In its list of required plan amendments for 2008, the IRS has failed to include any mandatory requirement that plans provide for non-spouse beneficiary rollovers to IRAs. This implies a change in position from their Interim and Discretionary Amendments release issued in the fall of 2007, which suggested that the IRS intended to acquiesce in advance of a Congressional Technical Corrections bill that non-spouse beneficiary rollovers from employer retirement plans to inherited IRAs would be mandatory, as covered earlier in this blog.
The IRS has just released Revenue Ruling 2008-5, cracking down on a perceived loophole in the so-called "wash sale" rules where an individual sells a security at a loss and purchases a substantially similar security in his/her IRA. And unlike a typical wash sale where the rules simply temporarily disallow the loss, in the case of a wash sale with an IRA the loss will be permanently forfeited under the new rules!Read More...
Last year's passage of the Pension Protection Act (PPA) allowed, under Section 829, for non-spouse beneficiaries to complete rollovers of inherited employer retirement plans into inherited IRAs to maximize tax deferral.
Unfortunately, though, the IRS' interpretation of the newly created IRC Section 402(c)(11) early this year in IRS Notice 2007-7, declared that such rollovers would only be optional, at the discretion of the employer to allow them or not. Fortunately, though, in the face of a pending Technical Corrections bill in Congress to reverse this undesirable interpretation, the IRS has acquiesced to simply making the treatment mandatory for all employers.Read More...
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Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that Charles Schwab's latest RIA benchmarking study shows that firms saw significant AUM growth in 2023, thanks in part to strong equity market performance, but also thanks to organic growth initiatives that brought in additional assets from new and existing clients. The study also identified attributes of "top performing" firms across a range of metrics, finding that they are more likely than other firms to have a clear ideal client persona, client value proposition, and marketing plan.
Also in industry news this week:
- While the number of RIA M&A deals has not surged in 2024, the average size of deals has increased, demonstrating interest from (often private-equity-backed) firms in pursuing larger targets
- Off-channel communication tops the list of concerns amongst RIA compliance professionals, with advertising and marketing coming in a close second, according to a recent survey
From there, we have several articles on retirement planning:
- How the timing of inflationary periods, as well as a client's spending patterns, can influence whether their portfolio will last throughout their retirement
- A recent study suggests that many near-retirees reduced their savings rate and tapped existing assets during the recent inflationary period, with some retiring sooner, reducing the assets available to support their retirement income needs and demonstrating the potential value of a financial advisor to help them navigate this period
- How advisors can incorporate "sequence-of-inflation risk" into client plans to account for the volatility of inflation and its impact on the sustainability of a retired client's financial plan
We also have a number of articles on client communication:
- How the use of visuals can give advisors more confidence in their knowledge of complex financial topics and explain them more effectively to clients
- Why those who receive advice (financial or otherwise) sometimes ignore it, from incongruent lived experiences between the advice giver and recipient to the "Curse of Knowledge", and what advisors can do to increase the likelihood of client follow-through
- While behavioral 'nudges' can be effective at getting individuals to make one-time decisions, additional action is often needed on the part of financial advisors to help clients fully understand the implications of the choice being made and stick with it for the long run
We wrap up with 3 final articles, all about Artificial Intelligence (AI):
- While the AI field has received significant hype during the past couple years, its momentum appears to be slowing, with companies facing questions about their long-run profitability and impact
- 7 workplace use cases for the current generation of AI tools, from email organization to summarizing lengthy articles and data sets
- Why AI adoption amongst businesses might take longer than initially thought, despite the initial surge in interest in the technology
Enjoy the 'light' reading!
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Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that Charles Schwab and other brokerage platforms are planning to increase the interest rates they pay on client cash held in their platform or cash sweep programs, which could boost the income of clients who maintain a cash balance in their accounts. Notably, the move could have follow-on effects for the industry in the longer term, including the potential for custodians to start charging RIAs platform fees to compensate for the lost revenue from tightened net interest margins resulting from the higher cash sweep rates.
