Author: extremeconsultinginc22

Advisor #FinTech As A Distribution Channel For Insurance And Investment Products


The competition for getting a financial advisor’s attention has never been fiercer… which in recent years has led to an explosion of increasingly aggressive wholesaler efforts to try to get in front of advisors, especially in the RIA channel. The volume of inquiries has risen so much, most advisors don’t even have the time to politely say “no” to all the requests, and instead are increasingly adopting a “don’t call us, we’ll call you if we want information” approach, or simply going directly to the websites of product manufacturers for the information they need. Which means asset managers, insurance companies, and other financial services product manufacturers need to find new and innovative ways to reach advisors in the first place, to get their investment, insurance, and annuity products to market.

In this week’s discussion, my Tuesday 1PM EST broadcast via Periscope, we look at an emerging trend of investment and insurance product distributioin: the idea of technology itself as a product distribution channel to reach advisors… and the opportunities, innovations, and conflicts of interest that arise from such arrangements!

The most apparent starting point for this shift of technology as a distribution channel was the rise of the robo-advisors. Robo-advisors first started gaining real momentum in 2014, and it was around this time that asset managers – particularly fund managers – began asking, “Do we need to launch our own robo advisors, or risk being excluded from the trend?” But the reality was that there was nothing unique about robo-advisors that required the use of ETFs. Effectively robo-advisor technology was simply a way to gather assets and execute a managed account, which means the technology was basically just another distribution channel for the asset manager – companies that could get their products into the managed account wrapper were the winners. And so, after Schwab picked up over $2B in assets in just their first 3 months of Schwab Intelligent Portfolios – comprised nearly 70% of Schwab’s own proprietary products – BlackRock decided to acquire FutureAdvisor to distribute their iShares ETFs, Invesco bought Jemstep to distribute PowerShares ETFs, and WisdomTree invested heavily into AdvisorEngine to distribute WisdomTree ETFs, as asset managers began seeking robo-platforms that they could put their funds on and offer the technology to advisors – turning the robo-advisor into a distribution channel (and owning your own robo-advisor as a vertically integrated distribution strategy).

Over the past year, this evolution of technology as a distribution channel has gone one step further, with the rise of the so-called “Model Marketplace”, where advisors can select third-party investment models, and then have trades automatically executed in the advisor’s own portfolio management or rebalancing software tools. The distinction from the early robo-advisors like Wealthfront, Betterment, FutureAdvisor, and Schwab Intelligent Portfolios was that advisors remain responsible for (and in control of) placing trades, although that trading is made very easy by the technology. However, the caveat for such portfolios was that in order to use them for free, advisors typically must use pre-fabricated models in the marketplace… which are often made by the asset managers, and include their own proprietary funds. In point of fact, the technology is so becoming a distribution channel, that now asset managers are starting to subsidize the cost of advisor technology, just to have a chance to get their funds into the hands of the advisors that use the technology! And notably, this trend isn’t unique to “just” rebalancing software and model marketplaces, as financial planning software such as MoneyGuidePro and Advizr have begun to partner with product companies to easily recommend appropriate insurance or investment products where the client can open the account or apply electronically on the spot from within the planning software itself!

And despite the rapid push towards new technology channels, I suspect we’re still in theearly phases of this transition to the idea that Advisor FinTech itself can be a distribution channel. From the technology company’s perspective, the good news of this emerging channel is that it provides a new source of revenue for companies, especially since advisors have already shown far more willingness to have technology costs borne by the expense ratios of insurance and investment products, rather than by paying for the software directly from their own Profit and Loss statement.

However, with this new distribution channel will come new innovation, opportunities, and conflicts of interest – as technology companies struggle with everything from overcoming the same growth problems that robo-advisors faced in the first place (as it’s very hard to grow user adoption, and existing incumbents with existing brands can easily leapfrog new entrants), to technology companies navigating the mid-point between the conflicts of getting paid for product distribution and trying to satisfy independent fiduciary advisors (as the recent debacle of TD Ameritrade’s ETF Market Center illustrated).

The bottom line, though, is simply to recognize that a major shift is currently underway. As advisors increasingly adopt the technology, the technology itself is becoming a distribution channel for products that asset managers, insurance companies, and annuity companies, who seem very willing to pay for access in a competitive marketplace. Which means morenew tools and innovation for advisors. But also tools with a whole new range of conflicts of interest that we’ve never had to deal with before!

Robo-Advisors As An Investment Product Distribution Channel [Time – 2:24]

The most apparent starting point for this shift of technology as a distribution channel I think was the rise of the robo-advisors. So the companies…the early ones started in the 2008 to 2010 timeframe but didn’t really hit the industry radar screen with their current models until around 2012, and didn’t really start getting momentum until 2014. And it was around 2014 that I started having some consulting engagements with a number of asset managers, particularly traditional mutual fund managers, who were watching the growing popularity of robo-advisors of ETF-based robo-advisors like Wealthfront and Betterment and started asking, “Do we need to launch our own robo-advisors or risk being excluded from this trend?”

And the response that I gave them was just to point out that there’s really nothing unique about a robo-advisor that requires the use of ETFs. It just happened to be the product of choice for those particular robo-advisors. All that was really happening was robo-advisors were just a managed account and asset managers needed to treat them the way they treat any managed account opportunity; build our relationship with a manager, try to persuade the manager to use your company’s funds in the managed account, which is basically the same relationship that already exists between wholesalers and independent advisors who manage portfolios today or large institutions where asset managers have national accounts relationships with them. So the robo-advisor technology was really just a way of managing the assets, and the technology was essentially just operating as a kind of distribution channel for the asset manager to target.

And this approach really got validated in 2015 when Schwab launched Schwab Intelligent Portfolios comprised almost 70% of Schwab proprietary products, their own ETFs, and the cash position being allocated to Schwab Bank, and then raised almost $5 billion by the end of the year. In essence, Schwab proved that you can use these kinds of technology solutions as a distribution channel for investment products, in their case, their own investment products, and raise some serious dollars.

And in fact, I think it was Schwab’s momentum in picking up over $2 billion of assets in just their first 3 months with Schwab Intelligent Portfolios that ultimately drove BlackRock to the decision to acquire FutureAdvisor in the summer of 2015 at a price of $150 million dollars, which was not at all about FutureAdvisor’s existing AUM but about the potential that BlackRock saw to acquire and offer FutureAdvisor’s technology to broker-dealers, banks, and RIAs, and then put their iShares ETFs into the robo-advisor managed accounts in the exact same way that Schwab put Schwab ETFs into the Schwab robo-advisor managed account.

In other words, BlackRock didn’t acquire FutureAdvisor for the opportunity to grow the robo-advisor business per se, they bought FutureAdvisor based on the AUM they thought they could gather into iShares products by making FutureAdvisor technology available to advisors. In essence, they were aiming to grow iShares ETF adoption through technology adoption where the technology becomes the distribution channel.

And likewise, this is why you saw on the subsequent year Invesco bought Jemstep because they wanted to include their subsidiary PowerShares ETFs in Jemstep model portfolios. And then why ETF manufacturer WisdomTree invested heavily into AdvisorEngine. Now, AdvisorEngine isn’t typically thought of as a robo-advisor, but their roots were actually a robo-advisor called NestEgg. But in the end, AdvisorEngine is basically a robo-advisor for advisors technology tool or what some are now calling digital advice platforms, and they help facilitate model portfolios for advisors, which not surprisingly are probably going to include a few portfolios comprised of WisdomTree ETFs.

