Nerd's Eye View blog

Tax-Loss Harvesting Best Practices (And How To Scale It Across A Client Base)

September 7, 2022 07:01 am 7 Comments CATEGORY: Taxes

Tax-loss harvesting – i.e., selling investments at a loss to capture a tax deduction while re-investing the proceeds to maintain market exposure – is a popular strategy for financial advisors to increase their clients’ after-tax investment returns. For many, however, tax-loss harvesting remains somewhat more of an art than a science: Because the value of harvesting losses is so dependent on an individual’s own tax situation, there is no single strategy that can be implemented across an entire, diverse client base. And to complicate things further, when it is decided to go ahead with tax-loss harvesting, there are numerous considerations involved to ensure the strategy is carried out correctly and avoids running afoul of the IRS’s wash sale rules (which could disallow losses and negate the value of the strategy altogether).

But because tax-loss harvesting can be so valuable in certain situations, having a framework for deciding which clients could be good candidates for tax-loss harvesting and a process for executing the strategy properly can be beneficial for advisors. And given the challenges of scaling the strategy across dozens or even hundreds of clients, a key consideration when developing these best practices should be how well they can be systematized and repeated whenever the advisor reviews client accounts for tax-loss harvesting opportunities – a factor which can be aided with technology, including software tools that many advisors already use regularly.

For example, advisors who use a Customer Relationship Management (CRM) tool may be able to use that tool to narrow down the list of clients to those who are good tax-loss-harvesting candidates, such as those in higher tax brackets (who are likelier to realize more value from deducting capital losses). From there, the advisor’s financial planning software may be able to model the client’s future tax rate when the investment is ultimately sold, allowing the advisor to estimate the long-term value of harvesting the loss today. Finally, many software tools for trading and rebalancing may incorporate tools for tax-loss harvesting, such as checking for potential wash sale violations and allowing the advisor to designate replacement securities. With these three tools (i.e., the advisor’s CRM, planning software that models future tax scenarios, and trading and rebalancing tools), advisors can build a systematic start-to-finish process for tax-loss harvesting – and because all three are already core parts of many advisors’ existing technology stack, doing so might require no additional investment in technology!

The key point, however, is that – like many tax planning strategies – tax-loss harvesting requires at least some individual attention to each client’s tax situation to ensure it is the right strategy for that client. Additionally, there are many considerations both in deciding when to harvest losses and in executing the strategy, which makes it all the more important to have a repeatable process to ensure that nothing gets missed.

At a minimum, advisors can consider using a standardized tax-loss-harvesting checklist to reduce the likelihood of overlooking any important information. And because there is often pressure to act fast when markets are down and when tax-loss harvesting opportunities present themselves, having a well thought-out framework for harvesting losses can help advisors focus more of their attention on the clients who will get the most value from it (and fully deliver on that value in the end!).

#FA Success Ep 297: From $0 To $70M In 2 Years By Leveraging Facebook Groups To Share Authentic Expertise, With Andy Panko

September 6, 2022 07:03 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 297th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Andy Panko. Andy is the owner of Tenon Financial, a virtual independent RIA that oversees $70 million in assets under management for 43 retired client households.

What's unique about Andy, though, is how, shortly after launching his practice, he created a Facebook group so that he could share his expertise directly with the types of clients he wanted to serve… which unexpectedly became so successful, that in just two short years, he reached the client capacity goal he set out as he went from $0 in AUM to $70 million!

In this episode, we talk in-depth about how, after seeing little success in his initial ‘traditional’ marketing efforts like seminars and creating profiles on advisor referral sites, Andy decided instead to create a Facebook group focused on “Taxes In Retirement” (so that he could more directly engage with and demonstrate his expertise to the types of clients he wanted to work with), how Andy built the initial list of members for his Taxes In Retirement group to gain enough momentum that Facebook’s algorithm would make his group more visible to sustain its growth in bringing new prospects, and how Andy’s Facebook group is still gaining momentum but he has purposefully decided to not take on any more new clients (so that he can still have capacity and flexibility to serve his current clients) and instead has dedicated a page on his website with a list of advisors that have similar focuses so that they can share in the prospect funnel that he created.

