Weekend Reading For Financial Planners (September 20–21)

Independent Advisors Looking To Marketing, Tech To Drive AUM Growth: Schwab Study

(Steve Randall | InvestmentNews)

Growth is at the heart of many advisory firms' goals for the coming years, and a range of metrics to determine the success of their efforts (from growth in Assets Under Management [AUM] to growth in revenue and/or profitability). At the same time, because growth can also bring challenges (e.g., the ability to serve a growing client base), the ability to scale efficiently has become a priority for many firms as well.

According to Charles Schwab's 2025 Independent Advisor Outlook Study (which surveyed 912 independent advisors who custody assets with Schwab Advisor Services and whose firms had median AUM of $176 million), when it comes to measuring growth, respondents are primarily focused on AUM (90%), with other metrics including total number of clients (40%), changes in AUM per client (27%), and changes in profit margins (17%). These metrics are also reflected in advisor growth strategies for the next three years, which were led by an increasing number of clients (71% of respondents) and increasing AUM per household (59%), but also included increasing use of Artificial Intelligence (AI) tools (45%) and targeting higher net worth clients (45%).

Respondents were optimistic on the whole about their ability to grow profits in the next three years, with 36% of those surveyed expecting profits to grow by 21% or more and another 28% expecting profit growth of 11% to 20%. Respondents indicated a variety of uses for these profits, with the most popular being increasing compensation to owners (63%), increasing compensation to staff employees (51%), investing in new technology (50%), and hiring more talent (49%). Looking at the strategies firms are considering to scale efficiently, technology appears to be the focus, with 48% of firms upgrading their tech stacks this year and 47% applying AI (the survey found that 57% of firms currently use AI today, with common use cases including research and analysis and document drafting); on the other hand, only 29% of firms said they plan to hire people for different or new roles.

Altogether, Schwab's survey indicates that advisory firms, on the whole, are focused on growth and are frequently looking to tech to help them scale efficiently. Though, notably, Kitces Research on Advisor Productivity has found that hiring support staff (e.g., client service managers and associate advisors), rather than tech, tends to be more effective in enhancing revenue productivity of adivsors (with being able to fully delegate to employees better reducing advisors' administrative burdens than just expediting those tasks with tech that advisors still have to do, leaving them with more time for client-facing activities), suggesting that investments in human capital may still be underrated for firms when it comes to generating more revenue per advisor as they grow and scale.

IAA Pushing For Accredited Investor Expansion, Revised Small Entity Guidelines

(Tracey Longo | Financial Advisor)

The market for private investments has gained increased attention in recent years as some companies have achieved substantial valuations while remaining private, often leading to big paydays for early-stage investors. At the same time, these investments can be incredibly risky, and survivorship bias is rampant with the graveyard of failed companies rarely mentioned amongst media reports touting the latest 'unicorn' that happened to survive and thrive.

To help prevent less-sophisticated investors from making risky private investments, the SEC's Accredited Investor rule limits those who can invest in many early-stage companies to investors with certain income or wealth (currently, those with either $200,000 per year of earned income [or $300,000 with a spouse] for each of the prior 2 years and the current year, or who have a net worth of over $1 million, excluding the value of their primary residence), as well as investment professionals and certain entities. While some have argued that this rule is too strict (as it prevents many potential investors from accessing private markets and limits the pool of capital for companies), others have suggested that it could be tightened further (as income and wealth are not necessarily the best proxies for the capability to analyze a private company and effectively assess the true risks involved in such an investment).

One group looking to indirectly expand the accredited investor definition is the Investment Adviser Association (IAA), a trade group representing investment advisers, which is pushing legislators to allow for investors working with a fiduciary advisor to invest in unregistered securities (other potential avenues to accredited investor status offered by the IAA and a group of other financial services trade groups include education or job experience as well). This would effectively open the door for consumers that are not currently accredited investors to at least delegate the due diligence to an advisory firm that itself still has a fiduciary obligation to evaluate on their clients' behalf (though the firm would have to advise with a fiduciary obligation, as the exemption wouldn't be available to brokerage firms that sell the products). Which could create a new way for fiduciary financial advisors to offer value for their clients (though doing so might lead many advisors to seek the education necessary to offer advice on sometimes-complex and often-risky investments while fulfilling their fiduciary responsibilities to their clients, especially given the higher risk of significant losses that can occur with private investments that don't work out).

