Nerd's Eye View blog

Strategies For CFP Board To Improve The Quality Of CFP Continuing Education (CE) Credit

April 1, 2013 11:03 am 18 Comments CATEGORY: Planning Profession

It's no secret that the current state of CFP Continuing Education (CE) credit is a pretty sorry affair. Financial planners attend sessions just hoping for 1-2 takeaways that they haven't heard a dozen times before - an embarrassingly low bar for "satisfaction" - and conferences struggle to draw attendees. It often seems that planners choose a myriad of free vendor-provided CE options not because the content is good - often, it's still little more than a veiled sales pitch for the company's products or services - but because the paid CE alternatives from conferences aren't much better; if you go into your CE experience assuming you won't hear anything new anyway, there's little reason not to take the free option. And this situation is not new; while the CFP Board has become more aggressive about cracking down on the worst of the CE-as-product-pitch options, there's been little done to elevate the average CE experience.

Yet that doesn't mean the situation is hopeless, as many steps can be taken to improve the quality of CFP continuing education; in fact, the CFP Board, as the keeper of the CFP marks and the continuing education for them, wields a great deal of power to change the system for the better. For instance, the CFP Board could create a ratings clearinghouse so conference organizers can more easily see who's a good speaker and who's not, allowing events to better screen their speakers before putting them on the podium. In addition, the CFP Board could also provide a better database for finding CFP CE providers in the first place, so the majority of events don't have to rely upon random Google searches and scanning the agendas of other conferences! But perhaps the best path to getting better CE credit is simply to lift the number of required CE credits, creating more of a potential CE market that could attract quality providers in the first place!

Weekend Reading for Financial Planners (Mar 30-31)

March 29, 2013 05:02 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with an interesting discussion noting that the trend from regulators now appears to be allowing for and even encouraging the use of social media in financial services (albeit while still expecting firms to maintain proper procedures to oversee the activity), and a harsh look at whether our real problem in the financial services industry is not just the general lack of trust but the fact that the entire financial sector has bloated to the size that it has... and that even though the bloat stems largely from Wall Street, it's those very firms that have such an integral role in rewriting the new rules for the future.

From there, we have a few industry and practice management articles, including a discussion of how marketing is shifting from just trying to convert a percentage of prospects into meetings and clients and instead towards engaging all prospects on an ongoing basis until they become clients, a look at Wealthfront and the rise of online investment providers, and a discussion of how you can break out of the rut of boring review meetings (which long-standing clients often resist) by structuring your reviews to have themes around broad financial planning topic areas that can be systematically revisited over time (yet provide more variety than just reviewing investments or asking if anything has changed).

In addition, there are a couple of technical articles this week, including a warning that health insurance premiums may be set to rise significantly with the new coverage laws taking effect in 2014 (especially for individuals getting coverage directly and some small businesses), a discussion of the unique planning challenges for families with special needs dependents (and the potential for advisors to create niche practices to serve them), a look at the so-called "dividend illusion" and that investors may be misunderstanding how dividends work if they think it's a strategy to only spend income and not principal, and the latest Mauldin article dissecting the ongoing debacle in Cyprus.

We wrap up with three somewhat more offbeat articles: the first is looks at how color - the your clothing to the markers you use to illustrate key points - may influence your clients; the second is an excerpt of the latest Heath brothers book "Decisive" about how we can make better decisions; and the last is a somewhat controversial discussion from J.D. Roth, founder of the popular Get Rich Slowly blog, who observes that financial literacy alone just isn't enough, primarily because most financial problems aren't just about needing more information, but also about (fixing) our (dysfunctional) behaviors. Enjoy the reading!

MailBag: How To Get Started On Twitter As A Busy Financial Planner

March 28, 2013 11:03 am 8 Comments CATEGORY: MailBag

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 Twitter (and other social media) as a busy financial planner. What are the tools for efficiency, and what are the tips and tricks to get started easily?

The Taxation Of Social Security Benefits As A Marginal Tax Rate Increase?

March 27, 2013 11:07 am 45 Comments CATEGORY: Taxes

Social Security benefits first became partially taxable in 1983, and the rule was expanded in 1993 to its current form. As the rules stand now, rising income can subject 50% or even 85% of Social Security benefits to taxation, until a maximum of 85% of all Social Security benefits are included in income for tax purposes.

The reason the taxability of Social Security matters is not just that it raises a client's tax burden in the aggregate, but that it can boost a client's marginal tax rate far above the tax bracket alone; those in the 15% tax bracket may actually face marginal rates of 22.5% to 27.75%, and those in the 25% tax bracket can see marginal tax rates spike as high as 46.25%!

