Search results for: <br/>Author: Adam Van Deusen

Weekend Reading For Financial Planners (November 25-26)

November 24, 2023 01:38 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that FINRA has issued a proposal to allow broker-dealers to advertise hypothetical performance data to institutional and high-net-worth investors, which would bring the rules for broker-dealers largely in line with those for investment advisers, but also raises questions about the comparative roles and regulations for the two groups.

Also in industry news this week:

A recent survey indicates that about 98% of clients are at least somewhat satisfied with their financial advisor and that an advisor’s ability to provide peace of mind when it comes to finances is a key driver of this satisfaction
A study indicates that advisors can potentially boost client referrals by using client portals and by implementing financial psychology practices

From there, we have several articles on insurance planning:

While many clients might be tempted to enroll in a Medicare Advantage plan, doing so can create potentially costly financial risks
How seniors in several of the largest states will experience greater-than-average increases to their Medicare Part D premiums in 2024
How advisors can help clients minimize IRMAA surcharges and appeal to have them reduced under certain circumstances

We also have a number of articles on client communication:

The 7 communication practices that clients dislike the most and how advisors can avoid them
Why avoiding technical jargon can facilitate better prospect and client communication and tactics to help advisors communicate more clearly
Why empathy often beats sympathy for advisors when it comes to working with clients dealing with stressful situations

We wrap up with three final articles, all about the history of common financial products:

How the current system of employer-provided health insurance benefits can be traced back to wage controls imposed during World War II
How the private long-term care insurance marketplace has evolved over time, and why some states are considering stepping in to provide coverage to their residents
How the 30-year fixed mortgage became dominant in the United States and how it is impacting housing affordability today

Enjoy the ‘light’ reading!

Weekend Reading For Financial Planners (November 18-19)

November 17, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that legislative efforts to prevent the enforcement of the Department of Labor's newly proposed "retirement security rule" have a cloudy future, as both Democrats and President Biden are opposing such efforts. Which suggests that, if enacted, the ultimate fate of the proposed regulation, like its similar predecessors, will likely be decided in the courts.

Also in industry news this week:

CFP Board has expanded the details it provides regarding disciplinary actions, expanding transparency around the disciplinary process for both CFP professionals and the broader public
A recent study suggests that advisory firms that hire specialists are able to offer more planning services and increase the amount of time advisors spend with clients, though doing so comes at a cost

From there, we have several articles on retirement planning:

Why higher interest rates and lower inflation have led to an increased initial safe withdrawal rate for retirees, according to one analysis
A group of retirement 'supernerds' critiques a recent claim that retirees can confidently use an 8% safe withdrawal rate
Why retirees might consider gifting while they are alive rather than waiting until their deaths to leave money to loved ones and charities

We also have a number of articles on tax planning:

How financial advisors can add value for clients by helping them make Qualified Charitable Distributions (QCDs) correctly
The range of tax-savings opportunities advisors can uncover when reviewing a client's tax return
A year-end tax planning checklist advisors and clients can use to ensure there will be no surprises when it comes time to file their 2023 tax returns

We wrap up with 3 final articles, all about managing wealth:

Why having significant wealth does not immunize an individual from worrying about money
How advisors can support clients who are entering a relationship with unequal wealth
Budgeting and account management tools consumers (and their advisors) can consider using following the upcoming shutdown of Mint

Enjoy the 'light' reading!

Weekend Reading For Financial Planners (November 11-12)

November 10, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that a Fidelity benchmarking study revealed that both small and large RIAs saw positive organic growth in 2022, helping to mitigate AUM declines resulting from weak market performance. The report also flagged that profit margins for RIAs remained relatively steady over the past several years (despite strong market performance over the period), with the trend of firms offering increasingly comprehensive service while also discounting fees cited as a potential cause.

