Nerd's Eye View blog

Financing A Financial Advisor Acquisition Or Succession Plan With Live Oak Bank

June 9, 2016 03:01 pm 13 Comments CATEGORY: Practice Management

With a large number of financial advisors approaching retirement in the next 10 years, there has been a growing interest in advisor mergers, acquisitions, and succession plans. In many cases, though, deals don't get done because it's difficult to find a buyer and a seller who are a good match. And in some cases, the probably is simply that it's too difficult to get financing for the transaction.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we interview Jason Carroll of Live Oak Bank, a new lender that has begun to work directly with financial advisors to finance mergers, acquisitions, and internal succession plans... and has already funded a whopping $300M in financial advisor loans in just the last 3 years!

And the good news is that the growing availability of loan financing is making it easier than ever to fund acquisitions, whether internal or external. In fact, with available loan interest rates at 6.0% or lower (prime plus 2.5%), and repayment terms as long as 10 years, acquiring a financial advisory firm can be cash flow positive from year 1, if purchased at a reasonable valuation in the first place.

For some, the potential for favorable loan terms - collateralized by the future cash flows of the business if clients retain through the transition - will make succession planning and acquisitions more appealing than ever. Especially because for the most favorable acquisitions - where the likelihood of client retention is very high - it's even feasible to finance 100% of the purchase price!

The 4 Phases Of Saving And Investing For Retirement

June 8, 2016 07:01 am 14 Comments CATEGORY: Retirement Planning

The traditional approach to saving for retirement is all about starting early, saving consistently, and letting compounding growth do most of the heavy lifting over time.

Yet the reality is that for those who are still early in their careers, there really may not be enough income coming in to save in the first place. It’s only as income rises that savings behaviors really start to matter. And for those who have saved long enough, eventually the impact of savings is muted by the sheer size of the portfolio, as compounding growth becomes the driving factor in reaching retirement success. Until the retirement date actually looms close, and then preserving the portfolio for the retirement transition is more important than just trying to maximize growth.

In fact, this framework of Earn, Save, Grow, and Preserve can be a helpful way to think about the progression of accumulating for retirement. Each phase has its own unique issues to be navigated, and success in one phase leads to the challenges of the next.

Most importantly, though, considering the four phases of saving and investing for retirement is crucial to ensuring that the retirement advice being delivered is relevant in the first place. After all, focusing on strategies to maximize portfolio growth are irrelevant for those who can’t afford to save yet, and for those with a large retirement portfolio, ongoing contributions become irrelevant and the focus must be on growing and preserving the nest egg instead!

How To Turn Your Financial Advisor Website Visitors Into Prospect Leads

June 6, 2016 07:01 am 12 Comments CATEGORY: Marketing

In the early years of the internet, a website was like a digital business card or a marketing brochure – a place for consumers to look up basic information to contact a business, including a financial advisor.

In today’s world, however, consumers use websites in a far more sophisticated manner – gathering information and ‘studying’ a number of businesses for an extended period of time, before ever being ready to contact the advisor with the intent to do business.

The question, then, is how to take casual visitors to an advisor’s website, and engage them in a manner where they will come back when they’re ready. The answer: to use the digital visit as an opportunity to make a “digital connection” by persuading the visitor to opt into joining your mailing list... which gives you the opportunity to stay connected with them, until they're actually ready to do business.

In fact, notwithstanding the massive growth of social media in recent years, marketing studies find that email still drives business 40X more effectively than social media. And a proliferation of new tools from companies like SumoMe, OptInMonster, and LeadPages have made it easier than ever for advisors to use such solutions in their own marketing process.

Ultimately, the reality is that such marketing strategies are really no different than the drip marketing strategies that many financial advisors have engaged in for years, simply delivered – and leveraged – with the power of the internet!

Weekend Reading for Financial Planners (Jun 4-5)

June 3, 2016 02:44 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the announcement of the widely anticipated series of lawsuits against the Department of Labor's fiduciary rule, with filings this week from both SIFMA and FSI (representing Wall Street and broker-dealer firms), as well as NAFA (representing the fixed annuity industry). However, legal experts are already suggesting that the industry's lawsuits appear weak, especially given how much the Department of Labor already conceded to the industry in its final rule compared to the previously proposed one. Also in the news this week was the revelation that advisor tech guru Bill Winterberg is embroiled in a lawsuit with fellow tech consultant Joel Bruckenstein over the profits of the recent T3 Enterprise conference (and tech vendors are taking note of the conference's substantial $458,000 reported profit).

From there, we have several practice management articles this week, including a look at the new overtime rule for employees in professional positions that may impact a number of advisory firms and the compensation they pay their paraplanners and associate planners, a look at why a niche based on personality type may be more appealing than a profession-based niche, how not billing on a client's cash balance could actually be a DoL fiduciary violation for advisors who manage portfolios with discretion, and a discussion of the "dark side" of becoming an independent advisor where the challenges of entrepreneurship can lead to depression.

