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DoL Fiduciary NOT Yet Delayed By President Trump After All…

February 4, 2017 09:30 am 96 Comments CATEGORY: Regulation & Compliance

Given the party-lines debate that has revolved around the Department of Labor's fiduciary rule for the past year - ever since President Obama put the full force and backing of the White House behind the final rule - it was widely believed that once President Trump won the presidential election, it would just be a matter of time before he issued an Executive Order to delay the rollout of the regulation this April. And yesterday morning, the White House circulated a draft version of the coming Executive Order, to be signed that afternoon, that would impose a 180-day delay to the rule.

Except as it turns out, the final version of the Memorandum that President Trump signed did not actually include a provision to delay the fiduciary rule after all, despite wide media reporting to the contrary! Instead, the Secretary of Labor was merely directed to conduct a new "economic and legal analysis" to assess whether the fiduciary rule and its looming applicability date is causing harm to investors by limiting access, triggering dislocations in the retirement services industry, or likely to cause increased litigation and increased costs for consumers. And if that is the case, then the Department of Labor would undertake yet another proposed rulemaking process, with a Notice and Comment period, before proceeding. A direct Executive Order from the President to delay, though, is off the table (though notably, many had pointed out it wouldn't have been legally permissible to delay that way in the first place).

Given barely 2 months until the applicability date, it's still unclear whether the new economic analysis requirement and subsequent rulemaking process will be able to successfully delay the rule, especially since President Trump's Labor Secretary nominee Andrew Puzder hasn't yet been confirmed, and is now reportedly being delayed indefinitely due to ongoing questions about his ethics and financial disclosures paperwork. Nonetheless, a delay is still possible - and indeed, President Trump's Memorandum effectively directs the DoL to try to find some way to do so - whether by inviting a stay in one of the lawsuits, going through a "hasty" rulemaking process to at least get some delay in the applicability date on the table (and then expand into further rule changes thereafter), or getting Congress to intervene (and overcoming a Senate Democrats filibuster).

But for the time being, the fact remains that it's still "game on" for the Department of Labor's fiduciary rule. The President's Executive-Order-that-wasn't may still ultimately facilitate a delay in the rule, and/or start the process of making changes to the fiduciary rule's long-term provisions after the rule takes effect (but before any real enforcement and legal exposure kicks in). But that remains to be seen in the steps that acting Labor Secretary Ed Hugler does or doesn't take in the coming days and weeks to quickly push the required economic analysis and the start of a new rulemaking process! At a minimum, though, it's looking increasingly likely that the DoL fiduciary rule will be here to stay in some form... the only question is exactly what provisions last in the truly-final version, and when it will truly take full effect!

Weekend Reading for Financial Planners (Feb 4-5)

February 3, 2017 02:53 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that President Trump has just issued a Memorandum to the incoming (but not yet confirmed) Secretary of Labor in an attempt to delay to the DoL fiduciary rule, with guidance to "consider whether to rescind or revise" it... though it still remains unclear whether the rule can actually be stopped without taking effect for at least some period of time, given the requirements for Notice and Comment periods before a new-new rule could be issued. Also in the news this week was the announcement that the original robo-advisor Betterment is raising fees substantially (by 67%) on its larger accounts over $100,000, and rolling out a series of human advisor service models (at even higher price points), as the robo-advisor definitively pivots away from its "pure" robo roots; and an announcement from TD Ameritrade that its new Veo One platform is live, along with a new iRebal Model Marketplace that could substantially shake up the landscape of current "robo" and TAMP providers.

From there, we have a few technical planning articles, including a new retirement study from Wade Pfau comparing the equity risk premium to annuity risk pooling as a means to fund retirement, another new retirement study from the UK finding that the "U-shaped" retirement spending path (where retirees spend more on active lifestyle in their early years, and more on medical/long-term care expenses in their later years) isn't substantiated by the actual data on retirees (which shows that real retirement spending just flat-out declines every year throughout retirement), and a look at a new approach to helping parents plan for college expenses by determining an amount that the child is "pre-approved" to spend on college before even beginning the process (which avoids awkward situations where the family tries to figure out how to afford an unaffordable college after already being accepted, when it's hard to back out).

There are also a couple of practice management articles this week, from a look at why just delivering great service isn't enough to get client referrals and good client satisfaction (and why your "great" service has to be articulated in a client service standard), to a discussion of all the ways that advisors lose out on prospects before ever having a chance to meet with them, and an exploration of the different ways advisory firms are beginning to shift towards a younger generation of clientele (from forming full-family teams, to cultivating "intrapreneurs" that create a firm-within-a-firm to serve younger clientele).

