Alternative Custodian Options

Alternative Custodian Options For Independent RIAs In The Wake Of Schwabitrade

April 12, 2021 07:05 am 3 Comments CATEGORY: Practice Management

Bob Veres Alternative Custodians Graphic

For most independent RIAs who want to manage client portfolios (and be compensated for doing so), having an independent RIA custodian to work with is a necessity. As in practice, RIA custodians not only actually hold client assets (an important consumer protection) but also provide the core technology platform to open client accounts, to make deposits into and withdrawals from those accounts, to keep track of and trade in client accounts, to bill advisory fees from client accounts, and to integrate client investment data to the advisor’s CRM and other key components of the advisor’s technology stack.

Because of the similarities in these core investment functions from one RIA custodial platform to another, though, it’s often hard to differentiate between them. And because RIA custodians make very little (and now, for many, absolutely nothing) from each trade in a client’s account, the businesses must operate with enormous volume to achieve the requisite economies of scale to be able to compete. Which in practice has led to a wave of RIA custodial consolidation in recent years, from E*Trade acquiring Trust Company of America (and then being acquired by Morgan Stanley), to TD Ameritrade acquiring Scottrade Advisor Services and then being acquired by Charles Schwab to form the largest RIA custodian that houses the majority of all RIA assets.

Yet in practice, while RIA custodians often seem substantively similar, there are differences from technology to service to culture. Such that the mega-merger of TD Ameritrade and Schwab in particular – two firms that in the past had very opposite approaches to technology and very different cultures – has left many RIAs (from those already at Schwab or especially TD Ameritrade, to those looking to form an RIA and decide on a custodian, or break away from a broker-dealer and get started with a new platform) wondering whether “Schwabitrade” is the right place to be in the future. And if not, where else to go and how else to choose between Schwabitrade, Fidelity, and a litany of mid-sized-to-smaller RIA custodial options available.

In this guest post, industry commentator Bob Veres shares his perspective on 5 of the “lesser-known” alternatives to Schwabitrade (and Fidelity) for RIA custodial services, including BNY Mellon’s Pershing Advisor Solutions and its “Menu of Models” approach, Shareholder Services Group’s (SSG) high-touch service approach for advisors with no AUM minimums, TradePMR’s custom-built advisor technology platform, SEI’s all-in-one investment platform for RIAs, and newcomer Altruist’s efforts to build a ‘next generation’ RIA platform unencumbered by the legacy constraints of today’s existing RIA custodians.

Ultimately, the reality is that Schwab is the dominant player in the marketplace because the RIA custodial model is one where size and scale matters, allowing the company to provide the widest breadth of services at the lowest cost (for “free”, as Schwab only makes money on clients’ underlying holdings and doesn’t charge advisors directly). Nonetheless, the reality is that like the financial advice business itself, one size rarely fits all, many clients (and their advisors) have unique needs that necessitate a more specialized solution… and many advisors still see the value in sometimes paying a little more in order to get the service and/or capabilities that are most meaningful for their RIA firm and the clients they serve.

#FASuccess Ep 411: Getting Clients Comfortable With Market Risk Using A More (Options-Based) Measured Risk Approach, With Larry Kriesmer

November 12, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Larry Kriesmer Podcast Featured Image FAS

Welcome everyone! Welcome to the 411th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Larry Kriesmer. Larry is the Chairman of Measured Risk Portfolios, an RIA based in San Diego, California, that oversees $350 million in assets under management for a combination of internal retail clients and external financial advisor clients.

What's unique about Larry, though, is how he is able to get clients comfortable with taking equity market risk using an approach that actually puts 85% or more of client funds in Treasuries (effectively creating a floor on potential losses) while investing the rest into options on equity indexes to offer potential upside that still can approximate the returns of a conservative, moderate, or even aggressive balanced portfolio that might have otherwise simply allocated directly to the S&P 500.

In this episode, we talk in-depth about how Larry implements his measured risk strategy, by allowing clients to select a downside floor that determines just how much is invested into short-term Treasuries (and how much is remaining to invest into options to generate equity upside), how Larry's approach differs from fixed index annuities and buffered ETF products by not setting a fixed cap on potential upside returns (and not needing an additional cost for those vehicles as a 'wrapper'), and how clients varying view Larry's measured risk strategy as either a way to have equity exposure with less downside risk… or as a substitute for a portion of a bond allocation by offering the dampened volatility bonds provide with potential greater upside from the options sleeve.

