MEDIA REVIEWS – July 1-7, 2020

Open up this issue of Financial Planning magazine, and what do you find?  One contributed column in the front of the book; it looks like the paid columnists were all fired.  Flip through the pages and you come to the end—at page 40.  Is this a magazine or a pamphlet?

You also find the annual broker-dealer survey, which presents some good information in the tables and charts, but surrounds it with embarrassing content.  What, exactly, is an independent broker dealer, again, exactly?  Maybe some of the executives of those firms can help us out so, like, we don’t embarrass ourselves when we’re talking with readers.

Here’s my advice: Read Kimberly Foss’s column about how to handle a client who is asking for a second opinion, and Ed Slott’s article on how to help clients tap their retirement savings if they’re cash-strapped by the pandemic, and the article at the end offers an idea for some novelty if you’re looking for a new client experience.  And you can browse through those charts and tables if you want to know which BDs are bigger or more profitable than which other ones.  In all, it won’t take long.

Articles that received a “high” relevance rating:

“I Lost the Same Client Twice”
by Kimberly Foss
Financial Planning, July 2020
https://www.financial-planning.com/magazine/financial-planning-july-august-2020
Relevance: high

Foss met with a prospect, who decided to go with another advisor.  Then the prospect wanted Foss to give her a second opinion on the portfolio her peer had constructed for her.  The other advisor was an independent, fiduciary, fee-only CFP advisor.  She looked over the portfolio he had created, and it was somewhat aggressive, even if the holdings were high-quality.

Foss asked questions, and it turned out the colleague had originally recommended a more conservative portfolio similar to what she would have recommended.  But, the client said the markets were just going up and up and up.  Now she was fearful.  Had she talked with the other advisor?  No.  She convinced the prospect to go talk with the other advisor.  The point: she felt disappointed that the client hadn’t chosen her, but she also felt that she had maintained her integrity and not poached the client.  (p. 8)

“Advising Coronavirus-Strapped Clients”
by Ed Slott
Financial Planning, July 2020
https://www.financial-planning.com/news/roth-ira-withdrawals-coronavirus-related-distributions-and-other-cash-options-for-clients
Relevance: high

There are various ways to tap your IRA.  You can withdraw funds tax- and penalty-free so long as they’re paid back within 60 days.  That won’t work if a client is truly cash-strapped; it will just pile on taxes and, if the client is under age 59 1/2, penalties.  If the client is over age 59 1/2 and has held a Roth IRA for 5 years, then any Roth withdrawals are called “qualified distributions” and can be withdrawn tax-free.  And regardless of age or holding period, any Roth IRA contributions (not conversions) can be withdrawn at any time and for any reason, penalty and tax free.  (If not held for 5 years, the withdrawal will be subject to a 10% penalty if withdrawn before age 59 1/2.

The CARES Act now allows up to $100,000 of IRA or company plan funds to be withdrawn in 2020, penalty-free.  Those distributions are taxable at the client’s tax rate, but the tax bill can be spread out over three years, and any funds repaid over that time will eliminate the tax bill on that withdrawal amount.

If the plan allows it, clients might be able to take out loans from their company qualified plan.  The loans are not taxable income when taken, but they will be if not paid back in a timely fashion.  Under the CARES Act, the maximum loan amount is now $100,000 (up from $50,000), but that relief is only available for loans taken by September 22, 2020.

And, of course, there are substantially-equal withdrawals from the client’s IRA, which allows the money to come out to a client younger than 59 1/2 without penalty.  (p. 34)

“Getting Creative in Challenging Times”
by Chuck Cooper
Financial Planning, July 2020
https://www.financial-planning.com/news/financial-advisor-on-virtual-client-events-and-the-coronavirus
Relevance: high

The author created a virtual cooking experience for clients, and discovered that they were surprisingly eager to connect in ways beyond their regular portfolio and plan reviews.  They asked a local restaurant to host the program, and use its own kitchen to show people how to prepare herb marinated shrimp atop a grilled spring vegetable salad.  150 people, including clients and guests, joined the webinar via Zoom.  Some of the guests included local celebrities who wanted to join in the fun.  In all: 17,000 Facebook impressions and the area Chamber of Commerce featured the event before its 1,000 member businesses in its e-newsletter.  The event actually raised donations for their regional COVID-19 Response and Recovery Fund.  (p. 40)

The rest of the articles:

“What is an IBD?”
by Tobias Salinger
Financial Planning, July 2020
https://www.financial-planning.com/news/ibd-elite-2020-independent-broker-dealers-redefine-sector
Relevance: moderate

Hah!  You thought you knew what an independent broker-dealer is.  But here’s the real story: they are firms that register with FINRA as broker-dealers, and provide services to advisors who are independent contractors and have their own offices.  The article says those lines are blurring, but offers no evidence of that.  What we learn is that the BDs would like to be referred to as “wealth management firms.”  Good luck with that.

The broker-dealer annual survey charts and graphs are more comprehensive in Financial Planning than in other magazines, giving you total revenues and percent change, commission, fee and other revenue and percent change, some estimate of the payouts the BDs offer, total dollars paid out to advisors, average production of the top 20% of the reps at each BD, and their “quotas,” which is interesting.  But it appears that only 51 firms participated, and not all of them would be counted among the 51 largest BDs.  (Beware any round numbers you see; that tells you that the BD is making up what it sends for the survey.)  The article tells us that these companies are getting squeezed by regulatory requirements and the pandemic, but a graph shows that their revenue is (the words of the article) “soaring.”

The author also asked 11 people in the profession what, exactly, is an independent BD, and we have their answers here: https://www.financial-planning.com/list/independent-broker-dealer-financial-advisors-and-execs-explain-ibds.  They provide technology and an investment platform.  They do practice consulting.  They tend to be regulated by FINRA.  They offer compliance services.  They host specialized conferences.  Who knew these things?  Well, actually you did…  At the end of this very basic explanation, you can imagine the editor having assigned this article with the phrase: “You know, I’ve always wondered what a broker-dealer is.  Go find out.”   (For any other publication, that would be kind of embarrassing.)  (p. 12)

“Embrace of Fee-For-Service?”
by Ryan Neal
Financial Planning, July 2020
https://www.financial-planning.com/news/with-lpl-embracing-advicepay-fee-for-service-financial-planning-reaches-the-mainstream
Relevance: moderate

LPL Financial has entered an agreement to bring AdvicePay to its reps, giving them a payment processing technology for non-AUM client billings.  The technology was developed by XY Planning Network to facilitate subscription payments from clients to advisors each month.  Others who have licensed the technology include Cetera, Ladenburg Thalman and HTK.  A total of 30,000 reps now have access to AdvicePay.  Does this mean there’s a trend away from the AUM revenue model?  Too early to tell.  (p. 33)

“Annuities Falter, and Yet…”
by Tobias Salinger
Financial Planning, July 2020
https://www.financial-planning.com/news/annuity-sales-decline-in-q1-on-impact-of-coronavirus-limra-says
Relevance: low

Sales of buffered variable annuities, or registered index-linked annuities (as they are sometimes known) were hot sellers in the first quarter.  Low interest rates drew clients to these structured products; otherwise annuity sales overall have been devastated due to the pandemic.  (p. 38)