Weekend Reading For Financial Planners (May 16-17)

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.

Advisor Planning Fees Surge, Though AI Concerns Lurk On The Horizon: Study

(Michael Fischer | ThinkAdvisor)

Over the years, many potential 'threats' have arisen (from DIY brokerages to robo-advisors) that were thought to have the potential to reduce financial advisors' pricing power. While these trends may have shifted advisors' value proposition (e.g., from asset allocation and trading to a more comprehensive planning approach), Kitces Research on Advisor Productivity has found that advisors continue to have significant pricing power in the marketplace (because technology has allowed clients to benefit from a deeper level of service, in return for the fees that they continue to pay).

A recent study by Datos Insights for Envestnet (which used survey data from 491 financial advisors across industry channels) found similar results, with average advisor retainer fees increasing to $6,815 this year from $4,484 in 2023, flat planning fees increasing 15% to $2,926 from $2,554, and subscription fees more than doubling from $215 to $595 per month (a trend of strong pricing on fee-for-service financial planning also echoed in a recent AdvicePay Pricing Trends study). Average AUM fees declined slightly to 0.96% from 1.05% during the period, though it's possible this reflects growing client wealth due to strong market performance putting them in a reduced fee tier (suggesting advisory firms could be earning higher fees in dollar terms, even if the average percent charged decreased somewhat). In addition, Kitces Research on Advisor Productivity also finds a growing trend of advisory firms adding financial planning subscription fees alongside AUM fees… which gives firms room to slightly reduce AUM fee schedules, while still generating more in total fees for their expanded investment-and-planning services.

While advisors appear to maintain strong pricing power, the potential threat of Artificial Intelligence (AI) and machine learning does still appear to be top-of-mind for many, with 69% of respondents citing this as a concern in the Datos survey, up from 29% in 2023. Yet amidst the potential for AI-powered competitors, in practice advisors are strengthening relationships across generations, with 55% of respondents reporting that they engage with clients' children, up from 32% in 2023. Also, as individuals in the Millennial generation build wealth (and as non-asset-based fee models become more popular), the share of advisors serving this group has jumped in the past three years, from 12% to 23%, with relatively younger advisors showing an inclination to serve their peers.

In the end, while the financial advice industry has no doubt evolved over time in response to technological and other developments (with the rise of comprehensive planning at the forefront), consumers appear to continue to perceive that they are getting sufficient value for the fees they pay on top of what improving technology also provides. Which suggests that as AI capabilities advance, advisors will likely continue to evolve as well (perhaps leaning into the 'human' aspects of the advice business that AI-powered tools might find it more challenging to replicate?).

AI Platforms Are Giving Wealthy Families Flawed Financial Answers: Study

(Steve Randall | InvestmentNews)

In the past, when an individual had a question they wanted answered (financial or otherwise), their first instinct might have been to 'Google it' to try to find an original source with the answer they sought. More recently, AI-powered chatbots (e.g., Gemini or ChatGPT) sometimes serve as the first point of contact for such questions, as they can produce completed answers without having to scour through various links (though the original sources used are often cited).

While chatbots produce authoritative-sounding answers to user prompts, a key question is whether these responses are both accurate and thorough. A recent study by AI communications firm 5W and insurance firm Haute Wealth investigated this issue from the perspective of high-net-worth individuals and a sample of the questions they might ask. The report found that AI tools sometimes offered answers based on outdated information (e.g., giving answers to estate planning questions without taking into account the passage of the One Big Beautiful Bill Act). Also, while the chatbots could give users general background about a topic, they might not give a thorough look into the risks and opportunities involved with a particular strategy without explicit prompting.

In addition, when asked to provide recommendations of firms that could execute particular strategies (in this case premium financing or private placement life insurance), the tools frequently defaulted to large incumbents (e.g., Charles Schwab, Fidelity, and major wirehouses) and rarely included smaller firms that might have more niche expertise in a particular issue. For firms looking to boost their presence in AI search, the report identified three valuable signals: a strong '.com' domain history with regulator citations or original research, topical authority in established sources, and recent original content with named human authors. Factors that were less effective included social-channel presence (alone), generic search engine optimization content, and gated content AI crawlers can't access.

