Nerd's Eye View blog

CFP Board Under Kevin Keller: Not Your Father’s CFP Board Anymore

September 24, 2012 11:13 am 2 Comments CATEGORY: Planning Profession

Five years ago, Kevin Keller became the CEO of the CFP Board, and at a unique and challenging time for the organization. The CFP Board had just announced its decision to relocate to Washington DC, which was likely to turn over most of the staff (at least, those who were left, as prior CEO Sarah Teslik had just slashed the headcount of the organization by nearly 40% in the preceding few years). Beyond staffing issues, the organization seemed to be in turmoil, with one leadership blunder after another, and Keller himself was entering as the 7th permanent or interim CEO to fill the role with the CFP Board in as many years.

Given that Keller was essentially an "outsider" at the time - experienced in leadership at another organization, but with no particular background or connection to the financial planning world - it was not clear how would he (re-)shape the CFP Board as he took over, with the rare opportunity, and danger, of re-staffing the entire organization from the ground up. Would it be the fresh start the CFP Board needed, or would the outsider unfamiliar with the challenges of the industry and the organization blunder?

Looking back over the past 5 years of the CFP Board, the conclusion seems clear now - although the CFP Board's central role in the financial planning profession continues to make its decisions controversial from time to time, the reality is that the organization under Keller's leadership appears to be entirely reinvented, and in a very positive direction. Although there are definitely some challenges that remain, this isn't your father's CFP Board anymore.

Weekend Reading for Financial Planners (Sep 22-23)

September 21, 2012 07:30 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a look at how fiduciary rulemaking progress has slowed so much that any real change may now be years away at best, a discussion of how (despite lack of progress on fiduciary minimum standards) the future of advice may include a small number of mega-firms that are really building a focused, holistic and client-centric approach to advice, and a somewhat disturbing article suggesting that financial planners are becoming a target for cybercrooks that are trying to steal client money by sending advisors fake email transfer requests. From there, we have a few interesting retirement articles, including an interview with Moshe Milevsky, a discussion from Wade Pfau looking at the immediate-annuity-versus-systematic-withdrawal debate, and an analysis of median income for households over the past several decades that shows how retirees are actually faring the best of any age group. We also look at an interesting Journal of Financial Planning article about how to better evaluate cash value life insurance illustrations, a discussion whether it really pays to go to cash waiting for interest rates to rise, and a look from Morningstar at how as more and more people adopt indexing approaches new opportunities may be emerging for active managers. We wrap up with two lighter articles, one with tips on how to get more productivity time back with some good email management tips, and an intriguing discussion of how, in light of the fact that even people who now do what they love often found that path only after a period of time and some difficult early years, "follow your passion" may be bad career advice for Generation Y and that instead we need to paint a more nuanced picture of career paths that acknowledge the (inevitably?) difficult early years. Enjoy the reading!

What Makes Something An (Alternative) Asset Class, Anyway?

September 19, 2012 11:06 am 4 Comments CATEGORY: Investments

The most typical definition of an asset class is a group of securities that have similar risk/return characteristics, and behave similarly in the marketplace. Thus, for instance, stocks, bonds, and cash represent the three most common asset classes, as each have different risk/return characteristics and they behave very differently in response to various economic and market events.

One of the most common ways to attempt to determine whether an investment represents a unique asset class is to examine its correlation with other investments. After all, two investments that have different risk/return characteristics and behave differently in response to market events would likely show little similarity in returns over time, thereby exhibiting a low correlation. In turn, given how Modern Portfolio Theory demonstrates that investments with a low correlation to the rest of the portfolio can lower the overall volatility of the portfolio - even if the underlying investment itself is volatile on its own - advisors have increasingly sought out low correlation "alternative" asset classes and investments to manage risk through diversification.

The caveat, however, is that in an increasingly complex financial world, having a low correlation alone can actually be a remarkably poor and misleading indicator of what constitutes an (alternative) asset class.

