Weekend Reading for Financial Planners (Nov 16-17)

Author: Michael Kitces

Team Kitces

Michael Kitces is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near- and current retirees, and Buckingham Strategic Partners, a turnkey wealth management services provider supporting thousands of independent financial advisors through the scaling phase of growth.

In addition, he is a co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, the former Practitioner Editor of the Journal of Financial Planning, the host of the Financial Advisor Success podcast, and the publisher of the popular financial planning industry blog Nerd’s Eye View through his website Kitces.com, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

Read all of Michael’s articles here.

Advisor Group Creates Giant IBD By Buying Ladenburg Thalmann (Bruce Kelly, Investment News) - This week, independent broker-dealer Advisor Group announced that it is acquiring fellow IBD network Ladenburg Thalmann for $1.3B, which, combined, would result in the 2nd largest independent broker-dealer (behind only LPL) with a whopping 11,500 advisors overseeing nearly $450B in assets across the 9 network broker-dealer subsidiaries (Royal Alliance, FSC, SagePoint, and Woodbury under Advisor Group, alongside Ladenburg's Investacorp, Triad, Securities America, Securities Service Network, and KMS). Notably, the $1.3B purchase price, when Ladenburg posted $1.38B of total revenue through the end of 2018, suggests that the IBD was still 'only' purchased at just over 1X its trailing 12-month revenue (relative to a more common 2X multiple for independent RIAs). No retention bonuses are expected to be paid, in part because the integration effort is anticipated to be minimal, with no re-papering required (as both firms already use BNY's Pershing and Fidelity's National Financial for clearing), and a stated plan of maintaining the "small-firm feel" of each of the various networks' subsidiary broker-dealer brands, but with an ongoing focus (already common industry-wide) of continuing to transition from a traditional transaction-based brokerage model into fee-based advisory relationships. The Advisor Group acquisition will also include Ladenburg's Highland Capital insurance brokerage, and Premier Trust's trust services, which are expected to become available to Advisor Group brokers in the future.

A Matter Of Degree: With So Many CFP Programs, How Can Advisors Find The Best Future Planners? (Maddy Perkins, Financial Planning) - With the ongoing growth of financial planning, there are now 145 undergraduate baccalaureate CFP Board-registered programs, many of which are going beyond 'just' the typically-6 core educational classes of the CFP Board's own curriculum to provide a more enriched and holistic education for future financial planners. The caveat, however, is that not all programs teach the same skills and content beyond the core 72 learning objectives outlined by the CFP Board, which makes it difficult for firms hiring rising graduates to figure out which programs are producing the young professionals with the best educational and skills foundation. Not to mention that prospective students themselves may not be able to determine which CFP Board undergraduate programs will best prepare them for their future careers as financial planners (or not). On the other hand, some argue that the breadth of planning programs is a positive, because it gives students a wider range of paths to explore, and may accommodate a wider range of learning styles. And in practice, often planning programs differentiate in other ways - for instance, by trying to help shift accounting majors into financial planning, or to feed new students specifically into large-firm or small-firm environments. Still, though, in the past, it was adult educational certificate programs that made up the majority of all CFP Board programs, while now the majority actually are undergraduate or graduate degree programs, which are leading to at least some standardization in CFP educational programs as best practices are identified and shared. And Financial Planning magazine has actually created a new list of the top 105 schools (including details on their enrollment, tuition, and student-faculty ratios), along with Wealth Management that is creating its own 'evidence-based' ranking list.

Is It Time To Invest In A CTO? (Kelli Cruz, Financial Planning) - While the business of financial advice is still very much about the human advisor-client relationship, as technology drives more and more of the back and middle office of an advisory firm, a number of firms are starting to hire a CTO (Chief Technology Officer) as an executive-level position. At its core, the job of the CTO is to steer the firm's technology strategy and implementation, determining what technology systems need to be implemented to achieve the business' long-term strategic goals, along with figuring out the right database architecture and technology infrastructure, and being responsible for the firm's information security (i.e., cybersecurity), along with handling (or at least overseeing) on-site tech support for the firm's own employees. In fact, because the CTO's job is to make the firm itself run more efficiently, the "client" of the CTO is effectively the firm's own employees, with a focus on making it easier for them to do their own jobs. CTOs often also end out with responsibility to build better internal data reporting and tracking for the business, to enable it to more effectively track its own business health and make quicker and better business decisions. However, such CTO roles often don't show up in an advisory firm's organization chart until the firm has 50+ employees (which may be anywhere from $1.5B to $3B of AUM); smaller firms, though, may still look to hire an "IT manager", "database manager", or similar role to handle at least some of the on-site technology and manage the firm's core software systems.

