IDR plan all the way through forgiveness (typically 20 or 25 years), the forgiven amounts may be treated as income for tax purposes (which for some borrowers, could actually bring the total cost to far higher than what they would have paid had they actually paid down their loan balance to $0!).

Ultimately, the key point is that repayment strategies should be chosen carefully, as the desire to manage household cashflow often entails minimizing payments that maximize forgiveness, but the income tax consequences of forgiveness and rising repayment obligations as income grows can sometimes result in higher total borrowing cost than simply paying off the loan as quickly as possible!

#FASuccess Ep 159: Navigating Financial Advisor Career Opportunities Under The Employee Model, with Kelly Shikany

January 14, 2020 07:08 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 159th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Kelly Shikany. Kelly is a financial advisor and director of wealth management for Lakeside Wealth, a hybrid RIA based in Chesterton, Indiana, right outside Chicago, where Kelly manages a base of nearly $90 million of client assets.

What's unique about Kelly, though, is her decision to not hang her hat as a solo advisor and instead navigate existing advisory firms that have already established the necessary infrastructure to operate the firm, allowing her to focus on clients and not needing to live in an "eat what you kill" grid-based environment.

In this episode, we talk in-depth about Kelly's career path through the advisory industry under the employee model. From starting out as a trust accountant for ERISA plans with Northern Trust, shifting to become a trust officer with an independent trust company, transitioning to the independent channel under the Wells Fargo FiNet platform, and then joining her current firm with an opportunity to grow by servicing clients that the firm acquires in its own efforts to grow.

We also talk about how Kelly grew her client base in the early years by conducting women's circles as a way to network and establish relationships in her small town community. The reason she decided to pursue the CDFA designation as a way to initially differentiate herself, and how ultimately she decided the best way to differentiate herself was simply her ability to have a different kind of conversation with her clients in the first place.

And be certain to listen to the end, where Kelly talks about how she structures her week to maximize personal productivity. Why it's so difficult for most of the employee model to even figure out the right questions to ask when evaluating potential advisor job opportunities, and why it's important to balance a positive desire to be loyal to your firm and clientele with focusing on your own needs to find a fulfilling career and the right place to work as a financial advisor.

Announcing New Members Section Tiers And Re-Visioning Nerd’s Eye View For The 2020s

January 13, 2020 07:07 am 2 Comments CATEGORY: Nerd's Eye View

When the 2010s began, the primary business of Kitces.com was selling $149/year subscriptions to The Kitces Report, our paid monthly newsletter on advanced financial planning topics that provided CFP CE credit. And ‘on the side’ we launched the Nerd’s Eye View blog, as a way to share content on industry trends and practice management – content that might help advisors to be more successful but wouldn’t necessarily be eligible for CFP CE.

Over the past decade, though, the Nerd’s Eye View blog grew exponentially – now to more than 250,000 unique visitors every month – driving a shift of our content to be increasingly available for free through the blog, and The Kitces Report to become part of a broader “Kitces.com Members Section” that offered fewer newsletter issues but also with other ways to earn CE credit (including CE credits for the Nerd’s Eye View blog and a growing library of webinars).

Now, however, the growth of the Kitces.com platform is allowing us to expand the Members Section even further. Beginning in February, our Basic tier will provide a series of new webinars available every month (in addition to CE opportunities for our Nerd’s Eye View blog content), and the Premier tier will gain access to all of our webinar (and The Kitces Report) archives, a new Kitces Graphic Library for advisors to use our blog graphics with their clients and prospects, and a new private Members-Only Office Hours for the advisor community to ask questions of Michael and the team directly. In addition, Kitces.com will soon be part of a pilot program to develop written CFP Ethics CE, which should become available to both Basic and Premier tiers in the second quarter!

To support the growth of the Kitces.com Members Section, we’re also excited to announce a number of new additions to the team, including Erica Crane as our new Senior Technical Editor, Matt Nelson as our new Director of Advisor Education, and promotions for Jeff Levine (now officially our ‘Lead Financial Planning Nerd’) and for Rachel Zeller (from Operations Manager to Managing Director)… with more hires anticipated in the coming year as we continue to expand the Kitces.com services to the advisor community!

As ultimately, the reality is that we’re still just getting started here at Kitces.com. While the decade of the 2010s was about a mission of “Advancing Knowledge in Financial Planning”, in the 2020s we’re expanding our mission further to “Helping Financial Advisors Be Better, And More Successful” – better in the technical knowledge of financial planning and the skills to deliver that advice, and more successful in your career, your business, or whatever it is that ‘success’ means to you. Which means in the 2020s you’ll see not only our ongoing educational Nerd’s Eye View content, but also more Research on best practices in being a successful financial advisor, more Resources to help you be successful in your career or business, and new programs to help you further build your financial planning skills.

I’m so thankful to all of you, our readers, for joining us on the journey this far, and I can’t wait to share more of what we’re working on in years to come!

Weekend Reading for Financial Planners (Jan 11-12)

January 10, 2020 03:02 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 Envestnet is partnering with Dynasty Financial to create a new "Advisor Services Exchange" (ASx), and in the process is taking a small financial stake in Dynasty, raising questions of whether Envestnet is seeking to evolve beyond its technology core into a broader range of advisor services.

Also in the news this week was the announcement that former Congressman Chris Dodd and Barney Frank have filed an Amicus Brief against the SEC regarding Regulation Best Interest (Reg BI) claiming that as the ones who wrote the law itself the SEC misinterpreted the authority they were granted under Dodd-Frank to issue Reg BI (and that therefore the rule should be vacated), the governor of Massachusetts is advocating on behalf of the financial product manufacturers and broker-dealers that the state should consider walking back its fiduciary proposal, and a coalition of trade associations are coming together to make the case that Congress should allow financial advisors to claim the 20% Qualified Business Income (QBI) deduction in the future (though it's not clear that Congress will take up any tax legislation this year!).

We also have several articles on practice management and succession planning, including: the benefits of deliberately hiring younger and less experienced (but potentially longer-tenured and more creative) advisors into a firm; the common reasons that Millennial advisors quit their advisory firms; how to better promote a culture of positive work/life balance to avoid burning out next-generation talent; the factors to consider (or not) when trying to select a future successor for the firm; and why the development of next-generation successor leaders in an advisory firm requires a fundamentally different set of talents than what the founder needed to learn to grow the business to that point in the first place.

We wrap up with three interesting articles, all around the theme of generalists versus specialists: the first explores how specialists have more opportunities to succeed but are also more prone to being disrupted and unable to adapt, such that it's important to keep some 'generalist' interests as well; the second dives into research finding that generalists tend to be more successful in slow-moving environments while in an increasingly complex world it's actually the specialists with the domain knowledge to spot opportunities in environments of rapid change; and the last introduces the concept of the 'Generalized Specialist', who develops a core competency of expertise but also tries to deliberately maintain a broader multi-disciplinary perspective as well (to be better able to both adapt and integrate new, disparate ideas).

Enjoy the 'light' reading!