Weekend Reading for Financial Planners (Jan 19-20) – Practice Management Edition!

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.

Weekend reading for January 19th/20th:

The Best Way to Get Referrals? Stop Asking for Them - This Focus article by marketing consultant Stephen Wershing in the Journal of Financial Planning looks at the process of getting referrals, and how awkward the process is typically done by advisors. For instance, imagine you've just finished a lovely meal at a restaurant with great service, and when the waiter brings you the check he also hands you a pen and paper and asks for the names of three people you know who like to eat out; how would you feel? The reality is that most clients don't give referrals because advisors ask; according to research from Julie Littlechild, only 2% of referrals are given because the advisor asked for a referral; the other 98% are mostly because a friend asked for a recommendation or described a problem for which the advisor was a solution. So how should you maximize referrals? Wershing suggests that the biggest key is to have a clearly defined target market that describes a need so people know what problems/issues/prospects to refer to you (just saying you work with "women" isn't enough). By being more targeted, you can also more clearly articulate what truly makes you different than everyone else for that group of niche prospective clients (as just saying you're "better" isn't enough either). If you're not sure where or how to really focus, Wershing suggests that interviewing your current clients can be a great way to get better perspective on what it is you really do that is unique and valuable to them (it's not always what you think it is!). Ultimately, the key is to have a target market and service offering that's so clearly defined, you don't even ask for referrals anymore; instead, referrals naturally flow to you, because you're so clearly the single best solution for people who match your target client description and have the needs those people have.

Convert Social Media Followers Into Clients- This article by Claudio Pannunzio on the FPA Practice Management blog provides a nice reminder that advisors engaging in social media need to remember that it's not just about growing the number of followers you have - as a business person, it's ultimately about converting them into (paying) clients! As a result, be cautious not to focus too much on how many "Likes" your Facebook page has, or how many times your blog post has been tweeted. Pannunzio suggests that the ultimate goal should be to turn your followers into "brand evangelists" - people who will sing your praises to their friends, family, and online connections, so you can actually meet people who are ready and willing to work with you. In turn, this means you need to drive your followers to action - get them to visit your website, and then have a Call-To-Action to get them to take another step (like contacting you or signing up for your newsletter). When you are viewed by your audience as an expert and a trusted source, you can grow your business, but remember that in the end social media metrics mean nothing on their own unless they grow in the context of strategically driving followers to help you grow your business.

Tools for Digital Age Marketing - This article by technology consultant Bill Winterberg in the Journal of Financial Planning looks at the rising trend of advisors using "inbound marketing" - where the advisor tries to draw prospects in by making appealing content that is easy to find - and the kinds of digital tools that are available to leverage the strategy. The core of a successful inbound marketing strategy is to provide quality content, which means you need some Content Management Software (CMS) to handle it, and Winterberg lists some of the most popular, including WordPress, Joomla, and Drupal. You will also need a way to stay compliant, which includes a way to ensure all of your online material is captured and archived, which can be supported by firms like Advisor Websites, Smarsh, or RegEd. Consider adding video as well; quality equipment can be obtained for less than $1,000, and you can host the video on YouTube, Vimeo, or Wistia. To make your material more appealing to mobile users, try creating Quick Response (QR) codes, which mobile devices can scan for quick access to a website; you can create QR codes easily for free using web address shortening site bit.ly, and make your site mobile friendly using OnSwipe. An improtant key for inbound marketing strategies is to make sure that first-time visitors turn into return visitors by getting their email address to send them an ongoing electronic newsletter; Winterberg suggests AWeber, Mailchimp, or Constant Contact as e-newsletter solution providers.

Data Mining: Finding the Perfect Client - From the January issue of Financial Planning magazine, this article looks at the rise of "wealth databases", which are companies that mine public data to gather information on affluent individuals, and then sell that information as marketing data to advisors; one company, WealthEngine, has data on a whopping 100 million households, and more than 10 million with a net worth greater than $1 million. The opportunity is not just getting a generic list of people that are high net worth, though; because of the richness of the data, one firm solicited 500 ultra-high-net-worth prospects with $20M+ of net worth who had contributed to the Democratic National Convention, and then ran a marketing event that was a $10,000-per-plate fundraising dinner for President Obama. In other words, it's possible to define a remarkably narrow and specific niche, generate a list of names, and target marketing and services that are uniquely relevant to that specialized group, which significantly increases the chances of success. The article provides some additional detail on a few of the major wealth database competitors out there, and what's unique about each (one follows public SEC data to track when highly compensated executives have options that are vesting, and another tracks potential merger & acquisition activity as well as layoffs that might trigger 401(k) rollovers).

