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Weekend Reading for Financial Planners (March 3-4)

March 2, 2018 02:45 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the announcement that FINRA is considering a proposal that would reduce the obligation of broker-dealers to oversee outside RIAs of hybrid advisors... though it remains unclear if that means broker-dealers will finally be more hands-off from outside RIAs (and the revenue they charge for supervising outside RIAs), or simply require their hybrid advisors to either use the corporate RIA or the broker-dealer's custody and clearing services for the outside RIA instead.

Also in the news this week is a new letter from the Consumer Federation of America urging the Department of Labor to step up its enforcement of the now-in-effect Impartial Conduct Standards under its fiduciary rule (given the recent enforcement action by Massachusetts securities regulators against Scottrade), and the announcement that David Lau (formerly of Jefferson National, which launched one of the first RIA-friendly variable annuities) is launching a new company called DPL Financial aiming to bring an even wider range of no-commission insurance products to the RIA community.

From there, we have several articles around the theme of practice management, including a look at the new HIFON study-group-cum-membership-organization for operations staff members in advisory firms, a discussion of how the Super OSJ model in broker-dealers is evolving away from "just" providing compliance oversight to a wider range of back-office support and training and technology for their advisors, and a review of the current wirehouse landscape given the ongoing unraveling of the Broker Protocol.

We also have a few articles on financial advisor pricing and compensation, from suggestions on how to handle the infamous question "How do you justify the value of your advisory firm fees?", to a discussion about how advisory firm business and pricing models tend to change over time for an advisor, and why it's important for larger advisory firms to have a compensation model for advisors that covers all of their needs (following Maslow's hierarchy from covering 'basic' needs, to those for esteem and belonging to a community, and finally achieving greater levels of self actualization).

We wrap up with three interesting articles, all around the theme of getting your financial house in order: the first examines the rising trend of financial advice and financial wellness programs in the workplace, as employers are discovering that financial stress is so damaging to employee productivity that it actually "pays" to help employees get more financially literate and shore up their debt and emergency savings shortfalls; the second looks at new research finding that community involvement shows a strong relationship to one's self-assessed financial well-being (providing yet another example of how giving to others helps fulfill our own happiness); and the last is a great walk-through of all the various financial documents that we should keep, don't need to keep, or can at least scan electronically to help declutter the paper in our lives!

Enjoy the "light" reading!

Why CFP Professionals Can’t Just Say They’re A CFP

March 1, 2018 09:36 am 0 Comments CATEGORY: Regulation & Compliance

With the now-more-than 80,000 financial planning professionals who have their CFP certification, one of the most common complaints I hear is from financial planners who receive a letter from the CFP Board stating that they need to update their website so that it doesn't simply state that they are a CFP, and instead, that they call themselves a "CFP certificant" or "CFP professional" instead. Which to many seems trivial, when the CFP Board could be spending their time (and enforcement resources!) going after "real" problems like CFP professionals who don't meet their fiduciary duty to clients, or just give bad financial planning advice in the first place. Additionally, it's not as if we see any State Boards of Accountancy sending letters to CPAs saying, “You should call yourself a CPA professional." But the reality is that there’s actually a really good reason why the CFP Board requires us to put that little trademark symbol after the CFP marks, and why they require us to say “CFP professional” or “CFP certificant” and not just “CFP” the way accountants can call themselves a CPA.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we examine why the fact that the CFP marks are a trademark and not a license means that the CFP Board must diligently defend the proper use of the CFP marks, including going after financial planners for the seemingly minor misuse of those marks by calling themselves a CFP!

As a starting point, it's important to understand that the reason we get to call ourselves CFP professionals or CFP certificants in the first place is that we sign an agreement with the CFP Board, where the CFP Board grants us the right to use their trademark. Because the CFP Board is the organization that actually owns the trademark on the CFP marks (along with the label “CERTIFIED FINANCIAL PLANNER”). Which means the CFP Board has the right to grant us a license to use their trademark... which they grant in exchange for meeting certain requirements, most significantly, that the financial planning professional meeting the "Four E's" of education, exam, experience, and ethics requirements, along with signing an agreement that we'll honor the CFP Board's Terms and Conditions, including those on the use of the marks. Which is distinct from how a license works (like a CPA), where an accountant's state actually grants a license to operate as a CPA.