In sum, while it's easier than ever for consumers to get a quick answer to a technical question, the answers they receive might not be entirely accurate and/or comprehensive (particularly if they don't probe with additional prompts or investigate the original sourcing). Which could put many advisors in the place of having to correct assumptions prospects and clients bring them (while also working 'together' with answer engines to get themselves noticed as a go-to expert in their area of expertise).

Study Suggests That Active-Passive Fund Performance Gap Might Not Be What It Seems

(Diana Britton | Wealth Management)

The past few decades have seen a surge in interest in 'passive' investment funds, which not only typically come with lower fees but also have been found to have stronger net performance than their actively managed counterparts. For instance, the S&P Dow Jones Indices SPIVA Scorecard, which has served as a popular benchmarking tool to assess how actively managed funds have performed compared to a benchmark index, found that for 2025, 79% of all active large cap U.S. equity funds underperformed the S&P 500 index.

A recent study authored by three academics and sponsored by the Investment Adviser Association's Active Manager's Council suggests, however, that the often-published underperformance of actively managed funds might not be quite what it seems under different methodological choices. First, they took into account the performance of funds that eventually shut down (whereas SPIVA automatically counts these funds as underperforming). Next, the authors weighted results by fund assets rather than weighting all funds equally (as SPIVA does), which has the effect of evaluating the active fund landscape based in part on where investors have actually invested the most dollars. Finally, instead of benchmarking active fund performance to an index (e.g., the S&P 500), they compared them with passive funds that track those indexes (with the thinking that these are the investible funds investors would actually use [that come with their own expenses]).

With these methodological changes, the study finds that 55% of assets invested in actively managed equity funds underperformed (down from a figure of 92% of funds underperforming over the past 20 years based on SPIVA's results), with half of investment categories seeing a majority of their active fund assets outperform. The picture looks even better for actively managed fixed-income funds, with 71% of funds underperforming over the last 10 years according to the SPIVA calculations, but only 37% of assets underperforming using the researchers' methodology.

Altogether, while the 'active vs passive' debate will no doubt continue well into the future, this research demonstrates how methodological choices can impact the results of investment benchmarking studies. Which perhaps leaves it up to investors and their advisors to consider which best reflects their own processes for fund selection and investment?

5 Ways To Avoid Tax Penalties In 2026

(Sheryl Rowling | Morningstar)

With the regular tax filing deadline in the rear-view mirror, many clients will know whether they received a refund or owed additional money to the government. Some in this latter group, though, might have underpaid to such an extent that they also owed a penalty as well, offering advisors the opportunity to help them avoid such a circumstance in the coming year.

While individuals who work a W-2 job typically have taxes withheld throughout the year (though any underpayment penalty could mean that they want to adjust their withholdings for the coming year), self-employed individuals and retirees, amongst others, might find it more difficult to calculate their tax obligations throughout the year (and pay them on time). While such individuals often owe estimated taxes on a quarterly basis, it's worth noting that withholding can take place at any time and be treated as being paid equally throughout the entire year (e.g., by taking a "tax only" IRA distribution with 100% Federal withholding in December to cover tax obligations incurred throughout the year).

Those who want to be sure they avoid penalties in the coming year (even if they don't yet know their total income and tax liabilities) can take advantage of an available "safe harbor" by paying 100% of the previous year's taxes owed (110% for those with Adjusted Gross Incomes over $150,000). Alternatively, an individual might use the annualized income installment method, where they perform a "mini tax return" every quarter based on what was earned to date (for those with 'lumpy' incomes, this can reduce tax paid in low-income quarters compared to making equal estimated payments throughout the year).

