Weekend Reading for Financial Planners (Feb 6-7)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Wealth Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

CFP Board Preps Enforcement Update With New Sanctions Guidelines After Facing Scrutiny (Jessica Mathews, Financial Planning) – This week, the CFP Board announced a new “Commission on Sanctions and Fitness”, a 15-person committee including Ohio Securities Commissioner Andrea Seidt, legal director for Better Markets Stephen Hall, former FPA Chair Michael Branham, and leaders from a wide range of advisory firms from independent RIAs to wirehouses, who will be tasked with updating the “Sanction Guidelines” that the CFP Board’s Disciplinary and Ethics Commission uses when evaluating appropriate sanctions for CFP professionals found guilty of breaching their Code of Ethics and Standards of Conduct (or more specifically, to recommend when the DEC should apply a Private Censure, Public Censure, Suspension, or Revocation of the marks, depending on the severity of the matter and any mitigating or aggravating factors). The new committee comes as the CFP Board appears to be gearing up for more stringent enforcement of its new Standards of Conduct that took effect last June and in response to a controversial Wall Street Journal investigation in late 2019 that highlighted thousands of CFP certificants who were shown with a ‘clean bill of health’ on the CFP Board’s website even as they already had public sanctions listed on other regulatory agencies like FINRA’s BrokerCheck. Or stated more simply, the CFP Board acknowledges that CFP professionals “don’t want to be associated with the bad apples”, while also seeking to better improve its trust with the public by better keeping its own house in order. Accordingly, the CFP Board has also stated the new Commission will revisit the “Fitness Standards” used to determine who should be eligible to earn CFP marks in the first place (i.e., what prior misconduct a prospective CFP certificant might have engaged in that would bar them from obtaining and using the CFP marks in the future). To solicit input from the CFP community, the CFP Board’s new Commission will host a series of two virtual forums in the coming weeks and has pledged that any proposed revisions to the current Sanctions Guidelines will be put out for public comment before adoption.

SEC To Scrutinize How Dual Registrants Explain Services And Select Accounts (Kenneth Corbin, Financial Planning) – Now that Regulation Best Interest is fully in effect, the SEC is eyeing how dual-registrants, in particular, are describing their services and compensation in Form CRS, and more generally how dually registered advisors are conducting their business with clients when they wear both “broker” and “investment adviser” hats at different times with the same client. As in the end, the whole purpose of implementing Reg BI – and not a uniform fiduciary standard for broker-dealers and RIAs – was a recognition that broker-dealers conduct substantively different services than RIAs, and therefore should be subject to different standards of conduct. However, in practice, this still raises the question of how an individual advisor with an individual client makes the determination of whether to implement a transactional brokerage account or a fee-based advisory account, and whether consumers themselves are clear on the differences in both services and standards between the two. In fact, the SEC signaled that broker-dealers that operate as both should consider having individual advisors only be an IAR of their RIA or a registered representative of their broker-dealer, to “silo” the risk and regulatory attention of each; conversely, as long as an advisor as an individual is dually registered to implement both types of accounts, they should be prepared to explain and defend why a particular client receives one type of account over another.

FPA And NAPFA Evolve Alongside Pandemic And Online Competition (Samuel Steinberger, Wealth Management) – The coronavirus pandemic shut down most advisory firm offices and forced a transition to remote work… a process that, fortunately, most advisory firms were able to navigate well from an execution perspective in the work they did for clients, but was still very disruptive and isolating for financial advisors themselves. In the past, times of professional isolation were a moment for membership associations to shine – as communities that have brought together especially the more independent (and often isolated) financial advisors. Yet in 2020, the reality was that the pandemic forced most membership associations to shut down their own conferences and events as well, even as new independent community groups for financial advisors, from the Advisor Growth Community to the Association for African American Advisors and also Kingdom Advisors, have been emerging to fill the void. The end result was that the Investments and Wealth Institute (IWI) and NAPFA did still manage to gain at least slight growth in 2020 (up 3.6% and 5.9% to 12,449 and 4,037, respectively), though the FPA as the largest of the advisor membership organizations struggled more, with membership down 13.7% to 18,691 members. Notably, though, FPA’s struggles actually preceded the pandemic, having only grown in 3 years of the entire past decade of the 2010s, as the classic value proposition of membership associations – continuing education credits, advocacy, and (local) community – have all faced increasing competition, though FPA remains unique in that, as the largest membership association for financial advisors, it’s the only one with enough critical mass to form strong local chapters. On the other hand, organizations like the Investments and Wealth Institute have been able to survive and thrive by building around their own proprietary designations (originally the CIMA certification, and now the CPWA for HNW wealth managements and the RMA for retirement advisors as well), while NAPFA has managed to continue growing on the basis of its tighter focus as the membership association for fee-only financial planners in particular. Ultimately, the fact that human beings want to interact and socialize with others means that some form of gathering place for advisors is likely to continue for the indefinite future. Though the emerging question for membership associations is on what, between networking, community, advocacy, (continuing) education, and credentials, the various organizations will stake their value proposition in the future… recognizing that the needs of financial advisors themselves are so diverse that it’s impossible for one organization to be everything for everyone?

