Weekend Studying For Monetary Planners (Dec 24-25) 2022

Creator: Adam Van Deusen

Staff Kitces

Adam is an Affiliate Monetary Planning Nerd at Kitces.com. He beforehand labored at a monetary planning agency in Bethesda, Maryland, and as a journalist protecting the banking and insurance coverage industries. Outdoors of labor, he serves as a volunteer monetary planner and sophistication teacher for non-profits within the Northern Virginia space. He has an MA from Johns Hopkins College and a BA from the College of Virginia. He may be reached at [email protected]

Learn extra of Adam’s articles here.

(Jeff Levine | Twitter)

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, handed in December 2019, introduced a variety of adjustments to the retirement planning panorama, from the loss of life of the ‘stretch’ IRA to elevating the age for Required Minimal Distributions (RMDs) to 72, to provisions meant to encourage elevated participation in office retirement plans. And whereas the IRS is still working through implementing regulations related to the original SECURE Act, Congress seems to be on monitor to cross a brand new set of adjustments to the retirement panorama, dubbed “SECURE Act 2.0”.

Lawmakers connected the vary of retirement provisions that make up SECURE 2.0 to a broader Omnibus spending bill that have to be handed by Friday, December 23, with a view to keep away from a authorities shutdown. And notably, whereas no single change in SECURE 2.0 rises to the magnitude of the “Loss of life of the Stretch” from the unique SECURE Act, there are much more whole impactful adjustments within the new SECURE 2.0 laws than there have been within the unique SECURE Act!

One of many main headline adjustments from the unique SECURE Act was elevating the age for RMDs from 70 ½ to 72, and SECURE 2.0 pushes this out additional, relying on a person’s beginning date. Whereas these born in 1950 or earlier will see no change (as they’ve already reached age 72), people born between 1951 and 1958 must begin RMDs at age 73, whereas the RMD age for these born in 1959 or later might be 75 (maybe creating extra years of comparatively decrease earnings the place (partial) Roth conversions or capital gains harvesting might make sense for certain retirees). As well as, the invoice decreases the penalty for missed RMDs (or distributing too little) from 50% to 25% of the shortfall, and if the mistake is corrected in a timely manner, the penalty is diminished to 10%.

SECURE 2.0 would additionally enable for transfers from 529 plans to Roth IRAs, albeit with some important restrictions, together with that the switch have to be made to the 529 plan beneficiary’s (not the plan proprietor’s) Roth IRA, and the lifetime most for transfers is $35,000 (although, notably, the Roth IRA contribution earnings limits are disregarded for the transfers, opening them as much as high-income 529 account house owners and beneficiaries). Additionally associated to Roth accounts, the laws would align the foundations for employer-retirement-plan-based Roth accounts (e.g., Roth 401(okay)s and Roth 403(b)s) with these for particular person Roth IRAs by eliminating RMDs, and would create a Roth-style model of SEP and SIMPLE IRA accounts (whereas individuals in SEP and SIMPLE plans may solely beforehand make pre-tax contributions to their accounts). Additional, SECURE 2.0 will enable employers to make matching contributions and non-elective contributions to the Roth facet of the retirement plan as an alternative of simply the pre-tax portion (although individuals might be topic to earnings tax on such contributions).

For shoppers who’ve reached age 70 ½, Qualified Charitable Distributions (QCDs) are a well-liked technique to make charitable contributions (as much as $100,000 yearly) from pre-tax retirement accounts, decreasing their present or future RMD burden within the course of. SECURE 2.0 expands this chance indexing that restrict to inflation beginning in 2024. And notably, even because the RMD age will increase to 75 beneath the brand new laws, the age threshold for QCDs stays on the pre-SECURE 1.0 stage of 70 ½. SECURE 2.0 additionally creates a one-time capacity to make a QCD of as much as $50,000 to a Charitable The rest Belief (CRUT), Charitable Annuity Belief (CRAT), or a Charitable Reward Annuity (although given the $50,000 restrict, shoppers may determine the money and time burden of making these buildings may not be value it).

