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Weekend Reading for Financial Planners (June 16-17)

June 15, 2018 02:54 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the window for the Department of Justice to appeal the DoL fiduciary rule to the Supreme Court has passed, in what most believe is the fiduciary rule's final death knell... even as the 5th Circuit's clerk office has still not actually issued its formal mandate to actually vacate the rule.

Also in the news this week is an announcement by FINRA that it is beginning the process of overhauling the back-end technology that powers the CRD (Central Registration Depository) system that handles all the registration and disclosure details of FINRA-registered representatives (in what is anticipated to be a 3-year technology project to complete), and a fascinating study from the Boston Consulting Group that finds as many as 1/3rd of advisors are discounting their fees despite the fact that a mere 10% of clients are very fee-sensitive and fully aware of what they're paying in the first place!

From there, we have a number of behavioral finance articles, including the idea from Shlomo Benartzi that clients should "A/B test" their financial preferences before committing to a major financial decision, that our instincts as social animals to compare to other people is a driving force in our financial unhappiness (but can be 'managed' by getting a financially healthy role model instead), and a look at how the ongoing force of technology commoditizing products is leading advisors increasingly the direction of handling the more emotional aspects of clients' financial decisions.

We also have several additional articles on the evolving role of the financial advisor, including a look at how most younger clients actually need more financial advice and not investment advice anyway (which can be evaluated by looking at their human-capital-to-investment-capital ratio), a discussion from Morningstar's Don Phillips on the rise of the (non-investment) advisor, and an analysis by Bob Veres of how the evolution of the financial advisor over the past 40 years has arguably already so morphed the role of the advisor (and the role that commissions play in incentivizing advisors) that the SEC may be ill-equipped to handle the advisor of the future.

We wrap up with three interesting articles, all around the theme of the role our industry associations play in the financial planning profession: the first raises the question of whether the FPA will once again take up the fiduciary torch by suing the SEC over its watered-down SEC advice rule that exempts brokers from a fiduciary duty (after suing the SEC on a similar version of the same issue - and winning - nearly a decade ago); the second examines the CFP Board's new Code of Ethics and Standards of Conduct and how the organization has effectively shifted from a "two-hat" approach (with a fiduciary and non-fiduciary hat) into a "tattoo business" where the fiduciary CFP obligation cannot be removed once tattooed on; and the last explores the sticky question of whether we have too many professional associations and designations that create redundant cost and diluted advocacy, or if the reality is that we need multiple designations and associations to have a healthy level of competition amongst the organizations that serve financial advisors in the first place.

Enjoy the "light" reading!

When A Good Offer For A First Financial Advisor Job Really Isn’t

June 14, 2018 01:01 pm 0 Comments CATEGORY: Personal/Career Development

Periscope Office Hours Cover Image - Breaking Into A Financial Advisor Career- Get A(ny Non-Sales) Job

Getting started as a financial advisor is difficult, in a world where most job offers to become a financial advisor still require getting all of your own clients from scratch, and compensation is tied to the amount of clients and business the new advisor brings in. But the reality is that when a financial advisor is hired from the start to get new clients and generate their own revenue, it's not really a "financial advisor" job in the first place; it's a job offer to be a financial salesperson, as the key to success is not selling the advisor's time or expertise, but the company's products and solutions instead. Which for many (or even most) people, is a terrible way to start a career as a financial advisor.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why taking a position as a financial salesperson is not a good path to becoming a financial advisor, and how those who are interested in actually becoming financial advisors can pursue a better first job instead.

It is first crucial to distinguish between a financial advisor and a financial salesperson. Regardless of what title a company gives to their representatives (no one calls their representatives salespeople because “sales” is taboo, while “advisor” sounds professional), the reality is that when you actually look at the duties of jobs at especially a lot of large national firms that hire "financial advisors", these firms are looking for financial salespeople, usually because their business is the manufacturing and/or distribution of financial services products (e.g., insurance or investment products). The biggest clue is that you are expected to get your own clients from day 1, and that their training is focused not on earning the CFP certification and learning to give better advice, but on sales training, how the company's products work, and how to implement them in various client situations. In fact, new advisors often aren't even allowed to charge clients a separate fee for advice (or need to reach a certain level of production or experience before you will be allowed to)... because, again, these firms are hiring financial salespeople rather than financial advisors.

Fortunately, however, it is not this way at all firms. There are non-sales roles in the industry where you can work as a paraplanner or associate advisor in an existing advisory firm, where your job is to support an existing financial advisor and their clients, rather than bring in new clients - roles that are needed at firms that are actually in the business of giving advice to their clients. The caveat, though, is that firms hiring paraplanners and associate planners these days often want their candidates to have CFP certification (or at least to have passed the CFP exam), so if you are not at that stage, just getting your foot in the door (working in operations or another area) may be your best bet.

