U4 - Part 5

Weekend Reading for Financial Planners (Dec 6-7)

December 5, 2014 02:45 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the results from the industry's top annual financial advisor technology survey, co-produced by Joel Bruckenstein and Financial Planning magazine, highlighting some of the notable changes in the advisor technology landscape, from up-and-comers Riskalyze and Orion Advisor Services, to the ongoing dominance of MoneyGuidePro financial planning software, how incredibly fractured portfolio accounting and performance reporting software continues to be, and which broker/dealers and custodians have the highest (and lowest) technology satisfaction scores amongst their advisors.

There are several additional advisor-technology-related articles this week as well, from an announcement from Fidelity that they will be partnering with "robo" platform LearnVest (following on the heels of their recent Betterment Institutional partnership as well), to an interesting interview on the future of financial planning (software) from InStream Wealth CEO Alex Murguia, and lastly a "new" entrant to the portfolio accounting software world for RIAs called WealthTouch that his historically worked with ultra-high-net-worth clientele but is now looking to come "downstream" to clients with "just" $5M of assets.

From there, we have a number of retirement and planning articles this week, including: a discussion of how annuitization can effectively serve the same "hedging" function as a hedge fund for retirees (but at a fraction of the cost); how delaying Social Security has a natural "bias" in favor of delaying for affluent clients; a look at whether the risk-reduction benefits of individual bond ladders over bond mutual funds may be overstated; an interesting research-based proposal to help shore up Social Security by offering retirees who delay a choice between higher benefits or a(n actuarially fair) lump sum alternative; and a new study from the Journal of Financial Planning showing that, controlling for other factors, those who use a comprehensive financial planner really do appear to save more effectively for retirement than self-directed investors (or those who use an "advisor" who doesn't really do comprehensive planning).

We wrap up with three interesting articles: the first reports on the "surprise" announcement just days before the big MarketCounsel Summit conference that opening keynoter Tony Robbins, who in recent weeks has declared himself the new "voice of independent advisors" will actually be delivering a generic not-RIA-specific speech and will not be allowing any journalists to cover or write about what he says in his 2-hour keynote session, raising at the least a significant amount of confusion about what impact he really intends to bring to the industry; the second is a fascinating research study about the real risks and opportunities involved in holding concentrated stock positions, which have historically provided both a surprising number of "golden swan" events (a large number of improbably good financial outcomes) but also a stunning 40% chance of permanent impairment of capital (a 70%+ decline in value that never recovers); and the last is an intriguing article looking at how "robo-advisor" platforms may co-exist with advisors, where technology solves "simpler" problems and advisors focus on the more "complex" ones, and that the biggest winners may be the "bionic" (or "cyborg") advisors who blend together the human and the technology.

Enjoy the reading!

Goals-Based Financial Planning Is Impossible Without First Evaluating The Possibilities

November 5, 2014 07:01 am 18 Comments CATEGORY: General Planning

From the rapid growth of goals-based financial planning software like MoneyGuidePro, to the recent announcement that even legendary wirehouse Merrill Lynch will be focusing on a goals-based planning approach, financial planning is on the rise, and is increasingly focusing around an approach of identifying and understanding client goals, and then crafting a plan to help the client succeed in achieving them.

Yet at the same time, the reality is that in practice the goals-based approach doesn't always go as smoothly as hoped. Some clients haven't crafted their goals yet in the first place, while others have goals that are wildly unrealistic and force planners to be the bearers of bad news. Often the goals-based planning process can get mired down in countless iterations of alternative "what if" plans, culminating in a giant physical tome that clients aren't committed to and is never read again after being presented away.

But perhaps the fundamental problem with goals-based planning is simply that it puts the cart before the horse; clients shouldn't be selecting the goals to pursue until they understand what the possibilities are in the first place! Which means in turn, perhaps the best thing that can be done with financial planning software is not use it as an analytical tool to craft a plan to achieve hypothetical goals that may or may not even be realistic, but instead to use the software interactive with clients to explore the possibilities of multiple scenarios and understand the trade-offs just to arrive at what the goals should be in the first place. Once the possibilities have been selected, realistic goals can be chosen, and then a more productive series of financial planning recommendations can be delivered for implementation!

Real-Time Collaborative Financial Planning And The Evolving Role Of The Financial Advisor

October 29, 2014 07:01 am 21 Comments CATEGORY: General Planning

With the ever-increasing breadth of information available online with each passing year, consumers have more and more information at their fingertips – accessible with a smartphone or tablet! – and problems that once required paid experts for solutions can now be resolved with a quick Google search.

