Nerd's Eye View blog

Weekend Reading for Financial Planners (Jan 3-4)

January 2, 2015 03:01 pm 13 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big announcement buried in the slow-news holiday season that the CFP Board is softening its experience requirement for new CFP certificants and offering an alternative to its Capstone course for those seeking to challenge the exam... changes the CFP Board has made unilaterally without a public comment period, even though the current-and-soon-to-be-former rules themselves were only put in place after such a process. Also in the news this week was an announcement by FINRA that it will soon begin sharing with state insurance regulators, on a monthly basis, disciplinary actions that suspend or bar registered representatives, in an effort to ensure that those problematic brokers don't just switch to selling inappropriate insurance products instead of securities.

From there, we have a few interesting investment and retirement research articles this week, including a review of a recent study suggesting that the widespread practice of benchmarking could actually be causing (harmful) distortions in asset prices, to a nice summary of some of the best retirement research in the Financial Analysts Journal for the past few decades, along with a good article describing the key details and features of Master Limited Partnerships, and a brief study looking at how a standby reverse mortgage line of credit could actually be a way of hedging against a poor housing market (and ironically, will function even better if interest rates rise in the future!).

We also have several practice management articles focusing on younger/newer advisors in particular, from tips to earning credibility when getting started, the benefits of getting a "side hustle" to bridge the income gap while you find your initial clients, and an interesting look at the ways to structure succession plans that may have value for both newer advisors who will be the successors and also the advisory firm owners who may be trying to decide how to sell/transition to them.

We wrap up with three interesting articles: the first looks at how advice-centric advisors often fear or entirely eschew the concept of "selling" even though the reality is that they still have to sell themselves, their services, and their advice (and avoiding the sales conversation can impair their opportunity to help clients!); the second is a good cautionary reminder of how some clients go through a "honeymoon" phase with advisors, which needs to be managed or advisors may find themselves losing some clients quickly; and the last is an interesting new study suggesting that a client's willingness to trust others may actually have a strong relationship to their willingness to invest in equities, which implies both that advisors who can build trust better may get their clients more comfortable owning stocks, and also that measuring a new client's comfort in trusting others may actually be a helpful indicator regarding how comfortable they will be holding equities in times of volatility!

Enjoy the reading!

CFP Board Softens Experience Requirements For New CFP Certificants & Reduces Capstone Requirement For Challenge Status

December 31, 2014 07:01 am 57 Comments CATEGORY: Industry News

With the CFP Board's ongoing efforts to continue growth in the number of CFP certificants, the organization has been involved in a number of ongoing initiatives, from its Women's Initiative to bring more females into financial planning, to its decision to convert to a shorter computer-based testing format to make the CFP comprehensive exam less daunting.

In a surprise announcement, though, the CFP Board has just declared that after adding a "Capstone Course" requirement to the CFP curriculum in 2012, and including the requirement for not only new students but also those who are seeking to challenge status for the CFP exam, the organization is now offering to waive the capstone course requirement for challengers who instead simply submit a comprehensive financial plan to be assessed by peer reviewers. In addition, the CFP Board also announced that a wider range of "support" activities will be permitted to count towards the requisite 3-year experience requirement to earn the CFP marks.

While arguably the change to the Capstone course is a positive, the adjustments to the experience requirement may now be opening the door for virtually anyone with a job in the broad financial services industry (or even journalists writing about it) to qualify for "financial planning" experience, despite having absolutely no actual experience being involved in the creation of a financial plan, supporting its delivery, or interacting with a client! And perhaps even more concerning, why is it that both the prior Capstone and Experience requirements were implemented with a lengthy public comment period and process, but the CFP Board now sees fit to change those rules at its own whim?

Top 14 Nerd’s Eye View Blog Posts Of 2014

December 29, 2014 07:01 am 14 Comments CATEGORY: Nerd's Eye View

As 2014 comes to a close, I'm so very thankful to all of you, the readers who continue to visit Nerd's Eye View more and more often and share this content with your friends and colleagues (which is greatly appreciated!). Overall, this blog has experienced yet another year of explosive growth (with traffic up over 75% from 2013!), and I'm looking forward to rolling out a number of new enhancements in the coming year to make your experience with the site even better in 2015! Stay tuned!

