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Kitces & Carl Ep 13: The Better Way To Send Market (And Other) Commentary Emails To Clients

August 1, 2019 07:01 am 2 Comments CATEGORY: Client Trust & Communication Kitces & Carl Podcast

In our last episode, Kitces & Carl opened a proverbial can of worms by asking if financial advisors still, in this day and age, send out market commentary to their clients. And if so, what do they send? The general conclusion was that, yes, advisors still need to touch base with their clients, outside of their regular service cycle, using some sort of bulk communication tool or personalized report. Because doing so accomplishes several goals, including and especially that it demonstrates to clients that the person they trusted to manage their life savings is “paying attention.”

Regular communication, meanwhile, is especially important for those clients who are in the “Cone of Trust” (e.g., that stage of the relationship where a client has been with an advisor long enough to meet much less frequently and understands that the advisor will reach out if there’s a problem, and vice versa) because it helps ensure that the client actually stays in the Cone of Trust. Unfortunately, though, while our intrepid hosts were able to conclude that sending something is better than sending nothing (and especially better than anything that features a couple holding hands against a backdrop of a lighthouse on the beach), they ran out of time before they could answer the question: What should advisors be sending their clients?

So, in our (lucky) 13th episode, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss why it’s important to send regular commentary, provide a specific example of an easy and effective way to let clients know that you are thinking about them and their challenges, and why it matters so much that it ultimately comes from you (versus any number of white-labeled, off-the-shelf offerings).

In general, what advisors send out for regular communication generally fell into three buckets. Some use third-party commentary and other materials from a reputable source (some of which can be “white-labeled”), others question the value of even sending anything out at all (since the objective is for clients to not focus on and become concerned about short-term market gyrations), while still others insist no one should be sending content unless it was produced in-house (since the goal is for the advisor to establish their own expertise and authority).

For advisors who fall somewhere between the second and third camps, but whose skill set doesn’t include content creation, one effective strategy is to send out a collection of interesting articles (which may or may not have anything to do with money or “the market”), along with a short comment on why you found it useful. It provides a means of still connecting with clients (since ultimately, whether you connect frequently can be just as important as what you send to connect). And this way, when something noteworthy in the market does come along, your clients (or even prospects) are already accustomed to your cadence.

Ultimately, the key point is simply that it does matter that advisors send something to their clients and that they do so on a fairly predictable basis. Because if you are consistently communicating with clients, you can dictate the tone and focus of whatever it is you’re sending. Which means at the end of the day, what matters is that you do take some time, on a regular basis, to send something (preferably in your own words… even if it’s just a sentence or two about why you find a particular article useful). And when you do, you send a clear signal to your audience that you’re thinking about them… and about the responsibility you have as a steward of their life savings!

The 6 Types Of Itemized Deductions That Can Still Be Claimed After TCJA

July 31, 2019 07:03 am 1 Comment CATEGORY: Taxes

Touted as the most significant update to the Internal Revenue Code in decades, the Tax Cuts and Jobs Act of 2017 (TCJA) did indeed introduce several noteworthy changes, including the new 20% qualified business income owners of (some) pass-through entities, a (much) lower corporate tax rate, a (much) higher estate tax exemption, lower individual tax rates for the vast majority of taxpayers, and a slightly higher total standard deduction (which combined both the existing individual standard deduction and the per household personal exemption). Ironically, though, while the TCJA legislation largely accomplished its objective of simplifying the process of filing taxes, it did so largely by making it a lot harder for households to itemize deductions at all going forward!

As while the new standard deduction isn’t that much higher than the combined prior standard deduction and personal exemption, the threshold for itemizing deductions in the first place is significantly higher than it was before, simply because the personal exemption wasn’t part of the equation when calculating the prior deduction threshold. Moreover, the TCJA also either eliminated completely or curtailed many of the most popular itemized deductions that got people over the hurdle to itemize in the first place, including moving expenses, many miscellaneous itemized deductions, and unreimbursed employee expenses (to name just a few). The end result: the number of households eligible to itemize deductions at all is anticipated to fall from approximately 30% of US households to “only” 10%.

