Executive Summary
Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the big news that the FPA has released the second iteration of its OneFPA Network initiative, which backs off the key controversial requirement for chapters to be dissolved and "nationalized"... but still doesn't seem to effectively answer the question of why such a big organization-changing initiative is so necessary, instead of simply focusing on the key items from a better membership database to more engaging strategic committees that FPA members and chapter leaders have been asking for in the first place. Also in the news this week was the announcement that New Jersey is now the latest to put forth a state-level fiduciary requirement out of concern that the SEC's Regulation Best Interest isn't stringent enough... and the proposed state fiduciary rule is being driven directly by the state's regulators (not their legislators), which suggests a much greater likelihood that the rule will actually come to pass.
From there, we have a number of practice management articles, including a major new white paper from the CFP Board's Center for Financial Planning to articulate a standardized career path that advisory firms can use for their next-generation advisors, why managing "human capital" is becoming so much more important in the age of fee-based firms (with the recurring revenue that both supports and then necessitates a growing staff infrastructure), and a look at whether financial planning programs today are doing enough to prepare students for the realities of what it takes to be a successful financial planner (and how far they've already come in just a few short decades).
We also have several articles on retirement planning, from a fascinating research study on how retirees tend to be happiest when they spend their time on "active" activities rather than "passive" ones (but how as we age, reduced mobility tends to shift our time from the happiness-inducing active activities to the less-happy passive ones), tips to better maintaining friends and social relationships as clients get older in retirement, and tips to consider as retirees face four major transitions when they age (health care, financial decision-making ability, living/lifestyle, and transportation).
We wrap up with three interesting articles, all around being more "unplugged" and engaging in more "digital minimalism": the first is a look at one financial advisor who went to Australia for an extended work trip, found internet access was more limited, and ended out positively reshaping his digital habits in the process; the second looks at one company that pays its employees an extra bonus of up to $750 on their vacations for not checking email or Slack while they're gone (both to encourage them to really unplug and recharge, and also because it better forces teams to learn how to delegate to and reinforce each other when someone is out); and the last is a look at how to more actively engage in "digital minimalism" itself, which isn't just about unplugging and eliminating the smartphone and internet from your life, but instead just being more deliberate about which parts of your digital life you do want to remain engaged in (and then consciously eliminating the rest that doesn't really matter after all).
Enjoy the "light" reading!
FPA Backs Away From Controversial Plan To Merge Chapters (Greg Iacurci, Investment News) - This week, the FPA announced the latest "second iteration" version of its new OneFPA Network proposal, and has declared that, in the face of substantial criticism and concerns from members, it is stepping back from the requirement that its chapters would have to dissolve themselves and merge into the national entity by the end of 2019. Instead, the FPA will "beta-test" the centralization of some key technology and accounting functions with a subset of 10 local chapters over the next two years, and then re-assess the strategy's impact, with FPA president Evelyn Zohlen suggesting that if the results "ultimately indicate integration is ill-advised, the whole concept could be abandoned." On the other hand, the FPA has stated that it still intends to move forward with the creation of a "OneFPA Advisory Council," whose role would be providing more advisory feedback to the FPA leadership about the organization's strategic direction in the future, and would also help staff the key OneFPA Nominating Committee that selects future National Board members. The release of the second iteration of the draft plan was accompanied by the announcement of a Public Comment period as well (comments can be submitted directly to [email protected]) that began this week and will run until May 30th, with the final version of the plan to be unveiled on July 11th after any additional feedback is incorporated.
