Weekend Reading For Financial Planners (February 14–15)

Schwab Compensation Study Finds RIAs Are Leveraging Incentive Pay, Equity Stakes To Attract And Retain Talent

(Jennifer Lea Reed | Financial Advisor)

While financial advisory firms are able to differentiate themselves from technology-based competition (e.g., robo-advisors) based in part on their employees' ability to understand and relate to clients in a way that digital solutions might not, this means that attracting and retaining talent becomes a key priority for firms that are looking to thrive in the years ahead. Which suggests that firms that take an intentional approach to designing compensation structures, benefits, and company culture could ultimately come out ahead.

According to Charles Schwab's 2025 RIA Compensation Report (based on data reported by 1,046 firms), employee compensation represented 68% of a firm's total expenses, with base salary representing the largest component (78%) of total compensation across all roles. However, the role of base salary declines for those in revenue-generating roles (69%) compared to non-revenue roles (88%). Offering incentive-based pay appears to pay off for firms, with those incorporating it seeing 24% higher revenue and 43% greater client growth over the past five years compared to other firms (though the report notes that these firms are also more likely to have a strategic plan, ideal client persona, client value proposition, and marketing plan, which could contribute to these gains as well). In terms of finding talent, personal or professional networks were the most commonly used source (by 57% of firms with at least $250 million of AUM), followed by colleges and universities (35%), and other RIAs (25%), with independent broker-dealers (12%) and wirehouses (10%) being tapped less often.

Beyond cash compensation, the report found that RIAs are largely offering both 'traditional' benefits (with 98% contributing to health insurance premiums, 81% to dental, and 71% to vision, with larger firms more likely to do so than smaller one) and various 'nontraditional' perks as well (with 73% offering remote or hybrid work opportunities, 69% having flexible work schedules, and 37% offering paid time off for community service or volunteer time, among others).

The study also found that firms appear to be using equity ownership as a lever to attract advisors (particularly those coming with their own book of business) and retain key employees as well. Notably, firms Schwab identified as top performers (based on a number of firm performance metrics) were more likely to have younger equity holders with at least a 25% stake in the firm, suggesting that these firms have committed to growth through the next generation of owners. Top-performing firms were also more likely to have an established employee value proposition than other firms, often including features such as a compelling work setting, emphasis on teamwork, recognition, and connections, and a defined mission statement, culture, and values.

Ultimately, the key point is that while base salary likely remains a key draw for employees to join or stay at a particular advisory firm, many firms are looking beyond this to create a more well-rounded value proposition for their employees that includes upside earnings potential (through incentive compensation and/or equity ownership opportunities) and non-monetary elements (from a defined career path to a strong company culture). Which suggests that firms have many potential levers to pull when it comes to building an attractive workplace for current and future employees!

Recent SEC Fines Shine Light On "Hedge Clauses" In Advisory Agreements

(Carleen Bongat | InvestmentNews)

While it should be fairly noncontroversial for an adviser to contractually limit its liability for the acts of certain third parties (e.g., a custodial broker-dealer's trade error) and the client's own actions (e.g., the client's self-directed trading), the extent to which an adviser can limit liability for its own actions (via what's known as a 'hedge clause') might be a different matter.

A hedge clause is a contractual provision that purports to limit one party's potential liability to the other party. Historically, liability limitation provisions have commonly been included as part of advisers' standard advisory agreements (typically in a section entitled "Limitation of Liability" or similar). For example, an advisory agreement might contain language purporting to limit the adviser's liability to "gross negligence" or "willful disregard," perhaps followed by a statement that the client is not waiving any rights that the client may have under state and/or Federal securities laws.

