MEDIA REVIEWS – June 8-15, 2020

I don’t usually recommend that you NOT read an article in the trade press, much less two of them in the same issue.  But you can save time and sanity by skipping altogether the cover article and its companion—the magazine’s annual software survey.  There’s a conflict-of-interest alert coming: I’m co-author of an annual software survey that has collected, in the last two years, 5,000+ respondents per year, which is a decent sample size.  Financial Planning magazine collected responses from 250 advisory firms, and then tried to explain some very strange and anomalous data that was almost certainly tracking error rather than a real phenomenon in the marketplace.  Let’s come out and say it: this is simply not responsible coverage of the software landscape or the planning profession.

Better to read Carolyn McClanahan’s column telling us that it might not be safe to attend conferences in-person until next year at the earliest (Another conflict alert: I’m co-producer of a conference that is scheduled for October.  Ouch!), or Sonia Dreizler’s column offering the business case—for advisors who are not convinced on the grounds of simple fairness—that you should consider engaging black and Hispanic Americans and understanding their experience in our social order.  And you might also want to hire them.

Also, a really good column by Ed Slott on the retirement provisions of the CARES Act.  It’s good material for providing great advice to your clients.

Articles that received a “high” relevance rating:

“Will Conferences Return?”
by Carolyn McClanahan
Financial Planning, June 2020
https://www.financial-planning.com/opinion/coronavirus-financial-planning-conferences-when-is-a-good-time-to-return
Relevance: high

The article says that “One joy of financial planning is our sense of community.”  But part of that is attendance at conferences, and there’s no clear timeline for when conferences will resume or when people will want to be in conference crowds again.  The author, a medical doctor as well as a financial planner, says that we will need antigen testing (which we have now, but not in quantity), and antibody testing (to reveal evidence of a current or prior infection), and vaccination that would have to be updated yearly because flu viruses mutate.

We are social distancing to buy time to develop tests, vaccines and treatments, and for our healthcare system to ramp up the ability to handle a large number of seriously ill patients.  As the country opens up, it is still important to wear masks.  And the incidence of new infections needs to be monitored with testing.  McClanahan thinks that conferences won’t be safe until the year is out.  But she thinks that many conferences will adopt virtual characteristics that they learned during this time when everything is moving from in-person to virtual.  (p. 18)

“Why White Advisors Need to Talk About Race”
by Sonia Dreizler
Financial Planning, June 2020
https://www.financial-planning.com/opinion/how-white-advisors-can-better-talk-about-race
Relevance: high

Creating a just society is a pressing moral issue, but here we get the business case for white people to fully engage the way race and ethnicity has impacted the careers and personal lives of Black and Hispanic Americans.  The column notes that by 2045, the U.S. will be a majority-minority country; that is, white anglo Americans will make up less than 50% of the population.  You want to be able to serve clients of different races, and you want to access the full talent pool (meaning minority candidates) by unintentionally alienating them.  You also want to be able to talk with centers of influence of different ethnic and racial backgrounds, and they might refer business your way.  The author confesses that it has taken her a long time to be able to talk about race frankly, by following experts and leaders on social media, and by listening.  (p. 21)

“Is a PPP Loan Reportable on my U4?”
by Alan Foxman
Financial Planning, June 2020
https://www.financial-planning.com/news/is-a-paycheck-protection-program-loan-reportable-on-my-u4
Relevance: high

FINRA guidance says that if a registered person or his/her business obtains a PPP loan and the loan is fully or partly forgiven, the registered person will not be required to report that forgiveness in response to Question 14K on their Form U4, as long as the loan is forgiven in accordance with the original terms of the loan.  But RIAs might have to disclose in Item 18 of the Form ADV Part 2A disclosure brochure.  It depends on whether this loan indicates a “financial condition that is reasonably likely to impair your ability to meet contractual commitments to clients.”  Note, in this regard, that the loan requires that the signatory certify that “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.”  (p. 38)

“The Most-Asked CARES Act Questions”
by Ed Slott
Financial Planning, June 2020
https://www.financial-planning.com/opinion/cares-act-faqs-rmd-waivers-and-coronavirus-related-distributions
Relevance: high

This is a deeper dive into the retirement provisions of the CARES Act.  The Act waives RMD requirements from tax-exempt accounts except defined benefit plans, but clients can take a voluntary distribution and pay the taxes.  That distribution can be converted to a Roth IRA, since it is no longer an RMD.

The RMD waiver can be used by people who reached age 70 1/2 in 2019 but had a required distribution on April 2020.  But if the 2019 withdrawal was already taken by January 1, 2020, it will not be waived retroactively.  Clients who took a portion of their 2020 RMD can stop the remaining payments. 

Suppose a client took an RMD in 2020 before the CARES Act was passed.  Can that payment now go into her Roth IRA, leaving the taxes paid as they are?  The answer is yes, but it must be done within 60 days.  And the once-per-year rollover rule stop applies.  So if a client received monthly RMD payments in 2020, only one can be rolled over.