OneFPA Network: Project Overkill (Bob Veres, Inside Information) - The core of the OneFPA Network as originally proposed was two key initiatives: "centralized functionality," in the form of consolidating all of the FPA's 86 chapters into a single nationalized entity with shared technology, accounting, and staffing functions; and "participatory governance," by creating a wider range of OneFPA Network committees where chapter leaders could have input into the future strategic direction of the organization. In the face of negative feedback from members, though, the latest second iteration of the OneFPA Network plan would no longer require chapters to be liquidated and consolidated, and instead will run a 10-chapter "beta test" where chapters - without being required to give up their independent entity status - can try out the implementation of various more-centralized technology, accounting, and staffing functions, so both chapters and National can see what the efficacy really is. Yet Veres suggests that the way the OneFPA Network was rolled out, the subsequent pushback, and the modified version now on the table, is itself a sign of FPA's struggles, as an organization that has fewer members, less revenues, and arguably much less influence over the profession overall than it did when the FPA was formed nearly 20 years ago. For instance, the impetus for the OneFPA Network appears to have come from a 2014 outside consultant's report that spoke to FPA chapter leaders, and heard that they wanted better technology coordination with the FPA home office (i.e., a better membership database), a little support on chapter paperwork (e.g., Form 990 tax filings), and that chapters felt like they were often blindsided by decisions coming out from National (and wanted to be more/better consulted first). Yet FPA didn't proceed with the report 5 years ago and set aside budget to implement a (better) membership database, and form an advisory council for chapters to give more input; instead, the organization took nearly 5 years of "debate, consultancy fees, [and] endless staff and board member hours" for something that "is still being refined down to something that is still more than what the chapters and members were asking for." No surprise, then, that the chapters pushed back so strongly against the full OneFPA Network initiatives that they never actually asked for (and were blindsided by) in the first place. In fact, Veres notes the irony that the FPA is now reflecting back the feedback from its listening tour, that chapters want more autonomy, more input into national decision-making, and better technology... acknowledging that these concerns are now heard, but still ignoring that these are simply repetitions of the same concerns that were voiced (and never acted upon) 5 years ago to begin with. And now still, rather than just building a better membership database, the FPA will go through a "rigorous, expensive, labor-intensive testing process of that original proposal which the chapters were 'not feeling.'" Suggesting that the FPA is still more determined to prove that its initial proposal was the right one than actually tackle the more immediate problems in front of the organization. The key point, though, that Veres wonders is simply: "with all the energy and expense that the FPA is throwing at this initiative, I am trying to imagine what a beautiful database it could have created for the chapters to use--five years ago... and it's important to remember that after all this, 78 of the 88 chapters [still] won't actually see the new database for another two years, as it is rolled out to the beta-test chapters." Leading Veres to conclude, "And we've been wondering, all these years, why the association is not growing or thriving."
New Jersey Releases Rule To Impose Fiduciary Duty On Brokers (Mark Schoeff, Investment News) - On Monday, the New Jersey State Securities Bureau formally proposed a new fiduciary rule that would apply to both investment advisers and brokers giving advice to clients in New Jersey (i.e., by requiring that recommendations be made "without regard to the financial or any other interest of the broker-dealer, agent, adviser, any affiliated or related entity... or any other third party," and that brokers must recommend the "best of the reasonably available options"), after having solicited comments on a pre-proposal of the initiative last fall. Notably, New Jersey explicitly stated that it was moving forward because the SEC's own proposed Regulation Best Interest is not a full fiduciary rule itself, that disclosing conflicts of interest alone is not enough, and that consequently, it doesn't believe the SEC's watered-down proposal provides sufficient protections to investors. The New Jersey proposal will be open for a public comment period until June 14th via [email protected], and the state may then modify the proposal, or adopt it as is. Notably, though, lobbyists for the product manufacturing and distribution industries are already objecting to the rule, raising concerns about a "patchwork" of state-specific fiduciary requirements, and urging New Jersey to wait for the SEC to act (notwithstanding the fact that New Jersey is acting because those same lobbyists already urged the SEC to step back from its own fiduciary rule as well). Though given that the proposal has come directly from the New Jersey state regulators - rather than the legislature - may make it harder for the industry to block.
