Kitces.com - Advancing Knowledge in Financial Planning

Weekend Reading For Financial Planners (Jan 14-15)

January 13, 2023 02:05 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 Federal Trade Commission has proposed a nationwide ban on noncompete clauses in employee contracts, aiming to give employees more freedom to change jobs within the same industry. In the advisor world, where noncompete agreements are fairly common, a ban on the practice could incentivize firms to reassess their employee value proposition and to consider ways to establish their clients’ relationships with the firm, and not just with their advisors.

Also in industry news this week:

A study suggests that simplification is the top reason consumers combine their investment accounts, signaling that the onboarding process for new advisory client assets is a value-add in itself
FINRA has released its enforcement priorities for 2023, including a continued focus on compliance with Regulation Best Interest as well as several new priority topics, such as manipulative trading, fixed-income pricing, and trading in fractional shares

From there, we have several articles on retirement planning:

The latest rules for 2023 Required Minimum Distributions from inherited retirement accounts
How reviewing and adjusting capital market assumptions can help advisors refine their use of Monte Carlo simulations
Why relying on Treasury Inflation-Protected Securities (TIPS) to support the bulk of retirement income needs could be risky

We also have a number of articles on investment planning:

A recent study indicates that rebalancing a portfolio on an annual basis is superior to longer or shorter time horizons
How stocks and bonds tend to perform following their biggest down years
The long-term portfolio growth trajectory clients can expect when implementing a dollar-cost averaging strategy

We wrap up with three final articles, all about dealing with distractions:

The four types of attention and how individuals move between them throughout the day
How consolidating the wide range of ‘inboxes’, from email to workplace messaging, can help limit distractions throughout the day
How incorporating breaks to review notifications and social media during the workday can create more time for focused work

Enjoy the ‘light’ reading!

Kitces & Carl Ep 103: Balancing Client Responsiveness With The Proactive Sledgehammer Of Value

January 12, 2023 07:09 am 1 Comment CATEGORY: Kitces & Carl Podcast

Kitces Carl Ep Balancing Client Responsiveness With The Proactive Sledgehammer of Value

As comprehensive financial planning has become more widely adopted, many financial advisors have felt pressure to find new ways to differentiate themselves by demonstrating their unique value to clients. And while providing fee-only advice or highlighting service as a fiduciary may have once been a fair differentiator, these services are now often considered table stakes, necessitating financial advisors to find more creative solutions that show current and prospective clients that they provide more value than other advisors. However, as more advisors continue to increase the services they offer to enhance their value propositions, the new challenge has become balancing the many services offered to clients (who sometimes don’t really need all of the services offered) with enough time and capacity to show up for clients who truly need help with a particular problem.

In our 103rd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the challenges of finding an optimal balance between proactively providing value and the consistency of simply being available to respond to clients when they come to their advisor for assistance.

Some advisors increase their value propositions by offering a ‘proactive sledgehammer’ of value by inundating clients with all the things they can do for them to emphasize that they not only have them top of mind, but also that they keep them top of mind all year round. Some advisors implement client service calendars that dedicate certain times of the year to tax planning, insurance reviews, or quarterly meetings, and fill the gaps with newsletters, client appreciation events, and regular firm updates. Others use frequent emails to stay in regular contact, sending reminders or helpful information relevant to their clients. Though these can be good approaches to increase touch points and create value for clients, balancing the frequency of these touch points (and the scope of what clients are offered) with the real value that clients actually need and expect is most important. Because while some clients may appreciate and need more frequent communication, others just want to know that the advisor is there when they need them. And while frequent communication may be important with many clients, it is often the most critical in the early stages of a client relationship, when advisors are just learning about their client’s needs and building trust with the client. However, as the relationship matures, clients may build enough trust in their advisor that they no longer expect (or want!) frequent communication, satisfied in knowing that if any financial issues arise, the advisor will be there to help them.

Ultimately, the key point is that while most clients will appreciate many of their advisor’s valuable services and proactive communication, finding the optimal balance between offering too much and simply being available when needed will depend on each unique client. This begins with understanding their needs (and communication preferences!) and gaining their trust. And building trust early on not only helps advisors develop more meaningful relationships with clients, but also helps them save time as they won’t need to spend as much time offering solutions that they know won’t really matter to the client. Which means the advisor will end out with more time to focus on providing better – and more relevant – service with the capacity to be available when a client truly needs it!

Providing Mortgage Advice In A Higher Interest-Rate Environment: Opportunities For Advisors To Add Value

January 11, 2023 07:06 am 0 Comments CATEGORY: Debt & Liabilities

Leading up to 2022, financial advisors and their clients had grown accustomed to a relatively low mortgage rate environment. In fact, until earlier this year, the average 30-year fixed mortgage rate had stayed below 5% since 2010 (and below 7% since 2001). But as the Federal Reserve has sought to raise interest rates this year to combat inflation, mortgage rates have reached higher levels not seen in more than 20 years, with 30-year fixed mortgages reaching an average of 6.9% in October 2022, twice the 3.45% average rate in January.

