For many years, the traditional career track for financial advisors has been an 'eat what you kill' model – where advisors must independently find, convert, and manage their own clients. As such, it isn't uncommon for an advisor's first few years to be characterized by long hours, high rejection rates, and low pay. For many, this can be a stressfully prolonged period that typically eases only as advisors build their client base and establish themselves in the industry. However, the scarcity-driven habits that helped them survive their stressful early years may not serve them effectively in their current state. In fact, these habits may even inhibit their growth, making it harder for them to scale their firm in alignment with their long-term vision.

In the 150th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore how advisors can acknowledge the psychological habits formed during prolonged high-stress periods and intentionally move beyond them to continue to achieve sustained growth.

When stress arises, especially in the early years, many advisors often do whatever it takes to pull through and build their business. But a scarcity-driven mindset can linger, long after the immediate pressures have faded. This mindset might manifest in subtle ways – like the reluctance to raise client minimums out of fear that new clients won't come, even when capacity is maxed out. At this point, the narrative of survival can keep advisors tethered to past habits, even when logistically, an advisor may be well past that point and their current reality calls for a different approach.

To shift from survival mode to a mindset geared for growth, a first step might be to take stock of the firm's logistical reality: cash flow, client load, and overall business capacity. This can help advisors move from reactive habits to proactive strategies. A helpful question that advisors can ask themselves is, "What would it take to feel secure in this scenario?" Sometimes, a few targeted risk-hedging steps can provide a sense of security. In other circumstances, it may be more helpful to acknowledge the gut-level response to stressful situations – the same survival instinct that got the advisor 'here'. However, getting 'there' – to the next stage of growth – requires noticing, acknowledging, and then rewiring those instinctive responses.

Importantly, it's not just about making technical adjustments; it's more about a shift in mindset. It's the ability to internalize success and recognize that the survival instincts, once crucial, might now be holding back progress. Letting go of those old habits means freeing up mental and emotional space to envision new possibilities for the firm's future.

Ultimately, the key point is that survival strategies, while essential in the early stages of an advisor's journey, may not align with the realities of a growing and thriving firm. Sometimes, internalizing that an advisor has 'made it' is not always easy, but it's a milestone worth celebrating. Embracing this recognition allows advisors to ask the more exciting question, "What comes next?" This shift isn't just about growing a business – it's about building a vision that truly aligns with long-term goals, creating the freedom to innovate and adapt with clarity and purpose!

Read More...

Launching an advisory firm can be a daunting endeavor, requiring advisors to take on significant financial and responsibility with no guarantees of success. Given these challenges, advisors may consider bringing on a business partner to share both the costs and the burden of decision-making. By pairing with a partner in the firm's early days, advisors can benefit from their business partner not just by having someone to split costs and risks with, but also to consult with as a sounding board and strategic partner across the highs and lows of launching a business. While this can be an appealing option, it's important to recognize that not all partnerships are created equal, and a business partner may not always be the best solution for challenges advisors are trying to solve.

In the 149th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the common fears that advisors often face when considering a business partner, explore alternative solutions to address these concerns, and explain when joining forces with another advisor may be a good idea.

For advisors contemplating a partnership, the key question is often, "What are you solving for?" For example, if an advisor's main concern is the high upfront operational costs, they may want to explore fractional solutions to lower the prices of issues. Advisors have more options than ever before to address these costs independently. Some of these solutions include fractional compliance, administrative, and even office space, which can all significantly reduce expenses and manage up-front costs without the need for a business partner.

Another common issue is the sense of loneliness and isolation that comes with 'hanging one's own shingle' and launching a solo firm. In this case, advisors may benefit from joining "launch groups" through organizations like XYPN or even their broker/dealer, where they can find resources, solutions, and camaraderie to build community without splitting equity or the need to make business decisions together with a partner. Other options – such as mindfulness practices or study groups – can also help advisors manage the emotional toll of running a business on their own.

