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Weekend Reading For Financial Planners (September 13–14)

September 12, 2025 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 pair of surveys finds a potential disconnect between financial advisors and wealthy clients, with client perceptions lagging advisors' confidence in the level of service they provide across several areas (from retirement and tax planning to responsiveness to client inquiries) and only 57% of clients indicating they would recommend their advisor and/or firm to others. Which suggests that while industry client retention levels remain high, surveying their own client base could give advisors a picture into areas where clients are seeking higher-level service (and perhaps offering an opportunity to show the "invisible work" they're doing on the clients' behalf) and to identify clients who are most enthusiastic about the firm (and could be more likely to make referrals going forward).

Also in industry news this week:

The SEC has fined Vanguard $19.5 million in part for inaccurate marketing materials related to the compensation of advisors working in its Personal Advisor Services program, demonstrating the need for clarity for firms when discussing fee models and advisor incentive compensation structures
Inflation remains the top concern amongst retirement savers, according to a recent survey, potentially opening the door for advisor discussions on how inflation could impact clients' financial plans and potential ways to mitigate it

From there, we have several articles on retirement planning:

The long-run benefits of delaying Social Security benefits and how advisors can address potential concerns hesitant clients might raise
Why a subset of financial advisory clients might consider claiming Social Security benefits early, from a current need for additional income to a compelling health reason
How a Social Security "bridge" strategy can provide clients with greater income throughout their retirements

We also have a number of articles on tax planning:

How the One Big Beautiful Bill Act (OBBBA) could increase the value of Qualified Charitable Distributions (QCDs) by helping clients keep their income below key phase-out thresholds for certain tax deductions
QCDs will be easier to report in 2025 thanks to a change to Form 1099-R, though clients and their advisors will still be on the hook for ensuring that a particular distribution qualifies for QCD status
How financial advisors can help charitably minded clients weigh the relative tax benefits between making QCDs or donating appreciated securities

We wrap up with three final articles, all about attention:

The many benefits of boredom, including the ability to consider big-picture issues in the absence of constant busyness
Why differentiating between "additive" and "extractive" can help an individual get the most out of technology while avoiding its potential downsides
Why true multitasking is nearly impossible for most individuals and how certain work practices can help an individual efficiently knock items off their to-do list while focusing on one task at a time

Enjoy the 'light' reading!

Converting A Primary Residence Into Rental Property: Tax Strategies To Preserve Gain Exclusion, Defer Gain Recognition, And Leverage Deductible Expenses

September 10, 2025 07:02 am 0 Comments CATEGORY: Taxes

For many homeowners, moving to a new residence is a straightforward process of selling one home and buying another. But for clients who choose to keep their former primary residence as a rental, the decision opens a range of complex tax considerations – and, with them, planning opportunities. Converting a home to a rental fundamentally changes how expenses are treated, how gains are taxed, and how future sales can be structured to maximize tax efficiency. Advisors who understand these rules can help clients navigate the timing of deductions, leverage the home sale gain exclusion, defer gains through 1031 exchanges, or even use multiple strategies in combination to minimize taxes on property that's converted to rental.

Once a primary residence becomes a rental, previously personal expenses may become deductible rental expenses. However, the timing of the conversion matters. Routine maintenance and repairs performed after the property is "available for rent" can often be deducted, but similar work done beforehand is generally considered a nondeductible personal expense. Depreciation also begins at conversion, using the lower of the home's original basis or fair market value.

These upfront expenses – combined with potential delays in finding an initial tenant – can often result in a net loss during the property's early years. But rental losses are generally 'passive' and can only offset other passive income. For individuals with AGI under $100,000 who 'actively participate' in managing the rental, up to $25,000 of losses may be deductible against other income (with the benefit fully phasing out at $150,000). Consequently, documenting expenses and activities such as marketing, screening tenants, or making repairs is essential for maximizing their rental deductions.

Other tax planning opportunities can center on the $250,000 (single) or $500,000 (joint) primary residence gain exclusion under Section 121, which can remain available for up to three years after the home ceases to be a primary residence. Some individuals may also consider selling the property to a wholly owned S corporation (i.e., owned fully by themselves) before the three-year deadline. This can lock in the gain exclusion, reset the property's basis for depreciation, and preserve (indirect) ownership of the rental – though it may require careful structuring and strict adherence to sale terms to withstand IRS scrutiny.

