Weekend Reading For Financial Planners (June 20–21)

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.

SEC Probes Credential Use On, And Related Fees Of, 401(k) Management Tools

(Sam Bojarski | Citywire RIA)

Historically, advisors haven't had many avenues to manage clients' 401(k) plan or other "held-away" accounts, since unlike traditional custodial investment accounts, advisors generally lack discretionary trading authority in (or any data access to) employer-sponsored retirement plans. Which wasn't necessarily a big issue back when most clients hired advisors as they were transitioning into retirement, and were able to roll over their employer plans into an IRA managed by the advisor at that time; but as advisors have increasingly taken on working-age clients (and the 401(k) plan itself has taken on greater importance in retirement planning), and provide increasingly holistic advice on the client's entire financial household, the friction between 401(k) and non-401(k) plan assets has grown into a bigger issue from an operational, compliance, and ability-to-add-value-through-investment-management standpoint.

In this environment, several data aggregation tools, with Pontera being the most prominent, have emerged to enable advisors to more efficiently and securely manage their clients' 401(k) plan accounts by giving the advisor the ability to not just view, but actually trade in, the 401(k) account. Which would seem to be a preferable solution to the sometimes-used method of asking for, keeping track of, and then logging in with the client's own name and password credentials (which can trigger the requirement for custody audits), since with new 401(k) management solutions like Pontera the advisor doesn't need to collect the client's login information directly (as it is entered by the client themselves and stored securely in Pontera, without giving the advisors access to the credentials at all), and can allow advisors to more efficiently serve clients with 401(k) plan assets (including those who might not have enough non-401(k) plan assets to meet the advisor's minimums).

Nevertheless, regulators in several states have begun to scrutinize advisors' use of Pontera and similar technology, with some citing concerns that recommending clients to share their login credentials with third-party technology may constitute harmful conduct by potentially violating clients' user agreements with their 401(k) platforms (as most Terms of Services explicitly state that users are not permitted to share their credentials with third parties given the security risks). Even as providers like Pontera suggest that custodial platforms are fully capable of implementing increasingly secure ways to implement the approach, and are choosing not to in order to retain their own internal opportunities to manage the assets instead.

Still, the debate continues, and now the Securities and Exchange Commission (SEC) in recent months appears to also be scrutinizing RIAs' use of these tools, including whether firms transparently disclose additional fees that may be incurred through such arrangements (including whether fees charged by these platforms are covered by the firm or passed on to the client), and whether the firm is using third-party providers at all or is doing it themselves and then retaining client login credentials (which, again, could create custody and data security concerns).

The latest developments also come as Fidelity has sent notices to certain clients who have used platforms like Pontera, asking them to go through a process to reset their login credentials (which the asset manager says is part of an effort to protect client data, but in practice 'breaks' clients' existing Pontera links, amplifying the ongoing battle with Pontera in particular about whether such tactics are really about enhancing security or just a means for Fidelity to retain opportunities for its own paid advice offering for 401(k) assets on its platform).

In the end, the regulatory implications of this issue make it important for advisors using this technology (or who are considering doing so) to understand where their own regulators stand (at the state or Federal level), and for those who use it already to explain to their regulators how it allows them to better holistically manage their clients' assets without resorting to collecting client login credentials. Arguably, it is in consumers' interests to be able to control their data and provide advisors access to help them manage their own affairs, but doing so securely is also paramount. Hopefully, regulators will look not just to providers as they battle, but to advisors and their clients themselves, since ultimately, the sheer demand for the offerings (by advisors, on behalf of their clients) signals that there is a desire by consumers for the service, and advisors who use it every day are best positioned to show how held-away asset management technology can truly be used in the client's best interests!

Next-Gen Advisors Focused On Service, Salaries, Training: Survey

(Tracey Longo | Financial Advisor)

While financial advisory firms might sometimes look to add talent that comes to the table with full-time industry experience, they might also consider recent graduates of undergraduate financial planning programs who come to the table with technical knowledge and can be brought up in the firm's culture and service model.

