Alison Considine

Q&A with Paul Sydlansky of Lake Road Advisors Nov 16, 2022 3:53:59 PM A conversation about going independent and scaling your business using the Betterment for Advisors platform. Paul Sydlansky is the founder of Lake Road Advisors, an independent, fee-only financial planning firm. He has worked in the financial services industry for over 20 years. Prior to founding his firm, Paul worked as a relationship manager for another RIA. He also spent 13 years at Morgan Stanley in New York where he was a senior level manager in the institutional equities department. Paul is a Certified Financial PlannerTM, a member of NAPFA and a member of the XY Planning Network. Non-paid client of Betterment. Views may not be representative, see more reviews at the App Store and Google Play Store. Q: Tell us a little bit about your practice and the factors that you think have contributed to your success in growing your RIA. Lake Road Advisors is an independent, fee-only financial planning firm. We specialize in working with mid-career professionals who have young families and that's been developing over time as our niche. Right now we have about 100 client relationships and manage roughly $60 million in assets. We have offices in upstate New York and in Long Island. We launched the firm in 2016. Before that, I was at a RIA where my views, goals, and values were not in line with the firm owners. For me, launching the firm was about sticking to my views – simplifying things for people, making things easy, and really focusing on what adds value to my clients. And for the niche that I work with, it's having somebody who is an accountability partner – somebody to bounce ideas off of, who can worry about all these things that generally folks don't have time to do, but they realize are super important. Focusing on those clients’ needs and making their lives easier has really led to our growth. Q: What were the biggest hurdles that you encountered when you were initially growing your practice, and how did you navigate those? Starting from scratch. I had a non-compete at the firm I left in 2016 so I had to start with nothing. Planning out my runway was difficult. I think for anybody who's thinking about starting their own firm, it's always going to be longer than you assume – if you're budgeting, I recommend you assume the worst and then add two or three times that in terms of how much you need. That was very difficult for me, starting from a position where really all you had to focus on for the first year or two was growth and making sure that I was developing enough of a client base to make the business viable. I was lucky that we had some good growth to start with and now my challenges are all different. But that was the biggest one – making sure that financially I had enough runway, I could still live the life I wanted and support my family while I was doing it, and making sure I was doing things the right way. Q: What role has Betterment for Advisors played in your growth over the last few years? When I was at Morgan Stanley, I was in private wealth management for a couple of years, but I spent the majority of my time in prime brokerage working with hedge funds. So I came into the financial planning business with a kind of skewed view of investments. I'll be honest, I believe in hedge funds and alpha creation and the ability to outperform. And as I've evolved as an advisor, I've really done a 180 and realized that for the majority of people, trying to chase alpha is not really going to change their life. What's going to change their life is focusing on blocking and tackling their cash flow, their spending habits, their balance sheet, not making silly decisions, creating good habits. Of course, we'd all like extra return. But I think the pursuit of that is going to be fruitless for most, and for the majority of people, having a simple, low cost, diversified portfolio just makes sense. So the firm I was at was an active manager and I saw firsthand what a disaster that was, to try to manage 800 individual portfolios and do things like tax-loss harvesting or rebalancing. It was just a nightmare and they spent a ton of time doing it. And in my opinion, it didn't really add much value to the end user because the manager was actually underperforming a lot. So for me, Betterment was number one given that the platform is easy to explain to my clients. Most of my clients obviously understand investing, but they don't want to spend too much time on it. Betterment allows me to do that. It's straightforward. They have one page in the app where they can click to see their performance and really quickly understand. It keeps things super simple. I don't spend any time on things like rebalancing, I don't spend any time on things like tax loss harvesting. It's all automated. And I know that frees me up to do things that actually will add value to clients. Q: Is all of your AUM at Betterment or do you use other custodians as well? Yes, so the majority is – I have a portion of it that is with Vestwell on their 401(k) platform. I have no other partners – it's all Betterment for my individual clients and then for my five clients who are on the 401(k) platform as well, that's the other system I'm using. Q: How does Lake Road position Betterment for Advisors to its clients? I've obviously had this conversation tons with different advisors. Everybody seems to be hesitant to partner with Betterment, saying – well, aren't they your competitor? Absolutely not. Because the way I view it is Betterment is a partner and a technology platform. So that's how I position it. First and foremost I say I'm a registered investment advisor. I am not a bank, I am not a broker-dealer. I've partnered with another firm who can allow me to leverage a system that really buys in perfectly to how I believe investing should be done for almost everybody. So for me, I position Betterment as a partner, as a technology solution, and I don't see it as competition. Q: How do you price your offering and how do you communicate your firm's pricing to your clients? Great question. What I do is tell the client one all-in price because as everybody knows, pricing can be confusing, and I try to just be as straightforward as possible. For anybody under a million in AUM, it's 1.25%. And again, usually it's a half a million minimum of assets. And the way I tell that to clients is that ultimately, I have a set amount that I'm trying to make for the firm, and a percentage does go to me, and a percentage goes to Betterment. My fee is for the planning work and obviously helping with the investments. And then part of that fee goes to Betterment for the technology and for all the tools that they're providing us to use. But I like to present it as an all in fee. And in addition, I have breakpoints. So if a client hits a million, that all-in fee drops to 1.1%, and then so on. I also have another offering where I have clients who have no investment management. It's just straight planning. And for those clients, it's a flat $5,000 a year. They are not on the Betterment platform, but it's another way for me to work with young families or folks who have assets tied up in their business and don't have the assets to manage right now at this point in their life. I'm up front with clients and say, “I only have so many seats on my bus.” I have one other gentleman who started working with me late last year. And so now that we have 75 relationships, ultimately I'm looking to try to make $5,000 minimum on each one of those seats because I know the amount of planning work we do. I know how many touch points we have, how many meetings, how many calls, how many zooms, how many visits. And so for me, that's kind of the minimum where I want to be with the amount of service that we're going to provide, the relationships that we're looking for to grow the business. Q: Are you typically using Betterment’s investment portfolio? Are