Weekend Reading For Financial Planners (November 2–3)

SIFMA White Paper Suggests CFP Board Acts As De Facto Private Regulator, Proposes Policy Changes

(Melanie Waddell | ThinkAdvisor)

Given the high stakes involved in managing consumers' money, individuals offering financial advice typically are subject to regulation from 1 or more government regulatory bodies (e.g., primarily the Securities and Exchange Commission or state regulators for RIAs, FINRA for broker-dealers, and both for hybrid advisory firms, along with state insurance regulators for those who implement insurance as well), which enforce a range of regulatory requirements (e.g., fiduciary responsibilities for RIAs and Regulation Best Interest [Reg BI] for broker-dealers). Though notably (at a time when RIAs and broker-dealers are increasingly offering comprehensive financial planning services), many of these regulations focus specifically on investment management or securities brokerage transactions, rather than the full scope of the financial planning process (which goes beyond 'just' investments and insurance).

While not a requirement to offer financial planning services, an increasing number of financial professionals have elected to become CFP professionals (and receive the range of potential benefits that come with the certification) and in the process are subject to CFP Board's Code of Ethics and Standards of Conduct, including its discipline and enforcement processes. And given that many of CFP Board's standards extend beyond those imposed by government regulators (e.g., CFP Board's fiduciary standard applies to the full scope of giving financial planning advice, and not just when selling insurance or investment products or managing a portfolio like other regulators), CFP professionals could find themselves subject to discipline from CFP Board for problematic actions when doing financial planning that would not violate the government's insurance or investment regulatory requirements.

In a white paper released this week, SIFMA (a trade association representing broker-dealers, investment banks, and asset managers) argues that CFP Board "increasingly functions as a de facto private regulator for CFP certificants" and proposes that CFP Board "eliminate its rules and standards that duplicate, conflict with, and/or impose obligations in addition to, existing SEC and/or FINRA rules and standards. In particular, SIFMA registers its concern about CFP Board's document and information requests (which it suggests require CFP professionals to hand over proprietary firm information when requested by CFP Board as part of an investigation) and cites the potential reputational risk to broker-dealers when CFP Board publicizes disciplinary measures against CFP professionals working at these firms. On the former point, SIFMA calls on CFP Board to communicate with, and receive approval from, certificants' firms when requesting documents or information as part of an investigation. On the latter, the white paper recommends that CFP Board provide firms with a pre-publication copy of public sanctions news releases and/or disciplinary orders for their review and, in these notices, clarify that the sanction only applies to the certificant (and not their employer) and that CFP Board's findings don't constitute a violation of government (or FINRA) regulations.

While CFP Board said it is currently reviewing SIFMA's latest recommendations, officials previously noted that it is a private organization (and not a government body), and that CFP professionals voluntarily agree to abide by its standards of conduct, which aim to lift the standards for those providing financial planning services beyond those enforced by 'official' regulators. To that end, CFP Board does not (and cannot) issue fines or other monetary sanctions, and the maximum consequences they can administer are still limited to 'just' revoking an individual's CFP marks (albeit in a public manner). Though at the same time, CFP Board's focus on CFP professionals as individuals, and its ability to publicly revoke their CFP marks, does further highlight SIFMA's underlying concern, which is that the CFP Board does not have any purview to oversee firms – just the individuals who work at them, and have opted to pursue CFP certification – even though CFP Board's public censure, suspension, or revocation enforcement actions against individuals may still name the firm that CFP professional worked for.

Altogether, while SIFMA's white paper raises several micro-level concerns (e.g., handling of firm information during CFP Board investigations given that the CFP Board is not a government-sanctioned regulator with the power to subpoena 'private' information about clients, and how public CFP sanctions are announced), it also makes macro-level arguments regarding CFP Board's role in creating and enforcing rules on its (more than 100,000) certificants and how it generates additional (and, from SIFMA's perspective, undue) burdens that go beyond government (or in the case of broker-dealers, FINRA) regulation. In reality, CFP Board standards do go beyond the purview of existing regulators in part because relevant regulations (especially Reg BI) have a much narrower scope than the full the range of services offered as part of a comprehensive financial planning (as opposed to 'just' investment management) relationship. Which suggests that CFP Board (and those who voluntary become CFP professionals) continues to have an important role in lifting the standards for financial planning as it seeks to become a bona fide profession, even as CFP Board must navigate the reality that it can only oversee CFP professionals, and not the firms they work for.

