Weekend Reading For Financial Planners (December 23-24)

Top Trends Shaping Advisor Business Growth In 2024

(Steve Randall | InvestmentNews)

The financial advisory industry tends to move at a very slow and incremental pace when it comes to shifting business and service models. With advisory firms retaining an average of 97% of their clients on a year-to-year basis (per the latest InvestmentNews Advisor Benchmarking Study) and keeping about 95% of their existing technology each year (as found in the latest Kitces Research on Advisor Technology), any changes to the core makeup of the firm tend to occur very gradually.

Still, there have been large-scale changes for financial advisors over the years, most notably the widespread shift from the commission-based fee model to the Assets Under Management (AUM) model that began to take hold in the 1990s and has continued to the present day. But that change didn't happen overnight; rather, it has been decades in the making and is still ongoing at a gradual but steady pace, even as the monthly subscription model is also now emerging (albeit still very slowly, akin to where AUM was 30 years ago).

Another tidal shift that is ongoing in the industry is an evolution towards delivering more and more comprehensive advice to provide value for clients beyond the investment portfolio itself, which started in response to the rise of robo-advisors in the early 2010s and continued as advisors increasingly adopted robo technology themselves to automate more of the portfolio management process and free up the advisor's time to delve deeper into more valuable advice. And the proliferating number of technology options for advisors has further accelerated the trend, allowing advisors to provide advice in a broader range of areas – or alternatively, to go deeper into a more narrow breadth of specific planning topics – at a greater scale than was possible without technology. And so the impetus for many advisors has been to do more (and better) planning for clients, and to leverage an expanding tech stack to make it all possible.

In this vein, Envestnet recently published research that outlines what they see as the key themes that will impact advisor growth in 2024 and beyond. At a high level, these themes mirror the ongoing shift in the industry towards (1) providing more and deeper advice, and (2) an increasing reliance on technology to do it at scale. In the first category, the report highlights the broader evolution towards holistic advice as well as the specific opportunity that exists in retirement planning as a specialized planning niche. And in the second, the report highlights the increasing need for integration between technology providers (i.e., as advisors use more and more technology solutions it becomes increasingly important for them all to work together); using data analytics and AI to provide personalized "next best action" recommendations to facilitate better and more efficient client interactions; and the growing use of SMAs and UMAs to bring together multiple investment vehicles and strategies under a single account under the advisor's supervision.

For advisors, none of Envestnet's findings are likely to come as a major surprise, since as noted, they're largely an extension of already ongoing trends in the advisory industry. But the interesting question going forward will be at what point the continued shift towards broader and more comprehensive planning runs up against the reality that advisors can only get so comprehensive in their planning before the cost to them (in terms of time spent doing planning) exceeds the extra revenue they can realize from it. And although better technology integration can potentially help to shift the envelope in terms of how comprehensive planning can be while still profitable to the advisor, most software's integration capabilities are still far from the point where they can all be used together with minimal friction.

So it remains to be seen whether plan breadth and technology use will continue to increase hand-in-hand, as suggested by Envestnet's report, or if we'll see a slowdown in the growth of ever-more-comprehensive planning – at least until the technology (and in particular, the integration capabilities of multiple technology options) has a chance to catch up.

SEC Questions RIAs About Artificial Intelligence

(Tracey Longo | Financial Advisor)

In July of this year, the SEC released a new Proposed Rule aimed at regulating the way that RIAs and broker-dealers employ "Predictive Data Analytics" (PDA) technologies. Specifically, the SEC wants to ensure that, with the increasing pace of technology development and the rise of AI and other "big data"-based tools that aim to predict customer behaviors and deliver targeted recommendations, firms won't use that technology to engage in manipulative sales and marketing practices that put their own interests ahead of their clients' – for instance, by creating tools that identify investors' trading behaviors and nudge them to engage in more day-trading, or to spot which investors may be most risk-averse to prompt them into the firm's proprietary variable annuity products. And so the rule (which has yet to be finalized) would require firms that use PDA or PDA-like technology to create policies and procedures that will eliminate or neutralize any conflicts of interest that arise from the technology's use.

