Kitces.com - Advancing Knowledge in Financial Planning

Weekend Reading For Financial Planners (December 16-17)

December 15, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week’s edition kicks off with the news that this week's round of public hearings on the Department of Labor's proposed new fiduciary rule featured fierce opposition from the brokerage and insurance industries – which, while unsurprising given those industries' stance against the DoL's previous fiduciary rule (which ultimately caused it to be struck down in court in 2018), nonetheless highlights the debate over what constitutes a relationship of "trust and confidence" that rises to a fiduciary standard, and whether broker-dealer representatives and insurance agents who hold out as advisors should continue to be regulated 'just' as product salespeople when they aren't actually giving advice.

Also in industry news this week:

Most businesses that operate in the U.S., including partnerships, LLCs, and corporations, will soon be required to report specific information on their "beneficial owners" to the Treasury Department – which notably includes all state-registered RIA firms, as well as potentially many businesses owned by clients of financial advisors
Pontera has raised $60 million in venture capital funding, highlighting the growing advisor demand for its technology for directly managing clients' 401(k) plan assets (while raising questions about whether its success will spawn future competition that could temper its growth expectations)

From there, we have several articles on practice management:

As organizations grow, employees often struggle with issues such as stretched capacity, skill gaps, and burnout, which makes it important for leaders to be attentive to the issues their employees face and to have solutions available to address those issues directly
Although performance reviews after a challenging year can be a difficult process, managers can help take them in a more positive direction by being clear about the company's future (and the employee's place within it)
For solo advisors, the decision of whether or not to hire an employee can be a difficult one, but hiring may be at least worth considering to ensure that clients can continue being served either in the event of an unexpected incapacitation or when they ultimately decide to retire

We also have a number of articles on retirement:

For people over age 70 1/2, making a Qualified Charitable Distribution from an IRA can have significant tax benefits – so much so that they're worth the often-cumbersome process required to make the contribution itself
Although bonds are currently an attractive option for retirement income given today's higher interest rates, immediate annuities can potentially provide even higher yields, making them worth considering for retirees who are likely to (at least) reach their life expectancy
Although many people focus on tax brackets when deciding which accounts to withdraw from in retirement, a strategy around managing the "effective marginal tax rate" can add material after-tax value to a client's retirement savings

We wrap up with 3 final articles, all about health and wellness:

How the true secret to so-called "Blue Zones" with high concentrations of people who live beyond 100 years old might not be diet, climate, or lifestyle, but bad data
How runners can improve their training and even race times by incorporating short interludes of walking into their run
How the science of the way our nervous system is involved with digestion can uncover the key to treating and preventing digestive disorders

Enjoy the ‘light’ reading!

Kitces & Carl Ep 127: Creating Value Through Presence (And The 50 Fires Podcast)

December 14, 2023 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Creating Value Through Presence (And The Fires Podcast)

In the world of financial advisors, tradition often emphasizes technical numbers, structure, and a firm focus on solving financial problems. However, in practice, forging a human connection – such as sitting around a fire and having a conversation, digging into emotions, feelings, and fears – and tying it to a client's mindset surrounding their financial priorities and goals can be a powerful way to encourage individuals to explore and reassess their perspectives on finances.

In our 127th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards delve into Carl's latest project – the "50 Fires" podcast. This project, in partnership with the creative team behind "The Big Bang Theory" and featured on Chip & Joanna Gaines's Magnolia Network, centers on 'campfire conversations'. In these sessions, Carl engages in heartfelt discussions with his guests about their personal relationships with money, with the goal of providing financial advisors with ideas for integrating meaningful communication prompts into their own client meetings.

While conversations between financial advisors and their clients often focus on the quantitative aspects of a client's financial life (e.g., balance sheets, investment portfolios, and retirement projections), "50 Fires" aspires to demonstrate how the qualitative aspects of a person's relationship with money can reveal personal values and priorities that provide an advisor with important situational context of a client's financial goals. Through these discussions, Carl explores the stories and wisdom embedded in religious beliefs and family practices, uncovering poignant experiences from recognizing one's socioeconomic status in junior high school because they only owned 1 pair of jeans, to symbolic moments like cherishing an unopened can of Coke because of its representation of financial prosperity in India. These narratives not only shed light on the root of a person's financial mindset but also help to understand their financial behaviors, revealing the deeper lessons learned from these experiences.

