Nerd's Eye View blog

MailBag: Asking Clients To Do Business After A Webinar/Seminar, & Finding Niches Using Psychographics Vs Demographics

September 3, 2015 07:01 am 12 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis, of course!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at whether it’s best to ask people to schedule an appointment or engage with you immediately at the end of a webinar (or seminar) versus just following up with them later. And we also look at whether it’s best to define a target niche clientele based on their background and demographics, or to focus on their “psychographics” instead!

Don’t Just Focus On Risk Tolerance For The Portfolio, Because Goal Risk Tolerance Matters Too!

September 2, 2015 07:01 am 16 Comments CATEGORY: General Planning

The traditional approach to risk tolerance is fairly straightforward – determine how much risk clients can tolerate, and give them a portfolio consistent with that risk tolerance level.

Unfortunately, the problem with this approach is that it can produce a portfolio disconnected from the reality of the client’s goals. Sometimes the portfolio will be more aggressive than it needs to be to achieve the goal. In other situations, a conservative client may end out with a conservative portfolio that will just doom an aggressive goal to failure.

To avoid such mismatches, then, the real key is that risk tolerance should first be applied to the goal itself, and determine whether the goal – and the portfolio necessary to achieve it – is consistent with the client’s risk tolerance. If the “goal risk” is too high, the real solution is not finding a portfolio to achieve the goal, but finding a new goal that isn’t too risky for the client to tolerate in the first place!

Essentialism And The Paradox Of Success As A Financial Advisor

August 31, 2015 07:01 am 24 Comments CATEGORY: Personal/Career Development

Building a business as a financial advisor (or really, almost any business) is a constant effort of getting “more” – more clients, more revenue, more staff to serve them… in a process that can often leave the advisor feeling less and less in control as the demands of the business become overwhelming.

In the new book “Essentialism”, Greg McKeown makes the case that this “Paradox of Success” – the focus that makes entrepreneurs succeed becomes their undoing as the demands on their time increase due to the very success they created – can only be resolved by taking a systematic approach to creating focus on what is truly essential for the advisor to be doing. The classic approach of doing more and more – of multitasking and multifocusing – just leads to less and less productivity. Which means it’s actually the disciplined pursuit of less – what McKeown calls living the life of an “Essentialist” – that leads to more in the long run.

And ultimately, the lessons of Essentialism translate not only into personal success, but the entire design and focus of a business, where in a similar manner a strategic “focus” that goes in too many directions at once leads to little progress at all. By contrast, it’s the focused “Essentialist” business that puts all of its energy towards a single niche or specialization that can make the most progress and gain the momentum that sets the stage for future success as well.

Weekend Reading for Financial Planners (Aug 29-30)

August 28, 2015 01:31 pm 18 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 the world's largest asset manager, Blackrock, decided to buy the #3 robo-advisor FutureAdvisor for $150M, with plans to pivot the company from its current direct-to-consumer focus to instead become a robo-advisor-for-advisors solution for Blackrock's institutional partners (i.e., banks, broker-dealers, insurance companies, and perhaps RIAs).

From there, we have a few articles on this week's market turmoil, including a discussion of the unusual market volatility in ETFs that occurred on Monday morning (when many ETFs traded at materially different prices than their intrinsic NAV), a second article from ETF.com looking at the details of how an "ETF flash crash" occurs (important to understand if market volatility picks up again soon!), and a separate article discussing the unrelated but also problematic technology outage this week at BNY Mellon that left hundreds of mutual funds and ETFs unable to properly price their value for several days this week!

We also have several practice management articles this week, including: a discussion of a smarter marketing (or "smartketing") process that integrates both prospecting and sales efforts in an advisory firm; a look at how some advisors are adopting video as a part of their marketing and/or client communication process; a discussion of some practice management "gotchas" to watch out for that can undermine the value of your business (e.g., remember that unlike talking to a compliance attorney, communication with your compliance consultant is not privileged and can be used against you!); a warning that growth rates, referrals, and profitability are declining at many advisory firms (and how it can be resolved by focusing on a narrower target clientele to differentiate); and a reminder of how important it is to communicate complex concepts to clients visually and not just verbally (and better yet, make a standardized graphic to illustrate key concepts that you can use over and over again!).

We wrap up with three interesting articles: the first provides some good reminder tips of what to do and what to say when market volatility occurs (hint: proactive communication and active listening are essential!); the second provides an interesting look at the history of the Investment Company Act of 1940 (which just recently celebrated its 75th anniversary!); and the last is an article from the Harvard Business Review reporting on an interesting study that finds the rise of technology is actually making social skills more important than ever for career success (and the best jobs are those that require social skills and include high-level cognitive challenges, like financial planning!).

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the announcement that Blackrock is acquiring the robo-advisor FutureAdvisor, the Salesforce launch of their new Financial Services Cloud, and the latest practice management white paper "X-Cell" from Kaleido.

Enjoy the reading!

