MEDIA REVIEWS – November 8-15, 2018

In the November issue of Financial Planning magazine, Carolyn McClanahan dissects what’s wrong with the SEC’s new consumer videos that try to distinguish between brokers and fiduciary advisors.  Utah Valley University’s Luke Dean offers a few insights into how to bring more diversity to the profession, and Michael Kitces gives a rank order of compensation structures with the least and most conflicts of interest—and finds that the states are trying to bar those with the fewest.

Articles that received a “high” relevance rating:

“Big Shortfalls in SEC Videos”
by Carolyn McClanahan
Financial Planning, November 2019
Relevance: high

The SEC videos are designed to educate consumers about the differences between brokers and investment advisors.  Jay Clayton, chairman of the SEC, narrates the five installments, each lasting two to four minutes.  His favorite question to ask an advisor: “How much of my money is going to fees and costs and how much is going to work for me?”  The key assumption behind the question is that the entire value proposition is asset management.  Another video highlights the differences in how brokers and advisors are paid—and the only choices are commissions or asset management fees.  Clayton apparently doesn’t realize that advisors can also charge hourly or flat fees.

McClanahan also reports that the video tells investors to make sure to ask about conflicts.  Couldn’t the SEC regulate those conflicts instead?  Why is this the investor’s responsibility?

Another video addresses which financial professional is right for the investor: a broker, discount broker or investment advisor.  If investors want ongoing advice and monitoring based on their broad financial goals and market movements, they should use an investment advisor.  The assumption is that people should change their investment mix based on market movements.

Finally, another video stresses that investors need to make sure their financial professional is registered, and finishes with the same question about how much of the money will go to work for you.  No questions about tax-efficiency in portfolios, and no mention of the value of real financial planning.  No question about whether comprehensive financial planning is included in the investment fee.

McClanahan mentions that advisors can address this by removing the investment fee and working on a retainer, subscription or hourly basis.  Then ALL the money is working for the investor.  (p. 9)

“Debunking Advisor Myths”
by Allan Boomer
Financial Planning, November 2019
Relevance: high

No matter how good you are at advising, you won’t succeed as a newbie in the financial planning business unless you can market yourself and bring in clients.  Selling is not simply about describing features and benefits; it is about making a genuine connection with the person.  If prospects don’t like you, the rest doesn’t matter.

How do you be likable?  The more you let prospects talk, the more they will like you.  People want to be heard.  Pay attention, and consider asking questions about the photos on their walls, and strike up conversations about the souvenirs and trinkets on the desk.

But what about the myths?  One is that young advisors should pursue young clients.  The truth is that many older clients love young advisors who might be able to build a connection with their heirs.  Another myth is that young advisors should start with smaller accounts.  If you do, you fall into the trap of over-servicing them, which means unprofitability.  Another mythP young advisors should build a business through networking, not cold-calling.  You ned to supplement networking with getting the attention of strangers—and the key is research and persistence.  (Boomer told himself, at the start, that he would only have to make 1,000 cold calls in his entire life, and each one he made was one less that he would ever have to make.)

Fourth myth: young advisors must develop a myth.  The reality is that you have to constantly reinvent your target market before you fall into your niche.   (p. 12)

“Mopping Up Bad Advice”
by Kimberly Foss
Financial Planning, November 2019
Relevance: high

Foss was referred a retired firefighter who was frugal and only took out enough money to supplement his Social Security income—so why was his portfolio declining rapidly during a bull market?  Because his “advisor” had put his entire portfolio into put options on oil stocks.  This abuse is not unusual.  A study published in February, 2019 (you can find it here:, shows that many “advisory” firms specialize in misconduct working with unsophisticated investors. 

In this case, Foss recommended that the firefighter revoke the “advisor’s” discretionary authority and close the account, and then ask for a refund of the lost assets.  He got back only a fraction of what he had lost.   (p. 16)

“Getting Real About Diversity”
by Luke Dean
Financial Planning, November 2019
Relevance: high

The CFP Program Director and Associate Professor at Utah Valley University (which now has more students enrolled in financial planning than anyone else) Notes that women make up only 23% of CFPs and black and latino planners represent just 3.5% of CFP certificants—combined.  He notes that companies with above-average diversity and inclusion rates perform significantly better than those below the average, so this is an opportunity as well as a challenge.