While such advisory agreement details might not be top-of-mind for many firms, the Securities and Exchange Commission (SEC) appears to be giving hedge clauses a closer look. As part of a settlement reached last month, the SEC fined two related advisory firms in part for hedge clauses that could have led clients to think they were giving up legal rights that cannot actually be waived, with one section saying the firms wouldn't be liable except for willful misconduct or gross negligence (but not simple negligence) and another that made clients agree to defend and indemnify the advisers even for securities violations or breaches of their duties. Further, after an SEC examination in 2024, the firms failed to fully revise their agreements to remove all offending language identified by the examiners and didn't have existing clients execute the updated advisory agreement.

In sum, while firms might be able to limit their liability for actions committed by others, the SEC appears to be taking a closer look at the specific language in hedge clauses to ensure that clients clearly understand their rights under the advisory agreement. Which might encourage firms to take a second look at the language in their own agreements (which might have been drafted many years ago ago) to ensure it doesn't run afoul of SEC interpretations of the issue.

Internal Training, CE And Certification Reimbursements Top Common Advisory Firm Career Development Initiatives: Survey

(Rob Burgess | FinancialPlanning)

Many financial planning firms (and other businesses) tout that "investing in our people" is a top priority. But investing in employees can mean different things across the range of firms (with employees having varying views on what they want to prioritize in terms of career development).

According to a FinancialPlanning survey of 200 advisors, internal training programs or workshops (available to 63% of respondents), licensing exam preparation, fees, or continuing education credits (59%), coverage or reimbursement for professional certifications or designations (59%) and coverage of costs for conferences or industry events (58%) were the most commonly offered career development perks available to those surveyed. On the other end of the spectrum, opportunities that were less commonly available but were sought out by many respondents included external coaching (currently available to 32% of respondents, with 36% desiring this perk but not having it now) and tuition reimbursement for degree programs (available to 32% of respondents but desired, but not currently available to, 34%).

Altogether, advisory firms appear to be taking a variety of approaches to providing their employees with career development opportunities (which can benefit the firm as well, in terms of better-trained staff). Further, given the different options available (that come with a range of costs, both in terms of hard dollars [e.g., paying for external training programs or certifications] and/or team member hours [e.g., developing internal training programs]), some firms might choose to survey their own team to determine which opportunities they most desire themselves so that the firm and its employees get the greatest return on these investments.

4 Tax Return Red Flags (That Advisors Can Turn Into Savings Opportunities)

(Sheryl Rowling | Morningstar)

When meeting with a prospect or new client, one of the first documents a financial advisor will often ask for is their prior year's tax return, which can provide a wealth of information on the individual's or couple's sources of income, deductions, and investments. Notably, advisors can also use it to identify potential tax-savings opportunities they might be missing out on currently (and perhaps could apply in the coming year).

For instance, a new client might have a tax return that shows little or no taxable income. While the individual might be proud of that fact (thinking they got one over on the government by having a miniscule tax bill), in reality they might have missed on potential income harvesting opportunities that could result in lower tax bills in future years (even if it might mean paying more today). Such strategies could include (partial) Roth conversions (perhaps 'filling up' the 10% and 12% brackets) and/or capital gains harvesting (i.e., selling investments in taxable accounts with gains to take advantage of the 0% long-term capital gains tax bracket). Another area where the client might have assumed they were better off by paying less in taxes is investing in municipal bonds (with tax-exempt interest reported on Form 1040, line 2a); if the client is in the 10% or 12% tax bracket (or possibly in a higher one) the tax savings might not make up for the lower yields found on these bonds compared to taxable bonds.

Advisors can also use a tax return to identify areas where an individual might not be getting the greatest tax value out of their charitable gifts. For instance, clients who make donations using cash or credit cards could unlock greater value by donating appreciated assets (advisors can check if the individual might have appropriate assets to donate by checking Schedule D for long-term capital gains and/or Form 1040 Line 3b for dividend income), perhaps using a donor-advised fund to 'clump' charitable contributions into one year to maximize their deductibility. Also, if the individual is charitably minded and has reached age 70 1/2, they might consider engaging in Qualified Charitable Distributions (QCDs) to reduce the size of their traditional IRA and future Required Minimum Distribution (RMD) obligations (or cover part or all of their RMD in a given year if they've reached RMD age).

