Weekend Reading For Financial Planners (February 21–22)

Seemingly Better Conditions Didn't Yield Better Results For Active Managers In 2025: Morningstar

(Bryan Armour | Morningstar)

2025 proved to be a fruitful year for investors, with a wide range of asset classes generating positive returns. At the same time, the year was not without drama, from a new presidential administration to tariff-related volatility and debates over the impact of artificial intelligence. Amidst this backdrop, some might have assumed that active fund managers thrived; however, a recent report suggests that their passive counterparts outperformed during this period.

According to Morningstar's U.S. Active/Passive Barometer Report, of the 3,140 active funds included in its analysis, only 38% survived and outperformed their average passive peer last year. Fund categories where active managers were least likely to outperform included corporate bonds (with only 4.4% of funds doing so), global real estate (9.5%), U.S. real estate (14.0%), and U.S. large growth (17.2%). A majority of active funds studied outperformed their passive counterparts in a few categories, however, including diversified emerging markets (64.1%), U.S. large value (60.3%), intermediate core bond (54.7%), and U.S. mid-cap value (51.2%).

Notably, the picture looks worse for active fund managers when considering longer time horizons, with only about one of every five active funds beating the average of their passive counterparts over the past ten years, with only one category (corporate bonds) seeing a majority of active funds (52.2%) overperform. Further, within the active fund market, lower-cost funds tend to outperform their higher-cost counterparts when it comes to outperforming (often even lower-cost) passive funds. For instance, while 17% of lower-cost active U.S. large blend funds outperformed over 10 years, only 5.3% of the highest-cost fund did so (likely given that the higher-cost funds have an even larger hurdle to climb against passive funds). Also, when it comes to the distribution of returns, actively managed large blend funds show negatively skewed excess returns over the past 10 years (indicating that the penalties can be high for picking an underperforming fund), while (surviving) fixed-income and real estate tended to have a positive skew (indicating that there could be gains to be had from picking a winning fund).

In sum, Morningstar's data suggest that the environment for active fund managers remained challenging in 2025 and over longer periods as well. Which might lead some financial advisors to stick to passively managed funds for client portfolios (though there does appear to be potential for added value in certain fund categories for advisors who are able to identify those funds that might thrive in the years ahead?).

Northeastern States (And North Dakota) Lead The Way On Advisor Salaries

(Kiernan Green | InvestmentNews)

In addition to the benefits that come from helping clients live their best lives, the financial advice business also tends to pay well. Though, according to a salary database compiled by InvestmentNews (using data from the Bureau of Labor Statistics as well as internal company data), salaries can vary significantly by an advisor's location and role.

For instance, while the average salary for the broad "personal financial advisor" category nationwide was about $95,000, certain (often higher cost of living) states showed much higher average figures, including New York ($155,000), Connecticut ($144,100), Massachusetts ($142,600), New Jersey ($137,100), and North Dakota ($134,400). At the bottom end of the salary spectrum was Arkansas, with an average of approximately $79,000 (other states at the lower end included Alabama, Mississippi, West Virginia, and Idaho). Salaries varied by role as well, with lead advisors typically seeing the highest salaries (e.g., an average of $200,000 in New York), with other advisors seeing somewhat lower salaries (e.g., $150,000 in New York).

While these are all aggregate figures taking into account the hundreds of thousands of advisors and related professionals around the country, they could be instructive for firms considering hiring (e.g., in adjusting salary expectations depending on their [or their candidates'] physical locations) or expanding (as acquiring a firm or opening a new office could be more or less expensive depending on the state in which it's located). And for current and aspiring advisors, these figures could serve as a baseline for setting expectations when considering a job in a particular state (notably, though, Kitces Research on Advisor Wellbeing finds that while income is positively correlated with wellbeing, other factors [including an advisor's level of autonomy, experience, and team] can play a larger role, suggesting that advisors might look beyond headline salary when considering a new position).

Advisors Increasingly Converting DC Plan Participants Into Wealth Management Clients: FUSE Research

(Elaine Misonzhnik | WealthManagement)

While individual clients are the bread and butter for many financial advisory firms, some firms advise on company Defined Contribution (DC) retirement plans, whether for those of clients who are business owners or for other companies. While this can be a profitable line of business in itself, it can also open the opportunity to attract plan participants to become clients of the firm themselves.

