As the public becomes more savvy about protecting themselves from fraud – in part due to the assistance of increasingly sophisticated anti-virus and anti-phishing software – thieves are becoming more and more creative about new ways to steal. A disturbing new trend is that some thieves are beginning to directly target financial advisors and their clients – as famous bank robber Willie Sutton noted, if you want to get rich by stealing, go to where the money is! Accordingly, financial advisors and investment custodians have seen a noticeable increase in attempts at fraudulent wire transfers by "spoofing" – where a request sent “from the client” is actually a spoof from a fake-but-similar email account (or sometimes is even the client’s actual account!), and asks the advisor to process a wire transfer to a third party bank account. By the time anyone realizes the request was fake, the money is already gone, the transfer cannot be unwound, and the wire fraud theft is complete. In response, it’s crucial for advisors to review – and potentially change and improve – their processes and procedures to ensure a wire transfer request is legitimate before acting upon it, especially in scenarios where the transfer is going to a third party. Fortunately, some best practices are emerging about how to avoid these kinds of client disasters!
Weekend Reading for Financial Planners (Oct 20-21)
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with an interesting analysis of fiduciary history and the CFP Board's current fiduciary rules for CFP certificants, suggesting that the CFP Board still has a little ways left to go to reach a truly all-encompassing fiduciary standard. From there, we look at an interview in the Journal of Financial Planning with Nobel Prize winner Daniel Kahneman, an exploration by financial planner and researcher Jon Guyton about how the safe withdrawal rate research is holding up for a year 2000 retiree, a study by David Blanchett on the use of variable annuity GMWB riders to support retirement income, a recent study by Harold Evensky (and co-author Shaun Pfeiffer) indicating that active managers may do better in bear markets than bull markets but not by enough to generate consistent alpha over a full market cycle, and a discussion by professor Michael Finke of Texas Tech that the recent Bill Gross article about the "dying cult of equities" may have some validity. There are also a few consumer investment pieces that may be of interest to planners, including a discussion of what "tactical" really means, and some things to watch out for with the recent trend towards managed ETF strategies, along with two strong technical articles, one about new tax planning issues and opportunities tied to the Patient Protection and Affordable Care Act, and the other about how to counsel clients through a short sale or other underwater-mortgage alternatives. We wrap up with an interesting research article suggesting that it's almost impossible for us to convey that we're "warm" and "competent" at the same time - instead, the constraints of our language force us to lean in one direction in how we're perceived, at the direct cost of the other. Enjoy the reading!
Rising Pressure To Complete End Of Year Exemption Gifting Strategies
As the end of 2012 approaches, so too does the end of our current gift and estate tax exemptions and rates - with the so-called "fiscal cliff" the estate tax exemption is scheduled to fall precipitously in 2013, while the maximum estate tax rate rises. As a result, many high net worth clients have been encouraged to consider gifting away significant sums of money this year - to take advantage of the current exemption - before it lapses. And as with most gifting strategies, often the least effective means is to simply gift cash; instead, popular strategies include using a Family Limited Partnership (FLP) to obtain a valuation discount for the assets being gifted, or alternatively to gift the money to an Intentionally Defective Grantor Trust (IDGT) and use it as seed money to buy even more assets out of the estate. Unfortunately, though, there are many important caveats, including the risk of an estate tax clawback, the affordability of the gift itself, and coordination with state estate tax laws. Nonetheless, with the estate tax exemption amount scheduled to drop more than 80% in just a few months, the pressure is on for many clients to make a decision about whether they will engage in an end-of-year gifting strategy or not - or at least, prepare so that they can complete such a gift once the outcome of the election is known!Read More...
The 7 Best Financial Planning Conferences To Consider For 2013
As someone who speaks at upwards of 50 conferences every year, I see a wide range of events created for financial planners. Yet unfortunately, the reality is that because there are so many conferences, it can be incredibly difficult to select the right conference, and I am often asked for recommendations about what I think the best conferences are to attend.
Accordingly, I've put together my own list of what I would view as the best-in-class conferences for financial planners (in the US, at least!) in seven categories coming up for 2013: Best Technical Content, Best Technology Content, Best Practice Management, Best for Advanced Practitioners, Best Overall Value, Best Virtual Conference, and Best Overall Financial Planning Conference.
I hope this is useful for you to use as your own guide in selecting events to attend for yourself and/or your staff for 2013!
Weekend Reading for Financial Planners (Oct 13-14)
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a fantastic advice article for young advisors about how to build an optimal path for themselves by being authentic (advice that's probably relevant for advisors of all ages!), along with an interesting discussion of a "new model" to bring financial planning to the masses, and a discussion of the ongoing "Great Divide" between the veterans of financial planning and the younger people entering the business. From there, we look at a good discussion of compensation trends in the industry, a discussion of the conflict of interest disclosure rules for CFP certificants, and two interesting "lists" from RIABiz - one is a list of the top 10 words that should be expunged from the RIA business, and the other is the top 10 steps that wirehouses could take to reinvent themselves and stem the RIA tide (in the interest of consumers). There's also a good article with starter tips to improve the SEO of your website (i.e., how easy it is for people to find you using the search engines), and a dissection of last week's "surprise" unemployment report. We wrap up with two interesting articles; one looks at recent research into investment risk-taking behavior, finding that excessively risky investing may not just be a behavioral bias problem but actually a physiological one; and the other providing an intriguing forecast of how the student debt problem could be resolved in the next decade as online education with a near-zero dollar cost could drastically undercut the pricing of traditional colleges and universities and shift how most people get their higher education. Enjoy the reading!
