Nerd's Eye View blog

Picking The Best CRM For Your Financial Advisory Firm – ActiFi’s CRM Selection Tool And Software Reviews

February 2, 2015 07:01 am 33 Comments CATEGORY: Technology & Advisor FinTech

As the nature of financial advisory firms have evolved over the years, so too have the tools used to support them. In the past, when financial “advice” was mostly about product sales, having a “Contact Management System” was key to tracking all the activity with prospective and prior customers. As advisors have increasingly evolved towards actual advice, supported in an ongoing relationship, so too have the software tools evolved to a far more comprehensive “Client Relationship Management” (CRM) solution.

Yet the emerging problem is that the demands on software, from features and capabilities to integrations, to create productivity gains for advisors have resulted in solutions that are increasingly complex… to the point that now it’s actually become difficult to do effective due diligence on financial advisor CRM software solutions in the first place!

While some advisors will tackle this challenge by hiring a technology consultant, and others will simply invest an extensive amount of their own (or their staff) time to do the analysis, the practice management solutions firm ActiFi has produced a “CRM Selection Assessment Tool” to do the heavy lifting at a fraction of the (time and financial) cost. Leveraging what may be the most comprehensive series of advisor CRM software reviews ever, the ActiFi solution guides the advisor through an extensive questionnaire about the nature of the business, its needs, and some of its other vendor/provider relationships, to provide a personalized recommendation of which of the various advisor CRM tools is the best fit for that particular practice.

Weekend Reading for Financial Planners (Jan 31 – Feb 1)

January 30, 2015 02:01 pm 11 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the recent announcement from White House officials to drop the already-controversial proposal to end the tax-free treatment of Section 529 college savings plans as originally described in the President's State of the Union address (though other education tax reforms are still on the table). Also in the news this week is some interesting coverage from the Inside ETFs conference, including predictions of where the ETF industry is likely going from here (more and more specialized ETFs), and a debate between Ric Edelman and "robo-advisor" Wealthfront CEO Adam Nash about the threat of technology (where Nash downplayed the competition, and it was Edelman who suggested that advisors should be very afraid!).

Beyond the news and conference coverage, there are several practice management and personal development articles this week, including an in-depth look at the Sudden Money Institute and the new "Certified Financial Transitionist" designation (for advisors who work with clients going through significant life/financial transitions), tips on how to keep client information safe from data thieves, a discussion of the value of revenue-based bonuses for advisory firm employees, how (and why) clients can make the big decision about which advisor to work with based on remarkably small and seemingly trivial differences (hint: the more similar the firms, the more likely it is the deciding factor will be a trivial one!), the importance of making yourself "vulnerable" with clients by talking about your own personal/financial mistakes (it helps them to get comfortable king about theirs!), and the importance of having "grit" to succeed as a financial advisor.

We wrap up with three interesting articles: the first looks at whether it's time for the financial planning profession to pursue state regulation (perhaps even as an alternative to supporting the CFP Board); the second is a fascinating discussion why it's a good thing to "steal" other people's ideas (give credit for the idea, then build upon it further and make the implementation your own); and the last is excerpt from the upcoming book "The Opposite Of Spoiled" (by NY Times personal finance columnist Ron Lieber) about how to raise financially responsible children, and makes the case for why parents should tell their children more about their financial situation and how much they make.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end; with the TD Ameritrade national conference underway, Winterberg highlights the technology vendors featured in the "Veo Village" this year. Enjoy the reading!

How Avoiding FICA Taxes Can Actually Cost You – Lower Taxes Can Lead To Lower Social Security Benefits

January 28, 2015 07:01 am 19 Comments CATEGORY: Taxes

No one likes to pay any more in taxes than they have to; the less we’re taxed, the more we have money available for our own use, whether to consume or to save. Accordingly, it’s not surprising that there are many strategies available to try to (legally) reduce one’s tax burden.