We wrap up with three interesting articles: the first is a fascinating look at what exactly causes us to procrastinate, and what the behavioral research says are the best techniques to overcome it; the second provides tips on how to be (and remain) productive in what is often an unproductive work/office environment; and the last is a great reminder of how the path of success can actually be the very thing that causes us to lose focus on what made us successful, and how to take a pause and re-set what your focus should be (and what you want it to be), both in your work and in your life.

Enjoy the "light" reading!

Betterment Raises Fees And Pivots To Platform Offering Human Advisors

February 2, 2017 07:42 am 8 Comments CATEGORY: Technology & Advisor FinTech

Since they first emerged nearly five years ago, the widespread belief has been that robo-advisors will ultimately cause fee compression amongst human financial advisors, as the process of implementing a diversified asset-allocated portfolio becomes increasingly commoditized. However, it turns out that in the pricing game of chicken between robos and human advisors, it's actually the robo-advisors that are turning first.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss this week's blockbuster announcement from Betterment that they will no longer be "just" a robo-business, are instead are pivoting to offer human financial advisors, and are raising their fees in the process!

Specifically, while Betterment will still maintain a 25bps advisory fee for its core digital business, the company announced that for accounts over $100,000, fees are being increased from 15bps to 25bps (a whopping 66% price increase for large accounts paying the "old" rates!), and large accounts will also have the opportunity to use Betterment Plus (offering an annual meeting with a CFP professional) for 40bps, or Betterment Premium (offering year-round access to a team of CFP professionals) for 50bps, or can be referred to the new Betterment Advisor Network (at whatever rate the outside advisor charges, plus the 25bps Betterment for Advisors platform fee).

The announcement that Betterment is pivoting to increase their fees and add new human advisory services is the most direct acknowledgement yet of the sheer unsustainability of the original robo-advisor model. Instead, Betterment has shifted to mimic its more successful competitors, including Personal Capital, Vanguard Personal Advisor Services, and the recently announced Schwab Intelligent Advisory - none of which are actually robos at all, but rather tech-augmented human advisor platforms.

Ultimately, though, Betterment's shift to offer a layer of human advice still isn't necessarily about staking a competitive position against (other) human advisors. Instead, it's a shift to become a platform business that compete with the likes of Schwab, Fidelity, and TD Ameritrade. After all, if the scaled human advice is merely offered "at cost", then Betterment effectively earns 25bps of fees regardless of where clients go - whether it's Betterment Digital, Plus, Premium, or the Advisor Network. It's no longer about getting the clients, per se, but simply being the platform where the clients go for whatever solution they choose.

Yet, there is still a question of whether Betterment will actually be able to compete in this space at all. After all, the irony is that now the "robo-advisor" is actually the higher priced offering, as the new Betterment Premium service is almost double the cost of the competing Schwab and Vanguard alternatives, with 5X to 10X the minimums! Which means Betterment faces a challenging uphill marketing challenge, for which the quintessential robo-advisor differentiator - low cost - is no longer in their favor!

The bottom line, though, is simply to recognize what a profound shift Betterment has made, and one that I think marks the ultimate demise of the pure B2C robo-advisor. For better or worse, Betterment is now trying to reinvent a modern version of the old-school investment platform – akin to Schwab, Fidelity, and TD Ameritrade – serving both consumers and advisors, but doing so with what it hopes will be recognized as superior technology. Which means the "robo" technology is still here to stay... though ironically for Betterment, the challenge remains what it has always been - whether they can market themselves and attract assets fast enough to hit critical mass, or succumb to the challenge of the financial services industry's brutally high client acquisition costs!

Behavioral Biases And The Hierarchy Of Retirement Needs

February 1, 2017 07:01 am 17 Comments CATEGORY: Retirement Planning

A growing base of research shows that even though money itself is fungible, the way we think about our various money assets is not; instead, we tend to “mentally account” for money into various buckets of current income, current assets, and (assets for) future income. The fact that we tend to categorize our income and assets into various buckets helps to explain the popularity of so-called “bucketing strategies” for retirement income, whether segmented by time (short, intermediate, and long-term needs) or type of spending (essential vs discretionary needs).

However, the research also suggests that the way we mentally account for income and assets also has an intrinsic hierarchy of priorities – first, we need to cover our current income needs, then our current assets, and finally our savings towards future income needs (ideally, with some potential for further upside and the possibility that our future income could continue to improve over time).

