Summer Reading List of “Best Books” For Financial Advisors – 2016 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.

Essentialism (Greg McKeown) – As author Greg McKeown defines it, “Essentialism” is about being more successful through the disciplined pursuit of doing less. The fundamental principle of Essentialism is that most of us exert energy in lots of different directions simultaneously, which limits our ability to make progress on any one thing in particular; by contrast, if we’re more selective about where we direct our focus, we can really get the ball rolling and achieve exponentially more. In other words, when it comes to personal success, “diversification” of focus is not good risk management, it just spreads you too thin and causes you to accomplish less. In the context of financial advisors, this dynamic helps to explain why building in a niche has a long-term compounding effect, while those who build broad-based generalist advisory firms often hit a growth wall. And even those who initially start out focused may struggle with the “Paradox of Success” – that the focus which brings them early success can bring so many opportunities that they spread themselves too thin, and lose their momentum. Of course, the caveat is that in practice, the focus of Essentialism requires you to say “no” a lot – in order to focus on the things that really matter in your business (and life) – which is very difficult for anyone to do, and especially those in a helping professional like financial planning. Fortunately, McKeown’s book provides a lot of helpful tips and suggestions to figure out how to start saying “no” and do the essential cutting, recognizing that we can’t really making our highest contribution towards the things that really matter until we give ourselves permission to stop trying to do everything ourselves.

The Sustainable Edge (Ron Carson & Scott Ford) – While Essentialism is a “general” business book relevant for anyone trying to regain focus in their life and advance their career, The Sustainable Edge is written specifically by owners of financial advisor businesses, and is best suited for those who own their own financial advisory firm. Authored by mega-advisory-firm owner Ron Carson (and co-authored by Scott Ford, a member of Carson’s Institutional Alliance platform), the core message of the book is quite similar to Essentialism – that maximizing your success and the growth of your business is about focusing on the core strengths that you do best, and that energize you to get out of bed and go to work every morning. The book also has some helpful guidance about how as an advisory firm owner, you can raise your “IQ” – your Implementation Quotient, or the proportion of all the great business ideas you have in your head that actually get implemented at the end of the day. Advisors who are too unfocused will tend to struggle with lots of great ideas, but no time to implement them and get them done; the business tools in The Sustainable Edge are meant to help an advisory firm owner find the focus they need to get growth going again.

King William's Tontine (Moshe Milevsky) – The tontine is a form of pooled investment structure where investors all contribute dollars to a common fund and then share in a pro-rata portion of the returns over time. However, in the case of a tontine, the investment typically only pays income (and not principal), the investment is not liquid, and in the event of death the decedent’s share is redistributed to all the remaining survivors (making their portion of the payments larger). In this manner, a tontine operates similar to an annuity – which also makes payments for life, and redistributes the shares of those who pass away to the other annuity owners in the form of mortality credits. The downside of their structure is that the timing of payment increases from the tontine are not guaranteed – because it only happens when people actually pass away. But the upside is that it doesn’t require an insurance company or pension fund to guarantee the assumed mortality credits up front, which Milevsky suggests could go a long way to relieving the stress on today’s pensions and annuity companies. And in point of fact, Milevsky notes that tontines have a rich history, going back nearly 400 years, and as recently as the early 1900s were wildly popular in the U.S., with as much as 7.5% of total national wealth invested into tontines (roughly akin to the amount of U.S. national wealth in all IRAs today). Unfortunately, abuses at the time by what were not-well-regulated insurance companies led to significant restrictions on tontines that all but eliminated their use for the past century, but Milevsky suggests that it may be time to revive the concept. The book itself provides a fascinating history of the entire tontine structure, from its origins in France and England in the late 1600s, to their rise in the U.S. in the 1800s, and the prospective role they could play in addressing our society’s retirement funding challenges today.

