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Weekend Reading for Financial Planners (Sep 7-8)

September 6, 2019 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a fascinating new consumer study finding that the titles that financial advisors use really do matter, particularly when it comes to the perceived loyalty that the individual will give to their clients, with "financial planners" and "financial advisors" gauged as significantly more trustworthy than stockbrokers and insurance agents... and raising questions of whether the SEC should have gone further in its title reform efforts under Regulation Best Interest.

Also in the news this week was an announcement by the CFP Board, in response to the recent Wall Street Journal article about its lax enforcement of standards, of the members of its new Enforcement Task Force, and that the task force will be comprised mostly of former securities regulators (suggesting that the CFP Board may indeed be preparing for a substantial step up in its enforcement efforts). In addition, the buzz is growing that the SECURE Act may finally be passed in the coming month (as an add-on to the budget legislation that Congress must pass by the end of September, and Jackson National paradoxically announced, that due to New York state's new Regulation 187 fiduciary rule for annuities, the company will bizarrely be suspending its fee-based annuities but keeping its commission-based annuities in what appears to be an attempt to not have to disclose how significant the differences in costs and benefits may be between commission- and fee-based annuity contracts.

From there, we have several practice management articles this week, including a look at the new add-on services advisory firms are beginning to offer to help justify their advisory fees (and avoid needing to cut fees), the latest advisor benchmarking study that finds advisor compensation in various key roles may be starting to flatline (but only because firms are developing more traditional career tracks with formal promotions instead), issues to consider when instituting a new advisor bonus plan for bringing in new clients, what to consider to properly define who an "A" client really is (beyond just their assets under management or revenue to the firm), and what to consider when considering whether to make a counter-offer to an employee who says they're leaving (and why it's best to try to avoid ever being in such a position in the first place).

We wrap up with three interesting articles, all around the theme of entrepreneurship: the first looks at a recent study finding that despite the popular view that more heads are better than one, startups founded by solo entrepreneurs are more likely to survive and thrive than team-based start-ups (that in practice just end out being more likely to have critical disagreements about the vision or direction of the business and break up later); the second explores another new study, finding that the vision of young-genius entrepreneurs (e.g., Bill Gates, Steve Jobs, or Mark Zuckerberg) is really the exception to the rule, and the average age of entrepreneurs is actually 42, with the fastest-growing startups have an average founder age of 45; and the last explores the journey of entrepreneurship for advisory firm founders in particular, and the ways the role of the founder and the demands of the business on that founder change and evolve as the business itself grows and develops over the years.

Enjoy the "light" reading!

How S Corporation Owner-Employees Can Adopt An Accountable Plan To Preserve The Home Office And Other Business Expense Deductions

September 4, 2019 10:34 am 10 Comments CATEGORY: Taxes

Prior to the passage of the Tax Cuts and Jobs Act in 2017, W-2 employees had the ability to deduct unreimbursed job-related expenses paid with personal funds as miscellaneous itemized deductions on their personal income tax returns. But the TCJA suspended most miscellaneous itemized deductions (including unreimbursed employee business expenses) through 2026, eliminating the opportunity for employees (including S corporation owners who also serve as employees of those companies) to deduct business expenses on their individual returns.

But the good news for S corporation owner-employees is that, by implementing an “Accountable Plan” a (a reimbursement program which meets certain IRS regulations), S Corporation owner-employees can continue to deduct business expenses that they pay for personally by “passing” them along to the business. Essentially, an Accountable Plan is an IRS-approved reimbursement program that allows a business to reimburse employees for business expenses they incur as part of their work. The business is then able to deduct those reimbursed amounts as if the business had incurred the initial expense, itself.

When using an Accountable Plan, reimbursements for business expenses are not considered compensation to employees thus, don’t increase payroll taxes due on wages or an employee’s income tax liability. However, it’s important to note that the deductibility of an expense incurred by an employee isn’t changed when submitted for reimbursement to an employer. Thus, any limitations or restrictions inherently associated with a deductible expense remain in place (e.g., the 50% deductibility of meal expenses).

There are three simple guidelines an Accountable Plan must follow to be considered valid: 1) all expenses to be reimbursed through the plan must have a business connection, 2) expenses must be “timely substantiated,” and 3) any excess advances provided to the employee must be “timely repaid.” While the actual definition of “timely” (with respect to substantiation and repayments of advances) is somewhat ambiguous, the IRS has provided several “safe harbor” options.

Since Accountable Plans are so simple to establish, and since they offer such flexible rules around to whom they can apply, and to which expenses they will cover, there is generally no reason for most S Corporations not to implement them. For example, the Accountable Plan can be designed so that only certain expenses can be reimbursed, and/or so that only specific employees can participate.

