Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the news that both New York and California are now working on plans to convert their no-longer-fully-deductible state income taxes into either a higher state payroll tax, or an option to making a “charitable” contribution to a state fund instead (where the state would offer a dollar-for-dollar credit against taxes, and as a charitable contribution it would remain deductible for Federal tax purposes). Also in the news is the announcement that Citigroup is also leaving the Broker Protocol, but that even as the Protocol unravels, FINRA still doesn’t believe there’s any reason for the organization to get involved even as the number of temporary restraining orders and arbitrations by wirehouses against former brokers begins to rise.
From there, we have a number of retirement-related articles this week, including a research study that finds what appears to be a significant increase in male mortality rates immediately after early retirement (at age 62), another study showing that mortality rates are rising and that life expectancies in retirement may be starting to shrink (especially as prospective retirees struggle to save and retire later, although ironically shorter retirement time horizons may mean retirees need less to retire than they once believed), a look at all the different types of senior housing arrangements that are emerging as the mass wave of Baby Boomers decide how they want to live in retirement, and why the key to helping retirees be happy may be less about maximizing their retirement portfolios and more about minimizing their regrets in retirement.
We also have several articles on practice management and career development, from tips on how to better navigate your career in an existing advisory firm, to best practices in how to find a mentor, and why truly being a professional financial advisor is about more than just being financially successful but actually committed to being a bona fide professional.
We wrap up with three interesting articles, all around the theme of (non-traditional approaches to) New Year’s resolutions and improving your business and life in 2018: the first explores what it takes to have a truly impactful New Year’s resolution for your advisory firm (hint: it’s about actually establishing a better infrastructure for the firm to be successful); the second explores how it may be better to set goals on how you will allocate and use your time rather than just setting business goals for revenue or growth; and the last looks at how the perennial New Year’s resolution of trying to be more productive may just be a mental trap, because the real issue is not figuring out how to be more productive to achieve your goals, but taking a fresh look at why you’re pursuing them and whether you’re even pursuing the goals that will actually make you happier in the long run!
Enjoy the “light” reading, and hope you had a Happy New Year!
Weekend reading for January 6th – 7th:
State Governments Are Already Gaming the Republican Tax Overhaul (Patrick Clark, Bloomberg) – One of the most politically controversial changes to the Tax Cuts and Jobs Act of 2017 was implementation of a “cap” of $10,000/year on deductions for payments of any kind of State And Local Taxes (SALT), including both state income taxes and property taxes, which are especially impactful for the subset of states that have both high tax rates and high incomes (e.g., California and New York). To address the issue, several states are already evaluating potential “workarounds” to preserve the favorable tax treatment for their citizens. One proposal, which this week was announced as a possibility in New York by Governor Cuomo and also introduced as proposed legislation in California by Kevin de Leon would create new state entities that individuals can “donate” to in order to fund state services (e.g., California’s would be called the “California Excellence Fund) and then provide state citizens a dollar-for-dollar credit against their actual state income taxes. The end result would be that the state receives the same amount of total revenue, but for state citizens who choose to make the donation-in-lieu-of-state-taxes, they’d be able to deduct the payments under the charitable contribution rules (with no cap) rather than as state and local taxes (with the $10,000 cap). Another alternative being considered would be to decrease state income taxes but increase the state payroll taxes by an equivalent amount in high-tax states, as payroll taxes are paid by employers on a pre-tax basis (without being taxed as income to employees). Ultimately, it remains to be seen whether either option will be passed by any states… and if so, whether the Federal government responds with a crackdown against such strategies, as the original revenue/deficit projections for TCJA were dependent on the assumption of those SALT payments not being deductible in the future (and White House economic advisor Gary Cohn has already indicated the White House is evaluating its own options!)!
FINRA Refuses To Get Embroiled In ‘Who-Owns-The-Customer’ Broker Protocol Debate (Rita Raagas, Financial Advisor IQ) – In the twilight hours of 2017, the Broker Protocol continued its slow and steady demise with the news that Citigroup was adding itself to the list of firms that were leaving the Protocol (following Morgan Stanley and UBS in the prior two months), increasing the calls for FINRA to intervene on behalf of consumers who may be harmed by losing the ability to switch firms with their current broker. At the core of the issue is the legal reality that when working for a broker-dealer, clients are legally clients of the firm – not the broker – despite the fact that a recent poll found that 91% of advisors believe they own their customer relationships and the right to service the assets. Nonetheless, at this point FINRA is characterizing the Broker Protocol – or lack thereof – as a matter of an agreement between firms, and not a FINRA matter itself, and that to the extent brokers and their broker-dealers have disputes when a broker changes firms, the matter can be settled in arbitration. Unfortunately, though, thus far this is exactly what’s actually happening, as in the two months since Morgan Stanley left the Broker Protocol, it has already filed more than one Temporary Restraining Order (TRO) and taken former brokers to arbitration for simply trying to take their client relationships with them… raising the question of whether a rising spate of lawsuits may ultimately force FINRA to intervene and enforce the peace.