Alternatively, given that underpayment penalties aren't criminal fines (but rather a type of interest charge for 'borrowing' money owed to the government during the year) and that the current underpayment rate is about 7%, some individuals (e.g., those who value liquidity or have high-priority uses for the money) might be willing to pay the interest owed next year when they file their taxes. Though perhaps a 'middle ground' solution is to combine the safe harbor strategy (thereby avoiding penalties) without paying any 'extra' on top (even if the taxpayer has an idea of what they will owe), saving the remaining money to be paid (when their tax return is eventually filed) in a high-yielding cash account to earn some interest income (rather than sending it to the government earlier on).

Ultimately, the key point is that because paying underpayment penalties can be frustrating for certain clients, advisors are well-positioned to help them understand their options for avoiding it in the coming year and executing a plan (perhaps alongside their CPA) to do so…likely generating hard-dollar savings (and eliminating a client pain point) in the process!

Analyzing 1099-DIV Forms To Help (New) Clients Save On Taxes

(Christine Benz | Morningstar)

When onboarding a new client, many advisors will include a tax return review in the process to start the process of identifying potential tax-planning opportunities. Notably, while the tax return itself can provide valuable aggregated information, the underlying 1099 that contribute to it also can offer useful insights on particular brokerage accounts.

To start, a 1099-DIV form will show the total ordinary dividends the client received (Box 1a) and which of those were qualified (Box 1b) This information can prove valuable when it comes to asset location, as assets producing a significant amount of nonqualified dividends (which typically are taxed at less-preferable rates than qualified dividends) might be better suited for a tax-sheltered account (e.g., an IRA). Though even when nearly all dividends are qualified, if they came from high-yielding investments, an investor might choose to shift that part of their allocation to a tax-deferred account to reduce current-year taxes.

Also on Form 1099-DIV, Box 2a shows whether mutual fund holdings made any capital gains distributions; looking into these could present an opportunity for an advisor to suggest a more tax-efficient solution that meets their investment objectives (perhaps an ETF with similar investment objectives). In addition, Box 7 of Form 1099-DIV shows any foreign taxes paid during the previous year. This signals that the taxpayer could want to take advantage of the ability to deduct foreign taxes paid (and also raises an asset location question, as this tax deduction could be valuable in taxable accounts but could be offset to some extent if the foreign holdings(s) kick off a significant amount of non-qualified dividends).

In sum, 1099-DIV forms can provide valuable information to a taxpayer and their advisor and open the door to portfolio management and tax planning conversations that could result in significant tax savings in the coming year!

Using Retirement Accounts To Reduce Estimated Tax Penalties Via Tax Withholding From (Required Minimum) Distributions

(Jeff Levine | Nerd's Eye View)

The United States tax system is set up on a "pay-as-you-go" basis, which means that taxpayers are required to pay taxes throughout the year as income is earned, whether it be through withholding income or making estimated tax payments. Individuals who don't pay timely taxes throughout the year may be assessed Estimated Tax Penalties by the IRS, which are based on the amount of unpaid tax and the Federal short-term rate (in the first month of the quarter in which taxes were not paid) plus three percent. While understanding and helping clients comply with the requirements of tax payments can preclude Estimated Tax Penalties, advisors can also use simple arbitrage strategies to help clients maximize their savings when making estimated tax payments with tax-advantaged retirement account distributions.

Clients who pay their taxes by withholding income can benefit from the fact that quarterly payments are not necessarily required by the IRS. While paychecks are generally received on a regular basis throughout the year, resulting in withholding taxes in a true "pay-as-you-go" manner as intended by the IRS, retirement account distributions are often made only once per year, which effectively creates a "pay-as-you-go" loophole for taxpayers whose income consists of retirement account distributions! Because of this, advisors whose clients rely on retirement account distributions for income can help maximize savings by withholding taxes later in the year, thereby letting clients keep their money longer (and letting those funds grow in the meantime) without risk of incurring Estimated Tax Penalties.

