Nerd's Eye View blog

Weekend Reading For Financial Planners (Oct 29-30)

October 28, 2022 02:04 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the SEC has proposed a rule that would require RIAs to conduct enhanced due diligence and recordkeeping when using certain outsourced investment management services and other third-party service providers. While the rule is currently in the public comment stage, given the growing popularity of outsourcing certain tasks to free up time for other planning and operational responsibilities, particularly among smaller RIAs, the new rule could add a significant administrative burden to firms going forward.

Also in industry news this week:

A proposed Department of Labor rule would limit the type of workers who could be considered independent contractors, which could present a challenge for the independent broker-dealer model
Fidelity has introduced a direct indexing platform for advisors, joining an increasingly competitive space

From there, we have several articles on practice management:

A new report shows that RIA profitability and AUM soared in 2021, buoyed by a strong stock market and new client growth
RIA merger and acquisition activity has been brisk and valuations have remained elevated during the past year, but industry observers are debating whether economic headwinds could slow activity in the coming year
The key considerations for advisors considering terminating a forgivable note early

We also have a number of articles on building and maintaining wealth:

The stories of how 30 millionaires earned (or came into) their wealth and the lessons for advisors
How advisors can approach working with ultra-wealthy clients, who are increasingly focused on building dynastic wealth
The pros and cons of being wealthy, and how advisors can help clients avoid the potential pitfalls of having significant wealth

We wrap up with three final articles, all about setting goals:

Why it’s ok for advisors (and their clients) not to have major goals, and why building optionality could be the key to achieving goals when they eventually arise
Why one CEO pursues steady progress in his business rather than setting audacious goals
How advisors and their clients can use ‘anti-goals’ to avoid unwanted outcomes

Enjoy the ‘light’ reading!

Why The Value Of A Roth Conversion Is Calculated Using (True) Marginal Tax Rates

October 26, 2022 07:06 am 21 Comments CATEGORY: Taxes

Roth conversions are, in essence, a way to pay income taxes on pre-tax retirement funds in exchange for future tax-free growth and withdrawals. The decision of whether or not to convert pre-tax assets to Roth is, on its surface, a simple one: If the assets in question would be taxed at a lower rate by converting them to Roth and paying tax on them today, versus waiting to pay the tax in the future when they are eventually withdrawn, then the Roth conversion makes sense. Conversely, if the opposite is true and the converted funds would be taxed at a lower rate upon withdrawal in the future, then it makes more sense not to convert.

But what exactly is the tax rate that should be used to perform this analysis? It’s common to look at an individual’s current level of taxable income, determine which Federal and/or state income tax bracket they fall under based on that income, and assume that would be the rate at which the individual will be taxed on any funds they convert to Roth (or the amount of tax savings they would realize in the future by reducing the amount of their pre-tax withdrawals).

However, for many individuals, the tax bracket alone doesn’t accurately reflect the real impact of the Roth conversion. Because of the structure of the tax code, there are often ‘add-on’ effects created by adding or subtracting income – and these effects aren’t accounted for when simply looking at one’s tax bracket.

For example, when an individual is receiving Social Security benefits, adding income in the form of a Roth conversion could increase the amount of Social Security benefits that are taxed so that the increase in taxable income caused by the Roth conversion is more than ‘just’ the amount of funds converted – in effect, the increase in income can magnify the tax impact of the conversion beyond what the tax bracket alone would imply. However, the same effects are also true on the ‘other’ end of the Roth conversion, where any reduction in tax caused by replacing pre-tax withdrawals with tax-free Roth withdrawals could also be magnified by an accompanying decrease in the taxability of Social Security benefits.

The upshot is that the conventional wisdom of deciding whether (or how much) to convert to Roth based on tax brackets alone won’t always lead to a well-informed decision. Instead, finding the ‘true’ marginal rate of the conversion (i.e., the increase or decrease in tax that is solely attributable to the conversion itself) is the only way to fully account for its impact. Additionally, understanding the true marginal rate can make it possible to time conversions in order to minimize the negative add-on effects (e.g., avoiding Roth conversions when doing so will also increase the taxation of Social Security benefits) and maximize the positive effects (e.g., using funds converted to Roth to reduce pre-tax withdrawals when doing so will decrease the taxation of Social Security) – thus maximizing the overall value of the decision to convert assets to Roth.

