U4 - Part 4

Weekend Reading for Financial Planners (Dec 21-22)

December 20, 2019 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 news that after months of delays, the SECURE Act is finally being passed as an extension of a year-end Congressional spending bill, opening up the potential for Multi-Employer Plan (MEP) 401(k) offerings and more annuities in defined contribution plans... and notably for most advisors, severely curtailing the use of the popular "stretch IRA" strategy to generally no more than 10 years (instead of the full life expectancy of a much-younger beneficiary).

Also in the news this week is the release of the results of the CFP Board's independent task force on enforcement that found "significant failures" in its enforcement processes that must be reformed in the future, and the news that the SEC is looking to expand the Accredited Investor rules beyond the current income and asset test (including, notably, a broad-based permission that would allow all financial advisors themselves with a Series 7 or Series 65 to participate as an Accredited Investor).

From there, we have several technology-related articles, including a look at how the growth of advisor technology for the past decade is reaching the point where now the primary challenge is that advisors have 'too many' choices (and not enough time to wade through options, evaluate how they'll integrate, and do due diligence on vendors), a review of the recent InVest West FinTech conference that is taking an increasing focus on not just UX (user experience) and CX (client experience) but also AX (advisor experience), and a review by Bob Veres of a new wave of "financial planning software" companies that are not producing comprehensive planning software but instead increasingly more specialized 'niche' solutions around everything from tax return reviews and tax planning to Social Security timing, Medicare, and other elder care planning issues.

We also have a few articles on marketing, from tips on how to diligently follow up with a prospect after an initial meeting (without being too pushy), to a reminder that in the end clients don't want to hear your story (as the advisor) but want to tell their story (as we all like talking about ourselves!), and some suggestions on how to handle that moment in a prospect conversation where they say "I'm sorry, I already have an advisor".

We wrap up with three interesting articles, all around the theme of gift-giving ('tis the holiday season!): the first looks at how from an economic perspective, gift-giving is remarkably inefficient (as people try to 'guess' what non-financial gift will provide the appropriate amount of satisfaction and relationship-building with the recipient, with one study estimating $13B per year of 'economic waste'); the second looks at the rise of experiential gifts, which may be compelling to the recipient but are exponentially harder to organize and 'give' in the first place; and the last explores recent research finding that when it comes to family and close friends, a sloppily-wrapped gift is actually better than a neatly-wrapped one (as it lowers the expectations of what's inside and is more likely to have an upside surprise when opened!), but for more distant acquaintances it's still important to neatly wrap the gift (as an expression of your commitment to the burgeoning relationship)!

Enjoy the 'light' reading!

Paying Cash For Client Referrals: The Patchwork Of State & Federal Solicitor Rules

May 27, 2019 07:08 am 10 Comments CATEGORY: Regulation & Compliance

With the increasingly competitive environment to attract new clients – especially those with sizable portfolios available to manage – more and more advisory firms are beginning to spend money on their business development efforts. Either to engage in outbound marketing and advertising, to run “client appreciation events” that encourage existing clients to bring a friend to refer, developing relationships with centers of influence who can provide referrals… or just outright paying for referrals with upfront cash or ongoing revenue-sharing agreements.

The challenge, however, is that paying for referrals can potentially work too well – creating a conflict of interest for the referrer themselves, that may cause them to recommend the advisor regardless of how appropriate the fit is for the person being referred, or even the quality (or lack thereof) of the advisor themselves. Accordingly, the SEC instituted Rule 206(4)-3, which places relatively stringent regulatory requirements on solicitor relationships, from the disclosures that must be provided to potential clients, and the fact that solicitors themselves often must become "registered persons" as well.

In this guest post, compliance attorney Chris Stanley provides an in-depth look at the evolution of the SEC’s Solicitor Rule, the exact requirements for someone to qualify as a solicitor, what must be disclosed to prospective clients (and when, and how) when there is a solicitor arrangement, and the patchwork of state rules for determining when the solicitor themselves must also become registered as an Investment Adviser Representative (IAR).

The starting point is simply to understand that the Solicitor Rule may apply anytime someone is paid for a referral and applies even if the person being referred doesn’t actually become a client (i.e., is only ever a prospect). In order to be a referrer, the individual must not already have a problematic regulatory history (e.g., no felonies or misdemeanors involving investments), and the arrangement itself must be commemorated into a written agreement (though the exact requirements vary depending on whether the solicitor is only for a newsletter or other “impersonal” advisory service, is an “in-house” solicitor of the firm, or is a third-party solicitor). In the case of third-party solicitors, in particular, substantial disclosure requirements also apply, in addition to providing the RIA’s Form ADV Part 2, at the time the solicitation occurs.

