Weekend Reading For Financial Planners (September 13–14)

Surveys Show Gap Between Client Satisfaction, Advisor Confidence In Service Offerings

(Wealth Management IQ)

Given (typically) high client retention rates and (often) a number of client referrals received during the year, it can be easy for advisors to assume that their clients are satisfied with the level of service they receive. Nevertheless, peeking under the hood could indicate that advisors' perceptions don't necessarily match with their clients' views across all planning areas and client service responsibilities.

According to a pair of surveys by Wealth Management IQ and BNY Pershing (which surveyed financial advisors largely serving high-net-worth clients and advisory clients with a median of $4.0 million in investible assets), advisor respondents were more confident that they provided a high level of service than surveyed clients perceived across a range of service offerings, including retirement planning (where 91% of advisors said they were completely or very confident but only 61% of clients reported being completely or very satisfied), cash management (89% vs 62%), estate and legacy planning (79% vs 54%), and tax planning (80% vs 54%).

Similar results were found when it came to client service levels, with 83% of advisors being completely or very confident in their response times to client questions or problems but only 51% of clients indicating the same, with similar findings for the quality of information and education provided by advisors (84% vs 52%). Overall, 52% of clients said they were completely or very satisfied with their advisor's services, performance, and costs, compared to 87% of advisors who thought the same. Likely considering these elements together, 57% of clients said they would recommend their financial advisor and/or firm to others.

In sum, while many advisors might assume their clients are satisfied with the service they're receiving, these surveys suggest that some clients might not be as enthusiastic (but still might stick with the advisor, given the friction involved in moving to a new firm). Which suggests a variety of potential options for advisors to identify and ameliorate potential issues, from setting client service expectations with clients and showing the "invisible work" that they're performing on their clients' behalf (e.g., using a client service calendar), to learning more about their own client bases view the service they're receiving by conducting a client survey that not only could reveal possible pockets of dissatisfaction, but also help identify the "active promoters" amongst the client base who will be most enthusiastic about referring the advisor to family and friends!

SEC Fines Vanguard $19.5M For Not Disclosing Advisor Compensation Conflicts

(James King | Citywire RIA)

Financial advisory firms operate under a variety of compensation models, from fee-only models (e.g., fees based on investible assets, flat retainer fees, or hourly fees) to commission-based offerings. For those who operate on a fee-only basis, one of the primary appeals is that it avoids the conflicts of interest inherent in earning commissions…an aspect of advisor compensation that RIAs often market as a benefit to consumers (e.g., "our advisors avoid conflicts of interest in their recommendations because they are not compensated more or less for implementing one product or solution versus another"). However, even when advisory firms are compensated by fees, there is still a risk that the advisors themselves can be disproportionately incentivized to recommend certain solutions over others if their individual advisor compensation within the firm is impacted by what they use… an area that the SEC is increasingly scrutinizing, especially for firms that otherwise market "our advisors have no conflicts of interest in their recommendations".

Amidst this backdrop, the Securities and Exchange Commission (SEC) last month fined asset management giant Vanguard $19.5 million to settle allegations that the firm failed to disclose how its advisors were compensated for enrolling clients into its Personal Advisor Services (PAS) program (which offers a digital advisory service combined with access to financial planning through human advisors when needed) versus other (non-advisory or differently compensated) investment solutions that clients could also receive via Vanguard.

The SEC said that between August 2020 and December 2023, Vanguard said on its website that PAS advisors were "salaried advisors that do not work on commissions" and "have no financial incentives to recommend certain products". Despite these statements, the SEC found that Vanguard's advisors were financially incentivized to "recommend that clients enroll and remain in PAS" because they received year-end bonuses that were determined at least in part by the level of enrollments (i.e., bringing in new revenue) in Vanguard's advisory offering… which the SEC said was a conflict of interest that Vanguard failed to disclose to clients when clients could have been recommended into other (non-advisory) Vanguard offerings as well.

Altogether, this case demonstrates the tricky line that still exists in conflicts of interest, where even if a firm receives (only) advisory fees, its advisors can still have conflicts of interest in their own compensation based on the bonuses they receive (which may be permitted but at the least must be disclosed). And for those who have multiple advisory and non-advisory offerings, the line to walk in terms of conflicts of interest when offering advisory services and other non-advisory solutions (from asset managers with a natural temptation to steer clients to their own proprietary products, to dually registered advisors at broker-dealers that can direct clients to advisory or brokerage accounts) is arguably even more tenuous… and can't simply be mitigated by using non-revenue-based salary-and-bonus compensation structures if the end result is still to create an incentive for advisors to recommend some solutions more than others.

