Nerd's Eye View blog

Does Being A Comprehensive Planner Make It Harder To Be Referred?

March 15, 2012 01:00 pm 2 Comments CATEGORY: Marketing

One of the primary business virtues of comprehensive financial planning is the deeper relationship that is formed as a result of going through the financial planning process. The experience helps to engender trust between the advisor and the client, which in turn can aid in client retention, and make the client more comfortable referring the advisor to others. Yet at the same time, one of the primary challenges of being comprehensive and holistic is that when you do so much for the client, it's difficult for the client to explain what it is the advisor really does, in the process of making a referral.

In fact, a recent survey highlights this striking contrast - clients of holistic advisors were almost 20% more likely to provide referrals, and amongst those who didn't refer, clients still generally felt that holistic advisors were more likely to have earned the right to receive referrals. The survey results also paradoxically revealed that clients who didn't refer their holistic advisors were almost 30% more likely to state it was because they didn't know any referrals or were uncomfortable to make referrals!

In other words, holistic advisors were simultaneously more likely to earn the right to receive referrals, yet ended out making a significant portion of their clients less comfortable and less able to think of anyone to refer!Read More...

Forget Harvesting Losses! It’s Time To Harvest Gains!

March 14, 2012 01:12 pm 26 Comments CATEGORY: Taxes

Prior to the implementation of the so-called "second Bush tax cut" - the Jobs Growth and Tax Relief Reconciliation Act of 2003 - the long-term capital gains tax rate was 20%, which was reduced to 10% for those in the lowest tax bracket. With the 2003 tax legislation, the maximum long-term capital gains rate was reduced to 15%, with a tax rate of 5% for the bottom two tax brackets, and in 2008 the latter rate was reduced to 0%. Those 15% / 0% long-term capital gains rates remain in effect today, and are scheduled under the Tax Relief Act of 2010 to continue until the end of 2012. After that point, the current laws expire, and the long-term capital gains rate reverts to its prior 20% / 10% rates... with the addition of another 3.8% for high income clients under the new Medicare unearned income tax! Not only does the scheduled increase in long-term capital gains rates represent a rising potential tax burden for clients in the future, but it also creates a surprisingly counter-intuitive but beneficial tax planning strategy - instead of the traditional approach of harvesting capital losses, in 2012 it's time to harvest long-term capital gains!Read More...

FPA Experience: The Big Show in Financial Planning

March 13, 2012 01:00 pm 1 Comment CATEGORY: Conferences

Every community has its home - that place we all feel compelled to return to from time to time. In the financial planning world, that home is the FPA Experience conference - the annual convention of the Financial Planning Association that has become the biggest event of the year dedicated to the financial planning profession. Thousands of people from across the country - and increasingly, around the world - feel the need to visit the financial planning "homeland" and attend the conference. Some attend for the continuing education credit; others attend to be a part of their financial planning community. Personally, though, I believe the best reason to attend the conference is to see the latest offerings in the exhibit hall for the financial planning world, from products to services to vendors and technology providers. In fact, I would even say we have a professional ethical obligation to see the "big show" in financial planning at least once every couple of years.

Is It Time to Redefine The Value Of Financial Planning To Expand Its Reach?

March 12, 2012 11:58 am 8 Comments CATEGORY: Practice Management

As financial planning continues to grow, it becomes more and more competitive, and increasingly difficult for firms to differentiate themselves. As a result, firms slow their growth rates, and some struggle to survive or grow at all. While most firms work harder and harder to make marginal improvements in their process, service, and value, to differentiate themselves from their competition, there is an alternative available: to seek to completely redefine the financial planning value proposition, letting go of things that are no longer truly important, and instead focusing on creating value that will make financial planning relevant to new audiences. And as financial planning enters the digital age, there is perhaps more opportunity than ever to begin doing things in a completely different - and better - way. So if you could rewrite the financial planning value proposition from scratch, would you still be doing it exactly the way that you do? Or is the reality that by letting go of "the way things have always been done" we could recreate a financial planning offering that would reach more people than ever? Read More...

Weekend Reading for Financial Planners (Mar 10-11)

March 9, 2012 10:00 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an array of industry practice management articles, leading off with a new discussion of "super ensemble" firms - the emerging regionally dominant wealth management firms with $5 billion or more of AUM that are challenging both small local firms and big institutional competitors. We also look at articles about the quickening pace of consolidation, the rising trend of large firms hiring career changers to replace retiring advisors as there aren't enough young people entering the industry, a prediction that flat fees will soon replace AUM as the primary method of advisor compensation, and a look at a new advisor firm offering from a Wharton professor seeking to provide a client-centric platform for new advisors to build their businesses. We finish with a good article from economist Gregory Mankiw in the New York Times about what carried interest really is and why it's so hard to figure out how to tax it, an intriguing look at the risks that western civilization faces from which it must emerge or face a risk of collapse, and a fascinating look at how the popular 60/40 portfolio may actually be far more risky than we commonly believe. Enjoy the reading!Read More...

