Nerd's Eye View blog

How A More Regular Client Meeting Schedule Enhances Advisor Productivity And Business Growth

November 2, 2015 07:01 am 18 Comments CATEGORY: Practice Management

The business of financial advising is a client service business, and as such the client should always come first. This is certainly true in the advice and recommendations provided to the client, and most advisors extend it even to allowing clients to schedule meetings at the times they wish.

Except as an advisory firm grows, providing clients “too much” flexibility in scheduling meetings leaves the financial advisor stuck in a purely reactive mode, with declining productivity and the inability to focus due to the disruptive switching from client meeting to financial planning work to emails to staff meetings and more. And when you’re unable to control your business, then your business will control you!

So what’s the alternative? Create a more rigorous and structured schedule for yourself and your client meetings - a "model week" - and then plan around the consistent calendar it creates. For instance, only accept client meetings on Tuesdays, Wednesdays, and Thursdays, saving Mondays to prepare for the week’s meetings and Fridays to wrap up all the necessary follow-up. And while it might feel scary to ask clients to focus meetings only on certain days, the reality is that in most cases, it would take little more than a nudge for most clients to follow along.

Ultimately by restructuring meetings, though, the advisor (and the supporting team!) can not only regain control of the business, but enhance their productivity and efficiency by reducing the constant distraction of switching from one types of task to the next. It even allows for time to schedule meetings to work on the business – a key task that is crucial for strategic business growth, but is almost impossible to do when the advisor isn’t in control of the business in the first place!

Weekend Reading for Financial Planners (Oct 31 – Nov 1)

October 30, 2015 02:01 pm 26 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week’s edition kicks off with the huge news this week that the budget compromise in Congress will include a "crackdown" that ends the popular Social Security claiming strategies of File-and-Suspend and Restricted Application, with only a narrow period of "grandfathering" for retirees who planned to use these rules in the near future. Also in the news this week was a fresh industry benchmarking study finding that tech-savvy advisory firms are increasing their productivity lead over the rest, with the most tech-savvy firms having on average 40% more AUM and serving 55% more clients.

From there, we have a slew of practice management articles this week, including: the results from the recent FA Insight benchmarking study, finding that advisory firms who pay their employees more end out being more profitable thanks to more productive employees; a discussion of how important it is to have a rigorous hiring process to find the best employees (or outsource to a firm that can do it for you!); the importance (and difficulty) of advisors creating their own transition plan about how they will someday "gracefully" exit their advisory business; the story of how one advisory firm successfully transitioned from AUM to retainer fees; why it's important to change your sales process with prospective clients if you're not closing at least 30% of them; whether advisory firms that pay the ticket charges for trades in client portfolios are introducing untenable conflicts of interest; and the rules for most of the major brokerage/custodian firms about how they handle client losses if a clients' financial accounts are hacked.

We wrap up with three interesting articles: the first critiques some of the "convoluted logic" that brokerage firms and insurance companies have been putting forth as self-interested objections to the DOL's fiduciary proposal; the second looks at some of the "myths" that wirehouses have used to claim why they remain a superior place for their advisors to build a business, even as RIA market share grows and an increasing volume of brokers decide to break away; and the last is a great reminder about the value of establishing a "Mastermind Group" of peer advisors to help you get better ideas to improve your business, have a group to bounce your own ideas off of, and to provide a level of accountability to help ensure that you take the steps you have committed to in order to improve yourself.

Enjoy the reading!

Congress Is Killing The File-And-Suspend And Restricted Application Social Security Strategies

October 28, 2015 07:01 am 296 Comments CATEGORY: Retirement Planning

When Congress passed the Senior Citizens Freedom to Work Act in 2000, it introduced a new concept called “voluntary suspension” of benefits, allowing those who had already started Social Security benefits to stop their payments and earn delayed retirement credits. In the process, however, the new voluntary suspension rules unleashed several additional Social Security claiming strategies, including various “claim now, claim more later” tactics involved File-and-Suspend and Restricted Applications for spousal benefits.

And under this week’s budget legislation, Congress has decided to close these perceived “loopholes” in the Social Security rules. By extending the rules for deemed application, it will no longer be possible to file a restricted application for just spousal benefits. And with an extension of the “suspension” rules that stipulate suspending an individual’s benefits will also suspend any benefits to other people based on the same earnings record, Congress has killed off the various “File and Suspend” strategies to allow spousal and dependent benefits to be paid while still earning delayed retirement credits.

