Weekend Reading For Financial Planners (August 29–30)

Author: Adam Van Deusen, CFP®

Team Kitces

Adam Van Deusen, CFP®, is a Financial Planning Nerd at Kitces.com, where he hosts the Financial Advisor Technician podcast, writes articles for the Nerd’s Eye View blog (including the popular Weekend Reading for Financial Advisors), and regularly speaks at industry events on a range of technical and practice management topics. He previously worked at a financial planning firm in the Washington, D.C. area and as a journalist covering the banking and insurance industries. Outside of work, he serves as a volunteer financial planner and class instructor for local and national non-profits.

Read more of Adam’s articles here.

Vanguard, Altruist Combo "Raises Stakes" For Legacy Custodians Schwab And Fidelity

(Alex Ortolani and Diana Britton | Wealth Management)

The RIA custodian market has become increasingly consolidated in recent years, with Charles Schwab and Fidelity standing head and shoulders amongst the competition in terms of assets on their platform, giving them the muscle to take actions such as charging ETF providers as much as 15% of revenue or face a (potentially $100) ticket fee, with RIAs on their platforms also concerned about competition from Schwab's and Fidelity's growing retail wealth management offerings (with Schwab recently hiking minimum assets from $2 million to $5 million for its client referral program [after already increasing the minimum from $500,000 earlier this year], demonstrating its interest in moving increasingly 'upmarket' in its own internal wealth management division).

Nonetheless, the two giants haven't been without competition, with newer player Altruist raising the stakes in recent years with its tech-centric platform, rapidly adding advisors organically and through acquisition (e.g., its 2023 acquisition of custodian Shareholders Services Group [SSG]) and raising significant amounts of capital to build out an alternative to the "big two". Another defining feature of Altruist for many firms was its independence in being solely a platform built for RIAs, with advisors not having to worry that it would try to compete for the same clients (or, worse yet, try to poach their current clients) and feeling assured that 100% of Altruist's resources were going towards its advisor (and not retail) capabilities.

Which makes this week's news that Vanguard (which had a close relationship with the platform as a minority investor since 2020 and had a seat on the board) has agreed to acquire Altruist all the more interesting. For Altruist, the combination provides dependable financial backing that could convince RIAs that might have been skeptical about its longevity that it really can serve them (and will be around) for the long run. For Vanguard, whose focus has long been serving investors through its mutual funds and ETFs (though in recent years has been expanding its wealth management program), Altruist offers it not only a new revenue stream but also an attractive RIA custodial technology platform for a company that doesn't have a particularly tech-forward reputation.

However, from Vanguard's perspective, the company didn't necessarily need to own an RIA custodian to grow RIA assets; instead, it appears that the deal may be more directly driven by a desire for Vanguard to compete with, and break the rising pressure from, Schwab and Fidelity seeking to levy revenue-sharing requirements on ETFs (and mutual funds). Which means Vanguard's acquisition could have ripple effects across the ETF distribution space. First, the addition of an RIA custodian presents the cost-conscious Vanguard with a way to distribute its funds to advisors and investors without potential revenue sharing or ticket charges (that it doesn't have to charge to advisors on its own RIA custodial platform), effectively vertically integrating its own distribution to RIAs. Notably, though, other asset managers wary of Schwab's and Fidelity's market power could also see the Vanguard-Altruist combination as an opportunity to reduce fund distribution costs as well if Altruist remains a fee-free option… in other words, if all asset managers in the industry would rather see RIAs operate on Altruist (which doesn't have rev-share requirements that drive up their own funds' expense ratios) than Schwab or Fidelity, then suddenly Vanguard and Altruist may have every asset manager's wholesalers in the industry rooting for them as a way for the asset managers to keep their own fund costs down, which materially changes the competitive dynamics of RIA custody. Not to mention that Vanguard's backing of Altruist and its strong tech-savvy reputation could put competitive pressure on Schwab and Fidelity to improve their technology.

In the end, while there are several potential winners from this combination (including Vanguard and Altruist themselves as well as other asset managers), it remains to be seen what the ultimate impact will be on the RIA community. Firms that custody with Altruist because of its independence might be concerned about the possibility that Vanguard (which already provides advice to retail clients) could eventually take the opportunity to increase its market share in this area by leveraging Altruist's technology for retail and not remain as focused on advisors (though Vanguard and Altruist have emphasized that the latter will continue to operate independently), though the broader RIA community could stand to benefit from having a well-funded custodial competitor to Schwab and Fidelity that could encourage the incumbents to 'up their game' when it comes to their service levels (particularly for smaller RIAs) and technology platforms, not to mention the growing friction with their challengingly-opaque ways of collecting revenue from advisors and their clients.

