Nerd's Eye View blog

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!

CFP Board Launches Its (Pricey And Conflicted) Career Center For Financial Planning Jobs

January 13, 2015 10:43 am 6 Comments CATEGORY: Industry News

Last week, the CFP Board launched its new Career Center, an initiative announced last fall as part of the organization’s ongoing efforts to support a pipeline of talent coming into financial planning. And while the effort itself to support the growth of financial planning is admirable, though, the $350-per-job price point of the CFP Board’s new initiative makes it clear the initiative is about financial expansion and growth of the organization as well, continuing its ongoing trek of competing more and more overtly with membership associations like the FPA and NAPFA.

In fact, the CFP Board’s new Career Center raises significant concerns about its ever-growing footprint beyond its scope as a non-profit organization established primary to grant the CFP marks and uphold them as a recognized standard of excellent. After all, while any other organization that offers or launches a financial planning Jobs Board must struggle just to obtain a list of potential CFP certificants just to reach them – which the CFP Board has long refused to share or make available except on a limited or costly basis – the CFP Board will engage in this potentially-highly-profitable endeavor by using its own list of 71,000 CFP certificants (plus not-yet-CFP candidates!) for marketing purposes!

Why has the CFP Board launched a premium Job Board that could generate unrelated business income tax for the organization, and is competing against its supporting membership organizations like FPA and NAPFA, instead of simply supporting them in return?

How The Way Financial Planning Fees Are Presented Impacts Their Perceived Value

January 13, 2015 07:01 am 15 Comments CATEGORY: Marketing

At the most basic level, consumers will buy a product or service when the (perceived and expected) value exceeds the cost. Whether it's to purchase a toaster, a new car, or services from a financial planner, convincing someone to part with their money in the transaction requires instilling in them a belief that the benefits in the end will be worth the pain of parting with the cost... a difficult hurdle to overcome, given that the cost is immediate and known while the benefits are only anticipated come later.

Yet as Dutch financial planner Ronald Sier points out in this guest blog post, the reality is that persuading someone to pay you for your services isn't just about making compelling points about the perceived benefits to be received. How the cost itself is perceived also matters. And since you control how your costs and expenses are presented to a prospective client, you actually have significant control regarding what your financial planning fees are compared to (which can matter a lot!), and how they're perceived.

So whether you're setting up your website for the first time and considering how to display your financial planning fees, updating your marketing materials about how your costs are communicated, or simply brainstorming how to better explain to prospective clients that the value you provide exceeds the cost, hopefully this will be helpful for you in considering not only how to discuss your value, but the importance of thinking about how you discuss your costs.

Is The SEC Failing To Enforce The “Solely Incidental” Advice Exemption For Broker-Dealers Under The Investment Advisers Act of 1940?

January 12, 2015 07:01 am 13 Comments CATEGORY: Planning Profession

When it originated, the Investment Advisers Act of 1940 sought to create a clearer line between stockbrokers who were primarily in the business of selling securities (for commission), and investment advisers who provided ongoing advice (for a fee). In fact, the ’40 Act declares that anyone who is in the business of providing investment advice for compensation must register as such. Registered representatives of broker-dealers could be exempt, but only if they received no special compensation for advice and any advice they did provide was “solely incidental” to their brokerage services.

Yet as the financial services industry has evolved over the nearly-75-years since the ’40 Act was passed, the lines between brokers and investment advisers have blurred, culminating in the SEC’s proposal in 1999 that “Certain Broker-Dealers [Could Be] Deemed Not To Be Investment Advisers” and not be treated as receiving special compensation even though they were offering fee-based wrap accounts. Ultimately, though, the FPA sued the SEC on the basis that this exemption was broader than what Congress intended with the ’40 Act, and the courts agreed, vacating the rule in 2007.

Yet ironically, when the Broker-Dealer exemption was vacated, so too was an expansion of the definition of “solely incidental” advice, including the recognition by the SEC that providing financial planning services, or holding out to the public as a financial planner, would mean the advice being provided was no longer solely incidental. Although these were merely clarifications of what constituted “solely incidental” advice, the end result is that the SEC has since allowed more and more brokers to hold out as financial planners and offer such services, without requiring them to register as investment advisers. In turn, this raises the question: with all of the fiduciary debate today, do we really need a new/different fiduciary standard for advice, or is the reality simply that the Financial Planning Coalition needs to lobby the SEC to finally step up and enforce the “solely incidental” rules as Congress originally wrote yet?

Weekend Reading for Financial Planners (Jan 10-11)

January 9, 2015 03:45 pm 11 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a look at the top "watch list" priorities from FINRA in the coming year, including new scrutiny on floating-rate bank loans, alternative mutual funds, and the dramatic increase in recent years of "securities-based lending" where affluent investors are using their portfolios to get access to faster, "cheaper" money to buy everything from real estate to luxury items (and raising concerns of what happens if there is some market volatility and the loans must be repaid quickly!).

We also have a number of investment-related articles this week, from an interesting defense of the benefits of the "maximize shareholder value" philosophy from AQR's Cliff Asness, to some thoughts from Howard Marks about the lessons we can draw about the recent volatility in oil prices, a look at the use of municipal bonds in portfolios, an overview of the coming money market reforms (and how some clients may end out in money markets with floating NAV if they're not paying attention!), and a look at where the next market meltdown and advisor debacle may come from (think non-traded REITs and risky bond funds).

From there, we have a few technical planning articles, including: a review of the FAFSA (Free Application for Federal Student Aid) and some planning opportunities and issues for those sending children to college; a look at the emerging rise of "deferred income annuities" and their potential role in a retirement portfolio; and a nice in-depth explanation of the Social Security earnings test, how it works, and how it can impact the decision about the optimal time to begin Social Security benefits.

We wrap up with three interesting articles: the first looks at how spectacularly bad the 2014 economic predictions were about everything from interest rates to the price of oil, yet notes that people will continue to seek out such predictions anyway... not because they want the accuracy of the prediction, but because they're seeking the reassurance that it implies; the second gives an interesting look at how "time perspective" (one's orientation/focus about events in time) can impact financial planning decisions, and raises the question of whether planners should do more to understand their clients' time perspectives when providing advice; and the last gives an interesting overview of the regulatory advocacy efforts of the FPA of Florida state coalition as a template for how financial planners can and are having some success in lobbying and advocacy.

Enjoy the reading!