Also in industry news this week:

How the use of model investment portfolios can potentially save advisors time and boost client trust
Why a recent IRS Private Letter Ruling could facilitate the emergence of zero-commission variable universal life policies (that RIAs can actually get paid a fee to advise on)

From there, we have several articles on housing:

How aspiring homebuyers have a range of options, from intra-family loans to "house hacking", to reduce the costs of buying a home amid elevated prices and interest rates
Why a focus on resale value has led many home improvement projects to reflect popular, rather than personal, preferences
How one potential homebuyer crunched the numbers to decide that homeownership was not the right investment for her

We also have a number of articles on practice management:

Why fine-tuning their leadership skills can help owners of mid-sized firms take their business to the next level
How rapidly growing firms can fall into cash flow traps, even if they are profitable
A recent study identified common traits of advisors with high-growth practices, including being purposeful about organizational design and being willing to delegate tasks

We wrap up with 3 final articles, all about lending in the elevated interest rate environment:

Why the spread between 10-year Treasury yields and 30-year mortgage rates has expanded in recent years, leading to higher interest costs for homebuyers
How advisors can help clients evaluate whether, and which, private credit funds might be appropriate for their portfolio
How tighter bank lending standards have contributed to a flood of private credit loans, which offer opportunities and potential perils for borrowers and investors alike

Enjoy the 'light' reading!

Helping Hesitant Clients Boost Their Retirement Spending

November 8, 2023 07:04 am 0 Comments CATEGORY: Retirement Planning

Retirement is often framed as one's "golden years", a time to enjoy the fruits of several decades of hard work. And for many retirees who have planned accordingly, this transition is not a problem as they might spend generously on travel, hobbies, or other pursuits. Nevertheless, some retirees can find it emotionally challenging to bring themselves to go beyond the basics in retirement spending (e.g., because they have a hard time switching from 'savings' mode to 'spending' mode) and can be hesitant to spend on the full range of activities that would bring them the most happiness and meaning in retirement (even though they have the resources to do so).

For instance, after a lifetime of 'maximizing' their finances (likely seeing their net worth increase steadily over time), some clients might find it difficult to see their portfolio balances decline in retirement as they draw down their assets to support their lifestyles. This could lead some to spend less than they otherwise might want to, as they prioritize maximizing their wealth (for its own sake) over enjoying their overall lifestyle. Some retired clients might feel a great deal of emotional distress when spending (and therefore could be reluctant to spend more on themselves in retirement), while still, others might be hesitant to spend due to concerns about an unpredictable future (e.g., market conditions or their own longevity).

Nevertheless, advisors have an opportunity to add value through technical and behavioral-based strategies that can help hesitant clients increase their spending and have a more enjoyable retirement. For instance, framing the results of Monte Carlo analyses as a "probability of adjustment" rather than a "probability of success" can give clients more confidence that they are on a sustainable financial path. In addition, instead of grouping client expense categories as either essential (e.g., housing and food) or discretionary (e.g., entertainment, travel), advisors can group each category to have its own portion of "core" and "adaptive" expenses with 'core' buckets including spending that would otherwise be defined as "essential" spending and an amount of "discretionary" spending a client would have a hard time living without (e.g., housing – mortgage and weekly housecleaning service), leaving the "adaptive" bucket for the spending items that are truly discretionary for the client (e.g., housing – interior art). This encourages clients to 'splurge' on spending in the 'adaptive' bucket without guilt if the advisor can show that they can be confident about covering their "core" expenses. Also, given research suggesting that individuals are more likely to spend from 'guaranteed' income sources (e.g., Social Security or a defined-benefit pension), maximizing these pieces of the retirement income puzzle could give clients more confidence to spend.

On the behavioral side, clients could 'practice' retirement (e.g., through an extended sabbatical or series of mini-retirements) to experience what it would be like to spend their assets while not receiving wages. Advisors also could work with clients to explore different types of spending that have been shown to boost happiness, from 'buying' time (e.g., by hiring someone to clean their house) to spending on experiences, to philanthropic giving while they are alive (rather than waiting until their death to do so). Finally, advisors could help their clients step back and look at the 'big picture' by creating a Financial Purpose Statement or going through the Life Planning process.

Ultimately, the key point is that while some clients have no problem finding ways to spend down their nest egg in retirement (in which case an advisor can add value by ensuring they do so in a sustainable manner), the transition from saving to spending mode in retirement can be tricky for others, who might struggle to bring themselves to spend as much as they would like (even if they could afford to). For these clients, advisors can potentially add value by framing financial planning and retirement income conversations in a way that encourages these clients to explore their goals and the spending options that might fit their unique interests!

Weekend Reading For Financial Planners (November 4-5)

November 3, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that the Department of Labor this week released its long-awaited "retirement security rule", its latest effort to curb conflicts of interest around retirement savings recommendations. Among other measures, the proposal would amend the current 5-part test that determines fiduciary status for retirement accounts by defining as a fiduciary act a one-time recommendation to roll funds from a company retirement plan to an Individual Retirement Account (IRA), strengthen advice standards for independent insurance professionals, apply to insurance products that are not securities, and would cover advice to plan sponsors regarding the menu of investment options to include in a company's retirement plan… though, like the similar 'fiduciary rule' proposed during the Obama administration, this latest regulatory effort is likely to face significant pushback from financial product manufacturers and distributors.

