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Weekend Reading For Financial Planners (July 23-24)

July 22, 2022 02:02 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 Financial Planning Association has announced a major new advocacy initiative: to pursue legal recognition of the term “financial planner” through title protection (such that those who don’t meet the competency and ethical standards of financial planning wouldn’t be permitted to use the title). Though in recognizing that the path toward regulation is likely to be a long one, as a starting point, the FPA has simply pledged to begin exploring how to pursue Title Protection, what kind of licensing or regulation it might entail, and whether it should be done at the state or Federal level.

Also in industry news this week:

A Schwab benchmarking survey shows that RIAs had strong top-line and organic growth in 2021 and that a potential talent crunch remains top of mind for firm leaders
RIA consolidation activity maintained a strong pace in the first half of 2022, with large strategic acquirers leading the pace of M&A activity

From there, we have several articles on the value of financial planning:

Why it is vital for advisors to focus on their clients’ understanding of the value they are receiving, as well as what separates the advisor’s value proposition from the client’s other options
Why it is important for advisors to not only consider a client’s financial assets, but also what brings them purpose and meaning, when providing financial planning services
How an advisor’s professional network and industry experience can provide significant value to clients that goes beyond their net worth statement

We also have a number of articles on retirement income planning:

Why simple strategies like a phased retirement and flexibility in spending could trump more complicated retirement income planning techniques
How “buffer assets” could help clients overcome the financial and emotional turmoil caused by bear markets
Why it typically pays for clients to make portfolio withdrawals for retirement income gradually throughout the year rather than as a lump sum in January

We wrap up with three final articles, all about the housing market:

How rising house prices are changing the composition of neighborhoods across the United States and how advisors can help clients navigate these dynamics
Why many Americans, including families and retirees alike, are choosing to move to Europe and how doing so can affect their financial plan
How some cities and towns across the U.S. are providing incentives – from cash to free babysitting – to attract high-income remote workers and why a move could be attractive for advisors and their clients alike

Enjoy the ‘light’ reading!

Sabbatical Financial Planning: Taking Extended Time Off Without Derailing The Career Or Retirement

July 20, 2022 07:09 am 0 Comments CATEGORY: General Planning

For many workers, a typical career entails a series of successive jobs over several decades, with the end goal of retiring and finally being able to ‘relax’. And while most breaks from work on the traditional path are limited to short vacations, there is a growing movement of individuals who want to take extended time off during their working years to take advantage of their health and opportunities that might not be available to them once they reach ‘normal’ retirement age. One way to do so is through a sabbatical, and advisors can play an important role in supporting clients who are interested in taking this step.

A sabbatical refers to a period of time in which someone takes an extended, planned break from work prior to retirement, often as an opportunity to focus on their wellbeing and/or to gain valuable perspectives of life outside of work. While sabbaticals can involve as little as 1 month for some individuals, taking a sabbatical for 6–12 months is not uncommon. However, longer sabbaticals do carry more substantial financial and career ramifications that require careful planning, especially when extensive travel plans are involved.

One of the biggest challenges of planning a sabbatical is enduring a period of little or no income and coordinating job opportunities after the sabbatical is completed. While some employers have formal sabbatical programs that guarantee the individual can return to the same job after their time away, others may be willing to allow a sabbatical on an ad hoc basis. And there are other employers who are less flexible that may require the individual to quit their job altogether in order to take significant time away from work.

With this in mind, advisors can help clients assess how their sabbatical plans will affect their other financial goals. This could include planning for how their expenses will change during the sabbatical as well as simulating how the sabbatical will impact their financial picture going forward. Advisors can also add value by analyzing tax planning opportunities during the sabbatical; for example, having reduced (or no) income during the sabbatical could create unique opportunities for Roth conversions or harvesting capital gains.

Advisors with clients who might be interested in taking a sabbatical can start the conversation at a strategic level, thinking about their goals for the time off as well as how it relates to their other life objectives. For example, some clients might be fine with taking a one-year sabbatical that pushes out their projected retirement date by two years, while other clients might prefer to stick with an earlier retirement date. In addition, advisors can help clients explore contingency scenarios if they do go through with the sabbatical. For example, an advisor can model what the client’s financial picture will look like if it takes 3 months longer than anticipated to find a job after returning from the sabbatical.

