Weekend Reading For Financial Planners (November 15–16)

Morgan Stanley Study Shows How Financial Planning Boosts Investors' Confidence In Their Ability To Achieve Goals

(Michael Fischer | ThinkAdvisor)

When a person has a future goal in mind like retirement, starting a business, or sending their kids to college, they're usually confident in their ability to succeed in that goal. Which makes sense, because if they didn't believe that their goal was at least realistically achievable, they most likely wouldn't have set that goal for themselves to begin with. However, confidence in one's ability to achieve a goal doesn't necessarily translate into knowing how to achieve it: More often than not, people decide that they want to do something before they figure out exactly how they're going to do it. That isn't necessarily a bad thing, since it's better to have a goal first and figure out how to get there later than to get stuck in the details and never crystalize what it is that you really want. However, the longer it takes for a person to identify what it will take to achieve their goal, the more likely it is that outside factors (e.g., market volatility) will unsettle their confidence in the ability to meet their objectives and, at worst, lead to short-sighted decisions that harm the ability to meet their goals in the long run.

That's the takeaway of a study conducted by Morgan Stanley earlier this year on the effects of having a financial plan on investors' confidence in their ability to achieve their goals. Overall, the study found that investors often have a significant gap between their confidence in their ability to achieve a particular goal, and their knowledge of how to achieve it. For example, while 53% of the respondents in the survey believed they were "very likely" to successfully save for retirement, only 36% were "very confident" in their knowledge of how to do so. That "confidence-knowledge gap" is what much of financial planning aims to rectify, by turning an abstract goal into a set of concrete objectives and steps to turn it into reality. Once there is a plan in place, individuals often feel more confident about their ability to reach their goals (e.g., 36% of respondents with a financial plan felt worried about their ability to save enough for retirement versus 47% of those with no plan), since crystallizing the process of achieving the goal can turn that goal from mere "wishful thinking" to an actual achievable reality.

The key point is that while concepts like "peace of mind" can seem amorphous and hard to quantify when describing the value of financial advice, the knowledge of how to reach one's financial goals has real and quantifiable effects on confidence in the ability to achieve those goals. Which in turn reduces the likelihood of making rash decisions such as selling investments during market volatility, since the knowledge that one is already on track to meet their goals gives them more assurance that staying the course will keep them on track. And so the sooner that someone starts planning for how to achieve their goals, the better positioned they'll be to do so in the long run (which study respondents also seemed to recognize in hindsight, as 76% of those with a plan wished that they had started planning earlier!).

Cerulli Study Shows RIAs Are Focusing On Organic Growth (But Lack The Time And Resources To Achieve It)

(Michael Fischer | ThinkAdvisor)

The RIA industry has seen healthy growth over the last decade, with average assets growing by 11% per year and even steeper percentage growth in the high teens and low twenties for most of the past five years. However, much of that growth has come from "inorganic" sources: Either from favorable market returns inflating AUM and the associated revenue, or from M&A activity increasing the size of some firms by swallowing up the assets of others. Underneath all that, organic growth has remained a persistent challenge for RIAs over the years, with firms adding just 5%-10% of new assets per year either from bringing in new clients or adding new assets from existing clients – effectively just 1-2 new clients per quarter for an advisor with 75 clients. And with market returns perpetually uncertain and M&A growth becoming increasingly costly for firms as PE-fueled RIA rollups have driven valuations higher and higher, solving the problem of organic growth is an important challenge for the stability of independent RIAs going forward.

Against this backdrop, newly-released research from Cerulli sheds some light on the constraints that advisory firms have had in improving their organic growth. While the majority of RIAs in the study (67%) reported organic growth to be their top priority, an even higher number (83%) reported having moderate to major challenges addressing organic growth due to limited time and resources available. And according to the study advisors themselves allocate only 7% of their time – 3 hours per week - to business development (which is directly in line with ), while 56% of RIAs state that they lack any cohesive marketing plan.

Yet while it's easy to say that organic growth should be a primary focus going forward, it's harder to carve out the needed time and resources to pursue an effective organic growth strategy – particularly when such strategies often start slowly and can take years to bear significant fruit (which is even more difficult for a PE-backed firm whose investors expect more immediate results). What's clear from Cerulli's study is that advisors who want to seriously pursue organic growth may need to better leverage their time to free up more hours to devote to business development (e.g., by hiring staff to delegate planning and administrative tasks off of the advisor's plate), and/or better centralize marketing and growth so that the founder can even delegate away business development responsibilities themselves (to others on the team who have more time to drive results). Which in turn implies that most RIAs need to make more investments into marketing – not necessarily by pouring dollars into ads and direct mail, but by taking the time to create, implement, and stick with a coherent marketing strategy, and staffing more support to create business development leverage. Because ultimately, there's no quick fix for the problem of organic growth – but unless RIA owners can solve that problem, those who put all their eggs into the financial and M&A market baskets face diminishing returns as acquisition costs continue to rise, and risk seeing their growth evaporate if and when those markets eventually turn south.

