Weekend Reading For Financial Planners (August 19-20)

Millionaire Clients Are Less Likely To Invest More With Current Firm, Report Reveals

(Steve Randall | InvestmentNews)

When it comes to generating organic growth, many advisory firms are focused on attracting and onboarding new clients. But firms can also grow organically by having current clients bring more of their assets under the advisor's management, often known as expanding the "share of wallet" with existing clients. Because while some clients have all (or nearly all) of their investible assets managed by 1 firm, others have multiple advisors providing investment management (and possibly financial planning) services.

And notably, while most advisors typically claim that their clients have consolidated all of their assets with them, a recent study by research and benchmarking firm Hearts & Wallets found that 64% of U.S. households have 2-plus saving and investing relationships… and that the amount of splitting across multiple platforms is actually on the rise, nearly double the 35% reported in 2012. Furthermore, the number of relationships tends to increase with net worth, as the average household had 2.5 saving and investing relationships but those with more than $1 million had an average of 3.6 (up from 2.8 in 2012). And of those with more than $1 million, only 32% said they were highly likely to invest more with their current primary or secondary firm, suggesting that HNW clients may increasingly be recognizing that when an advisory firm gives a "full service" relationship anytime their minimums are met, there's no need for clients to add more to their existing advisors to get more services (and instead appear to seek new firms to also manage their assets for more advisor perspectives?).

On the other hand, the report found that firms that served as the Main Source of Retirement Advice ("MSRA") for clients managed a higher percentage of their assets (about 2/3) compared to other firms (which only managed 30% to 40% of client assets). In other words, clients do appear to favor and reward advisors who offer more holistic financial advice with more wallet share. Further, companies that delivered both service and advice were also more likely to control a larger share of their clients' assets.

While this report was primarily evaluating the largest asset managers, these data points suggest that independent advisors who provide both investment advice as well as retirement planning and other financial planning value-adds are well-positioned to win client assets. Further, this suggests that as RIAs compete with larger asset managers (which are increasingly leaning into providing "fee-only" and "fiduciary" advice) for client assets, providing specialized expertise for their ideal target client could be a key differentiator when it comes to winning 'wallet share'. At the same time, though, the data also suggest that notwithstanding the conventional view that most advisors manage "all" of their clients' assets, in practice the phenomenon of asset-splitting across multiple advisors or platforms may be more common than most advisors realize?

FINRA Makes It Easier For State Regulators To Oppose Expungement

(Patrick Donachie | Wealth Management)

When a registered representative of a broker-dealer is involved in a dispute with a customer, FINRA requirements mean the dispute typically becomes a part of the public record via the representative's BrokerCheck page, so other consumers can be aware of the broker's potentially problematic behavior. In certain cases, however – such as when the information about the dispute in the broker's record is clearly inaccurate – FINRA allows brokers to file for a "straight-in expungement", in which the broker files an arbitration case against their current or former brokerage firm requesting the removal of the customer complaint from their record.

But while expungement was only meant to be a remedy in special cases – where a complaint patent is patently false or inaccurate – in practice it has proven fairly easy for brokers to have disputes expunged from their records… to the extent that, as the Public Investors Advocate Bar Association (PIABA) found, 90% of expungement requests over a 15-month time period were ultimately granted. Which in recent years led to investor advocates calling for FINRA to reform the expungement process (to address, among other cited issues with this process, that brokers have been able to make a one-sided case for expungement in front of the arbitration panel, with no other party present to provide opposing information about why the complaint really was valid and should remain!).

Amid this backdrop, FINRA this month outlined new procedures (which go into effect on October 16) that will make it easier for state regulators to oppose expungement. These include a requirement that state securities regulators be notified of all requests to expunge customer dispute information within 15 days of the agency receiving the request, and requiring FINRA to make it easier for regulators to attend and participate in expungement hearings. Further, the new rules mandate that straight-in expungement requests be decided by a randomly selected 3-person panel of arbitrators with "enhanced expungement training" (and requiring the unanimous agreement of the panel to award expungement relief).

Altogether, the new amendments create a more thorough expungement process in an effort to ensure that all sides have a chance to be heard when brokers seek to have customer disputes removed from their records. Which has implications not just for the brokers themselves (as the expungement process will likely become more challenging), but also for the broader public, which can benefit from being aware of brokers with prior (legitimate) customer complaints!