Free: The Future Of A Radical Price (Chris Anderson) – In order for a business to be viable, at some point it must generate revenue by selling its products or services. But Anderson makes a compelling case that incorporating “free” elements to a business model can actually help it to fuel the more profitable parts of the business, and become more profitable by not charging consumers for everything. The modern example would be services like Google, which offer incredibly valuable and useful search engine and mapping services for consumers for “free”, because the company earns its revenue with the cross-subsidy of paid advertising on and through those platforms. But the approach is not unique to modern internet-based business models; King Camp Gillette was famous for giving away his razors for free, recognizing that it would lead people to buy a lifetime of razor blade refills. In the context of financial planning, arguably this kind of “freemium” model has been at work for decades, by advisors who give away financial plans “for free” (or at a below-cost price) in order to get paid for the more lucrative implementation stage that follows. However, Anderson also notes that in the long run, the success of one “free” model can make it so abundant, that eventually it forces the business model to shift to the next scarcity – arguably an effect that’s happening now for financial advisors, as giving away planning for free to gather AUM later became so successful that now offering a combination of such services is undifferentiated and increasingly commoditized. Ultimately, Free wasn’t written in the context of financial advisors at all, but the book provides a fascinating perspective of how these dynamics play out in other industries, and implies that some form of “freemium” financial planning business model may persist longer than some might expect.

Gratitude Marketing (Michael Sciortino) – Expressing gratitude is a lesson our parents try to instill in us when we’re young. The process is aided by the fact that expressing gratitude and doing good for others makes us feel good, actually triggering the release of endorphins that can give a “helper’s high”. In addition, research on the so-called “reciprocity rule” has shown that when someone helps us, we feel compelled to reciprocate in return. Which means that ultimately, doing good and expressing gratitude for others doesn’t just make us feel good, it can actually be good for business, too. Accordingly, Sciortino’s book “Gratitude Marketing” explores how financial advisors can leverage the principles of doing good and expressing gratitude to clients in a way that helps to market and grow the business, too. From relatively ‘simple’ ideas like sending out thank-you notes and birthday cards to clients, to throwing clients a birthday lunch or even a retirement party, making charitable donations on their behalf, and running client appreciation events, Sciortino’s book provides a wide range of business ideas that advisors can implement in their practice to do good and express gratitude, while helping to grow their businesses, too!

Traction (Gino Wickman) – As a solo financial advisor, running an advisory firm is relatively straightforward, an exercise in willpower, focus, and the ability to self-organize enough to make sure everything that needs to get done actually does. As a business grows, though, and more people are involved, it becomes exponentially more complex. Eventually, this can lead to frustration with employees, a ceiling on growth, a squeeze on profits, or an outright feeling of losing control. In Traction, Gino Wickman sets forth a structure he calls the “Entrepreneurial Operating System” (EOS), created to help build alignment is mid-sized businesses with $2M to $50M of revenue and the complexities that arise with the number of employees that entails. The system breaks down the business into six core components: the Vision of what it’s trying to accomplish, the core Processes it engages in, the Data to track it, the People to execute it, the Issues to solve, and the Traction that must be achieved (the focus, accountability, and discipline) to move the whole system forward. Traction is a book meant to ‘solve’ a very specific problem – how to grow through the wall that many businesses hit as they grow in size – but for any advisory firm owners finding themselves in such a situation, it’s a powerful read full of practical tools and strategies to try to create alignment in the business.

Platform (Michael Hyatt) – Arguably the biggest challenge today for most financial advisors who want to grow their business is figuring out how to differentiate your business, and then building a platform to communicate that differentiated message to your target clientele. And while ultimately it’s up to you to figure out how you would like to differentiate and into what niche you would like to focus, Hyatt’s book “Platform: Get Noticed In A Noisy World” is a fantastic guide in how to take the next step of building a digital platform to reach your target clientele. The starting point is to build your financial advisor website – the digital stage upon which the advisor will stand. From there, it’s possible to “narrowcast” to the niche clientele the advisor is trying to reach. And throughout the book, Hyatt provides practical tips and guidance about how to create a compelling “About [You]” page, to creating client case studies that showcase your expertise, establishing your financial advisor blog, and why and how to get involved in social media. Ultimately, the book was not written specifically for financial advisors in particular, but the reality is that principles of establishing and building your digital platform that Hyatt articulates in the book are entirely relevant anyway.