What about IRA beneficiaries?  If a person passed away in 2020 when RMDs were waived, there is no year-of-death RMD requirement for the spouse.  The beneficiary stretch rules under the SECURE Act would still apply, and non-eligible designated beneficiaries (the kids) are still bound by the standard 10-year payout rule.  (The 10-year rule does not become an 11-year rule.)

Qualified charitable contributions can still be made even when no RMD is required.  72(t) withdrawal requirements (pre-59 1/2) are still in place; the schedules must continue.

The CARES Act allows qualified individuals to take distributions of up to $100,000 penalty free from their IRA or company plan during 2020, even if they would otherwise have to pay a 10% penalty.  It allows these distributions to be repaid to the IRAs or plans over the next three years, and if they are not repaid, it permits federal income tax on those withdrawals to be spread out over three years.   (p. 39)

“New Routine, Old Habits”
by Scott Frank
Financial Planning, June 2020
https://www.financial-planning.com/opinion/how-coronavirus-upended-a-financial-advisors-life
Relevance: high

The author was feeling ‘groundless’ during the quarantine: sleeping less, exercising less, drinking more and paying more attention to news and social media.  He was not present with his wife and kids.  So he gave up late night TV and social media, gets up earlier, meditates for 15-30 minutes in the morning while everyone else is asleep, and has made a commitment to move his body regularly.  He gets plenty of sleep, and meets with his mastermind group weekly.  (p. 52)

The rest of the articles:

“Advisors Losing Faith in Planning Software”
by Ryan Neal
Financial Planning, June 2020
https://www.financial-planning.com/news/financial-planning-tech-survey-advisors-lose-faith-in-planning-software
Relevance: moderate

The magazine’s annual tech survey offers a startling headline, suggesting that 20% of advisory firms don’t use financial planning software today, up from 4% last year.  Is it really possible that 16% of advisory firms have suddenly, in the space of one year, dropped their software licenses? 

Obviously not.  This is the result of the magazine’s survey sampling only a small number of advisory firms, thus creating a high tracking error.  You can see vividly the high tracking error when you see a graph showing that only 7% of advisory firms use MoneyGuide Pro, and 12% use eMoney—when the actual figures from the T3/Inside Information survey are (counting all iterations of each software) 28% and 22% respectively.  A footnote tells us that the survey this year consisted of 225 financial advisors, down from 350 last year.  That is simply not enough to get meaningful numbers.

And yet the magazine dives into explanations of this rather strange artifact in their numbers, as if the editors really believe that more than a sixth of all advisory firms have decided, over the last 12 months, to stop offering financial planning to their clients.  The explanation doesn’t, frankly, make a lot of sense: the author says that the existing planning tools are too slow to update to new tax initiatives, that advisors are watching their budgets, and advisors are not onboarding new clients (and therefore not doing the initial planning work).  Nonsense!

A second article looks at “tools with the biggest jump in adoption,” (https://www.financial-planning.com/list/financial-planning-2020-tech-survey-results-chatbots-robo-advisors-and-more), telling us that the use of chatbots has risen (remember, this is in one year’s time) from 4% to 44% in a single year, while use of a “robo advisor” has jumped from 11% to 60%.  More nonsense.  (p. 24)

“How COVID-19 is Changing Wealthtech”
by Suleman Din
Financial Planning, June 2020
https://www.financial-planning.com/news/coronavirus-impact-on-remote-work-wealthtech-rob-advice-and-more
Relevance: low

Change number one (which I would be surprised if you didn’t already know) is the advent of digital delivery of device—Zoom meetings.  The article notes that robo firms like Wealthfront and Betterment are also reporting double-digit increases in account sign-ups. 

Change number two is a bit esoteric: the author says that no longer will consumers put up with hidden fees, fine print or long disclosure documents.  Why, exactly, is the pandemic bringing about this change?  There is no explanation.

Change number three somewhat contradicts change number one: it says that robo advisors and online brokerage firms are discovering that clients need to talk with someone.  The hybrid advice platforms are, we are told, experiencing severe blockages.

Change number four: private equity funds have stopped investing in fintech firms.  (p. 31)

“Wells Fargo Drops Robo Advisor Price”
by Ryan Neal
Financial Planning, June 2020
https://www.financial-planning.com/news/wells-fargo-lowers-robo-advisor-price
Relevance: low

This is the exact opposite of “need to know”—Wells Fargo Advisors dropped the annual fee of its Intuitive Investor offering from 0.50% to 0.35%.  Raise your hand if you had a burning desire for this information, or if it is useful in your day-to-day operations.  (p. 33)

“Battling Security Hazards”
by Ann Marsh
Financial Planning, June 2020
https://www.financial-planning.com/news/financial-advisors-at-risk-of-zoom-hackers
Relevance: moderate

Criminals are hacking Zoom meetings, which means that private client information, discussed in the meeting, could be compromised.  Zoom has launched a series of upgrades including enhanced encryption and protection against tampering.  We are told several times that the dangers are real.  The article offers a case where hackers had taken over a client’s email, changed the information in the CRM and then made a successful wire fraud attempt.