Ultimately, the key point is that advisors are uniquely positioned to add significant value for clients who are considering a sabbatical, both in conceptualizing what the sabbatical would entail and how it would affect their other financial goals. In the end, while taking a sabbatical might not maximize a client’s net worth, it could be a decision that maximizes how they experience their life!

#FA Success Ep 290: Serving Neurodivergent Clients As A Financial Advisor With Autism, With Andrew Komarow

July 19, 2022 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 290th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Andrew Komarow. Andrew is the founder of Tenpath Financial Group and Planning Across the Spectrum, a hybrid firm based in Farmington, Connecticut that oversees $100 million in assets under management for 100 client households.

What's unique about Andrew, though, is how he, as a financial advisor with autism, has built a firm with a specialized niche of autistic and other neurodivergent clients, helping them navigate their unique and complex financial planning challenges.

In this episode, we talk in-depth about how being diagnosed with autism as an adult helped Andrew understand himself better and realize he had an opportunity to niche-focus his firm to serve clients who are also neurodivergent adults, how the combination of creating a separate website for Planning Across the Spectrum and leveraging a Facebook group for the special needs community has helped Andrew develop a steady path for growth in his specialization, and how Andrew created an impact investing index that he labeled as a “Neurodiversity Index,” with 79 companies that embrace neurodiversity and inclusion (because on the periodic table, gold is represented by the letters AU, and its atomic number is 79).

We also talk about how, despite never graduating high school (but gaining a GED later), Andrew credits his autism and the hyperfocus that comes along with it for helping him to ultimately earn more than 16 professional financial planning designations, how working at an insurance company early in his career and getting frustrated with adhering to large-firm corporate rules helped Andrew realize he liked giving financial advice to clients but was going to need to be more independent to have the control to serve his unique clients the way they need to be served, and how an unexpected separation from that insurance company ended up being a blessing in disguise as it forced Andrew to find a new growth path that led him to focus into his ideal client type and ultimately fueled the launch his own firm.

And be certain to listen to the end, where Andrew shares how he was surprised by how much he actually enjoyed building his own firm and having the flexibility to decide for himself what procedures and roles are put in place, why Andrew believes we are too hard on ourselves and how important it is to be kinder to ourselves about the challenges we face, and why Andrew feels the best business decision he ever made was hiring his first team member to assist him even before he really had the revenue to afford it… because it was the only way he’d be able to grow and scale further.

So, whether you’re interested in learning about how Andrew took advantage of the separation from his former firm as an opportunity to serve the types of clients he preferred and in the way he wanted, how receiving an autism diagnosis as an adult not only gave Andrew a better understanding of himself, but also how he could help other neurodivergent adults navigate their financial challenges, or how Andrew leverages educational tools on his website, along with Facebook groups, to maintain a steady path of growth, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Andrew Komarow.

CFP Board’s Fee Increase For Workforce Development: More Advisors Or Just More Sales Churn?

July 18, 2022 07:03 am 10 Comments CATEGORY: Industry News

Amid estimates that nearly 40% of all financial advisors are likely to retire in the next 10 years, the need for a new generation of advisor talent is clear. To meet this challenge, CFP Board’s Center For Financial Planning has engaged in fundraising for several years to fuel campaigns that have focused on building the advisor workforce of the future. But a recently announced increase in annual CFP certification fees – shifting the Center’s efforts from voluntary fundraising amongst donors to a mandatory cost for all CFP certificants, as 35% of the fee increase is allocated to Workforce Development efforts – raises an important question: Who actually benefits the most from increasing the number of students pursuing degrees in financial planning?

Insurance companies and broker-dealers in the business of manufacturing products and hiring advisors to sell them often dominate career fairs and job boards, frequently drawing in graduates of CFP Board-approved education programs. But these positions are often tenuous for new advisors, with extremely high failure rates, driven in large part by compensation that is reliant primarily on commissions from product sales. In fact, for decades, approximately 80% of those who take such ‘financial advisor’ sales jobs with product manufacturers leave those companies (and potentially the industry) after 3–5 years! And while CFP Board does emphasize in its Career Guide that commission-based income is lower initially for more upside in the long run, the guide does not acknowledge the drastically higher failure rates that come with commission-based roles.

