Weekend Reading For Financial Planners (January 17–18)

Advisors Leveraging Model Portfolios To Free Up Time For Other Services, Deeper Relationships: Survey

(Michael Fischer | ThinkAdvisor)

In recent years, many financial advisors have begun offering increasingly comprehensive planning services. While this can be a 'win' for clients (who receive more thorough financial plans), it can also be costly to advisors and firms, in terms of the time and staffing needed to offer an increased number of services. Which has led some advisors to explore ways to free up time that could be allocated to offering a deeper level of client service.

According to a survey of more than 1,000 financial advisors sponsored by BlackRock, model portfolios (i.e., pre-built collections of investments designed for particular client types) appear to be one of the primary time-saving tools, with nine in ten respondents saying they use model portfolios and eight in ten reporting that using model portfolios helps them spend more time with complex or high-net-worth clients. Tax planning appears to be a focus for advisors (and perhaps a use of newly regained time to offer hard-dollar value to clients), with 92% of advisors surveyed reporting that their clients have asked them for tax guidance. Popular tax strategies employed by respondents included tax-loss harvesting, employing tax-exempt investments (62%), engaging in tax-aware rebalancing (57%), and tax-efficient asset location (54%).

The survey also looked at advisory service trends among advisors in different generations, finding that Millennial advisors appear to be offering more comprehensive services than their older counterparts. For instance, 67% of Millennial advisors reported offering risk management services (compared to 58% of Gen X and 50% of Baby Boomer advisors), 61% offering liquidity event planning services (compared to 52% and 47% for Gen X and Baby Boomers, respectively), and 56% offering family financial education (compared to 51% and 43% of Gen X and Baby Boomer advisors). Millennial advisors were also more likely to offer concentrated stock strategies (with 63% doing so), 55% providing direct indexing services with tax management overlays, and 52% accessing private markets.

In sum, advisors appear to be looking for ways to both offer a deeper level of service to their clients while finding efficiencies in other areas (whether through model portfolios or adopting technology solutions). Further, next-generation advisors appear to be at the forefront of this move towards deeper service levels, perhaps in part based on working with clients in the same generation (who might require support for managing liquidity events and concentration risk), but also as awareness rises that clients (and high-net-worth clients in particular) might have increasing service expectations (suggesting that demonstrating expertise in the unique needs of an advisor's ideal target client might be a way to stand out without taking on an ever-growing number of service offerings).

Treasury Department Postpones Highly Contested Anti-Money-Laundering Rule For Advisors

(Kenneth Corbin | Barron's)

Under the Bank Secrecy Act (BSA), banks and other major financial institutions are required to fulfill certain "Know Your Customer" (KYC) requirements to prevent criminals, terrorists, and other unsavory actors from using the financial system to pursue their illicit ends. Notably, though, despite managing billions of dollars in assets (and potentially being an attractive medium for illicit actors to park or invest their money), investment advisers have not been on the list of financial institutions under the BSA.

To address this gap, the (Biden-era) Treasury Department in 2024 finalized new rules that would add certain SEC-registered RIAs and those reporting to the SEC as exempt reporting advisers (though notably not state-registered RIAs or certain SEC-registered RIAs with less than $100M of AUM), as well as residential real estate advisors, to the list of "financial institutions" under the BSA and would require them to implement risk-based Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) programs, including a requirement to report suspicious activity to Treasury's Financial Crimes Enforcement Network (FinCEN). Further, affected RIAs would have to conduct an ongoing customer due diligence program that includes developing a customer risk profile and conducting ongoing monitoring to identify and report suspicious transactions.

However, the Treasury Department announced this month that it is officially delaying implementation of the rule (which was slated to take effect January 1) until January 1, 2028. The delay is designed not only to give firms more time to comply with its requirements (with some commenters on the proposal noting the complexity of setting up required AML/CFT programs) but also to give the government the opportunity to change its contents, including possibly narrowing the scope of firms that would be required to set up AML programs and file suspicious activity reports (potentially identifying the types of investment advisers that would be more likely be exposed to malevolent actors). Treasury did note that some commenters opposed a potential delay, highlighting that it could allow bad actors to continue to exploit gaps in U.S. AML coverage, but said the delay will allow it to ensure the final rule "strikes an appropriate balance between cost and benefit".