Study Shows That Most Advisors Don't Discuss Alternative Investments With Their Clients

(Karen DeMasters | Financial Advisor)

Alternative investments such as hedge funds, private equity, and private debt have traditionally been the domain of institutional investors like pension funds and endowments, plus a few individual investors on the upper end of the high-net-worth spectrum. This is in part due to regulatory constraints, as alternative assets generally are limited to accredited investors (with over $1 million in investable net worth) or qualified purchasers (with over $5 million). But it also has to do with the illiquid nature of most private investment vehicles (which can involve yearslong lockup periods where the investor can't withdraw their investment) and their riskiness (since much of the return potential in alternatives is driven by the skill of the individual manager and the strategy or portfolio companies they invest in, which vary widely from fund to fund). So it could make sense for an investor with millions of dollars to allocate across a diversified range of private investments while still having enough liquid assets to live on, it doesn't work as well for an investor with 'only' $1 million of investable assets who would need to lock up a substantial amount of those dollars to invest in even one private fund.

In recent years, there have been increasing attempts to "democratize" private investing. Private asset managers have partnered with traditional investment institutions like Capital Group, BlackRock, and even Vanguard to offer mass-market alternatives such as interval funds, model portfolios integrating public and private investments, and exchange-traded products that can be bought and sold daily.

But despite these offerings, according to new research from Goldman Sachs, the use of alternative investments remains primarily concentrated among the highest net-worth investors. The study shows that only around 39% of households with $1M-$5M of investable assets include alternatives in their portfolio, but that the rate increases steadily as net worth grows higher: 63% for $5M-$10M households, 80% for $10M+ households, and 91% for $20M+ households.

The study frames this discrepancy in alternatives adoption as a matter of risk perception, noting that investors tend to perceive alternatives as high-risk even while UHNW investors rely on them for diversification. It also notes that financial advisors don't commonly discuss alternatives with their clients, implying that more conversations and education around alternatives could lead to higher adoption from clients of advisors.

But what the study doesn't consider is that the reason most advisors don't discuss alternatives with their clients might be that alternatives just aren't appropriate for most advisors' clients. While it's true that UHNW investors commonly use alternatives as a diversifier, that only works because they have plenty of other traditional assets in their portfolio to fall back on if the alternatives don't work out or if they encounter a liquidity crunch. The calculus is far different for a $1M or even $5M client, who may simply not have that much to invest beyond what they would need to put, at minimum, into one or more alternative investments. Which truly does make alternatives a far riskier investment for those at the bottom end of the HNW spectrum.

The bottom line is that, while it does make sense for investors to become more educated about alternatives (especially as alternative asset managers turn increasingly towards mass-market offerings to meet the ongoing demand for capital from private companies), alternatives still remain inherently risky from both a liquidity and a strategy standpoint, which makes them appropriate mainly for investors who can afford to lose whatever they put into them. And to the extent they do recommend alternatives, advisors can help to safeguard their clients' funds by implementing a robust due diligence process to vet and ensure that an investment in alternatives is really in the client's best interests.

Why RIA Firms Urgently Need To Expand Ownership

(Tracey Longo | FA Magazine)

In many ways, building an advisory firm is as much about clients as it is about establishing a great team of advisors who can lead the firm's second generation of ownership. Given how costly selling equity to a 'bad-fit' next-gen advisor can be, many advisory firms may opt to wait as long as possible before expanding their ownership options to employee advisors.

However, waiting too long to expand the firm's ownership can be costly in other ways. First, as the firm grows, so too does the complexity of transferring ownership – so the longer firm owners wait to expand ownership, the more cost-prohibitive equity is for the next generation! Second, other financial planning firms may use equity as a recruiting tool. Finally, a clear succession plan can also provide confidence to clients (who may notice cracks in succession planning, even if they don't ask directly).

For firms looking to expand ownership, it may be helpful to distinguish the various roles of firm leadership. For example, does owning equity mean that prospective advisors should weigh in on day-to-day firm operations? Would managerial responsibility create opportunities for equity? In any case, the firm should strive to clearly and consistently communicate their policies to potential firm owners.

In the end, clarity is really the key to creating a successful equity plan. And allowing employees to buy into firm equity earlier in firm growth is important to not only enabling the next generation to actually 'buy in', but also in ensuring the retention that is key to building long-term leadership!

