Nerd's Eye View blog

It’s Not Just About Telling Clients What To Do, It’s About Motivating Them To Do It!

May 10, 2011 01:58 pm 6 Comments CATEGORY: Client Trust & Communication

Being a good financial planner is not just about having the knowledge and information to direct clients on how to best achieve their goals and financial success.

Ultimately, most would agree that the true measure of success is to look at how effective the planner is in actually helping clients achieve those goals; in other words, does the client actually have an improved path to success because of the planner's involvement. In turn, this means that the planner's true success hinges not only upon having the right advice, but also depends upon the client actually implementing that advice, and the planner's ability help those clients make the required changes!

There's just one problem: it turns out that telling people what to do is actually a terrible way to get them to do it!Read More...

Are Some Financial Planners Unwilling To Take Their Own Investment Advice?

May 9, 2011 01:43 pm 9 Comments CATEGORY: Practice Management

If there's one piece of investment advice that's almost universally agreed upon by financial planners, it's this one: don't bail out of stocks after a bear market. In fact, the entire foundation of wealth accumulation in the financial planning world is predicated on a healthy exposure to stocks for the long run, especially during the accumulation phase.

The planning world has attached itself to this stocks-for-the-long-run focus over the past two decades with its shift to an assets-under-management (AUM) business model, where revenues and value for the firm are tied to the markets in a similar manner to the client's wealth and (future) income.

Yet in recent years - and especially since the 2008-2009 bear market - some planning firms have been starting to shift away from the AUM model, opting instead for more stable income business models like retainers. Yet this raises the question: if clients are supposed to stick with stocks for the long run and stay the course through temporary market downturns, are planners being hypocritical by not doing the same thing with their AUM business model?Read More...

Should Planners Have A Responsibility To Report The Wrong-Doing Of Other "Bad" Planners?

May 3, 2011 01:27 pm 6 Comments CATEGORY: Planning Profession

One of the most common complaints within the industry about the state of financial planning is that it is marred by so many practitioners who say they are financial advisors, but do not really do financial planning... or worse, do it badly, wrong, or outright deceitfully. Yet although so many planners state that they have come across such "bad" practitioners, virtually none state that they have ever reported a bad practitioner, either to regulatory authorities, or to the CFP Board if the individual holds the CFP marks but doesn't do financial planning "right." Yet how will the financial planning industry be cleaned up of its inappropriate practitioners if we do not take a part in it? So there's the question: what is - or should be - the responsibility of financial planners to report the wrong-doing of other people who hold themselves out to be financial planners?Read More...

Just How Much Do You Assume Mass Affluent Clients Will Pay For Retirement Medical Expenses?

May 2, 2011 01:30 pm 7 Comments CATEGORY: Insurance

With the cost of health care just continuing to spiral higher and higher as the years go by, it becomes increasingly difficult to advise clients about how much to save to handle those future costs in retirement.

On the one hand, it's crucial not to undersave, such that ongoing health care costs devastate and deplete the retirement portfolio; on the other hand, excess conservatism can be bad too, forcing clients to unnecessarily constrain their lifestyle with more saving than is necessary, or working longer and retiring later than was actually needed.

So just how much do you assume your mass affluent clients will pay in projected future health care costs during retirement?Read More...

If The Fiduciary Fight Wins, Does Your Marketing Plan Lose?

April 29, 2011 01:06 pm 5 Comments CATEGORY: Marketing

The Financial Planning Coalition is fighting the advocacy fight for a fiduciary standard for financial planning. While this certainly is a consumer-centric direction for financial planning, the firms today that practice financial planning may need to be careful about what they wish for. After all, for many firms, the fact that they operate as fiduciaries has become a central message of their marketing to prospective clients.

So what happens if the Coalition wins the fiduciary fight? If everyone who practices financial planning must operate as a fiduciary, do a number of currently successful firms lose their key marketing differentiator and have to rewrite a new marketing plan?