The Day I Became Ashamed To Be A CLU

September 17, 2012 11:07 am 13 Comments CATEGORY: Planning Profession

It was August 24th. I had just awakened early in the morning in Sydney, my final day there after serving as a keynote speaker for the Australia Portfolio Construction Forum, and I was looking through my morning email – which was actually the prior afternoon’s August 23rd email at home in Washington DC, given the 14-hour time zone difference. Earlier in the week, I had caught the surprise announcement from the FPA that CEO Marv Tuttle was stepping down, to be succeeded by then-current FPA COO and Associate Executive Director Lauren Schadle, and read with interest Schadle’s comments that FPA would be stepping up its focus on those financial planners who are serious enough about their craft to seek out the CFP certification.

What caught my eye that morning, however, was an unexpected response to Schadle’s comments from American College President and CEO Dr. Larry Barton. The College, through which I have proudly earned 6 professional designations, including the CFP itself, is one into which I had invested a lot of time, money, and effort, both during my studies, and in the years thereafter as I have continued to promote its advanced educational programs and even recently taken part in providing content for their latest RICP designation.

Yet after reading Barton’s response, I felt for the first time a true embarrassment in being an alumni of the American College of Financial Services, and shame in being a holder of what was once its defining credential, the CLU designation.

Weekend Reading for Financial Planners (Sep 15-16)

September 14, 2012 07:03 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a tough look at the CFP Board's fiduciary standard, raising the question of whether fiduciary is just an advertising gimmick or whether it's really being enforced as such, along with another recent study that finds the majority of investment assets in the country are being managed by firms with questionable and conflicted business models, or an outright series of regulatory infractions. From there, we look at a few more upbeat industry articles, including two recent studies on planner compensation, one showing that income for senior planners is up 14% in the past two years, and another finding that all else being equal CFP certificants average $5,000/year in additional compensation over non-CFPs. There's also a discussion of how some firms are developing new training programs to bring more young people into financial planning, and a look at the firm LearnVest which had a "Best In Show" appearance at this week's Finovate conference with a new iPad app for clients and an announcement of SEC registration as the firm aims to bring financial planning to "the other 99%" of Americans. We also look at two marketing articles, one on how financial advisory firm aggregator HighTower is using social media on a larger firm scale, and an interesting discussion of whether local radio shows still have some marketing value, along with a review of the latest MoneyGuide Pro G3 release. We wrap up with a nice list of market and economic commentaries to check out if you're looking for good content to stay educated, an interesting discussion about whether we are sometimes too conservative in our recommendations as planners and the impact that can have on clients, and an article about whether the social media revolution is about to get "a little less awesome" as investors put increasing pressure on social media firms to shift from the "making delightful and cheap things" stage to the "making money" stage. Enjoy the reading!

Will Australian Financial Services Reform Be A Template For The US?

September 12, 2012 11:06 am 11 Comments CATEGORY: Planning Profession

As regulatory reform for financial services moves along slowly here in the US, half way around the world in Australia a new set of regulatory reforms entitled the "Future of Financial Advice" are now being implemented. The changes will include a ban on all investment commissions, and a fiduciary duty for those giving financial advice, not unlike similar reforms scheduled in the UK under their Retail Distribution Review (RDR) set to take effect in 2013. Notably, though, while Australian reforms may have leapfrogged past the US, the Australian marketplace looks more like the US did nearly 20 years ago, as approximately 80% of advisors work under a small number of dealer groups and there are almost no independent firms. With Australian firms required to adopt fee-only models, including AUM, retainer, and hourly, within a year, the evolution of business models in the US may provide a glimpse to what is coming for Australia. Yet while the US offers Australia a glimpse of fee-only business models, Australia may provide US a first glimpse at how financial services shifts in a fiduciary, fee-only environment - providing a live, real world environment to evaluate questions like whether the less affluent marketplace really is served effectively without commissions, and whether there's still a place for broker-dealers in a fiduciary world.Read More...

