Learn what it takes to be a success from the ‘all-stars’ of the financial planning and advisory profession
Financial planning involves everything from determining the client's financial position, cash flow, and investment strategies, to income tax planning, risk management, insurance, and retirement and estate planning. Financial planners and advisors are responsible for recommendations and decisions that help people define and achieve their financial goals. Rattiner's Secrets of Financial Planning gives industry professionals the opportunity to hear and learn from ‘the best of the best’ in the field.
Author Jeffrey H. Rattiner, a respected leader in Certified Financial Planning (CFP), shares real-world insights and expert advice from hundreds of top-level advisors in the financial planning industry. Readers gain firsthand knowledge of the challenges these successful planners have faced and how they continue to build their practices and reap success in a dynamic financial environment. This comprehensive resource includes templates based on what the best CFPs use in their practices for work programs, data quantification reports, asset allocation model portfolios, pro forma statements, and checklists for each technical financial planning discipline. Designed specifically for industry professionals, this in-depth book:
- Offers CFPs and financial advisors proven advice and practical methods to take their practice to the next level
- Includes contributions from and interviews with the leading advisors in the profession
- Provides templates taken from the practices of high-level financial advisors
- Explains the key ingredients for building a superior financial planning practice
- Helps develop successful financial planners and strengthen profitable practices
Rattiner's Secrets of Financial Planning: From Running Your Practice to Optimizing Your Client's Experience is an important resource for CFPs, CPAs, financial advisors, financial planners, and high-level corporate executives working in the financial services industry.
Table of Contents
Foreword xxi
Preface xxiii
Acknowledgments xxvii
About the Author xxix
Chapter 1 Today’s Financial Planning Profession 1
Overview 1
Financial Planner vs. Financial Advisor 3
What Are the “Expectations for Change” in Our Profession? 4
Financial Planning as a “Profession” 5
Landscape 7
Developing Human Capital: Training and Recruiting Techniques for Entering the Profession 10
Specific Ideas for Growing Your Skill Set in Our Profession 13
Compensation 15
Technology 16
Growth and Entry Into Our Profession: Buy vs. Build 18
Change in Regulation 20
Holistic Financial Planning 21
Changing of the Guards: The Expanded Family Base and Addressing Additional Needs 21
Planner Approach: “Cause vs. Effect” 23
Behavior Patterns: Making Sure the Client “Gets” It 24
Communication and People Skills 28
Chapter 2 How to Structure Your Practice 31
Office Procedures Manual 33
Office Expectations Strategies 35
What we expect from each other: 37
Accountability and Monitoring Client Progress 39
Determining the Type of Practice You Are Looking to Run 40
Operational Thoughts 42
The Setup: Establishing Your Business Entity 43
Development and Follow-Through of Your Business Plan 44
Strengths 45
Weaknesses 45
Opportunities 45
Threats 46
Development of a Marketing Plan 47
Life Coaching and Changing Behavior 47
Intellectual Capital/Structuring the Model Firm for the 2020s 50
Marketing 51
Know your target market 52
Set up a professional advisory board 52
Set up a client advisory board 53
Be dedicated in getting to know, understand, and motivate your clients 54
Find a qualified mentor 55
It’s all about referrals! 55
Obtain a professional certification 56
Host a client event 56
Send out birthday cards, personal notes, and thank-you letters 56
Write articles, be featured in industry/trade publications, and speak to industry/trade groups 57
Make your website professional 57
Become an industrywide consumer speaker, starting with local employers 58
Start a blog 58
Chapter 3 Developing a Well-Thought-Out Personal Financial Plan 61
Getting Through to Our Clients: Making Sure We Are on the Same Page 63
Relating with Clients 64
Communicating with Clients 67
Nonverbal Behaviors 67
Listening Skills 68
Steps in the Personal Financial Planning Process 68
1. Learning and Understanding the Client’s Personal and Financial Circumstances 69
Engagement letter 72
Our Tenets: 73
What We Deliver: 74
What We Expect from You: 75
Our responsibilities to you 76
Scope of engagement 77
Your responsibilities to us 78
Other considerations that are part of this engagement letter 78
2. Identifying, Evaluating, and Selecting Objectives 80
3. Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action 84
Statement of financial position 84
Statement of cash flow 85
Effect on Financial Statements 87
4. Developing the Financial Planning Recommendations 91
