Don’t let clients fall victim to these retirement myths

Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.

Clients may struggle if they fall for these retirement myths
Clients should not think that they can live off on their Social Security benefits and their expenses will drop drastically after they retire, according to this article on Fox Business. That’s because these are misconceptions that could result in financial hardship in retirement. Clients should save aggressively in their retirement plans and invest the funds for compounded growth.

401(k) hardship withdrawals — here’s what clients are allowed to do
Clients are allowed to take hardship withdrawals from their 401(k) plans to cover medical expenses, educational costs and purchase of a primary home, according to this article on Bankrate. However, the amount of withdrawal will be based on the cost of their immediate need. “Taking a hardship distribution will have adverse tax consequences that participants should consider prior to taking,” says one attorney. “Additionally, it diminishes the amount of money that will be available upon retirement, which of course is the purpose of the retirement plan.”

4 in 10 workers share this depressing retirement outlook
A survey by financial services firm LendEDU has found that retirement saving is a primary financial goal for about 20% of Americans, but 40% of the respondents think that they would not be able to save enough to secure their retirement years, according to this article on Motley Fool. To prepare for retirement, clients are advised to figure out the total amount of savings they should have by the time they retire, and the amount they should have saved by a certain age. They should also cut back on spending and get a side hustle to be able to boost their retirement savings.

The best financial advice advisors have ever gotten
In this Wall Street Journal article, financial experts share the best advice they received that proved to be very useful to them as they manage their personal finances. Charles Rotblut, vice president of the American Association of Individual Investors, says John Bogle told him not open his 401(k) statements as frequently as he wanted. “By not looking at my balance frequently, I forget what it is. I don’t see its highs or lows. This means I don’t get euphoric when the markets are sending the value of my funds upward or saddened when the market pushes them downward.”


For reprint and licensing requests for this article, click here.


BlackRock dives deeper into thematic ETFs: Fund Scan

Our roundup of new fund launches.

BlackRock dives deeper into thematic ETFs
BlackRock is developing a line of ETFs based on what it has determined as “megatrands,” or strategies that look beyond sectors and geographical focuses for returns, according to Bloomberg News.

The firm says it will focus the new funds on five themes: technological breakthrough, demographics and social change, rapid urbanization, climate change and resource scarcity, and emerging global wealth.

Two of the newly launched funds will charge $4.70.

Bloomberg News

Two of the funds launched last week: the iShares Cybersecurity and Tech ETF (IHAK) and the iShares Genomics Immunology and Healthcare ETF (IDNA). Both will charge $4.70.

LPL reduces ETF pricing on RIA platforms
LPL Financial clients will pay 45% less on ETF transaction charges from various providers, according to the firm.

Transaction charges associated with ETFs offered on LPL’s strategic asset management and strategic wealth management platforms, designed specifically for advisors on the firm’s corporate, hybrid or RIA-only platforms, will drop to $4.95 from $9 for State Street, Invesco and WisdomTree, according to the firm.

“The firm remains committed to leveraging our scale to invest in advisors’ businesses with price reductions and new capabilities,” said Rob Pettman, LPL Financial’s executive vice president of products and platforms. “ETFs are another step in the journey to expand our breadth of solutions and help advisors remain competitive in the marketplace.”

Fidelity makes target-date price reductions
Fidelity Investments has made a 14% price reduction on entry-level share classes for its Fidelity Freedom Index Funds and Fidelity Institutional Asset Management Index Target Date Commingled Pools, according to the firm.

Following the change, 21 of the 22 Fidelity index funds will carry net expense ratios lower than similar Vanguard products, saving shareholders an estimated $3.2 million annually, the firm said.

“At Fidelity, we have a long history of providing investors with a wide array of high-quality products at a great value to help them meet their investment goals,” said Eric Kaplan, Fidelity’s head of target-date products. “These target-date index fund expense reductions build on that legacy, providing our tens of millions of customers – individual investors, workplace retirement plan sponsors and participants, and financial advisors — an even more compelling value proposition.”

New Frontier launches 6 global multi-asset ETF indices
New Frontier has launched six indices to reflect the systematic equity risk levels along the Michaud Efficient Frontier, according to the firm. Each is composed of 20 to 30 diversified, low-cost ETFs that include stock/bond ratios of 20/80, 40/60, 60/40, 75/25, 90/10 and 100/0, the firm said. The indices are made up of equity, commodity and fixed-income ETFs from iShares, SPDR and Vanguard, according to the firm.

Top-performing passive funds over 5 years

Andrew Shilling | Lists

Quadratic ETF to hedge against an inflation increase
Quadratic Capital Management launched a new ETF aiming at profiting from an increase in interest rate volatility and steepening yield curve, according to the firm.

The Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL), which has an expense ratio of 0.99%, seeks to hedge against an inflation increase and profit from an increase in interest rate volatility, according to the firm. Nancy Davis, managing partner and chief investment officer of Quadratic, will manage the fund.

Calamos announces small-cap growth fund
Following its acquisition of Timpani Capital Management, a boutique small- and mid-cap investment manager, Calamos Investments says it has completed revisions to its small-cap growth strategy.

The newly named Calamos Timpani Small Cap Growth Fund, which has a minimum investment requirement of $100,000, will maintain its investment team and eight-year track record alongside the Calamos Timpani Small Cap Growth Strategy, a separately managed account with an 11-year track record.

Hartford unveils its first multifactor mutual funds
Hartford Funds announced the launch of its first two multifactor mutual funds: the Hartford Multifactor International Fund (HMIVX) and the Hartford Multifactor Large Cap Value Fund (HMLVX).

HMIVX, which tracks the Hartford Risk-Optimized Multifactor Developed Markets (ex-U.S.) Index (LRODMX), aims to provide exposure to developed markets in Europe, Canada and the Pacific Region.

HMLVX tracks the Hartford Multifactor Large Cap Value Index (HMLCVX), which seeks to outperform traditional cap-weighted, value-oriented U.S. equity market indices and active U.S. equity market strategies, while reducing volatility over a complete market cycle, the firm said.

Symmetry Partners completes mutual fund family rollout
Symmetry Partners has completed the launch of its Panoramic Mutual Funds, a suite of eight open-end funds, according to the firm.

The suite, built and advised by Symmetry, includes U.S. equity, international, global, tax-managed, fixed income, muni and alternatives. They will be managed by institutional managers including Dimensional Fund Advisors, AQR Capital, Vanguard, JP Morgan Asset Management and BlackRock.

“The Panoramic Funds are backed by Symmetry’s 25 years of experience and commitment to helping investors achieve their most important goals,” said Patrick Sweeny, principal and co-founder of Symmetry Partners. “We do this by drawing on extensive academic research — and Symmetry’s own — to engineer what we believe to be exceptional investment solutions.”

Vanguard launches its first active global ESG stock fund
Vanguard announced the launch of the Vanguard Global ESG Select Stock Fund, the first actively managed offering in the firm’s lineup of ESG funds.

The open-end fund is available in two share classes, Admiral Shares (VESGX) and Investor Shares (VEIGX), with estimated expense ratios at 0.45% and 0.55%, respectively.

“Vanguard’s new Global ESG Select Stock Fund is taking a distinctive approach to ESG investing, seeking long-term outperformance through the selection of companies that integrate leading ESG practices into their corporate strategies,” said Matthew Brancato, head of Vanguard’s portfolio review department.


For reprint and licensing requests for this article, click here.


Fastest growing payouts in IBD Elite 2019

Financial advisors in the independent broker-dealer channel earned a combined payout of more than $15 billion in 2018.

As IBDs and their advisors aim to boost their productivity even higher, ten firms stand out from the rest of the sector in growing their respective average payouts by at least 20%. In fact, one firm’s average payout soared by more than 50% last year.

Compensation retained by advisors after deducting the varying fees they pay to the home office — depending on the product, service or other factors like their level of client assets — forms a key metric for the industry. It reflects both advisor productivity and firm payout rates.

A dozen of the 53 firms who participated in Financial Planning’s annual IBD Elite study didn’t include their total and average payouts. While the absence makes it impossible to calculate a sector-wide figure, the 41 other firms’ combined payout reached $14.73 billion in 2018.

The firms boosting their payouts the fastest haven’t approached the productivity level of Commonwealth Financial Network. The No. 4 IBD by annual revenue disclosed far and away the highest average payout per advisor in the sector for the fourth straight year at $557,000.

However, the ten smaller firms on the list with the fastest growing payouts are increasing them at notable rates. The drivers include some firms’ efforts to cut lower producers, firms’ home-office technology and support programs and the industry’s best year for revenue growth since 2014.

To view FP’s annual recap of the IBD space, “Time to celebrate? Not just yet,” click here. For a ranking of the top 10 firms by their proportion of fee-based revenue, click here. And to see last year’s list of top 10 fastest growing payouts among IBDs, click here.

Carolyn McClanahan on when to stop accepting new financial planning clients

When I changed careers from medicine to financial planning in 2004, my big idea was to take care of my closest 20 physician friends — and not work too hard doing it.

Life seldom takes you where you expect. Since 2008, Life Planning Partners has grown to four advisors and an officer manager with a part-time administrative assistant. We now serve 95 client families: Our niche is the millionaire-next-door DIYer who recognizes that their finances have become too complicated to do well on their own.
We’re committed to great client service and a comprehensive planning approach of which investment management is only a small part. We have a high referral rate and have long had a waiting list for new clients. This year, we reached capacity and closed the door to new clients. Why did we make this decision?