CFP Board Encourages Certificants To Engage In Pro Bono Planning

(Mark Schoeff | InvestmentNews)

Working as a financial advisor can be both financially rewarding and emotionally satisfying. By helping clients develop financial goals, create a financial plan, and support the implementation and monitoring of the plan, advisors help clients live their best lives. But while new fee models and service offerings have allowed fee-only advisors to reach an expanding range of potential clients (in terms of income and/or assets), there are still many Americans who could benefit from professional financial advice but might not have the resources to pay for it. This gives advisors the opportunity to offer their services on a pro bono basis to not only support these individuals, but also the financial planning industry as a whole.

To help spur more advisors to engage in pro bono planning, CFP Board last month approved a resolution recommending that CFP professionals commit to a minimum of 20 hours per year of pro bono service (and is preparing to introduce digital pro bono badges that will be awarded to individuals who meet certain pro bono milestones). In addition, CFP Board urged financial planning firms to make pro bono activities part of their workplace culture, which could not only attract service-minded professionals to the field, but also boost a culture of giving back within the industry. Further, to help advisors find pro bono opportunities, CFP Board is partnering with the Foundation for Financial Planning, which offers the ProBonoPlannerMatch program, which connects CFP professionals with pro bono opportunities nationwide (reducing the friction involved for busy advisors who are interested in performing pro bono work).

In the end, in addition to providing a valuable service to the community and serving as a meaningful activity for advisors, pro bono planning is also an important part of growing financial planning into a profession, similar to other fields (e.g., law) with established pro bono programs. Further, pro bono planning can help advisors develop their skills, whether it is working with individuals of different ages or incomes than their usual clients to practicing their empathetic listening and client meeting skills (which is especially relevant for qualified junior advisors whose primary functions in the office may be focused on behind-the-scenes responsibilities supporting senior advisors, and who might not have as many opportunities for substantive one-on-one client interactions!).

A Rule For Avoiding Lifestyle Creep: Don't Live Beyond Your Assets

(Katie Gatti Tassin | Money With Katie)

When an individual is first entering the working world, their salary might just be enough to meet their needs. But as they advance in their career, their income might be more than enough to support their original lifestyle, allowing them to either boost their spending or to start saving. Often, individuals will try to strike a balance between spending and saving more, but deciding on the exact amount to put toward each priority can be challenging.

Some individuals might choose to keep a fixed savings rate; for example, they might commit to saving 20% of their income. In this way, their savings (in dollar terms) will increase as their income rises over time. Nonetheless, this method can make an individual's financial plan more fragile, because as their expenses increase along with their income (i.e., 'lifestyle creep'), they will require a larger nest egg to support these costs in retirement (or earlier, if they have a bout of unemployment or see their income reduced).

With this in mind, an alternative approach to determining a 'reasonable' amount of spending is to factor in both one's income and net worth. Gatti Tassin suggests a suitable spending level would be the average of an individual's post-tax income and 4% of their liquid net worth (taken from the '4% rule'). For instance, this formula would suggest that an individual with $150,000 in post-tax income and a liquid net worth of $500,000 might spend ($150,000 + $500,000 x 0.04)/2 = $85,000. While this would appear to be a conservative spending rate (at just over half of after-tax income) and might be challenging to accomplish in certain years (e.g., when a young family is paying a mortgage and childcare expenses), maintaining lifestyle expenses at this level when possible would greatly speed up the time to reach financial independence (i.e., when the individual's accumulated assets can support their lifestyle) compared to a higher spending level (which has the double-whammy of reducing one's savings rate and increasing the amount that must be saved to support it).

Ultimately, the key point is that while there is no 'optimal' savings rate for everyone, managing 'lifestyle creep' (particularly for younger individuals) can both boost savings and reduce the amount that is needed to support a client's spending. Which could allow them to retire earlier (if desired), or at least have the flexibility to take time away from work along the way!

How To Manage Money As A Committed Couple

(Michael Reynolds | XY Planning Network Blog)

Money management can be a tricky topic for couples, as each individual will come into the relationship with different experiences with money and preferences for how it should be handled between the partners. Because of these differences, communication between the partners is crucial so that each individual not only understands where the other one stands financially, but also their preferences for how money should be handled in the relationship. With this information out in the open, a couple can then move on to decide how they want to structure their finances.