Consumers Considering Trust More Than Fees When It Comes To Financial Advice: Survey

(Leo Almazora | InvestmentNews)

Given that financial planning inevitably involves dollars and sense, some advisors and firms might assume that financial factors (e.g., what kind of returns they can deliver and the fees they charge) could be the driver behind a consumer's decision to choose one source of advice over another. However, a recent survey suggests that qualitative factors can play an important role in this decision as well.

According to a survey by TransUnion of 1,000 U.S. consumers holding at least $20,000 in investible assets, 58% of those who are searching for an advisor put trust and reputation at the top of their list of considerations (whereas 49% of overall respondents cited fees and pricing as one of their top considerations). Transparency appears to be a key factor in earning trust, with 56% of respondents citing clear communication about fees and advice as a leading factor shaping whether they consider a firm trustworthy (a firm's brand credibility was cited by 56% of respondents as well). A further element of trust revealed by the survey is identity and account security, with 56% of investors indicating that they are moderately to extremely concerned about how fraud could affect their investments.

In sum, many consumers appear to be going beyond the 'numbers' when it comes to their search for an advisor, with an advisor's willingness to be open about the services they provide, the fees they charge, and how they protect client data being key factors for many. Which could be an effective complement to an advisor's value proposition when it comes to tax planning, retirement planning, and other areas!

Member Satisfaction With Medicare Advantage Plans Continues To Slide: JD Power Survey

(Paige Minemyer | Fierce Healthcare)

With the annual Medicare open enrollment period around the corner (it's almost Fall?!) and clients reaching Medicare age throughout the year, financial advisors have the opportunity to offer support by helping eligible clients select (or update) the Medicare coverage that best meets their needs. When considering coverage, one of the biggest choices clients face is whether to use traditional Medicare or a Medicare Advantage plan.

According to a survey of 14,559 Medicare Advantage members by research firm JD Power, member satisfaction with Medicare Advantage Plans has declined in recent years, falling to an overall satisfaction score of 611 on a 1,000-point scale, down 12 points from last year and 41 points from 2024. Areas of the member experience that saw declines in satisfaction over the past two years include how much the plan is saving the member time and money (down 51 points), the level of trust in the plan (down 49 points), and coverage options to meet individuals' needs (down by 47 points). A particular pain point with Medicare Advantage plans appears to be in members' understanding of them (because while they can come with more 'perks', such as dental coverage or fitness benefits, compared to traditional Medicare, they can also have more restrictions on the medical professionals members can see, which could be an unpleasant surprise for those who didn't expect this restriction).

Overall, this study suggests that the value of a financial advisor in Medicare planning is not just about selecting the plan that makes the most sense from a financial perspective (e.g., comparing premiums and deductibles), but also in explaining how traditional Medicare and Medicare Advantage differ so that clients don't experience surprises after making their choice (or, if a change is desired, helping them understand their options to do so during the annual open enrollment period).

With Long TIPS Yielding 3%, Who Should Be A Buyer?

(Edward McQuarrie and William Bernstein | Advisor Perspectives)

While investors sometimes focus on the nominal returns of the assets within their portfolio, the impact of inflation means that real (i.e., inflation-adjusted) returns are what truly communicate changes to their purchasing power (at least for the wide basket of goods measured by inflation gauges such as the Consumer Price Index for all Urban consumers [CPI-U]). This effect can be particularly pronounced for standard bonds that offer a fixed nominal coupon rate that can result in sharply reduced (or even negative) real returns over time as the inflation rate changes.

For those looking to achieve the stability that bonds can provide while also being protected against increases in inflation, Treasury Inflation-Protected Securities (TIPS) could be an attractive option. Like other bonds, TIPS pay coupons over time and return principal at maturity; however, unlike other bonds, both the coupon and principal are adjusted for inflation, meaning that an investor can be confident that the yield they receive on TIPS is truly a 'real' yield. While TIPS yields were low (or even negative) during much of the past 15 years, the rising interest rate environment has led to yields for long TIPS of above 3.0%, which could be attractive to certain investors.

