Kitces.com - Advancing Knowledge in Financial Planning

The Latest In Financial Advisor #FinTech (November 2016)

December 5, 2016 07:01 am 2 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the November issue of the latest news in Financial Advisor #FinTech – where we look at the big news announcements, and the underlying trends and developments that are emerging, in the world of technology solutions for financial advisors!

This month's edition kicks off with a slew of news around the shifting "robo" landscape, from yet another ETF provider investing into a robo solution as a distribution channel, to growing competition in the B2B channel about what it really takes to win enterprise robo-advisor-for-advisors contracts, and the ongoing struggles of retail B2C robo-advisors as Wealthfront's founder Andy Rachleff returns to take the reins of the company as it falls behind competitors with lagging growth.

From there, highlights include:

BrightScope is acquired for $35M+ by Strategic Insight (but primarily for its 401(k) data and analytics, not its AdvisorPages solution).
RiXtrema launches FeeComp, a new advisory fee benchmarking solution in anticipation of DoL fiduciary.
Vanguard announces plans to launch a FinTech "Innovation Center" incubator in downtown Philadelphia in 2017.
Quovo's new Account Authentication API could make it the new glue that holds together advisor "robo" solutions.
Is financial planning software about to become a new insurance and annuity distribution channel?

You can view analysis of these announcements, and more trends in advisor technology, in this month's column, including a look at who's winning enterprise "robo" tech deals (SigFig and NextCapital are up, while FutureAdvisor may 'suddenly' be starting to lag), how broker-dealers are trying to reinvent themselves as tech platforms (in an already crowded landscape), and what advisors should watch out for amongst today's popular advisor website design companies!

I hope you're continuing to find this new column on financial advisor technology to be helpful! Please share your comments at the end and let me know what you think!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading for Financial Planners (Dec 3-4)

December 2, 2016 02:39 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's leading news is that the Department of Labor has won yet another of its cases on the fiduciary rule, as indexed annuity provider/distributor Market Synergy Group has failed in its attempt to have the rule blocked or repealed. While there are still many cases left to resolve, and the potential for appeals, the DoL going 2-for-2 in the past month is a promising sign that the fiduciary rule may be here to stay.

From there, we have several practice management articles this week, specifically around the hiring and compensation process that often comes at the end of the year, from a look at when it makes sense to hire another advisor, to the importance of creating a career track and compensation plan for employees (which is better than the "compensation crisis management" approach of only addressing the issue when an employee reports he/she is about to leave!), and a look at how firms are starting to formulate career tracks and long-term compensation plans to retain the best talent.

We also have a few more technical planning articles, including: a reminder to look at potential year-end capital gains distributions from mutual funds and whether clients should switch to another investment before the distribution happens; how HSAs are starting to gain real momentum (but disproportionately amongst "older" workers aged 55+, who may be contributing to the HSA more as a retirement supplement than simply to cover upcoming health insurance deductibles as originally intended); factors to consider when a client has a potential NUA distribution; and how lifetime immediate annuities can still make sense, even in a low-yield environment, because the reality is that the annuity "income" is actually a combination of interest, principal, and mortality credits (which means interest rates alone only play a moderate role in setting the payouts).

We wrap up with three interesting articles: the first is a look at Julie Littlechild's research on how when advisors make personal breakthroughs in their business, it tends to follow a consistent three-stage process to change; the second is a reminder that while lots of us have work and obligations to do, the greatest success comes to those who are initiators, getting ideas off the ground and going above and beyond the bare minimum required; and the last is a fascinating look at the research showing that most of us have tens of thousands of thoughts that flitter through our heads all day, of which a whopping 80% are negative... which means our success will be determined heavily by our ability to silence the voices and change our beliefs and focus on the positive that allows us to really move forward.

And be certain to check out Bill Winterberg's "Bits & Bytes" video at the end, which this week includes coverage of WisdomTree's $20M capital investment into robo-advisor-for-advisors Vanare (which is also rebranding to AdvisorEngine going forward), a favorable review of new financial planning software provider RightCapital, and an inside look at the capabilities of portfolio performance and accounting software challenger Addepar.