The Model Marketplace As A Technology Distribution Channel For Investments [Time – 5:59]

Over the past year, this evolution of technology as a distribution channel has gone one step further with the rise of the so-called “model marketplace”. In essence, a model marketplace is a technology platform where advisors can select third-party investment models and then have the trades automatically executed in the advisor’s own portfolio management and rebalancing software tools.

And so the distinction from the early robo-advisors like Wealthfront or Betterment or FutureAdvisor or Schwab Intelligent Portfolios is that the robo-advisor isn’t the one responsible for executing the trades as the manager anymore, as though they’re a TAMP or a third-party manager, instead the advisor actually remains the manager responsible for trading, but the trading is made very easy because the technology rebalancing software can largely automate the process anyway, especially once the third-party manager is sending signals to update the models for investment changes. So the advisor gets to run their own models with technologies but they don’t have to pick the models because third-party managers make them available in the model place and the advisor just selects them with a click of a button.

Model marketplaces really kicked off at the beginning of this 2017 year. First at the TDA LINC National Conference, where TD Ameritrade announced it was going to launch a model marketplace inside iRebal rebalancing software so advisors would be able to select third-party models but retain control to implement the models themselves using iRebal. So you don’t have to outsource to a TAMP and pay all the TAMP costs or a robo-advisor that acts like a TAMP, the advisor saves the cost by just paying for the software, which in iRebal’s case is free for TD Ameritrade advisors, but gets to run the models.

And then just a few weeks later, Riskalyze announced their own model marketplace as a part of their expanded Autopilot platform, which would include both third-party models and a free set of Risk Number Models that were comprised of ETFs that Riskalyze was actually sponsoring through First Trust. So similar to Schwab Intelligent Portfolios, the Riskalyze solution included their own proprietary ETFs, but unlike Schwab Intelligent Portfolios, Riskalyze is still simply providing the models and letting advisors retain control to implement them with technology or even to choose some other models, although choosing other models means some costs for the advisor to use the technology. So Riskalyze didn’t quite force advisors in their proprietary product the way that some others did but did try to incentivize them by waiving the technology platform fee in exchange for using their more expensive proprietary ETFs.

More recently, we saw the next natural step in the evolution of model marketplaces, which was the announcement that digital advice platform Oranj, which recently bought TradeWarrior rebalancing software, would be offering its own core software for free, a platform they’re calling Oranj MAX, as long as the advisor uses the prefabricated model portfolios in the Oranj model marketplace to implement with TradeWarrior.

Why the requirement to use these prefabricated models? Because the models are created by asset managers like BlackRock who include their own proprietary ETFs iShares into the models and are now paying technology companies like Oranj for the opportunity to distribute to their advisor users. In other words, the technology is becoming a distribution channel that now asset managers are starting to subsidize the cost of advisor technology just to have a chance to get their funds into the hands of advisors that use the technology. That is technology as a distribution channel for investment products.

Financial Planning Software As A Future Product Distribution Channel? [Time – 9:16]

Merrill Lynch To Remain In The Broker Protocol For Recruiting Agreement

Merrill Lynch To Remain In The Broker Protocol For Recruiting Agreement

The big news this week in the ongoing saga of the unraveling Broker Protocol was the announcement that Merrill Lynch intends to remain in the Protocol. At least, for now. Notably, the “announcement” was not actually a formal public statement from Merrill Wealth Management head Andy Sieg, but instead a “leak” from his recent senior management call, who stated that Merrill is not currently making plans to leave the Protocol. However, that does still leave the door open for Merrill to change its mind sometime in 2018, especially with no formal statement on the record to affirm their ongoing commitment to remain in the Protocol indefinitely. In fact, skeptics have suggested that Merrill may have leaked the statement simply to stem the tide of departing brokers until it can complete a departure from the Protocol, which may be delayed because Merrill is still actively recruiting from the other remaining wirehouse that is still a Protocol signatory: Wells Fargo. In turn, there was also buzz this week that it might even be Wells Fargo that is next to step away from the Protocol, especially since the availability of its quasi-independent FiNet channel means it could leave the Protocol and still have an “independent” option for its wirehouse brokers who want more control and flexibility (while keeping them captive to the Wells Fargo platform). In the meantime, though, more and more recruiters are starting to develop “post-Protocol world” breakaway strategies (first key point: read your employment agreement and its non-compete and non-solicit terms in detail!), even as a recent study affirmed that keeping the Protocol in place would be better for clients (and ultimately for firms in the aggregate), raising the question yet again about whether the SEC or FINRA will ultimately get involved to formally codify the Broker Protocol as a regulation anyway.

The Age 100 Problem

The Age 100 Problem

One of the ironic challenges of increasing life expectancies is the fact that more and more people are “outliving” their permanent life insurance policies, as historically most permanent life insurance was actually designed to mature (i.e., pay out its death benefit as a living lump sum endowment) at age 100 (or often age 96 for policies purchased in the mid-1900s), and it’s only since 2001 that life insurance policies had mortality tables that extended to age 121. The problem with the age-100 maturity issue is not merely that the insurance death benefit pays out as a living benefit, though, but the fact that the payout is fully taxable as ordinary income (to the extent it exceeds premiums paid), as only a death benefit actually paid as a result of death is tax-free under IRC Section 101. Consequently, in recent years lawsuits have begun to appear against life insurance companies – most recently, the Lebbin case against Transamerica – alleging that the insurers misrepresented their coverage as “permanent” for the “whole life” of the insured, when in fact it becomes taxable at age 100 (causing financial damages to the policyowner in the amount of taxes paid). Accordingly, Belth notes that some insurers (most recently, Lincoln National) are beginning to contact policyowners in the months before they turn age 100 and offering them the opportunity to extend the policy. However, not only is not unclear whether all insurers will offer such extensions, but given that the original contract explicitly stipulated maturity at a specified age (e.g., age 96, or age 100), it’s technically unclear whether insurers even can offer extensions now (years or decades after the original sale of the policy) to avoid the unfavorable tax consequences for the policyowner.

UBS Exits Broker Protocol Following Morgan Stanley’s Lead

UBS Exits Broker Protocol Following Morgan Stanley’s Lead

In the most widely anticipated “surprise” of the year, UBS revealed this Monday that it was leaving the Broker Protocol, a mere three weeks after Morgan Stanley made a similar blockbuster announcement. Notably, though, the change was actually filed last week – during Thanksgiving – but Broker Protocol administrator Bressler, Amery & Ross allegedly suppressed the news until this Monday, given UBS brokers just 5 days (until today, December 1st) to leave under the cover of the Broker Protocol (despite the fact that Protocol departures are normally supposed to be announced 2 weeks in advance). With UBS out as well, it’s now widely viewed as a virtual fait accompli that Merrill Lynch will announce its own departure from the Broker Protocol by the end of the month, especially since UBS broke away multiple Merrill Lynch teams this week just as they announced they were leaving the Protocol (which is the wirehouse equivalent of spiking the ball right in the other team’s face in the endzone!). And with major wirehouses leaving sequentially, it seems increasingly likely that the entire Broker Protocol will unravel, as while a subset of firms are calling for it to remain in place, they are notably all the firms that were already using the Protocol to take brokers away from wirehouses (and thus have a recruiting self-interest to see it remain). The end result is a prospect return to the “dark days” of broker breakaways before the Broker Protocol, where it was common to have Temporary Restraining Orders (TROs) and outright lawsuits flying, as wirehouses both sought to retain their brokers’ clients, and to strike a fear of leaving into the other brokers that remained. In fact, this week already witnessed the first lawsuit that Morgan Stanley filed against a departing broker (who left shortly after the wirehouse left the Protocol), and once the broker was hit with a $750,000 lawsuit and a Temporary Restraining Order that would prevent him from contacting his (former) clients, his new firm fired him just one week into the job for the lack of revenue (given that he would be unable to bring any of his clients after the TRO)… which sends a chilling message to any other brokers considering whether to leave their wirehouse in a post-Protocol world. Of course, the reality is that brokers did leave wirehouses before the rise of the Broker Protocol, and at least some will continue to do so going forward; nonetheless, the reality is that the ins and outs of breaking away from a wirehouse just got a lot more complex in a post-Protocol world. And there’s a risk that the Broker Protocol defections could soon spread to other regional and independent broker-dealers as well, particularly those who are already seeing broker outflows and may hope that stepping away from the Protocol will stem the tide.