In sum, affected financial advisory firms appear to have until at least 2028 to implement measures within a (likely revised) AML rule (which would have otherwise added additional compliance and paperwork obligations for certain RIAs), and additional firms (that are deemed to have a lower risk of exposure to criminal activity) might find themselves exempted from a final rule. Nevertheless, amidst potential threats from criminals looking to abuse the financial system, advisers offering comprehensive planning services (as well as their investment custodians) are likely already conducting a certain level due diligence on their clients, as understanding their background and circumstances is an important part of preparing a financial plan. Which could be a 'defense mechanism' for these firms against criminals, as these actors might instead try to park their money with more investment-centric advisers and fund managers that spend less time getting to know their clients?

Survey Finds Majority Of Advisors Benefiting From AI, But Are Reluctant To Give Up Control

(Financial Advisor)

One of the major technology trends in recent years has been the dramatic increase in the number and variety of Artificial Intelligence (AI)-powered tools, including both advisor-specific software (whether standalone or built into existing products) as well as more general options that have applications within advisory firms. Which has provided new options for financial advisors to perhaps save time (that could be used for more face-to-face client interactions) but could also come with compliance concerns.

According to a survey of 300 financial advisors sponsored by advisor digital solutions platform Advisor360, while 73% of respondents said AI is helping their practice, 93% said their ability to retain control over decisions and advice when using AI tools is non-negotiable, indicating that while advisors are largely open to AI support for task, they're not ready to hand over the reins to complete work without checks. The survey further suggests that advisors are looking for evidence that AI tools are effective before giving them more latitude, with 39% saying they want proof that AI has been tested by peers before allowing it to operate without oversight.

Currently, the advisor use cases most commonly cited by respondents include generating meeting summaries and notes (31%) and updating their CRM system (28%), with identifying investment opportunities (14%) and generating financial recommendations (3%) lagging behind. Notably, many advisors appear to be uncomfortable talking to clients about their use of AI, with 21% of respondents saying they initiate the topic with clients and 30% not mentioning AI at all (perhaps creating mismatched expectations with clients who might not be aware of their advisor's use of AI?).

In the end, it appears that while financial advisors are largely open to using AI in their practices, many remain uncertain about its usefulness (perhaps looking for reviews or social proof of its effectiveness) and how it fits within their compliance obligations (as well as what it might mean for their relationships with their clients). Which suggests that some advisors might take a wait-and-see approach to adopting AI tools (particularly those that go beyond administrative tasks) while others might be more forward-leaning (perhaps reaping the benefits of emerging tools while testing client and regulator acceptance of them?).

IRMAA: Resistance Is Futile (But There Are Some Choices)

(Edward McQuarrie | Advisor Perspectives)

An issue that is a thorn in many clients' sides is exposure to Income-Related Monthly Adjustment Amount (IRMAA) surcharges, which increase the Medicare Part B and Part D premiums individuals pay if their Modified Adjusted Gross Income (MAGI) exceeds certain thresholds (which, for 2026 start at $109,000 for those filing individual tax returns and $218,000 for those filing joint returns). Nonetheless, this presents financial advisors with a potential opportunity to offer clients hard-dollar value by managing their income to avoid (as much as possible) this burden. However, doing so can sometimes come with tradeoffs.

For instance, many advisors recommend that their clients engage in (partial) Roth conversions during relatively low-income years to, in part, reduce the size of their future Required Minimum Distribution (RMD) obligations (which could tip a client into the next IRMAA bracket). Often, a prime period for Roth conversions is the time between when a client retires (perhaps in the early-to-mid 60s) and when they reach RMD age. However, because IRMAA is calculated based on prior-prior year income (e.g., IRMAA obligations for 2026 are based on 2024 income), the amount of Roth conversions that take place when a client is age 63 or older (assuming that they're planning to start Medicare when eligible at age 65) could count towards a client's income for the purposes of IRMAA calculations (suggesting a tradeoff between the potential to increase IRMAA obligations for two years out and the benefit of reducing the size of the client's IRA and future RMD obligations [that could be hard to calculate given factors such as unknown future investment growth]).

