Weekend Reading For Financial Planners (July 11–12)

Author: Adam Van Deusen, CFP

Team Kitces

Adam is a Financial Planning Nerd at Kitces.com. He previously worked at a financial planning firm in Bethesda, Maryland, 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.

Advisors Appear To Boost Women's Financial Confidence, Have Potential Role In Putting Cash To Work: Study

(Steve Randall | InvestmentNews)

A major theme in the financial advisory industry is the growth of women-controlled assets as a result of increased earning and savings power and/or coming into solo control of household wealth after the death of a spouse. Which suggests that awareness of this group's financial needs and priorities could shape more effective advice offerings.

According to HerWorth, a research initiative from Beacon Pointe Advisors that surveyed more than 10,000 women investors, financial advisors play an effective role in boosting their confidence in managing their finances, with 38% of those working with an advisor reporting high confidence in managing their finances, compared to 24% who don't work with an advisor. Amongst the top reasons women surveyed said they would recommend an advisor included demonstrated results (34%) and understanding their goals (21%), while limited coordination with other professionals (25%) was the top reason cited for some advisor relationships falling short.

In terms of areas where they are seeking help, respondents were most likely to cite retirement (41%), investment management (38%), and estate planning (35%). Looking at investment management specifically, large cash holdings appear to be a potential issue with 63% of respondents with at least $500,000 in investible assets have more than $100,000 uninvested, often for more than a year (while these cash holdings could be set aside for major purchases or part of an intentional asset allocation for some, others might be missing out on the growth potential available from investing in other asset classes but might be hesitant to put this cash to work).

Altogether, this study suggests that financial advisors can help women boost their financial confidence and support them in key planning areas (which might overlap with those prioritized by men as well). And given the potential for women to control increasing amounts of wealth in the years ahead, focusing on their priorities (e.g., by coordinating planning with their CPAs and estate planning attorneys to create a more holistic planning experience) could lead to greater client growth and asset retention over time.

IRS Unveils New Automatic Penalty Relief Process

(Thomson Reuters)

While many taxpayers do their best to file their tax returns and pay any balances due on time, sometimes a deadline might slip their mind. Which can lead to being subject to frustrating (and potentially costly) financial penalties from the IRS (e.g., the failure to file penalty is 5% of the tax due, less any tax paid on time and available credits, for each month or partial month the return is late).

Up until now, taxpayers who had consistently made on-time filings and payments before a recent slip-up could make a formal request for penalty relief through the "First Time Abate" program. However, to ease the burden on taxpayers, the IRS announced this week that it will transition to a new program, called Automatic Exemption from Penalty (AEP), which will provide automatic penalty relief to taxpayers who have a history of filing and paying on time. The IRS is starting to phase out First Time Abate and transition to AEP this summer (with the agency expecting that AEP will provide automatic relief for returns with due dates on or after January 1, 2027).

Taxpayers qualify for the program if they have a history of timely filing their returns and paying any tax due in the three prior years (or 12 consecutive quarters for quarterly returns) and can receive relief for penalties related to failure to file, pay, or deposit (the latter being relevant to companies making employment-related tax payments). Some returns aren't eligible for AEP, however, including information returns and returns that are filed only in response to specific transactions or infrequent events (e.g., estate or gift tax returns). Those who don't qualify for AEP can still request penalty relief based on reasonable cause, according to the IRS.

Ultimately, the key point is that while it continues to pay to file tax returns and pay taxes owed on time, those who forget to do so could see automatic relief in the months and years ahead. Nonetheless, financial advisors can offer clients support by ensuring they receive needed tax documentation in a timely manner and reminding them of important filing deadlines so that they build up the number of successful filings and payments needed to qualify for automatic penalty forgiveness in the future if needed.

Successful AI Rollouts, Use Contributing To B-D Advisor Satisfaction: Survey

(Michael Fischer | ThinkAdvisor)

There has been significant discussion within the financial advisor community in recent years about the potential for Artificial Intelligence (AI)-powered tools to offer greater efficiencies (giving advisors the ability to offer a deeper level of service to clients). At the same time, AI use can come with data security and compliance concerns and could require training and practice to be implemented effectively.