For clients who may have inadvertently underpaid (or missed) estimated tax payments during the year, using an 'erase-and-replace' strategy can help them avoid an Estimated Tax Penalty by using a retirement account to withdraw the amount of underpaid estimated tax and withholding the entire amount from that distribution. The client can then 'roll over' non-retirement funds (that otherwise would have been used to make the estimated tax payment) within 60 days of the distribution to avoid any taxes due on the distribution itself, provided that no other rollovers have been made in the last year (so as not to violate the once-per-year-IRA-rollover rule).

Ultimately, the key point is that by leveraging the flexibility of tax withholding from retirement account distributions, advisors can develop strategies to help clients avoid tax penalties while keeping their money invested for longer and postponing tax withholdings until later in the year!

The Financial Planning Expert Who's Boycotting 529s For His Kids

(Dalvin Brown and Oyin Adedoyin | The Wall Street Journal)

For many individuals saving for their children's (or grandchildren's) college educations, 529 plans can offer a tax-efficient means of doing so, as they offer a potential up-front tax deduction or credit for those in certain states, tax-deferred growth, and tax- and penalty-free distributions to the extent that they are used for the beneficiary's qualifying education costs (though the qualified uses of 529 plans have been expanding in recent years), making them a popular choice amongst college savers and a common recommendation by financial advisors.

While funds in 529 plans can be used for a wider range of expenses than some individuals might expect (and can offer flexibility in terms of the beneficiaries they're used for), they still come with greater limits than other types of savings vehicles, such as a taxable brokerage account. Which has contributed to retirement researcher David Blanchett's decision to focus his savings into taxable brokerage accounts (while also using retirement accounts to save for for his and his wife's retirements) rather than into 529 plans for his four kids, with the intention of using the taxable accounts to help contribute to college expenses that might arise. Another aspect of his decision was the relatively late start he had to college savings due to the significant student loans he and his wife incurred following graduate school (leaving less time for assets in the 529 plans to benefit from potentially tax-free compounding). Blanchett sees his approach as a way to offer his family greater financial flexibility today while still having savings that could be used for college.

Altogether, while the tax benefits of saving through 529 plans can be attractive, some individuals might prefer the greater flexibility that other savings vehicles can provide. In the end, though, the more important factor might not be the specific account type an individual uses to save for higher education expenses, but whether they are saving in the first place (alongside their other financial goals)?

Overcoming Objections To Using 529 Plans

(Ann Garcia | The College Financial Lady)

While 529 plans come with a range of tax benefits (from tax-deferred growth to tax-free distributions for a [growing] list of qualified expenses), some parents (and advisors) might be hesitant to use or recommend them, sometimes because of a perception that they are inflexible in many ways. However, in reality, those using 529 plans have more options than might be assumed.

Perhaps the most common question raised about 529s is that a parent (or grandparent) might not know if their child or children (who might be very young) will end up going to college (or might go and have most or all of it fully covered through scholarships and/or financial aid). However, 529 plans are increasingly flexible in how they can be used for education (including for K-12 tuition, trade schools, apprenticeship programs) and now offer the possibility (subject to certain requirements) of rolling up to $35,000 into a Roth IRA. Additional flexibility is available by changing the beneficiaries on the plan, so that if one child doesn't go to college, their parents could change the beneficiary to a sibling who is pursuing higher education (or could keep the funds in the plan to be used by an [eventual] grandchild).

Other individuals might be concerned about the relative lack of investment options typically available in 529 plans (which are often similar to offerings in 401(k) plans) compared to other savings vehicles. However, most 529 plans offer low-cost index funds that can be used to build a target asset allocation for these savings (and if the 529 plan for the particular state an individual lives in offers an unattractive set of investment options, they could instead use another state's 529 plan).