Perhaps most notable for the new Social Security crackdown, though, is the effective date for the rules. While the new limits to Restricted Application will not apply to anyone who is already age 62 or older in 2015, the new crackdown ~~may suspend current spousal or dependent benefits in 6 months for those who are only receiving those benefits thanks to File-and-Suspend!~~ will kick in 6 months from now (thanks to a recent amendment to the original legislation), grandfathering anyone currently going through file-and-suspend but limiting anyone who tries to suspend benefits thereafter. ~~In other words, those who already engaged in the File-and-Suspend strategy may find it terminated mid-stream,~~ Beyond that point, anyone who suspends will find that no benefits will be payable until the individual who suspended chooses to reinstate benefits (either to restart them now, or finish waiting until age 70).

Notably, the crackdown on these voluntary-suspension-related tactics doesn’t actually kill the rules for voluntary suspension itself, which remains on the books. But now, aside from a few esoteric scenarios (including the recent Hold Harmless Medicare claiming strategy), voluntary suspension will be relegated to those unique scenarios where someone truly started benefits early, has had a change of mind and wants to stop them (after a year has passed and it’s already too late to withdraw the application) to earn delayed retirement credits, with the plans of starting benefits again at age 70. Of course, ideally those who wish to delay benefits for the value of earning delayed retirement credits will simply delay from the start to maximize the benefit, which makes voluntary suspension a moot point altogether for most retirees in the future!

2015 Compensation Trends For Financial Advisory Salaries – Is The Advisor Talent Shortage Just A Mirage?

October 26, 2015 07:01 am 14 Comments CATEGORY: Practice Management

In most financial advisory firms, compensation for employees is more than 3/4ths of a firm’s total expenditures. Which means trends in compensation can have a very significant impact on the profitability and success of an advisory firm business. And the urgency of advisory firms to control compensation have become acute in recent years, as a projected wave of advisors retiring and a dearth of young advisor talent suggests that advisor compensation will rapidly rise, squeezing the margins of most firms.

Yet the latest industry benchmarking studies from Investment News and FA Insight find that, despite the fact that the headcount of financial advisors has already declined by 15% in the past 6 years, advisor compensation growth has remained remarkably sluggish, with little evidence whatsoever of an advisor talent shortage.

Instead, the industry studies find that the largest advisory firms are competing for talent by paying healthy salaries, supported by incentive compensation that allows them to be flexible in a bear market, and using their offer of a career track as an incentive to attract the top young talent. In the meantime, the firms are paying very modest raises, counting on the top advisor talent to satisfy their hunger for financial success by climbing the firm’s career track ladder from support advisor to associate to lead advisor, and ultimately to partner.

In fact, the lack of any apparent pressure on firms to raise compensation, despite what is already a declining advisor headcount, suggests that perhaps the reality is most of the current attrition of “financial advisors” are actually product-centric “non-advisors” who aren’t really delivering financial planning anyway. Similarly, the continued growth of CFP certificants – now up 54% in the past decade – may have actually been more than enough to satisfy the demand of firms for young talent as planning-centric firms slowly but steadily take market share. And with the average age of an employee lead advisor at planning-centric RIA firms “just” age 50, perhaps the reality is that the advisor talent shortage really is just a mirage – or at least, a danger that may not manifest for 10-15 years or more!?

Weekend Reading for Financial Planners (Oct 24-25)

October 23, 2015 02:01 pm 16 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week’s edition kicks off with the big announcement that eMoney Advisor has developed an integration with MoneyGuidePro, allowing MGP users to adopt the eMx Select advisor dashboard and client PFM portal while continuing to use MoneyGuidePro for financial planning purposes. Also in the news this week was the separate launch of MoneyGuidePro’s new “MyMoneyGuide” digital marketing solution, and a new study from Cerulli suggesting that robo-advisors need to significantly accelerate their ongoing asset growth just to survive (and that other industry studies projecting robo-advisor growth may be unrealistically optimistic).

From there, we have several technical articles this week, from some guidance on how early retirees can aim to maximize their premium assistance tax credits when buying health insurance until they’re eligible for Medicare, to a discussion of why ETF adoption has still been slow in the retirement plan marketplace and what it will take for the trend to shift, and a new study from retirement researcher Wade Pfau looking at various forms of variable spending strategies in retirement and how they line up to each other.

We also have a number of practice management articles this week, including: the growth of technology solutions that allow financial advisors to engage with prospective clients through their website before ever meeting with the prospect; how video conferencing with clients has grown, with almost 70% of advisors using video tools to meet with at least a subset of their clients; and a review of the new financial planning software solution RightCapital.

We wrap up with three interesting articles: the first provides a great reminder (and cautionary tale) of how digitally distracted we’ve allowed ourselves to become, and the importance of periodically “unplugging” to ensure you take time to engage in some critical thinking and strategic planning for your business; the second is a discussion of the ongoing “breakaway broker” trend, which appears to be accelerating into larger and larger teams breaking away from wirehouses and insurance company broker-dealers; and the last raising the question of whether the core topic areas of financial planning are still too rooted in the financial planning products of old, and whether it’s time for financial planning to evolve to the next stage, which might even include coming up with a new or different name for what it may eventually become.

