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Options For Allowing Family Members To Help Manage Accounts In The Event Of Diminished (or In)Capacity

July 3, 2019 07:04 am 2 Comments CATEGORY: Estate Planning

Planning for incapacity is one of the most important aspects of a sound financial plan, and one that is taking on increased importance as the Baby Boomer generation continues to age in record numbers. But while medicine has not yet reached the point where it can prevent (or reverse) all cognitive and physical impairments, there are a number of tools that can be used to ensure one’s finances continue to be managed effectively in the event that diminished capacity becomes a reality.

One common approach used by individuals looking to allow a trusted family member to manage an account on their behalf is to simply add that person to the account as a joint owner. These so-called “convenience accounts” are generally easy to establish, but can lead to a number of unforeseen problems.

For instance, once an individual is added as an owner to an account, they have access to the funds within the account and may be able to use those funds for their own benefit, as opposed to their intended purpose. Similarly, adding an additional owner to an account can subject the account’s assets to the new owner’s creditors. Even in the best of scenarios, this “strategy” can prove problematic, as certain assets, such as IRAs and other retirement accounts, cannot be turned into joint convenience accounts in the first place.

A second way of allowing someone to assist in the management of an account is through the use of a Power Of Attorney. Powers of Attorney are tried and true legal documents that can be drafted in a number of ways to meet an individual’s desired outcome. A General Power Of Attorney, for instance, can be used by a Principal to grant an Attorney-In-Fact a broad array of powers over virtually all assets. A Limited Power Of Attorney, on the other hand, can be used to give an Attorney-In-Fact only specifically enumerated powers, and/or powers over only specifically enumerated assets.

When using a Power Of Attorney to provide for account administration in the event of incapacity, it is critically important to make sure that the Power Of Attorney actually remains in force at that time! Thus, instead of a Nondurable Power Of Attorney, which is no longer effective once the Principal is incapacitated, planning should incorporate either a Springing Power Of Attorney, which typically only becomes effective at the time of incapacity, or a Durable Power Of Attorney, which is effective upon execution of the Power Of Attorney document and remains in effect even after incapacity.

Finally, some individuals may wish to use a Revocable Living Trust to allow for continued management of accounts and financial matters in the event of their incapacity. Revocable Living Trusts are often more expensive to create, but because the Revocable Living Trust actually takes title to accounts and assets, they also offer benefits not available when a Power Of Attorney is used.

Revocable Living Trusts, for example, are less likely to be rejected or held up in lengthy legal department reviews by financial institutions. Also, unlike the rights conveyed to an Attorney-In-Fact via a Power Of Attorney, which end no later than the Principal’s death, the rights granted to a Trustee via a Revocable Living Trust can continue after the Trust creator’s death, allowing for effective post-death management of assets as well.

Notably, though, whichever approach(es) is(are) used, it is critical to act before an individual becomes incapacitated and can no longer legally act on behalf of themselves. Powers Of Attorney should be submitted to financial institutions before they are actually needed, and Revocable Living Trusts should be properly established and funded in advance. Absent such actions, one’s financial affairs may be left up to the mercy of the courts... when time is of the utmost importance.

#FASuccess Ep 131: The (Nearly) $1B Solo Advisor: Scaling Up Client Focus By Outsourcing Everything Else, with Dan Goldie

July 2, 2019 07:06 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 131st episode of Financial Advisor Success Podcast!

My guest on today's podcast is Dan Goldie. Dan is the former president of Dan Goldie Financial Services, an independent RIA based in the San Francisco area that oversees nearly 900 million of assets under management for 275 affluent clients. What's unique about Dan though is that he built his firm up to nearly a billion of assets under management entirely as a solo advisor without even a single full-time administrative staff member. Relying instead on an external TAMP to provide all of his back office support so that he can fully and solely focus on serving his clients and building his practice.

In this episode, we talk about the way that Dan has structured his advisory business, what exactly he does for his 275 clients upfront and on an ongoing basis as a solo advisor, his approach of customizing everything he does to the needs of the client, and why Dan has been able to be so successful and productive even without systematizing what he does for clients because he customizes in a way that not only does more for clients who need more, but also saves time by doing less for clients who want and need less.