Also in industry news this week:
- A new survey of RIAs indicates that about 1/3 of respondents have been in serious M&A negotiations during the past 3 years and that many firms are embracing a hybrid work environment, with employees splitting time between working from home and from the office
- The IRS on Thursday issued final regulations regarding Required Minimum Distribution (RMD) requirements for those who inherit retirement accounts, indicating that Non-Eligible Designated Beneficiaries subject to the "10-year rule" will be required to take RMDs starting in 2025 if the decedent had already reached their required beginning date
From there, we have several articles on investments:
- Why advisors might still consider using actively managed mutual funds even as the number of active ETFs (which often have lower expense ratios) has grown
- A study finds that while large-cap equity funds make up the top category of active ETFs, active fixed-income ETFs and funds using derivative and options strategies have attracted more than $30 billion in assets as well (though these assets continue to pale in comparison to those held by passive ETFs)
- How advisors can evaluate and compare active ETFs to decide whether their potential benefits (and typically higher expense ratios) outweigh an approach of using passive ETFs as building blocks to create a custom active strategy
We also have a number of articles on marketing:
- A branding expert offers advice for new advisory firm owners considering what to name their business, from whether to use the advisor's name to the need to avoid duplicating the name of another firm
- Why some firms decide to change their name and the creative and administrative steps required to do so
- Why descriptive logos that explain what a firm offers can be particularly effective for branding purposes
We wrap up with 3 final articles, all about wellbeing:
- A new study finds that there is no limit to the relationship between income and happiness, though certain factors can mitigate this relationship
- How one individual with a net worth in the hundreds of millions of dollars spends his time (and money) in the pursuit of internal happiness
- How the established U-shaped curve of happiness appears to have changed during the past decade, with young adults on average seeing declines in life satisfaction
Enjoy the 'light' reading!
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Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that at a time when employee retention has heightened importance for advisory firms given the ongoing competition for advisor talent, recent studies indicate that factors such as firm culture and leadership, as well as providing advisors with a sense of autonomy, can play important roles in building advisor loyalty to the firm. Which suggests that while firms might be tempted to zero in on compensation when it comes to retaining advisors, focusing on these other factors (which do not necessarily involve hard dollar expenses) could pay off in the form of increased advisor (and client) retention over time.
Also in industry news this week:
- 2 House committees this week advanced legislation that would halt implementation of the Department of Labor's new Retirement Security Rule, which, combined with ongoing lawsuits, threaten to derail the regulation either before or soon after it becomes effective in late September
- A Federal judge has put the future of the Federal Trade Commission's ban on non-compete agreements in limbo, issuing a limited temporary injunction and indicating that a final ruling on the regulation (with possible nationwide impacts) could come before the ban goes into effect in early September
From there, we have several articles on tax planning:
- Why potential upcoming increases to marginal tax rates and recent changes to RMD rules for inherited accounts could make Roth-style retirement accounts increasingly attractive for many clients
- How advisors can add value not only by regularly analyzing whether Roth conversions might be appropriate for a client in a given year, but also by communicating how they work in a clear manner to help the client better understand the strategy and its potential benefits
- How working clients can get more money into Roth-style accounts, from in-plan 401(k) conversions to in-service distributions
We also have a number of articles on marketing:
- How applying the principles of beauty, simplicity, and creativity when it comes to website design can help advisory firms stand out at a time when differentiation is becoming increasingly challenging
- Why targeting a firm's website and marketing content to an ideal client persona can help prospects better understand whether the firm can meet their unique needs
- How becoming a "knowledge sharer" online can help advisors build their brand and support higher quality personal financial information amongst a sea of "finfluencers"
We wrap up with 3 final articles, all about exercise:
- While middle age is associated with a growing number of aches and pains caused in part by natural muscle loss, regular exercise can help mitigate these trends and potentially lead to a better quality of life
- Why resistance training, in addition to aerobic exercise, is an important part of a healthy lifestyle and can ultimately improve longevity
- How targeting 4 "pillars" of exercise – stability, strength, aerobic efficiency, and peak aerobic output – can help an individual lead a healthier lifestyle, even if their exercise routine dropped off during middle age
Enjoy the 'light' reading!
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Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a recent U.S. Supreme Court decision shifting authority to interpret laws passed by Congress from Federal agencies to the judicial system could have significant impacts on regulation of the financial advice industry, including the potential for additional legal challenges to regulations from the Securities and Exchange Commission (SEC), the Department of Labor (DoL), and other agencies, with new groups already joining a lawsuit against the DoL's new Retirement Security Rule following the decision.
