Nerd's Eye View blog for Financial Planners at Kitces.com

Navigating the Thrift Savings Plan: Planning Opportunities To Support Federal Employees, Military Servicemembers, And Veterans

February 8, 2023 07:02 am 0 Comments CATEGORY: Retirement Planning

Seasoned financial advisors have likely worked with clients with a wide variety of workplace retirement accounts, which can vary in terms of their investment offerings, fees, and other characteristics. But given that the U.S. government is the largest employer in the country, it can be especially helpful for advisors to be familiar with the ins and outs of (and recent changes to) the Federal government’s own defined contribution plan: the Thrift Savings Plan (TSP).

The TSP is available to both civilian Federal government employees as well as military servicemembers, and those who have left service can choose to maintain their TSP accounts (though they can no longer make contributions). While many features of the TSP (e.g., Roth contribution options and employer matches) are common to other workplace-defined contribution plans, the TSP has certain unique attributes, including lower fees than many private-sector plans and a fixed-income investment option exclusive to the plan.

In 2022, the TSP underwent a series of changes impacting its many account holders. These include the opening of a “Mutual Fund Window” to supplement the limited offering of investment funds previously available to plan participants (though the associated expenses make it prohibitively expensive for many participants). In addition, the TSP updated its website and introduced a smartphone app, which required participants to create new credentials and verify their personal information. Notably, advisors can support clients in navigating these new changes by helping them decide if investing through the Mutual Fund Window makes sense, walking them through the registration process for the new site (if they have not already), and ensuring that their information (including beneficiary information) transferred over correctly.

Advisors can also add value for clients who are TSP participants by understanding how the TSP fits within the Federal employee and military retirement systems, which combine the defined contribution TSP feature with a defined benefit pension (though because the value of this pension has been reduced, TSP management has increased in importance). Further, advisors can support these clients by helping them manage the retirement savings choices that come with career transitions; for example, because many military members have ‘encore’ careers (as they are often eligible to retire well before ‘traditional’ retirement age), balancing their cash flow and retirement savings needs is crucial during their transition period.

Advisors working with clients who have been deployed to combat zones can also add value by being aware of the related TSP considerations. For instance, because income earned while deployed in a combat zone is tax-free, any pre-tax TSP contributions can result in a commingling of tax-free combat pay and taxable earnings (though this can be prevented by making Roth contributions during periods where income is untaxed). In addition, the annual deferral limit increases significantly during the year of a combat deployment, providing an opportunity to contribute even more money to the TSP (if doing so fits within the client’s cash flow plan).

Ultimately, the key point is that while the TSP is similar to many other workplace retirement plans, advisors who understand its unique attributes and stay up to date with its ongoing changes can better serve the Federal employees and military servicemembers who participate in the plan. And given that there are about 6.2 million TSP account holders, these individuals represent a large potential pool of clients!

#FA Success Ep 319: Competing For Big Clients As A Small Boutique With A Focus On Task Management With Jim Niedzinski

February 7, 2023 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Jim Niedzinski Podcast Featured Image FAS

Welcome back to the 319th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Jim Niedzinski. Jim is a Co-Founder of Motive Wealth Advisors, an independent RIA based in the suburbs of Detroit, Michigan, that oversees $250 million in assets under management for nearly 50 families.

What's unique about Jim, though, is how he and his partner have successfully built a 'small’ boutique firm that effectively competes with big wirehouses to attract and retain ultra-high-net-worth families and have differentiated themselves by developing and implementing a client task management system that goes beyond traditional CRM to really ensure that the advice they are giving actually gets implemented by their clients.

In this episode, we talk in-depth about how Jim and his partner felt they could differentiate themselves from bigger firms by trying to maximize how many of their financial planning recommendations actually get implemented by clients, and decided to build their firm around Asana – a task and project management tool – instead of a traditional CRM system, to ensure that the advice they give is set in motion, how Jim leverages relationships he built with accountants, attorneys, and other professionals through cold calls early on in his career to now be able to gain a steady flow of referrals of very HNW clients, and how, through referrals only, Jim and his partner have grown their firm from $0 in AUM to $250 million in less than 3 years since breaking out on their own.

We also talk about how Jim and his partner leverage back-end support from Tru Independence so that they can have more time and capacity to help their clients with their complex financial issues, how Jim has found in his move ‘upmarket’ to more affluent clients that there is actually less fee sensitivity that’s led him to increase his fee schedule after the first few years, and why Jim and his partner are intentional about serving no more than 25 clients each as they want to have enough capacity to serve their clients well and continue to do so for the foreseeable future.

And be certain to listen to the end, where Jim shares why, even though he didn’t initially set out to own his own firm when he started his career, he is happy that he pursued entrepreneurship as he felt validated with the amount of support he received when he launched (and the amount of clients that followed him), why Jim believes that younger, newer advisors making decisions about where to work should focus on finding a firm based on the character and quality of people they could work with (rather than a fancy website) and where they could gain a mentor that would allow them to absorb as much information as possible, and how Jim’s perspective on building a client base was impacted by Greg McKeown’s “Essentialism” that you can be more present and effective in client relationships by being more focused… which has only reinforced his focus on keeping a small and focused client base with whom he can be maximally effective as a financial advisor.