Another area of Federal regulatory interest to the IAA is updating the Securities and Exchange Commission's (SEC's) definition of who qualifies as a small business for purposes of considering the impact of new regulation (the SEC currently counts firms with $25 million or less in Regulatory Assets Under Management as small entities, even though they don't typically register with the SEC [rather than with individual states] as a "larger" firm until they reach $100 million). To this end, the IAA has supported the Small Entity Update Act, which would require the SEC to revisit how it defines small advisers and is currently moving through the Senate (after passing unanimously out of the House Financial Services Committee). Which would ultimately require the SEC to more broadly consider the "small business" burdens of its proposed regulations before implementing them (harkening back to IAA and broader advisor concerns over Biden administration proposals like the "outsourcing rule" that would have imposed substantial new due diligence documentation burdens on smaller RIAs that outsource parts of their back office).

If successful, the IAA's efforts could allow a broader range of clients to access private investments (and perhaps expand business opportunities for fiduciary advisors interested in this area if currently non-accredited investors seek them out to access such investments), and hopefully reduce the regulatory burden on relatively small (and mid-sized?) RIAs as future regulation could be required to take into account the burden these firms face (given the more limited resources they can put towards compliance compared to larger organizations)!

IRS Releases Final Rule On Roth Catch-Up Contributions

(Melanie Waddell | ThinkAdvisor)

"SECURE Act 2.0", passed in late 2022, brought a wide range of changes to the retirement planning landscape, from pushing back the required beginning date for Required Minimum Distributions (RMDs) to new rules allowing rollovers of funds from 529 plans to Roth IRAs (subject to certain requirements). While most parts of SECURE 2.0 have already come into force, advisors and their clients have been waiting on final guidance regarding a portion of the law related to "catch-up" contributions in workplace retirement plans (that was originally supposed to go into effect in 2024).

However, the IRS this week issued final regulations regarding this measure under which, starting in 2027 (with exceptions for certain government plans and plans maintained under a collective bargaining agreement, which have a later applicability date), employees who earned more than $145,000 from their current employer during the previous year and are making catch-up contributions in their workplace retirement plans will be required to make these as Roth contributions (notably, while the vast majority of plans allow for Roth contributions, if a plan does not, affected employees will not be able to make any catch-up contributions in the plan). Also, the final regulations state that 401(k) plans can't force all employees to make catch-up contributions to a Roth account (meaning that employees with earnings under the limit will still have the opportunity to make traditional [pre-tax] catch-up contributions). This measure was a 'pay-for' in the original legislation, as making Roth contributions the government receives tax revenues on the related income up front (rather than traditional contributions, which are only taxed upon distribution, which could be decades later).

Ultimately, the key point is that while relatively highly paid employees will continue to be able to make catch up contributions to workplace retirement plans (up to $7,500 in 2025), starting in 2027, these will need to be made on a Roth basis. Which could be an unwelcome change for clients who were making pre-tax catch-up contributions (perhaps while their income put them in relatively high tax brackets) by having to pay taxes on these contributions (though they will get the tax-free growth and withdrawal benefits of Roth contributions!).

Your Fund Crushed. Investors Love It. Uh-Oh?

(Jeffrey Ptak | Morningstar)

Like other investment products, particular mutual funds and ETFs can experience waves of popularity over time. A key question, though, for advisors and investors is whether funds that experience benchmark-beating returns (and increased investor interest) are likely to maintain that outperformance or are more likely to underperform their benchmark in the months and years ahead.

To assess this question, Ptak considered the universe of U.S. mutual funds and ETFs from 1998 to 2025 and identified the 568 funds that had a 200% organic growth rate in a rolling 12-month period (with at least $1 billion in net inflows during the year). He then calculated these funds' rolling 36-month returns during the 27-year period and compared them with the returns of a broad benchmark (e.g., the S&P 500 for U.S. stock funds) to determine the (positive or negative) excess return of these funds.

