Weekend Reading For Financial Planners (November 14–15)

Author: Adam Van Deusen, CFP®

Team Kitces

Adam Van Deusen, CFP®, is a Financial Planning Nerd at Kitces.com, where he hosts the Financial Advisor Technician podcast, writes articles for the Nerd’s Eye View blog (including the popular Weekend Reading for Financial Advisors), and regularly speaks at industry events on a range of technical and practice management topics. He previously worked at a financial planning firm in the Washington, D.C. area 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.

More RIAs Preparing Succession Plans, But Confidence In Smooth Handoff Lags Amidst Training Gaps: DeVoe Survey

(Leo Almazora | InvestmentNews)

Amidst a wave of financial advisory firm founders nearing retirement, succession planning has been a major industry topic over the last several years. While some founders might look to pursue an internal succession, a number of (often private equity-funded) RIA 'aggregators' and other buyers offer an additional option. Either way, though, advance planning can help a founder make the best decision for their (and their team's and clients') needs.

According to M&A and consulting firm DeVoe & Company's latest Talent & Growth Report, which surveyed 132 RIA founders, owners, partners, and employees (mostly at firms with at least $100M in AUM), 46% of firms said they have a succession plan being implemented or fully in place, up from 42% in last year's survey, with 63% of firms having at least drafted or begun executing a plan. That said, there appears to be a divide in enthusiasm, with 21% of RIAs saying they are not considering a formal written succession plan (up from 6% the year before), suggesting some firms are taking a more ad hoc approach to succession planning (which could cause issues if unexpected founder turnover occurs, but may simply be a natural counter-trend that when there's so much M&A demand, founders are more confident that they will have the liquidity to sell even on short notice if they ever needed to?).

Further, having a succession plan in place isn't a guarantee of confidence in it, with 72% of firms overall lacking confidence they could hand off leadership smoothly (up from 57% in 2019), with only 28% rating their successors as highly or extremely ready to lead. Notably, 43% of firms reported having a clearly articulated advisor career path (the most common request of next-generation professionals), up from 38% the previous year but below the high-water mark of 59% seen in 2022.

For some firms, training the next generation of talent appears to be a challenge area. According to the DeVoe survey, only 10% of firms considered their program for associate and junior advisors robust and comprehensive (notably, larger firms were much more likely to report a robust training program compared to smaller firms [though smaller firms can still develop right-sized programs for their needs]). Looking specifically at business development training, firms exhibited a sharp divide, with 53% of firms training advisors on every growth skill (e.g., asking for referrals and closing new clients) DeVoe measured (up from 46% last year), while the percentage of firms offering no formal growth training also rose, to 30% from 27%.

In sum, these survey findings suggest that while some firms appear to be taking an intentional approach to succession planning (including growing next-generation team members, who could either take over the firm down the line or represent an attractive talent bench for a potential acquirer), others have put off this task. Looking beyond succession planning, though, an emphasis on creating career paths and training programs for new advisors could pay off for RIAs, whether in the form of improved employee retention (particularly if they know what their future at the firm could look like) and/or a more resilient business (e.g., having talent ready to step up if more senior advisors depart unexpectedly).

IRS Updates Tax Brackets, Deductions, Credits For 2027

(Ashlea Ebeling and Richard Rubin | The Wall Street Journal)

Recognizing that inflation is a regular part of the economic picture, many key thresholds are adjusted each year for inflation, allowing Americans to earn more (in nominal terms) while remaining in the same tax bracket. And for financial advisors, keeping an eye on key thresholds and planning client income accordingly can avoid entering phase-out areas or missing out entirely on certain deductions or credits.

