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Weekend Reading for Financial Planners (October 28-29)

October 27, 2017 02:58 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big buzz in the advisory world this week... a major feature article in the Wall Street Journal dubbed "The Morningstar Mirage" that notes how Morningstar star ratings based on past performance are a huge driver of mutual fund asset flows but have at best only limited predictive value of future performance (though the Journal authors, as well as Morningstar in its response, both note that highly rated funds are still at least somewhat more likely to outperform than just picking mutual funds at random!).

Also in the news this week was a separate major announcement from Morningstar, that it's DoL fiduciary proposal tool, the "Best Interests Scorecard", is now available as an add-on to the Morningstar Advisor Workstation. And the Investment Management Consultants Association (IMCA) announced that it is rebranding to the Investments & Wealth Institute (IWI), and has acquired the Retirement Management Analyst (RMA) designation as part of its growing investments and wealth management focus.

From there, we have a number of marketing and business development articles this week, including: a review of what a "marketing funnel" really is, and how it's relevant for financial advisors; a discussion of how most advisor websites are built for the wrong purpose, aiming to educate about the advisor's firm or get a prospective client to call when really it should just focus on getting a prospect's email address instead; a fascinating research survey about where ultra-HNW investors go for their financial news that finds HNW investors tend to rely on both traditional media, social media, and an advisor's own communication (and that younger HNW clients are even more likely to rely on the advisor's communication!); how digital marketing lessons from Silicon Valley can be applied for financial advisors, particularly when it comes to "influencer marketing"; why your answer to the simple question "How's It Going?" can unwittingly deter clients from giving you referrals; and how the best way to build Center Of Influence (COI) referrals is not to just try to find "good" COIs, but instead to work more deeply with the COIs your clients already use, where you can turn deepening client engagement with a mutual client into COI referrals instead!

We wrap up with three interesting articles, all focused around the theme of taking a fresh look at popular themes: the first explores how advisors should beware about entirely rebranding themselves as behavioral coaches and accountability partners, because the truth is that most people don't actually want to always be held accountable for everything (and at best, advisors need to be more sensitive about how to frame accountability in a positive, future-focused manner); the second looks at the simple concept of financial milestones, and the kinds of common milestones that can (and should) be celebrated with clients; and the last looks at how the recent wave of natural disasters, from hurricanes to fires, have been causing people to question how much "stuff" they really need... and not just those who are impacted by the disaster, and may have lost everything and need to start over, but even those of us who only saw the events on the news, but still find ourselves questioning whether we have too much "stuff" and how we could better focus on the things that really matter.

Enjoy the "light" reading!

Why The New SIE Exam Is The Wrong Track To Become A Financial Advisor

October 26, 2017 11:33 am 11 Comments CATEGORY: Industry News

Many financial advisors getting started in their careers have historically faced the same conundrum: In order to get started with a broker-dealer, you needed to pass your Series 6 or Series 7 exam. However, you couldn’t actually start on your Series exam until you got hired by a broker-dealer, so they could sponsor you in the first place! Which created issues for both prospective financial advisors, and the broker-dealers hiring them. Acknowledging the problems this creates, earlier this year FINRA received approval from the SEC to begin offering the SIE (Securities Industry Essentials) exam starting next year, which will finally allow prospective financial advisors to get started on their Series exams without being sponsored!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss the new SIE exam, including how it works, what it covers (and doesn't cover), and why it ultimately isn't actually a good path to becoming a financial advisor in the future.

Under FINRA Regulatory Notice 17-30, the SIE (Securities Industry Essentials) Exam will actually first become available next October of 2018, allowing prospective brokers to be able to sit for the SIE exam without first being sponsored by a broker-dealer. Instead, the individual will be able to register themselves directly with FINRA, and then register to take the SIE exam at a local testing center from organizations like Prometric and Pearson. The SIE exam will cover, as the “Securities Industry Essentials” name implies, the basics of the financial services industry, including knowledge of basic products, and the rules and regulatory structure of the financial services industry itself.

Notably, however, the SIE exam is not actually a replacement for the Series 6 or Series 7 exams. Those who have passed the SIE will still need to take abbreviated Series 6 and Series 7 exams, to "top off" the initial SIE exam, after getting hired by a broker-dealer and being sponsored for the final Series exam. But the SIE exam will provide the initial pathway to the Series 6 or Series 7 exams... allowing prospective brokers to get started without first getting sponsored. Additionally, though, the SIE exam doesn't actually prepare anyone to be/join a Registered Investment Adviser (RIA), because the SIE exam prepares for broker-dealer jobs, not for RIA jobs that require the Series 65 exam instead.

And that’s ultimately why I’m actually concerned about the introduction of the SIE exam. Particularly for college students and young entrants to the profession, given that college students studying financial planning are likely going to be pushed to take the SIE exam before they graduate to get started as a financial advisor. Only to discover once they search for financial planning jobs, that increasingly the jobs require them to have a Series 65 exam and work under an RIA or a hybrid RIA... which means their SIE exam will be useless!

