Weekend Reading For Financial Planners (April 12–13)

Senate Confirms Paul Atkins As SEC Chair

(Sam Bojarski | CitywireRIA)

With a change in the presidential administration comes new leadership at Federal agencies as well, with the Securities and Exchange Commission (SEC) being most relevant when it comes to the regulation of financial advisors. And by nominating former SEC commissioner Paul Atkins (who has argued against the SEC's use of 'regulation by enforcement') to lead the agency, President Trump signaled a shift from the tenure of previous Chair Gary Gensler, whose SEC took a much more active approach to rulemaking and enforcement.

Atkins' nomination was confirmed in the Senate this week by a 52-44 vote (receiving unanimous support by voting Republicans and unanimous opposition from voting Democrats), meaning that Atkins will take over leadership of the agency from current acting Chair Mark Uyeda. Among other actions, Atkins' arrival could portend additional clarity on the fate of pending rules proposed under Gensler that would impact RIAs, including an 'Outsourcing Rule' that would establish formalized due diligence and monitoring obligations for investment advisers who hire third parties to perform certain functions (a potential increase to the compliance burdens for advisory firms whenever they add a new tech vendor or platform partner), and proposed amendments to the SEC's Custody Rule that would, among other measures, extend custody obligations beyond securities and funds (subject to the current rule) to encompass all assets in a client's portfolio for advisors who manage on a discretionary basis (potentially subjecting the majority of RIAs to at least some of the additional compliance burdens of having custody). In terms of new actions, Atkins said during his confirmation hearing that he would prioritize finding a regulatory approach for digital assets, suggesting that creating a legal framework for advisers to manage clients' digital assets could be coming. In terms of enforcement, industry observers have suggested that Atkins will prioritize instances of investor harm rather than technical violations. Further, Atkins has also criticized the SEC's scrutiny of off-channel communications by investment advisers and broker-dealer representatives suggesting this priority could be downgraded in the coming years.

In the end, Atkins' arrival may be a 'mixed bag' for fiduciary-oriented financial advicers. If lighter-touch regulation leads to more abuses that erode consumer trust in the financial advice industry (whether they occur in RIAs or otherwise), fiduciary advisors could have a harder time convincing clients that they truly are acting in their best interests and differentiating from product salespeople who continue to use the "financial advisor" title. On the other hand, a slower pace of rulemaking) on RIAs themselves, especially for smaller RIAs (who tend to have fewer compliance resources available to implement new rules), could be welcomed by busy advisors and may also encourage and support more advisors currently at broker-dealers and insurance companies to start or join RIAs themselves and continue to accelerate the shift to fiduciary advice.

NASAA Approves Model Rule Amendments To Restrict Brokers' Use Of "Advisor" Title

(Tracey Longo| Financial Advisor)

In a world where it's hard to regulate the wide and ever-changing world of advertising, one of the most common frameworks that regulators take is a 'truth-in-advertising' approach that simply requires whatever advertisers say or claim to be true and accurate. In recent years, as our Kitces platform has long advocated, regulators have begun to consider whether this approach should be applied in the world of financial advice, as consumers engage with both advice-providers and brokerage salespeople… all of whom increasingly use "financial advisor", "financial consultant", "financial planner", and similar titles, even though only some are actually acting in their capacity as a financial advisor, and others are still legally salespeople representing their company and its products.

In an effort to clear up confusion for consumers (who might otherwise think the registered representative they are working with has a fiduciary duty to work in the consumer's best interest), the North American Securities Administrators Association (NASAA), which represents state regulators in the United States, this week approved amendments to its model conduct rules that prohibit the use of the titles "adviser" or "advisor" unless an individual or firm is registered as an RIA or investment adviser representative. State securities regulators now have the option to adopt the amendments to the model rule (and, if so, will have discretion in terms of how it is enforced).

The changes, which were supported by a public comment letter from XYPN (and co-signed by FPA), largely mirror rules within the SEC's Regulation Best Interest, under which broker-dealers and their registered representatives who are operating solely in that (brokerage sales) capacity are not able to hold themselves out as using the "advisor" title. However, like Reg BI, the amendments appear to leave the door open for dual registrants to use the "advisor" title and engage in "hat switching" from their advisor to broker capacity and back again, which might still lead consumers to assume that everything they receive would be advice. Whereas their fiduciary obligation would really only apply to particular accounts for which the dual-registrant provides advice or manages in their investment adviser capacity and receives compensation (and not the entire client-advisor relationship).

