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Weekend Reading For Financial Planners (August 2–3)

August 1, 2025 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 North American Securities Administrators Association (NASAA) has proposed an updated Model Rule that would allow state-registered advisors to use testimonials in their marketing materials, four years after the SEC issued its Marketing Rule allowing testimonials for SEC-registered advisors – which would, if finalized and adopted into states' securities regulations, finally resolve the discrepancy between the testimonial rules for advisors registered with the SEC (and states that chose to conform to the SEC rule) and those registered in states that continue to ban testimonials in marketing.

Also in industry news this week:

A recent study projects that, despite the anticipated wave of retirements among Boomer advisors, advisor headcounts in the RIA channel will actually rise in the coming years as those retirements spur M&A activity that tends to favor firms moving from the broker-dealer channel over to the RIA side
New data from FINRA and the SEC show that the overall movement of advisors from broker-dealers to the RIA channel shows no signs of slowing down, and with the number of broker-dealer representatives still greatly outnumbering RIA advisors, the trend could even accelerate in the near future

From there, we have several articles on tax planning under the One Big Beautiful Bill Act (OBBBA):

While OBBBA introduced three new deductions for qualified tips, overtime wages, and auto loan interest, a maze of narrow restrictions on those deductions means that not everyone who thinks they'll be eligible to take the new deductions will actually be able to
OBBBA made several amendments to the rules for Qualified Small Business Stock (QSBS) under Sec. 1202, most notably increasing the maximum QSBS gain exclusion to $15 million, creating a large potential tax windfall for the relatively few startup founders, employees, and investors holding QSBS
OBBBA introduced new eligible expenses for 529 plan withdrawals, as well as an entirely new type of 'Trump' account for retirement savings on behalf of minor children, further expanding the range of savings options available for parents looking to put away funds on their children's behalf

We also have a number of articles on advisor technology:

How concrete use cases have emerged in recent years for how AI tools can benefit advisors – although importantly, the time and cost savings represented by AI have less of an impact on advisor productivity than providing high quality advice and charging and appropriate amount for it!
How generative AI tools introduce new risks to advisory firms including providing clients with false or misleading information or divulging sensitive client data, making it essential to review all AI-generated communications and avoid having the AI provide actual advice
Although some expected that the rise of AI would lead to flashy tools generating new investment insights, the reality has been that AI has done far more to streamline advisory firms' back-office operations

We wrap up with three final articles, all about money, class, and psychology:

While large families in TV and movies were traditionally often depicted as middle- or upper-middle class, large families today as shown on reality TV and in social media influencer posts are often surrounded by signs of wealth and luxury, reflecting how the cost of raising children has itself become something of a luxury good over the years
How the booming wealth of the wealthiest 10% of households in the U.S. has meant that the traditional markers of millionaire privilege are no longer as exclusive as they once were
How the early-2010s fad of "extreme couponing" faded as stores got less generous with their coupon policies – and how its spirit lives on today with points enthusiasts who get a similar thrill out of finding a good deal

Enjoy the 'light' reading!

Major Compliance Risks When Using AI Tools (And Best Practices To Mitigate Them)

July 30, 2025 07:03 am 0 Comments CATEGORY: Regulation & Compliance, Technology & Advisor FinTech

AI tools like ChatGPT and automated meeting notetakers offer meaningful time savings and productivity gains that can be a game-changer for supporting RIA marketing, client service, and investment research efforts. But the same capabilities that make AI so useful – namely, its ability to analyze and generate human-like content at scale – also introduce complex compliance and regulatory risks. In the absence of clear regulatory requirements for how to use these tools, RIAs have been largely left on their own to figure out how to address challenges associated with protecting client privacy, screening out inaccurate or biased data, and maintaining necessary books and records. However, this doesn't mean that AI tools must be avoided altogether. With appropriate due diligence and training, firms can benefit from the time-savings potential of AI while also managing associated compliance and security risks.

In this guest post, Rich Chen, founder of Brightstar Law Group, explores the key steps advisors can take to use AI productively and in alignment with regulatory requirements.

Mitigating risks starts with understanding how AI tools process, store, and secure user data. Tools that do not retain or train on user data are generally preferable, and firms can prioritize enterprise-grade solutions that offer configurable access controls and auditing features. Internal policies can further reduce risk by requiring pre-approval for AI tool use, training employees to avoid submitting sensitive client information, and using redaction tools to strip Nonpublic Personal Information (NPI) from prompts before submission.

Beyond these safeguards, firms can train employees on prompt engineering techniques to improve the relevance and accuracy of AI outputs. Formal review processes can also help catch hallucinations and factual errors – especially when AI-generated output is used in marketing content, investment research, or planning advice. Additionally, it's crucial to learn how to recognize and monitor for signs of bias in AI's output that may unintentionally influence advice or skew the tone of client-facing content. Because AI tools are trained on large and often uncurated datasets, their output can reflect common industry norms or marketing-driven assumptions. Ongoing audits and compliance reviews – especially for investment recommendations or public-facing content – can help firms detect and address biased or misleading information before it is proliferated.

