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HomeFinancial AdvisorWeekend Reading For Financial Planners (Sept 24-25) 2022

Weekend Reading For Financial Planners (Sept 24-25) 2022

Executive Summary

Enjoy the current installment of “Weekend Reading For Financial Planners” – this week’s edition kicks off with the news that the SEC has issued a risk alert putting advisors on notice that examiners will be conducting a number of reviews to evaluate how firms are complying with the Commission’s new marketing rule, which it will begin to enforce starting November 4. While the new rule allows financial advisors to proactively use testimonials (from clients), endorsements (from non-clients), and highlight their own ratings on various third-party websites, the SEC’s warning suggests that advisory firms will want to take care to abide by the compliance requirements linked to the new rule.

Also in industry news this week:

  • How advisors can serve clients of the millennial generation who have seen their income and wealth grow as they have gotten older
  • A survey shows that more RIAs are outsourcing investment management, and that those who do are largely happy with the decision

From there, we have several articles on insurance and investment planning:

  • Why the chair of the Senate Finance Committee has taken an interest in the private placement life insurance market
  • A new designation is available for advisors looking to serve clients with nonqualified deferred compensation plans
  • How DPL Financial Partners’ growth is a sign of advisor interest in fee-based annuities

We also have a number of articles on advisor marketing:

  • The latest trends in advisor marketing, from the continued dominance of client referrals to the return of in-person gatherings
  • How advisors can pull off an event that can increase client loyalty and attract new prospects
  • Why some firms are thinking twice about taking advantage of the SEC’s new marketing rule right away

We wrap up with three final articles, all about business ownership:

  • Why business owners with strong technical skills limit their profitability by spending too much time working in their business rather than on it
  • The advantages and disadvantages of ‘renting’ versus ‘owning’ your career
  • Why focus and intense curiosity are common traits among some of the most successful business leaders

Enjoy the ‘light’ reading!

Adam Van Deusen Headshot

Author: Adam Van Deusen

Team Kitces

Adam is an Associate Financial Planning Nerd at He previously worked at a financial planning firm in Bethesda, Maryland, and as a journalist covering the banking and insurance industries. Outside of work, he serves as a volunteer financial planner and class instructor for non-profits in the Northern Virginia area. He has an MA from Johns Hopkins University and a BA from the University of Virginia. He can be reached at [email protected]

Read more of Adam’s articles here.

(Kenneth Corbin | Barron’s)

In the early days of the financial advisory industry, investment management was at the center of the advisor value proposition. And to separate “bona fide investment counselors” from the “unscrupulous tipsters and touts” trying to sell a ‘hot’ investment scheme, the Securities and Exchange Commission (SEC) in 1961 codified a rule prohibiting RIAs from using any form of client testimonial. The thinking was that the results and returns of any one client wouldn’t necessarily be representative of what any/all kinds could expect in the future, and that advisors could/would “cherry pick” good testimonials from the clients who had the best performance results… and that therefore testimonials were inherently misleading and a danger to the public.

But since then, the world of marketing and advertising has evolved greatly (as consumers increasingly rely on review websites when purchasing a good or service), as have the services of RIAs themselves (which have expanded well beyond investment management to comprehensive financial planning). Amid this background, the SEC in late 2020 announced a new marketing rule that, for the first time, allows financial advisors to proactively use testimonials (from clients), endorsements (from non-clients), and highlight their own ratings on various third-party websites.

But now, with enforcement of the updated marketing rule slated to take effect on/after November 4, the SEC has issued a risk alert putting advisors on notice that examiners will be conducting a number of reviews to evaluate how firms are complying with the new rule since it was finalized nearly 2 years ago. The SEC noted four areas where staff will examine how firms are complying with the new rule. First, they will be reviewing firms’ basic policies and procedures to ensure firms have updated their compliance protocols to account for the new regulations. Second, the SEC will be looking to ensure firms can substantiate any (new) marketing claims they’re now making by demonstrating that they have a “reasonable basis” for believing that any statement included in marketing material is true. Third, examiners will scrutinize how advisors are incorporating performance metrics in their advertisements. Finally, the SEC will focus on firms’ books and records, including verification that firms have updated their Form ADV filings with information about their marketing practices.

Ultimately, the key point is that while the SEC’s new marketing rule gives advisory firms the opportunity to market themselves in ways that they have not been able to previously, it comes with the burden of taking the actions necessary to remain in compliance with the rule. And whether a firm collects and publishes client testimonials, or just highlights the reviews they’ve received on third-party websites, the SEC’s latest alert provides a more detailed insight into the type of questions firms might face during their next examination!

