Nerd's Eye View blog

Deadline Looms For SEC Request For Information On Potential Uniform Fiduciary Standard

July 1, 2013 11:01 am 1 Comment CATEGORY: Planning Profession

Almost four months ago, the SEC released its Request For Information to assess the costs and benefits of a potential uniform fiduciary standard for brokers and investment advisers. This week, the deadline for the comment period ends, and the SEC will begin to evaluate comments and come to a decision about whether to move forward with a fiduciary rule, to back away from it, or to simply partially "harmonize" the rules between brokers and investment advisers without fully imposing a uniform standard.

Ultimately, the SEC's cost-benefit analysis study will just be one of many steps in the progression towards a potential uniform fiduciary standard, but it is a critically important one, as the SEC's recent struggles in having its rules challenged have made it clear that the SEC is unlikely to proceed on the fiduciary issue unless it can get comfortable with the results of its economic analysis. This is especially true as the SEC tries to sort through thorny issues, including the fact that Section 913 of Dodd-Frank mandates that any uniform fiduciary standard must be at least as stringent as the Investment Advisers Act of 1940, but that the receipt commissions alone should not automatically run afoul of whatever the future rule will be.

While several "big hitter" organizations have already weighed in, it's crucial for all advisors who have an opinion on the matter to submit their own comments, whether just to generally support the implementation of a uniform fiduciary standard, or to more specifically offer up detailed comments on their own perspective and personal experiences on the issues, or any quantitative or qualitative information and data they have to share. Accordingly, for those who haven't already submitted a comment letter, now's the time - comments can be sent via email or using the SEC's online form through July 5th!

Weekend Reading for Financial Planners (June 29-30) – Blogosphere Edition!

June 28, 2013 05:02 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue is drawn entirely from blogs and bloggers I read who deliver content that has relevant for financial planners. We start off with a relatively new blog, which shares a great guide in how to write an attractive "bio" page as an advisor; in a world where we are often focusing on storytelling to communicate planning strategies and solutions, it's time to better apply the same techniques in communicating about ourselves, too!

From there, we have a few technical articles, including a great discussion of what is (and isn't!) really guaranteed when clients say they're considering a variable annuity with a "5.5% guaranteed growth rate," and a look at whether clients should consider skipping employer-based health insurance as the new health insurance exchanges open up later this year.

Beyond that, there are several articles related to technology and social media this week, including whether the Google Apps platform is a viable solution for a growing advisory firm, a due diligence checklist of questions to ask when evaluating a potential CRM system, some "advanced" tips to getting more productive value out of Twitter, and a look at how advisors might use Pinterest to help grow their business. There are also a few practice management related issues, including a great look at some tips and opportunities in trying to self-publish a book (it's a lot easier than you think and there are lots of resources to help!), some things to consider if you're considering a podcast, and some guidance from Angie Herbers about how to fend off and resolve employee problems without resorting to just firing and replacing them.

>We wrap up with three final articles that look a bit more inward: the first is from Ronald Sier, and looks at whether it is appropriate and ethical to try to influence your clients' decisions (his conclusion: as long as it's done in their interests, yes it's appropriate, and in fact you should be trying to do it!); the second is from Tim Maurer, and his new "Financial Common Ground" initiative that is trying to establish what he calls the "unifying principles of personal finance" that hopefully all experts can agree on, regardless of their business model; and the last is a review of the recent Robert Cialdini book "Yes! 50 Scientifically Proven Ways To Be Persuasive" that includes some fantastic ideas on influence and persuasion that could be used to tweak an advisory firm's communication techniques to improve their business results. Enjoy the reading!

AXA And Hartford Prospectus Changes A Troubling New Trend For Existing Variable Annuities

June 26, 2013 11:01 am 11 Comments CATEGORY: Annuities

Over the past 15 years, the variable annuity industry has experienced a tremendous amount of change - from the explosive rise of variable annuities with guaranteed living benefit riders for retirement income leading up to the fall of 2008, to the dramatic pullback of many insurers away such offerings in the aftermath of the financial crisis. While ultimately many annuity owners who purchased contracts prior to 2008 have been happy with their contracts and the guarantees, the same has not been true of the annuity companies who offer them, as a rising number of insurers have been offering buybacks to annuity owners that offer contract value increases or outright cash in exchange for releasing the company from their guarantees in order to reduce exposure.

In a disturbing new trend, though, several annuity companies have begun to make changes to the investment offerings, ostensibly to simply change the lineup of funds being offered, but done in a way that increasingly appears to change the rules of the game for existing annuity holders after the fact. The first shot across the bow came earlier this spring from AXA, who in the process of rotating investment offerings in a 'routine' prospectus change indirectly defaulted a large number of annuity holders into more conservative investments than they may have originally selected (and often into their own affiliate-managed funds to boot). In a more concerning shift, now Hartford has decided to change its investment offerings as well, and actually require policyowners to voluntarily adopt the new investment offerings or lose their annuity guarantees! In other words, a number of contract owners with what were purported to be lifetime guarantees are now renewed to complete a "renewal" process by October 4th or permanently lose their lifetime income protection!

