Weekend Reading For Financial Planners (August 8–9)

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.

Latest Morningstar "Mind The Gap" Study Finds Good News For U.S. Equity Fund Investors, Wider "Gap" For Those In More Volatile Funds

(Jeffrey Ptak | Morningstar)

While a particular mutual fund or ETF might post a strong positive return over a long-term period, actually achieving that return requires an investor to remain in the fund for the entire period. However, if they trade in and out of the fund over time (perhaps due to swings in the fund's price) they can experience a 'gap' in the actual return they receive (with this gap often found to be negative, as some investors 'buy high and sell low').

According to the latest edition of Morningstar's "Mind the Gap" study, the average dollar invested in U.S. stock mutual funds and ETFs gained 12.8% per year for the 10 years ending in 2025, just shy of the 13.3% aggregate return for funds during this period (though some researchers suggest the overall return 'gap' investors experience could be smaller). This represented a narrower return 'gap' than all U.S. mutual funds and ETFs, which showed a 1.15% gap (with an 8.74% investor return compared to a 9.89% return for the funds themselves). While investors in U.S. equity funds and ETFs showed the narrowest annual return gap (0.44%), investors in other fund categories weren't as lucky, with investors in (1.55%) and sector equity (1.22%) showing wider gaps.

In general, investors in more volatile funds had a wider negative return gap than those in less-volatile funds (with a 2.11% gap for the top quintile of funds in terms of volatility but only a 0.42% gap for the least volatile funds). The gap was particularly pronounced for investors in spot Bitcoin ETFs, where funds experienced a positive annual total return of 8.53% but the average dollar invested in these funds had a 5.77% loss (a massive 14.3% performance gap).

In the end, successful investing isn't just a matter of picking the 'right' assets and funds, but also a matter actually sticking with these investments through good times and bad to achieve the total returns it receives. Which suggests a potentially valuable role for financial advisors in helping clients 'stay the course' (though clients might not necessarily actively seek out an advisor who promises to help them 'control their emotions'?).

RIAs Willing To Bend On Credentials, Salary Ranges In Hiring: Report

(Diana Britton | Wealth Management)

Given the time and hard-dollar cost involved in hiring and training a new employee (and the additional cost if the employee isn't a good fit and needs to be replaced in the near future), RIAs are often careful in crafting job postings to hire the ideal candidate. However, a recent report from recruiting firm The Well suggests that RIAs don't always stick to the requirements they lay out (which could be instructive for candidates seeking positions at these firms).

According to the report (based in large part on The Well's internal data), in 84% of jobs where a firm said they needed the hire to be a CFP professional, the firm ended up hiring someone without the designation (CFA and CPA requirements were commonly waived as well). Other characteristics firms were willing to negotiate away (for candidates they determined to be the right fit) included book-size minimums, named software stack experience, and a specific number of years of experience.

Also, when it came to salary ranges, the ultimate salary given to a hire fell within the range posted in the job listing only 23% of the time, falling below the range 47% of the time (perhaps reflecting the firms' willingness to bend on desired credentials and experience) and exceeding the range 30% of the time. And while firms might want to take their time when it comes to making a key hire, The Well found that taking too much time can lead to ideal candidates dropping out of the process (perhaps due to accepting a position elsewhere).

In sum, these findings suggest that firms might take time before creating a job listing to identify the traits that are non-negotiables for the position being hired for and which are nice to have (to create a better pool of good-fit candidates). From the point of view of job searchers, these results indicate that even when a particular credential or level of experience is listed as 'mandatory', firms in reality are willing to bend in many cases (which suggests that candidates shouldn't necessarily be dissuaded by a job listing that appears to be a good match even if they don't meet all of the listed requirements).

RIA Growth Needed To Overcome Asset Churn: Cerulli

(Faye Kilburn | Citywire RIA)

Many financial advisory businesses benefit from high client retention rates (often above 95%), offering consistent recurring revenue year after year. While some client attrition is natural (e.g., when clients pass away), maintaining a client base is often a matter of continuing to provide a high level of service. Nevertheless, while client headcount might stay steady over time, the assets a firm manages (and the revenue derived from them for those charging on an AUM basis) can still decline.

According to data from research and consulting firm Cerulli Associates, RIAs typically experience annual asset attrition of between 2% and 5% of their overall AUM (excluding client departures), with 56% of RIAs' outflows in 2025 coming from regular income withdrawals (which could be particularly common for advisors working with retired clients) and one-time distributions (which could come with clients at any age). Which indicates that even if a firm is able to maintain its client headcount, it could still experience asset (and revenue) declines (and while market appreciation could counterbalance this trend, it represents a double-edged sword, as a market downturn could further exacerbate an asset decline).