New IRMAA Surcharges On Medicare Part B and Part D Taking Effect In 2018

New IRMAA Surcharges On Medicare Part B and Part D Taking Effect In 2018


Since 2007, the Medicare Modernization Act of 2003 has required high-income Medicare enrollees to pay an “Income-Related Monthly Adjustment Amount” (IRMAA) surcharge on their Medicare Part B premiums, which lifts the Medicare Part B premium from covering “just” 25% of costs up to as high as 80% of results, increasing Medicare Part B premiums by as much as 219% in 2017. And since 2011, a similar IRMAA surcharge has applied to Part D premiums, applying a flat dollar surcharge of as much as $914/year in 2017.

Beginning in 2018, though, the IRMAA surcharges on Medicare premiums will apply even more quickly, as changes under the Medicare Access and CHIP Reauthorization Act of 2015 will reduce the top Modified-AGI threshold from $214,000/year down to “just” $160,000 (for individuals, or $320,000 for married couples). And individuals with MAGI as low as $133,500 (or married couples at MAGI of $267,000/year) will be forced into a higher IRMAA tier, resulting in a nearly $1,000/year increase in IRMAA surcharges.

Which means going forward, it will be even more important to engage in proactive income tax planning for affluent retirees, to manage their exposure to IRMAA, especially in a low-inflation environment where being impacted by IRMAA also renders the household ineligible for the so-called “Hold Harmless” rules that limit annual inflation increases to Medicare Part B premiums. Especially since even “one-time” income events, like a sizable Roth conversion, or liquidating substantial capital gains, can be IRMAA triggers (at least for that one year the income event occurs).

On the other hand, it’s important to recognize that IRMAA surcharges still only amount to a roughly 1% to 2% cost increase, relative to the income the household must have to be subject to IRMAA in the first place. Which means that while managing taxable income (or really, MAGI) is important, it’s equally crucial not to let the tax tail (or the IRMAA tail) entirely wag the dog.

Nonetheless, the new 2018 IRMAA rules will just make Medicare-related tax planning more popular than ever. Although notably, for new retirees, the best IRMAA planning strategy is simply recognizing the opportunity to file Form SSA-44 to receive an exception to the IRMAA surcharge, as the act of retirement itself is a valid “life-changing event” that can allow new Medicare enrollees to avoid IRMAA premium surcharges on Part B and Part D in their initial Medicare years!

Origins Of Medicare Premium Cost Sharing Subsidies

Health insurance is expensive, including and especially for retirees who tend to have more frequent health complications associated with their age.

To help manage the cost, in 1965 President Johnson signed into law the legislation that established Medicare as the health insurance foundation for senior citizens over the age of 65 (further supported by Medicaid for certain especially-low-income populations).

The basic formula (which has changed over the years) is that the Federal government pays for 100% of “Part A” insurance (generally, hospital care) and about 75% of the cost of Part B (other medical insurance); the revenue to cover those implicit “subsidy” payments is, in turn, generated through the 2.9% Medicare component of the 15.3% FICA tax on employment income. The other 25% of the cost of Medicare Part B is paid directly by Medicare enrollees, in the form of a monthly Part B premium that is set annually by the Centers for Medicare and Medicaid Services (CMS).

Since 2006, under the Medicare Modernization Act, Medicare enrollees also pay a portion of the Medicare Part D (prescription drug) coverage with ongoing monthly premiums as well.

For most, the Medicare Part B and Part D premiums are simply paid by being withheld from their monthly Social Security checks, though those who are delaying Social Security benefits but have already enrolled in Medicare must pay their premiums directly.

Medicare Modernization Act Introduces Income-Related Monthly Adjustment Amount (IRMAA) Rules

The Medicare Modernization Act of 2003, which introduced Medicare Part D prescription drug coverage for the first time, also made a shift to how Medicare Parts B and D are funded, by requiring “high-income” Medicare enrollees to pay a higher-than-25% portion of their Medicare premiums, beginning in 2007.

Specifically, the rules require that Medicare enrollees whose (Modified Adjusted Gross) Income exceeds $85,000 (as an individual, or $170,000 as a married couple) must pay 35% of the total Part B premium (up from 25%), rising as high as paying 80% of the total Medicare Part B premium cost once income exceeds $214,000 of Modified AGI (for individuals, or $428,000 for married couples).

Similarly, beginning in 2011 under the Affordable Care Act, higher-income individuals are now also required to pay a (flat dollar amount) surcharge on their Medicare Part D prescription drug coverage. Unlike the Part B surcharge – which adjusts enrollee premiums to cover a target percentage of total cost – the Part D income-related surcharge is simply a flat dollar amount, starting at $13.30/month and rising as high as $76.20/month for those in the highest income tier.

Notably, these “income-related monthly adjustment amount” (IRMAA) surcharges are applied based on Modified Adjusted Gross Income (which in this case is simply the individual’s Adjusted Gross Income, or AGI, plus any tax-exempt bond interest that must be added back to determine if the thresholds are reached). And each of the four surcharge tiers are “cliff” thresholds – meaning even $1 of income past the threshold results in the entire (higher) surcharge amount being applied.

IRMAA Medicare Premium Surcharges In 2017

Because Medicare premiums are set for the upcoming year at the end of the current year – for instance, 2018 premiums are set by October 2017 – even as the 2017 tax year isn’t over yet, a household’s IRMAA tier for Medicare is determined by using prior-prior year income instead. Thus, for 2018, the household’s Medicare Part B and Part D surcharges (or lack thereof) and the ultimate issuance of an IRMAA Determination Notice (if applicable) will be based on the 2016 tax year (the prior-prior year), using the tax return data filed in 2017.

The annual MAGI thresholds for IRMAA Medicare Premium surcharges are adjusted annually for inflation, although under the Affordable Care Act, the inflation adjustments to the MAGI thresholds were frozen in place from 2011 to 2019. As a result, the impact of inflation on household incomes itself will cause at least some people to creep into a higher IRMAA tier, although overall the IRMAA surcharges are still projected to impact fewer than 5% of Medicare enrollees.