Making A Game Out Of Financial Planning

September 10, 2012 11:04 am 6 Comments CATEGORY: Client Trust & Communication

As professionals, we take financial planning very seriously, and generally hope that our clients do as well. After all, if clients don't take their financial situation and its outcomes seriously, how will they ever change their behavior for the better? However, the reality is that in many fields, some of the best progress in helping people change their behavior comes not from raising the seriousness and penalties for making mistakes, but for turning the subject into a gaming experience that rewards positive outcomes. In the context of financial planning, this process of "gamification" creates the potential to help clients making the changes they need to achieve financial success. Although some aspects of financial planning would be difficult to turn into the kind of instantaneous feedback necessary for gamification to work - at least until technology moves along a few more years - other parts can be implemented now. For instance, even just making a financial planning action items list continuously available to clients, with checkboxes left blank until the task is completed, can help compel clients to finish what they need to in order to get to check the box! Will gamification have the potential to help clients having difficulty with change get to the financial planning outcomes they need and want?Read More...

Weekend Reading for Financial Planners (Sep 8-9)

September 7, 2012 11:46 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a surprising interview from Barbara Roper at the Consumer Federation of America, suggesting that given how the SEC is dragging its feet, perhaps FINRA would be the better solution for investor protection after all. Tying into the regulatory theme, we also look at Bob Veres' latest Financial Planning magazine column, suggesting that RIAs should come to the table with their own fresh proposals rather than waging a FINRA vs SEC battle, a recent study by Financial Advisor magazine, Boston Consulting Group, and 3ethos that attempts to benchmark how well advisors currently execute fiduciary best practices (the answer is not as well as we might have hoped and expected), and a disturbing investigation from the SEC into financial advisor and radio personality Ray Lucia that digs deeply into the backtesting models that Lucia used to support his strategies (raising the question about whether other advisors may also have made errors in assumption or process in their own in-house backtesting efforts regarding the strategies they recommend). From there, we look at a few more aspirational articles, including a vision from hiring consultant Caleb Brown about how financial planners may learn their craft in the future, an interview with practice management consultant Angie Herbers about how to develop great employees, and a great checklist for information you should be certain to cover on your website to give prospective clients what they want/need. There's also a nice technical summary of some of the planning implications of the Affordable Care Act in the coming years, some thoughts about where the ETF/ETN industry is heading (notwithstanding the growth, it might still be in the early stages!), and a good explanation and comparison of two different types of P/E ratios and what they tell us about whether stocks are cheap or not. We wrap up with some intriguing new research from Morningstar, suggesting that it's a myth that investors are dumb and pick bad funds; instead, the Morningstar research suggests investors tend to be pretty good at selecting high quality funds, but have a problem in timing the purchase of those funds poorly. Enjoy the reading!

Should Practice Management Really Be Eligible For (CFP) CE?

September 5, 2012 11:09 am 5 Comments CATEGORY: Planning Profession

With the first major changes to the continuing education requirements for CFP professionals in nearly two decades, the CFP Board has proposed that in the future up to 10% of the CE requirement could be satisfied with content on practice management. Distinct from education on trust and communication, the proposal would allow for CFP CE for practice management topics tied to the business of operating a financial planning practice.

While many have long requested CE credit for practice management content, though, it seems that allowing practice management CE strays away from the fundamental purpose of continuing education, and risks creating a double-standard for technical competence between financial planners that work in a practice, and financial planners who own a practice.

Perhaps that means the better solution is to improve the practice management tools, resources, and content that are available in the first place, so that practice management can simply be its own reward, and justify its own ROI, for those who choose to own and operate a financial planning business?Read More...

Building A Financial Planning Business In The Long Tail World

September 3, 2012 11:02 am 14 Comments CATEGORY: Practice Management

In the financial planning world, most firms are small businesses that are struggling to get larger, trying to grow the practice by simultaneously competing for the same biggest clients and at the same time serving anyone who is able and willing to pay for financial planning services while slowly raising minimums to become more profitable. In response, many practice management consultants have suggested that financial planners establish a niche to build their businesses, focusing on a smaller market they can dominate rather than a larger market they struggle in. Notwithstanding this advice, few firms have adopted the niche approach, most commonly out of a fear that if they narrow the focus of the practice it will simply lead to fewer clients. Yet the reality is that in other industries, firms are growing like never before by focusing not on the biggest clients and opportunities, but by capitalizing on "the long tail" of smaller, niche segments that can add up to real dollars, and become accessible because of the how the internet facilitates business in the digital age. Is it time for financial planners to similarly adopt the long tail approach?Read More...