Amidst this backdrop, Cerulli found that RIAs are largely turning to referrals to add new clients, with this tactic accounting for 74% of new client acquisition. However, it found that only 51% of firms proactively ask for client referrals, suggesting that there could be room for certain firms to pursue this tactic more robustly. In addition, Cerulli found that RIAs on average allocate 5% of total expenses to marketing (suggesting another potential lever that could be pulled to spur growth).

Ultimately, the key point is that while many firms might not see themselves as being in 'growth mode', client decumulation (and a certain inevitable level of client attrition) can erode assets managed and revenue over time. Which suggests that crafting a marketing strategy not only can be valuable for firms looking to grow, but also for those looking to maintain their current position as well.

Using Net Present Value To Analyze The Potential Benefits Of Roth Conversions

(Edward McQuarrie | Journal of Financial Planning)

Roth conversions are often a popular tool in an advisor's toolkit, as they provide an opportunity to offer clients (or their eventual heirs) hard-dollar tax savings. While a first step for assessing the potential value of Roth conversions might be to compare the client's current marginal tax rate to an expected future marginal tax rate (which is necessarily an estimate given potential changes in tax law and other factors) and consider converting if the former is less than the latter, the reality of assessing the potential value of a Roth conversion can be more complicated.

One factor that can be considered in this analysis is the time value of money, which suggests that a dollar in the future is worth less than a dollar today (e.g., due to inflation and the potential investment appreciation for the dollar today). For instance, a Roth conversion that would result in $10,000 additional taxes paid this year but that would be expected to lead to $15,000 in tax savings down the line might seem like a good deal on the surface, but, depending on the time between the conversion and the distribution, the actual value could be less due to inflation and the opportunity cost from the ability to invest the dollars used to pay taxes on the conversion. This further suggests that the time it takes to achieve a positive 'return' on the Roth conversion could be longer than many clients expect.

Nonetheless, there are many scenarios where clients might see that engaging in a Roth conversion could be a worthy risk to take. Perhaps the clearest example is when traditional IRA assets can be converted at a 0% rate (whether through a 'backdoor' Roth or during years with particularly low taxable income where they can 'fill up' their standard deduction with the conversion). Some clients might be willing to pay the taxes associated with the conversion though, for example when they are focused on their legacy and are confident that their heirs will be in a much higher tax bracket (e.g., an aging parent does a Roth conversion while they're in the 12% bracket, whereas their physician child is likely to remain in the 37% bracket for many years to come) or when they are in a relatively low-income year (perhaps in the 10% or 12% brackets) and have high confidence that their income in a future year will put them in a significantly higher tax bracket. On the other hand, clients who convert while in a high tax bracket today might find it more challenging to see a positive return from their conversion (as the future rate at withdrawal to hurdle moves even higher).

Ultimately, the key point is that calculating the value of a Roth conversion isn't just a matter of comparing an individual's marginal tax rate today to their expected rate when they (or their heirs) would withdrawal the funds, but also takes into account, among other factors, the opportunity cost of the funds used to pay for any taxes on the conversion (as well as adjusting future dollar savings for inflation). Which suggests a valuable role for advisors in identifying the client situations where Roth conversions might be appropriate (not just including their financial situation, but also their preferences regarding whether to pay taxes now for an uncertain future return), but also setting expectations for the client on when they could expect to see a positive return on this 'investment' (which very well could be after their deaths!).

6 Questions To Ask When Considering A (Partial) Roth Conversion

(Jonathan Shenkman | Barron's)

When working with clients nearing or entering retirement, (partial) Roth conversions are often a key planning strategy for advisors. However, the decision of whether to make a (partial) Roth conversion in a given year (and, if so, how much to convert) can benefit from considering several factors.

To start, the advisor and their client might want to have a reasonable idea of the client's current and future marginal tax rates (or the expected rates faced by the client's heirs if they plan to bequeath Roth assets) to ensure the former is greater than the latter (perhaps adding in a margin of safety if future tax brackets are changed). Next, it can be valuable to consider how the client would pay for any taxes due on the conversion, as being able to pay using cash typically is preferable to paying taxes from the traditional IRA itself (as it shrinks the pool of assets that would otherwise compound tax-free).