Next-Generation Advisors Want Equity, And Firms Are Responding Creatively

(Cheryl Winokur Munk | Barron's)

Many financial planning firms seek young advisors with an ownership mindset, yet it may takes years for that same advisor to earn a stake in the advisory firm. For some advisory firms, the answer to build equity (or equity-like) programs that are accessible to young advisors… without creating too much risk for the advisory firm.

These incentives can vary widely depending on what the firm can support, from a percentage of future profits to phantom stock programs. If possible, creating a tiered system can allow firms to encourage both short- and long-term participation, or to act as additional incentives for managerial advisors. This also allows firms to ask more of these team members, as with greater ownership often comes a greater sense of responsibility.

Ultimately, equity and incentives programs may be a powerful tool for advisory firms of all sizes. With a bit of creativity, advisory firms and their employees just may be surprised by how many options are available to them!

Do Incentives Actually Work?

(Brett Davidson | FP Advance)

Incentives and equity programs can be used as a powerful recruitment and retention tool and as a way to encourage an ownership mindset in their new advisors. They can also be a useful way to minimize fixed costs for the firm. However, there are limitations to this approach.

One of the core limitations is that "what gets measured, gets managed". People genuinely do modify their behavior to follow financial incentives. Consider a firm that incentivizes converting prospects to clients. Without good sourcing, training, and procedures, the young advisor may not find an efficient process for prospecting. And if the majority of their pay is tied to finding new clients, then the young advisor may not have a clear incentive to discern 'bad fit' clients that will cost the firm more in the long term – or to do the other financial planning tasks that are a part of their 'core' job description (but don't make a difference in their compensation).

All of this to say, incentive pay can be a great tool for financial planning firms. However, while it can supplement the employee experience, it ultimately can't replace a robust base salary, the procedural support to accomplish their job, and a clear mission that the advisor believes in!

How To Squeeze The Most From The New SALT Cap

(Richard Rubin and Ashlea Ebeling | Wall Street Journal)

One of the most impactful provisions of the One Big Beautiful Bill Act (OBBBA) enacted on July 4 was an increase in the maximum deduction for state and local taxes (SALT). Limited to $10,000 since 2018 by the Tax Cut and Jobs Act (TCJA), OBBBA raised the SALT cap to $40,000 from 2025 through 2029. The temporary increase is likely welcomed by families with high state income and/or property taxes who can now take a bigger deduction for those payments, but there's a catch: The deduction is reduced for households with over $500,000 of Adjusted Gross Income (AGI), phasing down by 30% of income over that threshold and bottoming out at $10,000 for those with over $600,000 of AGI.

Households with income in or near the new SALT phasedown range can maximize the impact of the higher deduction by finding ways to reduce their AGI to stay below (or at least as close as possible to) the threshold. This can include making pre-tax IRA or 401(k) contributions, contributing to Health Savings Accounts (HSAs), taking Qualified Charitable Distributions (QCDs) from pre-tax IRAs (which count towards an individual's RMD requirement if they need to take RMDs anyway), and utilizing tax-free municipal bonds rather than taxable Treasuries or money market accounts. Additionally, for high-income owners of pass-through businesses like partnerships and S-corporations, many states allow their state taxes to be paid by the business itself rather than by its individual partners or owners, converting the tax payments from a personal expense (subject to the SALT cap) to a 100% deductible business expense and circumventing the SALT cap altogether.

And as advisors hold year-end tax planning conversations with their clients, it's worth noting that the higher SALT cap may enable more households to itemize their deductions in 2025 when they previously would have taken the standard deduction. Which could make it a good time to make charitable contributions before the end of the year – because not only will they be fully deductible (since the taxpayer will already be itemizing their deductions), but they won't be subject to the 0.5%-of-AGI floor on charitable contributions that starts in 2026. Which is just a small illustration how interconnected the many parts of OBBBA are – making it all the more important to use software like Holistiplan or FP Alpha to do the calculations on any tax planning related to the new law, or to bring in a tax professional who can run their own projections, to ensure that any recommended tax planning strategies incorporate all of OBBBA's provisions and don't inadvertently end up working against the client in the end.

Why OBBBA Is A Mixed Bag For Alternative Minimum Tax

(Ken Berry, JD | CPA Practice Advisor)

Few people are subject to Alternative Minimum Tax (AMT), which has always been the case but has especially been so since Tax Cuts And Jobs Act (TCJA) made changes starting in 2018 that reduced AMT exposure to only around 0.2% of all tax filers.

