Nerd's Eye View blog

Setting Up An RIA And Starting A New Financial Planning Practice On Less Than $10,000

September 17, 2013 07:02 am 54 Comments CATEGORY: Practice Management

Taking the leap to start your own financial planning practice can be a scary proposition. Not only is there the stress of starting up the business and figuring out how to market and find your own clients, but there's also the responsibility of making a huge number of key decisions about the business model and companies and services to engage, and just the outright cost of setting it up in the first place.

In this guest post, financial planner Sophia Bera shares what she went through in recent months in going out on her own and setting up her own independent RIA financial planning firm from scratch, and managing the expenses to keep them at only $5,000 in start-up costs and another $5,000 in ongoing costs in her first year (which is important, given the lack of startup funding for advisory firms!). Sophia also shares some of her own thoughts about why she decided an entrepreneurial path was right after spending years as a financial planning employee, and other tips she's found useful in helping to facilitate her early success.

If you've been thinking about what it costs to go out on your own - or to make a transition into financial planning for the first time - and wondering what the key issues and decisions are to consider, I hope you find today's guest post to be helpful!

The 8 Best Conferences For Financial Advisors In 2014

September 16, 2013 07:08 am 15 Comments CATEGORY: Conferences

As someone who will speak at more than 60 conferences this year, I've participated in nearly every major conference available for financial planners. Given that there are so many conferences, though, it can be incredibly difficult for most advisors to select the right conference for themselves each year, and I am often asked for recommendations about what I think the "best conferences" are to attend.

Accordingly, I've started to craft my own annual list of what I would view as the best-in-class conferences for financial planners (in the US, at least!). Of course the reality is that what constitutes "the best" depends on the kind of content you're looking for, so I break down this year's list into several key categories: Best Technical Content, Best for Advisor Technology, Best Investment Management, Best for Advanced Practitioners, Best Overall Value, Best Virtual Conference, Best Practice Management, and Best Overall Financial Planning Conference.

Of course, the reality is that the conference season isn't even over yet for 2013; nonetheless, as we head into the fall, it's time to start planning for next year. So I hope you find this list (and some of the details it includes for getting discounts!) useful for you to use as your own guide in setting your conference budget and selecting events to attend for yourself and/or your staff for 2014!

Weekend Reading for Financial Planners (Sep 14-15)

September 13, 2013 04:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with several articles related to the fiduciary standard (as the Institute for the Fiduciary Standard has dubbed this "Fiduciary September"), including the announcement from the Department of Labor that it is pushing back (but definitely not abandoning) its new fiduciary rule proposed, criticism from Bob Veres about how the brokerage industry seems to be simultaneously insisting that brokers already act in their small clients' interests even while claiming that those clients can't be served under the standard, and a look from Dan Moisand in the Journal of Financial Planning at how ineffective disclosure alone has been in trying to protect consumers (which, ultimately, should be the role of regulators).

From there, we have several financial planning technical articles this week, including an estate planning checklist after the loss of a client's loved one, how it's going to be harder in 2014 to buy a home due to changes rolling out from the Federal Housing Finance Agency, a look at the LTC insurance marketplace that tries to debunk some common myths, how many variable annuities over the past decade were mispriced (and therefore why clients probably shouldn't be accepting the company buyback offers), how risk management and lower volatility portfolios can result in alpha and higher returns even if they don't participate in the maximum upside, and a great discussion from Texas Tech professor Michael Finke on Social Security retirement claiming strategies for clients.

We wrap up with three interesting final articles: the first is a look at the landscape of advisor designations, suggesting that given the growing complexity of the marketplace and the need for advisors to specialize, there will - and should be - more designations, but it's crucial to have appropriate standards and accreditation to separate the wheat from the chaff; the second is a series of "dangerous ideas" in the investment world, issues that clients and advisors may not be thinking about - often due to behavioral biases - but should; and the last a good reminder that ultimately as financial planners we are all human beings and we, too, aren't perfect and can make mistakes... and suggesting that it's ok to make yourself vulnerable and share that with clients sometimes, too, as it can ultimately make you more human and easy to relate to. Enjoy the reading!

MailBag: Is There A Blueprint For How Financial Advisors Should Go About Using LinkedIn?