We also talk about how Dan built his business primarily through referrals after an initial stint in seminar marketing, the way he's been able to continuously keep time available to continue marketing and meeting with prospects with his relentless focus on improving his own personal efficiency and productivity. How thanks to the ongoing improvements in technology, he still sees even more opportunity to be successful as a solo advisor today, despite all the industry naysayers suggesting that consolidation is inevitable. And why despite his success as a solo advisor, he decided earlier this year, to take some risk off the table and create more continuity's first clients by selling the firm to Buckingham Strategic Wealth.

And be certain to listen to the end where Dan shares how the key to his business and financial success wasn't because outsourcing to a TAMP was necessarily more cost-effective than hiring and developing his own team, although it may have been, but instead because it was his strategy to stay disciplined and hyperfocused on spending as much of his time as possible with this clients and not on the any of the other demands of the business that consumes so much time for most other advisors.

So whether you're interested in how a former professional tennis player was able to grow his solo practice to just shy of $1B in AUM, how he has managed to focus solely on serving his clients by outsourcing everything else, or some sage advice from someone who's been in the business for 28 years, then we hope you enjoy this episode of the Financial Advisor Success podcast.

The Latest In Financial Advisor #FinTech (July 2019)

July 1, 2019 07:06 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the July 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 Fidelity is launching a new Managed Account XChange (FMAX), in what appears to be a shift in the Fidelity business model to capture the ongoing advisor shift from internal portfolio construction to outsourced third-party managers and models, and also a re-positioning of Fidelity itself to compete more directly with Envestnet’s own manager marketplace in the future.

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

Envestnet putting its own Insurance Exchange into full production, with the potential to finally catalyze growth of fee-based annuities in the RIA channel
Plaid announcing a new Investments API on the back of its Quovo acquisition, that may put even more investment-related tools directly in the hands of consumers through various financial apps
Canadian FinTech Equisoft acquires Grendel CRM to potentially push into US broker-dealer and insurance enterprises
LifeYield rolls out a new “Income Advantage” tool to assist advisors in figuring out exactly which investment retirees can sell to raise spending cash in a tax-sensitive manner
Two new advisor matchmaking platforms – Harness Wealth, and MyPerfectFinancialAdvisor – launch as demand continues for outsourced lead generation for financial advisors

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including Tamarac rolling out digital onboarding tools to overlay Schwab and TD Ameritrade, Advisor Group launches an internal financial planning payment processing tool called “eQuipt for Financial Planning” as broker-dealers increasingly pivot into fee-for-service financial planning advice, Personal Capital launches its own high-yield cash offering as Wealthfront raises their cash yields to an industry-leading 2.57%, and XY Planning Network announces the finalists for its 4^th annual FinTech competition for advisor technology to support the delivery of financial planning to the next generation of 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 (June 29-30)

June 28, 2019 02:54 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the buzz that, once again, the White House is considering an Executive Order that would index cost basis of investments to inflation, effectively eliminating capital gains on the inflation portion of growth and taxing only real dollar returns instead... at least, unless the plan succumbs to a legal challenge.

Also in the news this week was the House of Representatives passing a spending bill that includes a prohibition on the SEC from using any of its money to actually implement and enforce Regulation Best Interest (in what appears to be a delay tactic by the Democrats hoping that they can take control in the 2020 election and unwind Reg BI thereafter, but one that may not get through the Republican-controlled Senate anyway), and the announcement that former DFA co-CEO Eduardo Repetto is launching a new asset manager called Avanatis that will make an alternative version of DFA-style factor-based funds in an ETF form and without being tied directly to an index (allowing the ETFs to respond even more quickly to shifting factor data than just waiting for changes to the underlying indexes themselves).

From there, we have several articles on aging and retiring, including one that explores how financial literacy tends to decline (by an average of 1.5%/year) in our later years but financial confidence does not decline (leading to a growing gap between what we believe we can do, and what we're actually capable of, that may help to explain the rise of financial abuse and exploitation of seniors), a new crop of "apps" that are emerging to help protect the elderly from such financial abuse and exploitation, and a(nother) wave of financial apps emerging to help adult children more easily manage their parents' finances (especially from afar when their parents aren't geographically local).

We also have a few articles on cash flow and budgeting, from one that provides some good starting steps to get clients onto a budget (first hint: don't call it a budget, but a "spending plan," because that has fewer negative connotations!), to another that looks at the rise of apps that help children track their own chores and allowance and begin to learn (digitally-based) financial management for themselves, and a few tools that are emerging to help people get control of the ever-growing number of (sometimes no longer useful at all) subscription fees as seemingly every business converts to an "as a Service" monthly or annual subscription fee.