(Suzanne Woolley and Misyrlena Egkolfopoulou | Bloomberg News)

The millennial generation (typically defined as those born between 1981 and 1996) has often gotten a bad rap in the media, whether for being self-centered, disloyal to jobs, or not having much interest in purchasing a home. However, many of these judgments came down when millennials were in their early 20s and just starting out in their adult lives. But now, with the oldest Millennials reaching 40, their spending and savings habits (from buying a house to saving for retirement) are looking more and more like previous generations.

And the growth of millennials’ wealth means that they might increasingly be looking for professional financial advice. But advisors used to working with older generations might wonder how to profitably serve this generation of emerging wealth. One key factor is the advisor’s fee model; while many millennials have seen their incomes grow through almost 20 years in the workforce, they might not yet have amassed sufficient assets to meet AUM-based firms’ minimums. Instead, offering a subscription-based model could allow advisors to serve these high-income millennials (who can afford to pay a similar fee that an advisor might charge on an AUM basis) profitably. Other options include charging a percentage of income (rather than assets) or offering hourly or project-based engagements that millennials further down the income spectrum could afford.

Another consideration is the type of planning services millennials will seek. For instance, millennials will often be more interested in a cashflow analysis (which is likely to be complicated given the range of spending priorities) than their balance sheet (which is likely to be slimmer than those of near-retirees). This opens up many avenues for advisors to add value, from helping millennial clients decide how to allocate their income to meet their spending and savings goals to offering advice on how to maximize their credit card rewards in the process. Further, many millennials will often have specific needs (e.g., student loan analysis or equity compensation analysis) that can serve as a helpful marketing niche for advisors who gain expertise in these areas.

In the end, the growing incomes and wealth of the millennial generation mean that advisors have an opportunity to get in on the ground floor with prospects from this generation, who could end up using financial planning services for another 50 years. The key point, though, is that the planning needs and ability to pay planning fees of this group are different from older generations, suggesting that the advisory firms that are able to best adjust could have the most success working with clients from this generation of emerging affluence!

(Michael Fischer | ThinkAdvisor)

As the value proposition of many RIAs has shifted from investment management to a more comprehensive planning approach, some advisors have chosen to outsource some of their investment management responsibilities. From Turnkey Asset Management Platforms (TAMPs) to model portfolios to external investment management firms, advisors have a range of available options to use.

And a recent survey by Northern Trust Asset Management FlexShares ETFs suggests that the pandemic has led an increasing number of advisors to choose outsourced investment solutions. According to the survey, 32% of RIAs said they outsource at least some of their investment management, up from 27% in 2020; on average, RIAs outsource about 50% of their AUM. And those firms that do outsource investment management appear to be happy with their decisions, as 95% of firms surveyed said they were satisfied or very satisfied with their outsourced solutions. Further, 53% directly correlated their outsourcing activities with allowing them to generate more revenue (perhaps by freeing up time for business development that was previously spent on investment management).

Overall, the survey demonstrates that not only are an increasing number of RIAs adopting outsourced investment solutions, but that doing so has positively impacted the bottom line for their firms. So whether an advisor wants to create more time for other aspects of their business or prefers to focus on other aspects of planning, outsourcing investment management could be a profitable solution!

(Allison Bell | ThinkAdvisor)

Private Placement Life Insurance (PPLI) has long been a tax-shelter vehicle for Ultra-High-Net-Worth (UHNW) clients, leveraging the tax-deferral build-up of cash value in a permanent life insurance policy but in a structure that accommodates more specific investment choices (for that particular UHNW client) and without the sometimes-expensive commission structure that can overlay ‘traditional’ permanent life insurance. This vehicle received a boost in late 2020 from the Consolidated Appropriations Act, which allowed insurance companies to use lower interest rate assumptions (based on a new variable rate tied to current market rates) in determining whether a life insurance policy will become a taxable Modified Endowment Contract (MEC), which has the end result of allowing substantially higher cash value contributions into permanent life insurance without triggering MEC status.

But now, Senate Finance Committee Chair Ron Wyden appears to be interested in taking a closer look at these policies. In letters to Prudential Financial, Zurich Insurance Group, and the American Council on Life Insurers, Wyden requested additional information about the PPLI market (including its size, which is largely opaque) and whether the policies serve only to reduce the income taxes of wealthy families rather than provide genuine insurance. He also asked whether some clients might be using PPLI policies to hide offshore assets from the IRS or other federal agencies, or to launder money obtained through illegal means. Wyden is also interested in looking into the PPLI market given the policies’ potential to help wealthy individuals work around the potential elimination of the step-up in basis.