Additionally, these conversations underscore an important takeaway: clients often value the personal connections formed with their financial advisors that are based on discussions that go beyond sharing just financial concerns. While these intangible personal connections may be challenging to market, the ability to guide clients into meaningful conversations to identify the big goals and values they have regarding money is universally appreciated. Everyone has financial concerns and yearns for genuine connections with others, even when they may not be consciously aware of these things. And experiencing such a connection with a financial advisor can significantly enhance a client's willingness to engage in the financial planning process.

Ultimately, the key point is that the ability to successfully connect with prospects and clients on an emotional level, using soft skills to navigate their relationship with money, is crucial to build trust and develop stronger relationships with clients. Carl envisions "50 Fires" as a catalyst, providing the spark to ignite millions of genuine discussions about money around the world. This initiative aims to normalize everyday conversations about money while facilitating deeper connections with clients, potentially influencing not only their thought process around finances but also shaping the financial outlook of future generations!

Preserving HSA Eligibility And Maximizing Contributions After Age 65

December 13, 2023 07:03 am 0 Comments CATEGORY: Retirement Planning

Although numerous tax-advantaged vehicles are available for retirement savings, Health Savings Accounts (HSAs) have particular benefits for individuals saving for retirement. Specifically, HSAs offer a "Triple Tax Benefit" that includes tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. This can allow individuals to save a significant amount that can be withdrawn tax-free for medical expenses later in retirement. Therefore, for workers looking to boost their savings towards the end of their working years, HSA contributions can be the most tax-efficient vehicle available.

The caveat, however, is that to be eligible to contribute to an HSA, an individual must be covered by a qualifying High-Deductible Health Plan (HDHP) with no other non-HDHP coverage. And because government-funded health insurance options such as Medicare are not considered qualifying HDHP coverage, enrolling in Medicare – either directly through its website or by applying for Social Security benefits (which automatically enrolls someone in Medicare once they reach age 65) – means that an individual will no longer be eligible to contribute to an HSA.

For retirees, self-employed workers, and others who rely on Medicare as their sole option for health insurance after reaching age 65, this means there is effectively no way to contribute to an HSA after age 65. However, people who continue working beyond age 65 (or whose spouse does so) and have access to an employer-provided HDHP can continue making HSA contributions as long as they don't enroll in Medicare or apply for Social Security benefits. And because there's no age cap on HSA contributions, it's possible to keep contributing for as long as the person is still working and remains on a qualifying HDHP (although retiring and subsequently enrolling in Medicare will ultimately end HSA eligibility).

Advisors can help their clients who want to keep contributing to HSAs after age 65 by planning strategies that help to preserve their eligibility and maximize the amount they can contribute. For instance, if someone has applied for Social Security benefits and inadvertently enrolled in Medicare (which would make them ineligible for HSA contributions), they may be able to withdraw their Social Security application within 12 months and cancel their Medicare coverage to restore their eligibility – although doing so would require paying back any Social Security benefits actually received.

Additionally, when married couples have one spouse with HDHP coverage, the other spouse can enroll in Medicare without affecting the HDHP-covered spouse's HSA eligibility (and if the HDHP covers both spouses, one spouse can still contribute up to the higher family contribution limit even if the other spouse is covered by Medicare and ineligible to contribute to their own HSA).

And when someone working past age 65 does decide to retire, they will need to navigate the "6-month rule", where Medicare coverage is considered to begin 6 months before applying for benefits. This means the individual will need to plan carefully to calculate their maximum allowed HSA contribution to avoid inadvertently overcontributing to their HSA, since they may become ineligible for contributions well before they actually retire and apply for Medicare!

The key point is that while it's possible to contribute to an HSA after age 65, the specific rules around HSAs and Medicare introduce an additional layer of planning that's needed once an individual crosses the age-65 threshold. But given that the point of working past 65 is often to boost retirement savings, and given the tax-efficient benefits of HSAs as a retirement savings vehicle, the extra planning can ultimately be worthwhile on account of the additional tax-free savings for those who can navigate the challenges of doing so!

#FA Success Ep 363: Finding The Best Networking Approach For Prospects (And New Career Opportunities), With Christa Madison

December 12, 2023 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Christa Madison Podcast Featured Image FAS

Welcome back to the 363rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Christa Madison. Christa is the Managing Director of Financial Planning and Business Development at Sebold Capital, a fee-only RIA based in Chicago, Illinois, which manages $300M across more than 100 client households.