While the seven tax brackets (i.e., 10%, 12%, 22%, 24%, 32%, 35%, and 37%) will remain the same in 2027 (after the One Big Beautiful Bill Act [OBBBA] made them 'permanent'), the IRS announced that income needed to fall into each tax bracket will be adjusted upward by about 3.2% (e.g., for 2027, for those married filing jointly will have taxable income up to $25,600 taxed at the 10% rate while taxable income greater than $793,650 will be taxed at the highest 37% rate). Along with tax brackets, the standard deduction will also increase to $16,600 for individuals (up $500 from 2026) and to $33,200 for those married filing jointly (up $1,000). Also, the cap on the State And Local Tax (SALT) deduction will increase to $40,804 for 2027 and the child tax credit will be $2,300 (up from $2,200). Notably, several of the income levels to determine eligibility for certain deductions introduced in the OBBBA (e.g., the temporary deductions for tips, overtime, car loan interest, and for seniors) aren't indexed for inflation.

For retirement savers, the IRS announced an increase to the contribution limit for 401(k)s and similar workplace retirement plans in 2027 to $25,500 (up $1,000 from last year), while the catch-up contribution available to those age 50 or older will increase by $500 to $8,500 (on the other hand, the contribution limit for IRAs will remain $7,500). Other thresholds seeing adjustments for 2027 include the annual estate tax exclusion (which will increase to $15.48 million from $15 million) and the annual gift tax exclusion (which rises from $19,000 to $20,000).

Altogether, these annual changes to brackets, deductions, and other areas give financial advisors the chance to help their clients maximize opportunities available to them (e.g., 'maxing out' retirement contributions with the new limits) while also being aware of key thresholds for certain deductions and credits!

RIAs With Client Specialty Can Beat Mega Firms In AI Search Environment: Study

(Patrick Donachie | Wealth Management)

For years, many financial advisory firms have tried to use Search Engine Optimization (SEO) techniques to rise up the rankings when a consumer searches for a financial advisor or seeks answers to a planning-related question. However, the growing use of AI-powered chatbots amongst consumers looking for answers has led some firms to wonder how they can be cited more often in the chatbots' responses (for consumers who are currently looking for an advisor or who want to go deeper on a topic).

A recent study by public relations firm Gregory sought to find out who is 'winning' in the current AI search environment by writing 248 prompts in the words eight audiences (including business owners, attorneys, physicians, and tech employees, amongst others) use when they look for financial help and seeing which firms were cited most often by chatbots. Notably, while three national RIAs (Mercer Advisors, Creative Planning, and Mariner Wealth Advisors) were cited most often, size was no guarantee of being cited (with only 10 of Barron's 2026 Top 100 RIAs seeing a mention rate above 1% and 22 never appearing at all). For firms that are mentioned, their websites were most likely to be cited (in 89.5% of answers) with other citations including directories and listing sites (24.5%), business and financial media (24.0%), and social media, video, and podcasts (13.8%).

While size appears to be somewhat influential in AI search result appearances, firms (whether larger or smaller) that have website pages targeting an ideal client profile appear to thrive as well. For instance, having a page associated with serving a particular profession allowed smaller firms to get more mentions in searches, while smaller firms who leaned into their local presence tended to perform better as well compared to national firms. The study found that posting fees on the firm's website can be supportive as well when consumers seek fee information from a chatbot.

Ultimately, the key point is that while larger firms might have heftier marketing budgets and cover a wider range of client types and geographies, relatively smaller firms appear to be able to stake their place in AI search results by leaning into what makes them different, whether it's knowing the ins and outs of their local geography, the planning needs of a certain profession, or demonstrated expertise in particular planning areas.

What Retirees (And Advisors) Can And Can't Control About RMDs

(Christine Benz | Morningstar)

For retirees who need to take withdrawals from their traditional IRAs or 401(k)s to meet their lifestyle spending needs, Required Minimum Distributions (RMDs) aren't necessarily a pain point as they might be withdrawing the required amount (or even more) anyway. However, for those who don't need to take such withdrawals to fund their lifestyles, RMDs can be a particular nuisance, both for the direct tax owed on the distribution (which is treated as ordinary income) and the potential for the RMD to cause them to owe more in other areas (e.g., deduction phaseouts or increased Income-Related Monthly Adjustment Amount [IRMAA] surcharges).

