Kitces.com - Advancing Knowledge in Financial Planning

Managing The “Theater” Of A Financial Planning Meeting

January 10, 2018 07:01 am 5 Comments CATEGORY: Client Trust & Communication

Managing The Theater Of Financial Planning

For financial advisors who pride ourselves on the quality of the advice we provide to clients, it can sometimes be easy to lose sight of the importance of the more physical elements of our business that seem qualitatively irrelevant to the value of the guidance and recommendations we give to clients. However, as a tremendous amount of psychological research suggests, we should be careful not to overlook the more "theatrical" elements of a financial planning meeting – from the clothes we wear and the way we present information to clients, to the design and set up of our office – as the "theater" of financial planning actually does influence our clients, and their ability to implement our advice in a meaningful manner.

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 why it is important to both acknowledge and manage the theater of financial planning, particularly given the ways in which clients and prospective clients utilize the signals we as advisors send (both consciously and unconsciously) to decide everything from whom to hire, to what financial recommendations they should implement (or not!).

It is widely acknowledged that effective communication is an important aspect of what financial advisors do. However, something that is less commonly appreciated is the role that our environment plays in facilitating that communication. In his book, Suggestible You, Erik Vance examines the ways in which our suggestible minds are influenced by the stories we hear and the environments we hear those stories in. In particular, Vance examines the "theater of medicine", and its surprisingly powerful role in shaping the perceptions and beliefs of patients, which can, in turn, influence their physical health and well-being as well!

Additionally, the physical spaces we occupy (such as our office) can actually say a lot about us. Though laboratory research in financial planning is still very young, and scholars are only beginning to delve into how the offices of financial advisors can optimally be designed, some research from other fields has found that our physical environments can actually say even more about our personalities than some commonly used tools and assessments. At the heart of this are ways in which our personality manifests in certain behaviors which leave physical evidence within our environments that is really hard to fake – from mementos we collect and things intentionally place out for others to see, to more subtle clues such as the way we dress and organize things on our desk.

Ultimately, financial advisors have many options for trying to better manage the theater of financial planning... from sending signals of our conscientiousness through our clothing (e.g., formal dress) and communication style (e.g., controlled posture and calm speech), to signals of our competence through education and professional designations (e.g., CFP certification), and even signaling our knowledge of and solidarity with niche communities that we service... there are many ways in which we can seek to manage the "theater" of our financial planning to help our clients adopt and implement wise financial planning practices!

#FASuccess Ep 054: Lessons Of An Advisory Firm Merger And Launching Your Own Advisor FinTech Company with Greg Friedman

January 9, 2018 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 54th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Greg Friedman. Greg is the co-founder of Private Ocean, an independent RIA in northern California that manages nearly $1.2B of assets under management for 450 households, with a combination of both investment management and financial planning services.

What's unique about Greg, though, is that in addition to leading a billion-dollar advisory firm that he founded over 25 years ago, he also developed his own CRM system to better manage all the workflows for his financial planning clients... which he eventually made available to other advisory firms as well, in the form of the software we now know as Junxure CRM.

In this episode, Greg talks about how Private Ocean got its initial traction with a niche Center of Influence in the California Tire Dealers Association – just to emphasize that any niche can work when you build connections to the key Centers of Influence! – how the firm is structured today with lead and associate advisors, how compensation is set for the firm's lead advisors to keep them from focusing too much on investments alone, and why Private Ocean has decided to charge only AUM fees despite having such a deep focus on its financial planning work with clients.

In addition, we talk in depth about the real-world challenges that cropped up when Greg decided to merge his successful advisory firm with a larger one 7 years ago, to become the successor CEO of the combined organization when the other firm's founder retired, how Greg is able to manage his software company along with his advisory firm and how he handles his time, the guiding philosophy that he uses to stay focused across all of his businesses, and why Greg thinks it's so crucial to have an Executive Coach.

And be certain to listen to the end, where we include a small additional "bonus" interview – because ironically, in the short time between when we originally recorded this podcast, and when it went live, Greg actually sold Junxure to AdvisorEngine. So we gather some of his thoughts about what makes you want to sell a company you built. Especially when you're not ready to retire yet.