We wrap up with three interesting articles, all around the theme of finding what we love to do (and have a passion for): the first looks at the growing body of research around "finding your passion" (and how in practice, not having a passion doesn't necessarily cause significant unhappiness, and that it's having a passion not pursued that is more problematic); the second explores how there isn't always a connection between your passion and what makes money, but when it comes to financial advisors in particular, there often is a lot of overlap (at least, as long as the advisor adjusts their firm over time to best align with their own skills and strengths); and the last is a fascinating discussion of how, in the end, it's the setbacks we face that really help us identify our passions and what we enjoy... because setbacks that we feel compelled to push through are a sign that we've found a pursuit we really believe in, while setbacks that make us want to do something else might actually be the best clue of all that it really is time to try something different (that we may ultimately enjoy more)?

Enjoy the "light" reading!

Could MoneyGuidePro Become Free As Envestnet Scales Its Insurance/Annuity Exchange?

June 27, 2019 07:01 am 5 Comments CATEGORY: Insurance

On March 1, 2019, Envestnet, announced that they were partnering with Fiduciary Exchange (a company which integrates “brokerage, insurance, and advisory ecosystems”) to launch their new Envestnet Insurance Exchange, thereby providing a platform for RIAs to purchase fee-based insurance and annuity products directly from carriers on behalf of their clients, instead of through a commission-based insurance agent.

In and of itself, this is good news for the RIA community; as insurance companies are starting to bring no-commission, fee-based insurance and annuity products to market, RIAs will have a marketplace to shop for them, saving clients the cost of the otherwise-applicable commission (since the RIA is already being paid directly by the client in the first place).

Except, given other recent Envestnet acquisitions and initiatives, their Insurance Exchange could end out being a much bigger deal than much of the industry currently appreciates. To the point that someday, Envestnet might even make their other software – including the recently acquired MoneyGuidePro – free to advisors, just to further expand their Envestnet Insurance Exchange (and other investment marketplaces).

In this episode of #OfficeHours with Michael Kitces, we discuss how comprehensive financial planning actually has its roots in product sales, the real opportunity Envestnet likely saw when it purchased MoneyGuidePro, and why integrating it with its Insurance Exchange could eventually make MoneyGuidePro free and become the most disruptive shift to hit Advisor FinTech in years.

Over 30 years ago, comprehensive financial planning originated as a means to an end, where a financial product salesperson would use a plan to help a prospect define their goals, and then show how various products (that the salesperson earned a commission to sell and implement) would allow the client to achieve those goals. And even though the landscape has changed dramatically since then, financial plans are still often a means to an end even for advisors who don’t sell “products,” per se, since they’re still trying to “sell” the need for clients to save and invest… with them.

Yet the strange mystery is why those increasingly popular financial planning tools haven’t actually illustrated what happens, in the planning software itself, when various different products are added into the plan. The software illustrates a need, but then it’s necessary to provide a separate product illustration, which is completely independent of the plan that was supposed to validate the need!

The gap between financial planning software projections and product-specific illustrations began to close a couple of years ago, though, when MoneyGuidePro rolled out a partnership with Covr that gave them the ability to illustrate life insurance products (and even apply for those products) all within the confines of MoneyGuidePro itself.

It’s not a big leap, then, to understand why Envestnet decided to pay a half-billion dollars last year for MoneyGuidePro… not because they were merely champing at the bit to get into the financial planning software business, but because Envestnet wanted a platform that was primed for deeper insurance and annuity integrations. And if that’s the case, and Envestnet can effectively leverage MoneyGuidePro to support its Insurance Exchange, the next question becomes… could Envestnet turn around and make the software that it paid a half-billion dollars for, free?

Which isn’t such a crazy proposition when we consider that, given the dollar volume of just variable annuities alone, Envestnet will only need to capture a minuscule slice of that market share in order generate the same revenue that all the RIAs and broker-dealers are paying annually in MoneyGuidePro subscription fees… even if Envestnet is “only” paid 25 basis points from the annuity companies on their platform. And if MoneyGuidePro is free, then it won’t take much convincing for advisors to make the switch away from other financial planning software providers, and potentially save themselves thousands of dollars a year… while further growing Envestnet’s Insurance Exchange opportunities.