Also, some individuals might be concerned about the potential impact on financial aid awards from saving in a 529 plan. In reality, though, parent-owned 529 plans are amongst the most efficient options, as while they count as an asset (assessed at a maximum rate of 5.64% when calculating the Student Aid Index [SAI]), they don't generate taxable dividend or capital gains income (treated as parental income, which is assessed at a rate up to 47% for the SAI calculation) as would a taxable brokerage account. Also, while parent-owned Roth IRAs might not count as an asset for the SAI calculation, distributions similarly count as parental income for financial aid purposes (even if the withdrawal itself is tax- and penalty-free).

In sum, while saving within a 529 plan might not be for everyone (e.g., those whose cash flow doesn't allow for additional education savings), they offer potentially attractive tax savings and greater flexibility than some individuals might expect while also potentially having less impact on financial aid eligibility than other savings vehicles.

Comparing 529 Plans With Roth IRAs For College Savings

(Jeffrey Trull | Saving For College)

The first type of account that comes to mind for many when it comes to college savings is the 529 plan, given that it was specifically designed for this purpose. Nevertheless, funds for college expenses can come from other types of accounts as well, including those that might not immediately come to mind for education savings.

For instance, some individuals might choose to prioritize saving in their Roth IRA for college savings. Perhaps the most significant benefit of doing so is the greater flexibility it provides compared to the 529 plan, as distributions from Roths can be used for any purpose (provided that the account owner meets the requirements to avoid an early withdrawal penalty and/or taxation of earnings) compared to the more stringent requirements of tax- and penalty-free 529 plan distributions. For instance, if a parent doesn't require all of the assets in their Roth IRA to pay for their children's college, the remainder can be used to support their retirement spending needs. Also, for those who might be eligible for financial aid, Roth IRAs don't count as a parental asset for determining aid eligibility (though distributions from it do count as parental income, which goes into this calculation). On the other hand, perhaps the biggest downside of using a Roth IRA to pay for college is that it drains assets that were likely earmarked for retirement savings, reducing the compounding benefits these tax-sheltered accounts offer (and perhaps requiring the parent to save more later?)

While less flexible in terms of its penalty-free uses, 529 plans offer their own set of attractive benefits. For instance, 529 plan distributions can be made tax- and penalty-free for qualified financial expenses, whereas distributions of Roth IRA distributions used for education expenses can be subject to taxation (if they exceed contributions [which can be withdrawn tax- and penalty-free] and the account owner is below age 59 1/2). 529 plans can also potentially offer an up-front state tax deduction that could be attractive to those who qualify. Also, while Roth IRA contributions have annual limits, there is no cap on 529 contributions (though those adding to 529 accounts will need to keep gift tax considerations in mind). Further, while parent-owned 529 plans are treated an asset for financial aid calculations, distributions are not, which could make them more attractive than Roth IRAs, depending on the balance between the size of the 529 plan and the amount distributed from the Roth IRA.

In the end, while financial factors would seem to tilt the scales towards 529 plans for college savings, those with the financial means to do so might contribute to both Roth IRAs and 529 plans to gain the tax benefits of both and save for education and retirement goals (while those with more limited cash flow could lean towards the flexibility and long-term retirement benefits of the Roth, given the potential to be able to access other sources of funding for college?).

U.S. Airlines Are Hiking Fares – And Travelers Keep Booking

(Leslie Josephs | CNBC)

The hike in oil prices since early March has likely been most noticeable at the gas pump (as signs advertising gas prices are hard to miss!), though has extended to other fuel-cost-driven businesses as well. These include airlines, which have hiked ticket prices in response to the increased costs they face.

According to mid-April data from the Airlines Reporting Corp., domestic economy ticket prices rose 21% from a year earlier to an average of $570, while premium-seat prices are up 17% to an average of $1,444 per trip. Of course, just because airlines increase prices it doesn't mean that consumers will necessarily continue to fly at the same rate. However, the pace of ticket sales appears to remain brisk, with the number of domestic trips booked through travel agencies up 5% in March, with international trips ticking 1% higher. Which has allowed major airlines to weather the storm so far, with demand for higher-priced tickets compensating for increased fuel costs. Low-cost airlines haven't been as lucky, however (due in part to their lack of premium seating options), with budget carriers seeking government relief and already-struggling Spirit Airlines shutting down altogether during this period.