In sum, reviewing a prospect's or client's tax return can both provide valuable information on their financial situation and uncover opportunities for advisor recommendations that could lead to hard-dollar tax savings. Which could potentially (more than?) make up for the advisor's fee and ultimately lead to a greater conversion rate of prospects and retention of current clients.

How To Help Clients Duck The "SALT Torpedo"

(John Manganaro | ThinkAdvisor)

The "One Big Beautiful Bill Act (OBBBA)", passed last year, introduced a variety of tax changes, and, with them, planning opportunities. One of the measures within OBBBA that garnered the most headlines was an increase in the deductibility of State And Local Taxes (SALT) from $10,000 to $40,000 for tax years 2025 through 2029 (with the limit increased by 1% each year starting in 2026).

Importantly, though, the increased SALT cap comes with a phasedown provision reducing the deduction limit by 30% of the amount by which the taxpayer's Modified Adjusted Gross Income (MAGI) exceeds $500,000 (this threshold also increases by 1% per year through 2029). Once MAGI reaches the upper limit of the phasedown range, the SALT deduction limit is phased down to a minimum of $10,000. Which means that taxpayers with significant SALT balances could experience significantly higher marginal tax rates as their income moves into the phase-out range (a SALT "torpedo"), as they will be able to deduct less of the SALT they paid.

For example, for a single filer with $505,000 of MAGI, $40,000 of SALT, $20,000 of mortgage interest, and $10,000 of deductible charitable contributions, the next dollar of income earned would reduce their SALT deduction by 30% (in other words, adding $1.30 to their taxable income). Because they fall in the 35% tax bracket, their effective marginal rate on income earned within the phaseout range is 1.3 x 35% = 45.5%!

With this in mind, financial advisors can play a valuable role in helping clients avoid the 'SALT torpedo' and maximize the value of the SALT deduction in the process. Potential ways to do so could include identifying clients whose income could put them within (or perhaps just beyond) the phaseout range, then managing investment income for those who might be approaching or are already in the phaseout range, controlling business income (for those who are able to do so), or finding additional 'above-the-line' deductions (e.g., contributions to Traditional retirement accounts or Health Savings Accounts [HSAs]) to reduce their MAGI. Which could ultimately lower clients' tax bills (and, very likely, increase esteem for their advisor!).

The Pros And Cons Of Taking RMDs Earlier Or Later In The Year

(Christine Benz | Morningstar)

For those who have reached their required beginning date for Required Minimum Distributions (RMDs), taking their annual RMD can be a 'taxing' chore, both in terms of the potential taxes owed on the distribution and on the mental work required to calculate and make the correct distribution. A related consideration is deciding when to take the RMD during the year, as this decision comes with implications for both taxes and the growth of the individual's investments.

Some individuals might choose to take their full RMD at the beginning of the year. This method has the advantage of getting this task out of the way and avoiding the potential of forgetting to make the RMD and risking a penalty (also, if the individual dies during the year, it helps their heirs avoid having to take the RMD, potentially in a tight window when they have many other tasks to complete). In addition, getting the RMD done early opens the window for (partial) Roth conversions (as the RMD must be completed first before a conversion can take place).

A downside of taking the RMD early in the year (and an upside of waiting until later in the year) is that the individual could miss out on additional months of tax-deferred compounding that could be achieved by leaving assets in the account until the end of the year (though there would be a benefit from taking the RMD early if the market declines over the course of the year). Also, if the individual plans to engage in Qualified Charitable Distributions (QCDs), those need to be completed before other distributions in order to count as part of the RMD obligation (another potential plus of waiting). Though, waiting until the end of the year does raise the risk that an individual will forget to take the RMD, potentially exposing them to a penalty.