The added complication is that, while this structure of hiring a large number of new advisor recruits with a high level of churn results in a high volume of aspiring planners potentially leaving the industry altogether, it is quite profitable for the insurance companies and broker-dealers themselves. As from the perspective of the product manufacturer, spending money on recruiting to get new advisors who bring their ‘natural-market’ list of 100 friends and family means that the company ‘gets’ 100 leads at the cost of nothing more than some licensing exams and a recruiter to bring them in – as new advisors who are recruited but don’t sell much of anything don’t get paid much of anything… but the insurance company still gets to keep the list of 100 prospects (and in many cases, the trails from the new advisor’s early sales that no longer have to be paid after the advisor leaves). Which, at scale, can actually be even more cost-effective as a lead generation strategy than simply buying leads from a third-party lead generation service (and thus why such high-turnover recruiting strategies have persisted for decades)! Because of this ‘cost-effective' source of leads via high-turnover recruiting, a number of the industry’s product manufacturers have historically been corporate sponsors of the CFP Board-affiliated Center for Financial Planning’s Workforce Development initiatives in order to build the pool of potential recruits (for those companies to potentially hire as their lead-generation source!).

But now, with its recent increase in CFP certification fees, the Center’s funding appears to be shifting: out of CFP Board’s recent $100 increase to its annual certification fee, $35 is allotted to the Workforce Development program, which means now the Workforce Development initiatives that historically were funded voluntarily by product companies in alignment with their sales efforts will instead be funded on a mandatory basis by all CFP certificants… effectively turning a portion of the CFP Board’s certification fee into a marketing expense for product manufacturers via their high-turnover recruiting efforts (which will simultaneously undermine the CFP Board’s own growth goals as a result of that high turnover).

Given the substantial risk that CFP Board’s increase in certification fees is funding the marketing efforts of product manufacturers, there are steps that CFP Board can take to ensure that fee increases are actually supporting the long-term expansion in the number of financial planners. First and foremost, CFP Board needs to determine and demonstrate that young people who enter CFP Board-registered programs actually do end out becoming CFP certificants in meaningful numbers, and are not just a conduit to high-turnover sales jobs. This could be done through a study working with the largest CFP Board-registered programs to determine whether their students took an industry job after graduating, how many are still in the industry 3 years later, and how many of them ultimately got their CFP marks, among other questions. With this data, CFP Board could then update its Career Guide to reflect the realities of what career choices and starting firm paths really lead to increases in success (or failure) as a new financial advisor.

Ultimately, the key point is that if the CFP Board is going to turn the Center for Financial Planning from a voluntary contributed-income program into one funded by a mandatory portion of CFP certification fees – especially since nearly 50% of all CFP certification fees are no longer for the operation of the CFP Board itself, but for the organization’s own growth initiatives – it needs to do the research and bring the data to show that its initiatives will be a good allocation of capital. And until it can determine whether increasing the flow of students will result in a larger advisor workforce or just a higher volume of advisor churn (and also update its Career Guide to help students navigate those risks), CFP Board should delay the increase of at least the Workforce Development portion of its new certification fee.

Weekend Reading For Financial Planners (July 16-17)

July 15, 2022 02:04 pm 2 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that investors this year have filed 37 arbitration cases with FINRA related to alleged violations of Regulation Best Interest (Reg BI). These come on the heels of the SEC’s first enforcement action related to Reg BI, suggesting that industry participants might soon get more clarity on the regulation’s requirements and the consequences for not adhering to them… and that regardless of how slowly the SEC acts in enforcing Reg BI, the plaintiff’s bar is beginning to take the matter into their own hands by filing complaints against brokers who fail to act in their clients’ ‘Best Interests’.