SECURE 2.0 additionally consists of a number of measures meant to encourage elevated retirement saving. These embrace making IRA ‘catch-up’ contributions topic to COLAs starting in 2024 (in order that they are going to improve with inflation from the present $1,000 restrict), whereas additionally rising 401(okay) and related plan catch-up contributions; creating a brand new “Starter 401(okay)” plan (aimed toward small companies that don’t at present provide retirement plans; such plans would come with default auto-enrollment and contribution limits equal to the IRA contribution limits, amongst different options); and treating pupil mortgage funds as ‘elective deferrals’ for employer matching functions in office retirement accounts, which might enable pupil mortgage debtors to learn from an employer match even when they cannot afford to contribute to their very own retirement plan.

Altogether, SECURE 2.0 presents a variety of adjustments to the retirement planning panorama, for each these saving for retirement and people who are at present retired, that means that it’s going to seemingly impression almost all monetary planning shoppers in a method or one other.

And keep tuned to Kitces.com for an upcoming full-length weblog put up (on Wednesday, December 28), and a Kitces webinar with our very own Jeffrey Levine (on Tuesday, January 3) that may go much more in-depth on SECURE 2.0 and its implications for monetary advisors!

(AdvisorHub)

Many factors go into an advisor’s satisfaction with their job, from the know-how and advertising supplied by their agency, to compensation, hours labored, and firm tradition. One other key issue, although, is autonomy, which has led to development within the reputation of unbiased advisory fashions. Many monetary advisors, looking for extra autonomy and a higher share of their earnings, have moved from wirehouses and regional broker-dealers (the place they’re topic to the consumer insurance policies, staffing choices, and tech stack of their firm) to the unbiased broker-dealer, hybrid RIA, and unbiased RIA channels in the course of the previous a number of years.

And a new report from research and consulting firm Cerulli Associates means that this need for independence continues to develop. Whereas solely 44% of advisors surveyed have been independently affiliated, 71% of all respondents recognized a choice for unbiased affiliation within the occasion they have been to alter companies (suggesting there are nonetheless a big variety of wirehouse and regional broker-dealer advisors trying to an unbiased mannequin have been they to make a transfer). When explaining their choice for independence, worker broker-dealer advisors cited higher autonomy (62%), the next payout (57%) and the flexibility to construct monetary worth in an unbiased enterprise (54%) as the foremost causes. In flip, when selecting which unbiased agency they might select to affiliate with, advisors surveyed cited know-how (56%) as the highest issue that may affect their determination , suggesting that constructing a strong tech stack might be a differentiator for broker-dealers and mega-RIAs looking for to draw advisor expertise.

General, the Cerulli examine means that the pattern in direction of advisor independence continues, with the speed of development within the variety of advisors who affiliate with unbiased and hybrid RIAs rising on an annualized foundation by 4.4% and a pair of.0%, respectively, over the past 5 years. Although given the regulatory and client-related considerations concerned when altering companies and setting up an independent practice, it nonetheless appears seemingly that the shift to independence will stay a persistent trickle slightly than a sudden wave of transitions… at the same time as Cerulli’s knowledge means that the continued gradual shift to independence is way from achieved.

(Jeff Benjamin | InvestmentNews)

Main as much as this yr, RIA Mergers and Acquisitions (M&A) exercise was on fireplace, as heightened demand from acquirers (usually bigger companies, typically infused with personal fairness capital) drove up valuations, to the advantage of these promoting their companies. However among the many different adjustments within the financial atmosphere this yr (from inflation to weak market efficiency), rising rates of interest (and their impression on companies’ willingness and skill to borrow funds for his or her acquisitions) have the potential to chill the marketplace for RIA M&A.