Regardless, despite the upheaval, itemizing deductions is still a viable strategy to reduce overall tax obligations, and there are still six core deductions available to taxpayers, including: medical expenses (to the extent that they exceed 10% of Adjusted Gross Income – up from 7.5% in 2018); taxes paid to other governmental entities (both state or local municipality taxes as well as foreign governments, but with a $10,000 maximum deduction limit… regardless of filing status!); at least some types of interest paid (for not only mortgage interest – up to a $750,000 principal limit – but for investment purposes as well); charitable giving (but with limits); casualty and theft losses (but, for individuals, only if they were attributable to a Federally declared disaster); and other (miscellaneous-but-not-subject-to-the-2%-of-AGI-floor) deductions (such as gambling losses and Ponzi scheme losses, among others).

It’s important, meanwhile, to note that most of the still-available itemized deductions simply don’t occur regularly, and there are even fewer large enough to get taxpayers close enough to the new standard deduction threshold to make itemizing “worth it” on a recurring basis. Those items include big mortgages (particularly when mortgage rates are still at historically low levels), large ongoing charitable deductions (even though the deduction amount will necessarily be much less than the amount given), big state and local tax deductions (at least for individuals, where the $10,000 SALT cap gets them close to a standard deduction that is “only” $12,000), high margin investing (since interest paid on investments is deductible… as long as the returns on the investments are taxable in the first place), big long-term care events (which, while undesirable, can require large ongoing medical expenses), and significant stretch-IRAs that are eligible for the Income in Respect of a Decedent (IRD) deduction (to the extent that the IRA was inherited from someone who actually had to pay Federal estate taxes).

While few households will be able to meet the standard deduction threshold every year using just those big-ticket items, though, it is feasible (and perhaps even much more likely) that taxpayers will be able to itemize on an intermittent basis, by combining a few (or several) additional deductions on top of other (lower-but-recurring) deductions. For instance, a taxpayer might combine ongoing mortgage interest, property taxes, and state income taxes with a large charitable contribution to push past the standard deduction threshold in order to take advantage of additional tax benefits.

Ultimately, the key point to realize is that the combination of a higher Standard Deduction threshold and the curtailment of itemized deductions, makes it much harder to itemize than it once was (if only because the new standard deduction provided a more substantive and generous tax benefit in the first place). Yet while fewer households are able to itemize each and every year, some may still be able to do so, either on an ongoing basis, or at least intermittently by stacking infrequent clusters of additional deductions on top of recurring items that typically aren’t large enough to matter from a tax planning perspective. Which is important, because at the margin it’s still valuable to identify and plan for the (few) years where itemized deductions will still be available, as those are the years when there’s the most tax benefit to stacking any other possible “add-on” deductions on top for more tax savings!

#FASuccess Ep 135: Developing The Systematized Business Development Playbooks To 10X Your Advisory Business, with Kathryn Brown

July 30, 2019 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 135th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Kathryn Brown. Kathryn is the co-founder of Morton Brown Family Wealth, an independent RIA in Allentown, Pennsylvania that oversees nearly 110 million of assets under her management for 85 affluent households. What's unique about Katie, though, is the way they position their firm for the potential for 10X growth in the coming years, systematizing everything from their business development to their financial planning processes and even hiring a Data Geek Chief of Staff as just their third hire to ensure the firm stays focused on the metrics that matter the most.

In this episode, we talk in-depth about the playbooks that Katie and her partner have developed for the firm, from a business development playbook that articulates exactly what the firm does to nurture a potential new clients in each stage from being a source name to a lead to a prospect and eventually onboarding as a client, to their client experience playbook that tracks a financial planning heat map where clients are between the planning and process phase, implementation phase, maintenance phase, update phase, and no plan phase. And the way the partners of the firm have surrender control of their own calendars to a team member whose job is to ensure that they keep their own time focused on where they need to spend the time to positively impact the business the most with each day of the week set with specific tasks to focus on that day.

We also talked about Katie's own path through the planning business from starting out in an administrative roles straight out of school, then moving into an operations role and then into a client-facing financial planning role before eventually forcing herself to learn business development and then eventually deciding that it was time to launch her own firm with a partner after nearly 15 years in the business, building on the foundation of skills and confidence that she had developed in each step along the way.

