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Weekend Reading for Financial Planners (Jan 14-15)

January 13, 2017 02:30 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the SEC's latest 2017 list of RIA exam priorities, which for the first time will explicitly include delving into so-called "electronic investment advice", which appears to include both "robo" advisors, and heavily tech-automated human advice services (e.g., Vanguard Personal Advisor Services and the future Schwab Intelligent Advisory).

Also in the news this week is a lot of discussion of changing share classes for mutual funds and variable annuities, as the industry approaches the home stretch for the rollout of DoL fiduciary – including the rise of a new T-class mutual fund share that will likely replace A-shares together over time (with a uniform lower upfront commission across all types of funds), the decline and near disappearance of L-share variable annuities, and the emergence of a new I-share (advisory share class) variable annuity (which represented more than 50% of all new variable annuity filings last year).

From there, we have a few articles on practice management around the theme of hiring and retention, including a look at how it's just as important to create a career development plan for employees as a financial plan for clients, a discussion of whether financial incentives are really an effective motivation (or not), and how crafting a bona fide career track is becoming essential for long-term employee retention.

There are also a couple of technical planning articles this week, including a discussion of why it is that almost no retiree can actually start Social Security right at age 62 (instead, it's 62 and 1 month in most cases), the issues to consider when weighing an NUA distribution decision, and the role advisors can play in helping clients coordinate financial surrogates in the event of incapacity (given that more and more companies are coming up with their own process to name surrogates, which means there may be multiple people sharing the role with a 'traditional' attorney-in-fact under a durable Power of Attorney!), and what to watch out for regarding investment issues when reviewing a new client's tax return.

We wrap up with three interesting articles on the theme of charity: the first is a look at how behavioral finance research is now being applied to our charitable giving (and finding that we can be just as irrational about our charitable endeavors as our investment portfolios!); the second delves into the reality that in some cases people give for bona fide charitable purposes, and in others it's for social recognition, and while arguably the "true" measure of charity is whether you give so much you must actually make your own sacrifices, the more effectively a financial planner helps a client live modestly, the more room there is to give without further impinging on lifestyle; and the last is a look at the rise of pro bono financial planning in particular, with a growing number of financial planners engaging in such activities (often through local FPA chapter activities), and the rise of the Foundation for Financial Planning, a grant-making organization that supports pro bono financial planning primarily through donations from financial planners.

Enjoy the "light" reading!

Weekend Reading for Financial Planners (Jan 7-8)

January 6, 2017 02:51 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the news that President-Elect Trump has selected Wall Street attorney Jay Clayton to take over as Commissioner of the SEC for Mary Jo White... signaling a potential shift of the SEC's focus away from rulemaking and enforcement, and putting into doubt whether the SEC is likely (or not) to move forward on its own fiduciary rule in the coming years.

Also in the news this week is progress from the Department of Labor to carve out a Financial Institution exemption for IMOs to qualify for the Best Interest Contract and oversee independent annuity agents selling indexed annuities, and a new study from Cerulli finding that despite their tech-savvy inclinations, younger consumers are actually the most likely to be willing to pay for financial advice (but still necessitating a different business and service model than the traditional AUM-centric comprehensive-wealth-management approach used for retirees).

From there, we have a number of articles on marketing and business development this week, including: how to make 2017 the year you generate a better "return on effort" by better focusing your marketing activities; the importance of managing your digital first impression to prospects who check you out online; the core information than any/every financial advisor website must convey to prospects (but most don't); how a "Now" page on your website can help humanize you and make a better connection to prospects; a study that found the fastest-growing RIAs really are more likely to effectively check the boxes on digital marketing strategies; and a look at how many advisors may be self-sabotaging by separating "business and friendship" when in reality they should focus on conveying their passion and let friends and colleagues who want help come to them and work together.

We wrap up with three interesting articles: the first is a call from Don Trone of 3Ethos to the CFP Board to stop holding out as a fiduciary champion when the CFP Board's practice standards still allow many CFP certificants to avoid a fiduciary duty, and the organization's opaque governance and limitations on its own accountability make it look hypocritical in calling for higher standards for advisors; the second is a look at how the world of mutual funds also faces an odd double-standard, where 401(k) plan administrators can be sued for using high-cost mutual funds that they don't even profit from, but the mutual fund companies themselves face no accountability for trying to sell those high-cost funds in the first place; and the last is a fascinating look from the Wall Street Journal at the evolution of the 401(k) plan, and how even its original creators are not happy with how the 401(k) plan has largely replaced the defined contribution pension plans it was originally supposed to just supplement.