According to data from FUSE Research Network benchmarking service Advisor Insight, 62% of advisors surveyed said they converted at least 6% of DC plan participants into wealth management clients (with relatively larger advisory firms having more success than their smaller counterparts). Further, advisors indicated that their conversion rates have increased over the past five years, in part due to the growth of financial wellness programs within the companies they work with, which allow advisors to have greater engagement with plan participants beyond shaping the structure of the plan itself (including the ability to demonstrate their expertise and to give participants an idea of what an ongoing relationship might look like). Amidst this backdrop, 65% of advisors surveyed said that converting DC plan participants is easier than acquiring clients through traditional marketing or referrals.

In sum, while providing retirement plan fiduciary services requires a particular set of skills (and comes with varying responsibilities, depending on the role taken by the advisory firm), this activity can come with a variety of benefits, from providing a deeper level of service to business-owner clients to creating a potential pipeline of individual wealth management clients (which could increase in the years ahead with more members of the baby boomer generation retiring, with a strong market environment in recent years leading to more participants meeting firm asset minimums?).

Reducing Longevity Risk By Delaying Social Security Benefits

(Edward McQuarrie and William Bernstein | Advisor Perspectives)

A common priority for retirees is to ensure they will have sufficient resources to meet their lifestyle needs throughout what could be a multi-decade retirement. While many retirees will have also accumulated invested assets or perhaps have access to defined-benefit pension benefits, Social Security benefits represent a key part of this equation as well. And given that the benefit an individual receives (for their remaining years) depends in part on when they claim, this decision is consequential (though reversible in the short term).

On the one hand, an individual might decide to claim Social Security as early as possible in order to begin accruing benefits (particularly if they've already left the workforce) and reduce the amount they need to withdraw from savings to support their lifestyle needs. Other potential reasons to claim early include  (among others) concern that they will pass away before 'breaking even' when delaying benefits, a desire to invest the benefits and achieve a greater return than what they would receive from delaying, concern about the sustainability of the Social Security system, or perhaps a preference to have more assets available earlier in their retirement.

The authors suggest, though, that delaying benefits (particularly in conjunction with working beyond age 62 to reduce the number of portfolio-supported years and to avoid having to find health insurance coverage before Medicare eligibility) is frequently a better choice financially for those looking to improve the chances that they will be able to support themselves for a retirement of an unknowable length. In particular, they highlight the guaranteed nature of the returns to delaying claiming Social Security benefits to the unknown returns from an invested portfolio as well as the inflation-adjusted nature of these benefits (which could be supportive in case an individual's retirement corresponds with an inflationary period), both of which create a higher income floor for a retiree (particularly one with relatively modest invested assets that could be subject to quicker depletion).

In sum, delaying Social Security benefits (particularly if an individual is able to continue working during the delay period) can provide a retiree with valuable longevity protection for what could be a multi-decade retirement. At the same time, a particular individual's claiming decision will likely depend on other factors as well, including whether they're married (in which case it might not make sense for both spouses to delay claiming, given available survivor benefits), their life expectancy (as an individual with known medical issues and a shorter life expectancy might choose to claim earlier), and their spending preferences (e.g., a willingness to risk a lower income later in retirement for a larger one earlier on).

Behavioral Preferences As Rational Explanations For Early Social Security Claiming

(Derek Tharp | SocArXiv)

Given the potential financial benefits of delaying Social Security benefits (particularly when it comes to protecting against longevity risk), many researchers (and, likely, financial advisors) have been puzzled why claiming benefits early remains a popular practice. While some might think that these individuals are simply irrational (or perhaps unaware of the benefits of delaying), Tharp suggests that behavioral preferences could make claiming early a rational decision.

For instance, individuals might prefer to claim benefits at retirement (to avoid having to manage a 'bridge' period between employment and receiving benefits), to front-load their consumption in retirement (e.g., spending more on travel while they're relatively healthier), and/or feel more comfortable spending from regular income sources like Social Security rather than drawing down their portfolio assets. When incorporating these into a model that takes other retirement-related factors into account (e.g., investment returns, medical expenditure shocks, and mortality risk, amongst others), Tharp finds that the 'optimal' claiming age is lower than what a numbers-based expected value calculation might assume, with age 62 being the optimal claiming age for those with up to $800,000 in retirement savings and behavioral preferences matching those discussed earlier (while also frequently drawing the optimal retirement age for wealthier individuals earlier as well).