A potential middle ground is to calculate the RMD obligation at the beginning of the year and making distributions on a regular (e.g., monthly or quarterly) basis. This can be similar to the investment concept of dollar-cost averaging in avoiding a situation where the individual takes their RMD (particularly if they are taking a distribution in cash) at the 'wrong' time (in this case, right before a market surge that could have made having the extra time in a tax-deferred account beneficial). This method could also allow for consistent cash flow throughout the year (perhaps seen as a monthly 'paycheck' replacement).

Ultimately, the key point is that while RMDs are a fact of life for many older Americans, being strategic about when they are fulfilled can ensure they meet an individual's cash flow, tax planning, and investment goals. Further, this is an area where financial advisors can provide significant value, from ensuring that the RMD amount is calculated properly and is distributed on time to proposing a distribution schedule that best meets a client's unique needs (or suggesting ways to reduce the client's [future] RMD burden, from Roth conversions to QCDs!).

Annual Healthcare Costs Increase At 5.8% Annually On Average Throughout Retirement: Report

(Elizabeth O'Brien | Barron's)

Given that individuals tend to have more medical issues as they age, healthcare expenses typically are one of the major budget line items for retirees. Which means that if these expenses increased at a higher rate than other costs, using a broader assumed inflation rate could lead to less-accurate financial planning projections.

According to a report by healthcare data and software provider HealthView Services, a 65-year-old couple retiring in 2026 could expect to see an average annual increase in healthcare costs of 5.8% throughout their retirement, significantly exceeding the current broader "core" (i.e., excluding food and energy) inflation rate of 2.8% (as well as the government's current estimate of 3.5% annual inflation for healthcare costs). In its estimate, HealthView considers not just increases in healthcare costs over time, but also the fact that people tend to use more services as they age and projected increases to Medicare premiums and Medigap supplemental premiums (with the report's analysis of government data leading to estimates that Medicare Part B premiums will rise by an average of 7% per year through 2034, with Part D premiums increasing by 4.8% and Medigap plans increasing by 8% each year). In addition, higher-income seniors could face increases to Income-Related Monthly Adjustment Amount (IRMAA) surcharges (which are calculated annually based on the expected costs of the Medicare program).

In sum, this report suggests that financial advisors could potentially increase the accuracy of their financial planning projections by inflating a client's health care costs at a higher rate than other expenses (and possibly further increase the accuracy of this budget line item by including the client's specific Medicare elections as well as any known or anticipated health conditions [e.g., if they have a chronic illness that could lead to higher-than-expected costs in the future]).

Why IRMAA Surcharges Could Be Getting Steeper In The Coming Years

(Laura Saunders | The Wall Street Journal)

While older Americans' Social Security checks are already reduced by premiums owed for their Medicare coverage, those with relatively higher incomes can see a further reduction through Income-Related Monthly Adjustment Amount (IRMAA) surcharges, which for Medicare Part B in 2026 range from an additional $81.20 per month for individual filers with Modified Adjusted Gross Income [MAGI] between $109,000 and $137,000 and joint filers with MAGI between $218,000 and $274,000 to $487.00 for individuals with income greater than $500,000 and joint filers with MAGI of at least $750,000 (Part D surcharges range from $13.70 to $85.80 per month).

While Congress originally intended Medicare recipients to bear 25% of the programs cost through the premiums they pay, the IRMAA surcharges were introduced to provide supplementary support for the program's costs, with those subject to IRMAA instead paying between 35% and 85% of their projected Medicare cost depending on their income bracket (though, even with the surcharges, the cost of this coverage is still likely less than what older Americans could obtain on the private market in many cases).

Notably, the size of IRMAA surcharges can change each year alongside changes in costs to the Medicare program (which can differ from the overall inflation rate and Social Security's annual cost of living adjustment). Because Medicare program expenses are expected to rise in the coming years, the Medicare Parts B and D IRMAA for a couple in the first IRMAA bracket could be 50% higher by 2030, according to estimates from the Medicare Board of Trustees. Which could only increase the importance for individuals of managing their income to avoid tipping over the 'cliff' into the next IRMAA bracket (since going just one dollar over the limit of one bracket means they will face the full amount of the next-higher surcharge).

