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Weekend Reading for Financial Planners (February 3-4)

February 2, 2018 02:57 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with an interesting retrospective look at the impact of the Financial Planning Association's successful lawsuit against the SEC 10 years ago, which set in motion much of the past decade's fiduciary rulemaking debate, the rapid rise of the hybrid B/D-RIA movement, and spurred the growth of the independent RIA channel... though, ironically, not the organization's own membership, which remains down nearly 15% from before the lawsuit was first filed.

From there, we have a series of practice management articles this week, including: a look at the challenge in transitioning from a practice into a business (which becomes a virtual necessity as an advisory firm approaches $2M of revenue); the importance of developing talent internally, which in turn requires having a clear multi-step progression of how an advisor can grow over time from a paraplanner to an advisor and even a partner; tips on how to refine your own hiring process (and why it's so crucial to do so); and a warning from Mark Tibergien that while advisory firms are still growing, they're increasingly buoyed by just market returns as organic growth rates are slowing, raising the question of whether it's finally time for advisory firms to begin building more formal marketing processes.

We also have several articles specifically on marketing and business development, from a discussion of the path that prospects go through in considering a financial advisor (and why it's necessary to customize your own sales process depending on what stage they're in), to strategies for improving your new client onboarding process to make people want to refer from the very start of working with you, why an "elevator pitch" is still a necessity in today's world, and why good branding in the modern era of information overload is less about finding a cute or clever way to describe yourself and increasingly about just being really clear about what you do and who you serve (so the prospects who would actually be interested can quickly and easily find you!).

We wrap up with three interesting articles, all around the theme of milestones and personal growth: the first is an excerpt from Daniel Pink's new book "When", looking at how having "temporal landmarks" (from a deadline to a birthday that turns a new decade) can spur us to get things done or take on new challenges; the second is a fun series of "life tips" from someone turning 45 and looking back on all she wish she knew in her earlier years; and the last is an interesting exploration of why it may not always be a good idea to set "SMART" goals (that are specific and concrete), and how setting goals can actually distract us from both enjoying the journey, and missing the new opportunities that may come along the way!

Enjoy the "light" reading!

Why TAMPs And Outsourced Investment Management Are The Future For Most Advisors

February 1, 2018 02:01 pm 16 Comments CATEGORY: Practice Management

While Turnkey Asset Management Platform (TAMP) solutions were first launched in the 1980s, they have grown dramatically in the past decade... accentuating a rising trend of financial advisors outsourcing their investment management, which a recent Cerulli study found is now being done by the majority (54%) of CFP professionals. And as advisors increasingly focus on giving financial planning advice (and not just providing insurance or investment solutions), this trend seems likely to only continue further, as more and more CFP professionals adopt some combination of TAMPs and technology tools to minimize the time they spend implementing portfolio management for their clients. In other words, notwithstanding their recent growth, TAMPs and the world of outsourced investment management is about to get a whole lot bigger than it is even today!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we examine what a TAMP (turnkey asset management platform) is, why TAMPs and outsourced investment management are the future for most financial advisors, and how financial planners of the future will likely seek out and adopt TAMPs in a different manner than the popular solutions of the past!

For those who aren't familiar, TAMPs originated nearly 30 years ago, with early leaders like PMC, AssetMark, Lockwood, Brinker Capital, and SEI. The idea of the TAMP was that they would handle the process of actually managing a portfolio - making it as "turnkey" as possible - from selecting the initial stocks or mutual funds (or these days, ETFs) to then monitoring the portfolio and making investment changes (as necessary) on an ongoing basis. As a result, the TAMP structure made the investment management process much easier for advisors, allowing advisors to have consistently managed portfolios, and refocus their efforts that would have gone towards managing investments towards better servicing clients (or finding new ones).