More broadly, though, the SEC's fine against Vanguard highlights the ongoing challenge consumers face when trying to parse the various financial advisor titles (e.g., "financial advisor", "financial consultant", or "financial planner") and the sometimes myriad solutions their firms offer (especially when asset managers or brokerage firms that manufacture products are also trying to be in the advice business), and potential conflicts of interest for various types of firms providing financial advice anytime they have multiple solutions to offer that may have different profitability incentives for the firm (and the advisors who want to earn compensation and grow their careers there).

Inflation Has Savers Feeling Less Secure About Retirement: Schwab Survey

(Kenneth Corbin | Barron's)

When it comes to 'pain points' that lead an individual to consider working with a financial advisor, readiness for retirement (i.e., when they can afford to retire and how much income they'll be able to spend when they do) is often at the top of the list. Often, prospects (and clients) will also come to the table with concerns about contingencies that might affect their retirement that are out of their control (giving advisors an opportunity to put them into context and model how different scenarios might impact their retirement).

According to a survey by Charles Schwab of 1,100 401(k) plan participants, respondents reported that they expect to need to save an average of $1.6 million (down from $1.8 million in 2024) for retirement and expect to retire at age 66 (up from 65 the year before). Notably, inflation remained the most frequently identified obstacle to saving for a comfortable retirement among those surveyed (with 57% indicating as much, down only slightly from 58% last year), with others including keeping up with monthly expenses (38%), stock market volatility (33%), and unexpected expenses (32%). Overall, while only 15% of respondents said they are not likely to achieve their retirement savings goals, only 34% were very likely to say the same (with those in Gen X being the least likely among different generations to be highly confident that they will meet their goals).

In sum, while the inflation rate has come down (though prices remain elevated compared to the pre-inflationary period), its effects appear to be continuing to play out in the minds (and wallets) of retirement savers. Which perhaps opens a door for financial advisors to initiate conversations with clients about how inflation can affect their retirements as well as potential ways to mitigate the impacts of inflation to (hopefully) provide them with greater peace of mind when it comes to retirement planning.

Why Advisors Should (Almost) Never Recommend Social Security Claiming at 62

(Michael Finke | ThinkAdvisor)

Deciding when to claim Social Security benefits is an important question for individuals on the verge of retirement and an area where financial advisors can offer significant value (particularly when it comes to the additional challenge of advising client couples on this decision). However, the perspectives of advisors and their clients on the state of the Social Security system and what that means for their benefits can sometimes differ.

In some cases, a client might plan to claim benefits as soon as possible, typically when they reach age 62. Despite the fact that this will lead to a permanently smaller monthly benefit than they would receive if they waited to claim benefits (whether until their full retirement age or until age 70 when they could receive their maximum possible benefit), they might cite a range of reasons for doing so, from a perceived sense of instability in the Social Security system (e.g., "I want to get some benefits now because if the system runs out of money I won't get anything") to having an assumed (shorter) life expectancy that might make early claiming more lucrative in terms of total lifetime benefits received.

In reality, Finke argues that for financial planning clients with sufficient income-generating ability (e.g., if they plan to keep working beyond age 62 or have pension benefits) and/or assets (to 'bridge' spending between when they retire and when they claim Social Security benefits), claiming at age 62 typically isn't the right move. To start, while the Social Security trust fund is currently expected to be depleted sometime in the early 2030s, if this were to happen (in the perhaps unlikely event that no legislative action is taken to shore up the system before then) it wouldn't mean that benefits would go away completely…because the majority of benefits are paid for by ongoing payroll tax receipts, exhaustion of the trust fund would result in an estimated 23% across-the-board reduction of benefits rather than a complete elimination of them (which means that those who wait to claim would continue to receive a higher monthly benefit compared to claiming early). Also, given research finding that higher-income individuals tend to have longer life expectancies, many financial planning clients will likely fall into this group and potentially benefit from delaying their benefits (which could extend well into their 90s).

In sum, given the potential long-term benefits of delaying Social Security benefits (and the likelihood that many clients will see greater lifetime income from doing so), financial advisors can support clients considering claiming benefits at age 62 by showing them both the 'math' behind this decision (perhaps including modeling retirement income for various claiming scenarios) and addressing the 'true' state of the Social Security system, while being sensitive to personal considerations that might be lying underneath the surface for the client (e.g., a loved one who died relatively early).