However, in the case of FICA taxes, strategies that reduce earned income to avoid the tax also end out reducing the income used to calculate an individual’s Average Indexed Monthly Earnings, which in turn is used to determine future Social Security benefits. As a result, everything from S corporation dividend strategies to under-the-table cash payments that minimum payroll and/or self-employment taxes can also reduce that individual’s Social Security benefits as well!

In some cases, it turns out that the reduction in Social Security benefits is still worthwhile relative to the FICA taxes that can be saved. However, because of the so-called “bend points” used to calculate an individual’s Primary Insurance Amount under the Social Security rules, not all FICA tax avoidance strategies have the same consequences. For higher-income individuals, the foregone benefits can be minimal – or sometimes even zero – making the tax savings worthwhile, but for lower-lower individuals, the lost benefits can actually be quite high! In fact, those who don’t have enough years of income to qualify for Social Security benefits may even want to pay more in FICA taxes, to both increase their benefits and ensure that they can receive those benefits at all!

Can A Fiduciary Duty For Investment Advisers Co-Exist With Commissions?

January 27, 2015 07:01 am 12 Comments CATEGORY: Planning Profession

As debate continues about the potential for a fiduciary duty to be imposed on (most) advisors, either by the Department of Labor or the SEC (or both!), an implicit and sometimes explicit objection to the proposed changes are that it may be extremely "disruptive" to existing business models, and that many advisors couldn't survive without having the opportunity to charge at least some commissions in some circumstances to some clients (or alternatively that a large segment of the public would lose access to an "advisor" altogether if commissions are banned).

However, as today's guest blog post from legislative and regulatory consultant Duane Thompson explores, the reality is that commissions and a fiduciary duty are not entirely inconsistent with one another. In point of fact, even the Investment Advisers Act of 1940 does potentially allow for some commissions, and a look at the history of fiduciary law reveals other situations where a fiduciary duty and at least some forms of commissions have been allowed to co-exist (and client advice or advisor business models haven't necessarily been harmed as a result).

Certainly, the reality is that many forms of today's commissions would not be permissible under a robust fiduciary duty for advisors, but ultimately a fiduciary duty is largely about being able to demonstrate a process that was followed to affirm that a recommendation meant the joint duties of loyalty and care to the client... not that a fiduciary duty explicitly bans any and all forms of commissions. Nor are all commissions necessarily fatal conflicts of interest anyway, as evidenced by the fact that 12(b)-1 fees and investment adviser AUM fees often amount to near-identical compensation for near-identical recommendations to clients (even though technically one is a form of commission and the other is not). At a minimum, though, it's important to recognize that the fiduciary duty is not merely about permitting some types of compensation and banning others, but instead requires a more nuanced look at the advisor and the processes that he/she follows in implementing advice with clients... and that perhaps it's time in the fiduciary discussion to focus less on types of compensation paid for advice, and more on the standards and processes that advisors are expected to adhere to in delivering that advice!

The Value Of Advisor Study Groups – Not Just Studying Financial Planning, But Mastermind Your Business And Career

January 26, 2015 07:01 am 29 Comments CATEGORY: Personal/Career Development

For most, the idea of a “study group” conjures up high school or college students sitting around a table, preparing for an upcoming exam or perhaps working through a difficult assignment together. Yet the reality is that study groups are not necessarily unique or specific to students in school, and in fact are relevant in many professional services industries.

In the world of financial advisors, the purpose of study groups is not necessarily about “academic” study, but more commonly focuses on practice management and career development issues. And as advisory firms grow and business issues arise, advisor study groups are becoming more and more popular, although with their bent towards advanced concepts and topics they are perhaps better dubbed "Mastermind" groups instead!

In today’s post, we look at the phenomenon of advisor study/mastermind groups, how they form, what they actually do, the requirements that are usually involved, and the benefits of participating. If you’re already in a study group, this will hopefully provide some ideas about best practices, and if you’ve been looking to create a mastermind group, feel free to share in the comments to find some like-minded peers to form one!