We also have a few more technical articles this week, from a review by Bill Bengen of how the 4.5% safe withdrawal rate is holding up given the 2000 and 2008 bear markets (the short answer: it's doing just fine!), to a look at what advisors should discuss with clients about Medicare as they approach age 65, and a review from Social Security's Chief Actuary about the current state of the system, how much in benefits really will still be paid even if the trust fund goes "broke", and how the system will likely be fixed from here (without raising the Federal deficit).

We wrap up with three interesting articles: the first is a look at recent consumer surveys finding that investors are less interested in being do-it-yourselfers and are becoming more interested in at least working collaboratively with an advisor to 'validate' their advice, but why advisors should be wary about taking on such clients; the second looks at how technology can be so effective at solving our problems, but its design can also be manipulated (intentionally or accidentally) in manners that make us addicted to the technology in very unproductive ways; and the last covers the financial advisory industry's landscape for young advisors, where there are still not enough coming in to replace all the baby boomer advisors who are retiring, but a shift appears to be underway as firms establish better training programs and a more constructive team approach to supporting new advisors, and both membership associations and independent advisor networks increasingly step up to fill the void as well.

Enjoy the "light" reading!

Why It’s Crucial To Attend At Least One Financial Advisor Conference Every Year

June 2, 2016 12:31 pm 1 Comment CATEGORY: Practice Management

Human beings are creatures of habit. The good news is that habits make it easier for us to get through the day and do everything we need to do. The bad news is that it can get us stuck in a rut and reinforce bad behaviors.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the virtue of going to financial advisor conferences, as a way to get a fresh perspective and get out of a potential rut in your business and career.

Because ultimately, while there's certainly value to going out for a conference to get a lot of CE credits all in one place, it's the potential for business ideas and connections with other advisors that is really the most valuable. Because often it takes an outsider's perspective about the struggles you face to figure out how to move forward.

To really maximize the value of attending a conference, though, it's crucial to take the steps to prepare yourself for success. Which means scoping out the agenda in advance to plan on what sessions you will (and won't) attend, bringing ample business cards to share, sending a follow-up email to the people you meet, and visiting the exhibit hall, which increasing is filled with providers that can help make your business more successful!

Getting Stretch IRA Treatment When Using An A-B Trust As An IRA Beneficiary

June 1, 2016 07:01 am 26 Comments CATEGORY: Estate Planning

The A-B trust strategy has long been a staple in the world of estate planning to help minimize estate taxes. And even with the increase in the Federal estate tax exemption and the creation of portability of the estate tax exemption, A-B trust planning is still relevant for very high-net-worth clients, and those who may face a lower state estate tax exemption.

However, a significant complication of A-B trust planning occurs when the only (or primary) asset available to fund the trust is a retirement account such as an IRA, given the common desire to obtain “stretch IRA” treatment to minimize taxable distributions from an inherited IRA.

Fortunately, though, the “see-through” trust rules do allow at least some types of A-B trusts to still obtain stretch IRA treatment, particularly in the case of bypass trusts or (properly drafted) QTIP marital trusts, even when created as a testamentary. On the other hand, naming marital trusts or even revocable living trusts outright can result in a total loss of stretch treatment for an inherited IRA.

In addition, it’s notable that even where the see-through trust rules do allow for the stretch of an inherited IRA, the income tax treatment will often be less favorable than naming beneficiaries outright (due to the compressed trust tax brackets). As a result, anytime an A-B trust is being considered as the beneficiary of an IRA or other retirement account, it’s crucial to weigh the non-tax (and potential estate tax) benefits against the likely income tax disadvantages!

Summer Reading List of “Best Books” For Financial Advisors – 2016 Edition

May 30, 2016 07:01 am 8 Comments CATEGORY: Personal/Career Development

It's Memorial Day once again, which means the busy spring conference season is coming to an end, and it's time for the annual summer slowdown for most advisory firms - as clients begin to go on summer vacations and it's harder to schedule them for meetings, advisors have some time to relax with family themselves... and catch up on the reading list.

As an avid reader myself, I'm always eager to hear suggestions of great books to read, whether it's something new that's just come out, or an "old classic" that I should go back and read (again or for the first time!). So in the spirit of sharing, a few years ago I launched my list of the "Top Books for Financial Advisors to Read", and it was so well received that in 2013 I also started sharing my annual "Summer Reading List" for financial advisors of the best books I'd read in the preceding year. It quickly became a perennial favorite on Nerd's Eye View, and so I've updated it every year, with a new list of books in 2014 and yet another fresh round of suggestions again in 2015.

And so continuing the trend, I'm now excited to share my latest 2016 Summer Reading list for financial advisors, with suggestions on books about everything from how to improve your personal and business focus, several books on advisor marketing and practice management, and a few more to challenge your thinking about the business world of the future (as more and more becomes either "free", or accessible at ever-lower costs thanks to a growing number of mega platform businesses... which may someday make their way into financial services as well!). As you might guess from the common theme of the books, I'm spending a lot of time thinking about the future of the financial advisory and where the best opportunities may be going forward from here!

So as we head into the summer season, I hope that you find this suggested list of the latest books to read to be helpful… and please do share your own suggestions in the comments at the end of the article about the best books you've read over the past year as well!

