Nerd's Eye View blog

Deduct Them Or Not, But Don’t Capitalize Investment Management Fees

January 5, 2012 02:40 pm 15 Comments CATEGORY: Taxes

While the tax code offers a deduction for investment management fees paid by an investor, it is a less than ideal tax deduction. Characterized as a miscellaneous itemized deduction subject to the 2%-of-AGI floor, in practice it is not deductible unless the taxpayer both itemizes deductions in the first place, and has enough miscellaneous itemized deductions in total to exceed the required threshold. In addition, all such miscellaneous itemized deductions are disallowed for AMT purposes - especially problematic since the AMT is somewhat more likely to affect those with sufficient income and assets to be paying such fees in the first place.

To avoid this tax result, some clients and their accountants have been going an alternate route: capitalizing the investment management fee into the cost basis of the assets being managed, which at least provides some tax benefit, by increasing the cost basis and reducing future capital gains (or increasing the losses). Unfortunately, though, the IRS has already responded to the strategy: Just Don't Do It.Read More...

The Public Deserves A Choice, But It’s Advice Vs Sales, Not Fiduciary Vs Suitability!

January 4, 2012 02:19 pm 24 Comments CATEGORY: Planning Profession

In the ongoing debate for the fiduciary standard, supporters of fiduciary have suggested that everyone in financial services should be subject to the standard, while those opposing have responded that consumers deserve a choice between fiduciary and suitability; in essence, they simply suggest that we should let consumers choose whatever method of financial services they prefer, and may be the best model win.

But to me, the choice presented is a false one: the real choice is not between fiduciary advice and suitable advice, the difference is between fiduciary advice from an advisor and suitable product sales from a broker. In other words, the real choice we should present to consumers is between advice and product sales, and the real goal of the planning profession should be to focus on who is and is not qualified to deliver advice, and really call themselves an advisor in the first place!Read More...

Is Social Media An Effective Tool To Grow A Planning Practice?

January 2, 2012 02:18 pm 8 Comments CATEGORY: Practice Management

Most planners struggle to grow their businesses and bring in as many clients as they wish. With the surge of social media in recent years, from Facebook to Twitter to LinkedIn, an increasing number of consultants have hailed social media as the great marketing equalizer, capable of allowing even small planning practices to establish a marketing presence. Nonetheless, most planners are thus far reporting limited success with their social media efforts; a recent study suggests interest may already be waning. Yet at the same time, most planners have had little success with any form of targeted marketing efforts, relying instead of the slow flow of referrals from existing clients as a primary source of new business. Which raises the question: is it that social media in really ineffective for growing a practice, or is it just that our woes with social media are representative of our ongoing difficulties in clearly defining the value we provide and the target clientele we wish to reach, leaving referrals as the only option left?

Weekend Reading for Financial Planners (Dec 31-Jan 1)

December 30, 2011 08:55 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a few articles on advisor use of social media, an interesting look at whether promoting financial literacy is a red herring for real consumer protection in financial services, and a good technical article on planning issues for unmarried couples. Also included is a controversial discussion of how TIPS may not be quite as "safe" as we make them out to be, and a look at a new series of mutual funds that may attract increasing client attention in the coming years. We finish with a quick look at a Forbes article discussing the decision by a major firm with 80,000 employees to completely phase out email over the next 18 months in lieu of meetings, telephone calls, text messaging, and social media for communication; will this be a failed experiment, or a glimpse into the future of business communication? Enjoy the reading!

The One Skill That Has The Biggest Impact On Being A Successful Financial Planner

December 27, 2011 02:59 pm 7 Comments CATEGORY: Client Trust & Communication

Developing your skillset as a financial planner is complex. From learning the financial planning body of knowledge itself, to the analytical skills to apply it to specific client situations, to the written and verbal skills necessary to communicate recommendations to clients, to the interpersonal skills required to actually motivate and support clients on implementing those action items, there's a lot to learn. Not to mention the skillset necessary to find and attract new prospects to become clients in the first place.

But if there is one skill that seems to have a bigger impact above all else for the success of a financial planner, it's the ability to listen. To REALLY listen.Read More...