#FA Success Ep 304: Leveraging Surge Meetings To Find Efficiency With Client Reviews And New Client Onboarding, With Chad Chubb

October 25, 2022 07:01 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 304th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Chad Chubb. Chad is the founder of WealthKeel, an independent virtual RIA based in Tampa, Florida, that advises on over $100 million of assets for 110 client households.

What's unique about Chad, though, is how he has not only implemented a “surge meeting” approach to meet with each of his ongoing clients during a two-month period twice a year, but has gone further to implement a “surge onboarding” approach where he only takes on new clients in two-month intervals twice a year as well… all of which has allowed him to implement a highly systematized and efficient process so that he has more time and capacity throughout the rest of the year to focus on firm strategy, the client experience, and populating his waitlist of new clients for the next surge onboarding cycle.

In this episode, we talk in-depth about how, as Chad focused increasingly on serving a niche of Gen X and Gen Y physicians, he noticed an increasingly large overlap in the types of financial planning issues he was solving client after client that led him to a systematized surge approach to client review meetings, how almost reaching a point of burnout while onboarding 40 to 60 new clients per year in 2020 and 2021 made Chad realize that he needed to implement a surge onboarding approach (and a waitlist) to more easily scale and control the growth of his practice, and how Chad leverages the combination of writing for a finance-focused blog for physicians (as well as his own blog), concentrating on SEO tactics, and speaking at hospitals, to find his ideal prospects where they are and rapidly grow his firm.

We also talk about how Chad has evolved the pricing of his firm to use a retainer model that still approximates the revenue opportunities of an assets-under-advisement approach (which has given him a path to increase his fees over time to scale his firm), why Chad’s next steps are to focus on developing and expanding his team even further so that he can move into a CEO role where he is less-client facing and more focused on the operations of the firm to keep it growing and scaling, and how Chad has gotten comfortable with referring out clients who don’t want to wait for the next surge period and has even been ‘right sizing’ his client base by sending no-longer-good-fit clients out to other advisors who may be a better fit.

And be certain to listen to the end, where Chad shares how despite the fast-growth success he’s had, he’s still dealing with the ever-present feelings of imposter syndrome and what he calls the “entrepreneur dilemma” where, when you hit a goal, the only remaining focus is to hit the next goal, leaving little room to celebrate the smaller wins that comprise a successful business, why Chad wishes he discovered the power of an SEO strategy coupled with a clear niche specialization earlier on in his career after grinding early on with the ‘Project 100’ approach of just calling on friends and family, and why Chad believes creating systematized processes and a structured client communication meeting cadence (like surge meetings) isn’t just about operational efficiency to scale but is also the key to helping him develop a better balance between his professional and personal life.

So, whether you’re interested in learning about how Chad structures his time so he can handle surge meetings and onboarding twice a year, how serving a niche made it easier for Chad to create more efficient processes, or how Chad utilizes a combination of different technology to streamline notetaking and communication, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Chad Chubb.

Comparing Alternative RIA Custodians: The List To Consider Beyond The Big 2

October 24, 2022 07:06 am 0 Comments CATEGORY: Practice Management

The choice of an advisory firm’s custodial affiliation is easily one of its most important business decisions. The advisory firm is the front end of the client relationship, but it entrusts client assets, and key aspects of their service, to a custodian that safeguards the money and provides the underlying platform. And given the logistical challenges of switching between custodians, inertia often leads firms to stick with the same custodian for years or decades, even when a better fit might exist.

Many firms have chosen to work with the largest players in the RIA custodial space, benefiting from their size and scale. But the impending merger of Schwab Advisor Services and TD Ameritrade Institutional will reduce the number of options available for RIAs and force firms currently on TD’s platform either to be subsumed into Schwab’s platform or to switch to an alternative custodian. And while RIAs that take no action might face the specter of being relocated to a custodial platform they didn’t choose, other firms might take a more active approach in considering whether a move to one of a growing number of custodial options might be in their best interest.