New MAGI Thresholds For IRMAA Medicare Premium Surcharges In 2018

Although the Medicare IRMAA thresholds have only been in place for barely a decade now, they have already experienced several changes – from the additional of the IRMAA premium charges to Medicare Part D in 2011, and the freezing of the MAGI threshold inflation adjustments. And under Section 402 of the Medicare Access And CHIP Reauthorization Act of 2015, the IRMAA rules were changed again, substantially decreasing the MAGI threshold to reach the top “5th tier” at which households must cover 80% of their Premium Part B premium costs (and pay the maximum $76.20/month Medicare Part D surcharge).

Specifically, the new rules shift the top 4th income tier of IRMAA down from $214,000/year for individuals ($428,000 for married couples) to only $160,000/year for individuals (or $320,000 for married couples), which previously had been “just” the 3th tier of Medicare surcharges. In turn, what was previously the 3th tier shifts down to the upper end of the 2nd tier, and the prior 2nd tier is further compressed.

Changes In Medicare IRMAA Premium Surcharge Tiers From 2017 To 2018

The end result of these changes is that it now takes far less income for a household to reach the top IRMAA tiers. As an individual’s income moves from $85,000 to $160,000 of MAGI, they will move through all four tiers, shifting Medicare Part B premiums up an additional $294.60/month (or $3,535.20/year), on top of adding another $74.80/month of Medicare Part D IRMAA surcharges (for a total of $369.40/month or $4,432.80/year). And a married couple will experience these surcharges twice – once for each member of the couple, as he/she enrolls in Medicare – as household MAGI rises from $170,000 to $320,000/year. These amounts are in addition to the baseline Medicare Part B premium itself – $134/month in 2018 – plus the cost of the household’s chosen Medicare Part D premium (if applicable).

IRMAA Medicare Premium Surcharges In 2018

For those who were previously in the 2nd or 3rd IRMAA tiers, though, the impact is even more substantial, as they will effectively be shifted up an entire tier, boosting the IRMAA surcharge from $133.90/month (IRMAA Tier 2 in 2017) to $214.30/month (the next tier up in 2018), or from $214.30/month (the third tier in 2017) to $294.60/month (the top tier in 2018). This amounts to a nearly $1,000/year increase in IRMAA surcharges!

Medicare Parts B & D Monthly Premium Adjustments By Income (2017 vs 2018)

It’s also notable that those who are subject to IRMAA Medicare surcharges are not eligible for the so-called “Hold Harmless” rules that cap the annual increase in Medicare premiums at the dollar amount increase of Social Security’s COLA increase… which, as occurred in 2016, can cause Medicare Part B premiums to spike for those impacted by IRMAA. However, for better or worse, given that the 1st IRMAA surcharge tier – the threshold where the first actual surcharge applies – is still the same $85,000 for individuals and $170,000 for married couples, the new IRMAA thresholds won’t impact high-income Medicare recipients any more/worse now than it has in the past.

Requesting A Reconsideration Or Appealing IRMAA Surcharges For A Life-Changing Event

While many higher-income individuals will find themselves perpetually subject to IRMAA, based on ongoing income that exceeds the MAGI thresholds, others may find that IRMAA impacts them only periodically, in occasional years where the first (or higher) IRMAA tiers are reached.

Accordingly, it’s important to recognize that even if a household has been subject to IRMAA in the past, he/she will not automatically be subject to the IRMAA surcharges in the future. Instead, the determination is made based on his/her income (as reported on the tax return) each year. With the caveat that, due to the nature of the “prior-prior year” income calculation, that a household could have a reduction in income in the current year, and still be subject to IRMAA due to higher income in prior years.

For instance, a married couple that had higher income in 2016 and 2017, due to a series of substantial Roth conversions in retirement that put their household income (MAGI) over $170,000, would be subject to IRMAA surcharges on their Medicare Part B and Part D premiums in 2018 (and 2019). Even though, in 2018, their income might be well below the specified threshold (as they’re no longer doing Roth conversions anymore). Still,  because the 2018 premiums and surcharges in 2018 were calculated based on their 2016 income, IRMAA will apply. Notably, the couple will “benefit” from their lower income in 2018 – which makes them not subject to IRMAA anymore – but the lower Medicare Part B and Part D premiums, without IRMAA surcharges, won’t apply until 2020 (which uses income from the 2018 tax year).

On the other hand, sometimes a household’s income declines due to bona fide “life changing” circumstances beyond their control, such that using prior-prior year income is no longer an accurate reflection of the household’s current financial status. In such situations, those impacted by IRMAA may submit Form SSA-44 – “Medicare Income-Related Monthly Adjustment Amount Life-Changing Event” – to request a reduction in IRMAA surcharges.

However, to have IRMAA surcharges reduced due to a life-changing event, it must be one of the specific life-changing events listed on Form SSA-44, which includes:

  •  Marriage
  • Divorce/Annulment
  • Widowing/death of a spouse
  • Work stoppage (i.e., retired or laid off)
  • Work reduction (i.e., material reduction in work hours)
  • Loss of income-producing property due to a disaster or similar circumstance
  • Loss of pension income (e.g., due to a pension default)
  • Income for the year was due to a settlement with an employer for the employer’s bankruptcy or reorganization

Notably, newly minted retirees over age 65 (who start Medicare immediately after retirement) will usually need to file Form SSA-44 to report their “Work Stoppage” and avoid having their pre-retirement wages treated as part of their MAGI when determining IRMAA surcharges in the first full year of retirement. Fortunately, in subsequent years, it’s typically a moot point, as the post-retirement years with lower income often reducing MAGI below the first IRMAA threshold anyway. Nonetheless, in the initial year or two of retirement, this can produce a multi-thousand-dollar savings on Medicare premiums for a married couple!

For those who have had some other type of “life-changing” circumstance that does not fit the specific list of choices on Form SSA-44, it’s also possible to file a more formal appealing on Form SSA-561-U2. Officially dubbed a “Request for Reconsideration”, Form SSA-561-U2 is used to appeal a number of Social Security retirement or disability scenarios – including the application of Medicare IRMAA surcharges, which are technically determined by the SSA.

It’s important to recognize, though, that “mere” substantial changes in portfolio and investment income, including various types of retirement withdrawals, are not treated as “life changing” events eligible for an IRMAA surcharge exception. Thus, a household who has a single (or even multi-year) big income event, from liquidating substantial portfolio capital gains, to selling a primary residence (where the value was over and above the up-to-$500,000 capital gains exclusion under IRC Section 121), taking sizable IRA withdrawals or engaging in substantial (partial) Roth conversions, etc., will have to pay IRMAA surcharges on Medicare premiums associated with that high income year. Though, again, if the income event only lasts for a year or two, so too does the IRMAA Medicare premium surcharge.

Planning To Minimize IRMAA Medicare Premium Surcharges

While it’s fortunate that Medicare enrollees that experience (income-reducing) life-changing events may be able to file Form SSA-44 to avoid IRMAA surcharges on Medicare premiums, ideally it’s preferable to just manage income to stay below the thresholds in the first place.

At the same time, though, it’s crucial to recognize that – relative to the income levels it takes to hit IRMAA thresholds in the first place – that at the most, IRMAA is really just the equivalent of a modest income surtax.

After all, the first IRMAA tier applies at a MAGI of $85,000 (for individuals), and will result in a $53.50/month premium surcharge, which amounts to $642/year of additional Medicare premiums. Except on an income of $85,000/year, that’s a loss of less than 1% of household income to the IRMAA surcharge. An upper-income household in 2018 will face an IRMAA surcharge of $294.60/month (which is $3,535/year) once income exceeds $160,000/year, yet even that still only the equivalent of “just” a 2.2% surtax on income.

