Enjoy the current installment of "weekend reading for financial planners" - this week's edition starts off with a fascinating interview with Ron Rhoades where he shares his thoughts about the history of fiduciary and regulation of financial advisors, with some surprising insights, and also look at the recent back-and-forth between incoming FPA CEO Lauren Schadle and American College CEO Larry Barton about the CFP marks and whether there should be one designation for financial planning. From there, we look at a few good articles from Advisor Perspectives, including a list from Bob Veres of the top ten faulty assumptions in financial planning, and a good article by Joe Tomlinson looking at how safe annuity companies are. There are a few retirement articles as well this week, including a look at the "critical path" approach to setting a threshold for when clients can and cannot afford to take risk, a new framework for evaluating various retirement income strategies and alternatives, and an article looking at how disability can threaten retirement success yet may be neglected by advisors (especially for their female clients). There's also an article that presents a good discussion about risk (and the difference between risk and uncertainty), and the latest from John Mauldin showing some surprising employment trends (older workers are actually taking job market share from younger workers!). We wrap up with two very interesting articles - one looking at the dynamics between patients and doctors in providing recommendations that has some striking parallels for what we do as financial planners, and the other exploring some surprising research that demonstrates we actually value the potential for future success more highly than a demonstrated track record of prior success (which may help to clarify why many clients are always so attracted to the next great thing, even when the current thing is working just fine). Enjoy the reading!
The "stretch IRA" is a popular estate planning strategy, where the (typically non-spouse) beneficiary of the IRA stretches out required minimum distributions over his/her life expectancy; with a young beneficiary, such as a child or even grandchild, this can result in decades of tax deferral for a large portion of an inherited IRA.
However, the planning technique may soon come to an end. As a part of the "Highway Investment, Job Creation and Economic Growth Act of 2012" to reauthorize and replenish the Highway Trust Fund for interstate highway projects, Senate Finance Committee Chairman Max Baucus (D-Mont.) has proposed a provision that would require inherited IRAs to be distributed within 5 years of the original owner's death, eliminating the ability to stretch. If passed, the new rules would take effect for all deaths that occur beginning in 2013.
While the legislation - and the amendment to require IRAs to be liquidated within 5 years after death - is still just proposed at this point, and may not ultimately pass in its current form, the fact that an elimination of the stretch IRA rules was on the table at all suggests that the window may soon close on this particular planning technique.Read More...
Given the wild unpopularity of the Alternative Minimum Tax, and the implicit higher tax burden it carries, it's no great surprise that most people wish to avoid the AMT. However, the reality is that while the actual higher tax burden of the AMT may not be desirable, the tax impact - at the margin- of having more income subject to the AMT can actually be good news!
It's difficult to go far in the world of financial planning these days without hearing a discussion about the "inevitability" of higher taxes in the future, leading to a broad range of tax planning strategies to dodge the anticipated increase in the income tax brackets. But in practice, it seems that we might be confusing the idea that the government will need to collect more tax dollars in the aggregate from us - a higher tax burden - with the belief that today's income tax brackets are at a low point that must rise. One does not, necessarily, lead to the other.Read More...
With the Economic Stimulus Act rebate checks set to start mailing out to taxpayers next month, based on their 2007 tax filings, many believe that no tax planning remains for the rebate checks. However, for the many individuals who will receive less than the full maximum of the rebate check (or possibly as little as nothing), tax planning opportunities do remain!
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Welcome everyone! Welcome to the 364th episode of the Financial Advisor Success Podcast!
My guest on today's podcast is Ted Jenkin. Ted is the consultant of JPTD Partners, a consulting firm based in Atlanta, Georgia, that helps financial advisors gather offers, negotiate, and ultimately sell their advisory firms.
What's unique about Ted, though, is how his journey to facilitate financial advisor mergers and acquisitions started from selling his own $2.2-billion AUM advisory firm that he spent more than a decade building… and the perspective he gained as a founder who sold his firm influences the way he now helps other advisors prepare for and understand the acquisition offers placed in front of them, and their own options to exit the firms that they may have spent their careers building.
In this episode, we talk in-depth about how, after Ted went through the challenge of getting multiple offers to sell his firm and struggled to figure out how to compare them, he found that many other advisors were asking him for advice based on his experience and ultimately decided to build a consulting firm to help fellow advisory firms field and compare multiple acquisition offers at once, how Ted has now come to see himself as a "Zillow for an advisory practice's worth" as he got deeper into the weeds of evaluating how buyers really assess the value of an advisory firm and price its 'true' profit margins, and how Ted's unique niche as an advisor who sold helping other advisors to sell has led to the point where after just a few years his firm is now representing 115 active advisory firms actively shopping for a buyer (allowing him to get even deeper into the current trends of what buyers are really offering and how to maximize the value of a deal).