According to JD Power's 2026 U.S. Financial Advisor Satisfaction Study (which surveyed 4,503 advisors affiliated with broker-dealers), while the average overall satisfaction for employee advisors was 632 (on a 1,000-point scale) and 688 for independent advisors, these scores jumped to 781 and 826, respectively, for respondents who said they use AI tools provided by their firms and find them to be effective. Those advisors seeing benefits from AI were also significantly more likely to stay loyal to their current firm and to agree that their firm gives them the opportunity to grow their income over time. Further, advisors who rate their firm's AI tools as "very effective" also reported spending more time on client meetings, client service, and new business growth. Characteristics of effective programs cited included well-managed technology rollouts, proactive advisor communication, and effective training.

In sum, while there appear to be potential benefits from firm AI adoption in terms of advisor satisfaction, this survey suggests that a thoughtful approach to doing so is an important factor, whether in selecting AI-powered tools that are most impactful for their advisors, rolling out new software in a coordinated manner, and providing sufficient training. Which could both lead to greater advisor loyalty and improved client retention if advisors translate time savings into a higher level of client service.

When And How Asset Location Matters

(Daniel Jacobs and Josef Zorn | Vanguard)

Asset allocation is a major driver of investment returns, as the mix of stocks, bonds, or other assets presents a unique risk/return combination for a client. While financial advisors can support clients by creating an asset allocation that meets their goals and risk tolerance, they might try to add further value by engaging in strategic asset location and putting certain assets in particular accounts based on their tax treatment (e.g., putting high-yielding bonds in tax-advantaged accounts to avoid the ongoing tax drag that would result from their income distributions being received in taxable accounts).

Vanguard found that asset location can offer a benefit of up to 0.3% of a portfolio's value per year, though the actual value received will depend on several factors. To start, those with higher marginal tax rates can receive greater benefit from asset location (as there are greater savings to be had by having assets taxed at different rates and at different times). Also, those with a more equal balance between the size of their taxable and tax-advantaged accounts will also see a greater benefit (as there will be more room in each account type to take on different assets). Finally, those with a more balanced allocation could benefit more from asset location (as a portfolio tilted heavily towards one asset will leave less room for diversification across account types).

Separately, within the tax-advantaged account category, advisors can be strategic when it comes to putting assets in traditional versus Roth accounts. While the relative income generation of different asset types is less important year (as investment income in these accounts typically isn't taxed on an annual basis), given the tax-free treatment of qualified distributions from Roth accounts, investors might put assets expected to appreciate more (e.g., stocks) in these accounts while putting assets with less appreciation potential (e.g., bonds) in the traditional account (leading to a lower balance in these latter accounts and mitigating the size of future taxable Required Minimum Distributions [RMDs]). Also, advisors might consider how the differing tax treatments of traditional and Roth accounts affect asset allocation, as the net proceeds from distributions from a traditional account will be less than those of a Roth account (as the former are subject to taxation at ordinary rates, whereas qualified distributions from the latter are tax free).

In sum, while recommending an appropriate asset allocation will likely be an advisor's first order of business when it comes to portfolio management, asset location can offer additional value that can compound over time, though the benefit of doing so might vary widely across different client types (and could change as clients' tax rates, portfolio balances, and asset mixes evolve over time).

Should You Keep Foreign Stocks Out Of Your IRA?

(Christine Benz | Morningstar)

When it comes to engaging in optimal asset location, the differences between broad asset classes (e.g., stocks versus bonds) is often at the forefront given how they have different characteristics when it comes to ongoing income distributions. That said, additional value could be gained by considering asset location within asset classes as well, with differences between U.S. and foreign stocks representing a potential opportunity.