However, there are times when a business partner is essential to successfully launching a business, especially when both parties share the same vision and excitement for building the firm. When their vision and excitement align, a partnership can be a powerful force for working together to build a thriving business in the long-term!

Ultimately, the key point is that while there will be some issues that can be solved with a business partner, not all necessarily should be. Whether an advisor seeks a business partner or finds support through peer groups and fractional services, finding like-minded people who are "in it together" can make all the difference in managing the stress of launching and running a successful firm!

Read More...

"Building in public" is a common piece of advice for tackling new challenges – whether launching content, starting a business, or setting personal or professional goals – as public commitment fosters accountability and motivation, tapping into the human desire to avoid embarrassment. While this approach can be effective, it ultimately poses its own difficulties;  for example, when stakes are public, advisors may feel pressured to endlessly perfect their offerings and over-commit their time and resources before knowing what really works. Alternatively, they may avoid public commitment altogether to sidestep this pressure.

In the 148th episode of Kitces and Carl, Michael Kitces and Carl Richards discuss how advisors looking to try something new can overcome mental roadblocks and take action… without feeling the pressure to publicly announce their plans first.

As a starting point, it may be helpful to remember that, for better or worse… few people pay attention to someone's early public efforts. For example, firm owners often spend an immense amount of time on marketing before referrals or prospects begin to flow in. Most new offerings don't come with a built-in audience. The reality is that, more often than not, recognition for one's 'new' offering tends to come long after the offering was launched, which is why we often hear the phrase about taking 10 years to become an overnight success. On the one hand, it may feel defeating ("What's the point if no one cares?"); on the other, it can feel liberating ("I can build anything I want, and few will notice if I fail.").

The benefit of this slow recognition is that it gives advisors time to refine their product… as long as they start. The desire to create a polished product that matches what clients want is important (and a part of how an advisor has gotten so far) but can also inhibit advisors from getting started in the first place. From that end, it may be helpful for advisors who struggle to start to create a "Version 0" – a version built with release in mind, but not a commitment to a finalized, perfected end product. For example, an advisor creating new video content may record "Version 0" videos, where rather than focusing on perfecting sound, light, and other design elements, they ‘just' turn on their camera and follow a brief script. After recording, they may find that Version 0 is actually good enough to release! And once "Version 0" is out, observing who shows up and engages can inform the advisor about what their audience truly cares about.

The key point is that if advisors can ‘just' begin by iterating new offerings, the process of releasing them gives the advisor space to refine what truly resonates with clients – ultimately leading to a great, relevant product!

Read More...

Given the general trend of advisory firms charging on some percentage of assets under management, market growth can also be a strong indicator of advisory firm growth. For firms with revenue tied to portfolio performance, the additional income that can accompany a healthy market outlook allows firms to dedicate more resources to marketing and other processes to help grow the firm. However, while this business model has worked well with the strong markets that have dominated the last 15 years, there is also an inherent risk that comes with inevitable market corrections, bear market years, and recessions, which poses the question: How can advisors structure their firms to protect against market corrections?

In the 147th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors (especially those who joined the industry after the last correction) can protect their business against the market volatility risk inherent to a business model that uses AUM fees.

As a starting point, a firm's profit margin is usually the first line of protection against a bad market. The average established firm has a profit margin of 20–30% after employee, technology, and operational expenses during 'good' market years. During bear market years (or quarters), any AUM-correlated profit margin will have a corresponding drop, and that profit margin may then drop to 0%. However, unless the profit margin drops below 0%, an advisory firm will likely be able to remain operational as is, without being forced to make difficult decisions to shrink the business. While maintaining a 0% profit margin for a quarter or few may not be pleasant, the advisory firm that is aware of this 'feast-and-famine' cycle and is prepared for it can situate itself to pull through bear markets with minimal business adjustments.

