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Why Conferences Don’t Need More CE, They Need Better (Practice Management) Content

April 20, 2017 09:41 am 4 Comments CATEGORY: Conferences

One of the most common challenges these days for financial advisor conferences is deciding whether or how much practice management content to include. On the one hand, a practice management session that has just one material takeaway that impacts the advisor's business can generate a good ROI for the entire conference. On the other hand, practice management isn't eligible for CFP CE credit, and most practice management sessions end out having a lower turnout. Does that mean it's time to give CE credit for practice management sessions to equalize the playing field?

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we delve into the issue of whether conferences should still offer practice management sessions, and why the real problem isn't really about whether practice management is eligible for CE, but simply that almost any particular practice management session will only be relevant to a small subset of advisors!

In fact, the irony is that the most common reason financial advisors ask for CFP CE credit from conference sessions is not because it's hard to get CFP CE credit, or that we need to go to a conference to get it. It's because a lot of conferences have mediocre sessions... which means if we as advisors are going to attend, at the least we want some CE credit as a consolation prize for the time and dollars spent! And with so many conferences unwilling to invest into paid speakers, and still relying on sponsors to fill their speaking slots - despite the fact that most sponsors have a long history of delivering sales pitches in lieu of real education - it is no surprise that CE is a common demand. If you expect the content to be mediocre, the CE is the only remaining reason to bother showing up!

But when it comes to good content, the value of the content can more than pay for itself, regardless of CE credit. And good content can come in the form of a technical session or practice management. In fact, financially, good practice management content – that provides real takeaways that can be implemented to make meaningful changes in the business – can actually provide a much higher ROI than technical content. And in point of fact, it really is the conferences that spend the most time and effort (and in some cases, hard dollars) on content that are seeing the most growth and financial success!

The caveat when it comes to practice management content, though, is that even the best session isn't likely going to be useful for all advisors, or even most of them. After all, a great session on selling a firm won't be valuable to the majority of advisors who currently aren't looking to sell their firm anytime soon. A great session on technology won't be valuable the large number of advisors whose platform makes the technology decisions for them. And a great session on marketing won't be valuable for the large number of paraplanners or associate planners who don't have business development responsibilities. Which means even the best practice management speaker will rarely draw a large crowd for a practice management session. But that doesn't mean conferences should avoid this content altogether! Rather, they should be careful about how it is scheduled - put practice management content in breakout time slots, paired with different content for those who won't find the session relevant, and be cognizant only to put practice management speakers into general sessions if their content is truly relevant to the whole audience!

Ultimately, as CFP and other types of CE becomes more and more commoditized and accessible from many sources at a low cost, the value in attending a conference is not the CE. Advisors may leave audience feedback requesting CE, but that's not a sign they truly need CE - it's a sign that the conference needs better content, so the audience isn't demanding CE as a consolation prize!

Dynamic Programming As A Methodology For Financial Planning Retirement Projections

April 19, 2017 07:01 am 3 Comments CATEGORY: Retirement Planning

While most financial planners are familiar with the leading practitioner-based research in retirement planning - for instance, Bill Bengen's 4% safe withdrawal rate studies - the reality is that economists have actually developed their own research approach to evaluating financial planning trade-offs, including optimal strategies for retirement spending and asset allocation. Notably, though, the two tracks of retirement planning research employ substantively different approaches - where practitioners most commonly "test" a particular retirement plan or strategy to see if it's sustainable (or not), while economics researchers try to create models that can be optimized. However, the gap between these distinct lines of research and practice are beginning to blur, as practitioner-oriented research becomes more sophisticated, economic research becomes more practical, and computing technology makes it easier than ever to conduct complex analyses.

In this guest post, Derek Tharp – our Research Associate at Kitces.com, and a Ph.D. candidate in the financial planning program at Kansas State University – takes a deeper look at dynamic programming, a economics-based methodology for conducting financial planning retirement projections, that introduces new opportunities beyond traditional financial planning software in optimizing retirement spending and asset allocation, and may be outright superior in projecting and modeling how retirement spending and asset allocation might change over time, based on whatever future market returns turn out to be.

