Nerd's Eye View blog

Weekend Reading for Financial Planners (Nov 15-16)

November 14, 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 recent interview with the CFP Board where it reiterated its focus on growing the number of CFP certificants (as there are still more CFP professionals over the age of 70 than under the age of 30!), but also that the organization is committed to not lowering its standards in the process of pursuing growth. Also in the news this week are some highlight articles of the recent T3 Enterprise conference for advisor technology in large firms (which included some new product launches relevant for independent advisors, too).

From there, we have a few practice management articles this week, including an interesting look from the latest FA Insight benchmarking study showing how the challenges that advisory firms face are quite different depending on the size of the firm (reinforcing the notion that what got the firm to where it is may not move it forward from there), a discussion from Philip Palaveev about what advisors should be thinking about when they consider whether to merge with another advisor and form an ensemble firm (or not), a profile of some advisor study groups and their value (even and especially for firms that are already growing), and a discussion of how financial planning software is starting to change to allow planning to be done quicker and faster.

We also have several more technical articles, from a new study showing that long-term care needs may be more frequent but much shorter duration than typically thought (which raises the question of whether today's long-term care insurance is the right type of coverage), to a discussion of IRS Announcement 2014-32 which discusses transition rules to the new once-per-year IRA rollover rules taking effect in 2015, and a look at the new Society of Actuaries 2014 Mortality Table that could impact everything from more favorable RMD calculations for retirement accounts to making lump sum pension rollovers more valuable for those who wait a few more years.

We wrap up with three interesting articles: the first looks at how once you include the volatility of career earnings for Millennails and the relative stability of Social Security and pension income for Baby Boomers, the reality may be that the ideal portfolio should actually be quite similar for young adults and retirees; the second discusses how it's not enough for advisors to have clients who are "satisfied" but that ideally clients should be "engaged", which requires advisors to adjust from thinking about what they offer to clients and instead consider what they can create with clients instead; and the last looks at how it can actually be a good business idea to wear the same kind of outfit every day (and yes, it will give you insight into why I always wear a blue shirt!).

And also be certain to check out the videos at the end from Bill Winterberg, highlighting some of the news and buzz from this week's T3 Enterprise advisor technology conference! Enjoy the reading!

Managing Sequence Of Return Risk With Bucket Strategies Vs. A Total Return Rebalancing Approach

November 12, 2014 07:01 am 35 Comments CATEGORY: Retirement Planning

If there’s one fundamental takeaway that’s been drawn from the research on safe withdrawal rates, it’s the fact that market volatility really matters during the retiree withdrawal years. Even when long-term returns average out in the end, if the sequence of volatile returns is unfavorable, there is a danger that ongoing distributions during the “bad” years early on could deplete the portfolio before the “good” years ever show up.

As a result, many advisors and their clients use strategies that will avoid taking distributions from asset classes like equities during down years – for instance, setting aside “buckets” as a reserve against market crashes, and/or creating a series of “decision rules” that might simply state outright that equities will only be sold if they’re up, otherwise bonds are liquidated instead, and cash/Treasury bills will be used if everything else is down at once.

Yet when such a decision-rules strategy is paired with simple rebalancing, it turns out that the outcome is no better than merely managing the portfolio on a total return basis without the decision rules at all! The key, as it turns out, is that rebalancing alone already has an astonishingly powerful effect to help avoid unfavorable liquidations, as the process systematically ensures that the investments that are up (the most) are sold, and the ones that are down (the most) are actually bought instead! Which means in the end, we may not be giving rebalancing nearly the credit it deserves to accomplish similar – or even better – results than buckets and decision rules alone, and that such approaches are better purposed as explanatory tools for clients than actual systems for generating cash flows in retirement!

Using Kolbe, MBTI, & Other Personality Profile Tools To Advance Your Career As A Financial Advisor And Help Build Your Advisory Team

November 10, 2014 07:01 am 11 Comments CATEGORY: Personal/Career Development

Being a financial advisor is complex, whether in an employee role working with clients, or as an entrepreneur building an advisory firm. Success requires drawing on a wide range of strengths and talents, to the point that as an advisory firm grows, it’s eventually necessary to hire more people and build teams to round out the services provided and ensure that everything is getting done that needs to be done.