Yet notwithstanding all the growing readership of this blog, I realize that the volume of content can sometimes be overwhelming, and it's hard to keep up with it all. And blog articles, once published, are quickly left in the dust by the next new article that comes along.

Accordingly, I've compiled for you this list of the 14 most popular articles I wrote this year on Nerd's Eye View (along with the launch of our Top Advisor Blogs and Bloggers list!). So whether you're new to the blog, or simply haven't had the time to keep up with everything, I hope that some of these will (still) be useful or of interest to you!

In the meantime, I hope you're having a safe and happy holiday season. Thanks for an incredible 2014, and I'm looking forward to doing even more to be of service for all of you in 2015!

Weekend Reading for Financial Planners (Dec 27-28)

December 26, 2014 03:01 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a look at what kinds of retirement-related legislation and regulation may emerge in 2015 as the Republican leadership takes control of key committees in both the House and now the Senate. In addition, there's a glimpse at the quiet launch of President Obama's new myRA accounts, which are now available to investors.

From there, we have a few practice management and technology articles this week, from a nice To-Do/New-Year's-Resolution list for advisors from practice management consultant Angie Herbers, to a discussion of the ongoing rollout of the new cost basis reporting rules, a review of the latest technology and upcoming developments from the four major RIA custodians, and a profile of the newly expanded Indexing 2.0-style service from Wealthfront (their initial version, rolled out just a year ago, is actually responsible for nearly 1/3rd of the company's AUM now!).

We also have several estate planning articles, including: a look at the rise of online-based attorneys that prepare client estate plans but work virtually (an alternative to do-it-yourself document services like LegalZoom); a discussion of the rise of perpetuity trusts, and whether they may actually be unconstitutional under most state laws; and a discussion of the recently passed "Uniform Fiduciary Access to Digital Assets Act" that should spur state legislation on digital assets in the coming year.

We wrap up with three interesting articles: the first looks at the question of whether Google might someday enter the financial services business (or become a robo-advisor in particular), after rumors that Google had hired a consulting firm to scour the industry for potential opportunities; the second is a review of the interesting new book "The Deluge: The Great War, America, and the Remarking of the Global Order, 1916-1931" by Adam Tooze that looks at how the actions of the United States in the aftermath of World War I supported its rise as a global economic superpower but may have sowed the seeds of World War II in the process; and the last is a glimpse at an interesting new study that reveals reading on a bright screen before bed (e.g., on an iPad) produces an effect equivalent to a 1.5 hour jet lag, disrupting melatonin production and REM sleep, and implying that perhaps we should all consider going back to good 'ole paper books (or at least, a non-light-emitting Kindle Reader) before bed!

Enjoy the reading!

Happy Money And The Science Of Spending – How Money Really Can (Sometimes) Buy Happiness

December 24, 2014 07:01 am 14 Comments CATEGORY: General Planning

Historically, financial planners have tended to focus more on strategies about how to earn or accumulate more money, grow and protect those assets, and perhaps figure out how much can be spent… but not necessarily to look at and give suggestions to clients about how that money should be spent.

Yet contrary to the conventional wisdom that “money can’t buy happiness”, a recent new book entitled “Happy Money” by researchers Elizabeth Dunn and Michael Norton suggests that there may be far more opportunity than we realize to derive greater happiness by changing the ways we spend our money. How we spend – on ourselves, and others – really does impact the enjoyment and emotional well-being we derive.

In fact, the research of “Happy Money” suggests that sometimes, the best things we can do to improve our happiness may lie in not trying to maximize our wealth, but instead focusing on experiential purchases (rather than “stuff” that appreciates in value), spending money to buy time, and even spending money to support family and relatives instead of ourselves (which may not be cost-effective, but can be remarkably happiness-effective!).

So hopefully, this review of some of the “Happy Money” research will give you ideas about how you can have these spending-happiness conversations with your own clients… and perhaps even reconsider some of the ways you do and don’t spend money for yourself in the coming year!

Should The CFP Board Really Risk Losing The Camarda Case, Or Is It Time To Settle?

December 22, 2014 07:01 am 7 Comments CATEGORY: Planning Profession

As the case of Camarda vs CFP Board winds closer towards a potential trial date, estimated legal costs for the organization continue to mount, and what started out as a dispute regarding a disciplinary action for one certificant may end out being a multi-million dollar expense for the CFP Board by the end.