According to a survey of 100 students in undergraduate financial planning programs from FP Transitions and the FinServ Foundation, 96% of respondents said helping people achieve their life goals was a reason they're interested in financial planning (up from 72% last year), even outpacing earning potential (with 83% citing competitive compensation and benefits, with a particular focus on base salary). When looking for a firm to join, 93% of respondents said mentorship, professional growth, and training were either "very important" or "essential", and 81% said a clear career path is important. Many respondents were looking ahead to ownership opportunities as well, with nearly 39% seeing themselves becoming partner or owner of a small or midsize firm and 17% expecting to start their own firm.

One area where recent graduates might have significant experience (perhaps more than many of those at the firms they join) is in the use of Artificial Intelligence (AI) tools, and nearly 73% of respondents said it is at least moderately important for employers to prioritize AI adoption. At the same time, they also expressed some reservations about AI use, including over-reliance on automation and loss of human interaction (64%) and accuracy of AI output (63%).

In sum, at a time when some firms are looking at ways to leverage AI to provide greater efficiencies (including some of the tasks traditionally performed by entry-level employees), this survey suggests that attracting the advisors of tomorrow could mean leaning into more 'analog' aspects of the business, from building a service-oriented culture to creating mentorship and training opportunities to creating career paths that show how they can advance within the firm as their skills and responsibilities grow (hopefully leading to a long-term relationship for both parties!).

How Advisors Can Win Over Clients Who Fired Their Last Advisor

(Jacqueline Sergeant | Financial Advisor)

Many prospective financial planning clients have never worked with an advisor before, having handled their finances on a 'DIY' basis up until that point. However, some approach a firm after having 'fired' their previous advisor, which might leave the potential new advisor wondering what went wrong and how they might serve the prospective client better (and whether the prospect might be a good fit in the first place).

According to a survey by Morningstar of 185 investors who fired an advisor in the past, most of this group actually move on without an advisor, with 73% leaving the financial planning system altogether and 27% hiring a new advisor. Amongst those who switched to a new advisor, the top reasons for leaving their previous advisor included quality of advice, quality of the relationship, cost of services, quality of communication, and investment return (those who left their previous advisor but decided not to engage a new one cited similar factors, though comfort handling their own finances was also a consideration). Which suggests that while 'switchers' might not need to start from scratch in terms of planning (and, unlike other new clients might not have an immediate 'pain point' to solve), they could be seeking a higher level of service and a stronger relationship (with better communication) than they received at their previous firm (and could ask prospective advisors directly how they would be different).

Ultimately, the key point is that asking clients whether they have previously worked with an advisor can help uncover what matters to them most in an advisory relationship. In addition, learning about a prospective client's experiences with their previous advisor (and why they left them) can help both the prospect and the potential new advisor better understand whether they would be a good fit for each other (and to reduce the chances of a future 'breakup').

Why I've Changed My Mind About Dividend-Paying Stocks

(Christine Benz | Morningstar)

When it comes to creating a retirement income portfolio, some investors take a "total return" approach of building a portfolio with the best possible risk and reward characteristics for their needs (while being largely agnostic to whether the return is coming from price appreciation or dividends), while others focus on maximizing dividends to create a steady stream of income (that doesn't require selling appreciated assets).

Many observers might look askance at an investment approach that seeks to maximize dividends. To start, this strategy can be tax-inefficient, as dividends earned in taxable accounts are subject to taxation in the year they are paid, whereas capital gains are taxed when they are realized (providing greater control over their size and timing). Also, seeking out dividend-paying stocks narrows the available investment universe and could lead to sector risk (and could create sector risk, as stocks with high dividend yields are often found in the financial, energy, and utility categories).