5. Presenting the Financial Planning Recommendations 93
6. Implementing the Financial Plan 94
7. Monitoring the Financial Plan 95
Chapter 4 Dispensing Advice on Cash Flow Management and Budgeting Concerns 99
Cash Flow Planning 100
Budgeting 102
Change in Cash Flow Alignment 111
Emergency Fund Planning 112
Debt Management Ratios 114
Consumer Debt 115
Housing Costs 115
Total Debt 116
Savings Strategies 116
Debt Management 117
Secured vs. Unsecured Debt 118
Buy vs. Lease/Rent 118
Mortgage Financing 119
Types of Mortgages 120
Home Equity Loan and Line of Credit 122
Refinancing 122
Chapter 5 Dispensing Advice on Insurance 125
Risk Management 126
How much insurance is necessary? 129
Life Insurance 130
Types of term insurance 131
Types of cash value insurance policies 132
Whole life insurance 132
Nonforfeiture options 136
Long-term care rider 137
Settlement options 137
Disability Income Insurance (Individual) 138
Benefit period 140
Elimination period 141
Benefit amount 141
Continuation provisions 143
Taxation of premiums and benefits 143
Health Insurance 144
Long-Term Care Insurance (Individual) 145
ADLs 146
Services covered 146
Benefit period 147
Elimination period 147
Homeowners Insurance 150
Policy coverages 151
Section I Coverages 151
Section II Coverages 151
Homeowner policy types 152
Terminology 154
How much coverage does a homeowner need? 155
Calculation for benefits paid from partial coverage paid from a loss 155
Automobile Insurance 156
Coverages 156
Personal Umbrella Liability Insurance 159
Professional liability 161
Directors and Officers (D&O) Liability 161
Chapter 6 Dispensing Advice on Investing 163
Investment Risk 165
Systematic risk 165
Unsystematic risk 168
Standard deviation 169
Covariance 170
Semi-variance 171
Other Issues That May Impact Investment Decisions 171
Tax risk 171
Investment manager risk 171
Liquidity and marketability 172
Risk tolerance 173
Time horizon 173
Diversification 173
Appropriate benchmarks 174
Investor Returns 174
Expected return 174
Realized or actual return 175
Total return 175
Taxable equivalent yield (TEY) 175
Correlation coefficient (R) 176
Coefficient of determination (R2) 176
Use of R2 in portfolio evaluation 177
Risk-Adjusted Performance Measures 178
Minimum required rate of return 178
Capital asset pricing model (CAPM) 179
Sharpe ratio 180
Sharpe Performance Index (Si) 181
Treynor ratio 182
Treynor Performance Index (Ti) 182
Jensen ratio (aka “alpha”) 183
Jensen Performance Index (𝛼, alpha) 183
Investment Policy Statements 184
Asset Allocation and Portfolio Diversification 186
Strategic asset allocation 187
Rebalancing 188
Practical Approaches 188
Modern Portfolio Theory (MPT) 188
Efficient Market Hypothesis (EMH) 189
Behavioral finance 189
Strategies for concentrated portfolios 190
Bond duration 190
Capitalized earnings 191
Fundamental analysis 192
Probability analysis/Monte Carlo simulation 193
Passive investing/indexing 193
Buy and hold 194
Dollar cost averaging 194
Dividend reinvestment plans (DRIPs) 195
Tax Efficiency 195
Wash sale rule 197
Qualified dividends 197
Tax-free income 197
Chapter 7 Dispensing Advice on Income Tax 199
Filing Status Issues 200
Tax implications of marriage 200
Seven Steps to Calculating Income Tax Liability 203
Step 1: Gross income 203
Step 2: Adjustments to income: above-the-line deductions 205
Steps 3 and 4: Determine the higher of the standard deduction or itemized deductions 206
Step 5: Tax liability is calculated, credits are a way of reducing that liability 207
Step 6: Tax credits 208
Step 7: Comparing amounts paid in through estimated payments or federal withholding tax against tax liability will determine gains and losses 211
Business Entities 211
Section 199A deduction for qualified business income 211
Sole proprietorship 212
Advantages: 212
Disadvantages: 213
Partnership 213
Advantages: 214
Disadvantages: 214
Limited partnership 214
Advantages: 215
Disadvantages: 215
Limited liability company (LLC) 215
Advantages: 215
Limited liability partnership (LLP) 216
Advantages: 216
S corporation 216
Advantages: 216
Disadvantages: 217
C corporation 219
Advantages: 220
Section 1244 stock (small business stock election) 220
Advantages: 221
Disadvantages: 221
Personal capital gains and losses 222
Basis 222
Section 179 Deduction 223
Tax Planning Strategies 225
Accelerated deductions 225
Deferral of income 226
Like-Kind Exchanges 227
Section 1031 227
Sale of personal residence 229
Vacation homes 231
Income Recognition 231
Cash vs. accrual basis taxpayer 232
Active income 232
Passive income 232
Portfolio income 234
Installment sales 234
Chapter 8 Dispensing Advice on Retirement Planning 237
Shift in The Definition of Retirement Planning 238
The Stages of Retirement 240
Retirement Needs Analysis 240
Accumulation Stage 244
Types of retirement plans 244
Qualified Plans 245
Differences between defined benefit and defined contribution plans 245
