Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a new analytical tool from Morningstar that can apparently help you to benchmark your (AUM) fees against the industry, an interesting perspective on what really makes clients refer you (hint: it's about what's in it for them, not for you), and a look at how easy it is to build a website these days (yet how many advisors still haven't done so). We also look at an article about how to have difficult conversations with clients, and two industry trends articles about Hartford's departure from the variable annuity space, and Prudential's departure from the long-term care insurance market (with Genworth stepping up to fill the void). We finish with an article about fixed income strategies that advisors are using in today's marketplace, a look at how the term financial planner is being misused around the world and what the Financial Planning Standards Board has to say about it, and a lighter look from the Harvard Business Review at two lists you should maintain every day - what you will focus on doing, and what you will commit to ignoring - to enhance your productivity and success. Enjoy the reading!

Friday, March 30th, 2012 Posted by Michael Kitces in Weekend Reading | 0 Comments

As Wall Street firms continue to struggle, beset from all sides by a waning public image, financial uncertainties, numerous regulatory battles that could drastically change their business model, and an ongoing defection of brokers and clients, the independent financial planning community continues to grow. In fact, within a few years, Cerulli predicts that wirehouses will no longer be the largest financial services channel. Yet at the same time, an increasing number of financial planning practices are not only taking business away from traditional wirehouse firms, but proactively focusing client attention on it with every media article that discusses troubles on Wall Street, to emphasize how their firm is different. The challenge, though, is that by trying to differentiate from the Wall Street firms by talking about their problems, we don't actually elevate ourselves - we remind clients of the trust problems in the financial services industry. The end result - celebrating the decline of Wall Street wirehouses may actually help to drag us down with them!

Thursday, March 29th, 2012 Posted by Michael Kitces in Weekend Reading | 16 Comments

In the ongoing debate about the fiduciary standard, it continues to be difficult explaining to the public just what fiduciary is and means, and how there's a difference between brokers who sell products and fiduciaries who give advice. A recent video by Hightower Advisors tries to illustrate the point by comparing butchers who sell meat to dieticians who give advice about what to eat; you wouldn't expect your butcher to give objective dietary advice, and by analogy you shouldn't expect your broker to give you objective financial advice, either. If you want advice about what to eat, you go to a dietician, and by analogy when you want financial advice, you go to a fiduciary. Yet while the video does a good job drawing the distinction between brokers and fiduciaries, it perhaps unwittingly implies that recent regulatory and advocacy efforts may be misguided. It would be nonsensical to pass a law requiring all butchers to become trained dieticians to give advice about eating under a uniform dietary advice standard, when at the end of the day their job is simply to be a butcher and sell meat; extending the analogy, does that mean it is equally absurd to expect a uniform fiduciary standard for brokers? Is a better alternative just to require butchers to call themselves butchers, and brokers to call themselves brokers, and let neither give advice or hold themselves out as an advisor in the first place?

Wednesday, March 28th, 2012 Posted by Michael Kitces in Planning Profession | 20 Comments

To Roth or not to Roth. It is a question that planners and their clients commonly face, whether making the decision regarding an annual contribution, or about converting (or not) an existing retirement account. Yet while the appeal for lifetime tax-free growth from a Roth may be appealing, the reality is that the Roth is not always the winning choice, and there are many myths and misunderstands about Roth accounts that make it difficult to know which is best. The reality is that there are four (and only four!) fundamental factors that determine whether a Roth will or not will be more effective than a traditional pre-tax retirement account. Some factors are always in favor of the Roth account, but others can work against the Roth account; in fact, blindly choosing a Roth and ignoring the relevant factors can actually lead to wealth destruction! By knowing the four factors and avoiding the Roth myths, though, planners and clients can be assured of making an effective wealth-building decision.

Tuesday, March 27th, 2012 Posted by Michael Kitces in Taxes | 26 Comments

Historically, the update of a financial plan has been a somewhat arduous process, as new data is gathered manually from the client, entered into financial planning software, analyzed for problems or opportunities, and then finally delivered to the client. Perhaps even more challenging is the fact that it's never quite clear when or how often to do the plan update; annual updates are proactive but often produce a lot of work when nothing has actually changed, yet waiting for the client to request an update can be too reactive. In the digital age, though, monitoring a financial plan will be very different. As integrated technology allows plan details to updated automatically and continuously, we will reach the point where you don't notify the client that it's time for a plan update; the planning software will notify you!

