Nerd's Eye View blog

Weekend Reading for Financial Planners (Jan 8-9)

January 7, 2022 02:03 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with a study showing that private equity firms are targeting financial advisory firms with relatively clean disciplinary records for acquisitions, but that once acquired, advisor misconduct at these firms skyrockets an average of 147%! The reason for this jump is unclear, but potential explanations include heightened pressure from private equity owners to increase profits, or pushing too hard to cross-sell their other portfolio companies’ products and underestimating the compliance requirements of the advisory business. Either way, the study suggests that firm owners considering a sale who want to ensure that their clients remain in good hands could increase their due diligence of potential acquirers and their business practices!

Also in industry news this week:

A new FINRA rule went into effect on January 1 that will attempt to reduce the risk to consumers from brokerages with poor disciplinary records by requiring these firms to fund a segregated account to pay potential arbitration awards (and increase their cost of doing business as long as they insist on keeping problematic brokers onboard)
RIA M&A activity is expected to continue to surge in the coming year, according to a recent survey, with lofty firm valuations expected to sustain as well

From there, we have several articles on advisor communications and marketing:

How to respond when clients object to their advisor’s recommendations (and why asking more questions might be a better approach than more aggressive persuasion to get them to implement)
Why the best-performing types of pages on financial advisors’ websites include not only the basic “Who” and “What” of the advisors, but also show why a prospective client could be the right fit for the advisor and how the advisor helps their clients reach their goals
Why advisors should focus less on client referrals and more on Google Reviews as a one-to-many client referral platform in light of the SEC’s marketing and testimonial rule

We also have a number of articles on being an effective manager and leader:

Why sales training programs for financial advisors can prove ineffective if they use a “one-size-fits-all” approach without considering the personalities and needs of the advisors themselves
How leaders can thread the needle between micromanaging their team and being too hands-off by timing their help for when it’s needed most (and backing off when it isn’t)
Why most advisory firms need at least one person tasked with having a vision for the firm and a strategy to get there – which, as firms grow, may be someone other than the firm’s owner who is hired strictly for their “professional” leadership

We wrap up with three final articles, all about New Year’s Resolutions:

Why one advisor shifted from making New Year’s Resolutions to focusing on the habits that make it more likely he will achieve his goals (and letting the results fall where they may)
Ways individuals can make their financial lives happier in 2022, including by focusing internally rather than externally, simplifying their finances, and getting on the same page financially with a spouse
Why failing at New Year’s Resolutions can actually lead to better personal and professional growth in the future

Enjoy the ‘light’ reading!

Credit Card Rewards Strategies: How To Maximize Benefits And Add Client Value

January 5, 2022 07:04 am 6 Comments CATEGORY: Debt & Liabilities

Credit cards are ubiquitous in the United States, and financial advisory clients are likely to have at least one in their wallet. And while many consumers may know about the rewards they earn on the credit cards they hold, they might not be aware of the opportunities that maximizing their rewards could offer. In fact, through a combination of credit card sign-ups and regular spending, individuals can earn thousands of dollars in cash back rewards or travel benefits each year. Accordingly, financial advisors have an opportunity to provide significant ongoing value to clients by investing the effort into helping clients find the best card(s) to maximize rewards based on their personal spending habits.

Credit card rewards come in three types: cash back, travel points/miles, and transferrable points that can typically be used for either cash or travel. Each of these can be appropriate for different types of clients. For example, clients who crave simplicity or have little interest in travel might find cash back rewards most useful. Other clients who are accustomed to economy-class airfare and only dream of flying in business or first class may want to maximize travel credit card rewards instead, to get an experience that they would not be able to have otherwise!

Rewards can be earned through sign-up bonuses and regular spending with the card. Credit card sign-up bonuses (which can be worth more than $1,000 in cash or travel expenses per card) are the fastest way to earn rewards, typically offering a bonus for spending a certain amount of money in a given period of time. For regular spending, credit cards either offer a fixed rate for spending on the card (e.g., 2% cash back for all categories of spending) or a variable rate based on the particular category of spending (e.g., 4% cash back for every dollar spent on travel, or 3% cash back for every dollar spent at restaurants).

For advisors, cash flow discussions with clients can be a good opportunity to broach suitable credit card reward programs. Advisors can discuss not only what clients are purchasing, but also how they are paying for those purchases. This can reveal important information to help advisors craft a sensible rewards strategy for clients, including the client’s regular credit card spending (to gauge their ability to meet spending requirements for sign-up bonuses), which categories of purchases (e.g., groceries, gas) they make most often (to find cards that offer bonus rewards in these categories), and whether they are planning any large one-time expenses (that could be used to meet sign-up bonus spending requirements by themselves).