The reason why this license-vs-trademark distinction matters is that since the CFP Board must rely on trademark law to control the CFP marks, they must abide by trademark law - which stipulates that trademarks should only be used as a descriptor of a noun, and not as a noun (which is why Nabsico calls their product "Oreo cookies", instead of "Oreos" and it's technically "Budweiser beer" and not just a "Budweiser"). And for the CFP Board to retain control of its trademark, and not be accused of abandoning it or allowing it to become generic (to the point that it can no longer be controlled as a trademark), they have to treat it like a proper trademark, which includes enforcing its proper use. Of course, organizations cannot do anything to stop consumers who start using trademarks as nouns, but since the CFP Board has a bona fide business relationship with us as CFP certificants, the CFP Board must take action to ensure the marks or used properly, or they risk losing the trademark altogether, which would allow anyone to use the CFP marks however they want.

This situation may not be perfect. Ideally, you’d actually need a license to become a CFP and a practicing financial planner, which would be a controlled title like CPA, and there would be a state or Federal regulator that ensures the only people who say they’re CFPs are actually CFPs, meet the requirements for CFPs, and are sanctioned and lose their license for failing to abide by the rules for CFPs. But that’s not the reality of financial planning today. We have licenses for selling insurance, selling investments, or managing a portfolio, but there's no license to be a financial planner or do financial planning. Instead, we voluntarily choose to obtain the CFP marks to distinguish our professionalism... by paying the CFP Board for the right to use their trademark (not by getting a CFP license!).

The bottom line, though, is just to recognize that the reason we can’t just call ourselves CFPs, and have to say we’re CFP professionals, is because the CFP is not a license. It’s a trademark. Owned by the CFP Board, which grants us the right to use the marks as long as we meet their standards. Which means, if you really value the CFP marks, and want to see them remain distinct, you want the CFP Board to be taking the necessary steps to protect them. Even if it’s a bit annoying when it comes at you directly!

Why The Best ROI On College May Be For Those Who Would Have Been Successful Anyway

February 28, 2018 07:01 am 0 Comments CATEGORY: General Planning

College Degree ROI By Major And Student Quality

The “traditional” view of recent decades is that going to college is part of the American Dream, and the essential pathway to better job opportunities with higher income potential. Yet at the same time, there's growing talk of the financial hardships for students these days, from ever-increasing tuition, to high levels of student debt. Still, under the auspices that a college education is essential to unlocking future income opportunities, students continue to enroll in record numbers. Which raises the question: is college really still a good "investment", or not?

In this guest post, Dr. Derek Tharp – a Kitces.com Researcher, and a recent Ph.D. graduate from the financial planning program at Kansas State University – examines recent research on the Return On Investment (ROI) from investing in a college education, and particularly the differences in ROI that students may experience based on their own abilities as students, along with their area of study, the type of institution they attend, and the funding that is available to them.

Notably, while the "traditional" view is that a college education is all about building knowledge and developing skills (the "human capital" theory of education), in his 2018 book, The Case Against Education, economist Bryan Caplan examines prior research on education and concludes that the primary function of higher education is actually just to signal certain traits of students to prospective employers – particularly intelligence, work ethic, and conformity (known as the "signaling" theory of education). But setting aside the debate over whether education is primarily a means of developing human capital or signaling (which has some important implications for social returns to investment in education), Caplan's book contains what might be the most detailed analysis of private returns to investment in education (i.e., the ROI of a college degree for individuals), which is highly relevant to any financial planner who advises clients (or their children, or grandchildren) on whether it's really still worth trying to invest in a college education in the modern era.

