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Weekend Reading for Financial Planners (Mar 14-15)

March 13, 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 a review of the latest SEC and FINRA guidance on top areas of concern regarding their oversight of advisors, from cybersecurity to how advisors oversee multi-advisor firms to increased scrutiny on retirement rollovers and advisors with multiple fee schedules (and how clients end out in one versus another).

From there, we have a long list of practice management articles this week, including: a discussion of valuing practices based on a multiple of (discounted) cash flow rather than just a multiple of revenues; whether the recent shift of United Capital from acquisitions to tuck-ins signifies a potential slowdown in advisor mergers and acquisitions; how "acquisition" succession planning is typically structured and implemented in wirehouses; what wirehouse advisors should consider (especially about mundane but important arrangements like office space) if they're planning to break away and go independent; a reminder that clients care less about what you do than why you do it; how clarity about where a business is heading in the long run can help to get staff to stay focused on what they should be working on; the long-term growth problems that emerge for advisors who create an "anti-selling" culture; and a discussion of why, even though it can sting, getting "fired" by a client can be a good thing if the reality was that you weren't really a fit for their needs anymore anyway.

We wrap up with three interesting articles: the first is a discussion by financial life planner Mitch Anthony about how we can help clients "add life to their years" by helping them to consider encore careers rather than just an all-or-none retirement transition; the second is an interview with advisor-to-advisors legend Nick Murray as he shares his wisdom about how to be successful as an advisor; and the last is a discussion of the recent launch of the Schwab Intelligent Portfolios solution and whether Schwab has lost the focus on its core values given the swirling discussions of the conflicts of interest around its "free" solution and its potentially significant (and more-profitable-to-Schwab) cash allocations.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including a discussion of the Charles Schwab and Wealthfront fight, Fidelity's Apple Watch app, and a discussion of how advisors can use screencasting tools like Camtasia!

Why A Mortgage Is Not Actually An Inflation Hedge Itself, But Can Provide Access To Investments That Are

March 11, 2015 07:01 am 25 Comments CATEGORY: Debt & Liabilities

Having a mortgage is often framed as a way for an inflation hedge. As the conventional wisdom goes, with a mortgage your monthly payment is locked in (assuming it’s not an Adjustable-Rate Mortgage [ARM]), even if inflation goes up and interest rates rise. In fact, rising inflation would just devalue the mortgage in nominal (future) dollars.

Yet the reality is that ultimately, a mortgage may be paid off with inflation-adjusted wages, free up funds to be invested into inflation-hedging vehicles (from TIPS to equities), used to create a reserve for investing in bonds at higher rates in the future (a form of call option on interest rates), or be deployed to purchase a residence that provides a hedge against rising rents. In all of these scenarios, though, it is actually how the mortgage-related funds are deployed, or the income sources used to fund it, that are the actual inflation hedges… not the mortgage itself!

Ultimately, this doesn’t mean that a mortgage can’t indirect lead to beneficial outcomes if inflation (and interest rates) rise. But in the end, the benefits will not actually come from the use of the mortgage itself as an inflation hedge, but the other inflation-adjusted assets and income an individual has to support the mortgage instead! Of course, the caveat is that the use of leverage to hedge inflation can cut both ways, and magnify the unfavorable outcomes in non-inflation scenarios as well!

What Robo-Advisors Truly Threaten To Disrupt: Index ETFs and Mutual Funds, Smart Beta And Algorithmic Investing, Custodians and Their Advisor FinTech Ecosystem

March 9, 2015 07:01 am 30 Comments CATEGORY: Technology & Advisor FinTech

While the debate rages on about whether robo-advisors will ultimately be a threat to human advisors, or whether the solutions that combined technology and humans will be the ultimate victors, the reality is that to view the battle as one of “technology vs human advisors” may be missing the real “threat” of robo-advisors. As technology platforms, their disruptive potential goes far beyond just impacting financial advisors.

For instance, the ability of software tools to re-create index funds – but without the mutual fund or ETF wrapper – creates the potential for today’s robo-advisors to disintermediate much of the existing index fund industry, aided by the tailwind of a benefit under tax code that uniquely favors these new “Indexing 2.0” robo-platforms over current fund-based solutions. Similarly, robo-advisors as “trading” software creates the potential to eliminate many active management middlemen, allowing a wide range of smart beta and rules-based trading algorithms to be implemented and automated directly.

