One of the major topics of conversation for financial advisors this year is the scheduled expiration of many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and the potential for a major tax bill that could extend (and possibly expand) many of these measures. After months of speculation about its contents, Republicans in the House of Representatives released their version of the legislation in mid-May, giving a preview of the potential contents of final legislation (which were subject to debate amongst the full House as well as the Senate).

This week, both the House and Senate passed final versions of this legislation, sending it to President Trump for his signature. In terms of income taxes, the legislation will, among other measures, permanently extend (i.e., without a scheduled sunset) the lower individual tax rates enacted as part of the TCJA with a top bracket of 37% for the highest earners, increase the standard deduction by $750 for single filers and by $1,500 for married couples filing jointly (to $15,750 and $31,500, respectively), create a new, temporary, enhanced deduction for certain individuals aged 65 and older, increase the child tax credit by $200 to $2,200 per child, and (after much debate within Congress), increase the limit on the deductibility of State And Local Taxes (SALT) to $40,000 (though the increased cap begins to phase out for consumers with more than $500,000 of income and is scheduled to revert to the current $10,000 in 2030). Other measures (among many other tax and spending policies included in the legislation) relevant to financial advisors and their clients include raising the estate and gift tax exemption (which was scheduled to revert to approximately $7.14 million) to $15 million per person in 2026, creating a new savings account for children with a one-time deposit of $1,000 from the Federal government for those born in 2025 through 2028, and lowering student loan borrowing limits and narrowing student loan repayment plan options.

With the passage of this legislation, financial advisors and their clients no longer have to wait to find out the tax policies they will face in 2025 and beyond and can make tax planning decisions with greater confidence (though, given that tax brackets, deductions, and other measures will remain largely the same, there might be fewer 'action items' for advisors compared to the passage of TCJA, which brought significant changes to tax rates, deductions, and the estate tax exemption!). Stay tuned to the Nerd's Eye View blog for comprehensive coverage of this legislation in the coming weeks!

Financial advisors will often spend years honing their craft in terms of preparing comprehensive financial planning analyses and communicating with clients effectively. As advisors gain experience, though, they often pick up a new set of leadership and/or business management responsibilities, whether within a larger firm or as they start their own practice, which can raise a new set of challenges.

According to a survey of 240 wealth management professionals that lead teams or businesses by the Investments & Wealth Institute, while 84% of respondents considered themselves to be 'strong business leaders', 93% reported leadership or management 'challenges' and 51% said leading a team is stressful. The top challenges identified by respondents include finding the right people (59%), finding enough time to support their team (49%), and developing their team's technical skills (30%). Digging further into the staffing challenge, just 48% of those surveyed said they currently have enough staff while only 34% said they have adequate internal support for team management (responding to this, 60% of leaders plan to add to their teams within the next six months). In terms of skills development, respondents were looking for team members to better use technology to enhance efficiency (54%), improve the service experience for clients (51%), and more effectively use artificial intelligence (43%).

Ultimately, the key point is that as advisors move into business management roles, their responsibilities extend from providing high-quality client service to ensuring that the firm is able to attract, train, and retain talented staff to support the business as it grows. Which, in the current competitive environment for advisor talent, could include reviewing the firm's hiring experience (which could help smaller firms, in particular, compete with larger firms and their recruiting budgets), crafting an effective employee onboarding and training experience, creating employee career tracks (to encourage employees to grow with the firm), and/or investing in the development of 'middle' managers (to be able to delegate certain management tasks and ensure front-line staff benefit from having strong direct managers), among other potential strategies.

While the digital age has made life easier in many ways, it has also created new opportunities for scammers to bilk unsuspecting victims out of their personal information and/or money. And while financial advisors often remind clients of the threats they face (e.g., phishing emails seeking bank account information), firms themselves can be the targets of these attacks as well.