And be certain to listen to the end where Katie talks about the way she made the successful transition to breaking away from her prior firm. How keeping the split amicable made for an exponentially easier process of being able to use the negative consent letters instead of fully repaid to bring all her clients, the challenges she faced along the way with certain outsourcers that didn't always deliver, and how she persevered through the leap to independence despite learning that she had breast cancer and going through three surgeries while preparing for the transition to break away.

So whether you're interested in learning about why Kathryn hired a "data geek", the process she went through when learning how to build a business with intent, or how she's developed systematic processes for business development and the financial planning process, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Networking Tactics To Develop Relationships With Local Small Business Owners

July 29, 2019 07:06 am 0 Comments CATEGORY: Marketing

For years, independent financial advisors (particularly those who offered holistic and comprehensive financial planning services) had a relatively easy time differentiating themselves from the vast majority of others in the industry by emphasizing the breadth and depth of their financial planning services (as contrasted with competitors that were still primarily in the investment or insurance product distribution business). However, in recent years, the asset management and product placement facets of the business have become increasingly commoditized, and an increasing number of advisors have also come to understand that the real value that they provide for their clients isn’t in the products themselves, but in the comprehensive advice that needed to implement those products (or not). Which, ironically, means more clients than ever actually get qualified financial planning advice… and it’s harder than ever for those who give quality advice to differentiate themselves from other advisors offering essentially identical services.

Which means that, moving forward, identifying and nurturing a clear and distinct niche will only become even more of an indispensable differentiator for advisors (and eventually, might become the only real differentiator!?). Yet, for many, the real challenge isn’t in choosing a niche, but in actually reaching potential clients in a particular target market… or at least enough of them to start building a practice around. And while few advisors are naturals when it comes to networking, the good news is that it is a skill that can be learned, and that there are several proactive steps that any advisor can take in order to connect with members of their niche, which are based on the same principles of any good networking strategy.

In this guest post, practice management consultant Teresa Riccobuono of Simply Organized uses small business owners as an example niche to offer actionable tactics and steps to start building a niche-focused network and provides specific examples of ways you can deepen and expand your own web of connections in the small business owner community.

Of course, the first key in networking is to recognize that it’s all about building a relationship that establishes you as the go-to expert in the community… not necessarily to try to get business from anyone/everyone upfront. Accordingly, strategies that build valuable goodwill for you and your practice through networking include: helping the small business owners in your network connect with other small business owners (e.g., by first making a list of all the business owners in your network, and finding ways that they might be able to work together or help each other), creating an “insider’s” directory of local businesses that your clients use and trust (which can help expand your reach by giving you a great reason for introducing yourself to business owners included in that directory but who are outside your network), and hosting events such as a speaker series or even a full-fledged multi-day expo featuring (local) businesses that provide goods and services to a common target market.

Ultimately, the key point is that an effective networking strategy is based on genuinely providing others value without expecting anything in return… which, over time, builds goodwill and (eventually) trust, to the extent that small business owners (or whatever target market you decide to serve) will naturally turn to you as a resource down the road when they encounter someone who might need your help. Or even to reach out to you when they need help themselves.

Weekend Reading for Financial Planners (July 27-28)

July 26, 2019 02:56 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a number of big industry shake-ups, including the sudden news that TD Ameritrade CEO Tim Hockey is out (for what may have been a failure to pay enough attention to the company's RIA channel), and a management restructuring at Schwab that elevates its Schwab Advisor Services RIA division to report directly to CEO Walt Bettinger at the top of the organization, as the RIA channel continues its rise (and even the attention and resources it commands at historically-retail-oriented brokerage firms).

From there, we have several practice management articles this week, from the latest Schwab RIA Benchmarking Study that shows RIA growth remains solid (but not huge), averaging a 5.4%/year growth rate in clients over the past 5 years, the dynamics of what happens when an advisory firm decides to close its doors to new clients after growing to be "big enough" to satisfy the owner's needs, how equity-sharing is becoming increasingly common at large advisory firms as a way to attract, but especially retain talent, and a new Risk Alert from OCIE that advisory firms are not doing enough to run their own independent background and disciplinary checks on new hires (and thus failing to properly report disclosable events to prospects and clients).