September 12, 2013 06:05 am 3 Comments CATEGORY: Marketing

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at a question about how to get started using LinkedIn to get new clients. Just searching through your connections for people who might fit your profile and then ask for an introduction probably isn't going to work. This is where a content-based marketing strategy can be effective.

Will New Reverse Mortgage Changes Make Them A Better Financial Planning Tool?

September 11, 2013 07:02 am 7 Comments CATEGORY: Debt & Liabilities

In the aftermath of the financial crisis, the decline of real estate prices has been a distress not only to traditional mortgage borrowers and lenders, but also the Federal Housing Administration (FHA) and its reverse mortgage program. As a result, the Department of Housing and Urban Development (HUD) has taken several steps to make the program somewhat more restrictive, reducing borrowing limits and increasing the insurance premiums to borrowers that back the program.

In a big announcement this month, HUD has announced a new round of changes that will consolidate HECM Saver and Standard loans, change the principal limits that impact the maximum consumers can borrow, and generally increase costs once again for reverse mortgages. In addition, the HECM reverse mortgage program will become much more restrictive in how much can be borrowed at once, and early next year will introduce a new financial assessment process to further ensure that reverse mortgage borrowers have the means to maintain their property taxes and insurance to avoid defaulting on the loan.

From the financial planning perspective, these changes are arguably a good step to help curtail some irresponsible borrowing, and ironically may have little impact to the clients of financial planners who already tend to be somewhat more affluent and more proactive in their retirement strategies (while the impact will be more significant for those already in dire financial straits). On the other hand, the new higher costs for many types of loan approaches, and the new limitations on principal limits - which can be particularly constraining to affluent individuals with pricier homes - may make reverse mortgages somewhat less appealing for financial planners, even as the reverse mortgage industry shifts to focus more on the types of clients that planners typically work with.

Why Social Media Is Not An Alternative To Networking And Referral Marketing

September 9, 2013 07:02 am 5 Comments CATEGORY: Marketing

As social media becomes increasingly popular, the financial planning world has struggled to figure out how social media marketing fits into the big picture. Where can an advisor find time to engage in social media amidst other efforts to network, develop business, and drive referrals? And of course, all of that marketing activity has to fit around the time to actually run a business and serve clients, too!

Yet from a best practices perspective, social media shouldn't be viewed as an alternative to networking and referral marketing. Instead, social media is simply another way to do networking and referral marketing in the first place! After all, social media success still ultimately relies upon making personal connections and building relationships to generate new business. Or viewed another way, relationship marketing is all about being social, and social media is just another medium for being social!

The caveat, however, is that while networking meetings and referral marketing are often a slow, one-client-and-center-of-influence-at-a-time effort, time invested in social media is able to be leveraged to reach dozens, hundreds, or even thousands of prospective clients at once. In other words, ultimately social media is not an alternative to networking and referral marketing, it's simply a more leveraged and scalable way to do it! Which also means if you're trying to figure out where to find the time to start getting engaged on social media, you might look to carve the time from some of your other, less efficient and effective marketing activities!

Weekend Reading for Financial Planners (Sep 7-8)

September 6, 2013 01:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with a discussion from Mark Hurley about whether it will soon become a lot more expensive for advisors to acquire clients, whether through popular custodian referral programs or other channels.

From there, we have several financial planning technical articles this week, including a look at whether the shortfalls in the Social Security disability fund may prompt Social Security reform sooner rather than later, whether income-oriented portfolios increase or reduce the safe withdrawal rate, another way to look at why it's beneficial to delay Social Security benefits, a discussion of "DING" and "NING" trusts used to avoid state income tax liabilities for clients in high-tax-rate states, a look at how the new cost basis reporting rules are shaking out after the first several years, and a roundtable discussion from the Journal of Financial Planning about the new health insurance exchanges and how they'll work.