Exploring The Retirement Consumption Gap To Right-Size Early Retirement (David Blanchett & Warren Cormier, Journal of Financial Planning) – Many households simply don’t have enough saved in order to retire, or at least to maintain the same standard of living in retirement that they had before, such that they are compelled to reduce their spending in retirement to “right-size” their spending, which occurs at an average of 2%/year of real spending decreases throughout the first decade of retirement (such that, in the aggregate, 75% of households decrease their inflation-adjusted spending by an average of 23% in the first 10 years after they retire), improving their ‘retirement fundedness’ in the process (as not as much savings are needed for the retirement after spending needs decline). In fact, researchers found that overall, the percentage of households that are sufficiently funded for retirement increase from just 18% to 48% of all households over the first decade in retirement, driven not by prospective asset growth but their changes (decreases) in retirement spending. At the same time, though, it’s less clear whether households that do have enough wealth for retirement also “right-size” their spending to the upside; instead, researchers found some indication that households with frugal spending habits appear to retain their frugality, and “fail” to right-size their retirement consumption to the upside when it turns out that they have more than they actually “needed”. Though at the same time, it’s also simply possible that households that were more effective at eyeing the future and saving for retirement are simply more inclined to leave a greater retirement reserve for unexpected challenges in retirement (e.g., uncertain medical expenses or uncertain life expectancy), and/or may be “under-consuming” in the interests of leaving a greater bequest to heirs. Either way, though, the key takeaway is that underfunded households may be more inclined and capable of trimming spending in retirement to “right-size” their retirement spending… while those who are already inclined towards saving may struggle to do so when “right-sizing” would mean spending more, not less.

The Economics Of Living To 100 (Knowledge@Wharton) – A baby born today has a 1-in-3 chance of living to be 100 years old, and the chance rises to 1-in-2 for a female baby which is creating fresh challenges on the perspective of what it means to “retire” and the economic viability of a societal approach of schooling until one’s 20s and working until one’s 60s… which means the post-retirement period could be just as long as the working years themselves and is simply a lot of years to save for in a relatively “short” period of working time! And given that the financial challenges of senior households can ultimately become a burden on social services, raises interesting questions about whether or how there should be more of a “public-private partnership” in how retirement itself is financed. In some cases, the goal might be to help facilitate cash flow – for instance, by allowing seniors to defer local property taxes in their later years, which banks would record as a lien on the property, to ultimately be recovered by the government against the value of the home after the individual passes away as a form of reverse mortgage (which in fact is already permitted in several states, whose net cost for the program is simply the time value of money in the form of foregone interest). In fact, the amount of home equity that seniors often accumulate – even and especially as their other financial assets are spent down – is creating more focus on how home equity can be unlocked for retirees, from property tax deferral liens to outright reverse mortgages (either for living expenses or akin to a Japanese program that allows the elderly to borrow against their homes specifically to implement home modifications that make it easier and safer to remain in the home). Another public-private partnership being explored is the idea of a “longevity bond” – a bond whose interest rate is tied to aggregate life expectancies, such that if medical breakthroughs do increase our longevity, the risk and consequences can be distributed broadly across the private market (in the form of longevity-linked bond ‘interest’ payments), and may be especially helpful to back and reinsure pension funds. And of course, the ongoing shift from defined benefit to defined contribution plans continues to highlight the potential for various forms of guaranteed income for retirees – i.e., annuities – not only as a way for an individual to secure their retirement but again as a form of broad-market risk pooling of longevity. Though notably, one of the biggest challenges to such solutions remains that even as such products are created – from reverse mortgages to lifetime annuities – remarkably few households show any interest in buying them, instead ostensibly preferring to take the risk of outliving their money, in the hopes that the situation will still somehow improve.

Five Tips To De-Stress The Entry Into Medicare (Joanne Giardini-Russell, Advisor Perspectives) – For prospective and current retirees, health insurance in retirement is a high-stakes issue, and because Medicare is generally only available to those over age 65, it is a new and undiscovered world for virtually every retiree who will soon rely on it. At its core, though, the approach to Medicare is rather straightforward: a retiree will either enroll at age 65 or will choose to defer until later. Of course, most retirees who are already age 65 will want to enroll in Medicare as soon as they’re eligible, simply to get health insurance. And notably, those who have already begun to draw their Social Security benefits prior to age 65 will automatically be enrolled in Medicare Part A and Part B. However, those who already have employer health insurance coverage (from a company with more than 20 employees) do have the option to defer enrollment until the future. For those looking for additional information and guidance, Giardini-Russell suggests the government’s “Medicare And You Handbook“, which really does cover nearly all of the essential questions that retirees typically have. When someone is approaching the point of getting enrolled, though, it does still take time to go through the application process, which should begin 2-3 months before covering is actually needed – both to complete the enrollment process itself and also to allow time for either purchasing Medigap supplemental insurance and/or to opt into a Medicare Advantage plan instead (all of which are again covered in the Medicare And You Handbook).

