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#FASuccess Ep 084: Re-Energizing After A Mid-Career Crisis With A Focus On Next-Generation Talent Development With Diane Compardo

August 7, 2018 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 84th episode of the Financial Advisor Success podcast!

This week's guest is Diane Compardo. Diane is a partner and team leader at the Moneta Group, an independent RIA with nearly $20 billion of assets under advisement and 40 partners, in which Diane leads a 16-person team with 4 partners and $1.4 billion of AUA, and has served as the chair of their Governance Committee as well.

What's unique about Diane, though, is that after nearly 20 years of building an incredibly successful advisory practice working with corporate executives at Moneta, she decided to substantially increase the size of her team and shift her own focus towards building and developing new advisors and partners at the firm... not just to grow the business, but as a way to reenergize herself after a proverbial mid-career crisis.

In this episode, we talk in depth about the unique Moneta Group structure that provides shared centralized administrative compliance and support services for more than 20 independent teams of advisors affiliated with the firm, how the firm structures its compensation and revenue-sharing agreements with teams, the unique partnership structure of the firm based on their relative contribution of profits to the firm, and how Moneta evolved into creating a governance board that sets strategy for the firm but is separate from the management team that runs the day-to-day business.

We also talk about how Diane's own niche in working for corporate executives evolved. How she first created a specialization in working with them during her early days as a CPA at Price Waterhouse, working long hours and cramming 10 years of experience into just 5 years, why she ultimately left PwC to join Moneta and forge her own pathway to partnership, and how Diane structures her team meetings today with clients both as a way to improve client service and also to develop new advisors themselves.

And be certain to listen to the end, where Diane talks about how she uses checklists in her calendar to balance her time between work and personal life, the support system she's created for herself by getting involved in local networking groups like the Women Presidents' Organization, and how she reenergized herself from the low point of her career with the strategic and deliberate shift in how she was spending her own time in the business.

So whether you are interested in hearing about Moneta Group's unique partnership structure, how a mid-career crisis re-energized Diane and helped her to focus on developing next-gen talent, or the strategies she's used to build a strong network, then I hope you enjoy this episode of the Financial Advisor Success podcast!

The Latest In Financial Advisor #FinTech (August 2018)

August 6, 2018 07:03 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the August 2018 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month's edition kicks off with the big news that, after years of warning that robo-advisor growth rates were slowing and seeing many high-profile robo-advisors pivot to become B2B solutions for advisors… some of them are beginning to outright shut down, with early (founded in 2009) robo-advisor Hedgeable withdrawing its investment adviser registration to manage portfolios as its founders move on to new blockchain endeavors, and WorthFM permanently terminating, as its related DailyWorth media site is sold (without the WorthFM robo-advisor attached) to personal finance media personality Jean Chatzky.

From there, the latest highlights also include a number of interesting advisor technology announcements, including:

Notwithstanding guidance that it’s permissible for clients to leave reviews for advisors on Yelp, the SEC cracks down and fines several advisors (and their marketing consultant) for asking clients to leave reviews as a deemed testimonial solicitation.
Advisor FinTech competitions heat up, as XY Planning Network announces its FinTech competition finalists, TD Ameritrade launches a new FinTech competition with $100,000 in prizes, and Scratchworks funds its first FinTech competition winner InvestmentPOD.
Large-firm enterprise interest in technology to support advisor efficiency hits a fevered pace, as Merrill Lynch rolls out a massive Fiduciary Dashboard for its advisors and Ameriprise announces a 10,000-advisor deal to switch from Ebix to Salesforce CRM.
MaxMyInterest announces a deal with Dynasty Financial as “cash management” becomes a new value-add service from advisors to their clients.