Because while the data is fairly clear that those who go to college do tend to have higher incomes in their working careers, simplistic methods for calculating the ROI from investing in a college education often suffer from "selection bias", which refers to the fact that those who choose to go to college are not selected at random. For instance, on average, those who choose to go to college tend be more intelligent and harder working than those who do not (a result of the college admissions screening process). Of course, this certainly isn't true of everyone who does not go to college, but because it's true on average, we would expect those who go to college to (on average) earn more in the labor market, regardless of whether college actually improved their skills or knowledge, simply because of the intelligence and work ethic they brought with them to college to begin with. Thus, it is important to correct for this "ability bias" when determining the ROI of a college education; Caplan's calculations, though, go much further than that, adjusting for a wide range of other factors that are often overlooked – from health and happiness, to the probability of unemployment, and even college boredom (or lack thereof).

With this framework in place, Caplan then determines the ROI of a college education across a wide range of scenarios, including student quality (e.g., an excellent student vs. a poor student), type of degree (e.g., Bachelor's vs. Master's), a student's area of study (e.g., engineering vs. fine arts), college quality (e.g., top-tier vs. bottom-tier), and institution type (e.g., public vs. private). In short, Caplan finds that college is a good investment for good students, a mediocre investment for mediocre students, and a bad investment for bad students, who are especially prone to paying for some of college and then not even finishing (incurring the cost/debt but not even getting the signaling benefit of the degree). Beyond that, only the best students should pursue a Master's degree, field of study does matter (though more so for low-quality students), college prestige has a potentially surprisingly small impact, and the best investments are generally found at the top public university where an individual is eligible for in-state tuition (not a leading private college).

Ultimately, Caplan's analysis has many important considerations for those who may help students choose what type of education to pursue... from not pushing students who are a poor fit to attend college (as this is often the worst case scenario from an ROI perspective, where students may take on all of the expense of a college education yet gain none of the benefits), to helping students who are a strong fit to decide what path makes the most financial sense (and Caplan even makes his spreadsheets publicly available, incase anyone wants to tweak his model to better fit their situation). But the key point is to acknowledge that the ROI of a college investment varies greatly based on the characteristics of a student - primarily by amplifying the positive results for good students, while mostly amplifying the downside risk for bad students - and many other factors that are often overlooked. College may be a great investment for some, but it is not for all!

#FASuccess Ep 061: Starting A Gen X/Y Financial Planning Firm While Also Starting A Family with Mary Beth Storjohann

February 27, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 61st episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Mary Beth Storjohann. Mary Beth is the founder of Workable Wealth, a financial planning firm in southern California that in just its first four years has built to more than $200,000 in recurring financial planning fees, serving a Gen X and Gen Y clientele with a combination of upfront planning and ongoing monthly retainer fees.

What's unique about Mary Beth's practice, though, is the fact that she's built it over the past four years while also having two children, who are now 2.5 years and 3 months old, respectively.

In this episode, we talk in depth about Mary Beth's financial planning fee structure, the process she engages in to deliver financial planning value to her typically 30-something or 40-something clientele, why she rarely even uses traditional financial planning software at all for most of her clients, and the unique proactive process she has leveraging software to facilitate regular "check-ins" with clients and actually help ensure they follow-thru and implement all of their financial planning recommendations.

We also talk about how Mary Beth built her own personal support system to help her launch her practice, with a series of Mastermind Study Groups with peer financial advisors at a similar business stage, and an ongoing executive coach relationship to help keep her on task and be her own accountability partner.

And be certain to listen to the end, where Mary Beth shares how she managed to take time off to give birth to her two children, without blowing up the relationship with her clients or losing her marketing and growth momentum, and her suggestions for how female advisors should think through the balancing act of when to start your own firm when you also want to start a family.

So whether you are interested in learning more about profitably serving Gen X and Gen Y clients, have been thinking about joining a Mastermind Study Group of your own, or are interested in how financial advisors can manage the balancing act of starting a firm and starting a family, I hope you enjoy this episode of the Financial Advisor Success podcast!

Implementing A Financial Planning (Summer) Internship Program

February 26, 2018 07:01 am 0 Comments CATEGORY: Practice Management

Summer internship programs are a popular way for advisory firms - as with most businesses - to leverage student talent to tackle projects, get support on ongoing business tasks, and even to build a pipeline of talented candidates that the firm can hire for future openings. The caveat, though, is that implementing a financial planning internship program can be a challenge, especially in trying to get it off the ground for the first time. From finding good candidates and creating a proper internship job description, to making the hire and getting the intern up to speed in your firm quickly, there is simply a lot to learn and do, with only a short amount of time to do it all given that a summer internship only lasts a few months. The unfortunate end result is that many financial planners avoid internships altogether, even though they could be great opportunities for students, firms, and the profession!

