As financial planning firms increasingly incorporate the internet and their websites into their marketing, more and more practices are considering the use of a blog. Yet many are doing so without a clear understanding of why the blog is being done in the first place, beyond "everyone else seems to be doing it, so I guess I should, too!" In practice, it seems there are three primary reasons that most financial planning firms consider a blog: drip marketing for prospects, a communication tool for existing clients, or Search Engine Optimization (SEO) enhancement for your overall website. Fortunately, once you know which of these reasons matches the purpose for your blog, you can figure out what kind of content to create for it, to whom the blog updates should be distributed, and whether having a blog even makes sense for your firm in the first place! Read More...
As prospective retirees struggle to figure out how much money they need to accumulate in order to retire, a key assumption is what anticipated spending will be in retirement. After all, the more spending that must be supported, the more assets that may be necessary (in addition to other income sources) to support that spending.
Historically, a popular "rule of thumb" was to assume a replacement ratio of 70% to 80% in retirement, although in recent years this guidance has been lambasted by planners who suggest that client lifestyles tend to remain steady in retirement (or even increase in some cases), not decrease.
Yet in reality, it appears that planners have been mis-applying the replacement ratio research, which is based on a percentage of pre-retirement income, not pre-retirement spending! As a result, it turns out the 70% replacement ratio for moderately affluent clients may be remarkably accurate, and in fact could be too high for some wealth clients! Read More...
Monte Carlo analysis has become a fairly widespread tool for financial planners to use to understand the implications of market volatility and return uncertainty on the ability of clients to achieve their goals.
Yet the uncertainty in retirement isn't just about the returns that will be earned on investments that are necessary to support spending, but also how long that spending must last. Notwithstanding the uncertainty of mortality, though, most financial planners select a fixed - albeit conservative - time horizon for the portfolio, such as 30 years for a 65-year-old couple. But can this strategy make the plan too conservative? After all, a 90% probability of success - which corresponds to a 10% chance of failure - is actually only a 1.8% probability of failure when it assumes the couple will live until age 95 (given the low likelihood of a client actually surviving that long), and in turn means the client may be saving more, spending less, or retiring later than is really necessary!
Which raises the question - are we being too conservative with our mortality/longevity assumptions? Read More...
As financial planning begins its transition into the digital age, the tools and technology that we use to deliver financial planning will change. Increasing use of account aggregation platforms by consumers like Mint.com will mean that clients come to the first meeting with their financial lives already detailed, from a net worth statement to asset allocation details to a breakdown of cash flow. This in turn will allow planners to greatly expedite the planning process - plugging in data immediately in the first meeting to begin crafting financial planning projections live, with clients, who discuss and input their goals on the spot. The end result - an electronic plan, as there will be no need for paper - will provide clients with both actionable steps and recommendations, and the ability to drill down for further detail (through the client software) if they wish. And the entire process will be completed not in a series of meetings, split up by a multi-week break for analysis, but instead in a single meeting, drastically enhancing the efficiency and productivity of the process for both the client and the planner. In turn, though, planners will be forced to add value not by just helping clients get their financial house in order - thanks to technology, it will already be in order! - but by actually delivering quality advice and a good planning experience!Read More...
Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights an interesting article about the benefits and risks of exchange-traded notes, and two new articles about retirement spending and how to consider more flexible retirement spending plans. We also look at two striking investment pieces, one from Morningstar Advisor that highlights upcoming research about how the rise of index trading may be increasing the correlation of markets and reducing the benefits of diversification, and Mauldin's weekly update suggesting that Greece's restructuring deal is not the end of the European debt crisis. We wrap up with a nice article from Bob Veres about what it takes to be a successful financial planner, some tips from a recent Harvard Business Review blog about how to make yourself more focused and productive to reduce feelings of burnout, and the big media news of the week - the very public resignation of a Goldman Sachs executive director named Greg Smith, suggesting that the company has lost its moral bearing. Enjoy the reading!
One of the primary business virtues of comprehensive financial planning is the deeper relationship that is formed as a result of going through the financial planning process. The experience helps to engender trust between the advisor and the client, which in turn can aid in client retention, and make the client more comfortable referring the advisor to others. Yet at the same time, one of the primary challenges of being comprehensive and holistic is that when you do so much for the client, it's difficult for the client to explain what it is the advisor really does, in the process of making a referral.
In fact, a recent survey highlights this striking contrast - clients of holistic advisors were almost 20% more likely to provide referrals, and amongst those who didn't refer, clients still generally felt that holistic advisors were more likely to have earned the right to receive referrals. The survey results also paradoxically revealed that clients who didn't refer their holistic advisors were almost 30% more likely to state it was because they didn't know any referrals or were uncomfortable to make referrals!
In other words, holistic advisors were simultaneously more likely to earn the right to receive referrals, yet ended out making a significant portion of their clients less comfortable and less able to think of anyone to refer!Read More...