Ultimately, the key point is that the decision of when to claim Social Security isn't 'just' a math problem with a single, universal correct answer, but rather a decision unique to each individual, who might come to the table with different preferences for how and when they want to generate income in retirement. This provides financial advisors with the opportunity to demonstrate understanding of each client's unique situation by recommending a Social Security claiming strategy that best matches their financial and behavioral preferences (and might not result in the largest total lifetime benefits received). Which could mean waiting until full retirement age (or perhaps until they can receive their maximum benefit at age 70) or perhaps claiming benefits sooner.

Why It Rarely Pays For Both Spouses To Delay Social Security Benefits

(Nerd's Eye View)

The decision of whether to delay Social Security benefits is a trade-off: give up benefits now, in exchange for higher payments in the future. If the higher payments are received for enough years – dubbed the "breakeven period" – the retiree can more than recover the foregone benefits early on, even after adjusting for inflation and the time value of money.

With couples, however, the decision to delay is more complex. Earning delayed retirement credits can not only boost an individual's own retirement benefit, but increases the potential survivor benefit as well. Which means the breakeven can be reached as long as either member of the couple remains alive long enough! This makes delaying benefits even more appealing, as the odds of at least one member of a couple remaining alive is better than the single life expectancy of either member in particular.

However, delaying retirement to generate a larger survivor benefit is a moot point if the survivor already has a larger benefit of their own. In fact, a higher-earning spouse makes it less valuable to delay at all, as the other person's survivor benefit may overwrite the delayed benefit altogether, and thus the couple loses if either member of the couple passes away too soon.

Which means ultimately, the ideal strategy for most couples is for the higher-earning spouse to delay as long as possible (which benefits them as long as either remain alive) but to start the lower-earning spouse's benefits as early as possible, as delaying both is only beneficial in the less likely scenario that both of them remain alive into their 90s and beyond. Further, given ongoing debates about the financial and behavioral benefits of claiming benefits early or delaying, married couples can potentially get the best of both worlds by tapping into the lower-earning spouse's benefits early on while being able to let the higher-earning spouse's grow even larger!

What Wealthy Parents Need To Know Before Giving Real Estate To Their Kids

(Hayley Cuccinello | CNBC)

While affluent individuals often have investment portfolios that they want to give to their children (whether as gifts during their lifetime or bequests at their deaths), they also frequently have real estate assets that they might want to leave to their kids as well. While giving portfolio assets comes with its own planning considerations (e.g., managing the taxation of different account types), giving real estate can be even more complicated, both financially and emotionally.

A key question for parents is whether to gift the property during the owners' lifetimes or at their deaths. Typically, the latter is preferable from a tax standpoint (whether through the parent's will or a trust) given the ability for heirs to receive a step-up in basis on the property at the parents' death. In addition, parents might consider placing the home in an LLC and set up a trust for their children's benefit that holds interest in the LLC in order to prevent legal liability for the children (e.g., shielding the home from creditors of one child, or if an individual is injured while renting the property).

Parents can also lay the groundwork to ensure that the property will be shared joyfully amongst multiple children. For instance, parents might create an operating agreement for the LLC that prescribes how an interest may or may not be transferred (e.g., to keep control within the direct family and not extending to spouses). In addition, parents might set boundaries for how the property is used (e.g., how many holiday weekends each child gets) to prevent future arguments amongst heirs. Also, parents might leave assets behind to pay for upkeep, insurance, and taxes on the home so that responsibility for paying these bills doesn't fall to a particular child. Finally, parents might set buyout provisions in case one child wants to sell their interest in the property to one or more siblings.

In sum, the complications that can arise when transferring property to heirs suggests that starting this conversation (and preparing any desired legal structures and documents) can ensure parents and their children can get the maximum financial (and lifestyle) benefits from a property while also mitigating potential future conflicts in the process. For financial advisors, this could mean ensuring that real property is incorporated into estate planning discussions so ensure all of their clients' assets are accounted for in this process!

Transfer On Death Deeds: Avoiding Probate For Real Estate, But Requiring Care

(Ashlea Ebeling | The Wall Street Journal)

For many individuals, one of the goals of estate planning is to avoid the (often lengthy and complicated) probate process as much as possible. While beneficiary designations have long made it simple to transfer retirement accounts outside of the probate process, it's been more difficult to remove real estate holdings from the probate process (with trusts being a potential tool to do so).

