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#FASuccess Ep 091: Increasing The Value Of Advice By Focusing On Life-Centered Planning For Transitions Not Goals with Mitch Anthony

September 25, 2018 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 91st episode of the Financial Advisor Success podcast!

This week's guest is Mitch Anthony. Mitch is the founder of an eponymous training and coaching firm for financial advisors on how to ask the right questions to have better conversations with clients.

What's unique about Mitch, though, is his truly unique gift for finding the right words for effective client conversations. From describing the value of financial planning itself based on the six principles of helping clients with their organization, accountability, objectivity, proactivity, education, and partnership, to simply making the point that in the end, the role of a good financial planner is to help clients find the balance between vocation and vacation and ensure that clients prepare so they don't have to repair instead.

In this episode, we talk about the importance of language in financial planning. The difference between having good rapport with clients and really building a relationship with them, why asking clients the right questions is all about engaging them by making them feel like they're answering the questions they've always wanted to talk about anyway, and why the best way to demonstrate the ongoing value of financial planning is not about helping clients to reach their goals, but instead helping them to prepare for and then navigate the never-ending stream of transitions that life throws at them anyway, which are also great opportunities for advisors to demonstrate our value and grow our businesses because money goes in motion when life goes into transition.

We also talk about how the real value of a financial advisor should be measured by their ability to impact a client's return on life and whether they're living the best life they can with the money they have, rather than the traditional focus on benchmarking and advisor's return on investments, which as Mitch puts it, Standard and Poor's is a poor standard for measuring value, how the life-centered planning approach helps to address the common client question of, "What have you done for me lately," and the platform that Mitch is building aptly called ROL Advisor, to provide coaching and tracking tools that advisors can use with their clients to demonstrate these ongoing values.

And be certain to listen to the end, where Mitch shares his key insight for how new advisors, in particular, can set themselves on a better track to long-term success by doing whatever it takes to, as he puts it, surround themselves with greatness and find opportunities to learn from best advisors they can before starting out on their own.

So whether you're interested in learning about how "life-centered" planning improves client relationships, the "major motivator" for saving (other than retirement), or the best way to demonstrate the ongoing value of financial planning, then we hope you enjoy this episode of the Financial Advisor Success podcast.

Financial Advisor Success Requires Just 50 Great Clients

September 24, 2018 07:01 am 0 Comments CATEGORY: Personal/Career Development

Financial Advisor Income Growth - Path To 100 Clients

For many businesses and industries, it’s crucial to do a proper analysis up front to estimate the size of the “target market” – how many total potential customers are there and how much would they spend on your products or services, so the company can figure out if there’s a big enough market opportunity amongst those tens or hundreds of thousands of consumers (or more) to make it worthwhile to launch that new product or service for them.

In the context of a financial advisor, though, the reality is that the sheer intensiveness of the time it takes to serve financial planning clients in an ongoing advice relationship means most advisors will struggle to ever handle more than about 50-100 "real" client relationships on an ongoing basis. And even if the advisor gets highly efficient – e.g., through technology – there’s some evidence to suggest that our brains themselves simply may not be able to keep track of materially more than 100 client relationships (on top of all the other family/friends relationships in our lives).

The good news, though, is that the limitation of “just” 100 clients still leaves ample room for the typical advisor to serve the nearly 30 million mass affluent (or wealthier) households and earn a very successful living. After all, an advisor spending "just" 12 hours per year on each client (which across 100 clients is 1,200 hours/year), and charging $150/hour for their services (whether via an hourly fee, annual or monthly retainer, or AUM fees) can generate $180,000/year of revenue, and the most efficient advisors would be able to take home nearly 80 cents on the dollar (or almost $150,000 of it) after business expenses.

And for advisors who can move “upmarket” and serve even more affluent clientele, the requisite number of clients just drops further – and/or the advisor has even more earning potential. After all, 50 retiree clients paying “just” $5,000 per year (as an annual retainer, or perhaps in AUM fees from their $500,000 retirement rollovers?) gives an advisor a potential of $250,000 of gross revenue and take-home pay of more than $200,000 annually! And the higher the average revenue per client from there, the more the earning potential, even with "just" 50 great clients!