We also talk about how Ted initially built his own advisory firm with what he calls a "manufactured celebrity" approach by immersing himself in media appearances that made him a go-to local advisor in the Atlanta area, how the success of Ted's marketing approach ironically led to severe burnout (because Ted enjoyed marketing to clients far more than the ongoing servicing of clients and management of a large multi-billion-dollar firm) that resulted in him exiting 'early' when he was still in his forties, and how Ted overcame his nerves of "becoming an employee" again as a result of selling the firm and negotiated his own buy-out deal to play into those same strengths relating to his ability to grow (ultimately resulting in a bigger payout for himself).
And be certain to listen to the end, where Ted shares what he would recommend advisors consider in their own exit plan to maximize value ( even if the transition is still years down the road), how Ted has often found that determining the real value of a firm is more complex than 'just' looking at the bottom line of a firm's profitability, and how Ted learned that while he had considerable strengths in some parts of the business, he wishes he had outsourced his weaknesses to others sooner despite his fear of giving up control (and realizes that if he had, he probably would have been able to stay with the business longer and continued to build it even bigger and make it even more valuable).
And so, whether you're interested in learning how Ted helps advisors navigate mergers and acquisitions by diving into how buyers really assess the value of advisory firms, how niching down helped him scale his consulting firm, and his transition from business owner to employee post-sale of this firm, I hope you enjoy this episode of the Financial Advisor Success podcast, with Ted Jenkin.
When deciding on a marketing strategy to pursue, one of the key factors for financial advisory firms to consider is efficiency. Different strategies have different Client Acquisition Costs (CACs), in terms of both hard-dollar marketing expenses and the cost of the advisor's time spent on the strategy, and an efficient market strategy is one that can effectively attract new clients while minimizing the amount spent to acquire them. According to the most recent Kitces Research on Advisor Marketing, one of the most efficient marketing strategies is Search Engine Optimization (SEO), which involves taking a series of actions meant to get an advisor's website listed at the top of the rankings of a search engine like Google for specific search terms. And yet, despite costing only a fraction of the amount to acquire each client that other marketing methods like paid advertisements, podcasting, or social media do, fewer than a quarter of advisors reported using SEO as part of their marketing strategy – which is more than likely a function of the perceived cost and/or complexity of deploying SEO effectively that often leads advisors to avoid SEO in favor of more familiar (but potentially less efficient) marketing strategies.
However, advisors don't need to become an expert in SEO themselves or hire an in-house expert to do it for them, as there are a host of outsourced SEO providers who have the technical expertise needed to effectively leverage SEO. And when deciding between providers – which have a wide range of skills and reputability – having a basic understanding of fundamental on-page and off-page SEO principles and the type of work that SEO providers typically do can be useful for advisors to find the right SEO provider to work with. Furthermore, knowing how to gauge the effectiveness of the provider's past work (as well as their performance for the advisor over time) by assessing keyword ranking reports, consulting with existing clients of the SEO provider, and asking about the provider's experience in the financial services industry can help advisors pinpoint providers who will provide the best and most cost-effective strategies to make the best use of the firm's marketing dollars.
Notably, the point of an SEO strategy is to drive users to an advisory firm's website so that those visitors can eventually be converted into paying clients. But to do so, it's necessary for the website itself to be designed to drive conversion. Importantly, the focus of most outsourced SEO providers is not on client conversion, but rather simply on getting them to the advisor's website. In other words, if the website isn't properly set up beforehand to convert visitors into clients (e.g., by including calls to action, tools to contact the advisor and schedule meetings, or newsletter signup forms), there's a good chance that any money spent on SEO will go to waste if there's nothing encouraging visitors to take steps towards becoming a client!
Ultimately, the key point is that despite its reputation as a black box, there are concrete ways to measure the success of an SEO strategy, and hiring a third-party SEO provider doesn't need to be a guessing game. By creating a process to identify the key data, monitor and discuss progress regularly with the SEO provider, and test different SEO techniques for their effectiveness (e.g., by using paid ads) before committing to a bigger and more expensive strategy, advisors can better capture the potential of SEO as a gateway to connect with a broader audience, amplify brand presence, and drive unprecedented business growth!
Enjoy the current installment of "Weekend Reading For Financial Planners" — this week’s edition kicks off with the news that following previous guidance regarding obligations under Regulation Best Interest (Reg BI) regarding account recommendations and conflicts of interest, the SEC released a new bulletin this week focusing on the duty to care. The guidance highlights the importance of brokers considering investment alternatives for their customers as well as taking costs into account when making recommendations that are in their best interests, and the need to do so proactively rather than as a 'box-checking' exercise after making a recommendation — a message from the regulator that could be significant for fiduciary investment advisers as well.
