Nerd's Eye View blog

Why Don’t Financial Planners Practice?

August 13, 2012 11:03 am 10 Comments CATEGORY: Client Trust & Communication

Although operating a business that delivers financial planning services is called a "practice" the reality is that most financial planners do little to actually practice their skills outside of the ongoing work they do for clients. Yet while this is standard in the financial planning world, it seems almost absurd in other contexts; if a professional athlete only practiced during the time that actual games were played, he/she wouldn't last long. In fact, looking at the history of top performers in most fields, from sports to business, shows that those who are most successful have an ongoing process for effortful practice and a deliberate strategy for self improvement.

Nonetheless, financial planners do little to hone and practice their own skillsets, especially once meeting the experience requirements for the CFP certification. Is the problem simply that most financial planners, like most people, aren't entirely comfortable with criticism and feedback - even if it's purely constructive - and would rather avoid the situation entirely? Or is there some other reason why financial planners don't actually do much to practice?
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Weekend Reading for Financial Planners (August 11-12)

August 10, 2012 06:15 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 the big news on the regulatory front - an expected op-ed article from Congressman Bachus in the Wall Street Journal, just after it looked like the Baucus legislation for an investment adviser SRO was dead. From there, the rest of weekend reading takes a deep dive into a long series of practice management articles, including an article on shifting from AUM fees to retainers by Bob Veres, a look at how financial planners are serving the middle market, an examination of ways to maximize the efficacy of your website besides using social media (through search engine marketing and search engine optimization), a look at how many firms fail because the business owner has a strong vision but fails to communicate it effectively to staff, and the benefits of being involved with a study group. We also look at an article sharing some general "pearls of wisdom" and tips for success, an intriguing look at how the best way to generate more referrals may be to stop asking for them, and a caution not to undervalue the work that you do for clients. We wrap up with two more personal/productivity-oriented articles, one on how scheduling time windows for yourself to do various tasks can improve your efficiency, and another on how it's crucial to always be reading and maintaining intellectual curiosity to be an effective leader in your business (hopefully supported by this weekend reading column!). Enjoy the reading!

Can Financial Advisors Outsource Prospecting For Clients?

August 8, 2012 11:01 am 8 Comments CATEGORY: Marketing

Traditionally in the financial services world, services offering "lead generation" for advisors were typically used to deliver prospects who might want to buy a particular financial services product - not necessarily people who were looking for advice. For consumers who wanted to actually find a real advisor, the primary option was to seek one out through the financial planning membership associations.

In recent years, though, there has been a dramatic rise in the number of platforms providing prospective clients for financial planners, following a wide range of business models, from a "registry" of qualified planners to choose from, to companies that give away some basic planning for free in the hopes of drawing some prospects in to go deeper, to advisor review sites.

While many remain skeptical about the value of such services, the reality is that the process of "sales" - converting a prospective client into an actual client - is very specific to an individual firm and its advisors, but the process of "prospecting" to find prospective clients is a marketing function that really is much more conducive to size and scale. Thus, while not all the companies competing in this space will be winners - many will likely be gone in a few years - it appears that outsourcing prospecting may be an emerging trend as yet another way for some financial planning firms to get more efficient and grow, especially for firms that don't yet have the size and scale to effectively market themselves.

Are Regime-Based Retirement Projections A Better Way To Model The “New Normal”

August 7, 2012 11:03 am 13 Comments CATEGORY: Retirement Planning

Financial planners seem to increasingly agree we may be in a "new normal" - an environment where returns are lower, due to a combination of high market valuation, low interest rates, debt deleveraging, and the associated lower economic growth. Accordingly, it has become increasingly popular to reduce long-term return projections for clients from their historical standards. Yet the reality is that while returns may be reduced for the next decade, it doesn't necessarily mean clients will experience low returns for the entirety of their multi-decade retirement, just as those who retired in prior low-return environments like the 1970s may have had a bad decade of returns but an average or even above-average 30-year result. A better alternative may be to model retirement as a sequence of "investment regimes" - extended periods of time that have specific risk and return expectations, followed by subsequent periods of time that have their own expectations. For instance, instead of reducing 30-year returns, clients might look at the impact of having an average return of 5% for the first half of their return, and 15% for the second half, reflecting the market cycles seen throughout history. Could this actually represent a better way to project the risks and opportunities of retirement and develop appropriate spending recommendations?Read More...

Is It Wrong That Firing Difficult Clients Is Considered A Best Practice?

August 6, 2012 11:01 am 22 Comments CATEGORY: Planning Profession

In the financial planning world, it's not uncommon to "fire" clients that are especially difficult to work with, not merely because the clients are unprofitable, but simply because they are so unpleasant for you and your staff even if they ARE profitable. In fact, many practice management consultants would suggest it's a best practice to systematically fire some of your most unpleasant clients, as it helps to create a more positive workplace for you and/or your employees. Yet the reality is that often clients who are difficult to work with are also those in greatest need - and in virtually all other helping professions, it's a requirement of the profession to help everyone in need, not just those who are the most pleasant to work with. Of course, the reality is that right now, there aren't enough financial planners to serve everyone out there, but nonetheless it raises the question: is firing the most difficult clients in a financial planning practice a best practice, or a sign of an immature profession?