Buying, Selling, and Valuing Financial Practices (David Grau) – The pace of mergers and acquisitions amongst financial advisory firms has been steadily increasing for years, the natural result of both pressures for industry consolidation and economies of scale, and the simple demographic reality that the bulk of financial advisors are baby boomers reaching the traditional age of retirement. Notably, though, the growth rate of sellers has been so slow (in part because many advisors seem to prefer ‘dying with their boots on’ to selling), while the demand for acquisitions rises, that there is now a whopping 50:1 ratio of buyers to sellers. And sitting on the front lines of this trend for the past 20 years is FP Transitions, which started out as an “eHarmony”-style matching service for advisory firm acquisitions and has now evolved into a platform that not only facilitates match-making, but provides consulting advice and valuations for advisory firms as well. In his last book, “Succession Planning for Financial Advisors”, Grau distilled his years of accumulated experience and wisdom on how financial advisors should prepare for an internal succession plan; in this book, he extends the focus with the latest perspectives on how to properly value a financial advisory firm (from multiples of revenue to discounted cash flow modeling) for internal or external sales, guidance for third-party buyers seeking out an advisory firm deal, and valuable advice for sellers of what to expect and what should be considered to do it right (as most will only ever have one chance to sell the business they’ve spent a lifetime building!). Notably, the book is still in pre-publication phase at the time this article is being published, but is expected to be released in the July/August 2016 time frame, and I suspect will quickly take a place alongside Tibergien and Dahl’s “How To Value, Buy, Or Sell A Financial Advisory Practice” as one of the essential reads for anyone looking to buy, sell, or value their advisory firm.

Platform Revolution (Sangeet Paul Choudary, Marshall Van Alstyne, Geoffrey Parker) – The world’s largest taxi company owns no vehicles, the world’s most popular media company creates no content, the world’s most valuable retailer has no inventory, and the world’s largest accommodation provider owns no real estate. How is this possible? Because the internet has created a new business model – the platform business – which makes it possible for companies like Uber, Facebook, Alibaba, and Airbnb to rapidly scale to previously unimaginable sizes, by operating as a new form of business intermediary. In this book, Choudary and his co-authors have written the first authoritative work on the subject, and thoroughly explore the concept of the platform businesses, what they really are, how they operate, why and how they disrupt (and why they don’t always lead to winner-take-all outcomes), and what it takes for them to be created, survive, grow, and thrive. Notably, there is no platform business for matching financial advisors themselves with consumers – though the stock market itself is arguably one of the largest and longest standing “platform” businesses, predating the internet by centuries – but understanding the dynamics of platforms are increasingly relevant to understanding the marketplace economy of the future. And perhaps Platform Revolution will even be the inspiration necessary for someone to figure out how a true platform business actually could be developed for the financial advisor marketplace as well! But at a minimum, Platform Revolution provides fascinating perspective on how it is that businesses that have been around for less than 10 years can so rapidly – and legitimately – become some of the most valuable companies in the world.

Influence: Science & Practice (Robert Cialdini) – Cialdini’s studies regarding the psychology of persuasion has defined the field of research on “influence” and what it is that actually drives up to be influential or be influenced by someone else. Of course, when these techniques are used negatively to influence someone else, we generally call it “manipulation” instead of just “persuasion”. But used in a positive manner Cialdini’s research provides a roadmap of how to help influence your clients to actually implement the (beneficial) recommendations you’re providing to them, from using Social Proof to encourage people to change their behavior by showing them others are doing it too (and favorably invoking the ‘herd mentality’), to changing how you present recommendations to clients to better get their buy-in. In addition, Cialdini’s research is also relevant in the context of marketing and sales, and how to get clients – his studies have helped to validate and explain why it is that volunteering and giving to others can help get clients in return (because we often feel compelled to reciprocate), to why relationship-building is so effective to getting clients and referrals (we’re more likely to be persuaded by and want to help someone we like personally). Cialdini’s original and seminal book on the topic is “Influence: The Psychology of Persuasion” but I found his more recent “Influence: Science & Practice” to have more practical insights and ideas that I could think of implementing in practice.

If you’re still looking for more, be sure to check out our 2015 summer reading list, 2014 summer reading list, and even the 2013 summer reading list for financial advisors as well! And be certain to check out our overall list of the "Top Books For Financial Advisors to Read", too. After all, if you haven’t read it yet, it’s still new to you!

So what do you think? Will you be reading any of these books over the summer? Do you have any suggestions of your own that you’re willing to share? Please share your own great reads in the comments below!