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The Latest In Financial Advisor #FinTech (December 2017)

December 4, 2017 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the December 2017 issue of the Latest News in Financial Advisor #FinTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors and wealth management!

This month's edition kicks off with the big news that Lincoln Financial has decided to build its AdviceNext advisor workstation on Fidelity’s Wealthscape, as Fidelity’s investment into eMoney Advisor is starting to pay off by becoming the most holistic-wealth-management-oriented custody and clearing platform… a notable threat to both technology competitors like Envestnet, and custody-and-clearing competitors like Pershing. And with DoL fiduciary pushing more and more broker-dealers towards financial planning, Fidelity suddenly seems incredibly well positioned to gain market share in the shifting landscape!

From there, the latest highlights also include a number of major announcements of new capital for advisor FinTech startups, as well as new partnerships and big feature rollouts this month, including:

AdvicePay raises $500k of seed capital to provide custody-compliant payment processing for one-time and retainer financial planning fees
Gainfully raises $2.5M of seed capital for a content sharing platform for advisors to distribute client-friendly compliance-pre-approved content… paid for by asset managers and other product manufacturers!
Morgan Stanley partners with LifeYield to offer household-level asset location tax alpha tools
Morningstar launches its new Office Cloud, providing a deep integration of Morningstar research capabilities on top of a performance reporting portal for clients

Read the analysis about these announcements, and a discussion of more trends in advisor technology, in this month's column, including a look at the evolving landscape of account aggregation as Fidelity launches Fidelity Access (allowing a direct API feed of client financial data without the need for screen scraping) and UBS begins to waive account fees for clients who agree to account-aggregate held-away accounts, MoneyGuidePro launches client-directed data-gathering and Discovery Lab tools (and a study that shows 2/3rds of clients would prefer to enter data and evaluate goals in the comfort of their own home), and a look at how even as advisor FinTech increasingly matches the capabilities of “robo-advisors” when it comes to onboarding, the robo-advisors continue to innovate, with robust new capabilities in financial planning software (Wealthfront), and new facilitate to more easily facilitate tax-savvy charitable giving (at least, until/unless the rules change with a new requirement for FIFO accounting!).

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (December 2-3)

December 1, 2017 02:56 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that UBS has exited the Broker Protocol, just three weeks after Morgan Stanley... but not before spiking the ball at Merrill Lynch and recruiting away several big Merrill teams as they left, which may just accelerate Merrill Lynch's departure from the Protocol as the entire agreement unravels (to the detriment of both brokers and their clients).

Also in the news this week is the final and official announcement of the 18-month delay of the Department of Labor's fiduciary rule... which may kick off a new spate of lawsuits by fiduciary advocates aimed at halting the delay (to compel the rule to take effect at the beginning of 2018 after all), and a surprise withdrawal of support from the White House of the SEC's Administrative Law Judges, raising the possibility that the Supreme Court make take Ray Lucia's case and strike down the SEC's ability to appoint its own ALJs.

From there, we have several articles about life insurance, including a look at how life insurance companies are trying to develop new extension riders to avoid the otherwise taxable event of policyowners who reach age 100 (though it's not clear that they can do so under the tax code), the issues with "guaranteed" whole life and why many common whole life strategies are not actually fully guaranteed (even though old-fashioned traditional whole life was/is), and a primer on the concept of "Private Placement Life Insurance" (PPLI) as a strategy to use the tax-deferral wrapper of life insurance to minimize the tax drag on high-income alternative investments for high-net-worth investors.

We also have a few practice management articles, including: a look at the rise of "predatory buyers" of advisory firms, who often leverage the limited closed market of their broker-dealer or RIA custodian to persuade advisory firm owners to sell on less-than-ideal (valuation or tax) terms; a reminder that growing a billion dollar (of AUM) advisory firm will require founders to transition from "just" being advisors into actually being "leaders" of their advisory firms (which in practice is a very uncomfortable transition for many!); and a look at how automation tools can be used to better engage clients and prospects... because even though the advisor knows it may have been automated, as long as the client receives value, they likely won't care about how it was achieved!

We wrap up with three interesting articles, all around the theme of our rapidly changing world: the first is a fascinating in-depth look at the blockchain, the underlying technology that powers Bitcoin (and other cryptocurrencies), and why even if Bitcoin turns out to be a bubble or a fad, the blockchain technology itself is likely here to stay and could revolutionize a wide range of industries; the second explores the "dying art of disagreement", and the idea that democracies are founded on our ability to have productive discourse with those we disagree with (which has become increasingly challenging with the polarization of today's modern world); and the last raises the interesting question of whether the fiduciary debate has already be co-opted to the point that being a fiduciary is no longer a meaningful differentiator, and whether it's time for leading advisors to take up a new battle to push the envelope around concepts like "integrity" or "stewardship" instead.

Enjoy the "light" reading!