In this guest post, industry commentator Bob Veres explores the range of considerations for firms thinking about moving on from “Schwabitrade” or from their current custodian, offering profiles of seven alternative platforms and reviews from advisors currently using them.

As a starting point, advisory firms can evaluate custodians on several levels based on their specific needs, from the cultural fit to their technological capabilities to the customer service a firm can expect to receive by determining whether the platform has a tiered structure where the largest firms get the best levels of service. An additional consideration is whether the custodian has a retail presence, as those without one won’t be competing directly with advisors in the marketplace (and the custodian’s management will be focused on the needs of advisors on the platform rather than spending much of their time trying to bring in more retail business).

Another differentiator between custodial platforms is their pricing structures. While some of the largest platforms may (nominally) offer their service for ‘free’, they still need to bring in revenue somehow (often in the form of below-market-rate cash sweep accounts). Other custodians offer a range of fee options, from ticket charges to flat subscription fees. This optionality can give fee-conscious advisors (and their clients) the ability to choose what makes the most sense for them.

Ultimately, the key point is that a growing number of custodial platform options are available for advisory firms, and the range of unique service cultures, technological capabilities, and pricing structures offers firms the opportunity to find the one that best suits their (and their clients’) specific needs!

Weekend Reading For Financial Planners (Oct 22-23)

October 21, 2022 02:03 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that Congress appears poised to pass a series of changes affecting retirement planning, dubbed “SECURE ACT 2.0”, by the end of the year. Provisions in the proposed legislation include gradually increasing the age for RMDs from 72 to 75, allowing extra ‘catch-up’ contributions to workplace retirement plans, and permitting companies to make retirement plan matching contributions for employees who are paying off student loan debt.

Also in industry news this week:

The wealth of those in the Millennial and Generation Z cohorts increased by 25% in 2021 and members of these generations are willing to pay for financial advice, according to a new study
New research demonstrates the importance for advisors of helping clients understand why they need to make certain decisions in the first place before giving planning recommendations

From there, we have several articles on retirement planning:

A discussion of the potential options for shoring up the Social Security trust fund as it is poised to be strained further by the recently revealed 8.7% Social Security COLA for 2023
How advisors can help clients review their Medicare coverage as the annual open enrollment period begins
How individuals can purchase more than the $10,000 individual limit of I Bonds, which continue to offer relatively high rates of return

We also have a number of articles on insurance and annuities:

As the number of RIA-friendly annuity products increases, advisors remain sharply divided regarding their value for clients
A Morningstar study suggests that annuities deliver ‘meaningful’ value to only about 5% of affluent investors, though annuity proponents suggest they also come with significant psychological benefits
Consumer satisfaction with life insurance and annuity companies dipped in 2022, reflecting a lack of understanding with the products they purchase and misaligned communication practices, offering lessons for financial advisors

We wrap up with three final articles, all about how to live a meaningful life:

Why outsourcing all of your non-work responsibilities is not a guaranteed formula for happiness
How advisors can help clients balance the tradeoff between time and money over the course of their lives
How psychological research suggests that individuals might want to consider changing the type of work they do in the second half of their careers

Enjoy the ‘light’ reading!

Kitces & Carl Ep 97: Talking Clients Down From Making Politically Motivated Portfolio Changes

October 20, 2022 07:06 am 0 Comments CATEGORY: Kitces & Carl Podcast

In recent years, politically charged topics have become the forefront of news and media, and with the rise of access to digitally distributed media, it has become commonplace for clients to have concerns about the possible impact of political events on their portfolios. These concerns have compelled many clients to reach out to their advisors, urging them to make changes in response to the political environment. And though clients may mean well, making changes to investments based on political events is often not a good idea for the long-term health of their financial plans, as well-designed portfolios are designed to safeguard against market turbulence that might result from those events. Importantly, political topics can often be emotionally charged and tied directly to a client’s core beliefs, which can make it challenging for advisors to convince their clients to stay the course and to reassure them they have an optimal portfolio strategy in place.