And in response to a new survey from consulting firm DeVoe & Associates, advisors seem to have extra subdued expectations for RIA M&A within the coming yr. As an illustration, 56% of these surveyed count on valuations to be considerably to significantly decrease in 2023, whereas solely 8% count on larger valuations (whereas a yr in the past, solely 8% of respondents anticipated decrease valuations). By way of general deal exercise, 42% of respondents count on to see a rise within the variety of offers (down from 63% final yr), whereas 25% of these surveyed count on to see much less deal exercise (in comparison with 4% final yr). By way of the scale of companies partaking in offers, 59% of companies with greater than $1 billion of Property Below Administration (AUM) mentioned they count on to make an acquisition inside the subsequent 24 months (down from 74% final yr), suggesting that a few of these bigger companies (which have pushed a lot of the M&A increase of the previous few years) could be taking time to ‘digest’ their earlier acquisitions. On the similar time, 47% of companies with lower than $1 billion of AUM plan to make an acquisition within the subsequent two years (up from 42% final yr).

So whereas the variety of RIA M&A transactions in 2022 has already eclipsed the entire for 2021, according to Cerulli, companies seem to count on the tempo of offers and their valuations to chill off within the coming yr. And so, for advisory companies contemplating a sale, the present financial and market atmosphere heightens the significance of continued consumer development and probably transitioning key administration capabilities to the following era (although, sarcastically, doing so could make selling the firm less desirable?) to fetch the very best value from a bunch of acquirers who could be more and more cautious.

(Bob Hanson | Advisor Views)

Referrals from present shoppers, Facilities Of Affect (COIs) akin to accountants and lawyers, and different sources are an vital driver of natural development for a lot of monetary advisory companies. The truth is, consumer referrals are essentially the most generally used advertising tactic amongst companies, with 93% of companies surveyed utilizing this software and 96% of these companies gaining not less than one new consumer from a referral, in response to the most recent Kitces Analysis examine on How Financial Planners Actually Market Their Services. And whereas an advisor may have the ability to generate some referrals with out a lot effort (e.g., as shoppers suggest the agency to buddies on the lookout for an advisor), taking a extra proactive strategy to producing referrals can result in a big improve within the variety of leads an advisor receives.

For instance, when a consumer has a buddy they wish to refer, they could have no idea the easiest way to place them in contact with their advisor. To treatment this case, advisors can add an internet web page on their web site particularly for referred shoppers. Even higher, advisors can create a customized internet web page for key COIs or shoppers who refer usually that presents an much more welcoming invitation to the referred prospect. Subsequent, advisors can take into account their technique for contacting referrals; whereas some advisors may attain out with two contact factors (e.g., electronic mail and cellphone), advisors trying to convert extra referrals to shoppers can think about using not solely a customized electronic mail and a cellphone name, but in addition sending a free report or white paper, or maybe an academic video, finally making seven contacts inside 28 days.

Seminars have lengthy been a advertising software for advisors, and many have moved these events online through webinars. One technique to increase attendance at these occasions is to interact key COIs and digital influencers of their area of interest to ask their lists to the advisor’s occasion (e.g., by partnering with different wealth administration specialists to carry a digital convention). Advisors also can interact COIs or on-line influencers by internet hosting them on the advisor’s radio present or podcast, or by providing to contribute content material to the influencer’s newsletters or different media. And on the subject of leveraging social media, whereas having a presence on websites like LinkedIn and Facebook may be beneficial, going deeper by looking for out connections of present shoppers (e.g., the opposite companions at a consumer’s legislation agency) can present a higher return on effort.

Finally, the important thing level is that given the significance of referrals for the expansion of many advisory companies, placing within the additional effort to domesticate extra connections with key influencers and to create a extra personalised expertise for referred prospects could make referrals an much more beneficial advertising software!

(Kerry Johnson | Advisor Views)

In recent times, monetary advisors have more and more acknowledged that making a private reference to potential shoppers early within the course of (as quickly because the very first introductory assembly) could make it extra seemingly that the prospect will ultimately develop into an engaged, motivated consumer. And so, working to construct belief, slightly than specializing in the advisor’s planning methods, in an initial prospect meeting is essential to get the connection off on the appropriate foot.