While such a move is certainly not popular, the reality is that because several companies making recent changes - including Hartford - are not in the business of offering variable annuities anymore, the potential fallout to the companies in damage to their brands is arguably limited. Nonetheless, this emerging trend to alter annuity contracts after the fact by changing the prospectus and attaching requirements to continue the guarantees puts new pressure on advisors to monitor on behalf of clients, and arguably even advisors who didn't originally sell the annuity could still be liable if they're engaged for ongoing monitoring of the client's comprehensive financial plan and miss a crucial change to the guarantee! As a result, advisors will need to be increasingly diligent in reviewing client annuity contracts, or look to outsource to due diligence services that can help to support the process.

Upcoming Blog Re-Design, RSS Feed Updates, And Nerd’s Eye View Tops Zywave Survey Results

June 25, 2013 11:02 am 7 Comments CATEGORY: Nerd's Eye View

A few months ago, many of you were kind enough to complete a series of two reader surveys - one for the Nerd's Eye View blog, and another for The Kitces Report newsletter. In the coming months, I'm excited to announce that you'll be seeing the fruits of those survey results, in the form of a number of upgrades and improvements to this platform. The visual look of the blog will be modernized (yes, including an increase in the default font size!), the comment system will be replaced, and several enhancements will be made to the members section for newsletter subscribers. In addition, we will begin to offer periodic webinars for continuing education credit, and later this year the written content of the blog will be complemented by a new podcast.

You'll see these changes roll out incrementally in the coming months. For the time being, this is just an announcement of changes to come, with an important note that if you're using an RSS reader to follow the content of this blog, there's now an updated RSS feed link to use (as the details of this post explain, you just need to complete a simple update to your blog reader software to ensure you continue to receive new content in the future).

In the meantime, thank you to all of you who voted Nerd's Eye View as #1 in the recent Zywave survey of the top news sites and blogs for financial advisors!

A Standardized Financial Planning Process Allows For A More Customized Client Experience

June 24, 2013 11:03 am 6 Comments CATEGORY: Practice Management

Customization versus Standardization - it's a challenge to find the right balance in most industries, and financial planning is no exception. In fact, the prevailing view in financial planning has been that standardization simply has no place here - when every client is unique like an individual snowflake, the whole essence of financial planning is about customizing to the individual needs and goals of the client, right!?

Yet the reality is that this viewpoint confuses standardizing the process and inputs going in, with the outcomes that come out. While standardization may have once meant that not only was the process always the same, but also the results at the end, this is no longer the case; instead, it looks more like Starbucks, where a highly standardized process also helps the company to better deliver that individualized, personalized coffee order. It's only through standardization of the process that Starbucks has simultaneously become a remarkably efficient and profitable company, capable of charging a premium for an effective customer experience for what is otherwise a commoditized product, and become the company that introduced comically long hyper-personalized coffee drink orders to our coffee culture.

In the financial planning context, this means it may be time to let go of the insistence that standardization of a financial planning process and deliverables are at odds with customized individual solutions for clients, and instead recognize that bringing better consistency to the process may actually be the thing that allows us to create more trust and make that personalized financial planning experience for clients better than ever.

Weekend Reading for Financial Planners (June 22-23)

June 21, 2013 04:02 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with a discussion of the CFP Board's decision to issue a Letter of Admonition to its former board president Alan Goldfarb, tying to the fact that Goldfarb indicated he was a "fee-only" advisor even though he had a 1% ownership interest in a broker-dealer (though his clients only paid him directly via fees).

Beyond that, there are several practice management articles this week, including a profile of some newer advisors and how they're growing their business in a world where cold calling is dead, a discussion of how to transition your business from a generalist practice to one focused on a specialized niche in a world where specialists in various professions tend to make far more money than generalists, some ideas about how to identify good prospective rainmakers to hire and promote for your firm, a discussion of whether the boomers vs Gen X/Gen Y gap may be less about the failings of younger advisors and more about the fact that they simply approach the world differently, and some tips to taking advantage of the slower summer season to review and update your firm's technology.

From there, we have several more technical articles, including a Journal of Financial Planning article that provides a nice review of semivariance/semideviation and downside portfolio risk measures, a discussion of health care planning for retirees, and tips to establish "incentive" trusts like a financial skills trust or business skill trust that will encourage the beneficiaries towards certain behaviors by incentivizing the desired results.

We wrap up with three final articles that look a bit more inward: the first is from Angie Herbers and suggests that while advisors often tackle bad "financial enabling" behaviors in their clients the advisors themselves are often enablers in how they structure compensation and give raises to their staff; the second is from Mark Tibergien, and looks at how, because the best motivation is ultimately internally driven, it's important not to rely too much on just designing incentives to build a successful business but instead its better to focus on building an environment where motivated staff can be successful and flourish; and the last is from Carl Richards, who makes the important point that while it's crucial for financial planners to help clients weigh trade-offs, including complex decisions that have both financial and personal values consequences, it's equally crucial for planners not to impose their own value system and judgement on client decisions and instead let them come to their own conclusions. Enjoy the reading!