In the meantime, most states will also require that the solicitor themselves become registered as an IAR, potentially necessitating a Series 65 exam, though notably, even for SEC-registered investment advisers, it’s ultimately a state determination of whether the solicitor must become registered. Which means even for the same RIA, solicitors in some states may have to be registered, while solicitors in other states do not. The rules also sometimes vary depending on the type of solicitor, and some other professionals – e.g., attorneys and accountants – may have additional requirements (or prohibitions) for soliciting based on their own professional standards of conduct as well. In addition, state-registered investment advisers must also look to their individual states for guidance, as the entire framework of the Solicitor Rule 206(4)-3 itself is a federal rule for SEC RIAs, and doesn’t actually apply to state RIAs that must follow their own state’s rules instead.

Of course, the caveat to this all is that revenue-sharing agreements for referrals can actually be a very “expensive” way to market for new clients in the first place. Nonetheless, for those who want to engage in the practice, it is permitted for RIAs to pay solicitors to refer clients… but there are a number of specific rules that apply and additional disclosures that must be provided. And with a recent SEC Risk Alert highlighting the SEC’s concern that RIAs are not fully complying with the disclosure requirements, in particular, it’s especially important for firms that are using (or are considering the use of) solicitors to comply with the rules.

Weekend Reading for Financial Planners (Oct 27-28)

October 26, 2018 02:55 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the interesting news that after several years of scandals, two Wells Fargo brokers are actually suing the company and claiming that because the company recruited them with forgivable loans but without disclosure of the impending scandals, that they shouldn't be required to repay the forgivable loans now that they're leaving the firm to distance themselves from Wells' damaged reputation (and potentially setting the groundwork for other brokers in the future to sue their platforms for scandals that impair their advisors' ability to attract and retain clients?).

Also in the news this week was a big "Diversity Summit" hosted by the CFP Board's Center for Financial Planning where the organization shared research about what financial services needs to do to improve its diversity (and stay relevant in a world where fewer than 3.5% of CFP certificants are black or Latino even though within 30 years people of color are projected to be the majority of the U.S. population!), and a look at a recent Cerulli research study finding that, notwithstanding industry buzz about fee compression, actual surveys to end consumers suggest that they are not nearly as fee-sensitive as most advisors fear (in part because consumers still aren't clear enough on the value of financial planning from different advisors in order to price-comparison-shop them in the first place!).

From there, we have a number of retirement planning articles, including a look at end-of-year IRA tax planning strategies (from partial Roth conversions to Qualified Charitable Distributions from IRAs), an analysis of the so-called "Tax Torpedo" (when the taxation of Social Security benefits phases in, and retirees are temporarily boosted from the 24% tax bracket to a 40.7% marginal tax rate), and a review of some lesser-known-but-still-important IRA tax rules... from how the once-per-year 60-day rollover rule can impact spousal IRAs, to the fact that while inherited IRAs cannot be converted to a Roth account, inherited 401(k) plans can be (but are still not as appealing to convert as an individual's own IRA and 401(k) accounts!).

We also have several articles specifically on referrals, including a reminder that how you initially respond to the person who makes the referral can have a significant impact on whether you get any more referrals from them in the future, to what to be wary of so you don't turn off an otherwise-warm referral lead, and why it's important to communicate how you will handle referrals that are not in your target market (so those who might refer to you don't have to worry about what happens if they refer a friend, family, or colleague who might otherwise be "rejected" by you and embarrass them in the process).

We wrap up with three interesting articles, all around the theme of how to more productive and find more energy in your day: the first looks at how to arrange your activities throughout the day to get the best results (complex work in the morning, creative work in the late afternoon!); the second draws on a big list of productivity tips from various experts in order to get things done more effectively; and the last is a fascinating look at the latest research from Tom Rath's "Are You Fully Charged?" about what it actually takes to bring more energy to your daily activities and literally feel more energized about what you do in the first place.

Enjoy the "light" reading!

#FASuccess Ep 063: Overcoming A Material U-4 Disclosure To Build A $125M AUM Advisory Firm with Kevin Kroskey

March 13, 2018 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome, everyone! Welcome to the 63rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kevin Kroskey. Kevin is the founder of True Wealth Design, an independent RIA based on Akron, Ohio, that has grown to nearly $125M in assets under management with 6 employees serving 160 clients, built over the span of the last 10 years.