Of course, the caveat is that it can still take a long time to get to that 50-100 clients. Adding 1 client every month would still take 8 years to reach a 100 client capacity; even if the pace of new clients accelerates after the first few years, it may still take 5-6 years to build that client base. And trying to reach 50 more affluent clientele may still take just as long, as there are fewer clients needed, but they may be harder to reach (or it takes longer to establish the credibility to attract and retain them).

On the other hand, the fact that it “only” takes 50 great "A-level" clients for financial advisor success means that advisors have the luxury to pick almost any conceivable niche specialization… because it takes no more than 50 people on the planet, who are willing to pay to have that particular problem solved, to be financially successful as an advisor! And the more those niche clients can afford to pay, further increasing revenue/client, the more the upside income potential of the 50-great-client practice!

So who will you find to be your 50 great clients?

Weekend Reading for Financial Planners (Sep 22-23)

September 21, 2018 02:57 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the industry buzz that TD Ameritrade is increasing the AUM threshold of its AdvisorDirect referral program to affiliated RIAs from a $500,000 minimum to $750,000 instead, while also more fully aligning its branch representative compensation above the threshold to compensate brokers equally for referring to TDA's in-house managed accounts or RIAs in AdvisorDirect, as yet another example of how RIA custodians with a retail presence are moving more and more into the mass affluent space themselves while segmenting off only their most affluent customers to affiliated RIAs... a potential boon to "up-market" independent RIAs that can receive such referrals, but a rising competitive threat and channel conflict for the remaining RIAs that are aiming to serve the mass affluent clientele that retail brokerage firms are increasingly trying to serve themselves with their own managed accounts.

From there, we have several insurance-related articles this week, from a look at how the most comprehensive Medigap supplemental Plan F policies will soon be going away (for new enrollees after 2019) but how the cost savings of almost-similar Medigap Plan G may be more appealing anyway, to the major shift of John Hancock to only sell "interactive" life insurance going forward that will give policyowners the opportunity to obtain premium discounts or other incentives to wear fitness tracking devices (e.g., a Fitbit or Apple Watch) and actually demonstrate they're adopting healthy exercise and lifestyle habits, a look at how popular universal life policies from 30+ years ago are "suddenly" starting to blow up for retirees in their 70s, 80s, and 90s due to the multi-decade decline in interest rates, and an overview of how hybrid long-term care insurance policies are increasingly replacing the use of traditional LTC insurance... but only for the most affluent clients.

We also have a few investment-related articles, including: an overview of the world of cryptocurrencies and blockchain as they relate to financial advisors; a look at whether consumer adoption of ESG investing is really sluggish, or if advisors are just failing to communicate the opportunity to clients to draw in their interest; a fascinating discussion about what really matters most (and what doesn't) when it comes to generating long-term investment results; and an evaluation of why individual bonds may not really be any better (and could be worse) than just owning bond funds in the face of a potential rising rate environment.

We wrap up with three interesting articles, all around the theme of how hard it is to change someone's mind (whether it's about politics, or how they spend their money): the first looks at how getting people to change their minds on major issues requires them to not only understand new facts and information, but also change their "tribe" and personal identity (such that if we have to change our mind at the cost of our social ties, we'll often choose factually incorrect information over "loneliness"); the second explores how the best way to win a divisive argument is not to try to prevail on facts and persuasiveness alone but to connect your points to the other person's frame of reference (which, notably, requires having some empathy for them to better understand their situation in the first place); and the last examines a recent study finding that people are much more likely to change their minds and take in new information when it is presented visually as a chart or graphic than just text... ostensibly because it's a lot easier to simply ignore text but incredibly difficult to forget a memorable image once it's seared into our minds?! All of which is again relevant not just in the era of polarized modern politics, but simply getting clients to change their point of view and adopt better money habits, too!

Enjoy the "light" reading!