Outsourced investment management was first popular in the broker-dealer environment, structured around a commission trail arrangement, but in the RIA community, it’s more common to use a “sub-advisor” TAMP relationship, where the client actually contracts directly with the RIA using their investment management agreement – which may acknowledge the TAMP as a sub-advisor – and then the RIA in turn contracts with the TAMP as a sub-advisor to manage their client accounts (with a Limited Power Of Attorney [LPOA] Authorization to trade in the client's account through the custodial platform). This shift towards sub-advisor TAMPs in recent years is a key distinction, as the client is first and foremost a client of the advisor, and it’s the advisor who actually decides whether to keep or fire the TAMP as their sub-advisor. Which also means that the RIA can actually claim the AUM they outsource to the TAMP as their own regulatory AUM, because the RIA is the one responsible for the primary “management” (even if that management is choosing a third-party asset manager).

Accordingly, in recent years, a new kind of TAMP adopter has emerged – the holistic financial planner. While in the past TAMPs were primarily the domain of asset-gatherers (who freed up their time to get more clients into the TAMP), for those who are paid heavily or primarily for their financial planning services (rather than being primarily an “investment advisor” for their clients) a TAMP can make a lot of sense as a means to stay involved in the investment process, but not have to be that hands-on with the portfolio (or feel compelled to hire a CFA to run the portfolios). As a result, we've seen the rise of some "simpler" TAMPs that focus on ETF or DFA-oriented mostly-passive portfolios, relying on their service and technology as a differentiator, rather than their investment results. Thus, while TAMPs have historically charged as much as 75 basis points or even a full 1% for their services, the next generation of more passively-oriented TAMPs are coming in at 50 basis points, 40 basis points, or some even at 30 basis points for larger RIAs (depending on both the size of the advisory firm, and also how much back office and other support the TAMP actually commits to provide).

Yet the addition of a new layer of TAMP costs raises another important question: who should pay for it? Or put another way, how should advisors set their fees around the TAMP? Ultimately, there’s not necessarily a “right” or “wrong” answer here, because the truth is that it depends on how the advisory firm was positioned with its clients in the first place. If the advisor's value to clients was helping them to find a good investment solution, the advisor may be able to still justify his/her fee for selection, due diligence, and monitoring, and the client would pay the TAMP fee for what the TAMP does. But if the advisor's value to clients was “managing their money”, and then the advisor outsources it, it’s a little more awkward, as arguably now that should be advisor's cost, not the client’s, because the client is already paying the advisor to do it. At the same time, it’s important to remember that according to the latest benchmarking data on advisory fees, the typical advisor is charging 1% on a portfolio up to $1M in addition to the underlying costs that average 65 to 85 basis points (with higher costs for smaller portfolios). Which means advisors who charge 1% for the first $1 million dollars, and use a TAMP that charges less than 50 basis points and has low-cost ETFs inside, will have total costs that are still below the median all-in cost for advisors today!

The bottom line, though, is just to recognize that as financial advisors increasingly focus on financial planning, and investment management literally becomes less central (though not necessarily irrelevant) to our value proposition with clients, so too does investment management become less central to what we do in our businesses (and where we spend time). Which is leading to an ongoing rise in the use of TAMPs and outsourcing investment portfolios, as the majority of CFP professionals are now outsourcing portfolio management. And the better we get at delivering financial planning value, the more that trend will likely continue!

Timing Tax Savings With Deduction Lumping And Charitable Clumping

January 31, 2018 07:01 am 11 Comments CATEGORY: Taxes

Deduction Lumping And Clumping Featured Image

Most taxpayers are eager to claim any and all tax deductions that they can, yet the reality is that with the newly expanded Standard Deduction under the Tax Cuts and Jobs Act (TCJA) of 2017, as many as 90% of households will no longer itemized deductions at all… which effectively means many tax deductions that were recently popular, from state and local income and property taxes, to mortgage interest, and even charitable contributions, may actually be worthless in the future.

For those who are at least close to the threshold where itemized deductions exceed the Standard Deduction, though, it may be appealing to deliberately time and “lump together” available itemized deductions (e.g., shifting the timing of state estimated tax payments, and property taxes where permitted), or even clump charitable contributions into a donor-advised fund, such that the combined lumped-and-clumped deductions do exceed the Standard Deduction… at least every few years.