And for those who may be interested, at the end you can check out what I've done to implement my own New Year's Resolution to get healthier in 2017 – by supplementing my existing standing desk with a new under-desk treadmill. In fact, all the background articles for this week's Weekend Reading were curated for you as I walked (in place) for several miles while reading and typing!

Enjoy the "light" reading, and I hope you had a safe and happy New Year!

Create A Stop Doing List To Start Growing Again In 2017

January 5, 2017 07:16 am 3 Comments CATEGORY: Personal/Career Development

Time management is crucial, as we're all limited by the same 24 hours in a day and 168 hours in a week. The challenge, however, is that even knowing time management is important, sometimes you don't even realize there's a problem until it's too late. Like the analogy of the boiled frog, that will just sit in a pot of cool water that heats gradually until it boils itself to death (never realizing the growing threat), the slow and steady accumulation of clients can mean that we overburden ourselves too slowly to realize we need to something about it, until by the end we're buried and it feels like there isn't even enough time to fix the problem!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, I share my number one tip for getting "unstuck" in the New Year if you've hit the wall: create a "Stop Doing" list!

As contrasted with a "To-Do" list of things that must be done, a "Stop-Doing" list tells us things we should not be getting done. Or at least, not be personally doing anymore. In other words, it's about making a commitment to creating free time by literally not doing as much as you have in the past.

So how do you figure out what goes onto a Stop-Doing list? The easiest way it to simply list out all of the tasks you do routinely and repeatedly... and then figure out how to stop doing them and instead delegate them to someone else.

Unfortunately, delegation itself is hard. But an easy way to delegate repetitive tasks in particular is through the use of screencasting software. You simply need to identify a task you complete repeatedly, record yourself doing it while talking through each of the steps, and then give someone else the video to use as a guide! It's a way to train on how to do a delegated task, in no more time than it takes to just do it anyway (but you'll never have to do it again!).

For the tasks that are less repetitive and require more expertise, you can look to hire outside professionals to free up more of your time. Because the reality is that you can't be the best at everything in a business. Focus on the most important revenue-generating (e.g., client-facing) responsibilities, and let go of the rest. Fortunately for advisors, a whole range of services providers are cropping up that specialize in allowing advisors to outsource certain business activities.

The bottom line, though, is that good time management is about saying "No". Whether that means saying "No" to repetitive tasks you can delegate, or "No" to less value-adding responsibilities you can outsource (or just let go of altogether), creating a "Stop-Doing" list for 2017 may be one of the most effective ways to gain control over your schedule again!

#FASuccess Podcast Ep 001: Rick Kahler on Entrepreneurial Persistence & Building a $200M AUM Practice

January 3, 2017 07:01 am 12 Comments CATEGORY: Financial Advisor Success Podcast

Welcome to the inaugural episode of the Financial Advisor Success Podcast!

My mission with #FASuccess is to help you be more successful as a financial advisor - whatever "success" means to you. In this new weekly podcast, we'll feature interviews with successful financial planners who share their stories about what it took for them to succeed, along with consultants who work with advisors and help them get to the next level.

In particular, it's my goal to highlight the "Iceberg Illusion" of success - that what little we see outwardly of other people's success is, like the tip of an iceberg, just a small part of what it really took to be successful. On the podcast, it's my goal to dig deeper, and help reveal the real struggles that every financial advisor will face from time to time in a business or career... and what it takes to persist and push through.

In this first episode, I talk with Rick Kahler, a financial planner in Rapid City, South Dakota, who by any classic industry measure has been very successful. He's built a practice up to 100 clients and $200M in assets under management, supported by 7 staff, and taking home more than $350,000 of income from the firm. Yet the reality is that it hasn't always been this way for him. For most of his early career, Rick worked as a mortgage and real estate broker, where financial planning was just a "side job" that built slowly over time... and as a result, when he decided to focus fully on the firm, he took a major step back in his income that took years to recover.

Rick’s story is truly humbling as he openly shares the events and decisions that brought him to where he is today. You’ll hear about his decisions that worked well in growing his practice, and quite frankly the sheer persistence in Rick’s professional career that allowed him to consistently and repeatedly overcome roadblocks and challenges. Between at one point losing 5 out of 6 employees in under 60 days, to facing insolvency and near bankruptcy 6 times, and failing on multiple other businesses before focusing on his advisory practice, Rick’s ability to persist when times are uncomfortable is truly inspirational.