When deciding how much to convert in a given year, advisors might also consider relevant thresholds which, if exceeded, could increase the cost of the conversion. Such thresholds include Income-Related Monthly Adjustment Amount (IRMAA) brackets (if the client is approaching or is of Medicare age), tax bracket thresholds (if the conversion would be made in a higher bracket than they would otherwise be in), limits for certain deductions and credits (e.g., the new senior deduction), the Net Investment Income Tax, or the taxation of Social Security benefits.

In sum, financial advisors have the opportunity to offer value to clients not only by raising the possibility of (partial) Roth conversions, but also by being flexible in terms of when they are recommended and how much is converted in a given year to maximize their ultimate value.

IRMAA Bracket Management: A Roth Conversion Cost That Can Be Missed

(Justin Fitzpatrick | Income Lab)

While conversations concerning potential (partial) Roth conversions often start by considering a client's current-year income and potential future tax brackets, other factors are important to consider in this equation. One of these (which doubles as a frequent client pain point!) is the intersection of the potential conversion and Medicare Income-Related Monthly Adjustment Amount (IRMAA) brackets.

Notably, because IRMAA surcharges are determined by an individual's or couple's Modified Adjusted Gross Income (MAGI) from two years prior (i.e., 2024 when determining 2026 surcharges), this factor can be considered for clients as young as 63 (which could also make Roth conversions before age 63 more valuable). Also, because the IRMAA brackets are 'cliffs' (i.e., going just one dollar into the next bracket means an individual has to pay the higher surcharge for the full year), income management (e.g., by 'filling up' the client's current IRMAA bracket with the conversion) is valuable to avoid adding potentially thousands of dollars to the cost of the conversion. That said, in some cases it could be worth moving into a higher IRMAA bracket if the expected payoff from the conversion is sufficient even when considering the additional surcharges that will be paid (though the 'pain' of paying IRMAA surcharges might make clients reluctant to do so!).

In the end, the ultimate value of a Roth conversion is a function of many factors. And while the range of these can be taken into account, advisors might want to be particularly aware of IRMAA thresholds (and communicate the impact of a potential conversion on them) to avoid clients being surprised by the surcharges they owe a couple years down the line!

I Just Received An Inheritance. Now What?

(Elliott Appel | Kindness Financial Planning)

From a financial perspective, receiving an inheritance can be an opportunity to make a purchase that might not have otherwise been possible (e.g., a down payment for a dream home) or to supercharge saving for future goals. At the same time, inheritors can sometimes have mixed emotions, given that it is often the result of losing a loved one (and perhaps could feel undeserved).

Amidst this backdrop, advisors working with prospects or clients who recently received an inheritance might first encourage them to take a step back and take stock of their emotions, both in terms of grieving the death of their loved one and considering what the money they received means to them (as it could be seen as a source of opportunity or raise feelings of guilt). While some individuals might choose to put the inheritance to work (whether through spending, investing, or otherwise) relatively quickly, others might decide to wait several months or longer to take any major actions.

When addressing the financial aspects of the inheritance, a good place to start is with its tax treatment. For instance, some heirs might be surprised to ultimately receive less than they had assumed due to the decedent's estate tax exposure or inheritance taxes that they have to pay themselves. On the plus side, those inheriting taxable investments might be pleasantly surprised by the ability to benefit from a step-up in basis (though this could involve getting an official appraisal if a piece of real estate was inherited). If an inheritor received an IRA, they might start by identifying the distribution rules they are subject to and potential strategies for drawing down the account (if they are subject to the '10-year rule').

With a better idea of the assets that are available to them and when, inheritors can then consider what they actually want to do with the inheritance they received. This exercise could take into account their personal financial situation (e.g., if they have high-interest debt that could be paid down), their short- and long-term goals, as well as any communication from the decedent that they want to consider on how they wanted the inheritance to be spent (e.g., for education). Inheritors might also consider adjusting their own estate plans if the amount of the inheritance changes their own approach to leaving assets (or create one in the first place!).

Ultimately, the key point is that because receiving an inheritance can be a momentous life event (both financially and emotionally) it represents an opportunity for financial advisors to demonstrate their value to prospects and clients, not only by implementing financial planning strategies, but also by serving as a steadying presence during what can be a challenging and confusing time.

Think You Inherited Grandma's House? Check The Deed First

(Martha White | The New York Times)

When an individual passes away, they might leave behind a variety of assets, from bank and investment accounts to tangible property. For some individuals, the largest asset they might leave behind is a home or other piece of real estate. While inheriting real estate could be life-changing for heirs (and help a family build generational wealth over time), there are several potential pitfalls that can lead to its ultimate value being reduced significantly.