Unfortunately, though, for many advisors building a team is difficult, for the simple reason that as human beings we tend to like and build rapport with those who are very similar to us… yet in most cases, the best hires we can make (or partners we can work with) are those who have complementary skills that support us, not a skillset that merely duplicates what we already do. In other words, the people we tend to most want to hire are the people just like us who we should really not be hiring (unless you're really, truly trying to hire your replacement)!

Accordingly, an increasingly common “best practice” for hiring and building teams is to use various types of “personality profiles” – assessment tools that help us to better understand our strengths and weaknesses, and the strengths and weaknesses of others, to build teams where the whole can be worth more than the sum of the parts.

At the same time, though, personality profiles can also help us reflect upon our own strengths and abilities, understand if our own career track has gotten off track, or whether our businesses need to be reshaped to put in a different position where we can play a more productive role. The simple goal of it all in the end – by spending as much time as we can focusing on our strengths and doing what we do best, the happier we will likely be, and the more success we can find!

In point of fact, I am often asked how I’m able to be so productive in everything that I do amongst my various businesses… and the answer is that I’ve spent a great deal of time and energy over the past several years trying to continually reshape my roles to play to my strengths, and to manage my weaknesses by hiring staff to delegate to, or partners to work with. In today’s article, I highlight some of the personality/work-style profiling tools – from Myers Briggs (MBTI), to Kolbe, to StrengthsFinder – that have helped me to find the path that I have… and I hope they’re helpful to guide you to find your highest and best use, too!

Weekend Reading for Financial Planners (Nov 8-9)

November 7, 2014 03:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with an article highlighting the recent dispute between the CFP Board and (former) CFP certificant Nigel Taylor, who surrendered his CFP certification after an allegation that his firm was in violation of the "fee-only" compensation disclosure rules... and has, in the process, highlighted a critical concern regarding whether the CFP Board has the same scope to enforce its compensation disclosure rules against a firm in the way it does against individual CFP certificants.

From there, we have a large number of practice management and career development articles this week, including: how the effort that potential employees put into the process of applying for a job with you may be more important than their resume and background and experience in the hiring decision; a pair of articles that provide suggestions and tips on how to hire (young) advisors, and build a process around doing so; how advisory firms must learn to shift from focusing on rainmakers to grow and instead adopt firm-wide marketing strategies that allow everyone to participate and support the growth process; tips for young advisors who find themselves rising in their firms and becoming a Millennial manager for the first time; a look at how many young advisors are adopting a "career portfolio" by diversifying income streams across multiple business and freelance endeavors; suggestions on how to evaluate whether your client service team is actually doing a good job servicing clients; and a look at how different "mercenary or missionary" cultures in advisory firms can impact their growth and success over time.

We wrap up with three interesting articles: the first looks at how the financial blogger conference FinCon may be a good template for how advisor conferences need to change to gain better engagement and attendance from young planners; the second look at why it is so difficult to get new clients to make a change to a new advisor, and how the biggest key to success may not be about better communicating your value (although that matters too!) but simply showing them how you will make the process of change itself as easy and hassle-free as possible; and the last provides an interesting reminder that while it's important to be conservative in helping clients to their financial goals, planners should be cautious not to superimpose their own risk and concerns as planners onto their clients' lives, or the advisor risks causing the client to leave a large inheritance but fail to enjoy their wealth with the time they had to enjoy it!

And also be certain to check out the videos at the end from Bill Winterberg, highlighting some of the news and buzz from this week's Schwab IMPACT conference! Enjoy the reading!