I hope you enjoy this first episode of the Financial Advisor Success Podcast! And please share your comments once you listen, and let me know what you think and how we can improve from here!

How An S Corporation Can Reduce FICA Self-Employment Taxes

December 28, 2016 07:02 am 20 Comments CATEGORY: Taxes

One of the fundamental differences between corporations and partnership business entities is that the former faces “two tiers” of taxation – once at the corporation level, and again when profits are distributed as dividends to the shareholder – while the latter are only taxed once to their owners as “pass-through” entities. Of course, the reality is that there are a lot of factors that go into determining the right kind of business entity, beyond just the pass-through taxation treatment or not, though in practice it is often a material factor.

A hybrid mid-point between the two is an S corporation, which is recognized as a corporation for legal purposes – including for liability protection, and transferability of stock shares – but still taxed as a pass-through business, similar to a partnership.

However, in practice the pass-through tax treatment of an S corporation isn’t exactly identical to a partnership, because with a partnership all pass-through income is subject to self-employment FICA taxes (as high as 15.3%), while an S corporation only pays FICA taxes on salary compensation to its owners, and not the remaining profits paid out as nontaxable dividend distributions.

To prevent everyone from just converting partnerships into S corporations that all pay their owners $0 in salary – to completely avoid FICA taxes – the IRS still requires that S corporation owner-employees be paid “reasonable compensation” for the services they render to the business.

Nonetheless, the reality is that for highly profitable businesses, especially with multiple owners and/or multiple employees, there is clearly a portion of profits, over and above just reasonable salary compensation, that can be distributed as a dividend to the S corporation owners, saving FICA self-employment taxes in the process. For profitable businesses, the tax savings can be thousands or even a few tens of thousands of dollars in savings.

Ultimately, not all small businesses can take advantage of these rules. Some don’t meet the ownership requirements of an S corporation, and others are so small and dependent on their owners that realistically, “reasonable” compensation would be 100% of the business profits anyway. Nonetheless, there are many high-income partnerships (or LLCs taxed as such) that might benefit by switching to an S corporation (or making an election for the LLC to be taxed as an S corporation), specifically to split the business profits into FICA-taxable wages and FICA-exempt S corporation dividend distributions. At least, until or unless Congress shuts down this perceived “loophole” and reunifies the taxation of S corporation dividend distributions with the pass-through income of partnerships!

Weekend Reading for Financial Planners (Dec 17-18)

December 16, 2016 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 of yet another legal victory for the Department of Labor, as the request from the National Association of Fixed Annuities (NAFA) for a preliminary injunction to stop the DoL fiduciary rule was denied (though NAFA's appeal for its original loss to the DoL is still pending).

Also in the news this week was the launch of Schwab's new Intelligent Advisory service, an expansion of its "robo-advisor" program for the mass affluent that will provide access to a CFP certificant who provides a personalized financial plan (in addition to investment management), all for a mere 0.28% AUM fee (plus the cost of the underlying ETFs) with a $25,000 minimum - a bold competitive shot across the bow of Vanguard's Personal Advisor Services (with a 0.30% AUM fee and a $50,000 minimum), but also to a wide swath of independent financial advisors who also work with mass affluent clientele (some on Schwab's own Institutional platform!).

From there, we have a slew of advisor technology articles this week, including: the latest results of the annual Financial Planning tech survey (though unfortunately, this year FP magazine is limiting access to the survey results!) and only highlighting the top few companies in each category; a review of new advisor marketing tools Snappy Kraken and Twenty Over Ten; a discussion of the new PFM app Moven, which competes primarily in the banking space but could see adoption from the clients of financial advisors; a look at "sleeve accounts" in portfolio accounting software and why they can be more efficient than just creating multiple accounts to separate clients' assets; a review of the latest (and pending) tech developments at the major RIA custodians (Schwab, Fidelity, and TD Ameritrade); how Riskalyze intends to deploy its new $20M of private equity (by pivoting from "just" a risk tolerance assessment tool to a broader "robo" solution that supports acquiring and onboarding new clients); and a look at the explosion of new DoL compliance technology tools (and why there may already be "too many" for what most advisors really need).