One potential method is for the couple to keep their finances completely separate, with each partner holding bank and investment accounts in their own name. With this method, the couple could choose to split expenses evenly, or perhaps as a percentage of each partner's income (e.g., if one partner makes $100,000 and the other makes $50,000, the higher earner would pay 2/3 of joint expenses and the other individual would pay 1/3 of the expenses). While this method gives each partner complete autonomy over their finances, it might be complicated to determine who pays what expenses (e.g., does every restaurant tab get split evenly?) and raises questions about how one partner would support the other if they become financially strained (e.g., would financial support be a gift or a loan?). This method might be a popular choice for partners with very different spending and money management habits (by controlling their own finances, each partner can reduce feeling of being 'judged' by the other) or for those who have children from a previous relationship (and might want to protect their assets for the benefit of their heirs).

Another option is to completely merge finances, with joint bank and investment accounts that receive all income earned by the couple (though certain accounts [e.g., IRAs] can only be titled in the name of one individual). On the plus side, this approach is simpler when it comes to paying expenses, as they will all come out of the joint account and can provide a larger 'safety net' for each member of the couple (as they will have access to the resources of both partners). However, this method could lead to arguments over certain spending decisions (e.g., whether one partner's purchase was excessive) or financial strategies (e.g., paying down the mortgage versus putting money into a brokerage account). This method might be best for couples who feel 'in sync' with their approach toward money and have a high level of trust when it comes to money management.

A final method is for each partner to have individual accounts but for the couple to also have a joint account for common expenses. In this way, each partner can maintain a certain level of independence (i.e., spend on whatever they want from their individual account) while allowing the couple to pay joint expenses and meet mutually decided upon savings goals (e.g., creating a combined down payment fund for a house). Like the 'completely separate' method, this option does require the couple to determine how contributions for expenses and savings goals are determined (e.g., 50/50 or as a percentage of income). This method could be a good choice for couples that want to pursue joint financial goals while having a degree of autonomy in their financial decisions.

In sum, couples have a range of options when it comes to organizing their household finances, and financial advisors can play an important role not only in facilitating communication between partners, but also in helping couples choose the best method for their given situation!

$50 Or $500? When Do We Tell Our Partner What We've Spent?

(Julia Carpenter | The Wall Street Journal)

Going from 2 single individuals with complete control of their finances to being part of a couple can be challenging, particularly if the partners decide to, at least partially, combine their finances. One potential area of discord is each partner's spending on personal, 'fun' purchases. Because while a more spendthrift partner might see nothing wrong with spending $250 on new hiking gear or the latest electronic gadget, a more budget-conscious partner might balk at such an expense.

One way that many couples get around this issue is to set a 'cap' at how much each person can spend on a given purchase 'no questions asked' (i.e., not being required to let the other partner know about the purchase). This cap could vary based on the couple's income and savings priorities. For instance, a couple who is prioritizing saving for a home down payment might set the cap at $50, while a retired couple with plenty of assets might set it at $500. In this way, each partner can make purchases below the cap guilt-free while being confident that the other individual is not making purchases that will put the couple's financial goals in jeopardy.

Ultimately, the key point is that setting a 'cap' on how much each member of a couple can spend without notifying the other can free both partners to spend up to a certain level without feeling judged. And financial advisors can support couples not only in deciding what the cap should be for their given financial situation, but also, once it is enacted, in monitoring whether they remain on pace to meet their budgeting goals (as purchases below the cap could add up over time, particularly if the cap is high!).

The Tool That Makes Employees Engaged And Productive

(Matt Reiner | Advisor Perspectives)

Given the time and monetary costs of finding and training a new hire, being able to retain current employees is an important part of running a thriving advisory firm. And while firms looking to boost retention might first look to compensation models and benefits, firm owners have other ways to create an environment that will make their employees want to stay for the long haul, from building a strong company culture to creating career tracks that lets employees see how they can advance within the firm.