Also in industry news this week:

Democratic Senators have proposed to extend the 3.8% Net Investment Income Tax to high-income-owners’ S corporation profits as part of broader legislation, but this measure appears to be on shaky ground
Why a recently announced SPAC merger could lead to additional opportunities for breakaway brokers to transition to the RIA model

From there, we have several articles on practice management:

How the use of a tiered fee structure or a retainer model can help insulate advisory firm revenue from the effects of a bear market
At a time when costs are up and revenues are down for many advisory firms, why simplifying the firm’s value proposition and pursuing operational efficiencies can help prevent margins from tightening further
Why bigger isn’t always better when it comes to the number of clients an advisor serves, and why pursuing a niche market can provide benefits to an advisor’s professional and personal lives

We also have a number of articles on advisor marketing:

A recent survey suggests that younger clients are more sensitive to advisory fees and are interested in hybrid solutions that combine human advice with digital tools
Wealthy millennials have a high degree of trust in advisors and are looking for them to be literate in assessing ESG data, according to a recent study
Why investors prefer advisor marketing that asks questions about prospects and avoids industry jargon

We wrap up with three final articles, all about leadership:

What advisory firm leaders can do to help their teams work smarter, not harder
Why ‘unblocking’ might be the most important task a manager can complete during their day
How taking a structured approach can help you become more like your role models

Enjoy the ‘light’ reading!

Kitces & Carl Ep 90: Standing Out On Social Media By Finding The ‘Minimum Viable Audience’

July 14, 2022 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

In recent years, many financial advisors have turned to social media as a marketing tool to connect with prospective clients. Its ease of use and potential to reach large audiences have made it a very attractive channel to generate potential leads. But as a highly competitive venue with an excess of information, personal finance personalities, trends, and products, social media is rife with individuals all vying for everyone’s attention. Faced with what can feel like overwhelming competition and messaging, many advisors are left trying to figure out not only how to get noticed by potential clients, but also how to stay connected enough to gain their trust and business.

In our 90th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the importance of being increasingly relevant to find the minimum viable audience as an effective way to capture attention, drive interest, and grow a following on social media.

As a starting point, it’s important to recognize that social media engagement is usually better when the content is relevant to a specific audience. Though social media has the potential to reach mass audiences, delivering generalized content to reach everyone doesn’t work nearly as well as narrowly targeting a very specific audience. Even if a user is reticent to agree with a particular message, if the message is clear and specifically relevant to them, they will be more likely to pay attention to and engage with the message because of its relevance.

Importantly, the best way for advisors to develop narrowly targeted messaging is to determine their 'minimal viable audience'. Just like figuring out which niche to serve, finding the minimum viable audience means finding the specific demographic subset of people that would not only be remunerative for the advisor, but that the advisor wants to serve over time. Understanding who the messaging is for will allow the advisor to connect with their audience more specifically and meaningfully, creating more of the right connections.

Ultimately, the key point is that finding the minimum viable audience will allow the advisor to develop messaging that is highly relevant to a specific target audience. And while choosing a smaller demographic target might feel counterintuitive and scary (as it means fewer people will be targeted), creating connections with a smaller group of the ‘right’ people can actually be more lucrative, resulting in warmer leads and more new business. And connecting with more of the right types of clients upfront (versus making more connections with anyone) can help advisors develop longer-lasting relationships with the clients who they will be happiest working with over the long run!

Why Tax-Loss Harvesting During Down Markets Isn’t Always A Good Idea

July 13, 2022 07:09 am 9 Comments CATEGORY: Taxes

During market downturns, tax-loss harvesting is often considered a ‘silver lining’ to an otherwise undesirable situation. In theory, the strategy allows investors to convert their capital losses into a tax deduction while staying invested so they can benefit when markets recover – ostensibly a win-win for the investor and, consequently, a popular strategy for advisors who are often eager to find ways to provide extra value to their clients in volatile markets.

But contrary to this no-lose framing, there are situations where tax-loss harvesting results only in a net neutral outcome for the investor, and can even leave the investor worse off than if they had done nothing to begin with! This is because when losses are harvested, the investor’s cost basis in their portfolio is reduced by the amount of the loss. Which means that when the investment is ultimately sold (after it has recovered to or above its original value), there will be an additional capital gain equal to the loss that was harvested earlier – potentially negating some (or all!) of the initial benefit of harvesting the loss in the first place.