We wrap up with three interesting articles, continuing the technology theme: the first is a look at the ever-expanding impact and power of social media tools, which aren't just a marketing channel but are allowing people to organize new social and political movements in ways that simply weren't feasible in the past; the second is a review of several financial-oriented websites and apps that are increasingly pivoting towards becoming "automated financial assistants", from Digit to Mint to Credit Karma, which could begin to compete with financial advisors, or simply complement areas they don't typically advise on anyway; and the last is an overview of the empirical research that still suggests, in the end, that technology and automation really don't cause mass unemployment, and can even boost employment in some sectors (as the number of bank tellers increased after the introduction of the ATM), but with the accelerating pace of technology change, suggests that at a minimum we need to get better about helping people prepare for new jobs and industries (which has both job training and financial planning implications!).

And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, which this week includes coverage of the new Schwab Intelligent Advisory solution, the news that Finicity has raised $42M of venture capital to begin development again on the "old" Intuit Financial Data APIs, and the rollout of Yodlee account aggregation capabilities on the Envestnet|Tamarac Advisor Xi platform.

Enjoy the "light" reading!

Weekend Reading for Financial Planners (Dec 3-4)

December 2, 2016 02:39 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's leading news is that the Department of Labor has won yet another of its cases on the fiduciary rule, as indexed annuity provider/distributor Market Synergy Group has failed in its attempt to have the rule blocked or repealed. While there are still many cases left to resolve, and the potential for appeals, the DoL going 2-for-2 in the past month is a promising sign that the fiduciary rule may be here to stay.

From there, we have several practice management articles this week, specifically around the hiring and compensation process that often comes at the end of the year, from a look at when it makes sense to hire another advisor, to the importance of creating a career track and compensation plan for employees (which is better than the "compensation crisis management" approach of only addressing the issue when an employee reports he/she is about to leave!), and a look at how firms are starting to formulate career tracks and long-term compensation plans to retain the best talent.

We also have a few more technical planning articles, including: a reminder to look at potential year-end capital gains distributions from mutual funds and whether clients should switch to another investment before the distribution happens; how HSAs are starting to gain real momentum (but disproportionately amongst "older" workers aged 55+, who may be contributing to the HSA more as a retirement supplement than simply to cover upcoming health insurance deductibles as originally intended); factors to consider when a client has a potential NUA distribution; and how lifetime immediate annuities can still make sense, even in a low-yield environment, because the reality is that the annuity "income" is actually a combination of interest, principal, and mortality credits (which means interest rates alone only play a moderate role in setting the payouts).

We wrap up with three interesting articles: the first is a look at Julie Littlechild's research on how when advisors make personal breakthroughs in their business, it tends to follow a consistent three-stage process to change; the second is a reminder that while lots of us have work and obligations to do, the greatest success comes to those who are initiators, getting ideas off the ground and going above and beyond the bare minimum required; and the last is a fascinating look at the research showing that most of us have tens of thousands of thoughts that flitter through our heads all day, of which a whopping 80% are negative... which means our success will be determined heavily by our ability to silence the voices and change our beliefs and focus on the positive that allows us to really move forward.

And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, which this week includes coverage of WisdomTree's $20M capital investment into robo-advisor-for-advisors Vanare (which is also rebranding to AdvisorEngine going forward), a favorable review of new financial planning software provider RightCapital, and an inside look at the capabilities of portfolio performance and accounting software challenger Addepar.

Enjoy the "light" reading!

When Does It Make Sense To Join With A Financial Advisor Partner?

July 18, 2016 07:01 am 11 Comments CATEGORY: Practice Management

The explosive growth of technology has made it possible for individual financial advisors to be more personally productive than ever before, from software to automate key tasks to the use of (virtual) assistants to even further leverage the advisor’s time.

However, the reality is that every financial advisor eventually hits some personal productivity wall – the point at which there just aren’t any hours left in the day to serve more clients, even with the assistance of a technology and a team of support. In some cases, it’s the time to manage the team itself that becomes the biggest barrier to growing further.

At that point, the opportunity for growth shifts to the need to add a financial advisor partner, where the advisor has the potential to earn a smaller slice of a much-larger pie. And in this context, the ideal of usually not just to combine together two already-successful financial advisors, but to actually find advisors who have different and complementary skillsets, which enhances the potential for the new whole to be worth more than just the sum of the individual parts.

Unfortunately, though, for many advisors the biggest challenge in adding a financial advisor partner is simply finding one in the first place. For most, the path seems to be through financial advisor conferences and events related to their platform, where it’s most feasible to find like-minded individuals. And fortunately, the availability of third-party “financial advisor compatibility assessment” tools can help to ensure that the partners will likely be able to formulate a shared vision for the future growth of their new joint business!