While Benz has long been a fan of the total return approach (due in part to the above factors), she is less critical of a dividend-centric strategy for those generating retirement income from their portfolios than she was in the past. To start, while dividend-paying stocks have posted lower returns than the broader stock market over the past few decades, they have also come with lower volatility, which might be attractive to certain investors (though they don't hold the same power as bonds do as a portfolio dampener during equity market shocks). The bigger reason for Benz, though, is that some retirees might be encouraged to spend more from dividend income compared to having to sell shares to generate income (which can require the decision of what to sell and could generate anxiety from seeing their portfolio balance decline).

Altogether, for some investors, the psychological (and potential spending) boost that comes from regular dividend checks and somewhat dampened volatility could make a dividend-centric approach worth (in their minds) the potential sacrifices of lower returns and tax inefficiency. That said, financial advisors who prefer a total return approach could support clients with these preferences by using a portfolio strategy that generates 'paychecks' for their clients (approximating the feeling of receiving a dividend check while also relieving them of the burden of picking which investments to sell) while also noting the potential value of this approach for managing sequence of return risk and reducing the client's tax burden as well.

When It's A Good Idea To Reinvest Dividends (And When It Might Not Be)

(Amy Arnott | Morningstar)

Many stocks (and stock funds) pay cash dividends as a way to distribute company profits to shareholders. Once received, investors have the option to reinvest the dividend automatically in the company stock or fund (which can be done easily on brokerage platforms) or keep the dividend in cash (perhaps to be invested in a different stock or fund).

On the plus side, dividend reinvestment offers a level of simplicity for investors by eliminating the need to remember to reinvest the dividend proceeds (if not being used to fund lifestyle spending needs). However, dividend reinvestment might not be desired if an investor has an overly large position in a stock (particularly if it's had a recent run-up in price) given a desire to maintain portfolio diversification. Such an investor might instead use the dividend to rebalance their portfolio to its desired asset allocation. Dividend reinvestment also creates new (and likely small) tax lots within taxable accounts, which could create confusion for some investors when selling shares in the asset (though this could be attractive to advisors from a tax-loss harvesting perspective by creating new high-basis lots that could generate losses in a market downturn).

In sum, while automatic dividend reinvestment provides a level of simplicity for investors, advisors can offer value by being strategic with dividends, whether by ensuring the client's portfolio remains in line with their chosen asset allocation or by identifying tax planning opportunities (and, at a more basic level, being accountable for executing the chosen strategy!).

Dividend Investing: A Value Tilt In Disguise?

(Gregg Fisher | Journal of Financial Planning)

Stocks that offer a high dividend yield are attractive to many investors for the income that can be generated without having to sell the principal invested in the stock. Nevertheless, digging deeper into the characteristics of these higher-yielding stocks could show whether investors might be taking on (perhaps unexpected) risks.

To assess high-yielding stocks, Fisher compared the top 10% highest-yielding stocks in the Russell 3000 Index with the broader index for the period between 1979 and 2012 (a period when higher-yielding stocks outperformed the broader market, though this trend has reversed in the time since then). Notably, while the high-yielding stocks outperformed as a whole, looking at yield in isolation showed that a high yield in isolation actually had a negative impact on returns (Fisher suggests one possibility for this is that many of such stocks having recently faced a price downturn that drove their yields up). On the other hand, the largest positive drivers of the high-yielders' performance were earnings yield, (low) volatility, and the value factor, indicating it's not the yield itself that drove positive returns, but rather exposure to other attributes.

In the end, while some investors might see a high dividend yield as a sign of strength, in reality it could actually be a sign of weakness if not backed up by strong earnings. Also, because high-yielding stocks aren't evenly distributed across sectors and factors, it's important for investors to recognize the added risks they might be taking on from such an approach (e.g., a tilt toward value stocks that they might not have expected)!