While the plight of today’s first-time homebuyers facing higher mortgage rates has attracted much media attention (deservedly so, as the monthly payment on a 30-year fixed mortgage for the median-priced home in the U.S. increased by nearly $1,000 in the past year), higher interest rates can affect financial planning calculations for current homeowners as well. For instance, higher interest rates have raised the borrowing costs for those looking to tap their home equity through a home equity loan or a Home Equity Line Of Credit (HELOC), and older homeowners considering a reverse mortgage will also be subject to higher interest rates.

At the same time, higher interest rates can present opportunities for some individuals. For example, those who are interested in making an intra-family loan could generate more income from the higher Applicable Federal Rates (while the loan recipient benefits from a rate significantly lower than standard mortgage rates). In addition, many current homeowners could have mortgages with rates lower than the ‘risk-free’ rate of return now available on U.S. government debt, which has risen alongside broader interest rates (perhaps changing the calculus of whether to pay down their mortgage early). And current homeowners with significant equity could consider downsizing and buying a smaller home in cash, potentially benefiting from a less-competitive housing market while not having to take out a mortgage at the current rates.

Ultimately, the key point is that a higher interest-rate environment affects not only homebuyers looking to purchase a home for the first time but also those who are current homeowners. Further, given that a home can be considered a consumption good (that often comes with emotional attachments) as well as an asset on the homeowner’s net worth statement, advisors can also add value by helping clients explore their home-related goals and assessing the financial tradeoffs of purchasing a more or less expensive home with a mortgage in a higher rate environment (or, if they have the means, whether buying a home in cash might be appropriate!). Regardless of whether a client is an aspiring first-time homebuyer or considering downsizing in retirement, advisors can add value by helping their clients navigate higher mortgage-rate environments!

#FA Success Ep 315: Learning Business Development By Consistently Being Seen Where Your Ideal Clients Are, With Lisa Brown

January 10, 2023 07:08 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 315th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Lisa Brown. Lisa is a Partner and Wealth Advisor for CI Brightworth, an RIA under the CI Financial umbrella with offices in Atlanta, Georgia, and Charlotte, North Carolina, that oversees nearly $5 billion in assets under management* for over 1,500 client households.

What's unique about Lisa, though, is how, by digging deeper into an existing firm niche focus of Coca-Cola employees and talking extensively with employees there about their common needs and issues that affected their financial goals, she began to write white papers for them, which was so successful in building her reputation and expertise – and client base – within the company that she gave up her own office space because she was spending so much time meeting with clients in their offices at Coca-Cola headquarters… which just led to even more referrals and growth by being so visible on-site at the company.

In this episode, we talk in-depth about how Lisa realized that by visiting Coca-Cola’s headquarters consistently and engaging employees in-person about their financial issues, she could become known as a familiar and trusted financial expert in the Coca-Cola community, how Lisa leveraged writing white papers about preparing for retirement and what to look for in severance packages in the event of a layoff specifically for the Coca-Cola employee niche as marketing tools to gain even more referrals within the company, and how, as a practice area leader for corporate professionals and executives as one of CI Brightworth’s four key practice areas (the others being business owners, dentists, and retiring clients), Lisa has begun to train and guide the next generation of advisors in the firm about how to become effective business developers by identifying and getting known in their area of specialization, too.

We also talk about how, in the early stages of Lisa’s career, she doubted her future in the financial services industry and decided to obtain an MBA as a fallback, but coincidentally during her first semester, the program began offering a Master's in financial planning that provided the same coursework required to take the CFP exam which ultimately led Lisa to obtain her CFP designation and find a successful career path in the industry, how Lisa credits preparing tax returns for clients during her formative years at Goldman Sachs Ayco as one of the ways she grew her confidence and expertise to feel more comfortable as an expert advisor, and how Lisa leveraged 4 pillars of professional networking, joining organizations and attending their networking events, public speaking, and creating content in the local media to build her personal brand and gain referrals.

And be certain to listen to the end, where Lisa shares how she hit a point where she realized working nights and weekends was taking away from the time she could have been spending with her husband and children, and had to force herself to get comfortable with prioritizing what was urgent versus really truly important to regain more of that family time, why Lisa feels it’s important for newer, younger advisors to surround themselves with experienced advisors and take every opportunity to absorb the knowledge and practices that they put forward to develop as a better advisor and create a successful career path for themselves early on, and why Lisa believes the key to success for her at this point in her career is how she can impart the wisdom she has gained and sponsor younger advisors to help them build the skills and confidence they need to become better advisors and find their own paths to success.