Assessing The Recent Proposals To Reduce RMD Obligations

September 20, 2018 12:13 pm 1 Comment CATEGORY: Taxes

In recent weeks, there has been a flurry of proposals to potentially modify Required Minimum Distribution (RMD) obligations, from President Trump’s Executive Order, to legislative proposals in both the House and the Senate. In some cases, the proposals would provide some “RMD relief” for those who don’t want or need to take withdrawals during life, although another proposal would actually increase required minimum distributions for beneficiaries after death!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1 PM EST broadcast via Periscope, we examine the arguments for updating the RMD rules, delve into the proposed changes from both President Trump and Congress, discuss why the media hype over “RMD relief” might be much ado about nothing, and why despite the recent discussions of RMD relief that the greater risk is still for a potential RMD crackdown (especially on stretch IRAs) in the coming year or few!

The first proposal to consider is President Trump’s recent Executive Order, which focused mainly on MEPs (Multiple Employer [Retirement] Plans), but also included a directive to the Treasury Department to update the life expectancy tables used to calculate required minimum distributions. Which is arguably overdue, as the last time the tables were updated was 16 years ago, and recent medical advances have certainly increased life expectancies since then. Which means, at least ostensibly, that there’s an increased risk that RMDs will deplete retirement accounts too quickly.

However, the reality is that life expectancy increases have not been terribly dramatic – no more than about 2 years of joint life expectancy for a 70-something retiree. Which means, on a percentage basis, the first RMD would actually decrease only about 25 basis points – from 3.65% of the account balance to just 3.4% instead – or a whopping $250 of reduced RMDs per year on an account with a $100,000 balance. And of course, the taxes due on that RMD at a moderately affluent 22% tax rate is only $55 of real tax savings. Which itself is just tax deferral (since the taxes on the IRA will still be due someday, RMD or not!).

And unfortunately, the other leading proposal for RMD “relief” isn’t much better. In the House, Congress is currently considering a package of the three pieces of legislation, colloquially know as “Tax Reform 2.0”, which mainly seek to make last year’s Tax Cuts and Jobs Act permanent, but also propose to create a new Universal Savings Account (USA) for tax-free savings (with a $2,500 per year contribution limit but no limitations on how withdrawals must be used), and more importantly for retirees would eliminate RMDs on employer retirement plans with balances under $50,000 (along with repealing the age limit on regular IRA contributions for 70-somethings who are still working to allow them to still contribute while also taking RMDs).

Yet again, while these additional RMD proposals make sense, none of them would make a material difference for most clients of financial advisors, especially when we consider that RMDs on a $50,000 401(k) are relatively small to begin with, and IRA contributions must come from earned income (and not that many 70-somethings are still in the workforce) and still may not be enough to offset RMDs anyway.

Meanwhile, what hasn’t received much attention at all is a far more important proposal buried in the Retirement Enhancement and Savings Act of 2018 (RESA), currently under consideration in the Senate, which would eliminate the stretch IRA for most non-spouse beneficiaries, who would then be subject to the far-harsher 5-year rule instead!

The bottom line, though, is simply to understand that the RMD relief proposals that have been getting the most attention lately won’t likely have any meaningful impact for most clients, while the impact from the one that would make a material difference from a planning and tax perspective would be very negative indeed! Of course, there’s no telling how long Congress will continue to kick the can down the road – proposed legislation can linger for months, or years, or “forever” before ever actually being passed into law – but the point remains that despite the recent buzz for RMD relief, the greater risk for those with sizable retirement accounts is still that RMDs may become more restrictive in the future, not less!

Advising Clients On Becoming Reimbursed As Family Caregivers Under Medicaid’s “Cash And Counseling” Program

September 19, 2018 07:03 am CATEGORY: Insurance

The number of people who, in a relatively short period of time, will require daily long-term care is increasing by the day, and while some have purchased long-term care insurance, the reality is that many more have not, and will instead have to rely on other means of paying for care, including their own personal assets and Medicare, and potentially Medicaid.

For those who have no choice but to turn to Medicaid benefits, oftentimes family members attempt to intervene and provide care themselves instead, which in turn can put a strain on their own personal finances. Fortunately, under certain circumstances, family caregivers may actually be eligible for some level of reimbursement from Medicaid for the time they spend caring for family members!

