Nerd's Eye View blog

Weekend Reading for Financial Planners (June 8-9)

June 7, 2013 05:33 pm 3 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with three big articles on industry trends: the first is a review of the comment letter submitted by the Financial Planning Coalition to the SEC, with a growing cadre of high-profile organizations supporting a fiduciary duty; the second is an interesting look at how CFP certification continues to grow in the large firm environment, even though some firms aren't entirely convinced the certification results in higher professional success; and the third looks at some of the trends with RIAs, including how margins are getting squeezed as the advisor environment gets more competitive. In a similar vein, there's also an article discussing some of Bob Veres' latest perspective about whether many advisors may actually be misjudging their competitive environment and undercharging clients.

From there, we have several technical articles this week, including a roundtable discussion about implementing a tactical asset allocation investment approach in your firm, a look from Moshe Milevsky at how in Chile the biggest annuity problem is that so many people choose to annuitize, a summary of some of the big changes coming to the healthcare system in 2014 as the major provisions of the Affordable Care Act kick in, and good overview of the health insurance exchanges in particular will work as they open up on October 1st, and an interesting warning from The Slott Report about clients who may be using their retirement plans to fund a business venture but are not reporting it properly on Form 5500 to the IRS.

We wrap up with two final articles: the first is a summary of a recent "Barron's top advisors" panel sharing what the keys to success were for them (most common theme: specialize); and the second is a good read from Jason Zweig of the Wall Street Journal about our shaken trust in the integrity of the financial system, and how important it is - due to our behavioral biases - that we continue to see ourselves living in a just world, which means it's still important for regulators to get more aggressive against wrongdoing, for Wall Street to show some contrition for its actions, or ideally both. Enjoy the reading!

3 Steps for Building a Powerful Financial Advisor LinkedIn Strategy

June 6, 2013 11:02 am 0 Comments CATEGORY: Practice Management

LinkedIn is a powerful online resource for financial advisors. With over 225 million members who are active, engaged, and affluent, creating an influential presence on LinkedIn can help you take your business to the next level.

To tap into the business benefits of LinkedIn, you first need to make an investment in your presence that will position you as an influencer. In this guest post, Stephanie Sammons of Wired Advisor is going to explain how to do just that. Building influence on LinkedIn is a critical factor for expanding your visibility, developing new relationships, and creating business opportunities.

If you’re building influence, you won’t need to sell! Although building influence on LinkedIn takes time, it’s not only good business, but it’s the right approach to social media. As you demonstrate your online influence, you will drive more traffic, leads, and new client relationships into your business from your online presence.

Why Planning To Save More Tomorrow And NOT Today May Be A Better Approach

June 5, 2013 11:04 am 19 Comments CATEGORY: Retirement Planning

Over the past several decades, the national savings rate has plunged, even as the system for retirement preparedness has shifted increasingly towards defined contribution plans that rely on workers choosing to save in order to succeed. The end result is a generation of baby boomers that have found themselves woefully behind on retirement, notwithstanding all the "save more and spend less" advice that has been laid upon them for years.

Yet recent research suggests that perhaps the key to resolving this is to stop telling people to cut their spending now and save more, and instead to simply encourage them to save more tomorrow, instead. While this doesn't necessarily solve the challenge of the baby boomer who is already on the eve of retirement, the research suggests that for those in Generation X and Generation Y who still have years or decades until retirement, it may be a far more effective approach. The concept is rather straightforward - just commit to saving most of next year's raise, instead of cutting your spending now - yet the simple elegance is backed by a number of important behavioral finance concepts, including aversion to a loss of current lifestyle and taking advantage of our tendency towards hyperbolic discounting to make (future) saving less painful.

While there are some real world challenges to implementing a Save More Tomorrow approach - in part because planners lack some of the tools necessary to fully automate the process the way it's been done in the early research - it nonetheless raises the question of whether our "traditional" approaches to retirement advice, like "save more and spend less" or "save X% of your income every year" are due for a radical rethinking. By focusing on saving more tomorrow - and by not spending more tomorrow - perhaps we can actually find a better path to guide today's future retirees towards success.