Yet what’s really at stake for the CFP Board is not just the expense of pursuing a lawsuit – and potentially paying additional damages if found guilty, and more damages if others who have been disciplined by the DEC return to challenge their outcome, too – but the risk of a legal stigma against it for being found guilty in a court of law of breaching its contract with CFP certificants by failing to promulgate clear rules and enforce them consistently. Such a stigma that could haunt the organization for the foreseeable future as it attempts to establish the CFP marks as the minimum standard for a financial planning professional in the eyes of regulators, legislators, and the public.

Of course, if the CFP Board had an unequivocally clear case for defending itself and its actions, it would be only natural for the organization to protect its interests by pursuing the case to its bitter end. Yet with a litany of embarrassments for the organization in trying to enforce its compensation disclosure rules over the past 2 years – culminating most recently in the resignation of its own Managing Director of Professional Standards (a concerning vote of no-confidence from its own key employee?) – the CFP Board may be at more risk of losing than it is willing to publicly admit.

Unfortunately, the Camarda case has progressed so far that at this point, even settling will still be a very potentially expensive proposition for the CFP Board, and with so much in sunk costs it may seem like proceeding to trial is the inevitable conclusion. Yet with the benefits of winning so outweighed by the adverse consequences of a loss, and the CFP Board’s compensation disclosure challenges over the past year raising the concern that the CFP Board might not prevail in its defense, the question arises: should the CFP Board really be taking the risk, or will its Board of Directors intervene to protect the organization’s long-term interests?

You can view the CFP Board's official response to this post at the end of this article.

Weekend Reading for Financial Planners (Dec 20-21)

December 19, 2014 03:31 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with two news stories about the CFP Board, the first that disciplinary chief Michael Shaw (who had responsibility around both the compensation disclosure rules, and the ongoing Camarda lawsuit) has left the organization without an immediate replacement named, and the second that the results are in from the CFP Board's first computer-based exam, which scored results reasonably in-line with prior exams (suggesting it was not actually easier in the shorter computer format), but appears to have boosted the number of exam-takers back to a 2-year high.

Also in the news this week is the approval of a Congressional study to analyze the potential link between financial stress and military suicide (which could eventually lead to the Department of Defense expanding programs to provide financial planning for soldiers in a few years), the latest projections from Cerulli that RIAs will continue to pick up significant market share from wirehouses in the coming few years, and a Fidelity benchmarking study that finds advisors continue to struggle with marketing and business development.

From there, we have a few practice management articles this week, from a warning that advisors should be taking steps now (while times are good) to defend their businesses against the next market downturn, to a look at "compensation theory" and why slowing growth at many advisory firms may be a result of (mis-matched) compensation incentives, the things to consider when a large advisor team at a broker-dealer is considering whether to break away, and some things to watch out for if you're looking to sell your advisory firm in exchange for shares of stock in the acquiring firm (especially if it is promising an uncertain liquidity event in the distant and unknown future).

We wrap up with three interesting articles: the first is a review of the Strategic Coach program from an advisor who went through it and more-than-doubled his (already significant) income in just 3 years; the second looks at the emerging concept of "policy-based financial planning" where the goal is less about helping clients make decisions in difficult times and more about establishing policies up front that make it easy to implement the "right" decisions automatically if/when the difficult times come; and the last raises the question of whether the CFP Board has been launching "too many" initiatives lately, that may be positive for what they are doing and meant to accomplish, but shouldn't come at the cost of the CFP Board losing focus on its core purpose of supporting the CFP marks, including ensuring that there is a clear and fair enforcement process backing them.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, covering his selections for the Best Financial Advisor Technology of 2014 in the categories of Back-Office Technology, Client-Facing Technology, and Innovation of the Year! Enjoy the reading!

Tax Extenders Reinstated Temporarily, But ABLE Act Of 2014 Will Permanently Change 529 Plan Landscape For Special Needs Beneficiaries

December 17, 2014 07:01 am 25 Comments CATEGORY: Taxes

Late last night, the Senate passed H.R. 5771, known as the Tax Increase Prevention Act of 2014 or more simply as the “Tax Extenders” legislation. Having already passed the House of Representatives two weeks ago, the legislation will soon go before President Obama and should be signed into law within the next few days.