This “good match” assembly may be structured in 5 steps. The primary, calibration, includes small speak that will get the dialog began (and, ideally, provides the advisor an thought of the prospect’s background). Subsequent, the advisor can transfer into their “elevator speech”, a 90-second dialogue that features the value they provide for clients and a narrative illustrating these advantages. After establishing their capacity so as to add worth for shoppers, the advisor can then transfer into the “bridge”, the place they talk about what points introduced the prospect to the advisor (ideally studying three potential planning wants), recap these things for the prospect (to make the prospect really feel understood), and achieve the prospect’s dedication to reaching options to their wants. The advisor can then clarify their onboarding course of and assembly cadence, lastly establishing the following step for the consumer (i.e., hopefully securing a follow-on assembly).

In the long run, whereas monetary planning requires important technical experience, additionally it is about building trusting relationships with clients. Subsequently, it’s important for advisors to start out doing in order quickly because the preliminary prospect assembly, and taking a structured strategy to this engagement can finally improve their conversion fee of turning prospects into shoppers!

(Kristen Luke | Advisor Views)

When advisors craft their marketing message, they usually create one that’s normal sufficient to resonate with a variety of potential shoppers. Whether or not it’s “Serving to shoppers dwell their finest lives” or “Serving to you profit from your cash”, these messages is not going to ‘get rid of’ any potential shoppers, however on the similar time prospects may not perceive how the advisor will help them with their particular person circumstances.

However advisors who can slender down the shoppers they need to serve (maybe by crafting an ideal target client persona or identifying an even narrower niche) can focus their message on these shoppers’ particular person wants. A primary step for creating this message is to think about whether or not the advisor’s most well-liked consumer wants a ‘life raft’ (i.e., is simply making an attempt to outlive) or a ‘sailboat’ (i.e., is trying to thrive). As an illustration, consumer sorts who may fall into the ‘life raft’ class embrace those that have not too long ago misplaced spouses, have gone by way of a divorce, have important debt, and people getting into retirement with restricted financial savings. However, shoppers on the lookout for a ‘sailboat’ may embrace those that have acquired sudden windfalls, are retiring with important financial savings, or are ‘Excessive Incomes, Not Wealthy But’ (HENRYs). The advisors message can then stream from being in a single state of affairs or the opposite (e.g., “Serving to you regain your footing after your loss” for an advisor working with widows or “Serving to you thrive utilizing your newfound wealth” for these working with ‘sudden cash’ recipients).

Finally, the important thing level is that even advisors with out particular niches can craft a advertising message that resonates with their goal consumer. And first step to doing so is to think about whether or not these shoppers are most in want of a metaphorical life raft or a sailboat!

(Christine Benz | Morningstar)

Because the yr involves a detailed, monetary advisors should not solely trying to verify year-end consumer duties are accomplished (maybe making a listing of shoppers who must take Required Minimal Distributions [RMDs] and checking it twice!) however are additionally trying ahead to the yr forward. And for these advisors who’re occupied with higher organizing their workflow all year long, making a client service calendar could be a beneficial apply.

Whereas there are infinite methods to sequence the assorted duties an advisor wants to finish and the providers they need to present in the course of the yr, they will begin with gadgets that are inclined to happen throughout sure occasions of yr. As an illustration, the primary few months of the yr might be time to focus on tax planning for clients, as their tax returns might be ready and it’s early sufficient within the yr to think about potential tax planning methods for 2023 (e.g., Roth conversion cost averaging for retirees who haven’t reached RMD age or rising contributions to tax-advantaged accounts for shoppers who’re nonetheless working). And the top of the yr could be a good time to evaluation RMDs and charitable giving plans (or mix them for shoppers who’re eligible to make Qualified Charitable Distributions!). However, much less time-sensitive planning areas, akin to reviewing insurance coverage coverages or client estate plans, can happen at any time all year long primarily based on the advisor’s most well-liked schedule, and reviewing these particular areas for all shoppers on the similar time can save the advisor time, as they will search for related planning alternatives throughout their consumer base.

Altogether, through the use of a consumer service calendar to arrange the providers being offered, an advisor can’t solely create efficiencies of their schedule, but in addition enable their shoppers to see the total vary of value-adds their advisor completes all year long!

(James Dahle | The White Coat Investor)

Late December brings workplace vacation gatherings, journey to see household, and, for a lot of, the chance to take a number of well-deserved days off. In fact, as December involves a detailed, so does the calendar yr and with it, year-end deadlines for a spread of economic planning duties and alternatives. Which supplies advisors a remaining alternative to think about that are relevant to their shoppers (or for their very own monetary state of affairs!).