The One Big Beautiful Bill Act (OBBBA) largely extended TCJA's rules around AMT. Namely, the AMT exemption (which is deducted from AMT income in lieu of the standard deduction or most itemized deductions) will remain permanently at its higher TCJA-era level ($88,100 for single filers and $137,000 for joint filers in 2025), which will still largely prevent most households from owing AMT. However new rules under OBBBA could make some higher-income households more likely to pay AMT (or owe more AMT if they're already exposed).

First, OBBBA slightly lowers the income levels at which the AMT exemption begins to phase out. These phaseout thresholds will reduce from $626,350 to $500,000 of AMT income for single filers, and from $1,252,700 to $1,000,000 for married filers. Additionally, the rate at which the exemption phases out above the threshold will rise from 25% to 50% of AMT income. Meaning that more households will see their AMT exemption phased out, and when they do it will be phased out at a faster rate – potentially leading to significantly more AMT exposure among higher income households, especially those with large AMT "preference" items like Incentive Stock Option (ISO) exercises.

So while it's good news for many households that the AMT rules will not revert to their pre-2018 state and expose an even higher number of households to AMT, the relative few who are potentially subject to AMT may need to plan for how to minimize their exposure when the new rules kick in in 2026. For instance, individuals with unexercised ISOs could exercise them in 2025 if doing so helps them avoid the lower phaseout range in 2026. And if the 26% and 28% AMT tax rates are lower than what the taxpayer would pay in "regular" tax, they might want to find ways to ensure that they are subject to AMT, such as accelerating more regular income into 2025. Ultimately, though few may be exposed to AMT, thoughtful planning can help those who do have AMT concerns to pay tax on their income – either regular or AMT – at the lowest rate possible.

OBBBA's Expanded Qualified Expenses For 529 Plans

(Basswood Counsel)

529 plans have traditionally been known as a savings vehicle for college, vocational, and/or graduate school costs, since tax-free withdrawals of 529 plan funds have generally been limited to "qualified higher education expenses". The only exception has been for a limited amount of K-12 expenses, which have been restricted to tuition payments only (not fees, books, or other associated costs) and capped at $10,000 per year.

The One Big Beautiful Bill Act (OBBBA), however, expanded upon the amount and types of K-12 expenses that can be paid for with 529 plan funds. In addition to doubling the allowable amount of K-12 expenses to $20,000 per year, OBBBA adds many new types of eligible K-12 expenses beyond tuition only, including curriculum materials, books, tutoring (if done outside the home with a non-relative), standardized testing costs, postsecondary enrollment fees, and educational therapies for students with disabilities. Which on the one hand opens up 529 plan funds to K-12 expenses for a broader range of students (not just those who attend private or religious schools that charge tuition), but on the other hand, raises questions about how valuable it would be to use such funds for K-12 expenses. Because the real value in a 529 plan comes from the ability to have tax-free growth on funds used for qualified expenses – which means that they're really only valuable if there's enough time for those funds to grow. In other words, 529 plans still have the most impact for those who use them to save for college or post-college educational expenses, since that allows them the most time to grow tax-free.

To that end, another new category of eligible 529 plan expenses created OBBBA is for qualified postsecondary credentials – including professional designations (like the CFP, CFA, CPA, and a slew of other non-financial related industry credentials), professional licenses, and apprenticeships programs. Individuals who don't use all of their 529 plan funds for college or graduate school can use them for obtaining and/or maintaining these credentials – though another attractive option for those unused 529 plan funds would be to roll them over (up to a $35,000 maximum lifetime amount) into a Roth IRA to continue growing tax-free until retirement.

For advisors, while clients might be excited to have more potential uses for the funds they've been saving in their kids' 529 plans, it may be best to help them keep the big picture in mind. They'll get the maximum tax benefit by keeping the funds in the 529 plan to grow as long as possible, and while taking funds out to pay for things like textbooks and standardized tests might be allowed under the new rules, doing so would actually diminish their value in the long run by taking away "fuel" for additional compounding growth. Unless it looks like the child truly won't go to college or into another postsecondary program – in which case advisors can help them consider other options like the 529-to-Roth rollover, transferring to a different beneficiary, or letting the funds grow further as a "dynasty" 529 plan for future generations!

The 4-Draft Method For Polished Writing Without Getting Stuck

(Tomasz Tunguz)

Writing can be intimidating, especially for people who like to read good writing. When we write, we want our prose to sing like it does in the pages of our favorite books or onscreen in the newsletters and blogs that we love. Which is often why it's so common to get bogged down in writing: People think too much about how their writing sounds, while their brain is still grappling with the ideas that want to write about, which leads to getting stuck when they can't put an idea on the page that sounds exactly the way they want it to.

