Kitces.com - Advancing Knowledge in Financial Planning

Weekend Reading for Financial Planners (August 10-11)

August 9, 2019 03:30 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with an edgy new academic study finding that dual-registered advisors on average charge fees that are significantly higher than standalone RIAs, face more conflicts of interest, and end out with a higher rate of regulatory complaints, raising serious concerns about whether the shift towards, and growing popularity of, dual-registered investment advisors may ultimately face a regulatory backlash.

Also in the news this week is a decision by the New York State Supreme Court to uphold its new Regulation 187 that would require all insurance agents and brokers to meet a fiduciary duty when providing insurance and annuity recommendations to clients, and a blockbuster investigative report from Financial Planning magazine finding that JPMorgan not only inappropriately fired a whistleblower for raising a red flag about its practice of selling proprietary products to fiduciary clients, but appears to have falsified client complaints against the advisor as well... and FINRA still disciplined the advisor and refuses to retract it, while FINRA itself faces the conflict of having JPMorgan's former top lawyer as a member of its own Board.

From there, we have several technology-related articles, including a look at the growing number of tools for advisors that help to estimate healthcare costs in retirement and plan for senior medical expenses, a look at the slow-but-steady rise of artificial intelligence in wealth management (which thus far, is actually being driven in large part by CRM provider Salesforce), and how "digital marketing" technology is becoming the hot area for advisory firms to spend more on (given the potentially immediate positive ROI for investments into marketing technology versus other areas like compliance tech).

We also have a few articles on investing, including a guide on how to select the right outsourced investment management provider (i.e., TAMP), a prediction that only two types of asset managers (high-performance boutiques and mega-scale behemoths) will survive in the coming decade, and a Morningstar analysis of what exact drives the tax-efficiency of ETFs.

We wrap up with three interesting articles, all around the theme of the ways our future is changing through the power of technology: the first looks at the rise of technology-driven homebuyer services like OpenDoor and OfferPad, that are applying algorithms to turn residential real estate into an "e-commerce" environment with faster buying and selling; the second explores how, despite the eye-popping rise of platforms like Uber, such mega-platforms can still be highly prone to disruption themselves depending on the nature of their networks; and the last looks at how the near-ubiquity of smartphones is leading them to be increasingly used as our identification device, with initiatives underway to digitize into our phones everything from MetroCards to even our Driver's Licenses.

Enjoy the "light" reading!

Is The CFP Board Finally Ready To Enforce The Standards Its Public Awareness Campaign Promotes?

August 8, 2019 07:03 am 7 Comments CATEGORY: Planning Profession

On July 29, the Wall Street Journal published an article which reported that nearly 10% of the certificants included on the CFP Board’s “Let’s Make a Plan” website, which the CFP Board makes available to consumers to find a CFP professional, have material public disclosures listed on the FINRA BrokerCheck site (including several with felony charges!). Notably, though, exactly zero of those “red flag” disclosures are included on the CFP Board’s own website. Which raises the question: How effectively does the CFP Board ensure its own professional standards of conduct are really being upheld, especially as it trumpets a consumer public awareness campaign advocating that those with the CFP marks are the “Gold Standard” that consumers should look for?

In this episode of #OfficeHours with Michael Kitces, we discuss the main issues raised by the WSJ article (as well as the CFP Board’s response), how the CFP Board’s public awareness campaign has unwittingly amplified the issues, some potential challenges the CFP Board faces in addressing these challenges, and explore what it might take for the CFP Board to close the gap between what it promotes in its public awareness campaign and the standards its CFP professionals are actually meeting.

While the CFP Board promotes its “Let’s Make A Plan” site as the “go-to” resource for finding qualified financial planners, the WSJ report pointed out that they have failed to disclose important background details (which even FINRA discloses on its own BrokerCheck website) that would be relevant to a consumer seeking a trustworthy professional. To which the CFP Board was quick to respond, referencing limited staffing and budget resources (70 employees and a $30 million budget, compared to FINRA’s 3,000 employees and $1 billion budget) and non-profit status (meaning that they can only certify and set standards for its certificants, as opposed to a regulatory agency’s official authority to investigate allegations against advisors), as reasons that the WSJ shouldn’t necessarily hold their “Let’s Make A Plan” site to the same standard as a bona fide regulator like FINRA.

