Kitces.com - Advancing Knowledge in Financial Planning

Taking Maternity (Or Any Extended) Leave As A Financial Advisor Without Losing Your Clients

January 21, 2019 07:03 am 1 Comment CATEGORY: Personal/Career Development

One of the most rewarding aspects of being a financial advisor – both financially, and psychologically – is forming deep relationships with clients that makes the advisor an indispensable resource that clients can depend on when needed. From the advisor’s ability to provide timely advice as needed, walk clients off the proverbial ledge in times of market volatility, or simply provide ongoing management of the client’s investment portfolio… success as an advisor with existing clients is all about being available to provide value if/when/as the clients may need.

Yet the challenge is that being under a constant state of “potential need” from clients makes it remarkably hard to ever get away from the business for a vacation, and especially for any kind of “extended” leave… including (and especially) maternity leave. Which in turn can become a deterrent for younger female financial advisors who want to someday start a family but are concerned about the consequences of wanting to step away for maternity leave in the future.

In this guest post, financial advisor Ashley Micciche shares her own story and perspective about how she was able to successfully step away from her practice and her clients for a collective 7 months over the span of 3 ½ years for two separate maternity leaves… from the steps she took in advance to prepare, the necessary infrastructure it takes to succeed (or at least make it easier), the benefits of a recurring revenue (e.g., AUM or fee-based) business model to help support the process, how the maternity leave plans were communicated to clients, and why it’s so crucial to set ground rules with both clients and staff to make maternity leave work.

Ultimately, the end result was that, while Ashley did experience a setback in growth of the firm – as time away from the office is still time lost that could have been spent doing business development, and clients rarely provide referrals while the advisor won’t even be there to receive them – clients not only didn’t leave while Ashley was out on maternity leave, but were actually remarkably supportive of her personal journey along the way!

In fact, Ashley makes the case that there are few professions better than financial planning to support starting a family and that allows the flexibility and freedom to step away for a period of time while still being able to control your business and income in the long run!

Weekend Reading for Financial Planners (Jan 19-20)

January 18, 2019 03:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the incredibly sad news that Vanguard founder and index investing pioneer, Jack Bogle, has passed away at the age of 89... but his legacy will live on, in both the books he wrote, the index funds he created, and the company he built with a unique mutual structure that ensures it will continue to support his legacy long after he's gone.

Also in the news this week is the ongoing government shutdown, which looks increasingly likely to drag on for an extended period of time... and is leading economists and analysts to start assessing all the secondary effects that may soon emerge as agencies run out of stop-gap measures, from TSA shortages at airports to the Department of Agriculture's food stamps program and nearly $460M of lease payments to various commercial real estate investors that won't be paid every month the shutdown continues.

From there, we have a number of tax planning articles this week, including an announcement from the IRS in Notice 2019-11 that tax underpayment penalties will be waived in 2018 for anyone whose estimated tax payments and withholding added up to at least 85% of their total tax liability (instead of the usual 90%), a look at the various above-the-line tax deductions you can still take even with a higher standard deduction that limits the ability to itemize, and some tips on how to prepare and get organized for the upcoming tax season.

We also have several advisor technology articles, from a look at the increasingly sticky issue of who really owns a client's financial data (and how the industry may need to change to really empower consumers to own and control their own financial data), a look at what AI will really likely do for financial advisors (hint: think "make advisors more proactive," not "replace them"), the hazards of "legacy technology" for financial advisors, and how the creator of the modern password requirement (with upper- and lower-case letters, numbers, and special characters) regrets what he created as we've now reached the point of requiring passwords that are very difficult for consumers to use and remember but easier and easier for malicious computers to hack (as computing power grows exponentially greater every year).

We wrap up with three interesting articles, all around the theme of the habits and time use of successful and affluent people: the first looks at how the affluent spend their time, finding that what leads to happiness isn't just having more wealth, or spending it on experiences per se, but simply engaging their leisure time in any kind of more "active" leisure (e.g., exercising or volunteering) rather than more passive leisure (e.g., watching TV or just relaxing); the second explores the "boring" habits of successful people, who tend to write things down, simplify their lives to reduce unnecessary choices, but still remain open to updating and changing their systems over time; and the last looks at how one of the most common first or early jobs of the ultra-wealthy was some kind of "sales" job, as the reality is that for everyone - even, and including, fiduciary advisors - it's still absolutely vital to have sales skills in the modern era, if only to be able to sell yourself and your value (whether it's to a client or boss).

Enjoy the "light" reading, and Happy New Year!

Is It Better To Skip The CFP Exam And Get The ChFC Designation First?

January 17, 2019 01:03 pm 5 Comments CATEGORY: Personal/Career Development

As the world of financial advisors becomes less sales-driven and more “advice-centric”, the need to differentiate has become all the more acute, especially as the ranks of advisors who say they offer “comprehensive financial planning” continue to grow.