Clients Are More Loyal Than One Might Think

(Diana Britton | WealthManagement)

For financial advisory firms, client growth is supported both by adding new clients (or additional assets from current clients) as well as retaining current clients (otherwise advisors could find themselves adding new clients but ending up with a small net increase, or none at all). With this in mind, advisors might consider how 'sticky' advisor-client relationships are and the factors that might lead their clients to depart voluntarily.

According to a survey conducted by Dynasty Financial Partners and Absolute Engagement of 1,000 financial advisory clients with a minimum of $500,000 of investible assets, 52% of respondents have only ever worked with 1 financial advisor, while 25% have changed advisors once, and 17% have changed twice (with 70% of respondents indicating that they are "very satisfied" with their advisor). Among those who switched, reasons included investment performance (cited by 37%), their advisor moved, changed firms, or retired (35%), and/or they met a new advisor who impressed them more (30%), while only 6% said they moved because their spouse or partner passed away. When asked what would cause them to change advisors today, respondents cited investment performance (47%), a change in service levels (41%), their advisor changing firms (39%), and/or a change in fee structure (33%), with younger clients more likely to switch than their older counterparts. And when looking for an advisor to work with, those surveyed focused first on being understood (59%), followed by technical expertise (47%) and experience in working with people like them (46%).

In sum, while clients appear to be largely satisfied with their advisors (which bodes well for retention), there does appear to be appetite among some to seek a new advisor, offering firms the opportunity to play both 'defense' (e.g., by ensuring a consistent level of service) to hold on to clients and 'offense' (e.g., by demonstrating how they understand their target clients' needs) to win over clients dissatisfied with their current advisor.

RIA M&A Activity Poised To Surpass 2023 Total: DeVoe

(Alec Rich | Citywire RIA)

Following a period of significant growth in RIA Mergers and Acquisitions (M&A) activity, 2023 saw a pullback in deal flow – with the number of RIA M&A transactions declining to 321 transactions from a record-high 340 in 2022, according to investment bank Echelon Partners – amidst rising interest rates (that can increase the cost of financing deals) and other headwinds. Nonetheless, many market participants remained positive that underlying factors driving M&A activity (e.g., infusions of Private Equity [PE] capital into large buyers and a large number of retirements among RIA founders) would mean that deals could soon pick up.

According to a report from M&A advisory firm DeVoe & Company, there have been 191 RIA M&A deals through the 3rd quarter, up from 185 during the same period in 2023, and the firm expects the year-end total to surpass last year's 251 total transactions. The third quarter itself saw 65 completed deals, up from the previous quarter (61 deals) and equaling the total of the prior-year period. The report noted that relatively larger sellers make up a significant portion of the market, with sellers with AUM between $500M and $5B representing 48% of transactions this year and the average seller overseeing $985M in assets. Notably, while serial acquirors (frequently backed by private equity capital) remain active in the space, a separate report from Fidelity found that first-time buyers (who made 26 deals, according to Fidelity's count) have stepped up more regularly as well, offering additional buyers for firms looking to sell.

Ultimately, the key point is that RIA M&A deal flow appears to remain robust, with acquirors not shying away from larger deals, suggesting that owners of growing, sustainable firms who are considering a sale could receive strong offers, with larger firms (and the client base and advisor talent that comes with them) potentially being increasingly attractive (though some owners might instead choose to create an internal succession plan or find that positioning their firm for a sale could reduce their desire to actually sell it!).

