In a recent interview, a well-established and successful investment advisor who wrote more than $30 million in 2008 and crossed the $40 million mark in 2009 talked candidly about his take on the popular Roth conversion topic, and how he continues to grow his business year after year.
The featured advisor is not shy to try new ideas, but recognizes that sometimes good advisors get distracted by magic systems. He attributes his continuous growth to maintaining and mastering strict processes, not a "silver bullet" system.
He started out just like many of you -- knocking on doors, learning the ropes in a captive setting, and then moving out on his own. He recently took the step to establish his own independent RIA firm and now splits his business between his insurance and RIA firms. This year, he will host more than 30 seminars and run 18 to 22 appointments a week.
This interview is an opinion, but I guarantee it will get you thinking about your practice.
Is the Roth conversion a hot topic for you or your clients?
For some of my clients, the opportunity for a Roth conversion is a big deal, and will have a positive long-term effect.
However, marketing organizations are touting it as another "magic" solution to my business. Do you remember the "income planning" craze two years ago? With it came software, income planning gurus, and several systems that claimed to double your production. While income planning and Roth conversions are important, the huge claims surrounding these topics are confusing and distracting for many advisors.
What I've come to realize, and other advisors need to understand, is that this is one big sales pitch. But time and time again, producers come out of the woodwork to see what all the hype is about. You call in to a marketing organization, get put on a list, and spend hours each week talking to these organizations. And producers wonder why they don't have enough time to make money! The answer is that distractions can be the death of an advisor.
The future of the industry calls for you to figure out who your real partners are in this business. And in return, marketing organizations need to be forward thinkers and comprehensive enough to help you with anything that might come your way. You need them to hold you accountable. Don't settle for anything less. Times have changed, and the wrong relationship could cost you thousands of dollars.
With over 30 seminars this year, will any be Roth only? Why or why not?
In order to appeal to a broad audience, you have to cover several topics in your seminar. Roth conversions have been all over the press this year, and many of my affluent prospects and clients already know about their opportunity. Don't pigeonhole yourself; give all prospects a reason to come into your office. That's how I keep my appointment ratio at more than 80 percent.
While I've had good numbers over the last several years, I've learned many lessons the hard way. I firmly believe that repetition of a process is far more effective than "getting creative" every year. The silver bullet lies in the efficiency of your time and following a simple system. If I were a $5 million advisor looking to grow my practice, I would spend my time perfecting skills that I use 90 percent of the time instead of skills I use 10 percent of the time.
Practice management is the key to a successful practice. You need to have the right staff, and delegate what doesn't make you money. I work 40 hours a week, and I have 1.5 staff members. I spend over four weeks a year on vacation; I couldn't do that if my practice wasn't fully automated.
Are you missing an opportunity to market to high-net-worth clients?
I don't think high-net-worth individuals are most producers' target market. You can spend hours, days or even weeks preparing for one or two cases you might get. These are Roth conversion time wasters. From a business viewpoint, that is not an efficient use of time. Seminars are my primary marketing strategy because they keep my calendar filled. On average, I hold 20 appointments a week. Like any business, if you're not seeing people, you'll die on the vine.
Second, ask yourself how much you know about the potential tax liability of a Roth conversion. Most advisors are not qualified to give a high-net-worth individual specific tax advice. Personally, I turn my Roth conversion cases over to my CPA. I will not risk giving wrong information or jeopardizing my immediate business as well as the longevity of my business.
You turn your Roth conversion cases over to a CPA?
It's simple. Advisors do not give tax advice. It could come back on me and crush my business.
Take a look at the fine print. All Roth conversion software says, "This is not tax advice." Your marketing organization says, "This is not tax advice." So, who's responsible when you present your clients with a Roth conversion analysis run from software provided by your marketing organization? That's right, the same people that "didn't give legal advice" back in the trust mill days. You run a business; treat it like one. Do not let anyone take advantage of you.
When it comes to a specific client's situation, make sure you have a CPA giving the tax advice. No commission in the world is worth the loss of your business.
You mentioned Roth conversion time wasters?
I use the term because I hear advisors running a Roth conversion analysis for every client. There are some simple things I look for. Now, some of these may seem basic, but I want to make sure that you are aware of some of the common mistakes made by advisors.
Knowing the answers to these questions allows you to quickly decide how you should spend your time with a client.
Do you have the money to pay the taxes on the conversion?
When you convert your regular IRA to a Roth, you will have to pay tax on any earnings and pre-tax contributions. This is in lieu of paying taxes upon later withdrawals from the Roth account. You should not tap your IRA to pay the conversion tax, however. If you do so before age 59 1/2, you will generally owe a 10 percent penalty on that amount. Plus, you'll permanently give up the opportunity for tax-free Roth IRA compounding of that amount.
And don't think that you can avoid the conversion tax by just rolling over an amount equal to your after-tax (non-deductible) contributions. Each dollar you roll over from a regular IRA is considered a "blended" dollar. Therefore, a percentage of the amount rolled over into the Roth account will be taxed (except in the unlikely event that your IRAs are worth less than the amount of your after-tax contributions).
Will the rollover disqualify you from important tax benefits?
The conversion income could push you into a higher tax bracket and disqualify you from other tax benefits such as the dependent child and college tuition tax credits.
How much time do you have until retirement?
Generally, the older you are, the less sense it makes to convert a traditional IRA to a Roth. You'll have less time to make up for what you lost in taxes on the conversion. From what I have seen, it would take someone 14 years before drawing income
Will your income tax bracket drop after retirement?
The clearest case in which converting from a regular tax-deductible IRA to a Roth IRA does not make sense is when you expect to drop into a much lower income tax bracket after you retire (say, from 25 percent to 15 percent). Why? You will have to pay income tax on the conversion at your current high rate. Instead, let the money compound in your regular IRA, and pay taxes at your lower rate in retirement. However, if your tax rate is only expected to drop a few points after retirement (say, from 28 percent to 25 percent), conversion is probably still the right move?
How do you actually get in front of the affluent and IRA owners?
First, stay in front of people. My advice is never stop marketing and developing your brand. You only get better through repetition. There are several good systems available. Find one, and stick to it. Learn to perfect your craft every year.
Second, I work with several high-net-worth individuals. They refer me a lot of business, and I like that. You know the saying, "birds of a feather flock together."
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