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#FASuccess Ep 117: Forming A Specialized Advice Process To Add Real Value In Serving Small Business Owners, with Josh Patrick

March 26, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 117th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Josh Patrick. Josh is the founder of Stage 2 Planning, an independent RIA in Burlington, Vermont that specializes in working with small business owners.

What's unique about Josh, though, is the way he's been able to leverage his own personal experiences as a small business owner, before transitioning into financial planning as a second career, to create a deeply specialized advice process for small business owners and command retainer fees in excess of $50,000 a year from his clients.

In this episode, we talk in depth about exactly what Josh does to earn monthly retainer fees of $4,000 to $5,000 per month from small business owners, the 5 core areas that he advises them on, including setting clear values and culture, becoming operationally irrelevant in your business, learning how to really delegate effectively, how to set up effective business systems, and how to divide up the profit of the business into cash flows for lifestyle, emergency funds, business growth, and a retirement plan, and the way he's made his expertise known through a combination of blogging, podcasting, and public speaking to create a steady flow of small business owners who seek him out and are willing to pay his fees for the value they perceive.

We also talk about how many of these same business management principles map onto the business of being a financial advisor as well, where most financial advisors hit the ceiling themselves by failing to apply Josh's 5 principles of effective business, Josh's strategy for advisors to differentiate their firms while not making the firm too reliant on any one key employee or advisor, how advisors can create a guarantee that reduces a prospect's fear of signing on but without running afoul of regulators, and how most experienced advisors could apply a version of the 80/20 rule to their own practices to make themselves significantly more financially successful while simultaneously lessening the demands of the business on themselves.

And be certain to listen to the end, where Josh talks about the biggest challenge that he sees most financial advisors struggle with, the inability to delegate key tasks in client relationships, and how to overcome it by recognizing that in the end, even if team members make mistakes, there's still crucial learning opportunities, especially since the truth is that in the end, clients will rarely actually leave over a single mistake anyway, and whether they do or not is primarily a result of how the firm handles the mistake, not the mere fact that it happened in the first place.

What I Learned Over 10 Years Of Recruiting The Next Generation Of Financial Advisor Talent

March 25, 2019 07:04 am 0 Comments CATEGORY: Personal/Career Development

As advisory firms grow and accumulate clients, they inevitably reach the point where it’s necessary to either stop growing, or start hiring staff members to expand the capacity of the firm. Initially, the first hire or two is usually administrative support staff, who are responsible for completely relatively well-defined, standardized, and repeatable tasks – key tasks for a financial advisor to delegate, but ones that are relatively straightforward to train on, and even re-train in the event of staff turnover.

However, when it comes to the next stage – hiring associate advisors and paraplanners who may someday take over client relationships (or even the entire firm) – the process of training and even hiring itself is far more difficult. Not only because the stakes are higher – as it’s more costly to the firm to have a financial advisor turn over, especially once they’ve begun to develop direct relationships with clients – but also because the development curve of a financial advisor is so long (taking years or even a decade to fully develop), that it’s difficult to be certain who will end out being a good advisor in the first place.

In the guest post, New Planner Recruiting co-founder Caleb Brown shares his perspective on what it takes to find, attract, and retain top next generation advisor talent, based on his own experience on the front of lines of recruiting young talent for the past 10 years. From what really is most predictive of candidate success (the effort they put into getting the job in the first place, and their “why” for becoming a financial planner), to the reasons that certain firms have more trouble than others in attracting and retaining talent to begin with (the unfortunate reality: your firm may not really be as "great" of a career opportunity as you think, relative to the other options available for top talent!).

The good news, though, is that the rise of financial planning in undergraduate degree programs means that today’s rising talent is, truly, the best trained and capable young talent the profession has ever produced. Which doesn’t mean every hire will be perfect, or even that everyone will work out (for any number of other life transitions that happen to people in their 20s and 30s), but for those who are willing to put in the time and effort, the rewards of hiring next-generation talent have never been better!

Weekend Reading for Financial Planners (Mar 23-24)

March 22, 2019 05:31 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the latest release of FINRA's 2019 budget, which once again shows flat revenue as broker-dealers struggle with stagnating growth and a decline in the number of people taking licensing exams to become brokers, forcing FINRA to rely on as much as $185.8M of its reserves this year just to meet its operating and capital expenses... and raising the question of whether FINRA will eventually be forced to restructure, or substantially increase member fees to broker-dealers... which in turn may only further accelerate the broker-dealer decline as regulatory costs rise.

From there, we have a number of articles around household cash-flow planning, including a fascinating new job-skills training program that focuses on those with problem-solving and perseverance skills and has lifted low-income individuals from an average of $18,000 to $85,000 of income, some tips to keep "lifestyle inflation" in check as income grows, the dynamics of trying to transfer not just financial assets but instill financial and other values for the children of affluent households, and how it's increasingly necessary to look not just at a household's own budget and cash flow but also to ask about their potential obligations for other family members (from children who may need to support elderly parents, or parents who may need to support adult children).

