Kitces.com - Advancing Knowledge in Financial Planning

What Can Financial Planners Learn About Habit Formation From Weight Loss Experts?

March 23, 2011 03:25 pm 3 Comments CATEGORY: General Planning

Although we may focus on various steps we can take to get a better return on our investments or a lower cost for our debt, in reality the most foundational base for financial success is having good financial habits.

Yet in practice - as we've all witnessed with clients - not everyone has already learned and embraced good financial habits, and even worse, it can be extremely difficult to change bad financial habits. On the other hand, the weight loss field is in a very similar position; just as the key to financial success is to save more and spend less (than you make), the key to weight loss is to exercise more and eat less.

So if it's once again all about habits, maybe there's something that planners can learn about helping clients with financial habits from weight loss experts who assist with other types of behavior and habit change.

What Is The Cost Of Waiting For Interest Rates To Rise?

March 21, 2011 04:44 pm 1 Comment CATEGORY: Investments

With the Federal Funds rate as close to "zero" as it can feasibly get, it would seem that interest rates have only one directly to go: up. And given the mathematics of bond investing - as interest rates rise, bond prices fall - many advisors and their clients have decided that the only prudent course is to wait for rates to rise before investing into the bond markets. Yet the truth - as a recent white paper points out - is that there is a cost to waiting, in the form of earning lower returns while waiting for interest rates to rise. Which means to say the least, if you're engaging in a strategy of waiting on bonds for interest rates to rise... you better be right about when and how much they actually do increase!

What Is The Future Of Advice-Givers As Technology Increases Access To Information?

March 18, 2011 04:59 pm 5 Comments CATEGORY: Planning Profession

With the explosion of the internet over the past decade, raw access to data and information has exploded for the average individual, made even easier by the effectiveness of search engines like Google to filter through the volume to find the most relevant content. While most of us enjoy having the opportunity to dig into all of this newfound information, it does paint some potentially troubling implications for many professions, including financial planning, that have historically relied on the delivery of expert information as a core value proposition. If access to information explodes further in the next 10 years the way that it has over the past 10, will this force a change in the core value proposition of financial planners? What does it mean to be a financial planning expert if/when the internet makes all the "expert" information accessible to the average person?Read More...

Why All Professionals Should Eventually Have A Niche…

March 11, 2011 10:03 pm 28 Comments CATEGORY: Marketing

The practice management advice is almost ubiquitous - if you run a financial planning practice, you should eventually carve out a specialized niche for yourself. If you don't already have one, look through your book of clients for similarities, and use that common thread to expand on a niche you might have unwittingly already started. The ultimate goal: to have carved out some unique space for yourself, whether that's financial planning for fly-fisherman, working with public school teachers, or having a specialized skillset for doctors running a medical practice. Yet in reality, many (most?) planners seem to resist this advice; "if I specialize, don't I leave a whole lot of other business on the table?" is the most common objection. But focusing on the clients you won't get by specializing completely misses the point - which is significant increase in referrals you can generate by clearly defining a niche and conveying it to the clients and affiliated professionals who might refer you.

How Do You Take On More Risk In A Portfolio?

March 10, 2011 11:38 pm 5 Comments CATEGORY: Investments

In the standard framework of portfolio management, changing a client's exposure to risk is essentially analogous to changing their overall exposure to risk assets. Want conservative growth? Invest in a portfolio with 40% equities and 60% fixed. Want a more moderate growth portfolio? Increase to 60% equities. More aggressive growth? Allocate your portfolio further towards an equity tilt. At its core, the proposition is pretty straightforward: increase your overall portfolio allocation increasingly towards risk assets to increase the overall risk (and hopefully, return) profile of the portfolio. But what if there was another way to increase overall risk? What if, rather than increasing overall risk by adding a little risk to the whole portfolio, the risk was increased by adding a lot of volatility to a very small portion of the money?

Does the Frequent Disconnect Between Consumers and Financial Planners Mean That Planners Might Be Out Of Touch?

February 25, 2011 03:34 pm 4 Comments CATEGORY: Planning Profession

It is an experience that almost any financial planner has gone through at some point: a prospective client who is totally disconnected from reality. Unreasonable expectations, completely unrealistic goals, and an obsession with the latest get rich quick investing scheme. Sometimes, the prospect can be guided in a more reasonable direction, but often there's just no connection to be made, and we show the prospective client the door, acknowledging that some people we just can't help. We move on to the next prospect, who hopefully won't be such a "bad" future client.

Yet I have to wonder... given the state of financial literacy - or lack thereof - in the United States, many such prospective clients have totally impossible expectations and goals not because they're being irrational, but simply due to financial ignorance. And by excluding such prospective client relationships, are financial planners themselves excluding the majority of Americans as potential clients?

Because if that's the case - that we as financial planners have put ourselves in a position than we can't help the majority of all Americans - then I also have to wonder if maybe it's not the the prospective clients who have the problem... maybe WE are the ones with the problem?