CFP Board Offers Advisors Guide For Better Hiring & Employee Retention (Jacqueline Sergeant, Financial Advisor) - This week, the CFP Board's Center for Financial Planning announced the release of a new "Financial Planning Career Paths: Building More Sustainable And Successful Businesses" guide, developed in partnership with BNY Mellon and practice management guru Philip Palaveev's Ensemble Practice, with the goal of providing clearer and more concrete guidance to advisory firms about how to structure and effectively communicate career path opportunities for their next-generation advisors (along with suggestions for recruiting, onboarding, and training). The core of the guide is a five-step career progression ladder that advisors can use as a model, where the tiers are: Analyst (entry-level position where the individual learns about the financial planning process and begins their careers); Associate Advisor (drafting financial plans and developing analyses for presentation); Service Advisor (requiring CFP certification and focused on communicating with clients and responding to their needs); Lead Advisor (responsible for managing client relationships and developing and implementing a service methodology with clients); and Principal/Partner (also includes leadership roles and/or a heavier focus on business development). Notably, the key to developing the career path and its track is not merely to be able to promote employees themselves, but to more clearly document and explain what the upside path is for the (new, next-generation) financial advisor in the first place, so they have goals to aspire towards and a clear(er) understanding of what it will take to achieve them (which is crucial for retention purposes).
The Importance Of Human Capital: A Founder's Perspective (David Grau Sr., FP Transitions) - One of the most dominant trends of the past 20 years has been the shift from commission-based and transactional business into a more fee-based and advice-centric approach. The significance of the shift, though, is not merely the nature of the advisor's compensation itself, though, but the way that recurring-revenue fee-based models build substantively different types of businesses, that tend to be larger as well (as the recurring revenue makes it more feasible to hire, train, and develop a larger infrastructure of staff). Accordingly, financial advisory firms have a larger need than ever to focus on recruiting and retaining talent, and more generally "human capital" takes on a much greater role within the industry. After all, ongoing market returns alone, not to mention even just a "slight" organic growth rate, can literally double the revenue of an advisory firm over the next 10 years. The key point, though, is recognizing that growing and scaling the human capital in your advisory firm is not about finding more entrepreneur types but finding the other types of people who can surround the founding entrepreneur to leverage their time and abilities and help to grow and scale the business. Which in turn necessitates mastering what Grau calls "The 3 R's" of Recruiting, Retaining, and Rewarding the best talent. In fact, Grau suggests that recruiting may actually be the hardest part of all, as most advisors have little or no experience in what to look for, where to look, or how to find great young people (for which Grau suggests delegating the responsibility to someone else on your team who is closer to the role and can better evaluate the prospective match). And don't underestimate the importance of working culture and the environment as well; while that doesn't mean copying the Silicon Valley model with nap rooms and ping-pong tables, it is important to be mindful of what the business is doing to create a positive work environment. Though in the long run, Grau suggests that equity is still the key to building the strongest business model, and adequately rewarding and retaining the best next-generation talent... though it still has to be earned, and not merely given, and providing opportunities to earn equity can itself be one of the best ways to incentivize next-generation talent to really step up to learn and grow.
Are Schools Adequately Preparing Next-Gen Advisors? (Greg Iacurci, Investment News) - Notwithstanding the tremendous growth of financial planning programs across the country in recent years, with a total of 115 universities now offering financial planning baccalaureate programs, both advisors and program directors and even recent graduates themselves agree that there are still some gaps between what next-generation financial planners learn in school, and what is ultimately needed to be a successful financial advisor in practice. In fact, a recent InvestmentNews poll found that a whopping 78% of advisors think young hires from university programs are only "somewhat prepared" for the job (with just 12% saying they're very prepared). Notably, though, financial planning degree programs themselves are still relatively "young," with the first formal programs launching in 1987 after the CFP Board was spun off from the College for Financial Planning (as compared to the first law school at the College of William and Mary that started 240 years ago, or the first medical school at the University of Pennsylvania that's more than 250 years old now!). And many of the undergraduate degree programs teaching CFP certification still only cover the "bare-bones" required topic list and don't necessarily delve deeper into technology software or client relationship management and communication skills. On the other hand, while some graduates may need more on-the-job training, recent graduates are succeeding as new advisors coming from a wide range of schools (with more or less deep financial planning programs), suggesting that at least some of the burden may simply be on advisory firms themselves to better develop their new advisors once they do join the firm. Still, though, many CFP programs are trying to beef up as well; for instance, Virginia Tech now requires students to pass a client relationship management course, and Texas Tech requires two (in counseling and in communication skills); many schools are also teaching students to use financial planning software programs like MoneyGuidePro and eMoney Advisor before they graduate as well, so they can enter the workforce and their advisory firms with more readily usable skills. And in fact, the recent Investment News poll found that technology is an area where schools are deemed to be best preparing students (just ahead of investment and retirement planning).