Offering Financial Planning As An Employee Benefit For Your Advisory Firm Employees

November 30, 2017 01:32 pm 5 Comments CATEGORY: Practice Management

As financial planning firms, we offer a valuable service to consumers who are willing and able to pay for our services. Which is what makes the business of financial advice so valuable, and why the average income of a CFP professional is nearly double the median household income in the US. The unfortunate caveat, though, is that financial planning services still are not affordable to a large segment of consumers. Including, alas, the employees of most advisory firms, which means the very people who work there and are expected to advocate for the value of their firm's services and the benefits of financial planning have never actually experienced it themselves!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the issues to consider for advisory firms that want to remedy this gap offering financial planning as an employee benefit to the employees of their own firm... including considerations such whether to provide such services internally or externally, whether to let employees choose their own advisor, the tax consequences to consider, and why providing financial planning to employees can actually provide an Return On Investment as employees gain better perspective on how to improve the firm's client experience (by actually experiencing financial planning themselves!).

The first question you have to evaluate when considering how to offer financial planning as an employee benefit is whether you’re going to provide the financial planning services internally or externally. Offering financial planning “internally” means the firm's advisors actually do the financial planning for its employees. Firms may put one associate advisor in charge of all internal planning, or perhaps provide several advisors that employees can go to (since it may be awkward to get financial planning from your direct supervisor). Which raises a real issue with trying to do financial planning internally for employees: there are many conflicts of interest that can arise. For instance, what if an employee's financial plan includes a desire to leave the firm and go into another field? Or what if employees want to talk through the considerations of saving up enough money to buy out the founder in a firm (but don't want to announce their intentions to their co-workers yet)? These issues may be awkward to discuss internally.

As a result, most advisory firms I’ve seen that offer financial planning as an employee benefit offer it externally. The most straightforward approach is simply to engage in a reciprocal agreement with another similar-sized advisory firm – where each provides services to the other firm's employees. In this scenario, you will likely have a cost to actually pay the other advisory firm for their services as well, but if the firms are similar in size, presumably each firm will have roughly the same costs (and income) paid to each other. The caveat even with this approach, though, is that the firm may not actually have the expertise to help your employees, nor will you necessarily have the expertise to help theirs. Are you really prepared to develop for them a 3-year roadmap to repaying debt, navigating debt consolidation services, and repairing their credit scores, if that’s what your employee's planning needs are?

Which leads to a third option for financial planning as an employee benefit: just give employees a budget for financial planning, and let them go and find their own advisor. And the benefit of this approach is that employees can seek out their own advisors through organizations like the Garrett Planning Network or XY Planning Network, which include financial advisors whose expertise is in the areas that typically-younger "rank-and-file" employees actually need, while also having pricing that is less expensive than larger independent RIAs (and therefore more affordable to the advisory firm offering the employee benefit).

Beyond the enhancements in employee well-being that can come from having access to financial planning services (e.g., reduced stress, less absenteeism, better utilization of employee benefits, and lower employee turnover), one of the biggest indirect benefits of using an external firm is that employees can actually experience what it's like to seek out and be a financial planning client. Going through the process of finding an advisor, being onboarded, and then working with that advisor on an ongoing basis, gives employees perspective not only on the value of financial planning, but may also generate ideas about how to provide services better for the firm’s own clients. Of course, in order to avoid unintended negative feelings, it is important that employees understand the tax consequences of receiving financial planning as an employee benefit. Because financial planning is not a tax-qualified employee benefit perk, any money actually paid to an external firm (or possibly the market value of the services received internally), must be reported as W-2 income and becomes taxable to the employee.

The bottom line, though, is simply to recognize that financial planning services can be an excellent benefit to provide to employees, and particularly when employees get to seek out an external advisor and gain valuable insight into how your own firm can better service clients!

New IRMAA Surcharges On Medicare Part B and Part D Taking Effect In 2018

November 29, 2017 07:01 am 13 Comments CATEGORY: Retirement Planning

Since 2007, the Medicare Modernization Act of 2003 has required high-income Medicare enrollees to pay an “Income-Related Monthly Adjustment Amount” (IRMAA) surcharge on their Medicare Part B premiums, which lifts the Medicare Part B premium from covering “just” 25% of costs up to as high as 80% of results, increasing Medicare Part B premiums by as much as 219% in 2017. And since 2011, a similar IRMAA surcharge has applied to Part D premiums, applying a flat dollar surcharge of as much as $914/year in 2017.

Beginning in 2018, though, the IRMAA surcharges on Medicare premiums will apply even more quickly, as changes under the Medicare Access and CHIP Reauthorization Act of 2015 will reduce the top Modified-AGI threshold from $214,000/year down to “just” $160,000 (for individuals, or $320,000 for married couples). And individuals with MAGI as low as $133,500 (or married couples at MAGI of $267,000/year) will be forced into a higher IRMAA tier, resulting in a nearly $1,000/year increase in IRMAA surcharges.