Blackrock Acquires FutureAdvisor For $150M As Yet Another Robo-Advisor Pivots To Become An Advisor #FinTech Solution

August 27, 2015 11:31 am 19 Comments CATEGORY: Technology & Advisor FinTech

Yesterday, Blackrock announced that it was acquiring FutureAdvisor, one of the three original and “pure” robo-advisors who have been gathering assets and managing ETF portfolios directly for consumers. And despite FutureAdvisor having “just” $600M of AUM, and an estimated $3M of revenues, Blackrock’s purchase was rumored to be in excess of $150M.

However, it appears that Blackrock’s strategy was not simply to buy FutureAdvisor to expand its direct-to-consumer solution, but instead to pivot FutureAdvisor to become a robo-advisor-for-advisors solution, and license/offer the technology platform to a wide range of broker-dealers, insurance companies, banks, and custodians to turn their human advisors into tech-augmented "cyborg" advisors. In this context, as the world’s largest asset manager and a leading player in the ETF space already, the Blackrock deal appears to be visioned primarily as a means to further grow the size of the ETF pie and the Blackrock (iShares) market share by driving distribution to its ETFs through this new technology platform. The robo-advisor is now a distribution channel.

For financial advisors, the “good” news of the Blackrock deal is that “robo” tools may soon become increasingly available to a wider and wider range of advisor platforms. And ironically, because iShares – like Schwab’s Intelligent Institutional Portfolios – can profit from the underlying ETFs held in the portfolio, the future Blackrock FutureAdvisor solution may even undercut existing robo-advisor platforms, as the established financial services industry players continue to apply more and more pressure to the direct-to-consumer robo-advisor solutions. In other words, advisors and established firms are now driving the cost of robo-technology down to zero, relying on their ability to profit from the ‘traditional’ channels of manufacturing investment products (e.g., ETFs) and delivering personal financial advice, and out-commoditizing the robo-advisor commoditization.

Social Security And Medicare Claiming Strategies To Navigate The Looming 52% Medicare Part B Premium Spike

August 26, 2015 07:01 am 43 Comments CATEGORY: Retirement Planning

Under Social Security and Medicare rules, the “Hold Harmless” provision is a special rule intended to protect most Social Security recipients from experiencing a decrease in their (net) benefit payments, by limiting the (dollar) amount of the annual Medicare Part B premium increase to the (dollar amount) of Social Security’s cost-of-living adjustment. And due to negative inflation from the recent fall in energy prices, the 2016 Social Security COLA is on tracked to be “floored’ at the minimum 0.0%, which in turn means that Medicare Part B premiums will be locked in for a 0.0% increase in 2016.

However, the "Hold Harmless" provisions only apply to approximately 70% of currently Medicare enrollees for the protection. Which means that the entire magnitude of Medicare's rising costs must be borne by just the other 30% of Medicare enrollees, as well as any who planned to enroll in 2016, resulting in a project 52% spike in Part B premiums next year!

Given the looming Medicare Part B premium increase, those who are not eligible for the Hold Harmless provision - for instance, those enrolled in Medicare but delaying Social Security benefits, or those who haven't yet enrolled in either but could - should carefully consider whether it is really still worth delaying Social Security benefits (and/or delaying enrollment in Medicare), given that those who begin the process by October of this year still have the potential to get started in time to be eligible for Hold Harmless and shelter themselves from the 2016 increase.

And in practice, it appears that slightly accelerating claiming may in fact be appealing, especially for those who otherwise anticipated starting Social Security and Medicare Part B in 2016. On the other hand, higher-income taxpayers who are subject to the Medicare Part B premium surcharge cannot protect themselves (or do anything else about it, since the calculation would be based on income from 2014 and that tax year is long since closed). And for those who still plan to delay Social Security benefits for many years to come, the reality is that delaying Social Security benefits is still so valuable, that even the projected Medicare Part B premium spike is still not nearly enough to deter the long-term value of generating Social Security’s Delayed Retirement Credits for those who anticipate living well past the breakeven period.

Are The Licensing And Other Requirements To Become A Financial Advisor Too Easy?

August 24, 2015 07:01 am 53 Comments CATEGORY: Planning Profession

Virtually all financial advisors today follow one of three paths in becoming a financial advisor – either as a registered representative of a broker-dealer, an insurance agent with an insurance company, or an investment adviser representative of an RIA. And each path has its own licensing and exam requirements.

Yet the sad commonality of all paths to becoming a financial advisor is that the actual exam and educational requirements to be an advisor are remarkably low. In fact, the licensing exams for financial advisors do little more than test basic product knowledge and awareness of the applicable state and Federal laws, and none require any substantive education in financial planning itself before holding out to the public as a comprehensive financial advisor who will guide consumers about how to manage their life savings!

Given the roots of financial advising in the world of insurance and investment product sales, this isn’t entirely surprising. The licensing requirements to become a financial advisor, along with the suitability standard to which most advisors are subject, are built around the concept that “advisors” are really just product salespeople. And the bar to determine if someone is "capable" of selling a product isn't very high.