The Phone Screen: 10 Minutes To Make It Or Break It

(Maddy Roche | XY Planning Network Blog)

Hiring a new employee can be a time-intensive process for a financial advisory firm, from creating an effective job listing to managing the interview process. As part of the hiring process, after reviewing resumes and identifying those who appear to have the desired qualifications for the position, many firms use a short (perhaps 10-minute) phone interview to further whittle down the list of candidates so that they only spend time in the more formal interview (and, often, work sample) process with those who appear to be good fits.

Given the short amount of time available for each phone interview, it's important to get the most value out of each question. After an initial introduction, Roche would first ask candidates about how they heard about the position. This is both an 'easy win' for the (possibly nervous) candidate and a way to gauge whether they have specific interest in the company or firm (e.g., it might be a red flag if they say they've applied to every finance-related job they can find online). Next, an interviewer might ask what intrigues the candidate the most about the position they've applied for. This question can reveal whether the candidate fully understands the role and can link their personal talents and interests to it. Finally, the interviewer might ask the candidate to describe what the firm does. This could reveal whether they've done specific research on the firm (and liked what they saw!) or whether they're applying to a laundry list of firms without determining which might be a good fit.

Following the conversation, the interviewer might score the candidate's answers and compare them to how they were rated based on their resume and cover letter alone. Applicants who earned high marks in both could be good candidates to advance to the next round of interviews, while those who might have performed well in one part but not the other might require a deeper level of consideration (e.g., someone who had good answers during the phone interview but whose resume had multiple typos might not be suited for a position that requires attention to detail).

In the end, because there is pressure on both the candidate (who's hoping to make a good impression) and the firm making the hire (which wants to weed out bad fits while not missing out on a 'rock star' candidate), creating a standardized approach to the phone interview process can allow firms to efficiently and fairly evaluate applicants and identify those who merit additional consideration for the position at hand (and potentially identify those who might be a fit for a different position?).

How To Interview For A Financial Planning Job

(Daniel Yerger | MY Wealth Planners)

Interviews are a common part of the hiring process across industries, and can be quite revealing when it comes to hiring for a financial planning role in particular. Not only can an interview help reveal a candidate's technical acumen and interest in the role but also can serve as a preview for how they might interact with colleagues and clients alike.

During a recent round of interviews, Yerger's firm asked 15 questions within a 30-minute interview. The questions covered many areas, from assessing the candidate's interest in the firm and the position (e.g., asking why they are interested in the specific role as whether the firm's hiring timeline and work location requirements are a fit) to gauging their financial planning experience (e.g., asking about their favorite financial planning tool and offering a revised, follow-up scenario to the case study they worked on earlier in the process) to understanding their career goals (e.g., asking why they want to be a planner [other than wanting to help people] and, based on the firm's benefits guide, what their personal objectives would be over their first three years with the firm).

Notably, there aren't necessarily 'right' answers to each of these questions. Rather, his firm is looking for 'signals' the candidate might be sending. For instance, a positive signal could come from demonstrating 'extra' research into the firm and the role (e.g., by demonstrating that they've looked beyond the firm's homepage to read its blog posts or listen to its podcasts). Some responses might be 'non-signals' that aren't necessarily positive or negative. For instance, when asked whether they have questions about the firm or role, the candidate might answer 'none' or ask a very general question (whereas a positive signal could come from a question that demonstrates curiosity and attentiveness to detail).

The interview can also unearth negative signals. Notably, these are not limited to the substance of their answers, but also how the candidate acts before and during the interview. For instance, if the candidate isn't able to communicate clearly (or, even worse, speaks in an unfriendly or unprofessional way to the interviewer or other firm staff they encounter), it could be a sign that they might not perform well in front of clients. In addition, candidates could give off non-verbal negative signals if they come to the interview dressed unprofessionally or don't arrive in a timely manner.

Altogether, a well-structured 30-minute interview can provide a firm with a wealth of information about each applicant, both about their skills and background as well as how they act within the conversation. Which can ultimately help the firm identify the candidate who is best suited for the particular role (and who team members and clients would want to work with for years to come!).