We also talk about how Larry has found that his investment approach seems to provide a certain peace of mind to clients who might be willing to stomach some certain percentage loss in their portfolio but really struggle with the uncertainty that comes during a market downturn where there's otherwise no way to know how much further the decline could go, how Larry's way of implementing Treasuries directly into client portfolios has enabled him to further calm clients during times of market volatility by being able to point directly to the specific line-item allocations to individual Treasuries with defined maturity dates, and why Larry does still have to prepare clients in advance for the possibility that the stability of their Treasuries will be offset by the sheer volatility of a small allocation to individual options contracts that could near zero dollars in value (a potential total loss on the option) as they approach expiration if the market has declined, given that clients typically are not used to seeing individual line items of their portfolio experience such a level of losses (even if the allocation is small).

And, be certain to listen to the end, where Larry shares the special tax benefits of implementing an options-based strategy on not just index-tracking ETFs but on the market index itself, including the potential to realize a mix of long- and short-term capital gains even on options contracts sold within 1 year (and the potential for losses in the current year to be used retroactively against gains from the previous 3 tax years), why Larry recommends that financial advisors considering using an options-based strategy be cautious to ensure they really have both the time and assets needed to implement it effectively (given the sometimes very rapid changes in options pricing), and why Larry has reinvested much of his own firm's profits back into the business, not only because doing so can provide a better return than simply taking cash profits out of the business to reinvest into a traditional portfolio, but also because it's allowing him to build a business that he hopes can endure long after he retires.

So, whether you're interested in learning about managing risk with an options-based investment strategy, how to prepare clients for the potential benefits and risks of such a strategy, or the commitment needed to execute an options strategy successfully, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Larry Kriesmer.

Establishing Solo 401(k) Plans For Self-Employed Workers: Options, Contribution Limits, Deadlines, And More!

November 23, 2022 07:06 am 14 Comments CATEGORY: Taxes

Among the several different types of retirement plans that are available to self-employed workers, solo 401(k) plans can offer the most flexibility and the ability to contribute the highest amount of tax-advantaged savings. But alongside those advantages, there are some specific rules and regulations that are unique to solo 401(k) plans, which can add to the complexity of setting up and maintaining a plan. And for advisors who serve self-employed clients, managing a solo 401(k) plan is often a different process than managing other types of investments.

However, the advantages of solo 401(k) plans – which include higher contribution limits for individuals with moderate incomes as well as the ability to make Roth contributions to the plan (plus additional nondeductible contributions which can be converted into even more Roth dollars) – mean they can often be worth the added complexity, particularly for individuals who want to save a high percentage of their income and/or build tax-free Roth savings. They can also permit participants to take loans from the plan, creating a source of emergency funds without the need to make a (potentially taxable) distribution.

Setting up and maintaining a solo 401(k) plan involves creating plan paperwork (including a written plan document and adoption agreement), keeping records of contributions and withdrawals, and for plans with more than $250,000 in assets, filing Form 5500-EZ annually with the IRS. Business owners typically outsource some or all of these tasks, and they can do so in one of two ways: by choosing a pre-approved, ‘off-the-shelf’ plan with a broker-dealer firm (who then serves as custodian for plan assets), or by hiring a third-party plan provider to create a ‘self-directed’ plan, which can invest in a wider range of assets.

Although both types of solo 401(k) plans come with particular benefits, there are also tradeoffs to each approach. Off-the-shelf plans can be easier to administer, since the broker-dealer handles most of the plan paperwork and holds the plan assets often for little to no cost. However, off-the-shelf plans also tend to offer fewer options; for example, TD Ameritrade’s merger with Charles Schwab resulted in the elimination of Roth features from their off-the-shelf solo 401(k) plan.