We also talk about how, after listening to industry podcasts on his commute while working in the traditional corporate finance world, Andy’s eyes were opened to the possibilities of financial planning which led him to pursuing his CFP marks (along with some other designations) before he ever quit his old job to launch his new firm (to ensure he could hit the ground running when it was time), how, after seeing how his mother’s advisor was not helping her gain the most she can from her Social Security claims, Andy decided to take it upon himself to learn more about retirement planning to help her, which led to an aha moment for him as he realized he truly enjoyed that type of financial planning and would focus his own practice on helping retirees with value-added tax planning, and how once Andy knew what type of practice he wanted to launch, he intentionally structured it with a flat fee model so he could clearly project what his revenue would be, and then used his business projections to determine the target of how much savings he would need to set aside to cover the first three years while his client base got off the ground and ramped up.

And be certain to listen to the end, where Andy shares how, even though he intentionally set out to be a solopreneur for the flexibility and control, he is looking to fill the gap of camaraderie and brainstorming that he misses from when he was part of a larger firm, how Andy didn’t realize he was inadvertently creating a virtual practice by gaining new clients through his Facebook group but decided that it was a positive for him as he can maintain a more casual appearance and approach with his clients, and why Andy believes that though it may take time and be difficult to achieve, it is important for those starting in the financial services industry to continually work hard to find the right position for them that suits their needs and aligns with their values to ensure they can build a longer, much more fulfilled career.

So, whether you’re interested in learning about why Andy decided to become a financial planner after seeing the benefits it provides to clients and their financial futures, how Andy leveraged the connections he made through his Facebook group to turn prospects into clients, or why Andy decided to add a tax planning focus to create a stronger value proposition for his clients, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Andy Panko.

The Latest In Financial #AdvisorTech (September 2022)

September 5, 2022 07:06 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2022 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the news that VRGL (pronounced “Virgil”) has raised a $15M Series A round to scale up its tool that can scan investment account statements and automatically extract the available information about their holdings to analyze the prospect’s performance, risk, diversification, fees, and taxes, with the potential to greatly expedite the process of developing an investment proposal with the advisor’s recommendations for improvement.

The deal comes on the heels of similar “data gathering extraction tools” like Holistiplan (which scans tax returns) and FP Alpha (which scans estate planning documents), as more advisor technology solutions recognize that the real opportunity is not trying to develop “artificial intelligence” to replace financial advisors, but instead can make it easier for advisors to collect all the information they need to better analyze and make their own recommendations to prospective clients… effectively helping advisors to give better advice, rather than just trying to make it faster!

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

Farther raises a $15M Series A to try to make a more efficient back-office for advisors to actually be able to take home a 75% payout
FMG acquires Vestorly to map its curation capabilities onto FMG’s existing digital marketing tools
FutureProof and XYPN LIVE announce the finalists for their FinTechX Demo and AdvisorTech Expos to highlight new advisor technology innovation

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

SmartRIA launches an integration with Kitces.com to help RIAs manage the new IAR CE obligation rolling out from NASAA
Orion (re-)partners with Apex Clearing with an integrated financial-planning-and-digital-account-opening experience for younger clients with smaller accounts.

In the meantime, we’re also gearing up for several new updates to our new Kitces AdvisorTech Directory, including Advisor Satisfaction scores from our Kitces AdvisorTech Research and Integration scores from Ezra Group’s research!

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading For Financial Planners (Sept 3-4)

September 2, 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, in its newly released draft strategic plan for 2022-2026, the SEC has indicated that the enforcement of Regulation Best Interest’s requirement that brokers act in their clients’ best interests when making an investment recommendation will be a priority going forward. Combined with the private arbitration cases that have been filed related to Reg BI, such enforcement in the years ahead would demonstrate the consequences of running afoul of Reg BI for broker-dealers and their representatives.