But what people don't often realize is that the writing they love to read is usually only the end result of a long process of ideating, restructuring, cutting, and polishing. Most writing doesn't start out as clean, polished draft, because that isn't the way that creativity or language works. Instead, writers often start with a "brain dump": Simply getting thoughts on the page, as free-flowing as possible, with no regard for whether it's comprehensible to a reader (which doesn't matter, because nobody else will be reading this draft anyway), which allows the brain to stay purely in "creative" mode until every possible idea is out there.

Only after that initial brain-dump is complete does the author go back and start to refine what they've written, going in sequence from large-scale to small-scale changes. First they can restructure what's written so the thoughts are sequenced logically and in a coherent narrative sequence; next they can start to pare down the draft to cut out anything that's irrelevant or distracting to the main focus of the piece (though sometimes it's good to save those bits for later, as they can become the seeds of a future piece of writing). The very last step is to refine the prose and style to make it read the way the author wants it to.

It's admittedly difficult to sit down and write without engaging the filter in the brain that asks, "is this good?". But it's the key to not getting stuck when writing: Switching constantly between free-flowing creativity and critical refinement too often means that both sides end up the worse for it. For those who want to write effectively, then – whether it's emails, blog posts, or books – it's worth building in the time to first brain-dump and then refine, because a piece that took several steps to write and polish is ultimately better than one that never gets written to begin with!

The Pursuit Of Good Writing

(Darius Foroux)

Writing can be a challenging, draining, and time-consuming activity. Which is why it's so often identified as a pain point to be "solved" by tools like ChatGPT: The less time you spend on tedious writing tasks like writing emails and memos, as the sales pitch goes, the more time you can spend on more productive activities.

But while it's true that writing doesn't come easy for many people, that doesn't always mean it's best to simply automate it away. For many people, writing is the best way to sort out their thoughts on a particular issue. They don't necessarily write to say what they think, but to learn what they think. Which is why, when making an important decision, it's often best to sit down and write about it first: By letting one's thoughts flow onto the page, one can achieve more clarity into their own thinking – and in turn, have a better understanding of the right decision to make – than if they try to think through it on their own.

So while AI can help in rudimentary cases where there simply needs to be information written down to communicate to someone else, it's best to be cautious about outsourcing too much writing to AI. Because letting technology do the writing for you means sacrificing the mental exercise that occurs when writing, which in turn makes it all the more difficult when it really is necessary to write on your own. Even as AI becomes more and more capable of handling human-like prose, then, it's still a good idea to pursue being a better writer through practice and repetition – because as the writing gets sharper over time, so does the thinking that takes place alongside it.

Creating Blog Content As A Financial Advisor – Coming Up With Content Ideas And Other Best Practices

(Michael Kitces | Nerd's Eye View)

Writing blog articles can be an effective way for advisors to market themselves. Putting out content that's relevant to the types of client that the advisor wants to reach can help the advisor establish their expertise, while the existence of the blog itself on the Internet can be a channel through which prospective clients find their way to the advisor via search engines like Google (and increasingly also AI tools like ChatGPT or Google's AI search overviews).

The difficult part for many advisors, however, is actually creating the content: Not only having a constant pipeline of article topics to write about, but also sitting down and writing engaging and informative posts that will draw in prospective clients and hopefully make the advisor's name stick in their head.

For article topics, by far the most effective source of good ideas to write about is usually clients themselves. If an advisor gets many of a certain type of question from their clients, then there are surely more non-clients out there who have the same question, which makes for an immediately relevant topic. So it's a good idea for advisors who write blog articles to keep a running list of the client questions that come their way – because if they ever have trouble coming up with a new idea for a topic, they can always go back to the list and pick a topic that will probably be relevant to someone.

And when it comes time to actually write the articles, an effective way to get started is to write an outline laying out bullet-point versions of the key points of the article, and the supporting concepts that will hold it together. That way, when the advisor is writing the article itself, they don't have to sit in front of a blank screen waiting for the next idea to come to them – it's right there on the outline. (Outlines can also help authors from drifting too far off-topic as well – if there's a thought that doesn't quite fit in with what's in the outline, save that and it may become the genesis of a new article!)

The key point is that the most important part of keeping on top of a blog content calendar is to commit to a regular schedule of content – e.g., once per week, per month, etc. – and to devote regular and frequent time to writing rather than doing it in infrequent chunks. As with any skill, writing is a matter of practice, and so writing even a little bit each day, and having a set calendar to stay accountable, can add up to a steady stream of good content that's increasingly easy for clients to find (and shows them who can answer their most pressing questions).

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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.