Altogether, while medical costs are often assumed to be a significant budget line item for retired clients, also accounting for the costs associated with Medicare (and the chances that they will increase over time) can support more accurate cash flow planning (particularly for higher-income clients subject to IRMAA) and perhaps encourage clients to take actions (e.g., partial Roth conversions in lower-income years, if appropriate) that could help them reduce their IRMAA exposure down the line.

Getting Real About (Annual) Health Care Costs In Retirement

(Nerd's Eye View)

In its latest update, Fidelity recently estimated that the average 65-year-old couple retiring in 2025 would need a whopping $345,000 just to cover their health care costs in retirement (up 4% from the previous year), between Medicare Part B and Part D premiums and additional out-of-pocket costs (or the Medigap supplemental insurance plan to mitigate them), while not including any potential long-term care expenses. Which could frighten current or soon-to-be retirees with the prospect of handling such a major expense.

Yet the reality is that health care costs in retirement aren't needed as a "lump sum" on the day of retirement, and the Medicare system actually makes health care costs a remarkably stable annual cost that can be planned for. And in fact, looking at health care expense in retirement as a lump sum masks a number of more direct and substantive planning issues, from the fact that unhealthy retirees may face fewer years of costs but much higher annual costs, to the challenges (and additional costs) of navigating health insurance as an early retiree via state health insurance exchanges.

Accordingly, a 2021 joint study by Vanguard and Mercer Health and Benefits analyzed the typical (and potentially unexpected) costs of health care in retirement, and showed that the "scary" lump sum cost of retiree health care is actually little more than spending a few hundred dollars per month, per person… for the better part of 2-3 decades in retirement, with the typical 65-year-old woman spending just $5,100/year annually throughout her retired years including all health care-related costs (albeit excluding long-term care needs).

Of course, individual health care costs may still vary…but it turns out they vary in rather predictable and plannable ways, from the increase in health care costs for those entering retirement with one or several chronic health conditions, to those who must plan for the additional costs of health insurance via state marketplaces for early retirement, and the additional layer of costs for high-income individuals due to the Medicare income-related surcharges.

Which means in the end, while health care costs may cumulatively add up to a lot over a multi-decade time horizon, they do so in ways that can be largely planned for in advance, saved for with both retirement savings itself or using Health Savings Accounts (HSAs) as a supplemental retirement savings vehicle, managed by making good Medicare enrollment choices, and adjusted for (typically-known-by-retirement) chronic health conditions. Or simply funded by Social Security payments, which for a married 65-year-old couple earning merely "average" benefits, amounts to a lump sum equivalent of more than $600,000 anyway (for those who prefer to convert ongoing retirement cash flows to lump sum equivalents)!

Busy Isn't Strategic: Why Fragmented Time Is The Silent Killer Of Advisor Growth

(Brendan Frazier | Advisorpedia)

In modern professional life it's easier than ever to feel productive given the many potential to-dos on one's plate (e.g., from clearing out an inbox to fielding 'quick questions' from colleagues). However, a focus on short-term tasks can leave a void for long-term planning, which can ultimately limit one's personal or business growth.

Two behavioral forces can help explain the desire to focus on short-term tasks. To start, "present bias" suggests that individuals naturally prioritize what feels urgent now over what compounds value in the long run (e.g., the empty inbox feels more satisfying than making incremental progress on longer-term initiatives). Also, "urgency addiction" puts a priority on solving small, immediate problems to achieve a sense of progress over focusing on less urgent (but perhaps more important) items. Together, these tendencies can lead to "time fragmentation", where an individual bounces from task to task without dedicating time to longer-term initiatives. In the financial planning context, this could mean focusing on tasks such as one-off requests, internal coordination, and client admin tasks over team leadership and delegation, client experience enhancement, and strategic growth planning.

