Data & Research February 11, 2016

FPA Index Rates Confidence Gaps in Practice Management

Financial advisers give themselves a B- in short- and long-term business planning.
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Advisers’ ratings of their own businesses, business practices and challenges are the focus of “2016 Trends in Practice Management: Understanding and Driving Client Value,” a study from the FPA Research and Practice Institute. The organization is a research entity of the Financial Planning Association (FPA).

The study looked at the aspects of practice management that advisers consider most important and their self-perceived performance gaps. The FPA also sought to understand how advisers imagine their futures, and created a simple six-question index—The FPA 3C Index—that examines issues surrounding confidence, control and clarity. Higher index ratings correlate with how advisers are growing their businesses, the FPA contends.

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The questions aim to reflect how advisers feel about their futures and the extent to which that future can be influenced. The Index is expressed on a scale from 1 to 100 based on an equally weighted average score across the six questions. Following are percentages for advisers who rated themselves 5 out of 5:

  • I am confident that I will reach my short-term business goals (39%);
  • I am confident that I will reach my long-term business goals (34%);
  • I feel in control of my business (37%);
  • I feel in control of my life (42%);
  • I am clear on my short-term business goals (52%); and
  • I am clear on my long-term business goals (40%).
NEXT: And the score for responding advisers is . . .

Based on responses from 706 respondents, the FPA Research and Practice Institute assigned a score of 82.9. The organization intends to track this data in future research projects to assess how it relates to growth.

“The overall rating appears high, which is obviously positive for those in the profession; however, we can also see through the ‘FPA 3C Index’ that our biggest challenge is our confidence in the future,” says Pamela Sandy, FPA president for 2016. Sandy says the organization hopes the institute’s research and any content that stems from it will result in improving scores among advisers.

The research also identified practice management areas that advisers say are important and uncovered gaps in performing in those areas. The three areas advisers view as most critical are connected to defining and communicating their value to clients. But these also happen to be the areas where there is the widest self-identified gap in performance.

Nearly three-quarters of advisers (73%) rated “being able to effectively communicate value to prospects” critical. But 92% said they needed some degree of improvement in this area. “Being clear on the value we provide clients” was rated as critical by 71%, but only 15% gave themselves the highest rating (5). More than half of advisers (66%) said “ensuring clients perceive high value relative to the fees they pay” is critical, but just 8% gave themselves a 5 for being able to do so. 

When looking at the issues of importance to advisers moving forward in 2016, more than half of advisers (57%) said they believe they have a clear plan in place that includes engaging with couples. Other topics advisers are planning for are cybersecurity and data protection (53%), engaging female clients (41%) and using technology effectively (38%). However, the research also shows several key areas where advisers don’t have a plan in place: attracting younger clients (21%) and responding to the proliferation of robo-advisers (10%).

“2016Trends in Practice Management: Understanding and Driving Client Value” surveyed 706 respondents online in November from across the country and across channels, including FPA members as well as nonmembers.

Diversions February 11, 2016

10 Most Outrageous Tax Deductions

What’s allowed? What’s not allowed? Here’s a list of things that won’t fly with the IRS on a tax return.
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As tax-filing season heats up, the Minnesota Society of Certified Public Accountants recently surveyed CPA members in public accounting on the most outrageous tax deductions clients tried to take on their tax returns.

Deductions for business expenses are some of the biggest prizes and booby traps of doing your tax return. The list shows that, more often than not, taxpayers just don’t know which deductions are allowed.

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Among the strangest recent deductions, and unacceptable (at least in the eyes of tax authorities):

  1. Puttin’ on the Ritz: We all like to look nice, especially for business purposes. But you’re expected to arrive to work fully clothed; looking nice is a strictly a bonus with no place on your tax return.
  2. Piano man: A humanities professor thought he could deduct a piano. Sour note, unless the professor provided lessons as part of a small business.
  3. Giving until it hurts: Unfortunately for one filer, gambling losses didn’t qualify as a charitable donation to casinos or the Minnesota State Lottery.
  4. Foot powder: Fighting smelly feet at the office can be a kindness to your co-workers. As far as the taxman goes, the benefit stops there.
  5. Hull of a bad idea: One taxpayer wanted to depreciate the cost of a large boat because it was used “occasionally” for client entertainment.
  6. Thrill seeking: Amusement parks don’t qualify for a day-care deduction.
  7. Here, kitty: Even if your cats keep mice out of the barn you use to make a living, in general, pet expenses aren’t deductible.
  8. To have and withhold: One taxpayer tried to deduct part of his wedding costs because more than half the guests were business contacts.
  9. Forever young: Botox, tanning, nails and the like do not qualify as acceptable deductions.
  10. Getting there: You can get mileage reimbursement either through your work (if offered) or the government for mileage incurred while on the clock and for business purposes, but driving to and from work is not going to stick.

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