Ultimately, the progression of entry-level jobs in the advisory industry (from most to least preferred) would be: (1) a paraplanner or associate planner; (2) an operations, client service, or administrative job; (3) any other salaried job in financial services; and (4) a job as a financial salesperson (as long as you can afford to stay in the business if it turns out that you struggle with sales and getting new clients from the start).

But the key is to understand that the real “entry level job” to a career as a financial advisor is not to start selling products from day 1, and companies hiring "advisors" to do so are really hiring financial salespeople for a sales job instead. Fortunately, even if you don't succeed in an initial financial salesperson role, you can still move forward in one of the other entry-level positions, whether via association websites like the FPA or NAPFA, the CFP Board’s Jobs Board, or our listing of opportunities at New Planner Recruiting. Additionally, a growing number of large firms are realizing this challenge and increasingly hiring new advisors onto teams in entry-level support roles.

But if an honest assessment of your skills does not suggest you would be a good candidate for a sales role, then accepting a job as a financial salesperson is likely not the best path forward for you! And at a minimum, it's important to go into the role with your eyes wide open!

Universal Life Insurance Funding Strategies: Optimizing Death Benefit vs Cash Surrender Value IRRs

June 13, 2018 07:01 am 0 Comments CATEGORY: Insurance

Before the development of universal life insurance, permanent life insurance was relatively straightforward. Policies had fixed premiums, fixed death benefits, and fixed interest rates generating consistent growth of cash surrender values over time. As a result, determining the internal rate of return (IRR) on policies was relatively easy. However, as “flexible premium” universal life products were developed in the early 1980s, policyowners gained flexibility to structure premium payments differently – introducing the possibility for individuals to place greater emphasis on either the IRR of death benefits or the IRR of cash surrender values based on their goals. However, because of the complexity of universal life insurance, many policyowners (and financial advisors) still remain unaware of this ability, and how to properly structure flexible universal life premiums to fully optimize either one of these objectives.

In this guest post, Rajiv Rebello of Colva Insurance Services examines various universal life insurance premium funding strategies, illustrating that in order to fully understand the dynamics influencing both death benefit and cash surrender value IRRs, it is crucial to understand exactly how the policies work, and in particular the interrelationships between cash value, death benefits, and cost-of-insurance (COI) charges, and the ways that changes in the Net Amount At Risk (NAR) compound over time.

Ultimately, the key point is to understand that strategies that maximize the long-term cash value of universal life insurance - which are all about minimizing the net amount at risk to reduce COI while managing the tax code requirements that there must always be at least "some" amount of death - and fundamentally different than the strategies to maximize the IRR of the death benefit of life insurance (which is driven by minimizing the amount of cash in the policy to maximize the net amount at risk and therefore the amount of money the insurance company must come to the table with in the event of death). Which means it is crucially important to pair the right funding strategy with the right policy structure in order to accomplish the long-term goals of a client with a particular flexible premium universal life insurance policy!

#FASuccess Ep 076: Why Financial Therapy Beats Financial Advice To Help Clients Change Their Behavior with Kristy Archuleta

June 12, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 76th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kristy Archuleta. Kristy is an Associate Professor in the financial planning program at Kansas State University, with a focus on teaching advisors how to actually change their clients' behaviors for the better.

What's unique about Kristy, though, is that she's also a licensed marriage and family therapist, and comes to the world of financial planning and how to help clients improve their financial behaviors with the perspective of a trained psychologist.

In this episode, we talk in depth about Kristy's work at the intersection of financial planning and financial therapy, how a financial therapist would view common financial planning challenges from a different perspective with different solutions, the way that therapists approach helping clients to change their behavior by recognizing that clients are the best experts in their own lives, and why according to the best practices research of therapists themselves, what financial advisors typically do – give advice with a comprehensive list of recommendations to their clients about how to improve their financial lives – is actually not a good way to get them to change their financial behaviors for the better.

We also talk about Kristy's work in helping to co-found the Financial Therapy Association, the development of a new Certified Financial Therapist (or "CFT") program they're developing, why Kristy anticipates that financial therapy will eventually become a specialization path for financial planners... and where the line should still be drawn between the end of what advisors can do by providing financial therapy, and when it may still be necessary to involve a fully licensed mental health professional on the client's behalf.

And be certain to listen to the end, where Kristy talks about her own upcoming transition, from teaching financial planning and financial therapy at Kansas State University, to joining the financial planning program at the University of Georgia, to hopefully help them build more insights from financial therapy into their core financial planning curriculum as well.

So whether you are interested in learning more about the intersection between financial planning and financial therapy, how financial therapy can help clients improve their financial behaviors, or how financial therapists can become certified through programs such as the CFT, I hope you enjoy this episode of the Financial Advisor Success podcast!

Celebrating 10 Years Of Kitces.com And Hiring For The Future

June 11, 2018 07:01 am 0 Comments CATEGORY: Nerd's Eye View

Featured Image Celebrating 10 Years At Kitces.com

In 2008, Kitces.com was first launched as a platform to showcase my new paid newsletter service, The Kitces Report, and to advertise my services as a speaker for financial advisor conferences, with a “grand vision” that my newsletter would help to draw interest for more speaking engagements, and that speaking in front of more advisor audiences would help me grow the number of paid subscribers to the newsletter. And on the side… I launched a blog, to share a few of my thoughts on financial planning strategies and industry trends that didn’t quite merit a full issue of the newsletter.