Time Allocations And Self-Reported Happiness Of Retirees (Tao Guo, Yuanshan Cheng, Philip Gibson, & Louis Pantuosco, Journal of Financial Planning) - When it comes to happiness and well-being in retirement, having enough money to retire may help, but it turns out not to be a primary driver of happiness in retirement. Instead, retiree satisfaction is much more driven by what retirees actually do with their time in retirement. Accordingly, the authors of this study leverage the data in the University of Michigan's national Health and Retirement Study (HRS) to evaluate what retirees actually do with their time, and their well-being in retirement. Activities were broadly divided into two groups, including "passive" activities (e.g., staying at home and watching television) versus more "active" activities (e.g., socializing, walking, exercising, working, volunteering). Of the roughly 11 hours of daily time outside of sleeping and "essential" daily activities (e.g., eating, housekeeping, dressing, etc.), the researchers found an average of 3.05 hours watching television and 2.81 hours staying at home alone... which were actually the activities least associated with happiness. By contrast, retirees spend an average of 1.68 hours socializing, and 0.66 hours walking or exercising, which were found to be the highest and second-highest happiness activities, respectively. More generally, the results found that retirees spending more time on "passive" activities tended to be less happy than those engaged in "active" activities. Which in turn is important because the researchers also found that passive activities increased, and active activities decreased, as retirees themselves aged (and ostensibly became less mobile and able). Accordingly, the researchers suggested that as retirees age, it actually becomes exponentially more important for them to try to figure out how to remain social and engaged. Though notably, the researchers also found that, at least currently, retirees aren't very good at using their resources to do so, as there was virtually no relationship between retiree wealth and the activities they engaged in, beyond a connection that those with greater affluence did tend to spend less time watching television... implying a significant opportunity for financial advisors to try to help guide their clients towards leveraging their income and assets in ways that can help them maximize the activities most likely to actually make them happier and more satisfied in retirement. (Especially in late retirement.)
The Trick To Keeping Friends As We Get Older (Diane Cole, Wall Street Journal) - More and more recent research is finding that our friends and social interactions are essential to our medical, psychological, and social well-being as we age. Which is a challenge for retirees, in particular, as they age, as everything from reduced mobility to the outright death of friends can shrink our social circles and opportunities to engage with them. In turn, this makes it all the more important to figure out how to create opportunities and structure to be more engaged with friends and socialize as we get older. Some tips include: create "containers" of time that are dedicated towards opportunities for getting together (e.g., a set time, three times a work, to go to the gym and work out, or a dedicated lunch on the third Thursday of the month with a group of friends that is a standing commitment); be prepared for the possibility that friendships may fall by the wayside over time, but that it's OK to then try to re-engage with those friends (i.e., be flexible, and be ready and able to forgive in order to patch up a prior friendship that has fallen by the wayside); be prepared to "re-pot" a relationship (like re-potting a plant in gardening), where the context of the relationship must be changed in order for it to sustain (e.g., a "work friend" is no longer a work friend after retiring from work, and may need to become a golfing buddy or a fellow photography enthusiast instead); or try to focus into areas where you can gather around common interests, from engaging in a religious community (e.g., church or synagogue), or around a hobby that has a wide range of engaged people (e.g., fellow musicians). On the other hand, one of the benefits of getting older is also getting more comfortable in pruning friendship that are no longer fulfilling, and our ability to better focus our time on the relationships that bring us the most joy may actually be why our general sense of well-being tends to rise once we're over age 50.