The industry press continually reinforces the message that your practice either grows or dies. News flash — even if your business grows, at some point your business as you know it will die.

This year, we reached capacity — we now serve 95 client families — and closed the door to new clients.

Bloomberg News

My firm died once already. In 2008, I realized how much I love financial planning and that my value to the profession was in educating other planners on the intersections of health and personal finance. To do that, working alone as a solo practitioner was no longer an option. So I killed my old model and started on a new journey of hiring the right people to make my vision happen. So much for not working too hard.

In 2011, I was invited to join Capstone, a study group comprised of a dozen highly-successful firm owners. My company was tiny compared to the other enterprises — but was growing dramatically. One of my goals in joining the study group was to figure out how to take that next step to become a larger enterprise. Wasn’t that what I was supposed to do?
The beautiful thing about Capstone is we all got vulnerable with each other. We shared business plans, looked at the nooks and crannies of how our businesses operated and lovingly — and sometimes ruthlessly — tore each other apart to make certain we were creating great practices.

Capstone was instrumental to my development and I wouldn’t be where I am today without that study group. But my biggest takeaway? Enterprise owners work very hard at running a business and managing people. They invest much of their revenue back in the business, so their take home pay may not be much more than the owner of a small practice. However, the value of their firm becomes significantly larger and one day they cash out. That is when their business as they know it dies.

It took a couple of years, but eventually I realized that my heart was not in managing large groups of people and my passion was not in growing a big business. My joy was in education.

My practice became a test bed for ideas, and our clients gladly became guinea pigs for new services like aging planning, quality of life discussions, and testing new technology. We made the decision to stay small and proudly announced that we would close the door to new clients when we reached about 100 client families.

CAPPING CLIENT GROWTH WITHOUT CAPPING PAY
As we approached serving 90 client families, we grappled with many questions.

Was 100 client families the right number? We had a reputation as a great value for clients with a net worth in the range of $2 million to $10 million: Our flat fee structure is based on complexity, not assets under management.

Our typical new client had a higher net worth and a more complex financial life compared to the clients we attracted in the beginning of the practice. Servicing these newer clients took a lot of time, and we charged for the effort. We realized we didn’t need 100 client families for our financial well-being.

How would we communicate our decision? We had announced our intentions a few years before and laid the groundwork. When we hit 92 families and still had three more on the waiting list, we decided it was time. We sent out a newsletter, announced the decision at a client appreciation party and took our name off the NAPFA and CFP referral sites. Finally, we put a notice on our website.

I wondered if we would stay fresh by not taking on the challenges of new clients. Guess what? We know that we will eventually take some new clients. Our goal this year is to catch up, refine processes, decompress, cross train, change some software and improve overall, for our clients and each other. Once we feel refreshed, we will let our clients know that we will take a few more families into the fold. We also fully expect to lose some clients over time; people die and sometimes clients marry people who don’t want our services. That will open up some space.

We do face the big question of how our pay will be affected by our decision. The long-time advisors and staff are paid well now and welcome the break from the treadmill of new clients. We revisit our fees with clients every two years, and invariably, some people’s situations become more complicated and warrant a fee raise. This should help us keep pace with inflation.

I plan to shift more of my duties at the firm to the next generation of advisors at my firm.

The bigger pay challenge is our 27-year-old advisor. He is learning fast and contributing more every day. He will deserve significant raises as his experience and contributions grow. How can I make those raises happen?

I’m now 55 years old and, like we preach to clients, I plan to work until it is no longer possible. But my work is morphing. I’m fortunate that my passion for education has translated into a software company, speaking engagements and writing. These side hustles provide me with plenty to do and supplement my income.

My deal with the next generation is to shift more of my duties in Life Planning Partners onto their plate — and send them a share of that income. Yes, I’m going to reduce my pay over time. Too many advisors wait too long to let go and that is how they lose their successors.

My role in Life Planning Partners will eventually be serving as the firm’s culture keeper, planning for aging clients, and taking care of the nontraditional financial emergencies that pop up for our clients. It will take a few years to get there, and who knows what will happen between now and then. I’ll keep you posted on how it is working out.


For reprint and licensing requests for this article, click here.


Senior financial planning: What everyone needs to know


If you watch Local 4 News in the morning on Mondays you might be familiar with our Money Monday segment.

Every week at 6:10 a.m. Monday it’s my opportunity to talk about one of my favorite topics; personal finance. For many people this is a very uncomfortable subject, which is precisely the point. As the first ever working journalist to attain Certified Financial Planner Professional™ status, I have spent years learning the subject. As a broadcaster, I want to offer the Local 4 audience (or anyone else willing to listen) new ways to understand money and ways to make your money work for you, not the other way around.