Weekend Reading for Financial Planners (August 4-5)

August 3, 2012 06:01 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a review of the recent legislative shift on investment adviser oversight, suggesting that RIA lobbying was the successful driver that staved off the Baucus bill, and an article from the Journal of Financial Planning examining how the fiduciary standard should be properly applied by financial planners. From there, we look at two articles that challenge the traditional planning world, one suggesting that the next stage of financial planning may shift away from AUM to standalone planning fees (and highlighting a firm that is pushing this trend), and another focusing on some of the ways that financial planning in practice diverges from the theory. We also look at a few practice management articles, one about how young planners are being integrated into firms, another about how firms are getting creative in the benefits they provide to build employee morale and connections, and a third about how older clients and older staff members can diminish the value of a financial planning practice. This week's summary also includes a few technical articles, including one suggesting that HSAs may become less popular starting in 2014 with the new Obamacare-mandated insurance plans, how advisors may start getting questions from clients soon about crowdfunding investment opportunities, and how using a reverse mortgage as a part of a "cash reserve" strategy can boost retirement income sustainability. We wrap up with two recent controversial articles - one from Bill Gross suggesting that "the cult of equities" is dying and exploring the ramifications of a low-return environment, and the other from the Harvard Business Review suggesting that you should never hire an employee who makes grammar mistakes. Enjoy the reading!

Do We REALLY Need More Examinations For Advisors? (Guest Post)

August 1, 2012 11:01 am 5 Comments CATEGORY: Planning Profession

Most of us have read articles and weighty analyses about "The Problem" with current advisor regulation--which is, simply stated, that RIA offices are not currently examined nearly often enough for the protection and security of the general public. I think the current figure is that some advisors have to wait 11 years before an SEC examiner pays them a visit, and some of the analyses have suggested that every four years would be a more palatable schedule. What you never hear, in any of the discussions about advisor regulation, is a more basic question: why, exactly, do we need these examinations at all?

Will Same-Sex Couples Soon Be Eligible For Federal Tax Treatment As A Married Couple?

July 31, 2012 11:00 am 4 Comments CATEGORY: Taxes

Under the Defense of Marriage Act (DOMA), the Federal tax law only affords treatment to married couples when the marriage is between a man and a woman, and denies marital treatment for same-sex couples, regardless of whether the couple is recognized as married under state law. However, in the recent Windsor v. United States court case, a New York District Court declared the applicable Section 3 of DOMA to be unconstitutional, and ruled that a same-sex couple should be eligible for the marital deduction for Federal estate taxes, resulting in a $363,000 estate tax refund. The case will likely end up in the Supreme Court, and in fact appears to be on the fast track to get there soon. If DOMA is ultimately declared unconstitutional, it will result in a dramatic shift in planning for same-sex couples, opening the door for marital treatment for estate tax marital deduction, intra-couple gifts, and numerous income tax deductions, credits, and other benefits afforded to married couples. At this point, DOMA is still the law of the land, but same-sex couples may wish to begin filing protective refund claims in case DOMA is ultimately struck down in the coming year.Read More...

Why Annual Retainer Fees Won’t Overtake The AUM Model

July 30, 2012 11:00 am 41 Comments CATEGORY: Practice Management

The assets-under-management model for financial planning firms has become increasingly popular in recent years. However, its rising popularity has also brought a great deal of criticism, especially regarding the volatility of revenues as markets cycle up and down. As a result, some firms have begun to shift to a retainer-style model in an attempt to smooth out fees, rather than pricing on a strictly AUM basis.

Unfortunately, though, an annual retainer model where clients have to write a check for services makes the fee significantly more "salient" and can actually force firms to either cut prices or work harder to generate the same income, and may result in worse client attrition during down markets as fee-sensitive clients choose not to renew during difficult times.

As a result, some firms that shift to annual retainers are even shifting away from retainers and back to AUM pricing after a few years of business pain! Of course, the reality is that the AUM model can't serve all clients, and retainers may be necessary in some segments of the marketplace; nonetheless, in situations where there is a choice, the AUM model may have far more longevity than some expect.

Weekend Reading for Financial Planners (July 28-29)

July 27, 2012 06:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a recent survey by the CFP Board and the Consumer Federation of America, showing that financial planning helps people to have more successful financial outcomes, and that the results hold regardless of income or wealth levels. We also look at some of the breaking legislative news this week, including new legislation to authorize the SEC to assess user fees to step up examinations (rather than delegate it to FINRA), and the indefinite tabling of the Baucus legislation due to lack of a clear consensus for support. From there, we look at a nice article about how inbound marketing can help advisors grow, and an advance peek at a new iPhone app to help advisors get a handle on the ever-growing contact list (especially given the explosion of social media). There's also an interesting article exploring some of the math behind whether it's really a good idea to wait to annuitize or not (given today's interest rates), and a consumer article with a great series of estate planning questions everyone should consider for themselves that is equally relevant to planners and their clients. This week's investment articles include a good discussion of long-term secular market cycles, some of the risks of exchange-traded notes, an evaluation by Morningstar of their new stewardship ratings for funds and how it impacts fund performance (and even survival), and the latest Mauldin missive discussing some of the economic surprises that may be coming in a few years. We finish with an interesting article by Aspiriant former CEO Tim Kochis, who shares what it was like as he transitioned from being a leader in one of the largest independent wealth management firms in the country to becoming a client - the outcome is some interesting insights, but Kochis' article also raises the question about what kinds of experiences other planners might have if they became consumers of their own service. Enjoy the reading!