Dunbar’s Number And How Many True Financial Planning Client Relationships You Can Really Have
As financial planning firms grow more efficient, especially with the use of technology, it becomes possible for planners to manage an increasingly large number of clients. The only limitation, it would seem, is the time it takes to service them. However, research in psychology and anthropology suggests that there may be another limit to the maximum number of clients - the physiological limit of our brain's neocortex that constrains the number of social relationships that can be actively maintained. This threshold - called "Dunbar's number" - is estimated to be about 150 people on average, and corresponds not just to the average size of many ancient tribes and villages, but also the military unit size of the Roman army, and even the average number of Facebook friends or engaged Twitter followers! The implication of the research is that even as firms continue to become more efficient, there's still a physiological brain-based limit to how many clients we'll ever be able to manage, which allowing for some personal relationships as well may never be much higher than 75-125 for any planner regardless of the new tools and technologies we create in the future!Read More...
Fixing The Weakest Links In Your Referral Growth Strategy
Advisor surveys continue to show that the #1 marketing strategy for most firms is to grow through referrals. Unfortunately, though, most firms still get modest results at best, leading them to double down on their referral efforts by asking clients for referrals even more.
A recently released book by marketing consultant Stephen Wershing, however, suggests that the optimal path to success is actually to go the opposite direction - "Stop Asking For Referrals" and instead focus on creating the environment that makes it easier for clients to refer, by understanding what it is that drives clients to refer in the first place. The end result is a practice that has a well identified target market and a clear niche, so that clients truly understand who is and is not an appropriate person to refer, and when someone is referred what they find is compelling enough to make them want to follow through for an initial meeting.
Notably, recent research by Julie Littlechild has shown that overall, 91% of clients are willing to refer, and 29% of clients actually do refer - given that most firms are not growing at 29%+ organic growth rates, though, suggests that there is a lot of room for improvement by applying Wershing's recommendations to fix the weakest links in your own referral growth strategy!Read More...
Weekend Reading for Financial Planners (Oct 6-7)
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a recap of the recent FPA Experience national conference, along with a discussion of the latest research from Cerulli suggesting that the declining market share of wirehouses may actually be accelerating even as we become more distanced from the financial crisis, and a nice overview of the current state of fiduciary rulemaking (or lack thereof) from the SEC. From there, we look at Financial Planning magazine's recent Influencer Awards recognition, a discussion of the FA Insight "Growth by Design" study of how firms are strategically viewing and managing growth, and a wide-reaching interview on safe withdrawal rates from retirement researchers Bill Bengen, Jon Guyton, and Wade Pfau. There are also a few investment articles, including the latest change from Vanguard to further drive down the expenses of ETFs, a recap on the current state and future of actively managed ETFs, and a striking article on asset allocation glidepaths suggesting that rising equity exposure in the years before retirement may actually be more effective than declining equity exposure! We wrap up with a brief article (and associated video) showing how to hide the new "endorsements" feature of LinkedIn (which some have suggested may be a violation of the regulations barring client testimonials), and a profile of a financial advisory firm making an interesting splash in social media with a controversial political video that has generated a whopping 1,000,000 views and 100,000 Facebook fans. Enjoy the reading!
Does The DALBAR Study Grossly Overstate The Behavior Gap? (Guest Post)
It is an accepted belief that retail investors, swayed by a barrage of financial news and information, and the wiring in their own brains, tend to systematically buy at market peaks and sell at market lows, resulting in returns that are far lower than what could have been achieved by simply buying and holding.
This so-called "behavior gap" has been quantified most famously over the years by DALBAR, which produces and annually updates a study of the difference between investor (dollar-weighted) returns and index (time-weighted) returns, and currently shows that investors have cost themselves more than 4% per year in returns for the past two decades.
Yet the reality is that DALBAR's methodology confounds the impact of investor behavior, and the simple consequences of return sequences; it's entirely possible that some or all of the low DALBAR investor returns are simply due to the fact that markets rose for the first half of their time sample (the 1990s) and were flat for the second half (the 2000s).
And in fact, that appears to be the case. Once DALBAR updated their projections to compare investor returns to a passive investor who simply invested systematically over the entire time period, the result surprisingly shows that retail investors in the aggregated actually outperformed systematic dollar cost averaging for the past 20 years!Read More...
The Pervasive Effect Of Low Interest Rates On Financial Planning
The ongoing low interest rate environment in the US has created many challenges in recent years, as the struggle to find yield and return drives planners and investors away from bonds and towards other options for higher returns, from equities to so-called "alternative" asset classes - in turn driving up those prices and reducing dividend yields and prospective future appreciation. Nonetheless, many returns on alternatives are still appealing given an alternative of near-zero interest rates on fixed income! Yet the reality is that low interest rates, as they continue to persist, are beginning to have other effects beyond just the impact to investors. Insurance companies have been forced to raise prices on some types of insurance, or leave the marketplace entirely, as the returns are simply too low to manage risk and generate a reasonable profit. Pension plans continue a slow grind of underperforming their long-term actuarial assumptions, creating a larger and larger deficit that must ultimately be resolved as well. And while many planners have been trying to focus their clients on the risks of what happens to bonds if rates rise, recent research suggests that in fact the greatest surprise of the coming decade could be that rates continue to remain low as the US economy deals with its massive public and private debt levels - which in turn means many of these low interest rate challenges could still be in the early phase!Read More...
