Financial planning is hard work. It’s hard work for the clients, who must spend far more time than they are accustomed in the process of digging through their personal financial lives and their goals. It’s also hard work for the financial planner, who invests an incredible amount of time into the process of creating a financial plan for the client, entering client data into financial planning software, “crunching” the numbers, and then crafting a written plan to explain and justify the results and the associated recommendations. Yet as planning software becomes increasingly more complex, we are approaching a difficult crossroads: the depth of the planning software requires more and more time to do the analysis, and necessitates more and more written detail to support the software output. As a result, the planning process itself drags out, taking hours and hours to create a plan and weeks and weeks to deliver recommendations to clients. But when did the complexity of financial planning software begin to drive the planning process, instead of being a tool to expedite it? Has our financial planning software become the enemy that’s ruining our productivity, instead of improving it? Read More…
Enjoy the current installment of “weekend reading for financial planners” – this week’s edition (similar to last week) highlights several more recent studies on trends in the financial services industry, including what financial planners tend to charge for their services, trends in wealth management in 2012, and some dramatic differences in how RIAs view investment management versus the rest of the investment industry, as well as the new ways young planners are entering the industry. We also look at some practice management articles, from a brief overview of what the cloud computing movement is all about, to the use of coaches, and different ways to manage your staff for optimal growth. In addition, there’s some coverage of this week’s FSI OneVoice conference, and we wrap up with an especially interesting (although not terribly optimistic) article from John Mauldin about the current outlook in Europe, and the risk of a “tail event” that could dramatically impact markets in 2012. Enjoy the reading!
With stocks experiencing a lost decade, bonds barely keeping up with inflation, and savings accounts generating virtually no yield at all, it is a daunting environment for clients to save and accumulate. Many question whether saving is even worthwhile; if the client can’t earn anything on money saved, there’s little economic benefit to delaying gratification, and the incentive is to just spend it now. On the other hand, low returns also mean that if the client ever hopes to retire, it may require more saving than ever, given that low returns mean less compounding. And so the real question for Generation Y – today’s young adults – is which way will it go: will low returns disincentivize saving, or help people redouble their efforts to save even more? Read More…
As the difficult economic environment continues, bankruptcy filings in the United States continue to occur at an elevated rate. And it appears that financial planners are having their share of bankruptcies as well… requiring the CFP Board via their disciplinary process to adjudicate whether a CFP certificant should receive a public letter of admonition, or has his/her marks suspended or revoked.
With a rising number of financial planner bankruptcies putting pressure on their disciplinary resources, the CFP Board has proposed a change to how it treats such bankruptcy situations.
The upshot: a bankruptcy by a financial planner will no longer bar him/her from getting or keeping the CFP marks. However, going forward, any bankruptcy by a financial planner will be publicly disclosed for the following 10 years on the CFP Board’s website.Read More…
As a part of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), income limits on Roth conversions were repealed, starting in 2010. However, while TIPRA removed income limits for Roth conversions, it did not eliminate the income limits for new Roth contributions.
As a result, a new creative use of Roth conversions opened up: just contribute to a non-deductible traditional IRA, and then complete a Roth conversion immediately thereafter. Since neither transaction individually has a contribution limit, the client can still get money into a Roth IRA each year, regardless of the still-remaining income limits on Roth contributions. The end result: accomplishing a “backdoor Roth IRA contribution” for someone who wouldn’t normally be eligible to make a Roth IRA contribution in the first place.
There’s just one problem: the IRS can still call a spade a spade, and the rising abuse of this backdoor Roth IRA contribution “loophole” may bring about its permanent end.
Over the past decade, an increasing number of financial planner baby boomers have reached the point that they would like to retire out of their practices; as a result, the 2000s saw a dramatic increase in the focus on succession planning, including how to prepare a financial planning firm for sale and steps to make the business more saleable and valuable.
Yet the reality is that once a financial planning firm is saleable and able to function effectively without the daily involvement of the founding principal, it’s simply an investment holding like any other one; except it has an incredible cash dividend yield on top of significant appreciation potential.
Consequently, as the process of transitioning firms to saleability continues, a new challenge is beginning to emerge: planners who are successful in making their planning firm saleable and valuable are suddenly finding that once that point is reached, they no longer necessarily want to sell (all of) their business after all, which would force them to reinvest the proceeds into lower-return investments that could diminish their own retirement!