Recordkeeping is another key compliance obligation. Under the SEC's Books and Records Retention Rule, RIAs must preserve documentation that supports client advice and decision-making, including AI-generated meeting notes, marketing content, and investment analyses. To stay compliant, firms should retain both the prompts and outputs from any material AI interactions, store meeting transcripts alongside summaries, and ensure archiving systems are structured in a way that allows for SEC retrieval. Some AI tools now support integrated archiving, making this process more scalable over time.

Ultimately, while AI tools offer transformative opportunities for increasing efficiency and scale, they also require a thoughtful approach to ensuring compliance with an RIA's fiduciary and other regulatory obligations. RIAs that invest in due diligence, training, and oversight can confidently harness the power of AI to enhance client service while maintaining the high standards of trust, care, and diligence that their clients and regulators expect.

Attracting More Ultra-HNW Clients By Taking The Time To Due Diligence More Alternative Investments: #FASuccess Ep 448 With Monish Verma

July 29, 2025 07:04 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 448th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Monish Verma. Monish is the CEO of Vardhan Wealth Management, a dba of the RIA Summit Financial and based in Farmington Hills, Michigan, that oversees $560 million in assets under management for 225 client households.

What's unique about Monish, though, is how his firm goes deep in evaluating portfolios and alternative investment opportunities to find potential matches for particular client needs to attract and serve a high-net-worth clientele.

In this episode, we talk in-depth about how Monish takes time to educate clients on the different types of alternative investment products and how they might fit with their portfolio and goals, how Monish's firm conducts significant due diligence on a wide range of alternative investment products and providers to ensure they are the right fit for a client's portfolio, and how Monish finds that taking the extra time to conduct sufficient due diligence, educate clients, and explain his recommendations has led to strong client retention and referrals.

We also talk about how Monish convinces high-net-worth prospects (who typically already have a financial advisor) to move to his firm by going deeper into portfolio analysis and having a regular cadence of touchpoints than their current advisor, how Monish introduces prospects to current clients (with each side's permission) to discuss the client's experience working with his firm and investing in private markets, and how Monish "interviews" prospects (and hopes they do the same to him) to increase the chances that they will be a good long-term fit for each other (and how he is willing to let certain prospects go if they might not be a good match).

And be certain to listen to the end, where Monish shares his journey of leaving the wirehouse world to go independent (and how he brought 97% of his clients and 115% of their assets with him in the process), how Monish talked to more than a dozen RIA aggregator platforms before landing with Summit Financial (which offered him the opportunity to share in the profits of other firms on the platform in return for an equity stake in his business), and how Monish found that breaking away from the wirehouse world has given him the freedom to run his own business in the way he wants (including who to grow with, how to educate clients, how to price, and who to serve) while still getting back-office and other support in a variety of areas from his RIA platform.

So, whether you're interested in learning about incorporating alternative investments into client portfolios to attract high-net-worth clients, best practices in explaining the function and types of alternative investments to clients, or the process of breaking away from a wirehouse to go independent, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Monish Verma.

Why Risk Tolerance Questionnaires Can Be Powerful For Prospects (Not Just Clients)

July 28, 2025 07:02 am 0 Comments CATEGORY: Marketing

For the last 20 years, Risk Tolerance Questionnaires (RTQs) have served as a standard tool in the advisory space for assessing a client's long-term attitudes and behavior toward investment risk. Yet despite their widespread use, many advisors remain unsatisfied with current RTQ technology. The newest Kitces Research on The Technology That Financial Advisors Actually Use (And Like), presented for the first time in this article, found that while risk tolerance tools are considered important, satisfaction continues to lag – highlighting a disconnect between the perceived value of these tools and how they're currently being used.

One overlooked reason for this dissatisfaction may be that RTQs are often used only after a client relationship has already been established – by which point most advisors are already applying a holistic approach to align a client's portfolio with their risk tolerance, goals, and reactions toward market volatility. And at that stage, a client's true perspective on risk may no longer be fully reflected by their behavior, as their risk attitudes may be filtered through the ongoing presence of their financial advisor – making the value of the RTQ less clear.

However, when used earlier in the process – before the relationship begins – RTQs can serve a different and perhaps more powerful role. Rather than simply measuring risk to inform portfolio design, they can help prospects recognize overlooked risks in their current portfolio, along with the gap between how they understand risk and how they actually behave. This, in turn, helps clarify the financial advisor's value by illustrating how their services can address these gaps. When used at the prospecting stage, RTQs can offer a tangible, personal reason for people who are otherwise 'on the fence' about hiring an advisor – serving as effective self-persuasion tools that allow prospects to articulate their own reasons for seeking advice.

To use RTQs as an effective prospecting tool, three elements are especially important: 1) Personal data inputs to make results feel relevant and accurate; 2) a clear (but brief) explanation of how risk is being scored, to build trust in the methodology; and 3) a visible connection between the results and the advisor's recommendations, so prospects can see the difference between their current approach and the guidance available.

Ultimately, the key point is that RTQs can be most effective when used with investment-focused prospects – not clients. When results are framed in a way that feels personal and actionable, RTQs can help prospects identify their concerns, recognize what's at stake, and clarify their own reasons for engaging a financial advisor – without needing to be explicitly persuaded of the value of financial advice. And for those who are open to working with an advisor but haven't yet found a reason to take the first step, that shift may be all it takes to move them from ambivalence to action!

