Media Reviews – January 16-23, 2020

Let’s be clear: this is an awful issue of Financial Advisor; there are many columns and articles that I would classify as “just filler,” with little relevance to financial planning firms.  But there are exceptions, including the Mitch Anthony column that I debated over whether to call “unrated” because (conflict of interest alert) he says complimentary things about one of my presentations in Birmingham, England.  But he’s also reporting the highlights of a VERY interesting conference, and somehow neglected to mention that his own presentation was one of the highlights of the meeting.  Read the review and pay attention to the discussion of Andre Novaes, who runs the kind of business in Brazil that American firms could learn from.

Also: Vanessa Oligino at TD Ameritrade—an important voice on practice management issues—offers some advice on how to move forward with your business practices, Steve Gresham warns against using jargon when talking with clients, and there’s an article in the back that warns us that actively-managed ETFs are about to come onto the marketplace.

Articles that received a “high” relevance rating:

“Advisors Should Regularly Assess Their Fees”
by Jacqueline Sergeant
Financial Advisor, January 2020
https://www.fa-mag.com/news/advisors-should-regularly-assess-their-fees-53305.html?issue=325
Relevance: high

Vanessa Oligino, TD Ameritrade Institutional’s director of business performance solutions, says that advisors should be constantly evaluating their pricing structures.  The firm has created a guide that offers sample prices and a list of questions designed to help advisors self-assess.  Some firms may have offered five services in the past, and now offers ten.  Have they changed pricings?  For others: does an asset-based pricing model still make sense for doing customized work?  The article recommends that advisors understand their cost for serving clients when considering a fee change.  (p. 12)

“Stuck on the Middle”
by Mitch Anthony
Financial Advisor, January 2020
https://www.fa-mag.com/news/stuck-on-the-middle-53284.html?issue=325
Relevance: high

Anthony spoke at the Back2Y conference in Birmingham, England—which focuses on life planning issues.  I (Bob Veres) also spoke, and am referenced here, saying that we can’t be a real profession if we don’t serve a majority of the population.  Anthony notes that the AUM compensation model gets in the way of working with people who don’t have assets to manage.  A good line: What would you think of physicians who would only see you if you tested healthy?  Or lawyers who would only represent you if you were already proved inculpable?

Another speaker was Andre Novaes, who practices in Brazil, and has been featured in the Inside Information newsletter.  He charges 5% of peoples’ income for life-focused financial planning services, which is not involved with managing assets.

Anthony says that there are two parts to the evolution of planning compensation: charge based on the work you do, rather than the assets you manage, and ten provide more value on a regular basis, using the life planning model.  Your compensation could go up or down, based on the work you do.  Not everybody needs a physician, but those who are sick do.  Those who are financially unhealthy would be willing to pay for your services.  (p. 21)

“The Five Flavors of Financial Jell-O”
by Steve Gresham
Financial Advisor, January 2020
https://www.fa-mag.com/news/the-five-flavors-of-financial-jell-o-53285.html?issue=325
Relevance: high

Gresham says that virtually all advisors use words when talking with clients that are unfamiliar to ordinary conversation.  “Wealth management”—but what is “wealth,” and how does the client define your role in managing it?  “Financial wellness”—but does that just describe a superficial financial plan, or help in preparing for the inevitable life transitions the client will go through?  “Customer experience”—here Gresham says that your goal should be to make things simpler, easier and more effective.  Friction removal  (p. 23)

“Will This be the Big ETF Story of 2020?”
by Jeff Schlegel
Financial Advisor, January 2020
https://www.fa-mag.com/news/will-this-be-the-big-etf-story-of-2020-53301.html?issue=325
Relevance: high

Fidelity, T. Rowe Price, Natixis Investment Managers, the New York Stock Exchange, J.P. Morgan, Gabelli, BlackRock, Capital Group, Columbia Threadneedle, American Century, Nuveen and Legg Mason and other active fund managers have been given a green light from the SEC to offer actively-managed ETFs that don’t have to make daily portfolio disclosure like traditional ETFs do.  These so-called semi-transparent ETFs will offer lower costs and greater tax efficiency, and provide “proxy portfolios” to those authorized participants responsible for setting prices for these securities.  The article raises the issue of cannibalization—wondering whether investors will dump Fidelity funds and buy the cheaper Fidelity ETF instead.  The solution is to offer something other than clones of existing funds.  (p. 47)

The rest of the articles:

“The Potential Impact of the 2020 Election on Wealthy Clients’ Taxes”
by Jeff Stimpson
Financial Advisor, January 2020
https://www.fa-mag.com/news/the-potential-impact-of-the-2020-election-on-wealthy-clients–taxes-53306.html?issue=325
Relevance: moderate

The author basically says that most of the Democratic candidates want to undo the Trump tax cuts, and there may be reductions in the estate tax exemption and elimination of the step-up in basis for inherited property.  Historically there has never been a retroactive estate law change.  (p. 13)