What's unique about Kevin's practice, though, is that he's been able to persevere in building his practice despite what for many advisors would have been a "catastrophic" setback in his early career... the fact that in his mid-20s, just a few months after his first job at a broker-dealer, he went to prison for 17 months after the law finally caught up with him for selling ecstasy back when he was in college.

In this episode, we talk in depth about Kevin's journey, from starting out as a high school physics teacher straight out of college, to switching into the financial services industry by working at that independent broker-dealer in his mid-20s, then finding his entire career and life brought to a halt by his criminal conviction for selling ecstasy – despite the fact he had already stopped and left that life behind several years earlier and how he began the process of trying to rebuild a path back into the financial services industry after he got out, starting with a 3-year ordeal with multiple appeals just to try to get a license to become a mortgage loan officer as an ex-con, before finally switching to hang his shingle has an independent RIA.

We also talk about how Kevin actually built his advisory business, by falling back on his early teaching skills to begin doing local adult education classes on personal finances, borrowing money with a bank loan to be able to send out 10,000 mailers at a time to get participants in the class, and then slowly and steadily accumulating a client and asset base over time, supplemented in more recent years by trying to further establish himself more visibly in his community, including by writing a regular financial column in a local community newspaper.

And be certain to listen to the end, where Kevin shares his advice about what any advisor can do to try to persevere through the highly adverse challenges that can hit us in life, and how he handles the situation today when prospective clients still sometimes ask him about a crime that is still a felony disclosure on his U-4, despite being completely unrelated to the financial services industry, for events that happened in his life nearly 20 years ago now.

So whether you are interested in learning more about visibly establishing yourself within your community through writing, how advisors can address talking through disclosures with prospective clients, or are interested in how advisors can persevere through highly adverse challenges more generally, I hope you enjoy this episode of the Financial Advisor Success podcast!

Weekend Reading for Financial Planners (Aug 19-20)

August 18, 2017 02:01 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with a slew of announcements about major broker-dealer mergers and acquisitions, including LPL acquiring National Planning Holdings (and its four subsidiary broker-dealers) from Jackson National, Kestra acquiring H. Beck from Securian and Minnesota Life, and Cetera folding in Girard Securities from being an independent subsidiary broker-dealer into a regional super-OSJ instead... a sign that as DoL fiduciary implementation looms large, broker-dealers are feeling the pressure to merge for economies of scale, and insurers are simplifying their distribution by eliminating their captive broker-dealers altogether!

We also have several compliance-related news and articles this week, including the SEC's latest Risk Alert regarding the results of its Cybersecurity initiative for broker-dealers and RIAs, a separate announcement from the SEC that RIAs can delay some of the new Form ADV updates if they have any intra-year amendments to make after October 1st (though all RIAs will still need to comply when annual ADV season rolls around next spring!), and a look at what RIAs need to remember when hiring a new (experienced) advisor and going through the registration and compliance process of onboarding.

There are also a few advisor technology articles, including a look at the new technology initiatives rolling out from the leading RIA custodians as "advisor FinTech" becomes the primary differentiator for custodians, a look at the latest updates of the Capitect client portal (and increasingly, performance reporting and rebalancing) software, and a review of the Folio Connexion (AcX) platform that advisors can use to create their own white-labeled "robo-advisor-for-advisors" solution.

And given the summer vacation season, we wrap up with three articles all focused on how to better maximize your own vacation enjoyment: the first looks at whether a mandatory scheduled vacation policy is better than a flexible or open vacation policy when it comes to actually boosting employee creativity, productivity, and happiness; the second looks at why a 2-week vacation isn't actually any better than a 1-week vacation when it comes to boosting happiness; and the last provides some (research-backed) tips and tactics about how to actually maximize the happiness of your vacation experience... for those who still have a little summer vacation left, or perhaps are already beginning to look forward to their winter holiday vacations instead!

Enjoy the "light" reading!

Tips For Getting Your Series 65 License To Become An RIA

September 1, 2016 07:54 am 17 Comments CATEGORY: Client Trust & Communication

With the Department of Labor's fiduciary rule creating a push towards more levelized compensation, many insurance and investment product manufacturers are re-evaluating their commission structures, and a number of broker-dealers are re-evaluating their entire compensation structure as well. And a growing number of financial advisors are deciding that if the regulatory push is towards AUM (or retainer) fees, that they may as well just become (or join) a Registered Investment Adviser (RIA) directly. Which means in the coming year, there may be a surge of Series 65 exam takers.

And so in this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss tips for financial advisors to get their Series 65 license, and what to expect when going to sit for the Series 65 exam.