Despite the SEC's positive intentions, however, there are several issues with the rule as proposed that could make it extremely cumbersome, if not impossible, for most advisory firms to comply with, even those that are primarily in the business of advice and not trying to solicit clients to trade more frequently or buy particular products. Most significantly, the breadth of "covered technologies" that the proposed rule applies to – specifically, anything that uses an "analytical, technological, or computational function, algorithm, model, correlation matrix, or similar method or process that optimizes for, predicts, guides, forecasts, or directs investment-related behaviors or outcomes" – is so broadly-defined that it could conceivably include almost any technology used to create recommendations for clients, including portfolio management (correlation matrices are used to build asset allocation models to guide investment-related outcomes), risk tolerance (assessments also guide investment-related behaviors), and even generalized financial planning software (which aims to optimize the path a client can take to achieve their desired outcomes) that represent core pieces of nearly every advisor's tech stack. Additionally, the requirement that advisors not just disclose, but actually "eliminate or neutralize" conflicts of interest associated with the technology puts the onus on advisors to demonstrate that they have vetted each piece of covered software and ensured that no conflicts exist, or that such conflicts have been eliminated, even if the technology comes from a third-party vendor (which could leave the advisor with limited ability to vet or make changes with the software to comply with the SEC's rule).

As a result, there has been significant pushback on the SEC's proposed rule from advisors, industry groups, and even the SEC's own Investor Advisory Committee, urging the SEC to narrow the scope of the rule so that it would apply more directly to AI and PDA technology, and allow for at least some cases where firms would be able to disclose, rather than eliminate, potential conflicts of interest.

And now it's being reported that a number of advisory firms have received letters from the SEC asking for information on their use of AI and PDA technology, including details on how the firms use AI in portfolio management, how they vet and manage third-party vendors that use AI, how they train their employees in compliance around AI technology, and how they portray their use of AI in their marketing materials. All of which seems to be centered around giving the SEC more insight into firms' use of AI on a day-to-day basis, and providing more understanding around what practices might actually pose a significant risk to public investors.

Ultimately, then, the news that the SEC is making the effort to request information from RIAs is positive for advisors in that it signals that the SEC could consider modifying its proposed rule to reflect the reality of how advisors actually use technology in their practices. It makes little sense that a rule aimed at ensuring that firms can't manipulate customers into buying a stock or opening an account would also cover advisors using financial planning software to help clients make saving and spending decisions, and so hopefully whenever the SEC finalizes the rule, it will take care to ensure that it covers what it is intended to cover – i.e., misleading or manipulative use of predictive analytics to benefit the firm over its customers – without sweeping up every other piece of client-facing advisor technology along with it.

DPL Financial Partners Doubles RIA Adoption Of (No-Commission) Annuities To $2B In Little More Than A Year

(Steve Randall | InvestmentNews)

The number of advisory firms using a fee-only business model has increased greatly over the past 20 years, and much of that growth has come from advisors who moved over from the commission-based brokerage industry to start offering advice on a fee-only basis as an RIA. And within that segment of advisors, there are some who had primarily been involved with selling securities, e.g., they had sold stocks, bonds, and/or mutual funds on commission; while others had dealt more with insurance products, e.g., cash value life insurance and annuity policies. And while former securities brokers' knowledge of stocks, bonds, and funds lends itself naturally to the management of traditional investment assets under an AUM fee model, the former insurance brokers' expertise in insurance products provides its own opportunities to add value, particularly as it regards to guaranteed lifetime income products (i.e., annuities) that can help support retirement planning.

And so as increasing numbers of securities and insurance brokers have broken off from their former firms to become fee-only RIAs, there has consequently been more demand for the products that had formerly been sold by those brokers, to be offered on a fee-only basis within their new RIA platform. Which has contributed both to the rise of no-load mutual funds and ETFs, which feature no upfront commission and can be managed on an ongoing basis and traded with no (or minimal) costs; as well as more recently to an emerging demand for fee-only annuities, which can be managed by advisors on an ongoing basis and included in their billable AUM. 

DPL Financial Partners, which was founded in 2014, has built a business on providing fee-only annuities and low-cost insurance products for RIAs, with much of its growth being driven by breakaway advisors looking to shift their commission-based book of business over to a fee-only model, as well as to support RIAs that want to expand into more risk management products now that there are better-priced no-commission alternatives becoming available. And recently, DPL announced that it has sold over $2 billion worth of annuities in 2023, amounting to double the $1 billion that they sold in 2022, as the adoption trend of no-commission annuities in the RIA channel appears to be gaining real momentum.