Given that many (relatively wealthier) financial planning clients fall into the latter bucket, controlling RMDs is often a key planning topic. The most control a retiree has with regard to their RMDs is determining the source from where it will be taken. While RMDs need to be taken separately from IRAs and 401(k)s, retirees have flexibility on where to take the distribution from within each bucket and the assets to distribute from the chosen account. This can provide flexibility to use the RMD as part of a rebalancing process, as an investor might choose to sell shares of a highly appreciated asset to fund the RMD and bring their asset allocation in line with their target (though selling an asset isn't required; securities can be transferred in kind to a taxable brokerage account to fulfill the RMD).

Probably the greatest desire for retirees when it comes to RMDs would be to control the amount they must distribute in a particular year. While it requires planning in advance, one way to reduce the size of RMDs is to hold more assets in Roth-style accounts (which don't have RMDs during the account owner's lifetime), whether through contributions to these accounts during one's working years or by engaging in (partial) Roth conversions to shift funds from traditional to Roth accounts. For those who reach their required beginning date for RMDs, though, there is room (for those who are charitably minded) to blunt the tax burden from the RMD by engaging in Qualified Charitable Distributions (QCDs), which are applied against the annual RMD (though to do so they must be made before other types of distributions fulfill the RMD amount!).

One area where individuals have relatively little control over their RMDs is the timing of them, as their required beginning date is determined by their birth year. That said, there is some flexibility for those taking their first RMD in that it can be taken by April 1 of the following year (though this might not be advantageous from a tax perspective, as it means they'll take two RMDs in that year). Also, those who are still employed can take advantage of the "still-working exception", where they will not owe RMDs on their current employer's plan (as long as they don't own more than 5% of the business), though they will still owe RMDs on any IRAs and previous employers' plans. Also, retirees have leeway in terms of when they take their RMD during the year, with some preferring to make the distribution early in the year to check the task off the list, while others might wait until later in the year to allow for additional compounding within the tax-deferred account.

In sum, while RMDs are a fact of life for retirees, there are several ways to manage their impact. Which gives financial advisors the opportunity to offer hard-dollar value (and the satisfaction that many get from seeing a lower tax bill) for their clients (both those facing RMDs as well as younger clients, as the latter group has more ways to control their future RMD obligations!).

Effective Implementation Of A Backdoor Roth Strategy: Detailed Nuances, IRS Form 8606 (And When It's Even Worth Doing)

(Steven Jarvis and Matthew Jarvis | Nerd's Eye View)

One way to reduce the size of (future) RMDs is to make contributions to Roth, rather than taxable, accounts. However, given that income phaseouts apply to contributions made to a Roth IRA, some higher-income clients might not be eligible to make their full annual contribution. That said, these individuals could be able to take advantage of the 'backdoor' Roth strategy, as there are no income limitations on contributions made to a traditional IRA, nor on conversions from a traditional IRA to a Roth IRA (since 2010). Thus, the strategy itself consists of a 2-step process involving 1) a contribution (either deductible or non-deductible) made to a traditional IRA, followed by 2) conversion into a Roth IRA.

While this process might seem relatively straightforward, there are many reporting requirements for non-deductible IRAs (through IRS Form 8606) and numerous IRS rules around timing and accounting that can quickly turn this seemingly simple strategy into a literal lifetime of extra paperwork filing required of the taxpayer if completed incorrectly. For instance, if the client has existing IRA dollars and/or if they plan to rollover funds from a qualified account at any point during the year, backdoor Roth conversions can be complicated significantly. This is mainly because of the IRA Aggregation Rule, stipulating that when determining the tax consequences of an IRA distribution (which includes a conversion), the value of all IRA accounts will be aggregated together for the purpose of any tax calculations (turning a 'clean' backdoor Roth into a messy partial Roth conversion!).

