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Weekend Reading For Financial Planners (March 11-12)

March 10, 2023 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 President Biden released his latest budget proposal this week, which calls for a range of tax increases on higher-income and wealthier taxpayers to fund deficit reduction and the president’s spending priorities. While the budget almost certainly will face stiff resistance in a divided Congress, proposals that could affect financial advisors and their clients include increasing the top income and capital gains tax rates, raising the Net Investment Income Tax rate and applying it to pass-through income, and increasing the amount of the child tax credit.

Also in industry news this week:

Altruist’s self-clearing custodial platform has gone live, offering RIAs of all sizes an alternative to larger, legacy custodians
While the SEC is planning to increase the number of on-site examinations it conducts, the odds that a firm will experience an exam in a given year appear to be remaining steady

From there, we have several articles on tax planning:

How advisors can add value to clients by helping them maximize the benefits of their Health Savings Accounts
How the IRS could be preparing to finalize regulations that would require some beneficiaries with inherited IRAs to take RMDs this year
Why higher interest rates affect the utility of a range of trusts used for estate and tax planning, from GRATs to QPRTs

We also have a number of articles on practice management:

How competitive pressures and growth challenges could drive RIA M&A activity in the coming year
A process that can help advisory firm owners craft a succession plan that matches their goals for their firm and for their own retirement
The major role that emotions play in an advisor’s decision to sell their firm and how to prevent them from scuttling a deal

We wrap up with three final articles, all about the uses of Artificial Intelligence (AI)-enabled tools for advisors:

How a new tool embedded in Microsoft Word can help advisors craft and edit content
How advisors can use AI-enabled tools to more efficiently generate content ideas, proofread text, and create marketing videos
Why ChatGPT could be a valuable tool to support advisor marketing, from creating ad copy to drafting prospect emails

Enjoy the ‘light’ reading!

Kitces & Carl Ep 107: The Strategic Planning Process And Coming Up With (New) Ideas To Try

March 9, 2023 07:02 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces Carl Ep The Strategic Planning Process And Coming Up With New Ideas To Try

For many financial advisors, annual strategic planning is an essential process that establishes clear and specific business goals for the year, along with the steps necessary to achieve those goals. Additionally, it helps advisors make informed decisions about the future direction of their business. As important as strategic planning is to the evolution of the business, coming up with new ideas to implement as part of the strategic plan can be difficult, and choosing which ideas to develop and implement can be even more challenging.

In our 107th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss ways for advisors to find new ideas, the process of narrowing down their options and choosing the best ones, and how advisors can vet and test the viability of their ideas before implementing them on a larger scale.

Generating new ideas is essential for individuals looking to innovate and grow their businesses, but the reality is that good ideas don’t always come easily or quickly. A good way for advisors to stimulate the ideation process is to increase their exposure to new information – whether it be through reading books, engaging in more conversation, attending conferences, or joining study or mastermind groups, experiencing new perspectives can give advisors a fresh outlook and help them come up with their own new ideas. And as a collective of new ideas is gathered, identifying the 2 or 3 ideas that resonate the most with the advisor can help them narrow down their options to those that will most likely help them progress toward their goals.

Once the advisor has chosen 2 or 3 of their best ideas, vetting the ideas with trusted – and unbiased! – mentors, coaches, colleagues, and/or friends can help the advisor gain useful feedback and insight, which can help them develop a better sense of whether they have a sensible, fully formed idea worth pursuing. Next, analyzing the required steps to implement each idea and the potential outcomes can help narrow down their options further, determining which of the ideas is best to pursue on a long-term basis. While making a long-term commitment to an untested idea can feel scary, figuring out how to break the idea into smaller, testable steps can make the process easier and less risky.

Ultimately, the key point is that implementing new ideas is an important and exciting part of strategic planning, and while finding the right ideas to implement can be challenging, it can be facilitated by following a systematic idea-gathering framework. Such a process can involve multiple steps that focus on information gathering, brainstorming and gut-checking, asking for feedback from various sources, and devising ways to test drive ideas on a smaller scale to evaluate their viability and to save time, money, and resources. This process allows advisors to pivot and course correct when necessary, relieving the pressure of having the ‘right’ idea right away and avoiding ideas with less chance of success, which, in the end, creates opportunities for the advisor to investigate and pursue even more worthwhile ideas!