Weekend Reading for Financial Planners (Jan 24-25)

January 23, 2015 03:10 pm 12 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the latest statistics from Cerulli Associates on the number of financial advisors, finding that while the industry headcount fell another 2% to about 287,000 advisors in 2013, it is now projected to begin rising by 1%/year as the advisor finally begins to step up its efforts to bring young/new advisors into the business. Also in the news this week is a new study from TD Ameritrade on Millennials who inherit wealth, finding that the overwhelming majority of high-net-worth Millennials actually are retaining their parents' advisor (despite years of warnings to the contrary).

Beyond the news, we have a few practice management articles this week, including: why finding a successor today requires using a recruiter (due to the competitive talent shortage and the crucial importance of getting the "right fit" candidate); how a number of advisors are abandoning AUM fees for retainer fees instead (especially amongst higher-net-worth clientele where the competitive cost differential is significant); and the factors to consider in deciding how to step up your office (including whether to even have a permanent office, versus a part-time office space, or simply operating virtually and/or running from a home office).

There are also several more technical planning articles this week, from a look at the looming new Supreme Court case that may require same-sex marriage to be legal and recognized in all states, to the growing trend of retirees taking on "Encore" careers and an organization that is sprung forth to support and inspire them, to an interesting look at how technology is changing the process of helping clients get life insurance (including a no-exam fully-digital application process), and a final piece that looks at how more dynamic spending policies for clients may support greater spending with little increase in risk (beyond the danger of the moderate spending changes themselves).

We wrap up with three interesting articles: the first provides an overview of a wide range of recent studies that look at how we determine whether someone is credibly intelligent, and how ineffective we are at trying to appear more intelligent; the second is a look at how the robo-advisor trend may ultimately be a plus for financial advisors, expanding the market of consumers, offering technology useful for advisors, and pressuring today's custodian (and broker-dealer) platforms to step up technologically; and the last makes the interesting point that if your company isn't growing, the first step should be to focus on the quality of the product/solution itself, and not just throw more marketing dollars at the problem (as told through the parable of McDonalds versus Chipotle).

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including coverage of the newest Riskalyze dashboard, recent Advicent integrations to allow Schwab balances to be imported into their financial planning software, and advisor tips for better cybersecurity. Enjoy the reading!

When A Roth IRA May Actually Be A Terrible Asset To Inherit

January 21, 2015 07:01 am 29 Comments CATEGORY: Estate Planning

The tax-free nature of growth on a Roth IRA makes it a highly appealing investment account to hold, and a similarly appealing type of account to inherit. All else being equal, it’s clearly better to be the beneficiary of an account that will never be taxed, than one that will be taxed over time.

However, the caveat to leaving a Roth IRA as an asset to inherit is that doing so implicitly means that the original IRA owner will have paid taxes to get money into the account, either through systematic contributions spanning many years, or possibly through a large Roth conversion (or a series of partial Roth conversions over time). Which means the benefit of inheriting a Roth IRA is actually more nuanced – if the IRA owner pays “too much” in taxes to create the Roth, the beneficiary may have been better off to simply inherit a traditional IRA and pay the taxes themselves instead!

In fact, ultimately the decision of whether to bequest a Roth or traditional IRA should be driven by a comparison of the original IRA owner’s marginal tax rate, and the expected marginal tax rate of the beneficiary in the future. If the beneficiary’s tax rates are higher, it’s clearly beneficial for the current IRA owner to go ahead and convert the IRA, paying the taxes now at current rates, and leaving the (high income) beneficiary a tax-free account. However, if the reality is that the beneficiary’s tax rates are actually lower – perhaps because the original IRA owner’s wealth is being spread across multiple beneficiaries, because the beneficiary simply has less income and assets, or maybe just due to the fact that the beneficiary lives in a different state that has a lower tax rate – then the best thing a (higher-income) IRA owner can do is simply to leave a traditional IRA to the beneficiary and let the beneficiary pay the taxes at his/her own lower tax rates!

Measuring The Success Of Your Financial Advisor Website Using Google Analytics To Track Activity And Goals

January 19, 2015 07:01 am 21 Comments CATEGORY: Technology & Advisor FinTech

In an increasingly digital world, an advisory firm’s website is becoming an increasingly important part of the process in obtaining new clients. In fact, from the potential for prospective clients to find you through Google searches, to the fact that even someone referred to you may go online to check you out first, for many financial advisors their website will actually be the prospect’s first impression of the firm!