Ultimately, DPL's growth highlights how, on the one hand, the shift from the brokerage model to the fee-only model continues to gain steam (which is also supported by the flat-to-negative growth in the number of FINRA-registered broker-dealer representatives in recent years), while at the same time suggesting the possibility that more established RIAs, who hadn't traditionally dealt directly in insurance products at all, might also be increasing their use of fee-only annuities, with more retirement-focused advisors seeking to provide guaranteed income options to include as part of their clients' overall retirement income mix. Which may bode well for DPL's growth in the long run, as while the stream of broker-dealer representatives who break off into the fee-only model can only last so long until it exhausts itself, there is also conceivably a substantial number of RIAs who have yet to adopt fee-only annuity products, representing a significant market opportunity for DPL (or other fee-only annuity platforms for RIAs?) to tap into going forward.

The New Lead Generation Tool Gaining Traction With Financial Advisors

(Holly Deaton | RIAIntel)

Lead generation services have existed for decades to help solve advisors' need for a reliable flow of prospective clients to grow their business. But while it makes sense in theory to pay a third party to outsource the task of bringing in prospects, in practice the business models of the lead generation services themselves introduce incentives that often make advisors' experiences with them less than ideal. 

On the one hand, there are companies like Zoe Financial, Wiser Advisor, and custodian-provided services like Schwab Advisor Network, which charge a fee of around 25% of the ongoing revenue for each prospect who is referred by the service who is ultimately converted into a client – which, while it incentivizes the service to provide quality leads since they are only paid for the ones who become clients, also represents a significant cost to the advisor, who would end up paying $75,000 for a client who pays $10,000 in fees per year for a 30-year period.

On the other hand, other services, like SmartAsset and FinanceHQ, instead charge a flat fee for each prospect they send to the advisor – which while being less costly in terms of the lifetime cost for each client, can also result in an advisor being sent more prospects who would be a poorer fit (since the service is incentivized to provide as many prospects as possible to maximize their revenue). Additionally, this model also introduces an incentive for the lead generation service to send the same prospect to multiple advisors simultaneously, who would need to compete with each other to convert the prospect (while the service gets paid by each advisor regardless of who ultimately converts the prospect). Which means that "pay-per-prospect" services can end up being expensive for advisors as well, in terms of the money spent on prospects who don't ultimately become clients as well as the time spent on going through the sales process with each one.

In contrast, a newer company, Datalign Advisory – which launched in February 2022 – has introduced a third lead generation model that aims to minimize the pitfalls inherent in the existing services. Rather than simply matching prospective clients with advisors in the traditional way – e.g., based on geographic location or simple filter criteria – and then sending the prospect to any advisors who meet those criteria, Datalign has prospective clients fill out a more substantial survey to create a more targeted match with advisors. And instead of being paid a flat fee for every prospect, or a percentage of revenue for converted clients, Datalign introduced an innovative auction-style process whereby the advisors who matched best with the prospect's stated criteria could bid between $25-$1,000, with the highest-bidding advisor winning the introduction to the client. With this model, Datalign is incentivized to provide prospects who represent high-quality matches with advisors (since they get paid the most for the most-desired prospects), while advisors who win an introduction are ensured that they will be the only advisor talking to any given prospect referred by Datalign.

The key point is, with the cost of acquiring new clients exceeding $2,000 per client according to Kitces Research on Advisor Marketing, there is clearly a need for advisors to find and convert prospects in a cost-effective manner. While Datalign's prospect bidding process represents an innovative new approach that better aligns its own incentives with the advisor's (or at least moreso than other lead generation models), the question going forward – as with all lead generation services – is how effectively Datalign can manage its own client acquisition costs and attract prospective clients to use the service for less than the fees paid by advisors to meet with them.

A Sample Weekly Marketing Schedule For Advisors

(Susan Theder | Financial Advisor)

At a base level, financial advisors generally understand the importance of marketing to growing their practice, and how a steady stream of social media, blog, and video content can help increase visibility and awareness of the advisor among their target client base. In practice, however, it can be an uphill battle to simply find the time each day for marketing activities, as the demands of client-facing work, team meetings, and administrative tasks fill up the calendar and leave little time for less immediately urgent tasks like marketing.