In addition to understanding a client’s spending patterns, it is also important to gauge their interest in managing credit card rewards on an ongoing basis. While some clients might be interested in applying for multiple new cards each year to build up points and miles through sign-up bonuses, others might be less interested in applying for cards and would instead prefer earning rewards on a single card. Either option can be profitable for the client, so it is important that they are comfortable with the process (so that it will be easier for them to stick to the strategy in the first place!).

Ultimately, the key point is that working with clients to devise a credit card spending strategy that maximizes available rewards can help advisors demonstrate ongoing value to attract and retain clients. Because, at the end of the day, what client wouldn’t want to work with an advisor who can help send them on a ‘free’ vacation each year?

#FA Success Ep 262: Asking More Questions In The Discovery Process To Deepen Client Relationships, With Melanie Milam

January 4, 2022 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 262nd episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Melanie Milam. Melanie is an advisor with Gateway Financial Partners, a super-OSJ affiliated with LPL Financial located in Texas, where she oversees $150M of assets under management for her 110 client households

What's unique about Melanie, though, is her approach to connecting with clients, mostly in the oil and gas industry, through a tried-and-true list of 34 questions she’s built specifically geared toward maximizing the amount of time clients talk about themselves, to not only gain a better perspective on their goals, but to create deeper, longer-lasting relationships.   

In this episode, we talk in-depth about how Melanie and her husband began her firm by leveraging her knowledge as a CPA and his managerial experience and personal connections in the oil and gas industry (which lead them to find her niche market), the way Melanie’s firm segments clients into tiers to align their services and provide specialized gifts and experiences for her top clients, and how Melanie’s faith drove her to obtain her Certified Kingdom Advisor (CKA) designation so that she can connect with her faith-based clients and give back to her community.  

We also talk about how Melanie managed to begin her firm while homeschooling 6 children, why Melanie believes it’s so important to create stability in your own financial life before launching a business to help advise clients in theirs, and how it was the realization that Melanie does her best work when she’s in front of her clients that helped her build the courage to begin hiring a team that helps ensure she’s maximizing her time in front of her clients. 

And be certain to listen to the end, where Melanie shares her “can have it all” (just not all at the same time) mindset about the women in the financial services industry, the way Melanie weaves her faith into her advice and her own life and business decisions, how Melanie’s passion for helping others inspired her sons to join the firm and further built client trust. 

So whether you’re interested in learning about Melanie’s unique CKA designation and how she translates faith into financial advice, what inspires Melanie to create deeper relationships with her clients, or how she built her firm as a busy but attentive mother of 6, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Melanie Milam.

The Latest In Financial #AdvisorTech (January 2022)

January 3, 2022 07:02 am 1 Comment CATEGORY: Technology & Advisor FinTech

Welcome to the January 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!

In this month’s edition, we look back at the four major trends underway in the financial advisor ecosystem that shaped the big AdvisorTech events that occurred in 2021, and what the trends portend for the year(s) to come.

The first driving trend is the ongoing shift of the financial advisor value proposition itself – from the sale of financial services products, to the sale of financial advice itself – which in turn is slowly but steadily reshaping the entire advisor technology stack. Starting with a growing pressure on financial planning software to go deeper – not simpler – and an expansion of various ‘advice-support’ and plan monitoring tools that augment planning software. Which is leading advisor CRM systems to increasingly become the hub, as new startup planning tools build first to CRM systems (not brokerage platforms or portfolio management tools). And an expansion of tools to support more advice models beyond ‘just’ the traditional AUM model (from Assets Under Advisement [AUA] to subscription and retainer models).

The second trend reshaping advisor technology is the growing focus on back-office automation, as it becomes increasingly clear that “robo-advisors” were never a threat to real financial advisors… but the efficiencies they bring are highly relevant to enhancing the productivity of human advisory firms! Which is driving a new wave of investments into both business process automation systems, and more generally anything that can improve the expediency of back-office workflows (from ‘simple’ client note-taking to more complex multi-system workflows), along with greater automation of compliance technology (“RegTech”) in particular. And the need for more integration across platforms – to achieve those efficiencies – is spawning a new wave of solutions that make it possible for advisors to either begin to warehouse their own data (to facilitate their own integrations), or be able to accomplish everything in a single “all-in-one” system that houses all the data and provides all the necessary services (so advisors can just focus on the business itself!).