Also in industry news this week:

How enforcement of FINRA Rule 4111 could further the decline in the number of broker-dealers and registered representatives
A study suggests that some fund companies are misleading investors by changing their benchmark indices to make their performance look better

From there, we have several articles on investments:

How Morningstar plans to simplify its rating system amid continued concerns about its effectiveness
Why private placement life insurance policies could become an increasingly popular option for ultra-high-net-worth clients
Why market capitalization might not be the most accurate way to value the cryptocurrency market

We also have a number of articles on retirement planning:

New research suggests that while the average senior will amass hundreds of thousands of dollars in health care expenses in retirement, the net cost they have to pay is not nearly as high
The upcoming debut of a new tontine product could add another option for advisors looking to mitigate their clients’ longevity risk
The variety of ways individuals approach retirement, from choosing where to live to finding purpose in their daily lives

We wrap up with three final articles, all about mental frameworks:

How operating from a set of ‘big beliefs’ can help advisors assess the needs of individual clients
Why it might be more helpful to compare your current circumstances to alternate versions of your own life than to compare yourself to others
An advisor’s 41 tips for health, wealth, and happiness

Enjoy the ‘light’ reading!

Biden’s Student Debt Relief Plan: Eligibility, Income Limits, Payment Freeze Extension, And More For Advisors!

August 31, 2022 07:03 am 5 Comments CATEGORY: Debt & Liabilities

The Biden administration’s long-anticipated Student Loan Debt Relief plan was finally announced on August 24, 2022, and with it came a flurry of attention on the proposal’s centerpiece of providing $10,000 of student loan forgiveness for Federal student loan borrowers (and $20,000 for borrowers who received a Pell Grant for college) with income levels under $125,000 for single borrowers and $250,000 for married couples.

But student loan forgiveness is just one part of the administration’s plan for student debt relief. In addition to the $10k – $20K of potential forgiveness, the plan also provides another (final) extension to the pause on Federal student loan payments until December 31, 2022; a push for borrowers who may be eligible for the Public Service Loan Forgiveness (PSLF) Waiver to apply for the waiver before its expiration on October 31, 2022 (along with some significant changes to the eligibility requirements for PSLF going forward); and the creation of a new Income-Driven Repayment (IDR) plan that would lower monthly payments and potentially reduce the time period required for loan forgiveness for eligible borrowers.

While parts of the administration’s plan will happen automatically (for instance, many borrowers with IDR plans who have already recertified their income with the U.S. Education Department, unlike other borrowers who have yet to do so, will be automatically eligible for their loan forgiveness), other aspects may require more action. For example, borrowers who have made payments on their loans since the pause on student loan payments started in March of 2020 may want to request a refund of those payments – because although a refund will end out increasing the borrower’s loan balance, it could also result in a greater amount of debt forgiven, while allowing the borrower to simply ‘keep’ their refunded payments!

Consequently, for financial advisors, an in-depth understanding of the details of the Biden administration’s student loan relief proposal will make it possible to give valuable advice to their clients on how these changes will work in real life, how they will interact with the client’s broader financial circumstances, and how to maximize the potential benefits available.

For clients with student loans, advisors can help them understand how much debt they might qualify to have forgiven, maximize any forgiveness routes that may be available to them, and plan for how student loan forgiveness will impact their longer-term financial picture. Additionally, for clients eligible for PSLF, advisors can help ensure they are receiving proper credit for their service under the new Waiver’s provisions, and potentially apply for credit under the Waiver before its expiration date on October 31, 2022. And for clients on IDR plans, advisors can help their clients determine their eligibility for the new IDR plan and how it would compare with their existing IDR plan. Finally, for all Federal loan borrowers, advisors can help their clients prepare for the impact on their cash flow of student loan payments resuming in January 2023 after a nearly 3-year moratorium on payments and interest.