As with other areas of an advisor's duties that require a regular cadence but can be difficult to fit in around other work – such as compliance and client service – it can be helpful for advisors to create a weekly marketing schedule, blocking daily time on the calendar for recurring marketing activities. The specific actions might depend on the individual advisor's marketing strategy, but as an example, Theder suggests writing a blog post over the weekend, taking a few minutes on the day of and day after publishing to promote the post on social media, and filling in the remaining days on the calendar with other posts about interesting articles, local events, interactions with other social media users, and even repurposing previously-used content. Other than the blog post itself (which could be sped up by using ChatGPT to write the core content, with the advisor editing it and putting in their human touch), each daily task would likely take 10 minutes or less, amounting in all to around 2% of the advisor's time.

The key point is that when it comes to marketing output, the quantity of material is less important than its consistency. Setting aside even a small amount of time every day to focus briefly on marketing can have an outsized impact over time in terms of the awareness and sense of presence it creates.

3 Proven Ways To Drive Organic Growth For RIAs

(Casey Bates | Wealth Management)

One of the most significant and longstanding challenges for financial advisory firms is simply bringing in new clients. According to the most recent InvestmentNews Advisor Benchmarking Study, the average advisory firm added 20 net new clients in 2022, representing just a 3.1% organic growth rate, which was even lower than the mid-to-high single-digit organic growth rates that have been more common over the last decade. Such anemic organic growth rates make it harder for firms to grow revenue and scale their offerings, leave their income vulnerable to market swings that unpredictably raise or lower the amount of assets they manage and bill on, and drive some advisors to pursue inorganic growth strategies like mergers and acquisitions, which introduce whole other sets of complications that can make them difficult to pull off in a way that makes everyone happy.

Although there's always room for new ideas in how to generate organic growth, there are a number of practices that have been around for decades which still can prove effective for bringing in clients. For example, advisory firms that partner with corporations to provide financial wellness programs to their employees (featuring advice on things like retirement planning and benefits selection) can put the advisor directly in front of the corporation's employees and allow them to demonstrate their expertise, which can create new clients both from employees who are interested in working the advisor themselves, and referrals of those employees' family and friends. Alternatively, advisors can use "intermediary" channels to market themselves, which can be anything from social media to radio broadcasts to seminar marketing, which can be effective for finding new clients so long as it's clear how prospective clients can contact the advisor and take the next steps. And finally, custodial referral programs like Fidelity Wealth Advisor Solutions and Schwab Advisor Network can be a growth generator for firms, leveraging the brand-name power of the custodian to bring in prospects (which despite the fee of around 25% of the revenue earned for each referral, can still be worth it for the advisor in terms of the ongoing revenue they create).

Ultimately, with different methods of marketing and attracting clients varying wildly in terms of effectiveness and efficiency, it can make sense for advisors to focus on those that have shown the most staying power over time. Because although some marketing tactics like seminars may seem old-fashioned today, the reality is that they've lasted this long largely because of their ability to generate new clients – a notion supported by the finding of the latest Kitces Research on Advisor Marketing finding seminars to be one of the top 5 marketing tactics in terms of advisor satisfaction. And given the importance of organic growth to an advisory firm's sustainability, the best place to start may be with the techniques that have been proven over time to move the needle.

What's Changing For Retirement In 2024?

(Christine Benz | Morningstar)

If there's any one consistent thing about the U.S. tax system, it's that it changes every year. While some years feature major, ground-shifting legislation (like the 2017 Tax Cut & Jobs Act, the 2019 SECURE Act, and the 2022 SECURE 2.0 Act), which often passes close enough to the end of the year to leave advisors and their clients scrambling to make important planning decisions, even "normal" years feature some significant changes as tax brackets and other inflation-linked numbers shift, delayed provisions from previous legislation kick in, and on an individual level, milestones are reached (such as the age 73 beginning date for Required Minimum Distributions) that necessitate a shift in planning focus.

And so although the closing days of 2023 don't seem likely to feature any late-breaking tax legislation (knock on wood), there are still changes that will be worth keeping an eye on for tax planning purposes, particularly as regards to tax planning in retirement.