Protecting The Public Is About More Than Just Fiduciary; Competence Matters, Too

March 8, 2012 03:25 pm 8 Comments CATEGORY: Planning Profession

Notwithstanding some of the successes of the Financial Planning Coalition in pushing forward the fiduciary battle in Washington, requiring all advisors to act in the best interests of their clients is still an uphill fight.

Nonetheless, the fiduciary movement seems to be gaining momentum, from coming regulations from the Department of Labor to reforms in 401(k) plans to the scrutiny of regulators in the aftermath of debacles from Stanford to Madoff. But what happens if the fiduciary fight is won over the next few years? Does that mean the public is now protected? Perhaps not.

After all, it doesn't really help to ensure that advisors act in the interest of their clients, if there's no assurance that advisors have the actual knowledge, skills, and expertise to craft appropriate recommendations and deliver the right solutions to clients in the first place. In other words, protecting the public is not just about fiduciary. To restore the public's trust in advisors, the fight must be about competence, too.Read More...

Growing a Planning Firm In The Digital Age: The Rise Of Inbound Marketing

March 7, 2012 02:16 pm 22 Comments CATEGORY: Marketing

Over the years financial planners have had a love/hate relationship with marketing. In most of those years, though, it's more of a hate/hate relationship. The traditional methods of outbound marketing - from cold calling to traditional advertising - have had so little benefit for the overwhelming majority of planning firms, that most don't even have a budget for marketing in the first place. To the extent any business development occurs, it's strictly from referrals, and any "marketing" expenses don't extend much further than paying for social events with clients or centers of influence to cultivate more referrals.

But as the digital age reaches financial planning, an entirely new marketing opportunity emerges: inbound marketing. The basic principle: instead of blasting out solicitations hoping you happen to hit a prospective client like finding a needle in a haystack, create content that is useful, relevant, and interesting for your target clients, and let them find you.
Read More...

Is Structured Settlement Annuity Investing A Good Deal? Yes, but…

March 6, 2012 04:40 pm 38 Comments CATEGORY: Investments

As interest rates remain low, investors - especially retirees - struggle to find yield wherever they can. Unfortunately, though, the necessity of earning a required return to fund financial goals becomes the mother of invention for a wide range of investment strategies, both legitimate and fraudulent.

A recent offering of rising popularity is investing into structured settlement annuity contracts, which often claim to offer "no risk" rates of return in the 4% to 7% range. In general, the opportunity for "high yield" (at least relative to today's interest rates) and "no risk" is a red flag warning. But the reality is that with structured settlement annuity investing, the higher returns can legitimately be lower risk; the appealing return relative to other low-risk fixed income investments is not due to increased risk, but instead due to very poor liquidity. Which means such investment offerings can potentially be a way to generate higher returns, not through a risk premium, but a liquidity premium.

The caveat to structured settlement annuities, however, is that the investments can be so illiquid and the cash flows so irregular, they probably should at best only ever be considered for a very small portion of a client's portfolio anyway!

Does Good Financial Planning Discourage Entrepreneurship?

March 5, 2012 03:24 pm 9 Comments CATEGORY: General Planning

As financial planners, we have a drive to see our clients succeed, as both a mark of successful financial planning, and because no one wants to be the planner whose clients fail (for both personal fulfillment and legal liability reasons!). As a result, planners often encourage a steady path that may entail some "prudent" risk, but nothing excessive. Yet this often puts planners in a difficult position with very entrepreneurial clients, who often take significant career, business, and financial risks in an effort to build their businesses and significant wealth. Even if the planner is not directly responsible for the entrepreneurial client's business outcome, we don't necessarily want to be there when it all falls apart, either. In fact, if the client has a choice between an entrepreneurial venture or a salaried career, the planner typically recommends the path of lesser risk; it's just prudent, good planning. Yet in the end, does that mean good financial planning actually discourages entrepreneurship and makes it nearly impossible for clients to actually accumulate very significant (e.g., $10M+) wealth?Read More...

Weekend Reading for Financial Planners (Mar 3-4)

March 2, 2012 08:03 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an intriguing analysis from Morningstar's new number crunching on investor returns, finding that investors may not actually be chasing hot mutual funds nearly as much as previously believed, along with the latest contribution by Miccolis and Goodman to the Journal of Financial Planning, this time focused on the problems with measuring correlation. From there, we look at a few industry articles, from the possibility that FINRA may open up BrokerCheck data to private vendors to better get information to investors, to Mark Tibergien suggesting how to determine which parts of your firm you should or should not outsource. On the investment side, the focus turns to PIMCO's launch of an actively-managed ETF version of their flagship PIMCO Total Return fund, a primer on how the Euro breakup might go (it's not as bad as the media makes it out to be), and the latest quarterly letter from Grantham. We also look at two interesting recent articles from the New York Times, one by Robert Shiller on how high IQ investors actually invest differently, and another discussing how companies study shopper habits to market more effectively, and conclude with a quick review of the latest US News and World Report "Best Jobs in 2012" ranking which lists Financial Adviser at #23. Enjoy the reading!