Ultimately, though, if financial advisors hope to actually be recognized as bona fide professionals, the requirements to become a financial advisor must become harder, and require actual education and experience to demonstrate competency as a financial advisor (not just compliance with the laws that apply to salespeople!). Otherwise, the reality is that even if a uniform fiduciary standard is implemented that requires all brokers and investment advisers to act in the best interests of their clients, consumers may still be harmed by advisor ignorance and the sheer lack of competency that would result from raising the fiduciary duty of loyalty but ignoring the equally important fiduciary duty of care – to only give advice in areas in which the professional is actually educated and trained to give advice in the first place!

Weekend Reading for Financial Planners (Aug 22-23)

August 21, 2015 02:01 pm 13 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the second edition release of the CFP Board’s “Financial Planning Competency Handbook”, a nearly-1,000-page tome that aims to capture the entire comprehensive financial planning body of knowledge (for both students learning financial planning and practitioners to use as a reference).

From there, we have several practice management and technology-related articles this week, including a review of digital estate planning software solution EverPlans, a first look at a new “matchmaking” site for consumers to find a financial advisor (where advisors pay to be listed and featured on the site), and a review of the new T. Rowe Price “MarketScene” app designed to provide market insights and information that advisors can use with their clients. There’s also an article about time-saving tips and ‘productivity apps’ for advisors, a discussion of the issues to be aware of if you’re looking to merge your advisory firm (from the perspective of other advisors who have gone through the process), and some advice from practice management consultant Angie Herbers about the experience of merging a firm after she merged her own with marketing consultant Kristen Luke to form their new advisor consulting business Kaleido.

We also have a few technical planning articles, from a discussion of the new regulations from the IRS and Treasury Department cracking down on sales of a Charitable Remainder Trust (CRT) income interest, to a look at the recent expansion of the Repaye program that can adjust student loan repayment amounts to be a smaller percentage of (discretionary) income, and a look at the estate planning considerations of the emerging new 529A ABLE accounts for disabled and special needs beneficiaries.

We wrap up with three interesting articles: the first is from Professor Robert Shiller, who explores the concept of the “Financial Singularity” (where markets potentially become perfectly efficient with technology automation); the second is a discussion from experienced angel investor Tucker Max about why angel investing is really not a good idea for most investors; and the last is a discussion from industry commentator Bob Veres about how advisory firms who want to serve younger clients and the middle market must go further than “just” adding in robo-advisor technology tools on their website.

And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, covering the latest news and developments from this week's LaserApp technology conference!

Enjoy the reading!

How The Medicare “Hold Harmless” Rules May Spike Part B Premiums By 52% In 2016

August 19, 2015 07:01 am 62 Comments CATEGORY: Retirement Planning

For virtually all retirees, Medicare is the core means by which health insurance is obtained in retirement. Coverage is provided via a combination of Medicare Part A (for hospital insurance) that is free, plus Part B (for medical insurance covering doctor’s visits, outpatient procedures, and more) for a subsidized premium, and Part D (for prescription drugs) also paid via a separate premium. Together, the Medicare system goes a long way to stabilizing the unknown of health care costs in retirement into a series of known health insurance premiums.

For most retirees, the Medicare Part B (and potentially Part D) premiums are simply subtracted directly from ongoing Social Security benefits payments, and each (Social Security benefits and Medicare premiums) have their own inflation adjustments each year (with Medicare healthcare inflation higher than general inflation adjustments most years).

Notably, though, the Social Security system also includes two key provisions to help smooth cash flows for retirees. The first stipulates that if inflation is negative, the Social Security Cost-Of-Living Adjustment (COLA) can never be negative; at worst, the Social Security COLA has a floor of 0.0%. The second provision, often dubbed the “Hold Harmless” rule, and applicable to as many as 70% - 75% of Medicare enrollees, states that Social Security benefits payments cannot decrease due to rising Medicare Part B premiums; at worst, the Medicare premium increase is capped at the dollar amount of the Social Security COLA increase.

Except in the coming 2016 year, when the Social Security COLA is projected to be 0.0%, the combination of these two rules means that none of the coming year’s Medicare Part B premium increase can be applied to the 70%+ of Medicare enrollees eligible for the Hold Harmless provision… which means all of the increase must instead be borne by the roughly 25% of Medicare enrollees not subject to the “Hold Harmless” provision. As a result, unless the Secretary of Health and Human Services Department intervenes by October, based on current projections the Hold Harmless provision may result in a spike in Medicare Part B premiums by as much as 52% (or over $600 per person) for those not protected by the rule!

MailBag: Pursuing An MBA or CPA License After CFP Certification, And Problems With Criss-Cross Continuity Planning Amongst Solo Advisors

August 18, 2015 06:01 am 19 Comments CATEGORY: MailBag

In this week's MailBag, we look at a question of whether it’s better to pursue an MBA degree or a CPA license after completing CFP certification (or whether some other post-CFP education would be even better!), and the problems that can arise when solo advisors try to satisfy the recent NASAA Model Rule on continuity planning by arranging a “criss-cross” buy-sell agreement with each other (when they don’t necessarily have the client capacity to actually execute it!).