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Seeking Best Execution: Understanding The SEC’s Expectations For Advisors To Deliver Best Outcomes For Clients

November 20, 2024 07:01 am 0 Comments CATEGORY: Regulation & Compliance

Investment advisers are fiduciaries that owe a duty of care and loyalty to their clients. One component of this duty of care is an obligation to seek best execution of client securities transactions. While this requirement might sound relatively straightforward, the lack of a single definition for what this duty actually requires can make it challenging for advisers seeking to understand precisely what it means to comply with this responsibility.

One of the best sources of guidance from the Securities and Exchange Commission (SEC) is a 1986 interpretive release that unofficially sets forth a framework for satisfying the fiduciary duty to seek best execution of securities transactions in client accounts. Broadly, the statement says that an adviser should consider the totality of services that it brings to the table, including both quantitative and qualitative factors such as the value of investment research the custodial broker-dealer provides to the adviser, execution capability (i.e., the types of investment products or strategies that a custodial broker-dealer can handle in an accurate and timely fashion), and commission rates (which can include asset-based pricing, platform fees, account activity fees, and more), among others.

The SEC, in its interpretive release, sets an expectation of "periodic and systematic evaluation" (i.e., initial and ongoing due diligence) of the custodial broker-dealer(s) that are used for client securities transactions, indicating that advisers should perform initial due diligence on any new custodial broker-dealer to be used for client securities transactions, and then periodic ongoing due diligence of said custodial broker-dealer thereafter (though the SEC does not prescribe any particular frequency of such evaluations).

Notably, much of the language from the 1986 SEC Interpretive Release was later reiterated in a 2018 SEC Risk Alert and a 2019 SEC Interpretation. These 2 communications suggested that advisers have differing responsibilities depending on whether they are responsible for selecting broker-dealers and executing client trades, which suggests that advisers that have not accepted the responsibility to select custodial broker-dealers on behalf of the client (e.g., because the client voluntarily directs the adviser to execute trades on their behalf at a particular broker of the client’s choosing), or did not recommend such a directed arrangement, is not under an obligation to seek the best execution of client transactions (though the adviser must still disclose the possible downside possibilities of such an arrangement, such as less favorable execution and/or higher costs).

Finally, the SEC Division of Enforcement's extension of best execution principles to advisers' mutual fund share class selection, as evidenced by the string of enforcement actions that resulted from the SEC's iterative Share Class Initiative that originated in 2016, suggests that there is a de facto best execution obligation for an adviser to select the lowest cost share class a client is eligible for within a mutual fund. Which might require advisers to periodically scrub the roster of mutual funds they purchase for clients to confirm that no lower-cost share class alternatives are available and that clients with existing mutual fund holdings are not eligible for a tax-free conversion to a lower-cost share class within the same mutual fund.

Ultimately, the key point is that by remaining mindful of both the quantitative and qualitative factors that the SEC expects to be considered when initially and periodically evaluating such custodial broker-dealers, advisers can ensure they not only fulfill their fiduciary duty to seek the best execution on behalf of their clients but also continue delivering the best possible outcomes!

#FASuccess Ep 412: 3X’ing The Business With No More Than 50 Great Clients By Hyperfocusing On Who You Can Add The Most Value For, With Anjali Jariwala

November 19, 2024 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 412th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Anjali Jariwala. Anjali is the Founder of FIT Advisors, an RIA based in Torrance, California (but works virtually with clients nationwide) and oversees $65 million in assets under management for 45 client households.

What's unique about Anjali, though, is how she has tripled her annual revenue from $250,000 to $750,000 during the past 6 years, while only adding a net of 10 client households (going from 35 to 45 clients in total), by hyperfocusing into her niches of physicians with complex tax needs and small business owners with $5M–$20M of revenue, offering a combination of advanced financial planning and CFO planning services while raising her fees along the way (to match the additional value she's now able to provide them).

