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Weekend Reading for Financial Planners (Apr 11-12)

April 10, 2015 03:28 pm 18 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the launch of a new "outsourcing" partnership between Fidelity and FirstPoint Financial (a subsidiary of Mariner Holdings), where advisors can refer clients below their asset minimums to be invested and receive financial planning advice... for which the advisor can be paid a referral/solicitor fee of 35bps.

From there, we have a few interesting investment articles this week, including: an in-depth look at the various ways to invest in an S&P 500 index fund and how not all mutual funds and ETFs are the same; a look at whether legendary value-investor Benjamin Graham would have been a supporter of index funds (hint: yes!); a discussion of how, after several years of poor performance, this may be a breakout year for actively managed US equity funds because the necessary three preconditions for them to excel are present (at least after the first quarter); and an overview of the rapid rise of "liquid alternatives" as the hot new asset class, even though the reality is that most are actually not a new asset class at all but merely an active manager trading existing asset classes!

We also have several practice management articles, from a look at using client advisory boards to gather better feedback from clients to improve your practice, to the idea of using a "positioning statement" to explain why your business is unique/different instead of an elevator speech, to ways to find and leverage interns in your practice, and a wide-ranging interview in the Journal of Financial Planning with Caleb Brown of New Planner Recruiting about the current state of hiring, career tracks, and new financial planners entering the industry.

We wrap up with three interesting articles: the first explores how over the past 15 years, the number of jobs doing routine work has been in steady decline as technology and automation take over, but job growth continues to be robust for non-routine jobs that can't be easily automated (a bullish sign for financial planners working directly with individual clients!); the second looks at how technology is not only changing the world of financial advice, but also the advice we give to clients, as in the coming years we may no longer need to own cars (thanks to self-driving cars) or spend much on college (thanks to disruption from MOOCs) and estate planning could become a 5-generation-affair if longevity increases continue; and the last looks at a study of some of the common characteristics of the most successful advisors, including their focus on not only business goals but also the development of the team that supports them.

Enjoy the reading!

A Primer On Advisor Succession Planning Deals From The Buyer’s Perspective

April 6, 2015 07:01 am 12 Comments CATEGORY: Practice Management

For the past decade, the growth of advisory firms has led to a wave of hiring new planners, many of whom are ultimately anticipated to be the successor to the founding owner. And as time has passed, more and more are reaching the moment of transition when the successor actually does begin to buy into the practice; in fact, even in firms where the owners aren’t looking to exit anytime soon, it is increasingly common to add “junior partners” who will help to grow the firm going forward.

However, while a great deal has been written about the ways to sell some or all of an advisory firm from the founding owner’s perspective, there is remarkably little written to guide the prospective buyer of an advisory firm – which is especially problematic, as younger buyers are often in a position of more limited negotiating power and have less knowledge and experience in analyzing an offer (and may struggle even to just gather all the appropriate information!).

Accordingly, in today’s article, we look at the dynamics and issues to consider from the buyer’s perspective when evaluating an offer to buy in as a partner. If you’re in the position of being someone’s successor, hopefully this will be a helpful primer for you on the issues to consider. And even if you’re the one looking to sell your practice, the buyer’s perspective may be helpful as well!

Weekend Reading for Financial Planners (Apr 4-5)

April 3, 2015 03:45 pm 14 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a recent industry benchmarking study, finding that not only are advisors enjoying record levels of productivity (as measured by assets and revenue), but the average AUM fee actually ticked slightly upwards last year, despite the explosion of media coverage about "robo-advisors" and the alleged fee/pricing pressure they would begin to put on traditional advisory firms.

From there, we have a few interesting investment articles this week, including a fascinating discussion of investment liquidity (and a warning against assuming that any ETF will remain liquid if its underlying investments are not), the first blog post by former Fed chairman Ben Bernanke about why he thinks interest rates remain low (hint: it's not Fed actions, but sluggish economic growth that the Fed is merely mirroring), a look at how the popular Shiller CAPE ratio can be adjusted for changing historical trends in dividend payout rates (although the conclusion is still that markets are expensive even after the CAPE is adjusted), and a look at how due to bad market timing even the average value investor (in a value mutual fund) fails to capture the value premium (which in turn suggests it won't be arbitraged away anytime soon!).