According to a report from compliance firm ACA, multiple SEC-registered RIAs have received emails purporting to be from SEC Chief Information Officer David Bottom asking the recipient to reply and confirm their email address to enable future secure communications (a form of "pretexting" that is used in phishing scams to verify active contacts and build trust before sending future messages that might include a redirect to a harmful website or a malware download). One key 'tell' on this scam is that the "From" email address includes "virumail.com" after "sec.gov" in the sender's email (virumail is commonly used in phishing attacks to spoof legitimate email addresses, according to ACA). ACA recommends that RIAs alert their employees to this threat (which was identified in the past couple weeks and could remain active) and communicate the proper protocol for dealing with this or similar emails (e.g., alerting the firm's IT team, not responding to the email or clicking any links).

In sum, ensuring proper cybersecurity hygiene is an imperative for financial advisory firms, both because of regulatory requirements and the potential damage breaches could do to firm operations and client data. Nonetheless, by implementing a structured approach towards cybersecurity and taking practical steps to implement such a program, firms can better protect themselves from the various threats that they face (given that firms managing millions of client dollars are particularly attractive targets for scammers!).

One of the most common (and valuable) services financial advisors offer their clients is helping them determine how much they can sustainably spend in retirement. Several assumptions go into this figure, with one of the most important being a client's life expectancy (because if a client's date of death were known, their advisor would be able to provide a much more accurate projection of how much they could spend in retirement).

Given that a particular client's life expectancy is unknowable (though the advisor could make inferences based on their health and other factors), some advisors turn to population-level statistics for guidance. For example, the mean (i.e., average) life expectancy for a 60-year-old woman is 29.17 years, suggesting that an advisor could use age 89 as an estimated date of death in planning software for a client in this position. However, while 89 might be the mean date of death, individuals will of course live to a range of ages both before and after this date, suggesting that using age 89 could lead to underestimating a particular client's life expectancy (which could result in early depletion of their retirement assets).

An alternative approach is to consider a client's potential life span by looking at the distribution of deaths across different ages (e.g., the percentage of individuals who die at a certain age). This breakdown shows that for women who reach age 60, the modal (i.e., most common) age at death is 94, 5 years longer than the average (with the peak of the life span curve extending a few years in each direction from 94). So while a certain number of 60-year-old women will die well before age 94 (bringing the average down), the chances of living to this age or beyond than what a client might assume.

Ultimately, the key point is that while population-level life expectancy and lifespan statistics can offer helpful background knowledge, applying them to the experience of an individual client might not be an effective assumption. Which offers advisors the opportunity to customize plans for clients by incorporating their personal circumstances (e.g., whether they have a chronic health condition that could shorten their life expectancy) and preferences (e.g., using a longer life expectancy to be more conservative in planning calculations) when considering their unique life expectancy in retirement income calculations.

While there are several potential benefits to delaying claiming Social Security benefits, many individuals claim as early as possible at age 62. While some individuals might do so out of need (e.g., they were forced into early retirement and need the income to support their lifestyle), others might claim benefits early (before their Full Retirement Age) or before they reach age 70 (when they would receive their maximum monthly benefit) because of an assumption that they will not survive past the 'breakeven' age where they would be better off getting a larger monthly benefit versus starting benefits earlier.

In many cases, individuals might underestimate their life expectancy based on one or more cognitive biases. For example, under the "availability heuristic" clients might rely on immediate examples that come to mind when considering a decision (e.g., reducing their estimate of their life expectancy based on the tragic, untimely death of a family member and forgetting about the other family members who lived well into their 90s). Clients might also engage in "temporal discounting", or giving stronger weight to payoffs that are closer to the present time than to those in the future (which has many applications when it comes to saving and spending decisions, including whether to claim Social Security benefits early or to front-load retirement spending). Also, clients might encounter "status quo bias", where changes from a baseline are perceived as a loss (e.g., if a client had long planned to claim Social Security benefits at age 62 or 67, they might resist their advisor's recommendation to wait until age 70).

In the end, financial advisors can play a valuable role in retirement planning not only by running different scenarios (e.g., claiming Social Security at certain ages) and educating clients about the options available to them, but also by introducing clients to risks (e.g., longevity risk, which can be mitigated in part by a larger [inflation-adjusted] Social Security benefit) and other considerations (e.g., the average spending path individuals take in retirement) to help them make the best planning decisions for their unique needs and preferences.