And as the robo-technology trends shift from a direct-to-consumer focus to offer new robo-advisors-for-advisors solutions instead, the new platforms present the threat to today’s existing RIA custodians, who face the potential of a generational shift as new less-investment-centric financial planners adopt simplified robo-advisor investment platforms, and build a business there for the long run… which means in the end, the greatest threat of robo-advisors may not be their competition with human advisors, but the way that human advisors adopt them to disrupt much of the existing FinTech ecosystem!

Weekend Reading for Financial Planners (Mar 7-8)

March 6, 2015 02:01 pm 15 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with coverage of the recent SEC and FINRA cybersecurity "sweeps" of advisor best practices, which finds that RIAs have been more lax in their cybersecurity policies and managing than broker-dealers, although notably a higher percentage of broker-dealers have actually suffered fraudulent loss events (though the reasons are unclear). Also in the news this week was a warning that Genworth anticipates yet another bad quarter of financial results due to continued losses on its long-term care insurance, which has now driven the company's stock price down by more than 50% over the past year and led to its debt rating being downgraded to "junk" status.

From there, we have several marketing-related articles this week, from a discussion of the various types of tools/platforms available for advisors who want to blog, to tips in building a "virtual" client webinar event to gather prospects, to a look at how advisors should focus on building "social capital" to grow their firms, and a study of "elite" advisors suggesting that the best advisors spend upwards of 4% of revenues on marketing (compared to only 1%-2% for "typical" advisory firms).

We also have a few retirement-related articles, including one that raises the question of whether more advisors should recommend retirement income solutions with "guarantees" because the cost is a worthwhile trade-off to the client for peace-of-mind (even if it results in less expected wealth and isn't justified "mathematically"), a second that looks at the trade-offs to consider in lump sum versus pension decisions, and a third looking at how variable withdrawal rate strategies may "dominate" fixed withdrawal rate strategies... although it depends on how you define "success" in the first place.

We wrap up with three interesting articles: the first is an open letter from Bob Veres to SEC Chairwoman Mary Jo White, questioning why the SEC really needs to increase RIA exams at all, whether the process is outdated, and why the SEC's staff is allowed to be so inefficient with each examiner averaging of only 2.2 RIA audits per year; the second is an interesting look at how the culture is changing in wirehouse firms since the financial crisis, and whether their outflows of breakaway advisors have less to do with shifting commission-versus-fee business models and more to do with current management undermining the entrepreneurial partnership culture that built those firms in the first place; and the last provides a look at the emerging rise of the Financial Therapy Association and a new body of research that looks at our physiological and psychological responses to money issues and how to better help clients work through them.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the announcements that robo-advisor Wealthfront has crossed $2B of AUM, ByAllAccounts has crossed $1T of account aggregation, and a review of Morningstar's new iPad app!

Will Section 529A ABLE Accounts Replace The Need For Disabled Beneficiary Special Needs Trusts?

March 4, 2015 07:01 am 21 Comments CATEGORY: General Planning

Planning for special needs beneficiaries is highly complex, a mixture of making challenging care decisions and managing limited resources. Many families will try to save assets on behalf of a special needs beneficiary to provide further support, but if not coordinated properly, can actually disqualify the beneficiary from Federal and state aid programs, including SSI and Medicaid.

The primary solution – establishing a (third-party) supplemental special needs trust – can help preserve the beneficiary’s eligibility for aid programs, but itself has a non-trivial cost to create and maintain, in terms of both legal fees, administrative expenses, and potentially unfavorable tax treatment.

To help ease the challenge for families with special needs children, the recently passed “tax extenders” legislation at the end of 2014 created a new type of account for the supplemental needs of special needs (disabled) beneficiaries. Under the new IRC Section 529A, Qualified ABLE programs will allow families to accumulate funds for such beneficiaries, enjoy tax-free growth, and allow the assets to (mostly) avoid disqualifying the beneficiary from any state or Federal aid, but without the cost and hassle of creating a special needs trust.