Enjoy the reading!

eMoney Advisor Rolls Out eMx Select Integration To MoneyGuidePro As #FinTech Demand Grows For Advisor PFM Portal

October 22, 2015 08:59 am 16 Comments CATEGORY: Technology & Advisor FinTech

At the close of week’s eMoney Advisor Summit, the financial planning software company made a ‘surprise’ announcement that it will be integrating with its financial planning software competitor MoneyGuidePro.

Yet the reality is that this announcement wasn’t actually new – it had been previewed earlier this year at the T3 Advisor Technology conference – and the integration is actually between MoneyGuidePro and the new eMx Select platform, a comprehensive client Personal Financial Management (PFM) solution plus advisor dashboard that eMoneyAdvisor seems to be positioning as a new central platform on which an advisor could run his/her entire business.

From the MoneyGuidePro perspective, its users will likely be happy to have a new and more robust PFM solution to use with clients, and the integration plugs a gap in the MGP client experience. But in the long run, the pressure is now on MGP to continue to stay one step ahead of eMoney Advisor’s own financial planning software, or risk finding that their integration is a form of Trojan horse strategy that gives eMoney Advisor the chance to showcase its own software to MGP users and then solicit them to come over for the entire eMoney Advisor solution.

More generally, the decision of MoneyGuidePro to integrate with a perceived competitor certainly makes the point of the rapidly increasing importance of having a PFM portal that delivers a strong financial planning experience for clients. Though ultimately, the real news of the eMoney Advisor decision to unbundle eMx Select is that it is shifting from being “just” financial planning software to instead becoming an increasingly open architecture central advisor platform suggests that Fidelity may even be positioning the software to compete against TD Ameritrade’s Veo and Envestnet’s emerging platform solution. Which may well have been Edmond Walter’s vision all along.

Should Portfolio Allocations Be Adjusted Based On The Industry You Work In?

October 21, 2015 07:01 am 20 Comments CATEGORY: Human Capital

The traditional approach to portfolio design involves diversifying the portfolio with low-correlation investments to help maximize the portfolio’s return for a given level of risk (or alternatively to minimize risk for a given level of return).

Yet from the holistic financial planning perspective, the reality is that the portfolio – or more generally, an investor’s “financial capital” – is only one asset on the household/personal balance sheet. And for accumulators who are still working, it’s not even the biggest asset, often trumped by the individual’s human capital that may be 2X, 5X, or 10X the value of his/her financial capital!

The significance of this distinction is that to truly maximize the risk/return characteristics of an individual’s total balance sheet, and all types of capital, it’s crucial to not just view the portfolio on a standalone basis, but to invest the portfolio to diversify around the often-much-larger human capital instead. Which means workers in conservative “bond-like” jobs might have even more equity-heavy portfolios, while those in more aggressive “stock-like” jobs should invest even more conservatively!

And even for those who are otherwise comfortable with their overall level of risk and equity exposure, arguably the future of designing portfolios for accumulators in particular – where human capital is really the dominant asset – is that the asset class and sector exposures of the portfolio should be adjusted around the risk/return characteristics of the worker’s job. For instance, those who work in the tech industry might really want to own less of the Technology sector in their portfolio! And ironically, the approach is especially relevant for financial advisors themselves, who are inherently so exposed to the economic and stock market cycle by virtue of their job, that they should own less in stocks themselves… or at least, far less in Financials!

Creating Blog Content As A Financial Advisor – Coming Up With Content Ideas And Other Best Practices

October 19, 2015 07:01 am 20 Comments CATEGORY: Personal/Career Development

The existence of social media and search engines like Google have made it possible for niche advisors to succeed like never before, obtaining clients simply by creating content that demonstrates their expertise to their prospective clientele, and allowing those prospects to find their way to the advisor.

Yet the caveat of engaging in such inbound marketing strategies as a financial advisor is that they only work by actually creating the content, which for many advisors is a challenge unto itself in trying to think up topics to write about! As it turns out, though, there’s a remarkably easy way to come up with appropriate topics: simply create content to answer the questions your clients are already asking you!

And if writing still seems overwhelming, consider crafting an outline to help figure out what to write about. By breaking your article into 3 key points, then identifying 3 key concepts associated with each point, all that remains to create an article is just to create one paragraph (3 sentences!) to summarize each concept! (I call this writing approach the 3x3x3 strategy!)