Monday, March 26th, 2012 Posted by Michael Kitces in General Planning | 2 Comments

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights some recent activity regarding fiduciary, from an surprising alignment between NAPFA, the FPA, and FSI against the latest Department of Labor proposals on fiduciary, to an article exploring how wirehouses may already be shifting their brokers towards fiduciary, and a profile of a former broker who suggests that the wirehouse model (at least in its current form) will be dead by the end of the decade. From there, we look at a review by Bill Winterberg of the latest iPad, along with how mobile apps are evolving in the RIA marketplace. On the investment front, there's an interesting new type of annuity that may be coming soon, which would allow advisors to attach an income guarantee to an investment account without tying up the entire account itself inside the annuity, an interesting article by Larry Swedroe suggesting that "buy what you know" is actually not a good investment strategy, and a striking look at the Wall Street meltdown in the financial crisis suggesting that the SEC's change in net capital limits for broker/dealers in 2004 may not have actually been to blame. We wrap up with a warning from Hussman that an army of angry Aunt Minnies may be signaling a market peak and the onset of a new bear market, and a much lighter piece pointing out that you can lose so much productivity by working long weeks that you'd be better off cutting back to 40 hours. Enjoy the reading!

Friday, March 23rd, 2012 Posted by Michael Kitces in Weekend Reading | 0 Comments

As financial planning firms increasingly incorporate the internet and their websites into their marketing, more and more practices are considering the use of a blog. Yet many are doing so without a clear understanding of why the blog is being done in the first place, beyond "everyone else seems to be doing it, so I guess I should, too!" In practice, it seems there are three primary reasons that most financial planning firms consider a blog: drip marketing for prospects, a communication tool for existing clients, or Search Engine Optimization (SEO) enhancement for your overall website. Fortunately, once you know which of these reasons matches the purpose for your blog, you can figure out what kind of content to create for it, to whom the blog updates should be distributed, and whether having a blog even makes sense for your firm in the first place! 

Thursday, March 22nd, 2012 Posted by Michael Kitces in Practice Management | 9 Comments

As prospective retirees struggle to figure out how much money they need to accumulate in order to retire, a key assumption is what anticipated spending will be in retirement. After all, the more spending that must be supported, the more assets that may be necessary (in addition to other income sources) to support that spending. Historically, a popular "rule of thumb" was to assume a replacement ratio of 70% to 80% in retirement, although in recent years this guidance has been lambasted by planners who suggest that client lifestyles tend to remain steady in retirement (or even increase in some cases), not decrease. Yet in reality, it appears that planners have been mis-applying the replacement ratio research, which is based on a percentage of pre-retirement income, not pre-retirement spending! As a result, it turns out the 70% replacement ratio for moderately affluent clients may be remarkably accurate, and in fact could be too high for some wealth clients! 

Wednesday, March 21st, 2012 Posted by Michael Kitces in Retirement Planning | 11 Comments

Monte Carlo analysis has become a fairly widespread tool for financial planners to use to understand the implications of market volatility and return uncertainty on the ability of clients to achieve their goals. Yet the uncertainty in retirement isn't just about the returns that will be earned on investments that are necessary to support spending, but also how long that spending must last. Notwithstanding the uncertainty of mortality, though, most financial planners select a fixed - albeit conservative - time horizon for the portfolio, such as 30 years for a 65-year-old couple. But can this strategy make the plan too conservative? After all, a 90% probability of success - which corresponds to a 10% chance of failure - is actually only a 1.8% probability of failure when it assumes the couple will live until age 95 (given the low likelihood of a client actually surviving that long), and in turn means the client may be saving more, spending less, or retiring later than is really necessary! Which raises the question - are we being too conservative with our mortality/longevity assumptions? 

Tuesday, March 20th, 2012 Posted by Michael Kitces in Retirement Planning | 14 Comments

As financial planning begins its transition into the digital age, the tools and technology that we use to deliver financial planning will change. Increasing use of account aggregation platforms by consumers like Mint.com will mean that clients come to the first meeting with their financial lives already detailed, from a net worth statement to asset allocation details to a breakdown of cash flow. This in turn will allow planners to greatly expedite the planning process - plugging in data immediately in the first meeting to begin crafting financial planning projections live, with clients, who discuss and input their goals on the spot. The end result - an electronic plan, as there will be no need for paper - will provide clients with both actionable steps and recommendations, and the ability to drill down for further detail (through the client software) if they wish. And the entire process will be completed not in a series of meetings, split up by a multi-week break for analysis, but instead in a single meeting, drastically enhancing the efficiency and productivity of the process for both the client and the planner. In turn, though, planners will be forced to add value not by just helping clients get their financial house in order - thanks to technology, it will already be in order! - but by actually delivering quality advice and a good planning experience!

Monday, March 19th, 2012 Posted by Michael Kitces in Practice Management | 7 Comments

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Monday, April 28th, 2014

Safe Withdrawal Rates: Mechanics, Uses & Caveats @ St. Louis Estate Planning Council

Thursday, May 1st, 2014

Cutting Edge Tax Planning Developments & Opportunities @ NATC Annual Meeting

Saturday, May 3rd, 2014

Setting a Proper Asset Allocation Glidepath in Retirement Understanding the New World of Health Insurance @ FPA Retreat 2014

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