Read the analysis about these announcements in this month's column and a discussion of more trends in advisor technology, including Wealthfront launching a new financial planning module in Path that helps working clients understand the implications of taking a sabbatical or time off to travel (which is significant not only for the technology itself, which no other advisor software can do effectively, but the fact that its Millennial clients may not engage with saving for retirement in the “traditional” way), a new report from the Treasury Department laying out the Trump administration’s FinTech regulatory guidelines that would include a streamlined process for firms to more easily get the licenses and permits they need to operate and innovate, and a look at the second (next) generation of estate planning software beginning to emerge, as estate taxes move to the background but getting basic (but not always simple) estate planning documents in place takes on a relatively greater focus.

And be certain to read to the end, where we have provided an update to our popular new “Financial Advisor FinTech Solutions Map”, including a number of new companies and categories!

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (August 4-5)

August 3, 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 big news that Fidelity has launched an entirely free index mutual fund, with an outright expense ratio of 0.0%, in what financially is only a modest decrease in cost from the near-zero expense ratios of many index funds already, but represents a major shift in the industry as asset managers officially begin to focus on generating revenue beyond "just" their investment products alone. Also in the news this week was an announcement that the Trump administration is considering a proposal that would index cost basis to inflation over time, effectively applying capital gains on only "real" gains (above inflation), in what would potentially be a game-changer for the relative value of taxable accounts over tax-preferenced retirement accounts (that would have no such basis adjustment).

Also in the news this week were a number of major industry announcements, including that the CFP Board will be launching a series of public forums over the next 18 months to train CFP professionals on the new Standards of Conduct (and gather feedback on where the Standards Resource Commission should issue additional guidance), the Financial Planning Association announces a newly updated "Primary Aim" for the organization with an increased focus on advocacy for the profession, and the latest FA Insight study shows that advisory firms continue to enjoy strong growth in the midst of an ongoing bull market but that profit margins continue to decline (now to an average of just 20%) as pressure rises on firms to reinvest in their value proposition to justify their fees (which are now also beginning to show signs of competition and compression).

From there, we have a number of regulatory articles, including a surprising SEC action against Schwab Advisor Services that may put newfound pressure on RIA custodians to have a more active role policing the RIAs that use their services (particularly with respect to anti-money laundering regulations), some new guidance from the SEC on what constitutes 'inadvertent' custody for which the RIA will not be punished for failing to adhere to the Custody Rule, legal risks to consider for advisors who are publishing content (e.g., blogs or newsletters) and don't want to get in trouble for plagiarism or copyright violations, and a look at just how far the CFP Board's fiduciary regulations have come in the past 11 years (and where they may go from here).

We wrap up with three interesting articles, all around the role and value of financial advisors in the eyes of consumers: the first is a fascinating look at what leads consumers to switch financial advisors, finding that changes in personal or financial circumstances (from divorce or marriage to significant increases in income or net worth) are most likely to cause a consumer to switch advisors (despite the fact those are often the "money in motion" triggers that cause clients to become more profitable for their existing advisor!); the second looks at how financial planning as a profession has evolved over the past 45 years since the first class of CFP certificants in 1973; and the last looks at new research on the value of financial designations themselves, finding that consumers with higher incomes and investable assets really do tend to pay more to advisors who have such professional designations!

Enjoy the "light" reading!

Satisfying The CFP Board Experience Requirement As A Part-Time Career Changer

August 2, 2018 02:03 pm 0 Comments CATEGORY: Personal/Career Development

With the average age of a financial advisor estimated to be 50-something, a looming talent shortage has made it increasingly appealing to become a financial advisor… both as a prospective career for college students, and career-changers looking to switch into a more financially lucrative and psychologically rewarding career. The caveat, however, is that as CFP certification increasingly becomes the requisite pathway to a professional career as a financial planner, the CFP Board’s experience requirement is proving to be especially troublesome and challenging for career-changers who can’t necessary jump in with both feet at once and must make a more gradual transition.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why the 3-year experience requirement is especially challenging for career-changers pursuing CFP certification, the ways that career-changers can satisfy their experience requirement, and the changes that the CFP Board itself should consider to be more accommodating to the realities of career-changers in the future.