I firmly believe even at one minute a week I can help you improve your life through more sound financial decision making.

Support-Our-Seniors Summer

So, what is “Support-Our-Seniors Summer?” Well, to keep current and find new Money Minutes I do a lot of reading. Lately I’ve been looking into senior financial planning issues. It is such a wide a complex area I’ve been reluctant in the past to spend a lot of time on it. One minute is insufficient to explain Long Term Care. But as I see the entire senior financial area morphing before our eyes, an idea blossomed. While things like Long Term Care, Social Security, Medicare and Medicaid are very complicated, intricate subjects; if broken up into small pieces, we can make some needed headway. In addition, pretty much every American is going to be impacted by all of this in the years to come based on the nation’s changing demographics.

So, let’s look at some eye opening facts and statistics about senior living to get some perspective on why I know this is all a necessary departure.

Did you know? 

  1. The oldest Baby Boomer will turn 75 in 2020?    
  2. 10,000 Boomers turn 65 every day?
  3. 70% of us Americans over the age of 65 will need some kind of Long Term Care?
  4. Long Term Care is an overarching term for a lot of differing kinds of senior assistance?
  5. Long Term care can be Medical or Non-Medical?
  6. 42% of us will need nursing home care at some time in our lives?
  7. Medicare will NOT pay for any of this?

Now that you have heard this, you might ask yourself:

  • Are you ready for this?
  • Is your family ready for this?
  • Have you done any planning for your senior needs?
  • Do you have any earthly idea how you will pay for your Long Term Care needs?
  • Do you have the resources readily available to start working on these subjects when the time comes?

The quick answer to all of these questions is more than likely no! What’s more, you have no idea where to begin, what questions to ask or where to find resources. Money Mondays and the Money Monday page on ClickOnDetroit can become your one stop shopping spot. On Monday June 17 we will start building your understanding.

You might say, well I’m not a senior so this doesn’t matter to me. Let’s think about that a little more carefully. If you are fortunate enough to not need this care right now, great! You likely have parents or grandparents or other relatives already navigating this often budget busting road. It’s likely they don’t know much about this either. And while it is easier to say out “of sight, out of mind”, the fact of the matter is the vast majority of Long Term Care happens in a senior’s home, usually provided by other family members.

Having a clue is a leg up on the already anxiety inducing path we all take as we age. So, this summer, let’s commit to getting this chapter in your family’s life right. Let’s relieve some of the pressure, get ahead of the curve, which will allow you to make advised decisions instead of forced ones.

Watch my Money Monday reports under the “Supporting-Our-Seniors Summer” Banner. You can also read about these issues at the following links. Let’s get smarter with our money the old fashioned way, by working at it!

Copyright 2019 by WDIV ClickOnDetroit – All rights reserved.

How planners can attract and retain senior married couples as clients

When it comes to finding the ideal client, advisors might want to look for seniors on a date night.

Based on Fed data, the website Don’t Quit Your Day Job estimates that the median non-residential net worth for those age 60 to 64 is more than $105,000. For those 80 and older, it is more than $120,000. No age bracket under 55 comes close.

Indeed, people who have built wealth over six or more decades can be prime clients. That is particularly true for senior married couples. These families often want an ongoing relationship with an advisor: They’ll need help planning their saving and spending in retirement and navigating the financial fallout after the first spouse dies. Advisors can then demonstrate their value by helping trim what’s known as the widow’s penalty tax on the surviving spouse. There’s also the potential for long-term engagements with the couple’s children.

Detailed planning should begin as early as possible. Laird Green, a financial advisor with Abacus Planning Group in Columbia, South Carolina, recently worked with a couple who wanted the working spouse to retire within three to five years. “We reviewed their cash flow plan, including a savings plan until retirement,” Green says.

Green says that clients “find urgency” around their future cash flow as they near and enter retirement. In this couple’s case, following a savings plan for the next few years is essential for them to achieve their desired retirement lifestyle.

Is the goal to reach a suitable investment amount for implementation of the 4% rule for portfolio drawdown? “The 4% rule provides a good back-of-the-envelope number,” says Green, but her firm goes further. She enters an array of data — such as estimated portfolio values and potential inheritances — into Money Tree’s Total Planning program to see if positive outcomes result.

Green also runs 10,000 Monte Carlo simulations. She feels comfortable if the successful results for a client are around 75% or higher. If they aren’t, she might recommend moves to raise cash, such as selling a second home.