The bottom line is to recognize that while the SIE exam may be a great expedited pathway to getting a job at a broker-dealer to sell financial services products, it’s still ultimately a path to getting a Series 6 or Series 7 or similar license, which are licenses for salespeople. The path to getting paid for financial advice, under the current regulatory environment, is all about passing the Series 65 and becoming or joining an RIA (or at least a hybrid RIA), which the SIE exam doesn’t cover at all!

Spousal Rollover And Stretch Rules For Inherited Traditional And Roth IRAs

October 25, 2017 07:01 am 15 Comments CATEGORY: Taxes

The key benefit of specialized retirement accounts are their tax preferences – from the upfront tax deduction and tax-deferred growth of an IRA or 401(k), to the opportunity for tax-free growth from a Roth. Such tax benefits are intended to encourage and incentivize workers to save for retirement, and to make retirement at least a little more affordable. The caveat, though, is that if all the assets are not actually used for retirement, the retirement account – whether an employer retirement plan or an IRA, Roth or traditional – must be unwound, as eventually the Federal government does want to collect its share! Accordingly, IRC Sections 401(a)(9) and 408(a)(6) prescribe a series of somewhat-complex rules to determine exactly how fast a tax-preferenced retirement account must be liquidated after the death of the original owner, allowing the beneficiary in most cases to stretch out the tax impact over time (dubbed the “stretch IRA” strategy).

However, the reality for many couples – particularly single-earner households – is that the retirement account assets may be in only one spouse’s name, even though the savings were intended to support the couple jointly in retirement. And so in recognition of this dynamic, the tax code provides unique preferential treatment for a spouse who is the beneficiary of a retirement account, allowing not only more favorable stretch IRA (and stretch 401(k)) provisions, but also the opportunity for a spousal beneficiary to “roll over” the inherited retirement account and treat it as his/her own.

Yet while the additional flexibility of the spousal stretch IRA and the spousal rollover option are both more favorable than the standard rules for non-spousal beneficiaries of inherited retirement accounts, the special choices that spouses face have unique trade-offs. On the one hand, leaving an inherited IRA as such for a spousal beneficiary obligates him/her to take post-death Required Minimum Distributions (RMDs) – potentially sooner rather than later – but avoids the impact of an early withdrawal penalty. A spousal rollover allows for the use of more favorable RMD tables, and may defer the onset of RMDs until even later, while also providing more favorable treatment for subsequent beneficiaries… but re-introduces the 10% early withdrawal penalty, which may be problematic for younger spousal beneficiaries (under age 59 ½).

Ultimately, the good news is that spousal beneficiaries have the option to make either choice, and even have flexibility about the timing – allowing a decision to maintain an inherited stretch IRA for the spouse initially, and completing a spousal rollover later (after he/she turns age 59 ½). Nonetheless, it’s important to carefully consider the choices and trade-offs… especially since a spousal rollover, once completed, is irrevocable and cannot be undone after the fact!

#FASuccess Ep 043: Navigating The Internal Succession Planning Turning Point As An Advisory Firm Founder with Marty Kurtz

October 24, 2017 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the forty-third episode of the Financial Advisor Success podcast!

My guest on today's podcast is Marty Kurtz. Marty is the founder of The Planning Center, an independent RIA based in Moline, Illinois, that - as the name implies, quite deliberately – provides comprehensive financial planning for clients, along with investment management for more than $700 million of client portfolios.

What's unique about Marty's business, though, is that he's already in the midst of executing a succession plan that will ultimately wind down his ownership and management of his 26-employee and now multi-partner firm. In other words, while a lot of advisors talk about succession planning, Marty is actually living the process.

In this episode, we talk in depth about succession planning, and the real-world challenges that crop up in trying to facilitate an internal succession plan, from the difficulty in finding an "appropriate" valuation for the firm, the dynamics that emerge between founders and the next generation of advisors that want to take over the business, and why founders need to recognize the trade-offs that often exist between maximizing the dollar value of the business by selling to a third-party, and maximizing the longevity and sustainability of the business itself by selling internally.

From there, we also talk about how The Planning Center is shifting away from the AUM model to a unique retainer model that charges clients 1% of their income plus half a percent of their liquid net worth, how Marty jump-started the growth of the firm in the early years with a strategic partnership with a local accountant (and how they structured - and had to later change - the revenue-sharing solicitor agreement), and the unique household cash flow planning technique that he uses as the First Step of the financial planning process with every client.

And be certain to listen to the end, as Marty provides his advice to those who are looking to become successors in a firm about the conversations they need have – and drive, if necessary – with their founders to ensure the succession plan really happens. And Marty talks about the new business he's helping to create – called Turning Point – that helps experienced advisors who founded firms and are looking to sell to figure out what they really want and need, deep down, to make the succession plan a success.

So whether you're curious to hear the successsor's perspective on executing a succession plan, or are looking for ideas of new and innovative non-AUM advisory firm business models, or simply want to learn how one advisor built success with a focused strategic alliance with an accounting firm, I hope you enjoy this episode of the Financial Advisor Success podcast!