Problems related to inherited real estate can start if proper estate documents weren't prepared (e.g., if the decedent hadn't prepared a will but instead informally indicated their preferences). Issues can also occur if the real estate is left to multiple recipients (with a combination of no will and multiple potential inheritors being particularly challenging). This can result in the property being designated as "heirs' property", where inheritors lacking legal ownership.

Several pitfalls can occur during the time it can take to work out heirs' property situations (which the starting point sometimes occurring well after the decedent's death if the extent of the property wasn't fully known). For instance, the property could be building up tax bills that heirs might not realize need to be paid (which could eventually lead to a forced sale). Also, developers or others might approach one or more heirs to buy out their portion, which can trigger a "partition sale", a court-ordered process where sales happen quickly, little public notice is given, and with buyers having to pay cash (which can depress the price received and paid out to other inheritors).

In sum, while a piece of real estate can represent an important family asset, it can come with challenging legal circumstances. For financial advisors, this suggests the value of ensuring clients have properly prepared and executed estate documents that account for all real property (perhaps, if possible, leaving each piece of property to a single heir and using other assets to 'balance out' the inheritances to avoid potential conflict) and, when clients believe they might have inherited property, encouraging them to confirm whether title transfers and other legal mechanisms have been completed successfully.

Should Money Be Passed Down Before Or After Death?

(Maura McInerney-Rowley and Lori Zager | Publication)

Many financial planning clients have the goal of leaving assets to loved ones as a part of their legacy. While many might assume this will occur at their deaths, lifetime gifting could also be a meaningful and effective way to give in many circumstances.

There are several potential advantages of giving to loved ones while still alive. To start, certain recipients might have a greater need for assets earlier in their lives (e.g., to buy a house during their relatively lower-earning years) rather than later on when they might have amassed significant assets of their own. Gifting assets can also serve as a teaching tool for younger generations on the value of investing (and compounding, given that they'll have more years for the investments to grow). Perhaps most impactful, lifetime gifting also allows the benefactor to see the fruits of their generosity through how their recipients use it.

Leaving assets at death could be the more effective route in many cases. For instance, if lifetime gifting might put an individual's retirement lifestyle at risk, it could be best to wait to give (since an individual's ultimate lifespan isn't known until very late in the game). Notably, this can also benefit their children, who might worry that their parents could become financially imperiled. Waiting to give could also be appropriate if the intendent recipient(s) might not be prepared for such a financial infusion and could treat the money irresponsibly. Also, tax-conscious individuals with taxable investments with large embedded capital gains might choose to hold on to these assets until death to ensure they receive a step-up in basis.

Altogether, there's no universal 'right' answer for how and when to give to loved ones. Nevertheless, financial advisors have an opportunity to support clients by encouraging them to think through their legacy goals, their intended heirs, and how best to match the assets they own (and their own retirement plans) with the type of giving that will bring both them and their heirs the greatest satisfaction.

Reflections On 10 Years Of Advisory Firm Ownership

(Meg Bartelt | Flow Financial Planning)

Starting a financial planning firm can be both exciting and stressful. This can be particularly true if the firm is starting without any clients (and the revenue they provide) and if the founder hasn't run a business before (as managing a business can be very different than 'just' working with clients).

Ten years into running her firm, Bartelt currently works with 49 client households and has just shy of $100 million in assets under management. The path to this point hasn't been a straight line, however. For instance, she found that the early years of regularly adding new clients were significantly more challenging than recent years when her growth was much slower (as she plans to roughly maintain or slightly reduce her current client headcount). And while entering 'maintenance mode' might be less of a grind than working through 'growth mode', the transition was jarring and required changes to her processes, habits, and schedules.

In terms of running a business, a key lesson she learned was that raising fees is the fastest way to grow profitability (more so than hiring staff or investing in technology). And while having a higher fee might mean not getting the same type of clients that she previously worked with, there are plenty of good-fit clients who will be willing to pay the new fee given the high level of service being provided. Also, after discovering she enjoyed the business of financial planning (i.e., meeting with clients and preparing plans) more than the business of actually running a business (e.g., compliance, bookkeeping), she found that outsourcing many of these tasks was a worthwhile investment (even if it might not pay off in financial terms).

In the end, while starting an advisory firm is a major leap of faith, confidence in one's skills and ability to provide meaningful value in clients' lives can be assets amidst the inevitable bumps that come along the way (particularly in the early years!).