For clients seeking to defer taxes – whether due to holding the property beyond the three-year gain exclusion window or realizing appreciation in excess of the Sec. 121 exclusion amount – a 1031 exchange can enable a tax-deferred swap into another investment property. And for clients who qualify for both the exclusion and a 1031 exchange beyond the exclusion limit, an "1152 plan" combines the benefits of Section 121 and 1031, offering a hybrid approach: By selling within the three-year window, pocketing the exclusion amount, and rolling the remainder into a like-kind property, clients can effectively 'cash out' the excluded tax-free portion while deferring the remainder. This strategy can be particularly useful for highly appreciated properties or for clients seeking to pass the property on to heirs with a step-up in basis.

Ultimately, converting a primary residence to a rental can unlock meaningful opportunities – but also potential tax pitfalls. Advisors can play a key role by helping clients maximize the deductibility of expenses, preserve gain exclusions, consider S corporation or 1031 strategies, and navigate passive activity loss limitations. By approaching the transition with careful tax planning and an eye on both short- and long-term goals, clients can transform a personal home into a productive rental asset in a way that aligns with their financial objectives and minimizes unnecessary tax costs!

Turning Abstract Behavioral Finance Research Into Practical Tools To Better Client Outcomes: #FASuccess Ep 454 With Dr. Daniel Crosby

September 9, 2025 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Dr Daniel Crosby Podcast Featured Image FAS

Welcome everyone! Welcome to the 454th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Dr. Daniel Crosby. Daniel is the Chief Behavioral Officer of Orion, an technology platform serving financial advisors.

What's unique about Daniel, though, is how he has turned abstract behavioral finance concepts into practical tools advisors can use to understand their clients' relationships with money and to help them set better goals.

In this episode, we talk in-depth about how Daniel helped develop a tool to analyze where individuals fall across five dimensions of one's money personality (spending today versus saving, directness of communication about money, worry about money, an individualistic versus collectivistic approach toward money, and the importance placed on money and wealth), why Daniel finds that there is a tendency for those on one end of the spectrum on a particular dimension to judge those on the other end (for example, a spouse who tends to be a saver might judge a more spendthrift spouse for not saving for the future, while the latter might think the saver's habits are limiting their enjoyment of today), and why Daniel ultimately finds that neither end of each dimension is necessarily superior (and how advisors can help clients identify potential blind spots if they fall at one extreme or the other).

We also talk about how Daniel has helped develop a tool that allows advisors to incorporate positive psychology principles into the planning process to better understand what makes clients flourish, how Daniel has clients rank the importance of six items related to flourishing (including leisure, work, relationships, meaning, personal growth, and physical health) and then rate themselves on how well they're doing on each item, and how Daniel finds that identifying divergences between these scores (for example, rating relationships as important but giving a low self-rating on it) can help advisors and clients identify potential financial goals that could lead to greater flourishing (for example setting aside money for a major family vacation).

And be certain to listen to the end, where Daniel shares why he thinks one of the best uses of behavioral finance for financial advisors is to take a step back and consider how their own attitudes towards money might influence how they communicate with clients, how Daniel finds that having an understanding of an advisor's own attitudes towards money can help advisors avoid coming across as judgmental (one of the key hurdles for individuals considering whether to approach an advisor) and ultimately lead to more and stronger client relationships, and why Daniel thinks that (beyond behavioral finance tools) the practice of listening carefully to clients can help advisors uncover the underlying reasons for clients' seemingly sub-optimal financial decisions and allow the advisor and client to move forward from a common understanding of where the client is coming from.

So, whether you're interested in learning about how Daniel turned complex behavioral concepts into usable advisor tools, including a "money personality" framework and a flourishing goals assessment, how identifying gaps between what clients value and how they feel they’re doing in life can spark more relevant financial goals, and why advisors must examine their own money beliefs and blind spots, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Dr. Daniel Crosby.