What to do?  Counter the myth that financial planning is only for the top 5% of wealthy people—which discourages talented idealists from entering the profession.   And offer internships to women and people of color.  (p. 24)

“Benefits of Fee Severability”
by Michael Kitces
Financial Planning, November 2019
Relevance: high

In a long introduction, Kitces makes a simple point: over seven years, a broker who sells an annuity with a 7% commission and an advisor who charges 1% a year both take approximately the same amount of money.  But the broker only has to make the initial sale to earn seven years worth of service fees, while the advisor has to maintain the relationship and provide value for all seven years.  And the client can leave the advisor at any time and pay only a fraction of the amount if the service isn’t there.  (This is “severability” of the relationship.)

But the AUM model isn’t perfect; if a client wants to leave, he/she has to file for any fees paid up-front and repaper the accounts, creating additional work for the consumer, and adding inertia to the decision of whether to stay or go.  Advisory firms that charge on an hourly basis have the ultimate in fee severability—and hourly fees are also more visible to the end client.  Retainer and subscription models fall somewhere in between.

The article then turns to the subscription model, highly-severable and visible, but not (for some reason) favored by state regulators.  Several state regulators want to compel advisors to disclose the exact number of hours they will work in exchange for their fee, so they can determine whether fees rendered come at a reasonable price.  Others question the appropriate charging a monthly fee if the advisor is not meeting with the client every month.  Regulation is causing advisory firms to switch from more consumer-protected models toward ones that have less fee severability.  Meanwhile, the states allow reps who call themselves advisor to pay themselves by collecting up-front annuity commissions.  (p. 40)

“Tax Traps in Plan Loans”
by Ed Slott
Financial Planning, November 2019
Relevance: high

Borrow against a company 401(k) plan and you run into tricky rules, where violations can trigger costly taxes and penalties.  Before you can borrow, the plan document must permit loans, loans are limited to the lesser of 50% of the vested amount or $50,000, the repayment period must fall within a statutory period, and repayments must be continuously made on at least a quarterly basis.  Interest will be assessed on repayments.

Failure to make payments can cause the entire loan to become a taxable distribution.  Take out more than the maximum loan limit and the excess becomes a taxable distribution.  Slott says that plan loans should always be a last resort, and any incorrect statement by the human resources department or plan representative will not hold up in court as an excuse for violating the terms of the loan.  (p. 48)

“Special Needs”
by David Geibel
Financial Planning, November 2019
Relevance: high

The author is a parent with a special needs child who will have to be looked after and advocated for for the rest of his life.  This led Geibel to shift his profession to financial planning, and to immerse himself in the special needs community.  This has taught him to show more empathy to clients, and that money is only a part of the service equation.  He relates to clients now on all types of caregiving issues.

To do this, place yourself in your clients’ shoes and draw from your own experiences to gain perspective.  Recognize clients’ challenges and adapt and relate to their situations.  Throughout the journey, Geibel’s passion for helping people has grown in a way that he never imagined.  (p. 56)

The rest of the articles:

“A Matter of Degree”
by Maddy Perkins
Financial Planning, November 2019
Relevance: low

There are about 145 baccalaureate CFP Board-registered college programs, and there are almost as many types of degrees, and they may be housed in the Department of Consumer Science or the College of Business—or elsewhere.  All of them must cover the 72 required student-centered learning objectives outlined by the CFP Board.  The article goes back and forth about whether the diversity is good or bad—when, of course, it is neither.

A huge part of the magazine is devoted to listing the 105 colleges and universities that offer those 145 programs, which seems kind of silly and redundant, since you can find the full list on the CFP Board’s website.  But here’s the link to the magazine’s listing:  (p. 17)

“Kestra Aims to Outflank ‘One-Size-Fits-All’ Rivals”
by Tobias Salinger
Financial Planning, November 2019
Relevance: low

120 of its reps have bought into Kestra, in a transaction totaling $23 million.—following the June acquisition of a majority stake by Warburg Pincus.  The firm has 2,500 reps.  (p. 44)

“Your Client Wants to Go to Cash.  Now What?”
by Craig Israelsen
Financial Planning, November 2019
Relevance: low

The answer, surprisingly, is to honor the client’s wishes and put the money into a diversified fixed income portfolio—which will appreciate during a market decline.  Not surprisingly, this will outperform cash under most market conditions.   (p. 51)

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