A common concern many individuals have when contemplating retirement spending is that they may live longer than expected and thus risk outliving their money. This sentiment can lead advisors to build financial plans based on the conservative assumption that clients will live a very long time. Yet, while a longer plan will extend the longevity of the portfolio, it also relies on lower annual portfolio withdrawals. For couples, it becomes crucial to consider other income sources, such as Social Security benefits, annuities, and pensions, that may be reduced or eliminated when one spouse dies. The loss of these additional income streams by one spouse can create a significant mortality risk for the surviving spouse, potentially leaving them with less income than expected. Which means that plans that anticipate both members of a couple living to the same (very old) age might overlook the mortality risk of one spouse dying earlier than planned, which can significantly influence the surviving spouse's sources of income and overall financial situation.

To manage these potential outcomes, advisors can use a more rigorous process to account for and manage both longevity and mortality risk. For example, advisors can calculate a client's spending capacity using expected mortality-adjusted cashflows to manage mortality risk. Rather than giving a plan 'credit' for all non-portfolio income that would be received if clients live to their projected date of death, advisors can instead average out the non-portfolio income that a couple would receive across a wide range of mortality assumptions based on statistical probabilities that treat death as variable and uncertain. Using a comprehensive approach to examine a client's mortality risks can be an opportunity for the advisor to highlight potential pain points and vulnerabilities and offer clients a strategy to plan for them.

In addition to examining the factors that shape mortality risk, advisors can also weigh several factors when assessing a client's longevity risk, from demographic trends (e.g., projecting life expectancy based on the client's sex and affluence) to health and family history and even to the client's own tolerance for longevity risk. Advisors can establish a systematic process to adjust and optimize plans for longevity, customizing the plan length for clients beyond choosing arbitrary default age settings in their planning software packages.

Ultimately, the key point is that creating a plan based on how long a client will live is most effective when both mortality and longevity risk factors are considered. Actuarial science offers tools that can help advisors assess these considerations so that they can adjust mortality assumptions and longevity expectations as part of an ongoing process of monitoring and updating a plan. And by making these adjustments collaboratively and regularly, advisors can help clients develop a relevant and realistic strategy to manage their mortality and longevity risks as they journey into retirement!

Conversations about succession planning often revolve around the role of the firm founder, who might be nearing retirement (or starts planning well in advance). Nonetheless, succession is a two-way street and employees who are interested in becoming owners of the firm where they work can be proactive in getting the ball rolling (particularly when the founder hasn't taken action themselves).

A first step for aspiring employee-owners is to start the ownership conversation early by letting the founder know that this is a goal for them (as the equity conversation won't necessarily appear on the agenda of an annual performance evaluation meeting). Framing these conversations in positive-sum terms (i.e., how the employee will help drive firm growth as an owners) rather than zero-sum terms (i.e., a simple monetary transaction of dollars for equity) can help founders see the benefits of expanding the ownership pool. In addition, developing an "ownership mentality" and acting on it (e.g., developing an understanding of how all aspects of the business work together to drive growth and value as well as taking on responsibilities beyond one's defined role) can further demonstrate an employee's seriousness about becoming an owner invested in the future success of the firm. Employees can also help educate founders about the potential benefits of succession planning (e.g., higher valuations afforded to multi-generational advisor teams) and the process for doing so (e.g., determining the ownership take that will be transferred, roles for each individual, and financing), perhaps engaging succession professionals to help guide the conversation and journey.

In sum, firm ownership typically isn't something that just 'happens' to an employee, but rather a long-term process of demonstrating their value to the company and actively engaging with the firm founder (or other current owners) to discuss their intentions and a potential process to make it happen. Which could ultimately prove satisfying for both the employee (who can profit from the firm's financial success and help drive its growth into the future) as well as the founder (who can be more confident that the firm will be in good hands after they retire).