Is Digital Search About To Replace Referrals For Finding A Good Financial Advisor?

June 3, 2013 11:03 am 10 Comments CATEGORY: Practice Management

Imagine for a moment that you just got some terrible news: you have a serious and potentially fatal illness, that requires the attention of a world-class expert to cure. Where would you go for information to find the person you need to literally save your life?

The answer probably would not be just going to your friends and family for referrals. Sure, they’re helpful for some quick advice about what kind of fabric softener is best or where to get good Mexican food, but this is a life-or-death matter, and it’s not clear that any of them would even know who the specialists are for your disease, much less who’s the best to try to cure it.

Instead, it is more likely that in today’s day and age, you’ll turn to the internet. You’ll search for who’s a recognized expert in solving your particular problem. You might seek out information from others who’ve shared your condition, to see what experts they ultimately turned to. Simply put, you’d use the power of the internet to find out who truly, really is the best person to work with to solve your problem. After all, it’s your life on the line.

Now, imagine instead that it’s not your physical health at stake, but your financial health instead. Is the value of 'getting a referral' versus 'searching for the best' really any different if you're finding the savior of your financial life instead? And does that mean that as we enter the digital age, it's time to eschew the advisory world's traditional reliance on referrals for growth, or at least recognize that it may deliver far less in the future than it has in the past?

Weekend Reading for Financial Planners (June 1-2)

May 31, 2013 05:02 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with two industry studies: the first shows that an advisor's interpersonal skills and emotional intelligence dominate the traits of what makes the top advisors most successful (as opposed to quality information and advice, which is necessary but not sufficient for maximal success); and the second finds that as overall economic and wealth growth slows in the US, advisors will increasing be forced to compete with other advisors to win clients (or "steal" them), rather than just relying on the newly wealthy for new clientele.

There are several practice management and technology articles this week as well, including a good reminder about why it's so important to say "no" to the wrong prospects, the rising importance of getting involved with the Google+ social network as a way to grow your advisory business, some best practices tips on Twitter for advisors that are genuinely useful, a fascinating profile of what digital marketing for financial planning may look like in the future (and that a few advisors are already implementing today), and some data on how Millenials do and don't differ from older clientele and how advisors may (and may not) have to change to deal with their future clients.

We also have a pair of technical articles, including one looking at how the new health insurance rules will work for 2014 - open enrollment begins in October for millions of people! - and another on how the use of bypass and other estate planning trust strategies are changing as estate planning takes on a more income-tax-centric theme for the many clients who simply no longer face any kind of Federal estate tax liability.

Continuing the opening theme of emotional intelligence, we wrap up with three articles looking at the importance emotional intelligence, relationships, and the value we provide: the first is an interview with Doug Lennick, author of Moral Intelligence 2.0 and a consultant to advisors; the second is a meta analysis from the Harvard Business Review of all the research on emotional intelligence and what we can draw upon from it; and the last is a more general article about how just being in the information of dispensing expert information is no longer sufficient in today's world, and that everyone - including advisors - needs to get out of the business of trying to hoard increasingly commoditized information, and instead deliver real value through non-commodity service, customization, and making complex information relevant. Enjoy the reading!

Introducing the Play Or Pay Tax – Employer Shared Responsibility Payments For Health Coverage

May 29, 2013 11:04 am 7 Comments CATEGORY: Insurance

In 2014, employers will first become responsible for payments for “shared responsibility” for health care coverage, or what is increasingly being called the “Employer Shared Responsibility Tax” (ESRT), as a part of the PPACA legislation, under the new IRC Section 4980H. The ESRT is also known as the “play or pay” tax, as it effectively requires employers to either “play” by offering employee health care, or pay a tax for failing to do so. The ESRT will apply to so-called "large employers" with more than 50 full-time (equivalent) employees.