The Four Transitions Of Aging (Steve Gresham, Financial Advisor) - Aging and getting older can be "a mean Rubik's Cube, in which several different sides of your life are turning simultaneously." As while good genes increase longevity, they can also increase the cost of living and duration of retirement. Married couples often find support with one another, but spouses typically don't age equally well, and one can become a burden to the other. Relatives themselves can be a godsend or become additional/unexpected dependents. From the financial advisor's perspective, the significance of these challenges is that it gives us opportunities to provide value to clients, tied to the four typical transitions that occur as we age, including: Health Care (not just setting advance medical directives and health care powers of attorney, but more broadly helping the whole family understand the kinds of health care and medical preferences of clients, and whether/how they want to be cared for if/when/as their health deteriorates); Financial Decisions (as cognitive skill peaks at age 53, but retirees are generally in their 60s, 70s, and 80s, where cognitive skills may be declining, which in turn can be exacerbated by elderly cognitive disorders, raising series questions about what the plan is to interact with and support clients in their later years); Living and Lifestyle (as retirees go from an active to semi-active to relatively inactive lifestyle, which in turn can drive a need for changes in everything from social support to outright living space environment); and Transportation (as "giving up the car keys" and the independence they provide can be one of the hardest things for elderly clients to give up, even as continuing to drive when it's no longer safe can pose significant danger both to the elderly client themselves, and those around him/her as well). The key point, though, is simply to recognize that as we age, we lose various "abilities" that we can no longer do (independently, or at all), and each of those transitions present significant challenges... but ones that can, at least to some extent, be planned and prepared for so the transition is a little easier when it actually happens.
I Moved To Australia And Found Work-Life Balance (Kevin Mahoney, Fatherly) - The rise of technology, especially smartphones, means we're virtually always plugged in these days, and idle time is rarely actually "idle" anymore... instead, we just reach for our smartphones to read email, watch a video, or otherwise entertain us. Recently, though, Mahoney took an extended work trip to Australia, only to discover that for parts of his trip, he had no cellular or WiFi service. Yet after the initial shock of occasionally being "off the grid" wore off, Mahoney instead treated it as an opportunity to try to focus his time online into more concentrated bursts (when he did have internet access), rather than continuously checking in. The shift was further expedited by the difference in Australian culture, where it is not typical for coffee shops to offer WiFi, lunch with colleagues is standard practice, and work expectations generally don't include evenings and weekends, to begin with. And Mahoney found the experience more liberating; rather than trying to view his day through the filter of a future social media post, even instances where he took a picture with his family to capture a memory simply meant pulling out the phone/camera, taking the picture, and then putting the phone away and just enjoying the experience (since he didn't have internet access at the time to post it anyway). In turn, his reflexive habit to check email as a "productive" use of the occasional downtime disappeared, and instead, he simply focused more on staying in the moment. Reflecting back, though, Mahoney notes that the biggest challenge is simply that we've become so addicted to our phones in the first place, that sometimes it takes a major change - like moving halfway around the world to a country with more limited internet access - to actually find the motivation and focus to make the change in the first place.