Ironically, those who already have substantial itemized tax deductions – especially including the mortgage interest deduction – may already have more than enough deductions to pursue such strategies. And with the new $10,000 cap on SALT (State And Local Tax) deductions, many households will struggle to itemize at all (especially married couples). Nonetheless, for some, the opportunity to lump and clump deductions together – especially for those that have other (appreciated) assets available to front-load charitable contributions into a donor-advised fund (and save on capital gains taxes in the process) – can produce a material tax savings in the future!

#FASuccess Ep 057: Marketing Your Way To $1B Of AUM In 10 Years With E-Books And Radio Shows with Ted Jenkin

January 30, 2018 07:01 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 57th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Ted Jenkin. Ted is the co-founder of oXYGen Financial, a wealth management advisory firm under Kestra that manages nearly $1 billion of client assets.

What's unique about Ted, though, is that his firm is focused almost entirely on serving Gen X and Gen Y clients – thus the "XYGen" part of the oXYGen Financial name – and gets paid through a combination of AUM fees, a small portion of insurance implementation commissions, and a $99 per month "technology fee" that they charge their clients for their own personal financial management dashboard... which is provided by aggregating their accounts through eMoney Advisor.

In this episode, Ted shares how oXYGen Financial grew from scratch to over 1,500 hundred clients over the past 10 years since it was founded, how the firm executes its digital marketing strategies by producing a high volume of "e-books" – some as short as 1 or 2 pages – that they offer online prospects in exchange for their email address and phone number, the way oXYGen Financial drives visitors to its website by getting visibility on "not-advisor-traditional" radio shows like sports programs, and the way the firm follows up with those prospects who contact them online.

In addition, we also talk in depth about oXYGen's actual four-meeting financial planning process with clients, that starts with an Initial Client Meeting which talks clients through a "Key Money Concerns" checklist the firm created, to a Data Gathering meeting that the financial advisor themselves doesn't even sit in, followed by a Plan Presentation meeting that oXYGen frames as a "Strategy Session" to talk about potential planning strategies to implement, and then wraps up with an actual implementation meeting that includes transferring assets for oXYGen to manage.

And be certain to listen to the end, where Ted talks about the challenges he went through in leaving a 17-year career as a Vice-President-level manager at a major broker-dealer to go out on his own with his business partner Kile Lewis, how he plowed money into marketing in the first year to not just get clients but set the groundwork for building the oXYGen Financial brand, and how he focused on building relationships with other local small business owners in the Atlanta area to grow the firm.

So whether you are interested in learning more about reaching prospective clients online through e-books, curious how you can grow your business through radio shows, or simply want to learn more about how you can profitably serve Gen X and Gen Y clients, I hope you enjoy this episode of the Financial Advisor Success podcast!

Second Public Comment Letter To CFP Board On Revised CFP Professional Standards Of Conduct

January 29, 2018 07:01 am 3 Comments CATEGORY: Regulation & Compliance

CFP Second Comment Letter Featured Image

Over 2 years ago, the CFP Board began its process to updated the Standards of Professional Conduct for all CFP certificants, for the first time since the last set of changes took effect in the middle of 2008. And after an initially proposed last June, followed by a public comment period, the CFP Board issued a second revised proposal in December, for which a second (and likely final) public comment period is now open.

In today’s article, I am publishing in full my own second public comment letter to the CFP Board. As you will see, I remain supportive of the CFP Board’s direction with the new standards, which is to expand the fiduciary standard to all CFP professionals at all times (and not “just” when doing financial planning or material elements of financial planning, as in the past).

However, the recent revisions to the proposed Standards of Conduct did introduce a number of new concerns for CFP professionals, while also failing to resolve some of the problems of the original proposal. Of greatest note is the fact that the revised proposal effectively creates two forms of advice from CFP professionals – financial planning advice, and non-financial-planning financial advice – which are both subject to a fiduciary standard, but have different disclosure requirements, and will be evaluated by different Practice Standards. Which means CFP professionals will be able to routinely avoid being held accountable to following the CFP Practice Standards by not giving financial planning advice, even as the CFP Board’s own Public Awareness campaign continues to advocate “for financial planning, work with a CERTIFIED FINANCIAL PLANNER professional”.

