feed - Part 80

Weekend Reading for Financial Planners (Nov 21-22)

November 20, 2015 02:30 pm 13 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the launch of the CFP Board's new Center for Financial Planning, which will pursue the laudable goals of attracting more young financial planners to the profession, improving advisor diversity, and lanuching a new academic journal for financial planning research, but in the process is increasingly putting the CFP Board into conflict with the FPA with overlapping membership initiatives. At the same time, the CFP Board also announced this week that for the first time in a long time, the average age of CFP certificants has begun to decline, and dipped below age 50 this year, as the organization's ongoing efforts to attract young new talent is beginning to show signs of progress.

From there, we have a few technical financial planning articles this week, including: the final announcement that Medicare Part B premiums will rise "only" 16% next year for those not eligible for Hold Harmless (albeit with a $3/year surcharge to last the next decade or so); a look from retirement researcher Wade Pfau at how Social Security compares to investment alternatives (particularly if you want to spend down your portfolio while delaying Social Security benefits); an announcement from the Department of Labor to expand state-run IRAs and employer retirement plans (including the potential for automatic enrollment with payroll deduction); the news that next February the NYSE will stop allowing Stop orders and Good-Til-Canceled orders (in acknowledgement that investors are improperly using them as risk management tools when they're not); and a look at the new Actuarial Guideline 49 that rolled out this fall to limit the "over"projections of indexed universal life policies (and whether the AG49 rules still don't go far enough to limit overly optimistic policy illustrations).

We also have a couple of practice management articles this week, from the importance of hiring an Operations Manager or Chief Operating Officer for your advisory firm if you're finding yourself at/past capacity (and especially if client service and/or business growth are starting to suffer!), to a discussion of the pros and cons of trying to hire a "permanent" financial planning associate who is not seeking a career track of personal advancement, and a look at how a typical advisor "Mastermind" or group operates (and how to take the steps of forming your own).

We wrap up with three interesting articles: the first explores the research of how we typically judge people (including ourselves) based on how hard the person works and how much time they put in, even though the reality is that the most creative and productive people usually limit how much time they put in (otherwise the brain just gets too tired!); the second is a look at the new Gino Wickman book "Rocket Fuel" which highlights how the most successful businesses are the ones that pair together a visionary and an "integrator" who is capable to putting the visionary's ideas into practice; and the last is a great reminder that just as fitness tracking devices like the Fitbit are successful because they take long-term health goals and break them down into daily bites, so too must advisors break their long-term goals down into daily bite-sized activities that can be tracked and measured to help reinforce success (and it's not a bad idea to try with clients, too!).

Enjoy the reading!

Weekend Reading for Financial Planners (Oct 31 – Nov 1)

October 30, 2015 02:01 pm 26 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week’s edition kicks off with the huge news this week that the budget compromise in Congress will include a "crackdown" that ends the popular Social Security claiming strategies of File-and-Suspend and Restricted Application, with only a narrow period of "grandfathering" for retirees who planned to use these rules in the near future. Also in the news this week was a fresh industry benchmarking study finding that tech-savvy advisory firms are increasing their productivity lead over the rest, with the most tech-savvy firms having on average 40% more AUM and serving 55% more clients.

From there, we have a slew of practice management articles this week, including: the results from the recent FA Insight benchmarking study, finding that advisory firms who pay their employees more end out being more profitable thanks to more productive employees; a discussion of how important it is to have a rigorous hiring process to find the best employees (or outsource to a firm that can do it for you!); the importance (and difficulty) of advisors creating their own transition plan about how they will someday "gracefully" exit their advisory business; the story of how one advisory firm successfully transitioned from AUM to retainer fees; why it's important to change your sales process with prospective clients if you're not closing at least 30% of them; whether advisory firms that pay the ticket charges for trades in client portfolios are introducing untenable conflicts of interest; and the rules for most of the major brokerage/custodian firms about how they handle client losses if a clients' financial accounts are hacked.

We wrap up with three interesting articles: the first critiques some of the "convoluted logic" that brokerage firms and insurance companies have been putting forth as self-interested objections to the DOL's fiduciary proposal; the second looks at some of the "myths" that wirehouses have used to claim why they remain a superior place for their advisors to build a business, even as RIA market share grows and an increasing volume of brokers decide to break away; and the last is a great reminder about the value of establishing a "Mastermind Group" of peer advisors to help you get better ideas to improve your business, have a group to bounce your own ideas off of, and to provide a level of accountability to help ensure that you take the steps you have committed to in order to improve yourself.