Another way firms can boost employee engagement is by engaging in impactful recognition. While there are many potential ways to recognize employees (from a firm-wide email to an annual awards ceremony), Reiner suggests the 'formula' for impactful recognition consists of authenticity, high frequency, and a powerful message. Authenticity means providing genuine feedback for a job well done rather than prepackaged or postdated recognition (i.e., providing a compliment in the moment can be more effective than a superlative given out months later at a work function). Frequency means providing recognition on a regular basis (and not saving it for quarterly or annual recognition events), which can provide affirmation to employees that they are doing a good job (and can help them overcome 'impostor syndrome'). Finally, a powerful message does not have to be part of a long speech; rather, messages that tell employees "I see you" and "I appreciate it" can be quite impactful.

In the end, employee engagement is not just about how they feel about the work they are doing, but also whether they feel like they are an important part of their organization. And whether it is recognizing an advisor for handling a tough client situation or a paraplanner for putting together high-quality client deliverables, firm leaders have plenty of opportunities throughout the week to provide recognition that could boost employee engagement and, ultimately, retention!

How To Frame Questions To Get Honest Answers From People You Manage

(Gabriela Riccardi | Quartz)

For financial advisors, knowing the right questions to ask is an important part of learning about a client's financial situation and building a trusting relationship. In addition to facilitating client relationships, asking good questions can also lead to more effective relationships between managers and their team members. Further, it is not just what question is asked, but also how it is presented that can determine whether the manager is likely to get an honest and complete answer.

To ask more effective questions, Stanford University management professor Tina Seelig suggests that managers can use "frame-storming", or adapting the wording of a question to elicit a more complete response. For instance, if, during a quarterly review, a manager asks their team member to tell them about any challenges they had during the year, the employee might be reluctant to give an honest answer, as they might think such an admission will be seen as a weakness. Instead, if the manager frames the question as "It was a tough quarter at the firm and many of us faced challenges. Tell me about some of yours" (i.e., emphasizing that roadblocks are common), the manager can remove some of the employee's hesitance to acknowledge the challenges they have faced.

In sum, managers can get more honest answers from their employees by framing questions in a way that gives the employee 'permission' to acknowledge challenges they are facing. Which can ultimately help the manager find solutions to the issues their team member is facing and allow the employee to perform at their best!

The Real Value Of Middle Managers

(Zahira Jaser | Harvard Business Review)

Large organizations are made up of multiple levels of leadership, from top executives, who are sometimes viewed as the inspiring 'visionaries' for the company, to middle managers, who are often stereotyped as strategic administrators (at best) and a costly rung on the corporate bureaucratic ladder (at worst). But Jaser argues that middle managers are often unfairly portrayed and instead should be recognized for their important role as "connecting leaders".

As "connecting leaders", middle managers have several important roles that can make the company run more effectively. For instance, middle managers are able to engage with the concerns of both upper management and front-line employees. In this way, they can empathize with the needs of both groups and serve as a "broker" when necessary. For instance, executives who make a major change in their firm's tech stack might not be aware of how implementation is going at the working level. This type of situation gives middle managers the opportunity to collect feedback from working-level employees (who are actually using the software but might not have a direct line to company executives) and provide it to upper management (to whom the manager has access).

Notably, it is important for executives to empower their middle managers to take on these important roles, for example by supporting risk-taking (e.g., providing them the space to speak up on behalf of their subordinates) and by creating development programs centered on both leadership (to help them better lead their teams) and followership (to more effectively influence leaders higher in the company hierarchy). By doing so, a company can create a cadre of middle managers who can foster crucial connections between senior executives and company employees!

Why Fighting The Urge To Sleep May Be Bad For Our Health

(Lapid, Scarr, Arranz, Gu, and Gilbert | Reuters)

In modern society, getting a full night of sleep might seem like a luxury. From work obligations to family responsibilities to (hopefully) some time for personal hobbies and interests, it can sometimes feel like there is not enough time in the day to get everything done. In order to squeeze all of these priorities in, some people sacrifice sleep, perhaps getting only 4-5 hours a night. But while this might seem like an effective 'hack' to be more productive, research suggests that a lack of sleep could not only be detrimental to one's health (affecting everything from the immune system to muscle tone), but also to their ability to function at a high level as well.