To better visualize how a recession would impact a firm's long-term growth, advisory firm owners may want to model how their business would be affected by several quarters of 'bad markets' and consider how they would need to answer these questions: How would payroll get impacted? What expenses would need to be adjusted? How would several quarters of bad markets impact the firm owner's ability to pay themselves and maintain their lifestyle? These considerations can help advisors better understand their options and the adjustments that would need to be made in the short- and long-term.

Importantly, it's essential to be mindful of the emotional toll along with the logistical side of bracing for a recession. In a bad market, advisors are constantly required to absorb client uncertainty and fear – often while they are equally unsure of what will happen. And, for advisors who are also firm owners, the toll grows as employees are also emotionally stretched to absorb the chaos of an uncertain market – and even more so if owners need to let an employee go to keep the business afloat. Emotional preparation usually poses a different challenge than reviewing a business plan. However, much as how a firm needs a certain level of profit margin to ensure that it will have the resources it needs during tough times, so too can advisors ensure they have the resources they need to maintain their own emotional wellbeing. Even basic self-care practices like maintaining a healthy diet, getting enough sleep, and exercising can provide a crucial barrier against the emotional and physical strain of stress.

Ultimately, the key point is that market corrections, slow years, bear markets, and recessions are inherent risks for firms with revenue models that rely on assets under management. However, advisors who are mindful of the effects of these trends can proactively make small adjustments before an emergency strikes – better protecting their clients and their firms in the long run!

Read More...

A cornerstone service that many financial advisors provide is education. While strategic advice is crucial, advisors also face the challenge of presenting the strategies to clients in context, explaining different financial planning concepts, and showing clients how to implement these strategies (as well as pointing out any long-term consequences). While curious, proactive clients who are ready to learn may be the ideal, this can become complicated when clients bring 'good' advice they've heard from unreliable sources that doesn’t apply to their individual circumstance – or, worse, the advice itself is rooted in misinformation. This puts advisors in a challenging situation to re-educate or redirect the client without becoming combative or condescending.

In our 146th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the "overconfidence gap" that can be created by clients bringing misinformed strategies and suggestions from various sources to their advisors, and how advisors can navigate the conversation to get clients back on track (without also offending them).

One potential dynamic of these conversations might involve the advisor's bruised feelings from knowing the client had been searching for financial planning answers somewhere else rather than coming to the advisor and asking their questions directly. A natural first reaction might be to prove why the client's source is 'wrong' and how the advisor's advice is 'right' – but in doing so, advisors run the risk of alienating their client who may interpret the response as a suggestion that they were ignorant or gullible in believing obvious misinformation. Instead, leading the conversation by thanking the client for bringing the idea to the meeting can be a more helpful approach, and then asking for context around the problem the client wants to solve with the advice they were given by the outside source. This strategy encourages the client to open up about their intent, problems, and even insecurities, giving the advisor an opportunity to better understand the client and solve more problems for them – ultimately building more trust!

While such one-off discussions with 1 or 2 clients in meetings can be fruitful, multiple clients who bring up the same questions can signal an opportunity to address the misinformation for a broader group of clients head-on. For example, if an advisor has clients who are small business owners, and several of its clients consistently have questions about the same tax savings strategy (or consistently come to the wrong conclusion about where it applies, thanks to either what they find on the Internet or hear by word of mouth), many of the advisor's clients may benefit from educational resources created by the advisor themselves, perhaps in a written, video, or audio format; this not only allows the advisor to craft the sort of response they want to send, but also reduces the need to answer the question more than once. Alternatively, advisors can hold educational events to address common questions and give clients an opportunity to voice their specific questions or concerns.

Ultimately, the key point is that when clients bring forward ideas rooted in misinformation, advisors have an opportunity to solve a problem in a way that can further enhance trust in the relationship by providing high-quality resources that help clients with their specific needs. And while there may be some upfront work required to coordinate such resources (or events) for clients, doing so may end up helping the advisor save time by allowing them to answer the same questions that crop up more efficiently, thoroughly, and proactively – not just for the client sitting in front of them, but for several clients with the same questions throughout the firm!

