Nerd's Eye View blog

Weekend Reading for Financial Planners (May 24-25)

May 23, 2014 03:23 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a small act of contrition from the CFP Board, which acknowledged this week that it "could have done a better job" in looking at compensation disclosures on its website, and announced that the organization will now begin to do its own "spot checks" on its website compensation disclosures along with making it easier for brokerage firms to ensure that none of their employees indicate that they are "fee-only" in violation of the current rules.

From there, we have several practice management and technology articles this week, including some ideas for new client (or prospective client) events to try out, tips on how to pick a CRM system (either as a change or for the first time), a review at a new all-in-one advisor platform called Advyzon (being built by one of the former architects of Morningstar Office and Workstation), a look at how RIAs now surpass wirehouses in their share of ETFs and long-term mutual funds (if you're an RIA, expect a lot more contacts from product providers trying to reach you in the near future as the industry wholesalers shift!), and a discussion of how to fix (or create for the first time) an incentive compensation system for your employees.

We also have a few more technical articles this week, with a discussion of why SPIA payouts still seem to be given their money's worth despite today's low rates (in large part perhaps because the long end of the yield curve has already priced in future rate increases?), a great analysis from AQR's Cliff Asness of why markets are not rigged (despite the allegations in Michael Lewis' "Flash Boys") and how HFT firms are really just a more cost efficient version of what market makers have always done, and a nice overview of the key points from the new "hot" book on income equality, Thomas Piketty's "Capital in the 21st Century".

We wrap up with three interesting articles: the first is from Jason Zweig of the Wall Street Journal and looks at the rise of the "Robo-Regulator" - FINRA's new CARDS approach to applying big data insights to try to find questionable activity in brokerage accounts; the second is a discussion from industry commentator Bob Veres about how independent firms and fiduciary advocates may be losing the fight against the lobbying dollars of Wall Street and what the next step should be (hint - band together with other organizations fighting the "Bigger Fight" as well); and the last is from Gail Graham of United Capital about how small advisory firms may soon need to get a whole lot more serious about marketing, because some large ones are already beginning to step up. Enjoy the reading!

Could The MyRA Be The Beginning Of The End Of The 401(k)?

May 21, 2014 07:01 am 28 Comments CATEGORY: Retirement Planning

The employer pension plan has been a part of the employee benefits landscape for nearly 140 years. Yet the reality is that after a tremendous rise in the decades after World War II, the availability of the defined benefit plan has been in decline for over 30 years, as the defined contribution plan has risen to take its place.

Yet unlike a pension plan that was paid in addition to an employee’s salary, the defined contribution plan often amounts to little more than an employee saving his/her own money in the first place, perhaps plus a moderate match that is losing its purpose as a behavior incentive when more and more plans include automatic enrollment and automatic escalation of contributions in future years.

All of which raises the fundamental question: if employers simply paid a greater salary (with a raise equivalent to what the match would have been) and let employees choose whether to save, is there really any need for a 401(k) plan at all? And with the MyRA coming soon – which once in place, could be easily modified in the future to include automatic enrollment, and higher contribution limits similar to what 401(k)s allow today – could we be witnessing the beginning of the end of the 401(k) plan altogether?

Managing Your Advisory Practice By How Much You’re Paid For Your Time

May 19, 2014 07:01 am 8 Comments CATEGORY: Practice Management

Running a financial planning practice means really getting to know your clients, as you explore their goals and aspirations and craft a plan to help them get there. Yet as an advisory firm grows, while it may be possible to know all the clients, it becomes increasingly difficult to know all the clients, and how they impact the advisory practice itself. In other words, you may be spending so much time focused on the trees (clients), you begin to lose perspective on the forest (practice) itself.

Accordingly, prudent business management suggests that from time to time, it’s necessary to take a step back, and look at the broad base of clients across the practice. How much revenue does each client generate? How much time does it really take to service them? If you convert the dollars paid and time spent into an hourly rate, do you know which clients pay you the equivalent of $150/hour, or $250/hour, or $500/hour? You may know who your biggest and smaller clients are, but which ones are the most profitable and generate the greatest revenue for each hour of time you spend working for them?

Ultimately, what one does with this information is up to the advisor. Some may view it as an opportunity to improve and refine their practice, refocusing on the ‘best’ clients and culling the worst, or to lift up their minimums to ensure they’re generating a certain amount of revenue for their time, or to hire staff members to delegate less profitable tasks (or segment clients altogether!). Others may choose to do nothing – at least for now – beyond observing the health of their practice. But in the end, time is your most limited and valuable personal resource as an advisor, so it’s crucial to measure and manage how it is being spent!

