Kitces.com - Advancing Knowledge in Financial Planning

Getting New Clients By Building A Narrowcasting Platform On Your Financial Advisor Website

February 29, 2016 07:01 am 15 Comments CATEGORY: Marketing

Financial Advisor Website Design Checklist pdf image

In today’s increasingly competitive financial planning landscape, it’s becoming harder and harder for advisors to differentiate. Yet as the world of financial advisors gets more crowded, arguably the biggest problem is simply being seen in the first place. After all, if a prospective client doesn’t even know you exist, there’s never an opportunity to even try to differentiate yourself!

In his recent book entitled “Platform”, author Michael Hyatt makes the case that the rise of the internet has created a unique new way to try to stand out from the crowd and be seen – not by trying to network and get referred to one potential new client at a time, but by building an entire “platform” that can showcase your expertise, and create opportunities for prospective clients to find their way to you. In other words, don’t just wait for referrals to come in (or ask for them); instead, build a platform that makes your expertise referable and attracts potential clients to you.

Notably, though, the biggest caveat to building a successful financial advisor platform is simply to be certain it’s built upon a solid foundation in the first place. Which means owning your own domain name, the site itself, and all the content that’s on it – your digital real estate. And whatever you do, don’t just share your expertise on other websites – from LinkedIn Publishing to third-party Q&A sites – which ultimately just build the value of their platform, rather than your own!

Weekend Reading for Financial Planners (Feb 27-28)

February 26, 2016 02:49 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a new industry study from PIABA that finds a whopping 1/3rd of all FINRA arbitration settlements went unpaid, often because the related brokerage firms were undercapitalized and underinsured to be able to make good on any client harm that might have been caused (which is, notably, an issue for many RIAs as well!). Also in the news this week is a recap on the total merger and acquisition (M&A) activity for independent RIAs in 2015, which found a 37% jump in deals and a veritable 'explosion' of mega-RIA ($5B+ AUM) transactions (as well as a growing number of small-to-mid-sized advisory firm acquisitions).

From there, we have several practice management articles this week, including: a discussion of the slowly growing trend of compensating employees in advisory firms with equity as compensation; how to grow an RIA firm with formal paid-solicitor referral agreements (and the applicable compliance rules to consider); the importance of considering not just what your advisory firm value proposition is, but whether you're effectively demonstrating and reminding clients that you're actually delivering on it; and a look at the growing issue of advisory firms struggling to deal with their clients impacted by dementia (and how ultimately the advisor may be in the best position to help clients and their families through such situations).

We also have a couple of technical articles this week, from a discussion of how many Social Security Administration offices are mishandling or outright refusing to process file-and-suspend requests ahead of the looming April 29 deadline before the rules change (such that the SSA had to issue an "Emergency Release" last week to provide guidance for its field offices), to a deep dive into Fidelity's Health Care Cost Estimate for retirees, and how the growing demand for securities lending for hedge fund short sellers is becoming so profitable that a number of small-cap ETFs are now beating their indices and effectively have a negative expense ratio (where the short-sellers "pay" the investor a positive fee just to invest in the index fund!).

We wrap up with three interesting articles: the first looks at a time management strategy of deliberately scheduling meetings and conference calls to last 30 minutes (where possible), as the compressed time can actually force people to be more productive and focused; the second is a look at the growing volume of research suggesting that "dressing up" for work can actually help you be more successful (as it both increases our self-confidence, and may positively impact others' perceptions of us); and the last is a nice remidner that just as many of us have morning rituals to get our days started, it's equally important to have an evening wind-down ritual to wrap up the end of your day in a positive way!

Enjoy the "light" reading!

Will Congress Someday Repeal The Tax-Free Roth IRA Promise?

February 25, 2016 12:04 pm 29 Comments CATEGORY: Retirement Planning

Periscope Office Hours Cover Image February 24 Will Congress Someday Renege on the Tax Free Roth

The Roth IRA has become immensely popular in the nearly 20 years since it was first created - driven no doubt by its favorable tax-free treatment for all growth spent in retirement. From Roth IRA contributions, to Roth conversions, or Roth 401(k) and other employer retirement plans, there are more and more ways to get money into a Roth.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at the issue of whether retirees may be banking on too much of a good deal, though, and whether Congress might someday repeal the tax-free Roth treatment and renege on the Roth promise. Should retirees hedge their bets against a future tax law change?

Fortunately, the reality is that while repealing tax-free Roth treatment is legally possible for Congress to do, it is politically unlikely. Not just because it would be immensely unpopular with active senior voters, but also because eliminating Roth treatment actually scores very poorly in Federal revenue projections, due to the 10-year budgeting process that is typically used to analyze major tax law changes.

Notwithstanding this, however, the odds are still good that some "crackdowns" and loophole closers do come for Roth accounts soon. Potential changes include introducing Required Minimum Distribution (RMD) obligations to Roth IRAs for those over age 70 1/2, the elimination of the stretch Roth IRA for young beneficiaries, a cap on maximum IRA account sizes beyond which no new contributions are allowed, and the elimination of the so-called backdoor Roth IRA (which arguably is already risky if done too aggressively).

Of course, none of this entirely eliminates the value of contributing to a Roth IRA as long as your tax rates are low, but it makes the timing of when it's best to contribute to a Roth IRA (versus making a traditional IRA or 401(k) contribution and doing a Roth conversion later), more important than ever!