In recent years, however, many states have passed laws allowing for "transfer on death deeds", which allow real estate to transfer directly to a named beneficiary instead of going through the probate process. The process to set up a transfer on death deed is relatively simple (typically involving a form that is completed, notarized, and filed with the local courthouse where the property is located) and this tool is flexible (as homeowners can revoke it at any time). However, those pursuing this path will want to take care when filling out the form (e.g., accurately describing the property and ensuring both spouses sign off on it) and also take into consideration any debts associated with the property as well as any money the recipient might owe (e.g., taxes, insurance, upkeep), particularly given that the recipient will receive it very soon after the homeowner's death.

In the end, while the probate process can be an annoyance for many (and setting up a trust might feel cumbersome and/or expensive), the seemingly simple solution of a transfer on death deed can create its own complications when passing along real estate at death. Nevertheless, having it as one option in an advisor's estate planning toolbox (perhaps in conjunction with a trusted attorney who can provide guidance on completing it properly) could help clients in relatively uncomplicated situations ease the transfer of their real estate holdings.

4 Tax-Effective Strategies For Transferring Homes To Heirs Or Charities

(Randy Fox | WealthManagement)

Real estate holdings often represent a significant portion of an individual's assets, particularly when accounting for both primary residences and vacation homes. Unlike portfolio assets, though, they don't just sit in an account but rather are 'used' (as a residence or for vacations) and come with ongoing taxes, maintenance, and insurance costs.

For individuals looking to pass on a property to children or other heirs, advance preparation can help make the transition easier (and more tax efficient). For instance, an individual concerned about the estate tax implications of passing on a property through their estate might take advantage of a Qualified Personal Residence Trust (QPRT), an irrevocable trust that removes a personal home from an estate while allowing the owner of the residence to continue living there for a period of time with a retained interest in the house (after this period is over, the interest remaining is transferred to children or other beneficiaries as a remainder interest). Also, parents might be concerned about varying preferences amongst their children inheriting a property (e.g., one child might want to keep it while the other might want to sell it). In this case, life insurance can play a helpful role in equalizing inheritances while taking into account preferences for the real property (e.g., giving one child a vacation home while giving the other a life insurance death benefit equal to the value of the home).

Given the complications involved when transferring real estate assets to heirs, some individuals might choose to give a property to charity instead. One potential pathway is a Charitable Life Estate (CLE), which allows individuals to donate a property to charity (or even a partial transfer, which could work well for vacation homes) while continuing to live in it for the remainder of their lifetimes (while continuing to pay property taxes, insurance, and maintenance expenses). As a bonus, they also receive a current income-tax deduction for the present value of the gift to be made when they pass (while also removing the property from their taxable estate). Also, for those with rental properties, a Charitable Remainder Trust (CRT) could be a useful option, allowing them to continue operating the property and receiving rental income while transferring the property to one or more charities at their death (and receiving a partial tax deduction at the time of the gift as well as removal of the property from their estate).

Ultimately, the key point is that planning in advance for the transfer of real estate holdings can provide benefits to all parties involved, from the property owners (who can gain peace of mind that their property will be used well, as well as a potential upfront tax deduction if donating a property to charity), to heirs (particularly if the parents designed the bequest with the recipient(s)' preferences in mind), and to charities (who can sell the property and gain a sizeable amount of cash in return). Further, given the various options involved (and the implications of certain irrevocable strategies), financial advisors can play a valuable role in ensuring their client's preferences are met, both for their financial plan while they're alive and for the disposition of their assets after they pass away.

The Truth About 529s And Financial Aid

(Ann Garcia | The College Financial Lady)

529 plans are a popular way to save for education expenses, as they offer tax-free growth, tax-free withdrawals for qualified expenses, and, in some states, a tax benefit for contributions. However, some individuals might be hesitant to contribute to these accounts, whether due to the restrictions on their use (perhaps instead preferring to contribute to a Roth IRA or taxable brokerage account for future education expenses) or because they are concerned building sizeable 529 balances will reduce the needs-based financial aid they might receive from colleges.