you using different portfolio strategies for clients? Right now I'm using Betterment strategies for the majority of clients. I thought about creating my own portfolios but for the amount of time it would take me to research and keep on top of it, it just didn't seem like I was adding any value there. In addition to the Betterment portfolios, I've used the BlackRock portfolio, one of the income generating portfolios for a client where it was appropriate. Q: Aside from Betterment for Advisors, what else is in your tech stack? I use MoneyGuidePro on the planning side and my CRM is Wealthbox. I've been using Riskalyze and I've been really happy with them in terms of storing and having an IPS, and it's a great conversation starter and just a way to explain risk a little bit better to clients. I use Calendly. I think most people probably use something, but Calendly has been a huge time saver for me, for my business. Q: What are your client acquisition strategies? I've been pretty lucky in that when I look at the tracking of where my clients have come from, they've been pretty evenly split from a lot of different sources. The first has been friends and family. Another one is current client referrals. And a third one has been networks or traditional centers of influence like lawyers and accountants. In terms of marketing, I write a blog. I have over 100 blog posts now and while it was tough to do, it's a really good marketing tool. I answer questions on it that I hear all the time from clients and prospects. So if a client or a prospect reaches out I can tell them I just wrote a blog post about that. I also started to do some videos. Creating awareness and really connecting to your niche or your target market is huge. I went through the exercise of figuring out exactly who I want to work with and with everything I do from a marketing perspective, I try to speak to that person. That’s really been a driver of growth. Q: What would you tell advisors who might be skeptical of using a platform like Betterment or something similar? You need to think about your practice and where you add value to your clients. I do believe that there are folks out there for whom active management can make sense in some instances. But I think you really need to figure out how you're positioning your firm for the future – is it the planning you're going to focus on or is it the investment management? Where are you going to add value? What's going to differentiate you from other advisors? If you think that you're going to be focusing on planning and the relationship and accountability and all that type of stuff, choose something that automates other work for you. Because you going in and clicking a button to rebalance does not add any value and it just takes away from other things you could be doing. Q: How do you answer questions from clients that want to have positions that aren't part of the Betterment models, such as single stocks? What do you tend to say to them? Yeah, that's a great question. So I think that goes to fit upfront. I have a conversation upfront about my investment philosophy and how I don't really believe in holding individual positions. Ultimately, we do work with some executives and they have restricted stock and individual positions and options and you can't get around that. So what I tell people is if you're going to have individual stocks, by all means have a Fidelity account. Have a Charles Schwab account. Have a Vanguard account where you can do that as long as you want to trade it on your own and you're doing it outside of what you’re doing with me. Q: As an advisor who's also a business owner, how do you keep up with compliance as you grow your business? When I launched my firm, I launched with XY Planning. They helped me get up and running, but I outgrew it and needed a little bit more help. Since I'm in New York, I had to be SEC registered. I work with an individual who basically opened up a compliance firm that helps folks like us – the smaller size advisor. So I have an individual lawyer who helps me with the compliance. Because I'm still on the XYPN platform, I also use something called Smart RIA that's like a CRM for all of your tasks and all the things you have to do for compliance. And the other thing is, my business is super simple because of the nature of the investing. For anybody who's done the ADV, a lot of the questions are around investing and advice and things like that. My investments are so simple and so vanilla that I think because of the reduced complexity, it makes compliance a little bit easier. Q: Do you have any advice on how to coordinate your IPS with the Betterment portfolios? As part of my onboarding process, I make people go through the risk process. I use Riskalyze which connects with Wealthbox. So I check a box, and once a risk score is in Riskalyze it flows to Wealthbox, and it populates a field for me so I can see the score when I pull up the client. And then on top of that, when we start building out their plan in MoneyGuidePro, we have the ability to make sure that that score translates to Money Guide Pro. It’s not perfect right now, but it goes between those different systems. Q: The transition to remote work has been a popular topic. How have you adapted to that? Is there anything new or different that you're doing to connect with clients and prospects? No, remote work has honestly been completely seamless. From a system standpoint, I worked from a home office already. From a marketing perspective, it's really made me realize how important your online presence is. Everybody knows your website and blog and all that is important, but I started doing video too because I feel like it's a better way to connect with people. I've been using something called Loom, and I also took a class about how to do videos and best practices. Before I meet a prospect, if somebody reaches out online, I will send them a quick 20-30 second Loom video saying: Hi, I'm Paul. Thank you so much. I'm really excited to meet you, if you could just prepare this and that for our meeting, and so on. I've been told it has been really positive because people feel like they know you before they talk to you. Now I'm trying to incorporate it into my client service process too. So every once in a while if I have a follow up task, I can send someone a quick video and say, hey, it's Paul, we took care of that Roth conversion, you're all good to go, have a great day. Little things like that, I think those are going to be more important going forward. Seeing people on Zoom can be tiring, but getting a quick short video from somebody, a friend or somebody who's helping me with something, it's really nice versus an email. So I do think for me and my firm, it's going to be more focused on video, leveraging that and using that as a way to connect. Q: One last closing question: What advice would you give to new advisors who are just starting out? Aside from making sure that you have enough cash to weather the storm of the ups and downs, I think the other thing is making sure if you have a spouse or partner, whoever's going to be there with you, that they're bought in. Aside from the financial stress of starting something new, don't discount the emotional ups and downs you go through on a day to day basis. Having somebody who's supportive and who can be there in the good and the bad is very important. Your emotions go all over the place and it's still that way. As an owner, I don't know if it will ever change. I think it's leveled out a little bit but I still want to grow. If you would have told me when I started where I’m at now, I'd probably be really happy. But now I want to get to $100mm or $250mm. I'm thinking about my firm and what people I need to help me get there. So I just think having support at home from that person and making sure they're bought in is huge. Because if you don't have that, it's probably going to be difficult to do it.