Enjoy the reading!

Weekend Reading for Financial Planners (Oct 3-4)

October 2, 2015 02:29 pm 20 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week’s edition kicks off with the announcement of a new advisor leadership succession training program from Philip Palaveev of the Ensemble Practice, called G2 Leadership Summit, that will train advisors in groups of 50 to handle the real-world challenges of advisory firm ownership and management with a series of mock management scenarios. When viewed alongside a 'similar' training program launched by Schwab last year, the new program underscores a positive broader trend of leadership development efforts in the advisory world.

From there, we have a couple of practice management articles, including: a look at the lessons financial advisors can learn from how TurboTax did and did not impact CPAs (where self-service tax preparation software still only serves about 30% of households!); an interview with Dr. Brad Klontz about the rise of "financial therapy" and advisors incorporating behavior change management into their skillsets in serving clients; how to deal with a "ransomware" virus (and ideally how to avoid it in the first place!); how recent changes to the Facebook API may soon force advisors to adopt Facebook Business Pages instead of using their Personal Profiles for business; and an interview in the Journal of Financial Planning about how advisors can profitably serve Gen X and Gen Y clients but must abandon the AUM model to do so.

There are also a few technical financial planning articles this week, from a recent tax proposal to limit the transfer-for-value rules on life insurance that could create problems for clients transferring life insurance policies in/out/around of their business; a discussion of the common "myths" about bonds, such as the fact that back in the early 1980s bonds had a higher nominal yield but actually produced a lower after-tax after-inflation yield than they do today; and the recent Zahner court case that may help clear the way for short-term Medicaid-compliant annuity strategies.

We wrap up with three interesting articles: the first looks at how not all clients who ask "What do you think I should do?" to their advisor actually want advice about what to do (many are just looking for the advisor to validate their pre-existing idea, or to help them figure out their own solution); the second is a discussion of "The Experience Economy" and how advisors can avoid the commoditization of various parts of financial services by not just giving better service but crafting an experience around the process; and the last is an article by referral marketing expert Steve Wershing about how advisors calling their firms "boutique" may actually be inhibiting referrals, and that if the goal is to convey that the firm provides deep personalized service the best way to convey it is with examples of what the firm actually does, not by using the limiting "boutique" label!

Enjoy the reading!

The ETF Problem With Stop Loss Market Orders

September 9, 2015 07:01 am 24 Comments CATEGORY: Investments

Now with more than $2 trillion in assets, the exchange-traded fund (ETF) has exploded onto the investment scene in the past 20 years, with the bulk of the growth occurring even more recently, built on the base of popular ETF features from their tax efficiency to relatively low cost to their ability to trade intra-day like a stock (and unlike a traditional mutual fund).

Yet ironically, in recent weeks the popular feature of being able to trade intra-day has turned into a liability instead, as market volatility has triggered a number of extreme (but short-term) situations where ETFs have traded at a significant discount to their intrinsic net asset value, in some cases as much as 30% below intraday NAV for an hour or few at a time.

For those advisors and investors who trade infrequently anyway, this kind of intra-day volatility may be a “non-issue” that was literally not even noticed by those who owned the ETF securities. Except those who panicked and sold at the market’s open based on overnight news. Or, unfortunately, those who were using Good ‘Til Cancelled (GTC) stop loss market orders.

In fact, the recent volatility of ETFs highlights that when it comes to using stop loss orders in particular, advisors and investors must be especially careful about how those trades are structured, in a world where ETFs with ‘temporary’ bouts of illiquidity can trade at dramatic discounts. At a minimum, those who wish to continue to use stop loss orders as a form of risk management may seriously want to consider using stop loss limit orders instead, with a gap between the stop loss and limit thresholds that is wide enough to still trigger a sale when the underlying NAV is falling, but reducing the risk of triggering a market sell order at the nadir of an ETF’s short-term “flash crash” price!

Essentialism And The Paradox Of Success As A Financial Advisor

August 31, 2015 07:01 am 24 Comments CATEGORY: Personal/Career Development

Building a business as a financial advisor (or really, almost any business) is a constant effort of getting “more” – more clients, more revenue, more staff to serve them… in a process that can often leave the advisor feeling less and less in control as the demands of the business become overwhelming.

In the new book “Essentialism”, Greg McKeown makes the case that this “Paradox of Success” – the focus that makes entrepreneurs succeed becomes their undoing as the demands on their time increase due to the very success they created – can only be resolved by taking a systematic approach to creating focus on what is truly essential for the advisor to be doing. The classic approach of doing more and more – of multitasking and multifocusing – just leads to less and less productivity. Which means it’s actually the disciplined pursuit of less – what McKeown calls living the life of an “Essentialist” – that leads to more in the long run.