Whether tax-loss harvesting benefits the investor or not, then, depends highly on the investor’s tax rate when they deduct the initial loss, as well as the rate at which they realize the later gain that the initial loss created. If the investor is taxed on future gains at a lower rate than losses harvested today, the resulting ‘tax bracket arbitrage’ can create a net tax benefit. But the effect can also work in the opposite direction, and when the future gain is taxed at a higher rate than the loss today, the investor might be better off doing nothing (and not harvesting the loss), as in some cases, the additional capital gains created by harvesting losses could themselves push the taxpayer into a higher future tax bracket.

Additionally, when the goal of the investor is to build wealth, harvesting losses can be counterproductive if the investor doesn’t reinvest their initial tax savings because – along with losing out on the potential growth of that savings – spending it all upfront potentially requires the investor to pull additional funds out of their portfolio later on in order to pay for the extra capital gains created by harvesting the loss. And when the investor has large carryover losses from previous years that potentially won’t get used during their lifetime, tax-loss harvesting might potentially just create additional carryover losses, which are lost when the taxpayer dies and the cost basis is stepped down.

Ultimately, the value of tax-loss harvesting has a lot to do with an individual’s current and future circumstances, and financial advisors can take advantage of their knowledge of their clients’ financial pictures to identify when harvesting losses might be (or not be) a good idea. By taking the time to analyze the value of tax-loss harvesting – beyond the upfront tax deduction – advisors can help clients make well-thought-out choices about tax-loss harvesting that make them more likely to benefit from it in the long run.

#FA Success Ep 289: Coming Together As A Partnership To Serve Your Collective Community, With Kamila Elliott

July 12, 2022 07:04 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 289th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kamila Elliott. Kamila is the CEO and Founder of Collective Wealth Partners, an independent RIA based in Atlanta, Georgia, that oversees nearly $25 million in assets under management for almost 175 client households.

What's unique about Kamila, though, is how she and her partners built an independent advisory firm, comprised entirely of Black CFP professionals, dedicated to supporting the creation of wealth for BIPOC and other underserved communities with a model that simply charges them for advice… even if they don’t have assets (or at least, not yet).

In this episode, we talk in-depth about how, after years of working in an environment where she saw first-hand how ultra-high-net-worth clients keep and grow their wealth (and the lack of diversity among those clients), Kamila decided to build a practice that focused on providing holistic financial planning to communities of color with emerging wealth, how Kamila and her partners serve their clients collectively with a team approach where each team member focuses on different areas of specialized expertise such as employee benefits, tax planning, and equity compensation, and why Kamila and her partners feel they can better serve their clients as advisors of color because they have a deeper understanding of both the cultural competencies necessary to serve different communities and the values those communities want to see represented in their investments and financial planning recommendations.

We also talk about why Kamila intentionally shifted her career focus to build an independent practice after years of working with clients and realizing how few looked like her, how despite working hard, Kamila was frustrated she was not receiving the recognition and compensation she felt she deserved and ultimately decided to follow the advice she gives her clients by advocating for herself and leaving her prior firm, and how Kamila explains the value of hiring a financial advisor to her clients (as many in communities of color have never had an advisor before) by likening it to hiring a personal trainer as financial advisors help clients stay focused, motivated, and accountable.

And be certain to listen to the end, where Kamila shares how she was surprised by how much time it takes to manage aspects of her business, like compliance, technology, and having time to learn new industry information in order to build a successful practice, how Kamila now recognizes risk and fear are part of growth and wishes she could have taken more risks early in her career, and why she believes in the importance of taking multiple career steps across different domains of the financial services industry that build upon one’s expertise (especially leadership skills) over time, even if that means having a more circuitous career… as not everything in life is linear.

So, whether you’re interested in learning about how working with ultra-high-net-worth clients at her former firm gave Kamila the insight to help others grow and retain wealth, why Kamila and her partners chose to create a firm with an equal partnership, even dividing responsibilities to ensure they are serving their clients to the best of their expertise, or how being comprised of entirely Black CFP professionals gives Kamila's firm the leverage to better serve and connect with clients of color with emerging wealth, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Kamila Elliott.