Five Steps To Become A Rainmaker (Michelle Donovan, Advisor Perspectives) – One of the biggest challenges for most advisory firms is that they are or have become overly reliant on one key rainmaker – often the founder or a particularly growth-oriented partner – to drive the growth of the firm. This is problematic both because the firm’s growth itself becomes dependent on just that one individual, and also because the rest of the firm/team is just taught how to be “fed” new clients and not what it takes to actually become rainmakers themselves. So how can other team members be developed (or develop themselves) into rainmakers? The starting point is simply to get clear – crystal clear – on your value in the first place, as the best rainmakers are ones who know their value by heart, believe it to the core, and have learned and practiced how to speak articulately about that value (not as a ‘canned’ speech, but in a way that feels authentic to you!). From there, it’s necessary to get yourself out there – which can mean anything from networking within your local or professional community to building up your social media presence and interacting virtually; at its core, though, the key to rainmaking is about being seen and making connections so others can become aware of the value that you provide (and have become so effective at articulating whenever you get a chance to do so!). In the end, it’s not just about networking and connections, though, but real relationships; accordingly, Donovan suggests that it’s important to outright schedule time for those relationships to get developed (whether it’s having check-in phone calls or Zoom meetings, or participating in meet-ups or happy hours). And remember that ultimately, business development is a skill that can be developed – not just a natural-born talent people either have or don’t – so the first and most essential key is simply to approach the challenge with a growth mindset in the first place!

You Are Probably Closer To Being ‘An Authority’ Than You Realize (Tony Vidler) – At its core, content marketing as a strategy is all about creating content that demonstrates one’s expertise in the marketplace and attracting prospective clients who want to work with someone who has that expertise (to solve their particular needs). Yet most financial advisors become advisors to advise – not necessarily to be writers or actors or graphic designers – which can quickly create a blocking point when it comes to figuring out exactly how to get that professional expertise out into the marketplace. Yet Vidler notes that in the end, the reality is that as financial advisors, we are in the “content delivery” business on a daily basis already, in writing emails and financial plans, and talking to clients on the phone or via video chat or in-person meeting. As a result, the only real distinction of doing so from a marketing perspective is that the same communication may be occurring in a one-to-many format instead of a one-to-one meeting. Which means, simply put, that most financial advisors are closer to being a genuine “Authority” than they may be giving themselves credit for! In fact, arguably for financial advisors who want to help more clients, and already have the expertise to do so one client at a time, doing so in a one-to-many format is even more of an opportunity to help more people with the same expertise the advisor already has! Or viewed another way, don’t confuse having the expertise with the particular channel or mechanism that will be used to deliver it. Advisors can hire marketers to help with the delivery. Just step up and own the expertise you already have.

My Daily Checklist For Dominating Social Media (Samantha Russell, Advisor Perspectives) – At its core, marketing via social media is simply a function of periodically creating content to demonstrate one’s expertise, sharing it out to the community they wish to serve, and showing up to engage with that community in the conversations that are created. Russell suggests that the anchor, then, is to target one piece of content that will be created each week as the foundation for that week’s marketing, whether a blog post or video, infographic or case study, which should be the focus of the advisor’s time on Monday. On Tuesday, it’s time to share out that content, which can be distributed out across multiple social media platforms (e.g., LinkedIn and Twitter, because most people will only ever likely see it on one platform anyway given how quickly content moves by, so it’s best to hit most/all of them). On Wednesday, look to engage more directly with the community, whether that’s starting a conversation, sharing some other content you read that might be of interest, or anything else that could spark discussion. On Thursday, queue up this week’s content via your email newsletter as a way to reach all those who didn’t see it via social media already (which will be most, as a strong email list still has a much greater reach than social media!). And then on Friday, post something personal and non-business related to give people a glimpse of the ‘personal’ you as well (because in the end, people connect with people!). And throughout it all, Russell suggests aiming every afternoon to spend at least a few minutes commenting or responding to five posts that others have made on some/any social media platform, both as an opportunity to engage itself, and to make it clear that you’re not just trying to broadcast one-way to the community but a contributor that’s engaged with it, too!