As an illustration, December 31 is the deadline for a spread of tax planning gadgets, together with tax-loss harvesting, making itemized deductions (e.g., charitable giving), and fulfilling RMD necessities. As well as, these saving for retirement might want to make their contributions to worker retirement plans earlier than the top of the yr, whereas these saving in 529 accounts will need to make a contribution by December 31 to make sure they obtain any accessible state tax deduction (though a few states extend the deadline to April). Funds in consumer Versatile Spending Accounts usually have a December 31 deadline to be spent (though some firms provide a grace interval into the next yr). Additionally, these shoppers utilizing Roth Conversions this yr will need to ensure that the conversion is full by the top of the yr to make sure the proceeds are taxed on their 2022 return.

Finally, the important thing level is that whereas there are many festivities on the finish of the yr, it additionally comes with a spread of planning-related deadlines. As a result of whereas it may not be as showy as a brand new automotive with a bow, serving to your consumer save on their taxes or keep away from penalties could be a important present in itself!

(Amy Arnott | Morningstar)

Many monetary advisors and their shoppers will spend time with members of the family in the course of the year-end vacation season. And whereas it may not be essentially the most thrilling matter of dialog, utilizing the chance for vital cash discussions – whether or not they’re with ageing dad and mom, grownup kids, or a partner – could be a beneficial year-end exercise!

For these with ageing dad and mom, vacation visits may be a chance to evaluate whether or not they’re nonetheless snug and secure of their present residence. And even when they’re, beginning the dialogue now about their dwelling preparations within the years to return will help forestall uncomfortable conditions when their bodily or psychological situation might need deteriorated. It can be time to test on dad and mom’ funds to make sure they’ve sufficient earnings to fulfill their wants and that they’ve acceptable medical insurance protection (maybe exploring whether or not signing up for Medicaid could be acceptable).

In fact, these conversations can go the opposite means as effectively, as shoppers (and advisors) with grownup kids can use the vacations as an opportunity to discuss important financial matters. From the dad and mom’ finish, this might embrace sharing details about how their funds are arrange (e.g., by sharing account sorts however not essentially quantities within the accounts) to assist a future executor or beneficiaries or discussing succession plans for a household enterprise. As well as, dad and mom will help their younger grownup kids get off to begin financially by serving to them arrange tax-advantaged accounts (e.g., a Roth IRA or an HSA), and guaranteeing that they’ve correct insurance coverage protection.

And whereas spouses seemingly speak each day, the top of the yr could be a good alternative to test in on the state of their funds, akin to testing how a lot they spent within the earlier yr and whether or not this quantity is sustainable (maybe over a glass of gifted wine?) and revisiting objectives to verify they’re nonetheless acceptable.

So whether or not you might be touring over the river and thru the woods to grandma’s home or have your kids coming to see you, the vacation season might be alternative to move into the brand new yr with extra confidence in your family members’ monetary state of affairs (and your individual!).

(Rebecca Zucker | Harvard Enterprise Assessment)

December brings the chance for advisors to provide presents to members of the family, buddies, and even clients. Some people additionally like giving presents to coworkers, with whom they’ve spent lots of, and even hundreds, of hours in the course of the yr. However given office sensitivities and the potential for bills to get out of hand, managers and workers can maintain a wide range of tips in thoughts when deciding on presents for coworkers.

First off, it’s vital to pay attention to any company-imposed restrictions on present giving (e.g., presents to managers could be restricted to a sure greenback quantity to stop any impression of a quid professional quo). With a present funds in thoughts, giving personalised presents can present thoughtfulness to coworkers. Such presents may embrace experiences (e.g., a spa present certificates for a coworker who had a hectic fourth quarter), gadgets associated to their hobbies or pursuits (although, notably, you may need to keep away from giving a present that’s too personalised and might be misconstrued as being too intimate), or a donation to a trigger they help. And whereas alcohol or meals gadgets are frequent vacation presents, sure coworkers might need allergy symptoms or non secular obligations that would make these presents inappropriate so it’s a finest apply to ‘know your viewers’. In fact, nice presents don’t must value a lot cash, so a hand-crafted merchandise or perhaps a card that expresses appreciation for a way the co-worker supported you in the course of the previous yr may be glorious presents for colleagues.