The good news is that because the Series 65 exam is heavily focused on knowing the underlying laws and regulations that apply to investment advice, it is primarily an exam of memorizing and recalling information. Which means people who are "good at test taking" will find it relatively easy, and for everyone else, it's still a manageable challenge, as long as you put in the hours to study.

In fact, because the Series 65 exam is so popular, there are a number of providers who offer Series 65 study guide materials, practice exams, and other educational content to help pass the Series 65 exam. In practice, the most popular providers appear to be Kaplan's Series 65 live review and practice exams, along with TesTeachers, and for those looking for the most affordable option, consider Robert Walker's "Pass The 65" book (and supporting practice exam questions as well).

Notably, though, the reality is that the Series 65 ultimately qualifies investment advisers to give advice about how to invest a household's cumulative life savings... which arguably means a 3-hour licensing exam alone shouldn't really be sufficient in the first place, and that advisors who are serious about helping their clients should go further, pursuing professional designations like the CFP certification as well. Fortunately, those who do pursue a professional designation, including the CFP marks, the ChFC, and the CPA/PFS, along with the CIC or the CFA, can actually get a waiver to skip the Series 65 exam altogether (though it's still necessary to complete the rest of the requirements to join an RIA as an IAR!).

But the bottom line is that the Series 65 exam isn't really much harder than other common industry licensing exams, like the Series 6 or the state Life and Health license. Most will take 2-4 weeks to study, spending about 20-30 hours, and pass the exam with its required 72% passing grade. Just be certain to spend the time it takes to study and really learn the material!

Weekend Reading for Financial Planners (Oct 10-11)

October 9, 2015 02:29 pm 25 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big advisor #FinTech announcement that Morningstar is acquiring the rebalancing software platform Total Rebalance Expert (tRx). Also in the news this week was the launch of a new advocacy platform (courtesy of TD Ameritrade) to make it easier for advisors to submit comments to their Congresspeople regarding advisory industry regulatory issues, and a new study from Cerulli suggesting that a whopping 25% of wirehouse advisors could leave for independent channels in the next 4 years as post-financial-crisis retention deals start coming up for renewal.

From there, we have a few practice management articles this week, including a discussion of the growing number of younger advisors looking to buy out the advisory firms of retiring advisors, an excellent article by Angie Herbers on the growth barriers that advisory firms face as their size (and complexity) increases, and an explanation of what "distributions-in-guise" are and why the SEC is cracking down on them (highlighted by a recent $40M fine against investment adviser First Eagle Investment Management).

We also have a couple of technical planning articles this week, from a new research study out of the Center for Retirement Research finding that one of the primary reasons people lapse their long-term care insurance policies is due to cognitive decline (a sad reality, as those are also the people most likely to need the coverage!), to a look at the concept of the "tontine" and why it may soon make a comeback as a retirement income solution, and a discussion of how market valuations not only tend to mean revert to historical average valuations to but mean invert to historical valuation lows (which has significant implications for forward market returns from today's valuation levels!).

We wrap up with three interesting articles: the first looks at the world of financial advice in the U.K., which implemented advisor reforms two years ago that included an outright ban on all investment commissions, and is now starting to yield some data about whether low- and middle-income consumers really are abandoned in a no-commission world (the early data suggests they're not abandoned, but advisors may end out needing to charge fees higher than what consumers are willing to pay!); the second provides a good reminder than virtually any business model for advisors presents some conflicts around the advice delivered, as the easiest course of action is always to give advice that rewards the current business model; and the last is a critique from the editorial team at Investment News regarding the recent proposed NASAA model fee disclosure rules for broker-dealers, which ironically would increase transparency of "miscellaneous" broker-dealer fees but require no actual transparency regarding the (typically much larger) fees, commissions, and other compensation that consumers pay to the broker themselves!

And be certain to read through to the end, and check out Bill Winterberg's video coverage of the recent tRx Unplugged 2015 conference as well!

Enjoy the reading!

Weekend Reading for Financial Planners (Aug 29-30)

August 28, 2015 01:31 pm 18 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big news that the world's largest asset manager, Blackrock, decided to buy the #3 robo-advisor FutureAdvisor for $150M, with plans to pivot the company from its current direct-to-consumer focus to instead become a robo-advisor-for-advisors solution for Blackrock's institutional partners (i.e., banks, broker-dealers, insurance companies, and perhaps RIAs).

From there, we have a few articles on this week's market turmoil, including a discussion of the unusual market volatility in ETFs that occurred on Monday morning (when many ETFs traded at materially different prices than their intrinsic NAV), a second article from ETF.com looking at the details of how an "ETF flash crash" occurs (important to understand if market volatility picks up again soon!), and a separate article discussing the unrelated but also problematic technology outage this week at BNY Mellon that left hundreds of mutual funds and ETFs unable to properly price their value for several days this week!