How To Help Clients Retire Early

(Derek Wittjohann | Advisor Perspectives)

While some financial planning clients plan to work to 'traditional' retirement age (or beyond), others seek to retire (often much) earlier. Which can present an opportunity for their financial advisor to add value by introducing the quantitative and qualitative considerations surrounding such a decision.

On the quantitative side, retiring early can take a double bite out of a client's portfolio growth both because they will likely need to withdraw funds to support their lifestyle needs and will no longer be adding to the portfolio (as they did during their working years). Also, longevity risk becomes a primary consideration for early retirees whose retirement might last much longer than those who retire in their 60s or later, and extending the retirement period can introduce a range of risks that could thwart their plans, from higher-than-expected inflation to sequence of return risk. Another key consideration for early retirees is how they will purchase health insurance, as they will no longer be eligible for employer-subsidized coverage and might have many years until they are eligible for Medicare. While there are a range of coverage options available for early retirees (e.g., purchasing a policy on a public healthcare exchange), the premiums could be much more than these clients might be used to (and require additional portfolio withdrawals).

At a qualitative level, while retiring at any age can be a shock to many individuals, as they will no longer have the routine and sense of purpose that a job can provide, this effect can be even more pronounced for early retirees, whose friends might still be working and will have to find a renewed 'purpose' for a longer period. Which suggests that advisors can play a valuable role in starting a conversation with clients interested in retiring early to help them discover the 'why' behind their decision and how they might plan for a meaningful (extended) retirement.

In sum, financial advisors have many tools to support clients who are considering early retirement, from modeling a range of scenarios (and distribution strategies) in financial planning software (e.g., higher-than expected inflation or lower-than-expected returns) to helping them think through what early retirement might look like for them. Which could ultimately lead the clients to continue on the path to early retirement, decide to push it off for a few years, or perhaps transition to part-time work to reduce the quantitative risks involved with early retirement while still freeing up time for other pursuits!

The Many Flavors Of FIRE

(Amy Wang | The New York Times Magazine)

When it comes to considering early retirement, many individuals might think about retiring in one's late 50s or early 60s. But for followers of the Financial Independence Retire Early (FIRE) movement, retirement can come much sooner, even as early as their 20s. And while FIRE adherents are often portrayed as penny-pinchers scraping by to keep their portfolio afloat for what could be a 6-decade retirement, in reality the FIRE landscape is more robust.

The closest equivalent of the 'traditional' view of FIRE is the 'LeanFIRE' concept, where an individual or couple retires once they anticipate having enough assets to support a lifestyle with relatively modest spending. However, at the other end of the spectrum is an increasingly popular subset of followers, dubbed the 'FatFIRE' movement, who attempt to save up enough for a much more luxurious retirement (even if it takes them much longer to do so than their LeanFIRE counterparts).

Notably, other offshoots of the FIRE movement don't involve leaving the workforce completely. For instance, those who achieve 'BaristaFIRE' leverage their assets quit their regular job and take a part-time gig that they enjoy more (sometimes in part to access employer-subsidized health insurance). And perhaps of interest to a wider range of financial planning clients, 'CoastFIRE' involves saving enough early on to only need to earn enough to support one's ongoing spending needs until they fully retire (and tap that savings), potentially opening the door to trying a lower-paying career or taking regular unpaid sabbaticals.

Ultimately, the key point is that the FIRE movement is not necessarily defined by living on a tight budget to exit the workforce as soon as possible, but rather encompasses a wide range of options (which may or may not involve leaving work completely). Which offers financial advisors an opportunity to add value both by introducing clients considering early retirement to the many different 'flavors' of FIRE and by crunching the numbers to show what their lifestyle might look like pursuing different FIRE paths in a financially sustainable manner.

12 Tax Planning Principles For Early Retirees

(Jim Dahle | White Coat Investor)

Financial planning discussions surrounding early retirement sometimes revolve around the risks involved from no longer bringing in employment income and the need to have the client's portfolio support them for an extended retirement period. Nonetheless, early retirement also can bring a variety of tax planning opportunities and the ability for advisors to help their clients generate needed income in the most tax-efficient way possible.