So whether you have been curious about how to build your business by leveraging a niche, the unique opportunities for advisory firms that develop and eventually sell their own software, or curious about the real world challenges that come with merging a successful advisory firm into a larger one, I hope you enjoy this episode of the Financial Advisor Success podcast!

Announcing CPA CE Credits And Other 2018 Updates To The Nerd’s Eye View!

January 8, 2018 07:01 am 8 Comments CATEGORY: Nerd's Eye View

Running a successful business requires continual reinvestment… which is why, every year, we survey our Nerd’s Eye View readership to find out what we could be doing to deliver more value to you, and/or to make the reader experience even better. And so, as 2018 kicks off, I wanted to share a little perspective on the current State Of The Blog, and some of our plans for the upcoming year.

Overall, this past 2017 was another big year of growth for Kitces.com. Our total site traffic was up nearly 25% over 2016 – which at our size, means the blog grew more last year than it did in the first 6 years cumulatively. Our new Financial Advisor Success podcast has quickly become the most highly reviewed podcast for financial advisors on iTunes, and finished its first year just shy of 1,000,000 advisor downloads. And our team expanded, with the promotion of Rachel Zeller to Operations Manager, and the hire of Derek Tharp (who just successfully defended his dissertation and is now Dr. Derek!).

These new hires gave us additional capacity to begin a process of major reinvestments into the Kitces.com platform itself, and the services that we provide to our readers. Which means we’re have a number of exciting announcements to make!

First and foremost, the Nerd’s Eye View blog is now providing CPE credits for CPAs, in addition to the CE credit we already provide for CFP certificants and IMCA members with the CIMA or CPWA designations in our Members Section! In fact, Kitces.com has joined the NASBA Registry of CPE Providers – a significant national recognition for the quality of our CE content and instructional design – in addition to becoming a CFP Board CE Quality Partner. To our knowledge, we’re one of less than half a dozen CE providers for financial advisors in the entire country to have been recognized by both organizations, as we continue to reinvest into the quality of the content we provide.

Second, we’re beginning the process of a major technology overhaul in our back-end systems used to run the blog itself. The primary purpose of these changes are to make it feasible for us to better customize the reader experience for you – from sharing more relevant article suggestions, to removing prompts to sign up for our updates when you’re already a subscriber (which is a surprisingly difficult technology challenge to implement!), and giving you more flexibility to select which email updates you receive (e.g., the ability to exclude certain content categories that may not be of interest to you). You’ll see these changes roll out incrementally throughout 2018. We also plan to leverage these new tools to conduct more survey research of financial advisors, on key practice management topics that aren’t being sufficiently studied elsewhere.

Third, the growth of the Nerd’s Eye View means we’re hiring again! A new Research Associate position is currently listed in our Career Opportunities section, and we’ll be hiring a “Director of Digital Engagement” to help us roll out our customized content enhancements later this year. So if you know anyone who might be interested, please send them our way!

In the meantime, we’ll also have more opportunities in 2018 for Guest Posts, and another year of the Financial Advisor Success podcast means 52 new podcast guest opportunities as well! If you’re interested, please reach out directly via our Contact page to let us know!

Weekend Reading for Financial Planners (January 6-7)

January 5, 2018 02:40 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that both New York and California are now working on plans to convert their no-longer-fully-deductible state income taxes into either a higher state payroll tax, or an option to making a "charitable" contribution to a state fund instead (where the state would offer a dollar-for-dollar credit against taxes, and as a charitable contribution it would remain deductible for Federal tax purposes). Also in the news is the announcement that Citigroup is also leaving the Broker Protocol, but that even as the Protocol unravels, FINRA still doesn't believe there's any reason for the organization to get involved even as the number of temporary restraining orders and arbitrations by wirehouses against former brokers begins to rise.

From there, we have a number of retirement-related articles this week, including a research study that finds what appears to be a significant increase in male mortality rates immediately after early retirement (at age 62), another study showing that mortality rates are rising and that life expectancies in retirement may be starting to shrink (especially as prospective retirees struggle to save and retire later, although ironically shorter retirement time horizons may mean retirees need less to retire than they once believed), a look at all the different types of senior housing arrangements that are emerging as the mass wave of Baby Boomers decide how they want to live in retirement, and why the key to helping retirees be happy may be less about maximizing their retirement portfolios and more about minimizing their regrets in retirement.

