feed - Part 88

Weekend Reading For Financial Planners (Dec 7-8)

December 6, 2013 12:23 pm 6 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition kicks off with the big 2013 annual advisor tech survey, with some interesting results showing that advisors are starting to really shift to the cloud (and show a preference for cloud-based solutions). There's also an interesting bit of news about Fidelity announcing that it going forward it will charge more to purchase Vanguard and DFA mutual funds (and a few other low-cost providers) compared to the other 99%+ of the marketplace.

From there, we have a number of technical planning articles, including a discussion of how clients who use the Social Security "file and suspend" strategy can actually undo it years later, a look at some of the rules for 529 plans that are relaxed when a beneficiary designation change occurs, a harsh look at whether nontraded REITs are really all they're cracked up to be, and some recent research from the Journal of Financial Planning about how to achieve higher withdrawal rates using a standby line of credit via a reverse mortgage.

We also have several practice management articles, including a bit of a point-counterpoint discussion about the how easily advisors can get started with blogging, but a note that just because advisors can blog doesn't mean they should unless their practice is really focused and specialized enough to create content that has unique value from all the other "tripe" being pushed out (spammed out) to consumers. There's also a discussion of how some advisors have struggled with the execution of website re-design projects (though most seem happy with the final outcome, even if the process of getting there was a challenge!).

We wrap up with three interesting articles: the first is an interview with financial planner, blogger, and speaker Tim Maurer about the wide range of activities he's involved with and his secret for how he's achieved such good relationships with the media (hint: give it away); the second is a look at some of our behavioral biases in making decisions as advisors, and how we can better navigate our own decision-making challenges; and the last is an interesting look at how, despite all the negativity about the state of the US these days, we've actually made astonishing improvements over and above the days-gone-by when we already said times were great (which means we should be even happier now, right!?). Enjoy the reading!

Tips For Dealing With Entitlement Issues With Your Gen Y Financial Planning Team

December 3, 2013 07:01 am 0 Comments CATEGORY: Practice Management

Hiring young "Generation Y" financial planners has its challenges, as today's generation of new financial planners have some fundamentally different views regarding work/life balance and work expectations that will shape how they navigate their careers. While this may simply mean that Gen Y planners make different decisions when faced with some of their life/career trade-offs, an associated challenge is that Gen Y is often viewed as having an "entitlement" attitude - that they want the benefits, without the trade-offs.

In this guest post, Gen Y planner and NAPFA Genesis founder Dave Grant shares some of his experiences with the difficulties of dealing with Gen Y entitlement issues, reflecting on some of his recent challenges with his own entitlement demons that crop up from time to time. From the perspective of someone dealing with the issue themselves, Dave then shares some of his insights about how firm owners can try to handle and address Gen Y entitlement issues, from the perspective of someone who would be on the receiving end of the message!

Of course, ultimately generational stereotypes are just that - a stereotype that does not necessarily represent every unique individual of the generation - so it is not a 'guarantee' that the problem will present itself just because you're hiring or working with young planners. Nonetheless, if you're an advisory firm owner struggling with some younger planners in your firm - or perhaps you are a Gen Y planner dealing with these issues yourself - today's guest post should be helpful for you in trying to think through ways to tackle the issue!

How Do You Measure Success And Quality In A Financial Planning Firm?

December 2, 2013 07:01 am 10 Comments CATEGORY: Practice Management

Over the past decade, it has become increasingly popular for publications to cite the assets-under-management (AUM) of an advisory firm when quoting from someone at the firm. Ostensibly, an advisory firm's AUM is meant to connote its success and relevance; the larger the AUM of the firm, the more the apparent success of the person being quoted, and the more we should all pay attention to what he/she is saying. Or so the media seems to imply.

Of course, the reality is that AUM says little about the actual quality of a firm's financial planning services or the success of its clients; in fact, it doesn't even indicate whether the firm does financial planning in the first place! Accordingly, some has suggested that better alternatives might be to look at the years of experience of the planner instead, to adjust for and acknowledge the fact that advisors can have excellent knowledge and insight even if their personal goal was not to grow a huge pile of AUM (or for that matter, in the event they decided not to even run an AUM business model in the first place!).

Yet at the same time, this raises the question: what should we be using to evaluate and measure the success and quality of a financial planning firm? After all, if we can't even measure it, how can we possibly manage it and work towards improving it? Would a better alternative be to look at client satisfaction surveys? What about the percentage of recommendations that are implemented? Or the time horizon it takes for them to be implemented? How do you measure the quality and success of your financial planning services for your clients?