Hiring Advisory Firm Employees For The Long Term: How To (Efficiently) Screen For The Right Culture Fit

(Sydney Squires | Nerd's Eye View)

Hiring in a financial planning firm often represents an important inflection point, where the decision to expand headcount can temporarily strain profit margins in the pursuit of long-term growth. But the investment of time, training, and onboarding resources often only pays off if the newly hired employee stays for the long-term. Firms dedicate an immense amount of time and resources to the hiring process, often focusing on ascertaining an employee's technical and communication skills. However, technical competency and enthusiasm for the day-to-day work may not be enough to guarantee a long-term fit. In fact, when it comes to long-term retention, little matters more than culture fit – how an employee fits within a firm's culture.

Culture, broadly defined as 'how things get done' in a workplace, encompasses far more than stated values. It includes everyday policies, interpersonal dynamics, feedback styles, and even rituals or unspoken norms. These elements shape the employee experience and influence whether someone feels a sense of belonging and purpose – both of which are highly correlated with advisor wellbeing, according to Kitces Research. In particular, feeling comfortable being oneself at work and having autonomy over one's schedule are significant drivers of job satisfaction. Accordingly, hiring employees who align with the firm's values and culture increases the odds they will stay, grow, and contribute over time – rather than quietly disengage or exit prematurely.

This approach can also be applied upstream in the hiring funnel: by embedding cultural signals into job postings or firm websites – such as mentioning team rituals, core values, or preferred traits – firms can attract candidates who resonate with their ethos, while others can self-select out. The interview process itself can be structured to balance both technical competence and culture fit. Culture-focused questions can include asking candidates about their approach to ethical dilemmas, their learning styles, or their favorite work projects. Follow-up prompts like "What happened next?" or "Why did that matter to you?" help draw out authentic, reflective responses. Managers can also use brief work samples to observe a candidate's behavior and values in action.

Ultimately, cultural fit doesn't mean homogeneity or hiring in one's own image; diversity of thought, background, and aptitude strengthen a firm's capacity to grow and adapt. The key point is that clearly identifying core behavioral expectations and values that shape how people work together, and hiring individuals who are both capable and willing to work within those boundaries, can meaningfully enhance employee engagement and retention. Firms that build hiring processes around both aptitude and alignment are far more likely to assemble resilient, high-functioning teams that thrive over time!

AI Might Appear To Save Time, But Does It Boost Productivity?

(Cal Newport)

Given their ability to perform a multitude of work-related tasks, AI tools might be expected to provide workers with significant time savings that could be applied to higher-value activities (that could ultimately lead to greater productivity and profitability for their companies). Nevertheless, a recent survey suggests that, at least at the moment, AI use might not be channeled into stronger performance.

According to a survey of 6,000 digital workers by the Work AI Institute, while respondents said that AI saved them an average of 11 hours per week (that could seemingly be used to produce additional work), only 13% of respondents said their company's performance had improved. Possible reasons for this finding include that respondents weren't counting time spent waiting for AI tools to complete tasks (sometimes referred to as "botsitting"), weren't accounting for the cost of switching between multiple AI tools in the search for the 'best' output, and/or were engaging in "workplace theater" where they appear to be busy but aren't engaged in tasks that actually move the needle in terms of company performance.

Newport suggests, however, that this phenomenon is not necessarily limited to AI and could be seen in the past with the introduction of email, instant messaging tools, and video conferencing. While these tools created potential efficiencies (e.g., sending an email instead of holding a phone call or meeting), they also introduced distractions that could take away from more meaningful work (e.g., 'task switching' [i.e., regularly checking email and answering instant messages] can reduce focus from the 'core' work at hand).