We also have a few marketing articles, from why it may be better to help prospective clients conduct a "fee audit" of their current advisor (before trying to convince them of your own value for the fees you charge), how trademark law works when it comes to advisory firms and the names of their businesses, and how the targeted advertising capabilities of search engines and social media is making outbound paid advertising an increasingly lucrative channel for advisory firms to pursue for getting new clients.

We wrap up with three interesting articles, all around the theme of trying to make good decisions on the path to self-improvement: the first looks at the fascinating phenomenon that successful systems are often "complex to make [but] simple to break," which means at some point in the process of success (from business to investing), the focus shifts from building the complex system to work, to simply trying to make sure it doesn't die a simple death; the second looks at how to think about potentially complex decisions not as an all-or-none "it's right" or "it's not," but on a "confidence meter" scale from 0% to 100%, with a threshold for when a bet is at least "sure enough" to be worth making (while also recognizing that the threshold cannot be 100% because virtually no decision is entirely assured); and the explores how we often try to improve by making something bigger or better, but in practice some of the best improvements can come simply by reducing the leaks and fixing the tiny errors and mistakes that take away from compounding growth along the way.

Enjoy the "light" reading!

Highlights From The 2019 In|Vest #FinTech Conference For Financial Advisors

July 25, 2019 07:08 am 1 Comment CATEGORY: Conferences

Last week, SourceMedia, publisher of “Financial Planning” magazine (and several other financial services industry publications), hosted its annual In|Vest advisor FinTech Conference in the heart of Manhattan, with over 1,000 industry executives gathered to discuss technology opportunities and challenges facing the wealth management industry as a whole.

In the guest post, Craig Iskowitz – CEO and founder of Ezra Group, a financial technology consulting firm – shares his signature Twitter-driven recap of the conference, which featured presentations and discussions on digital advice trends, RIA M&A, pricing models, custodians, and of course new FinTech itself.

Craig kicks the recap off with highlights from Shirl Penney’s presentation on running an RIA aggregator, suggesting that RIAs should use a 5-year economic model in order to time a sale (rather than being forced to sell during a downturn), and that (with the recent Goldman Sachs / United Capital deal) more custodians will be looking in the middle-market for acquisition targets. Meanwhile, panel highlights included a discussion on the pros and cons of the subscription pricing model, which is a hot topic given Schwab’s strong launch of its subscription service (as well a more recent news that Bank of America might introduce a subscription model for Merrill Edge).

From there, other conference highlights included sessions on:

Drivers of Consumer Choice, with market research firm Parameter Insights pointing out that the biggest reason that consumers aren’t using digital advice is that they think they don’t have enough money to invest in the first place;
Activating Digital Hybrid Advice, where a panel of industry executives suggested that, while digital advice is essentially useless without personal interactions, digital adoption remains a one-way street (i.e., once a digital solution to a problem is adopted, users rarely - if ever - go back to the old way of doing things);
The World Wealth Report, where Abhishek Singh from Capgemini showed how only 40% of high-net-worth individuals were satisfied with the personalization from their wealth managers, that service quality is still the most important factor when choosing a wealth management firm, and that AI has the potential to make the biggest impact on helping advisors meet their clients’ service demands; and
Modernizing Advice, with Michael Spellacy from Accenture emphasizing that, while digital advice may have disrupted the industry, personalization and customer experience remain at the heart of good financial advice.

Attention then turned towards custodians and their vision for the future. Bernie Clark from Schwab pointed out that more than a third of the $1 billion of inflows to its new subscription model came from new clients, and that integrating new tools with existing infrastructure is a major area of focus for them right now. Industry consolidation is also an ongoing trend, as the first half of 2019 saw 67 RIA deals totaling $69.5 billion, or more than a 55% increase over the same period in 2018.

Ultimately, the 2019 In|Vest Conference brought together an otherwise seemingly disparate group of presenters, each with their own perspectives on the trends shaping the ongoing evolution of the industry, yet many shared a common thread around the importance of client relationships and excellent service, the opportunities for technology to help deepen those relationships and improve overall client experience, that industry consolidation will be an ongoing driving force, and that there’s a blue ocean of potential, yet non-traditional, wealth management clients out there that need (and want) advice, and that it behooves the industry to figure out a way to reach them (e.g., through the use of new advisor business models, coupled with new advisor FinTech to serve them efficiently).