In our 97th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can address clients who want to change their portfolio strategy in response to the political environment and offer ways to communicate with clients about how their current investment strategy is the most optimal plan.

As a starting point, it’s important for advisors to have a defensible portfolio strategy that they can explain to the client, walking them through the investment choices made and why they should stay the course. When having the conversation, listening carefully and empathetically to the client’s apprehensions to understand their motivation is key. Some clients may just want to express their fears to someone who understands their situation and is willing to listen, as the information they are reacting to may be scary for them and the outlook for their future. But when clients feel strongly about taking action to protect their portfolio, the advisor can continue the dialogue – after listening to the client’s concerns – by suggesting a step-by-step review of the financial plan and the client’s initial statement of financial purpose, giving the client and advisor an opportunity to review and reconfirm all the choices that have been made. This allows the advisor to present a logical case that the plan is solid, built to protect against market turbulence, and designed to meet the client’s stated goals. At the same time, this process allows the client to express their concerns and feel heard, and be reminded of the important financial goals they wanted their plan to help them achieve.

Ultimately, the key point is that when clients are overwhelmed with concerns about external events that can impact their investment portfolio, advisors have a valuable opportunity to support their clients and to help them understand how their financial plan is designed to meet their goals even in times of political turmoil. And as new issues arise between meetings with clients, listening and connecting with empathy can give advisors the chance to alleviate their clients’ escalating anxieties by reassuring them that their financial plan is still in a good place!

How To Register Your RIA: State Vs SEC Registration And When Notice Filing Is Required

October 19, 2022 07:08 am 1 Comment CATEGORY: Regulation & Compliance

In the United States, Registered Investment Advisers (RIAs) are required to register in one of 2 ways: with the Federal government (namely the SEC) or with one or more state securities regulatory agencies. While SEC-registered RIAs are governed by the Investment Advisers Act of 1940 (and its associated regulations), state-registered RIAs are subject to the individual rules of the states (which have their own securities laws and regulations) where they are registered. So RIAs not only face a different set of regulations depending on whether they are Federally or state-registered, but state-registered RIAs, in particular, can also face a widely varying set of rules depending on which state they are registered in.

In this guest post, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal, breaks down some of the key differences between Federal and state registration, including who needs to register as an RIA, when an RIA can (or must) register with the SEC versus state authorities (including notice filings and unique state circumstances for RIAs with clients in certain states), and registration requirements for RIA firms’ Investment Adviser Representatives (IARs) at the Federal and state levels.

One of the first determinations an RIA owner must make is whether they must register with the SEC or state authorities, and if the latter, which state (or states) they must register with. In general, unless they meet one of a handful of qualifications for an exception (most commonly by having over $100 million in AUM or being registered in 15 or more states), RIAs must register at the state level. State-registered RIAs usually must register in the state(s) where they have a place of business, plus any state where they have more than a ‘de minimis’ number of clients (usually 5) – though notably, Louisiana requires registration from every state-registered RIA with clients in state, regardless of the number, and Texas requires state-registered RIAs to ‘notice file’ if they have less than the de minimis threshold. Several other states additionally require notice filings from SEC-registered advisors with clients in those states, meaning that even for SEC-registered RIAs, staying compliant with filing requirements requires them to understand the filing rules for each state in which the firm does business.

When it comes to the individual IARs employed by advisory firms, the registration requirements also fall along Federal and state lines. State-registered firms generally must have at least one IAR registered in each state where the firm itself is registered, and SEC-registered firms need only register IARs who work with a certain number of clients. The key difference between firm and IAR registration is that, regardless of whether the RIA firm is Federally or state-registered, IARs always register at the state level.

Ultimately, the key point is that the idiosyncrasies between state registration and filing requirements for firms and individuals warrant paying close attention to the rules of each state in which an RIA does business, regardless of whether the firm is Federally or state-registered. This is particularly relevant not only for startup firms but also for those that are expanding or adding clients in new states via new virtual meeting capabilities. By more deeply understanding the nuances of Federal and state filing rules, advisers can be better positioned to stay compliant while managing their changing circumstances!