The core of the dynamic programming (also known as dynamic optimization) approach is really just a methodology of solving larger problems by breaking them down into smaller problems. In the context of financial planning and retirement projections, it's about taking a long term retirement plan, and breaking it down into a series of sequential retirement years, each of which can then be optimized based on what happened (or didn't happen) in the preceding years. What's powerful about dynamic programming, though, is its capabilities to model a greater number of retirements that might all vary at the same time; for instance, dynamic programming could allow spending (consumption), asset allocation, investment returns, and longevity to all vary at the same time, and then truly optimize the financial plan across all of those variables at once – rather than the more manual process of testing "a plan" and then repeatedly tweaking it with "What If" scenarios until a client is satisfied with it, as is more common amongst practitioners today.

A key advantage of dynamic optimization is that a single dynamic programming analysis also has the potential to provide guidance about what to do now and in the future in a way that a one-time Monte Carlo projection cannot. Dynamic programming can do this by effectively providing a three-dimensional road map of how over time a retiree might adjust spending, and adapt the allocation of their portfolio, based on the actual investment returns that are experienced in the future. And, by being more responsive to an individual's consumption preferences and investment returns that are experienced, dynamic programming not only helps guide retirement spending decisions that are better suited to an individual's unique goals and desires, but it may increase a retiree's consumption in retirement, as prior research from Gordon Irlam & Joseph Tomlinson has found that dynamic programming can provide significant enhancements in retirement income over traditional rules of thumb utilized by advisors. Financial planners who want to explore dynamic programming further can explore products such as Gordon Irlam's AACalc or Laurence Kotlikoff's ESPlanner.

Ultimately, it's still not clear that there's one “right” way to do retirement planning. Whether it is Monte Carlo versus historical… goals based versus cash flow based... or dynamic programming versus non-optimizing approaches… all can provide different insights, which in turn can help guide decision for clients given the risks and sheer uncertainty they face in planning for retirement. But in the end, if the whole point of doing financial planning is at least in part to come up with an actual plan for how to handle an uncertain future, dynamic programming provides a unique toolset that isn’t available in today’s traditional financial planning software solutions… at least, not yet!

#FASuccess Ep 016: Building Authentic Client Relationships By Practicing Skills (Not Pursuing Passions!) with Deena Katz

April 18, 2017 07:01 am 3 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the sixteenth episode of the Financial Advisor Success podcast!

Our guest this week is Deena Katz, the co-chairwoman of Evensky & Katz / Foldes Financial, a $1.6 billion independent RIA in Coral Gables, Florida. In addition, Deena is an author, editor, and contributor to 9 books on financial planning and wealth management, including 3 specifically on practice management for financial advisors… one of which had a tremendous impact on me when I was early in my own career!

More recently, Deena transitioned from financial advising to academia, and is now a professor in the financial planning program at Texas Tech University as well! Though in point of fact, Deena’s transition to becoming a professor isn’t entirely surprising, because she was also a teacher early in her career before making the change into financial planning almost 40 years ago.

In this interview, Deena talks about the early years of financial planning, how she and her partners established one of the first sizable fee-only financial advisory businesses, and how she was able to break through in her own career – at a time when there were even fewer female independent advisory firm owners – by adopting a niche of working with recently widowed and divorcee women.

We also talk a lot about the delivery of financial planning itself, and various business models, including why it is that Deena’s firm does not provide full-length comprehensive financial plans to new clients anymore (and instead breaks up their financial planning process into modules over the first year), the simple process her firm uses to demonstrate its ongoing financial planning value over time, and why success isn’t about following your passion but practicing your skills instead.

And be certain to listen to the end, where we talk about various types of financial advisory business models, the future of the AUM model, and the infamous question of whether it’s better to charge separately for financial planning, or not.

So whether you’re looking for perspective on the future of financial advisor business models (from a woman whose firm has tried almost all of them at some point or another!), ideas in how to get your growth going by focusing into a niche, or are looking for inspiration about how to get started in your financial planning career from here (especially as a woman in a still-male-dominated industry), I hope you enjoy this latest episode of the Financial Advisor Success podcast!