In next week’s continuation of our 2022 recap, we’ll look at the remaining two AdvisorTech trends – the hunger for (re-)igniting organic growth as advisory firms scale, and how evolving investment trends (given high market valuations and low bond yields) are fueling some of the biggest opportunities in AdvisorTech (as advisors historically will pay even more for solutions that help to create revenue!).

In the meantime, 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 (Jan 1-2)

December 31, 2021 02:28 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 Social Security Administration will be keeping its local field offices closed for the foreseeable future, despite earlier reports that they would be re-opening in early 2022 for the first time since March of 2020—meaning that those who rely on Social Security will need to continue to use the agency’s website and phone line to access their services, and advisors working with clients will want to keep getting even more familiar with the SSA’s online capabilities as well.

Also in industry news this week:

The SEC has gone back and forth on whether it will allow RIAs to use the term “fiduciary” on Form CRS, frustrating some RIA owners who want the form to better distinguish the standards of conduct for RIAs from those for broker-dealers
A new research report shows that the share of client assets managed by wirehouses has declined significantly since 2010, and projects to shrink even further as more advisors continue opting to go independent

From there, we have several articles on various strategies employed by the ultra-wealthy to avoid taxes, including:

A workaround that allows business owners in certain states to circumvent the $10,000 limit on State and Local Tax (SALT) deductions (if the state enacts the necessary changes)
How billionaires have aggressively claimed business losses on their hobbies and leisure pursuits to offset their other income, in spite of IRS rules that prohibit such “hobby” losses
How Wyoming displaced offshore trusts to become one of the most popular tax havens in the world for the ultrawealthy, owing to the “Cowboy Cocktail” of trusts and business entities that allow individuals to conceal their ownership of assets within the state.

We also have a number of articles on the growing field of ‘financial psychology’:

How understanding financial psychology can allow advisors to help clients make better financial decisions (and lead advisors to create better financial plans)
What advisors can learn from the high-touch world of concierge medicine
Why worrying about money transcends wealth levels and what advisors can do to maximize their clients’ (and their own) happiness

We wrap up with three final articles, all about how the pandemic has affected the lives of Americans:

How the top 1% and the bottom 50% have seen the greatest relative wealth gains during the pandemic, while the middle- and upper-middle class may be getting squeezed (at least on a relative basis)
Why many knowledge workers are quitting their jobs, and how financial advisors can adapt to the new working environment
Why Americans have done little to change their recent behavior, despite newly skyrocketing COVID case counts, and how that might affect both advisors and their clients heading in 2022

Enjoy the ‘light’ reading!

Kitces & Carl Ep 76: Overcoming Imposter Syndrome By Truly Building Confidence In Your Own Value

December 30, 2021 07:04 am 2 Comments CATEGORY: Kitces & Carl Podcast

Much of a financial advisor’s work involves putting themselves out there, whether by pitching their services to a client, writing engaging pitches on their website, or promoting their own educational or written work. For many advisors, though, marketing themselves may initially feel intimidating, but the process becomes less daunting as they find success and get more experience under their belts. For many advisors, diving into new experiences may elicit feelings of “imposter syndrome” – a sense of self-doubt around one’s abilities to the extent that they may feel like a fraud – that are never actually eliminated regardless of their level of subject matter expertise or how long their track record of success gets.

In our 76^th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss their own experiences with imposter syndrome and how they – and other advisors – have successfully dealt with it.

Advisors who struggle with imposter syndrome tend to have trouble internalizing their own capabilities, despite external evidence of their success. And rather than building confidence upon their successes, advisors often find it even harder to acknowledge their skill as they accumulate successes, because they develop the sense that there is simply a further distance for them to fall. Which can present a significant trial to advisors as they progress in their career, as while some uncertainty and feelings of “I don’t know what I’m doing” are normal when first starting out (or trying something for the first time!), when those feelings are continual, they can pose a challenge for advisors to do the things that will help improve their circumstances or represent their skills adequately – such as by asking for a fair fee or promoting their educational content.

Fortunately, there are ways for advisors to mitigate – and even leverage – the effects of imposter syndrome. By first recognizing that imposter syndrome is a very common experience and acknowledging that it can often present opportunities for advisors to stretch and improve themselves, advisors can devise productive strategies to help them effectively cope with their self-doubt. For example, one advisor who had trouble assertively discussing her fees wrote up a detailed script that she pulled up and read when having the conversation with clients, to keep any unfounded reservations about her value as an advisor from discounting her services.

Ultimately, the key point is that imposter syndrome is deep-rooted and challenging for many advisors, but developing coping mechanisms and leveraging the challenges that are presented to advisors can help them advance themselves and elevate the value they offer to clients. Because the advisor who can look back and realize how far they’ve come can increase their confidence over time – and genuinely embrace their expertise!

