Kitces.com - Advancing Knowledge in Financial Planning

What Comes After CFP Certification? Finding Your Niche Or Specialization With Post-CFP Designations

March 24, 2014 07:01 am 63 Comments CATEGORY: Personal/Career Development

As the ranks of CFP certificants are on the rise, the CFP certification is increasingly transitioning from a "nice to have" designation to the minimum standard for financial planners. Yet as the popularity and adoption of CFP certification grows, simply having one is no longer the differentiator that it once was. Instead, advisors are increasingly faced with pressure to move beyond "just" the CFP marks, and explore "post-CFP" education to truly demonstrate expertise and differentiate.

Fortunately, the reality is that just as there are a growing number of CFP educational programs, there is also a growing range of post-CFP educational programs available, too. Ironically, though, trying to navigate the 'alphabet soup' of available programs can be as difficult for advisors choosing a credible program as it is for consumers choosing a credible advisor! Nonetheless, from designations designed to deepen subject matter expertise, to those built outright to support a standalone niche unto itself, there are a large number of choices available to those who have completed CFP certification and are now asking"what's next?"

In today's blog post, we look through the list of the more credible programs that are available, from advanced designations in financial planning, wealth management, investments, and retirement, to niche educational programs for working with doctors, divorcees, or the LGBT community, and more. Have you considered what your next step will be in your post-CFP studies?

Weekend Reading for Financial Planners (Mar 22-23)

March 21, 2014 03:01 pm 7 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with an interesting article noting that while the advisor industry is on the verge of shrinking as more and more advisors approach retirement age, this might actually be a good thing as we "right size" the number of advisors that consumers really need given the emerging technology solutions (e.g., "robo-advisors") available to support many who wish to do it themselves. Not that robo-advisors will topple advisors altogether, but that they may serve a broad base of consumers with simpler needs, leaving a need for fewer advisors who will continue to serve those with more complex problems.

From there, we have several practice management articles this week, including a warning that the SEC is becoming increasingly aggressive in Investment Adviser exams and may be adopting a "broken windows" approach, a review of the current state of social media compliance, a look at how giving clients "free perks" may be a remarkably effective way of generating more referrals (even though most advisors seem to strongly reject it), a nasty story of how Edward Jones "brutalizes" advisors who try to break away from the firm (from the mouth of one advisor who did so successfully, beat them in arbitration, and is now telling his story), and a look at how wirehouses are stepping up on facilitating succession planning for their advisors with deals that continue to narrow the gap between the "saleable" business value of a wirehouse and independent advisory practice.

We also have a trio of investment/retirement articles this week, including a thorough review from Morningstar of the recent leadership drama at PIMCO and whether it means advisors and their clients should be pulling money out of PIMCO funds or not, a look at why even though theoretically "forward P/E" ratios should be used to value markets in practice trailing measures like Shiller CAPE may be better, and a review of some recent research on the use of reverse mortgages and how they may be better used as a standby line of credit earlier in retirement rather than as a last resort later.

We wrap up with three interesting articles: the first looks at how bad we are at assessing risk, focusing excessively on high-profile events to the exclusion of the more mundane but often far more serious realistic risks we face (paying attention to plane accidents but not car accidents, and market crashes but not pervasive undersaving for retirement); the second provides a good reminder of how sometimes like decisions legitimately trump "rational" economic decisions, as Fed governor Mishkin and his wife purchased a home in early 2008 even as he expressed concern about the declining real estate market, because in the end he decided his married was more important; and the last looks how what financial planners can learn from FBI hostage negotiators about how to "click" more quickly with clients (hint: express something personal about yourself that makes you vulnerable).

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!

Life Expectancy Assumptions In Retirement Plans – Singles, Couples, And Survivors

March 19, 2014 07:01 am 17 Comments CATEGORY: Retirement Planning

Setting a proper time horizon is a crucial step in planning for retirement, and is typically done by making a reasonably conservative estimate of life expectancy... perhaps with a few extra years for padding, depending on a client's preferences.

Yet in many cases, planners adopt a uniform "standard" assumption for clients, without adapting it to even the most basic client circumstances, like whether the client is a single person or a married couple, despite the material difference between individual and joint life expectancies. Similarly, while the reality is that there's a high likelihood that a married couple will live several decades in retirement, the odds are overwhelming that for much of that time period, only one - but not both - of them will be alive.