Ultimately, the key point is to realize that the free-to-use software model has become the standard in recent years (think Facebook, Google, etc.), and is even gaining traction even within the financial services industry (think RIA custodian technology from Schwab, Fidelity, and TD Ameritrade). And in a world where most advisors are still writing checks each year for their various software tools, Envestnet’s acquisition of MoneyGuidePro and introduction of its Insurance Exchange could be enormously disruptive to the current FinTech landscape. Of course, it remains to be seen whether Envestnet’s Insurance Exchange really gains acceptance in the advisor community… but FinTech competitors, in particular, should be figuring out now how they’re going to respond if it does!

Advisor’s Guide To The SEC’s Final Regulation Best Interest And Form CRS

June 26, 2019 07:07 am 2 Comments CATEGORY: Regulation & Compliance

On June 5^th of 2019, the SEC issued its final version of Regulation Best Interest, which will require brokers and their broker-dealers to act in their clients’ best interests when making an investment recommendation, by meeting four core obligations: Disclosure (providing certain prescribed disclosure before or at the time of recommendation, about the recommendation and the relationship between the retail customer and the broker-dealer); Care (exercising reasonable diligence, care, and skill in making the recommendation); Conflicts of Interest (establishing, maintaining, and enforcing policies and procedures reasonably designed to address conflicts of interest); and Compliance (establishing, maintaining, and enforcing policies and procedures reasonably designed to achieve compliance with Regulation Best Interest).

In addition to Regulation Best Interest itself, the SEC is also implementing a newly required “Form CRS” (Customer/Client Relationship Summary) that both broker-dealers and RIAs will be obligated to provide their prospects, to further explain the nature of their services and relationship, their fees and costs, and their standard of conduct and conflicts of interest. Which will provide both new light on the business practices of broker-dealers – by requiring them to disclose upfront if they are using proprietary products, or receiving revenue-sharing or other behind-the-scenes payments – but also require new disclosures of RIAs (e.g., to state upfront their asset/account minimums, and to disclose how their own advisors are compensated and any advisor-level conflicts of interest that may be present as a result).

As a part of its Regulation Best Interest and Form CRS rulemaking, the SEC also issued updated interpretations of an RIA’s fiduciary obligations (a Duty of Care to provide best-interests advice, seek best execution, and provide ongoing monitoring when agreed upon, along with a Duty of Loyalty to act in the clients’ best interests) and the RIA’s requirement to avoid or at least disclose any attendant conflicts of interest, along with an updated (re-)interpretation of the solely incidental exemption for broker-dealers providing advice (that such advice will not trigger RIA status at a broker-dealer if the advice is offered “in connection with and [is] reasonably related to the brokerage services provided to an account.”

Ultimately, while Regulation Best Interest did not impose a full fiduciary duty on broker-dealers, it does materially lift the standard of conduct that applies to them, requiring greater disclosures from broker-dealers of their business practices, a requirement for broker-dealers to take active steps to mitigate the conflicts of interest their incentives create for brokers, and an outright ban on certain sales contests, quotas, and similar (and especially problematic) incentives.

For RIAs themselves, the new Regulation Best Interest rules have limited impact (as the new standards are specifically for broker-dealers), and, in practice, Form CRS will likely be easy to comply with (becoming a new Part 3 to Form ADV, drawing primarily from information already provided in the Part 2A brochure, and delivered alongside the RIA’s existing ADV requirements). Which means, in practice, the largest impact to RIAs may not be Regulation Best Interest itself, but simply the difficulty for RIAs to differentiate themselves in a world where broker-dealers can legitimately state that they, too, have a “best interests” standard when providing recommendations to their clients.

In the end, though, it seems that no rule related to the standards of conduct for broker-dealers and RIAs is “final” until it survives the seemingly inevitable court challenges that tend to emerge. Though given that the broker-dealer community itself has largely been supportive of Reg BI – if only because it wasn’t even worse and more burdensome for them – it remains to be seen who might even challenge the SEC’s Regulation Best Interest and supporting rules in the first place.

Without a challenge, the new rules of Regulation Best Interest and Form CRS themselves are set to take effect on June 30^th of 2020 (providing a 1-year transition period). Though the ripple effects are likely to continue for years to come.