For instance, some research has found that reaction times, short-term memory, and logical reasoning decline with the number of hours one is awake, similar to what happens as Blood Alcohol Content (BAC) increases. For instance, according to the U.S. National Institute for Occupational Safety and Health, being awake for 17 hours is similar to having a BAC of 0.05% and being awake for 24 hours is the equivalent of a BAC of 0.10% (above the legal limit to drive!). A separate study of more than 6,800 road accidents found that drivers who slept less than 4 hours the night before an accident were 15 times more likely to be at fault than drivers who had slept at least 7 hours.

For those who have difficulty getting to sleep (and staying asleep), research has identified several habits that can promote better sleep, including, among others, going to bed and waking up at about the same time every day, being physically active during the day, and avoiding caffeine and alcohol before bedtime. In addition, companies can help their employees get better sleep by limiting the time they are expected to work in the evening (including checking email on their phones!) and by allowing them to work more flexible hours that align with their preferred sleep cycles. Because getting more sleep not only can improve employees' health but also, potentially, the quality of their work the next day!

The Art Of Rest: How To Let Your Body And Mind Heal

(Darius Foroux)

For those with busy schedules, it can be hard to carve time out for rest. Even when on vacation, it can be tempting to pack in as many activities as possible to 'maximize' the experience (or even check in on work while away). But given the potential benefits of rest (from restoring your energy to sharpening your mental acuity), finding ways to recharge both during the day and at night not only can reduce your stress levels, but also can boost your productivity as well.

An important part of rest is getting enough sleep at night. While there is no single 'right' amount of sleep that is appropriate for everyone, the U.S. National Sleep Foundation recommends between 7-9 hours of sleep daily. Beyond sleep, individuals can get rest during the day as well. For instance, setting aside 30 minutes of 'alone time' to relax during the day (i.e., no phones or other distractions) can help you recharge your batteries, whether through reading, exercise, or other activities. In addition, shorter breaks peppered throughout the day (e.g., for a walk, stretch, or snack) can help you reset your mind and increase your effectiveness when you return to work or another task at hand. Finally, there is a mental component to rest; practicing self-compassion (i.e., being kind and forgiving to yourself) can help you work through negative thinking patterns (e.g., "I'm not good enough") and reduce your stress level.

Ultimately, the key point that while rest is often associated with sleep, there are a variety of practices you can do throughout the day to gain energy and focus. Whether it is taking a few minutes away from the desk for a cup of tea or a half-hour in the evening to read a book, finding time for yourself during the day (and getting sufficient sleep at night) can both help you feel better and work better too!

The Rediscovery Of Circadian Rhythms

(Philip Maughan | Noema)

A common consequence of traveling across multiple time zones or staying up until the wee hours of the morning is feeling lousy for the next day or two. And while an individual might just chalk this up to the effects of a shortened night's sleep, the disruption to one's internal clock and rhythms likely plays a role as well.

Scientists have found that "circadian rhythms" – or the physical, mental, and behavioral changes that follow a 24-hour cycle – play an important role not only in how we feel, but how we function as well. Because when you are awake when you would normally be asleep (e.g. when you are in a distant time zone), your 'biological clock' can be skewed, resulting in a variety of negative health factors. For instance, dangers associated with disruptions to circadian rhythms include poor sleep, indigestion, and anxiety, as well as increased risk of injury, heart attack, and strokes.

Which suggests that following your circadian rhythm (in terms of when you are active and when you are asleep) could provide a boost to your health and overall energy levels. For example, getting exposure to natural light soon after waking up in the morning can alert your body that it is time to switch from sleeping mode to a more active period. In addition, getting to sleep and waking up at the same time each day can help keep your body's internal clock in sync. And for those times when shifts in your routine are unavoidable (e.g., travel), slowly adjusting your schedule in the days before the trip to that of the destination can potentially help your body adjust more quickly once you arrive.

On the plus side, financial advisors have the benefit of working standard daytime hours (and not shifts) and do not have to engage in regular intercontinental travel, which can create conditions for creating schedules that more closely mimic natural circadian rhythms. Nonetheless, it is still important to actually follow a routine (e.g., avoiding the temptation of a late-night Netflix binge!) and get exposure to natural light during the day to reap the benefits of being in sync with one's internal clock!

---

We hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think we should highlight in a future column!

In the meantime, if you're interested in more news and information regarding advisor technology, we'd highly recommend checking out Craig Iskowitz's "Wealth Management Today" blog.