Self-directed plans, meanwhile, offer more ability to tailor a plan’s features to an individual’s needs. These features can include the ability to make Roth or nondeductible contributions, to take loans from plan assets, and to invest in non-traditional assets such as real estate, crypto assets, and precious metals – many of which are not allowed by most off-the-shelf solo 401(k) plans. But self-directed plans can be complex to manage, with the possibility of assets being held in multiple locations (as well as the responsibility of the plan participant to avoid investing in prohibited assets or making prohibited transactions), and costs that typically include startup fees of several hundred dollars, along with additional fees for ongoing maintenance.

The key point is that advisors can offer a valuable service by guiding their self-employed clients to the right solo 401(k) plan option, and by filling in the gaps between whatever services the plan provider performs and what the client is responsible for (such as opening accounts, keeping track of contributions and distributions, or preparing Form 5500-EZ). Ultimately, with the potential for added wealth that solo 401(k) plans can create, making the process of managing the plan a little easier for clients is a great opportunity to provide value that the client can see from year to year.

Comparing Alternative RIA Custodians: The List To Consider Beyond The Big 2

October 24, 2022 07:06 am 0 Comments CATEGORY: Practice Management

The choice of an advisory firm’s custodial affiliation is easily one of its most important business decisions. The advisory firm is the front end of the client relationship, but it entrusts client assets, and key aspects of their service, to a custodian that safeguards the money and provides the underlying platform. And given the logistical challenges of switching between custodians, inertia often leads firms to stick with the same custodian for years or decades, even when a better fit might exist.

Many firms have chosen to work with the largest players in the RIA custodial space, benefiting from their size and scale. But the impending merger of Schwab Advisor Services and TD Ameritrade Institutional will reduce the number of options available for RIAs and force firms currently on TD’s platform either to be subsumed into Schwab’s platform or to switch to an alternative custodian. And while RIAs that take no action might face the specter of being relocated to a custodial platform they didn’t choose, other firms might take a more active approach in considering whether a move to one of a growing number of custodial options might be in their best interest.

In this guest post, industry commentator Bob Veres explores the range of considerations for firms thinking about moving on from “Schwabitrade” or from their current custodian, offering profiles of seven alternative platforms and reviews from advisors currently using them.

As a starting point, advisory firms can evaluate custodians on several levels based on their specific needs, from the cultural fit to their technological capabilities to the customer service a firm can expect to receive by determining whether the platform has a tiered structure where the largest firms get the best levels of service. An additional consideration is whether the custodian has a retail presence, as those without one won’t be competing directly with advisors in the marketplace (and the custodian’s management will be focused on the needs of advisors on the platform rather than spending much of their time trying to bring in more retail business).

Another differentiator between custodial platforms is their pricing structures. While some of the largest platforms may (nominally) offer their service for ‘free’, they still need to bring in revenue somehow (often in the form of below-market-rate cash sweep accounts). Other custodians offer a range of fee options, from ticket charges to flat subscription fees. This optionality can give fee-conscious advisors (and their clients) the ability to choose what makes the most sense for them.

Ultimately, the key point is that a growing number of custodial platform options are available for advisory firms, and the range of unique service cultures, technological capabilities, and pricing structures offers firms the opportunity to find the one that best suits their (and their clients’) specific needs!

Storing Cryptocurrency Securely: The Safest Options For New And Experienced Investors

August 11, 2021 07:04 am 38 Comments CATEGORY: Investments

Since the first block of bitcoin was mined in January 2009, cryptocurrency has transformed from an obscure, experimental corner of the market to an increasingly popular investment option trying to become mainstream. Famous for its dramatic highs and infamous for its subsequent lows, cryptocurrency has fascinated many as a fast-moving corner of the market... capturing both media and more and more consumer attention, to the point that many advisors who may have once dismissed cryptocurrency as a legitimate investment option are being asked to reconsider it by a growing number of clients ready to take on at last a little risk. In fact, a recent FPA Trends In Investing survey found that one in four advisors have indicated that they have considered adding cryptocurrency to client portfolios—a massive increase from what was historically fewer than 2% of advisors interested. However, in order for advisors to have confidence in cryptocurrency as a sound client portfolio option, it is important to know how to do more than trade cryptocurrency; advisors must also understand how to securely store it.