In the end, while the amendments to NASAA's model rule appear to bring state regulation in harmony with the Federal-level Reg BI and prevent standalone broker-dealers and their registered representatives from holding themselves out as "advisors" or "advisers", they still fall short of comprehensive title reform, which could go further to clarify to consumers that an individual holding themselves out as an "advisor" is really actually an advisor working in their clients' best interest at all times, and not only for certain parts of their relationship!

SEC To Review (And Potentially Increase) AUM Threshold For State Advisors To Become SEC-Registered

(Patrick Donachie | Wealth Management)

In the United States, Registered Investment Advisers (RIAs) are required to register in one of 2 ways: with the Federal government (namely the SEC), or with one or more state securities regulatory agencies. While SEC-registered RIAs are governed by the Investment Advisers Act of 1940 (and its associated regulations), state-registered RIAs are subject to the individual rules of the states where they are registered (which have their own securities laws and regulations, that typically mirror but may not be fully identical to what applies for SEC-registered firms).

Under the National Securities Markets Improvement Act of 1996, states were tasked with supervising firms up to $25 million in Regulatory Assets Under Management (RAUM), with the SEC in charge of larger firms. This asset limit for state registration was subsequently expanded under the Dodd-Frank Act of 2010 to $100 million to encourage the SEC, in the wake of the 2007-2009 , to focus on supervising the largest firms (and delegating the rest of RIA oversight to the states). The legislation also allowed the SEC to increase this threshold if it sees fit.The legislation also allowed the SEC to increase this threshold if it sees fit.

In a speech this week, acting SEC Chair Mark Uyeda said that he has asked SEC staff to conduct "a periodic evaluation" on whether the current $100 million threshold is still "optimal". He noted that not only has the number of RIAs grown by about 45% to 15,411 since Dodd-Frank's 2012 compliance date, but also that the number of RIAs between $100 million and $1 billion RAUM has increased from 5,853 to 8.956 during the same period (with the number of firms with more than $1 billion jumping from 2,921 to 4,756). Which has increased the number of RIA examinations the SEC is responsible for (and therefore the number of SEC examiners it must hire)… in an environment where the President is focused on reducing the size and headcount of the Federal government.

Accordingly, any increase in the regulatory AUM threshold for SEC-registration would effectively shift those firms to become state-regulated instead, reducing the number of required SEC examiners. The caveat, of course, is that RIAs still must be examined, and any shift would place more of a burden on the states to handle examinations instead… in an environment where some states already struggle to maintain sufficient staff levels for timely RIA registrations and regular examinations. Which means the proposal thus both raises concerns about whether the states have the capacity to handle a change in regulations that shifts more RIAs to state oversight, and the concern that some RIAs may struggle with the fact that not all states have the same regulations (e.g., pertaining to whether the firm can use testimonials in their marketing) and thus would have to adapt their practices to each state in which they have clients.

Thus in the end, while a new RAUM threshold hasn't been proposed, the core idea of allowing the SEC to focus its supervisory efforts on the largest RIAs arguably makes sense, yet could still prove frustrating for firms forced to switch to state registration (particularly those with clients spread across state lines) as it would potentially require affected RIAs to register with multiple state regulators and be subject to a varying set of rules depending on which state(s) they are registered in, compared to the more uniform supervision they experience under the SEC. Of course, firms that have clients in more than 15 states remain eligible for SEC registration, regardless of their AUM… but when states are not consistent in their own regulatory requirements, smaller RIAs in particular may struggle even if they're 'just' registered in a handful of states whose rules don't match? Which will put more focus than ever on NASAA to help improve the consistency of state-by-state regulation of RIAs.

How To Survive Chaotic Markets

(Ben Carlson | A Wealth Of Common Sense)

While clients might understand conceptually that market volatility is the price of investing in risk assets (that will hopefully achieve significant returns over time), actually living through these periods can still be stressful. With this in mind, having a plan set in advance (perhaps with the help of a financial advisor) can help an investor avoid drastic actions and focus on the bigger picture.