The significance of this “hierarchy of retirement needs” is that it helps to explain why some types of retirement income strategies like annuitization are very unpopular (despite the fact that retirees routinely state their biggest fear is outliving their retirement assets and annuitization can guarantee that will never happen), while others are used far more often even if their current guarantees are inferior to available alternatives (e.g., most guaranteed living benefit riders on today’s variable annuities).

However, perhaps the biggest caveat to the hierarchy of retirement needs is that if retirees must satisfy a desire for current income, and future income, and have liquid current assets available, they may actually feel compelled to save more for retirement than they actually need (even if there is no desire to leave a legacy behind). After all, it “should” be sufficient to just save for future and current income, without a separately holding of liquid assets; nonetheless, recent research finds that the amount of “cash on hand” (or at least, liquid bank holdings) a person has is directly (and positively) related to their self-reported well-being and life satisfaction, even if they didn’t have a financial need for it. Nonetheless, if the need for future income cannot be achieved until the need for current assets has been mentally satisfied first, retirees may continue to feel constrained by not having enough – even if they do – and/or to choose retirement income solutions that are mechanically inferior but psychologically more satisfying to our hierarchy of retirement needs!

#FASuccess Ep 005: Mark Tibergien On The Rise Of The Professionally Managed Financial Advisory Firm

January 31, 2017 07:00 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back for the fifth episode of the Financial Advisor Success podcast!

One of the things I'm enjoying the most about this podcast is that it gives me an opportunity to reach out to people I've admired for their expertise throughout my career, and invite them to be a guest and share their insights with all of you.

And today's guest is a perfect example: Mark Tibergien. Most people today know Mark as the CEO of Pershing Advisor Solutions, a major – albeit slightly less known – RIA custodian that competes with Schwab, Fidelity, and TD Ameritrade, particularly for larger RIAs that focus on serving an ultra-high-net-worth clientele.

But I first became familiar with Mark's work in his prior role – as a Principal for Moss Adams, where for almost 15 years, he led their practice management consulting group for advisors, and pioneered the first financial advisor benchmarking studies going back to the 1990s. In fact, I don't think it's a stretch to say that Mark is the godfather of financial advisor benchmarking and practice management consulting!

In this podcast episode, you'll hear Mark tell his own story of how he landed in financial services after starting out as a journalist, and share his collective 30 years of knowledge on practice management, as we cover everything from the four stages of an advisory practice – which Mark calls the "wonder, blunder, thunder, and plunder" phases – to the walls that advisory firm owners will hit as the business grows, and why standardization of the firm doesn't commoditize its value but actually makes it feasible to better offer the client a customized experience! And be certain to listen to the end, where Mark shares his own perspective on where he sees the financial advisory profession going in the coming years, and where the challenges and opportunities are.

So whether you're an experienced financial advisor and business owner trying to figure out how to take your firm to the next level and get over a wall, or are newer to the business and trying to figure out your own career/business trajectory, I hope you enjoy this latest episode of the Financial Advisor Success podcast!

Financial Advisor Checklists To Enhance The Client Meeting Prep Process

January 30, 2017 07:02 am 3 Comments CATEGORY: Practice Management

Client meetings are one of the most important touchpoints we as financial advisors can have with our clients. A well-executed client meeting is an opportunity to build clients' trust and confidence in us. And one of the best ways to ensure the meeting is well-executed is through preparation. The caveat, though, is that the more clients we have, the less time there is, and the harder it may be to ensure that a thorough process is in place for preparing for client meetings... which can lead to a feeling of always scrambling from one client meeting to the next, struggling to keep track of all the relevant details of each clients' situation.

The way forward through this challenge is to systematize the process using checklists, which both help to ensure that nothing slips through the cracks, and makes it easier to free up time by delegating key preparation tasks. In this guest post, Teresa Riccobuono of Simply Organized (a professional organizer who consults with financial advisors about how to get more organized by creating systems and process!) shares some of her own thoughts, tips, and best practices for creating a client meeting prep process, as well as some templates to get started with your own meeting prep checklists.

And so whether it's creating checklists regarding the preparation of tasks related to financial planning, investment management, administrative tasks, timelines to coordinate staff preparation, or even planning for follow-up items in advance... the reality is, checklists can help you stay on top of your client meeting prep process and deliver a higher level of service to your clients that will make you more referable. So if you're looking for ways to improve your meeting prep process and get more marketing value out of impactful client meetings, I hope that you find this guest post from Teresa to be helpful!