The 13 Best Conferences For Financial Advisors To Choose From In 2018

October 23, 2017 07:01 am 8 Comments CATEGORY: Conferences

Michael Gerber’s famous business book “The E-Myth” points out that most small business entrepreneurs struggle because they spend all of their time working in their business, and too little time working on the business itself. Any small business owner who has a unique and valuable personal skillset – from a pie-maker to a doctor to a financial advisor – is particularly prone to this challenge, as almost by definition what gets them paid is the work they do in the business. And accordingly, to the extent they take time off to go to a conference once or twice a year, they tend to go to events that help them improve their skills in the business (i.e., continuing education), particularly since most regulated professions have CE requirements anyway.

To break the cycle for financial advisors, I’m declaring 2018 as “the year of the practice management (or career development) conference” instead. Because the reality is that there is an ever-growing number of choices on how to fulfill your annual CE requirements online, from conferences that are live-streamed or recorded for subsequent purchase, to an abundance of webinars on demand, and even the Members Section of this blog (and CFP professionals only need to complete CE requirements every other year anyway!). But the opportunities for good practice management content that actually helps you work on the business more effectively, or career development content that helps you grow to the next level, are few and far between. And when it comes to working on the business, it’s especially important to actually physically leave the business and go to a conference, as you have to get beyond your own four office walls to get a fresh perspective on your business or career.

Unfortunately, though, going to a conference is a major investment – with conference registration fees that can run $1,000 or more, plus the cost of airfare and hotel accommodations – which means it’s especially important to pick the right conference to get value. In fact, given that in recent years I’ve been speaking annually at nearly 70 conferences myself, and have presented at virtually every major conference in our industry, from the various membership association events to custodian and broker-dealer and even media publication conferences, I’m often asked for recommendations of what I think are the “best” conferences for financial advisors based on what I’ve seen.

Accordingly, in 2012 I started to craft my own annual list of “best-in-class” top conferences for financial advisors, based on my own travels and experience, and divvied up into categories that would make it easier for advisors to select what matches their own needs at their current business or career stage.

And now, I’m excited to present my newest list of “Top Financial Advisor Conferences” for 2018, all with a focus on practice management and career development. Of course, given that we’re all at different stages of our businesses, some events are much better suited to certain types of advisors, and accordingly I’ve tried to delineate which are the best depending on your size of business, industry channel, and/or career stage.

So I hope you find this year’s 2018 financial conferences list to be helpful as a guide in planning your own conference budget and schedule for next year. And I hope you make the investment – because the truth is that you just need one major takeaway to materially change the trajectory of your business or career in the coming years! Also, be certain to take advantage of the special discount codes that several conferences have offered to all of you as Nerd’s Eye View readers (especially since a few early-2018 events have their Early Bird deadlines closing soon)!

Weekend Reading for Financial Planners (October 21-22)

October 20, 2017 02:57 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of major RIA custodian and broker-dealer news stories, including the decision by TD Ameritrade to eliminate 84% of its no-commission ETF lineup (including all of its Vanguard ETFs) with just 30 days' notice to advisors to re-design their portfolios, the news that retail online brokerage giant E-Trade is looking to enter the RIA custody business by acquiring Trust Company of America (for a whopping $275M!), the launch of U.S. Bancorp's new "FundKeeper" platform that could substantially disrupt mutual fund distribution and aid most small-to-mid-sized broker-dealers that don't self-clear, and a backlash against FINRA for granting block transfer approval in the LPL/NPH deal after not allowing it for any other recent broker-dealer acquisitions (though the change in precedent could just further accelerate broker-dealer consolidation from here!).

From there, we have a few more technical articles, all around the theme of handling concentrated stock positions, from a discussion of a "Stock Protection Fund" strategy to partially hedge concentrated stock positions for executives (without liquidating the stock and incurring tax consequences), to how an "M&A Reseller" strategy can help small business owners gain installment-sale tax deferral on the sale of a business while minimizing the credit risk of taking on an installment note directly from the buyer, and a look at the rise of Securities-Based Lending (SBL) and how it can help provide short-term liquidity at a reasonable cost for those with concentrated stock positions.

We also have several practice management articles this week, including: How to change the ways you ask questions in a prospective client approach meeting to better connect emotionally with clients; a 5-meeting structure for approaching prospects and turning them into clients (and getting them comfortable after they've onboarded); and how to re-frame a client or prospect event around a "life transition" event that can help get a far better turnout than "just" talking about your latest investment views or a particular financial planning strategy.

We wrap up with three interesting articles, all around the theme of challenging our perceptions: the first is a fascinating look at how Betterment is putting behavioral testing into practice to determine what really helps clients to stay the course (and finds that just communicating to all clients that they should "stay the course" with a blast email during market turmoil is actually not a very effective strategy after all!); the second looks at the research into how (and why) we actually change our minds, and finds that the biggest key to helping someone change their mind is to give them an "out" so it's not embarrassing for them to change their views; and the last is a simple but powerful way of looking at advice, recognizing that the best advice is not just good advice, but effective advice that people can implement given all of our behavioral biases!

Enjoy the "light" reading!