In this episode, we talk in-depth about how Anjali shifted her marketing approach over time from paid advertisements, an area that was very successful for her but had become increasingly competitive for her target clients, to instead building a blog and podcast targeted at her 2 niches, how Anjali was able to attract high-quality prospects by simply centering the content on her blog and podcast on the issues her top 10 existing clients were facing (including both technical planning topics and the emotional aspects of money, to demonstrate both her technical acumen and her ability to relate to their personal experiences with money), and why Anjali then decided to stop blogging and podcasting during the early days of the COVID pandemic, as she not only had to support clients going through a period of financial and emotional strain but also had to deal with stress in her personal life given that her husband worked as a physician navigating COVID exposure with his own patients, and yet Anjali still receives a sufficient flow of prospects today based on the prior blog and podcast content she created that continues to live on… plus client referrals from her now-established client base.

We also talk about how Anjali grew her revenue primarily by not increasing her client headcount (which only rose from 35 to 45 clients over the past 6 years) and instead focused on raising her minimum annual retainer fee from $10,000 to $18,000 per client, why Anjali's current clients and prospects are largely willing to pay this fee given the tailored services she offers clients (from her ability as a CPA to offer advanced tax and CFO-style business planning specifically related to her two niches, to even providing feedback about how best to negotiate their employment agreements for her physician clients), and how Anjali's decision to decide on the number of clients she wanted to work with and a target revenue upfront, rather than pursuing unbounded growth, is what allowed her to effectively value her time and allowed her to focus on the clients for whom she can provide the most value.

And be certain to listen to the end, where Anjali shares why she wishes she had invested more hard dollars in marketing sooner (particularly given the time it can take for tactics like podcasting and blogging to bear fruit in the form of new clients), how Anjali freed up time by not using a TAMP but instead an outsourced Chief Investment Officer to conduct investment research and cue up trades for her to execute, while allowing her to continue to better implement the trades herself to facilitate her customized, tax-efficient client portfolios, and how Anjali is approaching the idea of success, now that she has built a financially thriving practice, in part focusing on being able to pursue her passions and maintain flexibility to meet her professional, personal, and family needs.

So, whether you're interested in learning about building a profitable hyperfocused practice, implementing a marketing approach that reaches a firm's ideal target client, or adding value for clients by offering advanced tax planning, then we hope you enjoy this episode of the Financial Advisor Success Podcast, with Anjali Jariwala.

Highlights From The Advise AI Conference 2024

November 18, 2024 07:04 am 0 Comments CATEGORY: Conferences

In recent years, AI has become an increasingly common feature in advisor technology. The possibilities at the intersection of AI and financial advice are exciting – faster processes, better connections, less time on ‘busy work’ – but also come with uncertainty about the future of the field. What might the field of financial advice even look like in 10 years? Yet, there are still notable gaps between the potential of AI-enhanced technology and its current capabilities.

In this guest post, Craig Iskowitz, CEO and founder of Ezra Group, shares highlights from this year’s Advise AI Conference, where industry leaders gathered to explore how AI might shape financial advice, from back-office operations to client interactions. Rather than focusing on the fear that AI might replace advisors, a key theme was how advisors could work alongside AI to deliver more effective, timely, and personalized insights to clients. For example, while some speakers discussed how AI leverages data at scale, others, like Sindhu Joseph of CogniCor, highlighted how the platform identified life events and changes (such as the birth of a child) to prompt timely, personalized advisor outreach.

Another conference theme centered on how advisors could effectively vet new advisor technology products. A panel of industry leaders recommended examining not only the feasibility of implementation but also critical factors like data safety, privacy, and compatibility with existing systems. Once vetted, new technology can be implemented gradually, focusing first on a few high-impact tasks that directly enhance advisor productivity.