The key point is that because the Biden administration’s proposal will have such broad-reaching effects on borrowers with Federal student loans, the plan represents a great opportunity for advisors to connect with clients who have such loans (or who have family members with student loans). Ultimately, nearly every Federal student loan borrower may be affected – hopefully positively – by at least one of the plan’s provisions and, given the impact of student loans on the situations of so many individuals (both in terms of financial status and psychological well-being), advisors can provide immeasurable value in guiding clients through these changes!

#FA Success Ep 296: Unblocking Clients Who Keep Not Implementing By Exploring Their Financial Psychology, With Ed Coambs

August 30, 2022 07:07 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 296th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Ed Coambs. Ed is the founder of Healthy Love & Money, a financial therapy practice in Charlotte, North Carolina that helps couples and families uncover and understand the roots of their underlying financial conflicts.

What's unique about Ed, though, is how as a former financial advisor turned financial therapist, he utilizes couples therapy techniques to help his clients dig deeper into the issues in their lives that may be preventing them from implementing their financial planning recommendations and helps them get unblocked to achieve their financial goals.

In this episode, we talk in-depth about how Ed learned from his early years as a financial advisor that the reason a lot of clients aren’t achieving their goals isn’t a logical problem but a psychological problem, how Ed developed his expertise in the psychological reasons why clients may have trouble completing their financial goals and what it takes to connect with clients on a deeper level so they can get past those stalling points, and where the boundaries are between going deeper with clients as a financial advisor, and when we may uncover a mental health issue that still requires a referral out to a mental health professional.

We also talk about how, while trying to educate himself on his own personal financial responsibility after receiving a small inheritance and seeing the lifestyle of his own financial advisor as a young adult, Ed was inspired to leave his career as a firefighter and instead pursue a career in the financial services industry, why Ed decided to go further in his career and become a financial therapist after seeing firsthand that even though he had the knowledge to make financial recommendations to his clients, there was something deeper that was stalling them from completing financial goals, and why Ed ultimately decided to pursue a graduate degree for marriage and family therapy to learn the therapy techniques that got him comfortable delving deeper into the more emotional issues that arise when talking to clients about their relationship with money.

And be certain to listen to the end, where Ed shares his own challenges in launching a financial therapy business, from the imposter syndrome of insecurity about being a financial professional to the marketing challenges (that he eventually solved by cutting back on the networking and simply hiring someone with expertise in website SEO), why Ed has decided to turn his financial therapy expertise with clients into a group training for advisory firms to learn how to apply the psychological techniques with their own clients to develop more honest and open relationships (as there is always a more complicated story under the surface than the one the client is telling), and the philosophy Ed embraces of not focusing on the things you didn’t know throughout stages in life (as that’s a normal part of growth), but rather reflecting on how far one has come on their journey and all the wisdom that we’ve gained to get us to this point in time.

So, whether you’re interested in learning about why Ed felt becoming a financial therapist could help him have a greater impact on his clients’ lives, how Ed helps families and couples connect with the psychological reasons they are stalled when it comes to finances, or how Ed works with advisors to help them identify the financial issues that are affecting their clients, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Ed Coambs.

Your Input Requested – Reader Survey For Nerd’s Eye View (2022)

August 29, 2022 07:04 am 0 Comments CATEGORY: Nerd's Eye View

For most advisory firms, 2022 has been a year of relative stability, market volatility notwithstanding. After 2 years of the pandemic forcing massive changes to most firms’ systems and processes, from client meetings to internal management to marketing and business development, advisory firms are increasingly ‘finding their groove’ in this new post-pandemic (or at least, post-acute-pandemic) era as they grow accustomed to the new ways of getting business done.

For Kitces.com, it has been a similar year of consolidation, as the past 2 years have tripled the Kitces team, and led to the rollout of everything from our Virtual Summits on Marketing and Advisor Value to our Kitces Courses on Tax Return Reviews and Social Security, our AdvisorTech Directory, and most recently the launch of IAR CE in our Members Section. Which means now it’s time once again to take at least a brief pause to get some feedback about how we’re doing.

