Weekend Reading for Financial Planners (June 15-16)

Executive Summary

Enjoy the current installment of “weekend reading for financial planners” – this week’s edition kicks off with the official release of IRS regulations that kill the charitable “workarounds” that many states have been trying to create since the Tax Cuts and Jobs Act capped the State And Local Tax (SALT) deduction at just $10,000… even as many high-income individuals complete their first tax returns (for 2018) and realize that due to the prior impact of the Alternative Minimum Tax (which eliminated SALT deductions entirely), that, in practice, the SALT cap is often not as problematic as many had feared early on.

From there, we have several articles on the SEC’s recent Regulation Best Interest now that the dust is beginning to settle and the details are emerging, with one article looking at how Reg BI will cement the “two-track” regulatory approach (of keeping broker-dealers and RIAs separate, rather than merging them under a single uniform fiduciary standard), when certain brokers will no longer be allowed to use the advisor/adviser titles (unless they at least become dual-registered as RIAs as well), and what RIAs will need to do to comply with the new Form CRS requirements.

We also have a few articles around the theme of learning to better do sales and business development (especially as an employee advisor who is not naturally inclined towards sales and business development!), including tips for how to better support “sales” activities for non-sales advisor professionals (by reframing it as how to help the advisor help others with their unique skills and abilities), what firms should consider when employee advisors do want to start marketing themselves, why/how professional designations do (or don’t) help make advisors more successful (especially when it comes to getting new clients), what to do to avoid getting brushed off when you do get a referral from a client to a new prospect, and some low-key ways to follow up with prospects after the first meeting to keep them engaged.

We wrap up with three interesting articles, all around the theme of the mid-career crisis and what to do if we feel we’ve hit a wall: the first explores the phenomenon of the mid-career crisis itself, and how it’s similar to a midlife crisis, but requires somewhat different remedies (and mindset changes) to resolve; the second explores the research about why employees ultimately tend to quit their jobs (which is less about the job and company itself, and usually about their direct manager and whether he/she is doing what it takes to support and develop the employee in their career and stage); and the last explores the phenomenon of the “Late Bloomer”, and how, in reality, our brains are still developing throughout our teens and 20s, such that, while society today often celebrates the “early bloomer,” it’s the late bloomer in their 30s, 40s, or even 50s, that may actually be more common and expected. (Which is why it’s never too late to start a new career or path as a financial advisor!)

Enjoy the “light” reading!

IRS Kills State Workarounds For SALT Deduction Limit (Bernice Napach, ThinkAdvisor) – The Tax Cuts and Jobs Act of 2017 created a new cap on the deduction for State And Local Taxes (SALT), limiting the deduction to no more than $10,000/year (for individuals or married couples), and kicking off a number of strategies in high-tax-rate states like New York and California to work around the limitation. The leading approach was to grant citizens of those states the option to contribute to a state charity (that would support public services) instead, and provide a dollar-for-dollar state tax credit for the payment… fulfilling the taxpayer’s obligation to the state, but effectively turning the (SALT-capped) state income tax payment instead a (no-cap) charitable deduction instead. But now, the IRS has issued Final Regulations that deny the tactic, declaring that if someone receives quid-pro-quo in exchange for their charitable contribution (e.g., a state tax credit in exchange for their donation), that their charitable deduction will be reduced by the amount they received. Thus, for instance, if someone donated $1,000 to a state charity and received a $1,000 state tax credit to offset their $1,000 state income tax obligation, the Federal charitable deduction would be reduced by $1,000 (making the charitable deduction $0 for Federal tax purposes, entirely eliminating any benefit). Notably, the regulations do stipulate that if the state tax credit is set at 15% or less, the deduction will stand… thereby ensuring that other ‘normal’ state charity initiatives don’t actually get caught up in the crackdown either. However, some states that provide tax credits in other contexts – such as 100% tax credits for donations to support K-12 private schools in Alabama, Arizona, Georgia, and South Carolina – will also now lose their Federal charitable deductions as well. The new regulations are effective for any contributions to a charity (for which a state tax credit is provided) that occurred after August 27 of 2018, when the proposed version of the Regulations were first issued. On the other hand, the irony is that because of the Alternative Minimum Tax, many taxpayers weren’t actually getting much or any of the SALT deduction anyway, which means in practice the impact of the new crackdown (and the SALT cap in the first place) may be more limited than some expected it to be.