We also have several articles on practice management and career development, from tips on how to better navigate your career in an existing advisory firm, to best practices in how to find a mentor, and why truly being a professional financial advisor is about more than just being financially successful but actually committed to being a bona fide professional.

We wrap up with three interesting articles, all around the theme of (non-traditional approaches to) New Year's resolutions and improving your business and life in 2018: the first explores what it takes to have a truly impactful New Year's resolution for your advisory firm (hint: it's about actually establishing a better infrastructure for the firm to be successful); the second explores how it may be better to set goals on how you will allocate and use your time rather than just setting business goals for revenue or growth; and the last looks at how the perennial New Year's resolution of trying to be more productive may just be a mental trap, because the real issue is not figuring out how to be more productive to achieve your goals, but taking a fresh look at why you're pursuing them and whether you're even pursuing the goals that will actually make you happier in the long run!

Enjoy the "light" reading, and hope you had a Happy New Year!

AdvisorEngine Acquires Junxure Users And Gets CRM Thrown In!?

January 4, 2018 02:05 pm 5 Comments CATEGORY: Technology & Advisor FinTech

Kicking off the 2018 New Year was some big advisor technology news: that robo-advisor-for-advisors AdvisorEngine is acquiring Junxure CRM, the popular CRM system for financial-planning-centric RIAs (that ranked second in adoption in last year's T3 Tech Survey, coming in behind Redtail and ahead of Salesforce). Yet while Junxure has been around for more than 15 years, AdvisorEngine is still a relative newcomer, having only pivoted away from being a consumer-oriented robo-advisor just a few years ago as it received a substantial venture capital investment from WisdomTree as a potential distribution channel for their ETFs. Which raises the question: Why did AdvisorEngine buy Junxure CRM? And what does it mean for all of Junxure's existing Cloud and Desktop users?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss AdvisorEngine's acquisition of Junxure CRM, including why this is likely a good development for existing users in terms of enhancing Junxure Cloud and migrating away from Desktop, but also what I think was the real motivation behind this acquisition: AdvisorEngine's desire to grow by converting as many of Junxure's 1,400 advisory firms over to AdvisorEngine's technology platform with AUM pricing.

From the perspective of existing Junxure users, the AdvisorEngine acquisition should be good news. AdvisorEngine wants to grow, they’ve got capital to invest for growth, and that means they can hire more developer talent to accelerate the feature roadmap for Junxure Cloud - an area that Junxure itself has struggled as a capital-constrained advisor tech firm (and thus why still fewer than 50% of Junxure users have moved from Desktop to Junxure Cloud). With AdvisorEngine itself being a well-funded and entirely web-based platform, it has both resources and incentives to bring Junxure Cloud up to modern standards... which only benefits existing Junxure users.

That being said, it’s important to recognize that AdvisorEngine didn’t just buy Junxure to make Junxure better to get more Junxure users. They bought it to make AdvisorEngine better, and to get more AdvisorEngine users by leveraging the value of Junxure CRM. Which means AdvisorEngine is clearly also going to be spending resources to integrate Junxure Cloud with AdvisorEngine, and these improvements don’t necessarily help Junxure users. They help AdvisorEngine users (or Junxure users who decide to adopt AdvisorEngine). And as AdvisorEngine continues to flesh out its own offerings, this creates some awkward tension with AdvisorEngine's other partners, since the company has lauded itself as being "open architecture", yet appears in practice to be less so as it's acquired and now is deeply integrating with its own proprietary financial planning software and now its own CRM system.