3 Aspects Of Identity Covering And How It Impacts Advisors’ Happiness At Work

July 11, 2022 07:03 am 3 Comments CATEGORY: Personal/Career Development

Financial advisors are often responsible for working with a wide range of individuals, both among their client base and coworkers, who each have their own personality, beliefs, and style of communication. While it can be rewarding to build a large breadth of relationships, it can also be challenging to appeal to and feel accepted by so many different people all at once. One way that some advisors cope with this challenge is to 'cover' – that is, to downplay or conceal aspects of their own personality or values in order to fit in.

Research has shown that covering is a common phenomenon in the general population, and the most recent Kitces Research study on wellbeing has shown that it is also common among financial advisors: Approximately 40% of advisors responded that they hide aspects of their personal lives from both their coworkers and clients. Importantly, advisors who strongly agreed that they cover in the workplace also reported lower quality-of-life scores, presumably because spending so much time in an environment where they feel they cannot express their true selves would understandably cause a decline in wellbeing.

While covering is a universal phenomenon, Kitces Research suggests it is more prevalent among advisors at larger firms (defined as those with seven or more members) than those at smaller firms. While it makes intuitive sense that advisors at a larger firm might feel more pressure to downplay personal traits among their coworkers, what is notable is that advisors at larger firms are also more likely to do so with their clients. Which suggests that covering might not just be an issue of an advisor's personal insecurity, but may also be rooted in the culture of larger firms. And this may encourage advisors to suppress their unique personalities and fit in with the crowd.

In addition to firm size, several other factors are also associated with covering. Advisors whose personality traits do not align with stereotypical gender roles – e.g., confidence and assertiveness in males; gentleness and deference in females – may feel pressured to conform to what they think is expected of them. Likewise, advisors with more junior roles and less experience also feel less confident in expressing themselves than their more senior colleagues.

Ultimately, most everyone feels pressure to cover at some point, but when that pressure is present in one's work environment every day, it can have a detrimental impact on wellbeing. It's important for advisors to find ways to authentically express themselves – whether by building deeper relationships with work colleagues or clients, or seeking out mentors or study groups – and also for firms to provide a culture where employees feel comfortable doing so. Allowing advisors to openly share what makes them unique can help create a more diverse, inclusive, and happier financial planning industry!

Weekend Reading For Financial Planners (July 9-10)

July 8, 2022 02:06 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with a recent study indicating that 15% of employee advisors at wirehouse firms and 7% of independent advisors affiliated with a broker-dealer are considering leaving their firm in the next one to two years. Of those most likely to stay, retention was driven primarily by the quality of the firms’ technology offering, the breadth of its products and services, and the corporate culture set by the leadership of the firm. Though notably, dissatisfaction among employee advisors tended to increase with industry tenure, suggesting that some firms could potentially lose advisors with the largest books of business, potentially creating an opening for competing firms to bring on seasoned talent (and client assets)!

Also in industry news this week:

How advisors are planning to grow despite the current bear market’s negative impact on assets under management
Two years after its implementation, the SEC is planning to draft additional guidance to help advisors better understand Reg BI and ensure it delivers on its investor protection goals

From there, we have several articles on practice management:

How setting Objectives and Key Results (OKRs) can help ensure all employees are working toward common firm goals
How advisors can leverage the Entrepreneurial Operating System (EOS) to systematically manage and grow their firms
What it takes to build lasting influence, and why it has little to do with social media follower counts

We also have a number of articles on cash flow management:

How advisors can work with younger clients who want to financially support their parents or other loved ones
How to prevent money issues from derailing a friendship
The importance for advisors of recognizing the different preferences clients have for spending and saving their money

We wrap up with three final articles, all about psychology:

Why setting “process goals” can help advisors create routines that endure after their larger goal is achieved
Why advisors might not want to worry the next time they start (literally) sweating a stressful situation
Why chosen suffering is an important part of achieving a life of happiness and meaning

Enjoy the ‘light’ reading!