Study Finds Early Retirement Aligns With Early Death (Emily Zulz, ThinkAdvisor) – Approximately 31% of all Americans begin claiming Social Security benefits the moment they’re eligible at age 62, and so a recent NBER research paper examined the mortality data and found an appreciable rise in male mortality immediately after reaching age 62… which additional analysis suggests is connected to the timing of retirement from the labor force (and the associated lifestyle changes that go with retirement), as nearly 10% of all males retire from the labor force the month they turn 62 and become eligible for Social Security. The situation appears to be further complicated by the fact that while many retire at age 62 when Social Security becomes available, it typically means they lose access to employer health coverage, while Medicare isn’t yet available until age 65… which may be leading to a health insurance gap and undertreatment of conditions that further contribute to the increase in mortality. And for at least some households, the shift from employment to relying (mostly or entirely) on Social Security benefits is connected with a decrease in overall household income, which may also have adverse health consequences. Although notably, those who retire and claim Social Security at age 62 also appear to be more likely to have worked in a job that required physical activity, and are more likely to be retiring in poor health and/or due to health-related reasons. Nonetheless, the fact that mortality appears to rise further after early retirement suggests the need for deeper study as to what is driving the effect, and whether or how the “risks” of early retirement might be ameliorated.
Americans Are Retiring Later, Dying Sooner, And Sicker In-Between (Ben Steverman, Bloomberg) – The average age of retirement is on the rise (in part because of the rising Full Retirement Age of Social Security benefits), with almost 1-in-3 Americans still working between ages 65 and 69 (and almost 1-in-5 still working in their early 70s). Yet at the same time, total lifespans aren’t necessarily extending, which is actually leading to a slightly shorter period of time in retirement. In fact, from 2014 to 2015, the age-adjusted mortality rate in the U.S. actually rose by 1.2% (the first increase since 2005, and the second largest increase since 1980). And a study in the journal Health Affairs found that even by their late 50s, Americans today have more serious health problems than people did at the same ages 10-15 years ago, with more reporting difficulty with Activities of Daily Living (ADLs), and more reporting early onset dementia or other types of cognitive decline. Unfortunately, it’s not entirely clear what is causing these adverse effects – some suggest it’s driven by an ongoing epidemic of suicide, drug overdoses, and alcohol abuse that are spiking the death rates amongst middle-aged whites, while others suggest that years of high obesity rates in the U.S. may finally be taking their toll (while most of the positive improvements from the decline in smoking and medical advances in fighting cardiovascular disease have largely played out). The implications, though, are significant; if the actual duration in retirement is shrinking, then pension plans may not be as underfunded as many fear, and Americans overall may actually be better prepared for (a shorter) retirement than previously believed and don’t actually need to save as much to retire successfully.
Where We’ll Live [And Retire] In The Future (Ric Edelman, Financial Advisor) – For most of human history, “retirement” simply meant continuing to live on the family homestead and tending the family farm with the remaining family members living there. In the modern era, though, retirement is based on financial assets (not farmland), and retirees have more flexibility than ever about where they live. Which raises interesting questions about where and how retirees will choose to live, or want to live, in the future – especially if the duration of retirement increases further with new medical breakthroughs. For some, they simply retire into a “naturally occurring retirement community” (NORC) – which is actually just the community they already live in, adapted with new services and solutions as the entire community ages (e.g., the young families who moved in 40 years ago for the local ice cream truck but now it’s Meals on Wheels, and the newly built local elementary school becomes a senior center). Of course, not all communities develop into NORCs, and not everyone who lives in the community may want to live in one, which is why many seniors instead make the proactive decision to move into an “over-age-55” community instead (which are typically designed to offer convenient retiree-relevant community services, like assistance with yard work and household chores). In fact, over-55 communities and NORCs are now estimated to house more than 1/3rd of all U.S. seniors. Other increasingly popular options also include: “Intentional Communities” or other Niche Communities (for people who specifically identify with one another, from a shared religious or philosophical interest, to shared social or political interests); Shared Housing (where multiple seniors live together under one roof); Co-Housing (where not just a single house is shared, but there’s an entire community with shared resources that the residents maintain); “Ecovillages” for environmentally-sensitive senior living; and Housing Cooperatives or Villages (where a corporation or non-profit owns the entire housing community, and residents buy membership in the corporation, which gives the community more control over who is allowed to move in or not in the first place). Notably, these arrangements all have their own legal structures, may or may not have costs to join and participate in the community, and may or may not be available in all geographic areas… which just further complicates the decision over an ever-increasing range of senior living options!