As a result, a plethora of designations has emerged over the years for the purpose of helping advisors demonstrate their credibility and expertise to both their current and prospective clients, and achieve some level of differentiation. Except in practice, some designations are much harder to achieve than others… which both makes it difficult for consumers to know which designations are really credible (or not), and for advisors, creates uncertainty about which designations an advisor should pursue first.

Accordingly, in this week’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope, we compare and contrast the two most common comprehensive financial planning designations, the Certified Financial Planner (CFP) and the Chartered Financial Consultant (ChFC), discuss some practical considerations about why advisors might choose to pursue one designation before the other, and why, in the end, it’s not an either/or question, but a pathway to building the competency it really takes to advise clients about potentially life-altering decisions with their hard-earned life savings.

The most popular designation for financial advisors – and literally, the one with the greatest consumer recognition – is the CFP certification, conferred by the CFP Board with education provided by more than 200 registered programs across the US. By contrast, the ChFC is offered exclusively by the American College for Financial Services, and was developed as a competing alternative to the CFP over 35 years ago, consisting of the same six core courses comprising the education component of the CFP requirements, as well as another two additional courses related to the application of various (more advanced) financial planning topics. Other notable differences, though, are that ChFC candidates don’t have to have a bachelor’s degree, meet a minimum experience requirement, or – most importantly for some – pass a comprehensive final exam (given how notoriously difficult the CFP exam is with its ~60% pass rate).

Which means that, at first blush, the ChFC is a much less daunting hurdle to surmount if you want to quickly (and less painfully) establish credibility and fear whether you can pass the rigorous CFP exam. But the CFP exam is rigorous for a reason: because, ultimately, a financial advisor’s job is to advise clients on how to protect, how to grow, and what to do with the savings they’ve spent years (or literally a lifetime) accumulating. Which, in turn, should reasonably demand a reciprocal effort from the financial advisor to study for (and pass) the CFP exam, which (along with the experience and ethics requirements) is a major step towards ensuring that you, as a financial advisor, really have the knowledge to fulfil that sacred duty to clients and not unwittingly give them incorrect (and potentially destructive) financial advice along the way.

In fact, as CFP certification increasingly becomes recognized as a baseline minimum standard for competency for real financial planners, arguably the decision of CFP vs ChFC isn’t an either/or question, but is rather a matter of obtaining a foundational skillset (CFP certification) from which you can build upon with post-CFP designations (like the ChFC). In other words, by starting with the CFP marks and then layering on the ChFC, CLU, CPWA, CIMA (or any number of the myriad of similarly available high-quality industry designations) as you drill down towards a deeper level of specialization, advisors can better stand out in a sea of other advisor who might say that they do the same things you do, but haven’t yet earned professional designations to demonstrate that experience and expertise!

Why Evolutionary Psychology May Be Better Than Behavioral Finance Research To Understand Financial Behaviors

January 16, 2019 07:07 am 0 Comments CATEGORY: General Planning

There’s no doubt behavioral finance research has had a tremendous influence on our general understanding of human behavior. From loss aversion, to choice architecture, to the “Bottom Dollar” effect, and more – behavioral finance research has enhanced both our understanding of real-world financial behaviors, and what financial advisors must watch out for while trying to assist their clients in making wise(r) financial decisions.

However, despite its tremendous influence, behavioral finance research leaves a lot to be desired. Most notably, while behavioral finance has taught us a lot about how people behave, it tells us very little about why we behave how we do – and understanding why we behave the way we do is important to ensuring that we understand the circumstances in which biases, heuristics, and other behavioral quirks may lead us astray (so that we can then avoid or manage those circumstances).

In this guest post, Dr. Derek Tharp – lead Researcher for Kitces.com, and an assistant professor of finance at the University of Southern Maine – examines the weakness of behavioral finance as a field, and why evolutionary psychology may likely grow to become a more useful framework for understanding how humans make financial decisions.

In essence, the “problem” with behavioral finance research is that it is largely atheoretical, functioning more as an ever-growing catalog of human behaviors which do not align with traditional assumptions of rational behavior. Of course, cataloging interesting behavioral phenomena is not inherently a bad thing to do, and there is tremendous value in the cataloging work that has been done. But the reality is that a mere catalog of interesting financial behaviors is less insightful than a true theoretical perspective, especially when it comes to providing any real insight about what individuals (or their advisors) should do about those problem behaviors.

By contrast, evolutionary psychology, which applies Darwinian evolutionary principles to human psychology, can not only provide a rationale for why we engage in behavior such financial behaviors as the endowment effect or hyperbolic discounting, but also insight into the conditions in which we are most inclined to be misled. Specifically, humans must be most concerned when a bias or heuristic was functionally useful within the environment in which our ancestors evolved, but is no longer as relevant within our modern world. Further, evolutionary psychology also provides insights into areas such as communication, positive psychology, and psychopathology, suggesting that evolutionary psychology has much to offer financial counselors and therapists as well.

#FASuccess Ep 107: Using Podcasting As A Marketing Strategy To Attract (Retirement Niche) Clients, with Roger Whitney

January 15, 2019 07:03 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 107th episode of Financial Advisor Success Podcast!