Latest Social Security Trustees Report For 2013 Confirms Most Benefits Will Still Be Paid

June 19, 2013 11:03 am 16 Comments CATEGORY: Retirement Planning

A few weeks ago, the 2013 Trustees Report on Social Security was released, confirming once again that the Social Security system continues to pay out more than it takes in, remaining on a path that is ultimately unsustainable. Yet the details underlying the report reveal a more profound reality: that while Social Security as it is currently constituted is not viable in the long run, the downside of depleting Social Security is far less severe than we often make it out to be.

The reality of the Trustees Report is actually that, even if we do nothing to resolve Social Security in the coming decades, that the system will still be able to pay out 77% of its projected benefits in 2033 when the trust fund is depleted, and continue to pay out more than 70% of its projected benefits for the remainder of the century. In other words, even if we do nothing to fix the system at all, today's Generation X and Y young adults would still be anticipated to receive about 3/4ths of their anticipated benefits for their entire retirement.

And that's if nothing is done. If instead the woes of Social Security ultimately are addressed, through some combination of current and/or future benefit adjustments, and increases in the Social Security payroll tax rate, wage base, or the taxation of benefits, the shortfalls decline further and the ability to pay future benefits rises. Which means that ultimately, the most likely future outcome is a haircut of less than 23% of benefits for today's young adults, and that most future benefits will in fact still be funded. As a result, it's important to recognize the real state of the Social Security system, to ensure that clients receive appropriate advice in light of what isn't, and is, likely to be there when the time comes.

Financial Advisor’s Guide To Establishing A Next Generation Financial Planning Firm

June 18, 2013 11:02 am 48 Comments CATEGORY: Practice Management

Starting a financial planning firm in today's world can be complex, because of the myriad of technology that's necessary to operate the business in an efficient (and regulator-compliant!) manner. While you can get a compliance consultant to help with some of the legal requirements to getting started, it's often up to you as the advisor to make the decisions about what technology - including software and systems - you will use to run the practice.

In this guest post, Gen Y advisor Alan Moore shares the comprehensive list of every software package and technology tool he's using to operate his new RIA, along with why he chose it and what it costs. It's a fascinating look at what a younger technology-inclined advisor sees and expects of today's technology marketplace for advisors.

If you're a newer advisor that recently started your own practice, or are thinking about going out on your own, this should be helpful to you as a starting point for solutions to consider and some ideas about what's important to focus on. And even if you're an existing advisor with an established practice, you may still be inspired to make a few changes or additions to your own suite of tools!

Summer Book Reading List For Financial Planners

June 17, 2013 11:03 am 11 Comments CATEGORY: Personal/Career Development

As the school season wraps up around the country, it's time for summer vacations to get underway, and along with them a lot of time for relaxing and reading books.

As an avid reader myself, I know I'm always eager to hear suggestions of good books to read, and I suspect many of you are often looking for ideas as well. Accordingly, I'm sharing my own list of 10 "summer reading books for financial planners" (at least, for those of you who are up for reading non-fiction books for fun!), from business and professional self-improvement books to the latest in behavioral finance and investment theory.

I hope you find this book list to be helpful... and that you share your own suggestions of what you're reading in the comments at the end of this blog post!

Weekend Reading for Financial Planners (June 15-16)

June 14, 2013 05:02 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with a great article by Texas Tech professor Michael Finke, who tackles the challenging question of whether financial planning is more art or science, concluding that while it may not be all science, financial planners should probably be incorporating a lot more science than is typically done today.

Beyond that, there are a number of articles about technology for advisors this week, including a review by Bill Winterberg of using live chat systems on your website for communication with prospects and clients, reviews by Joel Bruckenstein of portfolio tool Chaikin Analytics for iPad and separately the cloud-based virtual desktop solution External IT being rolled out by Fidelity Institutional Wealth Services. There's also a review of some of the interesting tech companies that were seen earlier this Spring at the Finovate conference for financial services tech innovation, and a look at some of the recent data from the InvestmentNews 2013 Advisor Technology Study revealing that "innovator" firms that aggressively adopt technology are showing gains in everything from revenue and profits to valuations and easier succession planning.

From there, we have several articles specifically looking at some of the challenges that insurance companies are facing these days, from a new warning that some insurers many be less secure than they appear due to a "shadow insurance" loophole where they are reinsuring themselves with their own subsidies, to a subset of long-term care insurance companies that have been creating a lot of claims hassles with fine print and red tape, to the recent announcement by The Hartford that it will force a large swath of existing variable-annuity-with-income-rider policyowners to effectively renew what was supposed to be a lifetime guarantee or it will be cancelled.

We wrap up with three final articles: the first is from Angie Herbers and suggests that perhaps the "slow to hire and quick to fire" management practice is not really the best approach; the second is a good reminder that even as the world goes more digital, it is important not to forget the human beings at the other end of your business; and the last provides an important reminder that while the facts about why clients should work with us are important that it's ultimately the emotional connections we make that lead to real trust. Enjoy the reading!