Advisor Spotlight: Eric Rodriguez, WealthBuilders Nov 16, 2022 9:19:40 AM For this Advisor Spotlight, we welcome Eric Rodriguez, CFP® and the Founder of WealthBuilders, LLC to chat about taking a more life-centered approach to financial planning. Non-paid client of Betterment. Views may not be representative, see more reviews at the App Store and Google Play Store. Advisor: Eric Rodriguez Firm: WealthBuilders, LLC Bio: Eric is a Certified Financial Planner® and the Founder of WealthBuilders, LLC, an independent, virtual RIA based out of San Diego, CA. Eric is the author of R.E.T.I.R.E. On Your Terms: 6 Steps To Build Wealth and Co-Host of The Avocado Toast Podcast. He started his career as a registered rep for a broker-dealer that was heavily focused on product sales. That firm left him with a bad impression of the financial industry, so he switched careers to strategic B2B sales where he thrived. About eight years later, Eric was introduced to real financial planning when he started working at LearnVest. He was inspired to launch his own firm, WealthBuilders LLC, in 2017. Firm Bio: WealthBuilders is an independent fee-only fiduciary wealth management firm. WealthBuilders specializes in working with progressive early to mid-career professionals and business owners who are passionate about aligning their wealth with their values. Why did you decide to become an advisor? My parents didn’t talk about money growing up. They argued about it. I wanted to change that for us. I wanted to normalize talking about money and building wealth, and I wanted to make it a positive experience. This is what inspired me to become a CFP®. What are some questions that you wish more clients would ask? How do you measure success with your clients? Why? What do you think is the biggest mistake people make with their money? Not having a customized wealth plan that aligns their key values with their money. Having a wealth plan that includes a vision for your ideal future, key values, the unexpected, and goals to achieve can have a profound impact on your financial success. What does your firm's current tech stack look like? How has technology impacted your work? I run a solo practice —having a solid tech stack is essential to running my business successfully, especially with back office responsibilities. Having a partner like Betterment helps me streamline client onboarding and ongoing investment support so I can focus on other aspects of my business. My firm's tech stack includes Betterment for Advisors as my custodian; G-Suite for all business functions; Asset-Map for initial client conversations; eMoney for complicated financial plans; Riskalyze for risk tolerance; Holistiplan for tax planning; AdvicePay for retainer client fees; Calendly for prospect/client bookings; Wealthbox as my CRM; Mailchimp for client communication and newsletters; Quickbooks for accounting; Canva for marketing and one page plan creation; Loom for custom client videos; and Adobe Acrobat for contract management and editing. How have the recent trends toward remote and hybrid work impacted your relationship with clients? I work with a lot of clients in tech and most have always been hybrid. Prior to the pandemic I was meeting with my clients virtually about 70% of the time. Now it's 100% virtual. It saves us both valuable time and money. What do you think is the biggest opportunity for advisors today? Automating their portfolio management and back office and focusing more time on truly helping clients align their resources with their life goals. Evidence shows that a more life-centered approach to financial planning can help clients make better decisions and improve financial wellbeing and life satisfaction. If you won the lottery, what would you do with the money? I'd love to give my family and close friends enough money to fund some of their dreams. Give to non-profit organizations focused on closing the racial wealth gap and climate change. Take our immediate and extended family on a big annual trip and pay for everyone. Hire a full time helper like Jeffrey from the Fresh Prince of Bel Air! Invest the rest wisely. If you could only give one piece of financial advice, what would it be? Prioritize your immediate goals and take action. For example, if a down payment is at the top of your goal list, then open an investment account and aggressively start saving.