Read More...

As advisory firm websites have become crucial to the prospecting pipeline, displaying fees can present a delicate challenge for advisors. On the one hand, displaying fees can help a client determine whether an advisor will fit into their budget and may build trust when an advisor demonstrates transparency by explaining how their fee applies to their value proposition; on the other hand, even with a clear explanation, prospects may find it difficult to understand exactly how the value of an advicer aligns with their fees. The unique dynamic of presenting fees to clients can be heightened when an advisor offers life planning, which may involve multiple meetings to truly understand the prospect's situation before the advisor even presents the fee for an in-depth plan. Due to the in-depth nature of this sort of planning, fees may be quite high – so spending several meetings on a prospect who balks at that amount is 'expensive', yet presenting that same fee too early may cause clients to balk because they don't see the fee in context.

In our 145th episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can navigate the lines of presenting fees early in the process to ensure that prospects can afford their plan while still explaining their value and unique planning strategy to engage prospects who fit their specific target client persona.

As a starting point, providing a fee minimum on their website lets advisors communicate the lowest amount that would still be economically viable for them (and explaining that the fee may change based on complexity). This lets advisors give prospects a contextual starting point, which can minimize the risk of 'sticker shock' when a fee is presented and ensures that the prospect can (likely) at least afford the advisor's minimum fee.

Another key to sell life planning effectively is to target prospects who are more likely to seek this type of comprehensive planning in the first place. Advisors can help prospects who may not even recognize life planning as a solution to their financial problem by framing its value in terms of the 'emotional job' being done – for example, advisors might describe how they help dentists plan for retirement by encouraging them to find purpose beyond their practice and helping them to "unchain themselves from their chair".

Ultimately, the key point is that while engaging prospects with more holistic financial advice strategies – and their potentially higher fees – can pose a challenge, there are several steps that can provide context for potential clients and communicate the problems being solved. At the same time, advisors may find ways to narrow their niche further to make it even more likely that the clients who engage with them in the first place are the ones who seek the specific financial advice they offer!

Read More...

Over the past few decades, financial advisors have explored new ways to structure, build, and grow successful businesses alongside a growing acceptance that "successful business" can be defined in many different ways. Nevertheless, while firm owners have a variety of options available for structuring and building their businesses, the reality is that they can only prioritize a limited number of goals at one time, which then begs the question – how can firm owners navigate the options of work/life balance, margins, and firm growth to set and build their businesses to fit their goals?

In our 144th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can navigate the "calculus" between growth, time, and margins to define success on their own terms, then build a firm to fit their vision.

While "success" for an advisory firm can mean several different things, certain commonalities continue to crop up as firms develop: namely, that not all types of growth are possible at once. In the quest to develop and individualize their businesses, advisory firm owners eventually reach a crossroads where they must choose amongst the continual fast growth of the firm, high margins, and the amount of time an advisor puts into the business. And while some firms strive to have all 3 of these features, the reality often comes down to "choosing 2" (e.g., an advisor can have high margins and high growth, but it's extremely difficult to do so while also working a low number of hours).

This "choose 2" dynamic lends itself  to 3 kinds of advisory firm owners: enterprise firm owners, who maintain high margins and high growth, but put in longer hours to maintain both of those goals; lifestyle firm owners, who can put in fewer hours with higher margins, but sacrifice high growth to ensure they don't exceed their own capacity; and boutique firm owners, who have high growth and work fewer hours at the cost of lower margins – often because they are more mission- and purpose-driven, and thus may choose business initiatives that are less-focused on 'optimized' business growth.

Ultimately, the key point is that while there are many ways to build an advisory firm, there is no standard definition of 'success', which means that it's up to firm owners to decide which metrics they want to prioritize in order to build the type of firm that matches their personal and professional goals!

Read More...

