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Rattiner's Secrets of Financial Planning

From Running Your Practice to Optimizing Your Client's Experience

Rattiner, Jeffrey H.


1. Auflage November 2020
384 Seiten, Hardcover

ISBN: 978-1-119-59427-7
John Wiley & Sons

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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.

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 (alpha, 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


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
JEFFREY H. RATTINER, CPA, CFP(r), MBA, is a renowned author, speaker, and educator with over 31 years of experience as a trainer, mentor, industry liaison, tax professional, and financial planner. He is the recipient of numerous financial planning industry awards and is a leading innovator on financial planning educational programs. He is best known as the "lively and entertaining instructor" through his nationally acclaimed CFP(r) educational program, Rattiner's Financial Planning Fast Track(c).

J. H. Rattiner, J.R. Financial Group