Analyzing Net Unrealized Appreciation (NUA) Opportunities For Privately Held Company Employee Stock Ownership Plans (ESOPs)

December 29, 2021 07:05 am 2 Comments CATEGORY: Taxes

Allowing employees to enjoy the success of a company can be a helpful motivator and reward. Employer-sponsored retirement plans that allow employees to purchase company stock enable employees to gain a stake in the company, which can also present them with Net Unrealized Appreciation (NUA) opportunities. In most cases, distributions made from tax-preferenced retirement accounts are taxed at ordinary income rates. However, when stock held in an employer plan is eligible for NUA treatment, participants pay ordinary income tax only on the cumulative purchase price of the shares upon distribution, and can enjoy long-term capital gains taxes on the growth of those shares (assuming certain NUA requirements are met).

Advisors with clients who can benefit from NUA opportunities must ensure that three rules are met. First, the distribution must be completed after the participant experiences a “Triggering Event”, which are attainment of age 59 1/2, separation from service (whether voluntary or not), or death. Second, the distribution must be made as a “Lump-Sum Distribution”, which means that assets must be completely distributed within one calendar year. Lastly, the employer stock shares must be distributed from the employer-sponsored retirement plan “in-kind” (i.e., maintained as employer stock shares and not liquidated) into a taxable account. These three rules are non-negotiable, and violating any of them removes any possibility of using the NUA tax break.

Additionally, unlike employees in publicly traded companies, those who work for privately traded companies can be faced with limitations on how their employer stock shares must be distributed (particularly from an ESOP). Because there is no law that requires employers to make this option available to plan participants, some employers may incorporate ESOP prohibitions that make true “in-kind” distributions impossible (in order to limit outside investors from owning the closely held stock). In other cases, the privately held stock may be transferrable, but there are restrictions on holding the stock outside the ESOP which may make NUA transactions complicated to fully realize – or at least not worthwhile.

Which means that advisors can help clients who are employees of private companies determine whether they can take advantage of NUA in the first place. For example, employees who work for S corporations may have distribution contingencies in their plan that result in an immediate long-term capital gain tax on distributions that need to be immediately sold, on top of the ordinary income tax due on the original purchase price.

Ultimately, for participants in these instances, knowledge is power – both pertaining to navigating the requirements to take advantage of NUA tax benefits when they are available, and selecting the best alternative options (such as rollovers into other retirement accounts) if the NUA strategy ends out to be tax-inefficient!

#FA Success Ep 261: Replacing The AUM Fee With A Complexity-Based Fee For (Only) The Time It Really Takes, With Andrew Miller

December 28, 2021 07:05 am 1 Comment CATEGORY: Financial Advisor Success Podcast

Welcome back to the 261^st episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Andrew Miller. Andrew is the founder of OLIO, a financial planning firm based out of McLean, Virginia, that manages $275 million for over 275 households.

What's unique about Andrew, though, is how he’s been able to craft a scalable business model based on complexity fees, by meticulously capturing the details of every planning analysis he’s done for his clients over the years and translating it into a clear estimate of the time and effort it will take to handle any new client’s planning needs.

In this episode, we talk in depth about how Andrew developed his time-based system to determine how to price his services to clients, why Andrew’s focus on time has led the firm to do less and less investment work for clients and more and more for clients’ other financial planning needs (because as Andrew notes, if your technology stack is good enough, it really does take about the same amount of time to rebalance a $100,000 account as it does to rebalance a $9M account), and the financial planning proposal process that Andrew created to help translate the value of his time into dollar amounts that make his fee worthwhile to the clients he serves.

We also talk about how financial advice given to Andrew developed a skepticism of the financial industry that ultimately helped shape his career and OLIO’s financial planning process, how Andrew’s experience as a civil engineer fostered an understanding of how time and productivity are intertwined (which helped him create the tools that are applied to OLIO’s fee structure), and how Andrew is positioning himself and his firm to be successful as technology encroaches ever further into the realm of financial planning.

And be certain to listen to the end, where Andrew describes how his own financial planning philosophy and ‘money scripts’ began at an early age, how fostering the education of resident advisors means so much to him and his vision for the future of the financial planning industry, and how despite being told by other advisors that his business model would ‘never work’ that it’s been his willingness to create his own definition of success that’s allowed him to achieve it.

So whether you’re interested in learning about how Andrew’s own experience with financial advice and fees inspired him to promote change from within the financial advice industry, how Andrew employed his civil engineering background to create time-based data to determine his fee model, or how Andrew is helping to shape the future by coaching and educating resident advisors, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Andrew Miller.