For clients who retire early and have significant savings in a taxable brokerage account, strategically selling assets from this account to generate income can lead to (perhaps surprisingly) low taxes. For instance, if a client sells high-basis shares (e.g., shares bought for $90,000 that are now worth $100,000) that have been held for more than 1 year, only the $10,000 gain will be subject to the (favorable) long-term capital gains tax rate (clients also might consider engaging in partial Roth conversions to leverage their relatively low income post-retirement and pre-RMD age). Alternatively, a client might choose to sell investments with a low cost basis (e.g., shares bought for $10,000 that are now worth $100,000) to take advantage of the 0% long-term capital gains tax rate.

Notably, when creating an income plan, an advisor and their clients in early retirement might consider the potential impact of different levels of their income on different subsidies and credits that might be available to them. For instance, a client's Modified Adjusted Gross Income (MAGI) will impact the potential subsidies they could receive if they obtain health insurance through a public health insurance exchange. And for those who have kids, other income-restricted opportunities (that might not have been available to them in their higher-earning years) include the child tax credit and the American Opportunity Tax Credit.

Altogether, creating a tax-efficient income plan for clients who retire early can be a way for advisors to demonstrate their value in hard-dollar terms, whether in minimizing their taxes today and/or reducing their (or their heirs') tax bills down the line!

What Is The Point Of Growth For RIAs?

(Lisa Crafford | CitywireRIA)

Much ink has been spilled on the most effective ways for firms to grow. But since the marketing and/or additional service offerings that can drive growth can cost a firm owner time and/or hard dollars, certain advisors (particularly those with already healthy practices) might wonder whether client growth is necessary in the first place.

Crafford argues that even if a firm is content with where it currently stands with its client base, growth can still be valuable. For instance, firms showing strong growth could be more likely to attract top advisor talent, as these individuals might seek out dynamic firms, both for building their personal client roster and potentially for a more attractive internal succession opportunity down the line. Next, as clients increasingly seek out more planning services from their advisory firm (e.g., advanced tax planning), those that grow will be better able to generate the revenue needed to add personnel and technology needed to provide them. Finally, firm owners looking to build a financial planning 'business' rather than a 'practice', client and revenue growth can provide a level of flexibility and a source of capital as the firm expands its size and reach over time.

In the end, while firms will have a range of long-term growth goals (from those that want to remain a lifestyle practice to those that want to become a business enterprise), gaining new clients is likely necessary to maintain a healthy client roster (given that firms typically face some level of client attrition) and, ultimately, a thriving firm, both today and into the future (when the owner might want to make their firm attractive for an internal succession or external sale!).

5 Growth Strategies For Independent RIAs

(Robert Tamarkin | ThinkAdvisor)

One of the benefits of being an independent RIA (compared to running a practice under the umbrella of a larger organization) is the flexibility it provides a firm owner to make their own business decisions. Though, while many firm owners might be looking to grow their businesses, they might not know where to start given the myriad options available (from hiring to increasing marketing spend). With this in mind, Tamarkin offers 5 strategies firm owners could consider to spur client growth.

To start, hiring a digital marketing specialist could help a firm expand its presence online and generate more leads (and might be more efficient than the advisor spending time themselves to learn and execute a digital marketing campaign). Next, when hiring, building a diverse team can both bring a variety of skills to the table (e.g., significant client-facing experience from seasoned advisors and tech savviness from younger staff) but also set the firm up to thrive for decades to come (even once the firm owner decides to step aside). In addition, putting together a modern, well-integrated tech stack can boost efficiency and the firm's client experience while also increasing advisor satisfaction in the process (as staff might prefer to work with a firm with a modern software suite than antiquated tech). Finally, building strategic partnerships with Centers Of Influence (COIs), such as CPAs and estate attorneys, not only can provide client referrals to an advisor, but also can become a part of the advisor's vetted network of specialists for current clients seeking those services.

Ultimately, the key point is that compared to advisors working under a larger organization, owners of independent RIAs have the benefit of agility on their side and are potentially able to make changes to their marketing, staffing, and technology rapidly (and potentially reverse course quickly if a particular change doesn't work out).