The CFP Board also maintained that it is not their policy to publish allegations of wrongdoing, especially if the CFP Board hasn’t investigated them itself, and will only publish disciplinary actions against prohibited activities fully investigated by the Board (as contrasted with FINRA, that sometimes will publish information about client complaints, even if there was no ultimate finding of wrongdoing). Yet historically, disciplinary action against a CFP certificant has been taken by the CFP Board only after another regulator has found them guilty. And ironically, other regulatory bodies generally have less stringent rules of conduct. Which means in essence, the CFP Board is claiming a higher standard of conduct, but often only taking enforcement action based on other regulators’ lower standards… raising the question of how exactly the CFP Board can ever ensure its CFP professionals actually will uphold its proclaimed higher standards?

Despite this, the CFP Board acknowledged it could do better, promptly established an independent task force to “strengthen and modernize enforcement”, and has pledged to begin checking third-party regulatory records (e.g., FINRA and the SEC) every time CFPs renew their certification, instead of conducting an initial one-time background check and relying on self-disclosure in subsequent years.

Still, though, the question remains of how can the CFP Board possibly enforce the higher standards they have been advocating for nearly the last decade with their $10 million annual awareness campaign, if the CFP Board doesn’t have the capacity or authority to fully investigate allegations made against CFP certificants?

Perhaps the most straightforward path is, to the extent that promotion of CFP Board’s higher standards and enforcement of those standards are inextricably linked, the CFP Board’s public awareness budget itself could be (partially) reallocated to support efforts to uphold and enforce CFP standards as well? Or alternatively, the CFP Board could also be more proactive about collecting information already available from third-party regulators, make it easier for fellow CFP professionals to identify peers who violate the Board’s Standards of Conduct, and devise an improved investigative process to actually be able to review complaints and disciplinary issues.

Ultimately, the key point is that the CFP Board needs a mechanism to enforce the high standards CFP professionals are required to follow and that the CFP Board is so proactively marketing to consumers through its own public awareness campaign. And the need for better enforcement mechanisms is especially critical with the new CFP Code of Ethics and Standards of Conduct going into effect in October, 2019, which will only increase the stakes further. Proactively reporting all disciplinary records and creating tools for consumers and CFPs to easily register complaints are simple steps, at least initially, towards improving oversight of financial advisors, until the new independent task force releases its recommendations for strengthening and modernizing enforcement of CFP standards.

Figuring Out The “Best” Healthcare Option For “Early” Retirees

August 7, 2019 07:11 am 18 Comments CATEGORY: Insurance

Given the skyrocketing cost of healthcare (as well as the increasing need for it as we age), it’s not too surprising that Baby Boomers’ biggest worry is how they’re going to afford their medical costs in retirement. Thankfully, however, Medicare (which is available to individuals who paid – or have spouses who have paid – Medicare taxes for at least 10 years and are at 65 years of age or older) is the de facto option for healthcare for retirees. And it’s actually quite affordable – at least relative to the underlying costs of care – due to the fact that Medicare taxes already cover between 77% and 99% of a Medicare recipient’s premiums (such that they only have to pay the net remaining premium out of pocket).

The caveat, however, is that, while the majority of individuals plan to retire at some point after they reach age 65, there is still a non-trivial number of individuals, whether by choice or by need, who retire before they are eligible for Medicare (or even Social Security, for that matter) and still need health insurance coverage (and can’t just simply be added to their still-working spouse’s employer-sponsored plan).

Fortunately, early retirees do have a few options as they consider the best way to obtain health coverage in early (pre-Medicare) retirement. For workers who retire from a company with greater than 20 employees, COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage allows newly-separated employees (or employees who work so few hours that they’re not eligible for their employer’s health plan) to continue their existing insurance coverage at the same (full-premium) cost (plus an administrative fee that is usually capped at a maximum of 2% of the premium). However, COBRA coverage generally lasts only 18 months, and thus can only (except under certain conditions) be used to bridge short gaps before Medicare eligibility begins. Another option for retirees looking to continue their coverage using the same health insurance provider is to “convert” the plan under the group to an individual plan… at least, as long as the plan allows for such a conversion. Again, though, this isn’t always an ideal alternative, as there’s no requirement that the terms (or cost) of such an individual policy are the same as their “old” group plan.

