Executive Summary
Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the latest updates from the SEC on Regulation Best Interest, acknowledging a growing confusion for hybrid broker-dealers (and the consumers that work with their representatives) in trying to delineate when it's permissible to advertise as a financial advisor (or not), when a representative's fiduciary duty applies (or not), and when and what disclosures must be made when an advisor takes off their advisor hat and puts on their broker hat instead.
Also in the news this week are a number of big announcements on industry diversity efforts, including a series of 25 new scholarships from the American College for Historically Black Colleges and Universities (HBCUs), a new $500,000 donation to the AAAA (Association of African American Financial Advisors) Foundation to support next-generation Black CFP professionals coming through CFP Board-registered programs at HBCUs, a look at how sustaining improved diversity in the industry is about not just improving the pipeline of diversity but also the entry-level job opportunities (to go beyond sales-based jobs that have a disproportionately high failure rate), and a powerful reminder that being 'blind' to the color of an advisor's skin can still hinder diversity because doing so implicit ignores the positive value of the differences in thinking and perspectives that come from a diverse team.
From there, we have a number of marketing-related articles as well, from a look at the difference between "blanket" (broad-based) and "target" (focused) marketing, how to choose a prospective target market when you're already a generalist with a broader client base, how to refine your marketing once you've selected a more focused target market, and why it's so important to think about the audience you really want to reach when marketing (and recognizing that in the end, you can go deeper with them or broader to reach more of them, but it's very difficult to do both at the same time and periodically it may be best to switch from one to the other!).
We wrap up with three interesting articles, all around the theme of pricing and the value of an advisor's services: the first explores how to handle prospective clients who try to negotiate and haggle down the advisor's fee; the second explores how pricing your time by the hour can change your own thinking, in ways that may be good for growing your business or career but risk over-focusing on income growth at the cost of sacrificing the happiness that in theory more income was supposed to bring; and the last explores the concept of Value-Based Pricing and the power of pricing, not based on what your time is worth as an advisor, but what the time and value being delivered is worth to the client instead!
Enjoy the 'light' reading!
SEC Updates Reg BI Info For Dually Registered Advisers Using 'Advisor' Titles (Mark Schoeff, Investment News) - In an update this week to its Frequently Asked Questions (FAQ) on Regulation Best Interest, the SEC provided further clarification on how hybrid broker-dealers can market themselves in providing financial advice to consumers, particularly in situations where not all of their brokers are actually dually registered under the firm's corporate RIA to be legally permitted to give advice in the first place, controversially affirming that as long as the firm offers both advisory and brokerage firms, it can describe its representatives as "financial advisors" and then just subsequently disclose when making recommendations to the client that the individual is not actually serving as a financial advisor when making the recommendation. On the other hand, in situations where an advisor is dually registered as a broker and as an investment adviser, the SEC indicated that the representative is expected to adhere to the standards of both Regulation Best Interest and the Investment Advisers Act (effectively subjecting them to the higher '40 Act fiduciary standard) until their role is specifically delineated as providing brokerage services. As a result, the SEC will still place significant (fiduciary) scrutiny on the recommendations of dual-registrants about when clients should be engaged with advisory versus transaction-based brokerage accounts in the first place... and raising questions of whether brokerage firms may choose to begin separating their brokers and investment advisers to reduce fiduciary scrutiny on those representatives still acting predominantly in a brokerage capacity?
New HBCU scholarships To Forge More Paths Into Wealth Management For Black Professionals (Tobias Salinger, Financial Planning) - This month, at its Conference of African American Financial Professionals, the American College of Financial Services (provider of the CLU, ChFC, and RICP designations, in addition to being one of the largest CFP Board-registered educational programs) announced a series of 25 new scholarships for its designation programs, including 15 new scholarships specifically for students from Historically Black Colleges and Universities (HBCUs). The news comes as national protests regarding racial discrimination have brought attention to the severe lack of diversity in the financial services industry in particular, where Black advisors comprise fewer than 2% of the total 87,000 CFP certificants. The scholarship itself will be available to Black undergraduates who have completed their sophomore year and is part of a broader four-part plan from the American College for "promoting racial equality and financial well-being", which also includes the development of financial literacy programs for Black women, creating and executing community-focused initiatives to support the creation of Black wealth, and identifying and developing next-generation Black leaders at financial services firms.
Carson Group To Give $500,000 For Next-Gen Black CFPs (Jeff Berman, ThinkAdvisor) - This month, the Carson Group announced that it is donating $500,000 to the AAAA Foundation, a non-profit extension of the Association of African American Financial Advisors, founded by LeCount Davis (the first Black financial advisor to earn CFP certification in 1978). The AAAA Foundation awards merit-based scholarships to support the development of African American financial advisors and conducts research on how best to advance financial planning in African American communities, and Carson's contribution will support CFP Board-registered financial planning programs at four HBCUs that work closely with the AAAA Foundation - Delaware State University, Clark Atlanta University, Prairie View A&M University, and North Carolina A&T - to help support the continued growth of CFP programs as a pathway for Black college students to enter the financial planning profession.