Also in industry news this week:
- A separate Supreme Court decision struck down the SEC's use of in-house judges to adjudicate cases involving civil penalties (unless both parties in the matter agree to it), likely setting up more settlement offers from the regulator to avoid a drawn-out legal process in the Federal court system
- At a time when it has seen an increased staff headcount and budget, FINRA, the self-regulatory agency for broker-dealers, has issued a smaller total dollar amount in fines as well as fewer press releases regarding enforcement actions during the past several years, raising questions about the extent of its enforcement of Regulation Best Interest and other regulatory measures
From there, we have several articles on retirement:
- Why some clients have a hard time spending down their assets in retirement while others are more spendthrift
- 5 ways that can help financial advisors give hesitant clients 'permission' to spend more in retirement
- An updated study suggests that for retirees, investment assets generate about half of the amount of additional spending as wealth held in the form of 'guaranteed' income (e.g., Social Security benefits, a defined-benefit pension, or a private annuity), offering a potential opportunity for advisors to help nervous clients boost their spending
We also have a number of articles on practice management:
- The 3 types of firms looking to acquire RIAs and why the attractiveness of a deal goes well beyond a firm's valuation
- How advisory firm owners can tell the difference between solicitations from M&A brokers solely focused on the financial bottom line of a potential sale and advisors who understand the full implications of a sale, including the importance of a solid cultural fit, for the selling firm owner
- The considerations for firm owners considering selling a minority stake in their firm, including the importance of understanding what the investor brings to the table, in terms of the capital and industry knowledge they offer as well as their expectations for a financial return
We wrap up with 3 final articles, all about vacations:
- How to set up proper boundaries at work before going on vacation to ensure needed work gets done without having to answer emails or phone calls while away
- How to stop 'overplanning' vacations, from setting up loose guideposts for each day rather than strict itineraries to avoiding the rabbit hole of travel review websites
- Why vacations that aren't particularly relaxing can still offer value, including the opportunity to have a 'fresh start' on work practices after returning to the office
Enjoy the 'light' reading!
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Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that a recent study found that at a time when the number of SEC-registered broker-dealers and their registered representatives is declining, the number of SEC-registered RIAs, their assets under management, and the number of clients they serve all grew in 2023, reflecting the attractiveness of the RIA model to both advisors and clients alike and the ability for firms across the size spectrum to profitably serve clients.
Also in industry news this week:
- How the SEC could target dually registered firms for enforcement of their duties to care for and manage conflicts of interest under Regulation Best Interest and the Investment Advisers Act to send a message to the industry and to clarify its expectations for these "dual-hatted" firms and their advisors
- Why a shift in IRS priorities away from specifically focusing on taxpayers with more than $10 million in income for audits could result in more clients with incomes above $400,000 being audited in the coming years
From there, we have several articles on investment planning:
- 5 ways advisors can 'fix' the portfolios of new clients, from unwinding unintentionally concentrated positions to maximizing asset location
- While concentrated investment strategies offer the promise of higher returns, the specter of unpredictable risks and, in the case of concentrated funds, misaligned incentives between fund managers and investors, can make them risky propositions
- How a "total wealth approach" for portfolio management that takes a client's human capital and other non-investment assets could mitigate the downside risks to their wealth
We also have a number of articles on client meeting note-taking:
- Strategies for advisors to take more effective notes in client meetings, from adopting structured frameworks to leveraging software tools
- Client meeting note-taking software has emerged as one of the first AI use cases for advisors, though its use comes with compliance and security considerations
- A review of available AI-enabled client meeting note-taking software, broken down by price, accuracy, security, integrations with other AdvisorTech tools, and more
We wrap up with 3 final articles, all about productivity:
- How the "weighted shortest processing time" strategy can help advisors prioritize their to-do lists and why one of the best ways to boost productivity could be to shorten the list to only include what truly needs to be done
- Amidst a work culture that often prioritizes time spent at the computer, why stepping away from the desk for unstructured thinking could boost workers' creativity and productivity
- Why the concept of "entrenchment" suggests that achieving a "flow state" can sometimes lead to reduced productivity and wellbeing
Enjoy the 'light' reading!
