Consumers are More Informed - What does that Mean for 'Experts'?

Times Have Changed, Should We?

Everything about how consumers interact with products and services has dramatically shifted over the last few decades. Consumers have more resources at their fingertips than ever before. Just consider the idea of the global community that the internet provides for shoppers - in a few keystrokes, you can be searching thousands of reviews, articles, and videos related to your product. So it seems reasonable to wonder - where does that leave people like me? Those of us that have staked our careers in providing expert information to an educated populous - are we out of jobs?

Be Relevant or Fail

If houses, boats, cars, or airplanes have something in common it’s that they’re expensive. The advent of consumer-facing technologies like Zillow for homes or Car Gurus for vehicles has given everyone access to amounts of aggregated data that would have been incomprehensible 15 years ago - FOR FREE.

The real estate industry has great market research and data, so I will pick on them for a moment.

A study published by the University of Alabama in 2003 revealed that the creation of an online multiple listing service (MLS) had drastically increased the number of properties a consumer was able to “visit” online. Despite this increase, the overall shopping period a prospective buyer took to reach a decision did not change, nor did the reliance on a real estate agent. This is important. It shows that while access to advanced resources may improve the overall quality of the shopping experience it does not undermine the value that an expert provides when purchasing high-worth items.

The increase in public data has changed the dynamic between the consumer and the expert. It increases the pressure on the expert to truly…. be an expert. It has become much more difficult to underperform in these types of industries. The consumer will quickly recognize if your knowledge-base begins and ends with the same information they can find on google in 5 minutes.

Provide Hard Value

An educated client is a great client. There is no question in my mind that a person that comes empowered with knowledge will ask the right questions, challenge my thoughts in a productive way, and have a better outcome with whatever service I am providing because they are more invested. With that said, expert's must bring drastically more value to a client than what was required 15-20 years ago. Experts can no longer operate solely on information that was once difficult for clients to obtain, we must adapt our practices and provide a greater analysis of data that our clients can rely upon.

In my sphere within aviation (particularly in the brokerage space), I occasionally hear a prospect ask, “why do I even need you? I can find all of what I need online?”. We shouldn’t take these questions offensively (as I often tell myself), this is simply a reflection of the times we live in and the type of high-net worth and above average intelligence clients that many of us work with daily. My response is always the same; I tell my prospect that I encourage them to research along with me if that is something that interests them, but it is my trained eye, experience, and understanding of what to look for that differentiates my practice from the lay-person. These types of questions should serve as a stark reminder that our service ought to be worth the price of entry. I think this adds needed and beneficial pressure to experts to continue to employ and leverage new technologies and make an even more effective and impactful experience for the clients.

We must recognize that the consumers of today are generally coming to us armed with a higher level of knowledge than ever before. We can choose to take advantage of this with innovative approaches that leverage our client’s greater understanding of the market - or we can blame the access to resources as the source of our failings. I challenge not only my firm but all of my colleagues to continue to push towards excellence and understand that changing tides should not evoke fear, but a drive towards innovation. In the end, these types of evolutionary shifts force us to assess our strengths and shortcomings and to adapt. We’re better for it and so are our clients.

Author:

Cameron Tipton, ASA, ARM-MTS

accredited senior appraiser

appraisal review & management - mts

Flight Level Partners

What is Appraisal Review? (and why it's important)

The Credibility of an Entire Profession

Appraisers of all disciplines perform a critical role in the financing, insuring and transacting of all sorts of assets. While appraiser’s do not create value in the assets they appraise, they do form the bedrock of how entire industries understand (and perceive) their monetary worth. As such, the responsibility of an appraiser to perform their job diligently is critical; errors can be catastrophic. So who really gets to decide whether an appraisal is valid? After all, everyone has an opinion about what something should be worth. Luckily, in the United States we have the Uniform Standards of Professional Appraisal Practice (USPAP as we call it in the biz). There is a long history to the creation of USPAP that revolves around a need to standardize the methods that appraisers use in reaching value conclusions to enhance the overall credibility of valuations that the public relies upon. This standard provides a minimum construct that accredited appraisers MUST adhere to when doing effectively anything that relates to valuation services. USPAP does a great job in providing appraisers broad flexibility in how they approach individual appraisal assignments while issuing a framework for ethical and professional standards that one should uphold. Ultimately, it is the adherence and certification to the adherence of these standards that allows the public to trust the valuations they use daily. Now that there is an understanding of why all appraisals should be credible and valid, let me explain what happens when they simply, aren’t.