At this point, Wyden’s scrutiny of PPLI policies remains in the inquiry stage, but, given his position, advisors and their clients who have PPLI policies (or are considering purchasing one) might want to pay attention to any future legislative developments, as changes to their tax treatment could reduce their planning value!

(Gregg Greenberg | InvestmentNews)

Retirement planning is one of the key services financial advisors offer. From choosing the appropriate savings vehicle during a client’s accumulation phase (and how much to contribute) to creating a retirement income plan as they approach their decumulation phase, advisors can add significant value to their clients. And while advisors most commonly deal with traditional and Roth IRAs, as well as qualified workplace retirement plans (e.g., 401[k]s), some clients might also have nonqualified plans. These are typically deferred compensation arrangements that companies often offer to high-earning executives (who stand to benefit the most from the tax deferral benefits).

And now, the National Association of Plan Advisors (NAPA) is offering a new certification, the Nonqualified Plan Advisor (NQPA) credential, to allow advisors to demonstrate their expertise in working with the often-complicated world of nonqualified deferred compensation and executive compensation plans. The certification includes two courses, plan fundamentals and advanced plan designs, as well as a final exam that candidates must pass to receive the NQPA credential. The courses cover a range of topics, including plan design provisions, tax considerations, and specialty plans such as Rabbi Trusts.

So for advisors who work with high-earning executives who are offered a deferred compensation plan at their job (or who would like to attract these clients in the future), the NQPA certification could be an attractive supplementary designation that will allow them to better understand these plans and where they fit within the hierarchy of tax-preferenced savings vehicles!

(Brooke Southall | RIABiz)

For advisors working with pre-retirees and retired clients, creating and managing their retirement income plans is typically an important part of their value proposition. From the timing of claiming Social Security benefits to managing sequence of returns risk, there are many factors to consider. But one potential retirement income solution, annuities, have long been out of favor with advisors at RIAs, in large part due to their (frequent) opacity, (often high) fees, and (sometimes egregious) commissions charged by brokers (not to mention their reduced payout ratios in the low-interest-rate environment in recent years).

But the ongoing growth of RIAs (and the market opportunity it presents for insurance companies), and the potential that regulators could force a broader shift of all advisors towards a (no-commission) fiduciary duty, has in recent years led to a growing number of carriers offering “fee-based” (i.e., no-commission) annuities, in the hopes of appealing to the commission-adverse channel. And given what is still the potential for annuities to help ameliorate longevity risk (the chance that a client will not be able to sustain their spending needs throughout an extended retirement), now with annuity features and benefits that are more favorably priced without the commission layer, and a recent Private Letter Ruling that RIAs can sweep their annuity fees directly from the annuity contract on a pre-tax basis, some advisors appear to be opening up to their potential value for certain clients.

To meet this need, DPL Financial Partners has positioned itself as an annuity marketplace provider for RIAs looking to meet clients’ income needs, offering a curated list of about 70 fee-based annuity products from 25 carriers. And DPL has experienced significant growth as RIAs have started to shift towards annuities, increasing DPL’s marketplace revenue by 400% in the past year, which has attracted investor attention as well (DPL just raised another $20M capital round to continue scaling up its RIA services, after raising a $26M round two years ago).

Ultimately, the key point is that DPL’s success is a sign that advisors are increasingly curious about (and showing an increasing willingness to actually use) the potential utility of a new generation of no-commission annuities within at least some clients’ retirement income plans. And given the weak performance of the stock and bond markets so far in 2022, as well as rising interest rates (which can increase the payouts offered by annuities), even more advisors (and their clients) might look to annuities as a ‘guaranteed’ income solution (or at least a more stable fixed-income alternative!?)!

(Charles Paikert | Barron’s)

Financial advisors are often attracted to the business by a variety of factors, from enjoying the technical aspects of planning to being able to help clients achieve their financial goals. On the other hand, business development and marketing are probably not near the top of the list for most advisors. But for those running an advisory firm, attracting new clients is a necessary part of growing the business (particularly at a time when weak market performance has reduced revenues for firms charging on an AUM basis!).