Enjoy the "light" reading!

Do You Need A Big Firm Brand To Succeed As A (New) Financial Advisor?

December 1, 2016 08:01 am 3 Comments CATEGORY: Personal/Career Development

Financial planning is an intangible service that is hard for most consumers to evaluate (at least, until they've actually been through it). And because of the uncertainty about whether the advisor will provide good financial planning value, perceived trust plays an important role in choosing a financial advisor. Yet, most advisors have few credible ways to convey trustworthiness, particularly when getting started - and as a result, will often choose to work for a large well-established firm, in the hopes of leveraging the big brand of a large firm to increase their perceived trustworthiness and ultimately win more clients.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore whether it's really necessary to have a big firm brand in order to succeed as a new financial advisor, and whether choosing to affiliate with a well-established national firm is really still the asset it once was.

Because while it's true that a well-known national financial services brand can lend credibility to advisors - especially for new advisors - and help them build trust with their clients, as we've seen following the most recent financial crisis, a firm's brand may become a liability as well. This is particularly concerning given that changes to a large firm's brand are almost always out of an advisor's control, even though the advisor's business may suffer the consequences.

Fortunately, the reality is that for most advisors, the importance of a firm's brand will diminish with time. While clients may initially rely it as the basis for their trust, after gaining experience working with an advisor, client trust begins to shift from the firm to the specific advisor they are actually working with. This shift helps to explain why most advisors still retained most clients (even if they worked at a large firm whose reputation was sullied by the financial crisis), and similar is why most advisors who go independent (to a firm without a known consumer brand) still end out retaining most of their clients.

Fortunately for advisors who may have no desire to work for a big firm, there are other methods for developing trustworthiness as well. Having an effective website, and maintaining professional appearance and conduct, really matter when clients don't have many other indicators of trust to rely upon. And independent advisors can and often do leverage the brands of their RIA custodians - most of which are national consumer brands as well. But ultimately, the "fastest" way to build a trusted brand is still through the development of a niche. Because the reality is that most individual independent advisors will never have the potential to become a nationally known consumer brand... but it is possible to become the known, liked, and trusted expert in a particular niche community in just a few years, which is more than enough for one advisor to build a successful practice!

Understanding The 2017 Income Tax Reform Proposals: President Trump Vs House Republicans

November 30, 2016 07:01 am 50 Comments CATEGORY: Taxes

(Note: For an updated discussion of the final 2017 GOP Tax Plan, see Individual Tax Planning Under The Tax Cuts And Jobs Act Of 2017.)

With the Republican clean sweep of both the White House and both houses of Congress, momentum is building for 2017 to be a major year of tax reform, both for corporations, and for the individuals that financial advisors work with.

Accordingly, in today’s blog post, we delve in depth into both the likelihood of individual tax reform itself, and the details of the proposals from both President Trump, and the House Republicans. In fact, a deeper look reveals significant differences in both the style of tax reform between the President and House GOP proposals, as well as the deficits they imply – which itself could actually prove a stumbling block to getting legislation passed.

Nonetheless, both proposals would drastically simplify the tax brackets, from the current 7 tiers of tax rates, down to just three: 12%, 25%, and a top rate of 33% that kicks in at $225,000 (for married couples, or $112,500 for individuals). Both proposals would still keep preferential rates for capital gains and qualified dividends, although President Trump would retain the current 3 brackets (0%, 15%, and 20%), while the House GOP would simply make the rates 50% of the ordinary tax bracket (which means investment income would be taxed at 6%, 12.5%, and 16.5%).

However, when it comes to deductions, the proposals diverge substantially, with the House GOP suggesting the elimination of virtually all individual tax deductions except the mortgage and charitable deductions (paired with an expanded standard deduction), while President Trump would keep all the current itemized deduction rules, but cap itemized deductions (at $100,000 for individuals, or $200,000 for married couples) while also expanding the standard deduction even more (so only a moderate subset of people between the standard deduction and the cap would ever itemize at all).