Yet while the power of internet searches can solve more and more complicated problems, when it comes to the real-world challenges of our financial lives, we hit a wall; some problems are just too complex to be solved with information alone, and still require the guidance of an expert to navigate. Of course, real world financial planning problems can be so complex, the financial planner can’t and won’t likely have all the answers, either. There is too much uncertainty for a known outcome, too many what-if scenarios to consider, and ultimately most people face practical constraints on their resources that require them to choose from the available trade-offs; there are no “right” choices, just paths to consider and consequences to weigh.

Which means in the end, the highest and best purpose of financial planners may not simply be to consult with and answer complicated questions, but to actually work collaboratively with clients utilizing technology to help them simulate the possibilities in real time, choose which goals to pursue, and then leverage the planner’s knowledge and experience to craft a plan to get them there.

Weekend Reading for Financial Planners (Aug 2-3)

August 1, 2014 02:31 pm 8 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts out with reports emerging that Scottrade Advisor Services appears to be strategically shifting away from its position as one of the more startup-friendly custodians, imposing a new asset minimum of $7M, or a potential $12,000 custodial fee for advisors who don't meet the minimum; dozens of advisors who don't meet the minimum are now shifting away to the leading startup-friendly alternatives, SSG and TradePMR instead. In a related story, the latest data on RIAs suggests that notwithstanding industry consolidation and the push towards larger advisory firms, there is still a lot of growth with new RIAs being formed every year (though a significant number of other firms appear to be closing their doors at the same time, leading to a smaller level of net growth in RIAs).

From there, we have several articles on practice management and advisor technology this week, including: how advisory firms need to shift away from revenue-sharing-based compensation to build enduring businesses; a look at some less expensive rebalancing software tools for advisors including RedBlack, Trade Warrior, and TRX; the re-emergence of consumer-targeted BloombergBlack as an advisor-targeted account aggregation and analysis/reporting platform called CircleBlack; and a look at the ongoing aggravation many advisors still face with account aggregation tools, and a new entrant (Quovo) that's attempting to solve the issues.

We also have a few more technical financial planning articles, from an analysis via Morningstar that finds tactically-based target-date funds are outperforming purely strategic TDFs, to a discussion of the various options for long-term care insurance (and alternatives to "traditional" coverage), and a look at how the line-of-credit borrowing limits are determined for clients who want to obtain a standby reverse mortgage to support their retirement income needs.

We wrap up with three interesting articles: the first gives a credit list of important lessons from the research in social psychology, some of which have significant implications for us as financial planners and how we build a business; the second is a fascinating look at how the pricing of your services dramatically impacts the long-term growth of the business, when you take into account the potential of reinvesting profits back into the business to get new clients in the future and how it compounds over time; and the last reports on a recent research study finding that financial knowledge/acumen is a poor predictor of making good financial decisions, and that the better predictor is whether the individual tends to focus more on the past, present, or future... and notably, the best results are not from those who focus on the future, but those who focus on the past!

Enjoy the reading!

Weekend Reading for Financial Planners (May 24-25)

May 23, 2014 03:23 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a small act of contrition from the CFP Board, which acknowledged this week that it "could have done a better job" in looking at compensation disclosures on its website, and announced that the organization will now begin to do its own "spot checks" on its website compensation disclosures along with making it easier for brokerage firms to ensure that none of their employees indicate that they are "fee-only" in violation of the current rules.

From there, we have several practice management and technology articles this week, including some ideas for new client (or prospective client) events to try out, tips on how to pick a CRM system (either as a change or for the first time), a review at a new all-in-one advisor platform called Advyzon (being built by one of the former architects of Morningstar Office and Workstation), a look at how RIAs now surpass wirehouses in their share of ETFs and long-term mutual funds (if you're an RIA, expect a lot more contacts from product providers trying to reach you in the near future as the industry wholesalers shift!), and a discussion of how to fix (or create for the first time) an incentive compensation system for your employees.

We also have a few more technical articles this week, with a discussion of why SPIA payouts still seem to be given their money's worth despite today's low rates (in large part perhaps because the long end of the yield curve has already priced in future rate increases?), a great analysis from AQR's Cliff Asness of why markets are not rigged (despite the allegations in Michael Lewis' "Flash Boys") and how HFT firms are really just a more cost efficient version of what market makers have always done, and a nice overview of the key points from the new "hot" book on income equality, Thomas Piketty's "Capital in the 21st Century".

We wrap up with three interesting articles: the first is from Jason Zweig of the Wall Street Journal and looks at the rise of the "Robo-Regulator" - FINRA's new CARDS approach to applying big data insights to try to find questionable activity in brokerage accounts; the second is a discussion from industry commentator Bob Veres about how independent firms and fiduciary advocates may be losing the fight against the lobbying dollars of Wall Street and what the next step should be (hint - band together with other organizations fighting the "Bigger Fight" as well); and the last is from Gail Graham of United Capital about how small advisory firms may soon need to get a whole lot more serious about marketing, because some large ones are already beginning to step up. Enjoy the reading!