Other key highlights from the Advise AI Conference included:

Personalized Client Experiences: Multiple vendors, including Andrew Smith Lewis of Alai Studios, discussed how AI can enhance – not replace – personalization of client experiences with tools like AI companions (e.g., Lydia) that remember both advisor personalities and client interactions.
Measuring AI ROI: Andrew Altfest, CEO of FP Alpha, shared insights on shifting AI from back-office support to client-facing tasks, such as portfolio construction and new client onboarding, to enhance measurable outcomes.
AI For Marketing: Susan Theder, Chief Marketing and Experience Officer at FMG, shared how AI could be trained to capture an advisor’s unique voice, enabling marketing efforts that feel more authentic and personalized.
Leadership's Role In AI Success: Brooke Juniper, CEO of Tifin Sage, emphasized that firm leaders can foster successful AI adoption by promoting a culture of experimentation and learning.

Throughout the Advise AI Conference, speakers highlighted the importance of each stage in the AI integration journey. With well-designed interfaces and thoughtful integration, AI tools can be implemented across advisory firms, enhancing both back-office and client-facing workflows. With support from firm leadership, advisors can iterate on these tools to continuously improve efficiency and service quality, ultimately benefiting clients through smoother onboarding processes and clearer action steps.

Ultimately, the Advise AI Conference emphasized that while AI technology is still in its early stages, its potential to transform advisory firms is undeniable. With a flexible approach and a balance between technology and the human touch, AI is poised to elevate the way advisory firms serve clients – for the better!

Weekend Reading For Financial Planners (November 16-17, 2024)

November 15, 2024 02:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of “Weekend Reading For Financial Planners” - this week’s edition kicks off with the news that the latest Fidelity RIA Benchmarking Study shows that while RIAs saw gains in AUM and revenue last year, their operating margins tightened, suggesting that rising expenses are cutting into firm profits. The study also looked at what “high performing” firms are doing differently than their peers, finding that these firms have a higher close rate on referred prospects, were better able to maintain pricing discipline, and had significantly lower expenses as a percentage of firm revenue.

Also in industry news this week:

NASAA has proposed an amendment to its broker-dealer conduct model rule that would restrict the use of the terms “advisor” and “adviser” for broker-dealers and their registered representatives who are not also investment advisers or investment adviser representatives
A recent study suggests that large RIA consolidators are becoming more like their large broker-dealer counterparts, not only in terms of the AUM they control, but also in the types of services they offer advisors under their umbrella

From there, we have several articles on tax planning:

7 year-end tax strategies advisors can consider to help their clients lower their tax bill this year and into the future
Why seeking to minimize a client’s current-year tax bill isn’t always the optimal strategy when considering their lifetime tax obligations and their lifestyle needs
While RMDs are a fact of life for many retired clients, advisors can help make the most of them by strategically selecting assets to fund the distribution to meet asset allocation and asset location goals

We also have a number of articles on advisor marketing:

How lead segmentation can boost the effectiveness of an advisor’s email marketing campaign
A 3-email sequence to effectively welcome new leads to an advisor’s email list and encourage them to engage with the firm
A review of email marketing software providers, which can vary significantly based on features and price

We wrap up with 3 final articles, all about college planning:

How, contrary to popular belief, the sticker price of college tuition (and particularly the average net price students actually pay) has lagged the broader inflation rate in recent years
Why the increasing use of ‘merit aid’ among colleges makes high school grades important not only for college admission, but also for the breadth of schools they might consider
A tool that lets users evaluate the return on investment of different degree programs, colleges, and majors shows that getting a degree still typically comes with a significant (though not universal) positive financial return

Enjoy the ‘light’ reading!

Kitces & Carl Ep 151: What’s Holding You Back From Delegating What You Need To Let Go Of?

November 14, 2024 07:04 am 0 Comments CATEGORY: Kitces & Carl Podcast

As the financial advice industry began shifting from a sales-based model to a more sustainable asset management approach, advisors found their roles shifting along with it. With revenue rooted in more predictable, recurring income, many advisors were able to step off the relentless 'treadmill' of constant sales, allowing them to invest in growth by hiring staff and delegating tasks. Effective delegation, in turn, created a positive cycle, freeing advisors from lower-value activities so they could work on building and scaling their firms. "Delegate and let go" became a common mantra, with advisors encouraged to focus only on the highest-value tasks. Yet, even for advisors who understand the value of delegation, actually letting go is often easier said than done.