So, whether you’re interested in learning about why Lisa decided to work with corporate professionals and executives, how Lisa and her firm are working to replicate their success at Coca-Cola with other larger corporations and white papers, or how Lisa thinks about and develops processes to increase and improve business development, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Lisa Brown.

What Makes Financial Advisors Happier: More Time Or More Money?

January 9, 2023 07:01 am 0 Comments CATEGORY: Personal/Career Development Practice Management

While it may be easy to assume that having more money would make a person happier by opening consumption opportunities unavailable to those with less income, experienced advisors can likely identify many examples of high-income individuals who are unhappy with their lives. To provide a more holistic view, researchers have sought to assess whether increased income leads to greater happiness on two dimensions: emotional wellbeing (how an individual feels today) and evaluative wellbeing (how an individual feels about their life overall).

An oft-cited 2010 study by Daniel Kahneman and Angus Deaton found that while overall life evaluation was positively correlated with income (even at levels exceeding $120,000), emotional wellbeing only increased up to $75,000 of income, plateauing after that point. This suggested that, after a certain point, increased income would not necessarily increase an individual’s day-to-day happiness. However, a 2021 study by Matthew Killingsworth using a more granular measurement scale found that day-to-day wellbeing continues to increase even beyond income levels exceeding $75,000 (while also finding that overall life evaluation increases with higher income as well).

When it comes to financial advisors, in particular, Kitces Research found a similar positive correlation between income and happiness. For instance, our research found that not only is advisor take-home income positively correlated with overall life satisfaction, but also that, similar to Killingsworth’s findings, their income is positively correlated with positive feelings and negatively correlated with negative feelings, even as income exceeds $75,000.

Importantly, there are other factors that can mediate the relationship between income and happiness, which may explain why higher income doesn’t always lead to greater happiness. For instance, Killingsworth found that respondents increasingly reported that they did not have enough time to get things done as their income rose, serving as a small but significantly negative mediator of the association between income and experienced wellbeing. This concept of ‘time poverty’ also appears to apply to financial advisors, as Kitces Research has found that the number of hours an advisor works in a given week is inversely correlated with their wellbeing.

These findings suggest that advisors who choose to pursue increased income in the pursuit of greater experienced happiness may be more successful if they deliberately protect the time they have available for their other responsibilities and interests. A few ways that can help advisors do this include adding staff as their firm reaches certain revenue ‘pain points’ where they have too much work on their plate, and allocating more ‘hard dollars’ paid to outside vendors for marketing services as the firm grows, allowing firm owners to use their time for more valuable and/or enjoyable activities.

Ultimately, the key point is that as an advisor’s income increases, their wellbeing – in terms of both day-to-day happiness and overall life evaluation – can potentially increase as well. But if higher income comes with increased demands on the advisor’s time, particularly if they get to the point where they feel they don’t have time to finish everything they need to get done, the experienced ‘time poverty’ can have a negative effect on the advisor’s wellbeing. In the end, time is the ultimate scarce resource, and it is important for advisors to spend it wisely, particularly as their income increases!

Weekend Reading For Financial Planners (Jan 7-8)

January 6, 2023 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 the Securities and Exchange Commission (SEC) has received significant pushback from investment adviser and financial industry trade groups to the regulator’s recent proposal that would establish formalized due diligence and monitoring obligations for investment advisers that outsource certain advisory functions. While the proposal received support from state regulators and consumer advocates, adviser industry groups argued that the measure would create unnecessary extra work for advisers and could be a particular burden on smaller firms.

Also in industry news this week:

Amid a robust regulatory agenda, the SEC is facing elevated employee attrition, particularly in its senior ranks
How planning specializations can help firms and their advisors stand out from the pack

From there, we have several articles on retirement planning:

Why an individual’s portfolio of relationships could be just as important as their investment portfolio when it comes to happiness in retirement
A recent study shows how delaying Social Security benefits typically leads to greater lifetime wealth than claiming benefits early in order to reduce portfolio withdrawals
Why ‘failure’ scenarios in Monte Carlo simulations are very different than plane crashes

We also have a number of articles on practice management:

Why the most successful firms in the coming years might be those who dominate individual market segments rather than those that are ‘overdiversified’
Four ways firms can attract next-generation advisor talent
Why being proactive can help firms overcome the challenges of hitting capacity ‘walls’

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

Why the most successful goals are often those that fit within one’s self-identity
How a ‘time audit’ can help an individual spend more time on their most important personal and professional activities
Why a single push-up could be the key to achieving a New Year’s resolution

Enjoy the ‘light’ reading!