So, whether you’re interested in learning about how Jim utilizes Asana instead of a CRM to track and manage client tasks, how leveraging back-office support helps Jim and his partner gain more time to provide even more value for their clients, or why Jim places importance on truly, deeply caring for clients and their needs, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Jim Niedzinski.

The Latest In Financial #AdvisorTech (February 2023)

February 6, 2023 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the February 2023 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!

This month's edition kicks off with the news that the “financial monitoring software” platform Elements has raised $5 million in a seed-extension funding round as it seeks to establish a foothold in the rapidly growing AdvisorTech category of “advice engagement” tools designed to draw clients further into the ongoing (not just upfront) financial planning process. Because as the focus of financial advice shifts from “The Plan” that is created initially and then only periodically updated every few years, to a year-round process of ongoing “planning”, the demand has grown for more tools that help advisors connect and engage with their clients more frequently (while also giving them actionable information to actually engage about). For which Elements has positioned itself as an early leader that is now gaining momentum.

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

TradingFront, the white-label “robo advisor for advisors” is shutting down amid broader struggles among B2B robo advisor platforms to convince advisors to pay for better digital onboarding that they expect their custodians to provide (and improve upon) for ‘free’
Zoe Financial launches a new TAMP for advisors in its lead-generation network to make it easier to onboard and serve the smaller (below-traditional-minimums) clients that Zoe is bringing to them
Advisor360° buys onboarding software platform Agreement Express to deepen its own middle- and back-office automation capabilities and expand its opportunities with enterprise (insurance broker-dealer) clients

Read the analysis about these announcements in this month's column, and a discussion of more trends in advisor technology, including:

BridgeFT launches a new custodial data warehousing and integration solution called WealthTech API, to give larger advisory firms (and even other AdvisorTech providers) more ability to build their own custom software without having to download, reconcile, and store the data themselves
Kwanti unveils a new fund Screener feature to its investment analytics platform, making it easier for advisors to find the next new addition or improvement to their existing model portfolios.

And be certain to read to the end, where we have provided an update to our popular “Financial AdvisorTech Solutions Map” (and also added the changes to our AdvisorTech Directory) 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 (Feb 4-5)

February 3, 2023 02:00 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 SEC has issued a risk alert outlining Reg BI-related deficiencies discovered during recent examinations of broker-dealers, from dual-registered advisors not clearly communicating whether they were acting as a commission-based broker or a fee-based investment adviser to firms failing to update their training and compliance systems to meet the requirements of Reg BI.

Also in industry news this week:

Annuity sales hit record levels in 2022, possibly spurred on by volatile markets and rising interest rates
A recent survey suggests that an overwhelming percentage of both employers sponsoring retirement plans and their employees are interested in receiving advice from financial advisors

From there, we have several articles on advisor marketing:

How advisors can get more clients by devoting just two hours per month to marketing
5 research-backed tactics advisors can use to improve their marketing ROI
How finding a ‘patient zero’ can help new firms market to their chosen niche

We also have a number of articles on investing:

Why falling interest rates were not necessarily the key driver of investment returns during the past 25 years
Why there might not be a rush among investors to fixed income investments, even as yields reach levels not seen in years
While Indexed Universal Life policies have been insurance companies’ hottest products in recent years, economic headwinds and concerns about their utility could slow their growth

We wrap up with three final articles, all about Artificial Intelligence (AI):

How AI could revolutionize a wide range of professions, from education to medicine
How ChatGPT and other large language models can be used by investment professionals now and in the future
How AI systems could both create greater efficiencies for human financial advisors and challenge current advisory business models in the years ahead

Enjoy the ‘light’ reading!

Paid Solicitation Under The SEC Marketing Rule: Using Third-Parties For Lead Generation And Prospecting

February 1, 2023 07:04 am 0 Comments CATEGORY: Regulation & Compliance

Financial advisors who pay third parties to solicit or refer prospective clients to generate new business have historically been subject to the SEC’s Cash Solicitation Rule. However, that rule was drafted in an era where most paid referral relationships were between individuals, such as a financial advisor who paid a third-party accountant to refer clients their way. In recent years, though, the growing use of lead-generation services, advisor networks, and ‘advisor-matching’ tools, referred to as “operators” in the Marketing Rule’s Adopting Release, has given rise to third-party solicitation activity that often looks more like advertising directly to prospective clients. Which, in fact, often meets the definition of an ‘endorsement’, subjecting many third-party relationships to the Marketing Rule’s compliance regulations.