Clients — especially those with a lot of equity in their primary home — should consider opening a reverse mortgage line of credit early in retirement, suggests Bob Lepson, vice president of wealth management at Adviser Investments in Newton, Massachusetts. Due to reverse mortgage technicalities, the credit line increases over time and doesn’t need to be tapped unless needed.

“Startup costs must be considered,” says Lepson, “but this vehicle is worth exploring for folks who are concerned about their liquidity in retirement.” Having this line of credit can help “sidestep” the sequence of returns risk, Lepson adds, referring to the danger of a steep market drop near the onset of retirement. Borrowing could provide an alternative source of retirement spending money after market declines and create more opportunity for the portfolio to recover.

If both members of the couple are listed as borrowers on a reverse mortgage, after the death of one spouse the survivor can remain in the house with the same loan terms. Withdrawals are not taxed.

The ‘widow’s penalty’ tax trap

After a spouse’s death, the survivor will eventually go from a joint return to being a single filer. The widow or widower’s tax bracket likely will rise, resulting in a plumper tax bill.

This bracket creep occurs because the survivor’s taxable income may be about the same as it was on a joint return. (The reduction in taxable income from the loss of one Social Security check may will be partially or fully offset by a smaller standard deduction.)

“I have clients who would go from a 24% tax bracket, filing jointly, to a 32% bracket for the survivor,” says Bob Morrison, founder of Downing Street Wealth Management in Greenwood Village, Colorado. The result will be thousands of dollars a year in extra tax payments. As a single filer, the surviving spouse also could owe more tax on Social Security benefits or face more exposure to the 3.8% surtax on net investment income.

So what actions can couples take? For one, it is important to address the widow’s penalty while both members of the couple are alive.

Help clients address the widow’s penalty while both members of the couple are alive.

Bloomberg News

“After age 59-1/2, but before they begin taking Social Security benefits, they probably can convert part of their traditional IRAs to Roth IRAs at a lower tax rate,” says Judy Ludwig, vice president of planning and taxation at Adviser Investments. The 10% early distribution penalty won’t apply then and the conversion would be taxed at the lower joint filing rate. Moreover, Roth IRA conversions reduce taxable RMDs from traditional IRAs after age 70-1/2.

Today’s tax rates for married couples filing jointly are relatively low, no higher than 24% on taxable income (after deductions) up to $321,450. That same income would put a single filer in the 35% bracket.

A series of partial conversions should be done over a period of years, taking care to keep the amounts within low tax brackets. “For the money moved to the Roth IRA, there are no RMDs for the owner or the surviving spouse,” Ludwig says. “Therefore, the account can continue to grow or be used with no tax consequences.” Drawing down a reverse mortgage line of credit or taking life insurance policy loans could be other sources of cash flow that won’t trigger highly taxed income.

Many clients in or near retirement want to ensure their financial legacy, says Green. Careful and sophisticated planning can provide more income for the surviving spouse, a larger inheritance for the next generation and more opportunities for financial planners.


For reprint and licensing requests for this article, click here.


LPL Financial launches Advisor Sleeve modeling

LPL Financial bets that giving advisors more choices in outsourced portfolios with largely no strategist fees will bring more assets to its central platform.

But the No. 1 independent broker-dealer didn’t deploy what it calls Advisor Sleeve to aim for a specific share of its advisory assets under management or a particular AUM, according to Chief Investment Officer Burt White.

“What we’re trying to target is an outcome,” White said in a June 12 interview. “We want advisors to have the most amount of flexibility and choice and provide the flexibility to do what they want.”

White and other LPL executives spoke with Financial Planning after the firm announced it would spend $150 million on technology in 2019 and cut transaction charges on ETFs in at least three major fund families later this year. The firm faces challenges in efforts to fuel AUM growth for its corporate programs, though.

While centrally managed assets in LPL’s four main portfolio platforms have soared by 72% since the beginning of 2017 to more than $43 billion, they still constitute only 14% of the firm’s AUM. Advisors also vary greatly in their interest, adoption and preferred methods of outsourcing. LPL has 16,189 advisors — more than any wealth management firm besides Edward Jones.

LPL acquired modeling, proposal generation and analytics firm AdvisoryWorld for $28 million in December with an eye toward automated portfolios and other capabilities, executives say. LPL’s approach calls for “core” and “curated choice” in its tech stack, which it is outfitting for every shade on the spectrum of so-called representative-as-portfolio manager.

Advisor Sleeve will give advisors the “best of both worlds,” allowing them to step back and make note of trends, White said.

“The trends are for advisors to find more efficiency and therefore they’re using more advisory, and within advisory they’re using more centrally managed,” he added. “Our strategy is to let advisors tell us what is best for their business and for us to make sure we’re solving problems.”

Which independent broker-dealers produce the most revenue?