Another potential way to manage these obligations is to manage income around IRMAA 'cliffs', as going just one dollar into the next IRMAA income bracket means a higher level of IRMAA surcharges for the next year (meaning a massive marginal tax rate on the first dollars that exceed the lower bracket). For those clients with income nearing the next threshold, avoiding extra income (and the high marginal rate associated with it) could prove valuable (e.g., the client might delay realizing additional income until the following year). Notably, for clients whose income isn't close to the next 'cliff', choosing to 'fill up' their current IRMAA bracket through IRA distributions could allow them to reduce future RMD burdens without adding to their IRMAA liability two years out (since they'll pay the same flat surcharge wherever their income falls within the range), though they might want to balance this with other key tax thresholds (e.g., regular income tax brackets or eligibility for certain deductions).

Perhaps the greatest weapon against IRMAA obligations is charitable giving, which can help clients bring their income below an IRMAA threshold (creating an even larger tax benefit in the process of supporting favorite charities). For those who are eligible, Qualified Charitable Distributions (QCDs) could be particularly attractive because they can directly reduce (or even eliminate) the amount of an RMD that is applicable for IRMAA calculations.

In sum, while IRMAA surcharges can be tough to avoid (at least for relatively high-income clients), advisors can play a valuable role in helping clients manage these obligations through income and charitable giving planning. Which could ultimately help them direct more money to their favored purposes (and very likely build goodwill with their advisor!).

Could Required Minimum Distributions Cause Clients To Overspend?

(Christine Benz | Morningstar)

Individuals can see a significant increase in their taxable income once they reach their required beginning date for Required Minimum Distributions (RMDs), as they will be required to distribute a certain percentage of assets in their tax-deferred retirement accounts for the remainder of their lifetimes. In addition to the potential for a higher tax burden, some individuals might also be concerned that RMDs will reduce their overall wealth as a result of taking distributions from these retirement accounts.

Nonetheless, the impact of RMDs on overall wealth might not be as severe as some clients might assume. First, RMDs don't necessarily need to be taken as cash (and there is no requirement to 'spend' these distributions as well); rather, an individual could choose to make an "in-kind" transfer of shares from their IRA to their taxable brokerage account to fulfill a portion or all of their RMD obligation. While they would still owe taxes on the amount of the distribution (and future dividends and capital gains distributions would become taxable), they could otherwise remain fully invested.

Some clients might also be relieved to find out that their RMD obligations aren't as large as they might suspect. For instance, the RMD tables were revised in 2022 to incorporate longer life expectancies (e.g., the RMD for a 75-year-old with a $1 million portfolio is about $3,000 less after the changes). Also, the life expectancy factors used for calculating RMDs aren't aligned with expectations for an individual's lifespan (which are used for calculating Social Security), but rather an individual's life expectancy plus a buffer to represent the additional time a surviving spouse might be alive after the original account owner's death. For example, the distribution period for RMD purposes for a 73-year-old is 27 years, compared to an average life expectancy (as calculated by the Social Security administration) of 12 years (meaning that the RMD is lower than would be required with a shorter life expectancy assumption).

Ultimately, the key point is that while reaching RMD age can create an additional tax burden, it might not be as severe as some individuals might assume. Further, financial advisors can play a valuable role in helping their clients manage their RMD obligations to meet their goals, whether by determining the best way to fulfill them (e.g., cash versus an in-kind transfer) given their cash flow needs and legacy goals and how to minimize their RMD obligations in the first place (whether through [partial] Roth conversions before they reach RMD age, Qualified Charitable Distributions, or other strategies!).

