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Weekend Reading for Financial Planners (Oct 12-13)

October 11, 2019 02:50 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 Fidelity has not only decided after all to match competing custodians with zero-commission trades on US stocks and ETFs, but is further accentuating how it provides better default money market options and eschews payments for order flow in an even further amplification of the competitive pressures of the RIA custody model.

From there, we have several more articles beginning to explore the implications of the industry's rapid shift to zero-ticket-charge RIA custodians, including how the collapse of trading commission revenue could force RIA custodians to assess new custody fees (or else have to cut services given the lost revenue?), the way zero-commission trading may further accentuate the differences between broker-dealer platforms and RIA custodians (and further accelerate the breakaway broker trend), and the compliance issues that suddenly have emerged for RIAs that previously negotiated asset-based pricing on trades and especially those that bundled their asset-based trade pricing into a holistic wrap fee that may no longer be priced appropriately in a zero-trading-fee world.

We also have a number of articles on RIA and broker-dealer industry trends, from a look at the latest FINRA data showing that the number of brokers changing broker-dealers or switching to the RIA channel is actually declining (at least for now?), to the challenges of large broker-dealers that aren't always leveraging their economies of scale for better service to their brokers (and sometimes use their scale to negotiate better distribution agreements for themselves instead), whether the industry is starting to shift away from revenue-based compensation for advisors (and how the rise of Merrill Edge could drive the shift in large firms), and how advisory firms learning to bring in their own clients (whether by centralized marketing or inorganic acquisitions) are leading to a rise of restrictive non-compete and non-solicit agreements in the RIA channel that may even be more limiting than the wirehouse channel those independent firms criticized just a few years ago.

We wrap up with three interesting articles, all around the theme of how we find and consume good news and other content in an increasingly complex (and algorithm-driven) world: the first provides some recommendations on less-commonly-known blogs and news sites to help advisors who want to try and figure out what the market 'consensus' is (in order to identify potentially-market-moving news); the second offers up another series of blog and media site recommendations for content that will challenge you to think differently; and the last takes a fascinating look at how after nearly a decade of increasingly-algorithm-driven content recommendations, companies from Netflix to Apple are bringing back human curation to provide the contextually relevant suggestions for readers/viewers that algorithms just haven't seemed to be able to master (or at least, haven't yet?).

Enjoy the 'light' reading!

Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets

October 10, 2019 07:13 am 2 Comments CATEGORY: Kitces & Carl Podcast

When clients are panicking and on the verge of making emotionally-driven (and potentially irrational decisions), there's an opportunity for advisors to use empathy to build trust and strengthen the relationships to be able to talk clients off the ledge. Recent insights from behavioral finance show us ways to genuinely relate to clients by understanding their fears on an objective and intellectual level. But once an advisor makes an empathetic connection, how does the advisor then move that conversation forward to help their client actually make a more rational decision?

In our 18th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards extend their last podcast and look at communication strategies advisors can use to set the stage for helping clients actually make better decisions after ‘talking them off the ledge’, using a three-part pyramid framework: the Plan, at the foundation of the pyramid (representing the financial plan itself that was developed around the client’s personal values and goals); the Process, in the middle (i.e., the method whereby an advisor helps their client determine how those values and goals will become reality); and the Product, at the top of the pyramid (which are the tools that were chosen but that are now the focus of the client’s fears and anxieties).

By using such an approach, an advisor can draw the client’s attention away from the initial cause of alarm – that place in the ‘branches’ of irrational ideas driven by emotional turmoil – back to the grounding ‘roots’ of the client’s financial plan, which (as they’ll be reminded) was built around their own personal values and unique goals. And then, once the client is (hopefully) back at a place where their point of reference is centered on their foundational values and goals (instead of on whatever external, uncontrollable news story or event that made them worry in the first place), it’s at that point where data and evidence can (finally) be brought into the discussion and how the plan originally factored in the potential for both good and bad outcomes to begin with!

Because changing the perspective back to the fundamentals of what they’re trying to accomplish can have a huge impact on a client’s behavior; without that context (and especially under the influence of sensationalized market news), the reasoning behind the product can be easily forgotten and difficult to understand, making that product seem arbitrary and potentially senseless in a turbulent environment. By contrast, with the (reminded) context of the plan, staying within the parameters of the client’s plan will almost always now seem the best course of action for them to weather whatever turmoil the market might be experiencing at any given moment.