Also in industry news this week:
- A U.S. House of Representatives committee this week approved legislation that would expand the pool of individuals who would qualify as accredited investors able to access certain private offerings
- Proposed bipartisan legislation would allow individuals to use funds in 529 plans for expenses associated with acquiring or maintaining postsecondary credentials, which would include the CFP certification
From there, we have several articles on advisor marketing:
- How advisors can use Google reviews to maximize their search engine optimization and increase their visibility online
- The key features to include on an advisory firm's website to demonstrate 'social proof' to prospective clients
- How advisors can use ChatGPT to spend less time on content marketing
We also have a number of articles on retirement planning:
- Statistics on where American retirees currently stand, from their average net worth to how they spend each hour of the day
- Why 1 FIRE pioneer who retired in his 30s is planning to return to the workforce
- How many business owners report that they never plan to retire, and the planning opportunities for advisors working with these clients
We wrap up with 3 final articles, all about achieving goals:
- Why 'showing up' is often the most important part of achieving a goal
- 5 key factors that can increase the chances that a goal will be completed
- Why giving up on a goal can sometimes be a good choice, and how to objectively make the decision to do so
Enjoy the 'light' reading!
Enjoy the current installment of "Weekend Reading For Financial Planners" - this week’s edition kicks off with the news that the CFP Board of Standards launched its 1st ad campaign, dubbed "It’s Gotta Be A CFP", following its transition to a 501(c)(6) organization. In a change from previous campaigns, the first ad directly recommends that consumers seek out a CFP professional for financial advice, and future ads could more directly explain the benefits of earning the CFP marks.
Also in industry news this week:
- Top Democratic Senators are urging the Treasury Department to crack down on a range of estate planning strategies for high-net-worth individuals, including GRATs and IDGTs
- Amid fallout from recent bank failures, both Republicans and Democrats are considering whether current FDIC insurance limits should be increased
From there, we have several articles on retirement planning:
- Why contributions to Roth accounts can sometimes have greater uncertainty than traditional contributions in terms of their after-tax accumulation despite not being affected by future tax rate changes
- How the 'funded ratio' metric can help advisors create effective retirement spending recommendations
- A comparison of a range of variable spending strategies in retirement, from a 'floor-and-ceiling' approach to a 'ratcheting rule'
We also have a number of articles on advisor marketing:
- How to optimize the 5 most important pages on an advisory firm website
- 4 tools advisors can use to improve their website’s search visibility
- How advisors can create and deploy effective keywords to help consumers find their websites when searching online
We wrap up with 3 final articles, all about changes to professional credentials:
- The CFA Institute has unveiled a slate of changes to its certification process, from incorporating practical skills modules to new job-focused pathways in private wealth and private markets
- Why some states are considering reducing the higher education requirements to become a CPA
- CFP Board has announced the members of its new standards commission, which will review and evaluate its competency requirements for Education, Examination, Experience, and CE to earn and maintain the CFP marks
Enjoy the 'light' reading!
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As an individual begins planning for retirement, one of the factors often considered is whether (and where) they might relocate to enjoy their retirement. When evaluating their potential options across the U.S., a state’s income tax rules can have a significant impact on where they might choose to live. The perception of a state as having high or low taxes could make it more or less attractive for someone choosing where to relocate, and those perceptions are often skewed by the state’s ‘headline’ tax rate (that is, the top tax rate imposed on the highest income tax bracket), meaning that states that don’t tax any income at all are often given extra consideration, while those that tax income at the highest rates tend to get crossed off the list fairly early.
In reality, however, the top marginal rates don’t usually tell the whole story – at least not for retirees. That’s because many states (including those typically labeled as “high-tax”) feature a slew of different tax breaks that can significantly reduce the tax burden for retirees in those states. As a result, the list of states where a typical (or even higher-income) retiree would pay very little or even zero tax might be much larger than what might be assumed based on the top marginal rates alone.
State tax breaks for retirees usually come in 4 flavors: no income tax at all; exclusion of Social Security income from taxable income; exclusion of pension or retirement plan withdrawals; and additional exemptions, deductions, or credits for all taxpayers above certain age thresholds. Every state in the U.S., plus the District of Columbia, features at least one of these types of tax breaks benefiting retirees, and many have more than one, meaning that retirees with a combination of Social Security, pension, and even other types of income (like dividends and interest or income from working a job) will almost always pay a lower overall tax rate on their income than those who are still working full-time.
The tricky part, however, is navigating the many nuances and exceptions included in the different tax codes of the 50 states. Many states either have income-based limitations on the tax benefits that higher-income retirees can realize, while others cap the total amount of retirement tax benefits that an individual can use (for example, by setting a maximum amount of combined Social Security and/or pension income that can be deducted from a taxpayer’s income). As part of the final decision, therefore, it’s often advantageous to do more in-depth tax planning to recognize some of the planning opportunities or pitfalls that could come with retiring to a certain state.
The key point is that even though it might not be necessary to attain a thorough grasp of all 50 states’ tax policies, knowing some of the key elements to look for when considering a given state – like whether or not (and how much) Social Security or retirement plan income is taxed; the treatment of interest, dividends, and capital gains; and what other potential deductions or exemptions might be available for taxpayers after a certain age – can create a deeper understanding of the true impact of income tax from living in a certain state. And for some future retirees, it might even expand the potential list of states beyond what they previously considered affordable!