There are also several marketing-related articles this week, from tips to quickly and easily adapt "generic" marketing content into something more customized (and more likely to be effective) for clients, "growth hacks" that can accelerate a firm's marketing success, how the techniques of a hostage negotiator (who must build rapport quickly in high-stakes situations) can inform the way we try to introduces ourselves and connect to prospects, and tips on how to respond to the infamous conversation-ender where you introduce yourself as a financial advisor and someone quickly responds, "I already have a financial advisor!"

We wrap up with three interesting articles, all around the theme of how we spend our time and focus our attention: the first explores the benefits of doing a "time audit" to better understand how you really spend your time (and whether it's truly on the important tasks, including not just the urgent but also the long-term important ones); the second looks at how scheduling free-time and leisure activities actually reduces their enjoyment (because then it's just another scheduled task/chore to do!), and why "rough scheduling" with flexibility timing is better; and the last provides a fascinating look at the importance of being cognizant of and deliberate in what you really "measure" in your life (and how that impacts the way you focus your time and effort).

Enjoy the "light" reading!

How FPA Could Constructively Address Its Financial Accounting Concerns

March 21, 2019 09:30 am 0 Comments CATEGORY: Planning Profession

Last week, this Nerd's Eye View blog highlighted a series of discrepancies between the published Audited Financial Statements of the Financial Planning Association (FPA), and an alternative version of FPA's finances that were presented to chapter leaders in its recent "Overview of National Finances" webinar. With a gap of nearly $8M between what FPA's Audited Financials reported in the past, and what the FPA was currently reporting, the discrepancy raised concerns about both where the "missing" dollars actually were, as well as why the FPA would be reporting financials to members that differed from the organization's already-published Audited Financial Statements.

In a response to members, the FPA has clarified that (as predicted in the prior blog post itself) the financial reporting gap can be largely explained by a change in FPA's method of accounting with respect to how the chapter portion of annual dues are collected and remitted to chapters, which led to a previously undisclosed and unpublished restatement of FPA's financials for 2007 to 2012. Such that, fortunately, it appears there is no "missing" money.

However, rather than following up by proposing changes to adjust FPA's financial and audit controls to ensure that, in the future, members do have access to all relevant financial information about FPA's financial health, the FPA leadership chose instead to personally attack this blog, questioning the accuracy of our numbers (even though all the numbers were quoted directly from FPA's own Audited Financial Statements!) and our integrity for not "fact-checking" those Audited Financial Statements. Apparently forgetting that the organization's Audited Financial Statements are supposed to be the factually accurate statement of record in the first place, such that "fact-checking" them should never be necessary, and that it is not a best practice - nor consistent with FPA's own Information and Transparency Policy for members - to keep a second, unpublished, undisclosed set of restated books for prior financial years. Even if those books are otherwise financially accurate.

The FPA also objected to the fact that our prior article pointed out how non-standard and non-transparent financial reporting practices can also lead to, or be associated, with fraud, and in turn interpreted the article as an accusation of fraud. Yet the reality is that the article was not an accusation of fraud - thus why it correctly posited an alternative explanation about the financial discrepancy in the first place - but nonetheless, engaging in non-standard and non-transparent financial reporting is a fraud risk for the organization. Which is why it is standard practice (and indeed, part of FPA's own Information and Transparency Policy) to procure and publish Audited Financial Statements to members to begin with. In other words, pointing out that poor accounting practices can lead to fraud isn't an accusation of fraud; it's an explanation of why adopting best practices in accounting standards is so important to maintain the financial integrity of the organization in the first place. The entire foundation of an organization having its own financial statements audited is to trust... but also verify.

Accordingly, in today's blog post, we have published a "hypothetical" response - that I would have hoped to see from the FPA leadership to acknowledge the changes that it still needs to make with respect to its financial and audit oversight controls to ensure better financial transparency to members - along with the FPA's actual response to our previous article (for those FPA members who wish to understand the finer details). Because in the end, I am still first and foremost a dues-paying member of the FPA, and the only reason I take the time to raise concerns about the organization is that I believe it's crucial for the profession for the FPA to succeed as an organization. Which starts with being financially transparent and accountable to its members in the first place, in accordance with accounting and audit best practices, and FPA's own Core Value of Stewardship.

Tax Rules And Strategies For Claiming 2018 Cryptocurrency Loss Deductions

March 20, 2019 07:03 am 235 Comments CATEGORY: Taxes

On October 31, 2008, the person (or persons) going by the name of Satoshi Nakamoto first posted the paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Within months, the first Bitcoin had been “mined” setting off a technological and cultural revolution. And over the next decade, Bitcoin and other cryptocurrencies would see a dramatic rise in distribution and price, culminating in an epic 2017 that saw the value of many cryptocurrencies grow by more than 1,000%!