Viewing IRMAA surcharges relative to income is important. because it means that engaging in strategies like pre-retirement Roth conversions – in an attempt to reduce post-retirement IRMAA below the income thresholds – could cost far more than they save. After all, contributing to a Roth for someone in the 33% tax bracket during the working years, instead of contributing to a pre-tax 401(k) plan and simply taking withdrawals in retirement at a 25% tax rate, is superior even with IRMAA boosting that individual’s tax rate by another 1%-2%. Similarly, purchasing a non-qualified annuity to shelter taxable income to get below the IRMAA threshold may not make sense if the Medicare premium savings is only $642/year (the first tier of IRMAA surcharges) if it requires paying a 0.50% expense ratio on a $200,000 annuity (which amounts to $1,000/year in annuity costs). As always, beware letting the tax (or IRMAA) tail wag the dog.

Instead, the optimal IRMAA planning strategies will typically be to manage those already close to the threshold – where a relatively small shift in the timing of recognizing capital gains or harvesting capital losses can get a household below the threshold – will be more appealing. Which makes it all the more important for advisors to be acutely aware of which clients have household income that is approaching an IRMAA threshold – as again, a mere $1 over the line can instantly result in a $600 – $1,000 Medicare premium surcharge. And be cognizant of clients whose income is over the IRMAA threshold but may legitimately be able to claim a “life-changing event” exception via Form SSA-44 – especially recent retirees where the act of retirement itself will render them eligible for the exception (and the reduction of work income may reduce them to being one or several IRMAA tiers lower!).

Nonetheless, with the looming 2018 changes to the IRMAA thresholds as a part of the Medicare Access and Chip Reauthorization Act of 2015, the upper IRMAA tiers now impact a wider range of retirees, increasing the value of IRMAA planning. Especially for those individuals above a MAGI of $133,500 (or couples over $267,000), who will suddenly find themselves lifted an entire IRMAA tier higher in 2018 than they were in 2017!

So what do you think? Do you plan around IRMAA surcharges for your clients on Medicare? In what other “surprising” situations have you seen IRMAA have an impact? Please share your thoughts in the comments below!


How Mindset Trumps Best Practices For Financial Advisor Success

How Mindset Trumps Best Practices For Financial Advisor Success

Financial advisors looking to improve their businesses have a wide range of “Best Practices” research to tap for new ideas, from industry benchmarking studies to specialized white papers. For those seeking methods to run their advisory business more efficiently and profitably, there are a lot of relatively simple tactics to try.

The real reason that most advisors struggle to take their businesses to the next level is the limiting beliefs that we impose on ourselves as financial advisors and business owners. The idea that certain aspects of the business “must” be done a certain way, or the business will fail. When in reality, it’s simply that we don’t want to go through the awkwardness of change and the discomfort of feeling threatened and worried that a client might push back… even though at worst, making changes will probably just threaten to cause a few clients to leave (and usually it’s those clients who weren’t even the best fit in the first place!).

In other words, the key to financial advisor success isn’t really about implementing the right methods – the business tactics and best practices – but more about having the right mindset that makes it easier to implement those methods in the first place. Because once as advisors we have clarity and focus in the business, a confidence in our own worth and the value we provide, a focus on leveraging our time and relationships, and an abundance mentality that the money and business success will come by doing the right things… it becomes remarkably easy to make the changes necessary for that success to actually happen!

Master your Mindset

It may be a shock but it should come as no surprise that the secrets to success are quite simple. Of course, while they are simple, that does not make them easy. The reason for this is that applying them requires a change in thinking and behavior. And therein lies the first secret to success.

I realize that prevailing conversations about success in the advisory profession aren’t littered with conversations about mindset, performance psychology and neuroscientific research. Having spent 20 years consulting with the industry’s best advisory firms to create elite practices and having spoken on every business topic imaginable at nearly every industry conference, I will be the first to admit this and to share how much of a disadvantage I have found this to be for the average advisor. I can also attest to what a powerful advantage it is for the advisors who learn the secret and put it to work.

To support this assertion, let me share some mind-blowing insights I gleaned doing extensive research on success, happiness and personal performance.

One of the more astounding thing I learned was that one famous study from the Carnegie Foundation estimated that 85% of success is psychology, or state of mind. The other 15% of success is methods, or how you run your business practically speaking.

So, for simplicity sake, it’s a combination of an advisor’s mindset and methods that determine their level of success. But what’s been so striking to me is that there is so little conversation about mindset, and so much about methods.

The importance of mindset cannot be understated. While there are many factors that go into developing a million-dollar mindset, there are some that tend to give advisors the greatest difficulty. Here’s are two practice examples that highlight these challenges.

The Fastest Way to Give Away $3M

An advisor client with an $800,000-revenue practice retained me to assess his practice and evaluate how he could best double while improving increasing his profitability and decreasing his days in the office.

As part of this assessment, I noted some “fee exceptions” – clients where he charged something different than his (current) standard fee schedule. When I inquired, the advisor shared that he “had made a few exceptions over the years.” I’ve been around long enough to know that “some exceptions” is code for “too many”, and warranted further exploration. And so I conducted a fee analysis to calculate the difference between his revenue were all clients billed at the rates in the fee schedule, and the actual revenue he was collecting (including exceptions).

The net difference was – insert drumroll for dramatic effect – $80,000 per year, or 10% of revenue. Now that’s a good sum of money when considering it would be all profit (since he was already servicing them for his current costs). But add to this the fact that the advisor was in his late 30s and had easily another 20 years of practice work, and that total grows to $1.6M of cumulative revenue. If you expand the math to include compounding growth on AUM fees at just 5% annually, the new total is $3M of cumulative fees (which in this case is also $3M of cumulative profits). I might add that I’m not even accounting for the value of that revenue upon sale, which is millions more.

In this not-so-rare case, a “few” exceptions was literally going to cost that advisor over $3M of lifetime profits. And that’s assuming he never made another exception along the way.

A New Kind of Client Service Anyone?

In another advisory firm where the advisors were overwhelmed with work and underwhelmed by their profitability, I did a different kind of exploring. In learning more about their client base, I noted that they had a range of client types and sizes.

As this often creates complexity for a practice, I asked some questions about their service levels: were they defined? Did everyone know who got what, when, from whom and how? Where did they spend most of their time? And, perhaps the most critical, do you spend as much time as you would like with your top clients? Now, in fairness, I ask this question at nearly every speaking event I present, and in a room of 300 or so, the average is 4 hands that raise in the affirmative, or roughly 1%. This number holds consistent over the 20 years I’ve been asking the question.

In this case, as I find about 99% of the time, the answer was “no”, they did not spend as much time as they would like with their top clients. So, I asked them to consider holding a new kind of client event, one that more accurately reflected the service they were delivering. The firm partners couldn’t wait to hear what I had to share.

“For your next client event,” I shared “I’d like you to identify your top clients and place a gold star on their nametag. On the night of the event, I want you to sit one top client at each table and allow each table to fill in with the rest of your clients. When you get up to the podium to thank everyone for coming, tell the attending clients that instead of thanking you for the event, they should find the person at their table with a gold star on their name badge, and thank them instead. Since, after all, they are the ones subsidizing your relationship with our firm.”

When I share this story when speaking, this is the point at which the room becomes eerily silent, jaws appear noticeable lower than they started, and there’s an awful lot of looking around the room to see if everyone else has the same reaction.