2021 Highlights – The Top 20 Nerd’s Eye View Blog Posts You Might Have Missed

December 27, 2021 07:04 am 0 Comments CATEGORY: Nerd's Eye View

As 2021 comes to a close, I am once again so thankful to all of you, the ever-growing number of readers who continue to regularly visit this Nerd’s Eye View blog (and share the content with your friends and colleagues, which we greatly appreciate!). This year has been one of mixed feelings for most financial advisors – a year where many people have struggled with the direct and indirect impacts of the ongoing pandemic, from health to employment challenges, but one where many financial advisory firms have managed to adapt and even excel with newfound growth as more consumers realized they need a financial advisor. Personally, it has been a big year of change as well, with a(nother) doubling of the Kitces.com team in 2021 (now more than 20 people who help to make it all happen!), as we expand further into Courses and online Summits to fulfill our own mission of “Making Financial Advicers Better and More Successful”.

We recognize (and appreciate!) that this blog – its articles and podcasts – is a regular habit for tens of thousands of advisors, but that not everyone has the time or opportunity to read every blog post or listen to every podcast that is released from Nerd’s Eye View throughout the year. As many of you noted in response to our Reader Surveys, most choose which content to read or listen to based on headlines and topics that are of interest (and skip the rest). Yet in practice, this means that an article once missed is often never seen again, ‘overwritten’ (or at least bumped out of your Inbox!) by the next day’s, week’s, and month’s worth of content that comes along.

Accordingly, just as I did last year, and in 2019, 2018, 2017, 2016, 2015, and 2014, I've compiled for you this Highlights List of our top 20 articles in 2021 that you might have missed, including some of our most popular episodes of ‘Kitces & Carl’ and the ‘Financial Advisor Success’ podcasts. So whether you're new to the blog and #FASuccess (and Kitces & Carl) podcasts and haven't searched through the Archives yet, or simply haven't had the time to keep up with everything, I hope that some of these will (still) be useful for you! And as always, I hope you'll take a moment to share podcast episodes and articles of interest with your friends and colleagues as well!

In the meantime, I hope you're having a safe and happy holiday season. Thanks again for the opportunity to serve you in 2021, and I’m excited to share more soon about some new initiatives we’re planning to do even more to support the Financial Advicer community in 2022 and beyond!

Weekend Reading for Financial Planners (Dec 25-26)

December 24, 2021 02:28 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 will extend the moratorium on Federal student loan payments until May 1, giving some relief to borrowers impacted by the continuing effects of the pandemic (and softening the blow that January’s lapse in monthly Child Tax Credit payments, alongside the original February 1 date when loan payments would have restarted without the extension, was expected to have on household balance sheets).

Also in industry news this week:

Research shows that, after years of being slow to incorporate ETFs into their clients’ portfolios, investment advisors have actually passed retail investors (and institutions) as the largest buyers of ETFs
The Department of Labor has issued guidance for brokers to freshly evaluate the potential conflicts of interest that their payout grids present (especially grids that provide retroactively higher payouts upon reaching the next threshold)

From there, we also have several articles discussing retirement planning:

New research shows that the pace of the observed decline in spending over the course of a retirement can differ based on a retiree’s wealth and health, suggesting that while spending usually declines for retirees in their later years, the typical clients of advisors may actually maintain more level retirement spending after all?
How advisors can help younger clients balance saving for the future with enjoying life today and not ‘over-saving’
How a new tool that helps individuals to search for the best places to live in the U.S. (for them) based on a range of criteria could help advisors better estimate a client’s potential expenses in retirement

We also have a number of articles on advisor marketing:

Why ‘social proof’ is an important part of attracting new clients, and how advisors can use testimonials and online platforms to generate it
Why advisors might not be getting as many referrals as they would like from Centers of Influence, and how they can get more
Why establishing and communicating company culture is important to attract and retain the ‘right’ clients and employees (and should deliberately repel the wrong ones!)

We wrap up with three final articles, all about how advances in technology have the potential to change the way we live and work in the future:

A primer on the buzz around “Web3”, and why, despite the legitimate concerns about its widespread adoption, it’s worth keeping an eye on how blockchain-based Web3 technologies continue to evolve
Why, after decades of Microsoft Word as the default document editor for many organizations, competitors are now springing up to compete (and change the way we create and edit documents in the online era)
How the mass adoption of telecommuting could, despite its short-term benefits, pose long-term threats for knowledge workers who may now face more global competition for their jobs

Enjoy the “light” reading!