SEC’s Reg BI Cements Two-Track Regulatory Approach (Kenneth Corbin, Financial Planning) – While the original Department of Labor fiduciary rule would have effectively applied a single uniform fiduciary standard for all advisors (at least those providing advisor to retirement investors), the final version of the SEC’s Regulation Best Interest decided instead to maintain the existing ‘two-track’ system of broker-dealers and investment advisers, where each provides its own services and each is subject to its own standards (largely consistent with the SEC’s original proposal). The rule will require that broker-dealers and their reps “act in the best interests of their clients”, but notably only requires individual representatives to actually mitigate any conflicts of interest that may arise (while broker-dealers themselves must merely disclose their firm-level conflicts), though some practices like sales contests and certain similar incentive programs are outright barred. Although in practice, many broker-dealers were already putting policies and procedures in place to manage or at least disclose such conflicts – after the Department of Labor’s own fiduciary rule – such that the level of compliance change in practice may be more manageable for broker-dealers anyway. Still, though, advisory firms – both broker-dealer and RIA – will need to create their new Form CRS (Client Relationship Summary) document that explains the nature of their client relationship and provides the relevant disclosures (either as a separate form for broker-dealers, or a third part of the ADV for RIAs).

Reg BI Limits Brokers’ Use Of The Title ‘Adviser’ Or ‘Advisor’ (Mark Schoeff, Investment News) – One of the major concerns in the discussion of potential fiduciary reform is the use of titles by investment advisers and broker-dealers, and specifically whether it is misleading to consumers for brokers to call themselves “financial advisors” while operating as a broker. Accordingly, the original Regulation Best Interest proposal last year included a requirement that standalone brokers would no longer be permitted to use the advisor/adviser titles when holding out to the public, if they were operating solely under a broker-dealer license, and the final version of Regulation Best Interest has adopted the change. However, the reform would only prohibit those exact advisor/adviser titles – and not the plethora of other advisor-like titles commonly used in the industry. In addition, brokers who are dual-registered as investment advisers – which by the SEC’s own estimates is the majority of all brokers in client-facing roles at the largest broker-dealers serving the most clients/assets today – would not be subject to the limitation, and can continue to call themselves advisors/advisers, which means in practice the scope of the new title reform limitation may itself be very limited. In fact, broker-dealers potentially affected could simply proceed to have their registered reps take the Series 65 and become dual-registered, and then be permitted to continue to hold out as advisors… regardless of whether or how much of their services offered are actually done while wearing their Registered Investment Adviser hat or not.

An Overview Of The 5 Required Form CRS Items For RIA Firms (RIA In A Box) – A key aspect of the new Regulation Best Interest is the creation of a new Form CRS (Client Relationship Summary), that all advisors from both broker-dealers and RIAs will be required to provide to their clients. Of course, RIAs already have a series of explanations and disclosures about their services they’re required to provide – as Form ADV Parts 1 and 2 – and accordingly for RIAs, the new Form CRS will create a new ADV Part 3. As originally proposed, this new Part 3 of the ADV would have been a pre-written four-page document with eight sections that RIAs would fill out (not unlike ADV Parts 1 and 2 today), though the final version was a somewhat more flexible 2-page document (in fact, Form CRS must remain no more than 2 pages!), with 5 mandated sections instead: an Introduction that includes the name of firm, its registration status, the date, and a basic disclosure that there are important differences between brokerage and investment advisory services (and a direction to see additional educational materials as the SEC’s own Investor.gov/CRS website); a description of Relationships and Services, that covers the main services the firm offers (e.g., financial planning, discretionary managed accounts), specifically noting whether the firm engages in ongoing monitoring of the portfolio, and the advisory firm’s investment authority (i.e., whether the firm has discretion and in what circumstances); disclosure of Fees, Conflicts, and the applicable Standard of Conduct, including the type of fees (e.g., AUM, fixed fees, hourly, etc.), whether transaction costs are passed through, other ancillary costs, how the firm’s own professionals are paid (e.g., based on the amount of assets they service, time/complexity, product sold, etc.), and pre-written disclosure statements that explain the RIA’s fiduciary obligation; a disclosure of the firm’s Disciplinary History; and guidance on where the consumer can find Additional Information about the firm. In addition, Form CRS will include a series of “Conversation Starters” sections – that all RIAs must include – that prompt clients in the questions to ask, such as “what are your legal obligations to me?” and “how else does your firm make money and what conflicts of interest do you have?”