Weekend Reading for Financial Planners (May 17-18)

May 16, 2014 02:53 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a great overview of the current landscape of CFP Board registered programs and the ongoing efforts to raise the profile of financial planning in colleges, from shifting programs into business schools, to boosting funding and alumni/corporate giving, to simply building more awareness of financial planning on campuses. Given the industry demographics, the opportunity for young people entering financial planning today is tremendous, but only if they know about it in the first place! There's also an article looking at how a number of large firms are entirely retooling their advisor training programs to make the entry path for young financial advisors more appealing, and a brief look at some how firms are bringing in junior advisors to work with clients.

From there, we have a long list of practice management articles this week, including: the rise of "bogus" award/recognition programs for advisors and an increasing volume of "advertorial" solicitations (where advisors can pay to be featured in a major publication's "top advisors" list or have a profile article written about them); tips for solo advisors who are looking to sell their practices (from two solo advisors who recently did sell their firms); a discussion of some of the latest advisor outsourcing trends around investment and back-office support; a look at the decision to become a hybrid RIA and when it's better to use a broker-dealer's corporate RIA rather than create an independent one; and a sample template for building your business plan as a new financial advisor (or perhaps an existing one planning on launching a new advisory firm).

We wrap up with four interesting articles: the first looks at the rise of social media in wirehouses and large broker-dealers, who have been 'laggards' with social media in the past, but are now accelerating adoption with some highly capable (and compliant) enterprise social media tools; the second is an RIABiz profile of Motif Investing, which has now raised an astonishing $86M of venture capital, despite having only about $86M in managed assets, raising the question of what the tremendous opportunity really is that the VCs see in Motif's future; the third examines some recent criticism of the famous Dalbar research regarding the investor behavior gap, suggesting that while there are still investors who harm themselves, the Dalbar methodology of calculating returns may be drastically overstating the issue in the aggregate; and the last is an interesting recent interview with Sebastian Thrun, founder of the first MOOC, who has now acknowledged that a purely free technology-driven open education just doesn't work very well because students don't follow through, and that charging a little more to add a human service layer component may ultimately be the superior model... which has very interesting implications for the current traditional-vs-robo-advisor environment as well!

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!

How Rising Interest Rates Will Impact Far More Than Just The (Bond) Portfolio

May 14, 2014 07:01 am 3 Comments CATEGORY: General Planning

There has been a growing fear in recent years that we may soon, “finally” face a rising interest rate environment again for the first time in over 30 years. While the catalyst to trigger such a rate increase is uncertain – first it was anticipated with rising inflation due to the Fed’s QE policies, and now it’s expected as a result of the tapering that slowly ends them – it’s hard to argue against the view that from a long-term perspective, rates are likely to be higher at some point in the future.

While the ramifications are quite straightforward – and not very good! – for bond prices, and at least raise concerns for other asset classes like stocks and real estate, it’s notable that there are also many ‘secondary’ impacts of rising rates that are equally notable for financial planning purposes. In fact, for many clients, the most profound impacts of rising rates may be the planning issues most clients are not even thinking about right now!

For instance, while higher rates are negative for retail bond investors, it can be very good news for insurance companies, who invest the overwhelming majority of their assets into bonds that match their liabilities. With higher rates, insurance companies need less in premiums to secure the requisite cash flows for their future claims, potentially providing much needed relief to the premium pricing pressure on everything from long-term care insurance to secondary guarantee universal life policies. On the other hand, higher interest rates are also higher discount rates for other strategies, which can reduce the value of everything from a pension lump sum, to the benefit of delaying Social Security, to the borrowing limits on a reverse mortgage. On the other hand, the sustainability of safe withdrawal rates may be improved!

Perhaps the most significant shift with higher rates, though, will simply be the fact that once again, “cash” will actually pay something. For companies that offer money market funds – including the major RIA custodians – this represents a potentially significant financial boon, as rates rise to the point where companies don’t have to subsidize and can actually profit from their money market offerings. Yet given how much easier it is to now manage “cash” electronically, from a mobile device, and move money across accounts or even financial institutions to seek out a better yield, the coming rise in interest rates may open up a whole new world of “digital cash management” as well!