Yet at the same time, this also raises what I think is the most concerning part of this deal of AdvisorEngine acquiring Junxure CRM: AdvisorEngine needs Junxure users to adopt AdvisorEngine for this to work out. Because the reality is that AdvisorEngine still has the clock ticking on a $20 million dollar equity investment that WisdomTree made back in late 2016. For which, after a full year, AdvisorEngine is only reporting about $3 billion of assets on their platform from 60 advisory firms. Which, even if we're generous and assume they are receiving their full top rate of 10 bps on all assets, only amounts to about $3 million of revenue so far, which is not a good sign, relative to the amount of capital AdvisorEngine raised. The pressure on AdvisorEngine to bring more assets must be tremendous. Which I think means AdvisorEngine isn't just acquiring Junxure to make it a more holistic platform, but to specifically convert as many of Junxure's 1,400 advisory firms over to AdvisorEngine as they can. And if AdvisorEngine can convert just 10% of Junxure users, that’s $60 million dollar revenue opportunity, in a world where Junxure's 12,000 users may have only been bringing $7 million of revenue or so. Cross-selling Junxure users on AdvisorEngine's services (and pricing) is the real key to the acquisition deal.

Except, unfortunately, I’m not certain how well that’s realistically going to work for AdvisorEnginge, because Junxure users tend to be deep financial planning firms. However, AdvisorEngine is an investment-centric platform, with a client portal focused on investments, an onboarding process focused on investment accounts (because that AdvisorEngine onboarding data can't even go to actual financial planning software!), and an internal “financial planning light” solution through Wealthminder that you can’t even turn off in the AdvisorEngine portal if you’re using other third-party planning software like eMoney Advisor or MoneyGuidePro (and I suspect almost all current Junxure users are using third-party planning software!). And beyond this, it's not even clear if advisors will be interested in AdvisorEngine given its AUM pricing starting at 10 bps. Because charging 10 bps for technology when the typical RIA generates 70 to 80 basis points of revenue yield on AUM means AdvisorEngine would cost the typical advisory firm more than 15% of revenue, when the typical firm only pays 2% to 4% of revenue on all of its technology (which is more than just what AdvisorEngine provides)!

But the bottom line is just to recognize that while in the very near term Junxure users should see a big investment from AdvisorEngine into new Junxure features – particularly to finish getting all the Junxure Desktop functionality into Junxure Cloud – the real value of Junxure for AdvisorEngine is getting Junxure users to start paying basis points for AdvisorEngine’s technology. Which means Junxure users should probably expect a lot of phone calls from the AdvisorEngine sales team in 2018, making their case for consolidating more of their technology with Junxure-integrated AdvisorEngine. Ultimately, we’ll see what happens, and whether the AdvisorEngine value proposition is really compelling enough to make Junxure users break their existing technology relationships?

When It Pays To Pay Social Security Taxes

January 3, 2018 07:01 am 31 Comments CATEGORY: General Planning

While being a tax-paying citizen of the United States does provide for certain benefits and protections, and several organizations are responsible for helping to oversee and ensure that tax dollars are used in a reasonably productive manner, most people don’t think of their tax dollars as something that provides a specific and tangible “return on investment”. Yet the irony is that when it comes to FICA taxes on wages or self-employment income, which are used to fund Social Security and Medicare benefits, it actually is possible to have FICA taxes produce a long-term Return On Investment (ROI).

The reason that Social Security FICA taxes can generate a positive ROI is that ultimately, any wages or self-employment income that is taxed for Social Security purposes is also income that will be considered when calculating Social Security benefits. And since Social Security itself is functionally an income-replacement formula – based on an individual’s highest 35 years of inflation-adjusted earnings, with means-tested replacement rates based on their income levels – the more income that is included for FICA tax purposes, the higher Social Security benefits will be.

In fact, those eligible for the lower and middle FICA replacement rates – up to $64,788 of lifetime inflation-adjusted average earnings – the ROI of paying FICA taxes can generate real returns that are actually competitive with current TIPS bond yields, potentially rising even higher for those in the lowest income tier, especially for individuals who are also older (in their 50s or early 60s) but very healthy (with a long life expectancy to continue receiving Social Security benefits in retirement itself). Although for upper-income individuals, even though with above-average health, the ROI on Social Security FICA taxes is generally negative.

The significance of the potential for Social Security taxes generating a positive ROI is that, at a minimum, paying FICA taxes for many is less of a “tax” and more of a forced-savings investment with a bond-like return (albeit not available as a liquid account balance and only as a lifetime Social Security annuity payment). And for those in more flexible situations to control their income reported as wages – from S corporation owners, to those with spouses or other family members who might be paid through the family business – the potential for a positive ROI from FICA taxes can substantially alter intra-family business tax planning strategies!