For instance, automating investment contributions (e.g., through a workplace retirement plan or direct withdrawals to a taxable brokerage account) can reduce the inertia involved in adding to investment accounts on a regular basis (which can increase when the prospect of adding to investments only to see them quickly drop in value during a bear market). Also, having a written investment plan in place takes the guesswork of potentially adjusting allocations during market downturns when emotions might overwhelm logic. Further, within this investment plan, diversifying both across assets (e.g., stocks and bonds) and strategies (e.g., buy-and-hold, trend following) can help an client have more confidence that their portfolio can weather a range of market environments (even if it might lag a more concentrated portfolio during certain periods).

Ultimately, the key point is that having a written investment plan not only can be a behavioral support during market turbulence, but also can allow clients to focus on living their lives rather than tracking every market fluctuation. Which suggests that the value a financial advisor can provide is both in the dollars-and-cents of portfolio management, but also in 'buying' clients time that they might otherwise spend scanning the latest market updates or making (potentially counterproductive) trades.

10 Sources Of Emergency Cash, Ranked From Best To Worst

(Christine Benz | Morningstar)

Many financial advisors recommend that their clients keep an allocation to cash (or cash-like instruments) to serve as a source of liquidity when unexpected expenses occur (particularly for retired clients, who might not have regular earnings from work and rely on their portfolio to support their spending needs). However, sometimes a client's cash needs might exceed their available cash reserves, which could leave an advisor to tap into alternative sources of liquidity.

With this in mind, Benz offers her ranking of sources of financing, favoring those with the fewest strictures and costs and the least disruption to the client's long-term plan. Beyond an 'emergency fund' (which might be held in a bank savings account, money market account, or similar accounts that do not have a tax-sheltered wrapper), a client might next tap into low-risk assets in a taxable account (e.g., a short-term bond fund) based on liquidity and tax consequences. Next, a client might consider withdrawing Roth IRA contributions; while these can be withdrawn tax- and penalty-free at any time, the downside is that the client will have fewer funds working for them in the account in the future. Another potential source of liquidity is the cash value of any permanent life insurance policies the client has (preferably making tax-free withdrawals less than the policy's cost basis, or, less attractively, borrowing from the cash value and paying it back over time with interest).

On the lower end of liquidity options are 401(k) loans (which can be particularly risky if the client might be let go from their job and be forced to pay back the loan quickly or be subject to taxes and a 10% penalty), a home equity line of credit (which can have relatively attractive interest rates depending on the client, but does put their home on the line as collateral), and 401(k) hardship withdrawals (on which the client will owe taxes, as well as a 10% penalty unless they're age 59.5 or older or meet one of several exceptions). At the bottom of Benz's list are reverse mortgages (though it will likely be worth shopping around for the best rate, as they can vary widely), margin loans (which allow the client to avoid selling highly appreciated securities but can lead to margin calls if the value of the collateral declines), and, finally, credit cards (while it might be possible to shift balances to benefit from low- or no-interest teaser rates, the interest rate on these can be exorbitant).

In the end, while the 'best' way for a client to access extra cash will likely depend on their unique situation and holdings, considering the tax and other consequences of different options can allow an advisor to raise the cash their client needs while minimizing the effects on their overall financial plan.

Finding Certainty In A Sea Of Uncertainty

(Cullen Roche | Discipline Funds)

During periods of market volatility, it can be tempting for clients (and their advisors?) to focus on the latest headlines and market movements. While this can provide a sense of awareness of how markets are behaving and what might be driving them, following the news alone doesn't change any planning outcomes by itself (and could lead to temptation to make trades outside of a set investment policy statement).

Instead, advisors and their clients can consider several actions that are within their control and could solidify the client's financial plan. To start, an analysis of a client's cash needs can signal whether current cash holdings are appropriate or whether additional dollars might need to be raised (which can provide a greater sense of security without engaging in a larger liquidation of assets). Advisors and their clients can also look for tax-loss harvesting opportunities (particularly if they are available in conjunction with a set rebalancing strategy). Another potentially constructive (and sometimes neglected) action for clients is to update their estate plan and beneficiaries to ensure they meet the client's current preferences. Advisors can also support clients by serving as a sounding board for their concerns (in some cases, clients might be able to de-stress by getting them out in the option, while others might benefit from an advisor's reassurance that they created their financial plan to weather a variety of market contingencies).