Meanwhile, retirees who (either due to eligibility or cost) decide that either COBRA coverage or a conversion policy isn't the right choice for them, may choose to simply purchase health insurance using their state-approved exchange created under the Affordable Care Act. However, while retirees can’t be denied coverage for a pre-existing medical condition, coverage can only be purchased during specific open enrollment periods, or within 60 days that the employer’s plan is terminated (which means time is of the essence after retiring to make a decision).

Ultimately, though, the key point is simply to realize that, while retirees may be understandably worried about their healthcare costs eating away at their life savings, the availability of Medicare ameliorates those concerns to a significant degree. However, for those who aren’t yet eligible for Medicare, the issue of securing health insurance to bridge the gap until they reach age 65 becomes less clear… particularly for those whose budgets aren’t exactly robust. Regardless, the good news is that there are options, with coverage that is guaranteed (at least if timely obtained). But the range of choices means it is necessary to conduct a thorough cost/benefit analysis when finding the best option between purchasing COBRA coverage, converting an existing group health plan to individual coverage, and/or purchasing insurance via a state-approved health insurance exchange.

#FASuccess Ep 136: Leveraging Risk Tolerance And Financial Planning Software Upfront To Deepen Conversations With Prospects, with Nina O’Neal

August 6, 2019 07:07 am 2 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 136th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Nina O’Neal. Nina is a partner with Archer Investment Management, a hybrid advisory firm based in Raleigh, NC that oversees nearly $90 million of assets under management for 165 clients.

What’s unique about Nina, though, is the authentic way that she juggles the realities of being an advisor, a firm owner, and a parent, going so far as to pioneer the advisor video series “The Juggle is Real” about the challenges of work-life balance as a financial advisor raising a family.

In this episode we talk in-depth about Nina’s own advisory firm, the unique way they use Riskalyze for risk tolerance assessments not just with existing clients, but as part of the prospecting process, how she also integrates the eMoney Advisor portal as a way to paint the picture with prospects of how their firm works with clients on an ongoing basis, and the unique client service commitment postcard that all clients receive after being on board for three months.

We also talk about how Nina’s advisory firm is structured, the way the firm decides to handle its mixture of fee-based advisory and commission-based brokerage business, how the firm structured its AUM fee to be an “all-in” AUM fee that captures the underlying costs of both trading and any separate account managers, why Nina’s firm doesn’t view the hybrid model as a waypoint to the independent RIA model and plans to remain a hybrid firm, and how, despite the number of naysayers about broker-dealers and their sometimes overbearing compliance culture, Nina actually chooses to stay with her broker-dealer, Triad, precisely because she actually appreciates the quality of their compliance support.

And be certain to listen to the end, where Nina talks about the real-world challenges of balancing the burdens of being a parent with the challenges of growing an advisory firm, why she decided to create her own advisor video series “The Juggle is Real”, and her latest endeavor in launching the new Female Advisor Network specifically as a community to help empower fellow female advisors in their own path of building an advisory business and balancing the rest of their lives in the process.

So whether you're interested in learning about how Nina uses Riskalyze to deepen her relationships with her clients, why she has no interest in letting go of her broker-dealer, or the advice that she has for young, female advisors, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (August 2019)

August 5, 2019 07:19 am 3 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the August 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 announcement that Orion Advisor Services is acquiring newcomer financial planning software maker Advizr for a whopping $50M (on a revenue base of only $3M), and will almost immediately begin offering it for free to Orion users as a way to make the Orion client experience more financial planning centric… but in the process, creating potential client experience and workflow conflicts for actually-planning-centric advisory firms already using other third-party financial planning software tools.