Goals-Based Financial Planning Is Impossible Without First Evaluating The Possibilities

November 5, 2014 07:01 am 18 Comments CATEGORY: General Planning

From the rapid growth of goals-based financial planning software like MoneyGuidePro, to the recent announcement that even legendary wirehouse Merrill Lynch will be focusing on a goals-based planning approach, financial planning is on the rise, and is increasingly focusing around an approach of identifying and understanding client goals, and then crafting a plan to help the client succeed in achieving them.

Yet at the same time, the reality is that in practice the goals-based approach doesn't always go as smoothly as hoped. Some clients haven't crafted their goals yet in the first place, while others have goals that are wildly unrealistic and force planners to be the bearers of bad news. Often the goals-based planning process can get mired down in countless iterations of alternative "what if" plans, culminating in a giant physical tome that clients aren't committed to and is never read again after being presented away.

But perhaps the fundamental problem with goals-based planning is simply that it puts the cart before the horse; clients shouldn't be selecting the goals to pursue until they understand what the possibilities are in the first place! Which means in turn, perhaps the best thing that can be done with financial planning software is not use it as an analytical tool to craft a plan to achieve hypothetical goals that may or may not even be realistic, but instead to use the software interactive with clients to explore the possibilities of multiple scenarios and understand the trade-offs just to arrive at what the goals should be in the first place. Once the possibilities have been selected, realistic goals can be chosen, and then a more productive series of financial planning recommendations can be delivered for implementation!

What (Traditional) Financial Advisors Can Learn From Venture Capitalists And Robo-Advisors About Lifetime Client Value

November 3, 2014 07:01 am 7 Comments CATEGORY: Practice Management

As financial advisors increasingly shift from their transactionally-based roots to providing ongoing financial advice (and being paid an ongoing fee for doing so), the value of getting a new client is changing dramatically. While in the past the “value” of a client was little more than the commission earned on the transaction they did, in a world where many advisory firms retain 95%+ of their clients, the lifetime value of a client over time could be as much as 20X that amount!

In fact, the lifetime value of an ongoing client relationship is so high, that advisory firms could arguably spend far more on marketing, business development, and (extra) services for clients at no cost, simply to accelerate client referrals, growth of the business, and to increase retention rates that further improve the lifetime value of the client and the economics of the business. Yet despite this opportunity, the typical advisory firm spends barely more than 2% of its revenue on marketing, and often charges separately for each “value-add” service (which can actually discourage clients from taking advantage of it!) to ensure clients are similarly profitable each and every year.

By contrast, the “robo-advisor” firms have been heavily focused on just reinvesting into the solutions they provide clients to stir word-of-mouth (i.e., referral) marketing and improve client retention, and are raising significant funding from venture capital firms that recognize advisory services are so profitable in the long run because of the high lifetime client value that it doesn’t matter if these firms generate no profits in the near term as long as the growth continues! Of course, most “traditional” advisory firms don’t have access to the capital that robo-advisors do, but the point still remains that perhaps today’s financial advisors could learn something from robo-advisors and their venture capital funders about recognizing the significance of high lifetime client value and how to (re-)invest in their advisory firms for long run business value and not just short-term profitability!

Weekend Reading for Financial Planners (Nov 1-2)

October 31, 2014 03:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big announcement that Charles Schwab is entering the "robo-advisor" fray, with an offering called "Schwab Intelligent Portfolios" that will be available for consumers (and shortly thereafter as a white-labeled version for RIAs on the Schwab platform), and will be free to use with only a $5,000 minimum (and automated tax-loss harvesting starting at $50,000).

From there, we have a number of practice management and technology articles this week, including a discussion of what to look for when merging smaller advisory practices into your own firm (from the perspective of someone who's done several such deals, both successful and not), tips for advisors who want to get "cyber liability" insurance to protect against the risk of cyber attacks and wire fraud, guidance on how to form a client advisory board, and a look at how an online chat tool on your website can help engage visitors and turn them into genuine client prospects.