In the case of the firm I was consulting with, their response was “No, we wouldn’t say that, because that would be dreadful client service.” Insert dramatic pause here. “Oh wait, that’s the kind of service we’ve been giving. Wow, we don’t feel good about that.”

The Business of our Brains

These practice examples are so powerful because they are so common and because it’s so easy to see the error of their ways once I re-frame the situation. Yet, how many advisors have made these same mistakes? How many make these mistakes constantly – and others just like them – unnecessarily compromising on their success?

Let me use our practice examples to highlight what I mean. But first let me share some neuroscience that will help you go beyond the typical “what’s happening here?” and become more conscious of what’s happening, really, so that we can deconstruct the problem, find the source, and successfully solve for what matters.

Behind the Curtain

It’s been estimated that the average person has about 12,000 to 60,000 thoughts every day. Of those, 95% are exactly the same repetitive thoughts as the day before, and about 80% are negative.

Critical to mastering your mindset is that little-known fact that 80% of these subconscious thoughts are negative.

Yes, 80% of your thoughts are happening “behind the curtain” as I like to say. And 80% of what’s taking place behind the curtain is holding you back, hard. Your brain is hard wired to operate in certain ways, and when you understand those ways – and work around them – you can massively improve your performance, success, happiness, wealth and well-being.

I am not over-stating the point here.

In my first example, the firm lost $80,000 per year in revenue due to exceptions that were not even on the radar.

I asked the advisor if he knew why he made the exceptions, and his response was common, and critical to mastering your mindset: “I don’t know really, I guess I didn’t want to lose the client. I didn’t know what else to say.”

This advisor suffered from the 3 most common business blockers: can’t, don’t want to, and don’t know how.

Go back to the first time you can remember making a fee exception. Tell me about it, what happened? The advisor described having a good meeting, and then unexpectedly the prospect indicated they really liked what they had heard, but would he be willing to reduce his fees.

Stop the presses. In what world does it make sense that when someone feels good about the work you do, and the value that you will add, that their first response is to ask for a discount. And, in what common sense world does the professional respond by essentially saying, “I just told you all the value I can add to your life, and you just told me you agreed, so yes it makes perfect sense for you to ask for a discount and for me to say yes and for us to both feel great about this relationship as we begin on those terms.”

Which, if we’re being honest, is precisely what happened. If you’re like most people I share that example with, you cringed a little bit when you read that last part. Why? Because it intuitively makes no sense whatsoever. When I re-frame situations and issues like this for clients, I usually hear something like: “Well, when you put it like that…”

It may be helpful for me to share what happened here, really. What happened was that the advisor’s brain was running the show, as is the case for most of us most of the time.

Recall that 80% of our thoughts happen behind the curtain, in our subconscious. Which makes the ever-important question: what’s running those thoughts? Your beliefs.

To understand how this works, one needs to understand the business of our brains. Our brains are incredibly powerful, though rather efficient and/or lazy depending on how you look at things.

Your Beliefs Become Your Scripts

Our brains process 11,000,000 bits of information a second, and 40 bits are processed consciously.

The rest of the processing happens behind the curtain, in about 1/5th of a second. The brain simply cannot process that volume of data consciously, so it delegates to the subconscious to get the job done. The subconscious develops shortcuts early in life as a coping mechanism for the volume of information to be processed. These shortcuts are like scripts, or computer code. They are the instructions for how to intake, process, and respond to information about our world and what’s happening around us.

These scripts are referred to as beliefs, which in turn drive the majority of our behaviors. Now, if all our beliefs were positive, this wouldn’t be a concern. However, as I shared earlier, 80% of our subconscious thoughts are negative. Armed with that information, it’s hard to make a case that a good majority of our beliefs aren’t negative as well.

The point of great concern here is that this is a lot of negative thinking happening behind the scenes, without our knowledge or consent. In short, we’re running on auto pilot for a good majority of our decision-making process.

Add to this the underlying biology of our brains. The oldest part of our brain is the limbic system. The limbic system has one job: survival. In short, its job is to keep you from dying. This part of your mammalian brain is responsible for fight or flight. When this survival mechanism kicks in, blood flows from your pre-frontal cortex (the rational, logical part of your brain) to the limbic system. You’re fighting or fleeing without ever having a conscious rational thought about what or why.

And our advisor friend who lost $80,000 a year in revenue and well over $3 million in practice value was no exception. Let’s break down the business of his brain.

How Your Beliefs And Fears Create Advisory Business Problems

He was in a happy, comfortable place (a meeting that seemed to be going well) when unexpectedly a hungry saber-tooth tiger jumped out at him (seemingly satisfied prospect asks for a discount), and he took flight to get out of there as quickly as possible (said yes to avoid the discomfort of having to defend his fees and possibly losing the prospect).

Without a second thought his brain’s biology, via his limbic system, kicked him into survival mode. Our brains evolved in very different times, back when surviving was a daily accomplishment. If something was out of the ordinary or unexpected, it should be immediately avoided to minimize the risk of injury or death. This is why, by the way, we are hard wired to avoid change. Change in caveman times most likely meant death.

The problem with this strategy is its only aim is “not dying”. But, regretfully, not dying is not the same as truly living. In our more modern times, something new or unexpected most likely isn’t going to make us its dinner. But our primitive brains don’t recognize that times have changed, and often do not process the difference between a true threat, and a business (or life) circumstance that might ultimately be favorable to our success.

Simultaneously, the advisor’s brain defaulted to backup mode for behavioral guidance, as it can’t consciously process what to do while trying to stay alive.

His underlying belief was that he needed to get a yes, at any cost. Why? Well, for starters, our profession was founded in sales, and in the 20 years I’ve been consulting I’ve seen hundreds of sessions on how to get a prospect to say yes. I have never seen a session on how to say no. Add to this the fact that in the formative years of a practice, not retaining a prospect can have serious financial consequences that are threatening to the ongoing survival of the business.

On top of that, at some level, most advisors are afraid of rejection. Not surprising, because rejection by a prospect doesn’t feel good. It makes us question our personal worth, and the value of our work. Not exactly confidence-inspiring stuff. Unless you are in fact confident in your worth and value, and thus don’t give the “no” or request for a discount any meaning beyond the obvious one that the person asking the question doesn’t get your value and thus may not be a great fit. In this case, you wouldn’t react in survival mode, because with confidence in your worth and value, you know you don’t need that prospect to feel good, much less survive another day.

So it’s no mystery how or why these things happen, once you understand the neuroscience and psychology underlying the majority of our behavior.

When the advisor was challenged, he panicked, and said yes. That seemingly small decision, repeated over time, will cost him millions. Because his brain did what all our brains do: it noted the shortcut, and saved it for later. The next time a prospect asked for a discount, the default code was already scripted to say yes, as that was now the path of least resistance. Because the belief (the script) was operating behind the curtain, the advisor’s radar never went off suggesting that these exceptions might be cause for concern. His brain was focused on the wrong tiger the entire time.

Now, if the advisor was confident in his belief that he was worthy, that his fees were fair for the value he charged, and he had recognized the possibility for this circumstance in advance, he would never have said yes to the fee exception, or repeated that mistake to the tune of millions in lost revenue.

Reframing Business Problems To Understand The Real Issues

Let’s go back to our client service example and see if we can deconstruct that with the same understanding. First, we have to understand why this problem really exists. The firm’s response to this question was that they were too busy serving all their clients to spend more time with their best clients. Again, this response describes a symptom, but it fails to identify the real problems. In this case, that there are no rules of the road.