Also in industry news this week:

A recent study indicates that the RIA model has seen significant growth in the number of firms and advisors during the past decade, and these firms are expected to control 1/3 of industry AUM by 2027
Despite market headwinds leading to a contraction in advisory firm AUM in 2022, firms continued to produce strong profit margins thanks in part to organic growth

From there, we have several articles on investment planning:

Why certain private equity investments might not have the diversification benefits that many advisors and clients might expect
Why the current yield on TIPS could make them an attractive part of a retirement income strategy for clients
While small caps have experienced higher returns than their larger counterparts during the past century, recent research calls into question whether this factor will persist

We also have a number of articles on advisor marketing:

How content marketing can help advisors attract clients, even if it means giving away some of their 'secrets'
Why presenting prospects with proposed planning recommendations ultimately could reduce the chances that they become clients
How one advisor has used an extra-methodical sales process to convert prospects into clients who will be a good fit for his planning style and philosophy

We wrap up with 3 final articles, all about potential uses of Artificial Intelligence (AI) for advisors:

Why advisors are more likely to work in tandem with AI tools, rather than as competitors
How advisors can produce better 'prompts' and get the most out of ChatGPT and other large language models
Why recommendation engines could be the next big technological advance in investment management

Enjoy the 'light' reading!

Weekend Reading For Financial Planners (October 28-29)

October 27, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that the shift in financial advice from pure investment management to comprehensive financial planning continues, with more individuals becoming CFP professionals than CFAs in the past few years as consumers increasing the diversity of their financial goals.

Also in industry news this week:

A survey indicates that while financial advisors remain the most trusted source of financial advice, they might increasingly encounter client questions and ideas that originated from social media
Following the transition of advisors and clients from TD Ameritrade and amid competition from competing RIA custodians, Charles Schwab executives this week highlighted tech investments the custodian has made to improve the advisor experience on the platform

From there, we have several articles on tax planning:

Why business-owner clients could come under increasing scrutiny from a beefed-up IRS
The unique tax issues facing freelancers and how advisors can both help them maintain proper records and take advantage of tax-related opportunities
How advisors can help wealthy clients with certain alternative investments avoid an IRS audit

We also have a number of articles on the value of advice:

How advisors can use an iterative process to develop high-value services for their clients
The unique needs of clients in the "sandwich generation" and how advisors can serve them without burning out themselves
How financial advisors are similar to general practitioners in their ability to make clients feel cared for

We wrap up with 3 final articles, all about wealth:

Profiles of individuals who retired with $5 million, who have often leveraged this wealth for flexibility rather than luxury
Recently published data from the Federal Reserve shows that the median net worth of Americans across the range of ages and wealth levels has increased significantly since 2019
Why clients expecting to receive large inheritances from their Baby Boomer parents or grandparents might receive less than they expect and how advisors can support them

Enjoy the 'light' reading!

Are Financial Plans Getting Too Comprehensive: How The ‘Sledgehammer Of Value’ Isn’t Actually Paying Off

October 23, 2023 07:02 am 0 Comments CATEGORY: Practice Management

Many financial advisors take pride in the comprehensive nature of the advice they provide to clients and use the variety of services offered as a point of differentiation between themselves and other types of advisors. Though, at some point, covering a large number of financial planning topics can eat into an advisor's time, which is problematic if clients won't pay substantially more to receive that more comprehensive advice. For advisors who are feeling a time crunch from producing extensive comprehensive plans, but having trouble commanding a premium fee from clients for their additional work, there are a variety of ways to reduce this burden (from getting outside help, to changing the way plans are developed) while continuing to meet the planning needs that their clients are willing to pay for.

The results of the 2022 Kitces Research study on "How Financial Planners Actually Do Financial Planning" show that financial plan comprehensiveness has increased over time as advisors try to do more and more for clients to validate their fees, hitting them with a proverbial "sledgehammer of value". In the research data, this is reflected in a big uptick in advisors doing the most comprehensive plans: 54% of respondents offered 'Extensive' plans (with at least 13 planning components) in 2022, up from 35% in the 2020 edition of the study and 39% in 2018. At the same time, the percentage of advisors offering 'Broad' plans ('only' 10–12 components, less than the most Extensive plans) fell to 23% in 2022, from 35% in 2020 and 31% in 2018, and those offering 'Narrow' plans (6–9 components) dropped to 18% from 23% in both 2020 and 2018. Further, the study found that client age was a key variable driving plan breadth, with a younger median client age being associated not with 'simpler' plans but instead with more extensive plans for their uniquely complex needs.