At the end, there is advice: always use up-to-date versions of virtual meeting tools, and update the software when prompted.  Use the paid commercial versions of the apps, which come with more security.  Use passwords for client meetings, and use the “waiting room” feature where the meeting organizer can admit participants to join.  Make sure your Alexa or computer cameras are up-to-date and secured; you don’t know who might we watching you.  Only mention the last four digits of any account number.  Don’t share files or sensitive data in a video conference.  (p. 34)

“Tackling ‘Historic’ Call Volumes”
by Jessica Matthews
Financial Planning, June 2020
https://www.financial-planning.com/news/ycharts-assetmark-and-charles-schwab-coronavirus-communications-with-financial-advisors
Relevance: low

YCharts, AssetMark and Fidelity Institutional report record call volumes in March.  Clients opened up 47% more emails from their planners in March than in February.    This becomes especially difficult when the service reps are all working from home.  (p. 36)

“Is Social Security at Risk?”
by Tobias Salinger
Financial Planning, June 2020
https://www.financial-planning.com/news/coronavirus-may-hurt-social-security-benefits
Relevance: moderate

The Boston College Center for Retirement Research’s latest study shows that COVID-19 created a decline in average earnings in 2020, which means people who turn 60 in 2020 could see a permanent cut in their benefits.  The program overall, meanwhile, could still be fully solvent through 2094 if we saw payroll tax increases of 3.1 percentage points this year and ongoing.  A benefits cut of 19% this year or 25% in 15 years would have the same effect.  If the trust fund goes broke, Social Security recipients would still receive 79% of the currently-legislated benefits without any actions; there would be a direct transfer of payroll taxes to recipients.  (p. 43)

“Savvy Ways to Gift Assets”
by Don Korn
Financial Planning, June 2020
https://www.financial-planning.com/news/how-to-gift-assets-to-family-members-while-cutting-tax-rates
Relevance: moderate

Strategies discussed are the transfer to parents (gifts) of dividend-paying stocks or stock funds.  In the hands of retirees, that income falls into a 0% tax rate, and the grantors of the gift will inherit the equities back someday with a basis step-up.  The younger generation can also give appreciated securities to seniors who can sell them for needed cash—and pay 0% tax on profits treated as long-term capital gains.

Another strategy: gift dividend-paying stocks to the younger generation so the dividends will be untaxed, or appreciated securities that are planned for sale, so the children can cash in without paying tax on the gains.  But remember the kiddie tax: if the child is under 19, calculate taxable income by adding the child’s net unearned income to net earned income, subtract the standard deduction, and a portion of the net unearned income could be taxed at the parents’ marginal income tax rate.  The goal is to keep investment interest, dividends and capital gains below $2,200.

For estate tax purposes, the parents can gift to children shares of an LLC that holds farmland, and the children and grandchildren get income without having a controlling interest.  Business owner parents can hire their children, since earned income is not subject to the kiddie tax—and the salaries are deductible to the business.  (p. 44)

“Is It Time to Talk to Clients About Annuities?”
by Tobias Salinger
Financial Planning, June 2020
https://www.financial-planning.com/news/the-coronavirus-impact-on-annuities
Relevance: moderate

In the midst of the public health crisis, the author suggests a “flight to safety” — fixed and fixed-index and structured annuities.  One executive at a research firm predicts “record sales” as the pandemic eases up.  She looks for reps to sell index annuities with lifetime income riders.

We are told that fixed account payouts of between 2.3% and 2.85% look compelling at a time when 10-year Treasuries are yielding 0.70%.  Another executive, however, says that these products are about risk transfer rather than rate return; the current low-rate environment is impeding sales.   (p. 46)

“High Fees and Big Gains”
by Andrew Shilling
Financial Planning, June 2020
https://www.financial-planning.com/list/high-cost-funds-with-the-best-10-year-returns
Relevance: low

Somewhere at an editorial meeting, the ad sales staff timidly knocked on the door and said: if you guys would write about expensive mutual funds, some of them might decide to advertise in our magazine.  But how to do that?  Well, you jump right in and do a Morningstar sort of funds with over 1% annual expense ratios, and then look at the ones with the highest returns—and of course you turn up sector funds in the top-performing asset classes (tech and communications), and discover that those specialized funds will have outperformed the major indices.  Presto!  A seemingly scientifically-grounded puff piece that is sure to flatter some of those funds into advertising with you.  This list of 20 expensive funds might contain a gem or two, but I’m going to guess that if their sector tanks, most of them will be below average in their categories.  (p. 48)

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