Enjoy the current installment of "weekend reading for financial planners" – this week’s edition starts off with two articles about the ongoing debate in Washington on the Investment Advisor Oversight Act of 2012 (the so-called "Bachus SRO legislation"), including a scathing report from the Project on Government Oversight on why FINRA would be a poor choice of SRO, and a second article about why in the end there probably won’t be any action on the Bachus legislation until next year anyway but it’s still important to take it seriously now. From there, we look at a few practice management articles, from an interesting look at how young Generation Y agents are changing marketing and business development in the insurance industry, to the importance of having a good first-six-weeks process in your firm to ensure that your own new Generation Y hires will stick around for the long run, to the importance of choosing the right name for your firm, knowing how to sell to develop your business (even as a professional!), and that the key to growing your business is to deliver an experience that is remarkable – as in, literally, something worth remarking about. There’s also an article about whether Veralytic is really a useful tool for advisors evaluating life insurance on Advisors4Advisors (a response to a post on this blog from a few weeks ago), an examination of how advisors have shifted their investments before and after the financial crisis, and a look at how the due diligence burden on really evaluating ETFs has become far more complex with the proliferation of ETF innovation. We wrap up with Bill Gross’ latest missive from PIMCO about the Wall Street Food Chain, and how the 1% at the top may be disrupted more than they expect as the global deleveraging process continues. Enjoy the reading!
“Planners and academics need to work together to develop a profession with evidence-based practices.” That is the message given at the FPA Retreat by Dr. Michael Finke, a professor of personal financial planning at Texas Tech University, and a co-author of mine at the Journal of Financial Planning.
Yet while the Journal of Financial Planning is a great resource, and it has been the go-to outlet for research on retirement planning from the perspective of practicing financial planners, especially regarding safe withdrawal rate strategies, the academic research approaches the retirement challenge from a different perspective and focuses on different tools and strategies.
Ultimately, researchers can use their technical skills to investigate optimal retirement strategies, and practitioners can guide these investigations by suggesting real world constraints and ideas for solutions, and even by sharing in the nitty-gritty process of conducting the research. Let’s encourage these interactions to get rigorous analyses which can be applied to real-world problems.Read More…
In planning for retiring clients, it’s crucial to get an understanding of what the client’s goals are in the first place – so that recommendations can be made about how to financially secure those goals. In the context of setting a spending goal, a popular delineation is to separate retirement spending into “essential” versus “discretionary” expenses – not unlike “needs” versus “wants” for accumulators – with the idea of using guarantees to secure the essential expenses, and less certain growth assets with some risk to fund the discretionary expenses (since they’re ‘only’ discretionary and not essential, by definition).
Yet in reality, even discretionary spending still constitutes an important part of a retiree’s overall lifestyle – the loss of which could be very psychologically damaging. As a result, merely securing the essential expenses of retirement and leaving the rest at risk still, in the eyes of most retirees, would constitute a failure of the overall retirement goal. Instead, clients often choose to ensure that all their spending can be sustained – by continuing to work as long as necessary (as health allows) to secure all of their goals. Does that mean the distinction between essential versus discretionary retirement expenses isn’t necessarily helpful after all?
As the country continues to struggle with its fiscal woes, Congress and the White House are increasingly proposing tax law changes intended to cut down on perceived “abuses” and “tax loopholes” – especially those used by the wealthy. The latest, in the President’s Fiscal Year 2013 budget, is a proposal to change to the estate tax laws, requiring any grantor trust to be included in the estate of the grantor (or pay gift taxes if the grantor trust assets are distributed before the grantor’s death).
The proposal would kill the popular Intentionally Defective Grantor Trust (IDGT) estate planning strategy, which works specifically by relying on the fact that a trust can be a grantor trust for income tax purposes even while being excluded from the grantor’s estate for estate tax purposes – after all, if the grantor trust is automatically included in the grantor’s estate, there’s no longer any value to make gifts or sales of property to an IDGT.
While the rules are only proposed at this point – and would only apply to trusts created in the future, after the enactment date of any legislation – the fact that the change was proposed at all suggests that the days of IDGT planning strategies may be numbered. Read More…
Good financial planning is typically built upon a personal relationship between the client and the planner, as trust is established to the point that the client is comfortable to share and engage with the planner, and take the advice that is given. Yet the reality is that while it takes time to build trust, it doesn’t necessarily have to be built face-to-face. In fact, as personal finance ‘celebrities’ like Suze Orman have shown, a remarkable amount of actionable advice can be implemented even if the person giving the advice and the person receiving the advice have never met in person at all! So what does it take to begin to establish trust with a prospective client before ever meeting face to face? As Orman demonstrates, the keys are that people work with people, expert credibility is important but not alone sufficient, and trust is built over time through repeated exposure to the planner. And in today’s world, the digital age is leveling the playing field; it’s not just about being on television or having a radio show anyone, because any planner can begin to build trust with potential future clients, through blogs, e-newsletters, videos, social media, and other channels of the digital world!
Enjoy the current installment of "weekend reading for financial planners" – this week’s edition starts off with an interesting article from the Journal of Financial Planning about how the industry can develop more effective risk tolerance questionnaires, along with a good article reviewing college funding strategies and a review of a new cloud-based software program to analyze all the different possible combinations of Social Security claiming opportunities for couples. From there, we look at a few practice management pieces, from how advisory firms can better build their own brand, to some tips about how to develop trust more quickly in new relationships with prospective clients, to the reasons why clients don’t refer (and what to do about it), and the increasing amounts that advisory firms are spending on technology with a focus on ROI. We also look at some articles highlight trends and opportunities in the industry, from the potential fallout in the 401(k) marketplace when the new fee disclosure rules take effect later this year, to the "career arbitrage" that’s occurring as one executive after another leaves the custodian, broker-dealer, and investment company environment to take on a position as a principal with an independent RIA. We wrap up with a look at the potential for a "Grexit" – the new term du jour for a potential Greek exit from the Euro – and a striking article from The Economist that asks whether the era of the public corporation is coming to an end, given the resurgence in everything from private equity to state-owned enterprises to partnerships around the globe. Enjoy the reading!