#FA Success 303: Pivoting From ‘Robo’ Investment Management To Financial Planning In South Africa, With Louis van der Merwe

October 18, 2022 07:09 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 303rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Louis van der Merwe. Louis is the Director of WealthUp, an independent advice practice based in Cape Town, South Africa, that oversees the U.S. equivalent of nearly $60 million in assets under management for 115 client households.

What's unique about Louis, though, is how he and his partner (in anticipation of a shift in the financial advisory industry to more automated client services nearly 10 years ago) developed a robo-advice technology prototype to help clients have their investments managed at a very low cost… which then struggled to gain traction with consumers, inadvertently giving them the inspiration to launch their own ‘fully human’ financial planning practice instead.

In this episode, we talk in-depth about how, after 4 months of development, the robo-advice prototype Louis and his partner created was not seeing the rate of success they had hoped (as most clients were not completing the process because they actually wanted and needed more investment advice than what self-directed technology could offer) which made them realize what consumers really needed was better financial planning. We also explore how, even though the auditing firm where Louis and his partner were employed was very interested in the prototype they built, they refused to purchase the product, which led Louis to a crossroads that ultimately led him to the decision to leave the firm and start his own financial planning practice, and how, even though Louis and his partner built their business based on how they could offer better portfolio management to their clients, they ultimately decided to employ a discretionary fund manager to outsource their investment management so that they could have more capacity to fully focus on their financial planning advice and the client experience.

We also talk about how, at just 24 years old, Louis decided to launch his own practice as he realized, if he was going to take a big risk, his age gave him the advantage to do so while avoiding the regrets that many successful entrepreneurs have of not starting their businesses earlier in life, how, while being considered for an “approved practice” award through South Africa’s Financial Planning Institute, their in-depth review process highlighted how Louis’ practice was not really following their 6-step process and motivated Louis to go even deeper with more financial planning services like estate planning and better demonstrating the impact of financial decisions to clients, and why Louis finds running an independent practice challenging as even though it has been 10 years and the practice has come a long way, there is always room to grow and new practices and skills to discover that can help transform the way he delivers advice to his clients and manages his team.

And be certain to listen to the end, where Louis shares why he feels that the financial planning profession is a helping profession and as an advisor it’s important to recognize that providing value in a client’s life can be as simple as giving one’s time and energy to help the client (as that is a rare commodity in life), why Louis believes it's valuable for advisors entering the financial services industry to spend time discovering their individual strengths and find employment or build a practice that focuses on their own individual strengths to have a more fulfilling and successful career, and how Louis’ own definition of success has changed from early on when he hoped to build a big robo-advice technology enterprise to today where he can instead maintain a tight-knit group of clients so that he can have more time and capacity to make a difference in their lives (and be compensated well for his value) while still being able to spend meaningful time with his family… and have some fun, too.

So, whether you’re interested in learning about how the financial services industry and its regulations differ in South Africa, why Louis decided to focus more on financial planning and less on investment management, or how, even though Louis did not start a fintech company, he still integrates as much technology as possible to automate his back-office, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Louis van der Merwe.

The 9 ‘Best’ Financial Advisor Conferences (For Scaling Up) In 2023

October 17, 2022 07:06 am 2 Comments CATEGORY: Conferences

After more than 2 years of ongoing disruptions, from the original COVID-19 outbreak, to wave after wave of variants as the pandemic rolled on, 2022 proved to be the year that advisor conferences were “back”, as events ceased canceling or rescheduling in response to new variants and powered forward… often with virtual options for those who still felt uncomfortable traveling, but with most events actually reaching or even exceeding their pre-pandemic highs as advisors showed that they, too, are hungry to re-connect and re-engage.

However, not all advisor conferences have recovered, and, instead, the pandemic seems to have operated as a catalyst that took ongoing shifts in the conference landscape and accelerated them. As while conferences in the past were primarily a combination of ‘trade shows’ (where advisors could see the latest products and services from the vendors who exhibited) and educational content for CE, the conferences that have been the fastest to rebound are either built around their communities that also offer education and networking (as advisors still have a desire to ‘go home’ to their communities, from RIA custodians to broker-dealers, to advisor networks and associations they’re connected with) or those that are built around practice management.

