Nerd's Eye View blog

The Goldfarb Tip Of The Camarda Iceberg – CFP Board’s Ongoing Fee-Only Compensation Disclosure Debacle

September 23, 2013 06:45 am 12 Comments CATEGORY: Planning Profession

In recent months, the CFP Board has been getting a lot of attention regarding its compensation disclosure rules and its definition of what constitutes "fee only" for financial planners. What started with the public resignation of then-Board-chair Alan Goldfarb - later publicly admonished for his improper disclosure of "commission and fee" compensation - has led to a notice to members, an "educational" webinar, and a series of increasingly problematic news stories, from the schism between CFP Board and NAPFA's definition of fee-only, to negative comments from former DEC members, and most recently a "breaking" news story that the CFP Board's website was allowing hundreds of wirehouse advisors to declare themselves "fee only" in direct contravention to the CFP Board's rules. As a result of this latest article, last Friday the CFP Board converted all of its more-than-8,000 "fee-only" advisors to a compensation disclosure of "None Provided", forcing them to affirmatively re-declare themselves to be "fee only" in compliance with the current rules.

Yet the also-recent announcement that Florida CFP certificants Jeffrey and Kimberly Camarda were suing the CFP Board regarding their own alleged compensation disclosure improprieties make it clear that in truth, the CFP Board's recent struggles are not so recent after all. In point of fact, it appears that the CFP Board has been dealing with this issue since early 2011, and only now, 2.5 years later, has it finally culminated to the breaking point where everything is coming to light. Along the way, it appears that the CFP Board has tried to act with integrity, in a manner consistent with its original Camarda ruling... except, unfortunately, given how problematic the original precedent actually was, sticking to the ruling is just compounding the problems further and further.

Advisors in good faith have acted on the reasonable assumption that they cannot be "entitled to" compensation that no client has ever actually paid, such that it doesn't necessarily matter who the advisor works for... what matters is what the client actually pays (and only then, if a commission is paid, should we be trying to evaluate to what person or entity the compensation was paid and the related parties involved). If the ultimate intention of the CFP Board is to truly change the compensation disclosure rules to what they are now - after recognizing it's a deviation from what the rules have been! - such alterations need to occur through a public comment process that allows the stakeholders to have a constructive role in the discussion. At this point, it seems time for the CFP Board to take a step back, acknowledge that - intentional or not - its current interpretation of the rules is in fact a material change from how the stakeholder community may have intended them when the rules were last changed in 2008, as evidenced by the sheer number of advisors who have been "out of compliance" simply by trying to disclose what their clients actually pay.

Weekend Reading for Financial Planners (Sep 21-22) – Practice Management & Advisor Tech Edition!

September 20, 2013 11:55 am 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with an interesting article about a new research study on the online algorithm-based advice startups, suggesting that ultimately the role for many of them may turn out to be more like a "second opinion" platform than a primary advisor.

From there, we have a couple of practice management articles, including one about how to hire and train your client services team (hint: don't use your junior financial planners!), and the importance of going through an annual process to update your firm's strategy and why it matters.

We also have a number of advisor technology-related articles this week, including reviews of financial planning software Omyen, the latest cloud-based version of Junxure CRM, and online form and document signature platforms Laser App and DocuSign. There are also articles on how to create a digital/virtual business card that clients can access by text message, some ideas on how to integrate video into your marketing (and what, exactly, you should talk about in your videos!), and a review of some tools advisors can use to speed up their writing and note-taking (from voice-recognition software to mobile dictation services).

We wrap up with three interesting final articles: the first is from Philip Palaveev, suggesting that perhaps the difficulty of larger advisory firms financing successors is less about the actual affordability and financing of the practice and more about training future owners to be ready and willing to take the entrepreneurial risks involved; the second is from financial planner Ronald Sier about the importance of niches, and the idea that perhaps the best niches are not about what you do or who you work with, but the kinds of feelings you try to evoke in your clients; and the last is from practice management consultant Abby Salameh, who notes that while the productivity benefits of various technology-enabled communication (from social media to email to text messages) is great, that advisors still need to be certain to just pick up the "old-fashioned" telephone and call their clients from time to time as well! Enjoy the reading!

Is A Reverse Mortgage Better Than Keeping A Traditional Amortizing Mortgage In Retirement?

September 18, 2013 07:05 am 17 Comments CATEGORY: Debt & Liabilities

While the current low-yield environment has presented significant challenges to retirees trying to generate retirement income, the upside is that low yields have also driven down borrowing costs to record lows. As a result, retirees are increasingly deciding that perhaps keeping a mortgage and not paying it off is a good idea after all; with the average long-term return on stocks being significantly higher than today's 30-year mortgage rates, an inexpensive mortgage becomes a strategy to leverage the household balance sheet and boost the amount and sustainability of retirement income.

Yet the decision to keep a mortgage in retirement is not without risk. There's a danger than equities won't perform as expected, and fail to generate a return in excess of the borrowing cost over a relevant time period. And even if the returns do ultimately add up, the ongoing payment obligations for a traditional mortgage create a "sequence of returns" risk for the retiree, where withdrawals to handle the mortgage payments could so deplete the portfolio during an extended period of bad returns that there may not be enough money left over for when the good returns finally arrive.

From this perspective, retirees should perhaps consider the reverse mortgage instead. While such loans have been relatively unpopular - due in part to their high costs, and because they're often viewed as a borrowing option of last resort - the reality is that the lack of any cash flow obligations for a reverse mortgage actually allows it to eliminate the sequence risk from the mortgage-in-retirement strategy. In fact, over a long period of time, using a reverse mortgage in retirement can result in materially greater wealth when equities do perform as desired, as the reverse mortgage maintains a greater amount of household leverage, even while reducing the exposure to the impact of an unfavorable sequence of returns.

In the end, there are still a few caveats to the strategy - most notably, that reverse mortgages still tend to have higher upfront and ongoing borrowing costs (though the gap is narrowing), and that lending limits may constrain the usefulness of the strategy for affluent clients (who are often most interested in increasing household leverage as a retirement strategy). Nonetheless, the fact remains that for those who truly do wish to engage in the mortgage-in-retirement strategy, the reverse mortgage may be the most effective way to execute it.

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!