In the 151st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the psychological challenges advisors often face when it comes to delegating tasks and the strategies that can make delegation more effective.

Despite the potential upsides of delegation, advisors typically face 3 psychological hurdles to overcome in order to delegate effectively. First, it can be hard to imagine that doing all of an advisor's least favorite tasks would be someone else's dream job (after all, if doing those tasks were so enjoyable, then advisors wouldn't be trying to delegate them in the first place!). Second, people generally enjoy working with those similar to themselves, which can make it tempting to hire a 'mini-me' with similar strengths and inclinations. However, doing so can unintentionally reinforce the advisor's reluctance to delegate disliked tasks. Finally, even if an advisor dislikes a particular task, they may still be the fastest (and most skilled) at completing it, creating an argument for the advisor to continue doing it. Together, these elements create a compelling case for not delegating at all. In reality, though, holding onto these less-favored, non-growth-related tasks can limit a firm's long-term capacity to scale.

The first 2 barriers can be addressed by hiring an 'opposite', rather than a 'mini-me'. For example, while it might seem natural to hire someone similar, bringing in someone who has complementary strengths – such as an operations-focused person who thrives on detailed follow-through – ensures that tasks the advisor may find draining are handled by someone who enjoys them. The third barrier – that no one else can complete a task as well or as quickly as the advisor – may hold true and can be challenging to overcome. Yet, advisors may still benefit from delegating the work, as once a task is offloaded, an advisor's time is freed up for more productive work – or even for taking additional time off! A highly leveraged advisor has more flexibility in shaping their day-to-day business operations.

Ultimately, advisors aiming to delegate effectively can benefit from focusing on a new hire's ideal strengths and aptitudes. Hiring and working with an 'opposite' can feel counterintuitive at first – a checklist-oriented person, for example, may 'just' complete their assigned tasks without exploring beyond the to-do list, which could feel foreign to an ideas-driven advisor. However, this dynamic can also be incredibly freeing. After all, someone who enjoys a particular set of tasks is more likely to take ownership and improve that process – and, by extension, contribute to the firm's long-term success!

2024 Election: Evaluating The Impact Of A (Likely) Republican Trifecta On The TCJA Sunset And Tax Planning

November 13, 2024 07:02 am 0 Comments CATEGORY: Taxes

With Republicans appearing to have secured a sweep of the White House and both chambers of Congress, the most immediate question for many financial advisors and their clients is what impact the election results will have on the scheduled expiration of the Tax Cuts & Jobs Act (TCJA) at the end of 2025.

At a high level, the Republican trifecta would appear to set the stage for much of TCJA to be extended beyond the original 2025 sunset date. However, with the makeup and priorities of the incoming Congress differing from those in 2017 – and with President-elect Trump having made numerous promises for new tax cuts on the 2024 campaign trail – there will inevitably be portions of the existing law that Congress will aim to amend or even expand beyond the original tax cuts created by TCJA. Which means that the question going forward is not so much whether TCJA will be extended, but rather which portions will remain in their current form and which may have some 'wiggle room' for change in the next tax bill.

For example, the current 7 tax brackets and increased standard deduction that have been in effect since 2018 are expected to remain largely unchanged. However, the $10,000 limit on State And Local Tax (SALT) deductions, which has been highly contentious with both Democrat and Republican supporters and detractors, is much more likely to become a negotiating point. Some legislators advocate keeping the SALT cap as is, others push for it to be raised in some form, and still others (including the president-elect) want the SALT cap to be eliminated entirely.