4 Reasons Why A Client Might Want To Claim Social Security Benefits Now

(Sheryl Rowling | Morningstar)

Financial advisors typically are aware of the potential long-term benefits of delaying Social Security benefits. Notably, though, these benefits (i.e., a larger monthly payment) only start accruing once Social Security is claimed (and take several years to overcome the several years of 'missed' payments resulting from the delay).

With this in mind, there are a few scenarios where a client might choose to claim benefits (perhaps significantly) earlier than age 70. For instance, some individuals who retire relatively early (perhaps based on physical conditions impacting their ability to work) might not have sufficient assets or other income sources to support their lifestyle for the next several years (this could be particularly common for advisors supporting individuals in a pro bono setting), in which case they might struggle to meet their needs in the absence of Social Security benefits. Other clients might derive a psychological benefit from having a source of guaranteed income today, even if it means reducing their potential lifetime spending. And still others might have a compelling personal health reason to believe they will not live long enough to accrue the benefits of a delayed claiming strategy. Finally, some individuals might be nervous about the potential haircut to benefits that could occur if the Social Security trust fund is exhausted and want to ensure they receive several years of benefits before then (even if doing so is in effect a permanent haircut in itself).

Ultimately, the key point is that while the benefits of delaying Social Security benefits are compelling in many client cases (particularly those with sufficient income or assets to 'bridge' the delay period and those with longer life expectancies), some clients might be in a situation where claiming benefits earlier fits their goals, whether financial (e.g., having more income earlier in retirement, even if it means having less later) or psychological (e.g., having a steady source of guaranteed income once they leave the workforce).

Giving Retired Clients More Money To Spend Using A Social Security "Bridge" Strategy

(John Manganaro | ThinkAdvisor)

While delaying claiming Social Security benefits can often be a smart move for clients, unless they plan to work until age 70 they will very likely need to generate income from other sources to meet their lifestyle needs until they eventually claim their benefits.

Amidst this backdrop, a recent analysis from the Bipartisan Policy Center outlines how a Social Security 'bridge' strategy can ultimately prove beneficial for many clients. Notably, individuals (and their financial advisors) have several ways to construct this 'bridge', whether in taking distributions from investment accounts to meet annual spending requirements (perhaps using a 'bond tent' to mitigate sequence of return risk) or by purchasing an annuity to serve as a source of guaranteed income in the absence of Social Security benefits. The analysis finds that by doing so, many individuals can ultimately spend more over the course of their retirements (and potentially make their assets last longer) than those who claim early (e.g., in one hypothetical example, a middle-income retiree requiring 80% income replacement would 'only' need 12 years to recoup the cost of the 'bridge'), with the added benefit of gaining 'longevity insurance' from the larger lifetime Social Security benefit.

In the end, while a client might be hesitant to spend down (a potentially significant) portion of their assets relatively early in retirement, a Social Security 'bridge' strategy could ultimately provide them with greater income over the course of their retirement without necessarily having to make lifestyle sacrifices in its early years. Further, given the need to properly calculate the size of the 'bridge' (notably, retired actuary Ken Steiner has created a series of actuarial models that advisors might find helpful to support this task)  and the various options to construct it, financial advisors are well-positioned to help clients craft the most effective strategy for their individual circumstances!

How The OBBBA Increases The Value Of Qualified Charitable Distributions

(Laura Saunders | The Wall Street Journal)

The passage of the One Big Beautiful Bill Act (OBBBA) has created a wide variety of planning opportunities for financial advisors and their clients. While many discussions of the law have focused on first-order effects (e.g., the permanent extension of the tax brackets put into place under the Tax Cuts and Jobs Act and a temporary increase to the State And Local Tax [SALT] deduction), there are several second-order effects as well.

Notably, several measures in the OBBBA have phase-out provisions based on a taxpayer's income (typically their Modified Adjusted Gross Income [MAGI]), including the increased SALT deduction and the newly enacted temporary additional deduction for seniors age 65 or older ($6,000 for individuals and $12,000 for joint filers where both spouses are at least age 65). Which means that the ability to keep MAGI under key thresholds to be eligible for these tax benefits could result in significant tax savings.