“What the SECURE Act Means for Annuities”
by Ben Mattlin
Financial Advisor, January 2020
https://www.fa-mag.com/news/what-does-the-secure-act-means-for-annuities-53307.html?issue=325
Relevance: low

The author quotes the American Council of Life Insurers, the Insured Retirement Institute and the Alliance for Lifetime Income, saying that it will be a great thing to include annuities in 401(k) plans.  Are you surprised?  (p. 14)

“Religion Need Not be an Off-Limits Topic with Clients”
by Karen DeMasters
Financial Advisor, January 2020
https://www.fa-mag.com/news/religion-need-not-be-an-off-limits-topic-with-clients-53308.html?issue=325
Relevance: low

Crossmark Global Investments in Houston, TX did a survey on faith-based and values investing, and concluded that 73% of clients under age 50 have never been asked about their religious values, and that goes up to 90% for investors over 50.  Unfortunately, the survey seems not to have separated values from religion, which accounts for many investors saying they would like to have these discussions with advisors.    (p. 15)

“The Future: The Virtual Family Office”
by Russ Alan Prince
Financial Advisor, January 2020
https://www.fa-mag.com/news/the-future–the-virtual-family-office-53289.html?issue=325
Relevance: low

Here’s an interesting line: “The virtual family office is at the pinnacle of the wealth management hierarchy.”  Read on and you discover that the virtual family office is a solo advisor (probably an insurance salesperson) who is selling the expertise of the people he or she plans to refer clients to for their various specialized needs.  This advisor just needs to create “deep, intimate relationships” with people who have $30 million or more to invest, and then start bringing in “an elite group of specialists on an as-needed basis.”  Simple!

Later, we are told that “all solutions are intricately coordinated and synergies extracted to produce superior results.”  These firms “incorporate exceptional wealth management with added robust attentiveness to administrative and lifestyle matters.”  This group speak stuff, we are told, is what “the wealthy” really want.  (p. 25)

“A Tale of Two Offices”
by Eddie Brown and Paul Ferguson
Financial Advisor, January 2020
https://www.fa-mag.com/news/a-tale-of-two-offices-53291.html?issue=325
Relevance: low

A firm called FINTRX says there are 5,000 family offices worldwide.  The author spends whole paragraphs defining the difference between single-family family offices (which serve one family) and multi-family offices (which serve… oh, never mind), and then spends more paragraphs saying that there are differences between the two: the single family office may be more expensive, the single-family office can screen out unwanted solicitations, and generally suggests that multi-family offices can do pretty much anything the single family office can do.  Oh, and the article is written for consumers who are faced with the decision of which to choose, rather than advisors.  (p. 27)

“The Top 10 Legal Mistakes Made By Early-Stage Companies”
by Daniel Berick, Tamara Frazier and Leah Brownlee
Financial Advisor, January 2020
https://www.fa-mag.com/news/top-10-legal-mistakes-made-by-early-stage-companies-53292.html?issue=325
Relevance: low

This is seasoned advice given to venture capital startups, and you read it and wonder how in the heck does this apply to financial planners.  But anyway…

First mistake is not consulting attorneys early on to address legal issues that are never, in this column, quite specified.  Second: making legal solutions too complicated, since they will have to be undone in ways that are (a theme of the column) not specified.  Three: failing to identify intellectual property and protect it—which means the venture firm needs to obtain patent protection for whatever they’re creating.  They need a strategy for use of trade mark, trade secrets, copyright and patent protection.  Fourth: making improper or untimely disclosure of confidential information.  If they disclose their invention before the patent application is filed, somebody else can file ahead of them.

Fifth: Not having proper IP assignments or rights.  Sixth: not incorporating early, which means not creating an entity that insulates the founders’ assets from the debts and liabilities of the business.  Seventh: improper or unwise issuance of shares.  Equity provided to employees should vest over a specified period, so the employees are incentivized to continue working and creating value.  Eighth: lack of proper written agreements; the authors said to be wary of informal understandings.  Ninth: non-compliance with employment laws (Which staffers are exempt from overtime pay requirements?), and tenth: overpromising to investors.  It bears repeating: none of this is directly relevant to financial planners, which makes you wonder why the editors accepted this article into the magazine.   (p. 29)

“Advisor Helps $15 Million Client Reduce Taxes and Fears”
by Jerilyn Klein Bier
Financial Advisor, January 2020
https://www.fa-mag.com/news/advisor-helps–15-million-client-reduce-taxes-and-fears-53293.html?issue=325
Relevance: low

Start this article by wincing that a client—a human being—was referred to by her assets.  (Instead of “Jane,” she’s “a $15 million client.”)  The big service the advisor did was tell her to consolidate all her assets with the advisor, rather than spread it out among many other advisors.  But the advisor also helped the widow conserve her husband’s estate tax exemption.  She is also making qualified charitable distributions, and started conversations with her children about inheriting her farmland.  (p. 32)