For instance, if a foreign stock pays a dividend to shareholders in other countries, the government where the company is domiciled might withhold taxes owed on that income. For individuals in the U.S. with taxable accounts, dividends received from foreign stocks are also taxed, introducing a potential additional tax burden. To let U.S. taxpayers avoid paying taxes on the same foreign-stock dividend twice, the U.S. government allows for a foreign tax credit or deduction for the taxes paid to the foreign country to relieve this burden.

However, given that dividends in tax-advantaged accounts aren't taxed annually, holders of foreign stocks in these accounts could experience taxation by the foreign government without being able to take the foreign tax credit or deduction (as the credit cannot be 'recovered' when distributions are made from these accounts [though it's worth noting that Canada doesn't tax dividends on Canadian stocks held in IRAs]). This might lead some investors to shift holdings of foreign stocks to taxable accounts, though other factors might reduce the value of doing so (e.g., foreign stocks that pay large dividends or foreign stock funds with significant capital gains distributions might create sufficient tax drag to make holding them in a tax-advantaged account preferable, even if the foreign tax credit or deduction might be lost).

Ultimately, the key point is that while the ability to take advantage of the foreign tax credit or deduction could suggest benefits to holding foreign stocks in a taxable account, this is not the only factor involved in this decision and an advisor could offer value to clients by determining whether access to the tax credit outweighs the ongoing taxable dividends or other distributions associated with these assets (perhaps dividing foreign stock holdings between taxable and tax-advantaged accounts based on their unique characteristics?).

Why Asset Location For Stocks In A Brokerage Account Vs IRA Depends On Time Horizon

(Nerd's Eye View)

In an environment where generating portfolio alpha can be difficult, strategies like managing assets on a household basis to take advantage of asset location opportunities to generate "tax alpha" have become popular. The caveat, however, is that making effective asset location decisions is not easy, either.

For instance, while the traditional asset location strategy "rule of thumb" is that tax-inefficient bonds go into an IRA, while equities eligible for preferential tax rates go into a brokerage account, the reality is that for investors with long time horizons, the optimal solution may be the opposite. Once stock dividends (which are subject to annual taxation) and portfolio turnover (which can create taxable capital gains) are considered, the ongoing "tax drag" of the portfolio can be so damaging to long-term returns that placing equities into an IRA may be more efficient, even though they are ultimately taxed at higher rates! In fact, it turns out that almost any level of portfolio turnover will eventually tilt equities towards being held in IRAs given a long enough time horizon (and especially in a future environment where interest rates are low, which would result in little room for bonds to gain tax-deferred growth inside of retirement accounts).

The bottom line, though, is that the idea that the preferred asset location of equities is "always" a brokerage account to take advantage of favorable long-term capital gains rates, while tax-inefficient bonds would be placed in an IRA, is not always correct. In reality, the outcomes are sensitive not only to the expected returns and the tax efficiency of the investments, but also to the time period for investing!

Making The Most Of Estate Planning Reviews Post-OBBBA

(Gene Farrell | Advisor Perspectives)

Many financial advisors (and their clients) paid close attention to the legislative agenda last year, as several measures from the 2017 Tax Cuts and Jobs Act (TCJA) were set to sunset at the end of the year. For estate planning purposes, one of the key considerations was the potential for the estate tax exemption (which was increased significantly under TCJA) to revert back to previous levels.

Under the "One Big Beautiful Bill Act" (OBBBA), which was passed mid-year, the elevated exemption level was made 'permanent' (i.e., without a scheduled sunset date) and was actually increased to $15 million per person (or $30 million per couple) starting in 2026, with further inflation adjustments thereafter. Which might have made many individuals who might have faced Federal estate tax exposure if the elevated exemption had sunset breathe a sigh of relief.