To avoid this situation, before recommending a backdoor Roth, advisors need to make sure they know about every IRA dollar (everywhere in all accounts), review prior tax returns for Form 8606, and confirm that there will not be any rollovers during the remainder of the current year. For clients with a tax-free basis in an IRA, options to remove the taxable gain portion (and become eligible for a 'clean' backdoor Roth) include converting the balance to a Roth (which could be done over multiple years) or rolling the pre-tax funds into a company retirement plan or Solo 401(k) (though not a SIMPLE or SEP as they are lumped in with traditional IRAs for the pro-rata rule).

Advisors also can support the backdoor Roth process by communicating with clients' tax preparers about the strategy and why they are recommending it for their mutual client. Because while advisors might recognize the long-term benefits of having money in Roth accounts, the process does not come with a current-year benefit that may be immediately apparent to the tax preparer; furthermore, it requires tax preparers to complete additional forms (which they may not appreciate if they've not bought into the long-term 'why' themselves).

Ultimately, the key point is that while backdoor Roth conversions can be a valuable strategy, it comes with significant rules and nuances that, if not fully understood, have the potential to cause onerous tax complications for clients in the future. Which means that advisors can add significant value by working together with clients and their tax preparers to ensure that the backdoor Roth process is completed correctly (and to determine whether Roth contributions are superior to traditional contributions in a given year in the first place)!

Successfully Executing "Mega Backdoor" Roth Contributions For High Earners

(Stephanie Stumpf | Advisor Perspectives)

Depending on their income and spending needs, some individuals might not approach annual limits for IRA or 401(k) contributions. For those who are able to 'max out' these accounts and are interested in making additional Roth conversions, the "mega backdoor" Roth strategy could be an attractive option.

Under this strategy, an individual makes after-tax contributions to an employer-sponsored retirement plan (which don't reduce current-year income but also aren't subject to the standard deferral cap) and then converts those after-tax contributions into a Roth account, either through an in-plan Roth conversion or by rolling funds into a Roth IRA through an in-service withdrawal. This can give those with significant savings capabilities the opportunity to turbocharge their annual Roth contributions.

However, there are requirements that must be met to use this strategy successfully. First, the employer's plan must permit after-tax contributions beyond the standard deferral limit. Also, the employer's plan has to allow for either in-plan Roth conversions or in-service withdrawals of after-tax funds so that those dollars can be moved to a Roth IRA. In addition, executing the 'mega backdoor' transactions in a timely manner is important, as any earnings on the after-tax contributions become taxable (whether paid in the current year as part of the Roth conversion or in the future by rolling this amount into a traditional IRA). Further, after-tax contributions from highly compensated employees may be limited based on how lower-compensated employees use the plan (suggesting that interested individuals might check with their plan administrator both to determine the feasibility of engaging in the strategy and to determine any contribution limitations).

Altogether, the "mega backdoor" Roth contribution strategy could be an attractive option for individuals with significant capacity to save, interest in contributing to Roth-style retirement accounts, and whose employer plan meets the requirements to do so. Which gives financial advisors the opportunity to support their clients by determining which clients might be a good fit for the strategy, introducing the possibilities it offers, and executing it correctly if the client elects to pursue it.

The Value Of A Spousal Spending "Check-In Number"

(Heather and Douglas Boneparth | The Joint Account)

Cash flow planning is a valuable service offered by many financial planners, as it puts client spending in the context of their income and wealth (potentially raising opportunities for additional savings or spending in the process). When working with client couples, while looking at the household level can be effective for this exercise there are also considerations at the individual level. For instance, one spouse might make more high-dollar purchases than the other (which could both create financial strain and [perhaps unspoken] animosity from the lower-spending spouse).

With this in mind, one strategy for maintaining cash flow balance and marital harmony is to create a "check-in number" that represents the upper limit of how much each partner can spend on an individual purchase without checking in with the other. Notably, the check-in number will be different for each couple (and can change over time for a given couple) as it can be determined by their financial situation (e.g., a higher income or wealthier couple might choose a higher number than one with a tighter cash flow situation) and their individual comfort levels (some couples might take an initial check-in number for a 'test drive' to see if it feels comfortable and adjust if necessary!).