A decade later, the growth of the Nerd’s Eye View blog has surpassed even my wildest dreams, moving from a side project to the center of my business, built on a foundational belief that if we can stay focused on advancing knowledge in financial planning and helping real financial advisors to be more successful in their businesses and with their clients, that growth and other opportunities would come. And indeed they have, as the latest Erdos & Morgan study on financial advisor usage of digital media found that the Nerd’s Eye View ranks #1 for influence, objectivity, credibility, and simply being actually useful to financial advisors.

Given this growth, we’re excited to announce the addition to two new positions with the Kitces.com team. The first is a new Associate Editor role, to help us manage the ever-growing volume of content, readers, and behind-the-scenes logistics that are necessary to execute our growing media platform. The second is a new Senior Researcher, to replace Dr. Derek Tharp as he takes on a new financial planning teaching position at the University of Southern Maine’s business school. The Senior Researcher will help us to build a growing base of original research we aim to conduct directly through the Kitces.com platform, to help gain a better understanding of what real financial advisors actually do – from how they deliver plans, to how they price their services, how they use technology, and how they market and grow their advice-centric firms.

In the end, the goal of this growth and expanding the Kitces.com team is not to alter the service that we provide to the financial advisory community; instead, it’s simply to help us get even better at what we already do. Because in the end, a successful growing business needs more good people to be more successful and have a bigger impact to the community it serves. Which is true for both running a financial advisory firm itself, and also a platform that serves them. We’re nowhere close to being done yet, and I can’t wait to see what we can build to help the advisor community in the next 10 years from here!

Weekend Reading for Financial Planners (June 9-10)

June 8, 2018 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 a look at why, nearly 3 months after its surprising decision to vacate the DoL fiduciary rule, the clerk's office of the 5th Circuit Court of Appeals still has not actually issued its official mandate to vacate the rule, raising the question of whether there may actually still be some other last-ditch effort afoot to save the rule... or if the clerk's office is simply backed up on paperwork, such that the final issuance will be coming soon.

Also in the news this week is a brief recap of the Financial Planning Association's Advocacy Day in Washington DC, where 85 FPA members spoke with Congressional lawmakers and their staff about raising the standard for financial advice (and advocating that "financial planner" should also be a protected term, along with financial advisor), and the launch of "Equita Financial Network" for women-led advisory firm owners who are seeking more infrastructure and support to launch and run their own independent advisory firms.

From there, we have a number of articles on the ongoing shifts in the broker-dealer industry, as May is the month that several industry publications issue their annual "top broker-dealer" lists and interview broker-dealer executives. Highlights include: the annual Financial Planning magazine survey, that highlights how the largest broker-dealers are adapting to the changing landscape as this year marks the first ever that fee-based revenue at the top-50 independent broker-dealers exceeds commission-based revenue; the annual ThinkAdvisor broker-dealer Presidents poll showing that in the near-term, most broker-dealers are struggling the most with technology and regulation, even as their advisors are struggling to attract new clients in an increasingly competitive environment; how the likely roll-back of the DoL fiduciary rule (and the non-fiduciary SEC advice rule) is giving a new wind to small broker-dealers, even as more and more large broker-dealers appear intent on rolling them up (which might not be a bad deal for those smaller broker-dealers in the end); how the burden of FINRA regulation is so cumbersome that not only are many advisors leaving broker-dealers to start their own RIAs, but now some hybrid broker-dealers are themselves considering whether to spin off their entire "legacy" broker-dealer and instead just focus on becoming mega-RIAs in the future; how Cambridge Investment Research embodies this trend by choosing to start eschewing broker-dealer terms like "OSJ" and "branch" as the majority of its advisors, and its revenue, now come from the fee-based side of the business; and how the increasing mobility of brokers is leading them to take a hard look at not just the costs of the broker-dealer that are subtracted from their payout grids, but all the additional ways that broker-dealers mark up their various investment solutions by 10bps - 25bps (or more in some cases).

We wrap up with three interesting articles, all around the theme of how the "politicization of everything" is making more and more of us have to deal with criticism and negative feedback, and the best way to handle it: the first is a Harvard Business Review examination of how various CEOs are handling the growing pressure of businesses to take public positions on controversial issues; the second looks at how, whether it's political criticism or simply personal criticism, there are better and worse ways for us to take in criticism to actually learn from it; and the third is a good reminder that, no matter what we do, someone will likely criticize it, so often the best approach is simply to try take it all in, figure out if there is a grain of truth that merits an adjustment, and then simply move on and focus on making whatever choice is right for you (may as well, if you're going to be criticized no matter what!).

Enjoy the "light" reading!