Given the limitations of these new 529 ABLE accounts – from restrictions on the size of contributions, to a rather “unfavorable” Medicaid payback provision after the death of the disabled beneficiary – the new Section 529A plans will not likely replace all special needs trusts, but could be used effectively as a supplement to them, and may be an especially appealing alternative to trusts for “smaller” account balances under $100,000.

How I Finally Learned To Delegate By Creating Video Tutorials With Screencasting Software

March 2, 2015 07:01 am 43 Comments CATEGORY: Personal/Career Development

As any advisory business grows, eventually the work that was “always” done by the founder has to be delegated, as there’s just not enough time in the day to do everything. Yet speaking from personal experience, delegating can be difficult, as it often feels like it takes even more time to show someone how to do a task and oversee it, than it takes to just do it oneself!

For me, the “breakthrough” in how to delegate effectively came from using screencasting software – tools that record what’s happening on your computer screen, paired with the audio of you talking while you’re sitting in front of it. The end result – in the time it takes me to actually do the task, I can create an entire “how-to” video tutorial for whoever I wish to delegate the task to in the future… and by recording it, I’ve acted once created a guide that can be referenced again and again as necessary for whoever will be doing the task in the future!

In fact, creating videos of the tasks you delegate can be done so quickly and easily that you may ultimately find yourself forming an entire video library of the key “processes and procedures” of your business… where all you have to do is just do the task you’ve long done already, but record it and then delegate it for good! So if you have trouble delegating, you might want to check out screencasting as a very practical solution!

Weekend Reading for Financial Planners (Feb 28 – Mar 1)

February 27, 2015 03:02 pm 23 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with several big news announcements, including President Obama's public endorsement of the Department of Labor's looming fiduciary proposal, Envestnet's acquisition of robo-advisor-for-advisors platform Upside Advisor barely more than a year into its existence, and the decision of Fidelity to merge its broker-dealer and RIA custodian clearing units into one while also creating a new Fidelity Wealth Technologies division to push forward the company's increasing focus on next generation technology.

From there, we have several investment-related articles this week, from the emerging "existential" crisis for indexing (and whether non-cap-weighting indices like fundamental indexing represent true "indexing" at all), to whether rebalancing really does increase returns or not, to the opportunities of "local investing". There are also discussion of the surging popularity of cash balance pension plans for high-income professionals and small business owners, a nice "lessons learned" article about the world of investment management, and an interesting look at whether owning long-term Treasury bonds might still make sense even at today's low rates (think: defending against deflation risk that could take rates even lower from here).

We wrap up with three interesting articles: the first is a look at the life of 109-year-old Irving Kahn, an investment adviser who started in the business in 1928, profited by shorting stocks in the crash of 1929, and ultimately went on to become a deep value investor after working as a research assistant directly under investing legend Benjamin Graham; the second article is a discussion of how parents should properly set allowances for children, suggesting that most parents do not give children nearly enough responsibility with money early on when it can be best used to teach important lessons about values; and the last is a look at how the "Uberization" of work could lead to an entirely new era of how we find employment and earn money, that may allow for more flexible work than ever, but also lead to a significant decline in the stability and security of employment, with profound ramifications for how we give career, earnings, and saving advice to young people today.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the Envestnet acquisition of Upside Advisor, the "Superfish" vulnerability on Lenovo laptops, and a new integration from mobile dictation service Mobile Assistant!

MailBag: Can You Relocate As A Financial Advisor Without Giving Up Your Existing Advisory Firm Clients?

February 26, 2015 07:01 am 15 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 will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at the issues to consider if you want to change where you live, but are concerned about whether the relocation means you'd have to sever all your existing client relationships and "start over" or not. Fortunately, the answer is that while not all clients be willing to stick through you in a transition, today's technology tools make this more feasible than ever before, and the key is to start interacting with your clients more virtually now, so that by the time you actually move it won't be such a big deal anymore!