In sum, given that many clients' first instinct during periods of market volatility is to 'do something', advisors can add significant value by identifying areas (often beyond their portfolio) where clients can take action that is constructive, rather than potentially detrimental, to their financial plan and goals!

The Surprisingly Superior Empathy Alternative: Compassionate Objectivity

(Tim Maurer and Tony Welch | Financial LIFE Planning)

Financial planning often involves emotional conversations with clients, particularly so during periods of market turbulence. In these instances, it can feel natural for advisors to show empathy (i.e., putting themselves in their client's shoes) to build stronger ties with the client and to better understand the issues they're facing. Nonetheless, because engaging in empathetic behavior can be emotionally draining for an advisor (and might not necessarily lead to a successful planning solution), some might seek an alternative that strengthens client trust and improves decision-making while helping them avoid burnout.

One such approach, "compassionate objectivity" starts by having the advisor listen with presence rather than absorption (e.g., using phrases like "I see how hard this is for you" instead of "I know exactly what you're feeling"). Next, the advisor can validate the client's concerns (e.g., "I can understand this feels overwhelming") without sensationalizing (e.g., "That's horrible!") or labeling emotions (as either good or bad). The advisor can then help clients broaden their perspective and stretch their timelines, as focusing on their long-term wellbeing might make tough near-term decisions more palatable. Finally, advisors can set emotional boundaries for themselves, stepping back to refocus on their role when they're feeling emotionally drained.

Ultimately, the key point is that while advisors often have close relationships with their clients, taking on clients' emotions can be exhausting and perhaps ultimately counterproductive. Which suggests that taking a step back to help the client (and themselves) see the current situation more objectively (while still acknowledging the challenges their client is facing) can help advisors give the best possible financial advice while also nurturing a trusting relationship with their client.

Affirmations: Helping Others Feel Motivated

(Derek Hagen | Meaningful Money)

For many prospective clients, approaching a financial advisor can be an anxiety-inducing action, in part because they might be afraid that the advisor will 'judge' them for perceived financial missteps (perhaps made in response to a market downturn?). Given that advisors are in the business of helping clients live their best lives going forward (rather than judging them for past actions) approaching these conversations with care can help prospects feel empowered (rather than embarrassed) and, hopefully, make the decision to become a client.

One way to help prospective (or current) clients feel motivated is for the advisor to offer affirmations, highlighting the individual's strengths and efforts. For instance, rather than judging a prospect based on their previous financial moves, an advisor can flag that merely scheduling a discovery call is a positive (and perhaps emotionally challenging!) step they took to improve their financial lives. Notably, affirmations can be used alongside other active listening techniques to encourage more positive conversations. These include asking open-ended questions (to encourage the prospect to engage in deeper thinking), reflections (restating what the prospect said to show understanding), and summaries (which can help the prospect 'connect the dots' of their situation). In this way, advisors can give prospects the encouragement and clarity they need to move forward.

In sum, while advisors might be tempted to jump right in with potential ways they can add value for prospective clients, taking the time to listen to their concerns and finding opportunities to offer affirmations can put the prospect in a positive emotional state and, ultimately, give them the confidence needed to make the leap to becoming a financial planning client.

Questions To Ask Clients To Foster Understanding Rather Than Agreement

(Meghaan Lurtz | (Less) Lonely Money)

For financial advisors, it can be tempting to seek a client's agreement with a recommended course of action, perhaps laying out action items and asking "Do you agree that this is the right direction to take?". While the client might agree on the proposed path, the lack of depth to the conversation could leave the client with lingering concerns or the feeling that their advisor doesn't fully understand their preferences and needs.

With this in mind, advisors can use strategic questions to gain a better understanding of where their clients are coming from and perhaps shape better planning outcomes in the process. For example, when exploring values, instead of asking "Would you agree that saving for retirement is the most important priority?" (and 'agreement' question), a more understanding-based approach might be to ask "What feels most important to you about saving for retirement?". Or when clarifying expectations, an advisor seeking agreement might 'ask' "So we're on the same page, right?", whereas an advisor looking to better understand the client could ask "Is there anything you feel is missing?". Another related tool to promote understanding is restating a client's perspective in one's own words and asking for confirmation. Which can shift the focus from gaining agreement for the advisor's idea to uncovering the 'why' behind the client's perspective.

In the end, while getting agreement from a client is necessary to implement financial planning actions, taking the time to allow clients to air any clarifications or reservations can help to ensure they feel understood, and, ultimately, are more committed to their financial plan and their relationship with their advisor!