Finally, the important thing level is that on the subject of giving presents to coworkers the phrase ‘one dimension suits all’ seemingly doesn’t apply. From abiding by firm or trade laws to taking time to search out a customized gift for the coworkers in your record, presents to coworkers can require simply as a lot planning, however the reward from displaying thoughtfulness will help construct and cement these relationships for the approaching yr!

(Annie Midori Atherton | The Atlantic)

The vacation season may be costly when contemplating the entire value of presents for buddies, household, and colleagues. However as a result of there are not any iron legal guidelines round giving presents, gift-givers can take into account inventive methods to provide considerate presents whereas not breaking the financial institution. And whereas it has sometimes been maligned in the past, one technique to chop prices in the course of the vacation season is ‘regifting’.

Regifting is the apply of taking a present you will have acquired (notably one that you simply may not have a lot use for) and giving it to another person. At its finest, regifting is used when the giver is aware of that the recipient will just like the present (and never simply because the giver doesn’t prefer it). As well as, these presents work finest when they’re in new or almost new situation. However, do-it-yourself or personalised gadgets are usually poor decisions for regifting (until maybe you will have a buddy with the identical initials who may like a monogrammed merchandise?).

In the long run, for many individuals, gift-giving shouldn’t be about the price of the present however the thought behind its choice for the chosen recipient. So on the subject of regifting, the secret is to guarantee that the merchandise displays the recipient’s pursuits or tastes, and isn’t simply the latest candle you received within the workplace white elephant contest!

(Justin Castelli | All About Your Benjamins)

The tip of the yr usually brings a wide range of social gatherings, from firm events to time spent with prolonged household. And whereas presents are sometimes a part of these celebrations, typically it’s the time spent collectively that’s extra memorable in the long term (whether or not it’s making a reference to a colleague or studying from the knowledge of an elder member of the family). On the similar time, being bodily ‘current’ throughout these events doesn’t essentially imply that you’re mentally current as effectively. Given the range of potential distractions, from checking electronic mail to mentally planning for the following occasion, purposefully specializing in the folks with whom you might be at present spending time could make these interactions way more significant.

One technique to be extra current in the course of the vacation season is to ditch digital units, notably smartphones, throughout social gatherings. Whether or not it’s the vibration notifying you of an incoming textual content or electronic mail, the temptation to test the most recent sports activities scores, or the urge to complete off this week’s Weekend Studying For Monetary Planners (you’re virtually there!), there isn’t a scarcity of ‘causes’ to scroll, even if you’re bodily with different folks. So turning off the cellphone earlier than going to an occasion or preserving digital units in one other room is a good way to avoiding distractions with a view to be extra current in the course of the vacation season.

As well as, beginning a meditation apply (maybe an early New Yr’s decision?) will help you middle your thoughts and concentrate on what is going on now (versus mentally wandering off to fascinated with upcoming occasions and work obligations). Relatedly, prioritizing your bodily well being will help you will have extra vitality to fulfill the calls for of the vacation season and be extra engaged when interacting with others.

Finally, the important thing level is that whereas the vacation season is stuffed with gatherings and gift-giving alternatives, being each bodily and mentally current in your buddies and family members could be the most effective ‘presents’ you may give throughout this time of yr. And serving to your self develop into extra current could be so simple as turning your smartphone off for a number of hours (gasp!) or taking a couple of minutes to settle your thoughts earlier than seeing others!

We hope you loved the studying! Please depart a remark beneath to share your ideas, or make a suggestion of any articles you suppose we must always spotlight in a future column!

Within the meantime, for those who’re occupied with extra information and data relating to advisor know-how, we might extremely suggest testing Craig Iskowitz’s “Wealth Management Today” blog, in addition to Gavin Spitzner’s “Wealth Management Weekly” blog.