We also have a few more technical articles this week, from a Morningstar analysis of the rise of passive investing that finds predictions that consumers are abandoning active management for low-cost indexing may be overstated, to a look at why it's so significant that the Treasury and IRS gave the green light to deferred income annuities inside target-date funds, an analysis of consumer borrowing options that find borrowing from a 401(k) loan may be quite underrated (at least relative to the other borrowing options typically available to consumers), and a good summary of basic strategies and resources to families who haven't saved enough (or anything) for college and are now trying to figure out what to do as the kids prepare to apply.

We wrap up with three interesting articles: the first looks at how not only do many advisors have a problem branding themselves, but that the entire financial planning profession has a "branding problem" due to a lack of clear vision about its fundamental role and purpose in society; the second is a critique by GMO's James Montier of the whole concept of managing companies by trying to "maximize shareholder value" and how the incentives that have been created are actually damaging (long-term) shareholder value; and the last is a fascinating look at how too much positive thinking can actually be damaging to achieving goals, and that balancing optimism with realism is crucial to obtain the motivation necessary to pursue the goal... which has some notable implications for how we as financial planners guide our clients towards retirement! Enjoy the reading!

Why I’m So Critical Of The FPA That I Support, And The FPA Leadership Responds In Writing

October 30, 2014 02:55 pm 12 Comments CATEGORY: Planning Profession

Many who have known me over the years, and my involvement in both the profession at large and the FPA in particular, were surprised by my article earlier this week criticizing the FPA for its actions and direction in recent years. However, the truth is that these realities – my involvement in the FPA, and my criticism of the organization – are not at odds. In fact, the entire purpose of my article was to recognize the challenges the FPA faces (publicly, as I’ve already voiced these concerns privately to FPA leadership in the past), to encourage a frank discussion of those challenges, and hopefully find a focused path forward, because as a long-standing FPA volunteer myself I desperately want to see the FPA succeed in achieving its founding purpose as an organization!

Nonetheless, to help further reduce the “confusion” about the perspective I was trying to bring and the points that I was trying to make – and to head off any misunderstandings and misinterpretations that might emerge – in today’s article, I highlight at a high level my own views and “beliefs” about how to advance the profession of financial planning, and why the FPA has a crucial role to play. As you will see, I sincerely hope that the FPA will survive and thrive and take on the opportunity that lies before it to continue the role it plays to shape the profession, and believe its path to success lies in “simply” embracing the purpose its prior leadership has already provided to it.

In addition, today’s article also includes a response from the FPA leadership itself to my recent criticisms, and you can read their comments in full in the second half of today’s article. Not surprisingly, the FPA leadership does not entirely agree with my assessment of all the issues, but I hope this frank discussion helps us all to have the important dialogues necessary to keep the financial planning profession moving forward. Personally, I look forward to seeing the FPA national and also chapter leadership next week, as I travel to the FPA Chapter Leadership Conference with an openness to continue the conversation in advancing this profession and association in which so many of us are involved.

Real-Time Collaborative Financial Planning And The Evolving Role Of The Financial Advisor

October 29, 2014 07:01 am 21 Comments CATEGORY: General Planning

With the ever-increasing breadth of information available online with each passing year, consumers have more and more information at their fingertips – accessible with a smartphone or tablet! – and problems that once required paid experts for solutions can now be resolved with a quick Google search.

Yet while the power of internet searches can solve more and more complicated problems, when it comes to the real-world challenges of our financial lives, we hit a wall; some problems are just too complex to be solved with information alone, and still require the guidance of an expert to navigate. Of course, real world financial planning problems can be so complex, the financial planner can’t and won’t likely have all the answers, either. There is too much uncertainty for a known outcome, too many what-if scenarios to consider, and ultimately most people face practical constraints on their resources that require them to choose from the available trade-offs; there are no “right” choices, just paths to consider and consequences to weigh.

Which means in the end, the highest and best purpose of financial planners may not simply be to consult with and answer complicated questions, but to actually work collaboratively with clients utilizing technology to help them simulate the possibilities in real time, choose which goals to pursue, and then leverage the planner’s knowledge and experience to craft a plan to get them there.