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Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that affluent Americans believe they need an average of $5.5 million in assets to both retire and pass on a legacy interest (though many have yet to establish an estate plan), according to a recent survey. At the same time, they also overwhelmingly recognize the value of financial advisors, not only for increasing their wealth beyond what they could have achieved on their own, but also for helping them feel more prepared and less stressed about their finances!
Also in industry news this week:
- A recent survey indicates that financial advisors continue to move towards ETFs and away from mutual funds when it comes to client portfolio recommendations, though a majority of advisors continue to see a role for active management in the investment management process
- A former employee has filed a lawsuit alleging Reg BI violations at Fidelity, including a push for advisors to push customers to use the company's own higher-fee managed accounts rather than lower-cost funds, which, if found to be true, could lead to a wider SEC investigation and sound a warning for other firms that might be engaging in similar practices
From there, we have several articles on tax planning:
- Amidst a broader tax enforcement push, the Treasury Department this week announced that it plans to crack down on "basis shifting" transactions used by certain partnerships to reduce their tax bills
- A recent Supreme Court ruling regarding buy-sell agreements indicates the value advisors can add by reviewing these arrangements to ensure they meet their clients' needs without creating an additional tax burden
- How financial advisors can help clients avoid (increasingly punitive) estimated tax penalties, from determining the amount they owe to leveraging strategies to pay the taxes efficiently
We also have a number of articles on advisor marketing:
- While an advisor might be tempted to spend most of a prospect meeting explaining their personal story and the value they can offer, active listening could be a more effective approach to build trust with the prospect and increase the chances they decide to become a client
- How using a simple visual "road map" can help tie together for a prospect an advisor's verbal explanation of their services and the next steps if the prospect decides to become a client
- How flipping pain points into positive, achievable goals to work towards can help prospects better understand the value an advisor offers
We wrap up with 3 final articles, all about the cost of car ownership:
- How a combination of elevated sticker prices and interest rates are combining to dramatically increase the cost of purchasing a new (or used) car
- How the math behind the decision of whether to drive a car 'into the ground' or buy a new one has changed in recent years
- Why car insurance premiums have spiked well beyond the overall inflation rate during the past year
Enjoy the 'light' reading!
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Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a recent study found that advisory teams tend to have higher assets under management per advisor, serve wealthier clients on average, and have stronger growth than solo advisors, thanks in part to the efficiencies gained from sharing expertise and back-office support. Nevertheless, these findings could reflect self-selection amongst advisors, with those who don't want to grow past a certain satisfying income (happily and profitably) remaining as solos, and those seeking greater growth upside joining teams.
Also in industry news this week:
- While an infusion of Private Equity (PE) capital has shaken up the RIA M&A market, the ultimate implications for advisors, their clients, and the PE firms themselves remain unclear
- A recent study has found that a significant portion of 'DIY' investors are open to working with a human advisor (and paying for the service), with 'just in time' advice potentially providing an opening for advisors to demonstrate their value
From there, we have several articles on retirement planning:
- Practical considerations for advisors when engaging in (partial) Roth conversions, from assessing the "effective marginal rate" paid on the conversion to deciding when during the year to complete the conversion(s)
- Why regular portfolio rebalancing could be sub-optimal for retirees and how a "rising equity glide path" could lead to greater portfolio size and longevity
- Why an advisor's tools for helping clients successfully navigate the early years of retirement extend beyond asset allocation
We also have a number of articles on practice management:
- A 6-step plan for advisory firms to create a compensation plan that reflects their values and goals
- How firms can use cash bonuses, equity opportunities, and non-monetary perks to attract and retain top talent
- A survey of Gen Y and Gen Z advisors indicates that many of the factors that make a firm attractive to them, from the company culture to training and mentorship opportunities, do not necessarily have to cost firms in terms of hard dollars
We wrap up with 3 final articles, all about overcoming limiting beliefs:
- Tactics for overcoming limiting beliefs and "impostor syndrome" from the "WOOP" technique to participating in "mastermind" groups
- How self-compassion can help one overcome excessive self-criticism and become more resilient when things go wrong
- A 6-step approach to 'defuse' negative thoughts and shift towards more empowering beliefs
Enjoy the 'light' reading!