For many advisory firms, referrals from current clients remain their preferred source of prospects. According to the 2022 Kitces Research report How Financial Planners Actually Market Their Services, 93% of advisors surveyed use client referrals, by far the most commonly used marketing tactic. But many growing firms (particularly those without enough current clients to generate a sufficient number of referrals!) use other marketing tactics as well. Those that want to maximize their online presence use search engine optimization (which has the lowest average client acquisition cost, according to the Kitces Research study), social media, webinars, and blogging.

And while those techniques often involve ‘soft dollars’ (the value of an advisor’s time spent on marketing), other firms look to more ‘hard-dollar’ tactics. For instance, as the pandemic has receded, some firms have resumed in-person events, from intimate dinners with prospects to Fall Festivals that allow current clients and prospects to bring their families to the event. Other options for hard-dollar spending include advertising (whether online or through TV or radio campaigns), paid referrals (e.g., third-party solicitors and custodians), or sponsorships.

Ultimately, the key point is that advisory firms have many factors to consider when creating a marketing plan. From their growth goals to the balance of ‘hard’ versus ‘soft’ dollars they want to spend, to their target client, a range of marketing tools are available. And by taking a data-driven approach, firms can find the most efficient tactics to grow their business into the future!

(Justin Adams | FMG Blog)

In-person events can be a great way for advisors to build their relationships with current clients and prospects alike. From educational events (where the advisor can demonstrate their expertise) to social events (where the advisor can engage clients and prospects without discussing finance) to networking events (where an advisor can connect with centers of influence such as lawyers and CPAs), advisors can choose from a variety of events to leverage throughout the year.

But these events take planning to pull off, which means that advisors will want to make the most out of each gathering. In the promotion stage, this includes marketing the event to attract as many attendees as possible. This can be accomplished through emails (perhaps a three-email sequence of “Save the Date”, “Register Now”, and “Last Chance to RSVP”) and social media, as well as by choosing a catchy title to draw the attention of prospective attendees. When planning the event itself, it can help to have something that gives it a ‘wow’ factor, such as a unique venue, interesting food, and/or memorable activities. And after the event (once everyone has hopefully had a great time), sending an email to attendees thanking them for coming (as well as an email to those who couldn’t attend to say you hope to see them at the next gathering) and creating social media posts with pictures from the event can help ensure your efforts remain fresh in the attendees’ minds.

The key point is that a well-planned event can help build bonds with current clients and trust with prospects. Whether you are planning a wine-tasting event, a trip to the local zoo, or a round of golf, taking a methodical approach to organizing the event — before, during, and after it occurs — will help you make the most of your marketing dollars!

(Mark Schoeff | InvestmentNews)

The SEC’s new marketing rule, which will be enforced starting November 4, presents RIAs with the opportunity to greatly expand their marketing efforts. From client testimonials to promoting the reviews they’ve received on third-party websites, firms will be able to point prospective clients to evidence of the quality of their service.

At the same time, the SEC will be looking to ensure that advisors stay within the bounds of the new regulation. But because the rule is principles-based (e.g., according to the SEC, information in marketing materials must be presented in a “fair and balanced” way, with the meaning of “fair and balanced” remaining undefined), some advisors are nervous about running afoul of the SEC during their next examination in the absence of more explicit guidance (which could come as the result of other firms running afoul of the new regulations). In fact, advertising and marketing was cited as the “hottest” compliance topic for 2022 among firms in a recent Investment Adviser Association survey.

Ultimately, the key point is that advisory firms face a dilemma with the SEC’s new marketing rule: early movers who take advantage of the rule could reap the benefits of the expanded marketing opportunities, but at the same time could also become the first targets for SEC enforcement of the regulations. This suggests that those firms who do decide to leverage client testimonials and other types of marketing allowed by the rule will want to pay close attention to current and future SEC guidance on the marketing rule and maintain a strong internal compliance culture to ensure that their marketing campaigns and documentation meet the SEC’s requirements!

(Khe Hy | RadReads)

One of the first steps on the path to becoming a financial advisor is gaining the technical skills (often through a CFP Board registered program) needed to provide high-quality advice to clients. The next step is typically to find a job at a financial advisory firm, where the aspiring planner can gain the expertise needed to eventually work with clients of their own (and to gain the hours needed to fulfill the CFP experience requirement). And at some point, many advisors decide to take the plunge and start their own firm.

But many new advisory firm owners discover that running their own practice is different from working as an employee advisor. While they might have originally started out as an advisor because they enjoy the technical aspects of planning and working directly with clients, they might find that much of their time is spent on managing processes and operational aspects of the firm. And while advisors can build a profitable practice at this stage, Hy suggests that many high-achieving professionals often get ‘stuck’ at this stage of business.