Appraisal Review: Structured Oversight

Just as USPAP provides structure to those writing appraisals, it also provides the standards for reviewing someone else’s appraisal assignment. This is know as Appraisal Review. Let’s say a particular asset finds itself in the middle of a legal dispute (no fault of its own), and the prosecution hires an appraiser to determine the value of said asset, in this case, let’s call it a Gulfstream G650. Maybe this appraisal is 2 pages long with little explanation of how this appraiser reached their value conclusions and it also comes out $9 million higher than an appraisal that was ordered by the bank one year prior. Reasonably, this appraisal might be called into question and a designated Appraisal Reviewer would be engaged to review the assignment. This review might be purely for verifying compliance with USPAP or it may include an opinion of value, if the reviewer is qualified to provide an aircraft appraisal. The reviewer would review the work and produce a report that explains (in heavy detail) any issues that were identified. Not only does this aid the jury in understanding how much weight to apply to that appraisal but it could result in having a misleading report removed from the case entirely.

More Training and a Higher Standard

The American Society of Appraisers (and most appraisal organizations) has a path for senior appraisers to become appraisal reviewers. In the ASA it requires completion of two 30 hour appraisal review and management courses with comprehensive exams as well as approval from a board of examiners. This allows those appraisers to review the work of other appraisers within their discipline (in my case that is “Machinery & Equipment”) for USPAP compliance or to issue an opinion about the actual value conclusions if they are equipped to do so (longer story for another day). These reviewers are called upon to continue to assure the public that the appraisal profession as a whole is not only credible but that there is oversight for instances where there may have been a shortfall. After all, entire industries depend on us.

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Author:

Cameron Tipton, ASA, ARM-MTS

accredited senior appraiser

appraisal review & management - MTS

Flight Level Partners

Depreciate Your Used Aircraft 100% in the First Year

Changes to the tax code in 2017 allow businesses to accelerate the book depreciation of their aircraft purchase to the first year.

This is what you need to know

WHAT CHANGED?

• The passage of the 2017 “Tax Cuts and Jobs Act” changed the first-year depreciation limit from 50% to 100%

• Previously, Bonus Depreciation exclusively applied to new aircraft, now it also applies to used aircraft

• 1031 Exchanges (A.K.A. Like-Kind) are no longer allowed for Personal Property

WHO CAN TAKE ADVANTAGE OF BONUS DEPRECIATION?

This is more complicated than one might think and there are a number of pitfalls that must be considered.

1. Bonus Depreciation is exclusively for business aircraft and for business use. That means that more than 50% of the aircraft’s usage falls under business-use (defining “business-use” requires a strict view of the tax code).

2. The aircraft must be eligible for the Modified Accelerated Cost Recovery System (MACRS). A major qualificant of which is that the aircraft cannot be predominately used outside of the United States.

3. The future use of the aircraft must continue to be predominately for business use, failure of this could result in the IRS recapturing the depreciation in later years.

4. Regardless of when a purchase order is signed, the aircraft must be placed into service before January 1, 2023. That may seem like a long time but growing manufacturer backlog could easily have delivery dates 4-5 years down the line (I’m looking at you, PC-24).

IS IT ENOUGH?

Ultimately, these types of regulatory incentives are aimed at providing a meaningful boost to the economy. So how has it done? As of posting, the aircraft sales market has made a huge resurgence with values slowly rising and sellers gaining the upper-hand as inventory levels fall across all aircraft types. Bonus Depreciation could surely be described as a factor in this type of growth, coupled with the overall economic success of the United States over the past few years.