The Virtue Of The Weekly Advisory Team Staff Meeting

April 17, 2017 07:01 am 3 Comments CATEGORY: Practice Management

Anyone in a growing business has had the displeasure of being stuck in an unproductive meeting. At best, they happen from time to time. At worst, the day is so filled with unproductive meetings that it seems like there’s no time left to actually get anything done… leading many to want to just eschew internal team meetings altogether.

Yet the reality is that done well, meetings can be a mechanism to keep your team on the same page, working towards the right priorities, accountable on a weekly basis to getting things done, and provide a crucial opportunity for everyone to work together on solving the business’s biggest challenges from week to week.

Accordingly, the real problem is not that “(team) meetings are bad”, but that “bad (team) meetings are bad”, and that the remedy is to formulate a better structure to the weekly team staff meeting in the first place, with time to review key business data, evaluate the tasks that need to be done, prioritize for the coming week, and then take more than half the meeting time to actually solve problems that are occurring in the business!

Personally, I’ll admit that I was a long-time skeptic of having a weekly team staff meeting – having spent an incalculable amount of my own time in unproductive meetings over the years! – but have ultimately found that the pulse of the weekly team meeting really does become the heartbeat of the business as it moves forward!

Weekend Reading for Financial Planners (Apr 15-16)

April 14, 2017 03:01 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the interesting announcement that TD Ameritrade is raising its revenue-sharing agreements for its advisor referral network, as the DoL fiduciary rule looms along with the assimilation of hundreds of Scottrade retail branches that could soon turbocharge the advisor referrals coming through the network... and both raising questions about whether this will kick off revenue-sharing increases at other custodians as the struggle for advisor growth becomes more widespread, and also raising concerns about how abruptly TD Ameritrade distributed the news and made the change (giving advisors barely two weeks to agree to a substantial change in terms or be kicked off the referral platform). Also in the news this week is an emerging trend that advisors are getting more political in their communication with clients - what was traditionally a third rail never to be touched in client meetings - and whether doing so is really bad for business, or might actually be good to help attract like-minded prospective clients with similar beliefs.

From there, we have a few articles about regulatory trends, including: a deeper look at how the DoL fiduciary delay until June 9th (and delay of the full Best Interests Contract Exemption until the end of the year) may still not be enough to really deter the fiduciary rule from taking effect; the trends in the 401(k) marketplace for more advisors offering 3(38) services instead of operating as just a 3(21) fiduciary; and an interesting list of other regulatory battles for financial advisors that may be looming (including a potential "fiduciary lite" proposal that could come from the SEC on the titles that advisors use when holding out to the public).

We also have a number of investment-related articles this week, from a look at the rise of "evidence-based" investing, to a theoretical exploration of why it is that stocks continue to persistently outperform bonds (even when we "know" they're going to outperform, which theoretically means an efficient market should bid up their prices until they don't outperform anymore), a fascinating new study that shows how incredibly skewed stock returns really are with the entire wealth creation of the US stock market actually coming from just 4% of all stocks (and half the wealth creation from just 0.3% of them!), and a retrospective look at how TIPS have done for the past 20 years since they were first introduced in 1997.

We wrap up with three interesting articles: the first is a look at how the recent United Airlines incident is an example where having "too many" rules to manage behavior actually caused a breakdown in the system (which has significant implications regarding how many fiduciary rules should or shouldn't be prescribed for advisors); the second is an important reminder that advisors should not market themselves as being "conflict-free" just because they're independent, because all advisory models still have at least some conflicts of interest; and the last is a good reminder of why at least some regulation is necessary in most industries, because otherwise it's just too easy for marketers to take advantage of low barriers to entry and communicate in a way that misrepresents their products (but lets them profit before anyone realizes the profit that has been caused), and thus why smart and ethical marketers (and financial advisors?) should recognize that some level of regulation is actually a positive (both for consumers, and in providing clear guardrails to practitioners).

Enjoy the "light" reading!

