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The New Challenge In Training The Next Generation Of Financial Planners

March 31, 2014 07:01 am 6 Comments CATEGORY: Planning Profession

In the early days of financial planning, most "advisors" were ultimately insurance or investment salespeople, who evolved their skillsets and their practices over time to become financial planners. Accordingly, the education of financial planners was focused in adult education certificate programs, "learning" financial planning was about how to transition clients - and potentially the business model itself - from being focused on products, to advice instead.

As financial planning education began to shift to colleges and universities in the 1980s and 1990s, culminating in an explosion of degree-based financial planning programs in the early 2000s, this process of how a financial planner is trained as such began to change. While the first generation of financial planners were ultimately salespeople who became financial planners later, this next generation of financial planners will actually be the first seeking to enter the workplace and be trained as such from the start.

In turn, this transition is presenting new challenges for firms aiming to train and develop financial planners. While the historical process was to train experienced salespeople with existing clients to become financial planners, the new model looks more like the traditional one for professionals, starting with formal education, then transitioning to an "apprenticeship"-style period of gaining experience and honing skills, and only then - for the subset who wish to do so - going out to start a practice, and cultivate a skillset as a "salesperson" doing business development.

In other words, we used to train salespeople to be financial planners, and now the challenge is how to train financial planners to be effective salespeople! Ultimately, this will require new models of developing financial planners, as the required investment to train them are more significant than ever, in terms of both time and resources, forcing firms to figure out along the way how best to make the process of creating new financial planners successful for both the new advisor, and the firm as well!

Weekend Reading for Financial Planners (Mar 29-30)

March 28, 2014 03:43 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the latest news about the case between the CFP Board and the Camardas, with the latter filing a new motion in court to compel the CFP Board to move forward in the discovery process as the Camardas claim the CFP Board has failed to provide information in a timely manner. Separately, there's also an article that provides an interesting profile of the recent activities of Nick Schorsch, the non-traded REIT magnate who in the span of one year has exploded onto the advisor scene, aggregating together almost half a dozen different broker-dealers to quickly form what is now one of the largest B-D networks in the country.

From there, we have a trio of technical financial planning articles this week, including a look at the White House's recent suggestion that it may be time to curtail the File and Suspend Social Security strategy for wealthy couples (though doing so will require an act of Congress, so nothing changes are imminent), the rising use of Health Savings Accounts (HSAs) as a form of "Medical IRA" for more affluent clients, and an important cautionary note regarding no-lapse guaranteed universal life policies where some clients are finding that their guarantees are being forfeited not by paying premiums too late but by actually paying them too early instead!

We also have several practice management articles this week, including a provocative article from Mark Tibergien suggesting that perhaps it's time for the advisory world to spend less time talking about succession planning and more time focused on people development and cultivating the next generation of advisors instead, a look from Angie Herbers at the importance of creating an internal leadership team to begin cultivating your next generation of advisors and firm leaders, a review of a recent aRIA white paper on how to enhance the value of your advisory firm, and a good discussion of the 40-40-20 rule in evaluating and benchmarking the profitability of your advisory firm (and identifying what to change to 'fix' low profit margins).

We wrap up with three interesting articles on the theme of the rise of the robo-advisor: the first looks is from Bob Veres, and looks at how robo-advisors are commoditizing investment management and may ultimately lead to a bifurcation of advisory fees (a low AUM fee paired with a separate planning retainer); the second is from Angie Herbers, and cautions advisors not to become too enamored with the scalability of investment management and forget the importance of doing financial planning for clients to attract and retain them; and the last is from HighTower CEO Elliot Weissbluth suggesting that in the end the "robo-advisors" will not obliterate human advisors but will eliminate all the "posers" (those "advisors" who don't really add value with their financial advice and are just trying to sell investment products instead) which will actually make room for the "real" advisors to be even more successful!

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!

New Once-Per-Year IRA Rollover Rule Emerges from Bobrow v Commissioner Tax Court Case

March 26, 2014 07:01 am 31 Comments CATEGORY: Taxes

The Internal Revenue Code allows individuals who receive a distribution from an IRA to avoid tax consequences by rolling the funds over to an IRA within 60 days. However, to avoid abuse of the rule, the tax code prescribes that taxpayers can only complete an IRA rollover once in a 12-month period, which the IRS in the past has interpreted to apply to IRAs on an account-by-account basis. In turn, the "separate accounts" treatment of the IRA rollover rule potentially allows taxpayers to chain together multiple IRA rollovers, in an attempt circumvent the 1-year rule and gain "temporary" use of IRA funds for an extended period of time.

However, a recent Tax Court case, Bobrow v Commissioner, has shut down the separate IRAs rollover strategy altogether. In a case that started out as a taxpayer who botched a version of the sequential separate accounts rollover strategy, and drew the IRS' ire in the process, ended out with a finding of guilt for not only of botching the rollovers but having the Tax Court (re-)interpret IRC Section 408(d)(3)(B) as well. In the decision, the Tax Court applied the 1-year IRA rollover rule to apply in the aggregate across all IRAs, invalidating the separate IRA rollover treatment not only for Bobrow but all taxpayers as well!

In the aftermath of the Bobrow case, the IRS has now issued IRS Announcement 2014-15, stating that it will acquiesce to the Tax Court decision, update its Proposed Regulations and Publication 590, and issue new Proposed Regulations soon that will definitively apply the 1-year IRA rollover rule on an IRA-aggregated basis going forward. However, to allow time for transition - including taxpayers in the midst of rollovers left in the lurch, and IRA custodians who must update their own processes and procedures - the IRS has declared that the "existing" rules will be allowed through the end of the year. However, the new rules allowing only one IRA rollover in a 1-year period will be effective starting January 1, 2015 (potentially dating back to IRA rollovers that occur in 2014), so advisors and their clients should plan accordingly!

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

March 24, 2014 07:01 am 64 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!