Best Practices In Time Management & Productivity Tips For Financial Advisors

May 12, 2014 07:01 am 9 Comments CATEGORY: Personal/Career Development

For all those financial advisors who feel like they are struggling with their time management and productivity in the face of an increasingly complex advisory business, there's good (or at least affirming) news: you are not alone. As the results of the latest FPA Time Management and Productivity Study show, only a mere 13% of advisors report that they feel in complete control of their time, while 3-in-4 advisors are working more than 40 hours a week, and more than 1/3rd are working 50+ hours every week!

So how can advisors regain some control of their time and productivity? The FPA's research finds that strategies for success are focused around three broad categories: strategic focus, structural efficiency, and personal productivity. The first category is about having a clear plan for where the business is going (and what you want to get out of it personally); the second category is all about process, workflow, and team support; and the key to the last is creating structure to your daily and weekly life to regain control of your schedule. And notably, while many advisors seem to focus on the last two categories, it's the first that may actually be the most important; in other words, just as with our own clients, it's hard to implement effective steps to improve our (business or financial) lives if we don't have a good (business or financial) plan to help guide us where we're going in the first place!

Ultimately, the FPA research finds that the key to time management is not merely about spending less time in the business, but instead is about spending more time on the right tasks in the business; in fact, advisors "in control" of their time actually schedule significantly more meetings throughout the year - to the tune of another 50 client meetings, 10 prospect meetings, and 5 center-of-influence meetings - and do so by effectively focusing their business, their infrastructure and support, and their personal time, in the direction of those "highest and best use" tasks; the rest are either eliminating with business focus, delegated with team support, or managed with some structure to the day to avoid letting those necessary tasks become overwhelming. For those still struggling to figure out how to make these improvements, the FPA study provides a healthy list of tips and strategies to try to improve your situation. Overall, though, the clear theme of the research is to recognize the simple fact that for advisors, it's "control your business, or your business will control you."

Weekend Reading for Financial Planners (May 10-11)

May 9, 2014 02:44 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a fascinating story looking about whether better adoption of financial planners by the military could help stem the pace of military suicides, and help more soldiers get and maintain their security clearances, as financial troubles are actually a leading cause of both military suicides and soldiers losing clearance. Unfortunately, though, thus far the military has been resistant to allowing personal financial advice to be delivered to soliders beyond general financial education, due in large part to an unfortunate history of questionable "financial advisors" taking advantage of and abusing soldiers with high-commission investment products.

This week's articles also include a number of technology-related articles, including two about some of the latest technology and productivity tools for advisors striving for greater efficiency and scalability in their firms or simply running a "pared-down" practice with fewer (or no) staff, a look at some of the "high-touch" technology trends emerging to better engage interactively with clients, a "surprise" announcement by Orion Advisor Services that it is turning the bulk of its portfolio management software platform into open source code to better support integrations from partners and enhancements to its offering, and the announcement that online brokerage platform Motif Investing is rolling out an advisor platform that will allow unlimited client trades for $20-$50 per month (per client) and raised another $35M of venture capital to continue fueling its growth.

We also have a few financial planning articles that are more technical in focus, including a look at best practices in measuring and evaluating risk tolerance, a new software solution called PocketRisk for measuring client risk tolerance, and an interesting discussion of how newly-minted ultra-high-net-worth clients often experience the transition to wealth as though they are "immigrants" in a new land, with all of the challenges common to most immigrants, from how to adopt to a new environment to the difficulty of raising children effectively in a culture in which they did not grow up themselves.

We wrap up with three interesting articles: the first is an interesting look from Mitch Anthony at just how artificial the "retirement" finish line really is, and whether the whole concept of retirement may actually be a relatively limited and short-term phenomenon that is already unraveling; the second is a great overview from technology consultant Bill Winterberg of the major trends in advisor technology, from CRM to rebalancing tools to financial planning software and more; and the last is a fascinating look from Bob Veres at how the next generation of financial planners are beginning to set roots for a very different kind of financial planning world than their predecessors, in everything from how they deliver their services, to what services they deliver, and even how their practices are structured and how their clients pay them in the first place!

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!

Should We Forget Shiller CAPE Ratios And Focus On E/P Instead?

May 7, 2014 07:01 am 14 Comments CATEGORY: Investments

In recent years, there has been a growing debate about the relevance of P/E ratios, especially the Cyclically-Adjusted Price-Earnings (CAPE) ratio popularized by Nobel Prize winner Robert Shiller. Are stock P/E ratios really elevated in today's environment? And what does that really mean anyway? Could P/E ratios simply have reached a new permanently high plateau?