The authors suggest that investors for whom TIPS might be most appropriate are those nearing or in retirement who want to lock in a certain amount of real income to fund lifestyle needs. For instance, by building a TIPS 'ladder' with a range of maturities, an investor can be confident that they not only will see their assets keep up with inflation (as measured by the CPI-U) but also will offer a real return (with the authors calculating that an investor could lock in an amortized real payout of 4.9% over a 30-year ladder). For these investors, replacing nominal bonds (which come with inflation risk) with TIPS could be an attractive option. On the other hand, investors with longer time horizons (e.g., an individual 30 years away from retirement or wealthy retirees looking to invest for the next generation) might prefer to focus on the higher upside possibilities of stock investments. Nevertheless, as an investor's time horizon gets shorter, TIPS could become more attractive.

In sum, the inflation-adjusted nature of TIPS and their current elevated yields could make them an intriguing option for a significant number of clients who are nearing or in retirement, offering a measure of both psychological and financial security against elevated inflation levels. Which gives financial advisors the opportunity to add value by identifying the clients for whom TIPS might be appropriate, discussing the tradeoffs involved, and executing their purchase if the client decides to do so.

Keeping Investment Horizon In Mind When Choosing TIPS Products

(Amy Artnott | Morningstar)

Treasury Inflation-Protected Securities (TIPS) have gotten more attention in recent months as their yields have increased and as inflation has persisted. However, while TIPS can be an effective way to achieve a positive real yield, some investors can experience (perhaps unexpected) losses depending on how they invested in these securities.

Notably, while TIPS protect against inflation risk, they are still exposed to interest rate risk (i.e., the price of a bond falling when interest rates rise) and could see their value decline. This risk can be most apparent to those investing in TIPS funds, which can see their price decline if interest rates rise (as they have over the past several months). While the price can eventually recover (e.g., as TIPS owned by the fund mature and can be repurchased at higher yields), these declines can be frustrating for those whose time horizon might have been shorter than the duration of bonds in the fund (e.g., the iShares TIPS Bond ETF has a portfolio with a duration of 6.3 years).

Purchasers of individual TIPS experience interest rate risk as well, as if they sell a portion of their TIPS before they mature (and after interest rates have risen), they could experience lower-than-expected returns or even a loss. That said, many investors in individual TIPS hold them to maturity as a way to generate inflation-protected cash flows (perhaps as part of a 'ladder' approach); while this group might miss out on higher yields as interest rates rose, they would still earn coupon payments and see a full return of their principal (both adjusted for inflation).

Altogether, while the current yields and inflation-adjusted nature of TIPS could make them attractive to many investors, the interest rate risk they face demonstrates the importance of matching an investor's time horizon with the type of TIPS investment chosen. This also highlights how a financial advisor can support their client by exploring their goals (along with the target date for each) and selecting an appropriate TIPS strategy if desired.

8 Inflation Conversations For Financial Advisors To Have With Clients

(Ben Henry-Moreland | Nerd's Eye View)

While inflation rates have receded from those experienced earlier in the decade, they remain above levels seen over the past 15 years (and previous price increases are 'baked in' to current prices), keeping it on the minds of many financial advisors and their clients. Which can make inflation (and what to do about it) a common topic during planning conversations.

One place to start may be to better understand how inflation is personally affecting each client. The headline Consumer Price Index (CPI) number that we see constantly represents an average inflation rate for the entire U.S. economy, but in reality, different households experience inflation in different ways depending on their lifestyle and where they live. Advisors can help clients calculate their own 'personal' inflation rate (and a downloadable template is included to make it easier to do so).

Advisors can also address different ways clients can protect their savings for retirement and other long-term goals against inflation. The conversation could start with the one asset that is likely already in most clients' portfolios: U.S. stocks, which have a lengthy track record of outperforming inflation over long time horizons. Additionally, advisors can discuss the role of TIPS in a portfolio (and answer some common questions such as whether it is risky to buy TIPS when inflation is elevated, and whether it is better to buy TIPS directly or within a mutual fund or ETF). And because clients may have questions about other types of assets that are often associated with hedging inflation risk – such as gold, commodities, REITS, and, most recently, cryptocurrencies – advisors can help by discussing the actual track records of these assets to help clients make a more informed choice about how to strengthen their portfolios against persistent inflation.

There are other practical areas to give useful advice, such as tax planning (where clients might experience "bracket creep", and therefore higher taxes, due to their income rising faster than the inflation rate used by the IRS) and property insurance (where, with construction materials and labor costs among the fastest-rising prices across the country, homeowners may find their existing insurance coverage is no longer sufficient to ensure the replacement value of their property).

Ultimately, the key point is that even though the goal of many advisors may be to encourage clients to continue to stay the course and avoid making rash decisions, there are still concrete ways that advisors can help clients better position themselves to withstand elevated inflation levels and improve their situation for the long term without drastically altering their existing plans!