We also have several practice management articles this week, including: a discussion of a smarter marketing (or "smartketing") process that integrates both prospecting and sales efforts in an advisory firm; a look at how some advisors are adopting video as a part of their marketing and/or client communication process; a discussion of some practice management "gotchas" to watch out for that can undermine the value of your business (e.g., remember that unlike talking to a compliance attorney, communication with your compliance consultant is not privileged and can be used against you!); a warning that growth rates, referrals, and profitability are declining at many advisory firms (and how it can be resolved by focusing on a narrower target clientele to differentiate); and a reminder of how important it is to communicate complex concepts to clients visually and not just verbally (and better yet, make a standardized graphic to illustrate key concepts that you can use over and over again!).

We wrap up with three interesting articles: the first provides some good reminder tips of what to do and what to say when market volatility occurs (hint: proactive communication and active listening are essential!); the second provides an interesting look at the history of the Investment Company Act of 1940 (which just recently celebrated its 75th anniversary!); and the last is an article from the Harvard Business Review reporting on an interesting study that finds the rise of technology is actually making social skills more important than ever for career success (and the best jobs are those that require social skills and include high-level cognitive challenges, like financial planning!).

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 that Blackrock is acquiring the robo-advisor FutureAdvisor, the Salesforce launch of their new Financial Services Cloud, and the latest practice management white paper "X-Cell" from Kaleido.

Enjoy the reading!

Summer Reading List of “Best Books” For Financial Advisors – 2015 Edition

June 1, 2015 07:01 am 20 Comments CATEGORY: Personal/Career Development

As June begins and the busy spring conference season comes to an end, it's time for the annual summer slowdown in the advisory business - when clients begin to travel and are harder to schedule for meetings, advisors themselves go on summer vacation with family, and there's a lot (or at least a little!) more time for relaxing and reading books.

As an avid reader myself, I know I'm always eager to hear suggestions of good books to read, and so in the spirit of sharing, I maintain a list of my top recommended books for financial advisors, and I launched my first "Summer Reading List" of recommendations back in 2013. It was so popular, I created a new Summer Reading list in 2014. And continuing the trend, I'm now excited to share my latest 2015 Summer Reading list, with suggestions on everything from practice management and "sales" skills to advisors, to the latest in Social Security, and for those who prefer a somewhat "lighter" fare, two recent books on how to teach children to be responsible with money and the science of how spending money really can make us happier.

So as we head into the summer season, I hope that you find this suggested reading list to be helpful... and please do share your own suggestions of what you're reading in the comments at the end of the article as well!

Weekend Reading for Financial Planners (May 2-3)

May 1, 2015 03:15 pm 13 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a recent Guidance Update from the SEC about cybersecurity, suggesting that the regulator is increasingly concerned about whether RIAs are properly stepping up to their obligations to protect client data and whether they are really prepared to deal with a potential data breach.

From there, we have several technical planning articles this week, from a look at how clients might need to update the gifting provisions in their Power of Attorney documents in light of current Federal gift/estate tax exemptions, to the growing trend of "Impact Investing" for especially higher-net-worth clients, tips for how to utilize family resources when a child or grandchild is going to college while minimizing any adverse impact on financial aid, and a roundtable interview on the current issues advisors should be thinking about when it comes to health insurance and the new health insurance exchanges.

We also have a couple of practice management articles, including: the differences in how top RIAs do marketing compared to their peers; the challenges that advisory firm owners/founders face as the business continues to grow; a look at how mega-accounting firm Deloitte is revamping its system of managing employee performance and reviews (with lessons for us all about how to better manage employees); and a look at technology tools that may be helpful for advisors trying to revamp their online presence from website to social media and more.

We wrap up with three interesting articles: the first is commentary from FPA NexGen President-Elect Rianka Dorsinvail about how advisory firms should think about hiring and retaining young talent; the second is a profile of Apex Clearing, the platform that has powered most "robo-advisor" start-ups in the past several years and is now looking to offer its tools more directly to traditional RIAs as well; and the last is a sad reminder that as clients age, financial decision-making capacity is often one of the first things to go, which makes it especially important for advisors to be watchful as the first line of defense... and have a plan in place about how to contact other family members for support, should it become necessary to do so.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including the latest from the Shareholders Service Group (SSG) conference, a partnership between Orion Advisor Services and Jemstep Advisor Pro, and the latest from the SEC on cybersecurity issues for advisors.

Enjoy the reading!