Also notable in the revised proposal for the new Standards of Conduct is what still hasn’t been resolved, including the fact that “reasonableness” is used as a key term to determine whether a CFP professional is guilty of wrongdoing a whopping 28 times (even though the CFP Board has no formal mechanism to issue Guidance, and raising the legitimate concern that such terms will only be defined after the fact through enforcement), serious gaps or outright conflicts for CFP professionals who are switching from fee-only to commission-and-fee compensation or back the other way, and a serious gap in the definition of what constitutes a “financial planning engagement” that could legitimately subject an advisor’s cocktail party conversations to a fiduciary standard.

Ultimately, I remain hopeful that the CFP Board will move forward with its proposed changes to the Standards of Professional Conduct, which represent a positive step forward for the financial planning profession. But only after the remaining issues are given serious consideration, particularly with respect to the unintended consequences of murky definitions of what triggers a fiduciary engagement, fulfilling the CFP Board’s Public Awareness campaign promise that “for financial planning, [consumers should] work with a CERTIFIED FINANCIAL PLANNER professional” (which already presumes that CFP professionals will be doing financial planning!), and developing a framework to provide ongoing guidance to interpret and clarify a large number of key definitions so CFP professionals don’t have to learn through the process of rulemaking by enforcement. Especially given the CFP Board’s strategic priority of Accountability!

In any event, I hope that you find this (second) public comment letter to be helpful food for thought, and that if you haven’t yet, you submit your own Public Comment letter to the CFP Board by emailing [email protected] – the deadline is this Friday (February 2^nd)!

Weekend Reading for Financial Planners (January 27-28)

January 26, 2018 02:49 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the news that the battle over the CFP Board's expanded fiduciary standard is heating up, with both SIFMA and FSI (lobbying firms for broker-dealers) calling for the CFP Board to postpone their fiduciary proposal until at least next year to see what the SEC does, and the CFP Board responding that it still intends to move forward (and putting to rest the criticism that CFP Board is solely beholden to its large-firm broker-dealer stakeholders).

Also in the news this week is the announcement that administration of the Broker Protocol is being shifted to a new law firm called Capital Forensics (after complaints arose that the prior law firm Bressler Amery & Ross sat on the news that Morgan Stanley was leaving the protocol and failed to communicate it to the other protocol participants in a timely manner), and a look at how despite the de-regulatory agenda of President Trump the financial advisory industry is facing a slew of new and additional regulatory activity in the coming year from both the SEC and FINRA (not to mention what is already underway with the Department of Labor's fiduciary rule).

From there, we have a series of practice management articles this week, including: a look at some of the new additions on Form ADV that will be required in the coming weeks as firms do their annual updates; the regulatory and compliance issues to consider when hiring non-advisor employees (who still must be overseen by the firm); why fiduciary compliance does not actually require advisors to always use the absolute lowest cost solution for clients; the rise of the "quasi-independent" model of breakaway brokers who join existing independent RIAs that provide solutions to the advisors who often become partners of the firms; the various Millennial archetypes (beyond the increasingly popular "HENRYs") that financial advisors should consider working with; and how to think about developing a special treatment program to deepen your relationship with your top clients (and what we can learn from the airline industries about how to provide differentiated service to your most valuable clients/customers).

We wrap up with three interesting articles, all around the theme saving and spending habits: the first looks at how, in a world of retargeting ads and email marketing, often the best way to save and buy less is simply... to buy less in the first place (which keeps you from being signed up for all those lists in the first place, and helps you get more comfortable in simply enjoying what you already have); the second is a look at how sometimes the best strategy to succeed is simply by using brute force, which can apply to everything from investing (don't try to pick stocks, and instead just own all of them with an index fund) to accumulating for retirement (if your savings rate is aggressive enough, it hardly matters what you actually generate in investment returns!); and the last is an interesting exploration into what is worth spending a little more money on, particularly for those who may be financially successful (or fully financially independent) precisely because they lived a lifetime of frugality... and now can't find out how to flip the switch and actually try to enjoy the money they have!

Enjoy the "light" reading!