Is This The Most Sought After Job In Wealth Management? (Michael Thrasher, RIA Intel) - At Dynasty Financial Partners (which provides a platform to large breakaway brokers transitioning to independent RIAs, with nearly $40B on platform), one of the most popular roles is a "Chief Of Staff" to Shirl Penney, the firm's founder and CEO. The core function of the Chief Of Staff role is akin to an administrative assistant, managing Penney's calendar and travel schedule, as well as being a stand-in for conflicting meetings when Penney can't be in two places at once. But as the Chief of Staff becomes more efficient at the core duties, they tend to take on additional projects of interest, which are both valuable to the business itself, and ultimately become a training ground for the Chief of Staff to take on a further leadership role in that area. Accordingly, after 1-2 years in the Chief-of-Staff role, such employees for the firm have gone on to become Dynasty's Chief Financial Officer, Chief Administrative Officer, and their managing director of Relationship Management & Transition. Notably, though, Dynasty doesn't tend to hire the (next) Chief of Staff role by listing it online; instead, most come to the role as stand-outs from the firm's summer analyst program or is otherwise someone that Penney believes would be a good long-term employee but who lacks the skillset for the roles that happen to be open at the time, giving the firm the opportunity to either put their talent to use elsewhere (as Chief of Staff) until a role opens up, or to groom the employee for a different/better opportunity in the future (while leveraging Penney's own time and efficiency along the way).

Your Employees Have All The Creativity You Need. Let Them Prove It. (Nilofer Merchant, Harvard Business Review) - Creativity in business is crucial to everything from problem-solving to finding new business opportunities, often driven by a 'visionary' at the top of the organization who powers forward their most creative ideas. But Merchant suggests that in practice, creativity may stem from the top simply because most businesses don't give their employees enough chances to be creative in the first place, and that the three core acts of creativity - idea generation, decision making, and independent judgment - are often not even called upon or exercised in an estimated 60% of workplace roles in the first place. So how can firms surface employees' best ideas, and engage them more directly in the first place? Merchant suggests running an internal "hack-a-thon" (or "idea-a-thon"), an internal contest where all employees across the organization have an opportunity to surface a new idea, show management how it would work, and if selected, have their project funded. To avoid an unmanageable number of company-wide submissions, and also to promote teamwork and collaboration, the company asked employees to band together to submit ideas, and then map out a plan (whether for new revenue generation, growing their existing market, or saving costs), and make the case for why their idea mattered. Notably, the benefit of such approaches is that it makes it possible for new ideas to come even from unexpected places - one usually-not-viewed-as-creative employee turned out to be a "foodie", gathered together with other foodie employees, and pitched a new on-site cafeteria service that significantly improved food quality with little impact on cost, while another came up with a use-the-stairs health initiative that ultimately helped the company cut its health insurance costs. The key point of the approach, though, is simply to eliminate 3 classic myths of creativity: 1) that not everyone can be creative (when in reality, virtually anyone can come up with some ideas about how to make changes that would improve their lives and situation); 2) having a process limits creativity (it doesn't, unless the process itself is broken); and 3) that pay drives creativity (in practice, the positive outcomes of creative ideas are often intrinsic motivation unto itself!).

Narrow Your Message And Diversify Your Marketing (John Anderson, SEI Practically Speaking) - If a client were to walk into an advisor's office with 100% of their portfolio in a single stock, the advisor would immediately recommend to diversify, but Anderson suggests that many/most advisory firms are engaging in the exact same behavior by fully relying on only one channel for growth: referrals, which Anderson argues is not only risky, but may simply be a result of the fact that advisors are spending so little on any marketing at all that referrals may be all that's left in the absence of any other marketing efforts (rather than being a deliberate strategy unto itself). And because most people by adulthood have a fairly static set of friends and acquaintances without many new relationships forming for most, there is a very real possibility that at some point an advisory firm fully taps out all the available friends and family referrals of their existing client base. Notably, though, the point of diversifying the firm's reliance on referrals is not to go after an even-wider range of clients - as the saying goes, "if you are marketing to everyone, you are reaching no one", but instead to hone in on the firm's ideal target client with a formally written "client persona", clearly define the value proposition to that target client, and then market to that specific target client with the right value proposition across multiple diversified marketing channels (e.g., workshops and seminars, COI referrals, networking meetings, social media and blogging, etc.).