Betterment answers your tax season questions—from 401(k)s to HSAs Sep 27, 2022 12:00:00 AM A timely Q&A about tax management on the Betterment platform. It’s tax time! Read on as Eric Bronnenkant, Betterment’s Head of Tax, and Nick Holeman, Betterment’s Head of Financial Planning, discuss common tax queries. Which combination of retirement accounts will likely provide this particular client the most beneficial tax savings over their lifetime? Nick: The words of this sentence were chosen very carefully because it's likely going to be that one retirement account alone is not enough to fully optimize things. It's going to be a combination, and it's going to depend on this particular client’s situation. We're not focused solely on minimizing taxes today. We want to try to minimize and control taxes over the client's lifetime to try and save them the most cumulative amount of taxes. And as we'll get into, that might not be the type of account that's going to give them the largest tax break today. So, we're going to dive in, but this is the underlying theme or question. The reason why this is so complicated is because there are so many factors and inputs to this decision—kind of this patchwork of special retirement accounts that Congress and the IRS have created over decades. This is why the question is so complicated for us advisors. It's also why it's so confusing for clients. And it's why there's so much bad advice out there. A lot of the clients that I work with have their own CPAs, and I can't tell you how many times I've had to correct them. A lot of CPAs are experts in tax, but they're not experts in looking 20-30 years down the road when it comes to retirement planning. So today, we want to focus on some of the more common scenarios and questions. Traditional IRA vs. Roth IRA? Eric: While this can also potentially be looked at in the Traditional 401(k) versus the Roth 401(k), there are some nuanced differences there, too. For today, we're going to look at the Traditional IRA versus Roth IRA because this is something that typically the client has the most amount of control over in making their own decisions about what account type to choose. And there's a lot of uncertainty; as Nick pointed out, there's also a lot of information. Some of it's good, and some of it could use improvement. So, thinking about someone who's 25, single, earning $50K: Should they be in the Traditional IRA or the Roth IRA? What’s better for them? Eric: Nobody really knows the answer to that question today. You really only know the answer to that question after a whole lifetime. What are your initial thoughts, Nick? What jumps out at you when you look at this type of scenario? Nick: Yeah, I like that we're starting with the basics and we're going to build onto the more complex topics. This is one instance where I tend to agree with the standard advice I hear from other CFP® professionals: When you're younger, you're likely able to expect your income to grow. So paying taxes now is going to be better than paying taxes later. In general, without knowing too much about this client situation, I would probably recommend Roth if I had to give an answer. For someone who's age 40, married, and has earnings of $250K: What type of IRA do you think they might want to consider? Nick: This is where we start to get borderline on some of those tax rules. I don't know all of their adjustments or other things that might lower their modified AGI, but here we're probably going to be phased out of a Roth, so we might not have a choice. We would go with a Traditional IRA. Maybe that's when we start getting into the more advanced topics, like a backdoor Roth IRA. But yeah, probably Traditional. Eric: Right. Regardless of how much money you make, you can always contribute to a Traditional IRA. You just may not get a tax deduction for it if you're covered by a retirement plan at work and you make too much money. So the Roth income limit, you get phased out at about $208,000 for last year; $214,000 this year. It would be tough, even for married couples maxing out their 401(k),to potentially help them get below those thresholds. Tough to meet those MAGI limits. But you definitely brought up a great point as far as the backdoor Roth. So for people who make too much money to contribute to the Roth directly, they can contribute to the Traditional and then do the conversion over to Roth. Fun fact: the Roth conversion income limitation was eliminated permanently in 2010, and as of right now, there is nothing on the horizon that is going to change that. Obviously laws can always change, but it is not scheduled to return at this point. Nick: Backdoor Roths are super powerful potential strategies for high income earners. We talk about them a lot with our clients at Betterment. They're a little more complex, so they're not usually part of the baseline retirement plan that we're building up, but if they have a tax professional involved who’s keeping track of the Form 8606 so they're not getting double-taxed, then a backdoor Roth can be a super powerful strategy. Do contributions to a Traditional 401(k) help me qualify for a Traditional IRA deduction or a Roth IRA contribution? Eric: So let's say you have a married couple where one spouse is earning $214,000, and one spouse put in the $20,500 into their 401(k), now that $20,500 would put them below the Roth income limit. Then they'd go from a situation where they weren't able to make any Roth contribution directly to being able to make the full $6,000 or $7,000 Roth contribution directly. So a contribution to a Traditional 401(k) may help you qualify for other benefits, like a deduction on a Traditional or making direct contributions to a Roth or even other things, like child tax credits and any other AGI sensitive items. Do tax-free withdrawals from a Roth IRA impact social security benefits and Medicare premiums in retirement? Nick: Roth IRAs don't impact social security benefits. They don't impact Medicare premiums. Those are two big potential ways to optimize retirement down the road. It's not just looking at tax brackets, either. I know oftentimes when Eric and I will chat, we’re like, ‘Oh, it's current bracket versus future bracket, and you can kind of decide which one is best.’ And that's true, but that's a little bit too simplified. We know tax brackets fluctuate, and there are other things aside from taxation, as well: social security, Medicare premiums, things like that. So big shout out to Roths if they make sense for each client, but just a reminder not to only focus on tax brackets. Can I withdraw contributions from a Roth IRA without tax/penalties? Eric: The power of the Roth is that you're able to withdraw your regular contributions at any time — tax and penalty free — regardless of your age. Some people use it as an emergency fund; that is a possibility. If you can afford to have a Roth and an emergency fund, that's even better. Let's say you need to use your Roth as an emergency fund: it is potentially a tax-efficient way to withdraw those regular contributions tax and penalty free regardless of your age. I do want to point out that if you wanted to withdraw the earnings, which would come out second, those are subject to tax and penalty if you're under age 59-and-a-half. 401(k) vs. IRA? Eric: The first thing you should think about in this type of scenario is: Can I contribute to both my IRA and my 401(k)? I'm not sure where this rumor got started, but it's definitely been flying around the internet for a long time that if you contribute to a 401(k), you can't contribute to an IRA, which is not true. You can contribute to both. Now, what could potentially be impacted is that if you contribute to a 401(k), you may not get a deduction for your Traditional IRA contribution. So is there an interrelationship of the two? Yes. But it's not that you won't be able to make the Traditional IRA contribution, you just may not get a deduction for it. What are some other reasons why you might want to prioritize a 401(k) versus an IRA? Nick: I'll go with one of the less common ones to make this interesting. Behavioral benefits, right? A 401(k) contribution is going to come directly out of your paycheck before it even hits your account. At Betterment, we're big fans of automation. Out of sight out of mind. If it's so easy to spend your money, we want to try to make it just as easy to save your money. So 401(k)s or auto-deposits into an IRA, vice versa. Those are some great benefits that you can do with their 401(k). Can I access 401(k) funds 10% penalty-free at age 55? Eric: Not everyone wants to work until age 59-and-a-half. Retiring early is on a lot of people's minds, and most people are pretty familiar with the fact that if you want to access 401(k) funds before 59-and-a-half, you have to pay a 10% penalty. IRA 10% penalty exceptions versus 401(k), 10% penalty exceptions are not symmetric. Some are the same, but some are not the same. Nick: 401(k)s are great for age 55 early withdrawals. That's a big win, right? We're talking to more and more clients who are, I don’t know if 55 necessarily counts as FIRE (Financial Independence Retire Early), but we're talking to more and more clients who are getting really into that. Can I borrow against an IRA? Nick: We don't love seeing that, but there's a little more flexibility with borrowing against the 401(k). Eric: Actually, a fun fact about the 55-or-later rule is that you don't even have to be 55, as long as you separate from service in the year you turn 55 or later. So you could potentially turn 55 on Christmas day and leave your job on January 1st of that year, and you still qualify for that 10% penalty exception. One thing you shouldn't do if you want to keep that exception is roll those funds over to an IRA, because you'll lose that 10% penalty exception, even though you're allowed to rollover. Nick: You want to make sure you've got enough funds to be able to bridge the gap between 55 and 59-and-a-half. So you might do a partial rollover, for example. Eric, I don't know what your thoughts are on that, but make sure you're not leaving them hanging out to dry in that little window there. Eric: Yeah. I mean, is the 401(k) penalty-free provision useful? Absolutely. Is it the best thing? Not necessarily. If, let's say, you don't like your 401(k) investment options, you could roll it over to your IRA and then do substantially equal periodic payments for five years, which is longer than 59-and-a-half, so that's more restrictive. If you were willing to give up some control on your payment timing, you still might find the IRA option more attractive. I want to use a retirement plan to partially fund a new home purchase. Should I use my IRA or 401(k) first? Eric: There are a few different ways to fund that. Obviously if people have enough extra money in their non-retirement accounts, that's typically the first place they're looking to fund that first-time home purchase, but not everyone has a 20% down payment available in cash. People are always looking at other alternatives for funds, and that would include a 401(k) and an IRA. What are your thoughts on the 401(k) versus IRA in this scenario, Nick? Nick: My real thoughts would be neither. Typically if a client's asking me this question, it means that they either didn't plan or they're kind of feeling pressured out of a situation or going beyond their budget. So I know that's being a little judgmental, but typically I discourage both. Your IRA has that $10,000 first time-home exemption, 401(k), you may be able to take out a loan and the provisions are a little bit more flexible if that loan is for home purchase. Depending on the situation, I would probably go to my IRA because it has that smaller limit; it would prohibit them from dipping too much into their 401(k). But there are definitely pros and cons to each. Eric: Right. So you can do the Roth IRA. And now, obviously this is if you need the money, because Roth IRAs are such a powerful retirement savings tool, and the longer you hold the money in there, the better. But let's say you need the money: You could withdraw all of your regular contributions, first tax and penalty free. And then if you've had the account open for at least five years, you can withdraw up to $10,000 of earnings tax and penalty free, too. That can count as a qualified distribution. So an IRA may be useful, but some people have most of their money set aside in their 401(k). And that's where a loan with generous repayment terms, where you're able to push that out over a long period of time, may be attractive. Nick: True. Maybe this is me, but the whole benefit of Roth IRAs is tax-free growth. So if you're not getting a lot of tax-free growth, you're missing out on some of the benefits. It only makes sense to be invested aggressively if you're looking at a long-term time horizon. If you're planning on using a Roth IRA to buy a house next year, you shouldn't have had that money invested super aggressively anyways, which means you're probably looking at cash or more conservative investments, which means you're missing out on the single biggest benefit of Roth IRAs in general, which is tax-free growth. So again, I just don't understand why I see so many people talking about using your Roth IRA for this home purchase exemption or for your emergency fund. I don't understand it, unless it's an absolute emergency; not something I typically recommend. Eric: That's fair. When you're thinking about whether you should be buying a home in the first place, you do want to think about: ‘How is this going to impact my retirement, especially if I'm going to use some or all of my retirement funds?’ to fund that home purchase. HSA vs. 401(k)? Eric: I love HSAs, and I know Nick loves HSAs. You can put money in pre-tax, and it's pre-federal tax, pre-social security, pre-Medicare, pre-most state taxes, except for mine in New Jersey — and California. In general, it's pre-tax across the board and it grows tax deferred, and then the withdrawals come out tax-free in retirement or for qualified medical expenses. There are lower limits for the HSA than for the 401(k) and different rules about what you use the funds for along the way. You actually might be able to save more money in taxes on an HSA contribution than a Traditional 401(k), because the Traditional 401(k) doesn't save you on any social security or Medicare taxes. Those you're always contributing to after those taxes have been applied. I want to maximize retirement savings. Can I use the HSA as a retirement savings vehicle and a medical savings vehicle? Nick: I've seen a lot of advisors get into some sticky situations when recommending using HSAs for retirement. They're not right for everyone. The two biggest rookie mistakes that I see are getting too excited and recommending an HSA without remembering that you need to pair an HSA with a high deductible healthcare plan. If the high deductible plan doesn't make sense for the client in the first place, then the HSA probably doesn't make sense. And the second is if you're going to be using your HSA for retirement, you're probably looking at investing it in more aggressive investments, which means they're going to be a lot more volatile. Whenever I recommend a client use an HSA for retirement, I pretty much tell them we're not going to do this until we have a fully funded emergency fund as well, separate from the HSA, because Murphy's law, worst-case scenario. If we're going to have your HSA be aggressive, I want to make sure that the client also has a separate, lower risk emergency fund just in case something happens. Eric: All great points. I do want to clarify: In New Jersey HSAs are not pre-tax; in Pennsylvania, 401(k)s are not pre-tax, but you do get the HSA deduction in Pennsylvania and you do get the 401(k) contribution in New Jersey. So you always want to look at state laws. They may not drive your decision, but they may be a factor in your ultimate decision. Nick: That's why I always caveat: Make sure to bring in your CPA if you have a client, and make sure that you're all working together. They might know something that you don't, that’s state-specific to your rules or something like that. I want to live a tax-free lifestyle in retirement. Is the trifecta to use an HSA with a Roth IRA and Roth 401(k)? Eric: I love talking about the tax-free lifestyle. How can you get to that point? Well, there are ways. Let's say you max out your Roth 401(k), $20,500, you're not getting any break upfront, but then all the earnings come out tax-free in retirement. Roth IRA for another 6,000 there, no tax break upfront, all the earnings are tax-free in retirement. And then the HSA, you're getting a tax break upfront and even if you're not using it for medical expenses, once you're over 65, then you'll pay taxes. You can also use what's called the shoe box rule, where if you keep track of all of your unreimbursed medical expenses since you opened your HSA, you can use that as an account to withdraw from based on all of those previous expenses. If you accumulated $50,000 worth of expenses since your HSA was opened, you'd still be able to withdraw $50,000 in retirement even though in that year, you may have had no medical expenses at all, because you're able to use that kind of look-back process. Nick: That's personally what I do. I'm looking forward to that. I don't have an actual shoe box, but I've got a spreadsheet — and it's a beautiful spreadsheet. So I'm excited for that. Eric: There are also a number of apps out there where you can save your receipts, whether it comes by email, you can just put that in the app, or you can take a picture if you're at the doctor's office. There are plenty of ways to track these receipts and expenses over time in an efficient way. SEP vs. Solo 401(k)? Eric: There are a lot of self-employed people out there, and they’re always asking, ‘Should I do the SEP or the Solo 401(k)?’ The answer, as with most tax questions, is it depends. It depends on if your goal is to maximize your savings, if your goal is to minimize regulatory filings, there are a variety of factors to consider. Your SEP contribution, you can do 20% of your net earnings from self-employment, up to $61,000. But that's still only 20%. There's no employee contribution — it's all employer contributions. Whereas the Solo 401(k) allows for employee contributions as well as employer contributions and generally still has the same overall limit as the SEP, except for people who are age 50 or older. Let's say we had someone who's a self-employed, 50-year-old who has a business profit of $100,000. SEP or Solo 401(k)? Eric: That person can do just $20,000 into the SEP, but if they did the Solo 401(k), they'd be able to do the $20,000 employer contribution plus the $27,000 employee contribution because that's the $20,500 standard contribution, plus the $6,500 for being 50 or older. Obviously that would take up a significant portion of their $100,000, but at the end of the day, if they have extra money in savings elsewhere that they could use to help maximize their retirement savings, that's something they may want to consider. I prefer to minimize the possibility of regulatory filings. Should I make contributions to a SEP or Solo 401(k)? Nick: Oftentimes when I'm speaking with a small business owner, they might not be able to save that much. Last year, a lot of the entrepreneurs I was talking to had a little bit of a rough year, to say the least. And if you're looking at starting a retirement plan for your self-employed business, SEPs, you might not be able to contribute quite as much. Sometimes, for a lot of people starting out their business, that's not an issue. They wish contribution limits were something they had to worry about, but they're trying to get their business up and running. They’re also just trying to find time in the day to do everything. So for the SEP, if you're not even bumping up against the contribution limits and it requires less regulatory filing, and it's just a little bit easier, it's something to consider. You might be able to contribute more with a Solo 401(k), but on the SEP side, there are some other advantages as well. Eric: Why do people love the SEP? The SEP has no filings with the Department of Labor. As a Solo 401(k), there is a Form 5500 filing once the assets get over $250,000, whereas regardless of how much money is in the SEP, there are no Form 5500 filings. And while I don't think the Form 5500 is particularly burdensome, most people I know would prefer to file fewer forms with the government. I definitely appreciate the avoidance of filing any additional paperwork, even if it's not that burdensome. I want to make Roth type contributions. Should I make contributions to a SEP or a Solo 401K? Nick: I don't think so. Eric: No, there is no Roth SEP. Now what you could do is convert your SEP contribution into a