What's significant about the ESRT, though, is the fact that while it does represent a potential new tax to manage or avoid, the reality is that for many employers the penalty tax may be less expensive than sharing in the cost of employee health care... which means over time, employers may increasingly choose to just pay the penalty and let their employees get their own coverage. While in the past this wasn't feasible - simply because health insurance was often viewed as a "mandatory" employee benefit, especially for highly competitive job markets or positions - the reality is that employees (and non-employees) will be able to get guaranteed issue insurance for standard policy types and rates without any limitations on pre-existing conditions beginning in 2014. Which means, simply put, that employees will no longer need to rely on employers for health insurance, at the same time that employers may find its cheaper to just pay the penalty and stop offering coverage to employees.

In the meantime, though, the transition may be challenging for employers, which must make a decision by the end of the year whether to change their approach to health insurance in 2014, and make some significant decisions with big economic ramifications (not to mention simply ensuring they properly comply with the rules so they don't offer health insurance to employees AND pay a penalty!). Nonetheless, the onset of the ESRT may mark the beginning of the end of health insurance being tied to employment, where employers instead just pay employees a little more (or not), and let them make their own health insurance choices. And although this may be a difficult transition for employees as well, in the long run many individuals may actually enjoy the greater flexibility to change jobs, start businesses, or just retire early, in a world where employment is simply no longer a requirement to get access to health insurance.

Why Profit Margins Should Matter To Any Financial Planning Firm

May 27, 2013 11:06 am 0 Comments CATEGORY: Practice Management

The profitability of a financial planning firm is a sensitive issue for many advisors. For some, the income of the business is a primary focus, and the balance between the financial success of the firm and its owners, and the services it provides to clients, is carefully balanced. For others, however, there is far less focus on the profitability of the firm, and more on the depth of service delivered to clients (even at the cost of profitability), especially if total income is "comfortable" to support the advisor's lifestyle.

Yet the reality is that whether the goal is to maximize income or not, the profitability of an advisory firm matters, in far more ways than "just" the income paid out to the owner. The profit margins of a firm are also crucial to its value; in the case of a sale to a third-party, it may be the difference between selling or not finding a buyer at all, and even for an internal succession plan, a business that isn't profitable is simply unaffordable to the next generation at any price. And of course, if the owner's exit from the business is unexpected - for instance due to disability or death - the profitability of the firm has a direct impact on whether the surviving family members receive any value at all.

But beyond the financials of the advisory firm owner, family members, and successor owners, the profitability of an advisor firm matters for another reason as well: the stability of the practice helps it to retain its staff. After all, a firm that is only marginally profitable simply has no flexibility to deal with the vicissitudes of business; like living from paycheck to paycheck, it creates an environment where even a small disruption can have major ramifications, as many firms discovered when the 2008-2009 financial crisis forced them to fire staff and reduce services to clients at the exact time clients needed them the most.

And perhaps, ultimately, that's the real reason why running a firm with healthy profit margins matter: a firm that doesn't have a healthy profit margin as a cushion to deal with inevitable difficult times that can occur may be unable to sustain the quality of its services to clients... or at worst, may have to cease serving them entirely.
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Weekend Reading for Financial Planners (May 25-26)

May 24, 2013 04:38 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with a series of practice management articles, including a discussion of the emerging talent shortage for experienced advisors, how to choose a practice management coach to work with, and making a decision at the crossroads of business growth about whether to continue being an advisor or become a CEO of an advisory firm. There's also an article on the importance of watching the words that you use in your business, another about the positive impact that happiness can bring to your business and your success (the reality is that it's not success brings happiness, but that happiness brings success!), and a good reminder that even when you're building an online marketing effort there's a difference between platforms you can control and those you can't so be cautious that you don't turn yourself into a "digital sharecropper" with landlord risk.