The firm says yes to client requests and needs – whether they are in scope or not – because the firm has never set a standard, and so does not know how to say no or charge for additional services. Add to this a mindset for managing priorities and time of “be available to clients, irrespective of other priorities”. The advisor’s focus is driven by whatever client call or email (or staff questions) happens to be in front of them at the time.

What’s happening really is that advisors are avoiding the possibility of confrontation, disapproval, or rejection by a client, by saying yes without boundaries. And, like many advisors, they respond to whatever comes their way (the ding of their email inbox, a client phone call with a question, a staffer looking for an answer) in ways that allow the issue at hand to be more important than their need to focus on the (sometimes more important) other client work. Sadly, not only do most advisors willingly allow for this transfer of power with no resistance whatsoever, they do so under the guise of superior client service.

Every advisor I’ve ever discussed this with explains to me how caring and right it is to take the call, check the email, or allow the interruption. Not once in 20 years has even one advisor acknowledged one client’s work is being set aside in order to serve the next.

Here is where the old adage, “the squeaky wheel gets the grease” comes in. When a prospect says yes, have you ever then said to them, “I am so glad you’re becoming a client. For the first year or so, I’ll be on top of your every need. After that, I’m going to ease off a bit and within a few years I’ll be here if you really need us, or it’s time for a meeting, but outside of that I won’t be able to think or work proactively on your behalf because I’ll be too busy working on the newer clients who really need me.”

What’s happening here is that the advisors are being run by the practice, they’re not running it. And what’s really happening is that they lack the self-worth, self-perceived value, and confidence to take back control of their time.

In one client firm facing this situation recently, we decided to redefine the firm’s client service model. We segmented clients into different service types (financial planning, investment management, or collaborators) and then service tiers (Tiers 1-6). We then defined the services that each segment and tier would receive, resulting in a matrix of service models. Next, we estimated the time for each task, and calculated the profitability of each segment/tier to ensure each and every one was profitable in its own right. Where this didn’t work, we modified the services to ensure profitability at every level. Once the service model was designed and profitability confirmed, we developed a model for communicating the changes in services – including the important and well-founded reasons why – and what that would mean to them in the form of changes in service level, options to upgrade, and fees for services they may not have experienced before.

Now I will share that I’ve done this work dozens if not hundreds of times, and on average the firm will lose a client, maybe two, in this process. But often it is none. In this case, with over 500 clients, none was lost. Yes, there were some questions that needed to be answered, which we are always well prepared for. Yes, it takes some time and effort to communicate with all the clients. But yes, the results are more than worth it.

(Michael’s Note: For advisors who would like a copy of Stephanie’s “Client Service 1-pager” shared with clients during the firm’s transition, it’s available via the website.)

The reasons the situation started are easy enough to identify here. The real question becomes why was it allowed to go on so long, with such discomfort, while costing so much in terms of productivity and profitability, not to mention personal satisfaction.

I won’t take you through the business of the brain as I did above, as the standard rules apply. As in the fee exception example, it happened subconsciously because beliefs that create autopilot scripts were driving the car, while the advisors sat behind the wheel looking out the window. And auto pilot was engaged for the better part of 10 years before they realized they didn’t really like the view and would like to be on a different route.

Understand The Business Of Your Brain To Master Your Mindset

Once you understand the business of your brain, you are far better able to understand the power of mastering your mindset. Better yet, you’re able to hack your mindset and create a wildly successful business and life that you love.

The challenge, however, is your beliefs. If you are human you have beliefs, and if you have beliefs, some – and often many – are limiting. This is not to suggest we are all bad, or broken, or flawed. On the contrary, that’s not the case, as most of us are getting by pretty well. It just also happens to be true that most advisors (at least the thousands I’ve spoken with) aren’t living up to their potential, and know it.

Which means if you aren’t living, being, having, earning and experiencing all that you want in your business and life, then I assure you that you too are suffering from limiting beliefs. It’s unavoidable as the diagnostic cause is: “human”.

Yet we too often just accept this, with what I like to call being “uncomfortably comfortable.” In other words, things are good enough that while we’d like them to be better, or perhaps even really dislike them and feel discomfort or difficulty often, we settle for things as they are because changing them would, well, require change.

But what if more, much more, were not only possible but readily available for any advisor willing to expand their thinking and behavior?

The 5 Freedoms of Limitless Advisors

Stephanie always starts by asking her coaching clients what they aspire to, and for most it’s some form of what I’ve come to call The 5 Freedoms of Limitless Advisers, which are:

The 5 Freedoms Of Limitless Advisers

Freedom 1: work with purpose, on your terms
Freedom 2: do work you love
Freedom 3: work with people you truly enjoy
Freedom 4: experience all the financial success you desire
Freedom 5: live a life of happiness, fulfillment and contribution

For most advisors, the idea of living The 5 Freedoms sounds wildly attractive, yet is quickly followed by the question, “How do I get there?”

As we’ve shared, methods do matter, but we’ve also learned – and Matthew can attest from his own experiences – that the methods only produce real, sustainable results when you shift your mindset in ways that allow the methods to work their magic.

The 7 Mindsets of Success

Through our respective experiences, we’ve noted 7 mindsets that are essential for building an advisory practice that allows you to experience greater success, satisfaction, and freedom:

Worth: Knowing your worth, and the worth of the value you add through your work, is what allows you to face business and life with confidence. When we look to external factors for worth and validation, we compromise our standards when challenging circumstances arise, stripping away our success and satisfaction in the process. The advisor who discounted his fees by $80,000 (to ultimately lose millions in the process) didn’t have a thoughtful business response to the challenge on his fee. It was a reaction driven by his lack of confidence in his worth. When you know your worth, you don’t compromise your value, and you won’t let others do it either. Limitless advisors know their worth, and act with that knowledge front and center.

Clarity & Focus: Being clear in where you want to go is critical to charting a course for getting there. Too often advisors take action in response to daily challenges and circumstances, rather than being driven by a sense of vision and clarity around what they’re striving to achieve. When advisors decide to create massive shifts in their success, it starts with clarity about what they want, particularly if it’s a practice that would be very different than the one they are currently experiencing. And it’s the clarity of vision of what the advisor wants from his/her practice and life that helps to reveal the contrast of what changes need to occur. In a world with so much information, so many options, and so much happening at any given time, focus is a mindset that can be hard to maintain. We often joke that advisors are easily distracted and love to chase “shiny things” (we do it, too). We also know that focus is an essential ingredient in your success. There are many paths you can take to experience greater success. However, selecting a path and pursuing it with focus is far more effective than going down every possible path. Staying keenly focused on the strategies that pave the road to success is essential to a swift, smooth ride to that coveted destination. Limitless advisors have a clear sense of what experience, outcome and results they are striving to create, and know where to focus their energies for maximum results.

Value: An important compliment to knowing your own worth is knowing the value of the work you do, and the outcomes you deliver to clients. When you have a strong sense of the value you provide, you approach situations with greater ease and confidence. A strong sense of your value proposition is immensely helpful to articulating that value to potential clients and referral sources. We would argue that financial planning and investment management are not your value, but rather the mechanisms by which you deliver that value. Advisors with a strong value mindset know that their value is delivering advice, not information. Learning your value and how to articulate it in sales and marketing situations is a valuable leap-frog to success that advisors too often overlook. Limitless advisors know their value, and articulate it in ways that easily attract clients that are motivated, able to see their value and willing to pay for it.