Every year, we ask you – our readers – for feedback about what you want to make this website even better for you, to ensure we stay on the right track in adding value to the advicer community and making financial advisors better and more successful. And especially after the amount of change over the past few years, we’re more eager than ever for your feedback about how we’re doing, where we can improve, your thoughts about some new ideas we’re considering, and your feedback about what else we could be doing to help the advicer community.

Because we really do take your feedback seriously. Over the years, Nerd’s Eye View reader feedback has shaped everything from the visual design of the blog (from its original dense small font!) to the Comment system we use, to the expansion of our Members section from offering CFP to now CPE credits for CPAs and IAR CE for RIAs that can be earned by reading Nerd's Eye View blog articles, the launch of the Financial Advisor Success podcast, our popular “Master List” of all the major Financial Advisor conferences and Best Books for Advisors, and turning our AdvisorTech Map into an entire AdvisorTech Directory that you can use to build your own tech stack.

So regardless of what kind of reader you are: an advisor or someone who works in an advisory firm home office, an individual consumer who reads this blog for your own benefit, a CPA, attorney, or another related professional that works with financial advisors, or you're associated with a vendor who serves advisors... I hope you'll participate in this year's survey. It's only 12 questions, should take no more than a few minutes, and will remain open until the end of next week.

Thanks in advance for taking a few minutes to access our Reader Survey below, and share your feedback! 😊

Weekend Reading For Financial Planners (Aug 27-28)

August 26, 2022 02:21 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 Biden Administration has released a series of long-anticipated Federal student loan relief measures. And while the announced $10,000 of debt forgiveness for some borrowers made the most headlines, advisors will also want to be mindful of a new Income-Driven Repayment plan that could help some clients with student debt reduce their monthly payments and the planning implications of the resumption of student loan payments in January!

Also in industry news this week:

An industry survey suggests that advisory firms are prioritizing growth despite a slower pace of client acquisitions so far in 2022 and rising labor costs
How Charles Schwab and other advisor custodians are competing to offer a more seamless digital onboarding experience for advisors and their clients

From there, we have several articles on practice management:

New rankings show what it takes for RIAs to make it into the top 100 by AUM, and why seeking out ‘smaller’ clients can spur firm growth
The range of considerations and potential consequences for RIAs considering going public
How advisory firm owners can take advantage of a newly expanded range of available sources of liquidity

We also have a number of articles on investing:

Why some advisors and their clients might want to consider taking RMDs this year ‘in-kind’ rather than in cash
How fixed annuities have become more popular among consumers amid rising interest rates and turbulent markets
New research shows how ‘free’ stock trades potentially cost consumers billions of dollars each year

We wrap up with three final articles, all about career development:

Why building a personal brand is more about consistency than a large social media following
How to construct a ‘personal board of directors’ who can help guide and advance your career
Best practices for advisors (or their clients) who want to take a sabbatical away from work

Enjoy the ‘light’ reading!

Kitces & Carl Ep 93: Getting An ROI From Your New Associate Advisor (In Less Than 6 Years)

August 25, 2022 07:05 am 3 Comments CATEGORY: Kitces & Carl Podcast

Historically, the career path for newer financial advisors has followed a commission-based model that was focused on sales and business development first and learning the technical aspects of financial planning along the way. As the financial advisory industry has evolved, though, it has shifted to a business model that focuses more on teaching new advisors how to provide good financial planning services first, and to focus on business development later. With that shift, the timeline for how long it takes for an associate advisor to manage their own client relationships and develop new business for the firm has changed from just a few months to an average of 6 to 7 years. This shift has led the current generation of advisors to wonder if the return on investment in developing new associate advisors is worth the extended time and effort it takes to fully train them to become lead advisors.

In our 93rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explain how the time and resources it takes to elevate an associate advisor can benefit a firm, and what the current generation of new advisors can do to be successful in their roles.