Not Your Momma’s Financial Advisor - This article by Diana Britton from Wealth Management provides a nice profile of some innovative firms that are growing a business with Gen X and Gen Y clients, with not only services but an office environment built to be appealing to them. For instance oXYGenFinancial provides a sip of O₂ itself at an Oxygen bar, serves drinks like Yoo-Hoo and Fresca from a mini-fridge, and has a Wii gaming system in the lobby (for parents to have some fun, or to park the kids for entertainment while Mom and Dad meet with the advisor).In another firm, the walls are all glass to give a more open feeling to the office, and music from Pandora.com is streaming throughout the day. The office dress is often more casual as well; not necessarily jeans and a hoodie, but slacks and a comfortable shirt, and no tie or jacket. The point here isn't just about "tricking out" the office, per se, but in creating an environment that feels relevant to a younger clientele, who often are not impressed by marble floors and mahogany furniture. Notably, these new firms are also much more tech-savvy, engaging prospective clients through social media, putting information online and making it accessible from mobile devices, and using the technology to create a more interactive experience. While these younger clients don't necessarily have the money for million dollar limits, many of the firms are finding there's still more than enough assets for a viable business, not to mention the option for using retainer fees or being paid for the implementation of products those younger clientele need anyway.

Enhance Service and Profits With Workflows - On Morningstar Advisor, technology consultant Bill Winterberg shares his thoughts about the Fox Financial Planning Network, an organization focused on helping advisors to craft effective workflow procedures to ensure that clients receive consistent solutions and that the planning firm runs effiicently. What's useful about the Fox Network in particular, though, is that the organization doesn't just provide consulting to improve advisor efficiency; it provides an entire series of tools and templates that you can adapt and implement in your practice, scripts and guidance about how to use them, along with some training about how to implement, and a community of other planners doing the same thing for further insight and support. Another notable benefit is that the Fox Network is not just providing workflows; it's also working with CRM providers to actually build the templates directly into popular CRM platforms for advisors, to make the implementation easier, with RedTail already on board and Junxure adding on in the first quarter of 2013 once Junxure Cloud is released. Notably, the Fox Network isn't "cheap" - the first year of membership is $5,600, plus another $2,400 if you want one-on-one consulting, and then drops down to a much smaller ongoing fee of $149/month. On the other hand, given the apparent depth of the template materials and the potential efficiencies, and the fact that many planners equate their time to $200+ per hour, it only takes a couple days' worth of time savings for you and your staff to see a significant return on investment.

Hope and Change - In her monthly column, practice management consultant Angie Herbers starts off 2013 by looking at some of the trends she sees impacting the financial advisory world, which she anticipates will change the industry significantly in the coming years. The first major trend is the shortage of qualified financial advisors, driven in large part by the aging demographic of financial advisors themselves, and the lack of sufficient young advisors in turn is resulting in overpayment (as firms strive to compete for limited talent), and although the firm may be able to afford it, the mentality as young advisors view themselves as "superstars" creates unrealistic expectations, and the end result is higher turnover rates as those "star" advisors leave in a year or two. Herbers also notes that rising regulation- and compliance-related issues are becoming a challenge, which is driving a consolidation trend that Herbers suggests may soon explode on a scale the industry has never before seen - which may not be good for many advisors, who are often independent specifically because they didn't want to work within a larger firm! Ultimately, Herbers suggests that if the advisory industry is going to stay mostly independent, it may be up to the key providers - especially the custodians - to use their size and scale to help smaller advisory firms stay efficient, have access to cost-effective solutions, and not only educate on succession planning but actually help to make introductions and provide financing.

Competing in a Saturated Market - In his monthly column for Investment Advisor magazine, Mark Tibergien looks at how advisors are differentiating themselves as the marketplace becomes more and more crowded - a problem that is only exacbated by how similar most advisors' websites and marketing brochures happen to be, filled with a sad combined of generic descriptions and jargoned industry terms. So how do you compete? You have to really stand out "in glorious Technicolor, and... make your competitors look dull and boring." As a result, it may be better to spend money on consultants that will help the firm innovate and differentiate, not adopt "best practices" that can make the business even more dull, boring, and undifferentiated... like everyone else. How do you break free? Ask yourself three questions about your business: What is the purpose, beyond making money (and it should go beyond just your personal fulfillment); What are you known for (while many fear that narrowing the firm's purpose will alienate potential clients, the reality is that it actually does a better job attracting clients by differentiating in a sea of generalists); and How do you leave people feeling (don't focus just on the financial analysis, but also the client experience). The bottom line - differentiation is key, and if you're not certain what it is that really does differentiate you, start by taking a deep look at your clients, prospects, employees, and competitors.