When Will There Finally Be A Good Personal Financial Manager (PFM) Software Solution For Advisors?

November 18, 2013 06:01 am 38 Comments CATEGORY: Technology & Advisor FinTech

In the world of technology, some of the most cutting edge computers, tools, and software are bought and used by Wall Street. Yet the reach of technology to financial advisors has been severely limited; at best, most solution categories have only a handful of players, often built around homegrown tools creative by/for one advisor and marketed to others, or much larger platforms that have to be extensively adapted and customized to actually be relevant for financial advisors. To the extent that any venture capital dollars are invested into financial services solutions, it seems they tend to be offered directly to consumers, rather than as a tool for advisors.

One of the key areas where this shortcoming is most notable is the world of “Personal Financial Management” (PFM) software, where market dominator Mint.com serves consumers directly, but has not been adapted or expanded for use with advisors, and the alternatives actually available for advisors are meager at best, often focusing solely on aggregating investment and retirement assets but falling far short of a comprehensive financial planning solution.

Nonetheless, the market potential for a PFM serving advisors is huge; while most direct-to-consumer solutions struggle to generate enough revenue to be financially successful while trying to get consumers to pay directly, or to induce consumers to buy other financial services products the tool recommends, advisors might happily pay an ongoing fee for an effective solution targeted directly for them. After all, imagine if you as an advisor could have your clients enter simple financial account information into a computer and have an immediate snapshot of the client’s assets, liabilities, and cash flows in the very first meeting (and every plan renewal thereafter). The tremendous efficiency and productivity enhancement – not to mention a better client experience – could be a breakthrough for expanding the reach of financial planning!

Which raises the question – when will a financial technology startup finally take up the incredibly low-hanging business fruit, rise to the challenge, and build the advisor PFM tool we could all so desperately use?! And why isn't the allure of a company that could generate tens of millions of steadily recurring revenue from advisors enough to draw venture capital interest!?

Weekend Reading for Financial Planners (Nov 16-17)

November 15, 2013 01:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with some big news from the CFP Board, which announced this week that it will not be pursuing its controversial proposal to offer CFP CE credit, and instead will be offering up a series of initiatives over the next 3-5 years aimed at lifting the overall quality of CFP CE across all programs; in addition, the CFP Board also announced that it will be extending its "Let's Make A Plan" public awareness campaign by another two years, citing better-than-expected results from its public awareness metrics.

From there, we have several regulatory-related articles this week (following on the heels of Tuesday's guest blog post regarding FINRA's significant fiduciary shift with its recent "Report on Conflicts of Interest"), including a new consumer educational program from Wall Street trade organization SIFMA entitled "Our Partnership With You" that advocates consumers should receive best-interests personal investment advice (though the word "fiduciary" was not used), an announcement by FINRA that it is making its BrokerCheck and IARD systems more accessible and consumer-friendly for those who want to check up on their advisors, and a summary of the current state of various fiduciary activity (from the SEC, DOL, and FINRA) presented at this week's Schwab IMPACT conference (along with another article that provides overall highlights from the event).

There are also a few technical articles, including a good summary of this week's proposals to "fix" the Obamacare problems by extending the time period that insurance companies can renew "old" insurance plans without cancelling them (and some of the problems with trying to do so), the potential coming offering of new "R-Bonds" from the US Treasury as a new kind of IRA alternative, a discussion of some of the practical caveats and limitations to the 4% "rule", and an interesting look at just how long it may take for a total return bond fund to recover from various interest rate increases (hint: a while, but not as long as clients might fear, and still with far less volatility than equities).

We wrap up with three interesting articles: the first looks at how bland and sometimes unprofessional the typical "Out of Office" email is, or at best how it's purely "AUTOREPLY" style is at odds with what are otherwise high-touch high-relationship advisory firms (and some suggestions about how to improve accordingly); the second is from Steve Lockshin about trends that are likely to impact the advisory world in the coming years (excerpted from his recently published book "Get Wise To Your Advisor"); and the last provides a good reminder about how important it is to have a clear mission for your firm, noting not only do customers/clients increasingly prefer mission-driven companies, but that employees who worked at firms with clear mission and follow-through were twice as likely to want to stay with their current employer and three times more likely to have high job satisfaction! Enjoy the reading!