Unsurprisingly, service teams producing plans covering the widest breadth of topics tend to spend more time preparing them, according to the Kitces Research data, and this appears to come at a financial cost for these advisors, as those producing Extensive plans had lower median revenue per advisor and take-home income compared to those producing less-comprehensive plans. Which implies that advisors who are providing such "premium" financial plans – as measured by their breadth and comprehensiveness – are struggling to charge a "premium" fee for that work, resulting in a decrease in productivity and profitability.

However, this doesn't mean that advisors need to sacrifice the quality of service they provide their clients in order to reduce the time they spend producing plans. For instance, rather than trying to be an expert in the full range of planning areas, advisors could focus on 1 or 2 narrow but especially relevant service areas to 'go deep' for their ideal target clients, which not only would reduce the time spent developing plans on a broader number of topics but also could attract clients whose more specialized planning needs reflect the specific topics chosen. In addition, advisors could reduce the amount of time they spend on plan development by bringing on staff assistance (e.g., in the form of an associate planner or paraplanner) or engaging outsourced planning service providers. Finally, Kitces Research data indicate that developing plans in collaboration with clients (i.e., putting the planning software on a big screen to walk through together, rather than preparing a custom pre-written plan for each) could reduce the time advisors spend preparing plans.

Ultimately, the key point is that as advisors increasingly provide comprehensive plans that examine a wider range of planning topics for their clients, the question of whether using the 'sledgehammer of value' meets both the specific needs of clients as well as supporting a healthy advisory business (by being able to charge effectively for the time it takes to produce such lengthy plans) becomes more important. And for advisors who do feel overwhelmed, there are a variety of ways to reduce the burden of providing the most comprehensive plans, from focusing on the advisor's unique value proposition to outsourcing financial plan preparation tasks to changing their approach to plan delivery, which can all help advisors reduce the time they spend on plan preparation while still providing a high level of service to their clients!

Weekend Reading For Financial Planners (October 21-22)

October 20, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a recent study from Fidelity Institutional highlights the growing popularity of the RIA model and the success advisors have had after going independent. The study found that 1 in 6 advisors have moved firms in the past 5 years, with the majority opting for the independent channel. Notably, this decision has provided both qualitative and quantitative benefits for these advisors, as 85% said they now have more control over their future and 80% saw their assets under management subsequently grow, with a median increase of 42%.

Also in industry news this week:

The latest update on the status of the Department of Labor's proposed regulation related to fiduciary advice on retirement accounts and why the agency is referring to it as a "retirement security rule" rather than a "fiduciary rule"
A report suggests that RIA M&A surged in the 3rd quarter, as large acquirers resumed their brisk pace of purchases

From there, we have several articles on employee benefits:

Why high-deductible health plans with paired HSAs could be the most cost-effective and tax-efficient health insurance option for many clients
How financial advisors can help clients better understand their employer-sponsored healthcare options and make the best decision for their needs
How advisors can potentially save clients thousands of dollars by reviewing their elections for disability insurance, workplace retirement plans, and other benefits during the annual open enrollment period

We also have a number of articles on advisor marketing:

How to follow up with a prospect who 'ghosts' an advisor after the initial discovery meeting
Questions that advisors can ask prospects before and during discovery meetings to reduce the chances that the prospect will fall out of contact
A 2-part discovery meeting 'close' that can encourage prospects to take the next step to becoming a client

We wrap up with three final articles, all about technology and security:

While the increasing use of facial recognition technology could increase security and reduce wait times in a variety of areas, it also comes with potential privacy concerns
How the shift from passwords to passkeys could make logging into accounts more secure and convenient
Why encouraging consumers to focus on getting the 'big' things right, rather than trying to address every potential threat, could be a valuable practice for both cybersecurity and financial advice professionals

Enjoy the 'light' reading!