Selling For The Non-Sales Professional (Beverly Flaxington, Advisor Perspectives) – As a growing number of advisory firms have hired employee advisors to service existing clients (often to free up the founder’s time to get more new clients and grow the business further), there is a growing base of “non-sales” professionals at advisory firms who came on board just for that role, and may have little-to-no business development skillset. Which at first may not be a problem for the firm – as the whole point was simply to have those advisors service existing clients so the founder could get more – at some point, the size of the firm becomes large enough that the founder(s) alone cannot do enough business development themselves to sustain the growth. And then, suddenly, it becomes necessary for the firm to turn its non-sales professionals into business developers… despite the fact that’s not what they were originally hired to do, and may not be their skillset at all. So what can be done to develop these employee advisors, who in many cases explicitly sought out such roles explicitly because they didn’t want to be in a sales/business development capacity? Flaxington, who herself has authored “The Pocket Guide To Sales For Financial Advisors“, provides three key suggestions: 1) recognize that business development, especially as a financial advisor, ultimately comes down to building relationships, listening, and understanding what the client wants/needs… which means the goal is not to turn those employee advisors into “salespeople” in the first place, but simply to expand their skillset for establishing and building new relationships (which is more likely to align to their interests/approach anyway); 2) help the employee advisor to truly see and understand the value they’re adding to clients in the marketplace… such that it would be a disservice if they didn’t at least try to let others know what they do and how they can help; and 3) teach them to “ask for the business”, recognizing that even if a prospective client is interested, sometimes it still requires a (not salesy or pushy) basic ask to get them to move forward, such as “I believe I am a good fit to help you and your family… what would be the best next step to help you make the right decision for your financial well-being?”

When Staff Advisors Want To Market Themselves (Bryan Hasling, Millennial Planners) – As larger advisory firms increasingly hire next generation advisors into client service roles (rather than day-1 sales roles), the obligation of ‘business development’ is shifting from something that advisors must learn upfront, to a path that they grow and move into after several years of experience. On the one hand, this is good news for many advisors, whose preferred role in the first place was to do “real financial planning that changes real lives” without any cold calling. On the other hand, for advisors who do want to continue to grow and move up the ladder at the firm, business development typically does become a required skill/role eventually. Which in turn starts to raise some difficult questions unto themselves, from “should I be marketing myself separately from my firm?” (especially for larger advisory firms that are increasingly branding themselves and building their own marketing machines), “should I be tweeting [and if so, about what]?”, and “does anyone even care what I have to say?” Hasling suggests that from the firm’s perspective, the best approach is to try to identify the people who may have a natural proclivity towards marketing – the ‘natural marketers’ – and both focus the resources there, but also recognize that such natural marketers can help grow the future of the firm, but are also more likely to want/need to market themselves as well (which means the firm needs to be prepared to accommodate them, or risk that they’ll eventually take their marketing skills to go launch and build their own firms instead).

Will Designations Make You More Successful? (Helen Ngo, Financial Planning) – As a new financial advisor with a strong academic pedigree, Ngo was excited to launch into her first financial advisor training program to get her licensing exams and her CFP certification, under the auspices that the more she knew about the numbers and the rules, the more clients would want to hire her (as opposed to the newbie advisor with a history degree and no professional designations sitting next to her). Yet in practice, that no-designation rookie advisor outperformed her, building $10M of AUM in his first year out of the training program, while Ngo struggled to close the prospects she was getting in front of. The distinction: designations like CFP certification may be helpful for marketing purposes to get a prospect in front of you, but you still have to learn to “sell” and persuade them to actually sign on the dotted line (converting them from being ‘just’ a prospect into a bona fide paying client). In other words, the key to financial advisor success is very much about people skills and is still about “selling”… even if what you’re selling is you and the financial planning you’re offering. Or more generally, the ability to manage people’s expectations is more important than the actual returns you may get them. Ultimately, that doesn’t mean it’s bad to get professional designations – as Ngo notes, CFP certification is widely recognized by the general public now – but the decision about whether to invest more time and money towards another designation should still be viewed in the context of the overall marketing plan (which means, particularly after getting CFP certification, what the advisor pursues next should be driven more by how they want to specialize and differentiate, than just adding more letters for the sake of letters alone, such as getting the CDFA designation with a desire to pursue the divorce niche, or the AEP to pursue an estate planning specialization). The key point, though, is simply to recognize that success isn’t just about getting designations for the sake of designations (and marketing) alone; in the end, new advisors also still have to spend time honing their ability to read people and communicate more effectively, too (e.g., join Toastmasters). Otherwise, you may be a smart financial advisor, but not necessarily a good one. Or as the industry saying goes, “No one cares what you know, until they know that you care.”