As a result, it may be time for planners to begin to adopt more nuanced life expectancy assumptions for clients, at a minimum making a distinction between individuals and married couples, and with reductions in the later years for married couples to acknowledge the fact that while it's likely one may be alive, it's very unlikely that both will live through the entire time horizon. Otherwise, simply choosing an arbitrarily long time horizon for clients, paired with a high standard of Monte Carlo success, may actually result in an unnecessarily constrained retirement lifestyle!

Why The Business Danger Of Aging Financial Planning Clients May Be Overstated

March 17, 2014 07:01 am 2 Comments CATEGORY: Practice Management

In recent years, an increasing number of practice management consultants have begun to “sound the alarm” on the dangers of having an aging, retiree-centric client base in a financial planning firm. As the logic goes, retired clients are depleting their portfolios with ongoing withdrawals, and more and more will pass away as the years go by, so a planning firm with aging clients is akin to a rapidly depreciating asset.

However, a deeper look at the numbers reveals that these drawdowns in client assets may be overstated, at least in the coming decade. After all, the reality is that at a 4% safe withdrawal rate, a balanced portfolio should still be able to grow for years to come, and there’s actually a 96% chance that clients will still have all of their nominal principal left even after 30 years! Similarly, while the mortality rate is higher as clients age, the reality is that out of 100 client couples aged 65, the statistics suggest that 90% of them will still be around in 15 years!

Of course, the caveat to working with retirees is that, compared to accumulator clients, the mere fact that they’re spending and not saving with ongoing contributions is still a headwind, and obviously even the modest attrition rate for early retirees is still higher than what it would be for younger clients. Nonetheless, these statistics suggest that firms simply worried about retaining value in the coming years should perhaps focus less on catering to the next generation to reduce the average age of clients (especially if those clients can't be served profitably by the firm in the first place!), and more on simply retaining the current generation, especially by building relationships with both members of a couple to increase the likelihood of retaining a surviving widow. While the demographics of an aging client base will eventually be more of a challenge, the real impact is still many, many years away, and simply focusing on retaining widows (or not) of the current generation may matter most of all in the coming years!

Weekend Reading for Financial Planners (Mar 15-16)

March 14, 2014 02:25 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a big series of announcements from the CFP Board this week, including the potential establishment of a new "Center for Financial Planning" to promote academic research, and the anticipated launch of a new CFP-Board-and-John-Wiley-partnership academic Journal to further support financial planning research. Also highlighted in the news this week is discussion of continuing efforts to get "user fees" legislation sponsored in the Senate to improve Investment Adviser oversight, and an interesting move by Merrill Lynch to hire a new director of advisor training/development who is "young, black, and female" - a notable distinction from the older white male stereotype of Wall Street - though debate is already stirring about whether the hire signals a real shift in Merrill Lynch's diversity and development efforts or is simply a token step given their recent discrimination lawsuits.

From there, we have a few technology-related articles this week, including two regarding best practices in recording video for your website and getting more active on YouTube, and one looking at overall trends in advisor technology after the Technology Tools for Today conference last month.

We also have a trio of more technical financial planning articles, from a discussion of some of the latest research on the best asset allocation glidepaths in retirement (should equity exposure decrease as you age, or actually rise?), to a look at whether or how much international diversification helps to support safe withdrawal rates (answer: it helps some, but not as much/often as you might have expected), and also a look at how the increasing focus on delaying Social Security benefits in retirement really is a new phenomenon (the value of delaying really has increased significantly over the past 20 years, due to both changes in the rules, rising longevity, and the general decline in real interest rates).

We wrap up with three interesting articles: the first looks at how spending on houses and cars remains eerily similar across wealth levels, hovering at about 50% of total household income at high and low income levels (though notably as low as 30% in other countries!); the second is a great discussion by investment guru Cliff Asness about the current state of the efficient markets hypothesis, and the virtues and flaws of the arguments both for and against EMH; and the last is a discussion of the latest entrant to the robo-advisor space - WiseBanyan - which is offering not just low-cost portfolio management solutions, but is entirely free, and while it's unclear whether the company itself will survive (it does eventually have to figure out how to make money somehow!) it does raise the fundamental issue of whether some clients will start to question just how much value they're really getting from their advisor for the typical 1% AUM fee.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end! Enjoy the reading!

Mailbag: Retirement Projections, Monte Carlo Software, And Longevity Assumptions For Retirees

March 13, 2014 07:01 am 4 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I will occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at some issues with Monte Carlo retirement plan projections, cash-flow versus goal-based planning software, and the appropriateness of using arbitrary-age life expectancy assumptions (e.g., all clients assumed to live to age 95) versus more client-specific or entirely randomized life expectancy in the Monte Carlo projection.