How to Retain NexGen/Gen Y Advisors – A View From The Trenches

October 29, 2013 07:07 am 4 Comments CATEGORY: Practice Management

As financial advisory firm owners try to grow their practices, at some point the firm owner hits a wall where the only choices are to remain limited in size, or begin to hire. Yet the process of hiring a new junior advisor is difficult, given not only the different expectations that professional staff members (e.g., junior advisors/CFPs) have from administrative staff the firm might already have, but also because of the significant differences between today's "young" Generation Y advisors, and the more veteran advisors who are hiring them.

In this guest post, Gen Y advisor Mary Beth Storjohann, herself a "veteran" of financial advisory firms in many ways - having already worked for 5 firms in 10 years by the tender age of 29 - shares her own view "from the trenches" about what works and what doesn't work in trying to retain "NexGen" advisors. In a world where so much advice on hiring and retaining young advisors is driven by those who do the hiring - not those being hired - Mary Beth's perspective is illuminating in showing what Gen Y advisors themselves are thinking and looking for.

So if you're an advisor who's thinking about hiring a Gen Y advisor, or struggling to bridge the communication gap with your new advisor, this discussion will hopefully give you some ideas about what to do to better attract and retain new advisors in your firm. And if you are a Gen Y advisor, perhaps this discussion will give you a few ideas about what can help you succeed, what to look for in a firm, or even some suggestions that you can (gently!) make to your own firm owner about what the firm can do to help you both succeed.

Weekend Reading for Financial Planners (Oct 26-27)

October 25, 2013 12:04 pm 4 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with three interesting industry articles: the first looks at some recent strong statements from the FPA at its recent FPA Experience conference against the CFP Board, even while the organization renews its commitment to CFP professionals; the second is an interview with Sheryl Garrett of the Garrett Planning Network and how the network and its advisor members continue to evolve; and the third is a prospective look at how the financial services industry is changing in the coming two decades, heavily influenced by its currently low position on the trust/reputation scale after a decade of financial services scandals and debacles.

From there, we have several practice management articles this week, including: the benefits some advisors are finding in expanding their practices to lower net worth clientele; advice from practice management consultant Angie Herbers about how female advisors need to get comfortable being more "selfish" and acting on their own behalf; and how running a financial planning business is like poker, in that if you're sitting at a difficult table, you can always get up and change tables (and change your business model/target clientele).

There are also a few technical articles, including one about how risk tolerance measures could be improved, another looking at some examples of the size of premium assistance tax credit subsidies for those buying health insurance on the exchanges (which, because the rules are based on income only, can apply for clients even with a very high net worth), and a look at how advisors are increasingly using HELOCs again as home equity levels rise and banks become more willing to lend.

We wrap up with three interesting articles: the first looks at how dramatically life expectancy has increased over the past 150 years, though despite significant medical advances it turns out the driving force of the improvement has been our ability to better manage (and avoid) the spread of disease; the second looks at how you can inspire more creativity and build a "culture of healthy debate" in your advisory practice to encourage growth; and the last is a "manifesto" from blogger and personal finance writer Ramit Sethi, who makes the case that people would be better served by focusing less on traditional financial advice around budgets and trimming little expenses, and more on the "Big Wins" that can really meaningfully impact their finances and more importantly, establish healthy financial behaviors. Enjoy the reading!

Weekend Reading for Financial Planners (Oct 12-13)

October 11, 2013 01:01 pm 1 Comment CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's reading kicks off with a scathing expose from Bloomberg Markets on managed futures funds, suggesting that many have been hiding underlying fees and expenses as high as 6% to 9% per year, resulting in high profitability for the firms that offer them but nothing for the investors who buy them, as overall 89% of the upside of the managed futures funds studied had been eaten up by costs over the past decade.

From there, we have several industry and practice management articles, including one about how wirehouses are evolving (the breakaway broker trend is still just a trickle, and the large firms are marshalling their resources to create a compelling wealth management offering), how many broker-dealers are refining their technology to support advisors (with a focus on mobile productivity, deep cross-software integrations, and more sophisticated trading and rebalancing platforms), and an interesting look at how different generations of prospective clients require different messaging and communication styles if advisors hope to reach them.