At a high level, 2024 will feature inflation adjustments to many key tax numbers, including:

• The marginal tax brackets for ordinary income, capital gains income, wage and self-employment income, and AMT income, with the threshold for the top 37% bracket increasing to $609,350 (single) / $731,200 (MFJ)
• The salary deferral limits for 401(k), 403(b), and 457 employer retirement plans, which increase to $23,000 (with a $70,500 catch-up contribution for individuals over age 50)
• The contribution limits for IRAs, which increase to $7,000 (with a $1,000 age 50+ catch-up contribution)
• The contribution limits for HSAs, which increase to $4,150 for self-only coverage and $8,300 for family coverage (again with a $1,000 age 50+ catch-up contribution)
• The gift and estate tax threshold, which increases to $13.61 million in 2024 (with the annual gift tax exclusion amount increasing to $18,000 per person)
• The deductibility of long-term care premiums as a qualified medical expense, which decreases to a maximum of $5,880 for individuals age 71 and older

Additionally, several key provisions of 2022's SECURE 2.0 Act are set to phase in for 2024, including:

• Roth accounts in 401(k) plans will no longer be subject to RMDs (aligning the rules for Roth 401(k) plans with those for Roth IRAs)
• The maximum eligible amount for a Qualified Charitable Distribution will now be linked to inflation each year, and will rise from $100,000 to $105,000
• Assets in a 529 plan that will not be used for qualified education expenses will be eligible to be rolled over into a Roth IRA (up to the $7,000 IRA contribution limit, with a maximum lifetime rollover of $35,000)
• Employers will be allowed to make matching retirement plan contributions for employees who are paying off student loans, regardless of whether the employee contributes to the plan themselves

Ultimately, even though few of these changes are likely to have a huge planning impact going forward, the sheer number of different changes can be a challenge for any one person to keep track of. Advisors can provide a valuable service to their clients by knowing what's changing (and by how much), and what the planning implications might be for clients who are affected by those changes.

2 Social Security Do-Overs To Maximize Income

(Tracey Longo | Financial Advisor)

Deciding when to file for Social Security is a big choice. While eligible individuals can file for reduced monthly benefits as early as age 62, most people need to wait until age 67 to receive their "full" monthly benefit, while those who wait even longer can receive "delayed retirement credits" of 8% per year by filing as late as age 70. And while the numbers say it often makes the most sense for retirees in good health to delay their filing until age 70 given the guaranteed "return" it provides in the form of the increased monthly benefit, the temptation of filing early, and receiving the monthly income as soon as it's available, can be hard to overcome.

Recognizing the inherent likelihood that some early Social Security filers would ultimately regret their decision to claim reduced benefits, the Social Security Administration offers not one, but 2 potential escape hatches that can make it possible for receipients to undo their decision to start receiving Social Security benefits. First, anyone can file for a withdrawal of their Social Security benefits application within 12 months of the date the original application was submitted, the result of which is that the individual is treated as if they never filed for benefits to begin with. The caveat, however, is that this route also requires paying back all Social Security benefits that were received, plus any taxes and/or Medicare premiums that were withheld from the benefit payments, plus any Medicare Part A benefits that were paid on the individual's behalf – which in all could add up to $25,000 or more, an amount that not everyone will have on hand to repay. But for those who do have the cash available, a withdrawal of the benefits application can allow them to eventually claim their full retirement benefit, plus any credits for delaying benefits until age 70.

Alternatively, for individuals for whom it's been more than 12 months since filing for Social Security benefits or who can't pay back their benefits as required by the withdrawal strategy, and who have reached full retirement age, it's possible for them to simply suspend their benefits. With this route, individuals can still receive delayed retirement benefit credits until age 70. The caveat is that any benefits being paid on that person's record (such as spousal or child benefits) are also suspended, and if the individual had originally filed for benefits prior to their full retirement age (and were thus receiving reduced benefits), their maximum benefit will be less than it would have been if they had never started receiving benefits in the first place.

Ultimately, while It's obviously easiest to file for Social Security benefits once and be done with it, situations can always arise where it makes less sense in retrospect (e.g., when someone decides to start working again after an early retirement, or when they want to keep contributing to an HSA but can't do so because taking Social Security also enrolled them in Medicare). For those in such situations (and the advisors they work with), it's helpful to know when it's possible to hit "reset" on the process.