Roth, because there aren't income limits on doing conversions. But if you want to make a regular Roth-type contribution, then it would have to be an employee contribution to a Solo 401(k) subject to the $20,500 or $27,000 annual limits. There are pros and cons on both sides here, and it's very client-specific on whether they prefer the SEP or the Solo 401(k). Which retirement plan should I make contributions to in order to make tax/penalty-free withdrawals before retirement? Nick: There's a few options. The easiest is just a plain old taxable brokerage account. There's no contribution limits, there's no age requirements, there's no early withdrawal penalties. They're a little bit easier to plan for; again, you might be missing out on some of the tax benefits, but that's one. HSAs are one as well; it doesn't have an age limit, as long as you've got qualified medical expenses. Roth IRAs, you can withdraw your contributions penalty free and tax free at any time. So there's lots of choices. Eric: Getting back to what we were discussing before, the 55-or-later exception is a powerful tool to access funds pre-59-and-a half without a 10% penalty and avoiding the substantially equal periodic payment option. Being able to withdraw those raw Roth contributions at any time is good too, but the closer that you get to 59-and-a-half, you also want to be particularly cautious. Let's say if you have a Roth IRA and you withdraw earnings before you're 59-and-a-half, those are typically subject to a regular income tax and a 10% penalty. So, whereas if you had made the five years plus 59-and-a-half, you would have gotten that tax free. The difference could potentially be if you're the day before 59-and-a-half. Then it's possible though that you would have to pay taxes and penalty on earnings, whereas once you make it to 59-and-a-half, and you've had the account open for five years, then you get it tax free. It's a very binary type of thing, and you always want to be cautious about where you are relative to that line in the sand. Can Roth conversions be part of an early retirement strategy? Eric: Early retirement is not for everyone. Some people are able to afford it. Some people try to fit their life into an early retirement strategy, and for some people, that works better than others. One thing you already mentioned was some of the five-year rules. If you do a Roth conversion of pre-tax money before you're 59-and-a-half and you want to withdraw those funds in the future before you're 59-and-a-half, there is a five-year holding period for each conversion to avoid the 10% penalty. This rule is designed to prevent people from converting and withdrawing immediately to avoid the 10% penalty. You can still do a conversion at age 45, age 46, age 47, age 48, let's say a rolling conversion strategy, which then you'll be able to access those converted amounts five years later, tax and penalty free. Again, those earnings would have to stay in the Roth until 59-and-a-half to avoid any tax or penalty. Nick: Good points. One thing I found practical to keep in my toolkit so to speak is to get familiar with the IRS website. That sounds like that's a terrifying task, but Google is your friend. “IRS gov Roth IRA,” for example, the first hit is likely going to be the contribution limits for that particular year. So if you forget, it's just something that’s good to be familiar with. Not everyone has an Eric that they can just Slack on demand. I'd say bookmark them, familiarize yourself with them. The IRS has some pretty good pages on Roth IRA, contribution limits, Traditional IRA deductibility limits. So if you can't remember them or keep track with them every year, just get used to Googling. Betterment is not a tax advisor, and all information is solely intended to be educational in nature. Please consult a qualified tax professional. 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Common Questions about Billing Your Clients Sep 23, 2022 12:00:00 AM Get answers to your key questions about billing clients. What billing options are available to my firm? The Betterment for Advisors platform includes a “Billing” page visible to the admin(s) of your firm. This page offers three billing options: Asset-Based Billing, Fixed Fee Billing, Tiered Billing. Learn more about each in our article. How often are my clients billed? Firm admins can select whether to bill clients on a monthly or a quarterly basis. Any changes made will take effect at the start of the next quarter, though a pending change can be cancelled or modified up until that date. All advisors of the firm will be sent a reminder that their firm’s billing frequency is about to change about one week before it goes into effect. How often does Betterment pay me the fees collected on my behalf? Betterment will remit payment to your firm on the same frequency that we collect from your clients, per your discretion. If your firm has elected to bill clients monthly, Betterment will send payment in the first two weeks of each month. If your firm has elected to bill clients quarterly, Betterment will send payment in the first two weeks of each quarter. Firm admins must supply bank account information in Firm settings to receive payments. How are billing plans created? Any admin(s) of your firm will be able to create a new billing plan by following the steps below: Log onto the advisor dashboard Click Client Billing, located in the menu on the left In the top right, select “Create a billing plan” Enter a unique name for the new billing plan and select the billing plan type. (See below for specific billing plan types) How are billing plans applied? The advisor of a household will be able to do this by following the steps below: Log onto the advisor dashboard Click Clients, located in the menu on the left Search for and click the name of the household whose pricing should be updated Select Settings and click the “Edit” button corresponding to “Household Billing Plan” Choose one plan from the list displayed and click Update Plan If a different pricing plan is needed, contact an admin of the firm so they may create it How is the default billing plan of the firm updated? Any admin(s) of your firm will be able to update the default billing plan of the firm by following the steps below: Log onto the advisor dashboard Click Billing, located in the menu on the left The current default billing plan will be at the top of the list, click Edit to make changes If needed, modify the name for the plan and select the billing plan type. (See below for specific billing plan types) How to create or edit Tiered Billing Plans: Once on the “Tiered billing plan” page, use the “Firm fee” column and click on “Asset based” or “Fixed” to switch between the two. Enter the number of basis points (bps) or dollars that should be charged for the first tier of invested assets. If more than one tier is needed, click “+ Add tier” then enter the high range value for the previous tier. Repeat these steps