Understanding And Dealing With Burnout

(Joy Lere | Finding Joy)

Given the various responsibilities on their plates, financial advisors can feel stress during 'normal' work periods (though tend to show solid levels of wellbeing overall). While a certain level of stress can be healthy, it can sometimes morph into burnout, which is particularly pernicious not only for an advisor, but also for their firm as well.

Psychologist Christina Maslach developed a three-dimensional framework for describing burnout, which includes emotional exhaustion (i.e., feeling chronically drained physically and mentally), depersonalization (i.e., developing a sense of indifference towards work and colleagues), and diminished sense of personal accomplishment (i.e., feelings of helplessness and apathy). Notably, professionals who are responsible for the welfare of others (including financial advisors) are particularly susceptible to burnout.

Given the dangers of burnout, individuals can take steps to prevent it, including setting boundaries around work, getting sufficient sleep, assessing whether certain meetings are necessary, and delegating where possible. In addition, firms can help prevent burnout among their staff as well by conducting regular check-ins with employees, having leaders set an example of maintaining healthy boundaries, providing employees with autonomy and flexibility in how they complete their work, and ensuring that managers are acting with high emotional intelligence (as one study suggests that for almost 70% of people, their manager has more impact on their mental health than their therapist or doctor, and equal to the impact of their partner.

Ultimately, the key point is that preventing burnout isn't as simple as taking a few days away from work. Rather, it requires commitment from companies to identify and mitigate potential causes of burnout and employees themselves to set the boundaries they need to ensure they can do quality work without becoming overwhelmed!

The Benefits Of Slowing Down

(Jack Raines | Young Money)

In the modern age, "busyness" is often seen as a virtue, with the thinking that time not spent on some sort of productive activity is perhaps wasted. However, being intentional about taking breaks once in a while can ultimately lead to better productivity.

For example, weightlifters don't build muscle mass just by workouts alone. Rather, the rest they take between lifts are the actual catalyst for muscle growth. Turning to the financial planning world, an advisor might block off time to write a series of blog posts. However, sitting in front of the computer might not be the best way to think up new ideas. Instead, the advisor might decide to step out for a "non-productive" walk which might ultimately lead to more blog ideas (given the freed up mental space and lack of distractions available when walking). More broadly, taking time away from the office to recharge (without checking email or messaging tools!) not only could lead to more energy and greater productivity upon returning to work (and help prevent burnout), but also could inspire out-of-the-box ideas that might not have come to mind during the regular day-to-day grind.

In sum, productivity is not simply a matter of being "active" in the moment but rather a function of finding the practices that spur both creativity and 'nose to the grindstone' work. Which suggests that taking time away from work for unadulterated relaxation could be seen as an accelerant rather than a hindrance to productivity?

A Simple Matrix To Help You 'De-Prioritize' And Win Back Time

(Sophia Bera | Gen Y Planning)

The dictionary defines "priority" as something meriting attention before competing alternatives. In the working world, this suggests that only one to-do could be a 'priority' at a given time. Nevertheless, many advisors might find themselves with a long list of 'priorities', which can lead to confusion (and stress) over which should be addressed first.

Given this backdrop, one possible approach is to 'de-prioritize' certain 'priorities' to focus on what matters the most. One way to do this is by using the "Eisenhower Matrix" which categorizes tasks based on whether they are urgent and important (i.e., do they align with one's overarching goals). Tasks that fall into the 'not urgent and not important' box could be de-prioritized (or eliminated altogether?), while those in the 'urgent and important' box are likely to be better choices to take on as soon as possible (while 'urgent and not important' tasks might be delegated to someone else or automated and 'not urgent and important' tasks might be scheduled in for later on).  Notably, given the number of tasks and potential priorities on one's plate at a given time, using a project management system (e.g., ToDoist, Asana) not only can keep tasks organized (rather than trying to keep them all on a written 'to-do' list) but also allows for prioritization of both personal and professional tasks (and setting deadlines for them!).

In the end, it's impossible (or at least very stressful) for every item on one's to-do list to be a true 'priority'. And given the limited number of hours in a day, the ability to 'de-prioritize' items that are, in reality, either not urgent or not important can both save time and ensure that the most valuable tasks are completed.

---

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.