Ptak found (perhaps not surprisingly) that these funds that saw fast growth in inflows were likelier (by a roughly 2-to-1 margin) to have outperformed their benchmarks while experiencing rapid inflows (with an average rolling 36-month excess return of 3.6% per year). However, 60% of the funds that had previously beaten their benchmark lagged the market in the subsequent three years after experiencing the surge in inflows. What's particularly notable, though, is that this figure has changed over time, with popular funds in the early 2000s often continuing their outperformance (particularly value funds that thrived in the wake of the dot-com bust) but with fewer high-inflow funds subsequently outperforming in recent years. For instance, of the five funds that outperformed their broad market benchmarks by at least 5 percentage points per year over the three years ending August 31, 2021 (and saw large inflows), four of them massively underperformed the broader market over the subsequent three years.

Altogether, Ptak's analysis suggests that when funds see massive inflows, future underperformance could be on the horizon. Which suggests that advisors and investors considering making (or holding on to) investments in 'hot' funds might keep in mind the potential (if not likelihood, at least over the next few years) for future underperformance and consider whether the fundamentals of the fund (and a client's potential need for liquidity) merit a longer-term allocation or whether creating a shorter-term exit strategy might be prudent.

How To Keep A Hot Stock Market From Melting A Client's Retirement Dreams

(Jason Zweig | The Wall Street Journal)

The broad stock market has put in a strong performance since 2023 and, looking back further, the S&P 500 has returned an average of 15% annually over the past decade. Which is no doubt good news for investors who have seen their account balances grow during this period. However, some advisors and their clients (particularly those on the cusp of retirement) might be concerned that while returns have been strong recently, an extended period of below-average returns could arise, threatening investor portfolios and their ability to generate income in retirement.

Notably, there have been extended historic periods of below-average market performance (with shorter periods of negative returns in absolute terms), including the 30 years ending in July 1982, where stock returns averaged less than 4% annually after inflation (whereas the 30 years ending in December 2023 saw annual returns of 6.9% after inflation). Which introduces the possibility that the average returns seen during the past few decades might not be those that investors will experience in the coming decades (of course, it's possible that the recent strong returns will continue for many years to come). To counteract the potential of a period of poor inflation-adjusted market returns (which could be particularly threatening to those to sequence of return risk), Zweig suggests that investors can either save more, work longer, or take more risk (with saving more being the easiest and safest option, in his view).

For their part, financial advisors can support clients across the age spectrum who might be concerned about the potential for lower future returns. For working-age clients, modeling out an extended period of underperformance could demonstrate an asset gap that could be filled by increased saving over time (and those investors who haven't experienced an extended downturn might need to be reminded that such events are possible!). Those nearing from retirement could benefit from strategies to mitigate sequence of return risk (e.g., creating a "bond tent" to dampen volatility). And for those clients entering or in retirement, flexible spending strategies (and strategic Social Security claiming decisions) could help support retirement income planning in a world of uncertain future returns as well!

How Much Does Having The 'Right' Capital Market Assumptions Matter In Retirement Planning?

(Justin Fitzpatrick | Nerd's Eye View)

"How much can I spend in retirement?" is perhaps the most fundamental question a client brings to their advisor. Answering it well requires a range of assumptions – from estimating average investment returns to understanding correlations across asset classes. These assumptions are rooted in Capital Market Assumptions (CMAs), which project how different assets might perform in the future. However, for many advisors, using these assumptions isn't always comfortable. Advisors want to help clients set a secure, reliable retirement plan, yet even the most comprehensive assumptions will inevitably deviate from reality at least to some degree. Which poses the question: How much error is acceptable, and how can advisors use these assumptions to set reasonable expectations for clients while maintaining their trust?

Ideally, retirement spending would align perfectly with a client's needs – neither too much nor too little. Yet, even with the most accurate CMAs, financial advice rarely aligns flawlessly with reality. Sequence of return risk, for example, means that even two identical clients retiring less than 18 months apart can experience wildly different sustainable spending levels. In some historical periods, the amount that a retiree could safely spend in retirement would have looked incredibly risky at the beginning of their retirement – and vice versa. Beyond market variables, clients bring their own behaviors and preferences into play. For instance, many retirees begin retirement by underspending to avoid depleting their resources – a choice that often diverges from the 'best guess' assumptions of CMAs and creates additional room for unexpected market conditions.