9 Ideas To Avoid The Brush-Off From Referral Prospects (Bill Cates, Referral Coach) – One of the big challenges of growing an advisory business by referrals is that even people who are referred to the advisor don’t necessarily become clients and do business, and in some cases it’s difficult to even get a meeting and avoid being brushed off by a referral. So what can be done to minimize the risk of brush-off and increase the odds that a referral at least turns into a meeting with the prospect? Cates offers several suggestions, including: try to have the client contact the prospect/referral first to introduce you (rather than just going in cold with “so-and-so suggested that I contact you…”); ask the referral source “why did you think he/she should talk to me?” and/or “what’s going on in his/her life that’s important to him/her right now?” so you know what the best angle/context is to approach the conversation with the person being referred; learn as much as you can on background about the prospect in advance (which makes you more confident in the outreach, and gives opportunities to more quickly connect and build rapport); if the prospect is big enough, find ways to stay in touch in a value-added way (e.g., drip them with real, tangible value over time, to show them you can add value as a resource, even before they’ve become a client); consider whether the referral is approprach to be invited to one of your client appreciation or educational events, as a way to further deepen the connection with him/her.

5 Creative Ways To Follow-Up With A Prospect (Don Connelly, Iris.xyz) – In the ideal world, every prospective client would sign up at the end of the first meeting, but in practice not all prospects will immediately understand/appreciate the advisor’s value, and/or will need more time to build trust in the advisor. But when those blocking points occur, it’s rarely feasible to just leave the prospect on their own to figure out how to better trust or understand the advisor’s value; instead, follow-up is necessary to try to extend and deepen the prospective client relationship. Some potential tips and options to have better follow-up with prospects include: 1) always send a follow-up thank-you email, the same day, with a brief recap of the meeting and any ‘to do’s’, as it not only gives them an easy email to respond to with further interest, but it’s a way to show and affirm that you’ve heard them, understood their goals, and can help them take practical steps if/when they’re ready to move forward; 2) offer inspiration, such as providing links to articles, eBooks, or something similar that can increase their comfort and knowledgeability around a particular topic/challenge they’re facing; 3) invite them to an educational seminar or business lunch, providing further opportunity to provide them (and demonstrate your) value and deepen the relationship; 4) ask prospects to subscribe to your blog, so they can get additional ongoing educational material (and if they subscribe, follow up again in a few weeks with a questionnaire on whether they’re finding the material useful); and 5) follow-up by inviting prospects to join you on LinkedIn, so you have another way to stay connected (and can then further study their LinkedIn profile to learn more about them and better understand the topics/issues they’re engaged in and passionate about).