Why Helping Clients Have Fewer Regrets Leads To A Better Retirement (Carolyn McClanahan, Financial Planning) – As a practicing physician before becoming a financial advisor, McClanahan has many times had to inform patients of a serious illness that may soon end their life… which has given her both an appreciation for the fragility of life, and shifted her retirement planning focus towards helping clients live full lives now (rather than just waiting for a retirement future). In fact, given that life itself and the world we live in is such a complex adaptive system, McClanahan suggests that the best path forward is trying to help clients reduce their fragility and build resiliency to whatever the world may throw at them (whether it’s a “black swan” market decline… or a terrible earthquake, massive war, environmental disaster, or something more personal). Yet again, the point isn’t to worry about the uncertainties of the future, but to be resilient against them; in other words, don’t worry about the risk of the earthquake itself, and instead just build an earthquake-resistant home and move on. Which makes it easier for clients to then live their lives in real time, with a focus on enjoying what they can and reducing their regrets, rather than worrying about the future they can’t entirely control anyway. Fortunately, one of the added benefits of this kind of focus on “what makes us happy now” is that it often leads to making spending changes that cut superfluous spending that doesn’t actually make us happier… which ironically means the process of focusing on what really makes us happy now, with fewer regrets, can actually end out making it easier to save for retirement anyway!
How To Navigate Your Career (Kelli Cruz, Financial Planning) – As with most journeys, one of the biggest challenges in navigating a career path is simply that you need to have a clear perspective on where you’re trying to go, before setting out. In the context of an advisory firm, this means whether your goal is actually to climb the advisory career ladder (from associate to lead advisor to partner), or whether you’d prefer to manage people and climb the administrative or operations ladder of the firm (from administrative assistant to client service administrator to operations manager to COO), or if you’re more investment-inclined and would prefer to pursue an investment-oriented career track (from associate to analyst to portfolio manager to Chief Investment Officer). Once you understand what you’re trying to pursue, you can take a fresh look at your strengths and weaknesses to figure out where to focus, or what needs to be shored up – if your path is in operations, you may need to bolster your organizational and project management skills, while if you’re focused on being an advisor, it may be more about your communication and listening skills. If you’re not certain where your strengths lie, Cruz recommends tools like StrengthsFinder to help figure them out. Then, start learning everything you can about what it takes to succeed in your identified track – read industry publications, blogs, websites, and books to learn what works, raise your hand and get involved in firm projects in your intended path of success to help get more experience (and make yourself more visible in the firm), and find a mentor (or hire a coach) to ensure you have someone who can give you the candid feedback when you need it. Notably, much of this will take time and effort beyond just your normal job itself – but the reality is that’s what it takes to take ownership of your career track and lift yourself up!
How To Find And Keep Your Ideal Mentor (Rianka Dorsainvil, Investment Advisor) – Mentor relationships are especially popular for younger and newer professionals, but ultimately can offer value at any age and stage of life, by connecting with those who have already traveled whatever journey you may now be beginning. The caveat, however, is that means finding the “right” mentor who can actually help you, and then be able to successfully initiate the relationship and actually engage the mentor you want! Dorsainvil suggests that the starting point is to do your own homework in advance – rather than just pursuing someone you see in the media or at a conference, do your due diligence on their business and background first, and then reach out (e.g., via LinkedIn or email) to introduce yourself and express your interest. And when doing so, it’s important to explain what “mentoring” actually means for you… because often potential mentors are afraid to commit to something too open-ended that may make them feel “stuck” in perpetuity. So explain whether you want to meet once a month (or once a quarter, or whatever frequency), and whether you envision the relationship going on for just 6 months, or a year, or indefinitely. In addition, be certain to respect your mentor’s time if you’re asking for it – which means coming prepared to meetings with your agenda (shared in advance), schedule far in advance, and if you need to reschedule let them know well in advance as well (where at all possible). And if you don’t have the right fit, it’s OK to move on – because if you don’t have the right chemistry with your mentor, can’t get comfortable really being vulnerable with him or her, the mentoring relationship isn’t going to work.