How To Read More: 7 Strategies To Read More Books (Ryan Holiday) – For many financial advisors (and people in general), it’s difficult to find time to read books amidst all the activities and obligations of life. But as Holiday notes, no one ever asks, “How do you find the time to eat?” When we view an activity as essential, the reality is that we find – or more importantly, make – the time for it. Which means finding the time to read more is really about finding the motivation and justification to make the time to do so. Accordingly, Holiday suggests a number of strategies for how to try to carve out more time and focus to read, including: read first thing in the morning (which can not only set a good foundation with just 30 minutes as a reading habit, but can give some time and space for the brain to process whatever thoughts you’ve been sleeping on from the night before!); read just one page per day (because in the end, it’s not about how much you read, but whether you learn from it and grow from it, which means it’s not about getting a certain number of pages read, but simply taking the time to really think about that one page you’re reading each day), particularly if it’s a book designed to be read with one insight per day (e.g., Holiday’s own “The Daily Stoic“); read while you eat (because we rarely ever forget to eat, so if you read whenever you eat, you’ll read a lot!); read while you relax (e.g., as part of your wind-down routine in the evening); keep a “commonplace book” (a place where you capture what you’ve read or seen that’s notable… and eventually will fuel a hunger to add more to it); don’t be afraid to read a good book again (if it’s that good, there’s certainly more to learn with a second pass); and realize again that in the end it’s not a matter of whether you’re too busy to read, but whether you’re making it a priority to do so (which means the real question is not “Where to find the time?” but “What are you currently saying ‘yes’ to that leads you to saying ‘no’ to reading, and is that something you’re ready to change?”).

4 Ways To Read More Books This Year (Herbert Lui, Fast Company) – Even (and especially) for those who like to read, the pressure of figuring out how to find the time to read ‘everything’ that’s being recommended to read can be a big challenge. But the reality is that not every book needs to be read, and not every page of every book really is valuable – leading Adler and Charles Van Doren, in their classic guide “How To Read A Book”, to suggest that “Every book should be read no more slowly than it deserves, and no more quickly than you can read it with satisfaction and comprehension”. In other words, if a book’s best ideas can be gleaned by skimming, that’s OK. In fact, sifting through the Table of Contents, the index, and the Conclusions of each chapter, and then deciding what to go back and delve into further, is a perfectly acceptable approach to reading. Alternatively, some people choose to “speed-read” – not just reading fast, but intentionally reading more superficially to spot the areas and passages of interest, and then going back and reading those sections more closely. In the context of non-fiction books in particular (e.g., business and professional development books and the like), just reading 10% of the book may be all it takes to glean a key lesson! Or stated more simply, one of the biggest keys to reading, and feeling like you’re getting a lot from what you read, is not only to delve deeply into a good book, but also in recognizing that there’s no obligation to finish every book, and that it’s better to get comfortable about when to stop reading, put the book down, and move on to the next (that may be more interesting and an even better use of time!)!

The Therapeutic Value Of Reading (Elizabeth Bernstein, Wall Street Journal) – Research has shown that books are good for the brain, and in a particularly stressful year (like 2020), they become especially important, whether to provide an escape, to broaden our perspective, to help us empathize with others, find something to connect over, or simply give us a little surprise and excitement (and a nice hit of dopamine). In fact, with so much noise in the world today, arguably the very act of reading is itself a form of meditation to disconnect from the chaos and reconnect with yourself. In fact, with the pandemic underway – and many of our other social activities stifled – 2020 proved to be the best year for book sales in more than a decade. Still, though, more and more people report having trouble finding the time and focus to get through them, as the stress of recent events keeps our brains on ‘high alert’ and the ever-presence of smartphones and their notifications make us prone to distraction. Accordingly, Bernstein suggests that the starting point may be to sit quietly for five minutes before starting to read, as a form of brief meditation to clear your mind. And don’t be afraid to choose a short story (or a short chapter from a book) just to get through something and feel the accomplishment – when it goes well, your brain will crave another positive experience, which is actually a key to building a good reading habit. Accordingly, recognize that it may also be helpful to try to find a book that feels relevant – whether it’s an ‘escape’ novel if you’re in need of an escape, or a non-fiction book if that’s what piques your interest. Which may include reading something you’ve already read, simply because it provides that positive comfort and enjoyment. Other tips include: put your phone (far) away when you read, so the notifications aren’t tempting distractions; try to make it a habit by reading at a consistent time of day and in a favorite spot (and perhaps with a favorite beverage!?); read in a way that’s comfortable (sprawling on a bed or on your back on the floor is perfectly acceptable!); and don’t feel afraid to listen to an audiobook if you’re just not feeling the enjoyment of visually reading it, or to just put the book down if you’re not into the book you’re currently reading and find another that looks more interesting instead!

I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!

In the meantime, if you’re interested in more news and information regarding advisor technology, I’d highly recommend checking out Bill Winterberg’s “FPPad” blog on technology for advisors, and Craig Iskowitz’s “Wealth Management Today” blog as well.