The good news is that CMAs can still provide a range of realistic spending limits, and, even better, most financial plans are not static one-and-done roadmaps. Advisors who actively monitor and adjust a client's plan as markets shift can mitigate the inherent uncertainty of CMAs, reducing the risk of overspending or underspending over time. Importantly, CMAs are most valuable when viewed as flexible tools rather than fixed forecasts – allowing advisors to refine assumptions as markets evolve and client needs change. This adaptive approach not only helps clients navigate uncertainties but also distinguishes advisors who are committed to continuous monitoring, enhancing client satisfaction and peace of mind.

Ultimately, the key point is that while 'perfect' CMAs may offer accurate predictions about general market conditions, they will still fall short of telling a client how much they can spend. Market fluctuations, sequence of returns, and personal spending behaviors all create unpredictable variations that CMAs cannot fully capture. However, by proactively monitoring and adjusting portfolio spending, advisors and clients can take advantage of the high points, guard against the lows, and, overall, ensure greater peace of mind!

Helping Clients Determine Whether A Continuing Care Retirement Community Is Right For Them

(Amy Arnott | Morningstar)

Retired clients can face challenging decisions in where to live in their later years. While some might prefer to stay in a long-time home for as long as possible (perhaps accessing in-home health care if needed) others might prefer to move to a community designed for the needs of seniors. Those preferring the latter option might consider entering a Continuing Care Retirement Community (CCRC), which allows seniors to access a broad spectrum of care as they age (from independent living and assisted living to nursing care and memory care, if needed).

In addition to being a major lifestyle decision, the choice to move to a CCRC (and the specific facility chosen) comes with significant financial considerations as well. Moving to a CCRC frequently involves both an entrance fee (which averages $400,000 but can reach $1 million, according to data from U.S. News & World Report) and ongoing monthly fees (which averaged $4,200 as of the end of 2024 and often increase by about 4% per year to cover inflation). Specific fees will vary based on a variety of factors, including the type of contract chosen. For instance, Type A contracts are the most costly (with the steepest entrance fees and highest starting monthly fees) but typically cover comprehensive long-term-care services and remain the same (aside from annual inflation adjustments) even if an individual needs a high level of care, while Type C contracts have the lowest costs (and may not include an entrance fee) but can expose residents to dramatic cost increases if they need access to higher levels of care (a 'hybrid' option, Type B contracts, offer a middle ground in terms of fees and risk of experiencing cost increases for higher-level care).

In addition to the contract type, a variety of other factors can play into the decision of whether to enter into a CCRC and which to choose. These include the financial strength of the facility (as a bankruptcy and shutdown of a facility could leave a client looking for a new home and risk them losing all or part of their entrance fee), the quality of facilities, food, and amenities (including whether residents have a say in proposed changes at the facility), and the tax treatment of expenses paid (i.e., whether a portion of entrance and/or monthly fees are eligible to be deducted from taxes as pre-paid medical expenses, if they exceed 7.5% of the client's adjusted gross income).

In sum, clients face several important decisions, both lifestyle- and financial-related, when considering a move to a CCRC. Which provides an opportunity for financial advisors not only to explore the financial implications of such a move (e.g., the impact of different contract types on the client's financial plan) but also, more broadly, helping them think through whether a CCRC is the place where they want to spend their remaining years!

Do Your Clients A Favor – Stop Talking About Nursing Homes

(Kerry Peabody | Advisor Perspectives)

Financial advisors working with retired clients will recognize the benefits of planning when it comes to senior living and care options, whether in a client deciding in advance where they want to live as they age and possibly need care or in creating a plan to cover the costs of a possible move or extended care needs. However, clients are sometimes reluctant to have this conversation, as thinking about a potential care need isn't as pleasant as discussing their upcoming travel plans.