We also have several more technical articles this week, including: a look at how the concept of retirement is evolving as the rather-arbitrary "traditional" retirement age of 65 comes increasingly into question; a look at how to decipher financial aid letters and what to watch out for to determine if a student's aid package is really a "good deal" or not; new estate planning tips and strategies for clients who once were exposed to potential Federal estate tax but are no longer (due to higher exemption amounts); and a discussion of Deferred Income Annuity (DIA) products and how they can be superior to more traditional Single Premium Immediate Annuity (SPIA) solutions.

We wrap up with three interesting articles: the first looks at the rise of Zenefits, a "robo-broker" in the employee benefits world that really does appear to be disrupting the status quo, though it is actually building its business with a strong technology component overlaid on top of human brokers who still consult directly with clients; the second looks at how the explosion of smart beta ETFs is also a trend of increasing robo-advised investment management as the majority of smart beta funds are implemented using computer algorithms; and the last is a lighter look at how to nail an email introduction in a world where most people are increasingly bombarded by a high volume of email.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the announcement by Schwab that its "robo-advisor" platform Schwab Intelligent Portfolios already has $500M of AUM, highlights of a recent review of Orion Advisor Services, and the LinkedIn acquisition of popular app Refresh.

Enjoy the reading!

Announcing CFP CE Credit For the Nerd’s Eye View Blog And A New Premium Members Section!

April 2, 2015 03:47 pm 7 Comments CATEGORY: Nerd's Eye View

At Nerd’s Eye View, the continued goal is always to make this an ever-more-valuable resource for our readers, and the financial planning profession at large. And over the years, your reader feedback has shaped everything from the look of the site, to the frequency of the content, the topics being covered, and more.

And in response to your continued feedback, we’re excited to announce today the launch of several new features and benefits for readers, including the availability of CFP CE credit for reading Nerd’s Eye View blog posts! That’s right, you will now be eligible for CFP CE credit for the content you’re already reading!

In addition, today marks the launch of a new premium Members Section of Nerd’s Eye View. Many of you have already long been subscribers of our newsletter service, The Kitces Report, providing in-depth advanced financial planning content (also eligible for CFP CE credit). Going forward, we will be slightly decreasing the frequency of The Kitces Report newsletter issues, but wrapping it into a broader Members Section, that will also include webinars and additional member resources you can use in your practice!

I hope you enjoy the new features and benefits! Thank you for your continued readership!

Understanding The Role Of Mortality Credits – Why Immediate Annuities Beat Bond Ladders For Retirement Income

April 1, 2015 07:01 am 25 Comments CATEGORY: Annuities

For retirees who don’t wish to take any market risk, one of the most straightforward retirement income strategies is to simply purchase a bond ladder that will provide the desired cash flows in each year of retirement. Ideally, the payments are secured out to an advanced age, “just in case” the retiree lives that long… with the obvious caveat that if the retiree doesn’t actually live that long, there will be a lot of money left over that “could have” been spent but wasn’t. But that’s simply the risk of an “unknown” retirement time horizon.

In the case of a (lifetime) annuity, on the other hand, the time horizon is known, at least in the aggregate – because with enough people, the mortality rate actually becomes highly predictable, even if it isn’t known exactly which people will pass away from one year to the next. Yet by knowing that at least some people will die each year, an annuity can pay out a portion of the funds that will have been left behind by those decedents, effectively providing larger guaranteed payments for the group than any one individual could have generated on his/her own.

These “excess” payments are known as “mortality credits”, and represent a unique contribution of (lifetime) annuities that simply doesn’t exist with an individual bond ladder. In fact, the potential for mortality credits means that, for any given maximum potential life span, annuities can actually pay out significantly more than what any individual could enjoy on his/her own, as the contribution of principal and interest and mortality credits will always be greater than the underlying principal and interest alone! Conversely, though, the benefit of mortality credits exists only by virtue of the fact that the other annuitants – and not the annuity owner’s heirs – will benefit from any unused funds that are left over; in fact, trying to protect against an annuity loss in the event of early death, and protect heirs, actually eliminates much of the benefit that annuities are meant to provide in the first place!