Many employee advisors have a goal of achieving an ownership stake in their firm to benefit from its (hopeful) profitability and help guide it into the future. However, a key hurdle for many potential successors is the cost of purchasing an ownership stake (as current owners typically seek a financial return for selling or diluting their own equity), particularly as mid-career advisors might face cash flow constraints (based on mortgage payments, child-raising costs, and other expenses).

Nonetheless, there are a variety of financing options that can help successors buy into their firm without having to make a single lump-sum payment. To start, firm founders who own the company outright might be willing to offer shares through seller financing at favorable terms (e.g., valuation, interest rate, and/or term) in order to promote an internal succession that maintains firm continuity (rather than selling to an external buyer). Notably, profit distributions from the ownership stake can cover some (or sometimes all) of the note payments owed, reducing the strain on the buyer's cash flow (and founders might be willing to offer some form of forgiveness if a market downturn hinders firm profitability). Aspiring owners could also look to specialty lenders who specialize in financing transactions in the wealth management space (who sometimes are able to offer longer terms than traditional banks). For employees whose firms have a private equity partner, these partners are sometimes willing to finance equity deals as well (in part because these investors often like to see multi-generational ownership teams, which can be a source of continuity for the firm). Also, employees working at independent broker-dealer firms could find the broker-dealer willing to offer financing to buy equity (e.g., via a five- or seven-year note).

Altogether, there are a variety of ways for next-gen firm owners to finance equity purchases and gain the benefits of firm ownership without necessarily creating a cash flow crunch for themselves (though they might also consider how much of their family's income and overall net worth is tied up in their firm and potential ways to diversify their personal financial situation?). Which can support both aspiring equity owners and firm owners looking to bring next-gen advisors onto the ownership team!

Conversations around advisory firm ownership often revolve in 'traditional' equity stakes, which can provide an employee buyer with both access to a portion of the firm's profits and, potentially, a say in the firm's decision-making. In some cases, though, one or the other side of the transaction might not be willing to make such a commitment, whether a founder who is hesitant to bring on additional partners or an employee who might not want to make a serious financial commitment to purchase an ownership stake.

Owners who find themselves in such a situation could consider implementing a "synthetic" or "phantom" equity program as a way to attract and retain employees without giving up control of the firm (and without requiring an up-front or financed payment from the employees). Under such plans, employees are guaranteed a share of the firm's growth at a future date or around a triggering event (e.g., a sale of the firm or a founder leaving). Owners have the option of setting vesting schedules for the equity (i.e., how long the synthetic equity remains illiquid for employees), giving employees an incentive to stay with the firm in order to receive an eventual payout. At the same time, such plans can be complicated to set up and come with tax considerations (e.g., synthetic equity structures are regulated as nonqualified deferred compensation, which requires specific plan documentation and compliance oversight), suggesting that founders will want to carefully consider whether such a plan meets their goals.

In the end, at a time when competition for advisor talent (in addition to tax, estate, operations, or compliance experts a firm might seek to attract) is fierce, offering a synthetic equity program could be an effective way for some firm owners to attract and retain high-performing employees. And from the employees perspective, such programs could offer attractive upside earnings potential for their contributions to the firm (while recognizing that time constraints on monetizing these awards could serve as proverbial 'handcuffs' tying them to the firm when other attractive job options might be available).

When a financial advisor asks a client about their goals, a common answer is 'financial independence'. A problem, though, is that this concept can have a wide variety of meanings, perhaps requiring the advisor to dig deeper to understand what their client truly seeks to achieve (and to avoid assuming that the client shares their personal definition of financial independence as well).

For those with relatively modest means (perhaps a pro bono client), financial independence could mean being able to support themselves without relying on external assistance. At the other end of the wealth spectrum, financial independence could mean having amassed sufficient assets to support one's lifestyle needs for the remainder of their life. Between these two poles, some clients might equate financial independence with 'financial security', which has both dollars-and-cents and emotional components (i.e., what would financial security feel like?). Other clients might feel financially independent once they have reached a point where their financial situation provides them with a degree of flexibility, perhaps to leave an unenjoyable job or take an extended sabbatical. Still other clients might view financial independence as a matter of control over one's time, the ability to engage in charitable giving, not having to 'think' about money, or simply gaining the sense of having 'enough'.