3 Growth Strategies That Won’t Plateau As The Firm Grows: Build Scalable Processes Into Double-Digit Growth

September 8, 2025 07:02 am 0 Comments CATEGORY: Marketing

Advisory firm founders often work tirelessly to develop processes for attracting good-fit clients. This painstaking effort to balance where viable prospects are with what the advisor is naturally inclined to do can eventually pay off in steady growth. Yet just as the firm begins to grow, these once-reliable pipelines often plateau. Referrals tend to slow, marketing techniques that once worked feel noisy and ineffective, and next-generation advisors may struggle to prospect while founders become increasingly consumed by operations and spend more time working in the business rather than on it. The result can feel like hitting a wall at the very stage where growth should be most reliable.

In this article, Stephanie Bogan, founder of Limitless Advisor, explores why growth engines that once fueled the firm may stall as it scales – and how advisors can revitalize their processes.

A key challenge is that many growth engines depend heavily on the founder's personal time and energy. If growth has primarily come from networking, for example, the founder eventually reaches the outer limits of viable prospects. Other approaches, such as digital lead generation, can be expensive without a defined conversion process. In other words, growth strategies that once worked often become barriers when the founder needs to step back from front-line marketing to focus on leading the firm.

Fortunately, there are several ways to reinvigorate foundational growth engines and make them scalable. Referrals, for example, remain the most efficient path to high-trust client relationships. Yet today's clients – especially those in younger and higher-income segments – are less likely to rely on referrals, and most firms lack a formal system to encourage them. By deliberately engineering advocacy into the client experience – identifying client 'champions', mapping referral-ready moments, prompting naturally, and reinforcing behavior with gratitude – firms can transform referrals from a passive hope into an intentional, repeatable driver of growth.

Founders can also strengthen their sales funnel by creating a structured, scalable process that doesn't rely on their own presence. Narrowing the target to a few key marketing channels and mapping multi-step sales processes can dramatically improve conversion rates and client quality, while also enabling non-founder advisors to execute them. Over time, a defined, trackable funnel allows firms to focus on fewer but better client opportunities – often resulting in significantly higher close rates!

Equally important is aligning service and profitability. Firms can't sustainably grow if they overserve underpaying clients or deliver inconsistent value. By right-sizing the client base, introducing service tiers tied to value, and systematizing delivery, firms can improve margins while freeing advisor capacity. When done well, these shifts allow firms to eliminate low-margin relationships, reclaim time, and reinvest resources into high-impact growth initiatives.

Ultimately, achieving double-digit growth isn't about flashy marketing tactics – it's about having scalable processes and a service model that supports the firm. Each growth component reinforces the others, creating a self-sustaining cycle that fuels growth without overwhelming the team. Rather than doing more, the fastest-growing firms focus on doing a few things exceptionally well. With a repeatable growth engine and the operational structure to support it, firms can achieve sustainable, long-term growth!

Weekend Reading For Financial Planners (September 6–7)

September 5, 2025 01:08 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 survey of financial planners by CFP Board found that respondents had a median income of $185,000 in 2024, with CFP professionals having 13% higher income than their peers (after controlling for a variety of factors), and that median pay can move significantly higher along with an individual's years of experience and the number of individuals they manage. The survey also found that 84% of CFP professionals surveyed said they experience personal fulfillment with their careers, with 53% of respondents expressing "very high" fulfillment. Altogether, these findings suggest that financial planning can be a financially and personally rewarding career with a potential bump for those who make the investment in CFP certification (though it might take some time for such benefits to accrue).