Instead of focusing nearly all of their time on the managerial and technical aspects of the practice, Hy suggests that taking time to incorporate an entrepreneurial vision is the key to transforming it into a full-fledged business. For example, while the technical aspects of planning require significant skill, an advisor’s ability to profit off of this talent is limited to the hours they work themselves; instead, creating an entrepreneurial vision (e.g., a business that includes other advisors and operational personnel) can lead to a business that can generate profits beyond the hours the firm owner works themselves.

The key point is that there is a difference between building a financial planning practice (where the firm owner’s primary role remains financial advising) or a business (where most of the owner’s time is spent working on the business rather than in it). And while both options can be both profitable and enjoyable, it is important for the firm owner to know which avenue they want to pursue, so that they can make the most out of their limited time!

(Financial Panther)

One of the major debates in personal finance is the question of whether to rent or own a home. Renters pay a landlord money and in return receive a home to live in for a given term, at which point they have to find somewhere else to live. Homeowners, on the other hand, typically pay a mortgage (as well as taxes, insurance, and upkeep costs), and not only have a place to live, but also have an asset to sell when they want to move somewhere else. The ‘right’ answer of whether to rent or buy will typically depend on an individual’s situation; for example, if they plan to leave their current city, renting is probably the way to go, whereas buying a home could be the better choice if they plan to stay in the house for many years.

A similar comparison can be made between employees and business owners. Employees trade their time for wages, but if they decide to leave their job, they have no additional assets other than the income they’ve made. On the other hand, business owners typically pay themselves a salary as their business brings in revenue, but the business itself becomes an asset that they can potentially sell. Though, similar to the housing example, the issue of how long you plan to stay in the job is a key factor. For instance, someone who thinks they might want to move on to a different field in the near future might rather ‘rent’ their job as an employee, whereas someone who is prepared to work on a business for the long haul might want to ‘own’ their job by starting a firm (not only because doing so often involves upfront costs, but also because it often takes several years for the value of a business to grow significantly).

Ultimately, there is no one ‘right’ choice between ‘renting’ or ‘owning’ your job. And in the case of the financial advisory industry, either option can be fulfilling (both personally and financially), as some advisors prefer working as an employee advisor where they can spend most of their time meeting with clients while bringing in an attractive salary, while others prefer the challenge (and potential financial upside) of starting their own firm. The key is to understand your own preferences (e.g., a desire for flexibility versus a commitment to sticking with your business) and choose accordingly!

(Frederik Gieschen | Neckar’s Minds And Markets)

Many professionals look to individuals who have found success to get inspiration or ideas on how to succeed themselves. Of course, you cannot copy the story of someone like Warren Buffett or Steve Jobs, but applying their habits can help lead to success (however you define it) in your own life.

For example, focus is a trait attributed to many successful entrepreneurs. In Bill Gates’ case, he tried to tune out the outside world (literally, by removing the tuner from his television) so that he would not be distracted from thinking about how to make Microsoft a better company. Something similar could be said for Buffett and Jobs, who found their missions early in life and placed an intense focus on them throughout the rest of their lives. And in the case of financial advisors, this could mean focusing and ‘going deep’ into the needs of a particular ideal target client or niche.

But not every successful individual is laser-focused on a singular pursuit. For instance, while Richard Feynman is most well known for being a scientist (including winning the Nobel Prize in Physics), he was also a teacher, author, and drummer. According to Feynman, one of the secrets of his success in a variety of areas was to keep a number of “favorite problems” swirling in his head, so that every time he learned a new fact or technique, he could consider whether he could apply it to one of these problems (even though they were often in widely divergent fields). This suggests having many questions in your head (even if you’re not thinking about them constantly) can keep you curious and engaged for an extended period and across multiple disciplines.

In the end, there is no one ‘secret’ to success in business, or in life in general. And different lessons from successful individuals could be valuable at different points in your life. For example, exploring a range of intellectual questions or career pursuits (or perhaps in the case of advisors, different types of firms or clients) early in a career can expose you to a range of ideas and opportunities. But when you find one you want to commit to, having the focus to see it through could result in a significant professional and financial upside!

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

In the meantime, if you’re interested in more news and information regarding advisor technology, we’d highly recommend checking out Craig Iskowitz’s “Wealth Management Today” blog, as well as Gavin Spitzner’s “Wealth Management Weekly” blog.

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