Fortunately, this rate eventually reaches a cap - when the maximum amount of Social Security benefits are being taxed - and the client's tax rate returns to normal. Nonetheless, while clients are going through the income levels where Social Security phases in - which can begin with as little as $25,000 of income for individuals - tax rates rise high enough that more proactive tax planning, from Roth conversions to the use of annuities and asset location strategies, becomes crucial to manage a client's overall tax exposure!

Is Buying A Financial Planning Practice A Good Way To Start As A Financial Planner?

March 25, 2013 11:02 am 14 Comments CATEGORY: Personal/Career Development

As the financial planning profession matures, there is a growing interest in the opportunities to buy and sell financial planning practices, both for investors, for existing firms looking to grow, and for new planners looking to enter the business. However, industry statistics suggest that relatively few deals are happening (and are generally only for larger firms), although it's not clear whether the lack of small firm activity is because the transactions are simply underreported, because financial planning firm owners aren't actually exiting as quickly as the demographics would suggest, or perhaps because most firms just really aren't valuable enough to sell in the first place.

Nonetheless, for many newer financial planners, who may find the thought of building a client base to be daunting, there is growing interest in acquiring an entry path to a financial planning firm, rather than building one from scratch. Unfortunately, though, the reality is that the opportunity may not quite be all it appears, given the poor economics for many financial planning firms means the new planner is likely buying a job but not a business, the limited capital that many new planners have to acquire a firm, and the outright challenges of diving full steam into both the management of a financial planning business and clients with little experience. While this may not entirely dissuade prospective new planners from buying their way into a firm, the fact remains that the approach merits a great deal of caution as well.

Weekend Reading for Financial Planners (Mar 23-24) – Practice Management Edition!

March 22, 2013 04:01 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue is focuses on practice and career management issues, and starts off with some notable regulatory news, including a discussion of whether the landscape is shifting for potential adviser oversight as Congresswoman Maxine Waters may re-introduce SEC user fee legislation in the coming days that could put FINRA on the defensive, and some updated guidance from the SEC on the use of social media that should make it easier for advisors under an RIA to use social media.

From there, we have a long list of practice management articles, including a review of a recent Schwab survey that shows the primary desire of young advisors is to work with clients (sooner rather than later), a discussion by Angie Herbers about how to restructure your firm's org chart to facilitate associate advisors getting more face time with clients, some insights from Philip Palaveev about the importance of balancing both practice management research and good old trial-and-error to improve your firm, a look at some of the challenges to consider for brokers who wish to break away and transition to independence, and how to handle prospective situations where friends and family want a discount.

There are also two technology articles, including some guidance from Bill Winterberg about how to get a better return on investing in your website by going a step beyond just making it look prettier and being more mobile-friendly, and a discussion by consultant Craig Iskowitz about how client portals are changing and a look at the JunxureCRM ClientView platform in particular.

We wrap up with three articles: the first is from the Harvard Business Review blog, providing some guidance and advice about why you should not try too hard to fast-track your career; the second by Philip Palaveev suggesting that it's time to stop talking about "practice management" and start looking at "business management" instead; and the last is a nice list of productivity and anti-procrastination tips and techniques from Psychology Today - including a few common ideas, but also a few you may not have seen before.

Enjoy the reading!

Income Thresholds For Medicare Part B And Part D Premiums – An Indirect Marginal Tax?

March 20, 2013 11:04 am 54 Comments CATEGORY: Taxes

Since 2007, higher-income individuals and couples have been required to pay an additional income-related monthly adjustment amount (IRMAA) on their Medicare Part B premiums; a similar rule took effect in 2011 for Medicare Part D premiums. The ultimate impact can potentially be significant; although only a small number are affected, those at the highest income levels in 2015 (used to determine premiums in 2017) will see their Medicare Part B premiums rise from a base of $134.00/month up to $428.60/month. (Notably, though, those eligible for the "hold harmless" rules will have Part B premiums capped at $109.00/month for 2017.) In addition, Part D premiums will cost as much as an extra $72.90/month in addition to the base rate of the plan itself, under the IRMAA rules.

Although the higher premium amounts are a cost, because they're determined based on income and may change from year to year, they effectively equate to an "indirect tax" in the form of a higher burden on higher income levels. In turn, this means that the income thresholds for Medicare Part B and D premiums should itself be treated as a "tax bracket" that can be planned and managed around, as a form of proactive income tax planning. Strategies that might create income, or defer income resulting in a greater concentration down the road, must be evaluated for not only their outright tax consequences, but their indirect tax consequences in the form of higher Medicare premiums!