In this guest post, Rafael Bernard of In Good Company details the rules and planning issues when trying to qualify for “Cash and Counseling,” a Medicaid program that provides for a monthly budget for people on Medicaid whereby they can reimburse family caregivers for providing Activities of Daily Living (ADL) assistance services (albeit with rules that vary state by state).

The essence of the Cash and Counseling program is for an individual who already otherwise qualified for Medicaid to obtain a “waiver” that will allow them to use their Medicaid reimbursement payments to compensate a family member or friends for care. Unfortunately, securing the proper waivers is no easy feat, and even then, some states limit the total number of waiver enrollments, which could mean that the Medicaid recipient gets put on a waiting list. In addition, many states will not permit spouses to be reimbursed for ADL services, only other members (leading to the rise of a phenomenon known as “Medicaid divorce”). Additionally, to qualify, family members themselves first need to get training and then be approved by the state as a Personal Care Attendant (PCA).

To help protect themselves from Medicaid later re-labeling Cash and Counseling payments as inappropriate gifts, it’s advisable for the Medicaid recipient and family caregiver to meet with an Elder Law attorney to draw up a formal caregiver contract, and to meet with a financial management service company (FMC) to help with calculating payroll taxes and with tracking hours worked to respect the formalities of the program.

Ultimately, family members who decide to become caregivers will still face challenges of their own, especially since the Cash and Counseling reimbursements to family PCAs are not intended to be a “good” wage, but simply to help partially ameliorate (and buffer the financial opportunity cost of) what is otherwise an even more damaging family cost of taking time off to provide care during one’s peak earnings years. Nonetheless, with Medicaid recipients who receive in-home care from family members reporting a higher quality of life versus a nursing home, and many family members feeling an obligation to help provide care where at all feasible, the Cash and Counseling program may make it at least a little more economically feasible for family members to help their loved ones receive the care they wish to give themselves.

#FASuccess Ep 090: Scaling An Advisory Firm Beyond Yourself By Systematizing The Soft Skills With Julie Murphy

September 18, 2018 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 90th episode of the Financial Advisor Success podcast!

This week's guest is Julie Murphy. Julie is the founder and chief visionary officer of JMC Wealth Management, a dual-registered advisory firm in Chicago with a team of 7 that serves more than 200 active clients with $200 million of AUM, on top of generating nearly $300,000 a year in recurring financial planning fees.

What's unique about Julie, though, is her focus on what she calls "financial healing," with financial planning conversations that are heavily focused around the intersections of money and our emotions and our energy flow to the point that Julie is not only traditional strategic alliances with attorneys and CPAs, but also has what she calls more esoteric strategic alliances with psychologists and meditation specialists as well.

In this episode, we talk about how Julie has structured her unique advisory firm practice with a combination of quarterly retainer fees that clients pay for ongoing financial planning, separate implementation revenue that clients pay to have their portfolios managed as well, Julie's three-meeting planning process and how she charges for each, and the software tools that Julie uses to implement her process.

We also talk about how she's been able to generate a steady flow of new clients. How Julie authored a book to establish and demonstrate her expertise, the way that she separated her writing activities into an outside business activity to manage the compliance concerns, the way she built up 50,000 followers on Facebook and the kinds of posts that she's found to be most successful, and how Julie was able to accelerate her success and growth by doing what she calls "letting her freak flag fly," by simply being her authentic self and allowing clients who are interested in what she has to offer to be drawn to her rather than trying to advertise out to them, because in the end, most advisors attract and develop best rapport with clients who are a reflection of themselves anyways.

And be certain to listen to the end, where Julie discusses how she's systematizing the soft skills of her financial planning process to train new advisors. How she aims to transition all of her clients to other advisors so she can do the part of the process that she enjoys most, which is meeting with and working with the challenges of new clients, and why she decided to write another book not just for marketing purposes, but also because the process of writing about her planning approach is actually helping her to figure out how best to systematize it.

So whether you're interested in learning about Julie's "esoteric" strategic alliances, how she is creating a process to systematize the soft skills of financial planning to build a strong bench of like-minded advisors, or how's she's managed to gather 50,000 followers on Facebook, then we hope you enjoy this episode of the Financial Advisor Success podcast.