Effective Marginal Tax Rate Management For Wealthier Couples

(Wade Pfau and Joe Elsasser | Advisor Perspectives)

When a person retires and begins drawing down their savings, the type(s) of accounts that they withdraw from first – and the order in which they subsequently withdraw their assets from their other accounts – matters. Different account types have different tax treatment (e.g., traditional IRAs are taxed as ordinary income at the time of withdrawal, while qualified Roth IRA distributions are tax-free, while withdrawals from a taxable investment account may incur capital gains that are taxed at the capital gains rate), and a poorly sequenced order of withdrawals can result in sacrificing a much higher proportion of one's retirement savings to taxes than a more efficient withdrawal strategy.

Traditionally, planners have looked at their clients' current and projected tax brackets to help make such sequence-of-withdrawal decisions, but the tax bracket often doesn't tell the whole story: Increases in income can trigger other taxes, such as the Net Investment Income Tax (NIIT) and IRMAA surcharges on Medicare Part B premiums, so it's more accurate to calculate the "Effective Marginal Rate" for each additional dollar of income to account for the true impact of withdrawing from one account or the other.

Although the effects of additional taxes are most pronounced in the middle tax brackets – where retirees can encounter the "tax torpedo" of increasingly-taxed Social Security income as well as the "bump zone" where capital gains income is shifted from being taxed at 0% to being taxed at 15% at relatively modest levels of income – there can also be fluctuations on effective marginal rates for higher-income taxpayers that may also factor into their sequence-of-withdrawal decisions. For instance, once an individual crosses $200,000 of Modified Adjusted Gross Income (MAGI) for single filers, or $250,000 of MAGI for married couples filing jointly, they are subject to the NIIT of 3.8% on net investment income above those thresholds, which raises the effective marginal rate of capital gains and qualified dividend income at those levels from 15% and 20% to 18.3% and 20.3%, respectively. Which may seem like a relatively small amount on a percentage basis, but in dollar terms can add up to tens of thousands of dollars or more in additional taxes for families with significant investment income – which may make it more appealing, for instance, to make Roth conversions when a client is in a lower tax bracket in order to avoid subjecting more income to the NIIT when they're in a higher bracket later on.

Ultimately, no matter the client's baseline level of income, it makes sense to consider the "effective marginal rate" when deciding on a sequence of withdrawal of retirement savings. The taxes saved – whether from avoiding the Social Security tax torpedo or from subjecting less investment income to the NIIT – can, in many cases, equate to a high proportion of, or even exceed, the advisor's annual fee, providing a concrete demonstration of the value that the advisor provides through good tax planning.

How To Create Your Own "Year in Review"

(Helen Tupper and Sarah Ellis | Harvard Business Review)

As the end of the year approaches, it's common to look forward in anticipation of the year ahead. However, the changing of the calendar can also be a valuable opportunity to look back on the year gone by. Thinking back on the previous year can give us a chance to reflect, and with the benefit of hindsight, gain insight on what worked well, as well as what lessons can be taken away for the future.

Taking time to reflect often requires hitting pause on the frantic list of year-end tasks, from finishing up work projects to holiday shopping to the logistical wrangling of travel and family plans, which means finding a quiet place and a few minutes of time (if you're lucky enough to have such a thing) to ask questions such as "What have I learned the most this year"? and "Who has helped me be at my best?" and think through honest, unrushed answers. It can also be helpful to involve other people, such as a work peer, friend, or spouse, with whom to answer questions together in order to gain more insight from an outside perspective. And once there has been time for proper reflection on the year gone by, then it can be the chance to think about the most important actions to take next, in order to build on the progress that was gained in the last year.

Ultimately, although yearly performance reviews often have a bad name because of their negative connotations in a work context, taking some time to do a personal "self-review" can provide valuable takeaways without the baggage that can accompany an annual review with a supervisor. And importantly, while thinking about one's regrets from the previous year can be important for ensuring that those mistakes aren't repeated in the new year, the self-review can also be an opportunity to take stock of the accomplishments that someone is proud of, to celebrate the progress that was made, and to keep the momentum going once the calendar crosses to January.

How To Have Better Habits In 2024

(Ryan Holiday | Medium)

Even though January 1 is, practically speaking, just another day of the week, the symbolism of turning the calendar over to a fresh, blank page for the new year makes people eager to recreate themselves in a better image. And as we've all been told, the path towards self-improvement doesn't involve flipping a switch and turning into someone who runs 5 miles a day, reads 3 books a week, and finds time to read to their kids every night – It requires building habits, making small changes that become routine, and then snowballing into bigger changes that ultimately result in a fully reformed lifestyle. 