Analyzing An Advisory Practice 11 Years In, By The Numbers

(Daniel Yerger | MY Wealth Planners)

While financial advisors spend much of their days in the depths of their clients' financial situations, for firm owners it's also worth it to dig into the numbers of their own business. Because while 'headline' numbers (e.g., client headcount or AUM) might tell one story, looking under the covers could unearth challenges or opportunities for the health of the business.

With his firm's founding practice celebrating its 11^th anniversary, Yerger took a look at where his business has been and where it might be headed in the future. His firm currently serves 201 client households, with four total staff, annualized recurring revenue of approximately $1.15 million, and annualized expenses of about $870,000.

Notably, not all of his clients are the same, falling into three effective 'tranches'. Tier A clients currently pay more than the firm's current annual minimum fee of $6,000, Tier B clients pay less than this fee (because they came to the firm when it had a lower minimum [which stood at $1,200 six years ago!]), and Tier C clients are typically smaller investment-only relationships (whereas Tier A and Tier B clients receive comprehensive planning services). Notably, while the Tier A clients have the highest average revenue run rate ($12,969), they also come with the highest expense run rate ($12,608) given the investment needed to serve them. While raising the minimum fee might make sense in this situation, Yerger is also considering how doing so would impact his ability to serve his local community (as well as the firm's requirement as a Certified B Corp to put stakeholder impact over shareholder impact).

Another key consideration is how to handle office space, with his firm recently moving to a new office and saving up to purchase a space that would allow it to grow well into the future. While 12.3% of the firm's annual revenue goes to pay for office space today, a recent expansion allowed it to be closer to one of its strongest business partners, a law firm with which it has many mutual client relationships (along with a lease that gives it flexibility to move to a permanent location when the time is right).

In sum, even when a firm is profitable, there are still plenty of decisions to be made regarding how it can best grow into the future, from tangible choices (e.g., office space and personnel), to impactful, value-based judgments (e.g., deciding on the types of clients it wants to serve for the long run).

7 New Lessons Learned Building A Fee-Only RIA From Scratch: Years 3–5

(Jake Northrup | Nerd's Eye View)

Starting a new firm can be a nerve-wracking time for an entrepreneurially minded financial advisor, as making the jump involves a significant amount of professional and financial risk. Nonetheless, after a year or two in business, some firm owners will find that their plate is becoming full and their available time is shrinking as they balance servicing current clients with marketing for new ones and also possibly managing staff. Which presents an opportunity for the firm owner to step back and assess whether they want to change any of the practices that they've established in their first years in business to make the next several years both professionally and personally rewarding.

When an advisor opens a firm, they might have little to no revenue but a good deal of time to manage their practice. Which means that when their first clients come on board, they might be tempted to overservice them to demonstrate the value that they can provide. Nevertheless, as a client base grows, maintaining such a level of service can take up more time that the advisor may have available, particularly given the added responsibilities of running their growing business. In Jake's case, after deciding that he was overservicing clients during the earlier years of his practice, he started scheduling fewer standard meetings and limited the number of after-meeting action items, freeing up his time and mental bandwidth for other activities to grow and run his firm.

In addition, he also found that he preferred working with certain types of planning clients over others, leading him to refine his niche and ideal client persona over time. While Jake had originally worked with equity compensation clients, current or aspiring business owners, and young professionals with student loans of $100,000 or more, he realized that he didn't care as much for student loan planning, which led him to make the difficult decision to transition 20% of his client base who primarily needed student loan planning.

Jake also learned key lessons on managing daily schedules. For instance, because he disliked the traditional 9–5 work schedule, he offered his team significant flexibility in deciding when they worked. However, this lack of structure actually put more pressure on team members because it didn't allow for sufficient collaboration time, leading him to implement a more standard work schedule that still offered some flexibility during the day and virtual coworking sessions for the team. For himself, Jake time blocked his schedule to ensure that he prioritized his personal life and wellbeing (e.g., taking vacations) and organized his workday to leverage the times of day when he has the most energy. He also conducted a "time audit" based on Dan Martell's 2-dimensional DRIP Matrix system to help him identify tasks based not just on their revenue potential but also their ability to energize and light him up.

Ultimately, the key point is that a new financial advisory firm owner's original vision for their practice is likely to change over time, which can create challenging decision points (e.g., when to hire new staff and whether to adjust the firm's ideal client persona). Nevertheless, as Jake has found, there are strategies to help firm owners mold their business to meet personal and professional needs, which can help them support greater wellbeing for themselves and a more sustainable business in the long run!

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.