From there, we look at a few technical planning articles, including a recent study finding that health insurance cost inflation may be slowing, a discussion of whether it makes sense to shift from current health care coverage to the coming new "Obamacare" health plans coming in the insurance exchanges this fall, a look from David Blanchett at how the factors of alpha, beta, cash flows, and delayed retirement impact retirement success, and the latest from Michael Finke on how there may be too much emphasis on the 4% rule and not enough on balancing out the longevity and "upside" risks that are also embedded into its assumptions.

We wrap up with three more introspective articles: the first looks at some recent research suggesting that seniors may not quite have the memory and cognitive decline once believed but that instead they're just better at prioritizing what to remember and what's irrelevant; the second examines our tendency to underinsure ourselves against high-impact low-probability events and that sometimes we need insurance to be "sold" to us to overcome our biases; and the last is an interesting piece about how forcing people to give a small "prosocial" bonus to others can actually be more effective for team-building and business success rather than just giving employees bonuses they can spend on themselves. Enjoy the reading!

The Rise Of The Spousal Lifetime Access Trust (SLAT)

May 22, 2013 11:06 am 2 Comments CATEGORY: Estate Planning

In late 2012, a new estate planning strategy emerged - the so-called "Spousal Lifetime Access Trust" (or SLAT for short). The basic concept of the SLAT was relatively straightforward: it would function like a bypass trust, but be funded during life instead of at death, with the intention of using it to take advantage of the then-current $5.12M estate tax exemption before it dropped back to $1M as was scheduled for 2013.

Ultimately, the estate tax fiscal cliff didn't happen, but the SLAT remains valid in 2013 and beyond for a new purpose: planning around state estate taxes, and the mismatch between the numerous states that have only a $1M state estate tax exemption and no gift tax, while the Federal gift and estate tax exemptions are at $5.25M. Given this "decoupling" of the state estate tax from its Federal gift tax - and the lack of any state gift tax backstop - couples have a unique opportunity to manage or avoid state estate taxes by creating "supercharged bypass trusts" in the form of SLATs funded during life.

The caveat to the strategy is the "reciprocal trust" doctrine, which can cause SLATs to become "uncrossed" and taxable in the original donor's estate. Fortunately, reciprocal trust treatment can be avoided. Unfortunately, though, the rules to avoid reciprocal trust treatment are based on the facts and circumstances of the situation, and consequently a focus for the IRS and estate planning attorneys in the coming years may be figuring out how best to avoid the reciprocal trust doctrine without actually ruining the client's financial and estate planning goals.

Nonetheless, though, the reality remains that the SLAT may be increasingly popular in the coming years, at least until states implement a gift tax, recouple to the Federal gift and estate tax system, or just repeal their state estate taxes entirely.

How To Be “No Longer Awkward” When Planning For Grieving Clients

May 20, 2013 11:02 am 1 Comment CATEGORY: General Planning

Working with grieving clients is a difficult challenge for many planners; most people simply do not have very much experience working with others who are grieving, and the uncertainty about what to say or do - or not say or do for fear of offending - leads many to avoid such potentially awkward situations altogether. Yet the reality is that experiencing loss, and grieving for it, is a fact of life, especially when we recognize that the kinds of "loss" triggering grief can encompass a wide range of circumstances, from the death of loved ones to a loss of role or routine to an outright material loss of money or even home.

Fortunately, though, a recent new book entitled "No Longer Awkward: Communicating with Clients Through the Toughest Times of Life" helps to provide guidance in navigating these difficult issues. Written by Amy Florian, who is herself an expert on grief, both academically (with 30 years of experience, she holds a Master's degree and is a Fellow in Thanatology) and sadly personally (as several decades ago a sudden car accident left her a 25-year-old widow with a 7-month-old son), the book provides guidance on exactly what to say (and not to say) in grief situations, and a wide range of templates and resources as well.

Simply put, "No Longer Awkward" may quickly become the definitive handbook for advisors on how to comfortably handle those uncommon-but-frequent-enough grief situations with clients.