Historically, most financial advisors started their careers as a 20-something that received training to sell their company’s products, and over time moved up into more comprehensive financial advice. The “good” news of this sales-centric pathway was that in the early years that are often lean, advisors were early in their own careers and usually didn’t have many family or income constraints. In other words, it was economically more practical to take the risk. By contrast, though, for those who are mid-career and want to transition into a full-time planning career, it might not be so financially feasible to make an abrupt change. Instead, career-changers more commonly make a gradual shift into the financial services industry, and may only devote a couple days each week to gaining the requisite experience. Yet unfortunately, in that scenario, it can take 5-10 years or more to fulfill the CFP Board’s three-year (6,000-hour) experience requirement, a few hours per week at a time. With the added complication that once a career-changer sits for the CFP exam, the experience doesn’t even count more than five years after passing the exam!

Fortunately, several years ago the CFP Board expanded the ways that the CFP experience requirement can be satisfied, allowing a wide range of “indirect support of financial planning” jobs to count, including working in employee benefits administration or even compliance. And while from the industry perspective, this is concerning – as it means people who have never actually advised anyone nor ever even sat across from a single client can still tick off the experience requirement – from the career-changer perspective, this becomes an especially appealing pathway to finish the CFP experience requirement in lieu of slowly “counting the hours” doing part-time work.

Accordingly, for career-changers who are struggling to fulfill their experience requirement, the best option is usually to look for opportunities in the industry to provide “indirect support” (rather than as a financial advisor salesperson out of the gate, which has a high risk of failure), as even if it’s a role in operations or project management, if it’s in an advisory firm (or the industry more broadly) it should still count. Alternatively, for those who do plan to – or need to – transition more slowly, be cognizant of when you’re going to take the CFP exam, given that you only have 5 years after you pass the exam to fulfill the experience requirement. And bear in mind it’s also possible to beef up your CFP experience hours by volunteering to do pro-bono financial planning work (including structured programs like the IRS’ Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) programs, or by taking advantage of the FPA residency program to get 3 months of CFP experience in just one week!

In the meantime, hopefully the CFP Board itself will re-think how their policies adversely impact part-time career-changers, with an experience path that isn’t built for the financial realities of career changers who can’t necessarily take a full-time (often entry-level) job out of the gate. Especially since the reality is that even “full-time” financial advisor jobs from the start are often 80%+ prospecting and sales, and less than 20% financial planning anyway… which means part-time career-changers may still be getting just as much real financial planning experience as a new financial advisor trainee anyway!

The bottom line, though, is simply to recognize that there are pathways for career-changers to gain experience, but those who have the most financial flexibility to take potentially-lower-paying-jobs to accelerate their experience progress will have the most options. Which is appealing for those who are able to do so. And hopefully the CFP Board will consider expanding these pathways further over time, so the available career path options aren’t so limited for those who aren’t able to take a step back financially just to make the transition!

How Small Business Owners Overvalue 401(k) Plan Tax Deferral

August 1, 2018 07:46 am 0 Comments CATEGORY: Retirement Planning

Growth of 401k Plan - Gross & Net Value - Vs Contributing To Taxable Account Instead - Save Employee Contributions

The allure of starting a small business employer retirement plan is easy to understand. Not only can business owners provide a benefit to their employees by giving them a means to save for retirement in a tax-deferred account and by making contributions to those accounts, but a 401(k) plan with profit sharing also gives the employer (i.e., founders/owners) a way to save more for their own retirements on a tax-preferenced basis, reducing their tax exposure in the process. In fact, it’s not uncommon to see founders saving more in taxes than it “costs” them in employee contributions!

As compelling as that might seem however, the caveat is that the upfront tax savings of making 401(k) salary deferral and profit-sharing contributions for owners isn’t actually tax savings for them. Instead, it’s merely tax deferral, as those pre-tax contributions will eventually be taxable when distributed. Which is important, because the cash outlays made on behalf of the employees actually are a permanent expense that the owners will never be able to recapture!