In sum, because 'financial independence' will mean different things to different clients, financial advisors can offer value (and improve planning recommendations) by encouraging them to dig deeper and get to the heart of what being financially independent means to them (and perhaps revisiting how they view financial independence over time, as their definition of it might change!).

The increasing notoriety of the "Financial Independence, Retire Early" (FIRE) movement in recent years has led many individuals to pursue a level of financial independence where working for pay would no longer be required to support their expected needs for the remainder of their lifetimes. Which could be particularly attractive to individuals who prioritize flexibility, have sufficient incomes to save the amount needed to achieve financial independence, and who are disciplined with their spending to both be able to save and to ensure they don't prematurely spend down their assets if their income decreases (or they stop working altogether) in the future.

Nevertheless, Maggiulli highlights some of the potential downsides of this type of financial independence. To start, the pursuit of financial independence can lead individuals to lead less fulfilling lives during their early working years as they seek to save a sufficient amount to reach a target amount of assets as soon as possible. This could mean not spending time with friends and family (at least occasions that cost money) or traveling less at a time of peak health and available free time. And for some individuals who make it to the financial independence mountaintop, the view sometimes isn't what they thought it would be, as they might have amassed significant assets at the costs of interests or activities that they could engage in with newfound free time (which can be an issue for those who reach financial independence at a more traditional age as well!).

Instead of this version of financial independence, Maggiulli suggests that individuals might be better off pursuing 'financial freedom', or the ability to have options and security with one's money. Individuals who have achieved financial freedom will have greater flexibility in their work lives (e.g., to pursue a more meaningful, but lower paying, career) and won't necessarily have to go all-out on saving to achieve this 'status', even if means continuing to work. One example of a financial freedom approach is 'Coast FIRE', where an individual has saved up sufficient assets earmarked for retirement that they no longer 'need' to save more for retirement (meaning that they 'only' need to earn enough to support their ongoing lifestyle), opening up a range of possibilities, from changing jobs to reducing their weekly hours, to taking extended breaks from work during the year.

Ultimately, the key point is that while "FI" might seem like the ultimate form of independence, some individuals might find that the sacrifices it can take to get there might not be worth the return on their investment. For financial advisors, this could offer an opportunity to support clients by creating a variety of scenarios (from full financial independence to Coast FIRE to maintaining a 'traditional' work and retirement schedule) and showing clients what each would mean for their lifestyle, today, later in their working years, and in retirement.

While many individuals seek 'independence', this term can apply to many aspects of one's lifestyle. For instance, while a young adult might seek the independence of living apart from their parents, a mid-career professional might seek the independence to move to a role or company that is better aligned with their interests.

While financial advisors might be most likely to encounter financial independence (in its varied definitions) on a day-to-day basis, money can only do so much to provide a sense of independence. For instance, an individual who makes a strong salary but who doesn't relate to the mission of their company or respect the ethics of their boss. Or an individual who has amassed enough money to leave their career permanently might find themselves rudderless if they haven't found ways to spend their time that provide a sense of purpose.

Similarly, those with high incomes and/or wealth sometimes are obsessed with seeking validation from others, whether by buying an expensive car or seeking status through clout chasing. While such individuals might have the financial wherewithal to live the lifestyles of their choice, by measuring their value through the opinions of others, one could question whether they are truly independent. At the same time, independence doesn't mean an individual won't care about what others think of them, but rather consciously chooses whose admiration they seek (e.g., family and friends rather than strangers on the highway or on social media sites).

In the end, independence could be considered to be the ability to 'run your own race', being accountable to oneself and having the ability to guide one's life without being told what you 'should' do. Which can extend well beyond income or net worth to potentially include a life of meaning, purpose, and strong relationships.

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In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.