Despite their simplicity, though, business owners should understand that if the IRS does not deem their plan in compliance with the Accountable Plan rules, their plan will be treated instead as a “Non-Accountable Plan”. In such instances, any reimbursements will be added the employee’s wages. Even though employee wages reduce gross business revenue, that reduction is offset by the increase in wages. And to top it off, the impact of higher FICA taxes as a result of those wages means that the total tax liability will be higher than if the expense hadn’t been reimbursed in the first place!

Ultimately, the key point is that an Accountable Plan is a simple way for S Corporation owner/employees to shift deductibility of business expenses from the employee to the employer and offers the ability to mitigate tax liability by allowing business owners to choose which expenses are reimbursable and which employees will be eligible to submit reimbursements. Thus, in light of TCJA and the suspension of miscellaneous itemized deductions, for S Corporation owner-employees, in particular, Accountable Plans are an especially effective tax planning tool.

#FASuccess Ep 140: Transforming Your Advisory Business By Shifting Your Mindset After Hitting The (10-Year) Capacity Wall, with Adam Cmejla

September 3, 2019 07:01 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 140th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Adam Cmejla. Adam is the founder of Integrated Planning & Wealth Management, an independent RIA based in Carmel, Indiana that oversees approximately $45 million in assets under advisement for nearly 100 financial planning clients.

What's unique about Adam, though, is the incredible transformation his practice has gone through over the past 2 years, as a shift in mindset has led him to grow revenue by nearly 80% over what he had built the first 10 years cumulatively by both raising his financial planning fees and going all-in on a niche of serving optometrists.

In this episode, we talk in depth about how Adam's marketing process has evolved over the years, from starting out at Waddell & Reed where he immersed himself in local networking groups like BNI and Indianapolis Rainmakers, to beginning to shift his focus towards working with VDOCs, veterinarians, doctors, optometrists, and chiropractors, by focusing his marketing on white coat professions and launching a podcast, to further narrowing down his focus to just serve optometrists after realizing it's actually easier to market it and grow his firm as the target clientele narrows, which in turn has led him from charging as little as $400 a year for financial planning for his legacy clients, to charging $595 per month plus $1,000 upfront or over $8,000 a year in planning fees for his ideal target client.

We also talk about the mindset shifts that Adam went through to reinvent his practice over the past 2 years after hitting the wall from his first 10. From moving away to setting his value in terms of the time he spends on clients and instead looking more directly to what his clients say they value the most, which wasn't the depth of his financial planning data analysis, the steps he took to raise his financial planning fees by as much as 100% to 300% over the past year to fix legacy clients that were being undercharged, and the way he balanced bringing in new ideal clients along with raising fees on existing clients as a way to overcome his own fears that clients might terminate him for the fee increases, even though in the end, virtually none of them did.

And be certain to listen to the end, where Adam shares his top advice to fellow financial planners. If you're really wondering if you should raise your fees, the answer is already yes. How the transformation of his advisory firm enabled a transformation with his wife and children by allowing the entire family to reallocate the time they spend together, and how Adam has institutionalized the processes and workflows he's developed in Redtail CRM to the point that he's now also beginning to consult other advisors on how they can adapt and implement the same efficiencies in their own advisory firms.

So whether you're interested in learning why narrowing your focus can help grow your advisory business, ways to systematize your business processes, or why the answer to the question, "Should I raise my fees?" is almost always, "yes," then we how you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (September 2019)

September 2, 2019 10:50 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2019 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 news that Wealthfront is acquiring financial planning monthly subscription startup Grove… but as part of the deal, is selling off all of Grove’s clients to Facet Wealth, leaving the industry wondering whether Wealthfront is about to pivot into the monthly subscription model to mimic their competitor Schwab Intelligent Portfolios, wanted Grove’s financial planning technology to expand Wealthfront’s own Path financial planning software, or simply wanted to “acquihire” the Grove technology and product talent to advance Wealthfront’s own mission. And raising concerns about why Grove, which just last year raised an $8M Series A round to begin to scale its monthly subscription fee financial planning solution, decided to walk away barely a year later.

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

United Income’s virtual-CFP-for-Baby-Boomer-retirees model gets acquired by Capital One as digital advice expands beyond just serving Millennials
Snappy Kraken raises a $2.5M seed round to begin ramping up its marketing technology built to both generate leads for advisors and convert them
Aivante launches a new health care cost calculator for prospective retirees that helps to project out health care costs based on a client’s health and geographic location
ScratchWorks announces the open of its third season of Shark-Tank-meets-FinTech-Accelerator for advisor technology

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Ladenburg acquiring the NewDay impact investing robo-advisor to create more customized ESG portfolios for advisors instead, BrightPlan launches adds an artificial intelligence “financial coach” to its digital wellness platform as a way to upsell complex clients to its affiliated PlanCorp RIA, PreciseFP launches new data-gathering forms specifically to facilitate TD Ameritrade client onboarding with reduced NIGOs, both Envestnet and MoneyGuidePro launch expanded life insurance modules as interest grows from insurers in using financial planning software to facilitate life insurance sales, and Ric Edelman suggests that part of the challenge of advisor adoption of cryptocurrency may be a PR/perception problem and accordingly rebrands his Advisor Blockchain and Cryptocurrency Council into an “RIA Digital Assets Council” instead.