Building An Efficient, Thriving Advisory Practice With A Proven 7-Step Framework

(Stephanie Bogan | Advisor Perspectives)

When a financial advisor first opens their own firm, they might have few clients, but plenty of time on their hands. But as their client base grows, they might find that they have less and less time and are playing a regular game of "whack-a-mole", knocking out tasks each day without a clear direction. With this in mind, Bogan offers a 7-step process to create a more efficient, healthy firm that can generate additional revenue and free time for its owner.

The first step to creating the firm of an advisor's dreams is to first create a vision, answering questions such as what income and lifestyle they and thinking about the clients they do their best work with. With this information in hand, the advisor can identify a client niche they can serve based on their ideal client and their ability to provide expertise for the unique challenges they face. Once they have decided on their ideal target client, the advisor can create a message that explains its client value proposition in a clear, concise, and compelling way (a task that will be made easier by narrowing down to an ideal client type with specific planning needs). After crafting a clear message, the advisor can then find ways to get it out to their target audience (which could mean digital marketing campaigns, blogging, social media engagement, or in-person events depending on where qualified prospects are most likely to see the message).

Next, the firm owner can look inward for ways to streamline their processes to create efficiencies in marketing, onboarding, and service delivery (which can both save time and ensure a consistent and high-quality client experience). Another important step is to build a tech stack that allows the advisor to automate workflows, enhance client experiences, and scale operations. Finally, a firm owner can consider how they want to invest in staff, starting by identifying the tasks they can delegate so they can focus on higher-value activities.

In sum, while building an efficient practice that meets a firm owner's lifestyle goals is not an overnight endeavor, taking a structured approach to doing so (that addresses the firm's client type, value proposition, marketing, and service delivery together) is more likely to lead to success than doing so in an ad hoc manner that lacks a guiding vision.

To Get What You Want, Try Silence

(Rachel Feintzeig | The Wall Street Journal)

Financial advisors know that they have much to offer their clients. Whether it's telling a prospect all the ways the advisor add value or going into a deep explanation of a planning concept with a current client, it can be tempting to spend much of a client meeting talking. However, sometimes taking a pause can be an effective tactic, whether in soliciting information from a client or having a prospect commit to a planning relationship.

One problem with being uncomfortable with silence is that it can turn a cogent argument into a rambling monologue, making it more difficult for one's conversation partner to understand the main point. On the other hand, stopping after making a point can allow both parties to reflect on it and better consider what to say next (and perhaps prevent a verbal gaffe from trying to fill the conversational space with noise). Silence can also be an effective tool for firm leaders, as more junior staff might feel intimidated and reluctant to offer their opinions if a manager is dominating the conversation. And perhaps most importantly, allowing natural pauses in conversation to occur can help an advisor ensure that they are truly listening to their client or other counterpart, rather than focusing the next point they want to make.

In the end, while silence can sometimes feel uncomfortable, being willing to cede the floor during a conversation can potentially make an advisor more convincing, elicit more information from clients, and make them feel truly heard in the process!

5 Tactics That Can Make You More Persuasive

(Eric Barker | Barking Up The Wrong Tree)

Persuasion is a useful skill to bring others over to your side on an issue or to convince them to take a certain action. However, persuasion can be tricky to accomplish, as being too overbearing could make the other person recoil, while being too timid might leave them unsure of the point that an individual is trying to make. With this in mind, marketing professor Jonah Berger in his book Magic Words offers a series of research-backed tactics that can make one more persuasive.