“When Financial Advice Meets Alzheimer’s Disease”
by Lindsay Landin
Financial Advisor, January 2020
https://www.fa-mag.com/news/when–financial–advice-meets-alzheimer-s-disease-53298.html?issue=325
Relevance: low

The author’s father is experiencing Alzheimer’s symptoms.  She recommends that you help clients with dementia keep on living, even if it means giving up vacation trips for in-home music or art lessons.  Take the time to listen to them, even if they repeat themselves or say something inappropriate.  And maintain a sense of humor with these clients.  (p. 34)

“Failure to Launch”
by Eric Rasmussen
Financial Advisor, January 2020
https://www.fa-mag.com/news/fail-to-launch-53281.html?issue=325
Relevance: low

Federal Reserve Board research suggests that Millennials are less well-off at this stage of their lives than members of earlier generations.  As a result, more advisor clients are helping their adult children, sometimes to excess, which (we are told) can be a fine line.  One advisor tells clients that if they sabotage their own retirement, they will be sabotaging their childrens’ future finances, because they (the parent clients) will have to depend on the kids when they’re impoverished in retirement.  Some kids don’t understand the problems associated with getting into credit card debt and get in over their heads before anybody notices the problem. 

The article talks about spendthrift trusts that keep money out of the beneficiaries’ hands until they reach certain ages, but (we are told) this can feel like controlling from the grave.  When the kids divorce, that also can cause financial stress, and then there are situations where there are substance abuse or gambling issues.  If the kids are arrested during this dependency period, it can be hard for them to integrate back into the work world.  (p. 36)

“The Mathematical Secret of RIA Success”
by Michael Nathanson
Financial Advisor, January 2020
https://www.fa-mag.com/news/the-mathematical-secret-of-success-53282.html?issue=325
Relevance: moderate

This article attempts to use game theory to “prove logically” the self-evident proposition that the most successful advisory firms have staff members and leaders who trust each other and cooperate with maximum efficacy.  In a dysfunctional office, when the firm needs new software, some staff members could adopt the new system while others defect and continue to use the old one—vs. all of them adopting the new system and making the firm more efficient.  The same dichotomy of rebellion vs. cooperation could happen with regard to a merger; some will leave to join the larger firm while others continue to operate the existing firm—with non-ideal results.  The point: a few defectors from major decisions can hold back the organization’s potential.  Did you not know that before?  (p. ?)

“Uncertainty Pervades 2020 Outlook”
by Evan Simonoff
Financial Advisor, January 2020
https://www.fa-mag.com/news/uncertainty-pervades-2020-outlook-53299.html?issue=325
Relevance: moderate

Simonoff says that based on historical returns, investors should expect their stocks to generate 5% returns a year, with dividends reinvested for the next—actually we are not told the time horizon for this forecast.  But then Simonoff says it is a mathematical certainty that bonds—at current interest rate levels—cannot produce the same kind of results they have for the last four decades.  Virtually all foreign markets possess more attractive valuations than the U.S.  Nobody really knows what is going on in China, but past growth rates are unsustainable.  The world could avoid a recession in 2020 and settle into a stabilization of subpar growth rates, and America’s ability to run huge federal budget deficits—as it has for the past two decades—may finally become unsustainable.  But remember, all these predictions of the future are really just guesses.  (p. 43)

“Tech Maven Leans in to Semiconductors”
by Marla Brill
Financial Advisor, January 2020
https://www.fa-mag.com/news/tech-maven-leans-in-to-semiconductors-53302.html?issue=325
Relevance: low

A profile of Paul Wick, manager of the Columbia Seligman Communications and Information Fund.  (p. 49)

“Give it Away Now”
by Dan Moisand
Financial Advisor, January 2020
https://www.fa-mag.com/news/give-it-away-now-53303.html?issue=325

Relevance: moderate

The author notes that doctors and lawyers provide pro bono services to the needier elements of the community; lawyers as fire to render at least 50 hours of pro bono legal services a year, and also offer services at a reduced fee to people and organizations protecting civil rights, civil liberties or public rights.  He recommends that the major organizations in the financial planning world promote the importance of pro bono work, and encourage members to volunteer for these activities.

The column defines pro bono as “free, no-strings attached financial advice and planning for underserved people, including low-income individuals and families; military personnel and veterans; domestic violence survivors; and people affected by natural disasters, serious medical crises and bankruptcy,”  (Seems like the first ten words of the definition would suffice.). The FPA has launched a free online pro bono training program that qualifies for one hour of CE credit from the CFP Board, and NAPFA plans to add pro bono to its CE program this year.  These may be more appropriate for younger advisors who will get a chance to practice their counseling and interpersonal skills.  (p. 60)