Tobias Salinger | Lists

About 1,500 advisors have started building up to 10 customized versions of outsourced models with automated trading, rebalancing and risk-tracking capabilities after LPL made Advisor Sleeve live this spring. LPL plans to bring more reps aboard in monthly waves while adding more customized models.

The permutations advisors can tap into are infinite. Director of Research Kirby Horan-Adams demonstrated how advisors and clients can adjust each allocation, asset class and fund family within a given portfolio choice. They can also toggle the risk outlook feeding into the portfolio.

LPL has moved $15.7 billion in brokerage assets to advisory accounts in the past two years. Advisors who have started using the sleeve have also moved 20% of their AUM from LPL’s other main advisory programs to the one using the new customized models, Horan-Adams notes.

AdvisoryWorld provided the foundation for the risk tool, as well as generating proposals outlining each underlying investment, their expected returns and the fees. LPL also enables advisors to white-label the proposals with their own logo and practice name, rather than those of their IBD.

Allowing advisors, clients and any members of the teams serving them to access the portfolios will be much simpler than using emails and spreadsheets, White says, adding that advisors may eventually share customized models outside of their enterprises as well.

About 95% of the AUM in Advisor Sleeve is in funds that don’t charge a specific strategist fee, so the average investment of around $200,000 into models comes with only a platform fee of 25 basis points, according to Rob Pettman, an executive vice president for products and platforms.

Pettman and the other LPL executives acknowledge that some advisors will prefer to use popular vendors that are already integrated into its ClientWorks operating system like Riskalyze. LPL is also far from alone in the industry as it enhances its outsourcing.

Indeed, with an estimated $2 trillion currently in rep-as-PM accounts, BlackRock’s outsourced strategies already have more than 30,000 subscribers after launching its first one in 2012, Head of RIA and Retail Investor Platforms Hollie Fagan said in a panel on the topic last year.

Outsourcing is only moving through the “very early innings” of its ultimate scale, she said. Advisors who see investment management as their main value proposition still rate Excel as their No. 1 tool, Morningstar CEO Kunal Kapoor noted during the panel discussion.

“They’re simply not doing the job they should be doing, which is helping their clients achieve the outcomes the clients want,” Kapoor said. “Instead they’re in the back office doing work that, to them, seems inexpensive because they haven’t paid much for it.”

The lower administrative burden of outsourcing adds to advisors’ efficiency in their practices, White agrees. He rejects the view that LPL’s impressive $150-million tech spend — more than the annual revenue of tens of midsize IBDs — goes to simply updating outdated systems.

About 75% of these investments are fueling new capabilities, according to White, who counts the Sleeve, ClientWorks, goals-based planning tools and the proposal generation among them. A new investor portal, mobile app and “many more” tools are on the way, he says.

“Whereas some people say ‘well, I don’t need to throw money at that,’ what that really means is, they rent it from someone else,” White says. “They can’t control the experience, which means they can’t integrate it the way we do, and which means there’s another mouth to feed, which means they can’t be as price aggressive as we are…So that’s a competitive advantage for us.”


For reprint and licensing requests for this article, click here.


5 Ways LGBTQ Financial Planning Is Different

On Friday, I asked a client for some additional documents so I could prepare for an upcoming meeting. He said he’d get to it soon, but not before Monday.  He was slammed getting ready for a big party. He closed the email “Happy Pride!”

I responded “Happy Pride” and reminded him “pictures or it didn’t happen.” He sent me a colorful photo of a rainbow-clad, selfie wall. I felt so lucky and grateful in that moment. I get paid to plan for a community that I love, whose members can be their full selves with me.

Because I focus on financial planning for the LGBTQ community, people often ask, “What makes LGBTQ planning different?’ Or to put another way, “can someone really specialize in LGBTQ planning?” I’ve already written about the distinct financial planning challenges that still exist after marriage equality came about, but I recently got asked what the planning actually looks like: “What do you do with your clients in the face of these challenges?

In honor of Pride month, let’s pull back the curtain on some of the unique characteristics of LGBTQ financial planning and what that planning actually looks like.

  1. We still have to carefully navigate society

This may seem obvious. Of course, being LGBTQ in the world makes us unique and different. And in many ways that’s good. We’re often forced to embrace our individuality, so we let our let shine, especially during Pride month. As one client put it,  “I really turn up in the month of June.”

In other ways, it’s still pretty hard. Let’s take working as an LGBTQ person, for example:

So yes, in 2019, the age of marriage equality, Mayor Pete, and Queer Eye, LGBTQ workers still feel that being out could hurt their careers . That leads to job insecurity and lower mobility. It may cause people to stay in careers they hate or with companies that don’t accept them.