Unfortunately, though, most financial advisors don’t actually track and monitor the activity on their website, despite the wealth of available information. Tools like Google Analytics can show everything from how many people visit the website, to which pages are most popular, and the path they followed to come to the website in the first place.

By setting up Google Analytics, firms can begin to track the outcomes of their website, including goals like whether prospective clients are signing up for a mailing list and/or reaching out to the financial advisor to do business. Once you track the results and have the data, using tools like Google Analytics also makes it possible to make and measure improvements to the site as well. But it all starts with getting Google Analytics set up in the first place!

Weekend Reading for Financial Planners (Jan 17-18)

January 16, 2015 03:01 pm 14 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the formation of a powerful new coalition, including the Consumer Federation of America, AARP, the AFL-CIO, and more, to support the "imminent" release of the Department of Labor's newest fiduciary proposal; the coalition has created a new online petition to mobilize consumer support as well. Also in the news this week is a new petition to the Supreme Court in a case questioning whether BlackRock is keeping too much of its securities-lending-based income from its popular ETFs, and not providing enough of the income back to the ETF investors themselves.

Beyond the news, we have a number of practice management articles this week, including: a look at the emerging trend of "robo-advisors-for-advisors" solutions (an explosion of new technology choices for advisors); an interview with Fox Financial Planning Network and Genesis Smartware founder Deborah Fox about the importance of having systems and workflows in a firm (and how to create them); how a good executive assistant (which is far more than just a "secretary") can improve your life; the importance of having a "hire slow, fire fast" mentality when bringing on staff in an advisory firm; the importance of matching leadership style to the culture of your firm (and how the needs may change over time); a look at whether privately-owned broker-dealers are a dying breed as the industry continues to consolidate (and whether that's a good or bad thing for advisors overall); and a look at how the booming compensation for employee advisors and advisory firm staff is great in the short term but in the longer-term reflects a talent shortage that could create a profit-margin-squeeze for advisory firms.

We wrap up with three interesting articles: the first raises the interesting question of why the CFP Board would hire an experienced litigator to become its General Counsel, and whether it is gearing up for more aggressive enforcement or litigation issues in the coming years; the second examines the use of "motivational interviewing" as a technique for advisors to help clients change (and the ethical issues that can raise, given how effective it is); and the last looks at whether it is time for the profession to coalesce around the creation of a new, higher certification for financial planners, especially as the CFP Board continues to relax its minimum requirements to obtain the marks.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including coverage of the latest big updates from eMoney Advisor financial planning software and Redtail CRM! Enjoy the reading!

Even Safety-First Retirement Income Strategies Are Probability-Based – The Real Distinction Is Risk Transfer Vs Risk Retention

January 14, 2015 07:01 am 53 Comments CATEGORY: Retirement Planning

The ongoing decline of defined benefit plans and pensions, and the associated rise of defined contribution plans – in the US and around the globe – is leading to a growing body of research around how best to “de-cumulate” a lump sum of assets after they have been accumulated in the first place.

To address the challenge, a wide range of strategies have emerged, some built around a “safety-first” framework of guaranteeing a base of income (e.g., with annuitization or a pension) and building on top of that, while others have focused on a more “probability-based” portfolio-centric approach that aims to spend down the invested assets while maximizing the probability of success along the way.

Yet the reality is that portfolio-based strategies built around a “conservative enough” safe withdrawal rate effectively are a safety-first approach, while safety-based strategies using annuitization or pensions can still have at least some risk (as evidenced by the history of insurance/annuity company failures, and the growing shortfall of the PBGC in backing failed pensions).

Perhaps instead a better way to recognize the range of retirement income strategies is based on whether retirees trust in insurance and annuity guarantees and choose to transfer the risk, or instead “trust” in markets and the equity risk premium in the long run and choose to retain the risk while seeking appropriate strategies to reduce or avoid the danger of a shortfall along the way!