Peabody suggests that advisors can support clients and encourage them to engage in the long-term-care planning conversation by outlining the many choices they have rather than focusing on potentially uncomfortable contingencies. For instance, rather than starting the conversation by saying "Let's talk about how we can plan if you end up needing to enter a nursing home", an advisor might say "There's a chance that you may need additional assistance as you age; let's talk about the various options for that, from in-home care to a continuing care retirement community". In this way, rather than the specter of a 'nursing home' (and any potentially negative images it might conjure in the client's mind) hanging over the conversation, it can start with the clients expressing their preferences (giving the advisor a natural opportunity to segue into how such a decision might fit into their financial plan and the different options available).

In the end, while long-term-care conversations are sometimes uncomfortable for clients, advisors can encourage better dialogues by fostering a sense of empowerment for the client. Which could ultimately lead to better lifestyle and financial outcomes for them as their preferences are met as they age!

Where And How To Invest Your Long-Term-Care "Bucket"

(Christine Benz | Morningstar)

Among the many financial risks that retired clients face is the potential need for long-term care, which can cost tens or even hundreds of thousands of dollars per year depending on their needs and the care options chosen. Which offers financial advisors the opportunity to help clients create a plan to meet potential care needs, which might include long-term-care insurance and/or assets 'bucketed' to cover such a contingency.

When it comes to creating a long-term-care 'bucket', decisions include where and how to invest its funds. In terms of location, assets within a Health Savings Account (HSA), which can be distributed tax-free to pay for eligible medical expenses, could be a helpful source of funds (particularly given that HSAs receive relatively poor tax treatment when left to heirs), to the extent that a client has been able to save within one (given annual limits and restrictions on when contributions can be made). At the same time, Benz notes that in years with a particularly high level of expenses (that could far exceed the 7.5% Adjusted Gross Income [AGI] threshold for deducting them, depending on a client's circumstances), paying for long-term-care costs from accounts with taxable distributions (e.g., using the proceeds from IRA required minimum distributions to pay for costs) could provide additional tax savings (given that expenses paid for with HSA funds are not eligible for the deduction).

In terms of investing assets in the long-term-care 'bucket', Benz notes that because the timeline for needing these funds might be very different than other retirement assets, a different asset allocation approach could be in order. For instance, while a 65-year-old retiree might be making immediate portfolio withdrawals to support their lifestyle needs (and therefore might consider a less volatile asset allocation in this 'bucket' to mitigate sequence of return risk early in their retirement), it's very possible that they won't need to pay for long-term care for 15 years or more, suggesting that a more aggressive asset allocation could be appropriate for assets in this bucket (also, because the cost of long-term-care has outpaced the broader inflation rate in recent years, seeking a higher investment return could improve the chances that assets in the long-term-care 'bucket' don't lose their purchasing power over time).

Ultimately, the key point is that financial advisors can play a valuable role not only in helping clients create a plan to cover potential long-term-care expenses but also in implementing it in a way that is tax efficient and increases the likelihood that they will have sufficient assets to support a range of possible care needs (and their associated costs).

The Best Leaders Encourage "Spacious Thinking"

(Megan Reitz and John Higgins | Harvard Business Review)

Both employees and their managers tend to have (potentially long) to-do lists of tasks that need to be completed in a given day or week. Which can lead to spending most of one's time in "doing mode", or paying narrow attention to a specific task at hand to ensure it's completed on time.

However, spending most or all of one's day in "doing mode" means that less time is spent in what the authors call "spacious mode", in which individuals "pay attention more expansively, without hurry, making them more receptive to relationships, interdependencies, and possibilities." They suggest time in "spacious mode" (and away from the task at hand) can result in greater strategic thinking, spotting new opportunities, building relationships, and sparking motivation. The authors argue that while many leaders might think they encourage their employees to think spaciously, their focus is often on achieving the next short-term deliverable (which can keep staff perpetually in "doing mode"). Leaders might also assume because they themselves might take time for "spacious thinking" their team members are as well (which is often not the case).

To encourage staff to engage in "spacious thinking", the authors offer several potential tactics, including focusing on ideas instead of tasks (e.g., encouraging staff to take a step back during team meetings and consider what has or hasn't gone well over the course of the past month [rather than just providing status updates on the current task(s) they're working on), bringing in novelty (e.g., using external facilitators, discussing books that might offer new ideas, or taking a team retreat), and rewarding time spent in "spacious mode" (e.g., recognizing team members who develop big-picture ideas, even if not related to their day-to-day to-do list).