Why This CEO Pays Employees Up To $750 To Unplug On Vacation (Robert Glazer, Fast Company) - The average full-time employee works 47 hours per week, up 7.8% from the 1970s, and 52% don't use their annual allotment of vacation days; perhaps not surprisingly, American workers also report higher levels of stress than they used to. Accordingly, Glazer's company not only encourages employees to take a vacation, but actually gives them a $750 bonus if they stay offline during the vacation, and do not respond to any emails or Slack messages. After all, athletes have long recognized the effectiveness of interval training - intense periods of work, followed by periods of rest - and how essential the "rest" part of the training process is. Yet the point is often lost in the work environment... despite the fact that one Harvard Business Review study found that employees who took more than 11 vacation days per year had a 30% higher chance of earning a raise or promotion. In other words, high performers both get their work done in less time (interval bursts), but then also are better at taking the time to recharge (before the next burst). Another study from the Society of Human Resource Managers (SHRM) found that taking vacation time also alleviates burnout. Still, though, employees often avoid taking a full vacation, for fear of leaving colleagues stranded - that either crucial projects will go off track, or that the team will feel overwhelmed without them. But the truth is that if the team is strong in the first place, it should always be feasible to function for a week or two even without a key team member (and in truth, not vacationing is often just about trying to retain too much control and not learning to delegate). Still, though, as a good employee and team player, it's often hard not to think about the team left behind, and what they're working on. Which is why Glazer instituted the policy last year of offering bonuses for not checking in on vacation. Because it's not only good for employees and their own health, but it teaches the entire team to do what it takes to step up in another team member's absence.
Digital Minimalism: How To Simplify Your Online Life (Dan Silvestre, Medium) - The iPhone came out only a little over a decade ago, but it seems like ages since our phones had a physical keyboard and all we did was occasionally text with them. Now, as smartphones get even more capable, our usage has doubled in just the last 3 years alone, and the average person spends almost 3 hours per day on mobile (half of which is on "leisure" activities). Accordingly, a counter-movement is starting to develop - the approach of "minimalism," which isn't about self-denial, but simply "living with intention" and making room for what you really enjoy (and eliminating everything else that distracts from them). Or stated more simply, "less is more," and sometimes the best way to add more value in our lives is to think about what you can remove (not what you can add). In the digital context, author Cal Newport recently published a book entitled "Digital Minimalism," which explores applying the same concepts in a digital context (focusing on what digital communication tools really do add the most value, and then aggressively clearing away the low-value noise). Practical tips to engaging in (more) digital minimalism include: when it comes to the desktop computer, clean up the desktop itself (remove/uninstall unnecessary files and programs), choose a clean wallpaper that isn't distracting, and work in full-screen mode to block out distractions); clean up your files and all the "junk" that tends to accumulate and distract us (delete what you don't really need, upload the rest to the cloud to get it out of mind/sight, consolidate into fewer folders); clean up your phone but removing all the apps you don't really use anymore, then remove your social media apps (yes, really!), simplify your homescreen down to just the few apps you really use (and want to use) so you're not tempted by the rest, remove most/all of your notifications, and set Do Not Disturb settings to further reduce distractions; be aggressive in managing email (again turn off notifications because your emails aren't really that important, block out time you will not use email to focus in other areas, and unsubscribe to what you don't really need to get/see); and when it comes to the internet overall, known your biggest time wasters (or use Time Tracking software to figure it out) and then eliminate them, eliminate more of the social media you don't really use (or need to use), eliminate the Bookmark Bar (to reduce the temptation to "check in" to too many sites), and outright block yourself from websites that you don't really need to hang out on any more. The key point, though, is that minimalism is simply about eliminating more of the noise so you can be focused in the areas that are actually most meaningful... and remember that your (digital) life will inevitably clutter up again over time, so you may need to revisit the process periodically as well!
I hope you enjoyed the reading! Please leave a comment below to share your thoughts, or make a suggestion of any articles you think I should highlight in a future column!
In the meantime, if you're interested in more news and information regarding advisor technology, I'd highly recommend checking out Bill Winterberg's "FPPad" blog on technology for advisors as well.
Wow. The CFP Board’s Guide for Better Hiring, Employee Retention looks like a great tool for employers (hoping they actually take a look at it) and also for employees to propose career paths and negotiate salaries. Great stuff.