Behavior Change And Financial Planning – Whose Responsibility Is It When Clients Don’t Implement?

March 18, 2013 11:02 am 18 Comments CATEGORY: Client Trust & Communication

In financial planning, it's not just about having expert knowledge and wisdom to dispense to clients; after all, if clients don't ultimately implement the recommendations and change their behaviors, then their situations will not improve. In fact, many financial planners experience frustration when client's won't act, and view the failure of clients to implement recommendations as a sign that the people must be "bad" clients. The implication is that it may be more productive for planners to seek out "good" clients instead - those who act promptly and see the value in the planner and his/her advice.

Yet research from Dr. James Prochaska and his colleagues in the field of psychology suggests that in truth, the process of changing behavior - whether with respect to eating healthier and exercising more, ending a smoking habit, or making better financial decisions - is far more nuanced. Not only does it often take more than just one dose of good advice to bring about significant and lasting behavior change, but just because someone has a meeting with a professional does not necessarily mean that person is really even ready for change in the first place. Accordingly, an ideal process for working with clients may entail first understanding what stage of change the client is in, and then adapting the advice process to help the client move forward, from wherever he/she is at the time.

The most important implication, though, is that it may no longer be appropriate to simply view clients who don't implement as "bad" clients. Instead, a greater responsibility may rest upon the professional practitioner to help clients, regardless of where they happen to be in the process of change, to move forward. In turn, this means that it may be time for financial planning training to be improved, to develop the understanding and skillsets necessary so that planners can not only inform clients of what needs to be done to improve their financial situation, but also help motivate them to actually do it!

Weekend Reading for Financial Planners (Mar 16-17)

March 15, 2013 05:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's issue starts off with a recent survey from the Financial Planning Coalition that advocates for greater [fiduciary] regulation of advisers to protect consumers, and a review of the Senate confirmation hearing for prospective SEC chairwoman Mary Jo White, who pledged to act quickly on the proposed uniform fiduicary standard and increased oversight of investment advisers.

From there, we have a few practice management articles, including a look at how mega-RIA RegentAtlantic built a $2.4 billion AUM practice by creating a series of niche specialist planners under a single umbrella, an evaluation of all the ways advisors add value to clients in portfolios beyond just investment selection (e.g., helping clients stay the course, asset location, systematic rebalancing, etc.), an overview of the biggest tech trends coming out of the recent Technology Tools for Today conference, how to craft a good content marketing strategy, and a good list of ways in which advisors end out "wasting" their time on social media due to poor execution of the marketing strategy.

In additon, there are a couple of technical articles this week, including a look at how even index funds aren't really truly passive but that the essence of being passive can still be captured if the goal is to simply be the market and not beat the market, and an overview of some of the problems that arise when clients misunderstand what cash value life insurance is and how the cash value really works.

We wrap up with three articles: the first is by Bob Veres and looks at how financial planning may change in the coming decade; the second is a series of tips from Bill Bachrach about how to improve work habits in your practice to be more successful, and the last is an intriguing overview of some of the recent research about the link between money and happiness, which is much more nuanced than the traditional saying "money can't buy happiness" would imply. Enjoy the reading!

Will The New 3.8% Medicare Surtax Reinvigorate Non-Deductible IRA Contributions?

March 13, 2013 11:02 am 10 Comments CATEGORY: Taxes

The non-deductible IRA has long been a financial planning tool, albeit one that has become far less popular in recent years, given the tax preferences for both qualified dividends and long-term capital gains.

However, with the new 3.8% Medicare surtax on net investment income that took effect in 2013, a new incentive has emerged: even with ordinary income treatment, the non-deductible IRA provides a way to permanently avoid the surtax, which would otherwise apply to interest, dividends, and capital gains, as well as income from other tax-deferred vehicles like deferred annuities.

The strategy is especially appealing to those who are in the peak income years of their career, where a Roth conversion is unappealing due to the high current tax bracket (and other IRAs that will be aggregated), tax deferral is valuable, and a permanent avoidance of the 3.8% Medicare tax provides yet another added value... especially if the account will hold fixed income investments that were going to be taxed at ordinary income rates anyway.

Fortunately, the strategy is available regardless of how high income rises (and in fact, is best at high income levels), and while the value of the strategy is limited by the IRA contribution limit of $5,500 in ~~2013~~ 2015, several years of compounded efforts can still potentially produce a significant tax savings in the future!