In the end, while AI holds promise in freeing up time for professionals (including financial advisors), it's important to recognize the potential time costs that come with its use, from hours spent 'botsitting' to time spent verifying outputs to potential distractions that could take away from deep, focused work. Which could ultimately moderate the potential productivity boost from AI use (and feed into the cost-benefit equation of how [best] to implement these tools in the first place).

The 5 Elements Of Meaningful Work In The AI Era

(Alice Williams | Great Place To Work)

The adoption of AI tools has the potential not only to change how fast work gets done, but also the types of work that employees are asked to do. Which suggests that companies looking to attract and retain top talent might consider how they can offer their employees a sense of meaning at a time of greater automation.

One element of meaningful work is "task integrity", or whether employees can see their work feeding into a larger goal (rather than just seeming like a set of disconnected tasks). This can be supported by giving workers control over the big picture of the projects they take on, rather than just taking on specific tasks (that might be 'handed off' to an AI tool, which might then trigger a task for another human). Employers might also find opportunities to help their teams develop a sense of mastery, particularly for the skills (e.g., managing interpersonal relationships) that could be particularly important in the AI era. Employees also tend to perform better when they have a sense of autonomy in their work, being allowed to make certain decisions without consulting a manager (or, perhaps even worse, an AI tool). In addition, employees will continue to benefit from a sense of teamwork in the workplace, whether through collaboration on projects or in-person interactions that build trust. Finally, employees will continue to want to understand the significance of the work they perform and see the outcomes of their inputs (and not just 'check the box' that a particular task was completed).

Ultimately, the key point is that at a time of potential workplace disruption, emphasizing the core elements that boost employee wellbeing could help firms garner the benefits of using AI without alienating employees from the work that offers them a sense of meaning (leading to a more motivated, resilient workforce).

Why ATMs Didn't Kill Bank Teller Jobs, But The iPhone Did

(David Oks)

A hot topic in recent years has been the potential for advances in AI technology to reduce the number of employees in certain fields, or perhaps eliminate those professions altogether. While AI is a new technology, studying previous technological advances could shed light on what an AI-powered future might look like.

For instance, the introduction of the Automated Teller Machine (ATM) in the 1970s could have been expected to lead to a sharp reduction in the number of human bank tellers, as the machines could perform many of their functions at a lower cost and in less time (and can 'work' 24 hours a day without a need for breaks!). However, between 1970 and 2010 the number of bank tellers actually increased in absolute terms (though the they did become a smaller share of total employment as other occupations grew faster), driven in part by a rise in the number of physical bank branches. Notably, the tellers' role did change in this period, shifting from more 'mechanical' work such as cashing or depositing checks (which could be done by an ATM) to creating relationships with customers (who might have come into the bank branch to use the ATM) and introducing them to additional bank services like credit cards, loans, and investment products.

In the past 15 years, though, the number of bank tellers has sharply declined, shrinking from 332,000 in 2010 to 164,000 in 2022. This appears largely due to the introduction of the smartphone, which allows users to conduct many banking activities that might have previously required a trip to a bank branch and/or its connected ATM (the number of commercial bank branches per capital has fallen by nearly 30% since 2009 as well). At the same time, amidst the decline in the number of bank tellers (what might be thought of as a 'mid-skill' position requiring a moderate amount of technical skill and responsibility), the mobile banking revolution has created a smaller number of 'high-skill' positions (e.g., software developers to create and manage these systems) and a larger number of 'low-skill' positions (e.g., customer service representatives who help users troubleshoot the online banking platform), an example of what is called in labor economics "job polarization".

In sum, a new technology that appears to perform the functions of a given job might not necessarily replace individuals working in that field. Rather, it can take a total paradigm shift (e.g., from in-person to digital banking) to more sharply disrupt a particular field. Which suggests that the impact of AI might not necessarily be felt in eliminating jobs today, but perhaps introducing new ways of doing things that could dramatically impact the labor market down the line (potentially eliminating certain jobs while creating new ones that have yet to be conceived).

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.