Which means going forward, it will be even more important to engage in proactive income tax planning for affluent retirees, to manage their exposure to IRMAA, especially in a low-inflation environment where being impacted by IRMAA also renders the household ineligible for the so-called “Hold Harmless” rules that limit annual inflation increases to Medicare Part B premiums. Especially since even “one-time” income events, like a sizable Roth conversion, or liquidating substantial capital gains, can be IRMAA triggers (at least for that one year the income event occurs).

On the other hand, it’s important to recognize that IRMAA surcharges still only amount to a roughly 1% to 2% cost increase, relative to the income the household must have to be subject to IRMAA in the first place. Which means that while managing taxable income (or really, MAGI) is important, it’s equally crucial not to let the tax tail (or the IRMAA tail) entirely wag the dog.

Nonetheless, the new 2018 IRMAA rules will just make Medicare-related tax planning more popular than ever. Although notably, for new retirees, the best IRMAA planning strategy is simply recognizing the opportunity to file Form SSA-44 to receive an exception to the IRMAA surcharge, as the act of retirement itself is a valid “life-changing event” that can allow new Medicare enrollees to avoid IRMAA premium surcharges on Part B and Part D in their initial Medicare years!

#FASuccess Ep 048: Creating Tangible Advisor Marketing Messages For Intangible Financial Planning Services With Gail Graham

November 28, 2017 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 48th episode of the Financial Advisor Success Podcast!

My guest today is Gail Graham. Gail runs an eponymous marketing consulting firm called Graham Strategy, that works with both advisory firms and B2B vendors serving financial advisors, on how to more effectively craft relevant marketing messages to reach their target clientele.

What's fascinating about Gail, though, is that she's had a similar marketing role in a wide range of advisory industry businesses, from the private wealth division of PNC bank, to Fidelity's private client group, and later as Chief Marketing Officer for the mega-RIA United Capital. And through the journey, Gail has gained some incredible insights about what it really takes to effectively market an intangible like financial planning services.

In this episode, we talk in depth about how to more effectively communicate financial planning and its value, from the importance of using plain language that people understand (instead of saying "I'm a fiduciary" simply say "Here's how it works – I'm personally liable if I give bad advice"), to the benefits of converting your value proposition into a physical proposal sheet and bringing a Sample Financial Plan to every prospect meeting (because it literally makes the advice value proposition more physically tangible), to the benefits of including "proof points" that actually validate your value proposition with prospective clients (such as "we've helped 300 families do this in the past 8 years").

We also talk about why getting better at financial advisor marketing is all about getting clear for yourself on who your ideal client really is, why it's absolutely essential to focus in order to find the right marketing messages that really resonate, and Gail's process to finding and refining your own value proposition.

And be certain to listen to the end, where Gail shares her perspective on the benefits and challenges of the RIA custody model, and why she's decided to collaborate as a marketing strategist with Apex Clearing to try and help disrupt the status quo, for the betterment of advisors and their clients.

So whether you have been contemplating to how to make your own marketing of intangible financial advisory services more tangible, have been reconsidering who your ideal client truly is, or are simply interested in hearing some new perspectives on marketing topics, I hope you enjoy this episode of the Financial Advisor Success podcast!

How Mindset Trumps Best Practices For Financial Advisor Success

November 27, 2017 07:01 am 0 Comments CATEGORY: Practice Management

Financial advisors looking to improve their businesses have a wide range of “Best Practices” research to tap for new ideas, from industry benchmarking studies to specialized white papers. And of course, this Nerd’s Eye View blog. For those seeking methods to run their advisory business more efficiently and profitably, there are a lot of relatively simple tactics to try.

In fact, as highlighted in this guest post from Stephanie Bogan and Matthew Jarvis, arguably the greatest challenge in improving a financial advisor’s business is not actually figuring out the Best Practices methods at all… and instead is almost entirely about changing the mindset of the advisory firm owner. Because most business improvements to an advisory firm are fairly straightforward – from standardizing service offerings, to eliminating fee schedule exceptions. The blocking point is in our heads. Literally.

Because as Bogan and Jarvis discuss, the real reason that most advisors struggle to take their businesses to the next level is the limiting beliefs that we impose on ourselves as financial advisors and business owners. The idea that certain aspects of the business “must” be done a certain way, or the business will fail. When in reality, it’s simply that we don’t want to go through the awkwardness of change and the discomfort of feeling threatened and worried that a client might push back… even though at worst, making changes will probably just threaten to cause a few clients to leave (and usually it’s those clients who weren’t even the best fit in the first place!).

In other words, the key to financial advisor success isn’t really about implementing the right methods – the business tactics and best practices – but more about having the right mindset that makes it easier to implement those methods in the first place. Because once as advisors we have clarity and focus in the business, a confidence in our own worth and the value we provide, a focus on leveraging our time and relationships, and an abundance mentality that the money and business success will come by doing the right things… it becomes remarkably easy to make the changes necessary for that success to actually happen!