But the reality is that implementing a financial planning internship program does not need to be an overwhelming task, and it really is possible to get productive value out of a financial planning intern in just a few short months. In this guest post, Jon Yankee of FJY Financial, which has run a successful internship program with 21 summer associates over the past 11 years, shares how they implemented their financial planning (summer) internship program with college students, from the early stages of finding qualified candidates, to the process of (rapidly) onboarding the intern so they have time to contribute productively to the firm, all the way through the late stages of the exit interview to get feedback from interns and discover ways that the program can be improved for future years.

The end result of their financial planning internship program has not just been a way to give back to the profession, students, and the CFP Board Registered Programs training the financial planners of the future, but also a direct benefit to the team members at the firm, a talented pool of vetted candidates from which the firm has hired, and an experience working with young financial planners who have enhanced client deliverables for the firm. Of course, it is always a challenge trying to get an intern up to speed in a short amount of time and acclimated to the culture of a new firm, but with a diligently implemented internship program, financial planners really can launch a successful internship program!

Weekend Reading for Financial Planners (February 24-25)

February 23, 2018 02:55 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that yet another state, Maryland, has now jumped into the fiduciary fray, with its own version of a rule that would require brokers operating in the state to meet a fiduciary standard of care, given ongoing concerns from state legislators about the potential consumer consequences of President Trump's order to review (and potentially further delay or kill) the Department of Labor's fiduciary rule. Also in the news this week was a discussion from SEC regulators suggesting that they may be focusing less now on creating new rules for robo-advisors, and instead simply looking to apply the existing principles-based fiduciary regulation under the Investment Advisers Act of 1940 to the robo-advisor business model (with a particular focus on whether robo-advisors, or human advisors using "robo" tools, are probably explaining how broad, or narrow, the scope of their financial advice really is).

From there, we have several articles on the new tax law, including how many small businesses are taking a fresh look at the ideal business entity structure (with some pass-through businesses considering whether to become C corporations for the new 21% corporate rate, and some C corporations considering whether to switch to pass-through status to take advantage of the new 20% Qualified Business Income deduction), a discussion of whether some employee advisors at broker-dealers may want to switch to become independent contractors to take advantage of the new pass-through deduction, how some couples may want to use the "Married Filing Separately" filing status to preserve the pass-through deduction where one spouse is a business owner and the other has (even higher) non-business income, and a look at how the change in tax rates from 2017 to 2018 creates interesting opportunities over the next two months for people to engage in "tax rate arbitrage" by contributing to IRAs for the 2017 tax year and then converting them in the current 2018 year at lower rates.

We also have a few marketing-related articles this week, from tips to squeeze more value out of your client communication and events (by focusing on how to expand or better leverage or re-purpose the content), to how having a narrower niche or target market allows you to build rapport faster with clients by getting to know their common needs and issues (which makes you look like a mind-reader when you can tell them what's on their minds before they even say it!), and how clients begin to develop a deeper relationship with a professional in as little as 3 extra minutes of the professional listening and making clients feel like they're heard and cared for.

We wrap up with three interesting articles, all around the theme of selling and business incentives: the first explores a recent research study that finds it's not the lower fees of robo-advisors that are attracting clients, but the transparency of those fees (and their subsequent performance reporting systems), which has important lessons and implications for all advisors; the second looks at how business model incentives may help to contribute to the unique (and not necessarily pro-long-term-investor) way that brokerage firms typically develop their client statements and websites; and the last provides a good reminder that even if we're in the business of advice and not product sales that we're all still selling something to clients, which means perhaps we should focus less on trying to avoid discussions about sales altogether and instead focus more on the most productive ways to ethically "sell" and help clients to reach better financial outcomes!

Enjoy the "light" reading!