Facing Your Mid-Career Crisis (Kieran Setiya, Harvard Business Review) – Notwithstanding the outward signs of success that often come by the time one reaches their 40s and the peak (or at least stable high plateau) of their career, it’s not uncommon for those who have become very successful after 10-20 years to find themselves bored and unsatisfied with the very work that made them successful. Of course, the “midlife crisis” phenomenon is not new, and researchers have already found that self-reported life satisfaction takes the form of a U-curve (beginning high, bottoming out in our mid-40s, and then recovering as we get older). Yet there is a growing awareness that sometimes such mid-life crises can lead more directly to a ‘mid-career’ crisis as well, and even creative artists (e.g., Michelangelo and Gauguin) may have dramatic shifts in their creative lives during the mid-career stage. To some extent, the mid-career crisis may simply be a function of the realization that, the further we go on in line, the more alternative “possibilities fade, options are constrained, and past decisions forge limits upon us” (i.e., by mid-career we begin to acknowledge the lives we’ll never live, and the pain of missing out). Setiya suggests that we can cope with this, though, by looking to the prescriptions from philosophy. For instance, “regret” can be reframed away from being something entirely negative (sorrow over the path not taken), and instead simply become an acknowledgement that you value many different activities and have had many different opportunities (and can’t possibly ever choose all of them). Similarly, be cognizant that there’s a difference between how you feel about a (past) decision now, versus recognizing that it may have still been the right decision at that time (and that other positive outcomes may have occurred along the way, that never would have happened if the current path hadn’t been chosen). But perhaps the biggest opportunity to overcome the mid-career crisis is simply to recognize that over time, work often becomes more and more putting out fires and avoiding bad results, instead of pursuing projects with “existential” value (that makes life really worth living). Which means if you’re unhappy with your career, consider whether you can restructure your time to get away from the actual work tasks that are dragging you down, and try to find more engaging and feel-good activities (either in the office, or outside of it by taking up a new hobby instead).

Why Do People Quit Their Jobs, Exactly? (Marcel Schwantes, Inc) – Turnover is costly and disruptive for most businesses and a great frustration for most managers. Yet the research by major firms like Gallup find that in the majority of cases, it’s managers themselves that often cause the turnover, with 50% of employees leaving their jobs at some point in their careers “to get away from their manager to improve their overall life”. Or as the saying goes, “people leave managers, not companies”. Which in turn means the biggest decision you can make as an advisory firm owner is who you name as the manager of the people… as “when you name the wrong person manager, nothing fixes that bad decision. Not compensation benefits. Nothing.” In other words, companies should spend less time buying latte machines and free lunches for employees, and more time trying to figure out how to hire or develop the right managers (and their leadership skills) instead. Ideally, the firm should want managers who are: radically honest (able to be authentic and vulnerable with employees, which builds trust); supportive (by showing an interest in people’s jobs and career aspirations); able to recognize talents/strengths of their tribe (as employees’ strengths never stop growing throughout their career, particularly when they have talented managers who develop them); and they display empathy.

It’s Never Too Late To Start A Brilliant Career (Rich Karlgaard, Wall Street Journal) – Modern society is arguably obsessed with early achievement, from celebrating high SAT scores and A’s in AP classes, to getting accepted into a prestigious college or first job, or making it onto 40-under-40, 30-under-30, or now even “Most Influential Teen” lists. Yet the reality is that not only is “precocious achievement” the exception and not the norm, but more generally the truth is that we continue to mature throughout our lives and that we all do so at different rates; in other words, being an early bloomer is not a requirement for lifelong success. In fact, the prefrontal cortex – responsible for complex functions such as planning and organizing, problem-solving, memory, attention, and inhibition, is still forming in the ‘post-adolescence’ stage from ages 18 to 25 (known by psychologists as a ‘neurological maturity of executive function’). Accordingly, some psychology researchers are now suggesting that we should better view the phase from age 18 to 30 as “emerging adulthood”… and that those who aren’t wildly successful in this stage may not be “behind” in life, but simply following the normal development curve. Moreover, our “crystallized intelligence” (ability to use skills, knowledge, and experience in practice), doesn’t even peak until we’re in our 40s and 50s (which is particularly notable for financial advisors, where such fluid intelligence capabilities are critical factors for career success). In fact, he average age of those filing for U.S. patent applications is 47, and the average age of scientists doing work for which they eventually win a Nobel Prize is 39; in other words, even our ‘creative yield’ increases with age, too. Even in the context of financial services, entrepreneurs like Ken Fisher didn’t develop their key methodologies for success until their 30s, while quarterback Tom Brady was only the 199th player selected in the 2000 NFL draft, singer Andrea Bocelli didn’t even start singing opera until he was 34, Martha Stewart started her catering business at 35 (and didn’t publish her first book until 42), and J.K. Rowling started Harry Potter at 35. The key point, though, is simply that all of us know someone who seems stuck in life… but recognizing how common it actually is to be a late bloomer – especially with human life spans getting longer – it’s crucial not to give up on ourselves or others. We can all bloom and re-bloom throughout our lives.


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 as well.


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