In its final form, the legislation “patches” the tax extenders for one year, retroactively reinstating a wide range of provisions that technically lapsed at the end of 2013, to now be available for the current 2014 tax year. This includes the popular rule allowed those over age 70 ½ to make a qualified charitable distribution (QCD) from an IRA, satisfying the current year’s required minimum distributions while simultaneously completing a charitable bequest and excluding the IRA distribution from income entirely for tax purposes, with just enough time left to complete a QCD before year end. However, as a temporary extension, we will find ourselves in the same boat - lapsed tax extenders, waiting for a retroactive reinstatement - again in 2015!

Notably, though, the Tax Increase Prevention Act legislation also included the Achieving A Better Life Experience Act of 2014 (also known as the ABLE Act of 2014), which will create a new Section 529-ABLE account to be used not for educational purposes but to allow for tax-free growth for a special needs beneficiary (without disqualifying the beneficiary from most Federal or state aid programs). And while the tax extenders section of the legislation is temporary – adding just one year to the life of the tax extenders – the new ABLE Act provisions as permanent, and will change the landscape of using special needs trusts and planning for special needs beneficiaries for many years to come.

How Technology Is Turning The Typical Advisor AUM Fee Schedule Upside Down

December 15, 2014 07:01 am 7 Comments CATEGORY: Practice Management

The “traditional” AUM fee schedule for an advisory firm has graduated breakpoint as asset levels rise, a tacit acknowledgement that it doesn’t really take twice the work to service a client with twice the assets, and that investment management (and/or with broader financial planning and wealth management services) is fundamentally an expensive service that gets cheaper with “volume” discounts as clients invest more.

By contrast, today’s “robo-advisor” platforms simply charge a flat low AUM fee. While robo-advisors provide only a limited scope of services for that price point – not directly competing against a comprehensive advisor – the nature of charging a low price for a commoditized service implies that advisors can only charge more by explicitly offering additional value-add services (e.g., financial planning and wealth management) for an additional fee, that rises with the client complexity and depth of client service.

While the reality is that none of today’s “robo-advisor” platforms are actually profitable, and their business model is heavily subsidized by venture capital while they try to achieve scale, the difference in fee structures highlights a fundamental difference that will likely remain relevant for years to come: is investment management and supporting financial planning and wealth management services an “expensive” service that gets (relatively) cheaper to provide at larger asset levels, or actually a “cheap” service where higher net worth client can buy value-added services for an additional cost?

Weekend Reading for Financial Planners (Dec 13-14)

December 12, 2014 02:31 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with some industry regulatory news, including the potential that Congress may soon approve NARAB (creating the National Association of Registered Agents and Brokers) to better facilitate multi-state insurance licensing, and that the SEC is considering whether to require large RIAs to have a business continuity and succession plan in place (following on a similar proposal by NASAA earlier this year for state RIAs to be subject to such a rule as well).

Also in the news this week are a number of articles related to year-end planning, both for advisors and clients, including a discussion of the rules for determining when a charitable gift is made and "delivered" for end-of-year charitable donations, an overview of why almost 10% of ETFs are actually making long-term capital gains distributions this year despite their typical tax-efficiency, some tips for advisors giving gifts to clients about mistakes to avoid, and some guidance about how to execute good employee performance and compensation reviews.

From there, we have a few investment-related articles this week, including: a discussion of how nontraded REITs really work, their potential conflicts of interest, and why advisors should perhaps be wary of them; a look at a new AQR "alternatives" fund that actually seeks to capture the return premium by investing in risk factors without taking on the underlying risks of the investments; and a look at the explosive growth of "securities-based lending" for higher net worth individuals - often as an alternative to more traditional mortgage lending - and the problems that it may create the next time there's a market downturn.

We wrap up with three interesting articles: the first looks at how as service professionals we tend to underestimate the value of the component parts of what we do, leading us to package together a "value beast" that may be so complex to explain and difficult to deliver that it would have been better to just provide clients the component parts instead; the second provides a reminder that when there's an elephant in the room - like recent market volatility - it's always better to acknowledge the elephant and talk about the issue than to ignore it and wait/hope it goes away; and the last provides an interesting look at how even 5-year periods of returns can drastically differ from what financial theory expects for stocks, bonds, and commodities, yet over the long haul (e.g., multi-decade time periods) financial theory still holds up far better than we typically give it credit for.

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 2014 Advisor Tech Survey, Fidelity's collaboration with LearnVest, and a new "Direct Indexing" solution from Wealthfront! Enjoy the reading!