Factor Investing And Its (Behavioral) Persistence: Facts and Fiction About The Zoo Of Factors

March 8, 2023 07:07 am 0 Comments CATEGORY: Investments

In the early days of investing, stocks were often evaluated in a vacuum: Investors assessed the plusses and minuses of each company’s stock based on its own merits, with little consideration of the relationship between one stock’s performance and that of the market as a whole. Then, in the 1960s, with the advent of the Capital Asset Pricing Model (CAPM), investors began to look at stocks (and by extension, pooled investments like mutual funds as well as entire portfolios) through the lens of a stock’s risk compared to the entire market (and concurrently, the expected return that investors demanded to compensate for that risk). A stock’s ‘beta’ – generally speaking, its riskiness compared to the overall market – was considered a key driver of its future performance.

In the early 1990s, however, the release of a landmark study by Eugene Fama and Kenneth French introduced the concept of “factors” beyond beta that could influence a stock’s performance. Though Fama and French’s study focused on 2 factors (size and value), investment research in the subsequent 30 years has identified hundreds of additional factors that investors can use to adjust their return opportunities and expectations in constructing diversified portfolios.

Although the rise of factor-based investing has created many possibilities for advisors to add value by optimizing the risk and return profiles of their clients’ portfolios, the explosion in the number of potential factors creates its own new challenge for investors, from determining how to evaluate the factors themselves to deciding which ones are really useful in making investment decisions. As it turns out, when filtering the “zoo of factors” down to only those that have had explanatory power to predict above-market returns (as well as that meet a series of tests for persistence, pervasiveness, robustness, investability, and the logic of how they operate), there are really only a handful of factors that are truly worthy of investment (including size, value, momentum, quality, profitability, and quality for equity; as well as term and credit quality for fixed income), which make it much more manageable for investors to implement a factor-investing strategy.

Furthermore, focusing on just the most salient factors can allow investors to avoid some of the criticisms of factor investing raised over the years, including that factors are overly risky compared to the market, that factor investing is prone to failing at inopportune times, and that factors have become irrelevant (or perhaps too well-known and ‘overcrowded’ to produce excess return) for investors going forward. In reality, the body of evidence that supports factor-based investing has only grown larger with time – as long as one focuses on just the factors that have actually proven to be effective.

The key point is that while investment risk is impossible to eliminate, factor-based investment strategies have been shown by a wide body of data to create excess returns without adding to a portfolio’s overall risk. While factor investing isn’t a panacea and can itself be prone to long periods of underperformance, the evidence has shown that it can reward investors who are willing to stick with it. Ultimately, factor investing can be almost as much about behavioral factors as economic ones: The fact that so many investors aren’t willing to endure the risk of underperformance creates potential rewards for the ones who are!

#FA Success Ep 323: Sustaining A $5B Advisory Firm To The Third Generation Of Leaders, With Yonhee Choi Gordon

March 7, 2023 07:05 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Yonhee Choi Gordon Podcast Featured Image FAS

Welcome back to the 323rd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Yonhee Choi Gordon. Yonhee is a Principal and the Chief Operating Officer of JMG Financial Group, an independent RIA based in Chicago, Illinois, that oversees nearly $5 billion in assets under management for close to 1,500 client households.

What's unique about Yonhee, though, is how, through her nearly 4 decades with JMG Financial Group, Yonhee has been a part of not only the firm’s succession plan to its second generation of owners but now to its third generation of leaders… and along the way, has personally recruited, trained, and retained the majority of the firm’s employees, by implementing stringent assessments in her hiring process to ensure that new employees are in alignment with the firm’s expectations and values to be able to succeed and grow with the firm for the long run.

In this episode, we talk in-depth about how during Yonhee’s 36 years with JMG, she has not only seen the evolution of the firm and its three generations of ownership and leadership, but has been integral in building the hiring, training, and development systems that has allowed the firm to transition to its current generation of partners and owners (most of whom have been with the company for over 20 years, after first being hired and trained by Yonhee herself), why Yonhee creates and implements a unique kind of work sample assessment for all prospective employees based on the actual duties of the position she’s hiring for so that she can evaluate how the candidates think, process information, and approach problem-solving with the actual tasks of the job, and how JMG structures its leadership roles, where Yonhee not only oversees the training and development of newer advisors, but also coordinates and supervises the Accounting, Operations, Human Resources, and IT departments as well as working with the firm’s Chief Talent Officer.