Being A [Professional] Financial Advisor: It’s Your Choice (Stephen Horan, Investment Advisor) – While it’s popular for almost anyone who gives financial advice to call themselves a “professional” financial advisor, Horan suggests that really being a professional is about more than just saying it. Citing Jack Bogle’s recent book “Enough”, Horan suggests being a professional really means: 1) placing the interests of clients, and the welfare of society, above the professional’s own needs; 2) having a specialized body of knowledge, and a specialized code of conduct, that sets out professional skills, practices, and performances unique to the profession (to “allow the professional to render judgments with integrity under conditions of ethical uncertainty”); 3) defines an organized approach to learning from experience; and 4) participates in a professional community (that monitors and oversees the behavior and competencies of members). In the context of being an advice professional, this means it’s essential to not only be a fiduciary, but to be committed to lifelong learning (where “continuing education” is more than just checking the box because it’s required), to recognize the benefits of “paying your dues” and getting experience (because a professional must understand and recognize that the world is more complex and dynamic than what textbooks alone can convey), and to be engaged in a professional association or community that helps you collectively pursue the profession’s higher calling.
Truly Impactful New Year’s Resolutions For Advisors (Beverly Flaxington, Advisor Perspectives) – New Year’s is a popular time to make resolutions about what we’re going to do differently and focus on in the upcoming year in our personal lives, but Flaxington suggests that it’s equally relevant to set New Year’s resolutions for your advisory firm as well. The starting point for many firms is just to get clear about what your goals really are for the upcoming year; can you actually quantitatively (and qualitatively?) define what your revenue, growth, profitability, or other goals are for 2018? Next, consider focusing on a particular internal area of the business for improvement in the coming year – it could be a focus on teambuilding (can you better formalize your internal weekly meetings or organize offsites?), or to really focus on updating your vision and mission statement to help the whole team really understand what the firm is building towards (which also helps in teambuilding!), or to take a fresh focus on your client experience and really systematically evaluate how you serve them and what you might to do serve them better. For those who are struggling with growth, your New Year’s resolution might be to sit down and really think about how to refine and enhance your “story” to better explain what you do and why you’re really different than other advisory firms… and then spend the rest of the year updating your marketing materials to communicate those key points.
Don’t Ask How To Be More Productive In 2018, Ask Why You Want To Be (Corinne Purtill & Khe Hy, Quartz) – A perennial goal for most busy professionals is to try to be more productive and more organized in the New Year… for which there’s no lack of information about how to do it, yet in practice most struggle to do so. The starting point of the challenge is to recognize that it’s not really about just becoming more productive, per se, but about changing your habits have to really focus on how to ones that are more productive. Which itself is very difficult to do, because we usually can’t just “will” ourselves into doing things differently, and instead habits are formed and how to change them. At an even more fundamental level, though, is the question of why we’re so obsessed with being more productive in the first place. In part it’s because the process of completing a task and checking it off actually triggers a dopamine release in our brains that literally makes us feel good. The problem, though, is that there’s no end to the “bottomless bowl” of how many tasks we can try to accomplish, and at some point we can become stuck just trying to complete more tasks without really asking why or whether it’s beneficial in the grand scheme of things. Or viewed another way, sometimes the craving to be more productive is just about trying to check off more achievements for the sake of achievements. Which itself may feel good… but still doesn’t necessarily make us happier. Which means really, in the end, the key is not about trying to figure out how to be more productive for the sake of being more productive (because there will always be more things to do), but instead trying to figure out how to spend our time, energy, and focus, in ways that make us happy. Or stated more simply: spend less time trying to figure out how to be more productive at achieving your goals, and more on figuring out whether you’re still pursuing the right goals in the first place.
How I Changed The Growth Trajectory Of My Business In 3 Months (Julie Littlechild, Absolute Engagement) – One of the fundamental challenges of setting goals is that what appears to be a “perfect” plan on paper of establishing targets and then mapping back to the activities to achieve them often doesn’t work out that way in practice. And often the biggest problem is simply that pursuing end point goals can lead you down less-than-ideal paths in the process, or leave you “stuck” in an old way of doing things. For instance, Littlechild strategically wanted to do more speaking, but by focusing solely on revenue goals, ended out pursuing activities which supported revenue but not the long-term goal to shift to more speaking. Accordingly, Littlechild restructured the way she set goals in the first place – instead of focusing on an end point goal of revenue, she set a time-based goal of how much time she wanted to spend on certain activities she was committed to… and then simply let the growth come as it may. The end result – once she gave herself permission to actually focus her time on the new activity, it ended out blossoming anyway… and as a result, Littlechild is now structuring more of her goals not around the revenue she wants to achieve, per se, but where she wants to commit her personal time in the first place. Notably, this philosophy of focusing on how time is spent – and what kinds of habits you establish – is also a topic of previous discussion on this blog, and a lot of others have also recently written about the power of simply setting good daily habits for yourself (and just letting the results come as they will). In other words, don’t just set goals of where you want to end out; focus on setting commitments of where you will really spend your time and energy, because that’s the part that has to actually change in order to achieve a new, different, and better outcome!
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you’re interested in more news and information regarding advisor technology, I’d highly recommend checking out Bill Winterberg’s “FPPad” blog on technology for advisors as well.