As a starting point, it’s important to recognize that since many of the business models that financial advisory firms follow have become more service-oriented, determining how newer advisors can add meaningful value has also changed, as evaluating newer advisors based on the value they bring through sales and business development is no longer as relevant. Though it may take longer for associate advisors to reach a point where they will bring in their own new clients and generate revenue, they can still add value to the firm in as little as 6 months. While they are getting up to speed, associate advisors can attend meetings, take notes, input data into CRM systems and planning software, and even help prepare the financial plan. The more time spent working on such tasks helps the associate advisor to understand and learn these important processes, doing them in a way consistent with the firm culture. Because, by delegating these tasks to an associate advisor, the lead advisor can spend more time focusing on providing better service to clients by spending more face time in client meetings, prospecting for new clients, and following up more diligently with client referrals.

Ultimately, the key point is that while there may be a significant investment of time and money into training associate advisors to become lead advisors, the meaningful value they create along the way in supporting lead advisors and learning firm culture can still have a great impact on the business now, even if they aren’t generating new business for the firm right away. Because when lead advisors have the support to enable them to focus more time on developing client relationships, not only will clients be more inclined to stay, but advisors will also have the capacity to bring even more clients to the firm (and generate more revenue) along the way!

Drafting RIA Advisory Agreements: Best Practices And Essential Elements To Include

August 24, 2022 07:08 am 1 Comment CATEGORY: Regulation & Compliance

Advisory agreements for Registered Investment Advisers (RIAs) contain many sections that are important both for the purposes of complying with SEC and state securities regulations, and for constituting a valid agreement between the RIA and the client.

In his latest article for the Nerd’s Eye View blog, Chris Stanley, investment management attorney and Founding Principal of Beach Street Legal, laid out the statutory requirements for RIA advisory agreements and what to include in the agreement when describing the RIA’s services and fees. In this follow-up guest post, Chris expands upon the best practices for drafting advisory agreements and covers numerous other essential elements for advisory agreements to contain, including identifying the client and effective date of the agreement, disclosure responsibilities for the RIA and client, the language around both parties’ rights and responsibilities in the event of a dispute, and how the agreement can be modified or terminated.

To start, the agreement should contain basic information about the adviser-client relationship, including who the client is (e.g., a single person, a couple, a business, or a retirement plan) and the date on which the agreement will become effective.

The agreement should also lay out some acknowledgments for the client to review. These include the acknowledgment that the adviser has provided required disclosure documents like Forms ADV Part 2A/B and Form CRS (and, importantly, has obtained consent to have those documents delivered electronically), acknowledgment of the client’s responsibilities to provide complete and accurate information needed by the adviser in a timely manner and to communicate any changes relevant that might affect the advice given by the adviser, and an acknowledgment that investment and financial planning recommendations involve risk and that there is no guarantee of future performance.

Another important section of the agreement concerns the resolution of disputes between the adviser and the client. While many IRAs include a clause in their advisory agreements limiting their liability in giving financial advice in good faith, the SEC and state regulators have recently been scrutinizing such ‘hedge clauses’ to the extent that they may be found impermissible going forward. At a minimum, the agreement should describe in detail how and where such disputes should be resolved (including which state’s laws the proceedings would be pursuant to).

Finally, the advisory agreement should include provisions for how it may be amended, modified, or terminated, as well as standard legal ‘boilerplate’ language and, of course, a space for the adviser and client to sign the agreement (either physically or electronically).

The key point is that, while the specific requirements for advisory agreements required by the Advisers Act may be fairly narrow in scope, in reality, there are many contractual best practices that advisers can follow to fully comply with Federal and state securities regulations. And even though many advisory agreement provisions can be standardized, agreements should still accurately reflect the advisory relationship with each client (meaning they shouldn’t be so broadly worded as to not reflect the specific services provided and fees charged by the adviser). And while it may not be necessary to have an attorney review every individual agreement signed by a client, it may be wise to obtain some legal advice to aid in the drafting of template agreements (especially given the many state-specific nuances in securities regulation that may diverge from the broad provisions of the Advisers Act).