Importantly, the authors recommend that the check-in number be the same for each spouse (even if they bring in unequal shares of their total income), as this can be a signal that each partner treats the other equally in the relationship. Also, the couple will want to discuss what 'checking in' means to them in terms of the notice given (e.g., a text from the checkout line versus a discussion item during a quarterly money date).

In the end, while every couple's check-in number will be different, establishing one in the first place is a key step to both stick with cash flow goals and to reduce the stress that can emerge when one partner feels like their spending is being judged by the other. And from a financial advisor's perspective, encouraging clients to establish a check-in number if they haven't already (perhaps giving them financial input to help them determine what their number will be) could ultimately lead to better cash flow management and help prevent spending issues from driving a wedge between the spouses (perhaps preventing an argument in the advisor's office!).

The Four Pillars Of Purposeful Spending

(Jordan Grumet | The Purpose Code)

When it comes to breaking down one's spending, a common framing is "needs versus wants". This can be helpful in determining an emergency fund (which focuses on needs) or potential opportunities to increase savings (or, for some, spending). Grumet suggests, however, that when it comes to the meaning of money (not just the math of where it goes) there are four different categories of spending.

The first is "necessity", which will be familiar to those who track "mandatory" expenses or "needs" and includes items such as housing, transportation, and basic food. The next category is "generosity", which allows individuals to generate joy by giving money to family members or charitable causes. The third category is "frivolity"; while such spending might sound unnecessary, sometimes 'frivolous' spending (e.g., a fancy restaurant meal or a luxurious vacation) can bring significant enjoyment (at least in the short term). The final category is "identity", which represents who an individual is and who they hope to be when they're living as their best, authentic selves. For instance, an individual who sees writing as an important part of their identity might choose to spend on writing courses or self-publishing a book. While such spending might not have the same immediate payoff as other types of spending, it can be particularly impactful in influencing one's sense of meaning and purpose in the world.

Ultimately, the key point is that while an individual will likely spend in all four of these categories, getting the balance right among them (perhaps with the support of a financial advisor to break down their spending across categories?) could help them spend in a way that provides more lasting happiness and meaning.

Why Values Aren't A Pass For Overspending

(Derek Hagen | Meaningful Money)

Many individuals seek to align their spending with their values to increase the chances that they will spend more on the goods and services that are most meaningful to them and less on the purchases that aren't. Nevertheless, values-based spending doesn't necessarily lead to financial success and could actually lead to financial strain if one's chosen values are considered in isolation.

To start, while an individual could identify a seemingly unlimited number of values, they have limited financial resources to deploy. For instance, someone who says they value the beauty of gold coins might go broke pretty quickly from this expensive value! With this in mind, taking the time to rank one's values can help prioritize spending. For example, the gold coin admirer might also seek financial security and adventure, placing those higher up the value rankings (perhaps suggesting much more limited gold purchases). Also, individuals might consider whether certain seemingly values-based spending decisions might, in reality, be rationalizations (i.e., by deciding to make a purchase and then identifying a value to apply it to rather than weighing it against spending on other values).

In the end, spending decisions don't necessarily reflect a tension between values and resources, but rather the tension between values. Which suggests that when advisors work with a client who is spending in an unsustainable manner (or, alternatively, is dramatically underspending), having the client check in with their values and where they rank against each other could help them better align their spending with what truly matters most to them.

Separating Actual Vs Perceived Productivity When Using AI

(Thomas Jiralerspong)

Artificial Intelligence (AI)-powered tools offer the promise of greater productivity in a wide range of fields, from computer programming to financial planning. Part of the allure of AI tools is that they can provide almost instant results, whether a large language model's response to a prompt or a rapid analysis of data that might have taken the (human) user much longer to process.

A problem, though, is that while AI use can offer the feeling of being extra productive (given the speed with which results can be produced), what's less clear is whether it results in high-quality products. For instance, those engaging in "vibe coding" using AI tools can create tools and programs much faster (and with much less computer programming training) compared to someone programming on their own. However, the allure of increased production could lead the user to overlook errors or bugs in their vibe-coded programs. Which could either require more work to fix down the line or, if deployed, negative feedback from users.