My guest on today's podcast is Roger Whitney. Roger is a partner with WWK Wealth Advisors, an independent RIA based in Fort Worth, Texas, where Roger works with a personal client base of retirees with $75 million of assets under management.

What's unique about Roger, though, is that he's been able to attract almost $50 million of those assets in just the past 2 years by launching a niche podcast on retirement that attracts to him affluent baby boomers making the transition to retirement.

In this episode, we talk about the why and how Roger built his "Retirement Answer Man" podcast, the style and format of his podcast and what he's found works to attract listeners, the way he transitions podcast listeners to a webinar that shows prospects a sample client meeting and then invites them to a schedule a fit meeting, and the way he treats his podcast marketing strategy as an orchard to be nurtured and tended and not just a tactic to hunt for more retired clients, even though it's generating a lot of retired clients for him anyways.

We also talk about how Roger focused his advisory firm into a niche of working with retirees. Why his focus with clients is less about financial freedom and more about time freedom, his unique Agile Retirement Management approach to working with retirees that's less about producing the comprehensive financial plan and more about producing what he calls a minimum viable plan and then engaging in constant iteration of what he calls SMART sprints to the next short-term goal or objective, and how despite being what he calls a classically-trained financial planner, that most of Roger's conversations today take more of a coaching approach with clients that focuses as much on human and social capital as their financial capital.

And be certain to listen to the end, where Roger shares how the success of his podcast has now evolved into publishing a book called "Rock Retirement" and creating what he calls the Rock Retirement Club as a way to serve the subset of his listeners who will never realistically hire them to be his financial advisor but are willing to pay to join a community he's created that helps support them in their own do-it-yourself journey through retirement.

So whether you're interested in getting started with podcasting (or building a content marketing strategy), how Roger attracts new clients and builds business through his podcast, why he creates content only for a very specific audience, or how he handles the compliance side of the equation, then we hope you enjoy this episode of Financial Advisor Success!

Should The CFP Board Allow Expungements For Those Who Violate Its New Fiduciary Standard?

January 14, 2019 07:01 am 0 Comments CATEGORY: Regulation & Compliance

A core requirement of any bona fide profession is to have a professional Code of Ethics and Standards of Conduct that must be adhered to and a disciplinary enforcement process to remove professionals who don’t honor the standards. And while technically the CFP Board is not a sanctioned regulatory body but a 501(c)(3) public charity that owns a trademark for the CFP marks – and grants CFP certificants the right to use its private trademark in exchange for following its stipulated rules – the organization has been attempting to make financial planning a (more) recognized profession by similarly establishing a Code of Ethics, requiring CFP certificants to adhere to it, and enforcing against those who don’t follow its rules.

Accordingly, to the extent that last year, the CFP Board decided to lift its Code of Ethics and Standards of Conduct to formally adopt a fiduciary standard for all financial advice (or really, financial recommendations of any type) provided by CFP certificants, the CFP Board is now taking steps to refine its processes for enforcing those standards, with a series of proposed updates to its Disciplinary Rules and Procedures.

Yet alongside a number of more process-oriented refinements, the CFP Board has also put forth a rather controversial proposal: to allow CFP certificants to expunge their one-time public disciplinary sanctions (e.g., a public letter of admonition or a temporary suspension of the CFP marks) after 5 years. Despite the fact that recent studies of broker recidivism have found that those who have even “just” one misconduct disclosure on BrokerCheck are a whopping 5X more likely to engage in repeat misconduct, and a more recent study found that those who request expungement of their disciplinary records are even more likely to end out being repeat offenders anyway! While in the internet age when “nothing dies” once it's online, it’s not even clear if expungement of a public sanction from the CFP Board’s website really effectively vacates a CFP certificant’s record anyway… or just makes it harder for the public to find the information they need.

And so at a minimum, if the CFP Board is going to proceed with an expungement process, it should seriously consider more “aggravating factors” like additional private censures or the extent of client harm before automatically granting a time-based expungement, separate the process of expunging public sanctions from “just” bankruptcy-only disclosures, and apply a probationary period to expungement where any expunged sanctions are returned in the event of a future public sanction or private censure.

Ideally, though, the CFP Board should move away from its proposal for expungement, and instead simply provide the means for CFP certificants to add an explanation to their public disciplinary records (akin to what FINRA already provides), and perhaps better aid consumers by clarifying the nature of the infraction and whether or to what extent client harm actually occurred or not. And to the extent there is concern about an uptick in violation of the new fiduciary Standards of Conduct when they launch later this year, consider adopting a more lenient transition enforcement policy for the first year… rather than forgiving all 2020 infractions by 2025 regardless of their actual severity and client harm!

Fortunately, at this point, the proposed Disciplinary Rules and Procedures are just that – proposed – which means CFP certificants still have an opportunity to submit their own Public Comment letter expressing support or concern for the proposals to the CFP Board by January 29^th.