Five Signs Your Niche Isn't Working For You (Patrick Brewer, Advice Reinvented) - While the benefit of having a niche is the ability to narrow down your target clientele, and then stand out from the crowd by crafting a more targeted and relevant value proposition for them (that is in turn easier to market to them), there's also a fundamental risk of choosing the "wrong" niche and overly focusing on clients that can't actually support the business. So what are the primary signs that a niche might not be the right fit after all? The first is whether you're having trouble finding those niche clients in the first place, as if you can't figure out where/how to find them, it's a signal that either the niche isn't well defined, or that it may be too narrow (at least/especially if building in your local geographic area). Similarly, if it's difficult to come up with networking opportunities to connect with those in the niche, it may either be a 'bad' niche, or at least a too-poorly-defined one. Another concern is if the advisor is having trouble closing the prospects in the niche that they are finding, either because they don't find the offer compelling (which means the niche's actual financial needs and pain points may not be well defined), or because they don't want to or can't afford to pay the advisor's fees (which suggests shifting to another niche that has better financial wherewithal to pay the advisor for their services). And of course, because going deep into a niche means working a lot with that type of client in the future, it's also important to do a gut-check that the advisor actually enjoys working with the niche and has (or at least can develop) a passion for serving them in the first place!

For RIAs, Can A Publicist Make A Nobody A Somebody? (Gary Stern, RIA Intel) - Many financial advisors over the years have built successful businesses at least in part by leveraging the media, but in an increasingly crowded landscape, it's arguably harder than ever to break through in traditional media. And at the same time, the accessibility of social media theoretically means "anyone" can effectively establish a (digital) media presence for themselves. Which raises the question of whether working with a publicist or PR (public relations) firm is still a relevant advisor marketing strategy in the modern era? At a minimum, PR experts suggest that advisory firms that are going to stand out must still be able to clearly differentiate themselves with some kind of niche or specialization... and then hire a PR firm that understands how to effectively pitch and position that particular niche to stoke the media's interest. Though it's also important to recognize that developing business through the media, especially for one who has a niche, is often not about being quoted in high-profile (but not necessarily high-converting) publications like the Wall Street Journal, but instead more niche-oriented publications most likely to be read by the advisor's target niche audience in the first place. With the proliferation of media channels, PR firms are also getting more creative about what kind of content to push out - for instance, going beyond 'just' press releases, and trying to get an advisor's videos streamed on other media platforms. Yet again, in a social media age, many advisors are finding similar results by simply creating their own video or written content, launching their own blog or YouTube channel, and building an audience themselves (at least if they have some natural skillset to build in that direction in the first place).

Insecure About Blogging? Write A Letter! (Susan Weiner, Investment Writing) - One of the biggest challenges in sharing expertise through writing or video (i.e., "blogging") is that we're uncertain if we have enough expertise to share, and/or if we're a 'good enough' writer or speaker to produce something that others would want to read or view. And the fear can persist even for those who really do have deep knowledge (e.g., CFP certification or even beyond) and experience beyond the average consumer (also known as the "Imposter Syndrome"). To overcome the Imposter Syndrome and build confidence, Weiner suggests an exercise from Dr. Kristin Neff's "Self-Compassion: The Proven Power Of Being Kind To Yourself", which suggests that you write yourself a letter from the perspective of "an imaginary friend who is unconditionally loving, accepting, kind, and compassionate... [imagining] that this friend can see all your strengths and all your weaknesses, including the aspect of yourself you have just been thinking about." Then have that friend write a letter to you, considering what that friend would say about your writing or speaking skills, knowledge of potential topics, etc., recognizing that even for those weak at writing a friend might say "Writing is a skill that can be improved, you don't have to be perfect!" and "It's OK to discuss topics that others have discussed, because they're perennial concerns for your clients and prospects", and "Please blog, you have so much to contribute". Then, listen to your imaginary friend!