Financial Planning Profession Making Great Strides To Develop Diversity But More Can Still Be Done (Luke Dean, Investment News) - Just as with the work of a teacher in trying to develop students, efforts to improve advisor diversity are never "done", but simply part of a journey of continued growth and development. As a result, while there have been significant shifts in recent weeks and months to better promote industry diversity, from the CFP Board hiring D.A. Abrams as its new director for the Center for Financial Planning, TD Ameritrade earmarking some of its national scholarships for diverse students, Schwab creating and sponsoring high school Financial Planning Academics (including two in locations that have a higher percentage of diverse students), and a joint effort from Pershing Advisor Solutions and JPMorgan to train and encourage more women to enter financial planning, supporting the pipeline of more diverse new advisors coming into the industry is still only the first step. Even for prospective advisors of color seeking to get started, finding the first internship or first job can be very tough, especially for roles that allow for meaningful learning and don't simply require new advisors to begin to prospect and sell from day 1. In other words, improving advisor diversity isn't only about improving the pipeline of diverse talent, but also increasing the diversity of entry-level career paths into the profession.
Why I Bristle When People Say 'I Don't See Color' (Allan Boomer, Financial Planning) - A growing base of business research shows that having diversity in your business isn't simply a matter of supporting diversity for its own sake, but that diverse organizations make better decisions. For instance, a McKinsey report found that companies with more culturally and ethnically diverse executive teams were 33% more likely to see better-than-average profits, and a Credit Suisse study found that companies where women make up half of senior managers produced 10% higher cash flow returns on investment than the benchmark MSCI ACWI index. And in general, if you believe that talent in the world is evenly distributed but opportunity may not be, the financial services industry, in particular, is missing out on a lot of talented people by not effectively supporting diversity and making advisors of color feel included. The key though, is that one of the benefits of diverse talent, over talent "in general", is that diverse talent brings more diverse perspectives that contribute unique value to the organization - thus why the research finds that diverse organizations of talent are beating out the average organization that may hire 'just' for talent alone. Which is why Boomer, as an advisor of color himself, bristles when someone says they "don't see color" in supporting diversity. Because the whole point is not simply to be color-blind in hiring and recruiting, but specifically to recognize the substantive value in the differences that diversity brings to the table. In other words, it's not about being blind to color differences, but actually celebrating those differences because of the different ways of thinking it can engender for a team and business.
Blanket Versus Target Marketing (Philip Richardson, ThinkAdvisor) - From a marketing perspective, one of the keys to being cost-effective is figuring out how to narrow your message and target audience so you only have to pay for advertising and marketing efforts towards those who are most likely to actually engage with your services. For instance, if you're focusing on retirees, you don't have to worry about spending money sponsoring events or publications that aren't focused on seniors; if you're targeting retirees from a particular company, you can further focus your marketing efforts towards events and publications those particular employees read; and if you're targeting just the retiring executives from that company, you can further refine your content and marketing messages to what will resonate with them in particular. And with more and more market research data - and increasingly refined marketing tools like Facebook - it's becoming feasible to get even more hypertargeted by age, income, assets, zip code, and more. For some, though, it's difficult to decide what that ideal target market should be; the alternative then, according to Richardson, is "blanket" marketing instead. The goal of blanket marketing is to 'blanket' your message as widely as possible, and let all those who might be interested opt in in order to delve in further, whether by sending out Direct Mailers, advertising in the local community newspaper, or pursuing (local) media on television or radio. In Richardson's approach, they conduct a series of 10-20+ marketing events, and then market them very widely, in an attempt to capture a broad slice of the market and let anyone who is interested raise their own hand (rather than trying to target them more specifically upfront). Which, notably, can sometimes even reach prospects that aren't on anyone else's target market list or radar screen. Either way, though, be certain to measure the Client Acquisition Cost (what it takes in spending to get the client) in the first place, to know if the marketing effort - whether target or blanket - is doing its job well!