Hit the Growth Wall? Unsure How to Get Over It? - This blog post looks at some of the growth challenges for advisory firms, noting that through the 1980s and 1990s the positive tailwind of the bull market allowed small independent practices to thrive and to focus on their craft - as the market fueled the growth and relieved a lot of pressure for advisors to really focus on their businesses. But since the secular bear market than began in 2000, the landscape has shifted; the consequences are still playing out, but the general trend is that it's getting harder to efficiently run a small independent practice, as revenue growth has slowed, clients demand more service than they used to, portfolio management has gotten more complex, and compliance has become more onerous. So what's the solution? Working with advisor platforms that help to relieve a lot of the pressure, and more and more are emerging to serve advisory firms of varying size and type. The article then dives into a case study of how this played out for an independent advisor with $35M of AUM, who used an outsourcing platform to to free up time, improve the caliber of his investment process, and leverage the time and higher quality solution to begin to grow again. As an added benefit, many of the platforms serving advisors now provide exit strategy support as well, allowing the advisor to stay in the business as long as he/she wants but knowing there's a viable buyer for the business if the advisor gets hit by the proverbial (or literal) bus.

Opening The Kimono- This article provides a nice look at advisor study groups, although in reality "study group" may be a poor name, as while sometimes it's about technical issues like taxes, more often they are about business, career, and practice management, where advisors share what they're doing in a trusted close-knit group, receive feedback, and then return the favor for others. Benefits may vary from insights about your business, to collaborating on projects that would be difficult individually but easier when shared (e.g., reviewing eight different financial planning software programs), to creating shared resources like employee compensation targets and job descriptions. In general, make sure you find a study group with some shared interests; if everyone is too different, it's difficult to find value with no shared reference point. Even with some shared context amongst members, though, it's notable that almost every study group is different, with varying focus and expectations, so if you're joining one, ask lots of questions to understand what you're getting in to, and whether it will be appropriate and relevant for you. Some groups meet rarely for short periods, others far more often or for multiple days at a time; some groups are focused on general issues and not the details of members' practices, while others fully expect you to "open the kimono" and share everything about the business.

Defining Financial Planning With the 4 Factor Decision Model - This article by financial planner Nathan Gehring looks at defining the process of financial planning from the perspective of four different factors - financial analysis, money scripts, emotions, and overall holistic well-being. Traditionally financial planning has focused most on the financial analysis end, and the six-step financial planning process is built around it, yet Gehring notes that the reality is many clients make decisions that directly contravene the recommendations driven by financial analysis; clearly other factors are in play. Looking at client money scripts - how our experiences with and notions around money impact our financial decisions - provides a richer picture, but they're still only part of the picture. The third factor draws upon our emotional actions and the influence and perspective of behavioral finance. Ultimately, though, it all rounds out with a more holistic view of well-being as the end goal, including a range of domains from financial health to emotional health to physical health and more. Gehring suggests viewing this perspectives as four different but overlapping factors, and that client conversations should be certain to deliberately touch on each to ensure a comprehesive decision-making process through which the planner can guide the client.

The Science of Storytelling: Why Telling a Story is the Most Powerful Way to Activate Our Brains - This article takes an interesting look at the science of storytelling, and how Leo Widrich, co-founder of the social media app/software Buffer, saw sales of his product go through the roof when he started to market his product using stories instead of the typical bullet point lists of features and benefits. The distinction is that when we just talk about features and benefits, the basic processing parts of the brain are activated, to understand and interpret the information. But when a story is told, the experiential parts of our brain are activated as well - quite literally, the brain is more engaged in the interaction as it tries to relate the discussion to existing experiences, and this process can facilitate everything from understanding to buy-in to memory and recall of the details. Given these realities of how the brain operates, it means that telling people a story where the outcome is what you want them to do may be the most effective way to drive action - whether it's to get a consumer to buy your product, a team to act on your leadership... or a client to implement your financial planning advice. Some caveats, though: it's important to keep the story relatively simple, as a story that's too complex can make it difficult of the brain to process (and results in a story that's more difficult to remember); and watch out for excessive cliches and too-common metaphors, as overly used story images cease to be processed as images and start to just become empty words again.

I hope you enjoy the reading! Let me know what you think, and if there are any articles you think I should highlight in a future column! And click here to sign up for a delivery of all blog posts from Nerd's Eye View - including Weekend Reading - directly to your email!