For instance, one of my clients works doesn’t feel comfortable or fulfilled at the large tech company where he works. We’ve had in-depth conversations around his goals and values. We’ve discussed whether getting paid $300,000+ per year makes up for not being able to be who you are or not being comfortable in your work environment. We ended up creating a five-year exit strategy around the vesting of his equity compensation, so he can pursue his dream of quieter life working for himself.

Because I’m gay myself, I understand and empathize with my clients’ struggles as LGBTQ people.  I can help them confront and navigate the challenges that come their way. My experience also allows me to ask the right questions that help them recognize the choices and opportunities available to them.

  1. We buck the trend

Marriage equality is the law of the law, but it’s not for everyone.  I work with multiple couples that have chosen not to get married. Some just like the way things are, and others think getting married conforms to societal norms that they don’t want to be a part of.  For these couples, I make sure to highlight the 1,100+ benefits that come with being married. However, I also encourage them to create their own path. As long as they’re being thoughtful and intentional about their decisions, I say “let’s do that!”

From a technical statement point, it also means I need to understand the pitfalls of not being married. There are some real issues around sharing bank accounts and splitting expenses, especially when one partner earns a lot more than the other. Splitting expenses and giving money to one another can create gift tax liabilities for unmarried partners; it also makes filing income tax returns more complicated.  Estate and insurance planning are also complex—and very necessary—for couples who aren’t wed. We need to make sure they’re able to take care of one another if something unexpected happens. Being married does create some safeguards.

And speaking of bucking the trend, I have a few gender non-conforming clients as well. This produces its own set of challenges when it comes to applying for insurance (most have had to apply with their original birth gender) and even entering them into our tech solutions, which often only offer binary options. One tech provider was forcing a client to pick a gender, when they didn’t want to. So I had to learn how to navigate those sensitive conversations, develop a work around and advocate for more inclusive technology.

  1. We pay a high price to live amongst our peers

Navigating the world as an LGBTQ person can be difficult. It’s easier if you live where there are more people like you. As a result, LGBTQ people tend to live in urban, high-cost areas.  In addition, LGBTQ people are more likely than straight ones to consider themselves spenders.  It’s expensive to live the way many of us want to, and that requires some planning, too.  

As a result, I spend time with my clients going over their cash flow.  We take an inventory of what’s coming in and what’s going out. Additionally, we create spending plans that allow them to establish security and reserves.  We plan for what they want and need now, as well as what they will want and need in the future.

We have to deal with navigating jumbo mortgage loans, spending with intention and facing the anxiety of all of those articles about not having X saved by time your 30, 40 or 50.  Should you really be comparing yourself to other people who don’t have pay 30-40% of their income on housing? Instead of worrying about society around them, we focus on building good habits that contribute to the life that they want to live.

  1. We have to plan to have a family

Several of my LGBTQ clients have children, and I’ve yet to hear any of them say it was unexpected. Usually, they’ve planned for months or years in advance. I’ve become intimately familiar with the different methods of creating a family — adoption, fostering and surrogacy. I’ve also learned a lot about second parent adoption and situations where both spouses can appear on the birth certificate.

Having children is always costly, but often more so for LGBTQ couples. At the low end, fostering costs next to nothing and, at the high, surrogacy can run $100,000 to $200,000. I find digging into the nuances of the adoption credits and the deductibility of certain medical expenses especially fun.

The LGBTQ community often has to choose their family structure, when their biological family may not be the most welcoming. When it comes to planning, I want to make sure that family is protected as well as possible.

  1. Our mindset matters

Lastly, I spend time digging into my clients mindsets, whether it’s analyzing money scripts or getting information on their financial perspective or ability to build wealth. Granted, I think this is important for all clients, but especially for my LGBTQ clients who tend to have more emotional baggage around family and money.

I also like to celebrate those millionaire clients who have against all odds accumulated wealth—that goes double for my LGBTQ clients of color.

In the end, I want my clients to embrace their uniqueness, become confident in what they want to accomplish and be proud of our rich culture and history. We are unique. We need to plan differently. And the more we embrace those differences, the better off we will be. Happy Pride!

Why advisors may urge retirees to load up on equities

Welcome to Retirement Scan, our daily roundup of retirement news your clients may be talking about.

Why advisors may urge retirees to load up on equities
Retirement savers will be better off boosting their equity allocation if they have a safety net in the form of assets that provide guaranteed income, such as Social Security, pension and annuities, according to CNBC. “If you have a safety net, the consequences of risk aren’t as severe for you,” says a wealth manager. “If you have significant guaranteed income, your portfolio is more skewed toward safety.”

Think 3% is small potatoes? It can eat your clients’ life savings
At first glance, the 3% advisory and administrative fees could be insignificant, but the small amount could have a big impact on the amount of returns that a retirement portfolio will generate, writes an expert on MarketWatch. “If you add up all of the fees in your portfolio, it may reveal a ‘silent killer’ that can devastate your account balances over your working career or a lengthy retirement.”