How Financial Advisors Can Choose A Target Market (Kristen Luke, Kaleido Creative) - One of the hardest aspects of choosing a target market as an advisor is that most build their businesses initially by being a generalist, accumulating such a wide range of clients that by the time it's time to specialize, at best it's no longer clear who to go after, and at worst there's a perceived risk of alienating all the existing clients who don't fit whatever the future target market turns out to be. Yet in an increasingly competitive environment, Luke notes that generalists are increasingly struggling with their own organic growth, as the marketplace is saturated by all the other advisors struggling with the same generalist trap. Which in turn is what makes having a target market so powerful - being able to meaningfully differentiate for at least some segment of prospective clients (recognizing it doesn't actually take very many ideal clients to create a great business!). In addition, targeted marketing can also simply be more cost effective - if it costs you $1 per mailer to get your message out, it's a lot cheaper to only send it to 3,000 'ideal' clients than all 100,000 in town in the hopes that a few will respond (or as Luke explains by analogy, if your marketing efforts are a drop of food dye, you'll make much more of an impression by dropping it into a glass of water than a swimming pool!). For advisors pursuing the strategy from a generalist base, though, Luke suggests there's nothing wrong with starting with your existing client base to identify a potential ideal target. For instance, are there any commonalities amongst your existing clients (or in particular, amongst your existing top clients), whether by income, assets, profession, life stage, goals, motivations, or something else? As common threads begin to emerge, create a profile that broadly describes the group of prospectively-ideal clients - beyond just "high net worth" but into the details that really distinguish them from everyone else (e.g., foreign-born Brazilians who have established long-term residence in San Diego, or home-based business owners looking to open a retirement plan, or newly married couples who are blending families with young children from previous marriages). With a general profile created, the next step is to develop an entire marketing persona - a fictional representation of your ideal prospect, right down to the details of their name, their back story, and the (financial and other) challenges they may be facing... so you can effectively paint the picture of exact persona whom your firm is pursuing, to ensure that everyone across the organization is aligned in producing messaging and services that appeal to that ideal client!
4 Steps To Add Ideal Clients When You Can't Be All Things To All People (Amy Gordona, ThinkAdvisor) - In the early days of their careers, most financial advisors are taught to seek out anyone and everyone they can possibly get as a client, relying on the strength of their relationship, being in the right place at the right time, and the proverbial Game Of Numbers to eke out a critical mass of clients. The caveat, however, is that strategy will only take an advisor so far, especially in an increasingly competitive landscape for new clients, where the key is all about differentiating yourself to provide something unique that the competition doesn't. But what's unique and meaningful for one prospective client may be totally irrelevant for another, which means in practice it's almost impossible to identify what makes the advisor unique without first determining who the ideal client is (to understand what would be meaningfully unique for that particular clientele). Once that ideal client profile has been set, though, it's possible for the advisor to focus in on whatever they can uniquely bring to that target clientele, and effectively highlight it in their marketing. For instance, once the ideal client profile is determined, it makes sense for the advisor to audit their own website, evaluating whether everything there really speaks to that particular client persona (i.e., what would that ideal client be Googling for, and what would they want to see that connects with them?), then refining the content on the website so it's optimized for prospects who might be searching for that information and those unique qualifiers (also known as Search Engine Optimization or SEO), and finally beginning to cultivate a social media presence - not to connect with other advisors or the general public, but specifically targeting messages to those ideal prospects that the advisor would want to work with and have their messages resonate with!
Who Are You Talking To? (Josh Brown, Reformed Broker) - In the end, any kind of marketing effort, from media to blogging, social media to advertising, is about sending a message to an audience who will see/hear/read it. Which means the key to marketing is not really about what the message is, per se, but first really understanding who you are trying to talk to in the first place. And understanding the ideal audience is important, because the reality is that there may only be so many of them in the first place... such that trying to always grow your marketing message may not always be helpful, as at some point the only path to growth is to talk to more people who are less likely to do business with you anyway, rather than doubling down on the audience you've got and trying to engage them more deeply. Ultimately, an advisor (or any business owner) might pursue going broader or going deeper, but Brown suggests that in the end, it's virtually impossible to do both at the same time; at some point, you have to focus on either going deeper (at the cost of expanding your reach), or expanding your reach (at the cost of not being able to go as deep). But notably, when it comes to blogging, podcasting, and digital marketing in particular, content is increasingly "opt in", where people choose to receive the written or audio updates (by following you, subscribing, etc.). Which means content marketing is perhaps uniquely suited to the opportunity to go ever-deeper - not just broader - with an audience who by definition is raising their hand and asking for more. The question for any and every advisor in the end, though, is simply to ask: when it comes to your marketing, are you trying to go broader, or deeper, and if you've been doing one for a while already, is it time to switch to the other for a while?