Weekend Reading for Financial Planners (Dec 24-25)

December 23, 2011 11:12 pm 5 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a number of articles on interesting industry trends, from the ongoing movement towards tactical asset allocation (now used by a majority of advisors), to the difficulties in the variable annuity marketplace suggesting that perhaps annuity expenses have not been too high but in fact were too low in recent years, to the rapid growth of independent advisors in recent years that threaten to overtake the wirehouses by 2013. In addition, we look at the latest from John Hussman on a looming US (and global) recession regardless of recent positive data "surprises", along with John Mauldin on US Federal deficits and the problems in Europe, another piece on Europe by PIMCO's Mohammed El-Erian, and a fascinating - albeit scary - piece about what's really been going on with the "missing" customer funds at MF Global. We wrap up with what is sure to be a controversial article by Bill Bachrach, suggesting that the primary reason financial planners lack trust with the public is because too many don't have the integrity to walk their own talk and use a financial planner themselves. Enjoy the reading!Read More...

Is There A Minimum Below Which Financial Planning Advice Isn’t Relevant?

December 18, 2011 05:30 pm 14 Comments CATEGORY: Planning Profession

For most, the question of "minimums" in financial planning is a practice management issue from the firm's perspective: how much in fees must a client generate to be economically feasible, based on the firm's particular service model?

Yet as financial planning seeks to broaden its scope and serve more people, a question arises from the opposite side of the table: is there a certain amount of income or net worth necessary to even make financial planning advice useful to someone?

Is there such thing as having too little money, income, or wealth, for financial planning to even be a worthwhile thing to pay for in the first place? In other words, is there a minimum for a financial planning relationship, from the client's point of view, below which the prospective client just doesn't have enough income or assets for a financial planner's advice to be relevant?

Weekend Reading for Financial Planners (Dec 17-18)

December 16, 2011 07:27 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - the major highlight this week is the release of the Financial-Planning-Coalition-sponsored study on the costs of various regulatory oversight options, with some pretty shocking costs for FINRA or a new SRO to take over. Other articles include a discussion of Schwab's first franchise branch opening, the emerging field of financial therapy, an analysis of annuity guaranteed withdrawal riders and their limitations due to ongoing inflation, and two great investment pieces on last week's European Summit by John Mauldin and GaveKal, along with a somewhat disturbing warning by John Hussman that the market may be in significant near-term danger. We wrap up with a brief article that was written for entrepreneurs, but translates in my opinion to virtually anyone in professional services, taking a hard look at what your time's really worth, and what you should - and shouldn't - be doing yourself versus outsourcing to others. Enjoy the reading!

What’s The Real Difference Between Financial Planning And Private Wealth Management?

December 11, 2011 09:10 pm 8 Comments CATEGORY: Planning Profession

In the nebulous space where financial services firms decide what to call themselves and how to hold themselves out to the public, there's not necessarily a very clear distinction between a "financial planning" firm and a "private wealth management" advisor. Often, the difference is little more than the perceived marketing distinction of the labels to certain target clients.

Nonetheless, there is some evidence to suggest that the services delivered to very high net worth clients can be quite different than those provided to the average American, and accordingly may require a different set of knowledge and skills to deliver effectively.

As a result, there is an effort underway to try to study the real differences between what it takes to be a successful financial planner versus a private wealth management advisor, in order to develop certification that is unique and appropriate to the distinct specialization.Read More...

Weekend Reading for Financial Planners (Dec 10-11)

December 9, 2011 06:00 am 1 Comment CATEGORY: Financial Advisor Success Podcast Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - highlights this week include two great year-end wrap-up articles on technology, including an overview of Financial Planning magazine's huge annual tech survey, and technology highlights from consultant Bill Winterberg in MorningstarAdvisor. Also included in a striking interview with research and planning pioneer Bill Bengen, who suggests that safe withdrawal rates are still valid, but that buy and hold isn't, and an interesting article from Angie Herbers in Investment Advisor about some owners who may be experiencing "owner's guilt" over the profitability of their business, and making some bad decisions as a result. Then there's a quick look at some thoughts about the new cost basis reporting rules that are being implemented by the IRS, and two somewhat non-traditional investment and economic pieces from some industry stalwarts, Howard Marks of Oaktree Capital and Jeremy Grantham of GMO. Enjoy the reading!Read More...