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Weekend Reading for Financial Planners (Apr 14-15)

Posted by Michael Kitces on Friday, April 13th, 4:40 pm, 2012 in Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" - this week's edition highlights a scary new trend for advisors to be aware of: thieves who impersonate clients and/or hack into their accounts to try to get you to wire money out to the thief's account. From there, we look at a mixture of articles, from a review of the recent upgrades to wealth management software eMoney Advisor, to a call by Bob Veres for new 21st century regulation (and what it might look like), to some good practical tips on how to get more value from networking events with the right questions to ask, and how advisors can start using Pinterest (the latest social media site that is exploding in popularity). We also look at some technical articles on the resurgence of reverse mortgages, and the latest from Wade Pfau in the Journal of Financial Planning on how valuation-based tactical asset allocation can increase safe withdrawal rates and reduce required savings by accumulators. We finish with a review by John Mauldin of the latest jobs report, an interesting blog from the Harvard Business Review about how you should focus on your accomplishments and not your affiliations, and an interview with yours-truly in the Journal of Financial Planning on a wide range of financial planning and professional topics. Enjoy the reading!

Weekend reading for April 14th/15th:

Why Advisers Can’t Trust Their Clients Anymore - This article by technology consultant Bill Winterberg of FPPad discusses a serious new issue for advisors to deal with: "spoofing", where a scammer pretends to be a client and requests a transfer or withdrawal from an account in an effort to steal the money. Winterberg notes a recent conversation with an advisor in Dallas who experienced such an incident, where the firm received a wire request from a client via email, responded with the form, received the signed form with a signature that was comparable to a prior wire request on file, and processed the transfer - except the request was not from the actual client, but from someone who had broken into the client's email account to generate the fraudulent request. As Winterberg notes, this is part of a rising recent trend where hackers and thieves "spoof" clients by breaking into an email account, or creating a fake account with an email address that looks almost identical; in the extreme, apparently hackers are even putting call forwarding on client cell phones to intercept calls, or calling advisory firms directly while spoofing the client's called ID to verbally request a transfer. Winterberg suggests that making a separate attempt to verify a client's identity is a good start, but ultimately some form of "secret password" authentication phrase may be necessary to ensure nothing goes wrong. Winterberg includes some additional resources to combat spoofing.

Upping Their Game - This article by Joel Bruckenstein in Financial Advisor magazine reviews the latest updates of wealth management software eMoney Advisor - or more accurately, updates to their two versions, eMoney 360 and eMoney 360 Pro (the latter is more comprehensive and built for fee advisors, while the former is for more sales- or product-oriented organizations). This update featuers a total redesign of the client web portal in particular - where clients can log in to see and interact with their own financial plan - with a strong focus on making the user experience better and more relevant, including more support for the most commonly used functions: budgeting, tracking spending, tracking investments, and investment research. The Advisor portal was also upgraded, most notably to provide advisors more flexibility to create their own global investment assumptions, but with several other technical enhancements as well, more multigenerational reporting to better IRA planning support. There's also an eMoney for Outlook plug-in to help sync Outlook contacts with eMoney clients. Overall, Bruckenstein says there's little to complain about in the latest upgrade, and that eMoney appears to be upping their game.

21st Century Regulation - This article by Bob Veres in Financial Planning magazine represents a call to action to planners to take a role in setting regulation of the profession in the 21st century. Noting the general failings of current regulation, Veres suggests that we take a step back and think about how we could be ideally regulated effectively if we weren't tied to the current environment. The article includes a few examples of better regulatory approaches - including better integration with technology reporting, and how regulators can prioritize the necessary depth of an audit based on the advisor's business model (e.g., pooling client assets into a private LLC structure requires more oversight than having them all held on an independent third-party custodial platform). Veres invites regulatory ideas and feedback directly by email for those who would like to contribute to the discussion.

10 Indispensable Questions For Advisor To Ask... At Networking Events - This article from RIABiz provides some nice tips for advisors who may go to networking events (or are considering them), but aren't necessarily certain what to ask and say to maximize the value of the networking time. The article notes that an elevator speech - a brief verbal snapshot of your business - and a unique selling proposition are a must-have foundation, explaining who your clients are, how you help them, the services you provide, and what makes you unique from the competition. From there, the article provides both a list of 10 questions you might ask when seated at a table over a meal (before the speaker begins!) to get to know the people around you, along with 10 questions you should be prepared to answer effectively if they are posed to you.

Six Ways for Financial Advisors to Use Pinterest - This article from the Wealth Management Marketing blog discusses how advisors can use Pinterest, the latest rising star in social media that has quickly leaped to the #3 spot for popular platforms, behind Facebook and Twitter but already ahead of LinkedIn, Google+, and others. The article provides a basic explanation of Pinterest - you share articles or images called "pins" and organized them into themes or categories on a "board" that followers can comment on, "like" or repin to their own boards. So how might you use this? Create a book list of books you like, highlight community involvement you're engaged in, link to educational videos you think are interesting and relevant, share charts and diagrams you find notable, share a list of your favorite quotes, or create lists relevant to your target clients. Overall, Pinterest is still in its very early stages, but these are some nice, hands-on tips you can experiment with to get started.