In fact, with the astonishing success of advisory firms through the pandemic – as nearly all firms held onto and still managed to grow their client count despite the disruption, and saw revenue reach new highs as AUM was largely buoyed by market growth (recent market volatility notwithstanding) – in the new conference landscape, the challenges that advisors face when trying to “scale up” through the growth have become a major focus. Leading to an expansion in various ‘niche’ conferences that specialize in particular challenges that advisors face as they follow the growth journey. Which, in turn, is spawning even more hunger for specialized practice management conferences in 2023.

As someone who has been speaking at 50-70 conferences a year for 18 years myself, I’ve seen the good and bad of our wide range of industry events, which are spread across membership associations, broker-dealers, insurance companies, RIA custodians, product manufacturers, media companies, private events, and more. And as a result, I am often asked for my own suggestions of what, really, are the industry’s ‘best’ conferences to attend.

Accordingly, back in 2012, I started to craft my own annual list of ’best-in-class’ top conferences for financial advisors, allocated across a range of different categories (as what’s best for solo advisors isn’t the same as what’s best for larger advisor enterprises, what’s best for fee-for-service advisors isn’t the same as what’s best for AUM firms, more technically-oriented advisors will prefer different conferences than those seeking practice management or marketing ideas, etc.).

Having updated our annual conference list every year since, I’m excited now to present my newest list of “Top Financial Advisor Conferences” for the upcoming 2023 year, with a particular focus on the best conferences for advisors facing various “scaling up” challenges – from solo advisors who have gotten ‘stuck’, advisors looking to transition to become a multi-advisor boutique, navigating the unique human capital and growth challenges that founders face when scaling up an enterprise, as well as the best conferences for scaling up advisor marketing, advisor technology, and the advice delivery process itself. Along with a few other notable conferences for those looking for a good overall educational experience (for those who don’t yet want to get their CE online!), those who need a ‘recharge’, and those who are just looking for something new and different (who may want to check out Future Proof’s new ‘un-conference’ wealth festival!).

In addition, we've also updated our popular "Master Conference List" of all financial advisor conferences in 2023, for both advisors looking for a wider range of events to attend (if you want to delve deeper into a particular topical area), and for vendors looking for more conferences to exhibit at!

So I hope you find this year’s 2023 top conferences list (and our new Master Conference List) to be helpful as a guide in planning your own conference budget and schedule for next year, and be certain to take advantage of the special discount codes that several conferences have offered to all of you as Nerd’s Eye View readers!

Weekend Reading For Financial Planners (Oct 15-16)

October 14, 2022 02:04 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the Cost Of Living Adjustment (COLA) for Social Security beneficiaries will be 8.7% for 2023, the largest COLA since 1981. While this will help seniors keep pace with rising prices, it also creates tax planning opportunities for advisors and raises the possibility that the Social Security Trust Fund could be depleted sooner than expected.

Also in industry news this week:

The IRS released a notice this week indicating that RMDs will not be required for inheritors of retirement accounts subject to the SECURE Act’s 10-year rule
A recent study suggests that advisors can regain about 20% of their time by outsourcing investment management responsibilities

From there, we have several articles on cashflow management and spending:

The many ways advisors can support clients looking for a home at a time when mortgage rates are reaching levels not seen in more than a decade
How the Common Data Set can help advisors and families compare the actual cost of attendance across a range of colleges
How advisors can use the principles of ‘self-centered’ shopping to build a loyal client base

We also have a number of articles on practice management:

Why small financial advisory firms continue to thrive amid competition from the largest players in the industry
Why accounting firms have become hot acquisition targets for RIAs
How advisory firms can provide an extraordinary client experience that differentiates them from the pack

We wrap up with three final articles, all about time management:

Why optimization is almost impossible in a world of inherent uncertainty (or why achieving an extra 1% Monte Carlo success rate might not be worth it)
Why managing energy might be more important than managing time when it comes to improving productivity
How advisors can help clients discover their true priorities, without having to receive a terminal diagnosis

Enjoy the ‘light’ reading!