Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a big announcement from the CFP Board, that the current Chair of the Board of Directors and two members of the Disciplinary and Ethics Commission are resigning amid an ethics probe. There's also another article from the CFP Board explaining their current position on when the fiduciary duty does, and does not, apply to CFP certificants. From there, we have an article on how popular investment bear Gary Shilling is remarkably upbeat and bullish about the financial advising business itself, an article about how young millionaires under age 44 have dramatically higher expectations for digital and social media presence from their advisors, an interview with Behavior Gap artist and author Carl Richards, and an interesting technical article about how to plan for clients' digital assets. We also have a few investment and retirement articles, including an analysis by Wade Pfau of the new "Stand Alone Living Benefit" (SALB) income guarantee for investment accounts, a study by David Blanchett regarding a new metric and approach to measuring the efficacy of various retirement income approaches, and a discussion from Bob Veres about investment advisor Gary Miller and has rather unique and analytical approach to making investment decisions. We wrap up with two very intriguing articles - one a study that finds that the brain is actually physiologically incapable of both empathizing and analyzing at the same time, and the other a discussion about how setting bold, ambitious, unrealistic goals can actually be the best path to success. Enjoy the reading!
Getting a handle on client expenses is often difficult - and only exacerbated by the fact that most people don't exactly enjoy the budgeting process. Nonetheless, failing to accurately estimate ongoing expenses makes it almost impossible to plan. While in many situations, it's possible to get a reasonable estimate of spending by looking at ongoing household expenses, the reality is that many people have large expenses that occur irregularly throughout the year - or even interspersed across several years - and as a result, "just" focusing on recurring monthly expenses can lead to a significant underestimate of true spending.
The end result is that a lot of clients and planners may systematically underestimate spending by failing to fully take into account large irregular expenses, such that there is never as much money left at the end of the year to save as originally anticipated. Some planners adjust for this by trying to estimate every expense and convert it into a monthly amount, just to get a more accurate estimate of ongoing spending; others simply try to estimate the amounts of irregular expenses and when they might occur, and project accordingly. So how do you handle irregular expenses?Read More...
After years of wavering, the Financial Planning Association has recently re-focused itself back to specifically supporting financial planners who pursue the CFP certification and advocating for the CFP to be recognized as the one true designation, recalling back the famous "One Profession, One Designation" refrain first uttered by financial planning luminary P. Kemp Fain nearly 25 years ago. Yet the reality is that while the CFP certification has advanced significantly since Fain's first comments in 1987, so too have many "competing" designations, some of which represent very high quality advanced educational content, albeit often in narrow and focused specialties under the financial planning umbrella. Nonetheless, many "bogus" designations have also proliferated over the years, contributing significantly to consumer confusion. As a result, while there is still virtue to having the CFP certification as a minimum baseline designation to cut out the other bogus designations, there needs to be room for the advanced specializations that have begun to emerge as well. Which means perhaps it's time for the FPA to extend Fain's famous speech one step further, from "One Profession, One Designation" to "One Profession, One [Minimum] Designation" - where the CFP certification serves as a minimum baseline for anyone who wishes to become a financial planner, but beyond which a growing number of "post-CFP" educational programs can flourish to support the emerging fields of financial planner specialization.Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a discussion by compliance consultant Brian Hamburger, suggesting that while the investment adviser world seems to prefer SEC user fees to FINRA as a regulator, it may be better to step back and ask more basic questions about what effective enforcement and the role of regulation should really be in the first place. From there, we look at an array of practice management articles this week, including a discussion of how to protect your firm from fraud, how to better engage clients (and generate more referrals as a result), how to get past the growth wall once you hit it, the problems with micro-managing staff instead of empowering them and getting out of their way, and a look at a new tool to benchmark the compensation of advisors and staff. We also look at a few more technical articles, including a research paper on how to evaluate non-qualified stock option decisions, how to incorporate interior finance issues into your practice and work with clients, and a look and what "endogenous risk" means and how it impacts portfolios. We wrap up with two interesting articles; the first provides a good warning about how advisors can better navigate copyright laws when writing material for their blog or website, and the other is a lighter article on "10 Things Happy People Do Differently" which may not provide any great revelations but may provide some nice reminders for a few of you. Enjoy the reading!
As the long-term care insurance industry continues to suffer - a challenge that won't likely end soon, given ongoing increases in health care costs and continued low interest rates that may it difficult for the insurer to generate a return on premium investments - planners and clients have both become increasingly skeptical about long-term care insurance. At best, prospective policyowners feel compelled to buy far less coverage than they can afford, just to leave room in case premiums rise in the future, given the quantity of ugly premium increases on existing policies that have occurred in recent years. Yet the reality is that while many industry trends, from low lapse rates to low interest rates to claims patterns were a surprise relative to what insurance companies expected 10-15 years ago, they are known facts today. Accordingly, even the base cost for a new long-term care insurance policy has risen dramatically over the past decade. However, higher pricing - adjusted for the realities of today's marketplace - actually means that while the pace and severity of premium increases on old policies has risen, the risk of premium increases on new policies purchased today may actually be declining! Are planners and their clients becoming most concerned about long-term care insurance premiums at the time they are actually least likely to occur!?
As the public becomes more savvy about protecting themselves from fraud – in part due to the assistance of increasingly sophisticated anti-virus and anti-phishing software – thieves are becoming more and more creative about new ways to steal. A disturbing new trend is that some thieves are beginning to directly target financial advisors and their clients – as famous bank robber Willie Sutton noted, if you want to get rich by stealing, go to where the money is! Accordingly, financial advisors and investment custodians have seen a noticeable increase in attempts at fraudulent wire transfers by "spoofing" – where a request sent “from the client” is actually a spoof from a fake-but-similar email account (or sometimes is even the client’s actual account!), and asks the advisor to process a wire transfer to a third party bank account. By the time anyone realizes the request was fake, the money is already gone, the transfer cannot be unwound, and the wire fraud theft is complete. In response, it’s crucial for advisors to review – and potentially change and improve – their processes and procedures to ensure a wire transfer request is legitimate before acting upon it, especially in scenarios where the transfer is going to a third party. Fortunately, some best practices are emerging about how to avoid these kinds of client disasters!