Why The Latest DoL Fiduciary Delay Is Likely The Last

April 13, 2017 09:42 am 0 Comments CATEGORY: Regulation & Compliance

This past Tuesday, April 10th, the Department of Labor's new fiduciary rule and its requirement for advisors to engage in a Best Interests Contract with their clients, didn't happen. And it didn't happen because last week the Department of Labor finalized a new regulation which enacted a 60-day delay to the applicability of the rule, which means the final DoL fiduciary rule is now scheduled to take effect June 9th, instead. Yet while many commentators have been suggesting that we'll see further delays until opponents of the DoL fiduciary rule ultimately kill it, I wouldn't be so sure of that, and particularly when you delve into the details of what this delay actually said.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we delve into the fine print details of the recent DoL fiduciary 60-day delay, why it was actually more like an 8-month delay for many key provisions, and why that actually reduces the likelihood of more DoL fiduciary delays!

First and foremost, the new regulation that enacted a 60-day delay (shifting the applicability date for the Department of Labor's fiduciary rule out until June 9th), was actually a 63-page regulation with a number of key changes, and even a few surprises. First, while the new definition of "fiduciary" is delayed until June 9th, the requirement to actually fully implement the Best Interests Contract Exemption (the crux of the new fiduciary rule) was delayed until the end of the year. Which means that the Impartial Conduct Standards (that advisors must give best interests advice, for reasonable compensation, and make no misleading statements) will go into effect on June 9th, but the remainder of the new disclosure rules, policies and procedures requirements, and enforcement mechanisms – such as the ability to bring a class action lawsuit against Financial Institutions for fiduciary breach – will not go into effect until 2018.

This delay is important to acknowledge because, contrary to much speculation, it ultimately reduces the likelihood of further delays! Segments of the industry have been fighting hard against DoL fiduciary – lobbying the DoL, suing the DoL for overreach and hastiness, lobbying Congressional Republicans to block it, and ultimately lobbying the current administration for a delay. But as I noted immediately following the election, the rule is still a done deal, finalized and formally adopted last year. Which is ultimately why President Trump didn't unwind the rule, but instead, only issued a proposal to consider whether to delay another 60 days. And based on the prior lawsuits over the "hastiness" of the rule (which was originally developed over five and a half years!), it's hard for opponents to now come back and say the rule should be killed or substantially changed in as little as 60 days! Especially when 90% of the 193,000(!) public comment letters received by the DoL were against even the 60-day delay! It's getting harder and harder to substantiate further delays to the rule now.

In fact, it seems that the only real path currently open for significant delay would be if a new regulatory impact analysis can shed new light on why the fiduciary rule would be somehow harmful after all, and undermine the prior cost/benefit analyses that have been conducted. Yet it's not clear how the industry would make that case, particularly given so many studies out there about the financial services industry's conflicts of interest, and how consumers are being harmed by those conflicts. And with the 45-day comment period to conduct a "Regulatory Impact Analysis" closing next week on April 17th, it's not clear how the DoL would possibly have enough time to substantively review the comments, propose a new rule, subject that rule to another comment period, take that feedback, complete a final rule, and submit that rule to the OMB for review and approval, and publish that new fiduciary rule in the Federal Register, all by June 9th.

In other words, the 60-day delay may have literally delayed the rule, but it's just not long enough of a delay to actually stop the rule. And when the industry's own lawsuits have claimed that the 5-and-a-half-year process of creating the rule was "too hasty", it's hard to make the case for substantively changing it in 60 days anyway. Even a re-delay will actually be challenging now, as with so many of the Best Interests Contract Exemption requirements pushed out to 2018, arguably the industry already has gotten an additional 8 months to adjust to the rule - which means advocates can emphasize that there's no reason to delay the applicability past June 9th anymore.

Notably, this doesn't mean that the rule won't be changed at all - modifications are still a definite maybe, perhaps around certain aspects of the policies and procedures requirements, disclosure obligations, or even the class action lawsuit provision. But the bottom line is that for all of the talk about the DoL fiduciary rule dying or going away, it really doesn't appear to be happening. So, if you haven't finished your preparations for the DoL fiduciary rule, I'd really encourage you to start doing so now!