The Importance Of Finding Your Tax Equilibrium Rate For Retirement Liquidations

(Nerd's Eye View)

No one wants to pay any more in taxes than they have to. Which, in practice, usually entails engaging in tax strategies that minimize (or at least defer) taxes as long as possible. Except the caveat is that when it comes to tax deferral, there really is such thing as being "too good" at doing so, given the progressive nature of income tax brackets (with higher tax rates on higher income levels). For instance, a tax-deferred retirement account might grow so large that, when Required Minimum Distributions (RMDs) begin, the retiree is thrust into a tax bracket higher than he/she ever faced during the accumulation years (or earlier retirement years) in the first place.

Accordingly, the reality is that sometimes the best way to arrange affairs to minimize taxes is actually not to defer them, and instead accelerate the income. With the caveat that if too much income is accelerated, the individual may simply drive themselves into higher tax brackets today, finishing with less wealth than they would have if they simply relied on good old-fashioned tax deferral instead!

Thus, the optimal balancing point really is a balancing point between the two – seeking out an equilibrium rate that accelerates enough income to fill up lower tax brackets today, but still defers enough income to fill up the tax brackets in the future as well. Or what are actually two tax rate equilibria – one for ordinary income (and its 7 tax brackets), and a second for long-term capital gains and qualified dividends (which have their own 4 tax brackets, and stack their income on top of ordinary income).

And while it can be difficult to know for certain what future tax rates will be, the very nature of doing financial planning (and especially retirement projections) is to determine the current trajectory of wealth. Which means that with some relatively simple and straightforward assumptions about future Social Security and pension payments, RMD calculations, and anticipated interest, dividends, and capital gains, it really is feasible to make a reasonable approximation of an individual's future tax rates to determine where the ideal equilibrium will be. Then, an advisor and their client can engage in strategies from accelerated retirement account liquidations, to partial Roth conversions, and capital gains harvesting, as necessary to ensure that any currently-lower tax brackets are filled up to reach the equilibrium point.

In the end, the ideal tax bracket to fill up will vary by the individual and their overall wealth and circumstances, with many retirees (even millionaires) able to remain in the 12% ordinary income bracket (and 0% capital gains rates) with proactive planning, while more affluent retirees may aim for the 22% or 24% brackets and the 15% capital gains rate, and the wealthiest households may seek out any tax rate equilibrium that is not the top tax bracket (as anything lower than the top bracket is a relative improvement!). The fundamental point, though, is simply to understand that the best way to plan around taxes in retirement is not to defer too much income, nor too little, but to seek out and find the equilibrium rate that balances them out!

Personal Branding: Telling Your Story To Stand Out From The Competition

(Chad Petie | AdvisorHub)

Brands are ubiquitous in American life, from national restaurants and hotel chains to large financial services firms. Notably, though, building a strong brand doesn't necessarily require a national presence (or a multi-million-dollar marketing budget), particularly when it comes to creating a personal brand that can help a financial advisor attract their ideal target client.

According to advisor Beth Norman, building a personal brand can start with identifying what an advisor wants people to know about them and their business. For instance, an advisor might highlight their experience working with a particular client persona, in a particular location, or how they approach the planning process. Advisors can also identify and show their core values, giving potential clients an idea of what they could expect throughout their time working with the advisor. For advisors with team members, how they work together (e.g., offering multiple areas of expertise or being able to provide fast responses to client inquiries) can shape their brand.

Notably, advisors have many ways to get this brand message across (which don't necessarily have to cost significant hard dollars), whether through their website, social media channels, or through the content they create. Further, building a strong personal brand is not just about attracting clients through Internet channels or advertising, but also giving current clients a way to easily explain what their advisor offers and serve as advocates for the advisor and generate referrals (as long as the advisor actually lives out the brand they advertise in public!).

In sum, building a strong personal brand can help an advisor differentiate themselves amongst the many sources of financial advice, helping their ideal target clients see that they are the right person to help them with their planning needs!