Or at least that's how it works in theory. In the real world, however, changing habits means breaking one habit and replacing it with another, which means not only disrupting what has itself become an automatic daily routine, but also taking away whatever feeling of reward it was that caused the ingrained habit to become that way in the first place (e.g. a piece of chocolate after dinner, or half an hour scrolling Twitter in bed before turning out the light). Which ultimately means that even small changes can take considerable mental effort to turn into habits, plus a fair amount of self-trickery to find new mental rewards to replace old ones that the previous habit once provided.

We're often bombarded by suggestions for different habits to build that can help to challenge and grow one's self in the new year, including starting small, cutting out inessential distractions, not being afraid to ask for help, getting enough sleep, among others. But while all of these items are fine pieces of advice when taken individually, in aggregate they are way too much for one person to reasonably expect to keep in their heads all at once. Imagine thinking, "Well, I need to cut out some inessential things in my life so I'll start by thinking of 3 projects that I can eliminate, and I should also treat my body rigorously which means taking a cold shower every day, and oh yeah I also need to do the essential things first so I should tell my assistant (I have an assistant?) to schedule all of my meetings in the afternoon so I can deep work in the morning, and in the meantime I should really re-read my Thoreau anthology because it keeps me connected with nature, so I'll put it on my bedside table where I'll read it before I go to bed at 9pm every night so I can wake up by 5am to meditate, and…" At this point 99% of people would give up and go right back to whatever routine they had already been doing, while changing nothing and then repeating the whole exercise again next January 1.

My advice, then, is to take one – and only one – of the habits off of this list, and to make it a goal to try and turn it into a routine in the new year. Which crucially means finding a way to make that new habit pleasurable, since without that reward element any new habit simply turns into a version of "eating your vegetables", and is doomed to fail. So ride the exercise bike every day, but do it while watching an episode of The Simpsons. Or go for a walking meditation, but end it by getting a latte at the coffee shop. It's true that there are often rewards to be had in challenging oneself, but most of the time, life is challenging enough on its own. Which means that the best path for successfully changing habits may be to actually make it enjoyable to do so.

A Timeless New Year

(Lawrence Yeo | More To That)

The fact that New Year's resolutions are rarely kept for more than a month or 2 is almost universally known at this point, and yet people continue to hope that the new year will bring about a new outlook and new habits that will shape them into better people (in whatever way they define "better" for themselves). But because the concept of a "new year" itself is essentially an abstraction – there's nothing actually different about January 1 compared to December 31 other than numbers on a page – it makes for a tenuous connection point for people to hang their dreams for self-improvement on. If people are impelled to make changes simply because it's the time of the year when it's socially imprinted on them to do so, then there will be no reason to keep up that change once it's no longer that time of the year anymore.

In other words, the commitment to change needs to go deeper than the time of year if it's going to have any chance of sticking around. It might need to involve a reframing of the person's entire identity and self-image, which in turn makes the change feel both natural and necessary to align with the new self-image that the person has in mind. In this article, the author uses himself as an example by telling of how, as a lifelong smoker, he had gradually and unconsciously ceased to conceptualize himself as a smoker, which meant that quitting smoking was a necessary step for eventually becoming the person he actually believed himself to be. And although he might have been quite lucky in that regard – many people who smoke are simultaneously disgusted with the habit and unable bring themselves to quit because of the addictive properties of nicotine – it's nevertheless a reminder that positive change doesn't necessarily need to be the result of discrete events like New Year's resolutions or goal setting sessions, but can also come in the form of a gradual aligning of habits and values.

The key point is that change that is tethered to a distinct moment of time, like the start of a new year, seems more likely to fade as time goes by than change that is more deeply anchored in one's values and identity at the present moment. And although our identities and self-conception do tend to evolve over time, having a clear sense of what that identity really is can make it easier to implement goals and habits that align with it. Which ultimately suggest that on New Year's Day, rather than thinking about the person that you want to be, it's better to spend some time reflecting on the person that you truly are, and how your daily habits and actions do (or don't) align with that person.

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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.