Or alternatively, if writing is still a blocking point, consider just not writing at all! If you’re better at speaking, try recording yourself on video instead! If you just prefer to talk about the topics, try a podcast! Or hire writer who can work with you to take an initial topic idea and expand it into an article!

Ultimately, though, the biggest key to overcoming any writer’s block and producing content regularly is simply to commit to a regular schedule of content in the first place. Whether it’s just planning to do one article per month, or a rotating series of articles every week, by crafting your own “Editorial Content Calendar” you can create a form of accountability for yourself, to help ensure that your content creation efforts get the priority they deserve!

Weekend Reading for Financial Planners (Oct 17-18)

October 16, 2015 02:01 pm 17 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big news that a majority stake in mega-RIA Edelman Financial has been purchased by private equity firm Hellman & Friedman at a whopping $800M valuation, a market valuation that may have been upwards of 3X the $15B RIA's revenue, suggesting that the big money still sees a bright future for RIAs charging AUM fees. Also in the news this week was a final rule from FINRA that will require brokerage firms to include a link to FINRA's BrokerCheck system so consumers can more easily investigate the regulatory history of their brokers... though, sadly, the rule will not require brokers to provide consumers with a link directly to their actual BrokerCheck profile!

From there, we have a few technical planning articles this week, including: a discussion of the new DFA-based ETFs being offered by John Hancock and how they differ from DFA's traditional mutual funds; a new study raising the question of whether high-deductible health plans paired with health savings accounts are just leading consumers to skip out on important health care services (rather than becoming more savvy health care shoppers); guidance on why advisors might want to work with clients to reconstruct the total amount of non-deductible contributions into their IRAs if they haven't already been tracking it on Form 8606; and a recent Supreme Court ruling that opens the door for clients with income taxed by cities and counties across multiple states to file amended tax returns and claim a refund for the past 3 years.

We also have a couple of practice management articles, from a discussion of how the proposed DOL fiduciary rule could introduce significant paperwork and compliance obligations for RIAs as well as broker-dealer firms (for any RIA whose AUM fee is higher than the prospective client's former 401(k) plan), to a look at why it's so crucial to establish clear and consistent messaging about the services an advisory firm provides to its clients, and a reminder that if advisors are going to claim to be the "quarterback" of the client's financial team that they really need to step up and actually be the quarterback that proactively reaches out to and engages with a client's other advisors!

We wrap up with three interesting articles: the first raises the question of whether female-focused advisory firms, like Sallie Krawcheck's recent Ellevest initiative, are really likely to succeed, especially given that several prior high-profile initiatives in the past decade have all quietly folded (or whether the reality is that focused on "women" is still far to broad to be a relevant 'niche' solution); the second is a critique of the recent Elite Daily article that Millennials should just enjoy themselves in their 20s and not worry about savings, pointing out that our 20s are often the best time to work hard and set our careers on a path to success; and the last is a touching offering of financial advice from personal finance writer Morgan Housel to his newborn son, that provides good relevance reminders for anyone and everyone (regardless of age)!

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including why Winterberg is upbeat on the Morningstar acquisition of Total Rebalance Expert (tRx), the announcement that LogMeIn has acquired LastPass, and coverage of the recent LaserApp "AdvisorCon" conference.

Enjoy the reading!

The IRA Aggregation Rule And Pro-Rata Taxation Of After-Tax IRA Dollars

October 14, 2015 07:01 am 58 Comments CATEGORY: Retirement Planning

The IRA aggregation rule was created to limit the ability of taxpayers to take advantage of ‘abusive’ IRA tax strategies, by requiring that all IRAs are aggregated together to determine the tax consequences of a distribution from any of them.

The primary impact of the IRA aggregation rule is to determine how much of an IRA’s non-deductible contributions are treated as an after-tax return of principal when a taxable distribution occurs, whether as a withdrawal or a Roth conversion. And by forcing all accounts to be aggregated together, the rule severely limits many individuals from taking advantage of the so-called “backdoor Roth contribution” strategy.

However, the IRA aggregation rule reaches much further than just the taxability of after-tax contributions in existing IRAs. Thanks to the recent Bobrow case, it now also applies to the limitation of no more than one 60-day rollover in any 12-month period. Though on the plus side, the IRA aggregation rules apply to required minimum distribution (RMD) obligations as well, allowing a distribution from any IRA to satisfy the RMD rules for all IRA accounts!

Fortunately, though, the IRA aggregation rules do not apply when calculating substantially equal periodic payments (SEPP) under Section 72(t), reducing the danger that a withdrawal from one IRA could constitute a “modification” of the ongoing 72(t) distributions from another that would trigger a retroactive penalty. However, even in the case of SEPPs, the IRA aggregation rules will still apply in determining how much of a 72(t) payment constitutes a tax-free return of non-deductible contributions!