Nevertheless, estate planning remains relevant for clients, even if they might not approach the Federal exemption level. To start, some clients might have taken actions to preserve the higher exemption amount before a potential sunset (e.g., by establishing bypass trusts or Spousal Lifetime Access Trusts [SLATs]) that might no longer be advantageous given the 'permanent' elevated exemption (suggesting some clients might seek to benefit from available ways to modify such trusts). Also, advisors might ensure clients who live in states with state estate taxes (which often have exemption levels much lower than the Federal level) have a plan in place that takes this exposure into account. And for all clients, a regular review of beneficiary designations to determine whether they're up to date (and whether they are in sync with trust planning, if relevant) can be valuable.

In sum, while the potential sunsetting of certain TCJA provisions served as a deadline to take action on estate planning issues, advisors can offer value for their clients in a post-OBBBA world by highlighting exposures that remain on the table (and, outside of taxation, to ensure that assets will pass to the client's intended recipients!).

Irrevocable Trusts Can Cause Problems In Divorce. Changing Them May Be An Option.

(Cheryl Winokur Munk | Barron's)

Establishing an irrevocable trust can be an effective way of removing assets from an individual's taxable estate for estate tax planning purposes. However, the irrevocable nature of these trusts means that it can be difficult to modify the trusts later on if desired. Which can create a particularly tricky situation if married individuals with irrevocable trust(s) eventually decide to divorce.

When provisions in an irrevocable trust are no longer applicable or advisable, individuals might be able to take advantage of "decanting", a special process that can allow for alteration of trust terms by transferring some or all of the assets within the existing trust into a new trust with different terms. For instance, decanting could play a role in the process of equitably dividing the divorcing couple's assets (and, from a financial advisor's perspective, ensuring that their client will be on strong financial footing after the divorce). As an example, a married couple who set up trusts for the benefit of their children might have been able to cover the trust's taxes based on one spouse's income, but the other spouse might not be able to afford them after a divorce. Also, decanting can potentially allow for updated trustee roles and ensure that trust assets are protected for their intended recipients. Nonetheless, decanting can be an expensive, complicated process given state-specific rules and the role of attorneys in the process, suggesting that some divorcing clients might choose to keep their irrevocable trusts in place.

In the end, while irrevocable trusts can be effective estate planning tools, they can create complications if a marriage doesn't go according to plan. Which suggests that financial advisors have a valuable role to play both in supporting clients who face this situation and also in outlining the full implications of establishing an irrevocable trust to those who are considering it (as some clients might prefer to take a more flexible approach given the possibility of relationship dissolution or future tax law changes!).

Ensuring A Client's Ex Doesn't Inherit Their 401(k)

(Denise Appleby | Morningstar)

A divorce can be a stressful experience for all parties involved. In addition to the deep emotional challenges, divorces can also raise difficult financial issues, as they typically involve an (often complicated) division of assets. The financial considerations don't end after it is finalized, though, as changing beneficiaries on accounts maintained following the divorce can be desired if the ex-spouse is currently listed as the beneficiary.

A recent case in the Seventh Circuit Court of Appeals shows that care needs to be taken when changing beneficiaries to ensure that an individual's desires are met. In this case, an individual tried to change the beneficiary on his 401(k) following his divorce (as his ex-spouse was previously the primary beneficiary) by sending a fax to the plan's benefits center. However, because the plan stipulated that beneficiary changes needed to be made by using the plan's online system, the fax wasn't an acceptable way to make the request and when the individual died, his ex-wife received the proceeds of his 401(k). The matter went to court, with the Seventh Circuit ruling that the individual hadn't "substantially complied" with the plan's requirements for changing a beneficiary and ruled against his estate.

Altogether, this case demonstrates the need to pay close attention to plan requirements for changing beneficiaries and to confirm that a beneficiary change request has actually been completed, as a result of a divorce or otherwise. Which suggests a role for financial advisors when it comes to estate planning in ensuring that clients looking to make a change do so correctly and to ensure they receive confirmation that the new beneficiary is in place.