One potential way for certain (charitably minded) individuals to do so is through Qualified Charitable Distributions (QCDs), by which individuals who have reached age 70 ½ can (subject to certain requirements) make tax-free distributions from an individual IRA to a public charity (up to a limit of $108,000 for 2025). This can be a particularly valuable strategy for individuals who have reached their Required Beginning Date (RBD) for Required Minimum Distributions (RMDs), as QCDs can minimize the tax bite of RMDs. And in the context of the OBBBA, such QCDs also reduce the taxpayer's MAGI (compared to taking the full RMD without a QCD) and therefore could serve as a valuable tool to keep a client's income under key phase-out thresholds for certain deductions (in addition to other income-related thresholds, such as those for Income-Related Monthly Adjustment Amount [IRMAA] surcharges!).

Altogether, while many clients will want to make charitable contributions in the absence of any tax incentives, financial advisors are well-placed to help them reap the greatest tax benefits from doing so (which could allow them to ultimately give more?), with QCDs being a potentially attractive opportunity to do so amidst the new deductions (and their respective phase-out levels) under the OBBBA!

QCDs Are Now Easier To Report, Though Vigilance Is Still Needed

(Melanie Waddell | ThinkAdvisor)

Qualified Charitable Distributions (QCDs) are often a favorite planning tool for both financial advisors and their clients as they can cut into the tax bite of Required Minimum Distributions (RMDs) while supporting charitable causes. However, QCDs have sometimes cause frustrations come tax time, as custodians have not been required to identify whether a distribution was a QCD or a 'standard' distribution. Which meant that it was up to the taxpayer (perhaps with the support of their advisor) to do so when it came time to file their taxes (to ensure they received QCD treatment for the qualifying distribution).

Starting in 2025, though, Form 1099-R (which is used to report distributions from retirement accounts) includes a tax reporting code for QCDs (Code Y within Box 7), which will allow custodians to designate whether a distribution was a QCD (the form also includes sub-codes to identify the type of IRA where the distribution originated and/or assets related to the QCD).

While this will no doubt help individuals (and their tax preparers) increase the chances that their QCD will be reported correctly, it doesn't absolve taxpayers from following several of the key rules related to QCDs (violations of which could disqualify some or all of the distribution from QCD status). For instance, because QCDs must go to a public charity and, as described in IRC Section 170(b)(1)(A), and not to a donor-advised fund or private foundation, it will remain up to the taxpayer to ensure that the recipient is a qualifying organization for QCD treatment. It's also important to note (in the case of very generous clients), the $108,000 limit for QCDs for 2025 is per taxpayer rather than per account, so while Custodian A might report a $70,000 QCD and Custodian B might report a $60,000 QCD from a different account, but the taxpayer wouldn't be able to claim the full $130,000 as a QCD (as it's over the limit).

Ultimately, the key point is that while QCD reporting will be somewhat clearer for 2025, taxpayers remain on the hook to ensure their distribution actually qualifies as a QCD. Which offers an opportunity for financial advisors to help clients make QCDs in a rule-abiding manner and to confirm the details of the distribution with the client's CPA (perhaps as part of an annual tax letter) so that they are reported properly come tax filing season!

Weighing A Qualified Charitable Distribution (QCD) From An IRA Vs Donating Appreciated Investments

(Nerd's Eye View)

For those who already have a charitable intent and are over age 70 ½, the rules permit a Qualified Charitable Distribution (QCD) directly from an IRA to a charity provide an appealing means to minimize the tax bite of a Required Minimum Distribution (RMD). Of course, it's always possible to simply donate to charity and claim a charitable deduction to offset the income of an RMD, but given that in practice the income and deduction rarely offset each other perfectly, the QCD offers a slightly better potential tax outcome.

However, while donating from an IRA to satisfy an RMD obligation may be more effective than separately taking the RMD and donating cash (or writing a check) to the charity, it is usually not as good as donating low-basis stock or other appreciated investments instead. The reason is that while a QCD is a "perfect" pre-tax contribution, donating investments allows for a pre-tax contribution that also permanently avoids a long-term capital gain.

On the other hand, the reality is that charitable donations often have limits of their own, from the fact that they're only valuable for those who itemize deductions in the first place, to the floor and ceilings on these contributions as described in the One Big Beautiful Bill Act. Furthermore, donating low-basis stock may still not fully offset the income from an RMD, which could trigger the phase-in of Social Security taxation or the phase-out of other significant deductions.