Other key areas likely to be impacted include:

The Child Tax Credit, which is currently capped at $2,000 per child, with some bipartisan support to raise it at least to the pandemic-era $3,600 maximum;
The Alternative Minimum Tax (AMT), which currently affects very few taxpayers, could be amended as part of SALT cap negotiations to kick in at lower income levels for households with high SALT deductions, offsetting the impact of raising or eliminating the SALT deduction cap;
The Section 199A deduction for Qualified Business Income (QBI) for pass-through owners, which could conceivably be increased if Congress pursues Trump's proposal to cut corporate tax rates from 21% to 15% in order to preserve the proportionate difference between pass-through and corporate tax rates;
The gift and estate tax exemption, which appears likely to remain at its current elevated level, reducing the urgency for high-net-worth households to gift assets or implement trust strategies to reduce their taxable estate before 2026 (and, in some cases, making it better to avoid gifting assets to preserve the step-up in basis those assets would receive otherwise).

Furthermore, the Trump campaign has proposed a number of additional tax cuts, including tax-free treatment of income from tips, overtime pay, and Social Security benefits, and even eliminating income tax entirely in favor of tariffs. Notably, though, any of these proposals would still need approval from a Congress that may prefer to extend existing tax cuts rather than introduce new ones.

What's certain heading into 2025, however, is that there will be a new tax bill to extend and/or replace TCJA. And while it may not represent as large of a shift from the status quo as TCJA did in 2017, it could still have tax planning implications for millions of Americans – at least until it reaches its own sunset date in another 8–10 years!

#FASuccess Ep 411: Getting Clients Comfortable With Market Risk Using A More (Options-Based) Measured Risk Approach, With Larry Kriesmer

November 12, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 411th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Larry Kriesmer. Larry is the Chairman of Measured Risk Portfolios, an RIA based in San Diego, California, that oversees $350 million in assets under management for a combination of internal retail clients and external financial advisor clients.

What's unique about Larry, though, is how he is able to get clients comfortable with taking equity market risk using an approach that actually puts 85% or more of client funds in Treasuries (effectively creating a floor on potential losses) while investing the rest into options on equity indexes to offer potential upside that still can approximate the returns of a conservative, moderate, or even aggressive balanced portfolio that might have otherwise simply allocated directly to the S&P 500.

In this episode, we talk in-depth about how Larry implements his measured risk strategy, by allowing clients to select a downside floor that determines just how much is invested into short-term Treasuries (and how much is remaining to invest into options to generate equity upside), how Larry's approach differs from fixed index annuities and buffered ETF products by not setting a fixed cap on potential upside returns (and not needing an additional cost for those vehicles as a 'wrapper'), and how clients varying view Larry's measured risk strategy as either a way to have equity exposure with less downside risk… or as a substitute for a portion of a bond allocation by offering the dampened volatility bonds provide with potential greater upside from the options sleeve.

We also talk about how Larry has found that his investment approach seems to provide a certain peace of mind to clients who might be willing to stomach some certain percentage loss in their portfolio but really struggle with the uncertainty that comes during a market downturn where there's otherwise no way to know how much further the decline could go, how Larry's way of implementing Treasuries directly into client portfolios has enabled him to further calm clients during times of market volatility by being able to point directly to the specific line-item allocations to individual Treasuries with defined maturity dates, and why Larry does still have to prepare clients in advance for the possibility that the stability of their Treasuries will be offset by the sheer volatility of a small allocation to individual options contracts that could near zero dollars in value (a potential total loss on the option) as they approach expiration if the market has declined, given that clients typically are not used to seeing individual line items of their portfolio experience such a level of losses (even if the allocation is small).

And, be certain to listen to the end, where Larry shares the special tax benefits of implementing an options-based strategy on not just index-tracking ETFs but on the market index itself, including the potential to realize a mix of long- and short-term capital gains even on options contracts sold within 1 year (and the potential for losses in the current year to be used retroactively against gains from the previous 3 tax years), why Larry recommends that financial advisors considering using an options-based strategy be cautious to ensure they really have both the time and assets needed to implement it effectively (given the sometimes very rapid changes in options pricing), and why Larry has reinvested much of his own firm's profits back into the business, not only because doing so can provide a better return than simply taking cash profits out of the business to reinvest into a traditional portfolio, but also because it's allowing him to build a business that he hopes can endure long after he retires.