About a decade or so ago, one of the most pressing issues facing the financial advice industry was the threat of an imminent deluge of advisor retirements coupled with a paucity of succession plans to transition clients to the next generation. While that scenario has yet to materialize as initially feared, the fact remains that transitions do occur on a regular basis, often as older advisors either sell their practices in one fell swoop or gradually offload part of their book while still staying engaged with a smaller group of core clients. In reality, the process of transitioning clients from one advisor to another is often challenging, especially when the legacy advisor and the next-gen advisor approach financial planning from different angles.

In our 143rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards explore the ways that next-gen advisors can navigate transitioning clients who may be accustomed to a more quantitative approach to financial planning, the 3 dimensions that the legacy and next-gen advisors should have alignment in order to increase the odds of a smooth transition, and the importance for advisors to ensure that they have some flexibility if not all of the transitioning clients turn out to be good fits.

As a first step towards making a client's transition away from a legacy advisor – particularly when the paired advisors have different communication and/or planning styles – as smooth as possible, the next-gen advisor might seek to replicate the legacy advisor's meeting structure and agenda in order to keep clients on an even keel. In an ideal world, the legacy advisor would participate in that meeting as well, chiming in as needed to reassure that the client is in capable hands. And, as a way to begin building rapport and trust, the next-gen advisor could reserve a few moments at the end of the meeting to introduce some of the foundational questions meant to establish a deeper relationship, including such hits as "Why is money important to you?" or "Is there anything that's top of mind right now that maybe we haven't addressed yet?" From there, the next-gen advicer could wrap up the meeting by reassuring the client that they've been heard and suggesting that whatever their answer was would be a framework for subsequent conversations.

In practice, even before a transition is initiated, advisors should give careful consideration to 3 broader planning dimensions. Specifically, the odds that a transition will be successful are increased when the paired advisors 1) have similar fee structures, 2) are aligned on investment philosophy, and 3) aren't polar opposites in regard to communication style. Even then, not every client will be a good fit, making it important for advisors to factor that possibility into the deal structure. For instance, rather than a fixed up-front payment, advisors could make an initial payment that's 60–70% of the total price, with the final 30–40% contingent on at least 90% of the revenue still being there a couple of years down the road.

Ultimately, the key point is that a next-gen advisor doesn't have to be a carbon copy of the legacy advisor or adapt their styles indefinitely to facilitate a smooth client transition. It does help, though, to keep transitioning clients on familiar ground, at least initially, and then gradually introduce new ways of framing the relationship and initiating meaningful conversations around money. And as an added bonus, the next-gen advisor can even offer the client the opportunity to reset by asking how they'd like the relationship to work. Because, at the end of the day, what matters most is doing work that is most meaningful for the client and that helps them progress toward their long-term goals!

Read More...

Meaningful communication is crucial to building strong, durable relationships, and asking effective questions is an essential part of facilitating impactful conversations. Being able to initiate and lead those conversations has become an important aspect of any financial advicer's skill set, but for many, it's one that isn't always as straightforward or easy to learn… particularly for advicers who might be happiest when nerding out with spreadsheets and flowcharts! The good news, however, is that every advicer can learn how to be a better communicator, especially when there's a certain podcast host willing to share his roadmap for having Meaningful Conversations About Money.

In our 142nd episode of Kitces & Carl, Michael Kitces and aforementioned client communication expert Carl Richards discuss Carl's "Magical Questions Of Conversation Goodness", how an advicer can 'move through time' to help clients make meaningful connections around their relationships with money, and how advicers can effectively implement those questions in their own practices.

It's generally accepted in the financial planning world that people don't typically wake up in the middle of the night because they've realized they need a comprehensive financial plan. More often, initial outreach from a prospect occurs because there's some urgent issue they need help with. Accordingly, advicers can foster a space for deeper money conversations by helping the prospect (or new client) paint a picture of their desired future state, homing in on whatever the underlying issues may be (which won't always be the same reasons they reached out in the first place). Questions like "What brought you in today?" and "How do you think we could help with that?" are great places to start, while Dan Solin's "3 years", Bill Bachrach's "What's important about money to you?", and George Kinder's EVOKE questions can offer powerful avenues to help clients start to open up.