In response to this shifting landscape, the SEC has scrapped its old Cash Solicitation Rule and folded the regulations for third-party solicitation into its new Marketing Rule, which had a mandatory compliance deadline for SEC-registered advisers of November 4, 2022. In the new rule and subsequent Adopting Release, solicitors have been redesignated as “promoters”, referring to anyone who provides a testimonial or endorsement for an investment adviser, whether or not any compensation was paid. And when an advisor provides compensation for a testimonial or endorsement, the testimonial or endorsement is considered an advertisement under the SEC Marketing Rule. Which means that third-party solicitors providing such advertisements will require a greater investment into due diligence and oversight going forward than under the previous rule.

The upshot is that any paid solicitation agreements between advisers and third parties are now required to comply with the SEC Marketing Rule’s advertising regulations for testimonials and endorsements. These requirements include ensuring that promoters are eligible to receive compensation for testimonials or endorsements (i.e., they are not disqualified by the SEC from acting in any capacity under Federal securities law), entering a written agreement between the adviser and promoter (unless a de minimis compensation threshold, generally $1,000 during the preceding 12 months, is not met), making specific disclosures to prospective clients about the terms of the solicitation agreement and any material conflicts of interest, and, for the adviser, taking reasonable steps to ensure that promoters themselves are complying with the Marketing Rule’s requirements. Additionally, investment advisers should ensure they disclose the promoter relationship in their Form ADV Part 1 and Form ADV Part 2A.

The key point is that all paid solicitation agreements – including both existing and new relationships between advisers and promoters – are generally considered to involve advertisements and will be subject to the Marketing Rule, so for all SEC-registered advisers who are in (or are considering) such relationships, it’s crucial to review all aspects of the relationship in order to ensure compliance. And given the fact that advisers are ultimately responsible for ensuring the compliance of the promoters they utilize – including advisor networks and advisor-matching services that have gained popularity in recent years – using third-party solicitors might require a greater investment into due diligence and oversight going forward than under the previous rule, which could have long-term implications for the cost versus benefits of using such arrangements in the future!

#FA Success Ep 318: From So Many Clients To So Few: Transitioning From Retail Brokerage To The Multi-Family Office, With Ali Swart

January 31, 2023 07:06 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 318th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Ali Swart. Ali is a Partner and the Managing Director for Waldron Private Wealth, a multi-family office based in Bridgeville, Pennsylvania that oversees nearly $3 billion in assets under management for 280 ultra-high-net-worth family households.

What's unique about Ali, though, is how she transitioned from a retail brokerage firm where she served nearly 400 clients (and was still responsible for business development to get more of them), to a multi-family office serving clients through specialized client relationship teams that keep advisor capacity to no more than 10 clients per advisor at any given time.

In this episode, we talk in-depth about how Ali and her firm serve their ultra-high-net-worth families with client relationship teams of wealth planning, investing, and client service, to delve into the full depth of their financial complexities while delivering a ‘white glove’ service, how Waldron instituted an in-depth upfront financial plan offering for prospects that can take 3 weeks to 6 months to develop and deliver (with the intention of building their relationship so well during that time that when it's time to decide whether the firm will be hired to implement the recommendations, a prospective client would feel like they are already so involved that they would be firing Waldron if they were to say no), and how Waldron implements four potential career tracks internally for their advisor team that focuses separately on people development, client relationships, business development, and technical expertise, so that employees can choose the path that is right for them, allowing them to hone their natural skills and grow their income doing what they do best.

We also talk about how Ali didn’t fully realize until after leaving her position at Fidelity the great opportunity she was afforded there to learn from and be surrounded by strong female leaders who were supportive of her, how, while Ali was pregnant with her first child, she started to contemplate her career path and the future of her family, and even though she was happy working for her previous firm, she realized she did not enjoy business development, and decided to take a chance with a recruiter who ultimately connected her with Waldron Private Wealth, and how, before accepting an offer to work with Waldron, Ali made them aware that she intended to continue to grow her family and negotiated that they implement a formal maternity leave policy as a contingency for her to accept their offer.

And be certain to listen to the end, where Ali shares how she struggled with the uncertainty that laid ahead after she decided to leave her former firm to work for Waldron (as she recognized that by taking a non-business-development role she would have to accept an initial reduction in salary), but ultimately decided to view it as an opportunity to take one step back in order to take two steps forward and gave herself a goal to become partner by the age of 40 (which she ended up achieving 4 years ahead of goal!), why Ali feels that it is important for newer, younger advisors to define their personal ‘mission’ to advance within the financial services industry (with the recognition that it will evolve over time just as people and professionals do) and keep that mission as a center of motivation and decision-making with confidence that success will follow, and why Ali believes the key to success for her is keeping her three core values of family, finance, and fitness in alignment… where she is present with her family at every opportunity, continues to advance in her career and support her firm in its growth, and maintains a healthy lifestyle to remain to be able to stay present for her family and her firm.

So, whether you’re interested in learning about how Ali handled transitioning from so many clients to so few, how Ali provides white glove service to her ultra-high-net-worth clients, or how Ali negotiated a maternity leave policy be implemented before she was officially hired at Waldron, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Ali Swart.