Building "Parasocial Relationships" And Win More Ideal-Fit Clients

(Kelley Cours Anderson | The Conversation)

Recent years have seen the rise of online 'influencers', who build dedicated followings around themselves and their particular interests. While financial advisors might not think of themselves as 'influencers', engaging in some of the tactics they use can potentially help advisors attract more good-fit clients.

Influencers excel at building "parasocial relationships", where followers feel that they personally know the influencer by engaging with their content (rather than actually meeting them in person). Notably, financial advisors have many potential ways to build this type of relationship with potential clients, with more personal content potentially leading to greater returns. For example, a video where the advisor explains a particular topic to the audience could be more effective than a blog post on the same subject (though advisors could do both), as viewers will get a greater feel for the advisor's personality. Advisors can further build these relationships by engaging with their viewers, whether by responding to comments and questions on their content or perhaps even creating communities (e.g., Facebook groups) where followers can interact with each other and the advisor. And while it can take time for parasocial relationships to build, the time spent with an advisor's content can help potential clients recognize whether they would be a good fit for the advisor's services, potentially leading to a higher percentage of discovery meetings with good-fit prospects.

Altogether, while a financial advisor might not aim to be an influencer themselves, creating content and engaging with followers in a way that creates a closer 'relationship' (even if they haven't met in person) could ultimately lead to more inbound leads (when followers are ready to work with an advisor) or even referrals from this group (who might feel confident in recommending an advisor they 'know' to friends and family).

The Art And Agony Of An RIA Rebrand

(Jennifer Lea Reed | Financial Advisor)

Financial advisory firm founders have a seemingly infinite range of possible names to choose from for their new business. While some might choose a name that describes what they want their firm to represent or that speaks to their ideal target client, it's common for founders to use their own name, or perhaps their location, for the business.

Whatever name is chosen initially, the evolution of a firm could eventually lead its founder to consider a rebrand. For instance, if the firm has transitioned from a local to a regional or national client base, a firm name that includes a specific city or other location might feel limiting. Or, a founder who wants to engage in an internal succession and have the firm live on well past their time working in it might decide to transition away from having their name be part of the firm's brand.

While rebranding could be a fruitful exercise, it does come with potential complications. First, firm owners will have to consider what type of name they want to choose (perhaps steering towards a more broadly applicable name if their firm is expanding). With a name chosen, it's paramount to engage in open communication (and an explanation for the rebrand) to a variety of groups, including employees (who might also provide input), clients, and prospects. There can also be a (potentially significant) hard-dollar cost to a rebrand as well, whether in designing and publishing new logos or engaging in a marketing campaign to advertise the new brand (and clear up any confusion to show that the 'new' firm isn't really new).

Ultimately, the key point is that rebranding is not just a matter of changing a firm's name, but also ensuring that key stakeholders are on board with the new identity. Nevertheless, when executed well, a rebranding can help position a firm for its next growth stage and thrive well into the future.

401(k)s Are Minting A Generation Of "Moderate Millionaires"

(Gunjan Banerji | The Wall Street Journal)

In popular culture, the term 'millionaire' connotes significant wealth (Scrooge McDuck's pool of gold coins anyone?). However, through a combination of increased participation in the stock market (including through 401(k) plans) and strong market performance over the past 15 years, a growing number of individuals and couples are achieving the once-vaunted 'millionaire' status (but might not necessarily feel rich).

For example, Fidelity reported having 654,000 401(k) millionaires on its platform as of the end of the third quarter of last year (the highest level ever, with records going back to the early 2000s) and T. Rowe Price said 2.6% of its plan participants had balances above $1 million (up from 1.3% at the end of 2022). Of course, the impact of inflation means that having $1 million in a 401(k) doesn't have the same purchasing power as $1 million might have decades ago (also, assets held in a tax-deferred 401(k) will be subject to taxation upon distribution). Which has led UBS to dub this group (with assets ranging from $1 million to $5 million) "moderate millionaires", representing the idea that while reaching the $1 million investible asset threshold is a significant marker and supportive of economic security in retirement, it might not provide the lavish level of spending that a million dollars might have in the past.