As conversations (and relationships) deepen, advicers can probe further by 'working through time', asking questions like "What was money like in your home growing up?" and "Were you one of the rich kids or poor kids in middle school (and how could you tell)?" From there, advicers can help clients explore their relationships with money by asking, "If you could go back and talk to yourself with the benefit of hindsight, what would you say?", potentially providing them with insight around experiences that have been informing their lives for years. From a forward-looking perspective, advicers can ask about how the client deals with money in their home, and (if they have children) what they think their kids would say if asked the same series of questions 20 years down the road.

It's important to note that the goal isn't to tackle all these questions in one meeting. Rather, advicers can have multiple conversations over time to deepen the relationship. Initially, advicers can focus on discovery questions to understand the client's future desired state, which (once defined) becomes the basis for a Statement Of Financial Purpose, which in turn becomes the foundation for well-informed goals. And with clear goals, the advicer can then ask about the client's current state, identifying what they owe and what they own.

Ultimately, the goal is to normalize the process of having meaningful conversations about money. And by implementing Carl's Magical Questions Of Conversation Goodness, not only can advicers help their clients buy into their financial plans, implement recommendations, and reach their 'desired future states', but they can also learn a skill set that helps them differentiate themselves in an increasingly crowded marketplace while engendering long-term, durable relationships with their clients!

Read More...

The practice of asking questions has always been an integral part of the financial planning process. In the early days of the advicer industry, those questions almost exclusively dealt with facts around a client's or prospect's financial situation to determine (ultimately) what products the adviser should recommend. However, given the industry's ongoing transition away from being primarily transaction-focused and towards being relationship-based, advicers have had to learn how to develop meaningful connections. One of the best ways to accomplish this is by having deeper conversations that go well beyond basic data gathering. Which, naturally, gives rise to the question: How can advicers foster an environment where these conversations can develop, and what are some ways that they can help their clients go deeper?

In our 141st episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore some key concepts around facilitating meaningful conversations, ways advicers can help clients take time to focus on more foundational topics (so they can have a clearer picture around where they want to go), and some conversational strategies to give clients the 'permission' to open up.

Since much of an advicer's work centers around finding (and communicating) concrete answers to help solve problems and issues (like, "How big of an emergency fund do I need?" or "When can I retire?"), it's not too surprising that many view the process of facilitating meaningful money conversations from an analytical perspective (e.g., "Just tell me the best questions to ask and give me a flowchart to navigate the rest!"). However, finding the perfect questions and being skilled at asking them can also be cultivated through a sense of curiosity and a space where vulnerable conversations can happen. As while an advicer might want to implement the sort of life planning questions pioneered by George Kinder, the process may feel awkward in a more traditional "financial institution" setting and/or without a genuine interest in what the client has to say.

It's also important to recognize that clients typically don't seek out an advicer so they can explore their dreams, goals, and desires or to discuss their deep-seated feelings around money. Instead, meetings (especially initial meetings) happen because there's some 'presenting problem'. And that's where an advicer is in a position to create the space where meaningful conversations can happen by expressing empathy ("Mr. and Mrs. Client, I hear you. That is a real issue, and just to make sure we get to the best answer, can we back up a bit? Tell me why this is important for you?") and showing what a real financial planning relationship looks like.

The key point is that advicers who can develop their conversational skill set will not only do a better job of getting their clients to buy into their financial plans, implement the advice they're offered, and (ultimately) achieve their goals, but they'll also be better equipped to stand out in an increasingly crowded marketplace. And by greeting a client with genuine empathy, an advicer can create space in a conversation for the client where they can both explore deeper issues, arrive at impactful decisions, and engender a long relationship built on trust and meaningful human connection!

Read More...