Time: Advisors don’t suffer from a lack of time, they suffer from a lack of knowing how to make the most of it. The pace of your progress will be driven by what you choose not to spend your time on, as much as by what you do choose to spend your time on. Matthew is adamant about avoid time-wasting distractions in his practice, and Stephanie helps advisors make the most of their greatest revenue producing asset: time. When you possess a strong sense of worth, clarity and focus, you become quite clear on the priorities that will deliver results, and focus your time on these revenue-producing activities. Everything else you delegate to people, process, and/or platform solutions. Managing your time isn’t your greatest obstacle, but rather your greatest opportunity. Limitless advisors focus their time on energy-creating, revenue producing activities.

Leverage: Leverage is using the resources you have to your maximum advantage, and accordingly is an important mindset to fully living The 5 Freedoms. Many advisors struggle to extract the level of leverage possible from their people, process, and platforms. There are many reasons for this, but often this symptom is a result of difficulty delegating, control issues, a feeling no one can do it as well as you, and/or the perceived need to personally individualized solutions for every situation (regardless of the actual beneficial impact). Any advisor who has relied on these strategies because, well, they just “have to”, knows too well the discomfort of this dilemma. We know it feels like the right thing to do, but we also know this approach just doesn’t yield the results most advisors are looking for. We promise you each of us has struggled with this mindset, learning that letting go and leaning into a leverage mindset yields far greater performance and results than running a “1-man wonder” show. One feels righteous and validating, but the other produces results worth letting go for. The interesting insight here is that once you learn to use leverage to your advantage, you will never want to go back to the old, you-centric way of doing things. Limitless advisors use people, process, and platform to achieve maximum leverage, creating a magnifying affect and accelerating their success.

Relationships: Our relationships with people are a key contributor to our success and happiness at work. Advisors work with people, and for people, and too often don’t truly enjoy the people with whom they are working. You spend a significant portion of your time at work, and we feel strongly that you should enjoy the people you share that time with. Compromising on your staff in terms of quality, capability, or fit undermines performance, productivity and profitability. And, let’s be honest, it’s just not fun to work with people that aren’t performing or that aren’t a cultural fit, and it causes a great deal of avoidable stress and angst. Add to this that many advisors have client relationships they don’t enjoy, working with clients that are difficult, don’t follow their advice or aren’t a personality fit. Limitless advisors work with people they truly enjoy, making work an enjoyable experience.

Money: A positive money mindset is a major contributor to an advisor’s level of financial success. Advisors who approach money with an abundance mindset often fare better than those who operate from a scarcity mindset. A strong money mindset recognizes that you invest in success, you expect a good return on that investment and that money is an exchange of value between two parties that should be fair and reciprocal. A successful practice, and surely a limitless one, is built on a strong financial foundation. This includes profitability at both the client and firm level, as both are key components in a firm’s financial success, and ultimately the income of the advisor. We don’t know many advisors that would tell their clients to stay in an under-performing investment, yet advisors will stay in un-profitable endeavors and engage in un-profitable relationships when there is no business case for doing so. You will be far more ready and able to tap into a greater level of financial success when you master your money mindset. Limitless advisors know that money isn’t the point of success, while being able to appreciate their right to enjoy all the financial success they desire.

5 Freedoms And 7 Mindsets Of Limitless Advisers by Stephanie Bogan

To be clear, you can be “successful” without mastering these 7 Mindsets; we’ve just found that that path is far more stressful, frustrating and difficult. Any advisor who feels more success, time, enjoyment and financial success is possible and isn’t experiencing it can be infinitely more successful once they master these 7 mindsets.

Methods Make the Magic Happen

Once you’ve mastered your mindset and learned to leverage the 7 Mindsets of Success, only then should you focus on the methods by which you build, manage and grow your business.

Of course, this is ultimately where the rubber meets the road, whether it’s defining your strategy, developing specialized systems or creating a sales process that makes it easy for prospects to say yes (to name just a few of the methods that multiply your success).  You have to take the ideas you conceive with your newly expanded mindset and implement solutions that create improvements in your practice.

In Matthew’s practice, his shift occurred when he decided he no longer wanted to work so hard for such mediocre and disappointing results.  By changing and refining his methods, Matthew was able to re-conceive his practice in ways that dramatically improved the results he achieved.

Today, Matthew enjoys extraordinary success, has a sales process that has a 90% close rate, and more often than not prospects ask him to become a client before he’s even completed the process with them.

Matthew will tell you that a large part of his success came from applying his desire for something more and better directly to his practice – using what Stephanie calls The Multiplier Methods. These represent the best practice business methods that improve performance and multiply success.

These methods deserve a conversation of their own, and our next Nerd’s Eye View guest post will cover them thoroughly.

Curious About What You Can Do?

Matthew and I have had the pleasure of living these insights, and are not only enjoying the rewards in our own advisory and consulting businesses, but are excitedly opening up all we know to anyone willing to join us in our quest to live The 5 Freedoms through our new Limitless Adviser Coaching Program.

If you’re curious, you can visit to receive the Client Service 1-pager and some other samples referenced in this post, along with an invitation to our upcoming webinar “Mastering the Mindsets & Methods of a Limitless Practice: How to Build a $1M practice and take off 100 days per year” on December 6.

We believe that any advisor can achieve the kind of success we have enjoyed, and challenge you to apply the insights we’ve shared to stop settling for less than you really want and step into your possibility.

After all, if you’re going to help clients live the best version of their life through your work, shouldn’t you challenge yourself to do the same?

We certainly think so.

The Military Is Overhauling Its Retirement Systems

The Military Is Overhauling Its Retirement Systems

Beginning in January of 2018, the military is switching from a traditional pension based on compensation and years of service, to a new “blended” system that combines the military pension with government contributions to a defined contribution plan account (the government’s Thrift Savings Plan [TSP]). The impetus for the change is that under the current system, the military pension isn’t vested until someone has at least 20 years of service – thus also sometimes referred to as a “20 or nothing” program – yet the reality is that more than 80% of service members leave the military short of the 20-year minimum. Accordingly, the new system will offer a pension that is 20% smaller, but service members will also receive contributions of 1% of their pay into their TSP account (with the ability to earn a match of up to 4%) in addition to any TSP contributions they make themselves, and a new midcareer bonus (to ameliorate the impact of the prior 20-or-nothing rule). Notably, the new system will also give those who reach the 20-year pension threshold the option to convert a portion of their pension into a lump sum instead. The new system will apply automatically to those who enlist in the armed forces after December 31st of 2017, while those with 12-or-more years of service by the end of this year will be grandfathered into the current system; however, those who are currently enlisted but with less than 12 years of service must decide (irrevocably) whether to stay in the current system, or switch to the new one. The switch will almost certainly be better for those who don’t expect to stay in the military for 20 years (as under the old system they wouldn’t get any military contributions), especially if they’re also ready to save and maximize the military match, while those who plan to stay may prefer the old/current system (with the caveat that if life changes and they can’t stay, the 20-or-nothing rule could adversely impact them later). And the Department of Defense has published a calculator tool to help make comparisons. Ultimately, those eligible for the switch will have the entirety of 2018 to make the decision to switch (though those who wait won’t get military contributions to their TSP in early 2018 before they actually make the change).