Ultimately, then, the relative benefits of QCDs will depend significantly on the facts and circumstances of the situation, driven primarily by whether or how much a donation of low-basis investments could really be claimed as a full deduction in the first place. On the other hand, it's also important to remember that for those who don't have a charitable intent in the first place, the optimal strategy is still to just take the RMD, pay the taxes, and keep the remainder; QCD strategies are still only best for those who want to maximize the tax benefits of charitable giving they already planned to do in the first place!

The Benefits Of Boredom

(Arthur Brooks | Harvard Business Review)

In the 21st century, there is no shortage of ways to keep one's mind occupied, with the smartphone representing an ever-present source of entertainment and/or distraction. And given the bounty of things one could potentially be 'doing' at any one time (whether it's streaming a show or checking email), it's become harder for many to tolerate boredom.

Brooks argues, though, that periods of boredom can be a valuable chance for individuals to think of the 'big' issues in life. This is because when an individual is not otherwise occupied cognitively their thinking system switches over to the "default mode network", which includes structures in the brain that switch on when one doesn't have anything else to think about (e.g., sitting in silence at a traffic light). While people often don't like this state, it can open one's mind to topics that aren't immediate priorities (which is why good ideas often come to individuals when they're in the shower).

Despite the potential benefits of boredom (in the form of more time in the "default mode network"), getting (and staying) there can be particularly challenging, given the number of available distractions. When it comes to smartphones, Brooks offers several potential exercises, from keeping them in another room during meal times or around bedtime to engaging in regular social media "fasts" (i.e., avoiding social media for a full day or weekend). In the office, individuals using time blocking could create a dedicated period where they turn off all notifications and instead take time to consider big-picture issues.

In sum, while boredom can feel particularly painful when there are limitless draws for one's attention (and the Fear Of Missing Out [FOMO] that can occur when an individual isn't constantly plugged in to what's going on), taking the time for uninterrupted thought could allow for better free-form and long-term thinking, for one's personal and professional lives!

Differentiating Between Additive And Extractive Technologies

(Cal Newport)

The technological revolution has brought many advances to modern life. At the same time, it has also brought frustrations, from time 'wasted' on scrolling to apps that are designed to be addictive. In this world, it might be tempting for some individuals to eschew tech tools as much as possible to avoid potential negative consequences.

Instead, Newport suggests differentiating between 'additive' and 'extractive' technologies. For instance, a standard telephone is likely to be considered an 'additive' technology for many, as it offers value of instant audio communication with loved ones and others with very limited downside (the annoyance of spam calls?). However, a social media app is a form of technology with a much more muddled cost/benefit picture. On the one hand, it can serve as a tool for indirect communication with friends and family (e.g., seeing pictures of a grandchild each day). On the other hand, social media also includes anxiety-inducing and/or mind-numbing content that can be a time-sucking distraction at best and threat to one's mental health at worst.

Which ultimately suggests that rather than having an all-or-nothing approach to technology, taking inventory of the hardware and software one uses and deciding whether, on the whole, each one is adding or subtracting value from one's life could lead to less time spent on extractive tools (which could then be repurposed for more fulfilling activities).

The Lies We Tell Ourselves About Multitasking

(Rachel Feintzeig | The Wall Street Journal)

Whether at work and/or at home, many individuals maintain long to-do lists. Given the (often seemingly endless) number of things that could be done, it can be tempting to 'multitask', or attempt to knock out many of them at one time.

However, while it can seem possible to multitask, some scientists suggest that in reality, most individuals have a hard time focusing on more than one cognitively demanding thing at a time. While a small minority (perhaps 2.5%) of individuals are "supertaskers" who can absorb multiple streams of information simultaneously and keep them straight (often top-performing chefs, fighter pilots, or professional athletes), others struggle to do so (even if nearly half of the broader public thinks they can).

Given the challenges of multitasking, several options are available to better focus (and complete) one task at a time. To start, removing distractions (e.g., email and other notifications) can reduce the number of interruptions to one's focus on the task at hand. Another option is to engage in focus work in small bursts (e.g., working intensely and without distraction for 15 minutes then having a 5-minute break to engage freely in any other activity). Also, getting outside for (phone-free) walks can be an effective way to clear one's mind and be better focused during the next period of intense thought work.

In the end, while trying to get many things done at one time might seem like the most efficient course of action, structuring one's schedule to focus on one thing at a time (and reducing the number of potential interruptions) could ultimately lead to higher-quality work (and, perhaps, more items checked off of a to-do list).

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We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "WealthTech Today" blog.