for each tier needed. If this is not a new billing plan, the next page will display the households that will be impacted. Scroll to the bottom to click “Update billing plan.” How to create or edit Fixed Billing Plans: Once on the “Fixed Billing Plan” page, use the “Firm fee” field to type in the dollar value you’d like this plan to assess on client accounts annually. No need to type in a dollar sign, only enter the digits and a decimal if you will be charging in cents as well. If this is not a new billing plan, the next page will display the households that will be impacted. Scroll to the bottom to click “Update billing plan.” How to create or edit Asset Based Billing Plans: Once on the “Edit Asset Based Billing Plan” page, use the “Spread bps” field to type in the number of basis points you’d like charged by this billing plan. For example, for a fee of %0.50 type in 50. When satisfied with the new spread, click Save changes. If this is not a new billing plan, the next page will display the households that will be impacted. Scroll to the bottom to click “Update billing plan.” How to change the Billing Plan for groups of clients: The Client Billing page, accessible to admins of your firm, will display one row per existing billing plan. The row includes an “Assigned to” column. This displays the numbers of clients on this billing plan. To adjust the billing plan applicable to this group of clients the admin of your firm will be able to follow the steps below: Click Edit to make changes If needed, modify the name for the plan and select the billing plan type then click continue. How do I update a client's fees? To edit the fee for any existing clients advisors will need to follow the steps below: Log onto the Advisor Dashboard Select "Clients", on the left side of the window Locate the client and click their name Select "Settings" Locate and click the "Edit" button corresponding to the Fee column Select the billing plan you'd like to apply then click "Update plan" The new billing plan will appear under "Household Billing Plan" Please keep in mind, if a new billing plan needs to be created, the admin(s) of the firm will need to create the plan before you are able to apply it to any clients' household. How do I get paid for the client accounts that I manage on the platform? Betterment for Advisors operates a fee-only platform. Firm admins may create multiple billing plans using Asset Based Billing, Fixed Billing, or Tiered Billing. The billing plan applied to a client's household will, by default, include Betterment's platform fee. Aggregate fees are billed automatically by Betterment from the client’s account quarterly or monthly in arrears, and Betterment subsequently remits the advisor’s fee to the Firm bank account on file. Can I set custom level fees for individual households? Yes, you may utilize Billing Plans to set custom fees for a client's household. If any of the available Billing Plans do not fit your needs, an admin of your firm may create a new customized billing plan that is either Asset Based, Fixed, or Tiered. How are the fees calculated? We accrue fees beginning one day before the end of the prior quarter or month and the accrual of fees ends two days prior to the end of the current quarter or month. The fee is calculated pursuant to the formula [sum of the following for each day in the preceding billing period: (the balance in a client’s account at the end of the day) * (advisory fee applicable on that day)] and will be deducted from the account three days after the transaction date, following the settlement of the trade(s) made to fund the fee. Fees are billed in arrears and the advisor’s portion of the fee is sent to the advisory firm shortly after the end of the quarter or month via ACH. Are fee tiers supported? Yes, we do support fee tiers. Anyone with admin level access to the advisor dashboard may create new billing plan types, including Tiered Billing. Once the plan is created you may apply it at the household level. How are fees reported to my clients? Your clients see the total fee (platform fee + billing plan applied to the household) in their client portal on the “Activity” page and on their monthly statements. You are responsible for providing the fee breakdown between the Betterment platform fee and your advisory firm fee to your clients, though we do make this information viewable within the client’s portal under their “Settings” tab. Are there any trading or transacting costs associated with the Betterment for Advisors platform? No, there are no trading or transaction costs associated with the Betterment for Advisors platform.

Key Questions about Getting Started as an Advisor Sep 23, 2022 12:00:00 AM Explore our rundown of the most common questions asked by advisors who are new to Betterment. What are the requirements for partnering with Betterment for Advisors? In order to partner with Betterment for Advisors, you must be affiliated with a registered investment advisor. What does a partnership with Betterment for Advisors entail? Betterment for Advisors typically partners with registered investment advisors through a shared fiduciary oversight model. Betterment LLC, a registered investment advisor, acts as a sub-advisor to each advisor’s client accounts, and contracts separately with each advisor and each underlying client. How do I get started and how long does it take to implement the platform in my practice? The sign-up process for Betterment for Advisors is entirely digital and typically takes a few business days to implement. So long as your firm is registered with the SEC or with a state and has a CRD number, please follow this link to get started. Once we receive your application, we will process it in approximately five to seven business days. Please note that the due diligence process may take longer for newly established firms. Once your firm has been activated on the platform, we will send you a welcome package and you can begin managing accounts on the platform. What is Betterment for Advisors? Betterment for Advisors is a solution for advisors and clients alike, designed to streamline the investment process and accelerate an advisor’s ability to serve its clientele via an innovative digital wealth management platform. Betterment for Advisors gives firms the tools they need to help take care of front- and back-office operations. By providing advisors with automated workflows and innovative technology, Betterment for Advisors allows firms to spend more time in front of their clients, so that they can win new business and strengthen existing relationships.

Webinar Recording: Financial Planning for Clients Who Are on the Mat Aug 12, 2020 12:00:00 AM " Catch our latest on-demand webinar recording on financial planning for clients who on the mat.

Training Video: Sync External Accounts Sep 18, 2019 12:00:00 AM Watch our product training video on how to assist your clients in connecting external accounts to the Betterment experience.