Because while cryptocurrencies like Bitcoin solve many unique technological challenges that have made entirely digital currencies infeasible before, cryptocurrency is not held in traditional brokerage accounts like stocks, bonds, mutual funds, and ETFs, which presents unique challenges for securely storing cryptocurrency. In addition, unlike funds that are transferred via ACH and can be retrieved in the event that they were accidentally transferred between the wrong accounts, there is no central authority that can 'undo' an accidental cryptocurrency transaction. Instead, cryptocurrency is traded using public and private keys, which allow cryptocurrencies to be received and spent, respectively. While public ‘receiving’ keys can be used, generated, and distributed on a case-by-case basis without any personal risk, private ‘sending’ keys need to be securely guarded. If someone is trading in large amounts of cryptocurrencies, then the risk is even higher, and the keys will need to be safely stored in what is referred to as a (digital crypto) ‘wallet’. Yet at the same time, a key challenge with cryptocurrency storage is that the sophistication of the storage strategy used needs to also match the technical sophistication of the investor, as there’s a genuine risk of losing funds (or more specifically, permanently losing access to one's own cryptocurrency holdings) in the event that someone doesn’t quite know what they are doing.

So what is a safe option, then, for cryptocurrency storage? There are a wide range of storage options. In theory, one of the most secure methods possible is what’s known as a ‘paper wallet’- which refers to a wallet generated fully offline and stored in a physical format. However, the challenges of actually generating a paper wallet fully offline, and some technical aspects of how Bitcoin transactions actually work, make paper wallets a poor choice for most users. At the same time, despite the ease of use available from some wallets that can be installed on a computer, storing keys on a computer that has ever been connected to the internet is also a bad idea since an internet-connected computer can be compromised (and if that computer is the gateway to thieves permanently stealing one's sizable cryptocurrency holding, it is best to assume that any such computer has already been compromised!?).

Thankfully, there are two general cryptocurrency solutions advisors can give to their clients (or use) themselves. For the less tech-savvy advisor, using a reputable exchange or storage provider is emerging as a lower-risk solution—particularly as more mature firms are developing in this space. Such storage violates an ‘old’ cryptocurrency adage of “not your keys, not your coins,” since it is true that the service provider does have the owner's keys for (and therefore ultimate control of) the cryptocurrency funds, but for someone who otherwise would have limited ability to secure their funds, this may still be a better alternative, particularly if features such as 48-hour waiting periods are added before transactions can be made. However, for the slightly more tech-savvy user, hardware wallets are likely the ideal balance between security and the technical sophistication needed to implement a strategy. Hardware wallets are single-purpose computing devices that are designed solely to store cryptocurrency keys. The single-purpose nature of hardware wallets means that they can be used without fear of being compromised, even if a user is interacting with the wallet through a compromised computer. While there are some basic standards that users would want to ensure a hardware wallet meets, quality hardware wallets use a combination of security features that help ensure that someone’s coins are safe and retrievable even in the event that their hardware wallet is lost or stolen.

At the end of the day, cryptocurrency is likely here to stay, and consequently will only receive more attention in the future. As a result, if someone is going to own cryptocurrency, appropriate security measures need to be taken to address the unique nature of how these assets are owned and held. Importantly, though, as the amount invested grows, so too does the need to safeguard those investments. This is especially true for those who are looking to invest not only for themselves, but also for others. But the good news is that ultimately, with a little bit of research, advisors can find a secure storage option that opens up an entirely new side of investing for their clients (and even themselves if they are so inclined)!

Options For Allowing Family Members To Help Manage Accounts In The Event Of Diminished (or In)Capacity

July 3, 2019 07:04 am 2 Comments CATEGORY: Estate Planning

Planning for incapacity is one of the most important aspects of a sound financial plan, and one that is taking on increased importance as the Baby Boomer generation continues to age in record numbers. But while medicine has not yet reached the point where it can prevent (or reverse) all cognitive and physical impairments, there are a number of tools that can be used to ensure one’s finances continue to be managed effectively in the event that diminished capacity becomes a reality.

One common approach used by individuals looking to allow a trusted family member to manage an account on their behalf is to simply add that person to the account as a joint owner. These so-called “convenience accounts” are generally easy to establish, but can lead to a number of unforeseen problems.