What's unique about Christa, though, is how she used her business development and networking skills to overcome the challenges that sprung up when, through a combination of personal and professional shifts, she found herself building her book of business from scratch, 3 separate times, and how she leveraged those pivots as an opportunity to account for how her own skills and competencies had changed and grow into larger (and more lucrative) opportunities.

In this episode, we talk in-depth about how Christa's start in insurance sales at Northwestern Mutual brought both successes in building a book of younger clients just beginning their career journeys, and challenges as she struggled to hit sales goals when her young clientele were more interested in starting Roth IRAs and didn't need much insurance yet, how Christa's intensive networking event schedule and simple but uniquely branded way of following up allowed her to feed into a '10-3-1' prospecting pipeline (in which on average, for every 10 prospects she approached, 3 were interested, and 1 became a client) and continually rebuild her book of business when she transitioned roles, and how despite her skillset at networking, Christa still found after having to start over 3 times that it takes 3 years, on average, for her prospecting to start to grow from scratch into its own robust referral network.

We also talk about how Christa overcame the unique challenge of maintaining professional momentum while building a family, which prompted her to step into contracting roles when she needed more flexibility and out of them when she needed more stability, how when faced with the need to find a new opportunity Christa leveraged her networking skills to find and then just walk into the lobbies of 20 local-area firms until she found one that was interested in hiring her (and got the job!), and the reason that Christa ultimately decided that as she approached her 3rd time building a book of business, she wanted to build it in the RIA channel instead.

And be certain to listen to the end, where Christa discusses why she feels that her background and early experience in the insurance channel made her a stronger financial advisor (and why she worries that advisory firms today may be underestimating the value of those experiences), how Christa's willingness to 'start over' as a paraplanner in a fee-only firm led her on the promotional fast-track to become the director of 2 departments, and how Christa found that no matter where she went, her people-first prospecting approach helped her grow a client base, especially amongst those in need of financial guidance who lacked support because they weren't 'top of the top' financial prospects for other financial advisors but were more than able to allow her to successfully grow her own practice.

So, whether you're interested in how Christa successfully navigated a reboot of her own career multiple times, how Christa adapted her services to meet the needs of young clientele who don't fit a 'traditional' client mold, or how Christa maintained career propulsion while her personal life demands evolved over time, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Christa Madison.

Announcing More Webinars And IAR CE In 2024 And The State Of The (Nerd’s Eye View) Blog

December 11, 2023 07:03 am 0 Comments CATEGORY: Nerd's Eye View

For most financial advisors, 2023 was a year of rebound and reinvestment, as markets bounced back from the turbulence of 2022, and expanded profit margins allowed advisory firms room to reinvest back into the services and value they're providing clients to make sure their retention stays strong in the future. Here at Kitces.com, we've similarly been in the midst of a reinvestment process in 2023, setting the foundation so that we can give even more back to the Financial Advicer community, as we continue to expand our "Team of Nerds" beyond just myself with more writers and more speakers, and develop and refine our Q-N-R standards to ensure that everything you get from Kitces.com is Quality, Nerdy, and Relevant… a standard for all Kitces content, even if it's not created by Michael.

And in the coming year, we're going to make sure that even more of that Kitces content is eligible for not only the full range of CE credit for CFP, CPA, and the other various professional designations, but also the ever-expanding IAR CE obligation. Which, thanks to the new rollouts in both California and Florida in 2024, will mean nearly half of all financial advisors who are IARs will need to fulfill the new IAR CE requirement in 2024… as once an advicer has half a dozen clients in any of the 17 states or the District of Columbia, they have to comply with the new IAR CE rules. And a lot of advicers have more than 5 clients in Florida!

In practice, this means that we'll be bringing back our popular IAR Ethics CE Day in 2024 (save the date for August 29th!), expanding IAR CE credits to apply to our monthly live webinars (in addition to our written blog content and recorded webinars), increasing the cadence of our webinars from monthly to offering 2 every month (on the 1st and 3rd Tuesday of each month… with the recording still available for those who can't attend live), and continuing to cross-apply our Kitces content for all the other types of CE you may need as well (so you can check all the boxes at once!). Though we are implementing a small $20/year increase (from $169 to $189 per year) in the price of the Members Section to help manage the cost of rising staff salaries in the midst of inflation over the past 2 years, and to further reinvest into our Platform team to make site improvements so our content is faster to load and easier to navigate.