For those considering whether to buy airline tickets now or wait for a potential drop in oil (and ticket) prices, the forecast is unfortunately murky. While a decline in oil prices could eventually result in lower ticket costs, airlines might be reluctant to immediately lower prices, whether because of a slower cost decline in other areas (e.g., oil refining and transportation) or if they try to see whether consumers will continue to accept higher ticket prices. Which could suggest a strategy of booking a ticket now that allows for changes or refunds (or by booking with frequent-flyer miles, as these tickets are often refundable) and keeping an eye out for potential lower prices in the months ahead.

How To Do A Museum

(Brett and Kate McKay | The Art Of Manliness)

Whether in a far-away city or on a 'staycation', museum visits can be a fun and educational activity for all ages. Though, with limited time, travelers might think about the best way to 'do' the museum to maximize the impact of their visit.

To start, advance preparation can improve the outcome of a trip to the museum. Such actions could include packing appropriate clothing (e.g., something long-sleeved, as some galleries can be chilly) and food (to help combat the phenomenon of 'gallery fatigue' that can result from standing for a long period and taking in the various exhibits), as well as downloading the museum's app (if available), which can give an introduction to the layout, exhibits, and sometimes include free audio tours.

Upon arriving at the museum (perhaps 20-30 minutes after it opens to avoid pre-opening and late-day crowds), taking a preliminary walk around (without stopping at any particular exhibit) can help one acclimate to the layout and help decide where to focus their time. Tagging on to a guide-led tour can be a good way to get an introduction to the museum and its different galleries (notably, museum guards can also sometimes be valuable sources of information about the museum and the galleries they watch as well!).  Also, in terms of decorum, being aware of one's 'backpack radius' (if relevant) is important, as a quick spin around could mean knocking into an exhibit (which is why some museums encourage patrons to wear their bags to the front).

Ultimately, the key point is that while a trip to the museum can be an enjoyable experience, taking time to prepare for and acclimate oneself to the museum can help maximize benefits of time spent there and avoid fatigue along the way!

Testing AI Chatbots' Travel-Planning Abilities

(Gunnar Olson | Thrifty Traveler)

Artificial Intelligence-powered chatbots (e.g., Claude and ChatGPT) are becoming widely used for a variety of tasks, from brainstorming marketing content to planning tonight's dinner. Another area where they could come in handy is with travel planning, though, given the stakes involved (from flight and hotel costs to wanting to make the most out of a vacation), getting key decisions 'right' is important for many travelers.

Olson tested several chatbots to see how they could help him plan an upcoming trip to Finland. Overall, the chatbots were impressive in their ability to lay out all aspects of the trip, from flight times to recommended hotels, restaurants, and activities. Like many other tasks, he found that the more specific the prompts, the better the output the chatbots provided. For instance, by specifying the types of individuals traveling (e.g., he was going with an infant), the chatbots were better able to plan itineraries that would meet each traveler's needs (e.g., identifying kid-friendly restaurants).

He also found it useful to explore the information sources the chatbots were using to come up with their recommendations (whether for further research or to ensure recommendations were well-founded). The chatbots were often helpful with budgeting, giving estimated prices for hotels, meals, and activities. At the same time, the chatbots did leave him wanting in some areas, including specific flight recommendations and costs (which can be explored on one's own using flight comparison websites).

Altogether, chatbots appear to offer users the ability to save time when travel planning, offering itineraries and logistics that might have taken longer to create on one's own. That said, some travelers might still prefer to get into the details on their own (as they know their own preferences better than the chatbot) or perhaps leverage a human professional's expertise and ability to fix issues if problems arise (perhaps not unlike the value of a human financial advisor, as chatbots can provide financial planning information but might not be as helpful when serious financial contingencies arise?).

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.