For instance, once an individual is added as an owner to an account, they have access to the funds within the account and may be able to use those funds for their own benefit, as opposed to their intended purpose. Similarly, adding an additional owner to an account can subject the account’s assets to the new owner’s creditors. Even in the best of scenarios, this “strategy” can prove problematic, as certain assets, such as IRAs and other retirement accounts, cannot be turned into joint convenience accounts in the first place.

A second way of allowing someone to assist in the management of an account is through the use of a Power Of Attorney. Powers of Attorney are tried and true legal documents that can be drafted in a number of ways to meet an individual’s desired outcome. A General Power Of Attorney, for instance, can be used by a Principal to grant an Attorney-In-Fact a broad array of powers over virtually all assets. A Limited Power Of Attorney, on the other hand, can be used to give an Attorney-In-Fact only specifically enumerated powers, and/or powers over only specifically enumerated assets.

When using a Power Of Attorney to provide for account administration in the event of incapacity, it is critically important to make sure that the Power Of Attorney actually remains in force at that time! Thus, instead of a Nondurable Power Of Attorney, which is no longer effective once the Principal is incapacitated, planning should incorporate either a Springing Power Of Attorney, which typically only becomes effective at the time of incapacity, or a Durable Power Of Attorney, which is effective upon execution of the Power Of Attorney document and remains in effect even after incapacity.

Finally, some individuals may wish to use a Revocable Living Trust to allow for continued management of accounts and financial matters in the event of their incapacity. Revocable Living Trusts are often more expensive to create, but because the Revocable Living Trust actually takes title to accounts and assets, they also offer benefits not available when a Power Of Attorney is used.

Revocable Living Trusts, for example, are less likely to be rejected or held up in lengthy legal department reviews by financial institutions. Also, unlike the rights conveyed to an Attorney-In-Fact via a Power Of Attorney, which end no later than the Principal’s death, the rights granted to a Trustee via a Revocable Living Trust can continue after the Trust creator’s death, allowing for effective post-death management of assets as well.

Notably, though, whichever approach(es) is(are) used, it is critical to act before an individual becomes incapacitated and can no longer legally act on behalf of themselves. Powers Of Attorney should be submitted to financial institutions before they are actually needed, and Revocable Living Trusts should be properly established and funded in advance. Absent such actions, one’s financial affairs may be left up to the mercy of the courts... when time is of the utmost importance.

How To Choose The Best Independent RIA Custodian (For You)

April 5, 2018 02:19 pm 0 Comments CATEGORY: Practice Management

Advisors who are interested in starting their own advisory firm, or breaking away from an existing one, face a number of important business decisions – from how they want to structure their firm, to what clientele they will target, what software they will adopt, and when/whether they want to hire staff or outsource certain responsibilities. For advisors who want to provide investment management services to their clients, though, and intend to play an active role in managing and implementing client portfolios, one of the most important decisions they face is which RIA custodian they should work with.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore how to choose the best independent RIA custodian for your business, including the advantages of working with one of the "Big Four" custodians (Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions), as well the reasons why some firms may find a better fit among smaller "second-tier" custodians with more niche offerings for certain types of RIAs!

The first thing to consider when contemplating an RIA custodial relationship, is whether a custodian is actually needed in the first place. For advisors who are simply going to charge financial planning fees, and bill clients with a third-party payment processing solution for those finanical planning fees, and while letting clients continue to be self-directed with their actual portfolios (or serve clients who simply don’t have portfolios to invest), then the advisor does need to become an RIA, but doesn't necessarily need an RIA custodian. However, given the dominance of the AUM model, and the number of advisors who do want to manage investments, most independent RIAs will ultimately form a relationship with one or more of the top RIA custodians.

For those independent RIAs that do need to use an RIA custodian, the overwhelming majority ultimately custody their assets at one of four major firms: Schwab, Fidelity, TD Ameritrade, and Pershing Advisor Solutions. Due to their sheer size and market reach, these providers all already provide the core technology necessary to trade in client investment accounts, hold a wide range of standard investment assets, facilitate the advisor's AUM billing, and do it all at an incredibly low cost. In fact, there is generally no platform fee to work with these custodians at all, and instead these platforms make their money indirectly through ticket charges, asset-based wrap fees, 12b-1 and similar revenue-sharing fees via their NTF (No Transaction Fee) platform, receiving a fee for serving as the transfer agent, or making a small spread on the money market or other cash positions that clients hold.