Where Do You Find Financial Advisory Firms For Sale?

June 23, 2016 02:01 pm 14 Comments CATEGORY: Practice Management

Periscope Office Hours Cover Image June 21 2016 How To Find a Financial Advisory Firm To Buy 1

Most advisors initially build their businesses organically, one prospective client at a time, through networking to establish personal relationships that lead to referrals (and then getting clients who can provide even more referrals). And as the number of clients grows, so too does the staffing of the firm to support and service them. Until eventually, the firm has enough infrastructure that it becomes appealing to not just get new clients one at a time, but to grow inorganically by acquiring an(other) advisor's entire client base.

Accordingly, in this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at how advisors who want to buy can actually find an advisory firm available for sale. From the buyer's perspective, where do you go to find the sellers?

Unfortunately, the reality is that finding sellers is difficult, because there actually aren't very many. One advisor marketplace estimates there are as many as 50 buyers for every seller, as growing firms have grown a hunger to acquire far faster than the number of baby boomer advisors have decided they're ready to sell.

As a result, advisors looking to acquire can check out "marketplaces" like FP Transitions, RIA Match, and Succession Link, but must face a significant amount of competition from other buyers. For some, the more appealing alternative is to look for potential sellers amongst an existing group of colleagues, such as fellow advisors in your association membership group, broker-dealer, or custodian.

In fact, because an advisory firm acquisition won't go well (or won't happen at all) unless there is a good philosophical and cultural alignment between the buyer and seller - crucial to ensuring clients get the service they expect in order to retain - often the best place to look for potential acquisitions is amongst a group of existing colleagues, whether that's via a common broker-dealer, custodian, or association. On the other hand, for those looking to acquire locally, the best option is often just to do the leg work necessary to aggressively network locally, where there may be far less competition with other buyers!

Weekend Reading for Financial Planners (Jun 18-19)

June 17, 2016 02:51 pm 16 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with an interesting recent interview from Vanguard CEO Bill McNabb at the Morningstar Investment Conference, as he describes Vanguard not as an asset manager or investment company but as a "technology company" instead, possibly implying that Vanguard will be rolling out even more technology innovation or more "robo" tools of its own in the coming years.

From there, we have a few technical articles this week, from another reminder/warning that ETFs cannot be any more liquid than the liquidity of their underlying investments (at least not during times of market distress), to a look at the current Social Security "redo" rules for those who wish to withdraw or voluntarily suspend their benefits, and a discussion of the growing momentum for changes to the retirement laws that would make it easier to enroll more/all workers in automatic enrollment retirement plans with automatic escalation clauses, and possibly the advent of open multiple employer plan (MEP) options in the coming years.

We also have several practice management articles, including: a look at how the new DoL fiduciary rules may bring fresh attention to the issue of "reverse churning" in advisory accounts; a review of 'lesser-known' RIA custodians RBC Advisor Services, Trust Company of America (TCA), and Shareholder Services Group (SSG); a review of the new MoneyGuidePro G4 release and its new "Conversations" feature; a look at the iRebal rebalancing software from TD Ameritrade; and a look at the latest version of Junxure Cloud CRM for financial advisors.

We wrap up with three interesting articles: the first is a look at how improvements in health are leading to a growing number of people retiring "early" in their 60s even as they could work into their 70s, which raises difficult questions about whether our current Social Security and Medicare systems are subsidizing "early" retirement more than they were originally intended (and if they're going to be changed, how to do so in a way that doesn't adversely impact less educated workers in physically demanding jobs who really can't work later); the second explores how the traditional mutual fund wholesaler is being made irrelevant by the availability of online information and how wholesalers are shifting to become value-added relationship managers to survive and thrive (an interesting parallel for financial advisors themselves; and the last is a fascinating look at how the rollout of ATMs impacted the jobs of bank tellers over the past 30 years, as it turns out that ATMs made bank branches so much more efficient that banks opened up more branches, resulting in a net increase in bank teller jobs over the past several decades... which implies that, similarly, the end point of "robo-advisors" may not be the death of financial advisor jobs, but an improvement in financial advisor efficiency that allows for more financial planning jobs to be created in the coming years!

Also, be certain to check out the video at the end, a clip from the popular HBO late-night comedy show with John Oliver, supporting the Department of Labor's fiduciary rule and sharply criticizing the financial services industry's lawsuits against it... an entertaining segment, punctuated by Oliver's usual comedic wit.

Enjoy the "light" reading!