Yet when the standard P/E ratio is flipped upside down, a different conclusion quickly emerges: stocks with a high P/E ratio have a low E/P ratio. And a low E/P ratio means the markets in the aggregate (or some stock in particular) simply are not producing very much in earnings relative to their current price. Which means regardless of whether the earnings are ultimately paid as dividends or reinvested for future growth for price appreciation, there just isn’t as much return available on the table.

Viewed from this perspective, perhaps the oft-maligned P/E ratio deserves more credit after all. No one would debate that bonds with a yield of 4% will likely have a lower return than bonds yielding 8%, or that rising bond yields can further dampen a bond’s total return. So if we examine equities based on their E/P ratios, and look to their earnings yield as well, is it really so controversial to expect that below-average earnings yields (and correspondingly high P/E ratios) may well lead to below-average returns in the future?

How To Find Your Niche As A Financial Advisor

May 5, 2014 07:01 am 13 Comments CATEGORY: Marketing

As more and more people earn their CFP certification and become financial planners, the mere fact that one is a financial planner is no longer the differentiator that it once was. In turn, financial planners find themselves increasingly compelled to focus into a niche where it's easier to stand out and win clients... being a generalist may bring a lot of prospects but few clients, while settling into a niche may narrow the field of prospects but results in an incredibly high likelihood that clients (in the niche) will say yes and choose to do business.

Of course, a niche is not just conceived overnight; in practice, it's established and refined over time. It starts with a target clientele, which leads to developing a unique expertise for working with those clients and the problems they face, and that in turn leads to the development of services and a business model to fit the clients and their needs. As services are delivered, new ways to focus on the clientele emerge, new expertise is acquired, the business model is further refined, and the process continues to iterate until a finely honed niche emerges.

However, that still leaves open the key question: how do you find or choose a niche in the first place? In truth, there are many paths to finding a niche, from focusing on a passion, to an area where you already have an affinity or connections, to your existing clients or even former colleagues in a prior line of business. For those who truly have "no idea" what to do, the easiest path may simply be to start taking anyone you know out to lunch, asking them what their needs and issues are, and beginning to define a vision for your business accordingly. By asking people what's important to them and unique about their concerns, you can find a niche of your own, and may even discover that your interviewees become the first people to refer clients to your new business.

Weekend Reading for Financial Planners (May 3-4)

May 2, 2014 02:52 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the latest research from the CFP Board on the gender imbalance in financial planning, which appears to be driven not only by a general lack of awareness of financial planning opportunities amongst women, but also a whopping $32k/year pay gap between similarly experienced male and female advisors. The research is part of a broader new "Women's Initiative" from the CFP Board to support the growth of female CFP professionals.

This week's articles also include a number of practice management topics, from the latest in how firms are being valued for mergers and acquisitions (the 2X revenue model is increasingly being replaced by more focused multiple-of-free-cash-flow measures), to a discussion of whether professional advisors should be paid based on the revenue they produce (or not) the way that brokers traditionally have been, to a look at how for many advisors the way to "break through" to the next level of the business is to recognize that things may need to be done differently in the past (i.e., sometimes it's crucial to "let go" of the way things have always been done in the business!). There are also a pair of social-media-marketing articles: the first is a primer on popular third-party review sites Yelp and Angie's list, which may be increasingly relevant for financial advisors now that the SEC has cleared the way for their use with its recent guidance; and the second is on the power of using YouTube for marketing your advisory practice (and how to easily get started).

We also have a few financial planning articles that are more technical in focus, including the latest research on "low vol(atility)" investing, whether advisors should focus more on establishing reverse mortgages earlier (even if only as a standby line of credit) rather than as a last resort, and how advisors can pair together large amounts of CDs and a modest allocation to equities to create the equivalent of various types of annuity guarantees at a far lower cost.

We wrap up with three interesting articles: the first is a summary of this past week's Finovate (financial innovation) conference, which has been typically focused on banking or direct-to-consumer technology solutions but is increasingly featuring platforms that are targeting financial advisors as well; the second dives into the growing Schwab "franchise" model, which is now up to 24 independent owner-operated branches, and in the judgment of the author (noted industry commentator Mark Hurley) may represent one of the best opportunities in the advisory landscape right now, as firms become increasingly squeezed around marketing (a challenge that Schwab is uniquely positioned to address thanks to the strength of its brand); and the last is an interesting discussion of how BMW is completing rebuilding the car-buying experience, using "product geniuses" and interactive car-buying presentations, with some striking parallels to the transition within financial services from salespeople to advisors and the adopting of interactive and collaborative financial planning experiences.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!