Notwithstanding how commoditized the core services of an RIA custodian have become, though, each does still have its own style or area of focus. Pershing Advisor Solutions aims to work primarily with larger RIAs that are specifically focused on growing a large enterprise business. TD Ameritrade is known best for their VEO One platform, which essentially functions as an open architecture hub that most other advisor technology can integrate into. Fidelity is increasingly being known for their Wealthscape platform, which is increasingly being positioned as a “true” all-in-one platform, especially for comprehensive wealth management firms that combine together investment management and financial planning. And Schwab, as the largest of the four, is arguably the least differentiated, but handles the widest range of firms with what is usually the lowest cost, in part because they’ve literally been doing it longer than (and are larger with more scale than) any of the other RIA custodians.

Despite the popularity of the Big Four custodial firms, there are also a wide range of "second-tier" custodial firms (meaning "second-tier" in terms of size, not necessarily quality) that offer solutions for many independent RIAs, many of which have lower (or zero-AUM) minimums that make them especially appealing to the new startup RIA. Shareholders Service Group (SSG) is a platform that is actually built on top of the Pershing platform, but SSG specifically services the “small RIA” marketplace, and may be of particular interest to newer firms which do not meet the typically $10 to $20 million AUM minimums of many custodians (including zero-AUM RIA startups). TradePMR is particularly well known for their EarnWise mobile solution that allows you to manage most of your investment needs as the advisor directly from a smartphone or tablet. Trust Company of America is best known for their really efficient model-based trading tools, appealing to both advisory firms that systematize their investment process, and TAMPs that serve other RIAs. Folio Institutional is also known for being a particularly tech-savvy platform, for advisors that want to be completely paperless, and have good tools to manage model portfolios, as well as those who work with smaller clientele where Folio’s ability to trade fractional shares is very appealing. Apex Clearing is a newcomer that is actually so “tech-savvy” that they’re basically just a giant lattice-work of technology APIs that communicate with other advisor technology APIs, but without much of an “interface” layer on top (and as a result, most independent RIAs that work with Apex will work with them through another middleware provider like RobustWealth, AdvisorEngine, or InvestCloud to replace the kind of advisor dashboard and workstation that most of the other RIA custodians already provide). Other notable firms include Millennium Trust Company for RIAs that do a lot of alternative investing, and National Advisors Trust Company for firms that do a lot of trust business (and/or want the opportunity to be a shareholder in their platform).

Of course, even once you narrow down your potential RIA custodian options based on fit, it's important to spend some time really looking at their technology, and their investment options, and make sure that their core systems really do fit what you do, how you serve your clients, and how you want to do business. But the key point is to acknowledge that no single custodian is best for all advisors, and given the substantial costs of switching from one RIA custodian to another, it is worthwhile to try to figure out upfront which custodian is the best for you, and not just in the short-term, but ideally in the long-run too!

Why The Trusteed IRA May Be A Riskier Alternative To A Trust As IRA Beneficiary

August 9, 2017 07:01 am 10 Comments CATEGORY: Retirement Planning

Historically, most individual retirement accounts are structured as a “custodial” account, but the Internal Revenue Code permits IRAs to be structured as trust accounts as well.

The benefit of using a “trusteed IRA” is that the account is literally controlled by a trust document, which both ensures continuity in the form of a trustee that manages the account, and can restrict beneficiaries’ future access to the money after the original IRA owner dies (either to protect them from themselves, or to protect their IRA inheritance from potential creditors).

The caveat, however, is that a trusteed IRA really doesn’t provide any benefits that can’t already be accomplished with a (separate) trust as beneficiary. And in fact, having a standalone trust drafted to be the beneficiary of a retirement account can provide even more flexibility, or more robust spendthrift and asset protection for future beneficiaries.