We also have several more technical articles this week, including a look at how probabilistic retirement planning may be great for analytical purposes but is difficult if not impossible for clients to truly understand, a study of whether "sequence of return" risk may be overstated (as even Year 2000 retirees are still faring reasonably well despite the past decade of low returns, and are doing even better if just small mid-course adjustments were made along the way), tax planning strategies for trusts to avoid the new higher top tax rates in 2013, how to plan around the new 3.8% Medicare surtax on net investment income, and a Journal of Financial Planning study on how to use an internal rate of return (IRR) analysis to properly evaluate the value of an existing life insurance policy and whether to keep funding it.

We wrap up with three interesting articles: the first looks at how pricing wars in the advisory space are compressing profit margins in "just" building regularly rebalanced passive strategic asset allocation, which will increasingly force advisors to really figure out how to get paid for their advice to succeed; the second explores how financial planning needs to expand its garden of knowledge by cultivating a coherent and comprehensive theoretical framework, establishing "Finology" as another course of study like psychology and sociology; and the last looks at some of the recent research explained in the book "Happy Money" by Elizabeth Dunn and Michael Norton about how, spent properly, money really can buy some happiness.

Enjoy the "light" reading!

Should Equity Exposure Decrease In Retirement, Or Is A Rising Equity Glidepath Actually Better?

September 25, 2013 07:09 am 30 Comments CATEGORY: Retirement Planning

For the past 20 years, due both to the growing research on safe withdrawal rates, the adoption of Monte Carlo analysis, and just a difficult period of market returns, there has been an increasing awareness of the importance and impact that market volatility can have on a retiree's portfolio. Often dubbed the phenomenon of "sequence risk", retirees are cautioned that they must either spend conservatively, buy guarantees, or otherwise manage their investments to help mitigate the danger of a sharp downturn in the early years.

One popular way to manage the concern of sequence risk is through so-called "bucket strategies" that break parts of the portfolio into pools of money to handle specific goals or time horizons. For instance, a pool of cash might cover spending for the next 3 years, an account full of bonds could handle the next 5-7 years, and equities would only be needed for spending more than a decade away, "ensuring" that no withdrawals will need to occur from the portfolio if there is an early market decline.

Yet the reality is that strict implementation of a bucket strategy is more than just an exercise in mental accounting; it can actually distort the portfolio's asset allocation, leading to an increasing amount of equity exposure over time as fixed income assets are spent down while equities continue to grow. Yet recent research shows that despite the contrary nature of the strategy - allowing equity exposure to increase during retirement when conventional wisdom suggests it should decline as clients age - it turns out that a "rising equity glidepath" actually does improve retirement outcomes! If market returns are bad in the early years, a rising equity glidepath ensures that clients will dollar cost average into markets at cheaper and cheaper valuations; and if markets are good... well, clients won't have a lot to worry about in retirement anyway (except perhaps how much excess money will be left over at the end of their life).

Of course, the challenge to utilizing a rising equity glidepath strategy with clients is that many would obviously be concerned about having more equity exposure during their later retirement years. Yet the research shows that rising glidepaths can be so effective, they may actually lead to lower average equity exposure throughout retirement, even while obtaining more favorable outcomes. And ironically, it turns out that for those who do want to implement a rising equity glidepath, the best approach might actually be to explain it to clients as a bucket strategy in the first place!

Helping Financial Planning Clients With Their Digital Estate Planning

September 24, 2013 06:14 am 7 Comments CATEGORY: Estate Planning

Helping clients through their estate planning is a core part of the financial planning process - and of course, the reality is that the orderly resolution of an individual's affairs after they pass away is an issue that long predates financial planning itself. Though the rules have changed significantly over the years and decades, the courts have long played a role in ensuring that property is distributed properly, albeit with some cases a bit more orderly than others.

Yet in today's world, a unique new type of property is being introduced for the first time: digital assets. In this guest post, financial planner William Bissett shares an example of a potentially problematic client scenario, where it's necessary to help a client through not only the traditional estate planning process for their "traditional" assets, but also to recognize that the matter has grown significantly more complex as clients must also resolve everything from online billpay to recovering photos from social media accounts.

Going forward, helping clients plan for their digital assets may become increasingly important as more and more of our lives are move (or at least are captured) online. Though the laws themselves are still a bit murky on how to handle such situations - and perhaps, because of that fact - it is crucial to at least help ensure that clients have an inventory of their various digital accounts and digital assets, to help surviving spouses and heirs to get through the process as smoothly as possible.