One potential way to create more time for strategic thinking is time blocking, or setting aside time on one's calendar for longer-term initiatives. By blocking off time, others in the office won't schedule meetings during that period and it removes the need for self-discipline to take time for this strategic work. Also, finding tasks that can be performed more efficiently (perhaps leveraging a tech tool) or delegated (perhaps to an internal team member or an outsourced solution). A first step, though, is to gain awareness of where one's time is 'leaking' using a time-audit (with time-tracking software available to support this task), supplemented by completing a delegation worksheet (to map out what should move off one's plate).

Ultimately, the key point is that while a sense of 'busyness' can feel productive, focusing one's time on short-term tasks could lead to longer-run problems if key challenges aren't addressed. Which suggests that taking a step back to assess how one's days are spent, finding ways to reduce time spent on 'urgent' but less important tasks, and devoting time to strategic thinking could lead to stronger performance in the long run (while still feeling productive in the meantime).

The Insidious Effects Of Hurrying

(Kandi Wiens | Harvard Business Review)

In the workplace, it can often seem like there is 'more' to do. However, trying to take on every possible task can lead to mental and physical exhaustion, or even burnout. Which might lead some stressed-out professionals to consider whether there is an alternative.

In 1974, cardiologists Meyer Friedman and R.H. Rosenman coined the term "hurry sickness" to describe the damaging effects of high-achieving behavior on cardiovascular health. While not a specific diagnosis, they found that behaviors such as chronic rushing, impatience, and a constant sense of time scarcity can harm one's physical and mental well-being (from higher blood presser and insomnia to poor decision-making in the workplace). Signs and symptoms of this "hurry sickness" include when everything feels urgent, when you're preoccupied with the passage of time, a lack of patience, or discomfort with any downtime that is available.

While workplaces can set the tone for their employees when it comes to preventing "hurry sickness" (e.g., by encouraging normal work hours and time off), individuals can take matters into their own hands as well. For example, because a key contributor to feeling hurried is always saying 'yes' to tasks and opportunities that come one's way, one way to instead filter these is the "4D Method" of either Doing (for tasks that are essential and high-priority), Deferring (tasks that can be done later), Delegating (tasks that can be done by others), or Deleting (tasks that aren't actually essential). In addition, implementing 'forcing functions' (i.e., a mechanism or activity that by design leads to a particular result or behavior) such as blocking off time during the workday to deal with unexpected tasks can prevent the need to do them outside of work hours.

In sum, while it might feel fulfilling to always be 'on' during the workday (and sometimes in the early morning or evening), such a pace might not be sustainable and lead to physical and mental stress (as well as the potential for deterioration in one's work performance). Which suggests that taking a step back to decide what work is most important and finding ways to defer, delegate, or delete the rest could lead to a more impactful (and less stressful) work week.

Reframing Procrastination

(Derek Hagen | Meaningful Money)

Just about everyone has procrastinated at one time or another, putting a task off that they know needs to be done. While procrastination can sometimes be a short-lived diversion, extended bouts of procrastination can be frustrating and lead to self-judgment ("Why can't I just do it?").

Instead of representing a lack of willpower, Hagen suggests that procrastination is, in reality, a sign of ambivalence, or being torn between two different options. For instance, while an individual might know it's a good idea to exercise, they might also want to rest after a long day at work. Or, in the financial realm, getting a savings habit started can be challenging when an individual also wants to enjoy life today. Given this ambivalence trying to "just do it" can lead to increased resistance (given that both points of view can be valid).

Rather than trying to overcome procrastination through sheer willpower alone, an alternative approach is to shift the conversation from judgment to curiosity. By understanding the reasoning behind each side of the 'decision' (i.e., taking the proposed action versus continuing to put it off), an individual can reduce the level of judgment and better assess the different motivators pulling at them (hopefully clearing the way for the decision that best meets their needs).

In the end, while procrastination is bound to happen over time, it doesn't necessarily need to be a source of frustration, but rather an opportunity for introspection and the balancing of one's values and desires!

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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.