The net result is that in the long run, it’s often financially better for business owners to skip the small business retirement plan – even with the tax savings – and simply pay their own taxes and save the net proceeds instead. The business owners may lose out on the upfront tax deduction on the contribution, but by avoiding employee contributions they otherwise didn’t need to make for compensation purposes, the net value is often still higher… especially for taxable accounts that are managed reasonable tax-efficiently to take advantage of the available 15% long-term capital gains and qualified dividend rates.

Of course, the less tax-efficient the investment account will otherwise be, and the higher the percentage of contributions that can be skewed to owners – especially by leveraging the rules permitting some disparity in contributions, such as age-weighted or cross-tested profit-sharing plans – the more compelling the 401(k) plan may become. Still, though, even situations where as much as 90% of all dollars accrue to the owners, who in turn are saving taxes at a 32% marginal tax rate, may still need as much as 20+ years to “recover” the hard cost of employee contributions with the long-term (and very slow) benefits of tax-deferred compounding growth. Which ironically means even salary-deferral-only plans that just require a safe harbor contribution to avoid running afoul of the ACP discrimination tests may still not actually be worthwhile in the long run, compared to just contributing to an IRA (and saving any excess in a normal taxable account).

For small business owners who need to compensate employees more in the form of retirement plan contributions, need to offer an employer retirement plan simply to compete for talent, and/or who may be able to recover most or all of the employee contributions by attaching a vesting schedule (knowing that employees are likely to turn over), the small business retirement plan may still be compelling or an outright necessity. Nonetheless, small business owners should be cautious to recognize that “just” saving on taxes in exchange for making employee contributions is not necessarily as appealing in the long run as it may appear at first… once the fact that 401(k) tax deductions are merely tax deferral, and not real tax savings, in the first place.

#FA Success Ep 083: Switching To The Right Independent Broker-Dealer By Understanding Its Profit Centers With Jon Henschen

July 31, 2018 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 83rd episode of the Financial Advisor Success podcast!

This week's guest is Jon Henschen. Jon is the president of Henschen & Associates, a recruiting firm that specializes in helping advisors find and match themselves to the right independent broker-dealer when making a switch to a new platform.

What's unique about Jon, though, is his willingness to be transparent in how broker-dealer recruiting really works in a segment of the industry that historically has thrived by keeping much of its compensation hidden with back-end commissions and markups.

In this episode, we talk in depth about the key factors to consider when evaluating a prospective independent broker-dealer. Why the ownership structure and whether the BD is publicly-owned or privately-owned and whether the private owner is an individual or a bank or an insurance company or a private equity firm is so important, the ways that certain broker-dealers specialize in certain types of reps, how forgivable loans work when advisors are recruited to a new independent broker-dealer, and the ways that broker-dealers have created profit centers above and beyond the payout grid, which is crucial for advisors to know so they don't unwittingly switch to a broker-dealer that may drive higher pass-through costs to their clients.

We also talk about how the independent broker-dealer recruiting model itself works. How recruiters are paid by broker-dealers to find new advisors to switch to them, what broker-dealers really spend upfront in order to attract advisors to make the switch, and how the dynamics differ when being recruited to a larger versus smaller independent broker-dealer.

And be certain to listen to the end, where Jon talks about the trends in independent broker-dealers that advisors should know when considering where to build their businesses in the long run. How the growth of the RIA channel and the fee-based business is impacting the broker-dealer model, and how different broker-dealers are taking very different positions on whether or how to support hybrid RIAs.

So whether you are interested in hearing about the various ways in which broker-dealers make money, how their recruiting process works, the most important things to consider when evaluating a prospective broker-dealer, or what changes may be coming down the pike for the industry in the coming years, then I hope you enjoy this episode of the Financial Advisor Success podcast!