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 new 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]!

Weekend Reading for Financial Planners (Aug 31 – Sep 1)

August 30, 2019 02:56 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a look at the various Democrat plans beginning to emerge that may shift the US tax system from being heavily income-based to a blend of income- and wealth-based instead... as regardless of an advisor's political affiliation and belief in Democrats' policy goals, a major shift in tax policy in the U.S. will have substantial impact for many advisors' clients, and is already an increasingly common topic of conversation with clients, which means it's crucial to be aware of the leading proposals and what they entail. Though given the increasingly political environment, it's notable that also in the news this week is a new effort from the Investment Advisers Association (IAA) to make it easier for at least smaller RIAs to be more politically active with campaign contributions (if they wish to) without becoming buried in the burdensome "pay-to-play" compliance rules that RIAs must follow to ensure their political contributions don't result in working with "prohibited" clients in government.

From there, we have articles around spending behaviors, including one study finding that a whopping 30% of clients still hide at least some spending decisions from their financial advisors (ostensibly out of a fear of being judged for their decisions), the ways that affluent clients sometimes "buy" privacy not for luxury but simply to protect themselves from the public eye, the emergence of the "subscription monthly-pay model" in the world of luxury travel for affluent clients, and the ongoing rise of "medical tourism" where some companies are even paying their employees to have surgical procedures done in foreign countries (even if it's necessary to fly a U.S. surgeon there to do the procedure) as a way to lower health care costs for the business.

We also have a few marketing articles this week, from a look at how to use and leverage Google Reviews (without running afoul of anti-testimonial compliance rules), how to set up Goal Tracking in Google Analytics to actually figure out where new prospects are coming from (and what actually connects with them on your website), and some tips for experienced advisors whose growth has stalled to re-ignite their prospecting efforts.

We wrap up with three interesting articles, all around the theme of the ever-evolving profession of financial planning itself: the first is an "Open Letter" on diversity from a financial planner who is a woman of color about the real-world challenges that emerge in being a "pioneer" in what is still a predominantly white industry; the second looks at what the CFP Board must do from here to shore up its credibility after the recent Wall Street Journal article suggesting the organization wasn't effectively enforcing its own standards; and the last takes an interesting retrospective look at the financial planning profession itself as it approaches its 50th anniversary this December, whether the profession is really living up to its promise as a profession, and concerns of whether financial planners really have the advocacy organizations in place that are necessary to carry the torch of higher standards into the future.

Enjoy the "light" reading!

Kitces & Carl Ep 15: Why Are We So Afraid To Just Listen

August 29, 2019 09:05 am 1 Comment CATEGORY: Client Trust & Communication Kitces & Carl Podcast

Although gaps in a conversation are often awkward and uncomfortable, when used effectively, they can become power tools for financial advisors to foster deeper connections with their clients. Because, beyond just hearing what financial concerns a client may have, advisors can use the opportunity to give space to the conversation, which helps to establish empathy and build trust, and in the process sometimes bringing to light the unique roadblocks clients may have in executing their plan.

In our 15th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the value of really listening to clients, and how, by simply talking less and listening more in client meetings, an advisor can improve the chances that a client will stick to their plan.

In general, financial advisors are trained to be knowledge experts and to communicate that knowledge to clients. But even though clients seek out financial advisors for their technical expertise (after all, the main value-add financial advisors offer are the recommendations that help clients down the path of achieving their financial goals), what may not be so obvious are the reasons that clients will (or will not) successfully follow those recommendations. Reasons that can’t be discovered… unless the advisor gives the client the space to reveal them.

Because no matter how perfect and comprehensive a plan may be, it will offer little value if the client does not know how, or is unable, to follow it. Like a swimming instructor teaching a fearful student how to swim, it may be very clear to the advisor what steps the client needs to take and how to communicate what those steps are. Yet it may be harder to see the doubts and fears that the client may be holding on to – or about whether they can even trust the advisor in the first place – which, in turn, can give rise to a client’s hesitation and reticence to follow through… in essence, a “gap” between what the client knows (i.e., what you tell them), and what a client actually decides to do. But by encouraging clients to fully talk through their concerns – and by using silence as an opportunity for the client to reflect deeply on the questions asked – advisors can empathetically understand what a client’s true priorities are, and particularly, what may be creating the knowledge/action gap for the client.

In the end, the key point is simply that it’s okay, and maybe even potentially valuable, to have some silence during a client conversation, because it can lead to a better balance between the delivery of knowledge and the discovery of nuances that make the client a unique individual. Ultimately, by asking probing, relevant questions, and leveraging silence, advisors can become better listeners and strengthen their relationships with clients, and in doing so, may even identify the obstacles that are keeping them from sticking to their plan in the first place.