Nerd's Eye View blog

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!

How Coming Health Insurance Exchanges Will Drastically Impact Career And Retirement Decisions

June 12, 2013 11:04 am 23 Comments CATEGORY: Insurance

In just a few months, open enrollment begins for individual health insurance on the newly launching health insurance exchanges, and with it comes the onset of a new era in health insurance. While the general media focus has been on the penalties associated with the new individual insurance mandate, the reality from the planning perspective is that the new health insurance rules - including guaranteed access to coverage without any health underwriting - will drastically impact client financial planning decisions.

After all, separating health insurance from employment status by ensuring individual coverage is available directly from an exchange allows clients to be far more flexible with their job decisions. Deciding where to work will no longer need to be tied to the availability of health insurance, freeing clients to make job changes, start new businesses, or simply retire before age 65 Medicare eligibility, without worrying about how they'll get access to health insurance. How many clients would still be working where they are today if health insurance availability was guaranteed regardless of where (or whether) they worked?

On the other hand, the new health insurance rules will require new knowledge and skills for planners, as the health insurance exchanges will ensure access and availability to health insurance, but introduce complex rules regarding affordability. Helping clients understand how to pay for their newfound access to health insurance will require planners to learn how the new premium assistance tax credits work, and how to maximize them, along with helping clients to change their mindset about making job and career decisions separate from their health insurance coverage. In the long run, what results will likely be a more flexible and positive environment for clients to make good financial planning decisions... but the transition will require planners to get up to speed, and quickly!

Top Ten Benefits Of Financial Advisors, Besides Investment Returns

June 11, 2013 11:04 am 17 Comments CATEGORY: Client Trust & Communication

Financial advice revolves around money, and the affluent individuals that most financial planners work with have a good-sized chunk of it, which means the conversations often turn quickly to investments, and how to manage them effectively. As a result, a lot of time is often spent on investment portfolios, asset allocation, and decisions about particular investments, including whether to implement them with passive or active strategies.

Yet the reality is that the value of financial advice extends far beyond just a focus on investment returns. In this guest post, Bob Seawright explains what he thinks are the top benefits to financial advice, beyond just the investment selection and the passive/active debate. The value ranges from advisor insights about taxation and tax efficiency, to helping clients through a long list of their behavioral biases, to all the other parts of financial planning that matter besides just the money itself.

In a world where many financial advisory firms have become increasingly investment-centric, hopefully this will be a helpful reminder of all the other value that financial advisors bring to the table. For those who have maintained a more comprehensive focus to their financial advice all along, this may still be useful as a good recap of the benefits that your clients enjoy by working with you! Happy reading!
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The Real Way To Eliminate Specious (Senior) Designations For Advisors

June 10, 2013 11:04 am 9 Comments CATEGORY: Planning Profession

As the financial advisory landscape gets more competitive, advisors are increasingly looking for ways to differentiate themselves and their expertise, and getting an "expert" designation has been a popular means of doing so for many years. Unfortunately, though, there are no uniform standards to determine what is and isn't a legitimate "expert" designation, and as a result the number of programs has proliferated over the past decade, including a number of highly questionable designations that imply expertise but require little actual knowledge or training whatsoever.

To address this challenge, regulators - especially at the state level - has been trying to crack down, with tighter rules and greater enforcement. Yet thus far, the beneficial effect of such an approach appears to be limited, as many specious designations continue to exist, grow, and be attached to the business cards of questionable "advisors." In large part, this is because the underlying value of specious designations has not been addressed - as long as it's still valuable to have designations to imply expertise to consumers and there are no minimum standards, even a crackdown on the most questionable designation weeds will just result in new ones sprouting forth to replace them.

Instead, the real way to eliminate specious designations it to put forth a uniform minimum requirement rigorous enough to eliminate the value of such questionable programs. For instance, if CFP certification was a uniform minimum standard for all advisors who held themselves out as experts with advanced credentials, the marketplace for specious designations would vanish, as there's no benefit to adding an illegitimate designation after an advisor already has a rigorous and legitimate one! In the meantime, quality designations - that genuinely provide knowledge and expertise beyond the minimum - would have the opportunity to thrive, as they would be the only ones that have economic value as "post-CFP" education. While the reality is that implementing such a rule would require a reasonable transition process for existing advisors with bona fide advanced designations who shouldn't necessarily need to go back and get CFP certification now, the fundamental point is that by establishing one clear and credible minimum standard to connote an advisory professional, it may finally be possible to break free of the proliferation of questionable (marketing) designations!

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!