Ultimately, the key point is that, by establishing trust through a connection built on empathy, we as advisors can help upset clients remember how the foundation of their plan, based on their personal values, was used to develop the unique portfolio and recommendations designed to bring their financial goals to fruition. And by re-centering the client’s focus back to their original plan, an advisor can make all the difference in helping a client maintain the grit they’ll need to stay on course regardless of whatever transient turbulence the client may perceive.

Maximizing The Value Of Public Service Loan Forgiveness (PSLF) By Minimizing Debt Repayment

October 9, 2019 08:06 am 15 Comments CATEGORY: Debt & Liabilities

In an effort to make college more accessible to low-income students, the Public Service Loan Forgiveness (PSLF) program was created in 2007 with the intent of offering tax-free forgiveness of certain student loan debt for borrowers working in qualifying government or non-profit jobs for at least ten years. However, in the decade-plus since, the scope of the program has expanded as the skyrocketing cost of education has left record levels of college graduates with a debt load that is very difficult (or outright impossible) for them to repay, leaving PSLF as an appealing route for them to eliminate their student loan debt as well as work towards other financial goals.

Yet, the requirements to qualify for PSLF are fairly stringent, and in this guest post, Ryan Frailich, founder of Deliberate Finances (a fee-only financial planning practice that specializes in working with couples in their 30’s), discusses the rules around PSLF, PSLF’s unique advantages (and disadvantages), and the opportunities that financial advisors have to help clients minimize overall payments by managing their annual Adjusted Gross Income (AGI).

To qualify, PSLF candidates must work full-time for a qualifying government or non-profit employer and have Direct Federal loans (which can include Direct Subsidized, Direct Unsubsidized, Direct PLUS, or Direct Consolidation loans). The borrower must also be in one of four “Income-Driven Repayment” plans, consisting of Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), or Income-Contingent Repayment (ICR) plans, which all calculate monthly loan payments based on the borrower’s AGI. Thus, rather than having fixed payment obligations determined by loan term, balance, and interest rate, a student loan borrower’s payments will adjust in step with their AGI instead.

And because these PSLF-qualified income-driven repayment plans depend on AGI, financial planners have the opportunity to help borrowers minimize payments by reducing AGI in every manner possible… to maximize the value of forgiveness at the end of the 10-year repayment term. While every client’s situation is unique, some common strategies include: using Married Filing Separately (MFS) instead of MFJ as a tax status for married borrowers, maximizing qualified retirement account contributions, and utilizing employee benefits to offset W-2 wages of the borrower pursuing PSLF. Accordingly, these (and other) strategies can offer significant savings to the borrower in the long-term by reducing debt obligations that would otherwise be much higher under a standard repayment plan (and all without necessarily reducing overall income!).

PSLF has significant advantages over other programs for Federal student loan forgiveness. For income-driven repayment plans, the time to loan forgiveness is generally 20 to 25 years (versus the much shorter 10-year PSLF requirement), so the borrower who qualifies for PSLF will pay less in total student loan interest along the way. Additionally, the amount forgiven by other Federal student loan repayment plans is counted as taxable income, unlike the tax-free forgiveness offered by PSLF. Which means that, because many borrowers on income-driven repayment plans have loans negatively amortizing (i.e., the loan balance grows each month), without PSLF they may end up with debt forgiveness that is multiples more than the debt originally taken out, resulting in a tax burden that can negate much of the impact of loan forgiveness in the first place.

Ultimately, the key point is that the PSLF program can be an effective tool for borrowers managing overwhelming student loan debt, and because loan payments qualifying for PSLF can change dynamically based on income (versus a fixed monthly payment based on initial loan balance and interest rate), financial planners can help clients maximize the amount of the loan ultimately forgiven by using strategies to minimize AGI every year during the loan repayment years… which, for some borrowers, can equate to hundreds of thousands of dollars in savings (assuming all PSLF requirements are met)!

#FASuccess Ep 145: Systematizing Reviews Of Client Tax Returns By Building Software To Automate Them, with Roger Pine

October 8, 2019 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 145th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Roger Pine. Roger is the co-founder of Holistiplan, a new kind of tax planning software for advisors built to systematize and automate the process of reviewing a client's tax return to find the potential planning opportunities.

What's unique about Roger, though, is that he previously spent 10 years as a financial advisor in an independent advisory firm where he taught himself computer programming on the side implementing custom technology improvements for his own firm, before deciding to shift into becoming a full-time FinTech entrepreneur himself.