Jiralerspong suggests that warning signs of becoming 'addicted' to AI use (that could sap time without an actual increase in productivity) include having an optimizer mindset (which many financial advisors might have?), relative social isolation (such that the AI user doesn't run their production by a colleague for a sanity check), social pressure to use AI ("If you don't use it, you'll fall behind!"), unlimited token availability (which allows for less introspection when engaging with AI tools), and being relatively new to a field (and perhaps feeling pressure to prove one's productivity).

The antidote for many AI users will be to slow down and take time to check for work quality and not just quantity. This could mean setting reminders to check in on where the project stands (as opposed to always moving forward), regularly sending output to colleagues to get a second opinion on its quality, and, perhaps most importantly, reminding yourself that high-quality work takes time and that you have the skills needed to perform key tasks on your own.

In sum, while AI tools offer the allure of greater speed and quantity of work production, this output might not be worth it if it ends up being 'slop' that takes more time to fix than it would have taken to produce in the first place. Which suggests that using AI judiciously for specific tasks and checking in regularly to ensure that its output is up to one's personal (and their firm's) standards can help ensure that a user reaps the potential benefits of AI without becoming addicted to the feeling of productivity it can provide.

Finding Friction In A Frictionless World

(Zack Hubbard | LinkedIn)

Looking back across decades, life looked different in many ways, from the availability of entertainment (e.g., no streaming) to communication (e.g., no email or text messaging) to navigating the world (e.g., no live traffic updates from Waze). By most accounts, today's world is much more convenient than it was in the past.

Nonetheless, while many modern conveniences are valuable time-savers, there could be downsides to the loss of 'friction' in the world. For instance, at a time when there were only a limited number of channels available on television, you could probably count on a co-worker having seen the same show you did the next day. Similarly, while music streaming lets users listen to any song at any time, this could mean a loss of spontaneous musical finds from listening to terrestrial radio. And in the workplace, the availability of remote work means less time sitting in traffic but also means fewer spontaneous 'watercooler' encounters with coworkers. In all of these cases, while technology has reduced the 'friction' involved in daily life, that friction might have had something to offer (even if it meant certain tasks took more time or were less convenient).

Ultimately, the key point is that while technological advances can provide greater convenience, it's worth taking a step back to consider whether there is value in the friction that came with what is being replaced (because while music streaming is no doubt convenient, it's hard to top the feeling of putting a record on the turntable!).

When Information Is Free, Sound Judgment Becomes Priceless

(Tara Popernik | Advisor Perspectives)

AI has the potential to be a double-edged sword for financial advisors. On the one hand, the ability of AI tools to process data quickly could speed up previously manual analyses and tasks. On the other, the availability of AI-powered personal finance tools (that could go beyond facts to take into account an individual's situation) could mean that some consumers look to AI first for answers, potentially reducing demand for human-provided financial advice.

However, while personal finance information is more plentiful than ever, AI tools might have a hard time fully understanding an individual's situation and the implications of a particular decision. For instance, a consumer might ask an AI chatbot for advice on estate planning tools that could help them reduce their tax exposure and ensure their assets are passed along efficiently. While the chatbot might be able to accurately recommend a strategy that roughly fits the user's situation, it might have a harder time understanding the underlying relationship dynamics involved or the tradeoffs involved in different strategies (e.g., control of assets versus tax mitigation). In this way, (human) advisor relationships could become even more important, as clients (exposed to a wider range of possibilities) seek out help to parse through them and determine the best course of action for their needs.

In the end, while AI tools offer the promise of greater efficiency for advisors (perhaps allowing them to serve more clients), leaning into what makes advisors 'human' (and perhaps using additional time gains from AI use to offer a deeper level of service?) could be a key differentiator in the future if more advanced consumer-facing AI planning tools emerge.

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.