I believe the greatest outcome of the Bonus Depreciation program is the number of first-time buyers that have entered the world of aircraft ownership. For many of our clients, Bonus Depreciation was not only a factor but the primary driver to purchase today. This program has allowed countless small businesses to enter private aviation because the economics are simply more attractive than ever before. As with any piece of legislation, I always caution my clients that these types of programs could be rolled-back, so these provisions may not last until 2023.

SPEAK TO AN EXPERT

We advise all of our clients to seek aviation-specific tax and legal support throughout their ownership cycle and when it comes to using Bonus Depreciation it is an absolute necessity. Your personal CPA may be the best around, but groups that specialize in aviation simply understand the pitfalls associated with these large write-offs. Flight Level Partners has built a trusted network of experts that we would happily refer to, without hesitation.

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Cameron Tipton, ASA

Author:

Cameron Tipton, ASA

Co-Founder/Director of Brokerage

Flight Level Partners

FAA vs. Insurance Showdown. Who is in charge of your flying freedom?

So, You Want to Fly Cool Airplanes?

earning a pilot certificate is only the beginning…

After a pilot endures the rigors of earning their Private Pilot Certificate the idea of moving into faster, more capable airplanes begins to look attractive. So, a pilot might find him/herself looking to add additional qualifications to their certificate. That traditionally starts by adding an instrument rating, followed by a multi-engine rating, and some scattered endorsements that allow you to fly high-performance, complex, or high-altitude aircraft.

So, after months of flying various aircraft types you have now satisfied the legal requirements to fly virtually any non-jet general aviation aircraft under 12,500 lbs (jets and all aircraft above that weight require aircraft-specific ratings known as “type-ratings"). In the eyes of the FAA, you are as good as golden. HOWEVER, while the FAA is often thought of as the gate keeper to safe skies, your aircraft insurer may have much more to say about your qualifications.

Insurers Rule the Skies

For pilots moving up the proverbial ladder of ownership, they will often find themselves answering to the insurance underwriters more than the FAA. Think you’re moving up from flying a light piston trainer to something like a Beechcraft Bonanza? Your insurance company may place some shockingly large hurdles in your path, sometimes requiring substantial “time-in-type” training with an instructor. This can quickly drive up the price tag of your new favorite plane. The insurance underwriters are in business to make money and to do that, it is in their best interest to make sure the pilots flying their insured aircraft try their best NOT to crash them. So over time these insurance companies have worked alongside the FAA to investigate what type of pilot crashes certain types of airplanes.

The Cirrus SR-22 is a prime example. Cirrus presented the aviation world with a remarkable new airplane equipped with a whole-aircraft parachute. This was built to be the safest aircraft on the market. The SR-22 actually began its aviation tenure in 2001 with one of the poorest safety records of any general aviation aircraft - you were 3 times more likely to be involved in a fatal accident in a Cirrus against the rest of the general aviation fleet. Today, your odds of being involved in a fatal accident in a Cirrus are actually less than that of the general aviation fleet (and that is with 7 times MORE Cirrus flying than in 2001). So what changed? Cirrus developed a standardized instruction course (a first of its kind for a piston single) and the insurance companies adopted it as a cornerstone requirement to fly an SR-22.

Safety by Statistics

It’s easy to become frustrated by the hoops our respective insurers require us to jump through before signing us off to fly - in fact, I have heard of many pilots that choose not to insure their aircraft so they are not required to go through a process they deem trivial. But, as frustrating as it may be, the insurance companies are working with raw data. Sure, those numbers may not give the most holistic view of an individual pilot, but, in reality they are built to reduce the odds of bad outcomes - and that is something we all want.

All of this is really telling a greater story about the “big picture” of buying (leasing, renting, co-owning) a new airplane. Just because you are rated to fly something big and fast, doesn’t necessarily mean that will be an insurable activity without some safety-increasing “hoops”. So, when you’re ready to shop for your shiny new airplane, be sure to ring your favorite insurer and ask what they might require from you. It’s an easy phone call and at the end of the day, they want to make you a safer pilot.

Author:

Cameron Tipton, ASA

Co-Founder/Director of Brokerage

Flight Level Partners