One way to persuade someone to take a certain action is to suggest that it is part of their desired identity. For instance, a parent who wants their child to help clean up might ask them to "be a helper" rather than "to help" (as many kids might want to think of themselves as "helpers" but the actual action of "helping" might not sound so fun). Another method of persuasion is to use concrete language, which makes people feel heard. For example, when a client talks about their travel plans in retirement, an advisor could build trust by responding with "It sounds like you want to go on 2 major vacations and spend a week at the beach with your kids each year" rather than "It sounds like you want to do a lot of travel". Next, displaying confidence is another key part of persuasion, including in how one talks (e.g., reducing hedging words like 'maybe' and 'kind of' and filler words such as 'um' and 'ah'). Further, while speaking confidently is an important part of persuasion, so is the ability to ask good questions, particularly follow-up questions, which can put the asker in a positive light and make the responder feel heard. Finally, when the person that needs to be persuaded is oneself, distancing oneself from the matter at hand by avoiding the first person (e.g., telling oneself "You can do this" rather than "I can do this") has been shown to increase confidence and reduce anxiety.

Ultimately, the key point is that persuasion is a valuable skill for a financial advisor, whether it is in convincing a client to implement a financial planning recommendation or giving oneself the confidence to overcome impostor syndrome, and that it can be developed and honed through small changes in language and behavior rather than requiring a wholesale personality shift!

Persuading Prospects To Become Clients By Leveraging "Influence" Techniques

(Evan Beach | Nerd's Eye View)

Given the industry's growing focus on delivering financial advice in the best interests of their clients and not 'just' selling them financial products, financial advicers are increasingly wary about associating their practices with "sales" techniques. However, the reality is that even those in the business of advice (and not product sales) who are confident their services are of great value to clients must still bring prospects to the door and convince them to hire the advisor and pay for that advice. Which means regardless of how knowledgeable or capable an individual advisor may be, or how well their expertise may fit a client's needs, getting a prospective client to commit requires both expertise and persuasion.

In his book Influence: The Psychology of Persuasion, Robert Cialdini presents research that helps demonstrate how advisors can leverage three simple influence tools to better aid (and retain!) clients who may already be coming to an advisor for answers but still need a nudge to actually engage the advisor… ultimately allowing advisors to save time and help more people.

First, creating a perception of scarcity around what a financial advisor offers can crystalize the value of the advisor and motivate clients to action. One way this can be done is to use a scheduling approach that involves "surge meetings", where advisors schedule prospects and clients in a very structured and condensed time period (and not offering meeting slots outside of those 'scarce' time windows). Not only is this helpful to free up time for the advisor to focus on firm infrastructure and other priorities, but the apparent scarcity of available meetings tends to discourage prospects who aren't ready to commit to working with an advisor from signing up, yet motivates clients who are ready to sign up for coveted meeting slots to take action. Which means that the people with whom advisors meet are much more likely to be ready to act in concrete ways and implement recommended changes.

Cialdini also proposes the idea of consistency, whereby individuals tend to strive for behavior that aligns with how they identify themselves. Thus, if a client views themselves as a proactive doer (opposed to a passive drifter), they are much more likely to commit to taking action – and advisors can leverage the client's tendency to behave consistently with their ideal self-image by speaking directly to 'doers' in their marketing. Additionally, a goals-based planning approach can be a powerful motivator by helping clients identify their financial planning priorities, such that they feel 'compelled' to follow through on their financial planning recommendations to ensure their behaviors will align with their ideal future self-image.

Finally, advisors can use reciprocity as a way to persuade prospects to become clients and ultimately build the advisor's business. Letting prospects test-drive the client experience (by offering a free preview of available planning services) can attract prospects and increase referrals, as this gesture of reciprocity can demonstrate the advisor's value and skill by offering a clear example of what is actually delivered to clients. Exactly what is given away to prospects, and how, is up to the individual advisor, but treating a prospective client as if they have already joined the team is a great way to ensure that they actually do join the team!

In the end, it is important to remember that clients investigate and hire financial advisors because they want help to reach their goals. Advisors who are client-focused and have a good advice service to market can benefit from using Cialdini's principles to persuade potential clients who would benefit from their help to take the leap into hiring them. By using Cialdini's research to adapt strategies for use with clients, financial advisors can remove some of the resistance that prospects may initially feel by promoting trust, allowing clients to realize the reason that they sought out a financial advisor in the first place!

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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.