So, whether you're interested in learning about managing risk with an options-based investment strategy, how to prepare clients for the potential benefits and risks of such a strategy, or the commitment needed to execute an options strategy successfully, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Larry Kriesmer.

How Outsourcing Marketing Can Unlock Growth Potential For Advisory Firms: Key Steps For Choosing The Right Provider

November 11, 2024 07:03 am 0 Comments CATEGORY: Practice Management

To sustain firm growth, financial advisors often face a dilemma: to focus on what originally drew them to the profession – like financial planning – they often must first do an extensive amount of business development. Marketing activities such as brand development, event planning, and content strategy often demand skills outside advisors' typical expertise and interest. Even those who do have an interest in marketing may find it challenging to dedicate the time to do it well. As a result, outsourcing parts – or even the entirety – of a marketing strategy can be a highly effective solution. However, with the range of potential solutions, it can be difficult to know where to begin.

As a starting point, understanding the wide variety of marketing tasks that can be outsourced can be beneficial. Advisors might consider outsourcing roles such as social media management, search engine optimization, web development, event management, and performance analytics, among other options. Reviewing both current marketing efforts and aspirational goals for client engagement can help advisors determine where outsourcing may add the most value.

From there, advisors may need to consider whom to outsource to. Quick tasks may only need a temporary contractor from platforms like Fiverr or Upwork. However, more complex needs, such as strategy and brand development, may benefit from someone with industry expertise to ensure deeper understanding with fewer revisions required. Advisors may also want to consider a contractor's communication style and marketing philosophy to assess compatibility with the firm's values.

Once a contractor or firm has been hired, advisors can help set the stage for success by identifying key stakeholders and agreeing on clear definitions of success. Providing examples of effective marketing, existing guidelines, and a timeline for deliverables can establish a strong foundation. And, once work progresses, keeping an open line of communication – through email and video calls – can support feedback exchanges that help contractors align with the firm's style and voice over time. Over the long term, success can be evaluated not only by long-term campaign results but also by cultural fit and the strategic insights the marketing partner brings to the firm.

Ultimately, the key point is that partnering with a skilled contractor or agency can be a win-win for both the advisor and the contractor. By freeing advisors to focus on client service and core business functions, contractors can apply their specialized expertise, often leading to more effective marketing outcomes than an advisor could achieve alone. This collaboration not only enhances the firm's marketing efforts but also allows the advisor to allocate time and energy where it's most impactful, driving growth and fostering stronger client relationships. And with the right fit, an outsourced partner's insights can help elevate the firm's brand, positioning it more effectively in a competitive market and supporting long-term success!

Weekend Reading For Financial Planners (November 9–10)

November 8, 2024 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that amidst the impending return of Donald Trump to the White House, observers expect a lighter-touch regulatory environment for RIAs (and the financial services industry as a whole), with many regulations proposed (but not yet implemented) under SEC Chair Gary Gensler (e.g., strengthened rules related to custody and outsourcing) and broader regulatory efforts put forth by the Biden administration that could also affect advisory firms (e.g., the Department of Labor's Retirement Security Rule and the Federal Trade Commission's ban on most non-compete agreements, both of which are currently blocked by courts) likely to be tabled under the new administration. Which could ease the compliance burdens for RIAs (particularly smaller firms that are sometimes stretched thin handling compliance responsibilities), though if lighter-touch regulation leads to more abuses that erode consumer trust in the financial advice industry, fiduciary advisors could have a harder time convincing clients that they truly are acting in their best interests and differentiating from product salespeople who continue to use the "financial advisor" title.