In this episode, we talk in-depth about the Holistiplan software that Roger developed. From leveraging optical character recognition to scan all the relevant information from an entire tax return PDF in just seconds, to converting that information into relevant tax observations about the client's tax bracket, phased-out deductions or tax credits, and the eligibility for tax preference contributions to retirement accounts, to the forward-looking tax planning tools that Holistiplan is now building to identify the client's true marginal tax bracket, taking into account all the phase-ins and phase-outs to make better forward-looking tax recommendations.

We also talk about the ever-blurring line between where a CPA's tax services end and a financial advisor's begin, the dynamics of trying to balance providing tax guidance and not unwittingly competing against potential CPA referral sources, and why Roger views Holistiplan's tax analyses as only the beginning of developing a comprehensive expert system that helps financial advisors craft more consistent recommendations across the full spectrum of the financial planning body of knowledge.

And be certain to listen to the end, where Roger shares his own journey and what it's like to transition from being a financial advisor to an advisor tech entrepreneur. Why he ultimately decided to take the leap despite being on a partnership and succession track in his current advisory firm, and his suggestions on what other advisors can do if they too see an opportunity to develop advisor technology solutions to fill the gaps in today's marketplace.

So whether you're interested in learning about the process behind taking an idea for an application and actually bringing it to market, lessons Roger learned when transitioning out of the advisory business and launching a startup, or about his goal to advance the financial planning profession by helping develop "normative practices", then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (October 2019)

October 7, 2019 07:22 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the October 2019 issue of the Latest 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 a new startup RIA custodian called Altruist is entering the fray to compete against the existing incumbents, leading with next-generation digital tools for portfolio reporting and management overlaid onto a modern RIA custodian so much less expensive to operate that it will provide all trades commission-free… only to witness a total collapse of trading commissions at multiple RIA custodians, as Schwab decides to set the price of trading at zero for the broader market of online discount brokers, forcing most competitors to follow almost immediately (and almost immediately undermining the cost differentiator that Altruist was launching with?).

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

Fidelity partners with Ethic Investing to bring a direct-indexing-style ESG solution to its RIAs
Orion fully integrates its ASTRO direct indexing solution into Eclipse for firms that want to implement it themselves
Morningstar launches its own ‘financial planning lite’ solution dubbed Goal Bridge for brokers using its Advisor Workstation platform
Holistiplan wins the XY Planning Network FinTech competition with a new tax planning software that digitally reads tax return PDFs and identifies the planning opportunities automatically
CFP Board changes the rules to permit some (client-relevant) technology content to become eligible for CFP CE credit

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including RIA compliance provider SmartRIA acquiring GreyTwist and ComplianceHero to round out its cybersecurity and website/social media/email archiving capabilities, WiserAdviser buying out the OG digital lead generation platform Paladin Registry, Investopedia Advisor Insights shutting down its advisor platform, Zoe Financial raising $3M of capital to scale up its lead generation service, and Wealthfront catapulting to $20B of ‘assets’ but with most of its growth in its new non-managed cash offering (which may not be growing Wealthfront’s revenue, but could shave a whopping $100M to $200M of profits off competing banks and brokerage firms!) as the battle for cash gets increasingly active.

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 (Oct 5-6)

October 4, 2019 02:54 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of news stories spurred by Interactive Brokers' announcement that it was cutting its trading commissions on all US stocks and ETFs to zero, which in turn spawned announcements from Schwab doing the same just two business days later, TD Ameritrade price-matching Schwab at zero just hours after that, E-Trade cutting their trading commissions to zero the next day... and Fidelity notably deciding to hold firm (albeit at just $4.95/trade), and suggesting that it may be better to hold firm on pricing if it keeps Fidelity's revenue up to be able to provide advisors better service as well!

From there, we have a few articles on hiring and leveraging associate advisor talent in your advisory firm, from a discussion about the benefits of delegating (both to free up your time, and give your team more opportunities to excel and rise to the occasion), tips on how to pick the right/best successor for your firm, why associate advisor compensation actually declined in the latest benchmarking study despite an ongoing talent shortage (hint: advisory firms are so desperate that they're hiring those with less experience and less talent... and then paying them less in the process), and some good suggestions on what to ask (and what you may not ask) when interviewing a prospective associate advisor!

We wrap up with three interesting articles, all around the theme of gratitude and sharing (and accepting praise for) our good deeds: the first explores why it's important to learn to accept compliments with gratitude and not just brush them off saying "It was nothing"; the second delves into the research on "virtue signaling" and when/whether it's good to show off your own good deeds; and the last explores what you should actually do to accept a compliment with grace (and make the person giving the compliment feel appreciated for having done so!), including and especially when the compliment is from yourself!

Enjoy the 'light' reading!