And ultimately, the lessons of Essentialism translate not only into personal success, but the entire design and focus of a business, where in a similar manner a strategic “focus” that goes in too many directions at once leads to little progress at all. By contrast, it’s the focused “Essentialist” business that puts all of its energy towards a single niche or specialization that can make the most progress and gain the momentum that sets the stage for future success as well.

MailBag: Pursuing An MBA or CPA License After CFP Certification, And Problems With Criss-Cross Continuity Planning Amongst Solo Advisors

August 18, 2015 06:01 am 19 Comments CATEGORY: MailBag

Many readers of this blog contact me directly with questions and comments. While often the responses are very specific to a particular circumstance, occasionally the subject matter is general enough that it might be of interest to others as well. Accordingly, I occasionally post a new "MailBag" article, presenting the question or comment (on a strictly anonymous basis, of course!) and my response, in the hopes that the discussion may be useful food for thought.

In this week's MailBag, we look at a question of whether it’s better to pursue an MBA degree or a CPA license after completing CFP certification (or whether some other post-CFP education would be even better!), and the problems that can arise when solo advisors try to satisfy the recent NASAA Model Rule on continuity planning by arranging a “criss-cross” buy-sell agreement with each other (when they don’t necessarily have the client capacity to actually execute it!).

Essential Requirements In Crafting A One-Page Financial Advisor Business Plan

August 17, 2015 07:01 am 21 Comments CATEGORY: Practice Management

In a world where most advisory firms are relatively small businesses, having a formal business plan is a remarkably rare occurrence. For most advisors, they can “keep track” of the business in their head, making the process of creating a formal business plan on paper to seem unnecessary.

Yet the reality is that crafting a business plan is about more than just setting some business goals to pursue. Like financial planning, the process of thinking through the plan is still valuable, regardless of whether the final document at the end gets put to use. In fact, for many advisory firms, a simple “one-page” financial advisor business plan may be the best output of the business planning process – a single-page document with concrete goals to which the advisor can hold himself/herself accountable.

So what should the (one-page) financial advisor business plan actually cover? As the included sample template shows, there are six key areas to define for the business: who will it serve, what will you do for them, how will you reach them, how will you know if it’s working, where will you focus your time, and what must you do to strengthen (or build) the foundation to make it possible? Ideally, this should be accompanied by a second page to the business plan, which includes a budget or financial projection of the key revenue and expense areas of the business, to affirm that it is a financially viable plan (and what the financial goals really are!).

And in fact, because one of the virtues of a financial advisor business plan is the accountability it can create, advisors should not only craft the plan, but share it – with coaches and colleagues, and even with prospective or current clients. Doing so becomes an opportunity to not only to get feedback and constructive criticism about the goals, but in the process of articulating a clear plan for the business, the vetting process can also be a means to talk about the business and who it will serve, creating referral opportunities in the process!

Weekend Reading for Financial Planners (Aug 15-16)

August 14, 2015 02:01 pm 17 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with a summary of this week's Department of Labor hearings on the fiduciary proposal. While arguments were heated on both sides (which variously argued that fiduciary duty will either drive costs down for investors by eliminating conflicted advice, or drive them up by raising compliance costs!), the rule still appears to be on track for implementation in 2016, with perhaps just some adjustments to make it more "workable" in practice.

From there, we have several practice management articles this week, including: a look at how despite the rise of technology solutions Cerulli finds that the number of self-directed investors has significantly decreased in the past 5 years and the number of "advisor-reliant" consumers is on the rise; a summary of the latest FA Insight benchmarking study on People and Pay in advisory firms, which finds that RIAs are enjoying record profit margins and productivity, but that the lack of young talent may soon begin to take a toll; a discussion from industry practice management guru Philip Palaveev about how "flat" organizations with little hierarchy sounds good in concept but fails in practice, especially in advisory firms; tips from Mark Tibergien on a different approach to strategic planning; and a look at how the aging advisor population is leading to an increased number of practices that have to fold due to the sudden death of the owner, and how custodians are often compelled to act quickly, especially when the firm lacks a continuity plan, which may include cutting off the advisory firm's staff access to clients, and even shifting clients over to the custodian's self-directed platform, retail branch advisors, or even other firms.