Nonetheless, the ranks of trusteed IRA providers have been growing in recent years, in part because the trusteed IRA is highly appealing from the perspective of the IRA provider – because, as the trustee of the IRA itself, it’s very difficult for future beneficiaries to ever fire the trustee or transfer the account to another provider, allowing the trusteed IRA provider a greater likelihood of retaining the assets than a traditional custodial IRA provider. In addition, it’s notable that while drafting a separate trust as beneficiary of a retirement account has a non-trivial one-time upfront cost, it may still be less than paying ongoing fees for the trustee to manage and administer the trust for what could be decades into the future.

The trusteed IRA may still be appealing in situations where the IRA owner wants to outsource investment management for beneficiaries, is comfortable with the “risk” that beneficiaries may have trouble changing providers anyway, and simply cannot find a competent attorney who can draft a proper conduit or accumulation trust to serve as the IRA beneficiary instead. Yet ultimately, for those who do have access to competent legal counsel as part of the estate planning process, a well-drafted trust as IRA beneficiary can accomplish everything a trusteed IRA provides, and potentially more estate planning strategies as well!

Investing In Peer-To-Peer Lending As An Alternative Fixed Income Asset Class

November 18, 2015 07:01 am 38 Comments CATEGORY: Investments

While much of the growth in P2P lending (over $5B in loan volume in 2014 alone!) has been driven by borrowers looking for appealing alternatives to traditional banks and financial institutions like credit card companies, the growth has only been possible because of the matching investor demand. After all, from the investor’s perspective, P2P loan investing is little more than an opportunity to lend money to other individuals and earn an interest rate yield, not unlike any other "bond" investment. Except in a world where Treasury Bonds and intermediate Corporate bonds or CDs may yield little more than 1% to 2%, the P2P loan has a starting yield of 5.3% for “high-quality” notes and an average rate of over 13%!

Of course, the significant caveat with Peer-to-Peer investing is that some loans will default, even over their relatively limited three to five year terms, and thus the final net returns will be substantively lower than the top-line interest rate suggests. After all, P2P loans are unsecured personal loans, often to people who have credit issues in the first place (and thus why they seek out loans with interest rates of 5.3% to almost 30%!).

Nonetheless, the rise of P2P platforms makes it feasible for investors to extensively diversify across hundreds of Peer-to-Peer lending notes by investing into fractional loan shares, managed by technology that facilitates the process of routing a borrower’s loan payments out to what might be dozens or hundreds of investors who each contributed incrementally to the loan.

In fact, the growth of the P2P marketplace, along with the introduction of institutions, is beginning to create the potential for advisors and their clients to access P2P loans, as a unique form of ‘alternative’ fixed income asset class with appealing yields. On the other hand, the growth of institutional buyers may also be pushing available investor yields down, making it harder for individual investors to compete... which is even more troubling given that P2P loans have enjoyed record net returns on the back of an economic expansion, but face the prospective risk that forward returns could be far lower if/when the next recession arrives!

One Young Breakaway Broker’s Story Of Navigating The Broker Protocol And Choosing An RIA Custodian And Technology

September 15, 2015 07:02 am 21 Comments CATEGORY: Practice Management

The reality of starting out as a financial advisor is that it's hard to know what type of advisory firm structure will be best in advance; often, the best strategy is just to dive in, get a job at any reasonable firm that will allow you to launch your career, and after you get some experience, decide whether it's really the right fit for the future. Of course, the caveat to this approach is that if it turns out you do need to make a change later, that change can be scary - so frightening, in fact, that many advisors never make the subsequent changes they should, fearing the unknown and finding comfort in an (admittedly not ideal) current firm or environment.

In this guest post, financial advisor Noah Morgan shares his own transition process in making the leap, first from his original advisory firm to an independent broker-dealer, and then subsequently to an independent RIA. Accordingly, Noah gained a wide range of experience and perspective about what it's like to make these transitions, from vetting RIA custodian platforms to navigating the Broker Protocol and compliance concerns, to selecting the entire suite of technology necessary to sustain the new advisory firm.

So if you're an advisor who's currently unhappy at your current firm, and considering the process of transitioning to something new, hopefully this will be helpful to you in gaining an awareness of the issues that you need to consider if you're really going to make a switch in the future!