The Problem With Naming A Trust As The Beneficiary Of An Annuity, And Using A Beneficiary Designation With Restricted Payout Form As An Alternative

February 25, 2015 07:01 am 23 Comments CATEGORY: Annuities

Retirement accounts and annuities used as accumulation vehicles can create significant tax-deferred account balances over time, with the caveat that eventually the tax bill must still come due. If the accounts are liquidated during life, the account owner faces the tax consequences; if the accounts are held until death, the tax liability falls to the beneficiaries instead. To help ameliorate the potential for a large liquidation to thrust the beneficiary into higher tax brackets after the death of the owner, Congress created the “stretch” rules for retirement accounts and annuities that allow distributions to be taken in small amounts over the life expectancy of the beneficiary.

However, the rules for stretching an inherited account are more problematic in the case of a trust as the beneficiary, because a trust is not a living breathing human being, and therefore doesn’t have a life expectancy to stretch against! In the case of retirement accounts, the IRS and Treasury have created the “see-through” trust rules that allow post-death required minimum distributions to occur based on the life expectancy of the underlying trust beneficiaries. However, in the case of annuities, no see-through trust rules exist, compelling trusts to instead liquidate inherited annuities over the far-less-favorable 5-year rule!

As a result, consideration of whether to use a trust as the beneficiary of an annuity must weigh the adverse tax consequences against the favorable/desired non-tax provisions of the trust. In some situations, using an annuity’s own beneficiary designation with “restricted payout” may be a viable alternative, saving on both the cost of the trust itself and preserving the stretch. However, in situations where it is most important to limit a beneficiary’s access to a trust – such as irresponsible spendthrifts, asset protection, and estate planning scenarios – there may be little choice but to accept the less favorable tax treatment, at least until/unless the rules change!

Takeaways From The T3 Advisor Technology Conference: PFM Portals, Dashboards, And Robo-Advisor-For-Advisors Platforms

February 23, 2015 07:01 am 18 Comments CATEGORY: Conferences

Celebrating its 10^th year as an event, this year’s Technology Tools for Today (T3) advisor technology conference was the biggest ever, punctuated by a stream of major product launch announcements at the conference itself, and buzzing about the literally billions of dollars of merger and acquisition activity for advisor technology firms in the two weeks leading up to the conference.

The breakout categories at this year’s event included several new “Personal Financial Management” (PFM) tools for advisors to work collaboratively with their clients, including the launch of EMX Select from eMoney Advisor (which, finally, will be “unbundled” from their financial planning software!) and a new solution called “Narrator” from Advicent (maker of NaviPlan and Financial Profiles). Also highly visible at this year’s T3 conference were an onslaught of more than half a dozen new “robo-advisor-for-advisors” solutions, all seeking to bring a better technology platform for advisors to build their businesses and automate much of the onboarding and investment implementation with their clients.

Yet underlying the potential efficiency of all these new technology solutions is the ongoing challenge that for many advisors, working with smaller clients isn’t actually a matter of efficiency (which technology can solve), but a marketing problem to get a sufficient volume of those clients in the first place. And while several new technology solutions are aiming to automate more of the advisor marketing process, along with making advisor websites more engaging with a series of “self-help” tools that can get prospective clients interested in actually working with an advisor, the question remains: how many advisory firms have a good enough marketing process to actually leverage these tools in the first place?

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Weekend Reading for Financial Planners (Mar 14-15)

Want CE Credit for reading articles like this?

Why A Mortgage Is Not Actually An Inflation Hedge Itself, But Can Provide Access To Investments That Are

What Robo-Advisors Truly Threaten To Disrupt: Index ETFs and Mutual Funds, Smart Beta And Algorithmic Investing, Custodians and Their Advisor FinTech Ecosystem

Weekend Reading for Financial Planners (Mar 7-8)

Want CE Credit for reading articles like this?

Will Section 529A ABLE Accounts Replace The Need For Disabled Beneficiary Special Needs Trusts?

How I Finally Learned To Delegate By Creating Video Tutorials With Screencasting Software

Weekend Reading for Financial Planners (Feb 28 – Mar 1)

MailBag: Can You Relocate As A Financial Advisor Without Giving Up Your Existing Advisory Firm Clients?

The Problem With Naming A Trust As The Beneficiary Of An Annuity, And Using A Beneficiary Designation With Restricted Payout Form As An Alternative

Takeaways From The T3 Advisor Technology Conference: PFM Portals, Dashboards, And Robo-Advisor-For-Advisors Platforms

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Want CE Credit for reading articles like this?

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