Given all these differences, it remains to be seen whether individual tax reform will really happen in 2017, and whether key parts are compromised or delayed to accomplish corporate tax reform instead. In addition, despite now being the minority party in both the House and Senate, the Democrats still retain the ability to filibuster legislation, which will further limit the ability of Republicans to engage in permanent tax reform without compromising some concessions to Democrats. Or alternatively, the Republicans could ultimately pass individual tax reform as budget reconciliation legislation… which, under the Byrd rule, would have to sunset by December 31^st of 2026, setting up a reprise of President Bush’s infamous sunset provision on his signature 2001 tax reform!

Nerd’s Eye View Late-2016 Reader Survey – Your Input Is Requested!

November 28, 2016 07:01 am 0 Comments CATEGORY: Nerd's Eye View

Here at the Nerd’s Eye View, we're always looking for opportunities to make the site and its content a more valuable financial planning resource. Over the years, our regular reader surveys have shaped everything from the visual design of the blog (e.g., making the font size bigger than the tiny size it was when we originally launched!), to the expansion of our Members section to offer webinars and CFP and IMCA CE content, the frequency of the content we publish, and more!

The rapid growth of the blog has been a wonderful affirmation from all of you that we're getting at least a few things right, but I know there's always more we can do to make this even better. And in fact, now that the site (and our staff resources) have grown, we're trying to iterate even faster to make improvements for all of you. As a result, we're accelerating our usual annual reader survey to become a semi-annual survey - and with 2017 coming up, we're anxious for your feedback about what we should be working on for you in the coming year!

And so regardless of whether you're a financial advisor, a related professional that works with financial advisors, someone associated with a vendor who serves advisors, or you're simply an individual consumer who reads this blog for your own benefit, or a member of the media who follows the Nerd's Eye View for story ideas, I hope you'll take a few minutes to answer this survey. It's only 10 questions, should take no more than a few minutes, and will remain open until the end of next week (December 9th).

Thanks in advance for clicking through to take this survey, and for sharing your feedback! 🙂
Read More...

Weekend Reading for Financial Planners (Nov 26-27)

November 25, 2016 01:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a growing number of advisor surveys showing that more and more advisors are worried about losing clients over their fees... even though there's little evidence to show that any material number of advisors actually are losing existing clients over their fees. Also in the news this week is an announcement from the CFP Board about changes to the CFP CE rules, which won't impact most people, but will have consequences for those who earn CE by teaching, writing, giving presentations, or self-reporting CE credits from non-registered CE sponsors.

From there, we have a few marketing and technology articles this week, from how to create incentives that build your digital marketing email list, to the most common mistakes that advisors are still making when it comes to social media marketing, how to set up an online calendar scheduling tool on your website (and why it matters), and some interesting thoughts from Joel Bruckenstein on the state of financial advisor technology and where it still needs to improve.

We have several practice management articles as well, including: the 7 phases of the client experience as someone moves from prospect to client to referrer (and the issues to consider at each stage to help clients move forward); tips to become a better listener to clients (and what it really means to truly listen effectively); and common myths about getting client referrals (e.g., that asking more for referrals is the best way to get more, when in reality it usually is not helpful at all).

We wrap up with three interesting articles: the first is a look at five different "types" of retirement, as the very nature of retirement itself morphs from the traditional work-save-retire to aggressive early retirement, part-time permanent semi-retirement, and various forms of on-again-off-again temporary retirement; the second is a review of a new white paper suggesting that the classic "active management is a zero sum game" paper by Bill Sharpe may be flawed and that there is probably at least some slight positive sum for active management (at least, before fees); and the last is a look at another study trying to quantify the value of financial advice, finding that an advisor can add a whopping 3.75% of value... with the caveat that more than half the value is simply helping the client not harm themselves.

Enjoy the "light" reading!