Reconsidering Reverse Mortgages - This article from the April 2012 issue of Investment Advisor magazine discusses the recent resurgence of reverse mortgages - especially FHA-insured HECM (Home Equity Conversion Mortgage) loans - as a financial planning tool. The article provides a good overview of reverse mortgages for those who aren't familiar with how they work, and the borrowing options available. While reverse mortgages are generally still viewed as an option-of-last-resort by most planners - if an option at all - the tide may be turning now, especially with the recent introduction of the lower-cost HECM Saver option.

Withdrawal Rates, Savings Rates, and valuation-Based Asset Allocation - This article from Wade Pfau in the Journal of Financial Planning discusses the impact of using valuation-based tactical asset allocation strategies on safe withdrawal rates (for retirees) and safe savings rates (for accumulators). The basic framework is relatively straightforward - when the P/E10 ratio is more than 33% over its historical average (stocks are 'expensive'), the 50/50 portfolio is reduced to 25/75 (stocks/bonds), and when the P/E10 ratio is more than 33% below its historical average (stocks are 'cheap'), the equity allocation is raised to 75/25. The results show an increase of more than half a percentage point in the safe withdrawal rate, raising the worst case scenario to almost a 4.6% safe withdrawal rate. For accumulators, the effect is similar, and Pfau shows that individuals can reduce their savings rate towards retirement funds by approximately 5% if they follow a valuation-based tactical strategy. Notably, Pfau also points out that if clients "chase" valuations - buying when markets are already high and selling when they're already low - the safe withdrawal rate falls by 0.6% down to only 3.3%, and the required savings rate is almost 11% higher.

It's All About Jobs - This article by John Mauldin on Advisor Perspectives discusses the latest March employment report released in early April - a decidedly "soft" jobs report that was blamed for the sell-off earlier this week. While the unemployment rate ticked down by 0.1% to 8.2%, and job growth was 120,000, the results were below the expectations number of 200,000 jobs, and below the 6-month job growth trend. The article does a nice job of walking through both the household report and the establishment report - the two separate surveys used by the government to estimate job growth and the labor force. Perhaps most striking is Mauldin's breakdown of the labor force participation rates by gender, which show that over the past 60 years, the participation rate for men has fallen from nearly 88% to 70%, while the rate for women has risen from about 32% to almost 60%; in fact, right now women have lower unemployment rates than men at all ages, due in part to the differences in particular industries in which men versus women are employed. On the other hand, Mauldin notes that ongoing Gallup unemployment polling shows a slightly more positive, although still mixed, picture.

Be Proud Of Your Accomplishments, Not Your Affiliations - This article by Daniel Gulati on the Harvard Business Review blog network makes the case that in today's world, the prestige of the institutions you've been affiliated with mean less than ever; instead, the real key to distinguishing yourself is to communicate what you've accomplished. The article notes that historically, affiliations with prestigious institutions led to what was called the "signaling effect" - the fact that you were selected by the institution signaled your potential, such as being admitted by MIT to suggest you're a high-potential scientist. But in today's world, many prestigious companies are suffering, or at least failing to excel - suggesting that their selective signaling value may be diminished. Furthermore, social media and new tools to assess skills in an increasingly transparent world are making it easier for people to focus on really matters - not the signaling effect of who accepted you into their organization, but what you've actually done and accomplished. The bottom line - if in the end, it's really all about what you can do and what you have done, just get to the point and start there in the first place when you try to convey your value.

Michael Kitces on Tax Planning’s 180 and Investing In The Extreme - This article is an interview with yours-truly from the Journal of Financial Planning's "10 Questions with Noteworthy People" column. It proved to be a wide-ranging interview, covering topics from whether planners should rethink the use of mortgages, to tax planning in the current environment, to tactical asset allocation, to advisor use of social media, and the future of financial planning. A few of these themes have been covered at various points in this blog as well, but the article provides a nice summary if you're interested.

I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column! And click here to sign up for a delivery of all blog posts from Nerd's Eye View - including Weekend Reading - directly to your email!

  • Bill Winterberg


    Thank you once again for including one of my updates in this week’s Weekend Reading edition!

    I’m beginning to collect samples of spoofed messages to build a resource library for advisors. Thay way they can quickly reference sample message to see if correspondence they received matches any on file.

    Warm regards,

  • Steve Smith


    Do you sleep?

  • Anupam

    Not all planners offer comprehensive services. Some just give investment advice or focus on one aspect of planning, such as insurance or taxes.
    Best Financial Planner

Michael E. Kitces

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.

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