90% of new retirees are facing this common (and expensive) problem
Ninety percent of recent retirees polled by the Nationwide Retirement Institute suffered from medical problems sooner than anticipated, with 60% of them saying the health issues struck them five years earlier than expected, according to this article on Motley Fool. This means that clients should include healthcare costs when saving for old age, as Medicare will not cover all of their medical expenses.

Want client to thrive during retirement? Focus on these four things
Clients who are approaching retirement are advised to secure their health and wellness, build a sizable savings, have a sense of purpose and develop a bucket list of activities to ensure that they will have a fulfilling life after they retire, according to the Simple Money column from the Cincinnati Enquirer. Clients who are contributing to a 403(b) plan will find the plan closely similar to a 401(k) plan, as both plans are tax-deferred, have the same contribution limits and compel participants to take required minimum distributions starting at age 70 1/2.


For reprint and licensing requests for this article, click here.


Raymond James agrees to pay $15M to settle lawsuits on overcharging fees

Following a four-year legal battle and two appeals, Raymond James has agreed to pay $15 million to settle two consolidated lawsuits that accused the firm of overcharging its clients in certain accounts.

The firm has also agreed to “remove language that formed the basis of the alleged misrepresentations” from these accounts, according to court documents, which were filed in a U.S. District Court in Florida.

Raymond James client Jyll Brink filed the original lawsuit against the firm in 2015, asserting breach of contract and negligence on Raymond James’s part for allegedly inflating processing fees by up to 10 times in the firm’s passport accounts — self-directed accounts where individuals can select from a variety of investments, including stocks, bonds, real estate investment trusts and eligible mutual funds, among others.

The case was dismissed the following year, only to have the court reverse and remand it after a successful appeal. A judge granted the lawsuit class action status at the end of 2018, a ruling Raymond James was appealing prior to the announcement of a settlement Tuesday, according to court documents.

As part of the settlement, Brink’s class action was consolidated with a case filed in early 2016 against Raymond James by Caleb Wistar and Ernest Mayeaux, who alleged similar charges.

“These matters collectively resulted in years of hard-fought litigation, two in-person mediation sessions, extensive pre-trial motion practice, extensive written discovery, production and review of hundreds of thousands of documents, multiple depositions, and two appeals,” the court documents state.

If the court approves the settlement in a hearing set for late October, the St. Petersburg-based regional broker-dealer will repay clients who were allegedly overcharged.

“While Raymond James denies the allegations, for the sake of expediency, we chose to resolve these matters and were able to reach a settlement for both cases. We will continue to focus our energy on providing advisors and their clients with industry-leading service in pursuit of their goals,” a Raymond James spokeswoman told Financial Planning.

Clients may choose to exclude themselves from the settlement, thus retaining their rights to sue Raymond James individually. If they do not exclude themselves, they will receive a check for their “pro rata portion of the settlement fund,” according to the motion to settle.

But by the time these clients get repaid, their cumulative settlement may have dwindled to $8.9 million, even before taxes and class administration expenses. Plaintiffs’ attorneys have asked the court to approve 40% of the $15 million settlement fund — or $6 million — as payment for their services, according to the motion to settle, which was granted preliminary approval.

A spokeswoman for law firm Day Pitney declined to comment.

These fees are on the “high end of what we often see as a class action attorney fee,” says Paul Foley, an attorney at Akerman in Winston-Salem, North Carolina, who is not affiliated with the case. He notes that attorneys typically take around one-third of settlement funds, although “it’s certainly not unheard of.”

Brink is seeking payment of $75,000; Wistar and Mayeaux are asking for $25,000 each “for reimbursement of their time commitment” as well as risk of costs had the lawsuits been unsuccessful, the motion for settlement states.

If these payments are approved by the court, the remainder of the fund will go to clients granted class status, including current and former U.S.-based Raymond James customers who were charged or deducted per-transaction processing or miscellaneous fees on certain transactions between 2010 and 2019, depending on which lawsuit they were associated with. Financial advisors and clients whose financial advisor paid at least part of the processing fee on any of their trades are excluded from the class, according to the court documents.

The distribution will be determined based on a formula related to number of funds and cost of trades for each class member, according to notices the court approved for distribution to the class members.

Members of the class can opt out of the settlement by Sept. 13, 2019. They may also object to the settlement.

Going forward, Raymond James will amend the Passport Agreement for all existing and future customers to make clear that the revenue generated from processing and miscellaneous fees is not limited for use to offset the costs for executing and clearing trades.

The mediation between the parties took place on April 4 and 5.


For reprint and licensing requests for this article, click here.