In the meantime, we remain committed to delivering the ongoing cadence of content that you've become accustomed to from Kitces. In 2024 we'll again feature our Marketing Summit (save the date for April 25th!) and our Financial Planning Value Summit, we'll be rolling out 2 new Advicer Research studies (on Marketing and on Productivity, as we wrap up the 2023 study on Wellbeing in the coming weeks), and we'll be building a new Kitces Course on Optimizing Roth Conversions (to complement our course on Optimizing Social Security) to be released in mid-2024.

If you (or anyone you know) wants to join our Team of Nerds, stay tuned for more openings in 2024 as well, as we anticipate hiring a new Associate Financial Planning Nerd, an Operations Associate, a new Director of Product and Platform, and a Director of Advisor Research. We'll be listing these as they become available on our Kitces Career Opportunities page, or you can sign up for our separate Career Opportunities mailing list (via that Opportunities page) to be notified when new positions open up!

Ultimately, though, the focus remains the same as it always has been – on our mission to "Make Financial Advicers Better, and More Successful" – through our 4 strategic pillars of creating Navigational resources, insightful Education, original Research, and skills Development for financial advisors (and yes, our organizational strategy really does spell out N-E-R-D 😊). I hope you'll continue to come along with us on the journey in 2024!

Weekend Reading For Financial Planners (December 9-10)

December 8, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a new study from research firm Cerulli has found that investors' willingness to pay for financial advice has risen over the last 15 years, with more investors reporting using a financial advisor (and a decreasing share considering themselves "self-directed"), in spite of the proliferation of DIY investing options in the internet era – which highlights the value that advisors provide in giving advice on client's financial decisions beyond the investment portfolio itself.

Also in industry news this week:

In a new whitepaper, industry consultant Mark Hurley predicts that the environment for wealth management firms will grow much more competitive amid higher interest rates and greater PE funding of advisory firms, although opportunities exist for RIAs that can successfully attract and serve younger clients at scale
According to Charles Schwab's most recent Compensation Report, RIA firms are increasingly concerned about retaining their top talent, and seeking to articulate the value they provide to their employees in a written Employee Value Proposition document

From there, we have several articles on practice management:

As the pace of retirements in the RIA industry exceeds the number of experienced advisors who can replace them, advisory firms will need to focus on developing and training less-experienced advisors, or risk going to war with other firms in a competition for more experienced talent
Mergers and acquisitions activity in the industry has remained strong in 2023, defying expectations for a major slowdown as interest rates rise – and PE investors see more room for continued acquisitions as the pace of new firms being established exceeds the number of firms being acquired
A growing number of investors are buying minority stakes in RIA firms, which in theory could be a win-win in that it provides capital for firms to grow and scale while allowing the existing owner to keep their majority control; however, some minority owners may demand more of a say in how the company is run than majority owners may be willing to give them

We also have a number of articles on investments:

With cash and short-term T-bills providing positive returns over inflation for the first time in more than a decade, it can be tempting to "chill" in short-term assets for their risk-free return – however, history suggests that the relatively high returns of short-term assets (at least compared to riskier assets like stocks and longer-term bonds) aren't likely to persist for the long term
3 years after Dimensional Fund Advisors introduced ETF versions of its most popular investment strategies, it has become one of the biggest active ETF providers in the industry – although questions remain about whether DFA can keep pace with Vanguard and Blackrock's passive ETFs (which advisors can combine to implement their own DFA-like strategies, at a lower overall fee)
Investors in diversified portfolios have found themselves lagging the S&P 500 for over a decade, which serves as a reminder that the overall cost of diversification is missing out on the best-performing assets (while also avoiding the worst-performing ones)

We wrap up with 3 final articles, all about gift-giving:

How advisors can find unique gifts for their clients without going over the $100 limit for FINRA-registered broker-dealer representatives
How giving clients non-"stuff" gifts like experiences or donating to charities of the client's choice can be a powerful way for advisors to show their appreciation
Which "luxury" gifts high-net-worth clients might be buying as the holidays approach

Enjoy the 'light' reading!