Unfortunately, just as public infatuation with cryptocurrencies seemed to reach a peak, so did its price, leading to a disastrous 2018. During the year, many cryptocurrencies lost upwards of 80% of their value, leaving investors with sizeable losses, and questions about what to do, if anything, to make the most of their losses (at least from a tax perspective).

Fortunately, to that end, back in 2014 the IRS released IRS Notice 2014-21, providing its first substantive guidance on the taxation of Bitcoin and cryptocurrency transactions. Notably, the IRS determined that cryptocurrencies are “property” for Federal tax purposes, and not currency. Thus, the sale of cryptocurrency results in capital gains and losses, rather than ordinary income.

In general, the basis of a taxpayer’s cryptocurrency is the price paid to acquire the currency (in U.S. dollars) from its previous owner, typically via an exchange. In other words, the basis of an investment is what you paid to acquire it. In the context of cryptocurrency that is mined, though, there is no “purchase” transaction in the first place. Instead, the act of mining itself is treated as an income-producing activity, such that the fair market value of the cryptocurrency is included in gross income when it is mined. In turn, that fair market value becomes the miner’s cost basis in the cryptocurrency property going forward.

For taxpayers who liquidated cryptocurrency positions at a loss in 2018, the “planning” options are unfortunately somewhat limited. At this point, the best that can be done is to use any 2018 cryptocurrency losses to offset other 2018 capital gains and up to $3,000 of ordinary income. Any additional (cryptocurrency and other capital) losses must be carried forward for use in future years.

Taxpayers who currently hold cryptocurrency positions with unrealized losses can still choose to liquidate those positions in 2019 and use those losses to offset other portfolio gains (e.g., enabling investors to minimize the impacts of rebalancing out of other investment positions that have accrued substantial capital gains).

Unfortunately, though, harvesting cryptocurrency capital losses may be easier said than done, particularly for long-term cryptocurrency investors whose early purchases have accumulated in value, as FIFO tax treatment for multiple lots of cryptocurrency is likely required. On the other hand, because cryptocurrency is “property” but not (at least at this point) treated as an investment security, it appears the Wash Sale Rule does not apply to sales of cryptocurrency. Thus, positions with losses can be sold in order to be able to use the loss for planning today (or to “bank” the loss for future use), and still repurchased shortly thereafter (for those who want to continue to HODL), enabling the investor to continue to participate in future appreciation (at least if they’re still optimistic about cryptocurrency investment potential in the first place).

Finally, it’s worth noting that the digital nature of cryptocurrency makes it more susceptible to theft-by-hack (or other means), while its ethereal nature makes it more likely to be truly lost (via lost keys or cold-storage hardware) than other assets. Which is important because unfortunately, such losses would be treated as casualty losses which, after the Tax Cuts and Jobs Act, are generally no longer deductible at all!

Many crypto-advocates believe its long-term growth potential and viability as an asset class remains strong. Nevertheless, many investors first entered into the crypto-game in 2017 – when interest in the asset class grew exponentially due to its dramatic rise in price – and are now left trying to make the most of their losses.

#FASuccess Ep 116: Building A Consumer Media And Author Presence To Gain Credibility As A “Small” Independent Advisor, With Harold Evensky

March 19, 2019 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 116th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Harold Evensky. Harold is the co-founder and chairman of Evensky & Katz / Foldes Financial, an independent RIA in South Florida that oversees nearly $1.5 billion in assets under management.

What's unique about Harold, though, is that he was one of the early pioneers to financial planning under the RIA model all the way back in the 1980s, and taking a holistic goals-based wealth management approach to portfolio design in the 1990s, having literally written the book on it 22 years ago in 1997.

In this episode, we talk in depth about what it was like to start an RIA in the early days of the independent advisor movement before platforms like Schwab Advisor Services even existed. The way Harold hustled with seminar marketing up to six nights a week in the early days just to get clients and survive, how Harold engaged early on with the media as a means to establish credibility for the firm in its efforts to compete against mega-wirehouses of the time, and how becoming fee-only in the early 1990s helped the firm to differentiate itself, because back then, being a fee-only fiduciary actually was a niche.

We also talk about how the firm grew and evolved over time. What it was like to transition from an advisory practice to a business, how Harold thought through the process of introducing next-generation partners and beginning to relinquish control of the firm, the way Evensky and Katz instituted a formal management committee to separate management and ownership of the firm as the number of partners proliferated, and how the firm made an all-in bet on the shift from AUM fees to retainer fees, and then unwound the entire change and went back to charging AUM fees for wealth management less than three years later.

And be certain to listen to the end, where Harold talks about the evolution of the financial planning profession. The CFP Lite controversy of the 1990s, whether the CFP Board and FPA have lived up to their expectations, and what it will really take for financial planning to truly be recognized as a profession by the public.

So whether you're interested in hearing about what it was like breaking away from the brokerage world when an AUM structure was still a novel idea, how the financial planning profession has evolved over the past few decades, and where it may be headed, then we how you enjoy this episode of the Financial Advisor Success podcast.