Weekend Reading for Financial Planners (May 28-29)

May 27, 2016 02:44 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the news that robo-advisor SigFig has raised $40M of new venture capital, from established asset manager Eaton Vance, in its bid to become a leading robo-advisor-for-advisors solution as the company continues to pivot away from its challenged B2C roots.

From there, we have a number of practice management articles this week, from a brief review of the new retirement income software solution "Income Solver", to a look at what the DoL's "Best Interests" requirement really means (now that it appears the rule is here to stay), tips and best practices for doing client meetings virtually via webinar or video conferencing software, and why it's so crucial for financial planning to be done consistently across an advisory firm.

There are also several technical planning articles, including: a look at how the long-term care marketplace is evolving as long-term care insurance (and Medicare and Medicaid) continue to struggle; how the problems of the student loan crisis may actually be understating, by failing to recognize how often low-income students in particular are enticed into colleges they can't afford, fail to graduate due to the financial burden, and then end out with student loans and no diploma; a discussion of common estate planning strategies and assumptions that are changing in today's environment; and a look at how the rise of indexing may make investments more efficient on a relative valuation basis while still leaving them exposed to potentially extreme absolute valuation distortions.

We wrap up with three interesting articles: the first is a look at how social networking is actually on the decline, as companies increasingly adopt social media for business purposes and drown out the less-and-less-common "personal status update"; the second is a fascinating new study discussed in the Harvard Business Review that suggests the "skills gap" in the U.S. may not be due to a lack of availability worker training and STEM programs, but simply that businesses don't (or can't) pay enough in wages to incentivize workers to go get those skills; and the last is an examination of the growing juggernaut that is Vanguard, now taking in nearly $1B of AUM per day and showing no sign of stopping, due not only to its incredible economies of scale and strong brand, but also its unique structure of being owned by its shareholders and the favorable investor-centric incentives that has created for the company's management and leadership.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, which this week looks at Personal Capital's announcement that it raised another $75 million of venture capital (albeit from an established financial services firm) to expand its tech-augmented-humans advisory service, SigFig's announcement that it also raised venture capital this week ($40M, from another established financial services firm) as it pivots its B2C robo-advisor to become a B2B solution for advisors instead, and a look at a recent FINRA fine on an advisor which was triggered in part because he backdated and altered client notes in his CRM to obscure questionable recommendations.

Enjoy the "light" reading!

Finding Your Virtual Assistant As A Financial Advisor

May 26, 2016 08:28 am 37 Comments CATEGORY: Practice Management

As the internet makes the world more and more interconnected, it is increasingly feasible to work with clients anywhere in the country (or even the world). And the phenomenon of working-at-a-distance isn't unique to the advisor-client relationship. It's also relevant for advisors who are looking to hire and expand their own team, too - freed by the constraints of geography.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the rise of virtual assistants, and how financial advisors can find their own virtual assistant. A growing number of platforms have made it easier than ever to find a virtual assistant... although ironically, the best may still come from the advisor's own personal network!

In addition, we also look at the typical cost for a virtual assistant - which can range from $15/hour to $30/hour for support on straightforward administrative and operational tasks, to $50/hour or $100/hour or more for specialized support on tasks like preparing a financial plan. Though notably, as long as the hourly rate is less than what the advisor bills for their own time, even "expensive" virtual staff support can be a great deal for the advisor.

For many, though, the appeal of a virtual assistant is not just trying to get a "good deal" on an hourly rate, but simply the flexibility of being able to hire someone for just the hours that are actually needed, while at the same time potentially getting a specialist for the task who will be more competent and require less training than hiring a full-time staff member anyway. Just be certain to buy them a separate license for all your software, so you can turn off their access if you ever terminate the staffing relationship!

Why The Empty Nest Transition Is Crucial For Retirement Success

May 25, 2016 07:01 am 22 Comments CATEGORY: General Planning

Despite decades of encouragement to save a percentage of annual income, the national savings rate has been in decline for decades, and a disturbing number of today’s 50-somethings are seeing their children off to college, only to turn to their own financial situation and realize there's a significant shortfall in retirement preparedness.

Yet given the reality that it’s very expensive to raise children – including the ballooning cost of college – arguably this transition into the empty nest phase provides a unique opportunity for households to play “catch-up” for retirement… simply by taking the money that was once being spent on the kids, and saving it instead!

In other words, perhaps the idea of saving a steady percentage of income throughout our working years was never a reasonable approach to begin with, and that a strategy more sensitive to the spending realities of the child-rearing versus empty-nest phases of accumulation is both more realistic, and what many households will end out doing anyway.

Which means the real key to retirement success may not be about saving early and often for the long term at all, and that instead a significant post-child-rearing-phase "catch up" sprint is the normal path to retirement success. In turn, this suggests that the most crucial phase of retirement saving is not figuring out how to save during the early working years, and instead is about ensuring that the transition into the empty nest phase is used as an opportunity to catch up on retirement savings – after all, just 15 years of saving 30% of income once the kids are out of the house is still enough for an astonishing number of households to stay on track for retirement!