Is Facebook Advertising Worth An Advisor's Marketing Time (And Dollars)?

(XY Planning Network Blog)

While other social media platforms have gained prominence over the past several years, Facebook remains a frequent destination for consumers (including many of those targeted by financial advisory firms). While firms can tap into Facebook for free (e.g., by creating and maintaining a Facebook page), some might consider whether running a paid ad campaign on the platform might generate a positive return on investment.

In general, the most successful Facebook ad programs aren't those that simply get the firm's name in front of a consumer (or by directly asking them to schedule an introduction call before they've learned what the firm has to offer), but rather are those that begin a relationship with the firm's ideal target client by offering them something of value. For instance, a firm that specializes in retirement income strategies might use an ad to promote a guide they created on how to generate sustainable cash flows in retirement that can be accessed after the user submits their email. This approach both demonstrates the firm's expertise and offers the opportunity to nurture the lead by providing additional content through email (and making it easy for them to meet with the firm when they are ready).

Notably, firms can 'start small' when it comes to Facebook ad campaigns, which offer opportunities for iteration as the firm discovers what is 'working' and what isn't. For instance, the firm might find that one type of lead magnet works better than another, or that a certain topic is particularly popular, and adjust their approach accordingly (which could be instructive for its marketing strategy outside of Facebook as well!).

In the end, Facebook advertising isn't necessarily going to provide a 'quick win' for a firm, but rather can take preparation (e.g., identifying a particular audience to target and preparing content specific to their needs), observation, and iteration to succeed. Nonetheless, given Facebook's reach (including the ability to advertise across Meta's other platforms) and the opportunity to target a firm's ideal target client, the platform could represent a viable opportunity for firms to grow their businesses.

Using Geographic Market Data To Improve A Firm's SEO Strategy

(Shaun Melby | AdvisorSEO Max)

For many years, financial advisors (and other companies) have spent time and resources on Search Engine Optimization (SEO) in order to become more discoverable as consumers use search engines to identify potential firms to work with. However, a firm's success employing SEO tactics could depend on its location and how it's trying to attract clients.

To start, success in using SEO to rise up the rankings for the classic search "financial advisor near me" can depend on the makeup of one's market. For instance, certain cities have a large number of advisory firms per capita (and per high-income individual in particular), which could make rising up the ranks particularly challenging (even more so if many of these firms are independent). In this case, firms might consider leaning into their specialty in their SEO strategy to stand out for their ideal target client (this can be particularly effective if many of the other firms in town are more generalist in nature). On the other hand, it might be easier for a firm to rank highly on this common search if there are fewer firms in the area competing to top the list (in which case SEO tactics that maximize for the local geographic area could be particularly effective).

Ultimately, the key point is that success in local SEO is not just a function of the amount of effort put into it, but also a matter of the presence of other firms with which an advisor is competing (and the number of qualified clients in the area). Which suggests that being aware of a firm's local environment could help it tailor their SEO approach to the highest-value option for their particular geographic footprint (which could be different for firms with multiple locations).

4 Pillars To Show Up More (And Right) In AI Answers

(Mateusz Makosiewicz | Ahrefs Blog)

During the past few years, many consumers have started turning to AI chatbots (e.g., ChatGPT and Claude) for answers to questions for which they might have previously used a search engine. Which presents an opportunity for firms to maximize their presence in AI search results to gain attention both directly (e.g., when a consumer asks a chatbot, "What financial advisors near me serve retirees?") and indirectly (e.g., when a piece of content the firm produces is cited in a chatbot's answer to a prompt).

To start, firms can become more discoverable by AI tools by providing them with a reliable 'source of truth' about what the firm does. This could include both pages on the firm's website (e.g., explaining the types of clients they work with and the services they provide) as well as on profiles the firm controls on other websites (e.g., LinkedIn or Facebook). One way to test whether an AI tool truly understands what the firm does is to ask it directly; doing so can reveal whether it is picking up accurate messages about the firm (which it could be passing on to consumers and prospective clients).

Chatbots also look for outside validation of a firm's expertise and service, so paying attention to (and generating positive) mentions in the media, on social media sites (e.g., Reddit), and on review websites can be valuable as well (notably, while it might be tempting to do so, creating a 'rankings' list that shows how the firm compares favorably to competitors can sometimes backfire as it can draw the chatbots' attention to the competitors in the process).

Content creation remains valuable in a world with AI search, as even if the AI tool summarizes an article that the firm has written, it can cite the firm as well, giving users an opportunity to click through to learn more. With this in mind, the best content is not easily summarized but rather includes features such as original research or opinions that make it less likely that it blends in with content from other sources.