In reality, though, 529 plans can be preferable to other sources of college funding when it comes to calculating the Student Aid Index (SAI) on the FAFSA form for needs-based aid eligibility. While assets in a parent-owned 529 plan 529 plan (like other non-retirement accounts) are counted as an asset (meaning that the student's aid eligibility will be reduced by 5.64% of the balance), only 529 plans where the particular student is the beneficiary count towards the SAI (meaning that 529 plans with sibling beneficiaries aren't counted against their aid eligibility). For parents with multiple children, this could prove to be an advantage over taxable savings or retirement accounts, the full amount of which would be counted as a parental asset for a particular child's SAI.

Another advantage for 529 plans is that qualified distributions don't generate income on the parents' tax return. Which not only provides current-year tax savings (compared to realizing capital gains to generate funds for education within a taxable brokerage account) but also doesn't count towards the parents' income when calculating aid eligibility for future years. Notably, not only does selling appreciated assets from a taxable account generate additional income for SAI calculation purposes, but so too do withdrawals from Roth IRA accounts (even if the withdrawals are tax-free for income tax purposes).

Altogether, 529 plans can be particularly attractive savings options both for their tax advantages and for financial aid eligibility. Plus, amidst an expanding number of eligible uses for funds in the account (e.g., the ability to rollover assets to a Roth IRA, under certain conditions) as well as the flexibility to benefit multiple generations through these plans, some clients who might not have considered 529 plans in the past (or limited their funding of them) might see benefits from starting (or increasing) their contributions!

8 Tips For Appealing Financial Aid Awards

(Lynn O'Shaughnessy | WealthManagement)

The first few months of the year can be both nerve-wracking and exciting for college-bound students and their families. While they might be most focused on whether the student is admitted to particular schools, another key event is finding out the needs-based and/or merit-based aid received from the colleges to which they are accepted.

Notably, though, the offer contained in a college's financial aid letter isn't necessarily the final amount they might offer, as students and their families can appeal aid decisions, both on substantive grounds (e.g., if a parent recently lost their job) or because the student requires extra enticement to attend that particular school. Because colleges typically use enrollment management software that helps them determine the minimum aid award expected to encourage an applicant to accept their admissions offer, there is often room for this amount to rise, particularly if the school thinks it might fall short on its enrollment goals (which suggests that some schools might be more amenable to increasing their award the later it gets into the acceptance period). Also, colleges are often more willing to up their aid offer when a student has a competing offer from another college that the school considers to be at their peer level. In addition, students might be able to appeal for a better offer if the one they received is below a particular school's average merit- and/or need-based scholarships offered (with this type of data available at CollegeData.com).

In sum, colleges are often willing to go well beyond their initial aid offer to attract in-demand students. Which suggests that taking the time to research and appeal awards could ultimately result in tens of thousands of dollars of savings over a multi-year college experience.

How Colleges Know How Much Families Are Willing To Pay

(Ron Lieber | The New York Times)

The digital age has led to the availability of copious amounts of data, which companies can use to dynamically price their goods and services to a particular customer based on their assessed willingness to pay. While individuals might be used to this (perhaps unsettling) practice when shopping online, it also appears in the seemingly lower-tech college admissions process.

Many headlines have been written in recent years about the ballooning 'sticker prices' at colleges across the country. A less-discussed subject though is that only a limited number of (usually wealthy) families actually pay this price, with many admitted students receiving needs-based or merit-based financial assistance. The latter type of aid has gained more attention recently, as it offers even high-income families the opportunity to get a discount at a particular college.

While these awards are often framed as merit-based "scholarships" to flatter students and their families, in reality they're often based on an assessment of how much the college believes it needs to discount its total cost to get the student to attend. Colleges are assisted in this endeavor by several companies that compile information about students (from standardized test scores to engagement levels with a particular college) to help the colleges not only target their outreach to particular students, but also to determine the level of financial assistance it might offer to get a student to accept its offer. For some schools, a strategy has been to raise its total tuition costs (both increasing the amount full-pay students are charged and to perhaps make it appear more prestigious) then offer steep discounts to certain students (often out-of-state students with strong academic credentials and who come from relatively affluent families) that might put the school on par cost-wise with schools within their state (with schools that have particularly attractive campuses and facilities as well as honors programs touting those features as well).

In sum, when considering colleges, the sticker price seen on their websites might, in reality, be paid by very few students. Nonetheless, students who do receive a particularly large aid award might consider whether the college they're considering is the best fit for them (or whether an option with a lower sticker price and smaller aid award might actually be a superior option for their college goals?).

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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.