Also in industry news this week:

A recent survey suggests that while many younger advisors seek well-defined career paths and training opportunities, many RIAs are falling short in these areas and are potentially hindering succession plans (which often languish in the planning stage)
Amidst the anticipated "Great Wealth Transfer" between generations in the coming years, advisory firms are considering how (and whether) to take action to encourage heirs to keep assets with the firm

From there, we have several articles on investment planning:

Common mistakes made by ETF investors, including trading during volatile or less-liquid periods and not considering the tax and reporting implications of certain funds
An analysis of data from the past 15 years indicates that, on the whole, lower-fee funds continue to outperform higher-fee funds in the same peer group
Why "Boomer candy" investment products that mitigate downside loss are sometimes based on strategies that are relatively simple (and less expensive) to implement by an investor or their advisor

We also have a number of articles on practice management:

Using the "Rule of 40" to measure a firm's health and (if interested) make it more attractive to potential buyers or outside investors
Why leadership roles evolve as a firm grows and how a system of accountability can help avoid a decline in standards and results over time
How implementing a centralized operations team gives advisors and staff the opportunity to focus on what they do best and allow a firm to scale effectively

We wrap up with three final articles, all about optimization:

While the modern era provides countless ways to track and optimize one's health, productivity, and finances, focusing on what matters most could offer upside in these areas while causing less stress
How optimizing for a single productivity metric could lead to challenges if the tactics that worked in the past to maximize it become less effective (and why exploring a broader range of paths to success could prove to be more fruitful)
How financial advisors can help clients develop a "good enough" mindset to increase their financial contentment

Enjoy the 'light' reading!

Scaling Financial Planning: Client Affluence Vs Technology Efficiencies: Kitces & Carl Ep 172

September 4, 2025 07:03 am 0 Comments CATEGORY: Kitces & Carl Podcast

Kitces & Carl Ep Scaling Financial Planning

Financial advisors often seek to scale their practices by investing in technology, hoping efficiency gains will allow them to bring on more clients, and thus unlock greater profitability and capacity. While this may alleviate some demands on the advisor's time, it may not have the scale of effect advisors are looking for. In fact, according joint data on the latest Kitces Research on The Technology Advisors Use And Like and How Advisors Actually Do Financial Planning, investing in technology has a limited yield in advisor productivity. When productivity is measured by revenue per advisor or per employee, the dominant is how much clients are able and willing to pay. In other words, advisors working with a higher number of clients paying a lower fee are unable to match the productivity of advisors who serve a lower number of high-paying clients – even if they leverage technology to increase their day-to-day efficiency.

In the 172nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the limitations of advisor productivity relative to technology and how advisors can scale up instead. In practice, productivity gains through technology tend to yield relatively incremental results compared to that of client affluence. The data shows a steep curve: revenue per advisor accelerates dramatically as client affluence increases, because wealthier clients both need and can afford more comprehensive services – and are willing to pay premium fees for them. While servicing high-net-worth clients may require more time, it does not scale linearly with revenue. Instead, advisors working with affluent households tend to earn much higher hourly rates, which compounds the financial leverage of moving upmarket.

On the other hand, scaling through client volume – adding more clients to an advisor's book – often hits practical limits that are difficult to overcome, even with well-integrated tech stacks. In contrast, the most productive advisory firms adopt a “one on / one off” model, replacing each new, more affluent client by graduating a less profitable one. This approach allows firms to increase average revenue per client while maintaining or even reducing total client count, thereby enhancing profitability without increasing workload. Over time, this incremental upgrading strategy results in leaner, more profitable practices with deeper client relationships and stronger service capacity. The firms that scale best don't expand capacity to serve more clients – they narrow focus to serve fewer, higher-value ones better.

Interestingly, advisors who approach technology primarily as a tool for efficiency and cost-cutting tend to have lower productivity than those who use technology to deepen the client experience. When tech is deployed to enhance advice quality, communication, or engagement with top clients, it acts as a force multiplier. But when it is used mainly to manage the complexity of serving too many clients, it fails to meaningfully expand advisor capacity. This suggests that the most effective use of technology is to elevate the advisor's value, rather than to increase the number of clients they can serve.

The broader implication is that if the goal is to grow a financially successful advisory business, the clearest path is to work with increasingly affluent clients. Like in medicine or law, some specialties pay more than others – not because the work is more virtuous, but because the market rewards certain kinds of value. While this may conflict with a desire to serve a broader population, the math is difficult to ignore. Each financial planning firm must determine for itself how to reconcile the tension between accessibility and scale. Advisors must decide for themselves how to balance service and economics. The good news is that many advisors have built profitable, enduring practices servicing 'average' clients – but for those who aim to maximize profit, the best path likely involves moving upmarket!