Also in industry news this week:

A study suggests that engaging in a collaborative planning process with clients not only can boost client engagement but also lead to more client referrals as well
A survey of compliance professionals indicates that while many have tried using artificial intelligence tools to boost efficiency in their compliance programs, most have yet to experience significant benefits

From there, we have several articles on client communication:

A recent study identified significant gaps between the retirement planning topics advisors recall talking about with their clients and those that clients remember discussing, suggesting that advisors could consider ways to create better client engagement so that they absorb key messages and recognize the value their advisor is providing
How advisors can make prospects and clients feel 'smarter' by better understanding their financial knowledge and learning style preferences
While many financial planning goals are meant for the long term, advisors can provide value and build loyalty among clients by engaging in regular communication (both synchronous and asynchronous) to help them prepare for and overcome inevitable bumps along the way

We also have a number of articles on Long-Term Care (LTC) insurance:

With some LTC policyholders facing proposed premium hikes of more than 100% in the next year, advisors have a valuable role to play in helping them evaluate their options
A study suggests that LTC policyholders are more likely to accept premium increases when their options are made clear to them and they feel more confident in their decision, suggesting a potential educational role for advisors helping clients facing premium increases
The potential perils of fully self-funding potential LTC needs and why a "50/50" approach might be appropriate

We wrap up with 3 final articles, all about Artificial Intelligence (AI) and everyday life:

A new AI-powered tool allows users to generate their own custom (and entertaining) podcast on any topic
Why a shift toward relying on generative AI tools to write could lead to a decline in both writing and critical thinking skills
While AI-powered search tools provide convenient summaries to user queries, they could ultimately impede the ability of users to discover new content (and disincentivize content creators, including financial advisors, to produce it in the first place)

Enjoy the 'light' reading!

Values, Purpose, Action: A 3-Part Approach To Establish A “Statement Of Financial Purpose” And Unlock Deeper, More Meaningful Planning Conversations With Clients

November 6, 2024 07:01 am 0 Comments CATEGORY: Client Trust & Communication

In the early days of financial planning, serving clients often meant developing transactional relationships focused on facilitating trades and selling insurance. Over time, advisors shifted toward more analytical approaches, such as investment management and retirement planning. Today, the industry has evolved further, with a growing emphasis on aligning financial decisions with clients' personal priorities and life goals. While this shift from numbers-based strategies to a more holistic, values-driven framework has opened the door to deeper, more meaningful conversations, it also presents a challenge for clients who may struggle to define their values or articulate a sense of purpose.

In this article, Jeremy Walter, founder of Fident Financial, and Andy Baxley, founder of Two Trails Financial Planning, discuss how advisors can follow a 3-part framework to help clients craft an informative, values-based statement of financial purpose.

The process begins by helping clients define their core values. This can involve asking reflective questions, such as "What does a perfect day look like to you?" or "How do you define success, security, and a life well-lived?" These questions encourage clients to uncover important themes – such as business growth, building a legacy, or prioritizing simplicity and family time – that guide their decisions. Typically, these values fall into 2 categories: realized values, which are already present in a client's life, and aspirational values, which represent qualities they want to embody. Advisors can then ask follow-up questions to further explore and deepen these themes, helping clients gain even greater clarity.

Once the client's values have been established, the next step is to articulate a statement of financial purpose – a concise expression that captures the "why" behind the client's financial decisions. This statement should go beyond superficial goals or what the client believes they should say, instead reflecting their true, deeply held priorities. Advisors play a crucial role here by helping clients draft, refine, and finalize a statement that feels authentic and actionable. This statement of financial purpose serves as an anchor for the client, providing clarity and direction as they make future financial decisions.

After the statement of financial purpose is created, the focus shifts to taking action. Advisors can help clients use their statement as a guide for assessing financial goals – both existing and future ones. Clients can reflect on whether their current goals are helping them get closer to living out their values or whether they need to revise their plan to better reflect what truly matters. The statement can also be used to establish new goals, ranging from more immediate, short-term objectives to larger, more ambitious stretch goals that, while challenging, may ultimately be more fulfilling. As clients begin to articulate and live by their values, advisors can revisit the statement periodically to ensure it remains relevant and aligned with evolving goals, and to assess whether adjustments are needed to better reflect their client's reality.

Ultimately, the key point is that understanding a client's values and purpose can unlock deeper, more meaningful financial planning conversations, enabling more fulfilling client discussions and allowing clients to do more with their money. And by aligning financial decisions with a clear statement of purpose, clients can foster a more intentional and meaningful relationship with their wealth!