Retirement Date Risk – The Impact Of Sequence Of Returns Risk On Those Still Accumulating For Retirement

February 24, 2016 07:01 am 27 Comments CATEGORY: Retirement Planning

The conventional view of sequence-of-return risk is that it’s something retirees face as they take ongoing distributions from a retirement portfolio, and requires caution in the early years of retirement.

Yet the reality is that sequence of return risk is equally relevant for accumulators in the years leading up to retirement as well. The only difference is the problematic sequence is reversed – for retirees, the dangerous sequence is to get bad returns at the beginning (of retirement), while for accumulators it’s getting bad returns at the end (of the accumulation phase) that causes the problem.

In fact, the volatility of an accumulator’s portfolio can also be viewed as its “retirement date risk” – the danger that a planned date of retirement (or financial independence) may turn out to be later than originally expected, due to a poorly timed sequence of bad market returns. And as it turns out, the greater the volatility of the portfolio and reliance on growth, the greater the retirement date risk that goes along with it.

Accordingly, accumulators in the final years leading up to retirement may wish to proactively manage risk and reduce the volatility of the portfolio, specifically as a means to reduce the retirement date risk they face. Of course, getting a portfolio more conservative at the end of the accumulation phase may also force an accumulator to work slightly longer, or save more, to make up for the lower expected returns in those last few years. Still, for those who don’t want the risk of a much later retirement date, a decreasing equity glidepath leading up to retirement may be a very appealing retirement date risk management strategy!

Are Robo-Advisors Actually An Unregistered Investment Company… Along With Some Human RIAs, Too?

February 22, 2016 07:01 am 10 Comments CATEGORY: Practice Management

Traditionally, a registered investment adviser is in the business of providing investment advice to others, while a registered investment company – such as a mutual fund – exists primarily to invest in securities, often by pooling together the collective dollars of multiple investors.

Yet as technology makes it increasingly feasible for investment advisers to operate “efficiently” by formulating standardized model portfolios and implementing them uniformly for all clients, the question arises of where to draw the line between where investment advice ends and an (unregistered) investment company begins.

Rule 3a-4 of the Investment Company Act attempts to draw the line by stipulating that an investment adviser is “safe” from being deemed an investment company, as long as its portfolios are customized to individual clients, and the firm provides access to “personnel” of the advisory firm who are knowledgeable about the client’s account and how it is being managed.

Yet given the standardized investment portfolios of today’s robo-advisors, and the fact that most proudly state that they do not layer in the cost of a human advisor, the question arises of whether many of today’s robo-advisors even qualify for the Rule 3a-4 exception, or whether they really are operating as unregistered investment companies!

Notably, though, the issue is actually not unique to robo-advisors. The growing frequency of human (investment) advisers utilizing model portfolios and technology to implement them means some human-based RIAs may be running afoul of Rule 3a-4 as well. And if they’re not, ironically the shift of human advisors beginning to offer “robo” solutions to their clients could actually exacerbate the problem, if firms actually do so by eliminating direct human interaction with their clients!

Weekend Reading for Financial Planners (Feb 20-21)

February 19, 2016 02:01 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a new study out from Aite Group that finds the average CFP certificant is becoming significantly more successful than the non-CFP, with 40% higher average revenue in total and a whopping 70% higher average revenue per client as CFPs are showing themselves more able to attract higher net worth clientele.

From there, we have a couple of practice management articles this week, from strategies to create a retention plan for your advisory firm staff (ranging from bonuses to employee perks), to a checklist of the little things to consider in evaluating whether your physical office space is making a good first impression on prospective clients, and an interesting discussion from Mark Tibergien about whether much of the conventional wisdom about practice management trends for financial advisors is wrong (e.g., despite the buzz on "fee compression" the top advisory firms have actually been raising their fees by 5-10bps in recent years!).

We also have a number of advisor technology articles, including: the big news from the T3 Advisor Technology conference that Fidelity is launching "WealthScape" (which will include a new Fidelity proprietary portfolio accounting and performance reporting solution, in competition with Advent, Black Diamond, Orion, and others); a look at the evolving landscape of RIA custodian technology at Pershing, Schwab, and Raymond James; issues to consider for advisory firms looking to adopt e-signatures in the business; two new technology solutions that can help address compliance issues (including MyRIACompliance from RIA In A Box, and an about-to-be-launched RIAglass from MarketCounsel); and a look at how wirehouses have been reinvesting heavily into technology as well and are closing the gap on the independent advisor technology tools.

We wrap up with three interesting articles: the first is a discussion about how to explain that you're a fiduciary advisor, recognizing that raising the point about how other advisors are not fiduciaries could cause prospects to wonder about your own motives as well; the second explores the challenge that for most advisors, even if their ideal client showed up on their website to check them out, there's no way for the client to know they're the right fit; and the last explores the question of whether advisors are being hypocritical by insisting that "everyone" should have a financial planner to have a third-party perspective on their family financial issues, even as most advisors fail to pay for their own financial planner to get that very service to themselves.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, which this week includes highlights coverage of the Technology Tools for Today (T3) Advisor FinTech conference, including Riskalyze's announcement of a new "Check-In" feature, eMoney Advisor's new client experience portal, and the coming new wealth management platform from Fidelity called Wealthscape!

Enjoy the "light" reading!