Why Winning Fiduciary Fight Would Increase – Not Decrease – Financial Planning Competition

April 25, 2011 02:44 pm 3 Comments CATEGORY: Planning Profession

As financial planning continues its path towards profession, the next major hurdle appears to be the application of the fiduciary standard to the delivery of financial planning advice. For many planners, though, the push for fiduciary is not just about advancing the profession; it's also about cleaning it up, and getting rid of all those people who say they do financial planning when they do not.

In other words, it's about carving out a protected space - as is done with most other professions - where only those who really do it can call themselves professionals, just as only licensed medical professionals can practice medicine, and it's illegal to conduct an unauthorized practice of law. And although establishing such barriers around a profession can also make it more financially rewarding in the long run for those who practice - part of the reason that doctors and lawyers are compensated well is that not just anyone can be one - it may actually have the opposite effect in the nearer term.

The bottom line: it's possible that putting a firm fiduciary legal standard into place could actually cause a dramatic increase in financial planning competition!Read More...

The Employer Counter-Offer – Flattering Or Insulting?

April 22, 2011 06:06 pm 2 Comments CATEGORY: Human Capital

It's a familiar scenario for some: you've worked for the company for years, and feel your contributions are under-appreciated, and that it's time to look for new opportunities. You begin the job search process, and find a new employer who is excited to have you come on board, providing a nice increase in your compensation as a part of the package. Deciding to take the new offer, you go back to your original employer to break the news... only to discover that, when faced with your anticipated departure, the attitude has changed. Suddenly, your existing employer offers you higher compensation; perhaps a promotion and new title; maybe even some equity in the company. So what do you do? Are you appreciative your employer finally recognizes your value? Or insulted that it took your imminent departure to raise the issue? If you're the employer, did you just come up with a way to retain your employee, or hasten his/her departure?Read More...

The Real Reason That Financial Planners Fail To Serve The Majority Of Americans

April 18, 2011 02:23 pm 26 Comments CATEGORY: Planning Profession

It has long been a criticism of financial planning that it is focused to far up the wealth scale. Financial planning firms at best only start serving the "mass affluent" (typically defined as $100,000 to $1 million in investment assets), and the elite independent firms often have minimums of one or several million dollars. The only exception is typically the younger high income earner, who may not have sufficient assets yet, but earns a few hundred thousand dollars a year, is accumulating assets quickly, and may need significant income tax planning support in the meantime. Yet the statistics show that the average American doesn't even have $100,000 in investment assets, and nearly half of Americans don't pay income taxes at all.

The response from planners is that it's just too difficult to serve clients at those lower wealth and income levels; the business model "doesn't work" and isn't viable/profitable. Yet perhaps the real reason is not that the business model is impossible to design, but simply because it's so hard to get a sufficient volume of clients, due to the sad reality that the value of financial planning hasn't been clearly defined to the public at large, and as a result it's very expensive to "sell" clients on financial planning when there's no real demand from them to "buy" it in the first place.Read More...

Does Charging AUM Fees Cause Clients To Be More Investment Centric?

April 15, 2011 03:31 pm 8 Comments CATEGORY: Practice Management

In our intra-industry debates about compensation models, there is an emerging view that one of the challenges of charging for assets under management (AUM) is that by charging based on investments, your clients will become investment-centric. The prescribed cure to this is to use another compensation model, such as charging a flat retainer fee, or an hourly fee. That way, clients will not always have their attention drawn to the portfolio that derives their fee, and the planner can help to focus them on other aspects of planning. Yet this raises a fundamental question: does charging AUM fees cause clients to be investment-centric, or are clients investment-centric and therefore preferring AUM fees?

The Real Reason Home Ownership Is The Average American’s Greatest Investment

April 14, 2011 01:43 pm 7 Comments CATEGORY: General Planning

Home ownership has long been viewed as a foundation of building wealth. For many Americans, the equity in their home is the single greatest asset on their balance sheet, often dwarfing the amount of investment assets they hold in savings and retirement accounts. But does that really mean that home ownership is the best long-term investment around, and a step that everyone should take if they wish to build financial success in the future? Not necessarily. Because in reality, the real reason home ownership is the average American's greatest asset is not because of appreciation in the value of housing; it's simply because of leverage. Read More...