Notably, the rise of "moderate millionaires" could be particularly fruitful for financial advisors, who could see more demand for their services as this group of consumers nears retirement and transitions from making regular contributions to their retirement account(s) to drawing them down in a sustainable (and tax-efficient) manner to generate income (while also helping these individuals prepare for a potential extended market downturn, which they likely haven't experienced in more than a decade, that could threaten their millionaire status).

The Ideal Level Of Wealth

(Nick Maggiulli | Of Dollars And Data)

If you asked someone what their ideal level of wealth would be, they might be tempted to say "as much as possible". Of course, this might not be realistic (given their current wealth and ability to generate more) or perhaps even desirable (given the complications that extreme wealth can potentially cause).

Taking a look at what 'ideal' wealth might look like, Maggiulli considers a family of four who live in the median priced home in the United States. Using data from the Consumer Expenditure Survey and other sources, he finds that this family would spend about $120,000 per year (after taxes) to maintain a middle-class lifestyle (this number could be adjusted given a particular individual's spending preferences). Given these annual spending requirements, one end of the wealth spectrum would be financial independence (i.e., being able to fund one's lifestyle solely off of accumulated assets). Using a static 3.5% withdrawal rate (adjusted for inflation), this would mean accumulating $3.5 million of assets (note, that this assumes the assets could be liquidated tax-free).

Perhaps a more modest goal would be "Coast FIRE", when their retirement savings are projected to grow – without further contributions – into a portfolio large enough to support their anticipated future retirement spending needs (which means they 'only' need to earn enough to cover their ongoing expenses while continuing to work). Assuming a 3.5% annual real return on invested assets, a 40-year-old would need to have $1.48 million in wealth, while a 50-year-old would need $2.09 million (to reach $3.5 million by the time they turn 65). Individuals who are willing to move to lower-cost areas (or who are willing to commit to reduce their spending in the future) could require even less accumulated wealth.

Ultimately, the key point is that by putting numbers to wealth goals, individuals can see that they might need to accumulate less (or, perhaps, more) to achieve the lifestyle or level of flexibility they seek. Which makes financial advisors well-positioned to help clients crunch the numbers (perhaps also incorporating the uncertainty that comes with both spending rates and investment returns) and create a plan that will allow them to reach their goals!

Wealthy Families Are Writing Mission Statements To Avoid Fights, Lost Fortunes

(Juliet Chung | The Wall Street Journal)

Parents who achieve significant levels of wealth can potentially provide themselves and their children a comfortable (and perhaps luxurious) lifestyle. However, as they grow older (and their wealth hopefully grows with it), they might grow increasingly concerned about their legacy and what will happen to their wealth after they pass away (particularly given the family conflicts such wealth can cause and the potential for it to be squandered relatively quickly).

With this in mind, some wealthy families have created mission statements that lay out principles and goals for their wealth. Notably, such mission statements typically aren't secrets held by the oldest generation, but rather creations based on the input of multiple generations. While they aren't binding (unlike other estate planning documents), they can serve as a 'north star' for members of the family when considering how to steward and spend the wealth well into the future (e.g., a charitably-minded family might decide to create a well-funded donor-advised fund managed by certain family members).

For families looking to create a mission statement (or advisors supporting clients interested in one), a first step could be to brainstorm words, phrases, or images that come to mind when thinking about the families wealth and how it should be handled (or perhaps to offer prompts that could trigger additional ideas). This can generate conversations and eventually help the family coalesce around concepts or ideas that they want included in the final mission statement (which could be adjusted in the future as desired).

In the end, creating a family mission statement not only provides common ground from which to make financial decisions in the future, but also, at a more basic level, opens up lines of communication amongst family members in a way that could help prevent future conflict. Which could ultimately give wealthy individuals greater confidence that their wealth will be handled well for many years into the future (and help their financial advisors and estate planning attorneys craft plans that meet their established objectives!).

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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.