Accelerating Growth By Marketing How Your Advisory Firm Is Different (Instead Of Better)

October 16, 2023 07:01 am 0 Comments CATEGORY: Marketing

Consumers have a wide range of options when it comes to choosing a provider of financial advice, from larger wirehouses and asset managers to smaller Registered Investment Advisers (RIAs). Given that larger firms tend to have more substantial marketing budgets to attract clients, smaller firms and their advisors have had to look for alternative ways to differentiate themselves from the competition. Which led many firms to market all the ways they were 'better' than other sources of financial advice by highlighting their status as fiduciaries, fee-only advisors, or by offering (more) comprehensive financial planning services beyond investment management, as just a few examples.

However, while these attributes remain valuable for clients (and are worth highlighting), their value to smaller advisory firms as differentiators has eroded over time as what may have once been unique characteristics for these firms are now either increasingly common or have become harder to parse for consumers. For instance, even though RIAs are bound by a more stringent fiduciary standard, consumers might be unaware of the nuanced differences between that obligation and the seemingly similar requirements of broker-dealers under Regulation Best Interest. Similarly, consumers may struggle to understand the difference between a “financial plan” and a “more comprehensive financial plan” if they’ve never been through the financial planning process in the first place.

In this environment, another option for smaller firms to compete is to focus on how they are different, instead of marketing how they might be better than their competitors. And by using their website and other marketing materials to position themselves as different, smaller firms can demonstrate to their ideal target clients why they are the right choice for their financial planning needs.

Because the largest firms typically cast a very wide net when it comes to attracting prospective clients (whether in terms of age, profession, planning needs, or other factors), serving a client base with a narrower set of characteristics can help a firm stand out. Which means that if an advisor can demonstrate that they recognize (and can help solve) their ideal client's unique pain points, such prospects are likely to feel a stronger connection to the smaller, more targeted firm, and to believe that that small firm will be better understood by their advisor compared to a more generalist large firm with a bigger marketing budget.

Another way advisors can demonstrate how they are different is by explaining how, exactly, they do financial planning, and what specific services they provide for their ideal clients as a way to communicate their value. Because when a firm has an ideal client type, they often are able to go deeper into their clients' specific needs, and can communicate exactly how the process works to address those needs. This lets prospective clients know what to expect (and helps them understand the value they will be receiving in exchange for their fees!). This service specificity can be a differentiator for firms with ideal client types, as a firm that works with a broader client base will likely need to be more generic in its marketing, given that the planning needs of its clients will be significantly broader.

Ultimately, the key point is that while it has gotten more difficult for financial planning firms to show how they are better based on traditional characteristics such as being a fiduciary or providing comprehensive planning services, firms can shift their focus to emphasize how they are different and can meet the specific needs of their ideal target client as a way to adjust their marketing efforts. Which helps these firms attract more clients, and continue to thrive amidst competition from larger counterparts!

Weekend Reading For Financial Planners (October 14-15)

October 13, 2023 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with a new study from Herbers & Company that provides insight into the financial planning services that consumers demand the most, and which services financial advisory firms offer the most often. The study also identified factors that separated firms experiencing the greatest organic growth from others, which include offering a comprehensive suite of services, having a higher 'close' rate with prospects, and, perhaps counterintuitively, a lack of satisfaction with their client experience.

Also in industry news this week:

A study from the FINRA Foundation has found that objectively knowledgeable investors tend to pay less in investment expenses, while those who perceive that they have expertise tend to pay more
A new report shows how pro bono financial planning can benefit not only financial advisors and their pro bono clients, but also advisory firms as well

From there, we have several articles on college planning:

How the FAFSA form and its timing have changed for this year and how advisors can support clients going through the financial aid process
How the lesser-known CSS Profile plays an important role in determining financial aid for many families, particularly those with students applying to private colleges
How the Private College 529 Plan allows families saving for college to 'lock in' today's tuition costs at a wide range of private colleges

We also have a number of articles on practice management:

How building a 'family' environment can allow financial advisory firms to promote employee wellbeing and retention
What firms can do during the candidate selection and onboarding processes to promote the mental health of new employees
How taking a step back to articulate a vision, and then allowing employees to work towards that vision using their unique skills, can allow a firm and its staff to thrive

We wrap up with 3 final articles, all about research and happiness:

How teams of academics are working to uncover faulty research practices, which has resulted in the retractions of papers in a variety of fields that received significant media attention
A new study looks at whether previous research regarding what makes individuals happy was sufficiently rigorous
A thought experiment that can help advisors and their clients manage the tradeoff between saving and spending

Enjoy the 'light' reading!