How To Avoid A Fee Face-Off (Brett Davidson, FP Advance) - Virtually any and every financial advisor who has ever charged a standalone fee for their services has faced a prospective client who was a negotiator... someone who wanted to haggle the fee down, and/or presents a "counter-offer" that the advisor must then decide whether to accept, refuse ("the fee is the fee!?"), or re-negotiate back with a counter-counter-offer. Davidson suggests, though, that the real issue with fee negotiating is that clients only ask to negotiate when they sense that the advisor isn't fully confident in their own fee in the first place. After all, those who are clearly supremely confident in their value, and can confidently and matter-of-factly state their fees, rarely get counter-offers from prospects or face fee negotiators, because it's clear that a counter-offer won't be entertained in the first place. And the clearer the advisor understands their prospective clientele and their pain points, the more straightforward it is to demonstrate how the advisor's expertise can fill in those gaps and make their fee more than worthwhile. Which means avoiding fee negotiating is really about asking more questions during the discovery process, to really understand what the client's true pain points are to begin with, and then framing the advisor's value in the context of how those problems will be solved (which should make the value so clear that discounting never has to be on the table). Notably, though, Davidson suggests that doesn't mean discounting should never be considered; but instead, the proper place for discounting is not in response to clients that haggle fees, but simply as a mechanism for the advisor to pick up activity when it's slow (e.g., discounting fees to fill your capacity for new clients because some client at some fee is often better than no client at the ideal fee)... but if so, only with a temporary discount (e.g., first-year only), that ends when the advisor no longer has slack capacity anymore!
Why Getting Paid By The Hour Can Make You Unhappy (Sanford DeVoe, Wall Street Journal) - A growing base of research finds that people who get paid by the hour see their time differently than those who get a salary. The good news is that measuring pay and compensation in hourly increments makes people focus more closely about the value of each hour and how they're spending it. The bad news is also that measuring pay and compensation in hourly increments makes people focus more closely about the value of each hour and how they're spending it. Because measuring by the hour both makes people more willing to rack up extra hours on the job if they believe it will bring them more cash... and it also makes them more willing to engage in networking that can create new business opportunities (or in the case of employees, networking with co-workers in the hopes of finding opportunities to boost their career and climb the corporate ladder). The caveat, however, is that while networking is generally a good use of time to boost one's career and earnings opportunities, it doesn't necessarily make them happier compared to taking the time for other more personal reasons. In fact, more and more research finds that one of the key ways to turn money into happiness is to use the money to buy more time for ourselves (whether for hobbies, family, personal time, or to volunteer in non-income-producing endeavors)... not to turn our time into more money-making (i.e., networking) activity. Of course, for business owners trying to manage productivity or grow revenue, the reality is that understanding the cost of time in the business and what it's worth is important. Nonetheless, it's also important to consider how directly that time=money equation is translated on an ongoing basis, both for the business owner and especially for the team the business employs, or risk creating such a focus on turning time into productive dollars that it actually decreases employee satisfaction and personal happiness!
A Quick Guide To Value-Based Pricing (Utpal Dholakia, Harvard Business Review) - The traditional approach to pricing a product or service is known as 'cost-based' or 'cost-plus' pricing, where the business determines the cost to produce (and market and sell) the good or service for the consumer, adds a reasonable profit margin to that cost, and sets that as the price. In the context of financial advisors, this is often seen in the pricing approach of determining the cost of a financial plan by the number of hours it takes to produce the plan (plus a reasonable profit margin on top). However, the reality is that a financial plan (or any good or service) doesn't have the same value to every consumer, even for an otherwise identical output. Which means pricing is not only a function of the good or service itself, and the cost to produce it, but also what it's worth to the end client buying it, such that different clients might pay very different rates for an otherwise-similar offering based on what it's worth to them. In a competitive marketplace, the key to value-based pricing is to understand how much more something is worth to a particular target client over the Next Best Alternative; for instance, if a generic financial plan might cost the client $2,500 from another advisor, how much more would a retiring client pay for a plan that specifically analyzes their tax-sensitive withdrawal strategy in retirement? As if in practice, that additional planning module only takes 1 hour (at $200/hour) to produce, but is worth another $1,000 of value to the client's peace of mind, the 'proper' price is not $2,700 (for the extra hour) but $3,500 (for the extra value)! Notably, though, value-based pricing doesn't necessarily mean deconstructing every aspect of an advisor's service and determining the incremental pricing of each... just the subset of services or solutions that matter (and impact the perceived value) the most and are the most clearly differentiated from the competition. The underlying point, though, is simply to recognize that just as value is in the eye of the beholder, so too is the willingness to pay one fee or another. Which means the key to effectively pricing (and maximizing the business value) of an advisor's services isn't just about delivering it efficiently to bring the cost down, but also targeting it effectively to those who will be willing to pay the most for the value that they perceive they'll get!
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, and Craig Iskowitz's "Wealth Management Today" blog as well.
The SEC (and, by extension, the 2nd Circuit) just can’t get their heads around the role that financial planning plays in establishing a fiduciary engagement – or not. The update covers the case when a person is already dually registered. But not when the scope of the proposed or existing engagement demands that the person be registered under Advisers Act.