We wrap up with three interesting final articles: the first is a blog from Angie Herbers about whether the tendency for advisors to form 3-person teams may be contributing to young employee turnover (as the saying goes, "three's a crowd" and it may apply in advisor firms, too!); the second suggests that the real problem for many overspending clients is that they're spending too much money having people do things for them; the third is an interesting interview with Vanguard founder Jack Bogle (who is as spirited as ever in criticizing the financial services industry and suggesting reforms); and the last is a good reminder that notwithstanding all the great advice planners give their clients, many could stand to take their own advice a little more often as well, or ever consider hiring their own planner to get a helpful nudge! Enjoy the reading!

MailBag: Introducing Financial Planning Services To Existing Brokerage Clients For The First Time

September 5, 2013 07:03 am 0 Comments CATEGORY: MailBag

In this week's MailBag, we look at a question about what an investment management firm that has only provided investment management services in the past should do when they try to start offering financial planning and clients refuse to provide all of their personal financial information.

What Does It Really Mean To Be A Fee-Only Financial Planner?

September 4, 2013 07:09 am 8 Comments CATEGORY: Planning Profession

In recent months, the CFP Board has faced some high-profile cases that have tested its definitions of what it means to be a "fee only" advisor. First there was the incident with Alan Goldfarb, and more recently (though dating back to an earlier incident) a lawsuit filed by Jeffrey and Kimberly Camarda. In both cases, the incidents revolved around situations where advisors were providing services on a "fee-only" basis to clients, but also separately held a financial interest in a broker-dealer and/or an insurance agency that at least "could" potentially generate commissions. Although the CFP Board's current compensation disclosure requirements have actually been in effect since 2008, the cases have highlighted the complex realities of how many financial advisors structure their businesses, and tested where the line should be drawn regarding what does and does not constitute "fee only" compensation.

While it's hard to fault the essence of what the CFP Board is trying to accomplish with its definitions - that advisors should only describe themselves as "fee only" if they truly, solely receive compensation from fees - a broad interpretation that compensation includes not only what is received but what the advisor or a related party are "entitled to receive" has arguably narrowed the interpretation of "fee only" beyond the point it was ever intended. In fact, the CFP Board's current rules appear so tight that they may actually invalidate as much as 5% of NAPFA's own membership.

At the core of the issue is the CFP Board's viewpoint that "commission" compensation should include not only what a client does pay, but what a client could pay to the advisor or a related party. As a result, a wide range of advisors whose clients truly have only ever paid a fee to anyone must declare themselves to be "commission and fee" for the sole reason that someday, somehow, a client could pay a commission to the advisor or a related party (due to a license the advisor holds, or other advisors under the same employment agreement), even if no client ever has, or is even intended to - a standard that's virtually impossible for any but a small subset of independent privately-owned RIAs to meet.

Instead, perhaps it's time for a simpler, more straightforward definition of fee-only compensation - that "fee only" be based not on what a client could pay, but what the client actually does pay. If the client really does pay a commission to an advisor or a related party, then the advisor should be required to describe themselves as "commission and fee" accordingly. But if the client really, truly does only pay fees to the advisor and pays no commissions at all to the advisor or any related party, the advisor is permitted to call themselves "fee only" instead. Or viewed more simply - unlike the CFP Board's current rules, advisors should always be able to rely on the fact that no client has ever actually paid a commission to the advisor or any related party as a defense to calling themselves "fee only," if that is in fact the case.

19 Ways to Make Your Financial Advisor Website More Credible And Trustworthy

September 3, 2013 07:02 am 10 Comments CATEGORY: Marketing

Having a website as a financial advisor is increasingly shifting from a "nice to have" to a necessary minimum just to establish that the advisor is a legitimate professional in the first place. If your business cannot be found online, then it's almost as though the advisor doesn't exist. Yet at the same time, just having a website isn't enough; it has to convey credibility and trustworthiness to prospective clients to really be an effective marketing tool for the business.

In this guest post, business consultant Maria Marsala shares her checklist of 19 ways that financial advisor websites can be made more credible and trustworthy. From the importance of having your own domain name - for both your business and your email address - to eliminating annoying flash and pop-ups, to making sure that prospective clients can learn the information they need, Maria's list helps to ensure your website is up to speed in today's environment.

Whether you're looking at creating your first advisory firm website, upgrading and replacing it to something new, or simply looking for a checklist that you can use to review your own site and perhaps make a few tweaks, I hope you find today's guest post to be helpful!