In sum, while leaders might think that it's their job to take on 'big picture' thinking for their team, tapping into the insights of all team members can lead to changes that create a more effective organization (and a greater sense of ownership amongst firm staff if they feel as though their ideas are valued). Which suggests that encouraging "spacious thinking" could be a valuable investment (even if it means taking some time away from tasks at hand)!

4 Tools Financial Advisors Can Use To Practice "Sturdy Leadership"

(Meghaan Lurtz | Less Lonely Money)

When it comes to thinking about leadership, the first thing that comes to mind for a financial advisor might be their firm's founder or key executives. However, beyond internal firm leadership, advisors play important leadership roles themselves when it comes to serving their clients. And by practicing "sturdy leadership" (a term coined by Dr. Becky Kennedy in reference to a parent's job to be a calm, confident captain of the ship), advisors can serve as effective "guides" to help their clients create a plan that lets them live their best lives.

Advisors have several possible tools they can use to demonstrate "sturdy leadership" with their clients. To start, a Client Engagement Standards Document (originally designed by George Kinder) can provide structure to the relationship by outlining what the advisor will provide, what the client is expected to contribute, and how the relationship will be managed over time (notably, this isn't a legal document but rather a collaborative tool for building the advisor-client relationship). Next, sending clients meeting agendas in advance can help them come prepared and reduce the worry that can emerge when they don't know what to expect.

Another potential tactic is to engaging in "brainwriting" rather than "brainstorming" during meetings with groups or client couples. Given the tendency for the loudest voice in the room to take over a conversation, encouraging participants to write down their thoughts on a given issue (perhaps in advance of the meeting) can ensure that all ideas are heard. Finally, advisors can ask thoughtful questions (that perhaps ask clients to go deeper with their thoughts) to shape the emotional space of the meeting and help clients feel grounded and seen.

In the end, financial advisors are not just experts who create technically sound financial plans, but also leaders who help clients get the most out of the planning experience. Which suggests that by adding structure that encourages clients to express themselves fully and be emotionally present, advisors can ultimately better understand their clients' needs and craft plans that help them live their best lives.

Developing Leadership Capabilities To Drive Team Engagement

(Gerry Herbison | Journal Of Financial Planning)

Those who have experienced leadership in a variety of settings won't be surprised to know that better team leadership results in an increase in team performance (by an average of 30%, according to a 2017 study). A challenging question, though, for leaders can be to understand the factors that determine whether a leader is likely to be successful.

According to the above research, the most effective leaders are those who can drive results while building and maintaining positive team engagement (instead of focusing on one or the other of these areas). While these might seem like clear objectives, the researchers found that only 13% of leaders studied did so (with younger leaders more likely to focus on engagement and older leaders focusing more on driving results).

For current or aspiring leaders looking to drive engagement, the study suggests six categories of key skills and behaviors. To start, leaders can focus on clearly communicating strategy and individual expectations (so that all team members know the strategy and direction of the organization and how they individually fit into the plan). Next, effective leaders inspire and motivate team members to work together as a group rather than as individuals focused on their own assignments. Third, setting "Big, Hairy, Audacious Goals" and giving team members the support needed to achieve them can drive team results by giving it something to work towards and clarity about the big picture (though, notably, such goals shouldn't be 'too' big, as goals that seem impossible might be demotivating to employees).

Effective leaders also drive trust in their team, primarily (and perhaps obviously) by telling the truth to team members (who, if they doubt the veracity of what their leaders say, might question their motivations). Next, proactively developing team members' skills not only can build the total skillset of the team but also help employees see where their career could head in the future (particularly if greater skills and the resulting improved performance leads to promotions). Finally, leaders who are coachable and who are willing to accept feedback from team members and peers tend to be more respective (and are likely to be more effective).

Ultimately, the key point is that emerging leaders don't necessarily come to the table with all of the skills they will need to be inspiring and effective in their new roles. Which means organizations that take the time to purposefully develop their leaders (and encourage them to both drive results and engagement amongst team members) could find that they have both an effective leadership cadre and better-engaged employees (which could lead to greater performance and, importantly, employee retention).

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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.