How Financial Advisors Can Overcome Self-Doubt

(Arlene Moss | XY Planning Network)

Financial advisors have the opportunity to make a significant difference in their clients' lives. At the same time, given the complexities of financial planning and client issues one might face (and ever-present stories of advisors who have 'made it'), it can be tempting to succumb to self-doubt in one's knowledge or skills as an advisor. While self-doubt could be a momentary experience (perhaps until the next client offers thanks for supporting them), an extended period could be detrimental to one's career (whether in lacking confidence when meeting with a prospect or client or not putting oneself up for a promotion).

To help combat self-doubt, a first step is to recognize one's skills and unique experiences, whether it's having a certain level of education, or having communication skills that create stronger relationships with clients. Maintaining a community within the industry can help as well, with mastermind or study groups being one way to gather peers to serve as sounding boards or sources of support. In addition, seeking out a mentor can also be helpful for putting one's skills into perspective (as they might have gone through a similar period of self-doubt [and might still face doubts from time to time!]), while coaches can also be valuable resources by taking an independent view of the situation and offering creative ideas to reestablish one's confidence. Finally, leveraging one's skills in a volunteer setting can demonstrate one's impact outside of the office.

In the end, while self-doubt is a natural phenomenon, it doesn't have to be an ever-present part of one's life. By striving for self-improvement and tapping into one's community, an advisor can reaffirm their confidence in their ability to change the lives of their clients!

Creating A Confidence-Building Financial Planning Playbook

(Mike Zarrelli | Journal of Financial Planning)

While an aspiring financial advisor might first gain technical knowledge through a financial planning education program, this is usually just the beginning of their educational path. Once they've started working at a firm, they will likely experience no shortage of (often informal) lessons on how to interact with clients and complete necessary planning tasks well. A problem, though, is that it can be hard to keep track of all of the pieces of wisdom they encounter (while retaining the technical knowledge they've gained over time).

With this in mind, one potential solution for those newer to the advisory industry (and experienced advisors as well!) is to create a "financial planning playbook" to serve as a personal hub of ideas, quotes, mental models, and communication frameworks they've gained over time. In this way, ideas can be catalogued to reference later (reducing the need to keep something 'top of mind' for an extended period).

Such a 'playbook' can be created using one of a variety of tools from a Google Doc or a OneNote notebook to more complex programs like Notion. To start, breaking the notebook into sections (e.g., phrases and scripts to use with clients and productivity hacks) can help keep the 'playbook' organized and easy to find. Certain sections could even have their own sub-sections (e.g., a section on "planning beliefs" could include sub-sections on investments, estate planning, behavioral finance, and more). The key, though, is to regularly add to the notebook and revisit it often to help its lessons 'stick'.

In sum, given that aspiring financial advisors can feel swamped by the amount of best practices they encounter on a daily basis in their (new) jobs, having a way to organize this wisdom can help them improve their craft and, ultimately, help them shape their own unique style as an advisor!

Your Life Matters (Even If You're Not Famous)

(Darius Foroux)

Amidst the proliferation of social media content, it's become easier than ever to become 'famous'. The Internet age has also made it easier to determine one's 'reach', whether it's blog readers, podcast listeners, or social media followers. Which can make comparison with others an easy (and sometimes demotivating) temptation.

A key problem, though, in determining your impact by comparing yourself to others is that there is always going to be someone else with more reach or who seems to have found greater career success (which means that even those who are famous and seemingly have made a major impact on the world still might compare themselves to others who have done 'more'). Which can lead to a (never-ending) quest for external validation (often from people you've never met). However, Foroux highlights that psychologists have found that feeling like you "matter" is less about fame and status but rather comes from making a real difference to the people in your life. Which suggests that spending more time cultivating relationships with family, friends, co-workers, and clients, as well as supporting your local community could ultimately be more fulfilling than seeking (largely anonymous) Internet fame.

Notably, financial advisors are well-positioned to pursue meaning through their work, as they have the opportunity to make a real difference for their clients on a daily basis. And while it might be tempting to compare one's client headcount or total assets managed to another advisor or firm, the quality of relationships made doing this work could ultimately be the key to greater fulfillment.

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.