We also have a few technical planning articles, from a look at the rise of "private exchanges" for health insurance in mid- and large-sized firms, the latest research from S&P that finds actively managed funds are so struggling to generate outperformance that they're not just underperforming net of fees but the majority in most categories (especially equities) are even underperforming before fees, and a discussion of the current research on how much retirees really need for retirement income and how the common 70%-80% replacement rate may actually be significantly overstating what most retirees really need (especially those with above-average household income).

We wrap up with three interesting articles: the first covers some of the latest polling research from Gallup, which finds that adoption of financial planning is on the rise across the country, especially amongst those who are still saving and aren't yet retired (perhaps a result of the pressure of technology on commoditizing the value of investment-only solutions for accumulators?); the second is a discussion of the new Schwab Executive Leadership Program, which is taking cohorts of 30-35 future leaders from advisory firms and putting them through a year-long MBA-style program in management (and getting rave reviews for the quality and beneficial impact of the program from its participants); and the last is a discussion of how the market's sustained inability to make materially new highs since last Thanksgiving could be a troubling sign that the positive feedback loop for investors is breaking down, which risks culminating in a fear-driven bear market if the bull market cycle doesn't underway again soon.

And be certain to check out Bill Winterberg's "Bits & Bytes" video on the latest in advisor tech news at the end, including a discussion of Envestnet's acquisition of Yodlee, a new integration of up-and-coming financial planning software Advizr with Orion Advisor Services, and a look at whether automated investment services (i.e., direct-to-consumer robo-advisors) are losing their exclusivity as established financial services firms increasingly launch their own.

Enjoy the reading!

As Envestnet Buys Yodlee For $590M, Total PFM Acquisitions In Advisor #FinTech Crosses $1B!

August 11, 2015 10:15 am 19 Comments CATEGORY: Technology & Advisor FinTech

Yesterday, Envestnet ‘surprised’ the FinTech world by announcing that it was buying data/account aggregation company Yodlee for a whopping $590M, at a 70% premium to Yodlee’s valuation at its IPO less than 12 months ago. Yet looking at Envestnet’s apparent strategy of building a “Holy Grail” technology platform solution for advisors, that includes CRM, portfolio accounting, and financial planning software, it’s not entirely surprising that Envestnet decided they wanted to own the data that feeds the engine, too.

From the broader industry perspective, though, Envestnet’s acquisition of Yodlee may make some competitors nervous. There are relatively few data sources for quality account aggregation data in the first place, especially ones that include a holistic picture of household cash flows (and not just investment account/performance data). And with Envestnet now owning one of the top two players (the other is the Intuit API that powers Mint.com), and having its own financial planning software given the recent FinanceLogix acquisition, it raises the troubling question of whether competing financial planning software providers like MoneyGuidePro (which relies solely on the Yodlee solution) could someday be left in the lurch.

More broadly, though, the Yodlee acquisition marks a massive uptick in what has already been an incredibly hot technology category. Just under two years ago, I predicted that account aggregation and Personal Financial Management (PFM) solutions would become the hot new category of advisor technology, and earlier this year (before any major deals had yet been announced) that 2015 would be the year of Advisor FinTech. Now it’s not even the end of summer, there have been over $1B of account aggregation and PFM-related providers in just the past 6 months alone, and suddenly the biggest problem may be that there are almost no players left to acquire… unless someone new comes along soon?

One Insurance Agent’s Transition To Fee-Only RIA, In Just A Few Months…

July 30, 2015 07:01 am 47 Comments CATEGORY: Practice Management

Making a big change in your advisory business can be scary, and there's perhaps nothing more scary than breaking away from where you started your financial services career to go out on your own as an independent RIA. From wondering whether your clients will come with you, to facing the burdens of being the business owner responsible for everything, to just the transition process itself, there's a lot to deal with.

In this guest post, Daniel Wrenne - a former Northwestern Mutual agent turned fee-only independent RIA - shares the story of his own transition process, and the surprisingly fast 6-month timeline it took from when he first had the idea to go out on his own, until his independent RIA was approved by the state of Kentucky and his new business was launched. And Daniel shares everything he went through along the way, from the key software tools and technology he chose, to how many clients actually transitioned (fewer than he hoped, but all the best clients he really wanted!), and the niche he's chosen to pursue going forward, supporting by an inbound marketing strategy to grow his business in the future.

So if you're an existing insurance agent or broker thinking about breaking away to start your own independent RIA, this should be helpful to you as you consider what it may take to move forward from here, as well as recognizing the realistic challenge you're up against (Daniel notes that even in transitioning existing clients, he'll be waiting a full year before taking any salary out of the business for himself!).