Finally, a firm might consider gauging its visibility across multiple AI search tools (and across different potential queries) over time, as this can demonstrate how it is showing up (e.g., whether the tools have developed a more accurate picture of what it offers) and whether it is gaining 'share' in responses to common prompts.

In sum, while appearing in AI answers is not totally dissimilar to rising up 'classic' search rankings, it can involve different tactics that help chatbots understand what the firm offers, how it is viewed (hopefully positively) amongst clients and others, and how it can offer unique expertise that can be used by these tools. Which could ultimately help firms gain more visibility and, potentially, more clients in the process.

The Exclusive Retreat Where Wealthy Kids Learn How Not To Blow An Inheritance

(Juliet Chung | The Wall Street Journal)

For many wealthy individuals, money can create both opportunity and stress, not necessarily for their own well-being, but perhaps more so as they consider how it will be used by the next generation and whether their children and grandchildren will use it to bring greater meaning to their lives (and perhaps use it to improve their community and beyond) or will become entitled and purposeless.

For this group, an emerging crop of programs offer the opportunity for the next generation of wealthy families to hear from experts, network, and engage in dialogue with others in similar life circumstances. Notably, while some of the expert-led discussions are on financial topics (e.g., real estate investment strategies), others are about entrepreneurship (perhaps to the delight of business-owner parents who might want their children to follow in their footsteps, or at least maintain a sense of purpose as they inherit wealth). The ability to interact with others of a similar age and come from a similar background can be particularly beneficial to participants though, as they can sometimes find it hard to find others who 'get' the stresses (e.g., living in their parents' shadow, assumptions about them because of their family's wealth) that can come alongside the opportunities wealth can provide.

In the end, while ultra-high-net-worth families might have access to some of the most exclusive retreats and networking organizations, parents at other points on the wealth spectrum could still benefit from opening up lines of communication (perhaps at the encouragement of their financial advisor?) with their children about what wealth means to their family and how family assets might be stewarded by the next generation.

Parents Are Paying $95,000 For Gap Years To Give Their Kids An Edge

(Sarah Foster | Bloomberg News)

In years past, the idea of a 'gap year' after graduating from high school and starting college or entering the workforce might have conjured an image of backpacking around Europe or taking a low-key job to earn money and figure out one's interests.

Recently, though, gap years have taken on a new form, with a range of programs designed to give participants a boost in their college application chances, expose them to workplaces that could provide skills and connections that they could leverage after finishing college, and/or experiences that could provide a greater sense of direction. For instance, a program might offer a multi-month travel program across multiple countries, an extended work placement, internship, or volunteer position, and a skills boot camp. And while the prices of these programs have risen (with prices ranging from thousands of dollars to nearly six figures), so too has demand and the number of offerings, with membership in the Gap Year Association (a nonprofit that sets industry standards) doubling in the past six years to nearly 90 programs).

Altogether, while certain students might seek to continue their academic momentum and transition directly from high school to college, those uncertain about their future path (or who want to first get a taste of the working world) could see a structured gap year program as a viable (if pricey) alternative.

Are Parents Unnecessarily Holding Back On Financially Supporting Their Kids?

(Jordan Grumet | The Purpose Code)

For some parents, being able to financially support their children through lifetime gifting and/or bequests is an important financial planning consideration. However, others are more circumspect of this practice and are perhaps concerned that doing so could reduce their children's motivation or sense of purpose.

For instance, authors Thomas Stanley and William Danko found data suggesting that adult children who receive financial gifts from their parents tend to be under-accumulators of wealth, perhaps stunting their independence. Grumet notes, though, that this is a correlation and not necessarily a causal relationship. For instance, the under-accumulators might have received financial support from their parents because they were already in need of assistance (and not on a positive path that was stunted by parental gifts). In fact, even for those of moderate wealth, parental gifts can sometimes be the difference in a child achieving wealth greater than their parents (e.g., receiving seed capital to start a business). And for low-income and working-class families, sociologists have found that parental financial support can create independence by serving as a financial safety net (e.g., by avoiding having to drop out of college for financial reasons).

In the end, while high-profile examples show children of wealthy families 'failing to launch', the fact that they received money from their parents might not be the proximate cause. Which suggests that parents who are fortunate enough to be able to provide financial support for their adult children might consider it as an opportunity to set a floor rather than impose a ceiling on their children's financial wellbeing?

We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or send an email to [email protected] to suggest any articles you think would be a good fit for a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "WealthTech Today" blog.