Weekend Reading For Financial Planners (July 26–27)

July 25, 2025 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 Charles Schwab's annual RIA benchmarking study found that median firm AUM increased 16.6% in 2024, with revenue up by 17.6%. While some of these gains can be attributed to strong market performance, firms also boosted their organic growth during the year, with firms with less than $250M AUM showing 9.2% net organic growth and larger firms seeing 5.0% growth (while RIAs as a whole also maintained a 97% client retention rate). In the report, Schwab also identified key traits of "top performing" firms (including having a defined ideal client persona and a defined client value proposition) and the key strategic initiatives respondents plan to pursue (with generating client referrals topping the list for the third consecutive year, followed by recruiting new staff).

Also in industry news this week:

A recent report highlights the rapid growth of RIA "consolidators", with advisors seeking them out for compliance and succession support, though concerns about a potential loss of autonomy and independence from joining one remain
The Treasury has delayed until 2028 the effective date for a proposed Anti-Money Laundering (AML) rule that would have affected most SEC-registered RIAs and plans to revisit the substance of the rule to perhaps tailor it more specifically to focus on businesses that face the greatest AML risk

From there, we have several articles on tax planning:

The One Big Beautiful Bill Act (OBBBA) has made the Section 199A tax deduction permanent (i.e., without a scheduled sunset date), potentially benefiting not only business-owner clients but also those who own REITs in their portfolios as well
The OBBBA has also made permanent the Qualified Opportunity Zone program (albeit with a narrower scope and updated rules), providing some clients with the chance to defer gains on the sale of certain investment property
How charitable planning considerations might change under the OBBBA, from the new 0.5% AGI 'floor' on the deductibility of charitable contributions that starts in 2026 to the ability of non-itemizers to potentially get a tax benefit for (at least some of) their charitable gifts

We also have a number of articles on retirement planning:

How financial advisors can help clients explore their funding options amidst an expected increase in the costs of long-term care in the coming years
The planning considerations surrounding unpaid care, from the benefits of creating a formalized care plan well in advance of a need to cash flow planning for younger clients who might be responsible for (unpaid) caregiving in the future
An analysis of the options for advisors and their clients who face a premium increase on their long-term care insurance policies

We wrap up with three final articles, all about travel:

Why flexibility is the key to saving on flights, from flying on less popular days of the week to traveling during "shoulder season"
How State Department employees created an online system that allows many Americans to renew their passports online in as little as 15 minutes (and achieved overwhelmingly positive reviews in the process)
Amidst crowding in many airport lounges, some airlines and credit card companies are looking to open smaller lounges offering more casual, grab-and-go options for their customers

Enjoy the 'light' reading!

Kitces & Carl Ep 169: IS There A Future Of Financial Planning In The AI Era?

July 24, 2025 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Is There A Future Of Financial Planning In The AI Era

From the advent of personal computers and the Internet to smartphones and sophisticated financial software, the profession of financial advice has always been in continual dialogue with technology. However, the rapid rise of artificial intelligence has brought a deeper wave of disruption to the financial advice profession. As clients increasingly expect seamless, automated financial solutions – what might be thought of as ‘self-driving money’ – advisors are left to consider how their roles are evolving and where they can continue to add value.

In this 169th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how AI will reshape the tasks advisors perform and the value they bring to client relationships. Looking back across the decades, the foundational elements of financial planning have remained surprisingly consistent – from discovery meetings to financial plan presentations – as advisors have striven to help people make sense of their financial lives. In fact, as technology solutions have become more sophisticated, some advisors now serve fewer clients more comprehensively.

AI will likely accelerate this trend – not by replacing advisors, but by automating some of the mechanical aspects of planning, including cash flow modeling, tax optimization, and investment rebalancing. As the mechanical side becomes more optimized, the human side of financial advice increasingly becomes the true differentiator. Clients rarely have clear, static goals; their values and priorities evolve over time. Helping clients articulate what matters, navigate trade-offs, and stay emotionally aligned with their plans is a task that remains uniquely human, since even with perfect data and perfect modeling, planning decisions must still be made within the messy context of real lives!

Technical expertise remains essential – not because it alone creates value, but because it underpins the confidence and judgment needed to evaluate outputs, catch errors, and guide clients through complex decisions. In our current era of financial advice, the internet and early iterations of AI can solve many prospective clients’ problems. However, a core segment of the population will always be delegation-oriented, while others will face financial situations so complex that they require an expert’s help. This dynamic may deepen over time; as ‘basic’ financial planning questions become easier to access, the bar for an advisor’s competency may continue to rise. Which means that deeper specialization – whether in a subset of clients or a specific set of financial problems – may help advisors differentiate themselves in the long term.

Ultimately, the key point is that as AI evolves, so will financial advice, stretching advisors to embrace both technical competence and human connection. In the years ahead, the advisors who stand out will help their clients better understand who they themselves are, what they want, and how to leverage their financial resources to get there!