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

Independent software goes wirehouse as Morgan Stanley selects Box to power its new Client Vault and Merrill Lynch cuts a deal with Envestnet Tamarac to replace its own proprietary portfolio performance reporting solution.
AdvicePay launches a new Fee Calculator tool for advisory firms to show and explain their pricing to clients, as Schwab’s Intelligent Portfolio Premium service quickly garners $1B in 3 months with its own financial-planning-for-a-monthly-subscription-fee offering.
Northern Trust Asset Management acquires robo-advisor-for-advisors Emotomy as standalone digital onboarding tools continue to struggle to find traction.
Salesforce rolls out a new “downmarket” version of Financial Services Cloud in an attempt to compete in the small-to-mid-sized RIA market

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including Betterment rolling out an “Everyday” high-yield cash savings option for its investors but finding that it’s the Betterment For Advisors RIAs quickly becoming its biggest cash referrers, Ritholtz Wealth re-launches its LiftOff “robo” service for small clients and chooses to pay Betterment For Advisors 0.25%/year just to not use existing RIA custodians’ digital onboarding tools, “Techno-TAMPs” are on the rise as Ethic Investing raises a $13M Series A to provide advisor-customized centrally-managed SRI strategies, Plaid rolls out new student loan account aggregation capabilities that may finally bring more student loan planning tools to advisors, and Envestnet MoneyGuide partners with Jackson National to leverage its wholesalers to provide training on MoneyGuideElite’s new “Secure Income Modeling” tool designed to make it easier for RIAs to begin using annuities with their clients.

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 (August 3-4)

August 2, 2019 02:59 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big investigative journalism report from the Wall Street Journal this week that the CFP Board's "Let's Make A Plan" website was including thousands of CFP brokers who had a history of disciplinary misconduct and/or other material disclosures on the FINRA website that were not communicated on the CFP Board's website... leading the CFP Board to immediately make changes to its site to link to BrokerCheck and IAPD, to increase its reviews of CFP professionals' disciplinary records during the renewal process, and to appoint a new Task Force chaired by former Texas Securities Commissioner Denise Voigt Crawford to "strengthen and modernize" CFP Board's enforcement.

Also in the news this week are several articles about the increasingly controversial 12b-1 fee, from a lawsuit from the SEC against Commonwealth Financial alleging that the firm received more than $100M in not-properly-disclosed 12b-1 fees as part of a revenue-sharing agreement with NFS (that may have directed investors towards higher-cost share classes that paid such 12b-1 fees to NFS and Commonwealth), and a look at how Vanguard itself competes by not paying 12b-1 fees to other platforms even as Vanguard's own brokerage and Personal Advisor Services solution may be collecting 12b-1 fees from other mutual funds in order to fund their own platform costs.

From there, we have a few articles on cash flow and budgeting issues, from a look at the recent Equifax settlement for $125 cash or up to 10 years of credit monitoring (and how to claim them, and why the credit monitoring may be a far better deal than the cash), to a takedown of why consumers should ignore Suze Orman's recent admonition that "wast[ing] money on coffee is like peeing $1M down the drain", and an interesting framework to help figure out when it is a good idea to "go cheap" and when it's better to still spend up for quality.

We also have a few articles on mergers and acquisitions in the advisor space, including the latest "Deal Book" report from M&A consultant David DeVoe that finds record highs in both the volume of RIAs selling and the valuations that advisory firm sellers are commanding in the marketplace, a breakdown of the common components of an advisory firm deal (from Deal Structure to Financing to Tax Treatment), and some "must-know" items to be mindful of when you receive an unsolicited inquiry to sell your advisory firm and now must suddenly decide whether to consider the buyer's offer.

We wrap up with three interesting articles, all around the theme of maintaining a productive office workspace: the first looks at the increasingly popular rise of "phone booths" (but without the phones) as a form of 'privacy pod' in open floor office plans; the second explores the research on how having multiple monitors really does make us more productive at work; and the last looks at how the physical layout of an office space matters not only for its visual and aesthetic appeal, but because it can impact the sound of the space, which in turn can impact everything from our productivity to even our mood in the office.

Enjoy the "light" reading!