We also talk about how JMG developed their own proprietary CRM internally more than 25 years ago because they realized they would need better capabilities to input tax preparation data than CRM systems had at the time, and in the years since have been able to further customize the software to their precise needs as the firm grew, why JMG implements strict criteria for who can own shares of the firm, including a limit on ownership size with a cap of 20% of shares, and a rule that requires owners over the age of 70 to sell back their shares to keep ownership fresh and more closely connected to the current state of the firm, and why JMG implements a client capacity of 50-80 clients per advisor and how it keeps detailed track of the time it takes for employees to complete clients tasks to both avoid burnout and continually develop better and more efficient processes.

And be certain to listen to the end, where Yonhee shares why she believes that a portion of the industry’s rising level of M&A deals is really a result of inconsistent definitions of advisor titles and insufficient career paths that are failing to nurture newer advisors into the next generation of owners, why Yonhee advises younger, newer advisors to first understand the culture and values they feel are most important to them personally, and then use those standards to find their ideal role at a firm (to ensure it’s a firm that will take the time to support them and help them grow), and why Yonhee’s own definition of success has changed over time, where at this stage it's less about her personal career growth and more about the impact and value she can provide in the lives of the employees that she leads and the pride she feels knowing she is developing the next generation of leaders in the financial services industry.

So, whether you’re interested in learning about how Yonhee and her firm have remained successful through 3 generations of leaders, the unique way Yonhee thinks about finding the right employees and training them for success, or how Yonhee navigated being a Korean women in a male-dominated field and rose into a partnership role, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Yonhee Choi Gordon.

The Latest In Financial #AdvisorTech (March 2023)

March 6, 2023 07:04 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the March 2023 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 Conquest, a Canadian financial planning software provider (founded by the prior founder of NaviPlan) has raised $24M (CAD) of private equity capital in preparation for expanding its reach into the US – for which it hopes its technology-aided ability to analyze a client’s plan and suggest “next-best decision” strategies for advisors to recommend to their clients will allow them to break into the crowded US market. Which at best will still be a substantial uphill battle, given the hassle of switching from one financial planning platform to another (and the fact that most advisors are generally satisfied with their current financial planning software in the first place!).

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

Asset-Map has raised $6M in Series B funding as it scales up its financial visualization tool for enterprise use amid growing demand for advice engagement tools
Wells Fargo Advisors debuts LifeSync, an app-based tool combining features of goal-based planning and monitoring of financial “vitals” as the megafirm moves further into its own advice engagement at scale
Orion launches BeFi20, a behavioral finance assessment to support client conversations around money psychology (and identify how financially “aligned” couples are in their money attitudes)

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

Merrill Lynch has rolled out a new turnkey video creation platform allowing its advisors to record short videos with a quick compliance sign-off (and more impressively, has apparently solved for the challenge of centralized compliance approval of individualized advisor content at scale)
The popularity of ChatGPT has opened up a discussion about the potential role of artificial intelligence in the advisory world – and while some predict it may replace advisors entirely, the evidence of past technological advances suggests it will prove to be one more tool to automate repeatable back- and middle-office tasks and allow advisors to focus on more planning at a higher level!

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” (and also added the changes to our AdvisorTech Directory) 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 (March 4-5)

March 3, 2023 01:44 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 amid economic and market headwinds, the pace of RIA M&A activity was slower in January and February compared to the same period last year. If this trend continues, 2023 would be the first year in more than a decade to see fewer transactions than the year before, though some industry observers continue to see significant appetite for deals.

Also in industry news this week:

A recent FINRA arbitration ruling reaffirmed the ability of brokers operating in the independent broker-dealer model to take their clients with them when they change firms
A bipartisan group of U.S. Senators is considering potential ways to shore up Social Security, from raising the retirement age to 70 to creating a sovereign wealth fund

From there, we have several articles on practice management:

How advisory firms can leverage their CRM software to run a more efficient practice
Best practices for firms to consider when choosing training programs
Why getting back to basics, particularly when it comes to decision making, can help firms overcome challenging market conditions

We also have a number of articles on wealth:

What being ‘upper-middle class’ actually means in dollar terms
Why many consumers overestimate the size of the nest egg they will need to have a comfortable retirement
How advisors and clients might change their expectations for fixed-income investments as interest rates and yields have risen

We wrap up with three final articles, all about taking action:

Why trying to live a life with ‘no regrets’ can hinder self-improvement
Why it is important to not let major ‘events’ distract from the overall ‘journey’, whether it is an interpersonal relationship or a client’s retirement
How a willingness to take imperfect actions can help drive advisory firm growth

Enjoy the ‘light’ reading!