The 2010s Broke Our Sense Of Time (Katherine Miller, Buzzfeed News) - One of the seeming legacies of the decade of the 2010s as it comes to a close is the way that "time has melted", in a world where The Office may still be the most popular show in the US (6 years after it ended), Facebook shows you a mixture of posts that are happening real-time and from days ago, social media memes go viral (often by calling up moments from long ago), and we continuously catalog the passage of our own lives on services like Instagram and Twitter. The irony, of course, is that our ability to tell and track time has never become more precise, and in the past the media we engage with actually helped to keep us on track with time (e.g., the morning news, daytime soap operas, the evening news, can't-miss TV evening sitcoms, and the Tonight Show). Now, instead, we can binge-watch all at once, potentially losing any sense of narrative with the passage of time, and vanishing the common experience of the 20th century when millions of people could share the experience of tuning in for a major television event all at once (e.g., the series finale of MASH or ER). The shift has clearly been accelerated by the rise of the smartphone - where only 35% of adults owned one in 2011, but 81% do now in 2019 - as the social media systems built and/or scaled at the beginning of the decade have now become ubiquitous, culminating in a world where people buy watches that don't tell time anymore. Though arguably, the most distorting experience of all may be the rise of the "algorithmic timeline", where services like Facebook and Twitter effectively 'bend time' by changing the sequence of events that appear in your timeline based on what the algorithm predicts you'll want to see, and not necessarily a representation of what (or how) it actually happened... though with a rising backlash against the role and influence of such platforms as the decade comes to a close, the question rises of whether in the 2020s we will rebel against "algorithmic time" and try to regain our sense of the natural passage of time and events once again?

Why Don't We Know How To Protect Our Time? (Ryan Holiday, Forge) - Time slips away in innumerable ways, from the neighbor who stops by and babbles on (to which we nod politely, even if we're in a hurry), or the co-worker who starts to gossip and draws us in. And the phenomenon isn't new; even ancient Greek Stoic philosopher Seneca once noted "No person hands out their money to passersby, but to how many do each of us hand out our lives! We're tightfisted with property and money, yet think too little of wasting time, the one thing about which we should all be the toughest misers." So why the ongoing struggle? Holiday suggests four likely reasons: 1) as medical advances continue and we live longer than ever, it may seem like we have more time than ever (ignoring that lifespans are averages, nothing is guaranteed, and that time, like money, compounds when you focus it in the directions that matter most); 2) we're afraid people won't like hearing "no" so we say "yes" (or "maybe"), until eventually you realize that even saying "yes" to one thing still means you're saying "no" to something else anyway (that you'll no longer have time for); 3) we don't value ourselves enough, effectively putting the risk of hurting someone else's feelings by saying "no" over our own needs for time; and 4) we haven't developed the muscle required for establishing and then enforcing boundaries (arguably harder than ever in a digital age where messages can reach us anywhere and everywhere through our smartphones!). As a starting point to address the problem, Holiday suggests that instead of just saying "no", say "yes" to something else instead (i.e., "No I can't do that, but I am willing to do <some smaller commitment> instead"), and be cautious about putting yourself in a position that will make it hard to say no in the first place (e.g., be wary of accepting those 'quick calls' and 'quick coffee meetings' that may escalate further into asks you don't have the time to give to).

The Ultimate Productivity Hack: Saying "No" (James Clear) - While it's nice to improve productivity by figuring out how to do something faster and better, just saying "no" and not being obligated to do something to begin with will always be faster than doing it (just as there's no faster meeting than the meeting that doesn't happen at all!). In practice, though, it's astonishingly hard for most to say "no" in the first place. In some cases, it's because we don't want to be seen as rude, arrogant, or unhelpful. In other situations, saying "no" means also weighing the ramifications to the relationship in the future (e.g., saying "no" to someone from whom you might need to ask a favor yourself down the road). Clear suggests that one of the best ways to handle the situation is to recognize the different stakes between saying "yes" and "no" in the first place, as ultimately saying "yes" moves forward towards that one thing, but also implicitly says "no" to anything and everything else that might have been done with that time instead. Or viewed another way, saying "yes" costs you time in the future and is effectively a form of time debt, while saying "no" is a form of time credit where you retain the ability to spend that time however you want in the future. And if it will take a certain amount of time and focus to accomplish your goals, that means it's especially important not to accrue time debt in directions that don't advance your goals in life, or as Steve Jobs put it: "People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully." In other words, saying "no" doesn't mean you'll never do anything interesting or spontaneous; it just means that you say "yes" in a more focused manner, which is especially important as you become successful and the opportunity cost of your time increases (which actually necessitates saying "no" to more and more over time, as opportunities that might have been compelling early on become less so as your business/career and time-opportunity costs grow). Or failing anything else, just take the Derek Sivers approach, where anything you're considering is either a "Hell Yeah" or a "No"... so if your immediate gut reaction on something you're asked isn't "Hell Yeah", don't spend any more time deliberating on it! (And you may also find yourself to be happier when most/all of what you do are things that you said "Hell Yeah" to wanting to do in the first place!)

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

In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.