Could The FPA’s Waning Power Given Its Declining Market Share Of CFP Certificants Lead To Its Untimely Demise?

October 27, 2014 07:01 am 50 Comments CATEGORY: Planning Profession

Since the merger of the IAFP and the ICFP over 14 years ago, the FPA has faced trying times. Amidst a backdrop of aging advisor demographics, a growing tide of retirees, and a declining total headcount of financial advisors, the FPA has never managed to grow materially beyond its peak membership on the day it was born, and since the 2008 recession was suffered from a 17% decline in membership and a 36% decline in revenue.

Yet the reality is that notwithstanding the difficult environment, the number of CFP certificants has nearly doubled since 2000, and the FPA’s failure to grow actually marks a drastic decline from having over 50% of all CFP certificants as members to under 25% of them, leading in turn to a significant loss in its power and standing as an organization. The FPA’s "mysterious" inability to grow despite the tremendous growth of its target market seems to stem from a battle between the legacy of the IAFP and ICFP that still rages on, with the FPA moving close enough to the ICFP’s "CFP-centric" worldview to alienate non-CFPs, yet not close enough to be a beacon of advocacy and success for CFP professionals either. The end result: while 10 years ago the FPA still had enough strength and momentum to sue the SEC and win in pursuit of its advocacy goals for financial planning, now the FPA’s power has waned to the point that it defers to the CFP Board on key issues to certificants and when the CFP Board launches a career center to compete with the FPA’s own Job Board the FPA congratulations the CFP Board for the competitive victory!

Ultimately, the FPA’s inability to honor its own bylaws and its founding Memorandum of Intent, and the organization's struggle to focus effectively to champion and advocate on behalf of CFP certificants – or even control their own advocacy efforts and messaging amongst the leadership and the chapters – raises the fundamental question of why it’s even necessary to have a standalone membership association separate from the CFP Board that grants the marks. Would CFP certificants be better served by going from paying two organizations to only one, and simply having the CFP Board function as both the credentialing body for CFP professionals and their membership organization as well, as is done in many other countries around the world?

Of course, longstanding CFP certificants have witnessed the CFP Board engage in many of its own blunders over the years, and an outside membership association for CFP certificants can be an effective (and even crucial) form of checks-and-balances against the CFP Board. Yet the FPA has increasingly failed to execute this key role, and the FPA’s ongoing loss in power has been the CFP Board’s gain. As the FPA becomes weaker, is the CFP Board becoming increasingly aggressive in trying to chip away at the FPA’s sources of members and revenue and professional impact, potentially accelerating the FPA’s demise? Will the FPA be able to step up and grow its “market share” of CFP certificants to regain its former power before it’s too late, or has the FPA already lost too much focus and momentum, and made itself too irrelevant for too many CFP certificants?

« Previous
1
…
233
234
235
236
237
…
313
Next »

Weekend Reading for Financial Planners (Nov 15-16)

Managing Sequence Of Return Risk With Bucket Strategies Vs. A Total Return Rebalancing Approach

Using Kolbe, MBTI, & Other Personality Profile Tools To Advance Your Career As A Financial Advisor And Help Build Your Advisory Team

Weekend Reading for Financial Planners (Nov 8-9)

Goals-Based Financial Planning Is Impossible Without First Evaluating The Possibilities

What (Traditional) Financial Advisors Can Learn From Venture Capitalists And Robo-Advisors About Lifetime Client Value

Weekend Reading for Financial Planners (Nov 1-2)

Why I’m So Critical Of The FPA That I Support, And The FPA Leadership Responds In Writing

Real-Time Collaborative Financial Planning And The Evolving Role Of The Financial Advisor

Could The FPA’s Waning Power Given Its Declining Market Share Of CFP Certificants Lead To Its Untimely Demise?

Nerd’s Eye View Praise

Nerd’s Eye View Praise

Showcase YOUR Expertise

Stay In Touch

Questions?

Please contact your Firm's Group Admin

Nerd’s Eye View Praise

Showcase YOUR Expertise

Stay In Touch

Questions?