Relevant factors and limitations affecting contributions or benefits 246
Multiple plans 247
Defined benefit plan 248
Cash balance plan 249
Defined contribution plan 250
Money purchase plan 251
Target benefit plan 251
Profit-sharing plan 252
Section 401(k) retirement plan 252
Solo 401(k) plan 254
Age-based (profit-sharing) plan 255
Stock bonus plan 256
Employee stock ownership plan (ESOP) 256
New comparability plan 257
Thrift (or savings) plan 257
Personal Retirement Plans 258
Traditional IRAs 258
Deductibility 258
Roth IRAs 259
Converting a traditional IRA into a Roth IRA 259
Five-year rule 260
Simplified employee pension IRAs (SEP IRAs) 261
SIMPLEs 262
Section 403(b) plans (aka “tax sheltered annuity” or TSA) 264
Section 457 plans 264
Nonqualified deferred compensation 265
Conservation Stage 266
Distribution Stage 266
Distribution options 267
Premature distributions 267
Reverse mortgages 268
Required minimum distributions (RMDs) 269
Inherited IRAs 269
Qualified domestic relations orders (QDROs) 269
Net unrealized appreciation (NUA) 270
Social Security 270
The basics 271
Eligibility and benefit 272
Retirement benefits 272
Disability benefits 273
Survivor benefits 273
Family limitations 274
How benefits are calculated 274
Working after retirement 274
Taxation of Social Security benefits 275
Chapter 9 Dispensing Advice on Estate Planning 277
Estate Planning Mistakes 281
Property Titling 283
Community property versus noncommunity property 283
Common law 284
Community property 284
Quasi-community property 286
Sole ownership 286
Joint tenancy with right of survivorship (JTWROS) 286
Tenancy-by-the-entirety 287
Tenancy-in-common 287
Probate 288
Ancillary probate 289
Wills 289
Types of wills 289
Modifying or revoking a will 290
Avoiding will contests 290
Contents xvii
Powers of Attorney 291
Trusts 291
Simple and complex 292
Revocable and irrevocable 292
Types and basic provisions (of trusts) 294
Marital Trust (Type A) 294
Bypass Trust (Type B) 294
Qualified Terminable Interest Property (QTIP) Trust (Type C) 294
Pour-over trust 295
Spendthrift trust 296
Special needs trust 296
Qualified domestic trust (QDOT) 296
Sprinkling provision 296
Trust beneficiaries: income and remainder 297
Estate and gift taxation 297
Gifting strategies 298
Inter-vivos Gifting 298
Gift-giving techniques and strategies 299
Tax Implications 300
Income 300
Gift 300
Estate 301
Education and medical exclusions 301
Marital and charitable deductions 301
Gross Estate 302
Inclusions 302
Exclusions 303
Sources for Estate Liquidity 303
Sale of assets 303
Life insurance 304
Loan 304
Valuation Issues 304
Estate freezes 304
Minority (interest) discounts 305
Marketability discounts 305
Blockage discounts 306
Key person discounts 306
Powers of Appointment 306
General and special (limited) powers: 5 and 5 power 307
Crummey power 307
Distributions for an ascertainable standard (HEMS standard) 307
Deferral and Minimization of Estate Taxes 308
Exclusion of property from the gross estate 308
Lifetime gifting strategies 308
Inter-vivos and testamentary charitable gifts 309
Charitable Transfers 309
Outright gifts 309
Charitable remainder trusts (CRTs) 309
Unitrusts (CRUTs) 309
Annuity trusts (CRATs) 310
Charitable lead trusts (CLTs) 310
Generation-Skipping Transfer Tax (GSTT) 310
Intra-Family and Other Business Transfer Techniques 311
Installment note 311
Self-canceling installment note (SCIN) 312
Private annuity 312
Intentionally defective grantor trust 312
Intra-family loan 313
Bargain sale 313
Gift or sale-leaseback 314
Family limited partnership 314
Limited liability company 314
Asset protection 314
Grantor retained annuity trusts (GRATs) (qualified interest trusts) 315
Grantor retained unitrusts (GRUTs) 315
Qualified personal residence trusts (QPRTs or house-GRITs) 315
Postmortem Estate Planning Techniques 317
Alternate valuation date (AVD) 317
Qualified disclaimer 318
Deferral of estate tax (IRC Section 6166) 318
Corporate stock redemption (IRC Section 303) 319
Special use valuation (IRC Section 2032A) 319
Chapter 10 Dispensing Advice on Niche Planning 321
Education Planning 322
Analyzing the education issues 322
Education needs analysis 324
Education savings vehicles 325
529 Plans (Qualified Tuition Programs (QTPs)) 325
Advantages: 325
Coverdell Education Savings Account 326
Divorce 327
Analyzing the divorce issues 328
Alimony and child support 330
Pre-2019 Alimony Deductibility Criteria 330
Property settlements per IRC Section 1041 330
Marriages, cohabitation, and remarriages 330
Prenuptial agreement (marital property agreement) 331
Closely-Held Business Owner (CHBO) 331
Analyzing the CHBO issues 331
Buy-sell agreements 332
Buy-sell agreements - estate planning context 333
Buy-sell disability income insurance funding 334
Key-employee life insurance 335
Split-dollar life insurance 335
Strategies for closely-held business owners 336
Index 339
